Moses v. N.Y. Times Co.

79 F.4th 235

Maribei MOSES, on behalf of herself and all others similarly situated, Plaintiff-Appellee, v. The NEW YORK TIMES COMPANY, d/b/a The New York Times Defendant-Appellee, v. Eric Alan Isaacson, Objector-Appellant.

Docket No. 21-2556-cv

August Term, 2022

United States Court of Appeals, Second Circuit

Argued: March 22, 2023

Decided: August 17, 2023

Appeal from the United States District Court for the Southern District of New York (Abrams, J.)

Frederick J. Klorczyk III (Neal J. Deckant, on the brief), Bursor & Fisher, P.A., New York, NY & Walnut Creek, CA, for Plaintiff-Appellee.

Kristen C. Rodriguez (Natalie J. Spears, Sandra D. Hauser, on the brief), Dentons US LLP, Chicago, IL & New York, NY, for Defendant-Appellee.

Eric Alan Isaacson, Law Office of Eric Alan Isaacson, La Jolla, CA, for Objector-Appellant.

Before: Parker, Lynch, and Lohier, Circuit Judges.

Gerard E. Lynch, Circuit Judge:

Objector-Appellant Eric Alan Isaacson, proceeding pro se, appeals from a judgment of the United States District Court for the Southern District of New York (Ronnie Abrams, J.) approving a settlement award, attorneys' fee award, and incentive award in a class action lawsuit. Plaintiff-Appellee Maribel Moses, on behalf of similarly situated subscribers in California, sued Defendant-Appellee The New York Times ("NYT"), claiming that NYT automatically renewed NYT subscriptions without providing the disclosures and authorizations required by California's Automatic Renewal Law, Cal. Bus. & Prof. Code § 17600, et seq. (the "ARL").

The parties negotiated a settlement agreement whereby class members dropped their claims in exchange for NYT's reformation of its business practices and either Access Codes for one-month NYT subscriptions or pro rata cash payments. The settlement agreement also provided for the payment of substantial attorneys' fees to class counsel and an incentive award to the class representative. Isaacson objected to the proposed settlement, primarily arguing that the settlement is unfair, the attorneys' fees calculation improperly exceeds limits set by the coupon settlement provisions of the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1712, and the incentive award is not authorized by law. The district court disagreed, certifying a class for settlement purposes under Rule 23(b)(2) of the Federal Rules of Civil Procedure and approving the settlement, $1.25 million attorneys' fees, and a $5,000 incentive award.

On appeal, we agree with Isaacson that the district court exceeded its discretion when it approved the settlement based on the wrong legal standard in contravention of Rule 23(e). We also agree that the Access Codes are coupons, which subject the attorneys' fees calculation to CAFA's coupon settlement requirements. However, we reiterate our holding in Melito v. Experian Marketing Solutions, Inc., 923 F.3d 85, 96 (2d Cir. 2019), that incentive awards are not per se unlawful. Because the district court's conclusions are intertwined, we VACATE the district court's judgment in its entirety and REMAND the case to the district court for further proceedings consistent with this opinion.

BACKGROUND

I. Factual Background

On June 17, 2020, Moses brought a putative class action in the Southern District of New York on behalf of a class of California NYT subscribers whose subscriptions, she alleged, were automatically renewed in violation of the ARL. The subsequently filed amended complaint alleged that when consumers sign up for an NYT subscription through NYT's Website or App, NYT enrolls them in an automatically renewing subscription without providing the disclosures and authorizations required by the ARL.

NYT moved to dismiss the amended complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim. Before the district court ruled on the motion, however, the parties engaged in informal discovery and mediation. After a nine-hour mediation with the assistance of a professional mediator, the parties executed a binding Settlement Term Sheet.

II. The Settlement Agreement

A formal Settlement Agreement was signed on March 30, 2021, settling the claims of more than 876,000 persons who - from June 17, 2016, through May 12, 2021 - directly enrolled in an automatically renewing NYT subscription using a California billing and/or delivery address, and who were charged and made to pay an automatic renewal fee (the "class" or "class members").

Under the terms of the Settlement Agreement, NYT agreed to implement business reforms to comply with the ARL, including revising the presentation of its automatic renewal terms and providing consumers who enroll in an automatically renewing subscription with an acknowledgment. Class members agreed to release their claims against NYT in exchange for those business reforms and either (1) a pro rata cash payment from a non-reversionary Settlement Fund of $1.65 million or (2) Access Codes for one-month NYT subscriptions to certain NYT publications.

The Settlement Fund was established to pay all approved claims by class members, notice and administration expenses, a court-approved incentive award to Moses of up to $5,000, and attorneys' fees of up to $1.25 million. Although class members were directed to submit a cash election form in order to receive cash payment, no claim form was necessary for class members to obtain an Access Code.¹ The Access Codes provide class members - or persons to whom they transfer the Access Codes - with a free one-month subscription to a NYT product valued between $3 to $5, and are valid for at least 50 years. However, they cannot be used to pay for or extend an existing subscription. In other words, a class member must start a new subscription in order to apply the Access Codes.

The type of NYT subscription a class member is eligible to receive depends on whether his or her subscription was Fully Active, Active, or Inactive as of May 12, 2021. Fully Active class members - those class members "who are currently active subscribers entitled to access to all of NYT's digital [s]ubscription offerings," App'x 119 - are entitled to a NYT Basic Digital Access subscription (NYT's core news subscription). Active class members - those class members with at least one active NYT subscription - are entitled to a subscription to either of two NYT Digital Products (NYT Cooking and NYT Games) to which the class member does not currently subscribe. Inactive class members - those class members "who do not currently have any active NYT [s]ubscription," id. - are entitled to a NYT Basic Digital Access subscription.

III. The Settlement Approval

On May 12, 2021, the district court conditionally certified the class for purposes of the settlement and preliminarily approved the Settlement Agreement. Notice was subsequently disseminated in compliance with the district court's preliminary approval order. About 95.2% of 876,606 class members received direct notice of the settlement; 10,541 class members submitted valid and timely claims to receive pro rata cash payments rather than Access Codes; 18 class members requested to be excluded from the settlement class; and three class members,² including Isaacson, objected to the settlement.

On September 10, 2021, the district court conducted a fairness hearing, where it heard Isaacson's arguments regarding the consideration offered to class members, attorneys' fees, and incentive award. The district court rejected Isaacson's objections and approved the settlement. First, the district court applied a presumption of fairness to the settlement because "it was reached in arm's-length negotiation between experienced, capable counsel . . . after a nine-hour mediation before a mutual third party." App'x 258. Based on a review of the settlement's substantive terms, the district court concluded that the settlement demonstrated sufficient fairness, adequacy, and reasonableness as supported by the factors outlined in Rule 23(e)(2) and City of Detroit v. Grinnell Corp., 495 F.2d 448, 462-63 (2d Cir. 1974).

Then, the district court addressed Isaacson's objections. As to the adequacy of consideration to class members, the district court noted that the relief afforded to the class was "commensurate with the harm alleged" as evidenced by the "reaction of the class" and "risks associated with litigating this action." App'x 259. With regard to Isaacson's argument about the impropriety of a $5,000 incentive award to Moses, the district court explained that such awards are permitted under Second Circuit precedent and that the award did not preclude Moses from adequately representing the class.

Finally, the district court addressed concerns about the value of the settlement relief and its impact on the proposed attorneys' fee award. The district court concluded that the case was not subject to CAFA's coupon settlement provisions and "judge[d] the propriety of the fee award as compared to the value of the entire settlement, including the [A]ccess [C]odes," which had a face value of $3.9 million. App'x 261. As a result, the district court found that an attorneys' fee award of $1.25 million - 22.5% of the total face value of the settlement ($5,563,000) - was reasonable under the factors outlined in Goldberger v. Integrated Res., Inc., 209 F.3d 43, 47 (2d Cir. 2000), even when cross-checked against the lodestar amount.

Accordingly, on September 13, 2021, the district court certified the settlement class and approved the settlement, awarding $1.25 million in attorneys' fees (about 76% of the $1.65 million cash Settlement Fund, and 22.5% of the total value of the settlement including the face value of the Access Codes) and an incentive payment of $5,000 to Moses. The district court noted that the fee awards were "considered . . . separately from the [c]ourt's consideration of the fairness, reasonableness and adequacy of the settlement." Special App'x 6.

This appeal followed.

DISCUSSION

Isaacson argues that the district court erred in three...