Marc Zebrasky vs Blaze Pizza, LLC
Case No: 19CV00838
Hearing Date: Fri Aug 30, 2019 9:30

Nature of Proceedings: Case Management Conference; Motion: Preliminary Approval of Class Action

TENTATIVE RULING: The hearing on the motion for preliminary approval of class action settlement is continued to September 27, 2019, at 9:30 a.m., in this department. The parties are ordered to provide further information to the Court, as set forth below, no later than September 20, 2019.

Background: Plaintiff filed this action on February 13, 2019, alleging (1) violation of Civil Code section 1749.5, (2) violation of Consumer Legal Remedies Act, (3) violation of Business & Professions Code sections 17200, et seq. [Unfair Competition Law]; (4) violation of Business & Professions Code sections 17500, et seq. [False Advertising Law], (5) Money had and received, and (6) declaratory relief. All of the causes of action arise from plaintiff’s visit to a California Blaze Pizza location with a Blaze Pizza gift card. After paying for the items he selected with the gift card, the balance on the card was less than $10.00. Because he did not want any other items offered by defendant, he asked to obtain the cash balance of the card. He was informed by the Blaze Pizza employee that he could not get the balance in cash, and it could only remain on the card for future use at Blaze Pizza. After investigations performed on his behalf disclosed that this was not an isolated incident, and that Blaze Pizza employees consistently refused to honor requests for cash back on gift cards with a balance of less than $10.00. However, such conduct violates California law, specifically Civil Code section 1749.5(b)(2), which provides that any gift certificate with a cash value of less than ten dollars is redeemable in cash for its cash value. Section 1749.5 was effective January 1, 2008.

After the conduct of written discovery and review of the information obtained thereby, the parties engaged in extensive negotiations with the assistance of an experienced mediator, Hon. John L. Wagner (Ret.) of Judicate West. They were able to reach a settlement, for which the parties now seek preliminary approval.

1. Certification of the class for settlement purposes

For purposes of the settlement, the class is defined as: “All consumers in California who (1) possess a Blaze Pizza Gift Card which has a balance of less than $10.00, or (2) possessed such a Gift Card during the class period, but disposed of it upon being informed by a Blaze Pizza employee in California that it could not be redeemed for cash.” The parties seek to have the class certified for settlement purposes, asserting that the class is ascertainable, in that defendant’s discovery responses established that there are approximately 79,506 gift cards with a present balance of less than $10, making the class size approximately 79,506 consumers. Neither party can determine how many of those consumers disposed of their card after being informed it could not be redeemed for cash. Plaintiff posits that there could be very few class members in this category.

The motion also contends that there is a well-defined community of interest, in that common questions of law and fact predominate (i.e., each class member has a gift card with a balance under $10, and has a legal right to receive cash back on such balance), plaintiff’s claims are typical of those of the class (i.e., plaintiff has a gift card with a cash value under $10, and has a right to redeem the card for cash), and plaintiff will fairly and adequately represent the class (i.e., he has retained counsel experienced in consumer class action litigation, has no interests antagonistic to the class, and no conflicts that would impede his ability to represent the class fairly).

Finally, the motion asserts that class treatment is a superior method for adjudication of the claims, since it would be impracticable for each class member to bring an individual claim, and the settlement secures their rights to receive cash back on their gift cards as mandated by law.

2. Settlement terms

Defendant agrees to comply with Civil Code section 1749.5(b)(2) at its “owned and operated stores located in California.”

Defendant agrees to review its policies and practices regarding redeeming gift cards and update its Cashier Training Guide, Blaze Basics Training Guide, and the manager training guide to state: “California law requires that you redeem a Blaze Pizza gift card for cash, upon a customer’s request, when the gift card balance falls below $10.00” or similar language, and advise its operators (franchisees, licensees, master concessionaires, or operators that own and/or operate a Blaze Pizza restaurant in California that issue or redeem gift cards).

Defendant agrees to use reasonable and good faith efforts to remove gift cards which state that they are not redeemable or refundable for cash, except that cards may make that statement if they also state “except where required by law,” or some similar language.

Defendant will ensure all Blaze Pizza Point of Sale registers in California that accept gift cards have the function to provide cash back on a gift card with a balance less than $10, and will provide a declaration so stating to class counsel.

Defendant agrees to hold at least one training session for guest-facing employees in its California owned and operated locations to review gift card redemption policies, and will provide class counsel with a declaration from an officer or manager of Blaze Pizza, LLC affirming that the training was completed at these locations.

Defendant will instruct new employees in its corporate owned and operated restaurants that California law requires that a gift card with a balance below $10 must be redeemed for cash, upon a customer’s request.

For a period of 12 months, defendant will post a notice in an employee-only area in its corporate owned and operated restaurants, and agrees to recommend and supply an employee notice to California Blaze Operators, stating “California law requires that a gift card must be redeemed for cash, upon a customer’s request, when the gift card balance falls below $10.00.”

Defendant will publish, for 12 months, either on its “Gift Card” web page or on its “Terms and conditions” web page the notification that gift cards with balances under $10 are redeemable for cash in California.

Defendant will perform a compliance check of gift card redemption practices twice during a 2-year period following final approval of the settlement.

For those class members who asked for the cash balance and were denied it, and then discarded their low value gift card, defendant agreed to a claims process whereby those gift card holds who submit a valid claim stating under penalty of perjury that they disposed a gift card with a remaining balance less than $10.00 as a result of being informed by a Blaze Pizza corporate or Operator employee that redemption for cash was not permissible, will receive a replacement e-gift card valued at $10.00, which may be used at any Blaze Pizza location in California which accepts gift cards, without an additional purchase requirement. The replacement e-gift cards will be made available in response to claims for 120 days following final approval of the settlement. The parties do not know if there are any class members who discarded a gift card with a value under $5 [Note: The motion states $5, at p. 15, line 23, rather than the $10 which is reflected in the remainder of the documentation submitted in support of the motion] when a Blaze employee refused to give the person the cash balance after it was requested.

The number of replacement e-gift cards is limited to the first 3,143 consumer claims filed during the 120 day claims period, and are limited to one per household, as determined by mailing and/or IP address of the claimant. The parties selected 3,143 as the total number of claims allowed, because the number of class members who can make a claim for restitution is significantly lower than the total class size. Class members who retained their cards can exchange them for cash at any California Blaze Pizza location, and are ineligible for the e-card because obtaining one would provide them with a greater benefit than those class members who discarded their cards. Defendant estimated that the total amount of money remaining on the gift cards with a balance of less than $10 is approximately $62,845. The cap of 3,143 represents 5% [sic? At $10 each, providing 3,143 gift cards, totaling $31,430, would constitute 50%, not 5%] of the total amount of money remaining on all of the gift cards.

Plaintiff shall apply for, and defendant will not oppose, an incentive award of up to $1,500 to the representative plaintiff.

Defendant will not oppose an application for an award of attorneys’ fees, costs, and expense, of up to $67,000, pursuant to Civil Code section 1730(e) and Code of Civil Procedure section 1021.5. The payment will be made separately by defendant, and will not be deducted from any common fund.

3. Fairness of the settlement

The motion contends that the settlement meets the criteria to be considered fair, adequate and reasonable. The factors to be considered 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. (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 244-245.) Fairness is not determined by what might have been achieved at trial (In re Sutter Health Uninsured Pricing Cases (2009) 171 Cal.App.4th 495, 511), and the inquiry is limited to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement, taken as a whole, is fair, reasonable, and adequate to all concerned. (Id. At p. 505.)

While defendant contends that none of plaintiff’s claims are actionable, in that isolated instances of failure to comply with the gift card law do not warrant judgment, plaintiff contends that his investigator’s findings support the claim that defendant frequently failed to comply with the gift card law. However, because the scope of relief for violations has never been determined by an appellate court, his chances of prevailing are not guaranteed, but the settlement obtains relief which exceeds what he could have obtained at trial.

Defendants would vigorously oppose certification and the class claims, and the time and expense of further litigation would both negatively impact defendant’s business operations, and interfere with class members’ opportunities to obtain relief. In settling, defendant has agreed to take a number of measures to protect consumers’ rights to obtain cash for their low value gift cards, rather that forcing consumers to use cards for items they do not want—without risk that a class will not be certified or that plaintiff will not prevail at trial. Plaintiff contends that his counsel conducted extensive research and investigation of defendant’s policies and practices prior to filing the complaint, and in discovery thereafter, so as to be sufficiently informed of the nature of the claims and defenses to be in a position to evaluate the settlement. Finally, plaintiff contends that his counsel have extensive experience litigating consumer class actions, including with respect to the gift card law, and based upon that experience, he believes the settlement is in the best interest of the class.

4. Sufficiency of Class Notice

Blaze will publish, at its cost, a Summary Class Notice in USA Today (California Edition), one time, within 30 days after entry of a Preliminary Approval Order. Plaintiff will publish a Full Class Notice on a Blaze Pizza Gift Card website his counsel creates and maintains. The Summary Class Notice will briefly explain the case, and refer readers to the website where the full class notice will be maintained, and which contains directions on how to make a claim.

5. Final approval hearing

Finally, the motion seeks to have a final approval hearing set approximately 95 days following preliminary approval, to give the class sufficient time to review the settlement agreement and decide whether to remain a member of the class, opt out, or object.

ANALYSIS: The hearing on the motion for preliminary approval of class action settlement is continued to September 27, 2019, at 9:30 a.m., in this department. The parties are ordered to provide further information to the Court, as articulated below, no later than September 20, 2019.

The purpose of the preliminary approval hearing is to determine whether the settlement is within the range of reasonableness for preliminary approval and to approve or deny certification of a provisional settlement class. A full inquiry into the fairness of the proposed settlement occurs at the final approval hearing. (Rules of Court, rule 3.769, subd. (g).)

“Section 382 of the Code of Civil Procedure authorizes class suits in California when ‘the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court.’” (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435.) “Class certification requires proof (1) of a sufficiently numerous, ascertainable class, (2) of a well-defined community of interest, and (3) that certification will provide substantial benefits to litigants and the courts, i.e., that proceeding as a class is superior to other methods. [Citations.] In turn, 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.]” (Fireside Bank v. Superior Court (2007) 40 Cal.4th 1069, 1089-1090.)

There appears to be a well-defined community of interest. The putative class is defined as “All consumers in California who (1) possess a Blaze Pizza Gift Card which has a balance of less than $10.00, or (2) possessed such a Gift Card during the class period, but disposed of it upon being informed by a Blaze Pizza employee in California that it could not be redeemed for cash.” These members are numerous, given the existence of some 79,506 gift cards with a present balance of less than $10, and are ascertainable by self-reporting and by defendant’s records. Common legal and factual issues regarding compliance with section 1749.5 appear to predominate, at least for purposes of settlement, and the class representative alleges claims that are representative of the putative class. Class counsel has presented evidence that counsel is experienced in class action litigation and can adequately represent the class. Subject to the following, the court would preliminarily grant approval of the class action settlement.

Before the Court can consider granting preliminary approval of the class action settlement, it needs the parties to provide additional information. The Court has multiple questions about both the terms of the settlement and the adequacy of the notice to be provided to class members.

Timely and adequate notice of this class action settlement is essential to provide due process to class members, so that potential class members may object to or opt out of the settlement, so that class members who still have possession of their low value gift cards are aware of their ability to redeem them for cash, and so that class members in need of replacement cards may obtain that remedy.

Each member of the settlement class is necessarily a Blaze Pizza customer. However, the settlement agreement provides that the only notice to class members will be provided by defendant’s publication of a Summary Notice of Class Settlement in a single issue of USA Today (California edition), within 30 days of preliminary approval. The Summary Notice will refer to the settlement website to be maintained by class counsel. There is no indication that either notice of the settlement, or notice of the maintenance of the settlement website, will be provided in any other manner. There is no evidence now before the Court that this procedure will provide timely or adequate—or indeed any—notice of the settlement to those customers of Blaze Pizza who are potential class members. There is no evidence that USA Today is widely read by Blaze Pizza customers, or that its readership includes the sorts of people who are typically Blaze Pizza customers, such that the Court has any way of evaluating how the sole proposed method of providing class notice could possibly be the best feasible means of proving adequate notice of the settlement and its terms—including the ability to opt out of or object to the settlement—to the absent class members.

The motion represents that the class members are identifiable both by members self-identifying themselves, and by reference to defendant’s records. (Motion at p. 10, line 23.) Self-identification is only possible if the means of notification to the class is adequate. Further, the manner in which some portion of the class might be identifiable from defendant’s records is not specified. What is clear, however, is that the class notification method selected by the parties does not make use of those records in any way to provide notice to the Blaze Pizza customer class members who are identifiable by reference to defendant’s records.

Class counsel declared, albeit without any showing of personal knowledge, that the identities of specific class members are not known to the parties because the names of gift card purchasers are not recorded, and gift cards by their nature are transitory. However, considering that settlement term discusses temporarily posting clarifying information on the gift card portion of the Blaze Pizza website, it would appear that gift cards may well be offered for sale on the website. If that is true, the information acquired by Blaze in processing such sales would appear, at a minimum, to include recipient e-mail addresses for e-gift cards. Further, to the extent that online customers are permitted to purchase physical gift cards through the website, such a sale might well also include a collection of purchaser e-mail addresses (since most on-line sales require e-mail addresses to verify the sales), but would in any event necessarily include physical mailing addresses. Gift cards are also available for sale at many Blaze Pizza locations. No information has been provided as to what, if any, information is collected from the customer when gift cards are sold at a store’s point of sale terminal. The Court further has no information about whether Blaze Pizza might have some sort of rewards program, whereby special deals might be provided to repeat customers, which would likely involve defendant’s collection and retention of e-mail or physical addresses, which could be used to notify absent class members about the terms of the settlement. In any event, however, there is no evidence or argument currently before the Court to explain why e-mailed or mailed notification of the settlement—which would likely actually reach, or be passed on to (by gift card givers), possible class members—in addition to the published notice, is in any way infeasible, impractical, or impossible.

Virtually every other class action arising under Civil Code section 1749.5 over which this Court has presided in evaluating the fairness of a proposed class action settlement provided for the posting of a Notice in the store locations. In those cases, the Court frequently evaluated the location within the store, language, and manner of the on-site posting of notice, in order to evaluate its sufficiency and the likelihood of it reaching any potential class members. Frequently, such notices expressly advised customers of the right to redeem for cash gift cards with a balance under $10. If this were done here, class members (those who possess low value gift cards which could be redeemed for cash—whether or not they had previously made a request to redeem the remaining balance for cash which was denied—and those who discarded low value gift cards after having a request to redeem the remaining balance for cash denied) who are Blaze Pizza repeat customers would have an opportunity to learn about the settlement and its terms (including the right to redeem the low value cards for cash), upon visiting the location. Here, the parties have made no provision whatsoever for on-site posting with respect to the settlement or its terms, or of the rights of the customers under California law, instead solely relying upon the one-time USA Today publication to provide notice to absent class members.

Given that the parties have eschewed every means of providing direct notice to the settlement class, in favor of sole use of an indirect notification by a single day publication in a newspaper for which no readership or distribution information has been provided, the Court cannot consider approving the settlement unless the parties provide evidence to support their apparent conclusion that the method they have chosen as the sole means of providing notice of the settlement is fair to the settlement class, is reasonably calculated to provide adequate notice to the settlement class, and is the best feasible means of providing notice to the settlement class.

Additionally, while the parties expressly make a part of the settlement class those class members who still possess a gift card upon which there exists a balance less than $10, it is unclear to the Court precisely what benefit is being provided to these class members by the settlement. Under the terms of the settlement, virtually no effort is being made to advise them of their right under California law to redeem their low value gift cards for cash. Indeed, the settlement gives every appearance of doing everything possible to ensure that these class members never learn of their right to redeem their low value gift cards for cash. The only on-site postings advising of applicable provisions of California law that are provided for in the settlement are in employee-only areas of the premises (¶ 1.8). The training to be provided to the employees is to allow the low value cards to be redeemed for cash, but only upon the request of the customer. However, before a customer can make such a request, he or she must be aware of his or her rights under California law to do so—particularly if such customers have, in the past, been denied redemption of the remaining low cash value, or if the cards in a customer’s possession contain language advising the holder that they are not redeemable for cash. While the settlement requires defendant to publish a notice on its website that cards with balances under $10 are redeemable for cash in California, it proposes to do either on its Gift Card web-page—which may have some merit, albeit not to inform existing class members whose gift cards were purchased prior to that posting—or on its Terms and Conditions web-page, a place few website visitors ever explore. The Court finds the inclusion of such an either/or provision perplexing, given that it is being asked to approve the use of either of two alternatives with vastly different potential to either reach the class or correct defendant’s customers’ misapprehensions of their rights under California law. The Court would expressly request further information on how these class members benefit from the settlement, as it is currently structured.

The Court notes further that while the settlement agreement caps the number of restitution claims which may be made, it makes no provision for what will happen should there be unclaimed funds at the end of the claims period. The Court would appreciate being informed of whether such funds will be directed to an appropriate recipient in the manner of a cy pres award or distribution, or whether defendant would simply retain such funds. The amount of money remaining on gift cards with balances under $10 is not defendant’s money, and belongs to the holders of such cards. Should unclaimed funds remain with defendant, the Court will need further evidence and explanation of why that result would be fair to the settlement class, justified, or appropriate, particularly in light of the settlement’s apparent failure to provide any direct or meaningful notice to past and future Blaze Pizza gift card holders of their rights under California law.

The Court has further concerns about the manner in which the Settlement Agreement provides Blaze Pizza Operators (defined by the agreement as “franchisees, licensees, master concessionaires, or operators of Defendant that own and/or operate a Blaze Pizza restaurant in California that issue or redeem gift cards”) with all of the benefits of the settlement, but apparently does not place on them any of its responsibilities. For example, the Settlement Agreement provides for the release of all claims by plaintiff or any class member related to the redemption for cash of gift cards (¶3.2), and that the operators are express third party beneficiaries of the settlement agreement (¶ 4.5). However, at ¶ 1.15, the agreement states that defendant cannot require the Operators to participate in the Settlement, and their failure to take the steps the agreement requires will not constitute a breach of the settlement by defendant.

The Court is not privy to the terms of the franchise agreements, and it has been provided with no evidence that defendant truly has no ability to require its Operators to comply with the settlement—which simply implements and enforces California law. Certainly there must be ways of ensuring, or at least providing incentive, for Blaze Pizza Operators to comply with the terms of the Settlement Agreement. One example might be to make release of the Operators pursuant to ¶ 3.2 contingent upon their execution of an agreement to participate in the settlement, including the posting of the notice of the settlement and of class members’ rights at the on-site point of sale terminals, should that ultimately be required by the Court. The Court would request further information and evidence on why the settlement, as it is structured, would be fair to the settlement class, to the extent class members are customers of Operators’ store, rather than company-owned stores.

Finally, the Court finds the settlement agreement’s sunset provision, located at ¶ 1.16 of the agreement, to be ambiguous in meaning and effect. It provides that defendant’s obligations to perform the duties set forth in Sections 1.2 through 1.15 cease 24 months after the agreement’s effective date (separately defined as the date on which Final Approval is ordered by the court). The duties set forth in sections 1.2 through 1.15 include such things as agreeing to comply with Civil Code section 1749.5(b)(2) at owned and operated stores in California (¶ 1.2), revising its policies to provide cash for gift cards with balances under $10 upon a customer’s request (¶ 1.3), ensuring point of sale registers in California with the function to provide cash back on low value gift cards (¶1.5), and training guest-facing employees on its gift card redemption policies (¶1.6 and 1.7), among other duties. The cessation of these duties after 24 months, under the terms of the agreement, is somewhat perplexing to the Court. The Court would appreciate further information from the parties on how they intended this provision to operate.