Gallion v. Apple, Inc

RESPONSE

N.D. Cal.June 18, 2015

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 APPLE’S RESPONSE TO MOTION FOR DISTRIBUTION OF SETTLEMENT FUND CASE NO. CV 10-01610-RS PENELOPE A. PREOVOLOS (CA SBN 87607) (PPreovolos@mofo.com) GEORGE C. HARRIS (CA SBN 111074) (GHarris@mofo.com) MORRISON & FOERSTER LLP 425 Market Street San Francisco, California 94105-2482 Telephone: 415.268.7000 Facsimile: 415.268.7522 Attorneys for Defendant APPLE INC. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION IN RE APPLE IPHONE/IPOD WARRANTY LITIGATION Case No. CV 10-01610-RS DEFENDANT APPLE’S RESPONSE TO CHIMICLES AND TIKELLIS LLP’S MOTION FOR AN ORDER AUTHORIZING DISTRIBUTION OF RESIDUAL SETTLEMENT FUND The Honorable Richard Seeborg Case3:10-cv-01610-RS Document169 Filed06/18/15 Page1 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 APPLE’S RESPONSE TO MOTION FOR DISTRIBUTION OF SETTLEMENT FUND CASE NO. CV 10-01610-RS i TABLE OF CONTENTS Page I. INTRODUCTION ............................................................................................................. 1 II. THE COURT HAS BROAD DISCRETION OVER HOW TO DISTRIBUTE THE REMAINDER OF THE SETTLEMENT FUND ............................. 2 A. Custodial Escheatment ........................................................................................... 2 B. Second Distribution ................................................................................................ 3 C. Cy Pres ................................................................................................................... 4 III. CONCLUSION .................................................................................................................. 6 Case3:10-cv-01610-RS Document169 Filed06/18/15 Page2 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 APPLE’S RESPONSE TO MOTION FOR DISTRIBUTION OF SETTLEMENT FUND CASE NO. CV 10-01610-RS 1 I. INTRODUCTION Apple agrees with movant that further direction from the Court is required to address the approximately $4.6 million remaining in the Net Settlement Fund1 and that this Court has broad equitable authority to direct the disposition of those remaining funds. The Parties have engaged in discussions on how to address the remaining funds but, other than with respect to paying late claims,2 have been unable to reach consensus due to the lack of definitive guidance in the Settlement Agreement, necessitating Court intervention. (See Final Order ¶ 10 (“If counsel cannot reach an agreement, the matter will be submitted to the Court for determination.”) (ECF No. 154).) In Apple’s view, the most equitable solution is for the Court to order that the unclaimed funds be escheated for the benefit of the Settlement Class Members to whom those funds were previously allocated. In the alternative, a second distribution to those Settlement Class Members who cashed their initial checks could also be made, but that would necessarily result in some Settlement Class Members (those who cashed their checks) being favored over others (those who, for whatever reason, did not) even though all Settlement Class Members’ claims were released in the Settlement. Because the Settlement Class Members who cashed their checks already received what they were entitled to under the Settlement and because Apple has already incurred 32% more in settlement administration costs than had been contemplated,3 Apple should not be forced to bear the costs of a second distribution that benefits only a subset of the Settlement Class. The costs of any such second distribution (which Apple contends would be preferable to an immediate cy pres distribution) should be borne by the subset of the Settlement Class that would benefit from it. 1 Capitalized terms not defined herein are defined in the Stipulation of Settlement and Release of Claims (“Settlement Agreement”) (ECF No. 76-1). 2 Apple agrees that, in light of the sufficient funds available, late claims should be paid at Apple’s expense. See Motion at 2 n.1 (ECF No. 163). 3 See Fourth Supplemental Declaration of Patrick Passarella (“4th Passarella Decl.”), ¶ 15 (ECF No. 163-2). Case3:10-cv-01610-RS Document169 Filed06/18/15 Page3 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 APPLE’S RESPONSE TO MOTION FOR DISTRIBUTION OF SETTLEMENT FUND CASE NO. CV 10-01610-RS 2 II. THE COURT HAS BROAD DISCRETION OVER HOW TO DISTRIBUTE THE REMAINDER OF THE SETTLEMENT FUND This Court’s equitable powers give it broad discretion over the Settlement Fund, including amounts remaining in the fund after distribution. See, e.g., Six Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1307 (9th Cir. 1990). In exercising that discretion, the Court “should be guided by the objectives of the underlying statute and the interests of the silent class members.” Id. Apple believes there are three potential alternatives to exhaust what remains of the Settlement Fund: (1) escheat of the funds allocated to particular Settlement Class Members to the governments of each Settlement Class Member’s state of residence to be held for the benefit of those Settlement Class Members; (2) a second distribution of what remains in the fund to those Settlement Class Members who cashed their checks (and presumably would do so again); or (3) distribution of all remaining funds to the cy pres recipients identified in the Final Order.4 The relevant language of the Settlement Agreement provides that: “To the extent there is a balance remaining in the Net Settlement Fund after the pPparties [sic] use their best efforts to fully compensate Settlement Class Members, such balance shall be equally distributed cy pres at the conclusion of the claims administration process . . . .” (Settlement Agreement ¶ 18.) Notably, the phrases “best efforts to fully compensate” and “at the conclusion of the claims administration process” are vague and do not provide definitive guidance to the Parties or Court. A. Custodial Escheatment The Settlement Agreement provides that each Settlement Class Member “will receive a proportionate share of the Net Settlement Fund.” (Settlement Agreement ¶ 33.) Funds were allocated to each Settlement Class Member in the appropriate amount based on their approved claims-made or direct-pay status. (4th Passarella Decl. ¶ 5.) With the Parties and the Settlement Administrator having exhausted their ability to put the allocated funds into the hands of each Settlement Class Member, (id. at ¶¶ 6-12), there effectively remains only one way to preserve 4 Six Mexican Workers, 901 F.2d at 1307, identifies another alternative—reversion of the remaining funds to the defendant—but the Settlement Agreement (see Definition LL) prohibits reversion and Apple does not seek or support reversion in this case. Case3:10-cv-01610-RS Document169 Filed06/18/15 Page4 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 APPLE’S RESPONSE TO MOTION FOR DISTRIBUTION OF SETTLEMENT FUND CASE NO. CV 10-01610-RS 3 those funds for the benefit of the applicable Settlement Class Members—escheat the funds to the state government of the last known address of each Settlement Class Member to be held for their benefit. Although escheatment is often disfavored, in this situation it is most likely to protect the individual “interests of the silent class members.” Six Mexican Workers, 904 F.2d at 1307. Following custodial escheatment, a small amount would remain in the Settlement Fund, which could promptly be distributed pro rata among the cy pres recipients as contemplated by the Settlement Agreement and Final Order, finally closing the Settlement Fund and this case.5 B. Second Distribution Another option is to make a second distribution of the remaining funds to those Settlement Class Members who cashed their initial checks. Indeed, the idea of a second distribution was implicitly contemplated in the Final Order. (Final Order ¶ 11(a).) Apple does not oppose a second distribution, but suggests that should one be ordered, the administrative expenses relating to a second distribution be borne by the Settlement Fund. The Settlement Administrator estimated the costs of notice and administration at $775,000 in May 2014, but Apple has already incurred far more than that—$1,023,044.92 as of April 30, 2015 and increasing every day. (4th Passarella Decl. ¶ 15.) If the second distribution is going to be to the exclusive advantage of the subset of Settlement Class Members who have already had their claims paid and the associated checks cashed, it is only fair that those persons absorb the financial impact necessary to provide them that additional compensation above and beyond the “proportionate share” (Settlement Agreement ¶ 33) initially allocated to them. Contrary to movant’s suggestions, (Motion at 12-14), Apple’s obligation under the Settlement Agreement to pay for notice and administration expenses outside of the Settlement Fund is not unbounded. Rather, the Settlement Agreement provides that “Apple shall pay all costs of notice and costs of administration of this Settlement Agreement as set forth in section VI 5 Custodial escheat to the United States Treasury pursuant to 28 U.S.C. § 2042 would merely be an intermediate step, as the governments of the states of the individuals to whom those funds have been allocated have claim upon such funds held by the Treasury. See, e.g., Hodgson v. Wheaton Glass Co., 446 F.2d 527, 535 (3d Cir. 1971) (citing United States v. Klein, 303 U.S. 276 (1938)). Case3:10-cv-01610-RS Document169 Filed06/18/15 Page5 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 APPLE’S RESPONSE TO MOTION FOR DISTRIBUTION OF SETTLEMENT FUND CASE NO. CV 10-01610-RS 4 and VII below.” (Settlement Agreement ¶ 21 (emphasis added); see also id. (“In the event that the Court orders that class notice be distributed in a manner different and/or more costly than that described below, the Parties shall use good-faith efforts to reach a mutually acceptable agreement as to the manner in which such class notice shall be paid for and carried out.”).) In any event, even if the Settlement Agreement were clear and unambiguous in this regard, which it is not, movant’s own authority recognizes that the Court’s equitable powers allow it to take action “contrary to the terms of the settlement agreement.” (Motion at 10 (citing In re Bank of Am. Sec. Litig., 775 F.3d 1060, 1066 & n.5 (8th Cir. 2015). ) Moreover, in light of the language of paragraph 21 of the Settlement Agreement, Apple’s earlier statements that the Net Settlement Fund would not be diminished by notice and administrative expenses were true and not inconsistent with its current position. Each Settlement Class Member was allocated and distributed his or her “proportionate share” entirely at Apple’s expense. The extensive follow-up performed by the Settlement Administrator was similarly done entirely at Apple’s expense. (See 4th Passarella Decl. ¶¶ 3-12, 15.) All Settlement Class Members who cashed their checks got exactly what was bargained for and approved under the Settlement Agreement—their proportionate share paid for by Apple. Apple thus proposes that should the Court order a second distribution rather than escheat, such distribution should be paid out of the ample funds remaining in the Settlement Fund. Following a second distribution, any remaining funds could promptly be distributed pro rata among the cy pres recipients to close the Settlement Fund and this case. C. Cy Pres The Settlement Agreement and Final Order clearly contemplate a final distribution of remaining funds to cy pres recipients. (See, e.g., Settlement Agreement ¶ 18; Final Order ¶ 4(d).) The instant dispute principally revolves around whether the cy pres distribution should happen now or after a further distribution to the Settlement Class (whether through escheatment or a second distribution to those that cashed their checks). What is beyond dispute, however, is that during the approval process, none of the Parties or the Court contemplated that an amount Case3:10-cv-01610-RS Document169 Filed06/18/15 Page6 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 APPLE’S RESPONSE TO MOTION FOR DISTRIBUTION OF SETTLEMENT FUND CASE NO. CV 10-01610-RS 5 approaching $4.6 million, (4th Passarella Decl. ¶ 11), would be subject to cy pres distribution. Apple therefore opposes an immediate cy pres distribution. Indeed, the push by certain of Class Counsel for a very large and immediate cy pres distribution is squarely contrary to these same lawyers’ repeated representations to the Court that any cy pres distribution would occur only after best efforts had been made to distribute all funds to the Settlement Class Members and that any cy pres distribution would be minimal. The Response to Objections, signed by all Class Counsel, including those who now advocate an immediate cy pres distribution, asserts that only “in the unlikely event of a residual would any part of the Settlement Fund go to any of the proposed cy pres recipients.” (ECF No. 141 at 7.) The Response emphasizes that there will be a cy pres distribution only if there is a balance remaining in the Net Settlement Fund “after the Parties use their best efforts to fully compensate Settlement Class Members” and that “distributions to cy pres recipients, if any, will be minimal.” (Id. (emphasis added).) Indeed, at the final approval hearing, counsel who now favor immediate cy pres distribution told the Court: “If it’s between settlement class members and cy-pres we’re going to do everything we can to get the money to the settlement class before the cy-pres. If there’s a cy-pres residual, it will be minimal at best.” (Final Approval Hearing Transcript at 11- 12 (attached as Exhibit A).) Apple cannot help but note that the Class Counsel who have now reversed course and insist on a premature and immediate cy pres distribution have relationships with four of the five cy pres recipients. Clearly, the Parties believed that were there to be necessity of a cy pres distribution, it would be de mimimus. (Settlement Agreement ¶ 18 (“To the extent there is a balance remaining . . . .”); ECF No. 97 at 28 (“If any portion of the Settlement Fund remains after all of the distributions required by the Settlement Agreement and/or further distributions are impractical,” only then would the “remainder [] be distributed as cy pres.”); ECF No. 100 at 4 (“Only if there is a residual remaining . . . will any part of the Fund be paid to a cy pres recipient.”).) The Final Order also reflects this understanding. (Final Order ¶ 4(d) (“While the Settlement provides for potential cy pres distribution to approved non-profit organizations if the Settlement Fund is not Case3:10-cv-01610-RS Document169 Filed06/18/15 Page7 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 APPLE’S RESPONSE TO MOTION FOR DISTRIBUTION OF SETTLEMENT FUND CASE NO. CV 10-01610-RS 6 exhausted, any such distribution is likely to be small given the large number of validated claims.”).)6 An immediate cy pres distribution is therefore inappropriate. III. CONCLUSION For the foregoing reasons, Apple asks that a further distribution, either through escheatment (the best alternative to protect the interests of the silent class members) or a second distribution to Settlement Class Members who cashed their checks, occur before any remainder of the Settlement Fund is given to the cy pres recipients. Dated: June 18, 2015 MORRISON & FOERSTER LLP By: /s/ Penelope A. Preovolos Penelope A. Preovolos Attorneys for Defendant APPLE INC. sf-3538979 6 Although it can be debated whether approximately $4.6 million remaining in a $53 million fund qualifies as “small”, the approximately $918,000 in proposed distributions to each cy pres recipient would be very significant to certain of those recipients. The most recent IRS Form 990 available on ProPublica (http://projects.propublica.org/nonprofits/) shows the National Association of Consumer Advocates Inc. had revenues from all sources for 2012 of $926,601 (compared to expenses of $943,454) and for 2011 of $613,457 (compared to expenses of $1,079,960). (Ex. B.) The Center for Auto Safety is even smaller, with 2013 revenues of $545,330 (compared to expenses of $723,215) and 2012 revenues of $686,649 (compared to expenses of $722,628). (Ex. C.) Case3:10-cv-01610-RS Document169 Filed06/18/15 Page8 of 8