Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Cal.: Preliminary settlement of therapists’ suit against Message Envy approved, (Jul 23, 2014)

By Greg Hammond, J.D.

A preliminary settlement between Massage Envy Franchising, LLC and a class of California franchisee massage therapists was approved by the federal district court in San Francisco. The court found that the settlement, which arose from allegations the franchisor unlawfully required business expenses to be deducted from the therapists’ wages, was fundamentally fair, adequate, and reasonable (Balderas v. Massage Envy Franchising, LLC, July 21, 2014, Cousins, N.).

Allegations. Yvette Balderas, a massage therapist who worked at a Massage Envy franchise in California, filed a putative class action against the franchisor, alleging the company violated California law by failing to reimburse massage therapists for business expenses. Instead, she alleged that the company maintained a policy requiring massage therapists at their franchises to purchase and maintain professional liability insurance, while naming their Massage Envy franchise as an additional insured. Therapists paid these expenses out of pocket, as their franchises deducted the cost of professional liability insurance from their paychecks.

Terms of preliminary settlement. According to the court, the proposed preliminary settlement agreement defines the class as “all massage therapists who worked at one or more California Massage Envy franchises during the Class Period.” Payment to the estimated 12,000 settlement class members would include: (1) $150 per year, for a period of two years, for class members claiming they paid for professional liability insurance; (2) $150 for class members who claim they paid for a California Massage Therapy Council Certification application, or other required license or certification; and (3) up to $80 for class members who claim they paid for a LiveScan in conjunction with certification. Massage Envy will be required to set up a settlement fund of $504,000, minus a $4,000 enhancement award paid to Balderas and $175,000 for attorney fees and costs. The proposed settlement also provided for injunctive relief, release of claims, and class notice.

Preliminary settlement approved. To grant preliminary approval of a settlement, the court considered whether the settlement: (1) appears to be the product of serious, informed, non-collusive negotiations; (2) has no obvious deficiencies; (3) does not improperly grant preferential treatment to class representatives or segments of the class; and (4) falls within the range of possible approval.

In approving the preliminary settlement, the court found: (1) it was the product of arm’s-length negotiations with the assistance of a mediator, and took into account the risks of proceeding to trial and the benefits derived from resolving the issues without trial; (2) there were no obvious deficiencies; (3) the $4,000 incentive award was not deemed unfair or unreasonable; and (4) although the settlement falls within the range of possible approval, the parties must present evidence at the final approval hearing showing the calculation of the recovery based on the circumstances of the case. Because the court found sufficient numerosity, commonality, typicality, and adequacy of representation among the proposed class members, the class was conditionally certified and the proposed settlement agreement was approved.

The case number is 12-cv-06327 NC.

Attorneys: Monique Olivier (Duckworth Peters Lebowitz Olivier LLP) for Yvette R. Balderas. Luanne Sacks (Sacks, Ricketts & Case, LLP) for Massage Envy Franchising, LLC.

Companies: Massage Envy Franchising, LLC

Cases: FranchisingDistribution CaliforniaNews