It’s None of Your Business: Sixth Circuit Says Arizona Lacks Article III Standing to Intervene to Challenge a Class SettlementDoes a state, whose citizens are among the absent class members in a class action settlement, have Article III standing to challenge the supposed unfairness of the settlement? In Chapman v. Tristar Products, Inc., the Sixth Circuit said no.

The Trial Court’s Decision

Chapman involved a product liability class action against the manufacturer of allegedly defective lids for pressure cookers, which may have exposed users to possible injury. Some of the plaintiffs’ class claims were dismissed, but others survived. The trial court certified three state classes (none of which included Arizona residents), and the case proceeded to trial.

During trial, the parties agreed to a settlement of the case on a global basis with a nationwide class (which did include Arizona residents). The settlement entitled class members to receive a coupon for purchase of a different Tristar product and a warranty extension, provided they watched a safety video; the trial court valued this relief at approximately $1 million. The defendant agreed not to oppose a request for attorneys’ fees and expenses (not to exceed $2.5 million) by class counsel; the trial court ultimately approved an award of just under $2 million.

At the fairness hearing, the State of Arizona appeared as an amicus, arguing that the proposed settlement was unfair to the plaintiff class. Arizona did not argue that the settlement compensation was unfair or unreasonable in total, but instead that the division of the settlement proceeds resulted in too much being paid to class counsel and too little to class members. When the trial court indicated its willingness to approve the settlement (with some modifications), Arizona sought to intervene under Fed. R. Civ. P. 24, and alternatively requested that the court recognize it as an objector to the settlement (in either case to preserve a right to appeal). The trial court denied both requests, holding that Arizona lacked Article III standing, and the state appealed.

The Sixth Circuit’s Decision

A unanimous panel of the Sixth Circuit dismissed Arizona’s appeal for lack of jurisdiction, upholding the trial court’s finding that the state lacked Article III standing. Arizona’s asserted three bases for standing: (1) that it had standing under the parens patriae doctrine to assert the rights of its individual citizens; (2) that CAFA conferred standing on it; and (3) that it possessed a “participatory interest” in class action settlement proceedings sufficient to quicken standing. The appeal court rejected all three.

Under the parens patriae doctrine, a state must assert an injury to a “quasi-sovereign interest” in order to have standing, which necessitates an interest apart from the interest of “particular private parties.” The appeals court concluded that Arizona’s objections to the settlement were indistinguishable from the objections individual Arizonans might raise and did not implicate any “quasi-sovereign interests” of the state.

As to CAFA, the Sixth Circuit held that while the statute does require parties to notify state attorneys general of proposed settlements and requires a period of at least 90 days after such notice before any final approval of a settlement, nothing in CAFA grants a state any right to intervene. The appeals court noted that while portions of CAFA’s legislative history might support Arizona’s position, the statute itself explicitly declines to “expand the authority of … Federal or State officials.” Thus, said the court, it would not “resort to legislative history to cloud a statutory text that is clear.”

Arizona’s final argument, that its regular participation in class action settlement proceedings on behalf of its citizens created a right to intervene, fared no better. Even if such an interest qualified as a “substantial legal interest” for purposes of intervention, said the court, the state nonetheless failed to show an injury-in-fact to confer Article III standing. Arizona’s interest in participating made it no more than a “concerned bystander” to the proceedings; the state’s disagreement with the settlement on policy grounds resulted in no concrete or particularized harm that would support standing.


  • The outcome in Tristar accords with generally accepted standing principles. Arizona’s arguments on parens patriae standing were, as a matter of optics, likely weakened by the fact that no Arizona consumer objected to the settlement, as well as the state’s acknowledgement that it had no interest in representing Arizona consumers in the litigation apart from its efforts to have the settlement disapproved. And other courts, for example the district courts in the Deepwater Horizon and Budeprion XL litigations, have similarly concluded that CAFA does not give Article III standing for state officials. (This is not to suggest that CAFA’s mandatory notice provisions to federal and state authorities need not be followed; failure to do so can still be fatal to settlement approval.)
  • Tristar does not, however, imply that state and federal regulators will lose enthusiasm for objecting to coupon-based consumer class settlements going forward; they doubtless will continue to scrutinize such settlements closely. Still, Tristar affords some comfort that regulators will have a difficult time taking on the status and rights of parties in objecting to private class action settlements (such as the potential right to engage in discovery and motion practice, and the right to appeal).
  • The case displays some of the potential perils of a coupon-based settlement, which here attracted challenges from not just Arizona, but 17 other attorneys general and the U.S. Department of Justice. The coupon component of the Tristar settlement required class members to apply separately for the coupons and then use them within 90 days. And the coupons offered only a discount and an extended warranty on the purchase of additional Tristar products. The coupons were not transferable, could not be converted to cash through a secondary market, and (at least according to the DOJ in its appellate brief) less than one-half of one percent of class members even requested a coupon. A review of the district court’s approval order seems more focused on weaknesses in the class’ claims at trial than value of the settlement for the class.
  • Even though the Sixth Circuit did not reach the issue given its jurisdictional ruling, we note a developing circuit split on how class counsel fees may be calculated in a coupon-based class settlement. The Ninth Circuit has held that only § 1712(a) of CAFA applies to such settlements, that attorney’s fees must be determined as a percentage of the value of the coupons redeemed by the class, and that a lodestar method of calculation is unavailable. The Seventh and Eighth Circuits, conversely, have held that § 1712 is permissive and allows for use of the lodestar method, and that only when the court uses the percentage-of-fund method must that fund be calculated based on the value of the coupons actually received.

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 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.