The Third Circuit vacated the District Court’s previous grant of class counsel’s fee request, in Wawa Data Security Litigation, 85 F.4th 712 (3d Cir. 2023), based on: (i) the District Court’s discretion to consider the benefit made available to the class versus the value of the compensation or other benefits that are actually claimed; (ii) the alleged existence of a “clear sailing” agreement; and (iii) the alleged existence (although subsequently clarified/amended) of a “reverter” to the defendants of any unawarded fees.

In its decision, the Third Circuit noted that the presence of an independent mediator during the negotiations, while relevant, is not alone sufficient to establish the absence of collusion. Similarly, the Court held that bi-furcation of fee negotiations from class compensation negotiations is also insufficient to support a finding of non-collusiveness, “because both class and defense counsel presumably have the impending selfish fee negotiation in mind while negotiating class compensation.”

On remand, the District Court first rejected the notion that there was, in fact, a “clear sailing” agreement: “The alleged clear-sailing provision in this case reads as follows: ‘Wawa shall cooperate with class counsel, if and as necessary, in providing information class counsel may reasonably request from Wawa in connection with preparing the petition.’ Class counsel and counsel for Wawa deny that any provision of the settlement agreement, including this one, prevented Wawa from contesting class counsel’s fee petition….  Counsel for Wawa explained that: ‘In a class settlement like this, one alternative is for the parties not to agree to the amount of attorney’s fees and to leave that as a contested matter to be resolved by the Court. As the lead negotiator for Wawa, I believed that would not be in the best interest of Wawa or the class…. The reason we did not object to the fee award was not because of paragraph 78, it’s because we thought it would be futile. We thought the $3.2 million was a pretty good deal. I was concerned that these plaintiffs’ lawyers might seek something like 9 to 11 million dollars. And in fact when we first started negotiating, that’s what they asked for.”  Additionally, “the hallmark of a clear-sailing provision is that it removes the defendant’s right to contest the fee request. Parties may agree to the amount that will be requested without further agreeing that the defendant will forfeit their right to contest that request, and such an agreement would be advantageous to the defendant because it caps the defendant’s liability without stipulating to a floor. Here, the parties agreed to a cap on the fees class counsel could request, which was valuable to Wawa. A defendant in this position may have negotiated class counsel down as far as possible but could still appeal to the Court for a further reduction. In this particular case, Wawa strategically decided not to appeal.”

With respect to the alleged fee reversion, the Court explained that “an earlier version of the settlement agreement did not specify how to allocate the difference between the requested $3.2 million fee and any smaller fee that the Court may ultimately award. This omission was rectified when class counsel and counsel for Wawa jointly stipulated to amend the settlement agreement to specify that any difference between $3,200,000 and the amount awarded will be distributed equally among and added to the total value of each of the Tier One and Tier Two Wawa Gift Cards. The appellate panel described this amendment as a welcome change, but not as welcome as if the fee reversion had never existed. Thus, the Third Circuit Court of Appeals has instructed the Court to explore how the reversion arrived, what purpose it served, and whether its presence, even temporary, suggests coordinated rather than zealous advocacy.” Based on the evidentiary submissions on remand, counsel for Wawa explained that: “‘given the value of the settlement to the class …. I did not anticipate any possibility that the District Court would not approve a $3.2 million attorney’s fee award. There was therefore no discussion of what would happen in that event.’ Counsel for Wawa further explained that the omission served no purpose and was the result of an absence of contemplating a possibility that never came to pass. In other words, human error resulted in an omission, which created an unintended, de facto fee reversion. Class counsel agreed that the fee reversion was the result of the negotiating parties’ failure to discuss the eventuality of a reduced fee, but class counsel also clarified that the Settling Parties did not intend, discuss, or agree that any portion of the $3,200,000 not awarded would revert to Wawa.”

Finally, the Court “has discretion to decide whether to assess the reasonableness of class counsel’s requested fee award in light of either the amounts claimed or the amounts made available. Under the circumstances of this data breach class action, in which difficult-to-monetize injunctive relief is a central feature of class relief, the Court exercises its discretion to evaluate the fee in light of the amounts made available.”

More specifically: “Under the circumstances of this data breach class action, the Court determines that this beneficial but difficult-to-value injunctive relief weighs strongly in favor of analyzing the fee award against the amounts made available to the class instead of the amounts claimed by the class. This is a case about Wawa’s breach of its customers’ trust. The harm suffered by each individual customer appeared to be so small that Wawa believed that there was likely little or no harm to the class arising from the data security incident that is the subject of this action. The claims made pursuant to the tiered relief structure negotiated by the parties supported Wawa’s skepticism to the extent that ‘harm’ is understood to mean exclusively pecuniary harm. Indeed, the vast majority of claimants — over 99.95% of claimants under this settlement agreement — did not suffer any pecuniary harm from this data breach. Instead, their entitlement to cash-like gift card relief is based on having monitored their credit and dealt with fraudulent charges. In light of Wawa’s well-based skepticism about the magnitude of the pecuniary harm, it is a commendable achievement that class counsel, as a matter of negotiation, managed to make $8 million 11 in gift cards available to Tier One and Tier Two class members — none of whom suffered any pecuniary harm at all. This achievement is especially notable because Wawa values certainty. Nonetheless, class counsel litigated an outcome whereby Wawa would risk up to $9 million, $8 million of which was available to class members who did not lose a single cent. What those customers did lose, however, was their certainty that they could continue safely shopping at Wawa. Gift cards, though highly beneficial to class members, are powerless to restore that certainty. Therefore, class counsel further litigated injunctive relief that would restore class members’ certainty that they could continue shopping at Wawa. Given the type of non-pecuniary harm suffered by Tier One and Tier Two class members, this difficult-to-monetize restoration of trust facilitated by court-ordered injunctive relief was a central feature of the overall relief provided to the class. Wawa resisted this injunctive relief, but class counsel insisted that Wawa’s commitment to improve data security be reduced to a court order mandating specific efforts that Wawa would undertake to fulfil that commitment. Regardless of how much was claimed by the class, these court-ordered commitments directly address the actual harm suffered by the vast majority of class members. The lion’s share of the amounts made available to the class were made available to class members who had lost no amount of money. The injunctive relief, which by contrast did address those class members’ actual injuries moving forward, is both extremely difficult to monetize and a central achievement of this class action. Under these circumstances, it is reasonable to consider the amount of money that class counsel induced Wawa to risk by making it available to customers who suffered precisely the type of loss that injunctive relief was designed to redress.”

 

In re Wawa Data Breach Lit., No.19-6019, 2024 WL 1557366 (E.D.Pa. April 9, 2024).