Court of Appeal Further Clarifies Settlement Approval Rules

In re. Cellphone Fee Termination Cases (June 28, 2010, publication ordered July 27, 2010) 186 Cal.App.4th 1380, arises out of an action challenging a cellphone carrier's imposition of early termination fees on customers canceling their contracts. During trial, the parties agreed to settle a California class action and three separate nation-wide class actions. The trial court approved the settlement, and objectors appealed. The Court of Appeal affirmed.

The objectors argued that "the form of notice provided to class members was ... inadequate because the notices allegedly misled members of the Subscriber Class into believing that they were 'eligible to make claims for any part of the Common Fund,' and also because the notices allegedly did not disclose the 'size of the class.'" Slip op. at 6. The Court rejected this argument, holding that the notice was sufficient because it referred class members to a detailed notice and claim form package and to a website that fully described the settlement terms. "Using the capability of the Internet in [this] fashion was a sensible and efficient way of providing notice, especially compared to the alternative [objector] apparently preferred-mailing out a lengthy legalistic document that few class members would have been able to plow through." Slip op. at 7.

The objectors also argued that the notice failed to state the size of the class. The Court held that this was not required. "[T]here is no requirement that the class size be specified in the notice [citations]...." Slip op. at 7.

Both the mail notice and the long-form publication notice identified the total amount of the common fund recovery, the nature of the costs and fees to be deducted from the common fund, and the fact that the balance of the fund would be allocated among qualified class claims. The long-form publication notice makes clear that "[t]he amount paid to class members may be larger or smaller than the amount of the claim, depending on how many claims are submitted." "The aggregate amount available to all claimants was specified and the formula for determining one's recovery was given. Nothing more specific is needed."

Slip op. at 7.

The objectors next argued that the class representatives "breached their fiduciary duties to the class by receiving the incentive awards [in the amount of $10,000 each] and that they sought 'individual gain' at the expense of the class." Slip op. at 11. The Court rejected this argument as well:

While there has been scholarly debate about the propriety of individual awards to named plaintiffs, "[i]ncentive awards are fairly typical in class action cases." These awards "are discretionary, [citation], and are intended to compensate class representatives for work done on behalf of the class, to make up for financial or reputational risk undertaken in bringing the action, and, sometimes, to recognize their willingness to act as a private attorney general."

Slip op. at 11. Although there is no "presumption of fairness" in review of an incentive fee award, the Court found no abuse of discretion here.