Allen v. Bedolla: Ninth Circuit Addresses Class Settlement Standards

In Allen v. Bedolla, ___ F.3d ___ (9th Cir. 6/2/15), the parties settled a wage and hour class and collective action on the following terms: (1) gross settlement fund of $4.5 million, with distributions on a claims made basis and all unclaimed funds (other than fees and administrative costs) reverting to the employer; (2) stipulated injunctive relief; and (3) attorney fees of up to 25% of the gross settlement fund. The district court granted preliminary approval, notices went out, and approximately 15,000 settlement class members filed claim forms, equating to a maximum of $375,000 in payment to settlement class members.

The plaintiffs in a separate class action then sought to intervene and objected to the settlement, but the court denied their intervention motion and overruled their objections. The court granted final settlement approval, and the intervenors/objectors appealed.

The Ninth Circuit affirmed in part and reversed and remanded in part, holding as follows:

The court properly denied the motion to intervene. Although the court did not give its reasons for denying the motion, the Ninth Circuit affirmed on grounds that the intervention motion was not timely, as the Allen case had been pending for four years at the time of settlement, and the intervenors knew of the case and had regularly asked the defendant about the status of settlement talks there.

The court did not engage in the "searching inquiry" required for settlement of uncertified class actions. The Ninth Circuit found three signs that the settlement may have been improper:

(1) all of the money that does not go toward claims actually made, the attorneys’ fees and costs and the administration costs reverts to Labor Ready; (2) Labor Ready agreed not to dispute the award of fees to class counsel, as long as that award did not exceed 25% of the common fund; and (3) when the attorneys’ fee award is examined in terms of “economic reality,” the award exceeds the maximum possible amount of class monetary relief by a factor of three.

The court should have examined these factors, built a record to support its final approval decision, and fulfilled its "special obligat[ion] to assure itself that the fees awarded in the agreement were not unreasonably high." The court also should have made express findings regarding the value of the stipulated injunctive relief and plaintiff's counsel's reasonable attorney fee lodestar.

The court also erred in that the deadline for filing class member objections was before counsel submitted its final fee request. The court should have allowed settlement class members to object to the fee award.

The Ninth Circuit expressed no opinion on the settlement's substantive fairness, leaving that issue for the district court on remand.

The opinion is available here.