We wrote last May about the court’s rejection of a $1.75 million settlement in Cruz v. Sky Chefs, Inc., Case No. C-12-02705 DMR (N.D. Cal. 2014) [May 27, 2014]. The court’s decision related to the settlement of run-of-the-mill California wage and hour claims purportedly brought on behalf of approximately 3,000 employees involved in the preparation of airline meals. The court rejected the settlement at that time due to, among other things, a $15,000 incentive award sought by the lead plaintiff and an attorney fee request that would have consumed 30 percent of the settlement, as well as questions as to how the settlement amount had been calculated. The court in particular was concerned that the amount of the settlement was relatively low and amounted to something less than 10 percent of the relief sought.
The court’s decision at that time was consistent with a growing trend, particularly in jurisdictions with extensive class litigation, to examine class settlements more carefully than in the past. We noted back then that the plaintiffs had committed the tactical error of simply presenting the settlement with little explanation of why its terms were reasonable and not answering specific questions about it the court had posed.
The plaintiffs ultimately resubmitted the settlement with some significant changes. The most important of these was to reduce the attorney fee request from $575,000 (30 percent of the settlement) to $437,500 (25 percent, or equal to the Ninth Circuit benchmark). They also presented evidence supporting the factors leading to the agreement to settle the matter for $1.75 million.
Seven months after its rejection of the initial settlement, the court accepted, with material changes, the revised agreement. On the plus side, the court found, in contrast to the earlier request, that the plaintiffs this time explained the risks to the class of continued litigation, justifying a reduction of the amount to about 8.6 percent of the maximum recovery. The court found that the low number of opt-outs (there were only four) and lack of any objections suggested that the amount was reasonable.
From here, the court next found that the $15,000 incentive payment still was unreasonable and, while the plaintiff had assisted counsel, that $7,000 was more appropriate for over 100 hours of work.
The court was still critical of plaintiffs’ counsel, noting that they still sought $437,500 while the “lodestar” attorney fee figure was closer to $270,000. The court expressed concern again for “the quality and thoroughness of counsel’s efforts in the matter.” It ultimately allowed a lodestar multiplier of approximately 1.2, for a total award of $300,000. The remainder was to be distributed to the class.
The second Cruz opinion continues to underscore that courts, particularly those with heavy class action dockets, are becoming increasingly skeptical of settlements that favor the lead plaintiffs and their attorneys. If such a settlement is reached, the parties, particularly plaintiffs’ counsel, must justify the figures they have agreed upon. We can expect this scrutiny to grow in the months and years to come.
The bottom line: More courts are examining class settlements with greater scrutiny and are cutting unsupported attorney fee and incentive awards.