In a class action involving a data breach that compromised credit card information of Filters Fast customers, the Court declined to approve the proposed settlement, unless and until counsel can address the Court’s concerns regarding the adequacy of the notice, the fairness of the settlement, and the reasonableness of class counsel’s request for fees.

“The notice appears adequate on its face. But despite the administrator’s efforts, the administrator represents that it has received only 69 claims through the mail and 3,476 claims submitted electronically. Plaintiffs estimate that the class includes more 323,000 members, so the total number of claims represents a little more than one percent of the class members. This is so even though each class member was entitled to submit a claim for $25 without showing any individualized injury. Plaintiffs offer no explanation for what appears to be a low response rate in a context where there was little downside to submitting a claim. Part of the reason for the relatively few claims may be that the deadline for submitting the motion for final approval was January 28, but the deadline for submitting a claim was February 11, so the administrator’s figures were incomplete. But there may be other reasons. The administrator’s explanation of its notice procedures is rather vague. It doesn’t explain how it determined that 89 percent of the class received notice. And though it provided a copy of the legal notice accompanying the emails it sent the class, it doesn’t provide a sample of the actual email it sent, making it impossible for the court to determine whether the email adequately communicated to class members that they were receiving notice of a class settlement. To help establish the adequacy of the notice provided, plaintiffs must do the following: (1) provide updated figures of the number of class members who have submitted claims as of February 11; (2) provide evidence that the response rate in this case is reasonable, such as data from other cases involving similar claims; (3) explain how the administrator determined that 89 percent of class members received notice; and (4) provide a copy of the emails and letters that the administrator sent to the class.”

As to the sufficiency of the settlement itself, “Plaintiffs say that class members have submitted claims totaling more than $103,000. But plaintiffs don’t say that the administrator has approved that amount. Rather, plaintiffs say that the claims are subject to vetting for fraud and duplications. In evaluating the fairness of the settlement, the court must consider the relief provided to the class, not the relief requested. So the court will give plaintiffs an opportunity to identify the claims that have been approved and their value. If any claims have been rejected or if the administrator is still reviewing them, plaintiffs should explain why and provide any relevant documentation.”

Finally, with respect to the requested fees of $305,000, counsel, as an initial matter, didn’t comply with the Court’s procedures, which requires fee petitions to be accompanied by billing logs, among other things. “The larger issue is that counsel’s fee and costs request represents nearly three times the potential cash settlement to be paid to the class. As counsel themselves point out, the general rule in this circuit is that fees awarded to class counsel should not exceed a third or at most a half of the total amount of money going to class members and their counsel. Pearson v. NBTY, 772 F.3d 778 (7th Cir. 2014). Counsel say that their requested fees and costs are only approximately 22% of the value actually claimed by the class. To arrive at that figure, counsel assume that it is appropriate to consider not only the cash payments provided to the class but also the value of the credit monitoring services that Filters Fast will provide and several business practice changes that Filters Fast has implemented to prevent future data breaches, including greater security and monitoring. Plaintiffs’ counsel value the credit monitoring services at $478,440 and the business practice changes at $528,269.43. Counsel’s reliance on the nonmonetary benefits to justify their fee petition has multiple problems. The first problem is that Pearson states that the proper comparison is between the fee request and the total amount of money going to class members and their counsel. Counsel cite no authority for the view that they may use nonmonetary benefits to justify a larger fee award; they simply assume that they can. Pearson does include a discussion of injunctive relief, but the court concluded that the district court was within its discretion to find that the parties’ proposed injunction provided no benefit to the class. The court didn’t consider whether or how injunctive relief factors into the reasonableness of a fee request. Other courts have concluded that it is more appropriate to evaluate a fee petition under a lodestar analysis when the primary benefit is injunctive relief, particularly when counsel fails to provide evidence on the value of that relief. This leads to the second problem: plaintiffs’ counsel provided no documentation or even explanation for how they came up with the values for the credit monitoring services and the changes in Filters Fast’s business practices. If counsel wishes to rely on the value of nonmonetary relief to bolster a fee petition, they will have to do more than provide a bottom-line figure. The third set of problems relates specifically to the changes in Filters Fast’s business practices. This case has been certified as a class for damages under Federal Rule of Civil Procedure 23(b)(3), and the class includes only those who used their credit cards on Filters Fast’s website in 2019 and 2020, not potential future customers. Plaintiffs’ counsel points to no evidence or even allegations that any class member is likely to use Filters Fast’s website again. So the benefit these changes provide to the class is questionable. Moreover, the settlement agreement states that Filters Fast has already made most of the changes to its business practices. The parties don’t represent that Filters Fast made the cited changes as a result of its settlement negotiations with plaintiffs. Plaintiffs’ counsel cannot justify a larger fee request based on a ‘benefit’ that Filters Fast would have provided even without the settlement agreement. Yet another problem with the business practice changes is that the settlement agreement provides no mechanism for a class member to confirm, challenge, or enforce any of the identified changes. This portion of the settlement agreement consists of little more than vague assertions that Filters Fast has or will make certain changes without any accountability for Filters Fast. In fact, the settlement agreement states that the provision does not create any rights or obligation and that Filters Fact is entitled to modify the business practices described in this Paragraph. So it is simply inaccurate to refer to the business practice changes as ‘injunctive relief’. Filters Fast retains discretion to do whatever it wants with these practices, and the class is powerless to stop it. All this is to say that the court is dubious that a fee request of more than $300,000 can be justified in this case based on a percentage-of-recovery analysis.”

 

Powers v. Filters Fast, No.20-982, 2022 WL 461996 (W.D.Wis. Feb. 15, 2022).