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In re Subway Footlong Sandwich Marketing & Sales Practices Litigation

United States District Court, E.D. Wisconsin

February 25, 2016

IN RE SUBWAY FOOTLONG SANDWICH MARKETING AND SALES PRACTICES LITIGATION This Document Relates to All Cases

DECISION AND ORDER

LYNN ADELMAN District Judge

The present litigation consists of multiple class actions that the Judicial Panel on Multidistrict Litigation transferred to this district for consolidated pretrial purposes. See 28 U.S.C. § 1407. The plaintiffs allege that Doctor’s Associates, Inc., the franchisor of Subway restaurants, engaged in deceptive marketing and sales practices by advertising Subway sandwiches as “Footlongs” and “6-inch” sandwiches when, in fact, some sandwiches were slightly shorter than their advertised lengths. The parties have reached a settlement. In a prior order, I certified a settlement class and preliminarily approved the settlement agreement. On January 15, 2016, I held a final fairness hearing. Before me now are motions relating to the final approval of the settlement: plaintiffs’ motion for final approval of the settlement; class counsel’s motion for attorneys’ fees, costs, and incentive awards for the named plaintiffs; and several administrative motions.

I. BACKGROUND

Doctor’s Associates is the franchisor of Subway restaurants in the United States. The restaurants, which sell fast-food submarine sandwiches, are owned by independent franchisees. Doctor’s Associates enforces certain uniform standards that apply to the restaurants and also conducts a nationwide marketing campaign. During the time period relevant to this suit, the marketing campaign advertised Subway sandwiches as “Footlongs” and included various references to the sandwiches being one foot, or 12 inches, in length. See Am. Compl. ¶¶ 28-31, ECF No. 18. The defendant also marketed “6-inch” sandwiches as being available for purchase at Subway restaurants. These sandwiches are created by cutting the bread used for Footlong sandwiches in half. Id. ¶ 32.

In January 2013, an Australian teenager posted a picture on Facebook of a Subway Footlong sandwich he purchased that was only 11 inches long. The picture became the subject of considerable media attention. Around this time, the lawyers who would eventually file the present case began investigating potential claims against Doctor’s Associates for violating state consumer-protection laws. Between January and June of 2013, the named plaintiffs and their respective counsel filed complaints in several courts around the country. The complaints alleged that Doctor’s Associates had engaged in unfair and deceptive marketing practices regarding the length of Footlong and 6-inch sandwiches, resulting in each plaintiff receiving less food than he or she had bargained for. Each case was pleaded as a class action and sought monetary damages, attorneys’ fees, and injunctive relief under the consumer-protection laws of all 50 states and the District of Columbia.

In February 2013, Doctor’s Associates requested that the Judicial Panel on Multidistrict Litigation transfer the seven actions that had been filed by that time to a single district for consolidated pretrial proceedings. While waiting for the panel to rule on the request, the parties in all cases agreed to mediate with a retired United States Magistrate Judge. In preparation for the mediation, the parties exchanged informal discovery relating to the merits of the plaintiffs’ claims. During this time, plaintiffs’ counsel continued with their own investigation, which included interviewing former employees of the bakeries that manufactured the dough used in Subway sandwiches. The parties then participated in a mediation session that did not result in a resolution of the case.

By the time the initial mediation session was over, the plaintiffs realized that their claims were quite weak. First, the plaintiffs learned that Doctor’s Associates’ own testing showed that the vast majority of bread sold in Subway restaurants was at least 12 inches long, and that most of the bread that happened to be shorter than 12 inches was less than 1/4-inch shorter. Second, the plaintiffs learned that all of the raw dough sticks used to bake Subway bread weigh exactly the same. The dough sticks arrive at the restaurants frozen, and are then thawed, stretched, allowed to rise, and baked. Due to natural variability in this process, the final loaves may have slightly different shapes. Some loaves will be slightly shorter and wider than others. But because all loaves are baked from the same quantity of dough, each loaf contains the same quantity of ingredients. Thus, a customer who received a baked loaf that was shorter than 12 inches did not receive any less bread than he or she would have if the loaf had measured exactly 12 inches. Third, the plaintiffs learned that the amount of meat and cheese included with each sandwich is standardized. Thus, a sandwich that is slightly shorter than 12 inches contains the same amount of meat and cheese as it would have had it measured exactly 12 inches. It is theoretically possible that a sandwich made on a slightly shorter loaf would contain a slightly diminished quantity of toppings-a sandwich that was 1/4-inch shorter than advertised might be missing a few shreds of lettuce or a gram or two of mayonnaise.

However, Subway sandwiches are made to order in front of the customer, and if the customer asks for more of any particular topping, the employee making the sandwich will add more of that topping to the sandwich. Thus, the plaintiffs learned that, as a practical matter, the length of the bread does not affect the quantity of food the customer receives. See generally Decl. of Nicholas Hauptfeld, ECF No. 55-1.

Also during this informal discovery period and initial mediation session, the plaintiffs began to evaluate their chances for obtaining class certification on their damages claims. They realized that one serious obstacle to class certification was the lack of proof as to which potential class members purchased sandwiches that were shorter than advertised. Because not every Subway sandwich sold during the class period was undersized, it is not the case that every person who purchased a Subway sandwich during the class period suffered an injury. Thus, individualized hearings would be needed to determine which potential class members purchased undersized sandwiches. Moreover, unless a customer happened to measure his or her sandwich before eating it (as the named plaintiffs did, see Am. Compl. ¶¶ 11-19), the customer was unlikely to even realize that the sandwich was shorter than advertised. This made proof of injury difficult. Another obstacle to class certification related to proof of materiality, which is an element of a claim for damages under most states’ consumer-protection statutes. Many consumers likely would not be so concerned about the exact dimensions of a fast-food sandwich that they would feel cheated upon learning that the sandwich they purchased was 1/4-inch shorter than advertised. This is especially true when the length of the sandwich does not affect the quantity of food received. Thus, individualized inquiries would be needed in order to identify those few consumers who both received undersized sandwiches and deemed the slight difference in length material to their purchasing decisions.

In light of these problems with obtaining class certification on claims for monetary damages, the plaintiffs decided to refocus their efforts on the class’s claims for injunctive relief, which sought an injunction requiring Doctor’s Associates to adopt measures designed to ensure that all sandwiches are at least 12 inches long. By the time the plaintiffs made this decision, the Panel on Multidistrict Litigation had granted Doctor’s Associates’ motion and transferred the original seven cases to this court.[1] I then appointed lead counsel and set a deadline for the plaintiffs to file an amended complaint governing all cases. The complaint that was eventually filed did not contain claims for monetary damages. Instead, the plaintiffs sought injunctive relief only and alleged that class certification was proper under Federal Rule of Civil Procedure 23(b)(2). The proposed class was defined as all persons in the United States who purchased a Subway 6-inch or Footlong sandwich during the class period.

Throughout the summer and fall of 2013, the parties continued to attend mediation sessions with the magistrate judge. By March 2014, the mediation had resulted in a settlement in principle on the claims for injunctive relief. Under the settlement, Doctor’s Associates agreed to institute or keep in place, for a period of at least four years from the date the court finally approves the settlement, a number of practices that are designed to ensure that all bread sold at Subway restaurants is at least 12 inches long. See Settlement Agreement ¶¶ 22.i-22.vi, 24, ECF No. 46-1 at pp. 30-33.[2] In addition, Doctor’s Associates agreed to require all Subway restaurants to post notices to customers indicating that, due to natural variability in the bread-baking process, the size and shape of bread may vary. Id. ¶ 22.vii. Doctor’s Associates agreed to post a similar notice on its own website. Id. ¶ 22.viii.

Under the consumer-protection laws of most states, a successful plaintiff is entitled to an award of reasonable attorneys’ fees. The parties’ initial settlement agreement did not result in a settlement of class counsel’s claim for attorneys’ fees under these statutes. Moreover, in class-action settlements, the named plaintiffs are often awarded compensation (known as “incentive awards”) for their services as class representatives. See, e.g., Eubank v. Pella Corp., 753 F.3d 718, 723 (7th Cir. 2014). The initial settlement did not address the named plaintiffs’ claims for incentive awards. But the parties engaged in further mediation with the magistrate judge in an attempt to settle the amount of attorneys’ fees and incentive awards. After several months of failed attempts at settling these matters, the parties informed the court that they had reached an impasse.

In December 2014, I offered to personally conduct mediation relating to the amount of attorneys’ fees and incentive awards, provided that all parties consented to my doing so.

I informed the parties that, in the alternative, the plaintiffs could file a contested motion for attorneys’ fees and incentive awards, to which Doctor’s Associates would respond, and which I would ultimately resolve. The parties agreed to mediation with the court. The mediation was held in February 2015 and resulted in a resolution of the outstanding issues. Under the parties’ agreement, the plaintiffs agreed to ask the court to award no more than $525, 000 in attorneys’ fees (including costs and expenses) and incentive awards, and Doctor’s Associates agreed that it would not oppose the plaintiffs’ request. See Settlement Agreement ¶¶ 39-41. The agreement provides that the incentive awards shall be no more than $1, 000 per named plaintiff.[3] The agreement further provides that the exact amount of attorneys’ fees and incentive awards would be left to the sole discretion of the court, and that the court’s deciding to award less than $525, 000 would not result in termination of the agreement to settle the claims for injunctive relief.

In September 2015, the parties submitted the final proposed settlement agreement to the court for preliminary approval. In this agreement, the proposed settlement class is defined all persons in the United States who purchased a 6-inch or Footlong sandwich at a Subway restaurant between January 1, 2003 and the date of preliminary approval (which was October 2, 2015). Importantly, the final settlement agreement provides that class members who are not named plaintiffs are releasing only claims for injunctive relief; the settlement agreement expressly reserves the right of class members to bring claims for monetary damages against Doctor’s Associates, either individually or in a subsequent class action. See Settlement Agreement ¶¶ 47-48.

The final settlement agreement contemplates that the class will be certified for settlement purposes under Federal Rule of Civil Procedure 23(b)(2), i.e., as an “injunction only” class. Rule 23 does not allow members of a class certified under this provision to opt out. Nor does Rule 23 clearly require the court to direct notice to the members of an injunction-only class. See Fed.R.Civ.P. 23(c)(2); but see Rule 23(e)(1) (requiring court to direct notice of a settlement to class members). However, the settlement agreement provides for notice to class members. Specifically, the agreement provides that a settlement administrator will distribute a national press release announcing the settlement to thousands of newspapers, television stations, radio stations, magazines, and websites. Settlement Agreement ΒΆΒΆ 33-34. The press release will direct class ...


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