Thompson v. Costco Wholesale Corporation et al

Filing 60

ORDER Denying Motion for Preliminary Approval of Class Action Settlement. Signed by Judge Cathy Ann Bencivengo on 2/22/2017. (jjg)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 DOUGLAS THOMPSON on behalf of himself, others similarly situated, and the general public, 13 14 15 16 17 Case No.: 14-cv-2778-CAB-WVG ORDER DENYING MOTION FOR PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT Plaintiff, v. COSTCO WHOLESALE CORPORATION and DOES 1 through 100, [Doc. No. 59] Defendants. 18 19 20 This matter is before the Court on the Plaintiff’s Unopposed Motion for Preliminary 21 Approval of Class Action Settlement. No opposition or objection to the motion was filed. 22 For the reasons set forth below, the motion is DENIED. 23 I. 24 Defendant Costco Wholesale Corporation (“Costco”), employs truck drivers who 25 operate trucks within San Diego County and elsewhere in California. Plaintiff Douglas 26 Thompson is a former truck driver for Defendant. This lawsuit arises out of Costco’s 27 alleged failure to properly provide meal and rest periods and to properly compensate its 28 truck drivers. Background 1 14-cv-2778-CAB-WVG 1 On October 17, 2014, Thompson filed a class action complaint in the San Diego 2 County Superior Court asserting eleven claims under California’s labor and unfair 3 competition laws. Costco removed the lawsuit to this Court on November 20, 2014, and 4 then filed a motion to dismiss. Instead of opposing the motion, Thompson filed the first 5 amended complaint (“FAC”) on January 12, 2015. 6 eliminated several claims, and ultimately alleged seven claims under California’s labor and 7 unfair competition laws. [Doc. No. 14.] On February 10, 2015, Thompson filed a Second 8 Amended Complaint (“SAC”) that further narrowed the focus of the complaint, including 9 limiting the class to California truck drivers. [Doc. No. 19.] The SAC asserted seven claims 10 under California law: (1) Wage Theft/Time-Shaving; (2) Failure to pay overtime; (3) 11 Failure to provide meal periods; (4) Failure to provide rest periods; (5) Failure to pay 12 compensation for all time worked; (6) Waiting time penalties; and (7) Violation of 13 California’s unfair competition law, California Business and Professions Code Section 14 17200, et seq. The FAC narrowed the issues, 15 After conducting some discovery, the parties participated in a private mediation on 16 March 11, 2016. The mediation concluded with a mediator’s proposal, and after additional 17 discussions, the proposal was revised and resulted in a Memorandum of Understanding 18 (“MOU”). The MOU led to a settlement agreement dated June 27, 2016 (the “Settlement 19 Agreement”). [Doc. No. 59-2.] In addition to the terms listed below, the Settlement 20 Agreement required Plaintiff to file a Third Amended Complaint (“TAC”) adding claims 21 for unpaid wages and liquidated damages under the Fair Labor Standards Act (“FLSA”), a 22 claim for penalties under California Labor Code section 226, and a claim under the Private 23 Attorney General Act of 2004 (“PAGA”). 24 On September 27, 2016, Plaintiff’s counsel filed a joint motion seeking leave to file 25 a third amended complaint (“TAC”). [Doc. No. 55.] The Court granted the motion, and 26 Plaintiff filed the TAC on October 3, 2016. [Doc. No. 57.] The TAC added an FLSA 27 minimum wage claim, a PAGA claim, and a wage statement penalty claim. 28 2 14-cv-2778-CAB-WVG 1 II. 2 On December 2, 2016,1 Plaintiff filed the instant motion for preliminary approval of 3 the class action settlement. The motion contained a proposed notice to potential class 4 members. The class is defined as follows: 5 Settlement Agreement Terms [A]ll current and former fleet drivers employed at a Costco business center or depot in California from October 17, 2010 through October 4, 2016 (the date 85 days after Plaintiff signed the Agreement). 6 7 8 [Doc. No. 59 at 4-5] 9 The Settlement Agreement requires Costco to pay a gross settlement amount of 10 $2,000,000, allocated as follows: $1,308,000 to the settlement members for their claims; 11 $5,000 as an incentive award for Thompson; $660,000 to Plaintiff’s counsel; $10,000 to 12 settlement of PAGA claims; and $17,000 to the CPT Group, Inc., the Class Administrator, 13 for administration costs. [Doc. No. 59-2 at 6-8.] The Agreement estimates 882 class 14 members, meaning that each class member will receive an average of $1,483 from the gross 15 settlement amount based on the agreed upon allocation. In exchange for these payments, 16 the settlement agreement defined the Released Claims as including: 17 any and all claims, debts, liabilities, demands, obligations, penalties, guarantees, costs, expenses, attorney’s fees, damages, action or causes of action of whatever kind or nature, whether known or unknown, contingent or accrued, that were alleged or that reasonably could have been alleged based on the facts alleged in the Lawsuit, as amended, including, but not limited to, any claims under federal law and state law, claims for unpaid overtime, claims for missed meal or rest breaks, claims for meal or rest break penalties, liquidated damages, unlawful deductions from wages, conversion of wages, record-keeping violations, wage-statement penalties, and “waiting time” penalties, claims for unpaid wages and liquidated damages under the Fair Labor Standards Act, claims under the applicable Wage Order and Labor Code sections 201, 202, 203, 218, 218.5, 226, 226.3, 226.7, 510, 512, 558, 18 19 20 21 22 23 24 25 26 1 27 28 The instant motion does not explain why counsel waited three months to move to file a motion seeking leave to file the TAC, or, for that matter, why counsel then waited another two months after the TAC was filed to file the instant motion. In sum, the settlement agreement was executed a full six months before the parties sought approval of the settlement. 3 14-cv-2778-CAB-WVG 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1194, 1194.2, 1197, as well as claims under Business and Professions Code section 17200 et seq., and Labor Code section 2698 et seq. based on alleged violations of these Labor Code provisions. The Agreement is conditioned upon the release by all Settlement Class Members of any claim under Labor Code section 2699, as to the released claims set forth above, and upon covenants by all members that they will not participate in any proceeding seeking penalties under Section 2699, as to the released claims set forth above. Defendant shall not owe, beyond the amount of Gross Settlement Fund, any further monies to the Settlement Class or to the State of California based upon the claims made in the Lawsuit during the Settlement Period. This release is effective for the Settlement Period. [Doc. No. 59-1 at 9.] The Agreement then reiterates that it releases any FLSA claims by Settlement Class Members who cash, deposit, or endorse settlement checks: The Parties intend that this agreement shall bind all Settlement Class Members. This Agreement shall constitute, and may be pleaded as, a complete and total defense to any such dispute or claim if raised in the future. The procedure adopted under the Agreement will operate as a release of any FLSA claim by those Settlement Class Members who cash, deposit, or endorse settlement checks. 16 17 18 [Doc. No. 59-1 at 10.] III. Collective/Rule 23 Class Action 19 20 21 22 23 24 25 26 27 28 Legal Standards For Approval of a Settlement of a Hybrid FLSA A Rule 23 class action may not be settled without approval of the court. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1025-26 (9th Cir. 1998) (citing Fed. R. Civ. P. 23(e)). “The primary concern . . . is the protection of those class members, including the named plaintiffs, whose rights may not have been given due regard by the negotiating parties.” Officers for Justice v. Civil Serv. Comm'n of City & Cty. of San Francisco, 688 F.2d 615, 624 (9th Cir. 1982). “Approval of a class action settlement requires a two-step process— a preliminary approval followed by a later final approval.” Spann v. J.C. Penney Corp., 314 F.R.D. 312, 319 (C.D. Cal. 2016). The instant motion involves the first step of the process. 4 14-cv-2778-CAB-WVG 1 Although the instant motion portrays this case as solely a Rule 23 class action, the 2 settlement purports to settle and release the FLSA claim Plaintiff added in the TAC (as 3 well as any other FLSA claims the class may have). FLSA claims brought on behalf of 4 similarly situated individuals are frequently referred to as collective actions. See Leuthold 5 v. Destination Am., Inc., 224 F.R.D. 462, 466 (N.D. Cal. 2004); see also Does v. Advanced 6 Textile Corp., 214 F.3d 1058, 1064 (9th Cir. 2000) Similar to Rule 23 class actions, 7 “[s]ettlement of an FLSA claim, including a collective action claim, requires court 8 approval.” Kempen v. Matheson Tri-Gas, Inc., No. 15-cv660-HSG, 2016 WL 4073336, at 9 *4 (N.D. Cal. Aug. 1, 2016); see also Dunn v. Teachers Ins. & Annuity Assoc. of Am., No. 10 13-cv-5456-HSG, 2016 WL 153266, at *3 (N.D. Cal. Jan. 13, 2016) (“Most courts hold 11 that an employee’s overtime claim under FLSA is non-waivable and, therefore, cannot be 12 settled without supervision of either the Secretary of Labor or a district court.”). 13 However, “Rule 23 actions are fundamentally different from collective actions under 14 the FLSA.” Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523, 1529 (2013). One of 15 the primary differences is that the “FLSA and Rule 23 provide different means for 16 participating in a class action.” Leuthold, 224 F.R.D. at 469. Specifically: 17 18 19 20 In a class action, once the district court certifies a class under Rule 23, all class members are bound by the judgment unless they opt out of the suit. By contrast, in a collective action each plaintiff must opt into the suit by “giv[ing] his consent in writing.” 29 U.S.C. § 216(b). As result, unlike a class action, only those plaintiffs who expressly join the collective action are bound by its results. 21 22 23 24 25 26 McElmurry v. U.S. Bank Nat. Ass’n, 495 F.3d 1136, 1139 (9th Cir. 2007). Despite these differences, when considering a motion to approve the settlement of either a Rule 23 class or an FLSA collective action before a class or collective has been certified, the Court must first certify the class or collective for the purpose of the settlement. See generally Millan v. Cascade Water Servs., Inc., 310 F.R.D. 593, 602-07 (E.D. Cal. 2015). 27 28 5 14-cv-2778-CAB-WVG 1 IV. 2 A court “must pay undiluted, even heightened, attention to class certification 3 requirements in a settlement context.” Hanlon, 150 F.3d at 1019 (internal quotation marks 4 omitted). Thus, before approving the settlement itself, the Court’s “threshold task is to 5 ascertain whether the proposed settlement class satisfies the requirements of Rule 23(a) of 6 the Federal Rules of Civil Procedure applicable to all class actions, namely: (1) numerosity, 7 (2) commonality, (3) typicality, and (4) adequacy of representation.” Id. In addition, the 8 Court must determine whether class counsel is adequate (Fed. R. Civ. P. 23(g)), and 9 whether “the action is maintainable under Rule 23(b)(1), (2), or (3).” In re Mego Fin. 10 Corp. Sec. Litig., 213 F.3d 454, 462 (9th Cir. 2000) (quoting Amchem Prod. v. Windsor, 11 521 U.S. 591, 614 (1997)). Preliminary Certification of Rule 23 Class 12 The settlement here envisions a class consisting of “all current and former fleet 13 drivers employed at a Costco business center or depot in California at any time from” 14 October 17, 2010 through October 4, 2016. Thompson seeks certification of this class 15 pursuant to Rule 23(b)(3), which requires that “the questions of law or fact common to 16 class members predominate over any questions affecting only individual members, and that 17 a class action is superior to other available methods for fairly and efficiently adjudicating 18 the controversy.” Fed. R. Civ. P. 23(b)(3). 19 A. Numerosity 20 The class must be so numerous that joinder of all members individually is 21 “impracticable.” Fed. R. Civ. P. 23(a)(1). “A proposed class of at least forty members 22 presumptively satisfies the numerosity requirement.” Valle v. Glob. Exch. Vacation Club, 23 No. SACV162149DOCJCGX, 2017 WL 433998, at *2 (C.D. Cal. Feb. 1, 2017). Here, the 24 parties estimate approximately 882 Class Members. Joinder of all these potential plaintiffs 25 would be impracticable. Accordingly, this requirement has been met. 26 B. Commonality 27 This requirement is satisfied if “there are questions of law or fact common to the 28 class.” Fed. R. Civ. P. 23(a)(2). “All questions of fact and law need not be common to 6 14-cv-2778-CAB-WVG 1 satisfy the rule.” Hanlon, 150 F.3d at 1019. However, “[c]ommonality requires the 2 plaintiff to demonstrate that the class members ‘have suffered the same injury.’” Wal-mart 3 Stores, Inc. v. Dukes, 564 U.S. 338, 349-50 (2011) (quoting Gen. Tel. Co. of Southwest v. 4 Falcon, 457 U.S. 147, 157 (1982)). This means that each member’s claims must depend 5 upon a common contention capable of classwide resolution, “which means that 6 determination of its truth or falsity will resolve an issue that is central to the validity of 7 each one of the claims in one stroke.” Id. at 350. Here, this requirement is satisfied because 8 the class claims involve common questions of law and fact surrounding Defendant’s meal 9 and rest period policies, payment of overtime, and payment for all time worked. 10 C. Typicality 11 The typicality requirement is met if “the claims or defenses of the representative 12 parties are typical of the claims or defenses of the class.” Fed. R. Civ. P. 23(a)(3). “Under 13 the rule’s permissive standards, representative claims are ‘typical’ if they are reasonably 14 co-extensive with those of absent class members; they need not be substantially identical.” 15 Hanlon, 150 F.3d at 1020. “Typicality refers to the nature of the claim or defense of the 16 class representative, and not to the specific facts from which it arose or the relief sought. 17 The test of typicality is whether other members have the same or similar injury, whether 18 the action is based on conduct which is not unique to the named plaintiffs, and whether 19 other class members have been injured by the same course of conduct.” Hanon v. 20 Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992.) 21 Here, Thompson’s claims and those of putative class members are based on the 22 claims that Costco policies violate various California labor laws. Moreover, Thompson 23 and the putative class members are alleged to have suffered the same injuries, including 24 the non-payment of premiums for alleged meal and rest periods that were not provided, 25 non-payment of overtime wages, and penalties for various other labor code violations. 26 Therefore, for purposes of settlement, Thompson has made an adequate showing of 27 typicality. 28 7 14-cv-2778-CAB-WVG 1 D. Adequacy 2 The adequacy requirement asks whether the representative “will fairly and 3 adequately protect the interest of the class.” Fed. R. Civ. P. 23(a)(2). “The proper resolution 4 of this issue requires that two questions be addressed: (a) do the named plaintiffs and their 5 counsel have any conflicts of interest with other class members and (b) will the named 6 plaintiffs and their counsel prosecute the action vigorously on behalf of the class?” In re 7 Mego Fin. Corp. Sec. Litig., 213 F.3d at 462. 8 Here, Plaintiff’s counsel appears to have extensive experience in litigating wage and 9 hour class actions. [See Doc. No. 59-1 at 3.] Further, there is no obvious conflict between 10 Thompson’s interests and those of the class members. However, the terms of the 11 settlement, including the release of FLSA claims despite no such claims having been pled 12 at the time of settlement, reflects that Thompson and class counsel may have favored their 13 own interests at the expense of the class members to achieve the settlement. Moreover, the 14 complete failure to recognize this action as hybrid action raises questions as to counsel’s 15 understanding of the procedural rules applicable to the FLSA claims it proposes that the 16 class release without compensation. Notwithstanding the foregoing, because the Court is 17 denying the instant motion on other grounds, it need not reach a conclusion at this stage as 18 to whether counsel adequately represents the class. 19 E. Predominance and Superiority 20 “In addition to meeting the conditions imposed by Rule 23(a), the parties seeking 21 class certification must also show that the action is maintainable under Fed. R.Civ. P. 22 23(b)(1), (2) or (3).” Hanlon, 150 F.3d at 1022. “Rule 23(b)(3) permits a party to maintain 23 a class action if . . . ‘the court finds that the questions of law or fact common to class 24 members predominate over any questions affecting only individual members, and that a 25 class action is superior to other available methods for fairly and efficiently adjudicating the 26 controversy.’” Connecticut Ret. Plans & Trust Funds v. Amgen Inc., 660 F.3d 1170, 1173 27 (9th Cir. 2011), aff’d, 133 S. Ct. 1184, 185 L. Ed. 2d 308 (2013) (citing Fed. R.Civ. P. 28 8 14-cv-2778-CAB-WVG The Ninth Circuit refers to these questions as the “predominance” and 1 23(b)(3)). 2 “superiority” inquiries. Hanlon, 150 F.3d at 1022-23. 3 The “predominance inquiry tests whether proposed classes are sufficiently cohesive 4 to warrant adjudication by representation.” Id. at 1022 (quoting Amchem, 521 U.S. at 623). 5 “[T]he presence of commonality alone is not sufficient. . . .” Id. “If anything, Rule 6 23(b)(3)’s predominance criterion is even more demanding than Rule 23(a).” Comcast 7 Corp. v. Behrend, 133 S.Ct. 1426, 1432 (2013). Further, “[s]ettlement benefits cannot form 8 part of a Rule 23(b)(3) analysis; rather the examination must rest on ‘legal or factual 9 questions that qualify each class member’s case as a genuine controversy, questions that 10 preexist any settlement.’” Id. (quoting Amchem, 521 U.S. at 623). Here, the main injuries 11 to the putative class members seem to be largely identical and are all alleged to be the result 12 of Defendant’s labor policies. Although the scope of the underpayment of wages and the 13 amount of penalties may in the end vary from member to member, the determination of 14 whether the policies at issue actually violate California labor laws predominate over the 15 individual damages issues. 16 The superiority inquiry “requires determination of whether the objectives of the 17 particular class action procedure will be achieved in the particular case.” Hanlon, 150 F.3d 18 at 1023. 19 class members' interests in pursuing separate actions individually, any litigation already in 20 progress involving the same controversy, the desirability of concentrating in one forum, 21 and potential difficulties in managing the class action—although the last two 22 considerations are not relevant in the settlement context.” Mitchinson v. Love’s Travel 23 Stops & Country Stores, Inc., No. 115CV01474DADBAM, 2016 WL 7426115, at *6 (E.D. 24 Cal. Dec. 22, 2016). The Court is satisfied that in light of the relatively limited potential 25 recovery for the class members as compared with the costs of litigating the claims, each of 26 these requirements weighs in favor of finding that the superiority requirement is satisfied. 27 Accordingly, in light of the foregoing, for the purposes of settlement Thompson has 28 “In resolving the Rule 23(b)(3) superiority inquiry, the court should consider satisfied the requirements for certification of a class under Rule 23. 9 14-cv-2778-CAB-WVG 1 V. 2 The standards for certifying an FLSA collective are not as well-defined as those for 3 Rule 23 class actions. The FLSA provides for a private right of action to enforce its 4 provisions “by any one or more employees for and in [sic] behalf of himself or themselves 5 and other employees similarly situated.” 29 U.S.C. § 216(b). “Neither the FLSA, nor the 6 Ninth Circuit, nor the Supreme Court has defined the term ‘similarly situated.’” Millan, 7 310 F.R.D. at 607. However, “a Court has a considerably less stringent obligation to ensure 8 fairness of the settlement in a FLSA collective action than a Rule 23 action because parties 9 who do not opt in are not bound by the settlement.” Id. (internal quotations marks omitted). 10 Accordingly, for all the reasons the class identified in the settlement satisfies the 11 commonality, typicality, and predominance requirements for preliminary certification of a 12 Rule 23 class, it also satisfies the FLSA’s less stringent requirement that the members be 13 “similarly situated” for the purposes of the proposed settlement here. 14 Certification of an FLSA collective is therefore appropriate. 15 16 VI. Conditional Certification of FLSA Collective Action Conditional Review of Settlement Terms A. Legal Standards 17 “At the preliminary approval stage, the Court may grant preliminary approval of a 18 settlement if the settlement: (1) appears to be the product of serious, informed, non- 19 collusive negotiations; (2) has no obvious deficiencies; (3) does not improperly grant 20 preferential treatment to class representatives or segments of the class; and (4) falls within 21 the range of possible approval.” Sciortino v. PepsiCo, Inc., No. 14-CV-00478-EMC, 2016 22 WL 3519179, at *4 (N.D. Cal. June 28, 2016) (quoting Harris v. Vector Mktg. Corp., No. 23 C-08-5198 EMC, 2011 WL 1627973, at *7 (N.D. Cal. Apr. 29, 2011)). “At the preliminary 24 approval stage, a full fairness analysis is unnecessary.” Zepeda v. PayPal, Inc., No. C 10- 25 1668 SBA, 2014 WL 718509, at *4 (N.D. Cal. Feb. 24, 2014) (internal quotation marks 26 and citation omitted). 27 Sciortino, 2016 WL 3519179, at *4. “Closer scrutiny is reserved for the final approval hearing.” 28 10 14-cv-2778-CAB-WVG 1 Although the Ninth Circuit has not established a standard for district courts to follow 2 when evaluating an FLSA settlement, California district courts frequently apply the 3 standard established by the Eleventh Circuit in Lynn’s Food Stores, Inc. v. U.S. By and 4 Through U.S. Dep’t of Labor, 679 F.2d 1350, 1352 (11th Cir. 1982). Dunn, 2016 WL 5 153266, at *3. Under that standard, the settlement must constitute “a fair and reasonable 6 resolution of a bona fide dispute over FLSA provisions.” 29 U.S.C. § 216(b); Lynn’s Food 7 Stores, 679 F.2d at 1355; see also Ambrosino v. Home Depot U.S.A., Inc., No. 11cv1319 8 L(MDD), 2014 WL 3924609, at *1 (S.D. Cal. Aug. 11, 2014) (“A district court may 9 approve an FLSA settlement if the proposed settlement reflects ‘a reasonable compromise 10 over [disputed] issues.’”) (quoting Lynn’s Food Stores, 679 F.2d at 1354). 11 The standard for approving FLSA collective actions may be nominally different 12 from the standard for approving class actions under Federal Rule of Civil Procedure 23, 13 but “many courts begin with the well-established criteria for assessing whether a class 14 action settlement is fair, reasonable and adequate under [Rule] 23(e) and reason by analogy 15 to the FLSA context.” Millan v. Cascade Water Servs., Inc., No. 1:12-cv-1821-AWI-EPG, 16 2016 WL 3077710, at *3 (E.D. Cal. Jun. 2, 2016) (internal quotation marks omitted); see 17 also Otey v. Crowdflower, Inc., No. 12-cv5524-JST, 2014 WL 1477630, at *11 (N.D. Cal. 18 Apr. 15, 2014) (“[T]he factors that courts consider when evaluating a collective action 19 settlement are essentially the same as those that courts consider when evaluating a Rule 23 20 settlement.”).2 Accordingly, if the settlement here warrants approval under Rule 23(e), it 21 is likely to warrant approval under the FLSA as well. 22 Federal Rule of Civil Procedure 23(e) instructs that “[t]he claims, issues, or defenses 23 of a certified class may be settled, voluntarily dismissed, or compromised only with the 24 court’s approval.” Fed. R. Civ. Pro. 23(e). “Adequate notice is critical to court approval of 25 26 2 27 28 But see Selk v. Pioneers Mem. Healthcare Dist., 159 F.Supp. 3d 1164, 1173 (S.D. Cal. 2016) (evaluating an FLSA settlement using a totality of the circumstances approach “that replicates the factors relevant to Rule 23 class actions where appropriate, but adjusts or departs from those factors when necessary to account for the labor rights at issue.”) 11 14-cv-2778-CAB-WVG 1 a class settlement under Rule 23(e).” Hanlon, 150 F.3d at 1025. In addition, Rule 23(e) 2 “requires the district court to determine whether a proposed settlement is fundamentally 3 fair, adequate, and reasonable.” Id. at 1026. This determination requires the Court to 4 “evaluate the fairness of a settlement as a whole, rather than assessing its individual 5 components.” Lane v. Facebook, Inc., 696 F.3d 811, 818-19 (9th Cir. 2012). 6 “Assessing a settlement proposal requires the district court to balance a number of 7 factors: the strength of the plaintiffs’ case; the risk, expense, complexity, and likely 8 duration of further litigation; the risk of maintaining class action status throughout the trial; 9 the amount offered in settlement; the extent of discovery completed and the stage of the 10 proceedings; the experience and views of counsel; the presence of a governmental 11 participant; and the reaction of the class members to the proposed settlement.” Hanlon, 12 150 F.3d at 1026. Further, because the Settlement Agreement here was negotiated prior to 13 formal class certification, “there is an even greater potential for a breach of fiduciary duty 14 owed the class. Accordingly, such agreements must withstand an even higher level of 15 scrutiny for evidence of collusion or other conflicts of interest than is ordinarily required 16 under Rule 23(e) before securing the court’s approval as fair.” Radcliffe v. Experian Info. 17 Sols. Inc., 715 F.3d 1157, 1168 (9th Cir. 2013) (quoting In re Bluetooth Headset Prods. 18 Liab. Litig., 654 F.3d 935, 946 (9th Cir. 2011)). However, “the question whether a 19 settlement is fundamentally fair within the meaning of Rule 23(e) is different from the 20 question whether the settlement is perfect in the estimation of the reviewing court.” Lane, 21 696 F.3d at 819. 22 settlement should be reversed ‘only upon a strong showing that the district court’s decision 23 was a clear abuse of discretion.’” Hanlon, 150 F.3d at 1027 (quoting In re Pacific Enter. 24 Sec. Litig., 47 F.3d 373, 377 (9th Cir. 1995)). 25 B. Ultimately, a “district court’s final determination to approve the Analysis 26 If the settlement here were solely for the California wage and hour claims and the 27 release did not include FLSA claims, the Court likely would be able to preliminarily 28 approve it with only minor revisions to the class notice. The inclusion of FLSA claims, 12 14-cv-2778-CAB-WVG 1 however, renders this settlement improper. Indeed, the many flaws in this proposed 2 settlement demonstrate why the question of whether a Rule 23 class action can co-exist 3 with a related FLSA collective action has divided district courts in the Ninth Circuit. See 4 Pitts v. Terrible Herbst, Inc., 653 F.3d 1081, 1093 (9th Cir. 2011). These numerous 5 deficiencies must be remedied in any subsequent motion for preliminary approval of a 6 settlement. 7 First, as discussed above, the motion does not explicitly request certification of an 8 FLSA collective action, even though it clearly contemplates the existence of a collective 9 action insofar as the agreement and notice to the class specify that by cashing their 10 settlement checks, class members will have opted in to the FLSA claim. 11 Second, as currently structured, the settlement requires Rule 23 class members to 12 release FLSA claims to benefit from the settlement of the state law claims. At the same 13 time, the motion goes out of its way to explain why no separate value is being paid for the 14 FLSA claim. [Doc. No. 59 at 16.] As a result, “Class Members are assessed a penalty (in 15 the full amount of their share of the settlement) for not opting-into the FLSA class.” 16 Sharobiem v. CVS Pharmacy, Inc., No. CV139426GHKFFMX, 2015 WL 10791914, at *3 17 (C.D. Cal. Sept. 2, 2015). As discussed in Sharobiem, the legality of this opt in structure 18 is suspect. 19 Third, and related to the previous issue, the fact that the settlement calls for a release 20 of an FLSA claim in exchange for no consideration is problematic. “No one should have 21 to give a release and covenant not to sue in exchange for zero (or virtually zero) dollars.” 22 Daniels v. Aeropostale West, Inc., No. C 12-5755 WHA, 2014 WL 2215708, at *3 (N.D. 23 Cal. May 29, 2014); see also Selk v. Pioneers Mem. Healthcare Dist., 159 F.Supp. 3d 1164, 24 1178 (S.D. Cal. 2016) (“Only when opt-in plaintiffs receive independent compensation, or 25 provide specific evidence that they fully understand the breadth of the release, will a broad 26 release of claims survive a presumption of unfairness.”). It is no answer to say that 27 members deserve nothing so no harm is done in extracting the release and covenant. 28 Daniels, 2014 WL 2215708, at *3. A release of FLSA claims in exchange for no 13 14-cv-2778-CAB-WVG 1 consideration is not “a fair and reasonable resolution of a bona fide dispute over FLSA 2 provisions.” 29 U.S.C. § 216(b). As a result, courts that have approved settlements 3 releasing both FLSA and Rule 23 claims generally do so only when the parties expressly 4 allocate settlement payments to FLSA claims. Millan, 31 F.R.D. at 602; see also Khanna 5 v. Intercon Sec. Systems, Inc., No. 2:09-CV-2214 KJM EFB, 2014 WL 1379861, at *2 6 (E.D. Cal. Apr. 8, 2014) (approving hybrid settlement that allocated two-thirds of net 7 settlement amount to state claims and one-third of net settlement amount to FLSA claims); 8 Pierce v. Rosetta Stone, Ltd., No. C 11-01283 SBA, 2013 WL 1878918, at *3 (N.D. Cal. 9 May 3, 2013) (same). If Costco wants a release of a bona fide FLSA claim, it should have 10 to pay fair and reasonable consideration for that release. On the other hand, if there is no 11 bona fide dispute over FLSA provisions (which appears to be the case based on the 12 declaration from Plaintiff’s counsel), Plaintiff should dismiss the FLSA claim from the 13 complaint without prejudice, and the parties can limit their settlement to the Rule 23 class 14 action claims. 15 Fourth, the motion provides no evidence or information that would allow the Court 16 to evaluate the reasonableness of the settlement amount itself. At a minimum, Plaintiff 17 should provide an estimate of the total potential recovery and explain how the parties 18 arrived at the settlement amount so the Court can determine what percentage recovery the 19 class is receiving. Plaintiff’s counsel’s conclusion that the settlement is fair and reasonable 20 does not suffice. Millan, 310 F.R.D. at 611 (“To determine whether that settlement amount 21 is reasonable, the Court must consider the amount obtained in recovery against the 22 estimated value of the class claims if successfully litigated.”). 23 Fifth, the notice to the class is not adequate. In an FLSA action, “the court must 24 provide potential plaintiffs ‘accurate and timely notice concerning the pendency of the 25 collective action, so that they can make informed decisions about whether or not to 26 participate.’” Adams v. Inter-Con Sec. Sys., 242 F.R.D. 530, 539 (N.D. Cal. 2007) (quoting 27 Hoffmann-La Roche, Inc. v. Sperling, 493 U.S. 165, 170 (1989)). 28 requirement, and because of the inherent differences between Rule 23 class actions and In light of this 14 14-cv-2778-CAB-WVG 1 FLSA collective actions, courts considering approval of settlements in these hybrid actions 2 consistently require class notice forms to explain: “(1) the hybrid nature of th[e] action; 3 and (2) the claims involved in th[e] action; (3) the options that are available to California 4 Class members in connection with the settlement, including how to participate or not 5 participate in the Rule 23 class action and the FLSA collection action aspects of the 6 settlement; and (4) the consequences of opting-in to the FLSA collective action, opting-out 7 of the Rule 23 class action, or doing nothing.” Pierce, 2013 WL 1878918 at *4; see also 8 Sharobiem, 2015 WL 10791914, at *4 (noting that because the proposed claim form did 9 not distinguish between a Rule 23 class action and FLSA class action, it was “not clear and 10 easy to follow”). 11 Here, the proposed notice lists all of the claims asserted in the complaint, but it does 12 not acknowledge the hybrid nature of this lawsuit. Most significantly, however, it does not 13 provide any mechanism for a recipient to participate in the Rule 23 class but not opt in to 14 the FLSA collective action. Instead, the notice states that Rule 23 class members who 15 “accept any payments pursuant to the settlement will be deemed to have opted into the 16 FLSA claim.” [Doc. No. 59-2 at 6.] To remedy this deficiency, if the parties wish to 17 continue with a settlement of both California and FLSA claims, any notice must: (1) 18 explain how much of the settlement amount will be paid for the release of the FLSA claims; 19 (2) explain and provide a mechanism for recipients to opt in to the collective action that 20 complies with the FLSA; and (3) explain the consequences of opting into the FLSA 21 collective, opting out of the Rule 23 class, or doing nothing.3 Alternatively, Plaintiffs can 22 dismiss their FLSA claims without prejudice and seek approval solely of a Rule 23 class 23 for the California claims, without any release of FLSA claims for class members. 24 25 26 27 28 3 Necessarily, a prerequisite to remedying this deficiency in the notice is to reach an agreement as to a settlement fund in exchange for the release of FLSA claims. The Court will not approve a settlement that asks members of the collective to release FLSA claims without compensation for doing so. 15 14-cv-2778-CAB-WVG 1 2 In addition to deficiencies related to the differences between FLSA opt in actions and Rule 23 opt out actions, the notice is also deficient for the following reasons: 3 1. The proposed notice does not clearly identify the Class Administrator, provide 4 its telephone number, or provide an address where absent class members can 5 send their opt-in and opt-out forms. 6 2. The proposed notice states that absent class members who want to obtain a 7 copy of the settlement agreement must obtain it from the court. This is unduly 8 burdensome. The settlement agreement and related documents either should 9 be made available for public viewing on a website maintained by Plaintiff’s 10 counsel or the class administrator, or the notice should state that the Plaintiff’s 11 counsel or the claims administrator will provide a copy of the Settlement 12 Agreement and other documents related to the settlement free of charge either 13 via United States Mail or e-mail upon request. 14 3. The proposed notice does not explicitly notify class members that they have 15 the right to object to the specific attorney’s fees and costs and incentive award 16 sought. 17 18 Each of these deficiencies must be remedied before the Court can preliminarily approve the settlement. 19 VII. Propriety of Third Amended Complaint 20 “By presenting to the court a pleading . . . an attorney . . . certifies that to the best of 21 the person’s knowledge, information, and belief, formed after an inquiry reasonable under 22 the circumstances . . . the claims, defenses, and other legal contentions are warranted by 23 existing law or by a nonfrivolous argument for extending, modifying, or reversing existing 24 law or for establishing new law.” Fed. R. Civ. P. 11(b)(2). “If, after notice and a reasonable 25 opportunity to respond, the court determines that Rule 11(b) has been violated, the court 26 may impose an appropriate sanction on any attorney, law firm, or party that violated the 27 rule or is responsible for the violation.” Fed. R. Civ. P. 11(c)(1). Frivolous pleadings may 28 be the subject of sanctions even though they are included in pleading containing other 16 14-cv-2778-CAB-WVG 1 nonfrivolous request for relief. See Townsend v. Holman Consulting Corp., 929 F.2d 1358, 2 1367 (9th Cir. 1990); see also Burnette v. Godshall, 828 F. Supp. 1439, 1447-48 (N.D. Cal. 3 1993) (Rule 11 sanctions shall be imposed whether pleading or motion is frivolous in whole 4 or in part). 5 Here, the parties executed the Settlement Agreement in June 2016. As discussed 6 above, the Settlement Agreement included a release of FLSA claims in exchange for no 7 additional compensation to the class. Nearly five months later, Plaintiff filed the TAC, 8 which added an FLSA claim. Just two months after that, counsel for Plaintiff filed a 9 declaration stating that “Plaintiff has analyzed the potential value of the FLSA claims and 10 has concluded that they are worth very little to nothing such that the release of said claims 11 should not prejudice Settlement Class Members.” [Doc. No. 59-1 at 11, ¶ 36.] Presumably, 12 counsel’s analysis and conclusion that the FLSA claims were worth little to nothing 13 occurred prior to execution of the Settlement Agreement which included a release of such 14 claims on behalf of the proposed class in exchange for no consideration. If so, that means 15 that Plaintiff’s counsel filed an amended complaint that added an FLSA claim that counsel 16 knew at the time was “worth very little to nothing.” Moreover, the motion itself, and the 17 complete lack of consideration that counsel and Thompson agreed to accept in exchange 18 for a release of FLSA claims, indicates that the FLSA claim is actually worth nothing. 19 Another way to describe the FLSA claim that is worth nothing could be that it is not 20 warranted by existing law or by a nonfrivolous argument for extending, modifying, or 21 reversing existing law or for establishing new law. See Fed. R. Civ. P. 11(b)(2). Thus, 22 counsel’s inclusion of the FLSA claim in the TAC after having reached the conclusion that 23 it was worth nothing violates Rule 11(b)(2). 24 VIII. Conclusion 25 In light of the above, it is hereby ORDERED that Plaintiff’s Unopposed Motion for 26 Preliminary Approval of Class Action Settlement is DENIED. Plaintiff may file a renewed 27 motion for preliminary approval on or before March 20, 2017. 28 17 14-cv-2778-CAB-WVG 1 It is further ORDERED that, David Mara, who signed the TAC, and the Turley Law 2 Firm, APLC, must SHOW CAUSE in writing, on or before March 3, 2017 why the Court 3 should not impose an appropriate sanction for a violation of Rule 11 by including the FLSA 4 claim in the TAC. 5 6 It is SO ORDERED. Dated: February 22, 2017 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18 14-cv-2778-CAB-WVG

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