55 F.4th 340
1st Cir.2022Background
- HelloFresh ran a 2015 "win back" telemarketing campaign. Plaintiffs alleged three TCPA claims from those calls: Auto‑Dialer (§227(b)), National Do‑Not‑Call (NDNC) (§227(c)), and Internal Do‑Not‑Call (IDNC) (§227(c)).
- Parties negotiated a global settlement: HelloFresh agreed to a $14 million common fund; the court preliminarily certified a single settlement class of ~4.8 million persons and approved notice. ~100,000 valid claims were filed.
- Settlement initially provided about $89 per claimant (later increased to $100), attorneys’ fees, and incentive awards to named plaintiffs; three objections were filed, the principal one by Sarah McDonald.
- McDonald argued NDNC claimants had materially stronger claims (thus needed separate counsel) and that joint counsel and equal per‑person payments unfairly diluted high‑value claims; she also objected to incentive payments.
- The district court approved an amended settlement addressing arbitration concerns and raising per‑claimant payments; McDonald appealed. The First Circuit vacated approval and remanded, but held incentive awards are not categorically prohibited under Rule 23(e).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Adequacy of representation for materially different subgroups | McDonald: NDNC claimants’ interests were materially stronger and required separate counsel to negotiate allocation of a common fund | HelloFresh/Plaintiffs: groups overlap; defenses make all claims similarly risky; Duguid timing less relevant | Vacated approval: single‑counsel settlement lacked structural assurance; separate representation (or clear record showing parity) is required when claim values differ materially |
| Fairness of equal per‑person allocation of common fund | McDonald: equal payments sold out higher‑value claimants (e.g., NDNC) | Plaintiffs: arm’s‑length negotiation occurred; court can assess values | Court cannot reliably approve equal allocation here because claim elements and defenses differ and relative values are not clear‑cut |
| Effect of Facebook v. Duguid on Auto‑Dialer claim valuation | McDonald: Duguid likely extinguishes many Auto‑Dialer claims, reducing their value relative to NDNC claims | HelloFresh: settlement predates Duguid; company still paid $14M so values are roughly constant | Duguid makes Auto‑Dialer claims appear weak on record; this supports need for separate negotiation or clearer valuation |
| Legality and conflict risk of incentive awards to named plaintiffs | McDonald: historical Supreme Court precedent (Greenough/Pettus) bars such payments; they create conflicts | Plaintiffs/HelloFresh: incentive awards are common, not categorically barred, and are reviewed under Rule 23(e) for fairness | Incentive awards are not categorically prohibited; permissible if consistent with Rule 23(e) and not shown to create actual conflict in the record |
Key Cases Cited
- Cohen v. Brown Univ., 16 F.4th 935 (1st Cir. 2021) (standard for reviewing settlement class adequacy and intra‑class conflicts)
- Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997) (structural assurance of fair representation in class settlements)
- Facebook, Inc. v. Duguid, 141 S. Ct. 1163 (2021) (defining automatic telephone dialing system under the TCPA)
- In re Literary Works in Elec. Databases Copyright Litig., 654 F.3d 242 (2d Cir. 2011) (requiring subclasses where claim categories differ materially and independent counsel is needed)
- Matamoros v. Starbucks Corp., 699 F.3d 129 (1st Cir. 2012) (adequacy standard: conflicts must be fundamental to the suit)
- Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999) (noting need for identifiable subclasses where interests diverge)
- Internal Imp. Fund Trs. v. Greenough, 105 U.S. 527 (1881) (historical precedent on payments from a common fund to representative plaintiffs)
- In re Cont'l Ill. Sec. Litig., 962 F.2d 566 (7th Cir. 1992) (permitting scrutiny and limits on incentive awards)
- Melito v. Experian Mktg. Sols., Inc., 923 F.3d 85 (2d Cir. 2019) (declining to adopt categorical ban on incentive awards)
- Johnson v. NPAS Sols., LLC, 975 F.3d 1244 (11th Cir. 2020) (recent court grappling with Greenough and incentive awards)