Campanelli v. Image First Uniform Rental Service, Inc. et al

Filing 88

ORDER by Judge Phyllis J. Hamilton granting in part 77 Motion to Stay; denying 75 Motion for Relief from Non-Dispositive Magistrate Judge's Order. (pjhlc2S, COURT STAFF) (Filed on 7/10/2017)

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1 UNITED STATES DISTRICT COURT 2 NORTHERN DISTRICT OF CALIFORNIA 3 4 KYLE L. CAMPANELLI, v. 6 7 8 Case No. 15-cv-04456-PJH Plaintiff, 5 IMAGE FIRST HEALTHCARE LAUNDRY SPECIALISTS, INC., et al., Defendants. ORDER GRANTING MOTION TO STAY IN PART; DENYING MOTION FOR RELIEF FROM NON-DISPOSITIVE MAGISTRATE JUDGE'S ORDER Re: Dkt. Nos. 75, 77 9 10 United States District Court Northern District of California 11 Defendants’ motions to stay all class and collective action proceedings, and for 12 relief from a non-dispositive magistrate judge’s order, came on for hearing before this 13 court on June 7, 2017. Plaintiff appeared through his counsel, Brian Malloy and David 14 Feola. Defendants appeared through their counsel, Eric Meckley. Having read the 15 papers filed by the parties and carefully considered their arguments and the relevant 16 legal authority, and good cause appearing, the court hereby GRANTS the motion to stay 17 in part and DENIES the motion for relief from the magistrate judge’s order, for the 18 following reasons. BACKGROUND 19 20 21 A. Factual Allegations This is a putative class/collective action alleging violations of the Fair Labor 22 Standards Act (“FLSA”) and California labor laws. Plaintiff Kyle Campanelli was 23 employed by ImageFIRST of California as a delivery person from March 2014 to March 3, 24 2015. Dkt. 11, First Amended Complaint (“FAC”) ¶ 4, 33. The FAC named three 25 ImageFIRST companies as defendants: (1) ImageFIRST Uniform Rental Service, Inc. 26 (“IF Uniform”); (2) ImageFIRST Healthcare Laundry Specialists, Inc. (“IF Healthcare”); 27 and (3) ImageFIRST of California, LLC (“IF California”). IF Uniform, as explained below, 28 was subsequently dismissed for lack of personal jurisdiction. Dkt. 51. Plaintiff’s primary job duty was to pick up soiled laundry from ImageFIRST 1 2 customers and deliver it to a warehouse/laundry center, and to pick up clean laundry from 3 the warehouse/laundry center and deliver it to ImageFIRST customers. FAC ¶ 33. 4 Campanelli alleges that he worked over forty hours a week but was denied meals and 5 rest periods, and was never paid overtime compensation. FAC ¶ 36. 6 Campanelli seeks to represent all similarly situated delivery persons of any 7 ImageFIRST entity nationwide (the “National Collective”) in a collective action for failure 8 to pay overtime wages under FLSA. FAC ¶¶ 4, 37–41. Campanelli also seeks to 9 represent a Rule 23 class of similarly situated delivery persons who were wrongly 10 classified as exempt under California labor laws (the “California Class”). FAC ¶¶ 42–51. Plaintiff defines similarly situated employees as “past and present employees of United States District Court Northern District of California 11 12 ImageFIRST who engage/were engaged in the pick-up and delivery of ImageFIRST 13 products to and from customers intrastate however that employment was denominated 14 . . . and who were classified as exempt from Federal and state overtime laws.” FAC ¶ 7. 15 Plaintiff alleges that ImageFIRST delivery persons should not be exempt as they perform 16 substantial manual labor, are not directly related to management or business operations, 17 and are not involved in the exercise of discretion and independent judgment with respect 18 to matters of significance. FAC ¶¶ 16, 19. The national collective action relies on alleged 19 violations of the FLSA; the California Class relies on alleged violations of a number of 20 provisions in the California Labor Code and Business and Professions Code. 21 B. 22 Procedural History IF California and IF Healthcare answered the complaint, and IF California admitted 23 to employing Campanelli. Dkt. 23, 25. IF Uniform, however, filed a motion to dismiss for 24 lack of personal jurisdiction on February 2, 2016. Dkt. 22. Following a hearing, the court 25 permitted jurisdictional discovery and ordered supplemental briefing with respect to the 26 motion to dismiss. Dkt. 40. On June 7, 2016, plaintiff filed a motion to compel regarding 27 the jurisdictional discovery. The court denied the motion to compel, Dkt. 47, and 28 subsequently granted the motion to dismiss IF Uniform. Dkt. 51. 2 Following the entry of a protective order, Dkt. 58, plaintiff sought discovery from 1 2 the remaining two defendants. Defendants objected to plaintiff’s first round of 3 interrogatories and requests for production of documents, and plaintiff filed a motion to 4 compel on March 7, 2017. Dkt. 60. The matter was referred to Magistrate Judge Sallie 5 Kim. Dkt. 66, 67. On April 18, 2017, Judge Kim granted plaintiff’s motion to compel in part. See Dkt. 6 7 72, 73. Specifically, Judge Kim overruled defendants’ three objections to discovery: (1) 8 that other ImageFIRST subsidiaries were the employers of the drivers that formed the 9 putative class; (2) that the requests violated the Fourteenth Amendment rights of third parties (other ImageFIRST subsidiaries or franchisees); and (3) that class discovery was 11 United States District Court Northern District of California 10 inappropriate because no class had yet been certified. Dkt. 72 at 1–3. However, Judge 12 Kim found that some of defendants’ objections based on “burden or vagueness” had 13 merit. Id. at 2. 14 C. The Instant Motions 15 On May 2, 2017, defendants filed a motion to stay all class and collective action 16 proceedings until the Supreme Court issues a decision in Epic Systems Corp. v. Lewis, 17 No. 16-285 (“Epic”), and the cases consolidated with Epic, including the Ninth Circuit’s 18 decision in Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016) (“Morris”). Dkt. 19 77. In Epic, which is expected to be heard in the fall of 2017, the Supreme Court will 20 address whether “an agreement that requires an employer and an employee to resolve 21 employment-related disputes through individual arbitration, and waive class and 22 collective proceedings, is enforceable under the Federal Arbitration Act, notwithstanding 23 the provisions of the National Labor Relations Act.” See Petition for a Writ of Certiorari, 24 Epic, 2016 WL 4611259 at i, cert. granted, 137 S.Ct. 809 (U.S. Jan. 13, 2017). 25 The Ninth Circuit held in Morris that general collective action waivers are not 26 enforceable as to employment-related disputes because the National Labor Relations Act 27 (“NLRA”) “precludes contracts that foreclose the possibility of concerted work-related 28 legal claims.” Morris, 834 F.3d at 990. Thus, “[a]n employer may not condition 3 1 employment on the requirement that an employee sign” a concerted action waiver. Id. In 2 Epic, the Supreme Court will a resolve a circuit split as to the enforceability of arbitration 3 agreements/concerted action waivers in this context. Defendants filed a motion for relief from Magistrate Judge Kim’s discovery orders 4 5 on the same day as their motion to stay. Dkt. 77. Defendants assert a number of legal 6 errors, which all relate to permitting discovery regarding employees of ImageFIRST 7 entities who are not named defendants. On May 18, 2017, the court ordered the plaintiff 8 to file a response to the motion for relief. Dkt. 82. Both motions are fully briefed and ripe 9 for decision. DISCUSSION 10 United States District Court Northern District of California 11 A. Legal Standards 12 1. Motions to Stay 13 A court’s power to stay proceedings is incidental to its inherent power to control 14 the disposition of its cases in the interests of efficiency and fairness to the court, counsel, 15 and litigants. Landis v. North Am. Co., 299 U.S. 248, 254–55 (1936). For the sake of 16 judicial economy, such a stay may be granted pending the outcome of other legal 17 proceedings related to the case. Leyva v. Certified Grocers of Calif., Ltd., 593 F.2d 857, 18 863–64 (9th Cir. 1979). The separate proceedings may be judicial, administrative, or 19 arbitral in nature, id., and the issues in the two proceedings need not be identical, Landis, 20 299 U.S. at 256. 21 The district court’s determination of whether a stay is appropriate “must weigh 22 competing interests and maintain an even balance.” Id. at 254–55. These competing 23 interests include “the possible damage which may result from the granting of a stay, the 24 hardship or inequity which a party may suffer in being required to go forward, and the 25 orderly course of justice measured in terms of the simplifying or complicating of issues, 26 proof, and questions of law which could be expected to result from a stay.” CMAX, Inc. v. 27 Hall, 300 F.2d 265, 268 (9th Cir. 1962) (citing Landis, 299 U.S. at 254–55). 28 4 If there is “even a fair possibility” that the stay will harm the non-moving party, the 1 2 party seeking the stay must “make out a clear case of hardship or inequity in being 3 required to go forward.” Landis, 299 U.S. at 255. “[B]eing required to defend a suit, 4 without more, does not constitute a ‘clear case of hardship or inequity’ within the meaning 5 of Landis.” Lockyer v. Mirant Corp., 398 F.3d 1098, 1112 (9th Cir. 2005). In addition, a 6 stay should not be granted unless it appears likely that the other proceeding will be 7 concluded within a reasonable time in relationship to the urgency of the claims presented 8 to the court. Leyva, 593 F.2d at 864. 2. 9 Motions for Relief from a Non-dispositive Magistrate Judge’s Order A district court may modify or set aside an order of a magistrate judge on a non- 10 United States District Court Northern District of California 11 dispositive matter only if it is “clearly erroneous or contrary to law.” 28 U.S.C. 12 § 636(b)(1)(A); Fed. R. Civ. P. 72(a). Under this “deferential” standard, the district court 13 may not “substitute its judgment” for that of the magistrate judge. United States v. 14 Abonce-Barrera, 257 F.3d 959, 968 (9th Cir. 2001); Grimes v. City & County of San 15 Francisco, 951 F.2d 236, 241 (9th Cir. 1991). A finding of fact may be set aside as clearly erroneous only if the court has “a 16 17 definite and firm conviction that a mistake has been committed.” Burdick v. C.I.R., 979 18 F.2d 1369, 1370 (9th Cir. 1992). However, the “magistrate’s legal conclusions are 19 reviewed de novo to determine whether they are contrary to law.” Perry v. 20 Schwarzenegger, 268 F.R.D. 344, 348 (N.D. Cal. 2010). 21 B. Analysis 22 1. Whether the Court Should Stay the Case Pending a Decision in Epic 23 Defendants’ motion to stay argues that “virtually all” of the putative class members 24 have signed arbitration agreements that include a concerted action waiver. If the 25 Supreme Court overturns the Ninth Circuit’s decision in Morris, it is possible that many 26 putative class members will be precluded from participating in a class or collective action. 27 Defendants therefore argue that the decision in Epic could have a dramatic impact on the 28 size of the putative class/collective in this case. 5 1 Plaintiff, for his part, argues that defendants have not shown that any class 2 members are subject to binding arbitration agreements, because defendants rely on only 3 a “hearsay” declaration that does not attach any signed, dated agreements. Even if 4 defendants’ evidence is accepted, plaintiff claims that a stay is inappropriate because any 5 further delay in this case would affect the rights of the putative class. Plaintiff also 6 accuses defendants of coercing putative class members to sign misleading agreements 7 during the pendency of this suit, and of seeking a stay primarily to avoid discovery. In similar cases, courts in this district have divided over whether to grant stays 8 9 pending a decision in Epic. Compare, e.g., McElrath v. Uber Techs., Inc., No. 16-CV07241-JSC, 2017 WL 1175591, at *5–*7 (N.D. Cal. Mar. 30, 2017) (granting stay 11 United States District Court Northern District of California 10 because “whether this case can proceed as a class action turns squarely on the outcome 12 of the Supreme Court’s review of Morris”) with Daugherty v. SolarCity Corp., No. C 16- 13 05155 WHA, 2017 WL 386253, at *4 (N.D. Cal. Jan. 26, 2017) (“A decision in Morris 14 remains many months, perhaps even more than a year away. Given the extent of that 15 possible delay, a stay is not warranted.”); see also Whitworth v. SolarCity Corp., No. 16- 16 CV-01540-JSC, 2017 WL 2081155, at *4 (N.D. Cal. May 15, 2017) (analyzing the split in 17 the Northern District of California regarding stays in light of Morris/Epic). 18 Under the particular circumstances of this case, the court finds that a stay is 19 appropriate because two preliminary legal issues must be resolved before the propriety of 20 class/collective certification can be determined. Before the court can make a decision to 21 certify a class or collective, the scope of the putative class must be clear. This requires a 22 judicial determination as to (1) whether the employees of non-party ImageFIRST entities 23 are properly part of the putative class; and (2) whether the alleged arbitration agreements 24 are enforceable, and if so, how many putative class members have signed concerted 25 action waivers. Because the court concludes that it would be inefficient to proceed to the 26 certification stage until these two issues are resolved, the court GRANTS defendants’ 27 motion to stay this case in part. 28 /// 6 The first issue, which has been contested throughout this suit, is which 1 ImageFIRST entities may be held liable by this court for violations of FLSA. This issue 3 hinges on whether IF Healthcare may be considered the “employer” of some or all of the 4 putative class members, as plaintiff maintains. On the one hand, only two ImageFIRST 5 entities are named as defendants in this action, and defendants’ evidence regarding 6 arbitration agreements addressed the employees of ten ImageFIRST entities in eight 7 states. See Dkt. 78 ¶ 2. However, plaintiff claims that all similarly-situated employees of 8 any ImageFIRST entity in the United States may be included in the putative class under a 9 “joint employer”/“single enterprise” theory, potentially reaching both the subsidiaries of IF 10 Healthcare and ImageFIRST franchisees with operations in as many as 40 states. Since 11 United States District Court Northern District of California 2 this legal issue may be determinative of the numerosity requirement of Rule 23, as well 12 as which employees must be given notice of the collective action, the scope of “joint 13 employer” liability must be resolved prior to certification. 14 The second legal issue is the existence and enforceability of the alleged arbitration 15 agreements/class action waivers signed by putative class members. Typically, this issue 16 would be resolved on a motion to compel arbitration, but since Campanelli himself has 17 not signed a waiver, such a motion is neither necessary nor appropriate in this case. 18 Regardless of the status of the named plaintiff, the arbitration agreements, if enforceable, 19 may have a significant impact of the size of the class. However, the evidence submitted 20 by defendants is inadequate to compel arbitration at this time, both because these 21 agreements are not (currently) enforceable under the rule of Morris, and because 22 defendants did not submit any signed, dated arbitration agreements. If the Supreme 23 Court ultimately overturns Morris and concludes that these types of agreements are 24 enforceable, defendants will be permitted an opportunity to move for summary judgment 25 as to whether certain putative class members are precluded by contract from participating 26 in the class/collective. If necessary, defendants may submit the signed agreements in 27 camera for inspection by the court at that time. 28 /// 7 1 Conservation of judicial resources supports the court’s decision to grant a partial 2 stay. The court finds that it would be waste of the court’s and the parties’ resources to 3 permit wide-ranging class discovery when it is still not clear (1) which ImageFIRST 4 employees, beyond those of the named defendants, are properly part of the putative 5 class; and (2) whether a significant group of these employees have waived their rights to 6 proceed in a class or collective action. 7 Under these circumstances, the court finds that the balance of equities and the 8 orderly course of justice favors a partial stay. Plaintiff’s primary claim of harm from the 9 stay rests on the fact that this case has been pending for nearly two years already. However, most of this delay was the result of plaintiff’s decision to sue an entity over 11 United States District Court Northern District of California 10 which this court lacked personal jurisdiction. The stay will not be unduly long, as Epic will 12 be heard this fall and likely decided by early 2018. Moreover, as explained below, the 13 case can continue to proceed in the meantime in a limited fashion. The stay will 14 therefore not materially delay the resolution of plaintiff’s claims; instead, its primary effect 15 is simply to change the order in which the issues in this case are decided. 16 Staying the case pending Epic will simplify the issues in this litigation and avoid 17 potentially complex choice of law issues as to the nationwide collective. Several circuits 18 have held, contrary to the Ninth Circuit’s decision in Morris, that concerted action waivers 19 are enforceable against employees despite the NLRA. Thus, until the Supreme Court 20 resolves the circuit split, the arbitration agreements that defendants rely on may be 21 enforceable as to ImageFIRST entities in some states, but not others. 22 For these reasons, the court hereby STAYS all class and collective action 23 proceedings pending the decision in Epic, with the single exception of the “joint employer” 24 issue. Since Epic will have no impact on that issue, the court finds that it should be 25 litigated and resolved during the pendency of the partial stay. 26 While Epic is pending, plaintiff will be afforded an opportunity to obtain discovery 27 on his “joint employer” theory and to move for summary judgment on the issue. Both the 28 court and the parties will thus have clarity as to which ImageFIRST entities may be 8 1 considered to be an “employer” for purposes of plaintiff’s FLSA claims. A ruling on the 2 “employer” issue will streamline the remainder of the case, particularly the certification 3 proceedings. 4 After Epic is decided, defendants will be afforded an opportunity to move for 5 summary judgment on the arbitration issue should the Supreme Court overturn Morris. If 6 Morris is left intact, the arbitration issue becomes moot and the court will reset the 7 briefing schedule for class certification at that time. The Motion for Relief from Magistrate Judge Kim’s Orders 8 2. 9 The court DENIES the motion for relief from Magistrate Judge Kim’s discovery orders. With one possible exception, Magistrate Judge Kim’s orders were neither “clearly 11 United States District Court Northern District of California 10 erroneous” nor “contrary to law.” However, because all discovery in this case—save on 12 the “joint employer” issue—is stayed pending Epic, defendants’ motion for relief is largely 13 moot in any event. 14 Defendants’ raise three overlapping objections to the discovery orders. First, 15 defendants argue that they should not be required to provide discovery regarding class 16 members who have (allegedly) signed class action waivers. However, this objection is 17 without merit since defendants do not actually establish the existence of any signed 18 agreements. Moreover, an employee’s waiver of concerted action for work-related claims 19 is not currently enforceable under Morris. If the Supreme Court overturns Morris, the 20 court will reconsider the issue at that time. 21 Second, defendants object to discovery that relates to employees of any non- 22 California, non-party entities on due process grounds. However, plaintiff is not seeking 23 third party discovery, or to hail out-of-state entities into this court without minimum 24 contacts with this forum. Rather, in its discovery requests to IF Healthcare, plaintiff can 25 only seek information that is within the possession, custody, or control of IF Healthcare. 26 Fed. R. Civ. P. 34(a). Magistrate Judge Kim correctly found that IF Healthcare, who is 27 properly before this court, cannot raise 14th Amendment objections on behalf of third 28 parties. 9 Finally, defendants argue that no class discovery should be permitted until a class 1 is certified. Courts in this district have generally permitted pre-certification class 3 discovery, including “pre-certification discovery of putative class members’ confidential 4 [contact] information subject to a protective order.” Salazar v. McDonald’s Corp., No. 14- 5 CV-02096-RS (MEJ), 2016 WL 736213, at *5 (N.D. Cal. Feb. 25, 2016) (citing cases); 6 see also Artis v. Deere & Co., 276 F.R.D. 348, 352 (N.D. Cal. 2011) (“The disclosure of 7 names, addresses, and telephone numbers is a common practice in the class action 8 context.”).1 However, “FLSA does not require Defendants to provide contact information 9 until after the court certifies the collective action.” Gilbert v. Citigroup, Inc., No. 08-0385 10 SC, 2009 WL 424320, at *5 (N.D. Cal. Feb. 18, 2009); accord Adams v. Inter-Con Sec. 11 United States District Court Northern District of California 2 Sys., Inc., 242 F.R.D. 530, 543 (N.D. Cal. 2007). Thus, while plaintiff properly sought pre-certification discovery on the California 12 13 class, defendants are not required to divulge contact information as to the putative 14 nationwide collective until after conditional certification. However, as class and collective 15 discovery is now stayed per this order, defendants’ request for relief on this basis is 16 DENIED AS MOOT. CONCLUSION 17 For the foregoing reasons, defendants’ motion to stay the case is GRANTED IN 18 19 PART. All proceedings in the case are stayed pending the Supreme Court’s decision in 20 Epic, with the single exception of the “joint employer”/“single enterprise” issue. The court 21 will permit plaintiff until October 30, 2017 to take discovery on the issue of which 22 ImageFIRST entities, beyond the named defendants, may be held liable for the alleged 23 FLSA violations based on a “joint employer” theory, and thus which employees are 24 properly included in the putative class. Plaintiff may file a motion for summary judgment 25 on this issue by December 13, 2017. In light of the partial stay, and for the reasons 26 1 27 28 At the hearing, defendants’ counsel indicated that there were only 15 putative class members in California. When asked by the court whether this number might suggest a lack of numerosity under Rule 23, plaintiff's counsel indicated that they were reevaluating whether to proceed with the Rule 23 class. 10 1 stated on the record at the hearing, the briefing schedule for class and collective action 2 certification is hereby VACATED. 3 Defendants’ motion for relief from the magistrate judge’s orders is DENIED. 4 However, all class and collective discovery in this case, other than that permitted by the 5 preceding paragraph concerning the “joint employer”/“single enterprise” issue, is 6 STAYED until the Supreme Court’s decision in Epic is issued. 7 The parties shall inform this court within one week after the Supreme Court issues 8 its decision in Epic. If the Court affirms the Ninth Circuit’s decision in Morris, the court will 9 schedule a case management conference in order to reset the schedule for class and collective action certification. If the Supreme Court reverses, defendants may file a 11 United States District Court Northern District of California 10 motion for summary judgment on the enforceability of the alleged arbitration 12 agreements/class action waivers within 45 days following the Court’s decision in Epic. 13 14 IT IS SO ORDERED. Dated: July 10, 2017 15 16 17 _______________________________ PHYLLIS J. HAMILTON United States District Judge 18 19 20 21 22 23 24 25 26 27 28 11

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