Settlement of class action litigation often contains hidden traps. One of those traps is a plan for providing notice to class members. In a recent decision in Kaufman, et al. v. American Express Travel Related Services, Inc., No. 07-CV-1707 (N.D. Ill. June 25, 2012), Judge Joan B. Gottschall of the U.S. District Court for the Northern District of Illinois sent parties to a class action settlement back to the drawing board when they failed to provide suitable notice to the affected class. Unsatisfied with the parties’ plan to notify class members, Judge Gottschall refused to grant the parties’ motion for final settlement approval under Rule 23(e).
Though not a workplace class action, the decision in Kaufman serves as a reminder to litigants of the importance of planning for class notice in settling complex litigation.
Background Of The Litigation
In Kaufman, purchasers and users of American Express gift cards brought a class action suit alleging that “contrary tomerican Express’s representations, the cards could not be used in split-tender transactions, preventing cardholders from using up the cards’ full value.” Id. at 1. Additionally, unless the cardholder paid a “check issuance” fee, any left over money on the card would ultimately revert back to American Express. Id. The parties eventually settled the lawsuit, and the Court granted preliminary settlement approval in September 2011. The Court denied final approval, however, when it became clear that class notice was largely ineffective.
Basis Of The Court’s Ruling
The Court’s decision turned on the settlement notice responses and claims – or, more precisely, the lack thereof. Indeed, class members claimed only “slightly more than one percent” of the settlement fund, a statistic which fueled the Court’s concern that the notice was a “mere gesture.” Id. at 5. Along with the minimal response, the million dollar difference between the benefits requested by class members and the amount of attorneys’ fees further emphasized the inadequacy of the notice. In light of these statistics, the Court concluded that a more extensive notice plan was required in order to properly protect class members’ due process rights. Id. at 5.
The original notification plan consisted of direct mail notice to potential class members identifiable from existing records, the creation of a “Settlement Administration” website, and notice published in a weekday edition of USA Today. Id. at 2. The parties defended that notice by citing similar notice plans that were deemed adequate in other class action settlements . The Court was not persuaded by the superficial similarities, however. The Court acknowledged that though other judges have found similar notice plans to be adequate, those plans were efforts of last resort where, unlike here, there was no superior alternative. Id. at 6-7.
Recognizing that such an alternative likely existed, the Court declined to reject the entire settlement and instead appointed an expert in class notification to supervise the creation of a future notice plan. Id. at 7. Per the Court’s order, the parties will be required to draft a new notice plan following the expert’s report and recommendations in order to achieve settlement approval in the future. Id. at 7-8. Lastly, the Court did not find it necessary for American Express to post a link to a settlement website on its home page as part of the new notice plan, though it did not rule it out as a possibility for the future. Id. at 8.
Implications Of The Decision
The ruling in Kaufman is instructive for any litigant considering the settlement of a class action. Under Rule 23, class members must receive “the best notice that is practicable under the circumstances.” Fed. R. Civ. P. 23(c)(2)(b). The notice standard is not on its face exceptionally high, but as Judge Gottschall remarked, “courts should not permit ‘better than nothing’ to become the new benchmark.” Id. at 7. Whether employment-related or otherwise, notice in class action settlements is imperative – without it class members may never know that “their rights are before the courts.” Id. at 5 (quoting Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306 (1950)).