That’s not a typo! In a decision issued on August 8, 2014, Judge Lucy Koh of the U.S. District Court for the Northern District of California rejected the parties’ $324.5 million proposed class action settlement as inadequate and denied the Plaintiffs’ motion for preliminary approval in In Re High-Tech Employee Antitrust Litigation, 11-CV-0250, 2014 U.S. Dist. LEXIS 110064 (N.D. Cal. Aug. 8, 2014). At first blush that appears like a lot of money to deny the Plaintiff class and force a trial (absent a renewed offer). But Judge Koh’s opinion makes significant arguments to support her conclusion that the offer is insufficient.

The Decision

Plaintiffs filed five class action lawsuits against their seven former high technology employers, including Apple and Google, alleging that they had engaged in a conspiracy not to solicit one another’s employees. Plaintiffs alleged that this conspiracy violated §1 of the Sherman Antitrust Act and had the effect of suppressing the wages of the companies’ employees. (We have previously blogged about this case herehere and here.) The cases were consolidated and Plaintiffs filed a motion for class certification on October 1, 2012. The Court denied that motion on April 5, 2013, but without prejudice to the Plaintiffs filing an amended motion addressing the Court’s concerns. Id. at *6-8.

On July 12 and 30, 2013, after class certification had initially been denied and while an amended motion for class certification was pending, Plaintiffs settled with three of the Defendants (“Settled Defendants”) for $20 million (“Initial Settlement”). Preliminary approval of the settlement agreement was granted on September 12, 2013, and final approval was entered on May 1, 2014. On October 25, 2013, the Court granted the Plaintiffs’ amended class certification motion.  Thereafter, the remaining Defendants (“Remaining Defendants”) filed five motions for summary judgment and a motion to exclude the testimony of Plaintiffs’ expert, who opined that the total damages in the case exceeded $3 billion, which comes to more than $9 billion after trebling as required by the Sherman Act. The Court denied each of these motions. Id. at *8-10.

On April 24, 2014, one month before trial was set to commence, counsel for Plaintiffs and the Remaining Defendants sent the Court a joint letter stating that they had reached a settlement. The Plaintiffs’ motion for preliminary approval of the settlement was filed on May 22, 2014. But one of the named Plaintiffs, Michael Devine, split ranks and filed an opposition to the proposed agreement. Id. at *10-11. The agreement provided that the Remaining Defendants would pay a total of $324.5 million of which Plaintiffs’ counsel would seek up to 25%  (approximately $81 million) in attorneys’ fees, $1.2 million in costs, and $80,000 per class representative as incentive payments. It was estimated that the class members each would receive an average of approximately $3,750 from the settlement if the Court were to grant all the requested deductions and there were no further opt-outs. But the Court concluded that the settlement was inadequate and denied the Plaintiffs’ motion for preliminary approval. Id. at *15-16.

The Court’s principal concern was that the class members would recover less, on a proportional basis, from the proposed settlement than they would from the $20 million paid in the Initial Settlement. And this would occur, despite the fact that the case had progressed consistently in the class’s favor since the time of the Initial Settlement. The Settled Defendants contributed only 5% of the total compensation paid to the class during the class period, while the Remaining Defendants paid out 95% of the class’s total compensation. Based upon these figures, if the Remaining Defendants were to settle at the same (or higher) rate as the Settled Defendants, the Remaining Defendants would have to pay at least $380 million, more than $50 million greater than their proposal. Id. at *17-20. The Court also noted that based upon the potential damages of over $3 billion calculated by Plaintiffs’ expert, the total amount for both settlements would be 11.29% of single damages, or merely 3.76% of treble damages under the Sherman Act. Id. at *21.

The Court also opined that the evidence of an over-arching agreement not to solicit each other’s employees and the effect of the agreement in suppressing wages was compelling. Id. at *24-64. Given the fact that since the Initial Settlement the Plaintiffs had received orders certifying the class and denying the Defendants’ motions for summary judgment and to exclude Plaintiffs’ expert testimony, the Court saw no basis for discounting the settlement as compared to the Initial Settlement. Accordingly, the Court denied the Plaintiffs’ motion for preliminary approval. Id. at *64-67.

Implications For Employers

This is one of a number of recent wage suppression cases in which plaintiffs have been successful at obtaining class certification and recovering millions of dollars in settlements. Employers are sometimes unaware that application of the antitrust laws is not limited to the commercial marketplace. The Sherman Act also applies to agreements among employers that impact the employment market. Thus, employers should be cautious about exchanging information with competitors regarding wages or benefits or entering into agreements regarding the recruitment, solicitation or hiring of employees. As this case demonstrates, failure to do so could have very expensive consequences.