Approval of Class Action Settlement of Labor Law Class Action must be Vacated and Remanded because Trial Court Lacked Sufficient Evidence to Determine Reasonableness of Proposed Class Action Settlement and because Objector (Plaintiff in a Separate Class Action) Wrongfully Denied Discovery Regarding Class Action Settlement California State Court Holds
Plaintiff filed a class action against Foot Locker alleging violations of California’s Labor Code; the class action complaint asserted that defendant failed to reimburse employees for expenses related to mandatory uniforms as required by California law. Kullar v. Foot Locker Retail, Inc., ___ Cal.App.4th ___ (Cal.App. November 7, 2008) [Slip Opn., at 2]. The class action complaint later was amended to include allegations concerning security checks performed by Foot Locker, and to include class action claims for missed meal and rest periods, and for overtime. Id. Foot Locker denied the allegations and asserted 23 affirmative defenses, id., at 3. Plaintiff’s discovery was limited, as were defendant’s responses, and did not include any of the theories advanced in the amended class action complaint (such as the meal period claim); further, while defense attorneys deposed the named plaintiff, plaintiff did not depose any of defendant’s officers or employees. Id. Eventually, the parties reached a proposed settlement of the class action, and the trial court gave preliminary approval to the class action settlement. Id., at 4. As finally approved, the class action settlement called for Foot locker to pay a maximum of $2 million, of which $500,000 would be sought as attorney fees by plaintiff’s counsel, with the settlement proceeds payable on a sliding scale, depending on the length of time worked by the employee and the number of forms returned by members of the class. See id., at 4-6. It was estimated that approximately $1.3 million would be available for the class, and that individual payments could fall within a wide range – for example, the highest amount an individual class member may receive ranged from $2,900 to more than $30,000, depending on the number of participants in the settlement. See id., at 6. Before the parties requested preliminary approval of the class action settlement, a separate class action was filed by Crystal Echeverria against Foot Locker alleging inter alia failure to provide meal breaks, id., at 7. Echeverria objected to the proposed class action settlement and sought discovery from the parties, including the deposition of Foot Locker’s person most knowledgeable about “meal period breaks, record keeping for meal period breaks, and payment of compensation for missed meal period breaks.” Id. The trial court denied leave to depose Foot Locker as “irrelevant because it related either to liability, which ‘doesn’t matter for the settlement,’ or to the amount of damages.” Id., at 8. The trial court ultimately approved the class action settlement over Echeverria’s objection, id., at 9-11, and she appealed. The California Court of Appeal reversed.
The appellate court recognized the limited scope of its review: “Our task is not to make an independent determination of whether the terms of the settlement are fair, adequate and reasonable, but to determine ‘only whether the trial court acted within its discretion.’” Kullar, at 11 (citation omitted). “Great weight” is afforded to trial courts in approving class action settlements, and the trial court’s finding will not be reversed absent an abuse of discretion. Id. Here, the trial court concluded that the class action settlement warranted approval because the four relevant factors were met – viz., the settlement was reached at arm’s-length, sufficient investigation and discovery had been pursued so as to allow the parties and the court to act intelligently, counsel were experienced in similar litigation, and only a small percentage of putative class members objected to the class action settlement. Id., at 11-12. Echeverria conceded that most of these factors indeed had been met, but she insisted that the second factor was missing because plaintiff plainly failed to conduct the investigation necessary to settle the meal period claim, id., at 12. The appellate court agreed.
Specifically, the Court of Appeal held that the assertion by plaintiff’s counsel that he obtained information “informally” as part of the mediation process was insufficient because counsel “provided no specificity” to support the claim. Kullar, at 12-13. The appellate court explained at page 13, “Whatever information may have been exchanged during the mediation, there was nothing before the court to establish the sufficiency of class counsel’s investigation other than their assurance that they had seen what they needed to see. The record fails to establish in any meaningful way what investigation counsel conducted or what information they reviewed on which they based their assessment of the strength of the class members’ claims, much less does the record contain information sufficient for the court to intelligently evaluate the adequacy of the settlement.” The Court further concluded that the trial court had misinterpreted California case law concerning its obligations, explaining that no case “suggests that the court may determine the adequacy of a class action settlement without independently satisfying itself that the consideration being received for the release of the class members’ claims is reasonable in light of the strengths and weaknesses of the claims and the risks of the particular litigation.” Id., at 13.
The appellate court explained that the trial court erred in believing that it could not “go behind” the mediation process to review the documents necessary to determine, for itself, the sufficiency of the settlement. Kullar, at 15. The Court of Appeal explained, “the trial court acknowledged that ‘in logic’ it would have been preferable for it to have been presented with data permitting it to review class counsel’s evaluation of the sufficiency of the settlement, but felt that this was precluded because the supporting information was exchanged in the course of mediation.” Id., at 15-16. That information, however, was not privileged, and it did not become so simply because it was exchanged in mediation rather than in response to a formal request for discovery, id., at 16. Accordingly, the appellate court vacated the trial court’s approval of the class action settlement and remanded the matter so that (1) the parties could provide the trial court with the information necessary to support the proposed settlement and (2) the objector could obtain discovery of non-privileged materials “sufficient to permit an intelligent evaluation of the terms on which the case is proposed to be settled.” Id., at 17. The appellate court stressed that the class action settlement, as proposed, may well warrant approval, but that “the trial court may not finally approve the settlement agreement until provided with sufficient information to assure itself that the terms of the agreement are indeed fair, adequate and reasonable.” Id., at 18.