178 Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) Seyfarth Shaw LLP | www.seyfarth.com discounted amount was proper. But the ruling also creates the potential that a court could reject a settlement solely because it was reduced too much from a theoretical “maximum” exposure value. Kullar overlooks the problems inherent in forecasting a maximum exposure, especially where there is a lack of documentary evidence to prove the extent of possible damages. For example, in an exempt misclassification case, there may be no agreed way to assess what percentage of the class was misclassified or the average amount of overtime worked. In the absence of a comprehensive survey of the class (which can cost tens or hundreds of thousands of dollars to accomplish and even then may be of questionable validity), plaintiffs’ counsel will be working with cherry-picked data to estimate the average overtime worked by the class. Similarly, in a case where the employer argues great variation among the class, there may be a dispute as to what percentage of the class is properly classified and how much unpaid overtime was worked by class members. Accordingly, a theoretical maximum exposure number built on 100% misclassification of the class and assuming 10-15 hours per week of overtime worked by each individual may bear no relation whatsoever to the fair “settlement value” of a case. An example of judicial second-guessing of a class settlement negotiated at arm’s length occurred in O’Connor v. Uber Technologies, Inc.886 There, United States District Court Judge Chen denied preliminary approval of a $100,000,000 proposed settlement, expressing disapproval of the practice whereby “district courts often state or imply that scrutiny should be more lax” at preliminary approval, and holding that full scrutiny should be applied at both the preliminary and final approval stages. Judge Chen found that the total settlement package (which represented 5% of the maximum potential value of the claims alleged), was not fair, adequate or reasonable. Judge Chen took the parties to task, in particular, over their allocation of 1% ($1,000,000) of the settlement fund to the PAGA claim. Noting that the maximum potential liability under PAGA was $1 billion, the court found that the allocation of only 0.1% of this amount in the proposed settlement did not “substantially vindicate PAGA.” It is common for PAGA allocations to represent a much smaller portion of the settlement fund because, for example, PAGA violations are often duplicative of other Labor Code claims, and 75% of PAGA recovery goes to the state rather than class members. In fact, the Court of Appeal has sanctioned the allocation of zero dollars to a PAGA claim as part of a class settlement.887 However, as the Uber case demonstrates, individual judges may apply the Kullar analysis differently, and may place more emphasis on potential exposure than on the realistic value of the claims. As long as the exercise of analyzing the proper value of a settlement is limited to some kind of “rational basis” review, judicial scrutiny of the settlement value should not have any great impact on class settlement. If the trend toward greater judicial scrutiny of settlements continues unreasonably, as in Uber, it could discourage class 886 201 F. Supp. 3d 1110 (N.D. Cal. 2016). 887 Nordstrom Com’n Cases, 186 Cal. App. 4th 576, 589 (2010) (affirming trial court’s approval of a class settlement that apportioned zero dollars to PAGA claims where defendant asserted that there was no liability under the PAGA claims).
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