Foster v. Adams and Associates, Inc.

Background

Carol Foster and Theo Foreman brought a class action under the Employee Retirement Income Security Act of 1974, a federal law governing employee-benefit plans. They sued Adams and Associates, Inc.; Roy A. Adams; Leslie G. Adams; Daniel B. Norem; Joy Curry Norem; and The Daniel Norem Revocable Trust Dated January 9, 2002. The claims concerned the Adams and Associates Employee Stock Ownership Plan, including alleged breaches of fiduciary duty, prohibited transactions, disclosure failures, and improper indemnification provisions.

The court had previously certified a class under Federal Rule of Civil Procedure 23(b)(1) and (b)(2), and had granted in part and denied in part the parties’ cross-motions for summary judgment. Four claims remained. Before trial, the parties reached a settlement, which the court had preliminarily approved.

Settlement terms and notice

The class included 3,561 current and former Adams and Associates employees who participated in the employee stock ownership plan between October 25, 2012, and December 31, 2020, vested under the plan, or were beneficiaries of those participants. Certain defendants, family members, plan fiduciaries, and specified officers, directors, and related persons were excluded.

The non-Adams and Associates defendants agreed to pay $3 million into a settlement fund. After court-approved deductions and expenses, the money would be distributed pro rata based on the number of vested Adams and Associates shares allocated to each authorized claimant’s plan account. Depending on eligibility, class members could receive checks, roll the money into an individual retirement account or another eligible retirement account, or have the money remain in or be transferred to the Adams and Associates 401(k) Profit Sharing Plan. Adams and Associates also agreed to issue a new summary plan description as required by federal law and not to pay for or indemnify the other defendants.

The settlement released claims arising from the 2012 employee stock ownership plan transaction and certain disclosure claims based on the same facts through the settlement date. Class members also waived rights under California Civil Code section 1542 concerning unknown claims. Notice was mailed to all 3,561 class members, emailed to 782 members for whom email addresses were available, and supplemented with a settlement website. No class member objected by the January 10, 2022 deadline.

Final approval

The court evaluated whether the settlement was fair, adequate, and reasonable under Rule 23(e), including the strength of the claims, the risks and costs of continued litigation, the settlement amount, the stage of the proceedings, counsel’s experience, and the class’s reaction. The court noted that the parties had completed extensive fact and expert discovery, litigated class certification and summary judgment, participated in three settlement conferences, and settled about a month before trial.

The court found that the $3 million payment provided a certain recovery in light of the risks of trial and appeals. Plaintiffs’ valuation expert had estimated a $10.5 million loss to the employee stock ownership plan, making the settlement approximately 28.5 percent of that estimate. The court also found that the settlement was not the product of collusion, despite two warning signs relating to fees: the requested fees equaled one-third of the settlement fund, and the agreement contained a provision under which defendants agreed to pay the fees separately from the class fund. The court found no concern about collusion because the requested fee was a fraction of counsel’s lodestar, meaning the total value of counsel’s documented time multiplied by reasonable hourly rates, and because all settlement funds would be distributed to class members rather than revert to defendants.

Fees, costs, and incentive awards

The court approved $1 million in attorney’s fees. It found that counsel’s requested hourly rates were consistent with rates charged by comparable employee-benefit litigators in the San Francisco Bay Area and that the 3,830 hours recorded were reasonable given the extensive discovery, motion practice, expert work, and trial preparation. The $1 million award represented 33.3 percent of the settlement fund and 36 percent of counsel’s $2,749,823 lodestar, without an additional multiplier.

The court also awarded $149,978.03 in litigation costs, finding them documented and reasonable. It approved a $5,000 incentive award for each class representative. The court relied on Foster’s reported 75 to 80 hours of work and Foreman’s reported 60 to 65 hours, as well as the risks and efforts the court found they undertook on behalf of the class.

Disposition

The court vacated the scheduled hearing and granted Plaintiffs’ motion for final approval of the class action settlement. It also granted Plaintiffs’ motion for attorney’s fees and costs, awarding $1 million in fees and $149,978.03 in costs, and granted the request for $5,000 incentive awards for each class representative. The court directed counsel to file a post-distribution accounting and directed the clerk to close the case.