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Soares v. Flowers Foods, Inc.

United States District Court, N.D. California

June 28, 2017

MARK SOARES, et al., Plaintiffs,
v.
FLOWERS FOODS, INC., et al., Defendants.

          ORDER RE: MOTION FOR CLASS CERTIFICATION RE: DKT. NO. 61

          JACQUELINE SCOTT CORLEY, UNITED STATES MAGISTRATE JUDGE

         Plaintiffs in this putative class action are distributors who delivered baked goods for Defendants Flower Foods, Inc., Flowers Baking Co. of California, Flowers Baking Co. of Modesto, and Flowers Bakeries Brands, Inc. (together, “Defendants” or “Flowers”). Plaintiffs assert California wage and hour claims based on the allegation that Flowers misclassified its distributors as independent contractors/franchisees rather than employees. Now pending before the Court is Plaintiffs' motion for class certification. (Dkt. No. 61.[1]) Having considered the parties' submissions, and having had the benefit of oral argument, the Court DENIES Plaintiffs' motion as individual issues predominate and a class action is not superior to individual actions.

         BACKGROUND

         I. Factual Background[2]

         Flowers and its network of subsidiaries “manufacture and/or distribute various bakery products, most of which are then distributed to retail stores, restaurant, fast food business, military and institutional accounts.” (Dkt. No. 61-6 at 25; Dkt. No. 61-5 at 4.) Flowers uses distributors to move its bread products to stores in the segment of its business known as “direct store delivery.” (Dkt. No. 61-6 at 234-235.) Flowers California began distributing its bakery goods throughout Northern California in February 2013.[3] (Dkt. No. 61-6 at 236.) For distribution purposes, Flowers divides its Northern California market area, which extends “from Visalia north to the Oregon Border and from the Pacific Coast to the Nevada border”) into distribution territories, which individuals, called “Distributors, ” service.

         Plaintiffs and the putative class members are Distributors who entered into written “Distributor Agreements” to provide distribution services in Northern California Flowers territories during the class period. Generally speaking, Distributors purchase the exclusive right to sell Flowers' products in given geographic territories and are responsible for delivering, displaying, and selling Flowers products in their areas. The named Plaintiffs began working for Flowers as Prospective Distributors in early 2013. Both became Distributors by entering into Distributor Agreements with Flowers later that year. Soares resigned from Flowers in May 2016.

Botelho still works as a Flowers Distributor.

         A. Flowers' Business

         When Flowers first opened its Northern California business, it staffed its territories with “Prospective Distributors, ” individuals hired by a third-party staffing agency that classified them as employees. Flowers defined “Prospective Distributors” as “Individuals training to become an independent distributor for Flowers; and are not, and will not, become a Flowers employee in a worker's capacity as a prospective distributor.” (Dkt. No. 67-2 at 158-159.) Flowers management interviewed and selected the candidates, provided training-including a “Distributor College”- and provided the trucks for their routes. The parties dispute the scope of Distributor College and training the Prospective Distributors received. Plaintiffs state that they and other Prospective Distributors attended a two week-long classroom program, were assigned to a route, and received direct hands-on instruction and evaluation from a Branch Sales Manager or other managers, which could include ride-alongs during deliveries. (See, e.g., Dkt. No. 67-2 191-193, 328-330.) The classroom component included a slide presentation with step-by-step instructions for Distributors' daily activities, including loading products, packing bread trays, following customer schematics for product placement, setting up promotional displays, rotating stock and pulling stale product from the shelves, and returning stale product from the warehouses, and how to use the handheld computer device that all Distributors must lease from Flowers to record their work. (Dkt. No. 61-5 at 91-472.) Defendants, in contrast, cite evidence that even the individuals who attended the training contend that aside from Flowers-specific practices-like color-coded ties for certain packaging and the handheld computer system the company uses-they did not learn anything new at the Distributor College that they did not already know from prior delivery jobs or learn anything about how to run their businesses profitably. (Dkt. No. 63-23 at 10-11; Dkt. No. 63-27 at 7-9; Dkt. No. 63-29 at 8.)

         At the end of the apprenticeships, beginning in the fall of 2013, Flowers offered certain Prospective Distributors a Distributor Agreement based on their performance records and customer service skills. To work as a Distributor, the Prospective Distributors had to enter into the Distributor Agreement and complete other necessary paperwork. As discussed in detail below, the Distributor Agreement involves the Distributor purchasing the distributorship from Flowers; Flowers classifies the distributorships as franchises and the Distributors as franchisees. (See Dkt. No. 61-6 at 21.)

         Flowers' Franchise Disclosure Document states that Flowers “orientation generally must be completed before you start your distributorship.” (Id. at 38.) But other Distributors bought their routes and entered the Distributor Agreement without participating in Distributor College or the Prospective Distributor apprenticeship; they either bought their territories after the initial Flowers California roll-out or purchased territories from other Distributors. Some of Defendants' declarants state that they received little, if any, training from Flowers.

         However they came to own their territory, every Distributor did so only after signing Flowers' uniform Distributor Agreement.

         B. The Distributor Agreement

         All putative class members' Distributor Agreements are materially the same. The Distributor Agreement expressly defines the Distributor as “an independent contractor with the resources, expertise and capability to act as a distributor of [Flowers'] products in the Territory[.]” (Dkt. No. 61-6 at 56; see also Id. § 16.1.) It provides that Distributors “shall not be controlled by [Flowers] as to the specific details or manner of [ ] business” and that the Distributor's business is “separate and apart from” Flowers' business. (Id. § 16.1.)

         Under the Agreement, the Distributor purchases the right to distribute Flowers' products in a given territory. (Id. § 2.4.) As part of the arrangement, the Distributor agrees to purchase products from Flowers to re-sell to the stores within her territory. (Id. § 8.1.) The Distributor Agreement permits the Distributor to hire other people to service the route. (Id. § 16.2.) Flowers requires the Distributor-or other individuals he hires to deliver the products-to perform its services in accordance with “Good Industry Practice, ” which it defines in relevant part as:

[T]he standards that have developed and are generally accepted and followed in the baking industry, including, but not limited to, maintaining an adequate and fresh supply of Products and Authorized Products in all Outlets requesting service, actively soliciting all Outlets not being serviced, properly rotating all Products and Authorized Products, promptly removing all stale Products and Authorized Products, maintaining proper service and delivery to all Outlets requesting service in accordance with the Outlet's requirements, maintaining all equipment in a sanitary condition and in good safe working order, and operating the Distributorship in compliance with all applicable federal, state and local laws, rules and regulations.

(Id. §§ 2.6, 5.1, 5.2.) The Agreement requires the Distributor to use “commercially reasonable best efforts” to maximize sales and distribute products in accordance with Good Industry Practice, which may include “full rack service” and will include cooperating with Flowers on its marketing and sales efforts, maintaining a clean and neat personal appearance, and complying with all customer requirements. (Id. § 5.1.) Failure to comply with these provisions could be a breach of the Agreement. The Agreement prohibits Distributors from carrying other bakery products-i.e., products of Flowers' competitors-but permits them to distribute non-competitive products. (Id.) When it comes to Flowers' bakery products, Flowers prohibits Distributors from selling stale products but agrees to repurchase a certain percentage of each Distributor's stale product. (Id. § 12.2-12.3.) The Distributor Agreement specifies that leaving out-of-code-that is, stale- products in the market is a material breach of the Agreement that could render it subject to termination. (Id. § 12.1.)

         Each Distributor agrees to obtain his own delivery vehicle and insurance and to keep it clean, professional, and safe. (Id. § 9.1.) Distributors agree to use certain of Flowers' “proprietary administrative services” for collecting sales data, creating sales tickets, preparing invoices, and communicating with Flowers, which refers to a handheld computer device Distributors lease from Flowers for an administrative fee. (Id. §§ 10.1, 10.2) Distributors also agree to be charged a fee for using Flowers' warehouse. (id. § 11.1.) At no cost, Flowers agrees to provide advertising material to Distributors, but Distributors may use other advertising material subject to Flowers' prior approval. (Id. § 13.1.) Distributors must adhere to promotions or feature pricing on chain accounts, for which Flowers-not the Distributors-set prices. (Id. § 13.2.)

         The Distributor Agreement permits Flowers to terminate the Agreement if a Distributor engages in certain enumerated activities deemed non-curable breaches or repeated curable breaches. (Id. §§ 17.2, 17.3.) It sets forth a procedure for other breaches by which Flowers gives the Distributor written notice of the breach and an opportunity to cure. (Id. § 17.3.)

         In addition to the Distributor Agreement, Flowers also offered a set of services to would-be Distributors, including financing to purchase the territory-which most Distributors used-, trucks to lease, and assistance incorporating their businesses, which the Distributor Agreement required.

         C. Distributors' Job Responsibilities and Defendants' Oversight and Control

         Once the Distributor Agreement and other paperwork have been completed, Distributors may begin their work, which involves picking up Flowers bakery products from Flowers-owned warehouses in Northern California and delivering them to customers in their geographic territory, ensuring that all stores and restaurants on the route have a fresh supply of Flowers baked goods, and removing stale products from the shelves. Flowers does not require its Distributors to work out of any specific site or location, although non-Company sites must be approved by Flowers; but the company does require that Distributors pick up products from a Flowers warehouse. (See Dkt. No. 61-6 at 39.) Flowers has a six-day code for its bread products-the bulk of Distributors' product-with different color ties for each date. Distributors rotate stock at the stores to ensure that the older product is placed in the front of the shelves and to pull any product older than six days old.

         Defendants' evidence highlights differences among Distributors' experiences in a number of areas. By entering the Distributor Agreements, Distributors own the property rights to their territories and can sell them for a profit; some Distributors hold onto their territories to service them on a long-term basis, while others sell them for profit as the value increases. Some Distributors own a single territory, while others own more than one. Some entered the Distributor Agreements as the sole owner of their corporations, while others purchased with one or more partners. Some Distributors have sold all or part of their territories to others, while others have retained the territories they initially purchased. Some Distributors, like the named Plaintiffs, “personally service” their routes-i.e., run the routes in their territories themselves. In contrast, others-known as “absentee” Distributors-hire other individuals to service their entire route while they hold other full-time jobs, run their businesses, or deliver goods for other companies. Still others hire helpers to complete parts of their routes, to service their routes part of the time, or to provide intermittent assistance with routes. Flowers does not track or record when Distributors use helpers or, more generally, who serviced a route on a particular day. A number of Distributors testified that they do not keep records as to when helpers serviced their routes.

         Branch Sales Managers oversee the territories of each Distributor within their branch. According to Plaintiffs, Flowers, through these Branch Sales Managers, sets Distributors' routes and makes suggestions-which they must heed-as to the product types and quantities to stock in each store. In contrast, Defendants' declarants urge that such is not the case and that, to the contrary, Distributors maintain complete decision-making power on the order of their routes and the types and quantities of products they choose to stock at each store.

         As to scheduling, as discussed above the Distributor Agreement requires Distributors to comply with all customer requirements, which are wide-ranging. Most Flowers customers require distributors to deliver to their stores early in the day. Some require multiple visits per day. Distributers tended to work five days a week. On at least one occasion, Flowers instructed Distributors to work on a holiday. (Dkt. No. 61-3 at 150-153.)

         When it comes to control and oversight, Flowers management provides “Branch Route Scorecards” to the Distributors and ranks their stores by the number of stale products on each route. In accordance with the Distributor Agreement, Flowers management has issued breach letters to Distributors notifying them that their service had fallen below “Good Industry Practice” or the customer's standards or has placed Distributors on a “performance plan” or a “stale cap”-a maximum amount of stale product that Flowers would buy back. (See, e.g., Dkt. No. 61-4 at 50; Dkt. No. 61-6 ¶ 16.) The amount and type of oversight that Distributors report receiving varies significantly, with some-like Plaintiffs-averring that there was significant oversight, control, and feedback from Flowers management, and they had no choice but to accept Flowers' suggestions for product type and product placement, while others-namely, Defendants' declarants-stating that they had complete control over their routes and could always reject Flowers' suggestions for how to run their businesses.

         II. Procedural History

         Plaintiffs' wage-and-hour claims all arise under the California Labor Code and include failure to reimburse Plaintiffs for business expenses; making improper deductions from Plaintiffs' compensation because of the return of out-of-date product, work-related expenses, and losses not attributable to Plaintiffs; failing and refusing to provide Plaintiffs with meal periods or paid rest periods; unlawfully deducting money from Plaintiffs' wages; failing to provide accurate itemized wage statements; intentionally, recklessly, and/or negligently misrepresenting to Plaintiffs the true nature of their employment status, and willfully and unlawfully misclassifying Plaintiffs as independent contractors. Based on these same underlying violations, Plaintiffs also bring a claim under the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200. (Id.) All of these claims arise from Plaintiffs' allegation that Defendants misclassified them as independent contractors/franchisees instead of employees.

         Plaintiffs seek to represent the following class under Federal Rule of Civil Procedure 23(b)(3):

All persons who have personally serviced a territory in Northern California (i.e., areas from Visalia north to the Oregon border and from the Pacific Coast to the Nevada border) under a Flowers Baking Company of California and/or Flowers Baking Company of Modesto ‘Distributor Agreement' that they entered into on behalf of themselves or entities in which they have a majority ownership interest (referred to as ‘Distributors') during the period commencing February 25, 2013 through the date of class certification.

(See Dkt. No. 61 at 6.) In addition, Plaintiffs seek to have certified for classwide resolution each of the substantive wage-and-hour causes of action in the complaint. (Id.)

         Though this is the first misclassification action involving Flowers Modesto, it is not the first misclassification lawsuit that distributors have filed against Flowers the parent company or Flowers California, and there are other misclassification lawsuits involving other subsidiaries. Most of these other actions involve individual plaintiffs.[4] But there are two other instances that predate this case where distributors have filed suit against Flowers seeking to litigate the misclassification on behalf of a class of distributors. In Rehberg v. Flowers Baking Company of Jamestown, LLC, No. 3:12-cv-00596-MOC-DSC, 2015 WL 1346125 (W.D. N.C. Mar. 24, 2015), three named plaintiffs sued Flowers alleging that Flowers had misclassified them as independent contractors and, as a result, denied them certain benefits owed under North Carolina's labor laws and the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201. Id. at *1. The court there certified a class of “[a]ll person who . . . worked as Distributors in the State of North Carolina for Flowers Foods, Inc. or Flowers Baking Co. of Jamestown, LLC and who were classified as independent contractors” during the class period for misclassification claims under both the FLSA and state law. Id. at *3, 14.

         In contrast, in Martinez v. Flowers Foods, Inc., No. CV 15-5112 RGK (Ex) (C.D. Cal.), the court denied the plaintiffs' motion to certify a class of “[a]ll persons who have personally serviced a territory in Southern California . . . under a Flowers . . . ‘Distributor Agreement' that they entered into on behalf of themselves or entities in which they have a majority ownership interest” during the class period. Martinez v. Flowers Foods, Inc., No. CV 15-5112 RGK (Ex), Dkt. No. 52 (C.D. Cal. Feb. 1, 2016). The court concluded that the plaintiffs had met all four listed Rule 23(a) factors, but the centerpiece of the court's analysis was the absence of ascertainability: because neither party maintained records showing which distributors “personally serviced” their routes, as opposed to those who hired helpers to do so, there was no reliable way to determine who was in the class. Id. at 6-7. The court also concluded that individual issues predominate because, although the putative class members' responsibilities all stemmed from the same distributor agreement, the agreement's language was so broad that it did not reflect a uniform policy, and variations among individual distributors' experience rendered the question of the employers' control not amenable to class-wide proof. Id. at 11-13. The named plaintiffs later stipulated to dismiss the case. Martinez v. Flowers Foods, Inc., No. CV 15-5112 RGK (Ex), Dkt. No. 69 (July 6, 2016). Thereafter, two other distributors moved to intervene, and the court denied their motion. Martinez v. Flowers Foods, Inc., No. CV 15-5112 RGK (Ex), Dkt. No. 79 (Sept. 8, 2016). The case is now pending before the Ninth Circuit, as the proposed intervenors have appealed the orders denying class certification and denying intervention. (See Dkt. No. 80.)

         LEGAL STANDARD

         To succeed on his motion for class certification, Plaintiff must satisfy the threshold requirements of Federal Rule of Civil Procedure 23(a) as well as the requirements for certification under one of the subsections of Rule 23(b). Mazza v. Am. Honda Motor Co., 666 F.3d 581, 588 (9th Cir. 2012). Rule 23(a) provides that a case is appropriate for certification as a class action if

(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 ...

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