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Cho v. Seagate Technology Holdings

September 15, 2009


Trial Court: Superior Court City & County of San Francisco Super. Ct. No. 453195. Trial Judge: Honorable Mary E. Wiss.

The opinion of the court was delivered by: Siggins, J.


Plaintiff Sara Cho filed a representative class action against Seagate Technology (US) Holdings, Inc. (Seagate) for falsely overstating in advertising and packaging the storage capacity of computer disc drives that it manufactures for public sale. The case was settled and David Klausner objected to the settlement. Klausner argued the class definition was imprecise and misleading, and that there was the possibility of collusion between the parties affecting settlement negotiations. In particular, Klausner claimed that collusion was evident because once the parties learned of Klausner's objections, they modified their positions on the scope of class membership without changing the class definition. The trial court overruled Klausner's objections and approved the settlement. We conclude that Klausner has not shown the trial court abused its discretion in approving the settlement, and that there are no facts that show the parties engaged in any collusion or improper conduct. But we remand to require notice to the class that accurately reflects class membership as agreed upon by the parties, and intended by the court to be included within the settlement.


Cho filed her complaint in Los Angeles County Superior Court in August 2005 alleging that defendant Seagate overstated the storage capacity of its computer hard drives in advertising and product labeling by approximately 7 percent. Cho's amended complaint alleged that the principal reason for the overstatement was that Seagate used a decimal definition of "gigabyte" (equal to 1 billion bytes) which differed from the binary definition (equal to approximately 1.073 billion bytes) that was used by computer operating systems. Cho asserted claims for unfair business practices, false advertising, and violation of the Consumers Legal Remedies Act.*fn1 After this case was transferred to the San Francisco Superior Court, Seagate denied Cho's allegations and asserted a number of affirmative defenses. The parties engaged in considerable discovery and filed various motions, including motions for summary judgment. While Cho's motion seeking class certification was pending, the parties engaged in two and a half days of mediation before the Honorable Edward Infante (Ret.). The parties reached a settlement agreement that was preliminarily approved by the trial court in September 2007. Shortly thereafter, the court certified a plaintiff settlement class.

The agreement defined the settlement class to include "all persons and entities who purchased in the United States a Retail Hard Drive between March 22, 2001 and the date of Preliminary Approval." A "retail hard drive" was defined as "a new Seagate brand hard disc drive that was purchased from an authorized Seagate retailer or distributor, separately as a Seagate product, that was not pre-installed into and sold bundled with a personal computer or other electronic device."*fn2 Seagate estimated there were more than 6 million qualifying purchases during the relevant period.

As consideration for the settlement, Seagate agreed to more precisely disclose the capacity of its hard drives on its packaging and website. Seagate also agreed to certain individual benefits for settlement class members. For disc drives purchased before January 1, 2006, class members could choose either a cash payment equal to 5 percent of the net purchase price, or the Seagate Software Suite (the Software) that would allow users to perform enhanced computer and disc management functions. The estimated average cash benefit payable per hard drive was $7, and the Software had an estimated retail value of approximately $40. For disc drives purchased after January 1, 2006, when the packaging included more precise disclosures added by Seagate, class members were entitled to receive the Software.*fn3 To receive benefits, class members were required to submit a claim form that would be reviewed by a claims administrator. The claim form required the model name and number, amount paid, date of purchase, and name of the merchant. To obtain cash payment, the claim form also required either documentary proof of purchase or the serial number of the hard drive. Counsel for the parties were to be informed of any rejected claims, which, if unresolved, could be presented to the court for review. Seagate also agreed not to challenge an application for attorney fees of up to $1.75 million, costs of up to $35,500, and an incentive fee of $5,000 for Cho.

Notice of the settlement was to be provided through the establishment of a settlement website, a hyperlink at the bottom of the home page on Seagate's website, an e-mail notice sent to identified class members, and publication of the notice of settlement once a week for four consecutive weeks in USA Today. Each of the forms of notice advised readers they were "a member of the settlement class if, between March 22, 2001 and September 26, 2007, you purchased in the United States a new Seagate brand hard disc drive from an authorized Seagate retailer or distributor, separately as a Seagate product that was not pre-installed into and bundled with a personal computer or other electronic device." Publication was made in USA Today. The e-mail notices were sent to approximately 650,000 class members. Seagate posted the hyperlink on its website, and the settlement website was established and received hits from more than 113,000 uniquely identifiable visitors.

Klausner was the only person who formally objected to the settlement.*fn4 Klausner argued the notices of settlement were insufficient and inconsistent with the agreement. He claimed it was not possible to determine "whether someone who purchased a Seagate Hard Drive (`Drive') from a retailer that is not a Seagate authorized retailer, but that retailer purchased the Drive from an authorized distributor, is a class member under the settlement agreement." Klausner said that only one of the 10 drives he purchased came from an authorized retailer listed on Seagate's website.*fn5 The parties initially responded that those who did not purchase their drives directly from an authorized retailer or distributor, as listed on Seagate's website, were not part of the settlement class.

In papers supporting his objections, Klausner argued, inter alia, that the definition of the settlement class provided in the notices, and as construed by the parties, was unduly restrictive. The scope of the plaintiff class described in the complaint had been abandoned, and those who bought their disc drives from independent retailers were unfairly excluded from the class. In response to this argument, Seagate adopted the position that: "The settlement includes anyone who purchased a Retail Hard Drive in the authorized retail distribution channel, regardless of whether the retailer in the transaction is listed on Seagate's website." Cho also acknowledged that she was wrong when she said in her previous brief that authorized retailers and distributors were limited to those listed on Seagate's website. Cho agreed with Seagate that "the words `authorized retailer or distributor' in the settlement agreement-which are not defined terms-are meant to include drives purchased either directly or indirectly from the Authorized Retailers or Authorized Distributors listed on the website, meaning that they include retailers who are not themselves listed on the website, but who purchased from one of the entities that are listed on the website. The only excluded resellers are those whose drive sales are of fake, grey market, used, or stolen drives." With the court's permission Klausner filed additional objections that challenged the parties' changed interpretation of the defined class and suggested that the parties tried to mislead the court. He argued that plaintiff's counsel did not know who the "authorized retailers" were, and were engaged in "a sham sell-out of the class."

Counsel for the parties addressed Klausner's supplemental objections at the final approval hearing. Cho's counsel explained that "when Seagate drafted the settlement agreement and they used the term `authorized retailers' and `authorized distributors,' the thought all along was to include all those people that bought a retail hard drive. [¶] And you know, we didn't get into the exact procedures by which they distributed, but our concern was to represent those people that bought the hard drives as end users. So, nobody raised this issue. It wasn't a concern for any of the class members. No one called us and sa[id], what does that mean, we are confused. [¶] . . . [t]he authorized retailers are everybody that makes a claim except for the gray market, you know, the used ones, the stolen ones and the fake ones." Counsel further stated "our intention all along is consistent with what we're saying today, it's consistent to how we negotiated the settlement, which is the retail hard drives."

Seagate's counsel observed that "there seems to have been no trouble with anybody figuring if they were in the class," and suggested potential class members could obtain assistance, if necessary, by calling plaintiff's counsel, the settlement administrator, or Seagate, or by consulting Seagate's website. Defense counsel also said that a substantial percentage of claims named merchants not listed as authorized retailers on Seagate's website, and argued "the notice is clearly adequate, under the due process standards, to let people know they are in this case and that they are eligible to make a claim."

The trial court overruled Klausner's objections. The order approving settlement states: "Mr. Klausner's objection to the term authorized retailers or distributors, the limitation of claims to purchases from authorized retailers or distributors, and his related claims that the class is impermissibly narrowed, that plaintiff's counsel have not adequately represented the class and the plaintiff is an inadequate class representative are overruled. The court finds that it is appropriate to limit the class to purchasers from authorized retailers or distributors. . . . The Court received no information that any class member, other than Mr. Klausner, was confused by the term authorized retailer or distributor. In that regard, neither the Agreement nor the form of notice caused any prejudice to the Plaintiff Settlement Class."*fn6 Klausner was granted leave to file his additional objections, which were overruled, but his request to undertake discovery was denied.*fn7

The court's order approving settlement also defined the settlement class: "The Plaintiff Settlement Class consists of `all persons and entities who, between March 22, 2001 and September 26, 2007 purchased in the United States a new Seagate brand hard disc drive from an authorized Seagate retailer or distributor, separately as a Seagate product that was not pre-installed into and bundled with a personal computer or other electronic device.' [¶] The Plaintiff Settlement Class includes persons or entities who purchased a Seagate retail hard disc drive from an authorized retailer or distributor, regardless of whether the retailer or distributor is listed on Seagate's website. . . . [¶] Limiting the Plaintiff Settlement Class to those who purchased from an authorized retailer or distributor excludes those who purchased outside Seagate's authorized retail channels. That limitation is narrowly tailored to the facts and circumstances of this case; and it is ...

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