Court Opinion

ID: 3166794
Source: CourtListenerOpinion
Date Created: 2015-12-31 17:00:26.513248+00
Date Added: 2024-06-11T11:59:27.924420
License: Public Domain

United States Court of Appeals
                        For the First Circuit

Nos. 15-1207
     15-1208

                  VALERIE BEZDEK, individually and on
               behalf of all others similarly situated,

                         Plaintiff, Appellee,

                                  v.

              VIBRAM USA, INC.; VIBRAM FIVEFINGERS, LLC,

                        Defendants, Appellees,

      MADELINE MONTI CAIN; JUSTIN FERENCE; MICHAEL NARKIN,

                   Interested Parties, Appellants.

No. 15-1209

                            BRIAN DEFALCO,

                         Plaintiff, Appellee,

                                  v.

              VIBRAM USA, INC.; VIBRAM FIVEFINGERS, LLC,

                        Defendants, Appellees,

                           JUSTIN FERENCE,

                     Interested Party, Appellant.

          APPEALS FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS
         [Hon. Douglas P. Woodlock, U.S. District Judge]

                             Before

                  Torruella, Lynch, and Barron,
                         Circuit Judges.

     Christopher T. Cain, with whom Scott & Cain, David Aisenberg,
and Looney Cohen & Aisenberg LLP were on brief, for Cain and
Ference.
     Christopher M. Morrison, with whom Dana Baiocco and Jones Day
were on brief, for Vibram USA, Inc. and Vibram FiveFingers, LLC.
     Janine L. Pollack, with whom Wolf Haldenstein Adler Freeman
& Herz LLP was on brief, for Bezdek and DeFalco.

                        December 31, 2015
             LYNCH, Circuit Judge.           Objectors to a class action

settlement bring this appeal from a district court order approving

settlement and awarding attorneys' fees.              Bezdek v. Vibram USA

Inc., 79 F. Supp. 3d 324 (D. Mass. 2015).             The underlying action

concerned allegedly deceptive advertising and marketing claims

made about the health benefits of certain "barefoot" running shoes.

The objectors argued both to the district court and to us that the

class notice was misleading, positing a higher potential recovery

than the actual recovery; that it was unfair for objectors to be

required to provide proofs of purchase; that the injunctive relief

in the settlement had no value; and that class counsel was paid

too much.

             The district court carefully explained its reasons for

rejecting the claims.         The district court did not abuse its

discretion    in   deciding   that    the    settlement     terms   were   fair,

adequate, and reasonable.          Nor did the district court abuse its

discretion in awarding attorneys' fees.            We affirm.

                                      I.

             Three putative class action complaints filed in 2012

alleged   that     Vibram   USA,   Inc.,     and   Vibram   FiveFingers,     LLC

(together, "Vibram") engaged in deceptive marketing of FiveFingers

"barefoot" footwear by making false claims about the footwear's

health benefits.

                                     - 3 -
          The   first   complaint     was    filed   in   the   District   of

Massachusetts by Valerie Bezdek on March 21, 2012.              On July 18,

2012, Vibram moved to dismiss Bezdek's amended complaint for

failure to state a claim. On February 20, 2013, the district court

dismissed Bezdek's unjust enrichment claim but allowed the suit to

proceed under various state consumer protection laws.               Bezdek v.

Vibram USA Inc., No. 12-10513, 2013 WL 639145 (D. Mass. Feb. 20,

2013).

          The second complaint was filed in the Central District

of California by Ali Safavi on July 9, 2012.         Safavi v. Vibram USA

Inc., No. 12-cv-05900 (C.D. Cal. filed July 9, 2012). On September

24,   2012,   the   Safavi   action    was    stayed      pending   a   class

certification ruling in Bezdek.        Safavi is not a party to this

appeal.   The parties have agreed that the Safavi action will be

dismissed if this settlement is approved.

          The third complaint was filed in Illinois state court by

Brian DeFalco on August 8, 2012, and removed to the Northern

District of Illinois on September 11, 2012.          Notice of Removal at

1–2, DeFalco v. Vibram USA, LLC, No. 12-cv-07238 (N.D. Ill. Sept.

11, 2012).    DeFalco was subsequently transferred to the District

of Massachusetts, where it was consolidated with Bezdek.

          Extensive written discovery ensued.              On December 12,

2013, the parties reached a settlement agreement in principle.             At

that time, the plaintiffs had not motioned for class certification

                                 - 4 -
or identified experts on class issues, and neither party had taken

depositions.

            On April 30, 2014, the parties submitted a proposed

settlement agreement, followed shortly after by a joint amended

proposed settlement agreement.    The proposed settlement agreement

would establish a $3.75 million settlement fund to provide refunds

to class members who submit claims.        Refunds would be paid on a

pro rata basis, up to a maximum of $94 per pair of shoes, the

average retail price.   The proposed settlement agreement suggested

that "[b]ased on the experience of similar settlements of class

actions, it is reasonable to expect that Class Members may receive

payment in the range of $20.00 to $50.00 per pair."                   It is

noteworthy that the language did not set a minimum floor for

recovery.

            Refunds for up to two pairs of shoes could be obtained

by submitting only a valid Claim Form.        Class members seeking a

refund for more than two pairs of shoes would be required to submit

a Claim Form plus proof of purchase.

            Administrative and notice costs, attorneys' fees, and

incentive awards for the named plaintiffs would be paid out of the

settlement fund.    Additionally, Vibram would promise to refrain

from making representations of health benefits associated with

FiveFingers footwear unless such statements could be supported by

reliable    evidence.   Vibram   also    agreed   not   to   oppose   class

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counsel's application for an award of attorneys' fees not exceeding

twenty-five percent of the settlement fund.

           Any class member could object by submitting a written

statement of objections and by providing a proof of purchase with

the submission.

           On   May   12,    2014,    the     district    court    preliminarily

approved the settlement. The district court also certified a class

for   settlement   purposes     only,       approved     Bezdek   as   the   class

representative and her counsel as lead class counsel, set a

fairness hearing date, approved notice and claims procedures, set

requirements and deadlines for exclusions and objections, and set

deadlines for class counsel's application for attorneys' fees.

           Notice was distributed to the class in various ways,

including direct notice by email and postal mail, publication in

various media outlets, and maintenance of a website and toll-free

telephone number to provide settlement-related information to

class   members.       The    Class     Notice     (emailed       to   reasonably

identifiable class members) stated that: "Based on experience from

other similar settlements of class actions, it is reasonable to

expect that Class Members may receive a payment in the range of

$20.00 to $50.00 per pair."             The Postcard Notice (mailed to

identified class members unreachable by email) and the Summary

Settlement Notice (published in various media outlets) had similar

language but also noted that recovery "could . . . decrease

                                      - 6 -
depending    on   various    factors,      including   the    number    of   valid

claims."     The proposed settlement agreement was also reported on

by numerous news outlets and "went viral" on social media.

             Some 154,927 timely claims were filed, representing

279,570 pairs of FiveFingers footwear.             Objections were filed by

three individuals: Madeline Cain,1 Justin Ference, and Michael

Narkin.     None of the three complied with the requirement in the

proposed settlement agreement that a proof of purchase must be

submitted with an objection to establish class membership.                   Only

one of the three objectors, Ference, submitted a Claim Form.

             On October 29, 2014, the district court held a fairness

hearing.     At the fairness hearing, class counsel informed the

district court that while the Settlement Administrator was still

working through the claims, it was expected that because of a

"higher than expected claim rate," claimants would receive "around

$9 per pair."       On November 12, 2014, class counsel informed the

district court that the estimated refund was $8.44 per pair.

             On   January    16,   2015,    the   district    court    entered   a

memorandum    and    order    granting      plaintiffs'      motion    for   final

approval of the proposed settlement and motion for attorneys' fees

and expenses.      The district court began by noting that "there are

genuine questions as to the status of the objectors as class

     1       Cain is represented by her father, Christopher Cain.

                                     - 7 -
members" but that it would "consider[] the merits of the objectors'

assertions to the extent they raise questions [it] would ask

independently in [its] own review of the proposed settlement."

The district court found that notice was given to class members by

the best means practicable under the circumstances; certified the

settlement class; found the settlement to be fair, reasonable, and

adequate; and awarded attorneys' fees and expenses to class counsel

and incentive awards to the named plaintiffs.

                 On January 21, 2015, the district court entered a final

order approving the settlement and issued final judgment.                   Cain,

Ference, and Narkin have appealed.2

                                            II.

                 Under Federal Rule of Civil Procedure 23(e)(2), a class

action settlement must be "fair, reasonable, and adequate."                     The

case       law    offers   "laundry    lists      of   factors"    pertaining    to

reasonableness, but "the ultimate decision by the judge involves

balancing        the    advantages    and    disadvantages    of    the   proposed

settlement as against the consequences of going to trial or other

possible but perhaps unattainable variations on the proffered

settlement."           Nat'l Ass'n of Chain Drug Stores v. New England

Carpenters Health Benefits Fund, 582 F.3d 30, 44 (1st Cir. 2009).

       2  Only Cain's and Ference's appeals are before this panel
because Narkin's appeal has already been dismissed with prejudice.
Bezdek v. Vibram USA, Inc., No. 15-1219 (1st Cir. Sept. 22, 2015).

                                        - 8 -
"If the parties negotiated at arm's length and conducted sufficient

discovery, the district court must presume the settlement is

reasonable."   In re Pharm. Indus. Average Wholesale Price Litig.,

588 F.3d 24, 32-33 (1st Cir. 2009).

          We review the district court's approval or disapproval

of a settlement for abuse of discretion.      Nat'l Ass'n of Chain

Drug Stores, 582 F.3d at 45.    Under that standard, embedded legal

issues are reviewed de novo and factual findings are reviewed for

clear error.    Id.   We review a district court's decision on

attorneys' fees for abuse of discretion.   In re Volkswagen & Audi

Warranty Extension Litig., 692 F.3d 4, 13 (1st Cir. 2012).

          While we agree with the district court that "there are

genuine questions as to the status of the objectors as class

members," we consider the merits of the objections and affirm

notwithstanding those issues.

A.   Class Notice Disparity Between Estimated and Actual Refund

          The objectors argue that the district court failed to

properly consider the fact that class members will receive an

actual payment that is significantly less than what was estimated

at the time the settlement was preliminarily approved.   They argue

that the settlement should not have received final approval where

notices to the class estimated a refund of between $20 and $50 per

pair of shoes, but it became known after the deadline to object

                                - 9 -
that the fund would actually only permit a payment of $8.44 per

pair of shoes.

              It is true that the district court's opinion did not

deal directly with the arguments that the notices projected a much

higher settlement payment than the $8.44 which ensued, and that

this was a misrepresentation that voided the settlement.                     But the

district court's order indirectly dealt with these claims.

              Contrary    to    the     objectors'      claims,     there    was   no

misrepresentation in the notices sent to class members.                            The

Summary Settlement Notice and the Postcard Notice both contained

explicit      language   that    recovery    could      "decrease    depending     on

various factors, including the number of valid claims."                     Although

the   Class    Notice    did    not   contain    such    language,    it     did   not

misrepresent the situation. By stating that "[b]ased on experience

from other similar settlements of class actions, it is reasonable

to expect . . . $20.00 to $50.00 per pair," the Class Notice

provided an estimated range of recovery but did not guarantee any

amount of recovery.

              The district court found that a refund of $8.44 per pair

of shoes, even if lower than originally estimated, was a fair

settlement      amount   given    the    uncertainty      of   success      that   the

plaintiffs faced at trial.              The district court found that the

plaintiffs faced "two sizable hurdles as to injury and damages"

and that even if the plaintiffs were able to prevail, it would

                                        - 10 -
only be after extended litigation, the costs of which would

decrease the net benefit of any damages award at trial.          There was

no abuse of discretion in the district court's conclusion that a

refund of $8.44 per pair, although modest, was a fair compromise

that accounted for the risks faced by both parties if litigation

had continued.

          The objectors also suggest that class counsel should

have anticipated that the number of claims actually filed would be

higher, thus reducing the recovery amount.          They argue that class

counsel should have negotiated a minimum payment for class members

at the outset, renegotiated the total settlement amount when a

greater-than-expected number of claims were filed, or waived a

portion of their attorneys' fees and paid out those extra funds to

class members.    The objectors cite no legal authority to show that

it was an abuse of discretion for the district court to approve

the settlement in the absence of such countermeasures.            The fact

that a better deal for class members is imaginable does not mean

that such a deal would have been attainable in these negotiations,

or that the deal that was actually obtained is not within the range

of reasonable outcomes. The district court's conclusion that $8.44

per pair was fair and reasonable was not an abuse of discretion.

B.   Proof of Purchase Requirement for Filing an Objection

          The    objectors   take    issue   with   the   requirement   that

objectors file proofs of purchase, even though proof of purchase

                                    - 11 -
is not required of a class member filing a Claim Form for up to

two pairs of shoes. They argue that the higher standard is imposed

on objectors as a punitive measure intended to dissuade class

members from objecting.

          The ultimate question for the district court was whether

the settlement was fair, reasonable, and adequate.   The imposition

of a harsher requirement on objectors than on claimants could bear

on the fairness analysis by tipping a court off to the possibility

of collusion or bad faith.   But if the fairness of the settlement

ultimately stands up to scrutiny, then the imposition of disparate

requirements on objectors does not provide an independent basis

for invalidating the settlement.       That is the case here.   The

district court carefully scrutinized the refunds provided to class

members under the settlement and concluded that the settlement was

fair, and it did not abuse its discretion in doing so.3

     3    Although the fact that a disparate requirement was
imposed on objectors does not change the result in this case, we
do not rule out the possibility that it could ever be relevant in
some other respect.
          Because parties to a settlement have a shared incentive
to impose burdensome requirements on objectors and smooth the way
to approval of the settlement, district courts should be wary of
possible efforts by settling parties to chill objections.       By
monitoring class counsel and providing courts with crucial
information on which to evaluate proposed settlements, meritorious
objectors can be of immense help to a district court in evaluating
the fairness of a settlement. See Redman v. RadioShack Corp., 768
F.3d 622, 629 (7th Cir. 2014). Of course, it is also important
for district courts to screen out improper objections because
objectors can, by holding up a settlement for the rest of the

                              - 12 -
C.   Injunctive Relief

             The objectors argue that the injunctive relief in the

settlement is "illusory and amount[s] to no relief at all" because

it obligates Vibram not to do things that Vibram is legally

obligated not to do anyway.

             The district court directly considered and rejected this

objection.      The settlement requires Vibram to discontinue its

purportedly    false   advertising    campaign   unless    Vibram   obtains

"competent and reliable scientific evidence to substantiate" such

claims.   This is a meaningful concession given that the falsity of

the advertising was the central disputed issue in the suit.             The

district court did not abuse its discretion in concluding that

injunctive relief against continuation of the allegedly false

advertising    was   "a   valuable   contribution   to    this   settlement

agreement."    The fact that changes in future Vibram marketing will

not remedy past harm to consumers does not make such relief

meaningless to those consumers.

D.   Attorneys' Fees

             The objectors contest the award of attorneys' fees for

a number of different reasons.

class, essentially extort a settlement of even unmeritorious
objections. See Newberg on Class Actions § 13:21 (5th ed.).

                                 - 13 -
            First, the objectors contest the clear-sailing term in

the settlement agreement, in which Vibram agreed not to oppose

attorneys' fees that do not exceed twenty-five percent of the

settlement fund. They argue that class counsel must have bargained

away something of value to the class in exchange for the provision

and that as a result, class counsel engaged in self-dealing

behavior.     However,    we   have   recognized    that   a    clear-sailing

agreement is not per se unreasonable.              Weinberger v. Great N.

Nekoosa Corp., 925 F.2d 518, 525 (1st Cir. 1991).              Rather, courts

are directed to give extra scrutiny to such agreements.             Id.

            Recognizing   its    duty   to   undertake     such    heightened

scrutiny, the district court reviewed the amount of fees under

each of the two methods recognized in our circuit.                 See In re

Thirteen Appeals Arising Out of San Juan Dupont Plaza Hotel Fire

Litig., 56 F.3d 295, 305 (1st Cir. 1995) (describing two methods).

Applying the percentage of the fund method, the district court

found that twenty-five percent of the fund is consistent with what

other district courts found to be reasonable.              See Latorraca v.

Centennial Techs. Inc., 834 F. Supp. 2d 25, 27–28 (D. Mass. 2011).

Applying the lodestar method, in which the number of hours expended

is multiplied by a reasonable hourly rate for similarly situated

attorneys, the district court found that the fees represented

roughly sixty-eight percent of the lodestar.           The district court

                                  - 14 -
did not abuse its discretion in concluding that, under either

method of calculation, the attorneys' fee award was reasonable.

             The   objectors     argue   that    class    counsel's     fee   was

nonetheless unreasonable given the amount of work they performed.

They argue that the case never proceeded much past the pleading

stage and that there was minimal briefing on dispositive motions,

no   class    certification      proceedings,      few    substantive      motion

hearings,    no    depositions,    and   no     summary   judgment    or   trial

proceedings.         But   the     district      court,    after     requesting

supplemental filings from parties in support of final approval of

settlement, recognized that there was "extensive fact discovery,"

"some significant motion practice," and an attempt at mediation.

There was no abuse of discretion in the district court's award of

attorneys' fees.

                                     III.

             We affirm.

                                    - 15 -