In re Easysaver Rewards Litigation, S.D. Cal., No. 09-cv-2094-AJB, 2/4/13
Key Development: An up to $38 million settlement is approved for online purchasers who were automatically enrolled in and charged for a rewards program.
Key Takeaway: Coupon settlements are more likely to withstand scrutiny when class members will also receive a cash award.
An up to $38 million settlement resolving claims involving alleged automatic enrollment of online consumers in a rewards program secured final approval from a federal trial court in California Feb. 4 despite an objection that the settlement included an excessive attorneys' fees award and an improper cy pres distribution (Easysaver Rewards Litigation, In re, S.D. Cal., No. 09-cv-2094-AJB, 2/4/13).
Judge Anthony J. Battaglia of the U.S. District Court of the Southern District of California also rejected the objector's contention that a component of the settlement, a $20 credit to be used at online merchant websites, are coupons with a significantly lower value than $20.
The objector argued that the coupon inflates the value of the settlement, and the attorneys' fee request is disproportionately high as a result.
The court applied the rigorous scrutiny required by the Class Action Fairness Act of 2005 for coupon settlements and decided that the coupons provide an actual value of $20 even though there are blackout dates and the coupons may not be combined with other promotions.
“Most importantly, the $20 credits are in addition to the cash fund reimbursement available to all class members,” the court said.
Rewards Program Targeted
Named plaintiff Josue Romero and others alleged in this consolidated class action that defendants Provide Commerce Inc. and Regent Group Inc. (doing business as Encore Marketing International Inc.) unlawfully enrolled online consumers in a rewards program and charged them a monthly fee.
When consumers completed an online purchase at one of the merchants' websites, they were presented with a pop-up window offering $15 off their next purchase as a “thank you” gift. The pop-up window requested their ZIP code, email address, and asked them to click “accept.”
Regardless of whether the purchaser provided the information and hit accept, the plaintiffs allege their information was transmitted to EMI, they were enrolled in a rewards program that conferred no meaningful benefits, and they were charged a $1.95 activation and a $14.95 monthly fee without their knowledge or consent.
The plaintiffs sued under the California Unfair Competition Law, the California Consumers Legal Remedies Act, and the Federal Electronic Funds Transfer Act, and brought several common law claims.
The parties reached a settlement agreement in 2012 after several years of litigation.
The settlement provides all class members with a $20 coupon to be used at Proflowers.com, RedEnvelope.com, Berries.com, or CherryMoonFarms.com.
The defendants will also create a $12.5 million cash fund to refund charges made for the monthly membership fees. Class members must provide contact information, but need not submit proof of purchase or other documents to receive a cash benefit. Claims will be paid on a pro rata basis up to the amount owed.
Any remaining funds will be distributed as a cy pres award to fund higher education programs relating to internet privacy and consumer protection at San Diego State University, the University of California at San Diego and the University of San Diego School of Law.
The deal also calls for $8.65 million in attorneys' fees, to be taken from the cash fund.
Credit Tailored to Alleged Injury
Brian Perryman objected to the settlement on the basis that the attorneys' fees were excessive, and the cy pres award would be distributed impermissibly.
Perryman first contended that the $20 credit is not worth its full value and creates an inflated settlement value. In turn, the fees requested by the plaintiffs' attorneys are disproportionate to the actual value of the settlement, he argued.
He said the coupons were “particularly pernicious” because they could not be used during the flower-giving holidays of Valentine's Day, Mother's Day, and Christmas, and the settlement bars stacking the credits with other promotions or coupons, which are commonly available on the websites.
CAFA at 28 U.S.C. § 1712(e) requires that a court hold a hearing and make a written finding that a coupon settlement is fair, reasonable and adequate for class members. Some courts have said that CAFA imposes a heightened level of scrutiny on coupon settlements, the court said.
But even under heightened scrutiny, the court concluded that the credit satisfied CAFA's requirements.
The court said the credit serves “a specific purpose that is narrowly tailored to reflect the nature of Plaintiffs' allegations, specifically class members will receive a usable $20 credit of the type that was offered by the websites initially and subsequently caused them to be enrolled in the membership programs.”
The credit combined with the cash fund reimbursement offers “real and substantial value in relation to class members' injuries,” the court said.
The court found that the requested attorneys' fee award was not disproportionate to the settlement achieved.
The court also found no problem with the “clear sailing” provision, where defendants agreed not to object to the fee request. In this case, there is no evidence that the parties reached the settlement as a result of collusion or self-interest, the court said.
No Conflict in Cy Pres Distribution
The court also dismissed the objector's arguments against the cy pres distribution. A cy pres distribution is the “next best” distribution when class members cannot directly receive the funds.
Perryman asserted that there was a conflict of interest because three of the attorneys involved graduated from the University of San Diego Law School.
But the court said the appearance of impropriety was not substantial in this instance because there were no allegations the attorneys had significant relationships with their alma mater.
Perryman also objected that all three cy pres recipients are in San Diego, and therefore do not account for the nationwide scope of the class.
The court distinguished this case from Nachshin v. AOL LLC, 663 F.3d 1034 (9th Cir. 2011) (12 CLASS 1084, 11/25/11), where the U.S. Court of Appeals for the Ninth Circuit found that distributing a cy pres award mostly to local charities in Los Angeles did not reflect the geographic range of the class.
In Nachsin, the local nature of the charities, Legal Aid and the Boys and Girls Club, would be unlikely to confer any benefit outside of the Los Angeles area, the appeals court said.
Here, “the internet is not limited by geographic boundaries, and the educational impact of the funded academic programs will have a nationwide impact,” the court said.
The court also declined to cancel the cy pres distribution in favor of providing the funds to class members. The court said that class members may already be made more than whole through the cash fund reimbursement and the coupon.
Silent class members who do not participate in the cash fund would receive a greater benefit from the creation of internet privacy and security programs benefitting consumers than from a further distribution to claimant class members, the court said.
James R. Patterson of Patterson Law Group APC in San Diego; Bruce W. Steckler of Baron & Budd PC in Dallas; Jennie Lee Anderson of Andrus Anderson LLP in San Francisco; and Michael D. Singer of Cohelan Khoury & Singer in San Diego represented the plaintiffs as class counsel.
Michael G. Rhodes, Michelle C. Doolin, and Leo P. Norton of Cooley LLP in San Diego; Myron M. Cherry and Jacie C. Zolna of Myron M. Cherry & Associates LLC in Chicago; and Michael L. Kirby and Ethan T. Boyer of Kirby Noonan Lance & Hoge LLP in San Diego represented the defendants.
Adam E. Schulman of the Center for Class Action Fairness in Washington, D.C., represented Perryman.
For More Information
Full text is at http://op.bna.com/class.nsf/r?Open=jkas-94nnnl.