Court Opinion

ID: 4198919
Source: CourtListenerOpinion
Date Created: 2017-08-26 02:01:38.306898+00
Date Added: 2024-06-11T07:47:31.763347
License: Public Domain

In the

    United States Court of Appeals
                  For the Seventh Circuit
                      ____________________
No. 16-1652

IN RE:
         SUBWAY FOOTLONG SANDWICH MARKETING AND
         SALES PRACTICES LITIGATION.

APPEAL OF:
     THEODORE FRANK,
                Objector.
                      ____________________

              Appeal from the United States District Court
                 for the Eastern District of Wisconsin.
              MDL No. 13-02439 — Lynn Adelman, Judge.
                      ____________________

   ARGUED SEPTEMBER 8, 2016 — DECIDED AUGUST 25, 2017
                ____________________

   Before FLAUM, ROVNER, and SYKES, Circuit Judges.
    SYKES, Circuit Judge. In January 2013 an Australian teen-
ager measured his Subway Footlong sandwich and discov-
ered that it was only 11 inches long. He photographed the
sandwich alongside a tape measure and posted the photo on
his Facebook page. It went viral. Class-action litigation soon
followed. Plaintiffs’ lawyers across the United States sued
2                                                 No. 16-1652

Subway for damages and injunctive relief under state
consumer-protection laws, seeking class certification under
Rule 23 of the Federal Rules of Civil Procedure. The suits
were combined in a multidistrict litigation in the Eastern
District of Wisconsin.
    In their haste to file suit, however, the lawyers neglected
to consider whether the claims had any merit. They did not.
Early discovery established that Subway’s unbaked bread
sticks are uniform, and the baked rolls rarely fall short of
12 inches. The minor variations that do occur are wholly
attributable to the natural variability in the baking process
and cannot be prevented. That much is common sense, and
modest initial discovery confirmed it. As important, no
customer is shorted any food even if a sandwich roll fails to
bake to a full 12 inches. Subway sandwiches are made to
order in front of the customer; meat and cheese ingredients
are standardized, and “sandwich artists” add toppings in
whatever quantity the customer desires.
    With no compensable injury, the plaintiffs’ lawyers shift-
ed their focus from a damages class under Rule 23(b)(3) to a
class claim for injunctive relief under Rule 23(b)(2). The
parties thereafter reached a settlement. For a period of four
years, Subway agreed to implement certain measures to
ensure, to the extent practicable, that all Footlong sandwich-
es are at least 12 inches long. The settlement acknowledged,
however, that even with these measures in place, some
sandwich rolls will inevitably fall short due to the natural
variability in the baking process. The parties also agreed to
cap the fees of class counsel at $525,000. The district court
preliminarily approved the settlement.
No. 16-1652                                                    3

   Theodore Frank objected. A class member and profes-
sional objector to hollow class-action settlements, see, e.g., In
re Walgreen Co. Stockholder Litig., 832 F.3d 718 (7th Cir. 2016),
Frank argued that the settlement enriched only the lawyers
and provided no meaningful benefits to the class. The judge
was not persuaded. He certified the proposed class and
approved the settlement. Frank appealed.
    We reverse. A class action that “seeks only worthless
benefits for the class” and “yields [only] fees for class coun-
sel” is “no better than a racket” and “should be dismissed
out of hand.” Id. at 724. That’s an apt description of this case.
                        I. Background
    In January 2013 Matt Corby, an Australian teenager, pur-
chased a Subway Footlong sandwich and, for reasons un-
known, decided to measure it. The sandwich was only
11 inches long. He took a photo of the sandwich next to a
tape measure and posted the photo on his Facebook page.
Thus a minor social-media sensation was born. A few media
outlets and some Subway customers were inspired to con-
duct their own sandwich-measuring experiments. See, e.g.,
Kaylee Osowski, Some Subway “Footlong” subs don’t measure
up, N.Y. POST (Jan. 17, 2013), http://nypost.com/2013/01/17/
some-subway-footlong-subs-dont-measure-up.
    Subway immediately issued a press release announcing
that it had “redoubled” its efforts “to ensure consistency and
correct length in every sandwich.” The franchisor assured its
customers that its “commitment remains steadfast” to
ensure that every Footlong sandwich sold at each of its
restaurants “worldwide” is at least 12 inches long.
4                                                          No. 16-1652

    Within days of Corby’s post, the American class-action
bar rushed to court. Plaintiffs’ lawyers sued Subway seeking
damages and injunctive relief under the consumer-
protection laws of various states. 1 Subway moved to transfer
the cases to a single district court for a multidistrict litiga-
tion. The cases—nine in total—were eventually consolidated
in the Eastern District of Wisconsin.
    In the meantime, the parties agreed to conduct limited
informal discovery in anticipation of mediation. The early
discovery revealed that the claims were factually deficient.
For starters, the vast majority of Subway Footlong sand-
wiches are, as the name implies, at least 12 inches long. The
few that do not measure up generally fall short by only
about a quarter-inch, and the shortfalls are the inevitable
consequence of natural—and unpreventable—vagaries in
the baking process. Additionally, all of Subway’s raw dough
sticks weigh exactly the same, so the rare sandwich roll that
fails to bake to a full 12 inches actually contains no less bread
than any other. What’s more, Subway standardizes the
amount of meat and cheese in each sandwich, and sandwich
makers prepare each one to order right in front of the cus-
tomer, adding toppings on request. So the length of the
bread has no effect on the quantity of food each customer
receives.
   This early discovery, limited though it was, extinguished
any hope of certifying a damages class under Rule 23(b)(3).
The overwhelming majority of Subway’s sandwiches lived

1 Doctor’s Associates, Inc., the franchisor for Subway restaurants, is the
actual defendant in the suits. For ease of reference, we’ll refer to the
defendant as Subway.
No. 16-1652                                                 5

up to their advertised length, so individual hearings would
be needed to identify which purchasers actually received
undersized sandwiches. But sandwich measuring by
Subway customers had been a fleeting social-media meme;
most people consumed their sandwiches without first
measuring them. Proof of injury was nigh impossible be-
cause no customer whose sandwich roll actually failed to
measure up received any less food because of the shortfall.
In addition, the element of materiality—a requirement for a
damages claim under most state consumer-protection stat-
utes—was an insurmountable obstacle to class certification.
Individualized hearings would be necessary to identify
which customers, if any, deemed the minor variation in
bread length material to the decision to purchase.
    Rather than drop the suits as meritless, class counsel re-
focused their efforts on certifying an injunction class under
Rule 23(b)(2) and eventually filed a consolidated class
complaint seeking only injunctive relief. Following media-
tion, the parties agreed in principle to a settlement in which
Subway committed to institute a number of practices de-
signed to ensure, to the extent practicable, that its sandwich
rolls measure at least 12 inches long and to keep those
practices in place for four years.
    More specifically, Subway agreed that (1) franchisees
would “use a tool” for measuring sandwich rolls; (2) corpo-
rate quality-control inspectors would measure a sampling of
baked bread during each regularly scheduled compliance
inspection; (3) the inspectors would check bread ovens
during each compliance inspection “to ensure that they are
in proper working order and within operating specifica-
tions”; and (4) Subway’s website and each franchised restau-
6                                                 No. 16-1652

rant would post a notice explaining that the natural variabil-
ity in the bread-baking process will sometimes result in
sandwich rolls that are shorter than the advertised length.
The settlement also explicitly acknowledged that “because of
the inherent variability in food production and the bread
baking process,” Subway could not guarantee that each
sandwich roll will “always be exactly 12 inches or greater in
length after baking.”
    Having agreed in substance to the terms of a settlement,
the parties spent the next year or so dickering over fees for
class counsel and incentive awards for the named plaintiffs.
They eventually agreed to cap attorney’s fees at $525,000 and
incentive awards at $1,000 for each named plaintiff. The
district judge preliminarily approved the settlement and
scheduled a fairness hearing. Class counsel filed a motion
seeking $520,000 in attorney’s fees and a $500 incentive
award for each of ten named plaintiffs.
    Frank objected to the settlement and class certification.
He argued that the proposed injunction didn’t benefit the
class in any meaningful way and so the settlement was
worthless. The judge was unmoved. He approved the set-
tlement and certified a class of “all persons in the United
States who purchased a 6-inch or Footlong sandwich at a
Subway restaurant between January 1, 2003[,] and …
October 2, 2015.” The judge also accepted class counsel’s
request for $520,000 in fees as reasonable and approved the
proposal for a $500 incentive award for each class repre-
sentative. Final judgment was entered in accordance with
these rulings. Frank appealed.
No. 16-1652                                                   7

                        II. Discussion
A. Standing
    The first issue on appeal concerns Frank’s standing. The
plaintiffs and Subway insist that he lacks standing to appeal
because he doesn’t have any interest in the amount of attor-
ney’s fees awarded as part of the settlement. Because the
settlement provides only injunctive relief to the class—not
monetary relief—any reduction in attorney’s fees will return
to Subway and not to class members like Frank. See Pearson
v. NBTY, Inc., 772 F.3d 778, 786 (7th Cir. 2014) (“If the class
cannot benefit from the reduction in the award of attorneys’
fees, then the objector, as a member of the class, would not
have standing to object, for he would have no stake in the
outcome of the dispute.”).
    But Frank’s appeal does not take aim at the judge’s ruling
on class counsel’s motion for attorney’s fees. He challenges
the certification of the class and the approval of the settle-
ment. True, a decision to reverse the judgment will unwind
the award of attorney’s fees, and neither Frank nor any other
class member will benefit from reducing the fees of class
counsel to zero. But as a class member who is bound by the
settlement, Frank clearly has standing to appeal. Devlin v.
Scardelletti, 536 U.S. 1, 10 (2002). He properly objected at the
fairness hearing and may “appeal the approval of a settle-
ment … that will ultimately bind [him].” Id.
B. Class Certification and Settlement Approval
    Although the standard of review is deferential—the deci-
sion to certify a class and approve a class settlement is
committed to the discretion of the district judge—our duty
in this context is “far from pro forma.” Pearson, 772 F.3d at
8                                                   No. 16-1652

780. We have explained that a district judge in this situation
is akin to “a fiduciary of the class” and “is subject therefore
to the high duty of care that the law requires of fiduciaries.”
Id. (quoting Reynolds v. Beneficial Nat’l Bank, 288 F.3d 277, 280
(7th Cir. 2002)). Indeed, and especially in the settlement
context, the judge must give the requirements for class
certification “undiluted, even heightened, attention.”
Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997). The
judge is called to “exercise the highest degree of vigilance in
scrutinizing proposed settlements of class actions.” Synfuel
Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 652 (7th
Cir. 2006) (quoting Reynolds, 288 F.3d at 279).
    Rule 23(a) requires that the class representatives “fairly
and adequately protect the interests of the class,” FED. R. CIV.
P. 23(a)(4), and a class-action settlement may not be ap-
proved unless it is “fair, reasonable, and adequate,” FED. R.
CIV. P. 23(e)(2). Underpinning both requirements is a concern
for the unnamed class members whose interests the named
plaintiffs represent and the settlement is meant to serve. We
have remarked on the tendency of class settlements to yield
benefits for stakeholders other than the class: Class counsel
“support the settlement to get fees; the defendants support it
to evade liability; the court can’t vindicate the class’s rights
because the friendly presentation means that it lacks essen-
tial information.” Kamilewicz v. Bank of Boston Corp., 100 F.3d
1348, 1352 (7th Cir. 1996). That is why “objectors play an
essential role in judicial review of proposed settlements of
class actions and why judges must be both vigilant and
realistic in that review.” Pearson, 772 F.3d at 787.
   We put the point more bluntly in another appeal by
Frank as the objector: A class settlement that results in fees
No. 16-1652                                                    9

for class counsel but yields no meaningful relief for the class
“is no better than a racket.” In re Walgreen, 832 F.3d at 724. If
the class settlement does not provide “effectual relief” to the
class and its “principal effect” is to “induce the defendants to
pay the class’s lawyers enough to make them go away,” then
the class representatives have failed in their duty under
Rule 23 to “fairly and adequately protect the interests of the
class.” In re Aqua Dots Prods. Liab. Litig., 654 F.3d 748, 752–53
(7th Cir. 2011) (quoting FED. R. CIV. P. 23(a)(4)). And if the
class representatives have agreed to a settlement that pro-
vides meaningless relief to the putative class, the district
court should refuse to certify or, alternatively, decertify the
class. “No class action settlement that yields zero benefits for
the class should be approved, and a class action that seeks
only worthless benefits for the class should be dismissed out
of hand.” In re Walgreen, 832 F.3d at 724.
    The plaintiffs and Subway defend this settlement by in-
sisting that it actually provides meaningful benefits to the
class because Subway has bound itself, for a period of four
years, to a set of procedures designed to achieve better
bread-length uniformity. A simple comparison of the state of
affairs before and after the settlement exposes the cynicism
in this argument.
    Before the settlement, class members could be fairly cer-
tain that a Subway Footlong sandwich would be at least
12 inches long. They could rest assured that because all
loaves are baked from the same quantity of dough, each
sandwich contained the same amount of bread even if an
occasional loaf failed to bake to the full 12 inches in length.
And if a loaf happened to bake up slightly shorter than
12 inches, customers could be assured of receiving the same
10                                               No. 16-1652

quantity of meat and cheese as any other customer; no class
member, regardless of bread length, was cheated on the
amount of ham or turkey, provolone or pepper jack. As for
other sandwich ingredients, class members could be as
profligate or as temperate as they pleased: Subway’s “sand-
wich artists” add toppings at the customer’s request. In sum,
before the settlement there was a small chance that Subway
would sell a class member a sandwich that was slightly
shorter than advertised, but that sandwich would provide
no less food than any other.
    After the settlement—despite the new measuring tools,
protocols, and inspections—there’s still the same small
chance that Subway will sell a class member a sandwich that
is slightly shorter than advertised. Indeed, the settlement
explicitly acknowledges that “because of the inherent varia-
bility in food production and the bread baking process,
[Subway] will never be able to guarantee that each loaf of
bread will always be exactly 12 inches or greater in length
after baking.” It’s safe to assume that Subway customers
know this as a matter of common sense, but the settlement
requires Subway to include a disclaimer on its website and
in a poster prominently displayed at each restaurant: “Due
to natural variations in the bread baking process, the size
and shape of bread may vary.” And after the settlement, just
as before, the rare sandwich that falls short of the full
12 inches will still provide the customer the same amount of
food as any other. The injunctive relief approved by the
district judge is utterly worthless. The settlement enriches
only class counsel and, to a lesser degree, the class repre-
sentatives.
No. 16-1652                                                   11

    The plaintiffs and Subway observe that the class can re-
turn to court with a motion for contempt sanctions in the
event of any violation of the injunction. They rely on Eubank
v. Pella Corp., 753 F.3d 718 (7th Cir. 2014), as support for this
point, but that case doesn’t help them. In Eubank the defend-
ant window manufacturer had offered extended warranties
to purchasers before the class litigation; under the proposed
settlement, the manufacturer could not revoke the extended
warranties. That, we said, “confer[red] a bit of extra value”
on the class members. Id. at 725.
   Here, the procedures required by the settlement do not
benefit the class in any meaningful way. The settlement
acknowledges as much when it says that uniformity in bread
length is impossible due to the natural variability of the
bread-baking process. Contempt as a remedy to enforce a
worthless settlement is itself worthless. Zero plus zero
equals zero.
    Because the settlement yields fees for class counsel and
“zero benefits for the class,” the class should not have been
certified and the settlement should not have been approved.
In re Walgreen, 832 F.3d at 724. Because these consolidated
class actions “seek[] only worthless benefits for the class,”
they should have been “dismissed out of hand.” Id.
                                    REVERSED AND REMANDED.