In Kullar v. Foot Locker Retail, Inc., Court of Appeal sides with objector to class action settlement

Objectors to class action settlements have limited prospects for success.  I haven't seen any data, but the success rate of objectors looks to be exceedingly low.  So it is of some note when a published opinion accepts an objector's contention that a class action settlement is not "fair, reasonable and adequate."  In Kullar v. Foot Locker Retail, Inc. (Echeverria as Objector and Appellant) (November 7, 2008), the Court of Appeal (First Appellate District, Division Three) did just that.

Echeverria contended that the trial court erred in finding a settlement "fair, reasonable and adequate without any evidence of the amount to which class members would be entitled if they prevailed in the litigation...." (Slip op., at p. 1.) The Court of Appeal agreed that the trial court was obligated to consider the potential range of possible recoveries before concluding that a settlement meets that standard:

More fundamentally, neither Dunk, 7-Eleven, nor any other case suggests that the court may determine the adequacy of a class action settlement without independently satisfying itself that the consideration being received for the release of the class members’ claims is reasonable in light of the strengths and weaknesses of the claims and the risks of the particular litigation. The court undoubtedly should give considerable weight to the competency and integrity of counsel and the involvement of a neutral mediator in assuring itself that a settlement agreement represents an arm’s length transaction entered without self-dealing or other potential misconduct. 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. “The court has a fiduciary responsibility as guardians of the rights of the absentee class members when deciding whether to approve a settlement agreement.” (4 Newberg on Class Actions, supra, § 11.41 at p. 118; 7-Eleven, supra, 85 Cal.App.4th at p. 1151.) “The courts are supposed to be the guardians of the class.” (Dickerson, Class Actions: The Law of 50 States (2008 ed.) § 9.02[2], p. 9-6.)

(Slip op., at pp. 13-14.)  The Court of Appeal acknowledged the factual circumstances that guided the trial court but ultimately dismissed those circumstances (a possible mediation privilege) as a basis for presuming the fairness of a settlement without testing it against the range of potential recoveries: 

Here, the trial court acknowledged that “in logic” it would have been preferable for it to have been presented with data permitting it to review class counsel’s evaluation of the sufficiency of the settlement, but felt that this was precluded because the supporting information was exchanged in the course of mediation. We disagree with this conclusion for two reasons. First, the fact that the settlement was reached during mediation to which Evidence Code section 1119 applies does not eliminate the court’s obligation to evaluate the terms of the settlement and to ensure that they are fair, adequate and reasonable. If some relevant information is subject to a privilege that the court must respect, other data must be provided that will enable the court to make an independent assessment of the adequacy of the settlement terms. Secondly, the fact that communications were made during the mediation and writings prepared for use in the mediation that are inadmissible and not subject to compulsory production does not mean that the underlying data, not otherwise privileged, is also immune from production. (Evid. Code, § 1120 [“Evidence otherwise admissible or subject to discovery outside of a mediation . . . shall not be or become inadmissible or protected from disclosure solely by reason of its introduction or use in a mediation . . .]; Rojas v. Superior Court (2004) 33 Cal.4th 407, 417; Wimsatt v. Superior Court (2007) 152 Cal.App.4th 137, 157-158.) Foot Locker’s payroll records, for example, if relevant to the quantification of the claims being settled, are subject to discovery and may be introduced in opposition to the settlement even if they were disclosed to class counsel during the mediation, and even if class counsel was shown only a summary or analysis of those records that is not itself subject to production because prepared for use in the mediation.

(Slip op., at pp. 16-17.)

Easy moral:  Give the trial court something to hang its hat on when seeking approval of a settlement.  Sample calculations for claimants would be a good start, coupled with a discussion of how risk impacts a claim calculated at any particular recovery level.