7 UNITED STATES DISTRICT COURT 8 FOR THE EASTERN DISTRICT OF CALIFORNIA 9 10 ANGELA CONTI and JUSTINE MORA, No. 1:19-cv-00769-LJO-SKO 11 individuals, on behalf of themselves, and on behalf of all persons similarly situated, 12 Plaintiffs, FINDINGS AND RECOMMENDATION 13 REGARDING PLAINTIFF’S MOTION FOR v. PRELIMINARY APPROVAL OF CLASS 14 ACTION SETTLEMENT L’OREAL USA S/D, INC., a Corporation, 15 OBJECTIONS DUE: 21 DAYS Defendant. 16 (Doc. 9)
17 18 19 On November 12, 2019, Plaintiffs Angela Conti and Justine Mora, individually and on 20 behalf of all others similarly situated, filed an unopposed motion for preliminary approval of a class 21 action settlement. (Doc. 9.) The motion was referred to the undersigned magistrate judge for 22 findings and recommendation pursuant to 28 U.S.C. § 636(b). The undersigned reviewed 23 Plaintiffs’ papers and all supporting material and found the matter suitable for decision without oral 24 argument pursuant to Local Rule 230(g). The hearing set for December 11, 2019, was therefore 25 VACATED. (See Doc. 12.) 26 For the reasons set forth below, the Court RECOMMENDS that Plaintiffs’ unopposed 27 motion for preliminary approval be DENIED without prejudice. 1 I. BACKGROUND 2 A. Factual and Procedural History 3 Defendant is a retail corporation that conducts business throughout California. (Doc. 1 at 4 146.) Defendant employed Plaintiffs as hourly, non-exempt employees. (Id.) Plaintiffs allege 5 that Defendant required them to work overtime “off the clock” without paying them, by requiring 6 Plaintiffs to “clock out” of the timekeeping system for meal breaks and at the end of each shift 7 and then submit to “loss prevention inspections.” (Id. at 148.) As a result, Plaintiffs allegedly 8 “forfeited overtime wages by working without their time being correctly recorded and without 9 compensation at the applicable overtime rates.” (Id.) Plaintiffs further allege Defendant, “from 10 time to time,” failed to allow them to “take off duty meal breaks,” did not fully relieve them of 11 duty for meal periods, and did not provide them with a second off-duty meal break per 10 hours 12 of work. (Id. at 149.) Defendant also allegedly failed to provide Plaintiffs with required rest 13 periods and failed to provide complete and accurate wage statements. (Id.) 14 On March 6, 2018, Plaintiffs filed this putative class action in Fresno County Superior 15 Court, alleging violations of California Labor Code sections. (See Doc. 1 at 2.) On April 9, 2018, 16 Plaintiffs filed a first amended complaint, adding a claim under the California Private Attorneys 17 General Act (PAGA), California Labor Code §§ 2698, et seq. (See id. at 44.) 18 On or about April 30, 2019, Plaintiffs filed the operative second amended complaint 19 (“SAC”), alleging claims for (1) unfair competition, in violation of California Business and 20 Professions Code §§ 17200, et seq.; (2) failure to pay overtime wages, in violation of California 21 Labor Code §§ 510, et seq.; (3) failure to provide required meal periods, in violation of California 22 Labor Code §§ 226.7 and 512 and California Industrial Welfare Commission (IWC) Orders; (4) 23 failure to provide required rest periods, in violation of California Labor Code §§ 226.7 and 512 24 and IWC Orders; (5) failure to provide accurate itemized statements, in violation of California 25 Labor Code § 226; (6) failure to provide wages when due, in violation of California Labor Code 26 §§ 201, 202, and 203; (7) PAGA violations; and (8) failure to pay overtime compensation, in 27 violation of the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201, et seq. (See id. at 145–86.) 1 of the SAC filed on April 30, 2019. (See id. at 181.) On May 30, 2019, Defendant removed the 2 case to this court. (Id.) 3 At some point prior to the filing of the SAC, the parties agreed to engage in informal 4 discovery and participate in early mediation, and exchanged information including the number of 5 potential class members, Defendant’s payroll information for the class, and other relevant 6 information. (See Doc. 9-1 at 8–9.) On February 13, 2019, the parties participated in a private 7 mediation with mediator Jeffrey Ross. (Id. at 10.) Plaintiffs represent that on February 13, 2019, 8 “the Parties agreed to settle the Action pursuant to the terms of a mediator’s proposal and set forth 9 in the Parties’ Memorandum of Understanding.” (Id.) The parties then negotiated and executed 10 the proposed settlement agreement that is now before the Court (the “Proposed Settlement”). (See 11 Doc. 9-2 at 18–42.) 12 B. The Proposed Settlement 13 For settlement purposes, the class is defined as “all individuals who are or previously were 14 employed by Defendant who worked in California and who were classified as non-exempt during 15 the period March 6, 2014 and February 20, 2018” (the “Settlement Class”).1 (Id. at 18.) The 16 Settlement Class is estimated to include 412 members. (Doc. 9-1 at 22; Doc. 9-2 at 11.) The 17 PAGA period is defined as March 6, 2017 to April 20, 2019, and “[a]ny Aggrieved Employees 18 under PAGA who are not in the Class will not receive a Class Notice but will still be mailed their 19 share of the PAGA Payment along with an explanatory letter.” (See Doc. 9-2 at 2 n.1, 18.) 20 Under the Proposed Settlement, Defendant agrees to pay a maximum settlement amount of 21 $425,000 allocated as follows: (a) class representative service payments of $10,000 to each 22 named Plaintiff; (b) attorney’s fees of up to $106,250, to be paid to class counsel, plus reasonable 23
24 1 The SAC also seeks to certify a “California Labor Sub-Class” and an FLSA “Collective Class.” (See Doc. 1 at 159, 181.) The “California Labor Sub-Class” is defined as “all individuals who are or previously 25 were employed by DEFENDANT in California and classified as non-exempt employees . . . at any time during the period three (3) years prior to the filing of the complaint and ending on the date as determined 26 by the Court[.]” (Id. at 159.) The “Collective Class” is defined as “all persons who are or were previously employed by DEFENDANT in California as non-exempt employees . . . at any time during the period three 27 (3) years prior to the filing of the Complaint and ending on the date as determined by the Court[.]” (Id.at 181.) Plaintiffs now seek to certify a single class for the purposes of settlement only. (See Doc. 9-2 at 1 costs incurred (currently estimated to be approximately $12,000); (c) estimated settlement 2 administration costs currently quoted at $15,000 to be paid to the settlement administrator; (d) 3 penalties of $37,500 to be paid to the Labor and Workforce Development Agency (“LWDA”) 4 pursuant to California Labor Code § 2699(i); (e) PAGA payments to aggrieved employees 5 totaling approximately $12,500 on a pro rata basis based upon their workweeks;2 and (f) the 6 remaining net settlement amount to be distributed to the participating class members. (Doc. 9-2 7 at 22–25.) The net settlement amount will be distributed to class members based on the number 8 of weeks worked for each class member divided by the total weeks worked by all class members 9 during the class period. (See id. at 24.) 10 The Proposed Settlement provides that the settlement amount is non-reversionary: if any 11 checks remain uncashed after 180 days, those amounts will be deposited “with the Unclaimed 12 Property fund maintained by the Controller for the State of California.” (Id. at 33–34.) 13 Plaintiffs seek an order (1) conditionally certifying the class for purposes of settlement, with 14 appointment of Plaintiffs as class representatives, appointment of Plaintiffs’ counsel as class 15 counsel, and approval of ILYM Group Services as the settlement administrator; (2) preliminarily 16 approving the settlement agreement; (3) approving the proposed form and method of notice to be 17 disseminated to the class and authorizing said notice to be mailed; and (4) scheduling the hearing 18 date for the final approval of the class settlement. (Doc. 9.) 19 II. LEGAL STANDARDS 20 A. Preliminary Class Certification and Approval of Settlement Under Rule 23 21 Rule 23 mandates that, “[t]he claims, issues, or defenses of a certified class may be settled, 22 voluntarily dismissed, or compromised only with the court’s approval.” Fed. R. Civ. P. 23(e). 23 The following procedures apply to the court’s review of the proposed settlement: 24 The court must direct notice in a reasonable manner to all class members who would be bound by the proposal . . . . 25 26 If the proposal would bind class members, the court may approve it only after a hearing and on finding that it is fair, reasonable, and adequate . . . . 27 2 The PAGA payments will be distributed “irrespective of whether the Aggrieved Employee opts out from 1 The parties seeking approval must file a statement identifying any agreement made in connection with the proposal. 2 [ . . . ] 3 Any class member may object to the proposal if it requires court approval under 4 this subdivision (e). 5 Id. 6 “Courts have long recognized that settlement class actions present unique due process 7 concerns for absent class members.” In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 8 946 (9th Cir. 2011) (citation and internal quotations omitted). To protect the rights of absent 9 class members, Rule 23(e) requires that the court approve all class action settlements “only after 10 a hearing and on finding that it is fair, reasonable, and adequate.” Fed. R. Civ. P. 23(e)(2); 11 Bluetooth, 654 F.3d at 946. However, when parties seek approval of a settlement agreement 12 negotiated prior to formal class certification, “there is an even greater potential for a breach of 13 fiduciary duty owed the class during settlement.” Bluetooth, 654 F.3d at 946. Thus, the court 14 must review such agreements with “a more probing inquiry” for evidence of collusion or other 15 conflicts of interest than what is normally required under the Federal Rules. Hanlon v. Chrysler 16 Corp., 150 F.3d 1011, 1026 (9th Cir. 1998), overruled on other grounds by Wal-Mart Stores, Inc. 17 v. Dukes, 564 U.S. 338 (2011); see also Lane v. Facebook, Inc., 696 F.3d 811, 819 (9th Cir. 18 2012). 19 Review of a proposed class action settlement ordinarily proceeds in three stages. See 20 MANUAL FOR COMPLEX LITIGATION (4th) § 21.632. First, the court conducts a preliminary 21 fairness evaluation and, if applicable, considers class certification. Second, if the court makes a 22 preliminary determination on the fairness, reasonableness, and adequacy of the settlement terms, 23 the parties are directed to prepare the notice of certification and proposed settlement to the class 24 members. Id. (noting that if the parties move for both class certification and preliminary approval, 25 the certification hearing and preliminary fairness evaluation can usually be combined). Third, 26 the court holds a final fairness hearing to determine whether to approve the settlement. Id.; see 27 also Narouz v. Charter Commc’ns, LLC, 591 F.3d 1261, 1266–67 (9th Cir. 2010). Though Rule 1 23 does not explicitly provide for such a procedure, federal courts generally find preliminary 2 approval of settlement and notice to the proposed class appropriate if the proposed settlement 3 “appears to be the product of serious, informed, non-collusive negotiations, has no obvious 4 deficiencies, does not improperly grant preferential treatment to class representatives or segments 5 of the class, and falls within the range of possible approval.” Lounibos v. Keypoint Gov’t Sols. 6 Inc., Case No. 12–cv–00636–JST, 2014 WL 558675, at *5 (N.D. Cal. Feb. 10, 2014) (quoting In 7 re Tableware Antitrust Litig., 484 F. Supp. 2d 1078, 1079 (N.D. Cal. 2007) ); see also NEWBERG 8 ON CLASS ACTIONS § 13:13 (5th ed. 2011); Dearaujo v. Regis Corp., Nos. 2:14-cv-01408-KJM- 9 AC, 2:14-cv-01411-KJM-AC, 2016 WL 3549473 (E.D. Cal. June 30, 2016) (“Rule 23 provides 10 no guidance, and actually foresees no procedure, but federal courts have generally adopted [the 11 process of preliminarily certifying a settlement class].”). 12 1. Preliminary Class Certification 13 Preliminary class certification is appropriate only if the classes and subclasses “meet the 14 four threshold requirements of Federal Rule of Civil Procedure 23(a): numerosity, commonality, 15 typicality, and adequacy of representation.” Leyva v. Medline Indus. Inc., 716 F.3d 510, 512 (9th 16 Cir. 2013) (citing Fed. R. Civ. P. 23(a)). If Rule 23(a)’s threshold requirements are met, the 17 proposed class must further satisfy Rule 23(b)(3)’s predominance and superiority requirements. 18 Fed. R. Civ. P. 23(b)(3); see Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 615 (1997). 19 Whenever it reviews requests for class certification, the court “must pay ‘undiluted, even 20 heightened, attention’ to class certification requirements . . . .” Staton v. Boeing Co., 327 F.3d 21 938 at 952–53 (9th Cir. 2003) (citations omitted); see Berry v. Baca, No. CV 01-02069 DDP, 22 2005 WL 1030248, at *7 (C.D. Cal. May 2, 2005) (the parties cannot merely “agree to certify a 23 class that clearly leaves any one requirement unfulfilled”). The plaintiff bears the burden of 24 demonstrating that the requirements of Rule 23 have been satisfied as to the proposed class. See 25 Dukes, 564 U.S. at 350; Narouz, 591 F.3d at 1266. As the Supreme Court explained, 26 Rule 23 does not set forth a mere pleading standard. A party seeking class certification must affirmatively demonstrate his compliance with the Rule—that is, 27 he must be prepared to prove that there are in fact sufficient numerous parties, common questions of law or fact, etc. We recognized in Falcon that “sometimes it 1 may be necessary for the court to probe behind the pleadings before coming to rest on the certification question,” and that certification is proper only if “the trial court 2 is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied.” 3 Dukes, 564 U.S. at 350 (internal citations omitted) (italics in original). “A court that is not 4 satisfied that the requirements of Rule 23 have been met should refuse certification until [those 5 requirements] have been met.” Advisory Committee 2003 Note on Fed. R. Civ. P. 23(c)(1). 6 2. Preliminary Settlement Approval 7 As set forth above, a court may preliminarily approve a class action settlement under Rule 8 23(e) only if the settlement is fair, reasonable, and adequate. Bluetooth, 654 F.3d at 946. 9 “[P]reliminary approval of a settlement has both a procedural and substantive component.” See, 10 e.g., Tableware, 484 F. Supp. 2d at 1079 (citing Schwartz v. Dallas Cowboys Football Club, Ltd., 11 157 F. Supp. 2d 561, 570 n.12 (E.D. Pa. 2001)). In particular, preliminary approval of a 12 settlement and notice to the proposed class is only appropriate if: (i) the proposed settlement 13 “appears to be the product of serious, informed, non-collusive negotiations”; and (ii) the 14 settlement “falls within the range of possible approval,” has “no obvious deficiencies,” and does 15 not “improperly grant preferential treatment” to class representatives or segments of the class. 16 Id.; see also Ross v. Bar None Enters., Inc., No. 2:13–cv–00234–KJM–KJN, 2014 WL 4109592, 17 at *9 (E.D. Cal. Aug. 19, 2014). While it is not a court’s province to “reach any ultimate 18 conclusions on the contested issues of fact and law which underlie the merits of the dispute,” a 19 court should weigh, among other factors, the strength of a plaintiff’s case; the risk, expense, 20 complexity, and likely duration of further litigation; the extent of discovery completed; and the 21 value of the settlement offer. Chem. Bank v. City of Seattle, 955 F.2d 1268, 1291 (9th Cir. 1992); 22 see also Officers for Justice v. Civil Serv. Comm’n of City & Cty. of S.F., 688 F.2d 615, 625 (9th 23 Cir. 1982). 24 B. FLSA Settlements 25 The FLSA establishes certain labor guarantees that cannot be modified by contract, Genesis 26 Healthcare Corp. v. Symczyk, 569 U.S. 66, 69 (2013), and an employee may bring a collective 27 action under the FLSA representing “similarly situated” employees, but the other employees must 1 “opt-in” to the action. See Does I thru XXIII v. Advanced Textile Corp., 214 F.3d 1058, 1064 (9th 2 Cir. 2000). “Because an employee cannot waive claims under the FLSA, they may not be settled 3 without supervision of either the Secretary of Labor or a district court.” Maciel v. Bar 20 Dairy 4 LLC, No. 1:17-cv-00902-DAD-SKO, 2018 WL 5291969, at *4 (E.D. Cal. Oct. 23, 2018) 5 (citations omitted). 6 District courts in the Ninth Circuit typically apply a “widely-used standard adopted by the 7 Eleventh Circuit” to determine whether to approve an FLSA settlement, “which looks to whether 8 the settlement is a fair and reasonable resolution of a bona fide dispute.” Id. (citing, e.g., Lynn’s 9 Food Stores, Inc. v. United States, 679 F.2d 1350, 1352–53 (11th Cir. 1982)). If the district court 10 determines there is a bona fide dispute, courts often apply the Rule 23 factors for assessing class 11 action settlements. See id. (citations omitted). Courts “have questioned the propriety of allowing 12 an FLSA collective action to proceed in the same case as a Rule 23 class action,” but some district 13 courts in the Ninth Circuit nonetheless “have allowed hybrid FLSA/Rule 23 actions to proceed to 14 settlement, particularly where the funds and claims are treated separately.” Id. at *5; see, e.g., 15 Thompson v. Costco Wholesale Corp., No. 14-cv-2778-CAB-WVG, 2017 WL 697895, at *8 (S.D. 16 Cal. Feb. 22, 2017) (“courts that have approved settlements releasing both FLSA and Rule 23 17 claims generally do so only when the parties expressly allocate settlement payments to FLSA 18 claims.”). 19 III. DISCUSSION 20 A. Rule 23(a) Requirements 21 1. Numerosity 22 The numerosity requirement is satisfied where “the class is so numerous that joinder of all 23 members is impracticable.” Fed. R. Civ. P. 23(a)(1). This requires the Court to consider “specific 24 facts of each case and imposes no absolute limitations.” General Tel. Co. v. EEOC, 446 U.S. 25 318, 330 (1980). Courts interpreting the numerosity requirement have identified a variety of 26 factors relevant to whether joinder of all class members would be impracticable including: (1) the 27 number of individual class members; (2) the ease of identifying and contacting class members; 1 members to bring claims, as affected by their financial resources, the size of the claims, and their 2 fear of retaliation in light of an ongoing relationship with the defendant. See, e.g., Twegbe v. 3 Pharmaca Integrative Pharm., Inc., No. CV 12-5080 CRB, 2013 WL 3802807, at *2 (N.D. Cal. 4 July 17, 2013). 5 Here, Plaintiffs assert that there are approximately 412 class members. (Doc. 9-2 at 11.) 6 The class is readily ascertainable because all class members have worked for Defendant and can 7 be easily identified through Defendant’s records. (See Doc. 9-2 at 25.) Because the joinder of 8 412 plaintiffs would be impracticable, the Court finds that this showing with respect to 9 numerosity is adequate to meet the requirements of Rule 23(a)(1). See, e.g., Collins v. Cargill 10 Meat Sols. Corp., 274 F.R.D. 294, 300 (E.D. Cal. 2011) (“Courts have routinely found the 11 numerosity requirement satisfied when the class comprises 40 or more members.”). 12 2. Commonality 13 The commonality requirement of Rule 23(a)(2) is met where “the class members’ claims 14 ‘depend upon a common contention’ such that ‘determination of its truth or falsity will resolve 15 an issue that is central to the validity of each [claim] with one stroke.’” Mazza v. Am. Honda 16 Motor Co., 666 F.3d 581, 588 (9th Cir. 2012) (quoting Dukes, 564 U.S. at 350). Thus, a plaintiff 17 seeking to certify a class must “demonstrate ‘the capacity of classwide proceedings to generate 18 common answers’ to common questions of law or fact that are ‘apt to drive the resolution of the 19 litigation.’” Id. (quoting Dukes, 564 U.S. at 350, (internal quotation and citation omitted) ). 20 “[C]ommonality only requires a single significant question of law or fact.” Id. at 589 (citation 21 omitted). “The existence of shared legal issues with divergent factual predicates is sufficient, as 22 is a common core of salient facts coupled with disparate legal remedies within the class.” Hanlon, 23 150 F.3d at 1019. So long as there are common questions of law or fact that are susceptible to 24 resolution by common proof, Rule 23(a)(2)’s commonality requirement is met. Cf. Dukes, 564 25 U.S. at 353 (finding insufficient commonality where “significant proof that Wal-Mart operated 26 under a general policy of discrimination” was “entirely absent”). 27 Here, Plaintiffs contend sufficient commonality exists because “Defendants [sic] engaged 1 commonality can exist where a defendant has a uniformly-applied break policy or practice that 2 allegedly violates California law, see, e.g., Abdullah v. U.S. Sec. Assocs., Inc., 731 F.3d 952, 961– 3 63 (9th Cir. 2013), Plaintiffs’ bare assertion that “Defendant[] engaged in uniform practices” is, 4 without more, inadequate to demonstrate commonality. Plaintiffs have submitted no evidence 5 demonstrating the existence of any common practices or policies or the application of such 6 practices in a manner such that class-wide liability could be determined by facts common to all 7 members of the Settlement Class. See Dukes, 564 U.S. at 350. In fact, Plaintiffs did not even 8 submit their own declarations to provide evidence of how the practices were applied to them. 9 Without a more detailed and factually-supported elaboration regarding the practices 10 alleged in the SAC and the application of those practices to the Settlement Class, the undersigned 11 cannot conclude that there are no “dissimilarities within the proposed class” that “have the 12 potential to impede the generation of common answers.” Id. (citation and internal quotation marks 13 omitted). Because Plaintiffs have not yet shown that class treatment will generate common 14 answers apt to drive the resolution of the litigation, the requirement of commonality is not met. 15 3. Typicality 16 Rule 23(a)(3) requires that “the claims or defenses of the representative parties are typical 17 of the claims or defenses of the class [.]” Typicality “refers to the nature of the claim or defense 18 of the class representative, and not to the specific facts from which it arose or the relief sought.” 19 Ellis v. Costco Wholesale Corp., 657 F.3d 970, 984 (9th Cir. 2011). Typicality, in other words, 20 tests “whether other members have the same or similar injury, whether the action is based on 21 conduct which is not unique to the named plaintiffs, and whether other class members have been 22 injured by the same course of conduct.” Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th 23 Cir. 1992) (quoting Schwartz v. Harp, 108 F.R.D. 279, 282 (C.D. Cal. 1985)). Part of the 24 controlling concern is whether “there is a danger that absent class members will suffer if their 25 representative is preoccupied with defenses unique to it.” Id. The “commonality and typicality 26 requirements occasionally merge: ‘Both serve as guideposts for determining whether under the 27 particular circumstances maintenance of a class action is economical and whether the named 1 will be fairly and adequately protected in their absence.’” Parsons v. Ryan, 754 F.3d 657, 685 2 (9th Cir. 2014) (quoting Dukes, 564 U.S. at 349 n.5). 3 Plaintiffs’ counsel states that Plaintiffs are members of the class identified in the 4 settlement agreement. (See, e.g., Doc. 9-1 at 23.) As stated above, however, Plaintiffs have not 5 submitted evidence to support that assertion, such as their declarations. Plaintiffs’ motion asserts 6 that “Plaintiffs were employed by Defendant as non-exempt employee[s] in California and, like 7 every other member of the Class, was [sic] subject to the same employment practices concerning 8 overtime work and meal and rest periods” and “Plaintiffs, like every other member of the Class, 9 also claim compensation as a result of the Defendant’s uniform policies and practices.” (Id. at 10 23.) This bare contention does not establish that Plaintiffs’ experience with Defendant is typical 11 or that the putative class injuries are “based on conduct which is not unique to the named 12 plaintiffs.” Further, as explained above with respect to commonality, Plaintiffs have not provided 13 evidence that members of the Settlement Class were injured by the same course of conduct by 14 Defendant. Accordingly, Plaintiffs have failed to show the typicality requirement is met. 15 4. Adequacy of Representation 16 To fulfill the adequacy requirement, the named plaintiff must “fairly and adequately protect 17 the interests of the class.” Fed. R. Civ. P. 23(a)(4). To determine whether the named plaintiff 18 will adequately represent the class, courts ask two questions: “(1) do the named plaintiffs and 19 their counsel have any conflicts of interest with other class members and (2) will the named 20 plaintiffs and their counsel prosecute the action vigorously on behalf of the class?” Hanlon, 150 21 F.3d at 1020. Indicia of adequacy include, “among other factors, an absence of antagonism 22 between representatives and absentees, and a sharing of interest between representatives and 23 absentees.” Ellis, 657 F.3d at 985 (citations omitted). Review of the adequacy of representation 24 is “especially critical when the class settlement is tendered along with a motion for class 25 certification.” Hanlon, 150 F.3d at 1020. 26 Plaintiffs’ counsel has provided a declaration representing that counsel have no conflicts of 27 interest and are experienced litigators who are fully qualified to pursue the interests of the class. 1 that the court must consider to determine adequacy, Brown v. Ticor Title Ins. Co., 982 F.2d 386, 2 390 (9th Cir. 1992), and there is no reason at this stage to doubt that Plaintiff’s counsel is 3 competent to prosecute the action. 4 The undersigned is concerned, however, about the named Plaintiffs and their counsel’s 5 ability to fairly and adequately protect the class. “[A] class representative must be part of the 6 class and possess the same interest and injury as the class members.” Amchem, 521 U.S. at 626 7 (internal citations omitted). Based on the information submitted, it is not clear that Plaintiffs are 8 adequate representatives of the class, nor that the potential class members have suffered the same 9 injury as Plaintiffs or possess the same interests as Plaintiffs. As stated above, the undersigned 10 has no evidence from Plaintiffs, such as their declarations, setting forth facts to support their 11 adequacy as representatives, including how Defendant’s allegedly unlawful policies were applied 12 to them personally. Thus, based on the record before the undersigned, the Court cannot find that 13 Rule 23(a)(4)’s adequacy requirement has been met in this case. 14 In sum, as Plaintiffs have failed to show commonality, typicality, or adequacy of 15 representation, the undersigned finds Plaintiffs have not satisfied Rule 23(a)’s prerequisites. 16 B. Rule 23(b) Requirements 17 Plaintiffs seek certification under Rule 23(b)(3), which requires that “the questions of law 18 or fact common to class members predominate over any questions affecting only individual 19 members, and that a class action is superior to other available methods for fairly and efficiently 20 adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3); see also Amchem, 521 U.S. at 615. The 21 test of Rule 23(b)(3) is “far more demanding,” than that of Rule 23(a). Wolin v. Jaguar Land 22 Rover N. Am., LLC, 617 F.3d 1168, 1172 (9th Cir. 2010) (quoting Amchem, 521 U.S. at 623–24). 23 1. Predominance 24 First, common questions must “predominate” over any individual questions. While this 25 requirement is similar to the Rule 23(a)(2) commonality requirement, the standard is much higher 26 at this stage of the analysis. Dukes, 564 U.S. at 359; Amchem, 521 U.S. at 624–25; Hanlon, 150 27 F.3d at 1022. While Rule 23(a)(2) can be satisfied by even a single question, Rule 23(b)(3) 1 Hanlon, 150 F.3d at 1022. “When common questions present a significant aspect of the case and 2 they can be resolved for all members of the class in a single adjudication, there is clear justification 3 for handling the dispute on a representative rather than on an individual basis.” Hanlon, 150 F.3d 4 at 1022. 5 Plaintiffs contend that their claims raise “common issues” related to “Defendant’s uniform 6 and systematic employment policies applicable to non-exempt employees[.]” (Doc. 9-2 at 12.) 7 Plaintiffs further contend that “Defendant engaged in a uniform course of failing to properly pay 8 for overtime work and provide legally compliant meal and rest periods, which resulted in a 9 systematic failure to provide compensation as required by law and that Defendant’s policies with 10 respect to these issues are uniform.” (Id.) 11 As to Plaintiffs’ claims related to rest break meal break, and overtime policies, Plaintiffs 12 have submitted no evidence of a policy or practice under which Defendant’s employees were 13 uniformly denied their rest breaks or meal breaks, uniformly denied overtime compensation, 14 and/or uniformly subjected to loss prevention inspections. To the contrary, it appears that 15 Defendant’s policies were not uniformly applied. For example, the SAC alleges that “from time 16 to time,” Plaintiffs “and other CALIFORNIA CLASS Members” were not provided their required 17 rest periods and were either “unable to take off duty meal breaks” or “not fully relieved of duty 18 for meal periods.” (See Doc. 1 at 149.) The SAC also states that the meal break violations were 19 in part due to Plaintiffs’ “rigorous work schedules.” (See id.) In the absence of any evidence 20 showing a uniform policy or practice, identifying rest period, meal break and overtime violations 21 would likely require an individual analysis. 22 The Court would have to ascertain whether Defendant took measures to require an 23 employee to forego some portion of rest period breaks or meal breaks, including a “loss 24 prevention inspection” before they left the premises, such that the employee was not “fully 25 relieved of duty,” the nature of such measures, and whether the employee missed part of their 26 break for reasons other than those measures. (See, e.g., Doc. 9-2 at 9 (“Because the claims were 27 based upon loss prevention inspections, meal and rest break claims were only applicable to 1 Foods Co., Case No. 16-cv-2749-WQH-BLM, 2018 WL 4896072, at *12 (S.D. Cal. Oct. 9, 2018) 2 (denying motion to certify rest period subclass where the record contained “no evidence of a 3 policy limiting the movements of the employees during the rest periods.”); Ritenour v. Carrington 4 Mortg. Servs., LLC, No. SACV 16-02011-CJC(DFMx), 2018 WL 5858658, at *8 (C.D. Cal. Sept. 5 12, 2018) (finding no predominance where the plaintiffs failed to show the defendant had a rest 6 period policy that was applied uniformly to the putative class members). See also Dawson v. 7 Hertz Transporting, Inc., Case No. CV 17-8766-GW(JEMx), 2018 WL 6112623, at *7 (C.D. Cal. 8 Nov. 5, 2018); Schroeder v. Envoy Air, Inc., No. CV 16-4911-MWF (KSx), 2017 WL 3835804, 9 at *10 (C.D. Cal. Aug. 30, 2017) (denying class certification, finding “[t]he evidence of any on- 10 call policy by Envoy is equivocal at best and . . . . apparently will require the taking of 11 individualized testimony by numerous employees and higher-ups in the company. Even if the 12 existence of the policy were to present a common question, Plaintiffs cannot meet the 13 predominance requirement because proving up Plaintiffs’ claims would overwhelm the Court 14 with individualized issues.”). 15 As discussed above with respect to commonality, without any “heightened showing” of the 16 existence of a uniformly-applied rest break, meal break or overtime policy or practice, cf. Wright 17 v. Renzenberger, Inc., Case No. CV 13-6642 FMO (AGRx), 2017 WL 9831398, at *5 (C.D. Cal. 18 Sept. 30, 2017) (finding typicality and certifying class where the plaintiffs “provided substantial 19 evidence that, as a matter of uniform policy,” the defendant instructed employees to take rest 20 breaks while on premises and “counted” that time as rest periods), the undersigned cannot at this 21 time conclude that Plaintiffs’ rest period, meal break and overtime claims are appropriate for 22 class-wide resolution. 23 As to Plaintiffs’ claims related to unfair competition, failure to provide accurate itemized 24 statements and failure to pay wages when due, these claims all appear to be derivative of 25 Plaintiffs’ claims related to rest periods, meal breaks and overtime wages. Because the rest 26 period, meal break, and overtime claims will require individualized inquiry based upon the 27 information currently before the Court, so will these derivative claims. See Ritenour, 2018 WL 1 WL 2621616, at *5 (C.D. Cal. May 4, 2016) (finding that “wage statement claim, . . . § 203 claim, 2 and UCL claim are derivative of . . . meal and rest period claims and cannot be adjudicated on a 3 class basis for the same reasons”). 4 2. Superiority 5 Rule 23(b)(3) also requires a court to find “a class action is superior to other available 6 methods for the fair adjudication of the controversy.” Fed. R. Civ. P. 23(b)(3). In resolving the 7 Rule 23(b)(3) superiority inquiry, the court should consider “(A) the class members’ interests in 8 individually controlling the prosecution or defense of separate actions; (B) the extent and nature 9 of any litigation concerning the controversy already begun by or against class members; (C) the 10 desirability or undesirability of concentrating the litigation of the claims in the particular forum; 11 and (D) the likely difficulties in managing a class action.” Id.; see Amchem, 521 U.S. at 616. 12 Where the parties have agreed to pre-certification settlement, however, there is no need to 13 consider the “likely difficulties in managing a class action.” Amchem, 521 U.S. at 620. Rather, 14 the focus shifts to those requirements that are “designed to protect absentees by blocking 15 unwarranted or overbroad class definitions.” Id. 16 In addressing the superiority requirement, the motion states little more than that “[h]ere, a 17 class action is the superior mechanism for the settlement of the claims as pled by Plaintiffs.” 18 (Doc. 9-1 at 25.) Aside from this conclusory statement, there is no explanation as to why a class 19 action is the “superior mechanism” for resolution of Plaintiffs’ claims. Accordingly, the Court 20 cannot find that Plaintiffs have met their burden under Rule 23(b)(3). 21 C. Preliminary Fairness Determination 22 Plaintiffs contend the Court’s scrutiny for purposes of preliminary approval of the 23 settlement should defer to the parties’ counsel’s agreement that the settlement is fair, reasonable, 24 and adequate, and that the Court need not address whether certification of a settlement class is 25 appropriate or whether the settlement is fair, reasonable, and adequate at this stage. (See Doc. 9- 26 1 at 13–14.) However, as this Court recently has clarified, it agrees with the observation of 27 another California district court, that “the idea that district courts should conduct a more lax 1 Cotter v. Lyft, Inc., 193 F. Supp. 3d 1030, 1036 (N.D. Cal. 2016). Rather, in light of the Court’s 2 duty to absent class members, this Court opts to “review class action settlements just as carefully 3 at the initial stage as [it] do[es] at the final stage.” Id. at 1037; see Smothers v. Northstar Alarm 4 Servs., LLC, No. 2:17-cv-00548-KJM-KJN, 2019 WL 280294, at *10 (E.D. Cal. Jan. 22, 2019). 5 Under Rule 23(e), a court may approve a class action settlement only if the settlement is 6 fair, reasonable, and adequate. Bluetooth, 654 F.3d at 946. “[P]reliminary approval of a 7 settlement has both a procedural and substantive component.” See, e.g., In re Tableware Antitrust 8 Litig., 484 F. Supp. 2d at 1079 (citing Schwartz v. Dallas Cowboys Football Club, Ltd., 157 F. 9 Supp. 2d 561, 570 n.12 (E.D. Pa. 2001)). In particular, preliminary approval of a settlement and 10 notice to the proposed class is appropriate if: (i) the proposed settlement appears to be the product 11 of serious, informed, non-collusive negotiations; and (ii) the settlement falls within the range of 12 possible approval, has no obvious deficiencies, and does not improperly grant preferential 13 treatment to class representatives or segments of the class. Id.; see also Ross v. Bar None Enters., 14 Inc., No. 2:13–cv–00234–KJM–KJN, 2014 WL 4109592, at *9 (E.D. Cal. Aug. 19, 2014). 15 1. Procedural Fairness 16 The Court must consider whether the process by which the parties arrived at their 17 settlement is truly the product of arm’s length bargaining, rather than collusion or fraud. Millan 18 v. Cascade Water Servs., Inc., 310 F.R.D. 593, 613 (E.D. Cal. May 31, 2016). A settlement is 19 presumed fair if it “follow[s] sufficient discovery and genuine arms-length negotiation.” Adoma 20 v. Univ. of Phx., Inc., 913 F. Supp. 2d 964, 977 (E.D. Cal. 2012) (quoting Nat’l Rural Telecomms. 21 Coop. v. DIRECTV, Inc., 221 F.R.D. 523, 528 (C.D. Cal. 2004)). 22 The Court cannot find that the parties’ settlement is procedurally fair based upon the 23 information before the Court. The undersigned is most concerned with the settlement timeline 24 relative to the addition of the FLSA claim in the SAC. The parties represent that they attended 25 mediation on February 13, 2019, and at the end of the mediation session “agreed to settle the 26 Action” and then “negotiated and prepared” the Proposed Settlement. (Doc. 9-1 at 10.) Plaintiffs 27 alleged an FLSA claim for the first time when they filed the SAC in Fresno County Superior Court 1 30, 2019. (See Doc. 1.) The Court is troubled by the belated addition of the FLSA claim, which 2 appears to have been done after the parties had already at least agreed in principle on terms of 3 settlement,3 and for the apparent purpose of removing the case to federal court. See Maciel, 2018 4 WL 5291969, at *5–6 (denying preliminary approval of class settlement where the plaintiff first 5 alleged an FLSA claim after the parties had settled the case and just before the case was removed 6 to federal court); Gonzalez v. CoreCivic of Tennessee, LLC, No. 1:16-cv-01891-DAD-JLT, 2018 7 WL 4388425, at *4 (E.D. Cal. Sept. 13, 2018) (“In the court’s view, this approach raises red flags 8 in large part because it appears plaintiff agreed to settle the FLSA claim before he ever considered 9 litigating it.”). 10 In any event, the parties fail to mention the settlement of the FLSA claim in the motion 11 for preliminary approval, fail to establish that this settlement is “a fair and reasonable resolution 12 of a bona fide dispute over FLSA provisions,” 29 U.S.C. § 216(b), and fail to explain the sequence 13 of events surrounding the addition and settlement of the FLSA claim.4 However, as explained 14 below, the parties have assigned no value to the FLSA claim separate and apart from the remaining 15 claims in the SAC, which suggests that Plaintiffs never seriously considered litigating the FLSA 16 claim and points toward possible collusion between the settling parties. See Gonzalez, 2018 WL 17 4388425, at *4 (“These atypical circumstances create a potentially indelible stain for the 18 settlement agreement as drafted, because they point toward collusion between the parties.”). 19 Accordingly, based on the information before the Court, the undersigned cannot conclude that the 20 parties’ negotiation was non-collusive and cannot recommend the Proposed Settlement be 21 approved as procedurally fair. 22
23 3 The parties appear to have executed the final settlement agreement between September 27, 2019 and November 12, 2019. (See Doc. 9-2 at 40–42.) However, as noted, the parties represent that on February 24 13, 2019, they “agreed to settle the Action pursuant to the terms of a mediator’s proposal and set forth in the Parties’ Memorandum of Understanding.” (Id. at 6.) Thus, at minimum, further explanation is required 25 as to the inclusion of the FLSA claim relative to the settlement timeline. 4 The parties do not request certification of an FLSA collective. The Proposed Settlement does, however, 26 release all claims alleged in the SAC, including the FLSA claim, (Doc. 9-2 at 34), and thus the parties must show that this settlement is a fair resolution of the FLSA claim. See Maciel, 2018 WL 5291969, at *6. Cf. 27 Gonzalez, 2018 WL 4388425, at *5. The parties’ failure to even mention the settlement of the FLSA claim in the motion “reinforces the court’s perception that the settlement of the FLSA claim by plaintiffs here 1 2. Substantive Fairness 2 a. Valuation of the Settlement 3 To evaluate the fairness of the settlement award, the court should “compare the terms of 4 the compromise with the likely rewards of litigation.” See Protective Comm. for Indep. 5 Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424–25 (1968). “It is well- 6 settled law that a cash settlement amounting to only a fraction of the potential recovery does not 7 per se render the settlement inadequate or unfair.” In re Mego Fin. Corp. Sec. Litig., 213 F.3d 8 454, 459 (9th Cir. 2000). To determine whether a settlement “falls within the range of possible 9 approval” a court must focus on “substantive fairness and adequacy,” and “consider plaintiffs’ 10 expected recovery balanced against the value of the settlement offer.” In re Tableware Antitrust 11 Litig., 484 F. Supp. 2d at 1080. 12 i. California Labor Code Claims 13 Here, the total proposed settlement is for $425,000. (Doc. 9-2 at 20.) Plaintiffs’ counsel 14 represents that the total potential recovery for “overtime damages” is $383,622, and the total 15 potential recovery for “meal and rest period damages” is $511,496, for a total of $895,118, making 16 the total settlement fund of $425,000 a 47 percent recovery of the plaintiffs’ primary claims. (See 17 Doc. 9-1 at 17.) However, Plaintiffs do not provide any separate estimate of the potential statutory 18 penalties for their claims for failure to provide accurate wage statements and failure to provide 19 wages when due and do not include those amounts in the total potential recovery. 20 If Plaintiffs intended for the “overtime damages” and “meal and rest period damages” to 21 represent some combination of the potential wages recovery on their primary claims and the 22 potential derivative statutory penalties, they must explain that and differentiate between the 23 values.5 If Plaintiffs are discounting the value of their claims for failure to provide accurate wage 24
25 5 The only mention of any differentiation between wages and penalties is on page 8 of the Proposed Settlement, which states that each class member’s settlement share will be treated for tax purposes as 50% 26 wages and 50% “interest and penalties.” (See Doc. 9-2 at 25.) This does not explain what percentage of the $425,000 estimate, if any, represents statutory penalties for what claim in the SAC, and neither the 27 Proposed Settlement nor the motion differentiates the amounts designated as recovery for wages related to each primary claim and statutory penalties related to each derivative claim, or the maximum potential 1 statements and failure to provide wages when due entirely, and/or asserting that the maximum 2 statutory penalties should not be included in the total potential recovery calculation, they must 3 provide legal authority and explanation as to why that is appropriate. See Murray v. Scelzi 4 Enterprises, Inc., No. 1:18-cv-01492-LJO-SKO, 2019 WL 6045146, at *10–11 (E.D. Cal. Nov. 5 15, 2019), report and recommendation adopted, 2019 WL 6840411. Thus, without more 6 information, the Court cannot determine that the settlement amount is fair. 7 ii. PAGA Penalties 8 Plaintiffs’ counsel has similarly not provided an estimate for the maximum potential PAGA 9 penalties and has not included those penalties in the maximum potential recovery. The PAGA 10 statute requires trial courts to “review and approve” any settlement of PAGA claims. Cal. Lab. 11 Code § 2699(l)(2).6 In the absence of authority governing the standard of review of PAGA 12 settlements, the LWDA has in one action provided some guidance to the court. O’Connor v. 13 Uber Techs., Inc., 201 F. Supp. 3d 1110, 1133 (N.D. Cal. 2016). There, where both class action 14 and PAGA claims were covered by a proposed settlement, the LWDA acknowledged that it was 15 “not aware any existing case law established a specific benchmark for PAGA settlements, either 16 on their own terms or in relation to the recovery on other claims in the action” but stressed that: 17 [W]hen a PAGA claim is settled, the relief provided for under the PAGA be genuine and meaningful, consistent with the underlying purpose of the statute to benefit the 18 public and, in the context of a class action, the court evaluate whether the settlement 19 meets the standards of being “fundamentally fair, reasonable, and adequate” with reference to the public policies underlying the PAGA. 20 Id.; see also Sanchez v. Frito-Lay, Inc., No. 1:14-cv-00797-DAD-BAM, 2019 WL 4828775, at 21 *12 (E.D. Cal. Sept. 30, 2019). 22 Plaintiff cites no authority that PAGA penalties should not be considered in the total 23 estimated value of the class claims. While the damages awarded under PAGA do not inure 24 entirely to the benefit of the class, courts have held that the full amount of the awardable penalties 25 should be considered in establishing the fairness of the settlement. “Just because the State would 26 receive [seventy-five percent of the penalty] doesn’t mean it’s not part of the penalty. To the 27 6 The proposed settlement must also be submitted to the LWDA at the same time it is submitted to the 1 contrary, a PAGA plaintiff stands in the shoes of the State in enforcing its wage and hour laws.” 2 Cotter, 176 F. Supp. 3d at 942. “[I]t makes no sense to simply erase the State’s portion of the 3 recovery when estimating the maximum value of the claim.” Id. The Court must also determine 4 that the percentage of PAGA penalties provided for in the settlement is reasonable relative to the 5 maximum PAGA penalties allowed. See O’Connor, 201 F. Supp. 3d at 1133–34. The Court is 6 unable to assess the adequacy of the settlement valuation without this information. 7 iii. FLSA Claim 8 Finally, it appears that Plaintiffs have discounted the value of the FLSA claim entirely. 9 Plaintiffs do not mention any valuation of the FLSA claim or seek any recovery as to the FLSA 10 claim. Plaintiffs have offered no explanation as to why no separate amount is being paid by 11 Defendant to settle the FLSA claim. See Maciel, 2018 WL 5291969, at *6 (“That the settlement 12 . . . calls for a release of the FLSA claim in exchange for no consideration does not appear to be 13 a ‘fair and reasonable resolution of a bona fide dispute over FLSA provisions.’”) (citing 29 U.S.C. 14 § 216(b). As noted above, “courts that have approved settlements releasing both FLSA and Rule 15 23 claims generally do so only when the parties expressly allocate settlement payments to FLSA 16 claims.”7 See Thompson, 2017 WL 697895, at *8; see also Khanna v. Intercon Sec. Systems, 17 Inc., 2014 WL 1379861, at *2 (E.D. Cal. Apr. 8, 2014) (approving hybrid FLSA/Rule 23 18 settlement that allocated two-thirds of net settlement amount to state claims and one-third of 19 amount to FLSA claim); Pierce v. Rosetta Stone, Ltd., No. C 11-01283 SBA, 2013 WL 1878918, 20 at *3 (N.D. Cal. May 3, 2013) (same). The parties have not done that here and Plaintiffs have 21 provided no explanation for failing to do so. 22 Thus, the Court cannot find that the valuation of the FLSA claim is adequate and, for that 23
24 7 In addition to showing that the settlement is a fair resolution of the FLSA claim, Plaintiffs must show that adequate consideration is being paid to settle the FLSA claim. See Maciel, 2018 WL 5291969, at *6. Cf. 25 Gonzalez, 2018 WL 4388425, at *5 (“Plaintiff’s approach to settling the FLSA claims here is apparently premised on the assumption that a single plaintiff cannot recover for violations of both the FLSA and state 26 wage-and-hour laws . . . District courts in the Ninth Circuit, however, have held the opposite[.]”) (collecting cases). To the extent they intended for damages under the FLSA claim to be covered under the 27 “overtime damages,” (see Doc. 9-1 at 17), the parties are advised that consideration to release an FLSA claim must be explicitly allocated in the settlement agreement separately from any consideration paid to 1 reason, cannot find the Proposed Settlement is substantively fair as to the release of FLSA 2 claims.8 See Maciel, 2018 WL 5291969, at *6 (“[I]f defendant insists that class members release 3 a bona fide FLSA claim, defendant should pay fair and reasonable consideration for that release. 4 If that is not the case, the parties must provide the court with a more thorough explanation than 5 they have to date.”). 6 iv. Summary 7 In light of the foregoing, the undersigned cannot conclude that Plaintiffs have made an 8 adequate showing sufficient to warrant a preliminary finding that the Proposed Settlement is fair, 9 reasonable, and adequate. As set forth above, while the gross settlement amount, as calculated 10 by Plaintiffs, represents 47 percent of the potential recovery for the rest and meal break and 11 overtime wages claims alone, Plaintiffs do not appear to include in the total potential recovery 12 the statutory penalties for the derivative claims, the PAGA penalties claim, or the FLSA claim, 13 and have offered no justification for failing to include those claims in the potential recovery. To 14 address whether a proposed settlement is substantively fair or adequate, courts must “consider 15 plaintiffs’ expected recovery balanced against the value of the settlement offer.” Tableware, 484 16 F. Supp. 2d at 1080. In the absence of an accurate valuation of Plaintiffs’ claims, the undersigned 17 is unable to balance the Proposed Settlement against the expected recovery of those claims and 18 therefore cannot find that the Proposed Settlement is reasonable or “within the range of possible 19 approval.” Tableware, 484 F. Supp. 2d at 1079. 20 b. Incentive Payment 21 Plaintiff also requests that the Court approve an incentive payment in an amount “up to” 22 $10,000 to be awarded to Plaintiffs Angela Conti and Justine Mora. (Doc. 9-1 at 10, 19.) Without 23 clarification as to what is meant by “up to,” the undersigned assumes that Plaintiff will be 24 requesting $10,000. 25 A district court may award incentive payments to named plaintiffs in class action cases. 26 8 The Court notes that the proposed notice explicitly advises class members that the “release specifically 27 includes claims under the federal Fair Labor Standards Act based on the facts or theories raised in this lawsuit. If you do not exclude yourself from this settlement, you will have waived those claims.” 1 Rodriguez, 563 F.3d at 958–59. The purpose of incentive awards is to “compensate class 2 representatives for work done on behalf of the class, to make up for financial or reputational risk 3 undertaking in bringing the action, and, sometimes, to recognize their willingness to act as a 4 private attorney general.” Id. To justify an incentive award, a class representative must present 5 “evidence demonstrating the quality of plaintiff’s representative service,” such as “substantial 6 efforts taken as class representative to justify the discrepancy between [his] award and those of 7 the unnamed plaintiffs.” Alberto v. GMRI, Inc., 252 F.R.D. 652, 669 (E.D. Cal. 2008). Such 8 incentive awards are particularly appropriate in wage-and-hour actions where a plaintiff 9 undertakes a significant reputational risk in bringing suit against her former employer. Rodriguez, 10 563 F.3d at 958–59. 11 The Ninth Circuit has emphasized, however, that “district courts must be vigilant in 12 scrutinizing all incentive awards.” Radcliffe v. Experian Info. Sols., Inc., 715 F.3d 1157, 1165 13 (9th Cir. 2013) (internal quotation marks and citation omitted). In keeping with that admonition, 14 district courts have declined to approve incentive awards that represent an unreasonably high 15 proportion of the overall settlement amount or are disproportionate relative to the recovery of 16 other class members. See Ontiveros v. Zamora, 303 F.R.D. 356, 365–66 (E.D. Cal. 2014) (finding 17 an incentive award of $20,000, comprising 1% of the common fund, to be excessive under the 18 circumstances, and reducing the award to $15,000, where class representative spent 271 hours on 19 the litigation and relinquished the opportunity to bring several of his own claims in order to act 20 as class representative); see also Ko v. Natura Pet Prods., Inc., No. C 09–2619 SBA, 2012 WL 21 3945541, at *15 (N.D. Cal. Sept. 10, 2012) (holding that an incentive award of $20,000, 22 comprising one percent of the approximately $2 million common fund was “excessive under the 23 circumstances” and reducing the award to $5,000); Wolph v. Acer Am. Corp., No. C 09–01314 24 JSW, 2013 WL 5718440, at *6 (N.D. Cal. Oct. 21, 2013) (reducing the incentive award to $2,000 25 where the class representatives did not demonstrate great risk to finances or reputation in bringing 26 the class action). In reducing the award, courts have noted that overcompensation of class 27 representatives could encourage collusion at the settlement stage of class actions by causing a 1 the adequacy of class representatives. See Staton, 327 F.3d at 977–78; see also Radcliffe, 715 2 F.3d at 1165. 3 Here, the Proposed Settlement provides for a maximum incentive award of $10,000 each 4 for the named Plaintiffs. The undersigned finds that the proposed $10,000 incentive awards 5 appear to be excessive under the circumstances of the case. It is two times the amount that the 6 Ninth Circuit has considered reasonable. See Resnick v. Frank (In re Online DVD–Rental 7 Antitrust Litig.), 779 F.3d 934, 947 (9th Cir.2015). The total of $20,000 also constitutes 4.7 8 percent of the gross settlement amount. See Sandoval v. Tharaldson Emple. Mgmt., No. EDCV 9 08-482-VAP (OPx), 2010 WL 2486346, at *9–10 (C.D. Cal. June 15, 2010) (collecting cases and 10 concluding that plaintiff’s request for an incentive award representing one percent of the 11 settlement fund was excessive). See also Sanchez, 2015 WL 4662636, at *20–21 (recommending 12 $10,000 incentive award payment to named plaintiff be reduced to $7,500), report and 13 recommendation adopted, No. 1:14-CV-797-AWI-MJS, 2015 WL 5138101 (E.D. Cal. Aug. 26, 14 2015). 15 Thus, the undersigned cannot recommend approval of an incentive award in the amount of 16 $10,000 at this time. Should Plaintiffs renew their request for an incentive award that amounts 17 to a similarly high proportion of the overall settlement amount or is disproportionate relative to 18 the recovery of other class members, they shall submit evidence that the requested award is 19 warranted here, including evidence of the specific amount of time Plaintiffs spent on the 20 litigation, the particular risks and burdens carried by Plaintiffs as a result of the litigation, and the 21 particular benefit that Plaintiffs provided to counsel and the class as a whole throughout the 22 litigation. 23 c. Opt-Out Procedure 24 Due process requires that any class member bound by a class action settlement, at a 25 minimum, be afforded the opportunity “to remove himself from the class.” Ortiz v. Fibreboard 26 Corp., 527 U.S. 815, 848 (1999) (citation and internal quotation marks omitted). Here, the 27 Proposed Settlement and notice are devoid of any provision that would exclude members from 1 Unless a class member elects to opt-out of the settlement, according to the Proposed 2 Settlement, they are subject to the above-described release. (See Doc. 9-2 at 30, 47.) A class 3 member cannot opt out of the litigation, however, unless they submit a request to be excluded, 4 (see id.), and a class member cannot request to be excluded unless they have notice of the 5 litigation. Under the Proposed Settlement, the settlement administrator would send a notice form 6 to the last-known address of each class member via first-class mail. (Id. at 28.) In the event the 7 notice mailed to a class member is returned as undeliverable, the administrator shall perform a 8 “skip-tracing” search and seek a “more current address” for such class member, at which time a 9 second notice will be mailed. (Id.) The Proposed Settlement does not address situations where 10 no address correction is obtained as a result of the skip trace search, or where the second class 11 notice is returned as undeliverable. In those situations, due process would require those class 12 members be excluded from the Settlement Class. See, e.g., Sanchez, 2015 WL 4662636, at *12. 13 Because the Proposed Settlement does not appear to exclude from it any class member whose 14 class notice is returned as undeliverable by the post office (either on the first or second attempt), 15 the undersigned cannot conclude that the Proposed Settlement affords minimum due process to 16 each of the putative class members. 17 IV. CONCLUSION AND RECOMMENDATION 18 The undersigned finds that Plaintiffs have not demonstrated that conditional class 19 certification under Rule 23(a) and (b)(3) or preliminary approval of the Proposed Settlement is 20 warranted. While the undersigned is mindful of the strong judicial policy favoring settlements, 21 see Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1276 (9th Cir. 1992), this settlement cannot 22 be approved without significant additional information and amendment. It is therefore 23 RECOMMENDED that Plaintiffs’ motion for preliminary approval of a class action settlement 24 (Doc. 9) be DENIED, without prejudice to Plaintiff renewing the motion to address the issues 25 and concerns identified herein. 26 These findings and recommendation are submitted to the district judge assigned to the case, 27 pursuant to the provisions of Title 28 U.S.C. § 636(b)(l)(B) and this Court’s Local Rule 304. 1 objections to these findings and recommendation with the Court and serve a copy on all parties. 2 Such a document should be captioned “Objections to Magistrate Judge’s Findings and 3 Recommendation.” The district judge will review the magistrate judge’s findings and 4 recommendation pursuant to 28 U.S.C. § 636(b)(1)(C). The parties are advised that failure to file 5 objections within the specified time may result in the waiver of rights on appeal. Wilkerson v. 6 Wheeler, 772 F.3d 834, 839 (9th Cir. 2014) (citing Baxter v. Sullivan, 923 F.2d 1391, 1394 (9th 7 Cir. 1991)). 8 IT IS SO ORDERED. 9
Sheila K. Oberto 10 Dated: January 27, 2020 /s/ . UNITED STATES MAGISTRATE JUDGE 11
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