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From Antitrust Law Daily, November 22, 2013

Preliminary approval granted to eBay deceptive practices settlement

By Tobias J. Gillett, J.D., LL.M.

The federal district court in San Francisco has granted preliminary approval to a proposed settlement of California Unfair Competition Law (UCL) and False Advertising Law (FAL) claims concerning eBay’s alleged misrepresentation of its “Featured Plus!” listings (Custom LED, LLC v. eBay, Inc., November 20, 2013, Tigar, J.).

On January 23, 2012, Custom LED, LLC filed suit against eBay, alleging that a statement in eBay’s fee schedule for its Featured Plus! Listings: “Featured Plus!: Your item appears in the Featured Items section at the top of the search results list page” constituted a false promise to display those listings at the top of any search list, when in fact those listings only appeared when (1) the search was conducted on eBay Motors, (2) the search was limited to eBay Motors listings, and (3) the search results were sorted by Best Match. Custom LED asserted claims for unfair competition in violation of the UCL; violations of the FAL; fraud and deceit; unjust enrichment; and declaratory judgment. The district court granted eBay’s motion to dismiss with prejudice as to Custom LED’s claims to fraud and deceit, unjust enrichment, and declaratory judgment, but denied it as to the UCL and FAL claims.

On August 27, 2013, the court issued an order denying without prejudice the parties’ joint motion for preliminary approval of a settlement they reached after mediation. In its present decision, the court addressed the parties’ renewed motion for preliminary approval of the settlement. Much like the previous settlement, the revised agreement provided for a settlement fund of $4,750,000, with $7,500 to go to Custom LED as an “enhancement award”; up to 25 percent of the fund to go to attorney’s fees, plus costs and expenses, for an estimated total of $1,212,500; and approximately $300,000 to go to administrative costs.

The remaining approximately $3,230,000 would be distributed to the class, with one-third allocated to the time period from January 23, 2008, to September 28, 2009, and two thirds allocated to the period from September 29, 2009, to February 4, 2013. As a result, class members who paid for Featured Plus! listings during the first period would receive approximately 1.8 percent of what they paid, while class members who made their purchase during the second period would receive 16 percent of what they paid. By default, class members with active eBay accounts would receive their funds as account credits, with the credits reduced by any outstanding amounts due to eBay, although they could elect to receive a check by providing timely notice to the claims administrator. Members with closed accounts would receive checks from eBay. Any remaining funds in the Net Settlement Fund would go to the National Cyber-Forensics and Training Alliance (NCFTA) and the National Consumer Law Center (NCLC).

Class certification. The court granted certification of the class for settlement purposes. The settlement satisfied Federal Rule of Civil Procedure 23(a)’s numerosity requirement because the number of account holders in the class “appear[ed] to be very large, such that joinder of all class members would be impracticable.” The class met the commonality requirement because the claims arose out of common questions concerning “various web pages that describe the User Agreement, the Featured Plus! fees, the functionality of Featured Plus!, and the operation of the search feature, among other things.” The typicality requirement was satisfied because the “class members were injured by the same course of conduct, namely eBay’s search algorithm which uniformly failed to display the Featured Plus! listings as advertised.” Finally, representation was adequate because nothing in the record indicated that Custom LED or its counsel had any conflicts of interest in the case or that its interests were insufficient to ensure vigorous representation.

In addition, the class satisfied Rule 23(b)(3) because the “class action would achieve the resolution of the putative class members’ claims at a lower cost and would reduce the likelihood of inconsistent determinations.” Moreover, common questions would predominate “because the operation of Featured Plus! was the same with respect to each class member.”

Fairness of the settlement. This time, the court granted the parties’ motion for preliminary approval of the settlement. As in its previous decision, the court found the agreement was likely not collusive because the parties reached it after private mediation; the agreement was the result of arm’s length bargaining after “extensive analysis, hard fought litigation, and difficult negotiations”; and the parties had considered the benefits, risks, and costs of further litigation and appeals.

The court concluded that the parties had cured the deficiencies the court had previously identified in their settlement. The previous agreement released all claims “arising out of or relating in any way to Featured Plus!,” a release the court found “overly broad.” The revised agreement would instead only release claims arising out of the allegations in the complaint, and was therefore “no longer improperly broad.”

The parties also remedied flaws in their proposed notice, by informing class member of the scope of the release through inclusion of the entire text of the release in the notice; by informing members of the difference between receiving payment through account credits or through check—that only credits would be reduced by amounts owed to eBay; by informing members of the potential recovery they could receive through specific examples of the potential recovery as well as an estimated range of recovery; and by providing sufficient information on how to receive payment, opt out of the settlement, and object to the settlement.

Unlike in their previous motion, the parties also provided sufficient justification of their proposed distribution scheme. The parties explained that the issuance of credits “requires no effort to deposit a check to use those funds for future eBay fees,” and was “therefore a more effective way of ensuring that class members receive an immediate economic benefit” Issuing credits would also be “more cost-efficient and therefore beneficial to the class,” because sending checks would incur costs that would not be incurred through issuing credits. The parties also noted that class members had the option of requesting a check if they wished to do so.

The court also established a nexus between the class and the cy pres awards to the NCFTA and the NCLC, unlike in their previous motion. The NCFTA sought to prevent “harm to consumers from cyber crime and to educate and assist online marketplaces like eBay to make sure the internet is a safe and fair place to do business,” while the NCLC promoted “the goal of economic justice” with “an emphasis on consumer protection and advocacy, not just internet security in general.” The court found these missions to be “sufficiently tethered to the interests of the class members.”

The court also concluded that the parties had sufficiently justified the distribution of two thirds of the settlement to one time period and two thirds to the other time period. The parties explained that eBay had “conclusive evidence that Featured Plus! worked precisely as advertised during period 1, while no such evidence exists with respect to the listings at issue during period 2.” Therefore, the class members’ claims in the first period were “significantly weaker” than the claims of the members in the second period, justifying the different amounts.

The class members that received checks “would not receive special treatment vis-à-vis class members who receive account credits,” even though only credits would be reduced by any amounts owed to eBay. Class members could choose to receive their distribution through a check, and the notice adequately informed the class members of that option.

Finally, the class members provided sufficient information to establish that the revised settlement fell within the range of possible approval “by providing detailed data on the listing fees at issue during each of the two time periods, as well as calculations of the potential range of the class members’ recovery.”

The court appointed the law firm of Figari & Davenport, L.L.P. as counsel for the class for settlement purposes, and scheduled a final fairness hearing on the settlement for June 18, 2014.

The case is No. 12-cv-00350-JST.

Attorneys: Keith R Verges (Figari & Davenport, LLP), Shawn Tenzing Leuthold (Law Office of Shawn T. Leuthold) for Custom LED, LLC. Benjamin F Chapman (Cooley Godward Kronish LLP) for eBay, Inc.

Companies: Custom LED, LLC; eBay, Inc.

MainStory: TopStory StateUnfairTradePractices Advertising CaliforniaNews

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