Sobel v. The Hertz Corp., No. 3:06–CV–00545–LRH–RAM,2011 WL 2559565 (D. Nev. June 27, 2011).

How about sprinting through the airport to the car rental counter only to find out that you get stuck with concession recovery fees in excess of your quoted rate? It may just make you want to drive slowly in a white bronco on the interstate in Los Angeles.

Although both Fed. R. Civ. P. 23(e) and CAFA, 28 U.S.C. § 1712(e), require the coupon settlements be fair, reasonable, and adequate for class members, CAFA imposes a heightened level of scrutiny in reviewing such settlements.

The plaintiffs, on behalf of persons who have rented cars at the Reno and Las Vegas international airports from three national rental car companies: Hertz, Enterprise, and Vanguard, filed a putative class action, alleging that in return for the right to operate on-site at the Reno and Las Vegas international airports, rental car companies were required to pay a percentage of their gross revenues to the airports as concession fees.

As a means of recouping these ordinary operating expenses, the rental car companies pass along the fees to their customers as surcharges labeled “concession recovery fees.”  At all relevant times, the rental car companies “unbundled” the surcharges from the base rental rate, such that the base rental rate quoted to customers did not include the additional airport “concession recovery fee,” which was itemized separately in the rental agreement.  The plaintiffs alleged this practice violated NRS § 482.31575.

Later, the parties participated in mediation; and after a successful negotiation, the District Court preliminarily approved the settlement, certified a settlement class and approved the notice of settlement to the class members. 

The Settlement Class consisted of all renters who were charged Airport Concession Recovery Fees for car rentals from October 2003 to September 2009, and nearly 2.5 million notices were sent to the Settlement Class members.

Subsequently, the Court conducted a fairness hearing and declined to finally approve this coupon settlement holding that the class settlement did not meet the requirements set out in Fed. R. Civ. P. 23(e) and CAFA, 28 U.S.C. § 1712(e).   

The Court noted that this was strictly a coupon settlement.  Thus, there was no settlement fund or any provision for cash payments to the Settlement Class (except incentive awards to the Class Representatives).  Instead, each defendant would issue a coupon to each of their respective customers for a discount on a future car rental.  Class members with one or two rentals during the class period would receive a $10 coupon from the company they rented from, and customers with three or more rentals would receive a $20 coupon.  For this purpose, the defendants had identified and notified the class members based on the defendants’ rental records; and to receive settlement benefits, all notified customers must register at a dedicated website within 60 days following the fairness hearing.

The Court stated that Fed. R. Civ. P. 23(e) requires that at the final fairness hearing, the proponents of the settlement must demonstrate that the settlement is “fair, reasonable, and adequate.” In cases involving coupon settlements, CAFA, 28 U.S.C. § 1712(e) also requires special considerations that the courts may approve such settlements only after a hearing to determine whether, and making a written finding that, the settlement is fair, reasonable, and adequate for class members. 

The Court observed that although this “fair, reasonable, and adequate” standard is identical to that contained in Rule 23(e)(2), “several courts have interpreted § 1712(e) as imposing a heightened level of scrutiny in reviewing such coupon settlements.” The Court pointed that like CAFA; Rule 23(h) also requires closer scrutiny of coupon settlements, which states that settlements involving non-monetary provisions for class members also deserve careful scrutiny to ensure that these provisions have actual value to the class.  

CAFA requires heightened level of scrutiny because coupon settlements are “generally disfavored” due to three common problems: (1) they often do not provide meaningful compensation to class members; (2) they often fail to disgorge ill-gotten gains from the defendant; and (3) they often require class members to do future business with the defendant in order to receive compensation.  Accordingly, before granting final approval, the court “must discern if the value of a specific coupon settlement is reasonable in relation to the value of the claims surrendered.”

Accordingly, in order to determine that a coupon settlement is fair, reasonable, and adequate for class members under Rule 23(e)(2) and § 1712(e), the Court discerned if the value of this coupon settlement was reasonable in relation to the value of the claims surrendered. The Court noted that in ascertaining the fairness of a coupon settlement, the Court is to consider, among other things, the real monetary value and likely utilization rate of the coupons provided by the settlement. To that end, CAFA, § 1712(d), provides that the court may receive expert testimony on the actual value to the class members of the coupons that are redeemed.  

Under these background legal principles, the Court observed that the parties had provided no evidence that would allow the Court to make any reasoned assessment of the actual value of the settlement to the class members or of the value of the claims to be surrendered.  Thus, the Court concluded that such lack of evidence alone was a ground for denying final approval, as the Court was simply unable to fulfill its duty to the settlement class under Rule 23 and CAFA.

Accordingly, the Court declined to approve the coupon settlement.