California District Court Rejects Class Action Settlement Due To Fee, Enhancement, and Other Issues

by BakerHostetler
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Do your homework before you seek approval of a class action settlement!

Meals on airlines have all but disappeared for anyone other than those in first class, but the company Sky Chefs contends on its website that it still serves over a million airplane meals a day. No, really! And, apparently, many of those meals are prepared in California by about 3,100 employees. As one  might have predicted of a California employer of that size, one of those 3,100 employees ultimately asserted the usual laundry list of California wage and hour claims (in this instance 10 of them), all arising out of alleged problems with rounding the time they clocked in and out. Cruz v. Sky Chefs, Inc., Case No. C-12-02705 DMR (N.D. Cal. May 19, 2014).

After months of procedural wrangling, the parties settled the case for a total of $1.75 million. Of that amount, the average class member would receive about $375, the lead plaintiff was to receive an incentive award of $15,000, and the plaintiffs’ attorneys were to be awarded $525,000 plus expenses. They presented the proposed agreement for court approval, which held a hearing on December 18, 2013. Now, ordinarily, we wouldn’t waste a reader’s time with the colloquy at the hearing, but, at least according to the opinion, the Magistrate Judge verbally requested “supplemental briefing on significant unanswered questions bearing on the fairness of the settlement.” Those questions apparently included:

  • Questions about the thoroughness of the examination used to estimate the value of the claim.
  • Discrepancies with administration costs (which proved to be higher than the parties had allocated)
  • Disparities with the incentive award
  • A 30% fee award, when the “benchmark” was only 25%

None of these is a trivial question, and yet the court found that the parties did not address them, but ”chose to respond in large part by indicating that the court’s concerns were misguided.” After reviewing the questions it had posed, and the lack of any explanation, the court was left with little choice but to reject the settlement. The opinion makes it clear that the court was not holding it to be unreasonable, but, rather, that the parties had not given it enough information to make a decision one way or the other.  In that regard, the plaintiffs’ attorneys were lucky as other courts have been more critical when faced with unsupported settlements, as we have blogged elsewhere.

One can only wonder why class counsel did not do more to defend the settlement. No attorney likes to talk about the weaknesses in their case, but they had to do so for the court to find the settlement reasonable. The incentive award  was either supportable by some risk or involvement by the named plaintiff, or should have been reduced to comply with the court’s expectations, and the district court was unlikely to overlook a one-year old Ninth Circuit case rejecting a far smaller figure. The attorney fee award, too, should have been supported if valid, and reduced if the time, expense, difficulty, etc. did not warrant it. The administrative cost discrepancy amounted to $3,600 or .02% of the settlement. Fortunately for the parties, the court gave them an additional 45 days to remedy this issues (along with correcting what the court thought was an unduly time line), so the settlement may yet stand. Just as airplane meals have all but disappeared, however, there are fewer free lunches in the class action context and the parties need to prove the reasonableness of the settlement terms.

The bottom line: When a United States Magistrate Judge tells you to answer “significant” questions about the calculations, administrative costs, incentive awards, and attorney fee awards in a class action settlement, it might be a good idea to do so.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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