State of California v. Levi Strauss & Co.

• Decision Date: 20 March 1986
• Docket Number: S.F. 24699
• Court: California Supreme Court
• Parties: , 715 P.2d 564, 54 USLW 2497, 1986-1 Trade Cases P 67,018 The STATE of California, Plaintiff and Respondent, v. LEVI STRAUSS & CO., Defendant and Respondent; Hannah Kerner, Intervener and Appellant.

Page 605

224 Cal.Rptr. 605

41 Cal.3d 460, 715 P.2d 564, 54 USLW 2497,

1986-1 Trade Cases P 67,018

The STATE of California, Plaintiff and Respondent, v. LEVI STRAUSS & CO., Defendant and Respondent;

Hannah Kerner, Intervener and Appellant.

S.F. 24699.

Supreme Court of California,

In Bank.

March 20, 1986.

As Modified on Denial of Rehearing May 29, 1986.

Anita P. Arriola, Robert L. Gnaizda, Gary J. Near, San Francisco, and Oliver Jones, Oakland, for intervener and appellant.

Carlyle W. Hall, Jr., Bill Lann Lee and Marilyn O. Tesauro, Los Angeles, as amici curiae on behalf of intervener and appellant.

John K. Van de Kamp, Atty. Gen., Andrea Sheridan Ordin, Chief Asst. Atty. Gen., Sanford N. Gruskin, Asst. Atty. Gen., Peter K. Shack and Owen Lee Kwong, Deputy Attys. Gen., for plaintiff and respondent.

M. Laurence Popofsky, Robert J. Vizas, Jessica S. Pers and Heller, Ehrman, White & McAuliffe, San Francisco, for defendant and respondent.

BIRD, Chief Justice.

This court granted a hearing in this case primarily to consider the appropriate methods for distributing damages in consumer class actions. That issue arose as an aspect of intervener's appeal from the superior court's approval of a class action settlement. As will appear below, it is now clear 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.

However, a sizable residue has developed in the intervening period, consisting of damages due to claimants who can no longer be located and interest on those damages. This residue remains unallocated under the settlement approved by the trial court. Today's ruling will serve as a source of guidance both for the trial court on remand in allocating the residue and for other courts in confronting the largely uncharted area of fluid recovery. Therefore, it is appropriate to address the damage distribution issue on which hearing was granted.

I.

Intervener appeals from the superior court's approval of a class action settlement. The settlement purports to resolve the widely publicized antitrust action brought by the Attorney General on behalf of the state and consumers against Levi Strauss & Co., a clothing manufacturer. The action sought monetary relief for millions of consumers who were assertedly overcharged on jeans purchased during the early 1970's.

As finally approved, the settlement yielded between 35 and 40 cents per pair of jeans, an average individual recovery of $2.60-$3. The Attorney General's office was awarded $1.2 million in attorney fees, and the costs of administration were estimated at $1.8-$2.2 million. The total amount allocated to consumers was approximately $9.3 million. This amount, plus accumulated interest, is currently deposited with the state pending the outcome of this appeal.

Intervener, along with 19 objectors, ¹ challenged both the fairness of the process which led to the settlement and the fairness and reasonableness of the outcome. First, she questioned the settlement's plan for distributing the money to individual consumers. She argued that the court erred in approving the distribution of class funds on the basis of claims nearly 95 percent of which were unsworn and unverified. She also suggested that the individual recoveries are trivial and where--as here--there is no feasible method for verifying the overwhelming majority of claims, an aggregate remedy such as the establishment of a consumer trust fund should be preferred.

Second, intervener maintained that the trial court failed to provide adequate means for dissenting class members to participate and express their preferences. Specifically, she argued that the court denied her attempts to discover the factual and economic basis of the settlement, placed obstacles in the way of participation by objectors, failed to file or respond to the over 300 objections that were submitted, denied her a modest sum to conduct a poll of class preferences, and approved a nonneutral class notice that promoted the settlement and failed to provide information essential to an intelligent choice.

The facts are set forth in detail below.

On May 5, 1976, after an extensive investigation, the Federal Trade Commission (the Commission) issued an administrative complaint against Levi Strauss & Co. The complaint charged the company with pressuring retailers to maintain high prices in violation of federal antitrust law.

In late 1977, the Commission and the company entered into a consent decree. By the terms of the decree, the company agreed to cease all efforts to control retail pricing.

Some time later, the then Attorney General, Evelle Younger, obtained the results of the Commission's investigation and began his own inquiry into the impact of the company's activities on California consumers. On the basis of the information thus acquired, he tentatively decided to bring suit alleging violations of the Cartwright Act (Bus. & Prof. Code, § 16720 et seq.), ² California's antitrust law. He informed the company of his intent and began negotiations for a settlement.

Between March and June of 1978, the Attorney General and Levi Strauss negotiated their first proposed settlement in the amount of $3.5 million. The settlement provided that the money be distributed to individuals on a pro-rata basis according to the number of pairs of men's and boys' jeans purchased during the period 1972-1975.

In June of 1978, the state, represented by the Attorney General, commenced this action in the superior court, both as a class action on behalf of itself and similarly situated consumers (Code Civ.Proc., § 382) and as a suit in parens patriae on behalf of its residents ( § 16760). At the same time, the Attorney General notified the court of the proposed settlement.

Shortly afterward, a number of prospective interveners including Hannah Kerner, the present named intervener, learned of the proposed settlement and filed a declaration in opposition. It argued that individual distribution would produce only small individual returns and that, without prohibitively expensive security measures, a large percentage of the fund would be distributed to persons who did not in fact purchase jeans during the relevant period. It also averred that the requirement of written claim forms would discourage low income and minority members of the class from claiming and receiving their fair share of the recovery.

As an alternative to individual distribution, interveners' declaration proposed that the settlement money be used to establish a nonprofit corporation which would administer a "consumer trust fund." This corporation would engage in consumer protection projects, including research and litigation. It would be controlled by a board of nine directors, five appointed by the Governor and four by the Attorney General. The corporation would be organized so that it could receive funds from future class action settlements.

The court granted leave to intervene.

In the early fall of 1978, the Attorney General and the company had a dispute over the accuracy of the sales figures used as a basis for the proposed settlement. As a result, the proposed settlement was abandoned and the Attorney General commenced discovery.

In January of 1980, then Attorney General George Deukmejian moved to certify a class consisting of all current California residents who purchased Levi Strauss products at retail during the 1972-1975 period. At various times, the Attorney General estimated that this class consisted of from several to 7 million households.

While the class certification motion was under consideration by the court, the Attorney General and the company negotiated what might be called a "gamble" agreement. This agreement provided that if the requested class of a specified variant were certified, the company would pay $12.5 million. However, if the class were not certified, the company would pay $5.5 million.

In July of 1980, the court certified the class as requested. Shortly thereafter, the Attorney General and the company informed the court of the second proposed settlement, which--like the first--provided for individual distribution. Costs of distribution were projected to be as high as $2.2 million. In addition, the Attorney General's office was to receive an attorney's fee of $1.2 million.

The court determined that the new proposed settlement merited consideration and granted the Attorney General $75,000 from the settlement fund to prepare a plan of distribution.

Intervener reasserted her objections to an individual distribution plan and averred that a substantial percentage, if not a majority, of the class shared her views. She moved for $12,000 to enable her to conduct a survey of class preferences and to study ways to prevent fraud and to encourage participation by minority and low income class members. This motion was denied pending the development of the Attorney General's plan.

In November of 1980, the Attorney General submitted his plan of distribution. It provided for individual notices, printed in English and Spanish, to be mailed to 8.6 million households. An additional 3.4 million notices were to be made available at various pickup centers around the state.

The legal notice of settlement, which set forth the terms of the agreement and the options available to class members, was sandwiched between an introductory letter, signed by the Attorney General, and a claim form for those class members who desired to participate in the settlement. The Attorney General's letter, labeled "Cash Refund Notice," urged eligible consumers to claim their cash refunds by returning the enclosed claim form. It stated that the Attorney General "has settled" the action and that purchasers "are now eligible for a cash refund of up to $2.00 per pair." It did not mention the legal requirement that the court approve.

The notice was to be mailed in a folded cover...