Moorer v. Stemgenex Medical Group, Inc.

[7] 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA [10] 11 SELENA MOORER, individually and on Case No.: 16-cv-02816-AJB-NLS behalf of others similarly situated, [12] Plaintiffs, ORDER GRANTING PLAINTIFFS’ 13 UNOPPOSED MOTION FOR v. PRELIMINARY APPROVAL OF [14] STEMGENEX MEDICAL GROUP, PARTIAL CLASS ACTION 15 INC., a California corporation; SETTLEMENT STEMGENEX, INC., a California [16] corporation; STEM CELL RESEARCH (Doc. No. 171) 17 CENTRE, INC., a California Corporation; ANDRE P. LALLANDE, D.O., an [18] Individual; SCOTT SESSIONS, M.D., an 19 Individual; RITA ALEXANDER, an Individual; and DOES 1-100, [20] Defendants. [21] 22 Presently before the Court is Selena Moorer, Rebecca King, Jennifer Brewer, and 23 Alexandra Gardner, including Subclass A Representatives Jennifer Brewer and Alexandra 24 Gardner, and Subclass B Representatives Andrea Andrews and Jennifer Delaney’s 25 (collectively, “Plaintiffs”) motion for orders: (1) granting preliminary approval of a partial 26 settlement between the Class Members and Defendant Andre P. Lallande, D.O. 27 (“Lallande”) pursuant to Fed. R. Civ. P. 23(e), and (2) finding the settlement between the 28 Class Members and Lallande a “good faith settlement,” within the meaning of Sections 877 1 and 877.6 of the California Code of Civil Procedure. (Doc. No. 171.) The motion is 2 unopposed. Having reviewed the parties’ moving papers under controlling legal authority, 3 and pursuant to Local Civil Rule 7.1.d.1, the Court finds the matter suitable for disposition 4 on the papers and without oral argument. For the reasons set forth below, the Court 5 GRANTS Plaintiffs’ unopposed motion in its entirety. 6 I. BACKGROUND 7 On August 22, 2014, Plaintiffs filed a putative class action complaint against 8 multiple Defendants in the Superior Court of California, County of San Diego, alleging 9 violations of California’s Unfair Competition Law, Business and Professions Code 10 § 17200, et seq., (“UCL”), California’s False Advertising Law, Business and Professions 11 Code § 17500, et seq., (“FAL”), California’s Consumer Legal Remedies Act, California 12 Civil Code § 1770, et seq., (“CLRA”), California’s Health and Safety Code § 24170, et 13 seq., (“Human Experimentation”), 18 U.S.C. § 1961 , et seq., (“RICO”), Fraud, Negligent 14 Misrepresentation, and Unjust Enrichment. (Doc. No. 1-2.) On September 15, 2016, 15 Plaintiffs filed a First Amended Complaint, (“FAC”), to include a claim for damages under 16 the CLRA. (Doc. No. 1-3.) The FAC contained similar factual allegations, but added 17 Plaintiff Stephen Ginsberg to the action and alleged an additional claim for Financial Elder 18 Abuse. (Id.) On November 16, 2016, Defendants removed the action to this Court pursuant 19 to 28 U.S.C. § 1441 (a) and (b). (Doc. No. 1.) 20 The operative complaint alleges that Defendants engaged in a nationwide scheme to 21 “wrongfully market and sell ‘stem cell treatments’” to consumers who are often “sick or 22 disabled, suffering from incurable diseases and a dearth of hope.” (Doc. No. 24 at 3.) 23 Specifically, Plaintiffs allege that Defendants advertised their “stem cell treatments” to 24 consumers via their website and made misrepresentations that the treatments “effectively 25 treat a multitude of diseases,” when in actuality, Defendants maintained “no reasonable 26 basis” to make these claims. (Id.) Plaintiffs further allege that Defendants represented to 27 consumers that “100% of its prior consumers are satisfied with its service,” while omitting 28 material information about its services, including consumer dissatisfaction and complaints 1 regarding the ineffectiveness of the treatments. (Id.) These statements were based upon 2 “Patient Satisfaction Ratings” or “PSR” collected by Defendants. Plaintiffs represent a 3 class of all consumers nationwide who purchased Stem Cell Treatments from Defendant 4 StemGenex between December 8, 2013 and present, and a subclass of all members of the 5 nationwide class aged 65 years or older at the time of purchase. (Id. ¶¶ 64–65.) Plaintiffs 6 allege that each customer was exposed to Defendants’ website, relied on Defendants’ “false 7 and misleading marketing” of the Stem Cell Treatments, and have been harmed as a result. 8 (Id.) 9 Specifically, Plaintiff Moorer, suffering from lupus, and Plaintiff Gardener, 10 suffering from diabetes, each relied upon the customer satisfaction statistics posted on the 11 StemGenex website in deciding to purchase Defendants’ Stem Cell Treatments. (Id. ¶¶ 8– 12 9A.) Plaintiffs allege that each Plaintiff paid a total of $14,900.00 for the treatment, did not 13 benefit from the treatment, and informed Defendants of their dissatisfaction. (Id. ¶¶ 8–9A, 14 11.) Further, Plaintiffs allege they would “not have paid for the Stem Cell Treatment had 15 they known that the statistics on the StemGenex website regarding consumer satisfaction 16 were false, and that StemGenex had no reasonable basis for its marketing claim that the 17 Stem Cell Treatments were effective to treat diseases as advertised.” (Id. ¶ 10.) 18 II. PROCEDURAL HISTORY 19 On August 6, 2018, Plaintiffs filed a motion for class certification. (Doc. No. 95.) 20 The motion was granted by the Court on June 25, 2019. (Doc. No. 134.) On December 24, 21 2019, the Ninth Circuit issued an order granting a request for permission to appeal this 22 Court’s class certification order by four of the Defendants: StemGenex, Inc., StemGenex 23 Medical Group, Inc., Stem Cell Research Centre, Inc., and Rita Alexander (collectively, 24 “the StemGenex Defendants”). Defendant Lallande filed a motion to join or intervene in 25 the appeal as an appellant. On October 30, 2020, during the pendency of the appeal, 26 Plaintiffs filed an unopposed motion for preliminary approval of partial settlement as to 27 Defendant Lallande only. As a condition of settlement, Defendant Lallande agreed to file 28 a notice of withdrawal of and/or motion to withdraw motion to intervene on October 15, 1 2020, which was granted by the Ninth Circuit on October 30, 2020. (Doc. No. 171-1 at 11.) 2 The appeal as to the StemGenex Defendants is currently pending, and this order follows. 3 III. LEGAL STANDARD 4 “Voluntary conciliation and settlement are the preferred means of dispute resolution 5 in complex class action litigation.” Smith v. CRST Van Expedited, Inc., No. 10-CV-11166 IEG (WMC), 2013 WL 163293 , at *2 (S.D. Cal. Jan. 14, 2013) (citing Officers for Justice 7 v. Civil Serv. Comm’n of City & Cnty. of S.F., 688 F.2d 615, 625 (9th Cir. 1982)). “In a 8 class action, however, any settlement must be approved by the court to ensure that class 9 counsel and the named plaintiffs do not place their own interests above those of the absent 10 class members.” Dennis v. Kellogg Co., 697 F.3d 858, 861 (9th Cir. 2012); see also Fed. 11 R. Civ. P. 23(e) (“The claims, issues, or defenses of a certified class may be settled . . . 12 only with the court’s approval.”). 13 IV. DISCUSSION 14 “[C]ourt approval of a class action settlement involves a two-step process— 15 preliminary approval, followed by final approval of the settlement. . . .” In re M.L. Stern 16 Overtime Litig., No. 07-CV-0118-BTM (JMA), 2009 WL 995864 , at *3 (S.D. Cal. Apr. 17 13, 2009). In this case, the Court is at the first step—preliminary approval. This “initial 18 decision to approve or reject a settlement proposal is committed to the sound discretion of 19 the trial judge.” Officers for Justice, 688 F.2d at 625 . The “Court need not review the 20 settlement in detail at this juncture; instead, preliminary approval is appropriate so long as 21 the proposed settlement falls within the range of possible judicial approval.” In re M.L. 22 Stern Overtime Litig., 2009 WL 995864 , at *3 (citation and internal quotation marks 23 omitted). However, even at this preliminary stage, “a district court may not simply rubber 24 stamp stipulated settlements.” Kakani v. Oracle Corp., No. C 06-06493 WHA, 2007 WL 25 1793774, at *1 (N.D. Cal. June 19, 2007). Rather, the Court must “ratify both the propriety 26 of the certification and the fairness of the settlement.” Staton v. Boeing Co., 327 F.3d 938 , 27 952 (9th Cir. 2003). 28 // 1 A. The Propriety of Class Certification 2 To approve a settlement, a district court must first make a finding that a class can be 3 certified. Rule 23(a) sets out four prerequisites for class certification: (1) numerosity, (2) 4 commonality, (3) typicality, and (4) adequacy of representation. See Fed. R. Civ. P. 23(a). 5 In the Court’s June 25, 2019 order granting Plaintiff’s motion for class certification, (Doc. 6 No. 134), the Court found all the prerequisites present for class certification. Following 7 this decision, the StemGenex Defendants appealed the Court’s order to the Ninth Circuit. 8 (Doc. No. 135.) Thus, the question is whether the pending appeal affects the Court’s 9 finding of the appropriateness of class certification. The Court concludes it does not. 10 Defendant Lallande filed with the Ninth Circuit a petition seeking to intervene in the 11 appeal. However, as a condition of settlement, Lallande filed a notice of withdrawal of 12 and/or motion to withdraw motion to intervene on October 15, 2020, which was granted 13 by the Ninth Circuit on October 30, 2020. (Doc. No. 171-1 at 11.) Moreover, Plaintiffs and 14 Lallande agreed that the instant settlement is not conditioned on the StemGenex 15 Defendants’ appeal. In particular, the parties agreed “[a]ll financial and other obligations 16 in the settlement are expressly conditioned on preliminary and final approval, and if the 17 Appeal results in any de-certification of any of the 1,063 Class Members, it will have no 18 effect on the settlement; in such event, the parties stipulated to certification of a “settlement 19 class” consisting of the same 1,063 Class Members for the sole purpose of effectuating a 20 settlement under their agreement.” (Doc. No. 171-1 at 12; Doc. No. 171-4, Ex. 1, Section 21 C.1.) 22 As such, based on this Court’s prior certification of Plaintiffs’ class, and the parties’ 23 stipulation that the StemGenex Defendants’ appeal will have no bearing on the settlement, 24 the Court finds the settlement class meets the requirements of Rule 23 for the purpose of 25 preliminary approval of this partial settlement. 26 B. Fairness of the Proposed Settlement 27 In conducting the second part of the inquiry, Federal Rule of Civil Procedure 23(e) 28 requires a district court to determine whether a proposed class action settlement is 1 fundamentally fair, adequate, and reasonable. See Class Plaintiffs v. City of Seattle, 955 2 F.2d 1268 , 1276 (9th Cir. 1992). “It is the settlement taken as a whole, rather than the 3 individual component parts, that must be examined for overall fairness.” Hanlon v. 4 Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998), overruled on other grounds by Wal5 Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011); see also Officers for Justice, 688 F.2d at 6 630 (holding a settlement must stand or fall in its entirety because a district court cannot 7 “delete, modify or substitute certain provisions”). A court must assess several factors to 8 determine the overall fairness of a proposed class action settlement: “the strength of the 9 plaintiffs’ case; the risk, expense, complexity, and likely duration of further litigation; the 10 risk of maintaining class action status throughout the trial; the amount offered in settlement; 11 the extent of discovery completed and the stage of the proceedings; the experience and 12 views of counsel; the presence of a governmental participant; and the reaction of the class 13 members to the proposed settlement.” Hanlon, 150 F.3d at 1026 . 14 Several factors weigh in favor of a finding of fairness. First, the parties have engaged 15 in significant discovery and law-and-motion practice. The facts and the parties’ respective 16 legal positions have been extensively briefed in this Court, and in the Ninth Circuit. Class 17 Counsel has also accumulated significant discovery related to Defendants’ business, 18 including data learned from litigation in parallel proceedings in Bankruptcy Court. See In 19 re Wireless Facilities, Inc. Secs. Litig. II, 253 F.R.D. 607, 610 (S.D. Cal. 2008) 20 (“Settlements that follow sufficient discovery and genuine arms-length negotiation are 21 presumed fair.”). 22 Second, that the settlement was reached with the assistance of an experienced 23 mediator further suggests that the settlement is fair and reasonable. See Bellinghausen v. 24 Tractor Supply Co., 303 F.R.D. 611, 620 (N.D. Cal. 2014) (noting that discovery and the 25 use of a mediator “support the conclusion that the Plaintiff was appropriately informed in 26 negotiating a settlement” (citation omitted)). On August 20, 2020, the parties—Plaintiffs, 27 StemGenex Defendants, and Lallande—all attended a private mediation conducted by 28 Judge Carl West (Ret.) of JAMS. (See Declaration of Timothy G. Williams (“Williams 1 Decl.”), ¶ 2.) All counsel, parties, and insurance carrier adjusters attended via Zoom. (Id.) 2 After weeks of additional settlement discussions between Plaintiffs and Lallande, an 3 agreement was reached to settle Plaintiffs and all Class Members’ claims in the action 4 against Lallande. The agreement has been reduced to writing and executed as of October 5 10, 2020. (Doc. No. 171-4.) 6 Third, courts generally afford great weight to the recommendation of counsel with 7 respect to settlement because counsel “are better positioned than courts to produce a 8 settlement that fairly reflects each party’s expected outcome in the litigation.” In re Pac. 9 Enters. Secs. Litig., 47 F.3d 373, 378 (9th Cir. 1995). Here, counsel found that the strengths 10 and risks of the case support the compromises reached by both sides. Counsel notes the 11 agreement results in monetary relief to Class Members but does not foreclose additional 12 relief from the StemGenex Defendants. Given Plaintiffs’ counsels’ experience with similar 13 class action litigation, the Court finds that affording deference to their decision to settle the 14 case, as well as the terms of that settlement, is appropriate. 15 Taken together, these facts support finding the settlement to be fair, reasonable, and 16 adequate. 17 C. California Code of Civil Procedure Section 877 Good Faith Settlement 18 Next, Plaintiffs seek a determination by the Court that the partial settlement is in 19 good faith pursuant to California Code of Civil Procedure Section 877. Section 877 20 generally permits a plaintiff to release one of several defendants claimed to be liable for 21 the same damages, and Section 877.6 describes the process in which such a settlement may 22 be determined by the court to be in good faith which would bar other defendants from 23 further claims against the settling defendant. (Doc. No. 171-1 at 19.) A federal court sitting 24 in diversity has discretion to determine whether a settlement is in good faith under 25 California Code of Civil Procedure Section 877.6. See Mason & Dixon Intermodal, Inc. v. 26 Lapmaster Int’l LLC, 632 F.3d 1056, 1064 (9th Cir. 2011). When a settlement is 27 determined to have been made in good faith, further negligence-based equitable 28 contribution or comparative indemnity claims against settling parties are barred “so long 1 as the other tortfeasors were given notice and an opportunity to be heard.” Gackstetter v. 2 Frawley, 135 Cal. App. 4th 1257, 1273 (2006). A determination that a settlement has been 3 conducted in good faith will also “reduce the claims against the [remaining defendants] in 4 the amount stipulated by the release.” Cal. Civ. Proc. Code § 877 (a). 5 When making a determination that a settlement was made in good faith pursuant to 6 section 887.6(a)(2), a court considers the following: (1) the amount of the settlement; (2) a 7 rough approximation of plaintiff’s total recover and the settlers’ proportionate liability; (3) 8 allocation of settlement proceeds among the plaintiff’s settlement; (4) the settlers’ financial 9 condition and insurance limits; (5) evidence of fraud or collusion; and (5) a recognition 10 that a settler should pay less in settlement than he would if he were found liable at trial. 11 See Tech–Bilt, Inc. v. Woodward–Clyde & Associates, 38 Cal.3d 488 , 499–500 (1985). 12 Here, Lallande’s settlement payment of $2,500,000 through a professional liability 13 insurance policy with The Doctors Company (“TDC”) is a good faith settlement. The 14 uncertainties of a subsequent trial, including Lallande’s liability to the Class both 15 individually and as a portion of Defendants’ total potential liability support this settlement. 16 Also, Lallande and TDC dispute whether any of the claims in this action are covered claims 17 under the policy in the event of an adverse judgment. (Doc. No. 171-1 at 20.) Thus, absent 18 a settlement, there is a possibility that no money under the TDC policy would be available 19 to pay the claims of any Class Members in the case of a verdict against Lallande. 20 Furthermore, the Court also notes that Plaintiffs’ request for this finding is unopposed by 21 any Defendants. For these reasons, the settlement is determined to be a “good faith 22 settlement” between the Class and Lallande under California Code Civil Procedure 23 Sections 877 and 877.6. 24 D. Notice 25 Rules 23(c)(2)(B) and (e)(1) generally require that a Rule 23(b)(3) settlement class 26 should receive notice in a reasonable manner, and that the notice be “the best notice that is 27 practicable under the circumstances, including individual notice to all members who can 28 be identified through reasonable effort.” Fed. R. Civ. P. 23(c)(2)(B); see also Amchem 1 Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997). Regular mail, electronic mail, and other 2 appropriate means should all be considered. See Fed. R. Civ. P. 23(c)(2)(B). 3 Here, Plaintiffs propose that notice to the Class be sent by both electronic mail, and 4 regular mail to ensure delivery. In addition, Plaintiffs suggest a website for notice created 5 by the settlement administrator as an additional resource for the Class. To implement these 6 notice procedures, Class Counsel has obtained a proposal from A.B. Data, Ltd., a 7 settlement administration company, for administration of the Notice of Partial Settlement 8 of Certified Class Action, which includes regular mail, email, and the creation and hosting 9 of a website for notice. (Doc. No. 171-6, Ex. 3.) 10 The proposed Notice of Partial Settlement of Certified Class Action includes the 11 opportunity for a Class Member to object, as provided by Rule 23(e)(5)(A). (Id.) Regarding 12 Rule 23(e)(4)’s opportunity to seek exclusion, Ninth Circuit authority supports that no such 13 option should be permitted when Class Members had an opportunity to seek exclusion 14 previously. See, e.g., Low v. Trump Univ., LLC, 881 F.3d 1111, 1121 (9th Cir. 2018). Here, 15 the Class Members were previously offered the opportunity in the original class notices to 16 either remain in the case or seek exclusion. (See Doc. Nos. 171-1 at 21.) The Class 17 Members were explicitly notified that if they remained in the case, their decision will be 18 final and binding, and Class Members will not be able to change their mind later and 19 request exclusion. (Id.) As the Class Members were previously given an opportunity to 20 seek exclusion, a second opportunity is not needed. 21 Having reviewed the proposed Notice of Partial Settlement of Certified Class 22 Action, the Court concludes that the notice complies with Federal Rule of Civil Procedure 23 23. The Court also appoints A.B. Data, Ltd. as the third-party claims administrator. A.B. 24 Data, Ltd. must (1) distribute the Notice of Partial Settlement of Certified Class Action by 25 regular mail and email to all Class Members for whom such addresses are known within 26 21 days of the entry of this preliminary approval order; and (2) create and host the website 27 for notice. 28 // 1 E. Final Approval Hearing and Other Dates 2 A court must hold a hearing before finally determining whether a class settlement is 3 || fair, reasonable, and adequate. See Fed. R. Civ. P. 23(e)(2). The Court thus ORDERS that 4 ||the final fairness hearing be set for April 29, 2021 at 2:00 PM. Regarding all other 5 || applicable dates, the Court ADOPTS the implementation schedule requested by Plaintiffs. 6 || The Motion for Final Approval must set forth Plaintiff’s Counsel’s request for fees and 7 || costs, with detailed records of hours, rates, and costs documented. 8 CONCLUSION 9 Based on the foregoing, the Court GRANTS Plaintiffs’ unopposed motion for 10 ||preliminary approval of partial settlement in its entirety. The Court additionally (1) 11 ||appoints A.B. Data, Ltd. as the settlement administrator and approves of Plaintiffs’ 12 || proposed Class notice, (2) orders the 30-day notice period to begin within 21 days of the 13 |/entry of this preliminary approval order, in which any comments/objections can be filed by 14 ||Class Members, and (3) sets a final approval briefing schedule to begin within 21 days of 15 end of the 30-day notice period, with a hearing on fairness and final approval of the 16 || settlement to be held on April 29, 2021 at 2:00 PM. [17] 18 IT IS SO ORDERED. 19 ||Dated: January 8, 2021 © ¢ 20 Hon. Anthony J.Battaglia 21 United States District Judge