United States: California District Court Rejects Yet Another Class Settlement

"Another one bites the dust..."

In yet another decision rejecting a settlement of an employment class action, the Northern District of California refused to approve a settlement of a wage and hour suit due to numerous problems with the resolution reached between the parties. In Myles v. AlliedBarton Security Services, LLC, Case No. 12-cv-05661-JD (N.D. Cal. Nov. 12, 2014), the plaintiffs sought to represent a class of 11,500 security officers who contended that they were improperly denied accrued vacation pay under California law. Four months before trial, they settled the case for a total of $1,750,000, including an attorney fee award of 30 percent (or $525,000). We'll discuss the rest of the terms in a minute, but even if all the money had gone to the class, the amount per class member would have been a hair over $150.

The district court refused to approve the settlement for several reasons. We're listing these reasons below, but they all share two features: (1) the parties failed to make a record as to why they were necessary; and (2) while many might have survived individually, collectively they would have been difficult to defend absent compelling circumstances. What were the problematic terms?

-An overbroad release. The claims in the complaint were for unpaid vacation plus the usual tag-along California claims for waiting penalties, inaccurate wage statements and the like. The parties, however, had a release of all claims of any type. Absent an explanation, the court found this alone "enough to torpedo the settlement." Practice tip: A broad release for the named plaintiff would have been more defensible, and at a minimum the parties should have explained why a broader release for the class was necessary.

-The amount. The parties did little apart from reciting boilerplate to explain why the settlement was reasonable. This problem likely arose from the fact that the plaintiffs' attorneys did not want to catalog the problems with their case – which is understandable in our adversary system – but the result was that the court was left with little explanation of why the amount was fair. Given that the class members, once attorney fees and other expenses were subtracted, were getting about $98.91 each, and there was a claims process, the parties should have done a lot more to defend the numbers.

-Problems with the notice. This court thought that 45 days was too short a time for the class members to consider the settlement (other courts would likely disagree), but also cited inaccuracies in the notice itself as well as the use of figures that might mislead the class members into believing they were getting more than they really would.

-The attorney fee award. Citing Redman v. RadioShack Corp., 768 F.3d 622, 629 (7^th Cir. 2014) (we blogged on that case here), the court noted that the defendant had no interest in how much of the settlement actually went to the class members and how much went to the attorneys. Because the defendant was likely indifferent as to the allocation between the class and its counsel, the court recognized a higher responsibility to review the award. It also touched on the Ninth Circuit "benchmark" of 25 percent and the lack of any explanation of the higher amount.

-The incentive award. The lead plaintiff was to receive a $10,000 enhancement. Again, "[a]bsent a particularized showing of expenses incurred or injury suffered" by the lead plaintiff, and specifically expenses or injuries in excess of those of the other class members, the court found that the award could not stand.

After rejecting the settlement, the court concluded that "the ball is back in the parties' court: they are welcome to try their hand at reaching a new settlement, or to proceed to trial."

The Myles case is notable as part of a continuing trend requiring the parties, and the plaintiffs in particular, to spell out the settlement terms clearly and to support them with more than mere boilerplate language.

The bottom line: We've said it before – courts are more closely scrutinizing class action settlements, and parties need to be prepared to defend the terms they put in their deal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.