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Cannon v. Ashburn Corp.

United States District Court, D. New Jersey, Camden Vicinage

April 17, 2018

KYLE CANNON, LEWIS LYONS, and DIANE LYONS, individually and on behalf of all others similarly situated, Plaintiffs,
v.
ASHBURN CORPORATION, WINES ‘TIL SOLD OUT WTSO.COM, and JONATHAN H. NEWMAN, Defendants.

          CARELLA, BYRNE, CECCHI, OLSTEIN, BRODY & AGNELLO, P.C. BY: JAMES E. CECCHI, ESQ. LINDSEY H. TAYLOR, ESQ. AND GISKAN SOLOTAROFF ANDERSON LLP BY: OREN GISKAN, ESQ. COUNSEL FOR PLAINTIFFS

          MANKO, GOLD, KATCHER & FOX, LLP BY: SUZANNE ILENE SCHILLER, ESQ. NICOLE R. MOSHANG, ESQ. JAMES M. MCCLAMMER, ESQ. AND LATHAM & WATKINS LLP BY: JAMES J. FARRELL, ESQ. GREGORY MORTENSON, ESQ. 885 COUNSEL FOR DEFENDANTS

          U.S. DEPARTMENT OF JUSTICE, CONSUMER PROTECTION BRANCH BY: GUSTAV W. EYLER, ESQ. JOSHUA D. ROTHMAN, ESQ. COUNSEL FOR INTERESTED PARTY THE UNITED STATES

          MARK BRNOVICH, ATTORNEY GENERAL FOR THE STATE OF ARIZONA BY: ORAMEL H. SKINNER, ESQ. COUNSEL FOR AMICUS CURIAE ARIZONA ATTORNEY GENERAL ON BEHALF OF THE ATTORNEYS GENERAL OF ARIZONA, ALABAMA, ARKANSAS, IDAHO, INDIANA, LOUISIANA, MICHIGAN, MISSISSIPPI, MISSOURI, NEVADA, NORTH DAKOTA, OHIO, OKLAHOMA, RHODE ISLAND, SOUTH CAROLINA, SOUTH DAKOTA, TEXAS, WASHINGTON, AND WYOMING

          FINEMAN, KREKSTEIN & HARRIS, P.C. BY: RICHARD J. PERR, ESQ. MONICA M. LITTMAN, ESQ. AND MANSOUR GAVIN LPA BY: BRENDON P. FRIESEN, ESQ. KENNETH E. SMITH, ESQ. COUNSEL FOR OBJECTORS DEREK HANSEN, VYTAURAS SASNAUSKAS, AND RYAN RUSSELL

          DILWORTH PAXSON LLP BY: JOSHUA WOLSON, ESQ. AND COMPETITIVE ENTERPRISE INSTITUTE BY: ADAM SCHULMAN, ESQ. COUNSEL FOR OBJECTOR RYAN RADIA

          EDWARD TAHIR DUCKETT, PRO SE PATRICK DEAN TAYLOR, PRO SE STEVEN D. MAYER, PRO SE WILLIAM B. JAMES, PRO SE KENDALL M. COX, PRO SE KEITH BROWN, PRO SE MARI STULL, PRO SE

          OPINION

          RENÉE MARIE BUMB UNITED STATES DISTRICT JUDGE

         When presented with a motion to approve a class action settlement, a district court has a particularly important, and frequently challenging, task: to probe thoughtfully beneath the surface of a jointly proposed settlement and ask questions. If, at the end of its inquiry, the court has more questions than answers, there is more work to do. How can a court determine, with a reasonable amount of certainty, that the proposed settlement is fair, reasonable, and adequate under Fed.R.Civ.P. 23(e), when it has many unanswered questions? It cannot, and must not. See In re Baby Prod. Antitrust Litig., 708 F.3d 163, 175 (3d Cir. 2013) (“district judges presiding over [class] actions are expected to give careful scrutiny to the terms of proposed settlement.”). Because this Court is left with so many unanswered questions here, the parties' Joint Motion for Final Settlement Approval will be denied.[1]

         I. FACTS AND PROCEDURAL HISTORY

         A. The Complaint

         As alleged in the Complaint, Defendant Wines ‘Til Sold Out sells wine exclusively through its “flash-site” website, WTSO.com.[2]Plaintiffs, alleged customers of Wines ‘Til Sold Out, assert that during the proposed class period[3], Wines ‘Til Sold Out “advertise[d] false original prices and false discounts for wines sold on the WTSO.com website in order to induce consumers to purchase certain wines.” (Compl. ¶ 2) The Complaint identifies two different allegedly deceptive schemes-- one related to wines exclusively available on WTSO.com and unavailable from any other seller (even directly from the winery); and another related to wines available elsewhere, although allegedly at prices different than what Wines ‘Til Sold Out represented.

         As to the first category, the Complaint alleges that the “Original Price” listed on WTSO.com was false simply because there was a comparison of prices at all. According to Plaintiffs, the “private label” wines sold in this category could have had only one possible price-- the price WTSO.com was selling the wine at--and any other representation of an “Original Price” or “Best Web Price” was allegedly fraudulent because it necessarily implied the existence of a nonexistent comparator price offered by a nonexistent seller. (Compl. ¶ 33)

         As to the second category, the Complaint alleges that Wines ‘Til Sold Out “wild[ly] exaggerate[ed]” Original Prices to give customers the false impression that they were getting a larger discount on the wine they purchased. (Compl. ¶ 36) For example, the Complaint alleges that Wines ‘Til Sold Out listed an “Original Price” of $350 a bottle for a wine that Wine Spectator and Wine Enthusiast stated was $225 a bottle. (Id.)

         The class proposed in the Complaint is “[a]ll persons who purchased from Defendants wines which were advertised for sale on the WTSO.com website with a fictional, fabricated or inflated ‘Original Price.'” (Compl. ¶ 45)

         The Complaint originally asserted four claims: (I) violation of New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1, et seq. (“NJCFA”); (II) unjust enrichment; (III) fraud; (IV) breach of contract; (V) violation of New Jersey Truth-in-Consumer Contract, Warranty and Notice Act, N.J.S.A. 56:12-14, et seq. (“TCCWNA”).

         B. Defendants' Motion to Dismiss

         Wines ‘Til Sold Out moved to dismiss all claims pursuant to Fed.R.Civ.P. 12(b)(6). As set forth in Cannon v. Ashburn Corp., No. CV 16-1452 (RMB/AMD), 2016 WL 7130913 (D.N.J. Dec. 7, 2016), Defendants were largely successful. The Court dismissed, or dismissed without prejudice with leave to amend, a majority of the claims, leaving only the NJCFA, fraud and breach of contract claims premised on the first theory of liability-- nonexistent comparator price-- to survive. Id. Importantly, as to the second theory of liability-- inflated comparator price-- the Court ruled that “Plaintiffs do not have standing to pursue claims under this theory because they have not alleged that they purchased . . . any . . . wines allegedly sold with an inflated or exaggerated original price. . . . This deficiency is fatal . . . to Plaintiffs' standing to pursue these claims.” Id. at *6.

         C. Joint Motion for Preliminary Approval of Class Settlement

         More than six months later, following several extensions of Plaintiffs' time to file an amended complaint, the parties filed a “Joint Motion for Order Granting Preliminary Approval of Class Settlement and Certification of Settlement Class.” Plaintiffs did not file an Amended Complaint, no Rule 16 conference was ever held, and no formal discovery was ever conducted. The parties, however, have represented to the Court that they did engage in some limited “confirmatory discovery, ” which involved some document production and at least two “interviews” of a Wines ‘Til Sold Out representatives. (Final Approval Hearing Transcript, hereafter “Transcript, ” p. 81-82)

         (1) The Original Settlement Agreement

         The original proposed settlement provides for varying amounts of “Credits”[4] to class members based on whether they purchased wines listed on the Settlement Agreement's Exhibit A, Exhibit B, or not listed, which the latter category the Court, and the parties, have named the “C wines.”[5] The Exhibit A wines correspond to the wines alleged to be the subject of the nonexistent comparator scheme described supra; the Exhibit B wines correspond to the wines alleged to be the subject of the alleged inflated comparator price scheme described supra, and the C wines correspond to all other wines Wines ‘Til Sold Out sold during the class period. Specifically, the Settlement Agreement provides:

1. For every bottle of Settlement Wine listed on Exhibit “A” purchased during the Class Period for $12.99 or less for which no prior refund was given, the Class Member will receive a Credit of $1.75.
2. For every bottle of Settlement Wine listed on Exhibit “A” purchased during the Class Period for $13.00 to $18.99 for which no prior refund was given, the Class Member will receive a Credit of $2.00.
3. For every bottle of Settlement Wine listed on Exhibit “A” purchased during the Class Period for $19.00 or greater for which no prior refund was given, the Class Member will receive a Credit of $2.25.
4. For every bottle of Settlement Wine listed on Exhibit “B” purchased as an individual offering (not as part of a combination package of different wines) during the Class Period for $19.99 or less for which no prior refund was given, the Class Member will receive a Credit of $ 0.50.
5. For every bottle of Settlement Wine listed on Exhibit “B” purchased as an individual offering (not as part of a combination package of different wines) during the Class Period for $20.00 or greater for which no prior refund was given, the Class Member will receive a Credit of $ 0.75.
6. For every other bottle of Settlement Wine purchased during the Class Period for which no prior refund was given, the Class Member will receive a Credit of $ 0.20.

(Dkt No. 43-1, p. 9 of 29)

         The Settlement Agreement further provides that Credits only may be used to purchase wine from Wines ‘Til Sold Out in the following manner: “Credits will be applied against purchases of any wine the first time it is offered on WTSO.com . . . at the rate of $2.00 off per bottle, or for the full or remaining [C]redit amount if less than $2.00, for a period of one (1) year following the date the Credit codes described in Paragraph G below are emailed to the Class Members (the ‘Redemption Period').” (Dkt No. 43-1, p. 9-10 of 29) “To be eligible to receive Credits, Class Members must submit the Verification Form to the Settlement Administrator online through the Settlement Website or by mail within 30 days after the date of the Fairness Hearing.” (Id. at p. 10 of 29)

         If Wines ‘Til Sold Out is unable to ship wine to a class member's “primary residence” or “business address” during the Redemption Period, the Settlement Agreement provides a cash option for only these no-ship class members: “the Class Member may contact WTSO within 60 days of the Effective Date to request that WTSO pay that Class Member in cash 50% of the amount of the Credits received by that Class Member. WTSO shall provide the cash refund within 30 days of the request.” (Id. at p. 12 of 29)

         Lastly, with respect to attorney's fees, the Settlement Agreement states, “Class Counsel may request, and Defendant shall not oppose, an award of attorneys' fees and expenses of no more than of One Million and Seven Hundred Thousand Dollars ($1, 700, 000), which is subject to the Court's approval. The payment by Defendant of the attorneys' fees and expenses is separate from and in addition to the Class Representative Service Awards and relief afforded the Class Members in this Agreement.” (Id. at p. 18 of 29)

         (2) Preliminary Approval Hearing

         The Court held the preliminary approval hearing on November 8, 2017. During the hearing, the Court's and the parties' discussion focused largely on the Court's concerns regarding the proposed method of sending notice to the class and how the Credits would work. As to notice, the parties had originally proposed email only notice; however, after discussion with the Court, the parties agreed to revise the proposed settlement to provide for both e-mail and U.S. mail notice, with the additional cost of postage to be deducted from class counsel's proposed fee.

         As to the mechanics of the Credits, the focus of the parties'-- and therefore the Court's-- discussion was the two-dollar limitation on the stacking of Credits (i.e., Credits may be in combination up to $2.00 per one bottle of wine) but the parties did not address the impact of the one-year Redemption Period on the two-dollar stacking limit. As will be discussed in the Court's discussion infra, however, the interaction between these two proposed settlement terms is vitally important to an understanding of the extent to which the proposed settlement will benefit individual class members.

         The parties also neglected to direct the Court's attention to at least two other important aspects of the proposed settlement. First, as later became clear, the proposed settlement contained material differences between the class as proposed in the Complaint, and the proposed settlement class. The Complaint proposed a class encompassing customers who purchased only A and B wines. The proposed settlement class, however, added an entirely new group of proposed class members: customers who purchased neither A nor B wines, i.e., C wines. The significance of this change, and why it deeply troubles the Court, will be discussed infra. Second, the parties also did not adequately address the class certification requirements. In particular, at no time during the preliminary approval hearing, nor in the parties' papers in support of the motion for preliminary certification, did the parties address the interaction between the Court's Opinion on Defendants' Motion to Dismiss and the Motion to Certify the Settlement Class. The significance of these omissions also will be addressed infra.

         The Court preliminarily certified the proposed settlement class, and preliminarily approved the proposed settlement, by Order dated November 16, 2017.

         (3) Objections to the Class Settlement[6]

         Early in January, 2018, the Court started receiving objections from class members, and the potential, indeed, fundamental, problems with the proposed class and the proposed settlement began to surface. By the objection deadline, the Court had received ten objections[7], as well as filings by the United States Department of Justice, Consumer Protection Division, and the Arizona State Attorney General on behalf of 19 States' Attorneys General.[8] All submissions, and the important questions they raise, will be discussed in detail infra.

         (4) Modifications to the Settlement Agreement

         In response to those filings, the parties proposed three material modifications to the Settlement Agreement, which are embodied in the “Amendment to Settlement Agreement and Release.” (Dkt No. 83-1) (“the Amended Settlement Agreement”). First, the parties propose a six-month enlargement of the twelve-month Redemption Period to eighteen months. (Id. at p. 1 of 10) Second, the parties propose a reduction of the attorney's fee award request from $1.7 million to $1.2 million coupled with a deferral of the fee application until after the now extended Redemption Period has expired. (Id. at p. 2 of 10) Notably, however, the Amended Settlement Agreement provides that Class Counsel may receive more than $1.2 million if there is sufficient money remaining in the newly created “Cash Fund, ” as described next. (Id.)

         Third, and most significantly, the Amended Settlement Agreement provides for a $500, 000 “Cash Fund” as an alternative to Credits. Specifically, the Amended Settlement Agreement provides,

At the conclusion of the Redemption Period, WTSO will provide the Claims Administrator with an accounting of Class Members with unused Credits in excess of $2.00, and the Settlement Administrator shall mail checks to all such Class Members for their remaining balance, up to the total in the Cash Fund.
If the total cash due Class Members exceeds the Cash Fund, then the monies will be distributed pro rata based on the amount of remaining Credits to the Class Members entitled to such cash payments[.] If the cash payments are less than the Cash Fund, up to $35, 000 in excess shall be returned to WTSO. Any amounts over $35, 000 thereafter remaining in the [C]ash [F]und shall be available [as additional compensation to Class Counsel].

(Dkt No. 83-1, at p. 1-2 of 10)

         Obviously, because the proposed modifications were in response to objections from the proposed settlement class after notice had been sent, the proposed settlement class as a whole has not received notice of these changes.

         D. Final Approval Hearing

         On March 19, 2018, the Court held a final approval hearing. The Court heard argument from both parties, the United States, the States' Attorneys General, and several objectors. The issues explored during the hearing are discussed at length infra. At the conclusion of the hearing, the Court reserved decision and directed the parties, and any objectors or other interested parties who wished, to submit post-hearing letter briefs.

         (1) The Second Amended Settlement Agreement

         After the final approval hearing, the parties made two additional changes to the settlement which they assert provide “even further benefit to the Class.” (Dkt No. 97) First, the Second Amended Settlement Agreement (Dkt No. 97-1), extends the Verification Period from mid-April to May 15, 2018. Second, and more significantly, the parties have changed the provisions concerning attorney's fees and the Cash Fund. The settlement now provides for the establishment of a $1.2 million “Balance Fund” from which attorney's fees, if awarded by the Court, will be paid. In the event that the Court awards fees in an amount less than the total in the Balance Fund, the remainder will be “transferred” from the Balance Fund into the Cash Fund to be distributed to class members with unused Credits. Thus, in theory, the Cash Fund could end up with a balance of $1.7 million, but that would only occur if the Court awarded no attorney's fees.

         The class has not received formal notice of these most recent changes to the settlement either.

         (2) The Court's Order to Show Cause

         After reviewing the post-hearing submissions, by an Order to Show Cause dated March 29, 2018, the Court directed further briefing on additional issues with respect to class certification. Thus, as of the date of this Opinion, the Court has received and thoroughly reviewed: the parties' joint brief in support of preliminary class certification / preliminary settlement approval; the objectors' submissions--including four legal briefs drafted by counsel, each brief exceeding 20 pages; the parties' joint brief in support of final class certification / final settlement approval; and post-final approval hearing submissions.

         In addition to these written submissions, the Court has held two hearings spanning almost six hours. The Court has undertaken all of this in an attempt to ascertain all of the information necessary to decide whether to certify the proposed class and approve the proposed settlement. Unfortunately, despite this Court's best efforts to afford the parties ample opportunity to provide the Court with the information it requires, many fundamental and important questions remain unanswered.

         II. LEGAL STANDARDS

         A. Settlement Class Certification under Rule 23(a) and (b)(3)

         A proposed class must meet the (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy requirements of Fed.R.Civ.P. 23(a). Additionally, in this case Plaintiffs must establish that “common” “questions of law or fact” “predominate over any” individual questions, and that “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed.R.Civ.P. 23(b)(3).

         “[B]efore approving a class settlement agreement, a district court first must determine that the requirements for class certification under Rule 23(a) and (b) are met.” Sullivan v. DB Investments, Inc., 667 F.3d 273, 296 (3d Cir. 2011) (en banc). “‘Confronted with a request for settlement-only class certification, a district court need not inquire whether the case, if tried, would present intractable management problems, for the proposal is that there be no trial. But other specifications of [Rule 23]-- those designed to protect absentees by blocking unwarranted or overbroad class definitions-- demand undiluted, even heightened, attention in the settlement context. Such attention is of vital importance, for a court asked to certify a settlement class will lack the opportunity, present when a case is litigated, to adjust the class, informed by the proceedings as they unfold.'” In re Pet Food Prod. Liab. Litig., 629 F.3d 333, 341 (3d Cir. 2010) (quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997)).

         B. Rule 23(e)

         “The claims, issues or defenses of certified class may be settled, voluntarily dismissed, or compromised only with the court's approval. . . . If the proposal would bind class members, the court may approve it only after a hearing and or finding that it is fair, reasonable, and adequate.” Fed.R.Civ.P. 23(e)(2). As the Manual for Complex Litigation, Fourth, § 21.62 explains,

Fairness calls for a comparative analysis of the treatment of class members vis-à-vis each other and vis-à-vis similar individuals with similar claims who are not in the class. Reasonableness depends on an analysis of the class allegations and claims and the responsiveness of the settlement to those claims. Adequacy of the settlement involves a comparison of the relief granted relative to what class members might have obtained without using the class action process.

         C. The Girsh and Prudential Factors

          “Rule 23(e) imposes on the trial judge the duty of protecting absentees, which is executed by the court's assuring the settlement represents adequate compensation for the release of the class claims.” In re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d 283, 316 (3d Cir. 1998) (internal citation and quotation omitted). “[W]here the parties simultaneously seek certification and settlement approval . . . courts [must] be even more scrupulous than usual when they examine the fairness of the proposed settlement. This heightened standard is designed to ensure that class counsel has demonstrated sustained advocacy throughout the course of the proceedings and has protected the interests of all class members.” Id. at 317 (internal citation and quotation omitted); see also, In re Baby Prod. Antitrust Litig., 708 F.3d 163, 175 (3d Cir. 2013) (“Because class actions are rife with potential conflicts of interest between class counsel and class members . . . district judges presiding over such actions are expected to give careful scrutiny to the terms of proposed settlement in order to make sure that class counsel are behaving as honest fiduciaries for the class as a whole.”) (internal citation and quotation omitted).

         In carefully scrutinizing the proposed settlement, the Court considers the familiar, nonexclusive Girsh and Prudential factors:

(1) the complexity, expense, and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.

Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir. 1975); and

[1] the maturity of the underlying substantive issues, as measured by experience in adjudicating individual actions, the development of scientific knowledge, the extent of discovery on the merits, and other factors that bear on the ability to assess the probable outcome of a trial on the merits of liability and individual damages; [2] the existence and probable outcome of claims by other classes and subclasses; [3] the comparison between the results achieved by the settlement for individual class or subclass members and the results achieved-- or likely to be achieved-- for other claimants; [4] whether class or subclass members are accorded the right to opt out of the settlement; [5] ...

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