Last week, the United States Court of Appeals for the Eleventh Circuit affirmed the $380.5M settlement in the Equifax data breach class actions – a settlement which the district court called “the largest and most comprehensive recovery in a data breach case in U.S. history by several orders of magnitude.” The appeal was brought by 6 objectors out of the 147 million class members whose data was involved in the breach. The Eleventh Circuit’s 64-page ruling covers the waterfront of class action law and provides important insight into how the Eleventh Circuit views two key issues: (1) standing to sue for a data breach; (2) attorneys’ fees and incentive awards in class action settlements; and (3) the breadth of a district court’s discretion in managing the class action process.
First, Objectors claimed class members who did not have (or have not yet had) their identities stolen as a result of the data breach did not have standing to sue. Objectors argued these class members suffered no injury in fact simply by virtue of their data being exposed. The Eleventh Circuit disagreed, holding that the risk of these class members’ identities being stolen was “certainly impending,” and this risk was sufficient to confer standing. Over the last year, the Eleventh Circuit has issued several decisions on standing. Compare Muransky v. Godiva Chocolatier, Inc. 979 F.3d 917, 924, 927 (11th Cir. 2020) (en banc) (mere “elevated risk of identity theft” is insufficient). In fact, and at least one judge on the Eleventh Circuit appears to be rethinking the intellectual foundations of this doctrine. See Sierra v. City of Hallandale Beach, 996 F.3d 1110, 1115 (11th Cir. 2021) (Newson, J., concurring). For the present, the Equifax decision on standing should probably be seen as based upon the scope of the information which was taken in the data breach, which included: names, birthdates, social security numbers, addresses, driver’s license numbers, and tax identification numbers. Objectors also claimed that the settlement did not redress class members’ injuries since nothing about the settlement prevented third parties from using class members’ data. The Eleventh Circuit quickly dismissed this argument as well, noting Objectors’ focus was misplaced: The Plaintiffs had sued Equifax – not third parties. Because the settlement obligated Equifax to reimburse class members up to $20,000 of out-of-pocket expenses incurred because of the data breach, reimburse class members $25 per hour for up to 20 hours spent taking preventative measures to guard against identity theft, and provide 10 years of free credit monitoring and seven years of identity restoration services, the Court reasoned that the settlements would help to limit Plaintiff’s injuries.
Of particular interest to readers of this blog is the Eleventh Circuit’s discussion of Class Counsel’s attorneys’ fees award. Objectors challenged the $77.5M attorneys’ fees award as unreasonable. One Objector claimed the court must employ an “economies of scale” analysis to fees awards in cases of this size – which the Objector termed “megafund” cases. The Eleventh Circuit rejected this argument out of hand because there is no requirement under either Federal Rule of Civil Procedure 23 or governing case law that the court weigh economies of scale in determining the reasonableness of an attorneys’ fees award in any case, regardless of size. The Court also noted that requiring consideration of economies of scale would create perverse incentives by encouraging quick settlements at sub-optimal levels. Instead, the Court held other factors taken into consideration by the district court reasonably captured considerations related to economics of scale.
The Court affirmed the $77.5M attorneys’ fees award, using the “percentage method” to evaluate the reasonableness of the award. This was the same method the district court used in setting the fees award. The percentage method calculates fees as percentage of the total settlement fund. Courts consider a 20-30% fee to be per se reasonable, with a 25% fee being the benchmark in some decisions. Class Counsel’s fees award in Equifax was only 20.6% of the $380.5M settlement, and therefore, well within the range of reasonable attorneys’ fees awards.
Another question which often arises in class settlements is the requirements placed by the district court upon objectors. On the one hand, the federal courts encourage objectors to raise legitimate questions regarding settlements. On the other hand, the courts have been plagued by serial objectors as documented in the committee hearings leading to the recent changes to Rule 23. The procedures in the Equifax case are somewhat more onerous than some prior settlements but this did not appear to trouble the Eleventh Circuit. The district court required all objections to provide the objector’s name and address, the objector’s personal signature, the grounds for the objection, a list of previous objections in recent class actions, and dates on which the objector was available to be deposed. In addition, if the objector had counsel who intended to speak at the fairness hearing, the objection needed to include the legal and factual basis for the objection and the evidence to be offered at the hearing. Finally, if the objector had counsel who sought compensation from anyone other than the objector, the objection needed to include a list of counsel’s previous objections in recent class actions, counsel’s experience in class action litigation, and information on the fees sought. The district court imposed these requirements because objectors had appeared “out of the blue” in previous class actions and created a “really chaotic process” it hoped to avoid in Equifax. The district court noted these requirements would also rout out lawyer-driven objections filed with ulterior motives. An Objector claimed these requirements infringed on objectors’ rights to be heard and be represented by counsel and were unduly burdensome. The Eleventh Circuit disagreed, noting the district court had broad discretion to manage class actions and that Objectors failed to show the district court abused that discretion. The Eleventh Circuit found the district court’s stated intent of avoiding a “chaotic process” was sufficient reason to impose additional administrative requirements. The Eleventh Circuit held these additional requirements were “not particularly burdensome” because most of the requirements were only clerical in requiring objectors to provide certain information. The Court also reasoned that although the deposition requirement was potentially burdensome, depositions are “a normal part of litigation.” While the Eleventh Circuit noted there may be a legitimate concern that discovery requirements such as sitting for deposition could deter objectors, the district court found this concern was at odd with the number of objections received – 388 in total – and concluded it did not dissuade objection in this case. The Eleventh Circuit agreed. However, the Eleventh Circuit reminded the district court that whether any set of objection requirements constituted an abuse of discretion would be a case-specific inquiry because the breadth of the district court’s discretion to manage the class settlement process “ebbed and flowed” with “the size and administrative difficulties of each class action.” Given that the Equifax class contained nearly 150 million members, the Eleventh Circuit affirmed the imposition of additional administrative requirements for objectors to its settlement.
The Eleventh Circuit only reversed one part of the settlement – the incentive fees award to the named class members. In some circuits, incentive fees are routinely awarded to named plaintiffs as a “thank you” for bringing the lawsuit on behalf of the other class members. Although the district court initially included incentive fees in its approval of the settlement, a subsequent Eleventh Circuit case held incentive fees awards are prohibited. See Johnson v. NPAS Sols., LLC, 975 F.3d 1244, 1260 (11th Cir. 2020). The Johnson Plaintiffs have petitioned the Eleventh Circuit for rehearing en banc. In the meantime, the Court reversed this portion of the order approving the Equifax settlement and remanded the case to the lower court for the limited purpose of vacating the incentive fees award.
Please contact Gregory C. Cook if you have questions.