Amber Gascho v. Global Fitness Holdings, LLC
822 F.3d 269
6th Cir.2016Background
- Plaintiffs sued Global Fitness on behalf of ~606,000 class members alleging improper fees (cancellation, facility maintenance/FIF, personal training) for contracts 2006–2012; case removed to federal court and settled in 2013.
- Settlement created three subclasses (FIF, Gym Cancel, Personal Training Cancel); claimants received $5 plus subclass amounts (max $75); claims-made process required filing a short form.
- Claims administrator reported ~55,600 claims filed, 49,808 approved, total paid ~$1,593,240 (≈8.2% participation); average claimant recovery ≈$32.
- Class counsel agreed (and sought court approval) to $2.39 million in fees & costs; settlement included a clear‑sailing clause (defendant won’t oppose fee request up to that amount) and a kicker (any unpaid portion reverts to defendant).
- Two objectors (Blackman; Zik objectors) argued the settlement was unfair: fees disproportionate to actual payments, burdensome claims process, clear‑sailing/kicker evidence of collusion; Ziks also claimed inadequate treatment of Kentucky (KHSA) and early‑contract claimants.
- Magistrate recommended approval (lodestar cross‑checked by percentage‑of‑fund using a midpoint valuation of $8.55M between available fund and actual payout); district court adopted R&R; Sixth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the settlement was fair under Rule 23(e) given low claims rate and fee allocation | Objectors: fee ($2.39M) is disproportionate to actual class payout (~$1.59M); settlement gives preferential treatment to counsel (invoking Pampers/Bluetooth) | Plaintiffs: settlement resulted from extensive litigation, created substantial potential benefit (if claimed), and is reasonably compensated; court may value the fund holistically | Court affirmed district court: no abuse of discretion. Court declined per se rule requiring valuation only by actual payouts and upheld case‑by‑case valuation (midpoint used here was within discretion) |
| Proper method to calculate attorney fees (lodestar vs. percentage of fund; how to value benefit) | Objectors: percentage‑of‑fund (if used) must be based on actual amounts paid to claimants; lodestar unsupported because of inadequate billing detail | Plaintiffs: district court permissibly used lodestar (with cross‑check); Boeing supports valuing the fund created by counsel’s work (including latent claims) | Court: district court may choose lodestar and may cross‑check using a discretionary valuation of benefit (including potential/common fund); affirmed fee award as within discretion despite close record on billing detail |
| Validity of claims‑made process vs. direct distribution | Objectors: claims process predictably yields low participation and withholds benefit from class; direct mailing would be better | Plaintiffs: contact data was old/incomplete, administrator used robust multi‑channel notice, claims form simple; direct mailing would have produced undeliverable checks and higher admin costs | Court: claims process was reasonable given stale/incomplete data and typical response rates; no abuse of discretion in approving it |
| Effect of clear‑sailing and kicker clauses on settlement fairness | Objectors: clauses evidence possible collusion/self‑dealing because they insulate fee and revert unpaid fees to defendant | Plaintiffs: clauses permissible; district court scrutinized fees and benefits; court could reject settlement if imbalance existed | Court: clauses not unlawful per se; heightened scrutiny applied but fee/settlement found reasonable; clauses did not render settlement unfair here |
Key Cases Cited
- In re Dry Max Pampers Litig., 724 F.3d 713 (6th Cir. 2013) (rejected settlement that gave disproportionate benefit to counsel and negligible relief to class)
- In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935 (9th Cir. 2011) (identified signs of collusion: disproportionate counsel recovery, clear‑sailing, and kicker clauses)
- Boeing Co. v. Van Gemert, 444 U.S. 472 (U.S. 1980) (holding that class members’ latent right to claim from a fund created by counsel is a benefit that may be considered in fee awards)
- Moulton v. U.S. Steel Corp., 581 F.3d 344 (6th Cir. 2009) (factors for fee determination and need for district court explanation of chosen method)
- Rawlings v. Prudential‑Bache Properties, Inc., 9 F.3d 513 (6th Cir. 1993) (discussing lodestar vs. percentage‑of‑fund methods and their relative strengths)
- Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423 (2d Cir. 2007) (approving fee based on total funds made available rather than only amount disbursed)
- Waters v. Int’l Precious Metals Corp., 190 F.3d 1291 (11th Cir. 1999) (upheld fee award based on total fund where unclaimed funds would revert to defendant)
- Pearson v. NBTY, Inc., 772 F.3d 778 (7th Cir. 2014) (rejected using total available fund where claims‑made payout was tiny; held ratio should use fees versus fees plus actual class receipts)
- In re Baby Prods. Antitrust Litig., 708 F.3d 163 (3d Cir. 2013) (case‑by‑case approach to valuing cy pres/unclaimed funds; courts may reduce fees where counsel failed to prioritize direct relief)