State of California v. Levi Strauss & Co.

BIRD, C. J., Concurring.

In order to secure a majority for today’s decision, I have omitted any discussion of intervener’s challenges to the trial court’s procedural rulings from my opinion. I write separately to emphasize that today’s affirmance should not be taken to indicate approval of those procedural rulings. The trial court denied intervener’s discovery, placed procedural barriers in the way of objector participation, omitted written objections from the record, refused to fund a survey of class preferences, and approved a nonneutral class notice. In my view, these rulings, taken together, amounted to an erroneous handling of the action. That this error does not warrant reversal is due not to its alleged harmlessness but to the unacceptability—acknowledged by all the parties—of setting this action back to square one.

By way of background, commentators have long recognized that the class action device seeks to fulfill two sometimes contradictory purposes. On the one hand, the class action is a means of enforcing the law. And, the law exists apart from the class membership’s preferences. (See Special Project, The Remedial Process in Institutional Reform Litigation (1978) 78 Col-um.L.Rev. 784, 893.)

On the other hand, the class action is a means of enabling unorganized groups to redress their grievances through the legal process. As such, it does not dispense with the longstanding principle that individuals should control litigation brought on their behalf. (See Mandujano v. Basic Vegetable Products, Inc. (9th Cir. 1976) 541 F.2d 832, 834-835 [hereafter Man dujano].) As Professors Cover and Fiss have observed, the class action device “may have an ultimately dehumanizing effect if it is imbued with a life on its own, apart from the natural persons for whom it was once a tool.” (Cover & Fiss, The Structure of Procedure (1979) p. 255.)

Trial courts face the difficult task of managing class actions so that both of these purposes are fulfilled. An overemphasis on class participation can *481 be costly and may render an action unmanageable. On the other hand, an exclusive concern with enforcement of the law may deprive class members of their rights to influence the conduct of actions brought on their behalf.

In the factual and procedural setting of the present case, participatory concerns come to the fore. Class members are not disputing whether or to what extent the defendant violated the law. Their disagreement, which concerns the method for distributing the recovery, does not threaten the viability of the class action. 1 Hence, judicial recognition of class dissent will not defeat enforcement of the law.

More fundamentally, the choice among the possible forms of fluid recovery is not clearly compelled by law. (See majority opn., ante, at pp. 472-479.) Nor can this choice be reduced to a simple matter of immediate economic interests, as can be done in some class actions for damages. (See Rhode, Class Conflicts in Class Actions (1982) 34 Stan.L.Rev. 1183, 1200 [hereafter Rhode].) Evaluating the relative merits of distributing the recovery to a consumer trust, to the state, or to individuals involves value judgments more significant than a simple calculation of how many pennies each individual will eventually receive.

In exercising their discretion to choose among various legally valid remedies, courts should consider not only the logical merits of the various proposals, but also the breadth and depth of class support for those proposals. Consideration of those factors can minimize the danger that judges will substitute their own value judgments for those of the class. (See Garth, Conflict and Dissent in Class Actions: A Suggested Perspective (1982) 77 Nw. U.L. Rev. 492, 520, 531-532 [hereafter Garth]; Rhode, supra, 34 Stan.L.Rev. at pp. 1198-1202.)

Trial courts are accorded broad discretion in organizing pretrial proceedings in complex class actions. (See, e.g., Grunin v. International House of Pancakes (8th Cir. 1975) 513 F.2d 114 , 121 [notice]; Cotton v. Hinton (5th Cir. 1977) 559 F.2d 1326, 1333 [discovery].) 2 However, viewed in the light *482 of the preceding discussion and the applicable case law, it is apparent that the trial court’s procedural rulings, taken together, exceeded the bounds of that discretion.

First, intervener contends that the court erred in denying her attempt to discover the factual basis of the settlement. Intervener made two unsuccessful attempts at discovery. In early March, intervener served interrogatories on the Attorney General. These interrogatories sought to discover information relating to the conduct of settlement negotiations and, in particular, the factual basis of the settlement. The Attorney General objected to every question, primarily on the ground that the interrogatories were not timely. Three weeks before the fairness hearing, intervener moved to compel answers. This motion was denied.

In June, intervener propounded interrogatories and requests for documents relating to the Attorney General’s attorney fee request. Again, the Attorney General objected and the trial court denied intervener’s motion to compel.

Since objecting interveners are in an adversary relationship with both plaintiffs and defendants, they are “entitled to at least a reasonable opportunity to [conduct] discovery against both.” (Girsh v. Jepson (3d Cir. 1975) 521 F.2d 153 , 157.)

Moreover, what transpires in settlement negotiations is highly relevant to the assessment of a proposed settlement’s fairness. (See In re General Motors Corp. Engine Interchange Lit. (7th Cir. 1979) 594 F.2d 1106, 1124 [hereafter GM], citing the Manual for Complex Litigation (1982 ed.) § 1.46, pp. 53-54.) Even attorneys general are not immune from careful oversight in their roles as class representatives. “[T]he prestige attendant upon negotiating a large settlement against a corporate defendant and thereby acquiring reputations as consumer advocates may place public attorneys in a situation analogous to private counsel who hope to win large fee awards.” (GM, supra, 594 F.2d at p. 1125 .)

The Attorney General contends that the denial of discovery was proper because the trial court had before it sufficient information to intelligently approve the settlement. The Attorney General points out that the record comprised nearly 2,000 pages, including “statistical and economic data.”

However, the record lacked information that was essential to the court’s assessment of the distribution plan. Most important, there were no facts on which to base a finding of class size. Yet, class size is of the essence in determining the compensatory effectiveness of a claimant fund sharing plan. *483 Such a plan can scarcely be considered reasonable as the sole means of distributing a class fund if the overwhelming majority of class members recover nothing. (See Durand, An Economic Analysis of Fluid Class Recovery Mechanisms (1981) 34 Stan.L.Rev. 173, 178.)

In addition, intervener sought to discover sales statistics in order to determine the composition of the class by economic and social group. This information was necessary to determine whether the plan systematically discriminated against lower income and/or minority groups, a charge made by such intervening organizations as the NAACP.

In short, intervener sought information that was essential to the determination of the settlement’s compensatory efficiency and basic fairness. Accordingly, the trial court should have granted her motion to compel discovery.

Next, intervener contends that the trial court erred in failing to provide for effective participation by objectors. She points out that would-be objectors were told to mail copies of their written objections to five different addresses. This requirement imposed a burden out of proportion to the likely size of the average individual recovery. There is no apparent reason why the Attorney General could not have received the objections at a single location and sent them on to counsel, thereby saving each individual additional postage.

Further, the over 300 objections actually received were not included in the record or accorded a reasonable response. It is well established that before a settlement may be approved, “[ejach objection . . . must become a part of the record of the case [and] [t]he trial court . . . must review carefully these objections.” (Mandujano, supra, 541 F.2d at p. 835 ; see also Boyd v. Bechtel Corp. (N.D.Cal. 1979) 485 F.Supp. 610, 617 .) “The Court should examine the settlement in light of the [substantial] objections raised and set forth on the record a reasoned response to the objections including findings of fact and conclusions of law necessary to support the response.” (Cotton v. Hinton, supra, 559 F.2d at p. 1331 , citing Mandujano, supra, 541 F.2d 832 .) A trial court’s failure to perform these duties has been held to warrant reversal. (Id., at pp. 836-837.)

The Attorney General argues that inclusion of the objections in the record would have served no purpose. He points out that the court had before it his two-page summary of objections and argues that an examination of this summary is enough to show that all of the objections either were baseless or were argued vigorously by intervener.

*484 However, without copies of the objections this court cannot intelligently review the trial court’s apparent determination that none of them merited a reasoned response on the record. For example, it is impossible to determine whether the nine objectors whose objections were summarized as “Politics” had a substantial point to make. The same is true of the 13 persons who made “general” objections to the disbursement plan and the 25 who proposed that the refund go to charity, a consumer group, or the State of California. Experience shows that a broad rejection of objections may, on review, turn out to be erroneous. (See, e.g., GM, supra, 594 F.2d at p. 1136 [quoting from objectors’ letters to refute argument raised by settlement proponent].)

More fundamentally, the trial court’s reliance on summarized objections makes a mockery of objectors’ due process rights. Class members have a due process interest in expressing their own views to the courts, not in having those views reduced to one-line summaries and expressed by other parties.

Further compounding the problem, those objectors who attended the fairness hearing did not testify. Although there is nothing in the record to support intervener’s charge that the court prohibited objectors from speaking, it appears that the court did nothing to inform them when they could speak. Courts should not rely on untrained and unrepresented litigants to interrupt court proceedings and insist upon their rights. Here, the court could simply have announced the appropriate time and procedure for making objections. 3

Intervener further contends that the trial court should have granted her request for $12,000 to conduct studies, including a survey of class preferences. The breadth and depth of class opposition is clearly relevant in assessing the fairness and reasonableness of a settlement, particularly where alternative remedies are available. (See, e.g., Flinn v. FMC Corporation (4th Cir. 1975) 528 F.2d 1169, 1173 , cert. den. (1976) 424 U.S. 967 [ 47 L.Ed.2d 734 , 96 S.Ct. 1462 ]; Bryan v. Pittsburgh Plate Glass Co. (PPG Indus., Inc.) (3d Cir. 1974) 494 F.2d 799 , 803, cert, den., 419 U.S. 900 *485 [ 42 L.Ed.2d 146 , 95 S.Ct. 184 ].) 4 Courts have relied upon class elections to reject the remedial proposals advanced by class representatives. (See, e.g., East Texas Motor Freight v. Rodriguez (1977) 431 U.S. 395, 405 [ 52 L.Ed.2d 453, 463 , 97 S.Ct. 1891 ]; see generally, Garth, supra, 77 Nw. U.L. Rev. at p. 532.)

Whether or not to spend class funds on elections or surveys must depend on the facts in each case. As noted above, the circumstances of the present case weigh heavily in favor of revealing class sentiments. (See ante, at pp. 480-482.) An affirmative effort to elicit class views is particularly appropriate where—as here—the small sum at stake for any particular individual renders a class member’s failure to object useless as an indicator of class sentiment. (See Developments in the Law—Class Actions (1976) 89 Harv. L.Rev. 1318, 1567-1568.) The proposed settlement’s plan of distribution greatly exacerbated that problem by requiring would-be objectors to mail copies of their objections to five different locations. Accordingly, intervener’s suggestion that the court should have authorized the funds for a survey has much to recommend it.

Finally, intervener maintains that the class notice approved by the trial court was nonneutral in violation of the case law.

The class notice must “fairly apprise the class members of the terms of the proposed compromise and of the options open to dissenting class members.” (Trotsky v. Los Angeles Fed. Sav. & Loan Assn. (1975) 48 Cal.App.3d 134, 151-152 [ 121 Cal.Rptr. 637 ].) It must be “‘scrupulously neutral’ and emphasize that the court is expressing no opinion on the merits of the case or the amount of the settlement.” (Grunin v. International House of Pancakes, supra, 513 F.2d at p. 122, citing Philadelphia Housing Auth. v. American R. & S. San. Corp. (E.D.Pa. 1970) 323 F.Supp. 364, 378 , and Cannon v. Texas Gulf Sulphur Company (S.D.N.Y. 1972) 55 F.R.D. 308, 313, fn. 2 .) The court should clearly indicate that it has done nothing more than determine that “there is, in effect, ‘probable cause’ to submit the proposal to members of the class and to hold a full-scale hearing on its fairness . . . .” (Manual for Complex Litigation, supra, § 1.46, p. 55.)

The requirement of neutral notice is particularly important where—as here—there has been no ongoing communication between attorneys and class members, and the notice constitutes the first and only official communication to the overwhelming majority of class members.

*486 In the present case, the trial court made a commendable attempt to cut costs and stimulate response by mailing the legal notice of the proposed settlement along with a “notice of cash refund” and the form for claiming the refund. Unfortunately, due to the layout and ordering of the packet, the announcement of the “cash refund” overshadowed the legal notice itself. Viewed as a whole, the mailing was far from “scrupulously neutral.”

The front cover was labelled “Notice of Cash Refund.” The back cover also referred exclusively to the cash refund. The return address was that of the Attorney General, not the court. Upon opening the mailing, the recipient would first see the cover letter, entitled “Cash Refund Notice” and signed by the Attorney General. This letter informed the reader that the Attorney General “has settled” a lawsuit and that purchasers of men’s and boys’ jeans “are now eligible for a cash refund of up to $2.00 per pair.” (Italics added.) The letter further explained that the mailing was “your claim form” and urged the reader to “read the simple instructions, fill it out and mail it back to us.” There was no mention that the settlement had yet to be approved or that the recipient had any option other than filling out the form (and receiving up to $2 per pair claimed) or not filling it out (and receiving nothing). 5

The Attorney General maintains that the design of the cover and the inclusion of the introductory letter are irrelevant to the sufficiency of the notice. He contends that the legal notice itself, which followed the cover letter, fairly and impartially informed class members of the settlement terms and their options.

However, the notice of proposed settlement must be viewed as a whole and assessed in light of its impact on the ordinary class member. Common sense suggests that cover labels and introductory letters are generally intended to describe and introduce the entire contents of a communication. The assertions that the Attorney General “has settled” the action and that certain purchasers “are now eligible" for refunds strongly implied that the settlement had already been approved and all that remained was to distribute the refund. Hence, readers might well conclude from the labels and the *487 letter that they were being asked only to fill out the claim form. They might see no need to plow through the tedious “Legal Notice.” 6

The potential for misunderstanding was exacerbated by the media campaign, which was timed to coincide with the mailing. Television ads featuring Michael Landon echoed the cover letter in asserting that the Attorney General “ha[d] settled” the suit, in referring to the notice as a “cash refund announcement,” and in urging consumers to claim their refunds. Also, these ads said nothing about the necessity for court approval of the settlement.

Further, the legal notice itself did little to dispel the potential for confusion created by the cover, the introductory letter, and the media campaign. Although the notice did accurately describe the terms of the settlement and set forth the legal options available to the individual (i.e., participation, objection, or opting out of the settlement), it did nothing to describe the options available to the class if the settlement were not approved. (Cf. National Conference of Commissioners on Uniform State Laws, Proposed Uniform Class Actions Act § 12(c)(4), reprinted in 32 Bus. Law. 83, 93-94 (1976) [notice of proposed settlement should include a description and evaluation of alternatives considered by the representative parties].)

In line with the need for pragmatic procedural devices to solve the complex problems of class actions (see Vasquez v. Superior Court (1971) 4 Cal.3d 800, 820 [ 94 Cal.Rptr. 796 , 484 P.2d 964 , 53 A.L.R.3d 513 ]), the court could have provided the class members with some description of the actual consequences of acquiescence or objection. For example, the court could have permitted intervener and the Attorney General to include in the notice brief arguments for their remedial proposals. Further, the court could have given some indication of the likely consequences of proceeding to trial. For example, according to the Attorney General’s own estimate, the action might have yielded $20 to $80 million in damages prior to trebling had a trial occurred.

In conclusion, the trial court unduly restricted the class members’ participation. Where—as here—there is a substantial intra-class dispute over alternative, legally permissible remedies, trial courts should make special efforts to ascertain class preferences and promote effective participation. In this light, the trial court’s procedural rulings, taken together, unduly discouraged class participation.

*488 GRODIN, J.

I agree with the majority’s quite sensible conclusion that “as a result of the passage of time and changes in the position of intervener no practical purpose would be served by invalidating the settlement of this six-year-old class action.” (Majority opn., ante, p. 464.) That being the case, I find it unnecessary to take sides in what appears to me a wholly gratuitous debate between the majority and the dissent as to whether the trial court abused its discretion in approving the present claimant fund sharing plan in the first place. (Id., ante, p. 476 ff.; p. 481 ff.) The only remaining question is what the trial court should do with the residue. With one minor reservation, 1 I concur in the majority’s useful discussion of various forms of “fluid recovery” as a guide to the trial court’s discretion upon remand. (Majority opn., ante, pp. 471-476.)

SUTTER (John), J. *

The majority opinion, in which I concur, does not hold that the trial court abused its discretion and I find no such abuse. The comments in that opinion about certain of the trial court’s rulings are, of course, dicta and some are based on hindsight. An example is the conclusion that many claims may have been fraudulent because 80 percent of those in the 5 percent group (those alleging that they purchased the largest number of jeans), who were required to verify their claims, abandoned the claims rather than confirm them by a sworn statement. Obviously, at the time of his order, the trial judge had no way of knowing how many claimants would decide to abandon their claims.

In addition to guidelines for future cases set forth in the majority opinion, I would add another caveat for trial judges: beware of conflicts of interest, not only of private organizations, as observed in the opinion (majority opn., ante, p. 475, fn. 11), but also of plaintiffs who are elected public officials. 1 The trial court should consider such questions as these: to what extent, if at all, does plaintiff seek a particular plan of distribution or notice for self-promotion rather than for the best interest of the class? Does plaintiff resist fluid recovery, at least in part, because such a method of distribution would not call for sending notices generating favorable publicity to his or her constituents? Possible conflicts of interest can and should be avoided or minimized—for example, by requiring that notice to potential class members be mailed out by and returned to someone other than the plaintiff.

By comparison, the concerns weighing against an emphasis on class participation and dissent are far stronger at the class certification stage. If the class is not certified, the harm caused by the defendant’s violation may never be remedied in any fashion. (Cf. Johnson v. Georgia Highway Express, Inc. (5th Cir. 1969) 417 F.2d 1122, 1124 [differences among class members held not to warrant denial of certification, but subclassing and intervention might be necessary at the remedial stage].)

Though not binding on this court, federal law concerning class action procedures has been applied where consistent with California law and policy. (See La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864, 872 [ 97 Cal.Rptr. 849 , 489 P.2d 1113 ]; compare Bruno v. Superior Court (1981) 127 Cal.App.3d 120, 128 [ 179 Cal.Rptr. 342 ] [rejecting federal case law that was inconsistent with California policy].)

According to the record, up to 344 persons may have informed the court that they wished to object at the fairness hearing.

In its findings of fact, the trial court stated that “345 persons, including the intervener, filed objections to the proposed settlement in accordance with the terms of the class notice.” The class notice stated: “If you wish to object to the settlement, you must file a notice of intention to appear and state all of the reasons you object to the proposed settlement in writing by April 6, 1981.” The intervener informed the court of her intention to appear. There is nothing in the record to indicate that the other 344 objectors did not do likewise.

lt should be noted that the courts are not mechanically bound by expressions of class opposition. (Flinn, supra, 528 F.2d at p. 1173 ; Bryan, supra, 494 F.2d at p. 803.) The many arguments against placing undue reliance on majority sentiment are discussed in Rhode, supra, 34 Stan.L.Rev. at pages 1232-1242.

The cover letter, signed by then Attorney General Deukmejian, read as follows;

“Cash Refund Notice “Dear Californian,

“As Attorney General of the State of California, I am pleased to inform you that my office has settled a lawsuit on your behalf, involving the price practices of Levi Strauss & Co. If you or any member of your household purchased Levi’s men’s and boys’ denim or corduroy jeans between January 1, 1972 and December 31, 1976, you are now eligible for a cash refund of up to $2.00 per pair. In most cases, no proof of purchases will be required. This is your claim form. Please read the simple instructions, fill it out and mail it back to us. I urge you to claim your cash and refund now.

“Most Cordially, (Signature)”

It is instructive to compare the notice in the present case with the “Sample Class Action Notice . . . with Proof of Claim Form” provided in the Manual for Complex Litigation. The sample notice begins with an announcement of the action. It then sets forth briefly the positions of the parties and the options available to class members. The instructions concerning the filing of proofs of claim come last. (Manual for Complex Litigation, supra, § 1.45(11), pp. 217-222.)

I suggest that the “price rollback” remedy is not a method of distributing “residue” (majority opn., p. 473), but an alternative to the creation of residue.

Judge, Alameda County Superior Court, assigned by the Chairperson of the Judicial Council.

Business and Professions Code section 16760, subdivision (g) authorizes district attorneys as well as the Attorney General to file parens patriae actions.