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Tyler v. Michaels Stores, Inc.

United States District Court, D. Massachusetts

December 9, 2015

MELISSA TYLER, on behalf of herself and all others similarly situated, Plaintiff,

          For Susan D'Esposito, on behalf of herself and all others similarly situated, Consolidated Plaintiff: David J. Fine, LEAD ATTORNEY, Rubin, Hay & Gould, P.C., Framingham, MA; Jeffrey I. Carton, LEAD ATTORNEY, PRO HAC VICE, Denlea & Carton LLP, White Plains, NY; Robert J. Berg, PRO HAC VICE, Denlea & Carton LLP, White Plains, NY.

         For Melissa Tyler, on behalf of herself and all others similary situtated, Plaintiff: Jeffrey I. Carton, LEAD ATTORNEY, PRO HAC VICE, Denlea & Carton LLP, White Plains, NY; Todd S. Garber, LEAD ATTORNEY, Finkelstein, Blankinship, Frei-Pearson & Garber, LLP, White Plains, NY; D. Greg Blankinship, Meiselman, Denlea, Packman, Carton & Ebertz, P.C., White Plains, NY; Patrick J. Sheehan, Whatley Drake & Kallas, Boston, MA.

         For Michaels Stores, Inc., Defendant: Michael J. Burns, LEAD ATTORNEY, PRO HAC VICE, Seyfarth Shaw, LLP, San Francisco, CA; Erik W. Weibust, Katherine E. Perrelli, Seyfarth Shaw, LLP, Boston, MA.

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         This Court -- with a specific exception -- approved a settlement agreement of this class action. See Elec. Clerk's Notes 5/21/2014, ECF No. 81; Final Approval Order, ECF No. 89. Thus the Court, consistent with Federal Rule of Civil Procedure 23(e)(2), has already determined that the settlement agreement is not collusive and is fair, adequate, and reasonable to the class of consumer-plaintiffs. There was a sticking point, however, preventing the Court's complete approval of the settlement agreement: class counsel's[1] agreed-to request for attorneys' fees and costs in the amount of $425,000. See Uncontested Mot. Final Approval Proposed Settlement and Award Att'ys' Fees and Costs (" Pls.' Mot." ), ECF No. 74; Pls.' Mem. Law Supp. Uncontested Mot. Att'ys' Fees and Costs (" Pls.' Mem." ), ECF No. 76. The Court now turns to that issue.

         Class counsel urges this Court to apply Massachusetts law when deciding whether

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its proffered fees are reasonable. See Pls.' Mem. 2-3 (discussing Mass. Gen. Laws ch. 93A, § 9(4)). It notes that federal law governs the question of attorneys' fees only if the settlement is one involving " coupons." See id. at 15-18. This one, it asserts, does not. See id.

         Asking the Court for an award of attorneys' fees of $410,994.70, class counsel emphasizes the complexity of the suit and notes that it obtained a " landmark, first-impression ruling" in the Supreme Judicial Court of Massachusetts, and subsequently negotiated a successful settlement on behalf of the Plaintiff class. Id. at 1-2. This settlement consisted of $10 and $25 vouchers to Michaels, Inc. (" Michaels" ), mailed to class members, with a combined nominal face value of $418,000. Id. at 2. The value of the vouchers actually redeemed by class members was $138,620.00. Decl. Jane Perelman Redemption Vouchers Distributed Settlement Class Members (" Perelman Decl." ) ¶ 6,[2] ECF No. 87. Class counsel further points out that the requested amount, based on the lodestar calculation, is only 71% of its actual rates, and that its proposed amount is uncontested by the defendant Michaels. See id.

         While the Court agrees with some of class counsel's assertions -- class counsel did obtain an important precedent -- the Court largely disagrees with class counsel's legal arguments (and certain of its factual arguments as well). Attempting to clarify a tricky area of law, the Court holds as matter of law that because the award to class members consists of non-cash vouchers that have no value to class members unless they transact additional business with Michaels, the award is in the form of " coupons." Thus federal law, specifically the Class Action Fairness Act of 2005 (" CAFA" ), Pub. L. No. 109-2, 119 Stat. 4, controls the Court's award of reasonable attorneys' fees. The Court further holds that CAFA precludes a percentage-of-recovery award[3] to counsel based on the face value of the coupons awarded to class members, but allows the Court discretion to grant either a percentage-of-recovery award based on the percentage of coupons redeemed by class members or an award based on a lodestar calculation.


         The Plaintiffs brought this class action lawsuit against Michaels for unjust enrichment and violations of the Massachusetts Unfair Trade Practices Act, Mass. Gen. Laws ch. 93, § 105(a). Compl. ¶ ¶ 1-2, 18, ECF No. 1. Specifically, the Plaintiff class claimed that Michaels' practice of collecting customers' zip codes and addresses during credit card transactions to serve its own interests (i.e., when the banks did not require such data), was unlawful. See id. ¶ ¶ 1-2. After Michaels moved to dismiss, Def.'s Mot. Dismiss, ECF No. 9, a hearing was held, Elec. Clerk's Notes 10/20/2011, and this Court, while granting Michaels' motion, delayed entering a judgment of dismissal for a week's time, observing that, since this case presented an issue of first impression, it would be appropriate for the parties to request that the Court certify legal questions to the Massachusetts Supreme Judicial Court, Mem. Order 29-30 n.10, ECF No. 21. Thus, the Plaintiffs filed

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a motion for an order to certify certain legal questions, Mot. Order Certify Legal Questions, ECF No. 22, which Michaels opposed, Def.'s Opp'n Pls.' Mot. Certify Legal Questions, ECF No. 23.

         This Court granted the Plaintiffs' motion, Order Certification, ECF No. 27, and administratively closed the case, Order Administrative Closure, ECF No. 28. In March 2013, the Supreme Judicial Court of Massachusetts issued a ruling, Tyler v. Michaels Stores, Inc., 464 Mass. 492, 984 N.E.2d 737 (2013) which held specifically:

[T]hat a zip code constitutes personal identification information for the purposes of [Mass. Gen. Laws chapter 93, section 105(a),] . . . that a plaintiff may bring an action for violation . . . absent identity fraud . . . [and] that the term " credit card transaction form" . . . refers equally to electronic and paper transaction forms.

Id. at 506.[4]

         The parties then returned to this Court, and the case was administratively re-opened. See ECF No. 32. The crux of the allegations against Michaels was that it asked customers for their zip codes as part of credit card transactions to " 'reverse engineer' those customers' addresses using commercially available databases," and then used those addresses to carry out aggressive and unwanted marketing campaigns. Decl. Todd S. Garber Supp. Pls.' Uncontested Mot. Final Approval Class Action Settlement (" Garber Decl." ) ¶ 5, ECF No. 79. Michaels continually denied the illegality of their actions. See id. ¶ 17; Pls.' Mem. 6. After discovery and " consider[ing] [each party's] claims and defenses, [and] the potential for liability," the parties agreed to settle. Garber Decl. ¶ 19; see Pls.' Mot.

         Under the settlement, class members were separated into two subclasses: subclass one and subclass two.[5] Members of subclass one were to receive vouchers for twenty-five dollars ($25.00), and members of subclass two were to get vouchers for ten dollars ($10.00). Mot. Prelim. Class Certification, Ex. 2, Settlement Agreement & Release (" Settlement Agreement" ) § 2.2, ECF No. 64-2. These vouchers contain several restrictions on their use: they expire ninety days after they are received; class members can only " us[e them] on a single, in-store purchase in Massachusetts[,]" with " any remaining balance not used in [that] transaction . . . forfeited" (and clever class members cannot use them to buy a gift card of equivalent value); and finally, they are restricted to the physical stores and cannot be used on . Id. § 1.3.

         Class counsel maintained that there were approximately 15,000 members in subclass one, and 4,300 members in subclass two. Pls.' Mem. 1 n.1. Class counsel sought an award of attorneys' fees and costs of $425,000 (in cash, not vouchers to Michaels), which it broke down into $410,994.70 in attorneys' fees, and

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$14,005.30 in costs and expenses. Id. at 2. Michaels agreed to pay the $425,000 fee claim in addition to providing the vouchers.[6]

         At the hearing for the final approval of the settlement, this Court provisionally approved the settlement with the exception of the award of attorneys' fees. Elec. Clerk's Notes 5/21/2014, ECF No. 81; Elec. Order, ECF No. 82. This Court stated that it would withhold its determination of attorneys' fees until the vouchers had expired and it could determine the redemption rate. Elec. Clerk's Notes 5/21/2014; Pls.' Supp. Mem. Law Further Supp. Uncontested Mot. Att'ys' Fees and Costs (" Pls.' Supp. Mem." ) 3, ECF No. 88.

         The Associate General Counsel of Michaels attested that as of June 2014, vouchers had been mailed to 18,894 class members: 14,633 in subclass one, and 4,261 in subclass two. Perelman Decl. ¶ 3; Pls.' Supp. Mem. 4. The vouchers expired on September 30, 2014, by which date 5,056 $25 vouchers had been redeemed (representing a total dollar amount of $126,400), and 1,222 $10 vouchers had been redeemed (for a dollar amount of $12,220), thus bringing the total redemption amount -- in retail value of Michaels' trade goods -- to $138,620.00.[7] Perelman Decl. ¶ 6; Pls.' Supp. Mem. 4. This means that about one in three vouchers were redeemed.

         III. ANALYSIS

         Before issuing any ruling, this Court must determine the applicable law. Here, it has not received the benefits of adversarial briefing on this issue,[8] but has exercised its independent judgment, as it must when reviewing a class action settlement agreement. See In re Relafen Antitrust Litig., 360 F.Supp.2d 166, 192 (D. Mass. 2005) (" Both the United States Supreme Court and the Courts of Appeals have repeatedly emphasized the important duties and responsibilities that devolve upon a district court pursuant to Rule 23(e) prior to final adjudication and settlement of a class action suit." ) (internal citations omitted). For the reasons detailed below, the Court holds that federal law governs its determination of attorneys' fees.

         A. This Settlement Awards Coupons to Class Members.

         District courts, pursuant to Federal Rule of Civil Procedure 23, can approve

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class action settlements only if they are " 'fair, reasonable, and adequate.'" Nat'l Ass'n of Chain Drug Stores v. New England Carptenters Health Benefits Fund, 582 F.3d 30, 44 (1st Cir. 2009) (quoting Fed.R.Civ.P. 23(e)(2)). CAFA imposes additional requirements[9] on district courts evaluating certain proposed class settlements,[10] namely those that " provide[] for a recovery of coupons to a class member." 28 U.S.C. § 1712. Given that CAFA imposes more onerous restrictions on settlements that award class members coupons,[11] it is unsurprising that class counsel here argues that the vouchers the proposed settlement agreement awards to class members are not coupons for purposes of CAFA. See Pls.' Mem. 15-18. The Court disagrees with this conclusion, and holds as matter of law that these vouchers are coupons.

         In deciding what is, and what is not, a " coupon", the Court first looks to the statute's text. See, e.g., In re BankVest Capital Corp., 360 F.3d 291, 296 (1st Cir. 2004) (internal citation omitted). CAFA repeatedly references " coupons" in section 1712, but that section does not explain what the term means, and neither does CAFA's " Definitions" section. See 28 U.S.C. § 1711 (defining several terms but not " coupon" or " coupon settlement" ); In re Online DVD-Rental Antitrust Litig., 779 F.3d 934, 950 (9th Cir. 2015) (" Congress does not define the ambiguous term 'coupon' within [CAFA]" ) (internal citation omitted). The First Circuit has not addressed this what-is-a-coupon issue, so this Court looks to sister circuits for guidance. They provide incomplete guidance, however, thus the Court charts its own path.

         1. The Ninth and Seventh Circuits Differ in Their Approaches to Determining Whether a Settlement Agreement Contains Coupons.

         The Ninth Circuit and the Seventh Circuit Courts of Appeal have each published opinions in which they determine whether or not a given settlement contains " coupons." Their approaches are in tension, if not outright conflict.

         The Ninth Circuit has adopted a narrow definition of " coupon." More specifically, that court held that $12 gift cards to Walmart are not " coupon[s,]" at least where they are freely transferable, do not " require consumers to spend their own money[,]" and provide class members with " the ability to purchase one of many different types of products." In re Online DVD-Rental Antitrust Litig., 779 F.3d at 951-52. It reasoned that gift cards are distinct from coupons because Congress regulates

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gift cards separately, see id. at 952 (referencing legislation that regulates gift cards), although it noted that in an earlier case it had classified " e-credits" as " coupons," due to the fact that they could only be used to buy printers and printer supplies. Id. (citing In re HP Inkjet Printer Litig., 716 F.3d 1173, 1176 (9th Cir. 2013)). This Court understands why certain features of the WalMart gift cards are more desirable to class members than the otherwise similar " e-credits," but does not agree that those features make the gift cards any less coupon-like than the e-credits: as will be detailed later in this opinion, the key distinction driving CAFA's skepticism towards coupon payments is between coupons and cash, not between coupons and gift cards.

         The Seventh Circuit, in contrast, has adopted a broader definition of " coupon." While the Ninth Circuit held that certain gift cards are not " coupons," the Seventh Circuit held that $10 vouchers to RadioShack, although capable of being applied to Radioshack's entire product line (which includes some less-than-$10 items), are nonetheless " coupons" under CAFA. Redman v. RadioShack Corp., 768 F.3d 622, 635-36 (7th Cir. 2014) (Posner, J.), cert. denied sub nom., Nicaj v. Shoe Carnival, Inc., 135 S.Ct. 1429, 191 L.Ed.2d 366 (2015).

         Judge Posner, writing for the Seventh Circuit, rejected class counsel's proposed definition of " coupons" as restricted to certificates providing mere discounts, reasoning that neither CAFA nor common sense provides a compelling reason " for distinguishing among coupons that offer 10 percent, 50 percent, 90 percent, or 100 percent cash savings." Id. at 637. He explained that CAFA paid special attention to coupon settlements because their nominal value can be much higher than their actual economic value to class members, and thus using nominal values could lead to unreasonably large fees to class counsel. Id. at 634-35, 637 (" assessing the reasonableness of attorney's fees based on a coupon's nominal face value instead of its true economic value is no less troublesome when the coupon may be exchanged for a full product." ); see also In re HP Inkjet Printer Litig., 716 F.3d at 1179 (observing that " where class counsel is paid in cash, and the class is paid in some other way, for example, with coupons, comparing the value of the fees with the value of the recovery is substantially more difficult." ). Coupon settlements thus make it more difficult for district courts to assess the size of the benefit to the class, and more difficult to detect collusion between defendants and class counsel,[12] to the detriment of class members; this is especially so when (like in the instant case) defendants do not oppose the settlement. See Redman, 768 F.3d at 637. Judge Posner's opinion, chock full of analysis though it is, fails to supply a definition for " coupon[,]" except as it holds that a $10 voucher could be one, and that a definition premised on a coupon being merely a discount is untenable.

         2. Non-Cash Payments to Class Members Constitute Coupons for Purposes of CAFA.

         As it elsewhere calls for a detailed inquiry into the fairness, reasonableness, and adequacy of a class action settlement, see 28 U.S.C. § 1712(e) (describing judicial scrutiny required for coupon settlements), the statute's reference to a " recovery of coupons to a class member" calls for a clear definition of " coupon."

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          This Court essays such a definition: when class members must transact business with the defendant to obtain the benefit of the settlement, the settlement " provides for a recovery of coupons" under section 1712. In other words, coupons must be redeemed; conversely, if an award must be redeemed, it is a coupon. See Sarah S. Vance, A Primer on the Class Action Fairness Act of 2005, 80 Tul. L.Rev. 1617, 1632 (2006) (" CAFA does not define 'coupon,' but it apparently envisions the award of something subject to redemption." ).[13] This is consistent with various dictionaries' approach to defining " coupon" : they generally include a broad definition that requires the coupon-bearer to go to a particular store to receive an entitlement.[14] This Court's broad definition is also consistent with the Congressional Committee's report on CAFA and its discussion of coupons.[15]

         This Court's approach is consistent with that of the Seventh Circuit insofar as they both reject a distinction between full-value " vouchers" and less-than-full-value (or, equivalently, discount) " coupons" .[16] In fact, the main thrust of CAFA's addition of section 1712 was to ensure that district

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courts closely scrutinized a particular type of class action settlement: those where class counsel receives cash, yet class members receive non-cash compensation that can only be spent at the defendant-business.[17] As the vouchers here must be redeemed at Michaels, they are " coupons" under CAFA.

         B. Class Counsel in this Case Is Entitled to Reasonable Attorneys' Fees Calculated by the Court Using the Lodestar Method .

         Having determined that the settlement at issue contains " coupons," the Court now decides the appropriate method for calculating attorneys' fees in this case, and then uses that method to ...

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