Kaufman v. American Express Travel Related Services Co.
877 F.3d 276
7th Cir.2017Background
- Kaufman sued American Express over general‑use prepaid gift cards, alleging cards were effectively worth less than face value due to merchants’ inability to handle split‑tender transactions and Amex’s fees (monthly service fees and $10 check‑issuance fee).
- Amex removed the case under CAFA and unsuccessfully moved to compel arbitration based on terms inside gift‑card packaging; district court held those terms were not part of the contract.
- Plaintiffs and Amex negotiated a settlement after mediation; settlement provided a fund (eventually about $6.75 million) for limited reimbursements, plus supplemental programs (balance refunds under $25 and waived fees on a new $100 card); cy pres and administrative cost provisions applied to leftovers.
- The district court repeatedly revised notice procedures; after three rounds of notice over several years, response rates improved and the court finally granted final approval in 2016, describing the settlement as the “least bad option.”
- Intervenors appealed, challenging (A) timing of filing supporting briefs relative to objection deadlines, (B) the district court’s reliance on Amex’s arbitration defense risk, (C) the breadth of the release (releasing unaddressed claims), and (D) the allocation of attorneys’ fees (they sought most fees).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Whether proponents must file briefs supporting settlement before objection deadline (procedural due process) | Proponents need not file briefs early; class notice is the material requirement. | Intervenors: fairness/due process requires filing so objectors can respond with full information (analogy to fee motions). | Court: No. Rule 23(e) does not require filing supporting briefs before objection deadline; Redman/ Mercury reasoning limited to fee motions under Rule 23(h). |
| 2. Whether pending arbitration appeal justified discounting settlement value | Settlement proponents: the appeal created real risk class could be forced into arbitration and obtain nothing, making settlement reasonable. | Intervenors: arbitration cases cited are inapposite because district court ruled arbitration provision was not part of the contract. | Court: Affirmed; appellate review is de novo and arbitration enforcement risk was a legitimate factor to weigh. |
| 3. Whether the release was overbroad (releasing unremedied claims like alleged $0‑balance cards) | Plaintiffs: release permissible in settlement; no admissible evidence shows systemic uncompensated claims exist. | Intervenors: release covers substantial unaddressed claims; class gets nothing for some claims. | Court: No abuse of discretion—intervenors produced no admissible evidence of such claims; court may approve compromise releases. |
| 4. Whether fee allocation improperly shortchanged Intervenors' counsel | Plaintiffs: district court appropriately allocated fees based on contributions; awarded substantial fees to intervenors too. | Intervenors: they drove key improvements and should receive most fees; plaintiffs colluded with Amex. | Court: Fee awards affirmed; district court best positioned to assess contributions and did not abuse discretion. |
Key Cases Cited
- Redman v. RadioShack Corp., 768 F.3d 622 (7th Cir.) (procedural requirements for fee notice relative to objections)
- In re Mercury Interactive Corp. Sec. Litig., 618 F.3d 988 (9th Cir.) (Rule 23(h) requires fee motion be filed before objection deadline)
- American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (U.S.) (Supreme Court enforces arbitration provisions even when individual arbitration is cost‑prohibitive)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S.) (FAA preempts state rules forbidding waiver of class arbitration)
- Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646 (7th Cir.) (most important factor: strength of plaintiffs’ case v. settlement amount)
- Isby v. Bayh, 75 F.3d 1191 (7th Cir.) (standard for approving class settlements)
- Reynolds v. Beneficial Nat'l Bank, 288 F.3d 277 (7th Cir.) (district court as fiduciary of the class; scrutinize settlements and fee awards)