Class Action

Class Action Defense Cases–Chavez v. Netflix: California Court Upholds Trial Court Approval Of Class Action Settlement Providing Customers With One-Day Free Rental And Awarding $2 Million In Attorney Fees

By Michael J. Hassen

Class Action Settlement was not a “Coupon” Settlement and Trial Court did not Abuse its Discretion in Approving Class Action Settlement or Awarding Class Counsel $2 Million in Attorney Fees California State Court Holds

Plaintiff filed a class action lawsuit against Netflix, Inc. alleging false advertising in advising customers that, for a flat monthly fee, it would send them “unlimited” DVD rentals with “1 Day Delivery”; the class action alleged that these representations were false. Chavez v. Netflix, Inc., 162 Cal.App.4th 43, 75 Cal.Rptr.3d 413, 418 (Cal.App. 2008). Specifically, the class action charged that “Netflix was employing sophisticated algorithms to prioritize the allocation of its DVD's to its lowest-consuming members with the effect that high-consuming members would receive fewer DVD's per month, reducing the costs Netflix incurred to serve this high-usage group, and increasing its profits.” Id., at 419. Defense attorneys denied the allegations and extensive discovery followed: “Netflix produced approximately 86,000 pages of documents, answered more than 200 interrogatories and 59 requests for admissions, and made five of its employees, including three executives, available for deposition by Chavez. Chavez produced documents and answered interrogatories.” Id. Plaintiff sought class action certification of the lawsuit, but before the court ruled on whether to afford class action treatment, the parties reached a settlement. Id. The original class action settlement was amended to address objections filed in opposition to the proposal; over the challenges of a handful of objectors, the trial court approved the terms of the amended class action settlement and awarded plaintiff’s lawyers $2 million in fees and costs. Id., at 419-21. Some of the objectors appealed, and the California Court of Appeal affirmed.

Under the terms of the original class action settlement, Netflix agreed to modify its advertising, and agreed to provide current members with “a one-level membership upgrade for one month, allowing the current members to receive one additional DVD at a time at no charge,” and all former members with “a free one-month membership at the three-at-a-time level, which would allow the former member to receive a minimum of three and up to 11 or more rentals at no charge.” Chavez, at 419-20. The original proposal also included an “auto-renewal feature.” Id., at 420. The trial court gave preliminary approval to the class action settlement and notice was provided to class members, id. Several objections were filed on behalf of “approximately 450 of the 5.5 million class members”; the Federal Trade Commission (FTC) also filed an objection, challenging the auto-renewal feature of the proposed class action settlement. Id. Ultimately, the parties eliminated the auto-renewal provision, and made certain other modifications to address some of the objectors’ concerns, and a second notice was provided to class members. Id. The amended class action settlement agreement resulted in the withdrawal of the objections by the FTC and by 428 of the original 450 objectors, id. The trial court ultimately gave final approval to the settlement, and awarded plaintiff approximately $2 million in attorney fees. Id., at 420-21. In the end, almost 700,000 people filed claims for benefits under the settlement, id., at 421. Three appeals were filed on behalf of four objectors followed: the appellate court consolidated the appeals and affirmed. Id.

Full post as published by Class Action Defense Blog on June 12, 2008 (boomark / email).