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Guifu Li, Meng Wang, Fang Dai, Lin Cui, and v. A Perfect Day Franchise

January 25, 2011


The opinion of the court was delivered by: Lucy H. Koh United States District Judge


Defendants A Perfect Day Franchise, Inc., A Perfect Day, Inc., Minjian Hand Healing Institute, Inc., Tom Shriner, Tailiang Li, Jin Qui, and Jesse Doe ("Perfect Day") move the Court to 20 dismiss this case and compel arbitration. See Arbitration Mot., Dkt. No. 35. Perfect Day claims 21 arbitration is required by an arbitration clause in an "Independent Contractor Agreement," which Perfect Day asserts was signed by all putative class members who were hired during the last three 23 years. Id. at 4. Separately, Plaintiffs have moved for discovery sanctions against Perfect Day for 24 alleged destruction of evidence. See Sanctions Mot., Dkt. No. 129. The Court finds that these 25 matters are appropriate for decision without oral argument per Civil Local Rule 7-1(b).

Accordingly, the hearing on these Motions, set for January 27, 2011, is hereby VACATED. For 27 the reasons set forth below, both Motions are DENIED.

Millbrae, California. Among other things, Plaintiffs claim that Perfect Day has mis-categorized 5 them as independent contractors rather than employees. According to Plaintiffs, Perfect Day failed 6 to pay them and other putative class members minimum wages and overtime, wrongly subtracted 7 materials costs from Plaintiffs' wages, wrongly took Plaintiffs' tips, and committed other violations 8 of California wage and hour laws. Based on these allegations, Plaintiffs claim violations of both 9 the Fair Labor Standards Act (FLSA, 29 U.S.C. §§ 201-19) and California law. Perfect Day denies 10 any unlawful conduct.

Mot. at 1; Dkt. No. 7. Because Mr. Li is a party to this case, this attempted service was not 14 effective. Plaintiffs filed a First Amended Complaint (FAC) on May 12, 2010, and Perfect Day 15 was properly served with the First Amended Complaint on June 3, 2010. See Dkt. No. 21. As 16 outlined in detail in this Court's previous Orders (see docket numbers 85 and 122), during the 17 month of May, 2010, Perfect Day held mandatory meetings during working hours at the different Perfect Day locations. During these meetings, workers were presented with "Opt-Out Forms," 19 stating that they would not participate in this case. Perfect Day obtained many signed Opt-Out Forms through these mandatory meetings. Pursuant to a motion brought by Plaintiffs, the Court 21 found that these meetings were inherently coercive and invalidated the signed Opt-Out Forms.

Dkt. No. 85. Further, the Court required that Perfect Day distribute a curative notice to current 23 workers, explaining that the forms had been invalidated. Id.

be sanctioned for submitting false testimony in declarations and affidavits relating to the Opt-Out Forms. Id. At the hearing on the Order to Show Cause, counsel for Perfect Day claimed that they 27 were retained in a limited scope regarding this case in May, 2010, and later retained as litigation


Plaintiffs in this putative class action are current and former workers for A Perfect Day Franchise, Inc. ("Perfect Day"). Perfect Day owns and operates spas in Fremont, Santa Clara, and 4 Plaintiffs filed their first complaint on March 22, 2010. On March 27, 2010, named Plaintiff Guifu Li attempted to serve Perfect Day with a copy of the Complaint. See Sanctions

In addition, the Court ordered counsel for Perfect Day to show cause why they should not counsel in this case after service of the FAC, in June, 2010.*fn1 See October 22, 2010 Tr. at 13:16-21. 2

Until service of the FAC, counsel did not advise Perfect Day that it should institute a litigation 3 hold. However, it appears that counsel was aware of the litigation before this time, because Jade Complaint after the attempted service in March, 2010. See Olivier Decl. ISO Opp'n. to Arbitration 6 Mot., Ex. 4 ("Li Dep.") at 191:18-22. In any case, Perfect Day admits that it did not institute a 7 litigation hold until after service of the FAC. Prior to this, and pursuant to what it describes as a Li, a Perfect Day manager, testified that she provided counsel with a copy of the original "paperless policy," Perfect Day destroyed all original copies of the Opt-Out Forms and retained 9 only electronic scans of these forms in JPEG format. See October 22, 2010 Tr. at 44:20-45:18.

Perfect Day represents that since the institution of the litigation hold, it has stopped following its "paperless policy" and now retains newly-generated, original documents relevant to this matter.

See generally, Opp'n. to Sanctions Mot. at 3-4.

hold, Perfect Day destroyed original copies of all forms signed by new hires, including original, 15 signed copies of the Independent Contractor Agreement Perfect Day relies upon in its Motion to Compel Arbitration ("Defendants' ICA"). See Opp'n. to Sanctions Mot. at 4. When Perfect Day 17 hires a new worker, it requires that the worker sign or initial a series of forms (the "new hire" 18 marterials), including the ICA, an "Independent Contractor's Affidavit," a sexual harassment 19 policy, a Proprietary Information Agreement, and other documents written in Chinese. See Olivier 20 Decl. ISO Opp'n. to Arbitration Mot., Ex. 18; Ex. 5 ("Ma Dep.") at 181:14-21. A Perfect Day 21 manager, Mr. Jun Ma, testified that once these documents are signed, he scans them into an 22

At the hearing on the Order to Show Cause, Couns their engagement was privileged information. The Court finds that given Perfect Day's disclosures about and reliance on the scope of representation at the hearing, it has waived any privilege over 24 the scope of representation (assuming such a privilege existed in the first place, which is very doubtful). See Luna Gaming - San Diego LLC v. Dorsey & Whitney, LLP, No. 06cv2804 BTM 25 (WMc), 2010 U.S. Dist. LEXIS 2459 at *10-*11 (S.D. Cal. Jan. 11, 2010) (finding reliance on evidence about the scope of representation waives any privilege that might attach to this 26 information); see also In re Michaelson, 511 F.2d 882, 888 (9th Cir. 1975) ("In the absence of unusual circumstances, the fact of a retainer, the identity of the client, the conditions of 27 employment and the amount of the fee and who paid it do not come within the privilege of attorney-client relationship.") (internal citations omitted). In any event, Perfect Day's obligations 28 to preserve evidence existed regardless of whether Perfect Day had retained counsel.

In addition to destroying original Opt-Out Forms prior to the institution of its litigation electronic format and then destroys the original, paper copies of the signed documents. Ma Dep. at 40:23-41:14. Plaintiffs have submitted several declarations from Perfect Day workers stating that 3 they were never provided with a copy of the new hire paperwork, even if they requested one. See 4 generally Sanctions Mot. at 6. Although Mr. Ma disputed this in deposition, Perfect Day's 5

Opposition to the Sanction Motion does not dispute that it did not provide its workers with copies ...

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