A recent Law 360 story by McCord Pagan, “4th Circ. Tosses $10M Fee Award in Lumber Liquidators Deal,” reports that a Fourth Circuit panel ordered a recalculation of a $10 million award for attorneys representing consumers who claimed their Lumber Liquidators wood flooring had excessive formaldehyde, disagreeing with the way a lower court classified part of the value of the $36 million settlement. In a published opinion, the three-judge panel affirmed the $36 million settlement of multidistrict litigation alleging Lumber Liquidators falsely stated its laminate wood flooring complied with the California Air Resource Board’s formaldehyde emissions limits. But the panel sided with objectors over the $10 million attorney fee award, finding it was not properly calculated under the Class Action Fairness Act.
CAFA requires attorney fees to be based on the total value of a settlement, and if part of the settlement involves coupons, the respective portion of the attorney fee award can only be based on the value of the coupons that are actually redeemed by class members. The $36 million settlement, which was approved by a Virginia federal court in 2018, included $22 million in cash and $14 million in vouchers for discounted or free flooring to members of the two classes. The $10 million fee award represented about 28% of the deal’s total value, and would be paid out of the $22 million in cash, according to the opinion.
The objectors argued that the vouchers count as coupons under CAFA, meaning the law’s coupon settlement provisions should apply, resulting in a lower fee award. However, a federal judge disagreed in November 2018, finding that the vouchers were essentially gift cards, not coupons.
While Congress didn’t define “coupon” for the purposes of CAFA, the appellate panel concluded that under a Ninth Circuit standard, the Lumber Liquidators vouchers are actually coupons. Unlike gift cards to a large retailer such as Walmart, which can be used to buy a variety of products, the vouchers can only be used to purchase a limited range of items, such as flooring and flooring tools, the panel said.
“Notably, only about 15% of class members selected the vouchers over the cash award, which demonstrates that class members do not view the vouchers as having the diverse purchasing power of cash,” it said. The panel also pointed out that the vouchers alone may not be enough to enable a class member to entirely replace their flooring, and therefore they might also need to spend some of their own money to accomplish that.
“Of course, in having to spend more money to obtain sufficient relief, the class members will be forced to benefit the company that allegedly lied to and injured them,” the panel said. “That arrangement is precisely the type about which Congress was concerned." Numerous proposed class actions were filed starting March 3, 2015, shortly after “60 Minutes” aired an investigation that found Lumber Liquidators misrepresented that its Chinese-made laminate flooring complied with Golden State formaldehyde emissions limits, according to court documents.
On average, the level of formaldehyde in the company’s flooring ranged from at least six times the state standard, with some samples nearly as high as 20 times the standard, the investigation found. In June of that year, the U.S. Judicial Panel on Multidistrict Litigation consolidated the formaldehyde emissions cases. Other consumers who bought the flooring said it scratched, chipped, warped and stained. These consumers also filed proposed class actions, which were consolidated in October 2016, according to court documents.