Chang v. Wells Fargo Bank, N.A.
4:19-cv-01973
N.D. Cal.Dec 20, 2022Background
- EquityBuild (run by Jerome and Shaun Cohen) allegedly ran a Ponzi-style scheme that raised ~ $135 million from ~800 investors; SEC sued in Aug. 2018 and a Receiver was appointed to liquidate assets and obtain claims information.
- The Receiver identified 835 investor claimants and provided a Master Claims List (including claimed loss amounts) to Plaintiffs for use in any settlement distribution.
- Plaintiffs sued Wells Fargo for aiding and abetting fraud and breach of fiduciary duty (negligence claim dismissed with leave to amend); Wells Fargo processed EquityBuild’s banking transactions and was alleged to have known or been on notice of misuse/commingling of investor funds.
- The parties reached an unopposed settlement: Wells Fargo will pay $3,750,000 into a non-reversionary Settlement Fund to be distributed pro rata using the Receiver’s Master Claims List; Class Counsel may seek up to 25% fees and specified expenses; service awards requested for named plaintiffs.
- Unclaimed residuals will be donated cy pres to Victim Connect Resource Center (a nonprofit assisting victims of investment fraud); notice and claims procedures are to use pre-populated claim forms and the Receiver’s contact list.
- The Court preliminarily certified the settlement class under Rule 23(a) and 23(b)(3), found the proposed notice plan adequate, deemed the settlement potentially fair/non-collusive, and granted preliminary approval subject to a final approval hearing schedule.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Provisional class certification under Rule 23(a) | Class of ~835 investors satisfies numerosity, commonality, typicality, adequacy; named plaintiffs’ claims mirror class harms | Wells Fargo previously moved to dismiss some claims but did not oppose settlement-class certification | Court provisionally certified the settlement class under Rule 23(a) and appointed Rosca Scarlato, LLC as class counsel |
| Certification under Rule 23(b)(3): predominance and superiority | Common questions about Wells Fargo’s alleged substantial assistance and classwide proof of damages (using Receiver claims) predominate; class action is superior and efficient | No active opposition to settlement-class certification; defendant agreed to settle | Court found predominance and superiority satisfied for settlement purposes |
| Fairness of settlement (collusion, fees, reverter) | Settlement is product of informed negotiation; non-reversionary $3.75M fund; counsel may seek up to 25% fees and specified expenses; no preferential treatment alleged | Settlement unopposed; no reverter; defendant did not push for fee cap or clear-sailing issues | Court found no obvious signs of collusion, preliminarily reasonable fee request, and no reverter—factor favors preliminary approval |
| Cy pres appropriateness | Residual funds to Victim Connect Resource Center fits class interests (assists victims of investment fraud) and is the next-best distribution if de minimis funds remain | Defendant agreed to the proposed cy pres recipient | Court preliminarily approved Victim Connect Resource Center as cy pres recipient given sufficient nexus to class members’ interests |
Key Cases Cited
- Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (U.S. 2011) (commonality standard for class certification)
- Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods LLC, 31 F.4th 651 (9th Cir. 2022) (plaintiffs’ burden to prove Rule 23 elements by preponderance)
- In re Hyundai & Kia Fuel Econ. Litig., 926 F.3d 539 (9th Cir. 2019) (different standards for litigation vs. settlement classes)
- Dennis v. Kellogg Co., 697 F.3d 858 (9th Cir. 2012) (heightened scrutiny for pre-certification settlements and cy pres limitations)
- Roes, 1-2 v. SFBSC Mgmt., LLC, 944 F.3d 1035 (9th Cir. 2019) (signs of collusion to assess in settlement approval)
- In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935 (9th Cir. 2011) (clear-sailing, fee distribution, and collusion concerns)
- In re Heritage Bond Litig., 546 F.3d 667 (9th Cir. 2008) (standard that settlement be fundamentally fair, adequate, and reasonable)
- Tyson Foods, Inc. v. Bouaphakeo, 577 U.S. 442 (U.S. 2016) (predominance and use of classwide proof for damages)
- Hanon v. Dataproducts Corp., 976 F.2d 497 (9th Cir. 1992) (typicality test for class representatives)
- Parra v. Bashas’, Inc., 536 F.3d 975 (9th Cir. 2008) (common core of factual or legal issues sufficient for commonality)