Cotter v. Lyft, Inc.
193 F. Supp. 3d 1030
| N.D. Cal. | 2016Background
- Plaintiffs are current/former California Lyft drivers who sued claiming misclassification as independent contractors deprived them of employee compensation/benefits.
- Parties previously proposed a $12.25M settlement (30% to attorneys); court denied preliminary approval because counsel undervalued the drivers’ reimbursement claim and PAGA allocation appeared arbitrary.
- Parties returned with a revised settlement: $27M total, only up to 14% potentially for attorneys’ fees, $1M allocated to PAGA (75% to the State), and modestly enhanced nonmonetary relief (pre-arbitration process expanded; contractual change limiting deactivation).
- A separate suit, Zamora v. Lyft, alleges Lyft took 20% of “Prime Time” surcharges that riders were led to believe were gratuities for drivers; Zamora includes a section 351/PAGA claim (which requires drivers to be employees) and restitution/UCL/conversion claims that may not depend on employee status.
- The Cotter settlement, as revised, would release gratuity claims that depend on proving drivers are employees, including the section 351 theory asserted in Zamora; Zamora plaintiffs object and sought to intervene.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the revised $27M settlement is fair, reasonable, and adequate for preliminary approval | Settlement now compensates class adequately given litigation risks and added nonmonetary benefits | Settlement is reasonable given litigation risks, increased fund, and reduced fee share | Court granted preliminary approval: settlement is fair, reasonable, adequate on current record |
| Whether failure to consider Zamora Prime Time gratuity claims requires rejecting the settlement | Cotter counsel negligently omitted valuable gratuity claims; settlement should carve out claims or add money | Objection is untimely; claims are weak/low-value relative to reimbursement claim | Court held Cotter counsel’s omission doesn’t render settlement inadequate because the section 351 claims appear weak/low-value and settlement considered as whole |
| Whether section 351 (gratuities) Prime Time claims are strong/value to materially affect settlement adequacy | Zamora: app messaging misled riders that surcharge was a tip entirely for drivers, so Lyft unlawfully took gratuities | Lyft: app did not, for most relevant period, represent Prime Time as a gratuity; riders saw separate tipping prompt; claims depend on proving drivers are employees | Court found section 351 claims factually weak (post-Aug 2014 app displayed price-increase language), legally contingent on employee status, and modest in value (~$10M vs $156M reimbursement max) |
| Proper standard of review at preliminary approval stage | Plaintiffs sought preliminary approval under the usual two-stage approach; some courts use relaxed preliminary review | Defendants relied on prior practice of “quick look” at preliminary stage to justify approval | Court held district courts must scrutinize settlements carefully at preliminary stage and not apply a lax standard; nevertheless, on the full record the settlement meets Rule 23(e)(2) |
Key Cases Cited
- Cotter v. Lyft, Inc., 60 F. Supp. 3d 1067 (N.D. Cal. 2015) (background on plaintiff claims and earlier proceedings)
- Cotter v. Lyft, Inc., 176 F. Supp. 3d 930 (N.D. Cal. 2016) (prior denial of preliminary approval explaining valuation errors)
- Hanlon v. Chrysler Corp., 150 F.3d 1011 (9th Cir. 1998) (settlement approval standard and factors to weigh under Rule 23)
- Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370 (9th Cir. 1993) (factors relevant to assessing fairness of class settlements)
- Reyn’s Pasta Bella, LLC v. Visa USA Inc., 442 F.3d 741 (9th Cir. 2006) (settlement fairness judged by the released claims arising from same facts)