United States District Court, E.D. California
CORY LARSON, on behalf of himself and all others similarly situated, Plaintiffs,
v.
HARMAN-MANAGEMENT CORPORATION, Defendant. Event Date
ORDER GRANTING PLAINTIFF'S MOTION FOR PRELIMINARY
APPROVAL OF CLASS ACTION SETTLEMENT (Doc. No. 192)
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.
FACTUAL
BACKGROUND
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.)
LEGAL
STANDARD
“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].”).
ANALYSIS
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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