ORDER GRANTING MOTION REQUESTING MODIFICATION OF ORDER GRANTING PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT

(Doc. No. 123)

DALE A. DROZD, District Judge.

This action came before the court on September 5, 2018, for hearing of plaintiffs' unopposed motion requesting modification of the order granting preliminary approval of the class action settlement. Attorneys Brain Kabateck and Daniel Kopfman appeared telephonically for plaintiffs, and attorney Megan Ross appeared telephonically for defendants. (Doc. No. 127.) Having reviewed the parties' briefing and heard arguments, and for the reasons that follow, plaintiffs' motion requesting modification of the order granting preliminary approval of the class action settlement will be granted.

BACKGROUND

Both the relevant factual background leading up to this court's order granting preliminary approval and the legal standards for preliminary approval were adequately addressed in the court's prior order and will not be repeated here. (See Doc. No. 119 at 2-5.)

On May 29, 2018, the court issued an order granting preliminary approval of the class action settlement and preliminarily approving class certification. (Doc. No. 119.) In granting plaintiffs' motion for preliminary approval, the court noted that the settlement amount was based on the belief that the class comprised 796 drivers with 41,846 qualifying work weeks. (Id. at 7.) Plaintiffs have now reported that on June 13, 2018, the settlement administrator notified plaintiffs' counsel that defendants produced a class list with 897 class members and involving 49,376.02 work weeks. (See Doc. No. 123 at 3.) This change reflects a 12.7% increase in class members and 18% increase in work weeks.1 (Id.)

On June 27, 2018, the parties met with Magistrate Judge Barbara A. McAuliffe in an informal telephonic conference to discuss the unexpected increase in class size. (Doc. No. 122.) Afterwards, the parties attempted to negotiate an increase in the settlement with the assistance of Mark Rudy, the mediator who facilitated the original settlement. (Doc. No. 123 at 3-4.) On August 6, 2018, plaintiffs filed an unopposed motion requesting modification of the order granting preliminary approval of the class action settlement. (See id.) Plaintiffs' counsel Brian Kabateck submitted a supplemental declaration in support of the motion on August 14, 2018, which included a fully executed addendum to a stipulation of the class action settlement and release of claims. (Doc. No. 125.)

DISCUSSION2

Plaintiffs request that the order granting plaintiffs' motion for preliminary approval of the class action settlement be modified to provide that the settlement now includes 897 class members and 49,376 qualifying work weeks. (Doc. No. 123-2 at 2-3.) Additionally, plaintiffs request a new implementation schedule leading up to the hearing date for final approval. (Id.) No other material changes to the order granting preliminary approval are requested. (Id.)

Despite the increase in class size and the resulting anticipated decrease in average recovery for class members, plaintiffs state that they "have determined that it is in the best interest of the class to go forward with the settlement based on the originally agreed settlement amount." (Doc. No. 123 at 3-4.) Plaintiffs' decision in this regard is primarily motivated by their concerns about defendants' financial condition and its ability to pay the settlement, a concern that plaintiffs have consistently voiced throughout this litigation. (See id. at 4.) Previously in requesting that the court modify the terms of the settlement agreement,3 plaintiffs described the state of defendants' financial condition as follows:

(Doc. No. 116 at 3-4) (internal citations omitted). Now, in requesting a modification of the order granting preliminary approval of the settlement, plaintiffs continue to express serious concerns about the state of defendants' financial condition. (Doc. No. 123.) Plaintiffs represent that, at the time of filing this motion, the total market value of all of Roadrunner's publicly traded stock hovered at approximately $80 million. (Id. at 5.) At the time this order was issued, Roadrunner's stock was trading at under a dollar per share. Therefore, plaintiffs' counsel expressed concern that a settlement amount of $9.25 million may be such a substantial outlay that defendants would be unable to pay. (Id.) Due to concerns regarding defendants' financial condition, plaintiffs' counsel and the class representatives "concluded that it is in the best interests of the class to continue to endorse the proposed settlement." (Id. at 5-6.)

In determining whether a modification of its order is appropriate, the court will consider the same factors that it assessed prior to granting preliminary approval of the class action settlement. (See Doc. No. 119 at 4-5.) Under Rule 23(e), a court may approve a class action settlement only if the settlement is fair, reasonable, and adequate. In re Bluetooth Headset Prod. Liab. Litig., 654 F.3d 935, 946 (9th Cir. 2011). This determination is based on numerous factors, including but not limited to: "the strength of plaintiffs' case; the risk, expense, complexity, and likely duration of further litigation; the risk of maintaining class action status throughout the trial; 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 the class members to the proposed settlement." Staton v. Boeing Co., 327 F.3d 938, 959 (9th Cir. 2003). "[P]reliminary approval of a settlement has both a procedural and substantive component." In re Tableware Antitrust Litigation, 484 F.Supp.2d 1078, 1079 (N.D. Cal. 2007) (citing Schwartz v. Dallas Cowboys Football Club, Ltd., 157 F.Supp.2d 561, 570 n.12 (E.D. Pa. 2001)). In particular, preliminary approval of a settlement and notice to the proposed class is appropriate if: (i) the proposed settlement appears to be the product of serious, informed, non-collusive negotiations; and (ii) the settlement falls within the range of possible approval, has no obvious deficiencies, and does not improperly grant preferential treatment to class representatives or segments of the class. Id.; see also Ross v. Bar None Enterprises, Inc., No. 2:13-cv-00234-KJM-KJN, 2014 WL 4109592, at *9 (E.D. Cal. Aug. 19, 2014).

The court concludes that the settlement agreement with plaintiffs' requested modifications still appears to be fair, reasonable, and adequate. The modifications do not affect whether the settlement is procedurally fair. Indeed, the parties attempted to renegotiate the settlement with the assistance of a respected mediator, which "tends to support the conclusion that the settlement process was not collusive." Palacios v. Penny Newman Grain, Inc., No. 1:14-cv-01804-KJM, 2015 WL 4078135, at *8 (E.D. Cal. July 6, 2015) (citation omitted).

In determining the substantive fairness of the settlement, the court must consider the risk of further litigation and balance the implications of this proposed modification (i.e., a decreased average recovery for each class member) with plaintiffs' quite credible concern that further litigation could result in no recovery at all for class members. Having voiced a concern about defendants' declining financial condition and its possible default at every stage of the settlement process, the court finds plaintiffs' counsel's concerns to be both legitimate and persuasive. (See Doc. No. 111 at 20-21; Doc. No. 116; Doc. No. 123 at 5-6.) Additionally, as discussed in the prior order granting preliminary approval, there are several issues of unsettled law involved in this action that could detract from plaintiffs' recovery. (See Doc. No. 119 at 12.) Consideration of these factors weigh in favor of the granting of preliminary approval despite the modifications.

"Prior to formal class certification, there is an even greater potential for a breach of fiduciary duty owed the class during settlement. Accordingly, such agreements must withstand an even higher level of scrutiny for evidence of collusion or other conflicts of interest than is ordinarily required under Rule 23(e) before securing the court's approval as fair." In re Bluetooth Headset Prod. Liab. Litig., 654 F.3d at 946. Here, the class has not passed the stage of final certification, despite reaching a settlement, meaning that the court must carefully note subtle signs of collusion. These signs may include:

Id. (internal citations omitted).

The requested modification does not reveal any subtle signs of collusion. The settlement agreement still does not include a "clear sailing" arrangement providing for a separate payment of attorneys' fees, and plaintiffs' counsel maintains that they will seek attorneys' fees in the total amount not to exceed one-third of the gross settlement amount. (Doc. No. 111 at 15.) As discussed in the order granting preliminary approval, this requested fee amount is above the Ninth Circuit benchmark amount of 25% but may not be unreasonable as an upper bound. (See Doc. No. 119 at 9.) Finally, at the hearing on the motion for modification, counsel for all parties indicated that should there be class members who wish to be excluded from the settlement, the remaining class fund would not revert back to defendants. There are no other material changes to the settlement agreement, including to the release of liability, notice to the class, requests for exclusion, and payment upon final approval. For these reasons, the court is satisfied that there are no obvious deficiencies to the settlement.

Recognizing the risk of being deprived of any recovery that plaintiffs realistically face here, the court finds that the amount and terms of the modified settlement of these actions still weigh in favor of preliminary approval. Therefore, the court orders the following modified implementation schedule, as submitted by the parties:

The court notes that the notice and the manner of notice proposed by plaintiffs still meet the requirements of Federal Civil Procedure Rule 23(c)(2)(B) and that the proposed mail delivery is still appropriate.

CONCLUSION

For the reasons stated above:

IT IS SO ORDERED.