MEMORANDUM AND ORDER
LEE H. ROSENTHAL, District Judge.
This is a consumer class action certified under Federal Rule of Civil Procedure 23(b)(3) for settlement. The class is large — over one hundred million payment-card
In January 2009, Heartland Payment Systems, Inc. ("Heartland") publicly disclosed that hackers had breached its computer systems and obtained confidential payment-card information for over one hundred million consumers.
In December 2009, the Consumer Plaintiffs and Heartland reached a settlement agreement ("Agreement"). (Docket Entry No. 57). After a hearing, (Docket Entry No. 82), the court in April 2010 certified a nationwide settlement class and approved notice of the Agreement, (Docket Entry No. 85). After an extensive notice campaign, eleven valid claims for losses and one objection have been filed. The Consumer Plaintiffs have moved for final approval of the Agreement, for an award of attorneys' fees, and for incentive awards for certain plaintiffs. (Docket Entry No.
Based on the memoranda in support of the proposed Agreement, the one objection, the parties' arguments at the preliminary and final fairness hearings, the remainder of the record, and the relevant law, this court: (1) reviews its preliminary certification of the settlement class; (2) approves the proposed settlement; (3) approves attorneys' fees in the amount of $606,192.50; (4) approves costs in the amount of $35,000; and (5) denies the proposed incentive awards. The reasons are explained in detail below.
I. The Litigation and Proposed Settlement Agreement
Heartland is a payment-card processor. It contracts with businesses to process their Visa and MasterCard transactions. The Consumer Plaintiffs are payment-card holders. The factual background can be briefly summarized:
Heartland II, 834 F.Supp.2d at 575, 2011 WL 6012598, at *2 (internal citations omitted).
The Consumer Plaintiffs' suits assert claims for negligence, breach of contract, various state statutory violations, and violations of the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. (Docket Entry No. 3). Aside from motions relating to appointing class counsel, the only motions filed in the Consumer Plaintiffs track were unopposed motions for extensions of time to file the master complaint. (Docket Entry Nos. 31, 53). The master complaint was to be filed by December 18, 2009. (Docket Entry No. 55). On that date, and before the Consumer Plaintiffs had filed a master complaint, the parties submitted the proposed settlement. (Docket Entry No. 57). No formal discovery occurred. Instead, the parties engaged in what Heartland's counsel termed "confirmatory discovery." Heartland gave counsel for the Consumer Plaintiffs over 4,000 pages relating to the data breach and allowed counsel to interview Heartland's Chief Technology Officer. (Docket Entry No. 111, at 9-10).
B. The Proposed Settlement Agreement
The proposed settlement binds "all Persons in the United States who had or have a payment card that was used in the United
Within ten days after preliminary court approval, Heartland had to deposit $1 million into an interest-bearing escrow account. That sum was to "be used to reimburse Settlement Class Members who are determined to have submitted Valid Claims[.]" (Id., ¶ 2.1). If the valid claims exceeded $1 million, Heartland had to deposit into the account an additional $500,000; if that was exhausted, another $500,000; and finally an additional $400,000. (Id., ¶ 2. 1(a)). Heartland had to deposit at least $1 million and at most $2.4 million to fund the settlement. If any unpaid balance remained on the initial $1 million (and interest) after all valid claims were paid, that balance was to "be transferred to a non-profit organization(s) dedicated to the protection of consumers' privacy rights, with emphasis on advancing the implementation of end-to-end encryption of payment card authorization transactions or similar security enhancements." (Id., ¶ 2. 1(b)).
Under the Agreement, "[a] Valid Claim shall consist of only those `Losses' ... that a Settlement Class Member ... proves by a preponderance of the evidence (i.e., more likely than not to be true), to have directly and proximately resulted from information relative to an Eligible Payment Card Account of such Settlement Class Member having been stolen or placed at risk as a result of the Heartland Intrusion[.]" (Id., ¶ 2.2). The Agreement defines four categories of "Losses": (1) out-of-pocket expenses from card cancellations or replacements; (2) out-of-pocket expenses from unauthorized and unreimbursed account charges; (3) out-of-pocket expenses from identity theft; and (4) "a reasonable amount for time (calculated at $10 per hour up to five (5) hours)" spent on these three types of losses. (Id., ¶ 2.2(b)). "Losses" specifically exclude "credit monitoring or insurance costs incurred by Settlement Class Members, attorneys' fees, attorneys' costs or attorneys' expenses incurred by Settlement Class Members, or losses resulting from any information having been stolen or placed at risk of being stolen from an entity other than from Heartland." (Id.).
The Agreement also creates a claims process. (Id., ¶¶ 2.2(c)-(d)). Any claim must be submitted by August 1, 2011. (Id., ¶ 2.2(c)). Reimbursement is capped at $175 for any valid claim not involving identity theft and at $10,000 for any valid identity-theft claims. Each household is limited to two valid claims. (Id., ¶ 2.2(b)).
The Agreement requires Heartland to pay, "subject to Court approval," up to $725,000 for attorneys' fees and up to
(Id., ¶ 7.1).
The Agreement explains how class members may object, (id., ¶ 5.1), and how they may opt out of the class, (id., ¶¶ 4.1-.2).
C. The Record
After the first fairness hearing, (Docket Entry No. 82), the court preliminarily certified the settlement class and approved class notice. (Docket Entry No. 85). According to Cameron Anzari, the Director of Notice for Hilsoft Notifications, the court-appointed company tasked with helping write the notices and designing and carrying out the notice campaign, the notices "reached at least 81.4% of potential Settlement Class Members an estimated 2.5 times through a combination of notice placements in newspaper supplements, consumer magazines and on selected websites." (Docket Entry No. 106, ¶ 6(a)).
One class member, Michael Kostka, filed a pro se objection. He appears to suggest that the data breach did not actually harm most consumers in the class, making the settlement unfair to Heartland. (Docket Entry No. 100).
The Consumer Plaintiffs moved for final court approval of the settlement, fees, costs and expenses, and incentive awards. (Docket Entry No. 107). Under Federal Rule of Civil Procedure 23(e), this court held a final fairness hearing on the Agreement on December 13, 2010. (Docket Entry No. 110). Heartland advised that as of December 9, class members had filed 290 claims. Heartland estimated that perhaps 11 of those claims were valid. (Docket Entry No. 111, at 6). Counsel for the Consumer Plaintiffs did not disagree with this estimate.
After the final fairness hearing, the Consumer Plaintiffs filed detailed reports showing their attorneys' time, costs, and expenses for this case. (Docket Entry No. 113). Heartland filed an affidavit explaining its previous contributions to the three organizations proposed as recipients of the cy pres payments. (Docket Entry No. 114). This affidavit also explained that any cy pres funds paid to these organizations would be in addition to Heartland's normal annual contributions to them. (Id., ¶ 4).
Class certification, settlement approval, and the fee and incentive awards are each analyzed below.
II. Class Certification
The Consumer Plaintiffs previously moved to certify a settlement class. (Docket Entry No. 75). The proposed class consisted of:
(Docket Entry No. 75, ¶ 7 (quoting Docket Entry No. 57, ¶ 1.20)). After the preliminary fairness hearing, this court certified the class, noting that the evidence received at the final fairness hearing still had to be considered. (Docket Entry No. 85, ¶ 4). Reviewing the certification on the basis of all the parties' submissions and the final fairness hearing is appropriate.
Class certification requires a "rigorous analysis of Rule 23 prerequisites." Madison v. Chalmette Ref., L.L.C., 637 F.3d 551, 554 (5th Cir.2011) (internal quotation marks omitted) (citing Gen. Tel. Co. v. Falcon, 457 U.S. 147, 161, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982)). The rigor required does not diminish in the settlement-class context. See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). A district court may not "substitut[e] the fairness inquiry of Rule 23(e) for the certification requirements of Rule 23(a) and (b)." Thomas v. Albright, 139 F.3d 227, 235 (D.C.Cir.1998) (discussing Amchem). "[T]he party seeking certification  bears the burden of establishing that the requirements of Rule 23 have been met." Madison, 637 F.3d at 554-55 (internal quotation marks omitted). But "[t]he fact that a settlement has been reached is, of course, relevant." Smith v. Sprint Commc'ns. Co., 387 F.3d 612, 614 (7th Cir.2004). A court need not determine under Rule 23(b)(3)(D) whether the proposed settlement class action would be manageable for trial. Amchem, 521 U.S. at 620, 117 S.Ct. 2231.
The class-certification analysis may require consideration of the suit's underlying merits. Wal-Mart Stores, Inc. v. Dukes, ___ U.S. ___, 131 S.Ct. 2541, 2551-52, 180 L.Ed.2d 374 (2011).
The Fifth Circuit has indicated that the preponderance standard applies to the Rule 23 determination. See Alaska Elec. Pension Fund v. Flowserve Corp., 572 F.3d 221, 228-29 (5th Cir.2009) (per curiam). The Second and Third Circuits require the party seeking class certification to satisfy each Rule 23 requirement by a preponderance of the evidence. See Novella v. Westchester Cnty., 661 F.3d 128, 148-49 (2d Cir.2011) (citing In re Initial Pub. Offerings Securities Litig., 471 F.3d 24, 41 (2d Cir.2006)); Gates v. Rohm & Haas Co., 655 F.3d 255, 262 (3d Cir.2011) (citing In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 320 (3d Cir.2008)). Other circuits state the standard less clearly. See, e.g., DG ex rel. Stricklin v. Devaughn, 594 F.3d 1188, 1194 (10th Cir. 2010) ("The party seeking class certification bears the burden of proving Rule 23's requirements are satisfied."). In this case, the Consumer Plaintiffs have met their burden of establishing the Rule 23 requirements by a preponderance of the evidence.
A. Rule 23(a)
Any proposed class must meet four requirements:
FED. R. CIV. P. 23(a). These requirements "effectively limit the class claims to those fairly encompassed by the named plaintiff's claims." Dukes, 131 S.Ct. at 2550 (internal quotation marks omitted).
The proposed class encompasses at least one hundred million individuals, spread throughout the United States. The numerosity requirement is satisfied.
Under previous Fifth Circuit precedent, commonality required "one common question of law or fact" to the class. James v. City of Dallas, Tex., 254 F.3d 551, 570 (5th Cir.2001). In Wal-Mart Stores v. Dukes, the Supreme Court held that the mere "raising of common `questions' of law or fact" is no longer sufficient. 131 S.Ct. at 2551 (quoting Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L. REV. 97, 132 (2009)). The Dukes Court explained that commonality requires classwide proceedings to have the ability "to generate common answers apt to drive the resolution of the litigation." Id. (quoting Nagareda, Class Certification, 84 N.Y.U. L. REV. 97, 132 (emphasis in original)); see also AMERICAN LAW INSTITUTE, PRINCIPLES OF THE LAW OF AGGREGATE LITIGATION § 2.02 cmt. a (2010) ["AGGREGATE LITIGATION"] (stating that "courts should consider whether aggregate treatment of a common issue by way of a class action will materially advance the resolution of multiple civil claims by addressing the core of the dispute in a manner superior to other realistic procedural alternatives such that aggregate treatment would generate significant judicial efficiencies").
Dukes does not require that all questions of law and fact be common, Ellis, 657 F.3d at 981, or that each class member have "suffered a violation of the same provision of law," Dukes, 131 S.Ct. at 2551. Instead, "[t]heir claims must depend upon a common contention .... That common contention, moreover, must be of such a nature that it is capable of classwide resolution — which means that determination of
Applying Dukes, two recent circuit cases have found commonality satisfied. In Sullivan v. DB Investments, plaintiffs filed class actions alleging that De Beers, "the dominant participant in the wholesale market for gem-quality diamonds throughout much of the twentieth century," had "exploited its market dominance to artificially inflate the prices of rough diamonds." Id. at 286 (majority opinion). These class-action lawsuits alleged that De Beers's conduct violated state and federal antitrust law and state consumer-protection statutes, and constituted unjust enrichment, unfair business practices, and false advertising under state law. The suits were transferred under MDL for pretrial management. The plaintiffs fell into two categories: those who bought directly from De Beers or a De Beers competitor, and those who purchased diamonds from a direct purchaser (such as consumers). De Beers reached settlements with both the direct- and indirect-purchasers classes. Id. at 286-88. The district court, over substantial objections, certified the nationwide classes for settlement and approved the settlement. Id. at 290-91. On appeal, the Third Circuit reversed based on the fact that some of the states precluded any recovery for indirect purchasers, who nonetheless would recover under the settlement. The class successfully sought en banc rehearing. The main question before the en banc court was whether these state-law variations precluded finding predominance. A subsidiary issue was whether the proposed classes could demonstrate commonality. The en banc court addressed commonality and predominance together because, under Third Circuit precedent, "the Rule 23(a) commonality requirement [is] incorporated into the more stringent Rule 23(b)(3) predominance requirement[.]" Id. at 297 (internal quotation marks omitted). The court found both. The classes shared common questions of fact: whether De Beers engaged in anticompetitive activity, and whether that activity resulted in artificially inflated diamond prices. "These allegations are unaffected by the particularized conduct of individual class members, as proof of liability and liability itself would depend entirely upon De Beers's allegedly anticompetitive activities." Id. at 300. The classes also shared common questions of law: whether De Beers's anticompetitive activity violated federal and state antitrust law. Id. at 300 & n. 23. "Evidence for this legal question would entail generalized common proof as to the implementation of De Beers's conspiracy, the form of the conspiracy, and the duration and extent of the conspiracy." Id. at 300 (internal quotation marks and alteration omitted). These questions, according to the en banc court, satisfied the Dukes mandate that the common questions result in common answers. "[T]he answers to questions about De Beers's alleged misconduct and the harm it caused would be common as to all of the class members, and would thus inform the resolution of the litigation if it were not being settled." Id. at 299-300.
In Ross v. RBS Citizens, N.A., 667 F.3d 900 (7th Cir.2012), a proposed class of over 1,000 current and former employees of Charter One, which operated over 100 banks in Illinois, alleged that the bank maintained an unofficial policy of denying overtime pay to its employees. The class asserted violations of the Fair Labor Standards Act and the Illinois Minimum Wage Law. Id. at 902-03. The district court
This case is more similar to Sullivan, Ross, and McReynolds than to Dukes. The common factual question in this case is what actions Heartland took before, during, and after the data breach to safeguard the Consumer Plaintiffs' financial information. As in Sullivan, "the answers to questions about [Heartland]'s alleged misconduct and the harm it caused would be common as to all of the class members, and would thus inform the resolution of the litigation if it were not being settled." 667 F.3d at 299-300; see also Ross, 667 F.3d at 908 ("To satisfy the commonality element, it is enough for plaintiffs to present just one common claim."). Questions of law common to all class members include whether Heartland's actions violated the Fair Credit Reporting Act.
This element of Rule 23(a) "requires that the named representatives' claims be typical of those of the class." Langbecker v. Elec. Data Sys. Corp., 476 F.3d 299, 314 (5th Cir.2007). Typicality, according to the Fifth Circuit,
James, 254 F.3d at 571 (quoting 5 JAMES WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE ¶ 23.24 (3d ed. 2000)).
The representative plaintiffs' Fair Credit Reporting Act claim is typical of the class claim. Whether Heartland's conduct violated the Act is common throughout the class. Because this claim revolves around Heartland's conduct, as opposed to the characteristics of a particular class member's claim, no individualized proof will be necessary to determine Heartland's liability under the Act.
The state-law claims also meet the typicality requirement. Although the parties did not present information about the applicable laws of the fifty states and the District of Columbia, presumably variations exist among them. District courts are divided as to when variations in state law in a multistate class action defeat typicality.
The typicality requirement of Rule 23(a) is satisfied.
4. Adequate Representation
"To meet Rule 23 requirements [for adequate representation], the court must find that class representatives, their counsel, and the relationship between the two are adequate to protect the interests of absent class members." linger v. Amedisys Inc., 401 F.3d 316, 321 (5th Cir. 2005). Counsel must be both competent and zealous in representing class interests. See, e.g., Feder v. Elec. Data Sys. Corp., 429 F.3d 125, 130 (5th Cir.2005). Class representatives "must satisfy the court that they, and not counsel, are directing the litigation. To do this, class representatives must show themselves sufficiently informed about the litigation to manage the litigation effort." Unger, 401 F.3d at 321. Finally, "the Rule 23 adequacy inquiry also uncovers conflicts of interest between the named plaintiffs and the class they seek to represent." Langbecker, 476 F.3d at 314 (internal quotation marks omitted); accord Amchem, 521 U.S. at 625, 117 S.Ct. 2231. "[I]ntraclass conflicts may negate adequacy under Rule 23(a)(4)." Langbecker, 476 F.3d at 315. According to the Third Circuit, adequacy of representation is the most important single factor in determining whether to certify a settlement class. See In re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d 283, 308 (3d Cir.1998) ("Indeed, the key to Amchem appears to be the careful inquiry into adequacy of representatives.").
The dual requirements of class counsel's competence and zeal are satisfied here. The three co-lead class counsel — Ben Barnow, Lance Harke, and Burton Finkelstein — each have extensive experience representing consumers, and other plaintiff classes, in class-action litigation. (See Docket Entry No. 9, Ex. A). Barnow and Finkelstein, in particular, also have
Analyzing adequacy of the class representatives focuses on whether there are intraclass conflicts between the class representatives and those they seek to represent. See Langbecker, 476 F.3d at 314. A class representative must "possess the same interest and suffer the same injury as the class members." Amchem, 521 U.S. at 625-26, 117 S.Ct. 2231 (internal quotation marks omitted). The class representatives have the same interests, and assert the same type of injury, as the members they seek to represent. Neither Heartland nor any objector has raised any fundamental intraclass conflict, and the record discloses none. The definition of compensable "Losses" in the Agreement reduces differences in damages among class members and between the representatives and absent members.
Adequacy also implicates the class representatives' involvement in the litigation. In Unger, a securities class action, the Fifth Circuit stated that adequate representation requires the class representatives to "show themselves sufficiently informed about the litigation to manage the effort," given that they — not class counsel — must "direct the litigation." 401 F.3d at 321. The Unger court cited Berger v. Compaq Computer Corp., 257 F.3d 475, 482 (5th Cir.2001), another securities class action. The Ninth Circuit has limited the so-called Berger requirement to securities cases. See In re Cavanaugh, 306 F.3d 726, 736-37 (9th Cir.2002); see also 1 WILLIAM B. RUBENSTEIN ET AL., NEWBERG ON CLASS ACTIONS § 3.52 & n. 15 (5th ed. 2011); 29A EDWARD K. ESPING ET AL., FEDERAL PROCEDURE, LAWYERS' EDITION § 70:374 (2012). The Fifth Circuit has not similarly limited Berger.
Nonetheless, Berger's "generic standard" has not been applied in the Fifth Circuit outside the securities context. Although some district courts in the circuit have extended it beyond the securities cases, see Ogden v. AmeriCredit Corp., 225 F.R.D. 529, 532 n. 2 (N.D.Tex.2005) (discussing the Berger requirement's applicability outside the securities context and citing cases), courts have not extended the Berger requirement to a negative-value consumer class action such as this case.
As is true in many consumer-class actions comprised of negative-value individual claims, no single class member here has a sufficient stake to be closely involved in the litigation. See Creative Montessori, 662 F.3d at 917. Given the minimal individual stakes, Heartland's general denial of wrongdoing, and the complexities of crafting a class-action settlement, individual class members cannot plausibly be expected to have significant involvement. Far more important to the determination of adequacy than the submission of perfunctory declarations or brief deposition testimony are whether class counsel can adequately represent the class (yes), and whether any intraclass conflicts make the class representatives inadequate representatives of the class (no). Given the nature of this case, the record as to class counsel, and the absence of intraclass conflicts, there is no basis to find inadequate representation merely because the Consumer Plaintiffs have not submitted evidence on the class representatives' involvement in the litigation and the settlement.
B. Rule 23(b)(3)
In addition to satisfying the Rule 23(a) requirements, "[t]he proposed class must also satisfy the requirements of Rule 23(b)(1), (2), or (3)." In re Wilborn, 609 F.3d 748, 755 (5th Cir.2010). Under (b)(3), the Consumer Plaintiffs must establish that "questions of law or fact common to class members predominate over any questions
"The Rule 23(b)(3) predominance inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation." Amchem, 521 U.S. at 623, 117 S.Ct. 2231; cf. AGGREGATE LITIGATION § 3.06 cmt. a ("So long as there is sufficient commonality to establish that the class is generally cohesive, the propriety of a settlement need not depend on satisfaction of a `predominance' requirement."). The Fifth Circuit recently compared this inquiry to the commonality question;
Wilborn, 609 F.3d at 755 (internal quotation marks, footnotes, and citation omitted).
A threshold issue is whether variations in state law "swamp any common issues and defeat predominance." Cole v. Gen. Motors Corp., 484 F.3d 717, 724 (5th Cir.2007) (internal quotation marks omitted). A district court's "[f]ailure to engage in an analysis of state law variations is grounds for decertification." Id.; cf. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1022 (9th Cir.1998) ("Variations in state law do not necessarily preclude a 23(b)(3) action, but class counsel should be prepared to demonstrate the commonality of substantive law applicable to all class members." (citing Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 821-23, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985))). "[V]ariations in state law do not necessarily defeat predominance[.]" Sullivan, 667 F.3d at 297. In Sullivan, the question before the en banc Third Circuit was whether variations in state law that kept class members in certain states from recovering on the class claims defeated predominance. The original panel held that the case could not be certified for settlement because such variations in the applicable law meant that the claim did "not give rise to a legal right to recovery in all of the jurisdictions implicated by a nationwide class." Sullivan v. DB Invs., Inc., 613 F.3d 134, 151 (3d Cir.2010). On rehearing, the en banc court explained that predominance was nonetheless satisfied. The fact that the Sullivan class was certified for settlement, rather than litigation, was "a particularly important point[.]" 667 F.3d at 303. The en banc majority found that those objecting to the predominance conclusion "seem to conflate the predicate predominance analysis for certification of a settlement class with that required for certification of a litigation class, relying exclusively upon cases implicating the manageability obstacles inherent in class litigation." Id.
One of the cases cited was the Fifth Circuit's decision in Cole, a nationwide class action arising from General Motors's voluntary recall of certain models due to airbag defects. Three affected owners sued the auto manufacturer for breach of express and implied warranties and sought to represent everyone in the nation who owned a recalled model. 484 F.3d at 718-20. General Motors argued that the state-law variations on reliance and recovery for a latent defect defeated predominance. Id. at 725. The Fifth Circuit agreed that the class could not be certified for the purpose of litigation:
Id. at 726. The Fifth Circuit decertified the class. The en banc court in Sullivan emphasized that because the certification was for settlement only, unlike in Cole, "the concern for manageability that is a central tenet of a litigation class is removed from the equation." 667 F.3d at 302. The Sullivan court continued:
Id. at 303-04 (internal footnotes omitted). The court conceded that there may be some cases in which "variations in state laws are so significant so as to defeat commonality and predominance even in a settlement class action[.]" Id. at 304 n. 30 (internal quotation marks omitted). But when "the several common questions of law or fact aris[e] from a single central issue — namely, De Beers's alleged anticompetitive conduct and the resulting injury caused to each class member" — common issues clearly predominated over individual issues. Id. (internal quotation marks omitted).
The present case is more like Sullivan than Cole, but the certification issue is much easier here than it was in Sullivan. Like Sullivan, this class is certified for settlement. Unlike Sullivan, in which numerous members objected, this proposed settlement drew only one objector. Also unlike Sullivan, any state-law variations here do not approach the level of precluding the ability of class members in certain states even to state a claim. Instead, any variations that might be present are well within the range of those affecting only trial manageability. When "[c]onfronted with a request for settlement-only class certification, a district court need not inquire whether the case, if tried, would present intractable management problems" — such as the need to present differing proof state-by-state or for the court to formulate differing jury instructions state-by-state — "for the proposal is that there be no trial." Amchem, 521 U.S. at 620, 117 S.Ct. 2231.
As in Sullivan, this case presents several common questions of law and fact arising from a central issue: Heartland's conduct before, during, and following the data breach, and the resulting injury to each class member from that conduct. Given the settlement posture of this case and the Fair Credit Reporting Act claim, the common questions predominate over individual issues.
Superiority examines whether a class action is a better vehicle for resolving a case than other possible methods, such as individual litigation or consolidation. The Rule lists four nonexhaustive factors relevant to superiority:
FED. R. CIV. P. 23(b)(3). Under Amchem, this fourth factor may be disregarded in a proposed settlement-only class. 521 U.S. at 620, 117 S.Ct. 2231.
The predominance and superiority inquiries are closely related. See Sacred Heart Health Sys., Inc. v. Humana Military Healthcare Servs., Inc., 601 F.3d 1159, 1184 (11th Cir.2010). "The most compelling rationale for finding superiority in a class action" is "the existence of a negative value suit[.]" Castano v. Am. Tobacco Co., 84 F.3d 734, 748 (5th Cir. 1996). The finding that common issues of law and fact predominate over individual issues, and the fact that this suit is a consumer class action comprised of negative-value suits, are important. Superiority is satisfied.
C. Conclusion as to Rule 23 Requirements
The proposed class meets the Rule 23 requirements for certification as a settlement-only class action. The motion for class certification, for the purpose of settlement, is granted.
III. Settlement Review
Federal Rule of Civil Procedure 23(e) requires court approval of a class settlement and establishes certain procedures:
FED. R. CIV. P. 23(e). The court addresses each of these five requirements, with the (e)(2) fairness requirement discussed last.
"There are no rigid rules to determine whether a settlement notice satisfies constitutional or Rule 23(e) requirements[.]" Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 114 (2d Cir.2005). Instead, "a settlement notice need only satisfy the broad reasonableness standards imposed by due process." In re Katrina Canal Breaches Litig., 628 F.3d 185, 197 (5th Cir.2010) (internal quotation marks omitted). Due process is satisfied if the notice provides class members with the "information reasonably necessary for them to make a decision whether to object to the settlement." Id.; see also Wal-Mart Stores, 396 F.3d at 114 (explaining that "the settlement notice must fairly apprise the prospective members of the class of the terms of the proposed settlement and of the options that are open to them in connection with the proceedings" (internal quotation marks omitted)); AGGREGATE LITIGATION § 3.04(a) ("The purpose of a notice of a proposed class settlement is to set forth the major contours of the proposal and to inform class members of their right to attend the fairness hearing and to lodge written objections by a prescribed date should they so desire.").
In moving for preliminary approval of the settlement, the Consumer Plaintiffs submitted proposed summary and detailed notices. (Docket Entry No. 76, Ex. 4).
The notice that has been given clearly complies with Rule 23(e)(1)'s reasonableness requirement. The plan proposed by Hilsoft Notifications, (see Docket Entry No. 76, Ex. 2), included summary notices placed in the two most popular Sunday newspaper supplements, Parade and USA Weekend, as well as in four popular national magazines; Internet advertisements on 24/7 Real Media, Yahoo.com, and MSN.com; and a press release submitted to nearly 4,500 major U.S. press outlets. (Id., at 6).
Both the summary notice and the detailed notice provided the information reasonably necessary for the presumptive class members to determine whether to object to the proposed settlement. See Katrina Canal Breaches, 628 F.3d at 197. Both the summary notice and the detailed notice "were written in easy-to-understand plain English." In re Black Farmers Discrimination Litig., ___ F.Supp.2d ___, ___, 2011 WL 5117058, at *23 (D.D.C. 2011); accord AGGREGATE LITIGATION § 3.04(c).
B. Side Agreements
Rule 23(e) requires "[t]he parties seeking approval [to] file a statement identifying any Agreement made in connection with the proposal." FED. R. CIV. P. 23(e)(3). This requirement does not concern disclosure of the basic settlement terms; "[i]t aims instead at related undertakings that, although seemingly separate, may have influenced the terms of the settlement by trading away possible advantages for the class in return for advantages for others." Id. Committee Notes (2003). "The spirit of [formerly numbered] Rule 23(e)(2) is to compel identification of any agreement or understanding," written or oral, "that might have affected the interests of class members by altering what they may be receiving or foregoing." MANUAL FOR COMPLEX LITIGATION (FOURTH) § 21.631 (2004) ["MANUAL"].
Aside from the general settlement terms, Heartland has agreed to pay class counsel up to $725,000 and $35,000 in attorneys' fees and costs, respectively; and to pay $200 and $100 to each representative plaintiff and named plaintiff, respectively, in incentive awards. (Docket Entry No. 57, ¶¶ 7.2-.3). The parties have stated that they did not discuss the specific amounts of attorneys' fees and costs and incentive awards "until after the substantive terms of the settlement had been agreed upon, other than that Heartland would pay" such reasonable fees, costs, and awards. (Id., ¶ 7.1). All the amounts are subject to court review and approval. (See id., ¶¶ 7.1-.3).
C. An Additional Opt-Out Opportunity
A certifying court may refuse to approve a settlement unless it provides an additional opportunity for class members to opt out. See FED. R. CIV. P. 23(e)(4); Tardiff v. Knox Cnty., 567 F.Supp.2d 201, 209 (D.Me.2008). The 2003 amendments to the Federal Rules explain:
FED. R. CIV. P. 23(e)(4) Committee Notes (2003). Rule 23(e)(4) comes into play when the opt-out opportunity expired before the members received notice of a proposed settlement. It is inapplicable here.
Class members must be provided an opportunity to object to the proposed settlement. FED. R. CIV. P. 23(e)(5). The order preliminarily approving the settlement outlined the process for objecting. (Docket Entry No. 85, ¶ 19). Both the summary notice and detailed notice informed class members of their right to object. (Docket Entry No. 76, Ex. 2). Only one person objected. It appears that he believes that
E. Fair, Reasonable, and Adequate
Finally, "the court may approve [the proposed settlement] only after a hearing and on finding that it is fair, reasonable, and adequate." FED. R. CIV. P. 23(e)(2). This court held a final fairness hearing on December 13, 2010. (Docket Entry No. 110). The lone objector informed the court that he did not intend to appear. (Docket Entry No. 100, at 2).
The Fifth Circuit lists six factors that a district court must consider in determining the fairness, reasonableness, and adequacy of a proposed settlement:
All Plaintiffs v. All Defendants, 645 F.3d 329, 334 (5th Cir.2011) (internal quotation marks omitted).
"A proposed settlement need not obtain the largest conceivable recovery for the class to be worthy of approval; it must simply be fair and adequate considering all the relevant circumstances." Klein, 705 F.Supp.2d at 649. At the same time, "a proposed settlement in which the class receives an insubstantial payment while the fees requested by counsel are substantial could raise fairness concerns." AGGREGATE LITIGATION § 3.05 cmt. b.
The Reed factors are examined below.
1. Evidence of Fraud or Collusion
"The Court may presume that no fraud or collusion occurred between counsel, in the absence of any evidence to the contrary." Klein, 705 F.Supp.2d at 651 (quoting Liger v. New Orleans Hornets NBA Ltd. P'ship, Civ. A. No. 05-1969, 2009 WL 2856246, at *3 (E.D.La. Aug. 28, 2009)). There has been no suggestion of any fraud or collusion. Nor does the record support such a finding. See DeHoyos v. Allstate Corp., 240 F.R.D. 269, 287 (W.D.Tex.2007) ("[T]here are no allegations or indications of fraud or collusion."). Counsel for Heartland has described the arm's-length negotiations that resulted in
"It is common practice today for class counsel to negotiate a specific fee award after they have successfully negotiated the class's recovery." Turner v. Murphy Oil USA, Inc., 472 F.Supp.2d 830, 844 (E.D.La.2007) (citing cases). "Because the parties have not agreed to an amount or even a range of attorneys' fees, there is no threat of the issue explicitly tainting the fairness of settlement bargaining." Id. at 845; see also In re Combustion, Inc., 968 F.Supp. 1116, 1127 (W.D.La.1997) ("Further, testimony was presented that the matter of attorneys' fees was not negotiated in conjunction with the settlement agreements but left for separate determination by the Court.").
Here, as in Turner, the parties negotiated and agreed to the proposed settlement before reaching the issue of attorneys' fees. Their agreement on attorneys' fees is subject to court review and approval. This factor supports approval of the settlement.
2. Complexity, Expense, and Duration of Litigation
"When the prospect of ongoing litigation threatens to impose high costs of time and money on the parties, the reasonableness of approving a mutually-agreeable settlement is strengthened." Klein, 705 F.Supp.2d at 651 (citing Ayers v. Thompson, 358 F.3d 356, 369 (5th Cir. 2004)). Although this case was settled less than four months after this court ordered a master complaint filed, (Docket Entry No. 21), and before dispositive motions, Heartland repeatedly denied its liability and planned to file a motion to dismiss. Likely motions would have raised choice-of-law issues and required resolving somewhat novel questions of state law. Litigating this case to trial would be time consuming, and "[i]nevitable appeals would likely prolong the litigation, and any recovery by class members, for years." Rodriguez v. West Pub'g Corp., 563 F.3d 948, 966 (9th Cir.2009); see also Wal-Mart Stores, 396 F.3d at 118. This second factor supports approving the settlement.
3. The Stage of Litigation and the Available Discovery
Under the third Reed factor, the key issue is whether "the parties and the district court possess ample information with which to evaluate the merits of the competing positions." Ayers, 358 F.3d at 369. "A settlement can be approved under this factor even if the parties have not conducted much formal discovery." Klein, 705 F.Supp.2d at 653 (citing, for example, Cotton v. Hinton, 559 F.2d 1326, 1332 (5th Cir.1977)); see also Union Asset Mgmt. Holding A.G. v. Dell, Inc., 669 F.3d 632, 639 (5th Cir.2012) (agreeing with district court's conclusion that "formal discovery is not a prerequisite to approving a settlement as reasonable"). The "[s]ufficiency of information does not depend on the amount of formal discovery which has been taken because other sources of information may be available to show the settlement may be approved even when little or no formal discovery has been completed." San Antonio Hispanic Police Officers' Org., Inc. v. City of San Antonio, 188 F.R.D. 433, 459 (W.D.Tex.1999). "The Court should consider all information which has been available to all parties." DeHoyos, 240 F.R.D. at 292.
4. The Probability of Success on the Merits
The probability of success on the merits is the most important Reed factor. Smith v. Crystian, 91 Fed.Appx. 952, 954 n. 3 (5th Cir.2004) (per curiam) (citing Parker v. Anderson, 667 F.2d 1204, 1209 (5th Cir.1982)); accord, e.g., Poplar Creek Dev. Co. v. Chesapeake Appalachia, L.L.C., 636 F.3d 235, 245 (6th Cir.2011). "In evaluating the likelihood of success, the Court must compare the terms of the settlement with the rewards the class would have been likely to receive following a successful trial." DeHoyos, 240 F.R.D. at 287 (citing Reed, 703 F.2d at 172); see also Poplar Creek, 636 F.3d at 245 ("The likelihood of success, in turn, provides a gauge from which the benefits of the settlement must be measured." (internal quotation marks omitted)). At the same time, a district court "must not try the case in the settlement hearings because the very purpose of the compromise is to avoid the delay and expense of such a trial." Reed, 703 F.2d at 172 (internal quotation marks and alteration omitted). This factor favors approval of the settlement when the class's likelihood of success on the merits is questionable. See In re Corrugated Container Antitrust Litig., 659 F.2d 1322, 1326-27 (5th Cir.1981) (affirming district court's finding that this factor favored approving the settlement when the class faced major obstacles in establishing proof of liability and damages); DeHoyos, 240 F.R.D. at 290 ("Because the laws of numerous states may be relevant to individual class member claims, plaintiffs would apparently face a further significant challenge to certifying the class outside the settlement context."); Combustion, 968 F.Supp. at 1128 ("On the other hand, Plaintiffs will have very serious legal and evidentiary hurdles to meet in order to get their case to the jury.").
In this case, it is uncertain whether the Consumer Plaintiffs could succeed at trial, let alone reach it. Heartland's counsel explained that they were planning to move to dismiss or, failing that, for summary judgment when counsel for the Consumer Plaintiffs "dragged us, perhaps kicking and screaming, to a settlement[.]" (Docket Entry No. 87, at 46). Heartland's dispositive motions would have raised legal issues difficult for the Consumer Plaintiffs to overcome. For example, the Consumer Plaintiffs assert a cause of action for breach of contract, but they were not parties to those contracts. These allegedly breached contracts were between Heartland and merchants whose goods and services the consumers bought using payment cards. The Consumer Plaintiffs would have to show that they were third-party beneficiaries to those contracts. See generally Heartland II, 834 F.Supp.2d at 577-81, 2011 WL 6012598, at *5-8 (dismissing the Financial Institution Plaintiffs' similar breach-of-contract claim). The Consumer
A similar problem arises with respect to the Consumer Plaintiffs' Fair Credit Reporting Act claim. One of the Act's requirements is that "[a]ny person who maintains or otherwise possesses consumer information for a business purpose must properly dispose of such information by taking reasonable measures to protect against unauthorized access to or use of the information in connection with its disposal." 16 C.F.R. § 682.3(a) (emphasis added). This regulation provides examples of "reasonable measures," including "[i]mplementing and monitoring compliance with policies and procedures that protect against unauthorized or unintentional disposal of consumer information." Id. § 682.3(b)(4). A factfinder could conclude that Heartland had implemented reasonable policies and procedures to protect against data breaches. In sum, the Consumer Plaintiffs face numerous legal obstacles in establishing liability on the merits of their claims.
Class certification for litigation also presented uncertainties. The Consumer Plaintiffs asserted claims under the laws of the fifty states and the District of Columbia. Absent settlement, the state-law variations would have to be analyzed carefully to be sure they did not make trial unmanageable. This would present "a further significant challenge to certifying the class." DeHoyos, 240 F.R.D. at 290 (citing Castano, 84 F.3d at 741).
Against these risks are the concrete benefits that the proposed settlement provides the Consumer Plaintiffs. For those class members with valid claims — whether for fraudulent charges, identity theft, or lost time — this settlement allows them to recover without the risks or delays of continued litigation. The amounts likely will not be significantly less than the amounts they would recover were this case to proceed to trial. Because of the class's sheer size, a claims process similar to the one called for in the proposed settlement would be required. That process would result in class members with valid claims recovering either the same or slightly more than the amount they would get under the settlement. But the settlement provides an efficient and certain result that outweighs slightly higher recovery, accompanied by significant risks of no recovery whatsoever and a certainty of delay.
5. The Range of Possible Recovery and Certainty of Damages
This factor requires the district court to "establish the range of possible damages that could be recovered at trial and, then, by evaluating the likelihood of prevailing at trial and other relevant factors, determine whether the settlement is pegged at a point in the range that is fair to the plaintiff settlors." Maher v. Zapata Corp., 714 F.2d 436, 460 (5th Cir. 1983) (internal quotation marks omitted) (quoting In re Corrugated Container Antitrust Litig., 643 F.2d 195, 213 (5th Cir. 1981)). The district court's consideration of this factor "can take into account the challenges to recovery at trial that could preclude the class from collecting altogether, or from only obtaining a small amount." Klein, 705 F.Supp.2d at 656. The question is not whether the parties have reached "exactly the remedy they would have asked the Court to enter absent the settlement," but instead "whether the settlement's terms fall within a reasonable range of recovery, given the likelihood of the plaintiffs' success on the merits." Id. (internal quotation marks omitted).
A district court's failure or inability to establish the range of possible recovery is not necessarily error. In Maher, the parties did not "provide the court with an express estimate of the range of monetary recovery should plaintiffs prevail at trial." 714 F.2d at 460. Instead, the parties "provided the district court with their arguments and positions respecting the merits of the claims being asserted and compromised, the risks of litigation, and the benefits of the compromise." Id. Under such circumstances, and given the district court's otherwise "sufficient" analysis of the proposed settlement's fairness, the Fifth Circuit refused to overturn the settlement because the district court had not given an estimate. Id. at 461; accord San Antonio Hispanic Police Officers' Org., 188 F.R.D. at 460.
In this case, estimating the range of possible recovery — in particular, the upper band of recovery — is difficult. As the analysis of the fourth Reed factor (probability of success on the merits) demonstrates, the lower band of the Consumer Plaintiffs' range of recovery is zero: a nationwide or multistate class perhaps could not be certified under Rule 23, or a judge or jury could conclude that Heartland was not liable. Although neither the Consumer Plaintiffs nor Heartland provided this court with an estimate of the maximum amount of class recovery, the upper band is likely to be far less than what the proposed settlement provides. As of the final fairness hearing, fewer than 300 class members had filed a claim. Only 11 were valid. (Docket Entry No. 111, at 6). Given that the Consumer Plaintiffs' claims require each class member to prove individual damages, even if a trial resulted in a liability finding, the damages exposure is not properly measured by taking some number and multiplying it by the number of class members because there were so few claims filed, even after the extensive notice campaign.
The cy pres provision is essentially the damage award. Because no cy pres payments are to be made until class members had ample opportunity to file claims, the cy pres provision did not divert funds that class members otherwise were entitled to recover. The cy pres provision will indirectly benefit not just the class members, but all payment-card holders. See DeHoyos, 240 F.R.D. at 290 ("The undisputed record reveals the settlement will not only provide significant benefits to members of the plaintiffs' class, but to policyholders throughout the country as well.").
6. The Opinions of Class Counsel, Class Representatives, and Absent Class Members about the Settlement
"The endorsement of class counsel is entitled to deference, especially in light of class counsel's significant experience in complex civil litigation and their lengthy opportunity to evaluate the merits of the claims." DeHoyos, 240 F.R.D. at 292; see also Stott, 277 F.R.D. at 346 ("As class counsel tends to be the most familiar with the intricacies of a class action lawsuit and settlement, `the trial court is entitled to rely upon the judgment of experienced counsel for the parties.'" (quoting Cotton, 559 F.2d at 1330)). But a court should not blindly defer to class counsel's opinion. "Rather, the Court must give class counsel's recommendations appropriate weight in light of all the factors surrounding the settlement." Turner, 472 F.Supp.2d at 852.
Class counsel have enthusiastically endorsed the settlement. One of the co-lead class counsel has called the settlement "excellent" because "it maximizes what could have been obtained for the consumers, and it delivers a real remedy." (Docket Entry No. 111, at 42). Class counsel are experienced not just in class-action litigation generally but in data-breach class-action litigation specifically. Their opinion is consistent with the results of analyzing the proposed settlement's fairness under the other Reed factors.
Class counsel have not provided separate evidence on the opinions of the class representatives or members, but of the millions of absent class members, only one has objected. "Receipt of few or no objections `can be viewed as indicative of the adequacy of the settlement.'" Enron I, 228 F.R.D. at 567 (quoting 4 HERBERT B. NEWBERG, NEWBERG ON CLASS ACTIONS § 1141 (4th ed. 2002)); accord, e.g., Sullivan, 667 F.3d at 321. This is particularly true when there has been an energetic notice campaign. DeHoyos, 240 F.R.D. at 293 (citing cases). Heartland does not dispute the estimate that approximately 81 % of the class received notice of the proposed settlement. (See Docket Entry No. 106, ¶ 6(a)). Only one class member objected and did so not on the basis that the settlement is unfair to the class members, but instead on the basis that the settlement is unfair to Heartland because the data breach did not cause consumers harm.
7. Result of the Reed Analysis
All six Reed factors favor approving the proposed settlement. The court concludes that the proposed settlement is fair, reasonable, and adequate under Rule 23(e). The terms are approved.
IV. Attorneys' Fees, Costs, and Incentive Payments
Rule 23(h) authorizes a district court to "award reasonable attorney's fees and nontaxable costs that are authorized by law or by the parties' agreement." FED. R. CIV. P. 23(h). Courts, including in the Fifth Circuit, "have encouraged litigants to resolve fee issues by agreement, if possible." DeHoyos, 240 F.R.D. at 322 (citing cases, including Johnson v. Ga. Highway Express, Inc., 488 F.2d 714, 720 (5th Cir.1974)). But "a district court is not bound by the agreement of the parties as to the amount of attorneys' fees." Strong v. BellSouth Telecomms., Inc., 137 F.3d 844, 849 (5th Cir.1998) (internal quotation marks omitted). A court must carefully review a proposed fee award to ensure reasonableness. See id. Such scrutiny is necessary to "guard against the public perception that attorneys exploit the class action device to obtain large fees at the expense of the class." In re High Sulfur Content Gasoline Prods. Liab. Litig., 517 F.3d 220, 228 (5th Cir.2008) (internal quotation marks omitted).
One district court in this circuit has suggested that a presumption of reasonableness applies when a requested fee award is independent from the class-recovery fund and the parties did not negotiate the fee until after they agreed on other terms. See DeHoyos, 240 F.R.D. at 322-23. For this proposition, DeHoyos cited two cases: McBean v. City of New York, 233 F.R.D. 377, 392 (S.D.N.Y.2006), and In re First Capital Holdings Corp. Fin. Prods. Securities Litig., MDL No. 901, 1992 WL 226321, at *4 (C.D.Cal. June 10, 1992). No Fifth Circuit case, however, supports a presumption of reasonableness for a fee award, even if the award was agreed to after the settlement terms were negotiated and is to be paid separate from the class recovery. In Strong v. BellSouth Telecommunications, the Fifth Circuit expressly rejected class counsel's contention "that the district court's responsibility to address attorneys' fees is circumscribed when the parties agree to the amount of fees[.]" 137 F.3d at 849. BellSouth had agreed to a settlement in which it would deposit up to $64 million into a common fund and agreed to pay $6 million to class counsel for fees and costs. The district court, however, awarded $4.5 million in fees. Id. at 847-48. On appeal, the Fifth Circuit stated that
Id. at 849-50.
In this case, class counsel have moved for $725,000 in fees and $35,000 in costs. (Docket Entry No. 107, ¶ 6). Heartland agreed to pay up to these amounts. (Docket Entry No. 57, ¶ 7.2). Class counsel has explained that they arrived at these amounts using a lodestar analysis, cross-checked by the Johnson factors. (Docket Entry No. 107, ¶ 6). According to the most recent fees-and-costs reports, class counsel billed over 1,960 hours on this case. Multiplied by the various hourly rates charged by class counsel, their lodestar fees exceeded $866,000 and actual costs totaled over $43,000. (Docket Entry No. 113, Ex. 2). The requested award of $725,000 results from a 0.837 negative multiplier. (Docket Entry No. 108, at 20).
In common-fund cases-in which class counsel is compensated from the general fund used to pay class members' damages and claims
Dell, 669 F.3d at 642-43. Under the lodestar method as applied in this circuit, the upward or downward adjustment is based on the court's review of the factors set out in Johnson v. Georgia Highway Express, 488 F.2d at 717-19. The twelve Johnson factors are:
Dell, 669 F.3d at 642 n. 25. "The Johnson factors are intended to ensure `a reasonable fee.'" Id. (quoting Johnson).
Having two funds — one for the claimants, one for the attorneys — is a well-recognized variant of a common-fund arrangement. "A variant on the traditional common-fund case occurs frequently in mass tort litigation — in both class actions and large consolidations — where a separate fund to pay attorney fees is created as a part of the settlement." MANUAL § 14.11. Such an arrangement is sometimes called a "constructive common fund."
Johnston, 83 F.3d at 245-46 (citing In re Gen. Motors).
Many courts and commentators have concluded that the best approach is to use
In this case, class counsel had the benefit of the warning issued in the TJX Companies settlement. Counsel also had the benefit of the guidance provided by the cases and authorities cited above. In this case, unlike TJX Companies, class counsel were put on notice at the preliminary fairness hearing that the court was very concerned about the lack of "direct benefits" to class members under the proposed settlement. (Docket Entry No. 87, at 56). This court also noted that "the amount of fees ... does not depend for its justification as reasonable entirely on the amount of money made either available or distributed directly, but also on the amount of
B. The Percentage Method
"The first step under the [percentage] method requires determining the actual monetary value conferred to the class members by the settlement." Bussie v. Allamerica Fin. Corp., No. Civ. A. 97-40204-NMG, 1999 WL 342042, at *2 (D.Mass. May 19, 1999). The court then sets the benchmark percentage to be applied to this value. After setting the benchmark, the district court in In re Dell Inc., No. A-06-CA-726-SS, 2010 WL 2371834 (W.D.Tex. June 11, 2010), applied the Johnson factors to determine whether a positive or negative adjustment of the benchmark was warranted. Id. at *13. Affirming Dell, the Fifth Circuit approved of the district court's application of this "blended percentage method" or "hybrid percentage method."
1. Valuing the Settlement
"In cases involving a claims procedure or a distribution of benefits over time, the court should not base the attorney fee award on the amount of money set aside to satisfy potential claims. Rather, the fee awards should be based only on the benefits actually delivered." MANUAL § 21.71. Class counsel's valuation of the benefits as exceeding $4.85 million includes:
(Docket Entry No. 107, ¶ 5). The court discusses each component below.
a. Reimbursement of Losses
Class counsel values this component at $2.4 million. Heartland deposited $1 million in escrow for reimbursing claimants. Although Heartland agreed that it would deposit up to an additional $1.4 million into the fund (for a total of $2.4 million) if needed to pay the class claims, that proved wholly unnecessary. (Docket Entry No. 57, ¶ 2.1(a)). As of December 2010, class members had filed 11 valid claims for out-of-pocket expenses resulting from the breach. (Docket Entry No. 111, at 6). Neither counsel indicated that any of these claims were identity-theft-related. Assuming that each of these claims received the maximum amount for out-of-pocket expenses ($175), that would amount to a total cash payment to class members of $1,925. (See Docket Entry No. 57, ¶ 2.2(b)).
The deadline for filing claims, August 2011, has long passed. (See id., ¶ 2.2(c)). Since the final fairness hearing held in December 2010, neither party has submitted information about any other valid
The record is clear that $2.4 million was never distributed to the class, directly or indirectly. Heartland deposited $1 million, and the Agreement capped its liability at that amount if the claims did not exceed it. That distinguishes this case from TJX Companies, in which the parties agreed to no cap on the possible settlement amount.
The answer to the first step is clear: the total amount Heartland made available to the class is $1 million. It is also clear that only $1,925 of the $1 million has gone directly to the class members. The issue is the value of the benefit conferred by the cy pres award of $998,075 paid to third-party organizations.
b. The Propriety and Value of the Cy Pres Payment
The cy pres payment is proper because the recipients "reasonably approximate [the interests] being pursued by the class." AGGREGATE LITIGATION § 3.07(c); see also, e.g., Nachshin v. AOL, LLC, 663 F.3d 1034, 1036 (9th Cir.2011) ("Cy pres distributions must account for the nature of the plaintiffs' lawsuit, the objectives of the underlying statutes, and the interests of the silent class members, including their geographic diversity."); Klier v. Elf Atochem N. Am., Inc., 658 F.3d 468, 474-75 (5th Cir.2011) (explaining that "a cy pres distribution is designed to be a way for the court to put any unclaimed settlement funds to their next best compensation use, e.g., for the aggregate, indirect, prospective benefit of the class" in the class-action context only when it is infeasible to make further distributions to the class (internal quotation marks omitted)). Cy pres distributions have been criticized for "violating the ideal that litigation is meant to compensate individuals who were harmed."
Despite these criticisms, there is ample precedent for cy pres relief here. Under Klier, the Fifth Circuit confirmed that cy pres awards in class actions might be appropriate under two circumstances: first, it must be infeasible to distribute further proceeds from the settlement fund directly to class members; and second, "the unclaimed funds should be distributed for a purpose as near as possible to the legitimate objectives underlying the lawsuit, the interests of class members, and the interests of those similarly situated." 658 F.3d at 474-75 (quoting In re Airline Ticket Comm'n Antitrust Litig., 307 F.3d 679, 682 (8th Cir.2002)). Both circumstances are present here. First, "it is not possible to put those funds to their very best use: benefitting the class members directly," id. at 475, because the vast majority of class members did not file claims, whether from lack of interest or the absence of losses. The Agreement is organized so cy pres relief is triggered only
Finding the cy pres provision appropriate does not determine its value for the purpose of calculating attorneys' fees. The class benefit conferred by cy pres payments is indirect and attenuated. That makes it inappropriate to value cy pres on a dollar-for-dollar basis. "[B]ecause cy pres payments ... only indirectly benefit the class, the court need not give such payments the same full value for purposes of setting attorneys' fees as would be given to direct recoveries by the class." AGGREGATE LITIGATION § 3.13 cmt. a; see also FED. R. CIV. P. 23(h) Committee Notes ("Settlements involving nonmonetary provisions for class members also deserve careful scrutiny to ensure that these provisions have actual value to the class."). Even when, as here, there is a valid relationship between the class interests and the recipients of cy pres funds, those funds do not provide a direct benefit to class members and should not be valued as equal to direct payments to the class members. Discounting the amount of the cy pres payment in determining its value to the class is consistent with the nature of the indirect benefit cy pres provides to the class.
The question is how much to discount the $998,075 cy pres payment for the purpose of determining attorneys' fees. After careful consideration, the court has concluded that discounting the payment by 50% best values the benefit conferred on the class. Although the cy pres award will assist the three organizations in working on improved payment-card security, whether, when, and how much improvement will result are all speculative. Although the cy pres award is appropriate, the indirect, speculative, and deferred nature of the benefit strongly support valuing that benefit at one-half of the payment amount.
The benefit conferred on the class by the cy pres payment is valued at $499,037.50. Added to the $1,925 paid directly to class members for valid claims, the value conferred on class members by the $1 million fund the Agreement creates amounts to $500,962.50.
c. Notice Costs
Class counsel includes the approximately $1.5 million cost of implementing the notice program in valuing the settlement. When a(b)(3) class action is certified for trial rather than settlement, the plaintiffs normally bear the notice costs. See Eisen v. Carlisle & Jacquelin, 417 U.S. 156,
The cost of notice here is $1.5 million. A nationwide notice campaign intended to reach 80% of a class of over 100 million individuals is expensive. (See Docket Entry No. 85, ¶ 11). Including the notice costs in the value helps ensure that counsel work to make the notice effective and that such settlements are public and that damages are pursued. On the present record and under current law, it is appropriate to include the $1.5 million figure in valuing the settlement.
d. Claims-Processing Costs
Class counsel includes the approximate cost of administering the claims process — $270,000 — in valuing the settlement. District courts routinely include such administrative costs in calculating attorneys' fees awards. See, e.g., Amunrud v. Sprint Commc'ns Co., No. CV 10-57-BLG-CSO, 2012 WL 443751, at *2 (D.Mont. Feb. 10, 2012); Gomez v. H & R Gunlund Ranches, Inc., No. CV F 10-1163 LJO MJS, 2011 WL 5884224, at *5 (E.D.Cal. Nov. 23, 2011); Ky. Grilled Chicken, 280 F.R.D. at 385-86, 2011 WL 5599129, at *18; Serrano v. Sterling Testing Sys., Inc., 711 F.Supp.2d 402, 419 (E.D.Pa.2010). The $270,000 cost is properly included in valuing the settlement.
e. Attorneys' Fees and Costs
Class counsel asks for attorneys' fees and costs of $760,000 — the maximum amount of attorneys' fees and costs Heartland agreed to pay. Because this settlement is a variation on a common fund, the fees and costs are properly included in the settlement valuation. See, e.g., Johnston, 83 F.3d at 245-46; MANUAL § 21.7. "The award to the class and the agreement on attorney fees [and costs] represent a package deal. Even if the fees are paid directly to the attorneys, those fees are still best viewed as an aspect of the class' recovery." Johnston, 83 F.3d at 246 (citing Gen. Motors, 55 F.3d at 821); see also, e.g., Vista Healthplan, Inc. v. Warner Holdings Co.
f. Incentive Awards
Class counsel also includes the $200 and $100 incentive awards to the representative and named plaintiffs in calculating the settlement benefits. As set out in more detail below, the record does not provide a basis for incentive awards. Despite Heartland's agreement, the proposed incentive payments are not included in valuing the benefits the class received from the settlement because there is no basis in the record for approving those payments.
g. The Benefit Provided by a "Sense of Security"
During the final fairness hearing, class counsel argued that the settlement value should be enhanced to reflect a "sense of security" provided to the Consumer Plaintiffs.
The settlement provided no credit-monitoring services. The Agreement expressly excludes the costs of credit monitoring from what a class member may claim as a "Loss." (Docket Entry No. 57, ¶ 2.2(b)). The Consumer Plaintiffs received an opportunity to make valid claims for defined losses resulting from stolen payment-card information. That is far different from credit monitoring that would include alerts notifying the Consumer Plaintiffs of any problem, to minimize the potential harm caused by the data breach. Heartland did not agree to provide three-and-a-half years of free credit monitoring to the roughly one hundred million consumers in this class. That would have cost Heartland approximately $62.79 billion.
There is no indication in the record that class members in fact received any "sense of security." The evidence is that the extensive nationwide notice campaign provided class members an opportunity to file claims for defined "Losses." Only 11 valid claims resulted. This paltry result suggests that the breach had a scant impact on the consumers whose data was compromised.
h. Conclusion as to Valuation
The court values the settlement as follows:
2. Calculating the Benchmark
The next step is to determine the appropriate percentage benchmark. "The `majority of common fund fee awards fall between 20% and 30% of the fund.'" Gooch v. Life Invs. Co. of Am., 672 F.3d 402, 426 (6th Cir.2012) (quoting Waters v. Int'l Precious Metals Corp., 190 F.3d 1291, 1294 (11th Cir.1999)); see also MANUAL § 14.121 ("Attorney fees awarded under the percentage method are often between 25% and 30% of the fund."). The Ninth and Eleventh Circuit generally use a 25% benchmark for common-fund cases. E.g., Faught, 668 F.3d at 1243 (citing Camden I Condominium Ass'n, Inc. v. Dunkle, 946 F.2d 768, 774-75 (11th Cir.1991); In re Mercury Interactive Corp. Securities Litig., 618 F.3d 988, 992 n. 1 (9th Cir.2010)). The Second and Third Circuits caution district courts not to use a rigid benchmark but instead to consider the particular circumstances of each case based on factors similar to this circuit's Johnson factors. See Sullivan, 667 F.3d at 333; Goldberger, 209 F.3d at 51-52. A benchmark may be used as a starting point and then adjusted up or down under the Johnson factors, or those factors can be applied as part of deciding the benchmark.
District courts increasingly consider empirical studies analyzing class-action-settlement fee awards
The most recent empirical study by Professors Eisenberg and Miller examined data from nearly 700 common-fund settlements between 1993 and 2008.
The $3.2 million value in this case falls into the fourth decile in the Fitzpatrick table — which correlates with a mean percentage of 26.0% and a standard-deviation percentage of 6.3%.
Both these studies also examined benchmarks for different types of class actions. For consumer class actions such as this case, Eisenberg and Miller found the mean percentage to be 25%
Data from the Eisenberg and Miller as well as the Fitzpatrick studies allow this court to set a more accurate benchmark by averaging their tables. See In re Educ. Testing Serv. Praxis Principles of Learning & Teaching: Grades 7-12 Litig., 447 F.Supp.2d 612, 630 (E.D.La.2006) (setting the benchmark by averaging the mean fee percentages from two tables reported in Eisenberg & Miller I). Using the settlement value as the baseline, an average of the means from the second Eisenberg and Miller study and from the Fitzpatrick study results in a fee percentage of 26.2%. Averaging the means from the two studies
Using 25.3% as the benchmark, and before any positive or negative adjustment, the result is a fee award of $766,833.51. This award is approximately $30,000 greater than that requested by class counsel. Class counsel properly recognizes that a negative adjustment, using the Johnson factors, is appropriate to avoid a fee award that is disproportionately high in relation to the benefit the class received.
3. Applying the
Johnson Factors to the Benchmark
a. The Time and Labor Required
Examining this factor under the lodestar method requires the court to determine the reasonableness of the hours billed by class counsel. As the Fifth Circuit has explained:
Saizan v. Delta Concrete Prods. Co., 448 F.3d 795, 799 (5th Cir.2006) (per curiam) (internal footnotes omitted). The lodestar calculation, before the Johnson cross-check, accounts for billing judgment. The percentage method, by contrast, does not account for billing judgment. Billing judgment is appropriately considered in the cross-check, looking at whether the time and labor spent were required. See Dell, 2010 WL 2371834, at *15 (considering "all time that is excessive, duplicative, or inadequately documented" with respect to this factor (internal quotation marks omitted)).
According to the most recent fees-and-costs report submitted to this court, class counsel spent over 1,960 hours on this case — which, at each attorney's and staff member's billing rate, equals approximately $866,000 in attorneys' fees. (Docket Entry No. 111, Ex. 2, at 5). Counsel state that they "have devoted a significant portion of their available time to the investigation, prosecution, and settlement of this case on behalf of the Settlement class[.]" (Docket Entry No. 108, at 20).
The fees-and-costs reports do not show that counsel "wrote off" time in a way that shows billing judgment.
The court does not question the number of hours that class counsel spent. The issue is whether the time and labor were reasonable. Even recognizing that this case required confirmatory discovery, settlement negotiations, and class-action administration, the number of entries for similar work by different attorneys and the absence of any evidence of the exercise of billing judgment support a negative adjustment.
b. The Novelty and Difficulty of the Issues
Class counsel state that "[t]he issues presented by this litigation are novel and difficult" and that "liability, negligence, actual damages, and punitive damages created complex issues[.]" (Docket Entry No. 108, at 20). The case clearly presented risks of not succeeding. But none of these issues can be described as particularly novel for class counsel. Although data-breach litigation is itself relatively new, see generally Timothy H. Madden, Data Breach Class Action Litigation — A Tough Road for Plaintiffs, BOSTON BAR J., Fall 2011, at 27 (generally discussing data-breach litigation), class counsel previously litigated two very similar data-breach class actions: In re Countrywide Financial Corp. Customer Data Security Breach Litigation, No. 3:08-MD-01998, 2010 WL 3341200 (W.D.Ky. Aug. 23, 2010), and In re TJX Companies Retail Security Breach Litigation, 246 F.R.D. 389 (D.Mass.2007). And, most important, the early settlement in this case meant that counsel did not have to wrestle with the difficult issues that likely would have been presented had the litigation reached the dispositive-motions stage. This factor is at best neutral or supports some negative adjustment.
c. The Skill Required
"This factor is evidenced where `counsel performed diligently and skillfully, achieving a speedy and fair settlement, distinguished by the use of informal discovery and cooperative investigation to provide the information necessary to analyze the case and reach a resolution.'" King v. United SA Fed. Credit Union, 744 F.Supp.2d 607, 614 (W.D.Tex.2010) (quoting Di Giacomo v. Plains All Am. Pipeline, No. Civ. A. H-99-4137, H-99-4212, 2001 WL 34633373, at *12 (S.D.Tex. Dec. 19, 2001)). Another "highly important" aspect is "[t]he trial judge's expertise gained from past experience as a lawyer and [her] observation from the bench of lawyers at work[.]" In re Enron Corp. Securities, Derivative & "ERISA" Litig. ("Enron II"), 586 F.Supp.2d 732, 789 (S.D.Tex. 2008) (quoting Johnson, 488 F.2d at 718).
In certifying the class and approving the settlement, the court has discussed the numerous obstacles facing this class action in litigation. Class counsel's skill and experience with prior similar litigation clearly helped achieve an earlier resolution of this case. But this case never proceeded to formal discovery, dispositive motions, or
d. Preclusion of Other Legal Employment
Class counsel explain at greater length how this factor favors approval of its fee request:
(Docket Entry No. 108, at 21). This statement, though logically true, is incomplete, for there is no information about the "other employment." As the district judge noted in Dell, "[T]here is no evidence, such as an affidavit, cited to support this claim. There is no doubt that the attorneys did pass up other work in order to prosecute this case, but the Court cannot assume that legal work would have been more lucrative than this case without any evidence so indicating." 2010 WL 2371834, at *17. The same is true here. Moreover, much of the work in this case took place during relatively short periods. This factor is neutral.
e. Customary Fees for Similar Work in The Community
In setting the 25.3% benchmark, the court already has discussed at length the empirical data supporting the reasonableness of that percentage. The court also has noted the Fitzpatrick study, which shows the mean fee percentage award in the Fifth Circuit to be 26.4%.
f. Counsels' Preexisting Fee Agreement
"The fee quoted to the client or the percentage of the recovery agreed to is helpful in demonstrating the attorney's fee expectations when he accepted the case." Forbush v. J.C. Penney Co., 98 F.3d 817, 824 (5th Cir.1996) (internal quotation marks omitted). District courts within this circuit have found upward adjustments appropriate if counsel took the case on a contingency basis. See, e.g., Klein, 705 F.Supp.2d at 678 (percentage); DeHoyos, 240 F.R.D. at 330 (lodestar). But merely taking a case on a contingency basis does not merit an upward adjustment if the benchmark reflects the market rate. See Dell, 2010 WL 2371834, at *17. Although class counsel took this case on a contingency-fee basis, (Docket Entry No. 108, at 22), the benchmark reflects the market rate. This factor is neutral.
g. Time Limitations Imposed by the Client or by Circumstances
According to class counsel, "[t]his case has required significant attention by Co-Lead Settlement Class Counsel. Frequently, issues requiring immediate attention arose, and such matters were attended to expeditiously and properly." (Docket Entry No. 108, at 22). This statement is unsupported by record evidence. The record discloses no external time limitations or pressures outside of the complaint filing deadline, which was extended twice without Heartland's opposition. This factor supports a slight negative adjustment.
h. The Amount Involved and the Results Obtained
"The United States Supreme Court and the Fifth Circuit have held that the most critical factor in determining the reasonableness of a fee award is the degree of success obtained." Enron II, 586 F.Supp.2d at 796 (internal quotation marks omitted) (citing Farrar v. Hobby, 506 U.S. 103, 114, 113 S.Ct. 566, 121 L.Ed.2d 494 (1992); Migis v. Pearle Vision, Inc., 135 F.3d 1041, 1047 (5th Cir.1998)). Class counsel contend that they "negotiated a monetary settlement that represents an excellent result for the Settlement Class," listing the components to the settlement that class counsel valued at $4.85 million. (Docket Entry No. 108, at 21-22). This court has valued the settlement as worth over $3 million, but that includes $2 million in indirect and attenuated benefits to individual class members: $500,000 through the cy pres distribution and $1.5 million in notice costs. On the other hand, the settlement is a good result for the Consumer Plaintiffs given the legal and evidentiary hurdles litigation would have presented and given class members' lack of interest or losses. Through the settlement and its claims-administration process, those class members who legitimately suffered losses as a result of the data breach, whether due to fraudulent charges or identity theft, were provided with an efficient avenue for compensation. The cy pres payments will fund efforts toward better data protection, though the ultimate results are speculative. The results obtained are a neutral factor.
i. The Experience, Reputation, and Ability of the Attorneys
The extensive experience and fine reputation and ability of class counsel are clear and unquestioned. See, e.g., Dell, 2010 WL 2371834, at *18; Enron II, 586 F.Supp.2d at 797; DeHoyos, 240 F.R.D. at 331. At the same time, these attributes are to be expected: Rule 23(g) requires them of lawyers appointed as class counsel. See FED. R. CIV. P. 23(g)(1)(A); MANUAL § 21.271; see also AGGREGATE LITIGATION § 1.05 cmt. g. This factor is neutral.
j. Undesirability of the Case
Class counsel explains at length why taking on this case was undesirable. The reasons are typical of consumer class-action lawsuits: the defendant is a large corporation with substantial resources, financial and otherwise, for a vigorous defense; and the legal and factual issues presented risks to recovery absent settlement. (See Docket Entry No. 108, at 23). But there were a large number of lawyers who believed the case was attractive. Many lawyers filed numerous class-action and individual suits based on the data breach. (See Docket Entry No. 3). This case was desirable from the standpoint of many plaintiffs' lawyers. See Dell, 2010 WL 2371834, at *19; Di Giacomo, 2001 WL 34633373, at *12. This factor is neutral.
k. The Relationship with the Clients
According to class counsel, all class members "were kept abreast of the developments in this litigation throughout its
l. Awards in Similar Cases
"Courts often look at fees awarded in comparable cases to determine if the fee requested is reasonable." DeHoyos, 240 F.R.D. at 333 (citing Johnson, 488 F.2d at 719 & n. 5). The empirical studies cited by the court provide helpful information. Specific cases also can be examined. Because class-action litigation involving data breaches is relatively new, there are few settlements to examine: three, to be precise. In one case, the court calculated fees using the percentage method, approving a requested fee award amounting to 7.7% of the fund. In re TD Ameritrade Account Holder Litig., Nos. C 07-2858 SBA, C 07-4903 SBA, 2011 WL 4079226, at *16 (N.D.Cal. Sep. 13, 2011). In the two other settlements, the courts calculated fees using the lodestar method. See Countrywide Fin. Corp., 2010 WL 3341200, at *9; TJX Cos., 584 F.Supp.2d at 408. Had these cases used the percentage method, the percentage would be lower than in this case. See Countrywide Fin. Corp., 2010 WL 3341200, at *9 (approving lodestar award of $3.5 million, but noting that had the court used the percentage method, the $3.5 million fee award would be 20% of the settlement's value); TJX Cos., 584 F.Supp.2d at 409-10 ($6.5 million (attorneys' fees awarded using lodestar) / $177 million (value of settlement) = 3.7%). The present benchmark of 25.3%, if unadjusted, would stand as the highest percentage recovery of any of the data-breach settlements to date. This factor supports a negative adjustment.
4. Adjustment of the Benchmark in Light of the
The final step in applying the percentage method is to determine whether the benchmark — 25.3% — should be adjusted in light of the Johnson factors. Four of the factors support a negative adjustment. Six support no adjustment. One supports either a negative adjustment or no adjustment. No factor favors a positive adjustment. After careful consideration, the court concludes that a negative adjustment of the benchmark, to 20%, is appropriate. A 5.3% negative adjustment accurately reflects the balance of the Johnson factors and results in a reasonable fee award to class counsel. The resulting fee award under the percentage method, with the Johnson-factors adjustment, is $606,192.50.
C. The Lodestar Cross-Check
The lodestar cross-check is usually applied "to avoid windfall fees, i.e., to `ensure that the percentage approach does not lead to a fee that represents an extraordinary lodestar multiple.'" Enron II, 586 F.Supp.2d at 751 (quoting Cendant II, 404 F.3d at 188); accord, e.g., Eisenberg & Miller I, supra, at 39 ("The idea is that if the percentage fee grossly exceeds the lodestar amount, the attorney would be receiving a windfall, and the courts should adjust the fee downward to a more reasonable range."). The purpose of the lodestar cross-check, however, is to verify the reasonableness of the award calculated under the percentage method, to avoid both over- and under-compensation.
The lodestar method requires the court to multiply the number of hours reasonably expended on the litigation by a reasonable hourly rate and to apply an upward or downward multiplier if necessary. Dell, 669 F.3d at 642-44. Under the most recent billing summary submitted, class counsel spent 1,963.60 hours on this action. (Docket Entry No. 113, Ex. 2, at 5). If this court had applied the lodestar as the primary method, as opposed to a cross-check, the number of hours reasonably spent would be reduced because the record does not adequately show billing judgment. Under Fifth Circuit precedent, "plaintiffs seeking attorney's fees are charged with the burden of showing the reasonableness of the hours billed and, therefore, are also charged with proving that they exercised billing judgment." Saizan, 448 F.3d at 799. The lack of such evidence supports a 10% reduction in the number of hours used in a lodestar cross-check.
The hourly rates used are reasonable. "An attorney's requested hourly rate is prima facie reasonable when he requests that the lodestar be computed at his or her customary billing rate, the rate is within the range of prevailing market rates[,] and the rate is not contested." Altier, 2012 WL 161824, at *22 (citing La. Power & Light Co. v. Kellstrom, 50 F.3d 319, 328 (5th Cir.1995)); see also High Sulfur Content, 517 F.3d at 228 ("The district court must first determine the reasonable number of hours expended on the litigation and the reasonable hourly rate for the participating attorney." (emphasis added)). In this case, the rates ranged from as high as $825 per hour for one the colead class counsel to as low as $90 per hour for a paralegal. (Docket Entry No. 113, Ex. 2, at 1, 5). The mean hourly rate
Multiplying the hours expended by class counsel (1,963.60) by each attorney's hourly rate results in total fees of $866,412.50. (Docket Entry No. 113, Ex. 2, at 5). Of course, the lodestar method does not take into account the settlement value to the class. Attorneys' fees of $866,412.50 would equal 28.9% of the settlement's approximately $3 million value. At face value, that figure does not appear unreasonable; in addition, it is within the standard deviation of both the Eisenberg and Miller and Fitzpatrick tables. But when the 28.9% percentage is compared to the value of the $1 million fund made available to the claimants — whether directly or through cy pres — attorneys' fees of $866,412.50 would far exceed that fund's value of $500,962.30. Class counsel, indeed, recognizes the unreasonable nature of this relationship in reducing the requested fee award in the settlement below the lodestar.
The $725,000 requested results from applying a 16.3% negative adjustment to the lodestar that counsel submitted. Two things stand out. First, most applications of the lodestar method result in a positive, not a negative, adjustment.
This court applied the Johnson factors as part of the percentage method and concluded that the balance supports a negative adjustment. Although the analysis would differ slightly had the court applied the lodestar method and then the Johnson cross-check, see, e.g., Migis, 135 F.3d at 1047 ("Some of these [Johnson] factors are subsumed in the initial lodestar calculation and should not be double counted."), the result would not be significantly different.
The record and law support reducing the lodestar by a negative multiplier to avoid a windfall to class counsel, given the value of the settlement obtained. The issue is the amount of the multiplier. Class counsel's requested award of $725,000, which amounts to 28.9% of the settlement value, is disproportionately high. Under the lodestar cross-check, reducing the number of hours reasonably expended and applying a negative multiplier of 0.95 to account for the Johnson factors results in a fee award of $635,527.14.
The lodestar cross-check, in this case, has confirmed the reasonableness of the fee award using the percentage method. Class counsel is entitled to be compensated for its successful efforts in representing the Consumer Plaintiffs and in negotiating a settlement. That compensation, however, must be reasonable based on the value of that settlement to the class. Awarding fees of $606,192.50, calculated and adjusted under the percentage method and Johnson factors, and through the lodestar cross-check, is reasonable.
Class counsel request an award of $35,000 for the costs expended in this action. (Docket Entry No. 107, ¶ 6). "In addition to being entitled to reasonable attorneys' fees, class counsel in common fund cases are also entitled to reasonable litigation expenses from that fund." Radosti, 760 F.Supp.2d at 79 (quoting Wells v. Allstate Ins. Co., 557 F.Supp.2d 1, 8 (D.D.C.2008)) (internal alteration omitted). In Radosti, the district court approved the costs requested because (1) class counsel provided the court documents showing the costs, (2) the court found the costs to be typical expenses, (3) no class member objected to the costs, and (4) the defendant did not object. Id. All four circumstances are present here. Class counsel have provided this court with documentation supporting the costs. The court has carefully reviewed those costs and finds them appropriate for a case of this nature. There are no objections. The costs requested are reasonable.
E. Incentive Awards
Finally, class counsel seek approval of incentive awards of $200 to the representative plaintiffs and $100 to the named plaintiffs. (Docket Entry No. 107, ¶ 6). During the preliminary fairness hearing, class counsel explained the rationale behind seeking these awards: "I am a believer in having people to come forward because they have time and expense and that there should be some reasonable incentive because they advanced society's interest in the truth of the matter in solving problems." (Docket Entry No. 87, at 8).
"Courts `commonly permit payments to class representatives above those received in settlement by class members generally.'" Turner, 472 F.Supp.2d at 870 (quoting Smith v. Tower Loan of Miss., Inc., 216 F.R.D. 338, 367-68 (S.D.Miss. 2003)). That does not mean, however, that incentive awards are always merited. "In deciding whether an incentive award is warranted, courts look to: (1) `the actions the plaintiff has taken to protect the interests of the class'; (2) `the degree to which the class has benefitted from those actions'; and (3) `the amount of time and effort the plaintiff expended in pursuing the litigation.'" Ky. Grilled Chicken, 280 F.R.D. at 382-83, 2011 WL 5599129, at *15 (quoting Cook v. Niedert, 142 F.3d 1004, 1016 (7th Cir.1998)).
The Consumer Plaintiffs' motion for final approval of the settlement, for an award of attorneys' fees and costs, and for incentive awards, (Docket Entry No. 107), is granted in part and denied in part. The settlement class is certified. The proposed settlement is approved as fair, reasonable, and adequate. Attorneys' fees are awarded in the amount of $606,192.50. Costs are awarded in the amount of $35,000.00. Incentive awards to named and representative plaintiffs are denied.
There are recent district-court cases in the Fifth Circuit that have applied Berger outside of the securities context. See Braud v. Transp. Servs. of Ill., Civ. A. Nos. 05-1898, 06-891, 05-1977, 05-5557, 2009 WL 2208524, at *10 (E.D.La. July 23, 2009) (environmental-torts class action); In re FEMA Trailer Formaldehyde Prods. Liab. Litig., No. MDL 071873, 2008 WL 5423488, at *11 (E.D.La. Dec. 29, 2008) (mass-torts class action). None is a negative-value consumer class action.
1 RUBENSTEIN ET AL., NEWBERG ON CLASS ACTIONS § 3.52 (Internal footnotes omitted).
AGGREGATE LITIGATION § 3.07 cmt. a. Subsection (c) states that the court should consider "the criteria set forth in subsections (a) and (b)." Id. § 3.07(c). One criteria listed in subsection (b) that the court can consider is whether "other specific reasons exist that would make such further distributions [to participating class members] impossible or unfair." Id. § 3.07(b). In this case, it clearly is impractical to distribute the $1 million to absent class members not filing claims. It also is clearly inappropriate to divide $1 million equally among the very few class members — as few as 11 — who have filed valid claims. That would provide them a huge windfall. Allowing those class members with valid claims to receive the amount of their valid claim and then spreading any remaining unclaimed funds between the three nonprofit organizations that focus on improving payment-card security seems a reasonable, and fair, approach.
There are cases in which courts should use the lodestar method rather than the percentage-of-fund approach. The lodestar is most appropriate in cases with a statutory provision for fee-shifting. In Perdue v. Kenny A. ex rel. Winn, ___ U.S. ___, 130 S.Ct. 1662, 176 L.Ed.2d 494 (2010), "the Supreme Court recently extolled [the lodestar method's] virtues and reaffirmed its dominant role in federal fee-shifting cases." Pickett v. Sheridan Health Care Ctr., 664 F.3d 632, 641 (7th Cir.2011) (citing Perdue, 130 S.Ct. at 1672); see also, e.g., Sullivan, 667 F.3d at 330; Bluetooth Headset, 654 F.3d at 941; Spooner v. EEN, Inc., 644 F.3d 62, 67 n. 3 (1st Cir.2011); AGGREGATE LITIGATION § 3.13(c). And if a court specifically concludes that the percentage method would be unfair or inapplicable based on the specific facts and circumstances, such as when the percentage method would significantly undercompensate class counsel, the lodestar method may be appropriate. See Sullivan, 667 F.3d at 330; see also Jeter v. Astrue, 622 F.3d 371, 378-79 (5th Cir.2010) (recognizing, in the social-security context, that using the lodestar method may undercompensate counsel); AGGREGATE LITIGATION § 3.13(c).