Fouks v. Red Wing Shoe Company, Inc.

Filing 43

ORDER: Plaintiffs' Motion for Final Approval of Class Action Settlement 29 is GRANTED with the modification described in order. Plaintiffs' Motion for Attorney's Fees and Costs 33 is DENIED WITHOUT PREJUDICE. (Written Opinion) Signed by Judge Joan N. Ericksen on November 21, 2013. (CBC)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

Britt M. Fouks and Brian F. Hupperts,
on behalf of themselves and all others
similarly situated,
Plaintiffs,
Case No. 12-CV-2160 (JNE/FLN)
ORDER

v.
Red Wing Hotel Corporation
d/b/a St. James Hotel, Veranda, Clara’s Gift
Shop, Jimmy’s Pub, Port Restaurant, and Shoe
Box Café,

Defendant.

This case, filed as a putative class action, arises out of Defendant St. James Hotel’s
alleged willful failure to properly redact its customers’ debit and credit card numbers from its
receipts in violation of the Fair and Accurate Credit Transaction Act’s (“FACTA”) truncation
requirement at 15 U.S.C.§ 1681c(g). The Amended Complaint does not allege that Plaintiffs
suffered any actual injury and seeks only statutory damages, which are capped at $1,000 for each
violation, and punitive damages. See 15 U.S.C. § 1681n(a).
The parties reached a tentative settlement at a conference with the Magistrate Judge.
This Court subsequently issued an Order Preliminarily Approving Class Action Settlement, ECF
No. 26, in which it certified the class for settlement purposes and appointed Plaintiffs as class
representatives and Plaintiffs’ counsel as class counsel. The certified class is defined there as
“all persons residing in Minnesota and Wisconsin who, during the time period from May 11, 2011,
through August 31, 2012, inclusive, used a personal credit or debit card at St. James Hotel and
received a receipt that contained more than 5 digits of the credit or debit card.”

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Now before the Court are Plaintiffs’ Motion for Final Approval of Class Action
Settlement, ECF No. 29, and Motion for Attorney’s Fees and Costs, ECF No. 33. For the
reasons that follow, the Court grants final approval to the settlement with the modification
described below and denies without prejudice the motion for attorney’s fees and costs.

Discussion
I.

Motion for Final Approval of Class Action Settlement.
The parties seek final approval of their proposed settlement in which the Defendant

would provide to the 161 class members who timely submitted claims a voucher for either 40%
off a stay at the St. James Hotel (not to exceed a $500 value) or 30% off a meal at the hotel’s
restaurant (not including alcohol and not to exceed a $100 value). The vouchers are good for one
transaction only, not transferable or redeemable for cash, and may only be redeemed during a
nine-month period that the parties anticipate will run from January 1, 2014 to October 1, 2014.
Under the terms of the settlement, the Defendant would also make direct cash payments of
$4,000 to both of the class representatives and a cy pres donation of $20,000 to the Red Wing
Environmental Learning Center within ten days of the Court’s final approval.

A. Standard of review.
Though a proposed class action settlement is “presumptively valid,” the Court need not
and should not “automatically approve anything the parties set before it.” Little Rock School
Dist. v. Pulaski County Special School Dist. No. 1, 921 F.2d 1371, 1383, 1391 (8th Cir. 1990).
Indeed, Federal Rule of Civil Procedure 23(e) “requires the court to intrude on [the parties’]
private consensual agreement . . . as a fiduciary, serving as a guardian of the rights of absent

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class members.” In re Wireless Telephone Federal Cost Recovery Fees Litigation, 396 F.3d 922,
932, 934 (8th Cir. 2005) (internal citation omitted). As a fiduciary, the Court has a duty to the
absent class members to “ensure that the agreement is not the product of fraud or collusion and
that, taken as a whole, it is fair, adequate, and reasonable to all concerned.” Id. at 934 (internal
citation omitted).
In assessing whether the proposed settlement satisfies the “fair, adequate, and
reasonable” standard, the Court considers: “(1) the merits of the plaintiff's case, weighed against
the terms of the settlement; (2) the defendant's financial condition; (3) the complexity and
expense of further litigation; and (4) the amount of opposition to the settlement.” In re Wireless
Telephone, 396 F.3d at 932. (internal citation omitted). The first consideration carries the most
weight. Id.
Because this proposed settlement would provide plaintiff class members with “vouchers”
that would require them to purchase more of the defendant’s goods and services in order to
receive a discount, the provision of the Class Action Fairness Act of 2005 (“CAFA”) regarding
coupon settlements at 28 U.S.C. § 1712 is also applicable here. That statute specifies that, where
a proposed settlement includes the award of coupons to class members, “the court may approve
the proposed settlement only [upon] making a written finding that . . . the settlement is fair,
reasonable, and adequate for class members.” 28 U.S.C. § 1712(e).

B. The proposed settlement warrants final approval only with a reduction to the class
representative awards.
Having considered all of the relevant factors, the Court notes in particular the difficulty
FACTA plaintiffs who seek only statutory damages may encounter in proving the defendant’s

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willful non-compliance where the case does not settle and proceeds to trial. In addition, the
Court takes note that no class member has objected to the proposed settlement. Those factors cut
in favor of final approval of the settlement, but the Court is uneasy about the difference in kind
and amount between the $4,000 cash payments Plaintiffs seek for themselves and the far less
valuable coupons that they deem adequate for the other class members.
Plaintiffs acknowledge that they have suffered no actual injury and that their recovery of
statutory damages would therefore be capped at $1,000 each. Nevertheless, they argue that the
proposed $4,000 class representative award payments to them are justified as an “incentive
award” or “reimbursement” for the time spent and risk assumed in pursuing this litigation.
In support of their argument, Plaintiffs cite In re U.S. Bancorp Litig., 291 F.3d 1035,
1038 (8th Cir. 2002), which in turn cites Cook v. Niedert, 142 F.3d 1004, 1016 (7th Cir. 1998),
for the proposition that incentive awards are appropriate in certain circumstances such as these
where the named plaintiff has taken action to protect the interests of a class. However, Plaintiffs
quote, but fail to satisfy, the prerequisite expressed in those cases that “an incentive award is
appropriate if it is necessary to induce an individual to participate in the suit.” Id. (emphasis
added). Indeed, the Cook court explained that the “most significant[]” factor justifying an
incentive award there was that “in filing the suit, [the named plaintiff] reasonably feared
workplace retaliation.” Id. See also In re U.S. Bancorp, 291 F.3d a1038 (approving class
representative awards of $2,000 where plaintiffs achieved a settlement on behalf of the class
valued at $3.5 million). Here, Plaintiffs have put forth no evidence or argument that persuades
the Court that they required any enticement beyond their potential statutory recovery to bring this
case, or that their actions in prosecuting it are deserving of a reward.

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Plaintiffs also cite to In re Plastic Tableware Antitrust Litigation, a 1995 case from the
Eastern District of Pennsylvania. 1995 WL 723175 (E.D.Pa. Dec. 4, 1995). That court listed as
“[f]actors to consider when assessing incentive awards” the following:
(a) the risk to the plaintiff in commencing suit, both financially and otherwise; (b)
the notoriety and/or personal difficulties encountered by the representative
plaintiff; (c) the extent of the plaintiff's personal involvement in the suit in terms
of discovery responsibilities and/or testimony at depositions or trial; (d) the
duration of the litigation; and (e) the plaintiff's personal benefit (or lack thereof)
purely in his capacity as a member of the class.
Id. at *2. However, even after reciting these factors in their memorandum, Plaintiffs fail to
explain how they apply to the circumstances at hand, apparently believing it to suffice that they
have “actively participated” and “dedicated over forty hours of their time” to the litigation.
On these minimal facts, however, the Court is not persuaded by Plaintiffs’ contention that
they each deserve four times the maximum recovery possible under the statute for “taking [this]
difficult path and enforcing Congress’ consumer protection legislation.” There is simply no
evidence before the Court that the Plaintiffs faced any risks or burdens in undertaking this
litigation, or that there exist any other factors that would justify the amount they seek, whether
styled as an incentive award or reimbursement.
To the contrary, this case was not strongly contested, as settlement negotiations began in
the earliest stages of the litigation; demanded very little of the Plaintiffs individually; did not
implicate the public interest; and presented no novel, complex, or controversial issues. In fact, it
is but the latest in a long line of strikingly similar Fair Credit Reporting Act (“FCRA”) suits
brought in this district by Plaintiffs’ counsel, at least two of which have included Plaintiff
Hupperts as a class representative. See Ebert et al v. Warners’ Stellian Co., Inc., No. 11-cv-2325
(JRT/SER); Hupperts v. APOGEE Retail, LLC, No. 12-cv-00915 (TNL). Plaintiff Hupperts was
not even involved from the beginning of this litigation, but was added in the Amended
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Complaint almost three months after settlement discussions began and slightly more than two
months before the settlement was reached.
Therefore, in consideration of all of the relevant factors, the Court finds that the proposed
settlement warrants final approval, but only with a significant reduction to the proposed awards
to the two class representatives. Owing to the nature of this litigation and the facts of this case’s
history, the Court determines that a reduction of the class representative awards to $1,000 for
Plaintiff Fouks and $500 for Plaintiff Hupperts is necessary to render the settlement as a whole
fair, adequate, and reasonable.
In light of the parties’ agreement in the Stipulation of Settlement that the Court may in its
discretion award the class representatives any amount up to $4,000, ECF No. 22-2 at ¶ 6(a), the
Court modifies the class representative awards accordingly and grants final approval to the
settlement as so modified.

II.

Motion for Attorney’s Fees and Costs.
The parties reached a “clear-sailing” agreement during their settlement negotiations that

Defendant would not oppose an award of attorney’s fees and costs to Plaintiffs’ counsel in an
amount up to $65,000. The parties also agreed that “allowance or disallowance by the Court of
all or any part of the Fee Petition is not a condition of the settlement . . .” Id. at ¶ 6(d).
Plaintiffs’ counsel has accordingly filed an unopposed Motion for Attorney’s Fees and Costs,
separate from the Motion for Final Approval, requesting that the Court approve a $65,000 award
based on a lodestar analysis. ECF No. 33.

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A. Standard of review.
Under Federal Rule of Civil Procedure 23(h), the Court “may award reasonable attorney's
fees and nontaxable costs that are authorized by law or by the parties’ agreement.” In a class
action coupon settlement such as this, the Court “has the discretion to use either a percentage or
lodestar method in awarding fees . . .” True v. American Honda Motor Co., 749 F.Supp.2d 1052,
1077 (C.D.Cal. Feb. 26, 2010). See 28 U.S.C. § 1712(a)-(b).
In calculating the lodestar, “any attorney’s fee award shall be based upon the amount of
time class counsel reasonably expended working on the action” and is “subject to approval by
the court.” Id. § 1712(b)(1)-(2). Where a percentage of the class’s recovery is awarded, “the
portion of any attorney’s fee award to class counsel that is attributable to the award of coupons
shall be based on the value to class members of the coupons that are redeemed.” Id. §1712(a).
To determine that value, the Court may “receive expert testimony from a witness qualified to
provide information on the actual value to the class members of the coupons that are redeemed.”
Id. § 1712(d).

B. Counsel’s lodestar calculation is unreasonable.
Here, Plaintiffs’ counsel urges the Court to use the lodestar method to find that the
$65,000 he seeks is a reasonable award. However, based on the grave concerns described below,
the Court finds that a $65,000 award is unreasonably high and that both the 182 hours expended
on this case and the $400 hourly rate counsel requests are far in excess of what would be
reasonable.

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1. The hours expended are unreasonable for a case of this nature.
First, counsel argues that it was reasonable for him and his paralegal to spend 182 hours
on this short-lived, straightforward case because a favorable settlement was achieved through his
efforts. Counsel also suggests that the reasonable number of hours was increased in this case
because the Defendant “initially resist[ed]” the claims, thereby creating additional work.
Those arguments are not persuasive. As already noted, the Defendant did not vigorously
contest this case. In fact, counsel’s own billing paperwork submitted in support of his motion
demonstrates that the parties began settlement discussions as early as October 23, 2012, the day
the parties appeared before the Magistrate Judge for the Initial Pretrial Conference and less than
two months after the Complaint was filed. In addition, there was no motions practice and the
Defendant stipulated to counsel’s amendment of the Complaint.
Furthermore, the majority of counsel’s written submissions in this case are boilerplate.
For instance, compare counsel’s Complaint, ECF No. 1, Memorandum in Support of Motion for
Preliminary Approval of Class Action Settlement, ECF No. 21, Memorandum in Support of
Motion for Final Approval of Class Action Settlement, ECF No. 31, and Memorandum in
Support of Motion for Attorney’s Fees and Costs, ECF No. 35, with those filed in, as but two
examples among many, Zaun v. Al Vento, No. 11-cv-2024 (PAM/FLN) and Ebert et al v.
Warners’ Stellian Co., Inc., No. 11-cv-2325 (JRT/SER). Counsel’s repetition of boilerplate
language and identical arguments from these very similar cases undermines the reasonableness
of the hours he claims for drafting and filing these documents here. The cases are not complex.
In 2003, Congress required electronically-generated debit and credit card receipts to contain no
more than five digits. It takes no more than the fingers on one hand to determine statutory
compliance; the hours that counsel claims to have spent here are entirely unreasonable.

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The Court is also highly skeptical of the propriety of a number of counsel’s other billing
entries, such as the 3.04 hours he charges for reviewing an email “regarding dislike for [him] and
the lawsuit” and researching how to respond, the 5.79 hours he claims for the settlement
conference with the Magistrate Judge that lasted only four hours, and the 6.51 hours he bills for
reviewing his files and meeting with Plaintiffs to “check time slips for audit to make sure no
duplicative entries” for purposes of his fee petition and their incentive awards. 1

2. The hourly rate counsel requests is exorbitant.
Second, counsel argues that an hourly rate of $400 for his services is reasonable. The
touchstone for determining a reasonable hourly rate for an attorney’s services is that it be “in line
with those prevailing in the community for similar services by lawyers of reasonably comparable
skill, experience, and reputation.” McDonald v. Armontrout, 860 F.2d 1456, 1458-59 (8th Cir.
1988) (quoting Blum v. Stenson, 465 U.S. 886, 895-96 (1984)). To this end, counsel prepared
and submitted a table listing hourly fees purportedly awarded to attorneys in Minnesota
consumer financial litigation. Minnesota Consumer Financial Litigation Attorney Rates and
Court Awards (ECF No. 36-2). The table reflects a range of fees in federal court from $235 on
the low end for an attorney with six years of experience to $450 on the high end for an attorney
with 47 years of experience. 2

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Counsel’s suggestion that he will devote any significant additional time to this case during the
voucher redemption period by “answering calls and questions on the settlement voucher” and
otherwise “overseeing” the redemption process is also dubious. The parties have retained a third
party settlement administrator, paid for by the Defendant, to distribute the coupons by mail. The
Court is confident that the class members are fully capable of presenting the coupons at the point
of sale for the applicable discount without counsel’s assistance.
2

The Court disregards the rates attributed to the one state court matter that was included in the
table.
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The Court notes that the majority of entries in this table are for fees awarded either to
counsel himself (Thomas J. Lyons, Jr.) or to his father and frequent co-counsel (Thomas J.
Lyons). Given this intimate familiarity with the fees litigation counsel includes in his table, the
Court is deeply troubled by the misleading entries to be found there. Counsel represents to the
Court that he was “awarded” a rate of $400, and his father was “awarded” $450 per hour, in this
district as recently as January 2013 in Zaun v. Al Vento, No. 11-cv-2024 (PAM/TNL). See
Declaration in Support of Motion for Attorney Fees at ¶¶ 7-8 (ECF No. 36) (incorporating table
of fees by reference into counsel’s sworn statement). However, while counsel and his father
requested those rates in that case, the court specifically found that “the hourly rate requested for
both attorneys in this matter is far too high.” Memorandum and Order at 6 (11-cv-2024, ECF
No. 58). In light of that conclusion as well as numerous and egregious examples of over-billing
and double-billing, the court reduced counsel’s lodestar calculation by 75% and awarded just
$12,500. Thomas J. Lyons, Jr. has brought more than 1,300 cases in this district. That he selects
the Al Vento case as an example of having been “awarded” $400 per hour is brazen.
This misrepresentation also leads the Court to conclude that, insofar as counsel relies
upon his “skill, experience, and reputation” to justify his proposed rate, the picture he presents to
the Court is incomplete without due consideration of his extensive professional disciplinary
history. Indeed, counsel has been disciplined no fewer than eight times in 17 years of practice.
In re Petition for Disciplinary Action against Thomas Lyons, Jr., a Minnesota Attorney,
Registration No. 249646, A09-472 at 13-14 (Minn. April 8, 2010). Particularly relevant in light
of counsel’s misleading representations to this Court regarding his billing rate is the indefinite
suspension he incurred in 2010 for making false and misleading statements to opposing counsel
during settlement negotiations, to disciplinary investigators, and in testimony before a referee

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appointed by the Minnesota Supreme Court to hear the disciplinary petition. Id. at 12-13.
Counsel was reinstated in late 2011 and has been practicing at all times during this litigation on
supervised probation pursuant to that reinstatement order. In re Petition for Reinstatement of
Thomas Lyons, Jr., a Minnesota Attorney, Registration No. 249646, A11-758 (Minn. Dec. 21,
2011).
Counsel does not acknowledge his suspension in this motion for fees. Nevertheless, it is
apparent from a close examination of the cases counsel chose to list in his table that he continued
to work on FCRA cases in this district with his father during that period, charging $200 per hour
for his services while apparently acting as a paralegal. Counsel includes at least two of these
cases in his table, though he conspicuously omits any mention of his own rates. For instance,
Anderson v. Burrito Union et al., No. 10-cv-1929 (SRN/JJK) appears twice in the 2012 entries,
reflecting awards of both $400 and $450 per hour to counsel’s father. Minnesota Consumer
Financial Litigation Attorney Rates and Court Awards at 6 (ECF No. 36-2). But the table omits
entirely counsel’s own requested rates in that case, which were $400 at the outset and conclusion
but dipped to $200 for the bulk of the litigation while he was suspended. Similarly, Thomas J.
Lyons appears twice in the table ($400 and $450 per hour) for Moran v. Lurcat, LLC, No. 10-cv3031 (JNE/FLN), while Thomas J. Lyons, Jr. ($200 per hour throughout) does not appear at all.
Counsel’s lack of candor and his disciplinary history are highly relevant to any analysis
of his “skill, experience, and reputation,” and here they require a significant reduction to his
requested hourly rate. In consideration of all of the factors discussed above, and in light of the
fees awarded in similar cases in this district as well as the Court’s own knowledge and
experience with the prevailing rates in this market, an hourly rate of $275 is appropriate.

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C. The Court defers resolution of this matter until the close of the voucher redemption
period.
Aside from the unreasonableness of counsel’s billing in this case, the Court is also struck
by the remarkable difference between the $65,000 sum counsel seeks and the far more modest
value of the coupon settlement provided to the class. In response to the Court’s inquiry about
this large disparity, counsel emphasizes that the FCRA contains a fee-shifting provision that is
intended to provide an incentive for competent counsel to bring suit on behalf of plaintiffs whose
potential recovery under the statute is relatively low, and insists that proportionality between the
monetary value of the class’s recovery and the award of attorney’s fees is thus not required.
Be that as it may, what is undoubtedly required is that the award of attorney’s fees be
reasonable. Where the parties have reached a coupon settlement, the actual monetary value of
the coupons redeemed by the class is a prime consideration in that assessment: it is an
indispensable factor in evaluating the reasonableness of the lodestar figure, and it is
determinative when calculating an award as a percentage of the recovery. See, e.g., Fed. R. Civ.
Pro. 23(h) 2003 advisory committee’s notes (“Settlements involving non-monetary provisions
for class members . . . deserve careful scrutiny to ensure that these provisions have actual value
to the class.”); In re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability
Litigation, 55 F.3d 768, 821 (3rd Cir. 1995) (noting that there “is an advantage to using the
alternative [percentage of the recovery] method to double check the fee” and that “the court must
vigilantly guard against the lodestar’s potential to exacerbate the misalignment of the attorneys’
and the class’s interests”); True, 749 F.Supp.2d at 1073 (noting that the court must consider “the
real monetary value and likely utilization rate of the coupons provided by the settlement” and

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that the “lodestar amount is particularly inappropriate where . . . the benefit achieved for the
class is small and the lodestar award large”) (internal citation and quotation omitted).
Here, following the hearing on the motion, the Court specifically invited counsel to
supplement his submissions with a valuation of the vouchers and to explain his methodology for
making such a calculation. In response, counsel declined to offer an expert opinion as the parties
may do under 28 U.S.C. § 1712(d), concluding that it would not be cost effective given the
relative modesty of the proposed settlement. Instead, counsel himself values the “cash savings
benefit” to the class from the redemption of the vouchers at $12,000. Counsel reaches this
number by estimating that two-thirds of the 161 class members who have claimed the vouchers –
107 people – will actually redeem them; using prices and averages culled from the Defendant’s
website and an affidavit from its controller to calculate that “the estimated cash savings benefit
for the Class is $6,206 if all choose dinner and $12,305 if all choose a hotel stay”; and finding
that the redeeming class members will be “enticed” by the “increased value [of the vouchers] for
extended stays” at the hotel, such that “it is reasonable to conclude that the cash savings will be
closer to, or exceed, the estimated $12,305 in savings if all Class members choose a hotel stay of
average duration.”
The Court has a number of reservations about counsel’s methodology. Perhaps the most
glaring flaw is counsel’s equation of the value of the redeemed vouchers with the total discounts
they are expected to provide. This simplistic analysis “ignores the basic economics of coupons,”
and “[c]ourts have generally rejected the idea that the face value of coupons or rebates should be
used for settlement valuation purposes.” True, 749 F.Supp.2d at 1075 (cataloguing cases).
“[C]ompensation in kind is worth less than cash of the same nominal value,” and that is
especially so here where the coupon is “not freely transferable on the open market.” Id. (internal

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quotations and citations omitted). In addition, counsel also does not account for fluctuations in
the cost of rooms in Defendant’s hotel that may be implemented over the course of the
redemption period due to the demand pricing that is common in the hotel industry.
Thus, despite the Court’s best efforts to ascertain a reliable valuation from the parties, the
actual monetary value of the vouchers remains purely speculative. Without this information,
particularly in combination with the unreliability of the evidence submitted by counsel in support
of his motion for fees and costs, the Court determines that the proper course of action is to defer
resolution of this matter.
Therefore, the Court denies Plaintiffs’ counsel’s motion for fees and costs without
prejudice. Counsel may re-file his motion for an award of fees and costs within two months of
the close of the voucher redemption period, at which point the actual number of redeemed
vouchers and the amounts they were redeemed for can be known with certainty. If counsel does
not submit a motion for fees and costs that is consistent with this decision and includes this
additional information by December 1, 2014, the Court will consider the issue abandoned.

THEREFORE, IT IS ORDERED THAT:
1. Plaintiffs’ Motion for Final Approval of Class Action Settlement [ECF No. 29] is
GRANTED with the modification described above.
2. Plaintiffs’ Motion for Attorney’s Fees and Costs [ECF No. 33] is DENIED WITHOUT
PREJUDICE.

Dated: November 21, 2013

s/Joan N. Ericksen
The Honorable Joan N. Ericksen
United States District Judge

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