United States District Court, E.D. California
MEMORANDUM AND ORDER RE: MOTION FOR FINAL SETTLEMENT APPROVAL
WILLIAM B. SHUBB, District Judge.
Plaintiff Jose Ontiveros brought this wage-and-hour action on behalf of himself and a putative class of approximately three hundred similarly situated service technicians at automotive dealerships affiliated with defendant Zamora Automotive Group ("ZAG"), which operates numerous automotive dealerships located throughout the San Joaquin Valley. Over six years after the litigation commenced, the parties agreed to settle the action on a class-wide basis. The court granted preliminary approval of the $2, 000, 000 settlement. (July 7, 2014 Order (Docket No. 137).) The parties now move jointly for final approval of that settlement pursuant to Federal Rule of Civil Procedure 23(e).
I. Factual and Procedural History
Plaintiff worked at Stockton Honda, a ZAG-affiliated dealership, for seven months in 2007. (Ontiveros Decl. ¶ 2 (Docket No. 75-6).) Plaintiff alleges that he and other technicians employed at ZAG-affiliated dealerships were paid using a piece-rate scheme that failed to compensate employees for the actual time they worked. (Id. ¶ 4; see also Feb. 20, 2009 Order re: Mot. for J. on Pleadings at 5 ("Although not pled in detail in plaintiff's complaint, plaintiff and defendants both agree that the corporate defendants used a flag rate' or piece rate' compensation system for the automobile mechanics they employed.") (Docket No. 29).)
In his Second Amended Complaint ("SAC"), plaintiff alleges that defendants' compensation practices violated both federal and state wage-and-hour statutes and asserts ten claims under California law. While plaintiff does not assert a claim under the FLSA, he does allege that defendants' failure to comply with the FLSA constitutes an unlawful business practice under California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code §§ 17200 et seq.
This action was previously assigned to another district judge. Prior to reassignment, the court denied in part defendants' motion for judgment on the pleadings and held that plaintiff had stated plausible claims that defendants' compensation practices were unlawful. (Docket No. 29.) The court stayed the case in 2010 pending the resolution of a related insurance-coverage case in state court and subsequently lifted that stay on July 26, 2012. (Docket Nos. 51, 58, 64.) In December 2012, plaintiff moved for class certification and defendants moved to compel individual arbitration of plaintiff's claims. (Docket Nos. 72-73.) The court denied defendants' motion to compel arbitration, and defendants timely appealed. (Docket Nos. 104-05.) The court once again stayed the case pending the outcome of that appeal. (Docket No. 118.)
Before the Ninth Circuit resolved defendants' appeal, the parties reached a settlement. (Mallison Decl. ¶¶ 30-36 (Docket No. 143), Ex. 1 ("Settlement Agreement" (Docket No. 145).) The Agreement requires defendants to pay $2, 000, 000 to plaintiff and a class of similarly situated ZAG service technicians. (Id. ¶ 31.) After accounting for attorney's fees, civil penalties, taxes, an incentive award to plaintiff, and other administrative expenses, the remainder of the settlement funds will be divided between the class members in proportion to the number of weeks worked during the class period. (Id. ¶¶ 31-32.) Any unclaimed settlement funds will be redistributed to class members on a pro rata basis; if there are funds left over after that point, the funds are to be redistributed to designated cy pres beneficiaries. (Settlement Agreement § III, ¶ E.) No portion of the settlement fund will revert to defendants. (Id.)
After the parties reached this settlement, plaintiff moved for preliminary approval of the settlement and conditional certification of a class of current and former service technicians pursuant to Federal Rule of Civil Procedure 23. (Docket No. 123.) The previously-assigned district judge recused himself on June 25, 2014, and the action was subsequently reassigned to the undersigned judge for all further proceedings. (Docket No. 125.) In its Order granting preliminary approval of a class and collective action settlement, the court provisionally certified the following class: "all nonexempt automotive technicians who have been employed by one or more of the defendants at any time between March 12, 2004, through the date on which this Order is signed." (July 7, 2014 Order at 35.) The court appointed Jose Ontiveros as class representative, the law firm of Mallison & Martinez as class counsel, and Simpluris, Inc. as settlement administrator. (Id. at 35-36.) The court also approved the notice of settlement and final approval hearing, share and correction form, and opt-out form. The court set the final fairness hearing for October 6, 2014. (Id.) It directed class counsel to file with the court, within twenty-eight days of the fairness hearing, a petition for an award of attorney's fees and costs; all papers in support of the settlement, incentive award, fees, and costs; and a declaration from the settlement administrator setting forth the services rendered, proof of mailing, a list of all class members who have commented upon or objected to the settlement, and copies of any correction or opt-out forms.
After conducting the final fairness hearing and carefully considering the terms of the settlement, the court now addresses whether this collective and class action should receive final certification; whether the proposed settlement is fair, reasonable, and adequate; and whether class counsel's request for attorneys' fees and costs, as well as an enhancement award for the representative plaintiff, should be granted.
Judicial policy strongly favors settlement of class actions. Class Plaintiffs v. City of Seattle , 955 F.2d 1268, 1276 (9th Cir. 1992). "To vindicate the settlement of such serious claims, however, judges have the responsibility of ensuring fairness to all members of the class presented for certification." Staton v. Boeing Co. , 327 F.3d 938, 952 (9th Cir. 2003). Where the "parties reach a settlement agreement prior to class certification, courts must peruse the proposed compromise to ratify both  the propriety of the certification and  the fairness of the settlement." Id.
The approval of a class action settlement takes place in two stages. In the first stage of the approval process, as it did here, the court preliminarily approves the settlement pending a fairness hearing, temporarily certifies a settlement class, and authorizes notice to the class. See Murillo v. Pac. Gas & Elec. Co. , 266 F.R.D. 468, 473 (E.D. Cal. 2010). At the fairness hearing, presently before the court, after notice is given to putative class members, the court entertains any of their objections to (1) the treatment of the litigation as a class action and/or (2) the terms of the settlement. See Diaz v. Trust Territory of Pac. Islands , 876 F.2d 1401, 1408 (9th Cir. 1989) (holding that a court is required to hold a hearing prior to final approval of a dismissal or compromise of class claims to "inquire into the terms and circumstances of any dismissal or compromise to ensure it is not collusive or prejudicial"). Following such a hearing, the court must reach a final determination as to whether the parties should be allowed to settle the class action pursuant to the terms agreed upon. See Telecomms. Coop. v. DIRECTV, Inc. , 221 F.R.D. 523, 525 (C.D. Cal. 2004).
A. Use of An Opt-Out Class
For reasons discussed in the Order granting preliminary approval, the court permitted plaintiff to seek certification of an opt-out class. (July 7, 2014 Order at 10.) Because nothing has come to the court's attention that would change its earlier reasoning, the court permits the same here.
B. Final Certification of the Class
For certification, a putative class "must meet the four threshold requirements of Federal Rule of Civil Procedure 23(a): numerosity, commonality, typicality, and adequacy of representation. Moreover, the proposed class must satisfy the requirements of Rule 23(b), which defines three different types of classes." Leyva v. Medline Indus. Inc. , 716 F.3d 510, 512 (9th Cir. 2013) (citations omitted). These requirements "demand undiluted, even heightened attention in the settlement context... for a court asked to certify a settlement class will lack the opportunity, present when a case is litigated, to adjust the class, informed by the proceedings as they unfold." Amchem Prods. Inc. v. Windsor , 521 U.S. 591, 620 (1997).
1. Rule 23(a)
Rule 23(a) restricts class actions to cases where:
(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.
Fed. R. Civ. P. 23(a). These requirements are more commonly known as numerosity, commonality, typicality, and adequacy of representation, respectively. Leyva , 716 F.3d at 512. While the court must evaluate Rule 23(a)'s requirements independently, they serve a common purpose of "ensur[ing] that the named plaintiffs are appropriate representatives of the class whose claims they wish to litigate." Wal-Mart Stores, Inc. v. Dukes, ___ U.S. ___, ___ , 131 S.Ct. 2541, 2550 (2011).
In the court's Order granting preliminary approval of the settlement, the court found that the putative class satisfied the numerosity, commonality, and typicality requirements of 23(a). However, the court expressed concern that the proposed incentive to the class representative, which is unusually high, might create a conflict. Additionally, the parties' preliminary approval papers, upon which the court relied in making its initial determination, inadvertently discussed 197 class members instead of 300. (Mem. in Support of Mot. for Final Approval at 1 n.1. (Docket No. 144).) The court is unaware of any changes that would alter its analysis as to typicality and commonality, and because the parties did not indicate at the fairness hearing that they were aware of any such developments, the court finds these requirements have been met. The court will thus evaluate numerosity and adequacy of representation for purposes of final certification.
In its preliminary order, the court found the proposed class easily satisfied the numerosity requirement. (July 7, 2014 Order at 12.) However, the parties' preliminary approval papers inadvertently discussed 197 class members, and parties now assert there are approximately 300 class members. (Mem. in Support of Mot. for Final Approval at 1 n.1.) Because the number of proposed class members is actually greater than that upon which the court granted its preliminary approval of the settlement, the court still finds the class satisfies the numerosity requirement of 23(a). See Collins, 274 F.R.D. at 300 (conditionally certifying a class of 219 employees); Lymburner v. U.S. Fin. Funds, Inc. , 263 F.R.D. 534, 539 (N.D. Cal. 2010) (certifying a class of 121 plaintiffs).
b. Adequacy of Representation
Rule 23(a) requires that "the representative parties will fairly and adequately protect the interests of the class." Fed.R.Civ.P. 23(a)(4). "Resolution of two questions determines legal adequacy: (1) do the named plaintiffs and their counsel have any conflicts of interest with other class members and (2) will the named plaintiffs and their counsel prosecute the action vigorously on behalf of the class?" Hanlon v. Chrysler Corp. , 150 F.3d 1011, 1020 (9th Cir. 1998). These inquiries require the court to consider a number of factors, including "the qualifications of counsel for the representatives, an absence of antagonism, a sharing of interests between representatives and absentees, and the unlikelihood that the suit is collusive." Brown v. Ticor Title Ins. Co. , 982 F.2d 386, 390 (9th Cir. 1992). In its Order granting preliminary approval, the court determined that the named plaintiff and his counsel pursued the class's claims with vigor. (July 7, 2014 Order at 21.) However, the court was concerned that the proposed incentive award of $20, 000 to the class representative might create a conflict of interest between the representative and absentees. (Id. at 17-20.)
Incentive awards "are discretionary and are intended to compensate class representatives for work done on behalf of the class, to make up for financial or reputation risk undertaken in bringing the action, and, sometimes, to recognize their willingness to act as a private attorney general." Rodriguez v. West Publ'g Corp. , 563 F.3d 948, 958-59 (9th Cir. 2009). The use of an incentive award nonetheless raises the possibility that the named plaintiff's interest in receiving that award will cause his interests to diverge from the class's interest in a fair settlement. Staton , 327 F.3d at 977-78 (expressing concern that plaintiffs receiving a special incentive might be "more concerned with maximizing [their own] incentives than with judging the adequacy of the settlement as it applies to class members at large").
Courts must "scrutinize carefully the awards so that they do not undermine the adequacy of the class representatives." Radcliffe v. Experian Info. Sys., Inc. , 715 F.3d 1157, 1163 (9th Cir. 2013). "To assess whether an incentive payment is excessive, district courts balance the number of named plaintiffs receiving incentive payments, the proportion of the payments relative to the settlement amount, and the size of each payment.'" Hopson v. Hanesbrands, Inc., Civ. No. 3:08-844 EDL , 2009 WL 928133, at *10 (N.D. Cal. Apr. 3, 2009) (quoting Staton , 327 F.3d at 977). Additionally, the court should consider "the actions the plaintiff has taken to protect the interests of the class, the degree to which the class has benefitted from those actions, the amount of time and effort the plaintiff expended in pursuing the litigation and reasonable fear[s of] workplace retaliation." Staton , 327 F.3d at 977 (9th Cir. 2003) (quoting Cook v. Niedert , 142 F.3d 1004, 1016 (7th Cir. 1998).
The parties propose an incentive payment of $20, 000 to the named plaintiff, Mr. Ontiveros, (see Mallison Decl. ¶ 310), which comprises 1% of the common fund. In the event the court grants a lesser amount, the remainder of those funds will be redistributed to other class members. (Settlement Agreement III(c).) A this final stage, parties continued to assert that Mr. Ontiveros's efforts warrant the $20, 000 award, they also suggest the incentive award could be reduced to $15, 000 if needed. (Mem. in Support of Mot. for Final Approval at 27:13-23.)
A $20, 000 incentive award consisting of one percent of the common fund is unusually high, and some courts have been reluctant to approve incentive awards constituting such a great portion of the common fund. See, e.g., Clayton v. Knight Transp., Civ. No. 1:11-00735 SAB, 2013 WL 5877213, at *12 (E.D. Cal. Oct. 30, 2013) (finding in its order granting preliminary approval that a downward adjustment of the plaintiff's incentive award from $7, 500 to $3, 500 was warranted given the large disproportion of the award to the recovery of the unnamed class members); Ko v. Natura Pet Prods., Inc., Civ. No. 09-2619 SBA, 2012 WL 3945541, at *15 (N.D. Cal. Sept. 10, 2012) (holding that an incentive award of $20, 000, comprising one percent of the approximately $2 million common fund was "excessive under the circumstances" and reducing the award to $5, 000); Sandoval v. Tharaldson Emp. Mgmt., Inc., Civ. No. 5:08-482 VAP OP, 2010 WL 2486346, at *10 (C.D. Cal. June 15, 2010) (citing cases).
Other courts, however, have found awards comprising a significantly high portion of the common fund to be reasonable. See, e.g., Bond v. Ferguson Enters., Inc., Civ. No. 1:09-1662 OWW MJS , 2011 WL 2648879, at *2, 15 (E.D. Cal. June 30, 2011) (approving an $11, 250 incentive payment to each of the two named plaintiffs despite a $2, 250, 000 gross settlement); Alvarado v. Nederend, Civ. No. 1:088-1099 OWW DLB, 2011 WL 90228, at *5 (E.D. Cal. Jan. 11, 2011) (finding a $7, 500 incentive award to each of the five representatives to be reasonable even where the gross settlement amounted to $505, 058.60); Ross v. U.S. Bank Nat'l Ass'n, Civ. No. 3:07-2951 SI, 2010 WL 3833922, at *3 (N.D. Cal. Sept. 29, 2010) (approving an award of $20, 000 to each of four named plaintiffs where settlement fund was $1, 050, 000.00, based on their contributions to litigation and the risk that being a class representative would harm their reputation).
The named plaintiff appears to have been significantly involved in this litigation. (Mem. in Support of Mot. for Final Approval at 27:13.) He estimates he spent 271 hours on his duties as class representative over a period of six years. (See Ontiveros Decl. ¶ 4.) Of that total, he spent the greatest portion of time consulting with class counsel (seventy hours); reviewing discovery produced by defendants (sixty hours); communicating with workers about the case (fifty hours); and reviewing records and assisting counsel during the initial investigation (thirty hours). (See id.) These are exactly the sort of tasks for which an incentive award is appropriate. See Staton , 327 F.3d at 977; Rodriguez , 563 F.3d at 958-59.
The court disagrees, however, with the parties' appraisal of a fair rate at which to compensate the named plaintiff. An incentive award of $20, 000 compensates Mr. Ontiveros at a rate of $73.80 per hour. Incentive awards should be sufficient to compensate class representatives to make up for financial risk, see Rodriguez , 563 F.3d at 958-59, - for example, for time they could have spent at their jobs. Overcompensating named plaintiffs at the expense of a reduction in the common fund available to class remembers could encourage collusion at the settlement stage of class actions where a named plaintiff's interest naturally diverges from that of the class, compromising his role as a judge of adequacy. See Staton , 327 F.3d at 977-78. The court finds that a downward departure from the award proposed by parties from $73.80 per hour to $50 per hour fairly compensates the named plaintiff for his time and incorporates an extra incentive to participate in litigation. Multiplying that rate by the 271 hours the named plaintiff spent on litigation, the court finds he would be entitled to an award of $13, 550.
At oral argument, class counsel indicated that by proceeding on his wage and hour claims as class representative, Mr. Ontiveros relinquished the opportunity to bring several of his own claims relating to alleged uncompensated meal periods. While it is unclear whether those claims would have had merit, the court takes this sacrifice into account when scrutinizing an incentive award, see Rodriguez , 563 F.3d at 958-59. This court will thus elevate the it award it calculated based on an hourly rate to $15, 000, accounting for the claims Mr. Ontiveros was not able to bring because he committed to proceeding as the named plaintiff.
In light of plaintiff's significant efforts, an award of $15, 000 does not appear grossly disproportionate to the estimated average recovery of other individual class members of approximately $3, 700,  especially given that the highest pro rata settlement share is $14, 358.92. (See Salinas Decl. ¶ 14 (Docket No. 139).) The court is satisfied that parties provided ample evidence of plaintiff's substantial efforts taken as class representative. Accordingly, taking into account the reduced incentive, the court finds plaintiff's interests are aligned with the class. Because the Order granting preliminary approval also found the second step of the adequacy analysis satisfied, (July 7, 2014 Order at 21-22), and nothing has come to the court's attention that would change its analysis, the court determines that plaintiff is an adequate class representative.
2. Rule 23(b)
An action that meets all the prerequisites of Rule 23(a) may only be certified as a class action if it also satisfies the requirements of one of the three subdivisions of Rule 23(b). Leyva , 716 F.3d at 512. Plaintiff seeks certification under Rule 23(b)(3), which provides that a class action may be maintained only if (1) "the court finds that questions of law or fact common to class members predominate over questions affecting only individual members" and (2) "that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed.R.Civ.P. 23(b)(3).
In its Order granting preliminary approval of the settlement, the court found that both prerequisites of Rule 23(b)(3) were satisfied. (July 7, 2014 Order at 21-24.) The court is unaware of any changes that would affect this conclusion, and the parties indicated at the fairness hearing that they were unaware of any such developments. There were no objections by individual class members who claimed to have an interest in controlling the prosecution of this action or related actions. Because the settlement class satisfies Rule 23(a) and 23(b)(3), the court will grant final class certification.
3. Rule 23(c)(2) Notice Requirements
If the court certifies a class under Rule 23(b)(3), it "must direct to class members the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort." Fed.R.Civ.P. 23(c)(2)(B). Rule 23(c)(2) governs both the form and content of a proposed notice. See Ravens v. Iftikar , 174 F.R.D. 651, 658 (N.D. Cal. 1997) (citing Eisen v. Carlisle & Jacquelin , 417 U.S. 156, 172-77 (1974)). Although that notice must be "reasonably certain to inform the absent ...