Objector and appellant Charles Q. Jakob objected to the trial court's final approval of a billion dollar settlement agreement reached in these consolidated class actions against defendant and respondent Microsoft Corporation (Microsoft). He contends that the court erred in rejecting his objections to the settlement agreement's provisions for a cy près distribution of unclaimed settlement funds, and therefore erred in its final judgment approving the settlement agreement. We affirm because the trial court did not abuse its discretion in determining the cy près provisions were fair, adequate and reasonable.
A. Proceedings Leading to the Settlement Agreement
On February 18, 1999, plaintiff and respondent Charles Lingo initiated a class action suit against Microsoft in the San Francisco Superior Court. (Lingo v. Microsoft (2004, No. 301357) (Lingo).) In an amended complaint filed the following month, Lingo, joined by several other class representatives, sought injunctive relief and compensatory damages or restitution under the Cartwright Act (Bus. & Prof.Code, § 16720 et seq., (the Cartwright Act)) and the Unfair Competition Law (Bus. & Prof.Code, § 17200 et seq.). The complaint alleged two classes. The first class was comprised of persons or entities who had indirectly acquired—through the purchase of computer hardware with preinstalled software—a license to use one of a number of versions of Microsoft operating system software, such as Windows or MS-DOS. This indirect acquisition of licenses allegedly began with purchases occurring on or after May 18, 1994. The second class consisted of those who had indirectly acquired licenses for compatible Microsoft application software—such as Word (word processing) or Excel (spreadsheet production)—on or after the same date.
The complaint alleged Microsoft had harmed the members of both classes through "exclusionary and restrictive practices" that resulted in software overcharges passed on to the class members and that these members had lost the benefits of competitive markets for software developed for both operating systems and applications.
Meanwhile, various state and federal antitrust actions against Microsoft had been consolidated before the federal district court in Washington, D.C. In November 1999, that court filed its findings of fact after a bench trial of those actions. Its concluding findings were that "Microsoft's . . . conduct . . . has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft's core products . . . [and that its] past success in hurting such companies and stifling innovation deters investment in technologies and businesses that exhibit the potential to threaten Microsoft . . . [with t]he ultimate result . . . that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft's self-interest." (U.S. v. Microsoft Corp. (1999) 84 F.Supp.2d 9, 112.)
In August 2000, the trial court certified the two classes alleged in the operative complaint. Initial efforts in 2001 to mediate or settle the Microsoft I — V Cases, initiated at the trial court's request, were unsuccessful. The parties resumed these efforts in 2002, and, in January 2003 announced they had reached a settlement. After five more months of negotiation, the parties executed a settlement agreement on June 16, 2003.
B. The Settlement Agreement
1. Vouchers for Direct Compensation to the Class
The settlement agreement provides that "Microsoft shall make . . . Consumer Vouchers . . . available to all members of the California Class" pursuant to stated procedures. The "California Class" is defined to encompass generally the two classes certified in the Microsoft I — V Cases. That is, the settlement class includes "all persons or entities who, between February 18, 1995, and December 15, 2001, indirectly acquired a license for Microsoft Operating System and/or Microsoft Applications software for use in California."
The consumer vouchers to be issued under this agreement approximate the agreed upon damages to be afforded to class members, as direct compensation for the alleged overcharges the class members incurred when they indirectly acquired licenses for the use of various types of Microsoft software. As the trial court stated, when it certified the classes alleged in the operative complaint, the "[t]otal classwide damages are the sum of the overcharges on all software programs sold to class members during the class period."
The consumer vouchers are divided into several categories of value. Thus, a class member who, within the defined time period, indirectly acquired one or more licenses for the use of various types of Microsoft operating system software in California is entitled to claim a voucher worth $16 for each such license acquisition. A class member who similarly acquired one or more user licenses for various versions of Microsoft application software is entitled to claim for each such acquisition a voucher worth $5, $26, or $29, the amount depending on whether the acquired license related to Word (word processing), Excel (spreadsheet production), or Office (bundled productivity applications) software.
A class member who indirectly purchased a license authorizing multiple installations of software is entitled to a voucher for each authorized use. For example, a member who acquired a license permitting a particular operating system or application software to be installed on
A class member who properly claims and receives multiple vouchers is entitled to aggregate them, and also to transfer up to $650 of their total value. However, each voucher may be transferred only once and a transferee is entitled to redeem no more than $10,000 in transferred consumer vouchers.
A class member is entitled to obtain one or more vouchers by submitting a claim form to the settlement claims administrator. The claim form requires a sworn declaration as to information showing the quantity of each category of Microsoft user licenses acquired indirectly by the claimant during the appropriate time period. A member who is not a "volume licensee" may submit claims supported in this manner to show the acquisition of up to five licenses that would entitle the claimant to vouchers having a maximum value of $100. Additional claims by such a claimant must include additional evidence of acquisition, such as the license's product identification number, product key number, or certificate of authenticity. A claimant may alternately request that Microsoft, under the administrator's supervision, conduct a search of certain of its own data bases for information that might document that claimant's application.
The period for submitting claims is defined as the period beginning with a commencement date, which was to be a date within 60 days of the court's order of preliminary approval, and ending on a date four months later, but not sooner than 30 days after entry of the court's final judgment.
The settlement agreement provides that, once obtained, consumer vouchers are redeemable during the settlement period, which is defined as a four-year period beginning 60 days after final approval of the settlement agreement. To redeem these vouchers, a claimant or transferee is required to purchase—on a date after the settlement agreement's preliminary approval—some type of specified computer hardware or software. The hardware may include a computer using "any operating system platform." The software may include "title[s] not published by Microsoft." After such purchase, the claimant or transferee must submit proof of that purchase, together with one or more vouchers, to the settlement claims administrator, who is then required to reimburse the claimant or transferee with a payment equal to the value of the vouchers submitted. If the value of the submitted vouchers exceed the proven purchase, the agreement provides "in principle" that the claimant or transferee may resubmit the vouchers with another purchase so as to redeem their entire value, pursuant to procedures to be agreed upon with the settlement claims administrator.
2. The Cy Près Distribution
The settlement agreement provides for "a form of cy pres remedy, which [is to] be
The terms for the cy près distribution provide that, in the event that the $1.1 billion face value amount of the settlement is not exhausted by the issuance of consumer vouchers to class members, then the remaining, unclaimed portion of that face value amount is to be apportioned. One-third of the unclaimed portion is to be "retained" by Microsoft. Two-thirds of the unclaimed portion is to be "designated as the `First Cy Pres Amount.'" Microsoft is obligated to issue vouchers equal in value to this "First Cy Pres Amount." Half of these vouchers are to be "General Purpose Vouchers" and the other half are to be "Software Vouchers."
The terms also provide for the possibility that not all consumer vouchers issued to class member claimants will be redeemed within the applicable four-year period. In this event, one-third of the total value of these unredeemed consumer vouchers is to be "retained" by Microsoft. The other two-thirds is to be designated as the "Second Cy Pres Amount." Microsoft is obligated to issue vouchers equal in value to the "Second Cy Pres Amount," again with half the vouchers designated "General Purpose Vouchers" and the other half designated "Software Vouchers."
The process by which eligible schools or school districts serving such schools may apply for and obtain either general purpose or software vouchers requires the development and implementation of "State-approved . . . technology plan[s]." Microsoft is obligated to distribute the vouchers directly to eligible schools, school districts serving eligible schools, or the California Department of Education (Department), in a manner to be agreed upon by the Department, the settlement claims administrator, and counsel for both plaintiffs' and Microsoft, to ensure a "platform neutral distribution" for uses "consistent with State Academic Content Standards and effective integration of technology."
Once distributed, eligible schools may redeem the vouchers within a six-year period.
If there are general purpose or software vouchers that remain undistributed or unused at the end of the six-year redemption period, Microsoft and plaintiffs' lead counsel are to agree either to extend that period, or alternately to offer the remaining value of the unused vouchers to "other needy organizations in California, to be jointly selected (with court approval)."
C. Post-Settlement Trial Proceedings
On July 18, 2003, following a motion by plaintiffs' lead counsel, the trial court entered an order granting preliminary approval of the settlement agreement. This order also set a date for a final approval hearing. (Cal. Rules of Court, rule 1859(a), (c), (e).)
The notice provisions of the settlement agreement set out a procedure whereby "[a]ny member of the California Class" might appear at the final approval hearing "to present any objections to the Settlement . . . or to present any opposition to the request for attorneys' fees and costs submitted by Lead Counsel. . . ." A member wishing to appear was required to file and serve a written objection by the deadline set by the court. In response to the published and mailed notices of the class settlement, some 334 communications were received on or before the set deadline of December 30, 2003. These included a written objection by Jakob. Jakob was also among the objectors who appeared and spoke on March 29, 2004, the first day of the final approval hearing. (See Cal. Rules of Court, rule 1859(e), (g).) The final approval hearing, which included hearing on the issue of attorney's fees as well the fairness of the settlement, continued for six days, concluding on April 8, 2004.
On July 26, 2004, the trial court filed a statement of decision in which it concluded that "[t]he terms of the Settlement [were] fair, reasonable and adequate." The court filed its final judgment on November 9, 2004, in which it awarded fees, dismissed the coordinated cases, and ordered its continuing jurisdiction to enforce the terms of the settlement. (See Cal. Rules of Court, rule 1859(h).) This appeal followed.
Jakob's appeal centers upon the settlement agreement's "cy pres program."
B. Code of Civil Procedure Section 384 (section 384)
Jakob cites to section 384, subdivision (b), which in relevant part provides that "prior to the entry of any judgment in a class action . . . the court shall determine the total amount that will be payable to all class members [and] shall also set a date when the parties shall report to the court the total amount that was actually paid to the class members. After the report is received, the court shall amend the judgment to direct the defendant to pay the sum of the unpaid residue, plus interest . . . to nonprofit organizations or foundations to support projects that will benefit the class or similarly situated persons, or that promote the law consistent with the objectives and purposes of the underlying cause of action, to child advocacy programs, or to nonprofit organizations providing civil legal services to the indigent."
Jakob claims this provision "flatly prohibits" a cy près distribution such as the one set out in the settlement agreement. He emphasizes its use of the phrase "any judgment in a class action," as well as the absence in this section of any language that would provide an exception
The trial court considered and rejected this objection. Citing Vitamin Cases, supra, 107 Cal.App.4th at pages 828-829, 132 Cal.Rptr.2d 425, the court concluded that section 384 "provide[d] for distribution of unpaid residuals . . . only when the parties have not made other provisions for those funds."
Jakob argues the trial court erred in relying on Vitamin Cases for such a proposition. The portion of that opinion on which the trial court relied was, in his view, mere dictum. He also suggests that, in expressing this dictum, the reviewing court in Vitamin Cases misconstrued section 384 after improperly resorting to legislative history. Because the Legislature's intent in enacting section 384 is expressly set out in section 384, subdivision (a), Jakob urges it is unnecessary, and improper, to examine legislative history to determine such intent.
Whether or not section 384, subdivision (b) properly applies to preclude approval of the settlement agreement in this case is a question of statutory interpretation that we review independently. (Vitamin Cases, supra, 107 Cal.App.4th at p. 826, 132 Cal.Rptr.2d 425.) The ultimate purpose of all statutory construction is to determine and give effect to the legislative intent. Because the statutory language itself is the most reliable indicator of that intent, we begin by examining that language, giving its terms their usual and ordinary meaning and construing them in context. (People v. Robles (2000) 23 Cal.4th 1106, 1111, 99 Cal.Rptr.2d 120, 5 P.3d 176 (Robles).)
Viewing section 384, subdivision (b) in this fashion, we conclude that the phrase "any judgment" in that subdivision cannot reasonably be construed as Jakob urges—that is, it cannot mean every judgment or all judgments entered in a class action. While such a construction could be consistent with the ordinary meaning of the word "any," the phrase must be construed in its context, and such a construction would not be consistent with the procedure set out in subdivision (b). This procedure calls for the trial court to determine the total amount to be paid to class members before it enters the judgment, to set a future date for the parties to report back to the court regarding the total amount actually paid, and then to amend
The interpretation given to section 384, subdivision (b), by Division Two of this court in Vitamin Cases, is fully consistent with this construction. In that case, the entire proposed settlement fund was to be distributed to charitable, governmental, and nonprofit organizations. Objectors to the settlement argued that section 384 precluded approval because the agreement failed to provide for any direct compensation to class members. (Vitamin Cases, supra, 107 Cal.App.4th at p. 826, 132 Cal.Rptr.2d 425.) The reviewing court held that section 384, subdivision (b) did not preclude approval of the agreement. (Vitamin Cases, supra, at p. 832, 132 Cal.Rptr.2d 425.) It construed the language of section 384, subdivision (b) to provide a procedure for distributing "unpaid residue," a procedure that assumed—but did not necessarily require—some form of award of direct compensation. Vitamin Cases involved no direct compensation and hence no possible unpaid residue. As such, the statute's "assumption [was] incorrect" and "the procedures of section 384, subdivision (b), [were] inapplicable." (Vitamin Cases, supra, at p. 827, 132 Cal.Rptr.2d 425.) In effect, the court in Vitamin Cases construed the phrase "any judgment" not in the broad sense that Jakob advocates, but in the context of a procedure for distributing "unpaid residue," and concluded that this phrase did not include a judgment in favor of the class plaintiffs in which there could be no unpaid residue requiring distribution.
The legislative history of section 384 is also consistent with our construction. Even when a statute is unambiguous, it is nevertheless common for a court to review legislative history in order to confirm its statutory analysis. (SFPP v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 470, 17 Cal.Rptr.3d 96.) Here, by contrast, there is an inherent ambiguity, in that subdivision (b) refers to "any judgment [entered] in a class action," but provides a procedure that is necessarily limited to range of judgments narrower than the commonly understood meaning of that phrase. Contrary to Jakob's assertion, this ambiguity is not resolved by the express declaration of legislative intent set out in section 384, subdivision (a).
Contemporaneous legislative committee analyses are subject to judicial notice. (In re J.W. (2002) 29 Cal.4th 200, 211, 126 Cal.Rptr.2d 897, 57 P.3d 363.) We may also regard them as reliable indicia of the legislative intent underlying the enacted statute. (Altaville Drug Store, Inc. v. Employment Development Department (1988) 44 Cal.3d 231, 238, 242 Cal.Rptr. 732, 746 P.2d 871.) We find particularly instructive a Senate Floor analysis prepared by the Senate Rules Committee for introduction of the 1993 bill that led to the initial enactment of the statute that has since been renumbered as section 384. (Sen. Rules Com., Off. of Sen. Floor Analyses, Rep. on Sen. Bill No. 536 (1993-1994 Reg. Sess.) as introduced. (Sen. Floor analysis).) In its background summary, this analysis explained that there was "often" an "unclaimed balance of the total class recovery (`residue') . . . either because the claimants cannot be located or . . . choose not to collect the award. . . ." "Sometime[s], attorneys, subject to court approval, will have flexibility in determining who will recover the residue (the defendant, the known claimants, or some other entity who will use the funds for the benefit of the non-claiming class). When the agreement is silent on the distribution of the remaining funds, the court makes the decision." (Sen. Floor analysis, supra, at p. 2.) (Italics added.) The analysis thus clearly indicated that the procedure in section 384, subdivision (b) was initially designed to guide trial courts in a specific eventuality, that is, in the event a settlement agreement is "silent" as to "the distribution of the remaining funds" and the court must therefore "make the decision" as to such distribution.
One significant concern expressed in the same Senate Floor analysis was that "a defendant [might] argue that any unclaimed class action funds must be returned. . . ." (Sen. Floor analysis, supra, at p. 3.) The analysis explained that "unless there is a court approved settlement which provides for reversion of remaining funds to the defendant . . . the general rule is that defendants do not have a . . . right to recover the funds once they have deposited the funds into an escrow account." (Ibid.) (Italics added.) With regard to this concern the analysis concluded that "[r]ather than allowing [the unclaimed residue] to revert to the defendant, this bill would require the Court to distribute the residual in a manner consistent with the action or to remit the funds to the fund named in the legislation." (Ibid.) Here, too, the analysis showed an intent to establish a procedure to protect the class members'
The reviewing court in Vitamin Cases considered this same Senate Floor analysis, finding that it "underscore[d]" the statute's focus on distribution of residue. (See Vitamin Cases, supra, 107 Cal.App.4th at p. 828, 132 Cal.Rptr.2d 425, citing Off. of Sen. Floor Analyses, Rep. on Sen. Bill No. 536 (1993-1994 Reg. Sess.) as introduced.) The court noted that class members are generally entitled to a notice that fairly apprises them of their options either to accept a proposed award or to object or opt out. (Vitamin Cases, supra, at p. 828, 132 Cal.Rptr.2d 425, citing Trotsky v. Los Angeles Fed. Sav. & Loan Assn. (1975) 48 Cal.App.3d 134, 151-152, 121 Cal.Rptr. 637.) It observed that this right is compromised when a "settlement agreement or judgment does not describe the intended disposition of the residue," because the class members cannot later object to any eventual distribution method the court may be called upon to adopt in order to dispose of an unpaid residue. (Vitamin Cases, supra, at p. 829, 132 Cal.Rptr.2d 425.) We note such an observation echoes the intent expressed in the analysis, to prevent a subsequent reversion of residue to a defendant when that reversion was not a part of the settlement terms that were previously scrutinized during the approval process. The court in Vitamin Cases concluded it was "manifest" that the procedure set out in section 384 was designed to protect the right of class members in such an eventuality, "by requiring . . . the court [to] ensure that the residue is directed to an appropriate nonprofit organization or foundation." (Vitamin Cases, supra, at pp. 828-829, 132 Cal.Rptr.2d 425.) That court also concluded that the class members in the case before it did "not need the judicial protection provided by section 384," because the settlement agreement in that case did "not produce a residue whose distribution was not explained to [them]," and they were otherwise "fully informed of the nature of the intended distribution and [were] afforded an opportunity to opt out or object." (Vitamin Cases, supra, at p. 829, 132 Cal.Rptr.2d 425.) We find these conclusions also to be consistent with our interpretation.
In sum, we conclude that the phrase "any judgment" in section 384, subdivision (b) is limited by its context to refer to a judgment that awards some form of direct compensation to plaintiff class members, yet requires subsequent amendment because it does not itself provide for the calculation and distribution of any unpaid residue of the direct compensation. The trial court did not err when it refused to apply section 384 to the judgment in this case.
C. Abuse of Discretion
1. Standard of Review
Jakob contends the court erred in approving the settlement agreement's proposed cy près distribution regardless of section 384.
A trial court must approve a class action settlement agreement and may do so only after determining it is fair, adequate, and reasonable. (Dunk, supra, 48 Cal.App.4th at pp. 1800-1801, 56 Cal.Rptr.2d 483.) It is vested with a broad discretion in making this determination. (Id at p. 1801, 56 Cal.Rptr.2d 483.) 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."
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. (Dunk, supra, 48 Cal.App.4th at p. 1802, 56 Cal.Rptr.2d 483.) "To merit reversal, both an abuse of discretion by the trial court must be `clear' and the demonstration of it on appeal `strong.'" (7-Eleven Owners for Fair Franchising v. Southland Corp. (2000) 85 Cal.App.4th 1135, 1146, 102 Cal.Rptr.2d 777 (7-Eleven).)
2. Failure to Consider Alternative Cy Près Distributions
Jakob's arguments concerning the trial court's abuse of discretion include an extensive use of rhetorical embellishment and allusion to matters outside the record. Once stripped of this varnish, they may be reduced to two arguments. The first argument is that the court abused its discretion by failing to exercise it. Specifically, it did not require the parties to provide information concerning possible alternate distributions, nor did it inquire independently into such possible alternate distributions, for example, by ordering a referee's report. Because the court never compared the proposed cy près distribution with possible alternate distributions, Jakob reasons that it was unable to "make a reasoned decision" as to whether the proposed distribution was the "`[b]est' option."
The trial court was not called upon to fashion a cy près distribution of residue, but rather it was called upon to approve a distribution the parties fashioned through extensive negotiated compromise. Jakob has cited no authority that explicitly imposes on the trial court a duty to compare a settlement agreement's proposed cy près distribution with other possible distributions when assessing the fairness of that agreement. The Supreme Court has stated that "trial courts should have the full range of alternatives at their disposal" when selecting an appropriate method of fluid recovery in a given case. (Levi Strauss, supra, 41 Cal.3d at p. 479, 224 Cal.Rptr. 605, 715 P.2d 564.) However, the Supreme Court made this statement in the context of providing general guidance to trial courts "confronting the largely uncharted area of fluid recovery in consumer class actions." (Ibid.) To construe this statement to require a trial court to investigate other possible alternates whenever it examines a cy près distribution included in a settlement agreement would improperly require that court to conduct an inquiry inconsistent with its duty to give the agreement of the parties "[d]ue regard" and limit its inquiry to a determination
3. The Proposed Cy Près Distribution's Relation to the Class Action
In its statement of decision, the trial court concluded the proposed cy près distribution was "a valuable portion of the Settlement, and an appropriate and beneficial use of the Settlement benefits that are not claimed by class members."
Jakob's second argument regarding abuse of discretion relates to this conclusion. He argues the trial court abused its discretion in making this determination because the proposed cy près distribution does not serve the purposes of the underlying cause of action. That is, it does not "serve the goals of deterrence or compensation." Jakob asserts the proposed distribution has no compensatory effect because it is a "spillover" of benefits to nonclass members—eligible schools and the students they serve do not, in his
We note initially that the trial court's statement of decision indicates that it considered the proper criteria for determining whether the settlement agreement was overall fair, adequate and reasonable. (See Dunk, supra, 48 Cal.App.4th at p. 1801, 56 Cal.Rptr.2d 483.) As discussed further below, it also appears the court considered the proper criteria for determining more specifically the appropriateness of the proposed cy près distribution— that is, whether the distribution was useful in fulfilling the purposes of the underlying cause of action. (Levi Strauss, supra, 41 Cal.3d at p. 472, 224 Cal.Rptr. 605, 715 P.2d 564.) As the underlying cause of action rested principally on alleged violations of the Cartwright Act, those purposes were twofold, as Jakob suggests: compensation of injured class members and deterrence or disgorgement. (Levi Strauss, supra, 41 Cal.3d at p. 472, 224 Cal.Rptr. 605, 715 P.2d 564.)
Hence, if the trial court erred in determining that the proposed cy près distribution was an appropriate part of an otherwise fair settlement agreement, this was not the result of it applying erroneous legal criteria or assumptions. In reviewing Jakob's contention, we do not examine the evidence submitted to determine, in the first instance, whether the proposed distribution is appropriate. We simply review the record to determine whether the court acted within its discretion. (Wershba, supra, 91 Cal.App.4th at p. 235, 110 Cal.Rptr.2d 145.)
With respect to the compensatory effect of the proposed cy près distribution, the trial court found "that providing vouchers for computer equipment, software and a variety of other technical and educational services to California public schools serving students from low income households benefits the Class by insuring that a new generation of computer literate children will enter the work force fully trained to make the best use of computer technology. The California Department of Education estimates that the cy pres program will benefit 5,112 public schools in California serving 3.6 million students. The cy pres program addresses an important educational need in California that will indirectly benefit the entire Class. Class members also may benefit indirectly through a reduced tax burden to fund technology investment in eligible schools."
We do not deem these findings to be so "speculative" or "without foundation" to constitute an abuse of discretion. A letter prepared by the State Superintendent of Public Instruction supports the finding that the distribution will, in fact, benefit the specified numbers of schools and students. A declaration prepared by an expert in educational technology also provides support for the finding that the distribution will benefit eligible schools and the students they serve. The latter declaration, in addition, provides support for the finding that class members will derive indirect benefit from such assistance
The fact that the compensatory effect for class members was indirect, as compared with the more direct benefit to low income students having little correlation with the plaintiff class, does not alter this conclusion. The parties in this case came to a settlement designed to provide direct compensation to individual class members in the first instance. There was evidence that the notice of settlement had reached at least 80 percent of the estimated 14.7 million class members. These notices and the agreement itself detailed a relatively easy claims and proof procedure by which class members would obtain such direct compensation. The agreement included a component for initial direct compensation that had the potential to exhaust the entire settlement fund. Under these circumstances we see no clear abuse of discretion in approving a second, cy près distribution that placed much less emphasis on the compensation of class members, particularly in that the latter distribution furthered another purpose of the Cartwright Act.
That other purpose, as noted, is deterrence or disgorgement. With regard to this purpose the trial court found, preliminarily, that the total amount of settlement benefits, valued at $1.1 billion, was equal to "nearly half of plaintiffs' median Cartwright Act damage claim . . . and nearly five times the damage calculations of Microsoft's experts, even without discounting these damage calculations . . . to take into account the risks of loss in complex litigation such as this." The court determined this was "fair, reasonable and adequate compensation to the Class," given it had "reasonably . . . elected to secure [these] substantial and certain benefits . . . in lieu of the risk, uncertainty, and delay inherent in ongoing litigation. . . ." Jakob does not dispute this determination.
More to the point, the court then determined that the cy près distribution required Microsoft to issue vouchers to eligible schools equal in value to two-thirds of the unclaimed or unredeemed portion of the total settlement amount, and that for this reason Microsoft would be obligated to issue vouchers worth $733 million "even if no class member made a claim for direct Settlement benefits." In making this determination, the court concluded, in effect, that the cy près distribution served the purpose of ensuring that Microsoft incurred a minimum liability under the settlement that was equivalent in value to $733 million, or two-thirds of the total
We have alluded previously to the fact that the settlement agreement included a provision of "non-admission." (See fn. 5, above.) Specifically, it provides that Microsoft does not "admit the truth of any of the . . . allegations" made by plaintiffs, that the agreement itself "does not . . . embody, reflect, or imply any wrongdoing" on its part, and that the parties "may not represent that it does in any public statement. . . ." Thus, it is evident that one of Microsoft's chief concerns during settlement negotiations, other than limiting its liability and obtaining a release of class claims, was to maintain at least an appearance of innocence. The fact that the parties agreed not to represent wrongdoing on Microsoft's part, together with the trial court's regard for their private agreement, may explain why the court did not explicitly conclude that the cy près distribution served a deterrent or disgorgement purpose.
Nevertheless, such a conclusion may be readily implied from a determination of Microsoft's minimum liability. Whereas the settlement agreement provides as much as $1.1 billion in direct compensation, the actual amount of Microsoft's liability for direct compensation is conditioned by the number of claims submitted by individual class members and approved by the settlement claims administrator. By establishing a minimum liability of $733 million, the cy près distribution shows significant usefulness in effectuating the deterrent and disgorgement purposes of the cause of action. (See Bruno v. Superior Court (1981) 127 Cal.App.3d 120, 132, 179 Cal.Rptr. 342 ["the prevention and punishment of anticompetitive acts is a not insignificant purpose of antitrust laws"].) "If damages are distributed so as to substantially compensate the injured class members who have recovered the damages, and especially if that distribution serves to deter violations and disgorge illegal profits, the letter and spirit of the antitrust laws will have been obeyed." (Id. at p. 133, 179 Cal.Rptr. 342.) (Italics added.)
In addition, the court determined that the cy près distribution would not "inappropriately benefit Microsoft or extend its market power." It found that "[t]he schools will receive both general purpose vouchers and software vouchers that may be used for a vast array of products and services, including those offered by Microsoft's competitors . . . [and][t]he schools are free to choose technology that does not involve Microsoft products in any way." By implication, the court thus rejected Jakob's argument that Microsoft's minimum liability under the agreement had no real deterrent effect. Again by reasonable implication, the court determined that, to the contrary, Microsoft's minimum liability would be real and significant—notwithstanding its negotiated retention of the one-third of the value of any unclaimed direct compensation.
We conclude that it was reasonable for the court to make these implied determinations based on the evidence before it. The terms of the agreement explain that the general vouchers may be used to purchase nonMicrosoft hardware or services, and that the software vouchers may be used to purchase nonMicrosoft software. If an eligible school uses a voucher to
In his reply brief, Jakob notes the settlement agreement's inclusion of an express purpose to be served by the proposed cy près distribution, that is, "to benefit public schools." He suggests finally that this express intent effectively precluded any determination that the distribution appropriately served another purpose, such as compensation or deterrence. We disagree. Any purpose expressly stated in a properly negotiated settlement agreement is a product of compromise, and for that reason may not accurately express the extent to which the settlement operates to vindicate the purposes of the law underlying the plaintiffs' claim.
When assessing the fairness of a settlement agreement, "[g]reat weight is accorded the trial judge's views," since that judge "is on the firing line and can evaluate the action accordingly." (7-Eleven, supra, 85 Cal.App.4th at p. 1145, 102 Cal.Rptr.2d 777.) We conclude the trial court in this case was within its discretion in determining, explicitly and by implication, that the proposed cy près distribution served the compensatory and deterrent purposes of the law underlying the cause of action. The record indicates that the court also acted well within its discretion in determining that, overall, the settlement agreement was fair and not a product of collusion, after due consideration of all the factors relevant to that ruling.
Contemporary class actions, and the settlement agreements resolving them, have been characterized as a "fundamental departure" from traditional litigation, to the extent that class counsel, rather than their clients, have "all the initiative and are close to being the real parties in interest." (7-Eleven, supra, 85 Cal.App.4th at p. 1166, 102 Cal.Rptr.2d 777, citing Mars Steel v. Continental Ill. Nat. Bank & Trust (7th Cir.1987) 834 F.2d 677, 678 (Mars Steel).) Often the result is a "judicialized administrative process, with the trial judge serving as a kind of glorified mediator, . . ." (7-Eleven, supra, at p. 1166, 102 Cal.Rptr.2d 777.) The reform of abuses arising in such a context is a legislative prerogative, as suggested by the recently enacted federal law that Jakob cites in his reply brief. (See Pub.L. No. 109-2 (Feb. 18, 2005) 119 Stat. 4 [Class Action Fairness Act of 2005]; see also 28 U.S.C. § 1711 et seq.) Meanwhile, we agree with Division Four of this court that in these cases "one aspect of the settlement process does appear salutary: the recognition by the appellate courts that their review function in such circumstances is gross at best and, given that `so many imponderables enter into the evaluation of a settlement' . . . an abuse of discretion standard of appellate review is singularly appropriate." (7-Eleven, supra, 85 Cal.App.4th at pp. 1166-1167, 102 Cal.Rptr.2d 777, citing Mars Steel, supra, 834 F.2d at p. 682.) The trial court acted with an impartial discretion, guided in its exercise by legal principles. It carried out the literal meaning of cy près by approving a fair and reasonable residual distribution that was
The judgment is affirmed.
We concur: STEIN and SWAGER, JJ.