Knight et al v. Red Door Salons, Inc

Filing 59

ORDER by Judge Samuel Conti granting 42 Motion for Settlement; granting 48 Motion for Attorney Fees (sclc2, COURT STAFF) (Filed on 2/2/2009)

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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) No. 08-01520 SC ORDER GRANTING JOINT APPLICATION FOR FINAL APPROVAL OF CLASS ACTION SETTLEMENT; GRANTING PLAINTIFFS' MOTION FOR ORDER (1) APPROVING APPLICATION FOR ATTORNEYS' FEES; (2) GRANTING REIMBURSEMENT OF EXPENSES; AND (3) GRANTING INCENTIVE AWARDS

LISA KNIGHT and MARCIE DAVE, individually and on behalf of all others similarly situated, Plaintiffs, v. RED DOOR SALONS, INC., an Arizona Corporation, DEFENDANT.

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INTRODUCTION On October 15, 2008, the parties in this litigation stipulated

to a settlement of all claims.

See Class Action Settlement The parties

Agreement, Docket No. 32 ("Settlement Agreement").

then sought and received the Court's preliminary approval of the Settlement. See Docket Nos. 30, 31, 40. Plaintiffs Lisa Knight

and Marcie Dave ("Plaintiffs") and Defendant Red Door Salons, Inc. ("Red Door") now jointly apply for an order granting final approval of the Settlement. See Docket No. 42 ("Settlement Motion").

Plaintiffs also move the Court for an order (1) approving application of attorneys' fees; (2) granting reimbursement of expenses; and (3) granting incentive awards. ("Fees Motion"). See Docket No. 48

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The Court received no objections from members of the class to either the Settlement or the proposed attorneys' fees, expenses, and incentive awards. The parties appeared before the Court for a

final hearing to evaluate the fairness of the settlement on January 23, 2008. Having considered all of the parties' arguments, as well

as the supporting documents and declarations, the Court hereby GRANTS the Settlement Motion and GRANTS the Fees Motion.

II.

BACKGROUND Plaintiffs brought this class action suit on January 31, 2008,

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in the Superior Court of the State of California for the County of San Francisco. ("Compl."). See Notice of Removal, Docket No. 1, Ex. C.

The Complaint challenged commission calculations for

employees at the Elizabeth Arden Red Door Spa in San Francisco. Id. ¶¶ 28-39. It also alleged that Red Door failed to provide

required overtime pay, meal and rest breaks, wage statements, and utilized an unlawful covenant not to compete. Id. ¶¶ 40-78. See On

March 19, 2008, Red Door removed the case to this Court. Notice of Removal.

On May 23, 2008, Red Door answered the

Complaint, denying many of the allegations and alleging affirmative defenses. See Answer, Docket No. 17. On September 18, 2008, the

parties engaged in arms-length mediation at JAMS before the Honorable James Warren (Ret.), and reached an agreement. Loewenfeldt Decl. ¶ 11.1 Michael Von Loewenfeldt, counsel for Plaintiffs, submitted a declaration in support of the Settlement Motion ("Von Loewenfeldt Decl."), Docket No. 45. A supplemental declaration was attached to the Joint Reply Br. In Supp. of Mot. For Final Approval ("Von 2
1

See Von

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On October 15, 2008, the parties entered into a written Settlement Agreement. See Docket No. 32. Pursuant to the

Settlement Agreement, Red Door will establish a Settlement Fund of $500,000. Settlement Agreement § 2.1. The Settlement Fund would

be used to make payments for attorneys' fees, expenses, and incentive awards to Lisa Knight and Marcie Dave as class representatives ("Class Representatives"), with the remainder comprising the Net Settlement Fund. Id. §§ 1.12, 4, 8. Half of

the Net Settlement Fund will be distributed to Class Members on a pro rata basis calculated by each Class Member's share of Business Expense Charges ("BEC"), with 20% of this amount attributed to interest. Id. § 5.1.1. Twenty percent of the Net Settlement

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Amount will be divided among the Class Members on a pro rata basis calculated by each Class Member's total compensation during the Class Period, with 20% of this amount attributed to interest. § 5.1.2. Id.

Thirty percent of the Net Settlement Fund will be paid to

Class Members who are former employees as of the date of the Preliminary Approval of the Settlement Agreement to compensate them for waiting time pay under California Labor Code § 203. 5.1.3. Id. §

Red Door has agreed to pay all costs of sending payments to Id. § 6.2. Red Door has agreed to pay applicable

Class Members.

employer tax contributions with respect to payments to Class Members. Id. § 7.3.

Red Door has agreed to change certain business practices. First, Red Door will cease using non-competition provisions in its

Loewenfeldt Supp. Decl."), Docket No. 57. 3

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California employment contracts, and will contact employees who signed them to inform them that the provisions will not be enforced. Id. § 3.1. Second, Red Door will calculate overtime pay

in a manner that takes into account all non-discretionary income. Id. § 3.2. Third, Red Door will either provide employees with

advance notice of BEC charges, or will offer and pay service commissions on sales prices paid by customers without any BEC. § 3.3. The Court preliminarily approved the settlement on October 30, 2008. See Docket No. 40. Pursuant to the settlement and the Id.

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Court's approval, Kerr & Wagstaffe LLP, counsel for Plaintiffs, sent notices of the proposed settlement to 86 prospective class members on November 13, 2008. Von Loewenfeldt Decl. ¶ 18. Hough Decl. ¶ 16.2 Sixteen Moss &

notices were returned as undeliverable.

Hough, counsel for Plaintiffs, obtained updated addresses for all but two of the Class Members. Id. Using phone numbers provided by

Red Door, Moss & Hough attempted to contact the two remaining Class Members. Id. The phone number for one of the two was

disconnected, and Moss & Hough left a voicemail for the other Class Member, but received no call back. two weeks later was unanswered. Id. An additional call almost

Id.

January 2, 2009, was the date set in the notice for any requests to be excluded from the Class, for any objections to the settlement, or for any opposition to the request for final approval

Mary Patricia Hough, counsel for Plaintiffs, filed a declaration in support of the Settlement Motion ("Hough Decl."), Docket No. 46. 4

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or request for attorneys' fees, costs and incentive awards. Loewenfeldt Supp. Decl. ¶¶ 3-4.

Von

As of January 9, 2009, Kerr &

Wagstaffe LLP did not receive any requests for exclusion from the Class, objections to the settlement, or opposition to the Fees Motion. Id. As of January 9, 2009, Steptoe & Johnson LLP, counsel

for Red Door, did not receive any requests for exclusion from the Class, or objections or opposition. The Court received no objections. Quincy Supp. Decl. ¶¶ 3-4.3

No objections were made at the

hearing on the Settlement Motion and Fees Motion on January 23, 2009.

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III. SETTLEMENT MOTION A. Legal Standards Governing Settlement

Settlement of a class action law suit requires approval of the court. See Fed. R. Civ. P. 23(e). The court must find that the

proposed settlement is fundamentally fair, adequate, and reasonable. Staton v. Boeing Co., 327 F.3d 938, 959 (9th Cir.

2003) (citing Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998)). In making this determination, the court may consider

any or all of the following factors, if applicable: the strength of plaintiffs' case; the risk, expense, complexity, and likely duration of further litigation; the risk of maintaining class action status throughout the trial; the amount offered in settlement; the extent of discovery completed, and the stage of the proceedings; the experience and views of counsel; the presence of a governmental Stephanie J. Quincy, counsel for Red Door, attached a supplemental declaration to the Joint Reply Br. In Supp. of Mot. For Final Approval ("Quincy Supp. Decl."), Docket No. 57. 5

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participant; and the reaction of the class members to the proposed settlement. Officers for Justice v. Civil Serv. Comm'n, 688 F.2d 615, 625 (9th Cir. 1982). This list is not intended to be exhaustive; the court

must consider the applicable factors in the context of the case at hand. See id. Where, as here, the parties agree to settle the

dispute prior to certification of the class, the court must be particularly vigilant in its scrutiny of the settlement. 150 F.3d at 1026. Despite the importance of fairness, the court must also be mindful of the Ninth Circuit's policy favoring settlement, particularly in class action law suits. See, e.g., Officers for Hanlon,

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Justice, 688 F.2d at 625 ("Finally, it must not be overlooked that voluntary conciliation and settlement are the preferred means of dispute resolution. This is especially true in complex class action litigation. . . ."). While balancing all of these interests, the court's inquiry is ultimately limited "to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties." Id. The court, in evaluating the agreement of the parties, is not

to reach the merits of the case or to form conclusions about the underlying questions of law or fact. B. See id.

The Risk of Continued Litigation

The first relevant factor in the present matter is the risk of continued litigation balanced against the certainty and immediacy of recovery from the settlement. See In re Mego Fin. Corp. Sec. 6

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Litig., 213 F.3d 454, 458 (9th Cir. 2000).

Red Door denied, and See Mem. of

continues to deny, liability for Plaintiffs' claims.

P&A in Supp. of Joint Application for Final Approval of Class Action Settlement ("Settlement Mem."), Docket No. 43, at 6. No

published California case directly analyzes the claim brought by Plaintiffs here with regard to commission calculation. Id. The

law is also uncertain concerning Plaintiffs' meal and rest break claims. Id. Given the risks associated with continued litigation,

the Settlement Agreement, which offers an immediate and certain award for all of the Class Members, appears a much better option. C. Amount of Settlement

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Under the circumstances, the Court finds that the settlement amount is reasonable. The $500,000 settlement payment agreed to by

Red Door represents at least 50% of the damages Class Members could seek in this case. Von Loewenfeldt Decl. ¶ 14. This recovery is

certainly reasonable.

"It is well-settled law that a cash

settlement amounting to only a fraction of the potential recovery does not per se render the settlement inadequate or unfair." Officers for Justice, 688 F.2d at 628; see, e.g., In re Omnivision Techs., 559 F. Supp. 2d 1036, 1042 (N.D. Cal. 2007)(approving settlement in which class received payments totaling 6% of potential damages). The immediacy and certainty of the settlement

award justifies a recovery smaller than the Class Members could seek in the case. D. See Omnivision Techs., 559 F. Supp. 2d at 1042.

Extent of Discovery

The extent of the discovery conducted to date and the stage of the litigation are both indicators of counsel's familiarity with 7

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the case and of Plaintiffs having enough information to make informed decisions. 213 F.3d at 459. See, e.g., In re Mego Fin. Corp. Sec. Litig.,

A settlement following sufficient discovery and See, e.g., Nat'l

genuine arms-length negotiation is presumed fair.

Rural Telecomm. Coop. v. DIRECTV, Inc., 221 F.R.D. 523, 528 (C.D. Cal. 2004). In response to written discovery requests, Red Door provided Plaintiffs' counsel with information and records regarding Lisa Knight, Marcie Dave, and the putative Class Members, including information concerning dates of employment, BEC, time clock records, and total compensation for the putative Class Members. Settlement Mem. at 7. Red Door also provided Plaintiffs' counsel

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with copies of relevant policies, procedures, and standard contracts. Id. The parties mediated their dispute before the

Honorable James Warren at JAMS and were able to reach the agreement reflected in the Settlement Agreement. Id. The Court is confident

that counsel in this matter is thoroughly familiar with the facts of this case and was therefore able to help Plaintiffs make an informed decision regarding the merits of the Settlement. E. Experience and Opinion of Counsel

"The recommendations of plaintiffs' counsel should be given a presumption of reasonableness." Supp. 610, 622 (D.C. Cal. 1979). Boyd v. Bechtel Corp., 485 F. In addition to being familiar

with the present dispute, Plaintiffs' counsel has considerable expertise in employment, consumer and class action litigation. Von Loewenfeldt Decl. ¶¶ 4-5; see also Hough Decl. ¶ 4. See

There is

nothing to counter the presumption that counsel's recommendation is 8

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reasonable.

Therefore, the recommendation of counsel weighs in

favor of approving the Settlement Agreement. F. Reaction of the Class

"It is established that the absence of a large number of objections to a proposed class action settlement raises a strong presumption that the terms of a proposed class action settlement are favorable to the class members." 221 F.R.D. at 529. Nat'l Rural Telecomms. Coop.,

While updated addresses for two of the eighty-

six potential Class Members could not be obtained, the parties' efforts to notify all Class Members were reasonable and sufficient. See Silber v. Mabon, 18 F.3d 1449, 1454 (9th Cir. 1994); see also Grunin v. Int'l House of Pancakes, 513 F.2d 114, 121-22 (8th Cir. 1975). The Court, Plaintiffs' counsel, and Red Door's counsel did

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not receive a single objection from the potential Class Members who received the formal Notice in this suit. "By any standard, the

lack of objection of the Class Members favors approval of the Settlement." Omnivision Techs., 559 F. Supp. 2d at 1043 (citing

Churchill Village LLC v. Gen. Elec., 361 F.3d 566, 577 (9th Cir. 2004); Rodriguez v. West Publ'g Corp., Case No. CV05-3222 R, 2007 WL 2827379, at *10 (C.D. Cal. Sept. 10, 2007)).

IV.

FEES MOTION A. Legal Standards Governing Attorneys' Fees

It is well established that "a private plaintiff, or his attorney, whose efforts create, discover, increase or preserve a fund to which others also have a claim is entitled to recover from the fund the costs of his litigation, including attorneys' fees." 9

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Vincent v. Hughes Air W., Inc., 557 F.2d 759, 769 (9th Cir. 1977). This rule, known as the "common fund doctrine," is designed to prevent unjust enrichment by distributing the costs of litigation among those who benefit from the efforts of the litigants and their counsel. See Paul, Johnson, Alston, & Hunt v. Graulty, 886 F.2d

268, 271 (9th Cir. 1989) ("Paul, Johnson"). In the Ninth Circuit, district courts presiding over common fund cases have the discretion to award attorneys' fees based on either the lodestar method (essentially a modification of hourly billing) or the percentage method proposed here. Chem. Bank v.

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City of Seattle (In re Wash. Pub. Power Supply Sys. Sec. Litig.), 19 F.3d 1291, 1296 (9th Cir. 1994). Despite this discretion, use

of the percentage method in common fund cases appears to be dominant. See, e.g., Vizcaino v. Microsoft Corp., 290 F.3d 1043,

1047 (9th Cir. 2002); Six Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1311 (9th Cir. 1990); Paul, Johnson, 886 F.2d at 272. The advantages of using the percentage method have been See, e.g., In re Activision

described thoroughly by other courts.

Sec. Litig., 723 F. Supp. 1373, 1374-77 (N.D. Cal. 1989) (collecting authority and describing benefits of the percentage method over the lodestar method). The Court finds those advantages

persuasive, and adopts the percentage method in this matter. The ultimate goal under either method of determining fees is to reasonably compensate counsel for their efforts in creating the common fund. See Paul, Johnson, 886 F.2d at 271-72. It is not

sufficient to arbitrarily apply a percentage; rather the district court must show why that percentage and the ultimate award are 10

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appropriate based on the facts of the case. 1048.

Vizcaino, 290 F.3d at

The Ninth Circuit has approved a number of factors which may

be relevant to the district court's determination: (1) the results achieved; (2) the risk of litigation; (3) the skill required and the quality of work; (4) the contingent nature of the fee and the financial burden carried by the plaintiffs; and (5) awards made in similar cases. See id. at 1048-50. It is no surprise that these

factors are similar to those used in evaluating the adequacy of a settlement. B. Results Achieved

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The overall result and benefit to the class from the litigation is the most critical factor in granting a fee award. In

re Heritage Bond Litig., No. 02-ML-1475 DT, 2005 WL 1594403, at *19 (C.D. Cal. June 10, 2005). As previously discussed, the Settlement

Agreement creates a total award of $500,000, which represents at least 50% of the possible damages. Loewenfeldt Decl. ¶ 14. See Section III(C), supra; Von

Red Door has also agreed to pay applicable

employer tax contributions with respect to payments to Class Members, as well as all costs of sending payment to the Class members. See Mem. of P&A in Supp. of Pls.' Mot. for Order (1)

Approving Application for Attorneys' Fees; (2) Granting Reimbursement of Expenses; and (3) Granting Incentive Awards, ("Fees Mem."), Docket No. 49, at 8-9. achievement on behalf of the class. 1594403, at *19. This is a substantial

See Heritage Bond,2005 WL

The results achieved weigh in favor of granting

the requested 30% fee. /// 11

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C.

Risk of Litigation

The risk that further litigation might result in Plaintiffs not recovering at all, particularly in a case involving complicated legal issues, is a significant factor in the award of fees. Vizcaino, 290 F.3d at 1038. class. See

The Court has not yet certified the

As discussed above, the law underlying some of the claims See Section III(B), supra; Von

in this case is unsettled. Loewenfeldt Decl. ¶ 21.

This uncertainty and the risks associated

with continued litigation support granting the requested fee. D. Skill of Counsel

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The "prosecution and management of a complex national class action requires unique legal skills and abilities." Edmonds v. Plaintiffs'

United States, 658 F. Supp. 1126, 1137 (D.S.C. 1987). counsel are experienced class action litigators.

See Von Red Door's

Loewenfeldt Decl. ¶¶ 4-5; see also Hough Decl. ¶ 4.

counsel understood the legal uncertainties in this case, and were in a position to mount a vigorous defense. Fees Mem. at 13. The

sizeable recovery of $500,000 is some testament to Plaintiffs' counsel's skill. E. This factor supports the requested fee.

Contingent Nature of the Fee

The importance of assuring adequate representation for plaintiffs who could not otherwise afford competent attorneys justifies providing those attorneys who do accept matters on a contingent-fee basis a larger fee than if they were billing by the hour or on a flat fee. See Chem. Bank, 19 F.3d at 1299-1300; Here, Class counsel assumed

Vizcaino, 290 F.3d at 1050.

representation of Plaintiffs on a purely contingency-fee basis. 12

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Von Loewenfeldt Decl. ¶ 6; Hough Decl. ¶ 5.

They have expended

over 442 hours litigating this case, without receiving any compensation. 20. Von Loewenfeldt Decl. ¶¶ 22-24; Hough Decl. ¶¶ 18-

Counsel also advanced over $5,802.89 in expenses related to Von Loewenfeldt Decl. ¶ 26; Hough Decl. ¶

prosecuting this action. 22.

This substantial outlay, when there was a risk that none of it

would be recovered, further supports the award of the requested fees. F. Awards in Similar Cases

The percentage of the Settlement Fund that Plaintiffs' counsel seeks is in excess of the benchmark of 25% established by the Ninth Circuit. See, e.g., Powers v. Eichen, 229 F.3d 1249, 1256 (9th However, in most common fund cases, the award exceeds See Activision, 723 F. Supp. at 1377-78 ("nearly In Romero v. Producers

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Cir. 2000).

that benchmark.

all common fund awards range around 30%").

Dairy Foods, Inc., the court approved an attorneys' fee award that was 33% of the settlement fund in a wage-and-hour case involving allegations of unpaid wages and missed meal and rest breaks. No. 05-0484, 2007 WL 3492841, at *4 (E.D. Cal. Nov. 14, 2007). The

Romero court noted that "fee awards in class actions average around one-third of the recovery." § 14.6 (4th ed. 2007)). Id. (quoting Newberg on Class Actions

The award in Romero supports an award of

30% of the Settlement Fund in this case. G. Reaction of the Class

The reaction of the class may also be a factor in determining the fee award. Heritage Bond, 2005 WL 1594403, at *21. After

reasonable efforts were made to notify all potential Class Members, 13

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no-one requested to be excluded or objected. supra.

See Section III(F),

The Notice explicitly stated that Plaintiffs' Counsel would

ask the Court for up to $150,000 to be paid from the settlement fund, plus actual, reasonable expenses. ("Notice").4 See Thomas Decl., Ex. A

This factor, like those above, supports the requested

award of 30% of the Settlement Fund. H. Lodestar Comparison

As a final check on the reasonableness of the requested fees, courts often compare the fee counsel seeks as a percentage with what their hourly bills would amount to under the lodestar analysis. See, e.g., Vizcaino, 290 F.3d at 1050-51 ("Calculation

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of the lodestar, which measures the lawyers' investment of time in the litigation, provides a check on the reasonableness of the percentage award."). Plaintiffs' attorneys spent a total of 442.76 hours to achieve settlement, which, at their hourly rates, results in a total lodestar of $138,933.50. Decl. ¶¶ 18-20. Von Loewenfeldt Decl. ¶¶ 22-24; Hough

The requested 30% fee would amount to $150,000.

This represents a multiplier of approximately 1.08 times the lodestar. In similar cases, courts have approved multipliers See In re Chiron Corp. Secs. Litig., No.

ranging between 1 and 4.

C-04-4293 VRW, 2007 WL 4249902, at *7-8 (N.D. Cal. Nov. 30, 2007) (surveying fee awards in class action suits and rejecting a multiplier of 8.34). Brandilynn Thomas, a certified paralegal at Kerr & Wagstaffe LLP, filed a declaration in support of the Fees Motion ("Thomas Decl."), Docket No. 47. A copy of the Notice is attached as an exhibit to her declaration. 14
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Comparison with the lodestar demonstrates that the requested 30% fee award is reasonable, and further supports the Court's decision to approve the fee application. I. Reimbursement of Counsel's Expenses

The Fees Motion also seeks to recover from the Settlement Fund costs amounting to $5,802.89. Attorneys may recover their

reasonable expenses that would typically be billed to paying clients in non-contingency matters. F.3d 16, 19 (9th Cir. 1994). Plaintiffs' counsel's expenses are documented in detail in the declarations from counsel. also Hough Decl. ¶ 21. See Von Loewenfeldt Decl. ¶ 25; see See Harris v. Marhoefer, 24

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The expenses relate to online legal

research, travel, postage and messenger services, phone and fax charges, copying, court costs, and the costs of travel. See id.

Attorneys routinely bill clients for all of these expenses, and it is therefore appropriate for counsel here to recover these costs from the Settlement Fund. J. Incentive Awards

Finally, the Class Representatives seek to recover $5,000 each from the Settlement Fund as incentive awards. "[N]amed plaintiffs,

as opposed to designated class members who are not named plaintiffs, are eligible for reasonable incentive payments." Staton, 327 F.3d at 977. Marcie Dave and Lisa Knight participated

extensively in the investigations and meetings associated with this

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law suit.

Dave Decl. ¶ 7; Knight Decl. ¶ 7.5

They attended the

full-day mediation in this action. 7.

Dave Decl. ¶ 7; Knight Decl. ¶

They each estimate that they spent between forty and fifty Dave Decl. ¶ 7; See

hours of their time helping to prosecute the case. Knight Decl. ¶ 7. Notice at 2. the Notice.

The Notice mentions incentive payments.

No one objected to the mention of incentive awards in The requested incentive payment of $5,000 each to Lisa

Knight and Marcie Dave is reasonable. /// /// /// /// /// /// /// /// /// /// /// /// /// /// ///

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Marcie Dave filed a declaration in support of the Fees Motion ("Dave Decl."), Docket No. 53. Lisa Knight filed a declaration in support of the Fees Motion ("Knight Decl."), Docket No. 54. 16

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V.

CONCLUSION For the reasons outlined above, the Court GRANTS the

Settlement Motion and GRANTS Plaintiffs' Fees Motion, and ORDERS as follows: 1. 2. The Court hereby APPROVES the Settlement Agreement. The Court AWARDS Plaintiffs' Counsel attorneys' fees in the amount of $150,000. 3. The Court AWARDS Plaintiffs' Counsel reimbursement of expenses in the amount of $5,802.89. 4. The Court AWARDS incentive payments of $5,000 each to Lisa Knight and Marcie Dave, the Class Representatives. All such amounts are to be paid from the Settlement Fund in accordance with the terms of the Settlement Agreement.

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IT IS SO ORDERED. Dated: February 2, 2009 UNITED STATES DISTRICT JUDGE

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