On January 17, 2007, TJX Companies announced that hackers had broken into its computer systems. The intruders stole data relating to over 45 million credit and debit cards.

Predictably, the class action complaints arrived. The MDL Panel dutifully coordinated the cases. And just eight months later, in September 2007, the parties proposed a settlement agreement. On July 15, 2008, the court gave final approval to the settlement.

All of this was uneventful. But last week, on November 3, Judge William G. Young of the District of Massachusetts entered his order awarding attorneys’ fees relating to the settlement. And that’s where things got interesting. See In re TJX Companies Retail Security Breach Litig., No. 07-10162-WGY, slip op. (D. Mass. Nov. 3, 2008) (here’s a link).

Class counsel asserted that the settlement provided over $200 million in theoretical benefits to the class. Judge Young was concerned, however, that the class members might not actually claim anything approaching that $200 million mark. “As of October 30, 2008, . . . class members had claimed just over $6,100,000 in benefits, a figure unlikely significantly to increase.” Id. at 10. Why, then should class counsel be awarded the requested $6,500,000 in fees?

Judge Young analyzed the cases saying that attorneys’ fees should be based on the “basket of benefits” that counsel create for the class, rather than the benefits that the class members actually claim. Id. at 11. He reasoned that those cases involved the defendant contributing actual funds, rather than a process by which the defendant agrees to “pay claims on an as-made basis.” Id. at 12.

In that second situation, “only a fraction of any given class is likely to claim the benefits provided for in a settlement.” Id. at 16. Moreover, “attorneys for each side bargain knowing that this is true. Thus, class counsel can — and likely often do — push defendants for higher payout caps or fund amounts in order to expand the basis for their fee petition without any real expectation that those additional funds will be claimed by the class.” Id. at 17. Judge Young therefore announced that, in the future, he will be “tying the award of attorneys’ fees to claims made by class members.” Id. at 20.

This will encourage class counsel to design notice plans that actually communicate with class members and to offer settlement benefits that class members are inclined to apply for. Class counsel should not merely lead the horse to water, but should go further, “verifying the horse can see the water, choosing clear, fresh, and cold water, . . . and making sure there are no obstacles in the horse’s path.” Id. at 28.

We like that approach; it can only improve the workings of class action settlements.

Indeed, we have only one (petty) quibble with this opinion: footnote 16 at page 18. Judge Young writes: “[A]s Professor Samuel Issacharoff, Visiting Professor of Law at Harvard Law School, tells his students with succinct brilliance, ‘Multi-district litigation is like the old Roach Motel ad: ‘Roaches [the cases transferred by the MDL Panel] check in — but they don’t check out.””

No, no, no.

We have a somewhat earlier cite for that “succinct brilliance” — and it’s one we have a personal stake in: “[A] cynic might ask: ‘What’s the similarity between an MDL and a Roach Motel?’ The punch line, of course: ‘Cases check in, but they never check out.'” Mark Herrmann, “To MDL or Not to MDL? A Defense Perspective,” Litigation 43, 47 (1998).

But that’s quibbling around the edges of what is otherwise a thoughtful opinion that may well improve the law of class action settlements.