A recent Law 360 story by Allison Grande, “Low Claim Rate and High Atty Fees Scuttle Data Breach Deal” reports that a Wisconsin federal judge has refused to sign off on a deal to resolve a putative class action over a payment card data breach at water filtration retailer Filters Fast, finding that significant questions remained about class members' awareness of the settlement and the "reasonableness" of class counsel's request for more than $300,000 in fees.
The deal "makes hundreds of millions of dollars available" to the approximately 323,000 settlement class members, who would be able to claim up to $750 in expense reimbursements, up to $60 in compensation for lost time or a standardized $25 payment, according the plaintiffs. The settlement also provides for up to 24 months of credit monitoring services for each settlement class member and requires the online retailer to make certain "information security enhancements" to ensure that personal information "is better protected in the future," the plaintiffs have said.
U.S. District Judge James D. Peterson preliminarily approved the deal in November. But in an order, the judge declined to grant plaintiffs' request to finalize the settlement and class counsel's motion for fees and costs, finding that both requests suffered from several severe deficiencies. "Before the court can grant either motions, plaintiffs and plaintiffs' counsel will have to address the concerns of the court related to the adequacy of the notice, the fairness of the settlement and the reasonableness of class counsel's request for fees and costs," Judge Peterson ruled.
When it came to notifying class members of the deal, the judge took issue with the effectiveness of the chosen process, which involved the claims administrator sending an initial email to all class members on Dec. 8, transmitting a second email on Jan. 6 to those who didn't respond to the first correspondence, and mailing letters to any class members who couldn't be reached by email. The claims administrator attested that these methods have resulted in approximately 89 percent of the class receiving notice.
But while this process appears "adequate on its face," Judge Peterson voiced serious concerns with the low response rate. Even though class members can submit a claim for $25 without showing any individualized injury, the claims administrator has said it's received only 69 claims through the mail and 3,476 claims submitted electronically, which represents a little more than 1 percent of the 323,000 eligible class members, according to the judge's ruling. "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," Judge Peterson said.
"The administrator's explanation of its notice procedures is rather vague," Judge Peterson found. "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."
"In evaluating the fairness of the settlement, the court must consider the 'relief provided' to the class, not the 'relief requested,'" Judge Peterson ruled. The judge's order also threw into doubt class counsel's petition for approximately $305,000 in fees and $15,000 in costs.
Judge Peterson said he had "multiple concerns" with this request, including that it didn't comply with the court's procedures that require fee petitions to be accompanied by billing logs as well as the "larger issue" that it "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,'" the judge noted.
Class counsel have claimed that their requested fees and costs are "only approximately 22% of the value actually claimed by the class," a figure that the attorneys arrived at by factoring in not only the monetary payments required by the deal but also the value of the credit monitoring services that Filters Fast will provide and the business practice changes that the company has implemented to prevent future data breaches, including greater security and monitoring, according to the judge's ruling.
But Judge Peterson identified "multiple problems" with counsel's reliance on nonmonetary benefits to justify their fee petition, including that Seventh Circuit precedent dictates that fee requests should be compared to "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," Judge Peterson noted.
"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," Judge Peterson ruled. "Even if the court were to exclude only the proposed value of the business practice changes and consider the estimated value of credit monitoring services, plaintiffs' counsel's fee request would represent well over 50 percent of the total amount, which is outside the acceptable range."
The judge's order also directed class counsel to address in any renewed motion it may file "potential concerns about duplication of effort, failure to delegate and excessive hourly rates," with Judge Peterson sharply questioning why plaintiffs' declarations showed that "no fewer than eight attorneys and five paralegals from multiple law firms were assigned to this case and that five of the attorneys billed at rates of $700 an hour or more" in a case that was still in its very early stages when it settled. The judge gave the parties until Feb. 22 to submit renewed motions for final approval of the settlement and class counsel's request for fees and costs.