In DeSaulles v. Community Hospital of the Monterey Peninsula, the California Supreme Court explains what "prevailing party" means

You thought you could figure this one out all by yourself, right?  You can read Code of Civil Procedure section 1032.  It's written in English (sort of). You know what a "prevailing party" is without some Supreme Court telling you what it means.  But this is law, and when we are talking about the law, you can guarantee that somebody figures out how to find that exception that threads the needle.  Thus, we have DeSaulles v. Community Hospital of the Monterey Peninsula (March 10, 2016), in which the Supreme Court had to determine whether a plaintiff who voluntarily dismisses an action after obtaining a monetary settlement on a few of the claims remaining in the case is the "prevailing party" for purposes of section 1032.

The Court of Appeal held that the plaintiff was a prevailing party because he received a net monetary recovery as consideration for his dismissal.  In so holding, the Court of Appeal disapproved of Chinn v. KMR Property Management, 166 Cal. App. 4th 17 (2008), which held that settlements were not net monetary recoveries. The Supreme Court affirmed.  In affirming, the Supreme Court also did everyone a favor by saying that the presumption of section 1032 could be altered by agreement of the settling parties.  Regardless, it's a good thing the Supreme Court held as it did; given the sorry state of our court funding, we don't need more issues complicating settlement discussions.
 

Percentage of the fund is still an approved method of awarding fees in California class actions

Funny timing on this one.  In Episode 14 of the Class Re-Action podcast, our discussion turned at one point to fee awards in class actions.  We briefly mentioned Laffitte v. Robert Half International, Inc. (November 21, 2014), but didn't dive under the hood.  But now that I've had a chance to read it, I see that a postscript to the podcast is in order.  In Laffitte, the Court of Appeal (Second Appellate District, Division Seven) considered an appeal by an objector to a class action settlement.  One issue the Court touched on was the propriety of using a percentage of the fund to award fees (with a lodestar crosscheck), rather than the currently trendy approach of using lodestar with a percentage crosscheck.  Here's a rundown of the Court's opinion.

The plaintiff settled a class action lawsuit against a group of defendants related to Robert Half International Inc. for $19 million.  The trial court granted the parties’ ex parte application for an order amending the settlement agreement, class notice, and claim form. Among other things, the amended settlement agreement said that Robert Half would pay a gross settlement amount of $19,000,000. Subject to court approval, the settlement agreement listed the following payments would be made from the gross settlement amount: class counsel attorneys’ fees of not more than $6,333,333.33 (one third of the gross settlement amount) and costs not to exceed counsel’s actual costs, class representative payments not to exceed $80,000, settlement administrator fees not to exceed $79,000, civil penalties owed to the California Labor and Workforce Development Agency, and applicable payroll taxes on the employees’ recovery.

In support of their motion for attorneys’ fees, class counsel submitted declarations from the attorneys in each of the three law firms serving as class counsel. The attorneys did not submit detailed time records. The declarations stated that class counsel worked a total of 4,263.5 hours on the case (and anticipated working 200 hours on the appeal) and, using the hourly rate for each attorney, calculated that the total lodestar amount was $2,968,620 ($3,118,620 including the appeal). Class counsel requested a lodestar multiplier of between 2.03 to 2.13 for a total requested attorneys’ fee award of $6,333,333.33.

David Brennan, a member of the class, objected to the settlement and the amount awarded in attorney’s fees. The trial court overruled his objections and approved the settlement, which included an award of attorneys’ fees to class counsel of one-third of the settlement, or approximately $6.3 million. Brennan appealed from the order approving the settlement and entering final judgment, challenging both the class action settlement notice regarding the award of attorneys’ fees and the amount of attorneys’ fees awarded. Laffitte asked that the Court affirm the trial court’s order. The Robert Half defendants had no strong position on the appropriate amount of fees, but asked that the Court affirm the order “in order to bring this lawsuit to closure.”

The Court began its discussion of the challenge to attorney’s fees by observing that the Notice stated the maximum amount of fees that would be sought by class counsel:

The class notice describing the preliminarily-approved settlement included the proposed attorneys’ fees award for class counsel, a schedule for final approval, and the procedure for making objections. The notice stated: “Class Counsel, consisting of Law Offices of Kevin T. Barnes, Law Office of Joseph Antonelli, and Appell | Hilaire | Benardo LLP, will seek approval from the Court for the payment in an amount not more than $6,333,333.33 for their attorneys’ fees in connection with their work in the Actions, and an amount not more than $200,000 in reimbursement of their actual litigation expenses that were advanced in connection with the Actions. Class Counsel’s attorneys’ fees and litigation expenses as approved by the Court will be paid out of the Gross Settlement Amount.”

Slip op., at 10.  The Court then considered and rejected the argument that the motion for an award of fees should be available to the class members before the deadline to object expires, as Fed. R. Civ. P. 23 requires, as interpreted by the Ninth Circuit decision, In re Mercury Interactive Corp. Securities Litigation, 618 F.3d 988 (9th Cir. 2010):  “Rule 23 does not control in California. ‘As a general rule, California courts are not bound by the federal rules of procedure but may look to them and to the federal cases interpreting them for guidance or where California precedent is lacking. [Citations.] California courts have never adopted Rule 23 as “a procedural strait jacket. To the contrary, trial courts [are] urged to exercise pragmatism and flexibility in dealing with class actions.” [Citations.]’ ”  Slip op., at 11-12.  Instead, the Court said that California had adequate rules for notice:

California precedent and authority governing court approval of class action settlements and attorneys’ fees applications, however, are not lacking. Rule 3.769 of the California Rules of Court states the procedure for including an attorneys’ fees provision in a class action settlement agreement and for giving notice of the final approval hearing on the proposed settlement. Under rule 3.769(b) of the California Rules of Court, “[a]ny agreement, express or implied, that has been entered into with respect to the payment of attorney’s fees or the submission of an application for the approval of attorney’s fees must be set forth in full in any application for approval of the dismissal or settlement of an action that has been certified as a class action.”

Slip op., at 12.  The Court concluded that the notice given complied with Rule 3.769:

The notice given to the class members complied with California Rules of Court rule 3.769 by apprising them of the agreement concerning attorneys’ fees. The notice told the class members that class counsel could receive up to $6.3 million in attorneys’ fees. The notice also advised the class members of the procedures for objecting to the proposed settlement and appearing at the settlement hearing, where they could present their objections to any aspect of the settlement, including the amount of attorneys’ fees to be awarded to class counsel.

Slip op., at 13.  Positive number one from this opinion: no need to copy the approach of In re Mercury Interactive.

Next, the Court looked at the reasonableness of the fee award, noting discussion first the lodestar method of calculation:

In Lealao v. Beneficial California, Inc., supra, 82 Cal.App.4th 19 the court stated that “[t]he primacy of the lodestar method in California was established in 1977 in Serrano [v. Priest (1977)] 20 Cal.3d 25. . . . [O]ur Supreme Court declared: ‘“The starting point of every fee award . . . must be a calculation of the attorney’s services in terms of the time he has expended on the case.”’” (Id. at p. 26.) The court added that “[i]n so-called fee shifting cases, in which the responsibility to pay attorney fees is statutorily or otherwise transferred from the prevailing plaintiff or class to the defendant, the primary method for establishing the amount of ‘reasonable’ attorney fees is the lodestar method. The lodestar (or touchstone) is produced by multiplying the number of hours reasonably expended by counsel by a reasonable hourly rate. Once the court has fixed the lodestar, it may increase or decrease that amount by applying a positive or negative ‘multiplier’ to take into account a variety of other factors, including the quality of the representation, the novelty and complexity of the issues, the results obtained, and the contingent risk presented. [Citation.]”

Slip op., at 16-17.   The Court then noted that percentage of the fund remains a viable method of awarding fees in common fund cases:

Subsequent judicial opinions have made it clear that a percentage fee award in a common fund case “may still be done.” For example, in Chavez v. Netflix, Inc. (2008) 162 Cal.App.4th 43 the court stated that “the Lealao court did not purport to mandate the use of one particular formula in class action cases. The method the trial court used here and that [was] discussed in Lealao are merely different ways of using the same data—the amount of the proposed award and the monetized value of the class benefits—to accomplish the same purpose: to cross-check the fee award against an estimate of what the market would pay for comparable litigation services rendered pursuant to a fee agreement. [Citation.]” (Id. at p. 65.) Therefore, “fees based on a percentage of the benefits are in fact appropriate in large class actions when the benefit per class member is relatively low . . . .” (Id. at p. 63.)

Slip op., at 18.  In this matter, the Court held proper the trial court’s use of a percentage of the fund method with a lodestar crosscheck:

The trial court did not use the percentage of fund method exclusively to determine whether the amount of attorneys’ fees requested was reasonable and appropriate. The trial court also performed a lodestar calculation to cross-check the reasonableness of the percentage of fund award. This was entirely proper. “[A]lthough attorney fees awarded under the common fund doctrine are based on a ‘percentage-of-the-benefit’ analysis, while those under a fee-shifting statute are determined using the lodestar method, ‘[t]he ultimate goal . . . is the award of a “reasonable” fee to compensate counsel for their efforts, irrespective of the method of calculation.’ [Citations.]” (Apple Computer, Inc. v. Superior Court (2005) 126 Cal.App.4th 1253, 1270.) It therefore is appropriate for the trial court to cross-check an award of attorneys’ fees calculated by one method against an award calculated by the other method in order to confirm whether the award is reasonable.

Slip op., at 19-20.  Positive number two from this opinion: focusing on the percentage of the fund is still appropriate (courts claiming otherwise are misrepresenting the authority out there, though it probably doesn't matter, since what this really points out is that any rational method for evaluating the fee against the benefit conferred).  The Court added to the beneficial discussion by holding that detailed time records are not required:

Brennan argues that, in connection with the court’s lodestar calculations, class counsel did not submit detailed attorney time records. Such detailed time records, however, are not required. “It is well established that ‘California courts do not require detailed time records, and trial courts have discretion to award fees based on declarations of counsel describing the work they have done and the court’s own view of the number of hours reasonably spent.

Slip op., at 20.  That's right - more confirmation that there is no requirement to maintain detailed time records.  Positive number three.  The Court then soundly rejected the objector’s challenge to the application of a multiplier to compare the percentage of the fund award to the lodestar.  Finally, the Court concluded that the “clear sailing” provision in the settlement agreement was not improper in general:

“While it is true that the propriety of ‘clear sailing’ attorney fee agreements has been debated in scholarly circles [citations], commentators have also noted that class action ‘settlement agreement[s] typically include[] a “clear sailing” clause . . . .’ [Citation.] In fact, commentators have agreed that such an agreement is proper. ‘[A]n agreement by the defendant to pay such sum of reasonable fees as may be awarded by the court, and agreeing also not to object to a fee award up to a certain sum, is probably still a proper and ethical practice. This practice serves to facilitate settlements and avoids a conflict, and yet it gives the defendant a predictable measure of exposure of total monetary liability for the judgment and fees in a case. To the extent it facilitates completion of settlements, this practice should not be discouraged.’ [Citation.]” (Consumer Privacy Cases, supra, 175 Cal.App.4th at p. 553, fn. omitted; see Cellphone Termination Fee Cases (2009) 180 Cal.App.4th 1110, 1120 [“[c]lass action settlements frequently contain a ‘clear sailing’ agreement, whereby the defendant agrees not to object to an attorney fee award up to a certain amount”].)

Slip op. at 24-25.  The Court then concluded that there was no reason to find the “clear sailing” provision suspect in this matter.  The trial court was affirmed and costs were awarded to the plaintiff and defendants, indicating the Court’s view of the lack of merit in the appeal.

Luckey v. Superior Court says no to temporary judges for class settlement approval

In Luckey v. Superior Court (July 22, 2014), the Court of Appeal (Second Appellate District, Division Three), the Court considered a writ following the denial of a stipulation to utilize a temporary judge to handle a class settlement approval.  Plaintiff filed a putative class action alleging violation of FACTA arising from printing “more than the last 5 digits of the card number or the expiration date” on an electronically printed receipt provided to the cardholder at the point of the transaction. (15 U.S.C. § 1681c(g).) The operative complaint alleged causes of action for violation of FACTA, negligence, and declaratory relief.  Plaintiff defined the putative class as “All individuals who purchased merchandise using a personal credit card or personal debit card at any retail store operated by Defendant within the United States during the Class Period2 who: [¶] Subclass A: Were issued an electronically printed receipt that reflected more than the last five digits of the card; and/or [¶] Subclass B: Were issued an electronically printed receipt that reflected the card's expiration date....” Plaintiff sought, on behalf of the class, damages of between $100 and $1000 for each receipt which violated FACTA (with separate damages for each violation), punitive damages, and reasonable attorney fees. Plaintiff also sought an order declaring that Cotton On's credit and debit card receipt practices violate FACTA and an order enjoining Cotton On from continuing to do so.  No responsive pleading was filed. The only other documents filed in this case consisted of stipulations for continuance of the initial status conference, and the stipulation for appointment of a temporary judge which is at issue in this writ proceeding. Plaintiff represented that, from the time the complaint was filed, the parties engaged in “informal discovery and exchanged information” in preparation for a mediation.

The mediation was held before a retired superior court judge. A class action settlement was reached at the mediation, and memorialized in a written settlement agreement. It is a class settlement, defining the settlement class as “all individuals who purchased merchandise using a personal credit card or personal debit card at any retail store operated by Cotton On within the United States since May 9, 2008, who were issued an electronically printed receipt that reflected more than the last five digits of the card and/or were issued an electronically printed receipt that reflected the card's expiration date.” It excludes persons who validly opt out of the class.

Under the terms of the settlement, the class was to receive compensation in the form of “Merchandise Credits,” which was really a $5 credit on any transaction at or exceeding $25 at one of Cotton On's retail stores, during one pre-selected week. Notice was to be provided to the class by means of e-mail notice to be provided “to all [Cotton On]'s customers in the United States for whom [Cotton On] possesses a valid e-mail address.” Notice would also be given on Cotton On's website and near each of its retail stores' cash registers.

Cotton On agreed to fund the settlement in the amount of $1,000,000. Of that amount, the parties agreed that Luckey's counsel could seek an award of attorney's fees and costs in an amount of $302,000. The parties also agreed that Luckey himself could receive a payment of $5,000 as class representative, and that $135,000 would be allocated to the administrative costs of the settlement.

In sum the settlement provided as for: (1) $5,000 paid to Luckey (whereas each class member would receive, at most, a merchandise credit for one one-thousandth of that amount); (2) $302,000 paid to Luckey's counsel (for work which, to that point, consisted of filing a complaint and amended complaint, and preparing for and attending a one-day mediation); and (3) a one-week $5 off $25 sale, of which Cotton On would send notice to its e-mail customer list.

Pursuant to the settlement agreement, the parties stipulated for appointment of a temporary judge to hear the matter “until final determination thereof.” Specifically, the parties intended to submit to the temporary judge the issues related to preliminary and final approval of the class action settlement. The same retired judge who had served as the mediator in this matter was identified by the parties as the proposed temporary judge. The temporary judge would be privately compensated by the parties.

The stipulation was presented to the Supervising Judge of the Civil Division, as required by the Superior Court of Los Angeles County, Local Rules, rule 2.24(a)(1). On June 2, 2014, the court issued a minute order declining to approve the stipulation. The court's analysis explained that, although plaintiff’s counsel could stipulate to the appointment of the temporary judge on behalf of the plaintiff, the “submitted papers do not demonstrate that the named plaintiffs or the attorneys are authorized to speak for all class members.” Without the stipulation of all putative class members, the case could not be transferred to a temporary judge.  The plaintiff filed a petition for a writ to compel appointment of the temporary judge. The Court of Appeal issued an Order to Show cause.

In responding to the Court of Appeal, the plaintiff challenged the Superior Court’s standing to oppose the writ petition:

In this case, Luckey suggests that the Superior Court lacked standing to oppose his writ petition because the Superior Court “has presented no evidence that the issues presented impact the operations or procedures of the Court or that the decision will impose any financial obligations on the court's operations.” The argument is puzzling given the arguments Luckey makes in support of his petition. First, Luckey argues that he is, in fact, challenging a procedure of the court, not merely an isolated ruling. Luckey represents that the Superior Court previously “routinely issued orders appointing temporary judges to preside over class action matters,” but, “in or around November 2013,” the court “stopped” approving those stipulations and began denying them. Second, Luckey argues at length, although without evidentiary basis, that the court's financial obligations are, in fact, at issue. Luckey argues that lengthy delays are now the reality in class action litigation, and that parties should be permitted to avoid these delays by the use of temporary judges—a procedure which, according to Luckey, would “alleviate[ ] space for other litigants” at Superior Court. Indeed, Luckey represents that the Superior Court previously appointed temporary judges to serve in class action matters “in part[ ] due to congested and backlogged dockets.” As the Superior Court's procedures and financial obligations are at issue, the Superior Court has a right to appear.

Slip op., at 15-16.  The Court then examined whether the trial court erred when it denied the stipulation of the parties to use a “temporary judge” to decide the fairness of the class settlement.  The Court began by examining the complex question of whether absent putative class members are “parties” for purposes of the stipulation at issue.  The Court concluded they were not:

[W]hile Luckey and Cotton On were the only “parties litigant” at the time of the stipulation to the temporary judge, they were also the only parties who could be bound by such a stipulation.  As the conceded purpose of the stipulation was to bind all putative class members to the stipulation, and they could not be bound until they had been given notice and an opportunity to appear, the stipulation was ineffective.  The state Constitution provides that, for a stipulation to a temporary judge to be effective, that stipulation must be made by the parties litigant.  In a pre-certification class action, the parties litigant have not yet been identified; thus, no such stipulation can be effectively made.

Slip op., at 22-23.  Next, the Court concluded that the Rules of Court directed the same conclusion, because of the right of objectors to intervene:

Our consideration of the applicable rules of court leads us to the same conclusion. California Rules of Court, rule 2.835(b) governs requests to intervene in matters pending before temporary judges. It states, in pertinent part, “A motion for leave to file a complaint for intervention in a case pending before a temporary judge requested by the parties must be filed with the court and served on all parties and the temporary judge. The motion must be heard by the trial court judge to whom the case is assigned or, if the case has not been assigned, by the presiding judge or his or her designee. If intervention is allowed, the case must be returned to the trial court docket unless all parties stipulate ... to proceed before the temporary judge.” In other words, when a party seeks to intervene in a matter pending before a temporary judge, that party's right to intervene must be determined by the trial court, not the temporary judge. Furthermore, if intervention is permitted, the case must be returned to trial court unless the intervenor also agrees to the temporary judge.

Slip op., at 23-24.  Finally, the Court observed that public policy concerns weighed against the procedure advocated by the petitioner, having earlier observed: “A class member objecting to the settlement as unfair will certainly believe he or she is facing an uphill battle in convincing the temporary judge of the merits of the objection; the temporary judge clearly believed in the propriety of the settlement when acting as a mediator.  This could well raise a question of an appearance of impropriety.”

Ted Frank sure loves all class actions...

I just haven't found an instance yet where he actually commended the outcome of one.  But I'm looking.  Still looking...

I was going to link to a very recent example of his affection for a particular class action settlement by directing reader to a post on the blog he edits for publisher Center for Legal Policy at the Manhattan Institute.  However, his post is, arguably, defamatory and/or slander per se.  If I link to it, I could, theoretically, be construed as a republisher.  So, my apologies; I can't supply authority to support my sarcasm.

Update on 2012-08-15 17:07 by The Complex Litigator

Mr. Frank was kind enough to respond in the comments section!  I'm very excited.  Mr. Frank is something of a celebrity in the world of class actions.  I consider myself honored.

As an aside, due to the increasing volume of comment spam (things like shoe ads and mortgage refinance options), commenting on this blog goes into a hold queue until I can release the comment.  I will approve any substative comment that is not spam, even if it is highly critical of my post.  I will not approve profanity, spam, or any comment that advocated any unlawful or violent activity.  I will not respond to specific requests for legal advice about a specific fact pattern.  If a practitioner wants to debate a theoretical fact pattern as a way of testing a case holding or proposed alternative holding, that is entirely acceptable, but the theoretical nature of the discussion needs to be clearly stated.

An objector has no standing to challenge a class action fee award where he has no financial interest in the award and fails to show harm as a result of the award

In Glasser v. Volkswagon of American, Inc. (9th Cir. May 17, 2011), the Ninth Circuit considered objector-appellant David Murray's contention that the district court erred when it awarded attorneys’ fees and costs to plaintiff-appellee Jacob Glasser.  Glasser challenged the inadequacy of disclosures by Volkswagon about the limited availability of "smart keys" for certain Audi and Volkswagon vehicles.  Soon after the case was filed, the parties initiated settlement discussions.  As part of those discussions, Glasser evidently learned that replacement key technology was available through independent dealers and agreed that Volkswagon had not fixed the price of replacement keys.  Volkswagon agreed to make additional disclosures about "smart keys," but no monetary benefit was obtained for the class.

The trial court approved a settlement in which the class was notified of the agreement to make new disclosures and Volkswagon's agreement to either pay an agreed-upon amount of attorney's fees or let the trial court decide fees if the parties did not reach agreement on that issue.  Murry filed an objection to the settlement.  The district court awarded plaintiff attorney's fees in the amount of $417,663.75, costs and expenses in the amount of $16,614.40, and an incentive award to Glasser in the amount of $2,500.

The Court began with a discussion of Article III standing.  The Court observed that fees paid from common funds confer standing on objectors because the fees reduce the fund:

When attorneys’ fees are paid out of a common fund, from which both the class recovery and the fee award are paid, a class member who participates in the settlement generally has standing to challenge the fee award because any reduction in the fee award results in an increase to the class recovery.

Slip op., at 6356.  But the Court then concluded that Murray failed to satisfy his obligation to establish Article III standing:

Murray does not contend that Plaintiff’s counsel colluded with VW to orchestrate an excessively high fee award in exchange for an unfair settlement for the class. Had he alleged as much, he may have been able to meet the requirements of Article III standing under a “constructive common fund theory.” See Lobatz, 222 F.3d at 1147. However, Murray has expressly disclaimed recovery under a “constructive common fund” theory. Instead, he argues Plaintiff’s claims were entirely meritless from the beginning of the lawsuit. Further, he claims only that an excess fee award will cause VW to pass along the cost to its shareholders and customers, and that he may somehow benefit as a consumer from any savings that may result from the denial or reduction of the award.

Slip op., at 6537.  The appeal was then dismissed for lack of standing.  Oops.  I suppose an assertion of a "constructive common fund" theory will become the new standard refrain for objectors, particularly in consumer class actions.

Order from In re Wal-Mart Stores, Inc. Wage and Hour Litigation highlights need to support incentive award requests with detailed facts when the requested award is substantial

Untited States District Court Judge Saundra B. Armstrong (Northern District of California) granted in part and denied in part the unopposed motion of plaintiffs for an award of incentive payments and attorney's fees.  In re Wal-Mart Stores, Inc. Wage and Hour Litigation, 2011 WL 31266 (N.D.Cal. Jan. 05, 2011).  Counsel requested 33.3% of the maximum settlement amount of $86 million.  The Court agreed that a departure from the 25% benchmark in the Ninth Circuit was appropriate but not to that degree.  The Court awarded a fee equal to 27% of the maximum settlement amount.

On the requested enhancement awards, the Court said:

Upon review of the record in this case, the Court finds that Plaintiffs are entitled to a reasonable incentive payment. However, the Court finds the requested award of $25,000 per named Plaintiff to be excessive, in view of the nature of their assistance in this case.  First, the Court notes that the named Plaintiffs have not indicated in their declarations the total number of hours they spent on this litigation. Rather, they generally explain that they were deposed, responded to written discovery, and assisted and met with counsel. Second, in arguing that $25,000 is an appropriate award, Plaintiffs cite to cases that are clearly distinguishable. For instance, in Brotherton v. Cleveland, 141 F.Supp.2d 907 (S.D.Ohio 2001), the court awarded $50,000 to a single named plaintiff, finding that “she has spent approximately 800 hours working on this litigation.” Id. at 914. By contrast, here, there is no evidence that the named Plaintiffs' involvement reached anywhere near this level.

Slip op., at 4.  The Court awarded $5,000 to each plaintiff.

Munoz v. BCI Coca-Cola Bottling Company of Los Angeles (Greenwell, objector) provides much-needed words of restraint concerning Kullar

Since Kullar v. Foot Locker Retail, Inc., 168 Cal. App. 4th 116 (2008) (Kullar) and Clark v. American Residential Services LLC, 175 Cal. App. 4th 785 (2009) (Clark) were decided, trial courts and settling parties in class actions have been looking over their shoulder at every settlement, concerned about the amount of information necessary to meet the Kullar/Clark standard for adequate settlement review.  For example, the Los Angeles Superior Court appears to be utilizing some form of checklist derived, in part, from Kullar to analyze proposed class action settlements.  Fortunately, in Munoz v. BCI Coca-Cola Bottling Company of Los Angeles (ord. pub. July 2, 2010) (Greenwell, objector), the Court of Appeal (Second Appellate District, Division Eight) explains that much of the angst over Kullar/Clark is overblown because their requirements have been overstated and/or misconstrued.

Plaintiffs in Munoz filed a class action lawsuit against BCI Coca-Cola Bottling Company of Los Angeles (BCI), alleging unpaid overtime wages, missed meal and rest period wages, and other Labor Code violations and unfair business practices. The proposed class consisted of production supervisors and merchandising supervisors who were allegedly misclassified as exempt.  After mediation, the parties agreed to settle the matter for $1.1 million. Notice of the proposed settlement elicited one objection. Two of the 188 class members opted out.  The average net payment to each class member would be about $4,300. The trial court found the settlement fair and reasonable. The objector, Greenwell, appealed, arguing that the trial court abused its discretion in approving the settlement, principally because the parties did not provide the court with the information necessary to make a finding that the settlement was reasonable and fair.

The Court of Appeal summarized the obligation of a trial court evaluating a class action settlement:

Some cases state that a presumption of fairness exists “where: (1) the settlement is reached through arm's-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small.” (Dunk, supra, 48 Cal.App.4th at p. 1802.) Kullar emphasizes that this is only an initial presumption; a trial court's approval of a class action settlement will be vacated if the court “is not provided with basic information about the nature and magnitude of the claims in question and the basis for concluding that the consideration being paid for the release of those claims represents a reasonable compromise.” (Kullar, supra, 168 Cal.App.4th at pp. 130, 133.) In short, the trial court may not determine the adequacy of a class action settlement “without independently satisfying itself that the consideration being received for the release of the class members' claims is reasonable in light of the strengths and weaknesses of the claims and the risks of the particular litigation.” (Id. at p. 129.)

Slip op., at 10.  However, after explaining that the objector complained "that the record before the trial court contained no evidence of 'the potential value of the claims,'" the Court went on to explain that Kullar is misunderstood:

Greenwell misunderstands Kullar, apparently interpreting it to require the record in all cases to contain evidence in the form of an explicit statement of the maximum amount the plaintiff class could recover if it prevailed on all its claims--a number which appears nowhere in the record of this case. But Kullar does not, as Greenwell claims, require any such explicit statement of value; it requires a record which allows “an understanding of the amount that is in controversy and the realistic range of outcomes of the litigation.”

Slip op., at 11.  Continuing, the Court noted, "Indeed, the standard list of factors a trial court should consider in determining whether a settlement is fair and reasonable does not expressly include specification of the maximum amount of recoverable damages (see Kullar, supra, 168 Cal.App.4th at p. 128), and Kullar is clear that the most important factor '"'is the strength of the case for plaintiffs on the merits, balanced against the amount offered in settlement.'"' (Id. at p. 130.)"  Slip op., at 11, n. 6.

The Court itemized the information available to the trial court in the case before it:

The information before the court included the size of the class (188) and the payroll data on all class members during the class period (including total amounts of salaries paid during the class period). It also included declarations from 30 class members (15 percent of the class) indicating the number of hours worked per week and per day (and the significant differences in those numbers): e.g., 70 hours per week, 48 hours per week, 60 hours per week, 42-44 hours per week, 55 hours per week, “no more than 50 hours per week,” 45 hours per week in winter and 50-60 hours per week at other times of the year, eight to nine hours per day, 45 hours per week, and so on. These declarations also showed significant variations....

Slip op., at 11.  In other words, the trial court had more than enough information to evaluate the "strength of the case" and compare that to the amount offered in settlement.

As an additional measure of assistance, the Court highlighted the facts from Kullar and Clark that undermined those settlements:

As a final observation on this topic, we note that the evidentiary records in Kullar and Clark, upon which Greenwell relies so heavily, are significantly different from this case. In Kullar (which did not involve the misclassification of exempt employees), there was no discovery at all on meal period claims that were added in an amended complaint and were the focal point of the objections to the settlement. (Kullar, supra, 168 Cal.App.4th at pp. 121-122.) While Kullar class counsel argued that the relevant information had been exchanged informally and during mediation (id. at p. 126), nothing was presented to the court--no discovery, no declarations, no time records, no payroll data, nothing (id. at pp. 128-129, 132)--to allow the court to evaluate the claim. And in Clark, the problem was that the trial court was not given sufficient information on a core legal issue affecting the strength of the plaintiffs' case on the merits, and therefore could not assess the reasonableness of the settlement terms. (Clark, supra, 175 Cal.App.4th at p. 798.) The record in this case contains neither of the flaws that doomed the Kullar and Clark settlements.

Slip op, at 13.

Munoz v. BCI clearly holds that there is no obligation on parties seeking approval of a class action settlement to state a specific sum that would represent the maximum possible recovery if the class prevailed on all theories.  Rather, the Court must have information that permits it to evaluate the strength of the claims compared to the amount offered in settlement.  This showing ought to be satisfied by a discussion of the specific risk factors associated with the various theories, along with data about such things as the size of the class.  In other words, if a trial court can roughly approximate the magnitude of the claims and the likelihood of recovery, it can fashion the necessary metric.

In addressing other arguments, the Court rejected a challenge to the $5,000 incentive awards approved by the trial court.

Ninth Circuit holds that a class representative can voluntarily settle individual claims but retain a personal stake sufficient to appeal the denial of class certification

In the last few years, California Courts of Appeal have examined the question of whether an putative class representative can voluntarily settle individual claims while "agreeing" with the defendant that the plaintiff would retain a right to appeal the denial of class certification.  That examination hasn't gone well for plaintiffs:  "The parties' intent cannot compel this court to issue an advisory opinion on issues in which, after the settlement, Larner no longer retains any individual, personal stake."  Larner v. Los Angeles Doctors Hospital Associates, LP, 168 Cal. App. 4th 1291, 1298 (2008).  However, the Larner Court suggested that, had Larner "reserved any right to shift attorney fees to other class members," she might have retained an interest in the litigation sufficient to support her right to appeal.  Larner, at 1304.

After Larner, the trend continued, and with increasing momentum against plaintiffs.  Watkins v. Wachovia Corp., 172 Cal. App. 4th 1576 (2009) actually criticized Larner: "We believe that it is illogical to import the law governing 'pick off' cases into the context of a voluntary settlement."  Watkins, at 1591.  Watkins bluntly declared, "There are no public policy interests implicated by a settlement voluntarily accepted."  Watkins, at 1591.

The Ninth Circuit had occasion to examine this same issue.  In Narouz v. Charter Communications (9th Cir. Jan. 15, 2010), the Court examined "whether the settlement and voluntary dismissal by a class representative of his personal claims in a putative class action lawsuit renders moot his appeal of the denial of class certification."  Slip op., at 1172.  Identifying the issue as one open in the Ninth Circuit, the Court began its analysis with an examination of decisions arising in the context of "involuntary" claim expiration:

The Supreme Court held in Geraghty that when a class representative’s claims expire involuntarily, that representative “retains a ‘personal stake’ in obtaining class certification sufficient” to maintain jurisdiction to appeal a denial of class certification. Id. at 404. The Court reasoned that the class representative maintained at least an interest in spreading litigation costs and shifting fees and expenses to the other litigants with similar claims. Id. at 403; see also Deposit Guar. Nat’l Bank, Jackson Miss. v. Roper, 445 U.S. 326, 334 n.6 (1980).

Slip op., at 1175.  Much like the Larner Court, the Ninth Circuit held:

We hold that when a class representative voluntarily settles his or her individual claims, but specifically retains a personal stake as identified by Geraghty and Roper, he or she retains jurisdiction to appeal the denial of class certification. In so holding, we join several other circuits. See Richards v. Delta Air Lines, Inc., 453 F.3d 525 (D.C. Cir. 2006); Potter v. Norwest Mortgage, Inc., 329 F.3d 608 (8th Cir. 2003); Toms v. Allied Bond & Collection Agency, Inc., 179 F.3d 103 (4th Cir. 1999); Love v. Turlington, 733 F.2d 1562 (11th Cir. 1984).

Slip op. at 1175.  The Court then emphasized that "a class representative cannot release any and all interests he or she may have had in class representation through a private settlement agreement" and still assert the existence of a "personal stake" in the litigation.  Slip op. at 1175.

The Court then briefly criticized the District Court's failure to create a proper record for review when it refused to certify the proposed class for settlement purposes:  "It is clear here that the district court erred in denying class certification without providing any findings or providing any analysis of the Rule 23 factors."  Slip op., at 1179.  The Court succinctly said, "Meaningful appellate review is impossible."  Slip op., at 1179.

There was also a spirited exchange between District Judge Korman (Senior United States District Judge for the Eastern District of New York, sitting by designation), who concurred in the decision, and Circuit Judge Rymer, who dissented.

California Supreme Court activity for the week of October 26, 2009

The California Supreme Court held its (usually) weekly conference on October 28, 2009.  Notable results include:

• A Petition for Review was denied in Messenger Courier Association of the Americas, et al. v. California Unemployment Insurance Appeals Board.  See this blog's prior post on this matter here.
• A Petition for Review was denied in Ali v. U.S.A. Cab.  The interesting texture to this denial is that (1) I argued the appeal so I didn't cover this decision on this blog, and (2) aspects of Ali's construction of the Borello opinion are contrary to language in Messenger Courier, but both originate in the Fourth Appellate District, Division One.
• A Depublication Request was denied in Clark v. American Residential Services LLC, et al.  See this blog's prior post on this matter here.