No Action in 2008 on the Arbitration Fairness Act
The Importance of Keeping Good Records

The Emerging Trend Against Claims Made Wage & Hour Settlements

We've been told that there are several Superior Court judges, particularly in the Bay Area, who believe that a so-called "claims made" class action settlement should never be approved in a wage & hour case. If there was a Bible for such believers to follow, one of the Gospels would be the original opinion written by U.S. District Court Judge William Alsup in Kakani v. Oracle Corp. (N.D. Cal 2007) 2007 U.S. Dist. LEXIS 47515; 12 Wage & Hour Cas. 2d (BNA) 1308; 154 Lab.L.Rep. (CCH) 35,310.

Judge Alsop initially rejected a class action settlement in that case, a nationwide class involving "about ten job classifications (although the complaint remained unchanged and narrower)". Only after dramatic changes to the structure of the agreement did the parties obtain court approval for their deal. Why did he deny preliminary approval at first? Let him count the ways:

“Under the settlement, all wage-and-hour rights (not just overtime) of putative class members would be completely extinguished and replaced by an exclusive claims procedure. By expressly obligating itself only on a "claims-made" approach, Oracle would pay only those who submit claims up to a total of nine million dollars less all fees and expenses. Counsel wants $2.25 million in attorney's fees and $75,000 in expenses. In addition to their own shares of the settlement, $45,000 total would be paid to the three named plaintiffs as "incentive payments." Costs of administration would also be deducted. Because it will be a "claims-made" settlement, there will be no residue. All unclaimed amounts will revert to Oracle. Counsel now desire preliminary approval under Rule 23(e) and recommend notice be sent by mail to last known addresses of 1500 or so workers granting them a brief period for filing claims -- after which all of their claims and rights would be forever barred, even as to those who never receive actual notice or submit a claim.”

The release also forfeited "any and all claims that were asserted or could have been asserted" (language we've seen many a defendant try to negotiate) in the action. Judge Alsop explained that he was “at a loss to understand how counsel can portray the release as benignly as they have.” Instead, Judge Alsop used words like "draconian" and "unfair to class members" and rejected the agreement, but not before first pointing out that, in his opinion, all of the flaws in the deal should have been caught by the class counsel before they ever entered his courtroom.

“Virtually none of the foregoing problems were raised by counsel, illustrating the sad fact that once a collusive settlement is reached, counsel have no incentive to critique their joint proposal. The district judge must dig through the file on his or her own. No doubt, this Court has missed some further issues not having an advocate to call out the weak spots. … Preliminary approval is DENIED.”

In Kakani v. Oracle Corp. (N.D. Cal. 2007) 2007 U.S. Dist. LEXIS 58740, 154 Lab.Cas. (CCH) P35,323, the settlement was preliminarily approved.

For all of the above-stated reasons, plaintiffs' and defendant's motion for preliminary approval of the proposed settlement agreement is GRANTED, subject to the following conditions. First, the notice to class members must include a statement that named plaintiffs will be eligible to receive payments of up to 25% of the $ 15,000 paid to the California Labor Workforce Development Agency under the California Private Attorneys General Act and that these amounts will be over and above what the absent class members will receive. Second, after the deadlines to submit claims and opt-out notices have passed, class counsel and the claims administrator are ordered to submit a list of all class members by name, divided into categories of those who opted in, those who opted out, and those whose notices were returned undeliverable. At this time, the Court reserves the issue of final approval of the settlement agreement. In no way should the notice suggest that the Court has given approval to the settlement; instead the notice should state that the Court invites class members to comment on the adequacy of the settlement and it should state that the settlement represents about 15% of the maximum that might be recovered if the case went to trial. Counsel must submit a copy of the notice including the above-mentioned amendments no later than AUGUST 13, 2007.

The court later characterized the process like this:

There was no meeting of the minds as to the scope of the release -- defendants contended that it would bar all future state-law claims throughout America, while plaintiffs contended that it would only bar California and FLSA claims. The settlement also was on a "claims-made" basis. Oracle would make available a pool of nine million dollars from which all claims would be paid. Any residue would revert to Oracle. Regardless of the claims paid, however, plaintiffs' counsel would have received $ 2.25 million in fees (25% of the total amount theoretically "available"). Notice to class members would have been inadequate under the first settlement, and the period given to putative class members to learn about the case and to opt out or file claims was far too short. The settlement allowed only 35 days from the date of mailing of notice to file objections and opt-out notices, and 45 days to submit claims. The proposed notice was nearly incomprehensible, with its tangle of subclasses, inattention to the serious jurisdictional issues in the state-law claims, and general legalese rhetoric. Even class members who received no notice at all or received late notices because of delivery problems would lose everything and recover nothing. Under the original agreement, California claimants would have received at least twice as much as non-California claimants. No cogent reason was given to justify the disparity in treatment between Californian claimants and Non-Californian claimants. In addition, class members would forfeit about 87.7% of their maximum claims, settling for nine million dollars, while the maximum recovery was about $ 52.7 million. In short, the proposal was collusive. Oracle would have wiped out its national wage-and-hour liabilities off its books, counsel would have received a bonanza, and a vast number of absent class members would have received little or nothing in exchange for forfeiture of their actions. The proposal was rejected at the threshold by an order dated June 19. An amended settlement agreement was submitted on June 29, and a further hearing was held on July 5. Some of the Court's concerns had been addressed, but others remained. The parties agreed to submit a further amended settlement agreement, which was received on July 16. An order dated August 2 found that the parties had remedied many of the problems outlined above and had reached a settlement that was sufficiently fair and reasonable to warrant preliminary approval. Preliminary approval of the three subclasses was granted.

At the time of the final hearing, the $2.25 million in requested attorney's fees were reduced significantly. Kakani v. Oracle Corp. (N.D. Cal. 2007) 2007 U.S. Dist. LEXIS 95496:

In this action alleging violations of California labor laws and the federal Fair Labor Standards Act, plaintiffs move for approval of award of attorney's fees and costs as set forth in the second amended settlement agreement. The excessive amount of attorney's fees requested, however, cannot be justified. Accordingly, the motion for attorney's fees and costs is approved in the lower amount of $ 664,000 for fees and $ 75,000 for costs.

Any time you are negotiating the fine points of a class action settlement agreement, and you are certain that the defendant is overreaching, be sure to open up a copy of the opinions in Kakani v. Oracle Corp. before you agree to terms that seem too sweet for the defense. There's a good chance your judge is going to do the same thing when considering approval of the settlement and the fees.


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