Dardarian v. OfficeMax, Inc.

Filing 114

ORDER by Judge Yvonne Gonzalez Rogers denying 111 Motion for Preliminary Approval of Class Action Settlement Agreement Without Prejudice. Case Management Conference set for 8/19/13 at 2:00pm. (fs, COURT STAFF) (Filed on 7/12/2013)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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NANCY DARDARIAN, et al.,

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Plaintiffs,

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United States District Court
Northern District of California

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vs.

Case No.: 11-CV-00947 YGR
ORDER DENYING PRELIMINARY APPROVAL
OF CLASS ACTION SETTLEMENT AGREEMENT
WITHOUT PREJUDICE

OFFICEMAX NORTH AMERICA, INC.,

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Defendants.

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Named Plaintiffs Nancy Dardarian and Nathan Thoms, on behalf of themselves and other

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customers, brought suit against Defendant OfficeMax North America, Inc. (“OfficeMax”) because of

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its past practice of requesting and recording ZIP1 code information during credit card transactions in

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violation of the Song-Beverly Credit Card Act of 1971, Cal. Civ. Code § 1747.08 (“Song-Beverly

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Act”). Plaintiffs filed a Motion for Preliminary Approval of the Class Action Settlement Agreement,

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also seeking certification of a class for settlement purposes and approval of the form and content of

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the notice to be sent to the members of the settlement class.
Having carefully considered the proposed Settlement Agreement, the motion, the papers

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submitted in support of the motion, and the argument of counsel, the Court hereby DENIES the

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Motion for Preliminary Approval of the Class Action Settlement WITHOUT PREJUDICE and WITH

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LEAVE to file a new motion and submit additional material. As set forth more fully below, the Court

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remains concerned with two fundamental components of the proposed settlement. First, the Court

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remains concerned that the proposed settlement consisting of “merchandise vouchers” falls within the

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ZIP is an acronym that stands for “Zone Improvement Plan.” (Pineda v. Williams-Sonoma Stores,
Inc., 51 Cal. 4th 524, 527 n.2 (Cal. 2011).)

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purv
view of the Class Action Fairness Ac (“CAFA 28 U.S.C § 1712, re
C
n
ct’s
A”),
C.
equirements for coupon

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settl
lements, incl
luding the ev
valuation and approval o an approp
of
priate award of attorney’s fees.
s

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Seco Plaintif have not demonstrate that the pr
ond,
ffs
d
ed
roposed man
nner of disseminating the class notice
e

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com
mplies with Rule 23 and due process.
R
d

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I.

BACKG
GROUND
The Son
ng-Beverly Act prohibits a retailer fro requestin personal identificatio informatio
A
om
ng
on
on

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from a customer during a co
m
r
onsumer cred card trans
dit
saction. (Se Pineda, 51 Cal. 4th at 534.) A ZIP
ee
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P

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code is personal identificatio informati
e
l
on
ion. (Id.) O
OfficeMax fo
ormerly employed an “In
nformation

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Cap
pture Policy” whereby its cashiers wo
”
s
ould request and record customer ZI codes dur
t
IP
ring credit ca
ard

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tran
nsactions. Pl
laintiffs cont
tend that this policy viol ated the Son
s
ng-Beverly A OfficeM disagree
Act.
Max
es

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United States District Court
Northern District of California

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and claims, amo other arg
ong
guments, tha it did not r
at
reverse-engin the info
neer
ormation. Th parties
he

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cont
tend that the identificatio of class members wil be difficult as OfficeM
e
on
m
ll
t
Max’s custom include
mers

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com
mmercial cust
tomers whos informatio is not sep
se
on
parately track
ked. The pr
roposed settlement was

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reac
ched through the assistan of a mag
h
nce
gistrate judge at arm’s le
e,
ength, and to into acco
ook
ount the risk
ks

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asso
ociated with continuing the litigation
t
n.

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II.

DISCUS
SSION

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A. Relevant Te
R
erms of the Proposed Se
P
ettlement A
Agreement
As relev here, the Court sets forth the pro
vant
e
f
ovisions of th proposed class action Settlement
he
d
n

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Agr
reement whic concern (1) the dissem
ch
(
mination of “
“merchandis vouchers, (2) the pro
se
,”
oposed proce
ess

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by which attorney’s fees sho
w
ould be awar
rded, and (3) the notice t the class:
)
to

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1.

“M
Merchandise Vouchers” or Settleme Benefits
e
”
ent

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

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claim wi receive a Merchandise Voucher w a value of ten dollar (See Sett
ill
with
rs.
tlement

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Agreeme ¶ 2.3.)
ent

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

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with a va of five dollars to cu
alue
d
ustomers who make purc
o
chases in its California re
etail stores.

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(Id.)

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

$10 Voucher to Class Members: Al Class Mem
$
rs
M
ll
mbers who s
submit a vali timely
id,

$5 Vouchers to customer OfficeM will distr
$
rs:
Max
ribute 120,00 Merchand Vouchers
00
dise

The Merchan
T
ndise Vouch expire w
hers
within approx
ximately 90 days. (Id.)

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2. Attorneys’ Fees:
The parties have agreed that plaintiffs’ counsel can apply for fees and costs between $200,000

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and $500,000, with OfficeMax reserving the right to contest any request over $200,000. (See id. ¶

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2.4.) The Court understands the proposed Settlement Agreement is structured so that attorneys’ fees

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will be awarded before the Merchandise Vouchers are redeemed.

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3. Notice:
OfficeMax will send one email to those of its MaxPerks members for whom it possesses a

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valid email address, and OfficeMax will post a flier near its customer service counters for 30 days.

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(Id. ¶ 3.2.) No other notice will be provided under the proposed Settlement Agreement.

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United States District Court
Northern District of California

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B. ATTORNEYS’ FEES UNDER CAFA
Although the Court is not ruling on a motion for attorneys’ fees at this time, the Court still

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reviews the fees provisions of a proposed Settlement Agreement. CAFA contains “a series of

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specific rules that govern the award of attorneys’ fees in coupon class actions.” In re HP Inkjet

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Printer Litig., 716 F.3d 1173, 2013 WL 1986396, at *3 (9th Cir. May 15, 2013) (citing 28 U.S.C. §

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1712(a)-(d)). Thus, the classification or nature of the settlement benefit to the class determines

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whether this CAFA provision applies. The parties argue first that the “merchandise vouchers” are not

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“coupons” and therefore CAFA does not apply. Next, they argue that even if “merchandise

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vouchers” are considered to be “coupons,” CAFA does not govern the award of attorneys’ fees

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because they seek an award under California Code of Civil Procedure section 1021.5. The Court

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addresses each argument in turn.

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In terms of a legal framework, CAFA controls cases where class members receive “coupons”

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as part of the settlement proceeds. In those instances, the award of attorneys’ fees must be based on

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the value of the coupons redeemed. (In re HP Inkjet Printer, 2013 WL 1986396, at *4.) In passing

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CAFA, Congress included among its findings the concern that “[c]lass members often receive little or

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no benefit from class actions, and are sometimes harmed, such as where (A) counsel are awarded

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large fees, while leaving class members with coupons or other awards of little or no value . . . .” Pub.

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L. No. 109-2, 119 Stat. 4, § 2(A)(3). The statute does not define the word “coupon.”

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Plaintiffs first argue that “merchandise vouchers” are not “coupons” because class members

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can redeem vouchers without spending additional money. Plaintiffs offer scant legal authority for

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this proposition. The Court agrees that a “coupon settlement” may be one where relief constitutes a

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discount on another product or service offered by the defendant in lawsuit. (See True v. American

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Honda Motor Co., 749 F. Supp. 2d 1052, 1069 (C.D. Cal. 2010) (citing Fleury v. Richemont N. Am.,

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Inc., Case No. 05-CV-4525 EMC, 2008 WL 3287154, at *2 (N.D. Cal. Aug. 6, 2008)).) A coupon

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may be defined as a certificate or form “to obtain a discount on merchandise or services.” (Webster’s

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Ninth New Collegiate Dictionary, 1988.) However, the definition is not exclusive; other definitions

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exist. For instance, Webster’s also defines coupons as “a form surrendered in order to obtain an
article, service or accommodation.” (Id.) Coupons are commonly given for merchandise for which

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United States District Court
Northern District of California

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no cash payment is expected in exchange. Using the term “voucher” does not change the analysis.

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“Voucher” is defined similarly as “a form or check indicating a credit against future purchases or

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expenditures.” (Id.)

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Labels aside, substantively the question centers on the difference of the benefit to each class

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member when compared to a cash settlement. When evaluating coupon settlements in consumer

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class actions, courts have focused on such issues as whether: class members may aggregate benefits;

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class members must spend money to receive the benefit, e.g., a discount on future purchases; the

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benefit is transferable; or the benefit expires. (See, e.g., Fleury v. Richemont N. Am., Inc., No. C-05-

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4525 EMC, 2008 U.S. Dist. LEXIS 64521, at *59 (N.D. Cal. July 3, 2008) (identifying class

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members’ ability to aggregate and transfer benefits as factor in approving settlement); Browning v.

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YahooA Inc., No. C04-01463 HRL, 2007 WL 4105971, at *5 (N.D. Cal. Nov. 16, 2007) (overruling

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objection that proposed settlement was a “coupon settlement” because class members did not have to

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spend money to realize benefit ); Young v. Polo Retail, LLC, No. C 02 4546 VRW, 2007 WL 951821,

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at *4 (N.D. Cal. Mar. 28, 2007) (identifying transferability of gift card as a factor in approval of

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voucher settlement); In re Mexico Money Transfer Litig., 267 F.3d 743, 748 (7th Cir. 2001)

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(approving settlement where class members had thirty-five months to redeem voucher for service

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used “an average of 14 times annually”).)

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Here, the proposed Settlement Agreement consists of a “merchandise voucher” for goods or

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purchases from the defendant itself. The parties argue that this voucher is “akin to cash” because the

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defendant has numerous items for sale in the five-to-ten dollar price range, and therefore, the voucher

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need not be viewed as a discount. The voucher is also presumably transferrable. On the other hand,

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unlike cash, a class member must use-or-lose the voucher within the 90-day redemption period and

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can only redeem the voucher with the defendant. Vouchers cannot be combined with other coupons

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or merchandise vouchers, used to purchase gift cards or to pay for prior purchases (i.e., credit card

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payments), and are not redeemable for cash.

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In light of the uncertainty regarding the ultimate value of the settlement, and the factors
showing that the settlement is based effectively on a coupon, the Court is not persuaded that it can

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United States District Court
Northern District of California

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ignore CAFA’s rules governing the award of attorneys’ fees. At a minimum, the intent of CAFA

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should be followed. “Under § 1712 of CAFA, a district court may not award attorneys’ fees to class

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counsel that are ‘attributable to’ an award of coupons without first considering the redemption value

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of the coupons.” (In re HP Inkjet Printer Litig., 2013 WL 1986396.)

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Plaintiffs next argue that the issue of attorneys’ fees can be resolved at the time of final

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approval (i.e., without considering the redemption value of the Merchandise Vouchers) because class

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counsel will seek attorneys’ fees under California Code of Civil Procedure section 1021.5, which

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permits the award of attorneys’ fees under a lodestar method. Section 1021.5 provides the authority

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upon which to award attorneys’ fees, but not a manner to calculate those fees. Indeed, calculating a

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lodestar multiplier still requires consideration of the value of the settlement.

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Assuming final approval, the Court does not expect it can issue a fee award until the

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merchandise vouchers have been redeemed and the fairness of the settlement ascertained. At that

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juncture, the Court will need to “consider, among other things, the real monetary value and likely

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utilization rate of the coupons provided by the settlement.” (True, 749 F. Supp. 2d at 1073 (quoting

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S. Rep. No. 109–14, at 31, as reprinted in 2005 U.S.C.C.A.N. 3, 31).) The analysis is especially

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important here because the parties have yet to provide the Court with any information concerning real

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value and likely utilization rate. Here, the only component of the proposed Settlement Agreement

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with any determinate value is the attorneys’ fees and incentive payments. There is no information

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from which to estimate a claim filing rate, voucher redemption rate, or the real monetary value of a

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$5 Merchandise Voucher or a $10 Merchandise Voucher with a 90-day redemption period. Based on

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the current record, the Court cannot determine the extent to which the proposed relief, including

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issuing Merchandise Vouchers to consumers who are not members of the class, is adequate or

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reasonable for the class.

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C. NOTICE TO THE CLASS
Finally, Plaintiffs have not shown that the proposed manner of directing notice of the

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settlement to the class is sufficient. “For any class certified under Rule 23(b)(3), the court must

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direct to class members the best notice that is practicable under the circumstances, including
individual notice to all members who can be identified through reasonable effort.” (Fed. R. Civ. P.

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United States District Court
Northern District of California

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23(c)(2)(B).) Due process does not require actual notice, but a good faith effort to provide actual

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notice. (Silber v. Mabon, 18 F.3d 1449, 1454 (9th Cir. 1994).)

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The parties propose directing notice by sending an email to OfficeMax’s MaxPerks members

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for whom it possesses a valid email address, in-store postings, and notice to the government pursuant

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to CAFA. Plaintiffs’ motion states that the manner of dissemination “satisfies all due process

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requirements,” is “the best notice practicable under the circumstances and fully complies with the

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requirements of Rule 23.” Nothing in the record substantiates Plaintiffs’ assertion.
Plaintiffs have provided no information2 or legal authority to establish, without further

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justification, that the proposed manner of providing notice satisfies Rule 23 or due process. The

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Court lacks specific information and/or estimates regarding the anticipated success of this process.

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Moreover, the Court expects that it will not be able to approve a notice plan unless the parties

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propose additional methods to provide notice−e.g., print publication. Without providing any

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Plaintiffs have provided no information about the effectiveness of reaching the putative class by
emailing MaxPerks members, including the percentage of the putative class that are MaxPerks
members or the percentage of MaxPerks members for whom OfficeMax has a valid email address.
Nor is there information in the record about whether it is practicable to direct notice to MaxPerks
members for whom OfficeMax lacks a valid email address by other means, such as postal mail.
Moreover, there is no information in the record regarding the effectiveness of providing notice
through an in-store posting.

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info
ormation on the effective
t
eness or suffi
ficiency of th proposed manner of d
he
disseminating the notice,
g

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the Court canno approve th notice provisions of th proposed Settlement A
C
ot
he
he
Agreement.

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III.

CONCL
LUSION

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For the reasons set forth above, the Motion f Preliminary Approva of Class A
r
fo
t
for
al
Action

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Sett
tlement (Dkt No. 111) is DENIED WITHOUT PRE
t.
s
EJUDICE and WITH LEA
d
AVE to file an
nother motio
on

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and to submit ad
dditional ma
aterial to add
dress the Cou
urt’s concern
ns.

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A case management conference shall be held on Monda August 1 2013 on t Court’s
m
d
ay,
19,
the

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2:00 p.m. Calen
0
ndar, in the Federal Cour
F
rthouse, 130 Clay Stree Oakland, California, in Courtroom
01
et,
m

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5. No later than five (5) bus
N
n
siness days prior to the d of the co
p
date
onference ei
ither: (a) Pla
aintiffs shall
file another Mot
tion for Preli
iminary App
proval of Cla Action S
ass
Settlement an submit ad
nd
dditional

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United States District Court
Northern District of California

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erial; or (b) the parties sh file a JOINT STATEM
t
hall
O
MENT setting forth the status of the l
g
litigation and
mate

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any dates which may need to be reinstat
h
ted. If the m
motion is file the parties need not ap
ed,
appear and th
he

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conf
ference will be taken off calendar.
f

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This term
minates Docket No. 111.

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IT IS SO ORDERED.

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July 12, 2013

__
__________
___________
__________
__________
YVON GONZAL ROGERS
NNE
LEZ
UNITED ST
TATES DISTR
RICT COURT JUDGE
T

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