Cotter v. Lyft, Inc.
176 F. Supp. 3d 930
| N.D. Cal. | 2016Background
- Plaintiffs (former and current Lyft drivers) sued Lyft alleging misclassification as independent contractors rather than employees under California law, seeking injunctive relief (reclassification) and monetary relief (primarily mileage reimbursement and wage-and-hour penalties) for drivers who worked in California since May 2012.
- The court previously denied summary judgment for both sides and held employee/independent-contractor status is a jury question; added a full-time driver as a named plaintiff to address adequacy concerns for more regularly working drivers.
- Parties negotiated a settlement providing (1) prospective contractual changes limiting at-will deactivation, internal appeal and arbitration with Lyft paying arbitration fees, and (2) a $12.25 million common fund allocated by miles driven (full-time drivers get a 50% per-mile premium); class release covers claims through preliminary approval date.
- Plaintiffs’ counsel derived the $12.25M mainly from an estimated $64M maximum mileage reimbursement claim (using IRS per-mile rate) plus discounted values for other claims and an assumed PAGA component; counsel proposed attorneys’ fees of 30% and small notice/admin costs.
- The court found two major defects: (1) plaintiffs used outdated mileage data (June 2015) whereas mileage through Feb 14, 2016 doubled that figure, making the reimbursement claim ~ $126M (so the settlement recovers far less of true value than counsel thought); (2) plaintiffs’ attribution and reduction of PAGA penalties (assigning only $122,250) was arbitrary and improperly discounted the State’s share when valuing the claim.
- The court denied preliminary approval, concluding the settlement is not within the range of reasonableness unless revised to (a) base computations on updated mileage through the preliminary-approval hearing, (b) properly account for PAGA (and the State’s share), and (c) grant a materially larger premium to full-time drivers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the proposed settlement merits preliminary approval under Rule 23(e) | Settlement is reasonable: $12.25M fund plus prospective protections reflects discounted recovery given trial/arbitration risks | Settlement is acceptable given litigation risks; supports contract changes and limited monetary relief | Denied: settlement not within range of reasonableness because monetary valuations (mileage, PAGA) are defective and nonmonetary relief insufficient to cure defects |
| Whether settlement must include reclassification of drivers as employees | Plaintiffs seek injunctive relief in the suit but allowed to settle without reclassification given litigation risks and prospective relief | Lyft resists reclassification; settlement preserves ability for future challenges and agency/legislative remedies | Court: Teamsters’ demand that any settlement must reclassify drivers is policy-based and inappropriate; reclassification not required for preliminary approval on current record |
| Adequacy of monetary valuation — mileage reimbursement calculation | Counsel valued reimbursement at $64M (using IRS mileage rate and Lyft data through June 2015) and discounted to reach $12.25M | Lyft agreed to the negotiated figure; parties selected an allocation method tied to miles driven | Court: valuation materially flawed — parties used outdated mileage; correct mileage through Feb 14, 2016 implies ~ $126M reimbursement claim, so settlement captures far smaller percentage than plaintiffs claimed; requires recalculation using updated mileage |
| Adequacy of PAGA allocation and State share | Plaintiffs assumed a one-third-of-damages PAGA cap then reduced the PAGA component to a token amount ($122,250), effectively erasing the State’s portion when valuing the claim | Lyft accepted the small PAGA allocation as part of the deal | Court: plaintiffs’ treatment of PAGA is arbitrary and likely shortchanges the State; valuation must properly account for PAGA penalties (and not ignore the State’s portion) though trial courts retain discretion in setting PAGA amounts |
Key Cases Cited
- Hanlon v. Chrysler Corp., 150 F.3d 1011 (9th Cir. 1998) (Rule 23(e) settlement fairness factors)
- Officers for Justice v. Civil Serv. Comm'n of S.F., 688 F.2d 615 (9th Cir. 1982) (examine settlement as a whole for fairness)
- In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768 (3d Cir. 1995) (court may reject settlements that fail to address core defects)
- Amaral v. Cintas Corp. No. 2, 163 Cal.App.4th 1157 (Cal. Ct. App. 2008) (appellate review of trial court’s PAGA penalty reduction discretion)
- Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425 (9th Cir. 2015) (PAGA claims not subject to individual arbitration/mass waiver)
- Iskanian v. CLS Transp. L.A., LLC, 59 Cal.4th 348 (Cal. 2014) (PAGA and limits on waiver of representative claims)
- Cotter v. Lyft, Inc., 60 F.Supp.3d 1059 (N.D. Cal. 2014) (class scope limited to California drivers)