AmEx Gift Card Case Is Not Quite Ready to Settle

     CHICAGO (CN) – A federal judge has balked at giving $1.5 million to attorneys who fished a $4 million settlement out of American Express, noting that prospective class members have claimed just 1 percent of the fund.
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     The class action took issue with the inability to use American Express gift cards in split-tender transactions, thereby preventing cardholders from using the full value on the card. Any leftover value would allegedly ultimately revert to American Express in monthly service charges unless the cardholder paid a $10 check issuance fee.
     An American Express employee told the court that the company sold 70 million gift cards during the class period, and charged more than $91 million in monthly fees to 14 million of these cards. An additional 5 million cards were subject to fees after failed transactions for insufficient funds.
     U.S. District Judge Joan Gottschall gave preliminary approval in September 2011 to the creation of a $4 million settlement fund. More than a million cardholders received notice of the settlement by postcard, and a notice also appeared in a weekday edition of USA Today.
     Yet response to the notices was very low. By March 2012, the settlement administrator received only 3,458 related telephone calls, 2,514 pieces of mail and 17,528 unique website views.
     Correspondingly, few benefits were requested. The administrator disbursed only $41,510.35 by March, only slightly over 1 percent of the $4 million available.
     Given the extremely low response rate, Gottschall refused last week to grant the settlement final approval and ordered appointment of an expert in class notification.
     “Even granted that some of the 70 million cards were bought by bulk purchasers, the proportion of benefits claimed to cards sold is pitifully low,” the decision states. “If the court were to grant final approval to the settlement as the facts now stand, almost 99 percent of the settlement fund reserved for class member claims would go unused. Most class members would receive precisely nothing in exchange for their surrender of ‘any and all claims … related to the marketing and sale of [American Express] gift cards.'”
     “Those few class members who have submitted requests for benefits would receive a mere $41,510.35 in benefits in exchange for their claims while the plaintiffs’ attorneys would receive $1,525,000 in fees. This disparity is troubling and ultimately unacceptable,” Gottschall added.
     Notice by publication will always miss a number of class members, but “the courts should not permit ‘better than nothing’ to become the new benchmark,” the judge wrote.
     The judge also issued a warning: “The court does not believe it is necessary at this point to follow the lead of courts that have required corporate defendants to post a link to a settlement web site on their home page. If the parties fail to come up with a plan that can reach a meaningful proportion of class members, the court will reconsider taking that step.”
     The class is represented by Phillip Bock, Robert Hatch, James Smith, and Richard Doherty of Bock & Hatch.

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