United States: Ninth Circuit Narrowly Upholds Class Settlement In Misclassification Case

We've commented several times recently on the increasing scrutiny courts are giving to class action settlements generally, and to attorney fee awards in particular.  A recent decision from the Ninth Circuit, although it ultimately upholds the award, reflects that this is still a troublesome area and less than entirely predictable for any of the parties.

In Laguna v. Coverall North America, Inc., Case No. 12-55479 (9th Cir. June 3, 2014), the defendant ran a janitorial franchising company.  The persons performing the actual janitorial work did so under franchise agreements and were classified as "franchisees," not employees.  Once source of discontent appeared to stem from the manner in which customers were assigned to current franchisees.   The plaintiffs brought suit under California law contending that they were employees, not independent contractors, and also asserted various breaches of the franchise agreements.  The case was litigated for two years, and was settled for largely equitable relief.  That relief involved (a) assignment of customer accounts to current franchisees subject to payment of the franchise fees; (b) a single payment of $475 in cash to each former franchisee; (c) a $750 credit for past franchisees towards future new franchise; and  (d) some rights for newer franchisees to rescind their franchise agreements.  The franchisees had to submit a claim to take advantage of the benefits, and approximately 119 did so, comprising the majority of the then current franchisees.  (Apparently there were between 750 and 1500 potential class members – the trial court notes the lack of certainty – but most were former franchisees).  The settlement also provided for nearly $1,000,000 in attorney fees, or roughly one third of the hours times rate "lodestar" figure.

So, did anyone, other than the plaintiffs at their jobs, clean up?

There wasn't much resistance to the settlement.  There were but two opt-outs.  There were no timely objections.  In a classic case of no good deed going unpunished, however, the trial court allowed consideration of a single untimely objection, which was in fact the only objection, in 2011.  When the court approved the settlement over the untimely objection, that objector then appealed.  Enter two and one half years of delay.

Based on the district court's decision, there were very good reasons for the plaintiffs to settle.  To begin with, the franchise agreements apparently contained arbitration agreements with class limitations.  At  the time the suit was filed, the Ninth Circuit authority was unfavorable to their enforcement, but by the approval hearing the United States Supreme Court had rendered its decision in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011).  The district court opinion also reflects a favorable ruling for the company in a similar Massachusetts case, as well as issues involving the company's ability to pay a large verdict.  Although the settlement resolved all claims, reading between the lines it appears designed to improve the franchisor-franchisee relationship, something which would seem to have a long-term benefit for the class members, particularly present franchisees.

While the objector objected to the settlement generally, the Ninth Circuit's opinion focuses primarily on the attorney fee issue and the question of whether a million-dollar fee was appropriate for a settlement where the relief was primarily equitable.  Finding injunctive relief hard to quantify, the district court and Ninth Circuit resorted to a "lodestar" formula.  Under that formula, the plaintiffs incurred nearly $3,000,000 in fees, but received only $1,000,000.  The court, appropriately, refused to tie the amount of fees to some percentage of an estimate of the value of the equitable relief, and refused to find that the court had to make specific findings of fact about the value of the injunctive relief.  It isn't hard to understand this result as the parties had widely divergent views over the value of the proposed equitable remedies.

The Ninth Circuit also disposed of other challenges to the settlement.  It found that the settlement was not invalidated because of the claim procedure or due to the existence of a reversion.  It also held that the district court could properly require that objectors be subject to deposition, dismissing arguments that such discovery could be used as a tool to discourage objections.

Two Ninth Circuit judges made up the minority, but the third judge on the panel, a district judge from Northern California, dissented.  The dissent's arguments were not insubstantial.  It pointed out that the injunctive relief primarily benefited current franchisees, not past ones.  It recognized that injunctive relief might be hard to calculate, but sought a more robust effort to make some valuation determination. It questioned the administrative process, particularly for past franchisees, and noted a relatively low response rate, around 9%, for what it perceived to be a straightforward calculation.  Ultimately, in a long footnote, the majority noted that these arguments, while perhaps valid in one sense, did not rise to the level of demonstrating an abuse of discretion.

The Laguna decision is more significant for what it reflects than what it holds.  First, a settlement reached in 2011 was held up until 2014 based on a single untimely objector.  Keep in mind that the relief was primarily equitable, meaning that likely dozens of class members had wanted and expected relief on customer assignments, relief that, at a minimum, was delayed.  Second, the case reflects continued hand-wringing over deciding attorney fees when the amount recovered is small or, in this instance, primarily in the form of equitable relief.   Third, the court recognized that terms such as claim processes and reversions may raise questions, but simply warrant further explanation and should not scuttle an otherwise reasonable settlement.

The Bottom Line:  Courts have some difficulty in evaluating the reasonableness of attorney fees awards in settlements providing primarily equitable relief.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions