1.67 million class action lawsuit settlement
Baltimore judge grants final approval of $1.67 million class action lawsuit settlement between a Web hosting company and almost 6,000 clients who joined the lawsuit as a result of prolonged service interruptions after a failed server migration.
The plaintiffs consist of business and personal Web site owners as well as larger resellers of server space from all over the world. As a result of the lawsuit they will receive four times their monthly bills from Andover, Mass.-based NaviSite Inc., whose purchase of Baltimore-based Alabanza Corp. led to the costly snafu. Attorney fees will be calculated.
The checks, which will go out within a month, range from $10 to more than $10,000, according to the lead lawyer for the class, Stuart A. Davidson.
The payouts are “well more than what they could get if they actually took the case to trial,” given the language of the Alabanza contracts, Davidson said. “For us, it was a no-brainer.”
Davidson’s firm, Boca Raton, Fla.-based Coughlin, Stoia, Geller, Rudman & Robbins LLP, will receive $495,000 separate and apart from the settlement fund.
NaviSite’s attorney, Kent D.B. Sinclair, of the Boston office of Seyfarth Shaw LLP, declined to comment, instead referring a call to a spokesman for the company.
“We just wanted to put this behind us in a way that was most beneficial for our customers and our shareholders,” said Rathin Sinha, NaviSite’s chief marketing officer.
NaviSite, which bought Alabanza and a California-based managed hosting company for a total of approximately $15.5 million in August 2007, grossed $156.5 million in 2008.
The trouble began on Saturday, Nov. 3, 2007, when NaviSite unplugged some of Alabanza’s servers and attempted to move them by truck to Massachusetts.
Instead of the intended upgrade to new servers, NaviSite’s new clients unexpectedly had problems with their e-mail and Web sites that lasted from days to weeks. Nearly 200,000 Web sites were affected.
“Things just went completely awry,” Davidson said. “It may not be that big of a deal for maybe a book club … but for companies that actually sell, like e-commerce companies, being down for one hour, much less a day or weeks or more. …”
All the problems were eventually solved, Davidson said, but for many, the damage had already been done.
P.J. Taei’s WebNet Hosting LLC, a five-employee e-commerce Web-hosting company in Rockville that had a dozen servers with Alabanza, lost service for six days. Taei was so upset that he switched his servers from NaviSite to Liquid Web Inc. of Lansing, Mich. He attended the May 8 hearing before Judge William D. Quarles Jr. in U.S. District Court just to see how the case resolved.
“It was the worst-case scenario,” Taei said of the episode, adding that NaviSite’s India-based customer service was also “terrible” in the wake of the migration malfunction.
He believes NaviSite, which boasts a “diverse client base” on its Web site, “didn’t know what they bought” in Alabanza and has lost many of Alabanza’s customers as a result of the troubled transition.
Taei said he lost some clients of his own, but many of his longtime clients remained loyal. Other resellers, Davidson said, were not so fortunate and lost “a ridiculous amount of business.”
According to court papers, one of the lead plaintiffs, Dragonfly Design in Baltimore, lost approximately 15 percent of its business; other class members reported losing nearly half their business as a result of the migration problems.