Frustration Over Terms Of Class Action Settlements And Defense Practice Of Refusing To Admit Wrongdoing

Oct 14, 2006 | By: Michael J. Hassen

Reporter Shines Light on Concerns Arising from Standard Defense Provision in Class Action Settlement Agreements that Defendant is not Admitting Liability

David Lazarus of the San Francisco Chronicle questions the standard defense provision in class action settlement agreements that the settlement does not constitute an admission of liability. He focuses on the recent settlement by Wells Fargo Bank in which he reports “it agreed to pay $12.8 million to settle a lawsuit claiming the bank unlawfully exempted as many as 4,500 workers from overtime pay by classifying them as analysts or consultants” but denied any wrongdoing. Mr. Lazarus identifies several other settlements that follow the same pattern. While understandable, any consumer frustration over this standard provision reflects in part unfamiliarity with the costs – financial and otherwise – associated with class action litigation, and fails to recognize that such provisions are standard clauses in virtually all settlement agreements, class action and non-class action.

Mr. Lazarus quoted this author’s observation that one reason defendants deny liability is so that the issue may be litigated in a future proceeding, if necessary. The concern is not that the settlement will “spark a flurry of lawsuits in other states,” but rather that the company will be precluded from obtaining a judicial determination on the merits in a future case. Very few companies blatantly violate the plain language of the law, and all attorneys recognize that the outcome of a trial can never be 100% guaranteed, no matter how strong the case. Rather, many of the legal issues presented in class action and other complex or high-liability cases fall into the “gray” areas of the law. For example, whether a grocery store manager is exempt from overtime often turns on the individual facts of the particular case, see, e.g., Dunbar v. Albertson’s, Inc., 141 Cal.App.4th 1422 (Cal.App. 2006) (refusing to certify class action on behalf of grocery store managers because of individual issues of liability and damages), whether employee commissions are subject to charge-backs or constitute wages turns on the specific facts of each case, see, e.g., Koehl v. Verio, Inc., ___ Cal.App.4th ___, 48 Cal.Rptr.3d 749 (Cal.App. 2006) (holding employer’s program did not violate California law, and awarding damages and attorney fees to employer).

If Albertson’s had settled the class action filed by Dunbar and if Verio had settled the class action filed by Koehl, those cases would have qualified for the list in Mr. Lazarus’s article. They represent concrete examples of why a company does not want to cut-off its right to litigate a future case involving the same issues.

The article by David Lazarus, entitled “They Pay But Deny Any Guilt,” may be found in the Business Section of the October 13, 2006 edition of the San Francisco Chronicle.

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