Health Law Daily Wrap Up, GENERAL HEALTH CARE NEWS—D. Ariz.: Attorney fee structure derails proposed settlement with unclear settlement value to class members, (Oct 16, 2025)

By Jeffrey H. Brochin, J.D.

The record before the court did not justify the seemingly disproportionately high award of attorneys’ fees compared to the relief afforded class members, nor did it explain why the ‘clear sailing’ and ‘kicker’ arrangements were created.

A federal district court in Arizona has denied the request for preliminary approval of a proposed class settlement in a lawsuit brought by patients whose protected health information (PHI) and personally identifiable information (PII) were disclosed by LifeStance Health Group Incorporated (LifeStance or Company) to third-party Meta Platforms, Inc. Although the court found that all of the elements for preliminary approval of settlements made before class certification were met, they nevertheless determined that the record was unclear as to the value of the proposed settlement to class members, and, the included kicker clause allowed for the risk of collusion or unfairness to the class, (Montana v. Life Stance Health Group, Inc., No. 2:23-cv-00682-KML (D. Ariz. Oct 6, 2025)).

Tracking technology employed. LifeStance is a mental healthcare company that offers outpatient care services via in-person locations and telemedicine. Their more than 5,200 psychiatrists, advance practice nurses, psychologists, and therapists provide treatment for conditions including depression, PTSD, and bipolar disorder. The Patients filed suit alleging that LifeStance employed tracking technology which allowed their PII and PHI to be intercepted from the Company’s website and sent to third parties such as Meta Platforms, Inc. d/b/a Facebook, without the informed consent of the Patients.

Division into three subclasses. Following mediation and informal discovery (but before formal class certification), the parties ultimately agreed to resolve the claims in exchange for LifeStance providing prospective class members a common fund and additional benefits. The class members were divided into three subclasses of: Settlement Subclass 1, being all members of LifeStance’s total patient population who booked at least one session through LifeStance’s online booking tool, accessed through LifeStance’s public website, between March 1, 2020 and April 30, 2023; Settlement Subclass 2, being all other members of LifeStance’s total patient population between March 1, 2020 and April 30, 2023, not including those in Settlement Subclass 1; and, Settlement Subclass 3, being all persons who visited the LifeStance website between March 1, 2020 and April 30, 2023 but did not book appointments online or otherwise become patients.

Proposed settlement agreement. The proposed settlement agreement identified 171,915 members of Subclass 1 and 907,737 members of Subclass 2. Members of Subclass 1 would receive a pro rata cash payment from a LifeStance-funded non-reversionary fund of $1,203,405.00, less any amount the court might award for attorneys’ fees and costs. Members of Subclasses 1 and 2 would receive offers to enroll for free in a twelve-month subscription to a privacy monitoring service, which the parties valued at approximately $265 per redemption. Finally, all subclass members would receive injunctive relief by which LifeStance would agree to disable and forego the use of all third-party tracking pixels, (other than tracking pixels compliant with HIPAA) for a period of five (5) years.

Attorneys’ fees would be funded by two mechanisms: class attorneys would seek 25% or 33% plus litigation costs from the $1.2 million fund for attorneys’ fees attributable to counsel’s work securing the settlement for Subclass 1; and, separately, LifeStance would create a $750,000 fund for attorneys’ fees attributable to the work done to secure the settlement benefits for Settlement Subclass 2 and Settlement Subclass 3. In all, the 171,915 members of Subclass 1 would split approximately $800,000-$900,000 (i.e., $1,203,405.00 minus either 33% or 25% for fees and costs, depending on which represented the accurate settlement term). If every subclass member then made a claim, each Subclass 1 member would receive between $4.69 and $5.25. The 171,915 Subclass 1 members and 907,737 Subclass 2 members would be eligible to claim an offer for a free privacy monitoring service, and the members of Subclass 3 would receive injunctive relief in the form of LifeStance being prohibited from engaging in illegal conduct.

Rule 23(a) and Rule 23(b). The court noted that a class action will be certified for the purpose of settlement if it meets the four requirements in Rule 23(a)—numerosity, commonality, typicality, and adequacy of representation—and, one of the three requirements in Rule 23(b). Here, the court found that all four requirements under Rule 23(a) were satisfied. As to Rule 23(b), the parties relied on Rule 23(b)(3), which allows for certification when common questions predominate over individual questions and when class resolution is superior to other available methods of adjudication. Again, the court found that a requirement of Rule 23(b) was satisfied.

Areas of concern. However, notwithstanding the foregoing findings by the court, they further found multiple areas of concern with the proposed settlement. One such concern was the parties’ failure to address the proposed settlement’s value compared to the potential liability at stake. Courts often deny approval where they are not provided with information about the maximum amount that the putative class members could recover if they ultimately prevailed on the merits of their claims. Not knowing how the Patients valued the case pre-settlement hindered a meaningful determination of the reasonableness of members’ recoveries or the strength of the case.

But the court’s primary point of concern was the attorneys’ fee structure given that the court could not fully value the settlement at the current stage. The settlement was comprised of monetary funds, coupons for one free year of privacy monitoring, and injunctive relief. The monetary funds were capable of being valued: $1,203,405 (66%-75% earmarked for Subclass 1 and 25%-33% for attorneys for that subclass), $750,000 (earmarked for attorneys for Subclasses 2 and 3), and $300,000 (earmarked for the class administrator). However, the injunctive relief added no monetary value to the settlement given that the tracking behavior was allegedly illegal, and, more importantly, LifeStance had already ceased that behavior well before the parties settled.

Attorneys’ award too high. According to the proposed settlement, counsel would request 25% of the $1.2 million fund (plus costs), the rest of which will go to members of Subclass 1 on a pro rata basis. But according to the draft notice to the class, counsel would request attorneys’ fees of “up to one-third of the Settlement Subclass 1 Fund, plus costs and expenses.” The parties failed to explain that contradiction.

Furthermore, the kicker clause provided that LifeStance agreed to pay $750,000 into a separate fund solely for attorneys’ fees attributable to work done on behalf of Subclasses 2 and 3; but, unpaid attorneys’ fees from the $750,000 fund would revert back to LifeStance rather than going to the class, and this the court found posed a risk of collusion. By agreeing that LifeStance would not contest the attorneys’ $750,000 fee request, the parties appeared to have negotiated a “clear sailing” arrangement, and the court cited precedent pursuant to which the very existence of a clear sailing provision increases the likelihood that class counsel will have bargained away something of value to the class.

Based on the foregoing, the court denied the parties’ motion for approval of the proposed class settlement agreement but allowed for renewal of the motion within 30 days,

The case is No. 2:23-cv-00682-KML.

Judge: Lanham, K.

Attorneys: Britany Kabakov (Almeida Law Group LLC) and Hart Lawrence Robinovitch (Zimmerman Reed PLLP) for Montana Strong and Debra Yick. Andrew J. O'Connor (Ropes & Gray LLP) for LifeStance Health Group Inc. d/b/a LifeStance.

Companies: LifeStance Health Group Inc. d/b/a LifeStance

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