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

Heading: Correct Legal Standard for the Class Action

Text: Settlement “We review a district court’s approval of a class action settlement for clear abuse of discretion. Such review is extremely limited, and we will affirm if the district judge applies the proper legal standard and his findings of fact are not clearly erroneous.” In re Bluetooth Headset Prod. Liab. Litig., 654 F.3d 935, 940 (9th Cir. 2011) (internal citation and quotation marks omitted). However, “[a]pplying the incorrect legal standard is an abuse of discretion.” Manufactured Home Cmtys. Inc. v. City of San Jose, 420 F.3d 1022, 1037 (9th Cir. 2005); see also Campbell v. Facebook, Inc., 951 F.3d 1106, 1121 (9th Cir. 2020) (“A district court clearly abuses its discretion by either failing to apply the correct legal standard or by making clearly erroneous factual determinations.”). To the district court, Mares objected to the size of settlement for the class claims, believing that it was inadequate. Mares does not renew his same objections on appeal. Instead, he now argues that “the district court erroneously applied a presumption of fairness.” Mares contends that because the district court approved the settlement before certifying a class, the court should have applied a heightened standard of review, in line with our decision in Roes, 1–2 v. SFBSC Mgmt., LLC, 944 F.3d 1035 PECK V. SWIFT TRANSPORTATION 21 (9th Cir. 2019). Mares additionally highlights what he believes are six signs of self-interest on the part of Plaintiffs and Swift.
Swift first argues that we cannot reach the merits of Mares’s objection because he did not raise such an objection in the district court. Generally, an objector to a class action settlement must raise an issue before the district court if he or she wishes to preserve it for appeal. See Devlin, 536 U.S. at 9. However, “[s]uch waiver is a discretionary, not jurisdictional, determination. We may consider issues not presented to the district court, although we are not required to do so.” In re Mercury Interactive Corp. Sec. Litig., 618 F.3d 988, 992 (9th Cir. 2010) (internal citation omitted). Mares concedes that he did not raise this particular objection to the district court, but he argues that “he could not pre-object” to the district court employing the incorrect legal standard. In other words, Mares believes that an objector cannot waive an objection to the district court’s application of an incorrect legal standard. For support, Mares highlights the following passage from the Newberg treatise on class actions: The sole exception to the requirement that only issues raised below may be appealed is that issues that surface for the first time in the court’s final order may be appealed even if they were not the basis for an objection. For example, if the trial court applied the wrong legal standard in granting final approval or made some other error that had not existed prior to the objection deadline, the waiver doctrine does not apply. Because the issue 22 PECK V. SWIFT TRANSPORTATION was not available to be objected to until final judgment, the parties and objectors did not “waive” objections by not objecting prior to that time. 4 Newberg on Class Actions § 14:18 (5th ed.). We do not adopt this language verbatim. 7 However, we agree that when “the district court considered [an] issue” in its final order approving a class action settlement, the issue is “not waived on appeal” even if no objector to the settlement raised that issue to the district court. 8 JL Beverage Co., LLC v. Jim Beam Brands Co., 828 F.3d 1098, 1108 (9th Cir. 2016) (citing Cmty. House, Inc. v. City of Boise, 490 F.3d 1041, 1054 (9th Cir. 2007)); see also Thompson v. Runnels, 705 F.3d 1089, 1098 (9th Cir. 2013) (“[W]e have the authority to identify and apply the correct legal standard, whether argued by the parties or not.”). In other words, an objector need not be an oracle and predict issues that will arise for the first time in the district court’s final order. 7 Specifically, it is unclear that the Newberg treatise is correct in referring to “issues that surface for the first time in the [district] court’s final order” as the “sole exception” to ordinary waiver principles in this context. Id. Our cases suggest other exceptions may exist. See, e.g., United States v. Northrop Corp., 59 F.3d 953, 957 n.2 (9th Cir. 1995) (“[E]ven if the precise issue we face has been raised for the first time on appeal, the waiver rule is not one of jurisdiction, but discretion. We can exercise that discretion to consider a purely legal question when the record relevant to the matter is fully developed.” (citations omitted)). 8 For judicial efficiency, an objector might raise such an issue in a motion pursuant to Federal Rules of Civil Procedure 59(e) or 60(b), but such actions are not necessary to preserve the issue for appeal. PECK V. SWIFT TRANSPORTATION 23 The district court’s order granting preliminary approval to the settlement agreement noted that the negotiations were conducted at “arms-length.” However, the district court did not state in its preliminary approval order that it was applying a presumption that the agreement was noncollusive. The district court did use such language in its order granting final approval. Because the district court did not apply the presumption before its final order, Mares had no reason to make the objection he now makes on appeal. Therefore, Mares did not (and could not) waive his objection to the legal standard employed by the district court in its final order.
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.