Lewis et al v. Silvertree Mohave Homeowners' Association, Inc., et al

Filing 24

NOTICE REGARDING FACTORS TO BE EVALUATED FOR ANY PROPOSED CLASS SETTLEMENT. Signed by Judge Alsup on 8/3/2016. (whalc2, COURT STAFF) (Filed on 8/3/2016)

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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 11 For the Northern District of California United States District Court 10 12 13 14 DOMENICA LEWIS; JERROLD LEWIS; DOMENICA LEWIS as guardian ad-litem for their minor children S. L. and E. L., on behalf of themselves and all others similarly situated; and PROJECT SENTINEL, a California non-profit corporation, on behalf of itself and the general public, 17 18 19 20 21 22 23 24 NOTICE REGARDING FACTORS TO BE EVALUATED FOR ANY PROPOSED CLASS SETTLEMENT Plaintiff, 15 16 No. C 16-03581 WHA v. SILVERTREE MOHAVE HOMEOWNERS’ ASSOCIATION, INC., CAROL LEE ADAMS a/k/a LEE ADAMS, MARILYN BLACK, ANAND BHASKARAN, and TAMELA DURANT, individually and as members of the Board of Directors of Silvertree Mohave Homeowner’s Association, Inc.; and DONALD W. MURPHY individually and d/b/a MANAGEMENT SOLUTIONS, Defendant. / For the guidance of counsel, please review the Procedural Guidance for Class Action 25 Settlements, which is available on the website for the United States District Court for the 26 Northern District of California at www.cand.uscourts.gov/ClassActionSettlementGuidance. 27 28 In addition, counsel should review the following substantive and timing factors that the undersigned judge will consider in determining whether to grant preliminary and/or final approval to a proposed class settlement. Many of these factors have already been set forth in In 1 re Bluetooth Headset Products Liability Litigation, 654 F.3d 935, 946–47 (9th Cir. 2011), but 2 the following discussion further illustrates the undersigned judge’s consideration of such factors: ADEQUACY OF REPRESENTATION. 3 1. 4 Anyone seeking to represent a class, including a settlement class, must affirmatively meet 5 the Rule 23 standards, including adequacy. It will not be enough for a defendant to stipulate to 6 adequacy of the class representation (because a defendant cannot speak for absent class 7 members). An affirmative showing of adequacy must be made in a sworn record. Any possible 8 shortcomings in a plaintiff’s resume, such as a conflict of interest, a criminal conviction, a prior 9 history of litigiousness, and/or a prior history with counsel, must be disclosed. Adequacy of counsel is not a substitute for adequacy of the representative. 11 For the Northern District of California United States District Court 10 To elaborate, when a settlement proposal is made prior to formal class certification, there 12 is a risk that class claims have been discounted, at least in part, by the risk that class certification 13 might be denied. Absent class members, of course, should be subject to normal discounts for 14 risks of litigation on the merits but they should not be subject to a further discount for a risk of 15 denial of class certification, such as, for example, a denial based on problems with a proposed 16 class representative, including a conflict of interest or a prior criminal conviction. This is a main 17 reason the Court prefers to litigate and vet a class certification motion before any settlement 18 discussions take place. That way, the class certification is a done deal and cannot compromise 19 class claims. Only the risks of litigation on the merits can do so. 20 2. DUE DILIGENCE. 21 Please remember that when one undertakes to act as a fiduciary on behalf of others (here, 22 the absent class members), one must perform adequate due diligence before acting. This 23 requires the representative and his or her counsel to investigate the strengths and weaknesses of 24 the case, including the best-case dollar amount of claim relief. A quick deal up front may not be 25 fair to absent class members. 26 3. 27 In the proposed settlement, what will absent class members give up versus what will they 28 COST-BENEFIT FOR ABSENT CLASS MEMBERS. receive in exchange, i.e., a cost-benefit analysis? If the recovery will be a full recovery, then 2 1 much less will be required to justify the settlement than for a partial recovery, in which case the 2 discount will have to be justified. The greater the discount, the greater must be the justification. 3 This will require an analysis of the specific proof, such as a synopsis of any conflicting evidence 4 on key fact points. It will also require a final class-wide damage study or a very good substitute, 5 in sworn form. If little discovery has been done to see how strong the claim is, it will be hard to 6 justify a substantial discount on the mere generalized theory of “risks of litigation.” A coupon 7 settlement will rarely be approved. Where there are various subgroups within the class, counsel 8 must justify the plan of allocation of the settlement fund. 9 THE RELEASE. The release should be limited only to the claims certified for class treatment. Language 11 For the Northern District of California United States District Court 10 4. releasing claims that “could have been brought” is too vague and overbroad. The specific 12 statutory or common law claims to be released should be spelled out. Class counsel must justify 13 the release as to each claim released, the probability of winning, and its estimated value if fully 14 successful. 15 Does the settlement contemplate that claims of absent class members will be released 16 even for those whose class notice is returned as undeliverable? Usually, the Court will not 17 extinguish claims of individuals known to have received no notice or who received no benefit 18 (and/or for whom there is no way to send them a settlement check). Put differently, usually the 19 release must extend only to those who receive money for the release. EXPANSION OF THE CLASS. 20 5. 21 Typically, defendants vigorously oppose class certification and/or argue for a narrow 22 class. In settling, however, defendants often seek to expand the class, either geographically 23 (i.e., nationwide) or claim-wise (including claims not even in the complaint) or person-wise 24 (e.g., multiple new categories). Such expansions will be viewed with suspicion. If an expansion 25 is to occur it must come with an adequate plaintiff and one with standing to represent the add-on 26 scope and with an amended complaint to include the new claims, not to mention due diligence as 27 to the expanded scope. The settlement dollars must be sufficient to cover the old scope plus the 28 3 1 new scope. Personal and subject-matter jurisdiction over the new individuals to be compromised 2 by the class judgment must be shown. REVERSION. 3 6. 4 A settlement that allows for a reversion of settlement funds to the defendant(s) is a red 5 flag, for it runs the risk of an illusory settlement, especially when combined with a requirement 6 to submit claims that may lead to a shortfall in claim submissions. 7 7. 8 A settlement that imposes a claim procedure rather than cutting checks to class members 9 CLAIM PROCEDURE. for the appropriate amount may (or may not) impose too much of a burden on class members, especially if the claim procedure is onerous, or the period for submitting is too short, or there is a 11 For the Northern District of California United States District Court 10 likelihood of class members treating the notice envelope as junk mail. The best approach, when 12 feasible, is to calculate settlement checks from a defendant’s records (plus due diligence 13 performed by counsel) and to send the checks to the class members along with a notice that 14 cashing the checks will be deemed acceptance of the release and all other terms of the 15 settlement. 16 8. 17 To avoid collusive settlements, the Court prefers that all settlements avoid any agreement ATTORNEY’S FEES. 18 as to attorney’s fees and leave that to the judge. If the defense insists on an overall cap, then 19 the Court will decide how much will go to the class and how much will go to counsel, just 20 as in common fund cases. Please avoid agreement on any division, tentative or otherwise. 21 A settlement whereby the attorney seems likely to obtain funds out of proportion to the benefit 22 conferred on the class must be justified. 23 9. DWINDLING OR MINIMAL ASSETS? 24 If the defendant is broke or nearly so with no prospect of future rehabilitation, a steeper 25 discount may be warranted. This must be proven. Counsel should normally verify a claim of 26 poverty via a sworn record, thoroughly vetted. 27 10. TIMING OF PROPOSED SETTLEMENT. 28 4 1 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 4 some cases in which it will be acceptable to conserve resources and to propose a resolution 5 sooner. For example, if the proposal will provide full recovery (or very close to full recovery) 6 then there is little need for more due diligence. The poorer the settlement, however, the more 7 justification will be needed and that usually translates to more discovery and more due diligence; 8 otherwise, it is best to let absent class members keep their own claims and fend for themselves 9 rather than foist a poor settlement on them. Particularly when counsel propose to compromise 10 the potential claims of absent class members in a low-percentage recovery, the Court will insist 11 For the Northern District of California develop and to present a proposed compromise after class certification, after diligent discovery 3 United States District Court 2 on a detailed explanation of why the case has turned so weak, an explanation that usually must 12 flow from discovery and due diligence, not merely generalized “risks of litigation.” Counsel 13 should remember that merely filing a putative class complaint does not authorize them to 14 extinguish the rights of absent class members. If counsel believe settlement discussions should 15 precede a class certification, a motion for appointment of interim class counsel must first 16 be made. “[S]ettlement approval that takes place prior to formal class certification requires a 17 higher standard of fairness.” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998). 18 It is reasonable to discount class members’ claims by the risk of litigation on the merits, 19 but it is not reasonable to further discount claims by the risk that class certification will be 20 denied. See Howard Erichson, Beware The Settlement Class Action, DAILY JOURNAL, Nov. 24, 21 2014. 22 11. A RIGHT TO OPT OUT IS NOT A CURE-ALL. 23 A borderline settlement cannot be justified merely because absent class members may opt 24 out if they wish. The Court has (and counsel have) an independent, stand-alone duty to assess 25 whether the proposed settlement is reasonable and adequate. Once the named parties reach a 26 settlement in a purported class action, they are always solidly in favor of their own proposal. 27 There is no advocate to critique the proposal on behalf of absent class members. That is one 28 reason that Rule 23(e) insists that the district court vet all class settlements. 5 1 2 12. INCENTIVE PAYMENT. 3 If the proposed settlement by itself is not good enough for the named plaintiff, why 4 should it be good enough for absent class members similarly situated? Class litigation proceeded 5 well for many decades before the advent of requests for “incentive payments,” which too 6 often are simply ways to make a collusive or poor settlement palatable to the named plaintiff. 7 A request for an incentive payment is a red flag. 8 13. 9 Is the notice in plain English, plain Spanish, and/or plain Chinese (or the appropriate NOTICE TO CLASS MEMBERS. language)? Does it plainly lay out the salient points, which are mainly the foregoing points in 11 For the Northern District of California United States District Court 10 this memorandum? Will the method of notice distribution really reach every class member? 12 Will it likely be opened or tossed as junk mail? How can the envelope design enhance the 13 chance of opening? Can mail notice be supplemented by e-mail notice? 14 * * * 15 Counsel will please see from the foregoing that the main focus will be on what is in the 16 best interest of absent class members. Counsel should be mindful of the factors identified in In 17 re Bluetooth, 654 F.3d at 946–47, as well as the fairness considerations detailed in Hanlon, 18 150 F.3d at 1026. Finally, for an order denying proposed preliminary approval based on many of 19 the foregoing considerations, see Kakani v. Oracle Corp., No. C 06-06493 WHA, 2007 WL 20 1793774 (N.D. Cal. June 19, 2007). 21 22 23 Dated: August 3, 2016. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 24 25 26 27 28 6

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