Naro v. Walgreen Co

Background

The plaintiffs filed an unopposed motion for preliminary approval of a proposed class-action settlement. Preliminary approval is the court’s initial review of a proposed settlement before notice is sent to class members and the court conducts any final approval process. The proposed settlement included a $900,000 payment, $100,000 allocated to penalties under the Private Attorneys General Act, and compensation for unreimbursed business clothing expenses. Plaintiffs’ counsel also anticipated requesting attorney’s fees of up to one-third of the common fund, and the agreement provided for a $10,000 incentive award for each named plaintiff.

Reasons for Denial

The court identified three deficiencies.

First, the release provisions created a conflict between the named plaintiffs and the settlement class. The settlement class would release the claims asserted in the complaint, while the named plaintiffs would also provide a general release of all known and unknown claims against the released parties through the date of final approval. That broader release was part of the consideration for the proposed $10,000 incentive awards. The court relied on Ninth Circuit precedent disapproving incentive payments exchanged for general releases and stated that it would not approve a settlement containing this provision.

Second, the proposed notice gave class members only 30 days after the notice was mailed to opt out or object. The court stated that it generally considers any period shorter than 60 days too short for class members to respond properly.

Third, the parties planned to file the attorney-fee motion with the papers seeking final approval but did not provide class members an opportunity to object to that fee motion itself. The court stated that class members must have an adequate opportunity to object to the fee request, not merely to notice that a fee motion will be filed. The court directed the parties to propose either one objection and exclusion deadline after the fee motion is filed or a second objection deadline for the fee motion.

Settlement-Value Observations

The court also examined the proposed settlement’s value compared with what the plaintiffs might recover at trial. The parties had estimated $514,809 in unreimbursed business expenses and $1,655,900 in maximum civil penalties. The court stated that the settlement class had actually spent $859,994 on unreimbursed business clothing, corresponding to an estimated civil-penalty amount of $2,812,000, and that the record did not support excluding purchases the parties characterized as voluntary. The court also noted that the economist’s data omitted a period from May 7, 2021, through October 16, 2021. Filling that gap using average daily purchases would produce an estimated unreimbursed-clothing total of $929,654 and estimated civil penalties of $3,039,772, for a total of $3,969,425.

Despite those adjustments, the court stated that it was likely to conclude that the settlement amount was reasonable. It observed that the proposed $100,000 allocation to civil penalties represented approximately 3.3% of the maximum estimated liability and that the portion allocated to unreimbursed business expenses represented almost half of the plaintiffs’ best possible outcome after attorney’s fees.

Attorney Fees and Incentive Awards

The court did not decide the appropriate attorney-fee or incentive awards because no fee motion had yet been filed. It noted that the Ninth Circuit’s benchmark for attorney’s fees in a successful class action is 25% of the common fund. It also stated that a $5,000 incentive award is presumptively reasonable, while $10,000 or $25,000 is considered quite high. The plaintiffs would need to justify any departure from those reference points.

Disposition

Judge Jon S. Tigar denied the plaintiffs’ motion for preliminary approval without prejudice. The order allowed the plaintiffs to file a revised motion correcting the identified deficiencies.