Richards v. Chime Financial, Inc.

Background

Plaintiffs Ryan Richards, Ruba Ayoub, Brandy Terbay, and Tracy Cummings brought a proposed class action against Chime Financial, Inc., The Bancorp Inc., and Galileo Financial Technologies, LLC. They alleged that Chime experienced a system-wide service outage beginning October 16, 2019, lasting approximately 72 hours. During the outage, customers allegedly could not access their accounts or funds through card purchases and automated teller machine withdrawals. Some customers later reported incorrect account balances and unauthorized charges.

The proposed nationwide class covered Chime customers who were denied access to their accounts beginning October 16, 2019, with additional subclasses of customers residing in Florida, Texas, Illinois, and Georgia. The complaint asserted claims for negligence, unjust enrichment, breach of contract, conversion, breach of fiduciary duty, and violations of Florida and Illinois consumer-protection statutes.

The parties did not litigate motions before beginning settlement discussions with the assistance of Magistrate Judge Laurel Beeler. They reached an agreement in principle in May 2020 and later submitted a written settlement agreement. After the court raised concerns about the release and the process for objecting, the parties submitted a revised agreement with minor changes.

Provisional Class Certification

Because the parties settled before the court had considered class certification, the court evaluated whether provisional certification of a settlement class was appropriate under Federal Rule of Civil Procedure 23. The court found that the requirements of Rule 23(a)—numerosity, commonality, typicality, and adequacy—were met. Defendants had identified approximately 528,000 account holders who experienced a transaction failure or had an account or card locked during the outage.

The court also found that common questions predominated and that a class action was the superior method for resolving the dispute for settlement purposes. It concluded that the claims shared issues concerning the outage and whether defendants were liable for preventing class members from accessing their accounts. The court appointed the named plaintiffs as class representatives and appointed John A. Yanchunis, Patrick A. Barthle II, and Joshua H. Watson as class counsel.

Settlement Terms

The settlement class consisted of consumers who attempted to access or use Chime account functions and were unable to do so between October 16 and October 19, 2019, because of the outage, as confirmed by Chime business records showing either a failed transaction or a locked card.

Before the settlement, Chime had credited $10 to the accounts of active customers as a courtesy payment and had issued transaction credits to some customers for certain fees incurred during the outage. The parties stated that these payments totaled $5,960,563. The settlement provided additional compensation through two tiers:

- Tier 1: A class member claiming a loss but lacking or declining to provide documentation could receive up to $25 for a verified claim. - Tier 2: A class member providing reasonable documentation could receive up to $750, but no more than the verified loss. The aggregate Tier 2 payment was capped at $1.5 million, plus any unclaimed Tier 1 funds.

The settlement required claimants to submit an explanation under penalty of perjury describing how the outage caused the loss and the amount claimed. Chime and the settlement administrator would verify that the claimant held a Chime account and had either attempted a failed transaction or had a card locked because of the outage. Previous payments from Chime would be deducted from settlement payments. Defendants guaranteed at least $1.5 million in settlement payments. If claims did not reach that amount, the remaining funds would go to the East Bay Community Law Center as a cy pres recipient.

The agreement also authorized class representatives to seek incentive awards of up to $500 each and permitted class counsel to request up to $750,000 in attorneys’ fees, costs, and expenses. Class members would release claims related to the alleged events and the outage, including unknown claims, and would waive specified laws protecting certain unknown claims from a general release.

Preliminary Approval Analysis

For preliminary approval, the court considered whether the settlement appeared to result from serious, informed, and non-collusive negotiations; whether it improperly favored class representatives or other groups; whether it fell within the range of possible approval; and whether it contained obvious deficiencies.

The court noted that part of the settlement funds could revert to defendants if unclaimed, and that the agreement included a “clear sailing” provision under which defendants would not oppose a fee request up to $750,000. The court nevertheless found that the fees would not reduce class members’ recoveries, that at least part of the settlement was non-reversionary, and that the provision did not weigh against preliminary approval. The court also found a sufficient connection between the class and the East Bay Community Law Center for purposes of the proposed cy pres distribution.

The court found no improper preferential treatment from the possible incentive awards because the awards were subject to the court’s later review at final approval. It concluded that the settlement was within the possible range of approval, considering the compensation already paid, the additional potential payments, and the litigation risks identified by plaintiffs. Those risks included a possible motion to compel arbitration, the need to obtain class certification, and the possibility of losing at trial. The court found no obvious deficiencies.

Notice and Disposition

The proposed notice plan called for email notice to class members within 30 days of the preliminary-approval order, along with notice on a settlement website. The notice would explain the action, settlement terms, and procedures for objecting or opting out. The court found that the plan was reasonably calculated to inform class members and that the proposed notice content satisfied due-process requirements.

The court preliminarily found the settlement fair, reasonable, and adequate. It granted Plaintiffs’ motion for preliminary approval of the class-action settlement, directed the parties to implement the notice plan, and ordered them to submit a schedule for later settlement proceedings. The order did not grant final approval of the settlement.