Kudatsky v. Tyler Technologies

Opinion

1 2 3 4 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7

9 AARON KUDATSKY, on behalf of himself, and on behalf of those similarly- 10 situated, No. C 19-07647 WHA

11 Plaintiffs,

12 v. ORDER RE MOTION FOR FINAL SETTLEMENT APPROVAL AND 13 TYLER TECHNOLOGIES, INC., MOTION FOR ATTORNEYS’ FEES 14 Defendant.

16 INTRODUCTION 17 In this wage-and-hour class action, defendant technology company allegedly 18 misclassified employees, depriving them of overtime and other wages. Parties now move for 19 final approval of their settlement and plaintiffs move for attorneys’ fees and costs. To the 20 extent stated, the motions are GRANTED. 21 STATEMENT 22 Prior orders detailed the facts involving our now-familiar plaintiffs, implementation 23 consultants (ICs) and defendant software company, Tyler Technologies, Inc. (Dkt. Nos. 98, 24 130). Since then, the notice process appears to have reached all 295 putative class members, 25 by either First Class mail or email. Class counsel received no objections. Two class members 26 opted out for a total of 99.3% participation in this settlement. The total settlement fund now 27 1 comes to $3,258,313.61 (Brome Final. App. Decl. ¶¶ 2–3; Brome Decl. Re Class Service 2 Provisions (“Brome Addendum Decl.”) ¶ 9). 3 Additionally, two class members disputed Tyler’s calculations of their dates of 4 employment and settlement payments. In response, parties met and conferred. Tyler 5 determined that it had used “incomplete employment data” for the two objecting class 6 members. It agreed to revise its calculation of those two and, su esponte, the hours of five 7 others. This entitled the class to an additional $128,979.45. To pay for this, the agreement 8 provides for draining the contingency fund ($20,000) and using the funds that would have been 9 paid to two opt-out plaintiffs $665.84). That not sufficing, Tyler agreed to foot the remaining 10 $108,313.61 (the “supplemental payment”) to cover the additional funds owed to the seven 11 employees with corrected employment data (Brome Addendum Decl. ¶¶ 8–9). 12 Parties now move for final approval of the settlement and for fees and costs. There are 13 no oppositions. This order follows a stipulated motion for final approval and a fairness hearing 14 (telephonic due to COVID-19). 15 ANALYSIS 16 “The class action device, while capable of the fair and efficient adjudication of a large 17 number of claims, is also susceptible to abuse and carries with it certain inherent structural 18 risks.” Officers for Just. v. Civ. Serv. Comm’n of City & Cty. of San Francisco, 688 F.2d 615, 19 623 (9th Cir. 1982). A settlement purporting to bind absent class members must be fair, 20 reasonable, and adequate. See FRCP 23(e). Rule 23(e)(2) requires district courts to employ a 21 two-step process: First, the parties must show the district court will likely be able to approve 22 the proposed settlement. Second, the district court must hold a hearing to make a final 23 determination of whether the settlement is fair, reasonable, and adequate. We have arrived at 24 step two. 25 Our court of appeals recently explained that the final fairness assessment must analyze 26 the eight Churchill factors: (1) the strength of the plaintiff’s case; (2) the suit’s risk, expense, 27 and complexity; (3) the risk of maintaining class action status throughout the trial; (4) the 1 governmental participant (if any); and (8) the “reaction of the class members of the proposed 2 settlement.” Kim v. Allison, 8 F.4th 1170, 1178–79 (9th Cir. 2021) (quoting In re 3 Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 946 (9th Cir. 2011)); Churchill Vill. v. 4 Gen. Elec., 361 F.3d 566 (9th Cir. 2004). Additionally, Rule 23(e)(2) requires the district court 5 to consider the adequacy of the actual notice procedure, “the terms of any proposed award of 6 attorney’s fees,” scrutinize the settlement for evidence of collusion or conflicts of interest, and 7 consider other, relevant factors before deeming the settlement fair. See Briseño v. Henderson, 8 998 F.3d 1014, 1024–26 (9th Cir. 2021). 9 In short, in consideration for the dismissal of this action with prejudice and a release of 10 claims, Tyler agrees to make a settlement payment of $3,258,313.61. Of this, $2,450,813.61 11 will be allocated to the 294 participating class members on a pro-rata basis. This order finds 12 the proposed settlement fit for final approval. 13 1. THE CHURCHILL FACTORS. 14 This order reviews the eight Churchill factors. The factors support settlement. 15 First, the strength of plaintiffs’ case supports settlement. Plaintiffs would have had the 16 burden of establishing that Tyler violated various wage laws. Most notably, plaintiffs contend 17 that Tyler erroneously mis-classified ICs as administratively exempt from the overtime 18 requirement (see Cal. Lab. Code §§ 510, 1194, and 1198, and IWC Wage Order(s)). 19 California’s Wage Order 4–2001 provides that for the administrative exemption to apply, the 20 employee must (1) perform “office or non-manual work directly related to management 21 policies or general business operations” of the employer or its customers, (2) “customarily and 22 regularly exercise[] discretion and independent judgment,” (3) “perform[] under only general 23 supervision work along specialized or technical lines requiring special training” or “execute [] 24 under only general supervision special assignments and tasks,” (4) be engaged in the activities 25 meeting the test for the exemption at least fifty percent of the time, and (5) earn twice the 26 state’s minimum wage. 27 1 The parties briefed cross motions for summary judgment on this claim. Plaintiffs’ 2 counsel estimates 60% chance of success on the claim (Brome Prelim. App. Decl. ¶ 6). The 3 ICs would have had to show, as a class, both that they worked overtime and that due to 4 misclassification, Tyler owed them money for that time. Showing a willful violation or losing 5 to Tyler’s good faith defense would cut the FLSA damages substantially. Failure to show that 6 Tyler acted knowingly, intentionally, and willfully could defeat the wage-statement and 7 waiting-time-penalty claims. See Lab. Code §§ 226(e)(1), 203. Furthermore, plaintiffs would 8 be required to establish that out-of-state workers are entitled to all provisions of the labor code 9 by proving not just that they traveled into California (per Tyler records) but also that they 10 performed work in California. See Ward v. United Airlines, Inc., 9 Cal.5th 732 (2020). 11 Therefore, substantial risk remains for plaintiffs, both at summary judgment and at trial. 12 Second, the risk, expense, and complexity of the case supports settlement. Our class 13 certification order held, 14 For now, certification applies solely to this issue: whether Tyler properly classified ERP ICs as administratively exempt from 15 overtime and other California labor laws (or not). We will revisit possible certification of the other claims after we hold a trial on the 16 certified issue. At that point, the Court will be better-informed to process the multitudinous and bone-crushing details of how plaintiff 17 might establish class-wide overtime liability 18 (Dkt. No. 98 at 3). The order then held in abeyance, “the motion to certify a class as to the 19 overtime, wage statement, waiting period, and UCL claims” (ibid.). Therefore, only the legal 20 question of the administrative exemption stands ready for summary judgment and, perhaps, 21 trial. Another round of class certification, dispositive motions, and possibly another trial 22 would have to follow on the remaining claims. Even if summary judgment were to enter for 23 plaintiffs, a damages phase could require still more painstaking litigation. This factor supports 24 the settlement agreement. 25 Third, the risk of maintaining class action status throughout the trial militates in favor of 26 settlement. Currently, to repeat, only the issue of administrative classification glues this class 27 together — future class certification motions on the other claims await. Establishing class- 1 wide liability would require digging for common proof regarding whether the nonresident class 2 members performed work in California and whether the class members worked overtime. 3 Plaintiffs would be required to show such common proof exists. This factor favors settlement. 4 Fourth, the amount of the settlement award endorses the settlement agreement. Early on, 5 Tyler agreed to a settlement payment of $3.15 million. Now, that figure has increased to 6 $3,258,313.61, and the settlement will distribute $2,450,813.61 to 294 individuals (the 295- 7 member class, minus two opt outs, plus named-plaintiff Aaron Kudatsky). This amounts to an 8 average of over $8,000 per person. Assuming this order accepts 25% to counsel for fees and 9 costs, plaintiffs contend that Tyler will pay 79% of the reasonable value of plaintiffs’ claims 10 (30.5% of the maximum value of $7,653,620.09). Especially considering the likely costs of 11 protracted litigation, this order finds the recovery amount fair and reasonable. See In re Mego 12 Fin. Corp. Sec. Litig., 213 F.3d 454, 459 (9th Cir. 2000) (Brome Final App. Decl. ¶¶ 5–7; 13 Brome Prelim. App. Decl. ¶¶ 5–8; Brome Fees and Costs Decl. ¶ 5). 14 Fifth, the stage of the proceedings supports settlement. A class was certified. Motions 15 for partial summary judgment remain pending. Defendants have produced over one-million 16 pages of documents, which information class counsel used to calculate potential damages. 17 Parties have conducted eleven depositions. In short, this settlement occurred in the shadow of 18 trial, and each got to preview the evidence that the other side would have shown to a jury. The 19 parties also had the benefit of settlement discussions under the guidance of Magistrate Judge 20 Ryu (Brome Prelim. App. Decl. ¶ 4). 21 Sixth, the abilities and views of counsel support settlement. Class counsel has extensive 22 experience in wage-and-hour cases. See, e.g., Parr v. Stevens Transp., Inc., 2019 WL 23 4933583, at *3 (N.D. Cal. Oct. 7, 2019); Oman v. Delta Air Lines, Inc., 230 F. Supp. 3d 986 24 (N.D. Cal. 2017) (Judge William H. Orrick). This order finds counsel have diligently applied 25 nose to the grindstone to litigate class certification and to move for partial summary judgment. 26 Counsel for both sides have approached settlement negotiations with the same zeal. 27 Seventh, no government entity participated in this action. This factor is neutral. 1 Eighth, the reaction of the class members of the settlement is positive, with 99.3% 2 participation and favorable resolution of disputes that enriched the class by more than one- 3 hundred thousand dollars. No class member objected (Brome Prelim. App. Decl. ¶ 3). Hence, 4 this factor supports the settlement. 5 In sum, the settlement agreement ranks highly under the Churchill factors. 6 2. RULE 23 FACTORS AND OTHER RELEVANT CONSIDERATIONS. 7 Consideration of the Churchill factors alone does not suffice. See Briseño, 998 F.3d at 8 1025–26. This order accordingly evaluates whether the settlements fairly, reasonably, and 9 adequately compensate the class under the factors enumerated in Rule 23(e)(2) not fully 10 addressed by the Churchill factors and other, relevant considerations. 11 First, “The class must be notified of a proposed settlement in a manner that does not 12 systematically leave any group without notice.” Officers for Justice v. Civil Serv. Comm’n of 13 City & Cty. of San Francisco, 688 F.2d 615, 624 (9th Cir. 1982) (citation omitted). The Court 14 has previously approved the parties’ proposed notice procedures for the class (Dkt. No. 130). 15 In the motion for final approval, class counsel declared that counsel mailed notice of the 16 settlement to all 295 class members and opt-in plaintiffs. Class counsel emailed notice to 244 17 of the same. Class and Tyler’s counsel posted the notice to their website. Ten First-Class 18 notices were forwarded to new mailing addresses. Fourteen First-Class notices were returned 19 undeliverable. Five of the fourteen recipients confirmed receipt by email, however. Class 20 counsel performed skip traces for the remaining nine, and re-mailed notices. These appear to 21 have been delivered. Of the emailed notices, three bounced back. Counsel could not identify 22 other email addresses, but the First-Class-mailed notices appear to have gone through. 23 Therefore, it appears all class members got notice. The notice informed class members about 24 all key aspects of the settlement, the date, time, and place of the fairness hearing, the process 25 for objection and opt-out, and estimated recovery in settlement (Brome Final. App. Decl. ¶¶ 2, 26 3). This notice appears effective and supports settlement. 27 Second, the plan of allocation is also fair and reasonable. After expenses, attorney’s fees, 1 $2,450,813.61 to 294 individuals. The net proceeds will be apportioned to each participating 2 class member with no amount reverting to defendants. “The damages model assumes that all 3 ICs worked ten hours per day (or 50 hours per week) prior to March 12, 2020, when the global 4 COVID-19 pandemic effectively ended travel for ICs, and nine hours per day (or 45 hours per 5 week) thereafter” (Brome Fees and Costs Decl. at ¶ 4). Settlement payments range from $200, 6 for employees who are only receiving pay as California travel class members, up to 7 $61,442.50. Seventy-one individuals will receive $200 to $1,000; 149 individuals will receive 8 $1,000 to $10,000; and 74 individuals will receive over $10,000 (Brome Prelim. App. Decl. ¶¶ 9 8–9). Based on the risks of establishing liability and damages at trial — and the risks of 10 maintaining class certification — this plan of allocation presents a minimally fair recovery to 11 class members. 12 Third and fourth, as stated at preliminary approval, the settlement agreement does not 13 reclassify employees, but the scope of release is appropriately narrow. While not required, 14 reclassification would be an important remedy not captured by the common fund. Parties 15 address this problem by explicitly not releasing any claims that accrued after April 19, 2021. 16 Furthermore, the release of claims is limited to those defined by our certified class. 17 Fifth, the cy pres recipient, Legal Aid at Work, helps employees, pro bono, to become 18 private attorneys general enforcing the statutes at issue in this case. See Dermis v. Kellogg Co., 19 697 F.3d 858, 865 (9th Cir. 2012). Similarly, the organization supports the interests of silent 20 class members. See ibid. This order approves Legal Aid at Work as cy pres recipient. 21 3. FLSA. 22 Settlement of FLSA claims must be approved by the district court or the Labor Secretary. 23 Where FLSA class members are similarly-situated to other class members, most district courts 24 analyze the settlement to see if it represents “a fair and reasonable resolution of a bona fide 25 dispute over FLSA provisions.” See Otey v. Crowdflower, Inc., 2016 WL 304747, at *3 (N.D. 26 Cal. Jan. 26, 2016) (Judge John S. Tigar), quoting Lynn’s Food Stores, Inc. v. United States, 27 679 F.2d 1350, 1355 (11th Cir. 1982); see also 29 U.S.C. § 216(b). The legal issues at play in 1 Tyler. Thus, the FLSA class members appear similarly-situated. The bona fide disputes 2 include applicability of FLSA exemptions, defenses including scienter, statutes of limitations, 3 hours worked, and method of calculating damages. All FLSA opt-ins sent in their release of 4 claims forms and are participating. The monetary reward appears fair and reasonable, 5 especially for FLSA class members. This order finds that plaintiffs have met the FLSA 6 standard for settlement approval. 7 In short, having considered the applicable factors, this order finds the proposed class 8 settlement is fair, reasonable, and adequate so as to warrant final approval. The Court, 9 however, shall retain jurisdiction to enforce the terms of the settlement for just six months from 10 the date of this order. Accordingly, and to the extent stated, final approval of the proposed 11 class settlement and plan of allocation is GRANTED. 12 4. MOTION FOR ATTORNEY’S FEES, COSTS, AND INCENTIVE AWARDS. 13 A. FEES. 14 A district court must ensure that attorney’s fees are “fair, adequate, and 15 reasonable.” Staton v. Boeing Co., 327 F.3d 938, 963–64 (9th Cir. 2003). “In ‘common-fund’ 16 cases where the settlement or award creates a large fund for distribution to the class, the district 17 court has discretion to use either a percentage or lodestar method.” Counsel argue that the 18 percentage method should be applied in the instant motion. Our court of appeals has 19 recognized twenty-five percent of the common fund as a benchmark award for attorney’s 20 fees. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1029 (9th Cir. 1998). California law 21 authorizes the percentage method for awarding attorney’s fees in common fund cases. 22 See Laffitte v. Robert Half Int’l Inc., 1 Cal. 5th 480, 503 (Cal. 2016). The undersigned finds 23 the percentage method to be appropriate under the circumstances. 24 Counsel seeks $787,500.00. This represents 25% of the original gross settlement fund, 25 but only 24% of the revised gross settlement fund (of $3,258,313.61). This discrepancy is due 26 to the fact that counsel did not seek 25% of Tyler’s additional payment to the fund (those 27 1 additional payment, undertaken voluntarily, amounted to $108,313.61). The $787,500.00 2 represents 32% of the net fund ($2,450,813.61) (Brome Addendum Decl. ¶¶ 8–9). 3 Class counsel conducted substantial motion practice and extensive discovery. Further, 4 counsel also worked on a contingent-fee basis despite the risks of litigation, which were 5 substantial in this case — and for approximately two years. The issues here are clearly 6 complex: our order certified a class only on the issue of classification, leaving many more 7 litigious issues for the ultimate question of liability, were it to proceed. Counsel has achieved a 8 payment of 30.5% of the maximum value of the claims, or 79% of the realistic value. This 9 appears to be a fair settlement. The 25% fee scheme received no objections from class 10 members, who received the proposed fee percentage with the notice of settlement and 11 opportunity to opt-out (Brome Final App. Decl. ¶ 3). 12 Finally, the lodestar is $323,385.00, and lodestar multiplier comes out to 2.34: this 13 calculation uses 984.2 hours total to date and another forty hours of work split evenly between 14 lawyers and non-lawyers to finalize settlement payments. Fees ranged from $175/hour for 15 non-lawyer hours to $575 for partner Rachhana T. Srey, $450 for associate Daniel Brome, and 16 short bursts by attorneys Matthew Helland ($650/hour) and Reena Desai ($500/hour) (ibid.). 17 These compare favorably to recent approvals. See, e.g., Bisaccia v. Revel Sys. Inc., 2019 WL 18 3220275, at *8 (N.D. Cal. July 17, 2019) (Judge Haywood Gilliam). All of these factors weigh 19 in favor of this attorney’s fees payment (Brome Fees and Costs Decl. ¶¶ 15–17, 23–25). 20 The fees appearing reasonable, the award is GRANTED. 21 B. COSTS. 22 Counsel has incurred a total to date (as of September 14, 2021) of $18,957.28 in 23 unreimbursed costs but it anticipates additional costs associated with distributing settlement 24 payments and continuing to store electronic discovery, for a total of $20,000.00 in costs 25 (Brome Fees and Costs Decl. ¶ 11). The largest component of claimed expenses are for 26 deposition transcripts (approximately $8,800.00). The second-largest are electronic storage 27 costs ($4,300.00 to date). Counsel also seek reimbursement for mailing notices ($2,700.00 to 1 advertising, and legal research, and a few miscellaneous categories, and amounted to $3,000.00 2 (see id. ¶¶ 11–25). Appearing reasonable for this two-year and multi-million-dollar action, the 3 $20,000.00 request for costs is APPROVED. 4 C. INCENTIVE AWARD. 5 Plaintiff Kudatsky requests $5,000 as an incentive award. Tyler has not lodged any 6 opposition to this request. Kudatsky declares, under oath, that he worked closely with class 7 counsel throughout the litigation, providing about 80 hours of work. Such work included 8 providing relevant documents to class counsel, reviewing, and discussing documents including 9 Tyler’s written discovery requests, preparing for a deposition, being deposed for a full day, 10 attending two settlement conferences with Judge Ryu, and discussing the case with other class 11 members (see id. ¶¶ 4–9). 12 As cautioned in the “Notice Regarding Factors to be Evaluated for Any Proposed Class 13 Settlement,” “[a] request for an incentive payment is a red flag.” Incentive awards pose the 14 risk that a class representative has gone along with a settlement, not because it secures a good 15 outcome for the class, but simply, in part at least, for the incentive award. Such awards should 16 therefore be subject to careful scrutiny. Kudatsky declares that he sought employment in the 17 same technology field after leaving Tyler’s employ but suffered eleven months of 18 unemployment after initiating this suit. His name tops the marquee. An award of $1,000 to 19 Kudatsky is reasonable under these circumstances and no others are warranted (Dkt. Nos. 35, 20 132 at 18, 19). 21 In sum, class counsel shall receive $20,000.00 as reimbursement for litigation expenses, 22 to be paid promptly from the settlement fund. As for attorneys’ fees, defendant shall wire 23 transfer fifty percent of the total $787,500.00 as of the effective date as defined in the 24 settlement. The remaining fifty percent shall be paid when defendants certify that all funds 25 have been properly distributed and the file can be completely closed. 26 27 1 CONCLUSION 2 To the extent stated, final approval of the class settlement, attorneys’ fees, costs, and 3 incentive awards, are GRANTED. 4 IT IS SO ORDERED. 5 6 Dated: November 17, 2021. 7 Pee g A = WILLIAM ALSUP 9 UNITED STATES DISTRICT JUDGE 10 ll a 12

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