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(Reuters) – Would you open an unsolicited mass email with the subject heading, “Legal Notice”?
Probably not, according to Chief U.S. District Judge James Peterson of Madison, Wisconsin. You’d probably think the email was spam, Peterson said, and would delete the message without reading it. Even if you opened it, Peterson said, you’d likely be put off by the repetition of the phrase, “legal notice,” in the body of the email. You’d probably not realize that the email was a notification about a class action settlement that entitled you to a cash payout of as much as $750.
That vague email subject line and off-putting text, Peterson said, might explain why only 3,740 of the more than 323,000 people whose credit and debit card information was allegedly exposed in a year-long malware attack on online filter retailer Filters Fast LLC actually filed a claim in the settlement – even though class members were eligible for a $25 payout without documenting any losses at all.
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Peterson rejected the settlement proposed by class counsel from Mason Lietz & Klinger, Federman & Sherwood, and Ademi & O’Reilly, holding that they and class action administrator Kroll Settlement Administration LLC failed to explain why class members were notified about the deal in an email with an “uninformative” header.
“The court cannot discern a plausible basis for it,” the judge wrote. “Common sense suggests that the email would deter rather than facilitate a high response rate from class members.”
Peterson’s ruling last week was actually the second time the judge denied approval of the proposed settlement. He first raised concerns about the notice to class members in a Feb. 15 decision in which he also questioned class counsel’s request for $320,000 in fees and costs. Peterson’s new ruling, which followed a second round of briefing from plaintiffs lawyers on both their fees and the claims process, did not address the fee request.
Plaintiffs lawyer David Lietz of Mason Lietz told me by email that he and his colleagues will try again to win approval. “We intend to address the judge’s concerns, cure any notice defects and bring this settlement home for the benefit of the class,” Lietz said.
It’s worth taking a look at the structure of the proposed deal. You may have noticed that I haven’t mentioned the size of the settlement fund. That’s because there isn’t one.
The so-called claims-made settlement offers $750 to any class member who can document expenses or losses from a fraudulent transaction involving a card compromised in the Filters Fast hack. That offer is uncapped. So too is an offer of up to $60 for class members who can show they spent time dealing with a fraudulent transaction on a compromised card.
Class members with potentially compromised cards but no documented losses or expenses are entitled to a $25 payout – but Filters Fast is only required to pay a total of $175,000 to class members in that tier. If more than 7,000 class members submit valid claims for the no-documents payout, their payments will be reduced pro rata.
As of mid-February, according to a plaintiffs’ most recent filing, 85 class members had claimed $750 cash payouts, 121 had filed claims for $60 and 3,534 had claimed $25. The total potential cash payout to the 3,740 class members asserting claims, the filing said, was expected to be about $110,000.
I asked plaintiffs’ lawyers if a low claims rate was baked into the settlement. The judge who rejected the deal said he couldn’t “discern a plausible basis” for the vague notice sent to class members. But Filters Fast only promised to pay out cash to class members who actually made claims. Wasn’t that an incentive to keep the claims rate low?
Filters Fast lawyers Christian Poland and Colin Dailey of Bryan Cave Leighton Paisner did not respond to my query about the rejected settlement. But class counsel Lietz denied that the deal assumed a low claims rate.
“That’s not accurate at all,” he said. “There is no assumption of a low claims rate in this settlement.”
Class counsel, he said, were “keenly aware” that cash payouts to the class depended on the number of class members who actually filed claims. To maximize claims, he said, he and his colleagues “fought hard” for a settlement provision calling for class members to receive a second round of emails after the initial notice. That kind of follow-up reminder notice “does not occur very often in any class action settlement,” Lietz said.
Plaintiffs lawyers also told Peterson in their latest filings that the claims rate of just over 1% is in line with other data breach settlements that have won approval, including a settlement that Peterson approved last year. “Thus, while this may appear to be a low response rate, it is not,” class counsel said, although they conceded that it was “perplexing that class members didn’t step forward in greater numbers to claim what is a substantial cash benefit ($25) with essentially no documentation.”
Notably, plaintiffs’ request for $320,000 in fees and costs was negotiated independently of the class settlement and is slated to be paid directly by Filters Fast. In their original fee request, class counsel portrayed $320,000 as 22% of the benefit claimed by the class, citing, in addition to class claims for cash payouts, credit monitoring service available to class members and business practices changes pledged by the company. Peterson said he was concerned about evaluating those changes, and, more fundamentally, about awarding fees of more than twice the cash payout to the class.
In their revised fee briefing, plaintiffs lawyers reframed their $320,000 request as a lodestar fee with a very slight negative multiplier. As I mentioned, Peterson’s second rejection of the settlement did not address the fee request. I would hope that when he rules on class counsel’s promised third try for approval, he discusses the fee request in the context of a claims-made deal.
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