B & R Supermarket, Inc., et al v. Visa, Inc. et al

Filing 15

NOTICE REGARDING FACTORS TO BE EVALUATED FOR ANY PROPOSED CLASS SETTLEMENT. Signed by Judge Alsup on 3/14/2016. (whalc2, COURT STAFF) (Filed on 3/14/2016)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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B & R SUPERMARKET, ET AL.,
No. C 16-01150 WHA

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For the Northern District of California

United States District Court

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Plaintiffs,
v.

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Defendants.
/

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NOTICE REGARDING
FACTORS TO BE EVALUATED
FOR ANY PROPOSED
CLASS SETTLEMENT

VISA INC., ET AL.,

For the guidance of counsel, please review the Procedural Guidance for Class Action

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Settlements, which is available on the website for the United States District Court for the

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Northern District of California at www.cand.uscourts.gov/ClassActionSettlementGuidance.

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In addition, counsel should review the following substantive and timing factors that the

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undersigned judge will consider in determining whether to grant preliminary and/or final

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approval to a proposed class settlement. Many of these factors have already been set forth in In

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re Bluetooth Headset Products Liability Litigation, 654 F.3d 935, 946–47 (9th Cir. 2011), but

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the following discussion further illustrates the undersigned judge’s consideration of such factors:

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1.

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Anyone seeking to represent a class, including a settlement class, must affirmatively meet

ADEQUACY OF REPRESENTATION.

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the Rule 23 standards, including adequacy. It will not be enough for a defendant to stipulate to

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adequacy of the class representation (because a defendant cannot speak for absent class

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members). An affirmative showing of adequacy must be made in a sworn record. Any possible
shortcomings in a plaintiff’s resume, such as a conflict of interest, a criminal conviction, a prior

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history of litigiousness, and/or a prior history with counsel, must be disclosed. Adequacy of

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counsel is not a substitute for adequacy of the representative.

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To elaborate, when a settlement proposal is made prior to formal class certification, there

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is a risk that class claims have been discounted, at least in part, by the risk that class certification

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might be denied. Absent class members, of course, should be subject to normal discounts for

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risks of litigation on the merits but they should not be subject to a further discount for a risk of

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denial of class certification, such as, for example, a denial based on problems with a proposed

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class representative, including a conflict of interest or a prior criminal conviction. This is a main

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reason the Court prefers to litigate and vet a class certification motion before any settlement
discussions take place. That way, the class certification is a done deal and cannot compromise

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For the Northern District of California

United States District Court

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class claims. Only the risks of litigation on the merits can do so.

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2.

DUE DILIGENCE.

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Please remember that when one undertakes to act as a fiduciary on behalf of others (here,

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the absent class members), one must perform adequate due diligence before acting. This

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requires the representative and his or her counsel to investigate the strengths and weaknesses of

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the case, including the best-case dollar amount of claim relief. A quick deal up front may not be

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fair to absent class members.

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3.

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

COST-BENEFIT FOR ABSENT CLASS MEMBERS.

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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. The greater the discount, the greater must be the justification.

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This will require an analysis of the specific proof, such as a synopsis of any conflicting evidence

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on key fact points. It will also require a final class-wide damage study or a very good substitute,

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in sworn form. If little discovery has been done to see how strong the claim is, it will be hard to

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justify a substantial discount on the mere generalized theory of “risks of litigation.” A coupon

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settlement will rarely be approved. Where there are various subgroups within the class, counsel

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must justify the plan of allocation of the settlement fund.
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4.

THE RELEASE.

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

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releasing claims that “could have been brought” is too vague and overbroad. The specific

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statutory or common law claims to be released should be spelled out. Class counsel must justify

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the release as to each claim released, the probability of winning, and its estimated value if fully

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successful.

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Does the settlement contemplate that claims of absent class members will be released

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even for those whose class notice is returned as undeliverable? Usually, the Court will not

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extinguish claims of individuals known to have received no notice or who received no benefit
(and/or for whom there is no way to send them a settlement check). Put differently, usually the

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For the Northern District of California

United States District Court

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release must 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 even 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 to include the new claims, not to mention due diligence as

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

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new scope. Personal and subject-matter jurisdiction over the new individuals to be compromised

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by the class judgment must be shown.
REVERSION.

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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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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 (or may not) impose too much of a burden on class members,

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especially if the claim procedure is onerous, or the period for submitting is too short, or there is a

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likelihood of class members treating the notice envelope as junk mail. The best approach, when

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feasible, is to calculate settlement checks from a defendant’s records (plus due diligence

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performed by counsel) and to send the checks to the class members along with a notice that

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cashing the checks will be deemed acceptance of the release and all other terms of the

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settlement.
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For the Northern District of California

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ATTORNEY’S FEES.

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

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

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as in 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.

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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

DWINDLING OR MINIMAL ASSETS?

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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.
TIMING OF PROPOSED SETTLEMENT.

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10.

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

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

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

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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 more due diligence. The poorer the settlement, however, the more

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justification will be needed and that usually translates to more discovery and more due diligence;
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otherwise, it is best to let absent class members keep their own claims and fend for themselves

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rather than foist a poor settlement on them. Particularly when counsel propose to compromise

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the potential claims of absent class members in a low-percentage recovery, the Court will insist

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on a detailed explanation of why the case has turned so weak, an explanation that usually must

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

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

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extinguish the rights of absent class members. 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. “[S]ettlement approval that takes place prior to formal class certification requires a

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higher standard of fairness.” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998).
A RIGHT TO OPT OUT IS NOT A CURE-ALL.

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For the Northern District of California

United States District Court

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

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out if they wish. The Court has (and counsel have) an independent, stand-alone duty to assess

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whether the proposed settlement is reasonable and adequate. Once the named parties reach a

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settlement in a purported class action, they are always solidly in favor of their own proposal.

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There is no advocate to critique the proposal on behalf of absent class members. That is one

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reason that Rule 23(e) insists that the district court vet all class settlements.

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12.

INCENTIVE PAYMENT.

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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.
NOTICE TO CLASS MEMBERS.

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13.

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

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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 mail notice be supplemented by e-mail notice?

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Counsel will please see from the foregoing that the main focus will be on what is in the

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best interest of absent class members. Counsel should be mindful of the factors identified in In

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re Bluetooth, 654 F.3d at 946–47, as well as the fairness considerations detailed in Hanlon,

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150 F.3d at 1026. See also Howard Erichson, Beware The Settlement Class Action, DAILY

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JOURNAL, Nov. 24, 2014. Finally, for an order denying proposed preliminary approval based on

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many of the foregoing considerations, see Kakani v. Oracle Corp., No. C 06-06493 WHA, 2007
WL 1793774 (N.D. Cal. June 19, 2007).

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For the Northern District of California

United States District Court

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Dated: March 14, 2016.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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