Plaintiff’s Julia Smith and Heather Miller bring this consolidated action on behalf of themselves and members of the putative class against Defendants Western Athletic Club LLC and Pacific Sports Resort, Inc. (“Defendants”) alleging various wage and hour violations, overtime claims, wage statement violations, rest break violations and violations of California’s Unfair Competition Law.  Defendants operate athletic clubs in California and employ personal fitness trainers, massage therapists, aquatics instructors, yoga instructors, tennis instructors, Pilates instructors, break-away instructors, etc.  Plaintiff Smith was a massage therapist and Plaintiff Miller was a fitness instructor.  In their respective Complaints, Plaintiffs allege that Defendants did not pay employees the proper hourly rate for each service hour they worked and minimum wage for all non-service hours as promised, but that Defendants spread the service payments across the workweek in order to create the appearance of satisfying their minimum wage obligations.  The respective Complaints were consolidated by this Court on February 11, 2014.  The putative class is defined as “all persons who worked for Defendants in the State of California as Service Providers, at any time from July 28, 2008 through July 31, 2014.”

 

Plaintiffs now move for preliminary approval of class action settlement.

 

According to the preliminary approval papers, the parties engaged in formal mediation with Mark Rudy, an experienced employment mediator, on August 23, 2013 and again on December 12, 2013.  Although the case did not settle at either session, the parties continued to discuss settlement and ultimately with the assistance of Mr. Rudy, the parties executed a memorandum of understanding on July 2, 2014.  The Stipulation and Settlement of Class Action Claims (the “Settlement”) was fully executed on or about Oct. 1, 2014.  The Settlement provides for a gross payment of $2,425,000 and is broken down as follows: (1) $10,000 incentive award to each of the two class representatives; (2) an $18,750 PAGA penalty payment to be distributed to the California Labor and Workforce Development Agency; (3) up to one-third (33%) of the gross settlement as attorney’s fees ($808,333); (4) reasonable litigation costs not to exceed $35,000; (5) Costs of the claims administrator.  The Net Common Fund is the amount available for distribution after a deduction of these items from the Gross Common Funds.

 

The preliminary approval papers include the formula for distribution of the Net Common Fund amongst the Class Members.  The papers indicate that there are approximately 1545 potential Class Members.  All currently employed Class Members who do not opt out of the settlement shall be deemed participating Class Members.  Former employees who are Class Members will need to submit a timely claim form.  Each Class Member will be assigned an Individual Workhour Number by adding the total number of workhours in which he or she was employed as a Service Provider by Defendants during the class period.  The payout ratio for each Class Member will be determined by dividing his or her Individual Workhour Number by the Aggregate Workhour Number and then adjusting up or down by a percentage of each eligible Class Member’s average weekly pay rate compared to the average pay rate of all eligible Class Members. The total potential settlement amount for each Class Member shall be initially calculated by multiplying the payout ration by the Net Common Fund.  Ultimately, the final amount will be calculated by dividing the Class Member’s individual workhour numbers by the aggregate number of workhours for all current employees and all those former employees that submitted a valid and timely claim form to reach a final payout ration and then multiplying the final payout ratio by the Net Common Fund.  The California Bar Foundation will be the cy pres beneficiary for any remaining funds due to uncashed checks, etc.

 

Analysis:  “The well-recognized factors that the trial court should consider in evaluating the reasonableness of a class action settlement agreement include ‘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.’ [Citations.]  This list ‘is not exhaustive and should be tailored to each case.’ [Citation.]”  (Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 128.)  “[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.  [Citation.]”  (Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1802.)
Here, the settlement is entitled to a presumption of fairness.  The settlement was reached through arm’s-length bargaining with the assistance of mediator Mark Rudy over the course of several months and extended negotiations between the parties.  Prior to mediation and settlement, there was some investigation and discovery regarding payroll data and timekeeping records as well as Defendants’ relevant policies.  The case has been litigated over the course of the past two years.  Regarding counsels’ experience, Plaintiff’s counsel submits that they are involved in numerous class action and complex cases. (Declarations of Peter Rukin, Kevin R. Allen and Norman B. Blumenthal).

 

“Although [t]here is usually an initial presumption of fairness when a proposed class settlement … was negotiated at arm’s length by counsel for the class, … it is clear that the court should not give rubber-stamp approval.  Rather, to protect the interests of absent class members, the court must independently and objectively analyze the evidence and circumstances before it in order to determine whether the settlement is in the best interests of those whose claims will be extinguished.  To make this determination, the factual record before the … court must be sufficiently developed… . The proposed settlement cannot be judged without reference to the strength of plaintiffs’ claims.  The most important factor is the strength of the case for plaintiffs on the merits, balanced against the amount offered in settlement.  The court must stop short of the detailed and thorough investigation that it would undertake if it were actually trying the case, but nonetheless it must eschew any rubber stamp approval in favor of an independent evaluation.”  (Kullar, supra, 168 Cal.App.4th at p. 130, internal citations and quotation marks omitted.)

 

Plaintiff’s Counsel estimates that the potential range of recovery in this case, assuming that class certification is granted, ranges from approximately $4 Million to $22 Million depending upon a variety of factors (PAGA penalties, number of service hours in the class period for which Class Members were not paid the minimum wage, etc.) and that the Gross Settlement Amount constitutes anywhere between 11% and 60% of the potential damages recoverable by the Class Members.  The preliminary approval papers set forth the theories of liability against Defendants for their payment policies ( referred to as the “averaging method”) and why Plaintiff’s contend that these practices violate California laws governing an employer’s minimum wage and rest break obligations.  The papers also summarize the defenses raised by the Defendants and the ultimate fact that there was a substantial risk that the Plaintiff’s might not prevail on the merits on a class-wide basis.  It was because of this risk and expenses and risks associated with protracted litigation that led Plaintiffs to conclude that the settlement was in the best interests of the Class.  While Plaintiffs discuss the respective strengths and weaknesses of the case, the Court is still somewhat unclear as to how the settlement formula referenced above will apply to the average Class Member based upon the amount of the Net Settlement Fund.  In other words, it would be helpful in analyzing the fairness of the settlement to give some examples of how the formula would be applied to the average Class Member based upon the numerical data obtained through discovery.  While a description of the settlement formula is helpful in the Court’s preliminary approval analysis, some specific examples of how the settlement would work based upon numerical data is needed to further assess the fairness issues.  Counsel is invited to address this concern at the preliminary approval hearing or submit a brief supplemental declaration illustrating how the formula works with numerical examples.

 

The Court also has an independent right and responsibility to review the attorney fee provision of the settlement agreement and award only so much as it determines reasonable.  (Garabedian v. Los Angeles Cellular Telephone Co. (2004) 118 Cal.App.4th 123, 127-128.)  Plaintiffs’ counsel seeks a fee award equal to 1/3 of the settlement amount, which is not an uncommon contingency fee allocation.  This award is reasonable under the “common fund” doctrine, which allows a party recovering a fund for the benefit of others to recover attorney’s fees from the fund itself.  (See City and County of San Francisco v. Sweet (1995) 12 Cal.4th 105, 110-111.) In advance of the final approval hearing, Plaintiffs’ counsel should submit evidence to support a lodestar cross-check as a further way of evaluating the reasonableness of the attorney’s fee award.  (See Lealao v. Beneficial Cal. Inc. (2000) 82 Cal.App.4th 19, 46-47.)

 

Regarding class representative awards, “‘[t]he rationale for making enhancement or incentive awards to named plaintiffs is that they should be compensated for the expense or risk they have incurred in conferring a benefit on other members of the class.’ [Citation.]  An incentive award is appropriate ‘“if it is necessary to induce an individual to participate in the suit[.]” … [Citation.]’  [Citation.]  ‘[C]riteria courts may consider in determining whether to make an incentive award include: 1) the risk to the class representative in commencing suit, both financial and otherwise; 2) the notoriety and personal difficulties encountered by the class representative; 3) the amount of time and effort spent by the class representative; 4) the duration of the litigation and; 5) the personal benefit (or lack thereof) enjoyed by the class representative as a result of the litigation. [Citations.]’ [Citation.]  These ‘incentive awards’ to class representatives must not be disproportionate to the amount of time and energy expended in pursuit of the lawsuit. [Citation.]”  (Cellphone Termination Fee Cases (2010) 186 Cal.App.4th 1380, 1394-1395.)  The requested $10,000 award for each of the Plaintiffs is facially reasonable and is supported by the statements of Plaintiffs’ counsel regarding their active involvement in the litigation.  Thus, the Court will preliminarily approve the incentive awards.  However, in advance of the final approval hearing, Plaintiffs and/or Plaintiffs’ counsel should submit more detailed evidence on the time and effort Plaintiffs spent during the litigation to support the reasonableness of the awards.

 

Regarding the class notice procedures, the Court finds that notice to the settlement class by First-Class Mail is reasonably calculated to give due notice.  “The content of a class notice is subject to court approval.  If class members are to be given the right to request exclusion from the class, the notice must include the following:”

 

A brief explanation of the case, including the basic contentions or denials of the parties;
A statement that the court will exclude the member from the class if the member so requests by a specified date;
A procedure for the member to follow in requesting exclusion from the class;
A statement that the judgment, whether favorable or not, will bind all members who do not request exclusion; and
A statement that any member who does not request exclusion may, if the member so desires, enter an appearance through counsel.

 

(Cal. Rules of Court, rule 3.766(d).)  Here, the Notice is Exhibit A to the Settlement Agreement and it complies with rule 3.766(d) in all respects.  The Court approves, as to form and content, the class notice and notice procedures.

 

Plaintiffs also move for provisional certification of a settlement class.  “The party seeking certification has the burden to establish the existence of both an ascertainable class and a well-defined community of interest among class members.  [Citations.]  The ‘community of interest’ requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.  [Citation.]  [¶]  The certification question is ‘essentially a procedural one that does not ask whether an action is legally or factually meritorious.’  [Citation.]  A trial court ruling on a certification motion determines ‘whether … the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants.’  [Citations.]”  (Sav-On, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326.)

 

A class is ascertainable if it can be readily identified without unreasonable time and expense.  (Rose v. City of Hayward (1981) 126 Cal.App.3d 926, 932.)  The numerosity requirement requires that it is impracticable to join all of the class members all before the court.”  (Miller v. Woods (1983) 148 Cal.App.3d 862, 873.)  “Adequacy of representation depends on whether the plaintiff’s attorney is qualified to conduct the proposed litigation and the plaintiff’s interests are not antagonistic to the interests of the class.  [Citations.]”  (McGhee v. Bank of America (1976) 60 Cal.App.3d 442, 450-451.)  “The test of typicality is whether other members have the same or similar injury, whether the action is based on conduct which is not unique to the named plaintiffs, and whether other class members have been injured by the same course of conduct.”  (Seastrom v. Neways, Inc. (2007) 149 Cal.App.4th 1496, 1502.)  The party moving for class certification must also establish “by a preponderance of the evidence that the class action proceeding is superior to alternate means for a fair and efficient adjudication of the litigation.”  (Washington Mutual Bank v. Superior Court (Briseno) (2001) 24 Cal.4th 906, 914 [class treatment must “provide substantial benefits both to the courts and the litigants”].)

 

In the immediate case, the proposed settlement class is ascertainable because all Class Members are current or former employees of Defendants who worked in California.  The preliminary approval papers indicate that Defendants’ records readily identify each of the Class Members and the class size is approximately 1545 which is sufficiently numerous to make joinder impracticable.  Plaintiffs’ submit that there are sufficient common questions of law and fact that predominate because the proposed Class Members’ claims relate to Defendants’ policies of failing to pay for overtime worked, failing to make minimum wage payments, failing to pay for rest breaks, failure to provide accurate itemized wage statements reflecting hours worked, etc.  Based upon these factors, the Court grants provisional certification of the Class for settlement purposes.

 

Assuming that Plaintiff’s provide additional information (as referenced above) as to the practical implementation of the settlement formula using numerical data, this Court is prepared to grant Preliminary Approval.  The Court has reserved Jan. 30, 2015 at 9 a.m. for a Final Fairness Hearing.