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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

CAFA Coupon Settlements Must Be Approved

Posted in Case Summaries

Fouks v Red Wing Hotel, 2013 WL 6169209 (D. Minn. Nov. 21, 2013).

The district court in Minnesota finally approved a coupon settlement in terms stipulated in CAFA, but reduced the award for the class representatives, and deferred the award of attorneys’ fees after the redemption period of voucher was complete.

The plaintiff filed this putative class action for the defendant’s willful failure to properly redact its customers’ debit and credit card numbers from its receipts in violation of the Fair and Accurate Credit Transaction Act’s (“FACTA”) truncation requirement. The parties reached a tentative settlement, which was preliminarily approved by the district court. The plaintiffs then filed a motion for final approval of the class action settlement.

The parties sought final approval of their proposed settlement in which the defendant – St. James Hotel – would provide to the 161 class members who timely submitted claims a voucher for either 40% off a stay at the hotel or 30% off a meal at the hotel’s restaurant. Under the terms of the settlement, the defendant would also make direct cash payments of $4,000 to both the class representatives and a cy pres donation of $20,000 to the Red Wing Environmental Learning Center within 10 days of the court’s final approval.

Because the proposed settlement would provide the class members with vouchers that would require them to a purchase more of the defendant’s goods and services, in order to receive a discount, the district court observed that the provision of CAFA regarding coupon settlements at 28 U.S.C. § 1712 was applicable here. The statute specifies that, where a proposed settlement includes the award of coupons to class members, the court may approve the setlement only upon making a written finding that the settlement was fair, reasonable, and adequate for class members.

After having considered all the relevant factors, the district court in particular noted the difficulty FACTA plaintiffs who sought only statutory damages may encounter in providing the defendant’s willful non-compliance where the case does not settle and proceeds to trial. In addition, the court took notice that no class members had objected to the proposed settlement. Accordingly, the district court remarked that those factors cut in favor of final approval of the settlement, but it was uneasy about the difference in kind and amount between $4,000 cash payments the plaintiffs sought for themselves and the far less valuable coupons that they deemed adequate for the other class members. The district court found that here, the case was not strongly contested, as settlement negotiations began in the earliest stages of the litigation; demanded very little of the plaintiffs individually; did not implicate the public interest, and presented no novel, complex, or controversial issues. Accordingly, the district court reduced the award for class representative and paid $1,000 to one plaintiff and $500 to the other, and modified the settlement.

Similarly, the district court found that the class counsel’s award of attorneys’ fees of $65,000 was unreasonable, firstly because the hours expended were unreasonable for a case of this nature, and secondly, the hourly rate the counsel requested was exorbitant. The district court denied class counsel’s motion without prejudice, and gave them the liberty to refile once the voucher redemption period was concluded.

Accordingly, the district court modified, and finally approved the settlement. –JR