Opinion ID: 6221085
Heading Depth: 3
Heading Rank: 2

Heading: The District Court’s Legal Standard

Text: In Roes, the district court approved a settlement “in the absence of a certified class.” 944 F.3d at 1039. On appeal, objectors to the settlement “contend[ed] that the district court was required to, but did not, apply heightened scrutiny of the settlement after being faced with several indicia of collusion.” Id. at 1048. We held that “[w]here . . . the parties negotiate a settlement agreement before the class has been certified, settlement approval requires a higher standard of fairness and a more probing inquiry than may normally be required under Rule 23(e).” Id. (citation and internal quotation marks omitted). We did not announce a new rule in Roes, but rather reiterated a number of our previous holdings. See Lane v. Facebook, Inc., 696 F.3d 811, 819 (9th Cir. 2012); Dennis v. Kellogg Co., 697 F.3d 858, 864 (9th Cir. 2012); Bluetooth, 654 F.3d at 946; Hanlon, 150 F.3d at 1026. In Roes, we noted that we had adopted this rule “to ensure that class representatives and their counsel do not secure a disproportionate benefit at the expense of the unnamed plaintiffs who class counsel had a 24 PECK V. SWIFT TRANSPORTATION duty to represent.” Roes, 944 F.3d at 1049 (quoting Lane, 696 F.3d at 819) (some internal quotation marks omitted). We specifically critiqued the language employed by the district court in Roes: Nowhere in the final approval order, however, did the district court cite or otherwise acknowledge our longstanding precedent requiring a heightened fairness inquiry prior to class certification. To the contrary, the district court declared that, “[w]here a settlement is the product of arms- length negotiations conducted by capable and experienced counsel, the court begins its analysis with a presumption that the settlement is fair and reasonable.” (Emphasis added.) But such a presumption of fairness is not supported by our precedent, and the district court cites no Ninth Circuit case which adopted this standard. Particularly in light of the fact that we not only have never endorsed applying a broad presumption of fairness, but have actually required that courts do the opposite—by employing extra caution and more rigorous scrutiny—when it comes to settlements negotiated prior to class certification, the district court’s declaration that a presumption of fairness applied was erroneous, a misstatement of the applicable legal standard which governs analysis of the fairness of the settlement. Id. at 1048. Because the Roes district court both “misstate[d] the legal standard” and “failed to apply the correct legal PECK V. SWIFT TRANSPORTATION 25 standard and to conduct the searching inquiry required,” based on the record, we concluded that the district court abused its discretion. Id. 9 We then vacated the district court’s approval of the settlement and “le[ft] the final fairness determination to the district court after an opportunity to apply the appropriate heightened review and further develop the record.” Id. at 1050. The district court here stated: As previously found by this Court, the parties engaged in arm’s-length, serious, informed, and non-collusive negotiations between experienced and knowledgeable counsel. Additionally, the Settlement Agreement was reached after mediation with a neutral mediator, Mark Rudy. The Settlement Agreement is therefore presumptively the product of a non-collusive, arms-length negotiation. See Roe v. SFBSC Management, LLC, No. 14-cv-03616-LB, 2017 WL 4073809, at  (N.D. Cal. Sept. 14, 2017) (holding that a settlement that is the product of an arm’s-length negotiation “conducted by capable and experienced counsel” is presumed to be fair and reasonable) . . . . (Some citations omitted.) The district court not only applied the same presumption that we reversed in Roes, but it 9 In Roes, we also “identif[ied] several aspects of the settlement that in our view cast serious doubt on whether the settlements me[t] the applicable fairness standard.” 944 F.3d at 1050. Those possible signs of unfairness added support to our decision to vacate approval of the district court’s settlement, but application of an incorrect legal standard alone constitutes an abuse of discretion. See Campbell, 951 F.3d at 1121. 26 PECK V. SWIFT TRANSPORTATION actually cited the very language from the district court’s order in Roes that we criticized. Having had not only the benefit of our decision in Roes, but also the cases preceding it applying the heightened standard, the district court should not have applied that presumption. Swift and Plaintiffs attempt to distinguish the district court’s order from our decision in Roes in a number of ways. First, Swift argues that Roes applies only to cases where a party never sought class certification. According to Swift, because “Saucillo moved for certification of a litigation class . . . , which the district court denied,” the heightened legal standard does not apply. This argument is plainly at odds with our decision in Roes. We apply the heightened standard “in the absence of a certified class,” not in the absence of a motion for class certification. Roes, 944 F.3d at 1039; see also id. at 1048 (applying the heightened standard “before the class has been certified”); Lane, 696 F.3d at 819 (applying the heightened standard “when . . . the settlement takes place before formal class certification”). Saucillo’s unsuccessful motion for class certification meant there was an “absence of a certified class” and that the district court approved the settlement “before the class ha[d] been certified.” Roes, 944 F.3d at 1039, 1048. Next, Swift argues that the district court “held only that” the presumption of fairness “was a factor that weighs in favor of approval.” Swift is correct that the district court noted that the presumption was a “factor” that “weighs in favor of approval.” The district court then applied the Hanlon factors. However, the district court in Roes did the same thing, only for us to reverse. The Roes district court stated that it “be[gan] its analysis with a presumption that the settlement is fair and reasonable.” Roe, 2017 WL 4073809, at  (citation and internal quotation marks omitted). The PECK V. SWIFT TRANSPORTATION 27 Roes district court then evaluated the settlement pursuant to the Hanlon factors. See id. at –11. Despite the district court in Roes only “begin[ning] its analysis with [the] presumption,” id. at , we reversed because “the district court’s declaration that a presumption of fairness applied was erroneous, a misstatement of the applicable legal standard which governs analysis of the fairness of the settlement,” Roes, 944 F.3d at 1049. The district court here did the same. Plaintiffs also argue that we should ignore the district court’s error, citing our decision in Campbell, 951 F.3d 1106, as authority for that proposition. There, we noted that the district court erred in applying a single factor from the three-factor list in Bluetooth that district courts should apply when a settlement is approved prior to class certification. See Campbell, 951 F.3d at 1125 (listing the Bluetooth factors). We held that “any error in the district court’s discussion of” one of the factors was “harmless” because “[n]o one factor is dispositive.” Id. at 1127. Unlike in Campbell, however, the district court here overlayed its entire discussion of the settlement agreement with the erroneous presumption. The district court never applied Bluetooth because it did not utilize the heightened standard for pre-class certification settlements. Although the district court stated that the presumption was a “factor,” our precedent is clear that district courts must apply a more searching review for a pre-class certification settlement. See Lane, 696 F.3d at 819. Swift additionally tries to distinguish Roes by arguing that the concerns underlying our decision are not present here, where “the parties actively litigated for several years, conducted comprehensive discovery, and contest certification of a litigation class on the merits.” But the 28 PECK V. SWIFT TRANSPORTATION procedural posture in Roes was similar. There, the plaintiffs brought a putative class action in 2014, and the parties actively litigated the case over a number of years, including engaging in mediation and attempting to compel arbitration. See Roes, 944 F.3d at 1039–40. We reversed despite this litigation history, and we do the same here. Furthermore, our holding in Roes announced a bright-line rule: district courts must apply a more searching legal standard “[w]here . . . the parties negotiate a settlement agreement before the class has been certified.” Id. at 1048. We did not make any exceptions based on how long the parties have been litigating prior to approval of the settlement. Finally, Swift and Plaintiffs ask us to affirm the district court’s approval of the settlement despite application of an erroneous legal standard. We generally do not employ “a harmless error standard for class action settlement review.” In re Volkswagen “Clean Diesel” Mktg., Sales Practices, & Prod. Liab. Litig., 895 F.3d 597, 613 (9th Cir. 2018); but see Campbell, 951 F.3d at 1127. However, we have affirmed a district court’s approval of a settlement, despite that court making an error. For example, in Volkswagen, we assumed that the district court failed to respond to a non-frivolous objection, which the district court was required to do. See id. at 612–13. Nevertheless, we affirmed the district court because “the objector’s complaint appear[ed] to be purely technical—it dr[ew] no link between the district court’s supposed oversight and any substantive deficiency in the settlement.” Id. at 613. Failure to respond to a “purely technical” objection, id., is not analogous to employing an incorrect legal standard. The district court here began its analysis by applying the presumption that the settlement was “the product of a noncollusive, arms-length negotiation.” Applying that PECK V. SWIFT TRANSPORTATION 29 erroneous presumption cast a shadow on the entirety of the district court’s order. The “district court’s . . . oversight,” id., is at the very heart of Mares’s objection on appeal. “[W]hen a district court’s findings are based upon an incorrect legal standard, the appropriate remedy is to remand so that findings can be made in accordance with the applicable legal standard.” Jeldness v. Pearce, 30 F.3d 1220, 1231 (9th Cir. 1994). That is because “factfinding is the basic responsibility of district courts, rather than appellate courts.” Pullman-Standard v. Swint, 456 U.S. 273, 291 (1982). We offer no opinion as to whether there is merit to Mares’s allegations. On remand, the district might decide to once again approve the settlement pursuant to the correct legal standard, or it might not. We, however, cannot review the settlement in the first instance under the appropriate legal standard.