Murray v. Grocery Delivery E-Services U.S. Inc.

• Decision Date: 16 December 2022
• Docket Number: 21-1931
• Citation: 55 F.4th 340
• Parties: Grace MURRAY ; Amanda Engen; Stephen Bauer; Jeanne Tippett; Robin Tubesing; Nikole Simecek; Michelle McOsker; Jacqueline Groff; Heather Hall, on Behalf of Themselves and All Others Similarly Situated, Plaintiffs, Appellees, v. GROCERY DELIVERY E-SERVICES USA INC., d/b/a HelloFresh Defendant, Appellee, Sarah McDonald, Objector, Appellant.
• Court: U.S. Court of Appeals — First Circuit

55 F.4th 340

Grace MURRAY ; Amanda Engen; Stephen Bauer; Jeanne Tippett; Robin Tubesing; Nikole Simecek; Michelle McOsker; Jacqueline Groff; Heather Hall, on Behalf of Themselves and All Others Similarly Situated, Plaintiffs, Appellees,

v. GROCERY DELIVERY E-SERVICES USA INC., d/b/a HelloFresh Defendant, Appellee,Sarah McDonald, Objector, Appellant.

No. 21-1931

United States Court of Appeals, First Circuit.

December 16, 2022

Eric Alan Isaacson, with whom C. Benjamin Nutley was on brief, for appellant.

Stacey Slaughter, with whom Brenda L. Joly, Marcus A. Guith, Robins Kaplan LLP, Anthony I. Paronich, Samuel J. Strauss, and Turke & Strauss LLP were on brief, for appellees Grace Murray, Amanda Engen, Stephen Bauer, Jeanne Tippett, Robin Tubesing, Nikole Simecek, Michelle Mcosker, Jacqueline Groff, and Heather Hall.

Shannon Z. Petersen, with whom Karin Dougan Vogel and Sheppard, Mullin, Richter & Hampton LLP were on brief, for appellee Grocery Delivery E-Services USA Inc.

Before Lynch, Kayatta, and Gelpí, Circuit Judges.

KAYATTA, Circuit Judge.

We consider in this case a challenge to the approval of a class-action settlement under Federal Rule of Civil Procedure 23(e). For reasons we will explain, we vacate the approval because the absence of separate settlement counsel for distinct groups of class members makes it too difficult to determine whether the settlement treated class members equitably. We also hold that incentive payments to named class representatives are not prohibited as long as they fit within the bounds of Rule 23(e).

I.

HelloFresh is a subscription service that ships a recipe and ingredients for a meal to your doorstep. In 2015, HelloFresh initiated a so-called "win back" marketing campaign, in which it used telemarketing contractors to contact former subscribers in an attempt to win them back as customers. Plaintiffs in this class action allege that this marketing campaign violated the Telephone Consumer Protection Act (TCPA) in three different ways: (1) by using an automated dialer to place marketing calls to some people, 47 U.S.C. § 227(b)(1)(A) ; (2) by calling some people listed on the National Do-Not-Call (NDNC) registry, 47 U.S.C. § 227(c)(5) ; 47 C.F.R. § 64.1200(c)(2) ; and (3) by calling some people who had requested that HelloFresh not call them (and therefore were required to be on HelloFresh's federally mandated internal do-not-call (IDNC) list), 47 U.S.C. § 227(c)(5) ; 47 C.F.R. § 64.1200(d). We will call those three claims, respectively, the Auto-Dialer claim, the NDNC claim, and the IDNC claim.

After litigation commenced, HelloFresh entered mediated settlement discussions with the named plaintiffs. In the settlement negotiations, plaintiffs' counsel acted jointly on behalf of all prospective class members possessing one or more of the three potential claims arising out of HelloFresh's "win back" campaign. The parties eventually arrived at a proposed settlement conditioned on court approval. The district court preliminarily approved the settlement, pursuant to which HelloFresh agreed to pay $14 million to a settlement class. For purposes of the settlement only, see Fed. R. Civ. P. 23(e), the district court certified a single class, with no subclasses, consisting of about 4.8 million customers and former customers defined as follows:

All persons in the United States from September 5, 2015 to December 31, 2019 to whom HelloFresh, either directly or by a vendor of HelloFresh, (a) placed one or more calls on their cellphones via a dialing platform; (b) placed at least two telemarketing calls during any 12-month period where their phone numbers appeared on the NDNCR for at least 31 days before the calls; and/or (c) placed one or more calls after registering the landline, wireless, cell, or mobile telephone number on HelloFresh's Internal Do-Not-Call List.

Email notice to 4.4 million class members and post card notice to 400,000 class members ensued. Approximately 100,000 class members submitted valid claims, while 270 opted out. Under the settlement as preliminarily approved, each class member who submitted a valid claim would have received about $89 (net of proposed counsel fees and expenses).

Three individuals filed objections. One contended that HelloFresh should pay nothing. Another asserted that class members were not being paid enough. The third objector -- Sarah McDonald, appellant here -- filed the most substantial objections. McDonald explained why she viewed the $14 million payout as too small compared to potential statutory damages of over $2.4 billion. She argued that no single lawyer or group of lawyers could adequately negotiate and recommend a settlement jointly on behalf of three subgroups having materially different claims. As a result, she contended, the settlement sold out class members who were on the NDNC registry -- whose claims she says are the most valuable -- by placing them on equal footing with members in the other two groups, whose claims she says are virtually worthless. McDonald also objected to the use of incentive awards for the named plaintiffs. Finally, she contended that class counsel were getting too much of the pie, that the settlement should add restrictions on HelloFresh's future use of phone calls, and that class counsel failed to support their claim for litigation expenses.

On the first day of the final approval hearing on May 11, 2021, the district court gave McDonald's counsel and plaintiffs' counsel time to discuss each of McDonald's objections. After argument, the court stated that the objections were "most respectfully taken into account" and that it had not yet determined how they would "work their way into the Court's final order." The court independently asked counsel to brief whether the settlement protected the class from being subject to "an anticonsumer mandatory arbitration clause."

At a follow-up hearing on June 9, 2021, the court rejected the settlement because of the arbitration issue. It explained that it would approve the settlement if HelloFresh would not require the arbitration of any future claim by any class member, to ensure that "HelloFresh will not, in the future, use a consumer mandatory arbitration clause as a cover." The court did not express any concerns about the amount of the settlement fund.

The parties then submitted an amended settlement agreement that addressed the court's arbitration concerns. Under the amendment, HelloFresh agreed that it would not seek to compel arbitration of future TCPA claims that class members might bring. On the final day of the hearing, September 29, 2021, the district court began by stating that each class member submitting a claim should receive more of the settlement award -- $100 rather than $89. This was in line with one of McDonald's concerns. The district court explained that this change would reduce class counsel's share from about 33% to about 25.5%. After HelloFresh and class counsel agreed to the adjustment, the district court approved the settlement as "fair, adequate, and reasonable." Although the court explained that it had "noted and indeed in slight measure t[ook] into account [the] objections," it did not provide detailed reasoning for rejecting most of the objections. The court decided to "adopt [the settlement agreement] with a payout to each claimant of $100 and the attorneys' fees," and it entered an order and judgment on October 15, 2021, certifying the proposed class for purposes of a settlement and approving the proposed settlement.

McDonald timely appealed the approval of the settlement.

II.

The "approval or rejection of a class-action settlement is entrusted to the district court's informed discretion" and is accordingly reviewed "for abuse of that discretion -- a multifaceted standard under which we scrutinize embedded legal issues de novo and factual findings for clear error." Cohen v. Brown Univ., 16 F.4th 935, 946 (1st Cir. 2021) (citing Robinson v. Nat'l Student Clearinghouse, 14 F.4th 56, 59 (1st Cir. 2021) ).

McDonald's principal argument below and on appeal rests on the contention that persons like her who signed up on the NDNC registry had materially stronger and more valuable claims than other class members without NDNC claims. Therefore, she reasons, it was inadequate for these groups to be represented by the same counsel in determining whether and to what extent their shares of the settlement proceeds should differ. And she contends that this unfair process led to an inequitable result in which all class members received equal shares, even though some had more valuable claims. McDonald also raises a separate argument that the inclusion of incentive awards for the class representatives rendered the settlement defective. We discuss these arguments in turn.

A.

We analyze adequacy of representation through the lens of Rule 23(e) for the purposes of this appeal, although much, if not all, of our analysis would apply to Rule 23(a)'s adequate representation requirement in the context of class certification for settlement. See Cohen, 16 F.4th at 945 (stating that, because Rule 23(e)(2)(A) "overlaps with other requirements imposed by Rule 23, we look to case law glossing the stipulation that ‘the representative parties will fairly and adequately protect the interests of the class’ " in Rule 23(a)(4) (internal citation omitted)).

Rule 23(e) requires district courts to consider certain factors in determining whether a proposed settlement is "fair, reasonable, and adequate." Fed. R. Civ. P. 23(e)(2). These factors include procedural checks: that "the class representatives and class counsel have adequately represented the class" and that "the proposal was negotiated at arm's length." Fed. R. Civ. P. 23(e)(2)(A)–(B). They also include substantive checks: that "the relief provided for the class is adequate" and that "the proposal treats class members equitably relative to each other." Fed. R. Civ. P. 23(e)(2)(C)–(D) ; see Cohen, 16 F.4th at 943–44 (noting that "[t]he Advisory...