Jackie Kruger v. Kiwi Crate, Inc.

This is a putative class action brought by Plaintiff Jackie Kruger on behalf of herself and all similarly situated California Consumers who purchased subscriptions to Defendant Kiwi Crate (“Defendant”) that automatically renewed from December 1, 2010 through the trial date. Plaintiff alleges that Defendant failed to disclose to consumers the automatic renewal offer terms in a clear and conspicuous manner before the subscription or purchase agreement was fulfilled and failed to obtain the consent of Plaintiff and the putative Class Members to the agreement containing the automatic renewal terms before charging their credit cards. Defendant is an internet based company that sells subscriptions for home delivery of children’s arts and crafts. Subscriptions are offered on a monthly, three-month, six-month and annual basis and renew automatically unless a consumer cancels before the auto-renewal date. In her Complaint, Plaintiff alleges that Defendants terms and conditions do not sufficiently disclose to consumers that subscriptions renew automatically.

Plaintiff’s Complaint was filed with this Court on October 15, 2013 and alleges that Defendant violated Business and Professions Code Section 17602(a)(1)-(2), the Unfair Competition Law (“UCL”) and the False Advertising Law (“FAL”).

After eight months of litigation and a full-day mediation session with Retired Magistrate Judge Infante, the parties have entered into a Settlement Agreement and the Plaintiff now moves for approval of the class action settlement, provisional certification of a settlement class, preliminary approval of Hammond Law Firm as counsel, approval of Plaintiff as class representative, approval of the Class Notice Procedures and preliminary approval of the costs and fees expended by Plaintiff in litigating this matter.

Discussion

Under the terms of the Settlement Agreement, the settlement class consists of “all persons in California who purchased a subscription that automatically renewed from Kiwi Crate between Oct. 11, 2011 and the date that preliminary approval is granted.” According to the Declaration of Julian Hammond, the Settlement Agreement provides each Class Member, on a claims-made basis, a sum of $20, which represents approximately the value of a one month subscription. In addition, Defendant has agreed to modify its disclosures to clearly and conspicuously describe the automatic renewal offer terms and to require subscribers to affirmatively consent to the offer in compliance with Business and Professions Code Section 17600. The Settlement Agreement also provides for Defendant to bear all costs of notice and administration, to pay Class Counsel an attorney fee award up to $97,500 and an incentive award up to $2500 to the Named Plaintiff.

The proposed class notice procedure will include two forms of notice: (1) Email Notice and (2) Long-Form Notice. Within 30 days of the preliminary approval date, the Settlement Administrator will set up a website to provide Class Members with Notice of the Settlement and a procedure for submitting claims. Once the website is activated, the Settlement Administrator will send out Email Notice to all Class Members who will be required to submit valid claims forms in order to receive benefits under the Settlement. On the Settlement Website, the Long Form Notice and Claim Form will be accessible and the Long Form Notice will include complete terms and conditions of the settlement as well as the deadline for submitting claims or objections, the process by which a party may oppose or opt out of the Settlement, etc. Finally, the Settlement Agreement provides a 90 day period after preliminary approval during which Class Members may object or opt out of the Settlement.

Analysis: “The well-recognized factors that the trial court should consider in evaluating the reasonableness of a class action settlement agreement include ‘the strength of plaintiffs’ case, the risk, expense, complexity and likely duration of further litigation, the risk of maintaining class action status through trial, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of the class members to the proposed settlement.’ [Citations.] This list ‘is not exhaustive and should be tailored to each case.’ [Citation.]” (Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 128.) “[A] presumption of fairness exists where: (1) the settlement is reached through arm’s-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small. [Citation.]” (Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1802.)

Here, the settlement was reached through arm’s-length bargaining after formal mediation with retired Judge Magistrate Edward A. Infante. According to Class Counsel, there was a significant investigation of Defendant’s disclosures during the sign up process as well as thorough discussions and interviews between Class Counsel and Plaintiff and other putative Class Members. In addition, the parties exchanged information and engaged in numerous discussions regarding the factual and legal issues surrounding this case and once they realized that continued discussion would not directly lead to a resolution, they agreed to mediate to attempt resolution and avoid the many risks attendant to protracted litigation. Plaintiff’s counsel further submits that the Hammond Law Firm is experienced in litigating class actions and have obtained both preliminary and final approval in numerous other class actions.

“Although [t]here is usually an initial presumption of fairness when a proposed class settlement … was negotiated at arm’s length by counsel for the class, … it is clear that the court should not give rubber-stamp approval. Rather, to protect the interests of absent class members, the court must independently and objectively analyze the evidence and circumstances before it in order to determine whether the settlement is in the best interests of those whose claims will be extinguished. To make this determination, the factual record before the … court must be sufficiently developed… . The proposed settlement cannot be judged without reference to the strength of plaintiffs’ claims. The most important factor is the strength of the case for plaintiffs on the merits, balanced against the amount offered in settlement. The court must stop short of the detailed and thorough investigation that it would undertake if it were actually trying the case, but nonetheless it must eschew any rubber stamp approval in favor of an independent evaluation.” (Kullar, supra, 168 Cal.App.4th at p. 130, internal citations and quotation marks omitted.)

Here, Class Counsel candidly discusses the strengths and weaknesses of the claims in this case. Under the ARL, the failure of the offeror of the subscription to comply with the specified notice and consent requirements gives the consumer the right to keep as an unconditional gift whatever the business sent him or her. Class Counsel notes that the ARL’s recently enacted provisions leave open many questions regarding what conduct constitutes a violation as well as what conditions entitle consumers to a monetary remedy and how it should be calculated. Counsel notes that these unanswered questions posed substantial risks to the Plaintiff’s ability to assure a recovery on behalf of the class and invited protracted litigation if the case did not settle. Class Counsel also noted the arguments raised by Defendants regarding both liability and damages. Of concern to the Court was the fact that the Settlement only included the value of one month’s subscription and there was no data or discussion as to how many Class Members had subscriptions of more than one month. Counsel pointed out the concern raised that months following the second month would not be included in damages calculations because consumers were put on notice that their subscription was being automatically renewed when they received the delivery of arts and crafts during the second month and were free to cancel the subscriptions if they did not want to pay for them. For preliminary approval purposes, the Court accepts this position, however, further data breaking down the percentages of Class Members with monthly, 3-month, 6-month and yearly subscriptions should be submitted at the time of final approval to fully assess the fairness issue.

The Court also has an independent right and responsibility to review the attorney fee provision of the settlement agreement and award only so much as it determines reasonable. (Garabedian v. Los Angeles Cellular Telephone Co. (2004) 118 Cal.App.4th 123, 127-128.) Plaintiff seeks an award of $97,500 in fees and costs. According to the moving papers, the effective amount of fees is $81,825 after costs of $15,675. This appears to be a reasonable amount in light of the time spent and the overall recovery to the Class Members. Class Counsel further points out that the amount in fees sought is less than 70% of the current lodestar of $117,300. In advance of the final approval hearing, Plaintiff’s counsel should submit evidence to support the lodestar as a further way of evaluating the reasonableness of the attorney’s fee award. (See Lealao v. Beneficial Cal. Inc. (2000) 82 Cal.App.4th 19, 46-47.)

Regarding class representative awards, “‘[t]he rationale for making enhancement or incentive awards to named plaintiffs is that they should be compensated for the expense or risk they have incurred in conferring a benefit on other members of the class.’ [Citation.] An incentive award is appropriate ‘“if it is necessary to induce an individual to participate in the suit[.]” … [Citation.]’ [Citation.] ‘[C]riteria courts may consider in determining whether to make an incentive award include: 1) the risk to the class representative in commencing suit, both financial and otherwise; 2) the notoriety and personal difficulties encountered by the class representative; 3) the amount of time and effort spent by the class representative; 4) the duration of the litigation and; 5) the personal benefit (or lack thereof) enjoyed by the class representative as a result of the litigation. [Citations.]’ [Citation.] These ‘incentive awards’ to class representatives must not be disproportionate to the amount of time and energy expended in pursuit of the lawsuit. [Citation.]” (Cellphone Termination Fee Cases (2010) 186 Cal.App.4th 1380, 1394-1395.) Here, the requested $2500 award is facially reasonable, and Plaintiff’s counsel provides a general statement regarding Plaintiff’s efforts and assistance in the case. In advance of the final approval hearing, Plaintiff should provide more detailed evidence in support of the amount of time and effort spent.

Regarding the class notice procedure, the Court finds that notice by Email to the Class Members may be satisfactory, but there is little discussion as to why email is the most effective and efficient way to notify potential class members rather than other forms of notice. The Court will need additional information to assess and assure that email is appropriate and what additional steps will be taken if a particular email bounces back. The Court invites Class Counsel to address this issue at the time of the hearing.
“The content of a class notice is subject to court approval. If class members are to be given the right to request exclusion from the class, the notice must include the following:

A brief explanation of the case, including the basic contentions or denials of the parties;
A statement that the court will exclude the member from the class if the member so requests by a specified date;
A procedure for the member to follow in requesting exclusion from the class;
A statement that the judgment, whether favorable or not, will bind all members who do not request exclusion; and
A statement that any member who does not request exclusion may, if the member so desires, enter an appearance through counsel.”

(Cal. Rules of Court, rule 3.766(d).) Here, the Email Notice and Long Form Notice are attached as Exhibits to the Settlement Agreement. The Long Form Notice appears to comply with rule 3.766(d) in most respects.

Plaintiff also moves for provisional certification of a settlement class. “The party seeking certification has the burden to establish the existence of both an ascertainable class and a well-defined community of interest among class members. [Citations.] The ‘community of interest’ requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. [Citation.] [¶] The certification question is ‘essentially a procedural one that does not ask whether an action is legally or factually meritorious.’ [Citation.] A trial court ruling on a certification motion determines ‘whether … the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants.’ [Citations.]” (Sav-On, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326.)

A class is ascertainable if it can be readily identified without unreasonable time and expense. (Rose v. City of Hayward (1981) 126 Cal.App.3d 926, 932.) The numerosity requirement requires that it is impracticable to join all of the class members all before the court.” (Miller v. Woods (1983) 148 Cal.App.3d 862, 873.) “Adequacy of representation depends on whether the plaintiff’s attorney is qualified to conduct the proposed litigation and the plaintiff’s interests are not antagonistic to the interests of the class. [Citations.]” (McGhee v. Bank of America (1976) 60 Cal.App.3d 442, 450-451.) “The test of typicality is whether other members have the same or similar injury, whether the action is based on conduct which is not unique to the named plaintiffs, and whether other class members have been injured by the same course of conduct.” (Seastrom v. Neways, Inc. (2007) 149 Cal.App.4th 1496, 1502.) The party moving for class certification must also establish “by a preponderance of the evidence that the class action proceeding is superior to alternate means for a fair and efficient adjudication of the litigation.” (Washington Mutual Bank v. Superior Court (Briseno) (2001) 24 Cal.4th 906, 914 [class treatment must “provide substantial benefits both to the courts and the litigants”].)

This Court is satisfied that the moving papers properly address all of the provisional class certification issues for preliminary approval. The class is ascertainable and the commonality requirements are met as to the factual and legal issues. The claims are typical of class claims and the Court is satisfied that Plaintiff and her attorneys will adequately represent the Class.

Subject to further confirmation that email notice is the most appropriate notice to the potential Class Members, this Court is prepared to preliminarily approve the Class Settlement. Counsel should be prepared to address this issue at the time of the hearing.

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