Lusk v. Five Guys Enterprises LLC ( 2019 )

1 UNITED STATES DISTRICT COURT 2 EASTERN DISTRICT OF CALIFORNIA 3 4 JEREMY R. LUSK, CASE NO. 1:17-cv-00762-AWI-EPG 5 Plaintiff, ORDER RE PRELIMINARY FAIRNESS 6 v. EVALUATION 7 FIVE GUYS ENTERPRISES LLC; and (Doc. No. 36) ENCORE FGBF, LLC, 8 Defendants. 9 10 11 I. Introduction 12 In this lawsuit an employee, on behalf of himself and a proposed class of his fellow 13 employees, is suing his two employers for violating California wage-and-hour laws and California 14 and federal consumer reporting laws. The employee is Plaintiff Jeremy Lusk, and the employers 15 are Defendant Five Guys Enterprises LLC and Defendant Encore FGBF, LLC (collectively 16 “Defendants”). 17 After Lusk initiated this lawsuit, the parties reached a proposed class action settlement 18 agreement, which the parties then presented to the Court for approval under Rule 23(e) of the 19 Federal Rules of Civil Procedure. Accordingly, now before the Court is Lusk’s motion for a 20 preliminary fairness determination of the proposed settlement agreement. For the reasons 21 discussed infra, the Court does not find that the proposed settlement agreement is fair or warrants 22 class treatment. 23 II. Background 24 From approximately August 2016 to November 2016, Lusk worked in California as a 25 manager-in-training for his fast-food restaurant employers, Defendants. In addition to employing 26 Lusk, Defendants also employed a class of at least 2,206 non-exempt employees (hereinafter the 27 “Class”) in California from August 2013 to the present. According to Lusk, Defendants violated 28 several California wage-and-hour laws and California and federal consumer reporting laws with 1 respect to Lusk and the Class. Based on those violations, Lusk filed this lawsuit against 2 Defendants, pleading the following claims: 3 FCRA, ICRAA, and CCRAA disclosures (first, second, third, and fourth claims): 4 Defendants evaluated Lusk and the Class for potential employment. In doing so, Defendants 5 procured and/or caused to be prepared credit reports, background reports, and investigative 6 consumer reports on Lusk and the Class. Defendants failed to make disclosures to Lusk and the 7 Class that are required under the federal Fair Credit Reporting Act (“FCRA”),1 California’s 8 Investigative Consumer Reporting Agencies Act (“ICRAA”),2 and California’s Consumer Credit 9 Reporting Agencies Act (“CCRAA”).3 10 Meal breaks (fifth claim): Defendants failed to provide Lusk and the Class with meal 11 breaks, and Defendants failed to pay premium wages to Lusk and the Class for unprovided meal 12 breaks, thereby violating California’s Labor Code. 13 Rest breaks (sixth claim): Defendants failed to provide Lusk and the Class with rest breaks, 14 and Defendants failed to pay premium wages to Lusk and the Class for unprovided rest breaks, 15 thereby violating California’s Labor Code. 16 Minimum wages and overtime wages (seventh claim): Defendants forced Lusk and the 17 Class to work off-the-clock. Consequently, Defendants failed to pay Lusk and the Class minimum 18 wages and overtime wages, thereby violating California’s Labor Code. 19 Expenditure indemnification (eighth claim): Defendants failed to reimburse Lusk and the 20 Class for necessary vehicle gas and mileage expenditures, thereby violating California’s Labor 21 Code. 22 Wage statements (ninth claim): Defendants failed to provide Lusk and the Class with 23 accurate itemized wage statements, thereby violating California’s Labor Code. 24 Timely payment of final wages (tenth claim): When the employment of Lusk and the Class 25 ended, Defendants failed to timely pay Lusk and the Class all final wages, thereby violating 26 California’s Labor Code. 27 1 FCRA is codified at 15 U.S.C. §§ 1681 et seq. 28 2 ICRAA is codified at Cal. Civ. Code §§ 1786 eq seq. 1 Unfair competition (eleventh claim): On the basis of Defendant’s alleged conduct 2 identified supra in the fifth, sixth, seventh, and eighth claims, Defendants engaged in unfair 3 competition, thereby violating California’s unfair competition law (“UCL”).4 4 PAGA (twelfth claim): On the basis of Defendant’s alleged violations of the California 5 Labor Code, Lusk and the Class are aggrieved employees who seek penalties from Defendants on 6 behalf of the State of California pursuant to California’s Private Attorney General Act (“PAGA”).5 7 After Lusk filed the foregoing claims against Defendants, Lusk and Defendants conducted 8 some discovery. Lusk and Defendants then participated in a mediation with Deborah Crandall 9 Saxe on October 10, 2018. The mediation resulted in the parties agreeing on October 12, 2018, to 10 the terms of a proposed class-wide settlement agreement. 11 According to Lusk, the “primary material terms” of the proposed settlement agreement are 12 as follows: 13 1. For purposes of settlement, all of Lusk’s claims will be certified for class treatment 14 pursuant to Rule 23(b)(3). 15 2. As noted supra, the Class consists of at least 2,206 non-exempt employees who worked 16 for Defendants in California from August 2013 to the present. For purposes of the 17 settlement agreement and class notice, the Class will be defined as follows: 18 All persons who, from August 22, 2013, to the date the Court grants preliminary approval of this settlement, have previously 19 been or currently are employed in California by Defendants, whether directly or through an employment agency or a 20 professional services organization, as a non-exempt or hourly employee of Defendants. 21 3. Lusk will be appointed as the class representative. 22 4. Lusk’s counsel, Shaun Setareh, will be appointed as the class counsel. 23 5. Defendants will pay $1,200,000 as the “Gross Settlement Amount” in a “claims-based 24 settlement,” exclusive of employer-side payroll taxes. 25 6. Class counsel will apply for a attorney’s fee award of up to $400,000, which will be 26 paid from the Gross Settlement Amount. 27 28 4 UCL is codified at Cal. Bus. & Prof. Code §§ 17200 et seq. 1 7. Class counsel will apply for a cost reimbursement of $20,000, which will be paid from 2 the Gross Settlement Amount. 3 8. Lusk will apply for a class representative enhancement of up to $15,000, which will be 4 paid from the Gross Settlement Amount. 5 9. A third-party class claims administrator will be hired to provide notice to the Class of 6 the class settlement, and the class claims administrator will be paid a fee of up to 7 $30,000, which will be paid from the Gross Settlement Amount. 8 10. The PAGA action will be settled for $100,000, with that amount being encompassed 9 within the Gross Settlement Amount. Accordingly, 75% (or $75,000) of the $100,000 10 PAGA settlement will be paid to the California Labor Workforce Development Agency 11 from the Gross Settlement Amount. The remaining 25% (or $25,000) of the PAGA 12 settlement is included within the remaining $660,000 of the Gross Settlement Amount, 13 discussed infra. 14 11. The remaining $660,000 of the Gross Settlement Amount will be paid to the non-opt- 15 out members of the Class. Therefore, assuming none of the 2,206 putative class 16 members opt out, then the average settlement payment made to each class member will 17 be approximately $299.18. 18 12. In consideration for Defendants’ payment of the Gross Settlement Amount, the Class 19 will release Defendants from all claims in this lawsuit, which, as noted supra, includes 20 several California wage-and-hour claims as well as multiple California and federal 21 consumer reporting claims. 22 13. Notice of the proposed settlement agreement will be provided to the Class through the 23 class claims administrator. 24 After Lusk and Defendants agreed to the terms of the proposed settlement agreement, Lusk 25 moved the Court for a preliminary fairness determination of the proposed settlement agreement 26 pursuant to Rule 23(e)(1). 27 / / / 28 1 of Class-Wide Settlement Agreement 2 Lusk moves the Court to preliminarily approve the parties’ proposed settlement agreement. 3 Lusk tells the Court that preliminary approval is warranted because, first, class certification is 4 warranted under Rule 23(b)(3) and, second, the proposed settlement agreement is fair, reasonable, 5 and adequate under Rule 23(e)(2). Lusk’s position is as follows. 6 A. Class certification is warranted under Rule 23(b)(3). 7 Class certification is warranted under Rule 23(b)(3) because the requirements of Rule 23(a) 8 and Rule 23(b)(3) are satisfied. First, the Class of at least 2,206 members is sufficiently 9 numerous. Second, there are questions of law and fact common to the Class with respect to the 10 wage-and-hour claims: namely, (a) whether Defendants failed to provide the Class with compliant 11 meal breaks and rest breaks; (b) whether Defendants paid the Class for all time worked; (c) 12 whether Defendants failed to issue compliant itemized wage statements to the Class; (d) whether 13 Defendants required the Class to work off-the-clock; and (e) whether Defendants failed to pay 14 overtime wages to the Class. Third, those common questions predominate over any 15 individualized questions. Fourth, Lusk’s claims against Defendants are typical of the Class’s 16 putative claims against Defendants. Fifth, Lusk is an adequate representative of the Class because 17 he has no conflicts of interest with the Class. Sixth, Lusk’s attorney, Shaun Setareh, will provide 18 adequate representation to the Class because he has substantial class action experience. Seventh, 19 class certification under Rule 23(b)(3) is a superior method to other alternative methods for the 20 following three reasons: (1) class certification will permit the Class members to aggregate their 21 relatively small respective claims against Defendants; (b) there is no indication that any individual 22 member of the Class has an interest in individually controlling their own claim; and (c) any Class 23 member who wants to pursue a separate lawsuit can opt out. 24 B. The settlement agreement is fair, reasonable, and adequate under Rule 23(e)(2). 25 The proposed settlement agreement is fair, reasonable, and adequate under Rule 23(e)(2) 26 for several reasons. First, the proposed settlement agreement was reached after the parties 27 conducted some discovery. Second, the proposed settlement agreement was reached with the help 28 of an experienced neutral mediator. Third, the attorney’s fee award of $400,000, which is 1 approximately 33.3% of the Gross Settlement Amount, “represents the fair market value of 2 [Setarah’s] labor,” and this is largely because Setarah’s regular contingent fee contract provides 3 for attorney’s fees between 33.3% and 40% of any recovery obtained. Doc. No. 36. Fourth, the 4 $15,000 representative enhancement for Lusk is reasonable because Lusk (1) took the risk of suing 5 his employers, (2) was actively involved in this lawsuit, including the settlement negotiations, and 6 (3) participated in discovery, including being deposed by Defendants. Fifth, the Gross Settlement 7 Amount represents approximately 25% to 30%6 of Defendant’s “estimated exposure” for the rest 8 break claim, meal break claim, timely payment of final wages claim, wage statement claim, and 9 “regular rate claim.”7 This “reduced compromise settlement,” according to Lusk, “falls well 10 within the range of reasonable outcomes” because Lusk and the Class will face the following risks 11 if they do not settle and proceed towards adjudication on the merits: (1) the risk that class 12 certification will be denied; (2) the risk that Lusk and the class will fail to prove liability; (3) the 13 risk that “any civil penalties award under the PAGA could be reduced by the Court in its 14 discretion”; and (4) the risk that “lengthy appellate litigation could ensue.” Doc. No. 36. 15 IV. Legal Standard for Preliminary Fairness Determination 16 under Rule 23(e)(1) 17 Rule 23(e) requires judicial review and approval of any proposed class action settlement 18 agreement. This requirement is in place because “the parties that are present and settling the case 19 — class counsel, the class representatives, and the defendants — are proposing to compromise the 20 rights of absent class members,” and judicial review “aims to ensure that the interests of these 21 absent class members are safeguarded.” Newberg on Class Actions § 13:40 (5th ed.). In 22 reviewing the proposed class action settlement, the “judge must adopt the role of a skeptical client 23 and critically examine the class certification elements, the proposed settlement terms, and 24 procedures for implementation.” Manual for Complex Litigation § 21.61 (4th ed.). This is 25 / / / 26 6 Lusk’s presentation and explanation of the maximum exposure estimates and risk factor discounts were inadequate, 27 as will be discussed infra. As a result, the Court’s “25% to 30%” approximation is just that: an approximation. 7 Lusk did not explain in his motion what he means by the “regular rate claim.” Nowhere in Lusk’s complaint is 28 there a reference to a “regular rate claim.” See generally Doc. No. 13. The Court will assume the reference is to the 1 because in the context of a proposed class action settlement, “there is typically no client with the 2 motivation, knowledge, and resources to protect its own interests.” Id. 3 Rule 23(e)(1), as amended in 2018, requires the movant to “provide the court with 4 information” that shows that “the court will likely be able to” make two separate determinations. 5 Fed. R. Civ. P. 23(e)(1). First, approval of the settlement agreement is warranted under Rule 6 23(e)(2). Second, class certification is warranted under Rule 23(a)-(b) “for purposes of judgment 7 on the proposal.” Fed. R. Civ. P. 23(e)(1)(B)(ii). 8 As for the first determination of whether approval of the settlement agreement is 9 warranted, Rule 23(e)(2) authorizes final approval of class action settlement agreement only if the 10 movant shows that the settlement agreement is “fair, reasonable, and adequate.” Fed. R. Civ. P. 11 23(e)(2). To determine whether the settlement agreement is fair, reasonable, and adequate, the 12 court must consider the following four factors. First, whether “the class representatives and class 13 counsel have adequately represented the class.” Fed. R. Civ. P. 23(e)(2)(A). Second, whether 14 “the proposal was negotiated at arm’s length.” Fed. R. Civ. P. 23(e)(2)(B). Third, whether “the 15 relief provided for the class is adequate.” Fed. R. Civ. P. 23(e)(2)(C). Fourth, whether “the 16 proposal treats class members equitably relative to each other.” Fed. R. Civ. P. 23(e)(2)(D). The 17 first and second factors are viewed as “procedural” in nature, and the third and fourth factors are 18 viewed as “substantive” in nature. Fed. R. Civ. P. 23(e)(2) Advisory Committee’s note to 2018 19 amendment. 20 For the procedural factors — adequate representation and arm’s length negotiation — the 21 following considerations are relevant: (1) the amount of adversarial litigation preceding the 22 proposed settlement agreement; (2) the nature and amount of discovery conducted before the 23 proposed settlement agreement; (3) the conduct of the negotiations, such as the involvement of a 24 neutral mediator; and (4) the award of attorney’s fees, including the manner of negotiating the fee. 25 See Fed. R. Civ. P. 23(e)(2) Advisory Committee’s note to 2018 amendment; see also Hanlon v. 26 Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998); Class Plaintiffs v. City of Seattle, 955 F.2d 27 1268, 1276 (9th Cir. 1992); Richardson v. L’Oreal USA, Inc., 951 F. Supp. 2d 104, 107 (D.D.C. 28 2013) (emphasizing “substantial” litigation history preceding the settlement). 1 For the substantive factors — adequate relief and equitable treatment to the class members 2 — the following considerations are relevant: (1) the amount of the settlement in light of the class’s 3 potential recovery, discounted by the costs, risks, and delay of trial and appeal; (2) the extent to 4 which the parties have engaged in sufficient discovery to evaluate the merits of the case; (3) the 5 complexity and potential costs of trial; (4) the recommendations of experienced counsel; (5) 6 unreasonably high attorney’s fees as well as timing of attorney’s fees; (6) unduly preferential 7 treatment of class representatives; (7) deficient notice plan; (8) the effectiveness and 8 burdensomeness of any proposed method of distributing relief to the class, including the method 9 of processing class-member claims; (9) plainly unfair allocation scheme; and (10) overly-broad 10 releases of liability. See Fed. R. Civ. P. 23(e)(2)(C); Newberg on Class Actions § 13:15 (5th ed.); 11 see also Hanlon, 150 F.3d at 1026; City of Seattle, 955 F.2d at 1276. 12 As for the second determination as to whether class certification is warranted under Rule 13 23(a)-(b), the court must determine whether it is “likely” that it will be able to “certify the class for 14 purposes of judgment on the proposal.” Fed. R. Civ. P. 23(e)(1). Accordingly, the court must 15 review the class certification standards under Rule 23(a)-(b), and based on those standards the 16 court must “reach a tentative conclusion that it will be able to certify the class in conjunction with 17 final approval of the settlement.” Newberg on Class Actions § 13:18 (5th ed.). 18 V. Discussion 19 20 Based on the information and analysis provided by Lusk to the Court, the Court cannot 21 conclude that the parties’ proposed settlement agreement is fair, reasonable, and adequate under 22 Rule 23(e)(2) or will likely warrant class certification under Rule 23(a)-(b). This is largely 23 because Lusk failed to demonstrate that the proposed settlement agreement offers adequate relief 24 to the Class, which is required under Rule 23(e)(2)(C). Additionally, Lusk failed to demonstrate 25 that the expenditure indemnification claim and consumer reporting claims will likely warrant class 26 certification under Rule 23(a)-(b). The Court will address Lusk’s most notable failures. 27 / / / 28 1 A. Whether there is adequate relief to the Class. 2 Based on the following considerations, the Court cannot conclude that the proposed 3 settlement agreement provides adequate relief to the Class under Rule 23(e)(2)(C). 4 (1) The amount of the settlement in light of the Class’s potential recovery, discounted by the risk of adjudication on the merits. 5 6 The amount offered in the proposed settlement agreement is generally considered to be the 7 most important consideration of any class settlement. See Bayat v. Bank of the West, 2015 WL 8 1744342, at *4 (N.D. Cal. Apr. 15, 2015) (citing, among others, In re HP Inkjet Printer Litig., 716 9 F.3d 1173, 1178-79 (9th Cir. 2013)). To determine whether a proposed settlement amount is 10 reasonable, the court must consider the amount obtained in recovery against the estimated value of 11 the class claims if those claims were successfully adjudicated on the merits. See Litty v. Merrill 12 Lynch & Co., Inc., 2015 WL 4698475, at *9 (C.D. Cal. Apr. 27, 2015) (citations omitted); see also 13 Fed. R. Civ. P. 23(e)(2) Advisory Committee’s note to 2018 amendment (“Often, courts may need 14 to forecast the likely range of possible classwide recoveries and the likelihood of success in 15 obtaining such results. That forecast cannot be done with arithmetic accuracy, but it can provide a 16 benchmark for comparison with the settlement figure.”). 17 Here Lusk failed to sufficiently demonstrate that the proposed settlement agreement 18 provides adequate relief to the Class in light of the Class’s potential recovery, discounted by the 19 risks of adjudication on the merits. Lusk merely asserts without any meaningful discussion or 20 detail that the claims against the Defendants, if they were to proceed to trial and not settle, would 21 risk the difficulty and uncertainty of being certified under Rule 23(a)-(b) and being proven on the 22 merits. Lusk outlines the perceived risks as follows: 23 (i) the risk that Plaintiff would be unable to establish liability for allegedly unpaid straight time or overtime wages . . . ; (ii) the risk 24 that Defendant’s challenged employment policies might not ultimately support class certification or a class-wide liability finding 25 . . . ; (iii) the risk that uncertainties pertaining to the ultimate legality of Defendant’s policies and practices could preclude class- 26 wide awards of statutory penalties under Labor Code §§ 203 and 226(e); (iv) the risk that individual differences between Settlement 27 Class Members could be construed as pertaining to liability, and not solely to damages . . . (v) the risk that any civil penalties award 28 under the PAGA could be reduced by the Court in its discretion 1 to one or more claims except for settlement purposes; and (vii) the risk that lengthy appellate litigation could ensue. 2 . . . . 3 First, rest break and meal period claims have been challenging to 4 certify for many years, even after Brinker. Second, off-the clock claims have proven to be extremely difficult to certify by their very 5 nature. Third, certification rates are lower than conventional wisdom holds. 6 7 Doc. No. 36. 8 There are multiple problems with Lusk’s foregoing risk assessment, and those problems 9 preclude the Court from concluding that the proposed settlement amount is adequate. First, 10 Lusk’s risk assessment merely identifies generalized risks that are inherent and ubiquitous in 11 virtually all wage-and-hour putative class action lawsuits. In other words, Lusk failed to explain 12 with any precision or detail how and why the foregoing risks are at play in this lawsuit. For 13 example, Lusk did not identify and analyze any particular facts or evidence in this lawsuit and 14 then explain how and to what extent those facts and evidence give rise to the foregoing risks. This 15 is problematic. See City of Detroit v. Grinnell Corp., 495 F.2d 448, 462 (2d Cir. 1974) (stating 16 that the district court, in reviewing a proposed class action settlement agreement, must “consider 17 and weigh the nature of the claim, the possible defenses, the situation of the parties, and the 18 exercise of business judgment in determining whether the proposed settlement is reasonable.”) 19 (emphasis added). To illustrate this point, consider the following. Lusk asserts that there is a risk 20 that “Plaintiff would be unable to establish liability for allegedly unpaid straight time or overtime 21 wages.” Doc. No. 36. But why? Lusk failed to answer, let alone address, this question. Further, 22 Lusk asserts that there is a risk that “Defendant’s challenged employment policies might not 23 ultimately support class certification or a class-wide liability finding.” Id. But why? Again, Lusk 24 failed to address and answer this question. Further, Lusk asserts that there is a risk that 25 “individual differences between Settlement Class Members could be construed as pertaining to 26 liability, and not solely to damages.” Id. But why? What individual differences? Again, Lusk 27 failed to address and answer these important questions, just as he failed to do for nearly all of the 28 other asserted risks. 1 Second and related to the first, Lusk’s risk assessment fails to meaningfully analyze the 2 risks associated with each claim in this lawsuit, of which there are several. Instead, Lusk simply 3 generalized the asserted risks as if they applied equally and for the same reasons to each of the 4 several claims. But that is unsound: each claim in this lawsuit consists of unique factual elements, 5 and those unique elements are relevant for purposes of analyzing at this preliminary phase the 6 likelihood of proving liability (and establishing that class certification is warranted). The wage- 7 and-hour claims, the expenditure indemnification claim, and the consumer reporting claims all 8 differ substantially from each other, yet Lusk failed to address the specific facts and evidence that 9 weigh in favor for and against Defendants’ liability on each claim (as well as establishing that 10 class certification is warranted on each claim). 11 Third, in light of Lusk’s foregoing failures, it follows that Lusk’s proposed “risk factor 12 discounts” are meaningless to the Court. Lusk asserts that Defendants’ maximum exposure for 13 some (but not all) of the claims should be reduced by a specific “risk factor discount.” For 14 example, Lusk estimates that Defendants’ maximum exposure for the meal period claim is 15 $872,470.21. Lusk then asserts that there is a “risk factor discount” of 60% (or a $523,482.12 16 reduction from the maximum exposure) for proving liability on the meal period claim and a risk 17 factor discount of 25% (or a $218,117.55 reduction from the maximum exposure) for establishing 18 that class certification is warranted on the meal period claim. Based on these risk factor discounts 19 for the meal period claim, Lusk tells the Court that a reasonable recovery on the meal period claim 20 is approximately $130,870.53 (i.e., $872,470.21 – $523,482.12 – $218,117.55 = $130,870.53). 21 Lusk presents similar risk factor discounts for the rest period claim, waiting time claim, wage 22 statement claim, and regular rate claim (but not the remaining claims, such as the expenditure 23 indemnification claim and consumer reporting claims). Lusk is correct that formulating and 24 applying risk factor discounts to maximum exposure estimates is appropriate for determining the 25 fairness of a proposed class action settlement. “The primary way a court determines whether the 26 settlement’s value is sufficient is by (1) making a rough estimate of what the class would have 27 received had it prevailed at trial (or at other endpoints) and then (2) discounting that value by the 28 risks that the class would face in securing that outcome.” Newberg on Class Actions § 13:51 (5th 1 ed.) (citing as an example the Seventh Circuit’s “Net Expected Value Methodology” in Reynolds 2 v. Beneficial Nat. Bank, 288 F.3d 277, 284-85 (7th Cir. 2002)). But the problem with Lusk’s risk 3 factor discounts — and what the Court means when it says that the discounts are “meaningless” — 4 is that they lack any factual and evidentiary foundation. This is because Lusk failed to explain 5 with specific facts and evidence how his proposed risk factor discounts were conceived of and 6 formulated. For example, presumably Lusk believes that the 60% risk factor discount for proving 7 liability on the meal period claim is reflective of certain facts and evidence in this lawsuit that are 8 unfavorable to Lusk and the Class. But Lusk failed to explain, let alone identify, those relevant 9 facts and evidence.8 In sum, it is insufficient for purposes of demonstrating the adequacy of the 10 settlement’s relief to baldly assert, as Lusk has done here, that the Class’s relief should be severely 11 reduced from the maximum exposure, all because proving liability and establishing class 12 certification on California wage-and-hour claims has historically been “difficult” and 13 “challenging” in other lawsuits. See, e,g., Doc. No. 36 (Lusk’s motion for preliminary approval 14 stating that (1) “rest break and meal period claims have been challenging to certify for many years, 15 even after Brinker”; (2) “off-the-clock claims have proven to be extremely difficult to certify by 16 their very nature”; (3) “Plaintiff’s counsel has assumed estimated certification probabilities of 30% 17 - 40%, depending on the claim, assumptions that substantially exceed the average rate at which 18 cases were certified in California over the study years, based upon data available through the 19 California Courts website”; (4) “[g]iven that well under 20% of all cases filed in California as 20 proposed class actions are ultimately certified by way of a contested motion, and a similar trend is 21 seen in federal courts, it is fair to say that, if anything, the use of high estimates for certification 22 overstates the realistic current claim value”).9 23 24 8 For the risk factor discounts, “arithmetic accuracy” is not required. See Fed. R. Civ. P. 23(e)(2) Advisory Committee’s note to 2018 amendment (“Often, courts may need to forecast the likely range of possible classwide 25 recoveries and the likelihood of success in obtaining such results. That forecast cannot be done with arithmetic accuracy, but it can provide a benchmark for comparison with the settlement figure.”). But the discounts must be 26 reasonably based on facts and evidence, and the movant needs to identify and explain to the court the relevant facts and evidence. 27 9 To be clear, the Court is not suggesting that other similar lawsuits are irrelevant for purposes of determining the adequacy of proposed relief to the class. Other similar lawsuits can be relevant. See Newberg on Class Actions § 28 13:51 (5th ed.) (“[I]n evaluating the strength of the plaintiffs’ case the court may consider outcomes in similar 1 Fourth, like Lusk’s proposed risk factor discounts, Lusk’s proposed maximum exposure 2 estimates lack meaningful explanation and supporting facts and evidence. Lusk proposes 3 maximum exposure estimates for some (but not all) of the claims. For example, as previously 4 noted, Lusk estimates the maximum exposure for the meal period claim to be $872,470.21. But 5 the only explanation that Lusk provides for this estimate is that it is based on “average wage rates, 6 numbers of employees, and the amount of time covered by the class period.” Doc. No. 36-1. This 7 cursory explanation is insufficient. As with the proposed risk factor discounts, the Court requires 8 a meaningful explanation and presentation of the underlying facts, evidence, and calculations that 9 form the basis of the proposed maximum exposure estimates. 10 Fifth, Lusk’s failure to address the risk factor discounts and maximum estimate exposures 11 for all claims — including the expenditure indemnification claim, the UCL claim, and the 12 consumer reporting claims — is an obvious deficiency on Lusk’s part. The proposed settlement 13 agreement covers all of Lusk’s claims, but Lusk’s motion failed to address, let alone acknowledge, 14 the expenditure indemnification claim and the consumer reporting claims. 15 (2) The extent to which the parties have engaged in sufficient discovery to 16 evaluate the merits of the case. 17 Class action settlements are favored more when a considerable amount of discovery has 18 been conducted, and this is because the considerable discovery “suggests that the parties arrived at 19 a compromise based on a full understanding of the legal and factual issues surrounding the case.” 20 Adoma v. Univ. of Phoenix, Inc., 913 F. Supp. 2d 964, 977 (E.D. Cal. 2012); Nat’l Rural 21 Telecommunications Coop. v. DIRECTV, Inc., 221 F.R.D. 523, 528 (C.D. Cal. 2004); see also 22 Advisory Committee’s note to 2018 amendment (“[T]he nature and amount of discovery in this or 23 other cases . . . may indicate whether counsel negotiating on behalf of the class had an adequate 24 information base.”). 25 Here Lusk asserts that the proposed settlement agreement was reached after some 26 discovery, and the discovery included “formal written discovery; the premediation exchange of 27 28 Enterprises Securities Litigation, 47 F.3d 373, 378 (9th Cir. 1995)). But they are less relevant, and cannot stand in the 1 information; numerous communications between the Parties; and the deposition of Plaintiff.” 2 Doc. No. 36. Lusk further asserts that the pre-mediation exchange of information included 3 “detailed time records for class members.” Id. But Lusk’s explanation of the discovery conducted 4 is too generalized to satisfy the Court that the parties, and particularly Lusk, conducted sufficient 5 discovery.10 The specific type of discovery and the amount of discovery conducted is important to 6 the Court for purposes of the preliminary fairness determination. Further, it is not clear to the 7 Court that the discovery conducted by the parties allowed the parties, and particularly Lusk, to 8 sufficiently evaluate the merits of each claim.11 Further, Lusk’s failure to even address the 9 expenditure indemnification claim and consumer reporting claims possibly suggests that no 10 discovery was conducted as to those claims. 11 (3) Unreasonably high attorney’s fees. 12 “In a certified class action, the court may award reasonable attorney’s fees and nontaxable 13 costs that are authorized by law or by the parties’ agreement.” Fed. R. Civ. P. 23(h). When 14 making a preliminary fairness determination of a proposed class action, the court should assess the 15 reasonableness of the attorney’s fee award because “an inordinate fee may be the sign that counsel 16 sold out the class’s claims at a low value in return for the high fee.” Newberg on Class Actions § 17 13:54 (5th ed.) The basic concern is that there has been “a tradeoff between merits relief and 18 attorney’s fees.” Staton v. Boeing Co., 327 F.3d 938, 964 (9th Cir. 2003) (quoting Evans v. Jeff 19 D., 475 U.S. 717, 732 (1986)); see also Newberg on Class Actions § 13:54 (5th ed.). “A 20 defendant’s willingness to pay high fees may also indicate that the relief in the settlement 21 undervalues the class’s claims, because otherwise it would not be in the defendant’s interest to pay 22 that much.” Id. 23 Here the proposed attorney’s fees award of $400,000 is to be paid from the common fund, 24 namely, the Gross Settlement Amount. A lawyer who recovers “a common fund for the benefit of 25 26 10 This conclusion — namely, that Lusk has failed to show that sufficient discovery has been conducted — is also relevant to the procedural factor of adequate representation under Rule 23(e)(2)(A). Therefore, by failing to show that 27 sufficient discovery has been conducted, Lusk has also failed to persuade the Court that there has been adequate representation. 28 11 In light of Lusk’s deficiencies with the proposed settlement amount and proposed attorney’s fees, noted herein, the 1 persons other than himself or his client” is entitled to reasonable attorney fees from the fund as a 2 whole. Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980); Staton, 327 F.3d at 967. The 3 Supreme Court has explained the rationale underlying the “common fund doctrine” as follows: 4 [P]ersons who obtain the benefit of a lawsuit without contributing to its cost are unjustly enriched at the successful litigant’s expense. 5 Jurisdiction over the fund involved in the litigation allows a court to prevent this inequity by assessing attorney’s fees against the entire 6 fund, thus spreading fees proportionately among those benefited by the suit. 7 8 Van Gemert, 444 U.S. at 478 (citations omitted). The court “ha[s] an independent obligation to 9 ensure that the award, like the settlement itself, is reasonable, even if the parties have already 10 agreed to an amount.” In re Bluetooth Headset Prod. Liab. Litig., 654 F.3d 935, 941 (9th Cir. 11 2011). Where, as here, fees are to be paid from a common fund, the relationship between the class 12 members and class counsel “turns adversarial.” In re Wash. Pub. Power Supply Sys. Sec. Litig., 13 19 F.3d 1291, 1302 (9th Cir. 1994). Consequently, the court must assume a fiduciary role for the 14 class members in evaluating a request for an award of attorney fees from the common fund. Id.; 15 see also Rodriguez v. Disner, 688 F.3d 645, 655 (9th Cir. 2012). 16 The Ninth Circuit has “affirmed the use of two separate methods for determining 17 attorney’s fees” in a common-fund case where “the settlement or award creates a large fund for 18 distribution to the class.” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1029 (9th Cir. 1998). The 19 district court has discretion to choose between the two methods. The first method is the lodestar 20 method. The second method is the “percentage” method, which “means that the court simply 21 awards the attorneys a percentage of the fund sufficient to provide class counsel with a reasonable 22 fee.” Id. For common-fund cases where the percentage method is employed, the Ninth Circuit 23 “has established 25% of the common fund as a benchmark award for attorney fees.” Id. “The 24 25% benchmark rate, although a starting point for analysis, may be inappropriate in some cases. 25 Selection of the benchmark or any other rate must be supported by findings that take into account 26 all of the circumstances of the case.” Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1048 (9th Cir. 27 2002). 28 1 Under the Ninth Circuit model, the 25% benchmark can be adjusted depending on (1) the 2 result obtained; (2) the risk involved in the litigation; (3) the contingent nature of the fee; (4) 3 counsel’s efforts, experience, and skill; and (5) awards made in similar cases. Id. at 1048-50. A 4 court may also cross-check its percentage calculation against the lodestar method to determine the 5 reasonableness of the award. In re Online DVD-Rental Antitrust Litig., 779 F.3d 934, 949 (9th 6 Cir. 2015); Spann v. J.C. Penney Corp., 211 F. Supp. 3d 1244, 1264-65 (C.D. Cal. 2016). 7 Whatever the method, the Ninth Circuit counsels only that the fee award be reasonable under the 8 circumstances. Rodriguez v. W. Publ’g Corp., 563 F.3d 948, 967 (9th Cir. 2009). 9 Here Lusk’s proposed attorney’s fee award of $400,000 is approximately 33.3% of the 10 Gross Settlement Amount. This amount obviously exceeds the benchmark of 25% of the Gross 11 Settlement Amount, which is approximately $300,000. Lusk has failed to demonstrate that the 12 upward adjustment of 8% or $100,000 is warranted.12 At most, Lusk asserts that the upward 13 adjustment is warranted for the following reasons: (1) Lusk’s counsel took this lawsuit on a 14 contingency basis without any guarantee that the lawsuit would prevail against Defendants; (2) 15 Lusk’s counsel contributed time and resources to the lawsuit; (3) Lusk’s counsel forewent other 16 money-making opportunities in order to handle this lawsuit; (4) other wage-and-hour putative 17 class action lawsuits have experienced “long delays, individual arbitration orders, [and] outright 18 failures” for the plaintiff and the class; (5) Lusk’s counsel is experienced in wage-and-hour law, 19 which is a “narrow field” that is “rapidly evolving”; and (6) Lusk’s counsel typically requires a 20 40% contingency fee from his clients. Doc. No. 36-1. 21 Lusk’s stated reasons for the upward adjustment are not persuasive. First, nearly all of the 22 stated reasons can be said to apply for virtually all plaintiff’s attorneys in wage-and-hour putative 23 class action lawsuits — meaning Lusk’s stated reasons alone do not warrant a unique upward 24 adjustment. The only stated reason that potently carries any weight with the Court is the 25 proposition that Lusk’s attorney is experienced in California wage-and-hour litigation, and that 26 12 This conclusion — namely, that Lusk has failed to demonstrate that the upward adjustment of 8% or $100,000 is 27 warranted — is also relevant to the procedural factors of adequate representation under Rule 23(e)(2)(A) and arm’s length negotiation under Rule 23(e)(2)(B). Therefore, by failing to show that the upward adjustment of 8% or 28 $100,000 is warranted, Lusk has also failed to persuade the Court that there has been adequate representation and an 1 California wage-and-hour law is a “narrow” field. See id. The Court does not disagree with Lusk 2 that California wage-and-hour law is a “narrow” field. But many fields of law are “narrow.” 3 Thus, the more important question is whether the wage-and-hour law issues in this lawsuit are of 4 sufficient complexity to warrant an upward adjustment, and Lusk has failed to answer that 5 question. From the Court’s perspective, a substantial portion of the Court’s docket is consumed 6 with California wage-and-hour lawsuits, and those lawsuits are prosecuted, defended, and 7 frequently settled by numerous attorneys throughout this district and California. Based on that 8 perspective, the Court is not convinced that the wage-and-hour issues in this lawsuit warrant a 9 unique departure from the benchmark. If there are unique issues in this lawsuit that warrant a 10 departure, then Lusk failed to bring those issues to the Court’s attention with sufficient 11 explanation and supporting evidence. 12 Second, Lusk failed to demonstrate that the Vizcaino factors identified supra warrant an 13 upward departure. For example, Lusk failed to (1) thoroughly explain how the result obtained in 14 the proposed settlement agreement warrants an upward departure, (2) thoroughly explain (as 15 discussed supra) the risks involved in this lawsuit that warrant an upward departure, (3) 16 thoroughly explain his counsel’s efforts in this lawsuit, and (4) identify and discuss the awards 17 that have been made in similar lawsuits in this district and California. 18 (4) Overly-broad releases of liability. 19 “In every settlement, it will be in defendants’ interest to frame the release of claims as 20 broadly as possible. Further, if the settlement is for a sufficient amount, plaintiff may be induced 21 to acquiesce to an overly broad release of claims . . . .” Gonzalez v. CoreCivic of Tennessee, 22 LLC, 2018 WL 4388425, at *12 (E.D. Cal. Sept. 13, 2018). Overly-broad releases of liability may 23 indicate that the class’s relief is inadequate and the class’s treatment is inequitable. See Fed. R. 24 Civ. P. 23(e)(2)(C); Newberg on Class Actions § 13:15 (5th ed.). 25 Here the proposed settlement agreement releases Defendants from liability on all claims in this 26 lawsuit, including the expenditure indemnification claim and the multiple consumer reporting 27 claims. Yet, in Lusk’s motion, Lusk utterly failed to discuss the expenditure indemnification 28 claim and the multiple consumer reporting claims. Further, Lusk’s motion suggests that that 1 | proposed settlement agreement does not provide any compensation to the Class for those claims. 2 | Because those claims have not been adequately addressed by Lusk, the Court considers the 3 | releases of those claims to be overly broad. 4 |B. Whether it is likely that the Court will be able to certify the class. 5 Lusk failed to address the class certification requirements for the expenditure 6 |indemnification claim and the multiple consumer reporting claims, even though the proposed 7 |settlement agreement covers those claims. Further, as noted supra, Lusk failed to sufficiently 8 demonstrate with specific facts and evidence that class certification is warranted for each of the 9 |other claims. Consequently, the Court cannot conclude that it is “likely” that it will be able to 10 | “certify the class for purposes of judgment on the proposal.” Fed. R. Civ. P. 23(e)(1). ORDER 12 Accordingly, it is HEREBY ORDERED as follows: 13 1. Lusk’s motion for preliminary approval of the proposed settlement agreement 14 (Doc. No. 36) is DENIED without prejudice; !? 15 2. This case is REFERRED BACK to the Magistrate Judge for further scheduling and 16 management. 17 18 IT IS SO ORDERED. 19 Dated: _ December 23, 2019 —= ZS Cb □□ — SENIOR DISTRICT JUDGE 20 21 22 23 24 25 26 27 2g Ifthe deficiencies discussed in this order can be cured, then Lusk may again move the Court for a preliminary fairness determination. 12