Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-13-55106/USCOURTS-ca9-13-55106-0/pdf.json

Parties Involved:
Anthony A. Allen
Appellant
Jeffrey Lee Allen
Appellee
Michael Alvarez
Appellant
Margie Bedolla
Appellant
Tyler Farmer
Appellant
Labor Ready Southwest, Inc.
Appellee

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

JEFFREY LEE ALLEN, on behalf of

himself, all others similarly situated,

the general public and as an

“aggrieved employee” under the

California Labor Code Private

Attorneys General Act,

Plaintiff-Appellee,

and

LABOR READY SOUTHWEST, INC., a

Washington corporation doing

business in the State of California,

Defendant-Appellee,

v.

MARGIE BEDOLLA; ANTHONY A.

ALLEN; MICHAEL ALVAREZ; TYLER

FARMER,

Movants-Appellants.

No. 13-55106

D.C. No.

2:09-cv-04266-

DDP-AGR

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2 ALLEN V. BEDOLLA

JEFFREY LEE ALLEN, on behalf of

himself, all others similarly situated,

the general public and as an

“aggrieved employee” under the

California Labor Code Private

Attorneys General Act,

Plaintiff-Appellee,

and

LABOR READY SOUTHWEST, INC., a

Washington corporation doing

business in the State of California,

Defendant-Appellee,

v.

MARGIE BEDOLLA; ANTHONY A.

ALLEN; MICHAEL ALVAREZ; TYLER

FARMER,

Objectors-Appellants.

No. 13-56685

D.C. No.

2:09-cv-04266-

DDP-AGR

OPINION

Appeal from the United States District Court

for the Central District of California

Dean D. Pregerson, District Judge, Presiding

Argued and Submitted

February 4, 2015—Pasadena California

Filed June 2, 2015

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ALLEN V. BEDOLLA 3

Before: Stephen Reinhardt and Ronald M. Gould, Circuit

Judges, and J. Frederick Motz, Senior District Judge.*

Opinion by Judge Gould

SUMMARY**

Class Action

The panel affirmed the district court’s order denying

Objectors’ motion to intervene, and vacated the district

court’s order granting final approval to a class action

settlement between day laborers and Labor ReadySouthwest,

a temporary staffing agency, in a putative class action brought

by plaintiff Jeffrey Lee Allen against Labor Ready

Southwest, alleging violations of the federal Fair Labor

Standards Act and California wage and hour and unfair

competition laws.

Plaintiff alleged that Labor Ready illegally failed to pay

employees for their wait and travel times, and had taken

unlawful paycheck deductions by providing cash

disbursement machines and charging for their use. The

Objectors to the settlement are plaintiffs in other uncertified

class actions against Labor Ready pending in California state

courts raising employment-related claims.

* The Honorable J. Frederick Motz, Senior United States District Judge

for the District of Maryland, sitting by designation.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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4 ALLEN V. BEDOLLA

The panel held that the Objectors’ motion to intervene

was untimely because the motion was filed after four years of

ongoing litigation, on the eve of settlement, and threatened to

prejudice settling parties by potentially derailing settlement

talks.

The panel held that the district court did not satisfy the

procedural standard, outlined in In re Bluetooth Headset

Products Liab. Litig., 654 F.3d 935 (9th Cir. 2011), in

determining the settlement’s substantive fairness. The panel

took no position on the substantive fairness of the agreement,

vacated the final settlement approval, and remanded so that

the district court could conduct a more searching inquiry.

Because the panel vacated and remanded final approval

of the settlement, the panel also vacated the attorneys’ fee

award to class counsel. Upon remand, the panel directed the

district court to provide the entire class – and not just the

Objectors – the opportunity to review class counsel’s

completed fee motion and to submit objections if they so

choose.

COUNSEL

Melissa Grant and Glenn A. Danas (argued), Capstone Law

APC, Los Angeles, California, for Objectors-Appellants.

Mark R. Thierman and Joshua D. Buck, Thierman Law Firm,

P.C., Reno, Nevada; Joseph Cho and Ronald H. Bae,

Aequitas Law Group, APLC, Los Angeles California; Chaim

Shaun Setareh (argued), Law Office of Shaun Setareh, APC,

Beverly Hills, California, for Plaintiff-Appellee.

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ALLEN V. BEDOLLA 5

David R. Ongaro (argued), Thompson & Knight LLP, San

Francisco, California, for Defendant-Appellee.

OPINION

GOULD, Circuit Judge:

We review the district court’s approval of a class action

settlement, between day laborers and Labor Ready

Southwest, that was negotiated in the absence of a certified

class. Appellants, objectors to the settlement, appeal the

district court’s final approval of the settlement, as well as the

district court’s denial of their motion to intervene. They raise

contentions about whether the approved settlement is fair,

reasonable and adequate. We have jurisdiction under

28 U.S.C. § 1291. We affirm the denial of the motion to

intervene. Our high procedural standard for review of class

action settlements negotiated without a certified class leads us

to vacate the order granting final approval to the settlement

and the award of attorneys’ fees, and to remand to the district

court for further proceedings.

I

Labor Ready Southwest (“Labor Ready”) is a temporary

staffing agency, providing day laborers to businesses in need

of labor help. The employees work for the businesses that

require labor, but they remain employees of Labor Ready,

which pays the employees, though not for time spent waiting

for assignments at Labor Ready’s local offices, and not for

time spent traveling from the local office to the businesses

that need labor. Labor Ready also allowed employees to

receive a paycheck or alternatively to use a cash disbursement

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6 ALLEN V. BEDOLLA

machine (“CDM”) in its facility. The fee for using the CDM

was one dollar plus any change from the paycheck amount

less than a full dollar.

The Underlying Litigation

Plaintiff-Appellee Jeffrey Lee Allen (“Allen”)1

filed this

putative class action in California state court in April 2009. 

Allen claimed violations of the Fair Labor Standards Act of

1938 (“FLSA”), 29 U.S.C. § 201 et seq., as well as California

wage and hour and unfair competition laws alleging that,

inter alia, Labor Ready had illegally failed to pay employees

for their wait and travel times, and had taken unlawful

paycheck deductions by providing CDMs and charging for

their use.

Margie Bedolla, Anthony A. Allen, Michael Alvarez and

Tyler Farmer (collectively “Objectors-Appellants” or

“Objectors”), are the plaintiffs in other uncertified class

actions against Labor Ready pending in California state

courts. The first of these was filed in September 2010, and

the other three were filed in November 2011. The Objectors’

suits raise similar wage and hour claims, and also meal and

rest break claims that were not raised by Allen.

Labor Ready removed Allen’s suit to the Central District

of California. Class certification was denied in that case. In

March 2011, the district court granted summary judgment to

Labor Ready on all claims except for Allen’s claims

regarding Labor Ready’s use of CDMs and related state law

claims, which were remanded to state court after the district

 

1

 Plaintiff Jeffrey Allen is no relation to Objector Anthony A. Allen.

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ALLEN V. BEDOLLA 7

court declined to exercise its supplemental jurisdiction. Allen

appealed that ruling to the Ninth Circuit.2

The Settlement Agreement

The parties previously attempted two unsuccessful

mediations, but while Allen’s state and federal appeals were

pending, the parties entered mediation a third time and were

successful, leading to a proposed settlement in October 2012. 

The parties then jointly moved to remand the case to the

district court for settlement, and we remanded.

Three key provisions of the settlement are at issue here. 

(1) There was a gross settlement fund of $4.5 million. From

that fund, Labor Ready agreed to pay each class member who

submits a claims form within 45 days of the class notice $10

for non-CDM claims and $25 for class members who used the

CDMs during the class period. There is no minimum payout

and all of the money in the settlement fund not paid toward

attorneys’ fees, administration costs, or to class members who

submit claims reverts to Labor Ready. (2) There was

injunctive relief, whereby Labor Ready will shut down the

CDMs throughout California and replace them with an

electronic paycard through which workers receive their pay

daily without charge; further, Labor Ready will provide

training to staff regarding compliance with meal and rest

2 Subsequently, the state court on remand granted Labor Ready’s motion

to compel arbitration of nearly all of Allen’s claims, and both parties

appealed the decision to the California Court of Appeal. At the time of

settlement, the parties’ appeals in state and federal court were still

pending. Of Objectors’ cases, one was sent to individual arbitration, one

is proceeding to classwide arbitration, one is proceeding in arbitration on

an opt-in classwide basis, and one is set to be arbitrated on a

representative basis.

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8 ALLEN V. BEDOLLA

break and overtime laws and committed to an audit to ensure

compliance with those laws, and Labor Ready will post

notices in its branch offices telling workers they need not wait

in the office for work and provide business cards informing

them of their rights under state labor laws. (3) There was an

agreement on attorneys’ fees for Allen’s counsel (the class

counsel), under which Labor Ready would not contest an

award of 25% of the $4.5 million common fund (i.e., $1.125

million).

The settlement releases or forecloses all of the claims that

Allen asserted, or could have asserted, against Labor Ready,

including meal and rest break claims that he did not make,

except that class members who do not make a claim will not

release any claims under FLSA, and class members who opt

out will not be held to release any claims made in the lawsuit

for individual relief.

After preliminary approval was granted in April 2013,

notice was mailed to 210,224 potential class members. Under

the terms of the class notice and the district court’s

preliminary approval order, all objections, opt outs, and

claims were required to be mailed by July 15, 45 days after

the class notice was sent. In response, 14,947 people

submitted timely and valid claim forms. Thus, the Labor

Ready’s maximum possible payout to the class is $373,675,

assuming that every person who submitted a claim used the

CDMs and is entitled to the higher relief amount of $25.

Upon learning details of the prospective settlement

through communications with Labor Ready in their separate

suits, Objectors sought to intervene as of right and to

intervene permissively in Allen’s case. The district court

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ALLEN V. BEDOLLA 9

denied their motion, but granted Objectors leave to object at

the preliminary approval stage.

After a final fairness hearing, the district court issued an

order approving the settlement on August 27, 2013. The

district court determined that the notice procedure satisfied

federal law and due process. The order noted that the four

Objectors had raised concerns, but overruled them. The

district court found that the settlement terms were fair,

reasonable and adequate to the class, and awarded $1.125

million in attorney’s fees, finding that figure (25% of the

common fund) fair and reasonable.

Objectors’ appeals of the denial of their intervention

motion and of final settlement approval timely followed.

II

The settlement of a class action must be fair, adequate,

and reasonable. Fed. R. Civ. P. 23(e)(2). We review a

district court’s approval of a class-action settlement for a

clear abuse of discretion. See Rodriguez v. West Publishing

Corp., 563 F.3d 948, 963 (9th Cir. 2009). “A court abuses its

discretion when it fails to apply the correct legal standard or

bases its decision on unreasonable findings of fact.” 

Nachshin v. AOL, LLC, 663 F.3d 1034, 1038 (9th Cir. 2011).

Denial of a motion to intervene as of right is reviewed de

novo, except for the timeliness prong which is reviewed for

an abuse of discretion. Chamness v. Bowen, 722 F.3d 1110,

1121 (9th Cir. 2013). Denial of a motion for permissive

intervention is reviewed for an abuse of discretion. Blum v.

Merrill Lynch Pierce Fenner & Smith Inc., 712 F.3d 1349,

1352 (9th Cir. 2013).

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10 ALLEN V. BEDOLLA

III

We affirm the district court’s decision to deny Objectors’

untimely motion to intervene. While the district court did not

explain its decision to deny the motion, we may affirm on any

basis supported by the record, whether or not relied upon by

the district court. Hall v. N. Am. Van Lines, Inc., 476 F.3d

683, 686 (9th Cir. 2007). Here, the Objectors knew of the

Allen litigation, which had been ongoing for four years, for

at least a year before they moved to intervene and had

regularly asked Labor Ready about the status of settlement

talks in Allen’s case. A timely motion is required for the

granting of intervention, whether as a matter of right or

permissively. See Arakaki v. Cayetano, 324 F.3d 1078, 1083

(9th Cir. 2003) (intervention as of right); Nw. Forrest Res.

Council v. Glickman, 82 F.3d 825, 839 (9th Cir. 1996)

(permissive intervention).

Objectors argue that under United States v. Carpenter, a

motion to intervene as of right can be timely even though an

action has been pending for some time—in Carptenter,

eighteen months—when the intervenors act promptly after

receiving notice of a proposed settlement that would not

adequatelyrepresent their interests. 298 F.3d 1122, 1124 (9th

Cir. 2002). But Carpenter involved a government entity not

representing intervenors’ interests. Id. at 1125. Its reasoning

was grounded in the need to encourage the assumption that

when the government is a party, the interests of others will be

protected. Id. Here, the government is not a party.

We are not persuaded that Objectors’ motion was timely,

because the motion was filed after four years of ongoing

litigation, on the eve of settlement, and threatened to

prejudice settling parties by potentially derailing settlement

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ALLEN V. BEDOLLA 11

talks, and especially where Objectors’ concerns could largely

be addressed through the normal objection process.3See

Orange Cnty. v. Air Cal., 799 F.2d 535, 537–38 (9th Cir.

1986).

IV

We next address Objectors’ contentions regarding the

settlement itself. We have set a high procedural standard for

settlements that, like the one at issue here, occur without a

certified class. Applying that standard, we vacate final

approval and remand to the district court so that it can

conduct a “more searching inquiry into the fairness of the

negotiated distribution of funds, as well as consider the

substantive reasonableness of the attorneys’ fee request in

light of the degree of success attained.” In re Bluetooth

Headset Products Liab. Litig., 654 F.3d 935, 938 (9th Cir.

2011) (“Bluetooth”).

A

A difficult balancing act almost always confronts a

district court tasked with approving a class action settlement. 

On the one hand, we have repeatedly noted that “there is a

strong judicial policy that favors settlements, particularly

where complex class action litigation is concerned.” In re

Syncor ERISA Litig., 516 F.3d 1095, 1101 (9th Cir. 2008)

(citing Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1276

3 At oral argument on the intervention motion, Objectors indicated that

they wished to raise objections at the preliminary settlement approval

hearing, rather than wait for the class notice and file their objection after

preliminary approval and before the final approval hearing, which the

district court allowed.

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12 ALLEN V. BEDOLLA

(9th Cir. 1992)). And it is the nature of a settlement, as a

highly negotiated compromise—here the parties submitted to

mediation three times before reaching an acceptable

proposal—that “[i]t may be unavoidable that some class

members will always be happier with a given result than

others.” Officers for Justice v. Civil Serv. Comm’n of City &

Cnty. of San Francisco, 688 F.2d 615, 624 (9th Cir. 1982)

(quoting Mendoza v. United States, 623 F.2d 1338, 1344 (9th

Cir. 1980)). But on the other hand, “settlement class actions

present unique due process concerns for absent class

members,” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026

(9th Cir. 1998), and the district court has a fiduciary duty to

look after the interests of those absent class members. See,

e.g. Sullivan v. DB Invs., Inc., 667 F.3d 273, 319 (3d Cir.

2011) (stating that “trial judges bear the important

responsibility of protecting absent class members, and must

be assur[ed] that the settlement represents adequate

compensation for the release of the class claims” (internal

quotation marks omitted)); Reynolds v. Beneficial Nat’lBank,

288 F.3d 277, 280 (7th Cir. 2002) (at the settlement phase,

the district judge is “a fiduciary of the class,” subject “to the

high duty of care that the law requires of fiduciaries”);

Maywalt v. Parker & Parsley Petroleum Co., 67 F.3d 1072,

1078 (2d Cir. 1995) (noting that “the district court has a

fiduciary responsibility to ensure that the settlement is fair

and not a product of collusion, and that the class members’

interests were represented adequately” (internal quotation

marks omitted)). See also Staton v. Boeing Co., 327 F.3d

938, 972 n.22 (9th Cir. 2003) (it is the district court’s duty to

police “the inherent tensions among class representation,

defendant’s interests in minimizing the cost of the total

settlement package, and class counsel’s interest in fees.”).

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ALLEN V. BEDOLLA 13

Recognizing these potentially conflicting demands, we

have imposed different standards upon a district court

depending on the nature of our review. When we review the

settlement’s substantive fairness, “[w]e will rarely overturn

an approval of a compromised settlement unless the terms of

the agreement contain convincing indications that . . . selfinterest rather than the class’s interests in fact influenced the

outcome of the negotiations.” Id. at 960. However, we hold

district courts to a higher procedural standard when making

that determination of substantive fairness: “To survive

appellate review, the district court must show it has explored

comprehensively all factors, and must give a reasoned

response to all non-frivolous objections.” Dennis v. Kellogg

Co., 697 F.3d 858, 864 (9th Cir. 2012) (citations and internal

quotation marks omitted). That procedural burden is more

strict when a settlement is negotiated absent class

certification. Then “such agreements must withstand an even

higher level of scrutiny for evidence of collusion or other

conflicts of interest than is ordinarily required under Rule

23(e) before securing the court’s approval as fair.” Bluetooth,

654 F.3d at 946.

Here, the district court did not satisfy this procedural

standard. We take no position on the substantive fairness of

the agreement, because the record before us does not allow us

to undertake even our deferential substantive review. But we

vacate final settlement approval and “remand so that the

district court may conduct a more searching inquiry.” 

Bluetooth, 654 F.3d at 938.

As we said in Bluetooth, we require district courts to look

for “subtle signs that class counsel have allowed pursuit of

their own self-interests . . . to infect the negotiations.” Id. at

947. We went on to identify three such subtle signs:

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14 ALLEN V. BEDOLLA

(1) “when counsel receive a disproportionate distribution of

the settlement;” (2) “when the parties negotiate a ‘clear

sailing’ arrangement” (i.e., an arrangement where defendant

will not object to a certain fee request by class counsel); and

(3) when the parties create a reverter that returns unclaimed

fees to the defendant. Id. All three signs appear here: (1) all

of the money that does not go toward claims actually made,

the attorneys’ fees and costs and the administration costs

reverts to Labor Ready; (2) Labor Ready agreed not to

dispute the award of fees to class counsel, as long as that

award did not exceed 25% of the common fund; and (3) when

the attorneys’ fee award is examined in terms of “economic

reality,” the award exceeds the maximum possible amount of

class monetary relief by a factor of three.4See id. at 943

 

4

 The award of $1.125 million in attorneys’ fees represents 25% of the

fund created by the settlement, which we generally consider the

“benchmark” percentage for fee awards from a common fund. See Six (6)

Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1311 (9th

Cir.1990). However, we have cautioned that the district court should not

calculate fees using “a mechanical or formulaic approach that results in an

unreasonable reward.” Bluetooth, 654 F.3d at 944. Only 14,947 timely

claims were submitted, meaning that at most $373,675 will be disbursed

to the class in monetary relief. Such a low payout to the class was

anticipated by the parties: At a hearing held before the preliminary

approval, class counsel said that he would consider it a success if even

10% or 15% of the class made claims (in fact, the claims rate was less

than 8%). Also, Objectors argued that Labor Ready’s estimate of

administrative costs was premised on only 10% of the class making

claims, and the district court expressed concern about the low likely

participation rate yielding benefits for Labor Ready (in the form of

reversion of the funds) and class counsel. However, the record gives no

assurance that, in the face of these admissions from class counsel and

concernsfromObjectors, the district court “inquire[d] further into why the

parties had negotiated such a disproportionate distribution between fees

and relief.” Bluetooth, 654 F.3d at 935.

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ALLEN V. BEDOLLA 15

(quoting In re Gen. Motors, 55 F.3d 768, 821 (9th Cir.

1995)).

While the existence ofthese three signs does not mean the

settlement cannot still be fair, reasonable, or adequate, they

required the district court to examine them, and adequately to

develop the record to support its final approval decision. 

“Confronted with these multiple indicia of possible implicit

collusion, the district court had a special ‘obligat[ion] to

assure itself that the fees awarded in the agreement were not

unreasonably high.’” Bluetooth, 654 F3.d at 947 (quoting

Staton, 327 F.3d at 965).

As a whole, the settlement appears to afford valuable

relief, much by injunction, that will benefit the class.5 The

district court noted the existence of this injunctive relief, but

did not make express findings about the value of the

injunctive relief, cf. Bluetooth, 654 F.3d at 944, findings that

might have given more justification for the reasonableness of

class counsel’s fee award. Similarly, though class counsel

represented that the fee award was less than his “lodestar”

figure, there were no express findings from the district court

on what it considered to be a reasonable lodestar amount. Cf.

Bluetooth, 654 F.3d at 945 (citing Vizcaino v. Microsoft

Corp., 290 F.3d 1043, 1050–51 (9th Cir. 2002)) (noting that

district courts are encouraged to cross-check the two fee5 Alleged violations of California’s Unfair Competition Law are the

basis of some of the class claims; under state law, the “the primary form

of relief available under the [Unfair Competition Law] to protect

consumers from unfair business practices is an injunction,” while other

relief, such as monetary relief, is purely “ancillary.” In re Tobacco II

Cases, 207 P.3d 20, 34 (2009).

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16 ALLEN V. BEDOLLA

calculating methods against one another, to ensure a fair and

reasonable fee).

We stress that “we express no opinion on the ultimate

fairness of what the parties have negotiated, for we have no

business substituting our notions of fairness for those of the

district judge.” Bluetooth, 654 F.3d at 950 (internal quotation

marks and alterations omitted). On remand, the district court,

after appropriatelysupplementing the record, may exercise its

discretion to reapprove the settlement and class counsel’s fee,

reapprove the settlement but modify class counsel’s fee, to

disapprove the settlement, or take other appropriate actions

depending on its inquiry, findings, and evaluation of whether

the settlement is fair, reasonable, and adequate.

B

Because we vacate and remand final approval of the

settlement, we also vacate the attorneys’ fee award to class

counsel. As we noted above, on remand, the district court has

broad discretion to reapprove, disapprove or modify the fee

award after making appropriate findings as to its substantive

reasonableness. However, upon remand, the district court

must comply with our procedures permitting class members

to object to class counsel’s fee award before it is made. 

Objectors contend that the original proceedings did not,

because the deadline for filing class member objections was

before counsel submitted its final fee request with supporting

papers. They are correct.

In In re Mercury Interactive Corp. Securities Litigation

(“Mercury”) we held that Federal Rule of Civil Procedure

23(h) requires a district court “to set the deadline for

objections to counsel’s fee request on a date after the motion

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ALLEN V. BEDOLLA 17

and documents supporting it have been filed.” 618 F.3d 988,

993 (9th Cir. 2010) (emphasis in original). Because of the

divergence of interests between the class and class counsel at

the fee-setting stage, “[w]hen the district court sets a schedule

that denies the class an adequate opportunity to review and

prepare objections to class counsel’s completed fee motion,

it fails to fulfill its fiduciary responsibilities to the class.” Id.

at 994–95.

The district court here did not follow our precedent in

Mercury. Under the terms of the class notice and the district

court’s order granting preliminary approval to the settlement,

all objections, opt outs, and claims were due July 15, 45 days

after class notice was sent. The motion to grant final

approval to the settlement and the completed attorneys’ fees

motion was due 70 days after the class notice was sent, and

the completed fees motion was not filed until July 29, 2013. 

Upon remand, the district court must give the entire

class—and not just the Objectors-Appellants here—the

opportunity to review class counsel’s completed fee motion

and to submit objections if they so choose.

V

Objectors make other substantive challenges to the

settlement. Because we do not reach a substantive review of

whether the settlement is fair, reasonable and adequate, we do

not address these arguments. Objectors may raise them again

to the extent pertinent in any subsequent appeal, if the district

court on remand exercises its discretion to reapprove this

settlement.

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18 ALLEN V. BEDOLLA

VI

We affirm the district court’s order denying Objectors’

motion to intervene. We vacate the district court’s order

granting final approval to the settlement and granting

attorneys’ fees. We remand to the district court for further

proceedings consistent with this opinion. Each party shall

bear its own costs upon appeal.

AFFIRMED in part, VACATED and REMANDED in

part.

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