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Media Alerts - Theodore Frank v. Netflix, Inc; Wal-Mart Stores, Inc.; USA LLC - Ninth Circuit
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March 31, 2015
  Theodore Frank v. Netflix, Inc; Wal-Mart Stores, Inc.; USA LLC - Ninth Circuit
Headline: Ninth Circuit affirms class action settlement agreement including certification, method of distribution, and calculation of attorneys' fees, rejecting a challenge by class members that "the gift card portion of the settlement constituted a coupon settlement within the meaning of the Class Action Fairness Act."

Areas of Law: Civil Procedure, Class Actions

Issue Presented: Whether the district court clearly abused its discretion in its approval of the class action settlement agreement.

Brief Summary: After the district court approved a class action settlement between a class of Netflix subscribers and both Wal-Mart Stores, Inc. and USA LLC ("Wal-Mart"), thirty class members opposed the settlement. Class members opposed the certification of the settlement class, the settlement, and the calculation of attorneys' fees.

The Ninth Circuit panel found that certification was proper because there were no conflicts between class representatives and unnamed class members. Furthermore, the panel also approved the district court's "claimant-fund-sharing" distribution method, the amount disbursed as incentive awards, and the fee award. Lastly, the Court concluded that notice was adequate and that the district court sufficiently explained its calculations and rationale.

Accordingly, the Court affirmed the judgment of the district court.

Extended Summary: Andrea Resnick and seven other class representatives filed a class action lawsuit against Netflix and both Wal-Mart Stores, Inc. and USA LLC. Plaintiffs alleged that they were unfairly charged a high monthly subscription price as a result of an agreement between Netflix and Wal-Mart to divide the online DVD market. Netflix agreed to stop selling DVDs and focus on DVD rentals, and Wal-Mart agreed to turn away from renting DVDs and focus instead on selling them.

A class of just Netflix subscribers eventually reached a settlement agreement with Wal-Mart whereby Wal-Mart agreed to pay $27,250,000.00 comprising both a "Cash Component" and a "Gift Card Component" in exchange for dismissal with prejudice of all claims asserted in the complaint. The Cash Component funded attorney's fees and expenses, costs of notice and administration, and incentive payments to class representatives. The Gift Card Component funded the remaining disbursement to class members. Each claimant received an equal share of the Gift Card Component regardless of the specific damages of each individual. Class counsel was granted attorneys' fees in the amount of 25% of the overall settlement fund. However, of the 1,183,444 claims that were submitted by class members, thirty of them lodged objections to the settlement.

At the fairness hearing, the judge rejected all objections and determined that the Class Action Fairness Act's coupon-settlement provisions did not apply because the gift cards were sufficiently different from coupons given the facts that claimants could choose between gift cards and cash, the gift cards were freely transferrable, and they had no expiration date. The court also determined that attorneys' fees were properly calculated and approved administration costs as well as both the reimbursement amounts for litigation expenses and incentive awards of $5,000.00 for each class representative. After all calculations, each of the almost 1.2 million claimants received roughly $12.00. Theodore Frank, Tracey Cox, Maria Cope, Edmund Bandas, John Sullivan, and Jon Zimmerman ("Objectors") appealed from the court's approval of the settlement, objecting to the certification of the settlement class, the settlement, and the calculation of attorneys' fees.

Objectors first argued that the class representatives did not adequately represent the class because each of the class representatives was awarded $5,000.00, whereas each unnamed class member received only $12.00.

The panel ruled that legal adequacy of the class representatives is determined by whether the representatives and their counsel have any conflicts of interest with other class members and whether the representatives and their counsel maintain a sufficient interest in and nexus with the class so as to ensure vigorous representation. The panel stated that incentive payments alone do not create an impermissible conflict between class representatives and unnamed members. Because there were no structural differences in the claims of the class representatives and other class members, no ex ante incentive agreements between the class representatives and counsel, no conditional incentive awards, and no guarantees that class representatives would receive incentive payments, the Ninth Circuit panel found that the district court did not abuse its discretion in certifying the settlement class.

Objectors next argued that the district court erred in approving the settlement. Specifically, they argued that the district court erred because it used a type of fluid recovery (a disfavored distribution scheme), notice violated both Rule 23 and class members' due process rights, the incentive awards were unreasonably large and unfair, both a reverter and confidential opt-out provision in the settlement agreement made it unfair, and the district court did not fully explain its decision to approve the settlement.

The panel rejected the labeling of the claimant-fund-sharing distribution method employed by the district court as a type of fluid recovery disfavored by state and federal courts The panel explained that, unlike fluid recovery which confers an indirect benefit on class members, the claimant fund approach provides direct compensation to class members.

In addressing Objectors' argument that notice of the settlement violated Rule 23 or due process, the panel found that notice was adequate and sufficiently specific, holding that "[t]he e-mail and mail notices, which did not need to and could not provide an exact forecast of how much each class member would receive, gave class members enough information so that those with 'adverse viewpoints' could investigate and 'come forward and be heard.'"

The panel also rejected the objection that the incentive awards to the class representatives were too large. Rather than simply comparing $5,000.00 incentive award to the $12.00 individual award, the panel focused on the number of class representatives receiving incentive awards, the average incentive award amount, and the proportion of the total settlement that was spent on incentive awards and determined that the district court did not abuse its discretion. The panel also rejected the class members' argument that "two provisions in the settlement agreement, a reverter provision that she alleges allows Walmart to keep excess settlement funds and a confidential opt-out provision that allows Walmart to leave the settlement agreement at any time, make the agreement unfair." The panel held that "The district court did not abuse its discretion in deciding that these provisions do not allow for any improper reversion of allocated settlement funds to Walmart."

Objectors also argued that the district court abused its discretion in approving the fee award. More specifically, they argued that the attorneys' fee award violated provisions of the Class Action Fairness Act (CAFA) governing coupon settlements and were unreasonable, class counsel failed to provide adequate notice of their attorney's fee petition to class members, and the district court failed to adequately explain its attorneys' fee award.

The panel concluded that the district court properly determined that the portion of the settlement paid in Wal-Mart gift cards was not a "coupon settlement" within the meaning of CAFA because the settlement differs from all the twenty-nine examples of problematic coupon settlements defined by the Senate Judiciary Committee's Report for CAFA. Unlike coupons which require a class member to hand over more of their own money before they can take advantage of the coupon, the gift cards do not require class members to spend any of their own money. The gift cards in this settlement could be used for any products on, are freely transferrable, do not expire, and do not require consumers to spend their own money. Furthermore, the gift cards offer class members a choice of a large number of products from a large retailer. Therefore, the attorneys' fees were properly calculated as a percentage of the overall settlement fund, including the value of the gift cards.

In determining the reasonableness of the attorneys' fees, the panel emphasized that reasonableness is not measured by the entire common fund from which a percentage is awarded but, rather, by the end result. Hence the application of the 25% benchmark percentage to the entire common fund was reasonable because the resulting fees were reasonable.

With respect to notice, the panel found that it was adequate and sufficiently satisfied the requirements of In re Mercury because the notice was both mailed and emailed, stated the percentage that counsel would be seeking in fees, and clearly set a fourteen-day deadline to file an objection.

Finally, the panel held that the district court provided an adequate explanation of its rationale in approving the attorneys fees because the court compared the 25% benchmark award to the summary lodestar numbers provided by class counsel and the judge provided a reasoned explanation, applying some of the Vizcaino v. Microsoft Corp. factors.

In sum, the Ninth Circuit panel affirmed the district court's decision to approve all aspects of the settlement between the class of Netflix subscribers and Wal-Mart.

For the full opinion:

Panel: Sidney R. Thomas, Chief Judge, Stephen Reinhardt, Circuit Judge, and Lloyd D. George, Senior District Judge

Date of Issued Opinion: February 27, 2015

Docket Number: 12-15705

Decided: Affirmed.

Case Alert Author: Daniel S. Seu

Counsel: Theodore H. Frank (argued), Center for Class Action Fairness, Washington, D.C.; Gary Sibley, Dallas Texas; Joseph Darrell Palmer, Law Offices of Darrell Palmer PC, Solana Beach, California; Christopher A. Bandas, Bandas Law Firm, P.C., Corpus Christi, Texas; Christopher V. Langone and Grenville Pridham, Law Office of Christopher Langone, Ithaca, New York; Joshua R. Furman (argued), Joshua R. Furman Law Corp., Los Angeles, California, for Objector-Appellants Frank, Cope, Cox, Bandas, Sullivan, and Zimmerman.

Todd A. Seaver (argued), Joseph J. Tabacco, Jr., and Christopher T. Heffelfinger, Berman DeValerio, San Francisco, California, for Plaintiffs-Appellees.

Author of Opinion: S. Thomas, Chief Judge.

Case Alert Circuit Supervisor: Professor Glenn Koppel

    Posted By: Glenn Koppel @ 03/31/2015 01:59 PM     9th Circuit  

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