Coverall Settlement Affirmed by 9th Circuit

(CN) - The 9th Circuit deemed an award of nearly $1 million in attorneys' fees reasonable for a settlement between Coverall and several franchisees of the janitorial company.

Sabrina Laguna, Carlos Acevedo and Teresa Salas brought the class action against Coverall North America in 2009, alleging they had spent substantial amounts of money buying Coverall "franchises," but became nothing more than employees improperly misclassified as independent contractors.

"Defendants purport to sell cleaning 'franchises,' knowing that they lack sufficient business to satisfy their obligations under their franchise agreements," the third amended complaint alleged.

Under the February 2012 settlement agreement, Coverall pledged to assign current franchisees customer accounts, as long as they pay their franchise fees in full. Former franchise owners will receive $475 each and $750 toward a new franchise. Key to the settlement is Coverall's obligation to update franchise agreements and change its operating procedures.

Senior U.S. District Judge Jeffrey Miller in San Diego approved the settlement, which includes $994,800 in attorneys' fees.

Amrit Singh filed the sole objection to the settlement, but the federal appeals court in Pasadena affirmed approval, 2-1, last week.

"We conclude that the district court correctly used the lodestar method in gauging the fairness of the attorneys' fee award," Judge Ronald Gould wrote for the majority.

The ruling notes that the nearly $1 million award came far below what the attorneys' could have recovered.

"In its analysis, the District Court noted that the case had been contentiously litigated for over two years, and that the report submitted by plaintiffs' counsel showing that over 4,500 hours had been billed by six attorneys, a paralegal and a law clerk was fair and accurate," Gould wrote. "Using that number, the District Court calculated that the lodestar amount reached almost $3 million. At a third of the lodestar amount, the district court soundly concluded that the attorneys' fees award of $994,800 was reasonable."

The amount class members will take home is disputed, according to the ruling, which notes that Singh has "clearly" underestimated the settlement value at $56,525, while the plaintiffs "may certainly be overstating the value of the settlement at $20 million."

"The District Court reasonably surmised that even if the value of the settlement was $4 million - only a part of the amount claimed by plaintiffs - the attorneys' fee award would still be within the normal bounds of reasonableness," Gould wrote.

In addition to cash for former franchisees, the settlement yields "significant benefits for plaintiffs," including "assignment of customer accounts and pledges for programmatic changes," Gould added.

"The District Court elaborated that 'once franchises are assigned, franchisees will own a valuable business they can choose to sell or continue to operate."

U.S. District Judge Edward Chen, sitting by designation from San Francisco, wrote in dissent that the trial court did not have enough "crucial" information to make a decision about the settlement or the award of attorneys' fees.

He noted that the deal does not specify who is eligible to receive "customer accounts," and that the monetary relief to the class is uncertain since unclaimed funds will revert back to Coverall.

"The case should be remanded for fuller development of the record," Chen wrote. "I also believe this case affords this court an opportunity to provide additional guidance to the district courts in their assessment of proposed class action settlements."

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