United States District Court, N.D. California
NOTICE AND ORDER RE PUTATIVE CLASS ACTIONS AND
FACTORS TO BE EVALUATED FOR ANY PROPOSED CLASS SETTLEMENT AND
PROTOCOL FOR INTERVIEWING PUTATIVE CLASS MEMBERS
WILLIAM ALSUP UNITED STATES DISTRICT JUDGE.
For the
settlement guidance of counsel, please review the
Procedural Guidance for Class Action Settlements,
which is available on the website for the United States
District Court for the Northern District of California at
www.cand.uscourts.gov/ClassActionSettlementGuidance.
In addition, counsel should review the following substantive
and timing factors that Judge William Alsup will consider in
determining whether to grant preliminary and/or final
approval to a proposed class settlement. Many of these
factors have already been set forth in In re Bluetooth
Headset Products Liability Litigation, 654 F.3d 935,
946-47 (9th Cir. 2011). Counsel will please see from the
foregoing that the main focus will be on what is in the best
interest of absent class members. For an example of an order
denying proposed preliminary approval based on many of these
considerations, see Kakani v. Oracle Corp., No. C
06-06493 WHA, 2007 WL 1793774 (N.D. Cal. June 19, 2007).
1.
Adequacy of Representation.
Anyone
seeking to represent a class, including a settlement class,
must affirmatively meet the Rule 23 standards, including
adequacy. It will not be enough for a defendant to stipulate
to adequacy of the class representation (because a defendant
cannot speak for absent class members). An affirmative
showing of adequacy must be made in a sworn record. Also to
be disclosed in a sworn record are any possible shortcomings
in a plaintiff's resume, such as a conflict of interest,
a criminal conviction, a prior history of litigiousness, a
prior history with counsel, and/or a prior history of filing
putative class actions only to extract an individual
settlement with a premium for dismissing the case. Adequacy
of counsel is not a substitute for adequacy of the
representative.
2.
Due Diligence.
When
anyone undertakes to act as a fiduciary on behalf of others
(here, the absent class members), one must perform adequate
due diligence before compromising their claims. This requires
the representative and his or her counsel to investigate the
actual strengths and weaknesses of the case, including
determining the best-case dollar amount of claim relief. This
usually requires discovery. A quick deal up front may save
counsel money yet be unfair to absent class members.
3.
Cost-Benefit for Absent Class Members.
If the
settlement will provide a full recovery, then much less will
be required to justify the settlement than for a partial
recovery, in which case the discount will have to be
justified. The greater the discount, the greater must be the
justification. This will require an analysis of the specific
proof, such as a synopsis of any conflicting evidence on key
fact points. It will also require a final class-wide damage
study or a very good substitute, in sworn form. If little
discovery has been done to see how strong the claim is, it
will be hard to justify a substantial discount on the mere
generalized theory of “risks of litigation.” If
defendant is broke or nearly so with no prospect of future
rehabilitation, a steeper discount may be warranted. This
must be proven. Counsel should normally verify a claim of
poverty via a sworn record. A coupon settlement will rarely
be approved. Where there are various subgroups within the
class, counsel must also justify the plan of allocation of
the settlement fund.
4.
The Release.
The
proposed release should be limited only to the claims
certified for class treatment. A recurring problem, for
example, is a class complaint for only rest- and meal-breaks
which the defendant seeks to convert to a blanket class-wide
release of all California Labor Code violations, including
overtime, usually accompanied by a stipulation for
plaintiff's counsel to receive a large fee. Language
releasing claims that “could have been brought”
is too vague and overbroad. The specific statutory or common
law claims to be released should be spelled out. Class
counsel must justify the release as to each claim released,
the probability of winning, and its estimated value if fully
successful.
In
litigation, defendants usually oppose class certification
and/or argue for a narrow class. In settling, however,
defendants often seek to expand the class, either
geographically (i.e., nationwide) or claim-wise
(including claims not even in the complaint) or person-wise
(e.g., multiple new categories). Such expansions
will be viewed with suspicion. If an expansion is to occur it
must come with an adequate plaintiff and one with standing to
represent the add-on scope and with an amended complaint to
include the new claims, not to mention due diligence as to
the expanded scope. The settlement dollars must be sufficient
to cover the old scope plus the new scope.
5.
Reversion.
A
proposed class settlement that allows for a reversion of
settlement funds to defendant(s) is a red flag, for it runs
the risk of an illusory settlement, especially when combined
with a requirement to submit claims that may lead to a
shortfall in claim submissions.
6.
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