First Circuit Rejects Classwide Settlement, Finds That Would-Be Class Representatives Could Not Adequately Represent Subclasses With Materially Different Claims

The First Circuit recently reversed the District of Massachusetts’s approval of a settlement award that improperly lacked any subclasses within the 4.8-million-person putative class, finding it “too difficult to determine whether the settlement treated class members equitably.”  Murray v. Grocery Delivery E-Services USA, No. 21-1931, — F.4th — (1st Cir. Dec. 16, 2022).

The complaint alleged that defendant Grocery Delivery E-Services USA, d/b/a HelloFresh violated the TCPA through its marketing tactics by (1) calling former customers using an automated dialer, (2) calling former customers that were listed on the National Do-Not-Call registry, and (3) calling former customers that had asked HelloFresh not to contact them.  The named plaintiffs—through a single plaintiff’s attorney that purported to represent the entire 4.8-million-person class—negotiated a $14 million settlement with HelloFresh, which the District Court approved without identifying any subclasses of plaintiffs.

The panel unanimously found that the district court abused its discretion in approving the common fund settlement over multiple objections because it was possible that individual class members’ claims had “significantly different elements and . . . very different defenses.”  Missing from settlement negotiations were “[a]rms-length negotiators” that could “assess the differences in claim value,” if any.  “Such a conclusion put forward collectively by counsel for each distinct group [of plaintiffs] would provide a structural assurance of adequacy and fairness that is now missing.”

Rejection of the settlement notwithstanding, the First Circuit expressed approval of incentive awards for named plaintiffs in future versions of the settlement agreement.  One of the objectors to the settlement agreement also argued that incentive awards violated two United States Supreme Court cases from the 1880s:  Trustees v. Greenough, 105 U.S. 527 (1881) and Cent. R.R. & Banking Co. v. Pettus, 113 U.S. 116 (1885).  A split decision in the Eleventh Circuit recently adopted the objector’s view and refused to permit incentive awards as part of a class action settlement.  (For a more in-depth analysis of that decision, Johnson v. NPAS Sols., LLC, No 18-12344, 2022 WL 3083717 (11th Cir. Aug. 3, 2022), see our August discussion of the opinion, here.)  The First Circuit panel was unmoved by the objector’s arguments, however, and chose “to follow the collective wisdom of courts over the past several decades that have permitted these sorts of incentive payments, rather than create a categorical rule that refuses to consider the facts of each case.”  The opinion noted that “Rule 23 class actions still require named plaintiffs to bear the brunt of litigation” who risk a net loss unless the cost of litigation is “somehow fairly shifted to those whose interests they advance.”

William A. Wright

About the Author: William A. Wright

William Wright represents clients in connection with complex business disputes, consumer class actions and emerging e-discovery and information governance issues. His experience includes a broad range of representative matters, including contract disputes, statutory class actions and corporate governance investigations. Bill defends large institutional clients in commercial litigation and routinely manages subject matter experts and consultants. He has appeared in numerous state and federal courts, and before private arbitration panels.

Henry M. Grabbe

About the Author: Henry M. Grabbe

Henry Grabbe assists clients with litigation and dispute resolution. He has prepared research and due diligence memoranda for commercial litigation, class action, white collar and product liability, as well as for corporate securities. He has contributed to litigation strategy and drafted pre-trial motions.

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