District Court Judge Questions Coupon Settlement in Class Action

A district court judge in the Northern District of California recently refused to sign off on a plaintiff’s motion for preliminary approval of class action settlement in an action alleging fraudulent advertisement and misrepresentation, raising questions about the fairness of the proposed coupon settlement, and ordering the plaintiff to submit additional briefing to the court within 20 days.

In his original complaint, the plaintiff alleged that a worldwide hotel chain engaged in “a scheme to defraud its customers by enticing them to spend money on” hotel stays—with the promise that they would receive significant rebates to offset the cost of those stays—and subsequently, routinely refusing to honor certificates submitted for redemption.  The plaintiff claimed that he and the other class members were misled by statements printed on the certificates, which appeared to permit rebates for “any” of the chain’s branded hotels.  The complaint alleged that the chain refused to honor $100 and $200 rebate certificates when customers stayed at hotels that fell under the umbrella of the chain’s extended brand, rather than at one of the chain’s namesake hotels.  The plaintiff asserted claims of breach of contract and warranty claims, forwarded claims of unjust enrichment, and alleged the violation of a number of state laws against false advertisement, fraud, and misrepresentation.

After more than a year of litigation, the parties agreed to a settlement in which the hotel would provide class members with new certificates valid for a rebate of $50 (for those who previously had $100 certificates) or $100 (for class members who had previously received a $200 certificate) which could be applied within the next two years to class members’ stays at a small list of extended brand hotels.  Plaintiff submitted a motion for preliminary approval of the settlement in June, which the court refused to approve on October 10.

In its order, the Court wrote that it needed additional information to determine whether the settlement was adequate.  Plaintiff argued that the settlement provided an “excellent result” for class members because “the settlement provides 50 percent of the maximum recovery they could have hoped to achieve had the case proceeded to trial.”  However, the court says that because the settlement does not compensate the class in cash, the stated measure of “success” does not provide the court with enough information about the true adequacy of the settlement.  The judge wrote that the plaintiff should “state the amount of money he believes a jury would have awarded had he prevailed at trial” and “the monetary value of the coupon settlement” in its amended motion, because the coupons cannot be used as cash and some class members will not use the coupons.  Additionally, the court opined that the settlement’s coupons do not account for the class members’ “out-of-pocket damages,” incurred by “spending money they would not otherwise have spent, based on [the] allegedly misleading representations.”  Further, the court found the “two-year” and “applicable hotel” limits problematic, considering the fact that similar aspects of the previously-awarded coupons were the basis for the plaintiff’s claims in the first place.  Lastly, because the case settled before the class was certified, the court told the plaintiff to address whether: “(1) counsel will receive a disproportionate distribution of the settlement fund, (2) the agreement contains a ‘clear sailing provision,’ and (3) any funds designated for settlement will revert to defendants.”

The case is Elder v. Hilton Worldwide Holdings, Inc. et al, Case 3:16-cv-00278-JST (N.D. Cal.).