Saul M. Kaufman, individually and on behalf of all others similarly situated, et al., Plaintiffs-Appellees,
American Express Travel Related Services Company, Inc., Defendant-Appellee. and J.G. Goodman, also known as J.L. Goodman, Objector, et al., Intervening Plaintiffs-Appellants,
September 28, 2017
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. l:07-cv-01707 -
Joan B. Gottschall, Judge.
Bauer, Manion, and Hamilton, Circuit Judges.
MANION, CIRCUIT JUDGE
Kaufman, as lead plaintiff in a class action, sued American
Express Travel Related Services Company, Inc.
("Amex"), alleging claims for breach of contract,
unjust enrichment, and statutory fraud related to Amex's
general-use, prepaid gift cards. Just over two years after
Kaufman filed the class action, Kaufman (on behalf of the
class) and Amex sought approval from the district court of a
settlement agreement that would resolve the action. Almost
seven years later, after multiple amended motions for
approval and three rounds of notice to the class, the
district court granted final approval of the settlement. J.G.
Goodman and Carla Santsche ("Intervenors"), who had
intervened in the class action, appeal the approval of the
settlement. While we recognize this settlement is not without
issues, we conclude the district court did not abuse its
discretion in approving it.
protracted history of this case began on February 14, 2007,
when Kaufman filed a class-action lawsuit in the Superior
Court of Cook County, Illinois, against Amex. The claims
arose out of Amex's sale of general-use, prepaid gift
cards. A customer could buy a gift card by paying the amount
to be loaded on the card (e.g., $25, $50, or $100) and a
purchase fee of less than $5. The packaging in which the gift
cards came declared they were "good all over the
alleges, however, that these gift cards were not worth their
stated value (e.g., a $25 card was not actually worth $25)
and that they were not "good all over the place."
This is because merchants were ill-equipped to process
"split-tender" transactions, which occurred when a
gift-card holder attempted to use his gift card to purchase
an item that cost more than the value remaining on his card,
necessitating the use of two forms of tender. The inability
to process those sorts of transactions led to rejected cards
and languishing balances, as gift-card holders could not use
the relatively small amounts remaining on their cards.
balances did not have to languish for long, though, because
after twelve months Amex automatically began charging a $2
"monthly service fee" against balances on the
cards. If a holder wanted to recover the balance of his card
from Amex, he could request a check, but only if he paid a
$10 check-issuance fee. Because of these service and
check-issuance fees, which resulted in remaining funds on the
cards going to Amex, Kaufman alleged Amex had purposely
designed its gift-card program to make it difficult for
people to exhaust the balances on their cards, thus lowering
March 27, 2007, Amex removed the class action to the District
Court for the Northern District of Illinois pursuant to the
Class Action Fairness Act. 28 U.S.C. § 1332(d)(2). Once
in federal court, Amex moved to compel arbitration, citing
the arbitration provision in the "American Express Gift
Card Cardholder Agreement" that was included with the
gift cards. For cards purchased from stores, this agreement
was only accessible after purchasing the gift card and
opening its packaging.
district court denied the motion, concluding the provision
was not part of the contract between Amex and Kaufman. Amex
appealed that decision to this court. Shortly thereafter,
Amex and Kaufman engaged in settlement negotiations through
this court's Mediation Program. As a result of those
negotiations, the parties sought a limited remand of
Amex's appeal for the purpose of presenting their
settlement to the district court for approval. On February 4,
2009, we granted that request.
remand, the Intervenors sought entry into the
action. Intervenor Goodman was the lead plaintiff
in a class action in the Eastern District of New York that
made similar complaints against Amex arising from issues with
split-tender transactions and Amex's fee policies. In the
briefs filed in this appeal, the Intervenors explain that
intervenor Santsche's interest in this case arises from
her alleged purchase of a $100 gift card that had no value
when she attempted to use it. On July 15, 2009, the district
court granted the motion to intervene.
days before the grant of that motion, Kaufman, joined by a
new co-plaintiff, Kimberly Stegich, individually and on
behalf of all others similarly situated
("Plaintiffs"), filed an amended class-action
complaint and a motion for preliminary approval of a
settlement of the action. But before the district court
addressed that motion, the Plaintiffs amended it. According
to the amended motion, the settlement called for a $3, 000,
000 fund. From that fund, class members could receive, in
exchange for their release of all claims related to
Amex's gift cards, the following payments: (1) up to $20
in reimbursement for monthly fees actually paid due to
refused split-tender transactions; (2) up to $8 for monthly
fees paid; (3) up to $5 in reimbursement of any
check-issuance fee paid; and (4) up to $5 in reimbursement
for monthly fees paid simply by attesting to the fact that
the fees were paid. If any of the $3, 000, 000 remained after
paying claims, up to $200, 000 would go to a charitable
organization as cy pres. If more than that remained,
up to $650, 000 would go to Amex as reimbursement for the
costs of notice and administration. If still more remained,
that too would go to the cy pres.
addition to payments from the fund, class members could also
take part in two supplemental programs: (1) the "Balance
Refund Program, " which allowed class members with less
than $25 remaining on their gift cards to request a refund of
their balance without paying the check-issuance fee; and (2)
the "Purchase Fee and Shipping/Handling Fee Waiver"
program, through which class members could purchase a new
$100 Amex gift card without paying the purchase fee or
shipping and handling fee (a savings of approximately $10).
district court entered its order on the Plaintiffs'
motion on December 22, 2009. After concluding that the class
was certifiable pursuant to Federal Rule of Civil Procedure
23, the court certified the class for settlement purposes,
defining the class as
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 cobranded
programs. Notwithstanding the foregoing, 'Be My
Guest' dining cards are not included within the
Kaufman v. Am. Express Travel Related Sews. Co., 264
F.R.D. 438, 444 (N.D. Ill. 2009).
certifying the class, the court denied preliminary approval
of the settlement. Of particular concern to the court was the
inadequacy of the proposed notice, both in form (the
Plaintiffs had proposed notice by publication, but the court
did not accept the proposition that Amex had no
personal-identifying data with which to provide
individualized notice) and substance (the notice failed
"to satisfy the requirements of Rule 23(c)(2)(B)").
Id. at 445-46.
district court addressed the proposed settlement again in an
order on August 19, 2010. The court observed that the parties
had improved the proposed notice, but now it was too
complicated-the court ordered that it should include a
concise summary. Additionally, the court noted that, since
the initial denial of preliminary approval, Amex had revealed
that it did have some personal-identifying
information for gift-card holders, so the court declined to
excuse individual notice.
year later, the Plaintiffs filed their Second Amended Motion
for Preliminary Approval. The settlement now proposed a fund
of $6, 753, 269.50. While this fund was considerably larger
than the $3, 000, 000 initially proposed, it would be drawn
against for the costs of notice and administration, as well
as approved attorneys' fees and lead-plaintiff incentive
awards. The benefits available to the class (the four types
of refunds and the supplemental programs) and the release
remained substantially the same. This version of the
settlement maintained the cy pres but ...