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R. Fellen, Inc. v. Rehabcare Group, Inc.

United States District Court, E.D. California

April 19, 2017

DAKOTA MEDICAL, INC., a California corporation doing business as Glenoaks Convalescent Hospital, Plaintiff,
v.
REHABCARE GROUP, INC., a Delaware corporation, and CANNON & ASSOCIATES, LLC, a Delaware limited liability corporation doing business as Polaris Group, Defendants.

          ORDER GRANTING PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT (DOC. NO. 172)

         This matter is before the court on plaintiff's unopposed motion for preliminary approval of a class action settlement and certification of the settlement class. (Doc. No. 172.) Oral argument was heard on April 18, 2017. Attorneys Darryl Cordero, Donald Fischbach, Scott Luskin, and Joel Magolnick appeared at the hearing on behalf of plaintiffs. Attorney Oliver Wanger appeared on behalf of defendant RehabCare and attorneys Erin Kolmansberger, and David Jordan appeared on behalf of defendant Cannon. At the conclusion of the hearing, the matter was taken under submission. For the reasons set forth below, the court will grant plaintiff's motion.

         BACKGROUND

         The complaint in this action was filed on December 29, 2014, alleging violations of the Telephone Consumer Protection Act (“TCPA”). (Doc. No. 1.) This court has jurisdiction over the case because it arises under the laws of the United States. See 28 U.S.C. § 1331; Mims v. Arrow Fin. Servs., LLC, 565 U.S. 368, 375-76 (2012) (holding federal courts have jurisdiction over private TCPA suits).

         Plaintiff[1] alleges defendants violated the TCPA and various regulations promulgated by the Federal Communications Commission (“FCC”) by sending more than 2.4 million transmissions of junk faxes to long-term care facilities throughout the country. (Doc. No. 1 at ¶ 3.) These junk faxes were advertisements for various seminars, manuals, DVDs, and programs on Medicare and Medicaid billing and other human resources management topics. (Id. at ¶ 13.) The faxes invited recipients to visit defendants' website, www.polaris-group.com, to purchase the advertised goods and services. (Id.) According to plaintiff, there were more than 2, 100 different advertisements included in the 2.4 million fax transmissions. (Id. at ¶ 14.) The complaint alleges that defendants purchased lists of fax numbers for more than 12, 000 long-term care facilities from a third party, Billian Publishing, Inc., and had no reason to believe these health care providers had given their permission to receive these advertisements. (Id. at ¶ 15.) Further, the advertisements allegedly failed to include opt-out notices mandated by federal law. (Id. at ¶ 16.) Defendants purportedly hired an outside company, WestFax, Inc., to carry out the fax advertising campaign en masse. (Id. at ¶ 17.) While defendant Cannon & Associates (doing business as Polaris Group) was directly responsible for the advertising campaign, plaintiff maintained RehabCare was vicariously liable for the TCPA violations, because its products and services were marketed and it benefited from the junk fax campaign. (Id.)

         The court's docket reflects extensive litigation of this suit, including resolution by the court of numerous informal discovery disputes and motions to compel with respect to discovery. Plaintiff filed a contested motion to certify the class on October 3, 2016. (See Doc. Nos. 145, 164.) Shortly thereafter, defendant RehabCare Group, Inc. filed a motion for summary judgment, arguing in large part that the two defendants were separate entities and defendant RehabCare Group bore neither direct nor vicarious liability for Cannon's actions. (See Doc. No. 162.) Approximately a month after the filing of the motion for summary judgment, the court received notice on November 22, 2016 that the class action had been settled, and the then-pending certification and summary judgment motions were terminated. (Doc. Nos. 169, 170.) Plaintiff filed this unopposed motion for preliminary approval of the settlement and certification of a settlement class on March 21, 2017. (Doc. No. 172.)

         The proposed class for this settlement is defined as “all persons that were subscribers of facsimile telephone numbers to which there was a successful transmission of one or more facsimiles by Defendants (or either of them) between July 17, 2010, and February 4, 2014, in broadcasts by WestFax Inc.” (Doc. No. 171 at 6.) Officers, directors, and other agents of Defendants and/or their affiliated companies are expressly excluded from the class, as are governmental entities and attorneys of record in this action. (Id.) The settlement is structured as a common fund for $25 million, and seeks appointment of plaintiff as class representative, and attorneys C. Darryl Cordero of Payne & Fears LLP, Donald R. Fischbach of Dowling Aaron Inc., and Joel S. Magolnick of Marko & Magolnick, P.A. as class counsel. (Id. at 6-7.) The release states that the class members who do not opt out of the settlement will release defendants, affiliated companies, and their agents “for all claims, whether known or unknown based on the transmission of the Faxes and/or the Action.” (Doc. No. 171 at 14.) This release, by its terms, pertains only to claims brought in this action, and only to the faxes sent to the class as defined above. (See Id. at 4, 6 (defining terms “Faxes” and “Action”).)

         LEGAL STANDARD

         Rule 23 mandates that, “[t]he claims, issues, or defenses of a certified class may be settled, voluntarily dismissed, or compromised only with the court's approval.” Fed.R.Civ.P. 23(e). The following procedures apply to the court's review of such a proposed settlement:

(1) The court must direct notice in a reasonable manner to all class members who would be bound by the proposal.
(2) If the proposal would bind class members, the court may approve it only after a hearing and on finding that it is fair, reasonable, and adequate.
(3) The parties seeking approval must file a statement identifying any agreement made in connection with the proposal.
(5) Any class member may object to the proposal if it requires court approval under this subdivision (e); the objection may be withdrawn only with the court's approval.

Id.

         “Courts have long recognized that settlement class actions present unique due process concerns for absent class members.” In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 946 (9th Cir. 2011) (citation and internal quotations omitted). To protect the rights of absent class members, Rule 23(e) of the Federal Rules of Civil Procedure requires that the court approve all class action settlements “only after a hearing and on finding that it is fair, reasonable, and adequate.” Fed.R.Civ.P. 23(e)(2); Bluetooth, 654 F.3d at 946. However, when parties seek approval of a settlement agreement negotiated prior to formal class certification, “there is an even greater potential for a breach of fiduciary duty owed the class during settlement.” Bluetooth, 654 F.3d at 946. Thus, the court must review such agreements with “a more probing inquiry” for evidence of collusion or other conflicts of interest than is normally required under the Federal Rules. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998); see also Bluetooth, 654 F.3d at 946.

         When parties seek class certification for settlement purposes only, Rule 23 “demand[s] undiluted, even heightened, attention” to the requirements for certification. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997). Although here the parties do not dispute that the class exists for the purposes of settlement, the court must examine the propriety of certification under Rule 23 both at this preliminary stage and at a later fairness hearing. See, e.g., Ogbuehi v. Comcast, 303 F.R.D. 337, 344 (E.D. Cal. 2014); West v. Circle K Stores, Inc., No. 04-cv-0438 WBS GGH, 2006 WL 1652598, at *2 (E.D. Cal. June 13, 2006).

         Review of a proposed class action settlement ordinarily proceeds in three stages. See Manual for Complex Litigation (4th) § 21.632. First, the court conducts a preliminary fairness evaluation and, if applicable, considers preliminary class certification. Id. Second, if the court makes a preliminary determination of the fairness, reasonableness, and adequacy of the settlement terms, the parties are directed to prepare the notice of certification and proposed settlement to the class members. Id. Third, the court holds a final fairness hearing to determine whether to approve the settlement. Id.; see also Narouz v. Charter Commc'ns, Inc., 591 F.3d 1261, 1266-67 (9th Cir. 2010).

         Prior to formal class certification, a preliminary fairness determination is appropriate “[i]f the proposed settlement appears to be the product of serious, informed, non-collusive negotiations, has no obvious deficiencies, does not improperly grant preferential treatment to class representatives or segments of the class, and falls within the range of possible approval.” Lounibos v. Keypoint Gov't Solutions Inc., No. 12-00636, 2014 WL 558675, at *5 (N.D. Cal. Feb. 10, 2014) (quoting In re Tableware Antitrust Litig., 484 F.Supp.2d 1078, 1079 (N.D. Cal. 2007)); Newberg on Class Actions § 13:13 (5th ed. 2011); see also Dearauju v. Regis Corp., Nos. 2:14-cv-01408-KJM-AC, 2:14-cv-01411-KJM-AC, 2016 WL 3549473 (E.D. Cal. June 30, 2016) (“Rule 23 provides no guidance, and actually foresees no procedure, but federal courts have generally adopted [the process of preliminarily certifying a settlement class].”).

         ANALYSIS

         1. Preliminary Evaluation of Fairness of Proposed Class Action Settlement

         First, the court must conduct a preliminary fairness evaluation of the proposed class action settlement, pursuant to Rule 23(e). While it is not a court's province to “reach any ultimate conclusions on the contested issues of fact and law which underlie the merits of the dispute, ” a court should weigh the strength of a plaintiff's case; the risk, expense, complexity, and likely duration of further litigation; the stage of the proceedings; and the value of the settlement offer. Chem. Bank v. City of Seattle, 955 F.2d 1268, 1291 (9th Cir. 1992); see also Officers for Justice v. Civil Serv. Comm'n of City & Cty. of San Francisco, 688 F.2d 615, 625 (9th Cir. 1982). The court should also watch for collusion between class counsel and defendant. Id. A preliminary fairness determination is appropriate “[i]f the proposed settlement appears to be the product of serious, informed, non-collusive negotiations, has no obvious deficiencies, does not improperly grant preferential treatment to class representatives or segments of the class, and falls within the range of possible approval.” In re Tableware Antitrust Litig., 484 F.Supp.2d at 1079.

         a. Negotiations

         This settlement is clearly the product of serious, substantial, and arms-length negotiations. Early in the case, in June 2015, defense counsel proposed mediation, which was not agreed to by plaintiff's counsel until after some discovery was completed. (Doc. No. 172-7 at ¶ 7) (Decl. of Fischbach). Plaintiff's counsel engaged in almost two years' worth of discovery, serving several sets of interrogatories, requests for admission, and Rule 34 requests for production of documents. (Doc. No. 172-2 at ¶ 5) (Decl. of Cordero). This resulted in production of approximately 70, 000 documents and 900 pages of written responses. (Id.) Several depositions-more than a dozen, all told-were taken by both plaintiff and defendants. (Id. at ¶¶ 5-6.) Both the evidence submitted by plaintiff as well as the court's own docket show extensive litigation relating to discovery in this matter. (Doc. No. 172-9 at ¶¶ 6-12; see also Doc. Nos. 44, 65, 68, 72, 75 (informal discovery dispute conferences); Doc. Nos. 66, 83, 84, 96, 106, 121 (motions to compel)).

         The first mediation in this case occurred on May 12, 2016 in Los Angeles. (Doc. No. 172-7 at ¶ 8) (Decl. of Fischbach). That full day session ended with the parties apparently far apart on many key terms, including both the settlement amount and the structure of any proposed settlement fund. (Id.) Subsequently, plaintiff's counsel discussed with defense counsel for defendant Cannon the possibility of a settlement with that defendant only, for the combined $8 million limit of its two liability insurance policies. (Doc. No. 172-2 at ¶ 13) (Decl. of Cordero). That offer was rejected, but purportedly opened the door to further mediation. (Id.) Litigation continued for a number of months until a two-day mediation took place in Washington, D.C. in November 2016. (Doc. No. 172-7 at ¶ 9) (Decl. of Fischbach). At that negotiation, the two sides reached a settlement amount and a structure for the settlement on the first day, and spent the second day negotiating other terms of the settlement. (Id.; see also Doc. No. 172-2 at ¶ 16) (Decl. of Cordero). A sheet depicting the terms of the agreement was finalized and signed by all parties a week later. (Doc. No. 172-7 at ¶ 9) (Decl. of Fischbach); Doc. No. 172-2 at ¶¶ 16, 18 (Decl. of Cordero)). Nevertheless, it took the parties several more months of negotiations to agree on a completed class action settlement agreement. (Doc. No. 172-2 at ¶¶ 19-22) (Decl. of Cordero).

         Based upon this history, the court is convinced these negotiations were extensive, involved, and non-collusive, lending weight to the fairness of the settlement.

         b. Deficiencies

         A proposed settlement does not meet the test for preliminary fairness if there are any obvious deficiencies in the proposed agreement. In re Tableware Antitrust Litig., 484 F.Supp.2d at 1079. This settlement calls for the establishment of a common fund of $25 million. (Doc. No. 171 at 7.) Distribution of the funds will be divided based on the number of successful fax transmissions included within the settlement class, with each class member entitled to a share based on the number of faxes involved in the settlement that they received. (Id.) Payments for attorneys' fees, expenses, and an incentive award for the class representative are to be paid from the common fund, and settlement is not conditioned on any particular award of those. (Id. at 9.) The settlement provides a means for class members to exclude themselves from the settlement. (Id. at 12.) Payments from the common fund that are not successfully delivered to class members will be divided among remaining class members, with no reversionary interest remaining with defendants. (Id. at 13-14.) The release of liability appears reasonably tailored to the claims presented in the action. (Id. at 14-15.) The settlement agreement provides for a settlement administrator to coordinate notice to the class, any requests for exclusion, and payments to class members upon final approval. (Id. at 8-9, 12.) The court is satisfied there are no obvious deficiencies with this settlement.

         c. Preferen ...


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