United States District Court, E.D. California
NICHOLAS MILLAN, on behalf of himself and others similarly situated, Plaintiffs,
CASCADE WATER SERVICES, INC.; and DOES 1 to 10, Inclusive, Defendants.
FINDINGS AND RECOMMENDATIONS REGARDING PLAINTIFF'S MOTION FOR PRELIMINARY APPROVAL OF CLASS SETTLEMENT (ECF. No. 31)
OBJECTIONS DUE WITHIN FIFTEEN (15) DAYS
GARY S. AUSTIN, Magistrate Judge.
Plaintiff Nicholas Millan ("Plaintiff"), on behalf of himself and others similarly situated, filed this class action complaint against Defendant Cascade Water Services, Inc. ("Defendant") alleging violations of the Fair Labor Standards Act ("FLSA"), the California Labor Code, and California Business and Professions Code § 17200. Currently before the Court is Plaintiff's Motion for Preliminary Approval of Class Settlement (the "Motion"). The Court has reviewed the Motion and its supporting papers and, for the reasons discussed below, RECOMMENDS that the Motion be DENIED WITHOUT PREJUDICE.
II. FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff initially filed this action on November 6, 2012 and the currently operative version of the Complaint, the second amended complaint, was filed on January 10, 2014 (the "SAC"). (ECF Nos. 1 & 30-1.) In the SAC, Plaintiff alleges a federal claim under the FLSA for overtime and record keeping violations (the "FLSA Claim"), as well as California state law claims for: (1) violations of California's Unfair Competition Law (Business and Professions Code § 17200); (2) failure to pay overtime (Labor Code §§ 510, 1194, 1194.5); (3) failure to provide meal breaks (Labor Code § 226.7); (4) failure to provide rest breaks (Labor Code § 226.7); (5) violations of California record-keeping provisions (Labor Code §§ 226, 1174, 1174.5); (6) waiting time penalties (Labor Code §§ 201-203); and (7) penalties under the Private Attorney General Act ("PAGA") (Labor Code § 2698 et seq. ) (collectively, the "California Claims"). (Id. )
After conducting written discovery and an exchange of documents, the parties entered into settlement negotiations, where they engaged in further informal information exchanges. (Joint Stipulation of Class Action Settlement and Release ("Joint Stipulation") 13:13-18, ECF No. 31-1.) As a result of these negotiations, the parties entered into a joint stipulation to settle the case and release all claims, including both the FLSA and state law claims. (Joint Stipulation, ECF No. 31-1.)
The current Motion, which was filed by Plaintiff, and is not opposed by Defendant, is the result. Attached as supporting exhibits to the Motion are: (1) a declaration by Darren M. Cohen, Plaintiff's counsel; (2) the Joint Stipulation; (3) a sample Settlement Claim Form/Consent to Join (the "Claim Form"); and (4) a Notice of Pendency of Settlement of Class Action, Settlement Hearing; Consent, and Exclusionary Procedures (the "Notice").
According to counsel's declaration, Defendant is a water treatment company. (Declaration of Darren M. Cohen ("Cohen Decl.") ¶ 19, ECF No. 31-2.) As part of its operations within the state of California, Defendant employs Facilities Maintenance Technicians ("Technicians"), who travel between client sites over the course of the workday. Id. Plaintiff is one such Technician. Id. at ¶ 20. Plaintiff is currently employed by Defendant and has worked for Defendant since May 1, 2009. Id. He is paid on an hourly basis and is classified by Defendant as a non-exempt employee entitled to overtime. Id. Plaintiff performs the majority of his duties for one of Defendant's clients, Southern California Edison, he schedules his own work hours and records the time he works and travels on time sheets. Id. It is unclear from the Motion or other supporting papers whether any other Technicians perform the majority of their duties for a single client. It is also unclear whether other Technicians are able to schedule their own work at their leisure or record their own work or travel time.
Plaintiff bases his lawsuit on the assertion that "Defendant failed to properly compensate each and every Technician wages and/or overtime when [they] provided services to more than one client per day." Id. at ¶ 21. He also alleges that "Defendant failed to properly provide meal and rest breaks to Technicians." Id. at ¶ 22. Defendant contests these allegations. Id. at ¶¶ 21, 22. Nonetheless, Defendant has stipulated and agreed "to the conditional class and collective certification of the Action for purposes of this Settlement only." (Joint Stipulation of Class Action Settlement and Release 12:24-25, ECF No. 31-1.)
Strong judicial policy favors the settlement of class actions. Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1276 (9th Cir. 1992) ("[t]he initial decision to approve or reject a settlement proposal is committed to the sound discretion of the trial judge"). There are two phases in the review of a proposed class settlement. True v. Amer. Honda Motor Co., 749 F.Supp.2d 1052, 1062 (C.D. Cal. 2010). In the preliminary stage, the court must determine "whether a proposed settlement is within the range of possible approval' and whether or not notice should be sent to class members." Id. at 1063, quoting In re Corrugated Container Antitrust Litig., 643 F.2d 195, 205 (5th Cir. 1981). At the second, final approval stage, the court takes a closer look at the settlement, taking into consideration objections and other further developments to make a final fairness determination. Id.
Where settlement occurs prior to class certification, courts must hold the settlement agreement to a "higher standard of fairness." Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998) ("The dangers of collusion between class counsel and the defendant, as well as the need for additional protections when the settlement is not negotiated by a court designated class representative, weigh in favor of a more probing inquiry"). Because a settlement agreement negotiated before formal class certification risks a breach of the duty owed to the class, "such agreements must withstand an even higher level of scrutiny for evidence of collusion or other conflicts of interest than is ordinarily required... before securing the court's approval as fair." Radcliffe v. Experian Info. Solutions Inc., 715 F.3d 1157, 1168 (9th Cir. 2013), quoting In re Bluetooth Headset Prods. Litig., 654 F.3d 935, 946 (9th Cir. 2011).
The Court's initial task, then, must be to "assess whether a class exists." Staton v. Boeing Co., 327 F.3d 938, 952 (9th Cir. 2003) ("such attention is of vital importance, 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"). Because this case asserts claims under both the FLSA and California state law the discussion of certification must take place in two parts: First, certification of the collective action for the FLSA Claim, and second, certification of the California Claims under Rule 23 of the Federal Rules of Civil Procedure. Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095, 1105 (10th Cir. 2001) (finding that FLSA claims are certified under a different standard than claims falling within the reach of Rule 23 because "Congress clearly chose not to have the Rule 23 standards apply... and instead adopted the similarly situated' standard"); see also Murillo v. PG&E, 266 F.R.D. 468 (E.D. Cal. 2010).
Although the operative version of the Complaint asserts a collective action under the FLSA, it also brings state law claims which Plaintiff now seeks to certify as a Rule 23 class action via the Motion. Despite the collective action allegations in the Complaint, however, the Motion only makes reference to certification and settlement of the class action under Rule 23 and contains no mention of the collective action (although the proposed release of claims in the Joint Stipulation includes claims under the FLSA and the Motion attaches an opt in notice for the FLSA claims). It is thus unclear whether Plaintiff is requesting certification of both the collective and class actions. Because the Court recommends that the Motion be denied the Court will proceed with the collective certification analysis so that Plaintiff may remedy this deficit if he decides to seek certification and settlement approval for this class again.
A. FLSA Collective Certification
i. The process of collective certification
The FLSA requires employers to pay an overtime rate of one and one-half times the regular rate of pay for hours worked over forty hours in a workweek. 29 U.S.C. § 207(a)(1). Under the FLSA, an employee can bring a collective action on behalf of himself and any "other employees similarly situated." 29 U.S.C. § 216(b). Collective actions under the FLSA are distinguishable from Rule 23 class actions, particularly with respect to the ability of class members to opt in or out of the action. See, e.g., Ervin v. OS Rest. Servs., Inc., 632 F.3d 971, 976 (7th Cir. 2011) ("the FLSA permits an employee to participate in a collective action only if that employee consents in writing to be a plaintiff in the action"). If an employee does not opt-in to the FLSA suit, she may instead bring a subsequent individual action. EEOC v. Pan Amer. World Airways, Inc., 897 F.2d 1499, 1508 n. 11 (9th Cir. 1990).
The determination whether a collective action under the FLSA is appropriate is within the court's discretion; a plaintiff bears the burden of showing that she and the proposed class members are "similarly situated." Adams v. Inter-Con Sec. Sys., Inc., 242 F.R.D. 530, 535 (N.D. Cal. 2007). The Ninth Circuit has not yet defined "similarly situated" under the FLSA and courts have adopted several different approaches to analyze certification of a collective action under the FLSA. Id. at 536. However, district courts in this Circuit have generally applied a two-step inquiry to the analysis. Id.
In the first step, the court conditionally determines whether the potential class members are similarly situated to the representative plaintiff and decides whether a collective action should be certified for the purpose of sending notice of the action to the potential class members. Leuthold v. Destination America, 224 F.R.D. 462, 467 (N.D. Cal. 2004) ("Under the two-tiered approach, the court must first decide, based primarily on the pleadings and any affidavits submitted by the parties, whether the potential class should be given notice of the action"). Although the plaintiff bears the burden of showing that he is similarly situated to the putative class members, the burden is not a heavy one: "[T]he 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.'" Stanfield v. First NLC Fin. Servs., LLC, No. C 06-2892 SBA, 2006 WL 3190527, at *3 (N.D. Cal. Nov. 1, 2006), quoting Gerlach v. Wells Fargo & Co., No. C 05-0585 CW, 2006 WL 824652, at *2 (N.D. Cal. March 28, 2006).
At the second step of the two-step inquiry, "the party opposing the certification may move to decertify the class once discovery is complete." Escobar v. Whiteside Constr. Corp., No. C 08-01120 WHA, 2008 WL 3915715, at *3 (N.D. Cal. Aug 21. 2008) ("Certification is called conditional' during the first stage because the opposing party could always (successfully) move for decertification."). "[T]he Court then determines the propriety and scope of the collective action using a stricter standard." Stanfield, 2006 WL 3190527, *2. At that point, "the court may decertify the class and dismiss the opt-in plaintiffs without prejudice." Leuthold, 224 F.R.D. at 467.
It is at the second stage that the Court makes a final factual determination about whether the plaintiffs are actually 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 defendants with respect to the individual plaintiffs; and (3) fairness and procedural considerations." Id. Even at this second stage, the standard courts apply is different, and easier to satisfy, than the requirements for a class action certified under Federal Rule of Civil Procedure 23(b)(3). Lewis v. Wells Fargo & Co., 669 F.Supp.2d 1124, 1127 (N.D. Cal. 2009).
ii. Collective certification of Plaintiff's FLSA claim
In considering whether the lenient notice-stage standard has been met in a given case, courts bear in mind that plaintiffs need not submit a large number of declarations or affidavits to make the requisite factual showing that similarly situated class members exist. A handful of declarations may suffice. See, e.g., Gilbert v. Citigroup, Inc., No. 08-0385 SC, 2009 WL 424320, at *2 (N.D. Cal. Feb. 18, 2009) (finding standard met based on declarations from plaintiff and four other individuals); Escobar, 2008 WL 3915715, at *3-4 (finding standard met based on declarations from three plaintiffs); Leuthold, 224 F.R.D. at 468-69 (finding standard met based on affidavits from three proposed lead plaintiffs).
Even under this lenient standard, however, Plaintiff in this instance fails to demonstrate that he is similarly situated to the putative class members. The Motion includes only cursory references to the underlying facts of the litigation. Significantly, Plaintiff here fails to submit a declaration on his own behalf to support the Motion-he relies instead on the Cohen Declaration to establish the fundamental facts of the case.
But the Cohen Declaration only includes basic facts about Technician job duties. It does not discuss how Technicians are compensated, whether they report their time in the same way that Plaintiff did, or even whether they are all classified as non-exempt employees. It does not identify a specific practice, policy, or decision made by the Defendant that impacts Plaintiff, as well as the other putative class members. Rather, the Declaration only contains specific facts about Plaintiff's compensation, followed by the conclusory allegation that "[i]t is Plaintiff's position that Defendant failed to properly compensate each and every Technician wages and/or overtime when provided [sic] service to more than one client per day." (Cohen Decl. at ¶ 21, ECF No. 31-2.) This is inadequate to demonstrate that "the putative class members were together the victims of a single decision, policy, or plan." Gerlach v. Wells Fargo & Co., No. C 05-0585 CW, 2006 WL 824652, at *2 (N.D. Cal. March 28, 2006).
B. Compatibility of the FLSA Collective Action and Rule 23 Class Action
Before proceeding to the certification analysis for the California Claims required under Rule 23 of the Federal Rules of Civil Procedure, the Court must address the ability of the parties to proceed with both a collective and class action simultaneously.
Some courts have refused to allow such "hybrid" collective/class action claims to proceed simultaneously. See, e.g., Leuthold, 224 F.R.D. at 470 (denying motion to certify Rule 23 class claims in favor of collective certification of FLSA claim). Most importantly, the Leuthold court identified jurisdictional that issues could arise if many class members chose not to opt in to the FLSA collective action but chose not to opt out of the California class action-in other words, if many class members chose to pursue their state law claims but not their federal law claims. In that case, the California claims could predominate and federal question jurisdiction could be endangered. Leuthold, 224 F.R.D. at 470. The Leuthold court also raised the possibility that class members could be confused by the different opt-in/opt-out procedures presented by FLSA and Rule 23 actions. Id. It is unclear why the parties have neglected this issue (or, indeed, the entire issue of ...