Defalco v. Vibram USA, Inc. , 809 F.3d 78 ( 2015 )

United States Court of Appeals
For the First Circuit
Nos. 15-1207
15-1208
VALERIE BEZDEK, individually and on
behalf of all others similarly situated,
Plaintiff, Appellee,
v.
VIBRAM USA, INC.; VIBRAM FIVEFINGERS, LLC,
Defendants, Appellees,
MADELINE MONTI CAIN; JUSTIN FERENCE; MICHAEL NARKIN,
Interested Parties, Appellants.
No. 15-1209
BRIAN DEFALCO,
Plaintiff, Appellee,
v.
VIBRAM USA, INC.; VIBRAM FIVEFINGERS, LLC,
Defendants, Appellees,
JUSTIN FERENCE,
Interested Party, Appellant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Torruella, Lynch, and Barron,
Circuit Judges.
Christopher T. Cain, with whom Scott & Cain, David Aisenberg,
and Looney Cohen & Aisenberg LLP were on brief, for Cain and
Ference.
Christopher M. Morrison, with whom Dana Baiocco and Jones Day
were on brief, for Vibram USA, Inc. and Vibram FiveFingers, LLC.
Janine L. Pollack, with whom Wolf Haldenstein Adler Freeman
& Herz LLP was on brief, for Bezdek and DeFalco.
December 31, 2015
LYNCH, Circuit Judge. Objectors to a class action
settlement bring this appeal from a district court order approving
settlement and awarding attorneys' fees. Bezdek v. Vibram USA
Inc., 79 F. Supp. 3d 324 (D. Mass. 2015). The underlying action
concerned allegedly deceptive advertising and marketing claims
made about the health benefits of certain "barefoot" running shoes.
The objectors argued both to the district court and to us that the
class notice was misleading, positing a higher potential recovery
than the actual recovery; that it was unfair for objectors to be
required to provide proofs of purchase; that the injunctive relief
in the settlement had no value; and that class counsel was paid
too much.
The district court carefully explained its reasons for
rejecting the claims. The district court did not abuse its
discretion in deciding that the settlement terms were fair,
adequate, and reasonable. Nor did the district court abuse its
discretion in awarding attorneys' fees. We affirm.
I.
Three putative class action complaints filed in 2012
alleged that Vibram USA, Inc., and Vibram FiveFingers, LLC
(together, "Vibram") engaged in deceptive marketing of FiveFingers
"barefoot" footwear by making false claims about the footwear's
health benefits.
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The first complaint was filed in the District of
Massachusetts by Valerie Bezdek on March 21, 2012. On July 18,
2012, Vibram moved to dismiss Bezdek's amended complaint for
failure to state a claim. On February 20, 2013, the district court
dismissed Bezdek's unjust enrichment claim but allowed the suit to
proceed under various state consumer protection laws. Bezdek v.
Vibram USA Inc., No. 12-10513, 2013 WL 639145 (D. Mass. Feb. 20,
2013).
The second complaint was filed in the Central District
of California by Ali Safavi on July 9, 2012. Safavi v. Vibram USA
Inc., No. 12-cv-05900 (C.D. Cal. filed July 9, 2012). On September
24, 2012, the Safavi action was stayed pending a class
certification ruling in Bezdek. Safavi is not a party to this
appeal. The parties have agreed that the Safavi action will be
dismissed if this settlement is approved.
The third complaint was filed in Illinois state court by
Brian DeFalco on August 8, 2012, and removed to the Northern
District of Illinois on September 11, 2012. Notice of Removal at
1–2, DeFalco v. Vibram USA, LLC, No. 12-cv-07238 (N.D. Ill. Sept.
11, 2012). DeFalco was subsequently transferred to the District
of Massachusetts, where it was consolidated with Bezdek.
Extensive written discovery ensued. On December 12,
2013, the parties reached a settlement agreement in principle. At
that time, the plaintiffs had not motioned for class certification
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or identified experts on class issues, and neither party had taken
depositions.
On April 30, 2014, the parties submitted a proposed
settlement agreement, followed shortly after by a joint amended
proposed settlement agreement. The proposed settlement agreement
would establish a $3.75 million settlement fund to provide refunds
to class members who submit claims. Refunds would be paid on a
pro rata basis, up to a maximum of $94 per pair of shoes, the
average retail price. The proposed settlement agreement suggested
that "[b]ased on the experience of similar settlements of class
actions, it is reasonable to expect that Class Members may receive
payment in the range of $20.00 to $50.00 per pair." It is
noteworthy that the language did not set a minimum floor for
recovery.
Refunds for up to two pairs of shoes could be obtained
by submitting only a valid Claim Form. Class members seeking a
refund for more than two pairs of shoes would be required to submit
a Claim Form plus proof of purchase.
Administrative and notice costs, attorneys' fees, and
incentive awards for the named plaintiffs would be paid out of the
settlement fund. Additionally, Vibram would promise to refrain
from making representations of health benefits associated with
FiveFingers footwear unless such statements could be supported by
reliable evidence. Vibram also agreed not to oppose class
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counsel's application for an award of attorneys' fees not exceeding
twenty-five percent of the settlement fund.
Any class member could object by submitting a written
statement of objections and by providing a proof of purchase with
the submission.
On May 12, 2014, the district court preliminarily
approved the settlement. The district court also certified a class
for settlement purposes only, approved Bezdek as the class
representative and her counsel as lead class counsel, set a
fairness hearing date, approved notice and claims procedures, set
requirements and deadlines for exclusions and objections, and set
deadlines for class counsel's application for attorneys' fees.
Notice was distributed to the class in various ways,
including direct notice by email and postal mail, publication in
various media outlets, and maintenance of a website and toll-free
telephone number to provide settlement-related information to
class members. The Class Notice (emailed to reasonably
identifiable class members) stated that: "Based on experience from
other similar settlements of class actions, it is reasonable to
expect that Class Members may receive a payment in the range of
$20.00 to $50.00 per pair." The Postcard Notice (mailed to
identified class members unreachable by email) and the Summary
Settlement Notice (published in various media outlets) had similar
language but also noted that recovery "could . . . decrease
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depending on various factors, including the number of valid
claims." The proposed settlement agreement was also reported on
by numerous news outlets and "went viral" on social media.
Some 154,927 timely claims were filed, representing
279,570 pairs of FiveFingers footwear. Objections were filed by
three individuals: Madeline Cain,1 Justin Ference, and Michael
Narkin. None of the three complied with the requirement in the
proposed settlement agreement that a proof of purchase must be
submitted with an objection to establish class membership. Only
one of the three objectors, Ference, submitted a Claim Form.
On October 29, 2014, the district court held a fairness
hearing. At the fairness hearing, class counsel informed the
district court that while the Settlement Administrator was still
working through the claims, it was expected that because of a
"higher than expected claim rate," claimants would receive "around
$9 per pair." On November 12, 2014, class counsel informed the
district court that the estimated refund was $8.44 per pair.
On January 16, 2015, the district court entered a
memorandum and order granting plaintiffs' motion for final
approval of the proposed settlement and motion for attorneys' fees
and expenses. The district court began by noting that "there are
genuine questions as to the status of the objectors as class
1 Cain is represented by her father, Christopher Cain.
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members" but that it would "consider[] the merits of the objectors'
assertions to the extent they raise questions [it] would ask
independently in [its] own review of the proposed settlement."
The district court found that notice was given to class members by
the best means practicable under the circumstances; certified the
settlement class; found the settlement to be fair, reasonable, and
adequate; and awarded attorneys' fees and expenses to class counsel
and incentive awards to the named plaintiffs.
On January 21, 2015, the district court entered a final
order approving the settlement and issued final judgment. Cain,
Ference, and Narkin have appealed.2
II.
Under Federal Rule of Civil Procedure 23(e)(2), a class
action settlement must be "fair, reasonable, and adequate." The
case law offers "laundry lists of factors" pertaining to
reasonableness, but "the ultimate decision by the judge involves
balancing the advantages and disadvantages of the proposed
settlement as against the consequences of going to trial or other
possible but perhaps unattainable variations on the proffered
settlement." Nat'l Ass'n of Chain Drug Stores v. New England
Carpenters Health Benefits Fund, 582 F.3d 30, 44 (1st Cir. 2009).
2 Only Cain's and Ference's appeals are before this panel
because Narkin's appeal has already been dismissed with prejudice.
Bezdek v. Vibram USA, Inc., No. 15-1219 (1st Cir. Sept. 22, 2015).
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"If the parties negotiated at arm's length and conducted sufficient
discovery, the district court must presume the settlement is
reasonable." In re Pharm. Indus. Average Wholesale Price Litig.,
588 F.3d 24, 32-33 (1st Cir. 2009).
We review the district court's approval or disapproval
of a settlement for abuse of discretion. Nat'l Ass'n of Chain
Drug Stores, 582 F.3d at 45. Under that standard, embedded legal
issues are reviewed de novo and factual findings are reviewed for
clear error. Id. We review a district court's decision on
attorneys' fees for abuse of discretion. In re Volkswagen & Audi
Warranty Extension Litig., 692 F.3d 4, 13 (1st Cir. 2012).
While we agree with the district court that "there are
genuine questions as to the status of the objectors as class
members," we consider the merits of the objections and affirm
notwithstanding those issues.
A. Class Notice Disparity Between Estimated and Actual Refund
The objectors argue that the district court failed to
properly consider the fact that class members will receive an
actual payment that is significantly less than what was estimated
at the time the settlement was preliminarily approved. They argue
that the settlement should not have received final approval where
notices to the class estimated a refund of between $20 and $50 per
pair of shoes, but it became known after the deadline to object
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that the fund would actually only permit a payment of $8.44 per
pair of shoes.
It is true that the district court's opinion did not
deal directly with the arguments that the notices projected a much
higher settlement payment than the $8.44 which ensued, and that
this was a misrepresentation that voided the settlement. But the
district court's order indirectly dealt with these claims.
Contrary to the objectors' claims, there was no
misrepresentation in the notices sent to class members. The
Summary Settlement Notice and the Postcard Notice both contained
explicit language that recovery could "decrease depending on
various factors, including the number of valid claims." Although
the Class Notice did not contain such language, it did not
misrepresent the situation. By stating that "[b]ased on experience
from other similar settlements of class actions, it is reasonable
to expect . . . $20.00 to $50.00 per pair," the Class Notice
provided an estimated range of recovery but did not guarantee any
amount of recovery.
The district court found that a refund of $8.44 per pair
of shoes, even if lower than originally estimated, was a fair
settlement amount given the uncertainty of success that the
plaintiffs faced at trial. The district court found that the
plaintiffs faced "two sizable hurdles as to injury and damages"
and that even if the plaintiffs were able to prevail, it would
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only be after extended litigation, the costs of which would
decrease the net benefit of any damages award at trial. There was
no abuse of discretion in the district court's conclusion that a
refund of $8.44 per pair, although modest, was a fair compromise
that accounted for the risks faced by both parties if litigation
had continued.
The objectors also suggest that class counsel should
have anticipated that the number of claims actually filed would be
higher, thus reducing the recovery amount. They argue that class
counsel should have negotiated a minimum payment for class members
at the outset, renegotiated the total settlement amount when a
greater-than-expected number of claims were filed, or waived a
portion of their attorneys' fees and paid out those extra funds to
class members. The objectors cite no legal authority to show that
it was an abuse of discretion for the district court to approve
the settlement in the absence of such countermeasures. The fact
that a better deal for class members is imaginable does not mean
that such a deal would have been attainable in these negotiations,
or that the deal that was actually obtained is not within the range
of reasonable outcomes. The district court's conclusion that $8.44
per pair was fair and reasonable was not an abuse of discretion.
B. Proof of Purchase Requirement for Filing an Objection
The objectors take issue with the requirement that
objectors file proofs of purchase, even though proof of purchase
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is not required of a class member filing a Claim Form for up to
two pairs of shoes. They argue that the higher standard is imposed
on objectors as a punitive measure intended to dissuade class
members from objecting.
The ultimate question for the district court was whether
the settlement was fair, reasonable, and adequate. The imposition
of a harsher requirement on objectors than on claimants could bear
on the fairness analysis by tipping a court off to the possibility
of collusion or bad faith. But if the fairness of the settlement
ultimately stands up to scrutiny, then the imposition of disparate
requirements on objectors does not provide an independent basis
for invalidating the settlement. That is the case here. The
district court carefully scrutinized the refunds provided to class
members under the settlement and concluded that the settlement was
fair, and it did not abuse its discretion in doing so.3
3 Although the fact that a disparate requirement was
imposed on objectors does not change the result in this case, we
do not rule out the possibility that it could ever be relevant in
some other respect.
Because parties to a settlement have a shared incentive
to impose burdensome requirements on objectors and smooth the way
to approval of the settlement, district courts should be wary of
possible efforts by settling parties to chill objections. By
monitoring class counsel and providing courts with crucial
information on which to evaluate proposed settlements, meritorious
objectors can be of immense help to a district court in evaluating
the fairness of a settlement. See Redman v. RadioShack Corp., 768
F.3d 622, 629 (7th Cir. 2014). Of course, it is also important
for district courts to screen out improper objections because
objectors can, by holding up a settlement for the rest of the
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C. Injunctive Relief
The objectors argue that the injunctive relief in the
settlement is "illusory and amount[s] to no relief at all" because
it obligates Vibram not to do things that Vibram is legally
obligated not to do anyway.
The district court directly considered and rejected this
objection. The settlement requires Vibram to discontinue its
purportedly false advertising campaign unless Vibram obtains
"competent and reliable scientific evidence to substantiate" such
claims. This is a meaningful concession given that the falsity of
the advertising was the central disputed issue in the suit. The
district court did not abuse its discretion in concluding that
injunctive relief against continuation of the allegedly false
advertising was "a valuable contribution to this settlement
agreement." The fact that changes in future Vibram marketing will
not remedy past harm to consumers does not make such relief
meaningless to those consumers.
D. Attorneys' Fees
The objectors contest the award of attorneys' fees for
a number of different reasons.
class, essentially extort a settlement of even unmeritorious
objections. See Newberg on Class Actions § 13:21 (5th ed.).
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First, the objectors contest the clear-sailing term in
the settlement agreement, in which Vibram agreed not to oppose
attorneys' fees that do not exceed twenty-five percent of the
settlement fund. They argue that class counsel must have bargained
away something of value to the class in exchange for the provision
and that as a result, class counsel engaged in self-dealing
behavior. However, we have recognized that a clear-sailing
agreement is not per se unreasonable. Weinberger v. Great N.
Nekoosa Corp., 925 F.2d 518, 525 (1st Cir. 1991). Rather, courts
are directed to give extra scrutiny to such agreements. Id.Recognizing its duty to undertake such heightened
scrutiny, the district court reviewed the amount of fees under
each of the two methods recognized in our circuit. See In re
Thirteen Appeals Arising Out of San Juan Dupont Plaza Hotel Fire
Litig., 56 F.3d 295, 305 (1st Cir. 1995) (describing two methods).
Applying the percentage of the fund method, the district court
found that twenty-five percent of the fund is consistent with what
other district courts found to be reasonable. See Latorraca v.
Centennial Techs. Inc., 834 F. Supp. 2d 25, 27–28 (D. Mass. 2011).
Applying the lodestar method, in which the number of hours expended
is multiplied by a reasonable hourly rate for similarly situated
attorneys, the district court found that the fees represented
roughly sixty-eight percent of the lodestar. The district court
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did not abuse its discretion in concluding that, under either
method of calculation, the attorneys' fee award was reasonable.
The objectors argue that class counsel's fee was
nonetheless unreasonable given the amount of work they performed.
They argue that the case never proceeded much past the pleading
stage and that there was minimal briefing on dispositive motions,
no class certification proceedings, few substantive motion
hearings, no depositions, and no summary judgment or trial
proceedings. But the district court, after requesting
supplemental filings from parties in support of final approval of
settlement, recognized that there was "extensive fact discovery,"
"some significant motion practice," and an attempt at mediation.
There was no abuse of discretion in the district court's award of
attorneys' fees.
III.
We affirm.
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