Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Cal.: Proposed settlement in software class action rejected for “obvious deficiencies”, (Jul 20, 2015)

By Michael Menzhuber, J.D., LL.M.

The federal district court in San Francisco has refused to grant preliminary approval to a class action settlement agreement, which would provide class members with a voucher for an automatic back-up software product. The proposed settlement agreement contained “obvious deficiencies” because the expiration date of the vouchers was ambiguous and the release provision was overly broad (Boyd v. Avanquest North America, Inc., July 17, 2015, Orrick, W.).

Benson Worley originally filed a complaint against Avanquest North America, Inc., a producer of computer software, on behalf of a class of consumers who bought Avanquest’s Fix-It Utilities Professional or System Suite PC Tune-up & Repair products. The complaint alleged that Avanquest fraudulently induced consumers to buy these products which he claimed erroneously diagnosed computers with a host of problems. Johnny Boyd later replaced Worley in bringing the causes of action against Avanquest relating to Fix-It, including violations of California’s Unfair Competition Law.

Avanquest filed four motions to dismiss and two motions to strike. After the last of its motions to dismiss was denied, the parties reached an agreement, through mediation, for a class-wide settlement. The court denied the proposed settlement after determining that: (1) it did not specify when the one-year license period would begin; and (2) the release provision was overly broad.

Class member relief. The court noted that the proposed settlement agreement provided two forms of relief for class members: (1) an electronic voucher, via email, that would provide a one-year license of Avanquest’s “AutoSave Essential” software; and (2) Avanquest would be required to change its System Suite’s in-software help file and online FAQs and it marketing materials. The plaintiffs in the class action contended that non-cash relief was appropriate because: (1) Avanquest did not have the ability to fund a class-wide settlement that would provide meaningful monetary relief; (2) the relief was tailored to the interests of the class; (3) $1 million worth of software was guaranteed to the class; and (4) the settlement provided valuable prospective relief.

Although the court was skeptical of the settlement agreement providing a free subscription to a product that was not directly related to the antivirus software that was the subject of the complaint, it was satisfied that Avanquest did not have the financial ability to fund a settlement that would provide meaningful monetary relief to the class members. The court also found that, because of Avanquest’s demonstrated financial condition, the proposed relief in the settlement agreement was fair to the class members.

However, the court determined that the provision that the vouchers would expire one year from the date they were “issued” was ambiguous. Although it was represented at the hearing that the vouchers would expire one year from activation, the court read the provision as providing that the vouchers would expire one year from the date class members received the email containing the license.

Release. The proposed settlement agreement stated that it was “a full and final disposition of any and all Released Claims, as against Released Parties” and operated as a waiver of all unknown claims. The court determined that the release was overly broad because it: (1) covered more causes of action than the complaint alleged; and (2) prevented a party from bringing an action based upon a set of facts that differed from the present case. The court further determined that such a broad release, that included unknown claims, was unreasonable considering the lack of cash relief to the class members.

Notice provisions. In anticipation that the deficiencies in the settlement agreement would be cured, the court briefly addressed the notice provisions of the agreement. The court determined that the notice provisions were adequate because: (1) the parties provided the means to identify and inform all class members of the settlement and to give them vouchers without any claims process; and (2) the format and language of the proposed email and website were straightforward and provided the necessary information.

The case is No. 12-cv-04391-WHO.

Attorneys: Benjamin Harris Richman (Edelson PC) and Samuel Lasser for Johnny Boyd. N. Kathleen Strickland (Ropers, Majeski, Kohn & Bentley) for Avanquest North America, Inc.

Companies: Avanquest North America, Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews