Theodore H. Frank v. Netflix, Inc.
779 F.3d 934
| 9th Cir. | 2015Background
- Plaintiffs (Netflix DVD subscribers) sued Netflix and Walmart alleging an anticompetitive agreement that harmed subscribers by enabling higher Netflix subscription prices.
- The district court certified a litigation class of Netflix subscribers and later approved a settlement between Walmart and that class: Walmart agreed to pay $27,250,000 composed of a Cash Component (fees, costs, admin, incentives) and a Gift Card Component for claimants.
- Notice (email + mailed follow-up) was sent to millions; ~1.18 million claims were filed (majority chose gift cards), 722 opt-outs, and 30 objections.
- The district court awarded attorneys’ fees of 25% of the total fund ($6,812,500), $1.7M in expenses, ~$45,000 total in incentive awards (9 x $5,000), and approved administration costs.
- Objectors appealed, arguing (inter alia) class certification errors, inadequate notice, an unfair distribution method (claimant-fund sharing), CAFA’s coupon-settlement rules should apply to Walmart gift cards, and the fee award was improper.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Class certification adequacy (Rule 23(a)(4)) | Objectors: incentive awards and alleged conflicts made class reps inadequate | District/Ninth Circuit: reps had same claims, no structural conflicts, incentive awards typical and modest | Affirmed: no abuse of discretion; adequacy satisfied |
| Distribution method (claimant-fund sharing) | Objectors: few claimants makes equal-share claimant fund unfair / akin to disfavored fluid recovery | Settlement proponents: claimant fund gives direct monetary relief and has precedent; not equivalent to cy pres | Affirmed: district court did not abuse discretion in using claimant-fund sharing |
| Notice (Rule 23 / due process) | Objectors: notice lacked detail on per-claimant recovery, deductions, and concurrent Netflix litigation status | Defendants: notice disclosed fund size, fee request, claim/opt-out/objection procedures and deadlines; website provided details | Affirmed: notice was constitutionally and procedurally adequate |
| Coupon settlement / CAFA applicability | Objectors: Walmart gift cards are "coupons" so CAFA §1712 requires fee apportionment based on redeemed value | Defendants: gift cards function more like cash (transferable, no expiration, broad merchant assortment, cash option available) and differ from discount coupons Congress targeted | Affirmed: CAFA does not apply; gift cards not "coupon settlement" here |
| Attorneys’ fees calculation (25% benchmark) | Objectors: fees should exclude admin/notice/expenses or be reduced under CAFA; inadequate Rule 23(h) notice of the fee motion | Defendants: 25% benchmark appropriate; notice and timing complied with Rule 23(h); cross-check against lodestar acceptable | Affirmed: 25% of total fund (including costs) reasonable; notice adequate; district court did lodestar cross-check and explained rationale |
Key Cases Cited
- Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (settlement-class certification requires Rule 23(a) and (b) analysis)
- In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935 (9th Cir.) (standard for review of class settlement and fee awards; benchmark 25% rule)
- Rodriguez v. West Publ’g Corp., 563 F.3d 948 (9th Cir.) (discussion of incentive awards and conflicts)
- Staton v. Boeing Co., 327 F.3d 938 (9th Cir.) (standards for evaluating incentive awards)
- Vizcaino v. Microsoft Corp., 290 F.3d 1043 (9th Cir.) (factors to consider in percentage-of-recovery fee awards)
- Six (6) Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301 (9th Cir.) (approving settlements with low claim rates)