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Class Action Defense Cases–Martorana v. Marlin & Saltzman: California Court Affirms Dismissal Of Claims Against Defendant And Class Counsel Arising From Class Action Settlement By Class Member Who Submitted An Untimely Claim

Class Action Settlement Approved by Court Provided Procedure for Timely Submitting Claims for Benefits as part of Resolution of Labor Law Class Action, and Putative Class Member’s Negligence Claims against Class Action Defendant and Negligence/Malpractice Claims against Class Counsel Properly Dismissed because Defendant and Class Counsel Owed no Duty to Class Members to Ensure that they Timely Submitted Claims Forms California State Court Holds

A putative class action was filed in California state court against Allstate Insurance Company (the Sekly action) alleging that the company failed to pay overtime wages to its claims adjusters in violation of California’s Labor Code, and seeking damages and related penalties; several years later, “the parties in the Sekly action agreed to a class action settlement totaling $1.2 million.” Martorana v. Marlin & Saltzman, ___ Cal.App.4th ___, 96 Cal.Rptr.3d 172 (Cal.App. July 1, 2009) [Slip Opn., at 2-3]. The trial court approved the class action settlement, id., at 3. Plaintiff Ron Martorana was a member of the class and, id., at 2, and as “a senior claims adjuster for Allstate, …[he] was entitled to receive approximately $65,000 as his portion of the settlement provided that he submit a timely claim form,” id., at 3. However, because plaintiff filed to timely submit a claim form, he did not receive any of the settlement proceeds, id., at 2. Plaintiff filed suit against Allstate and against counsel for the class alleging that they were “negligent in failing to take action to contact [him] before the claim filing deadline to determine why he had not filed a claim form and to make sure that he was aware of the need to timely do so.” Id. Defendants demurred to the complaint, and the trial court sustained the demurrers and granted Allstate’s request for sanctions under Code of Civil Procedure section 128.7. Id. Plaintiff appealed, and the appellate court affirmed the dismissal of the lawsuit but set aside the award of sanctions.

Approval of the class action settlement followed the usual process: the trial court gave preliminary approval to the class action settlement and a claims administrator sent notice to each member of the class at their last known address; class members had 75 days to submit claim forms or to opt out of the class; and the trial court ultimately gave final approval to the class action settlement finding that it was “fair and adequate and . . . the result of arms length negotiations between the parties.” Martorana, at 3. Plaintiff does not dispute that he received the necessary paperwork; rather, he argued that he submitted an untimely claim form because of health problems. Id. His original complaint alleged negligence against Allstate, and negligence and malpractice against class counsel, id. According to plaintiff, “Allstate and Class Counsel owed a duty to the class as a whole to establish a settlement notice procedure whereby class members who had not responded to the notice would be contacted prior to the claim filing deadline to ascertain the reason why they had not submitted a timely claim form.” Id., at 4. The malpractice claim additionally alleged that “Class Counsel owed a duty to [plaintiff] individually to take reasonable steps to contact him about his failure to file a claim and to make sure that his claim form was timely submitted.” Id. The trial court sustained Allstate’s demurrer without leave to amend, and awarded $4,800 in sanctions because the lawsuit “was so completely devoid of merit that the court finds it was filed to harass, annoy, or vex Allstate.” Id. The trial court sustained the demurrer of class counsel with leave to amend as to the malpractice claim, but when class counsel demurred to the amended complaint, the court sustained the demurrer without leave to amend. Id., at 4-5. Put simply, the court found that class counsel owed, but did not breach, a duty of care to plaintiff. Id., at 5-6.

We do not discuss the appellate court opinion in detail. Suffice it to say that the Court of Appeal had no difficulty in rejecting plaintiff’s claim that class counsel, as part of the settlement, should have negotiated a different procedure for giving notice to the class, finding the claim collaterally estopped by the Sekly court’s approval of the settlement. See Martorana, at 8-11. The Court also readily rejected the idea that class counsel was under an affirmative duty to ensure that plaintiff filed a claim form, see id., at 11-13, particularly in light of plaintiff’s failure to allege that class counsel knew or should have known of his illness, or that he was “ill or otherwise incapable of submitting a timely response,” id., at 12. Accordingly, it affirmed the trial court orders sustained the demurrers to plaintiff’s complaint. Id., at 16.

NOTE: The appellate court reversed the award of sanctions, concluding that Allstate failed to comply with the notice requirements of the applicable statute. See Martorana, at 13-16.

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