Senior Judge Gerald Tjoflat has a well-earned reputation for lengthy opinions, especially in class actions. His recent opinion disapproving the class-action settlement involving GoDaddy is of epic length, but he could not win the concurrence of the other two panel members, Judges Wilson and Branch. Drazen v. Pinto, 101 F. 4th 1223 (11th Cir. May 13, 2024). So the third opinion in the Drazen saga (and maybe not the last) ultimately was decided on fairly narrow grounds involving the construction of the “coupon” provisions of the Class Action Fairness Act. The posture was so unusual that the court felt the need to clarify the actual holding in an order on a motion for rehearing. Drazen v. Pinto, 106 F.4th 1302 (11th Cir. July 16, 2024). (Our posts on the prior decisions are here, here, and here.)
At issue in Drazen was a class action settlement of claims made under the Telephone Consumer Protection Act of 1991. The plaintiffs alleged that GoDaddy violated the TCPA by using an automatic telephone dialing system (ATDS) to make telephone calls or send text messages to their telephone numbers or cell phones and those of the putative class. The parties negotiated a settlement under which GoDaddy would provide up to $35 million to pay class members’ claims and up to $10.5 million to their lawyers as attorneys’ fees. The plaintiffs moved for preliminary approval of their settlement and for approval of the fees to class counsel. It was a race against time: as the settlement approval process moved forward, the Supreme Court granted certiorari in Facebook, Inc. v. Duguid, 592 U.S. 395 (2021), to decide whether an ATDS must have the capacity to generate random or sequential phone numbers. Ultimately, the Court held the equipment of the type that GoDaddy used was not an ATDS. But the district court issued its final judgment and order approving the proposed settlement agreement, class certification, and attorneys’ fees three months before the Supreme Court decided Facebook.
Pinto objected to the settlement. First, he argued that the district court ruled on the motion for attorneys’ fees prematurely because it was before the deadline for objections, a violation of Fed. R. Civ. P. 23(h) and due process. Second, his main objection was that the settlement was unfair because the fees awarded to class counsel were far in excess of what the class members would receive. He also contended that the fees to class counsel should receive the heightened scrutiny required by the Class Action Fairness Act (CAFA), in cases involving “coupon settlements.”
In the first round in the Eleventh Circuit, the question of Article III standing short-circuited consideration of the settlement. The standing issue ultimately became the subject of an en banc ruling. Drazen v. Pinto, 74 F.4th 1336, 1342 (11th Cir. 2023).
In the latest decision, with standing established, the Eleventh Circuit held that the district court erred in determining that the settlement did not involve coupons under CAFA and in consequently declining to examine class counsel’s motion for attorneys’ fees with CAFA-mandated scrutiny and procedures.
If a proposed class action settlement provides for class members to recover coupons, then CAFA, codified at 28 U.S.C. § 1712, comes into play and governs the district court’s award of attorneys’ fees to class counsel. The statute does not define the term “coupon.” The district court concluded that the proposed settlement agreement did not create a coupon settlement subject to special CAFA review because the class members had the option to choose a cash award instead of a voucher. Citing decisions from three other circuits, Pinto argued that a cash option should not automatically make a settlement a non-coupon settlement. Pinto contended that the vouchers were coupons under CAFA because they required class members to use them with GoDaddy, could require spending additional money, and had limited flexibility. The settling parties countered that the vouchers were not coupons because they could be used to buy new services outright, not merely for a discount, and without spending any of one’s own money.
The Eleventh Circuit held that CAFA applies to settlements involving coupons plus other forms of relief because the language of § 1712 anticipates that what it labels “coupon settlements” will not always be composed entirely of coupons. The court relied on In re Sw. Airlines Voucher Litig., 799 F.3d 701, 706–10 (7th Cir. 2015) (explaining the proper understanding of § 1712(a), (b), and (c) based on the “text and structure of § 1712, along with its legislative history and purpose” and thus “coupon settlements” as the term is used in CAFA applies “when a coupon settlement also provides some equitable or cash relief”). The court reasoned that the plain meaning of “coupon” around 2005, when CAFA was enacted, was a voucher, certificate, or form that can be exchanged for one or more goods or services, or for a discount on one or more goods or services. Surveying decisions of other circuits, the court explicitly aligned itself with decisions of the Fourth and Second Circuits in Moses v. N.Y. Times Co., 79 F.4th 235, 247–48 (2d Cir. 2023) and In re: Lumber Liquidators Chinese-Manufactured Flooring Prods. Mktg., Sales Pracs. & Prods. Liab. Litig., 952 F.3d 471, 488–90 (4th Cir. 2020).
The court then turned to the question of attorneys’ fees in coupon settlements. Under CAFA, a fee award may be based on the value of the coupons that are redeemed, the lodestar method, or a combination of both. A district court may choose to “attribute” attorneys’ fees to a settlement’s provision of “coupons” using the percentage-of-recovery method under subsection (a), in which case the fee calculation must be based on the value of any “coupons” actually redeemed by class members—not a defined face value. See 28 U.S.C. § 1712 (a). Subsection (b) provides that if a court does not use “a portion of the recovery of the coupons” in determining its attorneys’ fees award, then the award “shall be based upon the amount of time class counsel reasonably expended working on the action”—in other words, the statute approves the lodestar approach. Subsection (c) extends the discretion afforded to the district court, providing that if a “coupon” settlement also provides for equitable relief, then the court may use a combination of the percentage-of-recovery and lodestar methods, depending on what portions of the fee award (if any) are “based upon a portion of the recovery of the coupons.”
In determining the value of coupons that are “actually redeemed,” the district court may wait to decide motions for attorneys’ fees until after the coupons’ expiration date or may (more typically) estimate the redemption rate of the coupons, with the aid of expert testimony. The court emphasized that the redemption rate of the coupons also must be considered in determining whether the settlement as a whole is fair and reasonable.
The court held that the district court had used the wrong legal standard and thus abused its discretion in calculating attorneys’ fees as a percentage of the possible relief available to class members.
Senior Judge Gerald Tjoflat has a well-earned reputation for lengthy opinions, especially in class actions. His recent opinion disapproving the class-action settlement involving GoDaddy is of epic length, but he could not win the concurrence of the other two panel members, Judges Wilson and Branch. Drazen v. Pinto, 101 F. 4th 1223 (11th Cir. May 13, 2024). So the third opinion in the Drazen saga (and maybe not the last) ultimately was decided on fairly narrow grounds involving the construction of the “coupon” provisions of the Class Action Fairness Act. The posture was so unusual that the court felt the need to clarify the actual holding in an order on a motion for rehearing. Drazen v. Pinto, 106 F.4th 1302 (11th Cir. July 16, 2024). (Our posts on the prior decisions are here, here, and here.)
At issue in Drazen was a class action settlement of claims made under the Telephone Consumer Protection Act of 1991. The plaintiffs alleged that GoDaddy violated the TCPA by using an automatic telephone dialing system (ATDS) to make telephone calls or send text messages to their telephone numbers or cell phones and those of the putative class. The parties negotiated a settlement under which GoDaddy would provide up to $35 million to pay class members’ claims and up to $10.5 million to their lawyers as attorneys’ fees. The plaintiffs moved for preliminary approval of their settlement and for approval of the fees to class counsel. It was a race against time: as the settlement approval process moved forward, the Supreme Court granted certiorari in Facebook, Inc. v. Duguid, 592 U.S. 395 (2021), to decide whether an ATDSmust have the capacity to generate random or sequential phone numbers. Ultimately, the Court held the equipment of the type that GoDaddy used was not an ATDS. But the district court issued its final judgment and order approving the proposed settlement agreement, class certification, and attorneys’ fees three months before the Supreme Court decided Facebook.
Pinto objected to the settlement. First, he argued that the district court ruled on the motion for attorneys’ fees prematurely because it was before the deadline for objections, a violation of Fed. R. Civ. P. 23(h) and due process. Second, his main objection was that the settlement was unfair because the fees awarded to class counsel were far in excess of what the class members would receive. He also contended that the fees to class counsel should receive the heightened scrutiny required by the Class Action Fairness Act (CAFA), in cases involving “coupon settlements.”
In the first round in the Eleventh Circuit, the question of Article III standing short-circuited consideration of the settlement. The standing issue ultimately became the subject of an en banc ruling. Drazen v. Pinto, 74 F.4th 1336, 1342 (11th Cir. 2023).
In the latest decision, with standing established, the Eleventh Circuit held that the district court erred in determining that the settlement did not involve coupons under CAFA and in consequently declining to examine class counsel’s motion for attorneys’ fees with CAFA-mandated scrutiny and procedures.
If a proposed class action settlement provides for class members to recover coupons, then CAFA, codified at 28 U.S.C. § 1712, comes into play and governs the district court’s award of attorneys’ fees to class counsel. The statute does not define the term “coupon.” The district court concluded that the proposed settlement agreement did not create a coupon settlement subject to special CAFA review because the class members had the option to choose a cash award instead of a voucher. Citing decisions from three other circuits, Pinto argued that a cash option should not automatically make a settlement a non-coupon settlement. Pinto contended that the vouchers were coupons under CAFA because they required class members to use them with GoDaddy, could require spending additional money, and had limited flexibility. The settling parties countered that the vouchers were not coupons because they could be used to buy new services outright, not merely for a discount, and without spending any of one’s own money.
The Eleventh Circuit held that CAFA applies to settlements involving coupons plus other forms of relief because the language of § 1712 anticipates that what it labels “coupon settlements” will not always be composed entirely of coupons. The court relied on In re Sw. Airlines Voucher Litig., 799 F.3d 701, 706–10 (7th Cir. 2015) (explaining the proper understanding of § 1712(a), (b), and (c) based on the “text and structure of § 1712, along with its legislative history and purpose” and thus “coupon settlements” as the term is used in CAFA applies “when a coupon settlement also provides some equitable or cash relief”). The court reasoned that the plain meaning of “coupon” around 2005, when CAFA was enacted, was a voucher, certificate, or form that can be exchanged for one or more goods or services, or for a discount on one or more goods or services. Surveying decisions of other circuits, the court explicitly aligned itself with decisions of the Fourth and Second Circuits in Moses v. N.Y. Times Co., 79 F.4th 235, 247–48 (2d Cir. 2023) and In re: Lumber Liquidators Chinese-Manufactured Flooring Prods. Mktg., Sales Pracs. & Prods. Liab. Litig., 952 F.3d 471, 488–90 (4th Cir. 2020).
The court then turned to the question of attorneys’ fees in coupon settlements. Under CAFA, a fee award may be based on the value of the coupons that are redeemed, the lodestar method, or a combination of both. A district court may choose to “attribute” attorneys’ fees to a settlement’s provision of “coupons” using the percentage-of-recovery method under subsection (a), in which case the fee calculation must be based on the value of any “coupons” actually redeemed by class members—not a defined face value. See 28 U.S.C. § 1712 (a). Subsection (b) provides that if a court does not use “a portion of the recovery of the coupons” in determining its attorneys’ fees award, then the award “shall be based upon the amount of time class counsel reasonably expended working on the action”—in other words, the statute approves the lodestar approach. Subsection (c) extends the discretion afforded to the district court, providing that if a “coupon” settlement also provides for equitable relief, then the court may use a combination of the percentage-of-recovery and lodestar methods, depending on what portions of the fee award (if any) are “based upon a portion of the recovery of the coupons.”
In determining the value of coupons that are “actually redeemed,” the district court may wait to decide motions for attorneys’ fees until after the coupons’ expiration date or may (more typically) estimate the redemption rate of the coupons, with the aid of expert testimony. The court emphasized that the redemption rate of the coupons also must be considered in determining whether the settlement as a whole is fair and reasonable.
The court held that the district court had used the wrong legal standard and thus abused its discretion in calculating attorneys’ fees as a percentage of the possible relief available to class members.
Judges Branch and Wilson declined to concur in the balance of Judge Tjoflat’s opinion, which would have issued some trailblazing rulings had it been joined by another judge. Among those was a holding that a district judge acts as a fiduciary for unnamed class members. This ruling would have been unprecedented within the circuit, and would have expressly deviated from the adversary paradigm in significant and unnecessary ways. Without explicitly taking on fiduciary responsibilities and thus dual roles, the district judge has significant tools to prevent unfair settlements, including most importantly deeming the class to be inadequately represented when a settlement proposes disproportionately more in compensation to class counsel than the class is to receive in settlement. Objectors can play a stopgap role (though a haphazard and imperfect one) in maintaining an adversary process, without having the district court entirely abandon its impartiality. The other panel members’ restraint here seems warranted.