Mostajo v. Nationwide Mutual Ins. Co. ( 2022 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 | Anthony Mare Mostajo, et al., No. 2:17-cv-00350-KJM-AC 12 Plaintiffs, ORDER 13 v. 14 15 Nationwide Mutual Insurance Company, Defendant. 17 18 19 Lead plaintiffs Anthony Marc Mostajo and Elaine Quedens move for preliminary approval 20 | of class settlement. See generally Mot., ECF No. 138. Mr. Mostajo filed this putative class 21 | action on behalf of former commercial line claims adjusters against their employer, defendant 22 | Nationwide Mutual Insurance Company (Nationwide), alleging defendant reclassified the claims 23 | adjusters from exempt to non-exempt employees, did not pay them for all hours worked, and 24 | discouraged them from reporting overtime under threat of termination. Mem. P. & A. at 9, ECF 25 | No. 138-1.! He later added claims for unpaid, accrued vacation time under California Labor 26 | Code section 227.3, as well as a derivative representative claim under California’s Private ' The court cites to page numbers applied by the court’s CM/ECF system, located at the top of each page. 1 Attorney General Act (PAGA) for the alleged underlying Labor Code violations. Id. at 11. 2 Nationwide does not oppose the pending motion. Id. at 9. The court submitted the matter on the 3 papers. Minute Order, ECF No. 140. As explained below, the motion is granted. 4 I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND 5 Prior to 2004, defendant classified claims adjusters in California as exempt employees. 6 Third Am. Compl. (TAC) ¶ 4, ECF No. 77. As a result, defendant did not pay the claims 7 adjusters overtime compensation. Id. Following a civil action filed in 2002, defendant conducted 8 an analysis of the claims adjuster position and, in 2004, reclassified the claims adjusters working 9 in California as non-exempt employees. Id. ¶¶ 4–5. Defendant told claims adjusters, as non- 10 exempt employees, that they would be eligible for overtime compensation. Id. ¶ 6. However, by 11 employing a policy and practice of not allowing claims adjusters to report and/or receive 12 compensation for all of the hours and overtime worked, defendant did not pay claims adjusters for 13 all hours and/or overtime worked. Id. ¶ 7. Defendant also had a policy whereby it did not pay its 14 California employees for all vested and accrued vacation time. Id. ¶ 8. As a result of these 15 policies and actions, defendant also allegedly failed to provide accurate wage statements to 16 employees as required by California Labor Code section 226. Id. ¶ 9. The complaint is styled as 17 a putative Rule 23 class action and PAGA action. See generally id. 18 In February 2020, the judge then presiding over this matter granted plaintiffs’ motion to 19 certify the class. Previous Order, ECF No. 96. Specifically, the court certified the following two 20 subclasses: Subclass A, a class of persons employed by defendant as commercial lines claims 21 adjusters in California from January 9, 2013 through the date of the preliminary approval; and 22 Subclass B, all former California employees employed by defendant since January 9, 2013 23 through the date of preliminary approval who accrued vacation time for which defendant did not 24 pay them. Id. at 2–3. The court approved plaintiffs Anthony Marc Mostajo and Elaine Quedens 25 as representatives for the class. Id. at 3. Defendant now contends that many claims adjusters 26 reported and were paid for significant amounts of overtime. Mem. P. & A. at 13. Likewise, 27 defendant maintains the court erred in granting certification of Subclass A and has conveyed an 28 ///// 1 intent to file a motion for decertification and a partial summary judgment motion and appeal any 2 adverse judgment. Id. 3 Following the court’s class certification order, the claims administrator mailed notice to 4 individuals within the subclasses, providing them an opportunity to opt-out, which twenty 5 individuals did. Workman Decl. ¶ 13. The parties engaged in extensive discovery and motion 6 practice over approximately eighteen months, during which time defendant estimated that (1) for 7 the period between February 14, 2013 and March 30, 2021, 637 of the 1,098 individuals 8 employed in California forfeited $1,443,806.22 in vacation time at termination, and (2) defendant 9 did not allow another $1,665,699.14 in accrued vacation time to carry over from year to year 10 during the same time period. Id. ¶ 6. Excluding counsel’s estimated interest in the amount of 11 $1,523,056, the total value of the unpaid vacation time claim alone is approximately 12 $3,109,505.22. Id. 13 Separately, plaintiffs retained experts to survey and calculate the potential damages that 14 flowed from the hours plaintiffs contended claims adjusters worked but were not compensated. 15 Mem. P. & A. at 14. Plaintiffs’ experts concluded the value of this claim totaled $1,863,284, plus 16 wage statement penalties of $212,500, waiting time penalties of $647,769, and PAGA penalties of 17 $109,100. Id. Accordingly, plaintiffs estimated the total potential value of the Subclass A claims 18 to be $2,832,653, and the total value of both subclass claims as $5,942,158.36. Id. Defendant 19 disagreed with this estimate and counter-designated an expert who concluded the maximum 20 potential value of the uncompensated time was less than $900,000, id. at 14–15, which would 21 make the total estimated value of both subclass claims closer to $4,000,000, excluding interest 22 and penalties. 23 After conducting their respective assessments, on January 6, 2022, the parties participated 24 in a day-long mediation with Tripper Ortman, an experienced wage and hour class action 25 mediator. Workman Decl. ¶ 14. Following mediation, the parties were able to reach an 26 agreement, which is before this court for approval. Id. The settlement agreement covers the two 27 certified subclasses as well as a PAGA Group, which encompasses all class members employed 28 by defendant in California between February 15, 2017 and January 31, 2022. Id. ¶ 16. 1 Under the settlement, defendant agrees to pay a “Maximum Settlement Amount” of 2 $3,800,000, which includes all attorneys’ fees, litigation costs, claims administration fees, and 3 incentive payments to the class representatives.” Settlement Agreement ¶¶ 1 & 17, Workman 4 Decl. Ex 2, ECF No. 138-2. Several deductions would be taken from the Maximum Settlement 5 Amount before any funds are distributed to the putative class. First, class counsel may seek up to 6 $950,000, or 25 percent of the Maximum Settlement Amount, and actual litigation costs and 7 expenses up to $630,000. Id. ¶ 68. This would amount to 41.5 percent of the Maximum 8 Settlement Agreement; defendant agrees not to object, provided the fees and costs do not exceed 9 these set amounts and the requested expenses are documented. Id. Second, class counsel may 10 seek a service or “incentive” award not to exceed $25,000 for each class representative. Id. 11 Third, class counsel would deduct settlement administration expenses not to exceed $15,000. Id. 12 Finally, $50,000 would be allocated to the PAGA payment, of which 75 percent would go to the 13 California Labor and Workforce Development Agency and 25 percent to the PAGA Group 14 Payment. Id. ¶ 29; see Cal. Lab. Code § 2699(i). The PAGA Group Payment would be 15 distributed evenly among all members of the PAGA Group. Workman Decl. ¶ 17. 16 After these deductions, the Net Settlement Amount (NSA) for distribution to class 17 members is estimated to be no less than $2,105,000. Id. The payments to Subclass A will be 18 distributed on a prorated basis to participating class members, based on each member’s eligible 19 workweeks as reflected on defendant’s internal records and according to the following formula: 20 (Subclass A Member’s Eligible Workweeks ÷ Total Eligible Workweeks for all Participating 21 Subclass A Members) × (Subclass A Net Settlement Fund) = Individual Settlement Payment. Id. 22 The parties have agreed to allocate $750,0000 of the NSA to the Subclass A Net Settlement Fund. 23 Id. There are approximately 120 members of Subclass A, so the average amount each will 24 receive is approximately $6,250. Id. 25 The payments to Subclass B also will be distributed on a prorated basis to participating 26 class members and follow this formula: (Subclass B Member’s Amount of vacation time accrued 27 for which they were not paid ÷ Total Amount of vacation time earned by all Participating 28 Members of Subclass B for which they were not paid) x (Subclass B Net Settlement Fund) = 1 Individual Settlement Payment. Id. The parties have agreed to allocate $1,355,000 of the NSA to 2 the Subclass B Net Settlement Fund. See Not. to New Class Members of Proposed Class Action 3 Settlement, Workman Decl. Ex. A-1, ECF No. 138-2. There are approximately 1,200 members of 4 Subclass B, and class counsel estimates the average amount each will receive is $1,130. 5 Workman Decl. ¶ 17. 6 If this court preliminarily approves the settlement agreement, a settlement administrator 7 would distribute settlement notices and payments to participating class members. Id. Within 14 8 days after the date of preliminary approval by the court, defendant will provide the settlement 9 administrator with the name(s), last known residence addresses, eligible workweeks worked for 10 Subclass A Members, and amount of vacation time accrued in California by Subclass B Members 11 during the class period for which defendant did not pay them. Settlement Agreement ¶ 82. 12 Within 15 days after receiving this information from defendant, the settlement administrator will 13 run the class data list through the National Change of Address database and use the most recent 14 address for each Class Member, either from defendant’s records or the National Change of 15 Address database, before mailing the Notice of Class Settlement. Id. ¶ 84. The settlement 16 administrator will also take reasonable steps to locate any class member whose notice is thereafter 17 returned as undeliverable. Id. ¶ 85. Notice will provide class members with 45 days to object to 18 or opt out of the settlement. See id. ¶¶ 71, 111. 19 II. LEGAL STANDARDS 20 A. Overarching Principles 21 “Courts have long recognized that ‘settlement class actions present unique due process 22 concerns for absent class members.’” In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 23 946 (9th Cir. 2011) (quoting Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998), 24 overruled in part on other grounds by Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011)). 25 When it comes to settlement, the class’s motivations may not perfectly square with those of its 26 attorneys. See id. An attorney representing a settlement class may be tempted to accept an 27 inferior settlement in return for a higher fee. Knisley v. Network Associates, Inc., 312 F.3d 1123, 28 1125 (9th Cir. 2002). Likewise, defense counsel may be happy to pay his counterpart a bit more 1 if the overall deal is better for his client. See id.; see also In re Gen. Motors Corp. Pick-Up Truck 2 Fuel Tank Products Liab. Litig., 55 F.3d 768, 778 (3d Cir. 1995) (noting criticism that settlement 3 class can be vehicle for collusive settlements that primarily serve the interests of defendants and 4 of plaintiffs’ counsel). 5 As the Ninth Circuit has recognized, however, the “governing principles may be clear, but 6 their application is painstakingly fact-specific,” and the court normally sees only the final result 7 of the parties’ bargaining. Staton v. Boeing Co., 327 F.3d 938, 952 (9th Cir. 2003). “Judicial 8 review also takes place in the shadow of the reality that rejection of a settlement creates not only 9 delay but also a state of uncertainty on all sides, with whatever gains were potentially achieved 10 for the putative class put at risk.” Id. Federal courts have long recognized a “strong” policy in 11 favor of settling class actions.” Adoma v. Univ. of Phoenix, Inc., 913 F. Supp. 2d 964, 972 (E.D. 12 Cal. 2012) (citing Class Plaintiffs v. Seattle, 955 F.2d 1268, 1276 (9th Cir. 1992)). 13 B. Rule 23 14 Here, plaintiffs request preliminary approval of class settlement under Rule 23 based on 15 violations of the California Labor Code and PAGA. Mem. P. & A. at 16; see Haralson v. U.S. 16 Aviation Servs. Corp., 383 F. Supp. 3d 959, 971 (N.D. Cal. 2019) (noting court must “review and 17 approve any settlement of any civil action filed pursuant to [PAGA]”). Because the class has 18 already been certified, this court must determine it “will likely be able to” “approve the proposal 19 under Rule 23(e)(2).” Fed. R. Civ. P. 23(e)(1)(B). Likely approval under Rule 23(e)(2) focuses 20 on the fairness of the settlement for absent class members. The court evaluates preliminarily 21 whether the proposed settlement “is fair, reasonable, and adequate,” considering several factors 22 listed in the Rule, such as whether the parties negotiated at arm’s length and the terms of any 23 agreement on fee awards. See Fed. R. Civ. P. 23(e)(2)(A)–(D). Over the years, the Ninth Circuit 24 has also identified several additional “guideposts,” “warning signs,” and “red flags” for district 25 courts to consider, such as the strength of the plaintiffs’ case and the amount of fees in proportion 26 to the compensation to class members. See In re Volkswagen “Clean Diesel” Mktg., Sales 27 Practices, & Prod. Liab. Litig., 895 F.3d 597, 610–11 & nn.18–19 (9th Cir. 2018). 1 C. PAGA Claims – Special Considerations 2 When plaintiffs bring a PAGA action, they do so as the “proxy or agent of the state’s 3 labor law enforcement agencies, . . . who are real parties in interest.” Sakkab v. Luxottica Retail 4 N. Am. Inc., 803 F. 3d 425, 435 (9th Cir. 2015). Any PAGA judgment binds not only members of 5 the class, but similarly situated workers who opt out of the class and the state’s labor law 6 enforcement agencies. Arias v. Superior Court, 46 Cal. 4th 969, 986 (2014). “[W]here plaintiffs 7 bring a PAGA representative claim, they take on a special responsibility to their fellow aggrieved 8 workers who are effectively bound by any judgment.” O’Connor v. Uber Technologies, Inc., 9 201 F. Supp. 3d 1110, 1133 (N.D. Cal. 2016) (citing Iskanian v. CLS Transp. Los Angeles, LLC, 10 59 Cal. 4th 348, 381 (2014)). 11 A court analyzing the compromise of a PAGA claim must therefore consider whether the 12 settlement is “‘fundamentally fair, reasonable, and adequate’ with reference to the public policies 13 underlying the PAGA.” O’Connor, 201 F. Supp. 3d at 1133 (citation omitted); Haralson v. U.S. 14 Aviation Servs. Corp., 383 F. Supp. 3d at 979. “By providing fair compensation to the class 15 members as employees and substantial monetary relief, a settlement not only vindicates the rights 16 of the class members as employees but may have a deterrent effect upon the defendant employer 17 and other employers, an objective of PAGA.” O’Connor, 201 F. Supp. 3d at 1134. 18 III. DISCUSSION 19 A. Rule 23(e)—Preliminary Certification and Approval 20 Under Rule 23(e), a class action may be settled “only with the court’s approval,” and the 21 court may provide such approval “only after a hearing2 and only on finding that it is fair, 22 reasonable, and adequate . . . .” after considering whether: 23 (A) the class representatives and class counsel have adequately represented the 24 class; 25 (B) the proposal was negotiated at arm’s length; 2 The hearing requirement applies to final approval, and the court will observe the requirement at that time. See In re Online DVD-Rental Antitrust Litig., 779 F.3d 934, 944 (9th Cir. 2015) (explaining hearing requirement applies before final approval). 1 (C) the relief provided for the class is adequate, taking into account: 2 (i) the costs, risks, and delay of trial and appeal; 3 (ii) the effectiveness of any proposed method of distributing relief to the 4 class, including the method of processing class-member claims; 5 (iii) the terms of any proposed award of attorney’s fees, including timing 6 of payment; and 7 (iv) any agreement required to be identified under Rule 23(e)(3); and 8 (D) the proposal treats class members equitably relative to each other. 9 Fed. R. Civ. P. 23(e)(2). Ninth Circuit decisions predating this rule list several similar factors for 10 district courts to consider when weighing a proposed settlement agreement: 11  “the strength of the plaintiffs’ case”; 12  “the risk, expense, complexity, and likely duration of further litigation”; 13  “the risk of maintaining class action status throughout the trial”; 14  “the amount offered in settlement”; 15  “the extent of discovery completed and the stage of the proceedings”; 16  “the experience and views of counsel”; 17  “the presence of a governmental participant”; and 18  “the reaction of the class members to the proposed settlement.” 19 In re Volkswagen, 895 F.3d at 610 n.18 (quoting Hanlon, 150 F.3d at 1026); see also 20 Fed. R. Civ. P. 23, Advisory Committee’s Notes to 2018 Amendment (explaining factors listed in 21 Rule 23(e)(2) not intended to “displace” factors identified in existing judicial decisions). 22 Even where, as here, a class has already been certified, a court should also consider “red 23 flags” signaling an unfair settlement, which may include: (1) fees that make up a 24 disproportionately large part of the distribution to the class, (2) “clear sailing” agreements 25 “providing for the payment of attorneys’ fees separate and apart from class funds” without 26 defense objection, and (3) agreements that permit unpaid fees to revert to defendants. Bluetooth, 27 654 F.3d at 947 (citations omitted); Briseno v. Henderson, 998 F.3d 1014, 1025 (9th Cir. 2021) 28 ///// 1 (observing that under revised Rule 23(e)(2), courts should apply Bluetooth factors even for post- 2 class certification settlements because “class certification does not cleanse all sins”). 3 Application of many of the applicable factors suggests the proposed settlement here is 4 fair, reasonable, and adequate. The class representatives and their counsel must “fairly and 5 adequately protect the interests of the class.” Fed. R. Civ. P. 23(a)(4). Courts consider both 6 whether “(1) [] the named plaintiffs and their counsel have any conflicts of interest with other 7 class members and (2) [] the named plaintiffs and their counsel [will] prosecute the action 8 vigorously on behalf of the class[.]” Hanlon, 150 F.3d at 1020. “Serious conflicts of interest can 9 impair adequate representation by the named plaintiffs, yet leave absent class members bound to 10 the final judgment, thereby violating due process.” In re Volkswagen, 895 F.3d at 607. 11 Here, Mr. Mostajo avers even before he initiated the action, Ms. Workman and others at 12 her firm worked closely with him. Mostajo Decl. ¶ 21, ECF No. 138-5. Ms. Quedens also 13 represents she worked with the firm before joining the lawsuit. Quedens Decl. ¶ 23, ECF No. 14 138-4. Ms. Workman has the qualifications to suggest she can fairly and adequately represent the 15 class: She graduated from Texas Tech School of Law in 1989, after which she clerked for the 16 Honorable Jack Hightower of the Texas Supreme Court. Workman Decl. ¶ 25. She then worked 17 as an associate for the international law firms of Sonnenschein Nath & Rosenthal (currently SNR 18 Denton) and Russin & Vecchi. See id. She started her predecessor firm, Qualls & Workman, 19 LLP, in 1996, and her current firm, Workman Law Firm, PC, in 2014. Id. Finally, counsel filed 20 this action in 2017 and investigated the facts of the claims prior to filing the action. Mem. P. & 21 A. at 27. She also conducted extensive discovery throughout the case, resulting in defendant’s 22 producing over 45,000 documents. Id. The parties did not reach their preliminary settlement 23 agreement until plaintiffs’ counsel had sufficient information to make an informed judgment 24 regarding the likelihood of success on the merits and the results that could be obtained at trial. Id. 25 The court finds class counsel’s representation is adequate. The lead plaintiffs also adequately 26 represent class interests: both had worked for defendant for a total of nearly three decades, and 27 both seek to ensure their long-time colleagues are compensated for their work and vacation time. 28 See generally Quedens Decl.; Mostajo Decl. 1 The court has already noted the arm’s-length negotiations between the parties and noted 2 above the adequacy of Ms. Workman’s representation of plaintiffs. The proposed settlement also 3 appears fair, reasonable, and adequate given the parties’ understanding of the strength and 4 weaknesses of their positions after engaging in significant negotiations with an experienced 5 mediator. See Workman Decl. ¶ 14 (describing parties’ acceptance of mediator’s proposal, 6 reaching settlement). In order to fully evaluate the reasonableness of the parties’ understandings 7 in this respect, the court will direct they file in camera their mediation briefs with a motion for 8 final approval. 9 Class members will have 180 days, a reasonable period of time to cash their settlement 10 checks. Settlement Agreement ¶ 98. Any uncashed checks will be voided after that time and 11 paid by the Settlement Administrator to the California State Controller’s Office for Unclaimed 12 Property in the name of the class member, available for collection through the Controller’s 13 established procedures. Id. No settlement funds will revert to Nationwide. 14 Other elements of the proposed settlement agreement, however, weigh against preliminary 15 approval under Rule 23(e). First, a disproportionate award to counsel can be a “subtle sign that 16 class counsel have allowed pursuit of their own self-interests and that of certain class members to 17 infect the negotiations.” Bluetooth, 654 F. 3d at 947 (citations omitted). The benchmark for 18 attorney’s fees in the Ninth Circuit is 25 percent. See In re Easysaver Rewards Litig., 906 F. 3d 19 747, 754 (9th Cir. 2018). At the same time, the Circuit has allowed higher percentage fee awards 20 to stand. Barbosa v. Cargill Meat Sols. Corp., 297 F.R.D. 431, 448 (E.D. Cal. 2013) (“The 21 typical range of acceptable attorneys’ fees in the Ninth Circuit is 20 percent to 33.3 percent of the 22 total settlement value, with 25 percent considered a benchmark percentage.”) (quoting Powers v. 23 Eichen, 229 F.3d 1249, 1256 (9th Cir. 2000)). Courts in this district, like those in other districts 24 as well, have approved fees at 33 percent of the settlement fund for matters involving PAGA 25 claims, see Rodriguez v. Penske Logistics, LLC, No. 14-2061, 2019 WL 246652, at *12–13 (E.D. 26 Cal. Jan. 17, 2019) (approving attorney’s fees representing 31.2 percent of common fund); 27 Vasquez v. Coast Valley Roofing, Inc., 266 F.R.D. 482 (E.D. Cal. 2010) (approving attorney’s 28 fees equaling 33.3 percent of common fund in settlement of wage-and-hour putative class action). 1 Such departures from the lower benchmark, however, are possible only if they are properly 2 supported and justified. See Powers, 229 F.3d at 1257. 3 Here, the proposed settlement includes an award of attorneys’ fees up to $950,000, or 25 4 percent of the Maximum Settlement Amount. Settlement Agreement ¶¶ 17, 68. At first blush, 5 this appears perfectly reasonable and well within the Ninth Circuit’s norms. However, a closer 6 look reveals some troubling facts. Counsel also seeks up to $630,000 in actual litigation costs 7 and expenses. Id. ¶ 68. Combined with the fees, this amount could bring the total fees and 8 expenses to $1,580,000, or 41.5 percent of the Maximum Settlement Amount. Settlement 9 Agreement ¶¶ 17, 68. If class counsel were awarded the maximum fees plus expenses, the total 10 dollar figure would exceed 75 percent of the $2,105,000 that the parties have agreed to allocate to 11 Subclasses A and B. Workman Decl. ¶ 17. Even awarding just the maximum attorneys’ fees 12 allowable would equate to 45 percent of the total dollar amount allocated to Subclasses A and B. 13 Unless counsel ultimately can point to authority showing that courts routinely approve 14 settlements where the fees plus expenses exceed both (1) 40 percent of the total settlement value, 15 and (2) 75 percent of the total class payment, this court is unlikely to approve this settlement 16 agreement. Furthermore, counsel has not yet provided the court with information to allow a 17 cross-check of the proposed fee award against the “lodestar” fee. See Vizcaino v. Microsoft 18 Corp., 290 F.3d 1043, 1050 (9th Cir. 2002). Counsel represents the lodestar information will be 19 forthcoming in connection with a motion for final approval. Workman Decl. ¶ 29 (“Prior to final 20 approval, [counsel] will file a motion for attorneys’ fees and costs setting forth the hours 21 committed to this case, the costs incurred . . . hourly rates and the total lodestar to allow . . . cross- 22 check . . .”). With a motion for final approval, counsel also must be prepared to justify the 23 amount in fees and costs sought with reference to the case law. 24 Second, the proposed $25,000 incentive award for each class representative appears to be 25 on the high end of such awards. As described above, a large incentive award sets the named 26 plaintiffs apart from the absent class members if the settlement is approved; plaintiffs who stand 27 to receive several thousand dollars extra have an incentive to support agreements that are unfair to 28 absent class members. See Radcliffe v. Experian Info. Sols. Inc., 715 F.3d 1157, 1165 (9th Cir. 1 2013) (“Instead of being solely concerned about the adequacy of the settlement for the absent 2 class members, the class representatives now had a $5,000 incentive to support the settlement 3 regardless of its fairness . . . .”). For this reason, although the Ninth Circuit has agreed that 4 incentive awards “may be proper,” it has “cautioned that awarding them should not become 5 routine practice.” Id. at 1164. “[I]f class representatives expect routinely to receive special 6 awards in addition to their share of the recovery, they may be tempted to accept suboptimal 7 settlements at the expense of the class members whose interests they are appointed to guard.” Id. 8 (quoting Staton v. Boeing Co., 327 F.3d at 975). Practically speaking, however, “incentive 9 awards that are intended to compensate class representatives for work undertaken on behalf of a 10 class are fairly typical in class action cases.” In re Online DVD-Rental Antitrust Litig., 779 F.3d 11 934, 943 (9th Cir. 2015) (internal quotations omitted). Before final approval, plaintiffs must 12 provide additional information to allow the court’s full consideration of whether the proposed 13 incentive fees here are warranted under all the circumstances. 14 Third, as noted above, the settlement agreement contains a “clear sailing” provision, under 15 which defendant agrees not to challenge a motion for attorneys’ fees up to $950,000 or expenses 16 up to $630,000, so long as these fees and expenses are documented. Settlement Agreement ¶ 68. 17 “The very existence of a clear sailing provision increases the likelihood that class counsel will 18 have bargained away something of value to the class.” Bluetooth, 654 F.3d at 948 (quoting 19 Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 525 (1st Cir. 1991)). In conjunction 20 with the relatively large percentage of the award proposed to pay attorneys’ fees and expenses, 21 the clear sailing provision merits a higher degree of scrutiny before final approval, given the 22 potential inference of a collusive settlement. In considering any motion for final approval, the 23 court will require a more robust showing that collusion is not an actual concern. 24 Despite these concerns, the court remains mindful of the “strong judicial policy favor[ing] 25 settlement of class actions.” Adoma, 913 F. Supp. 2d at 972 (citing Class Plaintiffs, 955 F.2d at 26 1276). In light of that policy and the positive indicators of overall fairness noted above, the court 27 concludes the settlement agreement is likely to be approved under Rule 23(e)(2) if the concerns it 28 has expressed can be resolved at the final approval stage. That said, the court offers no assurance 1 that the proposed fee and incentive awards will be approved without the additional information 2 called for by this order. See, e.g., Greer v. Dick’s Sporting Goods, Inc., No. 15-01063, 2019 WL 3 4034478, at *5–7 (E.D. Cal. Aug. 27, 2019) (granting preliminary approval but deferring decision 4 on fees and incentive awards). 5 B. Private Attorneys General Act (PAGA) 6 The court next considers whether the settlement is “‘fundamentally fair, reasonable, and 7 adequate’ with reference to the public policies underlying the PAGA.” O’Connor, 8 201 F. Supp. 3d at 1133 (citation omitted). Where PAGA penalties are compromised for too 9 small a percentage of their total value, a court may not find a settlement meets fundamental 10 fairness requirements. In O’Connor, the plaintiffs and the LWDA agreed the possible value of a 11 PAGA penalty exceeded $1 billion, but the plaintiffs attempted to compromise the claim for only 12 $1 million. Id. Even accounting for the possibility of a court’s reducing such a high verdict as 13 “unjust, arbitrary and oppressive, or confiscatory” as provided in California Labor Code section 14 2699(e)(2), the court in O’Connor found no analysis supported settling the PAGA claim for 0.1 15 percent of its estimated value and so rejected the settlement. Id. Other courts, by contrast, have 16 approved settlements compromising PAGA penalties for between one and six percent of their 17 maximum value, given the circumstances of the particular cases involved. See, e.g., Ahmed v. 18 Beverly Health and Rehabilitation Servs., Inc., No. 16-1747, 2018 WL 746393, at *10 (E. D. Cal. 19 Feb. 6, 2018) (approving 1 percent of gross settlement as PAGA settlement); Rodriguez v. RCO 20 Reforesting, Inc., No. 16-2523, 2019 WL 331159 (E. D. Cal. Jan. 24, 2019) (approving 6 percent 21 of total settlement as PAGA penalties). 22 Here, plaintiffs’ expert estimated the value of the PAGA claims to be $109,100, but this 23 calculation is based solely on the unpaid compensation claims for the 120 individuals in Subclass 24 A, not the unpaid, accrued vacation time claims for the 1,200 employees in Subclass B.3 25 Workman Decl. ¶¶ 4, 17; Settlement Agreement at 14. Without additional information about the 26 estimated value of the PAGA claims for Subclass B, the court cannot evaluate whether the 3 If the court’s understanding of the expert’s calculation is incorrect, the parties may clarify this in the motion for final approval of the settlement. 1 $50,000 allocated to the PAGA penalty is fundamentally fair, adequate, and reasonable. The 2 court also cautions counsel that each member of the PAGA class would receive approximately 3 only $10 each under the proposed settlement agreement. Before approving any final settlement 4 agreement, the court would require additional authority supporting why $10 per class member is 5 appropriate. 6 Parties seeking approval of a PAGA settlement must also submit the proposed settlement 7 to the California LWDA for comment at the same time they submit their motion for preliminary 8 approval of the settlement. Ramirez v. Benito Valley Farms, LLC, No. 16-04708, 2017 WL 9 3670794, at *2 (N.D. Cal. Aug. 25, 2017); Cal. Lab. Code § 2699(l)(2) (“The proposed settlement 10 shall be submitted to the agency at the same time that it is submitted to the court.”). While 11 plaintiffs’ counsel has already submitted the current proposed settlement to the LWDA, see 12 Workman Decl. ¶ 30, the parties will need to submit a revised proposed settlement if the proposed 13 PAGA penalty changes.4 14 C. Proposed Class Notice 15 Federal Rule of Civil Procedure 23(e) requires that prior to settlement of a class action, 16 the court must “direct notice in a reasonable manner to all class members who would be bound by 17 the proposal.” Where a class is certified under Rule 23(b)(3), the notice must meet the 18 requirements of Rule 23(c)(2)(B). “Adequate notice is critical to court approval of a class 19 settlement under Rule 23(e).” Hanlon, 150 F. 3d at 1025. 20 Notice must be the “best notice . . . practicable under the circumstances” and must provide 21 individual notice “to all members who can be identified through reasonable effort.” Fed. R. Civ. 22 P. 23(c)(2)(B). 23 The notice must clearly and concisely state in plain, easily understood language: 24 (i) the nature of the action; 25 (ii) the definition of the class certified; 4 Because this case was filed after July 1, 2016, the parties are required to submit the proposed settlement agreement to the LWDA at the same time it was submitted to the court. See 2016 Cal. Legis. Serv. Ch. 31, § 189 (S.B. 836) (West). 1 (iii) the class claims, issues, or defenses; 2 (iv) that a class member may enter an appearance through an attorney if the member so 3 desires; 4 (v) that the court will exclude from the class any member who requests exclusion; 5 (vi) the time and manner for requesting exclusion; and 6 (vii) the binding effect of a class judgment on members under Rule 23(c)(3). 7 Id. “Notice is satisfactory if it ‘generally describes the terms of the settlement in 8 sufficient detail to alert those with adverse viewpoints to investigate and to come forward and be 9 heard.’” Churchill Vill., L.L.C. v. Gen. Elec., 361 F.3d 566, 575 (9th Cir. 2004) (citation 10 omitted). 11 Plaintiffs provide two notices of class action settlement with the settlement agreement 12 here. The first is for new class members, which includes anyone who became part of Subclass A 13 and/or B after the class certification notice was mailed in 2020. See Not. to New Class Members 14 of Proposed Class Action Settlement.5 The second is for existing class members but largely 15 mirrors the notice for new class members. See Not. to Existing Class Members of Proposed Class 16 Action Settlement, Workman Decl. Ex. A-2, ECF No. 138-2. The notices of class action 17 settlement included with the settlement agreement here generally satisfy Rule 23. The notices 18 adequately explain in plain language the parties to the lawsuit, the claims at issue, and the terms 19 of the settlement. See generally id. The notices provide instructions on how to object or opt out 20 with deadlines. Id. The notices inform class members that they will be bound by the release of 21 claims if they do not opt out. Id. 22 ///// 5 The notice to new class members notes that “[t]he Settlement provides for Individual Settlement Payments based either on the number of eligible workweeks class members worked from January 9, 2013 to January 31, 2022, and/or the amount of vacation time class members accrued, but were not paid, from January 9, 2013 to January 31, 2022.” Accordingly, the date of class certification is limited to January 31, 2022. Hart v. Rick’s NY Cabaret Int’l, Inc., 2013 WL 11272536 (S.D.N.Y. Nov. 18, 2013) (observing “an open-ended end-date is untenable” because it “fails to take account of the possibility that material facts might change . . . [a]nd it denies the parties, after the close of fact discovery, a practical vehicle for exploring whether there have been material factual changes”). 1 The court notes two deficiencies, however, that must be remedied before any final 2 approval. In the section titled “THE COURT’S FINAL APPROVAL HEARING,” the notices 3 state, “You may attend the hearing and you may ask to speak, but you don’t have to.” Id. Later in 4 that same section, it reads, “You may also pay another lawyer to attend, but it is not required.” 5 Id. This section of the proposed notice to class members must “clarify class members’ ability to 6 appear at the final approval hearing with an attorney” by adding “with or without a lawyer” after 7 “attend the hearing” in the second sentence under the section title. See Stoddart v. Express Servs., 8 No. 12-01054, 2021 WL 5761083, at *2 (E.D. Cal. Dec. 3, 2021). Additionally, the proposed 9 notice requires information from new class members seeking exclusion from the class, including 10 telephone numbers, addresses, and the last four digits of Social Security numbers. See Not. to 11 New Class Members of Proposed Class Action Settlement. This information exceeds the 12 minimum information requirement of a class member requesting exclusion, which is “(1) the 13 class member’s name, (2) a statement that the class member wishes to be excluded from the 14 settlement class . . . , and (3) the class member’s signature.” See Haralson, 383 F. Supp. 3d at 15 975–76. The notice to new class members must be remedied to require only the minimum 16 information from these employees, before the notice is distributed. In seeking final approval, 17 plaintiffs must submit the notices and verify that they were modified as required here. 18 IV. CONCLUSION 19 For the foregoing reasons, the court grants preliminary approval of class settlement but 20 cautions that the deficiencies identified above must be remedied before it will grant final 21 approval. Specifically, at the final approval hearing, the parties must be prepared to address: 22 1. The reasonableness of the proposed attorneys’ fees, including in light of a lodestar 23 analysis, and litigation expenses; 24 2. The reasonableness of the incentive awards; 25 3. The required amendments to the class notice; and 26 4. Whether the PAGA requirements are satisfied. 27 The court preliminarily approves the proposed class notices, subject to the changes 28 required in the body of this order. 1 The court orders the following schedule: 2 Defendant shall provide the contact information for the putative class to RG2 Claims 3 Administration within 20 days from entry of this order. 4 RG2 Claims Administration shall mail Notice Packets to putative class within 40 days 5 from entry of this order. 6 Existing and new class members shall have 45 days from the mailing of notice packets to 7 opt-out. 8 Putative class members shall submit objections, if any, within 45 days of the mailing of 9 the notice. 10 Plaintiffs’ motion for final approval and attorney’s fees and costs shall be filed 40 days in 11 advance of the final approval hearing. The parties shall provide their mediation briefs in camera 12 at the time they file the motion for final approval. 13 The Final Approval Hearing is set for January 6, 2023 at 10 a.m. 14 This order resolves ECF No. 138. 15 IT IS SO ORDERED. 16 DATED: August 4, 2022. 17 18