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Monday, October 14, 2019

$4.3 million FACTA class certified in St. Clair Co. – after New York court expressed doubts – reversed at Fifth District

State Court

By Record News | Sep 9, 2019


Lopinot

MOUNT VERNON – Former St. Clair County circuit judge Vincent Lopinot failed to ask necessary questions before approving settlement of a class action against Body Shop stores, Fifth District appellate judges ruled on Sept. 6. 

“The trial court’s acceptance of the settlement agreement without any inquiry or apparent analysis was an abuse of discretion,” Justice Judy Cates wrote. “A judge asked to approve the settlement of a class action must not assume a passive role when there is a genuine conflict of interest, as present here.”

Cates found the record devoid of facts to permit a reasoned judgment that the settlement was fair, reasonable, and in the best interests of all affected.

She wrote that in accepting bald representations of both parties, Lopinot abdicated his role as guardian of the interests of absent class members. Lopinot retired in December.

Justices Randy Moore and John Barberis concurred.

They remanded the settlement for scrutiny by another St. Clair County judge, which Cates described as a formidable task.

Shopper Henry Lee originally sued Body Shop at U.S. district court in New York City in 2016, alleging violation of the Fair and Accurate Credit Transactions Act on credit transactions.

His lawyer, Robert Lash of New York City, argued that the law allowed retailers to show five digits on a receipt.

He claimed Body Shop receipts showed the first six digits and the last four, and he sought certification of a class with damages from $100 to $1,000 per violation for willful noncompliance.

In January 2017, Lee and Body Shop moved to approve a settlement providing shoppers with $12 gift cards.

They proposed a class period running from Feb. 12, 2011, to the date of certification for the settlement class.

Their agreement added to the class all members of Body Shop’s “Love Your Body” loyalty program, for a period from April 23, 2014, to Jan. 9, 2016.

They offered a class notice, proposing to send it directly to loyalty shoppers, and proposed to reach the rest of the class through USA Today and a website.

District Judge Laura Swain granted preliminary approval on March 21, 2017, applying that date as the end of the class period.

Swain ordered heavy revision of the class notice and slashed through it with a pen like a professor with a slow student.

According to the Fifth District opinion, Swain wrote in the margins, “Please explain in plain English,” and “Please provide exact language to be used to refer to the form on the website.”

Twice she asked for a specific date instead of 45 days from initial notice.

She added 15 words to a description of the privacy protection law.

The lawyers followed her directions, and the class received notice.

Class member Jenna Dickenson retained Eric Isaacson of La Jolla, Calif., to object to the settlement.

Isaacson claimed Lee lacked standing because he suffered no concrete injury.

He cited a U.S. Supreme Court decision from 2016, holding that a privacy protection claim in a federal court must allege a concrete injury.

In August 2017, Swain ordered Lee to show why she shouldn’t dismiss the action for lack of jurisdiction in light of that decision.

Lash responded that Lee had standing and Swain had jurisdiction, but he asked for leave to substitute a class representative if she disagreed.

On Sept. 17, 2017, in a separate case, Second Circuit appellate judges ruled that revealing the first six digits did not create a risk sufficient to confer standing. They found the first six digits related to the issuing institution.

On Sept. 22, 2017, Swain ordered Lee to show why she shouldn’t take judicial notice of the opinion.

Swain wrote that it further called his standing into question. She also ordered him to show why substitution of a plaintiff wouldn’t be futile.

Lash chose to keep his plaintiff and substitute the court.

On Oct. 16, 2017, he asked Swain to dismiss the action without prejudice.

Lash then sued Body Shop for Lee in St. Clair County the next day, and moved for preliminary approval of the settlement a day after that.

He wrote that sending another notice wasn’t necessary, and he proposed to use the website to notify the class of the Illinois action.

Lash didn’t attach the record from Swain’s court, except for a declaration of settlement administrator Nancy Baker.

According to Baker, Body Shop provided addresses for 392,000 customers and direct notice was provided to 349,640 class members.

Baker wrote that the website was visited more than 46,000 times, and 20,438 claims had been filed through July 21, 2017. She found 14,714 valid claims.

He proposed a class period from Feb. 12, 2011, to the date of class certification.

Lopinot certified a settlement class and granted preliminary approval on Nov. 7, 2017, fixing that date as the end of the class period.

On Nov. 22, 2017, Lee moved for approval of $500,000 in fees.

He multiplied the number of class members by $12, and wrote that the total settlement benefit could reach $4,372,248.

Class member Dickenson objected on Dec. 1, claiming Lee fled federal court because he suffered no concrete injury.

Her lawyer Isaacson wrote that notice in federal court was no substitute for notice of proceedings in circuit court.

At a hearing on Dec. 20, 2017, Lopinot asked Isaacson how final approval would harm Dickenson.

Isaacson said the settlement released Body Shop from liability for actual damages should any class member suffer identity theft or fraud.

He called the settlement a reverse auction, claiming it would preclude two identical actions with more skilled and experienced counsel.

Lopinot said he heard enough, and he approved the settlement.

In the process he added more than seven months to the class period.

Justice Cates wrote, “This may have represented an oversight on the part of class counsel, but we cannot substitute supposition for the facts set forth in the record. There is simply no indication that anyone recognized that the settlement period was longer in the state court action.”

Cates wrote that class members added from March to November received no notice and had no opportunity to opt out or object.

“Notice is the cornerstone of class action practice,” she wrote.

She wrote that in the absence of adequate notice, absent class members might release claims they aren’t aware are being litigated.

“Inadequate notice also raises the risk that the rights of absent class members may be compromised without their consent, by representatives whom they have not selected,” she wrote.

Given the circumstances, due process required new notice to absent class members so they can protect their interests, she wrote.

She also wrote that inclusion of loyalty program members raised red flags, as they received direct notice, didn’t have to file a claim form, and received automatic activation codes.

She wrote that counsel didn’t inform Lopinot of the reason for creating a subclass and didn’t offer any submission that would have allowed him to determine whether Lee could represent each class.

A judge presented with a settlement agreement must raise questions and demand answers, particularly where there are indications that it might offend basic notions of due process, she wrote.

Regarding coupon settlements, she wrote they provide scant compensation, are unlikely to deter corporate misbehavior, and compel class members to continue relationships with offending parties.

On the fee arrangement, she wrote that it is referred to as clear sailing, because a defendant agrees not to oppose an award up to a certain amount.

“The concern with such provisions is that the separate negotiation of attorney fees presents the opportunity for the attorneys to trade relief to the class for a high fee for themselves,” she wrote.

She wrote that Lee had access to a multitude of documents that could have assisted Lopinot in his determination.

“None of these documents were filed in the record,” she wrote. “Lee was asking the circuit court to blindly adopt a preliminary order of the federal court, without conducting a hearing or taking any evidence.

“On remand, the parties and the circuit court must begin anew.”

She wrote that the first issue is creation of a notice plan, and that the parties must explain why they created the loyalty program subclass with a different class period.

She wrote that the court must examine the negotiations that led to settlement.

“Clearly, the circumstances that gave rise to the filing of this case in St. Clair County must also be considered so that the circuit court is confident that this case is not in state court as a result of a reverse auction between the parties,” she wrote.

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