Posts belonging to Category Settlements

In Chen v. Allstate Insurance Co., Allstate asked the Ninth Circuit Court of Appeals to answer the hypothetical question raised in Campbell-Ewald v. Gomez, 136 S. Ct. 663 (Jan. 20, 2016) (previously covered on the ILJ here): whether a defendant can defeat a class action by depositing the full amount of the named plaintiff’s individual claim in an escrow account payable to the plaintiff, followed by entry of judgment for the plaintiff in that amount, thereby mooting the plaintiff’s individual claims. No. 13-16816 (9th Cir. April 12, 2016) (slip op. available here). Holding that such a tactic does not moot the class’s claims under Article III, the Ninth Circuit declined to direct the district court to enter judgment on the named plaintiff’s individual claims before he had a fair opportunity to move for class certification.

Plaintiff Florencio Pacleb sued Allstate for violations of the Telephone Consumer Protection Act stemming from automated calls made to his cell phone without his consent. In April of 2013, before a motion for class certification had been filed, Allstate initially made Plaintiff Pacleb a Rule 68 offer of judgment in the amount of $20,000 (including reasonable attorneys’ fees and costs accrued to date), which allegedly more than satisfied his individual claim. When the two named plaintiffs did not accept the offer within 14 days, Allstate then filed a motion to dismiss the plaintiffs’ entire case for lack of subject matter jurisdiction, arguing that, under Gomez v. Campbell-Ewald Co., 768 F.3d 871 (9th Cir. 2014), the district court should be required to enter judgment against Allstate and order payment to the plaintiff. While the motion to dismiss was pending, the other named plaintiff accepted the offer, though Pacleb did not; then, the district court denied Allstate’s motion. After the Supreme Court decided Campbell-Ewald, Allstate took the additional step of depositing the $20,000 in a bank escrow account and offering to cease sending Pacleb non-emergency telephone calls and text messages.

On appeal, Allstate argued that the judgment to which it consented would offer complete relief to the plaintiff and that the district court should be compelled to enter judgment on those terms, thus mooting the plaintiff’s individual claims and rendering the remaining class allegations insufficient to preserve a live controversy. The Ninth Circuit agreed with Allstate’s first contention only (that the offer of relief was apparently “complete”), but affirmed the district court’s denial of their motion to dismiss. The court noted that even if the district court entered judgment affording Pacleb complete relief on his individual damages and injunctive relief claims, effectively mooting those claims, Pacleb would still be able to seek certification under Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011). Pitts held that a plaintiff could continue to represent a class despite a settlement offer for complete individual relief from defendant, as long as the plaintiff could still file a timely motion for class certification at the time the offer was made. Chen now expands the logic of Pitts from mere settlement offers to actual monetary deposits and holds that, even if Pitts were not binding and Allstate could moot the plaintiff’s individual claims, the plaintiff could still seek class certification despite the absence of a live individual claim. Following the circuit’s prior analysis in Gomez, the panel determined that Pitts remained good law after the Supreme Court’s decision in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), because Genesis Healthcare concerned collective actions brought under the Fair Labor Standards Act rather than class actions under Rule 23 (of the Federal Rules of Civil Procedure) and that “courts have universally concluded that the Genesis discussion does not apply to class actions.” Id. at 16 (internal citations omitted).

Second, assuming Pitts was not controlling and Allstate could moot the plaintiff’s individual claims for damages and injunctive relief, the court rejected Allstate’s attempt to moot the action prior to a fair opportunity to move for class certification. The Chen court noted that placing funds in an escrow account was not the same as the actual receipt of all relief by a plaintiff and concluded that the depositing of funds into an escrow account was not enough to moot the claim because the plaintiff did not yet have the money in his possession. Lastly, the Ninth Circuit considered whether to order the district court to enter judgment before the plaintiff has had an opportunity to move for certification and concluded that doing so would be inconsistent with Campbell-Ewald:

. . . Campbell-Ewald clearly suggests it would be inappropriate to enter judgment under these circumstances. As Campbell-Ewald explained, “[w]hile a class lacks independent status until certified, a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.” Campbell-Ewald, 136 S. Ct. at 672. Accordingly, when a defendant consents to judgment affording complete relief on a named plaintiff’s individual claims before certification, but fails to offer complete relief on the plaintiff’s class claims, a court should not enter judgment on the individual claims, over the plaintiff’s objection, before the plaintiff has had a fair opportunity to move for class certification.

Id. at 22-23 (internal citations omitted). Thus, the appeals court affirmed the district court’s ruling and denied Allstate’s motion to dismiss for lack of subject matter jurisdiction, a victory for the plaintiffs’ bar foreclosing defendant “pick-off” tactics in the Ninth Circuit.

Authored by: 
Daniela Saspe, Associate
CAPSTONE LAW APC

A year and a half after it was sued for falsely claiming that its neckties were made in the USA, retailer Lands’ End has agreed to refund its California customers the full purchase price of the neckties as part of a class action settlement. Oxina v. Lands’ End, No. 14-cv-2577-MMA (S.D. Cal., complaint filed Oct. 29, 2014). See Plaintiff’s Motion for Preliminary Approval of Class Action Settlement (Feb. 12, 2016) here. In August 2014, Plaintiff Elaine Oxina purchased a “Kids To-Be-Tied Plaid Necktie” from the clothing retailer’s website. The plaintiff alleged that the website represented that the necktie was “Made in [the] USA,” but the tag on the necktie that Oxina received stated it was “Made in China.” Oxina sued Lands’ End for false advertising and violations of federal and state consumer protection laws.

Following eleven months of litigation on the pleadings alone, the parties agreed to settle Plaintiff Oxina’s claims in exchange for complete relief for the 38 California class members who purchased the neckties during the 4-year settlement period. Under the proposed settlement, Lands’ End will refund class members their purchase price, plus interest at the rate of ten percent per year from the date of purchase. The settlement also provides for $32,500 in attorneys’ fees and expenses.

Although the parties have agreed to settle, the plaintiff initially had lost the battle over the pleadings. Judge Michael Anello previously dismissed (without prejudice) Oxina’s originally pled false advertising claim on the ground that the allegedly false statement “Made in [the] USA” appeared on the website rather than on the necktie itself:

Section 17533.7 sets forth the following: It is unlawful for any person, firm, corporation or association to sell or offer for sale in this State any merchandise on which merchandise or on its container there appears the words “Made in U.S.A.,” “Made in America,” “U.S.A.,” or similar words when the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States. Plaintiff fails to state a claim under § 17533.7 because she fails to allege that the words “Made in U.S.A.,” or similar words, appeared on the Necktie itself, or on the Necktie’s container. . . . It is clear and unambiguous that the text of § 17533.7 only creates liability where the words “Made in U.S.A.,” or words to that effect, appear on the merchandise, or on the merchandise’s container. It does not create liability for a product that is misleadingly described on a website with the words “Made in U.S.A.” (internal citations and quotations omitted.)

Order Granting Defendant’s Motion to Dismiss, at 13 (available here). The court’s holding suggests that the drafters of Section 17533.7 did not specifically intend for the statute to apply to statements on a merchant’s website. While this cannot be denied, that is because Section 17533.7 was enacted in 1961. The statute’s silence on the issue of internet advertising therefore says nothing about the Legislature’s intent for it to apply to the Internet. Further, because Section 17533.7 applies to print catalogs (see O’Brien v. Camisasca Automotive Mfg., Inc., 73 Cal. Rptr. 3d 911 (2008)) and other forms of advertising, clearly the statute is not limited to statements on merchandise or containers. To rule otherwise is to vitiate the protections afforded by Section 17533.7 to California consumers, who, in greater numbers, purchase goods online rather than in stores. In short, the court’s holding on the necktie false advertising case is too restrictive.

The parties’ joint motion for preliminary approval of the class action settlement is scheduled to be heard by Judge Anello on March 21, 2016.

Authored by: 
Eduardo Santos, Associate
CAPSTONE LAW APC

It is no secret that class action practitioners are facing a more difficult time getting a settlement approved. Not only must settling parties face a proliferation of professional objectors seeking to muck things up, but courts are also under pressure to scrutinize class action settlements more closely. See, e.g., Allen v. Bedolla, 787 F.3d 1218, 1223 (9th Cir. 2015). One recent order illustrates the perils of the approval process. In Banks v. Nissan N. Am., No. 11-2022, 2015 WL 7710297 (N.D. Cal. Nov. 30, 2015) (slip op. available here), the court refused to grant final approval to a settlement to resolve claims for an alleged brake defect in certain Nissan and Infiniti vehicles. The court was particularly troubled by a cap on reimbursements that resulted in some class members recovering only a fraction of their out-of-pocket costs, with “more than one-third of the claimants . . . receiv[ing] a $60 (or less) reimbursement of a $1,000 repair bill.” Id. at 19. The court also criticized the plaintiffs for not detailing the risks of further litigation in their papers, id. at 16, and for a low claims rate. Id. at 18-19.

How to avoid the problem faced by the plaintiffs in Banks? First, if the benefits must be tailored to a narrow class, aim for substantial benefits to each individual class member. As part of a settlement to resolve automotive defect claims, plaintiffs often negotiate nonmonetary relief—a repair program or extended warranty coverage on the defect—to protect a broad group of current car owners. See, e.g., Eisen v. Porsche Cars N. Am., Inc., No. 11-09405, 2014 WL 439006, at *7 (C.D. Cal. Jan. 30, 2014) (approving settlement that included extended warranty coverage and reimbursement). That apparently was not feasible in Banks, as the class vehicles were too old to be covered under warranty. Instead, the Banks plaintiffs reasonably tried to direct the settlement’s benefits to those with out-of-pocket losses—a smaller class. But courts are much more likely to approve a reimbursement program if class members recover a substantial proportion of their out-of-pocket losses. See, e.g., Browne v. Am. Honda Motor Co., No. 09-06750, 2010 WL 9499072, at *12 (C.D. Cal. July 29, 2010) (approving reimbursement of 50 percent of the costs class members previously incurred replacing their brake pads). In stark contrast, the Banks plaintiffs obtained much less remuneration for out-of-pocket losses, failing to overcome the court’s concern that some class members would be recouping only $20 out of $1,000 repair bill under the settlement reimbursement formula.

Second, in seeking final approval, plaintiffs should thoroughly evaluate the risks of further litigation, and explain those risks in detail in their settlement approval motions. This is an important factor for settlement approval. See Churchill Village, LLC v. General Electric, 361 F.3d 566, 575 (9th Cir. 2004). As the Banks decision underscores, courts will not credit generic recitations of an action’s risks in considering whether the settlement is fair to the class. See Banks, at 16.

Third, when a settlement involves a claims process, plaintiffs should make sure as many class members as possible are aware of the settlement’s benefits. For instance, plaintiffs should ensure that updated addresses, such as those maintained in the National Change of Address database, are used for the class notice. Depending on the facts of the case, a plaintiff may also have the class administrator conduct a skip-trace for addresses with undeliverable notices, have reminder postcards sent out, have the administrator host a dedicated settlement website, and/or contact class members directly to educate them on the settlement’s benefits.

The factors detailed above are just a few of many that the court will analyze when evaluating the fairness of a proposed class action settlement; class action practitioners should analyze and weigh these carefully.

Authored By:
Ryan Wu, Senior Counsel
CAPSTONE LAW APC

Even seasoned class action practitioners might be surprised to learn that the percentage-of-the-fund method for awarding attorneys’ fees is not settled law in California. After all, California trial courts routinely award attorneys’ fees based on a percentage of the overall recovery, and numerous California courts have endorsed this approach. [1] This common practice has been called into question by David Brennan, an objector to the $19 million wage-and-hour class action settlement in the long-running Laffitte v. Robert Half Int’l, No. S222996, rev. granted, 342 P.3d 1232 (Feb. 25, 2015). [2] Laffitte, which was initially filed in 2004, involved independent contractor misclassification claims against the staffing agency Robert Half; in 2013, the trial court approved a $19 million settlement, including an attorneys’ fee award of one-third of the gross settlement.

In Laffitte, the California Supreme Court will decide whether use of the percentage method is valid under California law. In his petition for review and opening brief (available here and here, respectively), Objector Brennan seized on a footnote from Serrano v. Priest, 20 Cal.3d 25, 48 n. 23 (1977), where the California Supreme Court stated that “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,” to argue that California law requires use of the lodestar method for assessing fees. The lodestar method multiplies the number of hours reasonably expended by a reasonable hourly rate, and the resulting number can be adjusted at the court’s discretion. While Brennan correctly identified a source of potential confusion, his radical position, if adopted, would unsettle the landscape, upending not just the settlement in Laffitte, where the trial court awarded attorneys’ fees representing 33 1/3% of the settlement fund, but numerous other already-approved settlements. Further, the vast majority of California class action settlements currently pending final approval would have to be renegotiated.

However, there is little doubt that the California Supreme Court will enshrine the use of the percentage method for cases where an ascertainable fund is created. As Respondent Mark Laffitte discussed in his Answering Brief (available here), every Federal Circuit has authorized use of percentage method, with two Circuits, the Eleventh Circuit and the District of Columbia Circuit, requiring use of the percentage method for common fund cases. This is because the percentage method has several significant advantages over the lodestar method: (1) it is less demanding of judicial resources; (2) it connects the fee recovery more closely to the results obtained; (3) it aligns the interests of class members and class counsel; (4) it rewards efficient prosecution; (5) it better approximates the workings of the marketplace; and (6) it leads to greater predictability in fee awards. Lafitte Answering Brief at 35-39 (internal citations omitted).

California also has a venerable tradition of utilizing the percentage method for common fund cases, as detailed in Serrano itself. See Serrano, 20 Cal.3d at 34-38 (observing that the percentage method was first approved in California in 1895 and “has since been applied by the courts of this state in numerous cases”). Serrano declined to apply the percentage method principally because the settlement there did not create an ascertainable fund. Id. at 35-38. Contrary to Brennan’s position, there is nothing in Serrano that would preclude courts from applying the percentage method in awarding attorneys’ fees.

Although Laffitte presents only one question for review—whether the percentage method is permitted under Serrano—several open questions remain even if the Court cements the use of the percentage method. Among other issues, the Court may also decide whether a benchmark percentage is appropriate, and whether to require a “lodestar cross-check” if a court applies the percentage method in awarding fees. In sum: do not expect a sea change, but class action practitioners should nonetheless keep a close watch on Laffitte to see if the Court will provide further guidance to courts on when and how to apply the percentage method.

Authored By:
Ryan Wu, Senior Counsel
CAPSTONE LAW APC

[1] See, e.g., In re Consumer Privacy Cases, 175 Cal. App. 4th 545, 558 (2009), Chavez v. Netflix, Inc., 162 Cal. App. 4th 43, 63 (2008), and Apple Computer v. Superior Ct., 126 Cal. App. 4th 1253, 1271 (2005).
[2] Capstone Law APC, on behalf of its clients, submitted a letter requesting publication that contributed to the publication of the intermediate court decision, Laffitte v. Robert Half Int’l Inc., 231 Cal. App. 4th 860 (2014), and intends to submit an amicus brief supporting Respondent Laffitte.