EVANS et al v. LINDEN RESEARCH, INC. et al
Filing
128
ORDER by Judge Donna M. Ryu granting 113 Motion for Preliminary Approval of Class Action Settlement. (dmrlc1, COURT STAFF) (Filed on 10/25/2013)
<![CDATA[
1
2
3
4
5
6
7
8
UNITED STATES DISTRICT COURT
9
NORTHERN DISTRICT OF CALIFORNIA
11
For the Northern District of California
United States District Court
10
EVANS ET AL,
12
13
No. C-11-01078 DMR
ORDER GRANTING PLAINTIFF’S
MOTION FOR PRELIMINARY
APPROVAL OF CLASS ACTION
SETTLEMENT
Plaintiffs,
v.
14
LINDEN RESEARCH, INC. ET AL,
15
Defendants.
___________________________________/
16
17
Plaintiff Naomi Hemingway moves for preliminary approval of a class action settlement.
18
[Docket No. 113.] Defendants Linden Research, Inc. and Philip Rosedale do not oppose the motion.
19
[Docket No. 116.] The court conducted a hearing on this matter on June 27, 2013 and ordered
20
Plaintiff to submit supplemental information in support of the motion and to amend certain
21
provisions of the settlement agreement, class notice, and claim form. Plaintiff filed the requested
22
information on August 20, 2013. [Docket No. 121.] The court then ordered Plaintiff to file
23
additional information in support of the motion, addressing errors in Plaintiff’s previous
24
submissions. [Docket No. 124.] On October 21, 2013, Plaintiff filed the requested information.
25
[Docket No. 125.] On October 23, 2013, the court ordered Plaintiff to submit a fully-executed
26
revised settlement agreement, which Plaintiff filed on October 24, 2013. [Docket Nos. 126, 127.]
27
For the following reasons, the court GRANTS Plaintiff’s motion.
28
I. Background
1
A.
2
This certified class action involves the internet role-playing virtual world entitled Second
3
Life. In Second Life, participants create characters called avatars to represent themselves and to
4
interact with other avatars in a huge virtual world. Participants establish reputations, run and
5
patronize businesses, and buy and sell virtual items such as clothing, cars, and homes (referred to as
6
“virtual items”). They also purchase and sell pieces of “virtual land” from Defendant Linden
7
Research, Inc. (“Linden”), which operates Second Life, and other participants. Participants use in-
8
game money, known as “lindens” or “Linden dollars” to perform in-world monetary transactions.
9
The linden currency can be purchased with, as well as exchanged into, U.S. dollars.
In April 2010, Plaintiffs Carl Evans, Donald Spencer, Valerie Spencer, and Cindy Carter,
11
For the Northern District of California
United States District Court
10
Litigation History
individuals who have participated in Second Life, filed suit in the U.S. District Court for the Eastern
12
District of Pennsylvania alleging that they purchased virtual items and/or virtual land and
13
subsequently had their accounts unilaterally terminated or suspended by Linden, and were not
14
compensated for the value of the virtual land, items, and/or currency in their accounts. On March
15
14, 2011, the case was transferred to this District. Plaintiffs’ Second Amended Complaint, filed in
16
February 2012, added Naomi Hemingway as a plaintiff and further asserted that Defendants made
17
false representations about ownership of virtual land and virtual items, and wrongfully confiscated
18
virtual land and items from them.1 Plaintiffs moved to certify two proposed classes, “Main Class”
19
and “Subclass A,” and on November 20, 2013, the court granted in part and denied in part Plaintiffs’
20
motion. [Docket No. 107 (Order on Mot. for Class Cert.).] The court denied Plaintiffs’ motion to
21
certify the Main Class, consisting of all current and former owners, purchasers, creators or sellers of
22
virtual land or virtual items in Second Life since November 2003.2 The court granted the motion to
23
certify the proposed Subclass A to proceed on claims for conversion, intentional interference with
24
25
26
1
27
2
28
The second amended complaint also removed Ms. Carter as a plaintiff.
The gist of the Main Class claims was that “Defendants . . . lured class members into
participating in Second Life by making false promises that the participants would actually ‘own’ their
virtual land and items, and then later reneged on those promises.” (Order on Mot. for Class Cert. 6.)
2
1
contractual relations and prospective economic advantage, and unjust enrichment, certifying a class
2
as follows:
3
4
All persons whose assets, including virtual items, virtual land, and/or currency in
lindens and/or U.S. dollars, have been deliberately and intentionally converted by
Defendant Linden’s suspension or closure of their Second Life accounts.
5
The court also appointed Plaintiff Hemingway as class representative and appointed Jason
6
Archinaco and Robert Bracken of Archinaco/Bracken, LLC and Michael Aschenbrener of
7
Aschenbrener Law, P.C. Class Counsel.
8
9
The parties participated in a mediation before the Hon. James Ware (Ret.) on January 21,
2013, and continued negotiating after the mediation was concluded on that day. (Aschenbrener
Decl., May 23, 2013, ¶¶ 2-5.) The parties agreed to a settlement of the action in March 2013 and
11
For the Northern District of California
United States District Court
10
executed a settlement agreement on May 17, 2013. (Aschenbrener Decl., ¶¶ 6, 7.) Plaintiff
12
Hemingway filed an unopposed motion for preliminary approval of the settlement on May 23, 2013.
13
[Docket No. 113.] The court held a hearing on the motion on June 27, 2013 and deferred ruling on
14
the motion pending the parties’ submission of supplemental information and a revised class notice
15
and claim form. On August 20, 2013, Plaintiff filed the requested information and revisions.
16
[Docket No. 121.] On October 1, 2013, the court ordered Plaintiff to file additional information in
17
support of the motion, addressing errors in Plaintiff’s previous submissions. [Docket No. 124.] On
18
October 21, 2013, Plaintiff filed the requested information, including a revised amended settlement
19
agreement. [Docket No. 125.] However, Plaintiffs did not submit a fully-executed version of the
20
agreement. Therefore, on October 23, 2013, the court ordered Plaintiff to submit a fully-executed
21
revised settlement agreement, which Plaintiff filed on October 24, 2013. [Docket Nos. 126, 127.]
22
B.
23
The complete terms of the proposed settlement agreement are set forth in the Revised
24
Amended Settlement Agreement and Release (“Revised Agreement”). [Docket No. 125-1 (Revised
25
Agreement).] The Revised Agreement provides for a single settlement class consisting of
26
The Settlement Agreement
all persons whose assets, including virtual items, virtual land, and/or currency in
lindens and/or U.S. dollars, have been deliberately and intentionally converted by
27
28
3
1
2
Defendant Linden’s suspension or closure of their Second Life accounts on or after
April 16, 2008.3
(Revised Agreement § 1.7.)4
3
1.
Settlement Amount
4
The settlement provides that Defendant Linden will make payments to class members as
5
follows. First, Linden will return up to 100% of the U.S. dollar balances in class members’ accounts
6
by transmitting the funds to class members’ PayPal accounts within ten days of Linden verifying the
7
validity of each class member’s claim. As of August 20, 2013, the date of the amended settlement
8
agreement, the total of such funds is approximately $24,236.90. (Revised Agreement § 3.1(D)(1).)
9
Next, Linden will return up to 100% of the Linden dollar balances in class members’
accounts. To accomplish this, Linden will list the Linden dollars on the official Second Life
11
For the Northern District of California
United States District Court
10
currency exchange and transmit the converted U.S. dollars within ten days of the sale, and will
12
waive Second Life’s commission on the conversions. As of the date of the Revised Agreement, the
13
total of such funds was approximately L$43,337,311, with an exchange rate of approximately 252
14
Linden dollars to one U.S. dollar, for an approximate value of $171,973.46. (Revised Agreement
15
§3.1(D)(2).)
16
With respect to virtual land, Linden will pay two Linden dollars per square meter of virtual
17
land held by class members. As of the date of the Revised Agreement, the total amount of virtual
18
land is 275,872 square meters. Defendants will waive Second Life’s commission on the exchanges
19
and will transmit the value of the Linden dollars, converted to U.S. dollars, within ten days of
20
Linden verifying the validity of each class member’s claim. By the court’s own calculations, the
21
total U.S. dollar value of such virtual land is approximately $2,189 (275,872 x L$2 / 252). In
22
23
3
24
25
26
At the court’s request, the parties revised the settlement agreement’s definition of the class to
reflect the applicable statutes of limitations for the certified class claims. An action for conversion must
be brought within three years. See Cal. Code of Civ. Proc. § 338(c). Claims for intentional interference
with contractual relations and prospective economic advantage and unjust enrichment must be brought
within two years of the alleged wrongdoing. See Cal. Code of Civ. Proc. § 339(1).
4
27
28
For clarity, the parties revised their settlement agreement to include a provision that persons
in the proposed Main Class, which was not certified, are not “Class Members” as defined in the
Amended Agreement unless such persons are also members of the certified class, Subclass A. (Am.
Agreement § 1.11.)
4
1
addition, Linden will refund a $1,000 setup fee to the class member who possessed a virtual island.
2
(Revised Agreement § 3.1(D)(3).)
3
Finally, regarding virtual items, Linden will offer class members making valid claims the
4
choice of (a) $15 per class member (not account) whose account(s) contains virtual items,
5
transmitted by Linden to his or her PayPal account within ten days of Linden verifying the validity
6
of the claim; or (b) the class members may attempt to sell their virtual items on the Second Life
7
Marketplace, and Linden will waive Second Life’s commission on the sales. Those class members
8
who elect the second option will be entitled to all proceeds of the sales. (Revised Agreement §
9
3.1(D)(4).)
11
For the Northern District of California
United States District Court
10
2.
Class Notice
The Amended Agreement provides for multiple notice distribution methods. Starting no
12
later than thirty days after entry of the preliminary approval order, the class administrator will begin
13
transmitting by email the class notice to the email address of record provided to Linden for each
14
class member account.5 The class administrator will have up to and including sixty days after the
15
entry of the preliminary approval order to complete the email notice. (Revised Agreement § 5.4(B).)
16
The class administrator will also design and maintain a settlement website which will contain the
17
operative complaint, the Amended Agreement, and long form notice and opt-out form, as well as
18
other important information, including contact information for the class administrator. The website
19
will remain active until at least ninety days after the date the court enters the final order and
20
judgment in this action and either the time to appeal has expired or any appeal has been resolved.
21
(Revised Agreement § 5.4(B); see also § 1.17 (defining effective date of settlement).) Additionally,
22
the class administrator will publish the class notice online for thirty days, starting no later than thirty
23
days after entry of the preliminary approval order. The publication notice will appear on six
24
websites whose readers are correlated with visits to Second Life. In addition, notice will appear on
25
26
27
28
5
According to the class administrator, Linden has identified approximately 57,000 e-mail
addresses for class members, “representing substantially all of the Class.” (Simmons Decl. Oct. 4, 2013,
¶ 17.) However, as explained by counsel at the preliminary approval hearing, one class member may
have many separate accounts. As a result, the number of class members is likely far less than 57,000.
Class Counsel could provide no estimate of the number of class members.
5
1
Facebook targeting individuals who have expressed an interest in Second Life. (Simmons Decl. Oct.
2
4, 2013, ¶ 24.) The online notices will be directly linked to the settlement website. (Simmons Decl.
3
¶ 26.) This notice will be supplemented with sixty days of online banner advertising on the
4
Alphaville Herald, a website dedicated to Second Life. (Simmons Decl. ¶¶ 24, 25; Revised
5
Agreement § 5.4(C).)
6
7
3.
Claims Procedure
To receive a payment, each class member must submit an online claim form to the class
8
administrator who will submit them to Linden for review and processing. (Revised Agreement §
9
3.1(A).) The claim period will run until thirty days after the final approval hearing. (Revised
11
For the Northern District of California
United States District Court
10
12
Agreement § 1.5.)
4.
Settlement Administration Costs
In addition to the relief described above, Linden will pay up to $50,000 for notice and
13
administration costs. (Revised Agreement § 3.3.) The class administrator estimates the proposed
14
notice plan will cost $49,818. (Simmons Decl. ¶ 35; Ex. C.) In the event notice and administration
15
costs exceed $50,000, the balance will be paid out of class counsel’s fee award. If notice and
16
administration costs are less than $50,000, the balance will be returned to Linden. (Revised
17
Agreement § 3.3.)
18
19
5.
Class Representative Enhancement Payment
In addition to the relief afforded all class members, the Revised Agreement authorizes class
20
representative Naomi Hemingway to seek an incentive payment of up to $10,000. (Revised
21
Agreement § 10.2.)
22
6.
Attorneys’ Fees and Costs
23
The Revised Agreement authorizes class counsel to apply to the court for an award of
24
attorneys’ fees and expenses up to $175,000. The payment of attorneys’ fees and expenses is
25
separate from and in addition to the other relief afforded the class members. (Revised Agreement §
26
10.1.) Further, “[i]t is not a condition of [the settlement] that any particular amount of attorneys’
27
fees, costs or expenses . . . be approved by the Court, or that such fees, costs, [or] expenses be
28
approved at all.” (Revised Agreement § 10.1.)
6
1
2
7.
Released Claims
The Revised Agreement provides that class members will release all claims up to the date of
3
the preliminary approval order arising out of the subject matter giving rise to the claims in this
4
action. (Revised Agreement §§ 1.31, 9.) The release applies to each class member who does not
5
timely submit a request for exclusion. In addition, by the terms of the Revised Agreement, the
6
release does not apply to persons in the proposed Main Class who are not also members of the
7
certified class, Subclass A. (See Revised Agreement § 1.31 (defining “class member”).)
8
9
A.
Preliminary Fairness Determination
Federal Rule of Civil Procedure 23(e) requires the court to determine whether a proposed
11
For the Northern District of California
United States District Court
10
II. Discussion
settlement is “‘fundamentally fair, adequate, and reasonable.’” Staton v. Boeing Co., 327 F.3d 938,
12
952 (9th Cir. 2003) (quoting Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998)); see
13
also Fed. R. Civ. P. 23(e) (court may only approve class action settlement based on finding that
14
settlement is “fair, reasonable, and adequate.”). “The purpose of Rule 23(e) is to protect the
15
unnamed members of the class from unjust or unfair settlements affecting their rights.” In re Syncor
16
ERISA Litig., 516 F.3d 1095, 1100 (9th Cir. 2008) (citation omitted). “The initial decision to
17
approve or reject a settlement proposal is committed to the sound discretion of the trial judge.”
18
Officers for Justice v. Civil Serv. Comm’n, 688 F.2d 615, 625 (9th Cir. 1982).
19
To make a fairness determination, the court must balance a number of factors, including the
20
strength of the plaintiff’s case; the risk, expense, complexity, and likely duration of further
21
litigation; the risk of maintaining class action status throughout the trial; the amount offered in
22
settlement; the extent of discovery completed; the stage of the proceedings; and the experience and
23
views of counsel. Staton, 327 F.3d at 959. In making this evaluation, the court is not to “reach any
24
ultimate conclusions on the contested issues of fact and law which underlie the merits of the dispute,
25
for it is the very uncertainty of outcome in litigation and avoidance of wasteful and expensive
26
litigation that induce consensual settlements.” Officers for Justice, 688 F.2d at 625. “The relative
27
importance to be attached to any factor will depend upon and be dictated by the nature of the
28
claim(s) advanced, the type(s) of relief sought, and the unique facts and circumstances presented by
7
1
each individual case.” Id. Further, as some of these factors cannot be fully assessed until the court
2
conducts its final fairness hearing, “a full fairness analysis is unnecessary at this stage.” Alberto v.
3
GMRI, Inc., 252 F.R.D. 652, 665 (E.D. Cal. 2008) (quotation marks and citation omitted).
4
Preliminary approval of a settlement and notice to the class is appropriate if “the proposed
5
settlement appears to be the product of serious, informed, non-collusive negotiations, has no obvious
6
deficiencies, does not improperly grant preferential treatment to class representatives or segments of
7
the class, and falls within the range of possible approval.” In re Tableware Antitrust Litig., 484 F.
8
Supp. 2d 1078, 1079 (N.D. Cal. 2007) (citing Manual for Complex Litigation, Second § 30.44 (2d
9
ed. 1985)).
Here, the factors set forth in In Re Tableware Antitrust Litigation weigh in favor of
11
For the Northern District of California
United States District Court
10
preliminarily approving the settlement. First, the parties participated in private mediation, which
12
“tends to support the conclusion that the settlement process was not collusive.” Villegas v. J.P.
13
Morgan Chase & Co., No. CV 09-00261 SBA (EMC), 2012 WL 5878390, at *6 (N.D. Cal. Nov. 21,
14
2012). Second, there are no obvious deficiencies, as under the Second Amended Agreement,
15
Defendants will provide 100% restitution of U.S. Dollars and Lindens remaining in class member
16
accounts that were closed or suspended by Defendants. The strength of the class claims regarding
17
conversion of virtual items or land in accounts closed by Defendants is debatable; the value of the
18
settlement of those class claims fairly reflects the inherent risks in going forward on those claims.
19
There is no indication that the settlement improperly grants preferential treatment to class
20
representatives or segments of the class. The parties arrived at the settlement after several years of
21
litigation, after substantial discovery was completed, and after class certification, and the parties
22
clearly contemplated the risk, expense, and delay posed by continued litigation. The court finds that
23
the settlement appears to fall within the range of possible approval.
24
Notwithstanding the foregoing, the court has some concern regarding Plaintiff’s anticipated
25
request for an incentive payment of up to $10,000, which is double the amount which is
26
presumptively reasonable in this District. See, e.g., Jacobs v. Cal. State Auto. Ass’n Inter-Ins.
27
Bureau, No. C 07-0362 MHP, 2009 WL 3562871, at *5 (N.D. Cal. Oct. 27, 2009) (rejecting a
28
request for a $25,000 incentive payment as “quite high for this district, in which a $5,000 payment is
8
1
presumptively reasonable.”). The Ninth Circuit has noted that plaintiffs who receive large incentive
2
awards in addition to their share of the recovery “may be tempted to accept suboptimal settlements
3
at the expense of the class members whose interests they are appointed to guard,” and become “more
4
concerned with maximizing those incentives than with judging the adequacy of the settlement as it
5
applies to class members at large.” Staton, 327 F.3d at 975, 977 (quotation marks and citation
6
omitted). Ultimately, the court need not resolve the matter at the preliminary approval stage, since
7
the request will be finally determined at the fairness hearing, and the court finds that the award
8
authorized by the Revised Agreement does not necessarily render the settlement unfair or
9
unreasonable.
B.
11
For the Northern District of California
United States District Court
10
The court next considers the sufficiency of the parties’ notice plan. Where a proposed
Class Notice
12
settlement has been reached by the parties, the “court must direct notice in a reasonable manner to
13
all class members who would be bound by the proposal.” Fed. R. Civ. P. 23(e)(1). The court must
14
ensure that the parties’ notice plan provides for “the best notice that is practicable under the
15
circumstances, including individual notice to all members who can be identified through reasonable
16
effort” and that the notice itself explains in easily understood language the nature of the action,
17
definition of the class, class claims, issues and defenses, ability to appear through individual
18
counsel, procedure to request exclusion, and the binding nature of the class judgment. Fed. R. Civ.
19
P. 23(c)(2)(B).
20
Here, the parties propose a notice plan consisting of direct email notice, a settlement website,
21
and publication notice. The parties have submitted the long-form notice, email notice, publication
22
notice, claim form, and request for exclusion form for the court’s review. (“Notice of Filing,” Jun.
23
6, 2013, Ex. A [Docket No. 115-1] (long-form notice); Amended Agreement, Exs. 1-A (online claim
24
form); 1-B (request for exclusion); 1-C (email notice); 1-D (publication notice) [Docket No. 121-1 at
25
22-32].) The parties propose emailing the email notice to the email address of record provided to
26
Linden for each class member’s account. The email notice will provide the address of the settlement
27
website which will contain the long-form notice, operative complaint, Revised Agreement, opt-out
28
form, and a P.O. Box and email address to contact the class administrator with questions. The court
9
finds that the long-form, email, and publication notices adequately describe the nature of the action,
2
summarize the terms of the settlement, identify the class and provide instruction on how to opt out
3
and object, and set forth the proposed fees and expenses to be paid to Plaintiff’s counsel and the
4
class administrator in clear, understandable language. In addition, the parties will supplement the
5
email notice with publication notice, which will be achieved through thirty days of targeted internet
6
publication on Facebook and other websites, plus sixty days of online banner advertising on the
7
Alphaville Herald, a website dedicated to Second Life. The court finds the parties’ proposed notice
8
procedure meets the standards of Rule 23. See In re Netflix Privacy Litig., No. 5:11-CV-00379 EJD,
9
2012 WL 2598819, at *4-5 (N.D. Cal. Jul. 5, 2012) (granting preliminary approval to settlement and
10
approving notice plan of direct email notice, settlement website, and thirty-day publication notice).
11
For the Northern District of California
United States District Court
1
12
13
14
III. Conclusion
For the reasons stated above, Plaintiff’s Motion for Preliminary Approval of Class Action
Settlement is GRANTED as follows:
1.
15
16
The Revised Agreement is preliminarily approved as fair, reasonable, and adequate
pursuant to Federal Rule of Civil Procedure 23(e).
2.
The court directs emailing of the email notice in accordance with the implementation
17
schedule set forth in Plaintiff’s motion for preliminary approval of the class action
18
settlement. (See Mot. [Docket No. 113] at 11-12.) The court also approves the notice
19
plan as set forth in the Revised Agreement.
20
3.
A hearing on the final approval of the settlement will be heard on February 27, 2014
21
at 11:00 a.m. Class Counsel’s motion for an award of attorneys’ fees and costs must
22
be filed no later than 35 days before the final approval hearing.
23
4.
Any member of the settlement class who desires exclusion therefrom must mail, by
24
the date set forth in the class notice, the opt-out form to the address set forth in the
25
class notice. All persons who properly submit a completed opt-out form shall not be
26
settlement class members and shall have no rights with respect to the settlement.
27
28
5.
Any member of the settlement class who does not request exclusion, and who files a
timely objection to approval of the proposed settlement in compliance with the
10
1
requirements of the Amended Agreement, may appear at the final approval hearing in
2
person or through counsel to show cause why the proposed settlement should not be
3
approved as fair, reasonable, and adequate.
Dated: October 25, 2013
NO
. Ryu
8
9
United States Magistrate Judge
RT
M
o
DONNAudgRYU nna
J M. e D
11
For the Northern District of California
United States District Court
ER
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
11
A
H
10
R NIA
7
DERED
O OR
IT IS S
FO
6
LI
IT IS SO ORDERED.
UNIT
ED
5
S DISTRICT
TE
C
TA
RT
U
O
S
4
N
F
D IS T IC T O
R
C
]]>
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?
