Class Action Settlement Between Netflix and its Members Affirmed

Class Action Law Monitor
2008-05-31

Affirming a trial court's approval of a class action settlement agreement and notice to class members, the California Court of Appeal found that the settlement agreement was not unfair or unreasonable and that the form and manner of notice did not violate due process rights.

Frank Chavez filed a class action lawsuit against Netflix Inc., claiming Netflix's practice of advertising unlimited DVD rentals with one-day delivery for a flat monthly fee was false and misleading.

The parties reached a settlement agreement. Netflix agreed, in part, to give a membership upgrade for one month to existing members and a free one-month membership to former members.

Notice of the settlement was to be given by email at the addresses that Netflix used to communicate with its cus-tomers. The email message would contain a summary notice and a link to a settlement Web site that contained a more detailed settlement notice and claim form.

In consolidated appeals, objectors challenged the reasonableness and fairness of the settlement agreement and the notice given to class members. One objector argued that the settlement was an improper coupon settlement because the free service provided by Netflix had a nominal value and because there was no cash payment to class members.

The court of appeal determined the settlement agreement was fair and reasonable. The agreement was the result of arms-length bargaining between parties who had engaged in extensive discovery.

The settlement agreement did not require that class members make new purchases to receive a discount. Instead, Netflix offered class members a chance to obtain a certain number of DVDs for a limited time at no charge.

The court of appeal determined that the content of the notice to class members was acceptable. The notice explained the case, the procedure for opting out of the class and the release of claims resulting from inclusion in the class.

The court of appeal found that notification of the settlement via email and a Web site was also acceptable. The court of appeal reasoned that class members conducted business with Netflix over the Internet and could be expected to know how to access the notice.

The court of appeal affirmed the trial court's orders.