Tuttle v. Audiophile Music Direct Inc

• Court: District Court, W.D. Washington
• Decided: March 13, 2023
• Docket: 2:22-cv-01081
• Status: Unknown

Opinion

1 2

3 4 5 6 7 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 8 AT SEATTLE

9 10 STEPHEN J. TUTTLE, et al., CASE NO. C22-1081JLR 11 Plaintiffs, ORDER v. 12 AUDIOPHILE MUSIC DIRECT, 13 INC., et al., 14 Defendants. 15 I. INTRODUCTION 16 Before the court is the motion by third parties Adam Stiles, Omar Flores, and 17 Gregory Bitterman (collectively, “Proposed Intervenors”) to intervene as party plaintiffs 18 and/or for a stay of the proposed class action settlement in this matter. (Mot. (Dkt. # 23); 19 Reply (Dkt. # 35).) Plaintiffs Stephen J. Tuttle and Dustin Collman (collectively, 20 “Plaintiffs”) and Defendants Audiophile Music Direct, Inc. and Mobile Fidelity Sound 21 Lab, Inc. (collectively, “Defendants”) oppose the motion. (Pls. Resp. (Dkt. # 31); Defs. 22 1 Resp. (Dkt. # 34-1).) The court has considered the submissions of the parties, the 2 relevant portions of the record, and the governing law. Being fully advised,1 the court

3 GRANTS Proposed Intervenors’ motion to intervene and DENIES their motion to stay. 4 Proposed Intervenors are granted permissive intervention for the limited purpose of 5 opposing Plaintiffs’ revised motion for preliminary approval of the parties’ class action 6 settlement. 7 II. BACKGROUND 8 Defendants are producers and sellers of vinyl music recordings. (Am. Compl.

9 (Dkt. # 14) ¶ 1.) One of their product lines “consists of analog recordings that are made 10 without the use of digital processing, i.e., by duplicating the original analog master 11 recordings using only analog processes.” (Id.) These recordings are referred to as “triple 12 analog” recordings, and, according to Plaintiffs, they are “highly valued by high-end 13 audiophiles and collectors.” (Id.; see also id. ¶ 21 (explaining that audiophiles believe

14 that analog recordings “preserve the entire dynamic range of the sound that has been 15 recorded, whereas digital recording limits or compresses the signal in a way that limits 16 the dynamic range”).) As a result, Defendants were able to charge a “high premium” for 17 recordings that they claimed were “triple analog.” (Id. ¶¶ 22-24.) 18 Plaintiffs allege, however, that Defendants represented that many of their

19 recordings were “triple analog” when, in fact, they were not. (Id. ¶ 2; see also id. ¶ 27 20

21 1 Neither party has requested oral argument (see Mot. at 1; Pls. Resp. at 1; Defs. Resp. at 1) and the court finds that oral argument would not be helpful to its resolution of the motion, see 22 Local Rules W.D. Wash. LCR 7(b)(4). 1 (quoting a July 27, 2022 statement in which Defendants’ president, Jim Davis, 2 acknowledged that Defendants had used digital technology in their mastering chain).)

3 They assert, on behalf of themselves and proposed Washington and nationwide classes, 4 that they reasonably relied on Defendants’ representations that the recordings were “triple 5 analog,” purchased the recordings either directly from Defendants or from third-party 6 retailers based on those representations, and suffered damage as a result. (Id. ¶¶ 2, 30.) 7 Plaintiffs filed their initial complaint in this court on August 2, 2022, and amended 8 their complaint on December 20, 2022. (Compl. (Dkt. # 1); Am. Compl.) They allege a

9 claim for violation of the Washington Consumer Protection Act (“WCPA”), ch. 19.86 10 RCW, on behalf of the Washington class and claims for breach of contract, unjust 11 enrichment, and violation of the Illinois Consumer Fraud Act, 815 ILCS 505/2, on behalf 12 of the nationwide class. (Am. Compl. ¶¶ 35-36, 46-69.) Between August 18 and 13 September 23, 2022, other sets of plaintiffs filed separate proposed class actions against

14 Defendants in the Northern District of Illinois, the Central District of California, and the 15 Northern District of California. See Stiles v. Mobile Fidelity Sound Lab, Inc., Case No. 16 1:22-cv-04405 (N.D. Ill.) (filed August 18, 2022); Bitterman v. Mobile Fidelity Sound 17 Lab, Inc., Case No. 1:22-cv-04714 (N.D. Ill.) (filed September 1, 2022); Allen v. 18 Audiophile Music Direct, Case No. 2:22-cv-08146 (C.D. Cal.) (filed September 22, 2022,

19 in Los Angeles County Superior Court before being removed to federal court); Molinari 20 v. Audiophile Music Direct, Case No. 4:22-cv-05444 (N.D. Cal.) (filed September 23, 21 2022). 22 1 On August 18, 2022, Defendants’ counsel, Joseph Madonia, had an initial 2 conversation with Plaintiffs’ counsel, Duncan C. Turner. (Madonia Decl. (Dkt. # 33-1)

3 ¶ 5; 2/13/23 Turner Decl. (Dkt. # 32) ¶ 4.) That same day, Bursor & Fisher, P.A., and 4 Wolf Haldenstein Adler Freeman & Herz, LLC (together, “Stiles Counsel”) filed the class 5 action complaint in Stiles in the Northern District of Illinois. (See Joint Decl. (Dkt. # 24) 6 ¶ 5, Ex. A (“Stiles Complaint”).2) 7 On August 22, 2022, Mr. Madonia again contacted Mr. Turner to discuss the 8 possibility of settlement. (Madonia Decl. ¶ 6; 2/13/23 Turner Decl. ¶ 5.) Mr. Turner

9 informed Mr. Madonia that he needed “reliable information” about the recordings at 10 issue, along with sales and revenue data, before the parties could begin settlement 11 discussions. (2/13/23 Turner Decl. ¶ 5.) 12 On September 1, 2022, DiCello Levitt, LLC, along with co-counsel from Golumb 13 Spirt Grunfeld, P.C., and Starr Austen & Miller, LLP (together, “Bitterman Counsel”)

14 filed the class action complaint in Bitterman in the Northern District of Illinois. (Joint 15 Decl. ¶ 7, Ex. B (“Bitterman Complaint”).) Shortly thereafter, Stiles Counsel and 16 Bitterman Counsel (collectively, “Stiles/Bitterman Counsel”) began working together to 17 litigate the two proposed Illinois class actions and to communicate with Mr. Madonia. 18 (Id. ¶ 8.)

19 // 20 //

21 2 The Joint Declaration was filed by Amy E. Keller of the law firm DiCello Levitt LLC, Kenneth J. Grunfeld of the law firm Golumb Spirt Grunfeld, P.C., and Philip L Fraietta of the 22 law firm Bursor & Fisher, P.A. (Id. ¶¶ 1-3.) 1 On September 16, 2022, Mr. Turner and Mr. Madonia agreed to participate in 2 informal discovery. (Id. ¶ 6; Madonia Decl. ¶ 7.) In mid-November, Defendants

3 produced to Plaintiffs a spreadsheet that identified the recordings, the sales volume of the 4 recordings, and the wholesale and retail prices for each recording. (2/13/23 Turner Decl. 5 ¶ 6; Madonia Decl. ¶ 8.) Defendants produced the same information to Stiles/Bitterman 6 Counsel on December 2, 2022. (Madonia Decl. ¶ 8.) 7 Starting on November 5, 2022, Mr. Turner and Mr. Madonia “began to outline the 8 structure of a settlement,” and by November 22, 2022, the parties reached an agreement

9 on a “three-option” structure that would provide class members the ability to seek a full 10 refund if they wished to return the records at issue, or, if they chose to keep their records, 11 the ability to receive either a partial refund or a coupon. (2/13/23 Turner Decl. ¶¶ 7-9; 12 Madonia Decl. ¶ 9.) The parties discussed attorney’s fees and incentive awards after the 13 monetary issues had been agreed upon. (2/13/23 Turner Decl. ¶ 10; Madonia Decl. ¶ 10.)

14 In late November 2022, the parties’ discussions regarding the form of notice and 15 logistics of the return process were delayed when counsel for both Plaintiffs and 16 Defendants contracted COVID-19. (2/13/23 Turner Decl. ¶ 11; see also 12/6/22 Stip. 17 (Dkt. # 12) (requesting an extension of the deadlines to submit the joint status report and 18 discovery plan and for Defendants to answer the complaint because Mr. Madonia was

19 recovering from COVID-19).) By late December 2022, counsel resumed their work on 20 the logistical aspects of the settlement. (2/13/23 Turner Decl. ¶ 11.) 21 Mr. Madonia states that while he was negotiating with Mr. Turner, he also had 22 “preliminary conversations” with counsel for the plaintiffs in the other proposed class 1 actions, but that there were no substantive settlement negotiations or exchanges of 2 settlement terms with any of the attorneys for the plaintiffs in the other actions.

3 (Madonia Decl. ¶ 11.) Stiles/Bitterman Counsel, however, assert that they discussed the 4 prospect of a class-wide resolution during “frequent communicat[ions]” with Mr. 5 Madonia. (Joint Decl. ¶ 9.) Stiles/Bitterman Counsel assert that the “major impediment” 6 to their settlement discussions was whether to use a professional mediator to help settle 7 the case. (Id.) Mr. Madonia acknowledges that Defendants “repeatedly rejected” 8 Stiles/Bitterman Counsel’s insistence that they negotiate using a third-party mediator.

9 (Madonia Decl. ¶ 12.) He states that Defendants did not believe that the expense and 10 delay of mediation were necessary in light of Defendants’ willingness to offer a full 11 refund to any customer who wanted to return their records. (Id.) 12 According to Stiles/Bitterman Counsel, their settlement discussions with Mr. 13 Madonia “reached a critical point” during a January 3, 2023 conference call. (Joint Decl.

14 ¶ 11.) Stiles/Bitterman Counsel assert that during that call, Mr. Madonia “specifically 15 articulated his client’s defense strategy to resolve the case using a reverse auction.”3 (Id.) 16 They state that Mr. Madonia asked Stiles/Bitterman Counsel to submit a settlement offer 17 to his clients for their consideration and “suggested that Defendants would solicit 18

19 3 “A reverse auction is said to occur when ‘the defendant in a series of class actions picks 20 the most ineffectual class lawyers to negotiate a settlement with in the hope that the district court will approve a weak settlement that will preclude other claims against the defendant.’” Negrete v. Allianz Life Ins. Co., 523 F.3d 1091, 1099-1100 (9th Cir. 2008) (quoting Reynolds v. 21 Beneficial Nat’l Bank, 288 F.3d 277, 282 (7th Cir. 2002)). The mere fact that a defendant is discussing settlement with the plaintiffs in parallel proceedings, however, is insufficient to 22 establish that an impermissible “reverse auction” has occurred. Id. 1 demands from each group [of plaintiffs] and accept the lowest settlement offer of all the 2 cases.” (Id. ¶ 12.) At the end of the call, according to Stiles/Bitterman Counsel, Mr.

3 Madonia “stated he needed fifteen more days to discuss mediation with his client before 4 providing Defendants’ position on the matter.” (Id. ¶ 15.) Stiles/Bitterman Counsel 5 agreed to send Defendants a formal settlement demand letter. (Id.) 6 Mr. Madonia remembers the January 3, 2023 call differently. He states that 7 Stiles/Bitterman Counsel demanded that the parties hire a mediator and commence 8 mediation of the Illinois cases. (Madonia Decl. ¶ 13.) Mr. Madonia again stated that

9 Defendants did not want to mediate. (Id.) According to Mr. Madonia, Stiles/Bitterman 10 Counsel then offered to send a settlement demand letter which would set forth some of 11 the benefits of mediation. (Id.) Mr. Madonia denies, however, that he ever discussed 12 “(i) Defendants’ defense strategy, (ii) any attempt or intention of Defendants to conduct a 13 ‘reverse auction’ or ‘solicit demands from each group and accept the lowest settlement

14 offer of all the cases,’ or (iii) inquire and/or request a quote or ‘bid’ from the 15 Stiles/Bitterman [C]ounsel (or any other plaintiffs [sic] counsel in any of the cases) as to 16 their legal fees and/or settlement terms in connection with a potential settlement of the 17 cases.” (Id. ¶ 14.) 18 On January 6, 2023, Stiles/Bitterman Counsel sent Defendants a formal written

19 settlement demand, which contained “their first suggestion of any settlement terms.” 20 (Madonia Decl. ¶ 15; see also Joint Decl. ¶ 17 (stating that in their letter, Stiles/Bitterman 21 Counsel asked Defendants to decide on mediation by January 18, 2023).) Mr. Madonia 22 says he did not respond to or counter the demand because Defendants had already 1 reached a settlement in principle with Plaintiffs in this case. (Id.) According to Mr. 2 Madonia, Stiles/Bitterman Counsel’s demand included an “‘initial’ proposal of a

3 settlement cap of $10,000,000 (from which the Stiles/Bitterman legal fees would be 4 calculated and taken from, thus reducing the amount payable to the class members).” 5 (Id.) 6 On January 17, 2023, Plaintiffs filed an unopposed motion for preliminary 7 approval of the parties’ class action settlement and notice program. (1st Prelim. App. 8 Mot. (Dkt. # 17); see 1/15/23 Turner Decl. (Dkt. # 18) ¶ 14, Ex. 1 (“1st Agreement”).)

9 The proposed settlement would 10 allow all original purchasers to either: return their Applicable Records4 to Defendants in exchange for a full refund, plus any shipping and taxes, or, 11 alternatively, keep their Applicable Records and receive either a refund equal to five percent (5%) of the Applicable Records’ purchase price, or a coupon 12 for ten percent (10%) of the Applicable Records’ purchase price towards other of [Defendants’] products. 13 (1st Prelim. App. Mot. at 2.) The parties represented that they agreed to provide options 14 for class members to keep the Applicable Records because some of the Applicable 15 Records have a higher value on the secondary market than their purchase price. (Id. at 16 2-3.) The parties proposed a notice program in which they would issue notice by U.S. 17 Mail to all class members who purchased their records directly from Defendants and 18 advertise the settlement in industry and hobbyist print and online publications, a 19 Facebook ad campaign, and Defendants’ own websites in an effort to reach class 20

21 4 The “Applicable Records” are Defendants’ Original Master Recording and Ultradisc One-Step series of vinyl records that included a digital transfer step in the mastering chain. (1st 22 Prelim. App. Mot. at 1-2.) 1 members who purchased their records from other retailers. (Id. at 3.) The parties 2 estimated that Defendants had sold over 630,000 Applicable Records during the class

3 period, either directly to consumers or wholesale to third-party retailers, and that the 4 proposed class would be comprised of at least 20,000 direct purchasers and 20,000 5 indirect purchasers. (Id. at 3-4.) Plaintiffs estimated that the total gross value of relief 6 for the class was over $25 million. (Id. at 6; see also 2/13/23 Turner Decl. ¶ 13 7 (estimating Defendants’ exposure as $33 million if all class members sought a full refund 8 for all Applicable Records; $1.67 million if all class members sought the 5% refund; and

9 $3.34 million if all class members sought the 10% coupon).) Plaintiffs requested service 10 awards of $10,000 each for the two proposed class representatives and attorney’s fees of 11 “no more than $290,000,” both to be paid directly by Defendants separately from any 12 class relief. (1st Prelim. App. Mot. at 9; see also 2/13/23 Madonia Decl. ¶ 15.) Finally, 13 Defendants agreed to pay the costs of notice and settlement administration. (1st Prelim.

14 App. Mot. at 8.) In exchange, class members would release claims against Defendants 15 “which arise out of or are in any way related to Defendants’ marketing, promotion and 16 sale of the Applicable Records” between March 19, 2007, and July 27, 2022. (1st 17 Agreement ¶¶ 4.1, 4.27.) 18 On January 20, 2023, the court denied Plaintiffs’ motion for preliminary approval

19 without prejudice and granted the parties’ agreed motion to stay this case pending the 20 court’s consideration of the motion for preliminary approval. (1/20/23 Order (Dkt. 21 # 21).) The court directed Plaintiffs to correct six issues that the court identified in the 22 preliminary approval materials and granted Plaintiffs leave to submit revised materials 1 with a renewed motion for preliminary approval. (Id. at 3-4.) The court directed the 2 parties to file either their renewed motion for preliminary approval or a joint statement

3 regarding the status of their revisions by no later than January 31, 2023. (Id.) 4 Proposed Intervenors filed the instant motion to intervene on January 27, 2023. 5 (Mot.) They argue that they should be permitted to intervene to oppose preliminary 6 approval of the settlement in this case as the product of a “collusive reverse auction.” (Id. 7 at 12.) They also ask the court to stay preliminary approval of the settlement in this case 8 pending the outcome of a motion they filed in the Northern District of Illinois seeking

9 consolidation of the Stiles and Bitterman actions and appointment of interim class 10 counsel for those actions. (Id. at 11-12.) 11 Plaintiffs filed their renewed unopposed motion for preliminary approval of their 12 class action settlement on February 2, 2023. (2d Prelim. App. Mot. (Dkt. # 26).) The 13 parties’ revisions address the following topics:

14 1. Additional information regarding the procedure and timeline for Class Members to submit claim forms, and elect which form of relief they wish to 15 receive, i.e., coupon, partial refund, or return for full refund;

16 2. Additional information regarding the procedure and timeline for Class Members to return their records for a full refund following final approval, 17 and the mechanism for curing any deficiencies with returned records;

18 3. Changes to the proposed notice program to increase saturation among both direct and indirect purchasers of records; and 19 4. Correction of various scrivener’s errors, including captioned case 20 numbers in supporting materials and exhibits.

21 (Id. at 1-2.) 22 1 III. ANALYSIS 2 Proposed Intervenors argue that they are entitled to both intervention as of right

3 under Federal Rule of Civil Procedure 24(a) and permissive intervention under Federal 4 Rule of Civil Procedure 24(b). (Mot. at 5-11.) 5 A court must permit a nonparty to intervene as of right in a pending lawsuit if the 6 party establishes that: 7 (1) it has a ‘significant protectable interest’ relating to the property or transaction that is the subject of the action; (2) the disposition of the action 8 may, as a practical matter, impair or impede the applicant’s ability to protect its interest; (3) the application is timely; and (4) the existing parties may not 9 adequately represent the applicant’s interest.

10 Donnelly v. Glickman, 159 F.3d 405, 409 (9th Cir. 1998) (citation and quotation marks 11 omitted); Fed. R. Civ. P. 24(a)(2). “Rule 24(a) is construed broadly, in favor of the 12 applicants for intervention.” In re Volkswagen “Clean Diesel” Mktg., Sales Pracs., & 13 Prod. Liab. Litig., 894 F.3d 1030, 1037 (9th Cir. 2018). However, “[f]ailure to satisfy 14 any one of the requirements is fatal to the application, and [the court] need not reach the 15 remaining elements if one of the elements is not satisfied.” Perry v. Proposition 8 16 Official Proponents, 587 F.3d 947, 950 (9th Cir. 2009). 17 Here, Proposed Intervenors cannot meet the second of the four requirements. 18 Courts in this circuit “have consistently held that ‘the ability to file objections and opt out 19 of a class settlement, as dictated by Rule 23, are sufficient to protect the interests of class 20 members in a typical case seeking damages.’” Brown v. Accellion, Inc., No. 21 5:21-CV-01155-EJD, 2023 WL 1928210, at *3 (N.D. Cal. Feb. 10, 2023) (quoting 22 Gonzalez v. CoreCivic of Tennessee, LLC, No. 16-cv-01891-DAD-JLT, 2018 WL 1 3689564, at *3 (E.D. Cal. Aug. 1, 2018), and collecting cases); see also McClintic v. 2 Lithia Motors, Inc., No. C11-0859RAJ, 2011 WL 13127844, at *7 (W.D. Wash. Oct. 19,

3 2011) (denying intervention as of right where proposed intervenor could protect his 4 interests by opting out of the proposed class settlement). Because Proposed Intervenors 5 can protect their interests by objecting to or opting out of the class settlement in this case, 6 the court concludes that they do not have a significant protectible interest that may be 7 impaired or impeded by the disposition of this action. Proposed intervenors’ request for 8 intervention as of right, therefore, is DENIED.

9 If a party cannot meet the standard to intervene as of right, the court may allow 10 permissive intervention to anyone who files a timely motion and “has a claim or defense 11 that shares with the main action a common question of law or fact.” Fed. R. Civ. P. 12 24(b)(1)(B). Even if an applicant satisfies the threshold requirements, the district court 13 has discretion to deny permissive intervention. Donnelly, 159 F.3d at 412. “In exercising

14 its discretion, the court must consider whether the intervention will unduly delay or 15 prejudice the adjudication of the original parties’ rights.” Fed. R. Civ. P. 24(b)(3). 16 Although the movant bears the burden of showing that he meets these requirements, 17 courts broadly interpret the requirements in favor of intervention. Smith v. Los Angeles 18 Unif. Sch. Dist., 830 F.3d 843, 853 (9th Cir. 2016).

19 The court concludes that Proposed Intervenors have met the requirements for 20 permissive intervention. First, the motion is timely, having been filed less than two 21 weeks after Plaintiffs filed their first motion for preliminary approval. (See Dkt.) 22 Second, there can be no doubt that Proposed Intervenors’ claims in their Northern District 1 of Illinois cases substantially overlap with Plaintiffs’ claims in this case. (Compare Stiles 2 Complaint; and Bitterman Complaint; with Am. Compl.) Third, the court finds that

3 allowing intervention for the limited purpose of opposing Plaintiffs’ motion for 4 preliminary injunction will not unduly delay or prejudice adjudication of the original 5 parties’ rights. To the contrary, the court finds it appropriate to resolve the factual 6 question of whether the proposed settlement in this case is, as Proposed Intervenors 7 contend, a “collusive reverse auction” before the parties engage in the extensive notice 8 program described in their revised preliminary approval materials. (See Finegan Decl.

9 (Dkt. # 27) ¶¶ 12-19 (declaration of the parties’ designated settlement administrator, 10 describing the proposed notice program in detail).) 11 Accordingly, the court exercises its discretion to GRANT Proposed Intervenors’ 12 request for permissive intervention. Proposed Intervenors may intervene in this action 13 for the limited purpose of opposing Plaintiffs’ revised motion for preliminary approval of

14 the class action settlement. (2d Prelim. App. Mot.) In the interest of managing its 15 docket, however, the court DENIES Proposed Intervenors’ request to stay this case 16 pending the outcome of their motion for consolidation and appointment of interim class 17 counsel in the later-filed Northern District of Illinois cases. 18 IV. CONCLUSION

19 For the foregoing reasons, the court GRANTS Proposed Intervenors’ motion for 20 permissive intervention pursuant to Federal Rule of Civil Procedure 24(b)(1) (Dkt. # 23). 21 Proposed Intervenors may file a response to Plaintiffs’ motion for preliminary approval 22 of the class action settlement in this matter by no later than March 22, 2023. Proposed 1 Intervenors’ response shall not exceed 8,400 words in length. Plaintiffs and Defendants 2 may file optional replies (or a joint reply) in support of Plaintiffs’ motion for preliminary

3 approval by no later than March 31, 2023. These optional replies shall not exceed 4,200 4 words in length. Each response or reply shall include a proposal for the process the court 5 should use to resolve the question of whether the class settlement in this action was the 6 result of a “collusive reverse auction.” The Clerk is DIRECTED to renote Plaintiffs’ 7 motion for preliminary approval of the class action settlement in this matter (Dkt. # 26) 8 for March 31, 2023.

9 Dated this 13th day of March, 2023. 10 A 11 12 JAMES L. ROBART United States District Judge 13 14 15 16 17 18 19 20 21 22