Josue Romero v. Provide Commerce, Inc.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

IN RE EASYSAVER REWARDS No. 16-56307
LITIGATION,
D.C. No.
3:09-cv-02094-
JOSUE ROMERO; DEANNA HUNT; BAS-WVG
KIMBERLY KENYON; GINA BAILEY;
ALISSA HERBST; GRANT JENKINS;
BRADLEY BERENTSON; JENNIFER OPINION
LAWLER; DANIEL COX; JONATHAN
WALTER; CHRISTOPHER DICKEY,
Plaintiffs-Appellees,

v.

BRIAN PERRYMAN,
Objector-Appellant,

v.

PROVIDE COMMERCE, INC.; REGENT
GROUP, INC., a California
corporation, DBA Encore Marketing
International; ENCORE MARKETING
INTERNATIONAL, INC., a Delaware
corporation,
Defendants-Appellees.
2 IN RE EASYSAVER REWARDS LITIGATION

Appeal from the United States District Court
for the Southern District of California
Cynthia A. Bashant, District Judge, Presiding

Argued and Submitted May 17, 2018
San Francisco, California

Filed October 3, 2018

Before: N. Randy Smith and Michelle T. Friedland, Circuit
Judges, and Barbara M. G. Lynn, * Chief District Judge.

Opinion by Judge Friedland

SUMMARY **

Class Action / Settlement

The panel vacated the award of attorney’s fees but
otherwise affirmed the district court’s approval of a class
action settlement in an appeal brought by an objecting class
member, challenging the settlement resolving claims that
Provide Commerce, Inc. and Regent Group, Inc. enrolled
consumers in a membership rewards program without their
consent and mishandled their billing information.

*
The Honorable Barbara M. G. Lynn, Chief United States District
Judge for the Northern District of Texas, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
 IN RE EASYSAVER REWARDS LITIGATION 3

The settlement made available $3.5 million to pay
settlement administration costs and refund class members’
enrollment fees, with any remaining funds designated for
three cy pres beneficiaries. The settlement also provided that
each class member would receive a $20 credit that may be
used to purchase additional products from defendants. The
settlement anticipated that class counsel would receive $8.7
million in attorney’s fees.

The panel vacated the fee award because the district
court failed to treat the credits as coupons under the Class
Action Fairness Act when calculating that award. The panel
held that because the district court incorporated the full face
value of the coupons into both its percentage-of-recovery
calculation and lodestar calculation of the attorney’s fee
award, the error required recalculation of the fee award.

The panel held that the district court did not abuse its
discretion in approving the use of cy pres here or in
approving the particular recipients. The panel also held that
the district court did not abuse its discretion in rejecting the
Objector’s two proposed alternatives for distributing the
remaining funds.

Finally, given both the structure of this settlement
agreement and the focus of Objector’s challenges, the panel
held that it was unnecessary to reverse the entire settlement
approval in conjunction with the panel’s vacatur of the fee
award.

COUNSEL

Theodore H. Frank (argued) and Adam E. Schulman,
Competitive Enterprise Institute, Center for Class Action
4 IN RE EASYSAVER REWARDS LITIGATION

Fairness, Washington, D.C., for Objector-Appellant Brian
Perryman.

Bruce Steckler (argued), Steckler Law Group LLP, Dallas,
Texas; Jennie Lee Anderson, Andrus Anderson LLP, San
Francisco, California; James R. Patterson, The Patterson
Law Group, San Diego, California; and Michael Singer,
Cohelan Khoury & Singer, San Diego, California, for
Plaintiffs-Appellees Josue Romero, Deanna Hunt, Kimberly
Kenyon, Gina Bailey, Alissa Herbst, Grant Jenkins, Bradley
Berentson, Jennifer Lawler, Daniel Cox, Jonathan Walker,
and Christopher Dickey.

Leo P. Norton (argued), Michael G. Rhodes, and Michelle
C. Doolin, Cooley LLP, San Diego, California, for
Defendant-Appellee Provide Commerce, Inc.

Myron M. Cherry and Jacie C. Zolna, Myron M. Cherry &
Associates LLC, Chicago, Illinois, for Defendant-Appellee
Regent Group, Inc.

Oramel H. (O.H.) Skinner (argued), Paul N. Watkins, and
Dana R. Vogel, Assistant Attorneys General; Mark
Brnovich, Attorney General; Office of the Arizona Attorney
General, Phoenix, Arizona; for Amici Curiae Thirteen State
Attorneys General.

Wilber H. Boies and Timothy M. Kennedy, McDermott Will
& Emery LLP, Chicago, Illinois; Jessica Mariani,
McDermott Will & Emery LLP, Los Angeles, California;
Robert Kline, McDermott Will & Emery LLP, Miami,
Florida; for Amici Curiae National Legal Aid and Defender
Association, Association of Pro Bono Counsel, Legal Aid
Association of California and 24 of its member
organizations, California Bar Foundation, Equal Rights
 IN RE EASYSAVER REWARDS LITIGATION 5

Advocates, Family and Children’s Law Center, Columbia
Legal Services, Hawaii Justice Foundation, Legal Aid
Center of Southern Nevada, Montana Justice Foundation,
Northwest Immigrant Rights Project, Washoe Legal
Services, and William E. Morris Institute for Justice.

OPINION

FRIEDLAND, Circuit Judge:

In this appeal, an objecting class member challenges the
district court’s approval of a class action settlement
resolving claims that Provide Commerce, Inc. and Regent
Group, Inc. (collectively, “Defendants”) enrolled consumers
in a membership rewards program without their consent and
then mishandled their billing information. The settlement
makes available $3.5 million to pay settlement
administration costs and refund class members’ enrollment
fees, with any remaining funds designated for three cy pres
beneficiaries. The settlement also provides that each class
member will receive a $20 credit that may be used to
purchase additional products from Defendants. It further
anticipates that class counsel will receive $8.7 million in
attorney’s fees. We vacate the fee award because the district
court failed to treat the credits as coupons under the Class
Action Fairness Act (“CAFA”) when calculating that award.
We otherwise affirm.

I.

Provide Commerce, Inc. (“Provide”) operates online
businesses that sell flowers, chocolates, fruit baskets, and
other similar items. According to the Complaint, Plaintiff
Josue Romero and seven other class representatives
(collectively, “Plaintiffs”) purchased items from a Provide
6 IN RE EASYSAVER REWARDS LITIGATION

business and were then presented with a pop-up
advertisement for $15 off another item from the same
website. 1 Clicking the pop-up directed Plaintiffs to a
different website and instructed them to enter their contact
information and click “Accept.” This process (irrespective
of whether Plaintiffs entered their contact information or
clicked “Accept”) enrolled Plaintiffs in Provide’s
membership rewards program. Provide then transmitted
Plaintiffs’ payment information to a separate company,
Regent Group, Inc. (“Regent”), which proceeded to charge
Plaintiffs a $1.95 activation fee and a recurring $14.95
monthly membership fee. Plaintiffs did not consent to
joining the rewards program or, by extension, to having their
data transferred to Regent. Plaintiffs also never received
“the promised coupons, gift codes, or any other savings
benefits.”

In 2009, Plaintiffs filed a putative class action against
Defendants in the Southern District of California, alleging
violations of various state laws arising from Defendants’
operation of their membership rewards program. After more
than two years of litigation, including extensive discovery
and mediation, the parties agreed to settle. The proposed
settlement provided class members with two forms of relief:
monetary reimbursement of membership fees upon
submission of a claim and a $20 credit.

The settlement established a $12.5 million fund from
which Defendants would pay up to $8.7 million in attorney’s
fees; $80,000 in enhancement awards to the named
plaintiffs; and $200,000 in litigation costs. The
approximately $3.5 million remaining would be available to

1
We draw the background facts from Plaintiffs’ Complaint.
Because the case settled, the truth of Plaintiffs’ allegations is not at issue.
 IN RE EASYSAVER REWARDS LITIGATION 7

fund the settlement’s administration costs and to reimburse
class members for their membership fees “on a pro rata basis
up to the full amount owed.” To receive such a refund, class
members had to submit a claim affirming that they had
neither intended to enroll in the program nor used any
program benefits other than the initial discount code. After
the refunds were issued, any remaining funds were to be
distributed as a cy pres award to San Diego State University,
the University of California at San Diego, and the University
of San Diego School of Law “for a chair, professorship,
fellowship, lectureship, seminar series or similar funding,
gift, or donation program . . . regarding internet privacy or
internet data security.”

The settlement also directed Defendants to email every
class member a $20 credit that could be used to purchase
items on Defendants’ websites. Unlike with the refund, class
members were not required to submit a claim to receive the
credit. The credits would be fully transferable, but they
would include a series of restrictions, including that they
would expire one year after their distribution date and could
not be used in the lead-up to Christmas, Valentine’s Day, or
Mother’s Day. The credits also could not be used for same-
day orders, nor could they be combined with other
promotions.

In June 2012, the district court preliminarily approved
the settlement. The parties informed the court that the class
contained approximately 1.3 million consumers who had
been enrolled in the rewards program at some point since
August 2005.

Class members were then notified of the settlement and
given a 135-day period to request a refund, during which
only about 3,000 class members did so. Their submitted
claims requested a total of $225,000 in cash refunds, leaving
8 IN RE EASYSAVER REWARDS LITIGATION

approximately $3 million of the settlement’s cash fund to be
distributed to the cy pres beneficiaries. 2 Separately, class
counsel moved for $8.7 million in fees and $200,000 in
costs. 3

In January 2013, the district court held a final settlement
approval hearing at which class member Brian Perryman
(“Objector”) objected to the settlement. He argued that the
attorney’s fee award did not comply with CAFA’s
requirements for settlements awarding coupons and that the
cy pres award was improper. The court rejected these
objections and issued a final order approving both the
settlement and class counsel’s accompanying fee request.
The district court’s order placed the full settlement value at
$38 million, including $12.5 million for the cash fund and
$25.5 million for the $20 credits to be distributed to the
approximately 1.3 million class members. Objector
appealed, and we vacated and remanded for further
proceedings in light of our decision in In re Online DVD-
Rental Antitrust Litigation (In re Online DVD), 779 F.3d 934
(9th Cir. 2015), which addressed CAFA’s coupon settlement
provisions.

On remand, the district court determined that, under In
re Online DVD, the credits should not be construed as
coupons, and that it was therefore unnecessary to apply
CAFA’s requirements for coupon settlements. In the court’s
view, it was particularly significant that class members had,
by virtue of their inclusion in the class, shown “an interest in
2
The 135-day claims period was later extended, but it appears from
the record and briefing before our court that the number of refund
requests did not significantly increase.
3
Under the settlement agreement, “class counsel” refers to the four
law firms representing Plaintiffs in this case.
 IN RE EASYSAVER REWARDS LITIGATION 9

getting $15.00 off their next purchase” from Defendants.
Considering this factor in conjunction with the holding of In
re Online DVD, the court concluded the “settlement was not
a coupon settlement subject to the strictures of section
1712.”

Again using $38 million as the total value of the
settlement, the court then approved the fee award based on
both percentage-of-recovery and lodestar calculations. 4
Under the percentage-of-recovery method, the court
concluded that an $8.7 million attorney’s fee award was
reasonable because it represented 23% of the settlement
value—below the 25% benchmark typically used in our
circuit. The court then cross-checked the reasonableness of
the award using the lodestar method. Based on declarations
reciting the hours spent by class counsel on this case and
their hourly rates, class counsel’s fees came to
approximately $4.3 million. The court decided that class
counsel’s rates and hours were reasonable and, further, that
a multiplier of two—necessary for the lodestar figure to
match the $8.7 million awarded under the settlement—was
appropriate. As a result, the court reinstated its prior
approval of the settlement and the fee award.

Objector has appealed again to challenge the attorney’s
fee and cy pres awards. With respect to the fee award, he

4
Under the “percentage-of-recovery method,” a fee award is
calculated as a percentage of the settlement fund. In re Bluetooth
Headset Prods. Liab. Litig., 654 F.3d 935, 942 (9th Cir. 2011). By
contrast, the lodestar method entails “multiplying the number of hours
the prevailing party reasonably expended on the litigation . . . by a
reasonable hourly rate.” Id. at 941. The lodestar method then allows the
court to “adjust [the lodestar fee] upward or downward” based on a range
of considerations, chief among them “the benefit obtained for the class.”
Id. at 941–42.
10 IN RE EASYSAVER REWARDS LITIGATION

argues that the district court erred by failing to comply with
CAFA’s requirements for coupon settlements and, relatedly,
that the settlement provides class counsel with a
disproportionate share of the recovery. With respect to the
cy pres award, he contends that cy pres relief is not
appropriate here and that, even if it were, the district court
should have rejected the particular cy pres beneficiaries
chosen in the settlement.

II.

We address Objector’s arguments in turn. We hold that
his challenge to the attorney’s fee award succeeds because
the district court failed to treat the $20 credits as coupons
under CAFA, but we reject his cy pres arguments.

A.

CAFA imposes restrictions on attorney’s fee awards for
class action settlements that provide class members relief in
the form of coupons. See 28 U.S.C. § 1712. Congress
targeted such settlements for heightened scrutiny out of a
concern that the full value of coupons was being used to
support large awards of attorney’s fees regardless of whether
class members had any interest in using the coupons. See S.
Rep. No. 109-14, at 15–20 (2005), reprinted in 2005
U.S.C.C.A.N. 3, 15–20 (listing examples of settlements “in
which most—if not all—of the monetary benefits went to the
class counsel, rather than the class members those attorneys
were supposed to be representing”). More specifically,
Congress was concerned that when coupons that class
members would not use were factored into the value of a
settlement, they inflated the nominal size of a settlement
fund without a concomitant increase in the actual value of
relief for the class. See id. at 29–30. And when a court relied
on the size of such a settlement fund to calculate attorney’s
 IN RE EASYSAVER REWARDS LITIGATION 11

fees, this inflation dramatically increased the size of the fee
award—allowing class counsel to reap the lion’s share of the
benefits. See id.

To avoid this result, CAFA requires district courts to
consider the value of only those coupons “that were actually
redeemed” when calculating the relief awarded to a class. In
re Online DVD, 779 F.3d 934, 950 (9th Cir. 2015); see also
28 U.S.C. § 1712(a). Doing so ensures that class counsel
benefit only from coupons that provide actual relief to the
class, lessening the incentive to seek an award of coupons
that class members have little interest in using—either
because they might not want to conduct more business with
defendants, or because the coupons are too small to make it
worth their while. See In re Sw. Airlines Voucher Litig.,
799 F.3d 701, 706 (7th Cir. 2015) (“The potential for abuse
is greatest when the coupons have value only if a class
member is willing to do business again with the defendant
who has injured her in some way, when the coupons have
modest value compared to the new purchase for which they
must be used, and when the coupons expire soon, are not
transferable, and/or cannot be aggregated.”).

CAFA, however, provides no definition of “coupon,” so
courts have been left to define that term on their own,
informed by § 1712’s animating purpose of preventing
settlements that award excessive fees while leaving class
members with “nothing more than promotional coupons to
purchase more products from the defendants.” In re Online
DVD, 779 F.3d at 950 (quoting S. Rep. No. 109-14, at 15). 5

5
As in In re Online DVD, we need not decide which standard of
review governs our review of whether a credit is a coupon within the
meaning of CAFA, because here the district court applied the wrong
legal rule when evaluating whether the credits qualify as coupons. See
12 IN RE EASYSAVER REWARDS LITIGATION

In In re Online DVD, we outlined three factors to guide this
inquiry: (1) whether class members have “to hand over more
of their own money before they can take advantage of” a
credit, (2) whether the credit is valid only “for select
products or services,” and (3) how much flexibility the credit
provides, including whether it expires or is freely
transferrable. In re Online DVD, 779 F.3d at 951. Applying
these factors, we held that a $12 gift card to Walmart,
awarded as part of a settlement resolving antitrust claims
relating to its DVD rentals and sales, did not qualify as a
coupon. Id. at 951–52. We first explained that a “class
member need not spend any of his or her own money” to use
the gift card given Walmart’s extensive inventory of low-
cost products. Id. at 951. Relatedly, the gift card provided
“not merely the ability to purchase an entire product as
opposed to simply reducing the purchase price, but also the
ability to purchase one of many different types of products,”
including numerous products unrelated to DVDs. Id. at 952.
The gift cards also did not expire and were freely
transferable. Id. at 951. Finally, class members could
receive $12 in cash instead of the $12 gift card, if they made
a request by mail. Id. at 941. In light of all these factors
giving class members significantly more flexibility than
typical coupons, we held that the gift cards were not coupons
within the meaning of CAFA. Id. at 951–52.

Here, the district court relied on an additional factor not
present in In re Online DVD. It held that the credits should

779 F.3d at 950 n.8 (explaining that it was unnecessary to decide on the
applicable standard of review because we would affirm under any
standard). Failing to identify the correct legal standard constitutes
reversible error even under abuse of discretion review. See Enyart v.
Nat’l Conference of Bar Examiners, Inc., 630 F.3d 1153, 1159 (9th Cir.
2011).
 IN RE EASYSAVER REWARDS LITIGATION 13

not be construed as coupons in part because it concluded that
this settlement was “stronger than” the settlement in In re
Online DVD in terms of how closely the relief matched class
members’ alleged injury. In this case, class members failed
to receive a promised credit or received a credit but on terms
they had not accepted, and the settlement provided a
replacement credit without the unwanted enrollment in its
rewards program. But the district court’s inclusion of this
factor conflated the coupon analysis with whether the
settlement was fair and reasonable. Confronting a similar
argument in In re Southwest Airlines Voucher Litigation, the
Seventh Circuit held that drink vouchers awarded to settle
claims that Southwest improperly stopped accepting certain
in-flight drink vouchers were coupons under CAFA.
799 F.3d at 704. Even though class members would receive
“essentially complete relief” by obtaining the new drink
vouchers to replace their invalidated ones, id. at 711, the
court explained that this equivalence bore on the fairness of
the settlement—not on whether the vouchers were coupons
under CAFA, id. at 706.

Thus, even assuming the district court was correct that
“this settlement was specifically tailored to the harm
suffered by the class members and the interest they had in
receiving” a discount off a future purchase from Defendants’
websites, it does not follow that the full face value of all the
$20 credits should be used when evaluating the propriety of
the fee award. 6 Regardless of the substance of the
underlying claim or injury, CAFA prevents settling parties
from valuing coupons at face value without accounting for
their redemption rate. Accordingly, the district court erred

6
And to the extent the settling parties are correct that class members
have a strong interest in receiving these coupons, the coupon redemption
rate should reflect that interest.
14 IN RE EASYSAVER REWARDS LITIGATION

by incorporating an improper factor into its analysis of
whether the credit was a coupon under CAFA. See Enyart,
630 F.3d at 1159 (“If the [district] court failed to [identify
the correct legal rule], we must conclude it abused its
discretion.” (quoting United States v. Hinkson, 585 F.3d
1247, 1262 (9th Cir. 2009) (en banc))).

That brings us to the million—here, multi-million—
dollar question: whether Defendants’ credits are coupons.
We hold that, applying the correct legal standard, the only
logical conclusion is that they are. 7 To begin, the credits are
categorically different from the Walmart gift cards.
Defendants are decidedly not “giant . . . retailer[s]” in the
mold of Walmart or other similar stores, In re Online DVD,
779 F.3d at 951, and class members can only use the credits
to purchase items from a limited universe of products:
flowers, chocolates, and other similar gifts. This universe is
even smaller if confined to products that class members can
purchase without spending any of their own money—
Defendants only claim to sell “15–25 products” for under

7
Thus, even if abuse of discretion review rather than de novo review
applies, see supra n.5, we must reverse. As explained below, see supra
n.8, the district court lacked support for its conclusion that this settlement
was comparable to In re Online DVD in terms of how many items class
members could purchase. Because that was the only factor the district
court identified as supporting its decision that would be relevant under
the correct legal standard, and because that factor lacks evidentiary
support, there are no factors remaining that might weigh in favor of
categorizing the credits as coupons. Accordingly, there is no need to
provide the district court an opportunity to reevaluate whether the credits
qualify as coupons. See Apache Survival Coalition v. United States,
21 F.3d 895, 906–07 (9th Cir. 1994) (explaining that we need not remand
where the district court abused its discretion by applying the incorrect
legal standard if there are no underlying factual disputes and it is in the
interest of judicial economy to decide the issue on appeal).
 IN RE EASYSAVER REWARDS LITIGATION 15

$20. And that meager list does not even account for shipping
charges. When asked in the fairness hearing whether class
members could purchase anything from one of Defendants’
websites for $20 or under if shipping charges are included,
counsel responded: “If you include shipping, I’m not sure,
but the defendants don’t make money off the shipping.”
Regardless of whether money spent on shipping benefits
Defendants, however, class members who spend money on
shipping are required “to hand over more of their own money
before they can take advantage of the coupon,” In re Online
DVD, 779 F.3d at 951. 8

Moreover, in In re Online DVD, Walmart’s extensive
inventory was significant in part because class members
could use the gift cards without obtaining the product—
DVDs—that led to their suit in the first place. See id. at 952.
Here, in contrast, class members cannot use these credits
without purchasing an item from Defendants. And, to do so,
they must hand over their billing information again to the
very company that they believe mishandled that information
in the first place, at the very least to pay for shipping. Thus,
although class members do not have a product-specific
complaint, they cannot reap the benefits of the settlement

8
In light of the undisputed evidence that there were at most 25 and
possibly zero products class members could purchase without spending
any of their own money, the district court lacked support for its
conclusion that this settlement was comparable to the settlement from In
re Online DVD with respect to the number of such products. Even
putting aside shipping charges, a range of 15–25 products is in a different
realm than the enormous number of products that Walmart sells for under
$12. Although class members were generally “not limited to [the]
purchase of a specific item or set of items,” Defendants’ inventory is
simply not comparable to the size or breadth of Walmart’s inventory.
16 IN RE EASYSAVER REWARDS LITIGATION

without reengaging in the same purchasing activity that they
believe led to their injury.

The credits at issue here are also far less flexible than
those available in In re Online DVD. Although freely
transferrable, they expire one year after issuance and have a
series of blackout periods, including during the days before
Valentine’s Day, Mother’s Day, and other holidays on which
consumers most often buy flowers and chocolates.
Defendants respond that there is a “reasonable explanation”
for those restrictions given their need to preserve their ability
to fill and deliver orders in a timely fashion “during peak
periods.” Maybe so, but the credits still cannot be used in
anywhere near the same way as cash—including because
they cannot be used on the dates on which people would be
most interested in using them.

Plaintiffs stress that class members here could receive
both cash (in the amount needed to refund their membership
fees) and a gift card, while class members in In re Online
DVD had to choose either a $12 gift card or $12 in cash. See
In re Online DVD, 779 F.3d at 952. But the fact that the In
re Online DVD plaintiffs had a choice between cash and a
gift card worth the same amount made it easier for us to
assess the value of the gift cards. Class members who
selected gift cards must have valued them at close to face
value, because they selected them over essentially the same
value in cash. 9 See id. at 952 n.11. It was therefore
appropriate to treat the In re Online DVD settlement as

9
The only difference in value between the gift card and the cash
award in In re Online DVD was the cost of a stamp. Although a class
member could submit a claim for a Walmart gift card online, a claim for
cash could only be submitted by regular mail. See In re Online DVD,
779 F.3d at 941.
 IN RE EASYSAVER REWARDS LITIGATION 17

similar to an all-cash settlement. See id. Here, however, it
is impossible to draw the same conclusion—nothing in the
record could have given the district court reason to believe
that any class member, let alone all class members, would
have viewed the $20 credit as equivalently useful to $20 in
cash.

For all these reasons, we conclude that the only logical
conclusion under the correct legal rule is that these credits
are coupons under CAFA.

B.

Because the district court incorporated the full face value
of the coupons into both its percentage-of-recovery
calculation and lodestar calculation of the attorney’s fee
award, this error requires recalculation of the fee award.

When a fee award in a coupon settlement is calculated
using the percentage-of-recovery method, CAFA requires
that any calculation of the size of the settlement fund—and
thus the size of the fee award—be determined using the
redemption rate of the coupons. Id. at 949–50; see also
28 U.S.C. § 1712(a) (“If a proposed settlement in a class
action provides for a recovery of coupons to a class member,
the portion of any attorney’s fee award to class counsel that
is attributable to the award of the coupons shall be based on
the value to class members of the coupons that are
redeemed.”). 10 Here, the district court approved the
settlement under the percentage-of-recovery method on the

10
As we have previously, we note that § 1712 did not escape
CAFA’s generally “‘clumsy’ and ‘bewildering’ wording.” In re HP
Inkjet Printer Litig., 716 F.3d 1173, 1181 (9th Cir. 2013) (quoting
Abrego Abrego v. Dow Chem. Co., 443 F.3d 676, 681, 686 (9th Cir.
2006)).
18 IN RE EASYSAVER REWARDS LITIGATION

basis that the $8.7 million award represented only 23% of
the total $38 million recovery, which the court viewed as
appropriately below the 25% “benchmark” we have
generally held to be “reasonable.” In re Bluetooth Headset
Prods. Liab. Litig. (In re Bluetooth), 654 F.3d 935, 942
(9th Cir. 2011). But because the $38 million figure did not
account for the redemption rate of the credits, it is unclear
whether the fee award is in fact a reasonable percentage of
the settlement fund. Absent the redemption information, we
cannot approve the district court’s percentage-of-recovery
evaluation.

The settling parties contend that the award can
nevertheless be upheld based on the district court’s lodestar
calculation. Under § 1712(b)(1), which relates to “[o]ther
attorney’s fee awards” in settlements involving coupons, if
“a portion of the recovery of the coupons is not used to
determine the attorney’s fee to be paid to class counsel, any
attorney’s fee award shall be based upon the amount of time
class counsel reasonably expended working on the action.”
Section 1712(b)(2) further provides that “[n]othing in this
subsection shall be construed to prohibit application of a
lodestar with a multiplier method of determining attorney’s
fees.” 11 CAFA thus allows courts to use the lodestar

11
Section 1712 contains three subsections that govern the
calculation of attorney’s fees. See 28 U.S.C. § 1712(a)–(c). In In re HP
Inkjet Printer Litigation, we explained that § 1712(a) “requires that ‘any
attorney’s fee’ awarded for obtaining coupon relief be calculated using
the redemption value of the coupons” and thus mandates the use of the
percentage-of-recovery method for any portion of the attorney’s fees in
a class action settlement that are “attributable to” the award of coupons.
716 F.3d at 1183–84 (quoting 28 U.S.C. § 1712(a)). By contrast, we
explained that § 1712(b) “come[s] into play when a settlement contains
both coupon relief and equitable relief,” and the court uses the lodestar
method as any part of its fee calculation. Id. at 1185 (emphasis added).
 IN RE EASYSAVER REWARDS LITIGATION 19

approach to determine any portion of attorney’s fees not
attributable to coupons in mixed settlements that award both
coupons and non-coupon relief.

In In re HP Inkjet Printer Litigation (In re HP), 716 F.3d
1173 (9th Cir. 2013), we explained that CAFA does not,
however, permit a district court to approximate “the ultimate
value of [a] settlement, and then award[] fees in exchange
for obtaining coupon relief without considering the
redemption value of the coupons.” Id. at 1186. In particular,
in a mixed settlement, a district court may use the lodestar
approach provided that it does so without reference to the
dollar value of the settlement fund—or, of course, it may
reference the dollar value of the settlement fund if it accounts
for the redemption rate of the coupons in calculating that
dollar value. We held that the district court in In re HP had
erred when it set the lodestar fee award in reference to “the
‘ultimate value’ of th[e] settlement”—which, as calculated
there, included the face value of the coupons not adjusted by
their redemption rate. Id.

Here, the district court similarly went astray when it
reverse-engineered the lodestar multiplier using a value of
the settlement that included the full face value of all the
$20 coupons. The court started with a lodestar fee of
$4.3 million, calculated based solely on class counsel’s
billing rates and hours worked. But the court then worked

By its terms, § 1712(c) provides further instruction regarding settlements
that include “an award of coupons to class members and also provide[]
for equitable relief, including injunctive relief.” 28 U.S.C. § 1712(c).
Although settlements like this one that award coupons and monetary
relief are not expressly mentioned in In re HP, it must be the case that
§ 1712(b) also encompasses the use of the lodestar method for this type
of mixed settlement. Such settlements would otherwise exist in a no-
man’s land with no guidance from § 1712.
20 IN RE EASYSAVER REWARDS LITIGATION

backward from class counsel’s proposed $8.7 million fee
award, which the court had already deemed appropriate as a
percentage of the total dollar value of the settlement fund.
To do so, the court applied a multiplier of 2.1 to match the
lodestar fee with the percentage-of-recovery fee. Thus,
although the $4.3 million figure was derived independently
of any specific consideration of the coupons, it lost this
independence when the district court used a multiplier to
match the lodestar fee to the percentage-of-recovery fee—
which was, by definition, a percentage of the full value of
the settlement, including the face value of the coupons. 12

12
We recognize that “the benefit obtained for the class” is the
“[f]oremost” consideration for a district court in assessing whether it
should adjust a lodestar fee. In re Bluetooth, 654 F.3d at 942. Likewise,
the results obtained may factor into a district court’s assessment of the
hours reasonably expended on the litigation. See Hensley v. Eckerhart,
461 U.S. 424, 433–34 (1983); Chalmers v. City of Los Angeles, 796 F.2d
1205, 1211 (9th Cir. 1986), opinion amended on denial of reh’g, 808
F.2d 1373 (9th Cir. 1987). But it may be possible in some cases for a
district court to evaluate the reasonableness of the hours expended and
whether “the level of success achieved by the plaintiff” warrants an
upward or downward departure without considering the award of
coupons at all. See id. at 942 (quoting McCown v. City of Fontana, 565
F.3d 1097, 1102 (9th Cir. 2009)). In other words, a district court may be
able to determine an appropriate lodestar fee and whether a departure is
called for by assessing how fully an individual class member is
compensated for his or her injuries, without reference to the size of the
class or the size of the settlement fund as a whole. On the other hand, if
attorneys argue for or against a lodestar fee or departure based at all on
the benefits of the coupons obtained, then the district court must consider
the redemption rate when ruling on their request. Of course, because
adjustments to the lodestar fee should be “the exception rather than the
rule,” Fischel v. Equitable Life Assurance Soc’y of the U.S., 307 F.3d
997, 1007 (9th Cir. 2002) (quoting D’Emanuele v. Montgomery Ward &
Co., 904 F.2d 1379, 1383 (9th Cir. 1990), overruled on other grounds by
City of Burlington v. Dague, 505 U.S. 557 (1992)), courts should not
need to use a departure at all in most cases.
 IN RE EASYSAVER REWARDS LITIGATION 21

The value of the coupon relief therefore impermissibly
informed the district court’s approval of the lodestar fee.

Accordingly, the attorney’s fee award must be vacated.
On remand, the award should be recalculated in a manner
that treats the $20 credits as coupons under CAFA. 13
Because we hold that the fee award must be recalculated, we
need not address Objector’s separate argument that the
settlement disproportionately benefits class counsel at the
expense of the class. And, in any event, that argument
largely collapses into Objector’s challenge to the fee award
under CAFA.

C.

Objector also challenges the use of cy pres to distribute
the remaining settlement funds, and, if cy pres is to be used
at all, the choice of recipients. We hold that it was not an
abuse of discretion for the district court to approve the use
of cy pres here or to approve these particular recipients.

1.

Cy pres provides a mechanism for distributing
unclaimed funds “to the ‘next best’ class of beneficiaries.”
Nachshin v. AOL, LLC, 663 F.3d 1034, 1036 (9th Cir. 2011).
Under the cy pres approach, “class members receive an
13
Because the settlement dictates that the $20 credits will not be
distributed until after the final settlement approval, it is impossible to
calculate their redemption rate while the settlement is still pending. But,
as we explained in In re HP, there are ways for the parties to address this
challenge. See In re HP, 716 F.3d at 1186 n.19. As one example, “a fees
award can be bifurcated or staggered to take into account the speculative
nature of at least a portion of a class recovery.” Id. Alternatively, the
parties could amend the settlement so that the redemption rate will be
ascertainable before the entry of final judgment.
22 IN RE EASYSAVER REWARDS LITIGATION

indirect benefit (usually through defendant donations to a
third party) rather than a direct monetary payment.” Lane v.
Facebook, Inc., 696 F.3d 811, 819 (9th Cir. 2012). The
settlement agreement here provides for any unclaimed funds
to be distributed to San Diego State University, the
University of California at San Diego, and the University of
San Diego School of Law to support scholarship in the area
of internet privacy and data security. Objector argues that
the approximately $3 million remaining in the settlement
fund should have been distributed to the class instead.

We conclude that it was reasonable for the district court
to approve the use of a cy pres distribution. The availability
of cy pres as a mechanism to distribute unclaimed funds rests
on the premise that class action settlements will sometimes
have just that—unclaimed funds. A settlement is not fatally
flawed solely because class members did not deplete the
entirety of the settlement fund. If it were, cy pres would not
exist. Objector suggests that the parties should have spent
more on supplemental notice and outreach to non-claimants.
But that contention could be made about any class action
with remaining funds, and Objector has not identified any
flaws in the notice procedure used in this case.

Nor was it an abuse of discretion for the district court to
reject Objector’s two proposed alternatives for distributing
the remaining funds. Objector first suggests that the
settlement should have distributed the remaining funds to the
existing claimants. But the district court was under no
obligation to adopt a distribution approach that might
overcompensate claimants, all of whom will already be fully
reimbursed for the money they lost through the rewards
program.

Objector alternatively suggests that the remaining funds
should have been distributed pro rata to non-claimant class
 IN RE EASYSAVER REWARDS LITIGATION 23

members, whom Defendants will have to identify to
distribute the coupons. It might be technically feasible to
distribute the funds in this manner. But given that the
existing fund contains approximately $3 million, and that
there are over a million non-claimants, each non-claimant’s
recovery would be “de minimis,” Lane, 696 F.3d at 821,
particularly once the costs of distribution are deducted. Even
if the district court substantially reduces the attorney’s fee
award, the amount each non-claimant might receive
compared to the administrative costs of distribution prevents
Objector from showing that the parties’ resort to cy pres was
inappropriate.

2.

The recipients of cy pres funding should be selected in
light of “the objectives of the underlying statute(s)” and “the
interests of the silent class members.” Nachshin, 663 F.3d
at 1039. The court has “broad discretionary powers in
shaping” a cy pres award. See Six (6) Mexican Workers v.
Ariz. Citrus Growers, 904 F.2d 1301, 1307 (9th Cir. 1990).
We therefore review the selection of cy pres recipients for
an abuse of discretion. Nachshin, 663 F.3d at 1038.

Objector argues that, even if a cy pres distribution was
permissible here, these universities were inappropriate
recipients because (i) all three are located in San Diego, even
though the case involves a nationwide class; and (ii) three of
the attorneys working on the case graduated from the
University of San Diego School of Law. We disagree on
both counts.

i.

Objector’s geographic challenge fails because these
beneficiaries have a nationwide reach sufficient to justify
24 IN RE EASYSAVER REWARDS LITIGATION

their receipt of the cy pres award. Although the universities
are all based in San Diego, it was reasonable for the district
court to conclude that “the . . . funded academic programs
will have a nation-wide impact.” The award is designed to
support scholarship in internet privacy and data security—
topics of national scope. That the research will be
spearheaded by scholars in San Diego in no way means that
its impact will be confined to San Diego. 14 In addition,
Objector’s singular focus on geography ignores the
touchstone of the inquiry: whether an award bears a
“substantial nexus to the interests of the class members.”
Lane, 696 F.3d at 821; see also In re Lupron Mktg. & Sales
Practices Litig., 677 F.3d 21, 36 (1st Cir. 2012) (“It is not
the location of the recipient which is key; it is whether the
projects funded will provide ‘next best’ relief to the class.”).
Because this award funds research that is directly responsive
to the issues underlying this litigation, the physical location
of the beneficiaries is not an overriding consideration.

Objector’s contrary argument based on Nachshin v.
AOL, LLC is unavailing. In that case, which involved a
nationwide challenge to AOL’s online advertising practices,
the settlement awarded its remaining funds to three cy pres
recipients: the Legal Aid Foundation of Los Angeles, the Los
Angeles and Santa Monica chapters of the Boys and Girls
Club of America, and the Federal Judicial Center
Foundation. 663 F.3d at 1037. Reversing the district court’s
approval of that settlement, we explained that the missions
of the selected organizations had nothing “to do with the
objectives of the underlying statutes on which [p]laintiffs

14
And to the extent the universities host seminars that are only
accessible to those in San Diego, the equivalent would be true of any cy
pres recipient, national or otherwise, that held in-person events at its
headquarters.
 IN RE EASYSAVER REWARDS LITIGATION 25

base[d] their claims.” Id. at 1040. As a result, the award
failed to “account for the nature of the plaintiffs’ lawsuit, the
objectives of the underlying statutes, and the interests of the
silent class members, including their geographic diversity.”
Id. at 1036.

That is not the case here. This award promotes a national
dialogue on improving internet privacy and data security
practices. It accordingly comports with our suggestion in
Nachshin that the parties identify beneficiaries that will
“work to protect internet users” from the types of predatory
behavior underlying the lawsuit. See id. at 1041. As a result,
the district court did not abuse its discretion in approving the
selection of these institutions.

ii.

Second, the alumni connections of three of the (many)
involved attorneys did not impermissibly taint the selection
process. In some cases, “the specter of judges and outside
entities dealing in the distribution and solicitation of
settlement money may create the appearance of
impropriety.” Id. at 1039. But that specter is far less
haunting where, as here, the award is tethered to class
members’ interests and underlying claims. See id.
Moreover, Objector has not suggested that there is a
continuing relationship between the attorneys and their alma
mater, nor has he challenged the parties’ descriptions of what
those institutions will do to further the interests of the class.
Objector’s bare allegation that the institutions were selected
for an improper reason is insufficient to show that it was an
abuse of discretion for the district court to approve their
selection.
26 IN RE EASYSAVER REWARDS LITIGATION

D.

Finally, given both the structure of this settlement
agreement and the focus of Objector’s challenges, we hold
that it is unnecessary to reverse the entire settlement
approval in conjunction with our vacatur of the fee award.
See Rodriguez v. W. Publ’g Corp., 563 F.3d 948, 969
(9th Cir. 2009) (reversing a fee award but otherwise
affirming the settlement approval). The parties’ settlement
agreement expressly does not depend on approval of the fee
award, and it provides that any decrease in the award “shall
only serve to increase” the funds distributed to class
members, as well as to the cy pres beneficiaries if necessary.
Furthermore, because the claims period is now closed, we
know that there are ample funds available to fully satisfy all
submitted claims for reimbursement. Changing the size of
the fee award would not affect those reimbursements. Class
members will similarly receive the $20 coupons regardless
of the size of the fee award. From class members’
perspective, the only thing that reducing the fee award would
do is to increase the amount ultimately paid to the cy pres
recipients. We can therefore be confident that class
members would not have made different decisions had they
known that the fee award would be recalculated, and also
that the district court would not have made a different
approval decision as to whether the settlement was fair,
reasonable, and adequate.

Moreover, other than the challenges to the cy pres award
that we rejected above, Objector cabined his arguments on
appeal to attacks on the fee award. We are therefore not
presented here with a general challenge to the fairness of the
settlement under Federal Rule of Civil Procedure 23(e)(2).
Absent an explanation of why the settlement as a whole does
not pass muster, we will not assume that we must
 IN RE EASYSAVER REWARDS LITIGATION 27

automatically reverse the settlement in conjunction with
vacating the fee award. 15

III.

For the foregoing reasons, we VACATE and REMAND
the award of attorney’s fees but otherwise AFFIRM
approval of the settlement.

15
In re Bluetooth is not to the contrary. Although there we reversed
an entire settlement based on our decision to vacate the fee award, the
settlement included a “kicker” provision under which “all fees not
awarded would revert to defendants rather than be added to the cy pres
fund or otherwise benefit the class.” In re Bluetooth, 654 F.3d. at 947.
As we explained, “the kicker deprives the class of [its] full potential
benefit if class counsel negotiates too much for its fees.” Id. at 949. In
contrast, any reduction in attorney’s fees in this case will benefit the
class. Moreover, the district court’s evaluation of the fee award in In re
Bluetooth was far more deficient than that here. As we explained in that
decision, “our discomfort” stemmed in part from “the absence of [an]
explicit calculation or explanation of the district court’s” attorney’s fee
decision; there was no lodestar fee for us to even evaluate. Id. at 943–
44. This lack of explanation undermined our confidence in the district
court’s settlement approval more generally. See id. at 949. In contrast,
although the district court here erred by concluding that the credits did
not qualify as coupons—which, to be sure, had a significant impact on
the court’s evaluation of the final fee award—it otherwise calculated the
fee award in accordance with our caselaw and then justified its approval
of that award.