December 2, 2022

Volume XII, Number 336

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Federal Judge Refuses Second Time to Approve Class Action Settlement, Rejecting Plaintiffs “You Can Lead a Horse To Water” Explanation Upon Identifying Notice Deficiencies

CPW previously covered the Powers litigation pending in the Western District of Wisconsin, which involves 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.  The court overseeing the case the end of last week yet again declined to grant approval to a settlement negotiated between the parties, sending both sides back to the drawing board to address notice related concerns.   Powers v. Filters Fast, LLC, 20-cv-982-jdp (W.D. Wis. Feb. 24, 2022).

Earlier this month the court had declined to grant final sign off on a settlement based on deficiencies the court identified 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.  You can read more about this prior decision here.  The court ordered supplemental briefing and information to be provided by last Tuesday to address these concerns.

However, only 48 hours after Plaintiffs submitted these materials the court denied the motion for final settlement approval.  Why?  The decision was apparently based on plaintiffs’ own submission, as the court said the Tuesday filing “show[ed] that notice to the class was deficient in two respects.”

The general notice framework followed in the case was a three-step process:

  • First, the class administrator sent an email to each of the approximately 323,000 class members.

  • Second, the administrator sent notice through the U.S. mail to class members that the administrator determined had not received the email notice.

  • Third, approximately one month after sending the first email, the administrator sent a “reminder” email to class members who hadn’t yet filed a claim.

Notwithstanding this multifaceted approach, the court noted that the response rate of class members was only “a little over one percent, or 3,740 claims.”  The court faulted this low response rate, in light of the fact that the terms of the settlement itself “allowed each class member to submit a claim for $25 without showing any individualized injury, raising the question whether something had gone awry during the notice process.” However, in response to concerns raised about the low take rate, Plaintiffs’ counsel failed to provide any explanation to the court in their supplemental filing, stating only “you can lead a horse to water, but you cannot make him drink.”

This week, reviewing information provided by Plaintiffs, the court found that “new information plaintiffs provided reveal two problems with the notice process that may have contributed to the low response rate.”

First, the court observed that the “[settlement] administrator now states that it did not even attempt to send mail notice to 6,728 class members who did not receive email notice” due to an “administrative error.”   The court held that “Federal Rule of Civil Procedure 23 requires reasonable notice to all class members, so the court will have to defer settlement approval until the parties make reasonable efforts to send mail notice to the 6,728 class members at issue.”

Second, the court also faulted the email format of the communications sent to the class as the subject line of the emails merely stated “Legal Notice” and the sender was “[email protected].”  The court commented that this “information does nothing to alert the reader what the subject of the email actually is, who the email is from, or why the email is important.”

As a result of these findings, the court yet again denied the motion for final approval without prejudice, cancelled the settlement approval hearing, and directed the parties to cure the notice defects before renewing their motion for final approval.

This decision underscores the importance of the mechanics of how notice is provided to the class in any data privacy class action settlement.  The court’s ruling in a nutshell was that “[t]he court can’t approve the settlement before these problems with notice are resolved.  A settlement that is otherwise fair provides little benefit for the class if few of them are aware that they are entitled to participate in the settlement.” (emphasis supplied).  Of course, counsel in data privacy and cybersecurity litigations will now be keeping a closer eye to these issues to avoid a similar result in other cases.  For more on this, stay tuned.  CPW will be there to keep you in the loop.

© Copyright 2022 Squire Patton Boggs (US) LLPNational Law Review, Volume XII, Number 59
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About this Author

Kristin L. Bryan Litigation Attorney Squire Patton Boggs Cleveland, OH & New York, NY
Senior Associate

Kristin Bryan is a litigator experienced in the efficient resolution of contract, commercial and complex business disputes, including multidistrict litigation and putative class actions, in courts nationwide.

She has successfully represented Fortune 15 clients in high-stakes cases involving a wide range of subject matters.

As a natural extension of her experience litigating data privacy disputes, Kristin is also experienced in providing business-oriented privacy advice to a wide range of clients, with a particular focus on companies handling customers’ personal data. In this...

216-479-8070
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