February 24, 2022
Key Takeaway
Automatic renewals are becoming increasingly popular, but an overly complicated cancellation process poses substantial risk of both class action lawsuit and regulatory enforcement actions.
Last week the popular diet app Noom announced that it had reached a $62 million settlement with plaintiffs in a class action who brought a host of state-law consumer protection and common law claims based on Noom’s allegedly deceptive enrollment scheme.
The lawsuit, which was originally filed in May 2020, but was amended a third time in January 2021, argued that Noom’s substantial recent growth in revenue came not from satisfied dieters, but from misled consumers who were automatically charged fees. More specifically, plaintiffs alleged that Noom advertised a free trial period so long as the user cancelled during the period. But in reality, Noom intentionally created a difficult cancellation process, so users who were unable to withdraw in time were instantly back charged for months of service. This “automatic enrollment trap” led to more than 1,000 complaints with the Better Business Bureau and ultimately the lawsuit. See Third Am. Compl. at ¶¶ 2-3. Noom moved to dismiss the case in February 2021, arguing primarily that Plaintiffs’ allegations did not meet the heightened pleading standard under Federal Rule of Civil Procedure 9(b) (see Dkt. 205), but the court largely denied this motion in August 2021. See Dkt. 415. The parties settled the case for $62 million—pending court approval—a handful of months later.
As the Noom case demonstrates, automatic-enrollment and automatic-renewal lawsuits have the potential to create significant liability and are particularly attractive targets for the plaintiffs’ bar. Businesses that use automatic renewals must be aware that their practices will come under increased scrutiny. And this scrutiny is not limited to the private sector. In October 2021, California passed a bill requiring additional regulation of automatic renewals[1] and the FTC issued a statement saying that it plans to “ramp up enforcement” of automatic renewal scams.[2]
[1] https://www.gov.ca.gov/2021/10/04/governor-newsom-signs-consumer-financial-protection-legislation-to-combat-predatory-practices-and-increase-transparency/
[2] https://www.ftc.gov/news-events/press-releases/2021/10/ftc-ramp-enforcement-against-illegal-dark-patterns-trick-or-trap?utm_source=govdelivery
This entry has been created for information and planning purposes. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts.
FAQs
If you do nothing, you will be bound by any settlement or decision in the lawsuit.
Is it a good idea to join a class action lawsuit? ›
And since class action cases may take years, even to obtain a court-approved settlement, “sometimes it's easier to settle an individual case than the entire case,” Feldman says. However, if an eligible member does not plan on filing an independent lawsuit, there's no obvious downside to being a member, he says.
Does everyone get the same amount of money in a class action lawsuit? ›
Reasons for Smaller Settlements in Class Action Lawsuits
Class action lawsuit settlements are not divided evenly. Some plaintiffs will be awarded a larger percent while others receive smaller settlements. There are legitimate reasons for class members receiving smaller payouts.
How much can you expect from a class action lawsuit? ›
Your recovery could be a couple of hundred dollars, tens of thousands, or more or less. By responding to court notices about opting out of a class action claim or notices about objecting to a proposed settlement, you could help secure a larger settlement for yourself and the entire class.
Do class action lawsuits ever pay? ›
Money divided in a class action lawsuit settlement usually contains a provision for an award for the plaintiff. These awards are generally modest, several thousand dollars or so and are meant to compensate the lead plaintiffs in a case.
What are the risks of joining a class action lawsuit? ›
Considering joining a class action lawsuit? While it can empower you in seeking justice, be aware of potential drawbacks like legal uncertainties, loss of personal control, lower individual compensation, and the often lengthy legal proceedings.
What is a disadvantage of a class action lawsuit? ›
You Do Not Have Control Over the Lawsuit
Class members give up control of the case. The lead plaintiffs and their lawyers decide when to settle a claim or proceed to court. If you do not want to be one of the lead plaintiffs, you do not have control over decisions that could impact the outcome for you.
Should I cash a class action settlement check? ›
People have mixed feelings about class-action suits, and whether you cash class-action refund checks is up to you. Generally, if you get one, you probably paid a lot more in wrongful fees than you're getting back in the settlement. If you don't cash the check, the money may go back to the company.
Why are class action lawsuit payouts so small? ›
Some Class Members Only Receive a Nominal Amount
These are people who didn't suffer any serious injuries or evidence supporting their claim, like receipts for the dangerous product or medication. These class members would only receive nominal damages. Sometimes, their share of the settlement proceeds is less than $10.
Is money from a class action lawsuit taxable? ›
Oftentimes, the nature of a class action suit determines if the lawsuit settlement can be taxable. Lawsuit settlement proceeds are taxable in situations where the lawsuit is not involved with physical harm, discrimination of any kind, loss of income, or devaluation of an investment.
Some class sizes can reach millions. While there is no exact number needed for a class action lawsuit, it is difficult to form a class to receive certification with less than 20 members. A class with at least a few dozen members is preferred and will likely be certified and move forward.
What happens if a class action lawsuit wins? ›
Usually, each individual plaintiff will receive an equal portion of the award, or a specific dollar figure from a fund. Occasionally, there is a more individualized review of damages that allows attorneys to distribute the compensation based on the damages each plaintiff suffered.
What is the largest class action lawsuit payout? ›
Tobacco Settlement at $206 Billion
The largest-ever class action settlement was agreed upon in 1998 by Philip Morris, RJ Reynolds, and two other tobacco companies. Paid out annually over 25 years, the settlement covered the medical costs for smoking-related injuries for individuals in 46 US states.
How do I know if I'm part of a class action lawsuit? ›
You will receive a notice in the mail or email if you are an eligible class member. The notice will provide a detailed description of the lawsuit and all your available options. In most cases, eligible class members join the litigation automatically and do not have to take any action.
What is the best class action lawsuit website? ›
The Ultimate Resource for Class Action Lawsuits. Every day, innocent people are hurt, both physically and financially, due to the negligence and deceptive business practices of corporations and large institutions. Here at ClassAction.org, we give victims the tools they need to fight back: knowledge and access.
Can you ignore a class action lawsuit? ›
You can choose to “opt-out” of the class, hire your own legal counsel, and file a separate lawsuit. You can decide to opt-out of the class action and do nothing.
Can you remove yourself from a class action lawsuit? ›
Individual plaintiffs who don't want to be bound by a court's decision in a class action lawsuit may want to consider opting out of the suit completely, which means that they will retain the right to bring a separate, individual lawsuit against the defendants and seek an amount in damages that they deem fair.
Do you have to opt in to a class action lawsuit? ›
Many people opt in to class action lawsuits. Some automatically opt you into the class unless you decide to formally opt out. Occasionally, there are even cases when you cannot opt out, but this is unusual. When you opt in on a class action, the court's decision in the case applies to you.
What happens if you miss out on a class action lawsuit? ›
If you miss the class action lawsuit, or you don't find out about the lawsuit until after a verdict or settlement is reached, the common fund provides a way for you to join the case and receive payment for your portion of the monetary award.
