Gascho v. Global Fitness Holdings, LLC

• Decision Date: 13 May 2016
• Docket Number: 14–3798.,Nos. 14–3761,s. 14–3761
• Citation: Gascho v. Global Fitness Holdings, LLC, 822 F.3d 269 (6th Cir. 2016)
• Parties: Amber GASCHO, on behalf of herself and all others similarly situated, et al., Plaintiffs–Appellees, v. GLOBAL FITNESS HOLDINGS, LLC, Defendant–Appellee, Robert J. Zik, April Zik, and James Michael Hearon (14–3761); Joshua Blackman (14–3798), Objectors–Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

822 F.3d 269

Amber GASCHO, on behalf of herself and all others similarly situated, et al., Plaintiffs–Appellees

v.GLOBAL FITNESS HOLDINGS, LLC, Defendant–Appellee

Robert J. Zik, April Zik, and James Michael Hearon (14–3761); Joshua Blackman (14–3798), Objectors–Appellants.

Nos. 14–3761

14–3798.

United States Court of Appeals, Sixth Circuit.

Argued: June 9, 2015.

Decided and Filed: May 13, 2016.

Rehearing En Banc Denied June 20, 2016.^*

ARGUED:Joshua T. Rose, Hummel Coan Miller, Sage & Rose LLC, Louisville, Kentucky, for Appellants in 14–3761.Theodore H. Frank, Center for Class Action Fairness, Washington, D.C., for Appellant in 14–3798.Kenneth J. Rubin, Vorys, Sater, Seymour and Pease LLP, Columbus, Ohio, for the Gascho Appellees.ON BRIEF:Joshua T. Rose, Hummel Coan Miller, Sage & Rose LLC, Louisville, Kentucky, Gregory A. Belzley, Belzley Bathurst Attorneys, Prospect, Kentucky, for Appellants in 14–3761.Theodore H. Frank, Center for Class Action Fairness, Washington, D.C., for Appellant in 14–3798.Kenneth J. Rubin, Thomas N. McCormick, Vorys, Sater, Seymour and Pease LLP, Columbus, Ohio, Gregory M. Travalio, Mark H. Troutman, Isaac Wiles Burkholder & Teetor, LLP, Columbus, Ohio, for the Gascho Appellees.V. Brandon McGrath, Bingham Grenebaum Doll LLP, Cincinnati, Ohio, Richard S. Gurbst, Larisa M. Vaysman, Squire Patton Boggs (US) LLP, Cleveland, Ohio, for Appellee Global Fitness.

Before: KEITH, CLAY, and STRANCH, Circuit Judges.

STRANCH, J., delivered the opinion of the court in which KEITH, J., joined.CLAY, J.(pp. 294–304), delivered a separate dissenting opinion.

OPINION

STRANCH, Circuit Judge.

This case involves challenges to the settlement of a consumer class action.Amber Gascho and other Plaintiffs(collectively, “Plaintiffs”) sued Global Fitness Holdings, LLC alleging that between 2006 and 2012 Global sold gym memberships and incorrectly charged fees pertaining to cancellation, facility maintenance, and personal training contracts.When class counsel and Global announced the settlement, two objectors—Joshua Blackman and the Zik objectors—challenged its terms, both claiming that the settlement was unfair under Federal Rule of Civil Procedure 23(e).They argued that class counsel's fees were disproportionate to the claims paid, that the settlement unnecessarily required a claims process, and that the settlement contained “clear-sailing” and “kicker” provisions that suggest self-dealing by class counsel.The Zik objectors further argued that the settlement must be rejected because it failed to provide adequate compensation for the Kentucky plaintiffs' state-law claims and for plaintiffs who had signed an early, more favorable version of the contract.

The district court approved the settlement based on a magistrate judge's 80–page Report and Recommendation (R & R), which addressed each objection.Both objectors appealed.We find that the district court did not abuse its discretion when approving the settlement, and therefore AFFIRM the district court's decision.

I.BACKGROUND AND PROCEDURAL HISTORY

This case is one of a number of suits against fitness facilities.Each is a consumer class action consolidating numerous claims of small monetary value on behalf of individuals who purchased memberships in such facilities and allege that they were charged improper fees.Global is a Kentucky LLC that operated fitness facilities under the brand name “Urban Active” in Ohio, Kentucky, Georgia, Nebraska, North Carolina, Pennsylvania, and Tennessee until October 2012, when it sold its assets to the entity doing business as LA Fitness.Plaintiffs filed suit against Global on behalf of a class of Ohio consumers in Ohio state court in 2011.Global removed the suit to federal court under the Class Action Fairness Act (CAFA).The Gascho case and several similar actions filed in other courts alleged that Global engaged in a variety of unfair sales practices relating to lack of disclosure to consumers, improper deductions from bank accounts, and improper handling of contract cancellations; the cases brought claims under theories of breach of contract, unjust enrichment, fraud, and various state consumer protection laws.

One such consumer class action, Robins v. Global Fitness Holdings, LLC,838 F.Supp.2d 631(N.D.Ohio2012), was dismissed.The parties later stipulated to the dismissal of the resulting appeal, apparently after settling the case.In another suit brought in Kentucky state court in 2012, Global and plaintiffs' counsel(not related to class counsel or the objectors in this case) also attempted to settle claims, but class counsel in this litigation and counsel for the Zik objectors together objected to that settlement.The Kentucky court rejected that settlement for several reasons, including the “lack of value” of the settlement owing to the “dismal” participation rate of the class plaintiffs.The court stated that the low participation rate might have been because the settlement was a coupon settlement for the most part, and that those seeking a cash refund had to undergo a “cumbersome” process in which 90% of the cash refund claims were rejected.In denying approval of the settlement, the court noted that 1,444 out of the 242,243 potential class members—i.e., only 0.6% of the potential class—had claims of any kind that were approved.

A.The approved Global settlement

Global and class counsel reached a settlement in this case in September 2013, after more than two years of litigation that included extensive discovery.The settlement class consists of the approximately 606,246 people who signed a gym membership or personal training contract with Global from January 1, 2006 through October 26, 2012.Id. at 1496–97, 1491.Any class member who filed an approved claim received $5 in addition to any other claim award provided for in the settlement.The settlement also created three subclasses, defined as follows:

1.The “FIF Subclass, ” which includes all class members who paid a $15 Facility Improvement Fee (FIF) or any other biannual $15 fee charged by the defendant between April 1, 2009 and October 26, 2012.The FIF Subclass has approximately 316,721 members, and all who filed approved claims were entitled to receive $20 in addition to any other claim award.

2.The “Gym Cancel Subclass, ” which includes all class members who cancelled their gym membership contracts between January 1, 2006 and October 26, 2012.The Gym Cancel Subclass has approximately 387,177 people, and all who filed approved claims were entitled to receive $20 in addition to any other claim award.

3.The “Personal Training Cancel Subclass, ” which includes all class members who cancelled a personal training contract between January 1, 2006 and October 26, 2012.The Personal Training Cancel Subclass has approximately 64,805 members, and all who filed approved claims were entitled to receive $30 in addition to any other claim award.

(R. 97–1, Settlement, PageID 1490, 1492, 1497.)¹Each class member had the opportunity to recover once from each subclass to which she/he belonged.The maximum per-person recovery was therefore $75 (5+20+20+30).Class members were required to file a simple claim form and if total claims amounted to less than $1.3 million, approved claimants would have their awards increased in equal shares.

The settlement permitted class counsel to apply for $2.39 million in attorney's fees and costs, and contained a “clear sailing” clause: an agreement from Global not to oppose any application for that sum or less.The agreement also included a “kicker” clause: an agreement that in the event the court awarded less than $2.39 million for costs and fees, that amount would constitute full satisfaction of Global's obligation for costs and fees.

B.The notice-and-claims process

Jeffrey Dahl, president of Dahl Administration, LLC, a claims administration firm hired by class counsel to implement the settlement, testified that he sent individualized notice by postcard to 601,494 class members, and email notice to just under half the class.After correcting the addresses of the 146,617 postcard notices returned as undeliverable and re-mailing them, 90.8% percent of the notices were successfully delivered to an address associated with a class member, though Dahl could not confirm how many notices reached the specific class member to whom they were addressed.Class members could either fill out a claim on paper or on a website provided in both the postcard and the email notice.The claim form itself required class members to provide basic contact information, identify which of the three subclasses they qualified for, and sign under penalty of perjury.Dahl testified that about 55,600 claims were made in total, and 49,808 claims were approved, resulting in a total class payment of $1,593,240.Dahl calculated that the average payout to a claimant was $31.99, and that the average payout to a claimant in the Gym Cancel Subclass was $41.28.

C.The Blackman objection

Joshua Blackman, a class member, objected through his counsel affiliated with the Center for Class Action Fairness.Though Blackman suffered no actual damages because he cancelled his gym membership for a full refund within three days of enrolling, he fell within the definition of the Membership Cancellation subclass, and made a claim for $25 under the settlement.Blackman states that he did not make a $20 claim for the FIF subclass because the class notice did not specify whether he was a member of that subclass.He almost certainly was not, as he was a gym member for only three days.Blackman alleged that the settlement was one-sided in favor of class counsel because it awarded $2.39 million for the legal services they rendered in representing the class but likely paid much less in class claims due to the class members' predictable low response to the claims-made process.Blackman argued that the terms of the settlement were counter to this court's decision in In re Dry Max Pampers Litigation,...