Daily Journal Covers the Impact of Kullar v. Foot Locker on Class Action Settlements

CLASS ACTION SETTLEMENT TOSSED OUT
By Greg Katz
Daily Journal Staff Writer
LOS ANGELES – The other shoe dropped last week when a state appellate panel published an opinion that nixed a mediated class action settlement between Foot Locker and employees.

Facing claims that the company did not reimburse employees for buying their required work uniforms or their time spent undergoing security checks, and denied employees meal and rest breaks, Foot Locker and the class’ counsel reached a deal in mediation with San Francisco neutral Mark S. Rudy.

San Francisco County Superior Court Judge Richard A. Kramer approved the settlement in October 2007.

But three class members challenged the $2 million settlement, which would have left $1.3 million for 16,900 potential class members after administrative costs and $500,000 in attorney fees. The objecting class members claimed that Kramer didn’t see enough evidence to determine whether the settlement was “fair and reasonable” in light of the risks of going to trial, noting that no formal discovery had been conducted on meal rest break claims, which were a later addition to the complaint.

Both class’ counsel and Foot Locker told the trial court that they exchanged information in mediation that supported the settlement, but couldn’t show it to the judge due to confidentiality. Noting the state’s mediation confidentiality statutes, Kramer signed off on the settlement.

But 1st District Court of Appeal Justice Stuart R. Pollak wrote that, notwithstanding confidentiality privileges, the court could not determine the adequacy of the settlement without independently examining the strengths and weaknesses of the case. Kullar v. Foot Locker, 2008 DJDAR 16745 (Cal. App 1st Dist. Nov. 7, 2008).

“The court undoubtedly should give considerable weight to the competency and integrity of counsel and the involvement of a neutral mediator in assuring itself that a settlement agreement represents an arm’s length transaction entered without self-dealing or other potential misconduct,” Pollak wrote.

“While an agreement reached under these circumstances presumably will be fair to all concerned, particularly when few of the affected class members express objections, in the final analysis it is the court that bears the responsibility to ensure that the recovery represents a reasonable compromise, given the magnitude and apparent merit of the claims being released,” he added.

Pollak was joined by Justices William R. McGuiness and Martin J. Jenkins.
The ruling remanded the case to the trial court for the parties to show evidence supporting the settlement and to allow the objecting class members to request further discovery.

“Foot Locker’s payroll records, for example, if relevant to the quantification of the claims being settled, are subject to discovery and may be introduced in opposition to the settlement, even if they were disclosed to class counsel during the mediation,” Pollak wrote.

Class counsel Scott E. Cole of Scott Cole & Associates in Oakland said the next version of the settlement will contain more information. He also said he is seeking depublication of the opinion because it does not create or modify law.

“Notoriety in my cases is something that attorneys generally want, but I’m a little surprised that the court thought this was worthy of going into the books … just because it’s such a fact-intensive situation that we had,” Cole said.
The opinion was issued unpublished on Oct. 14. The court published it Friday “for good cause.”

Daniel H. Qualls of Qualls & Workman in San Francisco, who represented the objecting class members, said the case clarifies what evidence is necessary to determine whether a settlement is fair.

“All I’m saying precisely is [that] a settlement of many, many thousands of class member claims was proposed [in this case], and there was no evidence in the record of the value of the claims being settled,” Qualls said.

Foot Locker’s attorney, Tracy Thompson of Cook Roos Wilbur Thompson, and company representatives could not be reached for comment.

Mediator Mariam Zadeh of First Mediation Corp. in Encino said the case could change the way parties treat class action mediations, which sometimes happen early in the cases before discovery has been conducted on all of the claims.

“What you might end up seeing is parties coming to mediation in class action suits a little bit further down the discovery road,” she said.

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