United States District Court, E.D. California
MICHAEL KIRCHNER, an individual, on behalf of himself and all others similarly situated, Plaintiff,
SHRED-IT USA INC., a Delaware Corporation; FIRST ADVANTAGE LNS SCREENING SOLUTIONS, INC., and Does 1 through 10, Defendants.
MEMORANDUM AND ORDER RE: MOTION FOR PRELIMINARY SETTLEMENT APPROVAL
WILLIAM B. SHUBB, District Judge.
Plaintiff Michael Kirchner brought this putative class-action lawsuit against defendants Shred-it USA ("Shred-it") and First Advantage Background Services Corp. ("First Advantage"), alleging that defendants failed to comply with federal credit reporting laws while conducting pre-employment background checks. Presently before the court is plaintiff and Shred-it's joint motion for preliminary approval of class action settlement. (Docket No. 53.)
I. Factual and Procedural Background
Plaintiff applied for a job with Shred-it on April 13, 2011. (First Am. Compl. ("FAC") ¶ 14 (Docket No. 17).) As part of the application process, plaintiff received and signed a one-page disclosure form. (Id. ¶ 14, Ex. A.) In addition to disclosing the fact that Shred-it might procure a consumer report for employment purposes on plaintiff, the form also included release and discharge language that plaintiff alleges violated the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. §§ 1681 et seq. Specifically, plaintiff claims the language failed to comply with 15 U.S.C. § 1681b's requirement that an employer disclose that a consumer report may be obtained for employment purposes in a form consisting "solely of the disclosure." (FAC ¶ 17); see 15 U.S.C. § 1681b(b)(2).
On October 8, 2014, Shred-it moved to dismiss plaintiff's FAC. (Docket No. 31.) Before the court could rule on that motion, however, plaintiff and Shred-it notified the court that they had agreed to settlement terms and withdrew Shred-it's motion to dismiss without prejudice. (Docket No. 43.) The parties now seek preliminary approval of their stipulated class action settlement.
Federal Rule of Civil Procedure 23(e) provides that "[t]he claims, issues, or defenses of a certified class may be settled... only with the court's approval." Fed.R.Civ.P. 23(e). "Approval under 23(e) involves a two-step process in which the Court first determines whether a proposed class action settlement deserves preliminary approval and then, after notice is given to class members, whether final approval is warranted." Nat'l Rural Telecomms. Coop. v. DIRECTV, Inc., 221 F.R.D. 523, 525 (C.D. Cal. 2004) (citing Manual for Complex Litig., Third, § 30.41 (1995)).
This Order is the first step in that process and only analyzes whether the proposed class action settlement deserves preliminary approval. See Murillo v. P. Gas & Elec. Co., 266 F.R.D. 468, 473 (E.D. Cal. 2010). Preliminary approval authorizes the parties to give notice to putative class members of the settlement agreement and lays the groundwork for a future fairness hearing, at which the court will hear objections to (1) the treatment of this litigation as a class action and/or (2) the terms of the settlement. See id.; Diaz v. Trust Territory of P. Islands, 876 F.2d 1401, 1408 (9th Cir. 1989) (stating that a district court's obligation when considering dismissal or compromise of a class action includes holding a hearing to "inquire into the terms and circumstances of any dismissal or compromise to ensure that it is not collusive or prejudicial"). The court will reach a final determination as to whether the parties should be allowed to settle the class action on their proposed terms after that hearing.
The Ninth Circuit has declared a strong judicial policy favoring settlement of class actions. Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1276 (9th Cir. 1992). Nevertheless, where, as here, "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." Staton v. Boeing Co., 327 F.3d 938, 952 (9th Cir. 2003).
The first part of this inquiry requires the court to "pay undiluted, even heightened, attention' to class certification requirements" because, unlike in a fully litigated class action suit, the court "will lack the opportunity... to adjust the class, informed by the proceedings as they unfold." Amchem Prods. Inc. v. Windsor, 521 U.S. 591, 620 (1997); see Hanlon v. Chrysler Corp., 150 F.3d 1011, 1019 (9th Cir. 1998). The parties cannot "agree to certify a class that clearly leaves any one requirement unfulfilled, " and consequently the court cannot blindly rely on the fact that the parties have stipulated that a class exists for purposes of settlement. See Windsor, 521 U.S. at 621-22 (stating that courts cannot fail to apply the requirements of Rule 23(a) and (b)).
The second part of this inquiry obliges the court to "carefully consider whether a proposed settlement is fundamentally fair, adequate, and reasonable, ' recognizing that [i]t is the settlement taken as a whole, rather than the individual component parts, that must be examined for overall fairness....'" Staton, 327 F.3d at 952 (quoting Hanlon, 150 F.3d at 1026); see also Fed.R.Civ.P. 23(e) (outlining class action settlement procedures).
A. Class Certification
A class action will only be certified if it meets the four prerequisites identified in Rule 23(a) and additionally fits within one of the three subdivisions of Rule 23(b). See Ontiveros v. Zamora, Civ. No. 2:08-567 WBS DAD, 2014 WL 3057506, at *4 (E.D. Cal. July 7, 2014); Fed.R.Civ.P. 23(a)-(b). Although a district court has discretion in determining whether the moving party has satisfied each Rule 23 requirement, see Califano v. Yamasaki, 442 U.S. 682, 701 (1979); Montgomery v. Rumsfeld, 572 F.2d 250, 255 (9th Cir. 1978), the court must conduct a rigorous inquiry before certifying a class, see Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 161 (1982); E. Tex. Motor Freight Sys. v. Rodriguez, 431 U.S. 395, 403-05 (1977).
1. Rule 23(a) Requirements
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).
Under the first requirement, "[a] proposed class of at least forty members presumptively satisfies the numerosity requirement." Avilez v. Pinkerton Gov't Servs., 286 F.R.D. 450, 456 (C.D. Cal. 2012); see also, e.g., Collins v. Cargill Meat Solutions Corp., 274 F.R.D. 294, 300 (E.D. Cal. 2011) (Wanger, J.) ("Courts have routinely found the numerosity requirement satisfied when the class comprises 40 or more members."). The proposed class, which the parties estimate will contain approximately 3, 328 members, (see Pl.'s Mem. at 6 (Docket No. 53-1)), easily satisfies this requirement.
Commonality requires that the class members' claims "depend upon a common contention" that is "capable of classwide resolution-which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke." Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2550 (2011). "[A]ll questions of fact and law need not be common to satisfy the rule, " and the "existence of shared legal issues with divergent factual predicates is sufficient, as is a common core of salient facts coupled with disparate legal remedies within the class." Hanlon, 150 F.3d at 1019.
Plaintiff states that, had the case proceeded to trial, all putative class members would have predicated their claims on Shred-it's alleged failure to comply with the FCRA by using a disclosure form with additional language, such as a liability release or indemnity provision. (Pl.'s Mem. at 14.) Although the exact factual predicates for each claim may vary, plaintiff argues that Shred-it's policy of including additional language in its disclosure forms creates common questions of fact and law regarding the adequacy of those forms under 15 U.S.C. § 1681b(b)(2). (See id.)
The court agrees that the potential claims of the class members would arise from a set of circumstances similar to that of plaintiff's, namely, the receipt or signing of a form provided by Shred-it that contained language beyond the disclosure and authorization language permitted by the FCRA. Whether these forms complied with § 1681b(b)(2) is a question common to all class members. Class members would also face the common question of whether Shred-it "willfully" failed to comply with § 1681b(b)(2)'s requirement. See 15 U.S.C. § 1681n(a); Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 56-60 (2007). These questions of law are therefore applicable in the same manner to each member of the class, making class relief based on commonality appropriate. See Califano v. Yamasaki, 442 U.S. 682, 701 (1979) (holding that commonality issues of the class "turn on questions of law applicable in the same manner to each member of the class"); Acosta v. Trans Union, LLC, 243 F.R.D. 377, 384 (C.D. Cal. 2007) (finding commonality when "[t]he same alleged conduct of Defendants forms the basis for each of the plaintiffs' claims").
Typicality requires that named plaintiffs have claims "reasonably coextensive with those of absent class members, " but their claims do not have to be "substantially identical." Hanlon, 150 F.3d at 1020. The test for typicality "is whether other members have the same or similar injury, whether the action is based on conduct which is not unique to the named plaintiffs, and whether other class members have been injured by the same course of conduct.'" Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (citation omitted).
Plaintiff argues that all putative class members were subject to the same course of conduct by Shred-it: providing them with disclosure and authorization forms that included extra language. (Pl.'s Mem. at 14-15.) The putative class members were thus deprived of proper disclosure in the form required by § 1681b(b)(2) in the same manner as plaintiff.
Because the parties proposed a settlement prior to certification, the court has little in the way of a record to independently verify these assertions. The court must instead rely on the declaration of plaintiff's counsel. (See Pl.'s Mem. at 21-24 (providing the declaration of Peter R. Dion-Kindem).) The parties' common interest in settling their dispute also deprives the court of adversarial briefs on this subject, making it difficult to assess whether plaintiff "possess[es] the same interest and suffer[s] the same injury" as the putative class members-an important part of the typicality inquiry. Rodriguez, 431 U.S. at 403 (quoting Schlesinger v. Reservists Comm. to Stop the War, 418 U.S. 208, 216 (1974)).
Nevertheless, for the purpose of preliminary certification, the court accepts that the injuries of the named plaintiff are likely to be "reasonably coextensive" with those of the putative class. The routine nature of the practice that allegedly violates the FCRA and the statutory damages available to the plaintiff and putative class members under 15 U.S.C. § 1681n(a) make it unlikely that any class member's particular background or situation diverges significantly from plaintiff's. See Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 176, 180 (2d Cir. 1990) (noting that class certification should not be granted if "there is a danger that absent class members will suffer if their ...