Porath v. Logitech Inc.

Filing 40

ORDER DENYING 38 MOTION FOR LEAVE TO FILE MOTION FOR RECONSIDERATION AND TO STAY THE ACTION. By Judge Alsup. (whalc3, COURT STAFF) (Filed on 1/18/2019)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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No. C 18-03091 WHA

Plaintiffs,

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For the Northern District of California

United States District Court

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JAMES PORATH, individually and on behalf
of all others similarly situated,

ORDER DENYING MOTION
FOR LEAVE TO FILE
MOTION FOR
RECONSIDERATION AND TO
STAY THE ACTION

v.
LOGITECH, INC.,
Defendant.
/

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To protect absent class members and to assist counsel in understanding the factors the

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Court considers in evaluating proposed class settlements, the undersigned judge has long

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provided guidance to both sides at the outset of any proposed class action. The guidance has

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been in the form of an order entitled “Notice and Order Re Putative Class Actions and Factors

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To Be Evaluated For Any Proposed Class Settlement.” No one has ever complained about it —

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until now. Defendant Logitech, Inc. objects to a requirement regulating the timing of settlement

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discussions of class-wide claims, contending it violates its First Amendment rights. This order

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disagrees with Logitech and explains why the provision in question is in the best interest of

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absent class members and is constitutional.

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Plaintiff James Porath filed this putative class action in May 2018, alleging that

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Logitech falsely and deceptively advertised its Z200 speakers as containing four drivers when

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in fact two of those drivers did not independently produce sound and were parasitic speakers

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(Dkt. No. 1 at 4–5, 15–25). In June 2018, the usual order issued describing the factors for
evaluating any class action settlement and prohibiting the parties from discussing any settlement

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of class claims prior to class certification. That prohibition was qualified by the further

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statement that if “counsel believe settlement discussions should precede a class certification, a

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motion for appointment of interim class counsel must first be made” (Dkt. No. 16). (The order

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dealt only with class settlements and did not bar counsel from discussing settlement of

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plaintiff’s individual claim.)

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In August 2018, counsel moved to appoint interim lead plaintiff and lead counsel under

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Federal Rule of Civil Procedure 23(g) (Dkt. No. 25). The parties stipulated to four reasons why

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they believed pre-class certification settlement discussions might have been appropriate at that

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moment: (1) Logitech agreed not to seek a “discount” based on the potential risk that the
putative class would not be certified; (2) Logitech had already began revising the advertising at

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issue; (3) Logitech was prepared “with respect to purchases of the Z200 speakers to make all

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such consumers whole” (separately, in a case management statement, defendant further

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specified: “whole with respect to any damages that may have been caused by the challenged

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advertising”); and (4) the parties were prepared to engage in reasonable and appropriate

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discovery to develop the factual record necessary to resolve the case (Dkt. No. 23, 24). After

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considering the arguments from the parties’ motion and at the initial case management

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conference, the motion to appoint interim counsel was denied.

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Logitech then petitioned our court of appeals in October 2018 for a writ of mandamus.

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A motion to stay the action pending resolution by our court of appeals followed much later

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(Dkt. No. 33). Before this Court, however, could rule on the stay request, our court of appeals

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denied the petition without prejudice “to re-raising the . . . constitutional questions presented in

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this petition . . . in this court after presentation to the district court in the first instance.” Order,

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Logitech, Inc. v. United States District Court for the Northern District of California, San

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Francisco, No. 18-72732 (9th Cir. Dec. 24, 2018). The motion to stay was then denied as moot,

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but “without prejudice to a fresh motion as contemplated by the court of appeals” (Dkt. No. 35).

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Logitech now moves for leave to file a motion for reconsideration of the orders issued

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last June (prohibiting the parties from discussing any class-wide settlement until after the Court

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determines which claims deserve class treatment or until an appointment of interim counsel
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under Rule 23) and last August (denying the motion for appointment of interim class counsel)

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and to stay the action (Dkt. No. 38). Plaintiff’s counsel take no position (Dkt. No. 39). No

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hearing having been requested, this order follows.

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Logitech’s motion is DENIED.

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The basic problem concerns the protection of absent class members. For the orderly

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management of putative class actions and for the protection of absent class members, the Court

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directs the parties not to discuss class-wide settlements until we determine what claims are

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suitable for class treatment under Rule 23. Thereafter, of course, it becomes the duty of counsel

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to consider settlement on a class-wide basis — but only of those certified claims. This avoids
the awkward situation in which counsel waste time on a proposed settlement of issues that

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should not be litigated or settled on a class-wide basis. And, it avoids the creation of an

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artificial ceiling for the value of a case before we determine which issues deserve class

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treatment. It also avoids overbroad releases by absent class members of claims that should not

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be released.

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As importantly, it protects the absent class members from inappropriately discounted

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settlements. Once a claim is certified for class treatment, everyone agrees that a class

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settlement may be discounted based on the merits of the claim. On the other hand, the recovery

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by absent class members should not be further discounted by the risk that a claim will not

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eventually be certified for class treatment. This view is supported by Professor Howard

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Erichson. See, e.g., Howard M. Erichson, The Problem of Settlement Class Actions, 82 WASH.

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U. L. REV. 951 (2014); Howard M. Erichson, Beware The Settlement Class Action, DAILY

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JOURNAL, Nov. 24, 2014.

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For example, counsel for plaintiff may fear that particular claims will not be certified for

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class treatment due to lack of a class-wide method of proof. Counsel, therefore, might be

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tempted to accept a lowball offer to salvage a class recovery. Other similar Rule 23 hurdles

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concern standing or adequacy of representation. These might also lead to a further discount,

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further reducing recovery to absent class members. Postponing class settlement discussion until

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after we determine which claims are class-worthy prevents these concerns from reducing a class

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recovery.

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With respect to the individual claim of a plaintiff, the procedure in question permits any

authority to negotiate for the absent class members until a standard appointment under Rule

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23(g)(1) or an appointment as “interim counsel” under Rule 23(g)(3). It is in the best interest of

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absent class members to first work through the protections of Rule 23 to define what claims, if

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any, are suitable for class treatment, what specific classes and subclasses, if any, are viable, and

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whether or not plaintiff and his counsel are adequate to represent absent class members. These

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should be vetted before discussions take place so the rights of the absent class members won’t

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For the Northern District of California

discussion at any time. As to absent class members, however, plaintiff’s counsel have no

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United States District Court

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be compromised on problems other than the merits.

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The guidelines further state that a settlement should be negotiated only after adequate

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and reasonable investigation and discovery by class counsel. This requirement serves the due

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diligence obligation of class counsel, who owe a fiduciary duty to the class to develop the facts

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well enough to negotiate a good settlement. Our court of appeals emphasized the “rigorous

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analysis” required by the district court in class action determinations and the role discovery

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plays in this analysis in recently invalidating a local rule that required moving for class

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certification within ninety days of filing the complaint. Such rigorous analysis “may require

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discovery” and take more than ninety days. ABS Entertainment, Inc. v. CBS Corporation, 908

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F.3d 405, 427 (9th Cir. 2018) (quoting Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350–51

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(2011)).

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In this same vein, one of the factors the Court “must consider” in appointing interim

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class counsel and class counsel is “the work counsel has done in identifying or investigating

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potential claims in the action.” Rule 23(g)(1)(A)(i). Here, at the time of the original motion for

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appointment of interim counsel, plaintiff’s counsel said they would do some homework, but

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they didn’t say that they had yet done it. That remains true today.

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The guidelines in question have long recognized that pre-certification settlement

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discussions are sometimes warranted. The guidelines invite counsel to move to be appointed as
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“interim counsel” for precisely this purpose. As stated, Rule 23(g)(3) specifically calls out

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appointment of “interim counsel.” One circumstance where such a motion would likely be

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granted is where the defendant has dwindling resources such that a prompt settlement is

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necessary to recover anything at all, even when little discovery has been possible.

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When counsel here moved for the appointment of interim counsel, however, no showing

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of dire circumstances was made. No discovery had been conducted (Dkt. No. 23 at 4). Even

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though defendant’s counsel vaguely stated that Logitech was prepared to make all purchasers

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“whole with respect to any damages that may have been caused by the challenged advertising,”

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this clever wording offered little of substance, not even conceding that there had been “any”
damages (Dkt. No. 23 at 6). Making the class “whole” could have meant a number of

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unacceptable scenarios, such as a mere coupon that would’ve burdened class members with a

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trip to a distant service center, or a cash refund only to those willing to fill out a laborious claim

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form. The record was therefore too conclusory, and thus, did not warrant such an appointment.

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Even now, Logitech’s motion for reconsideration states nothing new.

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Whether or not to appoint interim counsel is an issue of discretion for the district court.

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Logitech merely disagrees with the exercise of discretion by the district judge in this case. It is

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true that amendments to Rule 23 contemplate that a proposed settlement may be presented

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before a class has been certified. But, at the risk of repetition, so do the guidelines in question.

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Both turn on the interim counsel device.

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With respect to free speech, the viewpoint neutral guidelines in question allow for plenty

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of settlement discussion and merely regulate the time, place, and manner of these discussions.

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The only restraint is on talking about a class-wide settlement before someone is authorized

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under Rule 23 to negotiate on behalf of a class — a sensible precaution for the protection of

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absent class members.

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Full settlement discussions at any time with respect to the individual claim are

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permitted. Full settlement discussions as to class claims are permitted once those class claims

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are identified or after interim counsel is appointed. No permanent or overly broad ban on

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speech exists. To the extent a limited restriction exists, the interests are overwhelmingly
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outweighed by the interest of the Court in effectuating orderly case management and the

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interests of the absent class members whose rights are also at risk. See, e.g., U.S. v. Richey, 924

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F.2d 857, 859 (9th Cir. 1991); United States v. Gurney, 558 F.2d 1202, 1210 (5th Cir. 1977).

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Counsel has no specific First Amendment right to try to extract a class-wide release from a

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lawyer who has no authority to act for a class (meaning, someone who has not yet been certified

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as class counsel or appointed as interim counsel).

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No one has a First Amendment right to petition the government (including the courts) on

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behalf of a class and to impose a release onto a class until a proper representative has been

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appointed to look out for the class. It is true that some judges don’t insist on such an
appointment beforehand, but that is a matter of discretion, not a matter of right by the litigants.

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Logitech cites no case-law to the contrary.

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No new facts have been shown to warrant reconsideration of either prior order. The

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motion for leave to file a motion for reconsideration of both the orders issued last June and

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August is DENIED. As provided in the original case management order, the motion for class

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certification remains due on February 7 to be heard on a 49-day track. All other deadlines

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remain in effect.

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The class certification motion will be decided one way or the other long before any

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extraordinary writ petition could be determined by our court of appeals, so the motion to stay is

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DENIED on that ground (as well as on the merits).

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IT IS SO ORDERED.

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Dated: January 18, 2019.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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