Smith et al v. Leichtman et al

Filing 291

ORDER DENYING MOTIONS FOR FINAL APPROVAL OF CLASS ACTION SETTLEMENT. Signed by Judge JEFFREY S. WHITE on 11/15/12. (jjoS, COURT STAFF) (Filed on 11/15/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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CHRISTINA SMITH, et al.,
Plaintiffs,

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For the Northern District of California

United States District Court

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No. C 10-00010 JSW

v.
LEVINE LEICHTMAN CAPITAL
PARTNERS, INC., et al.,

ORDER DENYING MOTION FOR
FINAL APPROVAL OF CLASS
ACTION SETTLEMENT

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Defendants.
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Now before the Court is the motion for final approval of class action settlement filed by

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Plaintiffs. This matter is now fully briefed and ripe for consideration. The Court finds that this

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matter is appropriate for disposition without oral argument and is deemed submitted. See Civ.

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L.R. 7-19(b). Accordingly, the hearing set for November 16, 2012 is HEREBY VACATED.1
In considering the motion for final approval before a class has been certified, “the

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district court must assess whether a class exists; ‘[s]uch attention is of vital importance, for a

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court asked to certify a settlement class will lack the opportunity, present when a case is

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litigated, to adjust the class, informed by the proceedings as they unfold.’” Staton v. Boeing

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Co., 327 F.3d 938, 952-53 (9th Cir. 2003) (quoting Amchem Prods. Inc. v. Windsor, 521 U.S.

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591 (1997)). The Court must “review the requirements of Rule 23(a) and (b), which are

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‘designed to protect absentees by blocking unwarranted or overbroad class definitions’ and

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‘demand undiluted, even heightened, attention in the settlement context.’” Narouz v. Charter

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The Court GRANTS the Objectors’ request to file an opposition to Plaintiffs’
motion for final approval and reply to the parties’ responses to their objection.
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Communications, LLC, 591 F.3d 1261, 1266 (9th Cir. 2010) (quoting Amchem, 521 U.S. at

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620). Moreover, as the Supreme Court has admonished, “Rule 23’s requirements must be

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interpreted in keeping with Article III constraints.” Amchem, 521 U.S. at 613.

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The Court must also “carefully consider ‘whether a proposed settlement is

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fundamentally fair, adequate, and reasonable,’ recognizing that ‘[i]t is the settlement taken as a

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whole, rather than the individual component parts, that must be examined for overall

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fairness....’” Staton, 327 F.3d at 952-53 (quoting Hanlon v. Chrysler Corp., 150 F.3d 1011,

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1026 (9th Cir. 1998)). The Court considers a number of factors, such as “the strength of

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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

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For the Northern District of California

United States District Court

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extent of discovery completed, and the stage of the proceedings; the experience and views of

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counsel; the presence of a governmental participant; and the reaction of the class members to

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the proposed settlement.” Id. at 659 (citation omitted); see also Officers for Justice v. Civil

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Serv. Comm’n of San Francisco, 688 F.2d 615, 625 (9th Cir. 1982) (noting that the list of

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factors is “by no means an exhaustive list of relevant considerations, nor have we attempted to

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identify the most significant factors”). Moreover, the settlement may not be the product of

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collusion among the negotiating parties. See In re Mego Fin. Corp. Sec. Litig., 213 F.3d 454,

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458 (9th Cir. 2000).

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Upon consideration of the parties papers, including the papers submitted by the

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Objectors, the Court finds the proposed settlement to be problematic. In conjunction with their

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proposed settlement, Plaintiffs altered the class definition of the Smith class to include any

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person who received a letter, regardless of whether or not such persons paid any fees. This

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alteration in the class definition significantly increases the number of parties from whom

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Defendants would receive releases if class members do not opt out of the class. Moreover, due

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to the increase in class size, the potential monetary recovery for individual class members is

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significantly diminished. According to Defendants, there are 636,626 members in the proposed

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classes in California and Pennsylvania. (See Declaration of Kim Schmidt, ¶¶ 5, 10.)

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Considering the class size, and taking into account the requested attorneys’ fees, the costs of
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notice and the cy pres payment, if each class member received a portion of the proposed

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settlement, their pro rata share would be less than three dollars.

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The lack of mutuality in the scope of releases is also problematic. The proposed release

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from the class members would broadly release all claims class members may have against the

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Defendants, and any party partnering with Defendants, arising out of the operation of the

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diversion program through the “Effective Date” of the settlement. The “Effective Date” is one

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business day after the settlement in the California class becomes final. The release the proposed

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class members would receive in return would be limited to claims for failure to pay fees to

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NCG. However the release does not include claims for nonpayment of class fees for a class
actually attended. Moreover, the release would not preclude NCG from continuing to contact

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For the Northern District of California

United States District Court

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class members about the diversion program and/or to attempt to collect the fees challenged by

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this lawsuit.

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Moreover, the Court finds that notice provided to be troubling. Notice to class members

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to alert them of their right to opt-out of the class must be “the best notice practicable under the

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circumstances, including individual notice to all members who can be identified through

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reasonable effort.” Amchem, 521 U.S. at 617 (quoting Fed. Rule Civ. Proc. 23(c)(2)). The

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Objectors point out that notice was only mailed to class members who were mailed letters by

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National Corrective Group, Inc. (“NCG”), as opposed to those who were mailed letters by

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American Corrective Counseling Services, Inc. (“ACCS”). The Objectors estimate that 58

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percent of the proposed class members in California and 69 percent of the proposed class

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members in Pennsylvania were not mailed the notice. The parties respond that it is likely that

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between 20 and 25 percent of the mailing addresses of class members who received letters from

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ACCS would be incorrect. However, that means that 75 to 80 percent of the proposed class

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would receive notice through mail. In light of these percentages, the Court finds that mere

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notice by publication to the significant portion of the proposed class who received letters from

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ACCS is not the best notice practicable.2 Moreover, the failure to provide sufficient notice

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compounds the unfairness created by the expanded class definition and the broad release

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required by class members who do not opt out.

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Additionally, in light of the fact that Defendants have accurate mailing addresses for 75

members to submit claims. For the proposed class members for whom Defendants have

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accurate mailing addresses, Defendants could simply mail them a check. Similarly, the parties

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have made the procedures for filing objections unduly burdensome. There is no reason to

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require the submission of a telephone number, to require proof of class membership in light of

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Defendants’ records of class membership, or to require the objectors to mail their objections to

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For the Northern District of California

to 80 percent of the proposed class members, it is not clear why the parties are requiring those

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United States District Court

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three different locations.

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In terms of the requested service awards, Plaintiffs request $1,000 for each of the named

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Plaintiffs. In support of this request, Plaintiffs submit the declaration by James C. Sturdevant

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who summarily states that “the Class Representatives have played an active role in litigating

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and monitoring the case and working with counsel in the preparation of pleadings and

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negotiation of the settlement.” (Declaration of James C. Sturdevant, ¶ 36.) Mr. Sturdevant does

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not describe the contributions made by any individual named representative. Nor do Plaintiffs

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provide any supporting declarations from the individual named representatives describing their

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efforts and contributions. Moreover, Plaintiffs do not respond to the Objectors’ accusation that

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Plaintiffs’ counsel did not discover until December 2011, that one of the named representatives,

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Toni Neilson, had died almost six months earlier. If true, it does not appear that the named

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class representatives played an active role in this litigation and the ensuing settlement

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negotiations.

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Whether to reward the named representatives for their efforts is within the Court’s
discretion. See, e.g., Van Vranken v. Atlantic Richfield Co., 901 F. Supp. 294, 299 (N.D. Cal.

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The Objectors further note that the notice does not describe the actual claims
asserted in the litigation, describe the laws alleged, or attach a link to the operative
complaints. See Fed. R. Civ. P. 23(c)(2)(B) (Notice to the class “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.”).

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1995) (citations omitted). Courts may consider the following criteria in determining whether to

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provide incentive awards: “(1) the risk to the class representative in commencing suit, both

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financial and otherwise; (2) the notoriety and personal difficulties encountered by the class

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representative; (3) the amount of time and effort spent by the class representative; (4) the

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duration of the litigation; and (5) the personal benefit (or lack thereof) enjoyed by the class

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representative as a result of the litigation.” Id. (citations omitted). The Court finds that the

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parties fail to provide sufficient evidence demonstrating the proposed incentive awards are

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justified based on these factors.

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Finally, the Court notes that the proposed injunctive relief does not appear to provide
much relief or benefit for the class. Pursuant to the proposed settlement, NCG is only required

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For the Northern District of California

United States District Court

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to alter the letters sent for a period of two years. After that time, NCG is not prohibited from

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mailing out letters with the same language challenged by this lawsuit. Moreover, the proposed

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altered letters could still mislead recipients that the letters were sent by, or with individual

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authorization from, the district attorney and that the district attorney is accusing the recipients

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of violating the law.

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Accordingly, the Court DENIES the motion for final approval of class action settlement.

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This Order is without prejudice to the parties seeking approval of a class action settlement if the

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parties are able to address the concerns noted above.

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IT IS SO ORDERED.

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Dated: November 15, 2012
JEFFREY S. WHITE
UNITED STATES DISTRICT JUDGE

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