Chun-Hoon v. McKee Foods Corp.

716 F. Supp. 2d 848, 2010 U.S. Dist. LEXIS 62703, 2010 WL 2340811

• Court: District Court, N.D. California
• Decided: June 7, 2010
• Docket: C 05-620 VRW
• Status: Published

Opinion

ORDER

VAUGHN R. WALKER, Chief Judge.

The parties seek final approval of settlement in this class action against McKee Foods Corporation (“McKee”) for violation of the overtime requirements of the California Labor Code, fraud, negligent misrepresentation, breach of contract, unfair and fraudulent business practices and declaratory relief. Docs. # 103; 1.

As set forth in the court’s October 15 order, Doc. # 100, McKee manufactures Little Debbie Snack Cakes and Sunbelt snacks and cereals and sells its products to independent distributors, who then resell the products to supermarkets, mass merchandisers and other retail outlets. After unsuccessful settlement discussions, the parties engaged former United States District Judge Eugene F Lynch to mediate the case. The mediation proved fruitful and on August 11, 2009, the parties moved for preliminary approval of the proposed settlement.

The court granted preliminary approval of the class action settlement on October 15, 2009, 2009 WL 3349549. Doc. # 100. The factual background of the case and the terms of the settlement agreement have not changed since the issuance of that order; therefore, the court does not rescribe those items here.

Notice of the proposed settlement was provided to the class, and of the 329 class members who were mailed notices of the proposed settlement, only sixteen (16) returned exclusion forms. Doc. # 103 at 8; Cagle Decl. at ¶¶ 4-5, 9. Of the 148 class members who responded to the class notice, 132 submitted claim forms. Id. No objections to the proposed settlement have been filed. Id.

The parties, jointly, now move for final approval of the proposed settlement pursuant to FRCP 23(e). Doc. # 103. Class counsel also move for an order granting attorney fees, costs and class representative incentive payments. Doc. # 106. The court held a final settlement approval hearing on March 11, 2010, at which time the parties clarified that the settlement excludes new or additional individuals who were not part of the class as of the date of notice.

Before taking up the merits of the parties’ application, the court notes that in this case, like many class actions, variables pertinent to the award of reasonable fees to class counsel, including the strength of the class’s case, the opportunity costs incurred by class counsel, the spectra of risk faced by the parties and the business calculus that drives settlement discussions, are difficult to quantify. In an effort to obtain at least some measure of these factors, the undersigned has used the lodestar cross-check method, crafted by the late Judge Edward Becker, see In re General Motors Gorp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768, 820 (3d Cir.1995), to evaluate whether, given the circumstances presented in a particular class action, a negotiated fee award appears reasonable. As. discussed in more detail below, the above-captioned case provides further evidence of the utility of the lodestar crosscheck method in evaluating the true value of a proposed settlement and thus the worth of the services rendered by class counsel in bringing and prosecuting the action. As explained below, that analysis here suggests that this was a notably weak case and counsel’s efforts could more profitably have been devoted to other pursuits.

For the reasons that follow, the court GRANTS the parties’ motion for final settlement approval and GRANTS class counsel’s motion for fees, costs and incentive payments.

I

Federal Rule of Civil Procedure 23(e) requires court approval for the settlement of any class action. In order to be approved, a settlement must be “fundamentally fair, adequate and reasonable.” Tomsi v. Tucson Elec. Power Co., 8 F.3d 1370, 1375 (9th Cir.1993) (quoting Class Plaintiffs v. Seattle, 955 F.2d 1268, 1276 (9th Cir.1992), cert. denied, 506 U.S. 953, 113 S.Ct. 408, 121 L.Ed.2d 333 (1992)), cert. denied, 512 U.S. 1220, 114 S.Ct. 2707, 129 L.Ed.2d 834 (1994). In assessing whether a settlement is “fair, reasonable and adequate” under FRCP 23(e), the court is to consider: (1) the strength of the plaintiffs’ case; (2) the risk, expense, complexity and likely duration of further litiga tion; (3) the risk of maintaining class action status throughout the trial; (4) the amount offered in settlement; (5) the extent of discovery completed and the stage of the proceedings; (6) the experience and views of counsel; (7) the presence of a governmental participant; and (8) the reaction of class members to the proposed settlement. 1 Churchill Village v. General Electric, 361 F.3d 566, 575 (9th Cir.2004) (citing Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir.1998)). To these factors, the court adds as a ninth factor to consider the procedure by which the settlement was arrived at. See Manual for Complex Litigation (Fourth) § 21.6 (2004).

The first factor, the strength of plaintiffs’ case, favors settlement, as plaintiffs’ remaining claims appear tenuous. As class counsel recognize, there are significant barriers plaintiffs must overcome in making their case, including proving the existence of an employer-employee relationship between McKee and the distributors. See Doc. # 103 at 17. The parties seem to agree that McKee has “introduced significant evidence that the actual relationship between McKee and the distributors was consistent with the distributorship Agreements,” which allegedly envision an independent contractor, rather than an “employee,” relationship. Id. Because plaintiffs will likely face difficulty in establishing the existence of an employer-employee relationship, the likelihood of plaintiffs succeeding on their claims seems remote.

For the same reason, the second factor, the risk, expense, complexity and likely duration of further litigation, favors settlement as well. Given the tenuous nature of plaintiffs’ claims described above, there is a significant risk of an outcome unfavorable to the plaintiffs and the class.

The risk of maintaining class action status throughout the trial additionally favors settlement, albeit slightly. McKee contends that developments in case law as well as further discovery will confirm that the issues in this case cannot be tried on a representative basis. Doc. # 103 at 18. While such an assertion does not lead to the conclusion that maintaining a class is unlikely, it does appear plaintiffs agree that before the conclusion of a trial the court would have to reconsider the issue of class certification. Id. at 19. Because a risk of decertification has been acknowledged by both parties, this factor slightly favors settlement.

The precise terms of offer also favor settlement. While the court noted its hesitation regarding the purported benefits to the class in its order of October 15, Doc. # 100, this concern evidently was not shared by the members of the class, none of whom objected to the settlement offer. Despite its earlier hesitation, the court finds that the terms of settlement do in fact provide benefits to the class. Specifically, former distributors may opt for a $250 cash settlement, which by definition is beneficial. As to current distributors, the court finds the marketing seminars, which are designed, in part, to provide examples of business models and practices that distributors have used to increase their sales and profitability, will afford distributors valuable business training and advice. The skills acquired during the seminars will then in turn enable distributors to utilize more efficient business practices and methods. Upon further reflection, therefore, the court finds the settlement to be beneficial to the class.

The extent of discovery completed and the stage of the proceedings, factor num ber five, also supports settlement. The parties have engaged in several years of litigation, including depositions, substantial research, an interlocutory appeal and several motions. By the time the settlement was reached, therefore, the litigation had proceeded to a point at which both plaintiffs and defendants “ha[d] a clear view of the strengths and weaknesses of their cases.” In re Warner Communications Sec. Litig., 618 F.Supp. 735, 745 (S.D.N.Y.1985) aff'd 798 F.2d 35 (2d Cir.1986). Because the true value of the class’ claims is well-known and class counsel possess a sufficient understanding of the issues involved and the strengths and weaknesses of the ease, the fifth factor favors settlement.

The views of counsel support settlement as well. While some courts have indicated that such views are entitled to deference, see, for example, Williams v. Vukovich, 720 F.2d 909, 922-23 (6th Cir.1983), this court is reluctant to put much stock in counsel’s pronouncements, as parties to class actions and their counsel often have pecuniary interests in seeing the settlement approved. Here, the parties move jointly for final approval of the settlement. While the court is disinclined to give this factor much weight, the favorable views of counsel do support settlement.

The reaction of class members to the proposed settlement, or perhaps more accurately the absence of a negative reaction, strongly supports settlement. A total of zero objections and sixteen opt-outs (comprising 4.86% of the class) were made from the class of roughly three hundred and twenty-nine (329) members. The Ninth Circuit has approved settlements over objections if the settlement otherwise meets the fairness requirements. See, e.g., Churchill Village, 361 F.3d at 577 (500 opt-outs and 45 objections out of approximately 90,000 notified class members); In re Mego Financial Sec. Litig., 213 F.3d 454, 459 (9th Cir.2000) (one objection out of a potential class of 5400). Accordingly, the overwhelming positive reaction of the class members supports settlement.

Lastly, the procedure by which the settlement was arrived further supports settlement. The arms-length negotiations, including a day-long mediation before Judge Lynch, indicate that the settlement was reached in a procedurally sound manner. Doc. # 176 at 4. Additionally, there is nothing in the record indicating collusion or bad faith by the parties.

After considering the above factors and the lodestar figure discussed below, the court finds the settlement to be fair, reasonable and adequate to the class within the meaning of FRCP 23(e)(1)(C). The court, therefore, GRANTS the parties’ motion for final approval of the settlement.

II

The court has the authority and duty to determine the fairness of attorney fees in a class action settlement. Zucker v. Occidental Petroleum Corp., 192 F.3d 1323, 1328-29 (9th Cir.1999). Class counsel seek an award of attorney fees in the amount of $255,000, plus litigation costs of $34,156.07. Doc. # 106 at 5.

Class counsel have submitted data on their own stated hourly rates and have calculated the lodestar figure using the Laffey matrix. 2 Id. at 11-12 (reenlisting a 2008 class action fee analysis); Doc. # 107, Exh. B; see also Laffey v. Northwest Airlines, Inc., 572 F.Supp. 354 (D.D.C.1983), rev’d on other grounds, 746 F.2d 4 (D.C.Cir.1984), cert. denied, 472 U.S. 1021, 105 S.Ct. 3488, 87 L.Ed.2d 622 (1985), as modified by Save Our Cumberland Mountains, Inc. v. Model, 857 F.2d 1516 (D.C.Cir.1988).

While class counsel’s submissions are helpful, the court recalculates the lodestar figure as follows. Under the 2009-2010 Laffey matrix, 3 attorneys bill at the following rates according to experience:

Experience Rate Per Hour

20+ Years $465

11-19 Years $410

8-10 Years $330

4-7 Years $270

1-3 Years $225

Paralegals & Law Clerks $130

Class counsel further recognize that these figures are tailored for the District of Columbia and cost of living data differ for San Francisco and Los Angeles (the cities in which class counsel operate). Class counsel have adjusted the hourly rates based on the federal locality pay differentials as indicated on federally compiled cost of living data. See Doc. # 107, Exh. B.

Applying the adjustments for San Francisco (107.4%) and Los Angeles (102.77%), the court obtains the following rates 4 :

Experience San Francisco Hourly Rate Los Angeles Hourly Rate

20+ Years $499.41 $477.88

11-19 Years $440.34 $421.36

8-10 Years $354.42 $339.14

4-7 Years $289.£ $277.48

1-3 Years $241.65 $231.2

Paralegals & Law Clerks $139.6 $133.60

The following table reflects the court’s adjusted lodestar calculations for attorneys and legal assistants working on the case. See Doc. # 106.

Attomey/Legal Assistant Office Experience 2009-10 Laffey Rate Total Hours Total Lodestar

Jeffrey Compton LA 21 $477.88 2.2 1051.34

Kevin Eng SF 10 $354.42 903.1 $320,076.70

Legal Assistant SF n/a $139.62 21 2,932.02

Edward Zusman SF 19 $440.34 193 84,985.62

Legal Assistant LA n/a $133.60 .5 66.80

David Markun LA 27 $477.88 46.7 $ 22,316.97

Totals 1166.5 $431,429.45

First, it appears that, given the length of proceedings, as well as the motions filed and discovery conducted, it is reasonable that the attorneys in this case have spent almost 1,200 hours working on this matter.

The court now turns to the lodestar cross-check, which entails evaluation of the multiplier implied by counsel’s requested fee ($255,000) and counsel’s lodestar fee (computed above as $431,429.45). The lodestar calculation under the Laffey methodology results in a multiplier of 0.59 (255000/431429.45 = .59).

This resulting multiplier of less than one, (sometimes called a negative multiplier) suggests that the negotiated fee award is a reasonable and fair valuation of the services rendered to the class by class counsel. Assuming that the Laffey numbers capture class counsel’s opportunity costs, see Laffey, 746 F.2d at 24, a negotiated fee that works out to a negative multiplier quantifies the amalgam of circumstances the court would otherwise have difficulty evaluating. While it is certainly true that because the negative multiplier reflects a negotiated result that, like any bargain, represents a number of interests, calculations and risk analyses that provide a glimpse into the parties’ collective views of the settlement at this precise snapshot in time, class counsel’s willingness to negotiate a fee award reflecting a negative multiplier signals to the court that, in counsel’s view, plaintiffs’ case is weak and/or fraught with risk.

Again assuming that the adjusted Laffey rates more or less accurately reflect class counsel’s opportunity costs (i e, what they could earn in other engagements), a negative multiplier evinces that undertaking this litigation was not a wise use of class counsel’s time and resources. No matter class counsel’s expectations at the beginning of this case, at the current juncture, by agreeing to a negotiated fee that is but a fraction of prevailing market rates, counsel tacitly confirm that plaintiffs’ case is not what they thought it once was. The lodestar seems to capture numerically this momentary conception of risk and expected outcome; class counsel are willing to accept a fee less than what counsel could have earned in other pursuits. The negative lodestar thus reinforces the court’s findings as to the first and second class action factors discussed in Part II, above; counsel are willing to earn less than they would in a normal case in order to get the class some benefit in a litigation which they see as challenging. To be sure, accuracy of the lodestar multiplier as an index of the strength of the plaintiffs’ case (and hence the value of the services rendered by counsel in bringing and prosecuting the litigation) hinges on Laffey rates accurately capturing counsel’s opportunity costs. A further refinement of this analysis would require class counsel to substantiate their opportunity costs by demonstrating income likely foregone by work on the litigation under scrutiny. Obviously, that requires more than a simple averment of counsel’s “regular” hourly fees. The court has not demanded this here in the interest of bringing this litigation to a close, but a more searching inquiry may be necessary in future applications of this analysis.

Having performed a lodestar crosscheck, the requested fee award looks reasonable, indeed on the low side. Because the lodestar cross-check revealed a multiplier of 0.59, the court is satisfied that counsel’s requested fee award is not unreasonable.

Ill

Incentive awards are appropriate only to compensate named plaintiffs for work done in the interest of the class as well as to compensate named plaintiffs for their reasonable fear of workplace retaliation. See Staton v. Boeing Co., 327 F.3d 938, 977 (9th Cir.2003). The court must ensure that the incentive awards are not the result of fraud or collusion. Id. at 975.

Here, class counsel represents that class representatives Chun-Hoon and Guglielmino have made “significant contribution[s] to the prosecution of this matter.” Doc. # 106 at 12. These efforts included reviewing court documents, providing thousands of pages of personal and business records for review by McKee and participation in early-neutral evaluation and mediation. Id.

The amount of each plaintiffs incentive award, $5,000, appears reasonable in light of the work performed by each plaintiff and the risk each faced. Nothing in the record indicates fraud or collusion. Because the incentive awards appear fair, the court approves them.

IV

For the above reasons, and for those stated in its October 15 order, Doc. # 100, the court GRANTS the parties’ joint motion for final approval of class action settlement. Doc. # 103. The court also GRANTS plaintiffs’ motion for attorney fees, costs and class representative incentive payments. Doc. # 106.

IT IS SO ORDERED.

1 . Because there is no government participant in this litigation, the seventh factor courts consider in approving a class action settlement does not apply in this case.

2 . The Laffey Matrix is "a schedule of charges based on years of experience.” Covington v. District of Columbia, 57 F.3d 1101, 1105 (D.C.Cir.1995) (citation omitted).

3 . See United States Attorney's Office for the District of Columbia's website (available at: http://www.justice.gov/usao/ dc/Divisions/CiviLDivision/LaffeyJMatrix_8.html) (last visited June 6, 2010).

4 . Hourly Mean Wage for Attorneys, (May 2008): Los Angeles, $71.66; San Francisco, $74.89; Washington, $69.73 (available at http://bls.gov) (last visited March 9, 2010). Using these figures, the court calculates the San Francisco and Los Angeles adjustments to be 107.4% and 102.77%, respectively.