In two recent decisions, federal courts of appeals confirmed they are prepared to give close scrutiny to a class settlement that offers a hefty payday to plaintiffs’ counsel with very little genuine benefit to any class.

In Drazen v. Pinto, — F.4th –, 2024 WL 2122466 (11th Cir. May 13, 2024), Plaintiffs alleged that GoDaddy.com, LLC (“GoDaddy”) violated the Telephone Consumer Protection Act in communications made to putative class members.  The parties entered into a class-wide settlement agreement and pressed the court for a rapid final approval because the Supreme Court had granted certiorari in another case on the key legal dispute, and its decision could shift the parties’ bargaining positions.  Although the district court voiced concern about the settlement, it granted final approval before the Supreme Court issued its decision.

In a 40+-page decision authored by Judge Tjoflat, the Eleventh Circuit surgically reviewed the settlement, finding significant procedural and substantive errors that required reversal.  The court held that the district court abused its discretion because it did not ensure the settlement provided adequate relief, in particular by failing to consider evidence concerning the size of the class, the notice the class received, and the low claims rate (less than 2%) that resulted from that notice.  The court also determined the district court erred by improperly “rewrit[ing]” an overbroad release provision, when it should instead have rejected the agreement on that ground.  Id. at *23.

The court was particularly concerned about multiple errors in the way the attorney fee award was calculated in the settlement agreement and presented for court approval, resulting in inadequate notice to class members and a fee award that bore no relationship to benefits actually achieved for the class.  The settlement had been characterized as a common-fund settlement, but it was actually a claims-made settlement only, yet fees were calculated based on the total potential settlement fund amount.  The court rejected the argument that it was reasonable to award fees based on a “percentage of the funds made available to the class” rather than what was actually going to be paid.  Id. at *32.  The court also found that the settlement needed to be treated as a coupon settlement for which CAFA imposes special rules governing fee awards.  In reaching this conclusion, the court rejected the suggestion that the settlement successfully evaded CAFA’s definition of a “coupon settlement” by allowing class members submitting claims to opt for a small direct cash payment in lieu of a significant larger payment in coupon form. 

Throughout its lengthy decision, the court was highly critical of the effort to push through with undue speed a settlement that richly rewarded plaintiffs’ counsel with only small benefit to a tiny portion of the class.

In Alcarez v. Akorn, Inc., 99 F.4th 368 (7th Cir. 2024), the Seventh Circuit took an even more jaded view of what it saw as an abuse of the class action process.  The appeal involved several “strike suits” in which plaintiffs filed putative class actions on behalf of shareholders asserting that a proxy statement published prior to a merger should have contained additional information.  In response to such a suit, the corporation adds the missing information to the proxy statement, then the plaintiffs dismiss the lawsuits after negotiating individual settlements (including attorneys’ fees), referred to as “mootness fees.”  Id. at 372.

In the case of several strike suits related to the merger of Akorn, Inc., an Akorn shareholder sought to intervene, seeking disgorgement of the “mootness fees” as “unjust enrichment,” which he asserted amounts to an “abuse of the legal process.”  Id.  Although highly critical of the settlement, the district court denied the shareholder’s motion, ruling that shareholder lacked standing because the court “did not anticipate awarding any of the remedies” he requested and so determined that “intervention would be ‘moot.’”  Id. at 373.

In an opinion written by Judge Easterbrook, the Seventh Circuit reversed, holding that the district court was wrong to deny intervention on mootness ground because a “case becomes moot only when it is impossible to grant effective relief,” not because the court chooses not to do so.  Id. at 375.  The appellate court found that the shareholder had Article III standing, because he had suffered “some loss from diversion of corporate money” to the contested “mootness fees.”  Id. at 374.  And while agreeing with the district court that disgorgement or an injunction were not appropriate remedies, the appellate court concluded that the district court should have considered whether Rule 11 sanctions were appropriate for the bringing of the lawsuits.  The Seventh Circuit panel agreed with the district court that the settlements “rewarded” counsel for “suggesting immaterial changes to the proxy statements,” and were a “racket” that “must end.”  Id. at 376–77.  The court determined this “racket” could “needlessly increase the cost of litigation” in violation of Rule 11, which warranted reversal and remand of the case so that the district court could consider whether to sanction those involved.  Id. at 376. 

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Photo of Sonya Winner Sonya Winner

A litigator with three decades of experience, Sonya Winner handles high-stakes civil cases for clients in a wide range of industries, including banking, pharmaceuticals and professional sports. She has handled numerous antitrust and consumer disputes, many of them class actions, in state and…

A litigator with three decades of experience, Sonya Winner handles high-stakes civil cases for clients in a wide range of industries, including banking, pharmaceuticals and professional sports. She has handled numerous antitrust and consumer disputes, many of them class actions, in state and federal courts across the country.

Sonya’s cases typically involve difficult technical issues and/or complex legal and regulatory schemes. She is regularly able to resolve cases before the trial phase, often through dispositive motions. But when neither summary judgment nor a favorable settlement is an option, she has the confidence of her clients to take the case all the way through trial and on appeal. Her recent successes have included a cutting-edge decision rejecting a “true lender” challenge to National Bank Act preemption in a class action involving interest rates on student loans, as well as the outright dismissal of a putative antitrust claim against the National Football League and its member clubs asserting an unlawful conspiracy to fix cheerleader compensation.

Sonya has been recognized as a leading trial lawyer by publications like Chambers and the Daily Journal. She is chair of the firm’s Class Action Litigation Practice Group.

Photo of Marianne Spencer Marianne Spencer

Marianne Spencer is an associate in the firm’s Washington, DC office, where her practice focuses on class actions and complex civil litigation. She has defended clients in the financial services, sports, pharmaceutical, and technology industries against class actions in state and federal courts…

Marianne Spencer is an associate in the firm’s Washington, DC office, where her practice focuses on class actions and complex civil litigation. She has defended clients in the financial services, sports, pharmaceutical, and technology industries against class actions in state and federal courts across the country.

Marianne previously served as a law clerk to the Honorable Steven M. Colloton on the Eighth Circuit Court of Appeals. She maintains an active pro bono practice focused on civil rights and housing issues.