A recent Law 360 story by Dorothy Atkins, “9^th Circ. Rejects Attys’ Fees in $38M ProFlowers Deal,” reports that a Ninth Circuit panel vacated a $8.7 million attorneys’ fees award in a $38 million settlement resolving claims that the company behind the websites Proflowers.com and RedEnvelope.com enrolled consumers in a bogus membership rewards program without their consent that charged them monthly fees.

In a 27-page opinion, a three-judge panel found that the lower court erred by considering $20 credits that Provide Commerce Inc. gave to class members as cash rather than coupons under the Class Action Fairness Act.  As a result, the panel said, the attorneys’ fees could be inflated.  "Nothing in the record could have given the district court reason to believe that any class member, let alone all class members, would have viewed the $20 credit as equivalently useful to $20 in cash," the opinion says.

The ruling is the latest happening in a putative class action filed in 2009 claiming that Provide Commerce gave consumers' information to the marketing agency Encore Marketing International Inc. for unauthorized enrollment in allegedly worthless rewards programs that charged customers $14.95 monthly membership fees.  After two years of litigation, the parties struck a settlement under which the companies would set up a $12.5 million cash settlement fund to reimburse 1.3 million potential class members who submit claims.  Provide Commerce also agreed to give all customers a $20 credit with certain restrictions, which the companies valued at $25.5 million.

The district court approved the deal in 2012, but only about 3,000 consumers submitted valid claims, leaving roughly $3 million in unclaimed settlement funds to go to San Diego State University, the University of California at San Diego and the University of San Diego School of Law in cy pres payments.  In January 2013, the district court held a hearing on the final approval of the settlement, which would award attorneys $8.7 million in fees and $200,000 in costs, purportedly representing 23 percent of the total $38 million deal.

Class member Brian Perryman objected to the deal, however, arguing that the attorneys’ fee award did not comply with CAFA’s requirements, since it did not consider the redemption rate, and that the cy pres award is inappropriate.  The district court rejected Perryman’s arguments, and he appealed the rulings to the Ninth Circuit.  The appeals court sided with Perryman on the attorneys’ fee challenge, noting that CAFA requires district courts to consider the value of only coupons that were actually redeemed when calculating the relief awarded to a class.

“Regardless of the substance of the underlying claim or injury, CAFA prevents settling parties from valuing coupons at face value without accounting for their redemption rate,” the opinion said.  “Accordingly, the district court erred by incorporating an improper factor into its analysis of whether the credit was a coupon under CAFA.”  The panel also noted that there were multiple limitations on the $20 credit, restricting the times they could be redeemed, such as before Mother's Day, making them not equivalent to cash.  The court vacated the attorneys’ fee award and remanded the issue for the lower court to recalculate the fees.  The appeals court affirmed the cy pres payments, finding them appropriate and ruling that there was no reason to overcompensate class members who filed a claim.

The case is In re: EasySaver Rewards Litigation, case number 16-56307, in the U.S. Court of Appeals for the Ninth Circuit.