1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 BRANDON HARVEY, Case No. 18-cv-02835-WHO
8 Plaintiff, ORDER DENYING MOTION FOR 9 v. DENIAL AND DISGORGEMENT
10 MORGAN STANLEY SMITH BARNEY Re: Dkt. No. 171 LLC, 11 Defendant.
12 Matthew Lucadano and Tracy Chen were objectors and proposed intervenors to the 13 settlement agreement for which I granted final approval and that was affirmed on most material 14 terms by the Ninth Circuit. All of the arguments raised by Lucadano and Chen were rejected 15 except ones that led to a slight narrowing of the certified-for-settlement class. The settlement 16 agreement is final and all initial and subsequent distributions have been paid to class members. 17 See Dkt. No. 179. 18 Nonetheless, Lucadano and Chen filed another heated motion to vacate my award of 19 attorney fees to plaintiff Harvey’s counsel for efforts in securing the settlement, to deny further 20 distributions of attorney fees to Harvey’s counsel from the settlement fund, and to disgorge past 21 payments of attorney fees made to Harvey’s counsel from the settlement fund. Dkt. No. 171.1 22 Their motion is based on a temporary agreement that once the settlement became effective, 23 Morgan Stanley would “walkaway” from a FINRA arbitration it had filed against Harvey, which 24 the lawyers in this case did not disclose to the court, the class or them. Lucadano and Chen 25 contend that this was an undisclosed conflict requiring the disgorgement of fees. 26
27 1 Lucadano and Chen do not seek to undermine the payments already made to class members or 1 Harvey and Morgan Stanley respond with several substantive arguments that have 2 significant merit: (1) Lucadano and Chen are precluded by stipulation from challenging the 3 payments of attorney fees to Harvey’s counsel (see Dkt. Nos.154, 155); (2) Lucadano and Chen 4 were not entitled to receive a copy of the MOU with the walkaway in the first place; and (3) 5 Lucadano and Chen cannot seek relief under Rule 60(b) or Rule 60(d)(3). I choose, however, to 6 address Lucadano and Chen’s motion on the merits. In that vein, I DENY Harvey and Morgan 7 Stanley’s motion to strike the Humenik Declaration, even though it contains copious amounts of 8 legal argument and information that could have and should have been presented in the motion 9 itself. I have considered all arguments raised by Lucadano and Chen.2 And for the following 10 reasons, I do not find that a conflict existed; Lucadano and Chen’s motion is DENIED. 11 The unequivocal statements of Harvey’s and Morgan Stanley’s counsel are that all material 12 terms of the class settlement were negotiated with the assistance of Judge Holderman (Ret.) at 13 JAMS prior to any discussion or thought of Morgan Stanley also agreeing to dismiss the FINRA 14 arbitration it filed against Harvey. I reviewed those material terms and affirmed them as fair, 15 reasonable, and adequate to extinguish the class and PAGA claims. 16 A week or two after those terms were agreed to, in connection with drafting the MOU 17 (standard practice for counsel prior to finalizing terms in the formal settlement agreement), 18 Morgan Stanley offered to include a walk-away on the FINRA arbitration. Harvey agreed and the 19 walkaway was included in the MOU the parties eventually executed. See Dkt. No. 172-1. The act 20 of agreeing to the FINRA walkaway did not create a conflict between plaintiff/plaintiff’s counsel 21 and the class. Similar to the negotiation of attorney fees or other agreements that may be 22 important to a party to secure “global peace,” the existence of the agreement by itself does not 23 create an automatic conflict as long as it is entered after the negotiation of the substantive relief 24 for a class is concluded. 25 2 In addition, Lucadano and Chen argue that Morgan Stanley’s opposition brief should be struck 26 because Morgan Stanley has no standing to object to this motion, as it does not attempt to undermine the settlement but simply seeks disgorgement of the attorney fees paid to Harvey’s 27 counsel. That motion to strike is DENIED. And the objection of Harvey to Lucadano and Chen’s 1 That said, like attorney fee agreements negotiated after class relief has been agreed-to, a 2 walkaway agreement such as the one at issue here would appropriately be considered a “side- 3 agreement” covered by Rule 23(e)(3). All such agreements, implicating personal claims or 4 counsel’s request for attorney fees, should be disclosed as part of the preliminary or final approval 5 process because the court should be aware of them when considering whether a settlement is fair, 6 reasonable and adequate under Rule 23. 7 The impact from the non-disclosure here is minimized by a number of facts. First, Harvey 8 and Morgan Stanley deleted the walkaway agreement from the settlement agreement prior to 9 submittal to the court for approval. There is no agreement between the parties regarding the 10 FINRA proceeding, which is still pending. Part of the reason counsel dropped the walkaway was 11 that they knew that Lucadano and Chen wanted to intervene in this case to object to the settlement. 12 Counsel in this case wanted to avoid arguments about Harvey’s typicality or adequacy to represent 13 the class. Abandoning the FINRA agreement does not support any negative inferences about 14 Harvey’s or Morgan Stanley’s conduct.3 Counsel simply eliminated an issue that raises flags for 15 courts when scrutinizing the fairness and adequacy of proposed class action settlements. 16 Second, and relatedly, I gave the settlement agreement the required heightened scrutiny for 17 a pre-certification class settlement. I considered and addressed each objection raised by Chen to 18 the adequacy of the settlement and Harvey as a class representative. I concluded that the 19 settlement was well within the range of similar settlements and fair, reasonable and adequate to the 20 class. Had the dropped walkaway provision been disclosed, I still would have approved the 21 settlement agreement: the relief provided to the class was fair, reasonable, and adequate. 22 In light of the timeline Harvey and Morgan Stanley explained in their oppositions – 23 showing that the substantive class relief was agreed to well-prior to the idea of the walkaway – 24 Lucadano and Chen shifted their theory regarding Morgan Stanley’s settlement leverage vis-à-vis 25
26 3 Lucadano and Chen assert that this agreement was unethical and harmful to Harvey because he faces a significant risk in the FINRA arbitration; he has had to drop the walkaway and yet release 27 any crossclaims he might have against Morgan Stanley in the FINRA proceeding (which is 1 the walkaway agreement. In their reply briefs, Lucadano and Chen argued that the “settlement 2 leverage” that Morgan Stanley wielded against Harvey, given the carrot of the walkaway, was to 3 induce Harvey to settle Chen’s PAGA-only claims for $500,000. Dkt. No. 183 at 6. The MOU 4 required Harvey’s counsel to attempt to bring Chen’s counsel and claims into the settlement, 5 resolving the PAGA-only claims for $500,000. Dkt. No. 172-1, §12. But the MOU also provided 6 that if Chen did not agree to participate on those terms, Harvey would instead amend the claims in 7 this case to bring Chen’s claims into the settlement. Id. The value of the PAGA-only claims 8 remained at $500,000, regardless, an amount that I found fair, reasonable, and adequate. 9 Settlement Agreement (Dkt. No. 48-3) ¶ 49. There was no “leverage” on this basis and it did not 10 work to depress the final amount of the settlement, which I approved as fair, reasonable, and 11 adequate. 12 Finally, and most significantly, even if the existence of the walkaway provision created a 13 temporary conflict – and I do not find that it did – any conflict was extinguished by the settlement 14 agreement executed by Harvey and Morgan Stanley that I approved.
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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 BRANDON HARVEY, Case No. 18-cv-02835-WHO
8 Plaintiff, ORDER DENYING MOTION FOR 9 v. DENIAL AND DISGORGEMENT
10 MORGAN STANLEY SMITH BARNEY Re: Dkt. No. 171 LLC, 11 Defendant.
12 Matthew Lucadano and Tracy Chen were objectors and proposed intervenors to the 13 settlement agreement for which I granted final approval and that was affirmed on most material 14 terms by the Ninth Circuit. All of the arguments raised by Lucadano and Chen were rejected 15 except ones that led to a slight narrowing of the certified-for-settlement class. The settlement 16 agreement is final and all initial and subsequent distributions have been paid to class members. 17 See Dkt. No. 179. 18 Nonetheless, Lucadano and Chen filed another heated motion to vacate my award of 19 attorney fees to plaintiff Harvey’s counsel for efforts in securing the settlement, to deny further 20 distributions of attorney fees to Harvey’s counsel from the settlement fund, and to disgorge past 21 payments of attorney fees made to Harvey’s counsel from the settlement fund. Dkt. No. 171.1 22 Their motion is based on a temporary agreement that once the settlement became effective, 23 Morgan Stanley would “walkaway” from a FINRA arbitration it had filed against Harvey, which 24 the lawyers in this case did not disclose to the court, the class or them. Lucadano and Chen 25 contend that this was an undisclosed conflict requiring the disgorgement of fees. 26
27 1 Lucadano and Chen do not seek to undermine the payments already made to class members or 1 Harvey and Morgan Stanley respond with several substantive arguments that have 2 significant merit: (1) Lucadano and Chen are precluded by stipulation from challenging the 3 payments of attorney fees to Harvey’s counsel (see Dkt. Nos.154, 155); (2) Lucadano and Chen 4 were not entitled to receive a copy of the MOU with the walkaway in the first place; and (3) 5 Lucadano and Chen cannot seek relief under Rule 60(b) or Rule 60(d)(3). I choose, however, to 6 address Lucadano and Chen’s motion on the merits. In that vein, I DENY Harvey and Morgan 7 Stanley’s motion to strike the Humenik Declaration, even though it contains copious amounts of 8 legal argument and information that could have and should have been presented in the motion 9 itself. I have considered all arguments raised by Lucadano and Chen.2 And for the following 10 reasons, I do not find that a conflict existed; Lucadano and Chen’s motion is DENIED. 11 The unequivocal statements of Harvey’s and Morgan Stanley’s counsel are that all material 12 terms of the class settlement were negotiated with the assistance of Judge Holderman (Ret.) at 13 JAMS prior to any discussion or thought of Morgan Stanley also agreeing to dismiss the FINRA 14 arbitration it filed against Harvey. I reviewed those material terms and affirmed them as fair, 15 reasonable, and adequate to extinguish the class and PAGA claims. 16 A week or two after those terms were agreed to, in connection with drafting the MOU 17 (standard practice for counsel prior to finalizing terms in the formal settlement agreement), 18 Morgan Stanley offered to include a walk-away on the FINRA arbitration. Harvey agreed and the 19 walkaway was included in the MOU the parties eventually executed. See Dkt. No. 172-1. The act 20 of agreeing to the FINRA walkaway did not create a conflict between plaintiff/plaintiff’s counsel 21 and the class. Similar to the negotiation of attorney fees or other agreements that may be 22 important to a party to secure “global peace,” the existence of the agreement by itself does not 23 create an automatic conflict as long as it is entered after the negotiation of the substantive relief 24 for a class is concluded. 25 2 In addition, Lucadano and Chen argue that Morgan Stanley’s opposition brief should be struck 26 because Morgan Stanley has no standing to object to this motion, as it does not attempt to undermine the settlement but simply seeks disgorgement of the attorney fees paid to Harvey’s 27 counsel. That motion to strike is DENIED. And the objection of Harvey to Lucadano and Chen’s 1 That said, like attorney fee agreements negotiated after class relief has been agreed-to, a 2 walkaway agreement such as the one at issue here would appropriately be considered a “side- 3 agreement” covered by Rule 23(e)(3). All such agreements, implicating personal claims or 4 counsel’s request for attorney fees, should be disclosed as part of the preliminary or final approval 5 process because the court should be aware of them when considering whether a settlement is fair, 6 reasonable and adequate under Rule 23. 7 The impact from the non-disclosure here is minimized by a number of facts. First, Harvey 8 and Morgan Stanley deleted the walkaway agreement from the settlement agreement prior to 9 submittal to the court for approval. There is no agreement between the parties regarding the 10 FINRA proceeding, which is still pending. Part of the reason counsel dropped the walkaway was 11 that they knew that Lucadano and Chen wanted to intervene in this case to object to the settlement. 12 Counsel in this case wanted to avoid arguments about Harvey’s typicality or adequacy to represent 13 the class. Abandoning the FINRA agreement does not support any negative inferences about 14 Harvey’s or Morgan Stanley’s conduct.3 Counsel simply eliminated an issue that raises flags for 15 courts when scrutinizing the fairness and adequacy of proposed class action settlements. 16 Second, and relatedly, I gave the settlement agreement the required heightened scrutiny for 17 a pre-certification class settlement. I considered and addressed each objection raised by Chen to 18 the adequacy of the settlement and Harvey as a class representative. I concluded that the 19 settlement was well within the range of similar settlements and fair, reasonable and adequate to the 20 class. Had the dropped walkaway provision been disclosed, I still would have approved the 21 settlement agreement: the relief provided to the class was fair, reasonable, and adequate. 22 In light of the timeline Harvey and Morgan Stanley explained in their oppositions – 23 showing that the substantive class relief was agreed to well-prior to the idea of the walkaway – 24 Lucadano and Chen shifted their theory regarding Morgan Stanley’s settlement leverage vis-à-vis 25
26 3 Lucadano and Chen assert that this agreement was unethical and harmful to Harvey because he faces a significant risk in the FINRA arbitration; he has had to drop the walkaway and yet release 27 any crossclaims he might have against Morgan Stanley in the FINRA proceeding (which is 1 the walkaway agreement. In their reply briefs, Lucadano and Chen argued that the “settlement 2 leverage” that Morgan Stanley wielded against Harvey, given the carrot of the walkaway, was to 3 induce Harvey to settle Chen’s PAGA-only claims for $500,000. Dkt. No. 183 at 6. The MOU 4 required Harvey’s counsel to attempt to bring Chen’s counsel and claims into the settlement, 5 resolving the PAGA-only claims for $500,000. Dkt. No. 172-1, §12. But the MOU also provided 6 that if Chen did not agree to participate on those terms, Harvey would instead amend the claims in 7 this case to bring Chen’s claims into the settlement. Id. The value of the PAGA-only claims 8 remained at $500,000, regardless, an amount that I found fair, reasonable, and adequate. 9 Settlement Agreement (Dkt. No. 48-3) ¶ 49. There was no “leverage” on this basis and it did not 10 work to depress the final amount of the settlement, which I approved as fair, reasonable, and 11 adequate. 12 Finally, and most significantly, even if the existence of the walkaway provision created a 13 temporary conflict – and I do not find that it did – any conflict was extinguished by the settlement 14 agreement executed by Harvey and Morgan Stanley that I approved. That agreement contains an 15 integration clause. See Dkt. No. 48-3, ¶ 97. No prior agreement or understanding or 16 representation between defendant and Harvey existed or was enforceable following the parties’ 17 execution of the settlement agreement.4 The very brief period of time when the walkaway was 18 arguably in effect did not impact the relief available to the class or create the type or level of 19 conflict that could justify any of the relief that Lucadano and Chen seek here.5 20 4 Accordingly, Harvey and Morgan Stanley’s representations me that no side agreement with 21 respect to the FINRA arbitration existed when I was considering whether to preliminarily or finally approve the settlement agreement was accurate. Whether or not Harvey’s counsel’s 22 assertions to the Ninth Circuit that no side-agreement “ever existed” was accurate is a matter I do not reach. 23
5 The conflict cases that Lucadano and Chen rely on heavily are inapposite. See, e.g., Walker v. 24 Apple, Inc., 4 Cal. App. 5th 1098 (2016 (firm was precluded from representing a class in a suit where they would be required to cross-examine an absent class member that the same firm 25 represented in a different lawsuit); Rodriguez v. Disner, 688 F.3d 645 (9th Cir. 2012) (discussing conflict and impact on attorney fees award where plaintiff attorney improperly tied named 26 plaintiffs’ incentive awards (e.g., compensation of $75,000 per named plaintiff) to a “sliding scale based on the amount recovered” that discouraged named plaintiffs from going to trial); but see id. 27 at 655 (affirming court’s wide discretion to “deny fees to an attorney who commits an ethical 1 Lucadano and Chen’s motion to vacate the attorney fees award, to deny further attorney 2 || fees and to order disgorgement of attorney fees already paid to counsel for named plaintiff Harvey 3 || is DENIED. 4 IT IS SO ORDERED. 5 Dated: December 10, 2024 \ 7 illiam H. Orrick 8 United States District Judge 9 10 11 12
15 16
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Z 18 19 20 21 22 23 24 25 26 27 28 lawyer, and other threatened or actual harm to the client.”).