Charity Loses $700K Award After Complaining About Gift Cards (Corrected)

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By Perry Cooper

Pacific Gateway Concessions and a consumer class found a new recipient for $799,300 worth of leftover settlement funds after Consumers Union, their originally designated charity, said it was unable to use the funds in their gift-card form ( Hochstetler v. Pac. Gateway Concession, LLC , 2017 BL 267678, N.D. Cal., No. 14-cv-04748, 8/1/17 ).

Consumers Union, one of the U.S.'s most well-known consumer organizations, received the funds as a cy pres recipient to a settlement resolving allegations that PGC printed too much information on credit card receipts, in violation of federal law.

But the charity soon ran into problems using the $100 gift cards, finding that most PGC stores, which operate in airports throughout the U.S., wouldn’t redeem the cards, according to court filings in the case.

Consumers Union complained, asking for a monetary donation instead. Instead, the parties transferred the gift cards to another charity, Legal Assistance for Seniors of Oakland, Calif.

Unless the PGC stores change their policies, that second charity is likely to face the same problems using the cards that Consumers Union did.

Add to that another obstacle: Legal Assistance for Seniors, as its name implies, provides services to low-income senior citizens, who don’t have the resources to fly.

“LAS is exploring several ideas with our Board of Directors and community on how we are going to use the gift cards,” James Treggiari, the group’s executive director, told Bloomberg BNA in an email. “Any cy pres or donation helps fund needed services for low income seniors in Alameda County.”

Cy Pres Shuffle

Plaintiffs’ advocate Jocelyn Larkin told Bloomberg BNA that the cy pres problems in this case actually began with insufficient notice.

“The problem was created by the fact that so few people ended up making claims against the fund,” Larkin said. “So really what this case is about is a really bad notice and claims process.” Larkin is the executive director of the Impact Fund in Berkeley, Calif.

The parties to the deal agreed that the $800,000 settlement fund would be distributed to class members in gift cards worth up to $100 redeemable in PGC stores for anything except electronics. But the only attempt to notify class members was through flyers posted on the registers at PGC stores, most of which are behind airport security.

The U.S. District Court for the Northern District of California granted final approval to the settlement in June 2016. It also awarded $200,000 in attorneys’ fees to class counsel.

Only seven class members made claims. The parties agreed to give the remaining 7,993 gift cards as cy pres to Consumers Union, which advocates for consumers in the financial services and other industries.

But the consumer group sent severalletters to the court reporting problems selling or redeeming the gift cards. It called the 29 PGC stores listed in the settlement and most said they wouldn’t accept the gift cards. The problems persisted despite PGC’s promises to remedy the situation.

The parties proposed substituting LAS in Oakland, Calif., as the cy pres recipient.

Judge Thelton E. Henderson agreed Aug. 1. He acknowledged his misgivings about the format of the cy pres award, especially for an organization like Consumers Union, but said the court “has no authority to rewrite the parties’ settlement agreement.”

How to Use the Gift Cards?

Consumers Union declined to comment on the situation because it’s not a party to the case. But its frustration with the gift cards is clear from its letters to the court.

As for Legal Assistance for Seniors, the group’s first choice would be able to sell the gift cards to put the money towards creating more services for seniors, Treggiari said.

The cards themselves are less useful to the group’s target demographic.

“Most of our seniors are very low income, so only being able to use them when you are past security means they need to have purchased an airline ticket and be flying somewhere, which isn’t realistic for them,” he said.

“It does add some extra steps versus a monetary donation, but we will find a way to make this work for our client,” Treggiari said.

Counsel for the class and PGC didn’t respond to requests for comment.

Case Is an Outlier

Larkin stressed that this case is an outlier, not an example of persistent problems with cy pres.

“The courts of appeal have delineated what the rules are and judges now know to take a close look at it,” Larkin said. There has to be a nexus between the charity and the legal claims of the suit, and a geographic match between the charity and affected class members, she said.

“In a lot of ways I think we are on much firmer ground with cy pres in the run of the mill cases,” she said. “Those seem to be going forward without much difficulty.”

Class action watcher and frequent objector Ted Frank more broadly criticized the settlement.

“Class counsel traded away the class’s rights to ensure that no one would be in a position to tell the district court that class counsel was legally entitled to only $175 in fees at most and instead received $200,000 while the class received only $700 worth of coupons that look like may never get used,” Frank said in an email.

He called the attorneys’ fees further into question: “The settlement facially violates the Class Action Fairness Act, as Section 1715(e) prohibits paying class counsel for coupons issued in cy pres.” Frank is director of the Competitive Enterprise Institute Center for Class Action Fairness in Washington.

Chant & Co. in Glendale, Calif., represented the class.

Rosales Law Partners LLP in San Francisco represented PGC.

(An earlier version of this story incorrectly stated the amount of leftover settlement funds that the charities received.)

To contact the reporter on this story: Perry Cooper in Washington at pcooper@bna.com

To contact the editor responsible for this story: Steven Patrick at spatrick@bna.com

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