2012-00121600-CU-CL

Sharon Marie Shurtleff vs. Health Net of California Inc.

Nature of Proceeding: Motion for Preliminary Approval of Class Action

Filed By: Cutter, Brooks

Plaintiff’s Motion for Preliminary Approval of Class Action Settlement is granted on
condition that prior to the Court signing a formal order preliminarily approving the
settlement, plaintiff shall provide proposed amende, notices to the class, as set forth in
the final paragraph of this ruling, that inform the class members that any objection to
the settlement filed with the Court contain on the first page the date and time and
department of the Final Fairness Hearing. Objections are to be filed at 720 9th Street,
not 800 9th Street. 800 9th is the location of Department 53, but not the location for
filing documents for Department 53.

The parties shall meet and confer and prepare a proposed order that includes a date
on or about February 21, 2014 for the final approval hearing. If 90 days is not
sufficient time to carry out all the notice provisions, then the parties shall inform the
court clerk of a later date.

The motion was continued to this date for further briefing on the reasonableness of the
attorneys fees and other issues addressed in the minute order of October 9, 2013.
The Court has now considered the Supplemental Declaration of John Parker, filed
October 15, 2013, the Amended Notice of Plaintiff’s Motion and the Settlement
Agreement filed on October 24, 2013, and the Notice of Supplemental Authority filed
on November 15, 2013.

This action arises out of a January 21, 2011 incident in which Health Net’s vendor
responsible for managing Health Net’s IT infrastructure, IBM, told Health Net that it
could not locate several server drives previously used in Health Net’s data center
operation located in Rancho Cordova. The hard drives contained details about
2,200,000 members health information as well as social security numbers and financial
information. Several lawsuits were thereafter filed in federal and state court alleging
that Health Net violated California’s Confidentiality of Medical Information Act (“CMIA”),
Civil Code § 56 et seq. Some of the lawsuits also alleged that Health Net did not
inform the members of the incident in a timely manner.

The law favors settlement, particularly in class actions and other complex cases where
substantial resources can be conserved by avoiding the time, cost, and rigors of formal
litigation. See Newberg on Class Actions 4th (4th ed. 2002) § 11.41 (and cases cited
therein); Class Plaintiffs v. City of Seattle (9th Cir. 1992) 955 F.2d 1268, 1276; Van
Bronkhorst v. Safeco Corp. (9th Cir. 1976) 529 F.2d 943, 950; see also. Potter v.
Pacific Coast Lumber Co. (1951) 37 Cal.2d 592, 602. In reviewing a request for
preliminary approval of a class action settlement, the Court’s task is to determine
whether the proposed settlement is within the “range of reasonableness” that would
warrant sending out a notice of the settlement and giving the class members the
opportunity to object. (Newberg on Class Actions, 3d Ed. (1992) § 11.25) In making its
fairness determination, the Court should consider the relevant factors, such as the
strength of the Plaintiffs’ case, the risk, expenses, 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, and the experience and views of counsel. Dunk v. Ford Motor Co. (1996)
48 Cal. App. 4th 1794,1801.

This motion was continued to this date because it did not approve the language in the
settlement and proposed order because it did not set forth the amount of attorneys
fees being requested, as required by CRC 3.769(c). The Court did not approve
Paragraph 15 of the proposed final order stating that: “The parties have stipulated and
the Court has determined that the Court’s decision to grant final approval of the
settlement set forth in the Settlement Agreement is separate from the issues raised by
Settlement Class Counsel’s petition for attorneys’ fees, costs, and expenses, and
Representative Plaintiff and Named-Plaintiff awards, and Heath Net’s papers in
response thereto.”

The Plaintiffs submitted an application for attorneys fees to Hon. Edward A. Infante,
Ret., who served as a mediator. Judge Infante awarded attorneys fees in the amount
of $2,227,984.09 and costs in the amount of $83,081.62. The parties agreed to be
bound by the arbitration award and to not seek an appeal of the court’s award of
attorneys fees. Judge Infante also awarded costs in the requested amount of
$84,081.62 as supported by eleven attorney fee declarations. HealthNet did not
oppose the request for costs.

In reviewing an attorney fee provision in a class action settlement agreement, the trial
court has an independent duty to determine the reasonableness of the award . (
Garabedian v. Los Angeles Cellular Telephone Co. (2004) 118 Cal.App.4th 123, 128
[12 Cal. Rptr. 3d 737]; Dunk, supra, 48 Cal.App.4th at p. 1801.) The court should also
consider whether there is any evidence of fraud or collusion in the fashioning of any
agreement as to attorney fees. (Dunk, at p. 1801.) As the Dunk court explained, “ ‘…
“[A] defendant is interested only in disposing of the total claim asserted against it[;] …
the allocation between the class payment and the attorneys’ fees is of little or no
interest to the defense.” [Citations.] … [T]he divergence in financial incentives
[between the class and counsel] creates the “danger … that the lawyers might urge a
class settlement at a low figure or on a less-than-optimal basis in exchange for red-
carpet treatment for fees.” [Citations.]’ [Citation.]” (Dunk, supra, 48 Cal.App.4th at p.
1808.) Cell Phone Termination Fee Cases (2009) 180 Cal. App. 4th 1110, 1119.

From the class members’ perspective, the court’s review of the reasonableness of the
fee award is a safeguard against the possibility of collusion. “If fees are unreasonably
high, the likelihood is that the defendant obtained an economically beneficial
concession with regard to the merits provisions, in the form of lower monetary
payments to class members or less injunctive relief for the class than [the defendant]
could otherwise have obtained.” (Staton v. Boeing Co. (9th Cir. 2003) 327 F.3d 938,
964.) Id.

The Court has reviewed the supplemental papers and supporting evidence and agrees
with the reasoning of the mediator that the lodestar amount should be reduced by 25%
due to the duplicative billing by the eleven law firms. The Court also agrees that there
should also be a 1.2 multiplier due to the risk involved in taking this complex case on a
contingency basis. Therefore the Court believes that the requested attorneys fees in
the amount of $2,227,984.09 is reasonable and therefore preliminarily approves the
fees.

The settlement appears to be within the “range of reasonableness that would warrant
sending out the class notice.. The monetary value of the settlement to the class is as
follows: (1) An opt-in credit monitoring protection package for each of the 2,200,000
proposed Settlement Class Members exceeds $740 million. This pay-out amount
would only apply if all class members were to opt-in to the settlement. Even if only
12% opt- in (typical opt-in percentage) the value of the credit monitoring protection
program would be over $88 million. See In re HP Inkjet Printer Litigation., 716 F.3d
1173 (9th Cir. 2013) (tying fees to the value of coupons actually rendered under
CAFA). In addition, Health Net has agreed to set aside $ 2,000,000 for identity theft
reimbursement and to spend over $7 million revising its procedures and encrypting all
of its data to protect members from future incidents.

The matter was continued for further briefing for plaintiff to provide evidence of the
reasonableness of the attorneys fees sought, including supporting attorney
declarations, and any authority that the Court can determine the reasonableness of the
settlement separately from the reasonableness of the attorneys fees. The Court is
viewing the settlement as a whole to ensure there is a balance between the attorneys
fees awarded and the value of the benefits to the class. The supplemental papers filed
by plaintiff appear to include all of the required evidence to support the attorneys fees
requested.

The Court will sign a proposed order preliminarily approving the settlement, after the
final fairness hearing date and other necessary dates are filled in, and on condition
that all notices or other documents sent to the class explaining how to object to the
settlement are amended to include a requirement that on page one of any document
sent to the court, the objection must include the date, time, and department number
(53) of the final fairness hearing. Those documents shall include but are not
necessarily limited to Exhibit C (Notice of Proposed Settlement, “What are your other
rights?”) and Exhibit F.