IN THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

No. 14-3798
Consolidated with No. 14-3761

Amber GASCHO, et al.,

Plaintiffs-Appellees,
v.
GLOBAL FITNESS HOLDINGS, LLC
Defendant-Appellee,
Appeal of Joshua BLACKMAN,
Objector-Appellant.

On Appeal from the United States District Court

For the Southern District of Ohio, No. 2:11-cv-00436-GCS-NMK
Reply Brief
of Appellant Joshua Blackman
CENTER FOR CLASS ACTION FAIRNESS
Theodore H. Frank
Adam E. Schulman
1718 M Street NW, No. 236
Washington, D.C. 20036
(703) 203-3848
Attorneys for Appellant Joshua Blackman

Table of Contents
Table of Contents .................................................................................................................... i
Table of Authorities ............................................................................................................... ii
Argument ................................................................................................................................. 1
The settlement approval cannot stand because class counsel negotiated
$2.39 million for themselves for a settlement where the class would
receive $1.59 million. ...................................................................................................1
A.

Pearson v. NBTY, Inc. adopted Blackmans arguments on this appeal. ...... 2

B.

Plaintiffs arguments in defense of the settlements unfair allocation

ignore relevant precedent and heavily rely on attacking strawmen. .......... 9

Conclusion ............................................................................................................................. 20
Certificate of Compliance with Fed. R. App. Proc. 32(a)(7)(C) ..................................... 22
Proof of Service .................................................................................................................... 23
Addendum of Supplemental Designations of Relevant District Court Documents ... 24

Table of Authorities
Cases
Americana Art China Co. v. Foxfire Printing & Packaging, Inc.,
743 F.3d 243 (7th Cir. 2014) .................................................................................... 10
Bittner v. Tri-County Toyota,
569 N.E.2d 464 (Ohio 1991) ................................................................................... 13
In re Bluetooth Headset Prods. Liab. Litig.,
654 F.3d 935 (9th Cir. 2011) .............................................................................. 16, 18
Boeing v. Van Gemert,
444 U.S. 472 (1980) ......................................................................................................3
Delay v. Rosenthal Collins Group, Inc.,
585 F.3d 1003 (6th Cir. 2009) .................................................................................. 20
Driscoll v. George Wash. Univ., No. 12-cv-690,
2014 U.S. Dist. LEXIS 119616 (D.D.C. July 17, 2014)................................... 11-12
In re Dry Max Pampers Litig.,
724 F.3d 713 (6th Cir. 2013) ..................................................... 1-2, 5, 7, 9-12, 15-19
Edwards v. Niagara Credit Solutions, Inc.,
584 F. 3d 1350 (11th Cir. 2009) ............................................................................... 19
Eubank v. Pella Corp.,
753 F.3d 718 (7th Cir. 2014) .................................................................................... 11
In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig.,
55 F.3d 768 (3d Cir. 1995) ................................................................................. 11, 18
Gooch v. Life Investors Ins. Co. of Am.,
672 F.3d 402 (6th Cir. 2012) .................................................................................... 13
Great Earth Cos. v. Simons,
288 F.3d 878 (6th Cir. 2002) .................................................................................... 15
Hensley v. Eckerhart,
461 U.S. 424 (1983) .............................................................................................. 12-13

ii

Laguna v. Coverall N. Am., Inc.,

753 F.3d 918 (9th Cir. 2014),
vacated at -- F.3d --,
2014 U.S. App. LEXIS 21950 (9th Cir. Nov. 20, 2014) ....................................... 13
Marcus v. BMW of North Am.,
687 F.3d 583 (3d Cir. 2012) ..................................................................................... 19
Pearson v. NBTY, Inc.,
772 F.3d 778 (7th Cir. 2014) ........................................................... 2-9, 11-13, 18-20
Pearson v. NBTY, Inc.,
2014 WL 30676 (N.D. Ill. 2014),
reversed 772 F.3d 778 (7th Cir. 2014)...........................................................................6
Redman v. RadioShack Corp.,
768 F.3d 622 (7th Cir. 2014) ......................................................... 3-4, 8-9, 14, 16-17
Shady Grove Orthopedic Assocs., PA v. Allstate Insurance Co.,
559 U.S. 393 (2010) ................................................................................................... 13
Staton v. Boeing Co.,
327 F.3d 938 (9th Cir. 2003) ................................................................................... 8-9
Van Horn v. Nationwide Prop. & Cas. Ins. Co.,
436 Fed. Appx. 496 (6th Cir. 2011) ........................................................................ 10
Waters v. Intl Precious Metals Corp.,
190 F.3d 1291 (11th Cir. 1999) .......................................................................... 10, 14
White v. Wyndham Vacation Ownership, Inc.,
617 F.3d 472 (6th Cir. 2010) .................................................................................... 15

Rules and Statutes

28 U.S.C. 1332(d)(10) ........................................................................................................ 20
42 U.S.C. 1988 ................................................................................................................... 12
Fed. R. Civ. Proc. 23(e) ..................................................................................... 2, 9-11, 13-17

iii

Fed. R. Civ. Proc. 23(e)(5) ................................................................................................... 15

Fed. R. Civ. Proc. 23(h) ........................................................................................... 10-11, 13
Fed. R. Civ. Proc. 72 ............................................................................................................ 15

iv

Argument
The settlement approval cannot stand because class counsel negotiated
$2.39 million for themselves for a settlement where the class would receive
$1.59 million.
The district court approved a settlement that paid class counsel and
representatives $2.4 million, while distributing only $1.6 million to the class, with over
90% of the class going completely uncompensated. Meanwhile, class counsel was not
only the primary beneficiary of the settlement, but structured the settlement to protect
its fee request from scrutiny through clear-sailing and kicker clauses that prevented
reallocation of the disproportion to the class. Every appellate court, including this one,
that has squarely addressed the question of an objectors challenge to the allocation
of a consumer settlement that actually paid more to class counsel than the class has
held the structure impermissible self-dealing. In re Dry Max Pampers Litig., 724 F.3d
713 (6th Cir. 2013). Class counsel attempts to avoid these precedents by distinguishing
their settlement from the settlements discussed in those precedents. PB41-47.1 But, as
this Court is well aware, appeals courts do not make one-off rulings. They establish
precedents with rules of decision, and the rule of decision herethat a settlement that
gives preferential treatment to class counsel is impermissibleendorsed by this
circuit and reaffirmed several times by the Seventh Circuit this year, requires reversal.

1 OB, PB, and DB refer to Appellant Josh Blackmans Opening Brief,

Plaintiffs Brief, and Defendants Brief respectively. We do not discuss the Zik appeal
(No. 14-3761), which makes different arguments for reversal.

A.

Pearson v. NBTY, Inc. adopted Blackmans arguments on this appeal.

After Blackman filed his opening brief in this case, the Seventh Circuit decided

Pearson v. NBTY, Inc., briefed and argued by Blackmans counsel. 772 F.3d 778 (7th
Cir. 2014) (Posner, J.).2 Pearson requires either reversal or the creation of a circuit split,
because that decision endorses, often with similar language, the major arguments in
Blackmans opening brief. To wit:
It is error to value a settlement using the maximum potential payment that
class members could receive based on the contrary-to-fact assumption
that each class member would file a claim. 772 F.3d at 780-81 (emphasis in
original); accord OB20-31; compare R&R, RE 141, PageID #2864-75.
Nor should one include notice or administrative costs in valuing
settlement benefit. 772 F.3d at 781; accord OB33; compare R&R, RE 141,
PageID #2872.

2 Class counsels ad hominem attack on the misplaced ideology of Blackman

and his non-profit counsel (PB49) and class counsels claim that Blackmans argument
lacks any precedential support (PB39) are both mysterious. Blackmans two
attorneys on this brief are 6-0 in oral arguments of published appellate decisions
raising the problem of class counsel making themselves the primary beneficiary of a
district-court-approved settlement. Thats not the record of a blindly ideological Don
Quixote tilting at windmills without precedential support. At worst, its the tale of the
Dutch boy holding his finger in the dike. The only political agenda here (PB16) is
the Rule 23(e) and Dry Max Pampers principle that class counsel should not be the
primary beneficiary of a settlement. How is that self-dealing by Blackman, much
less adverse to [a] class that is legally entitled to more than the $1.6 million that they
would receive of a $4 million settlement designed to favor class counsel? PB15-16.

 The ratio that is relevant is the ratio of (1) the fee to (2) the fee plus
what the class members received. Basing the award of attorneys fees on this
ratio, which shows how the aggregate value of the settlement is being split
between class counsel and the class, gives class counsel an incentive to
design the claims process in such a way as will maximize the settlement
benefits actually received by the class, rather than to connive with the
defendant in formulating claims-filing procedures that discourage filing and
so reduce the benefit to the class. 772 F.3d at 781 (internal quotation and
citation to Redman v. RadioShack Corp., 768 F.3d 622 (7th Cir. 2014) omitted);
see also id. at 783-84; accord OB11-16.
Boeing Co. v. Van Gemert, 444 U.S. 472 (1980) is not applicable where, as
here, [t]here is no fund and no litigated judgment, and there was no
reasonable expectation in advance of the deadline for filing claims that more
members of the class would submit claims than did. 772 F.3d at 782; accord
OB25-31; contrast PB50-52.
Attorneys fees of 69 percent of the aggregate value is outlandish;
the presumption should we suggest be that attorneys fees awarded to class
counsel should not exceed a third or at most a half of the total amount of
money going to class members and their counsel. 772 F.3d at 781-82; accord
OB11-16.

 There is a difference between the reasonableness of attorneys fees awarded

for a judgment and attorneys fees sought in a settlement. 772 F.3d at 782;
accord OB25-31.
Class counsel could have done much better by the class had they been
willing to accept lower fees in their negotiation with [defendant]. For
example, the the claims process could have been simplified by mailing $3
checks to all postcard recipients. 772 F.3d at 784; accord OB31-32; compare
R&R, RE 141, PageID #2856-60.
Our final concern is the reversion, or kicker, clause in the settlement
agreement. This is the clause that provides that if the judge reduces the
amount of fees that the proposed settlement awards to class counsel, the
savings shall enure not to the class but to the defendant. This is a gimmick
for defeating objectors. If the class cannot benefit from the reduction in the
award of attorneys fees, then the objector, as a member of the class, would
not have standing to object, for he would have no stake in the outcome of
the dispute. The simple and obvious way for the judge to correct an
excessive attorneys fee for a class action lawyer is to increase the share of
the settlement received by the class, at the expense of class counsel. Redman
v. RadioShack Corp., supra, 768 F.3d at 632. This route is barred unless the
judge invalidates the kicker clause. Pearson, 772 F.3d at 786; accord OB17-20.
Class counsel claim that often they negotiate for the benefits to the
members of the class first, selflessly leaving for later any consideration of or

negotiation for their award of attorneys fees. That claim is not realistic. For
we know that an economically rational defendant will be indifferent to the
allocation of dollars between class members and class counsel. Caring only
about his total liability, the defendant will not agree to class benefits so
generous that when added to a reasonable attorneys' fee award for class
counsel they will render the total cost of settlement unacceptable to the
defendant. We invited class counsel to explain how, therefore, negotiating
first for class benefits could actually benefit a class, and were left without an
answer. Neither can we think of a justification for a kicker clause; at the very
least there should be a strong presumption of its invalidity. 772 F.3d
at 786-87; accord OB18-20; compare R&R, RE 141, PageID #2849-52.
Pearson reversed without mentioning the words collude or collusion
once, thus demonstrating the merit of Blackmans argument that
collusion is not a prerequisite for settlement unfairness, merely defendant
indifference to (or a tacit understanding regarding) settlement allocation.
772 F.3d at 786-87; compare OB16-20.
As in this case, an infinitesimal fraction of the Pearson class objected.
Nevertheless, objectors play an essential role in judicial review of proposed
settlements of class actions, and their objections require vigilant and
realistic review. 772 F.3d at 787; compare OB36-37.
In short, Pearson is directly on point, is a natural application of Dry Max Pampers,
and requires reversal here.

Class counsel attempts to distinguish Pearson, PB45-47, but their distinctions

either misrepresent Pearson or are immaterial to the underlying holdings and reasoning
of that case.
Plaintiffs protest that the claims process here was not as burdensome as the
claims process in Pearson. PB45-46. But Pearson did not restrict its holding to cases
with the most egregious claims processes: rather, anything short of mail[ing] $3
checks is an example of throttling class recovery. 772 F.3d at 782-83. For example,
Pearson complained about the deterrent effect of requiring certifications under penalty
of perjury. Compare 772 F.3d at 783 with Settlement Claim Form, RE 97-2,
PageID #1527. Pearson holds that courts should value claims-made settlements with
the amount actually received by the class; it does not hold that a 0.25% claims rate
requires one valuation method, but one can move to class counsels proposed fiction
of potential value when the claims process is relaxed enough to increase the claims
rate to 8%. See generally OB28-30.
Plaintiffs argue that Pearson is distinguishable because the attorney fee award
was calculated using the common fund approach. PB46. The premise is questionable:
the Pearson district court awarded lodestar with no multiplier, though it claimed to
be basing it on a percentage of the common fund. 2014 WL 30676 (N.D. Ill. 2014).
But its also a distinction without a difference: Pearson holds that agreed-upon fees
disproportionate to class recovery in a settlement make a settlement presumptively
unfair without evidence that class recovery was unexpectedly low. 772 F.3d at 781-82.
Nothing about the ultimate district-court calculation changes that holding. Plaintiffs

argument that one should not look at the ratio of class recovery to attorney recovery
because they deliberately structured the settlement not to be a common fund
(PB35) is thus rejected by Pearson, which also was not a common fund, but, like this
one, an abusive settlement with a segregated fee structure that prevented reallocation
of a disproportionate fee request. It also runs afoul of Dry Max Pampers, which
rejected a below-lodestar fee award disproportionate to class recovery when, again,
there was neither a common fund nor any attempt to award fees on a basis other than
lodestar. Compare OB33-36 with PB32-38 (insisting that the disproportionate fee does
not make settlement unfair because district court used lodestar methodology).3
Plaintiffs also try to distinguish Pearson because, they assert, the district courts
settlement valuation in that case included cy pres and injunctive relief. PB46. But this is
false: the Pearson district courts calculation of a $20.2 million settlement value did not
include either cy pres or injunctive reliefthe same settlement valuation methodology
that plaintiffs argue for here. Compare 772 F.3d at 780-81 with PB50-52. Pearsons
discussion of cy pres and injunctive relief was with respect to plaintiffs attorneys
cross-appeal of the fee award.
Similarly, Pearsons criticism of the top-heavy hourly fee request in that case
(PB46-47) was dicta: further indication (if any were needed) that a fee request was
excessive. 772 F.3d at 781. But what made the agreed-upon fee request excessive in
3 Class counsel further argues that theyre entitled to a disproportionate award

because the case was on a contingent basis. PB36. Of course, all class actions are
necessarily on a contingent basis; class counsels reasoning would mean that Dry Max
Pampers and Pearson never apply, and that cant be right.

the first place was the fact that it exceeded the class benefit. Id. at 780-81. No further
indication was actually needed to hold otherwise, and that same disproportion
dooms the settlement here.
Class counsel would have this Court believe that Blackmans arguments
[against the kicker] are not grounded in economics, PB49 (emphasis in original),
though they sadly fail to cite any authority for that proposition. Blackmans counsel is
flattered that plaintiffs believe he has the immense rhetorical power to hoodwink
Judge Posner and each of the Seventh Circuit judges on the Pearson and Redman panels
with an argument not grounded in economics. But the simpler and much more
likely explanation for Pearson (and its praise by name for Blackmans counsel, 772 F.3d
at 787) is that Blackmans argument is correct as a matter of common sense, law,
economics, and public policy. For example, if class counsel had negotiated a
$4 million common fund, there would be no dispute that a $2.4 million fee would be
excessive. The only thing the kicker does is make the class worse off by segregating
the $2.4 million fee request so that it cannot be reallocated to the class. Pearson, 772
F.3d at 786-87. Why should class counsel be better off because they used a selfserving kicker that has unambiguously made the class worse off? OB18.4
4 Class counsel claims that the Ninth Circuit holds that a separate fee

agreement is entitled to heightened deference, implying (without affirmatively

stating) that there is a circuit split with Pearson. PB48. But there is no circuit split,
because class counsel has baldly misrepresented Staton v. Boeing Co. 180 degrees. That
the defendant in form agrees to pay the fees independently of any monetary award or
injunctive relief provided to the class in the agreement does not detract from the
need carefully to scrutinize the fee award. 327 F.3d 938, 964 (9th Cir. 2003); see

Pearson, like Dry Max Pampers, is not a one-off decision; it is a precedent

important for its rules of decision, and those rules of decision require reversal here.
B.

Plaintiffs arguments in defense of the settlements unfair allocation

ignore relevant precedent and heavily rely on attacking strawmen.
As both Redman v. RadioShack Corp. and Pearson v. NBTY, Inc., hold, the ratio

that is relevant to assessing the reasonableness of the attorneys fee that the parties

agreed to is the ratio of (1) the fee to (2) the fee plus what the class members
received (emphasis added). That ratio here is 60%, and is impermissibly self-dealing
under Fed. R. Civ. Proc. 23(e).
Class counsels arguments to the contrary ignore that rule of decision. It was
thus irrelevant to the holding of Redman v. RadioShack Corp. that that settlement
involved coupons (PB44-45); the settlement was held unfair even if the coupons were
assumed to be worth full face value, because the $1M to $0.83M ratio of fees to class
benefit would produce a contingent fee of 55%. 768 F.3d 622, 630 (7th Cir. 2014).
The same calculation of the ratio in this settlement would produce an even worse
contingent fee of 60%. That the Redman attorneys would receive a multiplier of their
lodestar was additionally problematic, but nothing in Redman holds that avoiding a
greater-than-1 multiplier by itself makes an unfair allocation fair. We know this from
Dry Max Pampers, where the attorneys $2.7M award was below their lodestar, but it
did not save a settlement where they would receive much more than the classeven

generally id. at 964-66 (the negotiation of class counsels attorneys fees is not exempt
from the truism that there is no such thing as a free lunch).

though the potential value of the settlement was in the tens of millions of dollars if
every class member successfully sought a refund. In re Dry Max Pampers Litig., No. 10cv-301 (S.D. Ohio.), Dkt. 76 at 35 (finding that fee award was less than what the
lodestar calculation would reflect), reversed 724 F.3d 713 (6th Cir. 2013); 724 F.3d at
718-20; OB24; OB34-35.
Class counsel cites precedent relating to Rule 23(h) awards (PB40), but those
appellate cases are simply inapposite, because they do not involve fees that class
counsel agreed to at the expense of the class, and they do not involve the question
of allocation under Rule 23(e).5 If class counsel litigated the case to conclusion and
won a $1.6 million judgment, then they might be entitled to $2.4 million in fees for
fee-shifting under Rule 23(h) if that amount reflected a reasonable expenditure of

5 For example, Americana Art China Co. v. Foxfire Printing & Packaging, Inc., 743

F.3d 243 (7th Cir. 2014), involved an ex parte appeal by class counsel of a Rule 23(h)
award in a case where there were no objectors but the district court sua sponte reduced
a proposed award as excessive. The Seventh Circuit had no opportunity to opine on
the Rule 23(e) fairness of the settlement; had it done so, Pearson and Redman would
require reversal of the settlement approval. The Redman and Pearson appellees and
cross-appellants relied at great length on Americana Art, to no avail: the Seventh
Circuit recognized, without need for comment, the distinct difference in procedural
postures. Waters v. Intl Precious Metals Corp. similarly involved a defendants challenge
to a fee award, and involved no challenge to settlement fairness. 190 F.3d 1291 (11th
Cir. 1999). Van Horn v. Nationwide Prop. & Cas. Ins. Co., 436 Fed. Appx. 496 (6th Cir.
2011), which plaintiffs also rely on at length, is also a Rule 23(h) case that does not
address Rule 23(e) allocational fairness, as well as an unpublished nonprecedential
opinion.

10

lodestar.6 But Rule 23(e) does not permit class counsel to settle claims for less than
their full alleged value and then seek to make themselves the primary beneficiary of
the settlement, no matter how much is made available hypothetically to the class.
See generally Pearson, 772 F.3d at 782 (making precisely this distinction between a
litigated judgment and a claims-made settlement where parties agree to fees); In re
GMC Pick-Up Trucks, 55 F.3d 768, 821 (3d Cir. 1995) (Becker, J.) (private agreements
to structure artificially separate fee and settlement arrangements cannot transform
what is in economic reality a common fund situation into a statutory fee shifting
case).
That said, there are certainly some district courts that hold otherwise, often
because they adopt ex parte argumentation unchallenged by competent objectors. Cf.
Eubank v. Pella Corp., 753 F.3d 716, 720 (7th Cir. 2014) (discussing disadvantage
district courts face when evaluating settlement fairness without adversarial
presentation). These courts are wrong, and contradict Dry Max Pampers. (The one
district-court case plaintiffs do quote at length, Driscoll v. George Wash. Univ., No. 12-

6 Thus, class counsels assertion that Blackman seeks adoption of an absolute

rule that, regardless of the risks taken, work performed, and results obtained, an award
of attorneys fees can never exceed the amount of the money actually distributed to
the class (PB38-39) is yet another misstatement of Blackmans position. See also
OB16; Pearson, 772 F.3d at 781-82. Note, too, that courts split over the premise of
whether obtaining a settlement counts as being a prevailing party for fee-shifting
purposes. E.g., Christina A. v. Bloomberg, 315 F.3d 990 (8th Cir. 2003). The Sixth Circuit
does not appear to have resolved this question, but need not reach it here, given that
Dry Max Pampers controls.

11

cv-690, 2014 U.S. Dist. LEXIS 119616 (D.D.C. July 17, 2014), does not disagree with
Blackman: Driscoll was a civil rights case, and Blackman expressly excepted civil rights
cases from the application of Dry Max Pampers that he proposed and that was adopted
by Pearson. OB16.)
Plaintiffs protest that Hensley v. Eckerhart, 461 U.S. 424, 437 (1983), encourages
settlement of fee disputes (PB48), is similarly unhelpful, as it fundamentally
misunderstands the difference in procedural posture between a Hensley and a classaction settlement. Hensley was a fully-litigated case, and the Supreme Court suggested
that parties in such a case should seek to resolve the collateral 42 U.S.C. 1988
litigation on fee-shifting after judgment because it would avoid a second litigation. A
class is not potentially prejudiced when that happens, because their relief has already
been set in stone by an Article III court. In contrast, when a class action is settled,
there are two major differences. First, class counsel is not just compromising their fee
request, but also compromising the relief available to their putative clients, and this
leads to an inherent conflict of interest that could lead to self-dealing. [C]lass action
settlements are often quite different from settlements of other types of cases, which
indeed are bargained exchanges between the opposing litigants. Pearson, 772 F.3d at
787; accord Dry Max Pampers, 724 F.3d at 715. Second, Hensley is a bilateral negotiation
between one set of class counsel and one set of defendants. Their agreement ends the
dispute, because absent class members rights are not affected. In contrast, a class
action settlement fee request is a multilateral dispute where absent class members
were never at the table and never had the opportunity to consent to the fee. A fee

12

agreement between two of the parties does not end collateral litigation (as Hensley
hoped would happen in the bilateral scenario), because absent class members continue
to have the right to object under Rules 23(e) and (h). The only effect of a side
agreement is to prejudice the classs rights without the benefit of preventing collateral
litigation. See generally Pearson, 772 F.3d at 787 (noting conflicts of interest in class
litigation, citing cases, and noting benefit of objectors).7 Plaintiffs other published
appellate citations supposedly in support of clear sailing (PB47) are of no help to
them:
Gooch v. Life Investors Ins. Co. of Am., 672 F.3d 402, 425-26 (6th Cir. 2012),
implied that clear sailing was problematic when, as here, the fee award was
disproportionate to class relief. Moreover, Gooch involved a collateral
challenge to a class settlement approved in state court, which required a
showing of collusion; it has no bearing on the Rule 23(e) allocational
fairness of a settlement where the complaint is that class counsel is the
primary beneficiary of a settlement, rather than allegations of collusion.
Plaintiffs cite a Ninth Circuit opinion that had been vacated before they
filed their brief. Laguna v. Coverall N. Am., Inc., 753 F.3d 918 (9th Cir. 2014),
vacated at -- F.3d --, 2014 U.S. App. LEXIS 21950 (9th Cir. Nov. 20, 2014).

7 Similarly, Bittner v. Tri-County Toyota, 569 N.E.2d 464 (Ohio 1991), cited by

class counsel at PB40, involved a single plaintiff, and thus does not implicate the
rights of absent class members as a Rule 23(e) inquiry doeseven if state law could
dictate how a federal court interprets Rule 23(e) procedure, which it cannot. Shady
Grove Orthopedic Assocs., PA v. Allstate Insurance Co., 559 U.S. 393 (2010).

13

 Waters (again not a Rule 23(e) case) expressly refused to reach the issue of
the validity of the clear-sailing clause, and issued its decision as if a clearsailing clause had no effect on a defendants right to challenge a fee award.
190 F.3d at 1293 n.4.
To the extent unpublished opinions and district courts hold clear-sailing clauses
unproblematic, they contradict Redman. OB17-18.
Class counsel argue at length that the $1.6 million payment to the class is
adequate, comparing it to the payments in other gym-membership class-action
settlements. PB12-13; see also DB3-4. Class counsel repeatedly falsely characterize that
payment as saying the average Class Member will recover $31.99 (e.g., PB18), even
though basic arithmetic shows that $1,593,240 divided over 606,246 class members is
$2.63/class member. That plaintiffs brief ignores the over 550,000 class members
who get nothing under the settlement epitomizes their breach of fiduciary duty to the
class. But plaintiffs misrepresent Blackmans argument when they suggest (PB25) that
he is complaining about the settlements adequacy. As Blackman said in his opening
brief,
Blackman is not claiming that the settlement must be $40 million
or $8 million instead of $4 million. But when the parties agree to
settle a case for a total of $4 million, it is inherently unfair for the
class attorneys to negotiate the lions share of that amountin
this case sixty percentfor itself. Perhaps the suit is meritless and
a settlement paying the class a single peppercorn would be
adequate. But if a defendant is willing to overpay to obtain a
release of class action claims, it is wrong for the class counsel to
shepherd that windfall for themselves. A proportionate share of

14

the windfall must go to the class before the Dry Max Pampers
allocation problem is resolved. [OB12]
Class counsel is entitled to settle the case for under $7 a class member if they
competently believe in good faith that that is an adequate valuation of the claims;
Blackman has never suggested that $6.59 a class member is not an adequate
settlement. But class counsel is not entitled to distribute that allocation at $3.96 for
themselves and $2.63 for the class: that makes themselves the primary beneficiary
under Dry Max Pampers and is impermissibly selfish under Pearson, and Rule 23(e)
does not permit that.
Class counsel implies that Blackmans objection is somehow self-dealing or
in bad faith because he has no claims. PB16. But that premise would mean that the
class was improperly certified because of the individualized differences amongst class
members. Class counsel, having won a settlement approval by successfully persuading
the district court that the certified settlement class had common claims (R&R,
RE 141, PageID #2815-17; Motion for Approval, RE 132, PageID #2458-59), is
judicially estopped from making any argument that Blackman does not have the same
common claims as the rest of the class. E.g., White v. Wyndham Vacation Ownership, Inc.,
617 F.3d 472 (6th Cir. 2010); Great Earth Cos. v. Simons, 288 F.3d 878, 892-93 (6th Cir.
2002). (Furthermore, even if they preserved that argument in their appellate brief with
a single drive-by sentence, plaintiffs waived any argument that Blackman does not
have the Rule 23(e)(5) right to object by not objecting to the magistrates finding that
he was a class member entitled to object. R&R, RE 141, PageID #2812-13; Fed. R.
Civ. Proc. 72.) Even if the settlement provides Blackman with an adequate amount, or

15

even a windfall, the fact remains that Urban Active was willing to pay $4 million to
settle the case, and class counsel improperly self-dealt in allocating the majority of that
to itself. Regardless of whether $4 million is an adequate amount or even a windfall,
Rule 23(e)s fairness requirement entitles the class to a proportionate share of the
$4 million settlement benefit. Here, that would be $3 million, rather than $1.6 million.
Seeking an additional $1.4 million to be provided to the class instead of selfish class
counsel is surely seeking [a] benefit for the Class and to Blackman. PB16.
Blackmans objection and appeal is in good faith and is based on the law.
Instead of addressing Blackmans argument, appellees attack a strawman that
Blackman explicitly disclaimed by focusing on the adequacy issue. But if class counsel
were correct that it is enough to stop at the adequacy inquiry, Dry Max Pampers and
Redman and Bluetooth would have been incorrectly decided: these were decisions where
there was no dispute about whether the class had received adequate compensation
for the value of the claims released. E.g., Redman v. RadioShack Corp., 768 F.3d 622, 632
(7th Cir. 2014) (finding total settlement value adequate because of risk of defendant
insolvency). Rule 23(e) requires consideration not just whether a settlement is
adequate, but also whether it is fair and reasonable. Appeals courts reversed
those settlement approvals because the allocation was unfair and the district court
ratified an untenable disproportion. Again, it is the rule of decision that matters, and
not the immaterial details of whether the case involved refunds or claim forms or
coupons or diapers or headsets or gym memberships. The Redman settlement that paid
the class coupons assumed to be worth $830 thousand and the attorneys $1 million

16

does not become fair when that impermissible ratio is translated into $1.6 million and
$2.4 million in cash. There is no special exception in Rule 23(e) for settlements
relating to gym memberships. If other district courts happen to have approved
settlements (or even gym membership settlements) that run afoul of this principle, it
just means either that they committed the same reversible error that this district court
committed or that objectors failed to correctly raise the dispositive allocation
argument. The question is not whether the relief is perfunctory or substantive,
but whether class counsel self-dealt by making themselves the primary beneficiary of
the settlement allocation.
Thus, class counsels protests that there was no finding of collusion are
similarly irrelevant. The adversarial process extends only to the amount the
defendant will pay, not the manner in which that amount is allocated between the
class representatives, class counsel, and unnamed class members. Dry Max Pampers,
724 F.3d at 717 (emphasis added); accord Redman, 768 F.3d at 629 (arms-length
negotiations are consistent with a conflict of interest on the part of one of the
negotiatorsclass counselthat may warp the outcome of the negotiations). As he
said in his opening brief, Blackman has never made an argument of collusion.
OB16-20. A settlement can be unfair without collusion if class counsel self-deals to
make itself the primary beneficiary of the settlement, because, as multiple courts
including this one have recognized, the economic reality [is] that a settling defendant
is concerned only with its total liability and the allocation between the class
payment and the attorneys fees is of little or no interest to the defense. Dry Max

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Pampers, 724 F.3d at 717 (internal quotation and citation omitted; brackets in original);
accord Pearson, 772 F.3d at 783, 786; Redman, 768 F.3d at 629; In re Bluetooth Headset Prod.
Liab. Litig., 654 F.3d 935, 949 (9th Cir. 2011); In re Gen. Motors Corp. Pickup Truck Fuel
Tank Prod. Liab. Litig., 55 F.3d 768, 819-20 (3d Cir. 1995) (Becker, J.). Again, class
counsel relies on defeating a strawman, falsely claiming that Blackmans argument
rests on baseless allegations of collusion. PB49.
Class counsel raises another strawman: The primary arguments advanced by
both sets of Appellants are that the use of the claims-made settlement procedure
renders this Settlement unfair. PB19. Thats not Blackmans primary argument at all.
Blackman explicitly acknowledged that parties have a right to structure a settlement to
only pay claiming class members. OB31-32. Blackmans argument is that settling
parties cannot claim that a claims-made settlement is the economic equivalent of
direct payment to the class when defending the allocational fairness of the settlement.
OB20-32.8
Class counsel protests that it would have been impossible to pay every class
member because some addresses were inaccurate and never retrieved. PB26. Though
class counsel concedes 90% of postcards were delivered, they note that some
8 Plaintiffs demand that appellants cite a single case rejecting a valuable

settlement because it required a simple one-page claim form. PB25. Again, this is a
strawman: Blackman doesnt call for rejecting this settlement because it required a
one-page claim form; Blackmans objection is that the parties structured the
settlement to pay class counsel 60% of the total settlement benefit. But, though
nothing turns on this fact, the claim form in Pearson v. NBTY, Inc. was on a single
webpage. See http://is.gd/pearsonclaimarchive (last visited December 27, 2014).

18

percentage of them may not have reached the class member. But so what? Common
sense says that direct payment would have resulted in substantially more payments
than the 8% claims-made claims rate, and there is no evidence otherwise.9 Class
counsels argument that they structured the settlement to withhold benefit from 92%
of the class for fear of being unable to pay 10-20% of the class directly is akin to the
apocryphal Vietnam War declaration we had to destroy the village to save it. Cf.
Edwards v. Niagara Credit Solutions, Inc., 584 F.3d 1350 (11th Cir. 2009). (And, in any
event, nothing stopped a settlement that had both direct payments and a claims
process for class members who somehow learned of the settlement without the
parties being able to directly mail them.) Class counsel compromised class members
claims by establishing a claims-made process and cannot be heard to complain that
class members object to them seeking an award that is not commensurate with
what they negotiated for their clients. Dry Max Pampers, 724 F.3d at 720. Yes, claim
forms are commonplace: so, unfortunately, are class action settlements that run afoul
of the allocation problems identified by Dry Max Pampers. As Pearson and Blackman
9 At one point, class counsel goes farther and argues against common sense

that there is no evidence that any of the postcards reached any of the class members.
Again, class counsel is trying to have it both ways in a way precluded by judicial
estoppel: if theyre arguing that their methodology of two rounds of postcards was
insufficient to provide individualized notice, then the settlement must be rejected on
due process grounds. We tolerate class action settlements that release absent class
members claims because we assume that the individualized notice provided them
complies with the Constitution. Cf. Marcus v. BMW of North Am., 687 F.3d 583, 593
(3d Cir. 2012). Class counsel cannot even maintain the fiction that the notice did not
reach anyone throughout their own appellate brief. PB7 (trumpeting robust notice).

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both note, only by aligning the interests of class counsel with the class can we ensure
that a settlement is designed to actually deliver benefits to the class. 772 F.3d
at 781-84; OB25-31.
Blackman agrees with plaintiffs (PB1-2) that 28 U.S.C. 1332(d)(10) supersedes
Delay v. Rosenthal Collins Group, Inc., 585 F.3d 1003, 1005 (6th Cir. 2009) in the classaction context, and that there is thus no dispute over federal jurisdiction.
Conclusion
The district court committed multiple independent errors of law, each of which
by itself requires vacation of the settlement approval and award of fees and remand
for consideration under the correct standards of law. But this Court should go beyond
a simple remand. Because there is no factual dispute that the class received less than
the class counsels negotiated clear-sailing fee as part of a compromise of its claims
and is thus the primary beneficiary of the settlement, and because the kicker
prohibits a district court from reallocating the disproportion to the class, the
settlement must be rejected as a matter of law, and this Court should reverse with
instructions to reject the settlement entirely.

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Dated: December 28, 2014

Respectfully submitted,
CENTER FOR CLASS ACTION FAIRNESS
/s/ Theodore H. Frank
Theodore H. Frank
Adam E. Schulman
1718 M Street NW, No. 236
Washington, DC 20036
Telephone: (703) 203-3848
Email: tfrank@gmail.com
Attorneys for Appellant Joshua Blackman

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Certificate of Compliance with Fed. R. App. Proc. 32(a)(7)(C)

This brief complies with the type-volume limitation of Fed. R. App. 32(a)(7)(B)
because this brief contains 5,581 words, excluding the parts of the brief exempted by
Fed. R. App. 32(a)(7)(B)(iii), as counted by Microsoft Word 2010.
This brief complies with the typeface requirements of Fed. R. App. 32(a)(5) and
the type style requirements of Fed. R. App. 32(a)(6) because this brief has been
prepared in a proportionally spaced typeface using Microsoft Word 2010 in 14-point
Garamond font.
Executed on December 28, 2014.
/s/ Theodore H. Frank
Theodore H. Frank

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Proof of Service
I hereby certify that on December 28, 2014, I electronically filed the foregoing
with the Clerk of the United States Court of Appeals for the Sixth Circuit using the
CM/ECF system, which will provide notification of such filing to all counsel of
record.
Executed on December 28, 2014.
/s/ Theodore H. Frank
Theodore H. Frank
CENTER FOR CLASS ACTION
FAIRNESS
1718 M Street NW, No. 236
Washington, DC 20036
Telephone: (703) 203-3848
Email: tfrank@gmail.com
Attorney for Appellant Joshua Blackman

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Addendum of Supplemental Designations

of Relevant District Court Documents
As 6th Cir. R. 30(f)(1) requires, Blackman designates the following district court
document as relevant to this appeal in addition to those he previously designated in
his opening brief:
RE 132, Motion for Approval, PageID #2458-59

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