Maribel Moses v. the New York Times Company
Not specified in text (2023)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
The 2018 amendment to Federal Rule of Civil Procedure 23(e)(2) prohibits courts from applying a presumption of fairness to class action settlements based on arm's-length negotiation and requires courts to consider proposed attorneys' fees and incentive awards in tandem with the settlement's fairness, reasonableness, and adequacy. Furthermore, non-cash relief such as "Access Codes" for free subscriptions are considered "coupons" under the Class Action Fairness Act (CAFA), subjecting attorneys' fee awards to CAFA's redemption-value calculation.
Facts:
- Maribel Moses brought a putative class action on behalf of California New York Times (NYT) subscribers, alleging NYT violated California’s Automatic Renewal Law (ARL) by automatically renewing subscriptions without providing required disclosures and authorizations.
- Moses claimed that when consumers signed up for an NYT subscription through NYT’s Website or App, NYT enrolled them in automatically renewing subscriptions without providing the disclosures and authorizations required by the ARL.
- NYT moved to dismiss the amended complaint, but before the district court ruled, the parties engaged in informal discovery and mediation.
- After mediation, the parties executed a binding Settlement Term Sheet, which led to a formal Settlement Agreement signed on March 30, 2021.
- The Settlement Agreement settled the claims of over 876,000 persons who, from June 17, 2016, through May 12, 2021, directly enrolled in an automatically renewing NYT subscription using a California billing and/or delivery address and were charged an automatic renewal fee.
- Under the terms, NYT agreed to implement business reforms to comply with the ARL, including revising the presentation of its automatic renewal terms and providing consumers with an acknowledgment.
- Class members agreed to release their claims in exchange for these business reforms and either a pro rata cash payment from a non-reversionary $1.65 million Settlement Fund or "Access Codes" for one-month NYT subscriptions to certain NYT publications.
- The Access Codes provided a free one-month subscription to a NYT product valued between $3 to $5, were valid for at least 50 years, and could be transferred, but could not be used to pay for or extend an existing subscription, requiring users to start a new subscription.
Procedural Posture:
- On June 17, 2020, Maribel Moses brought a putative class action in the United States District Court for the Southern District of New York against The New York Times Company.
- The New York Times Company moved to dismiss the amended complaint under Rule 12(b)(6).
- Before the district court ruled on the motion, the parties engaged in informal discovery and mediation, which led to a binding Settlement Term Sheet and 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 disseminated to approximately 95.2% of the 876,606 class members.
- Eighteen class members requested to be excluded from the settlement, and three class members, including Eric Alan Isaacson, objected to the settlement.
- On September 10, 2021, the district court conducted a fairness hearing, hearing arguments from Objector-Appellant Eric Alan Isaacson regarding the settlement's consideration, attorneys' fees, and incentive award.
- The district court rejected Isaacson’s objections, certified the settlement class, and approved the settlement, awarding $1.25 million in attorneys’ fees (approximately 76% of the $1.65 million cash Settlement Fund) and a $5,000 incentive payment to Moses on September 13, 2021.
- Objector-Appellant Eric Alan Isaacson appealed the district court's judgment to the United States Court of Appeals for the Second Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
1. Did the district court abuse its discretion by applying a presumption of fairness to a class action settlement based on arm's-length negotiation, and by evaluating attorneys' fees and incentive awards separately from the settlement's overall fairness, reasonableness, and adequacy under Federal Rule of Civil Procedure 23(e)(2)? 2. Did the district court err in concluding that "Access Codes" for one-month subscriptions to New York Times products were not "coupons" subject to the Class Action Fairness Act's provisions for calculating attorneys' fees? 3. Do Supreme Court precedents from the nineteenth century, Trustees v. Greenough and R.R. & Banking Co. v. Pettus, prohibit incentive awards to class representatives in class action settlements?
Opinions:
Majority - Gerard E. Lynch
Yes, the district court abused its discretion by applying the wrong legal standard under Rule 23(e)(2) when it presumed fairness from arm's-length negotiation and by evaluating attorneys' fees and incentive awards separately from the settlement's overall fairness. Yes, the district court erred by incorrectly concluding that the "Access Codes" for New York Times subscriptions were not "coupons" subject to CAFA's attorneys' fee provisions. No, Supreme Court precedents from the nineteenth century, Trustees v. Greenough and R.R. & Banking Co. v. Pettus, do not prohibit incentive awards to class representatives. The court held that the 2018 amendment to Federal Rule of Civil Procedure 23(e)(2) significantly alters the standard for approving class action settlements. This revision supplants the historical practice of applying a presumption of fairness to settlements based solely on arm's-length negotiation. While arm's-length negotiation remains a relevant factor, it no longer creates an automatic favorable presumption. Furthermore, Rule 23(e)(2)(C)(iii) mandates that courts explicitly consider "the terms of any proposed award of attorney’s fees" when evaluating the adequacy of relief provided to the class, and Rule 23(e)(2)(D) requires consideration of equitable treatment among class members, which includes incentive awards. The district court erred by reviewing these awards "separately" from the settlement's fairness, an error that could not be deemed harmless given the substantial attorneys' fees awarded (76% of the cash fund). Regarding CAFA's coupon settlement provisions, the court concluded that the Access Codes were "coupons." CAFA aims to prevent inflated attorneys' fees in coupon settlements by requiring fees to be based on the redemption value rather than face value. The court found that the Access Codes met the plain meaning of "coupon" as digital vouchers for free products, consistent with CAFA's legislative history, which contemplated settlements offering free items as coupons. Applying a three-factor test (from the Ninth Circuit), the court determined the Access Codes were coupons because: (1) they required class members to re-engage with NYT by starting a new subscription, offering little value to those disinclined to continue business due to alleged prior harm; (2) they were valid only for select NYT products, which varied by subscription status, making them promotional; and (3) despite their long validity and transferability, their low face value and restrictive use (e.g., cannot extend existing subscriptions) limited their flexibility and market value. The court rejected the argument that an optional cash relief exempted the settlement from CAFA's coupon provisions. Finally, the court affirmed its precedent that incentive awards to class representatives are not per se unlawful. It explicitly rejected adopting the Eleventh Circuit's outlier rule in Johnson v. NPAS Sols., LLC, which relied on nineteenth-century Supreme Court cases, Trustees v. Greenough and R.R. & Banking Co. v. Pettus. The court reasoned that Rule 23, a modern procedural mechanism, supersedes these older common law trust principles. Incentive awards are crucial for encouraging class representatives to participate actively in complex litigation, ensuring equitable treatment for those who contribute significant time and effort. While excessive awards are problematic under Rule 23(e)(2)(D)'s equitable treatment requirement, the court found no categorical prohibition on such awards.
Analysis:
This decision significantly clarifies the application of the 2018 amendments to Federal Rule of Civil Procedure 23(e)(2), removing the traditional presumption of fairness in class action settlements based solely on arm's-length negotiation and mandating a holistic review of settlement terms that explicitly integrates the evaluation of attorneys' fees and incentive awards into the assessment of overall fairness. The ruling also broadens the definition of "coupon" under CAFA, ensuring that non-cash relief for free products, even with opt-out cash alternatives, will likely trigger CAFA's stricter attorneys' fee calculation based on redemption value, preventing inflated valuations. Finally, the Second Circuit firmly rejects the Eleventh Circuit's Johnson ruling, solidifying the legality of reasonable incentive awards as vital for encouraging class representative participation, providing crucial guidance for future class action settlements in the circuit.
