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Don Frederico

This author Don Frederico has created 19 entries.

Not To Decide Is To Decide: The 11th Circuit And Incentive Payments

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It’s been almost two years since a divided panel of the Eleventh Circuit held that incentive payments (a/k/a service awards) in class action settlements are unlawful, a startling and controversial result given the ubiquity of such provisions and the majority’s reliance on 19th century Supreme Court precedents that had nothing to do with class actions. Since then, no other circuits have followed the Eleventh Circuit’s approach, and some have continued to uphold the previously uncontroversial terms.

In this blog, I reported on the surprising decision, and on one of the subsequent federal appellate decisions that went the other way, here and here. Personally, I had expected the court to accept en banc review and reverse the panel’s outlier of a decision. Yet the court surprised me a second time by denying en banc review, thereby allowing the decision to stand. While there is not much to see in the denial order, the strong dissenting opinion

Settlement Structures, Residual Funds, Attorneys’ Fees, and Reverters: Part I

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Class action settlements can be structured in a variety of ways. Many include a common fund, consisting of an agreed-to amount the defendant deposits into a Qualified Settlement Fund, or “QSF,” a tax vehicle that facilitates settlements. Some settlements require the funds to be deposited after the trial court orders preliminary approval of the settlement, while others require that the deposit be made after final approval. The common fund often is a comprehensive amount that includes the funds that will be distributed to class members, as well as amounts for service awards to named plaintiffs, court-approved attorneys’ fees, and expenses that have been and/or will be advanced by class counsel to support the litigation and settlement administration. In other settlements, the common fund includes only those amounts that will be distributed to class members, with the defendant agreeing to pay the other items separately once the court decides how much it will approve and directs the defendant to pay the approved amounts.

Other variations exist both

Coupons, Clear Sailing, and Reverters: Another Settlement Bites the Dust in the 9th Circuit

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In another of what seems like a string of decisions reversing district court approvals of class action settlements, the 9th Circuit, applying a three-factor test, held that vouchers offered as consideration to class members were coupons within the meaning of the Class Action Fairness Act, and that any award of attorneys’ fees must be based on the redeemed value rather than the face value of the vouchers. In McKinney-Drobnis v. Massage Envy Franchising, LLC, the court also characterized a provision allowing a defendant to retain excess amounts it had been willing to pay for attorneys’ fees as a disfavored “kicker” or “reverter,” a characterization that is consistent with 9th Circuit precedent but that may be inconsistent with how those terms are understood in other venues. Co-host Adam Polk and I discuss the court’s decision in a new episode of the American Bar Association’s “Common Questions” podcast, which can be found here.

9th Circuit Overturns Tinder Dating App Class Action Settlement

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Federal Rule of Civil Procedure 23(e)(2) requires courts to subject proposed class action settlements to scrutiny to ensure that they are fair, reasonable, and adequate. In some recent decisions, the Ninth Circuit has reversed district court approvals of class action settlements, finding that the district courts did not sufficiently exercise that function. I had the privilege of discussing two of these cases and their practical significance for class action lawyers with Adam Polk, co-chair of the American Bar Association’s Class Actions and Derivative Suits Committee, in the committee’s “Common Questions” podcast. Our first conversation concerned the case of Kim v. Allison and a proposed settlement concerning the Tinder dating app. Our second conversation, which has not yet been published, concerned an even more recent decision involving a franchisor of massage services. A link to our conversation in the Tinder case can be found here.

Class Action Settlements and the Duty of Candor Toward the Tribunal

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I have written before about one of the peculiar characteristics of a class action settlement; namely, that once a class action settlement is reached, the interests of the named plaintiffs and the defendant in obtaining settlement approval are aligned, which makes the court’s role as fiduciary to the members of the class all the more important. That lack of adversity is present in class counsel’s fee petition as well. A defendant is generally indifferent to the amount of fees to be awarded to class counsel, because the fee award often represents nothing more than an amount to be allocated to class counsel out of a larger sum that the defendant has already agreed to pay. Class members, on the other hand, often have a real stake in the amount of the fee award, because the larger the attorneys’ slice of the settlement pie, the less pie remains for distribution to the class. At the time the fee petition is presented, therefore, class counsels’ interests conflict with

Cutting to the Chase: The Relief, the Release, and the Rest.

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Class action settlements are complicated affairs. They can take months or even years to negotiate, followed by months to send notice and obtain trial court approval, and months or years longer if an approval order is appealed. The agreements memorializing class action settlements are often dozens of pages long or longer. They sometimes involve claims processes run by third-party vendors who are hired to manage years of complex data. Objections can require extensive briefing and at times result in evidentiary hearings. Between the attorneys’ fees incurred in the settlement process as well as costs of administration, class action settlements often result in expenditures of hundreds of thousands of dollars if not more.

So why do parties and their lawyers on both sides subject themselves to such a burdensome, time-consuming and expensive process? When you cut through all the posturing and all of the carefully crafted details of the written agreement and court submissions, what are the core terms at the heart of the settlement?

Every

A Circuit Split on Incentive Awards

A few months ago, I posted about a surprising decision of a divided panel of the Eleventh Circuit which held that incentive awards (a/k/a “service awards”) in class action settlements are prohibited by arguably analogous Supreme Court decisions from the 1880s. While we wait to see whether the Eleventh Circuit will grant a pending petition for rehearing en banc in Johnson v. NPAS Solutions, LLC, we should take note of a per curiam decision of the Sixth Circuit reaching a different result. In Shane Group Inc. v. Blue Cross Blue Shield of Michigan, 2021 WL 129067 (6th Cir., Jan. 14, 2021), the court rejected an objection to service awards to be paid to certain named plaintiffs, holding that they did not amount to an unlawful “bounty.” The Sixth Circuit thus implicitly rejected the reasoning of its sister court. In upholding the service awards, it held, “[o]n this record, . . . those payments correlate to the

A Little Good News

As I hope my readers know, I write this blog to share insights and new developments concerning class action settlements and mediation with those who are engaged in, or thinking of embarking on, those paths. My goals are to help readers experienced in these areas to stay informed of important decisions and trends, and to demystify the class action settlement and mediation processes for those who are new to them.

Although it was never my goal to be considered for an award, I was pleasantly surprised to learn recently that the National Law Review has included me among this year’s recipients of its annual Go-To Thought Leadership Awards in the area of “Litigation: Class Action Mediation,” largely for my posts to this blog. The recognition (along with my innate interest in the area) will certainly keep me motivated to continue sharing my thoughts and legal updates on these pages. More information about the National Law Review’s awards can be found here.

Are Incentive Payments the New Fly in the Ointment?

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For years, class action settlements typically have included incentive payments to named plaintiffs. The payments usually represent a very small percentage of the overall settlement payout, and are designed to compensate named plaintiffs for their time and trouble in service to the class. By way of a simple hypothetical, a million dollar settlement might include an incentive payment of $5,000 to a named plaintiff, in addition to that person’s share of the payment to the class. Class counsel invariably request incentive payments as a component of the overall settlement, defendants generally agree to them, class members rarely object to them, and courts typically approve them. Because incentive awards tend to be such a small percentage of the settlement,  usually dwarfed by the fees and costs class counsel request, the settling parties and the court spend very little time on them. After all, the thinking goes, named plaintiffs did have to do some work in representing the class, so it is only fair that they get compensated.

Unless,

The Seventh Circuit Clears a Roadblock to Settlement

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As I have discussed in earlier posts, there are multiple stakeholders to class action settlements, including named plaintiffs, absent class members, class counsel, defendants, and the courts. Conflicts can arise within some of these groups, and perhaps most often arise among the class members themselves. A settlement that looks good to one named plaintiff or their counsel, for example, might not look good to another member of the class or their counsel. The ability of dissenting class members to object to a proposed settlement is one safeguard that can assist a court in determining whether a class action settlement satisfies Rule 23(e)(2)’s “fair, reasonable, and adequate” standard.

When an objection is brought in good faith and has merit, it can result in a better deal for the class. Unfortunately, not all objections are made in good faith. Rather, some are made with the sole objective of enriching the objector and the objector’s counsel, with no accompanying benefit to the settlement class. And often parties and their