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Legal Fees Derail Zappos Settlement

RENO, Nev. (CN) - A dispute over "extravagant" attorney's fees stopped a proposed class action settlement between Zappos and customers whose personal information was stolen by hackers.

U.S. District Judge Robert C. Jones on Friday denied a motion to enforce a proposed settlement between the plaintiff class and Zappos.

Although Zappos and the class reached a tentative settlement, a disagreement over attorney's fees halted negotiations.

In his 6-page order, Jones said Zappos sent a revised copy of a memorandum of understanding regarding the tentative settlement, but left blank the amounts for attorney's fees.

Class attorneys wrote, "TBD'' and "to be determined and inserted upon mediation,'" signed the document and sent it back to Zappos.

Zappos did not sign the memorandum and asked for a demand of attorney's fees from the plaintiff class.

A mediator on Nov. 10, 2014 got an offer from the class, but Zappos called it "extravagant" and broke off mediation talks.

Zappos renewed motions to dismiss and strike the complaint on Jan. 30, and the class filed a motion to enforce the proposed settlement outlined in the memorandum of understanding.

Jones found that Zappos never signed the memorandum of understanding, so there is no "binding settlement contract because the parties failed to have a 'meeting of the minds' on the essential term of the agreement - attorney's fees."

Without a limit on attorney's fees, Jones said, Zappos would not agree to the proposed settlement.

"It would be unfair to hold Zappos to an agreement that was unsigned where the document clearly appears to not be a final draft, given that the amounts of attorneys' fee and costs were not included," Jones wrote. "Surely Zappos was not giving plaintiffs a 'blank check' to fill in any fee cap that plaintiffs' counsel thought justified.

"The fact that Zappos' counsel left the lines blank for 'attorneys' fees, litigation expenses and costs' as well as for the 'incentive award' screams that the [memorandum] was still in draft form and not a finalized agreement representing a meeting of the minds on all essential terms."

Jones found the issue of attorney's fees material to the settlement and denied plaintiffs' motion to compel Zappos to comply with it.

Jones granted a separate motion by plaintiffs to extend the time they have to respond to Zappos' motions to dismiss and strike.

The class action arose from a January 2012 hacker attack on Zappos servers in Shepherdsville, Ky.

Hackers got the names, phone numbers, account numbers, passwords, email addresses, billing and shipping addresses and last four digits of credit cards of millions of Zappos customers. On Jan. 16, 2012, Zappos sent emails to 24 million customers notifying them of the data breach .

Zappos, which was bought by Amazon.com in 2009, is represented by Robert McCoy and Raleigh C. Thompson.

Lead counsel for the class, which sued on June 14, 2012, is Mark Gray, of Las Vegas.

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