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    February 25, 2016 Practice Points

    MA District Court Discounts Ninth Circuit's Approach to Coupon Settlements

    Just what is a “coupon” that would trigger CAFA’s stringent provisions?

    by Ashley Trehan

    The Class Action Fairness Act of 2005 (CAFA) made sweeping changes to federal class action law, particularly with respect to “coupon settlements.” But just what is a “coupon” that would trigger CAFA’s stringent provisions? The Honorable William G. Young of the United States District Court for the District of Massachusetts recently answered that question (and others), taking his cues from the Seventh Circuit and eschewing competing standards out of the Ninth Circuit. See Tyler v. Michaels Stores, Inc., No. 11-cv-10920, 2015 WL 8484421 (D. Mass. Dec. 9, 2015).

    Background

    In Tyler, consumers sued Michaels—a national craft-supply store—for unjust enrichment and violations of the Massachusetts Unfair Trade Practices Act. Tyler, 2015 WL 8484421 at *2. The challenged practice was the stores’ collection of customers’ zip codes and addresses during credit card transactions. Id.

    In a previous order, the district court held that the case presented an issue of first impression that should be certified to the Massachusetts Supreme Judicial Court. Subsequently, in Tyler v. Michaels Stores, Inc., 464 Mass. 492, 506 (Mass. 2013), the Massachusetts high court answered those questions in the plaintiff’s favor.

    Following the state court’s pronouncements, the district court reopened the case, and the parties settled. The settlement created two subclasses, members of which would receive either a $10 or $25 voucher to Michaels. The total nominal face value of the vouchers issued was approximately $418,000, and the total value actually redeemed was $138,620. Tyler, 2015 WL 8484421 at *1.

    The Court’s Analysis

    The remaining issue was the class counsel’s requested attorneys’ fees and costs in the amount of $425,000. Michaels did not contest class counsel’s request. Nonetheless, under Rule 23, a district court can approve a class settlement only if it is “fair, reasonable, and adequate.” Id. at *4. Thus, the court was required to examine the settlement.

    Coupon or not? A pivotal choice-of-law question. Class counsel contended that the vouchers were not coupons and, consequently, that Massachusetts law and not CAFA applied—understandably due to the more onerous restrictions on settlements that award coupons to class members. The court’s first step was to look to CAFA’s text, but CAFA does not define a “coupon settlement.” Id. at *4. Moreover, the First Circuit has not addressed the issue.

    Looking to other circuits, then, the court noted a circuit split between the Seventh and Ninth Circuits. The Ninth Circuit generally defines “coupons” as items that do not require consumers to spend their own money—gift cards, for example, are not coupons. Id. at *4–*5 (citing In re Online DVD-Rental Antitrust Litig., 779 F.3d 934, 950 (9th Cir. 2015)).

    The Massachusetts court was ultimately persuaded by the Seventh Circuit’s interpretation of “coupon” which is essentially anything to be redeemed even if one does not have to spend his or her own money. Tyler, 2015 WL 8484421 at *5 (citing Redman v. RadioShack Corp., 768 F.3d 622, 635–36 (7th Cir. 2014) (Posner, J.)). “In other words, coupons must be redeemed; conversely, if an award must be redeemed, it is a coupon.” Tyler, 2015 WL 8484421 at *5. Therefore, CAFA applied and preempted Massachusetts law regarding class settlements.

    Construing CAFA’s attorney-fee provisions. Having settled the coupon conundrum, the court turned to the amount of attorney fees under CAFA’s 28 U.S.C. § 1712. Again noting a conflict between the Ninth and Seventh Circuits, the Massachusetts district court ultimately adopted the Seventh Circuit’s analysis of attorneys’ fees in coupon settlements:

    Subsection (a) prohibits basing a percentage-of-recovery fee on the face value of all coupons made available. Subsection (b) says that lodestar is the only permissible alternative to percentage-of-coupons used. And subsection (c) allows, though does not require, a blend of the two methods when a coupon settlement also provides some equitable or cash relief.

    Id. at *10 (citing In re Sw. Airlines Voucher Litig., 799 F.3d 701, 707 (7th Cir. 2015)).

    The court was then faced with applying a percentage-of-recovery method, which would result in a substantial reduction of fees from what class counsel requested or a lodestar method of the type requested by class counsel. Because class counsel advanced the policy goals of Massachusetts’s unfair trade practices act, and because class counsel obtained binding precedent from the Massachusetts Supreme Judicial Court that will influence conduct beyond this case, the court applied the lodestar method. However, the court reduced the hourly rate for the partners, resulting in a lodestar of $312,895 in attorney fees.

    Looking Forward

    The Seventh Circuit and at least one court in the First Circuit have made clear that “coupon” includes more than a mere discount and does not require a consumer to spend his or her own money. But there is undoubtedly a “coupon conflict” firmly entrenched among the circuits, one that in all likelihood could be resolved only by our highest court.

    Ashley Trehan is with Buchanan Ingersoll & Rooney in Tampa, Florida.

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