Labor & Employment Law

Parties Have Flexibility in Allocating Settlement Amounts in Class Actions -- Nordstrom Commission Cases

In traditional litigation a plaintiff is obviously free to settle his differences with the defendant on whatever terms he chooses.  And if a settlement removes the case from an overcrowded docket the Court's normal reaction is to immediately grant a dismissal with a sigh of "good riddance."  

As class action practitioners are acutely aware, however, these cases are a whole different animal.  Because the Court has an obligation to safeguard the procedural rights of "absent class members," it must give approval to the class settlement after certifying that it is "fair and reasonable" to the class under the circumstances.  This places judges in the anomolous position of acting as a sort of quasi-advocate for the interests of one group of litigants.  As a result, there has been a great deal of uncertainty about exactly what the court must do in order to discharge its obligation to review and approve class settlements.

In Nordstrom Commission Cases the California Appellate Court has provided some useful guidance for the Courts that review class action settlements and the parties who negotiate and draft them.  The Appellate Court upheld the lower court's decision to approve a settlement involving the calculation and payment of commissions to Nordstrom sales clerks.  In doing so, it affirmed the following principles:

• A lower court's determination that the relative "strength of the case" supports settlement approval will not be second-guessed so long as the parties have provided a "substantiated explanation of the strengths and weaknesses of the class's claims, as well as the potential total recovery by the class under various damage theories."
   
• The parties need not allocate specific money to each claim and, in particular, may properly allocate "$0" to claims under PAGA.  This is significant because 75% of all PAGA penalties must be paid to the state of California.
   
• Vouchers for products provided by the defendant are a proper form of settlement consideration and such so-called "coupon settlements" are not disfavored under California law.

By clarifying the standards and making settlements easier to negotiate and approve, the Nordstrom Commission case is actually beneficial to both plaintiffs and defendants.  

Full post as published by California Labor & Employment Defense Blog on July 15, 2010 (boomark / email).