Faught v. American Home Shield Corp.

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
OCTOBER 31, 2011
No. 10-12496 JOHN LEY
________________________ CLERK

D.C. Docket No. 2:07-cv-01928-RDP

LAURA FAUGHT,
STEVEN FAUGHT,
On behalf of themselves and all others similarly situated,

Plaintiffs-Appellees,

JOHN HOWE, et al.,

Intervenors-Plaintiffs,

versus

AMERICAN HOME SHIELD CORPORATION,

Defendant-Appellee,

ROBERT SHEPARD,
LUZ SHEPARD,
JANET TZENDZALIAN,
MERLYN D. LIND,
ROSALYN URBANEK,

Interested-Parties-Appellants.
 ________________________

Appeal from the United States District Court
for the Northern District of Alabama
________________________
(October 31, 2011)

Before DUBINA, Chief Judge, CARNES, Circuit Judge, and SANDS,* District
Judge.

DUBINA, Chief Judge:

This appeal is the consolidation of four appeals brought by objectors to a

class action settlement. The underlying case involved allegations that American

Home Shield (“AHS”) engaged in a pattern of wrongly denying claims under its

home warranty contracts. Two class action lawsuits resulted from these

allegations, the first brought in California state court and this case, originally filed

in the Northern District of Alabama. After the California court rejected a

proposed settlement in its case, the parties in this case reached a settlement

agreement, which the district court approved. Four sets of objectors appeal from

the district court’s confirmation of the settlement agreement. Their objections fall

into the following categories: (1) objections to the class notice, (2) fairness

challenges to the settlement, and (3) objections to the attorneys’ fees awarded to

*
Honorable W. Louis Sands, United States District Judge for the Middle District of
Georgia, sitting by designation.

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class counsel.1 For the reasons set forth below, we affirm the judgment of the

district court.

I.

Appellee AHS is in the business of selling, issuing, and administering

service contracts for certain home appliances and systems ranging from

dishwashers to HVAC systems. In exchange for a fee, AHS contracted with the

home owners to arrange for service technicians from their network to repair or

replace the systems and appliances under circumstances specified under the home

warranty contracts. AHS does not directly service or replace any appliance or

system covered by the contracts, but separately contracts with service technicians

to conduct the work at a reduced rate.

Since 2007, AHS’s business practices have been the subject of two class

action lawsuits alleging that AHS engaged in a pattern of wrongly denying claims

for alleged failure to maintain or clean the system or appliance, deliberately

breaching the service contracts, and entering into contracts with service

1
One set of objectors, the Pettitt objectors, failed to receive timely notice of the oral
argument scheduled in this case. As a result, we bifurcated their appeal, Appeal No. 10-12533.
With the exception of one unique issue presented in Appeal No. 10-12533, we took the issues
raised by the Pettitt objectors under submission on the briefs and will decide them along with the
challenges raised by the three other sets of objectors. Thus, this opinion addresses all issues
presented in the consolidated appeals, save for the question of whether counsel for the Pettitt
objectors are entitled to attorneys’ fees.

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technicians that incentivize technicians to find issues with the appliances that fall

outside of the service contract.

The first class action complaint was filed in 2007 by Karon and L.B. Chip

Edleson against American Home Shield of California in California state court (the

“Edleson action”). Three months later, Laura and Steven Faught filed their class

action complaint in this case. Many of the allegations in the complaint were the

same as in the Edleson complaint, but the Faughts’ putative class was narrower

and included “[a]ll persons, who in the last six years, have purchased a residential

home warranty contract from AHS applicable to a house within the United States,

and within the original contract term of one year, had a claim denied for repair or

replacement of a major home component based on an alleged failure to clean or

maintain.” [R. 1 at 7.] The putative class in Edleson extended to “all persons who

made a claim under a home warranty insurance plan obtained from [AHS].” [R.

39, Ex. 1.]

The cases progressed in parallel proceedings. The parties in this case began

court ordered mediation in September 2008. In November 2008, after being

informed that the Edleson parties reached a tentative settlement agreement, the

district court stayed this case.

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 In exchange for forfeiting their future rights to sue as a class, the Edleson

settlement agreement gave the class members the right to resubmit their claims to

a Review Desk run by AHS. It did not have any specific standards for

adjudicating the claims and did not specify the qualification level for employees

assigned to the help desk. The settlement also allowed AHS to offer class

members a one year “FlexPlan” extension to their policies at a reduced rate. The

settlement included a number of business practice changes including removing

incentives from the contracts with service technicians that encouraged them to find

problems that would support AHS denying claims under their home warranty

contracts. Attorneys’ fees under that agreement were set at $2.5 million and did

not include any portion of the money received by the class members through the

Review Desk.

After a fairness hearing, the Edleson court rejected the settlement. Chief

among the Edleson court’s concerns was that the settlement gave AHS the right to

readjudicate claims. The court expressed concern that the class members would be

giving up “viable” and “realistic” rights in exchange only for the hope “that a

defendant that has allegedly not acted in good faith” would now act in good faith.

The court was especially troubled by the fact that class members’ rights to sue in

the future might be limited based on the applicable statute of limitations. The

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Edleson court also disapproved of a provision that allowed AHS to sell additional

coverage to class members during the resubmission process, noting “[t]his allows

[AHS] to make additional money from the settlement rather than paying it out to

plaintiffs.” The Edleson court concluded: “Without more concrete guarantees,

plaintiffs . . . have gotten very little in return for a waiver of claims against [AHS].

. . . Any settlement must give the plaintiff class some tangible benefits or an

unfettered right to bring legal claims against [AHS].”

Immediately following the Edleson court’s rejection of the proposed

settlement, two things happened: (1) the parties in this case resumed their

mediated settlement negotiations, and (2) the Edleson plaintiffs moved for an

injunction requiring AHS to keep records of denied claims and to amend their

contracts with the service providers to delete any incentives to deny claims. Soon

after, the Edleson court conducted a hearing on the request for the injunction.

Before the Edleson court ruled on the injunction, however, AHS reached a

tentative settlement agreement in this case. As a result, the Edleson court stayed

its proceedings to permit the district court an opportunity to make a fairness

determination on the proposed agreement.

Based on the outcome of settlement negotiations, the Faughts amended their

class action complaint to include “[a]ll persons who have held a residential home

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warranty contract from AHS applicable to a house within the United States at any

time since June 21, 2001.” The settlement agreement has several broad

similarities with the proposed Edleson settlement agreement, including the

proposed business practice changes and use of an AHS-run Review Desk for the

resubmission of denied claims. As part of the settlement, class members forfeit

their right to participate in class action lawsuits against AHS and instead must

pursue any future claims in individual lawsuits. In exchange, they receive a

number of benefits, including the right to resubmit claims to the Review Desk,

staffing requirements designed to make the Review Desk more effective, and

litigation incentives aimed at ensuring that AHS treats claimants fairly. Class

counsel and AHS separately negotiated the class counsel’s fee award. That award

included a $1.5 million lump sum payment plus 25% of class members’ cash

awards from the Review Board process.

In granting preliminary approval of the settlement, the district court

determined that the proposed settlement is significantly more beneficial to class

members than the Edleson settlement and ordered notice be sent to the class

members. In total, 1,543 class members requested exclusion or potential exclusion

for an opt-out rate of 0.033%. Twenty-four class members and the State of Texas

filed objections.

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 After conducting a fairness hearing, the district court approved the

settlement, but reserved ruling on a provision that allowed the Faughts to bypass

the Review Desk procedures established by the settlement and to collect a lump

sum payment for their claims. The lump sum payment was in addition to the

$10,000 incentive payment provided for the class representatives in the settlement.

The district court also reserved ruling on objections to class counsel’s fees.

By separate order, the district court addressed the objections to the Faughts’

incentive payments, the provision that allowed them to bypass the Help Desk, and

the objection to class counsel’s fee award. The district court upheld the $10,000

incentive payment to the Faughts, but struck the settlement provision that awarded

the Faughts $8,000 for their claims and exempted them from seeking relief

through the Review Desk, aptly noting “if the Review Desk process is good

enough for the Class, it is good enough for the Faughts.” [R. 107 at 13.] The

district court also determined that the $1.5 million fee plus 25% of any payments

made to class members by the Review Desk was a reasonable fee.

Four sets of objectors filed appeals: (1) Todd Pettitt, Sharon Lee, Miriam

Chapon, and John Chapon (the “Pettit objectors”); (2) Robert Shepard, Luz

Shepard, Janet Tzendzalian, Merlyn Lind, and Rosalyn Urbanek (the “Shepard

objectors”); (3) John Howe, Jenny Hill, Jennifer Deachin, Michael McKerley,

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Kenneth Behrend, Pamela Behrend, Sabrina Williams, Jeff Williams, and Janet

Wood (the “Howe objectors”); and (4) Thomas Arrington. Their objections fall

into the following categories: (1) objections to the class notice, (2) fairness

challenges to the settlement, and (3) objections to the attorneys’ fee award to class

counsel.

II.

This court reviews a district court’s confirmation of a class action settlement

agreement for an abuse of discretion. In re CP Ships Ltd. Sec. Litig., 578 F.3d

1306, 1308 (11th Cir. 2009) (abrogated on other grounds by Morrison v. Nat’l

Australia Bank Ltd., ___ U.S. ___, 130 S. Ct. 2869 (2010)). The “‘[p]roponents of

class action settlements bear the burden of developing a record demonstrating that

the settlement distribution is fair, reasonable and adequate.’” Id. (quoting Holmes

v. Cont’l Can Co., 706 F.2d 1144, 1147 (11th Cir. 1983)).

III.

A. Notice

Federal Rule of Civil Procedure 23 governs class notice requirements. The

standard for the adequacy of a settlement notice in a class action is measured by

reasonableness. See Fed. R. Civ. P. 23(e). We have interpreted Rule 23 to require

that class members be given “information reasonably necessary to make a decision

9
[whether] to remain a class member and be bound by the final judgment or opt out

of the action,” though the notice need not include “every material fact” or be

“overly detailed.” In re Nissan Motor Corp. Antitrust Litigation, 552 F.2d 1088,

1104–1105 (5th Cir. 1977).2 In fact, we have recognized that “an overly detailed

notice” has the potential to “confuse class members and impermissibly encumber

their rights to benefit from the action.” Id. at 1104.

The Shepard and Howe objectors contend that the class notice was

insufficient because it failed to fully inform class members about the reasons that

the proposed settlement in Edleson was not accepted by the California state court.

The Shepard objectors also contend that the notice should have informed class

members that there was a motion for a temporary restraining order pending in

Edleson. At oral argument, the objectors suggested we hold that such information

is necessary where the current settlement offer and the previously rejected

settlement offer reached in the parallel proceedings are “materially” or

“substantially” similar. As discussed in more detail in Section III.B., we do not

agree with the objectors’ premise that the two agreements are substantially similar

2
In Bonner v. City of Prichard, 661 F.2d 1206, 1207 & 1209 (11th Cir. 1981) (en banc),
the Eleventh Circuit adopted as binding precedent the decisions of the Fifth Circuit rendered
prior to October 1, 1981.

10
and conclude that, whatever the similarities between the proposed settlements, the

district court did not abuse its discretion in approving the class notice.

The class notice includes the following reference to the Edleson settlement:

You may have received a separate settlement notice earlier this year
relating to another case (Edleson v. American Home Shield of
California and American Home Shield Corporation, Case No.
37-2207-0007125-CU-BT-CTL, pending in the Superior Court of the
State of California for the County of San Diego). The Edleson
settlement has been terminated, and is no longer in effect. This
settlement relates to this case, which is different from the Edleson
case.

Although class members might have benefitted from further information about

why the Edleson settlement was “terminated,” our review is limited to whether the

district court abused its discretion in declining to require that the notice include

such information. We conclude that it did not. The notice makes clear that the

proposed Edleson settlement was no longer in effect and would not provide class

members any relief. Further, the notice contains detailed information regarding

claims covered by the settlement agreement and the proposed process for

adjudicating claims. It also provides information regarding opt-out procedures

and instructions for accessing a website established for the purpose of providing

additional information regarding the proposed settlement. Thus, while it would be

easy to point to any number of additional data points that could have been

11
included in the notice, we conclude that the district court did not abuse its

discretion in finding that the reference to the Edleson agreement and the other

information outlined above provided reasonable notice under the circumstances.

B. The Settlement

“In reviewing the validity of a class action settlement, a district court’s

decision will be overturned only upon a clear showing of abuse of discretion.”

Holmes v. Cont’l Can Co., 706 F.2d 1144, 1147 (11th Cir. 1983). The district

court reviews a class action settlement for fairness, reasonableness, and adequacy.

In re CP Ships Ltd. Sec. Litig., 578 F.3d at 1314–15 (citing Bennett v. Behring

Corp., 737 F.2d 982, 986 (11th Cir. 1984)). We have instructed the district court

to consider the following factors: (1) the likelihood of success at trial; (2) the

range of possible recovery; (3) the range of possible recovery at which a

settlement is fair, adequate, and reasonable; (4) the anticipated complexity,

expense, and duration of litigation; (5) the opposition to the settlement; and (6) the

stage of proceedings at which the settlement was achieved. Id. at 1315.

Many of the objectors’ arguments regarding the fairness of the settlement

rely upon the alleged similarity between the Edleson settlement and this

settlement, which, as noted above, we find far less striking than the objectors

allege. The following is a non-exhaustive list of material differences between the

12
two settlements relied upon by the district court in finding, “[t]here are valuable

aspects of this Settlement that simply were not present in the previously-rejected

Edleson settlement.” [Dist. Ct. Op., R. 105 at 9.]

1. Review Desk employees are required to have 3 years of experience,

whereas the Edleson agreement contained no stipulated qualifications for its

employees.

2. The settlement obligates AHS to add additional customer service

employees to the Review Desk if after 150 days AHS has failed to respond to 40%

of the claims within 90 days of submission. Five new representatives are required

for every 2,500 overdue submissions until 85% of all claims are responded to

within 90 days. The Edleson agreement did not provide for additional customer

service representatives in the event of delays.

3. Review Desk employees are required to adhere to the following

guideline in adjudicating claims:

Prior denials (in whole or in part) of claims relating to a failure
of a covered heating or air conditioning system during the first year of
a customer’s contract with AHS shall be overturned if such claims
were denied outright solely because of lack of annual maintenance
(i.e. maintenance that the manufacturer recommends be done
annually), provided however, that AHS shall retain the discretion to
consider any relevant factor to determine the type or amount of relief
to be offered to the customer in the event of such overturning;
provided further that AHS may consider other relevant factors under

13
 the contract in deciding whether or not to overturn a denied claim,
including evidence (of any type) of lack of maintenance in any time
period which, in AHS’s good faith judgment, is such as to rise to the
level of abuse by cumulative neglect.

[R. 37-1 at 51 (emphasis in original).] The Edleson agreement contained no

specific guidelines to assist Review Desk employees in adjudicating claims.

4. The settlement contains a number of litigation kickers that create

strong incentives for AHS to properly settle claims through the Review Desk

process. The settlement allows HVAC claimants represented by counsel who are

awarded more in a post-submission suit than was offered by the Review Desk to

recover attorneys’ fees in addition to any compensatory award. Attorneys’ fees in

those suits are capped at $5,000 or three times the difference between the

compensatory damages awarded in the suit and the total value of the offer made by

the Review Desk, whichever is greater. Unrepresented HVAC claimants and all

other appliance claimants are entitled to a lump sum payment of $1,000 if they are

awarded more in a post-submission suit than they were offered through the

Review Desk. The Edleson settlement did not contain any litigation kickers.

5. The settlement does not require class members to wait 120 days from

their submission to the Review Desk to file suit. Class members have the option

14
of forgoing the Review Desk process altogether and may file an individual

lawsuit.

Despite the substantial differences between the two settlements, the

objectors continue to focus on one similarity—the Review Desk—and ignore the

provisions that either require or incentivize the Review Desk to handle claims

properly. The objectors continue to argue that it is improper to put AHS in charge

of doling out the money because it has already demonstrated that it is incapable of

fairly adjudicating claims. They claim the improvements are merely “window

dressing.” We disagree. The district court’s thorough discussion of many of the

settlement’s provisions demonstrates that it fully understood the settlement and

did not abuse its discretion in finding the settlement contained “valuable

improvements” over the Edleson settlement.

The Pettitt objectors suggest that the district court failed to adequately

consider the protections available to class members under various state consumer

protection laws before concluding that the settlement is fair. They contend the

settlement is unreasonable because it strips class members of their class rights

while failing to resolve their individual claims. For example, the objectors

contend that California class members will forfeit the protections of the attorneys’

fees and class provisions in California’s Consumers Legal Remedies Act

15
(“CLRA”), Cal. Civ. Code § 1750 et seq., and that the settlement does not

adequately compensate them for the forfeiture of those protections.3

We find these arguments unconvincing as California class members, like all

class members, were free to opt out of the class and still have the option of

forgoing the Review Desk and filing an individual suit under their state consumer

protections statutes. If, however, they decide to resubmit their claims to the

Review Desk, as found by the district court, “[c]lass [m]embers stand to receive

full compensation for their claims . . . rather than mere pennies on the dollar for a

uniform cash payment.” [Dist. Ct. Op., R. 105 at 8.]

The Shepard objectors also contend that the settlement is void because, at

the time the settlement was originally reached, AHS did not have the authority to

enter into the settlement without the consent of the Edlesons’ counsel. This

argument derives from the terms of a letter agreement between the Edlesons’

counsel and AHS which they allege prevented AHS from settling this case without

their consent. The Shepard objectors also cite a provision from the Edleson

settlement that they claim left the Edleson settlement in effect until written notice

of termination was filed. Accordingly, they argue that the Edleson agreement did

3
At times, the Pettitt objectors attempt to frame this argument as a challenge to the district
court’s findings with respect to predominance and superiority. The objectors have failed to
demonstrate that variations between state consumer protection laws undermine those findings.

16
not terminate when the court rejected the settlement, but remained in effect until it

was formally terminated several days later, which was after AHS and the Faughts

signed this settlement agreement.

We conclude from the record that the district court correctly determined that

upon the California court’s rejection of the Edleson settlement, the proposed

settlement, the letter agreement, and counsel’s status as “class counsel” or “lead

counsel” were rendered void. Therefore, AHS was not obligated to seek counsel’s

approval prior to reaching this settlement agreement.

C. Class Counsel’s Fee Award

We review a district court’s award of attorneys’ fees for abuse of discretion.

Camden I Condo. Assoc., Inc. v. Dunkle, 946 F.2d 768, 770 (11th Cir. 1991).

“The district court ‘has great latitude in formulating attorney’s fees awards subject

only to the necessity of explaining its reasoning so that we can undertake our

review.’” Waters v. Int’l Precious Metals Corp., 190 F.3d 1291, 1293 (11th Cir.

1999) (quoting McKenzie v. Cooper, Levins & Pastko, Inc., 990 F.2d 1183, 1184

(11th Cir. 1993)).

“[A]ttorneys’ fees awarded from a common fund shall be based upon a

reasonable percentage of the fund established for the benefit of the class.”

Camden I, 946 F.2d at 774. And this court has often stated that the majority of

17
fees in these cases are reasonable where they fall between 20-25% of the claims.

Id. Where the requested fee exceeds 25%, the court is instructed to apply the

twelve Johnson factors. Id. The Johnson factors include: (1) the time and labor

required; (2) the difficulty of the issues; (3) the skill required; (4) the preclusion of

other employment by the attorney because he accepted the case; (5) the customary

fee in the community; (6) whether the fee is fixed or contingent; (7) time

limitations imposed by the client or circumstances; (8) the amount involved and

the results obtained; (9) the experience, reputation, and ability of the attorneys;

(10) the undesirability of the case; (11) the nature and length of the professional

relationship with the client; and (12) awards in similar cases. Hensley v.

Eckerhart, 461 U.S. 424, 430 n.3, 103 S. Ct. 1933, 1938 n.3 (1983) (citing

Johnson v. Ga. Highway Express, Inc., 488 F.2d 714, 717–19 (5th Cir.1974)).

As discussed above, the district court approved an attorneys’ fee award with

two components: (1) a $1.5 million lump sum paid directly by AHS to class

counsel as payment for the business practice changes researched and negotiated by

class counsel for the benefit of the class, and (2) 25% of the monetary

compensation received by class members through the Review Desk process.

In approving the fee award, the district court began by citing well-settled

law from this court that 25% is generally recognized as a reasonable fee award in

18
common fund cases. See, e.g., Waters, 190 F.3d at 1294 (“The majority of

common fund fee awards fall between 20% to 30% of the fund.”). The district

court did not separately analyze whether the 25% awarded here was a reasonable

fee in itself, but determined that because 25% is generally accepted as reasonable

in common fund cases, see Camden I, 946 F.2d at 774, it should also be

considered reasonable in this case. The district court then turned its attention to

the $1.5 million lump sum award that took the total fee award above the 25%

benchmark and thoroughly analyzed that amount under the Johnson factors. The

district court also pointed out that to the extent the $1.5 million made the total fees

exceed 25% of the common fund, it should not be viewed negatively for two

reasons. First, the $1.5 million did not come from the money set aside for the

class; rather, it is a separate lump sum from AHS to class counsel. Second, the

district court noted that the $1.5 million was intended to compensate class counsel

for additional work performed and value added to the settlement, specifically, the

work done in changing AHS’s business practices and in establishing a state of the

art center to field class member inquiries regarding the settlement. The court

calculated the hours and the rates of the attorneys and staff working on the claims

and determined that the $1.5 million was a very small amount compared to the

amount of money invested in the case.

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 The district court fully examined all of the relevant factors and law in

assessing the attorneys’ fee award. The district court cited relevant precedent from

our circuit and others that detailed fee awards in other class action lawsuits. The

court discussed in detail the work plaintiffs’ counsel did for the class, outlining the

numbers of phone calls, emails, and letters they received and answered. Although

not detailed in the order, the district court also devoted a significant amount of

time at the fairness hearing to receiving testimony on the value class counsel

added to the settlement by continuing to negotiate with AHS and its counsel

regarding changes in business practices. Those practices continue to be

implemented and negotiated. The district court considered and discussed in detail

each of the twelve Johnson factors.

The objectors contend that the fixed fee of $1.5 million puts this case

outside of the 25% fee that this circuit has said is the benchmark. The objectors

also point out that because there is no fixed common fund established by this

settlement, there is no way to determine by what percentage the additional $1.5

million increases the attorneys’ fee award. These arguments ignore the district

court’s finding that the $1.5 million payment is designed to compensate the class

counsel for the non-monetary benefits they achieved for the class—like company-

20
wide policy changes and appliance and system replacements and repairs, to which

the 25% fee is not applied.

The Shepard objectors argue that the fee is unfair because it allows class

counsel to profit from the work of another law firm, specifically the firm that

represented the Edleson plaintiffs. Notably, counsel for the Shepard objectors is

the attorney who represented the Edleson plaintiffs. Although it may be the case

that some of the work done in reaching this particular settlement was aided by the

work performed by the Edlesons’ attorneys, that does not make the fee awarded to

class counsel unreasonable. As is clear from the previous discussion, this

settlement contains a number of new provisions that add significant value to the

settlement.

Finally, the Shepard objectors contend that the fees are unfair because they

are different than the fee structure in the Edleson settlement, a $2.7 million flat

fee. This argument fails to present any legal basis for rejecting the fee award. To

the extent the Shepard objectors are interested in saving AHS money, we find their

concern unnecessary. If, however, they are concerned about collusion, the district

court considered all the facts and circumstances and found that there had been no

collusion. Its finding is not clearly erroneous.

IV.

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 For the reasons given above and those stated in the well-reasoned opinion

entered by the district court, we affirm the judgment of the district court.

AFFIRMED.

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