16 F.4th 594
9th Cir.2021Background
- Plaintiffs sued Massage Envy Franchising, LLC (MEF) alleging unauthorized increases to monthly membership fees and sought class relief for current and former members nationwide.
- Before class certification, the parties settled: class members could claim noncash vouchers (tied to the fee increase each paid) redeemable for MEF products/services; vouchers expire after 18 months, are transferable, stackable, but not redeemable for cash or membership fees.
- Settlement guaranteed a $10 million voucher floor, contained a clear‑sailing fee provision (MEF would not oppose up to $3.3M), and a reverter (unawarded fees revert to MEF); only ~6.2% of class members claimed vouchers and claimed value was well below the $10M floor.
- District court preliminarily and finally approved the settlement as fair under Rule 23(e), and calculated attorneys’ fees using the $10M voucher face value plus estimated admin costs.
- Objector Oreshack argued the vouchers are CAFA “coupons” (so fees must be based on redeemed value), and that the district court failed to apply heightened scrutiny for a pre‑certification settlement and did not address Bluetooth warning signs of collusion.
- Ninth Circuit: vacated approval and fee award, held vouchers are CAFA coupons (reviewed de novo under the Online DVD factors), remanded for fee calculation based on redeemed vouchers and for heightened pre‑certification scrutiny (Bluetooth factors).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the settlement vouchers "coupons" under CAFA, triggering §1712 requirements? | Vouchers function as coupons because they are noncash credits limited to MEF products/services and many class members will need to spend additional money to use them. | Vouchers are flexible, transferable, usable on many items (251 SKUs), and thus not CAFA coupons. | Vouchers are coupons. Applying the Online DVD three‑factor test de novo, two factors (limited range and need to spend own money for core services) favored coupon status despite voucher flexibility. |
| What standard of review applies to whether CAFA’s coupon provisions apply? | (Objector) Statutory interpretation; de novo review appropriate. | (MEF) District court facts and prior Ninth Circuit framework warrant deferential abuse‑of‑discretion review. | De novo review applies because the question is one of statutory interpretation informed by the Online DVD framework and §1712(a) is mandatory. |
| Did the district court abuse its discretion in approving the pre‑certification settlement under Rule 23(e) and the Bluetooth warning‑sign analysis? | Approval failed to apply heightened pre‑certification scrutiny; clear‑sailing and reverter provisions plus voucher economics show potential collusion and overvaluation of relief. | District court considered risks, discovery, low opt‑out rate, and AG review and found no collusion; vouchers provided tangible, flexible relief. | District court abused its discretion by not adequately investigating/addressing Bluetooth warning signs (clear‑sailing + reverter) and by valuing fees on face value; remand required for enhanced scrutiny and fee recalculation using redeemed value. |
Key Cases Cited
- In re Online DVD‑Rental Antitrust Litig., 779 F.3d 934 (9th Cir. 2015) (articulated three‑factor test for determining CAFA "coupon" status)
- In re EasySaver Rewards Litig., 906 F.3d 747 (9th Cir. 2018) (applied Online DVD factors and explained CAFA’s purpose to base fees on redeemed coupon value)
- In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935 (9th Cir. 2011) (identified warning signs of implicit collusion in pre‑certification settlements)
- Roes, 1–2 v. SFBSC Mgmt., LLC, 944 F.3d 1035 (9th Cir. 2019) (applied heightened scrutiny to pre‑cert settlements and scrutinized voucher valuation)
- Chambers v. Whirlpool Corp., 980 F.3d 645 (9th Cir. 2020) (held rebates were CAFA coupons under Online DVD framework)
- In re HP Inkjet Printer Litig., 716 F.3d 1173 (9th Cir. 2013) (examined coupon features such as expirations and transferability)
- In re Lumber Liquidators Chinese‑Manufactured Flooring Prods. Litig., 952 F.3d 471 (4th Cir. 2020) (adopted de novo review for CAFA coupon determinations)
- Redman v. RadioShack Corp., 768 F.3d 622 (7th Cir. 2014) (treated vouchers as coupons and discussed thin secondary market)