Wershba v. Apple Computer, Inc.

Decision Date31 July 2001
Docket NumberNo. H020625.,H020625.
Citation91 Cal.App.4th 224,110 Cal.Rptr.2d 145
CourtCalifornia Court of Appeals Court of Appeals
PartiesShirley WERSHBA, Plaintiff and Respondent, v. APPLE COMPUTER, INC., Defendant and Respondent. Consumer Advocates et al., Plaintiffs and Respondents, v. Apple Computer, Inc., Defendant and Respondent; Francis X. Doherty et al., Objectors and Appellants.

Francis X. Doherty, J. Edward Kerley, Marysia S. Okreglak, Thornton, Taylor, Downs, Becker, Tolson & Doherty, San Francisco, Attorney for Objector and Appellant Francis X. Doherty

Andrew J. McGuinness, Dykema Gossett, PLLC, Ann Arbor, MI, for Objector and Appellant James S. Rudolph.

Penelope A. Preovolos, Dean J. Zipser, Carole E. Reagan, Morrison & Foerster, LLP, Irvine, Attorneys for Defendant and Respondent Apple Computer, Inc.

Martin W. Anderson, Fred W. Anderson, Anderson & Anderson, Santa Ana, William M. Audet, Alexander, Hawes & Audet, San Jose, Joseph J. Tabacco, Jr., Berman, Devalerio, Pease & Tabacco, San Francisco, Attorneys for Plaintiffs and Respondents Shirley Wershba and Consumer Advocates.

BAMATTRE-MANOUKIAN, J.

In these consolidated class actions against Apple Computer, Inc. (Apple), the court entered judgment certifying a nationwide class and approving a class settlement. Francis X. Doherty and James S. Rudolph, who objected to the class settlement in the trial court, appeal. They argue that the settlement was not fair and reasonable, that the trial court applied improper criteria in certifying the nationwide class and failed to protect the rights of absent class members, and that notice was legally inadequate. In addition, appellant Doherty argues that the award of attorney fees and expenses was improper and was not supported by the evidence. We reject these claims and affirm the judgment.

BACKGROUND

In the fall of 1997, Apple was experiencing financial difficulties. As part of its effort to cut costs, Apple decided to restructure its technical support policies. On October 13, 1997, Apple issued a press release announcing that it would discontinue its prior practice of providing free telephone technical support to purchasers of certain Apple products. The free support "for as long as you own your Apple product" had been promised in brochures advertising and accompanying the products. Technical support would henceforth be available through other means, including a telephonic voice response system and internet-based support. Customers who wished to continue to obtain live telephone technical support could do so for a fee of $35 per incident, or could purchase a multi-incident support contract for $69. The change in policy was to be "effective immediately."

By letter dated November 7, 1997, the Federal Trade Commission (FTC) notified Apple that it was initiating an investigation into Apple's change of policy regarding technical support.

On November 24, 1997, the first of three class action lawsuits against Apple was filed in Orange County. (Consumer Advocates and Prado v. Apple Computer, Inc. (Super. Ct. Orange County, 1997, No. 787214), hereafter referred to as the Prado action.) The complaint alleged that the class consisted of Apple customers who had purchased a covered product and were affected by the withdrawal of free technical support. The complaint alleged further that Apple's change in its technical support policy breached its contracts with its customers and violated the California Business and Professions Code (Bus. & Prof.Code, § 17200, et seq.) and the California Consumers Legal Remedies Act. (Civ.Code, § 1750, et seq.) The complaint sought injunctive relief, restitution, damages, punitive damages, and attorney fees. Discovery commenced in the Prado action and continued during 1998.

During the spring and summer of 1998, Apple negotiated separately with the FTC and with the Prado plaintiffs in an attempt to reach settlements. The parties in the Prado action eventually agreed to a mediation before retired Orange County Superior Court Presiding Judge Leonard Goldstein, which commenced in the early fall of 1998. Meanwhile, two other class actions were filed, both in Santa Clara County Superior Court. On July 27, 1998, Wershba v. Apple Computer, Inc. (Super. Ct. Santa Clara County Superior Court, 1998, No. CV775618) was filed. A third class action lawsuit was filed on September 2, 1998 (Dobos v. Apple Computer, Inc.) and was later dismissed without prejudice. The allegations of the complaints in these three actions were virtually identical.

At the time of the mediation in the Prado action, counsel for the Prado plaintiffs was advised of the other two class actions and also learned of the FTC investigation. Plaintiffs' counsel in Prado contacted the FTC in an attempt to coordinate settlement negotiations, but the FTC would not confirm or deny that it was conducting an investigation. On September 29, 1998, Prado filed a motion for class certification in the Orange County Superior Court. Because settlement negotiations were ongoing, the hearing on the motion for class certification was continued several times.

The parties in the Prado action participated in three mediation sessions with retired Judge Goldstein in September and October of 1998. Prado obtained further discovery during mediation as to the size of the class, the amount of money Apple had received from customers paying for telephone support under the new policy, and the cost of reinstating free telephone technical support. By all accounts, the negotiations were hard fought and the settlement terms were vigorously contested.

By October 18, 1998, Apple had agreed to settle the Prado class action. The basic components of the settlement were: (1) Apple would resume free live telephone technical support; (2) Apple would refund to class members all monies paid to Apple for technical support during the time free support was unavailable; (3) Apple would reimburse up to $35 to class members who had paid third parties for technical support; and (4) Apple would provide $50 coupons to class members who were denied technical support but did not incur any expenses in obtaining technical support elsewhere. The parties then engaged in discussion with counsel for plaintiffs in the other two filed class actions in order to consolidate the actions and negotiate a global settlement. The Prado action was transferred to Santa Clara County Superior Court and all of the cases were consolidated for purposes of the settlement approval process. The parties arrived at an agreement in principle on a global settlement on December 2, 1998.

On January 26, 1999, the FTC announced that it had reached a proposed settlement agreement with Apple as a result of its investigation. Under this proposed settlement Apple agreed to reinstate its free live technical support and to refund to its customers fees paid for technical support after the free technical support policy was discontinued in October of 1997. The settlement agreement containing a consent order was finally approved and entered on July 29, 1999.

Meanwhile, once the class actions were consolidated and the key terms of the settlement had been agreed on, the parties attempted to negotiate the issue of plaintiffs' attorney's fees. Once again the matter was submitted to mediation, this time before retired Judge Daniel Weinstein of the San Francisco Superior Court. Mediation concluded on February 10, 1999, with a "last offer" arbitration based upon briefing and argument by the parties. Class counsel sought an award of $1,075,000. Apple submitted the figure of $875,000. The mediator chose Apple's figure and recommended awarding class counsel fees and expenses of $875,000.

On March 26, 1999, the Santa Clara County Superior Court issued an order granting preliminary approval to the proposed class settlement, granting conditional certification of the nationwide settlement class, and approving the forms and methods of class notice. The court set a final hearing for August 20, 1999, to consider and determine whether the requirements for certification of the class were met, whether the proposed settlement should be approved, whether attorney's fees should be approved, and whether final judgment approving the settlement and dismissing the actions should be entered. Papers submitted to the court in support of these orders advised the court that "a proceeding commenced by the Federal Trade Commission" involving Apple's change in its technical support policy was "pending."

Apple mailed or e-mailed notice to approximately 2.4 million class members, including claim forms, releases and instructions, and in addition posted notice on its internet web site and published the class notice in USA Today and MacWorld. The notice provided that any class member who wished to be excluded from the class or who wished to object to any aspect of the proposed settlement agreement, including class certification and the payment of attorney fees, must do so by July 2, 1999. Notice further provided that claims for reimbursement for money paid to third parties and claims for coupons were to be postmarked no later than September 8, 1999. Only 363 class members chose to opt out of the settlement. Only 20 class members objected to the settlement and of those only two, the appellants in the present case, appeared at the hearing.

Francis X. Doherty filed his objections to the proposed settlement on June 28, 1999. He objected on general grounds that the settlement did not fairly compensate the class members and that the attorney fee award was inappropriate. Doherty's points and authorities in support of his objections were not filed until August 13, 1999, only a week before the hearing. He contended that the settlement was not reasonable in light of clear proof of Apple's liability and that the court had not complied with its fiduciary duties to protect the absent class members. He argued that the $50 coupons offered as part of Apple's...

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