A federal court in California has preliminarily approved a class action settlement on behalf of nationwide and California classes of stationary cyclists in a gift card case that is sure to invigorate the plaintiffs’ bar. The case and settlement remind us of the broad swath of activity to which state and federal gift card laws apply, as well as the practical costs associated with defending against even alleged violations of those laws.

Factual Background

Cody v. SoulCycle Inc., No. 2:15-cv-06457 (C.D. Cal.), involves so-called (by plaintiffs) “Series Certificates” from the popular fitness company SoulCycle Inc. (“SoulCycle”). “Series Certificates”—which SoulCycle referred to during the course of the action more simply as “classes”—must be purchased by customers in order to attend one of SoulCycle’s “spin classes.” Classes could be purchased in increments of one to 50 sessions, with price increments ranging from $30 – $70 per session. Further, classes had expiration dates, which varied depending on the number of classes purchased: the more a person paid, the longer the expiration period lasted. If a class expired, no refund was issued to the customer. Finally, while the price of a class varied based on geography, a person could use Series Certificates for classes in any geographic region, so long as they were redeemed for a class that was priced at an equal or lesser value. Here again, no refund would issue for the difference in fare.

Plaintiffs each purchased one Series Certificate for $30 that expired after 30 days. They both tried, unsuccessfully, to redeem their expired Series Certificates for classes, and further forfeited the unused funds. Accordingly, in August 2015, plaintiffs filed a seven-count putative class action lawsuit.

Procedural Background

Plaintiffs’ original complaint asserted various claims, including violations of (1) the Electronic Funds Transfer Act (EFTA) as amended by the Credit Card Accountability and Disclosure Act (CARD); (2) California’s gift certificate law, California Civil Code section 1749.5 (“Gift Certificate Law”); and (3) California’s Unfair Competition Law, Bus. & Prof. Code section 17200 et seq. (UCL).

In January 2016, ruling on a motion to dismiss, the Court held that SoulCycle’s Series Certificates were “gift certificates” under both federal and California law. In so doing, the Court explained that “[SoulCycle]’s sale of classes are tethered to a specific monetary value of the class being purchased.” Cody v. SoulCycle Inc., No. CV156457GHKJEMX, 2016 WL 4771392, at *3 (C.D. Cal. Jan. 11, 2016). “Thus, [the Court explained,] [SoulCycle]’s class sales more closely resemble a ‘certificate . . . redeemable for a spa treatment up to $50,’ rather than merely a ‘spa treatment.’” Id. (citing 12 C.F.R. Pt. 205, Supp. I.). Further, and notwithstanding that the company did not expressly label or market the purchase of its classes as “gift certificates”—a point that plaintiffs conceded—it was reasonable to infer that customers purchase classes as gifts. Id. at *9. Other claims brought by plaintiffs were dismissed.

In February 2016, plaintiffs filed their Second Amended Complaint. Plaintiffs again asserted claims under the EFTA, the Gift Certificate Law and the UCL. SoulCycle again moved to dismiss, this time attacking plaintiffs’ claims under the Gift Certificate Law on a new ground: SoulCycle argued that such claims included no express private right of action and should thus be dismissed. While plaintiffs agreed to withdraw that claim, they did assert that a violation of the Gift Certificate Law could act as a predicate to asserting a claim under the “unlawful” prong of the UCL. The Court expressly reserved that question for a later time.

In March 2017, the Court heard plaintiffs’ Motion for Class Certification. Shortly thereafter, the parties agreed to settle the action on a class-wide basis.

The Settlement

On June 22, 2017, the Court entered an order of preliminary approval. The settlement reached by the parties gives monetary relief to nearly 150,000 class members and provides broad injunctive relief. Specifically, class members are eligible to receive reinstatement of up to two expired classes or cash reimbursement for up to two expired classes at an amount of $25 per class. SoulCycle further agreed to change the labeling of its classes to drop any reference to the price of the class. In addition, buyers will no longer be permitted to transfer classes from one geographic region to another. Finally, SoulCycle agreed to amend its Terms and Conditions and FAQ sections of its website and smartphone application to (1) make clear that SoulCycle classes and gift cards are not the same product; (2) explain that while SoulCycle gift cards never expire, classes do; and (3) notify customers with an expired class to contact SoulCycle for “help.”

Takeaways

SoulCycle Inc. serves as a dutiful reminder of how far the arms of state and federal gift card laws can reach. Similarly, the case suggests that gift card laws remain of high interest to the plaintiffs’ class action bar and that they are willing to litigate these claims in earnest. Thus, companies are well-served by remaining vigilant in their compliance efforts.