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McCulloch v. Baker Hughes Inteq Drilling Fluids, Inc.

United States District Court, E.D. California

May 23, 2017

MARC MCCULLOCH, et al., Plaintiff,
v.
BAKER HUGHES INTEQ DRILLING FLUIDS, INC., et al., Defendants.

          ORDER GRANTING PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT (DOC. NO. 49)

         This matter is before the court on plaintiffs' unopposed motion for preliminary approval of class action settlement and certification of the settlement class. (Doc. No. 49.) Oral argument was heard on May 16, 2017. Attorney Daniel S. Brome appeared on behalf of plaintiffs. Attorney Michael Brett Burns appeared on behalf of defendants. At the conclusion of the hearing, the matter was taken under submission. For the reasons set forth below, the court will grant plaintiffs' motion.

         BACKGROUND

         The complaint in this action was filed on February 3, 2016, alleging violations of the Fair Labor Standards Act (“FLSA”), California Labor Code, California Business and Professions Code, and the Pennsylvania Minimum Wage Act. (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.

         Named plaintiff McCulloch and those similarly situated worked for Baker Hughes Inteq Drilling Fluids, Inc. (“Inteq”) and Baker Hughes Inc., (“Baker Hughes”) (collectively “defendants”) as directional drillers for the applicable statutory period. (Doc. No. 1 at 7.) Defendants employed plaintiffs as independent contractors, or consultants, who were referred by and paid through third party contracting companies. (Doc. No. 49 at 9.) Plaintiffs allege that their duties as independent contractors were similar to that of employees hired by defendants, but that they were paid with a day rate without overtime. (Id.) As such, plaintiffs contend that they were improperly classified as independent contractors and are entitled to “unpaid overtime under the FLSA and California and Pennsylvania laws.” (Id.) Under California law, plaintiffs have also asserted claims for “meal and rest period premiums, wage statement penalties, and waiting time penalties.” (Id. at 10.) For purposes of class settlement, the parties have agreed to define the classes as follows:

California Class: All individuals who performed directional drilling services for defendants as consultants/independent contractors in California at any time since February 2, 2012 to April 10, 2017, and who do not communicate a timely written request for exclusion from the Settlement.
Pennsylvania Class: All individuals who performed directional drilling services for defendants as consultants/independent contractors in Pennsylvania at any time since February 2, 2013 to April 10, 2017 and who do not communicate a timely written request for exclusion from the Settlement.

(Doc. No. 50 at 5-6.)

         On August 26, 2016, the parties filed a stipulation for conditional certification under the FLSA that was granted on October 4, 2016. (Doc. No. 26.) The court conditionally certified a class consisting of the following:

All persons who provided services as consultant directional drillers, and in other independent contractor directional driller positions with similar job titles and/or job duties to Baker Hughes, at any time from three years prior to the filing of this action.

(Id. at 2.) The court also provided that defendants may seek decertification at a later time as recognized in the stipulation. (Id.) Thereafter, “twenty-four individuals filed consent forms to assert FLSA claims, ” otherwise known as the “FLSA Opt-ins.” (Doc. No. 49 at 10.) Plaintiffs' counsel has interviewed the FLSA Opt-ins to ensure their claims fall within the purview of plaintiffs' allegations in this action. (Id. at 10.) The class currently consists of forty-eight individuals. (Id. at 9.)

         The parties further agreed to mediation and limited discovery as part of the stipulation. Defendants have deposed the named plaintiff, Marc McCulloch, and the parties have exchanged thousands of pages of documents. (Id. at 10.) Mediation was held on March 3, 2017 in San Francisco with Michael Loeb of JAMS. The parties signed a final settlement agreement on April 7, 2017. (Id.) Plaintiffs filed this unopposed motion for preliminary approval of that settlement on April 10, 2017. (Doc. No. 49.)

         The settlement structure is as follows: “following preliminary approval, notice will be distributed and all Opt-in plaintiffs who accept their offer, and all Rule 23 Class Members who do not opt-out of the settlement (collectively ‘Accepting Plaintiffs'), will receive their allocation following final approval.” (Id.) The settlement amount is set at $3, 000, 000 which includes attorneys' fees and costs as well as one-half of the employer's share of applicable payroll taxes. (Id.) The settlement amount is non-reversionary, such that in the event a Rule 23 Class Member opts out of the settlement, the amount originally reserved for those individuals will instead be redistributed among the participating plaintiffs. (Id. at 12.) Finally, the release is limited to the claims brought forth in this action. (Id.)

         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 request that the court approve all class action settlements “only after a hearing 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 breach of a 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 in this case the parties do not dispute that the class exists for the purposes of settlement, the court must nonetheless 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).

         In light of the pending motion, the court will turn to the first stage in the analysis and will conduct a preliminary fairness evaluation.

         ANALYSIS

         I. Preliminary Evaluation of Fairness of a 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

         The settlement here has been procured by serious, substantial, and arms-length negotiations. “Courts are less likely to find collusion when a settlement agreement was preceded by a significant period of litigation or negotiations were conducted by a third-party mediator.” Heldt v. Payday Fin., LLC, No. 3:13-CV-03023-RAL, 2016 WL 96156, at *6 (D.S.D. Jan. 8, 2016). While there has not been a lengthy period of adversarial litigation involving substantial discovery in this case, the court notes that the parties have engaged in limited but significant discovery directed towards early resolution prior to mediation. (Doc. No. 49-1 at 2, ΒΆ 4.) The parties ...


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