Schwartz v. Cook et al

Filing 138

ORDER GRANTING 130 PLAINTIFF'S MOTION FOR FINAL APPROVAL OF CLASS ACTION SETTLEMENT; AND GRANTING 129 PLAINTIFF'S MOTION FOR AWARD OF ATTORNEYS' FEES AND COSTS. Signed by Judge Beth Labson Freeman on 6/30/2017. (blflc1S, COURT STAFF) (Filed on 6/30/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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KRISTOPHER A. SCHWARTZ,
individually and on behalf of all others
similarly situated,
Plaintiff,

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v.

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United States District Court
Northern District of California

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ART COOK, et al.,

Case No. 15-cv-03347-BLF
ORDER GRANTING PLAINTIFF’S
MOTION FOR FINAL APPROVAL OF
CLASS ACTION SETTLEMENT; AND
GRANTING PLAINTIFF’S MOTION
FOR AWARD OF ATTORNEYS’ FEES
AND COSTS
[Re: ECF 129, 130]

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Defendants,

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and

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BUCKLES-SMITH ELECTRIC
COMPANY EMPLOYEE STOCK
OWNERSHIP PLAN,

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Nominal Defendant.

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On June 15, 2017, the Court heard Plaintiff’s Motion for Final Approval of Class Action

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Settlement and Plaintiff’s Motion for Award of Attorneys’ Fees and Costs. See Minute Entry,

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ECF 137. The Court granted both motions on the record and issued a short order memorializing

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its rulings so that Plaintiff could begin administrative tasks necessary to distribution of the

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settlement fund. See Order Granting Plaintiff’s Motion for Final Approval, ECF 136. The Court

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indicated that it would issue a lengthier order setting forth its reasoning, which it does below.

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I.

BACKGROUND
Plaintiff Kristopher A. Schwartz and class members were participants in or beneficiaries of

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the Buckles-Smith Electric Company Employee Stock Ownership Plan (“the ESOP” or “the

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Plan”), an employee pension benefit plan covered by the Employee Retirement Income Security

Act of 1974 (“ERISA”). Plaintiff claims that Defendants – Buckles-Smith Electric Company

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(“Buckles-Smith” or “the Company”), several of its Board members, and Bankers Trust Company

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of South Dakota – breached fiduciary duties owed to the Plan and its participants. See Second

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Amended Complaint (“SAC”), ECF 118. Specifically, Plaintiff asserts that Defendants terminated

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the ESOP in 2014 and forced a buyout at “far less than the fair market value of the ESOP’s shares,

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far less than the amount the ESOP was entitled to under the operative bylaws of Buckles-Smith,

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and far less than the liquidation value of Buckles-Smith’s assets – which represented the price at

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which the Company’s departing shareholders had been redeemed for decades pursuant to

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shareholder agreements.” SAC ¶ 1. Plaintiff also alleges that “Defendants ignored in-hand, bona

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fide written offers to purchase either all of the shares of Buckles-Smith or just those shares owned

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United States District Court
Northern District of California

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by the ESOP for nearly double the price actually paid.” Id. Plaintiff claims that “[b]y this abuse

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of their position of trust and authority with respect to the ESOP, Defendants enriched themselves

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at the expense of the ESOP and its participants.” Id.

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After more than a year of litigation, the parties settled the case with the aid of a mediator,

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the Hon. Edward A. Infante. The written Settlement Agreement contemplates the certification of a

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non-opt out class pursuant to Federal Rule of Civil Procedure 23, defined as: “All Persons who

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were participants (whether vested or non-vested) in or beneficiaries of the Plan at any time from

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and after September 1, 2012 (the “Class Period”), provided, however, that the Class shall not

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include any Defendant or any beneficiary of any Defendant.” Settlement Agreement ¶¶ 1.3, 3.3.2,

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ECF 116-1 (emphasis omitted). The Settlement Agreement provides that the Company will pay

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the total amount of $350,000 (“Settlement Payment”) to settle all claims asserted against all

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defendants in the action. Id. ¶¶ 1.20, 8.1.1. The $350,000 Settlement Payment will be used to

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establish a Settlement Fund which will be maintained and distributed by Class Counsel. Id. ¶

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1.19. The cost of preparing and mailing the class notice will be paid from the Settlement Fund,

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and class counsel may apply to the Court for an award of attorneys’ fees and expenses to be paid

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from the Settlement Fund. Id. ¶¶ 8.1.2, 8.2.

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On March 20, 2017, the Court issued an order which: granted preliminary approval of the
class action settlement; preliminarily certified the class; appointed Plaintiff as class representative;
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appointed Plaintiff’s counsel as class counsel; approved forms and methods of notice to the class;

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set a deadline of May 15, 2017 for objections; and set a hearing date of June 15, 2017 for

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Plaintiff’s motion for final approval of the class action settlement and for Plaintiff’s motion for

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attorneys’ fees. See Order Preliminarily Approving Settlement, ECF 125. The only objection

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received in response to the class notice was a letter dated May 10, 2017 from Robert J. Polito. See

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Polito Objection, ECF 133. Mr. Polito does not object to the settlement per se, but he suggests a

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modification to the Settlement Agreement as discussed below. Id. Mr. Polito does not object to

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Plaintiff’s motion for attorneys’ fees and costs. Id.
On June 15, 2017, the Court heard Plaintiff’s motion for final approval and motion for

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attorneys’ fees and costs. Mr. Polito appeared at the hearing and presented argument to the Court.

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United States District Court
Northern District of California

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The Court thereafter granted both the motion for final approval of class action settlement and the

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motion for attorneys’ fees on the record, and it advised the parties that a short order memorializing

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the ruling would issue immediately while a more lengthy order setting forth the Court’s reasoning

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would issue at a later date.

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II.

MOTION FOR FINAL APPROVAL OF CLASS ACTION SETTLEMENT

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A.

Legal Standard

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Federal Rule of Civil Procedure 23(3) provides that “[t]he claims, issues, or defenses of a

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certified class may be settled, voluntarily dismissed, or compromised only with the court’s

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approval.” Fed. R. Civ. P. 23(e). “Adequate notice is critical to court approval of a class

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settlement under Rule 23(e).” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1025 (9th Cir. 1998).

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Moreover, “[a] district court’s approval of a class-action settlement must be accompanied by a

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finding that the settlement is ‘fair, reasonable, and adequate.’” Lane v. Facebook, Inc., 696 F.3d

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811, 818 (9th Cir. 2012) (quoting Fed. R. Civ. P. 23(e)). The district court “must evaluate the

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fairness of a settlement as a whole, rather than assessing its individual components.” Id. at 818-

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19. “[A] district court’s only role in reviewing the substance of that settlement is to ensure that it

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is fair, adequate, and free from collusion.” Id. (internal quotation marks and citation omitted). In

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making that determination, the district court is guided by several factors articulated by the Ninth

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Circuit in Hanlon v. Chrysler Corp (“Hanlon factors”). Id. Those factors include:
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the strength of the plaintiffs’ case; the risk, expense, complexity, and likely
duration of further litigation; the risk of maintaining class action status throughout
the trial; the amount offered in settlement; the extent of discovery completed and
the stage of the proceedings; the experience and views of counsel; the presence of a
governmental participant; and the reaction of the class members to the proposed
settlement.

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Hanlon, 150 F.3d at 1026-27; see also Lane, 696 F.3d at 819 (discussing Hanlon factors).

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“Additionally, when (as here) the settlement takes place before formal class certification,

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settlement approval requires a ‘higher standard of fairness.’” Lane, 696 F.3d at 819 (quoting

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Hanlon, 150 F.3d at 1026).

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B.

Notice was Adequate

The Court previously approved Plaintiff’s plan for providing notice to the class when it

United States District Court
Northern District of California

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granted preliminary approval of the class action settlement. See Order Preliminarily Approving

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Settlement, ECF 125. Prior to the preliminary approval hearing, the Court examined carefully the

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proposed class notice and found some aspects of the proposed notice to be unclear. The Court

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required Plaintiff to make certain changes to the notice to clarify the procedures for objecting to

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the settlement and attending the final approval hearing. Plaintiff submitted a revised proposed

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class notice along with a blackline version showing that the required revisions had been made.

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See Notice Re: Revised Form of Notice of Proposed Settlement, ECF 128. Plaintiff provides

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declaration of counsel stating that the notice was delivered to all class members by United States

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mail on March 27, 2017 at their last known addresses provided by the Company. Gotto Decl. ¶ 6,

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ECF 130-1. The Court is satisfied that the class members were provided with adequate notice.

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C.

The Settlement is Fundamentally Fair, Adequate, and Reasonable

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After evaluating the settlement as a whole, as guided by the Hanlon factors, the Court

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concludes that the settlement is fundamentally fair, adequate and reasonable. Importantly, there is

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no indication of collusion because the settlement is a result of post-discovery, arms-length

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negotiations between experienced counsel with the aid of a respected mediator. “A presumption

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of correctness is said to ‘attach to a class settlement reached in arm’s-length negotiations between

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experienced capable counsel after meaningful discovery.’” In re Heritage Bond Litig., No. 02-

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ML-1475 DT, 2005 WL 1594403, at *9 (C.D. Cal. June 10, 2005) (quoting Manuel for Complex
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Litigation (Third) § 30.42 (1995)).
The parties have engaged in discovery and motion practice during the year that the case

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has been pending. The Court granted a first motion to dismiss with leave to amend, and had heard

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a second motion to dismiss which was pending when the parties reached settlement. Given that

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the case was still at the pleading stage, it is likely that litigation would have continued for a

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significant period of time absent settlement. Such litigation would have resulted in substantial

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expenditure of resources by both sides, particularly if the case reached the class certification stage.

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Moreover, Plaintiff would have risked dismissal of some or all of his claims and the possibility

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that the putative class would not be certified.

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The number of Company shares at issue in the lawsuit is approximately 58,000; at the

United States District Court
Northern District of California

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hearing, Plaintiff’s counsel represented that the exact number is 58,187 shares. Thus the $350,000

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settlement represents approximately $6.00 per share before attorneys’ fees and expenses are

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deducted, and approximately $3.61 per share after deduction. Given the likely duration of the

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litigation and the risks discussed above, the Court concludes that this recovery is fair and

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adequate. The Court’s favorable view appears to be shared by class members, as the Court

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received only one objection to the settlement, which is discussed below.
Mr. Polito’s Objection

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D.

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Mr. Polito submitted a written objection and presented argument at the final approval

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hearing. Mr. Polito identifies himself as the “Original Plan Sponsor & Trustee,” and states in his

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letter that he established the Plan in 1996 so that employees could share in the Company’s success.

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Polito Objection, ECF 133. Plaintiff’s SAC alleges that Mr. Polito became the President and

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Chief Executive Officer of the Company in 1983 and describes a falling-out with other executives

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that led to him leaving the Company. SAC ¶¶ 25-28. Based on this record, it appears that Mr.

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Polito is knowledgeable about the company and the Plan.

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At the hearing, Mr. Polito stated that he was not opposed to the settlement in concept.

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However, he believes that the Company is far more valuable than has been represented by the

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parties. He requests that the settlement agreement be revised to “include a ‘Lookback’ provision

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so that the employees receive some restitution when and if the Company is sold” at a higher price
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than the Company’s present valuation. Polito Objection, ECF 133. At the hearing, Mr. Polito

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suggested that the proposed Lookback provision should be in effect for at least ten years.

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It is apparent that Mr. Polito cares deeply about the Company’s employees and that he

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wishes them to get the best deal possible in this litigation. However, “the question whether a

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settlement is fundamentally fair within the meaning of Rule 23(e) is different from the question

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whether the settlement is perfect in the estimation of the reviewing court.” Lane, 696 F.3d at 819.

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Mr. Polito’s proposal is based on speculation that at some point in the future the Company might

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be sold for more than its present valuation. Even if that were to occur, it would be impossible to

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determine whether the Company’s value at the time of sale reflected pre-litigation events versus
post-litigation management of the Company. Moreover, if the Court were to modify the

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United States District Court
Northern District of California

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Settlement Agreement to add a Lookback provision, the entire settlement might well be derailed.

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The Settlement Agreement provides that it will become null and void upon modification by the

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Court unless the parties agree to the modification in writing within thirty-one days. Settlement

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Agreement ¶ 8.3.2, ECF 116-1. The parties have not indicated a willingness to agree to the

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proposed Lookback provision.

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Accordingly, Mr. Polito’s objection to final approval of the settlement is OVERRULED.

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E.

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Based on the foregoing reasons, and after considering the record as a whole (including Mr.

Conclusion

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Polito’s objection) as guided by the Hanlon factors, the Court finds that notice of the proposed

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settlement was adequate, the settlement was not the result of collusion, and the settlement is fair,

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adequate and reasonable.
Plaintiff’s Motion for Final Approval of Class Action Settlement is GRANTED.

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III.

MOTION FOR ATTORNEYS’ FEES AND COSTS

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A.

Legal Standard

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“While attorneys’ fees and costs may be awarded in a certified class action where so

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authorized by law or the parties’ agreement, Fed. R. Civ. P. 23(h), courts have an independent

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obligation to ensure that the award, like the settlement itself, is reasonable, even if the parties have

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already agreed to an amount.” In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 941 (9th
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Cir. 2011). “Where a settlement produces a common fund for the benefit of the entire class,” as

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here, “courts have discretion to employ either the lodestar method or the percentage-of-recovery

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method” to determine the reasonableness of attorneys’ fees. Id. at 942.

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Under the percentage-of-recovery method, the attorneys are awarded fees in the amount of

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a percentage of the common fund recovered for the class. Bluetooth, 654 at 942. Courts applying

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this method “typically calculate 25% of the fund as the benchmark for a reasonable fee award,

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providing adequate explanation in the record of any special circumstances justifying a departure.”

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Id. (internal quotation marks omitted). However, “[t]he benchmark percentage should be adjusted,

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or replaced by a lodestar calculation, when special circumstances indicate that the percentage
recovery would be either too small or too large in light of the hours devoted to the case or other

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United States District Court
Northern District of California

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relevant factors.” Six (6) Mexican Workers v. Arizona Citrus Growers, 904 F.3d 1301, 1311 (9th

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Cir. 2011). Relevant factors to a determination of the percentage ultimately awarded include: “(1)

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the results achieved; (2) the risk of litigation; (3) the skill required and quality of work; (4) the

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contingent nature of the fee and the financial burden carried by the plaintiffs; and (5) awards made

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in similar cases.” Tarlecki v. bebe Stores, Inc., No. C 05–1777 MHP, 2009 WL 3720872, at *4

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(N.D. Cal. Nov. 3, 2009).

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Under the lodestar method, attorneys’ fees are “calculated by multiplying the number of

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hours the prevailing party reasonably expended on the litigation (as supported by adequate

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documentation) by a reasonable hourly rate for the region and for the experience of the lawyer.”

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Bluetooth, 654 F.3d at 941. This amount may be increased or decreased by a multiplier that

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reflects factors such as “the quality of representation, the benefit obtained for the class, the

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complexity and novelty of the issues presented, and the risk of nonpayment.” Id. at 942.

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In common fund cases, a lodestar calculation may provide a cross-check on the

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reasonableness of a percentage award. Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1050 (9th Cir.

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2002). Where the attorneys’ investment in the case “is minimal, as in the case of an early

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settlement, the lodestar calculation may convince a court that a lower percentage is reasonable.”

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Id. “Similarly, the lodestar calculation can be helpful in suggesting a higher percentage when

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litigation has been protracted.” Id. Thus even when the primary basis of the fee award is the
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percentage method, “the lodestar may provide a useful perspective on the reasonableness of a

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given percentage award.” Id. “The lodestar cross-check calculation need entail neither

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mathematical precision nor bean counting. . . . [courts] may rely on summaries submitted by the

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attorneys and need not review actual billing records.” Covillo v. Specialtys Cafe, No. C-11-

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00594-DMR, 2014 WL 954516, at *6 (N.D. Cal. Mar. 6, 2014) (internal quotation marks and

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citation omitted).

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An attorney is also entitled to “recover as part of the award of attorney’s fees those out-of-

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pocket expenses that would normally be charged to a fee paying client.” Harris v. Marhoefer, 24

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F.3d 16, 19 (9th Cir. 1994) (internal quotation marks and citation omitted).
B.

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United States District Court
Northern District of California

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Plaintiff seeks an award of attorneys’ fees totaling $115,500, which represents 33% of the

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Discussion

Settlement Fund, as well as $25,000 in expenses incurred in prosecuting this litigation.
Addressing expenses first, the Court has no hesitation in approving an award in the

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requested amount of $25,000. Class counsel has submitted a declaration stating that counsel

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incurred $27,077.98 in actual expenses, and that all of those expenses reasonably were necessary

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to prosecution of this litigation. See Gotto Decl. ¶ 15, ECF 129-3. The itemized list of expenses

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provided by counsel supports a conclusion that the expenses were reasonably necessary. See

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Gotto Decl. Exh. B. The requested amount of $25,000 is consistent with the notice sent to the

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class, which stated that Class Counsel would seek “reimbursement of expenses (not to exceed

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$25,000), which amounts if awarded will be paid from the Settlement Fund.” Final Class Notice ¶

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5, ECF 128-2.

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The Court likewise concludes that an award of attorneys’ fees in the requested amount of

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$115,500 is quite reasonable. Using the percentage-of-recovery method, the amount requested

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represents 33% of the Settlement Fund, which is at the high end of the range normally awarded by

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courts within the Ninth Circuit. See Barbosa v. Cargill Meat Sols. Corp., 297 F.R.D. 431, 448

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(E.D. Cal. 2013) (“The typical range of acceptable attorneys’ fees in the Ninth Circuit is 20

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percent to 33.3 percent of the total settlement value, with 25 percent considered a benchmark

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percentage.”). However, all of the relevant factors support the award: counsel obtained a good
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result for the class, there was a significant risk for Plaintiff in proceeding with the litigation,

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counsel’s work on the case was of a high quality, and counsel has litigated this case completely

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contingent on outcome – the firm has not been paid for any of its time or expenses incurred to

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date. See Gotto Decl. ¶ 5. Counsel’s intent to seek fees in the amount of 33% of the $350,000

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Settlement Fund was disclosed in the notice sent to the class, and the Court has not received any

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objections to the proposed award. Final Class Notice ¶ 5, ECF 128-2.
Finally, a lodestar cross-check confirms the reasonableness of the requested fee award.

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The total lodestar for class counsel from the inception of the case to the date the Court granted

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preliminary approval of the class action settlement is $514,626.90. Gotto Decl. ¶ 12 & Exh. A,

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ECF 129-2. That amount does not include time devoted to the case for preparing the motion for

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United States District Court
Northern District of California

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final approval, the motion for attorneys’ fees, or any other work performed after preliminary

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approval was granted. Based on this record, Plaintiff’s request for attorneys’ fees in the amount of

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$115,500 appears to be not only reasonable, but modest.
Accordingly, Plaintiff’s motion for attorneys’ fees and costs is GRANTED.

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IV.

ORDER

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For the foregoing reasons,

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(1)

Plaintiff’s Motion for Final Approval of Class Action Settlement is GRANTED;

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(2)

Plaintiff’s Motion for Award of Attorneys’ Fees and Costs is GRANTED; and

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(3)

The Clerk shall close the file pursuant to this order and the Order and Final

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Judgment issued simultaneously.

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Dated: June 30, 2017
______________________________________
BETH LABSON FREEMAN
United States District Judge

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