Valenzuela v. Best-Line Shades, Inc. et al

Filing 118

ORDER by Judge Jacqueline Scott Corley granting in part and denying in part 116 Motion for Default Judgment. (ahm, COURT STAFF) (Filed on 7/8/2024)Any non-CM/ECF Participants have been served by First Class Mail to the addresses of record listed on the Notice of Electronic Filing (NEF)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 DOLORES VALENZUELA, et al., 7 Plaintiffs, 8 v. 9 BEST-LINE SHADES, INC., et al., 10 Defendants. 11 United States District Court Northern District of California Case No. 3:19-cv-07293-JSC ORDER RE: PLAINTIFFS’ THIRD AMENDED MOTION FOR DEFAULT JUDGMENT Re: Dkt. No. 116 12 13 Plaintiffs Dolores Valenzuela, Adela Flores, and Raymunda Menjivar filed this wage and hour 14 class and collective action against their former employer Best-Line Shades, Inc., Best-Line, Inc., and 15 its owner and president Jill Schaffer, seeking to recover unpaid wages and penalties under the Fair 16 Labor Standards Act (FLSA) and California labor laws. Plaintiffs’ third amended motion for default 17 judgment is now pending before the Court. (Dkt. No. 116.1) Having considered the motion and 18 evidence in support of Plaintiffs’ damages, the Court VACATES the July 11, 2024 hearing and 19 GRANTS IN PART and DENIES IN PART the motion for default judgment as set forth below. BACKGROUND 20 I. 21 Complaint Allegations 22 Defendants Best-Line Shades, Inc., Best-Line, Inc., and Jill Schaffer operated and managed 23 a curtain manufacturing facility “Best-Line Shades” in Richmond, California until March 2020 24 when the facility closed. (Dkt. No. 25, Second Amended Complaint (SAC) at ¶¶ 18-19, 36.) 25 Plaintiffs Valenzuela, Flores, and Menjivar worked at Best-Line for varying times before being 26 terminated at the start of the COVID-19 pandemic. (Dkt. No. 47-17, Valenzuela Decl. ¶ 3.) 27 28 Record Citations are to material in the Electronic Case File (“ECF”); pinpoint citations are to the ECF-generated page numbers at the top of the document. 1 Plaintiffs allege that Defendants failed to maintain records of meal periods and instead 1 2 utilized an auto-deduct policy whereby 30 minutes was automatically deducted from each 3 employee’s wages without any corresponding time records. (SAC at ¶ 104.) In addition, 4 Plaintiffs allege Defendants advised class members on March 17, 2020 that it would cease 5 operations indefinitely, but failed to pay employees for the two-week period leading up to March 6 17. (Id. at ¶ 36.) United States District Court Northern District of California 7 II. Procedural History 8 Plaintiff Valenzuela filed this action on November 5, 2019 and alleged violations of the FLSA 9 and state labor laws. (Dkt. No. 1.) Four months later, Ms. Valenzuela filed a first amended complaint 10 seeking to add Ms. Flores as a named Plaintiff and to add claims for failure to make payroll records 11 available and penalties pursuant to the California Labor Code Private Attorneys General Act (PAGA). 12 (Dkt. No. 12.) Six months later, Plaintiffs filed a motion for leave to file a second amended complaint 13 adding Plaintiff Menjivar and Defendant Richard Schaeffer. (Dkt. No. 20.) The Court granted 14 Plaintiffs leave to amend and the Second Amended Complaint is now the operative complaint, 15 although Plaintiffs subsequently dismissed their claims against Mr. Schaeffer. (Dkt. Nos. 24, 46.) 16 In May 2021, Plaintiffs filed their motion for class certification. Defendants failed to file an 17 opposition or response to the motion and at a subsequent status conference advised the Court that the 18 Best-Line entities have been dissolved. (Dkt. Nos. 48, 49, 51.) The Court thus took the motion for 19 class certification under submission without an opposition. (Dkt. No. 51.) On August 10, 2021, the 20 Court granted Plaintiffs’ motion for certification of a class and collective action under Federal Rule of 21 Civil Procedure 23(b)(3) and FLSA, Section § 216(b). (Dkt. No. 53.) The Court subsequently granted 22 Plaintiffs’ motion to compel Defendants to provide a copy of the class list so that class notice could be 23 provided. (Dkt. No. 60.) Defendants failed to comply with that order and Defense counsel 24 subsequently moved to withdraw from representation of (1) the Best-Line entities because they no 25 longer exist as legal entities, and (2) Ms. Schaffer because she repeatedly failed to maintain 26 communication with counsel and ceased paying her legal fees in breach of their written representation 27 agreement. (Dkt. No. 61.) 28 On December 2, 2021, the Court granted counsel’s motion to withdraw and ordered 2 1 Defendants to obtain new counsel within 30 days. (Dkt. No. 63.) Ms. Schaffer was given the option 2 to enter an appearance pro se, but the Best-Line entities were advised that they had to retain counsel 3 based on “the longstanding rule that [c]orporations and other unincorporated associations must appear 4 in court through an attorney.” (Dkt. No. 63 at 3 (quoting D-Beam Ltd. P’ship v. Roller Derby Skates, 5 Inc., 366 F.3d 972, 973–74 (9th Cir. 2004) (internal citations omitted)); see also Civ. L.R. 3-9(b).) 6 Plaintiffs moved for Defendants’ default after the 30 days passed and no counsel had entered an 7 appearance for either the Best-Line entities or Ms. Schaffer, and nor had Ms. Schaffer entered an 8 appearance pro se or otherwise communicated with the Court. (Dkt. No. 65.) United States District Court Northern District of California 9 On January 25, 2022, the Court issued an Order to Show Cause as to why it should not enter 10 Defendants’ default based on their failure to comply with the Court’s Order to produce a class list, 11 failure to participate in this action, and failure to enter an appearance either pro se or through counsel 12 in the case of Ms. Schaffer, or through counsel in the case of the Best-Line entities. (Dkt. No. 67.) 13 Defendants did not respond to the Court’s Order and the Court granted Plaintiffs’ request for entry of 14 default on February 18, 2022. (Dkt. No. 68.) Plaintiffs then filed a motion for default judgment which 15 the Court ultimately denied based on concerns regarding Plaintiffs’ ability to identify class and 16 collective members, and failure to provide notice to the class or collective. (Dkt. Nos. 74, 75, 76.) 17 Plaintiffs subsequently filed two further motions for default judgment which the Court denied 18 without prejudice to refiling to include, in particular, additional information in support of their 19 damages’ claims. (Dkt. Nos. 107, 112.) Plaintiffs thereafter filed the now pending second 20 amended motion for default judgment which is supported by the declaration of Plaintiffs’ counsel, 21 Stan Mallison, and the declaration of Plaintiffs’ expert, Aaron Woolfson. (Dkt. No. 116.) 22 LEGAL STANDARD 23 After entry of default, a court may exercise discretion to grant default judgment on the merits 24 of the case. Fed. R. Civ. P. 55; Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In exercising 25 discretion to grant default judgment, courts consider the factors laid out in Eitel: 26 27 28 (1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action[,] (5) the possibility of a dispute concerning material facts[,] (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal 3 Rules of Civil Procedure favoring decisions on the merits. 1 Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). On default, the complaint’s factual 2 allegations regarding liability are deemed admitted by the non-moving party and are accepted as true. 3 TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987). 4 DISCUSSION 5 6 A. Sufficiency of Service of Process Before entering default judgment, the Court must assess whether the party against whom 7 default judgment is sought was properly served with notice of the action. Penpower Tech. Ltd. V. 8 S.P.C. Tech., 627 F. Supp. 2d 1083, 1088 (N.D. Cal. 2008). As Defendants initially appeared and 9 defended this action, any issues as to service of process have been waived. See Fed. R. Civ. Pro 12(b). 10 United States District Court Northern District of California 11 B. Jurisdiction 1. 12 Subject Matter Jurisdiction Pursuant to 28 U.S.C. § 1331, federal courts have jurisdiction over claims arising from federal 13 law. Here, subject-matter jurisdiction is proper because Plaintiffs’ Second Amended Complaint alleges 14 a claim under the FLSA, 29 U.S.C. § 216. (Dkt. No. 25 ¶¶ 57-64.) 15 2. 16 Personal Jurisdiction For a corporation, general personal jurisdiction exists where it maintains its principal business 17 place. See Daimler AG v. Bauman, 571 U.S. 117, 137 (2014). Here, personal jurisdiction is proper 18 because Best-Line Shades, Inc., was a California corporation, and Ms. Schaffer, is a California resident 19 who was the owner, director, and/or managing agent of Best-Line Shades. (Id. at ¶¶ 19-20.) In 20 addition, as both Defendants initially appeared and defended this action, they waived any objection to 21 personal jurisdiction. See Fed. R. Civ. Pro. 12(b). 22 23 C. Eitel Factors Having concluded the threshold requirements of service and jurisdiction are met, the Court 24 next considers the Eitel factors and concludes that the majority of those factors weigh in favor of 25 entering default judgment against Defendants. 26 The Court first considers whether Plaintiffs’ FLSA and California Labor Code claims are 27 adequately pled and sufficient to find liability on the facts alleged, which must be taken as true (second 28 4 United States District Court Northern District of California 1 and third factors). Plaintiffs seek default judgment against both Best-Line Shades and Ms. Schaffer as 2 the owner, director, and/or managing agent of Best-Line Shades. Both the employing company and 3 individuals acting directly or indirectly on behalf of the company may be liable under the Fair Labor 4 Standards Act (“FLSA”). The FLSA applies to “employers,” which the Act defines as “any person 5 acting directly or indirectly in the interest of an employer in relation to an employee[.]” 29 U.S.C. § 6 203(d). The definition of “employer” is to be given “an expansive interpretation in order to effectuate 7 the FLSA’s broad remedial purposes.” Lambert v. Ackerley, 180 F.3d 997, 1011–12 (9th Cir. 1999) (en 8 banc) (internal citation omitted). An individual may be held liable under the FLSA when she exercises 9 “control over the nature and structure of the employment relationship,” or “economic control” over the 10 relationship. Id. at 1012. The allegations in the Second Amended Complaint and in the second 11 amended motion for default judgment are sufficient to establish the individual defendant is an 12 “employer” under the FLSA and she may be held liable for violating the minimum wage, overtime and 13 record keeping provisions of the statute. See Solis v. United Buffet, Inc., No. 11-cv-4194-RMW, 2012 14 WL 669687, at *3 (N.D. Cal. Feb. 29, 2012). The same is true as to Plaintiffs’ claims for violation of 15 the California Labor Code, Labor Code § 558.1. See Usher v. White, 64 Cal. App. 5th 883, 886 (2021) 16 (“we interpret the words ‘violates, or causes to be violated’ in section 558.1 in their ordinary meaning 17 to impose liability on an ‘owner’ … when acting on behalf of an employer, the “owner” has personal 18 involvement in the enumerated violations in section 558.1; or, absent personal involvement, has 19 sufficient participation in the activities of the employer—including, for example, over those 20 responsible for the alleged wage and hour violations—such that the ‘owner’ may be deemed to have 21 contributed to, and thus have ‘cause[d]’ such violations.”). Further, the allegations as to both are 22 sufficient to state a claim under the federal and state labor laws alleged. 23 Turning to the other Eitel factors, Plaintiffs would be prejudiced if the Court declined to enter 24 default judgment against the defaulted Defendants (first factor) because Plaintiffs have no other 25 recourse against Defendants. Plaintiffs ask the Court to award the considerable sum of more than $2 26 million in damages and PAGA penalties, as well as $332,583.20 in attorney fees and costs pursuant 27 to the FLSA and the California Labor Code. (Dkt. No. 116-2 at ¶¶ 54-55; Dkt. No. 116-11 at ¶¶ 20- 28 25.) Although entry of default judgment may not be appropriate when a large sum of money is at 5 United States District Court Northern District of California 1 stake (fourth factor), the damages sought here are set by federal and state labor laws and Defendants 2 have chosen not to defend themselves in this action. There is no indication that Defendants’ failure to 3 respond is due to excusable neglect given Defendants’ participation in this action for over two years 4 before default, nor is there any indication of a dispute concerning material facts (fifth and sixth 5 factors). Although public policy strongly favors decisions on the merits (seventh factor), given 6 Defendants’ refusal to litigate, it does not appear litigation of the merits will be possible in this case. 7 Accordingly, the Court concludes the Eitel factors weigh in Plaintiffs’ favor. 8 D. 9 The Court turns to the question of remedies. Plaintiffs seek compensatory damages and 10 PAGA penalties, as well as attorneys’ fees and costs. “[U]pon default the factual allegations of 11 the complaint, except those relating to the amount of damages, will be taken as true.” See Geddes 12 v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977)). 13 14 REMEDIES 1. Damages and Penalties As the Court noted in its prior Order denying Plaintiffs’ motion for default judgment, 15 Plaintiffs must prove up their damages claim by “‘provid[ing] evidence of its damages, and the 16 damages sought must not be different in kind or amount from those set forth in the complaint.’” 17 (Dkt. No. 112 at 2 (quoting Orange Cnty. Elec. Indus. Health & Welfare Tr. Fund v. Moore Elec. 18 Contracting, Inc., No. 11-CV-00942-LHK, 2012 WL 4120348, at *3 (N.D. Cal. Sept. 18, 2012) 19 (internal citations omitted)). In response, Plaintiffs submitted additional information in support of 20 their claimed damages; in particular, a new declaration from their expert Aaron Woolfson which 21 sets forth in detail the basis for the damages’ calculations for each claim. (Dkt. No. 116-11.) 22 After Defendants failed to produce a class list or any payroll records, Plaintiffs 23 subpoenaed Paychex to obtain payroll data. (Dkt. No. 79.) From these records Mr. Woolfson was 24 able to determine “the number of employees, how many paychecks were paid to each employee 25 and as an application of mathematical necessity, the number of shifts that were contained on each 26 paycheck that were equal-to-or-greater than 3½ hours, and greater than five (5) hours.” (Dkt. No. 27 116-11 at ¶ 8.) Next, he used a mathematical formula based on the number of hours worked “to 28 determine how many shifts are constituent to a paycheck” and he concluded “a very close 6 United States District Court Northern District of California 1 approximate quantity of those shifts are greater than 3½ hours and greater than five (5) hours.” 2 (Id.) From this data, Mr. Woolfson was able to calculate “the number of paychecks that could be 3 subject to various recoveries under the theories in this matter.” (Id. at ¶ 14.) His declaration 4 provides detailed descriptions of these calculations and attaches exhibits further explaining the 5 basis for his calculations. (Id. at ¶¶ 16-35; Dkt. No. 116-23, Dkt. No. 116-24.) Having reviewed 6 Mr. Woolfson’s calculations and Plaintiffs’ explanation of the legal basis for the calculations (Dkt. 7 No. 116-1 at 21-25), the Court is persuaded Plaintiffs have adequately substantiated their damages 8 claims. See NewGen, LLC v. Safe Cig, LLC, 840 F.3d 606, 617 (9th Cir. 2016) (holding the 9 district court did not error in relying on the “detailed account of how [plaintiff] calculated each 10 figure” and rejecting argument the calculations were unreliable because defendant’s “highly 11 questionable” conducted necessitated the need to rely on estimates for the damages’ calculations). 12 Plaintiffs are awarded $1,642,572.92 in class damages. 13 Plaintiff Valenzuela’s individual claim of damages for violation of California Labor Code 14 §§ 226(f) and 226(h) is likewise substantiated. Defendants terminated Ms. Valenzuela following 15 her request for her payroll and personnel records. (Dkt. No. 116-2 at ¶¶ 52-53.) Ms. Valenzuela is 16 entitled to $948 as individual damages for these violations. 17 Finally, Plaintiffs have adequately substantiated their claim for PAGA penalties based on 18 the above violations. The calculation of these penalties is set for in Mr. Mallison’s declaration and 19 is based on Mr. Woolfson’s analysis of the payroll data. (Dkt. No. 116-2 at ¶¶ 54-55.) The total 20 PAGA penalties are $845,750, with 75% awarded to the LWDA in the amount of $634,312.59 and 21 25% awarded to Plaintiffs and the other Aggrieved Employees in the amount of $211,437.50. (Id. 22 at ¶ 55.) 23 24 2. Attorneys’ Fees and Costs Plaintiffs also seek $329,165.00 in attorneys’ fees and $3,418.20 in costs. (Dkt. No. 116-2 25 at ¶¶ 50-51; Dkt. No. 116-7; Dkt. No. 116-8.) As the prevailing party, Plaintiffs are entitled to 26 attorneys’ fees and costs under the FLSA, California Labor Code, and PAGA. See 29 U.S.C. § 27 216(b); Cal. Lab. Code §§ 226(e), 1194(a), 2699. Plaintiffs’ request for attorneys’ fees is granted 28 in part. Plaintiffs are not entitled to fees for the time spent redoing the motion for default 7 1 judgment as Plaintiffs should have made a more fulsome showing in the first instance. As a result, 2 the Court reduces the total amount of attorneys’ fees by 10% or $32,916.50. See Moreno v. City 3 of Sacramento, 534 F.3d 1106, 1112 (9th Cir. 2008) (“the district court can impose a small 4 reduction, no greater than 10 percent--a ‘haircut’--based on its exercise of discretion and without a 5 more specific explanation”). Plaintiffs are awarded $296,248.50 in attorneys’ fees and $3,418.20 6 in costs. CONCLUSION 7 8 9 United States District Court Northern District of California 10 For the reasons stated above, Plaintiffs’ motion for default judgment is GRANTED IN PART and DENIED IN PART. Defendants are liable for a total of $2,489,072.92, which includes the following: 11 1. Class Damages: $1,642,572.92; 12 2. Individual Damages for Ms. Valenzuela: $948; 13 3. PAGA penalties: $845,750, with 75% ($634,312.59) awarded to the LWDA and 14 15 16 25% ($211,437.50) awarded to Plaintiffs and the other Aggrieved Employees; and 4. Attorneys’ Fees and Costs: $299,666.70. This Order disposes of Docket No. 116. 17 18 19 IT IS SO ORDERED. Dated: July 8, 2024 20 21 JACQUELINE SCOTT CORLEY United States District Judge 22 23 24 25 26 27 28 8

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