Richards et al v. Chime Financial, Inc. et al, No. 4:2019cv06864 - Document 71 (N.D. Cal. 2021)
Court Description: ORDER GRANTING MOTION FOR FINAL APPROVAL AND GRANTING IN PART AND DENYING IN PART MOTION FOR ATTORNEYS FEES by Judge Haywood S. Gilliam, Jr. granting in part and denying in part 49 Motion for Attorney Fees; granting 52 Motion for Settlement. (kcS, COURT STAFF) (Filed on 5/24/2021)
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Richards et al v. Chime Financial, Inc. et al Doc. 71 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 RYAN RICHARDS, et al., Plaintiffs, 8 v. 9 10 CHIME FINANCIAL, INC., et al., Defendants. United States District Court Northern District of California 11 Case No. 19-cv-06864-HSG ORDER GRANTING MOTION FOR FINAL APPROVAL AND GRANTING IN PART AND DENYING IN PART MOTION FOR ATTORNEYS’ FEES Re: Dkt. Nos. 49, 52 12 13 Pending before the Court are the motions for final approval of class action settlement and 14 for attorneys’ fees, costs, and incentive award, filed by Plaintiffs Ryan Richards, Ruba Ayoub, 15 Brandy Terbay, and Tracy Cummings. Dkt. Nos. 49, 52. The Court held a final fairness hearing 16 on April 29, 2021. For the reasons detailed below, the Court GRANTS final approval. The Court 17 also GRANTS IN PART and DENIES IN PART Plaintiff’s motion for attorneys’ fees, costs, 18 and incentive award. 19 I. BACKGROUND 20 A. 21 Plaintiffs filed this putative class action against Defendant Chime Financial, Inc., The Factual Background 22 Bancorp Inc., and Galileo Financial Technologies, LLC based on a disruption in Defendant 23 Chime’s online-only banking services.1 See Dkt. No. 1. (“Compl.”). Plaintiffs allege that on 24 October 16, 2019, Chime had a system-wide service outage (the “Service Disruption”) that lasted 25 approximately 72 hours. See id. at ¶ 22. During this Service Disruption, Chime’s customers, 26 27 28 1 Plaintiffs allege that Chime is an online-only bank; Galileo makes the Application Programming Interfaces that Chime uses to offer credit and debit cards, as well as banking and money transfer services; and Bancorp is a financial holding company whose wholly owned subsidiary, The Bancorp Bank, provides licensed banking services for Chime. See id. at ¶¶ 11–14. Dockets.Justia.com 1 approximately 5 million people, could not access their funds, including through card purchases 2 and ATM withdrawals. Id. at ¶¶ 23, 31, 36, 43, 50–51. Following the Service Disruption, some 3 customers reported incorrect account balances and unauthorized charges. See id. at ¶¶ 28, 33, 40. United States District Court Northern District of California 4 Plaintiffs bring this action on behalf of a putative nationwide class of Chime customers 5 who were denied access to their accounts beginning on October 16, 2019, as well as subclasses of 6 customers denied access to their accounts who reside in Florida, Texas, Illinois, and Georgia. See 7 id. at ¶ 57. And based on the above facts, Plaintiffs allege causes of action for negligence; unjust 8 enrichment; breach of contract; conversion; breach of fiduciary duty; violation of the Florida 9 Deceptive and Unfair Trade Practices Act, Fla. Stat. § 501.201; violation of the Illinois Consumer 10 Fraud Act, 815 Ill. Comp. Stat. §§ 505/1 et seq.; and violation of the Illinois Uniform Deceptive 11 Trade Practices Act, 815 Ill. Comp. Stat. §§ 510/2 et seq. See Compl. at ¶¶ 70–127. 12 B. 13 Plaintiffs initially filed this action on November 22, 2019. See Dkt. No. 1. The parties did Procedural History 14 not engage in motions practice, and instead attended two settlement conferences with Magistrate 15 Judge Laurel Beeler. See Dkt. Nos. 28, 31, 35. With Judge Beeler’s assistance, the parties 16 reached an agreement in principle on May 12, 2020. See Dkt. No. 40-8, Ex. B at ¶ 19. The parties 17 entered into a written settlement agreement in early August 2020. See Dkt. No. 40-1, Ex. A. 18 Following the hearing on the unopposed motion for preliminary settlement approval, the parties 19 submitted a revised settlement agreement that addressed concerns that the Court raised about the 20 scope of the release, as well as the process for any objectors to object to the proposed settlement. 21 See Dkt. No. 45-1, Ex. A (“SA”). The Court granted the motion on October 28, 2020. See Dkt. 22 No. 46. The parties now seek final approval of the class action settlement and Plaintiffs seek 23 attorneys’ fees, costs, and an incentive award for the named Plaintiffs. See Dkt. Nos. 49, 52. 24 i. Settlement Agreement 25 The key terms of the parties’ settlement are as follows: 26 Class Definition: The Settlement Class is defined as: 27 28 All consumers who attempted to and were unable to access or utilize the functions of their accounts with Chime, as confirmed by a failed transaction or a locked card as recorded in Chime’s business records, 2 beginning on October 16, 2019 through October 19, 2019, as a result of the Service Disruption. 1 2 SA at ¶ III.1. 3 Settlement Benefits: 4 The parties have agreed to monetary relief that incorporates an offset for credits that Chime 5 6 already provided to the accounts of active customers because of the outage: • active customers as a “courtesy payment” because of the outage. SA at ¶ IV.1.a. 7 8 • Chime also credited the accounts of those customers who incurred “certain transaction fees” during the outage to cover those fees as a “transaction credit.” Id. 9 at ¶ IV.1.b. 10 United States District Court Northern District of California Approximately a month after the outage, Chime credited $10 to the accounts of all 11 The parties agree that these courtesy payments and transaction credits total $5,960,563.00 already 12 paid to active Chime account holders due to the outage. Id. at ¶ IV.1.c. Defendants also concede 13 that this litigation was “a motivation” for making these payments. SA at ¶ X.3. Pursuant to the 14 settlement agreement, Defendants have agreed to further compensate settlement class members 15 who submit verified claims under a two-tier system: 16 • Tier 1: Class members who claim they suffered loss due to the outage, but who do 17 not have or do not wish to provide documentation to substantiate their loss will be 18 entitled to up to $25 for verified claims. See id. at ¶ IV.2. Defendants’ aggregate 19 maximum payment under Tier 1 is $4 million. See id. at ¶ IV.2.c. If the amount of 20 verified claims under Tier 1 is less than $4 million, Defendants will retain any 21 unclaimed amount, except to the extent that such funds are necessary to fully or 22 partially satisfy Tier 2 claims. Id. 23 • Tier 2: Class members who claim they suffered loss due to the outage and have 24 “reasonable documentation” to substantiate their loss will be entitled to up to $750, 25 but not more than their verified loss. See id. at ¶ IV.3. Those who fail to provide 26 documentation will be considered under Tier 1. Defendants’ aggregate maximum 27 payment under Tier 2 is $1.5 million, and any residual money unclaimed under Tier 28 1 can be used to pay Tier 2 claims in excess of the $1.5 million cap. See id. at 3 1 United States District Court Northern District of California 2 ¶ IV.6.d. All claims under both Tiers will be verified using a two-step system. See id. at ¶ IV.6.b. 3 Under both Tiers, putative class members will have to submit a brief explanation, under penalty of 4 perjury, as to how the outage caused them loss and what amount of loss they purport to have 5 suffered. See id. Those submitting claims under Tier 2 will also be required to submit reasonable 6 documentation to support their claims. Id. at ¶ IV.6.c. Defendants and the settlement 7 administrator will then confirm through Chime’s business records that the putative class member 8 (a) held a Chime account at the time; and (b) either attempted a financial transaction that failed or 9 had their card locked as a result of the outage. Id. at ¶ IV.6.b. During the hearing, Defendants 10 confirmed that despite the service disruption, they have accurate records of attempted transactions 11 during the relevant time period. 12 Under the settlement agreement, “[a]ny prior money received by a Settlement Class 13 Member from Chime in connection with the Service Disruption will be offset against” the 14 payment. See id. at ¶¶ IV.3.a, IV.3.b. Thus, any verified claims under Tier 1 and Tier 2 will be 15 reduced by the amount the class member already received as a (1) courtesy payment; or 16 (2) transaction credit. See id. At a minimum, however, Defendants will pay $1.5 million under 17 the settlement agreement. See id. at ¶ IV.5. 18 Cy Pres Distribution: If the claim payments under Tiers 1 and 2 do not reach the $1.5 19 million minimum under the settlement agreement, Defendants will distribute funds to reach this 20 minimum to the East Bay Community Law Center as the cy pres recipient. See SA at ¶ IV.5. 21 Defendants will, however, keep any money available for settlement but unclaimed above this $1.5 22 million threshold. Id. 23 24 25 26 27 28 Release: All settlement class members will release: [A]ny and all claims, demands, rights, actions or causes of action, liabilities, damages, losses, obligations, judgments, suits, penalties, remedies, matters and issues of any kind or nature whatsoever, whether known or unknown, contingent or absolute, existing or potential, suspected or unsuspected, disclosed or undisclosed, matured or unmatured, liquidated or unliquidated, legal, statutory or equitable, that have been or could have been asserted, or in the future might be asserted, in the Actions or in any court, tribunal or proceeding by or on behalf of the Named Plaintiffs, any and all of the 4 members of the Settlement Class, and their respective present or past heirs, spouses, executors, estates, administrators, predecessors, successors, assigns, parents, subsidiaries, associates, affiliates, employers, employees, agents, consultants, independent contractors, insurers, directors, managing directors, officers, partners, principals, members, attorneys, accountants, financial and other advisors, investment bankers, underwriters, lenders, and any other representatives of any of these Persons, whether individual, class, direct, representative, legal, equitable or any other type or in any other capacity whether based on federal, state, local, statutory or common law or any other law, rule or regulation, including the law of any jurisdiction outside the United States, against any or all of the Released Parties, which the Named Plaintiffs or any member of the Settlement Class ever had, now has, or hereinafter may have, by reason of, resulting from, arising out of, relating to, or in connection with, the allegations, facts, events, transactions, acts, occurrences, statements, representations, omissions, or any other matter, thing or cause whatsoever, or any series thereof, embraced, involved, set forth or otherwise related to the alleged claims or events in the Action or the Service Disruption, including, but not limited to, use by a class member of their Chime Account up to and extending through the Service Disruption. 1 2 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 SA at ¶ II.20. In addition, class members: 13 waive any rights they may have under California Civil Code Section 1542, Section 20-7-11 of the South Dakota Codified Laws, and any other similar law, each of which provides that a general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor, and a waiver of any similar, comparable, or equivalent provisions, statute, regulation, rule, or principle of law or equity of any other state or applicable jurisdiction. 14 15 16 17 18 19 Id. at ¶ IX.4. 20 Class Notice: A third-party settlement administrator will implement the “Notice 21 Program,” which includes (1) an email Notice and (2) a Notice on the Settlement Website. See 22 SA at ¶¶ V.I–VII.11; see also Dkt. No. 45-2, Ex. 2. The settlement administrator will send the 23 Notice to class members by email within 30 days of the Court’s order preliminarily approving the 24 settlement. See id. at ¶ II.15, VII.1, VII.5. The settlement administrator will make reasonable 25 efforts to locate updated email addresses for class members whose Notices are returned as 26 undeliverable. Id. at ¶ VII.1. The Notice will include: the nature of the action, a summary of the 27 settlement terms, and instructions on how to object to and opt out of the settlement, including 28 relevant deadlines. See Dkt. No. 45-2, Ex. 2. 5 Opt-Out Procedure: Putative class members may opt out of or object to the settlement 1 2 and/or Class Counsel’s application for attorneys’ fees, costs, and expenses. SA at ¶¶ II.17–II.18, 3 VII.4–VIII. Incentive Award: Named Plaintiffs as class representatives may apply for incentive 4 5 awards of no more than $500 each. SA at ¶ X.1. Attorneys’ Fees and Costs: Class Counsel may file an application for attorneys’ fees not to 6 7 8 9 10 United States District Court Northern District of California 11 exceed $750,000. SA at ¶ X.2. II. ANALYSIS A. Final Settlement Approval i. Class Certification Final approval of a class action settlement requires, as a threshold matter, an assessment of 12 whether the class satisfies the requirements of Federal Rule of Civil Procedure 23(a) and 13 (b). Hanlon v. Chrysler Corp., 150 F.3d 1011, 1019–1022 (9th Cir. 1998). Because no facts that 14 would affect these requirements have changed since the Court preliminarily approved the class on 15 October 28, 2020, this order incorporates by reference the Court’s prior analysis under Rules 16 23(a) and (b) as set forth in the order granting preliminary approval. See Dkt. No. 46 at 6–10. 17 18 ii. The Settlement “The claims, issues, or defenses of a certified class may be settled . . . only with the court’s 19 approval.” Fed. R. Civ. P. 23(e). The Court may finally approve a class settlement “only after a 20 hearing and on finding that it is fair, reasonable, and adequate.” Fed. R. Civ. P. 23(e)(2); Officers 21 for Justice v. Civil Serv. Comm’n of the City and County of San Francisco, 688 F.2d 615, 625 (9th 22 Cir. 1982) (“The district court’s role in evaluating a proposed settlement must be tailored to fulfill 23 the objectives outlined above. In other words, the court’s intrusion upon what is otherwise a 24 private consensual agreement negotiated between the parties to a lawsuit must be limited to the 25 extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or 26 overreaching by, or collusion between, the negotiating parties . . . .”). To assess whether a 27 proposed settlement comports with Rule 23(e), the Court “may consider some or all” of the 28 following factors: (1) the strength of plaintiff’s case; (2) the risk, expense, complexity, and likely 6 1 duration of further litigation; (3) the risk of maintaining class action status throughout the trial; 2 (4) the amount offered in settlement; (5) the extent of discovery completed, and the stage of the 3 proceedings; (6) the experience and views of counsel; (7) the presence of a governmental 4 participant; and (8) the reaction of the class members to the proposed settlement. Rodriguez v. 5 West Publ’g Corp., 563 F.3d 948, 963 (9th Cir. 2009); see also Hanlon, 150 F.3d at 1026. “The 6 relative degree of importance to be attached to any particular factor” is case specific. Officers for 7 Justice, 688 F.2d at 625. 8 9 10 United States District Court Northern District of California 11 12 In addition, “[a]dequate notice is critical to court approval of a class settlement under Rule 23(e).” Hanlon, 150 F.3d at 1025. As discussed below, the Court finds that the proposed settlement is fair, adequate, and reasonable, and that Class Members received adequate notice. a. Adequacy of Notice Under Federal Rule of Civil Procedure 23(e), the Court “must direct notice in a reasonable 13 manner to all class members who would be bound by the proposal.” Fed. R. Civ. P. 23(e)(1). 14 Rule 23(c)(2)(B) requires “the best notice that is practicable under the circumstances, including 15 individual notice to all members who can be identified through reasonable effort.” The notice 16 must “clearly and concisely state in plain, easily understood language” the nature of the action, the 17 class definition, and the class members’ right to exclude themselves from the class. Fed. R. Civ. 18 P. 23(c)(2)(B). Although Rule 23 requires that reasonable efforts be made to reach all class 19 members, it does not require that each class member actually receive notice. See Silber v. Mabon, 20 18 F.3d 1449, 1454 (9th Cir. 1994) (noting that the standard for class notice is “best practicable” 21 notice, not “actually received” notice). 22 The Court finds that the notice and notice plan previously approved by the Court was 23 implemented and complies with Rule 23(c)(2)(B). See Dkt. No. 46 at 5–6, 15–16. The Court 24 ordered that the third-party settlement administrator send class notice via email based on a class 25 list Defendant provided. Id. at 16. Epiq Class Action & Claims Solutions, Inc., the third-party 26 settlement administrator, represents that class notice was provided as directed. Dkt. No. 52-1, Ex. 27 A (“Azari Decl.”) at ¶¶ 6, 8–12. Epiq received a total of 527,505 records for potential Class 28 Members, including their email addresses. See id. at ¶ 9. If the receiving email server could not 7 1 deliver the message, a “bounce code” was returned to Epiq indicating that the message was 2 undeliverable. See id. at ¶ 11. Epiq made two additional attempts to deliver the email notice. Id. 3 As of Mach 1, 2021, a total of 495,006 email notices were delivered, and 32,499 remained 4 undeliverable. See id. at ¶ 12. 5 6 7 8 9 10 United States District Court Northern District of California 11 In light of these facts, the Court finds that the parties have sufficiently provided the best practicable notice to the Class Members. b. Fairness, Adequacy, and Reasonableness Having found the notice procedures adequate under Rule 23(e), the Court next considers whether the entire settlement comports with Rule 23(e). 1. Strength of Plaintiff’s Case and Litigation Risk Approval of a class settlement is appropriate when plaintiffs must overcome significant 12 barriers to make their case. Chun-Hoon v. McKee Foods Corp., 716 F. Supp. 2d 848, 851 (N.D. 13 Cal. 2010). Courts “may presume that through negotiation, the Parties, counsel, and mediator 14 arrived at a reasonable range of settlement by considering Plaintiff’s likelihood of recovery.” 15 Garner v. State Farm Mut. Auto. Ins. Co., No. 08-cv-1365-CW, 2010 WL 1687832, at *9 (N.D. 16 Cal. Apr. 22, 2010). Additionally, difficulties and risks in litigating weigh in favor of approving a 17 class settlement. Rodriguez, 563 F.3d at 966. “Generally, unless the settlement is clearly 18 inadequate, its acceptance and approval are preferable to lengthy and expensive litigation with 19 uncertain results.” Ching v. Siemens Indus., Inc., No. 11-cv-04838-MEJ, 2014 WL 2926210, at *4 20 (N.D. Cal. June 27, 2014) (quotations omitted). 21 The Court finds that the amount offered in settlement is reasonable in light of the 22 complexity of this litigation and the substantial risk that Plaintiffs would face in litigating the case 23 given the nature of the asserted claims. See Dkt. No. 52 at 12–15. Were the case to proceed, 24 Defendants would likely move to compel individual arbitration of Plaintiffs’ claims, and would 25 challenge Plaintiffs’ ability to recoup any damages arising from the Service Disruption. Id. at 12– 26 13. Defendants contend that under the express terms of the agreement between Chime and Class 27 Members, “any claims arising from outages, such as the Service Disruption, are barred.” Id. at 13. 28 Additionally, Defendants would likely argue that the temporary loss of access to funds from the 8 1 Service Disruption does not constitute compensable harm. See id. at 13, & n.7. In reaching a 2 settlement, Plaintiffs have ensured a favorable recovery for the class. See Rodriguez, 563 F.3d at 3 966 (finding litigation risks weigh in favor of approving class settlement). Accordingly, these 4 factors weigh in favor of approving the settlement. See Ching, 2014 WL 2926210, at *4 (favoring 5 settlement to protracted litigation). 2. Risk of Maintaining Class Action Status 6 In considering this factor, the Court looks to the risk of maintaining class certification if United States District Court Northern District of California 7 8 the litigation were to proceed. Certifying a class encompassing approximately over 500,000 9 Chime account holders presents complex issues, including factual inquiries about the impact of the 10 Service Disruption on individual account holders across the country, that could undermine 11 certification. See Dkt. No. 52 at 13. Accordingly, this factor also weighs in favor of settlement. 3. Settlement Amount 12 The amount offered in the settlement is another factor that weighs in favor of approval. 13 14 Based on the facts in the record and the parties’ arguments at the final fairness hearing, the Court 15 finds that the settlement amount falls “within the range of reasonableness” in light of the risks and 16 costs of litigation. See Dkt. No. 52 at 13–15; Dkt. No. 36-1 at ¶ 55; see also Villanueva v. Morpho 17 Detection, Inc., No. 13-cv-05390-HSG, 2016 WL 1070523 *4 (N.D. Cal. March 18, 2016) (citing 18 cases). 19 Here, Class Members already received $5,960,563 from Defendants, including a $10 20 courtesy payment received by all class members and transaction credits to cover certain fees that 21 some Chime account holders incurred during the Service Disruption. See SA at ¶¶ IV.1.a–b. 22 Although the parties have acknowledged the difficulty in assessing the precise scope of any further 23 damages, the Settlement Agreement provided a means for class members to receive compensation 24 for additional losses. Class Members could recoup up to $25 without documentation and up to 25 $750 if they provided documentation. Under this process, Defendants agreed to pay up to $5.5 26 million for any verified damages suffered during the 72-hour Service Disruption. Epiq confirmed 27 that as of April 28, 2021, it received 22,325 unique Claim Forms (26 were duplicates). See Dkt. 28 No. 67-1 (“Engler Decl.”) at ¶ 7. Epiq received 16,843 Claim Forms under Tier 1 (eligible for up 9 1 to $25); 5,434 Claim Forms under Tier 2 (eligible for up to $750); and 48 Claim Forms that did 2 not specify whether they were under Tier 1 or 2. Id. Following the claims adjustment process, 3 Epiq verified 22,128 of the 22,325 claims.2 Id. at ¶¶ 7, 13. Epiq identified 22,033 valid claims 4 under Tier 1, which after offsets for money previously received by those Class Members for the 5 Service Disruption, total $330,495.00, or an average of $15 per claim. Id. at ¶ 13. Epiq also 6 identified 95 valid claims under Tier 2, which after offsets for money previously received by those 7 Class Members for the Service Disruption, total $7,375.32, or an average of approximately $77.63 8 per claim. Id. Given the relatively short duration of the Service Disruption and the significant litigation United States District Court Northern District of California 9 10 risks discussed above, the Court finds that this factor weighs in favor of approval. See, e.g., Lewis 11 v. Green Dot Corp., Case No. 2:16-cv-03557, ECF No. 109 at 13 (C.D. Cal. Nov. 22, 2017) 12 (approving similar tiered settlement amount based on service disruption); Fuentes v. UniRush, 13 LLC, Case No. 1:15-cv-08372, ECF No. 49 (S.D.N.Y. Sept. 12, 2016) (same). 14 4. Extent of Discovery Completed and Stage of Proceedings The Court finds that Class Counsel had sufficient information to make an informed 15 16 decision about the merits of the case. See In re Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 459 17 (9th Cir. 2000). The parties settled only after they had informally exchanged significant 18 information relevant to Plaintiffs’ claims. See Dkt. No. 40 at 15; Dkt. No. 40-8, Ex. B at ¶ 46. 19 Thus, the Court is persuaded that the Class Counsel entered the settlement discussions with a 20 substantial understanding of the factual and legal issues, sufficient to allow them to assess the 21 likelihood of success on the merits. This factor weighs in favor of approval. 22 5. Experience and Views of Counsel The Court next considers the experience and views of counsel. “[P]arties represented by 23 24 competent counsel are better positioned than courts to produce a settlement that fairly reflects each 25 party’s expected outcome in litigation.” Rodriguez, 563 F.3d at 967 (quotations omitted). 26 27 28 2 Epiq explained that 197 claims were not approved: 184 claims were ineligible because they did not match Class Member records, and 13 claims were ineligible based on account holders’ answers to the eligibility questions on the Claim Form. See Engler Decl. at ¶ 13. 10 1 Accordingly, “[t]he recommendations of plaintiffs’ counsel should be given a presumption of 2 reasonableness.” In re Omnivision Techs., Inc., 559 F. Supp. 2d 1036, 1043 (N.D. Cal. 2008). 3 Class Counsel has substantial experience in similar class actions. See Dkt. No. 40-8, Ex. B at 4 ¶¶ 11–13; see also Dkt. No. 40-9, Ex. 1. The Court recognizes, however, that courts have 5 diverged on the weight to assign counsel’s opinions. Compare Carter v. Anderson Merch., LP, 6 2010 WL 1946784, at *8 (C.D. Cal. May 11, 2010) (“Counsel’s opinion is accorded considerable 7 weight.”), with Chun-Hoon, 716 F. Supp. 2d at 852 (“[T]his court is reluctant to put much stock in 8 counsel’s pronouncements. . . .”). This factor’s impact is therefore modest, but favors approval. 9 United States District Court Northern District of California 10 6. Reaction of Class Members The reaction of the Class Members supports final approval. “[T]he absence of a large 11 number of objections to a proposed class action settlement raises a strong presumption that the 12 terms of a proposed class settlement action are favorable to the class members.” Nat’l Rural 13 Telecomms. Coop. v. DIRECTV, Inc., 221 F.R.D. 523, 528–29 (C.D. Cal. 2004); In re Linkedin 14 User Privacy Litig., 309 F.R.D. 573, 589 (N.D. Cal. 2015) (“A low number of opt-outs and 15 objections in comparison to class size is typically a factor that supports settlement approval.”). 16 Class notice, which was served in accordance with the method approved by the Court, 17 advised the Class of the requirements to object to or opt out of the settlement. The deadline to do 18 so was February 1, 2021. See Dkt. No. 48. Epiq received one objection and only six requests for 19 exclusion, out of the 495,006 Class Members who received email notice. See Azari Decl. at ¶¶ 12, 20 18. The objection itself, filed by Pamela Sweeney, is not directed at the settlement amount or 21 settlement process itself. See Dkt. No. 51. Rather, Ms. Sweeney raises concerns with the 22 $750,000 in attorneys’ fees that Class Counsel seeks. Id. The Court shares Ms. Sweeney’s 23 concerns and discusses this in more depth in Section II.B.i below. Nevertheless, the Court finds 24 that the minimal number of objections and opt-outs in comparison to the size of the class indicate 25 overwhelming support among the Class Members and weigh in favor of approval of the 26 settlement. See, e.g., Churchill Village LLC v. Gen. Elec., 361 F.3d 566, 577 (9th Cir. 2004) 27 (affirming settlement where 45 of approximately 90,000 class members objected); Rodriguez v. 28 West Publ. Corp., Case No. CV05–3222 R, 2007 WL 2827379, at *10 (C.D. Cal. Sept. 10, 2007) 11 1 (finding favorable class reaction where 54 of 376,301 class members objected). * 2 * 3 After considering and weighing the above factors, the Court finds that the settlement 4 agreement is fair, adequate, and reasonable, and that the settlement Class Members received 5 adequate notice. Accordingly, Plaintiff’s motion for final approval of the class action settlement is 6 GRANTED. Attorneys’ Fees, Costs and Expenses, and Incentive Award 7 B. 8 In its unopposed motion, Class Counsel asks the Court to approve an award of $750,000 in 9 10 11 United States District Court Northern District of California * 12 13 attorneys’ fees and costs. Dkt. No. 49 at 1–22. Class Counsel also seeks a $500 incentive award for each of the four Named Plaintiffs. Id. at 22–24. i. Attorneys’ Fees & Costs a. Legal Standard “In a certified class action, the court may award reasonable attorney’s fees and nontaxable 14 costs that are authorized by law or by the parties’ agreement.” Fed. R. Civ. P. 23(h). In a state 15 law action—like this one—state law also governs the calculation of attorneys’ fees. See Vizcaino 16 v. Microsoft Corp., 290 F.3d 1043, 1047 (9th Cir. 2002). Nevertheless, the Court may still look to 17 federal authority for guidance in awarding attorneys’ fees. See Apple Computer, Inc. v. Superior 18 Court, 126 Cal. App. 4th 1253, 1264 n.4 (2005) (“California courts may look to federal authority 19 for guidance on matters involving class action procedures.”). 20 Under California law, the “percentage of fund method” is proper in class actions. Laffitte 21 v. Robert Half Int’l Inc., 1 Cal. 5th 480, 506 (2016). In addition, “trial courts have discretion to 22 conduct a lodestar cross-check on a percentage fee.” Id. The “lodestar figure is calculated by 23 multiplying the number of hours the prevailing party reasonably expended on the litigation (as 24 supported by adequate documentation) by a reasonable hourly rate for the region and for the 25 experience of the lawyer.” In re Bluetooth, 654 F.3d at 941 (citing Staton v. Boeing Co., 327 F.3d 26 938, 965 (9th Cir. 2003). Trial courts “also retain the discretion to forgo a lodestar cross-check 27 and use other means to evaluate the reasonableness of a requested percentage fee.” Laffitte, 1 Cal. 28 5th at 506. Class Counsel is also entitled to recover “those out-of-pocket expenses that would 12 1 normally be charged to a fee paying client.” Harris v. Marhoefer, 24 F.3d 16, 19 (9th Cir. 1994) 2 (quotations omitted). b. Discussion 3 Class Counsel here seeks $750,000 in attorneys’ fees, costs, and expenses. See Dkt. No. United States District Court Northern District of California 4 5 49 at 1–22. Under the settlement agreement, this amount will not reduce the monetary relief 6 available to Class Members. Class Counsel acknowledges that its lodestar and accrued litigation 7 expenses are significantly less than the $750,000 requested. See id. at 6. As of the filing of the 8 motion for attorneys’ fees, Class Counsel had incurred $295,915.20 in fees for approximately 380 9 hours of work, and $8,146.75 in litigation expenses.3 See Dkt. No. 49-1, Ex. 1 (“Yanchunis 10 Decl.”) at ¶¶ 12, 23. Nevertheless, Class Counsel urges that the full $750,000 is appropriate under 11 the “percentage of fund” method. See Dkt. No. 49 at 7. Using federal law for guidance, 25% of the common fund is the benchmark for attorney fee 12 13 awards. See, e.g., In re Bluetooth, 654 F.3d at 942 (“[C]ourts typically calculate 25% of the fund 14 as the ‘benchmark’ for a reasonable fee award, providing adequate explanation in the record of 15 any ‘special circumstances’ justifying a departure.”). The Court considers the reasonableness of 16 the percentage requested in light of the factors endorsed by the Ninth Circuit, with the 25% award 17 as a starting point. The Ninth Circuit has identified several factors that a court should consider to 18 determine whether to adjust a fee award from the benchmark: (1) the results achieved; (2) the risk 19 of litigation; (3) the skill required and the quality of work; (4) the contingent nature of the fee and 20 the financial burden carried by the plaintiff; and (5) awards made in similar cases. See Vizcaino, 21 290 F.3d at 1048–50. Class Counsel argues that the settlement in this case “provides for a constructive common 22 23 fund” of $12,462,563.00. See Dkt. No. 49 at 9–11, & n.10. In particular, Counsel points to the 24 following: 25 26 27 28 3 As discussed in more detail below, when the Court directed counsel to provide billing records to support its lodestar calculation, counsel added an additional 110.9 hours of work and approximately $85,000 more in fees. See Dkt. No. 70. Almost $20,000 of this newly-claimed time was incurred over two days in 2019 by a single attorney who discussed the case and retainer agreement with Plaintiffs. It gives the Court pause that counsel did not show more attention to detail before being pressed by the Court. 13 1 Prior to entering into the settlement agreement, Defendants paid all customers a 2 $10 “courtesy payment,” and also credited some customers a “transaction 3 credit” to cover “certain transaction fees” incurred because of the Service 4 Disruption. See SA at ¶ IV.1.a–b. The parties agree that these courtesy 5 payments and transaction credits total $5,960,563.00. Id. at ¶ IV.1.c. 6 • Under the settlement agreement, Class Members may make claims for losses 7 under Tiers 1 and 2 up to an aggregate total of $5.5 million. See SA at 8 ¶¶ IV.2–3, 5. 9 United States District Court Northern District of California • • Under the settlement agreement, Defendants separately have agreed to pay for 10 costs of notice and claims administration up to $250,000. See SA at ¶¶ VI.3, 11 VII.8. 12 • Under the settlement agreement, Defendants also separately agreed to pay up to 13 $750,000 in attorneys’ fees and costs and up to $2,000 in incentive awards to 14 the named Plaintiffs. See SA at ¶¶ X.1, X.2. 15 Under Counsel’s calculation, therefore, they are seeking less than 6% of this constructive common 16 fund. See Dkt. No. 49 at 2, 11. 17 The Ninth Circuit has explained that “attorneys for a successful class may recover a fee 18 based on the entire common fund created for the class, even if some class members make no 19 claims against the fund so that money remains in it that otherwise would be returned to the 20 defendants.” Williams v. MGM–Pathe Commc’ns Co., 129 F.3d 1026, 1027 (9th Cir. 1997) (citing 21 Boeing Co. v. Van Gemert, 444 U.S. 472, 480–81 (1980)). However, the court also clarified that 22 “the percentage may be adjusted to account for any unusual circumstances,” and that district 23 courts may instead apply the lodestar approach. See id. The Court finds that such “unusual 24 circumstances” exist here. 25 First, Defendants concede that this litigation was “a motivation” for making the courtesy 26 payments and transaction credits of $5,960,563. SA at ¶ X.3. But these payments were made 27 before the parties settled this case, and Defendant does not state that this litigation was the only 28 motivation for these payments. Plaintiffs’ counsel acknowledged that although he “made demand 14 United States District Court Northern District of California 1 for immediate compensation to the class” the day after he filed the complaint in this case, “[a] 2 specific dollar demand was not discussed.”4 See Dkt. No. 70 at ¶ 7. Moreover, if this $5 million 3 were part of the current settlement, then the parties should have sought approval in advance of the 4 payment as required by Federal Rule of Civil Procedure 23(e), as they have with the rest of the 5 proposed settlement. The parties did not do so. As the parties confirmed during the final fairness 6 hearing, if the Court were to deny final approval of this settlement for whatever reason, 7 Defendants would not be able to recoup the money they already paid as courtesy payments and 8 transaction credits. The courtesy payments and transaction credits therefore appear to be—at least 9 in part—a business decision that Defendants made following the Service Disruption. The Court 10 therefore has concerns with retroactively deeming the entire $5,960,563 to be part of the 11 settlement fund. Second, during the final fairness hearing, first held on April 1, 2021, the parties could only 12 13 speculate as to the actual amount of damages that Class Members suffered from the Service 14 Disruption. Even in discussion with counsel, it was unclear whether the Class had incurred any 15 additional harm beyond the money Defendants already paid in courtesy payments and transaction 16 credits. The Court raised concerns that this $5.5 million for losses under Tiers 1 and 2 was 17 therefore largely illusory. This was borne out by the low number of Claim Forms received. Epiq 18 confirmed that it received just 22,325 Claim Forms out of the 495,006 email notices delivered (or 19 less than 5%). And of the 22,325 Claim Forms received, Epiq only verified 22,128 of them. 20 These verified claims represent just a small fraction of the $5.5 million that Defendants have 21 proffered to pay Claims under Tiers 1 and 2. 22 Moreover, under the settlement agreement only $1.5 million of the $5.5 million that 23 Defendants made available to pay verified claims under Tier 1 and 2 is non-reversionary. In other 24 words, only $1.5 million of the $5.5 million is guaranteed to be paid—no matter how many 25 26 27 28 4 During the final approval hearing, counsel represented that he had sent a demand letter to Defendants, which prompted these courtesy payments and transaction credits. Counsel later clarified that it was a phone call, and not a formal letter. See Dkt. No. 70 at ¶¶ 8–9. As a result, there is no record of what counsel actually said to Defendants and how, if at all, it prompted Defendants’ pre-settlement payments. 15 1 verified claims there are—either to Class Members or to the East Bay Community Law Center as a 2 cy pres recipient. See id. at ¶ IV.5. If there were few verified claims (as unsurprisingly turned out 3 to be the case), Defendants would retain the rest (or $4 million) of the available funds. Following 4 the claims adjustment process, Epiq confirmed that Defendants will pay $337,870.32 total for 5 these verified claims. Thus, $337,870.32 will be paid to Class Members under Tiers 1 and 2; 6 $1,162,129.68 (i.e., the substantial bulk of the non-reversionary $1.5 million) will be distributed to 7 the East Bay Community Law Center; and $4 million will revert to Defendants. Just 6% of the 8 $5.5 million will therefore be paid to Class Members at all. The Court finds that much of the 9 asserted relief for the Class is illusory. United States District Court Northern District of California 10 Both in the briefs and during the hearing, Class Counsel argued that he has nevertheless 11 received attorneys’ fees awards based on similarly-structured settlements in other cases. See, e.g., 12 Dkt. No. 49 at 17 (citing Green Dot, Case No. 2:16-cv-03557, ECF No. 109 at 13 (C.D. Cal. Nov. 13 22, 2017); UniRush, Case No. 1:15-cv-08372, ECF No. 49 (S.D.N.Y. Sept. 12, 2016)). The Court 14 finds it notable, however, that it appears that attorneys’ fees were awarded in both cases before the 15 claims adjustment process was complete. Thus, it is unclear whether these cases shared similarly 16 low rates of verified (and paid) claims. Moreover, in Green Dot, the court awarded attorneys’ fees 17 based on the lodestar, and not the percentage of the fund. In any event, the Court is not persuaded 18 that counsel should be entitled to the full amount of its requested fees simply because it may have 19 been successful in persuading a court to award such fees before. The Court has an independent 20 obligation to ensure the reasonableness of any fee award. 21 The Court therefore turns to Class Counsel’s lodestar. During the April 29, 2021 hearing, 22 the Court requested that counsel provide the underlying billing records in support of the motion 23 for attorneys’ fees. See Dkt. No. 68. In response, counsel supplemented its lodestar based on time 24 spent (1) by attorney Michael Braun investigating this matter for two days in October 2019; and 25 (2) by Class Counsel since it prepared its motion for attorneys’ fees in December 2020 and to 26 prepare for the final fairness hearing. See Dkt. No. 70. Counsel asserts that it “discovered” Mr. 27 Braun’s hours were missing when preparing the time entries for submission to the Court. See id. 28 at 4. Counsel now represents that in sum it has spent 490.9 hours on this case, and calculates its 16 1 lodestar as $380,968.80. See id. at 5. This time includes: 2 3 4 5 6 7 [P]re-suit investigation and analysis; interviewing members of the class to determine how those members were affected by the problems associated with the Service Disruption; reviewing and analyzing information produced by Defendants; preparing for and participating in settlement discussions; participating in a number of telephonic settlement negotiations; drafting settlement documents; drafting papers in support of preliminary approval of the Settlement; working with the Class Administrator and Defendants’ counsel to implement the notice program; and working with the class in connection with notice and administration issues. 8 9 United States District Court Northern District of California 10 See Dkt. No. 49 at 17; see also Yanchunis Decl. at ¶¶ 12–17, & Ex. A. Having reviewed the itemized billing records in detail, the Court finds that Class Counsel’s 11 lodestar calculation contains some inefficient and unreasonable time. See Jankey v. Poop Deck, 12 537 F.3d 1122, 1132 (9th Cir. 2008) (directing courts to exclude from a fee request any hours that 13 are “excessive, redundant, or otherwise unnecessary”). For example, the records indicate that the 14 attorneys spent significant time discussing the case via intraoffice meetings, emails, and phone 15 calls with co-counsel. The Ninth Circuit has indicated that the Court has discretion to discount 16 such time. See Terry v. City of San Diego, 583 Fed. App’x 786, 790–91 (9th Cir. 2014) 17 (permitting reductions for time counsel spent conferring among themselves and co-counsel editing 18 each other’s briefs because this time could be considered duplicative). 19 The Court also has reservations about the amount of time that counsel spent preparing the 20 motions in this case. Class counsel claims that it spent 185.80 hours on “Motions Practice” as of 21 December 29, 2020. See Yanchunis Decl., Ex. A. Only the preliminary approval motion and 22 motion for attorneys’ fees were filed by the end of December 2020, and no other motions practice 23 occurred in this case. Counsel therefore spent almost 200 hours on two motions. In contrast, 24 Class Counsel appears to have spent approximately 30 hours preparing the motion for final 25 approval. Although the motion for preliminary approval may have required the coordination of 26 additional information, including the settlement agreement and proposed notices, the Court finds 27 that almost 186 hours spent on the motions for preliminary approval and for attorneys’ fees and 28 costs is still excessive. The Court finds that a five percent reduction of Plaintiffs’ lodestar is thus 17 United States District Court Northern District of California 1 warranted to account for the inefficiencies present in counsel’s billing records. 2 Class Counsel also billed substantial time for travel to and from the settlement conference. 3 Courts in this district have frequently reduced travel time by half to create a reasonable rate. See, 4 e.g., In re Washington Public Power Supply Sys. Sec. Lit., 19 F.3d 1291, 1298–99 (9th Cir. 1994) 5 (finding the district court did not err in reducing attorney travel time by half where the “attorneys 6 generally billed the entire duration of the time spent in transit”); see also In re Volkswagen “Clean 7 Diesel” Mktg., Sales Practices, & Prod. Liab. Litig., No. 6903, 2020 WL 2086368, at *8 (N.D. 8 Cal. Apr. 30, 2020). Here, Class Counsel billed for travel, largely irrespective of any preparation 9 for the settlement conference or work on this case. Counsel also appears to have included time 10 spent during layovers in transit. The Court finds that a reduction of fifty percent of this time is 11 appropriate under the circumstances. 12 13 14 15 Name Patrick A. Barthle Date 2/4/2020 John Yanchunis 2/5/2020 Patrick A. Barthle 2/5/2020 John Yanchunis 2/7/2020 Patrick A. Barthle 2/7/2020 16 17 18 19 20 21 22 23 24 25 26 Task Travel to settlement conference Travel to San Francisco to attend mediation Travel to San Francisco for mediation via layover in Seattle and prepare for mediation Travel from San Francisco through Atlanta to Tampa after mediation Return travel from San Francisco via layover in Atlanta 27 28 18 Rate $658 Hours 6.50 Total $4,277 $950 11.10 $10,450 $658 8.50 $5,593 $950 11.00 $10,450 $658 10.90 $7,172 TOTAL Reduced by 50% $37,942 $18,971 1 The Court is also concerned with time that appears unrelated to this case or is otherwise 2 due to inattentiveness. For example, there is an entry regarding a hearing on counsel’s pro hac 3 vice applications, but there was never a hearing on any pro hac vice applications. There are also 4 several entries regarding “potential” plaintiffs regarding a breach or identity theft. But this action 5 involved a disruption in Defendant’s online banking services, not a data breach. These entries 6 were also notably after the parties had settled this case. 7 8 9 Name Patrick A. Barthle Date 12/12/2019 John Yanchunis 3/2/2020 John Yanchunis 12/24/2020 Patrick A. Barthle 1/18/2021 Patrick A. Barthle 1/19/2021 Patrick A. Barthle 1/26/2021 John Yanchunis 3/14/2021 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Task Email string with co-counsel re hearing on PHVs Email exchange with Sean Unger confirming that there is not an in person meeting this Friday Review Judge Donato’s orders on final judgment Correspond with co-counsel and opposing re pot’l breach/issues with customer ID theft Correspond with co-counsel re pot’l breach victims Call pot’l plf S. Johnson and research re same Email exchanges with consumer regarding 19 Rate $658 Hours .30 Total $197.40 $950 .30 $285 $950 2.40 $2,280 $658 .40 $263.20 $658 .1 $65.80 $658 .3 $197.40 $950 1.00 $950 service disruption she is presently experiencing (.5); email to Sean Unger, two emails, regarding news of another service disruption and sending him photos of instant messages with another consumer[] (.5) 1 2 3 4 5 6 7 8 9 10 TOTAL $4,238.80 United States District Court Northern District of California 11 12 Reducing Plaintiffs’ lodestar calculation by the amounts identified above, the Court 13 calculates a revised lodestar of $338,719.56.5 Considering the procedural posture of the case, the 14 amount of substantive litigation, the minimal issues in dispute, and the lack of motion practice, the 15 Court finds that an award of this lodestar is reasonable under the circumstances. The Court also 16 finds that the $8,146.75 in costs that counsel identified is also reasonable. See Yanchunis Decl. at 17 10; Dkt. No. 49-2, Ex. 2 at 7. Accordingly, the Court awards attorneys’ fees and costs in the total 18 amount of $346,857.31.6 19 ii. Incentive Awards Lastly, Class Counsel requests an incentive award of $500 for each of the Named 20 21 Plaintiffs. See Dkt. No. 49 at 22–24. District courts have discretion to award incentive fees to 22 named class representatives. See In re Mego Fin. Corp. Secs. Litig., 213 F.3d 454, 463 (9th Cir. 23 2000). However, the Court shares the Ninth Circuit’s concern that “if class representatives expect 24 routinely to receive special awards in addition to their share of the recovery, they may be tempted 25 26 27 28 The Court first reduced Plaintiffs’ proposed lodestar by 5% due to inefficiencies: $380,968.80 *.95 = $361,920.36. The Court then subtracted the other inefficient or duplicative time identified above: $361,920.36 - $18,971 (50% reduction in travel fees) - $4,238.80 (time unrelated to case) = $338,710.56. 6 $338,719.56 (fees) + $8,146.75 (costs) = 346,857.31. 20 5 United States District Court Northern District of California 1 to accept suboptimal settlements at the expense of the class members whose interests they are 2 appointed to guard.” See Staton v. Boeing Co., 327 F.3d 938, 975 (9th Cir. 2003); Radcliffe v. 3 Experian Information Sols. Inc., 715 F.3d 1157, 1163–64 (9th Cir. 2013) (noting that the Ninth 4 Circuit has “expressed disapproval of these incentive agreements” and that “in some cases 5 incentive awards may be proper but . . . awarding them should not become routine practice”). 6 Indeed, the Ninth Circuit has cautioned that “district courts must be vigilant in scrutinizing all 7 incentive awards to determine whether they destroy the adequacy of the class representatives . . . .” 8 Radcliffe, 715 F.3d at 1165 (quotations omitted). This is particularly true where “the proposed 9 service fees greatly exceed the payments to absent class members.” Id. 10 The Court has concerns about the requested incentive awards in a case in which the 11 average monetary recovery for each Class Member is $11.94.7 Thus, if the Court were to grant the 12 named Plaintiffs’ request for incentive awards, they would be receiving significantly more money 13 as compared to the other Class Members. The Court further notes that counsel has not provided 14 any detailed discussion of what the named Plaintiffs did to contribute to this litigation or how long 15 they spent doing any particular task. Rather, counsel devotes just two sentences to summarizing at 16 a high level the types of work that the named Plaintiffs performed. See Dkt. No. 49 at 23; see also 17 Dkt. No. 49-1, Ex. 1 at ¶ 29. The Court accordingly DENIES the request for incentive awards in 18 its entirety. 19 III. CONCLUSION 20 Accordingly, the Court GRANTS the motion for final approval of class action settlement 21 and GRANTS IN PART the motion for attorneys’ fees and incentive award. The Court awards 22 attorneys’ fees and costs in the amount of $346,857.31, but DENIES the request for an incentive 23 award for the named Plaintiffs. The parties and settlement administrator are directed to implement this Final Order and the 24 25 settlement agreement in accordance with the terms of the settlement agreement. The parties are 26 further directed to file a short stipulated final judgment of two pages or less within 21 days from 27 28 7 $5,960,563.00 (in courtesy payments and transaction credits) + $337,870.32 (under Tiers 1 and 2) / 527,505 records for potential Class Members = $11.94. 21 1 2 3 4 5 the date of this order. The judgment need not, and should not, repeat the analysis in this order. IT IS SO ORDERED. Dated: May 24, 2021 ______________________________________ HAYWOOD S. GILLIAM, JR. United States District Judge 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 22
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