United States District Court, N.D. California, San Jose Division
February 11, 2015
JESSIE CHAVEZ, Plaintiff,
PVH CORPORATION, et al., Defendants.
ORDER DENYING FINAL APPROVAL OF CLASS ACTION SETTLEMENT Re: Dkt. No. 97
LUCY H. KOH, District Judge.
Before the Court is the parties' joint motion for final approval of class action settlement. ECF No. 97. The Court held a hearing on the motion for final approval on January 15, 2015. Having considered the motion, the accompanying filings, declarations, and exhibits, and the oral argument presented at the hearing, the Court DENIES the motion for final approval, for the reasons stated below.
Plaintiffs Jessie Chavez and Anabel Armenta (collectively, "Plaintiffs") are former and current employees of Defendants PVH Corporation, Tommy Hilfiger Retail, LLC, and PVH Retail Stores LLC (collectively, "Defendants"). Plaintiffs have brought this putative class action on behalf of current former employees of Defendants, on the grounds that the Defendants allegedly violated provisions of the California Labor Code by paying employees with payroll debit cards, and providing employees with inaccurate or incomplete wage statements. ECF No. 40-1 ("Second Am. Compl.") ¶¶ 25-33. The instant action is one of three putative class action lawsuits filed against Defendants that raise similar and overlapping allegations regarding the Defendants' use of payroll debit cards: Scott-George v. PVH Corporation, 13-CV-00441-TLN, before Judge Nunley of the Eastern District of California (" Scott-George "); and Lapan et al. v. PVH Corporation, 13-CV-5006-LHK, which is a case related to Chavez that is also before this Court (" Lapan "). Because the Scott-George and Lapan actions are relevant to this Order, the Court summarizes them and their relationship to the instant lawsuit below.
A. The Scott-George Plaintiff Files Her Lawsuit
On January 29, 2013, the Scott-George plaintiff filed her lawsuit against PVH Corporation in the California Superior Court for Nevada County. ECF No. 113-2, Ex. B. This was the first of the three lawsuits against PVH Corporation. The complaint in Scott-George alleged PVH Corporation failed to pay wages for meal breaks, rest breaks, bag checks, overtime, double overtime, vested vacation pay, and failed to provide compliant wage statements, in violation of Labor Code §§ 201-203, 226(a), 226.7, 227.3, 510, 512(a), 1194, 1198. See id. The Scott-George Complaint also brought a claim for unlawful business practices based on the foregoing allegations in violation of Business and Professions Code §§ 17200 et seq. Id. The Scott-George complaint did not contain any allegations related to payroll debit cards. Id.
On March 5, 2013, the Scott-George action was removed to U.S. District Court in the Eastern District of California pursuant to the Class Action Fairness Act. Id., Ex. C ¶ 1.
B. The Chavez Plaintiff Files This Lawsuit
On March 20, 2013-approximately two months after the Scott-George plaintiff filed her lawsuit, and shortly after Scott-George was removed to federal court-Chavez filed the instant lawsuit in Santa Clara County Superior Court. ECF No. 113-2, Ex. A. The original Chavez Complaint alleged that Defendants had a "pattern and practice" of paying employees their final wages upon termination via payroll debit cards. Id. ¶ 32. Chavez further alleged that these payroll debit cards required fees for usage, which resulted in employees not receiving all wages owed upon termination. Id. Chavez alleged that this use of payroll debit cards violated Labor Code §§ 201-203. Id. Chavez also alleged that Defendants failed to provide wage statements that complied with California law and thereby violated Labor Code § 226. Id. ¶¶ 35-38. Chavez sought to represent a class of all current and former employees of Defendants in California from March 20, 2012 through the present. Id. ¶ 17.
The instant lawsuit was removed to this Court on April 19, 2013. ECF No. 1. Since then, Chavez has amended the Complaint twice to add Armenta as a class representative and to add classwide claims under the Private Attorneys General Act, Labor Code § 2698 et seq., and Business and Professions Code §§ 17200 et seq.  ECF Nos. 14 & 40. However, Plaintiffs' class-wide allegations regarding the use of payroll debit cards and the provision of noncompliant wage statements have remained unchanged. At no point have the Chavez Plaintiffs alleged any claims for failure to pay wages for meal breaks, rest breaks, bag checks, overtime, double overtime, or vested vacation pay, as the Scott-George plaintiff has alleged.
C. The Lapan Plaintiffs File Their Lawsuit
On October 25, 2013-approximately seven months after Chavez was filed-the plaintiffs in Lapan filed their lawsuit against PVH Corporation. Case No. 13-CV-05006-LHK, ECF No. 1. Like Chavez, the Lapan complaint alleged that PVH Corporation paid employees through a payroll card program which required that employees pay certain fees and charges. Id. ¶ 2. This allegedly resulted in employees not receiving their full wages. Id. The Lapan plaintiffs alleged that PVH Corporation's use of payroll debit cards constituted a common law breach of contract, and violated the Fair Labor Standards Act, 29 U.S.C. § 201 et seq., as well as numerous provisions of the California Labor Code, including Labor Code § 203. Id. ¶¶ 80-82. The Lapan plaintiffs sought to represent several classes of all current and former employees of PVH Corporation in the United States and in California who, among other things, were paid via payroll debit cards and charged fees in connection with those cards. Id. ¶¶ 37-40. The Lapan plaintiffs, much like the Plaintiffs in Chavez, have not alleged any claims for failure to pay wages for meal breaks, rest breaks, bag checks, overtime, double overtime, or vested vacation pay independent of their pay card claim, as the Scott-George plaintiff has alleged.
D. The Scott-George Plaintiff Amends Her Complaint To Add A Payroll Card Debit Claim
On October 30, 2013-approximately seven months after Chavez was filed, and five days after Lapan was filed-the Scott-George plaintiff filed a Third Amended Complaint. ECF No. 93-1, Ex. A. The Third Amended Complaint added, for the first time, a factual allegation that PVH Corporation paid its employees with payroll debit cards. Id. ¶ 25. The Third Amended Complaint alleged that employees of PVH Corporation had fees and other charges associated with the payroll debit cards involuntarily deducted from their wages, which resulted in a reduction of earned wages. Id. ¶ 26. The Scott-George plaintiff asserted these allegations regarding payroll debit cards as a further basis for her claims, including claims brought pursuant to Labor Code §§ 201-203. Id. ¶¶ 71-76.
E. Procedural History Of The Instant Lawsuit
On January 2, 2014 (approximately two months after the Scott-George plaintiff amended her complaint to add allegations related to payroll debit cards), the parties in Chavez informed the Court in a joint statement that they had reached a preliminary settlement to resolve all class-wide claims in Chavez. ECF No. 44. On January 31, 2014, the parties filed a motion for preliminary approval of a class action settlement. ECF No. 50. The settlement class was defined as:
All current and former employees who worked for Defendants in California during any portion of the period from March 20, 2009 through the date of preliminary approval.
ECF No. 52, at 11. The settlement also defined a "Money Network Subclass" as:
All current and former employees who worked for Defendants in California during any portion of the period from March 20, 2009 through the date of preliminary approval by the Court who were paid at any time via the Money Network payroll distribution service and who paid at least one fee or charge in connection with the use of the service.
Id. at 8. The agreement provided for a total settlement fund of $1, 850, 000. Id. at 6. After deducting the maximum amounts for attorneys' fees, litigation costs, enhancement awards, and PAGA penalties, approximately $1, 276, 250 would be distributed to class members who submitted timely claim forms pursuant to the terms of the settlement. Id. at 12. Members of the Money Network Subclass would receive reimbursement for all fees charged in connection with the payroll debit cards, after which the remaining amount in the settlement fund would be allocated to participating class members based on the total number of workweeks each class member worked. Id. at 14-16. The agreement also contained a reversionary clause which provided that the Defendants must pay at least 80 percent of the net settlement fund to class members who submitted valid and timely claim forms. ECF No. 50, at 3-4, 11. However, if after distribution there were funds remaining or unclaimed, then that amount would revert back to the Defendants. Id. at 21.
On June 5, 2014, counsel for the plaintiffs in Lapan filed an objection to the proposed settlement. ECF No. 57. This Court held a hearing on the motion for preliminary approval on June 19, 2014, and subsequently denied preliminary approval on June 20, 2014. ECF No. 63. The Court found that the reversionary clause might disincentivize the parties from maximizing class members' participation, and raised the possibility of a conflict of interest between the plaintiffs' counsel and the class members. Id. at 3. The Court therefore found that the proposed settlement was not fair and adequate to the class members, and denied approval on that basis. Id.
On June 25, 2014, the parties filed an amended motion for preliminary approval. ECF No. 68. The amended settlement agreement was the same as the agreement which the Court declined to approve, except that the parties removed the reversionary clause. Id. at 2-3. The Court granted preliminary approval on July 17, 2014. ECF No. 73.
On August 18, 2014, the plaintiff in Scott-George filed a notice of pendency of other action. ECF No. 76. This was the first filing in the instant litigation which alerted the Court to the existence of the Scott-George case. The next day, on August 19, 2014, the Scott-George plaintiff filed a motion to intervene in the instant action. ECF No. 77. This Court subsequently denied the motion to intervene on the grounds that it was untimely. ECF No. 106.
On October 7, 2014, the plaintiff in Lapan and a class member who is represented by the Scott-George plaintiff counsel filed objections to the class action settlement. ECF Nos. 91 & 93. On December 12, 2014, the Lapan plaintiffs withdrew their objection, ECF No. 107, leaving only the objection from the class member who shares counsel with the Scott-George plaintiff. On December 24, 2014, twelve days after the Lapan plaintiffs withdrew their objection, the parties in Lapan filed a joint statement that they had reached a settlement and would file a motion for preliminary approval. Case No. 13-CV-05006-LHK, ECF No. 71.
In his objection, the objector argued that the proposed settlement in Chavez had been the result of a "reverse auction" whereby the Defendants sought to settle the Chavez claims for a relatively low amount of money. ECF No. 93, at 3. The objector also alleged that the Defendants intended to use the release in the Chavez settlement to bar claims brought pursuant to Labor Code § 203 in Scott-George. Id. In addition, the objector claimed that the language of the release provision in the Chavez settlement was impermissibly broad, as it released claims based on facts other than those alleged in the operative Chavez Complaint. Id.
The Plaintiffs and Defendants in Chavez denied that the settlement was the result of a reverse auction. See ECF No. 110, at 4. They also asserted that the settlement release provision "is expressly limited to claims based on the facts alleged in the Second Amended Complaint [in Chavez ]." Id .; see also ECF No. 113 at 9 ("[T]he Labor Code § 203 release provided in the current settlement only apply to the facts alleged in this case, and does not apply to claims such as overtime wages, meal breaks, or vacation wages, all of which were not alleged in this case.") Therefore, the Chavez parties argued that the objection of the Scott-George plaintiff was meritless.
II. LEGAL STANDARD
"The claims, issues, or defenses of a certified class may be settled, voluntarily dismissed, or compromised only with the court's approval." Fed.R.Civ.P. 23(e). Court approval involves a two-step process: (1) preliminary approval of the settlement; and (2) following a notice period to the class, final approval of the settlement at a fairness hearing. See Nat'l Rural Telecomms. Coop. v. DIRECTV, Inc., 221 F.R.D. 523, 525 (C.D. Cal. 2004). The Court may issue final approval of a class settlement "only after a hearing and on finding that it is fair, reasonable, and adequate." Fed.R.Civ.P. 23(e)(2); In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 946 (9th Cir. 2011).
The Court denies final approval on two bases. First, in spite of the parties' statements in their filings to the contrary and the language of the release provision, Defendants and Plaintiffs acknowledged at the final approval hearing that Defendants intend to use the Chavez release to bar claims under Labor Code § 203 based on facts other than those alleged in the operative Chavez Complaint. This would violate the rule in the Ninth Circuit that a class action settlement can only release claims based on an identical factual predicate as the claims alleged in the operative complaint. Second, because the notice sent to class members did not notify the class members that they may be releasing claims based on facts not alleged in the Chavez Complaint, or alert class members to the existence of the related Scott-George and Lapan actions, the settlement notice was inadequate. Either of these two bases would be sufficient to deny final approval of the settlement.
A. Violation of the Identical Factual Predicate Rule
In the Ninth Circuit when a district court approves a class action settlement, "a federal court may release not only those claims alleged in the complaint, but also a claim based on the identical factual predicate as that underlying the claims in the settled class action.'" Reyn's Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 748 (9th Cir. 2006) (quoting Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1287 (9th Cir. 1992); see also Hesse v. Sprint Corp., 598 F.3d 581, 590 (9th Cir. 2010) ("A settlement agreement may preclude a party from bringing a related claim in the future even though the claim was not presented and might not have been presentable in the class action, but only where the released claim is based on the identical factual predicate as that underlying the claims in the settled class action.") (internal quotation marks omitted) (emphasis added). Put another way, a settlement may release claims that are "factually related" to the claims in the instant litigation. Reyn's Pasta Bella, 442 F.3d at 748. District courts in this Circuit have declined to approve settlement agreements where such agreements would release claims based on different facts than those alleged in the litigation at issue. See, e.g., Christensen v. Hillyard, Inc., No. 13-CV-04389 NC, 2014 WL 3749523, at *4 (N.D. Cal. July 30, 2014) (denying approval of settlement agreement where "[t]he settlement agreement does not limit released claims to those arising out of the facts alleged in the complaint"); Custom LED, LLC v. eBay, Inc, No. 12-CV-00350-JST, 2013 WL 6114379, at *7 (N.D. Cal. Nov. 20, 2013) (noting prior rejection of proposed settlement agreement because the released claims failed to "directly track the allegations in the complaint").
Here, the language of the settlement agreement indicates that the settlement would release all claims "arising from, or related to the facts occurring during the Settlement Class Period as alleged in the Second Amended Complaint, including... any other state or federal statute, rule and/or regulation, or similar causes of action relating to the payment of wages or reimbursement of wages... based on the claims that have been or could have been asserted in the Second Amended Complaint." ECF No. 64, ¶ 34. On its face, the settlement would appear to release only those claims that were raised or could have been raised "related to the facts... as alleged in the Second Amended Complaint." Id. Indeed, this was the position the parties took in advance of the final approval hearing. ECF No. 110, at 4 (Defendants' statement that the settlement release provision "is expressly limited to claims based on the facts alleged in the Second Amended Complaint.") (emphasis added); ECF No. 113 at 9 (Plaintiffs' statement that "the Labor Code § 203 release provided in the current settlement only apply to the facts alleged in this case, and does not apply to claims such as overtime wages, meal breaks, or vacation wages, all of which were not alleged in this case.") (emphasis added).
However, at the January 15, 2015 final approval hearing, Defendants and Plaintiffs stated that the Chavez release would also release claims based on facts which were not alleged in Chavez. Specifically, Defendants and Plaintiffs took the position that a class member who agreed to the Chavez release would be releasing any claim for damages under Labor Code § 203 that were based on violations of California laws governing payments for meal breaks, rest breaks, bag checks, overtime, double overtime, and vested vacation pay, the claims asserted in Scott-George.  For instance, when the Court asked Defendants whether "the Chavez release releases the Scott-George Plaintiffs' claims under California Labor Code Section 203 for meal break, overtime, rest break, bag check, double overtime, and vested vacation pay, " Defendants responded: "Yes." Jan. 15, 2015 Hr'g Tr. at 11:21-:25. When the Court sought further clarification on this issue, Defendants stated: "We believe that, that it's-once you get paid for 203 claims in one case... that person is not entitled to file other lawsuits and get 203 penalties." Id. at 11:1-:7. Plaintiffs also took this same position: when the Court asked Plaintiffs if Defendants were correct that "any relief under 203 is gone because once you've been compensated for one Labor Code 203 claim, you can't get a second or third compensation for that Labor Code § 203 claim, " Plaintiffs responded, "That is how Labor Code § 203 is written, unfortunately." Id. at 12:22-13:3.
Chavez does not contain any allegations related to meal breaks, rest breaks, bag checks, overtime, double overtime, or vested vacation pay. See Second Am. Compl. Indeed, the only basis on which the Plaintiffs in Chavez seek damages under § 203 is the Defendants' alleged failure to pay wages owed by "issuing ATM cards as payment of wages" which "required fees for usage" and "did not allow employees to access all of the monies contained on such cards." Id. ¶ 27. Therefore, under the identical factual predicate rule, the Chavez release could only release claims for damages under § 203 based on Defendants' alleged practice of using payroll debit cards. See Hesse, 598 F.3d at 590 ("A settlement agreement may preclude a party from bringing a related claim in the future... but only where the released claim is based on the identical factual predicate as that underlying the claims in the settled class action.") (internal quotation marks omitted) (emphasis added). However, as Defendants and Plaintiffs stated during the preliminary approval hearing, both parties believe the release encompasses claims based not only on the use of payroll debit cards, but also any claim for damages under § 203 based on facts alleged in the Scott-George complaint. Where, as here, the release in a settlement agreement "does not limit released claims to those arising out of the facts alleged in the complaint, " denial of final approval of the settlement is appropriate. Christensen, 2014 WL 3749523, at *4. Accordingly, because Defendants take the position that the settlement release will release claims for § 203 damages based on facts beyond the scope of the Chavez Complaint, the settlement would not be fair or reasonable to class members. See Fed.R.Civ.P. 23(e)(2) (court may approve class action settlement only after "finding that it is fair, reasonable, and adequate"). On this basis, the Court DENIES final approval.
B. Inadequate Notice
In addition, the Court also finds that the Chavez settlement was not adequate because the notice packets sent to class members did not provide them with sufficient notice of the scope of released claims. Under Ninth Circuit precedent, potential members of a settling class must receive the "best notice that is practicable under the circumstances'" of the settlement. Shaffer v. Cont'l Cas. Co., 362 F.Appx. 627, 631 (9th Cir. 2010) (quoting Fed.R.Civ.P. 23(c)(2)(B)). "Notice is satisfactory if it generally describes the terms of the settlement in sufficient detail to alert those with adverse viewpoints to investigate and to come forward and be heard.'" Churchill Vill., L.L.C. v. Gen. Elec., 361 F.3d 566, 575 (9th Cir. 2004) (quoting Mendoza v. Tucson Sch. Dist. No. 1, 623 F.2d 1338, 1352 (9th Cir. 1980)). However, notice is not adequate if it misleads potential class members. Molski v. Gleich, 318 F.3d 937, 952 (9th Cir. 2003), overruled on other grounds by Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010).
Here, the notice that was mailed to potential class members informing them of the settlement agreement contained a provision detailing the claims that class members would release by participating in the settlement. Specifically, the notice stated that participating class members would release all claims "arising from, or related to the facts occurring the Settlement Class Period as alleged in the Second Amended Complaint, including... any other state or federal statute, rule and/or regulation, or similar causes of action relating to the payment of wages or reimbursement of wages... based on the claims that have been or could have been asserted in the Second Amended Complaint." ECF No. 64, at 41. On its face, the notice informs class members that they are only releasing claims which were raised or could have been raised "arising from, or related to the facts... as alleged in the Second Amended Complaint." Id.
However, as previously discussed, Defendants and Plaintiffs have taken the position that the settlement release would release claims for damages under § 203 that are based on facts other than those alleged in the operative Chavez Complaint, including claims brought in Scott-George. See, e.g., Jan. 15, 2015 Hr'g Tr. at 11:21-:25. Therefore, the Court finds that the notice mailed to class members was inadequate for three reasons. First, the notice was inadequate because it did not inform class members that they may be releasing claims based on facts beyond those alleged in Chavez, a scope of the release about which class members may have desired to know and, if necessary, be heard. See Churchill Vill., L.L.C., 361 F.3d at 575 (notice is satisfactory if it contains "sufficient detail to alert those with adverse viewpoints to investigate and to come forward and be heard.") (internal quotation marks omitted). Second and relatedly, the Chavez release informed class members that they were only releasing claims based on facts "as alleged in the Second Amended Complaint, " even though Defendants and Plaintiffs take the position that the release encompasses claims based on facts other than those alleged in Chavez. Thus the release was misleading and therefore inadequate. Shaffer, 362 F.Appx. at 631 ("Notice is not adequate if it misleads potential class members."). Third, the notice did not inform class members of the existence of related, pending litigation, including Scott-George and Lapan. Class members may have wanted to know about the existence of these related lawsuit in deciding whether to participate in the Chavez settlement. Cf. Churchill Vill., L.L.C., 361 F.3d at 575 (finding that notice of settlement was adequate where the notice "listed the names, case numbers, and courts of pending actions in Illinois, Florida, New York, and Connecticut" that were related to the settling litigation).
The Court finds that the notice of settlement was not adequate as mandated by Rule 23(c)(2)(B). Accordingly, the Court DENIES final approval on this additional basis.
C. Supplemental Class Notice
On January 22, 2015, the Plaintiffs and Defendants filed a stipulation regarding supplemental class notice. ECF No. 124. In that stipulation, the parties agreed to mail a supplemental class notice to all class members to "include specific reference to Lapan v. PVH Corp., et al. ... and Scott-George v. PVH Corp. ... and to inform Class Members that by not opting-out of the Chavez settlement, they may be waiving certain rights in the Lapan and Scott-George cases, including but not limited to Labor Code section 203 claims." Id. at 1. The parties proposed the stipulation as an alternative to the Court denying final approval. See id. However, this Court cannot "delete, modify, or substitute certain provisions [of a settlement agreement]. The settlement must stand or fall in its entirety." Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998) (internal quotation marks and citation omitted). Because granting the parties' stipulation would necessarily modify the provisions of the settlement agreement regarding notice to class members, this Court cannot grant the stipulation. Therefore, the stipulation is DENIED.
For the reasons stated above, the Court DENIES the parties' joint motion for final approval. Accordingly, Plaintiffs' motion for attorneys' fees and costs, and class representative enhancement, ECF No. 89, is DENIED as moot.
IT IS SO ORDERED.