STRUCTURED INVESTMENTS CO., LLC v. BROGDON No. G042795.

STRUCTURED INVESTMENTS CO., LLC, Plaintiff, Cross-defendant, and Respondent, v. KIRKLAND L. BROGDON, SR., Defendant, Cross-Complainant, and Respondent. JOHN LUMETTA et al., Objectors and Appellants.

Court of Appeals of California, Fourth District, Division Three.
Filed June 27, 2011.
Law Offices of Patrick J. Sullivan and Patrick Sullivan for Defendant, Cross-complainant, and Respondent.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

OPINION

IKOLA, J.

Objectors John Lumetta, Sandra Blank, and Peter Pompa appeal from an order approving the settlement of a class action. Plaintiff Structured Investments Co., LLC (SICO), sued defendant Kirkland Brogdon, Sr., for breaching an agreement to make monthly payments from his military pension to SICO in exchange for a lump sum. Brogdon brought a class action cross-complaint against SICO, alleging the agreements violated various laws. The parties agreed to a settlement offering reformed agreements and over $1.8 million to the almost 500 class members.

Objectors primarily contend (1) Brogdon was an inadequate class representative who unfairly received preferential treatment, and (2) the court lacked sufficient data to independently assess whether the settlement was reasonable. But objectors have not shown the court abused its broad discretion to certify the class for settlement and to find the settlement was reasonable. We affirm.

FACTS

SICO sued Brogdon in 2004 for breaching one of its "Annuity Utilization Agreement[s]." SICO alleged it gave Brogdon nearly $25,000. In exchange, Brogdon promised to direct the federal government to deposit his nearly $1,300 monthly pension into a joint bank account, from which SICO would withdraw $700 per month for 96 months — a total of $67,200 — before returning the excess to Brogdon. Brogdon further promised that he would make $700 payments for 120 months if he interfered with the deposit. SICO alleged Brogdon redirected his pension away from the joint account; it sought to recover nearly $78,000.

Brogdon filed a cross-complaint against SICO on behalf of a class of SICO customers. In the cross-complaint, as amended in July 2005, Brogdon alleged SICO falsely claimed an affiliation with the military, and unfairly retained his full monthly pension without paying interest. Brogdon further alleged the agreements contained unconscionable penalty and venue clauses, and violated various federal and state consumer protection laws. SICO and Brogdon began settlement negotiations.

Six weeks after Brogdon filed his class action cross-complaint, an unrelated individual filed a separate class action complaint challenging the SICO agreements (the Henry action). SICO conducted a formal mediation with the Henry named plaintiff in January 2006, but no settlement was reached.

SICO began a formal mediation with Brogdon in May 2006, in front of retired Orange County Superior Court Judge William McDonald. As settlement negotiations unfolded, the parties stipulated to a protective order and conducted formal discovery. After that, the parties engaged in informal discovery, exchanging relevant documents and information. SICO provided Brogdon's counsel with discovery exchanged in Henry. The parties reached a tentative settlement in December 2007.

After the Brogdon action was tentatively settled, the Henry named plaintiff moved for class certification. The court certified the Henry class in 2008. Brogdon and SICO continued negotiations to revise their settlement. Meanwhile, the Henry court transferred that case to the judge presiding over the Brogdon action.

The Brogdon parties jointly moved to certify a class for settlement and approve the class action settlement in December 2008. They defined a class of "All individuals who have entered into any written agreement with [SICO] pursuant to which [SICO] purchased a future stream of payments in exchange for a lump sum cash distribution." They contended the class contained approximately 500 SICO customers with common claims regarding the enforceability of their SICO agreements. And they stipulated to the filing of a second amended cross-complaint asserting their common claims against SICO.

The proposed settlement provided the class with the option to enter into reformed agreements with SICO and receive cash benefits. First, SICO agreed to offer each class member a $200 check and a reformed agreement. Next, SICO agreed to make additional payments to any class member who negotiated the check and thereby accepted the reformed agreement. The additional payments varied between $800 and $1000, depending on the amount of the class member's lump-sum payment. The reformed agreements contained reduced management fees and eliminated a requirement that the customers prepay life insurance premiums. An expert valued these financial benefits to the class at $1.51 million. SICO also agreed to pay $300,000 in attorney fees to class counsel. Thus, the expert assigned a total cash value to the settlement of $1.81 million.

The settlement also offered unquantifiable benefits to class members. The reformed agreements gave unilateral, early termination rights to SICO customers and eliminated dubious penalty and indemnification clauses. And SICO agreed to obtain a $1 million annuity to secure its obligations to its customers.

The Henry class counsel objected to the settlement on behalf of Henry. The court held a hearing, at which it posed several questions about whether Brogdon should represent the class and how to coordinate the Henry and Brogdon classes. SICO and Brogdon class counsel jointly filed a written response, supported by declarations from SICO's founder, its counsel, Brogdon, and his counsel.1

The court preliminarily certified the class and approved the settlement. It found the "class is ascertainable, and the facts and legal issues present a prima facie showing of a community of interest," and "Mr. Brogdon and his counsel are adequate representatives of the proposed class." It further found the settlement was "generally fair, reasonable and adequate," though it required minor modification to the settlement agreement. Because the Brogdon class definition was broader, the court decided the Brogdon class would be the default, "opt out" class; the Henry class would be the alternative, "opt in" class. It set a hearing for final approval in June 2009

Before the final approval hearing, the Henry class counsel filed another objection — this time on behalf of three other class members. SICO and Brogdon jointly moved for final approval and responded to the objection, submitting additional declarations.

The court approved the final settlement as "fair, reasonable and adequate to the class." It acknowledged, "The court has the duty to traverse the settlement to make sure it is fair to the class. The court has done this with respect to the declarations already submitted by all parties." It found the settlement was reached at arm's length, after sufficient investigation and discovery, by experienced counsel. It also found the number of objectors was small. The court later entered judgment accordingly.

DISCUSSION

Objectors contend the court wrongly certified the Brogdon class and approved the settlement. Their assertions on each point somewhat overlap. For example, they contend the class should not have been certified in part because Brogdon's claims were not typical of the class, and they contend the settlement was unfair because it resolved the atypical claims. Objectors further contend the class should not have been certified because common issues did not predominate, and they assert the settlement was unfair because the court lacked data to assess the strength of the class members' individual claims.

We will address objectors' criticisms about Brogdon first, as they relate both to class certification and settlement approval. Then we will address objectors' complaints about the differing nature of the class members' claims.

Standards of Review

We start by setting forth the standards for reviewing the court's separate decisions to certify the class and approve the settlement. "`[T]wo requirements must be met in order to sustain any class action: (1) there must be an ascertainable class [citations]; and (2) there must be a well defined community of interest in the questions of law and fact involved affecting the parties to be represented [citations].' [Citations.] `[C]ommunity of interest . . . embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.'" (Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1806; accord Code Civ. Proc., § 382.)

"`Our task on appeal is not to determine in the first instance whether the requested class is appropriate but rather whether the trial court has abused its discretion in [granting] certification. "[T]rial courts have been given great discretion with regard to class certification. . . . [I]n the absence of other error, [an appellate] court will not disturb a trial court ruling on class certification which is supported by substantial evidence unless (1) improper criteria were used . . . or (2) erroneous legal assumptions were made . . . ."'" (Dunk v. Ford Motor Co., supra, 48 Cal.App.4th at p. 1807.) We apply "a lesser standard of scrutiny" when the class is certified for settlement. (Id. at p. 1807, fn, 19.) Settlement eliminates doubts about managing a class action at trial, and the fairness review satisfies concerns about the class members' ability to achieve better results through individual litigation. (Ibid.)

"A trial court must approve a class action settlement agreement and may do so only after determining it is fair, adequate, and reasonable. [Citation.] It is vested with a broad discretion in making this determination. [Citation.] In exercising its discretion, that court should consider relevant factors, which may include, but are not limited to the strength of the plaintiffs' case, the risk, expense, complexity and duration of further litigation as a class action, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of class members to the proposed settlement. At the same time, the trial court should give `[d]ue regard . . . to what is otherwise a private consensual agreement between the parties.'" (In re Microsoft I-V Cases (2006) 135 Cal.App.4th 706, 723.)

"Some cases state that a presumption of fairness exists `where: (1) the settlement is reached through arm's-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small.'" (Munoz v. BCI Coca-Cola Bottling Co. of Los Angeles (2010) 186 Cal.App.4th 399, 408 (Munoz).) Yet "this is only an initial presumption; a trial court's approval of a class action settlement will be vacated if the court `is not provided with basic information about the nature and magnitude of the claims in question and the basis for concluding that the consideration being paid for the release of those claims represents a reasonable compromise.' [Citation.] In short, the trial court may not determine the adequacy of a class action settlement `without independently satisfying itself that the consideration being received for the release of the class members' claims is reasonable in light of the strengths and weaknesses of the claims and the risks of the particular litigation.'" (Ibid.)

"Our task is limited to a review of the record to determine whether it discloses a clear abuse of discretion when the trial court's determination of fairness is challenged on appeal. We do not substitute our notions of fairness for those of the trial court or the parties to the agreement. [Citation.] `To merit reversal, both an abuse of discretion by the trial court must be "clear" and the demonstration of it on appeal "strong."'" (In re Microsoft I-V Cases, supra, 135 Cal.App.4th at p. 723.) "`[G]reat weight is accorded the trial judge's views.'" (Id. at p. 730.) "`"[S]o many imponderables enter into the evaluation of a settlement" [citation], an abuse of discretion standard of appellate review is singularly appropriate.'" (Ibid.)

The Court Did Not Abuse its Discretion by Certifying a Class Represented by Brogdon or Finding Brogdon's Treatment Was Fair to the Other Class Members

We now turn to objectors' challenges directed at Brogdon. They contend the class was wrongly certified because Brogdon was an inadequate and atypical representative. They note Brogdon had to defend SICO's complaint, and assert Brogdon could not pursue an unfair business practices claim because he had not paid any potentially usurious interest to SICO. They claim Brogdon did not vigorously prosecute the action, noting he filed far fewer papers in court than the Henry plaintiff. Objectors further contend the settlement was unfair because Brogdon received preferential treatment — SICO dismissed its claim against him and agreed that he would receive a $5,500 "enhancement."

We see no abuse of discretion in finding Brogdon's claims were sufficiently typical of the class. He, like the class, challenged the enforceability of the SICO agreements. "The fact that the class representatives had not personally incurred all of the damages suffered by each different class member does not necessarily preclude their providing adequate representation to the class. . . . [Citations.] `"[O]nly a conflict that goes to the very subject matter of the litigation will defeat a party's claim of representative status."'" (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 238.) Similarly, "a defendant's raising of unique defenses against a proposed class representative does not automatically render the proposed representative atypical. . . . The risk posed by such defenses is the possibility they may distract the class representative from common issues; hence, the relevant inquiry is whether, and to what extent, the proffered defenses are `likely to become a major focus of the litigation.'" (Fireside Bank v. Superior Court (2007) 40 Cal.4th 1069, 1091, citation omitted.) That Brogdon had not yet repaid the lump-sum payment — like at least some class members — and also asserted the agreements' unenforceability as a defense to SICO's claims did not pose such a conflict or distraction that the court abused its discretion in finding Brogdon sufficiently typical of the class.

We also see no abuse of discretion in finding Brogdon adequately represented the class. Objectors concede the competency of Brogdon's counsel, whose declaration discloses past class action experience. And objectors do not dispute Brogdon pursued settlement for years, including extended formal mediation with a retired judge.2 The court did not abuse its discretion by finding Brogdon's litigation was sufficiently "vigorous[]." (Sharp v. Next Entertainment, Inc. (2008) 163 Cal.App.4th 410, 432.) Objectors cannot simply compare dockets between the Brogdon and Henry actions to gauge vigor — especially because the Henry discovery was shared with Brogdon.3 Even if the Henry named plaintiff and counsel (i.e., objectors' counsel) may have shaken loose some litigation fruit, Brogdon adequately represented the class by combining Henry's efforts with his own discovery and negotiation to arrive at a settlement. (See Munoz, supra, 186 Cal.App.4th at p. 409 [class representative could rely on discovery from prior class action].) SICO's ability to settle with Brogdon's counsel, not Henry's, is not proof of inadequacy.4

And finally, we see no abuse of discretion in including Brogdon's individual benefits in the approved settlement. The settlement offered to Brogdon a reformed agreement — the same relief available to all class members.5 And "named plaintiffs are eligible for reasonable incentive payments to compensate them for the expense or risk they have incurred in conferring a benefit on other members of the class. (Munoz, supra, 186 Cal.App.4th at p. 412.) In Munoz, the court approved a $5,000 enhancement. (Ibid.) Brogdon's enhancement here is an unremarkable $5,500.

The Court Did Not Abuse its Discretion by Finding Common Issues Predominated, Which the Settlement Resolved Fairly

Objectors also challenge the class certification and settlement on broader grounds than targeting Brogdon. First, they contend the class was overbroad, without common issues predominating, because it included all SICO customers. They assert it wrongly combined customers at varying stages of repayment, veterans protected by federal anti-assignment laws with non-veterans, customers with viable usury claims and those without, and customers whose claims may be time-barred. Second, objectors assert the court lacked sufficient information on the strengths of the class claims to reasonably compare SICO's potential liability with the settlement amount.

The court did not abuse its discretion by finding common issues predominated. The basic issue was common to the class and predominant: Are the SICO agreements enforceable? SICO's liability under its agreements could substantially be determined on a classwide basis. Either SICO was affiliated with the military or not. The agreements were either loans or not. The agreements were either assignments or not.

These overarching issues could be resolved across the class, even if individual issues existed as to the effect on each class members' agreement. "`[A] class action is not inappropriate simply because each member of the class may at some point be required to make an individual showing as to his or her eligibility for recovery or as to the amount of his or her damages.'" (Sav-on Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 333 [common issues on whether defendant misclassified its employees to avoid paying overtime overshadowed individual issues as to each employee's overtime eligibility].)

Second, objectors assert the court lacked sufficient information on the strengths of the class claims to reasonably compare SICO's potential liability with the settlement amount. To be sure, the court must have "`basic information about the nature and magnitude of the claims in question and the basis for concluding that the consideration being paid for the release of those claims represents a reasonable compromise.'" (Munoz, supra, 186 Cal.App.4th at p. 408; accord Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 133.) But no particular type or amount of underlying information is required. The court does not need to have "an explicit statement of the maximum amount the plaintiff class could recover if it prevailed on all its claims," for example. (Munoz, at p. 409.) It just needs "`an understanding of the amount that is in controversy and the realistic range of outcomes of the litigation.'" (Ibid.) "[T]he court must at least satisfy itself that the class settlement is within the `ballpark' of reasonableness." (Kullar, at p. 133.)

The court had adequate information here. The expert declaration offered by the parties disclosed his working premises, which illustrated the magnitude of the potential class recovery: a class of "500 people who each received an average lump sum payment of $40,000"; and for each agreement, "monthly payments of $1,000 for 96 months, average monthly management fees of $50, and average annual insurance premium costs . . . of $500." And the declarations of the parties and their counsel disclosed the nature of the claims and the realistic range of potential outcomes. The declarations disclose the internal tension in the class claims — the agreements could not be both illegal assignments and usurious loans, and may not be either. Other courts had enforced the agreements, including a federal bankruptcy court. (See Munoz, supra, 186 Cal.App.4th at p. 411 [court must consider "[t]he uncertain state of the law" governing class claims].) Moreover, SICO had limited assets apart from its right to receive payments under the agreements, and a judgment for the class after trial may have forced SICO into bankruptcy. Courts should consider "whether the defendants could withstand a judgment for an amount significantly greater than the Settlement" (In re Cendant Corp. Litigation (3d Cir. 2001) 264 F.3d 201, 240), and "remain cognizant that the possibility of bankruptcy is quite real when the settlement or judgment numbers sufficiently increase" (id. at p. 241). Taking all this into account, the court had adequate information to assess the settlement.

Indeed, the settlement here was presumptively fair. (See Munoz, supra, 186 Cal.App.4th at p. 408.) The record reflects the parties negotiated at arm's length, with sufficient investigation and discovery (including the Henry discovery). Brogdon's counsel had experience in class actions. There were only three objectors. The settlement may not have been perfect, or even as good as possible, if we give any credence to objectors' many complaints. Even so, the court still could reasonably conclude the settlement was fair.

DISPOSITION

The judgment is affirmed. SICO and Brogdon shall recover their costs on appeal.

WE CONCUR:

BEDSWORTH, ACTING P. J.

FYBEL, J.

FootNotes


1. The parties also offered a declaration from the mediator, which the court excluded.
2. Objectors lament Brogdon's original cross-complaint contained weak class allegations, no usury or anti-assignment claims, and no alter ego claims against SICO's owners. But the parties settled the claims asserted in the second amended cross-complaint, not the original one.
3. We grant objectors' request to judicially notice the docket and the complaint filed on August 4, 2005, in that same action.
4. Objectors see an "indicia of unfairness" in the parties' basic willingness to settle. They would cast doubt on all class settlement approvals, inverting the standard of review. To the contrary, "`voluntary conciliation and settlement are the preferred means of dispute resolution. This is especially true in complex class action litigation . . . .'" ( (2000) , 1151 [affirming approval of class settlement].)
5. Objectors contend the settlement unfairly provided for SICO to dismiss its complaint against Brogdon. Brogdon and SICO contend the settlement equitably required Brogdon to accept a reformed SICO agreement. We see no such provisions in the settlement agreement. In any event, these contentions appear to be water over the dam. SICO in fact recovered nothing on its complaint against Brogdon. And counsel for Brogdon and SICO represented at oral argument that Brogdon in fact accepted a reformed agreement. (See (2007) 152 Cal.App.4th 720, 752 [counsel's deliberate concessions are binding judicial admissions].)

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