Class Action

New class action objector decision: Kullar v. Foot Locker Retail, Inc.

By Kimberly A. Kralowec

In Kullar v. Foot Locker Retail, Inc., ___ Cal.App.4th ___ (Oct. 14, 2008; pub. ord. Nov. 7, 2008), the Court of Appeal (First Appellate District, Division Three) reversed an order granting final approval of a class action settlement, holding that the trial court "erred by finding the terms of the settlement to be fair, reasonable and adequate without any evidence of the amount to which class members would be entitled if they prevailed in the litigation, and without any basis to evaluate the reasonableness of the agreed recovery." Slip op. at 1. The appellate panel took pains to observe that it was entirely possible that the trial court had been presented with, and had considered, such evidence, but that if so, the record on appeal did not reflect it. Id. at 2, 13.

The panel summarized the trial court's duties in determining whehther a proposed class action settlement is fair, reasonable and adequate:  

More fundamentally, neither Dunk, 7-Eleven, nor any other case suggests that the court may determine the adequacy of a class action settlement without independently satisfying itself that the consideration being received for the release of the class members? claims is reasonable in light of the strengths and weaknesses of the claims and the risks of the particular litigation. The court undoubtedly should give considerable weight to the competency and integrity of counsel and the involvement of a neutral mediator in assuring itself that a settlement agreement represents an arm?s length transaction entered without self-dealing or other potential misconduct. While an agreement reached under these circumstances presumably will be fair to all concerned, particularly when few of the affected class members express objections, in the final analysis it is the court that bears the responsibility to ensure that the recovery represents a reasonable compromise, given the magnitude and apparent merit of the claims being released, discounted by the risks and expenses of attempting to establish and collect on those claims by pursuing the litigation. ?The court has a fiduciary responsibility as guardians of the rights of the absentee class members when deciding whether to approve a settlement agreement.? (4 Newberg on Class Actions, supra, § 11.41 at p. 118; 7-Eleven, supra, 85 Cal.App.4th at p. 1151.) ?The courts are supposed to be the guardians of the class.? (Dickerson, Class Actions: The Law of 50 States (2008 ed.) § 9.02[2], p. 9-6.)

Id. at 13 (citing 7-Eleven Owners for Fair Franchising v. Southland Corp., 85 Cal.App.4th 1135 (2000); Dunk v. Ford Motor Co., 48 Cal.App.4th 1794 (1996)).

The Court also observed that comments in the record suggested that data on the scope of the defendant's potential liability was exchanged during mediation, but disagreed with the trial court's conclusion that such data should be treated as confidential under Evidence Code section 1119:  

Here, the trial court acknowledged that ?in logic? it would have been preferable for it to have been presented with data permitting it to review class counsel?s evaluation of the sufficiency of the settlement, but felt that this was precluded because the supporting information was exchanged in the course of mediation. We disagree with this conclusion for two reasons. First, the fact that the settlement was reached during mediation to which Evidence Code section 1119 applies does not eliminate the court?s obligation to evaluate the terms of the settlement and to ensure that they are fair, adequate and reasonable. If some relevant information is subject to a privilege that the court must respect, other data must be provided that will enable the court to make an independent assessment of the adequacy of the settlement terms. Secondly, the fact that communications were made during the mediation and writings prepared for use in the mediation that are inadmissible and not subject to compulsory production does not mean that the underlying data, not otherwise privileged, is also immune from production. (Evid. Code, § 1120 [?Evidence otherwise admissible or subject to discovery outside of a mediation . . . shall not be or become inadmissible or protected from disclosure solely by reason of its introduction or use in a mediation . . .]; Rojas v. Superior Court (2004) 33 Cal.4th 407, 417; Wimsatt v. Superior Court (2007) 152 Cal.App.4th 137, 157-158.) Foot Locker?s payroll records, for example, if relevant to the quantification of the claims being settled, are subject to discovery and may be introduced in opposition to the settlement even if they were disclosed to class counsel during the mediation, and even if class counsel was shown only a summary or analysis of those records that is not itself subject to production because prepared for use in the mediation.

Id. at 15-16.  The Court assumed, for purposes of its opinion, that section 1119 would "preclude compulsory disclosure of [mediation] communications to objecting class members," even though class counsel were acting partly on their behalf during the mediation.  Id. at 16 n.12.  Finally, the opinion contains an interesting discussion of the scope of discovery to which class action settlement objectors are entitled. Id. at 17.

The Complex Litigator has more on Kullar in this post.

Full post as published by The UCL Practitioner on November 13, 2008 (boomark / email).