Gift Cards Not "Coupon Settlement" under CAFA: Ninth Circuit | Practical Law

Gift Cards Not "Coupon Settlement" under CAFA: Ninth Circuit | Practical Law

In In re Online DVD-Rental Antitrust Litigation, the US Court of Appeals for the Ninth Circuit affirmed the approval of a class action settlement agreement and held, among other things, that the portion of the settlement to be paid in gift cards was not a "coupon settlement" for purposes of the Class Action Fairness Act (CAFA).

Gift Cards Not "Coupon Settlement" under CAFA: Ninth Circuit

Practical Law Legal Update 7-602-6547 (Approx. 4 pages)

Gift Cards Not "Coupon Settlement" under CAFA: Ninth Circuit

by Practical Law Litigation
Published on 03 Mar 2015 • USA (National/Federal)
In In re Online DVD-Rental Antitrust Litigation, the US Court of Appeals for the Ninth Circuit affirmed the approval of a class action settlement agreement and held, among other things, that the portion of the settlement to be paid in gift cards was not a "coupon settlement" for purposes of the Class Action Fairness Act (CAFA).
On February 27, 2015, in In re Online DVD-Rental Antitrust Litigation, the US Court of Appeals for the Ninth Circuit affirmed the approval of a class action settlement agreement and held that the portion of the settlement to be paid in gift cards was not a "coupon settlement" for purposes of CAFA (No. 12-15705, (9th Cir. Feb. 27, 2015)).
In 2009, several individuals filed a consolidated amended class action complaint against Netflix and Walmart challenging as anticompetitive the defendants' agreement to divide up the DVD-related business. Plaintiffs alleged that as a result of Walmart's agreement to leave the rental business of DVDs, Netflix charged its customers unfairly high monthly subscription prices. The US District Court for the Northern District of California granted class certification of a class of Netflix subscribers.
The class of Netflix subscribers then reached a settlement agreement with Walmart. The court conditionally approved the Netflix settlement class and also gave preliminary approval of the settlement agreement. In the agreement, Walmart agreed to pay a total of $27,250,000, which included a "cash component" and "gift card component." The cash component funded incentive payments to class representatives, attorneys' fees and expenses, and costs of notice and administration. The amount remaining constituted the gift card component, which was used to provide class members with either gift cards or the cash equivalent of a gift card usable at the Walmart website.
In March 2012, the district court granted final approval of the class settlement and awarded attorneys' fees. The district court rejected all objections to the settlement and approved:
  • Attorneys' fees of $6,812,500 (25% of the total fund of $27,250,000).
  • $14.1 million in the settlement fund for the gift card component.
  • That the gift card component would provide claimants with $12 each.
Six objectors timely appealed the district court's approval of the settlement and their appeals were consolidated. The objectors argued, among other things, that the Walmart gift cards are coupons that fall under CAFA's special provisions for restricting attorneys' fees in coupon settlements (28 U.S.C. §1712(a)). As a result, the objectors asserted that the district court erred by calculating the fee award as a percentage of the overall settlement fund rather than the percentage of the gift cards that were actually redeemed.
The Ninth Circuit affirmed. In reaching its decision, the appellate court held, among other things, that:
  • The district court did not abuse its discretion in certifying the settlement class under FRCP 23(a) and (b).
  • The district court did not err in approving the settlement because:
    • the district court did not err in using the claimant fund sharing approach where each class member who submits a claim receives an equal share of the settlement fund regardless of the harm suffered;
    • the district court's notice of the settlement did not violate FRCP 23 or due process; and
    • the settlement was fair, reasonable and adequate under FRCP 23(e).
  • The district court did not err in awarding attorneys' fees of 25% of the overall settlement fund.
  • The district court provided adequate notice to the class of the attorneys' fee petition and an adequate explanation of its rationale.
Notably in affirming the attorneys' fee award, the Ninth Circuit found that the portion of the settlement to be paid in Walmart gift cards was not a "coupon settlement" within the meaning of CAFA. The appellate court reasoned that CAFA's legislative history and district courts' decisions support this finding for several reasons, including because:
  • The gift cards had value to class members, allowing them to purchase a large number of products from a large retailer. The class members therefore received more flexibility to purchase items than coupon settlements.
  • The gift cards did not require consumers to spend their own money.
  • The claimants in this case had the option of obtaining cash instead of a gift card.
  • The gift cards were freely transferrable and did not expire.