Der-Hacopian v. Darktrace, Inc.

Background

Nicholas Der-Hacopian brought a consumer class action against Darktrace, Inc. under the Fair Credit Reporting Act, a federal statute governing consumer reports, including employment background checks. Der-Hacopian alleged that Darktrace required job applicants to sign an authorization containing a release of future liability, even though the statute requires the authorization to consist only of a disclosure that a consumer report may be obtained for employment purposes. He also alleged that Darktrace used a background report to make an adverse employment decision without timely providing the applicant with a copy of the report and a written summary of rights required by the statute.

Der-Hacopian alleged that the report used in his application contained erroneous information and that Darktrace denied him employment based on that information, causing financial and reputational harm. He sought to represent classes of people affected by the alleged authorization and disclosure practices.

Settlement and Procedure

The parties answered the complaint without litigating motions and later engaged in mediation and settlement negotiations. They entered a settlement agreement, and Der-Hacopian filed an unopposed motion for preliminary approval. The court requested additional briefing because it believed the proposed release was broader than the allegations. The parties then narrowed the class release and submitted revised settlement documents and notice materials.

The settlement class covers applicants for employment and employees from whom Darktrace obtained consent to obtain a consumer report using a substantially similar form during the period described in the settlement agreement. The agreement provides each class member with a $300 settlement check. It also requires Darktrace to comply with the Fair Credit Reporting Act's disclosure, authorization, and pre-adverse-action notice requirements going forward. Checks that are not delivered or cashed within 60 days will become void, with the funds donated to the National Consumer Law Center, the agreed recipient of the remaining funds.

The settlement separately allows Der-Hacopian to seek an incentive award of no more than $15,000. Class counsel may seek attorneys' fees and costs of up to $150,000. The court did not award those amounts in this order; it stated that it would evaluate any requests at the final approval stage. The class members' release was limited to the specified Fair Credit Reporting Act claims, while the class representative agreed to a broader release of claims against the released parties accruing on or before the settlement's effective date.

Provisional Class Certification

Because the settlement was reached before class certification, the court applied the requirements for provisionally certifying a settlement class under Federal Rule of Civil Procedure 23. The court found the requirements of numerosity, commonality, typicality, and adequate representation satisfied. It also found that common questions predominated and that a class action was the superior method for resolving the dispute.

The court appointed Der-Hacopian as class representative. It appointed SmithMarco, P.C. and Francis Mailman Soumilas, P.C. as class counsel, finding that counsel had investigated and litigated the case and had experience with consumer class actions and Fair Credit Reporting Act cases.

Preliminary Settlement Approval

For a class settlement, the court must determine whether the agreement is fundamentally fair, adequate, and reasonable. Because this settlement was reached before class certification, the court applied heightened scrutiny for possible collusion, conflicts of interest, preferential treatment, and other deficiencies.

The court considered a provision under which Darktrace would not object to a fee request of up to $150,000. It found that this provision did not weigh against preliminary approval because the fees would not reduce the $300 payments to class members and because counsel had taken substantial litigation risk. The court also found a sufficient connection between the National Consumer Law Center and the class for purposes of distributing unclaimed funds.

The court found no improper preferential treatment at the preliminary stage. Although the agreement allowed Der-Hacopian to seek an incentive award, the court stated that it would decide whether an award was appropriate and reasonable after reviewing evidence at the final fairness hearing. The court also found that the $82,500 total settlement, based on approximately 275 class members receiving $300 each, fell within the possible range of approval given the risks of continued litigation. It found no obvious deficiencies.

Notice and Ruling

The court found the proposed notice plan adequate. A third-party administrator must mail notice to class members within 30 days of the preliminary-approval order and make reasonable efforts to locate people whose notices are returned. The notice must explain the action, the settlement, the class definition, and the procedures for objecting or opting out. The opt-out deadline is 60 days after the notice is mailed.

Judge Haywood S. Gilliam, Jr. granted the plaintiff's motion for preliminary approval of the class action settlement. He directed the parties to submit a schedule for notice, fee and incentive-award applications, objections and opt-outs, final approval filings, and the final fairness hearing. He also directed the parties to implement the proposed notice plan. This order granted preliminary approval; it did not constitute final approval of the settlement or decide the underlying allegations of Fair Credit Reporting Act violations.