Majority And Concurring Opinions Have Interesting Discussions On Valuing Settlement Benefit Of Class, Degree Of Fee Substantiation Necessary, And Propriety Of “Clear Sailing” And “Kicker” Settlement Provisions.
A recent decision from the Sixth Circuit, Gascho v. Global Fitness Holdings, LLC, No. 14-3761/3798 (6th Cir. May 13, 2016) (published), is an interesting one for class practitioners and other courts because it produced “split” thoughts and highlighted differing circuit approaches to issues such as valuing the benefit of a class action settlement to a class, the level of fee substantiation necessary under the lodestar approach, and the propriety of “clear sailing” and “kicker” settlement clauses. (“Clear sailing” clauses are ones where the defense will not challenge a fee award at a specified, capped level and “kicker” provisions are ones where a lower fee award means the defense obligation for fee recovery is satisfied in full.)
The case involved a settlement in a consumer class action involving allegations of improper gym membership charges, with the defendant agreeing to a “claims made” settlement which could have resulted in a total payout of $15.5 million if every class member made monetary claims. (The payout was a $5 discount plus some other benefit rebates, which could total up to $75 per class member.) Class counsel sought $2.3 million in attorney’s fees. Objectors argued that the real value of the settlement was closer to 10% of the total payout number based on “redemption” statistics, with the district court choosing a “midpoint” number of $8.546 million as the valuation. Class counsel did not submit detailed fee billings, but the district judge found “under penalty of perjury” and generalized descriptions sufficient for lodestar purposes. The district judge did not find the clear sailing/kicker clauses sufficiently demonstrated collusion, approving the total fee request.
The Sixth Circuit affirmed over a robust, but respectful, dissent by Circuit Judge Clay.
The majority determined that there were pros and cons to using the lodestar/percentage of recovery for fee recoveries and differing appellate standards on how to value class action settlements (with respect to the latter, whether unused benefits should be counted or not). Ultimately, it concluded that a “case by case” approach needed to be used for valuing a class action settlement. The majority further agreed that the fee billings should have been more detailed, but there were enough indicia of authenticity such that the district court did not abuse its discretion in approving the total settlement inclusive of fees. Clear sailing/kicker provisions were found not be per se unlawful, although it did cause for heightened scrutiny.
Circuit Judge Clay saw things quite differently. He found the settlement infirm because (1) only 8.2% of class members made claims, (2) there was a lack of detailed fee substantiation, (3) the true value of the settlement was only $1.59 million, meaning 60% of the payout was to attorneys and 40% to the class—not a great overall deal, (4) the “midpoint” valuation calculus by the district court was flawed, and (5) the clear/sailing/kicker clauses were suspect under the circumstances. In the end, he found that the settlement “should have flunked any fairness inquiry” under F.R.Civ. P. 23(e).