Taafua v. Quantum Global Technologies, LLC

          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 ...