NAVARRO v. KIDS LINE, LLC
Case No.: BC472805
Hearing Date: March 19, 2014
Department 310

JOINT MOTION FOR PRELIMINARY APPROVAL

TENTATIVE

GRANT contingent upon the parties modifying the settlement agreement to include:

1. Adding language to the checks stating that the act of cashing the check constitutes an opt-in to the release of Fair Labor Standards Act (“FLSA”) claims (or, alternatively, deleting FLSA claims from the class release);

2. Submitting Spanish versions of the class notice and Settlement Share Form and a sample of the pro forma envelope; and

3. Submitting a revised proposed notice that reflects the new objection procedure and the PAGA payment to the Labor Workforce and Development Agency (“LWDA”).

Plaintiff to make necessary modifications, submit a revised notice and prepare for the Court’s signature, a proposed order consistent with this tentative within seven days.

DISCUSSION

This is a wage and hour class action brought on behalf of similarly situated hourly employees of Defendant. The operative complaint—the First Amended Complaint filed on 1/24/12—alleges the following causes of action: (1) failure to pay minimum or contractual wages in violation of Labor Code §§1194, 1197; (2) failure to pay earned wages in violation of Labor Code §204; (3) failure to pay overtime wages in violation of Labor Code §§510 and 1194; (4) failure to provide required meal periods in violation of Labor Code §§512 and 226.7; (5) failure to provide accurate wage statements in violation of Labor Code §226; (6) violation of Labor Code §§201 and 202 resulting in §203 wages and penalties for failure to pay wages due former employees at the time of resignation and/or discharge; (7) violation of Business & Professions Code §17200, et seq.; and (8) civil penalties pursuant to Labor Code §2698, et seq.

Subsequently, Plaintiff filed a motion for class certification, which the Hon. Rita Miller denied in part and continued in part. [1/30/13 Minute Order.]

Prior to the continued hearing on the motion for class certification, the parties entered into a Class Action Settlement Agreement and Stipulation (“settlement agreement”). [Lavi Declaration, Exhibit 1.]

Before the Court is a motion for preliminary approval of the settlement agreement.

The signed settlement agreement is attached to the Lavi Declaration as Exhibit 1. The gross settlement amount is $350,000, non-reversionary. [Settlement Agreement, §D.1.

The following will be deducted from the gross settlement amount:

• Up to $116,666.67 for attorney fees;
• Up to $14,000 for attorney costs;
• Up to $7,500 for an incentive award to the sole class representative;
• $9,000 for claims administration costs;
• $1,500 for PAGA penalties payable to the LWDA; and
• “[A]ll” employer-side payroll taxes.

The settlement appears to be purely monetary.

The class is defined as “all hourly employees who worked for at least five hours for Defendant in California during the Class Period beginning November 3, 2007 and ending on August 1, 2013.” [Id., §C.2.] There are approximately 200 class members. [Lavi Declaration, ¶14.] These include 91 former employees, 88 current employees, and approximately 5-25 temporary employees on assignment each day at Defendant’s facility. [Id.] This is an opt-out settlement. [Settlement Agreement, §E.2. ], structured as a common fund settlement. [Lavi Declaration, ¶13.]

The named Plaintiff and participating class members will release “any and all Released Claims.” [Settlement Agreement, §C.3.] With respect to participating class members, the term “Released Claims” means “all those claims that were asserted in the Action, including [certain enumerated claims], and/or all those claims that could have been asserted, arising out of or related to any of the facts, allegations and matters asserted in the Complaint filed the Action, or could have been alleged under the operative facts, allegations, matters and transactions asserted in the Action including [certain enumerated claims such as failure to pay overtime wages under the Fair Labor Standards Act, 29 U.S.C. §201 et seq.], for any relief whatsoever, including monetary, injunctive, or declaratory relief, whether direct or indirect, whether under federal law or the law of any state, whether suspected or unsuspected, whether contingent or vested, which the Named Plaintiff or any Class Member have had, now have, or may have in the future against the Released Parties or any of them based on, arising out of, or relating to the facts, allegations and matters in the Action or could have been alleged under the operative facts, matters, transactions in the Action that occurred on or before the Release Effective Date.” [Id., §B.25.a.]

With respect to the named Plaintiff, the term “Released Claims” “includes all claims the Named Plaintiff has or may have arising out of employment or termination thereof before the Release Effective Date.” [Id., §B.25.b.] Participating class members will also waive the protections of Civil Code §1542 “with regard to the Released Claims.” [Id., §C.3.]

In addition to the above release, the named Plaintiff will provide a general release and a concurrent Civil Code §1542 waiver. [Id., §§C.4.a, C.4.b.]

The class release and Civil Code §1542 waiver are acceptable because they are narrowly written to encompass claims arising out of the allegations of this action.

However, it includes a release of FLSA claims that applies to all class members who do not opt out of the settlement. [See, e.g., Kakani v. Oracle Corp. (N.D.Cal. 2007) 2007 WL 1793774 at 7 (“Under no circumstances can counsel collude to take away FLSA rights including the worker’s right to control his or her own claim without the burden of having to opt out of someone else’s lawsuit. Workers who voluntarily send in a claim form and affirmatively join in the action, of course, can be bound to a full release of all federal and state rights.”) (italics supplied); see also La Parne v. Monex Deposit Co. (C.D.Cal. 2010) 2010 WL 4916606 at 3 (“[O]nly class members who affirmatively ‘opt-in’ to the Settlement should be bound by the Settlement’s release of FLSA liability.

The following class members will be deemed to have opted in for purposes of a release of FLSA liability: those who opted into the FLSA action during the initial opt-in period and those who file claims under the Settlement.”) (italics supplied).]

What is problematic about the class release is not the inclusion of FLSA claims per se, but the parties’ failure to follow the procedures for FLSA actions.

See Haro v. City of Rosemead (2009) 174 Cal.App.4th 1067, 1074-1075 (“But appellants chose to bring their action under the FLSA. Having done that, they cannot discard the opt-in feature; in fact, they concede that this is an opt-in case. This being an opt-in case, the not inconsiderable jurisprudence that has been developed for such cases cannot be disregarded.”).]

Currently, class members need not submit claim forms to participate in the settlement; unless they opt out, they will automatically receive checks and will be deemed to have released all of the above claims (including FLSA claims).

Accordingly, rather than institute a claims process or delete express references to FLSA claims, the parties must add language to the checks stating that the act of cashing the check constitutes an opt-in to the release of FLSA claims.

The named Plaintiff’s general release and Civil Code §1542 waiver appear to be proper. Defendant expressly bargained for them in exchange for the incentive award, and the named Plaintiff agreed to them with the approval of class counsel.

There is no claims process. Class members who do not opt out will automatically receive settlement shares. [Proposed Notice, p.6 (under “HOW WILL SHARES OF THE NET SETTLEMENT PAYMENT BE CALCULATED?,” “Payment of Settlement”).]

To opt out of the settlement, a class member must timely submit a request for exclusion to the claims administrator. [Id., §E.2.] The request for exclusion should substantially state: “I have freely and voluntarily chosen to opt out of this settlement, and do not wish to receive any money from the Navarro v. Kids Line LLC settlement.” [Id., p.7 (under “WHAT ARE YOUR OTPIONS?”, “Choosing Not to Participate In the Settlement (Opting Out)”).] It should also include the class member’s name, address, telephone number, and signature. [Id., pp.7-8]

In response to the Court’s request for supplemental briefing, the parties indicate that they have agreed to allow the mailing of objections to the claims administrator only. [Supplemental Brief, ¶8.]

Notice will be by direct mail. [Settlement Agreement., §E.2.a.] Notice packets include English and Spanish versions of the notice and Settlement Share Form. [Id.]

The proposed method of class notice appears to provide the best possible means for giving actual notice to the putative class members. The parties provided copies of the English versions of the class notice and Settlement Share Form as part of the original moving papers.

However, the parties still have not provided copies of the Spanish versions of those documents as well as a sample of the pro forma envelope. [1/31/14 Checklist, p.5.] Although ¶2.J of the parties’ supplemental brief acknowledges that the Court ordered submission of these documents, none have been attached or separately lodged.

The procedures to obtain payment, opt out, and object are described above in Section IV.6. The procedures and forms are acceptable.

For tax purposes, payments to participating class members will be allocated as follows: 25% to wages (to be reported on Form W-2); 22.5% to interest (to be reported on Form 1099-MISC); and 52.5% to penalties (to be reported on Form 1099-MISC). [Settlement Agreement, §D.3.] The settlement agreement estimates $9,000 for claims administration costs. [Id., §D.1.c.] The settlement agreement includes a clear-sailing agreement for attorney fees of up to $116,666.67 and costs of up to $14,000. [Id., §D.1.a.] The issue of the fee award will be decided at the final approval hearing.

The following are proposed deadlines for the completion of the main tasks in connection with the settlement:

Preliminary Approval Date March 19, 2014
Deadline for Defendant to provide class list to claims administrator April 8, 2014 (20 days following entry of preliminary approval order)
Deadline for mailing of notice packets May 8, 2014 (30 days following receipt of class list)
Deadline to submit claims forms Not applicable
Deadline to opt-out or object July 7, 2014 (60 days after mailing of notice packets)
Deadline to submit papers in support of final approval August 11, 2014 (16 court days prior to fairness hearing)
Fairness Hearing September 3, 2014

DUNK FACTORS
(Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1801)

1. Strength of the plaintiff’s case. Plaintiffs estimated Defendant’s potential maximum exposure at trial to be “approximately $2,350,000, excluding PAGA civil penalties, interest, or reasonable attorneys’ fees and costs.” [Lavi Declaration, ¶14.] Notwithstanding such estimate, the $350,000 gross settlement amount appears to be a fair, adequate, and reasonable compromise in light of the following considerations: First, as indicated in §III above, Plaintiffs’ motion for class certification was denied in part and continued in part by Judge Miller. Had this case proceeded, there were the potential risks that Judge Miller would have also denied class certification of the classes yet to be ruled upon and that the Court of Appeal would have affirmed Judge Miller’s ruling. Second, Defendant has defenses that, if believed by the trier of fact, would have limited or nullified Plaintiffs’ recovery. For example, it is Defendant’s position that it provided complete first meal periods and that class members waived second meal periods. [Id., ¶15.] As another example, Defendant maintains that a good faith dispute exists as to whether or not any time was uncompensated since employees worked on a bell system and that Plaintiffs cannot establish the willfulness requirement under Labor Code §203. [Id.] This factor weighs in favor of preliminary approval.

2. The risk, expense, complexity and likely duration of further litigation. Had this case not settled, there would have been additional risks and expenses associated with continuing to litigate. Procedural hurdles (e.g., motion practice and appeals) are also likely to prolong the litigation as well as any recovery by the class members. This factor weighs in favor of preliminary approval.

3. The risk of maintaining class action status through trial. Even if a class had been certified, there is always a risk of decertification. [Weinstat v. Dentsply Intern., Inc. (2010) 180 Cal.App.4th 1213, 1226 (“Our Supreme Court has recognized that trial courts should retain some flexibility in conducting class actions, which means, under suitable circumstances, entertaining successive motions on certification if the court subsequently discovers that the propriety of a class action is not appropriate.”).] This factor weighs in favor of preliminary approval.

4. Amount offered in settlement. As part of the Court’s analysis of this factor, the Court takes into consideration the admonition in Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 133. In Kullar, objectors to a class settlement argued the trial court erred in finding the terms of the settlement to be fair, reasonable, and adequate without any evidence of the amount to which class members would be entitled if they prevailed in the litigation, and without any basis to evaluate the reasonableness of the agreed recovery. The Court of Appeal agreed with the objectors that the trial court bore the ultimate responsibility to ensure the reasonableness of the settlement terms. Although many factors had to be considered in making that determination, and a trial court was not required to decide the ultimate merits of class members’ claims before approving a proposed settlement, an informed evaluation could not be made without an understanding of the amount in controversy and the realistic range of outcomes of the litigation.

The Kullar noted that the Court has a responsibility to independently evaluate the settlement, stating as follows:

[T]he court must … receive and consider enough information about the nature and magnitude of the claims being settled, as well as the impediments to recovery, to make an independent assessment of the reasonableness of the terms to which the parties have agreed. We do not suggest that the court should attempt to decide the merits of the case or to substitute its evaluation of the most appropriate settlement for that of the attorneys. However, as the court does when it approves a settlement as in good faith under Code of Civil Procedure section 877.6, the court must at least satisfy itself that the class settlement is within the “ballpark” of reasonableness. (See Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 499–500 [213 Cal. Rptr. 256, 698 P.2d 159].) While the court is not to try the case, it is “‘called upon to consider and weigh the nature of the claim, the possible defenses, the situation of the parties, and the exercise of business judgment in determining whether the proposed settlement is reasonable.’ ” (City of Detroit v. Grinnell Corporation, supra, 495 F.2d at p. 462, italics added.) This the court cannot do if it is not provided with basic information about the nature and magnitude of the claims in question and the basis for concluding that the consideration being paid for the release of those claims represents a reasonable compromise. Kullar, supra, at 133.

As indicated above, the gross settlement amount is $350,000. Assuming approval of the maximum requested deductions, the net settlement amount that is available for distribution to participating class members is approximately $201,333.33 (less the employer-side payroll taxes of $6,172 to $7,284), or $195,161.33 (assuming $6,172 in taxes) to $194,049.33 (assuming $7,284 in taxes). Assuming full participation, the average settlement share will be approximately $970.25 ($194,049.33 ¿ 200 class members) to $975.81 ($195,161.33 ¿ 200 class members). This factor weighs in favor of preliminary approval.

5. Extent of discovery completed and stage of the proceedings. Prior to settlement, class counsel, inter alia: propounded discovery (including form interrogatories, special interrogatories, requests for production of documents, and requests for admission); obtained and analyzed class data; analyzed Defendant’s policies and procedures; obtained declarations from 20% of the class members; deposed Defendant’s persons most qualified; defended the named Plaintiff’s deposition; and retained an expert. [Lavi Declaration, ¶20.] This factor weighs in favor of preliminary approval.

6. Experience and views of counsel. Class counsel is experienced in class actions, including wage and hour class actions. [Id., ¶3.] It is class counsel’s opinion that the settlement is “a fair, reasonable, and adequate result for the class members . . . .” [Id., ¶18.] This factor weighs in favor of preliminary approval.

PROPOSED NOTICE

A copy of the notice is attached to the settlement agreement as Exhibit A.

The class definition appears at page 1 (under “INTRODUCTION”).

A description of the case appears at pages 2-3 (under “WHAT IS THIS CASE ABOUT?”).

A summary of the proposed settlement appears at pages 3-4 (under “WHAT ARE THE TERMS OF THE PROPOSED SETTLEMENT?”).

An estimate of the amount of fees and costs counsel will seek is set forth at pages 3-4 (under “WHAT ARE THE TERMS OF THE PROPOSED SETTLEMENT?”, “Monetary Payment”).

The right to opt out appears at pages 7-8 (under “WHAT ARE YOUR OPTIONS?”, “Choosing Not to Participate In the Settlement (Opting Out)”).

The right to object and appear at the fairness hearing appears at pages 8-9 (under “WHAT ARE YOUR OPTIONS?”, “Objecting to the Settlement”).

The consequences of remaining a member of the settlement class by not opting out appears at page 8 (under “WHAT ARE YOUR OPTIONS?”, “Choosing Not to Participate In the Settlement (Opting Out)”).

The identities of class counsel and Defendant’s counsel appear in the chart at page 9 (under “WHAT ARE YOUR OPTIONS?”, “Objecting to the Settlement”).

Information regarding the date, time, and place of the fairness hearing appears at page 10 (under “HEARING REGARDING THE SETTLEMENT”).

Note that the parties need to submit a revised proposed notice that reflects the changes that the parties have recently agreed to make regarding the objection procedure and the disclosure of the PAGA payment to the LWDA. [Supplemental Brief, ¶¶8-9.]