MEHIGAN et al v. ASCENA RETAIL GROUP, INC. et al

Filing 298

MEMORANDUM AND/OR OPINION SIGNED BY HONORABLE MARK A. KEARNEY ON 6/16/17. 6/16/17 ENTERED AND COPIES MAILED TO PRO SE PARTIES, MAILED AND E-MAILED.(ti, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA

CAROL ROUGVIE, et al.

CIVIL ACTION

vs.
NO. 15-724
ASCENA RETAIL GROUP, INC., et al.

June 16, 2017

KEARNEY, J.
MEMORANDUM

Class members objecting to the fairness of a settlement may appeal our denial of their
objections.

On appeal, they seek an order which presumably will increase the value of the

settlement to them. Their appeal may lack merit and serve only to delay recovery, causing some
to cynically wonder whether objectors file appeals solely to leverage the delay on appeal and
coerce Class Counsel to pay them off earlier or for more money than the non-appealing class
members. Today we address what happens when the appealing objectors settle and dismiss their
appeals in exchange for payment from Class Counsel, and other non-appealing objectors want to
intervene in the now-settled case to require the appealing objectors to disclose the settlement
amounts under Rule 23 and, through Rule 24 intervention, convince the district court order the
settling appellant objectors to disgorge the money paid to them to settle their appeals. The nonappealing objectors candidly admit a lack of authority to intervene when they seek relief
different than the relief the Class sought from the defendants. The Supreme Court's very recent
decision on standing to intervene in Town of Chester v. Laroe Estates along with an absence of
specific non-speculative grounds to intervene compels our accompanying Order denying the
non-appealing objectors' motion to intervene for lack of Article III standing.

I.

Background

Several consumers filed class actions with consumer protection and breach of contract
claims for over 18.4 million consumers of Ascena Retail Group, Inc. and Tween Brands, Inc.
After months of litigating and negotiating, the parties agreed to a final settlement which allowed
consumer to select a cash or voucher settlement. Several objectors, including Barbara Comlish
and Kathryn Artlip, objected to the fairness of the settlement and the proposed award of
attorney's fees.

No objector, including Ms. Comlish and Ms. Artlip, requested a settlement

condition requiring an objector's appeal must be litigated through a final order in the court of
appeals. After our extended final fairness hearing, we granted some objections and denied others
and then approved a $50.8 million settlement and awarded over $5.3 million to Class Counsel. 1
We also allowed the Class Plaintiffs and Class Counsel to seek a final distribution, including
payment of final attorney's fees and costs, based on the success of voucher distributions. The
parties are presently administering the voucher distribution.
Several objectors to the settlement appealed the final fairness order based on the grounds
argued to us. Most of the objectors settled their appeals after eight months through participation
in our court of appeals' mediation program, including Gretchen Carey, Kelsey D. Foligno,
Manda Hipshire, Vicki Mager, Melissa Schultz, and Michelle Vullings (collectively, the
"Settling Objectors"). The terms of these settlement agreements are unknown, although the
Settling Objectors and Class Counsel represent Class Counsel paid these appeal settlement
proceeds and did not deduct funds from the Settlement Fund belonging to the Class.
Objectors Ms. Comlish and Ms. Artlip (collectively "Putative Intervenors") did not
appeal our final fairness order but now move to intervene and assert cross-claims against the
Settling Objectors on behalf of themselves and the Class, arguing the Settling Objectors'

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retention of money paid in exchange for dismissing their appeals constitutes unjust enrichment,

quantum meruit, and "inequitable conduct. " 2 In support, Putative Intervenors allege the Settling
Objectors retained the appeal settlement proceeds "at the expense of the Class"; the Settling
Objectors "received ill-gotten gains that equitably belonged to the entire class"; and their
conduct-characterized as "objector blackmail"-"extracts value from the underlying class
action settlement." 3 Putative Intervenors do not allege the appeal settlement proceeds came from
the Settlement Fund.
On June 5, 2017, the Supreme Court decided Town of Chester v. Laroe Estates, which
requires nonparties to demonstrate Article III standing when seeking to intervene to assert a
different claim of relief. 4 In light of Laroe and our obligation to ensure jurisdiction, we ordered
supplemental briefing on whether Putative Intervenors had standing to assert the claims in their
intervenor-Complaint. 5 We also held oral argument, during which Putative Intervenors withdrew
their claims against Mr. Foligno. Upon review of Putative Intervenors' motion and intervenorComplaint, and after holding oral argument, we deny the motion to intervene because the
Putative Intervenors fail to demonstrate Article III standing.

II.

Analysis

As a general rule, a class member has standing by virtue of his or her interest in the
settlement. 6 Although a class member has an interest in the settlement of the disputed claims, the
parties have not shown and we cannot find cases addressing whether a class member seeking to
intervene to assert a new claim must demonstrate standing. Nonetheless, the Supreme Court in

Town of Chester v. Laroe Estates recently clarified "a plaintiff must demonstrate standing for
each claim he seeks to press and for each form of relief that is sought." 7 When a nonparty seeks

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to intervene, the applicant "must demonstrate Article III standing when it seeks additional relief
beyond that which the plaintiff requests. " 8
Putative Intervenors seek relief beyond the Class Plaintiffs' now-settled claims. Putative
Intervenors assert claims for unjust enrichment, quantum meruit, and inequitable conduct based
on the Settling Objectors' appeal settlements. As the named Class Plaintiffs did not and could
not have brought these claims, Putative Intervenors must demonstrate an Article III injury with
respect to each of these claims to intervene in this case.
We assess Putative Intervenors' standing using "the same standard of review we use
when assessing a motion to dismiss for failure to state a claim." 9 Our inquiry is a three-step

°

process. 1 First, we identify the elements Putative Intervenors must plead to state a claim, i.e. the
three elements of Article III standing. 11 "Second, we eliminate from consideration any
allegations that, 'because they are no more than conclusions, are not entitled to the assumption of
truth.' Third, 'where there are well-pleaded factual allegations, we assume their veracity and then
determine whether they plausibly' establish the prerequisites of standing." 12 In sum, Putative
Intervenors must identify facts plausibly demonstrating standing. 13 "Speculative or conjectural
assertions are not sufficient." 14
Article Ill's "case or controversy" requirement obliges Putative Intervenors to
demonstrate: (1) an "injury in fact" or "invasion of a legally protected interest" which is
"concrete and particularized" and "actual or imminent, not conjectural or hypothetical"; (2) a
"causal connection between the injury and conduct"; and (3) a likelihood "the injury will be
redressed by a favorable decision." 15 We measure a party's standing "by the specific commonlaw, statutory or constitutional claims that a party presents." 16 Our standing inquiry "requires

4

careful judicial examination of a complaint's allegations to ascertain whether the particular
plaintiff is entitled to an adjudication of the particular claims asserted " 17
Putative Intervenors argue two bases for Article III standing. First, they argue they have
standing because the money Settling Objectors received for settling their appeals "equitably"
belong to the Class. Second, they argue they have standing based on the delay damages caused
by the Settling Objectors' eight-month appeal. We disagree.
A. Putative Intervenors do not have standing based on a purported
"equitable" interest in the side-settlement proceeds.
Putative Intervenors do not plausibly demonstrate an equitable interest in funds paid by
the Class Counsel to the Settling Objectors in exchange for dismissing their appeals. Their
alleged "equitable" interest in the appeal settlement proceeds is a legal conclusion not entitled to
the presumption of truth. Perhaps recognizing this, Putative Intervenors argue the settlement
proceeds equitably belong to them because, had the Settling Objectors successfully prosecuted
their appeals, the benefits of those appeals would have belonged to the Class.
This basis for standing is too speculative.

Putative Intervenors do not plead facts

demonstrating the Settling Objectors had a fiduciary duty to the Class obligating them to provide
the side-settlement proceeds to the Class. Putative Intervenors admit the Settling Objectors have
no fiduciary duty to the Class, and they admit the Settling Objectors did not formally appeal on
behalf of the Class. The Settling Objectors could not have appealed on behalf of the class
because-unlike the Plaintiffs represented by Class Counsel-the Settling Objectors do not act
on behalf of the class. We are aware of no authority holding an objector has a fiduciary duty to
the class.
Putative Intervenors nevertheless argue the Settling Objectors have a duty to the Classalbeit not a fiduciary duty-based on the Supreme Court's 1945 bankruptcy decision in Young v.
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Higbee. 18 We disagree. In Higbee, the district court confirmed a corporate reorganization plan

under the Bankruptcy Act, but two preferred stockholders appealed because under the plan their
preferred stocks had a lower priority than certain junior debts. 19 On appeal, the stockholders
settled for a larger share than what they would have acquired under the plan. 20 Young, a
preferred stockholder, moved to intervene to prosecute the appeal, but the court of appeals
denied his intervention. 21

Young then moved the district court to require the two settling

stockholders return the difference between their settlement proceeds and the fair market value of
their stock, but the district court denied relief because the two stockholders "appealed in behalf
of themselves only and had not acted as representatives of a class. " 22
This issue wound up in the Supreme Court, which held the two stockholders had a
statutory duty to act in good faith to the other stockholders. 23 The Court explained the statute
granting the two stockholders a right to appeal "impose[d] upon them the duty of good faith to
all other stockholders whose interests they temporarily control because they are necessarily
involved in the appeal." 24 In finding the stockholders' "privilege of appeal" did not vest the
stockholders "with an indefeasible right to sell the privilege to the disadvantage of all other
stockholders in their class," the Court explained a primary purpose of bankruptcy law is to "bring
about a ratable distribution among creditors of a bankrupt's assets; to protect the creditors from
one another. " 25

Congress did not intend certain stockholders involved in a bankruptcy

reorganization plan to use their appeal rights as a means of increasing their share of the
bankruptcy estate. 26
Unlike the stockholders in Higbee, the Settling Objectors do not have a statutory duty of
good faith to the Class. In a bankruptcy case, every settlement of an appeal necessarily draws
from the bankruptcy estate. In this context, it is fair to say Congress did not intend bankruptcy

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appellants to use their appeal rights to increase their share of the estate at the expense of others
under a reorganization plan.

By contrast, Putative Intervenors do not allege the Settling

Objectors' settlements come from the Settlement Fund, and based on the parties' undisputed
representations Class Counsel paid the proceeds of the side-settlements from their own pockets,
we highly doubt Putative Intervenors could allege otherwise consistent with their Rule ll(b)
obligations. Even though Settling Objectors' successful appeals could have benefited the Class,
they have no statutory duty to the Class when appealing their objections.
Additionally, Putative Intervenors' interest in a larger Settlement Fund created by a
successful appeal does not vest them with an interest in the privately negotiated appeal
settlement proceeds.

Putative Intervenors do not seek to recover the financial gains of a

successfully prosecuted appeal of the objections at issue on behalf of a class, but instead seek to
recover the infinitesimally small portion of the value of the settlements arising from partially
prosecuted appeals. Even assuming Putative Intervenors have an interest in the financial benefits
of a successful appeal, this interest does not plausibly give them an "equitable" interest in the
privately negotiated side-settlements between the Settling Objectors and Class Counsel.
Putative Intervenors' claimed "equitable" interest in the appeal settlements 1s also
speculating the appeals would have been successful. Putative Intervenors, however, make no
showing the Settling Objectors were likely to prevail in their appeals of the objections we
overruled.

Given our earlier rulings on these objections, we would at least expect Putative

Intervenors to demonstrate a plausible likelihood of success demonstrating their legal entitlement
to the side-settlement proceeds. We accordingly find Putative Intervenors do not allege facts
plausibly demonstrating they suffered a concrete injury based on their purported "equitable"
right to the side-settlement proceeds.

7

B. Putative Intervenors do not have standing based on the delay caused by
Settling Objectors' appeals.
Putative Intervenors also claim standing based on the delay damages arising from the
eight-month duration of the Settling Objectors' appeals, which delayed distribution of Settlement
Fund proceeds to the Class. This argument fails because this harm-the delay-is not causally
related to the allegedly wrongful conduct-retention of the side-settlement proceeds.

The

intervenor-Complaint does not include a claim seeking relief for the delay caused by the appeals.
As a practical matter, Settling Objectors' retention of the side-settlement proceeds could not have
caused the delay. Putative lntervenors fail to demonstrate how this delay harm is causally related
to Settling Objectors' allegedly wrongful conduct ofretaining the side-settlement proceeds. Any
challenge to the merits or good faith of arguments on appeal should be raised before the court of
appeals.

III.

Conclusion

The Putative Intervenors do not demonstrate they have Article III standing to assert
claims for unjust enrichment, quantum meruit, and inequitable conduct. We accordingly deny

.
.
.
the Putat1ve Intervenors , motion to intervene. 21
1

ECF Doc. No. 184-85. Class Counsel is Pietragallo Gordon Alfano Bosick & Raspanti, LLP,
Mansour Gavin L.P.A., Robert Mansour, Esq., and Edward J. Westlow, Esq.
2

ECF Doc. No. 263-2, at pp. 10-11.

3

ECF Doc. No. 263-2, i!i! 34, 42, 51.

4

Town of Chester v. Laroe Estates, Inc., No. 16-605, 2017 WL 2407473, at *5 (U.S. June 5,
2017).
5

ECF Doc. No. 285.

6

Devlin v. Scardelletti, 536 U.S. 1, 6-7 (2002) (citing Lujan v. Defenders of Wildlife, 504 U.S.
555 (1992)).
8

7

Town of Chester, 2017 WL 2407473, at *5 (quoting Davis v. Federal Election Comm 'n, 554
U.S. 724, 734 (2008)).

9

Finkelman v. Nat'! Football League, 810 F.3d 187, 194 (3d Cir. 2016).

IO

Id

II

Id

12

Id (footnotes and brackets omitted).

13

Id. (quoting Amidax Trading Grp. v. S. WI.F. T. SCRL, 671F.3d140, 145 (2d Cir. 2011)).

14

Id. (citing In re Schering Plough Corp. Intron/Temodar Consumer Class Action, 678 F.3d 235,
248 (3d Cir. 2012)).
15

In re Horizon Healthcare Servs. Inc. Data Breach Litig., 846 F.3d at 633 (quoting Lujan, 504
U.S. at 560-61); Nichols v. City of Rehoboth Beach, 836 F.3d 275, 279 (3d Cir. 2016) (quoting
Lujan, 504 U.S. at 560-61).
16

Int'! Primate Prot. League v. Administrators a/Tulane Educ. Fund, 500 U.S. 72, 77 (1991).

17

Id. (quoting Allen v. Wright, 468 U.S. 737, 752 (1984)) (emphasis in original).

18

Young v. Higbee, 324 U.S. 204 (1945).

19

Id. at 205-07.

20

Id. at 207.

21

Id

22

Id at 207-08.

23

Id. at 212.

24

Id.

25

Id. at 210.

26

Id. at 210-13.

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27

In denying Putative Intervenors' motion to intervene, we do not opine whether a Class member
may timely move under Rule 23 to challenge a Class member's duplicative payment on a claim,
or to challenge the reasonableness of Class Counsel's future fee application which, as agreed,
will include the amount paid by Class Counsel to the Settling Objectors from the award of a
further attorneys' fees unless Class Counsel paid the Settling Objectors from other sources. We
also do not opine on the effect of Class Counsel's payment if made in exchange for an
assignment of settlement proceeds.

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