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Case No. BC300142 OBJECTION TO PROPOSED SETTLEMENT

THEODORE H. FRANK (SBN 196332) Email: [email protected] CENTER FOR CLASS ACTION FAIRNESS LLC 1718 M Street NW, No. 236 Washington, DC 20036 Voice: (703) 203-3848 Attorney for Class Members Hans Schantz and George Yunaev

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF LOS ANGELES

BENJAMIN FOGEL, on behalf of himself and the class, Plaintiff, v. FARMERS GROUPS, INC., et al., Defendants. Hans Schantz and George Yunaev, Objectors.

Case No. BC300142 Assigned to: Hon. William F. Highberger OBJECTION TO PROPOSED SETTLEMENT Date: September 7, 2011 Time: 9:00 a.m. Courtroom: 1402 CLASS ACTION

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Case No. BC300142 i OBJECTION TO PROPOSED SETTLEMENT

TABLE OF CONTENTS

TABLE OF CONTENTS ........................................................................................................................ I

TABLE OF AUTHORITIES .................................................................................................................. II

INTRODUCTION ................................................................................................................................. 1

I. The Objectors Are Members of the Class. ....................................................................... 1

II. Preventing an Unfair Settlement Is This Court’s Duty. .................................................... 2

III. The Settlement Betrays the Interests of the Class............................................................. 4

A. The Proposed Settlement Creates Unnecessary Obstacles to Class Recovery. ............................................................................................................ 4

B. Enriching the Exchanges Does Not Benefit the Class. .......................................... 6

C. Exchange Enrichment Does Not Qualify As Cy Pres. .......................................... 7

IV. The Proposed Attorneys’ Fees Are Excessive. ................................................................. 9

A. The Size of the Fund Dictates a Smaller Fee Percentage. ..................................... 9

B. Class Counsel’s Compensation Should Be Calculated by the Benefits It Secures for the Class.......................................................................................... 11

C. The Class Representative Payment Is Excessive Relative to Class Members’ Benefits. ........................................................................................... 13

V. Notice to Many Already Identified Class Members Is Nonexistent, and Thus Deficient. ...................................................................................................................... 14

VI. The Court Should Discount Attempts By the Settling Parties To Infer Class Approval from a Low Number of Objections. ............................................................... 14

VII. The Objectors’ Pro Bono Attorney Brings This Objection in Good Faith. ..................... 16

CONCLUSION .................................................................................................................................... 18

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Case No. BC300142 ii OBJECTION TO PROPOSED SETTLEMENT

TABLE OF AUTHORITIES

Cases

Amalgamated Meat Cutters & Butcher Workmen v. Safeway Stores, Inc., 52 F.R.D. 373, 375 (D. Kan. 1971) ................................................................................................. 16

Bogosian v. Gulf Oil Corp., 621 F. Supp. 27 (E.D. Pa. 1985) ..................................................................................................... 13

Bruno v. Superior Court, 127 Cal. App. 3d 120 (1981) ............................................................................................................ 7

Buchet v. ITT Consumer Fin. Corp. (D. Minn. 1994), 845 F. Supp. 684, 695 ....................................................................................................................... 5

California v. Levi Strauss & Co., 41 Cal. 3d 460 (1986) ....................................................................................................................... 6

Chavez v. Netflix, Inc., 162 Cal. App. 4th 43, 63 (2008) ....................................................................................................... 9

Cho v. Seagate Technology Holdings, Inc., 177 Cal. App. 4th 734, 746 (2009) .................................................................................................. 14

Crawford v. Equifax Payment Services, Inc., 201 F.3d 877 (7th Cir. 2000) .......................................................................................................... 12

Cundiff v. Verizon California, Inc., 167 Cal. App. 4th 718 (2008) ........................................................................................................... 7

Dunk v. Ford Motor Co., 48 Cal. App. 4th 1794, 1801 (1996) .................................................................................................. 2

Ellis v. Edward D. Jones & Co., 527 F. Supp. 2d 439, 446 (W.D. Pa. 2007)...................................................................................... 15

Friedman v. Lansdale Parking Auth., No. CIV. A. 92-7257, 1995 WL 141467, at *2 (E.D. Pa. 1995) ........................................................................................... 8

Government Employees Hosp. Ass’n v. Serono Intern., S.A., 246 F.R.D. 93, 95 (D. Mass. 2007) ................................................................................................... 8

Hanlon v. Chrysler Corp., 150 F.3d 1011, 1021 (9th Cir. 1998) ................................................................................................. 2

Holmes v. Continental Can Co., 706 F.2d 1144 (11th Cir. 1983)....................................................................................................... 13

In re American Tower Corp. Securities Litigation, 648 F.Supp.2d 223, 224 n.1 (D.Mass. 2009) ..................................................................................... 8

In re Cendant Corp. Litig., 264 F.3d 201 (3d Cir. 2001) ......................................................................................................10, 12

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Case No. BC300142 iii OBJECTION TO PROPOSED SETTLEMENT

In re Compact Disc Minimum Advertised Price Antitrust Litig. 370 F.Supp.2d 320 (D. Me. 2005) .................................................................................................... 5

In re Consumer Privacy Cases, 175 Cal.App.4th 545, 555 (2009)...................................................................................................... 2

In re Domestic Air Transp. Antitrust Litig., 148 F.R.D. 297, 350-51 & nn.75, 76 (N.D. Ga. 1993) ..................................................................... 11

In re General Motors Corp. Engine Interchange Litigation, 594 F.2d 1106, 1137 (7th Cir. 1979) ............................................................................................... 15

In re GMC Pick-Up Litig., 55 F.3d 768 (3rd Cir. 1995) .......................................................................................................15, 16

In re HP Inkjet Printer Litig., No. 5:05-cv-3580 JF, 2011 WL 1158635, at *10 (N.D. Cal. Mar. 29, 2011) ..................................................................... 12

In re Matzo Food Products Litigation, 156 F.R.D. 600, 605-06 (D.N.J.1994) ............................................................................................... 8

In re Microsoft I-V Cases, 135 Cal. App. 4th 706 (2006) ........................................................................................................... 8

In re NASDAQ Market-Makers Antitrust Litig., 187 F.R.D. 465, 486 (S.D.N.Y. 1998) ............................................................................................. 11

In re Pharmaceutical Industry Avg. Wholesale Price Lit., 588 F.3d 24, 34-35 (1st Cir. 2009) .................................................................................................... 8

In re Relafen Antitrust Litigation, 231 F.R.D. 52, 82 (D. Mass. 2005) ................................................................................................... 8

In re Tyco Intern. Ltd. Multidistrict Litigation, 535 F. Supp.2d 249, 262 (D. N. H. 2007) ......................................................................................... 8

In re Washington Pub. Power Supply Sys. Sec. Litig., 19 F.3d 1291, 1297-98 (9th Cir. 1994) ............................................................................................ 11

Kraus v. Trinity Management Services, Inc., 23 Cal. 4th 116, 96 Cal.Rptr.2d 485 (2000) ...................................................................................... 8

Kullar v. Foot Locker Retail, Inc., 168 Cal.App.4th 116, 129 (2008)...................................................................................................... 2

Lealao v. Beneficial California, Inc., 82 Cal. App. 4th 19 (2000) .................................................................................................... 9, 11, 12

Mars Steel Corp. v. Continental Illinois Nat’l Bank & Trust Co., 834 F.2d 677, 680-681 (7th Cir. 1987) ............................................................................................ 15

Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781 (7th Cir. 2004) .......................................................................................................... 12

Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950) ....................................................................................................................... 14

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Case No. BC300142 iv OBJECTION TO PROPOSED SETTLEMENT

Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006) .....................................................................................................12, 13

Petruzzi’s, Inc. v. Darling-Delaware Co., 880 F. Supp. 292 (M.D. Pa. 1995) .................................................................................................. 15

Plummer v. Chemical Bank, 91 F.R.D. 434 (S.D.N.Y. 1981), aff’d, 668 F.2d 654 (2d Cir. 1982) ................................................ 13

Schwartz v. Dallas Cowboys Football Club, Ltd., 157 F.Supp.2d 561 (E.D. Pa. 2001) ................................................................................................ 12

Staton v. Boeing Co., 327 F.3d 938 (9th Cir. 2003) ............................................................................................................ 3

Strong v. Bellsouth Telecomm., Inc., 173 F.R.D. 167 (W.D.La. 1997), aff’d, 137 F.3d 844 (5th Cir. 1998) ................................................ 5

Sylvester v. Cigna Corp., 369 F. Supp. 2d 34 (D. Me. 2005) .................................................................................................... 5

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007) ................................................................................................................... 10

Union Life Fidelity Ins. Co. v. McCurdy, 781 So. 2d 186 (Ala. 2000) .............................................................................................................. 5

Valley Drug Co. v. Geneva Pharmaceuticals, Inc., 350 F.3d 1181 (11th Cir. 2003)....................................................................................................... 13

Vizcaino v. Microsoft Corp., 290 F.3d 1043 (9th Cir. 2002) .......................................................................................................... 3

Yeagley v. Wells Fargo & Co., 2008 WL 171083 (N.D. Cal.) ........................................................................................................... 5

Young v. Higbee, 324 U.S. 204 (1945) ....................................................................................................................... 13

Statutes

15 U.S.C. § 78u-4(b)(2)........................................................................................................................ 10

California Code of Civil Procedure § 384(b) .......................................................................................... 8

California Rules of Court 3.769(f) ........................................................................................................ 14

Other Authorities

AMERICAN LAW INSTITUTE, PRINCIPLES OF THE LAW OF AGGREGATE LITIG. §3.05 ............................... 2-3

AMERICAN LAW INSTITUTE, PRINCIPLES OF THE LAW OF AGGREGATE LITIG. §3.07 ............................... 8-9

Wayne Brazil, For Judges: Suggestions About What to Say About ADR at Case Management Conferences — and How to Respond to Concerns or Objections Raised by Counsel, 16 OHIO ST. J. ON DISP. RESOL. 165, 170 (2000) ......................................................... 16

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Case No. BC300142 v OBJECTION TO PROPOSED SETTLEMENT

Alba Conte, 1 Attorney Fee Awards § 2.05 ........................................................................................... 12

Court Awarded Attorney Fees: Report of the Third Circuit Task Force, 108 F.R.D. 237 (1985) .................................................................................................................... 11

Theodore Eisenberg & Geoffrey Miller, The Role of Opt-Outs and Objectors in Class Action Litigation: Theoretical and Empirical Issues, 57 VAND. L. REV. 1529 (2004). ..................... 16

Brian T. Fitzpatrick, The End of Objector Blackmail?, 62 VAND. L. REV. 1623 (2009) ......................... 17

Fed. Tax Coordinator Second Series ¶ P-1001 (RIA) .............................................................................. 5

Allison Frankel, “Legal Activist Ted Frank Cries Conflict of Interest, Forces O’Melveny and Grant & Eisenhofer to Modify Apple Securities Class Action Deal,” AMERICAN LAWYER LIT. DAILY (Nov. 30, 2010). ............................................................................................. 17

Christopher R. Leslie, The Significance of Silence: Collective Action Problems and Class Action Settlements, 59 FLA. L. REV. 71 (2007). ............................................................................... 15

Pamela A. MacLean, “Dealing for Dollars,” CALIFORNIA LAWYER (June 2011) ..................................... 5

Herbert Newberg & Alba Conte, NEWBERG ON CLASS ACTIONS § 11:41 (4th ed. 2002). ......................... 2



Rachel M. Zahorsky, “Unsettling Advocate,” ABA J. (Apr. 2010) ....................................................... 17

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Case No. BC300142 1 OBJECTION TO PROPOSED SETTLEMENT

INTRODUCTION

The parties claim to have reached a $455 million settlement. Unfortunately, this figure is

illusory. In reality, the parties have tacitly colluded to maximize the attorneys’ fees—an extraordinary

$90 million, which would be excessive even if this were a $455 million settlement—while minimizing

the amount the defendant will have to pay out. All of this maneuvering comes at the expense of the

putative class that class counsel purports to represent. As such, the settlement cannot be approved.

The settling parties have, in their possession, the information that is necessary to compensate

their clients. Instead of just paying class members what they are entitled to under the settlement, the

settling parties instead chose to set up a claims procedure that almost seems designed to deter class

members from being compensated. It is a safe bet that, under the settling parties’ procedure, only a tiny

fraction of class members will ever receive direct compensation. Many class members will never even

receive notice of this settlement, but will be bound by it nonetheless. The rest of the fund—that is, most

of it—will enrich the Exchanges, which were originally defendants in this action.

Class counsel thus proposes to collect an exorbitant fee—a fee that, in magnitude, is unrelated in

size to fees in similar actions, unjustified by California law, and unconnected to the comparatively tiny

benefits it brings the class. Because it releases a multitude of claims, this settlement is a great deal for

defendants. Because it unleashes a multitude of dollars, this settlement is a great deal for class counsel.

But it is an exceedingly poor deal for the class.

I. The Objectors Are Members of the Class.

Objector Hans Schantz’s mailing address is 2416 Little Cove Road, Owens Cross Roads, AL,

35763. His telephone number is (256) 337-3012. His email address is [email protected]. The

Farmers policies that Schantz purchased are numbered 918106108 and 918106155.

Objector George Yunaev’s mailing address is 849 South Wolfe Road, Sunnyvale, CA, 94086.

His telephone number is (408) 676-6612. His email address is [email protected]. The Farmers

policies that Yunaev purchased are numbered 163720988 and 925275929.1

1 When Yunaev purchased his insurance policies, his first name was Georgy; he later legally changed his name to Americanize that spelling.

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Both of these objectors thereby qualify for membership in the class and have standing to object

to the settlement. Their counsel, Theodore H. Frank of the non-profit Center for Class Action Fairness

LLC, intends to appear at the September 7 fairness hearing in order to represent them. Objectors reserve

the right to cross-examine any witnesses who testify at the hearing in support of settlement approval.

II. Preventing an Unfair Settlement Is This Court’s Duty.

“The court has a fiduciary responsibility as guardian of the rights of the absentee class members

when deciding whether to approve a settlement agreement.” Kullar v. Foot Locker Retail, Inc., 168 Cal.

App. 4th 116, 129 (2008) (quoting 4 Newberg on Class Actions § 11:41 (4th ed. 2002) “The court must

determine whether the settlement is fair, adequate, and reasonable. The purpose of the requirement is the

protection of those class members, including the named plaintiffs, whose rights may not have been given

due regard by the negotiating parties.” Dunk v. Ford Motor Co., 48 Cal. App. 4th 1794, 1801 (1996)

(internal citations omitted). The court “may not simply act as a rubberstamp for the parties’ agreement”;

rather, the court must not only assess the fairness of the substantive terms of the settlement but also

subject the corresponding scheme of attorney compensation to “thorough judicial review.” In re

Consumer Privacy Cases, 175 Cal. App. 4th 545, 555 (2009).

“A trial court has a continuing duty in a class action case to scrutinize the class attorney to see

that he or she is adequately protecting the interests of the class.” Herbert Newberg & Alba Conte,

NEWBERG ON CLASS ACTIONS § 13:20 (4th ed. 2002). There should be no presumption in favor of

settlement approval: “[t]he proponents of a settlement bear the burden of proving its fairness.” True v.

American Honda Co., 749 F. Supp. 1052, 1080 (C.D. Cal. 2010) (citing 4 NEWBERG ON CLASS ACTIONS

§ 11:42 (4th ed. 2009)). Accord AMERICAN LAW INSTITUTE, PRINCIPLES OF THE LAW OF AGGREGATE

LITIG. § 3.05(c) (2010) (“ALI Principles”).

It is insufficient that the settlement happened to be at “arm’s length” without express collusion

between the settling parties; because of the danger of conflicts of interest, third parties must monitor the

reasonableness of the settlement as well. There is a need for “special attention when the record suggests

that settlement is driven by fees; that is, when counsel receive a disproportionate distribution of the

settlement, or when the class receives no monetary distribution but class counsel are amply rewarded.”

Hanlon v. Chrysler Corp., 150 F.3d 1011, 1021 (9th Cir. 1998). Accord Staton v. Boeing Co., 327 F.3d

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938, 964 (9th Cir. 2003) (“If fees are unreasonably high, the likelihood is that the defendant obtained an

economically beneficial concession with regard to the merits provisions, in the form of lower monetary

payments to class members or less injunctive relief for the class than could otherwise have obtained.”).

“Because in common fund cases the relationship between plaintiffs and their attorneys turns adversarial

at the fee-setting stage, courts have stressed that when awarding attorneys’ fees from a common fund,

the district court must assume the role of fiduciary for the class plaintiffs.” Vizcaino v. Microsoft Corp.,

290 F.3d 1043, 1052 (9th Cir. 2002) (quoting In Re Washington Public Power Supply Syst. Lit., 19 F.3d

1291 (9th Cir. 1994)). “Accordingly, fee applications must be closely scrutinized.” Vizcaino, 290 F. 3d

at 1052.

Whether a particular settlement is “fair, reasonable, and adequate” is not always uncontroversial.

Therefore, at a minimum, courts should follow § 3.05 of the American Law Institute’s Principles of the

Law of Aggregate Litigation, which, rather than an indeterminate balancing test of factors, asks courts to

submit settlements to several tests that demonstrate unfairness. Under § 3.05(a), there is first an initial

four-part test that all settlements must meet: the court must consider whether

(1) the class representatives and class counsel have been and currently are adequately representing the class;

(2) the relief offered to the class… is fair and reasonable given the costs, risks, probability of success, and delays of trial and appeal;

(3) class members are treated equitably (relative to each other) based on their facts and circumstances and are not disadvantaged by the settlement considered as a whole; and

(4) the settlement was negotiated at arm’s length and was not the product of collusion.

In addition to these four mandatory requirements, a “settlement may also be found to be unfair for any

other significant reason that may arise from the facts and circumstances of the particular case.” Id.

§ 3.05(b).

In its Order of March 2, 2011, this Court announced that it would hold a fairness hearing to

consider “whether the proposed Settlement should be approved as fair, reasonable, and adequate.”

Order, at § 5(b). Regrettably, there are multiple respects in which this settlement fails to meet those

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standards.

III. The Settlement Betrays the Interests of the Class.

This proposed settlement places unnecessary and unreasonable obstacles in the way of class

member recovery. Furthermore, it incorrectly and impermissibly designates money that reverts to agents

of the defendant as being money that compensates class members. These arrangements breach class

counsel’s duty to the class.

A. The Proposed Settlement Creates Unnecessary Obstacles to Class Recovery.

The proposed settlement requires each class member to submit a claim form in order to qualify

for compensation, complete with scary language about a possible criminal charge of perjury. See

Proposed Settlement, Exh. B. The role of class members in this process is, by and large, confined to

confirming the information that Farmers will supply to them. Assuming it is not the intention of the

settling parties to shrink the compensation that goes directly to the class by creating obstacles to the

process, it is hard to see why the settling parties didn’t just decide that Defendants would have to pay

what they know they owe: why can’t Defendants just cut a check to each class member?

The Defendants have already conceded that they know all relevant facts need to compensate each

class member. In support of the settlement, one Farmers executive stated under oath that Farmers has

already retrieved consumer data from “multiple Farmers databases that have been used … to provide

notice to every person who had insurance” with any of the Exchanges. Declaration of Koenraad Lecot in

Support of Motion for Preliminary Approval of Settlement, ¶ 5 at 1:16-24. This data included “each

policyholder’s policy number, name, address, the inception date of their insurance policy (ies) with the

Exchange(s), the cancellation date (if any) for their insurance policy (ies) with the Exchange(s), the

amount of written premium they have paid to the Exchange(s) and the different lines of business for

which they have maintained an insurance policy with the Exchange(s).” Id. Relatedly, under the

settlement the claims administrator will “provide all the individual account data to each Class Member

and perform the calculation for each class member’s recovery.” Declaration of Philip Maxwell in

Support of Motion for Preliminary Approval of Settlement, ¶ 14 at 5:26-27. Each claim form that class

members receive will contain a pre-printed calculation by defendant of what each class member is due.

Proposed Settlement, Exh. B.

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The rate of response to any claims-made settlement cannot be predicted precisely, but in general

a very low rate is reasonably certain. One settlement administrator who had been involved in over 175

class action settlements nationwide reported that response rates are “10 percent or less in the vast

majority of settlements that require filing a notice of claim.” Sylvester v. Cigna Corp., 369 F. Supp. 2d

34, 44 (D. Me. 2005). In claim-fulfillment settlements involving email and postcard notice, the typical

rate of response drops to approximately 1%. See Declaration of Dan Rosenthal, The NVIDIA GPU

Litigation, No. C 08-04312 JW (N.D. Cal. 2011) (Dkt. No. 357), at 3 (attached as Exhibit 1). In a recent

federal case, a response rate below 1% led the San Francisco court to label the outcome “a virtually

worthless settlement of a meritless case,” Yeagley v. Wells Fargo & Co., 2008 WL 171083 at *1 (N.D.

Cal. 2008), rev’d on other grounds, 365 Fed.Appx. 886 (9th Cir. 2010). Response rates under 5% are

routine: see, e.g., In re Compact Disc Minimum Advertised Price Antitrust Litig., 370 F.Supp.2d 320,

321 (D. Me. 2005) (2% response rate); Buchet v. ITT Consumer Fin. Corp., 845 F. Supp. 684, 695 (D.

Minn. 1994), as amended 858 F. Supp. 944 (rejecting settlement after related settlement produced

response rates between one-tenth of 1% and 3.2%); Strong v. Bellsouth Telecomm., Inc., 173 F.R.D.

167, 169 (W.D.La. 1997), aff’d, 137 F.3d 844 (5th Cir. 1998) (4.3% response rate); Union Life Fidelity

Ins. Co. v. McCurdy, 781 So. 2d 186, 188 (Ala. 2000) (one-tenth of 1% response rate). See generally

Pamela A. MacLean, “Dealing for Dollars,” CALIFORNIA LAWYER (June 2011), at 12, 50.

As noted above, the unnecessarily convoluted nature of the claims process seems almost

designed to deter responses; claimants are warned that any additions they make to the claim form could

subject them to a charge of perjury. This will presumably deter a significant number of claimants from

responding, especially those who are no longer in possession of old insurance records. Speaking very

generally, taxpayers are well-advised to hold onto their tax records for three years in anticipation of

refunds or audits. Fed. Tax Coordinator Second Series ¶ P-1001 (RIA) ("Usually the taxpayer should

keep records for three years from the date a return is filed."). However, this settlement appears to require

some class members (those who do not believe their memory is perfect) to hold onto their insurance

purchase records for several multiples of that three-year timespan in order to verify their compensation.

An alternative, and vastly superior, procedure of compensation would have been based on an

opt-out structure, not an opt-in one. The settling parties could have designed a settlement that simply

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used the information in their possession to send a check to each injured party with a confirmatory claim

form. In those cases in which the information on the preprinted claim form needed adjustment, the

beneficiaries could have been asked to send back a corrected form. It is reasonable to predict that the

current recommendation by the settling parties will result in direct compensation only to a small

minority of class members; further, it is reasonable to predict that the alternative procedure

recommended immediately above would result in direct compensation to a relatively large majority of

class members.

This is not to say that the parties are required to construct a settlement in this manner. But when

they do not, the court must infer that it was the parties’ intent to reduce the amount actually paid to the

class. It would be entirely unfair to value a $455 million settlement where the defendant directly pays

class members the same as an otherwise identical claims-made settlement where it is entirely certain that

class members will receive far less.

B. Enriching the Exchanges Does Not Benefit the Class.

The settling parties have established a claims-made process that will almost certainly fail to

deliver the vast majority of settlement monies to class members. That untouched remainder will revert to

the Exchanges, rather than going to the class. Because of the alternatives available to the settling parties,

this outcome is not fair, reasonable, or adequate.

The unclaimed funds will revert to entities that are controlled by defendant Farmers. No part of

the settlement agreement provides any assurance that these reversionary funds will be used to benefit

class members.2 No part of the settlement agreement provides any assurance that the bad practices that

2 The Settlement Agreement argues that Class Members will benefit because the Exchanges will have “additional surplus to pay claims, cover expense obligations, and fund additional operations.” Defendants’ Mem. in Support of Motion for Preliminary Approval, III.C., 6: 6-8. This is a hypothetical and non-binding assurance that the Exchanges have it in their power to act in the interest of class members, not an actual commitment of any concrete action that Exchanges must take. Cf., e.g., California v. Levi Strauss & Co., 41 Cal. 3d 460, 473 (1986) such as “a rollback of the defendant’s prices, escheat to a governmental body for either specified or general purposes, establishment of a consumer trust fund, and claimant fund sharing.” For some reason, these established methods of disposal of a cy pres residue are absent from this settlement. Moreover, this argument proves too much: if one takes this argument seriously, the billions of dollars that Farmers is keeping and not paying the class is a benefit to the class because then Farmers has “additional surplus to pay claims, cover expense obligations, and fund additional operations.” That is no way to calculate settlement benefits.

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the original action identified—such as improper or excessive fees—will be discontinued. That is, under

the terms of the settlement, Defendants could recoup the reverted funds simply by increasing fees. This

problem is described in greater detail in the “Consumer Watchdog” Brief, and Objectors Schantz and

Yunaev incorporate by reference and join Sections II.B and IV.B of the Opposition to Motion for

Preliminary Approval filed by Intervenor R. C. Heublein (Feb. 3, 2011).

Furthermore, Objector Yunaev is—like many class members—not a current beneficiary of any

Farmers insurance policy. He no longer is doing business with Farmers. Like many class members, he

will not benefit in any sense by the proposed reversion to the Exchanges. Perhaps more than any other,

this detail illuminates the illusory nature of the reversion’s alleged benefit to the class. Former Farmers

customers are not receiving any extra compensation, and the resulting reversion, at a minimum, creates

impermissible intra-class inequities and conflicts of interest that prevent the existing class

representatives from being adequate representatives of the class as a whole.

C. Exchange Enrichment Does Not Qualify As Cy Pres.

In order to defend the proposed settlement’s reversion of unclaimed funds to the exchanges, it is

likely that the settling parties will defend the reversion as a form of cy pres (alternately called “fluid

recovery”; see, e.g., Cundiff v. Verizon California, Inc., 167 Cal. App. 4th 718, 729 (2008)). This

defense must fail, because the necessary conditions for cy pres are absent.

The topic of fluid class recovery regularly arises in class actions such as the present one, where the class has many members with relatively small individual claims. In such circumstances, if the class recovers a favorable judgment, it is likely that only a fraction of the class members will have the desire, and documentation, to file an individual claim for part of the damages. Fluid class recovery is thus invariably suggested as a way to distribute the usually substantial amount of remaining damages. The theory underlying fluid class recovery is that since each class member cannot be compensated exactly for the damage he or she suffered, the best alternative is to pay damages in a way that benefits as many of the class members as possible and in the approximate proportion that each member has been damaged… [Bruno v. Superior Court, 127 Cal. App. 3d 120, 123-24 (1981).]

But the settlement at hand neither requires a cy pres remedy nor satisfies its conditions: the

information needed to calculate what is owed to each class member is not just readily and cheaply

attainable, but is also already in the possession of defendants. The central justification of cy pres—that

“each class member cannot be compensated exactly for the damage he or she suffered,” id.—is absent

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here. “Fluid recovery developed as a means by which to distribute the residue of a favorable class action

judgment remaining after payment to those class members who have sufficient interest in obtaining

recovery and can produce the documentation necessary to file individual claims.” Kraus v. Trinity

Management Services, Inc., 23 Cal. 4th 116, 127-28 (2000). Cy pres is a “next best” or “second best”

solution, to be used “when it is not possible or practicable in a class action judgment to compensate class

members according to their respective damages” (In re Microsoft I-V Cases, 135 Cal. App. 4th 706, 716

(2006)): the method is applied “after payment to class members” (Kraus, 23 Cal. 4th at 128) to the

settlement residue, once the avenues for the “first best” alternative are exhausted. Similarly, the statutory

framework of cy pres under California Code of Civil Procedure § 384(b) dictates that “unpaid residue”

will be paid out only after class members are paid.3 The settling parties cannot in good faith create a

“second best” cy pres scheme that bypasses readily available “first best” avenues of direct

3 This is the standard understanding of cy pres; it is replicated in many other jurisdictions. A cy pres remedy is “permitted in situations where class recovery cannot feasibly be distributed to individual class members or where unclaimed funds remain following distribution to the class.” In re Matzo Food Products Litig., 156 F.R.D. 600, 605-06 (D.N.J.1994). See also Friedman v. Lansdale Parking Auth., No. CIV. A. 92-7257, 1995 WL 141467, at *2 (E.D. Pa. 1995) (“Cy pres distribution, also called ‘fluid class recovery,’ is appropriate when disbursement of the fund to the class has been ineffective, the purpose of the fund has not been achieved, and it is possible to indirectly benefit the non-claiming class members by awarding the fund residue to a third party."). Cf. In re Pharmaceutical Industry Avg. Wholesale Price Lit., 588 F.3d 24, 34-35 (1st Cir. 2009) (approving cy pres of unclaimed funds because district court had ensured full treble recovery of class members first); American Law Institute, Principles of the Law of Aggregate Litigation § 3.07 (2010). A settlement with a large number of small beneficiaries would economically use a cy pres remedy “only where the cost per class member of distributing the residual funds substantially outweighs the amount each class member would receive.” In re American Tower Corp. Securities Litig., 648 F.Supp.2d 223, 224 n.1 (D.Mass. 2009). A cy pres distribution which would only become operational once all class members have been fully compensated is, as such, unobjectionable; see In re Tyco Intern. Ltd. Multidistrict Litigation, 535 F. Supp.2d 249, 262 (D. N. H. 2007) (“The plan calls for the continued re-distribution of unclaimed funds to class members according to their pro rata shares, until the costs of such redistributions make it economically unfeasible to continue doing so. If and when that point is reached, then the balance of the fund will be subject to a cy pres remedy.”); Government Employees Hosp. Ass’n v. Serono Intern., S.A., 246 F.R.D. 93, 95 (D. Mass. 2007) (Settlement amount “specifically allocated” to class members; “This amount was expected to be sufficient to fully pay all of the claims”; “Any excess was to be distributed as a cy pres fund”). See also In re Relafen Antitrust Litigation, 231 F.R.D. 52, 82 (D. Mass. 2005) (cy pres award made only after “great efforts to ensure that individual consumers” were rewarded and “in light of the very weakness of the claims” of some subclass members). But because the settlement at issue here already contains a method to distribute funds to class members, using cy pres to divert funds away from what rightfully should go to class members is inappropriate.

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compensation; such a plan would be a misunderstanding or misapplication of cy pres. Accord ALI

Principles § 3.07(a).

IV. The Proposed Attorneys’ Fees Are Excessive.

Both the size of the attorney fees, and the appetite of the attorneys who arrived at it, appear

remarkably large. The fees are not only oversized when compared to similar settlements, but also

oversized because they compensate the attorneys for monies that will never reach the class.

A. The Size of the Fund Dictates a Smaller Fee Percentage.

It is inappropriate for class counsel to be assigned a percentage of the common fund without

consideration of that fund’s relative size. “Percentage fees generally decrease as the amount of the

recovery increases, on the theory many large recoveries are due merely to the size of the class, which

may have no relationship to the efforts of counsel.” Lealao v. Beneficial California, Inc., 82 Cal. App.

4th 19, 49 n. 16 (2000). Fees that are “based on a percentage of the benefits are in fact appropriate in

large class actions when the benefit per class member is relatively low, except that the percentage should

generally decrease as the number of class members and the size of the fund increases.” Chavez v. Netflix,

Inc., 162 Cal. App. 4th 43, 63 (2008). “This is based on a recognition that beyond a certain point a larger

number of identical claims does not typically require greater efforts by counsel.” Id.

In fact, class counsel’s fee request is significantly outside of judicial norms. A recent expert

report by Professor Michael Perino of St. John’s University School of Law comprehensively surveyed a

dataset of 525 reported and unreported attorneys’ fee awards over the scope of 13 years in the field of

securities class action settlements: when surveying the 18 settlements in his dataset with a common fund

of over $150 million, Perino found that the mean (average) attorneys’ fee was just over 15% of the

common fund. See Declaration of Michael Perino, In re Qwest Comm. Int’l, Inc. Sec. Litig., No. 1:01-

cv-01451-REB-KLM (D. Colo. May 15, 2006) (Dkt. No. 1011) at 11, fig. 2 (attached as Exhibit 2). This

suggests that class counsel’s fee request of nearly 20% of a much larger common fund is likely a

significant overcompensation. Perino’s statistical analysis is especially relevant in a jurisdiction in

which courts have attempted to set class action attorneys’ fees so that they “mimic the market.” See, e.g.,

Lealao v. Beneficial California, Inc. 82 Cal. App. 4th at 48 (2000).

When confronted with Professor Perino’s statistics, class counsel might respond that this is

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merely a collection of data from securities settlements, and that securities settlements differ from class

action settlements generally. But any differences between securities class actions and other kinds of

class actions weighs in favor of fees being lower in non-securities class actions. Unlike typical class

action settlements, the choice of both plaintiff and class counsel in securities actions under the Private

Securities Litigation Reform Act is considerably constrained; the court selects the lead plaintiff, who

(subject to court approval) selects class counsel. See, e.g., In re Cendant Corp. Litig., 264 F.3d 201, 218,

273 (3d Cir. 2001). This procedure typically produces a lead plaintiff who is a well-informed

institutional investor. One might expect that this procedure would have consequences for counsel’s

performance: all other things being equal, the client who is knowledgeable enough to monitor his or her

lawyer’s performance can negotiate a more appropriate fee and expect a more beneficial result. Why is it

that the PSLRA’s procedure results in attorneys’ fees that are notably lower than attorneys’ fees

generally? Presumably, the answer is that it is difficult or impossible for the typical named plaintiff to

appropriately monitor and control class counsel’s performance — a disability that a sophisticated

institutional investor does not face.

In general, the law tries to ensure that class counsel will fairly and adequately protect the

interests of the class by loading up the court with fiduciary duties involving the monitoring of class

counsel. This creation of a special judicial duty is probably best understood as an attempt to simulate the

beneficial consequences of a knowledgeable and sophisticated lead plaintiff: it is therefore appropriate

for this Court to take judicial notice of the attorneys’ fees that class counsel typically receives under the

PSLRA, and to benefit from the data that demonstrate that class counsel receives appropriate

compensation when appointed by a plaintiff who can effectively advise and direct his or her attorney.4

In short, the proposed payment to class counsel—purely as a matter of magnitude—appears

unreasonable. Large settlements typically have lower percentage awards, essentially because of the law

of diminishing returns. This jurisdiction’s attention to the principle of diminishing returns is echoed in

other jurisdictions. Although attorneys’ awards are left to the court’s discretion, such awards typically

4 In addition, it is difficult to make the case generally that securities class actions deserve less compensation than other actions: trying a case under the relevant securities law is riskier and demands a higher standard of pleading. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007) (interpreting "[e]xacting pleading requirements" of 15 U.S.C. § 78u-4(b)(2)).

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“involve a sliding scale dependent upon the ultimate recovery, the expectation being that, absent unusual

circumstances, the percentage will decrease as the size of the fund increases.” Court Awarded Attorney

Fees: Report of the Third Circuit Task Force, 108 F.R.D. 237, 256 (1985). Cf. id. at 256 n. 61 (“In a

case in which a large settlement is anticipated, the negotiated contingency range may include relatively

small percentages. For example, the Agent Orange plaintiffs’ lawyers collected over ten million dollars

in fees, yet that amounted to less than 6% of the settlement fund.”). See also In re Washington Pub.

Power Supply Sys. Sec. Litig., 19 F.3d 1291, 1297-98 (9th Cir. 1994); In re Domestic Air Transp.

Antitrust Litig., 148 F.R.D. 297, 350-51 & nn.75, 76 (N.D. Ga. 1993), and cases cited therein (listing

declining percentages based on case law). When class counsel decided to go into the wholesale business,

surely it was aware of the possibility that it might have to stop charging retail rates: “It is generally not

150 times more difficult to prepare, try and settle a $150 million case than it is to try a $1 million case.”

In re NASDAQ Market-Makers Antitrust Litig., 187 F.R.D. 465, 486 (S.D.N.Y. 1998). “There is

considerable merit to reducing the percentage as the size of the fund increases. In many instances the

increase is merely a factor of the size of the class and has no direct relationship to the efforts of

counsel.” Id. (quoting In re First Fidelity Securities Litigation, 750 F.Supp. 160, 164 n. 1 (D.N.J.

1990)).

B. Class Counsel’s Compensation Should Be Calculated by the Benefits It Secures for the Class.

The true value that class members receive from the fund cannot be ascertained until the claims

process takes place. The current calculation simply assumes that class members will in toto receive

100% of the value of the settlement. As explained above, because of the obstacles that the settling

parties have placed in the way of class compensation, 100% class compensation is as a practical matter

impossible. In any event, the attorney fees should be based on actual, not hypothetical, class

compensation, and the amount of actual class compensation cannot be known until the claims process

that the settling parties have created is resolved.

Assigning a percentage of the settlement to class counsel is improper unless and until the

benefits of the settlement to the class “can be monetized without undue speculation.” Lealao v.

Beneficial California, Inc., 82 Cal. App. 4th 32, 49 (2000). The value of the settlement to the class can

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be determined with precision only after the claims process is concluded. This is a case in which “basing

the fee ‘on the number of claims actually remediated’ serves the important goal of encouraging class

counsel’s continued participation after settlement has been reached.” Id. at 821 (quoting In re Prudential

Ins. Co. of America Sales Practices Litigation, 148 F. 3d 283, 334 n.110 (3d Cir. 1998)). The Court

would violate this principle if it were to calculate a percentage of the recovery based on the fund before

claims have been made: no fees should be awarded until the amount of class benefit is known.

Other jurisdictions also recognize that a cy pres fund does not benefit class members in the same

way that direct compensation does, and therefore that the calculation of attorneys’ fees should not give

the weight to cy pres that it does to direct compensation. In general, class counsel should only request a

share of the money the class actually receives. “[N]umerous courts have concluded that the amount of

the benefit conferred logically is the appropriate benchmark against which a reasonable common fund

fee charge should be assessed.” In re Prudential Ins. Co. America Sales Practices Litig., 148 F.3d at 338

(quoting Conte, 1 Attorney Fee Awards § 2.05, at 37). “In determining the appropriate amount of

attorneys' fees to be paid to class counsel, the principal consideration is the success achieved by the

plaintiffs under the terms of the settlement." Schwartz v. Dallas Cowboys Football Club, Ltd., 157

F.Supp.2d 561, 579 (E.D. Pa. 2001). The “key consideration in determining a fee award is

reasonableness in light of the benefit actually conferred” (emphasis in original). In re HP Inkjet Printer

Litig., No. 5:05-cv-3580 JF, 2011 WL 1158635, at *10 (N.D. Cal. Mar. 29, 2011) (quoting Create-A-

Card Inc., v. Intuit, Inc., No. C 07-06452 WHA, 2009 WL 3073920, at *3 (N.D. Cal. Sept. 22, 2009)).

See generally In re Cendant Corp. Litig., 264 F.3d 201, 254-60 (3d Cir. 2001) (the court should ensure

that the incentives of class counsel and class members are aligned). See also Murray v. GMAC Mortgage

Corp., 434 F.3d 948, 952 (7th Cir. 2006); Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781, 784 (7th Cir.

2004) (“There is no indirect benefit to the class from the defendant’s giving the money to someone

else.”); Crawford v. Equifax Payment Services, Inc., 201 F.3d 877 (7th Cir. 2000). The Exchanges are

not the class counsel’s client; the class members are. In short, class counsel’s demand for a share of the

entire settlement, rather than just a share of the relatively smaller portion of the fund that actually

conveys benefits to the class, is unreasonable.

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C. The Class Representative Payment Is Excessive Relative to Class Members’ Benefits.

Class members Schantz and Yunaev will receive less than $7 and $1, respectively, but the

settlement provides Fogel up to $30,000, far more than he could hope to receive as a class member.

Settlement Notice § 18. This award is too high, especially because it risks creating a conflict of interest

for the class representative.

Class representatives are entitled to “modest” and reasonable compensation. See, e.g., Bogosian

v. Gulf Oil Corp., 621 F. Supp. 27, 32 (E.D. Pa. 1985) (“The propriety of allowing modest compensation

to class representatives seems obvious.”). However, the unusually large size of this particular award

creates an “untenable” conflict of interest between the class representative and the class. Murray v.

GMAC Mortg. Corp., 434 F.3d 948, 952 (7th Cir. 2006) (wildly disproportionate incentive award of

$3000 proved that “the class device had been used to obtain leverage for one person’s benefit”). See also

Holmes v. Continental Can Co., 706 F.2d 1144, 1148 (11th Cir. 1983) (when “representative plaintiffs

obtain more for themselves by settlement than they do for the class for whom they are obligated to act as

fiduciaries, serious questions are raised as to the fairness of the settlement to the class” (quoting

Plummer v. Chemical Bank, 91 F.R.D. 434, 441-42 (S.D.N.Y. 1981), aff’d, 668 F.2d 654 (2d Cir.

1982)). Cf. also Young v. Higbee, 324 U.S. 204 (1945).

The award’s unusually large size places a barrier between the interests of the class representative

and the interests of the rest of the class. The size of the proposed award risks transforming it from

compensation for services rendered into compensation for uncritical advocacy: the class representative’s

interests now lie in the approval of any settlement, no matter how unfair to the class, given the

possibility of a large windfall unavailable to the rest of the class, because the size of the request gives

the class representative a powerful incentive to avoid any oversight of the settlement or its associated

payments to class counsel. A class representative’s large incentive to avoid jeopardizing its incentive

payment creates a disqualification for class representation. Valley Drug Co. v. Geneva Pharmaceuticals,

Inc., 350 F.3d 1181, 1189-92 (11th Cir. 2003) (class representatives inadequate where their economic

interests and objectives conflicted substantially with those of class members).

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V. Notice to Many Already Identified Class Members Is Nonexistent, and Thus Deficient.

All class members are entitled to “the best notice practicable.” Mullane v. Central Hanover Bank

& Trust Co., 339 U.S. 306 (1950). Although all class members are known to the settling parties, the plan

of direct notice is confined to lead policyholders:

Only the first named insured on an insurance policy that falls within the Class definition may submit a Proof of Claim and be eligible for payment from the Settlement Amount, even if the policy has more than one named insured. No other named insured under such a policy may seek relief under the Settlement, but all named insureds on each such policy will nevertheless be bound by the terms of the Settlement and of the Final Judgment. [Stipulation of Settlement, § II. C. 3, at 28.]

This provision has troubling implications. It does not appear to comply with California Rules of Court

3.769(f), which requires notice of a final approval hearing to be given “to the class members,” rather

than an arbitrary subset of them. See, e.g., Cho v. Seagate Technology Holdings, Inc., 177 Cal. App. 4th

734, 746 (2009) (“The notice must fairly apprise the class members of the terms of the proposed

compromise and of the options open to dissenting class members.”). Apparently, if a secondary party

insured under one of these policies has become separated or divorced from the “first named insured,” the

“first named insured” will have no obligation to inform the second-named party; nonetheless, the

second-named party would be completely and entirely bound. On its face, this seems to be a simple

violation of notice and due process; the extraordinarily overbroad releases of this settlement agreement,

which releases “each and every Claim or Unknown Claim” that any class member “asserted or could

have asserted directly or derivatively” against the releasees,5 magnifies the problem.

VI. The Court Should Discount Attempts By the Settling Parties To Infer Class Approval from a Low Number of Objections.

Any given class action settlement, no matter how much it betrays the interests of the class, will

produce only a small percentage of objectors. The predominating response will always be apathy,

because objectors — unless they can obtain pro bono counsel — must expend significant resources on

an enterprise that will create little direct benefit for themselves. Another common response from non-

lawyers in receipt of a settlement notice will be the affirmative avoidance, whenever possible, of

5 Proposed Settlement, § I.D.43.a. There are minor exceptions listed in a subsequent clause: coverage claims, claims to enforce the settlement, and claims arising from four other class action cases currently pending. Id. at § I.D.43.b.13.

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anything involving the judicial process. Class counsel may argue that this understandable tendency to

ignore notices or free-ride on the work of other objectors is best understood as acquiescence in or

evidence of support for the settlement. This is wrong. Silence is simply not consent:

Silence may be a function of ignorance about the settlement terms or may reflect an insufficient amount of time to object. But most likely, silence is a rational response to any proposed settlement even if that settlement is inadequate. For individual class members, objecting does not appear to be cost-beneficial. Objecting entails costs, and the stakes for individual class members are often low. [Christopher R. Leslie, The Significance of Silence: Collective Action Problems and Class Action Settlements, 59 FLA. L. REV. 71, 73 (2007).]

There is usually little hope that opt-outs can recover for their claims — the entire purpose of class

actions is to aggregate claims that would be uneconomical to bring individually. “Almost by definition,

most class members have too little at stake to warrant opting out of the class litigation and filing an

individual lawsuit. Thus, opting out is probably not a viable option even though a proposed settlement is

unfair or inadequate.” Id. at 109. Without pro bono counsel to look out for the interests of the class,

filing an objection is economically irrational for any individual. “[A] combination of observations about

the practical realities of class actions has led a number of courts to be considerably more cautious about

inferring support from a small number of objectors to a sophisticated settlement.” In re GMC Pick-Up

Litig., 55 F.3d 768, 812 (3d Cir. 1995) (citing In re Corrugated Container Antitrust Litig., 643 F.2d 195,

217-18 (5th Cir. 1981)); cf. Petruzzi’s, Inc. v. Darling-Delaware Co., 880 F. Supp. 292, 297 (M.D. Pa.

1995) (“‘[T]he silence of the overwhelming majority does not necessarily indicate that the class as a

whole supports the proposed settlement . . . . ’”). “[A] low number of objectors is almost guaranteed by

an opt-out regime, especially one in which the putative class members receive notice of the action and

notice of the settlement offer simultaneously.” Ellis v. Edward D. Jones & Co., 527 F. Supp. 2d 439,

446 (W.D. Pa. 2007). “[W]here notice of the class action is, again as in this case, sent simultaneously

with the notice of the settlement itself, the class members are presented with what looks like a fait

accompli.” Mars Steel Corp. v. Continental Illinois Nat’l Bank & Trust Co., 834 F.2d 677, 680-681 (7th

Cir. 1987). “Acquiescence to a bad deal is something quite different than affirmative support.” In re

General Motors Corp. Engine Interchange Litig., 594 F.2d 1106, 1137 (7th Cir. 1979) (reversing

approval of settlement).

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When class members have little at stake, as in an action such as this where the recovery will

typically be nominal, the rate of response will be predictably low; as such, the rate of response cannot be

seen as something akin to an election or a public opinion poll. See In re GMC Pick-Up Litig., 55 F.3d at

813 (finding that “class reaction factor” does not weigh in favor of approval, even when low number of

objectors in large class, when “those who did object did so quite vociferously”); Theodore Eisenberg &

Geoffrey Miller, The Role of Opt-Outs and Objectors in Class Action Litigation: Theoretical and

Empirical Issues, 57 VAND. L. REV. 1529, 1532 (2004). It is typically not worth the average citizen’s

time or money to object: the slight likelihood that one additional objection will be decisive, when

multiplied by the slight increase in an individual class member’s payout that such an objection would

produce, makes individually-funded objections a losing proposition. Compare id. at 1561 (“Common

sense indicates that apathy, not decision, is the basis for inaction”; class members who opt out are likely

motivated less by technical legal analysis than by a distrust of or distaste for some aspect of the legal

process).

The judge should act as a guardian for all class members — whether or not they have formally

entered the case by registering an objection. “[T]he absence or silence of class parties does not relieve

the judge of his duty and, in fact, adds to his responsibility.” Amalgamated Meat Cutters & Butcher

Workmen v. Safeway Stores, Inc., 52 F.R.D. 373, 375 (D. Kan. 1971). Regrettably, the realm of the

courtroom is, for many, mysterious and perhaps even a little frightening. Wayne Brazil, For Judges:

Suggestions About What to Say About ADR at Case Management Conferences — and How to Respond

to Concerns or Objections Raised by Counsel, 16 OHIO ST. J. ON DISP. RESOL. 165, 170 (2000) (“court

procedures can be intimidating and confusing to non-lawyers”). It doesn’t matter whether the number of

formal objectors to this settlement is two or two thousand: the settlement’s proponents still have the

burden to show the proposed settlement and the proposed fee award is fundamentally fair, adequate, and

reasonable. That burden is too heavy for this settlement’s advocates to carry.

VII. The Objectors’ Pro Bono Attorney Brings This Objection in Good Faith.

Theodore H. Frank, the objectors’ attorney, is president of the Center for Class Action Fairness

LLC (“the Center”), a non-profit program of the 501(c)(3) Donors Trust that was founded in 2009. The

attorneys engaged by the Center represent consumers pro bono by, among other things, representing

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class members aggrieved by class action attorneys—particularly attorneys who negotiate settlements

that benefit themselves at the expense of their putative clients. The Center has won millions of dollars

for class members since its founding in 2009. See, e.g., Rachel M. Zahorsky, “Unsettling Advocate,”

ABA J. (Apr. 2010); Allison Frankel, “Legal Activist Ted Frank Cries Conflict of Interest, Forces

O’Melveny and Grant & Eisenhofer to Modify Apple Securities Class Action Deal,” AMERICAN

LAWYER LIT. DAILY (Nov. 30, 2010).

It is perhaps relevant to distinguish the Center’s mission from the agenda of those who are often

styled “professional objectors.” A number of “professional objectors” are for-profit attorneys who

attempt or threaten to disrupt a settlement unless plaintiffs’ attorneys buy them off with a share of the

attorneys’ fees; thus, some courts presume that the objector’s legal arguments are not made in good

faith. See Brian T. Fitzpatrick, The End of Objector Blackmail?, 62 VAND. L. REV. 1623, 1635-36

(2009). This is not the business model of the Center for Class Action Fairness, which is funded entirely

by charitable donations and court-awarded attorneys’ fees. While the Center focuses on bringing

objections to unfair class action settlements, it refuses to engage in quid pro quo settlements to extort

attorneys; the Center has never settled an objection.

Because the Center does not object indiscriminately, it has an excellent track record of success.

In 23 cases to date where the Center has objected 24 times, courts have rejected the underlying

settlement or materially modified the settlement and fee request ten times; on two other occasions,

parties responded to the Center’s objection before the fairness hearing by modifying settlements so as to

provide millions of dollars more of cash to the class. The Center has lost two objections with finality and

has thirteen objections pending in trial or appellate courts (including four where its objection was upheld

in part). In short, the objectors and their attorney bring this objection in good faith to protect the interests

of the class. Nonetheless, it is the experience of the Center, based on the conduct of class counsel in

other cases, that some attorneys will falsely and unjustifiably accuse the Center of seeking to extort class

counsel. If this Court has any doubt whether the Center’s objection is brought in good faith, the

objectors and the Center are willing to stipulate to an injunction prohibiting them from accepting a cash

payment in exchange for the settlement of this objection.

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CONCLUSION

This settlement’s unnecessarily complex claims procedure impoverishes the class and enriches

the defendant. As a matter both of simple fairness and settled law, class counsel’s proposed

compensation is exorbitant. The settlement’s notice procedure, which binds some class members without

giving them any notice at all, is defective. In short, it is a settlement that has something for everyone,

with the notable exception of the class, which it betrays. The court should reject this settlement; in the

event the settlement is approved, class counsel’s fees must be significantly reduced to reflect a

reasonable percentage of the moneys actually received by the class.

Dated: August 17, 2011

Respectfully submitted, ____________________________ Theodore H. Frank (SBN 196332)

CENTER FOR CLASS ACTION FAIRNESS LLC 1718 M Street NW, No. 236

Washington, DC 20036 [email protected] (703) 203-3848

Attorney for Class Members Hans Schantz and George Yunaev

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CERTIFICATE OF SERVICE I hereby certify that on this day I filed the foregoing with the Clerk of the Court, and served true and correct copies upon class counsel and defendants’ counsel via express mail at the addresses below, per the instructions of the Settlement Notice. California Superior Court 600 South Commonwealth Avenue Los Angeles, CA 90005 Thomas V. Girardi Graham V. LippSmith GIRARDI & KEESE 1126 Wilshire Blvd. Los Angeles, CA 90017 Raoul Kennedy SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 525 University Avenue Palo Alto, CA 94301 Ralph C. Ferrara DEWEY & LEBOEUF LLP 119 New York Ave. NW, Suite 1100 Washington, DC 20005 DATED this 17th day of August, 2011.

_________________________ Daniel Greenberg

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