iujrur STANLEY MOSK COURTHOUSE 111 NORTH HILL STREET LOS ANGELES, CALIFORNIA CHAMBERS OF CAROLYN B. KUHL PRESIDING JUDGE August 23, 2016

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1 October * iujrur (!Inurt STANLEY MOSK COURTHOUSE 111 NORTH HILL STREET LOS ANGELES, CALIFORNIA CHAMBERS OF CAROLYN B. KUHL PRESIDING JUDGE August 23, 2016 TELEPHONE MEMORANDUM To: From: Re: John Rabiej, Director, Duke University School of Law Center for Judicial Studies Hon. Carolyn B. Kuhi, Presiding Judge, Los Angeles Superior Court Hon. William F. Highberger, Judge, Los Angeles Superior Court Complex Litigation Program Class Action Conference 6-7, 2016 We wanted San Diego. to send you some materials in advance of the October Class Action Conference in Accompanying this memorandum are the current versions of several tools used by the six judges in the Complex Litigation Program of the Superior Court of the State of California for the County of Los Angeles who review proposed class action settlements. They are: 1 (1) Guidelines for attorneys filing motions for preliminary and final approval of class action settlements. (2) A checklist used by judges to order further briefing on a motion for preliminary approval of a class settlement. This checklist provides a good enumeration of the problems judges should look for and problems that are frequently encountered in review of motions for preliminary approval of class settlements. (3) A checklist similar to item (2), enumerating problems frequently identified regarding motions for final approval of class settlements. As I am certain you are aware, the ALT Principles of Aggregate Litigation ( Principles ) provide insightful guidance for review of class action settlements. An overview of general principles is stated in section 3.05; cy pres settlements are addressed in section 3.07; and attorneys fees are 1 The attached guidelines and checklists have not yet been modified to account for the guidance provided by the recent California Supreme Court case Laffitte v. Robert HafIntern 1 Inc. (August 11, 2016) No. S222996) which addresses class action attorneys fee awards under California law. Laffitte concludes that courts awarding fees in class actions that settle with the creation of a common fund should analyze the award based primarily on a percentage of the common fund, with a lodestar/multiplier analysis as an optional cross-check.

2 but John Rabiej, Director, Duke University School of Law Center for Judicial Studies August 23, 2016 Page -2- addressed in section We offer below a few thoughts elaborating on some of the Principles, and a slight disagreement with one of the positions taken in the Principles. First Do No Harm Section 3.05(a)(3) of the Principles states that a class settlement should not disadvantage[ 1 class members. This is a deceptively simple statement, and a very important one. Defendants understandably negotiate for broad release of claims. However, class counsel sometimes does not seriously consider the potential effect of release language on class members. Therefore, courts should give careful attention to releases. If the release is broader than the matters pled or investigated in the litigation, the presumption should be to deny preliminary approval unless the scope of the release is narrowed. There is no substitute for reading the entirety of the settlement agreement. In one case the settlement agreement attached to the preliminary approval papers would have required individual class members to indemnify the defendant if tax treatment of the proceeds of the settlement was different than anticipated by the settlement papers. That provision did not survive preliminary review. The first principle should be that a proposed settlement should not disadvantage class members. Cy Pres Settlements The Principles have been quite influential in this area. Judges should carefully consider Comment b to section 3.07, which states that a cy pres remedy should not be ordered if the Court or any party has a significant prior affiliation with the intended recipient. The Court also should consider whether the defendant will receive collateral benefit from the cy pres award, such as favorable tax treatment, or enhancement to the defendant s reputation (e.g., the general counsel of the defendant will be honored by the cy pres recipient at a community event). The potential for these collateral benefits also supports the main point of section 3.07: every effort should be made to benefit class members in lieu of a third party recipient, however worthy. Attorneys Fees in Claims-Made Settlements Section 3.13 states that attorneys fees awarded in class actions should be based on the actual value of the judgment or settlement to the class. Again, this is a deceptively simple statement. Comment a explains further that the court should consider the value of cash or coupons actually claimed by class members. Importantly, as further suggested by Comment a, the Court may defer full fee determinations until the amounts actually paid to the class... are ascertained. This is more work for the court we would say more directly that the court should delay the full fee award to determine the actual value of the settlement to the class. Basing fees on value actually received by the class creates incentives for plaintiffs counsel to work hard to ensure that the value of the settlement actually reaches class members. These

3 John Rabiej, Director, Duke University School of Law Center for Judicial Studies August 23, 2016 Page -3- incentives can translate into better notices. Class counsel will be prompted to try to negotiate fewer prerequisites to receipt of benefits in claims-made settlements (or, indeed, elimination of any claim process; for example, when a credit card company could simply credit back an improper charge). When a class action halts an unlawful practice that benefits the defendant by harming a large number of class members in small monetary amounts, the actual value of the settlement may be better reflected in an attorneys fee award based on the value of injunctive relief. For judgments or settlements involving equitable relief, the value is the actual value of the relief to the class. (Principles of Aggregate Litigation, section 3.13, comment a.) While the go-forward value of corrective action may be difficult to quantify, it is a very important consideration in determining what fee for plaintiff class counsel is proportionate to the benefits obtained for class members. Searching Review of a Proposed Settlement at the First Level The Principles of Aggregate Litigation refer to first-level review of a proposed settlement as preliminary review rather than preliminary approval, reasoning that thinking in terms of preliminary approval might make a court reluctant to reject a settlement at final review. Whatever the first analysis of a class settlement is called, it is our view that the court should make every effort to fully analyze the fairness of the settlement at that point, and to inform the parties of all changes the court would require in order to approve the settlement. This approach avoids expense to the parties and the potential need to re-notice the class (see Principles, section 3.04(e)-(f)). Of course, at the final approval hearing the court will need to consider any objections received and the argument of objectors who appear. It is quite rare for objectors to appear as early as the preliminary review. However, the court may have a greater reluctance to deny approval at the final stage unless the settlement has substantial flaws, given the expense and efforts of the parties in processing the proposed settlement to that point. The court should do its best to identify all shortcomings in the settlement that diminish its fairness to the class at the time the settlement is first presented to the court. We hope these thoughts and the accompanying materials will be helpful to your preparations for the Conference. CBK:rm Attachments

4 1 receive compensation, the motion should set forth the reasons why information is If the proposed settlement requires class members to submit a claim in order to (d) Settlements requiring submission of claims The motion should set forth the reasons why the court should find that the class members, including the amount, or an estimate, of what each class or class counsel and the reasons for any such obligations. (1) The nature of any injunctive relief; (2) The amount and manner of distribution of the compensation to be provided to (3) Whether, and under what circumstances, amounts available for payment in (c) Settlement terms and evaluation (4) The scope of the release of class members claims; (5) Any provision for tax treatment of settlement amounts; and (6) A statement of any affirmative obligations to be undertaken by class members proposed settlement compromise is fair, adequate and reasonable, and treats class members equitably relative to each other, given the costs, risks and probability of success settlement including the following, with citation to the paragraph of the settlement agreement governing each item: member will receive; settlement might not be paid to class members or might revert to the defendant; if the litigation continued. The motion should describe the proposed terms of the behalf of the class if plaintiffs claims prevailed. The motion should explain why a court describe the legal and factual basis for the claims. The motion should summarize the investigation and discovery conducted by proposed class counsel and should include a reasonable estimate of the nature and amount of recovery that could be obtained on should find that the proposed settlement was negotiated at arms-length and is not collusive. (b) Case summary The motion should list the causes of action alleged in the operative complaint and proposed class definition or the definition of the class that already has been certified. It A motion for preliminary approval of a class wide settlement should set forth the (a) Class definition should provide an estimate of the number of persons included in the class. Motions for Preliminary Approval of Class Settlement (with comments referencing authorities) GUIDELINES FOR MOTIONS FOR PRELIMINARY AND FINAL APPROVAL OF CLASS SETTLEMENT

5 required to be furnished by class members in order to obtain recovery and an estimate of the anticipated claims rate. The motion should describe actions to be undertaken by class counsel to encourage submission of claims. (e) Coupon settlements If compensation to class members includes a coupon or voucher, the motion should describe the terms and conditions of use of the coupon or voucher and whether or not it is transferrable. (1) Cy pres distributions If the proposed settlement includes a cy pres distribution, the motion should set forth the reasons why such distribution fulfills the purposes of the lawsuit or is otherwise appropriate under Code of Civil Procedure section 384(b). The motion should be accompanied by (1) a declaration describing the proposed cy pres recipient, the proposed uses of the cy pres distribution, information sufficient to conclude that the recipient will be financially accountable for the funds, and (2) a declaration disclosing any interests or involvement by counsel or any party in the governance or work of the cy pres recipient. The motion should identify the provisions of the settlement ensuring that amounts agreed to be paid in settlement that are not in fact paid are distributed to an appropriate cy pres recipient. (g) Notice to class members The motion should include a Statement regarding class notice in conformance with California Rule of Court 3.766(b) and should state why the manner of giving notice complies with CRC 3.776(e)-(f). The content of the notice should comply with CRC 3.766(d) and in addition should set forth: (1) the material terms of the settlement, (2) the proposed fees and costs of administration, (3) details about the court hearing on settlement approval and submission of objections, and (4) how the class member can obtain additional information. Class action settlement notice formats illustrated on the website of the Federal Judicial Center ( are preferred. (h) Typicality and adequacy of representation The motion should set forth (1) the reasons why the named class representative has claims typical of the class and is an adequate class representative; and (2) the reasons why the proposed class counsel adequately represents the class and a description of counsel s experience. (i) Costs and fees The motion should set forth the following: (1) The proposed fees to be paid to class counsel, the manner of payment and a preliminary justification under existing case law for such fees. Any agreement, express or implied, that has been entered into with respect to the payment of attorneys fees or the submission of an application for the approval of attorneys fees must be set forth in full. All fees proposed to be paid to any counsel must be disclosed. 2

6 (2) Any proposed incentive payment to a named class representative and the justification for such payment. (3) An estimate of costs of administration, why such costs are reasonable and the proposed means for payment of administrative costs. (j) Exhibits to the motion A motion for preliminary approval of a class wide settlement should include the following exhibits: (1) A complete copy of the proposed settlement agreement. (2) A proof copy version of the proposed notice to the class, prepared in compliance with CRC 3.766, and any envelope to be used to send the notice. (3) A proof copy version of any proposed claim form. (4) A proof copy version of any form a class member may use to request exclusion from the class. (5) A proposed schedule for class notice, objection, opt-out, claim submission, motion for final approval and motion for attorneys fees. (k) Additional information The moving parties should include any additional information that may be relevant to review of the fairness, adequacy and reasonableness of the proposed settlement. The court may require submission of additional information as appropriate to ensure an adequate review of the fairness of the proposed settlement. COMMENTS AND AUTHORITIES The purpose of these guidelines is to assist counsel in placing before the court information that ordinarily is required for appropriate review of proposed settlements. Following these guidelines should avoid delay and provide a thorough record for appropriate court review of proposed class settlements. Settlement of a class action requires court approval to prevent fraud, collusion or unfairness to the class. (Dunk v. 1794, ) The court acts as a fiduciary of absent class members by inquiring into the fairness of a proposed class action settlement. (See, id.; Kullar v. Foot Locker Retail Inc. (2008) 168 Cal.App.4th 116, 129; 7-Eleven Ownersfor Fair Franchising v. Southland Corp. (2000) 85 Cal.App.4th 1135, 1151.) Ordinarily the adversary system incentivizes parties to present the facts and law that favor their respective interests. Courts rely on this process to identify the principles that should guide their decisions. However, once a class representative, proposed class counsel and a defendant have agreed to settle on a class wide basis, the presentation to the court requesting settlement approval generally is unilateral rather than adversarial. At that point, both class counsel and defense counsel have an incentive to highlight the strengths of the settlement and to downplay any weaknesses. (See generally, Consumer Privacy Cases (2009) 175 Cal.App.4 545, 555; Principles of the Law of Aggregate Litigation (American Law Institute 2010) section 3.02, comment a; section 3.05, comment b.) t Ford Motor Co. (1996) 48 Cal.App.4 t 3

7 Preliminary approval of a proposed class settlement does not bind the court to grant final approval of the settlement. However, because the settlement approval process often involves relatively substantial administrative costs (e.g., costs of notice), a court should be given as much information as possible at the preliminary approval phase, and the court should endeavor to express any reservations that are apparent based on the information provided. Subdivisions (b)-(c) In order to determine whether a class settlement is fair, adequate and reasonable, a court must be provided with basic information about the nature and magnitude of the claims in question and the basis for concluding that the consideration being paid for the release of those claims represents a reasonable compromise. (Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 133; Clark v. American Residential Services LLC (2009) 175 Cal.App.4th 785, 790, ) It is important to consider the scope of the release in order to understand what the class is giving up in exchange for the settlement. Regarding subsection (c)(3), when unclaimed funds are retained by or revert to the defendant, there can be substantial difficulties in valuing the settlement. Moreover, the settlement structure may provide an incentive for defendant to insist on provisions that deter class participation. (See generally, Rothstein & Wiliging, Managing Class Action Litigation: A Pocket Guide for Judges (Federal Judicial Center 2005) at p. 13.) An influential monograph on class actions suggests that prorating the total settlement amount among the class members who file claims... is a straightforward way to avoid the possibility of unclaimed funds and has become a standard practice in class settlements. (Id.) Subdivisions (d)-(e) The court must be able to assess accurately the compensation proposed to be paid to the class and to evaluate whether there are any barriers to class participation in the settlement. See comments regarding subsection (c)(3), supra. Subdivision (1) A cy pres distribution must fulfill the purposes of the underlying cause of action. (In re Microsoft I-V Cases (2006) 135 Cal.App.4 public s confidence in the administration ofjustice that any cy pres recipient be a responsible entity that will use the cy pres award for designated purposes. Moreover, cy pres distributions to entities in which the parties, counsel or the court have an interest or affiliation may raise questions as to whether the recipient was chosen on the merits. (See Principles of the Law of Aggregate Litigation (American Law Institute 2010) section 3.07, comment b.) If a proposed settlement does not expressly provide that funds not claimed by the class are retained by, or revert to, the defendant, Code of Civil Procedure section 384 requires payment of the residue to a cy pres recipient. (Cundffv. Verizon California, Inc. (2008) 167 Ca1.App.4 Subdivision (i) California Rule of Court 3.769(b) sets forth requirements for disclosure of agreements concerning proposed attorneys fees. t 718, ) t 706, 722.) It is important to the 4

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9 RE: Department: Page 1 of 4 3/25/15 SAMPLE El Proposed terms of the settlement SETTLEMENT TERMS AND EVALUATION FAIR, ADEQUATE AND REASONABLE El Explanation of why the settlement was negotiated at arms-length and is not collusive could have obtained if Plaintiff prevailed El Reasonable estimate of the nature and amount of recovery that each class member El Summary of the investigation and discovery conducted by class counsel Los Angeles (2010) 186 CaLApp.4th 399, 409. Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 133; Munoz v. BCI Coca-Cola Bottling Co. of El Summary of the Case, including the legal and factual basis for each claim. Kullar v. Foot CASE SUMMARY C Superiority C Adequacy of class counsel and/or class representative El Typicality represent the class. Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435 predominant questions of law or fact; (2> class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately The community of interest requirement has three essential elements: (1) C Community of Interest El Ascertainability. Sevidal v. Target Corp. (2010) 189 CaI.App.4th 905 El Numerasity. El Class definition. CLASS CERTIFICATION 20. Your hearing date is 20 further briefing on the items checked below. The additional briefing shall be due by In reviewing your motion for preliminary approval of class action settlement, the Court Orders PRELIMINARY APPROVAL OF CLASS ACflON SETTLEMENT

10 C Nature of injunctive relief, and valuation of such relief. C Amount and manner of distribution of the compensation to each class member, including the amount, or an estimate, of what each class member will receive C Explanation as to why the class representative enhancement is reasonable. Munoz v. BCI Coca-Cola Bottling Co. of Los Angeles (2010) 186 CaLApp.4th 399, 412; Radcliffe v. Experian Information Solutions Inc. (9th Cir. 2013) 715 F.3d 1157, C Whether, and under what circumstances, amounts may revert to Defendant. Eliustification for reversion to Defendant. Cundiff v. Verizon California, Inc. (2008) 167 CaLApp.4th 718, C Scope of the release. lsrael-curley v. California Fair Plan (2005) 126 CaLApp.4th 123, 129; Salehi v. Surfside III Condominium Owners Assn. (2011) 200 Cal.App.4th 1146, C The necessity of including a 1542 release as to the putative class members. El If wages are involved, how is Defendant s share of taxes being paid? C Explain why the settlement includes terms that are outside the scope of the operative complaint. Trotsky v, Los Angeles Federal Savings and Loan Assn. (1975) 48 CaLApp.3d 134, 148. El A statement of any affirmative obligations to be undertaken by the class member or class counsel and the reason for any such obligations SUBMISSION OF CLAIMS/EXCLUSIONS/OBJECTIONS C Explain why the claims process is not so burdensome that relief would be inaccessible to class members. C If class members are required to submit a claim to receive compensation, the motion should indicate why information is required to be furnished and an estimate of the anticipated claims rate U What actions class counsel will take to encourage submission of claims U Why the time limit to object or opt-out is reasonable. C Why the submission of a claim form is necessary Page 2 of 4 3/25/15 SAMPLE

11 (2006) 135 Cal.App.4th 706, 722; Nachshin v. AOL Inc. (9th Cir. 2011) 663 F.3d 1034, ; Dennis v. KelloggQ. (gth Cir. 2012) 697 F.3d 858, 865; Ca. Code of Civil Proc, 384. El Why does such distribution fill the purposes of the lawsuit or is otherwise appropriate. State of California i. Levi Strauss & Co. (1986) 41 Cal.3d 460, 472; In re Microsoft [-V Cases 3/25/15 SAMPLE Page3of4 El Proposed Judgment should not include a dismissal. Ca. Rules of Court, Rule 3.769(h). Residual Funds El Proposed schedule for class notice, objection, opt-out, claim submission, motion for final approval and attorney fees, final accounting and, if applicable, a Final Distribution of Ca. Rules of Professional Conduct, 2-200; Ca. Rules of Court, Rule whether the client has given written approval. Mark v. Spencer (2008) 166 Cal.App.4th 219; Li Any agreement about how attorney fees will be paid, including fee splitting and justification under existing laws for such fees. Ca. Rules of court, Rule 3.769(b). El Proposed fees to the class counsel, the manner of payment and a preliminary COSTSAND FEES El No explanation as to why English-only notice is sufficient. (e.g. posted on claims administrator s website) El How will notice of final judgment be given to the class. Ca, Rules of Court, Rule 3.771(b) EJWhy the manner of giving notice complies with Ca. Rules of Court, Rule 3.766(e) El Why the content of the notice complies with Ca. Rules of Court, Rule 3.766(d) NOTICETOCLASSMEMBERS El Inadequate discussion of how the parties will handle uncashed checks. El Declaration disclosing interests or involvement by any counsel or party in the governance or work of the cy pres recipient. CV PRES DISTRIBUTION EXHIBITS TO THE MOTION

12 OTHER INFORMATION D Date: 20_ JUDICIAL OFFICER A complete copy of the Preliminary Class Action Approval Guidelines can be found at the LA Superior Court s website under Tools for Litigators. Page 4 of 4 3/25115 SAMPLE