Fredrickson et al v. Starbucks Corporation

Filing 51

OPINION AND ORDER. With these additional comments, I agree with Judge Hubel's Findings and Recommendation, including his disposition of defendant's Motion to Dismiss. Accordingly, I ADOPT Judge Hubel's Findings and Recommendation 46 . Plaintiffs' Motion to Remand Case to State Court 27 is DENIED. Defendant's Motion to Dismiss for Failure to State a Claim 18 is GRANTED. IT IS SO ORDERED. Signed on 10/29/2013 by Judge Malcolm F. Marsh. (pvh)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
HANNAH FREDRICKSON, ASHLEY
KRENING, and MAURIALEE BRACKE,

3:13-cv-00029-HU
OPINION AND ORDER

Plaintiffs,

v.
STARBUCKS CORPORATION, a
Washington corporation,
Defendant.
JON M. EGAN
240 Sixth Street
Lake Oswego, Oregon 97034-2931
Attorney for Plaintiffs
CAROL J. BERNICK
DEREK D. GREEN
CHRISTOPHER F. MCCRACKEN
Davis Wright Tremaine, LLP
1300 SW Fifth Avenue, Suite 2400
Portland, Oregon 97201-5630
DANIEL L. NASH
PATRICIA A. MILLETT
Akin Gump Strauss Hauer & Feld, LLP
1333 New Hampshire Avenue, N.W.
Washington, DC 20036

Ill

1 - OPINION AND ORDER

GREGORY W. KNOPP
Akin Gump Strauss Hauer & Feld, LLP
2029 Century Park East, Suite 2400
Los Angeles, California 90067
Attorneys for Defendant
MARSH, Judge
Magistrate Judge Hubel filed his Findings and Recommendation
on August 28,
U.S.C.

The matter is now before me pursuant to 28

2013.

636(b) (1) (B) and Fed. R. Civ. P. 72 (b).

§

a

When

party

objects

to

the

of

portion

any

Magistrate's

Findings and Recommendation, the district court must make a de novo
See 28

determination of that portion of the fvlagistrate' s report.
U.S.C.

636(b)(1)(B);

§

Commodore

v.

Corp.

Douglas

fvlcDonnell

Business Machines, Inc., 656 F.2d 1309, 1313 (9th Cir. 1981), cert.
455 U.S.

denied,
930,

932

920

(9th Cir.

(1982); accord Dawson v. Marshall,

561 F.3d

Reyna-Tapia,

328 F.3d

2009); United States v.

1114, 1121 (9th Cir. 2003) (en bane).
Plaintiffs have filed timely objections.
given the file of this case a de novo review.
write

additionally,

however,

to

address

Therefore,

I have

I find no error.
some

of

I

plaintiff's

. objections.
BACKGROUND

A brief summary of the factual and procedural background is
necessary.

Plaintiffs,

former employees of defendant Starbucks

Corporation, filed a Class Action Complaint in the Circuit Court

2 - OPINION AND ORDER

for the State of Oregon in Multnomah County on December 10, 2012,
primarily alleging that Starbucks violated various state wage and
hour statutes by improperly withholding state and federal taxes
from tips Starbucks imputed to its employees.
( #l)

Notice of Removal

Plaintiffs allege that, pursuant to company policy,

exh. 1.

Starbucks employees distribute tips left in coffee shop tip jars
Id.

among themselves based on hours worked.
Rather

instructing

than

its

employees

to

exh.

report

1 at '!['![ 5-28.
tips

the

the

employees received, plaintiff alleged that Starbucks "imputed" or
"estimated" that each of its coffee shop employees received $0.50
of tips per hour worked, and improperly withheld state and federal
taxes based on that assumption.

Id.

Based on the above, plaintiffs pled five claims for relief on
the basis that Starbucks failed to pay the applicable minimum wage,
overtime wages, wages upon termination, and agreed wages, as well
as made wrongful deductions from plaintiffs' and the class members'
Id. exh. 1 at '!['![ 40-54.

paychecks.
combination

of

attorney's fees,
54.

Finally,

requested
violated

direct

statutory

damages,

and interest.·

Each of the claims seek some

Id. exh. 1 at'!['![ 42,

the

declaration

that

by

defendant's

actions,

class
and

45,

48,

51,

plaintiffs additionally

in its Prayer for Relief,

a

damages,

penalty

an

members'

rights

injunction

were

enjoining

Starbucks from withholding state or federal taxes based on tips in
any employees' future paychecks.
3 - OPINION AND ORDER

Id. exh. 1 at 29.

On January 8,

jurisdiction

question

federal

asserting

court,

2013, defendant removed the action to federal
diversity

and

jurisdiction under the Class Action Fairness Act (CAFA).

On

Id.

February 7, 2013, defendant filed a Motion to Dismiss for Failure
to State a Claim

plaintiffs filed a

2013,

On March 4,

(#18).

After briefing and

(#27).

Motion to Remand Case to State Court

oral argument, Judge Hubel recommended that plaintiff's Motion to
Remand be denied and defendant's Motion to Dismiss be granted.
DISCUSSION

Judge Hubel found that· jurisdiction was proper in this court
complaint

plaintiff's

because

ultimately

See 28 U.S.C.

federal question.

raised
1340.

1331,

§§

substantial

a

I

agree.

I

appreciate, however, the substantial and difficult questions raised
by

concerning

parties

the

federal

jurisdiction,

question

and

accordingly address diversity jurisdiction under CAFA, 28 U.S.C.

§

1332(d), and the applicability of the Tax Injunction Act (TIA), 28
u.s.c.
I.

§

1341.

Class Action Fairness Act Diversity Jurisdiction

CAFA provides federal courts original jurisdiction over class
.action lawsuits in which the class contains more than 100 members,
any class member
defendant,
$5,000,000.
Fire

Ins.

and

is

the

28 U.S.C.
Co.

v.

a

citizen of

aggregated
§

state

amount

in

different
controversy

from

any

exceeds

1332(d) (2) (A), (d) (5) (B), (d) (6); Standard

Knowles,

4 - OPINION AND ORDER

a

u.s.

133

s.ct.

1345,

1348

(2013).

For purposes of defining the class at this stage of the

litigation , "'class members'
who

within

fall

the

Knowles,

class.'"

1332 (d) (1) (D))

include 'persons

definition
133

S.Ct.

at

proposed or

the

of

(named or unnamed)

(quoting

1348

28

certified
U.S.C.

§

(emphasis in original) .

The only element of CAFA jurisdicti on disputed by the parties
is the amount in controvers y requireme nt.
removal

of

a

putative

class

must

action

"A defendant seeking
demonstra te,

by

a

preponder ance of evidence, that the aggregate amount in controver sy
Rodriguez v. AT & T Mobility

exceeds the jurisdicti onal minimum."

Services, LLC, 728 F. 3d 975, 981 (9th Cir. 2013).

"[T]he amount-

in-controv ersy inquiry in the removal context is not confined to
the face of the complaint ."

Valdez v. Allstate Insurance Company,

372 F. 3d 1115, 1117 (9th Cir. 2004).

In addition to the complaint ,

the court considers "facts presented in the removal petition as
well as any 'summary- judgment-t ype evidence relevant to the amount
in controver sy at the time of removal.'"
Progressiv e Specialty Ins.

Co.,

319

Id.

(quoting Matheson v.

F.3d 1089,

1090

(9th Cir.

2003)).
In its Notice of Removal, defendant alleged that plaintiff 's
Complaint ,

while asserting in its title that damages were "not

believed to exceed $5, 000, 000," in fact stated claims that amounted
to substanti ally more than $5,000,00 0.
26, exh. 1 at 2.

Notice of Removal

at~~

16-

Defendant attached a declaratio n from Adrienne

5 - OPINION AND ORDER

the division

"partner resources vice president for

a

Gemperle,

encompass ing

Oregon,"

that

attesting

time

relevant

the

during

period,- Starbucks employed 6, 028 individua ls as baristas and shift

during

the

Gemperle

Adrienne

time

relevant

(#3)

terminated

(Gemperle

Declaratio n

period.

Dec.)

employmen t

whose

individua ls

3, 335

including

superviso rs,

'll'll

at

1,

of
Ms.

13-14.

Gemperle additiona lly averred that the average wages of the 3,335
terminated employees at the time of separation was $9.77 per hour.
Id. at 'll 6.
After plaintiffs noted that Ms. Gemperle' s declaratio n did not
specify how many employees received the "imputed tips" and found
some modest discrepan cies between data summarized in Ms. Gemperle' s
declaratio n
preli tigation

and

defendant

discovery ,

declaratio n from Ms. Gemperle.
(#40)

(Gemperle Supp. Dec.).

Gemperle

explained

the

provided

defendant

data

plaintiff

to

submitted

a

in

supplemen tal

Declaratio n of Adrienne Gemperle

In her supplemen tal declaratio n, Ms.

discrepan cies

and

specified

that

5, 921

coffee shop employees received imputed tips during the relevant
time, of which 3,258 separated from Starbucks in the relevant time
period.

Id.

Starbucks argues that the size of the class and the relief
requested on each claim, including statutory penalties , establishe s
that it is more likely than not that the amount in controvers y
exceeds

$5,000,000 .

6 - OPINION AND ORDER

Plaintiffs

respond

that

Ms.

Gemperle' s

declarations are inadmissible hearsay and otherwise unreliable, and
that

Starbucks

demonstrate

has

that

accordingly
the

failed
in

amount

to

carry

its

burden

exceeds

controversy

to
the

jurisdictional minimum.
I find that the contents of Ms. Gemperle' s declarations. are
admissible at this point of the proceedings.

A record of regularly

conducted activity is excepted from the hearsay rule if: 1)
record was made at or near the

time

by -

or

from

"the

information

transmitted by- someone with knowledge;" 2) the record was kept in
the course of a

regularly conducted activity of a business;

3)

making the record was a regular practice of that activity; 4) the
above conditions are shown by the testimony of the custodian or
another

qualified

witness;

and

"neither

5)

the

source

of

information nor the method or circumstances of preparation indicate
a lack of trustworthiness."

Fed. R. Evid. 803(6).

Ms. Gemperle stated that "Starbucks maintains the electronic
human resources and payroll databases" from which she obtained her
information "[i)n the regular course of business," that she is
familiar with these databases, and "regularly rel[ies] on the data
they maintain
Gemper le Dec.

in
'l[

connection

Gemper le Supp.

11;

Gemperle stated that
employment

records

Gemperle Dec.

'l[

with

she has
maintained

[her)
Dec.

"personal

'l[

'l[

2.

responsibilities."
In addition,

knowledge of

regarding

1; Gemperle Supp. Dec.

7 - OPINION AND ORDER

job

1.

Starbucks

Ms.
the

employees."

While I
have

been

acknowledge that Ms.

tailored

to

more

Gemperle' s declarations could

clearly

present

the

foundational

elements of Rule 803(6) on their face, a commonsense reading of the
declarations makes clear that the data relied upon by Ms. Gemperle
would be admissible.
(9th Cir. 2003)

See Fraser v. Goodale,

342 F.3d 1032, 1036

("At the summary judgment stage, we do not focus on

the admissibility of the evidence's form.
admissibility of its contents.

0

We instead focus on the

The human resources and payroll

).

databases cited by Ms. Gemperle are textbook examples of records of
regularly conducted activity within the hearsay exception of Rule
803(6).

I

reject

declarations

plaintiffs'

are ·unreliable;

argument

the

that

Ms.

Gemperle's

apparent discrepancies

in the

first declaration were adequately e~plained in the supplemental
declaration in such a way as to not undermine the trustworthiness
of the data relied upon by Ms. Gemperle.

Moreover, as discussed in

greater detail below, minor variations in the data would not affect
the outcome of the amount in controversy analysis.
Considering

JVls.

Gemperle's

declarations,

then,

I

find

Starbucks has established by a preponderance of the evidence that
the amount in controversy in this matter exceeds $5,000,000.
statutory

penalties

sought

are

particularly

The

significant.

Plaintiff's Third Claim for Relief, which seeks unpaid wages upon
termination,

alleges that "Plaintiffs and the Class members are

entitled to collect all wages remaining due
8 - OPINION AND ORDER

.

. together with

attorney

fees

and

costs,

as

well

as

pre-

and

post-judgment

interest, and the 30 days of statutory penalty wages provided by
ORS 652.150 and ORS 652.200.u

Notice of Removal exh. 1 at 27-28.

Or. Rev. Stat. § 652.150 provides that the penalty wages for such
a violation are payment of the aggrieved employee's wages at the
.final rate of pay for eight hours per day,

up to an additional

thirty days or until the terminal wages are paid.
Based on the data provided in Ms. Gemperle's declarations, the
potential penalty wages on Claim Three alone are approximately
$7,639,358.40. 1

Although

the

court

does

not

currently

have

sufficient data to make an approximate calculation of plaintiff's
other claims for relief,

it appears all except Claim Five would

also carry significant potential penalty wages.
alleged entitlement to direct damages,
fees on each claim.
JVls.

interest,

Plaintiffs also
and attorney's

Thus, considering the information provided by

Gemperle and the remedies pled in the complaint,
1

I

have no

($9.77 x 8 x 30 x 3,258).
Ms. Gemperle stated that the
average final rate of pay for the separated employees was
approximately $9.77 per hour.
Gemperle Dec. at~ 14. The final
subset of class member employees used in this calculation was
slightly different from that for which Ms. Gemperle provided the
$9.77 value on account of the reasons provided in her
supplemental declaration.
See Gemperle Supp. Dec. at ~~ 10, 11.
For this reason, and because the terminal wage used represents an
approximation to two decimal points of the mean wage at
separation of the terminated employees, there may be some
marginal variation in the product.
I note, however, that even if
I assume that each relevant employee was terminated at the lowest
minimum wage applicable during the relevant period, the product
would still be $6,568,128 ($8.40 x 8 x 30 x 3,258).
9 - OPINION AND ORDER

trouble

concluding

that

defendant

has

carried

its

burden

of

establishing by a preponderance of the evidence that the amount in
controversy

is

greater

than

$5,000,000.

Subject

matter

jurisdiction is appropriate under CAFA.
II.

Tax Injunction Act

Plainti.ffs argue that, regardless of jurisdiction under CAFA
or the federal question jurisdiction statutes,
this court of subject matter jurisdiction.

the TIA deprives

The TIA mandates that

district courts shall not enjoin, suspend, or restrain the

~[t]he

assessment, levy or collection of any tax under State law where a
plain, speedy and efficient remedy may be had in the courts of such
State.n
~two

28 U.S.C.

§

1341.

In enacting the TIA, Congress expressed

closely related, state-revenue-protective objectives:

(1) to

eliminate disparities between taxpayers who could seek injunctive
relief in federal court .

and taxpayers with recourse only to

state courts, which generally required taxpayers to pay first and
litigate

later;

and

( 2)

to stop taxpayers,

with

the aid of a

federal injunction, from withholding large sums, thereby disrupting
state

government

(2004)
Tax

finances.

Thus, the

Injunction

n

~dispositive

Act's

Hibbs

v.

Winn,

542

U.S.

88,

104

question in determining whether the

jurisdictional

bar

applies

is

whether

plaintiff's action, if successful, would reduce the flow of state
tax revenue.n

Qwest Corp, v. City of Surprise, 434 F. 3d 1176, 1184

(9th Cir. 2006).
10 - OPINION AND ORDER

Plaintiffs' suit, if successful, would not reduce the flow of
state tax revenue, and falls outside both the pain meaning and the
purpose of the TIA.

Plaintiffs' suit does not assert that their

tip income is not subject to taxation, that the state and federal
taxes at issue are invalid, or that the taxes do not apply to them.
Nor

does

plaintiffs'

suit

claim

that

Starbucks

was

legally

prohibited in general from withholding the appropriate taxes from
their tip income and forwarding it to the relevant government. 2
Rather, plaintiff's suit claims that Starbucks improperly withheld
the taxes based on its policy of "imputing" or "estimating" tips,
and seeks to recover the taxes withheld pursuant to that policy
along with statutory penalties,

interest,

and attorney's fees.

3

While this is a tax refund suit insofar as plaintiffs are seeking
2

Plaintiffs concede, for example, that Starbucks could have
withheld taxes on its employees' tips by requiring the employees
to report their tip earnings and withholding taxes based thereon.
3

Plaintiffs argue that their complaint does not seek the
refund of any withheld taxes.
To the extent this argument
affects the analysis at all, it does not withstand even a cursory
review of the complaint.
After incorporating by reference all
previous paragraphs, each of the five claims for relief pleads
that plaintiffs are entitled to direct damages.
Of the 39
paragraphs that precede plaintiffs' claims for relief, all but 10
are directly related to the policy of imputing tips and the
withholding of taxes thereby, with the majority of the remaining
paragraphs constituting class and jurisdictional allegations.
The direct damages plaintiff seeks, then, necessarily include the
wages plaintiffs' argue they were entitled to, but deprived of as
a result of the withholdings based on the imputed tips.
Postremoval disclaimers of pled remedies are irrelevant in
consideration of a motion to remand.
Sparta Surgical Corp. v.
Nat'l Ass'n of Securities Dealers, 159 F.3d 1209, 1213 (9th Cir.
1998).
11 - OPINION AND ORDER

to recover from Starbucks sums paid as taxes,
state tax revenue in any way,
income

is

taxable

in

some

inapplicable to this case,

it does not affect

as plaintiffs admit that the tip
manner.

Therefore,

the

TIA

is

and does not deprive this court of

jurisdiction.
CONCLUSION

With these additional comments,
Findings

and

Recommendation,

defendant's Motion to Dismiss.

I agree with Judge Hubel' s

including

his

disposition

of

Accordingly, I ADOPT Judge Hubel's

Findings and Recommendation (#46).

Plaintiffs' Motion to Remand

Case to State Court (#27) is DENIED.

Defendant's Motion to Dismiss

for Failure to State a Claim (#18) is GRANTED.
IT IS SO ORDERED.
DATED this ~ day of October, 2013.

Malcolm F. !Vlarsh
United States District Judge

12 - OPINION AND ORDER