Posts belonging to Category Settlements

On May 20, 2015, the United States District Court for the Northern District of California granted final approval of a $1.5 million wage-and-hour class action settlement in Barrera v. Home Depot USA, Inc., No. 5:12-cv-5199 (N.D. Cal. May 20, 2015). See Order Granting Final Approval here, Amended Settlement Agreement here. Judge Lucy H. Koh gave her blessing to a revised settlement just over a year after denying preliminary approval of the parties’ original settlement agreement. See Order Denying Preliminary Approval here.

At the core of this case are penalties under California Labor Code § 203, which provides for the continuation of wages for terminated employees for up to 30 days when employers willfully fail to pay timely final wages. The Barrera plaintiffs contend that Home Depot delayed payments of final wages to fired workers between September 2009 and September 2014, in violation of Labor Code § 201. In her May 6, 2014 order denying preliminary approval, Judge Koh observed that, during the class period, Home Depot failed to pay 6,648 fired employees their final wages on the date of termination, as California law requires. Further, only 66% of those 6,648 employees were paid final wages within three days of their terminations, and only 75% of them were paid within seven days. The plaintiffs’ counsel calculated the average hourly wage at $10-13 per hour and the average daily wage rate at $100-$150. The plaintiffs also estimated, based on actual data provided by Home Depot, that Home Depot’s total exposure was $3,573,519. The initial settlement provided for a settlement fund of $1.4 million.

Judge Koh noted two problems with the initial settlement that prevented her from granting preliminary approval. First, although $945,000 of the settlement fund was made available to class members, the funds were to be distributed on a claims-made basis, with a provision obligating Home Depot to pay at least 50% of those funds. Judge Koh ruled that the provision was not fair and adequate to class members because it disincentivized parties from maximizing participation. In fact, because the plaintiffs’ counsel would request 25% of the total settlement fund regardless of the participation rate, the settlement’s structure set the stage for a potential conflict of interests, whereby the plaintiffs’ counsel could bargain with a defendant for a lowered minimum payment obligation in return for a higher settlement fund and—as a result—a higher potential fee award. Judge Koh pointedly ruled that “[s]uch settlement structures may artificially inflate the total settlement fund and render the total settlement fund illusory in order to justify a higher attorney’s fees award.” See Order Denying Preliminary Approval, at 3. Second, the settlement provided for a 60-day claim submission deadline that would not be extended, even if the initial class notice was returned as undeliverable. The court ruled that the provision was “not conducive to maximizing class members’ participation in the settlement.” Id.

On January 15, 2015, the parties moved for final approval of a revised settlement. The revised settlement contained four major changes: (1) it increased the gross settlement amount from $1.4 million to $1.5 million; (2) it eliminated both the claims process and the reversion provision for unclaimed funds (instead designating two cy pres recipients); (3) it extended the time frame to object or opt out from 60 to 90 days; and (4) it provided each class member with an estimate of damages and the formula used to calculate the pro rata payment with the class notice. With these adjustments, the court approved the revised settlement.

The takeaway from the case history is that judges typically look harder at claims-made settlements, and even more so when they contain a relatively low minimum payment provision coupled with a reversion to the defendant. Courts will always be concerned about whether class counsel is truly maximizing the benefit to the class or is merely settling to secure a fee award. To maximize the settlement benefits to the class members, and thereby avoid having preliminary approval denied, the optimal course of action is to negotiate a direct distribution (i.e., no claims process) to the class members with no reversion, as the parties did in their revised settlement. In the alternative, one might provide for a claims-made settlement that includes a high minimum payment amount either with or without a reversion, preferably without. In such cases, those class members who expend the time and effort to submit claim forms will be rewarded with significant benefits from the settlement.

Authored by: 
Andrew Sokolowski, Senior Counsel
CAPSTONE LAW APC

Last month, a Northern District of California judge finally approved an $8.5 million settlement of a class action challenging Google Inc.’s privacy policies. The plaintiffs alleged that Google invaded their and class members’ privacy rights by sharing personal information with third parties without authorization. Specifically, the plaintiffs alleged that Google improperly shared search terms—including credit card numbers, medical information, and other private data—with advertisers and other third parties. See Order Granting Motion for Final Approval, In re Google Referrer Header Privacy Litig., No. 10-4809 (N.D. Cal. March 31, 2015) (available here).

The settlement is notable in that Google is not required to compensate the class members directly. Rather, the company will distribute proceeds to the AARP Foundation, the World Privacy forum, and to four university-based, Internet-related foundations. The court justified its decision by noting that it would be impractical to distribute the settlement fund to the nearly 130 million class members affected by the challenged practices. Under these circumstances, the Court found that the proper approach would be to put the funds to the next best use (i.e., donating them to public interest organizations focusing on privacy issues) under the cy pres doctrine.

The cy pres doctrine provides a solution for cases where the class members are difficult to identify and/or where the individual class member damages are minimal. These cases include consumer class actions, because few class members maintain records of purchases of inexpensive goods, as well as cases where the costs of class settlement administration would exceed class members’ individual recoveries. In such instances, the obvious alternative to the defendant keeping its ill-gotten gains is for the court to award the settlement funds or judgment to non-profit organizations that promote the policies underlying the laws that the defendant violated. With a growing number of class actions brought on behalf of millions of affected class members, such as data breach cases, we expect cy pres awards to become increasingly common.

Authored by: 
Stan Karas, Senior Counsel
CAPSTONE LAW APC

In a Joint Status Report filed on March 17, 2015, with Judge James V. Selna in the Central District of California, the parties informed the court that settlement deals continue to be made at a steady pace in In Re: Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices, and Products Liability Litigation (“In Re: Toyota”). In Re: Toyota, No. 10-2151, Dkt. No. 4932 (C.D. Cal. March 16, 2015) (Joint Status Report, available here).

This multidistrict litigation (“MDL”) is made up of hundreds of individual suits alleging negligence and product liability based on a defect in some Toyota models which caused the vehicles to accelerate suddenly, leading to numerous accidents. Plaintiffs are seeking compensatory and punitive damages for injuries and/or deaths caused by the unintended acceleration. So far, a total of 289 cases have either settled or reached an agreement to settle in principle, including: 132 of 171 cases consolidated in the MDL; 45 of 84 cases consolidated in the Judicial Council Coordinated Proceeding (“JCCP”); and 112 individual cases litigated outside of the consolidated proceedings.

In the Joint Status Report, the parties attribute the efficacy of the litigation to the Intensive Settlement Process (“ISP”), which was confirmed and adopted on January 14, 2014, stating that the “ISP is continuing to make good progress.” Report at 2. Case in point, of the 39 unintended acceleration lawsuits still pending in the MDL, all but four have requested ISP, and of the 39 cases remaining in the JCCP, all but two have requested it.

These settlements come more than five years after Toyota began recalling millions of vehicles for the unintended acceleration defect and more than thirteen months after counsel for Toyota contacted the 300+ plaintiffs’ attorneys to inform them of the proposed settlement process. Since each case is being negotiated separately, the total value of the settlement will not be clear until all of the cases are resolved. In a related class action settlement that won final approval before Judge Selna in July of 2013, Toyota agreed to pay an estimated $1.1 billion to settle a claim that the unintended acceleration defect diminished the value of the class vehicles. The settlement also provided for $200 million in plaintiffs’ attorney fees and up to $27 million in expenses.

In addition to over a billion dollars in legal settlements so far, Toyota was also hit with a $1.2 billion criminal penalty by the United States Department of Justice in March of 2014. U.S. Attorney General Eric Holder described Toyota’s actions as “shameful” and a “blatant disregard” for the law. He went on to warn that “other car companies should not repeat Toyota’s mistake.” U.S. Attorney General Eric Holder, Press Conference at the Department of Justice (March 19, 2014).

Thus, while Toyota may be nearing the end of its civil litigation involving the unintended acceleration defect, the automotive and legal industries will feel its effects for years to come.

Authored by: 
Lucas Rogers, Associate
CAPSTONE LAW APC

The Ninth Circuit’s recent decision in In re Online DVD-Rental Antitrust Litig., 12-15705 (9th Cir. Feb. 27, 2015) (“Online DVD-Rental”), which affirmed an order granting final approval of a class action settlement totaling more than $27 million in cash and gift cards for a class of over 35 million DVD rental subscribers, will likely become one of this circuit’s leading cases in support of common-fund attorneys’ fees and incentive awards (slip opinion available here).

In Online DVD-Rental, the plaintiffs alleged that Defendants Walmart and Netflix violated federal antitrust laws by entering into an anticompetitive agreement under which Netflix would stop selling DVDs and focus instead on DVD rentals, and Walmart would discontinue its own rental service and concentrate on DVD sales. In exchange for a dismissal with prejudice of all claims alleged on behalf of a class of Netflix subscribers, Walmart agreed to pay a total of $27.25 million, inclusive of attorneys’ fees and litigation costs, incentive awards to each of the nine plaintiffs, and administration costs. The balance was to be divided evenly among all class members who submitted claims for payment, with class members having the option to claim their payments either in the form of gift cards or the cash equivalent. Over 1.18 million class members submitted claims (of whom 744,202 requested gift cards), 722 opted out, and 30 objected. The district court overruled all objections, finding that “not one objection was sufficient . . . singular or in the aggregate . . . to preclude [the court] from approving [the] settlement.” Slip op. at 13.

Six objectors appealed the order granting final approval, largely on the grounds that the attorneys’ fees and incentive awards were excessive. With respect to attorneys’ fees, several of the objectors argued that the district court should have characterized the settlement as a “coupon settlement” under the Class Action Fairness Act of 2005 (“CAFA”), which provides in relevant part that the “portion of any attorney’s fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed.” Slip op. at 29-30. The objectors thus argued that the district court erred by calculating the fee award as a percentage (25%) of the overall settlement fund, including the total dollar value of the gift cards, rather than only as a percentage of the gift cards that were actually redeemed.

In rejecting this argument, the Ninth Circuit noted that several district courts have declined to classify gift card settlements as coupon settlements under CAFA. Slip op. at 33-34. Moreover, unlike coupon settlements, which require “class members to hand over more of their own money before they can take advantage of the coupon,” the Walmart gift cards could be spent on any item carried on the “website of [the] giant, low-cost retailer,” and without the need for class members to spend any of their own money, which “gives class members considerably more flexibility than [coupon settlements].” Slip op. at 32-33. The Ninth Circuit also found that the district court did not err in calculating the fee award as a percentage of the total settlement fund:

We have repeatedly held that the reasonableness of attorneys’ fees is not measured by the choice of the denominator . . . Here, the district court concluded that class counsels’ fee request, which applied the 25% benchmark percentage to the entire common fund, was reasonable. Indeed, the court explicitly explained how administrative costs in particular make it possible to distribute a settlement award in a meaningful and significant way. Similarly, notice costs allow class members to learn about a settlement and litigation expenses make the entire action possible.

Slip op. at 37-38 (internal citations and quotations omitted).

The Ninth Circuit also soundly rejected an objector’s argument, based chiefly on Staton v. Boeing Co., 327 F.3d 938 (9th Cir. 2003), that the incentive awards distributed in Online DVD-Rental were so out of proportion to the average class member recovery ($12 per claimant) as to create a conflict of interest between the representatives and the class. Slip op. at 25. In distinguishing the Staton settlement from the Walmart settlement, the Ninth Circuit held that “[i]ncentive payments to class representatives do not, by themselves, create an impermissible conflict between class members and their representatives” and “the $45,000 in incentive awards [divided equally between the 9 named plaintiffs] makes up a mere .17% of the total settlement fund of $27,250,000, which is far less than the 6% of the settlement fund in Staton that went to incentive awards.” Slip op. at 16, 26.

Tellingly, the Ninth Circuit seems to have distanced itself from some of its reasoning in Radcliffe v. Experian Info. Solutions, 715 F.3d 1157 (9th Cir. Cal. 2013), where the Court noted that, “concerns over potential conflicts may be especially pressing where, as here, the proposed service fees greatly exceed the payments to absent class members . . . There is a serious question whether class representatives could be expected to fairly evaluate whether awards ranging from $26 to $750 is a fair settlement value when they would receive $5,000 incentive awards.” Radcliffe at 1165 (internal citations and quotations omitted). But presumably if, as echoed in Amchem Prods. v. Windsor, 521 U.S. 591, 617 (1997), the “policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights,” then surely the ratio between the incentive awards and the average class member recovery should not—in itself—raise “serious question [about] whether class representatives [can] be expected to fairly evaluate” the reasonableness of their settlements. Indeed, if class representative incentive awards are meant to incentivize the filing of class actions that might not otherwise have been brought given the relatively modest individual amounts in controversy, then comparable proportions between class member recoveries and incentive awards are to be expected and tolerated.

Authored by: 
Eduardo Santos, Associate
CAPSTONE LAW APC