A Pair of New Cases on Class Action Settlements

I've been wanting to note these cases for a couple of weeks, but haven't had the chance. Both deal with the class action settlement approval process. As everyone knows, it's a two-step process. If the Court makes a preliminary determination that the settlement is fair, it orders notice to be sent to the parties and holds a final approval hearing where it hears any objections and determines whether the settlement is fair.

In In re Consumer Privacy Cases (June 30, 2009), the First District Court of Appeal considered objections to the settlement of consolidated actions against Bank of America. The settlement provided up to $10.75 million in various fee waivers and other benefits to class members, $3.25 million to cy pres beneficiaries, and up to $4 million in fees and costs to class counsel.

Noting the trial court's "broad discretion" to determine "whether a settlement was fair and reasonable, whether notice to the class was adequate, whether certification of the class was proper, and whether the attorney fee award was proper," the Court of Appeal affirmed to order approving the settlement, finding that:

The settlement agreement here met the four Kullar requirements entitling it to a presumption of fairness. Experienced counsel negotiated the settlement after seven years of litigation, including extensive investigation and discovery. The court found that the settlement was ―the product of arm‘s-length negotiations, and only a very low percentage, approximately .000454 percent, of the over 35 million class members objected. ... The court, moreover, contrary to the [objectors'] claim, conducted an extended analysis of the fairness of the settlement.

With regard to attorney fees, the Court approved use of the lodestar method, and noted that the trial court may, but need not, cross-check the lodestar against the total common fund, including the attorney fee award.

On July 6, the Second District Court of Appeal issued its opinion in Clark v. American Residential Services LLC, reversing a trial court's final approval order. The Court of Appeal held:

We conclude the order approving the settlement must be vacated because the trial court lacked sufficient information to make an informed evaluation of the fairness of the settlement. This was due to the court's apparent reliance on counsel's evaluation of the class's overtime claim as having "absolutely no" value, without regard to the objectors' claim that counsel's evaluation was based on an allegedly "staggering mistake of law." While the court need not determine the ultimate legal merit of a claim, it is obliged to determine, at a minimum, whether a legitimate controversy exists on a legal point, so that it has some basis for assessing whether the parties' evaluation of the case is within the "ballpark" of reasonableness. We further conclude that the court abused its discretion in finding that the $25,000 enhancements for [the class representatives] were fair and reasonable, and that it erred in awarding costs greater than the maximum amount specified in the notice given to the class.