Ralph Shaffer v. Continental Casualty Company

FILED
NOT FOR PUBLICATION JAN 12 2010

MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S . CO UR T OF AP PE A LS

FOR THE NINTH CIRCUIT

RALPH SHAFFER, individually and on No. 08-56124
behalf of all others similarly situated,
D.C. No. 2:06-cv-02235-PSG-PJW
Plaintiff - Appellee,

v. MEMORANDUM *

CONTINENTAL CASUALTY
COMPANY; CNA FINANCIAL
CORPORATION d/b/a CNA LTC;
VALLEY FORGE LIFE INSURANCE
COMPANY,

Defendants - Appellees,

and

ROBERT M. JOHNSON,

Appellant.

RALPH SHAFFER, individually and on No. 08-56125
behalf of all others similarly situated,
D.C. No. 2:06-cv-02235-PSG-PJW
Plaintiff - Appellee,

v.

*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
CONTINENTAL CASUALTY
COMPANY; CNA FINANCIAL
CORPORATION d/b/a CNA LTC;
VALLEY FORGE LIFE INSURANCE
COMPANY,

Defendants - Appellees,

and

PHYLLIS LANDAU,,

Appellant.

Appeal from the United States District Court
for the Central District of California
Philip S. Gutierrez, District Judge, Presiding

Argued and Submitted November 5, 2009
Pasadena, California

Before: GOULD and BEA, Circuit Judges, and HART, ** District Judge.

This dispute arises from the district court's approval of a nationwide class

action settlement between the plaintiffs--a class of long term care insurance

policyholders--and the insurance company defendants ('CNA'). On appeal,

plaintiff-objectors Phyllis Landau and Robert Johnson contend the district court

made several errors when it approved the settlement. We affirm.

**
The Honorable William T. Hart, Senior District Judge for the
Northern District of Illinois, sitting by designation.

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1. The district court did not abuse its discretion when it found the class action

settlement was fundamentally fair, reasonable, and adequate. A district court may

approve a class action settlement 'only after a hearing and on finding that it is fair,

reasonable, and adequate.' Fed. R. Civ. P. 23(e). A 'higher standard of fairness'

is required where, as here, settlement negotiations occurred before class

certification. See Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998).

The district court must 'explore[] comprehensively' relevant factors, such as:

the strength of the plaintiffs' case; the risµ, expense, complexity, and
liµely duration of further litigation; the risµ 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.

Id. We reverse a district court's decision to approve a settlement 'only upon a

strong showing that the district court's decision was a clear abuse of discretion.'

Id. (citation omitted). Here, there was no such abuse of discretion.

The district court comprehensively explored the factors relevant to the case

even though its written findings were conclusory. Where the record shows that the

district court 'considered the relevant factors and provided a reasoned response to

settlement objections,' we will uphold even a conclusory finding that a settlement

is fair, reasonable, and adequate. Churchill Vill., L.L.C. v. Gen. Elec., 361 F.3d

3
566, 577 (9th Cir. 2004). Here, the district court oversaw pre-trial motions and

discovery and held a preliminary hearing and a fairness hearing. At the district

court's request, class counsel submitted memoranda analyzing the value of the

settlement and the reasonableness of the attorneys' fees award. The district court

also read and listened to objections raised by class members and asµed specific

questions of class counsel based on those objections.

We recognize that the settlement included a broad release of class members'

claims against CNA. However, a number of factors convince us the district court

did not abuse its discretion when it found the settlement was fair, reasonable, and

adequate: (1) CNA had a strong defense to liability--the explicit language on the

first page of CNA's policies: 'We may change the premium rates.'; (2) an expert

actuary hired by class counsel estimated the value of the settlement at over ü60

million, while the objectors did not provide an expert valuation of the settlement or

even estimate its value; (3) the settlement provided class members with options for

adjusting their coverage that have value, even though no cash refund is available;

and (4) less than 1û of the class opted out of the class and only 0.12û of the class

objected to the proposed settlement.

2. The district court did not abuse its discretion when it found that class

counsel and class representatives would adequately represent the class, as required

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by Rule 23(a)(4) of the Federal Rules of Civil Procedure. Class representation is

adequate if (1) no conflicts of interest exist between class counsel or class

representatives and class members; and (2) class counsel and class representatives

will 'prosecute the action vigorously on behalf of the class.' Hanlon, 150 F.3d at

1020.

First, Landau contends class counsel had a conflict of interest with class

members who were not California residents because class counsel would receive

ü5 million in attorneys' fees if the nationwide class was approved. It was unliµely

the district court would have approved an award of that size for settlement of a

California-only class because of the lesser value of such a settlement. However,

the attorneys' fee award was negotiated after the parties reached an agreement on

the merits. And as we explained above, the district court did not abuse its

discretion when it found that the settlement was fair, reasonable, and adequate.

Second, Landau contends class counsel could not vigorously prosecute the

action because class counsel (1) lacµed the threat of nationwide litigation during

settlement negotiations, and (2) had a weaµ theory of the case: premium payments

had been too low. But a threat of nationwide litigation did exist, although not as a

single class action. Class counsel was ready to proceed to trial with a California

class, another class representative had stayed a similar claim in Louisiana, and

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Landau had previously filed a claim in Illinois. Class counsel's theory of the

case--that CNA intentionally 'low balled' the initial premium payments--was

consistent with the theory of the case Landau presented in her Illinois action

Moreover, potential class members had the opportunity to opt out of the settlement

if they disagreed with the theory under which class counsel prosecuted the case.

Third, Landau contends class representatives have a conflict of interest with

other members of the class because class representatives' premiums have already

increased, while other class members' premiums have not yet increased. But the

fact that it is possible to draw a line between categories of class members does not

necessarily require separate representation for each category. See Staton v. Boeing

Co., 327 F.3d 938, 958 (9th Cir. 2003) (holding class representation was adequate

even though the class contained both supervisors and ranµ-and-file employees).

The district court could have reasonably concluded, based on its familiarity with

the case and the settlement options available to class members, that the differences

between class members would not affect the adequacy of representation.

3. The district court did not err when it held potential class members received

adequate notice of the nationwide class action settlement. Potential class members

must receive the 'best notice that is practicable under the circumstances.' Fed. R.

Civ. P. 23(c)(2)(B). 'Notice is satisfactory if it generally describes the terms of the

6
settlement in sufficient detail to alert those with adverse viewpoints to investigate

and to come forward and be heard.' Churchill Vill., 361 F.3d at 575 (citation and

internal quotation marµs omitted). Here, that requirement was met because 99.9û

of potential class members received a concise notice that described the settlement

benefits and the claims that class members would be required to release. The

notice also explained the procedures for selecting among benefit options, objecting

to the settlement, and opting out of the settlement. Although changes were made to

the release after potential class members received the notice, the changes did not

render the notice inadequate because they narrowed the scope of the release.

Further, the notice did not mislead potential class members. Notice is not

adequate if it misleads potential class members. Molsµi v. Gleich, 318 F.3d 937,

952 (9th Cir. 2003). The objectors contend the notice was misleading because a

sentence in its cover letter read: 'This settlement does not affect your rights under

your current policy except to the extent you choose a benefit that alters your

current policy.' But the cover letter also included a sentence that read: 'Even if

you do nothing, your legal rights are affected, so please read the enclosed notice.'

Inside the notice, a heading read: 'What am I giving up to get benefits or stay in

the Classá' The answer:

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 Class members will be releasing Defendants from all the claims
described and identified in Section III of the Settlement Agreement.
This includes claims relating to the Policies except for claims relating
to bad faith denial of claims under those Policies. Neither you nor
any other Class member will be able to file a lawsuit against the
Defendants about the claims resolved in this case, ever again.

(Emphasis added.) Thus, potential class members were given notice that the

settlement would affect their legal rights and would release all of their claims

relating to the policies 'except for claims relating to bad faith denial of claims.'

4. The district court did not abuse its discretion when it awarded ü5 million in

costs, attorneys' fees, and incentive payments to class representatives. Two

methods are available for determining attorneys' fees in 'common fund' cases: (1)

the percentage method and (2) the lodestar method. Hanlon, 150 F.3d at 1029.

Under the percentage method, district courts award class counsel a

percentage of the common fund. Id. Twenty-five percent is the benchmarµ. Id.

However, we have expressed reservations about using the percentage method

where no cash fund is created. See Staton v. Boeing Co., 327 F.3d 938, 958 (9th

Cir. 2003). Where the settlement creates no cash fund, district courts may use the

lodestar method as a cross-checµ. Id. Here, no cash fund exists. However, class

counsel's expert actuary estimated the value of class benefits to be ü24-33 million.

Of the ü5 million for costs, attorneys' fees, and incentive payments, about ü4.4

8
million represents attorneys' fees. Thus, attorneys' fees represent about 13-18û

of the value of class benefits--well below the 25û benchmarµ.

The district court used the lodestar method to cross-checµ the percentage

method. Under the lodestar method, district courts begin by multiplying 'the

number of hours reasonably expended by a reasonable hourly rate.' Hanlon, 150

F.3d at 1029. 'The resulting figure may be adjusted upward or downward to

account for several factors including the quality of the representation, the benefit

obtained for the class, the complexity and novelty of the issues presented, and the

risµ of nonpayment.' Id. The term 'multiplier' describes the amount of the

increase or decrease from the initial calculation. Here, the award represents the

loadstar--ü3 million--with a multiplier of about 1.4. This is well within the range

of attorneys' fee awards this court has found reasonable. See, e.g., Vizcaino v.

Microsoft Corp., 290 F.3d 1043, 1051 (9th Cir. 2002) (upholding an attorneys' fee

award that resulted in a multiplier of 3.65).

AFFIRMED.

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 FILED
08-56124 Shaffer v. Continental Casualty Co., et al. JAN 12 2010

MOLLY C. DWYER, CLERK
BEA, Circuit Judge, specially concurring. U.S . CO UR T OF AP PE A LS

I concur in the memorandum disposition. I write separately because I thinµ

we should have dismissed Phyllis Landau's appeal for lacµ of jurisdiction.1 Res

judicata barred Landau from becoming a class member. Because Landau was

precluded from becoming a class member, she was not injured by the settlement

and lacµs standing to appeal. See United States v. Chesnoff, 62 F.3d 1144, 1145

(9th Cir. 1995) (holding that a party lacµs standing to appeal a lower court's order

if that party is not injured by the order). Thus, we should have dismissed Landau's

appeal. Nevertheless, that would not change the outcome of this case: the district

court's approval of the class action settlement should be affirmed.

Landau, a Pennsylvania resident, brought a claim against CNA in Illinois

state court under the Illinois Consumer Fraud Act. Landau v. CNA Fin. Corp., 886

1
Two of the issues reached in the memorandum disposition were raised
before the district court by only Landau: (1) whether the district court abused its
discretion when it found class counsel and class representatives adequately
represented the class; and (2) whether the district court abused its discretion when
it awarded ü5 million in costs, attorneys' fees, and incentive payments to class
representatives. The other appellant--Robert Johnson--waived these issues
because he did not raise them below. But waiver is not jurisdictional; thus, we had
discretion to address the issues in our review of Johnson's appeal. See AlohaCare
v. Hawaii Dep't of Human Servs., 572 F.3d 740, 744 (9th Cir. 2009) ('Absent
exceptional circumstances, we generally will not consider arguments raised for the
first time on appeal, although we have discretion to do so.' (citation omitted)).

1
N.E.2d 405, 407 (Ill. App. Ct. 2008). She brought the claim on behalf of herself

and a nationwide class and alleged CNA, 'through uniform deceptive sales and

marµeting practices,' misled putative class members into purchasing long term

care insurance. Id. The trial court dismissed Landau's claim without prejudice for

failure to plead with sufficient specificity. Id. Landau then filed an amended

complaint. Id. The trial court dismissed the amended complaint--this time with

prejudice--on the ground 'Landau lacµed standing to bring the complaint in

Illinois because the majority of circumstances related to the complaint occurred

outside of Illinois.' Id.

The Appellate Court of Illinois affirmed. Id. However, that court explained

the issue was not one of standing. Id. Rather, dismissal was correct because the

Illinois Consumer Fraud Act does not 'apply to fraudulent transactions that taµe

place outside Illinois.' Id. (citation omitted). Landau purchased her policy in

Pennsylvania, and all contact with CNA representatives occurred in Pennsylvania.

Id. at 408.

We must apply Illinois law to determine the preclusive effect of Landau's

Illinois claim on her claim as a class member in the instant case. See Allen v.

McCurry, 449 U.S. 90, 96 (1980) ('Congress has specifically required all federal

courts to give preclusive effect to state-court judgments whenever the courts of the

2
State from which the judgments emerged would do so.' (citing 28 U.S.C. y 1738));

Clements v. Airport Auth. of Washoe County, 69 F.3d 321, 326 (9th Cir. 1995).

There are three elements of res judicata under Illinois law: '(1) a final judgment on

the merits rendered by a court of competent jurisdiction; (2) an identity of cause of

action; and (3) an identity of parties or their privies.' People ex rel. Burris v.

Progressive Land Developers, Inc., 602 N.E.2d 820, 825 (Ill. 1992). When res

judicata applies, 'the judgment in the former suit is conclusive not only as to all

questions actually decided but as to all questions which might properly have been

litigated and determined in that action.' Id. Here, all three elements are satisfied.

Landau's claim in Illinois state court resulted in a final judgment on the

merits because the trial court dismissed her claim with prejudice and the dismissal

was not for lacµ of jurisdiction. Illinois Supreme Court Rule 273 provides:

'Unless the order of dismissal or a statute of this State otherwise specifies, an

involuntary dismissal of an action, other than a dismissal for lacµ of jurisdiction, . .

. operates as an adjudication upon the merits.' Illinois courts apply the rule

'according to its plain terms.' DeLuna v. Treister, 708 N.E.2d 340, 347 (Ill.

1999). The trial court's dismissal of Landau's claim with prejudice was an

involuntary dismissal. Further, the dismissal was not for lacµ of jurisdiction;

rather, the dismissal related to the claim's merits--whether Landau stated a claim

3
under the Illinois Consumer Fraud Act. Because the Act lacµs extraterritorial

effect, Landau failed to state a claim.

The second res judicata requirement is also met because there is an identity

between Landau's cause of action in the Illinois court and the cause of action in the

instant case. Illinois broadly defines cause of action: 'If the same facts are

essential to the maintenance of both proceedings or the same evidence is needed to

sustain both, then there is identity between the allegedly different causes of action

asserted and res judicata bars the latter action.' Progressive Land Developers, 602

N.E.2d at 825 (quoting Morris v. Union Oil Co., 421 N.E.2d 278 (Ill. App. Ct.

1981)). Here, the facts that gave rise to Landau's Illinois claim are the same facts

that gave rise to the claim in the instant case. Both claims involved CNA's sale of

the same long term care insurance policies and the subsequent increase in premium

rates. Both claims included, for example, allegations that CNA's lapse rate

assumptions were too high, and that CNA's marµeting materials led consumers to

believe rates would not increase. Thus, there is an identity of cause of action.

Finally, there is an identity of parties. Landau sued CNA in her Illinois

claim. CNA is also a defendant in the instant class action.

Because the three elements of res judicata under Illinois law are satisfied,

Landau could not have brought the instant class action in Illinois state court. We,

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too, must give preclusive effect to the judgment of the Illinois court. Clements, 69

F.3d at 326. Therefore, Landau was precluded from becoming a class member in

the instant case and, thus, suffered no injury when the district court approved the

class action settlement. Absent any injury, Landau lacµed standing to appeal.

Therefore, I would dismiss Landau's appeal for lacµ of jurisdiction.

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