Terrill Johnson v. Q.E.D. Environmental Systems Inc.

Filing 77

ORDER GRANTING QED'S MOTION TO DENY CLASS CERTIFICATION; GRANTING IN PART PLAINTIFFS' MOTION FOR CONDITIONAL FLSA CERTIFICATION; DENYING QED'S MOTION FOR RULE 11 SANCTIONS; AND SETTING CASE MANAGEMENT CONFERENCE by Judge William H. Orrick denying 50 Motion for Sanctions; granting 53 Motion to Deny Certification of Class; granting in part 56 Motion for Conditional FLSA Certify Class. Case Management Statement due by 5/16/2017. Case Management Conference set for 5/23/2017 02:00 PM in Courtroom 2, 17th Floor, San Francisco. (jmdS, COURT STAFF) (Filed on 5/3/2017)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 TERRILL JOHNSON, Plaintiff, 8 9 Case No. 16-cv-01454-WHO v. Q.E.D. ENVIRONMENTAL SYSTEMS INC., 11 United States District Court Northern District of California 10 Defendant. 12 ORDER GRANTING QED’S MOTION TO DENY CLASS CERTIFICATION; GRANTING IN PART PLAINTIFFS’ MOTION FOR CONDITIONAL FLSA CERTIFICATION; DENYING QED’S MOTION FOR RULE 11 SANCTIONS; AND SETTING CASE MANAGEMENT CONFERENCE Dkts. No. 50, 53, 56 13 INTRODUCTION 14 15 In this labor case, plaintiff Terrill Johnson brings a putative class action and Fair Labor 16 Standards Act (“FLSA”) collective action on behalf of himself and all similarly-situated non- 17 exempt employees and former employees of Q.E.D Environmental Systems Inc. (“QED”) because 18 QED used an “automatic deduct” policy and failed to provide all meal periods, full wages or 19 accurate wage statements as required by law. Third Amended Complaint (“TAC”) ¶1 (Dkt. No. 20 29). QED now moves to deny class certification because QED did not have a common nationwide 21 auto deduct policy: Johnson’s testimony establishes that he was atypical of the class; and 22 Johnson’s testimony and evidence establish that there are only six to seven individuals in the class. 23 Decertify Mot. at 1 (Dkt. No. 53). QED is correct; Johnson cannot meet the commonality, 24 typicality, numerosity, and adequacy requirements of Rule 23 and the motion to deny class 25 certification is GRANTED. 26 QED also moves for sanctions against Johnson’s lawyers, arguing that they failed to 27 conduct a reasonable investigation which would have revealed that Johnson was atypical of the 28 class; that QED’s policies comply with California law; and that the proposed class could not meet 1 the numerosity requirements for class certification. Sanctions Mot. at 1-3 (Dkt. No. 50). While I 2 agree with much of QED’s argument, in light of its failure to provide critical discovery on 3 numerosity in a timely fashion, I DENY the motion for sanctions. 4 Johnson also moves for conditional certification of his FLSA meal break claim. 5 Certification Mot. at 1 (Dkt. No. 56). Because he has met the very low bar for conditional 6 certification, his motion for conditional FLSA certification is GRANTED in part. 7 8 9 BACKGROUND Johnson filed this putative class action on August 26, 2017, in California Superior Court. (Dkt. No. 2-1). QED removed the case to federal court on March 24, 2016, after Johnson added a FLSA claim to his Second Amended Complaint (“SAC”). (Dkt. No. 1); (Dkt. No. 2-2). QED 11 United States District Court Northern District of California 10 moved to dismiss the SAC, which I granted because “Johnson ha[d] wholly failed to meet the 12 minimum pleading requirements” and his allegations relating to an “unidentified ‘policy or 13 practice’ ” of not providing uninterrupted meal breaks were insufficient. Dkt. No. 27 at 3. 14 Johnson then filed his TAC, this time alleging that QED supervisors instructed and 15 encouraged employees to skip or take shortened meal breaks and attaching excerpts from a July 16 2012 Employment Manual that outlines a meal break policy that is facially non-compliant with 17 California law. TAC at 6; TAC, Ex. A (Dkt. No. 29-1). QED moved to dismiss, but I denied the 18 motion because Johnson’s allegations that QED pressured employees to skip meal breaks or take 19 shorter meal breaks than required by law, in conjunction with the facially deficient policy outlined 20 by the Employment Manual, was sufficient to meet the pleading standard. Dkt. No. 42 at 5 21 (explaining that because the deficient meal break policy placed “the responsibility [on] QED 22 supervisors to advise and schedule work compliant meal and rest breaks, the allegations that QED 23 instructed, encouraged, and directed its employees to work in a manner contrary to the Labor Code 24 at least plausibly suggests that the QED did not in fact have a compliant meal break policy”). 25 On September 30, 2016, QED produced to plaintiffs a California addendum to the 26 employee manual, outlining a facially compliant meal break policy. Segal Decl. in Support of 27 Oppo. to Sanctions Mot. Ex. 2 (Dkt. No. 62-3). Counsel for Johnson declares that this addendum 28 was not included with the copy of the Employment Manual that Johnson provided to them in 2 1 October of 2014. Shim Decl. ¶7. Once the TAC was filed, QED began efforts to arrange a deposition of named plaintiff 3 Terrill Johnson. Sanctions Mot. at 3. After Johnson’s counsel refused 11 different deposition 4 dates, Johnson was finally deposed on December 12, 2016. Id. At his deposition, Johnson 5 testified that he had no knowledge about the meal break or time keeping practices of QED 6 facilities outside the San Leandro facility and had never spoken to any employees at other 7 facilities. Connors Decl. Ex. A (“Johnson Depo”) at 28:9-12, 23-24; 29:3-5; 77:8-19; 77:3-19; 8 83:7-22 (Dkt. No. 53-2). He also testified that, to his knowledge, there were only six or seven 9 other employees, all production line workers, at the San Leandro facility that were denied meal 10 periods. Id. 52:1-8, 13-20. He specifically stated that he had no knowledge whether other non- 11 United States District Court Northern District of California 2 exempt employees were denied meal periods, id. 97:23-98:8, and that the supervisors at the San 12 Leandro facility would not have been denied lunch breaks or subject to the same meal break 13 issues. Id. 98:23-99:17. He further testified that he believed he was denied meal periods and 14 singled out because his supervisor didn’t like him. Id. 58:13-18; 72:20-73-20; 74:22-25; 76:3-6. Johnson’s counsel also belatedly served a 30(b)(6) notice on QED at plaintiff Johnson’s 15 16 deposition on December 12, 2016. Dkt. No. 60 at 3. QED refused to produce a 30(b)(6) deponent 17 because the request was overbroad. Id. The parties brought their discovery dispute to me. I 18 ordered that they proceed with a narrowed notice, and depositions for two 30(b)(6) witnesses 19 finally occurred on March 7, 2017. On January 6, 2017, QED served on counsel for Johnson its motion for sanctions, 20 21 explaining that if Johnson did not voluntarily dismiss the TAC within 21 days it would seek 22 sanctions from the court. Dkt. No. 59-1. Johnson’s counsel responded to this letter on January 28, 23 2017 offering to “add a clarification regarding QED’s employment manual” but declining to 24 dismiss the TAC. Conners Decl., Ex. C (Dkt. No. 68). Johnson did not take any action to amend 25 the TAC and QED subsequently filed its motion for sanctions. Dkt. No 50. LEGAL STANDARD 26 27 28 I. FEDERAL RULE OF CIVIL PROCEDURE 23 Federal Rule of Civil Procedure 23 governs class actions. “Before certifying a class, the 3 1 trial court must conduct a rigorous analysis to determine whether the party seeking certification 2 has met the prerequisites of Rule 23.” Mazza v. Am. Honda Motor Co., Inc., 666 F.3d 581, 588 3 (9th Cir. 2012) (internal quotation marks omitted). The burden is on the party seeking 4 certification to show, by a preponderance of the evidence, that the prerequisites have been met. 5 See Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011); Conn. Ret. Plans & Trust 6 Funds v. Amgen Inc., 660 F.3d 1170, 1175 (9th Cir. 2011). Certification under Rule 23 is a two-step process. The party seeking certification must first 7 8 satisfy the four threshold requirements of Rule 23(a), numerosity, commonality, typicality, and 9 adequacy. Specifically, Rule 23(a) requires a showing that: (1) the class is so numerous that joinder of all members is impracticable; 11 United States District Court Northern District of California 10 (2) there are questions of law or fact common to the class; 12 (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and 13 (4) the representative parties will fairly and adequately protect the interests of the class. 14 Fed. R. Civ. P. 23(a). 15 The party seeking certification must then establish that one of the three grounds for 16 certification under Rule 23(b) applies. See Fed. R. Civ. P. 23(b). 17 18 19 20 II. FLSA CERTIFICATION An employee may bring a collective action under the FLSA on behalf of other “similarly situated” employees. 29 U.S.C. § 216(b). Most courts follow a two-step approach to determine whether employees in a proposed collective are “similarly situated” such that FLSA certification is 21 appropriate. Harris v. Vector Mktg. Corp., 716 F. Supp. 2d 835, 837 (N.D. Cal. 2010); see also 22 Daniels v. Aeropostale West, Inc., No. 12-cv-05755-WHA, 2013 WL 1758891, at *5 (N.D. Cal. 23 Apr. 24, 2013). During the first step, the court must determine whether the proposed collective 24 25 26 27 should be informed of the action and given “notice.” Harris, 716 F. Supp. 2d at 837. The “notice” stage determination of whether the putative collective members will be similarly situated is made under a “fairly lenient standard” which typically results in conditional certification. Daniels, 2013 WL 1758891 at *6. At the notice stage it is the plaintiffs’ burden to make 28 4 1 substantial allegations that the putative collective members were subject to an illegal policy, plan, 2 or decision, by showing that there is some factual basis beyond the “mere averments” in the 3 complaint. Id. 4 Given the lenient standard at the notice stage, courts have held that plaintiffs bear a “very 5 light burden” in substantiating the allegations. Prentice v. Fund for Pub. Interest Research, Inc., 6 No. 06-cv-7776-SC, 2007 WL 2729187, at *5 (N.D. Cal. Sept. 18, 2007) (“Given that a motion 7 for conditional certification usually comes before much, if any, discovery, and is made in 8 anticipation of a later more searching review, a movant bears a very light burden in substantiating 9 its allegations at this stage.”). “[T]he party opposing the certification may move to decertify the class once discovery is 10 United States District Court Northern District of California 11 complete.” Benedict v. Hewlett-Packard Co., No. 13-cv-0019-LHK, 2014 WL587135, at *5 (N.D. 12 Cal. Feb. 13, 2014). During this second stage the court makes factual determinations as to the 13 “propriety and scope of the class, and must consider three factors: (1) the disparate factual and 14 employment setting of the individual plaintiffs; (2) the various defenses available to the 15 defendants with respect to the individuals plaintiffs; and (3) fairness and procedural 16 considerations.” Richie v. Blue Shield of California, No. 13-cv-2693-EMC, 2014 WL 6982943, at 17 *7 (N.D. Cal. Dec. 9, 2014). During this stage the “court engages in a more stringent inquiry into 18 the propriety and scope of the collective action” because “discovery is complete and the case is 19 ready to be tried.” Labrie v. UPS Supply Chain Solutions, Inc., No. 08-cv-3182 PJH, 2009 WL 20 723559, at *4 (N.D. Cal. Mar. 18, 2009). The second step of FLSA certification occurs “after the 21 conditional class has received notice and discovery has been completed. Richie, 2014 WL 22 6982943 at *7. “Where substantial discovery has been completed, some courts have skipped the 23 first-step analysis and proceeded directly to the second step.” Smith v. T-Mobile USA, Inc., No. 24 05-cv-5274, 2007 WL 2385131, at *4 (C.D. Cal. Aug. 15, 2007). 25 III. 26 27 28 RULE 11 Rule 11 provides, in relevant part: (b) Representations to the Court. By presenting to the court a pleading, written motion, or other paper – whether by signing, filing, submitting, or later advocating it – an attorney or unrepresented 5 party certifies that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances: 1 2 (1) it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; 3 4 (2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law; [and] 5 6 7 8 (3) the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery . . . . 9 (c) Sanctions. 10 (1) In General. If, after notice and a reasonable opportunity to respond, the court determines that Rule 11(b) has been violated, the court may impose an appropriate sanction on any attorney, law firm, or party that violated the rule or is responsible for the violation. Absent exceptional circumstances, a law firm must be held jointly responsible for a violation committed by its partner, associate, or employee. United States District Court Northern District of California 11 12 13 14 Fed. R. Civ. P. 11. “Rule 11 authorizes a court to impose a sanction on any attorney, law firm, or party that 15 16 brings a claim for an improper purpose or without support in law or evidence.” Sneller v. City of 17 Bainbridge Island, 606 F.3d 636 (9th Cir. 2010). Where “the complaint is the primary focus of 18 Rule 11 proceedings, a district court must conduct a two-prong inquiry to determine (1) whether 19 the complaint is legally or factually ‘baseless’ from an objective perspective, and (2) if the 20 attorney has conducted ‘a reasonable and competent inquiry’ before signing and filing it.” 21 Christian v. Mattel, Inc., 286 F.3d 1118, 1127 (9th Cir. 2002) (quoting Buster v. Greisen, 104 F.3d 22 1186, 1190 (9th Cir. 1997). “An attorney may not be sanctioned for a complaint that is not well- 23 founded, so long as she conducted a reasonable inquiry.” In re Keegan Mgm’t Co., Securities 24 Litig., 78 F.3d 431, 434 (9th Cir. 1996). DISCUSSION 25 26 I. MOTION TO DENY CLASS CERTIFICATION UNDER RULE 23 27 QED moves to deny class certification on all of Johnson’s Rule 23 claims, arguing that he 28 cannot establish Rule 23(a)’s prerequisites of (1) numerosity; (2); commonality (3) typicality; and 6 1 (4) adequacy. Decertification Mot. at 10-14. It is obvious that Johnson cannot establish 2 numerosity, so I need not address the reasons to deny certification asserted by QED. 3 A. 4 Rule 23(a)(1) requires that a class be “so numerous that joinder of all members is 5 impracticable.” Fed. R. Civ. P. 23(1). Formally, there is no “specific number of class members 6 required for numerosity.” In re Rubber Antitrust Litigation, 232 F.R.D. 346, 350 (N.D. Cal. 7 2005). However, “courts generally find that the numerosity factor is satisfied if the class 8 comprises 40 or more members, and will find that it has not been satisfied when the class 9 comprises 21 or fewer.” In re Facebook, Inc., PPC Advertising Litig., 282 F.R.D. 446, 452 (N.D. 10 United States District Court Northern District of California 11 Numerosity Cal. 2012). QED argues that plaintiffs cannot reach this 21 person threshold. They note that at his 12 deposition, named plaintiff Johnson testified that he only had knowledge relevant to QED’s San 13 Leandro facility, which has just 22 employees. Johnson Depo. 77:8-19 (Dkt. No. 51-1). With 14 regard to that facility, Johnson testified that QED automatically deducted 30 minutes of time from 15 his and his coworkers’ paychecks for lunch breaks regardless of whether they took a full 30 16 minute break or any break at all, id. 80:24-81:8, and that his supervisor encouraged him and his 17 coworkers to miss meal breaks or take shortened breaks to deal with rush orders id. 44:16-45:5. 18 He also testified that, as far as he knew, only six or seven other individuals were denied meal 19 breaks in the same way he was. Id. 52:1-53:20; 56:25-57:7; 57:18-21. Johnson admitted that at 20 least some of the employees at San Leandro, such as the supervisors, would not have been 21 subjected to the same policy and so would not have missed meal breaks. Id. 98:23-99:17. 22 This testimony is partially corroborated by the deposition testimony of David Simpson, a 23 supervisor at the San Leandro facility who confirmed that for five months the San Leandro facility 24 employed an auto-deduct policy. Simpson Depo. 52:16-53:9. Simpson also testified that this 25 policy only impacted 11 employees and did not apply to the hourly office employees who input 26 their time by hand, instead of by using a punch clock. Id. 12:23-13:4. QED asserts that this 27 evidence demonstrates that there are only a handful of employees similarly-situated to Johnson 28 and that this handful is insufficient to meet the numerosity requirement of Rule 23. 7 1 Plaintiffs make several unconvincing arguments in defense of their class action claims. 2 First, they argue that Johnson did not testify that only seven people missed meal breaks, and 3 instead testified that “everybody at once – at any given day, would get pulled in to do a rush 4 order” and would miss lunch breaks as a result. Decertification Oppo. at 6 (quoting Johnson 5 Depo. 56:13-24). This argument is highly misleading as Johnson subsequently clarified that when 6 he said “everybody” he only meant the six or seven people who worked on the production line 7 with him. Johnson Depo. 56:25-57:12. This makes sense as only the production line workers 8 would be impacted by a “rush order.” 9 Next, plaintiffs argue that QED has artificially limited the potential class to the San Leandro facility and that this is inappropriate because plaintiffs have asserted a nationwide class 11 United States District Court Northern District of California 10 under the FLSA, and QED has 80 employees nationally. See Lebrun Depo. 9:7-23. This 12 argument fails because plaintiffs’ FLSA claim is not relevant to this motion, which applies only to 13 plaintiffs’ Rule 23 class claims. Plaintiffs’ FLSA claim, brought under FLSA, is not subject to 14 Rule 23’s numerosity requirement, and so has no bearing on this issue. 15 Plaintiffs next assert that “to the extent some of the[ir] subclasses are limited to 16 California,” San Leandro is not the only California facility QED has had: they have also had 17 facilities in Oakland and Colton, California, and currently have a facility in San Bernardino. It is 18 important to note that all of plaintiffs’ classes, excluding their FLSA collective, are limited to 19 California. Although plaintiffs have defined many of their subclasses as applying to a national 20 class of non-exempt employees, their claims are asserted solely under California labor law. TAC 21 at 1. Plaintiffs’ California state law claims do not apply to QED’s employees located outside of 22 California. See Gintz v. Jack In The Box, Inc., No. C 06-02857 CW, 2006 WL 3422222, at *6 23 (N.D. Cal. Nov. 28, 2006). 24 Plaintiffs’ argument that QED has, or has had, three other facilities in California is 25 borderline frivolous. Johnson himself explained that the San Leandro facility used to be located in 26 Oakland and then it moved to San Leandro – in terms of employees, the Oakland and San Leandro 27 facilities are the same. Johnson Depo. 77:4-7. Similarly, approximately a year ago QED acquired 28 a small company in Southern California with a facility in Colton that later relocated to San 8 1 Bernardino – in terms of employees, the Colton and San Bernardino facilities are the same. 2 Lebrun Depo. 10:9-11:9. There are only four employees that work in San Bernardino, Lebrun 3 Depo 11:10-17, none of them are production line workers, Simpson Depo. 20:6-8; 68:9-14, and 4 they have never been subjected to an auto-deduct policy, id. 68:22-69:14. 5 The evidence presented by the parties demonstrates that QED only had a maximum of 25 6 hourly employees in California during the relevant period. Simpson Affidavit (Dkt. No. 71-1); 7 Simpson Depo. 20:6-8; 68:9-14. This number could arguably meet the numerosity requirement, 8 but as the evidence also shows, only a small number of these hourly employees were subjected to 9 the same meal break policy and pressures as plaintiff Johnson. When considering only those plaintiffs actually similarly situated to Johnson, the California employees to which the auto-deduct 11 United States District Court Northern District of California 10 policy applied, the proposed class has a maximum of 11 employees. This is insufficient to meet 12 the numerosity requirement of Rule 23 and is fatal to class certification. 13 B. 14 Plaintiffs assert that QED’s decertification motion is procedurally improper because under Timing of Decertification Motion 15 the court’s schedule, plaintiffs have until May 3, 2017 to submit a motion for class certification. 16 Decert. Oppo. at 3. They acknowledge that in Vinole v. Countrywide Home Loans, Inc., 571 F.3d 17 935, 937 (9th Cir. 2009), the Ninth Circuit upheld a district court’s decision to consider a motion 18 to deny class certification filed before plaintiffs’ certification motion and before the close of 19 discovery, but argue that the case here is distinguishable from Vinole because in that case the 20 district court had not set a deadline for class certification motions. Decert. Oppo. at 3. This 21 distinction is not convincing. 22 In Vinole the Ninth Circuit made clear that a defendant may bring a preemptive motion to 23 deny class certification. Vinole, 571 F.3d at 939, 942 (“Rule 23 does not preclude a defendant 24 from bringing a ‘preemptive’ motion to deny certification. . . . [N]o rule or decisional authority 25 prohibited [the defendant] from filing its motion to deny certification before Plaintiffs filed their 26 motion to certify, and Plaintiffs had ample time to prepare and present their certification 27 argument.”). Further, the court rejected the idea that it is procedurally improper for a court to 28 consider a decertification motion before its established pretrial scheduling deadlines. Id. at 942. 9 1 (“Plaintiffs have not offered any authority, and we have found none, for the proposition that a 2 district court either abuses its discretion or errs as a matter of law by considering the issue of class 3 certification before expiration of a pretrial motion deadline.”). Plaintiffs’ claim that QED’s 4 motion to deny certification is procedurally improper is not supported by any legal authority. 5 C. 6 Fact discovery is closed and the evidence is clear that plaintiffs cannot meet the numerosity Motion to Deny Certification Analysis requirement for Rule 23 because there are only a handful of California employees who were 8 subjected to the auto-deduct policy or encouraged to miss meal breaks. There is no legal authority 9 to support plaintiffs’ claim that QED’s motion to deny class certification is procedurally improper. 10 Because plaintiffs cannot satisfy the numerosity requirement for Rule 23, plaintiffs’ claims are not 11 United States District Court Northern District of California 7 suitable for class treatment. QED’s motion to deny class certification is GRANTED. 12 II. 13 MOTION FOR CONDITIONAL FLSA CERTIFICATION Plaintiffs move for conditional certification of their nationwide FLSA claim. Certification 14 Mot. at 1. They assert that QED had a nationwide policy of automatically deducting 30 minutes 15 from employee paychecks for meal breaks, regardless of whether the employee actually took a full 16 meal break and that employees were regularly encouraged to miss meal breaks, in violation of the 17 FLSA. Id. They seek to conditionally certify a collective of all QED employees subjected to an 18 auto-deduct policy during the relevant period. To satisfy his burden at the conditional certification 19 stage, a plaintiff must provide “little more than substantial allegations, supported by declarations 20 or discovery, that ‘putative class members were together the victims of a single decision, policy, or 21 plan.” Velasquez v. HSBC Finance Corp., 266 F.R.D. 424, 427 (N.D. Cal. 2010). 22 Plaintiffs point to a smattering of evidence to support their nationwide FLSA allegations. 23 First, they note that plaintiff Johnson testified that QED automatically deducted 30 minutes from 24 his and his coworkers paychecks, Johnson Depo. 80:20-81:9, and that his and his coworkers’ 25 lunch breaks were often interrupted for rush orders. Id. 46:5-17; 47:2-23; 56:13-21. This 26 testimony is limited to the San Leandro facility as Johnson testified that he had no knowledge of 27 the meal break policies at other facilities. Id. 77:8-19. Johnson’s allegations of an auto-deduct 28 policy are supported by time cards which show that for a five month period, from March 31, 2014 10 1 to August 22, 2014, the San Leandro facility where Johnson worked employed an auto-deduct 2 policy. Segal Decl. Ex. 4 QED000783-789. Plaintiffs assert that Johnson’s testimony, and the 3 documentary evidence of San Leandro’s auto-deduct policy, is sufficient to meet the low burden 4 for conditional FLSA certification of a nationwide class. QED opposes the motion for conditional certification, asserting that plaintiffs cannot show 6 that there was a nationwide auto-deduct policy. Certification Oppo. at 9. In support, they point to 7 evidence that all of QED’s facilities used different timekeeping policies: San Leandro briefly had 8 an auto-deduct policy that applied to product line workers but not hourly office employees, 9 Simpson Depo. 52:16-53:9; the Dexter Michigan facility has had an auto-deduct policy since 2014 10 that applies to approximately 18 employees, but supervisors adjust employee timecards manually 11 United States District Court Northern District of California 5 when they miss a meal break or take a shortened break, LeBrun Depo. 27:14-18; 41:18-42:8; and 12 the San Bernardino facility does not, and has never had, an auto-deduct policy, Simpson Depo. 13 68:22-69:14. 14 While there is evidence that both the San Leandro and Michigan facilities have had auto- 15 deduct policies, an auto-deduct policy, on its own, is not sufficient to sustain an FLSA claim. 16 Harp v. Starline Tours of Hollywood, Inc., No. 14-cv-07704, 2015 WL 4589736, at *6 (C.D. Cal. 17 July 27, 2015) (“standing alone, automatic meal deduction policies are not per se illegal under the 18 FLSA.”). To make out an FLSA claim based on an auto-deduct policy, plaintiffs must allege a 19 “failure to compensate an employee who worked with the employer’s knowledge through an 20 unpaid meal break.” Wolman v. Catholic Health Sys. of Long Island, Inc., 853 F. Supp. 2d 290, 21 301 (E.D.N.Y. 2012). In the context of an auto-deduct policy, this means the plaintiff must 22 demonstrate “that enforcement of the automatic deduction policy created a policy-to-violate-the 23 policy.” Camesi v. Univ. of Pittsburgh Med. Ctr., No. 09-cv-85J, 2011 WL 6372873, at *4 (W.D. 24 Pa. Dec. 20, 2011). In Harp, the court found plaintiffs had sustained this burden for a collective of 25 drivers by presenting declarations from employee-drivers who explained that they were often 26 encouraged by supervisors to miss lunch breaks, but were nevertheless deducted 30 minutes of pay 27 due to an auto-deduction policy. Harp, 2015 WL 4589736, at *5. The court also found that 28 plaintiffs had failed to show that all other hourly employees were similarly situated because the 11 1 employee-drivers’ declarations established that it was the specific pressures of their jobs that 2 resulted in them missing meal breaks. Id. 3 In this case, while there is evidence that 11 employees at San Leandro and 18 employees in 4 Michigan were subjected to an auto-deduct policy, plaintiffs must point to something more to 5 allege a viable FLSA violation. Just like the drivers in Harp, Johnson’s testimony that his 6 supervisor pressured him and his coworkers to miss meal breaks to deal with rush projects satisfies 7 this requirement. However, Johnson was clear that his testimony only applied to the 6-7 8 production line employees he worked with and that he couldn’t speak to whether any other 9 employees missed meal breaks. Johnson’s testimony reveals that it was the specific pressures of the production line job in San Leandro that caused employees to miss breaks and there is no 11 United States District Court Northern District of California 10 evidence that other employees at the San Leandro facility or those in Michigan face similar 12 pressures. Kevin Lebrun, who testified regarding the timekeeping policies at QED’s Michigan 13 facility, explained that the only employee he could remember who had missed a meal break in 14 Michigan had done so because “he was working on a project putting parts together. He said he 15 was almost complete with it as he was approaching the 12:00 hour, so rather than stop, go to 16 lunch, he chose to work through his lunch and complete it.” Lebrun Depo. 46:2-6 (Dkt. No. 71-1). 17 Lebrun further testified that he adjusted that employee’s time so that he was paid for working 18 through the lunch. Id. 45:5-19. Plaintiffs have not presented employee declarations or any other 19 evidence that any employees at the Dexter facility missed meal breaks. 20 Johnson has testified that he and six or seven of his coworkers were regularly encouraged 21 to miss meal breaks to accommodate rush jobs. Plaintiffs have also presented evidence that from 22 March 31, 2014 – August 22, 2014 the San Leandro facility had an auto-deduct policy. This 23 evidence, together, is sufficient for plaintiffs to meet their burden at the conditional certification 24 stage with regard to a narrow group. See Harp, 2015 WL 4589736, at *5. 25 QED argues that I should still deny FLSA certification for this small group because 26 Johnson testified that he was singled out for disparate treatment by his supervisor and so is not 27 similarly situated to his coworkers. Id. at 12. Although Johnson testified that he missed more 28 meal breaks than his coworkers, this goes to the extent of his damages and does not undermine his 12 1 testimony that he and his coworkers were often required to work on rush jobs together and 2 consequently missed meal breaks. This potential difference between Johnson and his coworkers 3 regarding the extent of their alleged damages does not defeat collective certification. Plaintiffs’ motion for conditional FLSA certification is GRANTED with regard to 4 5 production line workers at the San Leandro facility for the time period of March 31, 2014 – 6 August 22, 2014. It is DENIED with regard to all other QED employees and time periods. 7 III. 8 MOTION FOR SANCTIONS QED moves for Rule 11 sanctions against plaintiffs’ counsel, alleging that plaintiffs’ case is legally and factually baseless and that plaintiffs’ counsel knew or should have known this at the 10 time they filed the complaint. Sanctions Mot. at 1 (Dkt. No. 50). QED seeks an award of QED’s 11 United States District Court Northern District of California 9 costs and reasonable attorneys’ fees, and a dismissal of this case with prejudice. Id. QED points 12 to a number of weaknesses in plaintiffs’ case, an incomplete and misleading Employee Manual 13 attached to the TAC, and plaintiffs’ counsel’s behavior as evidence that Rule 11 sanctions are 14 appropriate. Despite flaws in plaintiffs’ case and in plaintiffs’ counsels’ investigation and work in 15 this case, which fell well below any reasonable professional standard, I conclude there is 16 insufficient evidence of bad-faith conduct on the part of plaintiffs’ counsel to justify the extreme 17 remedy of sanctions, particularly because QED delayed production of the critical testimony that 18 verified the lack of numerosity. 19 A. 20 QED makes a number of arguments regarding the misleading Employee Manual attached The Employee Manual 21 to the TAC. It asserts that plaintiffs’ attorneys intentionally omitted the California Addendum 22 from the TAC and intentionally made false allegations that QED had facially non-compliant meal 23 break policies. Alternatively, it argues that plaintiffs’ counsel failed to conduct an adequate 24 investigation to discover these issues. In support of these arguments it notes that plaintiff Johnson 25 testified that he had seen the California Addendum, that he had received a copy, and that he 26 believed that QED’s policies met California’s labor requirements. 27 Extrapolating from this testimony, QED speculates that plaintiffs’ counsel received a copy 28 of the California Addendum from Johnson and knew that QED had a facially compliant California 13 1 policy but chose not to attach the Addendum to the TAC and to instead make false allegations 2 about QED’s policies based on the rest of the Employee Manual. Sanctions Mot. at 4. 3 Alternatively, it argues that Johnson improperly failed to produce the California Addendum to his 4 counsel. In response to these assertions, plaintiffs’ counsel has presented declaration testimony 5 explaining that they did not receive the California Addendum from Johnson, who only sent 6 counsel an electronic copy of the general Employee Manual, which did not include the California 7 Addendum. Shim Decl. ¶7. Although Johnson testified that he had received a California 8 Addendum, he did not affirmatively testify that he had retained this document when he left QED. 9 Instead, he testified that he had left many of his hard copy manuals in his old desk at QED’s facility when he left. Johnson Depo. 157:14-20. He also testified that he had produced all 11 United States District Court Northern District of California 10 relevant documents in his possession to his counsel, with the exception of some notes he had taken 12 regarding his supervisors’ conduct that had accidentally been shredded. 13 Plaintiffs’ counsel’s explanations regarding the Employee Manual are consistent with a 14 good-faith mistake and a reasonable investigation. It appears that counsel did not receive the 15 California Addendum and that Johnson did not have a copy of the Addendum to produce to them. 16 QED argues that even if plaintiffs’ counsel did not receive a copy of the California 17 Addendum, because Johnson was aware of its existence and testified that he believed QED’s 18 policies met all legal requirements, they nevertheless knew, or should have known, that QED’s 19 policies complied with California law. Sanctions Mot. at 4. This argument is not persuasive. 20 While Johnson was able to recognize the California Addendum when it was placed in front of him, 21 this does not mean he would have been able to describe the document in detail to his counsel, 22 outline its policies, or even recall that it existed. It is perfectly reasonable to assume that an 23 employee, who no longer has a copy of his complete company Employee Handbook, would not 24 remember its contents in detail or realize that it is missing a California Addendum. Further, while 25 Johnson testified that he was unaware of any QED policies that violated California law, Johnson is 26 a lay plaintiff, with no special knowledge of labor law. It would be unreasonable for plaintiffs’ 27 counsel to rely on the lay opinion of their client instead of the documentary evidence that he has 28 produced to them. 14 1 Johnson’s testimony that he had seen the California Addendum and believed QED had 2 compliant policies does not demonstrate that his counsel should have known that their allegations 3 regarding QED’s meal break policies were incorrect. 4 B. 5 QED asserts that plaintiffs’ wage statement claims were baseless because Johnson was Plaintiff was unaware of any wage statement violations unable to identify any inaccurate wage statements and was unaware of ever receiving any. 7 Sanctions Mot. at 6. That Johnson was not aware of receiving any inaccurate wage statements is 8 irrelevant to the viability of a wage statement claim. Wage statement claims are highly legalistic 9 and a non-expert plaintiff is not likely to understand whether a wage statement is “accurate” or not 10 under California law. Even if plaintiff was well-versed in California wage and hour requirements, 11 United States District Court Northern District of California 6 it would be difficult for him to identify inaccurate wage statements in this case by reference to the 12 wage statements alone. A wage statement claim that is derivative of a missed meal break claim 13 relies on a finding that employees were not compensated for missed meal breaks – this 14 information would not be obvious by reference to the wage statements themselves. Johnson’s 15 inability to identify any inaccurate wage statements does not demonstrate that these claims are 16 baseless. 17 C. 18 QED asserts that plaintiffs’ class claims were frivolous because plaintiffs’ counsel should Plaintiff was only aware of seven employees who had interrupted meal breaks 19 have known they could never meet the numerosity requirement of Rule 23. While Johnson 20 testified that he was only aware of seven employees denied meal breaks at San Leandro, he also 21 testified that he could not be sure if a number of other employees were similarly denied breaks. 22 Further, he explained that there were approximately 22 employees at the San Leandro facility and 23 that QED had other facilities. At the outset of a case, prior to discovery, it may be difficult for 24 attorneys to assess basic information about a company, including its size and number of past and 25 present employees. As classes may be suitable for class treatment with as few as 21 members, it 26 was not unreasonable for plaintiffs’ counsel to believe that at least this many employees at QED 27 would be impacted by the meal break interruptions Johnson described. 28 QED notes that in January of 2016 it provided plaintiffs’ counsel with an affidavit stating 15 that there were only 15 non-exempt employees in California. While this certainly should have 2 given plaintiffs doubts about their ability to meet Rule 23’s numerosity requirements, plaintiffs’ 3 counsel had reason to believe that there were at least 25 hourly QED employees in California 4 during the relevant period and reasonably could have believed that QED was mistaken in 5 designating certain employees as non-exempt or that the affidavit did not include all potential class 6 members. Plaintiffs did not have the opportunity to depose QED’s 30(b)(6) witnesses on this 7 topic until March 7, 2017. While it is now apparent that plaintiffs cannot meet the numerosity 8 requirement, plaintiffs’ counsel did not have the most definitive evidence on this topic until long 9 after filing the TAC, after QED filed its motion for sanctions, and after it filed its opposition on 10 the motion for class certification. Plaintiffs’ counsel reasonably could have believed they would 11 United States District Court Northern District of California 1 be able to meet Rule 23’s requirements until very recently in this case. 12 D. 13 QED asserts that plaintiffs’ counsel knew that Johnson was not typical of the class but Plaintiff was not typical of the class 14 improperly pursued class claims anyway. They note that Johnson testified that he believed he had 15 been singled out by his supervisor and had received disparate treatment. 16 Plaintiffs’ counsel asserts that plaintiff’s testimony that he was bullied by his supervisor is 17 not mutually exclusive with the class claims because Johnson could both have been bullied by his 18 supervisor and subjected to an unlawful policy along with his co-workers. I agree. An employee 19 can be singled out or have a personal problem with a supervisor and still be similarly situated with 20 a class of coworkers on a separate or related employment issue. It was not frivolous for plaintiffs’ 21 counsel to pursue class claims simply because Johnson believed he was targeted. 22 23 24 E. Plaintiffs’ counsel has not even met Johnson, did not apprise Johnson about the nature of his role as class representative, and did not adequately communicate with him regarding the production and preservation of documents QED asserts that plaintiffs’ counsel failed to conduct a reasonable investigation because 25 they never met with plaintiff Johnson in person, not even at his deposition, which they defended 26 via videoconference. While there are certainly advantages to meeting a client in person, with 27 modern technologies an attorney is capable of interviewing a client, reviewing relevant evidence, 28 16 1 and conducting a preliminary investigation without meeting a client face-to-face. Although it is 2 surprising and poor practice that plaintiffs’ counsel have never met their client in person, and this 3 fact could explain some of the problems they faced in this case, by itself it does not definitively 4 demonstrate that they failed to conduct a reasonable investigation. 5 QED also notes that, at his deposition Johnson appeared surprised when QED informed 6 him that this case did not involve his personal claims against his supervisor. Johnson Depo. 75:1- 7 19. QED asserts that counsel’s failure to properly explain to Johnson his role as a class 8 representative demonstrates they failed to adequately investigate this case. While Johnson’s 9 confusion about the claims at issue in this case raises some concerns about the adequacy of counsel’s communications with their client, it does not necessarily demonstrate that they failed to 11 United States District Court Northern District of California 10 adequately investigate the case themselves. 12 Finally, QED notes that Johnson destroyed a number of notes that he had taken about his 13 treatment at QED in 2015, after he had retained his counsel. QED asserts that this destruction of 14 evidence demonstrates a failure to conduct a reasonable investigation. This evidence is not 15 persuasive. Johnson clearly did not intend to destroy the notebook and testified that he was upset 16 it had accidentally been shredded because it contained helpful details about his supervisors’ bad 17 behavior. He also testified that he had produced all other relevant documents to his attorneys. 18 Given this testimony it appears that plaintiffs’ counsel told Johnson to produce all relevant 19 documents to them and that Johnson did so, but accidentally destroyed a notebook that would have 20 been helpful to his case. As there was no motivation for Johnson to destroy the notebook, it is 21 unclear what plaintiffs’ counsel could have done differently to prevent its destruction. The 22 destruction of the notebook does not demonstrate that plaintiffs’ attorneys failed to conduct a 23 reasonable investigation. 24 F. 25 QED has identified many weaknesses in plaintiffs’ case and the way it has been litigated. Sanctions Motion Analysis 26 But the evidence shows that plaintiffs’ counsel communicated with Johnson and obtained and 27 reviewed all of the documents he had that dealt with his employment at QED, with the exception 28 of a notebook that Johnson had left at his mother’s house and which was accidentally destroyed. 17 1 Based on Johnson’s statements that QED had an auto-deduct policy, that it had 22 employees at 2 the San Leandro facility and had other facilities, and that his supervisor encouraged him and his 3 coworkers to miss meal breaks, it was not unreasonable for plaintiffs’ counsel to believe they 4 could succeed on their class action and FLSA claims. Further, without having the California 5 Addendum, it was reasonable for plaintiffs’ counsel to believe and assert that QED had a facially 6 non-compliant meal break policy. “An attorney may not be sanctioned for a complaint that is not 7 well-founded, so long as she conducted a reasonable inquiry.” In re Keegan Mgm’t Co., Securities 8 Litig., 78 F.3d 431, 434 (9th Cir. 1996). I might feel differently about awarding sanctions if QED had clean hands. But it 10 stonewalled the 30(b)(6) deposition that would verify the lack of numerosity until I ordered it to 11 United States District Court Northern District of California 9 produce a person most knowledgeable. When a defendant has the information to defeat class 12 certification and refuses to provide it absent court order, it does not deserve to benefit from its 13 adversaries’ failures. Rule 11 sanctions are not appropriate here. QED’s motion for sanctions is 14 DENIED. CONCLUSION 15 16 For the reasons outlined above QED’s motion to deny class certification is GRANTED; 17 plaintiffs’ motion for conditional FLSA certification is GRANTED IN PART with regard to 18 production line workers in San Leandro from the period of March 31, 2014 – August 22, 2014, 19 and DENIED with regard to all other employees and time periods; and QED’s motion for 20 sanctions is DENIED. 21 A Case Management Conference is set for May 23, 2017 at 2:00 p.m. The parties shall file 22 a Joint Case Management Statement by May 16, 2017, that proposes a schedule for this case 23 through trial. 24 25 IT IS SO ORDERED. Dated: May 3, 2017 26 27 William H. Orrick United States District Judge 28 18

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