Dreyling et al v. H&R Block, Inc. et al

Filing 12

NOTICE REGARDING FACTORS TO BE EVALUATED FOR ANY PROPOSED CLASS SETTLEMENT. Signed by Judge Alsup on May 17, 2013.. (whalc1, COURT STAFF) (Filed on 5/17/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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MAIGHAN PERRY DREYLING, et al.,

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For the Northern District of California

United States District Court

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Plaintiffs,

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No. C 13-02011 WHA
v.

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Defendants.
/

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NOTICE REGARDING
FACTORS TO BE EVALUATED
FOR ANY PROPOSED
CLASS SETTLEMENT

H&R BLOCK, INC., et al.,,

For the guidance of counsel, please keep in mind the following factors that will typically
be considered in determining whether to grant preliminary approval to a class settlement:

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1.

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Is the plaintiff an adequate representative with standing? Is plaintiff motivated to and

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qualified to act on behalf of those he or she seeks to represent? Are there shortcomings in the

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plaintiff that would be advanced to defeat a class certification motion? What is the litigation

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history, criminal history, and relationship to plaintiff’s counsel? In an employment case, how

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long did the plaintiff work for the employer? The opinion of the lead plaintiff as to the fairness

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of the settlement to absent class members must be provided to the Court, along with an opinion

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by counsel. Adequacy of counsel is not a substitute for adequacy of the representative.

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ADEQUACY OF REPRESENTATION.

If a settlement proposal is made prior to formal class certification, there is a risk that the

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class claims have been discounted, at least in part, by the risk that class certification will be

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denied. All counsel should explain whether this risk was discussed and/or considered in the
negotiations and, if so, why the rights of non-parties should be prejudiced merely because the

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particular “representative” (or his or her counsel) might be deemed inadequate or other

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requirements of Rule 23 might be unsatisfied.
DUE DILIGENCE.

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2.

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Has class counsel performed due diligence (discovery and investigation) to learn the

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strength and best-case dollar amount of the class claim, including preparation of a final expert

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class damage report? Please remember that when one undertakes to act as a fiduciary on

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behalf of others (here, the proposed class), one must always perform adequate due diligence

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before acting.

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COST-BENEFIT FOR ABSENT CLASS MEMBERS.

In the proposed settlement, what will absent class members give up versus what will they

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For the Northern District of California

United States District Court

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3.

receive in exchange, i.e., a cost-benefit analysis? If the recovery will be a full recovery, then

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much less will be required to justify the settlement than for a partial recovery, in which case the

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discount will have to be justified. This will require an analysis of the specific proof, such as a

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synopsis of any conflicting evidence on key fact points. It will also require a final class-wide

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damage study or a very good substitute, in sworn form. If little discovery has been done to see

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how strong the claim is, it will be hard to justify a discount on the mere generalized theory of

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“risks of litigation.” A coupon settlement will rarely be approved. Where there are various

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subgroups within the class, what will be the plan of allocation of the settlement fund and why?

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4.

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The release should be limited only to the claims certified for class treatment. Language

THE RELEASE.

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releasing claims that “could have been brought” is too vague. The specific statutory or common

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law claims to be released should be spelled out. Class counsel must justify the release as to each

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claim released, the probability of winning, and its estimated value if fully successful. Does the

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settlement contemplate that claims of absent class members will be released even for those

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whose class notice is returned as undeliverable? Usually, the Court will not extinguish claims of

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individuals known to have received no notice or whom received no benefit (and/or for whom

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there is no way to send them a settlement check). Put differently, usually the release must

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extend only to those who receive money for the release.
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5.

EXPANSION OF THE CLASS.

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Typically, defendants vigorously oppose class certification and/or argue for a narrow

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class. In settling, however, defendants often seek to expand the class, either geographically

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(i.e., nationwide) or claim-wise (including claims not in the complaint) or person-wise

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(e.g., multiple new categories). Such expansions will be viewed with suspicion. If an expansion

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is to occur it must come with an adequate plaintiff and one with standing to represent the add-on

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scope and with an amended complaint, not to mention due diligence as to the expanded scope.

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The settlement dollars must be sufficient to cover the old scope plus the new scope. Personal

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and subject-matter jurisdiction over the new individuals to be compromised by the class
judgment must be shown.
REVERSIONS.

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For the Northern District of California

United States District Court

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6.

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A settlement that allows for a reversion of settlement funds to the defendant(s) is a red

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flag, for it runs the risk of an illusory settlement, especially when combined with a requirement

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to submit claims that may lead to a shortfall in claim submissions.

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7.

CLAIM PROCEDURE.

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A settlement that imposes a claim procedure rather than cutting checks to class members

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for the appropriate amount may impose too much of a burden on class members, especially if the

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claim procedure is onerous, or the period for submitting is too short, or there is a likelihood of

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class members treating the notice envelope as junk mail. The best approach is to calculate

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settlement checks from defendant’s records (plus due diligence performed by counsel) and to

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send the checks to the class members along with a notice that cashing the checks will be deemed

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acceptance of the release and all other terms of the settlement.

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8.

ATTORNEY’S FEES.

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To avoid collusive settlements, the Court prefers that all settlements avoid any agreement

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as to attorney’s fees and leave that to the judge. If the defense insists on an overall cap, then the

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Court will decide how much will go to the class and how much will go to counsel, just as in

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common fund cases. Please avoid agreement on any division, tentative or otherwise.

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A settlement whereby the attorney seems likely to obtain funds out of proportion to the benefit

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conferred on the class must be justified.
DWINDLING OR MINIMAL ASSETS?

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9.

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If the defendant is broke or nearly so with no prospect of future rehabilitation, a steeper

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discount may be warranted. This must be proven. Counsel should normally verify a claim of

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poverty via a sworn record, thoroughly vetted.

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TIMING OF PROPOSED SETTLEMENT.

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In order to have a better record to evaluate the foregoing considerations, it is better to

on the merits, and after the damage study has been finalized. On the other hand, there will be

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For the Northern District of California

develop and to present a proposed compromise after class certification, after diligent discovery

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United States District Court

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some cases in which it will be acceptable to conserve resources and to propose a resolution

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sooner. For example, if the proposal will provide full recovery (or very close to full recovery)

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then there is little need for due diligence. The poorer the settlement, the more justification will

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be needed and that usually translates to more discovery and due diligence; otherwise, it is best to

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let non-parties fend for themselves rather than foist a poor settlement on them. Particularly when

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counsel proposes to compromise the potential claims of others in a low-percentage recovery, the

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Court will insist on detailed explanation of why the case has turned so weak, an explanation that

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usually must flow from discovery and due diligence, not merely generalized “risks of litigation.”

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Counsel should remember that merely filing a putative class complaint does not authorize them

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to compromise the rights of absent parties. If counsel believe settlement discussions should

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precede a class certification, a motion for appointment of interim class counsel must first

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be made.

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A RIGHT TO OPT OUT IS NOT A CURE-ALL.

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A borderline settlement cannot be justified merely because class members may opt out if

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they wish. The Court has an independent duty to assess whether it is reasonable and adequate.

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Once the named parties reach a settlement in a purported class action, they are always solidly in

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favor of their own proposal. There is no advocate to critique the proposal on behalf of absent

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class members. That is one reason that Rule 23(e) insists that the district court vet all

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class settlements.

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If the proposed settlement by itself is not good enough for the named plaintiff, why

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should it be good enough for absent class members similarly situated? Class litigation proceeded

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well for many decades before the advent of requests for “incentive payments,” which too

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often are simply ways to make a collusive or poor settlement palatable to the named plaintiff.

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A request for an incentive payment is a red flag.

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NOTICE TO CLASS MEMBERS.

Is the notice in plain English, plain Spanish, and/or plain Chinese (or the appropriate

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For the Northern District of California

United States District Court

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INCENTIVE PAYMENTS.

language)? Does it plainly lay out the salient points, which are mainly the foregoing points in

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this memorandum? Will the method of notice distribution really reach every class member?

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Will it likely be opened or tossed as junk mail? How can the envelope design enhance the

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chance of opening? Can notice be supplemented by e-mail notice?

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Counsel should be mindful of the factors identified in Hanlon v. Chrysler Corp.,

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150 F.3d 1011, 1026 (9th Cir. 1998). Finally, for an order denying proposed preliminary

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approval, see Kakani v. Oracle Corp., No. C 06-06493 WHA, 2007 WL 1793774 (N.D. Cal.

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June 19, 2007).

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Dated: May 17, 2013.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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