ORDER GRANTING JOINT MOTION FOR PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT; APPROVING NOTICE TO THE CLASS; SETTING DATES AND PROCEDURES FOR FINAL FAIRNESS HEARING Re: ECF No. 84
JON S. TIGAR, District Judge.
In this putative class action for breach of contract and related claims, the Court previously denied a motion for preliminary approval of a proposed settlement without prejudice on the grounds that it had obvious deficiencies, appeared to grant preferential treatment to segments of the class, and did not appear to fall within the range of possible approval. The parties have renewed their joint motion for preliminary approval after revising some portions of their proposed settlement. For the reasons set forth below, the renewed motion for preliminary approval is GRANTED, and the hearing and case management conference scheduled for November 20, 2013, are VACATED.
A. The Parties and Claims
Custom LED filed this putative class action on January 23, 2012, asserting claims against eBay, Inc. ("eBay"), eBay Europe, and eBay International AG, for alleged breach of contract and fraud in connection with eBay's "Featured Plus!" listings.
Custom LED alleges that eBay is an "integrated" online marketplace that utilizes various "entry points, " including www.ebay.com ("Core eBay"), www.motors.ebay.com ("eBay Motors"), and stores.ebay.com ("eBay Stores"). Compl. ¶ 6. All of these websites are interconnected such that a search for an item listed on eBay Motors can be initiated from any of eBay's sites, including Core eBay and eBay Stores. Id . Because of the common web design, format, and interconnectedness of the eBay sites, buyers cannot readily discern whether they are on Core eBay, eBay Motors, or eBay Stores when they conduct searches for products. Id.
Before listing items for sale, sellers must agree to eBay's User Agreement. Id . ¶ 7. Sellers also must agree to eBay's fees schedules. Id . ¶ 8. eBay generally charges two types of fees to sellers: (1) an "insertion fee, " which a seller pays when listing an item and generally does not exceed $1; and (2) a "final value fee, " which the seller pays if the item is sold. eBay offers optional listing upgrades to sellers, which increase the listings' visibility and likelihood that items will be sold. Id . ¶ 12. One such upgrade is Featured Plus!, which is included in the eBay Motors fees schedule and costs as much as $39.95 per listing. Id . ¶ 10. The eBay Motors fees schedule describes Featured Plus! as:
Featured Plus!: Your item appears in the Featured Items section at the top of the search results list page.
Id. & Ex. E (emphasis in original).
Custom LED alleges that this language constitutes a promise to display any listings for which sellers have paid "Features Plus!" fees in a "Featured Items section" at the top of any search list, regardless of the eBay site on which those searches were conducted and the way in which the search results were sorted. Id . ¶ 14. Custom LED further alleges that eBay did not abide by this promise, because the listings for which sellers paid Featured Plus! fees were not displayed in this manner. Id . Instead, a Features Plus! listing appeared at the top of the search results list only when three conditions were met: (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." Id.
Based on these allegations, Custom LED has asserted the following claims on behalf of a putative class: breach of contract; unfair competition in violation of California's Unfair Competition Law ("UCL"); violations of California's False Advertising Law ("FAL"); fraud and deceit; unjust enrichment; and declaratory judgment.
B. Procedural History
On May 24, 2012, the Court granted in part and denied in part eBay's motion to dismiss. ECF No. 41. The Court dismissed with prejudice Custom LED's claims for fraud and deceit, unjust enrichment, and declaratory judgment. Additionally, the Court dismissed with prejudice Custom LED's claims against eBay Europe and eBay International on the ground that no contract exists between Custom LED and these entities.
Accordingly, the only claims currently at issue are those for breach of contract, unfair competition in violation of the UCL, and false advertising in violation of the FAL.
C. Settlement Agreement
The parties reached a settlement after participating in a mediation conducted by the Honorable Ellen Sickles James on June 6, 2013. Verges Decl. ¶ 21.
The Court analyzed the terms of the original settlement agreement in its order of August 27, 2013, in which it denied without prejudice the parties' joint motion for preliminary approval of the settlement on the grounds that the agreement had obvious deficiencies, appeared to grant preferential treatment to segments of the class, and did not appear to fall within the range of possible approval. See ECF No. 75. Specifically, the Court identified problems with the scope of the release, the content of the notice, the use of credits as opposed to cash, the offsetting of credits based on amounts that class members owe to eBay, the allocation of different amounts of the Net Settlement Fund to certain time periods, and the disclosure of class members' potential range of recovery. Id.
In response to the Court's objections, the parties amended some portions of the settlement agreement, namely those pertaining to the scope of the release, and filed a renewed motion for preliminary approval that contains additional information about to the terms of the agreement. Mot., ECF No. 84 & Revised Settlement Agreement, ECF No. 84, Ex. 1.
Under the terms of the revised settlement agreement ("the revised agreement"), eBay has agreed to pay $4, 750, 000 to settle the claims at issue ("Gross Settlement Fund"). ECF No. 84, Ex. 1 ¶ 2.1. The following amounts will be subtracted from the Gross Settlement Fund: (1) $7, 500 for Custom LED's "enhancement award;" (2) attorney's fees of "up to 25%" of the Gross Settlement Fund, plus costs and expenses, which counsel for Custom LED estimates to be $1, 212, 500; and (3) the costs of administering the settlement, which are not itemized in the proposed settlement but counsel for Custom LED estimates to be "approximately $300, 000." Id .; Verges Decl. at 9, n.1.
After subtracting these amounts, any remaining funds ("Net Settlement Fund"), which the parties calculate to be approximately $3, 230, 000, will be distributed to the class, which the parties define as:
[A]ll natural persons and entities who are United States residents and who, from January 23, 2008 to the present listed items for sale on eBay's websites with the Featured Plus! upgrade, and incurred Featured Plus! Fees in connection with such listings.
ECF No. 84, Ex. 1 ¶ 1.4.
Before distribution, the Net Settlement Fund first will be bifurcated by time period. One-third of the fund will be allocated to the time period ranging from January 23, 2008, to September 28, 2009 ("period 1"), and the remaining two-thirds will be allocated to the period ranging from September 29, 2009, to February 4, 2013 ("period 2"). Id . ¶ 2.1(d). The justification for this allocation is eBay's contention that Featured Plus! worked exactly as described prior to September 29, 2009, and that any alleged problems arose only after that date, when eBay made certain changes to the descriptions and functionality of Featured Plus!. ECF No. 84 at 4-5. Specifically, eBay has evidence showing that Featured Plus! listings were shown in Featured Items sections for all searches in period 1, regardless of where the buyer originated the search or how the search results were organized. ECF No. 84 at 7-8. No such evidence exists with respect to the listings in period 2. As such, the class members' claims in period 1 are significantly weaker than those in period 2.
Each class member will receive a distribution of the Net Settlement Fund based on the percentage of the disputed fees that she paid during each of the time periods relative to the total fees that all class members paid during each of the time periods. ECF No. 84, Ex. 1 ¶ 2.1(d). The parties provide the following example to illustrate their distribution scheme: if all class members incurred $10, 000 in disputed fees in period 1 and $10, 000 in period 2, and a class member incurred $100 in disputed fees in period 1 and $200 in period 2, then that class member would receive 1% of the Net Settlement Fund allocated to period 1 and 2% of the Net Settlement Fund allocated to period 2. Id . The total distribution to this class member would equal the sum of these two amounts.
The total amount of Featured Plus! fees collected by eBay over the entire class period was approximately $[REDACTED] million. During period 1, class members spent approximately $[REDACTED] on the Featured Plus! listing upgrade. Of these fees, over [REDACTED]% of the listings (or approximately $[REDACTED] million of the Featured Plus! fees) resulted in a sale. Thus, assuming a Net Settlement Fund of $3, 230, 000, a class member who paid for Featured Plus! during this period would receive approximately 1.8% of what she paid for Featured Plus!. ECF No. 84 at 11 n.1 & 17. During period 2, class members spent approximately $[REDACTED] on the Featured Plus! listing upgrade. Over 27% of these listings (reflecting approximately $[REDACTED] million in Featured Plus! fees) resulted in at least one sale. Assuming a Net Settlement Fund of $3, 230, 000, a class member who paid for Featured Plus! during this period would receive 16% of the total she paid for Featured Plus!. Id.
The default method for distributing funds to class members with active eBay accounts will be to give them account credits. Credits will be reduced by any "outstanding amounts due to eBay" and any "Disputed Fees incurred by Class Members for which Class Members already received a refund, as determined by eBay's records." ECF No. 84, Ex. 1 ¶ 2.1(d). Class members who receive credits "can apply for a refund" in accordance with eBay's refund policy. Id . Additionally, any class member "with an Active eBay Account" who does not want to receive a credit may choose to receive a check instead by providing notice to the claims administrator no later than the deadline for filing objections. Id . ¶ 2.1(e). The amount of the check, which must exceed $1, will be determined in accordance with the same formula used to calculate credits, except that any check amount will not be reduced based on "any amounts due to eBay." Id.
The default method for distributing funds to class members with closed eBay accounts will be to send them checks to the name and address in eBay's records or to any other name or address that the class members provide to the claims administrator. Id . ¶ 2.1(f).
The amounts owed to the class members will be calculated by the claims administrator based on data provided by eBay. Id . ¶ 2.1(d). Class members will not have the right to contest the accuracy of the calculations performed by the claims administrator. Id . ¶ 2.1(g).
Any funds remaining in the Net Settlement fund after distribution will be allocated in equal amounts to the National Cyber-Forensics & Training Alliance ("NCFTA"), a nonprofit organization that protects consumers against cyber crime and fraud; and the National Consumer Law Center ("NCLC"), a nonprofit organization that focuses on consumer law issues. Id . ¶ 2.1(h).
The parties agree that the claims administrator will provide notice to the putative class members in the following four ways: (1) by setting up a website ("the notice website") within 30 days after the preliminary approval order is issued, which will contain the proposed class notice; (2) by email to the email address that eBay has for each class member; the email will contain the domain name of the notice website, the mailing address of the claims administrator, and the proposed class notice; (3) by first-class mail to the mailing address currently in eBay's records with respect to class members whose email notice is returned as undeliverable; and (4) by press release, which will contain a link to the notice website. Id . ¶ 3.3.
As part of the revised agreement, Custom LED and any putative class members who do not opt out of the action would ...