State Appellate Court Vacates Class Action Settlement Due to Court’s Failure to Independently Analyze Fairness of Settlement.

Case: Kullar v. Foot Locker Retail Inc., Case No. A119697 (Cal. Ct. App. 11/7/08)

The One Sentence Summary: Approval of a $2 million settlement in a wage-and-hour class action against a retailer was vacated because the trial court failed to independently analyze the evidence and circumstances surrounding the settlement.


What They Were Fighting About: Defendant Foot Locker agreed to settle this class action, which alleged various failures to properly compensate employees for their labor and expenses, for a total of $2 million. A member of the class filed a written objection to the settlement and requested discovery, arguing that the settlement was not fair and class counsel had not completed sufficient discovery to determine the extent of the class loss. At the hearing for final approval, the settling parties argued that information supporting the settlement had been exchanged at the mediation that resulted in the settlement, but that none of the information could be provided to the trial court due to the privilege accorded mediation discussions. The trial court concluded that it could not compel the parties to turn over documents exchanged at the mediation, and approved the settlement on the basis that “circumstantial evidence” indicated it was fair.


Upon the objector’s appeal, the appellate court vacated and remanded for further proceedings. The court held the trial court was required to independently analyze the evidence and circumstances to determine whether the settlement was in the best interests of the class. Although the trial court was not required to attempt to decide the merits of the case, it must at least satisfy itself that the class settlement is within “the ‘ballpark’ of reasonableness.” Accordingly, the trial court was required to examine the relevant data. If certain data were privileged, the parties could be required to provide the trial court with other data that would enable the court to make an independent assessment of the adequacy of the settlement terms. The appellate court further held that the objector should be permitted to renew its discovery requests, within limits.

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Class Action for Deceptive Advertising Was Improper Where Individual Buying Decisions Would Need Proof

Case: Thorogood v. Sears, Roebuck & Co., Seventh Cir. No. 08-1590 (10/28/08)

The One Sentence Summary: Class action certification was reversed because allegations of deceptive advertising in the sale of Sears Kenmore washing machines with stainless steel drums would require individual determinations of whether buyers were deceived, and deception was unlikely where advertisements did not indicate that stainless steel drums prevented rust stains on clothes.


What They Were Fighting About: The district court had jurisdiction over the class action under the Class Action Fairness Act, 28 U.S.C. §§ 1332(d), 1453, 1711-1715. The district court granted the motion to certify the class, and defendant appealed.

Seventh Circuit Holdings:

• The panel explained that the advantage of class actions in enabling the litigation of small claims comes with many downsides.
  
• One downside of class action litigation is conflict between the class members who have small economic interests in the litigation, and class counsel who may receive large fees.
• Class actions also create huge risks for companies because many individual cases are consolidated before a single court that may err in the outcome. Thus, even claims of little merit may be settled to avoid risk.
• Judge Posner's opinion further opined that class actions tend to undermine federalism because a single jury must try to apply an amalgamated law from many states.
• This class should not have been certified by the district court because there was no evidence that anyone other than the named plaintiff was deceived into believing that a stainless steel washer drum would prevent rust stains on clothes.
  
  

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