November 20, 2018 Practice Points

The Eleventh Circuit Clarifies Rule 23’s Notice Requirements for Approval of Class Settlements

The takeaway from this decision is straightforward and simple: When planning out the process for moving to approve a class-action settlement agreement, the motion for fees must be submitted before the deadline for class members to object.

By James W. Cobb

In Muransky v. Godiva Chocolatier, Inc., 905 F.3d 1200 (11th Cir. 2018), the U.S. Court of Appeals for the Eleventh Circuit considered a number of issues arising from the settlement of a class action brought under the Fair and Accurate Credit Transactions Act (FACTA), including the adequacy of notice delivered to class members about class counsel’s application for attorney fees and for an incentive award to the class representative. In an issue of first impression in the Eleventh Circuit, the court held that under Federal Rule of Civil Procedure 23, class members are entitled to receive notice of the motion for fees and an incentive award, as well as an opportunity to object; it is not enough that class members just receive notice that class counsel intends to file a motion for fees in the future.

In Muransky, the plaintiff filed a class action against Godiva, the chocolate retailer, alleging that when he purchased items from a Godiva store, Godiva “gave him a receipt that showed his credit card number’s first six and last four digits.” Id. at 1204. Among other things, FACTA “prohibits merchants from printing ‘more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.’” Id. (quoting 15 U.S.C. § 1681c(g)(1)). The Muransky plaintiff sought to represent a class of individuals who had received similar receipts from Godiva.

Soon after filing the case, the parties participated in a mediation, eventually agreeing to a settlement. In early 2016, the plaintiff filed a motion for preliminary approval of the settlement, presenting the following terms to the court:

  • Godiva would create a $6.3 million settlement fund from which attorney fees, litigation expenses, the class representative, and the class members would be paid;
  • class counsel would receive a one-third contingency fee of $2.1 million;
  • the named plaintiff would be appointed class representative and would receive an incentive award of $10,000; and
  •  after payment of fees, expenses, and the incentive award, each class member would receive approximately $235 as his or her pro rata share of the settlement fund.

The district court granted the plaintiff’s motion for preliminary approval and ordered that notice of the settlement agreement—including notice of class counsel’s intent to seek a contingency fee and an incentive award—be delivered to the class members. Ultimately, 318,000 class members received notice; 47,000 class members submitted a claim form; 15 class members opted out of the settlement; and five class members objected to the settlement. Two of those objections—both of which objected to the $2.1 million contingency fee and the $10,000 incentive award—were the subject of the Muransky appeal.

The issue before the Eleventh Circuit was ultimately one of timing—that is, whether the class members received adequate notice of class counsel’s request for fees and for an incentive award, where the motion for fees and the incentive award was filed after objections to the settlement were due. Here is the timeline of relevant events:

  • January 2016: The plaintiff moved for preliminary approval of the settlement agreement. This motion explained the terms of the settlement agreement and stated that the plaintiff “intended to apply for an incentive award of up to $10,000 and that class counsel would move for an award of attorney’s fees of up to one-third of the settlement fund . . . .” Id. at 1205. The district court granted this motion, and notice of the settlement was sent to class members.
  • August 23, 2016: Deadline for class members to submit claims, object to the settlement, or opt out. The objections were filed by this date—approximately two weeks before the named plaintiff and class counsel filed their motion for attorney fees and the incentive payment.
  • September 7, 2016: The plaintiff filed two motions: (i) a motion for final approval of the settlement agreement; and (ii) a motion for approval of class counsel’s contingency fee and the $10,000 incentive award.
  • September 11, 2016: A federal magistrate judge issued a report-and-recommendation on the motion for attorney fees, “before the objectors filed opposition briefs” to the fee motion. Nevertheless, the magistrate considered the objectors’ previously filed Objections.
  • September 21, 2016: The district court held a fairness hearing, at which counsel for the objectors appeared and argued in opposition to the contingency fee and the incentive award.

Following the September 21 fairness hearing, the district court granted the motions for final approval of the settlement agreement and for the $2.1 million contingency fee and $10,000 incentive award.

The objectors then appealed, and in Muransky, the Eleventh Circuit affirmed—holding that although the district court erred by not requiring the motion for attorney fees and an incentive payment to be filed before the deadline to object, the error was harmless because the district court nevertheless considered the objections.

When a class action is settled, the district court must review any contingency fee to be paid to class counsel, as well as any incentive award to be paid to the class representative. Under Federal Rule of Civil Procedure 23(h)(1), “[n]otice of the motion [for fees] shall be served on all parties and, for motions by class counsel, directed to class members in a reasonable manner.” Muransky involved the question of whether the general notice of the class action that had been delivered to all class members—which informed the class that class counsel would request a contingency fee and incentive award but which also preceded the motion for attorneys’ fees by months—provided sufficient “[n]otice of the motion” for fees. Fed. R. Civ. P. 23(h)(1). On appeal, the two objectors argued that Rule 23 requires class members to be given an opportunity to review the motion for fees itself before deciding whether to object. And the Eleventh Circuit agreed.

Before Muransky, the Eleventh Circuit had not considered this issue, but at least two other circuit courts had: the Seventh and Ninth Circuits. See Redman v. RadioShack Corp., 768 F.3d 622 (7th Cir. 2014); In re Mercury Interactive Corp. Securities Litig. 618 F.3d 988, 993-94 (9th Cir. 2010). Both of those courts reasoned that filing a motion for attorney’s fees after the deadline to object to a class settlement deprives class members “of an adequate opportunity to object to the motion itself . . . .” Mercury Interactive Corp., 618 F.3d at 994. Rule 23(h), those courts reasoned, requires that class members be given an opportunity “to object to the fee ‘motion’ itself, not merely to the preliminary notice that such a motion will be filed.” Id. at 994. The Eleventh Circuit adopted this reasoning:

The Ninth Circuit’s holding in Mercury was that ‘class members were deprived of an adequate opportunity to object to the motion itself because, by the time they were served with the motion, the time within which they were required to file their objections had already expired.’ That same sequence—objection deadline before a filed motion for attorney’s fees—was what happened here. As in Mercury, this schedule deprived class members of ‘an opportunity to object to the fee motion itself’ because they had to file objections before the motion was even filed. As a result, this process violated Rule 23(h).

Muransky, 905 F.3d at 1215.

Notwithstanding this holding, the Eleventh Circuit still affirmed the district court’s order granting the motion for fees and an incentive award. The court concluded that the district court’s error was harmless, as evidenced by the fact that four class members objected, and two of the four made detailed arguments in opposition to the request for fees and a service award. On the record before the court of appeals, there was “no reason to think other unnamed class members would have made arguments besides those made by” the two objectors. “Class members were not therefore prejudiced by the objection schedule established by the District Court.” Id. at 1216.

The takeaway from this decision is straightforward and simple—yet very important for class counsel. When planning out the process for moving to approve a class-action settlement agreement—including seeking approval of attorney fees—the motion for fees (and, if applicable, an incentive award) must be submitted before the deadline for class members to object. Not filing the motion for fees sufficiently early risks upending the entire settlement, as well as class counsel’s efforts to get paid.
 

James Cobb is a founding partner of Caplan Cobb LLP in Atlanta, Georgia.


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