United States District Court, E.D. California
DAKOTA MEDICAL, INC., a California corporation doing business as Glenoaks Convalescent Hospital, Plaintiff,
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)
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.
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
Plaintiff 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.)
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.)
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
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
(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
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.
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
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
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].”).
Preliminary Evaluation of Fairness of Proposed Class
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.
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)).
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).
upon this history, the court is convinced these negotiations
were extensive, involved, and non-collusive, lending weight
to the fairness of the settlement.
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.