Allegations that it illegally expired gift cards will cost SoulCycle Inc. up to $9.2 million in a settlement agreement recently submitted to a California federal court for preliminary approval.
A pair of plaintiffs filed suit in 2015, accusing the indoor cycling chain of defrauding consumers and engaging in a “relentless effort to maximize its profits” by selling gift cards with short windows (sometimes as low as 30 days) and then keeping the unused balances, in violation of the Electronic Funds Transfer Act (EFTA) and California’s Unfair Competition Law.
To take a class at SoulCycle, riders must create an account and then purchase classes at varying amounts, depending on their geographic location and the number of classes they purchased—for example, $30 for a single class or $780 for 30 classes. The defendant countered that its actions didn’t run afoul of the law because the plaintiffs confused the sale of packages of classes at a set value for gift cards.
The parties engaged in discovery and some pre-trial wrangling before reaching a deal. “The proposed Settlement provides significant economic consideration to Settlement Class Members and meaningful changes to SoulCycle’s business practices,” according to the plaintiffs’ unopposed motion in support of preliminary approval of the agreement.
Pursuant to the settlement, customers who purchased one class that expired unused during the settlement period—for nationwide users, between Aug. 25, 2014, and Feb. 10, 2017, and for California users beginning Feb. 1, 2012, and ending on the same date—will automatically receive one new class. Those who purchased more than one class that expired unused will receive a second reinstated class.
Class members also have the option to elect a payment of up to $50 in cash, depending on the number of expired, unused classes purchased during the relevant period. The estimated monetary value of the deal is between $6.9 and $9.2 million, which covers up to 229,646 unused classes, depending on the number of class members who elect the cash option.
As for noneconomic consideration, the parties agreed upon relief “designed to ensure that consumers fully understand that purchasing a class or series of SoulCycle classes does not constitute the purchase of a gift certificate or gift card.”
To that end, SoulCycle will clarify that its classes are not sold in specified values and will be denoted by geographical region. In addition, the company will revise its terms and conditions and its frequently asked questions on its website and smartphone app to reinforce that SoulCycle classes and gift cards are not the same product, that gift cards never expire, and that while classes have an expiration date, a rider may contact SoulCycle to request an extension if he or she can’t make a scheduled class.
To read the motion in support of preliminary approval of the settlement in Cody v. SoulCycle, Inc., click here.
Why it matters: The plaintiffs noted that the case presented novel questions under the EFTA—such as whether the classes sold with expiration dates subjected them to the requirements of the statute. The lack of significant precedent encouraged the parties to reach a deal.