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Melissa Ferrington, Cheryl Schmidt v. Mcafee

April 6, 2011

MELISSA FERRINGTON, CHERYL SCHMIDT,
CHRISTOPHER BENNETT AND
CHRISTI HALL, PLAINTIFFS,
v.
MCAFEE, INC., ARPU, INC., D/B/A TRYANDBUY.COM,
DEFENDANTS.



The opinion of the court was delivered by: Lucy H. Koh United States District Judge

United States District Court For the Northern District of California

ORDER DENYING FINAL APPROVAL WITHOUT PREJUDICE

Before the Court is Plaintiffs' motion for final approval of a class action settlement, and Plaintiffs' counsel's motion for attorneys' fees. A fairness hearing on the motions was held on 19 December 15, 2012. After considering the briefs filed by the parties and the papers filed by the 20 objector, and hearing oral argument on the matter, the Court DENIES final approval of the class 21 settlement, and DENIES Plaintiffs' counsel's motion for attorneys' fees for the reasons discussed 22 below. 23

I.Background

This is a class action against McAfee, Inc. ("McAfee") and Arpu, Inc. ("Arpu") arising out 25 of a partnership between the two companies. McAfee is a provider of computer security software 26 whose products may be purchased and downloaded from the McAfee website. Arpu is a company 27 that places online advertisements that enable consumers to purchase products "with a single click, 28 using credit card information already on file." In 2007, Arpu partnered with McAfee to place ads 2 on McAfee's website that would appear after a customer completed a purchase of a McAfee 3 product. These ads were targeted to entice a customer to purchase an Arpu product using the 4 billing information that had been provided to McAfee for the purchase of the McAfee product. If a 5 customer chose to subscribe to the product or service offered in the Arpu ad, McAfee transmitted 6 the customer's billing information to Arpu for use in the purchase of the Arpu product. 7

2009, respectively. After they completed their transactions, but before they downloaded the 10

computer screens. Believing that clicking on "Try It Now" would download the McAfee software

they had just purchased, Plaintiffs clicked on the button. They later learned that clicking on "Try It 13

Named Plaintiffs in this action, Melissa Ferrington and Cheryl Schmidt, purchased

McAfee's anti-virus program from the McAfee website on August 18, 2009, and November 30, 9

McAfee product, an Arpu pop-up ad with a button reading "Try It Now" appeared on their

Now" authorized McAfee to transfer their billing information to Arpu, enrolled them in a 30-day 14 free trial of a non-McAfee product called PerfectSpeed (alternatively "Arpu software" or "the 15 software"), and authorized Arpu to charge them a $4.95 monthly subscription fee after the 16 expiration of the free trial period. Plaintiffs never downloaded the PerfectSpeed software, and 17 were not aware of this transaction until they noticed charges listed as "TB *PERFECTSPD ON 18

MCAF 202-4461821" on their credit or debit card statements. 19

No. 12). Both complaints alleged that McAfee sold customers' debit/credit billing information to 23

("UCL"), Cal. Bus. & Prof. Code § 17200, and the Consumer Legal Remedies Act ("CLRA"), Cal. 25

McAfee filed a motion to dismiss the FAC (ECF No. 25), which was granted in part and

27 denied in part on October 5, 2010. ECF No. 57. The Court denied Defendant's motion to dismiss 28

A.Procedural Background

Named Plaintiffs Ferrington and Schmidt filed the original Complaint on April 6, 2010

(ECF No. 1), and subsequently filed a First Amended Complaint ("FAC") on May 13, 2010 (ECF 22

Arpu, without authorization and asserted claims under the California Unfair Competition Law 24

Civ. Code § 17500. 26

Plaintiffs' UCL claim, but granted Defendant's motion to dismiss the CLRA claim. McAfee filed 2 an Answer to Plaintiffs' FAC on October 19, 2010. ECF No. 58. Plaintiffs sought leave to file a 3

Second Amended Complaint ("SAC") on April 7, 2011, re-pleading their CLRA claim and adding 4 a breach of contract claim (ECF No. 75). 5

6 as well as the motion for certification of a settlement class and preliminary approval of a class 7 settlement, with the signed settlement agreement attached. ECF Nos. 87-88. 8

On July 13, 2011, Plaintiffs filed their Third Amended Complaint ("TAC"), ECF No. 84-1,

The class as defined in the TAC was:

All persons in the United States who purchased software, products or services from McAfee, Inc. and subsequently accepted an Arpu pop-up advertisement offer presented at

the conclusion of the McAfee transaction and were charged by Arpu, Inc. for unused and

unclaimed software, products and services after McAfee transferred their credit/debit

card and other billing information to Arpu.

United States District Court

For the Northern District of California

TAC ¶ 5, ECF No. 84-1 (emphasis added). Notably, in every version of the complaint, despite 13 other minor differences, the class was consistently defined to include only those individuals who 14 had not downloaded the Arpu software. 15

16 and Arpu by an objector to this lawsuit. On February 16, 2011, Ken Pochis filed suit against Arpu, 17

McAfee, and an additional defendant, Iolo Technologies, Inc., for violations of RICO, the 18

Electronic Funds Transfer Act ("EFTA"), the Electronic Communications Privacy Act, and various 19 state law claims including the UCL and the CLRA. The Pochis class*fn1 was defined as "All persons 20 residing in the United States who, during the four year period preceding the date of filing of this 21

Class Action Complaint, did not provide their credit card, debit card, or billing information directly 22 to Arpu but whose credit card, debit card, or billing information was obtained by Arpu." Pochis 23

Complaint ("Pochis Compl.") ¶ 36, Case No. 11-CV-00721-LHK, ECF No. 1. The Pochis 24

Complaint contained no limitation regarding whether the class member had downloaded the Arpu 25 software or not. Thus, the Pochis class included both those individuals who downloaded the Arpu 26 27

The ad program between Arpu and McAfee also prompted another lawsuit against McAfee software, like Plaintiff Pochis himself, and those who did not download the Arpu software, like the 2 Ferrington Plaintiffs. 3

4 negotiations with Defendants. On July 1, 2011, Plaintiff Pochis and Defendants McAfee, Arpu and 5

Iolo filed a stipulation notifying the court that the parties in the Pochis lawsuit had agreed upon 6 material terms for a class-wide settlement in the Pochis action. Case No. 11-CV-00721-LHK, ECF 7

No. 11. However, the parties in the Pochis case never reached a final agreement and never filed a 8 motion for preliminary approval of the class settlement. In contrast, on July 13, 2011, the 9

The Pochis class counsel,*fn2 like the Ferrington class counsel, entered into settlement

Ferrington Plaintiffs filed a motion for preliminary approval of the class settlement in the instant 10 litigation. Case No. 10-CV-01455-LHK, ECF Nos. 86-87. 11

In anticipation of the preliminary approval hearing, the parties in the Ferrington case

13 provided the Court with the proposed class settlement (the "settlement"). The settlement defined 14 the class as: 15

B.Terms of the Settlement

[A]ll persons in the United States who during the Class Period purchased software from McAfee's website and subsequently accepted an Arpu pop-up advertisement

offer presented at the conclusion of the McAfee transaction and were charged by Arpu for the product, service or software sold in the Arpu pop-up.

See Settlement Agreement, ECF No. 88-1, ¶ 2.24. Notably, the class definition in the settlement is 18 broader than the class definition provided for in the previously filed complaints. In the TAC, the 19 class definition limited the class to those individuals who did not download the Arpu software as a 20 result of the pop-up ad. Specifically, the class definition in the TAC was limited to class members 21 who were charged by Arpu for "unused and unclaimed software, products and services." TAC ¶ 5, 22

ECF No. 84-1. In contrast, the class definition in the settlement agreement contains no such 23 limitation. In the settlement agreement, the class is defined to include both those individuals who 24 had, in fact, downloaded the Arpu software, and those who had not. As a result, as the parties 25 conceded at the preliminary approval hearing, the Ferrington settlement class is now essentially 26 27

identical to the class defined in the Pochis litigation. Prelim. Approval Hr'g Tr. at 25 ("Tr."), ECF 2

No. 112-2. 3

4 with Arpu, to pay claims made by class members. Under the terms of the settlement, class 5 members are given the option to elect between two types of benefits: either a cash benefit, or a free 6 license to McAfee software. The "Cash Settlement Benefit," provides either: (a) for those class 7 members who were billed by Arpu monthly, five dollars for each month the claimant paid charges 8 to Arpu for software, up to a maximum of thirty dollars per claim, and (b) for those class members 9 who were billed annually for an annual software license, five dollars for each prepaid month, up to 10 a maximum of thirty dollars per claim. The "Software Settlement Benefit" provides a software

Defendants set aside $1.2 million, the entire amount generated by the pop-up ad program

license for the current version of McAfee Family Protection (which sells at a retail price of

$49.99/year) for either: (a) six months for those class members who paid charges for fewer than six 13 months, or (b) 12 months for those class members who paid six months or more of charges. See 14

The settlement agreement provides that each class member will receive either the Cash

Settlement Benefit or the Software Settlement Benefit for each separate software for which they 17 can prove they paid. As a further condition of receiving any settlement benefit, the claims process 18 requires claimants to attest that they did not, in fact, download the Arpu software available through 19 the program. Thus, the benefits payable to the class provide a restitutionary remedy only to those 20 class members who did not receive the Arpu software for which they had paid. The class members 21 who actually downloaded the Arpu software are not entitled to any settlement benefits. Any funds 22 that are not paid to the class members will revert back to the Defendants. 23

24 from all federal and state claims that were or could have been raised in this action, upon final 25 approval by the Court. Id. ¶ 10.2.*fn3

In exchange for the benefits described above, class members agree to release Defendants

In addition to the release of claims and the scope of the class definition contained in the

Settlement Agreement, the parties in the Ferrington case also agreed to binding arbitration, subject 3 to this Court's approval, before a neutral third party as to the amount of attorneys' fees and 4 expenses that class counsel would seek from the Court. The parties were unable to agree upon an 5 attorneys' fee ...


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