Maribel Moses v. the New York Times Company
Docket No. 21-2556-cv (2023)
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Rule of Law:
A district court reviewing a class action settlement under Federal Rule of Civil Procedure 23(e)(2) must holistically consider the proposed settlement's fairness, reasonableness, and adequacy by evaluating the four codified factors, including proposed attorneys' fees and incentive awards, and may not apply a presumption of fairness based on arm's-length negotiation. Furthermore, non-cash benefits providing free or discounted products requiring a class member to re-engage with the defendant are 'coupons' under the Class Action Fairness Act (CAFA), subjecting attorneys' fees to CAFA's redemption-value calculation requirements.
Facts:
- Maribel Moses filed a putative class action on behalf of California NYT subscribers.
- Moses alleged that The New York Times (NYT) violated California's Automatic Renewal Law (ARL) by automatically renewing subscriptions without providing required disclosures and authorizations.
- NYT and Moses's counsel engaged in informal discovery and mediation.
- The parties executed a binding Settlement Term Sheet and later a formal Settlement Agreement on March 30, 2021.
- The Settlement Agreement covered claims of over 876,000 persons from June 17, 2016, through May 12, 2021, who directly enrolled in an automatically renewing NYT subscription with a California billing and/or delivery address and were charged an automatic renewal fee.
- Under the settlement terms, NYT agreed to implement business reforms to comply with the ARL, including revising the presentation of its automatic renewal terms.
- Class members agreed to release their claims against NYT in exchange for those business reforms and either (1) a pro rata cash payment from a non-reversionary Settlement Fund of $1.65 million or (2) 'Access Codes' for one-month NYT subscriptions to certain NYT publications.
- The 'Access Codes' provide a free one-month subscription to an NYT product valued between $3-$5, are valid for at least 50 years, and are transferable, but cannot be used to pay for or extend an existing subscription, requiring a class member to start a new subscription to apply them. The specific product offered depends on the class member's current NYT subscription status.
Procedural Posture:
- Maribel Moses filed a putative class action in the United States District Court for the Southern District of New York.
- Moses's amended complaint alleged that The New York Times (NYT) violated California's Automatic Renewal Law.
- NYT moved to dismiss the amended complaint under Rule 12(b)(6).
- Before a ruling on the dismissal motion, the parties engaged in informal discovery and mediation.
- The parties executed a binding Settlement Term Sheet, followed by a formal Settlement Agreement.
- On May 12, 2021, the district court conditionally certified the class for settlement purposes and preliminarily approved the Settlement Agreement.
- Notice of the settlement was subsequently disseminated to class members.
- Three class members, including Eric Alan Isaacson, objected to the settlement; Isaacson filed detailed objections and a notice to appear at the final approval hearing.
- On September 10, 2021, the district court conducted a fairness hearing, rejected Isaacson's objections, certified the settlement class, and approved the settlement, awarding $1.25 million in attorneys' fees and a $5,000 incentive payment to Moses.
- Eric Alan Isaacson (Objector-Appellant) appealed the district court's judgment to the United States Court of Appeals for the Second Circuit.
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Issue:
Does a district court abuse its discretion by applying a presumption of fairness to a proposed class action settlement based solely on arm's-length negotiation, by evaluating attorneys' fee and incentive awards separately from the overall settlement fairness under Federal Rule of Civil Procedure 23(e)(2), and by incorrectly concluding that non-cash subscription 'Access Codes' are not 'coupons' under the Class Action Fairness Act (CAFA) for purposes of calculating attorneys' fees?
Opinions:
Majority - Gerard E. Lynch, Circuit Judge
Yes, the district court abused its discretion by applying the wrong legal standard under Rule 23(e)(2) and by incorrectly concluding that the Access Codes were not coupons under CAFA. No, incentive awards for class representatives are not per se unlawful. The court vacated the district court's judgment due to these errors, except for the incentive award which was affirmed as lawful. The Second Circuit held that the 2018 revision to Federal Rule of Civil Procedure 23(e)(2) supplanted the historical practice of applying a presumption of fairness to settlements based on arm’s-length negotiations. Instead, courts must now holistically evaluate the four codified factors, including proposed attorneys’ fees and incentive awards, when assessing a settlement's fairness, reasonableness, and adequacy. The district court erred by applying a presumption of fairness and by reviewing the attorneys' fee and incentive awards "separately" from the settlement's overall fairness, particularly because these fees were "intimately intertwined" with the cash available for class members. Regarding the Class Action Fairness Act (CAFA), the court concluded that the "Access Codes" for free one-month NYT subscriptions are indeed "coupons" under the plain meaning of the word and CAFA's legislative intent to curb inflated attorneys' fees in "coupon settlements." The court applied factors from In re Easysaver Rewards Litig. and In re Online DVD-Rental Antitrust Litig.: (1) The Access Codes require class members to start a new subscription, compelling them to re-engage with NYT, which weighs in favor of finding them coupons. (2) The Access Codes are restricted to select NYT products and cannot extend existing subscriptions, limiting their utility and suggesting a promotional, rather than punitive, purpose for NYT. (3) While long-lasting and transferable, their low individual value ($3-$5) and usage restrictions diminish their practical utility and secondary market value, unlike cash-equivalent gift cards. The court also rejected the argument that an optional cash relief alternative negates CAFA's application, noting the cash fund was subject to significant deductions for fees. Consequently, attorneys' fees attributable to the Access Codes must be based on their redemption value. Finally, the court reiterated its precedent from Melito v. Experian Marketing Solutions, Inc. that incentive awards for class representatives are not per se unlawful. It rejected the argument to adopt the Eleventh Circuit's "outlier rule" from Johnson v. NPAS Sols., LLC, which relied on nineteenth-century Supreme Court precedents (Trustees v. Greenough and R.R. & Banking Co. v. Pettus). The court reasoned that Greenough and Pettus have been superseded by Rule 23, which provides a broader framework for class actions. Incentive awards, when reasonable and not excessive, encourage class representatives and promote equitable treatment among class members under Rule 23(e)(2)(D). The court found no independent error in the incentive award itself but noted its reasonableness would be subject to reassessment as part of the holistic settlement review on remand.
Analysis:
This case significantly clarifies the Second Circuit's interpretation of the 2018 amendments to Federal Rule of Civil Procedure 23(e)(2) and the application of CAFA's coupon settlement provisions. By rejecting the presumption of fairness based on arm's-length negotiation and mandating a holistic review of all settlement components, including fees and incentive awards, the court emphasizes a more rigorous judicial oversight of class action settlements. This decision strengthens protections against 'sweetheart' deals that may disproportionately benefit class counsel over class members, particularly when non-cash relief from the defendant is involved. Future class action settlements, especially those offering non-monetary relief from the defendant's own products or services, will face stricter scrutiny regarding the valuation of such relief and the calculation of attorneys' fees, pushing for more tangible and easily redeemable benefits for class members. The affirmation of incentive awards, while subject to reasonableness, ensures continued participation of lead plaintiffs in complex litigation.
