Case Number: BC447029    Hearing Date: July 15, 2014    Dept: 32

CASE NAME: Hernandez v. Specialty Restaurants Corp., et al.
CASE NO.: BC447029
HEARING DATE: 07/14/14
DEPARTMENT: 32
CALENDAR NO.: 5
SUBJECT: Motion for Preliminary Approval of Class Action Settlement
MOVING PARTY: Plaintiff Christal Hernandez
RESP. PARTY: None

COURT’S TENTATIVE RULING

Motion for Preliminary Approval of Class Action Settlement GRANTED.

ANALYSIS

SETTLEMENT CLASS DEFINITION

Class Definition in the Settlement:

“Any and all Persons employed by [Defendant] SRC, who worked for SRC as non-exempt, hourly California employees, at any time between October 7, 2006 to the Date of the Preliminary Approval of the Settlement …, regardless of whether such Persons are currently employed by SRC.” (Mot., Exh. 1, Settlement at 7.)

TERMS OF SETTLEMENT AGREEMENT

A copy of the stipulation of Class Action Settlement and Release is submitted with the moving papers as Exhibit 1. Its essential terms are as follows:

1- Defendants shall pay a total settlement of $795,000.
2- The Claims Administrator, Simpluris, Inc., will administer the class notice and claims processing.
3- Class Counsel will seek attorney fees in the amount of $264,735 and actual costs of $79,000. Defendants agree not to oppose the motion for attorney fees and costs.
4- The class representative will receive an enhancement award of $5,000.
5- The Claims Administrator will be paid approximately $27,500, subject to court approval.
6- Subject to court approval, $5,962 will be paid to the LWDA for PAGA penalties, which represents 75% of the $7,950 portion of the settlement allocated to PAGA.
7- After a guaranteed 50% floor of settlement payments to the Class is met, any uncashed settlement checks to class members shall revert to Defendants.
8- Class Notice shall be provided by mail.
9- The class members will release all claims that “(1) accrued at any time during October 7, 2006 to the Preliminary Approval Date for the Settlement Class” and that “(2) reasonably relate to or reasonably arise out of the causes of action alleged and prosecuted in Plaintiff’s Complaint, including failure to compensate all hours worked, claims of violations of California’s meal and rest period law….” The release “does not extend to any claims not alleged in the Complaint or based on the causes of action in the Complaint and specifically excludes claims for workers’ compensation, personal injuries … discrimination, retaliation, and harassment [among other claims]….”
10- The Class Representative agrees to an additional release of “any and all claims including Unknown Claims against SRC that accrued during the Class Period, but does not include claims for: age discrimination [among other claims]….”

(Mot. Exh. 1.)

SETTLEMENT STANDARDS AND PROCEDURES

California Rules of Court (CRC), Rule 3.769(a) requires “A settlement or compromise of an entire class action, or of a cause of action in a class action, or as to a party, requires the approval of the court after hearing.” Rule 3.769(c) establishes that “Any party to a settlement agreement may serve and file a written notice of motion for preliminary approval of the settlement. The settlement agreement and proposed notice to class members must be filed with the motion, and the proposed order must be lodged with the motion.”

In determining whether to approve a class settlement, the court’s responsibility is to “prevent fraud, collusion or unfairness to the class” through settlement because the rights of the class members and even named plaintiffs “may not have been given due regard by the negotiating parties.” Consumer Advocacy Group, Inc. v. Kintetsu Enterprises of America (2006) 141 Cal. App. 4th 46, 60. Furthermore, the Court must make an independent assessment of the reasonableness of the terms of the settlement. Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal. App. 4th 116, 130, 133. The burden of establishing the fairness and reasonableness of the settlement is on the proponent. Wershba, supra, 91 Cal. App. 4th at 245; see also 7-Eleven Owners for Fair Franchising v. The Southland Corp. (2000) 85 Cal. App. 4th 1135, 1165-66. However:

a presumption of fairness exists where: (1) the settlement is reached through arm’s-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small.

Wershba, 91 Cal.App.4th at 245, citing Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1802.Yet, even if this initial presumption exists, the Court still must “independently and objectively analyze the evidence and circumstances before it in order to determine whether the settlement is in the best interest of those whose claims will be extinguished.” Kullar, supra, 168 Cal. App. 4th at 130. The Wershba Court provides the following factors as guidance in that determination:

[T]he trial court should consider relevant factors, such as the strength of plaintiffs’ case, the risk, expense, complexity and likely duration of further litigation, the risk of maintaining class action status through trial, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of the class members to the proposed settlement. The list of factors is not exclusive and the court is free to engage in a balancing and weighing of factors depending on the circumstances of each case. Wershba, supra, 91 Cal.App.4th at 244-45.

Of those factors, the most important is the strength of the plaintiff’s case on the merits balanced against the amount offered in settlement. Kullar, supra, 168 Cal. App. 4th at 130. However, the court does not in such analysis undertake the necessary investigation as if trying the case, but must “eschew any rubber stamp approval in favor of an independent evaluation.” Id. Nevertheless, the settlement amount need not make the class members completely whole. As the Wershba Court stated “Compromise is inherent and necessary in the settlement process. Thus, even if the relief afforded by the proposed settlement is substantially narrower than it would be if the suits were to be successfully litigated, this is no bar to a class settlement because the public interest may indeed be served by a voluntary settlement in which each side gives ground in the interest of avoiding litigation.”

ANALYSIS OF SETTLEMENT AGREEMENT
Does a Presumption of Fairness Exist?

– Agreement reached through arms’-length bargaining? Yes. The parties have engaged in significant written discovery and depositions. The parties participated in two separate full-day mediations before highly experienced employment mediators Steven Rottman and Gene Moscovitch, and they ultimately reached a settlement through mediation. (Matern Decl. ¶¶ 6, 8.) It appears that the Settlement is the product of significant negotiation and litigation.

– Investigation and discovery sufficient to allow counsel and the court to act intelligently? Yes. The parties have engaged in significant written discovery and depositions. (Matern Decl. ¶ 6.) Plaintiff’s counsel also states that he has conducted numerous interviews with Plaintiff and reviewed thousands of relevant employment records. (Id. ¶ 35.)

– Counsel is experienced in similar litigation? Plaintiff’s attorney submits a declaration showing significant prior experience in wage and hour class actions. (Matern Decl. ¶ 33.)

– Conclusion: the settlement is entitled to a presumption of fairness.

– Is the settlement fair, adequate and reasonable?

– Strengths and weaknesses of Plaintiffs’ case.

Plaintiff alleges that Defendants had a policy and practice that denied employees full, uninterrupted meal and rest periods within the first five and hour hours of a shift, respectively. Plaintiff also alleges that she regularly worked long hours and that Defendants did not pay her all overtime compensation due. Plaintiff alleges derivative wage and hour claims, including failure to pay minimum wage and failure to provide accurate wage statements.

In his declaration, Plaintiff’s counsel states that Plaintiff’s expert determined from time records produced by Defendants that nearly 40% of shifts over five hours long either recorded no meal, or a meal less than 30 minutes long. He states that declarations from putative class members corroborate Plaintiff’s allegations regarding meal breaks. He states that supervisors ordered employees to perform work off-the-clock during a meal period. (Matern Decl. ¶ 10.) Plaintiff’s counsel estimates that Defendants’ total exposure for meal period violations is $5,265,000 based on a 40% violation rate for 750 employees earning $9/hour. (Ibid.) Counsel also indicates that Plaintiff’s expert determined, from an analysis of a sample of payroll records, that there was a 17% “reduction” in the number of overtime hours paid, when compared to the number of overtime hours worked. (Id. ¶ 11.)

Plaintiff concedes potential exposure for Defendants well into the seven figures. However, considering the risks of going to trial and potential legal defenses Defendants might assert, the $795,000 proposed settlement appears reasonable. For instance, Brinker Restaurant Corp. v. Sup.Ct. (2008) 165 Cal.App.4th 25, requires Plaintiff to show that Defendants did not “provide” meal periods, not that Defendants failed to ensure employees actually took meal and rest periods. Brinker therefore, in some respects, raises the evidentiary threshold for Plaintiff to prove meal break violations and derivative claims. There is also the risk that Plaintiff would not be able to certify the class. In balance, the settlement appears reasonable in light of the strengths and weaknesses of Plaintiff’s case.

– Attorney’s Fees and Costs.

The Settlement states that Plaintiff will move for an award of attorney fees of $264,735 and “actual costs” of $79,000.

For the final fairness hearing, Class Counsel must submit briefing and supporting declarations regarding a lodestar calculation of the attorneys’ fees sought. At the time of final approval, the Court will determine whether the attorneys’ fees sought are reasonably related to the work performed before approving any fee award. (Garabedian v. Los Angeles Cellular Telephone Co. (2004) 118 Cal. App. 4th 123, 128.)

However, based on the significant benefits obtained for the Class and the amount of hours expended thus far, a $264,735 fee award appears reasonable at this preliminary stage. This fee award equals 33 1/3 percent of the gross settlement, which is within the range of contingency fees often approved for class actions. (See Chavez v. Netflix, Inc. (2008) 162 Cal.App.4th 43, 66 fn. 11; see Vizcaino v. Microsoft Corp. (9th Cir. 2002) 290 F.3d 1043, 1050, fn. 4 [survey found 56% of fee awards in settlements in common fund cases were in the range of 20-30%].) Also, Plaintiff’s counsel submits evidence of having spent a substantial amount of time on this case. (Matern Decl. ¶¶ 25, 35.)

Although the amount of costs ($79,000) is significant, it includes expert witness fees and mediation fees. (Matern Decl. ¶ 42.) Since the Settlement is interpreted to permit “actual costs”, which will have to be substantiated, this amount appears reasonable.

– Enhancement Award

Plaintiff requests an enhancement award of $5,000 for Plaintiff. This equates to 0.63% of the total settlement amount. The range for typical incentive awards is 0.01% to 1.67% of the total settlement amount.

At the time of final approval, Plaintiff must submit declarations attesting to why he should be entitled to enhancement awards of any amount. The California Court of Appeal has made it clear that trial courts should not sanction enhancement awards of thousands of dollars with “nothing more than pro forma claims as to ‘countless’ hours expended, ‘potential stigma’ and ‘potential risk.’ Significantly more specificity, in the form of quantification of time and effort expended on the litigation, and in the form of reasoned explanation of financial or other risks incurred by the named plaintiffs, is required in order for the trial court to conclude that an enhancement was “necessary to induce [the named plaintiff] to participate in the suit….” (Clark v. American Residential Services LLC (2009) 175 Cal.App.4th 785, 806-07.)

At this point, Plaintiff’s request for an enhancement of $5,000 appears reasonable in light of her participation in the action. (Matern Decl. ¶¶ 20-21; see also Hernandez Decl.)

– Claims Administration Costs

The Settlement provides for approximately $27,500 in claims administration costs. Given the size of the class and settlement, this amount of costs appears reasonable, assuming Plaintiff can submit supporting evidence at the final fairness hearing.

– PAGA Penalties

The Settlement provides for payment of PAGA penalties of $5,962.50 to the LWDA, which amounts to 75% of the $7,950 portion of the total settlement allocated to PAGA. The remaining 25% is allocated as PAGA penalties payable to class members. This allocation appears reasonable.

– Risk, Expense, Complexity, and Duration of Further Litigation

It stands to reason that settling the case would avoid significant risk and expense.

– Release of Claims

The class members will release all claims that “(1) accrued at any time during October 7, 2006 to the Preliminary Approval Date for the Settlement Class” and that “(2) reasonably relate to or reasonably arise out of the causes of action alleged and prosecuted in Plaintiff’s Complaint, including failure to compensate all hours worked, claims of violations of California’s meal and rest period law….” The release “does not extend to any claims not alleged in the Complaint or based on the causes of action in the Complaint and specifically excludes claims for workers’ compensation, personal injuries … discrimination, retaliation, and harassment ….”

The Class Representative agrees to an additional release of “any and all claims including Unknown Claims against SRC that accrued during the Class Period, but does not include claims for: age discrimination ….” (Mot. Exh. 1 at 13.)

The release for the class members is narrowly worded to include only claims that “reasonably relate to or reasonably arise out of the causes of action” in the complaint. Also, even for the class representative’s broader release, various specific claims are excluded. In balance, and considering that the Settlement was reached at arms’ length, the release appears reasonable.

– Extent of discovery completed.

As noted earlier, the extent of investigation and discovery was sufficient to allow the parties to reach an intelligent settlement.

– Views of Counsel.

It appears from the moving brief that Counsel considers the settlement to be fair and reasonable in light of his firm’s investigation and evaluation of the evidence and law.

– Conclusion

Based on the totality of circumstances, the court preliminarily approves the Settlement as fair and reasonable.

Conditional Class Certification?

Although a detailed analysis of the elements required for class certification is not required, it is advisable to review each element when a class is being conditionally certified. Amchem Products, Inc. v. Windsor (1997) 521 U.S. 591, 620, 622-627. The trial court can appropriately utilize a different standard to determine the propriety of a settlement class as opposed to a litigation class certification. Specifically, a lesser standard of scrutiny is used for settlement cases. Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1807 n. 19.

In her points and authorities, Plaintiff does not point to specific evidence in support of her argument that the class should be conditionally certified. (Mot. 16-17.) However, Plaintiff’s counsel does represent in his declaration that there are approximately 3,750 class members. (Matern Decl. ¶ 22.) Based on the court’s understanding of Plaintiff’s wage and hour claims from the complaint, her declaration, and counsel’s declaration, it appears likely that common issues of fact and law would predominate, namely whether Defendants had a policy of not providing meal breaks to employees. (See Compl. ¶¶ 17-21; Hernandez Decl. ¶ 4 [discussing Defendants’ “common policies”]; Matern Decl. ¶¶ 10-11 [discussing corroborating declarations of class members].) It appears from this evidence that, at least preliminarily, the class is numerous, that Plaintiff’s claims are typical of those of the claims, that common issues of fact and law predominate, and that a class action is a superior method to resolve these claims. Also, there is evidence that Plaintiff is an adequate class representative and that Plaintiff’s counsel is adequate. (Hernandez Decl. ¶ 7; see Matern Decl. generally.)

– Notice to Class of Final Approval Hearing

– Required Contents of Notice:

– Class definition? Yes__X__. No____.
– Description of substantive issues and proceedings? Yes__X__. No____.
– Neutral description of the proposed settlement? Yes__X__. No____.
– Amount of attorneys’ fees and expenses? Yes_X___. No___.
– Amount of enhancement fee? Yes__X__. No____.
– How to file a Claim? Yes__X__. No___.
– Right to opt-out of the settlement class? Yes__X__. No____.
– Right to appear by counsel and how to object to the settlement? Yes__X__. No____.
– Consequences of remaining a settlement member? Yes__ X __. No____.
– Identity of plaintiffs’ and defendant’s counsel? Yes__X__. No____.
– Date, time and place of the fairness hearing? Yes__X__. No____.

The proposed notice includes all the necessary information to fully inform the class members of their rights with respect to the settlement. (Mot. Exh. 1 to Exh. 1.)

– Method of Notice / Claims Processing

As discussed in the moving papers at pages 8 to 15, the Settlement provides a detailed notice and claims processing procedure. The notice packet will be sent by mail to the class members, and the Settlement provides a procedure for additional notice for any notice packets returned to the Claims Administrator as undeliverable. The notice and claims processing procedure appears reasonable.

– Proposed Timeline of Settlement Procedures:

Although the Settlement specifies certain deadlines for notice and claims processing, Plaintiff has not provided a specific timeline in the motion papers.

Based on the foregoing, the motion is GRANTED.