Tag: Class Action Settlement

Delta Settles FCRA Class Action for $2.3 Million

We have another multi-million dollar FCRA class action settlement on the books.  In Schofield v. Delta Air Lines, Inc., No. 18-cv-00382-EMC, 2019 U.S. Dist. LEXIS 31535, at *1 (N.D. Cal. Feb. 27, 2019), the district court for the Northern District of California recently issued an order granting Plaintiff’s motion for preliminary approval of class settlement totaling $2.3 million for a class of approximately 44,100 class members.

The plaintiffs in Schofield consist of individuals who applied for employment with Delta Airlines and were allegedly given inadequate disclosure documents when consenting to background checks.  They claim that Delta violated the FCRA; the California Investigative Consumer Reporting Agencies Act (“ICRAA”); the California Consumer Credit Reporting Agencies Act (“CCRAA”); and the California Business & Professions Code by acquiring “consumer, investigative consumer and/or consumer credit reports through background checks from current and former employees without providing proper disclosures and obtaining proper authorizations.”  Plaintiffs argued that the disclosures were inadequate and in violation of the FCRA because they were not clear and unambiguous, contained extraneous information, and did not consist solely of the disclosure.

After the case was removed from San Francisco Superior Court, Delta filed a motion for summary judgment on the basis that the named Plaintiff’s claims under the FCRA, ICRAA, and CCRAA were time-barred by the statute of limitations because he had to bring the action within two years of knowing that background check took place.  Delta’s motion was unopposed as the parties reached a settlement before the opposition was due.

The Settlement Agreement

The settlement agreement released the FCRA and state law claims related to Delta’s “conduct in obtaining background checks on applicants without using a stand-alone authorizing document that complies with the FCRA and accompanying state laws.” Id. at *3-4.  As stated above, the settlement is for $2.3 million for a class of approximately 44,100 class members.

  • Of the $2.3 million, Plaintiff’s counsel is going to seek 25%, but is permitted to seek up to 33.33% of the total settlement amount, or $766,666.66.
  • 60% of the net settlement amount is to be divided evenly among class members on a pro rata basis whose background check Defendant procured or caused to be procured on or after October 17, 2015 through February 14, 2019. Id. at *4.
  • 40% of the net settlement amount is to be divided evenly among class members on a pro rata basis whose background check Defendant procured or caused to be procured from October 17, 2012 through October 16, 2015
  • Finally, if the total number of class members exceeds 46,000, Delta will supplement the settlement fund by $50 per person for each person in excess of 46,000.

Class Certification

As the court notes, where “a class has not yet been certified in [a] case, before determining the fairness of a class action settlement agreement, the Court must determine whether the settlement class meets the requirements for class certification under Federal Rule of Civil Procedure 23.”  Thus, the court had to analyze whether the alleged class satisfies the requirements of FRCP Rule 23(a), which are (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy of representation.

  1. Numerosity

The court quickly checked off this requirement as the class is upwards of 44,100 members.

  1. Commonality

This requirement is met when there are questions of fact and law which are common to the class.  In this case, the motion for preliminary approval defined the common issue as “whether Delta willfully violated the law by using these forms.”  The court found that, “[w]hile some class members may have more specific issues with respect to the statute of limitations, that does not necessarily preclude class certification.”  This requirement was met.

  1. Typicality

To satisfy this requirement, “the claims or defenses of the representative parties must be typical of the claims or defenses of the class.  In this case, the court concluded that all class members, including the class reps, will likely face the same challenge with respect to a statute of limitations defense.  Further, the plaintiff alleged that Delta’s conduct was uniform, so whether Delta obtained consumer reports and when class members should have learned of the report is likely to turn on common evidence or patterns of evidence.  Thus, this requirement was met.

  1. Adequacy of Representation

There are two factors the court looks at here – (1) do the named plaintiffs and their counsel have any conflicts of interest with other class members, and (2) will the named plaintiffs and their counsel prosecute the action vigorously on behalf of the class?  With respect to the first question, the court found no conflicts of interest.  With regard to the second question, the court noted that plaintiff’s counsel moved quickly for settlement, but acknowledged that such a move may very well be the result of the “general weakness of the case rather than a lack of vigorous representation.”

  1. FRCP Rule 23(b)

Finally, the court had to find that the requirements under FRCP Rule 23(b) were satisfied.  Under Rule 23(b), the court must find that questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.

First, the court found that there is a single common issue that drives the litigation—that is whether Delta willfully violated the law by using facially inadequate forms predominates over the individual issues.  Thus, the court concluded that liability can be determined on a class wide basis.  Next, the court noted that the amount in controversy is small and that because litigation costs would dwarf potential recovery, a class action is the superior means of adjudicating this case.

Review and Approval of Settlement

Once the court determined that the FRCP Rule 23 requirements for class certification were met, it had to approve the proposed settlement.  The court analyzed (a) the adequacy of the settlement amount; (b) the settlement process; (c) the presence of obvious deficiencies; and (D) procedural guidance for class action settlements.

  1. Adequacy of the settlement amount

The court preliminarily found that the settlement consideration is adequate despite potential vulnerabilities in plaintiff’s case (ex. overcoming statute of limitations defense; litigating unsettled aspects of law related to claims; finding of willfulness)

  1. Settlement process

The settlement was reached as a result of arm’s length negotiations with a mediator, so the court found that the settlement was reached in a procedurally fair manner.

  1. The presence of obvious deficiencies

The court analyzed the notices to be sent to class members, whether the named plaintiff was receiving preferential treatment by way of the large incentive award (requested $10,000 as an incentive award), and attorney’s fees.  The court found no deficiencies that would lead it to not approve the proposed settlement agreement.

  1. Procedural guidance for class action settlements

The court found that the parties appropriately addressed the Northern District of California’s procedural guidance for class action settlements.

Thus, the court granted preliminary approval of the settlement based upon the terms set forth in the settlement agreement.  The final approval hearing is scheduled for July 11, 2019.  Stay tuned!

 

Copyright © 2019 Womble Bond Dickinson (US) LLP All Rights Reserved.
This post was written by Shane Micheil of Womble Bond Dickinson (US) LLP.

Court of Appeal Reminds Litigants That Settling With Named Plaintiff Does Not Necessarily End Putative Class Action

An article recently published in the National Law Review by Neil A.F. Popović and Lai L. Yip of Sheppard Mullin Richter & Hampton LLP  regarding Putative Damages and Class-Action Lawsuits:

 

If a defendant in a putative class action settles with the class representative prior to class certification, does the defendant nonetheless have to respond to pre-settlement discovery requests to identify absent class members? According to the California Court of Appeal in Pirjada v. Superior Court, 2011 WL 6144930, Case No. B234813 (Cal. App. Dec. 12, 2011), the answer is no, although the appellate court left open the possibility that the trial court could require some form of notice to protect the interests of absent class members.

Plaintiff Seeks Discovery Identifying Putative Class Members

Putative class representative Obaidul Pirjada (“Pirjada”) brought a purported class action on behalf of all security guards who had been employed in California by defendant Pacific National Security, Inc. (“Pacific National”) during the preceding four years, alleging violations of the California Labor Code and the California Business and Professions Code. Pirjada propounded discovery requesting, among other things, the names and addresses of all putative class members. Pacific National did not object or respond to the discovery requests.

Plaintiff, Without Counsel Involvement, Settles Directly With Defendant

Without the involvement of his attorneys, Pirjada settled directly with Pacific National after negotiating with its CEO. Then, by letter to his counsel, Pirjada requested that his claims be dismissed with prejudice, and enclosed the settlement agreement along with payment for legal services.

Plaintiff’s Counsel Files Motion for Order Providing Notice to Putative Class Members; Defendant Files Motion to Dismiss

Instead of dismissing the lawsuit, however, Pirjada’s counsel filed a motion seeking to provide notice to absent members of the proposed class that substitution of a suitable class representative was necessary. Pacific National filed a motion to dismiss based on the parties’ settlement, which Pirjada joined.

Superior Court Denies Both Motions

The superior court denied Pacific National’s motion to dismiss, noting that a plaintiff’s individual settlement does not vitiate plaintiff’s or his counsel’s fiduciary obligations to the putative class members. The court granted sixty days leave to amend to add a new plaintiff as class representative. The court denied counsel’s motion for notice, finding it unnecessary because unlike in CashCall, Inc. v. Superior Court, 159 Cal. App. 4th 273 (2008), and Best Buy Stores, L.P. v. Superior Court, 137 Cal. App. 4th 772 (2006), members of the putative class of security guards know whether they were injured and thus can determine without notice whether to assert claims against Pacific National. The court specifically noted, however, that regardless of notice, plaintiff’s counsel was authorized to communicate with potential class members.

Plaintiff’s Counsel Moves to Compel Discovery to Identify New Class Representative, Which Superior Court Denies

Plaintiff’s counsel then moved to compel responses to the previously propounded requests for information identifying putative class members, arguing that Pacific National had waived its objections by failing to respond; that Pirjada could not provide contact information for other putative class members because he worked at only one Pacific National location and was the only guard assigned there; and that Pirjada contacted counsel only after his employment at Pacific National had ended. The superior court denied the motion to compel, stating that Pirjada had settled his claims and that his discovery requests were therefore moot. The court reiterated, however, that counsel were free to communicate with class members, even if it they were not entitled to discovery.

Court of Appeal Denies Petition, Deciding Superior Court Did Not Abuse Discretion

Plaintiff’s counsel filed a petition for writ of mandate challenging the superior court’s denial of the motion to compel, as well as the denial of the motion to provide notice.

The Court of Appeal concluded that the superior court acted within its broad discretion in denying the motion to compel, and choosing instead to protect absent class members by allowing counsel leave to amend the complaint after using informal means to identify potential replacement class representatives.

With respect to notice, the Court stated:

[P]recertification discovery may be allowed in appropriate circumstances to identify a substitute class representative in place of one who is not able to serve in that capacity, as well as to assist the lead plaintiff in learning the names of other individuals who might assist in prosecuting the action. But the obligation to notify absent class members before dismissing the case rests with the superior court, not the lead plaintiff or class counsel. The nature and extent of that notice must be decided by the court itself.

Pirjada, 2011 WL 6144930. at *14. The Court noted that under California Rule of Court 3.770, no notice to absent class members is required at all “if the court finds that the dismissal will not prejudice them.” Id. Moreover, because the superior court issued an order to show cause regarding dismissal, counsel will have the opportunity at that hearing to demonstrate that some form of notice is required to avoid prejudice to absent class members.

Lessons for Class Action Defendants

The somewhat unique circumstances in Pirjada highlight the importance of making sure to tie up procedural loose ends, such as outstanding discovery, when a defendant settles with the named plaintiff(s) prior to class certification. More broadly, the case serves as a reminder that named plaintiffs and their counsel have an ongoing fiduciary duty to potential class members, and courts must take reasonable steps to protect those interests, including through potential discovery and notice procedures.

Under Parris v. Superior Court, 109 Cal. App. 4th 285 (2003), and its progeny, “‘trial courts must apply a balancing test and weigh the actual or potential abuse of the class action procedure against the potential benefits that might be gained'” by allowing precertification discovery to identify a substitute class representative.Pirjada, 2011 WL 6144930, at *5 (quoting Starbucks Corp. v. Superior Court, 194 Cal. App. 4th 820, 825 (2011)). Addressing that standard remains a key consideration for defendants who seek to avoid ongoing class action litigation when they settle with a named plaintiff.

Copyright © 2011, Sheppard Mullin Richter & Hampton LLP.