Lynch et al v. Tesla, Inc.
Filing
33
ORDER GRANTING IN PART AND DENYING IN PART 7 Motion for Protective Order and FURTHER ORDERS the parties to confer and submit a joint proposed notice by September 23, 2022. Signed by Judge Susan Hightower. (cc3) ]
Case 1:22-cv-00597-RP Document 33 Filed 09/16/22 Page 1 of 7
UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
JOHN LYNCH, DAXTON
HARTSFIELD, and SHAWN
SAKHIZADA, individually and on
behalf of all others similarly situated,
Plaintiffs
v.
TESLA, INC.,
Defendant
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Case No. 1:22-cv-00597-RP
ORDER
Before the Court are Plaintiff’s Emergency Motion for a Protective Order, filed July 5, 2022
(Dkt. 7); Defendant’s Response, filed July 19, 2022 (Dkt. 20); and Plaintiffs’ Reply, filed July 26,
2022 (Dkt. 27). By Text Order entered July 6, 2022, the District Court referred the Motion to the
undersigned Magistrate Judge for resolution, pursuant to 28 U.S.C. § 636(b)(1), Federal Rule of
Civil Procedure 72, and Rule 1 of Appendix C of the Local Rules of the United States District
Court for the Western District of Texas.1
I.
Background
Plaintiffs John Lynch, Daxton Hartsfield, and Shawn Sakhizada2 bring this putative class
action lawsuit, individually and on behalf of all others similarly situated, against their former
employer Tesla, Inc.3 under the Worker Adjustment and Retraining Notification Act, 29 U.S.C.
§ 2101, et sq. (the “WARN Act”), and Section 1400 of the California Labor Code. Plaintiffs allege
1
The District Court also referred Defendant’s Renewed Motion to Dismiss and Compel Individual
Arbitration (Dkt. 28), which will be addressed in a Report and Recommendation.
Lynch and Hartsfield are Nevada residents who worked at Tesla’s factory in Sparks, Nevada. First
Amended Class Action Complaint, Dkt. 26 ¶¶ 9-10. Sakhizada is a resident of California who worked at
Tesla’s store in Palo Alto, California. Id. ¶ 11.
2
3
Tesla is a public corporation having its principal place of business in Austin, Texas. Id. ¶ 13.
Case 1:22-cv-00597-RP Document 33 Filed 09/16/22 Page 2 of 7
that Tesla violated the WARN Act by failing to provide them and other potential class members
with sixty days advance written notice before it terminated their employment in a “mass layoff.”
First Amended Complaint, Dkt. 26 ¶ 2. Plaintiffs ask the Court to certify this action as a class
action under Federal Rule of Civil Procedure 23 and be designated class representatives. Plaintiffs
also seek compensatory damages, attorneys’ fees, and costs.
In their Emergency Motion for a Protective Order, Plaintiffs seek a protective order under
Rule 23(d) to prevent Tesla from obtaining releases from individuals it is laying off. Dkt. 7 at 2.
II.
Analysis
When Tesla involuntarily terminates an employee, it requires the terminated employee to
execute a separation agreement providing the employee with a severance package equivalent to
one to two weeks of base compensation in exchange for a full release of all legal claims and
potential claims against Tesla, including claims under the WARN Act. Dkt. 7 at 2; Dkt. 7-2 at 910. Plaintiffs allege that the separation agreements executed after this lawsuit was filed are
coercive, abusive, and misleading because Tesla fails to inform terminated employees/potential
class members about “the pending litigation and the rights that they are potentially giving up.”
Dkt. 7 at 5. Plaintiffs contend that “these individuals are entitled to eight (8) weeks of severance
pay as a matter of law ‘in lieu of the WARN Act notice.’” Id. (quoting Carpenters Dist. Council
of New Orleans & Vicinity v. Dillard Dep’t Stores, Inc., 15 F.3d 1275, 1286 (5th Cir. 1994)).
Plaintiffs argue that:
The Court should not allow Tesla to short-circuit the WARN Act
claims that have been filed in this case by seeking to collect releases
of that claim while it is being litigated – from employees who have
no reason to know that they have the right to 60 days’ pay (rather
than one week’s pay) and who have not been informed that a class
action case has been filed on their behalf seeking to recover this pay
for them.
2
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Dkt. 7 at 2. Plaintiffs ask the Court to enter an order striking all releases that Tesla has procured
since this suit was filed and issue a protective order under Rule 23(d) to order Tesla “to Cease All
Communications with Class Members that Would Affect their Rights to Participate in this
Litigation.” Id. at 8.
A. Mootness
Tesla first argues that the Court must deny Plaintiffs’ Motion as moot “without any further
analysis” and compel the case to arbitration because Plaintiffs and all other potential class
members signed binding arbitration agreements containing class action waivers. Dkt. 20 at 3-4.
The arbitration agreements, however, unequivocally permit Plaintiffs and Tesla to seek
preliminary injunctive relief in federal court “to prevent irreparable harm pending the conclusion
of any such arbitration” and “to preserve the status quo prior to and/or in aid of arbitration are
permitted.” Dkt. 28-1 at 11, 20, 29.
In Janvey v. Alguire, 647 F.3d 585, 594 (5th Cir. 2011), the Fifth Circuit Court of Appeals held
that a district court “can grant preliminary relief before deciding whether to compel arbitration”
based on its equitable powers to preserve the status quo where a request for preliminary injunction
is filed before a motion to compel arbitration. The court explained that “the congressional desire
to enforce arbitration agreements would frequently be frustrated if the courts were precluded from
issuing preliminary injunctive relief to preserve the status quo pending arbitration and, ipso facto,
the meaningfulness of the arbitration process.” Id. at 595 (quoting Teradyne v. Mostek Corp., 797
F.2d 43, 51 (1st Cir. 1986)); see also N. Am. Deer Registry, Inc. v. DNA Sols., Inc., No. 4:17-CV00062, 2017 WL 1426753, at *2 (E.D. Tex. Apr. 21, 2017) (“A district court can grant preliminary
relief before deciding whether to compel arbitration.”).
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Therefore, the undersigned finds that the Court has the authority to rule on Plaintiffs’ Motion
for Protective Order before addressing Tesla’s Motion to Dismiss and Compel Arbitration. See
Marsoft, Inc. v. United LNG, L.P., No. H-13-2332, 2014 WL 1338707, at *11 (S.D. Tex. Mar. 31,
2014) (considering motion for preliminary injunction before motion to compel arbitration).
B. Rule 23(d)
In the alternative, Tesla argues that the Motion should be denied because Plaintiffs have failed
to meet their burden under Rule 23(d). Rule 23(d)(1) describes certain types of orders that district
courts may enter “[i]n conducting” class actions. Although the District Court has not certified this
case as a class action, Plaintiffs invoke Rule 23(d)(1)(B), which provides that a court may issue
orders that:
require—to protect class members and fairly conduct the action—giving
appropriate notice to some or all class members of:
(i)
any step in the action;
(ii)
the proposed extent of the judgment; or
(iii) the members’ opportunity to signify whether they consider the
representation fair and adequate, to intervene and present claims or
defenses, or to otherwise come into the action.
“Courts have found a need to limit communications with absent class members where the
communications were misleading, coercive, or an improper attempt to undermine Rule 23 by
encouraging class members not to join the suit.” Belt v. Emcare, Inc., 299 F. Supp. 2d 664, 667
(E.D. Tex. 2003); see also Crutchfield v. Sewage & Water Bd. of New Orleans, No. 13-4801, 2014
WL 12658406, at *2 (E.D. La. July 28, 2014):
A defendant’s attempts to influence potential plaintiffs not to join a
class action is just as damaging to fairness and efficiency as a
defendant that influences members of an already certified class to
opt out. That said, prior to class certification, a defendant may seek
settlement of individual claims, provided that it does not deceive or
mislead putative class members.
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In Gulf Oil Co. v. Bernard, the Supreme Court held that courts can regulate communications
with class members before a class has been certified. The Court recognized that:
Class actions serve an important function in our system of civil
justice. They present, however, opportunities for abuse as well as
problems for courts and counsel in the management of cases.
Because of the potential for abuse, a district court has both the duty
and the broad authority to exercise control over a class action and to
enter appropriate orders governing the conduct of counsel and
parties. But this discretion is not unlimited, and indeed is bounded
by the relevant provisions of the Federal Rules.
452 U.S. 89, 99-100 (1981) (footnotes and citations omitted). The Court further held that, because
limiting a party’s communications can interfere with First Amendment rights, “an order limiting
communications between parties and potential class members should be based on a clear record
and specific findings that reflect a weighing of the need for a limitation and the potential
interference with the rights of the parties.” Id. at 101. “[S]uch a weighing—identifying the
potential abuses being addressed—should result in a carefully drawn order that limits speech as
little as possible, consistent with the rights of the parties under the circumstances.” Id. at 102.
District courts in the Fifth Circuit have applied a two-part test to determine whether to issue
an order impacting a party’s speech with potential class members. Williams v. Sake Hibachi Sushi
& Bar, Inc., No. 3:18-CV-0517-D, 2018 WL 4539114, at *2 (N.D. Tex. Sept. 21, 2018); Garcia
v. TWC Admin., LLC, No. SA:14-CV-985-DAE, 2015 WL 1737932, at *3 (W.D. Tex. Apr. 16,
2015). First, the court determines whether there is a need for a restriction on speech by evaluating
whether the party’s speech is misleading, coercive, or an attempt to undermine the collective
action. Second, if such a need exists, the court tailors appropriate injunctions and sanctions in light
of First Amendment concerns. Williams, 2018 WL 4539114, at *2.
Tesla submits that “there is no evidence before the Court that any putative plaintiff received
the standard severance agreement after the lawsuit filed on June 19, 2022 and executed it.” Dkt. 20
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at 7. But Plaintiffs have submitted evidence that Tesla has solicited putative class to sign separation
agreements after the suit commenced. Walker Decl., Dkt. 7-6 ¶¶ 4-5 & Exh. A (stating that a
separation agreement, dated June 20, 2022, was sent to former Tesla employee “[s]everal days
after” he was terminated on June 17, 2022); Ward Decl., Dkt. 7-7 ¶¶ 4, 5 & Exh. A (stating that
former Tesla employee was fired on June 20, 2022 and subsequently asked to sign a separation
agreement, dated June 22, 2022).
Applying the two-part test, the Court finds that any separation agreements issued or executed
after Plaintiff filed this case may be misleading because they fail to inform potential class members
of this lawsuit and the rights that they are potentially giving up under the WARN Act. See
Williams, 2018 WL 4539114, at *3 (finding that settlement agreements were misleading where
they failed to mention pending litigation or give putative class members any other information that
would allow them to make an informed decision to waive their rights); Gonzalez v. Preferred
Freezer Servs. LBF, LLC, No. CV 12-03467-ODW, 2012 WL 4466605, at *1 (C.D. Cal. Sept. 27,
2012) (holding that settlement release was misleading where employer did not mention putative
class action); Ralph Oldsmobile, Inc. v. Gen. Motors Corp., No. 99 Civ. 4567(AGS), 2001 WL
1035132, at *5 (S.D.N.Y. Sept. 7, 2001) (same).
C. Conclusion
Having carefully weighed the need for a limitation and potential interference with the parties’
rights, the Court finds that an order under Rule 23(d) is appropriate in this case. The Court further
finds, however, that the specific relief Plaintiffs request – ordering Tesla to cease all
communications with class members and striking all releases Tesla has procured since this suit
was filed – is too broad. See Gulf Oil, 452 U.S. at 101-102; Williams, 2018 WL 4539114, at *4.
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Case 1:22-cv-00597-RP Document 33 Filed 09/16/22 Page 7 of 7
Accordingly, Plaintiffs’ Motion for Protective Order (Dkt. 7) is GRANTED IN PART and
DENIED IN PART. The Court ORDERS Tesla to notify all terminated employees who have
received or executed separation agreements on or after June 19, 2022, of the existence of this
lawsuit. Tesla must continue to issue such notices until the merits of Plaintiffs’ claims are resolved
in federal court or in arbitration proceedings. The Court further ORDERS the parties to confer
and submit a joint proposed notice by September 23, 2022.
All other relief not expressly granted herein is DENIED.
SIGNED on September 16, 2022.
SUSAN HIGHTOWER
UNITED STATES MAGISTRATE JUDGE
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