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

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

April 28, 2017

FedEx Ground Package System, Inc., Civil No. 3:05cv595 RLM-MGG (NJ) THIS DOCUMENT RELATES TO: Michael Tofaute, et al.,



         Twenty proposed class actions in this multi-district litigation docket came before me on March 13-14 for fairness hearings. The cases are on limited remand from the court of appeals, where nineteen of them awaited resolution. The Judicial Panel on Multi-District Litigation centralized the cases under 28 U.S.C. § 1407, but the cases haven't been consolidated, so each proposed settlement must be examined separately.

         I. History of the MDL Docket

         In July 2005, the JPMDL granted (over the plaintiffs' objections) FedEx Ground's second request to centralize a series of cases in which FedEx Ground drivers claimed to be employees, rather than the independent contractors their employment contracts announced. The Panel reasoned that economies were to be gained because all drivers were governed by the same contract. The MDL process proved cumbersome. Even if the wording of each contract was the same, each state's agency law varied, and differences in operation from one terminal to the next had the potential of affecting the decision.

         The number of cases in the MDL docket eventually grew to 40. I appointed attorneys from three law firms to serve as co-lead counsel: Lockridge Grindal Nauen P.L.L.P. of Minneapolis, Harwood Feffer LLP of New York City, and Leonard Carder LLP of Oakland. I also appointed attorneys from three other firms - Cureton Caplan, P.C. of Delran, NJ; Siegel, Brill, Greupner, Duffy & Foster, P.A. of Minneapolis; and Zimmerman Reed P.L.L.P. of Minneapolis - to complete the plaintiffs' steering committee.

         The stakes were enormous. Not only did the plaintiffs' co-lead counsel seek to represent upwards of 10, 000 arguably under-compensated drivers, but the attack on drivers' independent contractor status threatened FedEx Ground's entire business model.

         Consistent with those stakes, discovery was more than extensive. Although damages discovery was deferred, merits discovery and class discovery were conducted simultaneously. Some 3.2 million documents were produced and analyzed; seventeen sets of interrogatories were answered; 215 named plaintiffs answered fifteen requests for admission and sat for depositions; 105 FedEx Ground personnel sat for daylong depositions; 20 expert witnesses produced reports and sat for daylong depositions; Daubert motions were filed and defended. The class representatives were heavily involved in tracking down records and documents, as well as in preparing for, and giving, their own depositions.

         The plaintiffs filed class certification motions in each of the cases; FedEx Ground opposed each motion. The plaintiffs filed an omnibus fact memorandum supported by 65 bankers' boxes of documents. In 2007 and 2008, I certified classes in 26 of the then-40 cases, and in all of the 20 on limited remand from the court of appeals. FedEx Ground sought interlocutory appellate review of the certification grants, and the plaintiffs successfully opposed that effort. Class notifications were hampered by spotty databases.

         Sixty summary judgment motions and briefing followed. The drivers filed a 75-page statement of undisputed material facts with citations to 12 volumes. In 2010 and 2011, I denied a few of FedEx Ground's summary judgment motions but granted most, and granted all in the 20 cases now on limited remand. With respect to some of the cases, I suggested remand and the Panel sent the cases back to the transferor courts. Co-lead counsel appealed the summary judgment grants in these 20 cases to the United States Court of Appeals for the Seventh Circuit; in most of those cases, FedEx Ground cross-appealed the class certifications.

         In both this court and the court of appeals, the parties recommended that the Kansas Craig case be addressed first, as something of a quasi-bellwether case. After briefing and argument, the court of appeals certified the employee/independent contractor case to the Kansas Supreme Court, which devised a new 18-part test and answered the certified question in the drivers' favor. Craig v. FedEx Ground Package Sys., Inc., 335 P.3d 66 (Kan. 2014). The court of appeals ultimately reversed my grant of summary judgment to FedEx Ground in Craig, and remanded the case. In re FedEx Ground Package Sys., Inc. Emp't Practices Litig., 792 F.3d 818 (7th Cir. 2015). In addition to the reversal in the Kansas case, rulings in other courts were trending toward findings of employee status, see Alexander v. FedEx Ground Package Sys., Inc., 765 F.3d 981 (9th Cir. 2014) (California law); Slayman v. FedEx Ground Package Sys., Inc., 765 F.3d 1033 (9th Cir. 2015) (Oregon law), or at least toward fact issues for trial. See Gray v. FedEx Ground Package Sys., Inc., 799 F.3d 995 (8th Cir. 2015) (Missouri law); Carlson v. FedEx Ground Package Sys., Inc., 787 F.3d 1313 (11th Cir. 2015) (Florida law).

         The parties didn't immediately ask me to find for the Kansas drivers on liability and suggest remand to the United States District Court for the District of Kansas. Instead, the parties had chosen a mediator in an effort to resolve all of the cases remaining in the Seventh Circuit.

         Each case was mediated separately, with some cases requiring several sessions. Each case was mediated with an eye on the governing law, which varied from case to case. The mediation spanned four weeks. The drivers and FedEx Ground exchanged experts' views as to the maximum recovery for each case if the drivers prevailed across the board. Settlements were reached in each case, and the court granted preliminary approval of each of the settlements. The plaintiffs then retained Rust Consulting to administer the settlements.

         I conducted fairness hearings on March 13 and 14, 2017, and on March 15 and 16, I notified the court of appeals of my inclination to enter final approval of the class settlements. The court of appeals entered a second limited remand order on March 22 to allow me to do so.

         II. Fairness of the Settlement

         A. Terms and History of the Proposed Settlement

         Parties can't settle class actions without the court finding that the proposed settlement is “fair, reasonable, and adequate.” Fed.R.Civ.P. 23(e); Synfuel Technologies, Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 652 (7th Cir. 2006); see also EEOC v. Hiram Walker & Sons, Inc., 768 F.2d 884, 889 (7th Cir. 1985) (“The district court may not deny approval of a consent decree unless it is unfair, unreasonable, or inadequate.”). In that effort, we in this circuit consider several circumstantial factors:

(1) the strength of the case for plaintiffs on the merits, balanced against the extent of settlement offer; (2) the complexity, length, and expense of further litigation; (3) the amount of opposition to the settlement; (4) the reaction of members of the class to the settlement; (5) the opinion of competent counsel; and (6) stage of the proceedings and the amount of discovery completed.

Wong v. Accretive Health, Inc., 773 F.3d 859, 863 (7th Cir. 2014) (quoting Gautreaux v. Pierce, 690 F.2d 616, 631 (7th Cir. 1982)). Of those, the first is the most important. Martin v. Reid, 818 F.3d 302, 306 (7th Cir. 2016).

         The Tofaute case was filed in the District of New Jersey in May 2005, and was centralized in this court under 28 U.S.C. § 1407 in August 2005. I granted the plaintiffs' motion for certification of a class in October 2007, and granted summary judgment to FedEx Ground in December 2010, finding that the plaintiffs were independent contractors under New Jersey law. The class appealed.

         In June 2016, the parties reached a proposed settlement. FedEx Ground would pay $25, 500, 000 to the plaintiffs. For each workweek of 35 or more hours during the class period, each class member would receive $72.39; for each workweek of 16-35 hours, each class member would receive $25.34. No class member would receive less than a $250 lump sum. The average recovery per class member would be $19, 301, with the highest share being $71, 194. No plaintiff would be required to fill out, or collect the information needed for, a claim form. No part of the settlement fund would revert to FedEx Ground if anything were left over.

         The proposed settlement resulted from arms-length negotiations with a private mediator. Each side took stock of potential liability and damages under New Jersey law. The class consulted an expert in accounting and damages, who concluded that the maximum recovery the plaintiffs could achieve would be $46, 733, 000, exclusive of interest. FedEx Ground assessed the claims' value at less than that. The proposed settlement amounts to about 55 percent of a perfect outcome.

         A perfect outcome would be a long way off. At this point, my ruling that these drivers are independent contractors under New Jersey law is the only judicial determination. The class would need for the court of appeals to find my ruling to have been in error; such an appellate ruling might consist only of a determination that New Jersey drivers might be employees, but a trial is needed. Such a ruling would be followed by a likely FedEx Ground motion to decertify the class (seeking to exclude drivers who hired others to handle routes and arguing that “full time” drivers would be too difficult to identify), a remand to the district court in New Jersey, and a need to overcome defenses FedEx Ground didn't need to raise at the summary judgment stage (FedEx Ground had succeeded on some of those defenses in other states). If the plaintiffs prevailed at trial, FedEx Ground would likely appeal. Before the settlement, then, the class needed to string together victories in many skirmishes, beginning with a reversal in the court of appeals. The position of an appellant is not one of strength. And receipt of any money by any plaintiffs would be a long time off, well beyond the eleven years already invested in this litigation.

         The plan for giving notice of the proposed settlement, and the third party administrator's execution of the plan, are detailed thoroughly in the papers supporting the plaintiffs' motions, and comply with the preliminary approval order, Federal Rule of Civil Procedure 23(e), and 28 U.S.C. § 1715.

         B. Objections to the Proposed Settlement

         All seven New Jersey class representatives and at least 19 other class members object to the fairness of the settlement agreement. The court also received 24 documents that appear to be photocopies or photographs of objections. They lack original signatures and appear to have been mailed by a third party, from the same location, on the same date. [3:05-cv-595, Doc. No. 247] All 24 of these objections simply log their support for the class representatives' objections and are identical to 18 of the other objections on file.

         I granted co-lead counsel's unopposed motion for preliminary approval of the New Jersey class action settlement. Co-lead counsel notified the class members about the process for final approval of the settlement and their right to object. All seven class representatives objected to final approval of the settlement. The class representatives also pointed out an error in the notice as to the average amount of recovery for each class member under the settlement agreement and wanted the notice to indicate that the class representatives didn't approve of the settlement. I ordered re-notice to the class members, postponed the fairness hearings, and extended the objection deadlines.

         The class representatives also seemed to mount a campaign to other class members to object to the settlement agreement. They sent communications to other class members explaining that co-lead counsel misstated the average settlement amount in its first notice and that they think the case is worth more than the amount for which the attorneys settled it. Attached was a form for the recipient to sign indicating that she objects to the settlement amount, and that if class representatives don't agree with the settlement, then she won't agree either. Co-lead counsel asked me to enjoin the class representatives from circulating these forms, but I declined to do so.

         Before addressing the fairness of the settlement agreement, the class representatives raised the threshold issue of whether a settlement agreement that all class representatives oppose, that awards no damages under one of the class members' claims, and that arguably undervalues the remaining claims, could be valid. I rejected this threshold concern as related only to the issue of the fairness of the agreement. I also denied the class representatives' request for discovery into the settlement process.

         The class representatives raise two potential problems with the settlement. Co-lead counsel settled the class's claims under the New Jersey Consumer Fraud Act, N.J. Stat. Ann. § 56:8-1 et seq., for nothing. The class representatives argue that this was a strong claim that would have entitled the class to treble damages and attorneys' fees. Second, they argue that the class counsel undervalued the rest of the claims when it settled them for 55 percent of their potential return.

         The number of objectors in this case, particularly the objection of all class representatives, is also a red flag that supports the court conducting a close look into the assumptions underlying the settlement agreement. 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); Manual for Complex Litigation (Fourth) § 21.642 (2004).

         1. Valuation of the New Jersey Consumer Fraud Act Claim

         The class representatives first argue that co-lead counsel undervalued the class' claims under the New Jersey Consumer Fraud Act, N.J. Stat. Ann. § 56:8-1 et seq., when it settled those claims for nothing.

         Co-lead counsel say that the likelihood of success on these claims was negligible. They argue that the Court of Appeals for the Third Circuit already decided that the NJCFA applies to consumers only, which would eliminate any protection for the drivers. See J & R Ice Cream Corp. v. Cal. Smoothie Licensing Corp., 31 F.3d 1259 (3d Cir. 1994) (holding that the NJCFA was designed to protect consumers, not those acquiring businesses, and so the law doesn't apply to franchisees). In weighing the settlement value of this claim, co-lead counsel thought that if the Seventh Circuit Court of Appeals held that the New Jersey drivers were misclassified, it would reverse my grant of summary judgment for FedEx, and I would then remand the case back to the federal district court in New Jersey. That court would then be bound by the Third Circuit's decision in J & R, which wouldn't allow the drivers an NJCFA claim.

         The class representatives argue that in the years since J & R, a New Jersey state appeals court deviated from J & R to conclude that the NJCFA includes transactions held out to the public generally, which they say would include the FedEx drivers. The federal district court in New Jersey wouldn't be rigidly bound to the Third Circuit decision, the class representatives say, but instead would be obliged to guess at how the New Jersey Supreme Court would decide, and could be swayed by this development.

         The class representatives might be right about what the transferor court could do. The Third Circuit's decision only represents its best guess at the time as to how the New Jersey Supreme Court would rule on a question of state substantive law. See Comm'r v. Bosch, 387 U.S. 456, 465 (1967); Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). If the state appellate courts' interpretation has evolved since the Third Circuit's decision, the new appellate court decisions create more data points to guide the district court's guess as to the New Jersey Supreme Court's likely opinion. See Scadron v. City of Des Plaines, 734 F.Supp. 1437, 1452 (N.D. Ill. 1990) (“[T]his Court is not bound to rigidly follow the Seventh Circuit's result [on a question of state law] . . ., but before it may depart from the precedent it must be convinced that subsequent events would lead the Seventh Circuit to reach a differing result today.”); Allstate Ins. Co. v. Menards, Inc., 285 F.3d 630, 635 (7th Cir. 2002) (“If the mandate of Erie is to be satisfied and the law ultimately employed is to be the law of the state, the federal court, exercising its authority to hear diversity cases, must make a predictive judgment as to how the supreme court of the state would decide the matter if it were presented presently to that tribunal.”).

         Even if the class representatives are correct that the New Jersey federal district court could rule contrary to the Third Circuit on this question of state law, that doesn't mean it would do so. A single intermediate appeals court decision pointing to a contrary interpretation doesn't mean there's much chance the federal district court would be swayed to depart from the persuasive rationale of its own federal appeals court, and that that federal appeals court would agree with that departure once appealed.

         J & R thoroughly analyzes New Jersey Supreme Court and Appellate Division opinions. In particular, it relies on two New Jersey Supreme Court opinions for the proposition that “although the Consumer Fraud Act does not define the term ‘consumer' or contain an explicit ‘retail restriction, ' it was intended to protect persons engaging in ‘consumer' transactions, not those acquiring businesses.” J & R Ice Cream Corp. v. Cal. Smoothie Licensing Corp., 31 F.3d at 1272 (discussing Daaleman v. Elizabethtown Gas Co., 390 A.2d 566 (N.J. 1978) and Kugler v. Romain, 279 A.2d 640 (N.J. 1971)). It's not a far leap for the Third Circuit to rely on these cases, among other Appellate Division cases, to conclude that the only time the law protects businesses is when a business “finds itself in a consumer oriented situation, such as when it acts as the purchaser of a tow truck, as the purchaser of a yacht, or as the purchaser of computer peripherals.” Id. at 1273 (internal citations of myriad Appellate Division cases omitted). Relying on more state court precedent, the court goes on to conclude “that even where franchises or distributorships are available to the public at large in the same sense as are trucks, boats or computer peripherals, they are not covered by the Consumer Fraud Act because they are businesses, not consumer goods or services. They never are purchased for consumption.” Id. at 1274. Under J & R, FedEx drivers fall outside the protections of the NJCFA because they aren't purchasing routes as consumers.

         The class representatives rely on Kavky v. Herbalife International, 820 A.2d 677 ( N.J.Super.Ct.App.Div. 2003) as intervening precedent that the New Jersey federal district court (and then the Third Circuit) might use to change its mind as to how the New Jersey Supreme Court would interpret the NJCFA. Kavky still carves out “substantial and complex commercial transactions” from the NJCFA, but makes sure that the NJCFA covers transactions “offered to the general public, ” such as “pyramid sales schemes, and similar mass public frauds.” Kavky v. Herbalife Int'l of Am., 820 A.2d at 679-680. The theory under Kavky would be that FedEx offered contracts for various delivery routes to the general public, the drivers entered into them, and so the NJCFA protects them.

         I needn't decide whose interpretation better predicts how the New Jersey Supreme Court would rule. What matters is that co-lead counsel had good reason to assume that the federal court that would have to answer the question on remand would almost certainly follow the Third Circuit's J & R precedent. That's what has happened in other cases decided in the District of New Jersey. See Shogen v. Global Aggressive Growth Fund, Ltd., No. 04-5695, 2007 WL 1237829, at *8 n.7 (D.N.J. April 26, 2007) (holding that the court's obligated to follow J & R, not Kavky); Ramada Worldwide Inc. v. Sayo, Inc., No. 05-5506, 2007 WL 7754199, at *6 n.11 (D.N.J. July 10, 2007) (following J & R over Kavky); Trans USA Prods., Inc. v. Howard Berger Co., No. 07-5924, 2008 WL 3154753 (D.N.J. Aug. 4, 2008) (agreeing with J & R over Kavky); In re Schering-Plough Corp. Intron/Temodar Consumer Class Action, No. 2:06-cv-5774, 2009 WL 2043604, at *31-32 (D.N.J. July 10, 2009) (holding that the court is obligated to follow J & R, not Kavky); Wingate Inns Int'l, Inc. v. P.G.S., LLC, No. 09-cv-6198, 2012 WL 3550764, at *9 (D.N.J. Aug. 16, 2012) (following J & R over Kavky); Wingate Inns Int'l, Inc. v. Swindall, No. 12-248, 2012 WL 5252247, at *4 (D.N.J. Oct. 23, 2012) (following J & R and distinguishing Kavky as “carv[ing] out a narrow exception to the rule delineated in J & R Ice Cream”); Robinson v. Wingate Inns Int'l, Inc., No. 13-cv-2468, 2013 WL 6860723, at *4 (D.N.J. Dec. 20, 2013) (holding that the court is obligated to follow J & R, not Kavky); Yogo Factory Franchising, Inc. v. Ying, No. 13-630, 2014 WL 1783146, at *11 (D.N.J. May 5, 2014) (holding that the court's obligated to follow J & R, not Kavky); Kumon N. Am. v. Timban, No. 13-4809, 2014 WL 2812122, at *10 (D.N.J. June 23, 2014) (following J & R over Kavky). No New Jersey district court opinion follows Kavky over J & R.

         Co-lead counsel had good reason to think the New Jersey federal district court would follow J & R if the case was ever remanded there, and that the Third Circuit would follow its own rationale in J & R if appealed there. See Debiec v. Cabot Corp., 352 F.3d 117, 131 (3d Cir. 2003) (holding that the appeals court is bound by its own prior case-law guessing an issue of state law notwithstanding new, contradictory state appellate court precedent). A single new intermediate appellate court decision likely wouldn't change that. It was reasonable for co-lead counsel to believe its likelihood of success on the NJCFA claim is negligible and to settle it for nothing.

         2. Valuation of the ...

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