On The Case

Breyer balks at 'onerous' opt-out requirements in Intuit opinion

When class counsel Daniel Girard of Girard Sharp and Norman Siegel of Stueve Siegel Hanson filed a brief last December defending their proposed $40 million class settlement with the financial software company Intuit Inc, they told U.S. District Judge Charles Breyer of San Francisco that the deal's requirements for class members who wanted to opt-out were standard operating procedure.

Sure, opt-outs would have to go to the trouble of hand-signing documents and mailing hard copies to the settlement administrator. But class counsel said judges in plenty of other class actions – including Breyer's own Volkswagen clean diesel case – have okayed those prerequisites to ensure opt-outs are making their own, informed decisions.

Intuit's lawyers at Fenwick & West and Wilmer Cutler Pickering Hale and Dorr made a similar argument in their brief urging Breyer to approve the $40 million deal to resolve allegations that Intuit's Turbo Tax unit duped customers into paying for tax prep services. Hand-signed, mailed-in opt-out notices are "routinely" approved, the company said.

That routine may now be disrupted.

As you probably recall, the judge denied preliminary approval of the Intuit settlement in late December, after a Dec. 17 hearing in which he questioned whether the company was trying to use the settlement to dissuade tens of thousands of customers from pursuing individual arbitration. Breyer held off on issuing an opinion explaining why he rejected the proposed deal to allow Intuit and class counsel to renegotiate. With no new settlement proposal on the table last week, Breyer finally issued his opinion on Friday.

It turns out that one of his big problems with the proposed deal was the opt-out process, which Breyer described as “onerous” and “unduly burdensome.” Intuit allows customers to provide electronic signatures on their tax returns, and the IRS accepts them. Why, the judge said, should it be harder to opt out of a class action than to file a tax return?

It’s one thing, Breyer wrote, to impose rigorous opt-out safeguards when class members who decide not to participate in a settlement are giving up thousands of dollars, as in the VW case or a 2018 Uber wage-and-hour case cited by class counsel. But in this case, Intuit and class counsel projected that payouts to class members would be about $28. (That meager payout, which was based on a projected claims rate of 5%, was another of the judge’s justifications for rejecting the deal.) So forcing opt-outs to jump over obstacles, the judge said, seemed not like a plan to protect class members but “to suppress opt-outs.”

Intuit had a strong motive to discourage class members from releasing their rights through the class action, Breyer explained. If you've been following my (admittedly exhaustive!) coverage of the Intuit case, you know that when Intuit was hit with a class action alleging that it steered customers who might have been eligible for free tax prep services into paid products, the company litigated to enforce a mandatory arbitration provision in its customers' contracts, eventually prevailing at the 9th U.S. Circuit Court of Appeals.

But meanwhile, the plaintiffs firm Keller Lenkner signed up about 125,000 Intuit customers to file individual arbitrations at the American Arbitration Association. In the face of those demands, and millions in accompanying AAA fees, Intuit made a class action deal to resolve the allegations.

Keller Lenkner, which protested the proposed settlement, told Breyer that the stringent opt-out requirements were an attempt to squelch its clients’ individual arbitration cases: The rules would not allow Keller to file opt-out notices for clients who chose not to participate in the class deal and would release claims by any Intuit customer who failed to mail in a hand-signed notice. (The now-rejected settlement also sought to enjoin individual arbitrations from moving forward until class members successfully opted out.)

Breyer did not say in his Intuit opinion that Keller Lenkner or other plaintiffs firms in similar scenarios should have the ability to opt clients out of class settlements en masse. He didn’t even say that counsel for individual class members ought to be permitted to handle opt-out paperwork.

But Breyer said he’s not going to allow opt-out procedures that seem intended to discourage class members from pressing their own cases in arbitration. “Any settlement here must permit class members to opt out in a manner that is straightforward and respectful of their existing claims,” he wrote.

An Intuit spokesman said the company considers the newly issued opinion just a formalization of the judge’s rejection of the settlement. “We disagree with the conclusion,” the spokesman said by email, adding that the company continues to have “very real concerns” that Keller Lenkner is filing unwarranted arbitration claims. (Keller Lenkner has long denied those assertions.)

Class counsel Girard and Siegel said in an email that they presented the settlement to Breyer, despite the relatively modest monetary relief, because the class notice would have helped nearly 20 million taxpayers obtain free tax prep help. “With respect to the opt out provision, we believe the court’s concern was driven by the unique dynamic here, where Intuit had previously compelled this case to arbitration,” the email statement said.

Warren Postman, a partner at Keller Lenkner, said by email that the judge’s opinion recognized the importance of context – tens of thousands of individual arbitrations. “A class opt-out process should ... not put a thumb on the scale in favor of eliminating the defendant’s liability.”

So will Breyer’s ruling help class action objectors argue against tough opt-out requirements, as they have, for instance, in the Equifax data privacy case that’s now on appeal at the 11th Circuit? I asked objector counsel Ted Frank of the Hamilton Lincoln Law Institute. He said he doubts the Intuit ruling will discourage defendants and class action lawyers from including obstacles for opt-outs in their settlement proposals, since many judges will approve the deals anyway.

“If the only consequence for trying to snooker the judge is that the court will require you to be reasonable, why not take a gamble instead of unilaterally imposing the ‘punishment’ on yourself?” Frank said.

But I believe we’ll see Breyer’s Intuit ruling reverberate, especially in other cases in which defendants attempt to make class action deals in the face of mass arbitration.

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