1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 DAVID JOH, et al., Case No. 18-cv-06364-TSH
8 Plaintiffs, ORDER RE: MOTION FOR FINAL 9 v. APPROVAL OF CLASS ACTION SETTLEMENT 10 AMERICAN INCOME LIFE INSURANCE COMPANY, Re: Dkt. No. 42 11 Defendant. 12 13 Before the Court is the Plaintiffs’ Motion for Final Approval of Class Action Settlement 14 and Attorneys’ Fees, Costs, and Service Awards. ECF No. 42. Having reviewed the Settlement 15 agreement and the parties’ arguments and papers, the Court DENIES the Motion. 16 I. BACKGROUND 17 A. Factual and Procedural History 18 Plaintiffs are former insurance salesperson trainees or agents of American Life Insurance 19 Company (“AIL”), who trained and worked at locations in California. Plaintiffs allege that as 20 prospective AIL agents, trainees underwent training that lasted one week or more, during which 21 they did not earn a commission and were not otherwise paid. Sec. Am. Compl. (“SAC”) ¶ 18, 22 ECF No. 30. They allege that AIG promised prospective agents salaried positions, but then hired 23 them as commission-only employees, and failed to pay or reimburse them while they worked as 24 sales agents. Id. ¶ 42. They allege that as trainees and agents they were not paid a minimum wage 25 or overtime pay, did not receive proper meal and rest breaks, and had to pay their own work- 26 related expenses. Id. ¶ 20. They also allege that agents were subject to “chargebacks,” meaning 27 that if they sold policies and those policies were later cancelled by the customer, AIL illegally 1 Plaintiffs seek to represent a class of “[a]ll individuals who trained to become and/or 2 worked as sales agents in California for Defendant during the last four years prior to the filing of 3 the original Complaint.” Id. ¶¶ 32-33. Plaintiffs assert the following claims: unlawful, unfair, and 4 fraudulent business practices in violation of California Business and Professions Code §§ 17200, 5 et seq.; failure to pay California overtime compensation in violation of California Labor Code §§ 6 510 and 1094, and Industrial Welfare Commission (“IWC”) Wage Order No. 4; failure to pay 7 minimum wages in violation of California Labor Code §§ 1194 and 1197, and IWC Wage Order 8 No. 4; failure to provide meal periods in violation of California Labor Code §§ 226.7 and 512, and 9 IWC Wage Order No. 4; failure to provide rest periods in violation of California Labor Code § 10 226.7 and IWC Wage Order No. 4; waiting time penalties pursuant to California Labor Code §§ 11 202 and 203; failure to furnish accurate wage statements in violation of California Labor Code § 12 226 and IWC Wage Order No. 4; failure to reimburse expenses and illegal chargebacks in 13 violation of California Labor Code §§ 221 and 2802, and IWC Wage Order No. 4; failure to pay 14 wages/commissions in violation of California Labor Code §§ 221, 203 and 204; declaratory relief 15 pursuant to 28 U.S.C. § 2201; and civil penalties pursuant to the California Private Attorneys 16 General Act (“PAGA”), California Labor Code §§ 2698, et seq. 17 This action is the first-filed of a group of similar actions against AIL. Joh filed this case on 18 September 12, 2018 in Contra Costa County Superior Court and AIL removed to this court. Joh 19 filed on behalf of a class of current and former AIL agents who sold insurance in California, for 20 California Labor Code violations, unfair business practices, and PAGA penalties. ECF No. 11. 21 AIL moved to compel individual arbitration on November 21, 2018. ECF No. 12. Joh opposed, 22 arguing that the arbitration agreement’s PAGA waiver was unlawful and that the non-severability 23 clause therefore rendered the entire section unenforceable. ECF No. 17. 24 On December 14, 2018, Hamilton filed a separate case against AIL in this district. 25 Hamilton v. American Income Life Ins. Co., Case No. 4:18CV7535. Hamilton named as plaintiffs 26 both Hamilton and Smith, now Plaintiffs in this matter. They allege they were misclassified as 27 independent contractors and deprived of compensation and benefits while participating in training 1 and representative allegations concerning unpaid training time and improper training practices of 2 prospective agents. Hamilton and Smith sought to represent a class of “[a]ll current and former 3 California-based AIL agents who began training on or after December 14, 2014.” Id. ¶ 30. 4 Hamilton asserted claims against AIL for unfair business practices under California’s Unfair 5 Competition Law (“UCL”); failure to pay overtime; failure to pay minimum wages; failure to 6 provide meal and rest periods; waiting time penalties; failure to furnish accurate wage statements; 7 failure to reimburse expenses; declaratory relief; and civil penalties under PAGA. 8 Separately Golz, one of the objectors to the proposed Settlement, filed a case against AIL 9 in the Los Angeles County Superior Court on October 18, 2018. AIL removed that case to the 10 U.S. District Court for the Central District of California on November 26, 2018. Golz v. American 11 Income Life Ins. Co., Case No. 2:18CV9879. Golz sought to represent a class of “[a]ll individuals 12 employed by [AIL] who held job titles of Insurance Agents, Insurance Agent Trainee or likewise 13 that were classified as ‘Independent Contractors’ during the Class Period.” Dkt. No. 20, ¶ 73. She 14 likewise brought claims of California meal and rest break violations; failure to pay California 15 overtime compensation; failure to pay California minimum wage; failure to reimburse expenses in 16 violation of the California Labor Code; and unfair competition in violation of the California 17 Business and Professions Code. 18 After the parties in this matter had fully briefed AIL’s Motion to Compel Arbitration, they 19 agreed to attempt to resolve both Joh and Hamilton through mediation. Mot. For Final Settlement 20 Approval (“Mot.”) 3, ECF No. 42. On April 16, 2019, AIL and the plaintiffs in Joh and Hamilton 21 participated in a full-day joint mediation with an experienced employment class action mediator, 22 David Rotman. Id.; Decl. of Tindall in Supp. of Pl.’s Mot. (“Tindall Decl.”), Ex. B, ECF No. 42- 23 1; Supp. Decl. of Tindall in Supp. of Pl.’s Reply Mem. (“Supp. Tindall Decl.”) ¶ 3, ECF No 50-1. 24 The parties did not reach a resolution that day. Id. After the mediation ended, Rotman 25 communicated a mediator’s proposal to the parties, which included a total settlement amount. Id. 26 Both sides accepted the proposal with conditions. Id. 27 On August 1, 2019, the Plaintiffs filed their Motion for Preliminary Approval of Class 1 Court set a hearing on the motion for final approval for January 9, 2020. Id. ¶ 19. On November 2 5, 2019, Golz along with a number of other class members, filed an Objection to Final Settlement 3 Approval. ECF No. 44. 4 B. The Settlement Agreement 5 The key terms of the Settlement agreement (“SA”), Ex. A, ECF No. 42-2, are as follows: 6 Class Definition: The Settlement includes, “all individuals who trained to become and/or worked 7 as sales agents in California for Defendant during the last four years prior to the filing of the 8 original Complaint in Joh and whose training and/or work began before the date of preliminary 9 approval of this settlement.” SA 5, § II.C. 10 Settlement Benefits: AIL will pay a total settlement amount of $5,750,000. SA 7, §II.X. The SA 11 contemplates amounts paid to class members, including Plaintiffs, after excluding: settlement fund 12 costs and fees; administration costs of approximately $49,500, Decl. of Zachary Cooley of 13 Settlement Adm’r KCC (“Cooley Decl.”) ¶ 7, ECF No. 46; any incentive awards to Plaintiffs, up 14 to $7,500 each ($22,500 total), SA 14, § III.I; any attorneys’ fees and costs awarded, equal to not 15 more than $1,437,500 in fees (approximately 25% of the value of the Settlement fund) plus 16 litigation costs of $32,000, SA 14-15, § III.J; and a payment of $75,469 to the Labor Workforce 17 Development Agency (“LWDA”) pursuant to PAGA, SA 15, § III.K. SA 9, § III.C. 18 Individual settlement payments will be calculated proportionately based on the number of 19 workweeks a class member accumulated while training or working as an agent for AIL. Class 20 members who never entered into an agent contract with AIL, those who never completed training 21 but who underwent at least one day of training with AIL, will receive a rebuttable one-work 22 training presumption, double weighted. SA 10, § III.F. All class members who entered into an 23 agent contract with AIL after training during the class period will receive a rebuttable four- 24 workweek training presumption, double weighted, plus the total number of weeks contracted as 25 agents with AIL during the class period. Id. Class members who trained prior to the class period 26 but worked as agents during the period will receive a share of the net settlement amount based on 27 the number of weeks worked as agents during the class period. Id. Individual settlement amounts 1 Release: All settlement class members will release:
2 [A]ny and all rights, duties, obligations, claims, counterclaims, defenses, actions, causes of action or liabilities (including penalties of 3 every kind or nature whatsoever), whether known or unknown, suspected or unsuspected, asserted or unasserted, foreseen or 4 unforeseen, actual or contingent, liquidated or unliquidated, punitive or compensatory as of the date of the Final Approval Order/Judgment: 5 (a) that were brought by Plaintiffs in this Action; or (b) that reasonably arise out of the facts alleged in the Action. The Parties intend for the releases to be sufficiently broad enough to cover all 6 claims brought on behalf of all individuals who trained to become and/or worked as sales agents California for Defendant during the last 7 four years prior to the filing of the original complaint in Joh, including the claims asserted in the operative complaints in Joh and Hamilton 8 as well as in Golz v. American Income Life Insurance Co., 18-CV- 09879 (C.D. Cal.) and Putros v. American Life Insurance Co., Case 9 No. 30-2019-01044772-CU-OE-CXC (Orange Cty. Sup. Ct.).1 10 SA 19, § III.R. 11 II. ANALYSIS 12 A. Final Settlement Approval 13 The Court may not grant final approval of the Settlement unless it determines that (1) the 14 proposed class meets the requirements for certification under Federal Rule of Civil Procedure 23, 15 and (2) the Settlement reached on behalf of the class is fair, reasonable, and adequate. “Especially 16 in the context of a case in which the parties reach a settlement agreement prior to class 17 certification, courts must peruse the proposed compromise to ratify both the propriety of the 18 certification and the fairness of the settlement.” Staton v. Boeing Co., 327 F.3d 938, 952 (9th Cir. 19 2003); Amchem Prods. v. Windsor, 521 U.S. 591, 620 (1997) (“[S]pecifications of the rule--those 20 designed to protect absentees by blocking unwarranted or overbroad class definitions-- demand 21 undiluted, even heightened, attention in the settlement context.”). 22 1. Class Certification 23 Final approval of a class action settlement requires an assessment of whether the proposed 24 class satisfies the requirements of Federal Rule of Civil Procedure 23(a) and (b). 25 Under Rule 23(a), A class action is maintainable only if: 26
27 1 The Court takes judicial notice of the fact that Putros was dismissed with prejudice on 1 (1) the class is so numerous that joinder of all members is 2 impracticable; 3 (2) there are questions of law or fact common to the class; 4 (3) the claims or defenses of the representative parties are typical of 5 the claims or defenses of the class; and 6 (4) the representative parties will fairly and adequately protect the 7 interests of the class. 8 Fed. R. Civ. P. 23(a). 9 a. Numerosity 10 Here, the putative class is sufficiently numerous, approximately 6,500 people. Joinder of 11 all members would be impracticable. 12 b. Questions of Law or Fact Common to the Class 13 There are questions of law and fact that are common to the class. A question is common 14 where “the same evidence will suffice for each member to make a prima facie showing or the 15 issue is susceptible to generalized, class-wide proof.” Tyson Foods, Inc. v. Bouaphakeo, 136 S. 16 Ct. 1036, 1045 (2016). A question is individual where the evidence to be presented varies from 17 member to member. Id. The existence of “shared legal issues with divergent factual predicates is 18 sufficient” to meet the commonality requirement. Parra v. Bashas’, Inc., 536 F.3d 975, 978 (9th 19 Cir. 2008) (citation and internal quotations omitted). Here, Plaintiffs contend that the putative 20 class was subject to the same overarching compensation policy with AIL, namely that trainees 21 were not compensated, and agents were paid only in commissions and subject to chargebacks. 22 The document addressing the relationship between agents and AIL, the agent contract, was 23 apparently common across the class. The key issues in this case, including whether class members 24 were properly classified as independent contractors, whether their training was compensable, and 25 whether AIL’s policies violated provisions of the California Labor Code, are common to the class. 26 There are sufficiently common questions of fact and law. 27 c. Typicality of Plaintiffs’ Claims 1 standards, representative claims are ‘typical’ if they are reasonably co-extensive with those of 2 absent class members; they need not be substantially identical.” Parsons v. Ryan, 754 F.3d 657, 3 685 (9th Cir. 2014) (citation and internal quotations omitted). Here, Plaintiffs allege injuries that 4 are co-extensive with those of the absent class members. Two were trainees during the class 5 period and all three were agents in California during the period. SAC ¶¶ 21-28. Their claims are 6 based on their own training and working for AIL, and on the same conduct of AIL relevant to all 7 class members. 8 d. Whether Plaintiffs Will Fairly and Adequately Represent the Class 9 Additionally, Plaintiffs and their Counsel have shown they are able to fairly and 10 adequately represent the interests of the class. Attorney Steven M. Tindall, co-Counsel of record 11 for Plaintiffs, stated that Plaintiffs Hamilton and Smith both assisted Counsel with the 12 investigation, filing, and litigation of the matter. Tindall Decl. ¶¶ 2, 22, ECF No. 42-1. Both 13 Hamilton and Smith stayed apprised of the litigation, and Tindall opined that they both made 14 decisions with the interests of the class in mind. Id. ¶ 22. Joh in a declaration stated that he has 15 had numerous phone conversations with his attorneys as well as interviews, that he provided his 16 attorneys with valuable information, and that he participated in all stages of litigation, including 17 pre-filing discussions, concerning AIL’s Motion to Compel Arbitration, discovery related issues, 18 mediation, and settlement. Joh Decl. ¶ 8, ECF No. 42-8. He stated that he continually stayed 19 informed of all aspects of the litigation, looked for and produced documents, assisted in settlement 20 negotiations, made himself available to answers questions and review documents, and spent 21 numerous hours communicating with other class members in relation to the claims he brought and 22 notices received. Id. He estimated that he spent over 100 hours involved in the prosecution of this 23 matter. Id. Finally, proposed class Counsel have decades of experience litigating employment 24 class actions, including having successfully litigating many wage-and-hour class cases. Tindall 25 Decl. ¶¶23-29, ECF No. 39-1; Decl. of Michael A. Gould in Supp. of Mot. for Preliminary 26 Approval (“Gould Decl.”) ¶¶ 6-9, ECF. No. 39-9. Plaintiffs would adequately represent the class. 27 Accordingly, the prerequisites of Rule 23(a) have been met. 1 e. Predominance of Questions of Law and Fact Common to Class 2 In addition to satisfying those prerequisites, parties seeking class certification must show 3 that the action is maintainable under either Rule 23(b)(1), (2), or (3). Amchem Prods. v. Windsor, 4 521 U.S. 591, 614 (1997). Plaintiffs rely on Rule 23(b)(3), which states that a class action may be 5 maintained if “the court finds that the questions of law or fact common to class members 6 predominate over any questions affecting only individual members, and that a class action is 7 superior to other available methods for fairly and efficiently adjudicating the controversy.” In 8 making a predominance inquiry, “more important questions apt to drive the resolution of the 9 litigation are given more weight” than “individualized questions which are of considerably less 10 significance to the claims of the class.” Torres v. Mercer Canyons Inc., 835 F.3d 1125, 1134 (9th 11 Cir. 2016). The key question is whether the proposed class is “sufficiently cohesive to warrant 12 adjudication by representation.” Id. (citing Vinole v. Countrywide Home Loans, Inc., 571 F.3d 13 935, 944 (9th Cir. 2009)). 14 Here, the core questions include whether AIL’s practices of not paying trainees or giving 15 them meal and rest breaks, and paying agents only commissions and not reimbursing them for 16 expenses, are lawful, and if they are not, what relief class members are entitled to. Those 17 questions dominate over individualized questions, the most pertinent being how many hours each 18 class member accumulated in training or working for AIL. Additionally, a class action is a 19 superior method for fairly and efficiently adjudicating this controversy. Thus, Rule 23(b)(3) is 20 met. 21 Certification of the class for settlement purposes is appropriate. 22 2. Notice 23 Under Federal Rule of Civil Procedure 23(e), “claims, issues, or defenses of a certified 24 class may be settled . . . only with the court’s approval.” “Adequate notice is critical to court 25 approval of a class settlement under Rule 23(e).” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1025 26 (9th Cir. 1998). The Court previously found the provisions for notice to the class set forth in the 27 Settlement satisfy the requirements of due process and Fed. R. Civ. P. 23, and would provide the 1 reasonable efforts. ECF No. 41. It approved the methods of providing notice, and the Claim 2 Form, and directed KCC, the Settlement administrator, to proceed with providing notice. In 3 accordance with the Court’s preliminary approval, AIL provided KCC with the names, last known 4 mailing and email addresses, and number of relevant workweeks for all class members. Decl. of 5 Susanna Webb of Settlement Adm’r KCC (“Webb Decl.”) ¶ 5, ECF No. 42-11. After removing 6 34 records for which it had no physical address, KCC mailed notice to 6,980 Class Members via 7 U.S. mail. Id. As of November 12, 2019, KCC had received 670 Notice Packets returned by 8 USPS with undeliverable addresses. Cooley Decl. ¶ 2. Through credit bureau and other public 9 source databases, KCC performed address searches for those undeliverable packets, and was able 10 to find updated addresses for 357 class members. Id. KCC also sent the notice via email for all 11 class members for whom AIL had email addresses, 6,886 members in total. Webb Decl. ¶ 8. 12 KCC has established a website devoted to the Settlement, which includes the class notice and 13 other case-related documents. Id. ¶ 9. These efforts provided adequate notice to class members. 14 See Lundell v. Dell, Inc., 2006 WL 3507938, at *1 (N.D. Cal. Dec. 5, 2006) (notice disseminated 15 via email, first class mail, and website constituted the “best practicable notice” and satisfied due 16 process requirements). 17 3. Whether the Settlement if Fundamentally Fair, Adequate, and Reasonable 18 A court may only approve a settlement if it finds that it is “fair, reasonable, and adequate.” 19 Rule 23(e)(2). The Ninth Circuit has long instructed district courts to consider and balance 20 multiple factors to assess whether a settlement is “fair, adequate, and free from collusion” under 21 Rule 23(e). Hanlon, 150 F.3d at 1027. These factors are:
22 the strength of the plaintiffs’ case; the risk, expense, complexity, and likely duration of further litigation; the risk of maintaining class 23 action status throughout the trial; the amount offered in settlement; the extent of discovery completed and the stage of the proceedings; 24 the experience and views of counsel; the presence of a governmental participant; and the reaction of the class members to the proposed 25 settlement. 26 Id. at 1026. “This list is not exclusive and different factors may predominate in different factual 27 contexts.” Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370, 1376 (9th Cir. 1993) (citation 1 consider when determining whether a settlement is fair, reasonable, and adequate:
2 (A) the class representatives and class counsel have adequately represented the class; 3 (B) the proposal was negotiated at arm’s length; 4 (C) the relief provided for the class is adequate, taking into account: 5 (i) the costs, risks, and delay of trial and appeal; 6 (ii) the effectiveness of any proposed method of distributing 7 relief to the class, including the method of processing class- member claims; 8 (iii) the terms of any proposed award of attorney’s fees, 9 including timing of payment; and
10 (iv) any agreement required to be identified under Rule 23(e)(3); and 11 (D) the proposal treats class members equitably relative to each other. 12 13 Fed. R. Civ. P. 23(e)(2). “The notes of the Advisory Committee explain that the enumerated, 14 specific factors added to Rule 23(e)(2) are not intended to ‘displace’ any factors currently used by 15 the courts, but instead aim to focus the court and attorneys on ‘the core concerns of procedure and 16 substance that should guide the decision whether to approve the proposal.’” In re Extreme 17 Networks, Inc. Sec. Litig., 2019 WL 3290770, at *6 (July 22, 2019) (quoting Advisory Committee 18 Notes to 2018 Amendments, Fed. R. Civ. P. 23(e)(2)). “Accordingly, the Court applies the 19 framework set forth in Rule 23 with guidance from the Ninth Circuit’s precedent, bearing in mind 20 the Advisory Committee’s instruction not to let ‘[t]he sheer number of factors’ distract the Court 21 and parties from the ‘central concerns’ underlying Rule 23(e)(2)”—the fairness, reasonableness, 22 and adequacy of the proposed settlement. Extreme Networks, 2019 WL 3290770, at *6 (again 23 quoting the advisory notes). “[T]he underlying question remains this: Is the settlement fair?” 24 Partl v. Volkswagen, AG (In re Volkswagen "Clean Diesel" Mktg., Sales Practices, & Prods. Liab. 25 Litig), 895 F.3d 597, 611 (9th Cir. 2018). 26 Additionally, “settlement approval that takes place prior to formal class certification 27 requires a higher standard of fairness.” Hanlon, 150 F.3d at 1026. “The dangers of collusion 1 settlement is not negotiated by a court-designated class representative, weigh in favor of a more 2 probing inquiry than may normally be required under Rule 23(e).” Id.; Vargas v. Lott, 787 Fed. 3 Appx. 373, 374 (9th Cir. 2019) (“However, we hold district courts to a higher procedural standard 4 when making that determination of substantive fairness. That procedural burden is stricter still 5 when, as here, settlement is negotiated prior to class certification.”) (citations and internal 6 quotations omitted). Accordingly, the Court will proceed to analyze whether the Settlement is 7 fair, adequate, and reasonable under the more exacting standard for fairness demanded. 8 a. The Adequacy of Representation 9 As discussed above, Plaintiffs have all been actively involved in the litigation. Plaintiffs’ 10 Counsel have spent time working with Plaintiffs to develop the claims in the cases. Tindall Decl. 11 ¶ 5, ECF No. 42-1, Gould Decl. ¶ 15. Their work included coordinating their opposition to AIL’s 12 Motion to Compel Arbitration, preparing for and submitting a mediation brief, preparing for and 13 attending the mediation with an experienced class action mediator, negotiating the terms of the 14 Settlement and drafting it and preparing exhibits thereto, communicating with KCC, and 15 responding to class member questions regarding the settlement. Tindall Decl. ¶ 5. During 16 litigation, Counsel contacted over three dozen proposed class members regarding their experiences 17 with AIL, the potential claims in the case, and the potential damages of proposed class members. 18 Id. ¶ 6. 19 Golz nevertheless objects that Plaintiffs and their counsel are inadequate representatives of 20 the class. She suggests that they engaged in a “reverse auction” settlement. “A reverse auction is 21 said to occur when ‘the defendant in a series of class actions picks the most ineffectual class 22 lawyers to negotiate a settlement with in the hope that the district court will approve a weak 23 settlement that will preclude other claims against the defendant.’” Negrete v. Allianz Life Ins. Co., 24 523 F.3d 1091, 1099 (9th Cir. 2008) (quoting Reynolds v. Beneficial Nat'l Bank, 288 F.3d 277, 25 282 (7th Cir. 2002)). The crux of Golz’s argument here is that she was in a better bargaining 26 position and had a stronger case than Plaintiffs because she brought claims as a trainee and was 27 not subject to the arbitration clause in agent contracts. She argues that AIL deliberately settled the 1 But this argument doesn’t pass muster. For one thing, Golz’s complaint did not assert a 2 PAGA claim, as Plaintiffs did in Joh. For another, on April 2, 2019—two weeks before these 3 Plaintiffs and AIL mediated—the late Honorable Manuel L. Real granted AIL’s Motion to 4 Dismiss in Golz and dismissed Golz’s California Labor Code and FLSA claims, leaving only one 5 of her claims remaining, her claim under California’s Unfair Competition Law. Dkt. No. 34. The 6 UCL allows for injunctive and restitutionary relief, but not monetary damages, and does not allow 7 prevailing plaintiffs to recover attorneys’ fees or costs. Korea Supply Co. v. Lockheed Martin 8 Corp., 29 Cal. 4th 1134, 1148 (2003) (“attorney fees and damages, including punitive damages, 9 are not available under the UCL”). Moreover, there is no right to a jury trial for a plaintiff 10 asserting wage-and-hour claims under a section 17200 cause of action. Hodge v. Superior Court, 11 145 Cal. App. 4th 278, 284-85 (2006). Accordingly, it’s not accurate that Golz would have been 12 in a better position to negotiate. AIL would have had no reason to reach a more favorable 13 settlement in Golz, where Golz has only one claim and that claim doesn’t permit damages. The 14 Court does not find the parties partook in a reverse auction. To the contrary, because AIL 15 succeeded in trimming Golz down to one claim, with no possibility of damages and no right to a 16 jury trial, a reverse auction might have occurred had AIL settled in Golz instead. 17 b. Arms-Length Negotiations 18 The second factor under Rule 23(e)(2) requires the Court to consider if the Settlement was 19 negotiated at arm’s length. Plaintiffs and AIL negotiated assisted by an experienced employment 20 class action mediator. The involvement of a neutral mediator is evidence that settlement 21 negotiations were conducted at arm’s length. See Fed. R. Civ. P. 23(e)(2)(B), Advisory 22 Committee Notes (“[T]he involvement of a neutral or court-affiliated mediator or facilitator in 23 those negotiations may bear on whether they were conducted in a manner that would protect and 24 further the class interests.”); G.F. v. Contra Costa Cty., 2015 WL 4606078, at *13 (N.D. Cal. July 25 30, 2015) (“‘[T]he assistance of an experienced mediator in the settlement process confirms that 26 the settlement is non-collusive.’”) (quoting Satchell v. Fed. Exp. Corp., 2007 WL 1114010, at *4 27 (N.D. Cal. Apr. 13, 2007)). The negotiations included a day-long mediation session, followed by 1 additional calls with their mediator and additional negotiations with AIL’s Counsel, and this 2 ultimately led to an agreement in principle. Tindall Decl. ¶ 9. This is enough to demonstrate the 3 parties engaged in arms-length negotiations. 4 Additionally, the Court does not find the fee arrangement in the SA is necessarily 5 problematic. Golz argues that the Court should pay heightened attention to a risk of collusiveness 6 because she argues the fee arrangement here was reached as part of the settlement of claims. Obj. 7 17. She cites to In re Cmty. Bank of N. Va. & Guar. Nat'l Bank of Tallahassee Second Mortg. 8 Loan Litig., 418 F.3d 277, 308 (2005), a case in which the Third Circuit wrote “there exists a 9 special danger of collusiveness when the attorney fees, ostensibly stemming from a separate 10 agreement, were negotiated simultaneously with the settlement.” But contrary to Golz’s assertion, 11 Plaintiffs’ attorneys’ fees here were not negotiated at the time of settlement but were discussed 12 after the parties had agreed to a total settlement amount. Supp. Tindall Decl. ¶ 3, ECF No. 50-1. 13 And courts in this Circuit have noted that attorney’s fees provisions such as the one in the SA are 14 proper. E.g., Hartless v. Clorox Co., 273 F.R.D. 630, 645 (S.D. Cal. 2011) (“The Court, however, 15 recognizes that clear sailing agreements are routinely accepted in both the federal and California 16 courts.”); Sandoval v. Roadlink USA Pac., Inc., 2011 WL 5443777, at *6 (C.D. Cal. Oct. 9, 2011) 17 (“Agreements not to oppose an attorneys’ fee request up to a certain amount, however, are proper. 18 . . . Thus, Defendant's agreement not to oppose attorneys' fees of up to one third the settlement 19 amount do not necessarily undermine the adequacy of representation for the purposes of 20 preliminary certification for settlement approval.”). 21 c. The Adequacy of the Relief 22 The Settlement commits AIL to paying $5.75 million to settle this action. The settlement 23 fund will be distributed to class members based on the number of workweeks each member has, 24 and if Settlement funds remain after distribution, they will be re-distributed either pro rata to class 25 members or to a cy pres beneficiary. In no event will any unclaimed funds revert to AIL. 26 Plaintiffs’ counsel estimate that the maximum total liability for all claims is $31,273,212. 27 Tindall Decl. ¶ 19, ECF No. 42-1. Accordingly, the Settlement amounts to approximately 18.4% 1 fraction of the potential recovery does not per se render the settlement inadequate or unfair.” 2 Dunleavy v. Nadler (In re Mego Fin. Corp. Sec. Litig.), 213 F.3d 454, 459 (9th Cir. 2000) (citation 3 omitted). Settlements amounts equal to or less than the amount here have been found adequate 4 and fair by courts in this Circuit. E.g., id. (‘[T]he Settlement amount of almost $ 2 million was 5 roughly one-sixth of the potential recovery, which, given the difficulties in proving the case, is fair 6 and adequate.”); Avila v. Cold Spring Granite Co., 2018 WL 400315, at *6 (E.D. Cal. Jan. 12, 7 2018) (“Excluding the highly uncertain PAGA penalties, the net settlement amount is roughly 8 16% of the more realistic maximum recovery amount. That settlement amount is within the 9 acceptable range, albeit at the low end.”); Jones v. Canon Bus. Sols., Inc., 2014 WL 12772083, at 10 *8 (C.D. Cal. Sept. 2, 2014) (settlement amount representing a recovery of between 7 and 58% 11 adequate); Villegas v. J.P. Morgan Chase & Co., 2012 WL 5878390, at *6 (N.D. Cal. Nov. 21, 12 2012) (settlement of approximately 15% found to be preliminarily fair). 13 Additionally, continued litigation in this matter would have been risky. The parties have 14 an outstanding motion to compel arbitration, relevant to the claims of agents. Plaintiffs would 15 have to prove that trainees qualified as employees, which would have bearing on whether it was 16 legal for AIL to not pay them. Plaintiffs would also have to prove that AIL improperly classified 17 its agents as independent contractors, and that agents were not subject to an “outside salesperson” 18 exemption. The cost of litigating those issues would be costly. In light of the risks and costs of 19 continue litigation, the Settlement amount of approximately 18.4% is adequate. Barbosa v. 20 Cargill Meat Solutions Corp., 297 F.R.D. 431, 447 (E.D. Cal. July 1, 2013) (“Although a larger 21 award was theoretically possible, ‘the very essence of a settlement is compromise, a yielding of 22 absolutes and an abandoning of highest hopes.’”) (quoting Linney v. Cellular Alaska P'ship, 151 23 F.3d 1234, 1242 (9th Cir. 1998)). 24 d. Equitable Treatment of Class Members 25 Golz asserts, however, that the settlement is flawed because “nobody amongst the settling 26 parties had the trainees’ interests at heart and this led to unfavorable terms for the trainees.” Obj. 27 to Final Settlement Approval (“Obj.”) 13, ECF No. 44. She asserts that the trainees’ claims were 1 the prior complaints in either of the settling Plaintiffs’ cases. She asserts that the addition of the 2 trainees’ claims created conflicts of interest between the agents and the trainees. Plaintiffs counter 3 that the complaint in Joh was amended, and the Hamilton plaintiffs and claims added, for judicial 4 efficiency purposes. Reply ISO Mot. for Final Settlement Approval (“Reply”) 9, ECF No. 50. 5 As a preliminary note, it is not accurate that neither of the two complaints in Joh or 6 Hamilton contained claims related to training with AIL. Hamilton and Smith sought to represent a 7 class of “[a]ll current and former California-based American Income agents who began training on 8 or since December 14, 2014.” They alleged that AIL “deliberately and systematically fails to pay 9 its employees for all hours worked: its insurance salespeople, while training, do not receive 10 minimum wage, overtime pay, reimburse for business expenses, or the meal and rest breaks they 11 are entitled to under California law.” Dkt. No. 14, ¶ 1. They asserted that they, “like class 12 members, were not paid while training to become agents for American Income.” Id. ¶ 34. They 13 asserted that AIL failed to pay California overtime compensation, failed to pay minimum wages, 14 failed to provide meal periods and failed to provide rest periods, and failed to furnish accurate 15 wage statements as required by California law, as well as California waiting time penalties, which 16 claims could be read as arising from training periods. Thus, the Hamilton complaint encompasses 17 the same California Labor Code violations vis-à-vis trainees that were asserted in Golz. 18 That fact notwithstanding, the Court must still review the Settlement to ensure that it treats 19 class members equitably relative to each other. Golz objects that trainees’ claims make up a larger 20 portion of the estimated total liability than what trainees could possibly obtain from the final 21 Settlement amount, and that this is unfair. The Court finds merit in this objection. 22 Federal Rule of Civil Procedure 23(e)(2)(D) “calls attention to a concern that may apply to 23 some class action settlements—inequitable treatment of some class members vis-a-vis others. 24 Matters of concern could include whether the apportionment of relief among class members takes 25 appropriate account of differences among their claims, and whether the scope of the release may 26 affect class members in different ways that bear on the apportionment of relief.” Fed. R. Civ. P. 27 23, Advisory Committee Notes. 1 this case is for waiting-time penalties, approximately $15,742,320 of a total $31,273,212. Tindall 2 Decl. ¶ 19, ECF No. 42-1. Plaintiffs determined that the number of agents and trainees who no 3 longer work for AIL—those former employees who might be entitled to waiting-time penalties— 4 is 5,963. Id. ¶ 18. Plaintiffs estimate that there were 1,486 trainees during the class period who 5 did not become agents, id. ¶ 13, meaning that trainees made up just under 25% of the class 6 members entitled to penalties for waiting time. Claims for waiting-time penalties accrue only 7 once, one per former employee, meaning that 25% of the waiting-time penalties were attributable 8 to trainees. Under the Settlement, however, claims are distributed pro rata based on the number of 9 workweeks worked. As Golz points out, agent workweeks are far more numerous than trainee 10 workweeks, 152,000 agent workweeks versus only 20,054 training weeks. Id. ¶¶ 13, 17. Yet the 11 1,486 trainees will receive a presumptive two workweeks for a total of 2,972. This means that 12 trainees will presumptively receive only roughly 2% of the settlement value attributable to 13 waiting-time claims, even though they account for 25% of those claims, which claims make up 14 nearly 50% of the estimated value of maximum total liability in this case. Put another way, trainee 15 waiting-time penalties make up approximately 12.6% of the estimated maximum total liability— 16 as estimated by Plaintiffs—yet their share of the total Settlement fund would be diluted to 17 approximately 2%—a disparity of 10%, or over $400,000 of the estimated $4,133,031 remaining 18 of the Settlement amount for distribution. Cooley Decl. ¶ 7. 19 This disparity is compounded considering that “Amchem instructs [courts] to give 20 heightened scrutiny to cases in which class members may have claims of different strength.” 21 Hanlon, 150 F.3d at 1020. Here, “Plaintiffs assert that the legal claims related to the training 22 periods are comparatively easier to demonstrate and more valuable than the claims relating to the 23 non-training employment period.” Mot. 6. Plaintiffs concede that “while trainees would be 24 required to prove that their training is compensable under the factors set out in Portland Terminal 25 and related cases, sales agents additionally would be required to establish that they are not subject 26 to the arbitration provision in their Agent Contracts and then also show that they were improperly 27 classified as independent contractors under both caselaw and newly-passed legislation and that the 1 Counsel for Plaintiffs stated:
2 In designing a fair method for distributing settlement proceeds among Class Member, Plaintiffs’ counsel was informed by their belief that 3 the legal claims related to the time Class Members were in training with AIL were comparatively easier to demonstrate and more 4 valuable than claims related to the non-training period during which the Class Members worked as agents. Plaintiffs’ Counsel believed 5 this to be the case in part because Class Members received no pay for their time spent in training, which Plaintiffs’ Counsel believed to be 6 a clear violation of minimum wage laws. In addition, Class Members received no wage statements for this time period, which Plaintiffs’ 7 Counsel also believed to be in violation of the California Labor Code (SECTION) 226. By contrast, Class Members who contracted with 8 AIL as agents were compensated on a commission basis and received information from AIL concerning their pay. Although Plaintiffs’ 9 Counsel believe there are Labor Code claims attributable to this post- training period as well, they are comparatively less strong than the 10 claims related to the training period. Although trainees would need to demonstrate that their training is not akin to vocational school, sales 11 agents would need to show that they were misclassified as independent contractors and that the outside salesperson exemption 12 under California law does not exempt them from Labor Code protections. 13 14 Tindall Decl. ECF 42-1, 3 (emphasis added); see also Gould Decl. ¶ 10 (“Liability is difficult to 15 prove in this case. AIL presented case law supporting its position that sales agents are typically 16 recognized as independent contractors in the industry.”); Mot.12 (“Although Plaintiffs believe 17 their class-wide claims would survive AIL’s [motion to compel arbitration], AIL made several 18 arguments which, if the Court were to agree, would effectively eradicate Plaintiffs’ ability to bring 19 their claims on a class-wide basis.”). 20 Plaintiffs assert that the SA double weights trainees’ workweeks to account for trainees’ 21 relatively stronger claims, but that double-weighting does not do enough to eliminate the disparity 22 addressed above: even after, waiting-time claims attributable to non-agent trainees equal at least 23 approximately 12% of total estimated liability, yet those trainees would come away from the 24 Settlement with approximately 2% of the Settlement fund amount. And that approximation 25 assumes that Plaintiffs could succeed in proving their claims that arose only after agents began 26 working for AIL, which they admit were harder to prove and faced several additional burdens of 27 proof. If the agent-only claims (the chargeback and unreimbursed expenses claims) failed, for 1 values of claims. Additionally, Plaintiffs estimate that all meal and rest break claims, valued at 2 $661,782, result from liability incurred during training periods, yet under the proposed 3 arrangement, agents would rake in a hugely disproportionate portion of that value by virtue of 4 || having so many more workweeks, even though Plaintiffs would face the risk at trial of being 5 unable to prove employee status, which failure would mean the vast majority of their workweeks 6 || would fall away. In short, trainees’ stronger claims make up a significantly larger percentage of 7 estimated total liability than the percentage of the Settlement fund to which trainees would be 8 entitled under the presumptions built into the Settlement agreement. 9 All settlement agreements must naturally work off the unknown. But here Plaintiffs admit 10 || that trainees’ claims are easier to prove and, importantly, are “more valuable,” and yet agents will 11 come out in the end with almost the entirety of the value of the settlement. Such an arrangement is 12 || not equitable and fair. Accordingly, the Court cannot approve the Settlement agreement and 5 13 Plaintiffs motion must be denied. IT IS SO ORDERED.
16 Dated: January 9, 2020
8 THOMAS S. HIXSON United States Magistrate Judge 19 20 21 22 23 24 25 26 27 28