Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_20-cv-00126/USCOURTS-cand-3_20-cv-00126-0/pdf.json

Parties Involved:
GoSmith, Inc.
Defendant
Cathi Schloss
Plaintiff

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

CATHI SCHLOSS,

Plaintiff,

v.

GOSMITH, INC.,

Defendant.

No. C 20-00126 WHA 

NOTICE AND ORDER RE 

PUTATIVE CLASS ACTIONS AND 

FACTORS TO BE EVALUATED FOR 

ANY PROPOSED CLASS 

SETTLEMENT AND PROTOCOL 

FOR INTERVIEWING PUTATIVE 

CLASS MEMBERS

For the settlement 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 that Judge 

William Alsup will consider in determining whether to grant preliminary and/or final approval 

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

Bluetooth Headset Products Liability Litigation, 654 F.3d 935, 946–47 (9th Cir. 2011). 

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

interest of absent class members. For an example of an order denying proposed preliminary 

approval based on many of these considerations, see Kakani v. Oracle Corp., No. C 06-06493 

WHA, 2007 WL 1793774 (N.D. Cal. June 19, 2007).

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1. Adequacy of Representation.

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

meet the Rule 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. Also 

to be disclosed in a sworn record are any possible shortcomings in a plaintiff’s resume, such as 

a conflict of interest, a criminal conviction, a prior history of litigiousness, a prior history with 

counsel, and/or a prior history of filing putative class actions only to extract an individual 

settlement with a premium for dismissing the case. Adequacy of counsel is not a substitute 

for adequacy of the representative. 

2. Due Diligence.

When anyone undertakes to act as a fiduciary on behalf of others (here, the absent 

class members), one must perform adequate due diligence before compromising their claims. 

This requires the representative and his or her counsel to investigate the actual strengths and 

weaknesses of the case, including determining the best-case dollar amount of claim relief. 

This usually requires discovery. A quick deal up front may save counsel money yet be unfair 

to absent class members.

3. Cost-Benefit for Absent Class Members.

If the settlement will provide 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 a very good 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.” If 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. A coupon 

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

counsel must also justify the plan of allocation of the settlement fund.

4. The Release.

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

A recurring problem, for example, is a class complaint for only rest- and meal-breaks which 

the defendant seeks to convert to a blanket class-wide release of all California Labor Code 

violations, including overtime, usually accompanied by a stipulation for plaintiff’s counsel 

to receive a large fee. Language 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. 

In litigation, defendants usually 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. 

5. Reversion.

A proposed class settlement that allows for a reversion of settlement funds to 

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.

6. Claim Procedure.

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

class members for the appropriate amount may impose too much of a burden on class 

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

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or there is a likelihood of class members treating the notice envelope as junk mail. The best 

approach, when 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.

7. Attorney’s Fees.

To avoid collusive settlements, all settlements should avoid any agreement as to 

attorney’s fees and leave that to the judge. In common fund cases, the judge will decide how 

much will go to the class and how much will go to counsel. A settlement whereby the attorney 

seems likely to obtain funds out of proportion to the benefit conferred on the class must be 

justified.

8. A Right to Opt Out is Not a Cure-All.

A borderline settlement proposal cannot be justified merely because absent class 

members may opt out if they wish. The Court has (and counsel have) an independent, standalone duty to assess whether the proposed class 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. 

9. Incentive Payment.

If the proposed class settlement by itself is not good enough for the named plaintiff, 

why should it be good enough for absent class members similarly situated? Class litigation 

proceeded well for many decades before the advent of requests for “incentive payments,” 

which sometimes are simply ways to make a collusive or poor settlement palatable to the 

named plaintiff. A request for an incentive payment must be clearly justified with a sworn 

record. 

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10. Notice to Class Members. 

Does the proposed class 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, the release should extend only to those who receive money for the release. 

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?

11. Timing of Proposed Settlement.

Absent class members are better served, the Court has learned from experience, when 

class counsel postpones settlement negotiations until after a ruling of a class certification. In 

this way, both sides will know the specific claims suitable for settlement or trial on a classwide basis as well as the scope of the class-members. 

Another important reason is that, by waiting, class counsel can negotiate from 

strength — with a certification order firmly in hand, all to the benefit of absent class members. 

Put differently, when it comes to settlement, the claims of absent class members should, of 

course, be discounted by the risks of litigation on the merits, but they should not be further 

discounted by the risk that class certification might be denied. If counsel have a weak case 

for certification of a class, to take the most obvious example, counsel should never seek to bind 

absent class members to a weak settlement when members have strong claims on the merits. 

Again, their claims should be litigated or settled on the merits without further discount merely

due to counsel’s worry that they cannot prevail on a Rule 23 motion. These problems are 

avoided by waiting until after class certification to talk settlement. Once counsel succeeds in 

certifying a class, then counsel will negotiate from strength with a certification order in place 

and the defense will be unable to exploit any Rule 23 risks to work a cheaper deal. And, as 

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stated, both sides will then know which specific claims ought to be litigated or settled on a 

class-wide basis. See, e.g., Howard M. Erichson, The Problem of Settlement Class Actions, 

82 Geo. Wash. L. Rev. 951 (2014); Howard M. Erichson, Beware The Settlement Class Action, 

Daily Journal, Nov. 24, 2014. 

Therefore, as a general rule, Judge Alsup requires plaintiff’s counsel not to engage in 

any class settlement discussion until after class certification (at which point it would be the 

duty of class counsel to consider class settlement). Even preliminary discussions might box 

counsel into positions that would be hard to walk back if and when a certification order is 

granted.

This timing, by the way, ties in well with the general principle, stated above, that a 

settlement should usually be negotiated only after adequate and reasonable investigation and 

discovery by class counsel. Class counsel owe a fiduciary duty to the class to develop the facts 

well enough to negotiate a good settlement. Our court of appeals has emphasized the “rigorous 

analysis” required by the district court in class action determinations and the role discovery 

plays in this analysis in recently invalidating a local rule that required moving for class 

certification within ninety days of filing the complaint. Such rigorous analysis “may require 

discovery” and take more than ninety days. ABS Entertainment, Inc. v. CBS Corporation, 908 

F.3d 405, 427 (9th Cir. 2018) (quoting Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350–51 

(2011)). 

12. Interim Counsel Motions to Talk Settlement.

Judge Alsup recognizes that Rule 23 explicitly contemplates some form of precertification of settlement classes and recognizes that there are circumstances where class 

members will be better served by class negotiations before certification. One such example is 

when the defendant is running out of money and a deal should be struck while it can still be 

funded. In any such circumstances, counsel may apply to be “interim counsel,” as expressly 

provided for in Rule 23, and ask for express authorization to negotiate on behalf of a specified 

putative class. Any such motion must establish adequacy of representation as set forth in 

Paragraph 1 above.

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13. Settlement of Individual Plaintiff’s Claim.

Full settlement discussions at any time with respect to the individual claim are permitted. 

Full settlement discussions as to class claims are permitted once those class claims are certified 

or interim counsel are appointed. 

14. Communications with Putative Class Members. 

It has become a recurring problem in putative class actions that one or both sides may 

wish to interview absent putative class members regarding the merits of the case, potentially 

giving rise to conflict-of-interest or other ethical issues. To get ahead of this problem, this 

order requires both sides to promptly meet and confer and to agree on a protocol for 

interviewing absent putative class members. In their joint case management statement due at 

the outset of the case, the parties shall either describe their agreed-upon protocol or explain 

why no such protocol is necessary in their particular case. No interviews of absent putative 

class members may take place unless and until the parties’ proposed protocol is approved or 

permission is otherwise given.

IT IS SO ORDERED.

Dated: January 8, 2020.

WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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