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Case Nos. C 09-670 JF (PVT) / C 09-1878 JF (PVT)

ORDER GRANTING FINAL APPROVAL OF SETTLEMENT OF SURFACE FLAKING CLAIMS ETC.

(JFLC2)

**E-Filed 3/16/2010**

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

ERIC ROSS, et al.,

 Plaintiffs,

 v.

TREX COMPANY, INC., a Delaware Corporation,

 Defendant,

__________________________________________

MARK OKANO, et al.,

 Plaintiffs,

 v.

TREX COMPANY, INC., a Delaware Corporation,

 Defendant.

Case Number C 09-670 JF (PVT)

Case Number C 09-1878 JF (PVT)

ORDER GRANTING FINAL

APPROVAL OF SETTLEMENT OF

SURFACE FLAKING CLAIMS IN

ROSS ACTION; APPROVING

STIPULATED AMENDMENT TO

REASSERT MOLD CLAIMS IN ROSS

ACTION; CONSOLIDATING ROSS

AND OKANO ACTIONS; AND

APPOINTING LEAD COUNSEL IN

CONSOLIDATED ACTION

Plaintiffs in the Ross action seek final approval of the settlement of the surface flaking

claims asserted in that action; leave to amend the action to reassert mold claims; consolidation of

the Ross and Okano mold actions; and appointment of their counsel as lead counsel for the

consolidated action. Plaintiffs in the Okano action oppose final approval of the surface flaking

Case 3:09-cv-00670-JSW Document 152 Filed 03/16/10 Page 1 of 6
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Case Nos. C 09-670 JF (PVT) / C 09-1878 JF (PVT)

ORDER GRANTING FINAL APPROVAL OF SETTLEMENT OF SURFACE FLAKING CLAIMS ETC.

(JFLC2)

claims, and object to the Ross plaintiffs’ motion for leave to reassert mold claims. The Okano

plaintiffs agree that if the Ross plaintiffs are permitted to pursue mold claims, the two mold

actions should be consolidated. However, the Okano plaintiffs assert that in that event their

counsel should be appointed as lead counsel in the consolidated mold action.

For the reasons discussed below, the Court will grant final approval of the settlement of

the surface flaking claims in the Ross action; grant the Ross plaintiffs’ request for leave to amend

that action to reassert mold claims; consolidate the Ross and Okano mold actions; and appoint

the Okano plaintiffs’ counsel as lead counsel in the consolidated mold action.

I. FINAL APPROVAL OF ROSS SETTLEMENT

On September 30, 2008, the Ross complaint was filed in the Santa Cruz Superior Court,

alleging a putative class action against Defendant Trex Company, Inc. (“Trex”) arising from

alleged defects in Trex’s decking and railing products. Trex products are made up of a plastic

and wood composite, and typically are used in constructing outdoor decks. Among other things,

the complaint alleged that the Trex material begins to exhibit surface flaking and mold well

before the end of its warranted life. On January 6, 2009, the Ross plaintiffs amended their

complaint to remove the mold claims. The Ross plaintiffs represent that they removed the mold

claims so that they could focus on litigation of the surface flaking claims, and that they always

intended to reassert the mold claims once the surface flaking claims were resolved.

The Ross case was removed to this Court on February 13, 2009. At about the same time

the Ross plaintiffs entered into a memorandum of understanding with Trex, outlining the terms of

a settlement of the surface flaking claims. The MOU did not address attorneys’ fees and costs,

which were negotiated after the parties had agreed on the material terms of the substantive

claims. On July 30, 2009, over the objections of counsel for the Okano plaintiffs and others, the

Court granted preliminary approval of the settlement with respect to a nationwide class. Under

the settlement, Trex agrees to replace any board on which surface flaking has occurred or

alternatively to provide a cash equivalent at retail price. If surface flaking has occurred on more

than fifty percent of the Trex product used on a particular deck, Trex will replace all of the

boards or provide the class member with a cash equivalent at retail price. Trex will pay the

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Case Nos. C 09-670 JF (PVT) / C 09-1878 JF (PVT)

ORDER GRANTING FINAL APPROVAL OF SETTLEMENT OF SURFACE FLAKING CLAIMS ETC.

(JFLC2)

shipping costs of any replacement boards. Trex also will reimburse class members for a portion

of the labor costs associated with replacing decking material: class members who have not

received any prior compensation from Trex will receive a labor payment of $0.18 per linear foot

of decking to be replaced. Under this measure of recovery, a class member with an average sized

deck will receive $225.00 in labor costs. Class members who already have received some

compensation from Trex (e.g., through an earlier warranty claim) will receive a labor payment of

$0.18 per linear foot of decking to a maximum of $225.00. The settlement establishes a neutral

process for appeal of denied claims. Each of the class representatives will receive an incentive

award of $7,500. Additionally, Trex will pay class counsel $1,250,000 in attorneys’ fees and

costs, separate and apart from the recovery of the class members.

The Court provisionally certified the nationwide class at the time it granted preliminary

approval of the settlement. The Court remains satisfied that the class satisfies the requirements

of Federal Rule of Civil Procedure 23(a). The Court likewise is satisfied that the Court-approved

notice plan satisfies the requirements of Rule 23(e)(1), and that the notice plan was fully

implemented. 

The Court next must determine whether the settlement is “fundamentally fair, adequate

and reasonable.” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998); see also Fed.

R. Civ. P. 23 (e). “Assessing a settlement proposal requires the district court to balance a

number of factors: the strength of the plaintiffs’ case; the risk, expense, complexity, and likely

duration of further litigation; the risk of maintaining class action status throughout the trial; the

amount offered in settlement; the extent of discovery completed and the stage of the proceedings;

the experience and views of counsel; the presence of a governmental participant; and the reaction

of the class members to the proposed settlement.” Id. “[S]ettlement approval that takes place

prior to formal class certification requires a higher standard of fairness.” Id. In such cases the

court must be particularly concerned with the possibility of collusion. Id. 

The Court is satisfied that the settlement presented by the Ross parties is not the product

of collusion, but rather of arm’s length negotiation. The $7,500 incentive awards to the two class

representatives are appropriate. See In re Mego Financial Corp. Sec. Litig., 213 F.3d 454, 463

Case 3:09-cv-00670-JSW Document 152 Filed 03/16/10 Page 3 of 6
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Case Nos. C 09-670 JF (PVT) / C 09-1878 JF (PVT)

ORDER GRANTING FINAL APPROVAL OF SETTLEMENT OF SURFACE FLAKING CLAIMS ETC.

(JFLC2)

(9th Cir. 2000) (district court has discretion to authorize incentive awards to class

representatives); Pelletz v. Weyerhaeuser Corp, 592 F. Supp. 2d 1322, 1330 (W.D. Wash. 2009)

(approving $7,500 incentive awards for class representatives in class action case arising from

defects in composite decking materials). With respect to the $1,250,000 in attorneys’ fees and

costs, counsel have documented their hours and hourly rates more than adequately; applying the

lodestar method and utilizing a modest multiplier of 1.31, the Court concludes that the award is

appropriate. The Court notes that the attorneys’ fees and costs were negotiated only after the

material terms of the class settlement were determined. 

Turning to the factors weighing in favor of approval of the settlement, the Court notes the

obvious fact that litigation of the claims would be expensive and lengthy. The government has

declined to intervene; thus Plaintiffs alone would have to shoulder significant risk that they could

obtain class certification and defeat a motion for summary judgment. Moreover, the outcome of

trial and any subsequent appeal is inherently uncertain and involves significant delay. Class

counsel engaged in substantial informal discovery while investigating the surface flaking claims,

engaged experts, and performed testing on the Trex products. Counsel are experienced in

litigating large consumer class actions, and put forward their considered opinion that the

settlement is fair. 

Weighing against approval of the settlement are the facts that the surface flaking claims

appear to be fairly strong, and the recovery is not adequate to compensate class members for

substantial labor costs necessary to repair or replace the affected decks. Eighteen class members

have filed objections to the settlement and one hundred and seventeen class members have

sought to opt out of the lawsuit. While these numbers are relatively small considering that

17,240 class members received direct notice of the settlement, the uniformity of the negative

comments is striking: the class members object to a settlement that awards only $225 in labor

costs to each class member, making “it hardly worth the effort to fill out the claim forms,” see

Ludemann Opt-Out, but awards $1,250,000 to the attorneys. The contrast between the recovery

of the class members and the recovery of the lawyers is characterized as “insulting,” “unfair,”

and “inequitable.” See Feusi and Rogers Objs.

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Case Nos. C 09-670 JF (PVT) / C 09-1878 JF (PVT)

ORDER GRANTING FINAL APPROVAL OF SETTLEMENT OF SURFACE FLAKING CLAIMS ETC.

(JFLC2)

In the Court’s opinion, the motion for final approval presents a close question. However,

after considering the record as a whole, and particularly the legal uncertainty with respect to the

measure of damages available to the class, the Court concludes that the settlement is within the

range of reasonable outcomes, and will approve it.

II. AMENDMENT OF ROSS ACTION TO REASSERT MOLD CLAIMS

The record is clear that the Ross plaintiffs dismissed the mold claims solely for the

purpose of focusing on the surface flaking claims, and that they always intended to reassert the

mold claims following disposition of the surface flaking claims. Trex has stipulated to the

amendment of the Ross complaint to reassert the mold claims. If the Court were to deny the

motion for leave to amend, the Ross plaintiffs simply could file a new mold action and request

that it be related to the instant action. Under these circumstances, in the interest of judicial

economy, the Court will permit the Ross plaintiffs to amend their complaint to reassert mold

claims.

III. CONSOLIDATION OF ROSS AND OKANO MOLD ACTIONS

The parties agree that consolidation of the mold claims against Trex is appropriate. 

Accordingly, the Court will consolidate the Ross action, now consisting only of mold claims,

with the Okano action. The Clerk of the Court shall administratively close the Okano action, and

the consolidated case shall proceed under the Ross case number.

IV. LEAD COUNSEL

Counsel for the Ross plaintiffs, Leiff, Cabraser, Heimann & Bernstein, LLP, and counsel

for the Okano plaintiffs, Hagens Berman Sobol Shapiro LLP, both request appointment as lead

counsel in the consolidated mold action. While the Court initially considered the idea of

appointing both firms as co-lead counsel, the Court found persuasive the economy and efficiency

arguments presented at the hearing by the Leiff, Cabraser firm. Accordingly, the Court concludes

that appointment of one lead counsel is the best approach for this particular case, with the

understanding that other class counsel will serve on an executive committee and play a role in

directing the case.

Both law firms are experienced. Both are excellent. The firms are approximately the

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Case Nos. C 09-670 JF (PVT) / C 09-1878 JF (PVT)

ORDER GRANTING FINAL APPROVAL OF SETTLEMENT OF SURFACE FLAKING CLAIMS ETC.

(JFLC2)

same size. The Court finds it extremely difficult to choose between the two. However, the Leiff,

Cabraser firm has had an opportunity to control the litigation of the surface flaking claims, and

while the Court will approve that settlement for the reasons discussed above, the Court would

characterize the benefits obtained for the class as adequate rather than exceptional. The Hagens

Berman firm argues forcefully that it will obtain a better result with respect to the mold claims. 

The Court is inclined to give the Hagens Berman firm an opportunity to make good on its

promise. Accordingly, the Court will appoint the Hagens Berman firm as lead counsel for the

consolidated mold action.

V. ORDER 

(1) The Court GRANTS FINAL APPROVAL OF SETTLEMENT in the Ross action;

the Court has signed the revised Second Revised Proposed Order submitted by

Plaintiffs;

(2) The Ross plaintiffs’ request for leave to amend their complaint to reassert mold

claims is GRANTED;

(3) The Ross and Okano actions are HEREBY CONSOLIDATED; the Okano action

shall be administratively closed and the consolidated action shall proceed under

the Ross case number; and

(4) The Hagens Berman firm is appointed lead counsel for the consolidated action.

Dated: March 15, 2010

__________________________________

JEREMY FOGEL

United States District Judge

Case 3:09-cv-00670-JSW Document 152 Filed 03/16/10 Page 6 of 6