Commercial -Class action settlement upheld but fee award vacated

The class action settlement with Lumber Liquidators was fair and adequate, as it was the result of arms-length negotiations and included an assessment of available defenses. However, the attorneys’ fee award was vacated because it was error not to apply the Class Action Fairness Act provisions governing “coupon” settlements when calculating the award.

Background

Diana Cantu-Guerrero and Brice Johnston pursue these consolidated appeals from the district court’s order approving a class-action settlement and separate order awarding attorneys’ fees to the lawyers for the class members.

Settlement

The objectors first contend that the settlement is both unfair and inadequate because, among other things, (1) the vouchers “may prove worthless” if Lumber Liquidators declares bankruptcy and (2) class counsel secured much of the cash from the settlement for themselves. The objectors also assail the settlement on the ground that the quick-pay provision is unreasonable, and they fault the court for failing to explicitly address Cantu-Guerrero’s objection to that provision before approving the settlement.

The court is satisfied that the district court did not abuse its discretion in ruling that the settlement is fair. First, by the time of the settlement, the parties in the Formaldehyde MDL had litigated a motion to dismiss and a motion for summary judgment, and discovery had been completed. And, at the time of settlement, the parties in the Durability MDL had litigated a motion to dismiss and also conducted significant discovery—all of which weighs in favor of the court’s fairness determination.

Second, the parties engaged in arm’s length negotiations and participated in several mediations before arriving at the settlement. And finally, many of the lawyers involved in these MDLs have extensive experience in complex civil litigation. For those reasons, the court did not abuse its discretion in determining that the settlement is fair.

We are likewise satisfied that the district court did not abuse its discretion in concluding that the settlement is adequate. The court was intimately familiar with the strength of the claims in both MDLs, along with “the existence of any difficulties of proof or strong defenses [that] the [class members were] likely to encounter” if the claims proceeded to trial. Moreover, as the district court aptly concluded, further litigation of both MDLs would have been expensive and likely lengthy. Importantly, class counsel had valid concerns about Lumber Liquidators’ ability to satisfy litigated judgments in both MDLs. Finally, only 94 of the 178,859 class members who responded to the class-action settlement notice opted out of the settlement (about 0.05%), and 12 class members objected thereto (about 0.006%). Those figures provide further support for the settlement’s adequacy.

None of the objectors’ challenges to the fairness and adequacy of the settlement convince us otherwise. Insofar as the objectors contend that the vouchers “may prove worthless” if Lumber Liquidators pursues bankruptcy, nothing in this record confirms that the company plans to do so. And the objectors ignore that the settlement was structured to address any concerns about Lumber Liquidators’ finances.

The objectors also argue that the settlement is both unfair and inadequate because class counsel secured much of the cash from the settlement for themselves. Although the proportion of the common fund cash awarded to class counsel in these proceedings gives us some pause, it alone does not mandate vacatur of the district court’s decision to approve the settlement. In any event, the court’s decision vacates the attorneys’ fees order, and that vacatur resolves the objectors’ current contention.

Next, the objectors assert that the settlement approval order should be vacated because the district court never assessed Cantu-Guerrero’s objection to the quick-pay provision. They correctly observe that a court should meaningfully address serious challenges to a proposed class-action settlement. We are entirely satisfied that the settlement approval order clears that bar.

Attorneys’ fees order

Next, the objectors assert that the court wrongly failed to apply CAFA’s provisions governing “coupon” settlements when calculating the attorneys’ fees award. We are satisfied that the Lumber Liquidators vouchers are “coupons” under CAFA and that the Act’s provisions for calculating attorneys’ fees in a “coupon” settlement are applicable to this settlement. Because the court erred in ruling otherwise, we vacate the attorneys’ fees order and remand.

Affirmed in part, vacated in part and remanded.

Cantu-Guerrero v. Lumber Liquidators Inc. (Lawyers Weekly No. 001-035-20, 38 pp.) (Robert Bruce King, J.) Case Nos. 18-2351, 18-2490, and 19-1231. March 10, 2020. From E.D. Va. (Anthony Trenga, J.) Robert William Clore and N. Albert Bacharach Jr. for Appellants, Steven J. Toll for Appellees.