Hemphill v. San Diego Ass'n of REALTORS®: Sandicor Discovery Requests Rejected

A federal court has considered whether a group of objecting plaintiffs could obtain discovery related to a proposed settlement of a class action lawsuit resulting from the Sandicor decision.

In September 2004, a federal court approved a preliminary class settlement of the Sandicor litigation- click here to learn more about the case. The preliminary approval involved the following: approval of a settlement class; appointment of class counsel ("Counsel"); a finding that settlement negotiations were conducted arm's length; approval of notice forms and notice procedures; and scheduling a hearing for final approval of the settlement on January 28, 2005. Thereafter, 27,000 notices were sent out to the class, two newspaper notices were published, the member associations published information about the settlement, and the settlement administrator created a website with information about the settlement. While only 8.5% of the mailed notices were returned, the settlement administrator's website had over 8,000 hits and the member associations also reported many hits on the settlement information which was posted on their websites.

Only nine class members filed objections to the settlement. Two groups of objectors ("Challengers") filed lengthy objections to the settlement. One of the two objecting groups was represented by attorney David Barry, who had represented the two parties in the Sandicor decisions detailed above (Mr. Barry's original clients had already settled their claims by this time). The Challengers requested that the court allow them to perform discovery related to their objections of the settlement. The court considered the Challengers' request.

The United States District Court for the Southern District of California granted the Challengers a limited amount of discovery but otherwise rejected the Challengers' discovery requests. Objectors to a proposed class action settlement do not have a right to conduct discovery and are only allowed to conduct discovery to determine the fairness of a settlement at the discretion of the court. The criteria for granting such discovery is to examine the amount of previous discovery, and also to look at the number and interests of the objectors. A small percentage of the class filing objections makes it less likely the court will grant the objector's discovery requests and the court will only rarely grant discovery related to the settlement negotiations.

Applying the factors to this case, the court found that there was extensive discovery during the seven years of this litigation. Also, the Challengers represented a very small percentage of the total class. Therefore, both of those factors weighed against the granting of the Challengers' discovery requests.

The Challengers requested discovery of the settlement negotiations based upon the argument that the proposed settlement was collusive and the terms of the settlement were not fair and reasonable. The court found that there was no evidence to support these allegations. Counsel had not begun the settlement negotiations until he had filed a motion to intervene in the case and the settlement negotiations were supervised by a court-appointed mediator as well as a federal Magistrate Judge. The negotiations also took place over several months. Based on the history of the settlement negotiations, the court rejected the Challengers' arguments that they were entitled to obtain discovery related to the settlement negotiations.

Next, the Challengers argued that they were entitled to receive discovery to determine the adequacy of the Counsel, again arguing that the settlement negotiations were collusive. As set forth above, the court found that there was no evidence to support the Challengers' arguments. The court also stated that whether the terms of the settlement were fair would ultimately be determined by the court in deciding whether or not to approve the settlement. Thus, the court rejected the Challengers' discovery requests related to the adequacy of the Counsel.

The Challengers also sought discovery of financial information from the defendants, as one of the justifications for the terms of the proposed settlement was the financial inability of the defendants to pay the full anticipated judgment amount. The court agreed that information was relevant for an evaluation of the proposed settlement, and so the court ordered the production of such information to the Challengers.

Finally, the Challengers sought discovery related to the class notification procedures and also the number of MLS subscribers. The court found that there was sufficient evidence related to the notification procedure for a court to determine whether sufficient notice was given and so there was no need for additional discovery. Similarly, the court found that there was already information about the number of subscribers in the case record and so there was no need for additional discovery. The court also rejected these discovery requests as well. Therefore, the court allowed the discovery of the defendants' financial information but otherwise denied the Challengers' discovery requests.

Hemphill v. San Diego Ass'n of REALTORS®, 225 F.R.D. 616 (S.D. Cal. 2005).

Editor's Note: Following the above opinion, the court approved the final class settlement.