Donald Gregory Hanley, et al. v. Monterey Mushrooms, LLC

Donald Gregory Hanley, et al. v. Monterey Mushrooms, LLC

Plaintiffs’ Motion for Preliminary Approval of Class Action Settlement

Hearing Date: August 14, 2026

Plaintiffs Donald Gregory Hanley, Clara Sherman, and Angela Smith (collectively, “Plaintiffs”) move for preliminary approval of a proposed class action settlement relating to an August 2025 cybersecurity incident affecting approximately 9,717 individuals. The motion is unopposed. After reviewing the moving papers and the applicable authorities, the preliminaryapproval motion is DENIED WITHOUT PREJUDICE. As detailed below, the record does not establish that the proposed settlement is fair, adequate, and reasonable, and several deficiencies must be corrected before preliminary approval can be considered.

Background.

Plaintiffs bring a nationwide class action against Defendant Monterey Mushrooms, LLC (“Defendant”) arising from a cyberattack and data breach discovered on August 30, 2025. In the operative Second Amended Complaint (“SAC”) filed on June 2, 2026, Plaintiffs allege that cybercriminals infiltrated Defendant’s inadequately protected information systems and accessed highly sensitive personally identifiable information (“PII”), including names, Social Security numbers, driver’s license numbers, and passport numbers. [SAC at ¶¶ 1-3.]

Plaintiffs assert that Defendant collected and stored this PII in connection with employment and had a duty to safeguard it. They allege Defendant failed to implement reasonable security measures, failed to encrypt data, ignored industry standards, and failed to timely notify affected individuals—waiting until September 18, 2025, to send breach notices. [SAC at ¶¶ 4-5, 61.]

Each named Plaintiff alleges that their PII was compromised, that they have suffered actual injury including loss of value of their PII, time spent mitigating the breach, emotional distress (anxiety, stress, sleep disruption), and increased risk of identity theft and fraud. [SAC at ¶¶ 12-14, 20-23, 31-34, 40-45.] Ms. Smith additionally alleges her PII has already appeared on the dark web. [Id. at ¶ 42.]

The proposed Class consists of all individuals in the United States whose private information “may have been accessed by unauthorized third parties” in the August 2025 cybersecurity incident. [SAC at ¶ 48.] Plaintiffs allege numerosity, commonality, typicality, adequacy, and superiority under Code of Civil Procedure section 382, citing common questions regarding Defendant’s duty, security practices, failure to act, timeliness of notice, and resulting harm. [Id. at ¶ 52.]

Legal Standard.

Preliminary approval of a class settlement involves evaluating whether the proposed settlement appears fair, adequate, and reasonable enough to justify sending notice and setting a final approval hearing. [Cal. Rules of Court, rule 3.769; Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1801.] In making this determination, the Court has broad discretion. It considers relevant factors such as (1) the strength of plaintiffs’ case, (2) the risk, expense, complexity and likely duration of further litigation, (3) the risk of maintaining class action status through trial, (4) the amount offered in settlement, (5) the extent of discovery completed and the state of the proceedings, (6) the experience and views of counsel, (7) the presence of a governmental participant, and (8) the reaction to the proposed settlement. [Dunk, 48 Cal.App.4th at 1801.]

A presumption of fairness exists only if: (1) the settlement resulted from arm’s‐length bargaining; (2) sufficient investigation and discovery occurred; (3) counsel is experienced; and (4) the percentage of objectors is small. [Dunk, 48 Cal.App.4th at 1802.] Even when the presumption applies, the Court must independently evaluate the strengths and weaknesses of the case and whether the settlement is reasonable in light of potential recovery. [Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 130.]

Discussion.

A. Presumption of Fairness.

1. Arms‐Length Bargaining.

The parties engaged in informal discovery and meet‐and‐confer discussions, ultimately settling “in principle” without a mediator. [Cole Decl. at ¶¶ 3-12, 17.] The Court doubts this constitutes genuine arms-length bargaining. The discovery was limited, and no neutral mediator was involved. Although a mediator isn’t mandatory, the absence of one warrants closer examination of the negotiations between the attorneys. Currently, Plaintiffs do not provide details about how often or how they negotiated, the nature of those negotiations, the relationship between counsel, whether the negotiations involved genuine adversarial testing, or what concessions were made. Without such facts, the Court cannot evaluate the fairness of the negotiations themselves. At best, the record emphasizes early settlement as a benefit to counsel, but does not explain why early settlement benefits class members.

Critically, the settlement structure requires class members to opt in to receive monetary relief but opt out to avoid the release. [Settlement Agreement, Exh. 2 to Cole Decl. at ¶¶ 1.20 and 3.2.] Although the attorneys’ fees ($275,000) and costs ($10,000) will be paid separately [id. at ¶ 1.18], that is nearly 50% of the maximum payout of about $600,000 (for documented losses and cash payouts combined). With an estimated class size of 9,717, a requirement to opt-in for payment, and an anticipated 2-5% response rate (between 194 and 486 opt-ins), Defendant’s payments could range from $10,670 (assuming 2% opt-ins, all with the cash option of $55) to $600,000. The former scenario is more likely than the latter, meaning that Plaintiffs’ counsel

could receive a far greater payout than the amount of funds paid to the entire class. These circumstances reflect multiple “subtle signs of collusion” recognized by federal authorities: disproportionate fees, clear‐sailing arrangements, and reversionary settlement structures. [Roes, 1‐2 v. SFBSC Management, LLC (9th Cir. 2019) 944 F.3d 1035, 1049.]

The moving papers cite the $600,000 cap as the figure to use in fairness calculations. To the contrary, where, as here, class members must make a claim to receive payment and the anticipated participation rate is low, using the maximum possible payout figure is a gross overstatement. [See Kim v. Allison (9th Cir. 2021) 8 F.4th 1170, 1179.]

The moving papers also point out that the settlement includes one year of credit monitoring. The monetary value of this service has not been provided. In any event, one year of credit monitoring per class member does not materially change the Court’s findings.

The record lacks enough evidence to confirm arms-length negotiations. Settling early without a mediator primarily benefits the attorneys. The papers do not demonstrate how this benefits the class. The proposed settlement is likely to give Plaintiffs’ counsel a disproportionately high attorneys’ fee, while most class members receive no payment and lose their right to sue. As presented, the Court cannot find adequate evidence of arm’s-length negotiations.

2. Investigation & Discovery.

Informal discovery consisted primarily of Defendant confirming class size and nature of the breach. There is no evidence of adversarial discovery directed to liability, damages, or Defendant’s security protocols. This is insufficient under Dunk and Kullar.

*** Because the first two Dunk factors weigh heavily against approval, no presumption of fairness applies.

B. Evaluation of Strengths and Weaknesses.

The moving papers fail to provide an adequate explanation of the case’s strengths and weaknesses. Indeed, the motion provides almost no meaningful assessment of the litigation risk, Defendant’s potential exposure, estimated damages, or a comparison to similar settlements.

In discussing the strength of this case, Plaintiffs analogize to another preliminary settlement in 2022 that approved $100 to each class member. [Motion at 8, citing In re Solara Med. Supplies Data Breach Litig. (No. 19-cv-2284, S.D. Cal. Apr. 20, 2022) 2022 WL 1174102.] Plaintiffs inaccurately describe the payment from that case. In re Solara involved a total settlement of $5,060,000. [In re Solara, 2022 WL 1174102, at *2.] Defendant would pay that amount regardless of whether claims were submitted, as well as all taxes. [Id. at *3.]

In re Solara bears no resemblance to the present reversionary, low‐participation structure. Finally, the moving papers’ conclusory statement that the settlement benefits class members does not satisfy Kullar’s requirement for a substantive evaluation of the case’s strength and weakness. Therefore, the moving papers fail to explain the case’s strengths and weaknesses adequately.

C. Notice and Administration.

The trial court has discretion in the manner of giving notice to class members. [7-Eleven Owners for Fair Franchising v. Southland Corp. (2000) 85 Cal.App.4th 1135, 1164.] The question is whether the notice fairly apprises prospective class members of the terms of the proposed settlement and the options available to them in connection with the proceedings. [Ibid.]

When deciding how to send class notice of settlement—via direct mail, e-mail, publication, or other methods—the key standard is “whether the notice has a reasonable chance of reaching a substantial portion of the class members.” [Duran v. Obesity Research Institute, LLC (2016) 1 Cal.App.5th 635, 648 (internal quotes and citation omitted).] This Court has “virtually complete discretion” in choosing the most practical method to accomplish this. [Ibid.] However, when notice is a person’s right, trivial or token efforts do not satisfy due process. [Ibid.] The method used must be one that a person genuinely interested in informing the absentee would reasonably employ. [Ibid.]

Given the broad release and opt‐in payment structure, sufficient notice is essential. Here, the proposed notice procedures are inadequate. First, email-first notice is proposed without explanation for why First‐Class Mail is not used. Without an explanation, the Court cannot find that email notice is reasonable. Second, the notice is English-only, despite a class likely including Spanish-speaking individuals, especially in Monterey County. Bilingual notice is required.

Accordingly, the proposed notice does not satisfy due process.

D. Attorneys’ Fees and Costs.

The Court cannot evaluate the reasonableness of the requested $275,000 in fees and $10,000 in costs because no lodestar information is provided. Plaintiffs also fail to justify the multiplier. As discussed above, the likely class recovery is substantially lower than counsel’s fee request. Preliminary approval cannot be granted without a showing that fees are reasonable relative to class benefit.

E. Scope of Release.

The release is extremely broad. It covers all claims “based on, relating to, concerning, or arising out of” the incident. [Settlement Agreement, Exh. 2 to Cole Decl. a ¶ 1.35.] Also, it is combined with a Civil Code section 1542 waiver limited to breach-related claims. [Id. at ¶ 1.45.] Given the deficiencies in notice and the opt‐in payment structure, the breadth of the release is unreasonable.

F. Reversionary Settlement / Absence of Cy Pres.

The settlement is reversionary, ensuring Defendant retains unclaimed funds. This structure further undermines fairness, especially where claim rates are expected to be low, and attorneys’ fees are high.

Conclusion.

As presented in the motion, the proposed settlement is neither fair, adequate, nor reasonable. Therefore, Plaintiffs’ Motion for Preliminary Approval of Class Action Settlement is DENIED WITHOUT PREJUDICE to the parties filing another motion for preliminary approval that is either based on a different settlement, or adequately explains the issues identified in this Tentative Ruling.

Plaintiffs shall prepare the Proposed Order consistent with this Tentative Ruling.

NOTE RE TENTATIVE RULING This tentative ruling becomes the court’s order, and no hearing shall be held unless one of the parties contests it by following Rule 3.1308 of the California Rules of Court and Monterey County Local Rule 7.9. Those parties wishing to present an oral argument must notify all other parties and the Court no later than 4:00 p.m. on the court day before the hearing; otherwise, NO ORAL ARGUMENT WILL BE PERMITTED, AND THE TENTATIVE RULING WILL BECOME THE ORDER OF THE COURT AND THE HEARING VACATED. You must notify the court by email or by calling the Calendar Department at 831-647-5800, extension 3040, before 4:00 p.m. on the court day before the hearing.

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