Helton et al v. Factor 5, Inc. et al

Filing 91

ORDER by Judge ARMSTRONG granting 34 Motion to Certify Class (lrc, COURT STAFF) (Filed on 6/26/2012)

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UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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OAKLAND DIVISION

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JESSE HELTON; ALISHA PICCIRILLO;

Case No: C 10-04927 SBA

8 CHAD LOWE; individually and on behalf of

all others similarly situated,
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Plaintiffs,
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ORDER GRANTING MOTION FOR
CONDITIONAL CERTIFICATION
OF A COLLECTIVE ACTION
UNDER THE FLSA

vs.
Docket 34.

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FACTOR 5, INC.; FACTOR 5, LLC;
12 BLUHARVEST, LLC; WHITEHARVEST,
LLC; JULIAN EGGEBRECHT; HOLGER
13 SCHMIDT; THOMAS ENGEL; and DOES
1-100,
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Defendants.
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Jesse Helton, Alisha Piccirillo, and Chad Lowe (collectively "Plaintiffs"),

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individually and on behalf of all others similarly situated, brought the instant action to

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recover unpaid wages and other benefits under state and federal law. See First Amended

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Complaint ("FAC"), Dkt. 1, Exh. H. As party-defendants, the FAC names corporate

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defendants Factor 5, Inc. and Factor 5, LLC (collectively, "Factor 5"), as well as

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BluHarvest, LLC and WhiteHarvest, LLC. Id. The FAC also names individual defendants

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Julian Eggebrecht, Holger Schmidt, and Thomas Engel (the "individual Defendants"). Id.

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The parties are presently before the Court on Plaintiffs' motion for conditional

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certification of a collective action for alleged violations of the overtime and minimum wage

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requirements of the Fair Labor Standards Act ("FLSA"). Dkt. 34. The individual

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Defendants oppose the motion. Dkt. 65. Having read and considered the papers filed in

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connection with this matter, and being fully informed, the Court hereby GRANTS

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Plaintiffs' motion for conditional certification of a collective action under the FLSA, for the

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reasons stated below. The Court, in its discretion, finds this matter suitable for resolution

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without oral argument. See Fed.R.Civ.P. 78(b); N.D. Cal. Civ. L.R. 7-1(b).

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I.

BACKGROUND

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A.

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Factor 5 was a successful, independent software and video game developer, which

Factual Background

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has developed a number of video games, including Lair and the Star Wars Rogue Squadron

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games. FAC ¶ 18. Through its work, Factor 5 developed a considerable amount of

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valuable intellectual property, including the source code, engines, and machines used and

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developed as part of its business. Id.

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Factor 5 developed video games for publishers who then published the game to the

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consumer. FAC ¶ 9. Factor 5 also developed middleware tools that were used by other

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companies. Id. WhiteHarvest, LLC ("WhiteHarvest") is a software videogame developer.

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Id. ¶ 10. Individual Defendants were officers and/or directors of Factor 5 and owners of

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Factor 5. Id. ¶ 11.

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Plaintiff Jesse Helton was employed by Factor 5 as a Senior/Lead Programmer from

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on or about May 15, 2006 until on or about December 19, 2008. FAC ¶ 6. He was

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responsible for writing code to implement game features, as well as working with designers

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and other content creators to define features, requirements, and workflow. Id. Plaintiff

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Chad Lowe was employed by Factor 5 as a Producer from on or about December 24, 2005

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until on or about December 19, 2008. Id. ¶ 7. He was responsible for overall project

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management for Factor 5's game title/project, including supervising and tracking

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assignments. Id. Plaintiff Alisha Piccirillo was employed by Factor 5 as a Senior

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Technical Artist from in or about August 2002 until on or about December 19, 2008. Id. ¶

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8. She worked with designers, programmers, and artists, to ensure technical integrity of

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game assets being produced by Factor 5. Id.

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On or about November 1, 2008, Factor 5 stopped paying their employees, although

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Plaintiffs continued to perform work for Factor 5. FAC ¶ 19. On or about December 1,

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2008, Plaintiffs lost their health benefits due to Factor 5's failure to pay premiums. Id. ¶ 20.
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Before closing, Factor 5 had a number of assets, including valuable intellectual property

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assets which it had developed over a number of years, including a number of video games

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that were in progress, which Factor 5 believed would generate millions of dollars in

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revenue. Id. ¶ 21.

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On December 11, 2008, individual Defendant Julian Eggebrecht ("Eggebrecht")

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executed an Asset Purchase Agreement, selling virtually all of Factor 5's assets to

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WhiteHarvest, which had been formed two days earlier, on December 9, 2008 by

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Eggebrecht's girlfriend and co-owner of their home, Katja Reitemeier ("Reitemeyer").1

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FAC ¶ 22. According to Plaintiffs, no money exchanged hands. Id. WhiteHarvest

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operated from December 9, 2008 until on or about July 31, 2009. Id. ¶ 28 at 6.2
Plaintiffs claim that after closing Factor 5 and terminating its employees, Factor 5

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improperly took and fraudulently conveyed assets 5 to WhiteHarvest, Reitemeyer, and

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Factor 5 Gmbh in order to continue the Factor 5 business while attempting to avoid paying

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Plaintiffs and other employees of Factor 5. FAC ¶¶ 25-26 at 6. Plaintiffs further claim that

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Factor 5 fraudulently conveyed intellectual property and other assets owned by Factor 5,

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and are improperly using that intellectual property, including source codes, engines, and

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machines developed by Factor 5. Id. ¶ 27 at 6. According to Plaintiffs, Factor 5 also failed

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to: pay Plaintiffs and other employees their accrued but unused vacation time at the time of

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termination; provide Plaintiffs and other employees with proper notice concerning Factor

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5's mass layoff pursuant to the California WARN Act; and pay Plaintiffs earned overtime

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wages from on or about November 1, 2008 through December 19, 2008. Id. ¶¶ 26-28 at 5.

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The FAC refers to this person as Katja "Reitemeier," Katja "Reitemeyer," and
Katja "Reitmeyer." For purposes of clarity and consistency, the Court will refer to her as
Reitemeyer.

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The Court notes that the FAC contains a typographical error regarding the
numbering of the paragraphs. The last paragraph on page five of the FAC is numbered 28,
while the first paragraph on page 6 is numbered 25. As such, both page five and six of the
27 FAC contain paragraphs numbered 25-28. For purposes of clarity, when citing to these
paragraphs, the Court will identify the page number on which the duplicative paragraph
28 number appears.
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Plaintiffs assert that the individual Defendants continue to operate Factor 5

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businesses through Factor 5 Gmbh, and that Factor 5 Gmbh and Factor 5 are effectively the

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same company operated by the individual Defendants. FAC ¶ 28 at 6. Plaintiffs further

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assert that the individual Defendants orchestrated the fraudulent conveyances to, in large

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part, defraud creditors, including Plaintiffs. Id. While ostensibly owned by others,

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Plaintiffs maintain that the individual Defendants controlled and directed the day-to-day

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operations and business of WhiteHarvest, and control the day-to-day operations and

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business of Factor 5 Gmbh. Id. ¶ 29.

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B.

Procedural Background

On January 21, 2009, Plaintiffs filed a class action complaint in the Marin County

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Superior Court to recover earned wages and other benefits due under California law.

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Compl., Dkt. 1, Exh. A. The complaint was amended to include corporate Defendants

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BluHarvest, LLC, which was later renamed WhiteHarvest. See Dkt. 1, Exh. C. Factor 5,

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Inc. filed for bankruptcy in May 2009, and a year later in May 2010, WhiteHarvest filed for

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bankruptcy. See id. Proceedings in the state court were stayed as to Factor 5, Inc. and

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WhiteHarvest. See id.

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On October 13, 2010, following the close of both entities' bankruptcy proceedings,

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Plaintiffs filed an amended complaint adding the individual Defendants and claims under

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the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 216. See FAC. On October 29, 2010,

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the individual Defendants removed the action to this Court on the basis of federal question

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jurisdiction. Notice of Removal, Dkt. 1.

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The FAC alleges eleven causes of action as follows: (1) violation of California

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Labor Code §§ 204, 206, failure to pay all earned wages accrued during a pay period; (2)

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violation of California Labor Code § 201, failure to pay compensation upon discharge; (3)

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violation of California Labor Code § 227.3, failure to pay unused vacation compensation;

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(4) violation of California Labor Code § 2802, failure to pay for all necessary expenditures

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or losses incurred by the employee in the discharge of his or her duties; (5) violation of

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California Labor Code § 1401, et seq., failure to give proper notice of the cessation of
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operations or to pay 60 days salary in lieu of notice; (6) violation of 29 U.S.C. § 206, FLSA

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minimum wage violation; (7) violation of 29 U.S.C. § 207, FLSA overtime violation; (8)

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breach of contract; (9) unfair business practices in violation of the Cal. Business and

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Professions Code, 17200, et seq.; (10) fraudulent conveyance; and (11) accounting.

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See FAC.

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On October 26, 2011, Plaintiffs filed a motion for conditional certification of a

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collective action under the FLSA. Dkt. 34. The individual Defendants filed an opposition

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on February 2, 2012. Dkt. 65. On February 16, 2012, a reply was filed. Dkt. 75.

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II.

DISCUSSION

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A.

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Plaintiffs seek conditional certification of a collective action for alleged violations of

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the minimum wage and overtime requirements of the FLSA. Plaintiffs propose conditional

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certification of an opt-in class consisting of all persons that worked for Factor 5 in

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California during the period November 1, 2008 to December 19, 2008.

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Motion for Conditional Certification

Under the FLSA, employers must pay their employees a minimum wage and

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overtime wages. See 29 U.S.C. §§ 206, 207. If an employer fails to do so, an aggrieved

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employee may bring a collective action on behalf of "similarly situated" employees based

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on their employer's alleged violations of the FLSA. Does I thru XXIII v. Advanced Textile

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Corp., 214 F.3d 1058, 1064 (9th Cir. 2000). Determining whether a collective action is

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appropriate is within the discretion of the district court. Adams v. Inter-Con Sec. Sys., 242

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F.R.D. 530, 535 (N.D. Cal. 2007) (citing Leuthold v. Destination America, Inc., 224 F.R.D.

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462, 466 (N.D. Cal. 2004)). The plaintiff bears the burden of showing that the putative

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collective action members are "similarly situated." Adams, 242 F.R.D. at 535-536;

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Leuthold, 224 F.R.D. at 466.

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Neither the FLSA nor the Ninth Circuit have defined "similarly situated." Adams,

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242 F.R.D. at 536; Leuthold, 224 F.R.D. at 466. However, the majority of courts have

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adopted a two-step approach for determining whether plaintiffs are "similarly situated."

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See, e.g., Harris v. Vector Marketing Corp., 716 F.Supp.2d 835, 837 (N.D. Cal. 2010); In re
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Wells Fargo Home Mortg. Overtime Pay Litigation, 527 F.Supp.2d at 1070 (N.D. Cal.

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2007); Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095, 1102-1103 (10th Cir. 2001);

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Hipp v. Liberty Nat. Life. Ins. Co., 252 F.3d 1208, 1219 (11th Cir. 2001); Mooney v.

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Aramco Serv. Co., 54 F.3d 1207, 1213-14 (5th Cir. 1995), overruled on other grounds by

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Desert Palace, Inc. v. Costa, 539 U.S. 90 (2003).

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Under the two-tiered approach, a district court first determines, based on the

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submitted pleadings and affidavits, whether the proposed class should be notified of the

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action. Adams, 242 F.R.D. at 536. At the first tier, the determination of whether the

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putative class members will be "similarly situated" is made using a fairly lenient standard,

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and typically results in conditional certification of a representative class. Id. At the second

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tier, the party opposing the certification may move to decertify the class once discovery is

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complete and the case is ready to be tried. Id.

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Here, because Plaintiffs move for conditional certification, the question is whether

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Plaintiffs have demonstrated that the first tier has been met. At this juncture, district courts

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have held that conditional certification requires only that " 'plaintiffs make substantial

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allegations that the putative class members were subject to a single illegal policy, plan or

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decision.' " Adams, 242 F.R.D. at 536 (citing Leuthold, 224 F.R.D. at 468). "Under this

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lenient standard, 'the plaintiffs must show that there is some factual basis beyond the mere

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averments in their complaint for the class allegations.' " Adams, 242 F.R.D. at 536; see

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also Leuthold, 224 F.R.D. at 468 (at the first tier of the analysis, courts usually rely only on

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the pleadings and any affidavits that have been submitted). "All that need be shown by the

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plaintiff is that some identifiable factual or legal nexus binds together the various claims of

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the class members in a way that hearing the claims together promotes judicial efficiency

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and comports with the broad remedial policies underlying the FLSA." Gerlach v. Wells

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Fargo & Co., 2006 WL 824652, at *2 (N.D. Cal. 2006) (Wilkin, J.).

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A plaintiff need not submit a large number of declarations or affidavits to satisfy the

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lenient standard under the first tier of the analysis. Indeed, a handful of declarations may

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suffice. See, e.g., Gilbert v. Citigroup, Inc., 2009 WL 424320, at *2 (N.D. Cal. 2009)
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(finding lenient standard met based on declarations from plaintiff and four other

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individuals); Escobar v. Whiteside Constr. Corp., 2008 WL 3915715, at *3-4 (N.D. Cal.

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2008) (finding lenient standard satisfied based on declarations from three plaintiffs);

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Leuthold, 224 F.R.D. at 468-469 (finding lenient standard met based on affidavits from

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three proposed lead plaintiffs).

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Here, Plaintiffs allege that "FLSA Class" members, i.e., employees of Factor 5, were

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subject to the same pay practices, procedures, protocols and plans. FAC ¶ 31. Specifically,

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Plaintiffs allege that from November 1, 2008 to December 19, 2008 Factor 5 willfully

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failed to pay employees earned wages or paid employees less than the minimum wage set

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forth in the FLSA, and/or did not pay employees overtime compensation for work that

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lasted over 40 hours in a week in violation of the FLSA. FAC ¶¶ 24-26, 28, 31-32. In

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support of these allegations, each of the named Plaintiffs has submitted a declaration. See

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Dkt. 36, 37, 38. In their respective declarations, Plaintiffs aver that they worked nearly two

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months without pay based on assurances from the owners of Factor 5 (i.e., the individual

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Defendants) that they would be paid, and that they have never been paid earned wages for

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November and December 2008, including minimum wage payments, compensation for

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overtime, payment at termination (including accrued, but unused vacation wages), and

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expense reimbursement for expenses incurred in connection with work for Factor 5. Helton

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Decl. ¶¶ 3, 5-7; Piccirillo Decl. ¶¶ 3-5; Lowe Decl. ¶¶ 4-7.

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The Court finds that Plaintiffs have shown that there is a factual basis beyond the

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allegations in the FAC to substantiate the allegations stated therein. Plaintiffs have

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submitted three declarations from Factor 5 employees, which aver that the proposed

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plaintiffs were all subject to an illegal policy, plan or decision; namely, the individual

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Defendants decision to stop paying Factor 5 employees earned wages in November and

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December 2008. The Court finds that the declarations submitted by Plaintiffs show that a

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factual and legal nexus binds together the FLSA claims of the potential plaintiffs in a way

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that hearing the claims together promotes judicial efficiency and comports with the broad

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remedial policies underlying the FLSA. As such, Plaintiffs have shown that the putative
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collective action members are "similarly situated" for purposes of conditional certification.

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Based upon this showing, the Court concludes that Plaintiffs have satisfied the "fairly

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lenient" standard required for conditional certification of a collective action under the

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FLSA. See Escobar, 2008 WL 3915715, at *3 (finding conditional certification warranted

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based on allegations in complaint and statements in three declarations); Leuthold, 224

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F.R.D. at 468 (same). Accordingly, Plaintiffs' request for conditional certification of a

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collective action under the FLSA is GRANTED.

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The individual Defendants, for their part, advance two arguments as to why

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conditional certification is inappropriate. They argue that conditional certification is not

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warranted because: (1) they have a complete defense to any claim for a willful violation of

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the FLSA (i.e., advice of counsel not to pay employees); and (2) the limitations period for a

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non-willful violation has long passed. The individual Defendants, however, have not cited

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any authority demonstrating that it is proper for the Court to consider arguments going to

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the merits on a motion for conditional certification. At the conditional certification stage,

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the Court’s inquiry is whether the proposed plaintiffs are "similarly situated" with respect

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to the FLSA violations alleged in the operative pleading. This inquiry does not include an

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examination of the merits of the alleged FLSA claims. In fact, numerous courts have

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declined to address arguments going to the merits during the first tier of the analysis,

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indicating that such arguments are more appropriately considered as part of the Court's

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analysis in a second tier determination on a motion to decertify or a motion for summary

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judgment after discovery has closed. See, e.g., Leuthold, 224 F.R.D. at 467; see also

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Adams, 242 F.R.D. at 542 (declining to make a determination regarding willfulness at the

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conditional certification stage). Merits-based arguments are particularly inappropriate at

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this stage of the litigation given the parties disputes regarding discovery. See Dkt. 48, 86,

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89

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B.

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In addition to determining that conditional certification is appropriate, Plaintiffs

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Notice to Potential Collective Action Members

request that the Court facilitate notice of the pending action to potential plaintiffs so that
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they have an opportunity to opt-in to this case. To this end, Plaintiffs request that the Court

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direct individual Defendants to disclose the names and contact information of the potential

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plaintiffs. Plaintiffs also request that the Court approve their proposed form of notice and

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their proposed consent to join form, and then authorize Plaintiffs to send out these Court-

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approved forms to potential plaintiffs.

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Plaintiffs have filed a proposed form of notice that, among other things, explains: (1)

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the purpose of the notice; (2) the nature of the litigation; (3) how to participate in the

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lawsuit and the consequences thereof; (4) the consequences of not responding to the notice;

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and (5) how to obtain additional information. Dkt. 39. The individual Defendants have not

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objected to Plaintiffs' request that the Court facilitate notice to potential plaintiffs. Nor

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have they argued that the proposed notice or consent to join forms submitted by Plaintiffs

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are deficient in any way.

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As previously stated, under the FLSA, an employee may bring a collective action on

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behalf of "similarly situated" employees based on their employer's alleged violations of the

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FLSA. 29 U.S.C. § 216(b); Advanced Textile Corp., 214 F.3d at 1064. Any "similarly

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situated" employee must give consent in writing to become a party plaintiff to the action.

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29 U.S.C. § 216(b); Advanced Textile Corp., 214 F.3d at 1064.3 To facilitate this process,

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a district court may authorize the named plaintiffs in a FLSA collective action to send

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notice to all potential plaintiffs, and may set a deadline for plaintiffs to join the suit by

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filing consents to sue. Advanced Textile Corp., 214 F.3d at 1064 (citing Hoffmann-La

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Roche Inc. v. Sperling, 493 U.S. 165, 169, 172 (1989)). The FLSA requires the court to

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provide potential plaintiffs "accurate and timely notice concerning the pendency of the

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collective action, so that they can make informed decisions about whether to participate."

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Hoffmann-La Roche, 493 U.S. at 170.

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As for the form of notice, the Supreme Court stated in Hoffmann-La Roche that "in

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exercising the discretionary authority to oversee the notice-giving process, courts must be

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Potential plaintiffs who do not opt-in are not bound by the judgment and may bring
a subsequent private action. Leuthold, 224 F.R.D. at 466.
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scrupulous to respect judicial neutrality." Hoffmann-La Roche, 493 U.S. at 174. "To that

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end, trial courts must take care to avoid even the appearance of judicial endorsement of the

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merits of the action." Id. Notice has the purpose of providing potential plaintiffs with a

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neutral discussion of the nature of, and their rights in, the action. Adams, 242 F.R.D. at

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540.

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Having granted Plaintiffs' request for conditional certification, the Court finds that

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facilitation of notice to the potential plaintiffs is warranted. The Court has reviewed

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Plaintiffs' proposed notice and consent to join forms and authorizes Plaintiffs to send them

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to all potential plaintiffs, so long as Plaintiffs make the following modifications. First,

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Plaintiffs are directed to modify the proposed notice form so that it is addressed to: "All

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persons who worked for Factor 5, Inc. in California during the period November 1, 2008 to

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December 19, 2008 ("Claims Period")." Second, the statement at the end of the proposed

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notice form regarding the Court's neutrality should be moved to the top of the first page

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below the caption. Third, the "Effect of Joining this Suit" section of the proposed notice

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form should be modified to include a statement explaining that potential collective action

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members may share in liability for payment of costs if Defendants prevail in this action.

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In order to effectuate notice, the individual Defendants are ordered to produce to

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Plaintiffs' counsel the names and contact information of potential plaintiffs. Specifically,

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the individual Defendants shall provide Plaintiffs' counsel with each potential plaintiff's

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home address, e-mail address, telephone number, dates of employment, and location of

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employment. See Hoffmann-La Roche, 493 U.S. at 170 (The "discovery [of names and

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addresses] was relevant to the subject matter of the action and . . . there were no grounds to

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limit the discovery under the facts and circumstances of the case."). This information shall

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be provided in Microsoft Excel format and shall be provided to Plaintiffs' counsel within

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fourteen (14) days from the date this Order is filed.

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The modified notice and consent to join forms shall be mailed within fourteen (14)

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days of receipt by Plaintiffs' counsel of the potential plaintiffs' contact information.

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Potential plaintiffs shall have sixty (60) days from the mailing of the notice and consent to
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join forms to submit their consent to join forms via U.S. mail or fax to Plaintiffs' counsel,

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who shall promptly file all such forms with the Court. A reminder postcard shall be sent to

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potential plaintiffs thirty (30) days prior to the deadline for opting into the action.

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III.

CONCLUSION

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For the reasons stated above, IT IS HEREBY ORDERED THAT:

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1.

Plaintiffs' motion for conditional certification of a collective action under the

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FLSA is GRANTED. Plaintiffs' sixth and seventh causes of action shall proceed as a

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conditional collective action under § 216(b), on behalf of all persons who worked for

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Factor 5, Inc. in California during the period November 1, 2008 to December 19, 2008.

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2.

The individual Defendants shall provide, in Microsoft Excel format, the

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names and contact information of all potential plaintiffs to Plaintiffs' counsel within

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fourteen (14) days from the date this Order is filed. Specifically, the individual Defendants

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shall provide Plaintiffs' counsel with each potential plaintiff's home address, e-mail address,

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telephone number, dates of employment, and location of employment.

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3.

Plaintiffs shall modify the proposed notice form in compliance with this

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Order and submit it to the Court. The modified notice and consent to join forms shall be

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mailed within fourteen (14) days of receipt by Plaintiffs' counsel of the potential plaintiffs

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contact information. Potential plaintiffs shall have sixty (60) days from the mailing of the

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notice and consent to join forms to submit their consent to join forms via U.S. mail or fax to

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Plaintiffs' counsel, who shall promptly file all such forms with the Court. A reminder

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postcard shall be sent to potential plaintiffs thirty (30) days prior to the deadline for opting

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into the action.

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4.

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IT IS SO ORDERED.

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This Order terminates Docket 34.

Dated: 6/25/12

_______________________________
SAUNDRA BROWN ARMSTRONG
United States District Judge

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