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In re Fedex Ground Package System, Inc. Employment Practices Litigation

United States District Court, N.D. Indiana, South Bend Division

February 14, 2017

FedEx Ground Package Systems, Inc. This Document Relates to Tofaute et al.


          Robert L. Miller, Jr. United States District Court

         All seven New Jersey class representatives argue that the settlement agreement into which co-lead counsel and FedEx entered is invalid, such that the court ought to dispose of the settlement before conducting a fairness hearing pursuant to Rule 23(e)(2).[1] The class representatives also seek discovery.

         I. Background

         To mitigate risk of releasing privileged or confidential information, the court only outlines the facts generally. Co-lead counsel, FedEx, and two of the seven class representatives, Michael Tofaute and David McMahon, participated in a mediation in February 2016 to resolve the various claims in the New Jersey class action. Messrs. Tofaute and McMahon allege that they never agreed to the proposed settlement that arose from the mediation. They claim co-lead counsel didn't communicate an offer to them that would have shifted attorneys' fees onto FedEx instead of the common fund, instead rejecting it out of hand. Mr. McMahon says he didn't' want to agree to a settlement under $30 million and thought that co-lead counsel undervalued the case by not considering claims under the New Jersey Consumer Fraud Act, N.J. Stat. Ann. § 56:8-1 et seq. FedEx and co-lead counsel agreed to a $25.5 million settlement.

         Messrs. Tofaute and McMahon claim that New Jersey counsel Anthony Marchetti met with all of the class representatives three months later and encouraged them to agree to the proposed settlement. All declined. They claim that co-lead counsel Matt Houston[2] met with six of the seven class representatives in June 2016, and said that if they didn't sign the settlement, they'd lose their incentive pay while the court would approve the settlement anyway. They claim that Mr. Houston handed out the agreement and Dennis Lynch, one of the class representatives, tore it up.

         Frank Cucinotti, the class representative who didn't attend this meeting, claims that Mr. Marchetti called him afterward and said he had the agreement for Mr. Cucinotti to sign and that the others would “come around” to signing it too. Mr. Cucinotti says he signed the document without realizing that none of the other representatives had done so. He claims he didn't have a choice and thought he could still fight the settlement even if he signed. He says that once he learned “the settlement figure was so low because of Co-Lead Counsel's conduct, [he] withdrew [his] signature.”

         Co-lead counsel and FedEx thus Dated:to a settlement agreement purportedly resolving all claims in the New Jersey class action, but only one of the six class representatives signed the agreement.

         Co-lead counsel submitted a motion for preliminary approval of the New Jersey class action settlement, which the court granted. None of today's disputes about the agreement was made known to the court at that time. The court held that “the terms of the Settlement Agreement are preliminarily approved as (a) fair, reasonable, adequate in light of the relevant factual, legal, practical and procedural considerations of the action; (b) free of collusion to the detriment of the class members; and (c) within the range of possible final judicial approval, subject to further consideration thereof at the Fairness Hearing.” The order also approved the form of notice to be sent to class members explaining the settlement and their right to object before final approval. Less than a week later, all seven class representatives objected to final approval of the settlement.

         At a scheduling conference to prepare for the upcoming fairness hearings, the class representatives indicated that they weren't just contesting the fairness of the settlement, but whether co-lead counsel and FedEx ever formed a valid settlement at all. For other reasons, the court postponed the fairness hearings, ordered re-notice to the class members, and extended the objection deadlines. In the meantime, the court invited expedited briefing on the threshold question of whether a valid settlement exists for the court to assess.

         II. Discussion

         The class representatives attempt a frontal attack on the settlement - not arguing as to its fairness but as to whether co-lead counsel can ever bind the class to an agreement that all class representatives oppose, that allegedly undervalues the claims, and that was allegedly signed without discussing a proposed fee-shifting arrangement with the class representatives.

         A court has a “continuing duty to undertake a stringent examination of the adequacy of representation by the named class representatives and their counsel at all stages of the litigation.” In re Gen. Motors Corp. Engine Interchange Litig., 549 F.2d 1106, 1124 (7th Cir. 1979). But this duty manifests itself in this stage of the litigation in its “review [of] the fairness of any compromise of the class action.” Id.; Fed.R.Civ.P. 23(e).

         The class representatives raise red flags for the court to consider at the fairness hearing. See Eubank v. Pella Corp., 753 F.3d 718, 721 (7th Cir. 2014); Mirfasihi v. Fleet Mortg. Co., 356 F.3d 781, 785 (7th Cir. 2004). First is that “major claims or types of relief sought in the complaint have been omitted from the settlement.” Manual for Complex Litigation (Fourth) § 21.62 (2004). The settlement provided no relief for claims under the New Jersey Consumer Fraud Act, N.J. Stat. Ann. § 56:8-1 et seq. Second, “[c]lass counsel must discuss with the class representatives the terms of any settlement offered to the class.” Manual for Complex Litigation, supra, § 21.641. The class representatives claim that co-lead counsel rejected an offer for a fee-shifting arrangement without discussing it with them first. Third, the court considers “the extent of participation in the settlement negotiations by class representatives” and will “examine closely any opposition by class representatives to a proposed settlement.” Id. § 21.62, .642. All seven class representatives oppose the settlement.

         But none of these red flags is sufficient to invalidate the settlement before reaching the issue of fairness. It's possible that the likelihood of success on the Consumer Fraud Act claim is minimal. See Armstrong v. Bd. of Sch. Dirs. of the City of Milwaukee, 616 F.2d 305, 314 (7th Cir. 1980), overruled on other grounds by Felzen v. Andreas, 134 F.3d 873 (7th Cir. 1998). “The Manual [for Compex Litigation] condemns settlement agreements which provide that the fees and sometimes expenses of plaintiffs' counsel are to be paid separately by the defendant(s) over and above the settlement.” In re Gen. Motors Corp. Engine Interchange Litig., 549 F.2d 1106, 1130 (7th Cir. 1979). Last, the class representatives don't have to agree to a settlement for it to be fair and binding on the class. See Id. at 1128 n.34 (“[T]he unanimous approval of all named plaintiffs is not a prerequisite to judicial approval of a settlement approved by some of the named plaintiffs.”); McDonald v. Chi. Milwaukee Corp., 565 F.2d 416, 426 (7th Cir. 1977) (discussing Saylor v. Lindsay¸ 456 F.2d 896 (2d Cir. 1972) for the proposition that the assent of the plaintiffs who brought a derivative action is not essential to a settlement); Charron v. Wiener, 731 F.3d 241, 253 (2d Cir. 2013) (“[T]he assent of class representatives is not essential to the settlement, as long as the Rule 23 requirements are met.”); Manual for Complex Litigation, supra, § 21.642 (“A class representative cannot alone veto a settlement . . . .”); 6 William B. Rubenstein, Newberg on ...

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