May 032012
 

Members of a class of Netflix subscribers are so unhappy with the settlement result reached in an antitrust suit regarding Netflix’s marketing agreement with Wal-Mart that they have asked the U.S. Court of Appeals for the Ninth Circuit to overturn it.  The settlement in the amount of $27.2 million gives plaintiffs’ lawyers over $8 million in legal fees; an amount the class members argue is in violation of federal law that requires the terms to be in the best interest of the class. 

The settlement amount was approved by the U.S. District court for the Northern District of California on March 29.  Under the agreement, settlement payments will be made to class members who mail in a claim or file a claim online, making the actual number of class members sharing the award pro-rata as yet undetermined.  The payments to the subscribers will be made in Wal-Mart gift cards, which according to appellants, brings the settlement under special provisions of the Class Action Fairness Act of 2005 as a “coupon-settlement”.  CAFA requires that attorneys’ fees be based on settlement value – in this case, the amount of coupons that are distributed to class members.

Attorney Theodore Frank, one of the appellants and founder of the Center for Class Action Fairness, argues that by approving the amount of legal fees prior to all of the class members filing a claim and being compensated, the Court violated CAFA.  “Class counsel’s behavior in determining its own fee in the absence of an open and transparent determination of what the class will receive is … troubling,” says Frank.  In addition, it is argued that the settlement contravenes the 9th Circuit’s rule barring class action settlement attorney’s fees in excess of 25% of what the class receives.

Attorneys for Wal-Mart claim that the suit does not fall under CAFA, as the settlement award is being paid out in gift credit cards, rather than actual “coupons”, but class members are unconvinced that there are any economically distinguishing factors.  It will be up to the 9th Circuit to make the final determination about the classification of these gift cards and whether the calculation of attorneys’ fees was appropriate in this case.