In the Northern District of California, Judge William Alsup keeps a standing order informing attorneys of how he will evaluate any proposed class action settlements. Now, one of his fellow judges has joined him. While Tijero v. Aaron Bros., Inc., 2012 U.S. Dist. LEXIS 183238 (N.D. Cal. Jan. 2, 2013) is neither a standing order nor a direct explanation of all the factors Judge Saundra Brown Armstrong might consider in a class action settlement--in fact, it appeared to be a bog-standard FLSA wage-and-hour case--it bears the distinction of being one of the few opinions to deny even preliminary approval to a proposed settlement. And it did so without a single objection being filed. As a result, it does provide some valuable object lessons for attorneys looking for obvious pitfalls to avoid. Among those pitfalls:
Make sure the class members are the last ones to get paid. When a settlement is at hand, there are a lot of parties with their hands out, including the plaintiffs' attorneys (who may want to be paid first), named plaintiffs (who may want incentive payments), and claims administrators. So. much like a minimum wage paycheck, the award for the class member can get eaten up long before it reaches the allegedly wronged party. In this case:
After deducting attorneys' fees in the amount of $266,666.66 (which represents 33% of the common fund), costs in the amount of $30,000, incentive award payments to Plaintiffs in the collective amount of $10,000, claims administration fees in the amount of $68,000, and a PAGA penalty in the amount of $10,000, the net settlement amount, reflecting the amount available to pay claims made by class members, is projected to be $415,333.34. Based on the data provided by Defendant in connection with the mediation, class members were employed approximately 269,941 weeks for the period May 7, 2004 3 through the date of the mediation session. Assuming a total of 269,941 weeks and a net settlement fund of $415,333.34, the average net payout would equate to approximately $1.54 per week.
(Emphasis added, internal citations omitted.) Leaving so little for the class members is a surefire way to make sure that the settlement attracts objectors or sua sponte criticism.
Make no effort to meet your Rule 23 burden. Sure, in practice class settlements are usually certified more frequently than adversarial class actions. (This is one reason why defense attorneys get so annoyed at the citation of settlement opinions to bolster a tenuous certification motion.) But the court is still expecting the parties to make it look like they put in the effort. In this case, the court continually stressed that the plaintiffs provided no facts and no details about commonality, typicality, or adequacy. As a result, the court refused to certify a class for settlement.
Shoot for an overly broad release. Defendants often want the broadest release they can get away with, as value for their settlement money. But shooting for a release that is too broad will attract the same kind of scrutiny as not paying the class members. In this case, in exchange for their $1.54 per week, the absent class members would have released not just their opt-out wage act claims, but their opt-in FLSA collective action claims. That was more than the court could stomach.
Offer no chance to object. It's no secret that most plaintiffs and defense attorneys don't like class action objectors. So it probably made sense to both sides in this case to provide only 30 days to object to the settlement or opt out. But the Ninth Circuit has already held that objectors have a due process interest in contesting fee motions. So minimizing the chances of getting an objection in is likely to raise red flags.
The takeaway here is one that I have reiterated for several years now. Trying to settle on the cheap gets expensive very quickly. For defendants, a settlement that actually pays something to the class members is more likely to be approved, even if it is less attractive to plaintiffs' counsel.