I. INTRODUCTION
Plaintiff respectfully submits this Memorandum of Points and Authorities in Support of Motion for Preliminary Approval of Class Action Settlement (“Memorandum”). Unless otherwise set forth, this Memorandum incorporates by reference the definitions in the Settlement Agreement.
Under the terms of the Settlement Agreement, Defendant agrees to add to its packaging and website the following language: “1 gigabyte (GB) = 1 billion bytes. Total accessible capacity varies depending on operating environment.” Defendant also agrees to make available to all Class Members free backup and recovery software for use with their hard disk drives (“Class Benefit”). In addition, Defendant agrees to pay Plaintiff up to $1,000 for his service as Class Representative and Class Counsel up to $485,000 in attorneys’ fees and $15,000 in expenses. The Settlement Agreement also contains all the material terms of the settlement, including the manner and form of notice to be given to the Class, the contingencies or conditions to the settlement’s final approval, and other terms.
In view of the disputed issues involved in this litigation, the inherent risks and uncertainties to both parties, the benefits to be received pursuant to the Settlement Agreement, and the expense and burden of further litigation, the Parties agree that settlement on the terms and conditions set forth in the Settlement Agreement is fair and reasonable and in the best interest of Plaintiff, the Class, and Defendant.
Plaintiff requests that this Court take the first step in the approval process – preliminary approval of class action settlement. The process for approving settlement, according to the Manual For Complex Litigation, is as follows:
Approval of class action settlement involves a two-step process. First, counsel submit the proposed terms of settlement and the court makes a preliminary fairness evaluation….
If the preliminary evaluation of the proposed settlement does
not disclose grounds to doubt its fairness or other obvious deficiencies, such
as unduly preferential treatment of class representatives or of segments of the
class, or excessive compensation for attorneys, and appears to fall within the
range of possible approval, the court should direct that notice under Rule
23(e) be given to the class members of a formal fairness hearing, at which
arguments and evidence may be presented in support of and in opposition to the
settlement.
Manual For Complex Litigation § 30.41, at 237 (3d ed. 1995).
In determining whether preliminary approval is warranted, the issue before the Court is whether the settlement is within the range of what might be found fair, reasonable and adequate, so that notice of the settlement may be given to Class Members, and a hearing scheduled to consider final settlement approval. The Court, however, is not required, at this point, to make a final determination as to the fairness of the settlement. See 5 James Wm. Moore, Moore's Federal Practice ¶23.83[1], at 23-336.2 to 23-339 (3d ed. 2002).
Since the settlement meets the criteria for preliminary approval and is well within the range of what might be approved as fair, reasonable and adequate, Plaintiff respectfully requests that this Court enter the proposed Preliminary Approval Order.
II. SUMMARY OF THE LITIGATION
A. Allegations in Plaintiff’s Complaint
On March 22, 2005, Plaintiff brought suit to enjoin Defendant’s false and deceptive marketing and advertising of hard disk drives. Plaintiff alleges that Defendant—in advertising, marketing, manufacturing and selling hard disk drives—overstates the devices’ total storage capacity by approximately 7%. The following allegations are taken from Plaintiffs’ Complaint.
Hard disk drives (“HDD” or “hard drives”) are the data storage center of personal computers. HDDs are typically pre-packaged or embedded in personal computers, for example, when they are purchased by consumers from manufacturers like Dell, Apple, IBM, Toshiba or Sony (“OEM Hard Drives”). However, when consumers assemble personal computers themselves or when they seek to add to their storage capacity, they purchase new HDDs. These “aftermarket” hard disk drives can either be internal or external. Internal drives are connected directly to the mother board of a computer, typically by opening the computer, connecting the internal drive and closing the computer. External hard drives are stand alone devices that are connected to personal computers, usually through a computer’s universal serial bus (USB) port or by some other interface such as a serial port.
Defendant is one of the nation’s largest hard drive manufacturers. The company’s hard drives are marketed and sold through resellers and retailers under the Western Digital brand name. Defendant also sells hard drives directly to consumers via its online store located at www.wdc.com (“Website”).
Every HDD marketed, advertised, manufactured and/or sold by Defendant has a particular capacity for storing digital information. This capacity is represented by Defendant as a number of gigabytes or “GB.” For example, Defendant Western Digital—via the Website and through online and offline distributors and retailers—markets, advertises and/or sells the 80GB WD800BB internal hard drive and 120GB WD1200B011 external hard drive.
Traditionally, in the computer industry, a “gigabyte” is known to be the equivalent of 1,073,741,824 (or 230) bytes. The reason is that in determining file size, the number of bytes is counted in a base-two counting system (also called the “binary” system).[1] Every group of eight (23) bits was called a “byte.” Bytes were further grouped in exponents of two. Every group of 210 (or 1024) bytes was called a kilobyte or KB. Every group of 220 (or 1,048,576) bytes was called a megabyte or MB. Every group of 230 (or 1,073,741,824) bytes was called a gigabyte or GB. In reporting file sizes, all standard operating systems, including the Microsoft Windows and Apple operating systems, define GB to equal 1,073,741,824 bytes.
Despite the history of binary measurements of bytes, Defendant’s “80GB” WD800BB internal HDD only has 79,971,254,272 bytes (or 74.4GB) of accessible capacity and its “120 GB” WD1200B011 external hard drive only has 120,002,150,400 bytes (or 111GB) of accessible capacity. The principal reason for the disparity between claimed and actual storage capacity is that Defendants use not the binary definition but a decimal definition of “gigabyte.[2] Defendant claims to define gigabyte to equal 1 billion (or 109) bytes.
While other manufacturers of hard disk drives also use the “decimal” definition of gigabyte, those manufacturers, unlike Defendant, expressly inform consumers that they are doing so. For example, in its website marketing of its HDDs with “250GB” of storage, Maxtor Corporation, one of Defendant’s leading competitors, provides the following disclaimer: “[f]or purposes of measuring (GB) equals 1,000,000,000 bytes. Total accessible capacity varies depending on operating environment.” Another competitor, LaCie USA, Inc., provides the following disclaimer in its website marketing of its HDDs with “250GB” of storage: “1 gigabyte = 1,000,000,000 bytes. Once formatted, the actual available storage capacity varies depending on operating environment.” Additionally, virtually all computer manufacturers that purchase Defendant’s hard drives and then repackage them for sale to consumers (i.e., OEM purchasers) include a disclaimer regarding storage capacity. For example, Dell Computer Corporation, states, “[f]or hard drives, GB means 1 billion bytes; actual capacity varies with preloaded material and operating environment and will be less.” Hewlett Packard states, “1GB = one billion bytes when referring to hard drive capacity. Actual formatted capacity is less.” And, IBM states, “[f]or hard drive, GB=billion bytes. Accessible capacity is less; up to 4GB is service partition.” Defendant’s failure to provide such a definition allegedly leads to further confusion when consumers compare its products with those of competitors. (See generally Plaintiffs’ Complaint.)
Plaintiff asserted four causes of action against Defendant: (i) violation of California Business & Professions Code (“B&P”) §17500 for deceptive advertising; (ii) violation of B&P §17200 for unfair business practices; (iii) breach of contract; and (iv) violation of the California Consumers Legal Remedies Act, California Civil Code §1750 et al. (“CLRA”).
B. Defendant’s Denials and Defenses
Defendant denied and continues to deny each and all of the claims and contentions alleged by the Plaintiff. Defendant also expressly denied and continues to deny all charges of wrongdoing or liability against it arising out of any of the conduct, statements, acts or omissions alleged, or that could have been alleged, in this matter. Defendant asserts, inter alia, that its’ definition of 1GB as 1 billion bytes is consistent with the metric system and that the use of the “metric system” is legislatively approved and is not an unfair trade practice. Defendant also denied and continues to deny, inter alia, the allegation that the Plaintiff, the Class, or any other member of the public has suffered damage or harm by reason of any conduct, statement, act or omission of Defendant.
III. SUMMARY OF SETTLEMENT
The Parties have entered into the Settlement Agreement which completely resolves this action. The Settlement Agreement without limitation includes the following material terms and conditions:
A. Changed Practices and Disclosures
Defendant has agreed, pending this Court’s final approval of the settlement, to include language that is substantially similar to the following on its Website and, as soon as its current packaging supply is depleted, but no later than six (6) months following final approval, on its product packaging:
“1 gigabyte (GB) = 1 billion bytes. Total accessible capacity varies depending on operating environment.”
B. Class Certification for Settlement
In addition, the Parties have agreed to the certification of a Settlement Class defined as:
All persons and entities who purchased in the United States an Aftermarket Western Digital Corporation hard disk drive between March 22, 2001 and February 15, 2006. Excluded from the Class are Western Digital Corporation, its directors, officers, and employees; Judge Zimmerman and his immediate family; and any person who opts out of the Class.
Purchasers may attest to their membership in the Class by timely completing an online Claim Form. For all persons who do so, Defendant will provide software that allows those persons to backup their hard disk drives and recover from the backup drives files that may be lost or corrupted (the “Software” or the “Class Benefit”). The backup and recovery software has numerous features as set out in the following footnote.[3]
C. Class Benefit
The Software is an appropriate remedy in context of Plaintiff’s claims and contentions in this matter. The Software will work in conjunction with the hard disk drives that Class Members already own, to permit Class Members to derive more value from their hard drives. Alternatively, Class Members can transfer or sell to others their right to download the Software. Based on Class Counsel’s investigation of the retail market for backup and recovery software, Class Counsel believes that the Software is comparable to products that retail for $30 or more.
Class Counsel believes that the provision of the Software adequately compensates Class Members for the harm they suffered, in light of the risks of litigation. Class Counsel estimates that the average hard disk drive sold to Class Members had a retail price of $150, meaning that even if the Class Member was deemed eligible for a refund of a portion of the purchase price equal to the percentage of allegedly “missing” storage capacity (i.e., 7%), the total refund would be only $10.50. Furthermore, there are numerous risks in continuing with this Litigation, including the possibility of being unable to (1) certify a class of purchasers, (2) demonstrate that Defendant’s undisclosed use of the decimal definition was misleading to reasonable consumers or otherwise constituted an unfair trade practice, and (3) prove damages on behalf of the Class or the right of each Class Member to restitution.
The Class Benefit will be made available to Class Members for download from Defendant’s website, located at www.wdc.com (“Website”). In order to become eligible to download the Software, Class Members must complete a user friendly claim form (available at the Settlement Website) that is designed only to confirm a purchase during the class period (i.e., establish eligibility to receive the Class Benefit.) Class Members must provide their name, address, email address, estimated date of purchase, and hard disk drive serial number.[4] If Class Members no longer have their disk drive serial number, they may instead provide, by mail, a copy of their receipt or other proof of purchase. After approval of the settlement, Defendant will provide each person who had demonstrated membership in the Class, by electronic mail, a link that they can use to download the Software.
D. Class Notice
Following this Court’s preliminary approval of this settlement, Defendant has agreed to provide Class Members with Notice of this Court’s preliminary approval of the settlement, including their rights and obligations under the settlement. Specifically, within no more than ten (10) days following preliminary approval, Defendant will provide Class Members with the Notice as follows: Defendant will send Notice (i) via electronic mail to the last known electronic mail address of each registered purchaser for whom it maintains an email address and (ii) via US mail to registered purchasers for whom it maintains a mailing address but no electronic mail address. Defendant will also post a hyperlink on the bottom of the home page of its Website that links the home page to the Settlement Website and place in the USA Today two advertisements notifying the public of the proposed settlement.
E. Payment to Class Representatives and Attorneys’ Fees and Costs
Finally, if the settlement is approved by this Court, this Court will enter final judgment whereby the Parties will enjoy a mutual release of claims as set forth in the Settlement Agreement, and Plaintiff’s attorneys will apply for an award of fees and expenses. Subject to Court approval, Defendant has agreed to pay up to $485,000 in attorneys’ fees and $15,000 in expenses. Class Members will not be personally liable for any attorneys' fees or expenses awarded by the Court, nor will any such award affect Class Members' rights under the settlement.
IV. ARGUMENT IN FAVOR OF PRELIMINARY SETTLEMENT APPROVAL
A. The Settlement Should Be Preliminarily Approved.
As a matter of public policy, settlement is a strongly favored method for resolving disputes. See Util. Reform Project v. Bonneville Power Admin., 869 F.2d 437, 443 (9th Cir. 1989). This is especially true in class actions such as this. See Officers for Justice v. Civil Serv. Comm’n, 688 F.2d 615, 625 (9th Cir. 1982); Wilkerson v. Martin Marietta Corp., 171 F.R.D. 273, 284 (D. Colo. 1997).
Preliminary approval does not require the Court to make a final determination that the settlement is fair, reasonable and adequate. Rather, that decision is made only at the final approval stage, after notice of the settlement has been given to the class members and they have had an opportunity to voice their views of the settlement or to exclude themselves from the settlement. See 5 James Wm. Moore, Moore’s Federal Practice 23.83[1], at 23-336.2 to 23-339 (3d ed. 2001). Thus, in considering a potential settlement, the Court need not reach any ultimate conclusions on the issues of fact and law which underlie the merits of the dispute, Detroit v. Grinnell Corp., 495 F.2d 448, 456 (2d Cir. 1974), and need not engage in a trial on the merits, Officers for Justice v. Civil Service Comm’n, 688 F.2d 615 (9th Cir. 1982). Preliminary approval is merely the prerequisite to giving notice so that “the proposed settlement . . . may be submitted to members of the prospective class for their acceptance or rejection.” Philadelphia Hous. Auth. v. Am. Radiator & Standard Sanitary Corp., 323 F. Supp. 364, 372 (E.D. Pa. 1970).
Preliminary approval of the settlement should be granted if there are no “grounds to doubt its fairness or other obvious deficiencies, such as unduly preferential treatment of class representatives or segments of the class, or excessive compensation for attorneys, and appear to fall within the range of possible approval.” Manual for Complex Litigation, §30.41, at 236-37 (3d ed. 1995). The proposed settlement satisfies the standard for preliminary approval as it is within the range of possible approval and there are no grounds to doubt its fairness.
1. The Settlement Agreement Resulted from Arm’s-Length Negotiations.
There is an initial presumption that a proposed settlement is fair and reasonable when it is the result of arm’s-length negotiations. See Williams v. Vukovich, 720 F.2d 909, 922-923 (6th Cir. 1983) (“The court should defer to the judgment of experienced counsel who has competently evaluated the strength of his proofs”); In re Excess Value Ins. Coverage Litig., No. M-21-84 (RMB) 2004 U.S. Dist. LEXIS 14822, at *34 (S.D.N.Y. July 30, 2004) (“Where ‘the Court finds that the settlement is the product of arm’s length negotiations conducted by experienced counsel knowledgeable in complex class litigation, the settlement will enjoy a presumption of fairness’”); In re Inter-Op Hip Prosthesis Liab. Litig., 204 F.R.D. 359, 380 (N.D. Ohio 2001) (granting preliminary settlement approval) (“when a settlement is the result of extensive negotiations by experienced counsel, the Court should presume it is fair”); see also 2 Herbert Newberg & Alba Conte, Newberg on Class Actions §11.41 at 11-88 (3d ed. 1992); Manual For Complex Litigation (Third) §30.42.
The proposed settlement herein is the product of arm’s-length negotiations over the course of many months between counsel for Plaintiff and counsel for Defendant, including mediation before Justice Steve Stone (Ret.). Both Parties are represented by counsel with significant experience in class action litigation.[5] The negotiations have produced a result that the Parties believe to be in their respective best interests taking into account the costs and risks of continued litigation. The opinion of experienced counsel supporting the settlement is entitled to considerable weight. In re First Capital Holdings Corp. Fin. Prods. Sec. Litig., MDL Docket No. 901 All Cases, 1992 U.S. Dist. LEXIS 14337, at *8 (C.D. Cal. June 10, 1992) (finding belief of counsel that the proposed settlement represented the most beneficial result for the class to be a compelling factor in approving settlement); Kirkorian v. Borelli, 695 F. Supp. 446, 451 (N.D. Cal. 1988) (opinion of experienced counsel is entitled to considerable weight); Boyd v. Bechtel Corp., 485 F. Supp. 610, 622 (N.D. Cal. 1979) (recommendations of plaintiffs’ counsel should be given a presumption of reasonableness).
2. There Are No Grounds To Doubt The Fairness Of The Settlement.
Under the terms of the settlement, Defendant has agreed to both change its practices and provide Class Members with a benefit that will allow them to derive additional value from their hard disk drives, and which exceeds the value of their likely recovery in this case for any loss they suffered in not getting the memory allegedly promised in Defendant's advertisements. Class Members need not make any further purchase to obtain the benefit. Class Members will thereby be made whole by the settlement. Additionally, the settlement provides no preferential treatment for Plaintiff or other Class Members. Plaintiff will receive only a $1,000 incentive award to compensate him for the risks of undertaking this litigation, including the potential liability for costs of suit. Moreover, the settlement does not mandate excessive compensation for Plaintiff’s attorneys; their fees are based on their lodestar and a reasonable multiplier; and the fees and expenses will be paid separately from, and will not reduce, the Class Benefit provided under the settlement.[6]
3. The Settlement Falls Within the Range of Possible Approval.
The proposed settlement recognizes the inherent risks, costs and delay associated with the prosecution of complex cases. If the matter were to proceed to trial, the apparent strength of a plaintiff’s case is no guarantee against a defense verdict. Furthermore, even if a judgment were obtained against Defendant at trial, the recovery might be of no greater utility to Class Members, and indeed might be substantially less valuable, than the proposed settlement.
B. The Class Should Be Preliminarily Certified.
The preliminary approval process is also utilized to certify a settlement class when a class has not been previously certified by the court. This Court can certify a class where Plaintiff demonstrates that the proposed class and proposed class representative meet the four prerequisites in Rule 23(a) of the Federal Rules of Civil Procedure– numerosity, commonality, typicality and adequacy of representation – and one of the three requirements of Rule 23(b).
Here, pursuant to Rules 23(a) and (b)(3) of the Federal Rules of Civil Procedure, and for the purposes of settlement only, Plaintiff seeks preliminary certification of a class of all persons and entities who purchased in the United States an Aftermarket Western Digital Corporation hard disk drive between March 22, 2001 and February 15, 2006, inclusive. Plaintiff submits that the prerequisites for a class action under Rules 23(a) and (b)(3) of the Federal Rules of Civil Procedure have been satisfied in this action for purposes of settlement.
1. Numerosity – The numerosity requirement is satisfied if the proposed class is “so numerous that joinder of all members is impracticable.” Fed. R. Civ. P. 23(a)(1). Impracticable does not mean impossible, only that it would be difficult or inconvenient to join all members of the class. See Harris v. Palm Springs Alpine Estates, Inc., 329 F.2d 909, 913-14 (9th Cir. 1964). Where, as here, the number of persons in the proposed class exceeds one million,[7] and they are spread out in different geographic locations, numerosity is satisfied.
2. Commonality – Commonality relates to whether there are “questions of law or fact common to the class.” Fed. R. Civ. P. 23(a)(2). Commonality is satisfied if there is one issue common to class members. See Hanlon v. Chrysler Corp., 150 F.3d 1011, 1019 (9th Cir. 1998). Here, common issues without limitation include: (i) whether Defendant—in advertising, marketing, manufacturing and selling hard disk drives—overstates the devices’ total storage capacity by approximately 7% and (ii) whether this practice is unlawful. Because there are common issues, this requirement is satisfied.
3. Typicality – Typicality under Rule 23(a)(3) is satisfied if the representative plaintiff’s claims share a common element with the class because they arise from the same course of conduct that gave rise to the claims of other class members. See In re United Energy Corp. Solar Power Modules Tax Shelter Inv. Sec. Litig., 122 F.R.D. 251, 256 (C.D. Cal. 1988). Plaintiff’s claims are typical of those of other Class members because, like other members of the Class, he purchased one of Defendant’s (aftermarket) hard disk drives during the Class Period which allegedly had less useable storage capacity than Defendant represented.
4. Adequacy of Representation – Adequacy under Rule 23(a)(4) is satisfied if a plaintiff has no disabling conflicts of interest with other members of the class and plaintiff’s counsel are competent and well qualified to undertake the litigation. See Lerwill v. Inflight Motion Pictures, Inc., 582 F.2d 507, 512 (9th Cir. 1978). Here, the adequacy requirement is met. Plaintiff is represented by counsel who have extensive experience in storage capacity litigation and other complex litigation and have protected the interests of the class. Additionally, no conflict exists between Plaintiff and the members of the Class because Plaintiff has allegedly been damaged by the same alleged conduct and has the incentive to fairly represent all Class Members’ claims to achieve the maximum possible recovery.
5. Predominance – The predominance test is met if common questions of law or fact predominate over individual questions. Predominance exists because Plaintiff alleged that Defendant engaged in a common course with respect to all Class Members of falsely overstating the total storage capacity of its hard disk drives by approximately 7%. Proof that such conduct was unlawful could establish Defendants’ liability to all members of the Class.
6. Superiority of Class Action – The requirement that a class action is superior to other methods of adjudication under Rule 23(b)(3) is also met. Courts have recognized that the class action devise is superior to other available methods for the fair and efficient adjudication of controversies involving large number of product purchasers injured by violations of the consumer protection statutes. See Valentino v. Carter-Wallace, Inc., 97 F.3d 1227, 1234-35 (9th Cir. 1996) ("A class action is the superior method for managing litigation if no realistic alternative exists.") Because the Court is certifying this action for settlement purposes only, it need not determine whether the class would be manageable for litigation purposes. See Amchen Products, Inc. v. Windsor, 521 U.S. 591, 620 (1997).
C. The Proposed Notice Is Adequate.
“For any class certified under Rule 23(b)(3), the court must direct to class members the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.” Fed. R. Civ. P. 23(c)(2)(B). “The court must direct notice in a reasonable manner to all class members who would be bound by a proposed settlement, voluntary dismissal or compromise.” Fed. R. Civ. P. 23(e)(B).
Here, the Parties have negotiated several forms of a notice to be disseminated to all people who fall within the definition of the Class. Specifically, Class Members who registered their products and thus for whom Defendant maintains an email or mailing address (i.e., those who can be identified through reasonable effort) will receive direct notice. Others who cannot be directly identified will receive notice by publication. Specifically, Defendant will post a hyperlink on the bottom of the home page of Defendant’s Website that links the home page to the Settlement Website and place in the USA Today two advertisements notifying the public of the proposed settlement. After the settlement is finally approved, Defendant will further notify all persons for whom it maintains a mail or email address of their right to obtain the class benefit.
The proposed method of notice comports with Rule 23 and the requirements of due process. See, e.g., Torrisi v. Tuscon Electric Power Co., 8 F.3d 1370, 1374 (9th Cir. 1993); Dartley v. Ergobilt, Inc., No. 3:98-CV-1442-M, 2002 U.S. Dist. LEXIS 23359, at *7-*8 (N.D. Tex. Dec. 5, 2002) (finding mailing of notice to class members who were reasonably identifiable and publishing summary notice satisfied Rule 23 and due process); Adams v. Amplidyne, Inc., No. 99-4468 (MLC), 2001 U.S. Dist. LEXIS 14464, at *6 (D.N.J. Aug. 15, 2001) (same).
V. PROPOSED SCHEDULE OF EVENTS
The Court’s entry of the Preliminary Approval Order would, among other things, (i) certify the action as a class action for the purposes of the proposed settlement; (ii) direct notice of the settlement to all members of the Class; and (iii) schedule a hearing to consider whether the settlement should be approved as being fair, reasonable, and adequate (the “Settlement Fairness Hearing”). As such, the Preliminary Approval Order sets certain deadlines, as follows:
• Deadline for mailing and publishing notices to the Class: Ten (10) days after Preliminary Approval;
• Deadline for requesting exclusion from the Class: April 21, 2006
• Deadline for filing objections to the settlement: April 26, 2006;
• Settlement Fairness Hearing: May 17, 2006; and
• Deadline for submission of Claim Forms: Thirty (30) days after Final Approval.
This schedule is similar to those used and approved by numerous courts in class action settlements, complies with the Class Action Fairness Act, and provides due process to Settlement Class Members with respect to their rights concerning the settlement. See Torrisi, 8 F.3d at 1374-75.
VI. CONCLUSION
Plaintiff respectfully requests that the Court grant preliminary approval of the proposed settlement and enter the proposed Preliminary Approval Order, submitted herewith.
DATED: March 29, 2006
GUTRIDE SAFIER LLP
By:___________________
Seth A. Safier
835 Douglass Street
San Francisco, CA 94114
Tel: (415) 336-6545
Fax: (415) 876-4345
Counsel for Plaintiff