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THEODORE H. FRANK (SBN 196332) Email: tfrank@gmail.com CENTER FOR CLASS ACTION FAIRNESS LLC 1718 M Street NW, No. 236 Washington, DC 20036 Voice: (703) 203-3848 Attorney for Class Members Hans Schantz and George Yunaev

SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF LOS ANGELES BENJAMIN FOGEL, on behalf of himself and the class, Plaintiff, v. FARMERS GROUPS, INC., et al., Defendants. Case No. BC300142 Assigned to: Hon. William F. Highberger OBJECTION TO PROPOSED SETTLEMENT Date: Time: Courtroom: September 7, 2011 9:00 a.m. 1402

Hans Schantz and George Yunaev, Objectors.

CLASS ACTION

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 V. 18 19 20 21 22 23 24 25 26 27 28 VII. VI. C. IV. B. C.

TABLE OF CONTENTS TABLE OF CONTENTS ........................................................................................................................ I TABLE OF AUTHORITIES .................................................................................................................. II INTRODUCTION ................................................................................................................................. 1 I. II. III. The Objectors Are Members of the Class. ....................................................................... 1 Preventing an Unfair Settlement Is This Courts Duty. .................................................... 2 The Settlement Betrays the Interests of the Class............................................................. 4 A. The Proposed Settlement Creates Unnecessary Obstacles to Class Recovery. ............................................................................................................ 4 Enriching the Exchanges Does Not Benefit the Class. .......................................... 6 Exchange Enrichment Does Not Qualify As Cy Pres. .......................................... 7

The Proposed Attorneys Fees Are Excessive. ................................................................. 9 A. B. The Size of the Fund Dictates a Smaller Fee Percentage. ..................................... 9 Class Counsels Compensation Should Be Calculated by the Benefits It Secures for the Class.......................................................................................... 11 The Class Representative Payment Is Excessive Relative to Class Members Benefits. ........................................................................................... 13

Notice to Many Already Identified Class Members Is Nonexistent, and Thus Deficient. ...................................................................................................................... 14 The Court Should Discount Attempts By the Settling Parties To Infer Class Approval from a Low Number of Objections. ............................................................... 14 The Objectors Pro Bono Attorney Brings This Objection in Good Faith. ..................... 16

CONCLUSION .................................................................................................................................... 18

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TABLE OF AUTHORITIES

Amalgamated Meat Cutters & Butcher Workmen v. Safeway Stores, Inc., 52 F.R.D. 373, 375 (D. Kan. 1971) ................................................................................................. 16 Bogosian v. Gulf Oil Corp., 621 F. Supp. 27 (E.D. Pa. 1985) ..................................................................................................... 13 Bruno v. Superior Court, 127 Cal. App. 3d 120 (1981) ............................................................................................................ 7 Buchet v. ITT Consumer Fin. Corp. (D. Minn. 1994), 845 F. Supp. 684, 695....................................................................................................................... 5 California v. Levi Strauss & Co., 41 Cal. 3d 460 (1986) ....................................................................................................................... 6 Chavez v. Netflix, Inc., 162 Cal. App. 4th 43, 63 (2008) ....................................................................................................... 9 Cho v. Seagate Technology Holdings, Inc., 177 Cal. App. 4th 734, 746 (2009).................................................................................................. 14 Crawford v. Equifax Payment Services, Inc., 201 F.3d 877 (7th Cir. 2000) .......................................................................................................... 12 Cundiff v. Verizon California, Inc., 167 Cal. App. 4th 718 (2008) ........................................................................................................... 7 Dunk v. Ford Motor Co., 48 Cal. App. 4th 1794, 1801 (1996) .................................................................................................. 2 Ellis v. Edward D. Jones & Co., 527 F. Supp. 2d 439, 446 (W.D. Pa. 2007)...................................................................................... 15 Friedman v. Lansdale Parking Auth., No. CIV. A. 92-7257, 1995 WL 141467, at *2 (E.D. Pa. 1995) ........................................................................................... 8 Government Employees Hosp. Assn v. Serono Intern., S.A., 246 F.R.D. 93, 95 (D. Mass. 2007) ................................................................................................... 8 Hanlon v. Chrysler Corp., 150 F.3d 1011, 1021 (9th Cir. 1998) ................................................................................................. 2 Holmes v. Continental Can Co., 706 F.2d 1144 (11th Cir. 1983)....................................................................................................... 13 In re American Tower Corp. Securities Litigation, 648 F.Supp.2d 223, 224 n.1 (D.Mass. 2009) ..................................................................................... 8 In re Cendant Corp. Litig., 264 F.3d 201 (3d Cir. 2001) ......................................................................................................10, 12

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ii

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In re Compact Disc Minimum Advertised Price Antitrust Litig. 370 F.Supp.2d 320 (D. Me. 2005) .................................................................................................... 5 In re Consumer Privacy Cases, 175 Cal.App.4th 545, 555 (2009)...................................................................................................... 2 In re Domestic Air Transp. Antitrust Litig., 148 F.R.D. 297, 350-51 & nn.75, 76 (N.D. Ga. 1993) ..................................................................... 11 In re General Motors Corp. Engine Interchange Litigation, 594 F.2d 1106, 1137 (7th Cir. 1979) ............................................................................................... 15 In re GMC Pick-Up Litig., 55 F.3d 768 (3rd Cir. 1995) .......................................................................................................15, 16 In re HP Inkjet Printer Litig., No. 5:05-cv-3580 JF, 2011 WL 1158635, at *10 (N.D. Cal. Mar. 29, 2011) ..................................................................... 12 In re Matzo Food Products Litigation, 156 F.R.D. 600, 605-06 (D.N.J.1994) ............................................................................................... 8 In re Microsoft I-V Cases, 135 Cal. App. 4th 706 (2006) ........................................................................................................... 8 In re NASDAQ Market-Makers Antitrust Litig., 187 F.R.D. 465, 486 (S.D.N.Y. 1998) ............................................................................................. 11 In re Pharmaceutical Industry Avg. Wholesale Price Lit., 588 F.3d 24, 34-35 (1st Cir. 2009) .................................................................................................... 8 In re Relafen Antitrust Litigation, 231 F.R.D. 52, 82 (D. Mass. 2005) ................................................................................................... 8 In re Tyco Intern. Ltd. Multidistrict Litigation, 535 F. Supp.2d 249, 262 (D. N. H. 2007) ......................................................................................... 8 In re Washington Pub. Power Supply Sys. Sec. Litig., 19 F.3d 1291, 1297-98 (9th Cir. 1994)............................................................................................ 11 Kraus v. Trinity Management Services, Inc., 23 Cal. 4th 116, 96 Cal.Rptr.2d 485 (2000) ...................................................................................... 8 Kullar v. Foot Locker Retail, Inc., 168 Cal.App.4th 116, 129 (2008)...................................................................................................... 2 Lealao v. Beneficial California, Inc., 82 Cal. App. 4th 19 (2000) .................................................................................................... 9, 11, 12 Mars Steel Corp. v. Continental Illinois Natl Bank & Trust Co., 834 F.2d 677, 680-681 (7th Cir. 1987)............................................................................................ 15 Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781 (7th Cir. 2004) .......................................................................................................... 12 Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950) ....................................................................................................................... 14 Case No. BC300142 iii
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Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006) .....................................................................................................12, 13 Petruzzis, Inc. v. Darling-Delaware Co., 880 F. Supp. 292 (M.D. Pa. 1995) .................................................................................................. 15 Plummer v. Chemical Bank, 91 F.R.D. 434 (S.D.N.Y. 1981), affd, 668 F.2d 654 (2d Cir. 1982) ................................................ 13 Schwartz v. Dallas Cowboys Football Club, Ltd., 157 F.Supp.2d 561 (E.D. Pa. 2001) ................................................................................................ 12 Staton v. Boeing Co., 327 F.3d 938 (9th Cir. 2003) ............................................................................................................ 3 Strong v. Bellsouth Telecomm., Inc., 173 F.R.D. 167 (W.D.La. 1997), affd, 137 F.3d 844 (5th Cir. 1998) ................................................ 5 Sylvester v. Cigna Corp., 369 F. Supp. 2d 34 (D. Me. 2005) .................................................................................................... 5 Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007) ................................................................................................................... 10 Union Life Fidelity Ins. Co. v. McCurdy, 781 So. 2d 186 (Ala. 2000) .............................................................................................................. 5 Valley Drug Co. v. Geneva Pharmaceuticals, Inc., 350 F.3d 1181 (11th Cir. 2003)....................................................................................................... 13 Vizcaino v. Microsoft Corp., 290 F.3d 1043 (9th Cir. 2002) .......................................................................................................... 3 Yeagley v. Wells Fargo & Co., 2008 WL 171083 (N.D. Cal.) ........................................................................................................... 5 Young v. Higbee, 324 U.S. 204 (1945) ....................................................................................................................... 13 Statutes

21 15 U.S.C. 78u-4(b)(2)........................................................................................................................ 10 22 California Code of Civil Procedure 384(b) .......................................................................................... 8 23 California Rules of Court 3.769(f) ........................................................................................................ 14 24 Other Authorities 25 AMERICAN LAW INSTITUTE, PRINCIPLES OF THE LAW OF AGGREGATE LITIG. 3.05 ............................... 2-3 26 AMERICAN LAW INSTITUTE, PRINCIPLES OF THE LAW OF AGGREGATE LITIG. 3.07 ............................... 8-9 27 28 Wayne Brazil, For Judges: Suggestions About What to Say About ADR at Case Management Conferences and How to Respond to Concerns or Objections Raised by Counsel, 16 OHIO ST. J. ON DISP. RESOL. 165, 170 (2000) ......................................................... 16 Case No. BC300142 iv
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Alba Conte, 1 Attorney Fee Awards 2.05 ........................................................................................... 12 Court Awarded Attorney Fees: Report of the Third Circuit Task Force, 108 F.R.D. 237 (1985) .................................................................................................................... 11 Theodore Eisenberg & Geoffrey Miller, The Role of Opt-Outs and Objectors in Class Action Litigation: Theoretical and Empirical Issues, 57 VAND. L. REV. 1529 (2004). ..................... 16 Brian T. Fitzpatrick, The End of Objector Blackmail?, 62 VAND. L. REV. 1623 (2009) ......................... 17 Fed. Tax Coordinator Second Series P-1001 (RIA) .............................................................................. 5 Allison Frankel, Legal Activist Ted Frank Cries Conflict of Interest, Forces OMelveny and Grant & Eisenhofer to Modify Apple Securities Class Action Deal, AMERICAN LAWYER LIT. DAILY (Nov. 30, 2010). ............................................................................................. 17 Christopher R. Leslie, The Significance of Silence: Collective Action Problems and Class Action Settlements, 59 FLA. L. REV. 71 (2007). ............................................................................... 15 Pamela A. MacLean, Dealing for Dollars, CALIFORNIA LAWYER (June 2011) ..................................... 5

11 Herbert Newberg & Alba Conte, NEWBERG ON CLASS ACTIONS 11:41 (4th ed. 2002). ......................... 2 12 Herbert Newberg & Alba Conte, NEWBERG ON CLASS ACTIONS 11:42 (4th ed. 2002). ......................... 2 13 Herbert Newberg & Alba Conte, NEWBERG ON CLASS ACTIONS 13:20 (4th ed. 2002). ......................... 2 14 Rachel M. Zahorsky, Unsettling Advocate, ABA J. (Apr. 2010) ....................................................... 17 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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1

INTRODUCTION The parties claim to have reached a $455 million settlement. Unfortunately, this figure is illusory. In reality, the parties have tacitly colluded to maximize the attorneys feesan extraordinary $90 million, which would be excessive even if this were a $455 million settlementwhile minimizing the amount the defendant will have to pay out. All of this maneuvering comes at the expense of the putative class that class counsel purports to represent. As such, the settlement cannot be approved. The settling parties have, in their possession, the information that is necessary to compensate their clients. Instead of just paying class members what they are entitled to under the settlement, the settling parties instead chose to set up a claims procedure that almost seems designed to deter class members from being compensated. It is a safe bet that, under the settling parties procedure, only a tiny fraction of class members will ever receive direct compensation. Many class members will never even receive notice of this settlement, but will be bound by it nonetheless. The rest of the fundthat is, most of itwill enrich the Exchanges, which were originally defendants in this action. Class counsel thus proposes to collect an exorbitant feea fee that, in magnitude, is unrelated in size to fees in similar actions, unjustified by California law, and unconnected to the comparatively tiny benefits it brings the class. Because it releases a multitude of claims, this settlement is a great deal for defendants. Because it unleashes a multitude of dollars, this settlement is a great deal for class counsel. But it is an exceedingly poor deal for the class. I. The Objectors Are Members of the Class. Objector Hans Schantzs mailing address is 2416 Little Cove Road, Owens Cross Roads, AL, 35763. His telephone number is (256) 337-3012. His email address is h.schantz@q-track.com. The Farmers policies that Schantz purchased are numbered 918106108 and 918106155. Objector George Yunaevs mailing address is 849 South Wolfe Road, Sunnyvale, CA, 94086. His telephone number is (408) 676-6612. His email address is gyunaev@gmail.com. The Farmers policies that Yunaev purchased are numbered 163720988 and 925275929.
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When Yunaev purchased his insurance policies, his first name was Georgy; he later legally changed his name to Americanize that spelling.
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Both of these objectors thereby qualify for membership in the class and have standing to object to the settlement. Their counsel, Theodore H. Frank of the non-profit Center for Class Action Fairness LLC, intends to appear at the September 7 fairness hearing in order to represent them. Objectors reserve the right to cross-examine any witnesses who testify at the hearing in support of settlement approval. II. Preventing an Unfair Settlement Is This Courts Duty. The court has a fiduciary responsibility as guardian of the rights of the absentee class members when deciding whether to approve a settlement agreement. Kullar v. Foot Locker Retail, Inc., 168 Cal. App. 4th 116, 129 (2008) (quoting 4 Newberg on Class Actions 11:41 (4th ed. 2002) The court must determine whether the settlement is fair, adequate, and reasonable. The purpose of the requirement is the protection of those class members, including the named plaintiffs, whose rights may not have been given due regard by the negotiating parties. Dunk v. Ford Motor Co., 48 Cal. App. 4th 1794, 1801 (1996) (internal citations omitted). The court may not simply act as a rubberstamp for the parties agreement; rather, the court must not only assess the fairness of the substantive terms of the settlement but also subject the corresponding scheme of attorney compensation to thorough judicial review. In re Consumer Privacy Cases, 175 Cal. App. 4th 545, 555 (2009). A trial court has a continuing duty in a class action case to scrutinize the class attorney to see that he or she is adequately protecting the interests of the class. Herbert Newberg & Alba Conte, NEWBERG
ON

CLASS ACTIONS 13:20 (4th ed. 2002). There should be no presumption in favor of

settlement approval: [t]he proponents of a settlement bear the burden of proving its fairness. True v. American Honda Co., 749 F. Supp. 1052, 1080 (C.D. Cal. 2010) (citing 4 NEWBERG ON CLASS ACTIONS 11:42 (4th ed. 2009)). Accord AMERICAN LAW INSTITUTE, PRINCIPLES LITIG. 3.05(c) (2010) (ALI Principles). It is insufficient that the settlement happened to be at arms length without express collusion between the settling parties; because of the danger of conflicts of interest, third parties must monitor the reasonableness of the settlement as well. There is a need for special attention when the record suggests that settlement is driven by fees; that is, when counsel receive a disproportionate distribution of the settlement, or when the class receives no monetary distribution but class counsel are amply rewarded. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1021 (9th Cir. 1998). Accord Staton v. Boeing Co., 327 F.3d
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OF THE

LAW

OF

AGGREGATE

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938, 964 (9th Cir. 2003) (If fees are unreasonably high, the likelihood is that the defendant obtained an economically beneficial concession with regard to the merits provisions, in the form of lower monetary payments to class members or less injunctive relief for the class than could otherwise have obtained.). Because in common fund cases the relationship between plaintiffs and their attorneys turns adversarial at the fee-setting stage, courts have stressed that when awarding attorneys fees from a common fund, the district court must assume the role of fiduciary for the class plaintiffs. Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1052 (9th Cir. 2002) (quoting In Re Washington Public Power Supply Syst. Lit., 19 F.3d 1291 (9th Cir. 1994)). Accordingly, fee applications must be closely scrutinized. Vizcaino, 290 F. 3d at 1052. Whether a particular settlement is fair, reasonable, and adequate is not always uncontroversial. Therefore, at a minimum, courts should follow 3.05 of the American Law Institutes Principles of the Law of Aggregate Litigation, which, rather than an indeterminate balancing test of factors, asks courts to submit settlements to several tests that demonstrate unfairness. Under 3.05(a), there is first an initial four-part test that all settlements must meet: the court must consider whether (1) the class representatives and class counsel have been and currently are adequately representing the class; the relief offered to the class is fair and reasonable given the costs, risks, probability of success, and delays of trial and appeal; class members are treated equitably (relative to each other) based on their facts and circumstances and are not disadvantaged by the settlement considered as a whole; and the settlement was negotiated at arms length and was not the product of collusion.

(2)

(3)

(4)

In addition to these four mandatory requirements, a settlement may also be found to be unfair for any 23 other significant reason that may arise from the facts and circumstances of the particular case. Id. 24 3.05(b). 25 In its Order of March 2, 2011, this Court announced that it would hold a fairness hearing to 26 consider whether the proposed Settlement should be approved as fair, reasonable, and adequate. 27 Order, at 5(b). Regrettably, there are multiple respects in which this settlement fails to meet those 28
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standards. III. The Settlement Betrays the Interests of the Class. This proposed settlement places unnecessary and unreasonable obstacles in the way of class member recovery. Furthermore, it incorrectly and impermissibly designates money that reverts to agents of the defendant as being money that compensates class members. These arrangements breach class counsels duty to the class. A. The Proposed Settlement Creates Unnecessary Obstacles to Class Recovery.

The proposed settlement requires each class member to submit a claim form in order to qualify for compensation, complete with scary language about a possible criminal charge of perjury. See Proposed Settlement, Exh. B. The role of class members in this process is, by and large, confined to confirming the information that Farmers will supply to them. Assuming it is not the intention of the settling parties to shrink the compensation that goes directly to the class by creating obstacles to the process, it is hard to see why the settling parties didnt just decide that Defendants would have to pay what they know they owe: why cant Defendants just cut a check to each class member? The Defendants have already conceded that they know all relevant facts need to compensate each class member. In support of the settlement, one Farmers executive stated under oath that Farmers has already retrieved consumer data from multiple Farmers databases that have been used to provide notice to every person who had insurance with any of the Exchanges. Declaration of Koenraad Lecot in Support of Motion for Preliminary Approval of Settlement, 5 at 1:16-24. This data included each policyholders policy number, name, address, the inception date of their insurance policy (ies) with the Exchange(s), the cancellation date (if any) for their insurance policy (ies) with the Exchange(s), the amount of written premium they have paid to the Exchange(s) and the different lines of business for which they have maintained an insurance policy with the Exchange(s). Id. Relatedly, under the settlement the claims administrator will provide all the individual account data to each Class Member and perform the calculation for each class members recovery. Declaration of Philip Maxwell in Support of Motion for Preliminary Approval of Settlement, 14 at 5:26-27. Each claim form that class members receive will contain a pre-printed calculation by defendant of what each class member is due. Proposed Settlement, Exh. B.
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The rate of response to any claims-made settlement cannot be predicted precisely, but in general a very low rate is reasonably certain. One settlement administrator who had been involved in over 175 class action settlements nationwide reported that response rates are 10 percent or less in the vast majority of settlements that require filing a notice of claim. Sylvester v. Cigna Corp., 369 F. Supp. 2d 34, 44 (D. Me. 2005). In claim-fulfillment settlements involving email and postcard notice, the typical rate of response drops to approximately 1%. See Declaration of Dan Rosenthal, The NVIDIA GPU Litigation, No. C 08-04312 JW (N.D. Cal. 2011) (Dkt. No. 357), at 3 (attached as Exhibit 1). In a recent federal case, a response rate below 1% led the San Francisco court to label the outcome a virtually worthless settlement of a meritless case, Yeagley v. Wells Fargo & Co., 2008 WL 171083 at *1 (N.D. Cal. 2008), revd on other grounds, 365 Fed.Appx. 886 (9th Cir. 2010). Response rates under 5% are routine: see, e.g., In re Compact Disc Minimum Advertised Price Antitrust Litig., 370 F.Supp.2d 320, 321 (D. Me. 2005) (2% response rate); Buchet v. ITT Consumer Fin. Corp., 845 F. Supp. 684, 695 (D. Minn. 1994), as amended 858 F. Supp. 944 (rejecting settlement after related settlement produced response rates between one-tenth of 1% and 3.2%); Strong v. Bellsouth Telecomm., Inc., 173 F.R.D. 167, 169 (W.D.La. 1997), affd, 137 F.3d 844 (5th Cir. 1998) (4.3% response rate); Union Life Fidelity Ins. Co. v. McCurdy, 781 So. 2d 186, 188 (Ala. 2000) (one-tenth of 1% response rate). See generally Pamela A. MacLean, Dealing for Dollars, CALIFORNIA LAWYER (June 2011), at 12, 50. As noted above, the unnecessarily convoluted nature of the claims process seems almost designed to deter responses; claimants are warned that any additions they make to the claim form could subject them to a charge of perjury. This will presumably deter a significant number of claimants from responding, especially those who are no longer in possession of old insurance records. Speaking very generally, taxpayers are well-advised to hold onto their tax records for three years in anticipation of refunds or audits. Fed. Tax Coordinator Second Series P-1001 (RIA) ("Usually the taxpayer should keep records for three years from the date a return is filed."). However, this settlement appears to require some class members (those who do not believe their memory is perfect) to hold onto their insurance purchase records for several multiples of that three-year timespan in order to verify their compensation. An alternative, and vastly superior, procedure of compensation would have been based on an opt-out structure, not an opt-in one. The settling parties could have designed a settlement that simply
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used the information in their possession to send a check to each injured party with a confirmatory claim form. In those cases in which the information on the preprinted claim form needed adjustment, the beneficiaries could have been asked to send back a corrected form. It is reasonable to predict that the current recommendation by the settling parties will result in direct compensation only to a small minority of class members; further, it is reasonable to predict that the alternative procedure recommended immediately above would result in direct compensation to a relatively large majority of class members. This is not to say that the parties are required to construct a settlement in this manner. But when they do not, the court must infer that it was the parties intent to reduce the amount actually paid to the class. It would be entirely unfair to value a $455 million settlement where the defendant directly pays class members the same as an otherwise identical claims-made settlement where it is entirely certain that class members will receive far less. B. Enriching the Exchanges Does Not Benefit the Class.

The settling parties have established a claims-made process that will almost certainly fail to deliver the vast majority of settlement monies to class members. That untouched remainder will revert to the Exchanges, rather than going to the class. Because of the alternatives available to the settling parties, this outcome is not fair, reasonable, or adequate. The unclaimed funds will revert to entities that are controlled by defendant Farmers. No part of the settlement agreement provides any assurance that these reversionary funds will be used to benefit class members. No part of the settlement agreement provides any assurance that the bad practices that
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The Settlement Agreement argues that Class Members will benefit because the Exchanges will have additional surplus to pay claims, cover expense obligations, and fund additional operations. Defendants Mem. in Support of Motion for Preliminary Approval, III.C., 6: 6-8. This is a hypothetical and non-binding assurance that the Exchanges have it in their power to act in the interest of class members, not an actual commitment of any concrete action that Exchanges must take. Cf., e.g., California v. Levi Strauss & Co., 41 Cal. 3d 460, 473 (1986) such as a rollback of the defendants prices, escheat to a governmental body for either specified or general purposes, establishment of a consumer trust fund, and claimant fund sharing. For some reason, these established methods of disposal of a cy pres residue are absent from this settlement. Moreover, this argument proves too much: if one takes this argument seriously, the billions of dollars that Farmers is keeping and not paying the class is a benefit to the class because then Farmers has additional surplus to pay claims, cover expense obligations, and fund additional operations. That is no way to calculate settlement benefits.
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the original action identifiedsuch as improper or excessive feeswill be discontinued. That is, under the terms of the settlement, Defendants could recoup the reverted funds simply by increasing fees. This problem is described in greater detail in the Consumer Watchdog Brief, and Objectors Schantz and Yunaev incorporate by reference and join Sections II.B and IV.B of the Opposition to Motion for Preliminary Approval filed by Intervenor R. C. Heublein (Feb. 3, 2011). Furthermore, Objector Yunaev islike many class membersnot a current beneficiary of any Farmers insurance policy. He no longer is doing business with Farmers. Like many class members, he will not benefit in any sense by the proposed reversion to the Exchanges. Perhaps more than any other, this detail illuminates the illusory nature of the reversions alleged benefit to the class. Former Farmers customers are not receiving any extra compensation, and the resulting reversion, at a minimum, creates impermissible intra-class inequities and conflicts of interest that prevent the existing class representatives from being adequate representatives of the class as a whole. C. Exchange Enrichment Does Not Qualify As Cy Pres.

In order to defend the proposed settlements reversion of unclaimed funds to the exchanges, it is likely that the settling parties will defend the reversion as a form of cy pres (alternately called fluid recovery; see, e.g., Cundiff v. Verizon California, Inc., 167 Cal. App. 4th 718, 729 (2008)). This defense must fail, because the necessary conditions for cy pres are absent. The topic of fluid class recovery regularly arises in class actions such as the present one, where the class has many members with relatively small individual claims. In such circumstances, if the class recovers a favorable judgment, it is likely that only a fraction of the class members will have the desire, and documentation, to file an individual claim for part of the damages. Fluid class recovery is thus invariably suggested as a way to distribute the usually substantial amount of remaining damages. The theory underlying fluid class recovery is that since each class member cannot be compensated exactly for the damage he or she suffered, the best alternative is to pay damages in a way that benefits as many of the class members as possible and in the approximate proportion that each member has been damaged [Bruno v. Superior Court, 127 Cal. App. 3d 120, 123-24 (1981).] But the settlement at hand neither requires a cy pres remedy nor satisfies its conditions: the information needed to calculate what is owed to each class member is not just readily and cheaply attainable, but is also already in the possession of defendants. The central justification of cy presthat each class member cannot be compensated exactly for the damage he or she suffered, id.is absent
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here. Fluid recovery developed as a means by which to distribute the residue of a favorable class action judgment remaining after payment to those class members who have sufficient interest in obtaining recovery and can produce the documentation necessary to file individual claims. Kraus v. Trinity Management Services, Inc., 23 Cal. 4th 116, 127-28 (2000). Cy pres is a next best or second best solution, to be used when it is not possible or practicable in a class action judgment to compensate class members according to their respective damages (In re Microsoft I-V Cases, 135 Cal. App. 4th 706, 716 (2006)): the method is applied after payment to class members (Kraus, 23 Cal. 4th at 128) to the settlement residue, once the avenues for the first best alternative are exhausted. Similarly, the statutory framework of cy pres under California Code of Civil Procedure 384(b) dictates that unpaid residue will be paid out only after class members are paid. The settling parties cannot in good faith create a second best cy pres scheme that bypasses readily available first best avenues of direct
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This is the standard understanding of cy pres; it is replicated in many other jurisdictions. A cy pres remedy is permitted in situations where class recovery cannot feasibly be distributed to individual class members or where unclaimed funds remain following distribution to the class. In re Matzo Food Products Litig., 156 F.R.D. 600, 605-06 (D.N.J.1994). See also Friedman v. Lansdale Parking Auth., No. CIV. A. 92-7257, 1995 WL 141467, at *2 (E.D. Pa. 1995) (Cy pres distribution, also called fluid class recovery, is appropriate when disbursement of the fund to the class has been ineffective, the purpose of the fund has not been achieved, and it is possible to indirectly benefit the non-claiming class members by awarding the fund residue to a third party."). Cf. In re Pharmaceutical Industry Avg. Wholesale Price Lit., 588 F.3d 24, 34-35 (1st Cir. 2009) (approving cy pres of unclaimed funds because district court had ensured full treble recovery of class members first); American Law Institute, Principles of the Law of Aggregate Litigation 3.07 (2010). A settlement with a large number of small beneficiaries would economically use a cy pres remedy only where the cost per class member of distributing the residual funds substantially outweighs the amount each class member would receive. In re American Tower Corp. Securities Litig., 648 F.Supp.2d 223, 224 n.1 (D.Mass. 2009). A cy pres distribution which would only become operational once all class members have been fully compensated is, as such, unobjectionable; see In re Tyco Intern. Ltd. Multidistrict Litigation, 535 F. Supp.2d 249, 262 (D. N. H. 2007) (The plan calls for the continued re-distribution of unclaimed funds to class members according to their pro rata shares, until the costs of such redistributions make it economically unfeasible to continue doing so. If and when that point is reached, then the balance of the fund will be subject to a cy pres remedy.); Government Employees Hosp. Assn v. Serono Intern., S.A., 246 F.R.D. 93, 95 (D. Mass. 2007) (Settlement amount specifically allocated to class members; This amount was expected to be sufficient to fully pay all of the claims; Any excess was to be distributed as a cy pres fund). See also In re Relafen Antitrust Litigation, 231 F.R.D. 52, 82 (D. Mass. 2005) (cy pres award made only after great efforts to ensure that individual consumers were rewarded and in light of the very weakness of the claims of some subclass members). But because the settlement at issue here already contains a method to distribute funds to class members, using cy pres to divert funds away from what rightfully should go to class members is inappropriate.
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compensation; such a plan would be a misunderstanding or misapplication of cy pres. Accord ALI Principles 3.07(a). IV. The Proposed Attorneys Fees Are Excessive. Both the size of the attorney fees, and the appetite of the attorneys who arrived at it, appear remarkably large. The fees are not only oversized when compared to similar settlements, but also oversized because they compensate the attorneys for monies that will never reach the class. A. The Size of the Fund Dictates a Smaller Fee Percentage.

It is inappropriate for class counsel to be assigned a percentage of the common fund without consideration of that funds relative size. Percentage fees generally decrease as the amount of the recovery increases, on the theory many large recoveries are due merely to the size of the class, which may have no relationship to the efforts of counsel. Lealao v. Beneficial California, Inc., 82 Cal. App. 4th 19, 49 n. 16 (2000). Fees that are based on a percentage of the benefits are in fact appropriate in large class actions when the benefit per class member is relatively low, except that the percentage should generally decrease as the number of class members and the size of the fund increases. Chavez v. Netflix, Inc., 162 Cal. App. 4th 43, 63 (2008). This is based on a recognition that beyond a certain point a larger number of identical claims does not typically require greater efforts by counsel. Id. In fact, class counsels fee request is significantly outside of judicial norms. A recent expert report by Professor Michael Perino of St. Johns University School of Law comprehensively surveyed a dataset of 525 reported and unreported attorneys fee awards over the scope of 13 years in the field of securities class action settlements: when surveying the 18 settlements in his dataset with a common fund of over $150 million, Perino found that the mean (average) attorneys fee was just over 15% of the common fund. See Declaration of Michael Perino, In re Qwest Comm. Intl, Inc. Sec. Litig., No. 1:01cv-01451-REB-KLM (D. Colo. May 15, 2006) (Dkt. No. 1011) at 11, fig. 2 (attached as Exhibit 2). This suggests that class counsels fee request of nearly 20% of a much larger common fund is likely a significant overcompensation. Perinos statistical analysis is especially relevant in a jurisdiction in which courts have attempted to set class action attorneys fees so that they mimic the market. See, e.g., Lealao v. Beneficial California, Inc. 82 Cal. App. 4th at 48 (2000). When confronted with Professor Perinos statistics, class counsel might respond that this is
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merely a collection of data from securities settlements, and that securities settlements differ from class action settlements generally. But any differences between securities class actions and other kinds of class actions weighs in favor of fees being lower in non-securities class actions. Unlike typical class action settlements, the choice of both plaintiff and class counsel in securities actions under the Private Securities Litigation Reform Act is considerably constrained; the court selects the lead plaintiff, who (subject to court approval) selects class counsel. See, e.g., In re Cendant Corp. Litig., 264 F.3d 201, 218, 273 (3d Cir. 2001). This procedure typically produces a lead plaintiff who is a well-informed institutional investor. One might expect that this procedure would have consequences for counsels performance: all other things being equal, the client who is knowledgeable enough to monitor his or her lawyers performance can negotiate a more appropriate fee and expect a more beneficial result. Why is it that the PSLRAs procedure results in attorneys fees that are notably lower than attorneys fees generally? Presumably, the answer is that it is difficult or impossible for the typical named plaintiff to appropriately monitor and control class counsels performance a disability that a sophisticated institutional investor does not face. In general, the law tries to ensure that class counsel will fairly and adequately protect the interests of the class by loading up the court with fiduciary duties involving the monitoring of class counsel. This creation of a special judicial duty is probably best understood as an attempt to simulate the beneficial consequences of a knowledgeable and sophisticated lead plaintiff: it is therefore appropriate for this Court to take judicial notice of the attorneys fees that class counsel typically receives under the PSLRA, and to benefit from the data that demonstrate that class counsel receives appropriate compensation when appointed by a plaintiff who can effectively advise and direct his or her attorney.
4

In short, the proposed payment to class counselpurely as a matter of magnitudeappears unreasonable. Large settlements typically have lower percentage awards, essentially because of the law of diminishing returns. This jurisdictions attention to the principle of diminishing returns is echoed in other jurisdictions. Although attorneys awards are left to the courts discretion, such awards typically
4

In addition, it is difficult to make the case generally that securities class actions deserve less compensation than other actions: trying a case under the relevant securities law is riskier and demands a higher standard of pleading. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007) (interpreting "[e]xacting pleading requirements" of 15 U.S.C. 78u-4(b)(2)).
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involve a sliding scale dependent upon the ultimate recovery, the expectation being that, absent unusual circumstances, the percentage will decrease as the size of the fund increases. Court Awarded Attorney Fees: Report of the Third Circuit Task Force, 108 F.R.D. 237, 256 (1985). Cf. id. at 256 n. 61 (In a case in which a large settlement is anticipated, the negotiated contingency range may include relatively small percentages. For example, the Agent Orange plaintiffs lawyers collected over ten million dollars in fees, yet that amounted to less than 6% of the settlement fund.). See also In re Washington Pub. Power Supply Sys. Sec. Litig., 19 F.3d 1291, 1297-98 (9th Cir. 1994); In re Domestic Air Transp. Antitrust Litig., 148 F.R.D. 297, 350-51 & nn.75, 76 (N.D. Ga. 1993), and cases cited therein (listing declining percentages based on case law). When class counsel decided to go into the wholesale business, surely it was aware of the possibility that it might have to stop charging retail rates: It is generally not 150 times more difficult to prepare, try and settle a $150 million case than it is to try a $1 million case. In re NASDAQ Market-Makers Antitrust Litig., 187 F.R.D. 465, 486 (S.D.N.Y. 1998). There is considerable merit to reducing the percentage as the size of the fund increases. In many instances the increase is merely a factor of the size of the class and has no direct relationship to the efforts of counsel. Id. (quoting In re First Fidelity Securities Litigation, 750 F.Supp. 160, 164 n. 1 (D.N.J. 1990)). B. Class Counsels Compensation Should Be Calculated by the Benefits It Secures for the Class.

The true value that class members receive from the fund cannot be ascertained until the claims 19 process takes place. The current calculation simply assumes that class members will in toto receive 20 100% of the value of the settlement. As explained above, because of the obstacles that the settling 21 parties have placed in the way of class compensation, 100% class compensation is as a practical matter 22 impossible. In any event, the attorney fees should be based on actual, not hypothetical, class 23 compensation, and the amount of actual class compensation cannot be known until the claims process 24 that the settling parties have created is resolved. 25 Assigning a percentage of the settlement to class counsel is improper unless and until the 26 benefits of the settlement to the class can be monetized without undue speculation. Lealao v. 27 Beneficial California, Inc., 82 Cal. App. 4th 32, 49 (2000). The value of the settlement to the class can 28
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be determined with precision only after the claims process is concluded. This is a case in which basing the fee on the number of claims actually remediated serves the important goal of encouraging class counsels continued participation after settlement has been reached. Id. at 821 (quoting In re Prudential Ins. Co. of America Sales Practices Litigation, 148 F. 3d 283, 334 n.110 (3d Cir. 1998)). The Court would violate this principle if it were to calculate a percentage of the recovery based on the fund before claims have been made: no fees should be awarded until the amount of class benefit is known. Other jurisdictions also recognize that a cy pres fund does not benefit class members in the same way that direct compensation does, and therefore that the calculation of attorneys fees should not give the weight to cy pres that it does to direct compensation. In general, class counsel should only request a share of the money the class actually receives. [N]umerous courts have concluded that the amount of the benefit conferred logically is the appropriate benchmark against which a reasonable common fund fee charge should be assessed. In re Prudential Ins. Co. America Sales Practices Litig., 148 F.3d at 338 (quoting Conte, 1 Attorney Fee Awards 2.05, at 37). In determining the appropriate amount of attorneys' fees to be paid to class counsel, the principal consideration is the success achieved by the plaintiffs under the terms of the settlement." Schwartz v. Dallas Cowboys Football Club, Ltd., 157 F.Supp.2d 561, 579 (E.D. Pa. 2001). The key consideration in determining a fee award is reasonableness in light of the benefit actually conferred (emphasis in original). In re HP Inkjet Printer Litig., No. 5:05-cv-3580 JF, 2011 WL 1158635, at *10 (N.D. Cal. Mar. 29, 2011) (quoting Create-ACard Inc., v. Intuit, Inc., No. C 07-06452 WHA, 2009 WL 3073920, at *3 (N.D. Cal. Sept. 22, 2009)). See generally In re Cendant Corp. Litig., 264 F.3d 201, 254-60 (3d Cir. 2001) (the court should ensure that the incentives of class counsel and class members are aligned). See also Murray v. GMAC Mortgage Corp., 434 F.3d 948, 952 (7th Cir. 2006); Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781, 784 (7th Cir. 2004) (There is no indirect benefit to the class from the defendants giving the money to someone else.); Crawford v. Equifax Payment Services, Inc., 201 F.3d 877 (7th Cir. 2000). The Exchanges are not the class counsels client; the class members are. In short, class counsels demand for a share of the entire settlement, rather than just a share of the relatively smaller portion of the fund that actually conveys benefits to the class, is unreasonable.

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C.

The Class Representative Payment Is Excessive Relative to Class Members Benefits.

Class members Schantz and Yunaev will receive less than $7 and $1, respectively, but the 3 settlement provides Fogel up to $30,000, far more than he could hope to receive as a class member. 4 Settlement Notice 18. This award is too high, especially because it risks creating a conflict of interest 5 for the class representative. 6 Class representatives are entitled to modest and reasonable compensation. See, e.g., Bogosian 7 v. Gulf Oil Corp., 621 F. Supp. 27, 32 (E.D. Pa. 1985) (The propriety of allowing modest compensation 8 to class representatives seems obvious.). However, the unusually large size of this particular award 9 creates an untenable conflict of interest between the class representative and the class. Murray v. 10 GMAC Mortg. Corp., 434 F.3d 948, 952 (7th Cir. 2006) (wildly disproportionate incentive award of 11 $3000 proved that the class device had been used to obtain leverage for one persons benefit). See also 12 Holmes v. Continental Can Co., 706 F.2d 1144, 1148 (11th Cir. 1983) (when representative plaintiffs 13 obtain more for themselves by settlement than they do for the class for whom they are obligated to act as 14 fiduciaries, serious questions are raised as to the fairness of the settlement to the class (quoting 15 Plummer v. Chemical Bank, 91 F.R.D. 434, 441-42 (S.D.N.Y. 1981), affd, 668 F.2d 654 (2d Cir. 16 1982)). Cf. also Young v. Higbee, 324 U.S. 204 (1945). 17 The awards unusually large size places a barrier between the interests of the class representative 18 and the interests of the rest of the class. The size of the proposed award risks transforming it from 19 compensation for services rendered into compensation for uncritical advocacy: the class representatives 20 interests now lie in the approval of any settlement, no matter how unfair to the class, given the 21 possibility of a large windfall unavailable to the rest of the class, because the size of the request gives 22 the class representative a powerful incentive to avoid any oversight of the settlement or its associated 23 payments to class counsel. A class representatives large incentive to avoid jeopardizing its incentive 24 payment creates a disqualification for class representation. Valley Drug Co. v. Geneva Pharmaceuticals, 25 Inc., 350 F.3d 1181, 1189-92 (11th Cir. 2003) (class representatives inadequate where their economic 26 interests and objectives conflicted substantially with those of class members). 27 28
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V.

Notice to Many Already Identified Class Members Is Nonexistent, and Thus Deficient. All class members are entitled to the best notice practicable. Mullane v. Central Hanover Bank

& Trust Co., 339 U.S. 306 (1950). Although all class members are known to the settling parties, the plan of direct notice is confined to lead policyholders: Only the first named insured on an insurance policy that falls within the Class definition may submit a Proof of Claim and be eligible for payment from the Settlement Amount, even if the policy has more than one named insured. No other named insured under such a policy may seek relief under the Settlement, but all named insureds on each such policy will nevertheless be bound by the terms of the Settlement and of the Final Judgment. [Stipulation of Settlement, II. C. 3, at 28.] This provision has troubling implications. It does not appear to comply with California Rules of Court 3.769(f), which requires notice of a final approval hearing to be given to the class members, rather than an arbitrary subset of them. See, e.g., Cho v. Seagate Technology Holdings, Inc., 177 Cal. App. 4th 734, 746 (2009) (The notice must fairly apprise the class members of the terms of the proposed compromise and of the options open to dissenting class members.). Apparently, if a secondary party insured under one of these policies has become separated or divorced from the first named insured, the first named insured will have no obligation to inform the second-named party; nonetheless, the second-named party would be completely and entirely bound. On its face, this seems to be a simple violation of notice and due process; the extraordinarily overbroad releases of this settlement agreement, which releases each and every Claim or Unknown Claim that any class member asserted or could have asserted directly or derivatively against the releasees, magnifies the problem. VI. The Court Should Discount Attempts By the Settling Parties To Infer Class Approval from a Low Number of Objections. Any given class action settlement, no matter how much it betrays the interests of the class, will produce only a small percentage of objectors. The predominating response will always be apathy, because objectors unless they can obtain pro bono counsel must expend significant resources on an enterprise that will create little direct benefit for themselves. Another common response from nonlawyers in receipt of a settlement notice will be the affirmative avoidance, whenever possible, of
5 5

Proposed Settlement, I.D.43.a. There are minor exceptions listed in a subsequent clause: coverage claims, claims to enforce the settlement, and claims arising from four other class action cases currently pending. Id. at I.D.43.b.13.
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anything involving the judicial process. Class counsel may argue that this understandable tendency to ignore notices or free-ride on the work of other objectors is best understood as acquiescence in or evidence of support for the settlement. This is wrong. Silence is simply not consent: Silence may be a function of ignorance about the settlement terms or may reflect an insufficient amount of time to object. But most likely, silence is a rational response to any proposed settlement even if that settlement is inadequate. For individual class members, objecting does not appear to be cost-beneficial. Objecting entails costs, and the stakes for individual class members are often low. [Christopher R. Leslie, The Significance of Silence: Collective Action Problems and Class Action Settlements, 59 FLA. L. REV. 71, 73 (2007).] There is usually little hope that opt-outs can recover for their claims the entire purpose of class

9 actions is to aggregate claims that would be uneconomical to bring individually. Almost by definition, 10 most class members have too little at stake to warrant opting out of the class litigation and filing an 11 individual lawsuit. Thus, opting out is probably not a viable option even though a proposed settlement is 12 unfair or inadequate. Id. at 109. Without pro bono counsel to look out for the interests of the class, 13 filing an objection is economically irrational for any individual. [A] combination of observations about 14 the practical realities of class actions has led a number of courts to be considerably more cautious about 15 inferring support from a small number of objectors to a sophisticated settlement. In re GMC Pick-Up 16 Litig., 55 F.3d 768, 812 (3d Cir. 1995) (citing In re Corrugated Container Antitrust Litig., 643 F.2d 195, 17 217-18 (5th Cir. 1981)); cf. Petruzzis, Inc. v. Darling-Delaware Co., 880 F. Supp. 292, 297 (M.D. Pa. 18 1995) ([T]he silence of the overwhelming majority does not necessarily indicate that the class as a 19 whole supports the proposed settlement . . . . ). [A] low number of objectors is almost guaranteed by 20 an opt-out regime, especially one in which the putative class members receive notice of the action and 21 notice of the settlement offer simultaneously. Ellis v. Edward D. Jones & Co., 527 F. Supp. 2d 439, 22 446 (W.D. Pa. 2007). [W]here notice of the class action is, again as in this case, sent simultaneously 23 with the notice of the settlement itself, the class members are presented with what looks like a fait 24 accompli. Mars Steel Corp. v. Continental Illinois Natl Bank & Trust Co., 834 F.2d 677, 680-681 (7th 25 Cir. 1987). Acquiescence to a bad deal is something quite different than affirmative support. In re 26 General Motors Corp. Engine Interchange Litig., 594 F.2d 1106, 1137 (7th Cir. 1979) (reversing 27 approval of settlement). 28
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When class members have little at stake, as in an action such as this where the recovery will typically be nominal, the rate of response will be predictably low; as such, the rate of response cannot be seen as something akin to an election or a public opinion poll. See In re GMC Pick-Up Litig., 55 F.3d at 813 (finding that class reaction factor does not weigh in favor of approval, even when low number of objectors in large class, when those who did object did so quite vociferously); Theodore Eisenberg & Geoffrey Miller, The Role of Opt-Outs and Objectors in Class Action Litigation: Theoretical and Empirical Issues, 57 VAND. L. REV. 1529, 1532 (2004). It is typically not worth the average citizens time or money to object: the slight likelihood that one additional objection will be decisive, when multiplied by the slight increase in an individual class members payout that such an objection would produce, makes individually-funded objections a losing proposition. Compare id. at 1561 (Common sense indicates that apathy, not decision, is the basis for inaction; class members who opt out are likely motivated less by technical legal analysis than by a distrust of or distaste for some aspect of the legal process). The judge should act as a guardian for all class members whether or not they have formally entered the case by registering an objection. [T]he absence or silence of class parties does not relieve the judge of his duty and, in fact, adds to his responsibility. Amalgamated Meat Cutters & Butcher Workmen v. Safeway Stores, Inc., 52 F.R.D. 373, 375 (D. Kan. 1971). Regrettably, the realm of the courtroom is, for many, mysterious and perhaps even a little frightening. Wayne Brazil, For Judges: Suggestions About What to Say About ADR at Case Management Conferences and How to Respond to Concerns or Objections Raised by Counsel, 16 OHIO ST. J. ON DISP. RESOL. 165, 170 (2000) (court procedures can be intimidating and confusing to non-lawyers). It doesnt matter whether the number of formal objectors to this settlement is two or two thousand: the settlements proponents still have the burden to show the proposed settlement and the proposed fee award is fundamentally fair, adequate, and reasonable. That burden is too heavy for this settlements advocates to carry. VII. The Objectors Pro Bono Attorney Brings This Objection in Good Faith. Theodore H. Frank, the objectors attorney, is president of the Center for Class Action Fairness LLC (the Center), a non-profit program of the 501(c)(3) Donors Trust that was founded in 2009. The attorneys engaged by the Center represent consumers pro bono by, among other things, representing
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class members aggrieved by class action attorneysparticularly attorneys who negotiate settlements that benefit themselves at the expense of their putative clients. The Center has won millions of dollars for class members since its founding in 2009. See, e.g., Rachel M. Zahorsky, Unsettling Advocate, ABA J. (Apr. 2010); Allison Frankel, Legal Activist Ted Frank Cries Conflict of Interest, Forces OMelveny and Grant & Eisenhofer to Modify Apple Securities Class Action Deal, AMERICAN LAWYER LIT. DAILY (Nov. 30, 2010). It is perhaps relevant to distinguish the Centers mission from the agenda of those who are often styled professional objectors. A number of professional objectors are for-profit attorneys who attempt or threaten to disrupt a settlement unless plaintiffs attorneys buy them off with a share of the attorneys fees; thus, some courts presume that the objectors legal arguments are not made in good faith. See Brian T. Fitzpatrick, The End of Objector Blackmail?, 62 VAND. L. REV. 1623, 1635-36 (2009). This is not the business model of the Center for Class Action Fairness, which is funded entirely by charitable donations and court-awarded attorneys fees. While the Center focuses on bringing objections to unfair class action settlements, it refuses to engage in quid pro quo settlements to extort attorneys; the Center has never settled an objection. Because the Center does not object indiscriminately, it has an excellent track record of success. In 23 cases to date where the Center has objected 24 times, courts have rejected the underlying settlement or materially modified the settlement and fee request ten times; on two other occasions, parties responded to the Centers objection before the fairness hearing by modifying settlements so as to provide millions of dollars more of cash to the class. The Center has lost two objections with finality and has thirteen objections pending in trial or appellate courts (including four where its objection was upheld in part). In short, the objectors and their attorney bring this objection in good faith to protect the interests of the class. Nonetheless, it is the experience of the Center, based on the conduct of class counsel in other cases, that some attorneys will falsely and unjustifiably accuse the Center of seeking to extort class counsel. If this Court has any doubt whether the Centers objection is brought in good faith, the objectors and the Center are willing to stipulate to an injunction prohibiting them from accepting a cash payment in exchange for the settlement of this objection.

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CONCLUSION This settlements unnecessarily complex claims procedure impoverishes the class and enriches the defendant. As a matter both of simple fairness and settled law, class counsels proposed compensation is exorbitant. The settlements notice procedure, which binds some class members without giving them any notice at all, is defective. In short, it is a settlement that has something for everyone, with the notable exception of the class, which it betrays. The court should reject this settlement; in the event the settlement is approved, class counsels fees must be significantly reduced to reflect a reasonable percentage of the moneys actually received by the class. Dated: August 17, 2011 Respectfully submitted, ____________________________ Theodore H. Frank (SBN 196332) CENTER FOR CLASS ACTION FAIRNESS LLC 1718 M Street NW, No. 236 Washington, DC 20036 tedfrank@gmail.com (703) 203-3848 Attorney for Class Members Hans Schantz and George Yunaev

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CERTIFICATE OF SERVICE I hereby certify that on this day I filed the foregoing with the Clerk of the Court, and served true and correct copies upon class counsel and defendants counsel via express mail at the addresses below, per the instructions of the Settlement Notice. California Superior Court 600 South Commonwealth Avenue Los Angeles, CA 90005 Thomas V. Girardi Graham V. LippSmith GIRARDI & KEESE 1126 Wilshire Blvd. Los Angeles, CA 90017 Raoul Kennedy SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 525 University Avenue Palo Alto, CA 94301 Ralph C. Ferrara DEWEY & LEBOEUF LLP 119 New York Ave. NW, Suite 1100 Washington, DC 20005

DATED this 17th day of August, 2011. 17 18 19 20 21 22 23 24 25 26 27 28

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_________________________ Daniel Greenberg

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