Last Thursday, the Second Circuit agreed with an objector, and vacated a district court’s approval of a class action settlement of claims relating to automatic renewals of New York Times subscriptions, in a thorough decision that clarifies the circuit standard as to several Rule 23(e) issues.
The court held that the 2018 Amendments to Rule 23 prohibit any continued “presumption of fairness” arising out of settlements arising from arms-length agreements, and mandate consideration of factors not previously required under Second Circuit precedent, including a separate analysis of the appropriateness of attorneys fees and incentive awards.
Here, the settlement had created an intertwined settlement fund, which would be used to pay both cash awards to the class, attorneys fees, and incentive awards, with the lawyers’ getting more money if fewer class members sought cash as opposed to “access codes” providing free access to the Times. Separately, the Second Circuit found the district court should have treated the settlement as a “coupon settlement,” subject to specific CAFA provisions, rejecting the argument that the access codes were not coupons.
Finally, the Second Circuit declined to adopt the Eleventh Circuit’s view that incentive awards are unlawful per se, but clarified that district courts must closely scrutinize the reasonableness of such awards.
