Schuchardt et al v. Law Office of Rory W. Clark

Filing 50

ORDER by Magistrate Judge Jacqueline Scott Corley granting 44 Motion for PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT (ahm, COURT STAFF) (Filed on 1/20/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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DANIEL SCHUCHARDT, et al.,

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Plaintiffs,

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v.

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LAW OFFICE OF RORY W. CLARK,

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Defendant.

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United States District Court
Northern District of California

Case No. 15-cv-01329-JSC
ORDER GRANTING PRELIMINARY
APPROVAL OF CLASS ACTION
SETTLEMENT
Re: Dkt. No. 45

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Plaintiffs Daniel Schuchardt (“Schuchardt”) and Michelle Muggli (“Muggli” and, together,

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“Plaintiffs”) bring this pre-certification class action on behalf of themselves and a putative class of

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consumers against Defendant Law Office of Rory W. Clark, A Professional Law Corporation

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(“Defendant”), alleging violations of the Fair Debt Collections Practices Act (“FDCPA”), 15

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U.S.C. § 1692, and corresponding sections of the Rosenthal Fair Debt Collection Practices Act

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(“Rosenthal Act”), Cal. Civ. Code § 1788, arising out of the language in the initial debt collection

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letters that Defendant sent to Plaintiffs and the rest of the putative class. Specifically, Plaintiffs

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contend that the initial communication notice misrepresented their rights by failing to notify them

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that certain statutory rights would be triggered only by the recipients’ disputing the debt in

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writing, not just orally. Now pending before the Court is Plaintiffs’ unopposed motion for

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preliminary approval of a class action settlement. (Dkt. No. 44.)1 After reviewing the proposed

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settlement, and with the benefit of oral argument and post-hearing submissions, the Court

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GRANTS the motion as outlined below.

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Record citations are to material in the Electronic Case File (“ECF”); pinpoint citations are to the
ECF-generated page numbers at the top of the documents.

BACKGROUND

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A.

The following undisputed facts are based on the parties’ recitation of undisputed facts

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Factual Background

described in their briefing on Defendant’s motion for summary judgment.
Defendant is a law firm that engages in debt collection on behalf of several clients,

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including Bank of America, N.A. Plaintiffs, who are “consumers” within the meaning of the

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FDCPA, incurred debts to Bank of America primarily for personal, family, or household purposes.

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When their debts became delinquent, Bank of America referred them to Defendant to initiate

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collection litigation. On January 2, 2015, Defendant mailed Plaintiffs collection letters regarding

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their Bank of America debts. (Dkt. Nos. 1-1, 1-2.) These letters were the initial communication

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United States District Court
Northern District of California

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between Plaintiffs and Defendant, and they were the only communication sent to Plaintiffs for the

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next five days. The letters provide, in relevant part:

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If you notify this firm within thirty (30) days after your receipt of
this letter, that the debt, or any portion thereof, is disputed, we will
obtain verification of the debt or a copy of the judgment, if any, and
mail a copy of such verification or judgment to you. Upon your
written request within the same thirty-day period mentioned above,
we will provide you with the name and address of the original
creditor, if different from the current creditor.
Unless you dispute the validity of the debt or any portion thereof
within thirty (30) days after your receipt of this letter, we will
assume that the debt is valid.

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(Id.) Neither Plaintiff contacted Defendant, either orally or in writing, to lodge a dispute about the
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debt, request a validation, or otherwise seek more information about the debt within 30 days of
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receipt of the debt collection letter.
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B.

Procedural History

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Plaintiffs filed the instant class action complaint on March 23, 2015 under Section
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1692g(a)(4) of the FDCPA and Section 1788.17 Rosenthal Act, alleging that the statement
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misrepresented the rights of consumers by failing to inform Plaintiffs that their dispute of debt
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must be in writing. (Dkt. No. 1.) Defendant answered soon after, and the parties commenced
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limited discovery. At the case management conference on July 16, 2015, they agreed to stay
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discovery and class certification briefing until after resolution of a discrete, dispositive legal issue:
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whether the language in the letter is misleading insofar as it misrepresents Plaintiffs’ statutory

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rights to request a debt validation. In accordance with that discussion, the parties fully briefed

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Defendant’s motion for summary judgment (Dkt. Nos. 30-32), but prior to the hearing the parties

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submitted a joint notice of class action settlement. (Dkt. No. 34.) Plaintiffs filed the instant

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motion for preliminary approval of the parties’ agreement, and the Court held a hearing on the

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motion on January 7, 2016. Plaintiffs subsequently filed a supplemental submission addressing

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concerns the Court raised at the hearing. (Dkt. No. 49.) This submission included a revised

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Settlement Agreement, revised Class Notice, and a declaration of Matthew Kumar, counsel for,

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and president and sole shareholder of, Defendant.2 (Dkt. Nos. 49-1, 49-2.)
SETTLEMENT PROPOSAL

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At some point after the complaint was filed, the parties engaged in settlement discussions.

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Northern District of California

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The Court presumes these were informal settlement negotiations, as the parties’ chosen

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Alternative Dispute Resolution (“ADR”) process was not set to begin until later in the year. (See

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Dkt. No. 28.) After fully briefing Defendant’s summary judgment motion in September 2015, the

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parties apparently engaged in further informal settlement negotiations that led to the instant

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settlement agreement. At that point, this action had been pending for a total of six months. The

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parties had engaged in limited discovery before all discovery was stayed, and their deadline to

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complete Early Neutral Evaluation had been stayed as well. (Dkt. No. 26, 29.) There is no

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information before the Court about the scope of the parties’ negotiations or whether a neutral third

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party participated. The parties ultimately agreed to the Settlement Agreement before the Court.

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(Dkt. No. 44-1.) The key provisions are as follows.

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A.

Estimated Class Size
The parties define “Class Members” to include:

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All persons with a California address to whom Law Office of Rory
W. Clark, A Professional Law Corporation mailed an initial debt
collection communication that stated: “If you notify this firm within
thirty (30) days after your receipt of this letter, that the debt or any
portion thereof, is disputed, we will obtain verification of the debt or

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In this Order, the Court refers to the revised settlement agreement and revised class notice
submitted after the hearing as the Settlement Agreement and Class Notice, respectively.
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a copy of the judgment, if any, and mail a copy of such verification
or judgment to you,” between June 1, 2014 and June 1, 2015, in
connection with the collection of a consumer debt.

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(Dkt. No. 49-1 ¶ 1.C.) Excluded from the Class is any person already subject to an existing

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agreement about the debt collection communication, any person who is deceased, and any person

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who has filed for bankruptcy protection under Title 11 of the United States Code. (Id.) In the

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Settlement Agreement, Defendant represents that there are 1,361 Class Members, including

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Plaintiffs. (Id.)

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B.

Settlement Consideration
The Settlement Agreement provides for a Settlement Fund of $13,610, which amounts to

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$10 for each of the 1,361 Class Members. (Dkt. No. 49-1 ¶ 17.A.) However, “[s]hould the Parties

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Northern District of California

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discover that there are additional, or fewer, Class Members, the Settlement Fund will be adjusted

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accordingly such that the Settlement Fund consists of $10.00 per Class Member.” (Id.) In short,

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the Settlement Fund may be adjusted up or down so that each Class Member receives a $10.00

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award. (See id.)

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Separate from the Settlement Fund, the Settlement Agreement provides that Defendant will

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pay $1,000.00 to each named Plaintiff pursuant to 15 U.S.C. § 1692k(a)(2)(B)(i).3 Apart from this

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statutory award, neither Plaintiff seeks an incentive award for their service to the Class. Also

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separate from the Settlement Fund, the Settlement Agreement provides that Defendant will pay

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Class Counsel’s attorneys’ fees, costs, and expenses, as well as the costs of settlement

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administration. (Dkt. No. 49-1 ¶¶ 17.D, E.) With respect to attorneys’ fees and costs, the

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Settlement Agreement provides that Class Counsel will not seek more than $55,000, and that

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Defendant will not challenge any requested fees, costs, and expenses up to $40,000. (Id. ¶ 17.D.)

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As for settlement administration, the Settlement Agreement itself does not set a maximum amount

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for such costs, nor does the Notice include any estimate of administration costs. (Id. ¶ 17.E.)

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Section 1692k(a)(2)(B)(i) provides that “any debt collector who fails to comply with any
provision of this subchapter with respect to any person is liable to such person in an amount equal
to the sum of . . . in the case of a class action, (i) such amount for each named plaintiff as could be
recovered under subparagraph (A)[.]” Subparagraph (A), in turn, provides for liability for “such
additional damages as the court may allow, but not exceeding $1,000[.]”
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Lastly, the Settlement Agreement includes a non-monetary term of relief: Defendant will

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no longer use the language at issue in this case in its initial debt collection letters. (Id. ¶ 17.C.)

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Specifically, instead of stating that if recipients “notify this firm within thirty (30) days after your

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receipt of this letter, that the debt . . . is disputed” the firm will verify the debt and mail the

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verification to the recipient, the letter will notify recipients that they must notify Defendant in

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writing if they dispute all or a portion of the debt in order trigger Defendant’s obligation to verify

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the debt and mail the recipient any such verification. (Id.)

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C.

Claims & Exclusion Procedures
Class Members may request exclusion by mailing an electronic or written request for

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exclusion identifying their name, address, telephone number, and email address along with a

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Northern District of California

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statement that he or she wishes to be excluded. (Dkt. No. 49-1 ¶ 9-10.) Any Class Member who

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submits a valid and timely exclusion request will not be bound by the Settlement Agreement

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terms. (Id. ¶ 11.) Any Class Member who does not submit a written claim form within 60 days

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from the deadline for dissemination of Class Notice will be bound by the Settlement Agreement.

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(Id. ¶ 9.)
The Settlement Fund will then be distributed to the Class Members who do not opt out of

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the Class. Class Members need not submit a claim form; instead, Class Members who do nothing

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will become part of the Class, be bound by the Settlement Agreement, and receive their $10 share.
Class Members may object to the Settlement Agreement by filing a written objection

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within 90 days of the Court’s grant of Preliminary Approval. (Id. ¶ 12.) Within the same time

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period Class Members must provide a copy of any objection via mail or email to Class Counsel

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and defense counsel. (Id.) The written objection must include the name of the case and case

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number, the Class Member’s full name and contact information, the reason for the objection,

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whether the Class Member intends to appear at the final fairness hearing herself or through

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counsel (in which case contact information for counsel must be provided), and a list of any legal

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authority she intends to present at the hearing. (Id. ¶ 13.) Objectors are part of the Class.

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D.

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Release of Claims
Class Members agree to release all “Released Claims” against “Released Parties.” The
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scope of “Released Claims” is defined as follows:

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[A]ll claims under 15 U.S.C. § 1692g(a)(4), between June 1, 2014
and June 1, 2015, that arise out of the following language in the
initial debt collection letters sent by Law Office of Rory W. Clark,
A Professional Law Corporation[,] to Plaintiffs or Class Members
on behalf of Bank of America, N.A.: “If you notify this firm within
thirty (30) days after your receipt of this letter, that the debt or any
portion thereof, is disputed, we will obtain verification of the debt or
a copy of the judgment, if any, and mail a copy of such verification
or judgment to you.”

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(Dkt. No. 49-1 ¶ 1.D.) The Settlement Agreement defines “Released Parties” as Defendant and
“each of its past, present, and future directors, officers, employees, partners, principals, insurers,

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co-insurers, re-insurers, clients (of which includes Bank of America, N.A.), shareholders,
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attorneys, and any related or affiliated company, including any parent, subsidiary, predecessor, or

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successor company.” (Id. ¶ 1.E.)

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E.

Cy Pres Distribution

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The Settlement Agreement gives each Class Member 90 days from the date the Class
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Administrator mails settlement checks to cash the checks. (Dkt. No. 44-1 ¶ 17.A.) To the extent
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that any funds remain in the Settlement Fund after the void date—that is, uncashed checks sent to
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Class Members—the amount will be paid to Bay Area Legal Aid as a cy pres recipient. (Id.)
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F.

Deadlines

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Following Preliminary Approval, the Class Administrator, Kurtzman Carson Consultants,
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LLC, has 60 days to provide notice of the Settlement Agreement to the Class Members in the form
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of written notice. (Id. ¶ 7.) Class Counsel’s motion for attorneys’ fees is due no later than 30 days

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after the deadline for dissemination of Class Notice. (Id. ¶ 17.D.) Within 60 days of Notice being
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mailed, requests for exclusion and objections are due. (Id. ¶¶ 9, 12.) Within 10 days of Final
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Approval, Defendant, in consultation with the Class Administrator, will transfer the appropriate
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amount into the Settlement Fund. (Id. ¶ 17.A.) The Class Administrator has 15 days from the
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order granting Final Approval of the Settlement Agreement to mail checks to Class Members.
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(Id.) If Class Members do not cash their checks within 90 days after mailing, the check becomes
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void and the amount will be distributed to Bay Area Legal Aid as cy pres recipient.
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DISCUSSION

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A class action settlement must be fair, adequate, and reasonable. Fed. R. Civ. P. 23(e)(2).

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When, as here, parties reach an agreement before class certification, “courts must peruse the

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proposed compromise to ratify both the propriety of the certification and the fairness of the

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settlement.” Staton v. Boeing Co., 327 F.3d 938, 952 (9th Cir. 2003). If the Court temporarily

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certifies the class and finds the settlement appropriate after “a preliminary fairness evaluation,”

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then the class will be notified and a final “fairness” hearing scheduled to determine if the

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settlement is fair, adequate, and reasonable pursuant to Federal Rule of Civil Procedure 23.

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Villegas v. J.P. Morgan Chase & Co., No. CV 09-00261 SBA (EMC), 2012 WL 5878390, at *5
(N.D. Cal. Nov. 21, 2012).

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Northern District of California

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A.

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Conditional Certification of the Settlement Class
Congress has expressly recognized the propriety of a class action under the FDCPA by

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providing special damages provisions and criteria in 15 U.S.C. § 1692(k) and (b) for FDCPA class

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action cases. These sections provide in relevant part:

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(b) In determining the amount of liability in any action under
subsection (a), the court shall consider, among other relevant
factors: (2) in any class action under subsection (a)(2)(B), the
frequency and persistence of noncompliance by the debt collector,
the nature of such noncompliance, the resources of the debt
collector, the number of persons adversely affected, and the extent
to which the debt collector’s noncompliance was intentional.
A plaintiff seeking a remedy under 15 U.S.C. § 1692k must meet the requirements of Rule
23. Under that rule, class actions must meet the following requirements prior to certification:
1) the class is so numerous that joinder of all members is
impracticable; 2) there are questions of law or fact common to the
class; 3) the claims or defenses of the representative parties are
typical of the claims or defenses of the class; and 4) the
representative parties will fairly and adequately protect the interests
of the class.
Fed. R. Civ. P. 23(a).

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In addition to meeting the requirements of Rule 23(a), a potential class must also meet one
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of the conditions outlined in Rule 23(b)—of relevance here, the condition that “the court finds that

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the questions of law or fact common to class members predominate over any questions affecting
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only individual members, and that a class action is superior to other available methods for fairly

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and efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). In evaluating the proposed

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class, “pertinent” matters include:
(A) the class members’ interests in individually controlling the
prosecution or defense of separate actions;

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(B) the extent and nature of any litigation concerning the
controversy already begun or against the class members;

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(C) the desirability or undesirability of concentrating the litigation
of the claims in the particular forum; and

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(D) the likely difficulties in managing a class action.

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Fed. R. Civ. P. 23(b)(3). Prior to certifying the class, the Court must determine that Lead Plaintiff

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Northern District of California

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has satisfied his burden to demonstrate that the proposed class satisfies each element of Rule 23.

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1.

a.

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Rule 23(a)
Numerosity

“Under the first Rule 23(a)(1) factor, the class must be ‘so numerous that joinder of all

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members is impracticable.’” Dukes v. Wal-Mart Stores, Inc., 222 F.R.D. 137, 144 (N.D. Cal.

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2004) (citing Fed. R. Civ. P. 23(a)(1)); Staton, 327 F.3d at 953. Here, Defendant admits that it

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sent materially similar, if not identical, debt collection letters to approximately 1,361 California

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residents within the class period. “Joinder of 1,000 or more co-plaintiffs is clearly impractical.”

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Palmer v. Stassinos, 233 F.R.D. 546, 549 (N.D. Cal. 2006). The numerosity requirement is

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therefore met.

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b.

Commonality

Second, to certify a class there must be “questions of law or fact common to the class.”

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Fed. R. Civ. P. 23(a)(2). “[C]ommonality requires that the class members’ claims ‘depend on a

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common contention’ such that ‘determination of its truth or falsity will resolve an issue that is

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central to the validity of each [claim] in one stroke.’” Mazza v. Am. Honda Motor Co., 666 F.3d

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581, 588 (9th Cir. 2012). Commonality can be satisfied “by even a single common question.”

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Trahan v. U.S. Bank N.A., No. C 09-03111 JSW, 2015 WL 75139, at *5 (N.D. Cal. Jan. 6, 2015).

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“[A] debt collector’s liability under § 1692e of the FDCPA is an issue of law[.]” Gonzales
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v. Arrow Fin. Servs., LLC, 660 F.3d 1055, 1061 (9th Cir. 2011). Thus, commonality is generally

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found in FDCPA cases “where . . . the defendants have engaged in standardized conduct towards

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members of the proposed class by mailing to them allegedly illegal form letters.” Palmer, 233

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F.R.D. at 549; Tourgeman v. Collins Fin. Servs., Inc., 755 F.3d 1109, 1124-25 (9th Cir. 2015);

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see, e.g., Hunt v. Check Recovery Sys., Inc., 241 F.R.D. 505, 510 (N.D. Cal. 2007); Abels v. JBV

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Legal Grp., P.C., 227 F.R.D. 541, 544-45 (N.D. Cal. 2005). So it is here, where Plaintiffs allege

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that Defendant sent the same purportedly unlawful form debt collection letter to Plaintiffs and the

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other members of the class. The commonality requirement has been satisfied.

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c.

Typicality

Rule 23(a)(3) requires that “the [legal] claims or defenses of the representative parties [be]

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Northern District of California

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typical of the claims or defenses of the class.” “Typicality refers to the nature of the claim or

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defense of the class representative and not on facts surrounding the claim or defense.” Hunt, 241

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F.R.D. at 510 (citing Hanon v. Dataprods. Corp., 976 F.2d 497, 508 (9th Cir. 1992)). “The test of

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typicality is whether other members have the same or similar injury, whether the action is based

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on conduct which is not unique to the named plaintiffs, and whether other class members have

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been injured by the same course of conduct.” Evon v. Law Offices of Sidney Mickell, 688 F.3d

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1015, 1030 (9th Cir. 2012) (internal quotation marks and citation omitted).

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Here, Plaintiffs allege a pattern of wrongdoing based on Defendant having sent materially

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identical collection letters to the putative class. Plaintiffs’ claims and those of the rest of the Class

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Members are based on the same legal theory—that the text of the letters failed to include certain

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FDCPA disclosures—and seek the same recovery—statutory damages and an end to the allegedly

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unlawful letters. At oral argument, Defendant confirmed that there are no Class Members who

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received Defendant’s letter then disputed the debt orally only but did not receive validation of the

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debt. Thus, none of the Class Members has suffered any harm besides receipt of the unlawful

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letter. Accordingly, the harm to all Class Members is the same. Because the Class Members were

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sent the same letter as Plaintiffs, suffered the same harm, and seek the same recovery, the

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typicality requirement is met. See Gonzales v. Arrow Fin. Servs., LLC, 489 F. Supp. 2d 1140,

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1155 (S.D. Cal. 2007) (“[T]his Court is persuaded that typicality is sufficiently established if the
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class representative received the same collection letters as the class members.”); Abels, 227 F.R.D.

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at 545 (concluding that typicality was met where “[e]ach of the class members was sent the same

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collection letter as [plaintiff] and each was allegedly subjected to the same violations of the

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FDCPA”).

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d.

Adequacy of Representation

Adequacy requires that “the representative parties will fairly and adequately protect the
interests of the class.” Fed. R. Civ. P. 23(a)(4). To answer this question, the Court must ask: “(1)

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do the named plaintiffs and their counsel have any conflicts of interest with other class members

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and (2) will the named plaintiffs and their counsel prosecute the action vigorously on behalf of the

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class?” Evon, 688 F.3d at 1031 (quoting Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir.

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Northern District of California

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1988)); see also Brown v. Ticor Title Ins., 982 F.2d 386, 390 (9th Cir. 1992) (noting that adequacy

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of representation “depends on the qualifications of counsel for the representatives, an absence of

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antagonism, a sharing of interests between representatives and absentees, and the unlikelihood that

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the suit is collusive”); Fed. R. Civ. P. 23(g)(1)(B) (stating that “class counsel must fairly and

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adequately represent the interests of the class”).

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With respect to Plaintiffs’ adequacy, as Defendant confirmed at the hearing, both Plaintiffs

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were allegedly harmed in the same manner as the rest of the Class Members and seek the same

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relief, which supports their adequacy. There is nothing in the record that gives the Court pause as

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to whether Plaintiffs have any conflicts with the Class Members, nor anything that otherwise

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causes the Court to question Plaintiffs’ adequacy. The same is true of Plaintiffs’ counsel.

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Plaintiffs are represented by Aaron D. Radbil of Greenwald Davidson Radbil PLLC. The firm,

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and Mr. Rabdil in particular, have been appointed class counsel in class actions around the

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country, including FDCPA cases, and including courts within the Ninth Circuit. (Dkt. No. 44-1 ¶

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4 (collecting cases).) Thus, it appears that the named representatives are able to prosecute this

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action vigorously through qualified counsel.
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Plaintiffs have shown for the purposes of preliminary approval that they meet all of the
Rule 23(a) requirements.
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2.

Rule 23(b)

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Plaintiffs must also meet one of the provisions of Rule 23(b) to succeed on his motion for

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class certification of the federal claims. See Fed. R. Civ. P. 23(b); Berger v. Home Depot USA,

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Inc., 741 F.3d 1061, 1067 (9th Cir. 2014). Plaintiffs contend that they have met the requirements

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of Rule 23(b)(3), which requires establishing predominance of common questions of law or fact

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and the superiority of a class action relative to other available methods for the fair and efficient

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adjudication of the controversy.

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To meet the predominance requirement of Rule 23(b)(3), “the common questions must be
a significant aspect of the case that can be resolved for all members of the class in a single

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adjudication.” Berger, 741 F.3d at 1068 (internal quotation marks and alterations omitted).

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Northern District of California

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Notably, “the predominance inquiry presumes that there is commonality and entails a more

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rigorous analysis[.]’” Gold v. Midland Credit Mgmt., Inc., 306 F.R.D. 623, 633 (N.D. Cal. 2014)

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(quoting Hanlon, 150 F.3d at 1022). While Rule 23(a)(2) asks only whether there is a common

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issue, the predominance inquiry considers the common questions, “focuses on the relationship

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between the common and individual issues,” Hanlon, 150 F.3d at 1022, and requires the court to

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weigh the common issues against the individual issues. See Dukes, 131 S. Ct. at 2556.

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Predominance is found when common questions represent a significant portion of the case and can

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be resolved for all class members in a single adjudication. Hanlon, 150 F.3d at 1022.

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Here, the Court has already determined that the legality of the debt collection letters is a

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question of law that is common to the class. If the Court were to find that the text violated the

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FDCPA, that single adjudication would reach the claims of all Class Members. Other courts in

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this District have reached similar conclusions. See, e.g., Gold, 306 F.R.D. at 633-34 (“At bottom,

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the broad remedial purpose of the FDCPA compels this Court to conclude that the Rule 23(b)(3)

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requirement of predominance is satisfied where, as here, statutory damages are sought to deter

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debt collectors from engaging in prohibited behavior.”); Abels, 227 F.R.D. at 547 (“Here, the

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issues common to the class—namely, whether the Defendants’ systematic policy of sending

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collection letters, and whether those letters violate the FDCPA—are predominant.”). Defendant

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has not offered any argument that any individualized inquiry is necessary that might preclude a
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finding of predominance, and the Court sees none. Predominance is therefore satisfied.
The second prong—that a class action is the superior means to adjudicate the claims

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raised—is also easily met. If Plaintiffs and all Class Members each brought individual actions,

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they would each be required to prove the same wrongdoing to establish Defendant’s liability.

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Every separate action would involve the same evidence—the debt collection letter—and the same

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legal theory. Different courts could interpret the claims differently, resulting in inconsistent

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rulings or unfair results. The Settlement Agreement efficiently resolves the claims of all Class

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Members at once. Thus, classwide resolution is superior to other methods and will avoid the

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possibility of repetitious litigation.

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Northern District of California

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B.

Preliminary Approval of the Class Action Settlement
In determining whether a settlement agreement is fair, adequate, and reasonable to all

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concerned, a court typically considers the following factors: “(1) the strength of the plaintiff’s

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case; (2) the risk, expense, complexity, and likely duration of further litigation; (3) the risk of

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maintaining class action status throughout the trial; (4) the amount offered in settlement; (5) the

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extent of discovery completed and the stage of the proceedings; (6) the experience and views of

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counsel; (7) the presence of a governmental participant; and (8) the reaction of the class members

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to the proposed settlement.” In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 946 (9th

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Cir. 2011) (quoting Churchill Vill., L.L.C. v. Gen. Elec., 361 F.3d 566, 575 (9th Cir. 2004)).

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However, when “a settlement agreement is negotiated prior to formal class certification,

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consideration of these eight . . . factors alone is” insufficient. Id. In these cases, courts must show

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not only a comprehensive analysis of the above factors, but also that the settlement did not result

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from collusion among the parties. Id. at 947. Because collusion “may not always be evident on

23

the face of the settlement, . . . [courts] must be particularly vigilant not only for explicit collusion,

24

but also for more subtle signs that class counsel have allowed pursuit of their own self-interests

25

and that of certain class members to infect the negotiations.” Id. In Bluetooth, the court identified

26

three such signs:

27
28

(1) when class counsel receives a disproportionate distribution of the
settlement, or when the class receives no monetary distribution but
counsel is amply rewarded;
12

(2) when the parties negotiate a “clear sailing” arrangement
providing for the payment of attorney’s fees separate and apart from
class funds without objection by the defendant (which carries the
potential of enabling a defendant to pay class counsel excessive fees
and costs in exchange for counsel accepting an unfair settlement);
and

1
2
3
4

(3) when the parties arrange for fees not awarded to revert to
defendants rather than be added to the class fund.

5
6

Id. The Ninth Circuit noted that this list is not exclusive, but offered it as guidance to district

7

courts regarding types of provisions that require “greater scrutiny than ordinarily demanded” when

8

assessing the overall fairness of a settlement. Id. at 949.

9

The Court cannot fully assess all of these fairness factors until after the final approval
hearing; thus, “a full fairness analysis is unnecessary at this stage.” Alberto v. GMRI, Inc., 252

11
United States District Court
Northern District of California

10

F.R.D. 652, 665 (E.D. Cal. 2008) (internal quotation marks and citation omitted). Instead, “the

12

settlement need only be potentially fair, as the Court will make a final determination of its

13

adequacy at the hearing on Final Approval, after such time as any party has had a chance to object

14

and/or opt out.” Acosta v. Trans Union, LLC, 243 F.R.D. 377, 386 (C.D. Cal. 2007). At this

15

juncture, “[p]reliminary approval of a settlement and notice to the class is appropriate if [1] the

16

proposed settlement appears to be the product of serious, informed, noncollusive negotiations, [2]

17

has no obvious deficiencies, [3] does not improperly grant preferential treatment to class

18

representatives or segments of the class, and [4] falls within the range of possible approval.” Cruz

19

v. Sky Chefs, Inc., No. 12-02705, 2014 WL 2089938, at *7 (N.D. Cal. May 19, 2014) (quoting In

20

re Tableware Antitrust Litig., 484 F. Supp. 2d 1078, 1079 (N.D. Cal. 2007)). Ultimately, “[t]he

21

initial decision to approve or reject a settlement proposal is committed to the sound discretion of

22

the trial judge.” Officers for Justice v. Civil Serv. Comm’n, 688 F.2d 615, 625-26 (9th Cir. 1982).

23
24
25

1.

The Fairness Factors
a.

Means at Which Parties Arrived at Settlement

The first factor concerns “the means by which the parties arrived at settlement.” Harris v.

26

Vector Mktg. Corp., No. 08-5198, 2011 WL 1627973, at *8 (N.D. Cal. Apr. 29, 2011). For the

27

parties “to have brokered a fair settlement, they must have been armed with sufficient information

28

about the case to have been able to reasonably assess its strengths and value.” Acosta, 243 F.R.D.
13

1

at 396. Particularly with pre-certification settlements, enough information must exist for the court

2

to assess “the strengths and weaknesses of the parties’ claims and defenses, determine the

3

appropriate membership of the class, and consider how class members will benefit from

4

settlement” to determine if it is fair and adequate. Id. at 397 (internal quotation marks omitted).

5

The use of a mediator and the presence of discovery “support the conclusion that the

6

Plaintiff was appropriately informed in negotiating a settlement.” Villegas, 2012 WL 5878390, at

7

*6; Harris, 2011 WL 1627973, at *8 (noting that the parties’ use of a mediator “further suggests

8

that the parties reached the settlement in a procedurally sound manner and that it was not the result

9

of collusion or bad faith by the parties or counsel”). However, the use of a neutral mediator “is
not on its own dispositive of whether the end product is a fair, adequate, and reasonable settlement

11
United States District Court
Northern District of California

10

agreement.” Bluetooth, 654 F.3d at 948. And indeed, courts in this District have approved

12

settlement agreements reached through information negotiations. See, e.g., Perez v. Tilton, No. C

13

05-05241 JSW, 2008 WL 686723, at *1 (N.D. Cal. Mar. 10, 2008) (noting that the court granted

14

the parties’ motion for preliminary approval of settlement reached through information

15

negotiations).

16

Here, prior to reaching the Settlement Agreement, the parties engaged in only limited,

17

informal discovery before all discovery was stayed so that the parties could brief a dispositive

18

legal issue on summary judgment. The parties have not made any representations about what

19

exactly was exchanged, which ordinarily would help the Court determine whether the Settlement

20

Agreement was the result of arm’s length negotiations. But discovery beyond the number of letter

21

recipients, which the parties appear to have exchanged, may be of limited importance in a case like

22

this that turns on the legal issue of identical form letters.

23

Nor have the parties described the scope of their settlement negotiations. The Court has no

24

information about how long the parties spent negotiating, whether any statements were exchanged

25

before the parties began negotiating, and whether the parties used a neutral third party in

26

connection with their negotiations. Given the absence of this type of information, it appears that

27

the parties merely engaged in informal settlement discussions on their own without the use of a

28

mediator. Still, Courts have approved settlements reached through informal settlement
14

1
2

negotiations. See, e.g., Perez, 2008 WL 686723, at *1.
On the other hand, the parties had fully briefed Defendant’s motion for summary judgment

3

on that dispositive legal issue, which was whether the language of Defendant’s initial collection

4

letters violated the FDCPA, but settled before the Court held oral argument or ruled on the motion.

5

In that briefing, Defendant contended that the letters accurately informed Plaintiffs and other

6

putative class members of their FDCPA rights and, if anything, provided Plaintiffs with more

7

expansive rights than the FDCPA requires. Plaintiffs, for their part, urged that the language of the

8

letters flatly violated the FDCPA. Through this briefing, the parties gained a fulsome

9

understanding of their respective positions on the primary legal issue in this case before reaching
the Settlement Agreement, which suggests that it was the product of arm’s length negotiation.

11
United States District Court
Northern District of California

10

Further, both parties were represented by experienced counsel during the course of settlement

12

negotiations, which supports the fairness of the settlement. See Hanlon, 150 F.3d at 1026.

13

On balance, while the parties only engaged in limited discovery and appeared to reach the

14

Settlement Agreement only through informal negotiations, given their familiarity with each

15

other’s positions and representation by experienced counsel, the Settlement Agreement appears to

16

be the product of serious, informed, non-collusive negotiation, which weighs in favor of

17

preliminary approval.

18
19
20
21

b.

Obvious Deficiencies

The Court next considers “whether there are obvious deficiencies in the Settlement
Agreement.” Harris, 2011 WL 1627973, at *8.
The first Bluetooth red flag is whether class counsel receives a disproportionate

22

distribution of the settlement, or the class receives no monetary distribution but counsel is amply

23

rewarded. 654 F.3d at 947. So it is here. The Settlement Agreement provides for a Settlement

24

Fund of $13,610. (Dkt. No. 49-1 ¶ 17.A.) In contrast, Class Counsel will seek between $40,000

25

and $55,000. (Id. ¶ 17.D.) This amount is between three and over four times as large as the

26

recovery that all 1,361 Class Members stand to receive, which, taken alone, may be a sign of

27

collusion. On the other hand, the attorneys’ fees and Class Members’ recovery are not coming

28

from a common fund. And the amount Class Members stand to recover—$10.00 each—is
15

1

reasonable compared to the attorneys’ fees sought given that it is a greater recovery than the

2

FDCPA itself would allow. See infra, Subsection d., Range of Possible Approval (explaining that

3

the total Settlement Fund exceeds one percent of Defendant’s net worth, the cap that the FDCPA

4

imposes). Thus, this Bluetooth warning sign, though initially a red flag, is not a sign of collusion.

5

The second sign of collusion is whether the parties’ agreement contains a “clear sailing”
agreement, which “is one where the party paying the fee agrees not to contest the amount to be

7

awarded by the fee-setting court so long as the award falls beneath a negotiated ceiling.” In re

8

Toys R Us-Del., Inc.—Fair & Accurate Credit Transactions Act (FACTA) Litig., 295 F.R.D. 438,

9

458 (C.D. Cal. Jan. 17, 2014) (quotation marks and citation omitted). A version of a clear sailing

10

agreement is present here: the Settlement Agreement provides that Defendant “will not challenge

11
United States District Court
Northern District of California

6

any requested fees, costs, and expenses that do not exceed $40,000, and Class Counsel will not

12

seek more than $55,000 for attorneys’ fees, costs, and expenses.” (Dkt. No. 49-1 ¶ 17.D.) But

13

Defendant will pay the attorneys’ fees, costs, and expenses “separate and apart from the

14

Settlement Fund, costs of Settlement Administration, and the payments to Plaintiffs.” (Id.) Courts

15

consistently have found that clear sailing provisions do not signal collusion where the attorneys’

16

fees award does not involve a common fund apportioned between relief for the class and

17

attorneys’ fees. See, e.g., Roberts v. Electrolux Home Prods., Inc., No. SACV12-1644-

18

CAS(VBKx), 2014 WL 4568632, at *14 (C.D. Cal. Sept. 11, 2014) (“[T]he Court notes that this

19

Settlement does not involve a common fund apportioned between relief and fees—and the

20

attorneys’ fee award will not reduce any benefits received by the Class. Thus, any objection

21

regarding a so-called ‘clear-sailing’ provision is also overruled.”) (citations omitted); Eisen v.

22

Porsche Cars N. Am., Inc., No. 2:11-cv-09405-CAS-FFMx, 2014 WL 4390006, at *10 (C.D. Cal.

23

Jan. 30, 2014) (“The Settlement Agreement merely provides that [defendant] will not object to a

24

fee petition by plaintiffs’ counsel so long as the requested fees and costs do not exceed $950,000.

25

This type of provision is appropriate when, as here, it does not impact the substantive benefits

26

offered to the class.”); Calloway v. Cash Am. Net of Cal. LLC, No. 09-CV-04858 RS, 2011 WL

27

1467356, at *2 (N.D. Cal. Apr. 12, 2011) (noting that where no common fund exists, no

28

adversarial relationship exists between class counsel and the class concerning fees). So it is here.
16

1

Thus, the clear sailing provision, though a Bluetooth warning sign, does not signal collusion under

2

the circumstances presented here.

3

The third warning sign—whether the parties have arranged for fees not awarded to the

4

class to revert to defendants rather than be added to the Settlement Fund, see Bluetooth, 654 F.3d

5

at 948—is not present here, where the non-reversionary Settlement Agreement provides that any

6

remaining funds be distributed to Bay Area Legal Aid. See infra, Subsection e, Cy Pres

7

Distribution.

8
9

Despite the existence of two of the three Bluetooth factors, the Settlement Agreement does
not appear to be the result of, nor influenced by, collusion. At least for the purposes of
preliminary approval, the Settlement Agreement appears to satisfy the Class Members’ claims.

11
United States District Court
Northern District of California

10

Class Members, most of whom are otherwise unaware of their FDCPA claim, stand to receive $10

12

for having received Defendant’s debt collection letter. Moreover, the injunctive relief provided

13

for in the Settlement Agreement ensures that no more consumers will receive Defendant’s letter in

14

the future. Thus, the three Bluetooth factors for the Court to consider at this stage of the approval

15

process do not represent a sign of collusion.

16

In short, though two of the three Bluetooth red flags are present, they do not appear to be

17

signs of collusion under the circumstances presented here. Provided that counsel can address the

18

other matters discussed in this section by amending the Settlement Agreement, the Court should

19

grant preliminary approval.

20

c.

Lack of Preferential Treatment

21

Under this factor, “the Court examines whether the Settlement [Agreement] provides

22

preferential treatment to any class member.” Villegas, 2012 WL 5878390, at *7. Here, each

23

proposed class member stands to receive $10 based on their receipt of Defendant’s debt collection

24

letter. Plaintiffs also stand to receive payments of $1,000 each pursuant 15 U.S.C.

25

§ 1692k(a)(2)(B)(i), which provides for an additional recovery for each named plaintiff of up to

26

$1,000 per plaintiff. Besides their additional statutory payments, the Settlement Agreement does

27

not provide that either named Plaintiff will receive an incentive award or any additional payment

28

in exchange for their release of claims against Defendant. While the $1,000 additional statutory
17

1

payment to each named Plaintiff might have otherwise reduced the per-Class-Member recovery,

2

the inclusion of additional fees for named Plaintiffs in the FDCPA suggests that such awards are

3

proper, and the absence of an incentive award supports this conclusion. Accordingly, the Court is

4

satisfied that there is no preferential treatment for the named Plaintiffs that rises to the level of

5

jeopardizing the fairness and reasonableness of the Settlement Agreement.
d.

6

Range of Possible Approval

To determine whether a settlement “falls within the range of possible approval,” courts

7

focus on “substantive fairness and adequacy” and “consider plaintiffs’ expected recovery balanced

9

against the value of the settlement offer.” Tableware, 484 F. Supp. 2d at 1080. Here, each Class

10

Member will receive $10 in damages for the FDCPA violation. The FDCPA limits the recovery

11
United States District Court
Northern District of California

8

for Class Members to the lesser of $500,000 or one percent of the defendant’s net worth. 15

12

U.S.C. § 1692k(a)(2)(B)(ii). “Net worth” for the purposes of the FDCPA means balance sheet net

13

worth, not fair market net worth including goodwill. Sanders v. Jackson, 209 F.3d 998, 1000 (7th

14

Cir. 2000) (cited with approval by Gonzales, 660 F.3d at 1068). Defendant has submitted the

15

declaration of Matthew Kumar, its president and sole shareholder, who avers that the proposed

16

Settlement Fund exceeds one percent of Defendant’s net worth. (Dkt. No. 49-2 ¶ 2.) Thus, the

17

Settlement Fund represents more monetary relief to each Class Member than the FDPCA itself

18

would allow, which suggests that the Settlement Agreement is fair and reasonable.4
In addition to the per-Class Member recovery apparently exceeding the statutory

19
20

maximum, Plaintiffs contend that the $10 that each Class Member stands to recover compares

21

favorably with other FDCPA cases, citing FDCPA class actions from around the country where

22

the per-class member recovery ranged between $1.24 and $15. (See Dkt. No. 44 at 20-21

23

(citations omitted); Dkt. No. 47 ¶¶ 2-4.) None of the cases Plaintiffs cite were from the Ninth

24
4

25
26
27
28

The Settlement Agreement provides that the Settlement Fund may be reduced if the total number
of Class Members is less than the 1,361 currently anticipated as each Class Member stands to
receive exactly $10.00. (See Dkt. No. 49-1 ¶ 17.A.) If there are fewer Class Members and the
Settlement Fund is reduced, Defendant will need to submit another declaration informing the
Court whether the adjusted total Settlement Fund still exceeds one percent of Defendant’s net
worth. However, as the Court is satisfied that the Settlement Fund does so given the Class
Members now anticipated, the Settlement Fund appears to be fair and reasonable for the purposes
of Preliminary Approval.
18

1

Circuit, and the amount compares less favorably with recoveries here. See, e.g., Durham v.

2

Continental Cent. Credit, Inc., No. 07cv1763 BTM (WMc), 2011 WL 2173769, at *2 (S.D. Cal.

3

June 2, 2011) (approving a $17,750 settlement fund for 97 class members, totaling $186 per class

4

member); Holman v. Experian Fabiani v. Oreck Corp., No. C 05-2140 JSW, 2006 WL 1390458,

5

at *1-2 (N.D. Cal. May 19, 2006) & Dkt. No. 51 (approving a $45,000 settlement fund for 195

6

class members, totaling $230 per class member). However, because the statutory limit on

7

recovery varies by the defendant’s net worth, the higher recovery in other actions does not mean

8

the recovery is inadequate here, where Plaintiffs’ potential recovery is limited by Defendant’s

9

more modest net worth.
In short, because Defendant’s net worth limits the scope of the Class Members’ possible

10

United States District Court
Northern District of California

11

recovery, and the Settlement Fund provides for recovery exceeding that limit, the value of the

12

settlement offer exceeds the value of potential recovery in proceeding with litigation. This is

13

particular true given that proceeding with litigation comes with its own costs, including the costs

14

of briefing a motion for class certification, motions for summary judgment, and potentially trial.
e.

15

Cy Pres Distribution

16

A cy pres award must qualify as “the next best distribution” to giving the funds directly to

17

class members. Dennis v. Kellogg Co., 697 F.3d 858, 865 (9th Cir. 2012). As a result, “[n]ot just

18

any worthy recipient can qualify as an appropriate cy pres beneficiary.” Id. The Ninth Circuit

19

“require[s] that there be a driving nexus between the plaintiff class and the cy pres beneficiaries.”

20

Id. (citation omitted). A cy pres award must be “guided by (1) the objectives of the underlying

21

statute(s) and (2) the interests of the silent class members, and must not benefit a group too remote

22

from the plaintiff class[.]” Id. (internal quotation marks and citations omitted).
Here, the cy pres distribution, which consists of the amount of any uncashed settlement

23
24

checks issued to Class Members, is to Bay Area Legal Aid. (Dkt. No. 49-1 ¶ 17.A.) This

25

organization provides services to low-income Bay Area residents, including among other things,

26

consumer law and debtor’s rights assistance.5 Accordingly, the Court is satisfied that the chosen

27
5

28

See Bay Area Legal Aid, What We Do, https://www.baylegal.org/what-we-do/ (last visited Jan.
19, 2016).
19

1

cy pres recipient has a close enough nexus to the plaintiff class here.
* * *

2

In consideration of these factors, the Court concludes that the proposed Settlement

3
4

Agreement is fair, adequate, and reasonable and in the best interest of the Class Members given

5

the uncertainty of continued litigation.

6

C.

7

Proposed Class Notice
Affected natural persons are entitled to due process, so they must be given notice of the

8

proposed settlement and their rights, including the right to exclude themselves and the opportunity

9

to be heard. Phillips v. Petroleum Co. v. Shutts, 472 U.S. 797, 811-12 (1985). For any class
certified under Rule 23(b)(3), class members must be afforded the best notice practicable under

11
United States District Court
Northern District of California

10

the circumstances, which includes individual notice to all members who can be identified through

12

reasonable effort. The notice must clearly and concisely state in plain, easily understood

13

language:

14

(i) the nature of the action;

15

(ii) the definition of the class certified;

16

(iii) the class claims, issues, or defenses;

17

(iv) that a class member may enter an appearance through an
attorney if the member so desires;

18
19
20
21

(v) that the court will exclude from the class any member who
requests exclusion;
(vi) the time and manner for requesting exclusion; and(vii) the
binding effect of a class judgment on members under Rule 23(c)(3).
Fed. R. Civ. P. 23(c)(2)(B). “Notice is satisfactory if it generally describes the terms of the

22
settlement in sufficient detail to alert those with adverse viewpoints to investigate and to come
23

forward and be heard.” Churchill Vill., 361 F.3d at 575 (internal quotations omitted).

24
Here, Plaintiff submitted a 6-page Notice, which adequately informs each Class Member
25
that he or she stands to receive $10 by participating in the Class, and participation will be deemed
26
unless the Class Member opts out. The Notice indicates that all relevant pleadings in the case will
27

be available online at Class Counsel’s website. (Dkt. No. 44-1 at 31.) The Settlement Agreement

28
20

1

provides that Defendant is to provide a list of Class Members to the Claims Administrator, which

2

will disseminate notice via U.S. mail within 60 days of Preliminary Approval. See Chao v.

3

Aurora Loan Servs., LLC, No. C 10-3118 SBA, 2014 WL 4421308, at *6 (N.D. Cal. Sept. 5,

4

2014) (noting that service by mail has been found to be “clearly adequate”) (citation omitted).

5

Similarly, the Notice explains that Class Members need not take any action to receive a monetary

6

recovery (and, relatedly, to waive their related claims against Defendant), a procedure which is

7

often approved. See, e.g., id. Nevertheless, this memo identifies three minor deficiencies in the

8

Notice.
The Notice Plan itself is likewise adequate. See supra Settlement Proposal, Section F.

10

Plaintiffs’ motion for final approval and motion for attorneys’ fees are due 30 days before the

11
United States District Court
Northern District of California

9

deadline to object to the Settlement Agreement. (See Dkt. No. 49-1 ¶¶ 12, 17.D.) Thus, Class

12

Members have sufficient time to object to the fee motion in advance of the Final Approval

13

hearing. See In re Mercury Interactive Corp. Sec. Litig., 618 F.3d 988, 993 (9th Cir. 2010)

14

(requiring the “court to set the deadline for objections to counsel’s fee request on a date after the

15

motion and documents supporting it have been filed”).

16

In addition, Class Counsel will keep “relevant pleadings” on its website for Class Members

17

to review. (Dkt. No. 49-1 at 32.) The Notice does not specify what documents will be made

18

available online. At a minimum, however, Class Counsel should ensure that the website has a

19

complete copy of the Settlement Agreement, the Notice, the Motion for Preliminary Approval, the

20

Court’s eventual Order granting Preliminary Approval, Class Counsel’s Motion for Attorneys’

21

Fees and Costs, and the Motion for Final Approval of the Class Action Settlement.

22

CONCLUSION

23

The Court preliminarily finds that the proposed Settlement Class meets the requisite

24

certification standards and GRANTS conditional certification of the Class for settlement purposes.

25

The proffered Settlement Agreement, as amended by the parties’ revised Settlement Agreement

26

and Class Notice filed January 19, 2016 (Dkt. No. 49-1), meets the requisite requirements for fair,

27

adequate, and reasonable settlement at this juncture of the settlement process.

28

The Court finds further oral argument unnecessary, see N.D. Cal. Civ. L.R. 7-1(b), and
21

1

VACATES the hearing previously set for January 21, 2016.
For the reasons stated above, the Court therefore GRANTS the motion for preliminary

2
3

approval of the class action settlement as follows:
1.

4
5

is, by February 18, 2016.
2.

6
7

10

Plaintiffs’ counsel shall file a motion for final approval and motion for approval of

attorneys’ fees and costs by March 21, 2016.
3.

Class Members shall submit their exclusion requests or objections by April 18,

4.

8
9

Notice shall be provided in accordance with the Notice Plan and this Order—that

Counsel shall return before this Court for a final fairness hearing, at which the

2016.

United States District Court
Northern District of California

11

Court shall finally determine whether the settlement is fair, reasonable, and adequate, on April 28,

12

2016 at 9:00 a.m. in Courtroom F, 450 Golden Gate Ave., San Francisco, California.

13
14

IT IS SO ORDERED.
Dated: January 20, 2016

15
16
JACQUELINE SCOTT CORLEY
United States Magistrate Judge

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