2012-00121600-CU-CL

Sharon Marie Shurtleff vs. Health Net of California Inc.

Nature of Proceeding: Motion for Final Approval of Class Action Settlement

Filed By: Cutter, C. Brooks

Appearance required.

Before the Court is Plaintiffs’ Motion (and Health Net’s Joinder) for Final Approval of
Class Action Settlement.

The Amended Declaration of the Settlement Administrator, Lacey Racines, was filed
on May 28, 2014. The initial Declaration filed on May 23 did not contain the
declaration.

This action arises out of a January 21, 2011 incident [“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. Plaintiffs do not allege that the information was improperly viewed or
otherwise accessed. 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 its members of the incident in a timely manner.

The Court preliminarily approved the settlement on December 10, 2013, which was
amended on December 30, 2013. This matter was set for a final approval hearing on
this date. In addition to the moving papers, the Court has received and reviewed the
following documents concerning the settlement:

1. Objection by John W. Davis filed April 8 and opposition filed May 21, 2014.

2. Objection by Dwight Whitaker filed April 11, 2014. This objection has been
withdrawn. See Declaration of C. Brooks Cutter, Ex. 11

3. Objection by Todd Sears filed on February 3, 2014.

4. Objection by Antoinette Middleton filed April 14, 2014.

5. Objection of Leo T. West filed January 31, 2014.

6. Statement of Wanda K. Watson filed March 26, 2014

7. Notice of Intention to Appear by Adrienne G. Janis filed April 7, 2014.

The Plaintiffs Motion for Final Approval and Reply to Objections refers only to the
Objections filed by John Davis and Antoinette Middleton.

The Court has carefully reviewed the documents filed in support of and in opposition to
the final approval of the settlement. The Court has the following concerns that the
parties shall address at the fairness hearing.

1. Language of the ID theft loss claim form

As part of the settlement, Health Net will reimburse claims of ID theft up to a total cap
of $2,000,000. The Court cannot determine whether this amount is reasonable given
problems with the language of the notice, as addressed, below.

There is seemingly a conflict in the language of the settlement agreement with the
language in the claim form sent to the class members entitled “Reimbursement of
Identity Theft Losses Claim Form.” (Ex 1 Decl. of C. Brooks Cutter filed May 12, 2014,
Ex. E thereto) The claim form requires that each claimant certify that: “before your
discovery of such loss, you did not receive written notice of any other data breach
involving your individually identifiable personal, medical, and/or financial
information.” (Claim form, page 2, emphasis added).

In contrast, the settlement agreement provides that the claimant certify that “before
the alleged instance of Identity Theft, you did not receive written notice of any other
data breach involving their individually identifiable personal, medical information and/or
financial information.(Settlement agreement, page 13, lines 23-26, emphasis added) In both instances, a claimant who has a valid claim for identify theft should not
precluded from making a claim merely because some other entity reported that their
information had been stolen, either before the Incident, or before claimant discovered
the loss. (E.g. Target, Capital One) Moreover, the language in the notice is more
restrictive than the language in the settlement agreement and does not accurately
reflect the settlement agreement.

Both the language of the notice and the settlement agreement appear to be over-
inclusive as to what is considered an ID Theft, as it is not limited to theft caused by the
Incident. Therefore, the Court is unable to determine how many of the 228 ID
claimants are claiming a loss due to the Incident or to some other unrelated security
breach by another entity [e.g. Target]. It is also unclear from the settlement agreement
whether there is a requirement that the theft be causally tied to the Incident. The plain
language of the Claim form does not appear to require that the theft be tied to Health
Net’s Incident.

However, the settlement agreement provides that if Health Net denies the claim,
Health Net is entitled to submit evidence to the retired judge at JAMS who makes the
final decision to grant or deny the claim based on a determination that the “theft was
not caused by the Incident.” (Settlement agreement, Page 14). The Court does not
believe that the class was given adequate notice of the nature of the ID theft covered,
nor whether the claimant is required to produce documentation in support of the claim
not only of the theft itself, but the evidence tying the theft of the information to the
Incident.

The language of the Claim Form would appear to lead to incomplete documentation,
resulting in denial of claims, and resulting in the preservation of the $2,000,000 set
aside for payment of ID loss claims. There is no evidence that the 228 claims have
“reached the $2,000,000 aggregate cap” as stated in the Declaration of Cutter, para.
12)

2. Documents supporting the reasonableness of the settlement have not been
filed with the court.

The documents supporting the value of the increased security precautions have not
yet been filed because the motion to seal was denied, without prejudice.
Parenthetically, the documents, even if ultimately sealed, must be a part of the court
record before the court will grant final approval. In the Court’s view, a substantial
portion of the settlement value is the cost of increased security measures, supported
by the documents that must be a part of the court record.

3. Administrator Mailing to forwarding addresses

The administrator did not state when she “caused” the class member list to be updated
with the new addresses nor when the Notice Packets were re-mailed to the 20,990
class members who did not receive the initial notice mailed on January 20, 2014
because they had moved to the forwarding address.

4. Value of the Credit Monitoring The motion for approval sets forth the retail value of the credit monitoring. However,
the claims administrator received 203,849 credit monitoring claim forms. The Court
requires evidence as to Health Net’s actual cost of providing the credit monitoring
service in bulk.

5. Time provided for making a claim for reimbursement

The period of loss is from January 21, 2011 up until April 21, 2014. The Court has
concerns that the deadline for making a claim for reimbursement (April 21, 2014) is
insufficient for claims arising near the end of the loss period given that claimants are
required to investigate the availability of other insurance before making any claim of
identity theft.

Item 6 2012-00121600-CU-CL

Sharon Marie Shurtleff vs. Health Net of California Inc.

Nature of Proceeding: Motion for Attorney Fees

Filed By: Cutter, C. Brooks

The Motion for Attorneys Fees and Costs is not being ruled on at this time pending the
addressing of the court’s concerns listed under the Motion for Final Approval of Class
Action ruling.

Pursuant to the parties’ agreement, the Plaintiffs submitted an application for attorneys
fees to Hon. Edward A. Infante, Ret., who served as a mediator. Health Net opposed
the motion. Mediator Hon. Edward A. Infante (Ret.) awarded plaintiffs attorneys fees
in the amount of $2,227,984.09 and costs in the amount of $84,081.62. The parties
agreed to be bound by the arbitration award and to not seek an appeal of the court’s
award of attorneys fees. The settlement agreement states that “The Court’s
determination of the application by Plaintiff’s counsel for attorney’s fees, expenses,
and incentive awards shall be final and non-appealable. In response to the objections,
plaintiffs now state that the waiver of appeal provision does not apply to absent class
members.

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 ;
Dunk v. Ford Motor Co. (1996) 48 Cal. App. 4th 1794,1801.
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.

In granting the preliminary approval motion, the Court reviewed the supporting
evidence and came to the same conclusion as the mediator that the lodestar amount
should be reduced by 25% due to the duplicative billing by the eleven law firms. Under
the lodestar method, plaintiffs calculate a base fee amount from a compilation of time
reasonably spent on the case and the reasonable hourly compensation of the
attorneys. The base amount is then adjusted in light of various factors. Serrano v.
Priest, (1997) 20 Cal. 3d 25, 40. It is well established that “[t]he ‘experienced trial judge
is the best judge of the value of professional services rendered in his [or her] court
… .’ [Citations.]” Id. at p. 49. The requested multiplier is reasonable due to the risk
involved in taking this complex case on a contingency basis. Therefore, pending the
parties addressing the Court’s concerns listed under the Final Approval Motion, the
requested attorneys fees in the amount of $2,227,984.09 are reasonable.

The Court preliminarily approved only a $1,000 to the named plaintiff and $2,500
awards to Endresen and Probst (Plaintiffs in the San Francisco Superior Court action),
pending supporting declarations to be submitted with the final approval motion and/or
motion for attorneys fees. Plaintiffs now seek incentive awards of $2,500 each for
Plaintiffs Bjorn Endresen and Brian Probst and $1,000 each to Sharon Marie Shurtleff,
the named plaintiff, and $1,000 to Dwight Whitaker. The incentive award declarations
are Exhibits R, S, T, and U to the Declaration of John R. Parker in support of the
Motion for Attorneys Fees and Costs and Motion for Final Approval. The Court finds
that the incentive awards are reasonable and will likely be awarded pending the
satisfaction of the court’s concerns listed under the final approval motion.

Item 7 2012-00121600-CU-CL

Sharon Marie Shurtleff vs. Health Net of California Inc.

Nature of Proceeding: Application to File Under Seal Documents

Filed By: Cutter, C. Brooks

Application to file Under Seal Documents attached to the Declaration of John Parker
Jr. is denied, without prejudice.

Plaintiff seeks to seal documents concerning security measures taken by defendant
since the date of the security breach. The documents, including a deposition
transcript, were marked confidential and highly confidential by the defendant. The
stipulated protective order provides that the documents cannot be filed with the court
unless a motion to seal is granted. The application is not supported by any evidence
establishing that the records should be sealed under CRC 2.550 et seq. The court has
no evidence from which to determine that there exists an overriding interest that
overcomes the right of public access to the record, the overriding interest supports the
sealing of the record, a substantial probability exists that the overriding interest will be
prejudiced if the record is not sealed, the proposed sealing is narrowly tailored, and no
less restrictive means exist to achieve the overriding interest. CRC 2.550(d).
Therefore, the court denies the motion, without prejudice.

The Court will not grant final approval of the settlement without the above records,
which support the value of the injunctive relief obtained in this case.

The clerk is directed to hold the documents conditionally under seal pending a
new application, or alternatively, pending a continuance at the request of
moving party to a later date in conjunction with any continued hearing dates for
the motion for attorney’s fees and motion for final approval.

The minute order is effective immediately. No formal order pursuant to CRC Rule
3.1312 or further notice is required.