Michael R. Brown (SBN ) MICHAEL R. BROWN A PROFESSIONAL CORPORATION 0 Main Street Suite 0 Irvine, California Telephone: () - Facsimile: () -01 Email: mbrown@mrbapclaw.com Attorneys for BERKES CRANE ROBINSON & SEAL, LLP and the class of similarly situated persons SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF LOS ANGELES BERKES CRANE ROBINSON & SEAL LLP, a California limited liability partnership v. Plaintiff, THE CITY OF LOS ANGELES, Defendant. Case No.: BC Filed: November, Assigned to the Hon. Meran Nelson RESPONSE TO THE COURT S ORDER FOR FURTHER BRIEFING REGARDING PLAINTIFF S MOTION FOR PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT FILED SEPARATELY DECLARATION OF MICAEL R. BROWN WITH REVISED SETTLEMENT AGREEMENT AND REVISED DOCUMENTS LODGED ORIGINAL DOCUMENTS RED-LINED Date: October, Time: :00 a.m. Dept.: CCW-0-1 - SETTLEMENT PURSUANT TO THE COURT S ORDER OF AUGUST,
I. INTRODUCTION On July,, Plaintiff filed its Motion for Preliminary Approval of Class Action Settlement. The matter was set for hearing on August,. On August,, the Court, after reviewing the Motion, ordered further briefing. A copy of the Order on further briefing, specifying the areas requiring further briefing, is attached as Exhibit 1 to this Brief. In its Order, the Court made suggested changes to the settlement terms as set forth in the Settlement Agreement. The Parties met and conferred and were able to reach agreement to change the Settlement Agreement to conform to the Court s comments, suggestions and instructions. The Court ordered a new, fully executed Settlement Agreement be submitted ( Revised Settlement Agreement ). The Court also ordered that any changes in the Revised Settlement Agreement be made in the Class Notice. This has been done and set forth in the documents identified below. Further, to the extent any other original submitted documents were affected by the revisions in the Revised Settlement Agreement, they have been changed. The Court also wanted to see the proposed injunction language. To assist the Court in reviewing the changes and modifications, each inquiry, suggestion or order is set forth below with a narrative response. The Revised Settlement Agreement is attached as Exhibit 1 to the Declaration of Michael R. Brown ( Brown decl. ), submitted as a separate document. (Ex. 1). Consistent with the original Settlement Agreement, the operative documents agreed upon are attached as Exhibits A-F to the Revised Settlement Agreement, Ex. 1. All references hereafter to Ex. 1 relate to Ex. 1 to the Brown declaration. The Court further ordered a red-lined copy of the original documents that were modified be submitted to the Court. Consistent with that Order, the Original Settlement Agreement is separately lodged with the Court and marked and referred to as Ex.. The original documents to Ex. are attached. To the extent any of these documents had substantive changes, the red-lined copies are contained in Ex. (Settlement Agreement, Class Notice, Claim Form A(1) to Refund Notice, Claim Form A(), Claim Form Group of and Summary Notice). For the convenience of the Court, a separate compilation has been made of Exhibit 1 and Exhibit so the Court may review - - SETTLEMENT PURSUANT TO THE COURT S ORDER OF AUGUST,
them side-by-side without the necessity of disassembling the exhibits attached to this supplemental brief. For the convenience of the Court, the Exhibits attached to the Brown declaration, are summarized as follows: A. Exhibit 1. Revised Fully Executed Settlement Agreement Exhibit-A Exhibit-B Exhibit-C Exhibit-D Exhibit-E Exhibit-F Proposed Order (not revised per Court Order) Revised Class Notice Revised Class A(1) and Crossover Claim Form now captioned Refund Notice as no Claim Form is required Class A() Claim Form Group of Claim Form Proposed Injunction Order (new document) Exhibit G- Revised Summary Class Notice (prior Ex. F) Separately Lodged: B. Exhibit Original Settlement Agreement-Redlined All exhibits same as set forth above but red-lined and blue-lined. Red-line shows deletions, blue print shows additions. When referencing the Court to the exhibits or changes, a reference to a Section is to the Revised Settlement Agreement (Ex. 1), a reference to a Para. is to the Revised Class Notice (Ex. 1- B). II. THE COURT S ORDER OF AUGUST, A. Proposed terms of the settlement 1. a. The Court inquired: If the parties will be seeking an order from the Court in the future for the cost of claims administration, please provide an estimate for claims administration costs. b. The response: The parties are not seeking administration costs. The City is paying all claims administration costs outside of any settlement money or attorney s fees. No revision was necessary to either document (Ex. 1, Section., p. ) - - SETTLEMENT PURSUANT TO THE COURT S ORDER OF AUGUST,
. a. The Court: Consider extending the cash checking deadline from 0 days to 0 days. b. The response: Done. (Ex. 1, Section.0, p. ). a. The Court: Consider extending the claim deadline from 0 days to 0 days b. The response: Done. (Ex. 1, Section 1.0, p. ). Once the actual dates are determined after approval of the settlement they will be filled in on the Class Notice where indicated. B. Scope of the Release. a. The Court: Please provide a more definite time period for the release of claims than from the beginning of the world until today. What are the class periods? b. The response: The time period of the released claims is for claims arising for the period May, 1, to the present date, which encompasses the class periods on the beginning date for each class, and to the present date for Class A(). Class A(1) class period ends December 1,. The words from the beginning of the world until today have been deleted and the common initial commencement date of the class period until the present date has been inserted. (Ex. 1, Section 1.1, p.). Ex. 1, Section.0, p. is also instructional on the release and limitations of the release. (The release has been further modified pursuant to the Court s order as discussed below).. a. The Court: The necessity of including a release as to the putative class members. Please be prepared to discuss the propriety of the waiver b. The response: The release has been deleted. (Ex. 1, Section VII, final, p.; Ex., red-line showing Section.0 California Code of Civil Procedure being deleted. The Class Notice has also been changed (Ex. B, Para., p.). As the Court will note, Article VII has been significantly modified (see deletions in red-line) making it a very specific and limited release. C. Submission of Claims. a. The Court: 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 claim rate. - - SETTLEMENT PURSUANT TO THE COURT S ORDER OF AUGUST,
b. The response: There are four () groups of class members that may receive compensation: CLASS A(1) AND CROSSOVERS - ELIMINATION OF PRIOR CLAIM FORM REQUIREMENT (i) Class A(1): Class A(1) class members were audited and were assessed additional tax, interest and penalties. The City knows the identity of these class members and can calculate the amount of compensation ( refund ) due each class member. (ii) Class A(1) Crossovers: These class members were also audited and the audit revealed that some Reimbursed Expenses were voluntarily included by the firm in calculating gross receipts, but others were not. This resulted in the gross receipts being recalculated by the City leaving in the voluntarily reported Reimbursed Expenses and adding to the gross receipts the additional Reimbursed Expenses the City claimed should have been included. The City has identified these class members and has determined a) the amount of additional tax paid after audit (making the member a Class A(1) member AND the tax amount on the Reimbursed Expenses voluntarily paid (making the member a Class A() member. A Crossover will have one payment as a Class A(1) member (0% of all additional taxes, interest and penalties) and one payment as a Class A() member (a voluntary payer) subject to the Class A() distribution protocol. These two class consist of class members that were audited, which means the City has actually seen the filings, and has information about the Class Member s calculation of its gross receipts. The City has paperwork from which the City can calculate refunds. In the original Settlement Agreement, as to these two groups of Class Members, the City, as a municipality, believed that because it was refunding tax payments to a taxpayer an actual claim had to be filed, with certain claimant information, signed by the taxpayer and then a refund could be administered by the City. (Ex., Section.01) However, after this Court s inquiry as to the need for a Claim Form, Class Counsel further discussed the issue with the City. Because the City has all the necessary information to identify and pay 0% of the Class A(1) Class Members and 0% of the Class A(1) Crossover Class members, the City has agreed to waive the requirement of a Claim Form for these two groups - - SETTLEMENT PURSUANT TO THE COURT S ORDER OF AUGUST,
of Class Members. There will be a 0% payout / participation to these two groups of Class Members with an estimated value of in excess of $1,000,000 with a portion for the Crossovers coming from the Settlement Pool. However, in order to decide whether to exclude themselves or object, Class Members needed to be notified that they are a member of Class A(1) or a Crossover. Working with the Claims Administrator, a notification method was developed. Accordingly, the previously submitted Claim Form for Class A(1) and Crossover Class Members has been revised. Class A(1) and Crossover Class Members will now get a Refund Notice that will tell them they are Members of the Class and the amount of refund they will receive. (Ex. 1, Section 1. (added)). They do NOT have to return any documents in order to receive the refund. (Ex. 1, Section.01) This Refund Notice accompanies the Class Notice and provides all the necessary information, along with reference to the Class Notice, to allow these Class members to decide what to do. The Refund Notice is attached as Ex. 1-C. The prior Claim Form is Ex. -C. This is a significant benefit to the class and will affect in excess of 1,000 Class members. CLASS A() AND GROUP OF NECESSITY FOR A CLAIM FORM (iii) Class A(): Class A() Class Members are firms that voluntarily included Reimbursed Expenses in their gross receipts during the class period. The City has no information as to what firms did this, since none of the Class A() Business Tax Applications were subject to audit. Accordingly, Class A() Class members must identify themselves to the City, re-calculate their tax liability by eliminating the Reimbursed Expenses from its gross receipts, and submit a Claim Form (similar as to what one might do if amending a tax return). This is an exceptional component to this Settlement. Law firm taxpayers that voluntarily paid this tax, and never contested it, now have the opportunity to claim a refund for the voluntarily payment, all as a result of Plaintiff timely objecting to the tax, undertaking all administrative conditions precedent to challenging the tax, and then commencing this class action litigation, resulting in this Settlement. These Claim Forms will be used to allocate and distribute compensation to Class A() Class members pursuant to the Revised Settlement Agreement (Ex 1, Section.0, p.; Section.0(c), - - SETTLEMENT PURSUANT TO THE COURT S ORDER OF AUGUST,
p., Ex 1-B. Para.,, ). A copy of the Claim Form for Class A() Class Members is attached as Ex. 1-D to the Revised Settlement Agreement. It is a simplified form requiring minimal information to allow the City to verify a claim made. (iv) Group of : Out of thousands of reviewed audit files, the City has identified Class Members it believes were audited but it cannot find any existing substantive audit records. The City does not know if there was any additional tax, penalty or interest assessed against the firm. These firms, known only by name, will receive a Claim Form. This is a simplified form that asks the firm to provide information so the City has something to base a refund upon to a Class Member. (Ex. 1, Section.0(d), Ex 1- B, Para. ). A copy of the simplified form is attached as to the Revised Settlement Agreement (Ex. 1-E). UNDER THE REVISED SETTLEMENT AGREEMENT ALL IDENTIFIABLE CLASS MEMBERS RECEIVE A REFUND WITHOUT A CLAIM FORM As presently written, the Revised Settlement Agreement provides for compensation to all Class Members that were audited and can be identified through the City s records without the need for a Claim Form. This means 0% of Class A(1) and Class A(1) Crossover Class Members will be paid. As to the return rate for the balance, it is anticipated there should be a good rate of return since Class Members still make annual filings with the City, and the claims filing process is at year end when law firms are preparing the their year-end tax information. a. The Court: Consider making the objection procedure the same as the exclusion procedure so that class members need only to mail objections to the settlement administrator and not file anything with the Court or serve the parties. Modify the class notice accordingly. b. The response: Done. However, it is assumed the Court will want to have all objections delivered to the Court prior to the Final Approval Hearing. Accordingly, the Revised Settlement Agreement and the Class Notice require submission of the objection only to the Claims Administrator by the Objection Deadline. The Claims Administrator will deliver all objections received to the Court days prior to the Final Approval Hearing, noting which ones comply with the objection requirements and which ones do not. (Ex. 1, Section.0, p., Ex.1- B, Para. ) - - SETTLEMENT PURSUANT TO THE COURT S ORDER OF AUGUST,
. a. The Court: Delete all language indicating that class members may only be heard at final approval if they have complied with all objection procedures b. The response: Done. (Ex. 1, Section.0, p., Ex.1- B, Para. ). However, the Parties reserve the right to object, at the Final Approval Hearing, to any objection being heard which objection did not comply with the approved objection requirements set forth in the Class Notice.. a. The Court: Please delete any requirement that class members file a Notice of Intention to Appear to be heard at final approval. b. The response: Done. (Ex. 1, Section.0, p., Ex.1- B, Para. ) D. COSTS AND FEES. a. The Court: According to the settlement agreement Class Counsel can seek attorney s fees up to $1. million. According to page of the class notice attorney fees may be sought up to $. million. Which is it? b. The response: Class Counsel and the City negotiated a fee of $1. million after the class settlement terms were negotiated and finalized. This fee, if approved by the Court, is paid separate and apart from direct payment to all Class A(1) Class Members and also not paid from the settlement pool. (Section.0 as originally written). The Class Notice has been corrected. (Ex.1- B, Para. ). E. PROPOSED JUDGMENT SHOULD NOT INCLUDE A DISMISSAL. a. The Court: Remove reference to dismissal throughout the settlement agreement. If the Court grants final approval, it must enter judgment and cannot dismiss the class claims b. The response: Done. (Ex. 1, former para..01 deleted (see Ex., p.) G. ADDITIONAL CHANGES IN THE REVISED SETTLEMENT AGREEMENT The foregoing represents a complete response to each issue raised by the Court. In addition to the changes requested by the Court, the Revised Settlement contains these additional changes: 1. The Parties agreed to add to the Termination provisions that if more than % of the Class members opt out, the City may elect to terminate the Revised Settlement. (Ex. 1, Section - - SETTLEMENT PURSUANT TO THE COURT S ORDER OF AUGUST,
.0).. The Parties also agreed that, while the City would not stipulate to the value of the Injunctive Relief obtained by Plaintiff by having the City s taxing policy changed, the City does agree this relief has value to the Class members. (Ex. 1, Section.0).. The Parties previously stipulated to extend the provisions of CCP Section. to November,. As that date is approaching, the Parties have agreed the Court may enter an Order extending the provisions to November, to allow time for the approval of this settlement, and the implementation of the settlement provisions. (Ex. 1, Section., p. ). A proposed Order will be presented to the Court at the October, hearing.. The proposed schedule leading up to the Final Approval Order has been adjusted, assuming the Preliminary Order of Approval occurs on October,. (Section. - actual dates to be placed in Class Notice where designated once approved). It remains tentative and based on the Court s timing of any approval order.. Although the actual substantive changes to any Settlement term were made where the issue was presented, to the extent that change impacted any other provisions, those provisions have been changed to be consistent with the substantive change. These appear as additional changes in the red-lining exhibits. Respectfully submitted, MICHAEL R. BROWN, APC By: Michael R. Brown Attorneys for Plaintiff Berkes Crane Robinson & Seal, LLP individually, and as representative of the class of persons similarly situated, - - SETTLEMENT PURSUANT TO THE COURT S ORDER OF AUGUST,