Kagan et al v. Wachovia Securities, LLC et al

Filing 93

Order by Hon. Samuel Conti in case 3:11-cv-00412-SC; denying without prejudice (87) Motion for Settlement in case 3:09-cv-05337-SC.Associated Cases: 3:09-cv-05337-SC, 3:11-cv-00412-SC(sclc2, COURT STAFF) (Filed on 4/2/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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THEODORE KAGAN, et al,
Plaintiffs,

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v.

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For the Northern District of California

United States District Court

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WACHOVIA SECURITIES, L.L.C., et
al,

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Defendants.

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Case Nos. 09-5337 SC
11-0412 SC
ORDER DENYING PLAINTIFFS'
MOTION FOR PRELIMINARY
APPROVAL OF PROPOSED CLASS
SETTLEMENT

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I.

INTRODUCTION
Now before the Court is a Motion for Preliminary Approval of a

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Proposed Class Settlement.

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were beneficial owners of securities issued by the Asia Pulp and

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Paper Company ("APP").

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securities through Defendants Wachovia Securities, L.L.C., Wachovia

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Securities Financial Network, L.L.C., Wachovia Capital Markets,

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L.L.C., Wells Fargo Advisors., L.L.C., Wells Fargo Advisors

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Financial Network., L.L.C., Wells Fargo Securities, L.L.C., and

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Wells Fargo & Company, or their successors in interest

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(collectively, "Wachovia" or "Defendants").

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claims for negligence, breach of contract, and breach of fiduciary

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duty against Wachovia, all stemming from Wachovia's alleged failure

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to provide Plaintiffs with required notice of an earlier class

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action settlement reached by APP.

ECF No. 87 ("Mot.").

Plaintiffs are or

Plaintiffs allege that they purchased APP

Plaintiffs bring

Wachovia and Plaintiffs have

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reached an agreement to settle these claims.

The Court determines

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pursuant to Civil Local Rule 7-1(b) that Plaintiffs' Motion is

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suitable for decision without oral argument.

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forth below, the Court DENIES the Motion without prejudice.

For the reasons set

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II.

BACKGROUND

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A.

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The following factual allegations are taken from Plaintiffs'

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Previous Litigation

Amended Complaint.

ECF No. 35 ("Am. Compl.").

Plaintiffs are
Id. ¶¶ 2-7.1

United States District Court

For the Northern District of California

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beneficial owners of securities issued by APP.

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Defendants, or their predecessors in interest, are brokerage firms

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and the nominee or record owners of the APP securities.

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8-15, 18, 23.

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official corporate transfer records, the actual interest in the

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security is that of the beneficial owner.

Id. ¶¶ 1,

While the nominee or record owners appear on

Id. ¶ 18.

On August 8, 2001, APP was sued in the Southern District of

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New York for violations of securities laws.

Id. ¶ 19.

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18, 2005, the District Court preliminarily approved a settlement in

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the action ("the APP Settlement").

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order required nominee owners -- here, Wachovia -- to either

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forward notice of the APP Settlement to the beneficial owners or to

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provide the beneficial owners' names and contact details to the APP

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Settlement administrator.

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Defendants, or their predecessors in interest, failed to do either.

Id. ¶ 20.

Id. ¶ 21.

On October

The District Court's

Plaintiffs allege that

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The FAC contains a numbering error, such that the first three
paragraphs are sequentially numbered 1 through 3, but the fourth
paragraph restarts the sequence at 2. This citation refers to the
set of paragraphs appearing under the heading "Parties," beginning
at the second paragraph numbered "2."

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Id. ¶¶ 3,2 24.

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notified, they would have submitted claims and obtained a recovery.

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Id. ¶¶ 25-36.

Plaintiffs further allege that if they had been

On November 10, 2009, Plaintiffs filed a putative class-action

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lawsuit against Defendants.

ECF No. 1 ("Compl.").

On July 7,

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2010, the Court dismissed the Complaint without prejudice.

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32.

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asserting claims for negligence, breach of fiduciary duty, and

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breach of contract.

ECF No.

On August 6, 2010, Plaintiffs filed their Amended Complaint

Am. Compl. ¶¶ 47-62.

On November 23, 2010,

United States District Court

For the Northern District of California

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the Court denied Wachovia's motion to dismiss these claims.

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No. 48.3

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Motion, accompanied by a joint stipulation of class settlement and

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release.
B.

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On January 25, 2012, the parties filed the instant

ECF No. 87-2 ("Sett. Stip.").4
The Stipulated Settlement
1.

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ECF

Proposed Settlement Class

The stipulated settlement provides for a proposed settlement

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class of up to 1,162 members.

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consists of persons who both (1) were beneficial owners of APP

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securities during the period covered by the APP Settlement, August

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28, 1998 to April 4, 2001, and (2) had Wachovia accounts during the

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APP Settlement's notice period, November 30 through December 19,

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2005.

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2

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3

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26
27
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See id. at 11.

The proposed class

Id. at 5 (definition of "APP Class Period"), 9 (definition

This citation refers to the first paragraph numbered "3."

On November 23, 2009, Plaintiff Brent Balkema filed a separate
but substantially identical lawsuit in this District, Balkema v.
Wachovia Securities, LLC, et al., No. 11-412 SC. On July 5, 2011,
this Court denied a motion to dismiss Balkema's case and
consolidated it with the instant case. ECF No. 66.
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Counsel for Plaintiffs, Richard L. Kellner, also submitted a
declaration in support of the Motion. ECF No. 87-1 ("Kellner
Decl.").

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of "Class Period"), 11 (definition of "Potential Class Members").
The 1,162 potential class members were identified by
Id. at 11.

Plaintiffs

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Defendants rather than Plaintiffs.

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conducted limited discovery to confirm Defendants' identification

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of the potential class and to determine the amount of damages

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allegedly owed.

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that Defendants' records are incomplete, in that Defendants lack

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complete or reliable data for some potential class members

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regarding "purchase dates, price, quantity and other information .

United States District Court

For the Northern District of California

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. . ."

Kellner Decl. ¶ 4.

The parties forthrightly admit

Sett. Stip. at 11.

Apparently to address this difficulty, the parties have

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divided the class into two categories.

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consists of 715 persons "for whom Defendants believe they have all

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trade information necessary to determine that they are Class

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Members . . . ."

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members of Category A are entitled to no more than $306,940.56

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collectively.

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compared to APP stocks.

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Id.

Id.

The first, "Category A,"

According to the parties, the 715 potential

Category A consists of holders of APP bonds, as
Id.

The second category, "Category B," consists of persons for

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whom "the available electronic data is . . . insufficient to

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determine both whether they are class members and if so, how much

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money they might be able to claim in this settlement."

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are 447 Category B potential class members, which represents

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roughly 38 percent of the total class.

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have been determined to have traded in APP stock securities."

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As the Court reads the papers, these 353 -- roughly 30 percent of

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the total class -- appear to be entitled to at least some recovery

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under the stipulated settlement.

See id.

Id.

There

Of the 447, "353
Id.

For the remaining 94 members of

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Category B, "incomplete or unreliable data do not permit a

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determination as to the APP Securities held, if any."

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other words, the parties cannot determine from Wachovia's records

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whether the members of this group of 94 are truly class members and

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therefore entitled to recovery.

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percent of the total class.
2.

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Id.

In

The group of 94 comprises about 8

Class Recovery, Attorney Fees, and Costs

Under the proposed settlement, Wachovia has agreed to pay each

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United States District Court

class member who submits a valid claim the entire amount to which

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For the Northern District of California

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the APP Settlement would have entitled him or her, minus attorney

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fees and incentive payments for the lead Plaintiffs.

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5-6.

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potential class members will recover a maximum aggregate amount of

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$306,940.56.

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Category B potential class members will recover.

See Mot. at

As noted above, the parties estimate that Category A

The parties do not estimate how much, if anything,

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Plaintiffs' counsel has agreed to request no more than

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$100,000 for their fees and costs, and Wachovia has agreed not to

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oppose the request.

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provides incentive payments of up to $750 for plaintiff Theodore

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Kagan and up to $500 each for the other six named plaintiffs.

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at 6.

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requested, the incentive payments would total $3,750.

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attorney fees and incentive payments would reduce the potential

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class recovery by up to $103,750.

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the estimated recovery, assuming no recovery for Category B.5

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Sett. Stip. at 28-29.

The settlement also

Mot.

Assuming each named plaintiff receives the maximum amount
Together,

This represents 33.8 percent of

The Court appreciates that the 33.8 percent figure will go down
if Category B class members recover. But, for the reasons
explained in Sections IV.B and C, the Court is not optimistic about
Category B's prospects at this juncture.

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The settlement stipulation would also appoint a settlement

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administrator.

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administrator's reasonable fees and costs separate and apart from

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the settlement fund, so the cost of administering the claims

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process would not be deducted from the potential class members'

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recovery.

Id.
3.

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Id.

Wachovia has agreed to pay the settlement

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Notice and Claim Forms

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The parties propose to notify the class of the settlement by

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first-class mail sent to each potential class member's last-known

United States District Court

For the Northern District of California

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address.

Sett. Stip. at 18-19.

The notice materials consist of a

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fifteen-page, single-spaced Class Notice, an Election Not To

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Participate In Settlement form, and, depending on which category

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the potential class member belongs to, either a Category A or

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Category B Proof Of Claim form.

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("Class Notice"), C ("Election Not To Participate In Settlement"),

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F ("Category A Proof of Claim") & G ("Category B Proof of Claim").6

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The Category A Proof Of Claim indicates that Defendants will send

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potential class members Wachovia's records of their APP holdings.

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See Category A Proof of Claim at 2.

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members may submit documentary evidence to correct any inaccuracies

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in Wachovia's records, but are not required to do so.

Id. at 11; Kellner Decl. Exs. B

Category A potential class

Id. at 2-3.

The Category B Proof Of Claim form is similar in all but one

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important respect.

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Category B form includes Wachovia's records, if any, of the

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potential class member's APP holdings -- but in the case of

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Category B, these records are described as "inaccurate or

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Like the Category A Proof of Claim form, the

Two exhibits to Kellner's declaration are labeled "Exhibit B."
The first is the Class Notice. The second, which follows Exhibit
G, is the resume of Kellner's firm.

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incomplete," and the potential class member must "independently

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verify" and "submit documentary evidence" of their APP holdings,

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rather than, as in the case of Category A, submitting documents

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only if needed to correct an inaccuracy.

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Of Claim at 2-3 with Category A Proof Of Claim at 2-3.
4.

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Compare Category B Proof

Scope of Release

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Both Category A and Category B potential class members are

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included within the settlement's proposed release of liability.

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See Sett. Stip. at 16-17.

The release would purportedly settle,

United States District Court

For the Northern District of California

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among other things, "any and all claims" related to the allegations

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and claims in the Amended Complaint, and also any claims "which

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relate in any way to the purchase, sale or custody of APP

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Securities during the APP Class Period . . . ."

Id. at 13.

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III. LEGAL STANDARD
No class action may be settled without court approval.

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Fed.

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R. Civ. P. 23(e).

When the parties to a putative class action

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reach a settlement agreement prior to class certification, "courts

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must peruse the proposed compromise to ratify both the propriety of

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the certification and the fairness of the settlement."

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Boeing Co., 327 F.3d 938, 952 (9th Cir. 2003).

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must assess whether a class exists.

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v. Windsor, 521 U.S. 591, 620 (1997)).

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determine whether the proposed settlement "is fundamentally fair,

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adequate, and reasonable."

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1011, 1026 (9th Cir. 1998).

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///

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///

Staton v.

First, the Court

Id. (citing Amchem Prods. Inc.
Second, the court must

Hanlon v. Chrysler Corp., 150 F.3d

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IV.

DISCUSSION

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A.

Class Certification

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Federal Rule of Civil Procedure 23(a) provides four

so numerous that joinder of all members is impracticable"); (2)

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commonality ("there are questions of law or fact common to the

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class"); (3) typicality ("the claims or defenses of the

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representative parties are typical of the claims or defenses of the

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class"); and (4) adequacy of representation ("the representative

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United States District Court

requirements for class certification: (1) numerosity ("the class is

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For the Northern District of California

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parties will fairly and adequately protect the interests of the

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class").

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must also find that the requirements of Rule 23(b)(1), (b)(2), or

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(b)(3) are satisfied.

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131 S. Ct. 2541, 2548 (2011).

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the court "that questions of law or fact common to class members

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predominate over any questions affecting only individual members,

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and that a class action is superior to other available methods for

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fairly and efficiently adjudicating the controversy."

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P. 23(b)(3).

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its "predominance" and "superiority" requirements.

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521 U.S. at 615.

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23

Fed. R. Civ. P. 23(a)(1)-(4).

In addition, the court

Wal-Mart Stores, Inc. v. Dukes, __ U.S. __,
Rule 23(b)(3) requires a finding by

Fed. R. Civ.

Courts refer to the requirements of Rule 23(b)(3) as

1.

E.g., Amchem,

Numerosity

Rule 23(a)(1) provides that a class action may be maintained

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only if "the class is so numerous that joinder of all parties is

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impracticable."

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"impracticable" does not mean impossible; it refers only to the

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difficulty or inconvenience of joining all members of the class.

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Harris v. Palm Springs Alpine Estates, Inc., 329 F.2d 909, 913-14

Fed. R. Civ. P. 23(a)(1).

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However,

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(9th Cir. 1964).
Here, the parties estimate that the class consists of up to

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See Sett. Stip. at 11-12.

In support of

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1,126 potential members.

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this estimate, Plaintiffs' counsel declares that Wachovia has

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provided a list of its customers who have been identified as

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potential class members, and that his firm has confirmed Wachovia's

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list.

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to the number of potential class members, the Court finds the

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numerosity requirement to be satisfied.
2.

United States District Court

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For the Northern District of California

Kellner Decl. ¶ 4.

Based on the parties' representations as

Commonality

Rule 23(a)(2) requires that there be "questions of law or fact

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12

common to the class."

Fed. R. Civ. P. 23(a)(2).

This

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"commonality" requirement "requires the plaintiff to demonstrate

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that the class members 'have suffered the same injury.'"

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131 S. Ct. at 2551 (quoting Gen. Tel. Co. of the Southwest v.

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Falcon, 457 U.S. 147, 157 (1982)).

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depend on a common contention," and that common contention must be

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"of such a nature that it is capable of classwide resolution --

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which means that determination of its truth or falsity will resolve

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an issue that is central to the validity of each one of the claims

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in one stroke."

Wal-Mart,

The class members' "claims must

Id.

In this case, each potential class member's alleged injury is

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identical in kind: each allegedly was entitled to receive notice of

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the APP Settlement from Wachovia, but did not.

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between the injuries allegedly suffered by particular class members

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is merely one of degree, that is, the amount of settlement money

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that they missed out on due to Wachovia's alleged failure to notify

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them.

Any difference

That difference is not enough to destroy the basic

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1

commonality of their claims.

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commonality requirement to be satisfied.
3.

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Accordingly, the Court finds the

Typicality

Rule 23(a)(3) requires that the representative parties' claims

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5

be "typical of the claims . . . of the class."

Fed. R. Civ. P.

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23(a)(3).

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claims are 'typical' if they are reasonably co-extensive with those

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of absent class members; they need not be substantially identical."

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Hanlon, 150 F.3d at 1020.

"Under the rule's permissive standards, representative

Here, however, the named Plaintiffs'

United States District Court

For the Northern District of California

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claims are substantially identical.

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brief, that they were the beneficial owner of APP Securities; that

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they never received notice of the APP Settlement from Wachovia, the

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record owner of the securities; and that they would have submitted

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a claim if they had known of the APP Settlement.

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entirely comport with the definition of the proposed class.

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Accordingly, the Court finds that the typicality requirement is

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satisfied.
4.

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Each Plaintiff alleges, in

These allegations

Adequacy of Representation

Rule 23(a)(4) requires a showing that "the representative

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20

parties will fairly and adequately protect the interests of the

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class."

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Plaintiffs are represented by qualified and competent counsel and

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(2) that the proposed representative Plaintiffs do not have

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conflicts of interest with the proposed class.

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1020.

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Fed. R. Civ. P. 23(a)(4).

This factor requires: (1) that

Hanlon, 150 F.3d at

The declaration submitted by Plaintiffs' counsel discusses his

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firm's "extensive experience in complex and class action

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litigation" and related qualifications.

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Kellner Decl. ¶¶ 8-11.

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Plaintiffs' counsel has also provided his firm's resume.

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6 supra.

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the qualifications of Plaintiffs' counsel and, as discussed above,

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Plaintiffs' claims are coextensive with those of the settlement

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class.

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class is adequately represented.

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Having reviewed the papers, the Court sees no issue with

Accordingly, the Court finds that the proposed settlement

5.

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8

See note

Predominance and Superiority

Rule 23(b)(3) requires the court to find that "the questions
of law or fact common to class members predominate over any

United States District Court

For the Northern District of California

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questions affecting only individual members."

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23(b)(3).

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on a settlement motion does not require an analysis of potential

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trial management problems, "other specifications of the Rule --

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those designed to protect absentees by blocking unwarranted or

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overbroad class definitions -- demand undiluted, even heightened,

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attention in the settlement context."

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The terms of a proposed settlement are "relevant to a class

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certification."

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action be "superior to other available methods for fairly and

20

efficiently adjudicating the controversy."

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23(b)(3).

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23
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25
26
27
28

Fed. R. Civ. P.

While evaluation of Rule 23's predominance requirement

Id.

Amchem, 521 U.S. at 620.

Rule 23(b)(3) also requires that the class

Fed. R. Civ. P.

The factors relevant to assessing superiority include:

(A)
the
class
members'
interests
in
individually
controlling the prosecution or defense of separate
actions; (B) the extent and nature of any litigation
concerning the controversy already begun by or against
class members; (C) the desirability or undesirability of
concentrating the litigation of the claims in the
particular forum; and (D) the likely difficulties in
managing a class action.
Fed. R. Civ. P. 23(b)(3).
Here, the Court determines that common issues of law and fact

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1

predominate.

2

class members were to sue individually, each would bring

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essentially the same claim against Wachovia, namely, the claim that

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Wachovia breached a duty to provide the potential class member with

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notice of the APP Settlement.

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action is an obviously superior method of fairly and efficiently

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adjudicating these substantively identical claims, especially

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because none of the countervailing factors enumerated in Rule

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23(b)(3) are present here.

United States District Court

For the Northern District of California

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11

As discussed in Section IV.A.2 supra, if potential

Under such circumstances, the class

Accordingly, the Court finds that the

predominance and superiority requirements are met here.
Because all the requirements of settlement class certification

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are satisfied here, the Court determines that an appropriate

13

settlement class exists.

14

521 U.S. at 620).

15

whether the proposed settlement "is fundamentally fair, adequate,

16

and reasonable."

Staton, 327 F.3d at 952 (citing Amchem,

The Court therefore proceeds to determining

Hanlon, 150 F.3d at 1026.

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B.

Fairness of the Settlement

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The Ninth Circuit has warned that "there are real dangers in

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the negotiation of class action settlements of compromising the

20

interests of class members," because "[i]ncentives inherent in

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class-action settlements" can "result in a decree in which the

22

rights of [class members, including the named plaintiffs] may not

23

[be] given due regard by the negotiating parties."

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F.3d at 959 (internal quotation marks omitted).

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stem from the fact that "[t]he class members are not at the table;

26

class counsel and counsel for the defendants are."

27

"influence the result of the negotiations without any explicit

28

expression or secret cabals," and is why "district court review of

12

Staton, 327

These incentives

Id.

This can

1

class action settlements includes not only consideration of whether

2

there was actual fraud, overreaching or collusion but, as well,

3

substantive consideration of whether the terms of the decree are

4

'fair, reasonable and adequate to all concerned.'"

5

(citing Officers for Justice v. Civ. Serv. Comm'n of San Francisco,

6

688 F.2d 615, 625 (9th Cir. 1982)).

7

of "collusion between class counsel and the defendant," the Ninth

8

Circuit has adopted the rule that "settlement approval that takes

9

place prior to formal class certification requires a higher

Id. at 950

Due in part to these dangers

United States District Court

For the Northern District of California

10

standard of fairness," leading to "a more probing inquiry than may

11

normally be required under Rule 23(e)."

12

Hanlon, 150 F.3d at 1026.

Not all proposed class action settlements require the same

13

level of court scrutiny.

A settlement that is structured so that

14

the interests of the class are tied to the interests of the named

15

plaintiffs, their counsel, or the defendant demands less scrutiny.

16

For example, a settlement that tethers the size of the class

17

counsel's attorney fee award to the number of claim forms submitted

18

or the amount disbursed to the class gives class counsel motivation

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

20

Similarly, because a defendant benefits from the largest possible

21

release of liability, a settlement in which only class members who

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submit a claim form release their claims against a defendant aligns

23

the interests of the defendant and the class members.

24

Here, the proposed settlement goes beyond a mere lack of

25

alignment between the class's interests and those of the parties:

26

Wachovia's interests are in actual conflict with those of the

27

class.

28

obligates Wachovia to pay only those class members who submit a

This is not a lump-sum settlement; rather, the settlement

13

1

valid Proof of Claim.

And Wachovia pays out on this limited basis

2

even though it receives a release of liability from the entire

3

class.

4

number of claimants by undertaking minimal notice procedures and

5

making the process for submitting Proofs of Claim unduly difficult.

6

Additionally, Wachovia has agreed to pay for settlement

7

administration (such as the cost of notifying potential class

8

members and handling fees) separate and apart from the settlement

9

fund.

Wachovia, therefore, has an incentive to suppress the

Normally, this would be a welcome gesture, but on the facts

United States District Court

For the Northern District of California

10

of this case it appears to give Wachovia an additional incentive to

11

supply notice on the cheap.

12

The Court's concerns might be alleviated if it were apparent

13

that Plaintiffs and their counsel had incentives to advocate

14

vigorously on the class's behalf.

15

class member's recovery is contingent on receipt of notice and

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submission of a valid claim, both Plaintiffs and their counsel have

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agreed to receive lump-sum payments.

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to get a check from Wachovia in this case are named Plaintiffs and

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their counsel, and the size of the check is unaffected by the size

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of the benefit received by the class.

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lack any structural incentive to ensure that the class benefits

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from robust notice and simplified claim procedures.

23

But they do not.

Even though a

The only persons guaranteed

Plaintiffs and their counsel

This misalignment of incentives reveals itself in the

24

particulars of the proposed settlement.

Most troubling is the

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proposed settlement's treatment of Category B class members.

26

the parties estimate that Category A claimants may receive up to

27

roughly $306,000 in total, the parties provide no estimate for

28

Category B claimants.

While

And indeed, it is entirely possible that

14

1

Category B claimants will receive no money at all, even though they

2

comprise nearly two-fifths of the class.

3

claimants, Category B claimants are required to engage in the

4

absurd exercise of proving to Wachovia that they were the

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beneficial owners of securities purchased for them by Wachovia.

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The Court notes that the relevant ownership period ended in 2001.

7

It would be a rare bookkeeper who retained careful records of a

8

stock purchase in an obscure paper company for a dozen years or

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more -- especially when class members would have every good reason

Unlike Category A

United States District Court

For the Northern District of California

10

to think that the record owner of the stocks would keep records.

11

Ultimately, the Court fails to see why Category B class members

12

should not enjoy the same presumption of recovery as Category A

13

class members.

14

Wachovia kept better records for the latter than the former; if

15

other reasons exist, the parties have not brought them to the

16

Court's attention.

17

unfair to permit Wachovia to benefit from gaps in its own records,

18

especially in a case like this one, which hinges on Wachovia's

19

alleged failures to provide proper notifications to its account

20

holders.

21

The only apparent reason for the difference is that

As the matter now stands, it would be patently

The Court is also concerned about the scope of the release

22

Wachovia has bargained for.

This case arises from Wachovia's

23

alleged failure to perform an essentially ministerial act, that is,

24

to provide its account holders with notice of a class action

25

settlement.

26

the parties would release Wachovia not only from claims related to

27

this alleged ministerial failure, but also from any and all claims

28

"which relate in any way to the purchase, sale or custody of APP

Yet the definition of "Settled Claims" stipulated by

15

1

Securities during the APP Class Period . . . ."

Sett. Stip. at 13.

2

This release goes far beyond Wachovia's exposure to claims for

3

failures to provide notice.

4

APP Class Period ended nearly eleven years ago, many claims covered

5

by this purported release likely would be time-barred.

6

Court also recognizes that the release is worded broadly enough to

7

encompass claims that might be equitably tolled.

8

Court is concerned that the scope of release is too broad.

9

Court's concerns are exacerbated by the fact that, under the

The Court recognizes that because the

But the

As a result, the
The

United States District Court

For the Northern District of California

10

parties' agreement, Category B class members -- that is, 38 percent

11

of the class -- might receive no payment at all in exchange for

12

this sweeping release.

13

fact that roughly four out of five members of Category B traded APP

14

stock during the APP Class Period and thus ought to receive some

15

recovery.

16

This is especially unfair in light of the

See Section II.B.1 supra.

In evaluating the fairness of this settlement with respect to

17

Category B class members, the Court also would like to know more

18

about the size of the initial APP Settlement and the percentage of

19

APP Settlement class members who were Wachovia account holders.

20

the entire APP Settlement amounted to only a few hundred thousand

21

dollars and most of the parties to the settlement were Wachovia

22

account holders, then a recovery of up to $306,000 for Category A

23

class members and relatively small recovery for Category B class

24

members might seem eminently fair.

25

was much larger, and the class had a high proportion of Wachovia

26

account holders, then the proposed settlement might not be fair.

27

Without some sense of the size of the APP Settlement and the

28

proportion of Wachovia account holders, the Court is hard-pressed

16

If

But if the earlier settlement

1

to evaluate the proposal before it.

2

The parties should place this

information before the Court.
The Court is also concerned by how little light the parties

3

claimants.

6

will receive everything they would have received under the APP

7

Settlement, minus Plaintiffs' incentive payments and Plaintiffs'

8

counsel's fees and costs.

9

settlement would benefit a typical class member, since the parties

10

United States District Court

have shed on the distribution of settlement funds among individual

5

For the Northern District of California

4

have provided no information about the average, median, or highest

11

individual recovery amounts, even for the Category A potential

12

class members for whom Wachovia believes it has complete records.

The parties have told the Court that a proper claimant

But this says very little about how the

As a result, the Court cannot ascertain whether it is

13
14

fundamentally fair to require some, but not all, class members to

15

undertake a laborious Proof of Claim procedure.

16

form for Category B class members requires them to independently

17

verify and submit documentary evidence of their ownership of APP

18

Securities during the APP Class Period.

19

at 3.

20

transactions dating as far back as 1998, Category B claimants must

21

navigate a complicated series of tables and coded charts.

22

at 7-11.

23

account containing APP securities must repeat this process and

24

provide a separate Proof of Claim form for each account.

25

While a claimant might be motivated to leap such high hurdles if

26

there were a significant reward at the finish line, the Court

27

cannot discern from the papers submitted what recovery, if any, a

28

typical claimant should expect.

The Proof of Claim

Category B Proof of Claim

Then, after marshaling documentary evidence of securities

See id.

Category B claimants who had more than one Wachovia

Id. at 3.

Hence, the Court cannot determine

17

1

whether these procedures are justifiable.

Moreover, the parties

2

have not explained why, as a matter of either fairness or practical

3

necessity, it is the class who must fill in the gaps in Wachovia's

4

bookkeeping, rather than Wachovia or Plaintiffs' counsel.
Finally, the Court finds that the objection process is

5

must mail a written objection not only to the settlement

8

administrator, but also to both sets of counsel.

9

21.

Moreover, objectors must file their documents with the Court.

10

United States District Court

excessively cumbersome.

7

For the Northern District of California

6

Id.

The Court sees no reason to require objectors to notify four

11

parties when one -- the settlement administrator -- will do.

12

The parties have agreed that objectors

Sett. Stip. at

Because the Court has grave reservations about the fundamental

13

fairness of the proposed settlement as it has been explained thus

14

far, the Court DENIES Plaintiffs' Motion for Preliminary Approval

15

of the Proposed Class Settlement.

16

C.

Adequacy of Proposed Notice

17

Though the concerns enumerated in the previous Section supply

18

sufficient grounds to deny the instant motion, in the interest of

19

judicial economy the Court now reviews the adequacy of the parties'

20

proposed notice procedures.

21

about these procedures.

22
23
24
25
26
27
28

The Court has additional concerns

Notice to a class must provide:
the
best
notice
practicable
under
the
circumstances, including individual notice to
all members who can be identified through
reasonable effort. The notice must concisely
and clearly state in plain, easily understood
language: the nature of the action; the
definition of the class certified; the class
claims, issues, or defenses; that a class
member may enter an appearance through counsel
if the member so desires; that the court will
exclude from the class any member who requests

18

exclusion, stating when and how members may
elect to be excluded; and the binding effect of
a class judgment on class members under Rule
23(c)(3).

1
2
3

Fed. R. Civ. P. 23(c)(2)(B).

The Court is concerned that the

4

parties may not have selected "the best notice practicable under

5

the circumstances."

6

issue in light of the origin of this lawsuit, Wachovia's alleged

7

failure to notify members of an earlier settlement class.

8

Court notes that, here, the parties have chosen to notify the class

9

only by first-class mail sent to class members' last-known

The Court is particularly sensitive to this

The

United States District Court

For the Northern District of California

10

addresses.

11

Wachovia accounts in late 2005, and the Court is concerned that the

12

last-known addresses for some or many of these individuals may have

13

obsolesced in the intervening six-plus years.

14

heightened further by the misalignment of incentives between

15

Wachovia and the proposed settlement class, and exacerbated by

16

Plaintiffs' failure to explain why the parties have included no

17

back-up system of notification, such as email or publication

18

notice.

19

Settlement, ECF No. 1 Ex. B; the Court cannot fathom why this case,

20

which seeks relief for earlier failures of notice, calls for less

21

notice rather than more.

22

The proposed class consists of individuals who had

This concern is

Publication notice was used in the original APP

The Court also finds fault with the content of the proposed

23

Class Notice.

First, it is simply too long.

The Court is

24

concerned that few class members will read a fifteen-page, single-

25

spaced Class Notice without having been given some initial hint as

26

to why they should bother.

27

standard short-form notice that directs them to the long-form

28

notice for details.

The parties should provide an industry-

Second, the Class Notice does not provide

19

their possible recovery to make an informed decision about whether

3

to accept the settlement.

4

that they may recover "what [they] would have received in the APP

5

Litigation, minus a pro-rata percentage for attorneys' fees and

6

incentive payments to the Class Representatives," Class Notice at

7

5, and that class counsel's request for $100,000 in attorney fees

8

"will proportionally reduce your settlement payment," id. at 10.

9

What the Class Notice does not say is how much this pro-rata,

10

United States District Court

potential class members with enough information about the size of

2

For the Northern District of California

1

proportionate reduction might amount to, in either absolute or

11

percentage terms.

12

essence, that they may recover a fraction of what they would have

13

if they had received proper notice in the first place -- but it

14

only tells them the fraction's numerator, not its denominator.

15

From that information, it is impossible for a class member to

16

determine how much of the settlement fund will be consumed by

17

attorney fees and whether they should object.

18

concerned that class members will be unable, therefore, to make an

19

informed decision about whether to accept the proposed settlement,

20

withdraw from it, or object to it.

21

clear that, based solely on the maximum recovery of Category A

22

claimants, attorney fees would consume roughly 34 percent of the

23

settlement fund, if the Court awarded Plaintiffs' counsel all they

24

ask for and Category B class members submitted no valid claims.

25

But this information does not appear in the Class Notice.

26

The Class Notice tells class members

The Class Notice tells class members, in

The Court is

Plaintiffs' Motion makes it

In sum, the Court is not convinced that the proposed notice

27

plan would provide the class with "the best notice practicable

28

under the circumstances," as Rule 23 requires.

20

The parties have

1

not satisfied the Court that they are taking appropriate steps to

2

notify the largest practicable number of class members, or to

3

include important, readily available information in the notice.

4

The inadequacy of the proposed notice provides another, independent

5

reason for the Court to deny Plaintiffs' Motion.

6
7
8
9

V.

CONCLUSION
For the foregoing reasons, the Court DENIES without prejudice

Plaintiffs' Motion for Preliminary Approval of the Proposed Class

United States District Court

For the Northern District of California

10

Settlement.

11

class exists but that the Proposed Settlement must be rejected at

12

this time because, first, the Court cannot determine from the

13

information submitted whether the Proposed Settlement is

14

fundamentally fair, particularly to Category B class members, and

15

second, the proposed notice procedures would not notify the highest

16

practicable number of class members or give them adequate

17

information to evaluate the settlement.

18

The Court determines that an appropriate settlement

Plaintiffs may resubmit an amended Motion and supporting

19

materials within thirty (30) days of this Order.

Failure to do so

20

will result in Plaintiffs' Motion being deemed DENIED WITH

21

PREJUDICE and the Court setting this action for trial.

22
23

IT IS SO ORDERED.

24
25
26

Dated: April 2, 2012
UNITED STATES DISTRICT JUDGE

27
28

21