2012-00121600-CU-CL

Sharon Marie Shurtleff vs. Health Net of California, Inc.

Nature of Proceeding: Motion for Preliminary Approval of Class Action Settlement
Plaintiff’s Motion for Preliminary Approval of Class Action Settlement is denied, without
prejudice.

This matter was continued to allow the plaintiffs to file supplemental information on the
amount of the attorneys fees being sought. Plaintiff filed supplemental papers on
September 27, 2013. Defendant filed a statement of non-opposition on September 30,
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 Ket 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.

When this matter was first on calendar, there was no specific attorney fee request
because the issue had been submitted to a mediator. Plaintiffs submitted an
application for attorneys fees to Hon. Edward A. Infante, Ret., who is 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 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.

Therefore, the Court cannot merely rubber stamp the award of the arbitrator but must
reach its own decision as to whether the fees requested are reasonable. In Cell
Phone Termination Fee Cases (2009) 180 Cal.App.4th 1110, 1119, the trial court had
made its own determination before the fee arbitration that attorneys fees within a
certain range were reasonable.

The additional briefing provided by plaintiff contains no discussion of the amount of the
fee request, as recommended by the mediator, and its reasonableness. Plaintiff has
attached some of the documents submitted to Judge Infante in support of and in
opposition to the request for attorneys fees and the Court has reviewed those
documents. (See Exhibits 3 – 9). However, many of the declarations offered in
support of the attorneys fees and costs [to Judge Infante] were not included in the
papers submitted in the instant matter.

Assuming the plaintiff will be able to submit all of the supporting declarations before
the time of the final approval hearing, the Court 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 potentially reasonable and would be granted in the final approval
hearing assuming all of the evidence considered by Judge Infante on the fees and
costs was before the Court.

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 Court is denying the motion without prejudice due to defective language in the settlement and the proposed order. California Rules of Court (CRC), rule 3.769(c),
requires that a motion for approval of a class action settlement must contain the
settlement agreement. The settlement agreement, at paragraph 14.2, does not
contain any information about the amount of the attorneys fees being requested.
Paragraph 15 of the proposed final order approving settlement also neglects to
mention any fees, 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.”

Plaintiffs have provided no authority that the Court can determine the reasonableness
of the settlement separately from the reasonableness of the attorneys fees, because
the settlement must be viewed as a whole to ensure that there is balance between the
attorneys fees awarded and the value of the benefits to the class.

The Court will not preliminarily approve the settlement with the current language
regarding attorneys fees.

The parties may request another continuance of this motion to provide the Court with
the required documents. At the time of the continued hearing, if the documents
adequately address the Court’s concerns, the Court will preliminarily approve the
settlement and set a date for the final approval hearing. However, at least two weeks
before the final hearing the plaintiff shall submit the evidence in support of the request
for fees and costs. No additional briefing is required as the briefing submitted to the
mediator is sufficient.

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