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ORDER

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UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON

AT TACOMA

CAMERON PIERCE and PATRICIA

PIERCE, husband and wife; KAREN KIRBY,

a single woman; GREGORY SHERMAN and

PAULA SHERMAN, husband and wife,

MICHAEL LEPAGE and GERTRUDE

LEPAGE, husband and wife; 

LARRY BROWN, a single man; and RALPH

MARTINELLI, a single man, on behalf of

themselves and a class of similarly situated

individuals,

Plaintiffs,

v.

NOVASTAR MORTGAGE, INC., a foreign

corporation,

Defendant.

CASE NO. C05-5835RJB

ORDER GRANTING

PLAINTIFFS' MOTION FOR (1)

PRELIMINARY APPROVAL OF

THE SETTLEMENT, (2)

APPROVAL OF CLASS NOTICE,

AND (3) A HEARING DATE

FOR FINAL APPROVAL OF

SETTLEMENT

This matter comes before the Court on Plaintiffs’ Motion for (1) Preliminary Approval of

the Settlement, (2) Approval of Class Notice, and (3) a Hearing Date for Final Approval of

Settlement (Dkt. 260). The Court has considered pleadings filed in support of and response to

the motion and the remainder of the file herein.

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ORDER

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I. BACKGROUND AND DISCUSSION

The class plaintiffs are all borrowers who engaged in loan transactions with NovaStar

Mortgage, Inc. (“NovaStar Mortgage”) and claim to have been deceived by NovaStar

Mortgage’s failure to adequately disclose its payments to brokers on good faith estimates. Some

of these payments are “yield spread premiums,” which the plaintiffs allege are paid by lenders to

brokers as an incentive to induce borrowers to enter into mortgages with higher interests rates.

Dkt. 25 at 4, Dkt. 37 at 2. The plaintiffs brought suit alleging that the failure to provide written

disclosure of broker payments resulted in higher interest rates on their loans and violated

Washington’s Consumer Protection Act (“CPA”), RCW 19.86 et seq. The Court certified a class

in this matter on October 31, 2006. Dkt. 74. On April 19, 2007, the Court amended the class

definition to read as follows:

(1) You entered into a federally-regulated mortgage loan that was subject to the

requirements of Washington law and secured by property within the State of Washington,

at any time from December 30, 2001, to the present;

(2) NovaStar paid money to your mortgage broker (“Payment”) in return for negotiating

a higher interest loan for you;

(3) Neither NovaStar nor the broker adequately disclosed to you the Payment on a good

faith estimate dated no later than three days after the date on which NovaStar received

the loan application or, if your application was received fewer than three days before you

signed final loan documents, the date on which you signed final loan documents; and

(4) You paid the mortgage broker compensation in the form of an “origination fee” or

 “broker fee” in addition to the Payment that NovaStar paid to the broker.

Dkt. 177 at 9-10. 

Trial in this matter was scheduled to commence on June 11, 2007. Dkt. 183. The

deadline for requests to opt out of the class was June 4, 2007. Dkt. 178 at 3. On June 5, 2007,

the parties informed the Court of their agreement to strike the trial date. Dkt. 255. The plaintiffs

inform the Court that the parties have reached a settlement and seek preliminary approval of the

settlement. Dkt. 260. To date, Karen Kirby and Gregory Sherman, class representatives, have

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ORDER

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not yet signed the Settlement Agreement and General Release. See Dkt. 261 at 14-20. Class

counsel are awaiting Mr. Sherman’s signature, and Ms. Kirby has indicated that she will sign the

Settlement Agreement and General Release. Dkt. 261 at 2. 

The plaintiffs also seek approval of class notice of the settlement and ask the Court to

schedule a fairness hearing for consideration of whether to grant final approval of the settlement

and approve Class Counsel’s anticipated application for an award of attorney’s fees. Dkt. 260.

The motion is not stipulated and was filed on behalf of the plaintiffs. Counsel for the defendant

filed a response indicating that “NovaStar [Mortgage] does not oppose plaintiffs’ motion” and

clarifying NovaStar Mortgage’s position as to the merits of the underlying claims and

allegations. Dkt. 263 at 1. 

The proposed settlement is based upon class members’ increased interest payments

associated with NovaStar Mortgage’s payments to brokers and represents. Dkt. 260 at 3. The

award excludes class counsel’s litigation costs of $85,654.78. Dkt. 262 at 2. The award also

excludes $22,500, which is the sum of incentive payments of $4,500 per married couple class

representative and $3,000 per unmarried class representative. Id. Including prejudgment

interest, the proposed settlement represents 85% of the class members’ damages. Id. at 3.

Individual class members’ recoveries would range from $67 to $19,618. Id. at 4. With respect

to class representatives Michael and Gertrude LePage, NovaStar Mortgage and the LePages

will execute a modification agreement whereby the LePages’ loan rate will be 7.875%. Dkt. 261

at 10.

Under the proposed settlement, NovaStar Mortgage will pay up to $75,000 of notice

and administrative costs pending final approval and administration of the settlement, and the

remainder will be paid either by the class or by class counsel. Dkt. 261 at 6.

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ORDER

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Attorneys fees were negotiated separately from negotiation of the class’ recovery and

would not impact the class’ recovery. Dkt. 260 at 4. Class counsel will move separately to seek

$1.8 million in attorneys fees. Id. at 4.

The Class Settlement Fund and the attorneys fee award will accrue interest at the federal

post-judgment interest rate beginning September 12, 2007, and ending upon payment by

NovaStar Mortgage. Dkt. 261 at 9. NovaStar Mortgage’s payment of post-judgment interest is

not to exceed $125,000. Id. 

As required by Federal Rule 23(e)(2), class counsel inform the Court that they have not

entered into any other agreements in connection with the proposed settlement. Dkt. 261 at 2. 

II. DISCUSSION

Unlike the settlement of most private civil actions, class actions settlements require court

approval. Fed. R. Civ. P. 23(e)(1)(A) (“The court must approve any settlement, voluntary

dismissal, or compromise of the claims, issues, or defenses of a certified class.). Courts are

primarily concerned with the protection of class members whose rights may not have been given

due regard by the negotiating parties, including the named plaintiffs. Officers for Justice v. Civil

Service Com'n of City and County, 688 F.2d 615, 624 (9th Cir. 1982).

The protection afforded by Federal Rule 23(e) is primarily procedural in nature,

requiring class notice of the proposed settlement; approval only after a hearing and a finding

that the settlement is fair, reasonable, and adequate; disclosure of any agreement made in

connection with the proposed settlement; and opportunities for class members to object. Fed. R.

Civ. P. 23(e).

In determining whether to approve a proposed settlement, courts may consider some or

all of the following factors: “the strength of 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

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ORDER

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

and the reaction of the class members to the proposed settlement.” Officers for Justice, 688

F.2d at 625. The approval of a proposed settlement is within the discretion of the trial court. Id.

Review of a proposed class action settlement generally involves two stages. Manual for

Complex Litigation, Federal Judicial Center, §21.632 (4th ed. 2004). First, courts conduct a

preliminary fairness evaluation. At this stage, the judge may seek review of the proposed class

settlement by a court-appointed expert or a settlement master. The purpose of this evaluation is

to determine whether there are reservations about the settlement, such as unduly preferential

treatment of class representatives or certain segments of the class, inadequate compensation or

harms to the class, the need for subclasses, or excessive attorney compensation. Id. This stage

affords the parties an opportunity to resume negotiations in an effort to address potential

obstacles to final approval by the court. Id.

At the second stage, if the proposed class settlement appears sufficiently fair, reasonable,

and adequate, class members are provided notice of a formal Federal Rule 23(e) fairness

hearing. Such notice should inform class members that they will have an opportunity to present

and hear arguments and evidence for and against the terms of the proposed settlement; inform

objectors that they must file written statements of their objections with the clerk of court on or

before a date certain before the fairness hearing; and instruct objectors to provide notice if they

intend to appear at the fairness hearing. Id. at §21.633.

In this case, the plaintiffs seek preliminary approval of the proposed settlement, approval

of class notice of the proposed settlement, and scheduling of a fairness hearing at which the

Court will decide whether to grant final approval of the settlement and of the attorneys fees

requested. Dkt. 260.

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ORDER

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A. PRELIMINARY APPROVAL OF PROPOSED SETTLEMENT

The Court should grant preliminary approval of the proposed settlement. The

information provided to the Court thus far does not raise concerns that the proposed settlement

is unduly preferential to certain class members, includes inadequate compensation or harms to

the class, raises a need for subclasses, or contemplates excessive attorney compensation.

Furthermore, the discovery period is complete, and the Court is familiar with the facts and

posture of the case. Appointment of an expert or a settlement master is not necessary. 

B. CLASS NOTICE

The plaintiffs propose providing two forms of notice. The first form would go to class

members who received the initial Class Notice and would not provide an additional opportunity

to opt out of the class. The second form would go to class members who have not yet received

any notice of the class and would provide an opportunity to opt out. 

A proposed settlement may be rejected on the grounds that it does not afford a second

opportunity for class members to opt out. Fed. R. Civ. P. 23(e)(3) (“In an action previously

certified as a class action under Rule 23(b)(3), the court may refuse to approve a settlement

unless it affords a new opportunity to request exclusion to individual class members who had an

earlier opportunity to request exclusion but did not do so.”). Whether to require a second

opportunity to opt out is within the broad discretion of the trial court. Manual for Complex

Litigation, supra, §21.632 (4th ed. 2004). Class members who have already been afforded an

opportunity to opt out have been informed that they are bound by any settlement or judgment

on the merits. Dkt. 178 at 3. Class members who did not opt out and disagree with the

proposed settlement will have an opportunity to object to the proposed settlement. The Court

therefore concludes that a second opportunity to opt out is not warranted and that approval of

the proposed class notice is proper.

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ORDER

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C. FAIRNESS HEARING

Finally, the plaintiffs ask that the Court schedule a fairness hearing for sometime after

September 25, 2007, and propose September 28, 2007. Dkt. 260 at 9. The plaintiffs propose

affording class members forty-five days to file objections.

III. ORDER

Therefore, it is hereby 

ORDERED that Plaintiffs’ Motion for (1) Preliminary Approval of the Settlement, (2)

Approval of Class Notice, and (3) a Hearing Date for Final Approval of Settlement (Dkt. 260)

is GRANTED as follows: 

(1) Plaintiffs are hereby ORDERED to 

(a) mail notice to those class members who are listed on Exhibit B (Dkt.

261 at 22) to the Settlement Agreement and who were previously mailed

the Court’s first class notice in the form attached as Exhibit B to the

Phillips Declaration (Dkt. 261 at 30) filed in support of the preliminary

approval motion, and 

(b) mail notice to those class members who are listed on Exhibit B to the

Settlement Agreement (Dkt. 261 at 22) and who were not previously

mailed the Court’s first class notice in the form attached as Exhibit C

(Dkt. 261 at 33) to the Phillips Declaration. 

(2) Any objections to the settlement must be submitted in writing to Class 

Counsel postmarked by August 15, 2007. 

(3) Any objector who intends to be heard at the Fairness Hearing must declare

his or her intention in writing to Class Counsel postmarked by August 15, 2007. 

(4) Any class members who did not receive the Court’s first class notice and who

wish to exclude themselves from the class must do so in writing to Class Counsel

postmarked by August 15, 2007. 

(5) The hearing on the final approval of the settlement and an award of attorney 

fees is set for September 28, 2007, at 9:30 a.m. in Courtroom A before Hon.

Robert J. Bryan.

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ORDER

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The Clerk of the Court is instructed to send uncertified copies of this Order to all

counsel of record and to any party appearing pro se at said party’s last known address.

DATED this 27th day of June, 2007.

ARobert J. Bryan

United States District Judge 

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