A U.S. judge on Friday rejected a proposed $8.5 million class action settlement with Groupon Inc (GRPN.O) intended to resolve allegations that the expiration dates on its coupons violated consumer protection laws.
U.S. District Judge Dana Sabraw in San Diego found fault with a provision in the settlement that would have set aside $75,000 to be divided among two non-profit groups. The judge said neither of the organizations were "expressly committed to righting the specific wrongs alleged in this case."
While Sabraw denied other objections to the settlement by members of the class, he said he had to reject the entire settlement because he did not have the authority to strike just the charity provisions.
Representatives for Groupon did not immediately respond to requests for comment.
John Stoia, a lawyer at Robbins Geller Rudman & Dowd representing plaintiffs who bought vouchers on Groupon, did not immediately respond to a request for comment.
The decision marked the latest by a court to address so-called cy pres awards in class actions, in which money is dedicated to charity rather than distributed to the plaintiffs themselves. Cy pres comes from a French phrase meaning "as near as possible."
The charitable awards have become common when the amount of money recovered is small and the class itself is large, making distribution impractical.
The charities are typically intended to represent the interests of the classes of plaintiffs.
But in several instances, courts have rejected the settlements after finding the money dedicated to the cy pres award should go to the plaintiffs themselves, or are going to inappropriate charities.
Groupon agreed to the settlement in April as the Chicago-based company sought to put behind it lawsuits alleging that its vouchers violated federal and state laws applying to the expiration dates for gift certificates.
Among the laws Groupon allegedly violated was the federal Credit Card Accountability Responsibility and Disclosure Act, which restricts the sale of gift certificates that expire in less than five years. Groupon denied the allegations.
Of the $8.5 million, $75,000 was set to go to the Electronic Frontier Foundation and the Center for Democracy and Technology, two organizations concerned with Internet rights.
But Sabraw said neither organization was focused on the core issue of the case -- expiration dates and other restrictions on consumer vouchers or misleading advertising related to vouchers.
"That consumers purchase vouchers on the Internet is not enough," he said. "Indeed, it is incidental to the claims at issue in this case."
Sabraw said he agreed with objectors who argued that the money should instead be distributed to the class itself.
Representatives for the non-profits did not immediately respond to requests for comment.
The case is In re Groupon Marketing and Sales Practices Litigation, U.S. District Court for the Southern District of California, No. 11-md-02238.
(Editing by Eric Effron and Richard Chang)