Tobias v. NVIDIA Corporation

Background

The plaintiffs filed an unopposed motion for preliminary approval of a class-action settlement. The court evaluated the proposed settlement under Federal Rule of Civil Procedure 23(e)(2), which requires a class settlement to be fair, reasonable, and adequate.

Why the Court Denied Preliminary Approval

First, the court could not determine whether the settlement was reversionary—that is, whether unused settlement funds could effectively return to the defendants or otherwise benefit them indirectly. The plaintiffs stated that uncashed checks would not revert to the defendants but instead would return to the settlement fund and then be transferred to a plan to reduce administrative fees and expenses that would otherwise be charged to plan participants. The court found it unclear why transferring the money to the plan should not be treated as reversionary and found that the plaintiffs had not explained how plan participants would benefit. The court also questioned whether any such funds would be tracked or reduce fees as claimed.

Second, the court found that the plaintiffs had provided too little information to evaluate the settlement amount. The plaintiffs asserted that the class would recover $2,500,000, or about 16.86% of their estimated maximum potential losses of $14,832,044.44. Their evidence concerning potential recovery consisted of a paragraph in counsel’s declaration assigning estimated damages of $1,689,456 for a recordkeeping claim, between $1,228,554 and $1,854,837 for failure to select lower-cost share classes, and about $11,287,751.44 for fund underperformance. The court found it had no basis to evaluate the reasonableness of those estimates and therefore could not determine whether the settlement was fair, reasonable, and adequate.

Attorneys’ Fees and Incentive Awards

The plaintiffs’ counsel anticipated seeking attorneys’ fees of up to one-third of the common fund. The plaintiffs also planned to seek $10,000 contribution awards for Cristina Tobias, Anthony Briggs, Ann MacDonald, and David Calder. The court did not decide whether those fees or awards were appropriate because no motion requesting them had been filed. It reminded the parties that the Ninth Circuit generally uses a 25% benchmark for attorneys’ fees from a common fund and that $5,000 is presumptively reasonable for an incentive award, while $10,000 is considered high. The court stated that the plaintiffs should justify any departure from those benchmarks when requesting the awards.

Disposition

Judge Jon S. Tigar denied the plaintiffs’ motion for preliminary approval of the class-action settlement without prejudice. The order states that the plaintiffs may file a revised motion correcting the identified deficiencies.