Posts belonging to Category Settlements

McKnight v. Uber “Safe Rides” Settlement for Consumers

After the district court rejected their first deal in McKnight, et al. v. Uber Technologies, Inc., et al., No. 3:14-cv-05615-JST (N.D. Cal.), the plaintiffs and Uber have submitted an amended settlement for approval. See Plaintiffs’ Notice of Motion and Motion for Preliminary Approval of Class Action Settlement, available here. The $32.5 million settlement would resolve the plaintiffs’ claims that Uber misled consumers about the quality of the background checks on the drivers and whether all of the “safe rides” fees charged by Uber go toward safety measures. The revised deal adds $4 million to the fund. More importantly, the amended settlement now excludes consumers who did not pay the “safe rides” fee, reducing the class size by over 2 million, according to the plaintiffs in their motion for preliminary approval.

The restructured deal is aimed at fixing problems identified by District Judge Jon S. Tigar in denying preliminary approval of the parties’ initial settlement. See Order Denying Motion for Preliminary Approval, Philliben, et al. v. Uber Technologies, Inc., et al., No. 3:14-cv-05615-JST (N.D. Cal. Aug. 30, 2016) (slip op. available here). According to Judge Tigar, the initial settlement fell short of the standard for preliminary approval because it failed to distinguish between consumers who paid the “safe rides” fee from those who had not—all were paid under the same payment formula. For Judge Tigar, the settlement structure unfairly diluted the payments to consumers who were more deserving of payment. By excluding consumers who did not pay the “safe rides” fee from the class definition, the amended settlement eliminates the dilution problem. Those excluded consumers also would not be releasing any claims, so they retain the right to pursue claims on their own. Judge Tigar also asked for more extensive analysis of the value of the claims had the class prevailed at trial, which the plaintiffs provide in the renewed motion for preliminary approval.

Consumer and plaintiffs’ advocates should continue to monitor this settlement to get a further read on how courts are evaluating settlements involving the controversial ride-sharing company. To be sure, the prior version of the settlement illustrates the danger of a settlement that sweeps too broadly and fails to tailor the settlement structure to the allegations in the complaint. While the amended settlement appears to represent a strong victory for consumers, the court will surely scrutinize the settlement closely. The closely-watched preliminary approval hearing scheduled for July 6 was vacated on June 27, 2017; the court is expected to issue its order shortly.

Authored By:
Ryan Wu, Senior Counsel

Third Time’s the Charm for Karapetyan v. ABM Wage-and-Hour Settlement

Following three rounds of briefing in support of Plaintiff Vardan Karapetyan’s motion for preliminary approval of his class action settlement, on June 12, 2017, U.S. District Judge George H. Wu granted preliminary approval of a $5 million wage-and-hour settlement on behalf of current and former employees of Defendants ABM Industries Incorporated and ABM Security Services, Inc. in Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Order Granting Preliminary Approval of Class Action Settlement (C.D. Cal. June 12, 2017) (slip op. available here).

The plaintiff alleged that ABM violated the California Labor Code by not providing class members with meal and rest breaks; failing to pay premium wages for missed meal and rest breaks, overtime wages, other unspecified unpaid wages, and wages upon termination; and by failing to provide accurate wage statements. Following the California Supreme Court’s decision in Augustus v. ABM Security Services, Inc. (2016) 2 Cal. 5th 257, which clarified that employers may not require employees to take on-duty and/or on-call rest periods (previously covered on ILJ here), the parties agreed to participate in mediation. With the mediator’s guidance, the parties settled the claims for a $5 million non-reversionary common fund, inclusive of class member payments (proportional to the number of weeks each class member worked during the class period), administrative costs, an incentive award, attorneys’ fees and costs, a payment to the Labor and Workforce Development Agency, and payroll taxes. The plaintiff moved for preliminary approval of the class action settlement on April 19, 2017.

On May 1, 2017, Judge Wu denied the motion on class certification grounds; namely, that Karapetyan had failed to demonstrate through sufficient evidence that the typicality and predominance elements of conditional class certification had been met. Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Order Denying Preliminary Approval of Class Action Settlement (C.D. Cal. May 1, 2017), at 2 (slip op. available here). Within a few weeks of the denial, the plaintiff renewed his motion for preliminary approval with an expanded typicality and predominance analysis. The renewed motion persuaded Judge Wu that conditional certification of the proposed settlement class was appropriate, but fell short of demonstrating to his satisfaction that the settlement was within the range of possible approval: “ . . . Plaintiff does not appear to provide the Court with any information of what amount he believes may have been recoverable if this case were litigated to completion. While the Court recognizes that settlement of complex actions such as the instant one are seen as favorable, . . . it may be difficult for the Court to determine whether the settlement figure is “within the range of possible approval” absent some information on the potential recovery. Plaintiff also does not indicate what the average recovery might be as a result of the settlement.” Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Order on Amended Motion for Preliminary Approval (C.D. Cal. June 5, 2017), at 4-5 (slip op. available here).

In the third and final round of briefing, the plaintiff argued that that the maximum possible award at trial would be between $12 and $16 million dollars, given which, the settlement was within the range of possible approval:

Augustus provides a benchmark [for evaluating the claims in this case], as it was litigated to completion under similar facts. Augustus was a $90 million judgment covering 10 years, almost 15,000 employees and certain undisputed evidence which led to a finding of liability, damages, interest and penalties. The case before this Court has about 4 years of exposure, 7,000 employees, the possibility of arbitration agreements impacting or limiting the litigation, less pre-judgment interest, and different testimony and documentation on liability. I believe the recovery in this case, had it proceeded, would reasonably be in the range of $12 million to $16 million.

Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Declaration of Michael B. Adreani in Support of Amended Motion for Preliminary Approval, at 6 (available here).

On the strength of these recitals, Judge Wu found that the settlement was within the range of possible approval, and, after having reviewed and approved the parties’ amendments to the settlement (the parties were asked to amend the settlement to address certain “nits”), granted preliminary approval of the $5 million settlement. Note that despite having to submit three rounds of briefing in support of the motion for preliminary approval, the concise analysis above was all that was needed to establish that the settlement was within the range of reasonableness. This is because at the preliminary approval stage, the moving party need only establish that the settlement is “’within the range of possible approval’ and whether or not notice should be sent to class members” rather than whether the settlement is in fact “fair, reasonable, and adequate,” pursuant to Fed. R. Civ. P. 23(e)(2), a determination which is made at the final approval stage. Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Order on Amended Motion for Preliminary Approval (C.D. Cal. June 5, 2017), at 2-3.

The final fairness hearing is set for September 7, 2017, at 8:30 a.m.

Authored by:
Eduardo Santos, Associate

Ochoa v. McDonald’s: First of Its Kind Joint-Employer Case Settles for $3.75M

McDonald’s Corporation has agreed to pay $3.75 million to settle a certified wage-and-hour class action lawsuit in Ochoa, et al. v. McDonald’s Corp., et al., No. 3:14-cv-02098-JD (ND. Cal.). See Plaintiff’s Motion for Preliminary Approval of Class Action Settlement (Oct. 28, 2016) (available here). According to the motion seeking preliminary approval of the deal, the settlement marks the first of its kind in the fast food giant’s history between McDonald’s and a certified class of non-exempt “crew members” at a franchisee-operated restaurant.

In Ochoa, the plaintiffs sued McDonald’s and a franchisee alleging that the franchisee had violated various provisions of California’s Labor Code by miscalculating wages, incorrectly reporting timecards, failing to pay overtime and premium payments for noncompliant meal and rest breaks, failing to reimburse employees for the time and expense of maintaining uniforms, and issuing inaccurate wage statements. McDonald’s was named as a co-defendant on a theory of direct and vicarious liability. In August 2016, the court orally granted final approval to the plaintiffs’ settlement with the franchise owner, The Edward J. Smith and Valerie S. Smith Family Limited Partnership, leaving the claims against McDonald’s Corporation pending.

Certain preliminary rulings in the case were crucial to the first-ever settlement of its kind in McDonald’s history. In September 2015, Judge Donato of the United States District Court for the Northern District of California partially granted summary judgment in favor of McDonald’s, rejecting the plaintiffs’ claims that McDonald’s directly employs the plaintiffs and the putative class. Ochoa, No. 3:14-cv-02098-JD (N.D. Cal. Sept. 24, 2015) (slip op. available here). Critically, however, the district court denied summary judgment as to whether McDonald’s is potentially liable as a joint employer under an agency theory. The court held that the plaintiffs’ evidence demonstrating their belief that McDonald’s was their employer (being required to wear McDonald’s uniforms, serving McDonald’s food in McDonald’s packaging, receiving paystubs and orientation materials marked with McDonald’s name and logo, and applying for the job through McDonald’s website) was sufficient to follow a line of cases that found ostensible agency on similar facts. Further, the court found “that the ostensible agency theory would appear to apply with equal force against both McDonald’s USA and McDonald’s, Inc., despite the fact that the latter has no contractual relationship with Smith [the franchisee], because the plaintiffs and putative class may well not distinguish between McDonald’s corporate entities.” Slip op. at 15.

Almost a year after ruling on the summary judgment motion, in July 2016, the court handed another victory to the plaintiffs by certifying their “miscalculated wages claims, overtime claims and maintenance-of-uniform claims, and any claims that are derivative of those claims.” Ochoa, at 15, No. 3:14-cv-02098-JD (N.D. Cal. July 7, 2016) (slip op. available here). In rejecting McDonald’s argument challenging the plaintiffs’ agency theory as incapable of class-wide resolution due to individualized questions of personal belief and reasonable reliance, the court found that the “[p]laintiffs have tendered substantial and largely undisputed evidence that the putative class was exposed to conduct in common that would make proof of ostensible agency practical and fair on a class basis.” Id. at 5. That evidence included declarations showing that the plaintiffs “were required to wear McDonald’s uniforms, packaged food in McDonald’s boxes, received paystubs, orientation materials, shift schedules and time punch reports all marked with McDonald’s name and logo, and in most cases applied for a job through a McDonald’s website.” Id. The court also noted the fact that employees “spent every work day in a restaurant heavily branded with McDonald’s trademarks and name,” and found that “[t]hese facts are shared in common across the proposed class and make classwide adjudication of ostensible agency against McDonald’s a suitable and appropriate procedure.” Id.

These preliminary rulings on summary judgment and class certification are significant both because they yielded the first settlement of its kind in McDonald’s history, and because Ochoa may portend future findings of joint employer liability across franchisee and franchisor. Only time will reveal Ochoa’s true impact, but it is clear that courts will start to look past the franchisee to the franchisor as the source of violative practices that result in wage-and-hour violations.

Authored by: 
Suzy Lee, Associate

Lafitte v. Robert Half: CA Supreme Court Upholds Percentage of the Recovery Method for Calculating Fee Awards

In Laffitte v. Robert Half International Inc., No. S222996 (Cal. Aug. 11, 2016) (slip op. available here), the California Supreme Court joined “the overwhelming majority” of the nation’s courts in holding that judges may award fees in class actions as a percentage of a common fund created for the class’ benefit (the “percentage of the recovery method”). Slip op. at 27. Prior to Laffitte, some litigants—often class settlement objectors—had argued that the high court’s earlier ruling in Serrano v. Priest required judges to use only the “lodestar method” for calculating fees: “The starting point of every fee award . . . must be a calculation of the attorney’s services [measured by] the time he has expended on the case.” Serrano v. Priest, 20 Cal.3d 25, 26 (1977) (“Serrano III”). However, the California Supreme Court had not directly addressed on the issue before Laffitte.

Laffitte involved a $19 million common fund that was established to settle the claims of a class of staffing professionals who had been misclassified by their staffing agency, Robert Half, as exempt under the Labor Code, and thereby were disentitled to overtime, meal breaks, rest breaks, and other benefits guaranteed to non-exempt employees. As part of the settlement, plaintiffs’ counsel requested one-third of the common fund ($6,333,333) as a contingency fee. One class member, David Brennan, filed several objections to the settlement, including an objection to the requested fee. Brennan claimed that the fee request was unreasonable because it exceeded the contingency fee plaintiffs’ counsel would be entitled to under the lodestar method (counsel’s lodestar was $2,968,620).

The trial court overruled Brennan’s objections to the settlement. With respect to fees, the court found that the requested contingency fee was reasonable under both the percentage of the recovery and lodestar methods. On appeal, Brennan claimed that the trial court had erred by using the percentage of the recovery method to calculate the fee, and made mistakes in its application of the lodestar method, such as relying only on summaries of counsel’s billing records (rather than the actual billing records) and by awarding more than double counsel’s lodestar. The California Court of Appeal rejected these arguments, finding that the trial court had not abused its discretion by awarding a percentage of the common fund in attorneys’ fees, nor by performing a lodestar calculation based on the declarations of counsel to confirm the reasonableness of the fee as a percentage of the recovery.

On appeal to the California Supreme Court, Brennan again argued that calculating the fee award as a percentage of the settlement ran afoul of Serrano III. The court disagreed, finding that Serrano III was factually distinguishable:

The quoted text [from Serrano III] . . . concern[s] calculation of a fee awarded under the private attorney general theory. In Serrano III, this court simply did not address the question of what methods of calculating a fee award may or should be used when the fee is to be drawn from a common fund created or preserved by the litigation. For this reason, the passages quoted cannot fairly be taken as prohibiting the percentage method’s use in a common fund case . . . . Since Serrano III, we have several times, in fee shifting cases, endorsed the lodestar . . . method of calculating an attorney fee award; none of our decisions involved a case where the fee was to be awarded from a common fund created or preserved by the litigation.

Id. at 20-22 (internal citations omitted; emphasis in original).

The California Supreme Court ultimately found that “whatever doubts may have been created by Serrano III,” use of the percentage method to calculate a fee in a common fund case, where the award serves to spread the attorney fee among all the beneficiaries of the fund, does not in itself constitute an abuse of discretion. “The recognized advantages of the percentage method . . . convince us [that it] is a valuable tool that should not be denied our trial courts.” Id. at 27 (internal citations omitted). Turning to the facts of the case, the California Supreme Court held that the trial court had not abused its discretion by awarding one-third of the common fund as a contingency fee, nor by double-checking the reasonableness of the percentage fee through a lodestar/multiplier calculation based on billing summaries, stating, “[a] lodestar cross-check [] provides a mechanism for bringing an objective measure of the work performed into the calculation of a reasonable attorney fee. If a comparison between the percentage and lodestar calculations produces an imputed multiplier far outside the normal range, . . . the trial court will have reason to reexamine its choice of a percentage.” Id. at 28-29 (internal citations omitted).

Of particular interest for practitioners is the California Supreme Court’s ruling that the lodestar cross-check “does not override the trial court’s primary determination of the fee as a percentage of the common fund and thus does not impose an absolute maximum or minimum on the potential fee award.” Id. at 30. Rather, “[i]f the multiplier calculated by means of a lodestar cross-check is extraordinarily high or low, the trial court should consider whether the percentage used should be adjusted so as to bring the imputed multiplier within a justifiable range, but the court is not necessarily required to make such an adjustment.” Id. In so holding, Laffitte ensures that the application of the lodestar method to cross-check the percentage fee will not undercut the reasons for applying the percentage of the recovery method in the first instance; namely, the “alignment of incentives between counsel and the class, a better approximation of market conditions in a contingency case, and the encouragement it provides counsel to seek an early settlement and avoid unnecessarily prolonging the litigation.” Id. at 27.

Authored by: 
Eduardo Santos, Associate