Court Opinion

ID: 2620521
Source: CourtListenerOpinion
Date Created: 2013-10-31 17:36:21.000843+00
Date Added: 2024-06-11T10:29:48.783728
License: Public Domain

Filed 10/31/13 Lingo v. Microsoft CA1/1
                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                       FIRST APPELLATE DISTRICT

                                                  DIVISION ONE

CHARLES J. LINGO et al.,
         Plaintiffs and Appellants,
                                                                     A136531
v.
MICROSOFT CORPORATION,                                               (San Francisco City & County
                                                                     Super. Ct. No. JCCP4106)
         Defendant and Respondent.

         Plaintiffs in this class action lawsuit appeal from a postjudgment order directing
the court-appointed settlement claims administrator to implement a procedure for
determining the portion of settlement proceeds to be awarded to certain class members
who had purchased eligible software products from defendant Microsoft. The trial court
ruled that the procedure, which was developed by the parties themselves, did not violate
the terms of the underlying settlement agreement. Plaintiffs contend the order must be
overturned as the authorized procedure “deprives class members of their substantive
rights and their promised share of the $1.1 billion settlement in this action.” We affirm.
               FACTUAL BACKGROUND AND PROCEDURAL HISTORY
I. The Lawsuit And Settlement Agreement
         On June 16, 2003, the parties settled the underlying antitrust class action lawsuit
by executing a settlement agreement that requires respondent to pay up to $1.1 billion to
California businesses and consumers who had purchased licenses for certain of

                                                             1
defendant’s software products and who submitted settlement claims.1 Under the
agreement, the amount awarded to each claimant was to be determined by the number of
eligible software license purchases the class member made during the period from 1995
to 2001. After each participating class member submitted a claim, the court-appointed
settlement claims administrator, Rust Consulting, Inc. (Rust), was authorized to review
the records of the software purchases and calculate the settlement award based on
established amounts for each type of purchased license. Rust was then to issue settlement
vouchers that could be redeemed by the claimants for cash.
II. Volume License Claims Processing
       According to plaintiffs, the vast majority of software licenses that are eligible for
settlement awards were sold to thousands of large business purchasers that participated in
defendant’s volume licensing program (volume claimants). Defendant does not sell its
software directly to these customers. Instead, it supplies its software through a network
of authorized software resellers, including computer manufacturers that provide pre-
installed software on the computers they sell (referred to as original equipment
manufacturers, or OEM’s), as well as software distributors, systems integrators, and
retailers that sell standalone software (collectively referred to here as resellers).
       According to defendant, when the claims submission period closed on January 8,
2005, Rust had received over 4,550 volume claims encompassing over 20 million
licenses. Pursuant to the terms of the settlement agreement, the transaction records used
to document these licenses were derived from (1) the claimants’ own purchase records,
(2) defendant’s volume licensing records gathered from its end user database, and
(3) “other credible written evidence” of eligible software purchases submitted by the
claimants and accompanied by a sworn declaration made under penalty of perjury.

       1
         We addressed the underlying litigation and the settlement agreement previously
in In re Microsoft I-V Cases (2006) 135 Cal. App. 4th 706. The terms of the settlement
agreement are described more fully in that opinion.

                                               2
III. The 2006 Decision To Use Third-Party OEM/Reseller Data
       As part of the 2003 settlement agreement approval process, plaintiffs’ counsel had
subpoenaed records of more than 70 third-party OEM’s and other software resellers for
the sole purpose of identifying potential class members. In January 2006, after the claims
submission period had closed,2 plaintiffs’ counsel first raised the idea of supplementing
some volume claims using the software purchase records derived from this third-party
reseller data. The parties agreed that this information could be used to augment volume
claims, provided that it did not duplicate licenses contained in defendant’s records or in
the claimants’ own purchase records.3 Rust was given the responsibility to reconstruct an
accurate accounting of the volume claimants’ purchases of eligible software by
determining which of the records from the different sources supplement one another, and
which of them overlap—a process the parties call “de-duplication.”
       Rust began identifying duplicate records of volume claimant software purchases
by comparing a number of characteristics, including the software product description, the
date of purchase, the quantity purchased, the purchaser’s address, the purchaser’s
designated contact person, and the identifying number of the agreement between
defendant and the purchaser. If those characteristics did not match under the criteria
established by the parties, the records were considered nonduplicative. Rust prepared an
internal document entitled “OEM Tutorial,” which it used to train its claims
administration personnel on these processing rules. Rust also conducted joint calls with
the parties to explain its methodology, and to obtain the parties’ approval of its
procedures.
       Rust processed numerous claims in accordance with the OEM Tutorial rules and
posted the results for the parties to review. Subsequently, Rust issued settlement
vouchers to 1,391 volume licensee claimants after the parties approved its calculations.

       2
           The claims submission period ended on January 8, 2005.
       3
        Plaintiffs assert defendant agreed to this procedure because its own volume
licensing records were discovered to be incomplete. Defendant does not concur with this
view.

                                              3
However, as defendant’s counsel reviewed sample claims in late 2007 and early 2008, it
appeared the reseller data was incomplete and/or inconsistent, and that Rust’s procedures
were unsatisfactory in determining whether the licenses in the reseller records were the
same as the licenses cataloged in defendant’s end user database, referred to as the
“License Information Repository” (LIR). For example, some of the resellers’ records had
no purchase dates, while others had multiple dates associated with each transaction.
Some records contained imprecise product names. Others included addresses outside
California, or contained incomplete address information. Still other records included a
single license purchase recorded multiple times to reflect quarterly or annual installment
payments.
IV. The February 2009 Addendum Agreement
       In December 2007, defendant asked Rust to stop issuing volume claim vouchers
and began negotiating with plaintiffs’ counsel to establish new rules for de-duplicating
purchase records. According to defendant, plaintiffs’ counsel agreed with its suggestion
that, going forward, Rust could match reseller transaction records to defendant’s LIR
records if both records fell within a specified date range and reflected the same quantity
of purchased licenses. The parties also agreed that Rust could match slightly different
product descriptions and consider them duplicative, so long as it was convinced that the
descriptions were intended to describe the same software product. The changes were
memorialized in a written addendum to a February 2009 settlement claims processing
agreement (the Addendum).
       The Addendum begins by stating that the parties had not previously agreed on the
de-duplication rules: “[The parties] agreed that claimants may use the [reseller data] to
support their voucher claims. However, the parties have not previously agreed on how
[this data] should be interpreted or how to eliminate duplication between Reseller Data
and Microsoft records. Now that we have reviewed the potential claims records provided
by [the resellers], we are concerned that, unless the parties agree to certain rules, Rust
will be counting the same license more than once when determining voucher eligibility.
To avoid that situation, we propose the adjustments described below to correct some

                                              4
(though not all) of the duplication and other problems in the Reseller Data.” (Italics
added.) The document also states: “There is substantial duplication between the Reseller
Data transactions and the Microsoft SSO report transactions,4 particularly for volume
licensing transactions. The parties therefore need to make some minor adjustments to the
process currently being used by Rust to eliminate the duplication between the two data
sets.” (Italics added.)
       The Addendum includes instructions on the procedures to be used in determining
whether a license found in the reseller data should be deemed a duplicate of a license
found in defendant’s records. In comparing the two types of records, Rust was to
consider three criteria: (1) purchase date matching period; (2) exact quantity match; and
(3) product name match. For a license purchase to be deemed a duplicate, the purchase
dates in the two records had to fall within a 32-day range, the license quantities purchased
had to be the same, and the product names had to reasonably match along certain
parameters (unless the reseller records did not contain sufficient detail to make this
comparison). If all of the criteria matched, a purchase identified in both defendant’s and
the resellers’ records would be considered a duplicate and the claimant could only
recover once. If any of these criteria was not met, each transaction would be counted
separately in determining the final voucher amount distributed to the claimant.
According to defendant, Rust followed and implemented the Addendum’s procedures
with the oversight and guidance of the parties for over two and a half years.
V. The Dispute Arises And The Underlying Motion Is Filed
       In October 2011, plaintiffs’ counsel asserted (reportedly for the first time) that
Rust was required to consider other criteria in addition to date, product name, and
quantity. He further contended that the reseller licensing records could not be treated as
duplicates unless all of the additional information matched exactly. Specifically,
according to defendant, plaintiffs’ counsel claimed that the company names in each

       4
        SSO was an extract of data that defendant pulled from its LIR electronic
licensing records system to fulfill its data disclosure obligations under the settlement
agreement.

                                              5
matched record had to be identical. Shortly thereafter, he also asserted that other
information, including individual contact names and address, had to match exactly for the
records to be considered duplicates.
       In plaintiffs’ view, their counsel had never agreed to eliminate any of the de-
duplication matching criteria that Rust had been using up until December 2007. Instead,
in agreeing to the Addendum, he had merely authorized three “minor adjustments” to
Rust’s existing de-duplication process. Contrary to his intent, Rust “had mistakenly
concluded that the changes to the product description, quantity and purchase date criteria
listed in the [Addendum] for matching duplicate software purchase records were intended
to completely replace Rust’s existing de-duplication procedures . . . .” Defendant
disagreed with plaintiffs’ position. Per terms of the settlement agreement, when the
parties cannot agree on the “rules and procedures” for processing claims, either party can
bring the issue to the superior court by filing a motion.
       On May 21, 2012, plaintiffs filed a motion “For Court Resolution of the Parties’
Settlement Claims Processing Dispute and Enforcement of the Parties’ Claims Processing
Agreements.”
       On June 27, 2012, after hearing arguments from the parties, the trial court issued
its order determining that the de-duplication procedures set forth in the Addendum were
to govern the claims-processing task. The order reiterates that Rust should apply only the
three criteria set out in the Addendum—date range, quantity, and product name—in
determining whether purchase records are duplicates. Thereafter, Rust resumed its
processing using these criteria. It certified to the court on August 15, 2012, that the de-
duplication process was complete and that it was ready to issue volume claimant
vouchers. This appeal followed.
                                       DISCUSSION
I. Standard Of Review
       While plaintiffs assert we must apply a de novo standard of review to the trial
court’s interpretation of the Addendum, we have noted previously with respect to this
class action settlement agreement that “[o]ur task is limited to a review of the record to

                                              6
determine whether it discloses a clear abuse of discretion when the trial court’s
determination of fairness is challenged on appeal. We do not substitute our notions of
fairness for those of the trial court or the parties to the agreement. [Citation.] ‘To merit
reversal, both an abuse of discretion by the trial court must be “clear” and the
demonstration of it on appeal “strong.” ’ [Citation.]” (In re Microsoft I-V Cases, supra,
135 Cal. App. 4th 706, 723.) While we announced that standard in the context of the order
approving the underlying settlement agreement, plaintiffs do not persuade us that a
different standard of review should apply to an order concerning a postagreement dispute
involving settlement award calculations.
II. The Trial Court’s Order Does Not Violate The Settlement Agreement
       Plaintiffs assert the trial court erred in issuing its order because the ruling will
deprive them of valuable benefits promised by the settlement agreement. They also claim
the court violated their right to due process by modifying the agreement without giving
them notice of the changes or an opportunity to object. We reject these contentions.
       The challenged order merely implements the Addendum. It does not modify the
terms of the settlement agreement. The settlement agreement itself allows the parties to
determine how claims are to be processed and awarded. The relevant provision states:
“The Settlement Claims Administrator [Rust], Lead Counsel for the California Class and
Microsoft will agree on the rules and procedures that will govern the processing of
claims under this Settlement Agreement and the administration of this Settlement
generally.” (Italics added.) This provision further states: “If [Rust] and the parties are
unable to agree on any such rules or procedures, the parties shall submit their
disagreement to the Court or to a referee appointed by the Court with the consent of the
parties for resolution.” (Italics added.)
       In February 2009, in accordance with the terms of the settlement agreement, the
parties negotiated, agreed, and approved the three-factor process to be used by Rust.
Thereafter, in further adherence to the terms of the settlement agreement, the parties’
dispute concerning the claims processing procedure was submitted to the trial court.
Thus, the agreement has functioned exactly as the parties intended. Claimants possessing

                                               7
valid claims, backed by nonduplicative business records as determined under the
procedures the parties asked Rust to follow, will receive awards pursuant to the terms of
the settlement agreement. Thus, no modification has occurred.5
       We also disagree with plaintiffs’ contention that the terms of the settlement
agreement place the burden on defendant to challenge the veracity of the reseller records.
This argument is based on the faulty premise that reseller records constitute “other
written evidence” submitted as proof of a claim. The cited language is contained in the
section of the settlement agreement that sets forth the initial procedures for filing a claim.
It is undisputed, however, that the claims-filing deadline had already passed when
plaintiffs’ counsel first raised the possibility of using the reseller records to augment
defendant’s LIR records. Additionally, the reseller records were not accompanied by “a
sworn declaration under penalty of perjury” as required by the settlement agreement’s
terms. Accordingly, plaintiffs’ reliance on this provision is misplaced.
III. Plaintiffs’ Evidentiary Arguments Fail
       Plaintiffs also assert defendant’s opposition to their motion “failed to provide even
a shred of evidence proving that any of the [materially different records at issue in this
appeal actually] are duplicates.” They claim the only authenticated evidence before the
trial court proved the disputed records could not possibly memorialize the same software
purchase transaction. In their brief, they cited two examples of records they claim were
improperly entered as duplicates, one involving Raytheon Company and the other
involving The Salvation Army. In both cases, Rust deemed the records to be duplicates
because they showed purchases made less than 32 days apart. Plaintiffs offered evidence
from officers of the two entities to demonstrate that these purchase records could not
possibly be duplicates, either because they were not made by the same corporate entity,
or because they were purchased at different locations by different employees.

       5
        Our conclusion also disposes of plaintiffs’ argument that the trial court
erroneously utilized an unsigned agreement to alter the benefits promised to class
members under the terms of the settlement agreement.

                                              8
       Defendant notes it submitted its own sworn declarations to the trial court,
explaining why its records and a reseller’s records could contain different company
names, addresses, or contact names while reflecting the same license purchase. For
example, defendant showed that its volume licensing agreements “routinely permit a
licensee to authorize purchases by dozens of company affiliates—all of which would be
recorded by [defendant] under the original licensee’s name, address and contact
information.” Defendant also offered that it “does not routinely update its internal
databases with changes in contact names or addresses that may show up in the reseller
information.” Further, at the hearing below defendant presented examples involving Levi
Strauss & Company and Pacific Gas & Electric in support of its contention that the
February 2009 rules constitute effective de-duplication measures. Plaintiffs countered
that the examples were misleading.
       Regardless, the trial court made it clear that the instant proceeding was not an
evidentiary hearing. Instead, the court indicated that the central issue was the proper
interpretation of the Addendum. Given that at the time of the hearing over 3,000 volume
claims had yet to be processed, it would be extremely impractical for the court to become
involved in individual license determinations.6
       We also disagree with plaintiffs’ contention that the trial court’s order
“automatically require[s] records to be designated as duplicates when the face of each
record describes a different software purchase transaction.” The court’s order simply
restates the terms of the Addendum. The whole point of the de-duplication process is to
segregate those records that describe different software purchase transactions from those
that describe the same transactions. The three parameters set forth in the Addendum
represent one method for eliminating duplicate records, not for requiring nonduplicative
records to be designated as duplicates. The prior rules as reflected in the OEM Tutorial

       6
        We similarly decline plaintiffs’ implicit invitation to comb through the
voluminous documentation of purchase records they have included in the record on
appeal.

                                              9
set forth another method. Plaintiffs essentially find fault in a system that allows any
potential for error.
       As noted above, defendant provided evidence supporting the inference that some
differences between the various records, such as addresses and contact names, can be
explained by the different documentation procedures used by resellers. As the trial court
explained to plaintiffs’ counsel: “[T]his is an inexact effort by both sides to try and reach
a system, a process to identify duplicate records. And it’s inexact. It’s not perfect. And
so your effort to show that a certain way that it can be done would result in perfection is
just not possible.”7
IV. The Trial Court Properly Interpreted The Addendum
       Plaintiffs next assert the trial court’s interpretation of the February 2009
addendum is erroneous. In so arguing, they rely on rules that apply to contract
interpretation. Assuming the challenged document is a “contract,”8 we conclude the
court’s interpretation is valid.
       Plaintiffs claim the express language of the Addendum identifies the three
matching procedures as “adjustments” only. They note the Addendum states that the
parties intended “to make some minor adjustments to the process currently being used by
Rust to eliminate the duplication between the two data sets.” (Italics added.) Thus, they
claim the Addendum contemplated preservation of the process then being used by Rust,
with only a few minor adjustments. This argument is founded on the assumption that the
parties sought to preserve the OEM Tutorial’s de-duplication process. However, the
       7
          Plaintiffs’ broad assertion that “thousands of Reseller sales records in dispute all
describe software purchase transactions that are materially different from every other
record used to calculate the Claimants’ settlement benefits” is unsupported by any fact-
based analysis. Under the standard of review applicable here, we need not conduct an
extensive and exacting review of the evidence offered by the parties. Suffice it to say, the
materials supplied by plaintiffs on appeal do not persuade us that the trial court abused its
discretion in issuing its order.
        8
          It is unclear to us that the Addendum is a “contract” at all. As noted above, the
settlement agreement provides: “The Settlement Claims Administrator, Lead Counsel for
the California Class and Microsoft will agree on the rules and procedures that will
govern the processing of claims under this Settlement Agreement and the administration
of this Settlement generally.” The Addendum itself contains such “rules and
procedures.”

                                             10
Addendum does not reference any of the criteria contained in the OEM Tutorial. If the
parties had intended to incorporate prior written procedures or criteria, they certainly
could have said so. Thus, there is nothing in the plain language of the Addendum
reflecting the intent plaintiffs would have us ascribe to it.
       Plaintiffs’ subjective understanding of the Addendum is not relevant to our
analysis. “The existence of mutual consent is determined by objective rather than
subjective criteria, the test being what the outward manifestations of consent would lead a
reasonable person to believe.” (Meyer v. Benko (1976) 55 Cal. App. 3d 937, 942–943.)
Additionally, subsequent conduct is relevant in ascertaining the meaning of the parties’
agreement. (Employers Reinsurance Co. v. Superior Court (2008) 161 Cal. App. 4th 906,
920–921.) In May 2010, after a number of rules relating to de-duplication and other
volume claims issues had been established, Rust sent the parties a set of written followup
questions. One question specifically asked which de-duplication rules Rust should be
applying. The answer, approved by plaintiffs and defendant, states, in part: “For
vouchers based on OEM/Reseller purchase records that had not been distributed to
volume claimants as of February 5, 2009, [Rust] must calculate voucher awards based on
the rules and procedures described in the parties’ February 5, 2009 and December 23,
2009 Agreements, even if [Rust] had previously calculated pending voucher awards for
these OEM/Reseller records on a different basis. . . .” (Italics added.) Plaintiffs also
approved of Rust’s new set of instructions to be used by its internal processing staff in
place of the OEM Tutorial. Thus, objectively speaking, it appears plaintiffs acquiesced to
the new rules.
       Moreover, plaintiffs acknowledged to the trial court that the parties never
negotiated or agreed to the rules contained in Rust’s OEM Tutorial. They also admitted
that the Addendum was the first written agreement that the parties had reached with
respect to de-duplication. This further supports the court’s finding that the Addendum
was intended by both parties to reflect the only rules Rust was to follow with respect to
all then outstanding claims.

                                              11
       Plaintiffs also contend the trial court violated its legal obligation to protect the
interests of absent class members by issuing an order “requiring Rust to implement an
inequitable de-duplication process.” (Italics added.) They note defendant and the court
acknowledged that proposed de-duplication rules will likely create imperfect results, as
some licenses would be treated as duplicates when they were not, just as some claimants
would receive more than one voucher for the same license. However, plaintiffs do not
persuade us that there is, in fact, a perfect system available to process the large amount of
claims given the state of the documentation available to document software purchases.9
Apparently, the procedures outlined in the OEM Tutorial lead to imperfect results as
well, otherwise the parties would not have agreed to make any adjustments to the work
Rust had been doing. Keeping in mind the standard of review applicable here, plaintiffs
have not conclusively established that the OEM Tutorial method of de-duplication is
inherently superior to the method set forth in the Addendum.10 Thus, we cannot hold that
the trial court abused its discretion in issuing the challenged order.

       9
         In this context, perfection is not required. Courts have observed that the trial
court has broad discretion to determine whether a class action settlement is fair:
“ ‘Ultimately, the [trial] court’s determination is nothing more than “an amalgam of
delicate balancing, gross approximations and rough justice.” [Citation.]’ [Citation.]”
(Dunk v. Ford Motor Co. (1996) 48 Cal. App. 4th 1794, 1801.)
       10
          In their reply brief, plaintiffs indicate that Rust has also processed the
outstanding claims using the de-duplication procedures set forth in the OEM Tutorial,
with the “minor adjustments” specified in the Addendum. By our ruling, we do not
intend to discourage the parties from working together to achieve the fairest results
possible without adding any undue delay to this rather protracted class action proceeding.

                                              12
                                     DISPOSITION
       The order is affirmed.

                                                  ______________________
                                                   Dondero, Acting P.J.

We concur:

______________________
 Banke, J.

______________________
 Sepulveda, J.*

* Retired Associate Justice of the Court of Appeal, First Appellate District, Division
Four, assigned by the Chief Justice pursuant to article VI, section 6 of the California
Constitution.

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