MEMORANDUM AND ORDER RE: PRELIMINARY CERTIFICATION OF A CONDITIONAL SETTLEMENT CLASS
Plaintiff Manuel Murillo brought this matter seeking a collective and class action suit against defendant Pacific Gas & Electric Company ("PG&E") for alleged violations of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201-219; the California Labor Code, Cal. Lab. Code §§ 201, 203, 204, 226(a), 226.3, 226.7, 510, 512, 1194; and California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code §§ 17200-17210. Presently before the court is plaintiff's unopposed motion for preliminary approval of the settlement of his hybrid action which consists of a Federal Rule of Civil Procedure 23(b)(3) class action and FLSA § 216(b) collective action.
I. Factual and Procedural Background
Plaintiff was employed by defendant as a meter reader from February 5, 2006 to May 16, 2008. As part of his compensation, plaintiff received funds to purchase health care and other benefits in lieu of receiving these benefits directly from defendant. These funds were known as the Hiring Hall Line Benefit Premium ("Hiring Hall Premium").
On August 22, 2008, plaintiff filed a putative class and collective action claiming that defendant engaged in unfair and illegal business practices in its payment of meter readers who received the Hiring Hall Premium. (Docket No. 1.) Plaintiff amended his Complaint once as a matter of course. (Docket No. 16.) On July 24, 2009, plaintiff filed a Second Amended Complaint that withdrew several previously asserted causes of action and plead a federal FLSA claim as well as state claims that specifically alleged that defendant (1) failed to properly calculate meter readers' overtime premiums in accordance with the FLSA by excluding the Hiring Hall Premium from its calculations of overtime pay and (2) failed to include all required information on meter readers' paychecks. (Docket No. 26.) Plaintiff filed a motion for conditional certification of a collective action class pursuant to § 216(b) of the FLSA on July 28, 2009, but withdrew this motion one day later. (See Docket Nos. 27, 28.)
On October 6, 2009, the parties attended a day long mediation session with a neutral third-party mediator, Lester Levy, Esq. of JAMS, where they agreed to settlement terms. Consequently, the parties now seek preliminary approval of their Class Action Settlement Agreement and Stipulation, which settles both plaintiff's federal collective action under § 216(b) for violation of the FLSA and the Rule 23(b)(3) class action based on plaintiff's state law claims.*fn1
A. FLSA Collective Certification
The FLSA requires employers to pay an overtime rate of one and one-half times their regular pay rate for hours worked over forty hours in a week. 29 U.S.C. § 207(a). The statute provides that an aggrieved employee may bring a collective action on behalf of himself and other employees "similarly situated" based on an employer's failure to adequately pay overtime wages. Id. § 216(b). The FLSA limits participation in a collective action to only those parties that "opt-in" to the suit. See Id. ("No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought"); see also Wright v. Linkus Enterprises, 259 F.R.D. 468, 475 (E.D. Cal. 2009) (England, J.). To maintain a collective action under the FLSA a plaintiff must demonstrate that the putative collective action members are similarly situated. Id.; Adams v. Inter-Con Sec. Sys., 242 F.R.D. 530, 535-36 (N.D. Cal. 2007); Leuthold v. Destination Am., Inc., 224 F.R.D. 462, 466 (N.D. Cal. 2004).
Neither the FLSA nor the Ninth Circuit have defined "similarly situated." Adams, 242 F.R.D. at 536; Leuthold, 224 F.R.D. at 466. A majority of courts have adopted a two-step approach for determining whether a class is "similarly situated." See Leuthold, 224 F.R.D. at 466 (compiling district court cases following the two-step approach); see, e.g., Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095, 1102-03 (10th Cir. 2001);
Hipp v. Liberty Nat. Life. Ins. Co., 252 F.3d 1208, 1219 (11th Cir. 2001); Mooney v. Aramco Serv. Co., 54 F.3d 1207, 1213-14 (5th Cir. 1995), overruled on other grounds by Desert Palace, Inc. v. Costa, 539 U.S. 90 (2003). Under this approach, a district court first determines, based on the submitted pleadings and affidavits, whether the proposed class should be notified of the action. Leuthold, 224 F.R.D. at 467. At the first stage, the determination of whether the putative class members will be similarly situated "is made using a fairly lenient standard, and typically results in 'conditional certification' of a representative class." Mooney, 54 F.3d at 1214. District courts have held that conditional certification requires only that "'plaintiffs make substantial allegations that the putative class members were subject to a single illegal policy, plan or decision.'" Adams, 242 F.R.D. at 536 (citing Leuthold, 224 F.R.D. at 468); see also Thiessen, 267 F.3d at 1102.
The second-step usually occurs after discovery is complete, at which time the defendants may move to decertify the class. Leuthold, 224 F.R.D. at 467. In this step, the court makes a factual determination about whether the plaintiffs are similarly situated by weighing such factors as "(1) the disparate factual and employment settings of the individual plaintiffs, (2) the various defenses available to the defendant which appeared to be individual to each plaintiff, and (3) fairness and procedural considerations." Misra v. Decision One Mortg. Co., No. SA CV 07-994 DOC (Rcx), --- F. Supp. 2d ----, 2008 WL 7242774, at *3 (C.D. Cal. Jun. 23, 2008) (quotation marks, citations omitted). If the district court determines that the plaintiffs are not similarly situated, the court may decertify the class and dismiss the opt-in plaintiffs' action without prejudice. Leuthold, 224 F.R.D. at 467. Even when the parties settle, the court "must make some final class certification finding before approving a collective action settlement." Carter v. Anderson Merchandisers, LP, Nos. EDCV 08-00025-VAP (OPx), EDCV 09-0216-VAP (Opx), 2010 WL 144067, at *3 (C.D. Cal. Jan. 7, 2010) (citations omitted).
Plaintiff has made "substantial allegations that the putative class members were subject to a single illegal policy, plan or decision." Leuthold, 224 F.R.D. at 468. Specifically, plaintiff's pleadings and affidavits indicate that defendant allegedly uniformly miscalculated the overtime pay for all meter readers who received the Hiring Hall Premium by excluding the premium funds from the putative class members' base pay rates. Plaintiff defines the potential collective action class as "all individuals employed as Hiring Hall Meter Readers*fn2 by PG&E between August 18, 2006 and December 31, 2009." (Hutchins Decl. Ex. 1-B.(Proposed Notice of Collective Class, Docket No. 30).) Defendant does not deny that it did not include the funds putative class members received from the Hiring Hall Premium when calculating meter readers' base pay for overtime purposes. Instead, defendant contends that the Hiring Hall Premium was properly excluded from the base rate of pay because it is a health care benefit under 29 U.S.C. §207(e)(4), which may properly be excluded from overtime calculations under the FLSA. Accordingly, both sides are in agreement that defendant engaged in a uniform policy toward all class members that may have been illegal. Plaintiff's collective action under the FLSA is therefore appropriate for conditional certification.
2. Propriety of Hybrid FLSA Collective Action and Rule 23 Class Action
While plaintiff has brought his federal claim as a collective action, he brings his state law claims as a Rule 23 class action suit. Courts are split on whether a plaintiff may simultaneously bring a FLSA collective action and a state law-based Rule 23 class action. A number of courts have held that the FLSA's opt-in format does not preclude a plaintiff from also bringing state law claims bound by Rule 23's opt-out procedure because of the FLSA's savings clause, which states that nothing in the act "shall excuse noncompliance with any Federal or State law or municipal ordinance establishing [stricter labor laws]."
Harris v. Investor's Bus. Daily, Inc., 41 Cal. App. 4th 28, 32 (2006) (quoting 29 U.S.C. § 218(a)); see, e.g., Lindsay v. Gov't Employees Ins. Co., 448 F.3d 416, 424-25 (D.C. Cir. 2006) (holding that district court can exercise supplemental jurisdiction over similar Rule 23 opt-out class action); De Asencia v. Tyson Foods, 342 F.3d 301, 309-10 (3d Cir. 2003) (same); Avery v. City of Talladega, 24 F.3d 1337, 1348 (11th Cir. 1994) (holding that state law claim overlapping with FLSA claim is not preempted by FLSA). Many district courts in the Ninth Circuit have allowed an opt-in FLSA collective action and opt-out Rule 23 class action to proceed simultaneously in the same suit. See, e.g., Wright, 259 F.R.D. at 475; Ellison v. Autozone Inc., No. C06-07522 MJJ, 2007 WL 2701923 (N.D. Cal. Sept. 13, 2007); Baas v. Dollar Tree Stores, Inc., No. C 07-03108 JSW, 2007 WL 2462150 (N.D. Cal. Aug. 29, 2007); Romero v. Producers Dairy Foods, Inc., 235 F.R.D. 474 (E.D. Cal. 2006); Breeden v. Benchmark Lending Group, Inc., 229 F.R.D. 623 (N.D. Cal. 2005); Tomlinson v. Indymac Bank, F.S.B., 359 F. Supp. 2d 898 (C.D. Cal. 2005).
However, a number of courts have refused to allow an FLSA collective action and a Rule 23 state law class action to proceed in the same case. These courts have expressed three major objections to hybrid FLSA/Rule 23 actions. First, several courts have argued that allowing an FLSA collective action and Rule 23 class action together would undermine Congress's intent to limit FLSA claims to opt-in actions by binding class members who choose not to opt-in to the FLSA action but do not opt-out of the Rule 23 class to the suit's result on the state law claims.
See, e.g., Edwards v. City of Long Beach, 467 F. Supp. 2d 986, 993 (C.D. Cal. 2006); Leuthold, 224 F.R.D. at 470 ("[T]he policy behind requiring FLSA plaintiffs to opt-in to the class would largely be thwarted if a plaintiff were permitted to back door the shoehorning in of unnamed parties through the vehicle of calling upon similar state statutes that lack such an opt-in requirement.") (citations omitted).
Second, a few courts have expressed concerns that having opt-in and opt-out claims in the same case would be confusing for potential plaintiffs. See Edwards, 467 F. Supp. 2d at 992; McClain v. Leona's Pizzeria, Inc., 222 F.R.D. 574, 577 (N.D. Ill. 2004). Third, a number of courts have refused to certify a Rule 23 class action based solely on state claims with an FLSA collective action because of jurisdictional concerns.
See Edwards, 467 F. Supp. 2d at 992; Leuthold, 224 F.R.D. at 470. Specifically, these courts argue that in a case where federal jurisdiction is solely based on an FLSA claim, if "only a few plaintiffs opt-in to the FLSA class after the court were to certify a Rule 23 state law class, the court might be faced with the somewhat peculiar situation of a large number of plaintiffs in the state law class who have chosen not to prosecute their federal claims." Leuthold, 224 F.R.D. at 470. This would then raise concerns about whether a court should retain supplemental jurisdiction over the Rule 23 state claims, since they would substantially predominate over the FLSA collective action. Id. (citing 28 U.S.C. § 1367(a)).
Despite these concerns, the court is unpersuaded that a hybrid action is inappropriate at this preliminary stage. Had Congress believed that allowing a state opt-out action to go forward simultaneously with an opt-in FLSA action would undermine the statute, it would not have expressly indicated that the FLSA does not preempt state labor laws. See Thorpe v. Abbott Laboratories, 534 F. Supp. 2d 1120, 1124 (N.D. Cal. 2008); Lindsay, 251 F.R.D. at 57. After reviewing the potential opt-in and opt-out notices provided by the parties, there is nothing particularly confusing about the potential class members' options. Instead, the notices clearly explain the consequences of choosing to opt-in to the FLSA action, opt-out, or do nothing. (See Hutchins Decl. Ex. 1-B.) There are also no jurisdictional concerns in this case, as any plaintiff that opts in to the FLSA action will also opt-in to the Rule 23 class under the agreement. See Wright, 259 F.R.D at 475 (certifying a hybrid action where opting in to the FLSA claim also opted plaintiffs into the Rule 23 class action). While it is possible that many potential class members could do nothing and be bound solely by the Rule 23 action, leaving a larger Rule 23 class than FLSA class, the court can review these jurisdictional concerns at the fairness and final certification hearing.
Rather than being burdensome, the court finds that "certification (1) will prevent duplicative, wasteful and inefficient litigation . . . (2) will eliminate the risk that the question of law common to the class will be decided differently . . . and (3) will not create any difficult case management issues." Lindsay, 251 F.R.D. at 57. Accordingly, the court will conditionally certify plaintiff's FLSA collective action.
B. Rule 23 Class Certification
The Ninth Circuit has declared that a strong judicial policy favors settlement of class actions. Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1276 (9th Cir. 1992). Nevertheless, where, as here, "parties reach a settlement agreement prior to class certification, courts must peruse the proposed compromise to ratify both  the propriety of the certification and  the fairness of the settlement." Staton v. Boeing Co., 327 F.3d 938, 952 (9th Cir. 2003).
In conducting the first part of its inquiry, the court "must pay 'undiluted, even heightened, attention' to class certification requirements" because, unlike in a fully litigated class action suit, the court will not have future opportunities "to adjust the class, informed by the proceedings as they unfold." Amchem Prods. Inc. v. Windsor, 521 U.S. 591, 620 (1997); accord Hanlon v. Chrysler Corp., 150 F.3d 1011, 1019 (9th Cir. 1998). The parties cannot "agree to certify a class that clearly leaves any one requirement unfulfilled," and consequently the court cannot blindly rely on the fact that the parties have stipulated that a class exists for purposes of settlement. Berry v. Baca, No. 01-02069, 2005 WL 1030248, at *7 (C.D. Cal. May 2, 2005); see also Amchem, 521 U.S. at 622 (observing that nowhere does Rule 23 say that certification is proper simply because the settlement appears fair). In conducting the second part of its inquiry, the "court must carefully consider 'whether a proposed settlement is fundamentally fair, adequate, and reasonable,' recognizing that '[i]t is the settlement taken as a whole, rather than the individual component parts, that must be examined for overall fairness . . . .'" Staton, 327 F.3d at 952 (quoting Hanlon, 150 F.3d at 1026); see also Fed. R. Civ. P. 23(e) (outlining class action settlement procedures).
Procedurally, the approval of a class action settlement takes place in two stages. In the first stage of the approval process, "'the court preliminarily approve[s] the Settlement pending a fairness hearing, temporarily certifie[s] the Class . . . , and authorize[s] notice to be given to the Class.'" West v. Circle K Stores, Inc., No. 04-0438, 2006 WL 1652598, at *2 (E.D. Cal. June 13, 2006) (quoting In re Phenylpropanolamine (PPA) Prods. Liab. Litig., 227 F.R.D. 553, 556 (W.D. Wash. 2004)). In this Order, therefore, the court will only "determine whether a proposed class action settlement deserves preliminary approval" and lay the ground work for a future fairness hearing. Nat'l Rural Telecomms. Coop. v. DIRECTV, Inc., 221 F.R.D. 523, 525 (C.D. Cal. 2004). At the fairness hearing, after notice is given to putative class members, the court will entertain any of their objections to (1) the treatment of this litigation as a class action and/or (2) the terms of the settlement. See Diaz v. Trust Territory of Pac. Islands, 876 F.2d 1401, 1408 (9th Cir. 1989) (holding that prior to approving the dismissal or compromise of claims containing class allegations, district courts must, pursuant to Rule 23(e), hold a hearing to "inquire into the terms and circumstances of any dismissal or compromise to ensure that it is not collusive or prejudicial"). Following the fairness hearing, the court will make a final determination as to whether the parties should be allowed to settle the class action pursuant to the terms agreed upon. DIRECTV, Inc., 221 F.R.D. at 525.
A class action will be certified only if it meets the four prerequisites identified in Federal Rule of Civil Procedure 23(a) and additionally fits within one of the three subdivisions of Rule 23(b). Although a district court has discretion in determining whether the moving party has satisfied each Rule 23 requirement, Califano v. Yamasaki, 442 U.S. 682, 701 (1979); Montgomery v. Rumsfeld, 572 F.2d 250, 255 (9th Cir. 1978), the court must conduct a rigorous inquiry before certifying a class. Gen. Tel. Co. of the Sw. v. Falcon, 457 U.S. 147, 161 (1982); E. Tex. Motor Freight Sys. v. Rodriguez, 431 U.S. 395, 403-05 (1977).
Rule 23(a) restricts class actions to ...