United States District Court, D. Massachusetts
MELISSA TYLER, on behalf of herself and all others similarly situated, Plaintiff,
MICHAELS STORES, INC., Defendant
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.
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,
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.
MEMORANDUM AND ORDER
G. YOUNG, UNITED STATES DISTRICT JUDGE.
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 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.
counsel urges this Court to apply Massachusetts law when
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
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, 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
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 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
FACTUAL AND PROCEDURAL BACKGROUND
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
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.
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.
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.
the settlement, class members were separated into two
subclasses: subclass one and subclass two. 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 Michaels.com .
Id. § 1.3.
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
$14,005.30 in costs and expenses. Id. at 2. Michaels
agreed to pay the $425,000 fee claim in addition to providing
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.
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. Perelman Decl. ¶ 6; Pls.'
Supp. Mem. 4. This means that about one in three vouchers
issuing any ruling, this Court must determine the applicable
law. Here, it has not received the benefits of adversarial
briefing on this issue, 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.
This Settlement Awards Coupons to Class
courts, pursuant to Federal Rule of Civil Procedure 23, can
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 on district courts evaluating certain
proposed class settlements, 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, 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.
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.
The Ninth and Seventh Circuits Differ in Their Approaches to
Determining Whether a Settlement Agreement Contains
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.
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
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.
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).
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, 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.
Non-Cash Payments to Class Members Constitute Coupons for
Purposes of CAFA.
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."
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." ). 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. This Court's broad definition is
also consistent with the Congressional Committee's report
on CAFA and its discussion of coupons.
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"
. In fact, the main thrust of
CAFA's addition of section 1712 was to ensure that
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. As the vouchers here
must be redeemed at Michaels, they are " coupons"
Class Counsel in this Case Is Entitled to Reasonable
Attorneys' Fees Calculated by the Court Using the
Lodestar Method .
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 ...