Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_14-cv-00988/USCOURTS-cand-4_14-cv-00988-3/pdf.json

Nature of Suit Code: 790
Nature of Suit: Other Labor Litigation
Cause of Action: 28:1332 Diversity-Petition for Removal

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

JULIE DUDUM, et al.,

Plaintiffs,

v.

CARTER'S RETAIL, INC.,

Defendant.

Case No. 14-cv-00988-HSG 

ORDER DENYING MOTINO FOR 

PRELIMINARY APPROVAL

Re: Dkt. No. 21

Pending before the Court is Plaintiffs’ unopposed motion for preliminary approval of the 

class action settlement reached in this case and for certification of the putative settlement class. 

Dkt. No. 21 (“Mot.”). Pursuant to Civil Local Rule 7-1(b), this motion is deemed suitable for 

disposition without oral argument, and the hearing scheduled for September 10, 2015, is therefore 

VACATED. The Court has carefully considered the arguments made by Plaintiff and, for the 

reasons described below, DENIES the motion for preliminary approval without prejudice.

I. FACTUAL BACKGROUND

A. Litigation History

On January 27, 2014, Plaintiffs filed a lawsuit against Defendant Carter’s Retail, Inc. in the 

Superior Court for the County of San Mateo. Plaintiffs alleged violations of California’s Labor 

Code and Business and Professions Code, including the failure to pay wages, failure to pay split 

shift differential wages, failure to reimburse business expenses, failure to provide accurate wage 

statements, violations of California’s Unfair Competition Law, and claims under the Private 

Attorney General Act (“PAGA”). Plaintiff Julie Dudum also brought individual claims for 

retaliation, disability discrimination, and wrongful termination. Carter’s removed the action to the 

District Court for the Northern District of California on March 3, 2014. 

After exchanging some discovery, the parties participated in a full-day mediation before an 

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experienced class action mediator on October 22, 2014. The parties continued to work with that 

mediator in the months following the mediation until a settlement was reached on January 15, 

2015. The terms of the formal settlement agreement were finalized on July 7, 2015. Plaintiffs 

filed a motion for preliminary approval of that settlement on July 24, 2015. Dkt. No. 21.

B. Overview of the Proposed Agreement

The parties have submitted a Joint Stipulation of Settlement and Release (the “Settlement 

Agreement”) for the Court’s review. The key provisions of the Settlement Agreement are as 

follows.

Payment Terms: In full settlement of the claims asserted in this lawsuit, Carter’s agrees to 

pay $472,000. This amount includes payments to class members for release of their claims, any 

award of attorneys’ fees and costs, the claims administrator’s costs, a $4,000 payment to the Labor 

and Workforce Development Agency pursuant to PAGA and any incentive award to the named 

plaintiffs. Plaintiffs’ counsel estimates that $274,500 will be available for disbursement to the 

class after these amounts are deducted from the total recovery.

The Settlement Agreement provides that the disbursable settlement amount will be 

allocated to class members based on two factors. First, “an amount equal or greater than the 

amount of wages that Defendant might determine through further analysis of payroll data could be 

owed to each Class Member based on Plaintiffs’ regular rate theory shall be calculated.” Mot. at 

5. Second, once all “regular rate theory” payments are calculated, the remainder of the disbursable 

settlement amount will allocated to class members based on their proportional share of pay periods 

worked during the class period.

 Attorneys’ Fees and Costs: The Settlement Agreement authorizes class counsel to apply 

to the Court for an award of attorneys’ fees and costs incurred in litigating this case, not to exceed 

one-third of the total settlement amount. 

Incentive Payment: The Settlement Agreement authorizes the named plaintiffs to seek 

$5,000 incentive payments (for a total of $25,000) for their participation in this lawsuit. Id. at 21.

Releases: The Settlement Agreement provides that all class members other than those who 

opt-out shall release Carter’s from:

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All claims and causes of action alleged in the Complaint on file in 

this Action, with the sole exclusion of individual claims made by 

Plaintiff Julie Dudum (i.e., the Ninth through Eleventh Causes of 

Action in the Instant Action). The Class Member Released Claims 

include claims for failure to pay all wages (Labor Code §§ 201, 

202,203, 204, 210, 510 and 1194); failure to provide meal periods or 

compensation in lieu thereof(Labor Code §§ 226.7 and 512; IWC 

Wage Order 4-2001); failure to pay split shift differential wages; 

failure to reimburse business expenses; failure to provide accurate 

wage statements (Labor Code § 226); penalties pursuant to Labor 

Code § 558; violation of Business and Professions Code § 17200 

(derivative of the Labor Code claims asserted in the Complaint); and 

penalties pursuant to Labor Code § 2699(f) for violations of Labor 

Code §§ 201, 202, 203, 204, 210, 226.7, 432, 510, 512, 558, 1194, 

and 2699(f)(2). 

Mot. at 7. The time period for this release is January 27, 2010 through and including January 15, 

2015. Id. 

Unclaimed Settlement Funds: The Settlement Agreement provides that unclaimed 

settlement funds above a fifty percent floor will revert to Carter’s. 

Objections: Any class member who has not opted out may file an objection to the 

Settlement Agreement (or any of its terms) within 14 calendar days following the conclusion of 

the 60 day claim period. 

II. PRELIMINARY APPROVAL

Pursuant to Federal Rule of Civil Procedure 23(e), “[t]he claims, issues, or defenses of a

certified class may be settled, voluntarily dismissed, or compromised only with the court’s

approval.” The Ninth Circuit maintains a “strong judicial policy” that favors the settlement of 

class actions. Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1276 (9th Cir. 1992). “The

purpose of Rule 23(e) is to protect the unnamed members of the class from unjust or unfair 

settlements affecting their rights.” In re Syncor ERISA Litig., 516 F.3d 1095, 1100 (9th Cir. 

2008). Accordingly, before a court approves a settlement it must conclude that the settlement is 

“fundamentally fair, adequate and reasonable.” In re Heritage Bond Litig., 546 F.3d 667, 674-75 

(9th Cir. 2008). 

In general, the district court’s review of a class action settlement is “extremely limited.” 

Hanlon, 150 F.3d at 1026. However, where the parties reach a class action settlement prior to 

class certification, courts apply “a higher standard of fairness and a more probing inquiry than may 

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normally be required under Rule 23(e).” Dennis v. Kellogg Co., 697 F.3d 858, 864 (9th Cir. 2012) 

(citation and internal quotations omitted). Courts “must be particularly vigilant not only for 

explicit collusion, but also for more subtle signs that class counsel have allowed pursuit of their 

own self-interests and that of certain class members to infect the negotiations.” In re Bluetooth 

Headset Prods. Liab. Litig., 654 F.3d 935, 947 (9th Cir. 2011). 

At the preliminary approval stage, the Court may grant preliminary approval of a 

settlement and direct notice to the class if the settlement: (1) appears to be the product of serious, 

informed, non-collusive negotiations; (2) has no obvious deficiencies; (3) does not improperly 

grant preferential treatment to class representatives or segments of the class; and (4) falls within 

the range of possible approval. See In re Tableware Antitrust Litig., 484 F. Supp. 2d 1078, 1079 

(N.D. Cal. 2007); see also Alvarado v. Nederend, No. 08-cv-01099 OWW DLB, 2011 WL 90228, 

at *5 (E.D. Cal. Jan. 11, 2011) (granting preliminary approval of settlement in wage and hour class 

action); Joseph M. McLaughlin, McLaughlin on Class Actions: Law and Practice § 6.6 (7th ed.

2011) (“Preliminary approval is an initial evaluation by the court of the fairness of the proposed

settlement, including a determination that there are no obvious deficiencies such as indications of 

a collusive negotiation, unduly preferential treatment of class representatives or segments of the 

class, or excessive compensation of attorneys . . . .”). The Court considers the settlement as a 

whole, rather than its components, and lacks the authority to “delete, modify or substitute certain 

provision.” Id. (quoting Officers for Justice v. Civil Serv. Comm’n of San Francisco, 688 F.2d 

615, 630 (9th Cir. 1982)). Rather, “[t]he settlement must stand or fall in its entirety.” Id.

In this case, the Court finds that the limited information provided by Plaintiffs’ counsel 

precludes the Court from evaluating whether the Settlement Agreement warrants preliminary 

approval. While Plaintiffs’ counsel states that it conducted a detailed damage analysis, the results 

of that analysis are not provided to the Court. Nor does Plaintiffs’ counsel discuss whether and 

why that damage analysis supports the reasonableness of the Settlement Agreement reached in this 

case. Accordingly, the Court simply cannot determine whether the $472,500 agreed upon is 

sufficient to compensate the 466 class-members for the release of the claims sought to be resolved. 

At a minimum, any future motion for preliminary approval must disclose the results of Plaintiffs’ 

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damage analysis and discuss how that analysis supports the reasonableness of the settlement, 

given the strengths and weaknesses of the released claims.

The Court notes that several other aspects of the proposed Settlement Agreement raise 

substantial concerns. First, Plaintiffs’ counsel seeks one-third of the settlement amount as 

attorneys’ fees, which is significantly higher than the 25% benchmark established by the Ninth 

Circuit. See Powers v. Eichen, 229 F.3d 1249, 1256 (9th Cir. 2000). A renewed motion for 

preliminary approval should provide some justification supporting an award of attorneys’ fees at 

the maximum end of the appropriate range, taking into account that this lawsuit appears to have 

been settled at an early stage and without any motion practice. Similarly, a future motion should 

explain why it is appropriate to provide the five named plaintiffs with incentive awards of 

approximately 10% of the disbursable settlement amount on top of the normal distribution 

available to all class members. Finally, Plaintiff’s counsel should also provide an explanation why 

any reversion of unclaimed settlement funds to Carter’s is appropriate. See Flores v. Alameda 

Cnty. Indus. Inc, No. 14-cv-03011-JD, 2015 WL 3763605, at *3 (N.D. Cal. June 16, 2015) (“The 

prior settlement agreement [provided that] unclaimed funds reverted to the defendant, which 

effectively discounts the settlement in an unfavorable way to the class[, which] is an indicia of a 

collusive deal and unfairness to the class.”). Although Plaintiffs need not fully brief these issues 

(as would be expected on a motion for final approval), Plaintiffs’ counsel must provide the Court a 

sufficient basis to find that full briefing could support the reasonableness of the terms discussed.

III. CONCLUSION

For the foregoing reasons, the Court denies DENIES Plaintiffs’ motion for preliminary

approval of the settlement agreement without prejudice. The Court will set a case management 

conference if it does not receive a renewed motion for preliminary approval of the class action 

settlement within 30 days of the date of this order.

IT IS SO ORDERED.

Dated: September 4, 2015

______________________________________

HAYWOOD S. GILLIAM, JR.

United States District Judge

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