Federal Court Gives Rare Refusal for Final Sign Off on Data Privacy Class Action Settlement, Faulting Low Take Rate and Excessive Fees
This month a federal court refused to grant final approval to a class action data privacy litigation settlement, sending the parties (and their lawyers) back to the drawing board to work out certain issues. Because this rarely occurs—particularly after a court has already granted preliminary approval to a settlement—the case offers some important takeaways. Powers v. Filters Fast, LLC, 2022 U.S. Dist. LEXIS 27967 (W.D. Wis. Feb. 15, 2022). Read on to learn more.
Some background. The litigation involved a class action filed in the wake of a data event that allegedly involved the compromise of credit card information of Filters Fast, LLC’s customers between July 2019 and July 2020. To resolve the dispute, the parties reached a negotiated resolution—which as a matter of federal procedure had to be submitted to the Court for preliminary and final approval. The Court, in turn, was required to apply the framework set forth at Federal Rule of Civil Procedure Rule 23 to ensure that the terms of the parties’ settlement was fair and adequate, among other things.
However, the Court in making this final determination found deficiencies in three areas: (1) adequacy of the notice to the class, the (2) fairness of the settlement, and (3) the reasonableness of class counsel’s request for fees and costs. The collective result of these findings was that the Court denied final approval of the settlement—throwing a wrench into the case’s trajectory towards resolution and closure. Takeaways relevant to all data privacy litigations are set forth below.
First, the Court expressed reservations about the low claims rate made by members of the settlement class. The administrator overseeing the settlement received only 69 claims through the mail and 3,476 claims submitted electronically (out of more than 323,000 members—representing a little more than one percent of the class members). This was so, the Court commented, “even though each class member was entitled to submit a claim for $25 [as part of the settlement] without showing any individualized injury.” (emphasis supplied). The Court faulted Plaintiffs for “offer[ing] no explanation for what appears to be a low response rate in a context where there was little downside to submitting a claim.” As such, the Court ordered Plaintiffs to submit additional information, including “provid[ing] evidence that the response rate in this case is reasonable, such as data from other cases involving similar claims.”
Second, the Court also expressed concerns with the settlement amount—specifically, the cash portion of the proposed settlement. The Court observed that “Plaintiffs say that class members have submitted claims totaling more than $103,000.” However, the Court noted, “[P]laintiffs don’t say that the administrator has approved that amount.” (emphasis in original). Finding that “[in evaluating the fairness of the settlement, the Court must consider the ‘relief provided’ to the class, not the ‘relief requested,’” the Court also demanded additional information on this front.
And finally, the Court also faulted Plaintiffs’ fee request, expressing “multiple concerns related to Plaintiffs’ counsel’s petition for approximately $305,000 in fees and $15,000 in costs.” As a preliminary matter, the Court flagged Plaintiffs for failing to comply with the Court’s procedures which specified that fee petitions were to be accompanied by billing logs. The Court ordered this information to be provided. More broadly, the Court also commented that “[t]he larger issue is that counsel’s fee and costs request 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.’” (emphasis supplied).
So there you have it. Additional briefing regarding the settlement deficiencies identified by the Court are due today—and if the Court is not then satisfied it could refuse providing final settlement approval altogether. The case offers a cautionary note that although many data privacy litigations end in settlement, courts are important gatekeeper in protecting members of the class in this process—and will exercise authority consistent with this role when so deemed necessary.