Seyfarth Shaw LLP | www.seyfarth.com Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) 177 In 2008, however, the Court of Appeal decided Kullar v. Foot Locker Retail, Inc.,882 which signaled greater judicial scrutiny of class action settlements, especially those obtained following limited, informal discovery. In Kullar, a settlement was negotiated by experienced class action counsel (on both sides) with the assistance of a respected mediator. The parties had undertaken only informal discovery and the exchange of information had been conducted as part of the mediation, protecting the nature of the information exchanged from further disclosure. The parties ultimately settled the action for $2 million. Another plaintiff who had filed a separate class action alleging similar claims objected and contended that the plaintiff’s counsel had failed to provide any evidence that counsel had conducted enough investigation to intelligently evaluate the case for mediation. The trial court overruled the objections and found that sworn representations from counsel that they had exchanged necessary information during arm’s length negotiations were sufficient to support approval of the settlement. The objector appealed.883 Kullar remanded the case for the trial court to conduct a more searching inquiry into the investigation of class counsel. Kullar explained that this inquiry should require the settling parties to introduce evidence reflecting the potential recovery if the plaintiffs prevailed and some explanation why the presumably lesser settlement amount represented a fair recovery for the class: While an agreement reached under these circumstances presumably will be fair to all concerned, particularly when few of the affected class members express objections, in the final analysis it is the court that bears the responsibility to ensure that the recovery represents a reasonable compromise, given the magnitude and apparent merit of the claims being released, discounted by the risks and expenses of attempting to establish and collect on those claims by pursuing the litigation.884 Furthermore, Kullar ordered that the objector was entitled to some limited discovery to evaluate the case and to support an objection that the settlement amount was too low to be approved. Although the trial court is not to decide the merits of the case or easily overturn a negotiated settlement, the trial court “must at least satisfy itself that the class settlement is within the ‘ballpark’ of reasonableness.”885 For practical purposes, the main effect of this ruling has simply been to require the plaintiffs’ lawyer, in the motion for approval of a settlement, to spell out some theoretical maximum exposure and explain in general terms why a 882 168 Cal. App. 4th 116 (2008). 883 Id. at 121-27. 884 Id. at 129. 885 Id. at 133. The trend toward greater judicial scrutiny of class action settlements got a substantial boost in Kakani v. Oracle Corp., 2007 U.S. Dist. LEXIS 47515 (N.D. Cal. June 19, 2007), in which United States District Court Judge William Alsup sharply criticized numerous aspects of a negotiated class settlement on the ground that they aimed to benefit class counsel and the defendant at the expense of the class. Judge Alsup criticized settlement terms providing that (1) class members were subject to a general release of all claims (not just claims raised by the class action) if they failed to opt out of the settlement, (2) the employer would receive back any money class members failed to claim, but the plaintiff’s attorney fee award was to be a percentage of the gross settlement, (3) the named class members were each to receive $15,000 incentive awards for acting as class representatives, and (4) no one explained why class members would receive only about 11% of an amount the parties agreed was the maximum possible recovery. Judge Alsup’s decision, although not binding on any other court, influenced judges in the complex courts in California who rule upon most of the class action settlements. Indeed, the criticism of large incentive payments to class representatives was enshrined in an appellate decision, Clark v. American Residential Services LLC, 175 Cal. App. 4th 785 (2009), which was written by an Orange County complex trial court judge temporarily sitting by designation on the Court of Appeal.
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