1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 ANNIE CHANG, et al., Case No. 19-cv-01973-HSG
8 Plaintiffs, ORDER GRANTING PRELIMINARY SETTLEMENT APPROVAL 9 v. Re: Dkt. No. 129 10 WELLS FARGO BANK, N.A., 11 Defendant.
12 13 Pending before the Court is the unopposed motion for preliminary approval of class action 14 settlement filed by Plaintiffs. Dkt. No. 129 (“Motion”). The parties have reached a settlement 15 regarding Plaintiffs’ claims and now seek the required court approval. This motion is supported 16 by the accompanying Declaration of Paul J. Scarlato (“Decl.”) and the attached exhibits, including 17 the Settlement Agreement and Release (“Settlement Agreement”). Dkt. No. 129-1. The Court 18 held a hearing on December 1, 2022. At the Court’s request, the parties submitted a supplemental 19 brief proposing a cy pres recipient. Dkt. No. 135. The parties also submitted a revised proposed 20 notice (Dkt. No. 135-4) and a revised proposed claim form (Dkt. No. 135-5). For the reasons set 21 forth below, the Court GRANTS Plaintiff’s motion. 22 I. BACKGROUND 23 A. Factual Background 24 Plaintiffs bring this putative class action alleging Defendant Wells Fargo aided and abetted 25 an alleged Ponzi scheme (the “EquityBuild Scheme” or the “Scheme”) conceived by non-parties 26 Jerome and Shaun Cohen (the “Cohens”) and their entities EquityBuild, Inc. and EquityBuild 27 Finance, LLC f/k/a Hard Money Company, LLC (collectively, “EquityBuild”). Dkt. No. 1 1 “generated by investments in a real estate investment program that purchased, renovated, and 2 developed real estate in Chicago.” Compl. ¶¶ 20–21. Through their companies, the Cohens raised 3 funds through offering and selling promissory notes, as well as offering investments in real estate 4 pooled “funds.” Id. ¶ 35. Through EquityBuild, the Cohens “raised approximately $135 million 5 from approximately 800 investors.” Mot. at 1. Plaintiffs allege that the Equitybuild Scheme was a 6 “sham,” as the Cohens “raised money from investors through misrepresentations and omissions, 7 siphoned much of it, improperly commingled it, used it for Ponzi payments to other investors, and 8 skimmed between 15% and 30% off each investment by taking undisclosed fees.” Compl. ¶ 4. 9 This came to light on August 15, 2018, when the SEC filed a complaint in the Northern District of 10 Illinois against Equitybuild and the Cohens, charging them with fraud under U.S. securities laws 11 and misuse and misappropriation of investor money. Id. ¶¶ 58-60; Decl. ¶ 7. The SEC moved to 12 enjoin the fraud and have a Receiver appointed (the “EquityBuild Receiver”) and the court granted 13 the motion. Mot. at 2; Decl. ¶¶ 8–9. “Since that time, the Receiver has been systematically 14 liquidating the assets of the Receivership Estate, which consist primarily of real estate holdings.” 15 Mot. at 2. 16 The Receiver has performed extensive work examining EquityBuild’s records, which 17 included identifying “all persons or entities who might have a claim against the EquityBuild 18 Scheme.” Mot. at 2; Decl. ¶¶ 40–42. The Receiver’s claims process identified 835 persons or 19 entities that have claims.1 Decl. ¶ 48. The Receiver sent notice to each of those claimants and 20 required them to submit a clam for loss no later than July 1, 2019. See id. ¶¶ 41–47. The Receiver 21 received claims from all 835 claimants. Id. ¶ 51. The Receiver has provided his mailing list to 22 Plaintiffs, along with a Master Claim List with the amount of each claim for purposes of sending 23 Notice. Id. ¶ 48. 24 According to Plaintiffs, Wells Fargo was the only bank that Equitybuild used for the 25 Scheme, and all transactions were processed through Wells Fargo. Compl. ¶ 96. Among other 26
27 1 Although the Motion states that this number includes defrauded investors (the proposed Class 1 allegations, Plaintiffs contend that Wells Fargo “knew the accounts it maintained for Equitybuild 2 held investor money, in a fiduciary capacity,” Compl. ¶ 66, “had knowledge, or was on notice of 3 the fact that investor money was being misused and misappropriated, and at risk of misuse and 4 misappropriation,” id. ¶ 67, “was aware that Equitybuild had received far less money from 5 property managers into the Equitybuild accounts than what investors were paid in ‘interest’ out of 6 those same accounts,” id. ¶ 68, “knew that Equitybuild was managing investor funds, and that 7 those funds were commingled among Equitybuild’s various accounts with Wells Fargo,” id. ¶ 93, 8 and that “Equitybuild’s contact at Wells Fargo ‘seemed like she was willing to do pretty much 9 anything’ for Jerry Cohen,” id. ¶ 109. 10 B. Procedural Background 11 As detailed in the Motion, this class action has a long litigation history, spanning more 12 than three years and including numerous filings before the Court. Mot. at 3–4. Plaintiffs filed 13 their Complaint on April 12, 2019, “alleging that Wells Fargo aided and abetted the EquityBuild 14 Scheme.” Mot. at 3; see Compl. ¶¶66-68. The Complaint asserted claims for 1) aiding and 15 abetting fraud; 2) aiding and abetting breach of fiduciary duty, and 3) negligence. See generally 16 Compl. 17 Wells Fargo moved to dismiss the Complaint. Dkt. No. 37. The Court denied Wells 18 Fargo’s motion as to Plaintiffs’ first two claims regarding aiding and abetting fraud and breach of 19 fiduciary duty but granted, with leave to amend, Defendant’s motion as to Plaintiffs’ negligence 20 claim. Dkt. No. 62. Soon thereafter, “the parties engaged in substantial discovery concerning 21 Plaintiffs’ remaining claims, and briefed many of the issues in this Action through motion practice 22 and mediation statements.” Mot. at 3. 23 In an attempt to resolve the case, on February 4, 2021, the parties participated in a 24 mediation before the Honorable Andrew J. Guilford (Ret.), but were unable to arrive at a 25 resolution. Mot. at 3; Decl. ¶¶ 31–33. Wells Fargo then moved to stay the case pending 26 resolution of the claims process in the SEC Action, including claims submitted by Plaintiffs. Dkt. 27 No. 104. The Court denied Wells Fargo’s motion. Dkt. No. 113. The parties then resumed 1 settle this case as set out in the Settlement Agreement. Mot. at 4; Decl. ¶¶ 34–35. 2 C. Settlement Agreement 3 The key terms of the parties’ Settlement Agreement, Dkt. No. 129-1, Ex. A (“Settlement 4 Agreement” or “SA”), are as follows: 5 i. The Class 6 The Class consists of “all persons and entities who invested in the Equitybuild Scheme and 7 were damaged thereby.” Settlement Agreement, ¶ 1.5; see also Dkt. No. 135-4 (“Class Notice”). 8 ii. Settlement Benefits 9 Defendant has agreed to:
10 [P]ay $3,750,000 into a non-reversionary Settlement Fund for the benefit of the Settlement Class, which includes but is not limited to, 11 payments to Settlement Class Members, payments for costs and expenses related to Class Notice as well as the implementation and 12 administration of the Settlement, payment of Attorneys’ Fees and Expenses for Class Counsel, and payment of the Service Award for 13 the Class Representatives, as approved by the Court. 14 Settlement Agreement, ¶ J. 15 iii. Monetary Relief and Plan of Allocation 16 The Settlement Fund consists of a payment from Wells Fargo of $3,750,000 into an escrow 17 account. Mot. at 4–5; Settlement Agreement, ¶ 3.1.1. That money will be distributed by a 18 Settlement Administrator using the Master Claims List provided to Class Counsel by the Receiver, 19 as described above. Decl. ¶ 49. The Settlement Administrator will use the Master Claims List, 20 which identifies “each claim on a property-by-property basis and the amount of claim submitted,” 21 to “pre-populate the Claim Form with the amount of claim each investor submitted in the SEC 22 Action.” Id. at ¶¶ 48-49; see also Dkt. No. 135-5, Ex. 2 (“Claim Form”). “No amount of the 23 Settlement Fund will revert to Wells Fargo.” Settlement Agreement ¶ 1.39. 24 iv. Cy pres Distribution 25 Originally, the parties proposed that:
26 When it is no longer feasible to make additional distributions, because of the de minimis amount of funds left in the Net Settlement Fund, 27 the Parties propose that the unclaimed balance be donated to a private, 1 Mot. at 5; Settlement Agreement at ¶ 5.5. At the motion hearing, the Court directed the parties to 2 file a supplemental brief proposing a specific cy pres recipient. The parties selected the Victim 3 Connect Resource Center, a non-profit that assists “victim of investment fraud, including 4 specifically Ponzi schemes.” Dkt. No. 135 at 1. 5 v. Release of Claims 6 The Settlement Agreement defines Released Claims as follows:
7 [A]ny and all claims, defenses, demands, actions, causes of action, 8 offsets, setoffs, suits, damages, lawsuits, costs, relief for contempt, losses, attorneys’ fees, expenses, or liabilities of any kind whatsoever 9 in law or in equity, for any relief whatsoever, including monetary, sanctions or damage for contempt, injunctive, or declaratory relief, 10 rescission, general, compensatory, special, liquidated, indirect, incidental, consequential, or punitive damages, as well as any and all 11 claims for treble damages, penalties, interest, attorneys’ fees, costs, or expenses, whether a known or Unknown Claim, suspected or 12 unsuspected, contingent or vested, accrued or not accrued, liquidated or unliquidated, matured or unmatured, that exist as of the date of the 13 Preliminary Approval Order and that relate in any way to an investment in the Equitybuild Entities based on the facts alleged in 14 the Complaint.
15 Settlement Agreement ¶ 1.29. 16 The Settlement Agreement further provides that: 17 a) Releasors, including but not limited to the Class Representatives, on their 18 own behalf and on behalf of each Settlement Class Member, by operation of this Release and the Judgment and the Final Approval Order, do hereby and shall be 19 deemed to have fully, finally, conclusively, irrevocably, and forever released, settled, compromised, relinquished, and discharged any and all of Releasees from 20 any and all Released Claims and, without further action by any person or the Court, will be deemed: to have consented to dismissal of the Action and the dismissal with 21 prejudice of any and all Released Claims; 22 b) to have released and forever discharged any and all Released Claims; and c) to be forever barred and enjoined from instituting or further prosecuting, in 23 any forum whatsoever, including but not limited to any state, federal, or foreign court, or regulatory agency, or any arbitration forum, each and every Released 24 Claim. 25 Settlement Agreement, ¶ 10.1. The parties also “agree that Releasees will suffer irreparable harm 26 if any Settlement Class Member takes action inconsistent with this paragraph, and that in that 27 event, Releasees may seek an injunction as to such action without further showing of irreparable vi. Notice to the Class and Settlement Website 1 Each member of the Class will be sent a notice of the Settlement (“Settlement Notice”) and 2 Claim Form “via first class mail through the United States Postal Service, postage pre-paid no 3 later than thirty (30) days after Class Counsel provides [the Settlement Administrator] with the 4 Notice List.” Settlement Agreement, ¶ 7.3; Decl. ¶¶ 49–50. The notice shall direct Class 5 Members to “the Settlement Website which shall contain copies of the Settlement Agreement and 6 Exhibits including the Class Notice as well as the Complaint, the Preliminary Approval Order, 7 motions for approval of the Settlement and Attorney’s Fees and Expenses, and the Final Approval 8 Order and Judgment.” Settlement Agreement, ¶ 7.7; Class Notice at 2-4, 7. The Settlement 9 Website shall remain open and accessible until at least sixty (60) days following entry of the Final 10 Approval Order. Settlement Agreement, ¶ 7.7. The Settlement Notice and Claim Form will 11 provide information to the Class regarding, among other things: (1) the nature of the claims; (2) 12 the scope of the settlement class; (3) the terms of the Settlement; (4) each Class Member’s pre- 13 populated recovery amount; (5) Class Members’ right to object to the Settlement or to opt-out and 14 the deadline for doing so; (6) the class-wide release; (7) the identity of Class Counsel and the 15 amount of compensation they will seek in connection with the Settlement; (8) the amount of any 16 Service Awards requested for Class Representatives; (9) the date, time, and location of the Final 17 Approval Hearing; and (10) Class Members’ right to appear at the Final Approval Hearing. See 18 Class Notice; Dkt. No. 135-5 (“Claim Form”). 19 vii. Opt-Out Procedure 20 Settlement Class Members must submit a written request for exclusion to opt out of the 21 Settlement. Settlement Agreement ¶¶ 11.1-11.2. Settlement Class Members may also submit 22 written objections to the Settlement. Id. ¶ 12.2. 23 II. PROVISIONAL CLASS CERTIFICATION 24 The plaintiff bears the burden of showing by a preponderance of the evidence that class 25 certification is appropriate under Federal Rule of Civil Procedure 23. Wal-Mart Stores, Inc. v. 26 Dukes, 564 U.S. 338, 350–51 (2011); Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods 27 LLC, 31 F.4th 651, 665 (9th Cir. 2022), cert. denied sub nom. StarKist Co. v. Olean Wholesale 1 Grocery Coop., Inc., On Behalf of Itself & All Others Similarly Situated, No. 22-131, 2022 WL 2 16909174 (U.S. Nov. 14, 2022) (stating that “plaintiffs must prove the facts necessary to carry the 3 burden of establishing that the prerequisites of Rule 23 are satisfied by a preponderance of the 4 evidence”). Class certification is a two-step process. First, a plaintiff must establish that each of 5 the four requirements of Rule 23(a) is met: numerosity, commonality, typicality, and adequacy of 6 representation. Id. at 349. Second, it must establish that at least one of the bases for certification 7 under Rule 23(b) is met. Where, as here, a plaintiff seeks to certify a class under Rule 23(b)(3), it 8 must show that “questions of law or fact common to class members predominate over any 9 questions affecting only individual members, and that a class action is superior to other available 10 methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). 11 “The criteria for class certification are applied differently in litigation classes and 12 settlement classes.” In re Hyundai & Kia Fuel Econ. Litig., 926 F.3d 539, 556 (9th Cir. 2019) 13 (“Hyundai II”). When “deciding whether to certify a litigation class, a district court must consider 14 manageability at trial.” Id. However, this concern is not present in certifying a settlement class. 15 Id. at 556–57. Instead, in deciding whether to certify a settlement class, a district court “must give 16 heightened attention to the definition of the class or subclasses.” Id. at 557. 17 A. Rule 23(a) Certification 18 i. Numerosity 19 Rule 23(a)(1) requires that the putative class be “so numerous that joinder of all members 20 is impracticable.” The Court finds that the numerosity requirement is satisfied because joinder of 21 the estimated 835 class members would be impracticable. 22 ii. Commonality 23 Rule 23(a)(2) requires that “there are questions of law or fact common to the class.” Fed. 24 R. Civ. P. 23(a)(2). A contention is sufficiently common where “it is capable of classwide 25 resolution—which means that determination of its truth or falsity will resolve an issue that is 26 central to the validity of each one of the claims in one stroke.” Dukes, 564 U.S. at 350. 27 Commonality exists where “the circumstances of each particular class member vary but retain a 1 975, 978–79 (9th Cir. 2008). “What matters to class certification . . . is not the raising of common 2 ‘questions’ ― even in droves — but rather, the capacity of a class-wide proceeding to generate 3 common answers apt to drive the resolution of the litigation.” Dukes, 564 U.S. at 350 (citation 4 omitted) (emphasis in original). Even a single common question is sufficient to meet this 5 requirement. Id. at 359. 6 Common questions of law and fact in this action include:
7 [W]hether the EquityBuild Scheme perpetrators defrauded investors, misused investor money, and/or commingled investment proceeds from 8 different investment programs, whether the EquityBuild Scheme was a Ponzi scheme, whether Wells Fargo knew that the EquityBuild Scheme 9 perpetrators were misusing and comingling investor money and/or using such money for Ponzi scheme payments, whether Wells Fargo 10 knowingly provided substantial assistance to the EquityBuild Scheme perpetrators, whether Wells Fargo’s misconduct entitles Plaintiffs and 11 members of the Class to damages for the loss of the amounts invested by Plaintiffs and the members of the Class, and what remedies are 12 appropriate. . . 13 Mot. at 18. Although the amount of reimbursement to which each class member is entitled will 14 differ, the issues described above are common across the proposed Settlement Class. 15 Accordingly, the Court finds that the commonality requirement is met. 16 iii. Typicality 17 Rule 23(a)(3) requires that “the claims or defenses of the representative parties are typical 18 of the claims or defenses of the class.” “The test of typicality is whether other members have the 19 same or similar injury, whether the action is based on conduct which is not unique to the named 20 plaintiffs, and whether other class members have been injured by the same course of conduct.” 21 Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (quotation omitted). That said, 22 under the “permissive standards” of Rule 23(a)(3), the claims “need not be substantially identical.” 23 Castillo v. Bank of Am., NA, 980 F.3d 723, 729 (9th Cir. 2020) (quotation omitted). 24 The Named Plaintiffs’ claims are both factually and legally similar to those of the 25 proposed Class Members. Named Plaintiffs allege that, like other class members, they “were 26 investors in the EquityBuild Scheme and suffered the exact same type of loss.” Mot. at 19. 27 Accordingly, the typicality requirement is satisfied. iv. Adequacy of Representation 1 Rule 23(a)(4) requires that the “representative parties will fairly and adequately represent 2 the interests of the class.” The Court must address two legal questions: (1) whether the named 3 plaintiffs and their counsel have any conflicts of interest with other class members and (2) whether 4 the named plaintiffs and their counsel will prosecute the action vigorously on behalf of the class. 5 See In re Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 462 (9th Cir. 2000). This inquiry “tend[s] to 6 merge” with the commonality and typicality criteria. Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 7 147, 158 n.13 (1982). In part, these requirements determine whether “the named plaintiff’s claim 8 and the class claims are so interrelated that the interests of the class members will be fairly and 9 adequately protected in their absence.” Id. 10 The Court is unaware of any actual conflicts of interest in this matter and no evidence in 11 the record suggests that either the Named Plaintiffs or Plaintiffs’ counsel have a conflict with other 12 class members. Plaintiffs have secured representation by competent counsel, including counsel 13 experienced in complex class action cases. See Mot. at 20; see generally Dkt. No. 129-1, Ex. B. 14 The Court finds that Named Plaintiffs and Plaintiffs’ counsel have prosecuted this action 15 vigorously on behalf of the class to date and will continue to do so. The adequacy of 16 representation requirement, therefore, is satisfied. 17 B. Rule 23(b)(3) Certification 18 To certify a class, a plaintiff must satisfy the two requirements of Rule 23(b)(3). First, 19 “questions of law or fact common to class members [must] predominate over any questions 20 affecting only individual members, and . . . a class action is superior to other available methods for 21 fairly and efficiently adjudicating the controversy.” See Fed. R. Civ. P. 23(b)(3). 22 i. Predominance 23 The “predominance inquiry tests whether proposed classes are sufficiently cohesive to 24 warrant adjudication by representation.” Tyson Foods, Inc. v. Bouaphakeo, 577 U.S. 442, 453 25 (2016) (quotation omitted). The Supreme Court has defined an individualized question as one 26 where “members of a proposed class will need to present evidence that varies from member to 27 member.” Id. (quotation omitted). A common question, on the other hand, is one where “the 1 same evidence will suffice for each member to make a prima facie showing [or] the issue is 2 susceptible to generalized, class-wide proof.” Id. (quotation omitted). 3 The Court concludes that, for purposes of settlement, common questions regarding 4 Defendant’s alleged misconduct and the resultant harm to Plaintiffs predominate over 5 individualized issues. Plaintiffs allege that Defendant “aided and abetted the EquityBuild 6 Scheme.” Mot. at 3; see also Compl. ¶¶ 19, 30–32, 36. All class members were affected by 7 Defendant’s alleged misconduct. See Mot. at 19; see also Compl. ¶ 1. Although class members 8 will need to rely upon individual evidence to show the extent of their loss, the “mere fact that there 9 might be differences in damage calculations is not sufficient to defeat class certification.” 10 Hyundai II, 926 F.3d at 560 (quotation omitted). Additionally, the methodology for measuring 11 damages is applicable class wide. See Mot. at 14 (explaining that the “Settlement here will rely on 12 [the claim forms investors submitted to the Receiver documenting their losses] to allocate 13 settlement proceeds proportionally based on losses already reported to the Receiver”). 14 ii. Superiority 15 The superiority requirement tests whether “a class action is superior to other available 16 methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). The 17 Court considers four non-exclusive factors:
18 (1) the class members’ interests of each class member in individually controlling the prosecution or defense of separate actions; (2) the 19 extent and nature of any litigation concerning the controversy already commenced by or against the class; (3) the desirability of 20 concentrating the litigation of the claims in the particular forum; and (4) the difficulties likely to be encountered in the management of a 21 class action. 22 Id. Here, the Court concludes that a class action enables the most efficient use of Court and 23 attorney resources and reduces costs to the class members by allocating costs among them. 24 Further, this forum is appropriate, and there are no obvious difficulties in managing this class 25 action. 26 The Court finds that the predominance and superiority requirements of Rule 23(b)(3) are 27 met. iii. Class Representative and Class Counsel 1 Because the Court finds that Named Plaintiffs meet the commonality, typicality, and 2 adequacy requirements of Rule 23(a), the Court appoints the Named Plaintiffs as class 3 representatives. When a court certifies a class, it must also appoint class counsel. Fed. R. Civ. P. 4 23(c)(1)(B). Factors that courts must consider when making that decision include: 5 (i) the work counsel has done in identifying or investigating 6 potential claims in the action; (ii) counsel’s experience in handling class actions, other complex 7 litigation, and the types of claims asserted in the action; (iii) counsel’s knowledge of the applicable law; and 8 (iv) the resources that counsel will commit to representing the class. 9 Fed. R. Civ. P. 23(g)(1)(A). Plaintiffs’ counsel has efficiently investigated and litigated this case. 10 Alan Rosca and Paul Scarlato formed proposed Class Counsel, Rosca Scarlato, LLC, in 2022, but 11 represent that they each have many years of experience with class action litigation and have 12 handled financial fraud cases in the past. See generally Dkt. No. 129-1, Ex. B. Accordingly, the 13 Court appoints Rosca Scarlato, LLC as class counsel. 14 III. PRELIMINARY SETTLEMENT APPROVAL 15 Finding that provisional class certification is appropriate, the Court considers whether it 16 should preliminarily approve the parties’ class action settlement. 17 A. Legal Standard 18 Federal Rule of Civil Procedure 23(e) provides that “[t]he claims, issues, or defenses of a 19 certified class—or a class proposed to be certified for purposes of settlement—may be settled . . . 20 only with the court’s approval.” Fed. R. Civ. P. 23(e). “The purpose of Rule 23(e) is to protect 21 the unnamed members of the class from unjust or unfair settlements affecting their rights.” In re 22 Syncor ERISA Litig., 516 F.3d 1095, 1100 (9th Cir. 2008). Accordingly, before a district court 23 approves a class action settlement, it must conclude that the settlement is “fundamentally fair, 24 adequate and reasonable.” In re Heritage Bond Litig., 546 F.3d 667, 674–75 (9th Cir. 2008). 25 Where the parties reach a class action settlement prior to class certification, district courts 26 apply “a higher standard of fairness and a more probing inquiry than may normally be required 27 under Rule 23(e).” Dennis v. Kellogg Co., 697 F.3d 858, 864 (9th Cir. 2012) (quotations omitted). 1 collusion or other conflicts of interest than is ordinarily required under Rule 23(e) before securing 2 the court’s approval as fair.’” Roes, 1-2 v. SFBSC Mgmt., LLC, 944 F.3d 1035, 1049 (9th Cir. 3 2019) (quoting In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 946 (9th Cir. 2011)). A 4 more “exacting review is warranted to ensure that class representatives and their counsel do not 5 secure a disproportionate benefit at the expense of the unnamed plaintiffs who class counsel had a 6 duty to represent.” Id. (quotations omitted). 7 “The Court cannot . . . fully assess [the fairness] factors until after the final approval 8 hearing; thus, a full fairness analysis is unnecessary at this stage.” Uschold v. NSMG Shared 9 Servs., LLC, 333 F.R.D. 157, 169 (N.D. Cal. 2019) (quotation omitted). “At the preliminary 10 approval stage, the settlement need only be potentially fair.” Id. (quotation omitted). Preliminary 11 approval is appropriate if the proposed settlement: (1) appears to be the product of serious, 12 informed, non-collusive negotiations; (2) does not grant improper preferential treatment to class 13 representatives or other segments of the class; (3) falls within the range of possible approval; and 14 (4) has no obvious deficiencies. See In re Tableware Antitrust Litig., 484 F. Supp. 2d 1078, 1079 15 (N.D. Cal. 2007). Courts lack the authority, however, to “delete, modify or substitute certain 16 provisions. The settlement must stand or fall in its entirety.” Dennis, 697 F.3d at 868 (quotation 17 omitted). 18 B. Analysis 19 i. Evidence of Conflicts and Signs of Collusion 20 The first factor the Court considers is whether there is evidence of collusion or other 21 conflicts of interest. See Roes, 944 F.3d at 1049. The Ninth Circuit has directed district courts to 22 look for “subtle signs of collusion,” which include whether counsel will receive a disproportionate 23 distribution of the settlement, whether the parties negotiate a “‘clear sailing’ arrangement (i.e., an 24 arrangement where defendant will not object to a certain fee request by class counsel),” and 25 whether the parties agree to a reverter that returns unclaimed funds to the defendant. Id. 26 At this stage, class counsel’s requested fee award does not appear to constitute a 27 disproportionate share of the settlement agreement. Under the Settlement Agreement, class 1 available to the class, and litigation expenses of no more than $145,000. Mot. at 15–16. 2 Ultimately, the reasonableness of any requested fees will have to be evaluated in light of the actual 3 benefit to the class and class counsel’s lodestar at the final approval stage. 4 The parties represent that this is a “non-reversionary settlement and the entire $3.75 5 million Settlement Fund is for the benefit of the Settlement Class, regardless of how many claims 6 are submitted.” Mot. at 5. The Court is satisfied with the parties’ proposed distribution plan and 7 agrees that there is no reverter provision that would return unclaimed funds to the defendant. 8 Given that Class Counsel will not request a disproportionate amount of the settlement 9 agreement in fees and that other signs of collusion or conflict are not present, the Court finds that 10 this factor weighs in favor of preliminary approval. 11 ii. Cy Pres Distribution 12 The Court must also evaluate whether the parties’ proposed cy pres recipient is 13 appropriate. A cy pres award must qualify as “the next best distribution” to giving the funds to 14 class members. Dennis, 697 F.3d at 865 (quotation omitted). “Not just any worthy recipient can 15 qualify as an appropriate cy pres beneficiary,” and there must be a “driving nexus between the 16 plaintiff class and the cy pres beneficiaries.” Id. (quotation omitted). That is to say, a cy pres 17 award must be “guided by (1) the objectives of the underlying statute(s) and (2) the interests of the 18 silent class members, and must not benefit a group too remote from the plaintiff class.” Id. 19 (quotation omitted). A cy pres distribution is not appropriate if there is “no reasonable certainty 20 that any class member would benefit from it.” Id. (quotation omitted). 21 Here, the parties selected the Victim Connect Resource Center, a non-profit that assists 22 “victim of investment fraud, including specifically Ponzi schemes.” Dkt. No. 135 at 1. The Court 23 preliminarily finds that the Victim Connect Resource Center shares the interests of the Class 24 Members in facilitating redress for victims of investment fraud. Accordingly, the Court 25 preliminarily finds that there is a sufficient nexus between the cy pres recipient and the class. 26 iii. Preferential Treatment 27 The Court next considers whether the settlement agreement provides preferential treatment 1 vigilant” for signs that counsel have allowed the “self-interests” of “certain class members to 2 infect negotiations.” In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 947 (9th Cir. 3 2011). For that reason, courts in this district have consistently stated that preliminary approval of 4 a class action settlement is inappropriate where the proposed agreement “improperly grants 5 preferential treatment to class representatives.” See In re Tableware Antitrust Litig., 484 F. Supp. 6 2d 1078, 1079 (N.D. Cal. 2007). 7 Although Named Plaintiffs are authorized to seek incentive awards, the Court will 8 ultimately determine whether each Plaintiff’s individual award is appropriate in light of their role 9 and responsibilities as Named Plaintiff. Incentive awards “are intended to compensate class 10 representatives for work done on behalf of the class, to make up for financial or reputational risk 11 undertaken in bringing the action.” Rodriguez v. West Publ’g Corp., 563 F.3d 948, 958–59 (9th 12 Cir. 2009). Class representatives must provide sufficient evidence to allow the Court to evaluate 13 their award “individually, using ‘relevant factors includ[ing] the actions the plaintiff has taken to 14 protect the interests of the class, the degree to which the class has benefitted from those actions, . . 15 . [and] the amount of time and effort the plaintiff expended in pursuing the litigation . . . .’” 16 Stanton v. Boeing Co., 327 F.3d 938, 977 (9th Cir. 2003) (citation omitted). Under the Settlement 17 Agreement, Class Representatives are entitled to a service award, subject to the Court’s approval. 18 Settlement Agreement, ¶ J. 19 Lead Counsel requests that the “Court permit them to include in the Notice that Lead 20 Counsel intends to apply for a service award in the amount of $10,000 each to Plaintiffs Annie 21 Chang, Ann Chang, Oliver Chang, Melanie Gonzales and Gary Gonzales.” Mot. at 24. The Court 22 will permit Lead Counsel to include this information in the notice but will consider the evidence 23 presented at the final approval hearing and evaluate the reasonableness of any incentive award 24 request. Nevertheless, because incentive awards are not per se unreasonable, the Court finds that 25 this factor weighs in favor of preliminary approval. See Rodriguez, 563 F.3d at 958 (finding that 26 “[i]ncentive awards are fairly typical in class action cases” and “are discretionary” (emphasis 27 omitted)). iv. Settlement within Range of Possible Approval 1 The Court must also consider whether the settlement is within the range of possible 2 approval. To evaluate whether the settlement amount is adequate, “courts primarily consider 3 plaintiffs’ expected recovery balanced against the value of the settlement offer.” In re Tableware, 4 484 F. Supp. 2d at 1080. This requires the Court to evaluate the strength of Plaintiff’s case. 5 Plaintiffs have explained the significant risks, expense, and delay that they would face in 6 continuing to litigate this case. See Mot. at 12-13. According to Plaintiffs, litigation of these 7 claims through trial would present significant challenges to prevailing on the merits because they 8 would need to overcome several substantial hurdles including class certification, summary 9 judgment, trial, and appeal. Id. Plaintiffs estimate a total loss of just over $100 million. Mot. at 10 10–11. Plaintiffs also state that the Receiver in the SEC action is holding approximately $70 11 million “in cash in property-specific accounts” and that it is “likely that a significant percentage 12 will go to [the proposed Class Members], making the out-of-pocket losses suffered by the Class 13 far less than $100 million.” Mot. at 11 (footnote omitted). Plaintiffs further point out that “[e]ven 14 without considering any recovery by the Receiver, the proposed settlement amounts to 15 approximately 3.75% of estimated losses.” Mot. at 11. Given that Plaintiffs are planning to use 16 the Receiver’s list to contact the Class Members and that the Receiver has had a 100% response 17 rate to the claims, Plaintiffs also expect “that the percentage of Class Members who submit claims 18 will be very high.” Mot. at 15. 19 The Court finds that the settlement amount, given the risks outlined by Plaintiffs, weighs in 20 favor of granting preliminary approval. 21 v. Obvious Deficiencies 22 Finally, the Court considers whether there are obvious deficiencies in the settlement 23 agreement. The Court finds no obvious deficiencies, and therefore finds that this factor weighs in 24 favor of preliminary approval. 25 Having weighed the relevant factors, the Court preliminarily finds that the settlement 26 agreement is fair, reasonable, and adequate, and GRANTS preliminary approval. The Court 27 DIRECTS the parties to include both a joint proposed order and a joint proposed judgment when 1 submitting their motion for final approval. 2 IV. PROPOSED CLASS NOTICE PLAN 3 The Court “must direct notice in a reasonable manner to all class members who would be 4 bound by the proposal[.]” Fed. R. Civ. P. 23(e)(1)(B). The “best notice . . . practicable under the 5 circumstances[] includ[es] individual notice to all [class] members who can be identified through 6 reasonable effort.” Fed. R. Civ. P. 23(c)(2)(B). 7 Class Counsel proposes mailing Class Members a copy of the notice, using the address list 8 compiled by the Receiver in the Receivership action. Mot. at 21. Class Counsel states that the list 9 is likely “overly inclusive and captures all of the prospective Class Members.” Class Counsel also 10 notes that the Receiver has gathered email addresses for most of the Claimants in the Receiver 11 action which it proposes could be an additional point of contact. Mot. at 21-22. The Court finds 12 that the proposed notice process is “reasonably calculated, under all the circumstances, to apprise 13 all class members of the proposed settlement.” Roes, 944 F.3d at 1045 (quotation omitted). 14 With respect to the content of the notice itself, the notice must clearly and concisely state 15 in plain, easily understood language: 16 (i) the nature of the action; (ii) the definition of the class certified; 17 (iii) the class claims, issues, or defenses; (iv) that a class member may enter an appearance through an attorney if 18 the member so desires; (v) that the court will exclude from the class any member who requests 19 exclusion; (vi) the time and manner for requesting exclusion; and 20 (vii) the binding effect of a class judgment on members[.] 21 Fed. R. Civ. P. 23(c)(2)(B). 22 The Court finds that the parties’ proposed notice plan, described in detail above, and the 23 proposed notice (Dkt. No. 135-4) along with the proposed claim form (Dkt. No. 135-5), is the best 24 practicable form of notice under the circumstances and satisfies Rule 23 requirements. 25 V. CONCLUSION 26 The Court GRANTS Plaintiff’s motion for preliminary approval of class action. The 27 parties are DIRECTED to meet and confer and stipulate to a schedule of dates, with calendar 1 Court within 21 days of the date of this Order: 2 3 Deadline for Settlement Administrator to mail, 4 email Notice to Class Members Filing deadline for attorneys’ fees andcosts motion | □ s—i(‘i‘sSCSY 5 Filing deadline for incentive payment motion PO Deadline for Class Members to opt-out or object to 6 settlement and/or application for attorneys’ fees and 7 costs and incentive payment, at least 35 days after the filing of the motions for attorneys’ fees and 8 incentive payments Filing deadline for final approval motion Ps 9 Final fairness hearing and hearing on motions PO 10 The Court VACATES all other deadlines. The parties are further DIRECTED to 11 implement the proposed class notice plan. IT IS SO ORDERED.
Datea: 12/20/2022
Apupurred 3 bbl). HAYWOOD S. GILLIAM, JR. United States District Judge Q 16
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