Naiman v. Freedom Forever, LLC.

Background

The opinion is a notice and order in a putative class action brought by Sidney Naiman, individually and on behalf of others similarly situated, against Freedom Solar Services, Inc., Freedom Forever, LLC, and unnamed defendants. It gives counsel guidance about any proposed class settlement and establishes a protocol for communications with absent putative class members. The order directs counsel to consult the district court’s procedural guidance for class-action settlements.

Settlement factors

Judge Alsup stated that the court’s main concern would be the interests of absent class members. The order identifies these considerations:

1. Adequacy of representation. A proposed class representative must affirmatively satisfy the requirements of Federal Rule of Civil Procedure 23, including adequacy. The record should disclose possible conflicts, criminal convictions, litigation history, history with counsel, and any prior use of putative class actions to obtain individual settlements. Adequacy of counsel does not replace adequacy of the representative.

2. Due diligence. The representative and counsel must investigate the strengths and weaknesses of the claims and determine the best-case amount of relief. The order states that this usually requires discovery.

3. Cost and benefit to absent class members. A partial recovery requires justification for the discount from the potential full recovery. The court may require specific evidence, a class-wide damages study or a strong substitute, and sworn proof of a defendant’s claimed inability to pay. The order also states that coupon settlements will rarely be approved and that different groups within a class require justification for the allocation plan.

4. The release. A settlement release should be limited to claims certified for class treatment. Claims released should be specifically identified, and class counsel must justify each release by addressing the likelihood of success and estimated value of the released claim. Expanding the class geographically, by claim, or by category of person requires an adequate representative, standing for the added scope, an amended complaint, investigation, and enough settlement money to cover the expanded scope.

5. Reversion. A provision returning unused settlement funds to defendants is a warning sign because it may make the settlement illusory, particularly when class members must submit claims.

6. Claim procedure. A claims process may burden class members if it is difficult, too brief, or likely to be mistaken for junk mail. When feasible, the order favors using defendant records and counsel’s investigation to calculate checks and sending those checks with notice that cashing them will accept the release and other settlement terms.

7. Attorney’s fees. Settlements should generally avoid agreements setting attorney’s fees and should leave the amount to the judge. In a common-fund case, the judge will decide how the fund is divided between the class and counsel. A fee disproportionate to the benefit provided to the class must be justified.

8. Opt-out rights. The ability of absent class members to opt out does not by itself cure a questionable settlement. The court and counsel have an independent duty to assess whether the settlement is reasonable and adequate.

9. Incentive payments. A request for an incentive payment to the named plaintiff must be clearly supported by sworn evidence.

10. Notice. The court will consider whether claims would be released when notice is undeliverable or when a person receives no benefit. The order states that the release should generally extend only to people who receive money for it. It also addresses whether notice is understandable, uses appropriate languages, reaches class members, avoids being treated as junk mail, and should be supplemented by email.

11. Timing. As a general rule, Judge Alsup requires plaintiff’s counsel to wait until after class certification before discussing settlement of class claims. The order explains that certification clarifies which claims and class members are involved and prevents settlement values from being reduced because of uncertainty about certification. It also links this timing requirement to the need for investigation and discovery.

12. Interim counsel. Rule 23 allows counsel to seek appointment as interim counsel and express authorization to negotiate for a specified putative class before certification. Any such motion must establish adequate representation. The order gives the possibility of a defendant running out of money as an example of circumstances that might justify earlier negotiations.

13. Individual settlements. Full settlement discussions about the individual plaintiff’s claim are permitted at any time. Discussions about class claims are permitted after certification or after interim counsel is appointed.

Interviews with absent putative class members

The order requires both sides to meet and confer about a protocol for interviewing absent putative class members. In the joint case-management statement due at the beginning of the case, the parties must describe their agreed protocol or explain why no protocol is needed. Neither side may interview absent putative class members unless the court approves the proposed protocol or otherwise grants permission.

Disposition and significance

The order sets procedures and guidance for possible future settlement review and communications with absent putative class members. It does not state that the court granted or denied preliminary or final settlement approval, and it does not decide the underlying claims. The order was signed by Judge William Alsup on November 27, 2019.