Judge: Alison Mackenzie, Case: 21STCV12589, Date: 2024-04-11 Tentative Ruling

Case Number: 21STCV12589    Hearing Date: April 11, 2024    Dept: 55

NATURE OF PROCEEDINGS: Motion of Plaintiff and Aggrieved Employees for Order Granting Preliminary Approval of Class Action Settlement.

The motion is granted, as prayed.

The Court will sign and file the proposed order.

BACKGROUND

Plaintiff filed a PAGA Complaint alleging various wage-and-hour violations against Defendant, including misclassification of employees as being exempt, whereas they had no managerial authority.

Plaintiff seeks an order for preliminary approval of a class action settlement. The settlement class consists of approximately 57 current and former exempt Production Managers, and/or hourly employees of Defendant in California. The agreement would provide them with an overall value of $610,000.00.

LEGAL STANDARD

Judges are to apply an appropriate standard of review of PAGA case settlements, by inquiring whether settlements are “‘fair, adequate, and reasonable’” and “meaningful and consistent with the purposes of PAGA….” Moniz v. Adecco USA, Inc. (2021) 72 Cal.App.5th 56, 64. “If parties in a PAGA lawsuit agree to settle, the ‘proposed settlement shall be submitted to the [LWDA],’ and the ‘court shall review and approve [the] settlement.’” (§ 2699, subd. (l)(2).) Although our Supreme Court has stated that this provision ensures that ‘any negotiated resolution is fair to those affected’…, California courts have not determined the standards by which a trial court reviews and approves a proposed settlement.” Starks v. Vortex Indus., Inc. (2020) 53 Cal.App.5th 1113, 1124. Accord Williams v. Sup. Ct. (2017) 3 Cal.5th 531, 549 (“PAGA settlements are subject to trial court review and approval, ensuring that any negotiated resolution is fair to those affected.”). “There is no willful failure to pay wages if the employer and employee have a good faith dispute as to whether and when the wages were due.” Nordstrom Com. Cases (2010) 186 Cal.App.4th 576, 584.

In that regard, settling parties commonly advocate grafting class-action rules onto the legislative procedure, which is somewhat analogous. Fundamentally, a PAGA representative action is not a class action, because there is no collection of individual claims in a PAGA action, but instead a representative action on behalf of the state. Kim v. Reins Int'l California, Inc. (2020) 9 Cal.5th 73, 87.

Below is an outline of applicable class-action law that often applies to PAGA claims:

Procedure: “A settlement or compromise of an entire class action, or of a cause of action in a class action, or as to a party, requires the approval of the court after hearing.” Cal. Rules of Court, rule 3.769(a). See also generally Cal. Practice Guide: Civ. Pro. Before Trial (Civ. Pro. Before Trial), § 14:138.20 et seq. The settlement agreement and proposed notice to class members must be filed with the motion, and the proposed order must be lodged with the motion. Ibid.

Factors Re Settlement Approval: A settlement of a class action requires the approval of the court after hearing. Cal. Rules of Court, rule 1859(a).

As to whether the settlement is fair, adequate, and reasonable to the class, factors to consider include:

            •           The strength of plaintiffs’ case

            •           The risk, expense, complexity, and likely duration of further litigation

            •           The risk of maintaining class action status through 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

            •           The reaction of class members to the proposed settlement

Civ. Pro. Before Trial, supra, at §14:139.13; Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 244-45.

Courts also decide whether the agreement is a product of fraud or overreaching by, or collusion between, the negotiating parties. Further, the Court’s responsibility is to “prevent fraud, collusion or unfairness to the class” that may be caused by settlement or dismissal of a class action by the negotiators. Consumer Advocacy Group, Inc. v. Kintetsu Ent. Of Amer. (2006) 141 Cal.App.4th 46, 60.

Class settlements are presumed fair where: “‘(1) the settlement is reached through arm's-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small.’” Chavez v. Netflix (2008) 162 Cal.App.4th 43, 52. Class settlements have been found to be fair and reasonable even where there would be less than one hundred percent recovery, and the amount of relief is “‘relatively paltry.’” Wershba v. Apple Computer (2001) 91  Cal.App.4th 224, 250.

“[T]he merits of the underlying class claims are not a basis for upsetting the settlement of a class action....” 7-Eleven Owners for Fair Franchising v. The Southland Corp. (2000) 85 Cal.App.4th 1135, 1150.

It is appropriate for the trial court to utilize a different standard to determine the propriety of a settlement class as opposed to a litigation class certification. Specifically, a lesser standard of scrutiny is used for settlement cases. Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1807 fn. 19. “'The trial court has broad discretion to determine whether the settlement is fair.'”  Cellphone Termination Fee Cases (2009) 180 Cal.App.4th 1110, 1117. “‘To merit reversal, both an abuse of discretion by the trial court must be ‘clear’ and the demonstration of it on appeal ‘strong.’”’ Cho v. Seagate Technology Holdings, Inc. (2009) 177 Cal.App.4th 734, 743.

The trial court’s duty is to have sufficient information to determine if the settlement is fair, adequate, and reasonable, as to the absent class members. 7-Eleven Owners for Fair Franchising v. The Southland Corp. (2000) 85 Cal.App.4th 1135, 1151. Before approving a class-action settlement, courts must be “provided with basic information about the nature and magnitude of the claims in question and the basis for concluding that the consideration being paid for the release of those claims represents a reasonable compromise.” Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 133. A motion for approval of a class-action settlement need not “contain evidence in the form of an explicit statement of the maximum amount the plaintiff class could recover if it prevailed on all its claims…” but must include a record allowing “‘an understanding of the amount that is in controversy and the realistic range of outcomes of the litigation.’” Munoz v. BCI Coca-Cola Bottling Co. of Los Angeles (2010) 186 Cal.App.4th 399, 409.

Settlement provisions allowing unclaimed settlement funds to revert to defendants are permissible if they do not render the settlement unfair, inadequate or unreasonable, and where deterrence of defendants' conduct is not a factor, such as where defendants have denied any wrongdoing. Cundiff v. Verizon California, Inc. (2008) 167  Cal.App.4th 718, 728-29.

Notice: Where the court has certified the action as a class action, notice of the final approval hearing must be given to the class members in the manner specified by the court. Generally, the form of notice and method of notification are within the court’s discretion. Civ. Pro. Before Trial, supra, at §14:139.11. The California Rules of Court leave substantial room for creativity in designing the means of notifying class members.  Hypertouch, Inc. v. Sup. Ct. (2005) 128  Cal.App.4th 1527, 1551. Trial courts have discretion as to the manner and content of notice to class members, including how to address subjects required by Civil Code Section 1781 and California Rules of Court, Rule 3.766. Chavez v. Netflix (2008) 162 Cal.App.4th 43, 57.

California Rules of Court, rule 3.766 sets forth lists of elements required regarding providing notice to class members. “If the court grants preliminary approval, its order must include the time, date, and place of the final approval hearing; the notice to be given to the class; and any other matters deemed necessary….” Cal. Rules of Court, rule 3.769(e). Notices of settlement to class members must provide adequate information about the effects of settling to allow them to decide whether to accept the benefit, or to opt out, and the available avenues for pursuing an individual claim. Chavez v. Netflix (2008) 162 Cal.App.4th 43, 56.

“The purpose of the class notice in the context of a settlement is to give class members sufficient information to decide whether they should accept the benefits offered, opt out and pursue their own remedies, or object to the settlement. [Citation omitted.] As a general rule, class notice must strike a balance between thoroughness and the need to avoid unduly complicating the content of the notice and confusing class members. Here again the trial court has broad discretion. [Citation omitted.]” Wershba, supra, at 252.

Class Certification: As to class settlement matters, there is a relaxed standard for class certification, because case-management and trial issues are not concerns. Global Minerals & Metals Corp. v. Sup. Ct. (2003) 113 Cal.App.4th 836, 859. Generally, “[t]he party seeking certification has the burden to establish the existence of both an ascertainable class and a well-defined community of interest among class members. …. The ‘community of interest’ requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class….” Sav-on Drug Stores, Inc. v. Sup. Ct. (2004) 34 Cal.4th 319, 326.

Releases: “A general release—covering ‘all claims’ that were or could have been raised in the suit—is not uncommon in class action settlements.” Villacres v. ABM Industries Inc. (2010) 189 Cal.App.4th 562, 588.

Attorneys’ Fees: “Any agreement, express or implied, that has been entered into with respect to the payment of attorney fees or the submission of an application for the approval of attorney fees must be set forth in full in any application for approval of the dismissal or settlement of an action that has been certified as a class action.” Cal. Rules of Court, rule, 3.769(b). Generally, only a minimal record is required for awarding the attorney fees. Civ. Pro. Before Trial, supra, at §14:146. Procedurally, an attorney fee award is handled at the fairness hearing. PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095-96.

One test is whether class counsel are placed in a position that might endanger the fair representation of the clients and whether they will be compensated on some basis other than legal services. Rebney v. Wells Fargo Bank (1991) 232 Cal.App.3d 1344, 1347. Alternative discretionary approaches are the common fund theory, and the “lodestar” method, by which the court calculates base amounts from a compilation of time spent and reasonable hourly compensation of each attorney and then adjusts the base amounts. Id.  The primary method for establishing the amount of “reasonable” attorney fees is the lodestar method. Thayer v. Wells Fargo Bank (2001) 92  Cal.App.4th 819, 833. “[T]he fee setting inquiry in California ordinarily begins with the “lodestar,” i.e., the number of hours reasonably expended multiplied by the reasonable hourly rate. “California courts have consistently held that a computation of time spent on a case and the reasonable value of that time is fundamental to a determination of an appropriate attorneys' fee award…” PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095. “The trial judge has discretion to determine the value of professional services, based upon a proper utilization of the lodestar adjustment method. Ramos v. Countrywide Home Loans, Inc. (2000) 82 Cal.App.4th 615, 626.  “[W]hen a number of persons are entitled in common to a specific fund, and an action brought by a plaintiff or plaintiffs for the benefit of all results in the creation or preservation of that fund, such plaintiff or plaintiffs may be awarded attorney's fees out of the fund.” Serrano v. Priest (1977) 20 Cal.3d 25, 34.  “In referring to ‘reasonable’ compensation, we indicated that trial courts must carefully review attorney documentation of hours expended; ‘padding’ in the form of inefficient or duplicative efforts is not subject to compensation…..Under Serrano III, the lodestar is the basic fee for comparable legal services in the community; it may be adjusted by the court based on factors including, as relevant herein, (1) the novelty and difficulty of the questions involved, (2) the skill displayed in presenting them, (3) the extent to which the nature of the litigation precluded other employment by the attorneys, (4) the contingent nature of the fee award. (Citation omitted) The purpose of such adjustment is to fix a fee at the fair market value for the particular action.”  Ketchum III v. Moses (2000) 24 Cal.4th 1122, 1132.

Attorney fees determined under either the lodestar method, or the common fund doctrine, must be a reasonable fee to compensate attorneys for their efforts, and percentage figures must accurately reflect the marketplace. Consumer Privacy Cases (2009) 175  Cal.App.4th 545, 558. While fee awards of 25 percent of a fund are regarded as the “benchmark” award that should be given, also awards of one-third have been regarded as being within a reasonable range. Ibid.

Enhancement Fees: An award of a service fee to class representatives has been upheld, where the evidence supports a finding that the proposed service payment to Plaintiff is fair and reasonable. E.g., Civ. Pro. Before Trial, supra, at §14:146.10 (citing Bell v. Farmers Ins. Exch. (2004) 115 Cal.App.4th 715, 726). “[S]pecificity, in the form of quantification of time and effort expended on the litigation, and in the form of reasoned explanation of financial or other risks incurred by the named plaintiffs, is required in order for the trial court to conclude that an enhancement was ‘necessary to induce [the named plaintiff] to participate in the suit ….’” Clark v. Amer. Residential Services LLC (2009) 175  Cal.App.4th 785, 807.

Order: A proposed order must be lodged. Cal. Rules of Court, rule 3.769(c).

Scheduling: Below is a typical list of items that may be scheduled, if the motion is granted:

1. Plaintiffs’ submission of revised form of Notice to Court, if ordered.

2. Defendant’s mailing list to plaintiff’s counsel, in mailing label format.

3. First mailing of notice to the class.

4. Follow-up mailing of notice where first mailing is returned.

5. Deadline for opt-outs and objections

6. Any supplemental briefs regarding proof of mailing, opt-outs, objections, and request for attorneys’ fees.

7. Fairness hearing & award of attorneys’ fees.

8. Claims administration:

(a)        Deadline for class to submit proof of claims.

(b)        Report on residual to be filed.

(c)        Hearing re: disposition of residual.

See generally Cal. Rules of Court, rule 3.769(e); Civ. Pro. Before Trial, supra, at §§14:139.10, 14:147 et seq.

ANALYSIS

Here, the Court finds that the subject PAGA settlement is fair, adequate, and reasonable. The settlement is meaningful and consistent with the purposes of PAGA as to all subject, affected employees. Considerations include the risks like Defendant’s denial of wrongdoing and a risk of losing at a trial. Further, the settlement is intelligently based upon discovery and investigation, and the assistance of a mediator. Moreover, each employee’s settlement allocation will be calculated by a settlement administrator pursuant to terms of the settlement agreement based upon sound estimates of amounts recoverable. The estimated 57 Class Members will receive an estimated average recovery per class member of approximately $5,292.00.

Further, the Court finds that the evidence filed with the motion provides sufficient information about the nature and magnitude of the claims, amounts in controversy, the realistic range of outcomes of litigation, and the bases for settlement amounts, to enable the Court to ascertain that the proposed compromise is fair, adequate, and reasonable as to the class members.

Additionally, the Court finds that the proposed notices to class members are clearly organized, uncomplicated and clear, and sufficiently contain explanations of the settlement, procedures for class members to object at a specified hearing, and information about the effects of settling, in order to enable them to decide whether to accept the benefits, to opt out, to do nothing, or to pursue claims individually.

Also, the Court approves preliminarily Plaintiff’s counsel’s request for up to one-third of the settlement amount for attorneys’ fees (up to $203,333.33), plus reimbursement of actual litigation costs up to $15,000.00, as being within a reasonable range and based on a reasonable number of hours multiplied by reasonable hourly rates, given work done by skilled counsel.

And the Court makes further orders as set forth in the proposed order.

CONCLUSION

The Court grants preliminary approval of the subject settlement.