PHILADELPHIA – A federal appellate court panel has rejected a proposed attorney fee award of $3.2 million, as part of what was billed as a $12.2 million total settlement amount reached in a data breach class action lawsuit involving convenience store chain Wawa.
In a Nov. 2 opinion, U.S. Court of Appeals for the Third Circuit judges Paul B. Matey, Arianna J. Freeman and Julio M. Fuentes vacated the award in question, and remanded the matter to the U.S. District Court for the Eastern District of Pennsylvania for further consideration. Matey authored the Court’s opinion.
“Convenience is king at Wawa, Inc., where guests are invited to gas up, chow down and swipe, tap, or click to pay before heading on their way. Throughout 2019, uninvited guests stopped by too. Hackers, who infiltrated Wawa’s payment systems and helped themselves to the credit and bank card data of some 22 million customers. Wawa announced the breach on Dec. 19, 2019; by the next day, attorneys had rounded up plaintiffs and filed the first of many class action suits seeking damages for the disclosures. A brisk nine months later, Wawa and plaintiffs’ class counsel shook hands on a settlement making $9 million in gift cards and some other compensation available to customers (of which $2.9 million was claimed) and giving $3.2 million to class counsel for fees and expenses,” Matey said.
“Objections arrived, prompting modifications to the proposal. But the changes are not enough to ensure class counsel receives only a reasonable fee award, and we clarify two considerations that loom large in that calculation: The ratio between the fee award and amount recovered by the class members, and side agreements between class counsel and the defendant. Because the District Court lacked the benefit of our fresh guidance, we will vacate the fee award and remand for further consideration.”
In the underlying case, which arose from a data breach of the convenience chain’s payment system, Wawa agreed to provide as much as $9 million in Wawa gift cards or cash to consumers whose data was allegedly exposed in the hack – with cash payments set aside for plaintiffs who could show out-of-pocket losses caused by the breach.
Out of a total 22 million class members, just 565,000 initiated claims and they were expected to receive $2.9 million. However, U.S. District Court for the Eastern District of Pennsylvania Judge Gene E.K. Pratter awarded plaintiff counsel in the case $3.2 million, $300,000 more than the anticipated class payout.
Pratter deduced that the proposed $3.2 million attorney fees award was proper because it was about one-quarter of the total amount Wawa agreed to as part of the settlement, which was $12.2 million.
Likewise, Pratter calculated that total amount by combining the available $9 million provided by Wawa for class members with their counsel’s requested $3.2 million award. Furthermore, Wawa concurred with that calculus and dollar amount. But not everyone with agreed with this rationale.
“Class member Theodore H. Frank objected to the settlement and the request for attorney’s fees. Frank argued the constructive common fund was miscalculated and the settlement unfair because, stripped of the labels, class counsel would receive a disproportionate share of the amount Wawa would pay in gift cards or cash,” Matey said.
“And he pointed to other perks class counsel secured in the deal, including a ‘clear sailing’ clause, under which Wawa agreed not to contest class counsel’s fee petition. He also objected to the ‘fee reversion,’ a provision that returned any reductions in the fee award to Wawa, and not to the class. Frank urged a different approach: Cap attorney’s fees at 25 percent of the actual claims made and paid, rather than funds and gift cards offered but never used.”
Matey explained that he and his colleagues would discard the current fee proposal and remand the matter to Pratter for recalculation, based upon “whether the funds made available to class members rather than the amount actually claimed during the claims process is the best measure of reasonableness, and whether the fee award is reasonable in light of any side agreements between class counsel and Wawa.”
“First, the District Court saw itself as bound to consider only the funds made available to the class. But that limitation is not required by history or precedent. Rather, we have ‘recognized the difficulty a District Court faces’ in calculating attorney’s fees before class relief is given out. And while that practice is not required by Rule 23, it seems a sensible starting line to begin the fee award analysis. So we remand for consideration of the amounts distributed to and expected to be claimed by the class,” Matey stated.
“Next, side agreements between class counsel and Wawa require deeper inquiry to assess whether the fee award is reasonable. Start with the clear sailing provision, where Wawa promised as part of the settlement not to challenge class counsel’s request for an agreed-upon attorney’s fee award. Though not an automatic bar to settlement approval, such terms still ‘deserve careful scrutiny’ when calculating a reasonable fee award. ‘The concern with a clear sailing provision is collusion,’ and class counsel’s desire to maintain its expected fees could tempt it to take money from the class in return for a defendant’s agreement to swiftly settle. So a ‘District Court faced with such a provision in a class action, settlement and satisfy itself that the agreement does not indicate collusion or otherwise pose a problem.”
Matey added while he and his colleagues were glad to see the fee reversion removed in the third amended settlement agreement, it would have been preferable for that provision to never have been part of the proceedings in the first place.
“That is because a fee reversion need not stay in the final approved settlement to serve its deterrent purpose, so courts should investigate potential collusion by considering the ‘evidence in the negotiation process or the final terms of the settlement.’ On remand, the District Court should explore how the reversion arrived, what purpose it served, and whether its presence, even temporary, suggests coordinated rather than zealous advocacy, that makes the fee request unreasonable. We will vacate and remand the attorney’s fee award for the District Court to take a closer look at the reasonableness of the attorney’s fees in proportion to class benefit and to scrutinize the presence of side agreements,” Matey concluded.
U.S. Court of Appeals for the Third Circuit case 22-1950
U.S. District Court for the Eastern District of Pennsylvania case 2:19-cv-06019
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com