Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D. Cal.: Individual distributors of Bimbo Bakeries subsidiary products secure preliminary approval of $17.5M gross settlement, (Jul 20, 2026)

By Justin Marcus Smith, J.D.

The court granted preliminary approval despite the absence of certain declarations, explanations, and facial lack of two statutory notices to state and federal government agencies.

In a dispute about employee misclassification under the California Labor Code, individual Earthgrains Distribution LLC (Earthgrains) distributors satisfied the class certification requirements on motion for preliminary approval of their $17.5 million gross settlement with Earthgrains and its parent, Bimbo Bakeries USA, Inc. (Bimbo), held the federal district court in San Diego, California. However, the court said it would require more information at final approval, including: discrete declarations of no conflict; additional explanations about the undesirability of separate actions, the designation of a cy pres recipient, and whether class members and Private Attorneys General Act (PAGA) members were coterminous; proof of Class Action Fairness Act (CAFA) notice to state and federal officials, to be done within 10 days; and proof of notice of the settlement to the California Labor & Workforce Development Agency (LWDA). The court noted minimal information about commonality. The court also said it was “distressing” that the named plaintiffs and their counsel apparently wanted to avoid substantive analysis of attorney fees and costs at the preliminary approval stage. Accordingly, the court warned it would apply close scrutiny to attorney fees and costs in a motion for final approval. The court likewise ordered declarations from the named plaintiffs to justify their service awards. (Munoz v. Earthgrains Distribution, LLC, No. 3:22-cv-01269-AJB-AHG (S.D. Cal. Jul. 16, 2026)).

Background. In 2022, three individuals who had been distributors for Earthgrains baked goods brought a putative class action against Earthgrains and Bimbo. The plaintiffs alleged harm from misclassification as independent contractors instead of employees. Each plaintiff signed a substantially similar distribution agreement with the defendants.

In September 2023, the court denied an Earthgrains and Bimbo USA motion to compel arbitration. The court found the arbitration provisions of the distribution agreement were both unconscionable and void for lack of mutual assent (see Antitrust Law Daily, Sep. 18, 2023). In September 2024, the Ninth Circuit affirmed the denial of arbitration.

In May 2025, the plaintiffs filed a first amended complaint alleging violations of the California Labor Code and the Industrial Welfare Commission (IWC) Wage Order 1- 2001: (1) failure to reimburse expenses; (2) unlawful deductions from wages; (3) failure to provide accurate wage statements; (4) failure to provide overtime; (5) failure to provide meal periods; (6) failure to provide rest breaks; (8) [sic] unfair business practices in violation of California’s Business & Professional Code; and (9) violation of the PAGA.

In November 2025, the district court denied an Earthgrains and Bimbo motion for summary judgment seeking to dismiss the claims of three of the four plaintiffs, with prejudice, based on the “Distributor’s General Release” each plaintiff signed when they sold their distribution rights. The court held the releases could not have been about bona fide past wage disputes, and that made them unenforceable under California law. The court also found the agreements were unconscionable for lack of mutuality (see Antitrust Law Daily, Nov 17, 2025).

In December 2025, the parties accepted a mediator’s settlement proposal, and, in January 2026, executed a memorandum of understanding. The plaintiffs filed a second amended complaint consistent with that settlement that asserted ten causes of action: (1) failure to reimburse business expenses; (2) unlawful deductions from wages; (3) failure to provide accurate wage statements; (4) failure to pay overtime; (5) failure to provide meal periods; (6) failure to provide rest breaks; (7) failure to pay wages when due upon termination; (8) failure to pay sick leave wages; (9) unfair business practices; and (10) penalties under PAGA. The plaintiffs then moved for preliminary approval of the settlement.

Settlement terms. The proposed settlement defined the settlement class as all current and former Independent Business Partners (distributors) who contracted with either defendant for sales in California, as further defined, from June 27, 2018, through February 28, 2026.

The defendants agreed to pay a non-reversionary $17.5 million gross settlement amount. The net settlement amount was the portion available for distribution, less: $350,000 PAGA payment; $200,00 reserve fund; attorney’s fees not to exceed approximately $5.8 million; litigation costs of $45,000; settlement administration costs not to exceed $16,000; and enhancement awards of $15,000 to each of the four named plaintiffs. Each class member is to receive a minimum 15% of the net settlement amount divided equally among all participating class members plus a pro rata portion of the other 85% based on eligible contracted work weeks during the class settlement period.

The $350,000 PAGA payment consists of $262,500 as the LWDA PAGA payment for penalties and $87,500 as the individual PAGA payments to be distributed to the PAGA members pro rata based on the number of eligible pay periods each PAGA member contracted with the released parties during the PAGA settlement period.

Releases. The class members who do not opt out agreed to release all claims set forth in the action or in the LWDA letters, including unknown claims covered by California Civil Code Section 1542. The class representatives’ release included an express waiver thereof, except claims or rights non-waivable as a matter of law. Class members who are current distributors must execute a revised arbitration agreement to receive the individual settlement payment.

Notice. The parties asked the court to appoint CPT group as settlement administrator. Notice will be by U.S. Mail and email in English and Spanish, with skip tracing as needed. The settlement administrator will provide weekly updates to counsel for both parties.

Opt-out. The settlement agreement has differing objection and exclusion procedures for PAGA members and class members, respectively. PAGA members cannot object or opt-out.

R. 23(a). The court found the proposed settlement satisfied the numerosity, commonality, typicality, and adequate representation requirements of Fed. R. Civ. P. 23(a). First, the court found numerosity satisfied because joinder of all members, about 290 current and former California distributors, was impractical.

As for commonality, class members all posed the same question of whether they were employees entitled to overtime, expense reimbursement, and other Labor Code rights. District courts throughout the Ninth Circuit have found commonality met in the context of misclassification of distributors as independent contractors instead of employees. Common evidence could resolve the defendants’ overarching business structure, policies, and practices. The court found the parties satisfied commonality, despite minimal analysis in the motion for preliminary approval.

The court found typicality of claims because they arose from the same alleged conduct of improperly classifying distributors as independent contractors which denied them the protection of California wage-and-hour laws. The plaintiffs’ claims were “reasonably co-extensive” with those of the absent class members.

The court also found the plaintiffs would adequately represent and protect the interests of the class. They did not have conflicts with the class, and the requested service awards did not cause a conflict. The same applied to the experienced class counsel. All interests aligned. However, the class representatives had to submit direct declarations of no conflict in a future motion for final approval. They could not rely on knowledge and belief statements by counsel.

R. 23(b). The court also found R. 23(b) requirements satisfied. The plaintiffs met the predominance requirement conditionally, based on misclassification issues under California’s employment tests and theories of recovery, once the plaintiffs established an employment relationship, including: whether the distributors operated within the usual course of the defendants direct-store-delivery business; whether the defendants had a right to control them through common contracts, management structures, and store policies; whether itemized vehicle expense and other deductions from pay were reasonable and necessary under Labor Code section 2802; and whether they should receiver overtime under section 510.

As for superiority, the court faulted the plaintiffs for failing to explain why class members would not want to undertake separate actions, but the court nonetheless inferred the individual costs and risks of litigation would deter separate actions. The damages involved were not especially large, and there was no other similar litigation pending in California.

R. 23(e)(2). The court found the proposed settlement was fair, reasonable, and adequate. The average net payment per class member would be about $38,000. In the $17.5 million gross settlement amount aggregate, that was about 27% of the defendants’ estimated realistic exposure of $64 million. Class counsel viewed this as a “strong result for the class.” The court found the settlement amount and recover-to-exposure percentage were both in the reasonable range for the Circuit.

The plaintiffs pointed to numerous risks in continuing to press the litigation. They said they could have lost on the merits of the misclassification inquiry, or they could be found to have limited damages based on overtime and meal and rest exemption and preemption theories. They also expected vigorous appeal.

However, the court said it was distressed that the plaintiffs discouraged substantive analysis of attorney’s fees and costs, especially in light of the intimation they would seek an exceptional upward departure from the Ninth Circuit benchmark. The court warned it would apply close scrutiny in the motion for final approval. The court found this factor neutral with respect to adequacy at this time.

Counsel representation was adequate. Counsel litigated the action vigorously for nearly four years, and again, there were no conflicts.

The court also did not find any sign of collusion. The settlement agreement appeared to be an arm’s length negotiation with the help of an experienced litigator after extensive motion practice and complete class certification discovery.

Class members, including PAGA members, appeared to have equal treatment. The named plaintiffs would be getting service awards, but they also agreed to an additional release.

As for factors traditionally considered in the Ninth Circuit, the court credited plaintiffs’ counselors for their recommendations. The court could not consider class members’ reactions yet. The court required CAFA notice of the proposed settlement to state and federal officials within 10 days and said it would also revisit this factor on a motion for final approval.

Cy pres recipient. The settlement agreement identified Feeding San Diego as the cy pres recipient of unclaimed or non-distributable portions of the proposed settlement. However, the court directed the plaintiffs to explain why that would be appropriate in the motion for final approval.

PAGA penalties. The settlement additionally resolved the plaintiffs’ PAGA cause of action, hence the court required class counsel to confirm, on motion for final approval, fulfillment of California Labor Code § 2699(I) required notice of the settlement to the LWDA. The court said it was otherwise satisfied that the settlement met PAGA statutory requirements on a preliminary basis.

PAGA payment. Although the plaintiffs acknowledged the PAGA payment was relatively small in comparison to the net settlement amount, that provided more money for members of the settlement class. For this and other reasons, the court preliminarily approved the PAGA payment as fair, adequate, and reasonable. However, the plaintiffs needed to expressly address whether the class members and PAGA members are coterminous at the final approval stage.

Service awards. The court preliminarily approved $15,000 service awards. These were only 0.3% of the gross settlement amount, but the court ordered declarations from each named plaintiff at final approval detailing what they did to further the litigation. The court expressed concern about one named plaintiff who joined late in the action.

Notice approval. The court approved the notice in plan, form, and content, but said it would evaluate efficacy at the final approval hearing.

The Case is No. 3:22-cv-01269-AJB-AHG.

Judge: Battaglia, A.

Attorneys: Craig Mckenzie Nicholas (Nicholas & Tomasevic, LLP) for Tlaloc Munoz. Erin Elizabeth Blechschmidt (Morgan Lewis & Bockius LLP) for Earthgrains Distribution, LLC.

Companies: Earthgrains Distribution, LLC

Cases: FranchisingDistribution CaliforniaNews