Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_14-cv-05352/USCOURTS-cand-3_14-cv-05352-3/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

BARBARA RUCH,

Plaintiff,

v.

AM RETAIL GROUP, INC. 

INDIVIDUALLY AND DBA, G.H. BASS 

& CO.,

Defendant.

Case No. 14-cv-05352-MEJ 

NOTICE REGARDING FACTORS TO 

BE EVALUATED FOR ANY

PROPOSED CLASS SETTLEMENT

For the guidance of counsel, please review the Procedural Guidance for Class Action 

Settlements, which is available on the website for the United States District Court for the Northern 

District of California at www.cand.uscourts.gov/ClassActionSettlementGuidance.

In addition, counsel should review the following substantive and timing factors the 

undersigned judge will consider in determining whether to grant preliminary and/or final approval 

to a proposed class settlement. Many of these factors have been set forth in In re Bluetooth 

Headset Products Liability Litigation, 654 F.3d 935, 946-47 (9th Cir. 2011), but the following 

discussion further illustrates the undersigned judge’s consideration of such factors:

1. ADEQUACY OF REPRESENTATION

Anyone seeking to represent a class, including a settlement class, must affirmatively meet 

the Federal Rule of Civil Procedure 23 standards, including adequacy. It will not be enough for a 

defendant to stipulate to adequacy of the class representation (because a defendant cannot speak 

for absent class members). An affirmative showing of adequacy must be made in a sworn record. 

Any possible shortcomings in a plaintiff’s resume, such as a conflict of interest, a criminal 

conviction, a prior history of litigiousness, and/or a prior history with counsel, must be disclosed. 

Adequacy of counsel is not a substitute for adequacy of the representative.

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To elaborate, when a settlement proposal is made prior to formal class certification, there is 

a risk that class claims have been discounted, at least in part, by the risk that class certification 

might be denied. Absent class members, of course, should be subject to normal discounts for risks 

of litigation on the merits but they should not be subject to a further discount for a risk of denial of 

class certification, such as, for example, a denial based on problems with a proposed class 

representative, including a conflict of interest or a prior criminal conviction. This is a main reason 

the Court generally prefers to litigate and vet a class certification motion before any settlement 

discussions take place. That way, the class certification is a done deal and cannot compromise 

class claims. Only the risks of litigation on the merits can do so.

2. DUE DILIGENCE

Please remember that when one undertakes to act as a fiduciary on behalf of others (here, 

the absent class members), one must perform adequate due diligence before acting. This requires 

the representative and his or her counsel to investigate the strengths and weaknesses of the case, 

including the best-case dollar amount of claim relief. A quick deal up front may not be fair to 

absent class members.

3. COST-BENEFIT FOR ABSENT CLASS MEMBERS

In the proposed settlement, what will absent class members give up versus what will they 

receive in exchange, i.e., a cost-benefit analysis? If the recovery will be a full recovery, then 

much less will be required to justify the settlement than for a partial recovery, in which case the 

discount will have to be justified. The greater the discount, the greater must be the justification. 

This will require an analysis of the specific proof, such as a synopsis of any conflicting evidence 

on key fact points. It will also require a final class-wide damage study or an adequate substitute, 

in sworn form. If little discovery has been done to see how strong the claim is, it will be hard to 

justify a substantial discount on the mere generalized theory of “risks of litigation.” A coupon 

settlement will rarely be approved. Where there are various subgroups within the class, counsel 

must justify the plan of allocation of the settlement fund.

4. THE RELEASE

The release should be limited only to the claims certified for class treatment. Language 

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United States District Court

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releasing claims that “could have been brought” is too vague and overbroad. The specific 

statutory or common law claims to be released should be spelled out. Class counsel must justify 

the release as to each claim released, the probability of winning, and its estimated value if fully 

successful.

Does the settlement contemplate that claims of absent class members will be released even 

for those whose class notice is returned as undeliverable? Usually, the Court will not extinguish 

claims of individuals known to have received no notice or who received no benefit (and/or for 

whom there is no way to send them a settlement check). Put differently, usually the release must 

extend only to those who receive money for the release.

5. EXPANSION OF THE CLASS

Typically, defendants vigorously oppose class certification and/or argue for a narrow class. 

In settling, however, defendants often seek to expand the class, either geographically (i.e., 

nationwide) or claim-wise (including claims not even in the complaint) or person-wise (e.g., 

multiple new categories). Such expansions will be viewed with suspicion. If an expansion is to 

occur it must come with an adequate plaintiff and one with standing to represent the add-on scope 

and with an amended complaint to include the new claims, not to mention due diligence as to the 

expanded scope. The settlement dollars must be sufficient to cover the old scope plus the new 

scope. Personal and subject-matter jurisdiction over the new individuals to be compromised by 

the class judgment must be shown.

6. REVERSION

A settlement that allows for a reversion of settlement funds to the defendant(s) is a red 

flag, for it runs the risk of an illusory settlement, especially when combined with a requirement to 

submit claims that may lead to a shortfall in claim submissions.

7. CLAIM PROCEDURE

A settlement that imposes a claim procedure rather than cutting checks to class members 

for the appropriate amount may (or may not) impose too much of a burden on class members, 

especially if the claim procedure is onerous, or the period for submitting is too short, or there is a 

likelihood of class members treating the notice envelope as junk mail. The best approach, when 

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feasible, is to calculate settlement checks from a defendant’s records (plus due diligence 

performed by counsel) and to send the checks to the class members along with a notice that 

cashing the checks will be deemed acceptance of the release and all other terms of the settlement.

8. ATTORNEY’S FEES

To the extent the parties’ settlement agreement discusses attorney’s fees, they are 

admonished that the Court will ultimately decide how much in attorney’s fees is justified; the 

Court will not approve a settlement agreement that requires it to approve previously agreed on 

attorney’s fees. If the defense insists on an overall cap, then the Court will decide how much will 

go to the class and how much will go to counsel, just as in common fund cases. 

9. DWINDLING OR MINIMAL ASSETS

If the defendant is broke or nearly so with no prospect of future rehabilitation, a steeper

discount may be warranted. This must be proven. Counsel should normally verify a claim of

poverty via a sworn record, thoroughly vetted.

10. TIMING OF PROPOSED SETTLEMENT

In order to have a better record to evaluate the foregoing considerations, it is better to

develop and to present a proposed compromise after class certification, after diligent discovery on 

the merits, and after a damage study has been finalized. On the other hand, there will be some 

cases in which it will be acceptable to conserve resources and to propose a resolution sooner. For 

example, if the proposal will provide full recovery (or very close to full recovery) then there is 

little need for more due diligence. The poorer the settlement, however, the more justification will 

be needed and that usually translates to more discovery and more due diligence; otherwise, it is 

best to let absent class members keep their own claims and fend for themselves rather than foist a 

poor settlement on them. Particularly when counsel propose to compromise the potential claims 

of absent class members in a low-percentage recovery, the Court will insist on a detailed 

explanation of why the case has turned so weak, an explanation that usually must flow from 

discovery and due diligence, not merely generalized “risks of litigation.” Counsel should 

remember that merely filing a putative class complaint does not authorize them to extinguish the 

rights of absent class members. If counsel believe settlement discussions should precede a class 

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certification, a motion for appointment of interim class counsel must first be made. “[S]ettlement 

approval that takes place prior to formal class certification requires a higher standard of fairness.” 

Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998).

11. A RIGHT TO OPT OUT IS NOT A CURE-ALL

A borderline settlement cannot be justified merely because absent class members may opt 

out if they wish. The Court has (and counsel have) an independent, stand-alone duty to assess 

whether the proposed settlement is reasonable and adequate. Once the named parties reach a 

settlement in a purported class action, they are always solidly in favor of their own proposal. 

There is no advocate to critique the proposal on behalf of absent class members. That is one 

reason that Rule 23(e) insists that the district court vet all class settlements.

12. INCENTIVE PAYMENT

A request for an incentive payment will be viewed skeptically. Class litigation proceeded 

well for many decades before the advent of requests for “incentive payments,” which too often are 

simply ways to make a collusive or poor settlement palatable to the named plaintiff. 

13. NOTICE TO CLASS MEMBERS

Is the notice in plain English, plain Spanish, and/or plain Chinese (or the appropriate 

language)? Does it plainly lay out the salient points, which are mainly the foregoing points in this 

memorandum? Will the method of notice distribution really reach every class member? Will it 

likely be opened or tossed as junk mail? How can the envelope design enhance the chance of 

opening? Can mail notice be supplemented by e-mail notice? 

* * *

Counsel will please see from the foregoing that the main focus will be on what is in the 

best interest of absent class members. Counsel should be mindful of the factors identified in In re 

Bluetooth, 654 F.3d at 946-47, as well as the fairness considerations detailed in Hanlon, 150 F.3d 

at 1026. 

Dated: October 21, 2015

______________________________________

MARIA-ELENA JAMES

United States Magistrate Judge

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