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No Injury, No Settlement?

By Gary E. Mason | 

Courts rarely deny motions for preliminary approval of a settlement. Yet Judge Koh of the Northern District of California recently did so in Standiford v. Palm, Inc., No. 09-CV-05719-LHK, a case arising from allegations that Palm was liable for the loss of data on its customers phones.  Here's what happened.

Less than a year after filing the complaint, and before any discovery had taken place, the parties in Standiford reached a settlement providing coupons for either $30 or $20 to persons who permanently or temporarily lost data and an official assurance that the problem had been resolved for everyone else.  Several million people stored data on palm's serves but only 5-10,000 persons (or 5% of the settlement class) allegedly lost date. 

Judge Koh was evidently uncomfortable with the fact that the great majority of the class would be giving up all their claims against Sprint for virtually no consideration.  Moreover, this subclass of persons who had not been injured, she held, were not adequately represented by a person who actually suffered injury and had entirely different claims than those who had not suffered any injury. 

Judge Koh's analysis is not without precedent.  Several years ago, in as oft-cited, Judge Posner reversed an order approving a settlement where a sub-class of the Settlement Class received no compensation based on the assumption that those class members did not suffer any damages.  Mirfasihi v. Fleet Mort. Corp, 356 F.3d 781 (7th Cir. 2004).  Judge Posner found that the district court failed to estimate the value of claims of the sub-class.  Further, Posner highlighted that the fact that the no-damage sub-class did not have separate counsel was further reason to subject the settlement to heightened scrutiny.

The lesson from Standiford, like Mirfasihi before it, may well be that a Class Representative with damages should not leverage his own claims, and that of the persons similarly situated, by throwing the claims of others whose claims are weaker (or non-existent) under the bus.  Judge Koh indicated that she would approve a settlement of a much more limited class , one limited to individuals who actually lost access to data stored on their Palm phone, that is, the persons most like Mr. Standiford and represented by counsel.