Wells v. Best Buy Co. (In re Samsung Top-Load Washing Mach. Mktg., Sales Practices & Prods. Liab. Litig.)

• Decision Date: 07 May 2021
• Docket Number: No. 20-6097,20-6097
• Citation: 997 F.3d 1077
• Parties: IN RE: SAMSUNG TOP-LOAD WASHING MACHINE MARKETING, SALES PRACTICES AND PRODUCTS LIABILITY LITIGATION. Jerry Wells, Plaintiffs - Appellees, v. Best Buy Co., Inc.; The Home Depot, Inc.; Lowe's Home Center, LLC; Samsung Electronics America, Inc.; Samsung Electronics Co., Ltd.; Lowe's Companies, Inc.; Samsung Electronics Company, Ltd, Defendants - Appellees, and Sears Holding Corporation, Defendant. John Douglas Morgan, Objector - Appellant. Attorney General of the State of Alaska; Attorney General of the State of Arkansas; Attorney General of the State of Alabama; Attorney General of the State of Idaho; Attorney General of the State of Indiana; Attorney General of the State of Missouri; Attorney General of the State of North Dakota; Attorney General of the State of Oklahoma; Attorney General of the State of Arizona, Amici Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

997 F.3d 1077

IN RE: SAMSUNG TOP-LOAD WASHING MACHINE MARKETING, SALES PRACTICES AND PRODUCTS LIABILITY LITIGATION.Jerry Wells, Plaintiffs - Appellees,

v. Best Buy Co., Inc.; The Home Depot, Inc.; Lowe's Home Center, LLC; Samsung Electronics America, Inc.; Samsung Electronics Co., Ltd.; Lowe's Companies, Inc.; Samsung Electronics Company, Ltd, Defendants - Appellees,andSears Holding Corporation, Defendant.John Douglas Morgan, Objector - Appellant.Attorney General of the State of Alaska; Attorney General of the State of Arkansas; Attorney General of the State of Alabama; Attorney General of the State of Idaho; Attorney General of the State of Indiana; Attorney General of the State of Missouri; Attorney General of the State of North Dakota; Attorney General of the State of Oklahoma; Attorney General of the State of Arizona, Amici Curiae.

No. 20-6097

United States Court of Appeals, Tenth Circuit.

FILED May 7, 2021

Theodore H. Frank, Hamilton Lincoln Law Institute, Center for Class Action Fairness, Washington, DC, for Objector – Appellant John Douglas Morgan.

John P. Elwood, Arnold & Porter Kaye Scholer LLP, Washington, DC (R. Stanton Jones and Anthony J. Franze, Arnold & Porter Kaye Scholer LLP, Washington, DC, and Arthur E. Brown and Elie Salamon, Arnold & Porter Kaye Scholer LLP, New York, New York, Michael J. Mueller, Hunton Andrews Kurth LLP, Washington, DC, S. Stewart Haskins, II, King & Spalding LLP, Atlanta, Georgia, and Gerald P. Green, Pierce Couch Hendrickson Baysinger & Green, Oklahoma City, Oklahoma, with him on the brief), for Defendants – Appellees.

Samuel Issacharoff, New York, New York (William B. Federman, Federman & Sherwood, Oklahoma City, Oklahoma, with him on the brief), for Plaintiffs – Appellees.

Kate B. Sawyer, Assistant Solicitor General (Mark Brnovich, Attorney General, with her on the brief), Office of the Arizona Attorney General (Mark Brnovich, Attorney General, State of Arizona; Steve Marshall, Attorney General, State of Alabama; Clyde "Ed" Sniffen, Jr., Acting Attorney General, State of Alaska; Leslie Rutledge, Attorney General, State of Arkansas; Lawrence G. Wasden, Attorney General, State of Idaho; Curtis T. Hill, Jr., Attorney General, State of Indiana; Eric Schmitt, Attorney General, State of Missouri; Wayne Stenehjem, Attorney General, State of North Dakota; and Mike Hunter, Attorney General, State of Oklahoma; with her on the brief), for Amici Curiae.

Before PHILLIPS, MURPHY, and McHUGH, Circuit Judges.

McHUGH, Circuit Judge.

In 2015, consumers owning Samsung top-load washing machines experienced issues with the top-load door detaching mid-cycle. Litigation ensued across the country, with the cases consolidated into the multidistrict litigation underlying this appeal. Over the course of several months, and with the assistance of a mediator, class counsel and the defendants negotiated a Settlement Agreement that provided class members five forms of relief. Valuing the Settlement Agreement at between $6.55 and $11.42 million and finding that certain aspects of the Agreement provided the average claimant greater compensation than damages provable at trial, the district court, over John Douglas Morgan's objection, granted final class certification and final approval to the settlement.

Essential to Mr. Morgan's objections is the Settlement Agreement's inclusion of a "kicker" agreement and a "clear-sailing" agreement relative to the award of attorneys’ fees and costs. Under the "kicker" agreement, Samsung retained the difference between the maximum permissible attorneys’ fees and costs award of $6.55 million and the amount actually awarded by the district court. Mr. Morgan further argues that under the "clear-sailing" agreement, Samsung agreed not to contest any request by class counsel for attorneys’ fees and costs of up to $6.55 million. Attempting to resolve his objections, Mr. Morgan and Samsung sought to negotiate a side agreement providing for the possible distribution to the class of a portion of the difference between the $6.55 million maximum permissible attorneys’ fees and costs, and the actual amount awarded by the district court. Ratification of this side agreement, however, never occurred, with Mr. Morgan walking away based on his purported fear that class counsel might sue him and his counsel if he and Samsung finalized the side agreement.

Instead of seeking the maximum award of $6.55 million, class counsel sought an attorneys’ fees and costs award of just under $6.25 million. Scrutinizing the billing records submitted by class counsel and acknowledging the existence of the "kicker" and "clear-sailing" agreements in the Settlement Agreement, the district court awarded class counsel a reduced amount of just over $3.8 million. As a result of this reward falling well below the maximum permissible amount of $6.55 million, Samsung was able to retain money that likely would have been distributed to the class had Mr. Morgan and Samsung finalized the side agreement.

On appeal, Mr. Morgan advances three arguments: (1) the district court made clear errors of fact regarding settlement negotiations and the side agreement; (2) the district court abused its discretion by granting final approval to the Settlement Agreement where it included both a "kicker" and a "clear-sailing" agreement; and (3) the district court abused its discretion by granting final class certification and allowing class counsel to continue in its role after class counsel placed its interests ahead of the class's interests.

We hold that a district court must apply heightened scrutiny before approving a settlement that includes both a "kicker" agreement and a "clear-sailing" agreement. But our review of the record gives us confidence the district court did just that. And although the district court made one clear error in its fact-finding process, we conclude the error was harmless to its ultimate decisions regarding final class certification, final approval of the Settlement Agreement, and its award of attorneys’ fees and costs. Accordingly, we affirm the district court's orders on these matters.

I. BACKGROUND

A. Initiation of Litigation

In 2015, thirty-four models of Samsung top-load washing machines, individually priced between $450 and $1500, experienced weakness issues with the top-load door mechanism. As a result of the weakness, the top-load door on some machines would detach during certain spin cycles, allowing water to spew out of the machine. In an effort to remedy this defect, the Consumer Product Safety Commission and Samsung announced a voluntary recall program under which Samsung would (1) provide a free repair to strengthen the top-load door and a one-year warranty extension; (2) give consumers a rebate toward the purchase of a new washing machine of any brand if a consumer was no longer using the washing machine; or (3) provide consumers who purchased a washing machine within the thirty days preceding the recall a full refund of the purchase price. Unsatisfied by the compensation offered by the recall program, consumers around the country filed class actions against Samsung.¹

The Judicial Panel on Multidistrict Litigation ("JPML") ordered the various class actions filed, based on the top-load door defect, be combined into a single action and assigned that action to the Honorable Timothy D. DeGiusti of the Western District of Oklahoma. The JPML also incorporated into the multidistrict litigation a New Jersey class action against Samsung based on design defects in the drain pump mechanism of the same washing machines experiencing top-load door defects. William B. Federman of Federman & Sherwood assumed the role of lead class counsel.

B. Settlement Negotiations & Agreement

Following consolidation into the multidistrict litigation, the parties commenced settlement negotiations, with Michael Ungar serving as mediator. Over the span of several months, the parties spent nine days negotiating a settlement, focusing the first eight days of mediation on the issue of compensation and not turning to the issue of attorneys’ fees and costs until the final day of mediation.² In a declaration, Mr. Ungar described the negotiations as "hard-fought," "lengthy," "exhausting," "at times frustrating," and "quite adversarial." Samsung App., Vol. I at 229, 231. Mr. Ungar further declared the settlement terms reached by the parties were "the product of arm's length negotiations by highly skilled, well-informed lawyers." Id. at 232.

Class counsel and Samsung signed the Settlement Agreement in May 2018. The Settlement Agreement provided class members owning machines with top-load door issues four options for relief: (1) enhanced minimum recall rebates, which would allow class members to receive a rebate worth up to 15.5% of the estimated purchase price of the washing machine;³ (2) enhanced recall repair, wherein Samsung would send a technician to a class member's home to strengthen the top-load door mechanism and also provide the member a rebate toward the purchase of a future Samsung appliance; (3) top separation relief, which would allow a member experiencing a top-load door separation within seven years of purchasing a washing machine to receive a full refund on the purchase price of the machine as well as up to $400 in expenses resulting from the top-load door separation; or (4) recall repair with warranty extension, under which a class member could request a repair to their top-load door mechanism and receive a one-year extension of the warranty on the washing machine.⁴ The settlement also provided relief to class members experiencing drain-pump failures, allowing (1) $150 to cover the cost of already-completed repairs or installation of a new drain pump, if failure occurred within three years of the notice date of the settlement; and (2) up to $400 for expenses stemming from the failure of a drain pump.

In addition, the Settlement Agreement established parameters regarding an award of attorneys’ fees and costs to class counsel....