Court Opinion

ID: 2805008
Source: CourtListenerOpinion
Date Created: 2015-06-02 17:01:45.767919+00
Date Added: 2024-06-11T11:29:54.762026
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

JEFFREY LEE ALLEN, on behalf of           No. 13-55106
himself, all others similarly situated,
the general public and as an                 D.C. No.
“aggrieved employee” under the            2:09-cv-04266-
California Labor Code Private               DDP-AGR
Attorneys General Act,
                    Plaintiff-Appellee,

                 and

LABOR READY SOUTHWEST, INC., a
Washington corporation doing
business in the State of California,
                 Defendant-Appellee,

                  v.

MARGIE BEDOLLA; ANTHONY A.
ALLEN; MICHAEL ALVAREZ; TYLER
FARMER,
             Movants-Appellants.
2                  ALLEN V. BEDOLLA

JEFFREY LEE ALLEN, on behalf of             No. 13-56685
himself, all others similarly situated,
the general public and as an                   D.C. No.
“aggrieved employee” under the              2:09-cv-04266-
California Labor Code Private                 DDP-AGR
Attorneys General Act,
                    Plaintiff-Appellee,
                                              OPINION
                 and

LABOR READY SOUTHWEST, INC., a
Washington corporation doing
business in the State of California,
                 Defendant-Appellee,

                  v.

MARGIE BEDOLLA; ANTHONY A.
ALLEN; MICHAEL ALVAREZ; TYLER
FARMER,
            Objectors-Appellants.

      Appeal from the United States District Court
         for the Central District of California
      Dean D. Pregerson, District Judge, Presiding

                 Argued and Submitted
         February 4, 2015—Pasadena California

                       Filed June 2, 2015
                        ALLEN V. BEDOLLA                               3

 Before: Stephen Reinhardt and Ronald M. Gould, Circuit
  Judges, and J. Frederick Motz, Senior District Judge.*

                     Opinion by Judge Gould

                           SUMMARY**

                            Class Action

    The panel affirmed the district court’s order denying
Objectors’ motion to intervene, and vacated the district
court’s order granting final approval to a class action
settlement between day laborers and Labor Ready Southwest,
a temporary staffing agency, in a putative class action brought
by plaintiff Jeffrey Lee Allen against Labor Ready
Southwest, alleging violations of the federal Fair Labor
Standards Act and California wage and hour and unfair
competition laws.

    Plaintiff alleged that Labor Ready illegally failed to pay
employees for their wait and travel times, and had taken
unlawful paycheck deductions by providing cash
disbursement machines and charging for their use. The
Objectors to the settlement are plaintiffs in other uncertified
class actions against Labor Ready pending in California state
courts raising employment-related claims.

 *
   The Honorable J. Frederick Motz, Senior United States District Judge
for the District of Maryland, sitting by designation.
  **
     This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4                    ALLEN V. BEDOLLA

    The panel held that the Objectors’ motion to intervene
was untimely because the motion was filed after four years of
ongoing litigation, on the eve of settlement, and threatened to
prejudice settling parties by potentially derailing settlement
talks.

    The panel held that the district court did not satisfy the
procedural standard, outlined in In re Bluetooth Headset
Products Liab. Litig., 654 F.3d 935 (9th Cir. 2011), in
determining the settlement’s substantive fairness. The panel
took no position on the substantive fairness of the agreement,
vacated the final settlement approval, and remanded so that
the district court could conduct a more searching inquiry.

    Because the panel vacated and remanded final approval
of the settlement, the panel also vacated the attorneys’ fee
award to class counsel. Upon remand, the panel directed the
district court to provide the entire class – and not just the
Objectors – the opportunity to review class counsel’s
completed fee motion and to submit objections if they so
choose.

                         COUNSEL

Melissa Grant and Glenn A. Danas (argued), Capstone Law
APC, Los Angeles, California, for Objectors-Appellants.

Mark R. Thierman and Joshua D. Buck, Thierman Law Firm,
P.C., Reno, Nevada; Joseph Cho and Ronald H. Bae,
Aequitas Law Group, APLC, Los Angeles California; Chaim
Shaun Setareh (argued), Law Office of Shaun Setareh, APC,
Beverly Hills, California, for Plaintiff-Appellee.
                     ALLEN V. BEDOLLA                          5

David R. Ongaro (argued), Thompson & Knight LLP, San
Francisco, California, for Defendant-Appellee.

                          OPINION

GOULD, Circuit Judge:

    We review the district court’s approval of a class action
settlement, between day laborers and Labor Ready
Southwest, that was negotiated in the absence of a certified
class. Appellants, objectors to the settlement, appeal the
district court’s final approval of the settlement, as well as the
district court’s denial of their motion to intervene. They raise
contentions about whether the approved settlement is fair,
reasonable and adequate. We have jurisdiction under
28 U.S.C. § 1291. We affirm the denial of the motion to
intervene. Our high procedural standard for review of class
action settlements negotiated without a certified class leads us
to vacate the order granting final approval to the settlement
and the award of attorneys’ fees, and to remand to the district
court for further proceedings.

                               I

    Labor Ready Southwest (“Labor Ready”) is a temporary
staffing agency, providing day laborers to businesses in need
of labor help. The employees work for the businesses that
require labor, but they remain employees of Labor Ready,
which pays the employees, though not for time spent waiting
for assignments at Labor Ready’s local offices, and not for
time spent traveling from the local office to the businesses
that need labor. Labor Ready also allowed employees to
receive a paycheck or alternatively to use a cash disbursement
6                            ALLEN V. BEDOLLA

machine (“CDM”) in its facility. The fee for using the CDM
was one dollar plus any change from the paycheck amount
less than a full dollar.

                        The Underlying Litigation

    Plaintiff-Appellee Jeffrey Lee Allen (“Allen”)1 filed this
putative class action in California state court in April 2009.
Allen claimed violations of the Fair Labor Standards Act of
1938 (“FLSA”), 29 U.S.C. § 201 et seq., as well as California
wage and hour and unfair competition laws alleging that,
inter alia, Labor Ready had illegally failed to pay employees
for their wait and travel times, and had taken unlawful
paycheck deductions by providing CDMs and charging for
their use.

    Margie Bedolla, Anthony A. Allen, Michael Alvarez and
Tyler Farmer (collectively “Objectors-Appellants” or
“Objectors”), are the plaintiffs in other uncertified class
actions against Labor Ready pending in California state
courts. The first of these was filed in September 2010, and
the other three were filed in November 2011. The Objectors’
suits raise similar wage and hour claims, and also meal and
rest break claims that were not raised by Allen.

    Labor Ready removed Allen’s suit to the Central District
of California. Class certification was denied in that case. In
March 2011, the district court granted summary judgment to
Labor Ready on all claims except for Allen’s claims
regarding Labor Ready’s use of CDMs and related state law
claims, which were remanded to state court after the district

    1
        Plaintiff Jeffrey Allen is no relation to Objector Anthony A. Allen.
                         ALLEN V. BEDOLLA                                7

court declined to exercise its supplemental jurisdiction. Allen
appealed that ruling to the Ninth Circuit.2

                   The Settlement Agreement

    The parties previously attempted two unsuccessful
mediations, but while Allen’s state and federal appeals were
pending, the parties entered mediation a third time and were
successful, leading to a proposed settlement in October 2012.
The parties then jointly moved to remand the case to the
district court for settlement, and we remanded.

    Three key provisions of the settlement are at issue here.
(1) There was a gross settlement fund of $4.5 million. From
that fund, Labor Ready agreed to pay each class member who
submits a claims form within 45 days of the class notice $10
for non-CDM claims and $25 for class members who used the
CDMs during the class period. There is no minimum payout
and all of the money in the settlement fund not paid toward
attorneys’ fees, administration costs, or to class members who
submit claims reverts to Labor Ready. (2) There was
injunctive relief, whereby Labor Ready will shut down the
CDMs throughout California and replace them with an
electronic paycard through which workers receive their pay
daily without charge; further, Labor Ready will provide
training to staff regarding compliance with meal and rest

 2
   Subsequently, the state court on remand granted Labor Ready’s motion
to compel arbitration of nearly all of Allen’s claims, and both parties
appealed the decision to the California Court of Appeal. At the time of
settlement, the parties’ appeals in state and federal court were still
pending. Of Objectors’ cases, one was sent to individual arbitration, one
is proceeding to classwide arbitration, one is proceeding in arbitration on
an opt-in classwide basis, and one is set to be arbitrated on a
representative basis.
8                    ALLEN V. BEDOLLA

break and overtime laws and committed to an audit to ensure
compliance with those laws, and Labor Ready will post
notices in its branch offices telling workers they need not wait
in the office for work and provide business cards informing
them of their rights under state labor laws. (3) There was an
agreement on attorneys’ fees for Allen’s counsel (the class
counsel), under which Labor Ready would not contest an
award of 25% of the $4.5 million common fund (i.e., $1.125
million).

    The settlement releases or forecloses all of the claims that
Allen asserted, or could have asserted, against Labor Ready,
including meal and rest break claims that he did not make,
except that class members who do not make a claim will not
release any claims under FLSA, and class members who opt
out will not be held to release any claims made in the lawsuit
for individual relief.

    After preliminary approval was granted in April 2013,
notice was mailed to 210,224 potential class members. Under
the terms of the class notice and the district court’s
preliminary approval order, all objections, opt outs, and
claims were required to be mailed by July 15, 45 days after
the class notice was sent. In response, 14,947 people
submitted timely and valid claim forms. Thus, the Labor
Ready’s maximum possible payout to the class is $373,675,
assuming that every person who submitted a claim used the
CDMs and is entitled to the higher relief amount of $25.

    Upon learning details of the prospective settlement
through communications with Labor Ready in their separate
suits, Objectors sought to intervene as of right and to
intervene permissively in Allen’s case. The district court
                     ALLEN V. BEDOLLA                         9

denied their motion, but granted Objectors leave to object at
the preliminary approval stage.

    After a final fairness hearing, the district court issued an
order approving the settlement on August 27, 2013. The
district court determined that the notice procedure satisfied
federal law and due process. The order noted that the four
Objectors had raised concerns, but overruled them. The
district court found that the settlement terms were fair,
reasonable and adequate to the class, and awarded $1.125
million in attorney’s fees, finding that figure (25% of the
common fund) fair and reasonable.

   Objectors’ appeals of the denial of their intervention
motion and of final settlement approval timely followed.

                              II

    The settlement of a class action must be fair, adequate,
and reasonable. Fed. R. Civ. P. 23(e)(2). We review a
district court’s approval of a class-action settlement for a
clear abuse of discretion. See Rodriguez v. West Publishing
Corp., 563 F.3d 948, 963 (9th Cir. 2009). “A court abuses its
discretion when it fails to apply the correct legal standard or
bases its decision on unreasonable findings of fact.”
Nachshin v. AOL, LLC, 663 F.3d 1034, 1038 (9th Cir. 2011).

    Denial of a motion to intervene as of right is reviewed de
novo, except for the timeliness prong which is reviewed for
an abuse of discretion. Chamness v. Bowen, 722 F.3d 1110,
1121 (9th Cir. 2013). Denial of a motion for permissive
intervention is reviewed for an abuse of discretion. Blum v.
Merrill Lynch Pierce Fenner & Smith Inc., 712 F.3d 1349,
1352 (9th Cir. 2013).
10                   ALLEN V. BEDOLLA

                             III

    We affirm the district court’s decision to deny Objectors’
untimely motion to intervene. While the district court did not
explain its decision to deny the motion, we may affirm on any
basis supported by the record, whether or not relied upon by
the district court. Hall v. N. Am. Van Lines, Inc., 476 F.3d
683, 686 (9th Cir. 2007). Here, the Objectors knew of the
Allen litigation, which had been ongoing for four years, for
at least a year before they moved to intervene and had
regularly asked Labor Ready about the status of settlement
talks in Allen’s case. A timely motion is required for the
granting of intervention, whether as a matter of right or
permissively. See Arakaki v. Cayetano, 324 F.3d 1078, 1083
(9th Cir. 2003) (intervention as of right); Nw. Forrest Res.
Council v. Glickman, 82 F.3d 825, 839 (9th Cir. 1996)
(permissive intervention).

    Objectors argue that under United States v. Carpenter, a
motion to intervene as of right can be timely even though an
action has been pending for some time—in Carptenter,
eighteen months—when the intervenors act promptly after
receiving notice of a proposed settlement that would not
adequately represent their interests. 298 F.3d 1122, 1124 (9th
Cir. 2002). But Carpenter involved a government entity not
representing intervenors’ interests. Id. at 1125. Its reasoning
was grounded in the need to encourage the assumption that
when the government is a party, the interests of others will be
protected. Id. Here, the government is not a party.

     We are not persuaded that Objectors’ motion was timely,
because the motion was filed after four years of ongoing
litigation, on the eve of settlement, and threatened to
prejudice settling parties by potentially derailing settlement
                         ALLEN V. BEDOLLA                                11

talks, and especially where Objectors’ concerns could largely
be addressed through the normal objection process.3 See
Orange Cnty. v. Air Cal., 799 F.2d 535, 537–38 (9th Cir.
1986).

                                    IV

    We next address Objectors’ contentions regarding the
settlement itself. We have set a high procedural standard for
settlements that, like the one at issue here, occur without a
certified class. Applying that standard, we vacate final
approval and remand to the district court so that it can
conduct a “more searching inquiry into the fairness of the
negotiated distribution of funds, as well as consider the
substantive reasonableness of the attorneys’ fee request in
light of the degree of success attained.” In re Bluetooth
Headset Products Liab. Litig., 654 F.3d 935, 938 (9th Cir.
2011) (“Bluetooth”).

                                     A

     A difficult balancing act almost always confronts a
district court tasked with approving a class action settlement.
On the one hand, we have repeatedly noted that “there is a
strong judicial policy that favors settlements, particularly
where complex class action litigation is concerned.” In re
Syncor ERISA Litig., 516 F.3d 1095, 1101 (9th Cir. 2008)
(citing Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1276

 3
   At oral argument on the intervention motion, Objectors indicated that
they wished to raise objections at the preliminary settlement approval
hearing, rather than wait for the class notice and file their objection after
preliminary approval and before the final approval hearing, which the
district court allowed.
12                   ALLEN V. BEDOLLA

(9th Cir. 1992)). And it is the nature of a settlement, as a
highly negotiated compromise—here the parties submitted to
mediation three times before reaching an acceptable
proposal—that “[i]t may be unavoidable that some class
members will always be happier with a given result than
others.” Officers for Justice v. Civil Serv. Comm’n of City &
Cnty. of San Francisco, 688 F.2d 615, 624 (9th Cir. 1982)
(quoting Mendoza v. United States, 623 F.2d 1338, 1344 (9th
Cir. 1980)). But on the other hand, “settlement class actions
present unique due process concerns for absent class
members,” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026
(9th Cir. 1998), and the district court has a fiduciary duty to
look after the interests of those absent class members. See,
e.g. Sullivan v. DB Invs., Inc., 667 F.3d 273, 319 (3d Cir.
2011) (stating that “trial judges bear the important
responsibility of protecting absent class members, and must
be assur[ed] that the settlement represents adequate
compensation for the release of the class claims” (internal
quotation marks omitted)); Reynolds v. Beneficial Nat’l Bank,
288 F.3d 277, 280 (7th Cir. 2002) (at the settlement phase,
the district judge is “a fiduciary of the class,” subject “to the
high duty of care that the law requires of fiduciaries”);
Maywalt v. Parker & Parsley Petroleum Co., 67 F.3d 1072,
1078 (2d Cir. 1995) (noting that “the district court has a
fiduciary responsibility to ensure that the settlement is fair
and not a product of collusion, and that the class members’
interests were represented adequately” (internal quotation
marks omitted)). See also Staton v. Boeing Co., 327 F.3d
938, 972 n.22 (9th Cir. 2003) (it is the district court’s duty to
police “the inherent tensions among class representation,
defendant’s interests in minimizing the cost of the total
settlement package, and class counsel’s interest in fees.”).
                      ALLEN V. BEDOLLA                         13

     Recognizing these potentially conflicting demands, we
have imposed different standards upon a district court
depending on the nature of our review. When we review the
settlement’s substantive fairness, “[w]e will rarely overturn
an approval of a compromised settlement unless the terms of
the agreement contain convincing indications that . . . self-
interest rather than the class’s interests in fact influenced the
outcome of the negotiations.” Id. at 960. However, we hold
district courts to a higher procedural standard when making
that determination of substantive fairness: “To survive
appellate review, the district court must show it has explored
comprehensively all factors, and must give a reasoned
response to all non-frivolous objections.” Dennis v. Kellogg
Co., 697 F.3d 858, 864 (9th Cir. 2012) (citations and internal
quotation marks omitted). That procedural burden is more
strict when a settlement is negotiated absent class
certification. Then “such agreements must withstand an even
higher level of scrutiny for evidence of collusion or other
conflicts of interest than is ordinarily required under Rule
23(e) before securing the court’s approval as fair.” Bluetooth,
654 F.3d at 946.

    Here, the district court did not satisfy this procedural
standard. We take no position on the substantive fairness of
the agreement, because the record before us does not allow us
to undertake even our deferential substantive review. But we
vacate final settlement approval and “remand so that the
district court may conduct a more searching inquiry.”
Bluetooth, 654 F.3d at 938.

    As we said in Bluetooth, we require district courts to look
for “subtle signs that class counsel have allowed pursuit of
their own self-interests . . . to infect the negotiations.” Id. at
947. We went on to identify three such subtle signs:
14                       ALLEN V. BEDOLLA

(1) “when counsel receive a disproportionate distribution of
the settlement;” (2) “when the parties negotiate a ‘clear
sailing’ arrangement” (i.e., an arrangement where defendant
will not object to a certain fee request by class counsel); and
(3) when the parties create a reverter that returns unclaimed
fees to the defendant. Id. All three signs appear here: (1) all
of the money that does not go toward claims actually made,
the attorneys’ fees and costs and the administration costs
reverts to Labor Ready; (2) Labor Ready agreed not to
dispute the award of fees to class counsel, as long as that
award did not exceed 25% of the common fund; and (3) when
the attorneys’ fee award is examined in terms of “economic
reality,” the award exceeds the maximum possible amount of
class monetary relief by a factor of three.4 See id. at 943

 4
    The award of $1.125 million in attorneys’ fees represents 25% of the
fund created by the settlement, which we generally consider the
“benchmark” percentage for fee awards from a common fund. See Six (6)
Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1311 (9th
Cir.1990). However, we have cautioned that the district court should not
calculate fees using “a mechanical or formulaic approach that results in an
unreasonable reward.” Bluetooth, 654 F.3d at 944. Only 14,947 timely
claims were submitted, meaning that at most $373,675 will be disbursed
to the class in monetary relief. Such a low payout to the class was
anticipated by the parties: At a hearing held before the preliminary
approval, class counsel said that he would consider it a success if even
10% or 15% of the class made claims (in fact, the claims rate was less
than 8%). Also, Objectors argued that Labor Ready’s estimate of
administrative costs was premised on only 10% of the class making
claims, and the district court expressed concern about the low likely
participation rate yielding benefits for Labor Ready (in the form of
reversion of the funds) and class counsel. However, the record gives no
assurance that, in the face of these admissions from class counsel and
concerns from Objectors, the district court “inquire[d] further into why the
parties had negotiated such a disproportionate distribution between fees
and relief.” Bluetooth, 654 F.3d at 935.
                        ALLEN V. BEDOLLA                             15

(quoting In re Gen. Motors, 55 F.3d 768, 821 (9th Cir.
1995)).

    While the existence of these three signs does not mean the
settlement cannot still be fair, reasonable, or adequate, they
required the district court to examine them, and adequately to
develop the record to support its final approval decision.
“Confronted with these multiple indicia of possible implicit
collusion, the district court had a special ‘obligat[ion] to
assure itself that the fees awarded in the agreement were not
unreasonably high.’” Bluetooth, 654 F3.d at 947 (quoting
Staton, 327 F.3d at 965).

    As a whole, the settlement appears to afford valuable
relief, much by injunction, that will benefit the class.5 The
district court noted the existence of this injunctive relief, but
did not make express findings about the value of the
injunctive relief, cf. Bluetooth, 654 F.3d at 944, findings that
might have given more justification for the reasonableness of
class counsel’s fee award. Similarly, though class counsel
represented that the fee award was less than his “lodestar”
figure, there were no express findings from the district court
on what it considered to be a reasonable lodestar amount. Cf.
Bluetooth, 654 F.3d at 945 (citing Vizcaino v. Microsoft
Corp., 290 F.3d 1043, 1050–51 (9th Cir. 2002)) (noting that
district courts are encouraged to cross-check the two fee-

  5
     Alleged violations of California’s Unfair Competition Law are the
basis of some of the class claims; under state law, the “the primary form
of relief available under the [Unfair Competition Law] to protect
consumers from unfair business practices is an injunction,” while other
relief, such as monetary relief, is purely “ancillary.” In re Tobacco II
Cases, 207 P.3d 20, 34 (2009).
16                   ALLEN V. BEDOLLA

calculating methods against one another, to ensure a fair and
reasonable fee).

    We stress that “we express no opinion on the ultimate
fairness of what the parties have negotiated, for we have no
business substituting our notions of fairness for those of the
district judge.” Bluetooth, 654 F.3d at 950 (internal quotation
marks and alterations omitted). On remand, the district court,
after appropriately supplementing the record, may exercise its
discretion to reapprove the settlement and class counsel’s fee,
reapprove the settlement but modify class counsel’s fee, to
disapprove the settlement, or take other appropriate actions
depending on its inquiry, findings, and evaluation of whether
the settlement is fair, reasonable, and adequate.

                              B

    Because we vacate and remand final approval of the
settlement, we also vacate the attorneys’ fee award to class
counsel. As we noted above, on remand, the district court has
broad discretion to reapprove, disapprove or modify the fee
award after making appropriate findings as to its substantive
reasonableness. However, upon remand, the district court
must comply with our procedures permitting class members
to object to class counsel’s fee award before it is made.
Objectors contend that the original proceedings did not,
because the deadline for filing class member objections was
before counsel submitted its final fee request with supporting
papers. They are correct.

    In In re Mercury Interactive Corp. Securities Litigation
(“Mercury”) we held that Federal Rule of Civil Procedure
23(h) requires a district court “to set the deadline for
objections to counsel’s fee request on a date after the motion
                       ALLEN V. BEDOLLA                           17

and documents supporting it have been filed.” 618 F.3d 988,
993 (9th Cir. 2010) (emphasis in original). Because of the
divergence of interests between the class and class counsel at
the fee-setting stage, “[w]hen the district court sets a schedule
that denies the class an adequate opportunity to review and
prepare objections to class counsel’s completed fee motion,
it fails to fulfill its fiduciary responsibilities to the class.” Id.
at 994–95.

     The district court here did not follow our precedent in
Mercury. Under the terms of the class notice and the district
court’s order granting preliminary approval to the settlement,
all objections, opt outs, and claims were due July 15, 45 days
after class notice was sent. The motion to grant final
approval to the settlement and the completed attorneys’ fees
motion was due 70 days after the class notice was sent, and
the completed fees motion was not filed until July 29, 2013.
Upon remand, the district court must give the entire
class—and not just the Objectors-Appellants here—the
opportunity to review class counsel’s completed fee motion
and to submit objections if they so choose.

                                 V

     Objectors make other substantive challenges to the
settlement. Because we do not reach a substantive review of
whether the settlement is fair, reasonable and adequate, we do
not address these arguments. Objectors may raise them again
to the extent pertinent in any subsequent appeal, if the district
court on remand exercises its discretion to reapprove this
settlement.
18                  ALLEN V. BEDOLLA

                            VI

    We affirm the district court’s order denying Objectors’
motion to intervene. We vacate the district court’s order
granting final approval to the settlement and granting
attorneys’ fees. We remand to the district court for further
proceedings consistent with this opinion. Each party shall
bear its own costs upon appeal.

   AFFIRMED in part, VACATED and REMANDED in
part.