Spam or Class Action Refund? Consumers Can’t TellTwo recent studies by the FTC show that some methods for notifying potential class members of class action settlements are not as effective as courts and counsel might believe. In September, the FTC published a report on two studies it conducted surrounding the effectiveness of combined class certification and settlement notices.

The Administrator Study compared characteristics of class action settlement administration, like notice methods and compensation amounts, to the settlement claim filing and payout rates. The Notice Study tested variations of email notices among study participants to learn what types of approaches were more successful.

The Administrator Study

The Administrator Study looked at data from 149 consumer class action settlements. These settlements varied in whether they required notice recipients to file a claim to be paid. Across the class actions, the median number of notice recipients was 87,195. The study evaluated the method of notice and the content of the notice to determine if any aspects of class action administration would correspond with increased claims rates and payout rates.

Method of Notice

The overall claims rate was fairly low across the settlements reviewed, with less than 10% of people contacted claiming an award. This rate changed based on what method of notice was used.

The claims rate when class action settlements used a notice packet was about 10%. The claims rate for postcards was 6%. However, when postcards included a detachable claim form, the claims rate rose to 10%.

The rate when using email was the lowest, with only 3% of those contacted making a claim. This low claims rate is in part explained by the facts that only 14% of people who received the email notices opened them and only 20% of those who opened the notices clicked on the associated hyperlink.

There was no difference in claims rates between publication notices and direct notices. Also, when notice was attempted more than once, the claims rate almost doubled.

Notice Content

Several characteristics of the notice’s content corresponded with an increased claims rate.  More people claimed a settlement award when the notice used plain English to explain the potential payment and such language was easy to see. Further, inclusion of a claims form in the notice increased the claims rate, but no specific type of form had a higher rate of claims. The length of the notice did not affect the rate of claims.

Amount of Settlement Compensation

Surprisingly, the amount of settlement compensation did not affect the rate of claims. The only factor the amount of compensation affected was the rate of check cashing. When individuals received more money, they were more likely to cash the checks.

The Notice Study

The Notice Study used 8,000 participant responses from a panel of typical internet and email users. The study tested a combination of email sender addresses, subject lines and email body formats to determine which features had an effect on the participant’s likelihood of opening the email and understanding it.

Overall, most participants thought the notice email was an ad and did not understand the process to make a claim. Those who reported being unlikely to open the email thought it was spam or an ad.

The Sender Email Address

Less than half of participants reported they would open the email irrespective of the sender. Even so, slightly more participants reported being willing to open the email from the sender address classaction@uscourts.gov than the senders Sonoro and SonoroJetSettlement.

The Email Subject Line

Study participants were 4% more likely to open the email notice if the subject did not reference a class action or the amount of compensation. Plus, more people thought the email was an advertisement when the subject line included a specific refund amount.

The subject line “Notice of Refund” received the best open rate, with 53% of survey participants choosing to open it. However, the comprehension rate with this subject line was not as high as “Lavin v. Sonoro Technologies Class Action settlement” and “Notice of Class Action Settlement.”

Email Body

When considering the body of the email, the traditional long-form settlement email notice performed best. Study participants were more likely to understand the email, know a refund was likely, and believe refund requirements were easy with the long format.

Study participants were less likely to believe an email notice was legitimate if it was short. The presence of the court seal in the body of the email also added to its effectiveness. The seal made participants 3% more likely to understand the next steps required and believe that a refund was probable.

Practice Pointers for Class Notice Campaigns

Although there will invariably be substantial limits on member participation in class settlements, the FTC’s studies suggest certain notice practices can increase that participation (some of which are intuitive and some not):

  • Consider traditional notice packets instead of email notice if direct mail notice is possible.
  • Use plain English to explain that there is a potential payment and to explain the claims process. Make this information easy to find for the reader.
  • Consider including a claim form with the notice.
  • If using email notice:
    • Do not include the potential refund amount in the subject line.
    • The subject line “Notice of Refund” may be more likely to be opened.
    • Use the traditional long-form settlement email format.
    • If possible, include the court seal.

While it is speculative to say the FTC studies will provide some type of best practices blueprint for class notice going forward, it makes sense to keep the studies and their results in mind as you are planning settlement notice for the class. After all, potential objectors and their counsel likely will.

“Who’s Gonna Pay for All This?” Can Prevailing Litigants Have Their E-discovery Charges Taxed as Costs Against Their Losing Opponents?Parties in today’s complex litigation world, and their counsel, need no reminder of the ubiquity of electronic discovery and the tremendous expense it occasions. Even before 2006, when “electronically stored information” (ESI) was expressly added to the federal rules, parties have had discovery obligations regarding electronic documents and data. E-discovery, and the costs associated with it, are not going away. (By some estimates, the volume of data existing in the world doubles every two years.) It is also increasingly common for case management orders to require production ESI in particular formats, with particular metadata fields, with the capability of being searched electronically – all of which entail increased expense, frequently from e-discovery vendors.

So, the question presents itself: To what extent can winning litigants have their e-discovery expenditures taxed as costs to their opponents? The short answer is, a lot less than a winning litigant would want, but perhaps more than a winning litigant might think.

Taxable Costs – The Rules 

Federal Rule 54(d)(1) provides that “[u]nless a federal statute, these rules, or court order provides otherwise, costs – other than attorney’s fees – should be allowed to the prevailing party.” The rule further provides that the clerk of court “may tax costs on 14 days’ notice.” 28 U.S.C. § 1920 in turn defines “costs” for purposes of Rule 54 and sets forth the items that the clerk may properly tax. Relevant to e-discovery, the statute also allows taxation of “fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case” (§ 1920(4)). This subsection of the statute is the battlefield for e-discovery cost fights.

What the Courts Are Saying

Six of the federal courts of appeal have interpreted § 1920(4) in the e-discovery context with varying results. The Third Circuit’s opinion in Race Tires America v. Hoosier Racing Tire Corp. was one of the earliest.  There, the district court’s taxation of more than $350,000 in e-discovery expenses was reversed by the appeals court. The Third Circuit’s central holding was that § 1920(4) covers making copies only, so expenses related to tasks that aren’t directed to copying or its “functional equivalent” cannot be taxed under the statute. This ruling invalidated charges for storage, searching, indexing, and deduplication of data – even for documents ultimately produced in the case. However, charges for converting data from native to TIFF format, scanning of documents to make digital duplicates, and reproduction of media from CDs to DVDs were found to be the functional equivalent of copying and therefore taxable. The court also held that “equitable considerations” – for example, that e-discovery vendors’ services are “specialized” and indispensable to the production of ESI – are not relevant, being “untethered from the statutory mooring” of § 1920. The Fourth and Ninth Circuits have taken similarly restrictive views.

The Federal Circuit adopted a slightly different analysis in CBT Flint Partners, LLC v. Return Path, Inc. It distinguished between “preparatory or ancillary steps” in the ESI production (not taxable) and steps “associated with the creation of an image and preservation of metadata” (taxable). The tasks necessary to convert data to a uniform production format (such as TIFF), performing format conversions, and copying the converted files to production media would all, in the court’s view, be a compensable part of “making copies.” The same court several years later – albeit in a nonprecedential opinion – observed that if an agreement between the parties requires expenditures for particular tasks necessary to conform the production to the parties’ agreement, such expenditures can fall within the ambit of § 1920.

Practice Pointers and Takeaways

  • The law is not settled yet. While most courts tend to distinguish between tasks that are a part of “copying” (taxable) and mere “preliminary steps” to copying (not taxable), it’s not yet clear what tasks fall into which bucket. Courts have disagreed, for example, on the compensability of expenses relating to optical character recognition, supplying confidentiality designations and bates numbering, and extraction and preservation of metadata. Consider the law in your circuit and district carefully when considering a cost request for e-discovery expenses.
  • That said, some costs are pretty clearly out. No court to date has allowed expenses for data hosting or storage (at least in the absence of an agreement between the parties that such costs could be shifted), nor has any court allowed recovery of ESI costs that didn’t relate to documents assembled and produced for one’s litigation opponent (in other words, tasks undertaken for counsel’s own convenience in litigating the case will not be recoverable under § 1920). And the law is also clear thus far that attorneys’ fees incurred in working with ESI are not taxable.
  • Vendor billing clarity is key. A little bit of preparation on the front end can make a big difference on compensability down the road. Have a clear understanding with the e-discovery vendor at the outset as to how it will bill for its services. The vendor must provide time and cost entries that detail exactly the services being provided; both overgeneralization and multi-task entries (the equivalent in this context of “block billing”) are likely to lead to invoices being non-taxable. Ensure that the vendor avoids technical jargon in its billing descriptions; multiple courts have rejected charges because the language used did not convey what work had been done in an understandable way. Keep in mind that the “audience” for these billing submissions is going to be court clerks, the district court, and its law clerks, none of whom are likely to have the same level of technical expertise on e-discovery processes that your e-discovery vendor does.
  • Case management orders and ESI protocols can impact taxability. As noted above, one court of appeals has held that if an ESI protocol requires production in a certain way, the steps necessary to comply with the protocol can be taxed as costs in favor of the prevailing party. Some district courts have followed. On the other hand, it has been held that the parties can by agreement remove from the scope of § 1920 expenses that which would have otherwise been taxable (for example, by agreeing that each side will bear all its own ESI costs). How the case management order or ESI agreement is worded can have definitive impact in an ESI cost fight, so foresight and care in drafting are essential.
  • Keep local rules in mind. Many districts have local rules that can impact ESI discovery in general, the costs associated with it, and the timing for filing cost bills.
  • Proportionality and other Rule 26 issues are not likely to matter much when it comes to taxation of costs. While the federal rules allow for cost shifting in various contexts – notably through the burden and proportionality concepts under Rule 26 – such concepts are not in play under Rule 54(d). An attempt to shift discovery costs as disproportionate or burdensome should be made by objection at the discovery stage, rather than in connection with a motion to tax costs.

One Spam Text Does Not Confer Standing in the Eleventh CircuitOne unwanted text message does not confer standing in federal court in the Eleventh Circuit — so holds the court in Salcedo v. Hanna. The case confirms that one text message is qualitatively, and jurisprudentially, different from the kind of intrusions that give rise to an Article III injury-in-fact.

The plaintiff in Salcedo claimed that he received a single unsolicited text message for a discount on legal services from his former lawyer. He brought a putative TCPA class action against the lawyer and his firm, and the defendants moved to dismiss for lack of standing. Even though the district court denied the motion, it certified its order for interlocutory appeal under 28 U.S.C. § 1292(b), and the Eleventh Circuit — which, in our experience, takes very, very few discretionary interlocutory appeals — granted the defendants’ petition for review.

The Eleventh Circuit reversed, finding that receiving a text message “is not the kind of harm that constitutes an injury in fact.” It analogized “[t]he chirp, buzz, or blink of a cell phone receiving a text message” to “walking down a busy sidewalk and having a flyer briefly waived in one’s face. Annoying, perhaps, but not the basis for invoking the jurisdiction of the federal courts.” The court also distinguished junk fax cases, noting that a junk fax ties up a fax machine for “a minute or so” and imposes a tangible cost for printing the fax. Texts, on the other hand, cost nothing: “receiving a text message uses no paper, ink, or toner” and doesn’t preclude receiving other messages, texts or phone calls at the same time. While some recipients may have to pay a fee per text message received, the plaintiff did not allege that he paid any such fee. As a result, “receiving a fax message is qualitatively different from receiving a text message.”

The court also looked to Congress’s intent to support its conclusion: “We first note what Congress has said in the TCPA’s provisions about harms from telemarketing via text message generally: nothing.” It concluded that “congressional silence is a poor basis for extending federal jurisdiction to new types of harm” and distinguished text messages from unwanted telemarketing phone calls. For the Eleventh Circuit, a received text that may cause a brief alert to sound on your phone is not the same as a clanging telephone that disturbs your domestic tranquility.

The over-arching distinction that the court drew is that text messages are qualitatively different from unwanted faxes or phone calls. The word “qualitative” appears five times, and the last heading before the opinion’s conclusion is “quality, not quantity.” This quality/quantity distinction defies simple explanation. While the court memorably stated that “Article III standing is not a ‘You must be this tall to ride’ measuring stick,” much of the analysis focuses on how receiving a single text message imposes less harm than other kinds of occurrences that the Eleventh Circuit has found to confer standing.

We’d caution against bestowing landmark status on Salcedo, at least as to subject matter jurisdiction. The result is obviously a good one for defendants facing TCPA liability. But that result draws heavily on the pleaded facts of the case, and plaintiffs’ lawyers will certainly try pleading around it. It may be that sharper allegations of harm will at least let a plaintiff survive a Rule 12(b)(1) challenge to a complaint, and we’ll have to wait for the next case to see.

Salcedo is more likely to help companies facing TCPA liability at the class certification stage. The more specific allegations of harm required to create standing can only make class certification more difficult, as the unique harm facing the class representative may not be shared by the putative class as a whole — something we have previously explored for post-Spokeo standing challenges generally.

Two more things to watch: the Eleventh Circuit highlighted its disagreement with the Ninth Circuit’s decision in Van Patten v. Vertical Fitness Group, LLC, 847 F.3d 1037 (9th Cir. 2017). Under Van Patten, in the Ninth Circuit, a single text message can confer Article III standing, but the Eleventh Circuit called that decision “unpersuasive” and characterized the Ninth Circuit’s reasoning as relying on “broad overgeneralizations.” This budding circuit split invites the Supreme Court to grant certiorari at some point, though likely not until other circuits join the competing camps.

In the meantime, we would expect plaintiffs to select forums in the Ninth Circuit instead of the Eleventh Circuit. The Southern District of Florida has long been a hotbed for TCPA class actions, but Salcedo could change the plaintiffs’ bar’s calculus, at least for TCPA claims based on unsolicited texts. Moreover, the Eleventh Circuit’s willingness to grant interlocutory review of this case suggests that the court was looking for an opportunity to address the jurisdictional issues arising from single-text TCPA cases. Such cases present some of the starkest disparities between the lack of harm to the plaintiff and the potential for ruinous consequences for defendants.