McKinney-Drobnis v. Massage Envy Franchising LLC

Docket number: 16-cv-6450 (N.D. Cal.)

The Hamilton Lincoln Law Institute represents an objector to a settlement that provides only coupons for class members—including former subscribers. Class members are therefore forced to patronize Massage Envy franchises in order to receive anything from the settlement.

Meanwhile, plaintiffs’ counsel asks the court to credit the coupons at their $10 million face value, and seeks to be paid $3.3 million in cash—not coupons—before the actual redemption rate of the coupons is known. In a prior class action settlement against Massage Envy, only 4.6% of similar coupons were claimed, suggesting that the attorneys seek to pay themselves perhaps 8 times what the class is likely to claim in coupons for spa-related products at Massage Envy.

The underlying suit alleged that Massage Envy unlawfully raised the subscription price for consumers with Massage Envy contracts. And the settlement purports to provide “injunctive relief” to fix the problem by forcibly amending the contracts of all subscribers who don’t opt-out, making further rate increases legal. The settlement therefore waives the future claims of class members who might want seek compensation for future rate hikes, and is additionally objectionable for that reason.

Oreshack appealed. The case was argued by HLLI attorney Adam Schulman, who faced Supreme Court litigator Ted Boutrous on behalf of the defendants.

On October 20, 2021, the Ninth Circuit agreed with Oreshack. The panel found that the coupons were coupons under the Ninth Circuit’s Online DVD test, and so the fee award must be vacated because it did not comply with the Class Action Fairness Act (CAFA). Under CAFA, fees may not be awarded based on the hypothetical value of the coupons, but only on the amount actually redeemed. The panel further agreed that the district court failed to scrutinize the attorneys’ fee award, which was disproportionate compared to the value of coupons, and secured by the attorneys with “clear sailing” and “kicker,” meaning that the defendant did not oppose the outsize award and that the fees were earmarked solely for the attorneys and would revert to defendant if not awarded. This combination of features required approval of the entire settlement to be vacated.

On remand, the court grappled with the Ninth Circuit’s opinion. In March 2022, the parties modified the settlement to augment the coupon relief, to restrict the request for some of the attorneys’ fees to comply with the Class Action Fairness Act, and to eliminate the clear-sailing clause. Mr. Oreshack filed a contingent objection in April 2022, expressing concern that Massage Envy may not fully contest a fee request that now largely depends on illusory injunctive relief.

On May 24, 2022, the district court approved the renewed settlement approval.

As HLLI argued, the district court refused to apply any multiplier to the potion of attorney fees that were not attributed to the coupon-based relief. Of the original request for $1.49 million by class counsel, the district court instead awarded a reduced fee of $938,026.22. The court also deferred its calculation of the fees attributed to the coupon portion of the settlement until the actual claim numbers are known, as HLLI argued, and as the Class Action Fairness Act requires.

HLLI continues to monitor the litigation to ensure the ultimate fee award does not outstrip actual class recovery.

Case Documents