Kaufman v. American Express Travel Related Services, Inc.
MEMORANDUM Opinion and Order. Signed by the Honorable Joan B. Gottschall on 6/25/2012. (lw, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
SAUL M. KAUFMAN and KIMBERLY
STEGICH, individually and on behalf of all )
others similarly situated,
AMERICAN EXPRESS TRAVEL
RELATED SERVICES, INC.,
Judge Joan B. Gottschall
Case No. 07 CV 1707
MEMORANDUM OPINION & ORDER
Plaintiffs Saul M. Kaufman, Kimberly Stegich, Gordon Jarratt, and Amanda Rudd
(the “Kaufman” plaintiffs) and defendant American Express Travel Related Services
Company, Inc (“American Express”) (together, the “Settling Parties”) have moved for
final approval of their Class Action Settlement (“the Settlement”). For the reasons stated
below, before the court will enter an order granting final approval of the Settlement, the
Settling Parties must make further efforts to notify the members of the class.
This is a class action suit filed by and on behalf of purchasers and users of
American Express gift cards sold in retail stores and online. The plaintiffs allege that,
contrary to American Express’s representations, the cards could not be used in splittender transactions, preventing cardholders from using up the cards’ full value. Any
leftover value would then be consumed by monthly service charges, and ultimately revert
to American Express in its entirety, unless the cardholder paid a $10 check issuance fee.
On September 21, 2011, this court issued an order granting preliminary approval of the
Settlement, Order Prelim. Approving Class Action Sett. (ECF No. 315), including a plan
to notify the members of the Settlement Class. The plan consisted of direct mail notice to
the potential class members that the Settling Parties could identify from existing records,
the establishment of a Settlement Administration web site, and notice published in one
weekday edition of USA Today. Id. at ¶ 9. On Thursday, November 3, 2011, notice was
published in that day’s edition of USA Today, see Verification Re Pub. of Class Notice,
(ECF No. 318), and 1,279,514 notice postcards were mailed to those class members
whom the Settling Parties could identify from American Express’s records. Decl. of
Melissa D. Eisert, Mar. 29, 2012, ¶ 2 (“Eisert Decl.”) (ECF No. 375). Of the postcards
mailed, 110,375 were returned as undeliverable.
Id., Ex. A.
The weekday print
circulation of USA Today for the period in which notice was published was
approximately 1.7 million. Audit Bureau of Circs., The Top U.S. Newspapers for March
2012: Average Circulation at the Top 25 U.S. Daily Newspapers (Chart), NewsBulletin
Connection, (May 1, 2012, 8:11 AM), http://accessabc.wordpress.com/2012/05/01/thetop-u-s-newspapers-for-march-2012/.
Response to the notice has been very low. As of March 2, 2012, the Settlement
Administrator, Rust Consulting, Inc., had received only 3,458 telephone calls and 2,514
pieces of mail pertaining to the Settlement (not counting undeliverable postcards), and
the Settlement administration website had received only 17,528 unique views. Eisert
Decl, Ex. A. The low response rate is echoed in the low rate of claims by class members.
As of March 2, 2012, only 3,456 benefits of any kind had been requested, totaling
$41,510.35. Id., Ex. B. This amounts to only slightly more than one percent of the $4
million available in the Settlement Fund for class member claims (after subtracting the
cost of notice, the Settlement Administrator’s fee, attorney’s fees, and incentive
payments). See Joint Suppl. Mem. of Law in Supp. of Final Appr. of Class Action Sett.
(“Joint Mem.”) 11-13 (ECF No. 373). Although the total number of claimants appears to
be unavailable, 121 claims requested multiple benefits, so there cannot be more than
3,335 claimants. See Eisert Decl., Ex. B. According to the June 24, 2009 Declaration of
Jerreld S. Paulson, an employee of American Express, approximately 70 million Amex
gift cards were purchased during the class period. Paulson Decl., ¶ 4 (ECF No. 374, Ex.
10). Of those 70 million cards, 14 million were subject to monthly fees totaling more
than $91 million, and 5 million were subject to fees after failed transactions for
insufficient funds, which strongly suggests the fees were charged as a result of failed
split-tender transactions. Aff. of Jerreld S. Paulson, ¶¶ 5-7, Feb. 19, 2009 (ECF No. 374,
II. LEGAL STANDARD
According to Federal Rule of Civil Procedure 23(c)(2)(b), members of a class
must receive “the best notice that is practicable under the circumstances.”
members are entitled to the best practicable notice, not just because the Rules require it,
but “as a matter of due process.” Lemon v. Int’l Union of Operating Eng’rs, Local 139,
216 F.3d 577, 580 (7th Cir. 2000); see also Mullane v. Cent. Hanover Bank & Trust Co.,
339 U.S. 306, 314 (1950) (“An elementary and fundamental requirement of due process .
. . is notice reasonably calculated, under all the circumstances, to apprise interested
parties of the pendency of the action and afford them an opportunity to present their
A district court has the power to issue orders requiring the parties to send notice.
Fed. R. Civ. P. 23(d)(1) and 23(e)(1); Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340,
354 (1978) (“It is clear that Rule 23(d) vests power in the district court to order one of the
parties to perform the tasks necessary to send notice.”). The court also has nearly
complete discretion to determine the form and content of notice to class members.
Mangone v. First USA Bank, 206 F.R.D. 222, 231 (S.D. Ill. 2001); Reynolds v. Nat’l
Football League, 584 F.2d 280, 285 (8th Cir. 1978); Handschu v. Special Servs. Div., 787
F.2d 828, 833 (2d Cir. 1986); 7B Charles Alan Wright et al., Federal Practice and
Procedure § 1797.6 (3d ed. 2012).
“Because class actions are rife with potential conflicts of interest between class
counsel and class members,” the district court also has a special responsibility to protect
the interests of class members. Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781, 785 (7th
Cir. 2004). This is particularly true in the settlement phase of the case. Judges must
“exercise the highest degree of vigilance in scrutinizing proposed settlements of class
actions. [The Seventh Circuit] and other courts have gone so far as to term the district
judge in the settlement phase of a class action suit a fiduciary of the class, who is
therefore subject to the high duty of care that the law requires of fiduciaries.” Reynolds v.
Beneficial Nat’l Bank, 288 F.3d 277, 279-80 (7th Cir. 2002).
In the Preliminary Approval Order of September 21, 2011 (ECF No. 315), the
court found the notice plan put forth in the Settlement to be adequate to provide
meaningful notice to the class members who purchased or received the 70 million gift
cards sold by American Express during the class period. But the abysmal response rate
has prompted the court to reconsider that decision. Even granted that some of the 70
million cards were bought by bulk purchasers, Eisert Decl., ¶ 2, the proportion of benefits
claimed to cards sold is pitifully low. If the court were to grant final approval to the
Settlement as the facts now stand, almost 99% of the Settlement Fund reserved for class
member claims would go unused. Most class members would receive precisely nothing
in exchange for their surrender of “any and all claims . . . related to the marketing and
sale of [American Express] gift cards.” Joint Mem. 13 (ECF No. 373). Those few class
members who have submitted requests for benefits would receive a mere $41,510.35 in
benefits in exchange for their claims while the Kaufman plaintiffs’ attorneys would
receive $1,525,000 in fees. See Eisert Decl. Ex. 2; Pls.’ Mot. For Final Approval of Class
Action Sett. 14 (ECF No. 356). This disparity is troubling and ultimately unacceptable.
Because the first round of notice provided to the Settlement Class was clearly inadequate,
the court has reconsidered its preliminary approval of the parties’ notice plan.
Resort to notice by publication is always an implicit admission that many
members of the class will never know “that their rights are before the courts,” and for that
reason it is disfavored. Mullane, 339 U.S. at 315 (“Chance alone brings to the attention
of even a local resident an advertisement in small type inserted in the back pages of a
newspaper . . . .”); see also City of New York v. N.Y., N.H. & H.R. Co., 344 U.S. 293, 296
(1953) (“Notice by publication is a poor and sometimes a hopeless substitute for actual
service of notice. Its justification is difficult at best.”). Where a court has no choice but
to accept that admission, it may be tempting for the parties to make “a mere gesture”
toward notice, reasoning that true notice will be impossible anyway. See Mullane, 339
U.S. at 315. As the guardian of the due process rights of the class members, the court
must push the parties to do better. See Synfuel Techs., Inc. v. DHL Express (USA), Inc.,
463 F.3d 646, 652-53 (7th Cir. 2006). The abundance of cases requiring or approving
more extensive notice plans than that called for here, even in cases with lower financial
stakes or smaller Settlement Classes than in this case, reflects this compromise, and
exemplifies the type of effort the court expects of the Settling Parties. See, e.g., In re Ky.
Grilled Chicken Coupon Mktg. & Sales Practices Litig., No. 1:09-cv-7670, 2011 WL
5599129, at *5 (N.D. Ill. Nov. 16, 2011) (publication in Parade, internet advertising
providing 18 million impressions, and key word search advertisements for settlement
fund of $1.575 million).1
The Settling Parties make reference to Mirfasihi, a case in which the Seventh
Circuit expressed unenthusiastic approval of a notice plan consisting of a settlement
administration web site similar to the one in this case and notice by publication in USA
Weekend, a magazine insert that is included in more than 800 newspapers every weekend
and has a circulation of 22.6 million.2 356 F.3d at 786; USA Weekend Media Kit, June
14, 2012, http://business.usaweekend.com/circulation. Because the class in Mirfasihi
Other examples include: In re CertainTeed Corp. Roofing Shingle Prods. Liab. Litig., 269 F.R.D.
468, 477, 482 (E.D. Pa. 2010) (mail to 69,000 identifiable class members, three weeks of publication in
Parade’s Midwestern editions, publication in trade journals, 773 ads on 27 cable networks, 1,212 ads on 24
television stations, and internet notice on web sites such as Google and Yahoo for class of “hundreds of
thousands”); DeHoyos v. Allstate Corp., 240 F.R.D. 269, 278, 280 (W.D. Tex. 2007) (publication in
national magazines and newspapers and internet advertising, at cost of $2.1 million, for class of 4.8
million); In re Lupron Mktg. & Sales Practices Litig., 228 F.R.D. 75, 85, 88 (D. Mass. 2005) (947
newspapers, Parade, USA Weekend, 12 national magazines including Newsweek, People, and Time, and
25,083 radio ads on 127 stations for class of “tens if not hundreds of thousands” ); Varacallo v. Mass. Mut.
Life Ins. Co., 226 F.R.D. 207, 226, 229 (D.N.J 2005) (individual mail as well as publication twice in
Parade, USA Weekend, People, Time and Newsweek, and once in Fortune, Business Week, the Wall Street
Journal and the New York Times for class of nearly 3 million).
The court notes that the Settling Parties’ Memorandum of Law in Support of Final Approval of
Class Action Settlement characterizes USA Weekend as “a spin-off of USA Today,” Doc. 373, 15, perhaps
attempting to give the impression that the notice preliminarily approved in this case is actually greater than
that approved by the Seventh Circuit in Mirfasihi, 356 F.3d at 786. Given that USA Weekend’s circulation
(22.6 million) is more than ten times larger than the circulation of USA Today (1.70 million), such a
characterization would be unfounded.
consisted of only 1.6 million members, a fraction of the probable size of the class in this
case, and because the Mirfasihi court described even publication in USA Weekend as
merely “better than nothing,” the court would view notice commensurate with that in
Mirfasihi as the bare minimum and would approve that level of notice only if convinced
that no more effective notice is practicable. Id. at 782, 786. The courts should not permit
“better than nothing” to become the new benchmark.
Where notice to a class has been inadequate, it may be appropriate to reject the
settlement in its entirety. Girsh v. Jepson, 521 F.2d 153, 158 (3d Cir. 1975) (rejecting
class action settlement because, inter alia, the court was not satisfied that the best
practicable notice had been provided to class members); Greenfield v. Villager Indus.,
483 F.2d 824, 830-31 (3d Cir. 1973) (vacating class action settlement because the form of
notice by publication undertaken was insufficient). The court sees no reason to take such
a drastic step at this point. Instead, the court will appoint an expert in class notification,
as advised by the Federal Judicial Center’s Class Action Checklist 2010. Federal Judicial
Center, Judges Class Action Notice and Claims Process Checklist & Plain Language
Guide, 1-2 (2010) (“In order to find the ‘best practicable’ notice as Rule 23 requires, your
own expert report may be advisable. This is especially true in the diminished adversarial
posture in which settlement places the parties.”); see also Loef v. First Am. Title Ins. Co.,
No. 2:08-cv-311, 2012 WL 640887, at *1 (D. Me. Feb. 28, 2012) (“[I]t would have been
wholly insufficient for Plaintiff to propose a plan of notice by publication without
including a declaration of a professional with credentials similar to Dr. Wheatman’s.”).
After receiving the expert’s report, the court will then order the Settling Parties to
undertake a second round of notice, the form and content of which will be determined by
the expert’s recommendations. The court proposes the appointment of Dr. Shannon R.
Wheatman, Ph.D., the expert approved by the court in Loef, if she is available. The
parties are invited to respond to this suggestion or to propose an alternate expert with
The court does not believe it is necessary at this point to follow the lead of courts
that have required corporate defendants to post a link to a settlement web site on their
home page. See, e.g., Shurland v. Bacci Café, 271 F.R.D. 139, 147 (N.D. Ill. 2010)
(urging plaintiff to propose new notice plan including link to class notice on defendant’s
website); Karvaly v. eBay, Inc., 245 F.R.D. 71, 93 (E.D.N.Y. 2007) (requiring settling
parties who wished to use an electronic means of notice to post the notice “in a
conspicuous place on PayPal’s web site during the entire notice period”). If the parties
fail to come up with a plan that can reach a meaningful proportion of class members, the
court will reconsider taking that step.
For the above reasons, the court orders the appointment of an expert in class
action notification. If the parties wish to object to the appointment of Dr. Wheatman or
to propose an alternate expert with similar qualifications, they must do so within 14 days.
JOAN B. GOTTSCHALL
United States District Judge
DATED: June 25, 2012
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?