Kaufman v. Am. Express Travel Related Servs. Co.

• Decision Date: 07 December 2017
• Docket Number: No. 16-1691,16-1691
• Citation: 877 F.3d 276
• Parties: Saul M. KAUFMAN, individually and on behalf of all others similarly situated, et al., Plaintiffs–Appellees, and J.G. Goodman, also known as J.L. Goodman, Objector, et al., Intervening Plaintiffs–Appellants, v. AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

877 F.3d 276

Saul M. KAUFMAN, individually and on behalf of all others similarly situated, et al., Plaintiffs–Appellees,

and

J.G. Goodman, also known as J.L. Goodman, Objector, et al., Intervening Plaintiffs–Appellants,

v.AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., Defendant–Appellee.

No. 16-1691

United States Court of Appeals, Seventh Circuit.

Argued September 28, 2017

Decided December 7, 2017

Phillip Andrew Bock, James Michael Smith, Attorneys, Bock, Hatch, Lewis & Oppenheim, LLC, Chicago, IL, for Plaintiffs–Appellees Saul M. Kaufman, Kimberly Stegich.

Richard David Greenfield, Attorney, New York, NY, for Plaintiffs–Appellees J.G. Goodman, Carla Santsche.

Daniel K. Ryan, Attorney, Hinshaw & Culbertson LLP, Chicago, IL, James L. Bernard, Attorney, Stroock & Stroock & Lavan LLP, New York, NY, for Defendant–Appellee.

Before Bauer, Manion, and Hamilton, Circuit Judges.

MANION, Circuit Judge.

Saul Kaufman, as lead plaintiff in a class action, sued American Express Travel Related Services Company, Inc. ("Amex"), alleging claims for breach of contract, unjust enrichment, and statutory fraud related to Amex's general-use, prepaid gift cards. Just over two years after Kaufman filed the class action, Kaufman (on behalf of the class) and Amex sought approval from the district court of a settlement agreement that would resolve the action. Almost seven years later, after multiple amended motions for approval and three rounds of notice to the class, the district court granted final approval of the settlement. J.G. Goodman and Carla Santsche ("Intervenors"), who had intervened in the class action, appeal the approval of the settlement. While we recognize this settlement is not without issues, we conclude the district court did not abuse its discretion in approving it.

I. Background

The protracted history of this case began on February 14, 2007, when Kaufman filed a class-action lawsuit in the Superior Court of Cook County, Illinois, against Amex. The claims arose out of Amex's sale of general-use, prepaid gift cards. A customer could buy a gift card by paying the amount to be loaded on the card (e.g., $25, $50, or $100) and a purchase fee of less than $5. The packaging in which the gift cards came declared they were "good all over the place."

Kaufman alleges, however, that these gift cards were not worth their stated value (e.g., a $25 card was not actually worth $25) and that they were not "good all over the place." This is because merchants were ill-equipped to process "split-tender" transactions, which occurred when a gift-card holder attempted to use his gift card to purchase an item that cost more than the value remaining on his card, necessitating the use of two forms of tender. The inability to process those sorts of transactions led to rejected cards and languishing balances, as gift-card holders could not use the relatively small amounts remaining on their cards.

Those balances did not have to languish for long, though, because after twelve months Amex automatically began charging a $2 "monthly service fee" against balances on the cards. If a holder wanted to recover the balance of his card from Amex, he could request a check, but only if he paid a $10 check-issuance fee. Because of these service and check-issuance fees, which resulted in remaining funds on the cards going to Amex, Kaufman alleged Amex had purposely designed its gift-card program to make it difficult for people to exhaust the balances on their cards, thus lowering their value.

On March 27, 2007, Amex removed the class action to the District Court for the Northern District of Illinois pursuant to the Class Action Fairness Act. 28 U.S.C. § 1332(d)(2). Once in federal court, Amex moved to compel arbitration, citing the arbitration provision in the "American Express Gift Card Cardholder Agreement" that was included with the gift cards. For cards purchased from stores, this agreement was only accessible after purchasing the gift card and opening its packaging.

The district court denied the motion, concluding the provision was not part of the contract between Amex and Kaufman.

Amex appealed that decision to this court. Shortly thereafter, Amex and Kaufman engaged in settlement negotiations through this court's Mediation Program. As a result of those negotiations, the parties sought a limited remand of Amex's appeal for the purpose of presenting their settlement to the district court for approval. On February 4, 2009, we granted that request.

After remand, the Intervenors sought entry into the action.¹ Intervenor Goodman was the lead plaintiff in a class action in the Eastern District of New York that made similar complaints against Amex arising from issues with split-tender transactions and Amex's fee policies. In the briefs filed in this appeal, the Intervenors explain that intervenor Santsche's interest in this case arises from her alleged purchase of a $100 gift card that had no value when she attempted to use it. On July 15, 2009, the district court granted the motion to intervene.

Two days before the grant of that motion, Kaufman, joined by a new co-plaintiff, Kimberly Stegich, individually and on behalf of all others similarly situated ("Plaintiffs"), filed an amended class-action complaint and a motion for preliminary approval of a settlement of the action. But before the district court addressed that motion, the Plaintiffs amended it. According to the amended motion, the settlement called for a $3,000,000 fund. From that fund, class members could receive, in exchange for their release of all claims related to Amex's gift cards, the following payments: (1) up to $20 in reimbursement for monthly fees actually paid due to refused split-tender transactions; (2) up to $8 for monthly fees paid; (3) up to $5 in reimbursement of any check-issuance fee paid; and (4) up to $5 in reimbursement for monthly fees paid simply by attesting to the fact that the fees were paid.² If any of the $3,000,000 remained after paying claims, up to $200,000 would go to a charitable organization as cy pres . If more than that remained, up to $650,000 would go to Amex as reimbursement for the costs of notice and administration. If still more remained, that too would go to the cy pres .

In addition to payments from the fund, class members could also take part in two supplemental programs: (1) the "Balance Refund Program," which allowed class members with less than $25 remaining on their gift cards to request a refund of their balance without paying the check-issuance fee; and (2) the "Purchase Fee and Shipping/Handling Fee Waiver" program, through which class members could purchase a new $100 Amex gift card without paying the purchase fee or shipping and handling fee (a savings of approximately $10).

The district court entered its order on the Plaintiffs' motion on December 22, 2009. After concluding that the class was certifiable pursuant to Federal Rule of Civil Procedure 23, the court certified the class for settlement purposes, defining the class as

All purchasers, recipients, holders and users of any and all gift cards issued by American Express from January 1, 2002 through the date of preliminary approval of the settlement, including, without limitation, gift cards sold at physical retail locations, via the Internet, or through mall cobranded programs. Notwithstanding the foregoing, ‘Be My Guest’ dining cards are not included within the settlement.

Kaufman v. Am. Express Travel Related Servs. Co. , 264 F.R.D. 438, 444 (N.D. Ill. 2009).

Despite certifying the class, the court denied preliminary approval of the settlement. Of particular concern to the court was the inadequacy of the proposed notice, both in form (the Plaintiffs had proposed notice by publication, but the court did not accept the proposition that Amex had no personal-identifying data with which to provide individualized notice) and substance (the notice failed "to satisfy the requirements of Rule 23(c)(2)(B)"). Id. at 445–46.

The district court addressed the proposed settlement again in an order on August 19, 2010. The court observed that the parties had improved the proposed notice, but now it was too complicated—the court ordered that it should include a concise summary. Additionally, the court noted that, since the initial denial of preliminary approval, Amex had revealed that it did have some personal-identifying information for gift-card holders, so the court declined to excuse individual notice.

Over a year later, the Plaintiffs filed their Second Amended Motion for Preliminary Approval. The settlement now proposed a fund of $6,753,269.50. While this fund was considerably larger than the $3,000,000 initially proposed, it would be drawn against for the costs of notice and administration, as well as approved attorneys' fees and lead-plaintiff incentive awards. The benefits available to the class (the four types of refunds and the supplemental programs) and the release remained substantially the same. This version of the settlement maintained the cy pres but removed the $650,000 reimbursement for Amex. It also called for notice by publication and by direct mail to every class member for which Amex had information.

On September 21, 2011, the district court granted preliminary approval of the settlement, appointed the Plaintiffs' counsel as lead class counsel and counsel for two intervening parties as additional class counsel, and again certified the class for purposes of the settlement.³

After providing notice and receiving responses from class members, the Plaintiffs and Amex sought final approval of the settlement on February 16, 2012. However, response to the notice had been "abysmal." Of the approximately 70,000,000 gift cards sold, only 3,456 benefits had been requested, amounting to $41,510.35.⁴ As class counsel was requesting $1,525,000 in fees, the fee-to-claims ratio was woefully imbalanced. The district court decided that issues with notice needed to be addressed, and so determined to hire a notice...