Electronic Notice of Class Action Settlements

by Attorney Adam Russ of the law firm Frantz Ward, LLP.

Editor's Note: This was sent to me by Attorney Greg Frakas because he thought that it would be of interest to attorneys who do class action litigation. I would like to take this opportunity to thank Attorney Farkas and Attorney Russ for sending me this article.

Emerging Issues: Electronic Notice of Class Action Settlements

Like its federal counterpart, Rule 23 of the Ohio Rules of Civil Procedure governs class actions. Once a trial court certifies a class under Rule 23, all potential members of that class “who are identifiable through reasonable effort” must be given “best notice practicable” in order to comport with due process concerns. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 175 (1974). “A class action cannot be settled unless class members have been afforded notice of the proposed settlement and the trial court has determined, after a hearing on the matter, that the settlement is fair, adequate and reasonable.” West v. Carfax, Inc., Case No. 2008-T-0045, 2009-Ohio-6857, citing In re Kroger Co. Shareholders Litigation, 70 Ohio App.3d 52, 67 (Ohio 1990); Ohio R. Civ. P. 23(E).

WHAT CONSTITUTES “BEST NOTICE PRACTICABLE” TO CLASS MEMBERS?

A recent Ohio appellate court decision addressed the issue of how electronic mail fits into the analysis of constitutes the “best notice practicable” under Rule 23. In West v. Carfax, Inc., Case No. 2008-T-0045, 2009-Ohio-6857, the Ohio Court of Appeals, Eighth Appellate District, decided an appeal of certification of a revised class action settlement involving claims brought against Defendants Carfax, Inc., and Polk Carfax, Inc., which sell vehicle history reports for used cars. Id. at 1-2. The suit alleged, among other things, that the Defendants “violated the Ohio Consumer Sales Practices Act, and the common law, by not informing customers its reports did not contain all information regarding vehicles’ histories…” Id. at 2. Two years after it was filed, Defendants entered into a proposed settlement, which the Trumbull County Court of Common Pleas preliminarily approved. Id. at 3. After objections were raised to the proposed settlement, the Trumbull County Court of Common Pleas approved a revised settlement. Id. at 4-6. Multiple objections followed, resulting in the appeal.

On appeal, the Eighth Appellate District court reviewed three assignments of error de novo to determine whether the class notice approved by the trial court violated procedural due process, including:

(1) whether the trial court erred in approving the class action settlement, which allegedly failed to take reasonable steps to provide individual notice to all class members; and

(2) whether the trial court erred in approving a class action settlement without requiring the parties to provide any indication of the likely redemption rate, and, in particular, information about the number of claims made.

Id. at 8-9.

The defendants had provided notice of the proposed revised settlement using two primary methods: (1) individual email notice to those email addresses of purchasers listed in the Carfax database after October 27, 2003, and (2) a one-time publication in both Investor’s Business Daily and USA Today. Id. at 15. The email effort used achieved a non-rejection rate of 92% of all emails sent, and the publications chosen had a combined circulation of 2.7 million readers per day. Id. In addition, Carfax and class counsel also published notice on their websites. Id.

Nevertheless, appellants contended that the notice provided violated due process for several reasons. Appellants pointed out that Carfax customers prior to October 27, 2003, received no individualized notice, while those who received email notice could treat it as “spam” and delete it. An expert witness also suggested that Defendants could have compiled a list for mail notification for by comparing the names of the present owners of each effected vehicle with their customer lists. Id. at 17. That expert also believed that notice in the chosen publications was unlikely to be read by the population demographic that dominates the used car market. Id.

The Court’s majority opinion reversed the trial court, and it found that notice of settlement to the class was defective. Id. at 19. Based upon the specific facts of the case, the Court required that Defendants provide individualized traditional mail notice of the settlement to al members of the class “who may be identified with reasonable effort” rather than through electronic means. Id. at 19. Furthermore, the Court found that limiting email notice to identifiable potential class members from October 2003 forward was unreasonable as “a large percentage of potential class members from as far back as 2000 might be reached by email” or through the preferred traditional mail method. Id. at 20.

WHEN IS ELECTRONIC NOTICE UNREASONABLE?

In addition to the majority opinion, Judge Mary Jane Trapp wrote a separate concurring opinion to elaborate on the adequacy of email notification to class members. Id. at 33. The concurring opinion directly questioned the reasonableness of the measures employed by Defendants given their business model. She noted that witnesses in the case acknowledged that Carfax had a VIN for each car that was subject to a report and that Polk Carfax “is in the very business of providing names and address of vehicle owners in class actions.” Id. at 35. As a result, Carfax “could have provided Polk Carfax a list of the VINs for the subject vehicles, and Polk Carfax could have prepared an address list for the current owners of the vehicles. By comparing the names of the current owners and those on its customer list, Carfax could have then prepared a list for mail notification.” Id. Defendants never took these steps, relying instead upon electronic notice.

Judge Trapp’s opinion highlighted the problems of email notice generally, pointing out that email often may not reach a potential class member due to infrequent use, while others change email addresses with no forwarding program in place, making such notice unlikely to be received. Id. at 36. Although she recognized that, “[o]bviously, notification by email is more convenient and less expensive, she strongly cautioned that “the law is quite clear that concerns about the financial burdens of such notice cannot excuse noncompliance with that requirement.” Id. at 37, citing Kanvaly v. EBay, Inc., 245 F.R.D. 71, 92 (E.D.N.Y. 2007). Though courts have deemed email notice “particularly suitable where… claims arise from their visits to the defendant’s Internet business,” the defendants in West were both in the business of information retrieval and database maintenance, making them “particularly well suited to identify class members and their addresses.” Id. at 39. In light of that, Judge Trapp opined that email notification “falls short of the ‘reasonable effort’ required by due process and is not an adequate substitute for the more reliable method of first-class mail notification.

Not all of the judges on the Eighth Appellate District panel, however, agreed with the majority or concurring opinion. Judge Diane V. Grendell wrote a dissenting opinion that would have affirmed the trial court’s approval of the revised settlement. Like Judge Trapp’s concurrence, the dissent focused on Defendants’ actual business model but conversely found that, because Carfax sends its reports to customers via email, such email notice was reasonable and would be the “best notice practicable” to potential class members. Importantly, she noted that Carfax does not use direct mail as its primary means of communication; thus, requiring Defendants to obtain individual addresses could be expensive, with no guarantee that it would result in increased notification to a significant number of additional class members. Id. at 47.

Judge Grendell also looked at the totality of notice provided to potential class members. Even if email notice had not been the “best notice,” Judge Grendell believed that the other forms of notice used during the case – publication of the revised settlement notice in Investor’s Business Daily and USA Today, coupled with the considerable media attention given to the case – provided adequate notice to potential class members. Id. at 45-46; see also; Thomas v. NCO Fin. Sys. Inc., 2004 U.S. Dist. LEXIS 5405, at *14-*15 (E.D. Pa. 2004). In so finding, she relied upon the notion that individual notice is not required in instances where there is no reasonable way to sufficiently identify the class members. Id. at 47.

CONCLUSION

Even though email notice of a settlement may be cost effective and consistent with a party’s communication methods under its business model, such notice still may not be the “best notice practicable” for the potential class members. The West decision illustrates that in reaching a class action settlement, parties must be careful to identify all potential members of that class through “reasonable effort.” In doing so, defendants must be careful to take additional steps to identify and notify potential class members, even where doing so may be more expensive or cumbersome than using today’s electronic methods.

For more information, contact the attorneys of Frantz Ward LLP, 2500 Key Center, 127 Public Square, Cleveland, OH 44114, 216-515-1660.
MARCH ■ 2010