Douglas v. Arcadia Health Services, Inc.

Filing 25

ORDER by Judge ARMSTRONG denying 19 Motion for Settlement (lrc, COURT STAFF) (Filed on 12/12/2011)

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UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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OAKLAND DIVISION

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6 RUTH DOUGLAS, on behalf of herself and

Case No: C 11-3552 SBA

all others similarly situated,
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Plaintiffs,
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ORDER DENYING PLAINTIFF’S
MOTION FOR PRELIMINARY
APPROVAL

vs.
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ARCADIA HEALTH SERVICES, INC., and
10 DOE 1 through 100,

Defendants.

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The parties are presently before the Court on Plaintiff’s Motion for Preliminary

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Approval of Class-Action Settlement, Conditional Certification of Settlement Class, and

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Approval of Notice Program. Dkt. 8.1 Having read and considered the papers filed in

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connection with this matter and being fully informed, the Court hereby DENIES the motion

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without prejudice. The Court, in its discretion, finds this matter suitable for resolution

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without oral argument. See Fed. R. Civ. P. 78(b); N.D. Cal. Civ. L.R. 7-1(b).

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I.

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BACKGROUND
Plaintiff Ruth Douglas filed the instant putative wage and hour class action against

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Defendant Arcadia Health Services, Inc., in state court on June 15, 2011. Defendant

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removed the action on July 19, 2011, pursuant to the Class Action Fairness Act, 28 U.S.C.

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§ 1332(d). Shortly after filing suit, Plaintiff, without conducting any formal discovery,

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began negotiating with Defendant over the course of four months, and recently reached a

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proposed settlement. Harris Decl. ¶ 5, Dkt. 20. The key terms of the settlement call for:

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(1) payment of $623,000 into a gross settlement fund for the class; (2) attorneys’ fees based

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Plaintiff’s 22-page motion is in excess of the page limits specified in the Court’s
Standing Orders.

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on 30% of the gross settlement fund; and (3) an incentive award of $5,000 to the class

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representative. Plaintiff estimates that there are 3,750 class members, and that assuming a

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claims response rate of less than 50%, each person filing a claim will receive a pre-tax

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gross amount of $300. Harris Decl. ¶ 10.2

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II.

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DISCUSSION
Rule 23 of the Federal Rules of Civil Procedure requires judicial review of any

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settlement of the “claims, issues, or defenses of a certified class.” Fed. R. Civ. P. 23(e).

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The decision of whether to approve a proposed class action settlement entails a two-step

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process. See Manual for Complex Litig. § 21.632 (4th ed. 2004). First, the court conducts a

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preliminary fairness evaluation. Id. Second, if the Court preliminarily approves the

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settlement, notice to the class is disseminated and a “fairness” or final approval hearing is

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scheduled. Id. At the fairness hearing, the proponents of the settlement must demonstrate

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that the settlement is “fair, reasonable, and adequate.” Fed. R. Civ. P. 23(e)(2).

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In determining whether to confer preliminary approval upon a proposed class

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settlement, the court considers whether “[1] the proposed settlement appears to be the

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product of serious, informed, noncollusive negotiations, [2] has no obvious deficiencies,

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[3] does not improperly grant preferential treatment to class representatives or segments of

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the class, and [4] falls with the range of possible approval . . . .” In re Tableware Antitrust

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Litig., 484 F. Supp. 2d 1078, 1079 (N.D. Cal. 2007) (citing Manual for Complex Litig.,

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Second § 30.44 (1985)). The court also may consider whether the proposed settlement

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grants excessive compensation to the plaintiff’s counsel. Harris v. Vector Marketing Corp.,

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No. C-08-5198 EMC, 2011 WL 1627973, at *7 (N.D. Cal. April 29, 2011).

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The amount to be paid on each claim is based on a pro rata share of the settlement
fund which correlates to the amount of time worked. Settlement ¶ 7.D. The $300 estimate
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Decl. ¶ 10. Thus, the actual amount of the settlement on a per class member basis appears
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In the present case, Plaintiff’s motion for preliminary approval and its supporting

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documents fail to provide sufficient information for this Court to render an informed

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decision on whether to preliminarily approve the settlement.

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First, Plaintiff provides no information regarding the nature of the parties’

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negotiations leading to the settlement. See Harris Decl. ¶ 5. Though Plaintiff claims that

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the settlement is the product of four months of negotiations, she fails to provide any

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information regarding those negotiations (which appear to have taken place without the

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assistance of a mediator). The record also is devoid of any indicia of support for the

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conclusion that Plaintiff’s counsel was adequately informed during those negotiations.

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Plaintiff admits to having conducted no discovery in this action and makes only vague

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references to having reviewed “information concerning payroll software, general company

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and employee policies, and other information regarding the class.” Id. ¶ 4. As such, the

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record is insufficient for the Court to assess whether the settlement is the product of serious,

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informed, noncollusive negotiations.

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Second, Plaintiff fails to supply the Court with sufficient information to determine

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whether the settlement falls within the range of possible approval. “To evaluate adequacy,

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courts primarily consider plaintiffs’ expected recovery balanced against the value of the

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settlement offer.” In re Tableware Antitrust Litig., 484 F. Supp. 2d at 1080. Yet, Plaintiff

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provides no information regarding the percentage that the settlement represents in relation

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to the likely recovery that could have been obtained if the action were concluded on the

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merits. Although Plaintiff suggests that the settlement is fair given Defendant’s “severe

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financial stress,” she provides no facts to support her conclusory assertion. See Mot. at 18;

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Harris Decl. ¶ 10.

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Third, the Court has concerns regarding the apparent preferential treatment provided

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to Plaintiff under the settlement, which grants her a $5,000 incentive award. Although that

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amount is not per se unreasonable, such award is over thirty times greater than the gross

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settlement on a per class member basis. In addition, Plaintiff neglects to provide the Court

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with any information regarding her work on the case, if any, and why she should be paid a

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$5,000 incentive award.

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Finally, the settlement appears to provide Plaintiff’s counsel with excessive

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compensation. In cases where fees are to be paid under the percentage-of-the-recovery

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method, the Ninth Circuit has held that a fee award based on 25% of the common fund is

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the “benchmark” award. See In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 942

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(9th Cir. 2011). A departure from that benchmark requires a showing of “special

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circumstances.” Id. Here, the settlement provides for an attorneys’ fee award of up to 30%

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of the settlement fund. However, there is nothing in the record to indicate that there are any

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special circumstances justifying an award above the benchmark. To the contrary, the

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record shows that Plaintiff began negotiating a settlement shortly after the case was filed—

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without conducting any discovery or otherwise expending any time or resources in

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litigating this case.

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III.

CONCLUSION

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The Court finds that Plaintiff has failed to provide a sufficient foundation for

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preliminary approval of the proposed settlement. Nonetheless, Plaintiff may be able to cure

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the deficiencies discussed above, and therefore, the Court will permit her to renew her

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motion to address the deficiencies discussed above. Accordingly,

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IT IS HEREBY ORDERED THAT:

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1.

Motion for Preliminary Approval of Class-Action Settlement, Conditional

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Certification of Settlement Class, and Approval of Notice Program is DENIED without

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prejudice.

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2.

Plaintiff is granted leave to renew her motion for preliminary approval by no

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later than December 23, 2011. The hearing on Plaintiff’s renewed motion will take place

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on March 6, 2012 at 1:00 p.m.

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3.

The motion hearing scheduled for December 13, 2011 is VACATED.

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This Order terminates Docket 19.

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IT IS SO ORDERED.
Dated: December 9, 2011

_______________________________
SAUNDRA BROWN ARMSTRONG
United States District Judge

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