F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

S A B R I N A L A G U N A , an individual; C A R L O S A C E V E D O , an individual; T E R E S A S A L A S , an individual; R O E S 3–50, on behalf of themselves and in a representative capacity

for all others similarly

situated, Plaintiffs-Appellees

,

A M R I T S I N G H , Objector-Appellant

,

v

.

C O V E R A L L N O R

T H A M E R

I C A , I N C ., a Delaware corporation; A L L I E D C A P I T A L C O R

P O R A T I O N , a Mary land corporation; A R

E S C A P I T A L C O R P O R A T I O N , a Mary

land corporation; CNA H O L D I N G C O R P O R A T I O N , a Delaware corporation; T E D E L L I O T T , an individual; D O E S 5–50, inclusive,

Defendants-Appellees

. N o. 12-55479

D.C. No. 3:09-cv-02131- J M-B GS

OPI NI ON

A ppeal from the United States District Court for the Southern District of California J effrey T. Miller, Senior District J u dg e, Presiding

Arg ued and Submitted November 8, 2013—Pasadena, CaliforniaL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 2

F iled J une 3, 2014

B efore: Ronald M. Gould and J a y S. B y bee, Circuit J udg es,

a nd Edward M. Chen, District J udg e. *

Opinion by

J udg e Gould; Dissent by

J udg e Chen

SUMMARY * *

Settlem ent Agreem ent

The panel affirmed the district c o u r t ’ s approval of a proposed class action settlement ag r eemen t pursuant to F ederal Rule of Civil Procedure 23(e), and the a ward o f attorney s’ fees to the attorney s for the proposed class.

T h e p anel held that the district c o urt correctly used t h e lodestar method in g aug ing the f airness of the attorney s’ f ee award, c orrectly calculated the lodestar amount, a nd reasonably concluded the ag reed upon award wa s a p p r o priate. The p anel also held that the district court did not abuse its discretion in apply ing the f a c tors of Churchill Vill., L.L.C. v

. Gen. Elec.

, 361 F .3d 566, 5 7 5 ( 9 t h Cir. 2004), when

ex a mining the fairness o f the proposed settlement. The panel held that the district c ourt had no oblig ation to make ex plicit

* T h e Ho n orab le Ed w ard M. Ch en , D istrict J u d g e f o r th e U.S. District Co u rt f o r th e No rth ern District o f Calif o rn i a, sittin g b y

d esig n atio n

.

** T h is su m m ary co n stitu

t es n o p ar t o f t h e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 3

monetary valuations of injunc t i v e remedies. The panel further held that the d istrict court did not abuse its discretion in approving the settlement term that objectors be available for depositions. F inally

, the panel held that the district court did not abuse its discretion when it a p proved the settlement
ag reement consistent w ith t h e Class Action F airness Act’s notice requirement described in 2 8 U.S.C. § 1715(b) and (d).

District J udg e Chen dissented because he believed t h a t the record bel o w is b ereft of crucial information without which the district court c ould not fully r eview either the adequacy o f the settlement or the r easonabl e n ess of the f ee award. He would remand the case for fuller development of the record.

COUNSEL

Shannon L iss-Riordan (arg ued), L icthen & L iss-R i o r dan, P.C., B o ston, Massachusetts; Monique Olivier, Duc kworth Peters L e bowitz Olivier, L L P, San F rancisco, California, for Objector-Appellant.

Raul Cadena & Nicole R. Roy sdon, Cadena Churchill, L L P, San Dieg o, California ; L

. Tracee L orens & Way ne Alan Hug hes, L orens & Associates, APL C, San Dieg o California, for Plaintiffs-Appellees.

Norman M. L e o n (arg

ued), DL A Piper L L P, Chicag o, I llinois; Maz da K. Antia, Cooley L L P (arg ued), San D iego

, C a l i fornia; J e ffrey A. Rosenfeld & N ancy N g uy en Sims, D L A Piper L L P, L os Ang eles, California, for Defendants

Appellees.L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 4

OP INION

GOUL D, Circuit J udg e :

T h i s case asks us to decide whether a settlem e n t ag reement reached b efore class c ertification b etween Plaintiffs and Defendants is fair, reasonable, and adequate. W e ag ree with th e d i s t rict court that the settlement merits approval, and we affirm.

I

Coverall North America, I nc. (“C o v erall”) is a janitorial franchising company oper a ting in California. Plaintiffs broug ht a class actio n s u it ag a inst Coverall in 2009 alleg ing that (1) Cover a l l m isclassified its California franchisees a s independent contractors, thereby a vo i d ing the p rotections afforded by California’s labor laws t o f r anchisees; a

nd (2) Coverall breached i ts franchise ag reements, a nd

c o m mitted fraudulent and unfair practices, by r emoving
customer accounts from f ranchisees wi t h o ut cause so that it could resell those accounts to o t h e r f r anchisees. I n Aug ust 2011, after about two y ears of sig n i ficant litig a tion, the parties ag r eed on a settlement. The sole o b j e c tor, Amrit Sing h, filed a

n objection to the p roposed settlement on November 14
, 2 0 1 1
, and althoug h the objection was not timely

, the d istrict court accepted the filing “in the interest o f determinin g the issues on the merits.” After a fairness hearing on November 21, 2011, the d istrict court a p p r o v ed the settlement ag reement on F ebruary 23, 2012 pur s uant to F ederal Rule of Civil Procedure 23(e).

T h e settlement a g reement is ex p ansive, but the most contested provisions include the following : (1) CoverallL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 5

pledg es to assig n customer a c counts t o c urrent franchisees, with the assig nments remaining c onditional until f ranchisees have pa i d their franchise f ees in full; (2) former franchise

owners w ill receive $475 e ac h and will receive a $750 purchase c redit toward a n ew Coverall franchise; and (3) new franchisees will have a 30-day rig ht to rescind their franchise
ag reements, and upon r escission w ill r eceive all the o f money they hav e p aid during that period u nder the franchise
ag reement ex cept for the $75 b ackg round investig a t ion fee. The settle ment ag reement also outlines other chang es to the franchise a g reements and Cover al l ’s operating procedures. B ey ond the a g r eement g enerally

, Sing h c ontests the award o f $994,800 in a ttorney s’ fees to Plaintiffs’ attorney s. As of the fairness hearing on Nove m b e r 21, 2011, two class members had opted out o f the ag reement and Sing h is the only objector.

II

W e review the district c o u rt’s approval of a proposed class action settlement ag r eement for a b u s e of discretion. Rodriguez v

. W

. Publ’g Corp.
, 5 63 F .3d 9 4 8
, 9 6 3 ( 9 th Cir. 2009); see also United S tates v. Hinkson

, 585 F

. 3d 1247, 1250 (9 t h Cir. 2009) (en banc) (g iving g eneral abuse o f discretion standard in cont e x ts b ey ond class actions). Our review of a class action settlement is “ ex tremely limited,” I n

re Mego Fin. Corp. S

e c

. Litig.
, 213 F .3d 454, 458 (9th Cir. 2000), and we will only r everse upon “ a strong showing that the district court’s decision was a clear abuse of discretion,” Staton v

. Boeing Co.
, 327 F .3d 938, 9 6 0 (9th Cir. 2 003) (quotation marks and citations omitted). W e also review for abuse o f d i scretion the c alculation and award of attorney s’ fees. In re Bluetooth Headset Prods. Liab. Litig.
, 6 54 F .3d 935, 940 (9th Cir. 2011).L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 6

III

W h en a class action settlement ag reement is submitted for approval, “[ t] he initial decision to approve or re j ec t a settlement proposal is co m mitted to the sound discretion o f the trial judg e.” Officers for Justice v. Civil Serv. C o m m ’ n , 688 F .2d 615, 625 (9th Cir. 1982). The distric t co u rt judg e must dete rmine whether the settlement is “fundamentally fair, adequate and reasonable.” Id

.

W e start with fees. Althoug h the parties have ag reed on the awa r d o f a ttorney s’ fees, the district court has an “independent oblig ation to ensure that the aw ard, like the settlement itself, is reasonable.” B luetooth

, 654 F

. 3d a t 941. However, we recog niz e that in the settlement contex t fees a re

a subject of compromise. Staton
, 327 F .3d a t 966. W e have made clear that “since the proper amount of fees is often open to dispute and the parties are compromising precisely to avoid litig ation, the [ district] court need not inquire into the reasonableness of the fees at even the h ig h end with precisely the same level of scrutiny a s whe n t h e f ee amount is litig ated.” Id

.

W e note at t h e outset that two different methods may be used “for calculating a reasonable attorney s’ fee depending

on t h e ci r c umstances.” Bluetooth

, 654 F .3d at 941. The lodestar method is m ost appropriate where the relief soug ht is “primarily injunctive in nature,” and a fee-shifting statute authoriz es “the a

ward of fees to ensure compensation for counsel undertaking social ly beneficial litig ation.” I d .; see also Hanlon v. Chrysler Corp.
, 150 F .3d 1011, 1029 (9th Cir. 1998). That is precisel y t h e situation we face here, because
t he settlement provisions that Plaintiffs have soug h t a n d
ag reed upon are mostly injunctive in nature and a fee shiftingL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 7

statute ex ists, California B usiness and P r o fessions Code § 17082. W e c o n c l ude that the district court correctly used the lodestar method in g a ug ing the fairness of the attorney s’ fee award.

The district court a lso c o rr ec tly calculated the lodestar
amount and reasonably concluded tha t the ag reed upon award, $994,800, was appropriate. I n its analy sis, the district court noted that the case had been contentiously litig ated for

over two y ears, and that the rep o rt s u bmitted by Plaintiffs’ counsel showing that over 4,500 hours had been billed by six attorney s, a paraleg al, and a law clerk was fair and accurate. Using that number, the district court calculated that the lodestar a mount reached almost $3 million. At a third of the lodestar amount, the district c ourt soundly concluded that the attorney s’ fee award of $994,800 was reasonable.

Moreover, the district c o u rt prudent l y c ross-checked the award amount ag ainst the alternative percentag e-of-recovery method. We have “encourag ed courts to g uard aga i n s t an unreasonable result by cross-checking their c a l culations
ag ainst a second method.” Bluetooth

, 654 F. 3 d a t 944–45. Generally

, courts use a b enchmark fig ure of 25% to g aug e the reasonableness of an award under the percentag e-of-recovery method, which is most a ppropriate in common fund settlement cases. Id

. at 942; In re Mercury Interactive Corp

. Sec. Litig.
, 618 F .3d 988, 992 (9th Cir. 2010); Six ( 6) Mexican W

orkers v. Ariz. Citrus G r o w e r s , 904 F .2d 1301, 1311 ( 9th Cir. 1990). Here, the district c ourt correctly noted that the value of the settlement, and particularly its injunctive terms, was disputed

. W hile Sing h ’s fig ure o f $56,525 is clearly incorrect becaus e it g ives no value to the injunctive
terms of the settlement, Plaintiffs may c ertainly be overstating the value of the set tlement at $20 million. TheL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 8

district court reasonably surmised that even if the v a lue o f the settlement was $4 million—only a part of the a mount claimed by Plaintiffs—the attorney s’ fee award would still be within the normal bounds of reasonableness. The district c ourt was within its discretion to f

ind the a ttorney s’ fee a

ward to be fair, reasonable, and adequate because it was both sig nifi c a n t l y b e l o w t h e l o d e s t a r a m o u n t a n d r e p r e s e n t e d a n unobje ctionable percentag e of r ecovery once the value o f injunctive relief was considered.

Sing h’s main arg ument ag ainst the reasonableness of the attorney s’ fee award is that the actual value of the settlement, which he characteriz es as p rimarily the amoun t o f t he cash
pay ments, is so low that the award is unreas o n able. Sing h
correct l y n o t es that “the benefit obtained for the class” is important in determining wh e t h er to adjust the lodestar
amount a nd by how much, Hanlon

, 150 F .3d at 1029, but any such adjustment is equitable and squarely at the discretion o f the district court, Hensley v. Eckerhart

, 4 6 1 U .S. 424, 437 (1983), and Sing h presents no evidence that the district court abused its discretion in declining further adjustment f rom the lodestar amount. Moreover, the district court acted w ithin its
proper discretion when it f ound that the settlement contains sig nificant benefit s f

or Plaintiffs bey ond the cash r ecovery , and thus that the award, at about a third of t h e lodestar amount, was reasonable.

IV

Turning to the settlement as a whole, F ederal Rule o f Civil Procedure 23(e) “requires the district court to determine whether a pr o posed settlement is fundamentally fair.” Hanlon

, 150 F .3d a t 1026. As a g eneral rule, a district courtL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 9

must consider the following f a c t ors when ex amining the fairness of a proposed settlement:

(1) the streng th of the plaintiffs’ case; (2) the risk, ex pense, complex ity

, and likely duration of fu rther litig ation; (3) the risk o f maintaining class action status throug hout the trial; (4) the amount o ffered in s e t t l ement; (5) the ex tent of discovery completed and the

s tag e of the proceeding s; (6) the ex perience

a n d v i e ws of counsel; (7) the presence of a g overnmental participant; and ( 8) the reaction of the class memb e rs to the proposed settlement. Churchill Vill., L. L

. C. v. Gen. Elec.

, 361 F .3d 566, 575 (9th Cir. 2004); Tor r isi v. Tucson Elec. Power Co.
, 8 F .3d 1370, 1 375 (9 t h Cir. 1993). I n its analy sis under the Churchill f

actors, the district c o u rt noted that the ris k s o f moving forward with litig ation were sig nificant, b oth in terms of the likelihood o f success and c o st. P l a intiffs

ex p ressed justified c o ncer n that the c lass members could be forced into i n dividual arbitration after the Supreme Court’s decision in AT& T Mobility LLC v. Concepcion
, 131 S. Ct. 1 7 4 0 (2011), and conflicting case law supports those concerns.

T he district court also ag reed w ith Plaintiffs that California employ

ment law would likely make obt a i n ing class certification particu l a r ly difficult. F ollowing the Supreme Court’s decision in W al-mart Stores, Inc. v. Dukes

, 131 S. Ct. 2541 (2011), there w as a r e a l prospect that California’s multi-facto r t est for e mploy e e classificationL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 10

would have proven fatal to any eventual class certification in this case. As an additional r isk, the district cour t fo und that the poor financial health of Coverall seriou s l y increased the chance that Plaintiffs w o uld be left with nothing if they continued to litig ate their claims. Rounding out its analy sis,
t h e d istrict court noted that no g overnmental e ntity h ad wei ghed in o n the matter, that Plaintiffs’ attorney s h ad sig nific a n t ex perience and had demonstrated skill a nd dilig ence throug h o ut the litig ation, a n d that only two class members had opted out of the ag reement.

F urther, the district court reasonably found that the settlement would y ield sig nificant b e n e f its for Plaintiffs g iven the risks and costs of continuing litig ation. The district court found that, bey ond the c ash for former franchisees, “assig nment of cu s tomer accounts and pledg es for
prog r ammatic chang es are sig nificant victories.” The district
court elaborated that “once franchises are a ssig ned, franchisees will own a valuable business t h e y c a n choose to sell o r continue to operate.” Viewed tog ether, the district
court determined that the Churchill fact o rs supported the conclusion that the settlement was fair, reasonable, a nd adequate.

Sing h claims that the district c ourt was “un d er a special oblig ation to make clear, fact-based f inding s reg a

rding the value of the non-monetary terms of the settlement,” by which he seems to contend that the dis t r i c t c ourt should have assig ned a monetary value to t h e non-monetary terms of the settlemen t

. Bu t we have never required a district court to assig n a monetary value to purely injunctive re l i ef

. T o the

c o n trary , w e have stated that courts cannot “ judg e w i t h confidence the value of the terms of a settlement ag r eement, especially o n e i n which, as h ere, the settlement provides forL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 11

injunct ive r elief.” Staton
, 327 F .3d at 959. Monetary valuation of injunctive relief i s d i fficult and imprecise. 1 A s such, we “put a g ood deal of stock in the product of an armsle n g th, non-collusive, neg otiated resolution, a nd have never prescribed a particular formula by which that outcome m u s t be tested.” Rodriguez

, 5 6 3 F .3d a t 965 (internal citations omitted). The district court has no oblig a tion to make ex plicit monetary valuations of injunctive remedies, and it d id not abuse its discretion in apply i n g t h e Churchill factors to this

case.

Sing h a lso arg ues that the d istrict co u r t a bused its discretion in not ex e rc ising heig htened review g iven the alleg ed p resence of “warning sig n s ” indicating collusion.

1 T h e d issen t co n ten d s th at o u r p reced en t s co n trad ict th is statem en t. T h e d issen t relies on Den n is v. Kello g g Co

. , 6 97 F.3 d 8 5 8 (9 th Cir. 2 01 2 ), an d S ta t o n , 3 2 7 F.3 d at 9 7 3
, ref errin g to Ha nlo n , 1 5 0 F.3 d at 1 0 2 9

. S ee Dissen t 2 6

– 2 7

. Neith er o f th o se cases is co n tro llin g

. In Den n is
, w e h eld th at a d istrict co u rt m

u st g iv e a v alu atio n w

h ere t h e b u lk o f th e settlem en t

w as a ch arity cy p r e s aw ard o f “ $ 5.5 m illio n wo rth o f f oo d ” w ith o u t ref eren ce to w

h eth er th e f

o o d w as to b e v alu ed at co st, w h o lesale, or retail

v alu e. 6 7 9 F.3 d at 86 7 (in tern al q u o tatio n m ark s o m itted ). In th at case, th e settlem en t term w as n o t in j u n ctiv e, co u ld n o t b e d eterm in ed w ith o u t

a v alu atio n , an d th e in f o rm atio n w o u ld read i ly b e av ailab le to th e d e fe n dan t. Sim ilarly

, in S ta to n , w e n oted th at v alu atio n f o r i n j u n ctiv e relief m ay be co n sid ered w h en th ere is a “ clearly m easu rab le b en ef it,” an d ref erred to th e co s t o f a rep lacem en t latch f o r m i n iv an s at issu e in Ha n lo n

. 3 2 7 F.3 d at 9 7 3

. B u t in Ha n l o n , “ th e d istrict co u rt u s ed its v alu atio n of th e f u n d o n ly as a cro ss- ch eck o f th e lo d estar am o u n t” bec a u s e th e

v alu atio n of t

h e in j u n ctiv e relief w as still to o u n certain

. S ta to n , 32 7 F.3 d
at 9 7 3

. W e h av e n o t req u ired a d i strict co u rt to assig n a m o n etary v alu e to in j u n ctiv e relief as am orp h o u s as th e r i g h t t o o w n a f ran ch i s e w ith its
atten d an t rig h ts an d resp on sib ilities. S e e D e n n i s , 6 9 7 F .3 d at 8 6 4 (req u i ri ng t h at th e d istrict co u rt “ ex p lo re[] co m

p reh en siv ely all f

acto rs”

an d “ g iv e a reaso n e d resp o n s e to all n o n

- f riv o lo u s o b

j ectio n s” (in tern al
q u o tatio n m ark s an d citatio n

o m itted )).L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 12

A l t h o ug h we must be particularly vig ilant in the pre-clas s certification contex t, when ther e are ty pically more opportunities for atto r n e y collusion, Hanlon

, 150 F .3d at 1026, we will rarely

overturn an approval of a compromised settlement “unless the terms of th e a g reement c ontain convincing indications that the incentives favoring pursuit o f self-interest rather than the class’s interests in fact influenced the outcome of the neg otiations and that the district court was wrong in concluding otherwise,” Staton , 327 F .3d at 960.

I n B luetooth

, we outlined three settlement arrang ements that could indicate collusion b e c a u s e they may improperly favor counsel at t he ex pense o f the plaintiffs. 654 F .3d at 946–47. These are:

(1) when counsel r e c e ive a disproportionate distribution of the settlement, or when the class receives no monetary distr ibution but class counsel a

re a m p ly rewarded; (2) when the parties neg otiate a “clear saili ng ”
arrang ement provi d i ng for the pay ment o f attorney s’ f

ees s eparate a

nd apart from c lass f u n ds

. . . ; and (3) when the parties arrange for fees not awarded to re vert to defendants rather than be added to the class fund.

Id

. at 9 4 7 ( i nternal quotation marks a nd citations omitted). Al t h o u gh the district court did not ex plicitly o utline these “warning s i gns,” contrary to Sing h’s assertion, it did specifically address two o f the three. The district court f ound the third sig n, the presence of a reversion clause, to “not [be] a preferable result,” b ut balanced it with the overall benefits of the settlement to Plai n t i f f s and the fact that the cash
pay ment represented a small amount of those benefits.L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 13

The district court’s analy sis

, b alancing the reversion clause ag ainst the overall streng th of the settlement, w a s adequate. T he first warning sig n was not present b e cause the district court correctly c o ncluded that the attorney s’ f ee award was entirely r easo n a b l e. T his conclusion has broad implications f

or the district court’s oblig ation to ensure “that the s e t t lement is not the product of c ollusion among the
neg oti a t ing parties.” Id

. (internal quotation marks, citation,

an d a l t eration omitted). B ecause collusion is the product o f attorney s pursuing t h e i r self-interest to the detriment of the class’s interests, one would e x pect primarily to find collusion

w h ere attorney s disproportionately benefitted f rom t h e settlement. Id

. a t 947–48; see Staton
, 327 F .3d at 964 (“I f fees are unr e asonably hig h

, the likelihood is that the defendant obtained an econo m i cally beneficial concession with reg a rd to the merits p rovisions [ of the settlement] .”). A settlement may still be the product o f collusion when attorney s’ f

ees are reasonable. B ut when, as in this case, the fee award is clearly reasonable as viewed throug h the appropriate application of either the lodestar o r p ercentag eof-recovery methods, the chance of collu s i o n narrows to a slim possibili t y

. I n these cases, it is sufficient that a district
court r ecog niz es and bal ances p otentially collusive provisions, such as the reversion to defendants of unclaimed funds, ag a inst the other t erms of the settlement ag r eement. See Bluetooth

, 654 F .3d at 948 ( “ But these f actors did not

o b v i a te the need to e x amine the fee provision in lig ht o f t h e rest of the ag reement.”); Staton
, 327 F .3d at 961 ( “[ I ] t w ill be

rare that we will reverse a d istrict c ourt’s approval

. . . unless the fees and r elief provis i o n s clearly sug g est the possibility that class interests g a ve w a y t o self-interest.”); Hanlon

, 150 F. 3 d a t 1026 (“[ I ] t is the settlement taken as a whole, rather than the individua l c o m p onent parts, that must be

ex a mined for overall fairness .”).L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 14

Plaintiffs faced r ea l d ang e rs in proceeding on their case in lig ht of menacing precedents from the United States S u preme Court. A t the same time, the class g a i n e d sig nificant b enefits fr om the settlement, and Plaintiffs’ lawy ers r eceived fees that are overall reasonable. The district
court correctly ex amined t h e settlement ag reement and did
not abuse its di s c r e t i o n in finding the ag reement to be fair, reasonable, and adequate.

V

The d istrict court’s decision to gr a n t discovery is reviewed for abuse of discretion. Hallett v. Morgan
, 2 96 F .3d 732, 751 (9th Cir. 2002). As a threshold matter, Sing h has standing to a

ppeal the settlement’s deposit i o n r equirement because the district court ordered that objectors comply with the relevant settlement p rovision, and he was later required to sit for a deposition as the sole objector.

The district court also did not abuse its discr e t i o n in approving the settlement term that objectors be available for depositions. F ederal Rule o f Civil Procedure 30(a)(1) a llows

a party to conduct depositions, and courts commonly require objectors to make themselves a v ailable for deposition g iven the power h el d b y objectors. See
, e.g. , In re Netflix Privacy Litig.
, 289 F .R.D. 548, 554 (N.D

. C a l

. 2013) (finding that objectors “have voluntarily inserted themselve s i n to this action, and as such, depositions

. . . are relevant and proper”); In re TFT

- L C D ( Flat Panel) Antitrust Litig.
, No. M 07- 1827SI
, 2013 W L 621791 (N.D. Cal. F eb. 19, 2013) (holding objectors in contem p t for refusing to be d eposed); In re Cathode R ay Tube (

CRT) Antitrust Litig.
, 281 F .R.D. 531, 533 ( N.D. Cal. 2012). Th e d istrict court considered the totality of the circumstances when it conclu ded that aL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 15

deposition of Sing h was appropriate, including the deposition’s utility to the court and the scant possibility that Sing h would be harassed or intimidated by g ivin g a deposition, and the district court was w ell w ithin i ts discretion in so concluding

.

VI

F inally

, the district court did not abuse its discretion when it approved t h e settlement ag reement consistent w ith the Class Action F a irness Act (“CAF A ”) notice r equirement described in 28 U

. S

. C. § 1715(b) and (d). CAF A requires that defendants in a class actio n s u i t send notice to all relevant state and f

ederal authorities where c l a s s members reside. 28 U.S.C. § 1715(b). A court may not issue an order
g i v i ng final approval of a p roposed settlement until 90 day s have passed since the r elevant a uthorities were s e rv ed with notice. 28 U.S.C. § 1715(d). W h en v iolation s of the 28 U .S.C. § 1715(b) notice requirement o c c u r , “[ a] class member may refuse to comply with and may choose not to be b o u n d b y a settlement ag reement or consent decree

. ” 28 U.S.C. § 1715(e)(1). Rather than asking to b e e x empt from the settlement ag reement, Sing h demands relief bey ond the scope of 28 U.S.C. § 1715—the rejection o f the entire settlement ag reement. B e c ause Sing h requests no relief tied
to § 1715, he cannot show that a “ favorable d e c ision will provide r edress,” a n d t h us he lacks standing on this c laim. See Knisley v. Network A ssocs., Inc.
, 312 F .3d 1 1 23, 1126 (9th Cir. 2002). And even if S i n gh had standing to pursue this c laim, it is without merit becaus e t he class was clearly limited to “individuals in the State of California,” a nd Coverall properly n otified the Attorney G eneral of California.L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 16

VII

T he district court did not abuse its discretion in find i n g the settlement ag reement and i ts a ttorney s’ fee award to be fair, reasonable, and adequate. The district court also appropriately ex e rcised i t s discretion in ordering that Sing h be available for a deposition. 2

AF F IRMED.

2 A lth o u g h w e d o n o t ag ree w ith th e th o u g h tf u l co m m en ts o f ou r d issen tin g co lleag u e, class actio n settlem en t ap p ro v a l i s im p o rtan t, an d b en ch an d b ar b en ef

it f ro m t h e ex p ressio n o f m o re th an o n e v i e w

. W e d iv erg e f ro m th e d issen t o n th e lev e l o f def eren ce to b e g iv en to th e d istrict co u rt o v erseein g t h e ad v ersarial p ro cess, a n d o u r d isag reem en ts la r g e l y f o llo w f ro m th at. Neith er o u r p reced en t n o r th at of th e S u p rem e Co u rt req u ires th e ap p ro ach tak en in d issen t. T h e d issen t u rg es p o sitio n s th at o u r p reced en t t o d ate h as n o t req u ired

, su ch as th e assig n m en t o f a p articu lar m o n etary v alu e to in j u n ctiv e relief

. T h is case w as h ard f

o u g h t b y sk illed law

y ers f o r y ears, th e in

j u n ctiv e term s o f

th e settlem en t are in

o u r v iew n o t illu so ry b ecau se th ey h av e p ractic a l v alu e, an d P lain tif f s ’ class actio n th eo ry w as u n d er serio u s th reat b y d ev elo p in g Su prem e Co u rt p reced en ts. T h e d istr i c t c o u rt w as w ell p o sitio n ed to f o llo w th e case’ s p ro g ress. T h e dev elo p m en t o f th e p arties’ settlem en t w as aid ed b y a retire d f ed eral j u d g e actin g as m ed iato r. W e rev iew th e d i s trict co u rt’ s ap p ro v al o f th e settlem en t f o r ab u se of d i scretio n , an d h ere t h e d istrict

co u rt d id n o t p ro ceed illo g ically

, i m p ro b ab l y or w ith o u t su

p p ort f ro m in f eren ces d raw

n f ro m f acts in th e reco rd

. Hin kso n , 5 8 5 F.3 d at 1 2 5 1

. A l l th in g s co n sid ered

, w e v i ew th e settlem en t as reaso n ab le an d w ith in th e

ran g e th at w e sh o u ld ap p ro v e.L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 17

CHEN, District J udg e, dissenting :

W ith reluctance, I d i ssent from the majority decision affirming the district court’s approv al of the proposed class action settlement. The record below is bereft of c rucial information – information without w hich the district co u r t could not fully review either the adequacy of t h e settlement

or the reasonabl e n ess of the fee award. I n particular, the record is silent as to two essential matters: (1) the portion o f the class elig ible to receive the chief non-monetary benefit o f the settlement ( i.e.
, the assig nment of customer a ccounts to current franchisees) and (2) the value of t h e m o netary relief
to the class (and whether there is a justification for imposing

a c l a i ms process with a reverter of unclaimed funds b ack t o the defendant). The c a se should be r emanded for fuller de v elopment of the r ecord. I also believe this case affords this Court an opportunity to provide additional g uidance to the district courts in their assessment of proposed class action settlements.

I am well aware that there are g o od reasons for a district judg e to afford deference to a settlement re a c h e d b y ag reement between the parties. S e e Lane v. Facebook, Inc.
, 696 F

. 3d 811, 819 ( 9th Cir. 2012) (noting that one factor for

a court to consider in determinin g the fairness of a class action settlement is the ex perie n c e and views of counsel). The parties know more about the c ase and the factors that lead to settlement than the trial judg e does; often t h ere a re facts bey ond the record (such as the f i nances o r future business p lans of the defendant o r infirmi t i es with the plaint i ff’s ability to prosecute the c ase) which c an h ave a

s u b s t a n t i a l a n d l e gi t i m a t e i n flu e n c e o n s e t t l e m e n t neg otiations. I also recog n iz e that there are g ood reasons for

an appellate court to defer to the trial judg e’s app r o v a l o f aL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 18

settlement. See Han l o n v

. Chrysler Corp.
, 150 F .3d 1011, 1026 (9th Cir. 1998) ( stating that “[ o] ur r eview of the district court’s decision to approve a class action sett l em e n t is

ex tremely li m i t e d ” ). T he trial judg e g enerally is in a better position to ferret o ut the relevant factors and to discern the subtle dy namics of the litig ation warranting approva l o f a neg otiated settlement. See id. (stating that “ t h e decision to approv e o r r e

ject a settlement is c ommitted to the sound discretion of the trial judg e because he is ‘ex posed to the litig ants, and their strateg ies, positions and proof’”).

Nevertheless, the district court has an impo r tant a nd meaning ful role to play in the settlement of a putative class action. I n particular, the district judg e has a fiduciary duty to safeg uard the interests of t h e a b sent and putative class members. See, e.g. , Sullivan v

. DB Invs., Inc.
, 667 F .3d 273, 319 (3d Cir. 2011) (stating that “ ‘ t r ial judg es bear the important r esponsibility of protecting absent class members,’ and must be ‘assur[ e d] that the settlement represents adequate compensation for the release of the class claims’”); Maywalt v. Parker & P arsley Petroleum Co. , 67 F .3d 1072, 1 078 (2d Cir. 1995) (noting that “the dist ri ct court has a fiduciary responsibility to ensure th a t t h e settlement is fair and not a product o f collusion, a

nd t h at t h e class members’ interests

were represented adequately ”) (internal quotation marks omitted). That duty is especially important when the interests of the class and its counsel neg otiating on its behal f a re n ot alig ned. See R e

y n o lds v. Benefit Nat’l Bank

, 288 F .3d 277, 279–80 (7th C i r

. 2 0 0 2) (stating that the problem that class counsel “may
, in derog ation of their professional a nd fiduciary o blig ations, place their pecuniary self-interest a h ead of that of the class

. . . requires district judg es to ex ercise the hig hest d e gr ee of vig ilance in scrutiniz ing proposed settlements o f class actions”). Moreover, where theL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 19

settlem e n t ag r eement is neg otiated prior to final class certification, “There is an even g reater potential for a breach of fiduciary duty owed the clas s d u r i ng settlement.” In re Bluetooth Headset Produ c t s Liability Litigation
, 654 F .3d 935, 946 (9th Cir. 2011). Thus, in this case, an “even hig her l evel of scrutiny than that ordinarily required unde r R u l e 23(e)” is warranted. Id.

The terms a

nd structure of the proposed settlement herein
warrant meaning ful scrutiny

. I ts approval must be supported by the record. U n f

o rtunately

, thoug h the district judg e plainly took this duty seriousl y , I believe the requisite scrutiny w as not p o ssible g iven the deficiencies in the record. The district cour t ’ s task w as compounded by the lack o f clarity i n t h is Circuit’s law on particular issues d iscussed below.

I.

Althoug h the majority addresses the reasonableness o f the fee a ward before ad d r e ssing the reasonableness of the settlement’s substantive terms, r eview ordinarily beg ins with the adequacy of the settlement itself. See Bluetooth

, 654 F .3d
at 9 41. Therefore, I a d d r ess the adequacy of the settlement first.

Under F ederal Rule of Civil Procedure 23(e), a class

ac t i o n may b e settled o nly with the approval of the district court, and “[ a] district court’s appr o val

. . . must be accompanied by a f

inding that the settlement is ‘ fair, reasonable, and adequate.’” Lane
, 696 F .3d at 818. Here, a hig her standard o f fairness is required because the settlement took place before formal class certification. See id. at 819.L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 20

A district court must consider a number of factors i n determining whether a proposed settlement is fair a nd adequate; these include:

the streng th of the plaintiffs’ c a se; the risk,

ex p ense, complex ity

, and likely duration o f further litig a tion; the risk of maintaining c lass action status throug ho ut the trial; the amount

o f f e red in settlement; the e x tent of discover y completed and t h e stag e of the proceeding s; the ex perience a

nd views of c ounsel; the
presence of a g overnmental par t i cipant; a nd the reaction of the class members to the proposed settlement.

Id. See Churc h i l l V

i l l

. , L.L.C. v. Gen. Elec.

, 361 F .3d 566, 575 (9th Cir. 2004).

I n the case at bar, the district court adequately considered
many of the Lane/Churchill factors, including the risk o f further litig ation. I t properly f ound, for ex ample, that there

was a risk class claims could have been forced into individual arbitration pursuant to A T& T Mobility v. Concepcion
, 131 S. Ct. 1740 (2011). There was also a risk in o b taining class certification in lig ht of W

al-Mart Stores, Inc. v. Dukes

, 131 S. Ct. 2541 (2 0 1 1 )

. Many of the other factors supported approval.

However, in my view, the district court’s order – althoug h thoroug h in most respects – did n ot adequately assess a critical factor: the amount offered in settleme n t

. A lthoug h Lane does not e x pressly order the importance o f the
assessment factors, inescapably

, the core of any settlement is “the amount offered in settlement.” I n this reg ard, the districtL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 21

court’s order did not determine whether the most sig nificant
terms of the settlement were r e a l o r larg ely illusory

. See I n

re Dry Max Pampers Litig.
, 724 F .3d 713, 721 (6th Cir. 2 013) (s t a ting that “[ t] he relief that this settlement provides to unnamed class members is illusory ” a n d therefore finding the settlement unfair); cf. Dennis v. Kellogg Co.
, 697 F .3d 858, 868 (9th Cir. 2 0 1 2 ) (stating that d ollar value of the cy pres fund should not be fictitious).

Under the settlement, there were two classes that would receive benefits: (1) c u rrent franchisees and (2) f ormer franchisees. Current franchisees obtained certain equitable relief – most notably

, the assig nment of cust o m e r accounts which would confer upon the franchisees economic value that could not summarily be taken away

. As for f ormer franchisees, each was e ntitled to $475 in cash a nd a credit o f $750 ( in effect, a coupon) which could b e used to p u rchase a

new Coverall franchise. F or the reas ons discussed below, both aspects of the settlement are problematic, a nd a fuller record is required in order to properly as s e ss the fairness, reasonableness, and adequacy of the settlement.

A.

Current Franchisees: Assignment of Customer Accounts

F or current franchisees, t h e p rimary benefit of the settlement wa s the assig nment of customer accounts. The centrality of this benefit is clear : a m ajor claim asserted b y Plaintiff s in this action w as a breach of contract based on Coverall’s “churning ” o f customers accounts. Churning involves taking a cust o mer a c count away from a franchise

owner for a prete x tual reason in order to resell the customer account to a different franchise owner. I f accounts w e reL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 22

assig ned to franchise owners, that w ould prevent the practice of churning

.

The importance of the assig nment provision is underscored by the district court’s order as w ell as the parties’ briefs presented to this Court. The district court stated in its ord e r that “[ t] he [ Settlement] Ag reement provides separate b e nefits f

or current and f

ormer franchisees. Principally

, Coverall pledg es to a ssig n customer accounts to current franchisees.” ER 23 (emphasis added); s e e a lso ER 25 (stating that “assig n ment o f cus t o mer accounts a nd pledg es for prog rammatic chang es are sig nificant v i c t o r i es” 1 ). Similarly

, in Pla i ntiffs’ appellate brief, the f irst benefit hig hlig hted is the assig n ment o f a ccounts, w i t h Plaintiffs touting that “[ t] he value o f the assig n ment

. . . is estimated to be worth $18 t o $20 million per y ear in California alone.” 2 Pls.’ Resp. B r. at 6. Defendants did the same i n t h ei r o wn appellate brief. See Defs.’ Resp. B r. at 36–40.

B e cause th e a ssig nment was the p rimary benefit of the settlement for current franchisees, the d istrict court had a duty
to e n sure that this benefit had real value. Notably

, the burden of proving that the assig nment had r ea l v a lue lay with the settling parties; it was n ot Mr. Sing h ’s burden to disprove it. See In re Dry Max Pampers Litig.
, 724 F .3d at 719 (“[ T] o the

ex tent the parties h ere arg ue th a t the settlement was fair

1 A s n o ted b elo w , th e d istrict co u rt “ lu m p ed ” th e p ro g ram

m atic ch an g es to g eth er an d did n o t call o u t an y o f th e ch an g es as b e i n g p articu larly

m ean in g f u l. S ee n o te 5
, in

fra

.

2 P lain t if f s also arg u e th at i t is f

air f or cu rren t f

ran ch i sees n o t to g e t a

m o n etary aw ard b ecau se th ey “ w o u ld receiv e a sig n if ican t b en ef

it b y w ay

o f th e assig n m en t o f

cu sto m er acco u n t s.” P ls.’ Resp . B r. at 9

.L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 23

b e cause the refund prog r am h as actual value f or consumers , it was the parties’ burden to prove the f act, rather than [ the objector’s] burden to disprove it.”).

As to whether the assig nment provision of the settlement would a ctually benefit current franchisees, that posed a troubling question because, under the p roposed settlement, the a ssig nment is c onditional

. See ER 73. That is, until a current or new franchise owner pay s for a c ustome r ac count in full ( i.e.
, the full franchise f ee, including any fin anced portion), t h e r e is no actual assig nment, and customer accounts

can continue to be taken a way pursuant to the old just or g ood

cause standard. 3 B ut the record contains no information as to how many or what percentag e of franchise owners h ave p aid their fees in full. I n particular, there is no information about how many franchise owners still owe money o n t h e ir franchise fees (and if so, how much); how long it takes an averag e franchise owner to p ay off a franchise fee; a nd whether franchise owners ty p ically leave before they are able
to pay off their franchise fees in full. 4 This is sig nificant because Mr. Sing h, the objector, asserted in arg ument before this Court that a substantial nu m b e r o f franchisees finance their franchise fees. See also Pls.’ Op. B r. at 1 0 n.3 (claiming
t h at, “[ t] y pically

, Coverall workers make a down pay me n t toward [the franchise] fee [ which rang es from approx imately

3 S ee ER 7 6 (p ro v i d in g th at “ [n ]o th in g in th is A g reem en t sh all m od i f y , am en d

, or o th erw ise alter

. . . th e rig h ts a n d o b l ig atio n s o f Co v erall an d Cu rren t an d Fo rm er F ran ch ise Ow n ers u n d er th eir resp ectiv e J an ito rial Fran ch ise A g reem en ts, w

h ich

, ex cep t as ex p ressly set f o rth h erein

, rem ain in f u ll f o rce an d ef

f ect”).

4 T h e f act th at th e n am ed Plain t if f s m ig h t h av e b een en titled to an actu al assig n m en t d o es n o t sp eak to w h eth er th is w as tru e o f t

h e rem ain i n g class

m em b ers (ap p ro x im ately

7 5 0 cu rren t f ran ch ise o w

n ers).L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 24

$ 1 0
, 0 00 to $32,000] and then finance the remaining portio n of the fee b y b o rr owing it from Coverall for a two or threey ear period (at 12% interest)”; adding that, “[ w ] hen workers lose accounts a

nd want to obtain more work, they may do so by then pay ing fees for ‘additional business,’” and these fees
must a lso be paid off before any assig nment). On the current record, we do not know whether 5%, 5 0%, or 95% of th e class will or will likely receive the benefit of the assig nment of accounts.

Moreover, e ven if a sig nificant portion of current fr a n chisees were actually able to pay off their franchise fees and thus g et an assig nment, the p ar t i e s ’ c l aim that the value of the assig nment was $18–20 million is stil l problematic. The p arties a sserted this value because the g ross billing o f
customer contracts in California in the y e ar 2010 was $18–20 million

. S

e e Pls.’ Resp. B r. at 6

. B ut under the settlement
ag reement, certain customer accounts are deemed not assig nable. S

ee ER 73 (providing that “ c er tain accounts, including National Accounts, customer prep a r e d contracts that p reclude assignment, and local multiple location
customer contracts are not assig nable”). There d o e s not appear to be any information in the record as to how many customer contracts f

a l l within this c ateg ory , or their worth. T h u s , the c laimed $18–20 million v alue of the assig nment may well be inflated. T h e district court’s o r d e r d i d not address this issue.

F urthermore, althoug h the district c ou r t acknowledg ed that the assig nment of accounts may not have the full $18–20 million value claimed by t h e p arties because of the conditional n ature o f the assig nment, see E R 3 0 (“I n d eed, it is unclea r whether the assig nment of all a ccounts to franchisees w ill reach the $ 18-20 million Plaintiffs c laim,L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 25

especially b ecause a ssig nments are o nly conditional until franchises are paid for in full.”), it did not estimate – indeed, had no b a s i s in the record to e stimate – what portion of the

c lass would actually benefit from the assig nment. T h e district court could o nly state that, “once franchisees a re

a s s i g ned, franchisees will own a value business they can choose to sell or continue to operate.” ER 30. 5

5 T h e m aj o rity p o in t s o u t th at, u n d er t h e settlem en t, t h e r e w e r e also
p ro g ram m atic ch an g es m ad e f

o r th e ben e fi t o f cu rren t f ran ch i sees. Ho w ev er, sev eral o f th e b en ef its seem relativ ely m o d est; o th ers ap p ear to d ep en d o n an acco u n t actu ally b ein g assig n ed to a cu rren t f ran ch isee. B en ef its in th e latter categ o ry h av e n o v alu e if th ere is n o t an assig n m en t in th e f irst p lace. T h e p ro g ram

m atic ch an g es in clu d e th e f o l lo w in g :

(1 ) “ Co m

m en cin g six ty (6 0 ) day s af ter t h e Ef f ectiv e D ate, New Fran ch ise Ow

n ers sh all b e g ran t ed a th i rty (3 0 ) d ay o p tio n to rescin d th eir [J an ito rial Fran ch ise A g reem en ts],” an d “ all m on ies th ey paid
to Co v erall, less th e th en

- cu rren t co st o f Co v erall’ s back g r o u n d in v estig atio n , w

h ich is cu rren tly $ 7 5 .0 0,” sh all b e retu rn ed to th em

. ER 7 4. No t ab ly

, th is b en ef it accru es to n ew f

ran ch isees o n ly

– i

. e

. , th o se p erso n s o r en tities w h o en ter in to a J FA af

ter th e ef f ectiv e d ate

o f t h e settlem en t. S

ee ER 7 1

. Fu

rth erm o re, th e n ew f

ran c h i s e e s

w o u l d s im

p ly b e g ettin g th eir m o n ey b a c k in retu rn f o r g iv in g b ack th e f ran ch ises, an d th e am o u n t o f m o n ey w o u ld l ik ely b e l i m ited
g iv en th at o n ly a 3 0

- d ay perio d is co v ered an d i t i s n o t u n u su al f or f ran ch ises to b e f

in an ced

. S

ee ER 1 38

. (2 ) “ Co v erall w ill ag ree t o re- p u rch ase f ro m Cu rren t an d New F ran ch ise Ow n ers all acco u n t s th at are i n g oo d s tan din g , b o th f in an cially an d

o p eratio n ally

. . . .” ER 7 4

. It is n o t clear w h eth er Co v erall can rep u rch ase cu sto m er acco u n ts u n less th e f ran ch isees actu ally h av e b een assig n ed th e acco u n ts in

th e f i rst p l ace. A lth o u g h

Def en d an ts’ b rief

s u g g ests th at rep u rch ase w ith o u t assig n m en t is p o ssib le, th at i s n o t

ev id en t f ro m th e f ace o f th e settlem en t a g r e e m e n t, an d th e reco rd d o es n o t clarif y th i s p o in t.

(3 ) “ Cu rren t an d New Fran ch ise Ow n ers m ay cease serv icin g a cu sto m er f o r n o n

- p ay

m en t at an y t im e th ey see f it

. . . .” ER 7 5

. P l a i n t if f s ’L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 26

T h e majority c o rrectly states that the district cou r t ordinarily need not necessarily p lace a specific monetary

b rief in d icates th at t

h is rig h t ap plies o n l y w

h ere th e r e h a s b een an assig n m en t o f an acco u n t i n t he fi r s t p lace. S ee Pls.’ Resp

. B r. at 6 (“ A s p art o f Co v erall’ s assig n m en t o f cu sto m er acco u n ts to cu rren t fr a nc h i sees, f

ran ch isees sh all h av e th e rig h t to cease serv icin g a

cu sto m er f

o r n o n

- p ay

m en t at an y tim e th ey see f it

. . . .”); see a lso A R 1 7 1 (d eclaratio n

o f class co u n sel, n o tin g th e sam e).

(4 ) “ [T ]h e term o f th e p o s t

- t erm in atio n an d p o st -e x p iratio n

n o n co m p etitio n clau se set f

o rth in th e FJ A s sh all b e r e d u c e d f ro m eig h t een (1 8 ) m o n t

h s to tw elv e (1 2) m o n t

h s.” ER 7 5

. (5 ) “ Co v erall w ill o f

f er to rep lace an y cu sto m er acco u n t th at is l ost w i th

o n e or m o re cu sto m er acco u n t s o f e q ual o r g reater m o n th ly do l lar

v o lu m e w ith in a reaso n ab l e perio d o f tim e o f th e acco u n t lo ss, as lo n g

as t h e cu sto m er acco u n t is lo st th ro u g h n o fa u l t o f th e F ran ch ise Ow n er

. . . ; an d (ii) th e cu sto m er acco u n t i s lo st w ith in th e ap p licab le
g u aran tee p erio d as set f

o rth i n th e J FA .” A R 7 5

. Sim ilar to ab o v e, it is n o t clear f

ro m th e f ace o f th e settlem en t ag reem en t o r th e reco rd b elo w w h eth er th is b en ef

it ap plies o n ly if th e f

ran ch isee actu ally

o w n s ( i .e. , h as b een assig n ed ) th e acco u n t.

(6 ) “ Co v erall

. . . rep r e se n t s th at it sh all co n tin u e t o attem

p t t o o f f er Fran ch ise Ow

n ers acco u

n ts th at are l o cated w ith in a reaso n ab le
p ro x im ity o f each o th er.” A R 7 5

. (7 ) “ Co v erall sh all p ro v id e, an d all n ew Fran ch ise Ow n ers sh all b e req u i red to atten d

, I n itial T rain in g o n th e o p eratio n o f a f ran ch ise b u sin ess, reco rd k eep i n g , an d th e bid d in g o f cu sto m er acco un t s

. Cu rren t Fran ch i se O w

n ers w ill b e p erm itted

, b u t are n o t req u ired

, to atten d su ch train in g

. . . . Co v erall’ s t r a i n in g m aterials sh all b e

av ailab le in b o t

h En g lish an d Sp an ish .” A R 7 5

. (8 ) “ Co v erall w ill in clu d e i n th e d isclo su r e d o cu m en t i t g i v es to p ro sp ectiv e f

ran ch isees t

h e term s an d co n d itio n s o f co v erag e u n der th e co m m ercial g en eral liab ility p olicy t h at i t is th en m ak in g av ailab le
to Fran ch ise Ow

n ers.” A R 7 6

.L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 27

value on injunctive relief. S ee, e.g. , Staton v. Boeing C o

. , 327 F

. 3d 938, 959 (9th Cir. 2003) (stating that courts cannot “judg e with confidence the v a lue of the terms of a settlement
ag reement [ in which] the settlement p rovides for injunctive relief”). Still, g iven the importance of the “amount offered in settlement” in assessing the fairness and adequacy of a class settlement, valuation of benefits should be “ ex amin e d with
g reat care.” Dennis
, 697 F .3d at 868 (finding the settlement valuation “unacceptably vag ue and possibly misleading ” a nd noting that “[ t] he issue o f the valuation

. . . must be ex a mined with g r eat care to e liminate the possibility that it serves only the ‘self-interests’ of the a ttorney s and the parties, and not the class, by a s s i gn i ng a dollar number to the fund that is fictitious”). I n any event, while it is true that equitable relief sometimes is not capab l e o f quantitative valuation (for

ex a mple, w here equitable relie f is directed to dig nitary interes t s such as privacy rig h ts), where that relief has some calculable monetary value and is central to the relief obtained, some meaning ful effort should be made to determine the “amount o ffered in settl e m e n t

. ” Cf. F ed. R. Civ. P. 23(h), 2003 advisory c o mmitte e n o tes (stating that “[ s] ettlements involving nonmonetary prov i s i ons for class members a lso deserve careful scruti ny to ensure that these provisions have actual value to the class”).

I n the c ase at bar, the a ssig nment o f account s i s c apable of q uantitative valuation, even if that value cannot be precisely d etermined. See, e.g. , Staton
, 327 F. 3 d a t 978 (noting that value of benefits f rom injunctive relief may be included in comm o n fund calculation where value c an be accurately ascertained – e.g. , in a prior case, there was clearly

a measurable benefit of one re p l acement latch for e ach minivan owned, and thus the court could, “with some deg r eeL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 28

of accuracy , value the benefits c o nferred”). 6 I ndeed, as noted above, the parties themselves valued t h e assig nment at approx imately $18–20 million. 7 S e e Pls.’ Resp. B r. at 6; see also ER 74 (providing that “ Coverall represents that, in 2010, the g ross billing of the c u stomer contracts in the State o f California was approx imately $20 million”). The factor that is missing from the calculus (and missing from the record) is the number or p ercentag e of current franchisees who actually will or, at least, will likely receive the benefit.

Absent any

thing in the record which would shed lig ht on this crucial variable, the district court was not in a position to

6 T h e m aj o rity co rrectl y n o t e s th at S ta to n d iscu ssed th e v alu e of in j u n ctiv e relief in th e co n tex t o f an aly zin g f ees. Ho w ev er, Nin t

h Circu i t law req u ires a d istrict co u rt to co n sid er t h e “ am o u n t o f

f ered in settlem en t”

as a f acto r i n d ecid in g w

h eth e r t o ap p ro v e a class actio n settlem en t , an d d istrict co u rts h av e n at u r a lly co n sid ered th e v alu e o f in j u n ctiv e relief

u n d er t h is f acto r (w h i ch is reaso n ab le as th ere is n o o th er f acto r th at

acco m m o d ates co n sid eratio n

o f th e v alu e o f i n

j u n ctiv e relief

). S ee, e.g

. , Ko v. Na tu ra Pet Pro ds.

, No

. C 0 9

- 0 2 6 1 9 SB A
, 2 0 1 2 U. S

. Dist. L EXIS 1 2 8 6 1 5
, at * 12

– 1 3 (N.D. Cal. Sep t

. 1 0
, 2 0 1 2). It m ak es little s en se to say th at th e v alu e o f in

j u n ctiv e relief sh o u ld b e co n sid ered f o r p u rp o ses of

ev alu atin g f

ees b u t no t f

or p u rp o ses of ev alu atin g th e v alu e o f th e settlem en t. Cf. Reyn o ld

s v. Ben eficia l Na t. Ba n k

, 2 8 8 F.3 d 2 7 7, 2 8 3 (7 th C ir. 2 0 0 2 ) (rev ersin g d istrict co u rt ap p ro v al o f class actio n settle m e n t b ased o n v ario u s g ro u n d s, in clu d in g th e f act th at th ere w as “ in

j u n ctiv e relief th e v alu e o f w

h ich n o o n e h a s attem

p ted t o m o n etize an d w

h ich is b arely d i scu ssed

in th e b rief

s o r b y th e j u dg e”).

7 T h e m aj o rity su g g ests th a t “t h e rig h t to ow n a f ran ch ise w ith its
atten d an t rig h ts an d resp o n sib ilities” h as an “ am o rp h o u s” v alu e. Maj

. Op

. at 11 n .1

. Ho w ev er, t h e v a l u e o f th e acco u n ts th at acco m p an y th e

o w n ersh ip h as real d o llar v alu e. A cco r d in g ly

, th e p arties g av e th e in j u n ctiv e relief a q u an t itativ e v alu e. Mo reo v er, th e d istrict co u rt d id n o t f in d th at th e rig h t to o w

n a f ran ch ise h ad less v alu e b ecau se o f “ atten d an t rig h ts an d resp on sib ilities.”L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 29

conclude that the settlement w a s fair, r easonable, a nd adequate. Althoug h “[ w] e r evi ew the district court’s approval of a class-action settlement for abuse of d iscretion,” Radcliffe

v. Experian Info. Solns.

, 715 F

. 3d 1 157, 1 162 (9th Cir. 2013), and, u nder such review, “[ w] e are not p ermitted to ‘substitute

our notions o f fairness for those of the district court and the
par t i e s to the ag reement,’” Class Plaintiffs v. Seattle

, 955 F

. 2d 1268, 1276 (9th Cir. 1992), a dis t r i c t court’s approval c annot be affirmed where its “finding s of fact were

. . . withou t s u p port in the record.” 8 Radcliffe

, 715 F .3d at 1162. Here, the record was n o t sufficiently developed on what should be a central factor in assessing t h e fairness,

r e asonableness, and adequacy of the class settlement – “the amount offered in settlement.” Lane , 696 F .3d at 819.

B.

Former Franchisees: Monetary Relief

W ith respect to the monetary portion of the set t l e m e n t, former franchisees are each entitled t o $ 4 7 5 in cash a nd a credit of $ 7 5 0 t o w ards a purchase of a n ew Coverall franchise. There were a

p p rox imately 750 former f ranchisees in the class. Therefo r e , Defendants would, in theory

, pay a

max imum of $918,750 to former franchises.

The mon e t a r y terms of the settlement, however, a re suspect. A lthoug h the $918,750 class fund was identified a s

a potential pay -out, neither side ex pected Defendants would

8 T h e m a j ority co n ced es in its o p in io n th at, ev en u n der ab u se- of

- d iscretio n rev iew

, a s ettlem en t can n o t be ap p ro v ed if th e d istrict

co u rt p ro ceed ed w ith o u t s u p p ort f ro m i n f eren ces d raw

n f ro m f acts in th e

reco rd

. S ee Maj . Op . at 1 6 n .2

.L A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 30

actually p ay any

where close to this sum under the structure o f the p roposed settlement. This i s b e c ause, under the settlement, (1) pay -outs would b e made only to those c l ass members who submitted claims, and (2) any unclaimed funds would revert b a c k to Defendants rather than being redistributed to claiming class members or distributed to a cy pres beneficiary

.

As district courts have pointed out, “in a reve r s ionary

common fund or a claims-made s e t tlement, the defendant is likely t o b ear only a fraction of the liability to w hich it
ag rees.” In re TJX Cos. Retail Sec. Breach Li t i g. , 584 F

. Supp. 2d 395
, 4 0 5 ( D

. Mass. 2008) ( emphasis added); see also Sylvester v. Cigna Corp.
, 369 F

. Supp. 2d 3 4, 52 (D. Me. 2005) ( stating that p arties’ e vidence indicated that “‘claims made’ settlements reg ularly y ield response rates of 10 percent

or less”; a dding that “the parties’ ex pectations o f a low
response rate g ives the reverter clause r e al value for D e f e ndants”). Researchers and commentators have also confirmed that, w hile results vary from case to case depending on a number o f factors, it i s c o m mon that o nly a fraction of the class in class actio n s ettlements actually submit c laims. See, e.g. , Max Helveston, Promoting Justice Through P ublic Interest Advocacy in Class Actions
, 60 B uff. L

. Rev. 749, 7 82– 8 3 ( 2 0 1 2 ) (noting that there are “a variety of different ex planations” for low claims rates

– e.g. , “the difficulty of notify ing class members, the overly complex a nd technical notifications that class members receive, the effort required to pursue a claim, the lack of interest of class

m embers in the ty

pes of relief available, and the fa i l u r e o f fund d e s i gners to desig n claim p rocedures in way s that take into account cog nitive biases” – but adding that, at the end o f the day

, “class m e m b e rs in larg e class action suits ty pically file claims at rates that a re much lower than one wouldL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 31

ex p ect”); May er B r own L L P, Do Class Actions Benefit Class Members?

, a vailable at http://www.may erbrown.com/files/ uploads/Documents/P D Fs / 2 0 1 3 / D e cember/DoClassActions B e n e fitClassMembers.pdf (last visited Apr. 30, 2 014) (stating that “ ex tremely small claim-filing rates [ in several cases] are consistent with the few other reports of claim rates in class action settlements that have come to lig ht”).

That is precisely

, and p redictably

, what happened h ere. W ith respect to the $475 cash pay ment, only 119 o ut of 750 former franchisees actually submitted claims. This amounts
to a r esponse rate of about 16%, for a total of $56,525 out o f $ 3 5 6,250. As for the $750 c oupon, of the 750 for m e r franchisees, only 34 made a claim for the coupon – a response rate of about 4.5%. T h u s , i n s t ead of a true pay -out o f $562,500 (with respect to c o u p o n s), Defendants would be oblig ated to p ay (or credit) a t most $25,500, and this assumes that all 34 former franchisees will actually u s e t h e c oupon once received.

At the end of the day

, the purported settleme n t value o f $918,750 for former franchisees ( covering both the $475 pay

out and the $750 coupon) amounted to, at most, a true value of only $82,025 (or a response rat e o f approx imately 9%)

–
a n d l i k e ly even less because some of the coupons claimed probably will not be u s e d. The unclaimed funds did not benefit the class as they

would revert back to Defendants.

This result was entirely predictable o n ce the parties stipulated to a claims p rocess. This then beg s the question why the parties c h o s e to require a claims process in the first place. W hile there are situations in which a claims process is unavoidable (such as a consumer class a ction where there is

no r eadily accessible record of purchases to identify classL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 32

members and their contact information), in this case, it is not obvious w hy a claims process was necessary

. Compare In re W ells Fargo Loan Processor Overtime Pay Litig.
, No. C-07- 1841 EMC, 2011 U.S. Dist. L E XI S 84541, at *22–23 ( N.D. Cal. Aug

. 2
, 2011) (ex plaining why “there is a valid a nd substantial justification for the claims process”). As noted in

a F ederal J udicial Center publication, a claims process is not necessary in all cases:

“I n too many cases, the p arties may neg otiate

a c l a i ms process which serves as a choke on the total amo u n t paid to class members. When the defendant already holds info r m a t i o n th at wo u ld allow at least some claims to be paid a utomatically

, t h ose claims should be
pa id directly without requiring claim forms.”

De Leon v. Bank of

Am., N.A.
, No. 6:09-cv-1251-Orl-28KRS, 2012 U.S. D ist. L E XI S 91124, at *61 (M.D. Fl a

. Apr. 20, 2012) (quoting the 2010 v ersion of the “J udg es’ Class Action Notice a n d Claims Process Checklist and Plain L ang uag e Guide” produced by

the F ederal J udicial Center).

Here, the ne c e s s i t y of a claims process is not apparent f r o m t h e r e cord. There was a set sum to be paid to e ach form er f r a n chisee, so a claims process was not needed in order f o r t h e parties to determine the appropriate amount o f damag es for each former franchisee. No proof of claim was needed to identify class members because Defendants already had within their possession information identify ing the former f ranchisees. And presumably Defendants h ad the last best address for e ach former franchisee: how else could they send the claim fo rms to the franchisees? The record fails to indicate why it was not feasible to send checks and couponsL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 33

directly to c lass members rather than req u iring a c laims
process. See D e Leon
, 2012 U.S. Dist. L EXI S 91124, at *61 (finding a c laim f

orm p rocedure unreasonable because, inter alia

, defendant had databases that “enabled it to iden t ify
approx imately 500,000 cardholders who were assessed l a te fees on timely pay

ments made”); see also May er B rown L L P, Do Class Actions Benefit Class M emb e r s ? (noting that automatic distribution settlements are pos s ible w here “class members whose elig ibility a n d a l l e g ed damag es could be ascertained and c a l c ulated – such as retirement-plan participants in ERI SA class actions”).

The decision to use c o upons ( or credit) as a benefit for former franchisees towards the price of a new franchise also raises q uestions about the adequacy of the s ettlement. A s noted in the Manual for Com p l e x L itig ation, coupons a re often illusory monetary benefits. S e e Manual for Complex L itig

., 4th § 21.61, a t 310 (noting that a ju d ge “should be
wary ” o f a proposed settlement that “g rant[ s] class members illusory nonmonetary benefits, such as discount coupons for

more of defendants’ products, while g ranting s u bstantial monetary attorney fee awards”). The i llusory value of the
coupon is p articularly a cute here: each former franchisee was entitled to a $750 coupon t o be used towards purchase for a

new Coverall franchise, but a franchise c osts at least $10,000 and can be as hig h as $32,000. See ER 138. I t was unlikely
t h a t many o f the $750 coupons would ever be claim e d o r used. I t is n ot surprising that only 4.5% of former f ranchisees filed a claim for the coupon.

F inally

, even if th e c l a ims process were justified, that does nothing to justify the r everter of any unclaimed funds to D e f endants. The parties could have ag reed (as many settlements have) to a second d istribution of residual funds toL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 34

those f ormer franchisees who d id submit c laims and/or a distribution t o a cy pres beneficiary

. See, e.g. , Garner v

. State Farm Mut. Auto. Ins. Co.
, No. CV 08 1365 CW ( EMC), 2010 U.S. D ist. L E XI S 4 9 4 7 7
, at * 49 (N.D. Cal. Apr. 22, 2010) (noting that, under the settlement, uncashed settlement checks and unspent portions o f the administrative cost reserve wil l b e r edistributed to the class or g iven to a c y pres b eneficiary

). A t least this would h ave g uaran t e ed a meaning ful and substantial pay ment to the class.

I n s u m , the monetary benefits to the former f ranchisees

was vastly oversta t e d and larg ely illusory

, thus r aising sig nificant questions that deser ve a meaning ful deg r ee o f scrutiny by the district court. C f

. I n re Classmates.com Consolidated Litig

. , N o. C 09-45 RAJ
, 2 011 U .S. Dist. L EXI S 17761, at *24 (W

. D. W a sh. F eb. 23, 2011) (stating that, “ w here class counsel points to an illusory $9.5 million benefit as justification for its own f e e award, without

a c k n o wledg ing that counsel ex pected the benefit to be d r a m a t ically smaller, it illustrates the dang er of deferring to counsel’s v iew of a settlement that misalig ns the interests o f class members and class counsel”). This is part icularly troubli ng g iven that Plaintiffs’ counsel was g u aranteed (subject o nly to c ourt approval where D efendants ag r eed not to oppose the motion) nearly $1 million reg a rd l e ss of the amount of money

actually claimed by the class.

The r equirement of a claims pr o c e s s ( without a substantial justificatio n ) c o mbined w ith a reversion of unclaimed class funds back to the d efendant was not a factor pres e n ted o r

ex p ressly discussed in Blue t o o t h

. This Court in Bluetooth identified three “subtle sig ns that class counsel have allowed pursuit of their o w n s e l f-interests a nd that of certain class members to i nfect the neg otiations” – including anL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 35

a r r ang ement for attorney fees not awarded to revert to th e defendant rather than to the c lass f und. Bluetooth , 654 F .3d
at 947. B u t for the same reason why a reverter of unawarded attorney fees is a risk factor indicative of potential collusion, the u se of a claims process couple d b y a r eversion o f unclaimed class funds likewise presents such a risk. I ndeed, where the mag nitude of the reverter o f class funds is g reat, it should raise even more seri o u s q u estions than reverter o f unawarded fees.

II.

B e cause the r e a sonabl eness o f the settlement’s substantive terms could not be adequately determined based

on the record before the district cou r t , the r easonableness o f the fee award also could not be appropriately assessed.

As noted above, where a case is settled prior to formal class certi f

i c a t ion, a hig her standard of fairness is required. This hig her standard is necessary preci s e l y because, before formal class certification, “there is an even g reater potential for b r e ach of fiduciary duty owed the class” – i.e.
, there is an

even g reater chance of collusion o r conflicts of interest on the part of the named p l a i n tiffs and their attorney s. Bluetooth

, 6 5 4 F. 3 d at 946. Moreover, it is important to take into account that,

[ i] n class-action settlements, the adversari al
process

. . . e x tends only to t h e a m ount the defendant will pay , not the manner i n w hich that amount i s allocated between the c lass
represen t a tives, class counsel, and unnamed class members. F or “the economic r eality [ is] that a settling defenda n t is concerned onlyL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 36

with its total liability [ ,] ” and th u s a settlement’s “ a llocation between the c lass
pay ment a n d the attorney s’ fees is of little o r no interest to the defense.”

I n re Dry Max P ampers Litig.
, 724 F .3d at 717 ( citations omitted).

I n Bluetooth

, this Court underscored that “[ c] oll u s i o n m a y not alway s be evident on the face of a settlement, and courts therefore must be particularly vig ilant not only f o r e x plicit collusion, but also fo r m o r e subtle sig ns that c lass counsel have allowed purs u i t of their own self-interests and that o f certain c lass members to infect the neg otiations.” Bluetooth

, 654 F .3d at 947. As indicated above, Bluet o o t h identified three such subtle sig ns:

(1) “ when counsel receive a disproportionate distribution of the settlement, or when the clas s receives no monetary distribution but class counsel are amply

rewarded”;

(2) when the parties n e g otiate a “clear sailing ”

ar r a ng ement providing for the pay ment o f
at torney s’ f

ees separate a

nd apart from c lass funds, w hich carries “ the p otential of enabling

a defendant t o p ay class counsel ex cessive fees and costs in ex c han g e for counsel accepting an unfair settlement on behalf of the class”; andL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 37

(3) w hen the parties arrang e for fees not awarded to revert to d efendants rather than be added to the class fund.

Bluetooth , 654 F .3d at 947.

I n the case at bar, the second and third factors ab o v e a re clearly applicable, as the majority r ecog n iz es. This puts a premium on the district court’s evaluation of the first Bluetooth fa ctor. However, the d istrict court could not

ev al u ate whether the $1 million f ee a ward constituted a “disproportionate” distribution of the settlement without first h a ving a f

air sense of the value o f the overall settlement, particularly

the settlement’s key terms discussed above.

F urthermore, althoug h not n e c essarily a subtle sig n o f collusion in a

nd of itself, the fact that the fee award here was not tied to the mag nitude of relief actually obtaine d by the class amplifies the need f

o r scrutiny

. Here, class counsel h ad

no particular incentive to neg otiate a set t l e m e nt that would

ensure substantial b enefits would actually accrue to the c lass. Counsel’s fee was a stipulated su m u naffected by the actual
pay -out to the class. To t h e e x t ent the parties based the f ee award in part u p o n a claimed settlement fund of over $900,000 and the promised assig n ment of accounts, that basis is misleadin g gi v en that the class f und was larg ely illusory and it was uncertain whether a substantial portion of the class wi ll benefit f

rom the assig nment. Althoug h this Circuit has sanctioned using the full class fund theoretically available a s

a basis for evaluating the r easonablen e s s o f a neg otiated f ee award, see W

illiams v. M

GM-Pathe Communs. Co.
, 129 F .3d 1026, 1027 (9th Cir. 1997) (holding that the lower court had “abused its discretion by b asing the fee on the class members’ claims a g ainst the fund r at h e r t han o n a p ercentag e of theL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 38

e n t i re fund or on the lodestar”), such a practice tends t o divorce the class counsel’s incentives from the best interests of the class. I t is p e r h aps for this reason the F ifth Circuit
ta k e s a d ifferent approach. See Strong v. Bellsouth Telecomms., I

nc. , 137 F .3d 84, 852

– 5 3 ( 5th Cir. 1 998) (indicating that fee awards may be based on actual pay -out to class r ather tha n reversionary fund). W here fees a re tied to actual p ay -out to the class, counsel h a s a strong incentive to

n e go tiate a real, rather than illusory

, class fund. Under t h i s Circuit’s d e cision in W

illiams

, however, that incentive may be absent, and thus there is a need for meaning ful scrutiny o f the settlement and fee award.

That scrutin y is particularly w arranted here where, a s noted a b o v e , two of the three B luetooth factors were clearly
met ( i.e.
, the clear sailing a n d reverter arrang ements). W i t h o u t a full record as to the value of the settlement, t h e district court could n ot ensure that the f e e a w ard was not disproportionate compared to the benef i t s t o the class a s required by the third B luetooth factor.

F o r ex ample, the district court’s lodestar analy sis was problematic without a more fully de v eloped record. I n the settlement, th e p a rties h ad ag reed to a fee award o f
approx imately $1 million

. According to the district court, this was a r e a s onable award b ecause class counsel h ad incurred a

pprox imately $3 milli o n i n f e es in the course o f litig ating the ac t ion. B u t even accepting that counsel h ad leg itimately incurred $3 million in fees (based on hours spent and rates charg ed), that does not reflect a full l o d e star analy sis. “[ T ] he fairness o f the lodestar amount should be
g aug ed ag ainst the ove r a ll class recovery , adjusting the lo d e s tar fees upward o r downward as necessary to ensure their reasonableness. I n d oing so, the district c ourt m u s tL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 39

weig h the requested lodestar f ig ure ag ain st a variety o f factors, foremost amo ng them the r esults obtained for the class, monetary and no n -monetary alike.” In re HP Inkjet Printer Litig.
, 716 F .3d 117 3
, 1 1 90 ( 9 th Cir. 2013). Here,

even if we assume that th e d i strict court did an adjustment based on results o b tained ( i.e.
, a downward adjustment from $3 million to $1 million), the district court d i d n o t have a complete basis for making t h e adjustment without a fuller understanding of the value of the assig nment of a c c o u n t s

– the central benefit of the settlement.

The district court also performed a percenta ge method analy sis as a cross-check on the f ee award. According to the district court, “even if t h e cash settlement [ f or f ormer franchisees]

, the a ssig nment of accounts [for current franchisees]

, and the pledged prog rammatic chang es [ for
current franchisees]

. . . were w orth only about $4 million, the requested f

ee award [ of $1 million] would fit with[ in] normal bounds of class action recovery .” ER 3 1

. P r e sumably

, the district court’s statement was informed b y case law from this Court using 25% of the c ommon fund as a benchmark under the percentag e m e t hod. See Bluetooth

, 654 F .3d at 942 (stating that, under the p ercentag e method, “courts ty pically calculate 2 5% of the fund as the ‘benchmark’ for a reasonable f e e aw a r d ”); cf. S

taton , 327 F .3d at 945–46 (noting that injunctive “relief should g enerally b e ex cluded from the value of a common fund w hen calculating the appropriate attorney s’ fee award, as the benef i t o f t h a t r elief to the class members is most often not sufficiently measurable,” but “[ t] he fact that counsel obtained injunctive relief in addition
to monetary relief for their clients is

. . . a relevant circumstance to consider i n determining what percentag e o f the f und is reasonable as fees”). However, there is nothing in the record upon which the district c o urt could have based anL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 40

assumption that the benefits of the settlement could be w orth $4 million. The value of the assig nment to the class was on this record entirely unknown since there is no information a s to the number or perce n tag e o f franchise owners w ho a re actually able or likely to receive the assig nments of accounts. W h ile the district court i s e n t itled to make estimates in evaluating the reaso n ableness of the fee a ward, its

a s sumptions must have some b a sis in the record

. C f

. Radcliffe

, 715 F .3d at 1162 (stating t h a t a d istrict court’s approval o f a c lass action settlement cannot be affirmed where its “finding s of fact were

. . . without su pport in the

re c o r d ” )

. I n this c ase, that basis is absent. Cf. Bluetooth

, 654 F .3d at 947 (district court must g u ard ag ainst risk that a hig h fee award was traded for “lo w er monetary pay ments to class members or less injunctive r elief for the class than could otherwise have been obtained”).

III.

On the record before this Court, I cannot conclude that the proposed settlement was fair, r easona b le, and adequate a

nd the fee award reasonable. Crucial information a bout the value of the benefits obtai n e d f or the class ( i.e.
, how many franchisees will benef

i t f r o m the assig nment of accounts) is missing

. A lso lacking is the justification for requiring f ormer franchisees t o submit claims and providing for a r e verter o f undistributed fund s back to Coverall – w hile g uaranteeing a $1 million fee award to counsel. 9

9 T h e m aj ori t y c ites th e ab u se o f d iscretio n stan d ard o f rev iew articu l ated in Un ited S t

a tes v. H in k s o n , 5 8 5 F.3 d 1 2 4 7
, 1 2 5 0 (9 th Cir. 2 0 0 9 ) (en b an c). Maj

. Op

. at p

. 1 6 n .2

. A lth o u g h as a g en eral m atter, th at stan d ard ap p lies, B l u e t o o th p ro v id es a m o re sp ecif ic ap plicatio n o f th at stan d ard to th e situ atio n at b ar

– rev iew o f a class actio n settlem en t p rio rL A G U N A V

. C O V E R

A L L N O R

T H A M E R

I C A 41

The district court’s task in cases such a s t his could be made more manag eable were this C o u r t to provide more specific g uidance on: (1) the centrality of the Lane/Churchill f a c tor “the amount offered in settlement” in assessing t h e adequacy of class action settlements, and (2) the ex p l i c it inclusion as a factor i n B l u etooth the unjustified use of a claims process and/or reverter of unclaimed class funds back
to the d efendant – p articularly if W illiams continues to allow fees to be based o n siz e of the potential class fund rather than actual pay -out to the class. Th i s case affords the Court an opportunity

to provide that clarity

.

I do not ex p ress any opinion whether ultimately t h e

s u b s tantive terms o f the settlement or the fee award may i n fact be fair, reasonable and adequate, as the majority concludes. Rather, I diverg e from t h e m a jority because I believe there are substantial q uestions about th e f

a i rness, reasonableness, and adequacy o f the proposed settlement that
cannot be a

nswered with o u t a fuller record and more complete analy sis.

F or the foreg oing reasons, I respectfully

dissent.

to class certif

icatio n w h ere th ere are “ su

b tle sig n s th at class co u n sel h av e allo w ed p u rsu it o f th eir o w n self

- in terests . . . to in f

ect th e n eg o tiatio n s.” Blu eto o th

, 6 5 4 F.3 d at 9 4 7

. Hen ce, ev en ab u se o f d iscretio n rev iew in th is

co n tex t is n o t t o o t h l e s s. In an y ev en t , u n d er Hin kso n , f o r th e reaso n s stated ab o v e reg ard in g th e d ef icien t reco rd

, t

h e d istrict co u rt’ s co n clu sio n

as to th e ad eq u acy an d f

airn ess of th e settlem en t an d reaso n ab len ess o f th e f ee aw ard w as “ w ith o u t s u p p or t in in f

eren ces th at m ay b e d raw n f ro m f acts in th e reco rd .” Hin kso n , 5 8 5 F.3 d at 1 2 5 1

.