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Larson v. Harman-Management Corp.

United States District Court, E.D. California

December 18, 2019

CORY LARSON, on behalf of himself and all others similarly situated, Plaintiffs,


         This action came before the court on July 16, 2019 for a hearing on plaintiff's motion for preliminary approval of class action settlement. (Doc. No. 192.) The motion is unopposed. Attorney Stephen Taylor appeared telephonically on behalf of plaintiff. Attorneys David Bird and Martin Jaszczuk appeared telephonically on behalf of defendant Harman-Management Corporation (“Harman”). (Id.) Based on the court's review of the pending motion and the information presented by counsel at the hearing, the court will grant the motion for preliminary approval of the class action settlement.


         Harman is “a nationwide franchisee of several fast-food restaurant chains[, ] including KFC, Taco Bell, Pizza Hut and A&W Restaurants.” (Doc. No. 22 at 2.) On February 17, 2016, plaintiff Cory Larson filed this class action on behalf of himself and all similarly situated individuals, alleging that defendants Harman and 3Seventy, Inc.[1] (“3Seventy”) sent unauthorized, automated text messages to putative class members' cellular phones in violation of the Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq. (the “TCPA”). (Doc. No. 1.) Plaintiff's first amended complaint (“FAC”) alleged that, in 2012, Harman and 3Seventy “set out on a telemarketing campaign to send consumers coupons for Harman restaurant food items via automated text messages” and that, “[b]y the beginning of 2014, Defendants were text messaging more than 150, 000 consumers.” (Doc. No. 22 at 5-6.) Plaintiff alleged that “Defendants sent [him] and other consumers its automated telemarketing text messages without obtaining clear and conspicuous prior express written consent as required by the TCPA.” (Id. at 2.) Plaintiff also claimed that these messages were sent “as part of a marketing program called the ‘A&W Text Club.'” (Doc. No. 193 at 6.) The FAC sought injunctive relief prohibiting similar violations of the TCPA by defendants in the future; statutory damages of $500.00 for each and every call/text in violation of the TCPA; and treble damages of up to $1, 500.00 for each and every call/text in violation of the TCPA. (Doc. No. 22 at 15-16.)

         After plaintiff filed suit, the parties “heavily litigated this case.” (Doc. No. 193 at 6.) Plaintiff reviewed “over 46, 000 pages of documents produced by Harman, 3Seventy or from third parties, ” including “emails, contracts, system manuals, slideshows, reports of the progress of the A&W Text Club, [and] audiovisual materials such as videos and web advertisements.” (Id.) In addition, plaintiff took seven depositions of Harman, 3Seventy, and non-party employees, and Harman took plaintiff's and his expert's depositions and forensically examined plaintiff's cellular phone. (Id. at 6-7.) Moreover, the parties engaged in extensive motion practice, including a motion to dismiss and to strike plaintiff's class allegations (Doc. No. 26), three motions to stay (Doc. Nos. 64, 108, 167), three motions for summary judgment (Doc. Nos. 101, 128, 174), and a motion for class certification (Doc. No. 98).

         In December 2018, the parties agreed to engage in settlement negotiations by way of mediation before the Honorable Morton Denlow (Ret.). (Doc. No. 193 at 7.) On February 19, 2019, after the parties provided Judge Denlow with detailed mediation briefs, he presided over a full day of negotiations between the parties which did not result in a settlement being reached. (Id.) Following that mediation session, however, the parties continued their discussions and eventually reached the proposed settlement agreement that is now before the court (the “proposed settlement agreement”). (Id.; see also Doc. No. 193-1, Ex. A.)

         Pursuant to the proposed settlement agreement, Harman has agreed to deposit $4, 000, 000.00 into a settlement fund. (Doc. No. 193-1, Ex. A at 11-12.) “Settlement Class Members who timely submit a valid claim form will receive a pro-rata distribution from the settlement fund, after the Attorneys' Fees and Costs, any Incentive Award to the Named Plaintiff, and any Settlement Administration Costs are deducted from the Settlement Fund and the Settlement Administrator reviews all Claim Forms to determine a final number of claimants.” (Doc. No. 193 at 9.) While the agreement does not provide for any specific incentive or fee award, class counsel “will apply for an Incentive Award of up to $10, 000 for the Class Representative and of up to 1/3 of the Settlement Fund ($1, 333, 333.33) in Class Counsel Fees.” (Id. at 10.) The parties agree that “[t]he Court and only the Court shall determine the amount of Attorneys' Fees and Costs and any Incentive Award in this action.” (Id.)

         On June 12, 2019, plaintiff filed the pending motion for preliminary approval of the class action settlement. (Doc. No. 193.) Plaintiff seeks an order: (1) preliminarily approving the terms of the Proposed Settlement Agreement; (2) appointing plaintiff as the class representative; (3) appointing attorneys Sergei Lemberg and Stephen Taylor of Lemberg Law, LLC as class counsel; (4) conditionally certifying the putative settlement class; (5) approving and directing distribution of the class notice packet to class members; and (6) scheduling a final fairness hearing with respect to the proposed settlement agreement. (Doc. No. 193 at 8.)

         At the hearing on the motion for preliminary approval, the court requested supplemental briefing regarding the appropriateness of requiring class members to submit claim forms to recover from the settlement fund, as well as the overall reasonableness of the settlement fund in light of the estimated maximum value of the class's claims. On July 23, 2019, plaintiff filed supplemental briefing as requested by the court. (Doc. No. 198.)


         “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. Moreover, it has been recognized that 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 what is normally required under the Federal Rules. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998), overruled on other grounds by Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011); see also Lane v. Facebook, Inc., 696 F.3d 811, 819 (9th Cir. 2012).

         When parties seek class certification only for purposes of settlement, Rule 23 “demand[s] undiluted, even heightened, attention” to the certification requirements. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997). The district 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. Oct. 2, 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 involves two hearings. See Manual for Complex Litigation (4th) § 21.632. First, the court conducts a preliminary fairness evaluation and, if applicable, considers class certification. If the court makes a preliminary determination on 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. (noting that if the parties move for both class certification and preliminary approval, the certification hearing and preliminary fairness evaluation can usually be combined). Second, 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).

         Here, the parties move for preliminary approval of a class settlement and preliminary class certification. Though Rule 23 does not explicitly provide for such a procedure, federal courts generally find preliminary approval of settlement and notice to the proposed class appropriate if 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 with 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].”).


         A. Preliminary Evaluation of Fairness of Proposed Class Action Settlement

         Plaintiff seeks preliminary approval of the proposed settlement agreement. (See Doc. No. 193.) As noted, under Rule 23(e), a court may approve a class action settlement only if the settlement is fair, reasonable, and adequate. Bluetooth, 654 F.3d at 946. “[P]reliminary approval of a settlement has both a procedural and substantive component.” See, e.g., In re Tableware Antitrust Litigation, 484 F.Supp.2d at 1079 (citing Schwartz v. Dallas Cowboys Football Club, Ltd., 157 F.Supp.2d 561, 570 n.12 (E.D. Pa. 2001)). In particular, preliminary approval of a settlement and notice to the proposed class is appropriate if: (i) the proposed settlement appears to be the product of serious, informed, non-collusive negotiations; and (ii) the settlement falls within the range of possible approval, has no obvious deficiencies, and does not improperly grant preferential treatment to class representatives or segments of the class. Id.; see also Ross v. Bar None Enterprises, Inc., No. 2:13-cv-00234-KJM-KJN, 2014 WL 4109592, at *9 (E.D. Cal. Aug. 19, 2014). 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).

         1. The Proposed Settlement Agreement Appears to be the Product of Serious, Informed, Non-Collusive Negotiations.

         The court must first consider whether the process by which the parties arrived at their settlement is truly the product of arm's length bargaining, rather than collusion or fraud. Millan v. Cascade Water Servs., Inc., 310 F.R.D. 593, 613 (E.D. Cal. 2015). A settlement is presumed fair if it “follow[s] sufficient discovery and genuine arms-length negotiation.” Adoma v. Univ. of Phx., Inc., 913 F.Supp.2d 964, 977 (E.D. Cal. 2012) (quoting Nat'l Rural Telecomms. Coop. v. DIRECTV, Inc., 221 F.R.D. 523, 528 (C.D. Cal. 2004)). In addition, participation in mediation “tends to support the conclusion that the settlement process was not collusive.” Palacios v. Penny Newman Grain, Inc., No. 1:14-cv-01804-KJM, 2015 WL 4078135, at *8 (E.D. Cal. July 6, 2015) (citation omitted).

         Here, the proposed settlement agreement appears to be the product of serious, substantial, and arm's length negotiations. As discussed above, the parties reached the agreement after engaging in extensive discovery and motion practice and after participating in a mediation before Retired Judge Denlow. (Doc. No. 193 at 6-7, 14-15.) Specifically, this litigation resulted in production of over 46, 000 pages of documents, several expert reports and depositions, and several dispositive motions, including three summary judgment motions. (Id. at 15.) The parties then adjourned the briefing schedule on Harman's second motion for summary judgement to engage with the mediation before Judge Denlow. (See Doc. Nos. 182, 183.) Although that mediation session concluded without a settlement being reached, the parties continued to engage in negotiations and eventually arrived at the proposed settlement agreement. Based upon this history, the court is convinced that the parties' negotiations were extensive, involved, and non- collusive, lending credence to the fairness of the settlement and supporting the granting of plaintiff's motion for preliminary approval.

         2. The Proposed Settlement Agreement Does Not Contain Obvious 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. Here, the settlement states that defendant Harman shall deposit $4, 000, 000.00 into a non-reversionary settlement fund to settle this action. (Doc. Nos. 193 at 17; 193-1, Ex. A at 11- 12.) This total includes amounts to be paid to class members, awards for attorneys' fees and costs, an incentive payment for the named plaintiff, and the settlement administration expenses. (Doc. No. 193-1, Ex. A at 14.) The parties propose that the awards for attorneys' fees and costs, an incentive payment for the named plaintiff, and that the settlement administration expenses be deducted from the settlement fund prior to the pro rata distribution of benefits to the settlement class. (Id.) However, the agreement makes clear that the settlement is not conditioned on any particular amount for either the incentive award or award of attorneys' fees. (Id. at 32.) Further, to the extent that settlement checks remain uncashed after the void date, the agreement provides for a second distribution of funds to class members, provided that this second distribution is not cost-prohibitive, as determined by the settlement administrator. (Doc. No. 193-1, Ex. A at 12.) If a second distribution is determined to not be feasible, the settlement administrator will pay any remaining funds to the Cy Pres recipient(s) approved by this court. (Id. at 12-13.) The settlement provides a means for class members to exclude themselves from the settlement (id. at 20-21), and the release of liability appears reasonably tailored to the claims presented in the action for class members, with the named plaintiff agreeing to a general release of all claims. (Id. at 28-32). Finally, the agreement provides for the settlement administrator to coordinate notice to the class, any requests for exclusion, and payments to class members upon final approval. (Id. at 13-14, 20.)

         Based upon this showing, the court is satisfied there are no obvious deficiencies with the proposed settlement agreement.

         3. The Proposed Settlement Agreement Does Not Improperly Grant Preferential Treatment to Class Representatives or Segments of the Class.

         In making a preliminary fairness determination, the court must assure itself that the proposed settlement does not provide preferential treatment to certain members of the class or to the named plaintiff. In re Tableware Antitrust Litig., 484 F.Supp.2d at 1079. As noted above, the settlement terms here provide for the settlement amount to be divided among class members in equal shares. (Doc. No. 193 at 19.) The court therefore turns to the attorneys' fees provisions and the anticipated incentive award.

         a. Attorneys' Fees

         When a negotiated class action settlement includes an award of attorneys' fees, the fee award must be evaluated in the overall context of the settlement. Knisley v. Network Assocs., 312 F.3d 1123, 1126 (9th Cir. 2002). Where, as here, fees are to be paid from a common fund, the relationship between the class members and class counsel “turns adversarial.” In re Washington Pub. Power Supply Sys. Sec. Litig, 19 F.3d 1291, 1302 (9th Cir. 1994). Thus, the district court must assume a fiduciary role for the class members in evaluating a request for an award of attorneys' fees from the common fund. Id; Rodriquez v. W. Publ'g Corp., 563 F.3d 948, 968 (9th Cir. 2009). Similarly, while “[i]ncentive awards are fairly typical in class action cases, ” Rodriquez, 563 F.3d at 958-59, “district courts must be vigilant in scrutinizing all incentive awards to determine whether they destroy the adequacy of the class representatives . . .. [C]oncerns over potential conflicts may be especially pressing where . . . the proposed service fees greatly exceed the payments to absent class members.” Radcliffe v. Experian Info. Sols., Inc., 715 F.3d 1157, 1165 (9th Cir. 2013) (internal quotation marks and citations omitted).

         The Ninth Circuit has approved two methods for determining attorneys' fees in cases where the attorneys' fee award is taken from the common fund set aside for the entire settlement: the “percentage of the fund” method and the “lodestar” method. Vizcaino v. Microsoft Corp.,290 F.3d 1043, 1047 (9th Cir. 2002) (citation omitted). The district court retains discretion in common fund cases to choose either method. Id; Vu v. Fashion Inst. of Design & Merch., No. CV 14-08822 SJO (EX), 2016 WL 6211308, at *5 (CD. Cal. Mar. 22, 2016). Under either approach, “[r]easonableness is the goal, and mechanical or formulaic application of either method, ...

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