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Just when the popular meal kit delivery service HelloFresh thought it had settled a class action lawsuit alleging violations of the Telephone Consumer Protection Act (TCPA), an objector, Sarah McDonald, swooped in and successfully persuaded a panel of the First Circuit to overturn approval of the proposed settlement. While McDonald objected to the proposed settlement on multiple grounds, her primary argument was that that no lawyer or group of lawyers could adequately negotiate and recommend a settlement on behalf of three subgroups with such materially different claims. According to McDonald, the proposed $14 million settlement placed the class with the most valuable claims on equal footing with classes with “virtually worthless” claims. The First Circuit agreed.

The lawsuit alleged that HelloFresh violated the TCPA in three ways: by (1) using an automated dialer to place marketing calls to some plaintiffs (Autodialer Claims), (2) calling some plaintiffs listed on the National Do-Not-Call registry (NDNC Claims), and (3) calling some plaintiffs who had requested that HelloFresh no longer call them and were therefore required to be on HelloFresh’s internal do-not-call list (IDNC Claims). Despite these differences, the district court certified a single settlement class consisting of over four million members with any of the three types of claims, and proposed to pay all class members equal amounts.

The First Circuit noted that, while plaintiffs’ Autodialer, NDNC and IDNC Claims appeared on their face as simple violations of the TCPA, each required plaintiffs to prove significantly different elements, and some of HelloFresh’s defenses applied differently (or with different force) even among class members within each category of claim. As a result, each subgroup had a legal basis for demanding a bigger piece of the pie, because each subgroup had a theoretical claim for money damages against HelloFresh.

Class action settlements must be the product of an “arm’s length” negotiation by individuals adequately representing the class. In overturning the proposed settlement, the First Circuit found that the settlement would certify a single class containing “members with claims having significantly different elements and facing some very different defenses” and that “the relative values of those different claims are [not] sufficiently clear-cut so as to enable a court to approve a proposed apportionment of a common fund among the claimants in the absence of any arm’s-length negotiation.” In other words, the multiple subclasses were situated so differently as to require separate representation to negotiate how the proposed settlement should be divided among the subclasses.

This case serves as a stark reminder to companies defending against class action lawsuits that the book is not closed on the case just because the parties have agreed to settlement terms, or even if the judge blesses the settlement. If your proposed settlement has grouped multiple subclasses together and apportioned a settlement payment among them without regard for the strengths and weaknesses of each subclass’s claims, there is a chance that it could be overturned.

On the flip side, the First Circuit’s analysis does provide potential ammunition for defendants to challenge certification of proposed classes in TCPA and Florida Telephone Solicitation Act (FTSA) lawsuits. Specifically, the HelloFresh ruling lends legitimacy to class certification challenges based on questions of commonality and adequacy of representation where there are varying theoretical claim values among members of the same proposed class.

Buchanan has successfully defended TCPA and FTSA class actions, securing dismissals at their earliest stages. Our experienced class action defense litigators have developed innovative strategies to challenge these lawsuits in courts across the country and can aid companies in establishing internal best practices to mitigate future risks.