1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 DORCAS-COTHY KABASELE, No. 2:21-cv-01639 WBS CKD an individual,1 13 Plaintiff, 14 MEMORANDUM AND ORDER RE: v. PLAINTIFF’S MOTION FOR 15 PRELIMINARY APPROVAL OF CLASS

ULTA SALON, COSMETICS & ACTION AND PAGA SETTLEMENT2

16 FRAGRANCE, INC.; and DOES 1-100, inclusive, 17 Defendant. 18

19 ----oo0oo---- 20 Plaintiff Dorcas-Cothy Kabasele, individually and on 21 behalf of similarly situated individuals, brought this putative 22 class action against defendant Ulta Salon, Cosmetics, & 23 Fragrance, Inc. (“Ulta”), alleging violations of California wage 24 1 Although the caption on the operative complaint refers 25 to plaintiff only as “an individual,” plaintiff asserts claims both individually and on behalf of similarly situated Ulta 26 employees. 27 2 The motion is decided on the papers without further 28 oral argument pursuant to Local Rule 230(g). 1 and hour laws. (See Third Am. Compl. (“TAC”) (Docket No. 23).) 2 Before the court is plaintiff’s unopposed motion for preliminary 3 approval of a class action settlement. (See Mot. for Prelim. 4 Approval (“Mot.”) (Docket No. 34); Def.’s Notice of Non-Opp’n 5 (Docket No. 36).) 6 I. Background and Proposed Settlement 7 According to the allegations of the Third Amended 8 Complaint, defendant Ulta employed plaintiff and other proposed 9 class members as hourly-paid or non-exempt employees. (See TAC ¶ 10 10.) Plaintiff brought this action for (1) failure to pay 11 minimum wages; (2) failure to pay overtime wages; (3) failure to 12 provide meal breaks; (4) failure to provide rest breaks; (5) 13 failure to pay sick pay; (6) failure to furnish accurate itemized 14 wage statements; (7) failure to pay wages due at end of 15 employment; (8) failure to indemnify all necessary business 16 expenditures; (9) violation of California’s Unfair Competition 17 Law, California Business & Professions Code § 17200 et seq.; and 18 (10) penalties under California’s Private Attorneys General Act 19 of 2004 (“PAGA”), Cal. Lab. Code § 2698 et seq. (See TAC.) 20 This is one of four actions against defendant Ulta 21 covering similar class and PAGA claims. The other actions are 22 Gonzalez v. Ulta Salon Cosmetics & Fragrance, Inc., No. 2:22-cv- 23 00363 AB RAO (C.D. Cal.), a federal class and PAGA action; 24 Arellano v. Ulta Salon, Cosmetics and Fragrance, Inc., No. 5:22- 25 cv-00639 JGB KK (C.D. Cal.), a federal class action; and Arellano 26 v. Ulta Salon, Cosmetics and Fragrance, Inc., No. CIVSB2209151 27 (San Bernardino Super. Ct.), a state PAGA action. 28 The proposed settlement would dispose of all four 1 actions.3 All parties agreed to seek settlement approval only in 2 this action; once the settlement receives final approval in this 3 action and all class payments are distributed, counsel in the 4 Gonzalez and Arellano actions (state and federal) will 5 voluntarily dismiss their cases. (See Settlement Agreement 6 (Docket No. 34-2 at 18-53) ¶ 9.8.) 7 The putative class consists of all current and former 8 hourly-paid or non-exempt employees of defendant statewide who 9 worked for Ulta between October 12, 2019 and November 8, 2022. 10 (Id. ¶ 1.6.) There are approximately 18,711 individuals in the 11 putative class. (Def.’s Suppl. Br. (Docket No. 42) at 8.) The 12 parties propose a gross settlement amount of $1,500,000, which 13 includes the following: (1) $5,000 incentive awards for the three 14 lead plaintiffs and $500 for each remaining named plaintiff, for 15 a total of $27,000 in plaintiff incentive awards4; (2) maximum 16 attorneys’ fees of $500,000, or 33.33% of the gross settlement 17 amount; (3) settlement administration costs of approximately 18 $65,000; and (4) $50,000 for PAGA penalties, of which 75% (i.e., 19 $37,500) will be distributed to the Labor and Workforce 20 3 Plaintiff’s motion sought leave to amend the operative 21 complaint to join the named plaintiffs from these other actions. 22 Because the court denies the motion for preliminary approval, leave to amend the complaint is denied at this time. Plaintiff 23 should include a renewed request to amend the complaint in any future motion for preliminary approval. 24 4 The motion for preliminary approval originally 25 indicated that the incentive awards would total $28,500. The parties later indicated that they will no longer seek to have 26 three of the named plaintiffs from the Gonzalez action designated 27 as class representatives due to non-responsiveness. (See Docket No. 38.) This would decrease the incentive awards by $500 each, 28 or $1,500, resulting in total incentive awards of $27,000. 1 Development Agency (“LWDA”) and the remaining 25% will be 2 distributed to individual class members. (See Settlement 3 Agreement ¶¶ 1.5, 1.13, 1.16, 1.21, 1.31.) After deduction of 4 the incentive awards, fees, costs, and the LWDA’s share of 5 penalties, the net settlement amount would be approximately 6 $870,500, to be distributed to class members pro rata based on 7 their number workweeks during the class period. (See id.) 8 The settlement would release defendant from any and all 9 class claims that were pled or could have been pled based on the 10 factual allegations in the operative or prior complaints, and any 11 and all PAGA claims for civil penalties premised on the released 12 class claims. (See id. ¶¶ 1.26, 1.27.) 13 A hearing on this unopposed motion for preliminary 14 approval was set for March 6, 2023. Due to what was said to be 15 an error in the briefing identified by counsel during the 16 hearing, the court declined to hear further oral argument at that 17 time. The court subsequently issued an order explaining its 18 evaluation of the initial briefing and ordered the parties to 19 submit supplemental briefing. See Kabasele v. Ulta Salon, 20 Cosmetics, & Fragrance, Inc., No. 2:21-cv-01639 WBS CKD, 2023 WL 21 2842973, at *2 (E.D. Cal. Mar. 14, 2023). 22 II. Legal Standards 23 Federal Rule of Civil Procedure 23(e) provides that 24 “[t]he claims, issues, or defenses of a certified class may be 25 settled . . . only with the court’s approval.” Fed. R. Civ. P. 26 23(e). The approval of a class action settlement takes place in 27 two stages. In the first stage, “the court preliminarily 28 approves the settlement pending a fairness hearing, temporarily 1 certifies a settlement class, and authorizes notice to the 2 class.” Ontiveros v. Zamora, No. 2:08-cv-567 WBS DAD, 2014 WL 3 3057506, at *2 (E.D. Cal. July 7, 2014). In the second, the 4 court will entertain class members’ objections to (1) treating 5 the litigation as a class action and/or (2) the terms of the 6 settlement agreement at the fairness hearing. Id. 7 At the preliminary approval stage, the district court 8 must “carefully consider ‘whether a proposed settlement is 9 fundamentally fair, adequate, and reasonable,’ recognizing that 10 ‘[i]t is the settlement taken as a whole, rather than the 11 individual component parts, that must be examined for overall 12 fairness . . . .’” Staton, 327 F.3d at 952 (quoting Hanlon v. 13 Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998)), overruled 14 on other grounds by Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 15 (2011). District courts “review and approve” settlement of PAGA 16 claims under a similar standard. See Cal. Lab. Code § 17 2669(k)(2); Jordan v. NCI Grp., Inc., No. cv-161701 JVS SP, 2018 18 WL 1409590, at *2 (C.D. Cal. Jan. 5, 2018) (collecting cases); 19 Ramirez v. Benito Valley Farms, LLC, No. 16-cv-04708 LHK, 2017 WL 20 3670794, at *2 (N.D. Cal. Aug. 25, 2017). 21 At the preliminary approval stage, “the court need only 22 determine whether the proposed settlement is within the range of 23 possible approval,” Murillo, 266 F.R.D. at 479 (quoting Gautreaux 24 v. Pierce, 690 F.2d 616, 621 n.3 (7th Cir. 1982)), and resolve 25 any “glaring deficiencies” in the settlement agreement before 26 authorizing notice to class members, Ontiveros, 2014 WL 3057506, 27 at *12 (citing Murillo, 266 F.R.D. at 478). This generally 28 requires consideration of “whether the proposed settlement 1 discloses grounds to doubt its fairness or other obvious 2 deficiencies, such as unduly preferential treatment of class 3 representatives or segments of the class, or excessive 4 compensation of attorneys.” Murillo, 266 F.R.D. at 479 (quoting 5 West v. Circle K Stores, Inc., No. 2:04-cv-438 WBS GGH, 2006 WL 6 1652598, at *11-12 (E.D. Cal. June 13, 2006)). 7 “Courts have long recognized that ‘settlement class 8 actions present unique due process concerns for absent class 9 members.’” In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 10 935, 946 (9th Cir. 2011) (quoting Hanlon, 150 F.3d at 1026). 11 Accordingly, settlements reached prior to formal class 12 certification “must withstand an even higher level of scrutiny . 13 . . before securing the court’s approval as fair.” Id. 14 III. Discussion 15 “In determining whether the amount offered in 16 settlement is fair, the Ninth Circuit has suggested that the 17 Court compare the settlement amount to the parties’ ‘estimates of 18 the maximum amount of damages recoverable in a successful 19 litigation.’” Litty v. Merrill Lynch & Co., No. 14-cv-0425 PA 20 PJW, 2015 WL 4698475, at *9 (C.D. Cal. Apr. 27, 2015) (quoting In 21 re: Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 459 (9th Cir. 22 2000), as amended (June 19, 2000)); see also Almanzar v. Home 23 Depot U.S.A., Inc., No. 2:20-cv-0699 KJN, 2022 WL 2817435, at *11 24 (E.D. Cal. July 19, 2022) (citing Rodriguez v. W. Publ’g Corp., 25 563 F.3d 948, 964 (9th Cir. 2009)) (“In determining whether the 26 amount offered is fair and reasonable, courts compare the 27 proposed settlement to the best possible outcome for the class.”) 28 Plaintiff’s counsel estimates that the “maximum” 1 possible value of the claims is $26,379,927. (See Decl. of 2 Robert J. Wasserman (“Wassmerman Decl.”) (Docket No. 34-2) ¶ 13.) 3 This includes $8,950,000 in statutory PAGA penalties.5 Based on 4 the defendant’s arguments and potential defenses, plaintiff’s 5 counsel provides a discounted, “realistic” value of the claims. 6 Counsel discounts the minimum wage, overtime, and business 7 reimbursement claims by 50%; and the unpaid meal and rest break 8 premium, wage statement, and waiting time claims by 75%. (Id. ¶ 9 27.) This results in a total of $7,474,362 in “realistic” 10 recovery. (See id.) 11 The gross settlement amount of $1,500,000 constitutes 12 5.7% of the projected “maximum” possible recovery.6 Even looking 13 solely at the non-PAGA portion of the settlement, the gross 14 settlement amount constitutes 8.3% of the projected maximum 15 recovery for the underlying wage and hour claims.7 Both 16 percentages are lower than is typically approved. Kabasele, 2023 17 WL 2842973, at *2 (collecting cases).8 18 5 Based on these figures, the maximum possible non-PAGA 19 recovery is $17,429,927.

20 6 This figure results from $1,500,000 divided by $26,379,927. 21

22 7 This figure results from $1,450,000 divided by $17,429,927. 23 8 See Cavazos v. Salas Concrete, Inc., No. 1:19-cv-00062 24 DAD EPG, 2022 WL 2918361, at *6 (E.D. Cal. July 25, 2022) (collecting cases) (noting that settlement constituting 5.8% of 25 maximum exposure was “below the general range of percentage recoveries that California courts--including this one--have found 26 to be reasonable,” but granting preliminary approval because “a 27 larger recovery . . . would likely not be possible due to defendant’s financial condition”); Almanzar v. Home Depot U.S.A., 28 Inc., No. 2:20-cv-0699 KJN, 2022 WL 2817435, at *12 (E.D. Cal. 1 Due to the combination of what appeared to be a 2 relatively low settlement amount and the conclusory reasoning 3 offered in plaintiff’s counsel’s motion, the court ordered the 4 parties to submit supplemental briefing. (See Docket No. 40.) 5 The court made clear that the original motion was deficient not 6 because the terms of the settlement were inherently unfair, but 7 because the information offered by counsel did not allow the 8 court to adequately assess the settlement. Unfortunately, 9 counsel has failed to cure these defects despite the opportunity 10 to submit supplemental briefing. 11 As stated above, the court’s task in evaluating a 12 settlement’s terms includes comparing the settlement amount with 13 “estimates of the maximum amount of damages recoverable in a 14

15 July 19, 2022) (denying preliminary approval because proposed settlement including 8% of projected value of non-PAGA wage and 16 hour claims was below the range typically approved and plaintiff needed to “better explain the reasonableness” of the proposed 17 recovery); Hunt v. VEP Healthcare, Inc., No. 16-cv-04790 VC, 2017 18 WL 3608297, at *1 (N.D. Cal. Aug. 22, 2017) (denying preliminary approval of settlement constituting 4.3% of maximum possible 19 exposure, noting that “[i]f a defendant is to receive a discount of this magnitude, there must be good reasons why,” which “must 20 be explained thoroughly at the preliminary approval stage . . . to allow the district court to carefully evaluate the strength of 21 the claims, the risks of litigating those claims all the way 22 through, and the value of the relief each class member will receive from the settlement”); O’Connor v. Uber Techs., Inc., 201 23 F. Supp. 3d 1110, 1129, 1132, 1132 n.18, 1135 (N.D. Cal. 2016) (collecting cases) (denying preliminary approval of settlement 24 constituting 5% of the value of all claims and 10% of the value of non-PAGA wage and hour claims, which was on “the low end of 25 reasonable recovery”); Balderas v. Massage Envy Franchising, LLC, No. 12-cv-06327 NC, 2014 WL 3610945, at *5 (N.D. Cal. July 21, 26 2014) (collecting cases) (because gross settlement amount 27 constituting 8% of the maximum possible recovery was “especially low,” the court stated that counsel needed to provide additional 28 explanation for the settlement amount at final approval). 1 successful litigation.” See In re: Mego Fin. Corp. Sec. Litig., 2 213 F.3d at 459. Based on the parties’ supplemental briefs, the 3 fatal defect here seems to be that plaintiff’s motion proffered a 4 “grossly inflated” estimate of the maximum value of the claims 5 that was conceived purely for settlement negotiation purposes. 6 (See Def.’s Suppl. Br. at 17; Pl.’s Suppl. Br. (Docket No. 41) at 7 5.) Defendant -- which does not oppose the motion -- candidly 8 states that many of the assumptions made by plaintiff’s counsel 9 in reaching the “maximum” estimate are “not based on any 10 evidentiary support,” leading to a figure that far overstates the 11 value of the claims. (See Def.’s Suppl. Br. at 28.) It appears 12 that even if plaintiff was completely successful in litigating 13 the case through class certification and trial, it would be 14 impossible for her to recover the “maximum” amount suggested by 15 plaintiff’s counsel. This “maximum” estimate is therefore 16 useless to the court in evaluating the settlement. 17 In trying to justify this figure, plaintiff’s 18 supplemental brief repeatedly underlines, bolds, and italicizes 19 the word “maximum” as if to suggest the court somehow overlooked 20 or misunderstood this descriptor as used in plaintiff’s motion. 21 The court understands the meaning of the word “maximum,” but 22 questions whether counsel understands how that concept is 23 appropriately applied at this stage of the litigation. “Maximum” 24 refers to the factually grounded value of the claims that 25 plaintiff could actually recover if successful in litigating the 26 case. Counsel has clearly failed to provide such an estimate. 27 It is possible that the “realistic” estimate offered by 28 plaintiff’s counsel is a more accurate representation of the true 1 value of the claims that could be recovered in successful 2 litigation. However, the parties have provided the court no 3 means of making this determination. The “realistic” estimate 4 appears to have been calculated by merely taking a percentage 5 discount off the purported “maximum” estimate. An estimate of 6 the true value of plaintiff’s claims -– whether styled as 7 “maximum” or a “realistic” value -- must be calculated based on 8 the facts known to the parties, including the number of putative 9 class members subject to each type of violation and the frequency 10 of violations against those individuals. 11 The court appreciates that defendant’s counsel has made 12 a greater effort than plaintiff’s counsel to explain the relevant 13 facts to the court. Defendant analyzes the multiple flawed 14 assumptions that led to the “grossly inflated” estimate of the 15 “maximum” value offered by plaintiff. If defendant had taken its 16 analysis one step further and provided an accurate estimate of 17 the true value of the claims, the court might have been able to 18 adequately assess the settlement for purposes of preliminary 19 approval. 20 As the court emphasized in its prior order, 21 “‘[b]alancing the class’s potential recovery against the amount 22 offered in settlement is perhaps the most important factor to 23 consider in preliminary approval, not a hollow exercise in which 24 the Court blindly accepts the parties’ unsupported assertions.’” 25 See Kabasele, 2023 WL 2842973, at *2 (quoting Beltran v. Olam 26 Spices & Vegetables, Inc., No. 1:18-cv-01676 SAB, 2020 WL 27 2850211, at *8 (E.D. Cal. June 2, 2020)). Here, the court must 28 conclude that plaintiff has failed to adequately establish that eee ee OI IRIE IR OREO III IE IID III ESI IIE eee

1 the proposed settlement is fair, reasonable, and adequate such 2 that preliminary approval is warranted. Accordingly, the motion 3 for preliminary approval will be denied. Any future motion for 4 preliminary approval and seeking class certification should, 5 among other things, provide sufficient factual background to 6 enable the court to meaningfully evaluate the settlement. 7 IT IS THEREFORE ORDERED that plaintiff’s motion for 8 preliminary approval of the class action and PAGA settlement 9 (Docket No. 34) be, and hereby is, DENIED WITHOUT PREJUDICE to 10 submission of a new motion consistent with the discussion in this 11 Order. . 12 | Dated: April 12, 2023 a hho A hh

WILLIAM B. SHUBB

13 UNITED STATES DISTRICT JUDGE 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11