Court of Appeal Kills Class Action Settlement

The Court of Appeal was not impressed with a $2 million wage and hour class action settlement. So, it vacated the judgment and sent it back to the trial court for further evaluation.

During a wage and hour class action, the parties conducted discovery, including production of thousands of pages of documents and the depositions of the class members. Then, they attended a mediation for a full day and reached a settlement. As is typical, the parties developed a comprehensive settlement agreement, and the plaintiffs filed a motion for approval of the settlement. About 20 of 2340 class members objected to the settlement. But the trial court found the settlement was reasonable and approved the settlement. The objectors appealed.

On review, the Court of Appeal concluded:

the order approving the settlement must be vacated because the trial court lacked sufficient information to make an informed evaluation of the fairness of the settlement. This was due to the court‟s apparent reliance on counsel‟s evaluation of the class‟s overtime claim as having “absolutely no” value, without regard to the objectors‟ claim that counsel‟s evaluation was based on an allegedly “staggering mistake of law.” While the court need not determine the ultimate legal merit of a claim, it is obliged to determine, at a minimum, whether a legitimate controversy exists on a legal point, so that it has some basis for assessing whether the parties‟ evaluation of the case is within the “ballpark” of reasonableness. We further conclude that the court abused its discretion in finding that the $25,000 enhancements for Clark and Gaines were fair and reasonable, and that it erred in awarding costs greater than the maximum amount specified in the notice given to the class.
The interesting aspect of this case is that the parties appeared to have made significant efforts to detail their justification for the settlement. The opinion explains the law regarding how courts should evaluate class action settlements, and what the parties are required to do to obtain the court's approval.

The case is Clark v. American Residential Services and the opinion is here.