EBay Settlement Plan Needs Work, Judge Says

SAN FRANCISCO (CN) - A federal judge certified a class action against eBay over its Featured Plus subscription service, but rejected a proposed settlement for "obvious deficiencies."

Auto accessories dealer and lead plaintiff Custom LED claimed in a 2012 lawsuit that it paid $39.95 for eBay's now-defunct Featured Plus service, which was supposed to bump the ads of subscribers to the top of the search page. The service was allegedly "completely nonfunctional" much of the time because of known bugs in the program.

Despite these issues, eBay continued to both market Featured Plus and charge for the service even after the service had stopped working entirely, according to the complaint.

Last May, U.S. District Judge Susan Illston dismissed Custom LED's common-law fraud claims, but moved the contract action forward. After a year of investigation and discovery, the parties entered into mediation and announced they had reached a $4.75 million settlement agreement in June.

But on Tuesday, U.S. District Judge Jon Tigar found the proposed settlement deficient in a number of ways. Besides an overly broad release of any claim relating to Featured Plus - whether related to Custom LED's action or not - Tigar also said the planned notice to potential class members lacked sufficient information on the scope of the release.

Additionally, the judge doubted that the default method of distributing the settlement - eBay account credits - would be fair to the entire class.

"The parties do not explain how these credits, which can be applied only 'pursuant to the normal terms and conditions that govern the use of credits by eBay users,' are consistent with the 'cash' settlement they describe in their motion," Tigar wrote. "They also do not explain why it would be fair to the class to reduce the credits by any amounts owed to eBay, even if such liabilities are unrelated to Featured Plus fees."

Tigar also took issue with the proposed scheme to distribute the settlement, which would have been bifurcated by time period and might "unfairly benefit some class members at the expense of others," according to the ruling.

"The parties assert that 'most of the Featured Plus fees were paid during [the first] period,'" Tigar wrote, citing the proposed settlement. "Yet, under the terms of the settlement, only one third of the net settlement fund will be distributed to claims arising in that period. This uneven allocation appears to be the consequence of the parties' belief 'that the claims during [the first] time period are much less significant than the claims [in the second period].' The court is not persuaded that this belief is correct given that the claims and defenses pertaining to each period, as described by the parties in their motion, appear to be substantially similar." (Brackets in opinion.)

He continued: "The bare summary of the claims and defenses with respect to each period that the parties provide in their motion, which is devoid of any analysis of the relevant evidence, is insufficient to justify bifurcating the distribution of the net settlement fund such that claims in the second period will receive twice the payout as claims in the first period. Without an evaluation of the evidence material to the claims in each period, the court cannot conclude that the proposed bifurcation is fair to the putative class members, especially those whose claims fall exclusively within the first period."

Tigar also noted that class members who opt to receive their settlements as checks may receive preferential treatment, given eBay's scheme of deducting accumulated user fees from those who opt for an account credit.

The parties have 60 days to fix the deficiencies in the proposed settlement and refile for the court's approval.

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