Cellphone Fee Termination Cases affirms class action settlement with several instructive holdings

This initially unpublished opinion in Cellphone Fee Termination Cases (July 27, 2010) follows from a consolidated appeal in one of several coordinated class actions that challenged wireless telephone carriers' practice of charging early termination fees (ETF's) on customers seeking to cancel cellular telephone contracts. The defendant in this particular case is Cellco Partnership (doing business as Verizon Wireless ("Verizon")).  The class action case against Verizon went to a jury trial on June 16, 2008, in the Alameda County Superior Court. On July 8, 2008, after plaintiffs had rested their case and the defense presentation had commenced, the parties announced that they had signed a memorandum of understanding outlining the terms of a settlement. The settlement also encompassed claims of nationwide certified class claimants (excluding California class members) in a proceeding then pending before the American Arbitration Association (AAA), as well as two actions filed in federal district courts.

Objectors challenged the settlement at final approval, contending that the notice of the settlement was inadequate,  that the settlement terms were not fair, reasonable and adequate, and that incentive payments awarded to four named class representatives were improper.  The trial court overruled the objections and approved the settlement.  The objectors appealed, but the Court of Appeal (First Appellate District, Division Five) affirmed.

In an otherwise standard, but lengthy, discussion of appellate review standards, the Court offered some useful holdings:

  • The appellants argued that the statement in the short-form publication notice was misleading in that it gave the impression that members of the Subscriber Class would share in a portion of the $21 million settlement fund.  The Court disagreed:  "That publication notice, however, (as well as the mail notice) directed potential settlement class members to the settlement Web site to learn more about the settlement, and the publication notice specifically referenced the ― detailed notice and claim form package which subscribers would need to submit to ― qualify for a payment."  Slip op., at 11.  Thus, the short form notice need not contain all information about the settlement, so long as it directs class members to a source of full information about the settlement.
  • The appellants also argued that notice was defective in failing to disclose the enormous size of the class to the EFT Assessed Class, asserting that this interfered with an informed decision about whether to participate, object, or opt out.  The Court quickly disposed of that argument: "[Appellant] cites no authority for her position that information as to the size of the potential class, or the contingencies of recovery in any particular amount, is required. Courts which have considered such objections in the context of class settlement have rejected the claim."  Slip op., at 13.
  • The appellants also contended that $10,000 incentive awards to the representatives constituted a breach of their fiduciary duty to the class. Specifically, appellant alleged that "Schroer and White received amounts grossly disproportionate to the average recovery to the ETF Assessed Class", and asserted that "Nguyen and Brown (members of the Subscriber Class) received 'pay-offs to induce them to sell out the Subscriber Class.'" Slip op., at 20. The Court commented: "While there has been scholarly debate about the propriety of individual awards to named plaintiffs, '[i]ncentive awards are fairly typical in class action cases.'"  Slip op., at 20. The Court went on, observing: "There is a surprising dearth of California authority directly addressing this question. The threshold question of whether a class representative is entitled to a fee in a California class action was recently answered in the affirmative in Clark v. American Residential Services LLC (2009) 175 Cal.App.4th 785 (Clark)." Slip op., at 21. After discussing the policies behind incentive awards and the evidence of representatives' efforts in this case, the Court concluded: "In contrast to the more detailed analysis given by the trial court to other aspects of the settlement, the discussion of the incentive awards was sparse. There is no 'presumption of fairness' in review of an incentive fee award. (Clark, supra, 175 Cal.App.4th at p. 806.) The court, however, found the awards justified in light of the total settlement on the 'substantial benefit/common fund approach' and the 'material support' provided by the named plaintiffs to the prosecution of the case. Given the familiarity of the trial court with the history of the lengthy litigation and the evidence before the court that the representatives had, over the course of the litigation, assisted with investigation, responded to discovery requests, reviewed documents and pleadings, and testified either in deposition or at trial, we find no abuse of discretion in these awards. Slip op., at 23.