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Kaufman v. American Express Travel Related Services Co.

December 22, 2009


The opinion of the court was delivered by: Judge Joan B. Gottschall


Plaintiffs (the "Kaufman"plaintiffs) brought this class action against defendant American Express Travel Related Services Company, Inc. ("American Express"), challenging certain fees assessed on American Express-issued gift cards. This matter is presently before the court on Plaintiffs' Amended Motion for Preliminary Approval of Class Action Settlement and Notice to the Settlement Class (the "Motion"). American Express submitted briefing in support of the Motion.

There are four parallel actions pending in other jurisdictions, each filed after the case before this court: Kazemi, et al. v. Westfield America, Inc., San Diego Superior Court, Case No. 37-2008-00075526-CU-BT-CTL (the "Kazemi" action); Goodman v. American Express Travel Related Services Company, Inc., United States District Court for the Eastern District of New York, No. 08-CV-2299 (the "Goodman" action); Jarratt v. American Express Company, Superior Court of the State of California for the County of San Diego, Case No. 37-2009-00082117-CU-BT-CTL (the "Jarratt" action); and Rudd v. American Express Travel Related Services Co., Inc., pending in the United States District Court for the Southern District of California, Case No. 09-CV-930-WQH (RBB) (the "Rudd" action). While the Jarratt and Rudd plaintiffs have signed the proposed settlement agreement, the Goodman and Kazemi plaintiffs have each submitted objections to the Motion.

The court addresses the issues in the Motion and the objections thereto in turn.


In their Amended Class Action Complaint, the Kaufman plaintiffs seek damages arising from American Express' alleged misrepresentations regarding the value of "The American Express Gift Card" (the "Gift Card"). Specifically, the Kaufman plaintiffs allege that American Express falsely represents that the Gift Cards are worth a certain value; can be used "all over the place;" and can be used in combination with another form of payment (in a so called "split-tender" transaction). Each of these representations are false, according to the Kaufman plaintiffs, because American Express charges maintenance fees that whittle down the actual value of the Gift Cards; because the Gift Cards are not actually accepted everywhere, and because many vendors do not allow split-tender transactions, rendering a small balance left on a Gift Card worthless (and susceptible to the above-described fees).

The court denied a motion to compel arbitration in March 2008, and then stayed the case pending American Express' appeal to the Seventh Circuit. During the pendency of the appeal, American Express and the Kaufman plaintiffs began settlement negotiations pursuant to the Seventh Circuit settlement conference program. These negotiations consisted of three full-day mediation sessions, followed by two more full-day mediation sessions before the Honorable William J. Cahill (Ret.), and resulted in two agreements: a Memorandum of Understanding executed on January 8, 2009, and a Fee Agreement, executed on February 10, 2009. At the parties' request, the Seventh Circuit granted a limited remand of this case for purposes of potential settlement, after which the Kazemi, Jarratt, Rudd, and Goodman plaintiffs were all allowed to intervene. The parties engaged in limited discovery before agreeing to further mediation. On July 20, 2009, all parties conducted a full-day mediation with the Honorable Abner J. Mikva (Ret.), resulting in a settlement agreement (the "Settlement Agreement") and subsequent modification (the "Modification"), which was signed by American Express and the Kaufman, Jarratt, and Rudd plaintiffs.

In the Settlement Agreement, the Kaufman, Jarratt, and Rudd plaintiffs seek to represent a class consisting of:

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 co-branded programs. Notwithstanding the foregoing, 'Be My Guest' dining cards are not included within the settlement. [(the "Class".)]

Settlement Agreement, ¶ 3.2, at 10-11. As described within, these plaintiffs agreed in the Settlement Agreement and Modification to settle claims on behalf of the Class in exchange for a $3 million Settlement Fund, from which Class members can make claims, and a maximum of roughly $1.25 million in attorneys' fees.

On July 27, 2009, the Kaufman plaintiffs filed this Motion and submitted briefing in support of it, as did American Express. The Kazemi and Goodman plaintiffs each object to the Settlement Agreement, primarily alleging that the Settlement Fund is insufficient in comparison to the putative value of Class members' claims.


Before addressing the substantive provisions of the Settlement Agreement, the court must first determine whether the proposed Class can be certified. See, e.g., In re Bromine Antitrust Litig., 203 F.R.D. 403 (S.D. Ind. 2001).*fn1 For the Class to be certified, the court must find that the Class meets the requirements of Federal Rule of Civil Procedure 23(a) and (b).

A.Rule 23(a)

To be certified, a class must first meet Rule 23(a)'s four prerequisites:

(1) the class is so numerous that joinder of all members is impracticable;

(2) there are questions of law or fact common to the class;

(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and

(4) the representative parties will fairly and adequately protect the interests of the class.

Fed. R. Civ. P. 23(a).

1. Numerosity

The Class includes "purchasers, recipients, holders and users" of Gift Cards from January 1, 2002 to the present. The parties have not submitted any data on how many class members there might be. However, an American Express representative acknowledged that from January 2002 through September 2008, American Expressed collected monthly service fees on over 14 million Gift Cards. Affidavit of Jerreld S. Paulson ("Paulson Aff.") ¶ 5. Of these 14 million, approximately 5 million were subject to fees after failed transactions for insufficient funds. These failures are apparently indicative of split-tender transactions. Id. ¶ 7. However, many Gift Card users who experienced failed transactions were later able to use their Gift Cards: only 1.7 million of the 5 million Gift Cards that experienced failed transactions plus fees were unable to subsequently complete a transaction. Id. ¶ 7. Even assuming the Class numbers only 1.7 million persons, the court finds that the Class is sufficiently numerous to satisfy Rule 23(a)(1).

2. Commonality

There are questions of fact and law common to the class. Fed. R. Civ. P. 23(a)(2). The commonality requirement does not necessitate "every class member's factual or legal situation to be a carbon copy" of those of the named plaintiffs, so the "low commonality hurdle is easily surmounted." Wesley v. Gen. Motors Acceptance Corp., 1992 WL 57948, at *3 (N.D. Ill. Mar. 20, 1992). Here, American Express' policies and practices regarding the Gift Cards and questions of contract and consumer fraud law are common to the Class, satisfying the commonality requirement.

3. Typicality

The Kaufman plaintiffs' claims and defenses are typical of those of the Class. Fed. R. Civ. P. 23(a)(3). A "'plaintiff's claim is typical if it arises from the same event or practice or course of conduct that gives rise to the same legal theory.'" Rosario v. Livaditis, 963 F.2d 1013, 1018 (7th Cir. 1992) (quoting De La Fuente v. StokleyVanCamp, Inc., 713 F.2d 225, 232 (7th Cir. 1983)). The Kaufman plaintiffs each allege that they purchased Gift Cards. See Compl. ¶¶ 34, 57. They also allege that they attempted to use their Gift Cards as part of split-tender transactions, but were denied. See, e.g., Id. ¶¶ 45, 46, 50, 51, 60-62. Based on these rejections, and American Express' allegedly misleading policies regarding the Gift Cards, the Kaufman plaintiffs assert claims for breach of contract, fraud, and unjust enrichment. The Kaufman plaintiffs' claims arise from similar events and the same alleged conduct by American Express, give rise to similar claims as those of other members of the Class, and thereby satisfy the typicality requirement.

4. Adequacy

Finally, Rule 23(a) also requires that the named plaintiffs "fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a)(4). "The adequacy standard involves two elements: one relates to the adequacy of the named plaintiffs' representation of the class and requires that there be no conflict between the interests of the representative and those of the class in general; the other relates to the adequacy of class counsel's representation." In re Bromine Antitrust Litig., 203 F.R.D. at 410. The Kaufman plaintiffs do not address the first element. The Kazemi plaintiffs object that the Kaufman, Jarratt, and Rudd plaintiffs do not adequately represent the class because the putative Class plaintiffs: (a) have not brought certain claims brought by the Kazemi ...

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