Ijecoma Esomonu v. Omnicare, Inc.

Filing 63

ORDER by Judge Haywood S. Gilliam, Jr. Denying 39 PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT. Further Case Management Conference set for 5/2/2017 02:00 PM. (ndrS, COURT STAFF) (Filed on 3/31/2017)

1
2
3
4

UNITED STATES DISTRICT COURT

5

NORTHERN DISTRICT OF CALIFORNIA

6
7

IJEOMA ESOMONU,
Plaintiff,

8
v.

9
10

OMNICARE, INC.,
Defendant.

11
United States District Court
Northern District of California

Case No.15-cv-02003-HSG
ORDER DENYING PRELIMINARY
APPROVAL OF CLASS ACTION
SETTLEMENT
Re: Dkt. No. 39

Before the Court is the motion for preliminary approval of class action settlement filed by

12
13

Plaintiff Ijeoma Esomonu. Dkt. No. 39 (“Mot.”). Plaintiff filed suit against Defendant Omnicare,

14

Inc. for violating the Fair Credit Reporting Act, 15 U.S.C. §§ 1681, et seq. (“FCRA”), and related

15

California statutes by failing to provide the proper disclosure form when Defendant obtained

16

credit and background reports in connection with its hiring process. The parties have reached a

17

settlement regarding Plaintiff’s claims and now seek the required Court approval. For the reasons

18

set forth below, the Court DENIES Plaintiff’s motion for preliminary approval of class action

19

settlement.

20

I.

BACKGROUND

21

A.

22

On May 4, 2015, Plaintiff filed this action against Defendant, alleging that its hiring

23

practices violated the FCRA. Dkt. No. 1. Plaintiff then amended the complaint on July 21, 2016,

24

adding additional state law claims, including violations of California’s Consumer Credit Reporting

25

Agencies Act (“CCRAA”), Cal. Civ. Code §§ 1785.1, et seq., and California’s Investigative

26

Consumer Reporting Agencies Act (“ICRAA”), Cal. Civ. Code §§ 1786, et seq. Dkt. No. 41-1

27

(“FAC”).

28

Factual Allegations

Plaintiff alleges that she was employed by Defendant in the State of California. FAC ¶ 5.

1

According to Plaintiff, when she applied for employment with Defendant, she was required to fill

2

out and sign a background check authorization form and a waiver of liability. Id. ¶¶ 29–33. She

3

alleges that the disclosures required under the FCRA, however, were “embedded with extraneous

4

information” in these forms rather than contained in a stand-alone document. FAC ¶ 34. Plaintiff

5

further alleges that Defendant failed to inform her that she had a right to request a summary of her

6

rights under the FCRA. Id. ¶¶ 41, 48. Plaintiff accordingly alleges that Defendant obtained credit

7

and background reports on her — as well as on other prospective, current, and former employees

8

— in violation of federal and state law. Id. ¶¶ 2, 41. Defendant answered the complaint on

9

August 12, 2016, denying all claims and asserting several affirmative defenses. Dkt. No. 44.
B.

11
United States District Court
Northern District of California

10

Following informal discovery and with the assistance of a private mediator, the parties

Settlement Agreement

12

entered into a settlement agreement. See Dkt. No. 45-1. Plaintiff then filed the pending,

13

unopposed motion for preliminary approval of settlement on June 13, 2016.

14

Pursuant to the terms of the current settlement agreement, Plaintiff “may apply to the

15

Court” for an incentive award of up to $5,000 for her role as named plaintiff in this lawsuit. Dkt.

16

No. 45-1 (“SA”) ¶ 37. The settlement agreement refers to this as an “enhancement payment” for

17

Plaintiff’s “services to the Class and for the risks she undertook as a named Plaintiff.” Id. ¶¶ 17,

18

37. It further states that Plaintiff “will receive the sum of Ten Thousand Dollars and Zero Cents

19

($10,000.00) for the general release she is giving Omnicare . . . .” Id. ¶ 38. The settlement

20

agreement does not explicitly state that this general release payment is similarly subject to Court

21

approval. Instead, the settlement agreement ambiguously states that Plaintiff will file a motion for

22

an undefined “Class Representative Service Payment” with the Court. Id. ¶ 43. And Plaintiff’s

23

proposed class notice only states that “Class Counsel will seek an enhancement payment for the

24

Class Representative, Plaintiff Ijeoma Esomonu, in the amount of $5,000.” See Dkt. No. 39-3 at

25

6. It omits the $10,000 general release payment entirely. Id.

26

The Court raised several concerns about the settlement agreement during the two hearings

27

on the motion. On August 18, 2016, the Court asked for authority to support the $10,000 payment

28

to Plaintiff for a general release in addition to the $5,000 incentive payment. See Dkt. No. 52 at
2

1

8–9 (hearing transcript). On October 20, 2016, the parties then filed supplemental briefing to

2

address, inter alia, this general release payment. See Dkt. Nos. 55 at 3–4. The supplemental

3

briefing was insufficient and the Court again raised concerns about this payment at the subsequent

4

hearing held on November 3, 2016. Yet the parties did not address this issue in their subsequent

5

briefs. See Dkt. Nos. 59, 61.

6

II.

LEGAL STANDARD
Federal Rule of Civil Procedure 23(e) provides that “[t]he claims, issues, or defenses of a

7
8

certified class may be settled . . . only with the court’s approval.” The Rule is intended to “protect

9

the unnamed members of the class from unjust or unfair settlements affecting their rights.” In re
Syncor ERISA Litig., 516 F.3d 1095, 1100 (9th Cir. 2008). Accordingly, before a district court

11
United States District Court
Northern District of California

10

approves a class action settlement, it must conclude that the settlement is “fundamentally fair,

12

adequate and reasonable.” In re Heritage Bond Litig., 546 F.3d 667, 674–75 (9th Cir. 2008).
Where the parties reach a class action settlement prior to class certification, district courts

13
14

apply “a higher standard of fairness and a more probing inquiry than may normally be required

15

under Rule 23(e).” Dennis v. Kellogg Co., 697 F.3d 858, 864 (9th Cir. 2012) (quotation omitted).

16

In those situations, courts “must be particularly vigilant not only for explicit collusion, but also for

17

more subtle signs that class counsel have allowed pursuit of their own self-interests and that of

18

certain class members to infect the negotiations.” In re Bluetooth Headset Prods. Liab. Litig., 654

19

F.3d 935, 947 (9th Cir. 2011). Courts, however, lack the authority to “delete, modify or substitute

20

certain provisions. The settlement must stand or fall in its entirety.” Hanlon v. Chrysler Corp.,

21

150 F.3d 1011, 1026 (9th Cir. 1998).

22

III.

23

ANALYSIS
Monetary awards to plaintiffs are not inherently unfair or unreasonable. Rodriguez v. West

24

Publ’g Corp., 563 F.3d 948, 958 (9th Cir. 2009) (“Incentive awards are fairly typical in class

25

action cases.”). They are designed to “compensate class representatives for work done on behalf

26

of the class, to make up for financial or reputational risk undertaken in bringing the action, and,

27

sometimes, to recognize their willingness to act as a private attorney general.” Rodriguez, 563

28

F.3d at 958–59. Nevertheless, the Ninth Circuit has cautioned that “district courts must be vigilant
3

1

in scrutinizing all incentive awards to determine whether they destroy the adequacy of the class

2

representatives . . . .” Radcliffe v. Experian Info. Solutions, Inc., 715 F.3d 1157, 1165 (9th Cir.

3

2013) (quotation omitted). This is particularly true where “the proposed service fees greatly

4

exceed the payments to absent class members.” Id. “[I]f class representatives expect routinely to

5

receive special awards in addition to their share of the recovery, they may be tempted to accept

6

suboptimal settlements at the expense of the class members whose interests they are appointed to

7

guard.” Stanton v. Boeing Co., 327 F.3d 938, 977 (9th Cir. 2003) (quotation omitted).

8

Consequently, such payments must be justified by evidence “to justify the discrepancy between

9

[the named plaintiff’s] award and those of the unnamed plaintiffs.” Alberto v. GMRI, Inc., 252

10

F.R.D. 652, 669 (E.D. Cal. 2008).
As drafted, Plaintiff’s $10,000 payment for her general release appears to be a condition of

United States District Court
Northern District of California

11
12

the settlement itself. Yet the differential in the awards between Plaintiff and other class members

13

is substantial and, without evidence in the record to justify it, undermines the fundamental fairness

14

of the settlement.
The settlement agreement states that Defendant will establish a gross settlement fund of

15
16

$450,000. SA ¶ 35. This includes all attorneys’ fees and costs, settlement administration fees, and

17

payments to Plaintiff. SA ¶¶ 35, 37–38, 43–44. The cash payments to the class will depend on the

18

timing of class members’ claims. Class members who have a claim between May 4, 2010, and

19

May 3, 2013 (approximately 16, 494 class members), will receive 20% of the net settlement fund

20

on a pro rata basis. Id. ¶ 31; see also Dkt. No. 55 at 3. And those who have claims from May 4,

21

2013, through preliminary approval (approximately 11,940 class members) will receive 80% of

22

the net settlement fund on a pro rata basis. Id. Given the currently estimated class size and the

23

estimated deductions from the gross settlement fund (including both the $5,000 and $10,000

24

payments to Plaintiff), each “20%” class member will receive approximately $3.29 and each

25

“80%” class member will receive approximately $18.18 from the settlement. 1
Plaintiff suggests the $10,000 general release payment is nevertheless warranted because

26
27
1

28

These figures are calculated after deducting the estimated attorneys’ fees and costs, settlement
administrator fees, and payments to Plaintiff from the gross settlement fund.
4

1

Plaintiff is “discharging all claims against Omnicare.” Dkt. No. 55 at 3–4. In a brief she alludes

2

to releasing a possible wrongful termination claim. Id. at 4. But there is no evidence in the record

3

about the existence or strength of such a claim. Moreover, Plaintiff’s only authority,

4

Bellinghausen v. Tractor Supply Co., 306 F.R.D. 245, 266–68 (N.D. Cal. 2015), confirms that the

5

Court must engage in a detailed analysis before approving any award to Plaintiff. There, the

6

plaintiff had submitted a motion for an incentive award and a payment for release of claims. Id.

7

And the court relied heavily on a declaration from the named plaintiff and the unique facts of the

8

case in ultimately granting a reduced incentive award and general release payment. Id. at 267.
Here, the settlement agreement does not require Plaintiff to file a motion or any declaration

9

before being awarded $10,000 for her general release. Even if the Court ultimately rejects the

11
United States District Court
Northern District of California

10

$5,000 “enhancement award,” the Court finds that an award to Plaintiff of $10,000 compared to

12

the $3.29 or even $18.18 award to class members undermines the overall fairness of the proposed

13

settlement. Because the Court cannot “delete, modify or substitute certain provisions” of the

14

settlement agreement, the Court must reject the proposed settlement in its entirety. Hanlon, 150

15

F.3d at 1026. The Court notes the importance of careful drafting: If the parties intend the

16

$10,0000 general release payment to require Court approval, then the settlement agreement should

17

say so explicitly and the class notice should similarly alert class members that Plaintiff will seek

18

such a payment.

19

IV.

CONCLUSION

20

For the foregoing reasons, the Court hereby DENIES Plaintiffs’ motion for preliminary

21

approval of class action settlement. The Court further sets a Case Management Conference for

22

May 2, 2017, at 2:00 p.m.

23
24

IT IS SO ORDERED.
Dated: 3/31/2017

25
26
HAYWOOD S. GILLIAM, JR.
United States District Judge

27
28
5