United States District Court, E.D. California
MEMORANDUM AND ORDER RE: MOTION FOR PRELIMINARY SETTLEMENT APPROVAL
WILLIAM B. SHUBB, District Judge.
Plaintiff Jose Ontiveros brought this wage-and-hour action on behalf of himself and a putative class of similarly situated service technicians at automotive dealerships affiliated with defendant Zamora Automotive Group ("ZAG"), which operates numerous automotive dealerships located throughout the San Joaquin Valley. Over six years after the litigation commenced, the parties agreed to settle the action on a class-wide basis. Plaintiff now moves for preliminary approval of that settlement pursuant to Federal Rule of Civil Procedure 23(e).
I. Factual and Procedural History
Plaintiff worked at Stockton Honda, a ZAG-affiliated dealership, for seven months in 2007. (Ontiveros Decl. ¶ 2 (Docket No. 75-6).) Plaintiff alleges that he and other technicians employed at ZAG-affiliated dealerships were paid using a piece rate scheme that failed to compensate employees for the actual time they worked. (Id. ¶ 4; see also Feb. 20, 2009 Order re: Mot. for J. on Pleadings at 5 ("Although not pled in detail in plaintiff's complaint, plaintiff and defendants both agree that the corporate defendants used a flag rate' or piece rate' compensation system for the automobile mechanics they employed.") (Docket No. 29).)
In his Second Amended Complaint, plaintiff alleges that defendants' compensation practices violated both federal and state wage-and-hour statutes and asserts ten claims under California law. While plaintiff does not assert a claim under the FLSA, he does assert that defendants' failure to comply with the FLSA constitutes an unlawful business practice under California's Unfair Competition Law ("UCL), Cal. Bus. & Prof. Code §§ 17200 et seq.
This action was previously assigned to another district judge. Prior to reassignment, the court denied in part defendants' motion for judgment on the pleadings and held that plaintiff had stated plausible claims that defendants' compensation practices were unlawful. (Docket No. 29.) The court stayed the case in 2010 pending the resolution of a related insurance-coverage case in state court and subsequently lifted that stay on July 26, 2012. (Docket Nos. 51, 58, 64.) In December 2012, plaintiff moved for class certification and defendants moved to compel individual arbitration of plaintiff's claims. (Docket Nos. 72-73.) The court denied defendants' motion to compel arbitration, and defendants timely appealed. (Docket Nos. 104-105.) The court once again stayed the case pending the outcome of that appeal. (Docket No. 118.)
Before the Ninth Circuit could resolve defendants' appeal, the parties reached a settlement. (Mallison Decl. ¶¶ 30-36 (Docket No. 123-2); Mallison Decl. Ex. 1 ("Settlement Agreement") (Docket No. 123-3).) The settlement requires defendants to pay $2, 000, 000 to plaintiff and a class of similarly situated ZAG service technicians. (Id. ¶ 31.) After accounting for attorney's fees, civil penalties, taxes, a $20, 000 incentive award to plaintiff, and other administrative expenses, the remainder of the settlement funds will be divided between the class members in proportion to the number of weeks worked during the class period. (Id. ¶ 31-32.) Any unclaimed settlement funds will be redistributed to class members on a pro rata basis; if there are funds left over after that point, the funds are to be redistributed to designated cy pres beneficiaries. (Settlement Agreement § III, ¶ E.) No portion of the settlement fund will revert to defendants. (Id.)
After the parties reached this settlement, plaintiff moved for preliminary approval of the settlement and conditional certification of a class of current and former service technicians pursuant to Federal Rule of Civil Procedure 23. (Docket No. 123.) The previously-assigned district judge recused himself on June 25, 2014, and the action was subsequently reassigned to the undersigned district judge for all further proceedings. (Docket No. 125.)
Judicial policy strongly favors settlement of class actions. Class Plaintiffs v. City of Seattle , 955 F.2d 1268, 1276 (9th Cir. 1992). "To vindicate the settlement of such serious claims, however, judges have the responsibility of ensuring fairness to all members of the class presented for certification." Staton v. Boeing Co. , 327 F.3d 938, 952 (9th Cir. 2003). Where the "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." Id.
The approval of a class action settlement takes place in two stages. In the first stage of the approval process, the court preliminarily approves the settlement pending a fairness hearing, temporarily certifies a settlement class, and authorizes notice to the class. See Murillo v. P. Gas & Elec. Co. , 266 F.R.D. 468, 473 (E.D. Cal. 2010). In this Order, therefore, "the court will only determine whether the proposed class action settlement deserves preliminary approval and lay the ground work for a future fairness hearing." Id . (citing Nat'l Rural Telecomms. Coop. v. DIRECTV, Inc. , 221 F.R.D. 523, 525 (C.D. Cal. 2004) (alterations and internal quotation marks omitted).
"Once the judge is satisfied as to the certifiability of the class and the results of the initial inquiry into the fairness, reasonableness, and adequacy of the settlement, notice of a formal Rule 23(e) fairness hearing is given to the class members." Manual for Complex Litigation, Fourth, § 21.633 (2004). At the hearing, the court will entertain class members' objections to (1) the treatment of this litigation as a class action and/or (2) the terms of the settlement. See Murillo , 266 F.R.D. at 473. Following the fairness hearing, the court will reach a final determination as to whether the parties should be allowed to settle the class action pursuant to the terms agreed upon. See DIRECTV , 221 F.R.D. at 525.
A. Use of Opt-Out Class
In lieu of a claim under the FLSA, 29 U.S.C. §§ 201 et seq., plaintiff uses defendants' alleged violations of the FLSA as the predicate for a claim under the UCL. (See SAC ¶¶ 41-49.) The UCL permits courts to certify a class of plaintiffs alleging wage-and-hour violations as an "opt-out" class. See Sav-On Drug Stores, Inc. v. Superior Court , 34 Cal.4th 319, 340 (2004).
In contrast to the UCL, the FLSA requires that parties to a "collective action" must affirmatively "opt-in" to the suit. 29 U.S.C. § 216(b) ("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 where such action is brought."); Murillo , 266 F.R.D. at 470 ("The FLSA limits participation in a collective action to only parties who opt-in' to the suit."). And while the Ninth Circuit has held that the FLSA "does not preempt a state-law § 17200 claim that borrows' its substantive standard from FLSA, " it has not explicitly held that a court may certify an opt-out class of plaintiffs asserting such a claim. Wang v. Chinese Daily News, Inc. , 623 F.3d 743, 760 (9th Cir. 2010), vacated on other grounds, 132 S.Ct. 74 (2011); see also In re Wells Fargo Home Mortg. Overtime Pay Litig. , 571 F.3d 953, 959 n.5 (9th Cir. 2009) (declining to "explore the question" of whether a plaintiff may bring a state law opt-out class action based on failure to pay overtime pay if that plaintiff does not assert an FLSA claim).
However, numerous district court decisions suggest that the FLSA does not bar certification of an opt-out UCL class predicated on FLSA violations. For instance, in Tomlinson v. Indymac Bank, F.S.B., the defendant argued that certification of an opt-out UCL class alleging wage-and-hour violations would circumvent the FLSA's statutory prohibition on opt-out classes. 359 F.Supp.2d 898, 899 (C.D. Cal. 2005). The court held otherwise: it characterized the FLSA's opt-in requirement as "merely a procedural hurdle, " and held that a "claim under the UCL... is not precluded simply because it is procedurally barred by the underlying statute." Id. at 900. It reasoned that because the UCL makes violations of other wage-and-hour statutes independently actionable, a plaintiff need only satisfy the UCL's procedural requirements in order to assert class-wide UCL claims on an opt-out basis. Id.
In Bahramipour v. Citigroup Global Markets, Inc., the court likewise held that the FLSA did not foreclose the use of an opt-out UCL class. Civ. No. 04-4440 CW, 2006 WL 449132, at *6 (N.D. Cal. Feb. 22, 2006). Although the court acknowledged that there were "procedural differences between the FLSA and the UCL, " it nonetheless held that the use of an opt-out class was appropriate because the plaintiff did not bring a freestanding FLSA claim and was therefore not bound by its procedural requirements. Id. at *3. While the defendant argued that the use of an opt-out class undermined the FLSA's policy of shielding employers from the "enormous liability" of facing "thousands of federal wage and hour claims, " the court held that this concern was inapplicable because damages under the UCL are limited to restitution. Id. at *5.
As in Tomlinson and Bahramipour, the FLSA does not bar certification of plaintiff's proposed opt-out class. Those decisions and others make clear that the UCL's procedural requirements, not the FLSA's, govern whether a plaintiff may seek to certify an opt-out UCL class even if the class's claims are substantively predicated on the FLSA. See id. at *3; Tomlinson, 359 F.Supp.2d at 900; see also, e.g., Takacs v. A.G. Edwards & Sons, Inc. , 444 F.Supp.2d 1100, 1118 (S.D. Cal. 2006) (permitting plaintiff to certify an opt-out class asserting UCL claims based on FLSA violations).
Moreover, "the FLSA indicates that it does not preempt state law claims for wage violations." Thorpe v. Abbott Labs., Inc. , 534 F.Supp.2d 1120, 1124 (N.D. Cal. 2008) (citing 29 U.S.C. § 218(a)); accord Murillo , 266 F.R.D. at 472 ("Had Congress believed that allowing a state opt-out action to go forward... would undermine the statute, it would not have expressly indicated that the FLSA does not preempt state labor laws."). To the extent that the UCL serves to vindicate the interests of plaintiffs who are paid an unlawful wage, the use of opt-out class actions is a critical part of the statutory scheme that the California legislature designed to protect those interests. See Bahramipour, 2006 WL 449132, at *7 ("By allowing opt-out' class actions and a longer statute of limitations for UCL claims, California provides increased protections for its workers...."); Campbell v. PricewaterhouseCoopers, Civ. No. 2:06-2376 LKK GGH , 2008 WL 3836972, at *9 (E.D. Cal. Aug. 14, 2008) (same); cf. Harris v. Vector Mktg. Corp. , 753 F.Supp.2d 996, 1018 (N.D. Cal. 2010) (describing procedural differences between the FLSA and Rule 23 and their effect on a plaintiff's ability to vindicate rights created by state law). Barring an opt-out UCL class action "would in practical terms have a preemptive effect" on that claim and is therefore inconsistent with the FLSA's savings clause. Harris , 753 F.Supp.2d at 1018.
This conclusion accords not only with precedent and the FLSA's savings clause, but also with ordinary conflict preemption principles. As the Supreme Court has made clear, "state causes of action are not preempted solely because they impose liability over and above that authorized by federal law." English v. Gen. Elec. Co. , 496 U.S. 72, 90 (1990). Rather, state law is preempted only "where it is impossible to comply with both state and federal requirements" or "where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Williamson v. Gen. Dynamics Corp. , 208 F.3d 1144, 1152 (9th Cir. 2000). Because courts "presume that Congress does not cavalierly pre-empt state-law causes of action, " preemption analysis "start[s] with the assumption that the historic police powers of the States were not to be superseded... unless that was the clear and manifest purpose of Congress." Medtronic, Inc. v. Lohr , 518 U.S. 470, 485 (1996) (citation and internal quotation marks omitted).
No such conflict exists here. It is not impossible for defendants to comply with both the FLSA and the UCL. In fact, insofar as plaintiff's UCL claim is predicated on violations of the FLSA, it incorporates exactly the same substantive standards that are supplied by federal law. See id. at 495 (holding that the presence of additional remedies under state law does not give rise to conflict preemption when those remedies "merely provide another reason... to comply with identical existing requirements' under federal law").
Nor does the use of an opt-out UCL class conflict with the animating purposes and objectives of the FLSA. Both "the Supreme Court and the Ninth Circuit have consistently found that the central purpose of the FLSA is to enact minimum wage and maximum hour provisions designed to protect employees." Williamson , 208 F.3d at 1154 (citations omitted). As explained earlier, permitting opt-out class actions is part of a statutory scheme that is designed to afford greater protection to workers than the FLSA affords alone. See Bahramipour, 2006 WL 449132, at *7. And even if the FLSA's opt-in requirement intended to "protect employers as well as employees, " permitting plaintiffs to bring opt-out UCL claims-for which the only remedies are restitution or injunctive relief-would not expose employers to ruinous liability and thereby "upset the careful balance established by the statute." Williamson , 208 F.3d at 1153-54. Accordingly, the court will permit plaintiff to seek certification of an opt-out class.
B. Class Certification
"To be certified, the putative class... must meet the four threshold requirements of Federal Rule of Civil Procedure 23(a): numerosity, commonality, typicality, and adequacy of representation. Moreover, the proposed class must satisfy the requirements of Rule 23(b), which defines three different types of classes." Leyva v. Medline Indus. Inc. , 716 F.3d 510, 512 (9th Cir. 2013) (citations omitted). These requirements "demand undiluted, even heightened attention in the settlement context... for a court asked to certify a settlement class will lack the opportunity, present when a case is litigated, to adjust the class, informed by the proceedings as they unfold." Amchem Prods. Inc. v. Windsor , 521 U.S. 591, 620 (1997).
1. Rule 23(a)
Rule 23(a) restricts class actions to cases where:
(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.
Fed. R. Civ. P. 23(a). These requirements are more commonly known as numerosity, commonality, typicality, and adequacy of representation, respectively. Leyva , 716 F.3d at 512. While the court must evaluate Rule 23(a)'s requirements independently, they serve a common purpose of "ensur[ing] that the named plaintiffs are appropriate representatives of the class whose claims they wish to litigate." Wal-Mart Stores, Inc. v. Dukes , 131 S.Ct. 2541, 2550 (2011).
While Rule 23(a) requires that the class be "so numerous that joinder of all members is impracticable, " Fed.R.Civ.P. 23(a) (1), it does not require "that the class must be so numerous that joinder is impossible, " Arnold v. United Artists Theatre Circuit, Inc. , 158 F.R.D. 439, 448 (N.D. Cal. 1994). "A proposed class of at least forty members presumptively satisfies the numerosity requirement." Avilez v. Pinkerton Gov't Servs. , 286 F.R.D. 450, 456 (C.D. Cal. 2012); see also, e.g., Collins v. Cargill Meat Solutions Corp. , 274 F.R.D. 294, 300 (E.D. Cal. 2011) (Wanger, J.) ("Courts have routinely found the numerosity requirement satisfied when the class comprises 40 or more members."). The proposed class, which comprises approximately two hundred service technicians, easily satisfies this requirement. See Collins , 274 F.R.D. at 300 (conditionally certifying a class of 219 employees); Lymburner v. U.S. Fin. Funds, Inc. , 263 F.R.D. 534, 539 (N.D. Cal. 2010) (certifying a class of 121 plaintiffs).
Rule 23(a) also requires the existence of "questions of law or fact common to the class." Fed.R.Civ.P. 23(a) (2). It is not sufficient to show that the class members' allegations raise literally any common question; rather, commonality requires that the class members' claims "depend upon a common contention" that is "capable of classwide resolution-which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke." Dukes , 131 S.Ct. at 2551. But "all questions of fact and law need not be common to satisfy the rule, " and the "existence of shared legal issues with divergent factual predicates is sufficient, as is a common core of salient facts coupled with disparate legal remedies within the class." Hanlon v. Chrysler Corp. , 150 F.3d 1011, 1019 (9th Cir. 1998).
Generally, "the fact that an employee challenges a policy common to the class as a whole creates a common question whose answer is apt to drive the resolution of the litigation." Pryor v. Aerotek Scientific, LLC , 278 F.R.D. 516, 525 (C.D. Cal. 2011). Here, plaintiff indicates that ZAG-affiliated automotive dealerships had a common policy of paying service technicians on a flat-rate, piece-work basis and alleges that this policy violated state and federal wage-and-hour laws. In his brief in support of his motion for class certification filed prior to settlement, plaintiff identified numerous common questions arising out of these allegations:
a. Whether Zamora's flat-rate policy failed to pay for all time worked as recorded in Zamora's timekeeping system;
b. Whether Zamora's flat-rate policy properly failed to pay for rest breaks[;]
c. Whether Zamora's flat-rate policy properly failed to pay for ...