In Slavkov v. Fast Water Heater Partners I, LP, et. al. 2015 WL 6674575, at *2-3 (N.D.Cal., 2015), Judge Tygar found that efforts made by a FCRA class action defendant were misleading, and ordered curative efforts to be undertaken.
[Plaintiffs] challenge two letters sent by the Defendants to the putative class members, offering a settlement payment in exchange for the putative class members’ release of all claims in the case. ECF No. 55, Exh. 1 at 6. The first letter, sent on or about August 5, 2015, was accompanied by a proposed Voluntary Settlement, a check, and a copy of the First Amended Complaint, which had been filed on December 18, 2015. Declaration of Page R. Barnes, ECF No. 54, Exh. 3. It explained the nature of Plaintiffs’ claims and that they were seeking to bring a class action. Id. at 1. It also explained how to accept the settlement agreement and the consequences of doing so. Id. at 2. The letter gave the putative class members until August 26, 2015 to accept the offer. Id. On or about September 18, 2015, Defendants sent a second letter to follow up on the first. Id., Exh. 6. This second letter began by stating that the recipient had not yet responded to the settlement offer and noting that “there might be some confusion” about it. It then stated, apparently as clarification, that “The Company prefers to settle your potential claims — even if you do not believe that the Company has wronged you. The Company never presumed that those who accepted the offer believed the Company had wronged them.” Id. (emphasis in original). The letter then extended the deadline to accept the settlement offer to October 2, 2015. Id. Plaintiffs argue that these two letters “made misleading statements and material omissions in violation of the law.” ECF No. 55 at 6. They request that the Court (1) declare that any releases obtained from the communications are invalid; (2) enjoin the Defendants and their counsel “from any further communications with putative class members related to settlement or release of claims in this case without the consent of Plaintiffs or prior Court approval”; and (3) that a corrective notice be sent to the putative class members “which informs them that the releases are not valid, the statements in the previous communications are disputed and giving them clear information about the contact information for Plaintiffs’ counsel.”
Judge Tygar set forth the power of the district courts to control communications with putative class members.
“Because of the potential for abuse, a district court has both the duty and the broad authority to exercise control over a class action and to enter appropriate orders governing the conduct of counsel and parties.” Gulf Oil Co. v. Bernard, 452 U.S. 89, 100 (1981). “Rule 23(d) gives district courts the power to regulate the notice and opt-out processes and to impose limitations when a party engages in behavior that threatens the fairness of the litigation.” Wang v. Chinese Daily News, Inc., 623 F.3d 743, 756 (9th Cir. 2010), judgment vacated on other grounds, 132 S. Ct. 74 (2011). “The prophylactic power accorded to the court presiding over a putative class action under Rule 23(d) is broad; the purpose of Rule 23(d)’s conferral of authority is not only to protect class members in particular but to safeguard generally the administering of justice and the integrity of the class certification process.” O’Connor v. Uber Technologies, Inc., No. C-13-3826 EMC, 2014 WL 1760314, at *3 (N.D. Cal. May 2, 2014). Gulf Oil mandates that “an order limiting communications between parties and potential class members should be based on a clear record and specific findings that reflect a weighing of the need for a limitation and the potential interference with the rights of the parties.” 452 U.S. at 101. “[S]uch a weighing — identifying the potential abuses being addressed — should result in a carefully drawn order that limits speech as little as possible, consistent with the rights of the parties under the circumstances.” Id. at 102. An order under Gulf Oil “does not require a finding of actual misconduct” — rather, “[t]he key is whether there is ‘potential interference’ with the rights of the parties in a class action.” O’Connor v. Uber Technologies, Inc., No. C-13-3826 EMC, 2013 WL 6407583 at *4-5 (N.D. Cal. Dec. 6, 2013) Rule 23(d) does not prohibit offers of settlement to putative class members, see Gulf Oil, 452 U.S. at 95, but courts may limit communications that improperly encourage potential class members to not join the suit, especially if they fail to provide adequate information about the pending class action. See O’Connor, 2014 WL 1760314 at *6-7. The best notice will “contain an adequate description of the proceedings written in objective, neutral terms, that, insofar as possible, may be understood by the average absentee class member.” In re Nissan Motor Corp. Antitrust Litigation, 552 F.2d 1088, 1104 (5th Cir. 1977). Courts in this district have limited communications, as well as invalidated agreements that resulted from those communications, when they omitted critical information or were otherwise misleading or coercive. See, e.g., O’Connor, 2013 WL 6407583 at *6 (invalidating arbitration agreements that “shrouded” a class action waiver within one of many provisions in a Licensing Agreement); County of Santa Clara v. Astra USA, Inc., No. 05-3740 WHA, 2010 WL 2724512 (N.D. Cal. July 8, 2010) (invalidating releases obtained by letter to putative class that did not attach plaintiffs’ complaint, explain plaintiffs’ claims or the status of the case, or include contact information for plaintiffs’ counsel); Camp v. Alexander, 300 F.R.D. 617, 620, 624 (N.D. Cal. 2014) (invalidating opt-outs obtained by letter to employees of defendants stating the class action was “motivated by greed and other improper factors” and “could result in the closure” of the business, and failed to include any explanation of plaintiffs’ claims, a copy of the complaint, or contact information for plaintiffs’ counsel); Guifu Li v. A Perfect Day Franchise, Inc., 270 F.R.D. 509, 518 (N.D. Cal. 2010) (invalidating opt-out forms when defendant employer presented the forms in mandatory one-on-one meetings during work hours, failed to provide forms in workers’ primary language, and refused to give workers copies to take home); Wright v. Adventures Rolling Cross Country, Inc., No. 12-0982 EMC, 2012 WL 2239797 at *5 (N.D. Cal. June 15, 2012) (enjoining defendants from communicating with potential class members after they e-mailed members warning that if they participate in the suit, their “past transgressions will become very public” and they will be “left with tattered reputations and substantial legal bills”). Other courts throughout the country have also restricted communications or invalidated releases when the communications suffered from similar deficiencies. See, e.g., Kleiner v. First Nat’l Bank of Atlanta, 751 F.2d 1193, 1197 (11th Cir. 1985) (defendant bank conducted telephone campaign “shrouded” in “secrecy and haste” with explicit purpose of soliciting opt-outs from bank customers); Freidman v. Intervet Inc., 730 F. Supp. 2d 758, 764 (N.D. Ohio 2010) (defendant obtained settlement releases without informing class members they were giving up the right to participate in putative class action); In re Currency Conversion Fee Antitrust Litigation, 361 F. Supp. 2d 237, 251 (S.D.N.Y. 2005) (defendant did not inform class members of pending class action).
Judge Tygar concluded that the communications were misleading, and ordered curative efforts.
In sum, Defendants’ communications with the absent class members were misleading in two ways: first, by confusingly suggesting they could not contact Plaintiffs’ counsel, and second, by omitting mention that FLSA claims, and potentially others, would require judicial approval to be released. Set against the backdrop of the employer-employee relationship between Defendants and the recipients, these deficiencies create “potential interference” with the rights of the putative class that require judicial intervention under Rule 23(d). Accordingly, the Court holds that any settlement releases signed by a putative class member and obtained by Defendants are invalid. A curative notice shall also be sent to all recipients of the Defendants’ communications, notifying them that the settlement agreements are invalid. The parties shall submit competing proposed curative notices to the Court within seven days after the issuance of this order. The Court does not find, however, that the additional remedy of enjoinment of future communications is necessary or appropriate here. Under Gulf Oil, any order regarding communications between parties and the putative class must be “carefully drawn” to “limit[ ] speech as little as possible.” Gulf Oil Co. v. Bernard, 452 U.S. 89, 102 (1981). Here, Plaintiffs have not shown that Defendants’ communications were so harmful that their rights to further contact with the putative class needs to be restricted. Nor have they shown a serious risk that Defendants will again mislead the absent class members in future communications. Though the letters and settlement agreement contained serious deficiencies, the Defendants also appear to have made efforts to craft neutral and objective language when conveying information about the lawsuit to the putative class. Accordingly, at this stage of the litigation the Court denies the request to enjoin Defendants from further communications withthe absent class members. . . . Plaintiffs’ application to invalidate any settlement releases obtained by Defendants and to send a curative notice is granted. The parties shall submit competing proposals for a curative notice to the Court within seven days of the issuance of this order. The notice should inform the recipients that the releases are invalid, and summarize the Court’s reasoning, as described above, for invalidating them. Plaintiffs’ application to enjoin Defendants from communicating with the putative class is denied.