TLPJ’s challenge on behalf of a dissatisfied class member, filed on January 5, 2006, claims that the coupons offered to customers as part of the settlement – a one-month upgraded membership for current customers or a renewed one-month membership for former customers – are just a "marketing tool" designed to increase Netflix’s revenues. Because class members face additional charges if they do not affirmatively opt-out after the "free" month, the settlement may leave customers worse off than before the lawsuit was filed.

"This settlement is designed to steer some class members into more expensive Netflix memberships, while guaranteeing a handsome payout to class lawyers," said TLPJ’s Goldberg-Saladoff Fellow Richard Frankel, who co-authored the settlement objections and will argue against the settlement at a fairness hearing on January 18, 2006. "Abusive settlements like this not only deprive class members of valuable relief, but lead to undeserved criticism of class actions in general. Customers will be left with a booby prize while their lawyers get a sweetheart deal from Netflix," Frankel said, pointing to a ‘clear sailing provision’ in the settlement which assures that Netflix will not object to the plaintiffs’ lawyers’ request for $2.5 million in legal fees in return for releasing Netflix from all liability to the class members.

"It’s outrageous that the proposed settlement likely will cost many wronged customers more than they will receive, while paying class counsel $2.5 million," said co-counsel Mark A. Chavez of Chavez and Gertler in Mill Valley, California. "In fact, as the settlement now stands, former customers who choose not to sign up again with Netflix would receive nothing, and current customers who choose the one-month membership upgrade must ‘opt out’ at the end of the free month or be ‘automatically renewed’ at a higher-priced membership level," added Chavez (who is not related to the class plaintiff Chavez).

Netflix was sued in September 2004 after the DVD rental company allegedly failed to deliver DVDs within its advertised time frame. The case was filed on behalf of current and former Netflix customers and claims that Netflix made false and misleading advertisements and engaged in deceptive trade practices by promising to deliver DVDs to customers in one business day. In reality, the lawsuit alleges, it often would take as long as four to six business days for customers to receive their requested DVDs, forcing customers to watch fewer videos than they had signed up to receive under their monthly membership plan.

TLPJ is challenging the proposed settlement as abusive of the class action device and unfair to consumers. "We’re asking the court to order the parties back to the table to come up with a truly fair settlement," Frankel said.