In an unintended moment of synchronicity, the First Appellate District, Division One, was opining on class action coupon settlements yesterday, the same day that I published some thoughts in a post entitled “Coupon-only settlements are hard to sell." After reading yesterday’s opinion in Chavez v. Netlflix (April 21, 2008) ___ Cal.Rptr.3d ___, 2008 WL 1777550 (“Netflix”), I feel that some further discussion of coupon settlements is in order.
Yesterday, I cautioned against the use of coupon settlements, based upon the negative perception of such settlement arrangements. It appears that I didn’t do a good enough job of parsing the audiences for such messages. Netflix strongly suggests that California courts look with much more favor upon coupon settlements than do members of the public and the media covering high-profile coupon settlements. After explaining in some detail that the Trial Court had analyzed the settlement under the four factors set forth in Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794 (slip op. at pp. 8-10), the Netflix Court made some interesting observations:
Ellis makes no claim that any of the factors supporting a presumption of fairness is not present in this case. Instead, Ellis bases her entire argument on the premise that this is a coupon settlement and that such settlements are, in general, inherently suspect and improper. In fact, these premises are neither entirely accurate nor particularly useful for evaluating the fairness of the specific settlement terms before us.
(Slip op. at p. 10.)
The claim that coupon settlements are inherently suspect or improper is also not persuasive. Ellis relies on a law review article and a handful of cases not decided under California law. [Footnote omitted.] She also asserts that the federal Class Action Fairness Act of 2005 (CAFA) (28 U.S.C. § 1712), although inapplicable to this proceeding, is “highly suspicious” of coupon settlements because it requires the court to hold a special hearing to determine their value. But while the valuation of coupon settlements may pose special challenges, neither CAFA nor any of the authorities Ellis cites hold that coupon settlements are per se improper. Notably, Ellis does not discuss or distinguish California cases in which coupon settlements have been found to be fair and reasonable. (See, e.g., In re Microsoft I–V Cases, supra, 135 Cal.App.4th at pp. 711–713; Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 247; Dunk, supra, 48 Cal.App.4th at pp. 1804–1805.)
(Slip op. at p. 11.)
Other than suggesting that a cash settlement would have had more value to class members and more deterrent value, Ellis fails to explain why the settlement terms are not fair and reasonable in relation to the range of possible results further litigation might have produced, including no class certification and/or zero or minimal recovery of damages by class members. The issue before the trial court was not whether the settlement agreement was the best one that class members could have possibly obtained, but whether it is “fair, adequate, and reasonable.” (Dunk, supra, 48 Cal.App.4th at p. 1801.)
(Slip op. at p. 12.)
I found the discussion about coupon settlements in Netflix very illuminating. Perhaps appellate justices are more sensitive (than the public and the media) to the challenges facing litigators and trial courts because almost all of the appellate justices followed that route to the appellate bench. In any case, if the panel in Netflix had been interested in getting up on the soapbox to pillory coupon settlements, they were given a slow pitch to hit. Instead of swinging, they brushed off most of the criticism. That isn’t intended to suggest that the Netflix decision described coupon settlements as “fantastic.” The Court simply noted that coupon settlements can readily qualify as “fair, adequate and reasonable.” (Ibid.)
There is more to say about Netflix, but a discussion about attorney fee awards in class actions deserves a post of its own (or two, or three…). It is enough right now to note that, at least in California’s state courts, coupon settlements are not categorically defined as an undesirable class settlement option.