Guglielmino et al v. McKee Foods Corporation

Filing 100

ORDER granting preliminary approval of the proposed settlement. (vrwlc2, COURT STAFF) (Filed on 10/15/2009)

1 2 3 4 5 6 7 8 9 10 United United States District Court For the Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 This is a proposed class action against McKee Foods Corporation ("McKee") for violation of the overtime requirements of the labor code of California, fraud, negligent misrepresentation, v MCKEE FOODS CORPORATION, a Tennessee corporation; and DOES 1 through 100, inclusive, Defendants. _________________________________ This Document Relates to: All Actions / BRIANT CHUN-HOON and CARLO GUGLIELMINO, Plaintiffs, C 05-0620 VRW ORDER Class Action IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA

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breach of contract, unfair and fraudulent business practices and declaratory relief. Doc # 1. Pursuant to FRCP 23(e), plaintiffs

Briant Chun-Hoon and Carlo Guglielmino and defendant McKee (collectively the "parties") seek approval of a settlement and notice to the purported class. Doc # 93.

McKee manufactures Little Debbie Snack Cakes and Sunbelt snacks and cereals. McKee sells its products to independent

distributors, who then resell the products to supermarkets, mass merchandisers and other retail outlets. Id.

Plaintiffs, who were distributors of McKee products in the San Francisco Bay area, filed this case on behalf of themselves and a putative class of distributors. Plaintiffs' claims are based

on the proposition that they were not treated as independent contractors and that the court therefore should disregard the terms of written distributorship agreements they signed with McKee. McKee contends, among other things, that the evidence shows that class members operated independent businesses. Id.

On June 6, 2006, the court entered an order provisionally certifying a damages class under Federal Rule of Civil Procedure 23(b)(3). Doc # 59. The provisionally-certified class consists of

all distributors of McKee products in California who signed written distributorship agreements with McKee after December 31, 2000. # 93. After unsuccessful settlement discussions, the parties engaged former United States District Judge Eugene F Lynch to mediate the case. On January 7, 2009, Judge Lynch conducted a During the Doc

full-day mediation with the parties and their counsel.

mediation, the parties met together and separately with Judge Lynch 2

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and proposed settlement terms.

This proposed settlement agreement Id.

is the result of that mediation session.

I Federal Rule of Civil Procedure 23(e) requires court approval for the settlement of any class action. In order to be

approved, a settlement must be "fundamentally fair, adequate and reasonable." Torrisi v Tucson Elec Power Co, 8 F3d 1370, 1375 (9th

Cir 1993), quoting Class Plaintiffs v Seattle, 955 F2d 1268, 1276 (9th Cir 1992). Class action settlement approval that takes place prior to the class certification stage requires "a higher standard of fairness." 1998). Hanlon v Chrysler Corp, 150 F3d 1011, 1026 (9th Cir

The judge must conduct a "more probing inquiry" in order to

protect the plaintiff class because there is a danger of collusion between class counsel and the defendant. Id. As Judge Friendly

explained in the stockholder derivative class action context, "[o]nce a settlement is agreed, the attorneys for the plaintiff stockholders link arms with their former adversaries to defend joint handiwork." Alleghany Corp v Kirby, 333 F.2d 327, 347 (2d Nevertheless, because a

Cir 1964) (Friendly dissenting).

settlement seeks to avoid trial and wasteful litigation, "the court must not turn the settlement hearing `into a trial or rehearsal of the trial.'" Saylor v Lindsley, 456 F2d 896, 904 (2d Cir 1972). The question currently before the court is whether this settlement should be preliminarily approved. "[The] preliminary

determination establishes an initial presumption of fairness * * *." In re General Motors Corp, 55 F3d 768, 784 (3d Cir 1995). 3 As

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noted in the Manual for Complex Litigation, Second, "[i]f the proposed settlement appears to be the product of serious, informed, non-collusive negotiations, has no obvious deficiencies, does not improperly grant preferential treatment to class representatives or segments of the class, and falls within the range of possible approval, then the court should direct that the notice be given to the class members of a formal fairness hearing * * *." Complex Litigation, Second § 30.44 (1985). Manual for

In addition, "[t]he

court may find that the settlement proposal contains some merit, is within the range of reasonableness required for a settlement offer, or is presumptively valid." Schwartz v Dallas Cowboys Football

Club, Ltd, 157 F Supp 2d 561, 570 n12 (ED Pa 2001) (quoting Newberg on Class Actions § 11.25 (1992)). In other words,

preliminary approval of a settlement has both a procedural and a substantive component.

II The court is not convinced entirely that the settlement confers a benefit to the class. The settlement provides current

distributors with case cost credits of $250, which distributors may use for the purpose of promoting sales of Little Debbie and Sunbelt products. Additionally, current distributors will have an

opportunity to attend a marketing seminar, during which McKee representatives will reemphasize the rights and freedoms that distributors have and provide business models and practices that other distributors have used to increase their sales. It is not

clear that case cost credits confer any real benefit to the class. In fact, the type and nature of the credits seem to benefit the 4

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manufacturer of Little Debbie and Sunbelt products just as much if not more than the distributors. The marketing seminars, on the

other hand, may be of the type to confer benefits to the class -- at least with respect to educating distributors on how to increase their sales. However, the court will take into consideration any

objections that challenge the benefit of the seminars in its final settlement determination. The settlement provides two options for former distributors. Under option one, a former distributor may attend Additionally,

marketing seminars of the type described above.

former distributors who voluntarily terminated their distributorship agreements with McKee in good standing may be considered for reappointment as independent distributors in any territories that are open and available. As noted above, the court

is concerned that the seminars do not convey a benefit to the class. Further, the court is not aware of the number of former

distributors that would be eligible for reinstatement under these nebulous terms. For instance, the number of open and available

territories, as well as the number of independent distributors that voluntarily terminated their agreements in good faith, are outside of the court's knowledge. Under the second option, former distributors who elect not to attend the marketing seminars or request reappointment will receive a payment from McKee in the amount of $250. Of the

purported benefits listed above, this type of payment clearly is the most beneficial to the class. Despite these concerns, for the purposes of preliminary approval, the court finds that the proposed settlement is "within 5

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the range of possible approval."

Schwartz, 157 F Supp 2d at 570

n12 (quoting Manual for Complex Litigation, Second § 30.44 (1985)). While the purported benefits to the class are not obvious from the language of the proposed settlement, the absence of objections may indicate that the case credits and seminars are in fact valuable to class members. Therefore, in determining whether the settlement

merits final approval, the court will consider seriously the number and type of objections and requests for exclusion.

III The court next considers the form of notice. Class

members are entitled to the "best notice that is practicable under the circumstances." FRCP 23(c)(2)(B). The parties propose the

following notice plan: (1) McKee will mail notice along with a claim form and request for exclusion to the last known address of each class member as such appears in McKee's records; (2) if any mailing addressed to a current distributor is returned as undeliverable, a McKee representative will attempt to deliver the mailing to the current distributor by hand; (3) if any mailing addressed to a former distributor is returned as undeliverable, McKee will use the former distributor's social security number and last known address and last known telephone number in an effort to locate the former distributor and will send an additional notice, claim form and request for exclusion to any address so determined; and (4) if any original or subsequent mailing to a class member is not returned as undeliverable within thirty (30) days of the mailing, it will be presumed that the class member received the mailing. Doc #93 at 18-19 (emphasis added). 6 Because the proposed

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notice provides for detailed methods of contacting both former and current distributors in the event that the original mailings are returned as undeliverable, the court finds that such notice is appropriate in this case. Further, the court finds the content of the proposed notice to be appropriate. The notice outlines: the background of

the case; a summary of the settlement and of settlement negotiations; what current and former distributors will receive as result of the settlement; how to opt out, object or otherwise comment on the settlement; attorneys fees; who to contact for additional information; and a paragraph outlining the review and approval process the court will implement to determine whether the settlement warrants approval. Doc # 94 Exh B; letter provided by As a consequence, the

joint counsel on September 29, 2009 at 14.

proposed form of notice provides class members with information on which to base their decision to remain in the class, opt out or object to the settlement. Accordingly, the court APPROVES the

proposed form of notice, as to both form and content.

IV In sum, the court GRANTS the parties' motion for preliminary approval of the proposed settlement and APPROVES the forms and manner of notice described in the revised proposed settlement agreement and forms of notice. // // // // 7

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Additionally, the court ORDERS the following schedule for further proceedings:

Date On or before October 28, 2009 December 30, 2009 Send Notice

Event Deadline to postmark objections or opt out Deadline for filing briefing in

January 6, 2010

support of final approval of settlement

January 14, 2010

Hearing on final approval of settlement

At the final approval hearing on January 14, 2010, at 10:00 AM, the court will determine: (1) whether the proposed

settlement agreement and forms of notice should be approved as fair, reasonable and adequate; (2) the merits of objections, if any, made to the settlement or any of its terms; (3) the amount of litigation costs, expenses and attorney fees, if any, that should be awarded to class counsel; and (4) any other matter related to the settlement.

IT IS SO ORDERED.

VAUGHN R WALKER United States District Chief Judge

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