United States District Court, N.D. Indiana, South Bend Division
In re FEDEX GROUND PACKAGE SYSTEM, INC., EMPLOYMENT PRACTICES LITIGATION (MDL 1700)
FedEx Ground Package System, Inc., Civil No. 3:05cv595 RLM-MGG (NJ) THIS DOCUMENT RELATES TO: Michael Tofaute, et al.,
OPINION AND ORDER
L. MILLER, JR. JUDGE.
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
History of the MDL Docket
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
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.
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.
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.
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.
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.
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).
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.
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.
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.
Fairness of the Settlement
Terms and History of the Proposed Settlement
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).
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.
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.
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
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.
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.
Objections to the Proposed Settlement
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
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.
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.
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.
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
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).
Valuation of the New Jersey Consumer Fraud Act Claim
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.
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.
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.
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
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.
& 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.
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.
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.
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.
Valuation of the ...