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Priyanka Khanna v. Inter-Con Security Systems

September 24, 2012



The court heard argument on plaintiffs' motion for an order granting preliminary approval of a proposed class and collective action settlement on June 17, 2011. Isaac Stevens and Jeffrey Edwards appeared for plaintiff; Jeff Grube appeared for defendants. After considering the parties' submission, the court GRANTS the request in part and DENIES it in part for the reasons set forth below.

I. Background

On August 11, 2009, plaintiff Shashi Khanna, suing individually and as successor in interest of Amankumar Khanna, and all others similarly situated, filed a complaint against Inter-Con Security Systems, Inc., d/b/a Healthcare Security Services Group, and Enrique Hernandez, Neil Martau, Lance Mueller, Roland Hernandez, Paul Miller, Michael Marcharg, Jeanne Gervin, Michale Sutkaytis, Jana Fanning, Brittany Moore, Catherine Ross, Linda Saayad, Mark Chamberlin, and James Latham. She alleged generally that her deceased husband, Amankumar Khanna, was employed as a security guard by defendant Inter-Con Security Services (Inter-con), also doing business as Healthcare Security Services Group (HSSG), to provide security services to defendants' customers, including Kaiser Foundation Hospitals and the State of California. ECF No. 1 ¶¶ 8-9. Inter-con required Khanna and others in his position to work more than eight hours a day or forty hours a week without overtime compensation under the pretense that HSSG was a separate entity and so any hours attributed to HSSC were not overtime as to Inter-con. Id. ¶¶ 11-12. The complaint contained six causes of action: (1) violation of the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201, et seq., for failure to pay overtime wages; (2) violation of California Labor Code §§ 218.6, 510, 511, 558, 1194, 1198 and 1199 for failure to pay overtime wages; (3) violation of California Labor Code §§ 201, 202, 203, 204, 1194 and 1199 for failure to pay full wages when due; (4) violation of California Labor Code §§ 226, 226.3, 1174 and 1174.5 for failure to adhere to California law regarding accurate wage statements; (5) violation of California Business and Professions Code § 17200 (UCL), unfair business practices stemming from defendants' failure to pay legally required wages, to pay wages when due and to provide itemized statements of hours worked; and (6) a claim under California's Private Attorneys' General Act (PAGA), California Labor Code § 2699.3, based on the previously described Labor Code violations. Plaintiff also sought certification as an FLSA collective action and a class action for the state claims.

Defendants filed a motion to dismiss or to strike portions of the second, third, fourth, fifth and sixth causes of action and some of the claims for relief. ECF No. 22. Specifically defendants asked the court to strike the class action allegations on the ground that plaintiff, as successor in interest to her husband's claim, was not an adequate class representative. It also sought to strike the collective action allegations on the ground that plaintiff is not similarly situated to actual employees. It also asked the court to dismiss plaintiff's attempt to recover civil penalties under the PAGA and the claims for injunctive relief and for violation of California Business and Professions Code § 17200. The court granted defendant's motion to dismiss plaintiff's claim for injunctive relief, finding that she lacked standing and her PAGA claim, finding that a right to bring suit under those provisions is not assignable and so did not survive Mr. Khanna's death. It otherwise denied the motion. ECF No. 31.

On August 3, 2010, the court granted plaintiff's unopposed request to substitute as plaintiff Priyanka Khanna, daughter of Amankumar and Shashi Khanna, in light of the death of Shashi Khanna. ECF No. 43.

Plaintiff has now filed a motion for an order granting preliminary approval of a proposed class and collective action settlement, provisionally certifying the class and collective actions, approving the proposed notice and directing its dissemination, and setting a schedule for the final approval process. ECF No. 52. In very basic terms, the proposed settlement requires defendants to pay a maximum of $390,000, which is partially reversionary, which will cover payments to class members, Khanna's class representative payment, counsel's fees and costs, employer payroll taxes on amounts characterized as wages, and the claims administrator's fees and costs. Id. The proposed class consists of plaintiff and all current and former non-exempt Security Officers whose combined hours for work at Inter-Con and HSSG during the same work week exceeded eight hours in one day or forty hours during any such week, for which they were not paid overtime during the period from August 11, 2005 to February 26, 2009. Id. at 11.

II. Analysis

The complaint in this case includes both a federal claim under the FLSA and state wage-and-hour and unfair business practices claims; the instant motion seeks to broaden the action to one including a group of employees who worked for both Inter-Con and HSSG for more than eight hours during a work day or forty hours during a given week without receiving overtime pay.

Under the FLSA, an employer must pay a non-exempt employee at a rate not less than time and a half his or her regular rate of pay if the employee works more than forty hours in one week. 29 U.S.C. § 207(a)(1); Troy v. Kehe Food Distributors, Inc., 276 F.R.D. 642, 647 (W.D. Wash. 2011). An employee may pursue an FLSA action to recover unpaid overtime wages and may bring the action "for and in behalf of himself or themselves and other employees similarly situated. No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party . . . " 29 U.S.C. § 216(b); Knepper v. Rite Aid Corp., 675 F.3d 249, 257 (3d Cir. 2012). Accordingly, an employee must "opt-in" to the FLSA action to be bound by its resolution.

Similarly in California, an employer must pay an employee at the rate of one and a half times the usual rate of pay for work over eight hours in any day or forty hours in any week; a failure to pay overtime may also give rise to a number of other violations of California labor law relating to payment of complete wages upon termination and the provision of proper wage statements as well as a violation of California's prohibition of unfair business practices. CAL. LAB. CODE §§ 201, 202, 226(a), 510; CAL. BUS. & PROF. CODE § 17200; Sullivan v. Oracle Corp., 51 Cal. 4th 1191, 1205 (2011). When a state wage and hour case is pursued as a class action under Rule 23(b)(3), a potential class member must be given the opportunity to "opt-out" of the action. See FED. R. CIV. P. 23(c); Ervin v. OS Restaurant Services, Inc., 632 F.3d 971, 976 (7th Cir. 2011). Because of these differences, courts have held that employees cannot use optout class actions to enforce the FLSA, but rather must bring a collective action. Knepper, 675 F.3d at 257. And despite the differences in the two types of actions and the potential for confusion, courts have held that employees may pursue a "hybrid" or combined opt-in FLSA action and opt-in class action to enforce state wage and hour laws. Id.; Wang v. Chinese Daily News, Inc., 623 F.3d 743, 760 (9th Cir. 2010), vacated on other grounds, U.S. , 132 S.Ct. 74 (2012); Murillo v. Pacific Gas & Electric Co., 266 F.R.D. 468, 472 (E.D. Cal. 2010).

When the parties reach settlement before class certification, the court must satisfy itself that class certification is proper and that the settlement is fair. Staton v. Boeing, 327 F.3d 938, 952 (9th Cir. 2003). Despite the parties' agreement, their stipulation that the class should be certified is not sufficient; instead the court "must pay undiluted, even heightened attention to class certification requirements." Anchem Products, Inc. v. Windsor, 521 U.S. 591, 620 (1997) (internal quotations marked omitted); Murillo, 266 F.R.D. at 473. Similarly the court cannot simply accept the parties' resolution but must also satisfy itself that the proposed settlement is "fundamentally fair, adequate, and reasonable." Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998). Finally, the court must ensure that the class members "receive 'the best notice that is practicable under the circumstances.'" Wal-Mart Stores, Inc. v. Dukes, U.S. , 131 S.Ct. 2541, 2558 (2011) (quoting FED. R. CIV. P. 23(c)(2)(B)). After the initial certification and notice to the class, the court then conducts a fairness hearing before finally approving any proposed settlement. Narouz v. Charter Communications, Inc., 591 F.3d 1261, 1266-67 (9th Cir. 2010).

The court must engage in a similar process before the FLSA claim may proceed as a collective action. Lewis v. Vision Value, LLC, No. 1:11-cv-01055 LJO-BAM, 2012 WL 2930867, at *2 (E.D. Cal. July 18, 2012). Although the Ninth Circuit has not spoken on the question, most district courts in this circuit follow a two step process. First the court undertakes an initial inquiry to determine whether plaintiff is similarly situated to the proposed class so that notice may be sent to the potential class members. Troy v. Kehe Food Distributors, 276 F.R.D. at 649; Leuthold v. Destination America, 224 F.R.D. 462, 466 (N.D. Cal. 2004). The court also determines whether "'the settlement is a fair and reasonable resolution of a bona fide dispute.'" Lewis v. Vision Value, LLC., 2012 WL 2930867, at *2 (quoting Yue Zhou v. Wang's Restaurant, No. C 05-0279 PVT, 2007 WL 2298046 (N.D. Cal. Aug. 8, 2007)). At the second stage, after class members have opted in, the court employs a stricter standard in determining whether a collective action is warranted and whether the ultimate settlement is fair. Knipsel v. Chrysler Group, LLC, No. 11-11886, 2012 WL 553722, at *1 (E.D. Mich. Feb. 21, 2012); Khait v. Whirlpool Corp., No. 06-6381 (ALC), 2010 WL 2025106, at *7 (E.D.N.Y. Jan. 20, 2010).

Because the standards for certifying an FLSA class and evaluating the fairness of an FLSA settlement are less stringent than those imposed by Rule 23, some courts have found the FLSA requisites satisfied by a showing that Rule 23 requirements have been met. See, e.g., Clesceri v. Beach City Investigations & Protective Services, Inc., No. CV-10-3873-JST (Rzx) 2011 WL 320998, at *4 (C.D. Cal. Jan. 27, 2011).

In this case, plaintiff has presented very little information other than the proposed settlement and proposed class notice and has largely relied on the declaration of counsel. Ultimately, the court will require more sufficient information before it resolves the motion. See, e.g., Harris v. U.S. Physical Therapy, No. 2:10-cv-1508-JCM-VCF, 2012 WL 3277278, at *4 (D. Nev. July 18, 2012) (citing the Manual For Complex Litigation (Fourth) (2008) § 1314) (class settlement), report and recommendation adopted, 2012 WL 3277276 (D.Nev. Aug 9, 2012); Troy, 276 F.R.D. at 649. Plaintiff thus will need to provide more substantial evidence supporting the necessary inquiries at the fairness hearing. See Alberto v. GMRI, Inc., 252 F.R.D. 652, 661 n.5 (E.D. Cal. 2008).

A. FLSA--Certification

At the notice stage, "the Court requires little more than substantial allegations, supported by declarations or discovery, that the putative class members were together the victims of a single decision, policy, or plan." Troy v. Kehe Food Distributors, 276 F.R.D. at 649 (internal quotation marks, citations omitted).

The proposed class is defined as follows:

[a]ll current and former hourly Security Officers who performed work for both Inter-Con and the corporation, ICSS Holding Corp., dba Healthcare Security Services Group ("HSSG") during the same workweek ("overlapping workweeks") in California and had combined hours of greater than 8 on any day of such overlapping workweek or greater than 40 for such overlapping workweek for which they were not paid overtime premiums for all combined overtime hours during those overlapping workweeks ("qualifying overlapping workweeks"), at any time from August 11, 2005 (four years prior to the filing of the Action), to February 26, 2009 (when HSSG stopped employing Security Officers). . .

Memorandum of Agreement (MOU), ECF No. 52-1 at 13.

Plaintiff represents that the class is appropriate for FLSA certification because the class members all were subject to defendants' "single practice of . . . not paying overtime premiums due as a result of work for both Inter-Con and HSSG." ECF No. 52. Although plaintiff has not provided any proof of a formal policy or plan, the definition of the proposed class suggests "that some identifiable factual or legal nexus binds together the various claims of the class members in a way that hearing the claims together promotes judicial efficiency and comports with the broad remedial policies underlying the FLSA.'" Li v. A Perfect Franchise, Inc., No. 5:10-CV-01189-LHK, 2011 WL 4635198, at *5 (N.D. Cal. Oct. 5, 2011) (quoting Russell v. Wells Fargo & Co., 07-CV-3993 CW, 2008 WL 4104212 (N.D. Cal. Sep. 3, 2008)). This is sufficient at this stage of the proceedings.

B. Rule 23--Certification

A party seeking to certify a class must demonstrate that he has met the requirements of Rule 23(a) and at least one of the requirements of Rule 23(b). Anchem Products, Inc. v. Windsor, 521 U.S. at 614; Ellis v. Costco Wholesale Corp., 657 F.3d 970, 979-80 (9th Cir. 2011). Although the parties have stipulated that a class exists for purposes of settlement, the court must nevertheless undertake the Rule 23 inquiry independently, both at this stage and at the later fairness hearing. West v. Circle K. Stores, No. Civ S-0400438 WBS GGH, 2006 WL 1652598, at *2 (E.D. Cal. June 12, 2006).

Before certifying a class, this court must be satisfied that:

(1) the class is so numerous that joinder of all members is impracticable (the "numerosity" requirement); (2) there are questions of law or fact common to the class (the "commonality" requirement); (3) the claims or defenses of representative parties are typical of the claims or defenses of the class (the "typicality" requirement); and the representative parties will ...

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