United States District Court, N.D. California, San Jose Division
PANIANI TAAFUA, an individual, on behalf of himself and others similarly situated, Plaintiff,
v.
QUANTUM GLOBAL TECHNOLOGIES, LLC, Defendant.
ORDER DENYING MOTION FOR PRELIMINARY APPROVAL OF
CLASS ACTION SETTLEMENT Re: Dkt. No. 34
VIRGINIA K. DEMARCHI UNITED STATES MAGISTRATE JUDGE
Plaintiff
Paniani Taafua filed this action for himself, and on behalf
of a putative class, for alleged violations of the Fair
Credit Reporting Act (“FCRA”), 15 U.S.C. §
1681b(b)(2)(A)(i)-(ii), based on a disclosure form used by
defendant Quantum Global Technologies (“QGT”)
that reportedly included an extraneous liability waiver. The
parties have agreed to a settlement, and Mr. Taafua now moves
for preliminary approval of that settlement. QGT does not
oppose the motion. The Court held a hearing on the motion on
August 27, 2019. Pursuant to the Court's order (Dkt. No.
38), the parties subsequently submitted supplemental briefing
on certain issues (Dkt. No. 40). Upon consideration of the
moving papers, [1] the parties' supplemental briefing, as
well as the arguments of counsel, the Court denies the motion
for preliminary approval of class settlement.[2]
I.
BACKGROUND
A.
The FCRA and Mr. Taafua's Claims
“The
FCRA seeks to ensure ‘fair and accurate credit
reporting.'” Spokeo, Inc. v. Robins, 136
S.Ct. 1540, 1545 (2016) (quoting 15 U.S.C. §
1681(a)(1)). As relevant here, the FCRA imposes certain
requirements on those who seek to obtain consumer
reports[3] for employment purposes. 15 U.S.C. §
1681b(a)(3)(B). At issue in this action is the FCRA's
so-called “stand-alone disclosure” requirement,
which essentially requires that a person seeking to procure a
consumer report for employment purposes must first (1)
provide the subject consumer with a “clear and
conspicuous disclosure . . . in a document that consists
solely of the disclosure” that such a report may be
obtained and (2) obtain the consumer's written
authorization:
Except as provided in subparagraph (B), a person may not
procure a consumer report, or cause a consumer report to be
procured, for employment purposes with respect to any
consumer, unless-
(i) a clear and conspicuous disclosure has been made in
writing to the consumer at any time before the report is
procured or caused to be procured, in a document that
consists solely of the disclosure, that a consumer report may
be obtained for employment purposes; and
(ii) the consumer has authorized in writing (which
authorization may be made on the document referred to in
clause (i)) the procurement of the report by that person.
Id. § 1681b(b)(2)(A). The Ninth Circuit has
held that this provision unambiguously requires a disclosure
document that “consists solely of the disclosure,
” and does not permit the inclusion of a liability
waiver in the same document. Syed v. M-I, LLC, 853
F.3d 492, 503 (9th Cir. 2017). “[A] prospective
employer does not violate Section 1681b(b)(2)(A) by providing
a disclosure that violates the FCRA's disclosure
requirement.” Id. at 506. Rather, the
violation occurs when “a prospective employer . . .
procures a job applicant's consumer report after
including a liability waiver in the same document as the
statutorily mandated disclosure.” Id. at 496.
Additionally, “in light of the clear statutory language
that the disclosure document must consist ‘solely'
of the disclosure, a prospective employer's violation of
the FCRA is ‘willful' when the employer includes
terms in addition to the disclosure, such as the liability
waiver here, before procuring a consumer report or causing
one to be procured.” Id.
For
willful violations, the FCRA allows recovery of “actual
damages sustained by the consumer as a result of the
failure” or statutory “damages of not less than
$100 and not more than $1, 000”; “punitive
damages as the court may allow”; and “in the case
of any successful action to enforce any liability under this
section, the costs of the action together with reasonable
attorney's fees as determined by the court.” 15
U.S.C. § 1681n(a).
According
to Mr. Taafua's complaint, QGT “provides outsourced
process tool parts cleaning and engineering services.”
Mr. Taafua was employed by QGT from September 14, 2015
through February 2018. Dkt. No. 1 ¶¶ 2, 8; Dkt. No.
13 ¶¶ 2, 8. QGT reportedly required all prospective
employees, including Mr. Taafua, to sign a standard company
form[4]
authorizing QGT to obtain a consumer report from third party
First Contact HR to verify an applicant's background and
experience. Mr. Taafua contends that because QGT's form
included a liability waiver, in addition to a disclosure
concerning a consumer report, QGT violated the FCRA's
stand-alone disclosure requirement and, as a result, also
never received proper authorizations for any reports it
obtained using its standard form. Mr. Taafua further alleges
that he “was confused by the standard disclosure and
authorization form and did not understand that [QGT] would be
requesting a consumer report as defined in the FCRA.”
Dkt. No. 1 ¶ 10. He goes on to allege that
“[n]onetheless, upon information and belief, [QGT] then
secured a consumer report from First Contact HR.”
Id.
On
October 30, 2018, Mr. Taafua filed the present putative class
action asserting two claims for relief based on alleged
violation of FCRA, 15 U.S.C. § 1681b(b)(2)(A)(i) and
§ 1681b(b)(2)(A)(ii). The complaint defines the putative
class as follows:
[A]ll persons in the United States who signed a background
check form as administrated by First Contact HR that included
an authorization and a liability release clause at any time
during the period beginning five (5) years prior to the
filing of this Complaint and ending on the date as determined
by the Court.
Id. ¶ 33. The complaint seeks statutory
damages, punitive damages, attorney's fees, costs, and
“[s]uch other and further relief as the Court deems
just and equitable.” Id. at 13.
The
Court held an initial case management conference in this
matter on February 5, 2019. Shortly afterward, QGT moved to
transfer this case pursuant to 28 U.S.C. § 1404(a), for
the convenience of the parties and in the interest of
justice, to the U.S. District Court for the Eastern District
of Pennsylvania. Dkt. No. 25. Mr. Taafua opposed that motion,
and that matter was fully briefed. However, on May 9, 2019,
just prior to the noticed motion hearing, the parties advised
that they reached a settlement. Dkt. No. 30.
B.
Proposed Settlement
For
settlement purposes, the class period begins on October 30,
2013 (i.e., five years prior to the filing of Mr.
Taafua's complaint) and ends on December 31, 2018.
Additionally, the scope of the putative class has been
narrowed to QGT applicants and/or employees who were the
subject of a consumer report procured, or caused to be
procured, by QGT:
all individuals who applied for employment with and/or were
employed by Defendant in the United States and were the
subject of a consumer report that was procured by Defendant
or caused to be procured by Defendant through third-party
consumer reporting agency First Contact HR during the Class
Period.
Dkt. No. 34-2, Section I.2. Unlike the complaint's class
definition, which included “all persons in the United
States who signed a background check form” (Dkt. No. 1
¶ 33), this narrowed class definition appears to comport
with Syed's holding that a prospective employer
violates the FCRA's stand-alone disclosure requirement,
not by providing an improper disclosure form, but by
“procur[ing] a job applicant's consumer report
after including a liability waiver in the same document as
the statutorily mandated disclosure.” 853 F.3d at 496.
The
proposed settlement is non-reversionary and contemplates a
release of claims in return for a total payment of $125, 902
(“Global Settlement Fund”). See Dkt. No.
34-2 (“Settlement Agreement”). The Settlement
Agreement provides that the agreed-upon release of liability
encompasses the following:
[A]ny and all claims of any kind whatsoever, whether known or
unknown, whether based on common law, regulations, statute,
or a constitutional provision, under state, federal or local
law, arising out of the allegations made in the Action and
that reasonably arise, or could have arisen, out of the facts
alleged in the Action as to the Class Members, including but
not limited to, claims arising from the procurement of a
consumer report on them by any of the Released Parties, and
any other claims for violations of the Fair Credit Reporting
Act, 15 U.S.C. §1681b, et seq., or related
federal, state, and/or local laws whether willful, or
otherwise, for declaratory relief, statutory damages,
punitive damages, costs, and attorneys' fees.
Dkt. No. 34-2, Section III.17. Additionally, the release
notes that “[n]otwithstanding the foregoing, nothing in
the Settlement releases any claims that cannot be released as
a matter of law.” Id. Although the release
somewhat broadly refers to claims that either arise or could
have arisen out of the facts alleged in this lawsuit
“including but not limited to claims arising from the
procurement of a consumer report” and “any other
claims for violations of the [FCRA], 15 U.S.C. § 1681b,
et seq.” and related laws, the allegations of
Mr. Taafua's complaint are limited to discrete facts
concerning the notice that QGT reportedly provided before
procuring a background check. As such, the release appears to
be properly limited to the factual predicate underlying the
present action. See Hesse v. Sprint Corp., 598 F.3d
581, 590 (9th Cir. 2010) (“A settlement agreement may
preclude a party from bringing a related claim in the future
even though the claim was not presented and might not have
been presentable in the class action, but only where the
released claim is based on the identical factual predicate as
that underlying the claims in the settled class
action.”) (internal quotations omitted).
From
the $125, 902 Global Settlement Fund, the parties anticipate
that $16, 000 will be paid to cover settlement administration
costs. Additionally, Mr. Taafua's attorneys seek an award
of approximately 33.33% of the Global Settlement Fund, or
$41, 967.33, plus $3, 000 in costs, for a total of $44,
967.33. Mr. Taafua also requests a $5, 000 service award.
Dkt. No. 34-2, Section III.
The
remaining $59, 934.67 (“Net Settlement Fund”) is
to be distributed to an estimated class of 1,
041[5]
members as to whom 1, 476 consumer reports were obtained.
Dkt. No. 34-2, Section III.4; Dkt. No. 40 at 2. “The
amount of each individual payment will equal the Net
Settlement Fund divided by the number of consumer reports
obtained for the Settlement Class Members.” Dkt. No.
34-2, Section III.4. The number of reports obtained for each
member may vary, and individual members may be entitled to
more or less money, depending on the number of reports that
were obtained for that individual. Id. Settlement
checks that are not cashed within 180 days of issuance will
be void. Id., Section III.11.
Any
unclaimed portion of the Global Settlement Fund will be given
as a cy pres award to the Education Fund of the
National Association of Consumer Advocates
(“NACA”), identified in the moving papers as a
non-profit organization. Dkt. No. 34 at 4; Dkt. No. 34-2,
Section III.11. In supplemental briefing, the parties further
advise that NACA focuses on consumer rights and that its
activities include “fostering justice for consumers,
promoting consumer legal rights, educating the public about
relevant issues, encouraging communication between consumers,
consumer advocates and consumer attorneys, and engaging in
activities that describe and expose unfair business practices
that harm consumers.” Dkt. No. 40 at 8. NACA thus
appears to meet the test “that there be a driving nexus
between the plaintiff class and the cy pres
beneficiaries.” Dennis v. Kellogg Co., 697
F.3d 858, 865 (9th Cir. 2012) (internal quotations and
citation omitted). Additionally, the parties and their
counsel confirm that they do not have a prior or existing
relationship with NACA. Dkt. No. 40 at 8.
The
Settlement Agreement provides that the Global Settlement Fund
may be increased at QGT's discretion, if (as verified by
the settlement administrator) the number of consumer reports
QGT procured increases more than 5% over the original
estimate of 1, 476. However, the Settlement Agreement also
provides that Mr. Taafua has the option to terminate the
settlement if QGT declines to increase the Global and/or Net
Settlement Fund. Dkt. No. 34-2, Section III.7. Additionally,
if (as verified by the settlement administrator) the number
of putative class members increases more than 5% beyond the
current estimate, then no increase in the Global Settlement
Fund is contemplated.[6] However, QGT agrees to pay for any
resulting increase in the settlement administrative costs.
Id.
After
discussing two potential third party settlement
administrators, and using a bid process, the parties agreed
to use JND Legal Administration (“JND” or
“Settlement Administrator”), which submitted a
lower bid. The procedures JND will use to provide notice to
the class are discussed in more detail below.
Mr.
Taafua now moves for preliminary approval of the settlement.
As noted above, QGT does not oppose the motion. For the
reasons discussed below, although the Court concludes that
Mr. Taafua has standing to pursue this action, he has not
demonstrated that Rule 23 class certification is warranted or
that the proposed settlement is fair, reasonable and
adequate.
II.
LEGAL STANDARD
Court
approval is required for the settlement of Rule 23 class
actions. See Fed. R. Civ. P. 23(e) (“The
claims, issues, or defenses of a certified class-or a class
proposed to be certified for purposes of settlement-may be
settled, voluntarily dismissed, or compromised only with the
court's approval.”). The Ninth Circuit has declared
that a strong judicial policy favors settlement of Rule 23
class actions. Class Plaintiffs v. City of Seattle,
955 F.2d 1268, 1276 (9th Cir. 1992). However, no broad
presumption of fairness applies to such settlements. Roes
v. SFBSC Mgmt., LLC, 944 F.3d 1035, 2019 WL 6721190, at
*10 (9th Cir. 2019). And where the parties reach a settlement
before class certification, courts must “employ[] extra
caution and more rigorous scrutiny, ” id., and
“peruse the proposed compromise to ratify both the
propriety of the certification and the fairness of the
settlement, ” Staton v. Boeing Co., 327 F.3d
938, 952 (9th Cir. 2003). See also In re Bluetooth
Headset Products Liability Litig., 654 F.3d 935, 946
(9th Cir. 2011) (“Prior to formal class certification,
there is an even greater potential for a breach of fiduciary
duty owed the class during settlement. Accordingly, such
agreements must withstand an even higher level of scrutiny
for evidence of collusion or other conflicts of interest than
is ordinarily required under Rule 23(e) before securing the
court's approval as fair.”).
First
the Court must assess whether a class exists.
Staton, 327 F.3d at 952. Second, the Court must
assess whether the proposed settlement is
“fundamentally fair, adequate, and reasonable, ”
considering “the settlement taken as a whole, rather
than the individual component parts, that must be
examined.” Id. (internal quotations and
citation omitted).
III.
DISCUSSION
A.
Standing
Preliminarily,
the Court addresses Mr. Taafua's standing to pursue the
claims asserted in this action.[7] Under Article III of the United
States Constitution, federal courts have jurisdiction to
decide only actual “Cases” or
“Controversies, ” U.S. Const., art. III, §
2, and Mr. Taafua has standing to sue if he “(1)
suffered an injury in fact, (2) that is fairly traceable to
the challenged conduct of the defendant, and (3) that is
likely to be redressed by a favorable judicial
decision.” Spokeo, Inc., 136 S.Ct. at 1547;
see also Lujan v. Defenders of Wildlife, 504 U.S.
555, 560-61 (1992). Mr. Taafua's claimed injury must be
both “particularized” and “concrete.”
A “particularized” injury is one that
“‘affect[s] the plaintiff in a personal and
individual way.'” Spokeo, Inc., 136 S.Ct.
at 1548 (quoting Lujan, 504 U.S. at 560 n.1)). A
“concrete” injury “must actually
exist” and must be “real, and not
abstract.” Id. To assert a
“concrete” injury, a plaintiff cannot simply
“allege a bare procedural violation, divorced from any
concrete harm, and satisfy the injury-in-fact requirement of
Article III.” Id. at 1549.
In the
FCRA context, the Ninth Circuit has noted that “[t]he
disclosure requirement at issue, 15 U.S.C. §
1681b(b)(2)(A)(i), creates a right to information by
requiring prospective employers to inform job applicants that
they intend to procure their consumer reports as part of the
employment application process.” Syed, 853
F.3d at 499. Additionally, “[t]he authorization
requirement, § 1681b(b)(2)(A)(ii), creates a right to
privacy by enabling applicants to withhold permission to
obtain the report from the prospective employer, and a
concrete injury when applicants are deprived of their ability
to meaningfully authorize the credit check.”
Id. “By providing a private cause of action
for violations of Section 1681b(b)(2)(A), Congress has
recognized the harm such violations cause, thereby
articulating a “‘chain[ ] of causation that will
give rise to a case or controversy.'” Id.
(quoting Spokeo, 136 S.Ct. at 1549).
Here,
Mr. Taafua alleges that QGT violated his individual statutory
rights under the FCRA by including an extraneous liability
waiver in its disclosure form; that he was
“confused” by QGT's “standard form
document and did not understand that [QGT] would be
requesting a ‘consumer report' as defined in the
FCRA”; and that QGT proceeded to “obtain[ ] a
consumer report” without a valid authorization. Dkt.
No. 1 ¶¶ 10, 32. These allegations are sufficient
to establish that Mr. Taafua suffered a particularized and
concrete injury giving rise to an Article III case or
controversy. See Syed, 853 F.3d at 499-500
(concluding that the plaintiff's claims were sufficient
to infer that he was deprived of his statutory rights under
the FCRA and was not aware ...