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$6.7M Settlement of FCRA class action against Kelly Services gets preliminary nod

By Lorene D. Park, J.D.

A federal district court in Michigan granted preliminary approval of a settlement that would end a putative class action by job applicants who claimed Kelly Services violated the Fair Credit Reporting Act (FCRA) by including a release of liability and other information in what should be a stand-alone disclosure that a background check may be procured. Kelly agreed to create a settlement fund of $6,749,000 that would benefit a class of potentially 220,000 individuals. The court requested further information, before final approval, justifying attorneys’ fees and named plaintiffs’ incentive award (Hillson v. Kelly Services, Inc., January 23, 2017, Michelson, L.).

Alleged violation of “stand-alone disclosure” requirement. When the named plaintiffs applied to work for Kelly Services in 2012 and 2013, they allegedly received a form disclosing that Kelly might have a background check run to assess employability. But contrary to the FCRA’s requirements in Section 1681b(b)(2)(A)(i), this initial disclosure was not in a stand-alone document consisting solely of the disclosure. It included a waiver stating: “To the fullest extent permitted by law, I release Kelly, its employees, agents, successor and assigns, from any and all claims . . . in any way related to the procurement of a consumer report about me, or any subsequent investigation(s) of my background or personal history.” There was also a disclaimer: “this authorization is not a contract for continued employment.”

Proposed settlement. According to the plaintiffs, there are about 220,000 applicants who received virtually identical disclosures. After discovery, mediation sessions, and negotiations, the parties reached a settlement and sought court approval. Under the agreement, Kelly would create a settlement fund of $6,749,000, none of which would revert to Kelly. Of this, up to 33 percent (around $2,250,000) will go for class counsel fees, $330,000 for administrative expenses, and named plaintiffs would receive incentive awards of $2,500 each. If all 220,000 potential class members make a claim, the payout will be about $41 for an “Adjudicated Ineligible” member and $14 for those with favorable background checks. Kelly also agreed to remove the waiver and disclaimer.

In exchange, the parties proposed that class members who don’t opt out agree to forever release any and all claims “arising out of or relating directly or indirectly in any manner whatsoever to the facts alleged or asserted in the Complaint . . . and which relate directly or indirectly in any manner whatsoever to Defendant’s procurement of consumer reports . . .”

Standing under Spokeo. First, the court addressed whether the plaintiffs established a “particularized” and “concrete” injury as required for Article III standing under the Supreme Court’s ruling in Spokeo. It was a close question because they did not claim that, in signing a form that included a waiver and disclaimer, they did not understand that they were authorizing Kelly to obtain their consumer report. Indeed, they acknowledged that none of the class members suffered “actual damages” based on the disclosure’s wording. So the question was whether this procedural violation was concrete enough. Noting the Sixth Circuit has not yet ruled on the issue and other courts are divided, the court declined to “fully weigh in on this split in authority” and held that, under the particular facts here, there was a “risk of real harm” because of the waiver. In signing the form, an applicant could believe she was agreeing not to sue Kelly if it ran a background check, not that she was granting permission to run the check.

Agreement is “fair enough.” On the merits, the court explained that at the preliminary approval stage, it is not deciding whether the settlement is fair and reasonable but instead deciding if it is “fair enough” to expend effort and expenses in sending potential class members notice and in processing opt-outs and objections. Here, the agreement met that mark. As to procedural issues, the settlement arose from arms-length, non-collusive negotiations and was proceeded by sufficient discovery. The mediations and associated briefing reflected that the parties have a deep understanding of the strength and weakness of their positions.

In terms of substantive fairness, the court found the amount of recovery for class members fair when compared to the likely amount of recovery at trial. The plaintiffs (understandably) seek statutory as opposed to actual damages and, assuming they showed at trial that Kelly willfully violated the FCRA, each class member would receive somewhere between $100 and $1,000. In reviewing the claim, the court found it was more likely around $100 given the violation was merely technical. Also, there was good reason to think the plaintiffs might not be able to show Kelly knew it was violating the stand-alone disclosure provision or took a risk “substantially greater” than that associated with a careless reading of the FCRA provision at issue. With this in mind, the court preliminarily found the amount of recovery fair. It also found that the allocation of the settlement fund was fair.

As for what the potential class members are giving up in exchange, the court found the scope of the release—which the parties narrowed after the court previously expressed concerns about its breadth—was reasonable. It represented a typical release tied directly to the claim at issue.

Court wants more info on fees and incentive. With respect to attorneys’ fees, the court found that 33 percent of the settlement fund was in the ballpark of a reasonable award, but it wanted further briefing in order to better evaluate the reasonableness. The court noted that the settlement was not contingent on an award of fees and a full analysis was not necessary at this time. The court also directed the parties to reconsider the $2500 incentive payment to named plaintiffs or to further justify it when seeking final approval, because it represented over 25 times what other class members would receive and substantive fairness also involves considering whether named plaintiffs receive preferential treatment.

Notice, opt-out procedures approved. After reviewing the first proposed postcard notices, which provided putative class members with a summary of the settlement and most information required by Rule 23, the court found two significant omissions: (1) a description of the release of claims; and (2) a description of how the class is divided into two groups. Before the preliminary approval hearing, the parties revised the notices to include the information and concluded it was good enough, especially when supplemented by a long-form notice explicitly referenced in the postcards, and which included all of the information required by Rule 23. The court also approved the proposed claims process, including the opt-out and objection procedures. It noted that the post cards clearly inform class members they must submit a written notice to opt out and direct members to a settlement website for further instructions.

Preliminary class certification granted. Having decided that the settlement agreement was procedurally and substantively fair, the court addressed the Rule 23 requirements for class certification and preliminarily certified a class for the purpose of settlement. Of note, about 40,000 of the 220,000 potential class members had a consumer report that Kelly did not identify as favorable, so it could be inferred that the parties viewed these class members differently, as their settlement grants them three times the recovery. Nonetheless, the court found the plaintiffs’ claim typical of the “Adjudicated Ineligible” group because the claims of both classes were identical: they received and signed a disclosure that did not comply with the FCRA. The difference between the groups was the extent of the privacy breach, because those ineligible had potentially embarrassing information revealed without valid authorization.