Plaintiff Sara Cho filed a representative class action against Seagate Technology Holdings, Inc. (Seagate), for falsely overstating in advertising and packaging the storage capacity of computer disc drives that it manufactures for public sale. The case was settled and David Klausner objected to the settlement. Klausner argued the class definition was imprecise and misleading, and that there was the possibility of collusion between the parties affecting settlement negotiations. In particular, Klausner claimed that collusion was evident because once the parties learned of Klausner's objections, they modified their positions on the scope of class membership without changing the class definition. The trial court overruled Klausner's objections and approved the settlement. We conclude that Klausner has not shown the trial court abused its discretion in approving the settlement, and that there are no facts that show the parties engaged in any collusion or improper conduct.
FACTUAL AND PROCEDURAL BACKGROUND
Cho filed her complaint in Los Angeles County Superior Court in August 2005 alleging that defendant Seagate overstated the storage capacity of its computer hard drives in advertising and product labeling by approximately 7 percent. Cho's amended complaint alleged that the principal reason for the overstatement was that Seagate used a decimal definition of "gigabyte" (equal to one billion bytes) which differed from the binary definition (equal to approximately 1.073 billion bytes) that was used by computer operating systems. Cho asserted claims for unfair business practices, false advertising, and violation of the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq.).
The agreement defined the settlement class to include "all persons and entities who purchased in the United States a Retail Hard Drive between March 22, 2001 and the date of Preliminary Approval." A "retail hard drive" was defined as "a new Seagate brand hard disc drive that was purchased from an authorized Seagate retailer or distributor, separately as a Seagate product, that was not pre-installed into and sold bundled with a personal computer or other electronic device."
As consideration for the settlement, Seagate agreed to more precisely disclose the capacity of its hard drives on its packaging and Web site. Seagate also agreed to certain individual benefits for settlement class members. For
Notice of the settlement was to be provided through the establishment of a settlement Web site, a hyperlink at the bottom of the home page on Seagate's Web site, an e-mail notice sent to identified class members, and publication of the notice of settlement once a week for four consecutive weeks in USA Today. Each of the forms of notice advised readers they were "a member of the settlement class if, between March 22, 2001 and September 26, 2007, you purchased in the United States a new Seagate brand hard disc drive from an authorized Seagate retailer or distributor, separately as a Seagate product that was not pre-installed into and bundled with a personal computer or other electronic device." Publication was made in USA Today. The e-mail notices were sent to approximately 650,000 class members. Seagate posted the hyperlink on its Web site, and the settlement Web site was established and received hits from more than 113,000 uniquely identifiable visitors.
Klausner was the only person who formally objected to the settlement.
In papers supporting his objections, Klausner argued, inter alia, that the definition of the settlement class provided in the notices, and as construed by the parties, was unduly restrictive. The scope of the plaintiff class described in the complaint had been abandoned, and those who bought their disc drives from independent retailers were unfairly excluded from the class. In response to this argument, Seagate adopted the position that: "The settlement includes anyone who purchased a Retail Hard Drive in the authorized retail distribution channel, regardless of whether the retailer in the transaction is listed on Seagate's Web site." Cho also acknowledged that she was wrong when she said in her previous brief that authorized retailers and distributors were limited to those listed on Seagate's Web site. Cho agreed with Seagate that "the words `authorized retailer or distributor' in the settlement agreement— which are not defined terms—are meant to include drives purchased either directly or indirectly from the Authorized Retailers or Authorized Distributors listed on the website, meaning that they include retailers who are not themselves listed on the website, but who purchased from one of the entities that are listed on the website. The only excluded resellers are those whose drive sales are of fake, grey market, used, or stolen drives." With the court's permission Klausner filed additional objections that challenged the parties' changed interpretation of the defined class and suggested that the parties tried to mislead the court. He argued that plaintiff's counsel did not know who the "authorized retailers" were, and were engaged in "a sham sell-out of the class."
Counsel for the parties addressed Klausner's supplemental objections at the final approval hearing. Cho's counsel explained that "when Seagate drafted the settlement agreement and they used the term `authorized retailers' and `authorized distributors,' the thought all along was to include all those people that bought a retail hard drive. [¶] And you know, we didn't get into the exact procedures by which they distributed, but our concern was to represent those people that bought the hard drives as end users. So, nobody raised this issue. It wasn't a concern for any of the class members. No one called us and sa[id], what does that mean, we are confused. [¶] . . . The authorized retailers are everybody that makes a claim except for the gray market, you know, the used ones, the stolen ones and the fake ones." Counsel further stated "our intention
Seagate's counsel observed that "there seems to have been no trouble with anybody figuring if they were in the class," and suggested potential class members could obtain assistance, if necessary, by calling plaintiff's counsel, the settlement administrator, or Seagate, or by consulting Seagate's Web site. Defense counsel also said that a substantial percentage of claims named merchants not listed as authorized retailers on Seagate's Web site, and argued "the notice is clearly adequate, under the due process standards, to let people know they are in this case and that they are eligible to make a claim."
The trial court overruled Klausner's objections. The order approving settlement states: "Mr. Klausner's objection to the term authorized retailers or distributors, the limitation of claims to purchases from authorized retailers or distributors, and his related claims that the class is impermissibly narrowed, that plaintiff's counsel have not adequately represented the class and the plaintiff is an inadequate class representative are overruled. The court finds that it is appropriate to limit the class to purchasers from authorized retailers or distributors. . . . The Court received no information that any class member, other than Mr. Klausner, was confused by the term authorized retailer or distributor. In that regard, neither the Agreement nor the form of notice caused any prejudice to the Plaintiff Settlement Class."
The court's order approving settlement also defined the settlement class: "The Plaintiff Settlement Class consists of `all persons and entities who, between March 22, 2001 and September 26, 2007 purchased in the United States a new Seagate brand hard disc drive from an authorized Seagate retailer or distributor, separately as a Seagate product that was not pre-installed into and bundled with a personal computer or other electronic device.' [¶] The Plaintiff Settlement Class includes persons or entities who purchased a Seagate retail hard disc drive from an authorized retailer or distributor, regardless of whether the retailer or distributor is listed on Seagate's website. . . . [¶] Limiting the Plaintiff Settlement Class to those who purchased from an authorized retailer or distributor excludes those who
The court determined the parties' agreement and settlement were "fair, reasonable and adequate . . . ." The court also found the settlement provided valuable benefits to the class (including enhanced disclosures, cash benefits, and software benefits) that were "particularly valuable in light of the risks plaintiff would have faced if she proceeded to litigate her case"; there was "no collusive behavior between plaintiff and Seagate"; the settlement agreement provided ample time to submit claims; and "[t]he claim procedure [was] fair and reasonable . . . ." The court considered the class notice "was reasonably calculated to apprise class members of the litigation, and all material elements of the proposed settlement." The court noted that while 6.2 million hard drives were sold, and approximately 650,000 purchasers were provided e-mail notice (in addition to newspaper and Web site notice), only five class members objected to the settlement (three of whom were actually critical of plaintiff's claims), and only 35 people opted out of the class. Class counsel were awarded $1.75 million in attorney fees and $35,500 in costs, in accordance with the settlement agreement. Klausner timely appealed.
Klausner raises arguments regarding the fairness of the settlement, the adequacy of notice to the plaintiff class, and the denial of his request to undertake discovery regarding his allegations that the settlement was the product of collusion. We conclude the trial court's orders must be vacated and the case remanded for notice to the class that properly defines class membership. But we will also exercise our discretion to address, and reject, the additional arguments raised by Klausner in this appeal.
A. Fairness of the Settlement
We review the trial court's decision to approve a class action settlement in order to determine whether the trial court acted within its discretion. We do not reweigh the evidence or substitute our notions of fairness for the trial court's. (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 234-235 [110 Cal.Rptr.2d 145]; 7-Eleven Owners for Fair Franchising v. Southland Corp. (2000) 85 Cal.App.4th 1135, 1144-1146 [102 Cal.Rptr.2d 777].) "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, supra, at p. 1146.)
Klausner asserts several reasons why the settlement should not have been approved. Most require us to draw inferences of collusion or unfairness based upon the structure and terms of the agreement. He criticizes the negotiation of a settlement before the class was certified, defendant's agreement to pay plaintiff's attorneys without critically assessing the proper measure of fees, and the absence of a common fund or residual cy près component to the agreement. None of these factors alone or in combination compel us to reverse the trial court for an abuse of discretion.
Moreover, the record reflects the court considered and awarded the maximum amount of fees after it determined that the hourly rates sought were "fair, just and reasonable," and the amount of work performed was appropriate. The court declined to award any fee multiplier because "the lodestar amount exceeded the maximum attorneys fees to be paid pursuant to the Settlement Agreement." The court also disallowed some costs claimed by counsel so the costs would not exceed the maximum allowable. Defendant's agreement to compensate plaintiff's attorneys does not raise our suspicion about possible collusion or unfairness of this settlement.
When we review the factors the court considered to approve this settlement, we cannot conclude approval was an abuse of discretion. The court made a specific finding "that the settlement was achieved at arm's-length negotiations." That finding was supported by the parties' characterization of
There is no evidence that the parties to the settlement were intentionally deceptive or that they tried to mislead the court in seeking approval. We will not indulge Klausner's suggestion that approval be reversed on the basis of misconduct by counsel. (Cf. Aviation Data, Inc. v. American Express Travel Related Services Co., Inc. (2007) 152 Cal.App.4th 1522 [62 Cal.Rptr.3d 396].)
B. Adequacy of Notice to the Plaintiff Class
Klausner also supports his claim of collusion by referring to the parties' changing positions on whether indirect purchasers of Seagate disc drives were class members. After the parties initially informed the court and Klausner that such purchasers were not within the plaintiff class, they eventually changed their positions and agreed that indirect purchasers were included. Although the scope of the class was different than the parties originally stated, the class definition, certification and notice did not change. This uncertainty over class membership does not evince collusion as much as it indicates the possible confusion over class membership due to an ambiguous class definition contained in the notice of settlement.
Our review of the trial court's fairness determination and manner of giving notice is governed by the abuse of discretion standard, but our review of the content of notice may be de novo. "To the extent the trial court's ruling is based on assertedly improper criteria or incorrect legal assumptions, we review those questions de novo." (Hypertouch, Inc. v. Superior Court (2005) 128 Cal.App.4th 1527, 1537 [27 Cal.Rptr.3d 839]; see also Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at pp. 234-235.) Federal law is in accord. (Molski v. Gleich (9th Cir. 2003) 318 F.3d 937, 951.) Here, the purely legal question for our review is whether notice that contains an ambiguous definition of class membership is authorized by or consistent with the California Rules of Court relating to management of class action cases. (Cal. Rules of Court, rules 3.760-3.771.)
Here, the class notice advised recipients that they were "a member of the settlement class if, between March 22, 2001, and September 26, 2007, you purchased in the United States a new Seagate brand hard disc drive from an authorized Seagate retailer or distributor. . . ." By its terms, and as evidenced by the changing positions of the parties, the notice is unclear whether an indirect purchaser is within the plaintiff class.
The parties advised the court that they intended to exclude from settlement only those purchasers who obtained their disc drives from resellers of "fake,
Seagate argues that this is all much ado about nothing. It says that 13.7 percent of the claims were received from purchasers who bought their disc drives from "a merchant that is not listed on Seagate's Web site as a Seagate authorized retailer or distributor."
C. Klausner's Request for Discovery
Klausner also seeks a remand "to allow full investigation by discovery of the possibility of collusion in the negotiation of the settlement."
This court recently observed that "the trial court should limit discovery in view of the context in which it is being requested. Discovery is required not to prepare the case for trial, but simply to provide sufficient information to permit an intelligent evaluation of the terms on which the case is proposed to be settled. The objecting parties should not be permitted to frustrate the mutual interest of the class members and the defendant to resolve the litigation promptly by conducting extended or unnecessary discovery." (Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 132 [85 Cal.Rptr.3d 20].) The trial court properly concluded there was no evidence of collusion between the parties, and Klausner has not shown the court abused
We vacate the orders of the trial court and remand for further proceedings to correct the class definition to unambiguously state that indirect purchasers of new Seagate disc drives are members of the plaintiff class and to renotice the settlement in order to give adequate notice to all class members, and allow for additional claims, objections or opt outs. Costs are awarded to appellant.
Pollak, Acting P.J., and Jenkins, J., concurred.