Pokorny et al v. Quixtar Inc et al

Filing 196

ORDER re 162 Joint MOTION for Settlement filed by Kenneth Busiere, Jeff Pokorny, Larry Blenn. Signed by Judge Samuel Conti on 7/20/2011. (sclc2, COURT STAFF) (Filed on 7/20/2011)

1
2
3
4

IN THE UNITED STATES DISTRICT COURT

5

FOR THE NORTHERN DISTRICT OF CALIFORNIA

6
7

9

JEFF POKORNY, LARRY BLENN, and
KENNETH BUSIERE, on behalf of
themselves and those similarly
situated,

10

Plaintiffs,

For the Northern District of California

United States District Court

8

11
12

v.
QUIXTAR INC., et al.,

13
Defendants.
14

) Case No. 07-0201 SC
)
) ORDER REQUIRING
) SUPPLEMENTAL BRIEFING
)
)
)
)
)
)
)
)
)

15
16

I.

INTRODUCTION

17

On November 3, 2010, Plaintiffs Jeff Pokorny, Larry Blenn,

18

and Kenneth Busiere ("Plaintiffs") and Defendants Quixtar Inc.,

19

et al. ("Defendants") filed a Motion for Settlement.

20

141 ("First Mot. for Settlement").

21

certification, appointment of class counsel, and preliminary

22

approval of the class settlement.

23

2010 order, the Court expressed concerns about some aspects of

24

the settlement agreement and ordered supplemental briefing by

25

the parties.

26

ECF No.

The parties sought class

Id. at 1.

In a December 29,

ECF No. 157 ("Dec. 29, 2010 Order").

Now before the Court is a second Motion for Settlement in

27

which the parties have sought to address the concerns expressed

28

by the Court in its December 29, 2010 Order.

ECF No. 162

1

("Mot.).

2

support of the Motion.

3

Br.").

4

ECF No. 192 ("June 24, 2011 Hearing Tr.").

5

materials provided by the parties in support of the Motion and

6

having heard counsel's arguments at the June 24, 2011 hearing,

7

the Court remains concerned about several aspects of the

8

fairness of the proposed settlement.

9

CONTINUES the hearing date on the Motion currently scheduled for

United States District Court

For the Northern District of California

10

Plaintiffs and Defendants separately filed briefs in
ECF Nos. 163 ("Pls.' Br."), 171 ("Defs.'

The Court held a hearing on the Motion on June 24, 2011.
Having reviewed the

Accordingly, the Court

July 22, 2011 and requests additional information as follows.

11
12

II.

DISCUSSION
The Court set forth a detailed explanation of the factual

13
14

and procedural background of this case, along with the basic

15

components of the proposed settlement, in its December 29, 2010

16

Order.

17

here and instead proceeds directly to its particular concerns.

Accordingly, the Court does not repeat that discussion

18

A.

Attorneys' Fees

19

The Amended Settlement Agreement ("ASA") provides for

20

Quixtar to establish a Cash Fund of $34 million and a Product

21

Credit Fund with a retail value of $21 million.

22

5.2.2.

23

to its business practices, which Quixtar estimates would cost

24

the company $101 million.

ASA §§ 5.2.1,

It also provides for Quixtar to make a number of changes

Id. § 5.1; Alexander Decl. ¶¶ 11-13.1

25
26
27
28

1

Ray Alexander ("Alexander"), Director of Strategic Planning for
Quixtar, submitted a declaration in support of the Motion. ECF
No. 165.
2

1

Plaintiffs indicated at the hearing that they intend to request

2

$20 million in attorneys' fees.

3

9:24-10:2.

Attorneys' fees would be paid out of the $34 million

4

Cash Fund.

ASA § 12.1.

5

June 24, 2011 Hearing Tr. at

While a motion for attorneys' fees is not yet before the

6

Court, the apparent disproportion between the size of the Cash

7

Fund and the amount of attorneys' fees counsel intend to request

8

is so great as to call into question the fairness of the

9

proposed settlement.

A settlement structure that tethers class

United States District Court

For the Northern District of California

10

counsel's fee award to the number of claim forms actually

11

submitted by the class would help ameliorate this concern.

12

e.g., Kakani v. Oracle Corp., No. 06-06493, 2007 U.S. Dist.

13

LEXIS 47515, *14-15 (N.D. Cal. June 19, 2007) (denying

14

preliminary approval of class settlement in part because the

15

amount of attorneys' fees might exceed benefits to the class);

16

Walter v. Hughes, No. 09-2136, 2011 U.S. Dist. LEXIS 72290, *31

17

("a settlement that ties the size of the class counsel's

18

attorney fee award to the number of claim forms submitted or the

19

amount disbursed to the class gives class counsel motivation to

20

ensure that notice to the class is as effective as possible").

See,

21

Given the apparent disproportion between the amount of

22

attorneys' fees class counsel intend to request and the size of

23

the Cash Fund, the Court orders the parties to provide the

24

following information in supplemental briefing, with supporting

25

evidence where necessary:

26

•

Plaintiffs' counsel shall provide documentation of

27

attorney and staff hours spent on the case, with

28

associated billing rates.
3

1

•

Plaintiffs' counsel shall provide an explanation of how

2

the attorneys' fees will be allocated among the law firms

3

involved.

4

B.

Lead Plaintiffs' Compensation

5

Plaintiffs' counsel indicated at the June 24, 2011 hearing

6

that they will request an award of approximately $20,000 for

7

each of the named Plaintiffs.

8

10:18-22.

9

currently before the Court, the disproportion between the

June 24, 2011 Hearing Tr. at

Again, while a motion for incentive payments is not

United States District Court

For the Northern District of California

10

incentive payments counsel intend to request and the likely

11

average recovery of class members calls into question the

12

fairness of the settlement.

13

following information from counsel:

14

•

The Court therefore requests the

Plaintiffs' counsel shall provide an explanation of the

15

work, efforts, and hours spent by the named plaintiffs as

16

a result of their involvement in this case.

17

C.

Injunctive Relief

18

Under the proposed settlement, Quixtar and Plaintiffs would

19

enter into a Consent Judgment pursuant to which Quixtar would

20

modify a number of its business practices.

21

parties disagree, however, as to what role the instant

22

litigation played in prompting the changes to Quixtar's business

23

practices listed as "injunctive relief" in § 5.1.

24

state that "the suit was a substantial cause or a 'catalyst' for

25

the changes made by Quixtar."

26

citations omitted).

27

"began a transformation of its business prior to the filing of

28

the action, including many of the injunctive relief provisions
4

ASA § 5.1.

The

Plaintiffs

Pl.'s Mem. at 13 n.5 (internal

By contrast, Quixtar maintains that it

1

of the proposed consent judgment."

Def.'s Mem. at 19.

The ASA

2

itself simply states that "Quixtar stipulates that certain

3

reforms in its business instituted after the filing of this

4

action have been motivated by this Action."

ASA § 12.2.

5

When explaining the basis for valuing the proposed

6

injunctive relief at $101 million, Quixtar assigns a value to

7

each of the business changes listed in § 5.1, even though it

8

maintains that some of those changes did not result from this

9

lawsuit.

See Alexander Decl. ¶¶ 11-13.

Of course, the economic

United States District Court

For the Northern District of California

10

value of changes that Quixtar was going to make regardless of

11

this lawsuit cannot be considered a benefit to the class from

12

proposed settlement.

13

June 24, 2011 hearing, it remains skeptical of the $101 million

14

valuation of the proposed injunctive relief.

15

Hearing Tr. at 8:8-25, 9:1-3.

16

that the proposed injunctive relief would only benefit the small

17

portion of class members who remain affiliated with Quixtar.

18

Accordingly, the Court orders the parties to provide the

19

following information related to the proposed injunctive relief:

20

•

Additionally, as the Court noted at the

June 24, 2011

The Court also remains concerned

Plaintiffs' counsel shall address whether they will

21

continue to support the proposed settlement if the Court

22

assigns zero economic value to the proposed injunctive

23

relief.

24

•

Quixtar shall provide an explanation of what changes it

25

has undertaken specifically as a result of the instant

26

litigation.

27

D.

Product Credit Fund

28

The ASA provides that class members who were involved with
5

1

Quixtar for one year or less and have not received a refund of

2

their registration fee will be eligible to receive a bundle of

3

Quixtar vitamin, skincare, and home care products with a retail

4

value of $75.

5

the class members who dropped out of Quixtar during the first

6

year may have done so because they were unable to sell the

7

Quixtar products they had purchased.

8

sending these class members more of the same products would

9

confer little to no benefit upon them at all.

ASA § 6.2.1.

The Court is concerned that many of

If that is the case,

The Court also

United States District Court

For the Northern District of California

10

remains concerned that class members simply may not want

11

skincare, home care, or vitamin products.

12

Court orders the parties to provide the following information in

13

supplemental briefing:
•

14

Accordingly, the

The parties shall address whether providing class

15

members with a $75 credit redeemable for any Quixtar

16

products of their choice would render the proposed

17

settlement fairer to class members.

18

E.

Notice Plan

19

Under the proposed notice plan, approximately 1.08 million

20

class members would receive notice of the settlement via email

21

only, unless their emails were returned as undeliverable, in

22

which case they would be sent a postcard notice.

23

¶¶ 5, 8.2

24

advertising, the Court is concerned that email notice alone may

Holland Decl.

In this era of spam-filters and mass email

25
26
2

27
28

David C. Holland ("Holland"), Executive Vice President of Rust
Consulting, submitted a declaration in support of the Motion.
ECF 163-1.
6

3

1

be insufficient to draw the attention of class members.

The

2

Court is also concerned that the amount of attorneys' fees

3

sought by Plaintiffs' counsel is not displayed clearly enough in

4

the notice documents.

5

"Plaintiffs' attorneys anticipate seeking fees of 25% of the

6

economic value of the settlement, plus a possible upward

7

adjustment for the value of the business practice changes."

8

No. 162-4 ("Notice Documents").

9

paragraph entitled "Your Other Rights."

The Summary of Notice states:

ECF

This sentence is buried in a
Id.

Lastly, the Court

United States District Court

For the Northern District of California

10

is concerned that the Summary Notice simply informs recipients

11

that they can opt out of the class or object to the settlement,

12

without informing them how to go about doing so.

13

The Court cannot conclude that the proposed notice plan

14

constitutes the best notice practicable under the circumstances.

15

The Court's concerns would be mitigated by the following:
•

16

Expert analysis demonstrating that the likely "reach

17

percentage" of email notifications is comparable to

18

that of postcard notifications, or a notice plan that

19

provides for postcards to be sent to all class members

20

for whom mailing addresses are available.
•

21

A section in all notice documents clearly labeled

22
23
24
25
26
27
28

3

Shannon Wheatman ("Wheatman"), Vice President of Kinsella
Media, LLC, provided a declaration assessing the likely
effectiveness of the proposed notice plan. ECF No. 163-2.
According to Wheatman, research shows that 79 percent of
recipients either read or scanned advertising mail sent to their
home in 2009. However, Wheatman does not provide information
about what percentage of recipients read or scanned email
advertisements.
7

1

"Attorneys' Fees" that states, in prominent text, the

2

actual dollar amount that Plaintiffs' counsel intend

3

to request from the Court.
•

4

Information in the Summary Notice instructing

5

recipients how they can object to the settlement and

6

how they can opt out of the class.

7
8
9

III. CONCLUSION
For the foregoing reasons, the Court DEFERS ruling on the

United States District Court

For the Northern District of California

10

parties' Motion for Settlement.

11

submit supplemental briefing on the issues noted above within

12

ninety (90) days of the date of this Order.

13

comply with Civil Local Rules 3-4 and 7-4.

14

allegations in these briefs should be supported with sworn

15

declarations and documentary evidence.

16

The Court ORDERS the parties to

These briefs should
The factual

The Court CONTINUES the hearing on the Motion until a date

17

to be determined after the parties' supplemental briefs are

18

filed.

19
20

IT IS SO ORDERED.

21
22

Dated:

July 20, 2011

23

UNITED STATES DISTRICT JUDGE

24
25
26
27
28
8