Craig et al v. FedEx Ground Package System Inc

Filing 290

OPINION AND ORDER The plaintiffs' motion for preliminary approval of the proposed ERISA class action settlement ( 3152 in 3:05-md-00527-RLM-MGG, 269 in 3:05-cv-00530-RLM-MGG) is GRANTED as set forth in the Opinion and Order. A Fairness Hearing is set for 3/11/2019 at 9:30 AM (EDT) in South Bend. Signed by Judge Robert L Miller, Jr on 9/5/18. Associated Cases: 3:05-md-00527-RLM-MGG, 3:05-cv-00530-RLM-MGG(jld)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION

IN RE: FEDEX GROUND PACKAGE
SYSTEM, INC. EMPLOYMENT
PRACTICES LITIGATION (MDL 1700)

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This Document Relates to:
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CARLENE M. CRAIG, et al.,
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Plaintiffs
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vs.
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FEDEX GROUND PACKAGE SYS., INC. )
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Defendant
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Cause No. 3:05-MD-527 RLM

Cause No. 3:05-CV-530 RLM

OPINION AND ORDER
For the following reasons, the court grants the plaintiffs’ motion1 for
preliminary approval of the proposed ERISA class action settlement [Doc. No.
3152].
I. Procedural History
The plaintiffs filed this suit, the Kansas ERISA class action, in 2004, and
amended their complaint in January 2006 to include an ERISA national class
action. The court granted the plaintiffs’ motion to certify a nationwide ERISA class
in October 2007. The class included:

1

Not all of the plaintiffs named in the Fifth Amended Complaint joined in the
motion for preliminary approval. Carlene Craig withdrew as a named plaintiff on
November 29, 2006 [Doc. No. 409], and Ronald Perry and Alan Pacheco have filed
objections to the motion [Doc. No.3166].

All persons who: 1) entered into a FXG Ground or FXG Home Delivery
Form Operating Agreement (now known as a Form OP-149 and Form
OP-149 RES); 2) drove a vehicle on a full-time basis (meaning
exclusive of time off for commonly excused employmet absences)
during the class period to provide package pick-up and delivery
services pursuant to the Operating Agreement; and 3) were eligible for
ERISA Plan benefits, absent their mischaracterization as independent
contractors.
[Doc. No. 906].2
On June 28, 2010, the court granted FedEx Ground’s motion for partial
summary judgment, and dismissed the plaintiffs’ ERISA claims without prejudice
for failure to exhaust administrative remedies. [Doc. No. 2078]. Pursuant to the
order, only the named plaintiffs in the Craig case were required to exhaust their
administrative remedies. Id. at p. 32 (citing In re Household Int’l Tax Reduction
Plan, 441 F.3d 500, 501-02 (7th Cir. 2006)).
Administrative review was completed in February 2011, while the Craig case
was on appeal. When the court of appeals remanded the case in July 2015, the
parties moved for an immediate stay, so they could engage in settlement
negotiations.

2

Plaintiffs’ Fifth Amended Complaint and Section I(B) of the proposed
Settlement Agreement modify the class to exclude class members in the Arkansas,
Florida, and Indiana cases, Harris v. FedEx Ground Package System, Inc., No. 4:06CV-175 (E.D. Ark.), Carlson v. FedEx Ground Package System, Inc., No. 8:05-CV-1380
(M.D. Fla.), and Riewe v. FedEx Ground Package System, Inc., No. 3:05-CV-390 (N.D.
Ind.), because they released their ERISA claims under the terms of prior settlements
[Doc. No. 3076-1 at ¶ 41][Doc. No. 3154-1], but the parties have not sought leave to
amend the certification.

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Michael Dickstein was selected to serve as mediator, and successfully
negotiated the settlement of the non-ERISA claims. Mediation on the ERISA claims
was set for June 6, 2016. In preparation, the plaintiffs retained a forensic
accounting expert, David Breshears, to calculate their potential damages and to
prepare a damage exposure model, the parties exchanged their damages models,
and plaintiffs’ Co-Lead Counsel consulted with local counsel for the named
plaintiffs and coordinated their attendance at the mediation. The parties didn’t
reach an agreement on June 6, 2016, but they continued to work with Mr.
Dickstein toward resolution of the ERISA claims, and on June 7, 2017 executed
a “Deal Point Memorandum” setting forth the terms of a tentative settlement.
On June 19, 2017, the plaintiffs filed their Fifth Amended Complaint
reasserting the ERISA claims and related state law claims,3 and in late
August/early September 2017 they executed the Settlement Agreement [Doc. No.
3154-1] for which the plaintiffs now seek preliminary approval.

II. The Proposed Settlement
Under the terms of the Settlement Agreement, FedEx Ground would pay
$13,325,000 (the “Total Settlement Fund”) to resolve all ERISA class claims (and

3

The Fifth Amended Class Action Complaint asserts claims for violations of
ERISA and the Kansas Wage Payment Act, rescission of the Operating Agreement,
fraud, and declaratory judgment [Doc. No. 3076-1]. The plaintiffs report that the state
law claims contained in the original and amended complaints were settled on October
29, 2015, after the case was remanded with instructions to find that the plaintiffs
were employees. [Doc. No. 3153 at p. 10] [Doc. No. 3154 at ¶¶ 14].

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similar state laws) that were brought, or could have been brought, against FedEx
Ground during the release period, which runs from the beginning of “the class
period” (February 11, 1998 for Kansas class members and January 9, 2001 for all
other class members) through September 8, 2017, “the date of filing [the] motion
for preliminary approval of the settlement”. [Doc. No. 3154-1(Sec. I(W))]. In
exchange, the named plaintiffs and all class members who don’t opt out would be
required to execute a general release of any claim they had or may have had
during that 15-year period.
The plaintiffs’ Lead Counsel propose to distribute the $13,325,000
settlement this way:
(1) Administration and notice costs – approximately $125,000;
(2) Service awards to the 13 named plaintiffs – totaling $67,500;
(3) Attorneys’ fees – a “maximum of” $4,377,062 (33.33% of the Total
Settlement Fund after deductions for administrative costs and service
awards);
(4) Life Insurance Fund – 52.5% of the “net common fund” (an estimated
$4,527,659.20) will be allocated “to resolve claims for life insurance benefits
presented by the legal heirs or estates of deceased class members who died
while their [FedEx Ground] contracts were active,” with any remaining
balance reverting to FedEx Ground;
(5) General Settlement Fund – 47.5% of the “net common fund” (an
estimated $4,104,251.97) will be allocated “to resolve the ERISA benefit
claims under the other employee benefit plans that were in effect during the
release period, which include the [FedEx Ground] medical, dental, vision,
long term disability, short term disability, and 401(k) plans,” with no
reversion; and

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(6) Reserve Fund – $131,325 (1% of the Total Settlement Fund after
deductions for administrative costs and service awards).4
[Doc. No. 3153 at p. 12][Doc. No. 3154 at ¶¶ 17-18]. Counsel estimated that the
average recovery per class member will be around $197.01 (ranging between
$10.07 to $764.93), and asserted that the $13,325,000 settlement “represents
approximately 127% of net expected settlement value and approximately 25% of
Plaintiffs’ maximum damages (including interest under ERISA – well within the
range of reasonable settlement value.” [Doc. No. 3153 at pp. 13 and 23-24][Doc.
No. 3154 at ¶ 28].
Two of the named plaintiffs, Ronald Perry and Alan Pacheco, filed an
objection to the motion for preliminary approval, contending that: “[t]he proposed
settlement is premised on the assumption that there is no possibility of plaintiffs
prevailing on any ERISA claims after 2001 and 2002" – when FedEx Ground
amended its medical and 401(k) benefit plans to exclude from coverage persons
who were “independent contractors later adjudged by a court to be an employee”
[Doc. No. 3154-13] – but requires class members to release FedEx from liability
for any ERISA claims that may have arisen in the fifteen years since the plans

4

By the court’s calculation, the net Settlement Fund available for distribution
to the General Settlement and Life Insurance Funds would be $8,624,113
($13,325,000-$125,000 (administrative and notice costs)-$67,500 (service awards)$4,377,062 (attorneys’ fees)- $131,325 (Reserve Fund)). Of that amount,
$4,527,659.20 would be allocated to the Life Insurance Fund (52.5% of the net
Settlement Fund), as plaintiffs contend, leaving $4,096,453.68 (not $4,104,251.87) for
the General Settlement Fund (47.5% of the net Settlement Fund) – a difference of
approximately $7,798.

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were amended, without providing any compensation for the extended release.
Counsel for Mr. Perry and Mr. Pacheco believes the fifteen-year release required
under the settlement’s terms is unreasonable because class members might still
have a viable ERISA claim after 2001 based on an alleged violation of the antidiscrimination provisions in § 401(m) of the Internal Revenue Code, and the value
of that claim, even if minimal, wasn’t included in the plaintiffs’ damages model or
considered by Plaintiffs’ Lead Counsel in determining what a reasonable
settlement would be.5 But that argument is speculative at best, and unsupported
by the evidence.
The objecting plaintiffs’ counsel makes conclusory statements about what
the projected value of any post-2001 claims might be, and surmises that the total
maximum damages might reach $810 million – a far cry from the $53,712,484
maximum damages estimate used by Plaintiffs’ Co-Lead and Class Counsel as the
starting point in determining what a reasonable settlement might be. But she
provides no evidentiary basis for her calculations and only a cursory statement

5

Plaintiffs’ counsel opines that: (1) the amendments to the benefit plans may
violate IRS anti-discrimination provisions [Internal Revenue Code § 401(m)], which
“would not allow FedEx to exclude its drivers from coverage because, if the drivers are
employees (regardless of how they are classified), the plans would be overly ‘top
heavy’, meaning that they would provide benefits disproportionately to higher paid
employees (i.e. FedEx managers)”; and (2) “ERISA may provide a private right of action
to enforce these provisions.” Citing i.e., Crouch v. Mo-Kan Iron Workers Welfare Fund,
740 F.2d 805, 808-09 (10th Cir. 1984); Renda v. Adam Meldrum & Anderson Co., 806
F.Supp. 1071, 1082 (W.D. N.Y. 1992). [Doc. No. 3166 at p. 2-3, n. 5].

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regarding her IRC theory of liability; she hasn’t shown that the proposed
settlement is unreasonable.
Plaintiffs’ Co-Lead and Class Counsel attest in their affidavits that:
•

Their valuation of the ERISA claims was based upon the report of a
forensic accountant, David Breshears, taking into consideration the
multiple risks associated with this litigation, the likelihood of success
of the § 501(a)(1) claims raised in the Fifth Amended Complaint, and
the viability of claims that might exist after FedEx Ground amended
the medical and 401(k) plans, including the IRC claim.

•

“After researching the legal issues and considering such a claim in
the context of the facts presented, counsel for the [class
representatives] determined the likelihood of success on any such
claim to be extremely low and assigned a very low probability of
succeeding on claims other than under Section 502(a)(1) for benefits.”

•

Applying the same discounts used to value the other ERISA claims
and assuming the IRC claim had a likelihood of success between
.05% and 5%, the settlement range for that claim would add between
$77,200 and $7,720,000 to the estimated net value of the other
ERISA claims ($10,436,200) for an aggregate settlement range of
between $10,513,400 and $18,156,200.

•

The $13,325,000 proposed settlement is “just below midpoint of th[at]
range” and is “within the range of a reasonable settlement.”

[Doc. No. 3154 at ¶¶ 26-30][Doc. No. 3168 at ¶¶ 3-8].
Based upon the limited record before it, the court agrees. Neither Mr. Perry,
nor Mr. Pacheco, has presented any evidence to the contrary.

III. Findings and Conclusions
Pursuant to Fed. R. Civ. P. 23, the court FINDS that the terms of the
Settlement Agreement are: (a) fair, reasonable, and adequate in light of the

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relevant factual, legal, practical and procedural considerations of the action; (b)
free of collusion to the detriment of the class members; and (c) within the range
of possible final judicial approval, subject to further consideration thereof at the
Fairness Hearing described in this Order and GRANTS the Motion for Preliminary
Approval of the Proposed ERISA Class Action Settlement [Doc. No. 3152].
IT IS HEREBY ORDERED THAT:
1. The terms of the Settlement Agreement are preliminarily approved, as set
forth below, subject to further consideration at a Fairness Hearing, which shall be
held before this court on March 11, 2019 at 9:30 a.m. (E.D.T.). The Settlement
Agreement [Doc. No. 3154-1] is incorporated by reference in this Order.
2. The Settlement is sufficient to warrant notice thereof, as set forth below,
and a full hearing.
3. The court has received and reviewed the proposed form of Notice of
Settlement to Class Members (“Notice”) attached as Exhibit 5 and Exhibit 6 to the
Settlement Agreement. The proposed Notices in the forms submitted to the court
are hereby approved. The court further finds that notice by mail is the most
effective form of notice under the circumstances of this case, where the class
members have been identified by Defendant’s records. As provided in the
Settlement Agreement, the Settlement Administrator shall mail (or cause to be
mailed) the Notice to the class members. Notice shall be mailed on or before
November 5, 2018. If any Notice is returned as undeliverable, the Settlement

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Administrator shall re-mail the Notice to the forwarding address, if any, provided
on the face of the returned mail. If the returned mail does not reflect a forwarding
address, then neither class counsel nor any other party shall have any further
obligation to re-mail the Notice.
4. Any newly-identified class member who wishes to be excluded from and
not be bound by the Settlement Agreement must complete and mail a request for
exclusion to the Settlement Administrator postmarked no later than 30 days
after transmittal of the Notice with certain exceptions identified in the parties’
Settlement Agreement. For a class member’s opt-out to be valid, it must be timely
(as judged by the postmarked deadline set forth above) and (a) state the Class
Member’s full name, address, and telephone number; (b) state unequivocally that
the Class Member wishes to opt out from the settlement; and (c) include the Class
Member’s signature (an attorney’s signature is not sufficient). Any class member
who does not submit a timely opt-out, and otherwise comply with all requirements
for requesting exclusion from the classes as set forth above and in the Notice,
shall be bound by the Settlement Agreement, including the Release provisions
therein, and any Final Approval and Final Approval Order entered in the action.
Further, any class member who is a successful opt-out will be deemed to have
waived any rights or benefits under the settlement, and will have no standing to
object to the settlement or to seek to intervene in the Action. On or before the date

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of the Fairness Hearing, class counsel and defendant’s counsel shall create and
jointly file with the court a comprehensive list of opt-outs.
5. Any class member who does not opt out and who wishes to object to the
settlement, in whole or in part, must file a written objection with the court by
January 4, 2019 (60 days after mailing of the Settlement Notices) (see Sec VI(A)(2)
of the Settlement Agreement), and send copies to Plaintiffs’ Co-Lead Counsel and
FedEx Ground. To be considered valid, each objection must be timely (as judged
by the filing deadline set forth above) and (a) provide the Class Member’s full
name, address, signature, and telephone number; (b) explain the basis of the
objection; and (c) state whether the objector intends to appear at the Fairness
Hearing. Any class member who does not submit a timely and valid objection in
complete accordance with this Order, the Notice of Settlement, and the Settlement
Agreement shall not be treated as having filed a valid objection to the settlement.
Objections that are untimely and/or otherwise invalid will not be considered by
this Court. In the event any objections are filed, Plaintiffs and/or Defendant may
file any response to any objections no later than 7 days prior to the Fairness
Hearing.
6. A Fairness Hearing shall be held before the undersigned on March 11,
2019 at 9:30 a.m. (E.D.T.), in the United States District Court for the Northern
District of Indiana, 204 S. Main Street, South Bend, Indiana, to determine, among
other things; (a) whether the proposed settlement should be approved as fair,

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reasonable, and adequate; (b) whether the action should be dismissed with
prejudice pursuant to the terms of the Settlement Agreement; (c) whether class
members should be bound by the release set forth in the Stipulation and
Settlement Agreement; (d) the amount of attorneys’ fees and costs to be awarded
to class counsel; and (e) the amount to be awarded to Plaintiffs for their services
as class representatives, if any. This hearing may be postponed, adjourned, or
continued by order of the court without further written notice to the class. Class
Members who have filed timely objections to the Settlement and timely notice to
the Court of their intent to appear at the Fairness Hearing may appear either in
person or telephonically (see Section VI(A)3) of the Settlement Agreement).
7. Rust Consulting, Inc. is designated and approved as the Settlement
Administrator to perform the functions identified in Sections II and V of the
Settlement Agreement, pursuant to Section 468B of the Internal Revenue Code
and Treas. Reg. § 1.468B-1, 26 CFR § 1.468B-1, et seq., and this Order.
8.

Applications

for

awards

of

attorneys’

fees,

costs,

settlement

administration expenses, and any service awards, shall be filed with the court on
or before October 20, 2018. Objections shall be filed on or before January 4,
2019. The plaintiffs’ Motion for Final Approval and Memoranda in support of the
settlement shall be filed on or before April 4, 2019.

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9. All other events contemplated by the Settlement Agreement to occur after
this Order and before Final Approval shall be governed by the Settlement
Agreement, to the extent not inconsistent with this order.
10. The parties are authorized to establish the means necessary to
administer the Settlement.
11. All proceedings in the action, other than those that may be necessary
to carry out the terms and conditions of the Settlement Agreement or related
and/or incidental responsibilities are stayed and suspended until further order
of this Court.
12. If Final Approval of the settlement is not granted, or if the settlement is
terminated for any reason, the settlement and all proceedings had in connection
shall be without prejudice to the status quo ante rights of the parties to the action,
and all orders issued pursuant to the settlement shall be vacated. In such an
event, the settlement and all negotiations concerning it shall not be used or
referred to in this action for any purpose whatsoever. This Order shall be of no
force or effect if Final Approval does not occur for any reason, and nothing in this
Order shall be construed or used as an admission, concession, or declaration by
or against defendant, of any fault, wrongdoing, breach, or liability. Nor shall this
Order be construed by or against Plaintiffs or the Class Members that their claims
lack merit or that the relief requested in this action is inappropriate, improper, or
unavailable, or as a waiver by any party of any defenses it may have.

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13. Neither the settlement nor the Settlement Agreement constitutes an
admission, concession, or indication by the parties of the validity of any claims or
defenses in the action; or of any wrongdoing, liability, or violation of law by the
defendant, who vigorously deny all of the claims and allegations raised in the
action.
14. The court reserves the right to approve the settlement with such
modifications, if any, as may be agreed to by class counsel and defendant’s
counsel without future notice to the class members.
15. Between the date of the entry of this Order and the date of the Fairness
Hearing, the classes and each class member shall be enjoined from initiating any
claim, suit or proceeding against the defendant with respect to any claim that is
the subject of the settlement.
SO ORDERED.
ENTERED:

September 5, 2018

/s/ Robert L. Miller, Jr.
Judge, United States District Court

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