Case Name: Gerardo Segura v. San Jose, LLC, et al.
Case No.: 17-CV-304860

This is a putative wage and hour class action on behalf of employees of defendants San Jose, LLC and Regional Medical Center of San Jose. Before the Court is plaintiff’s motion for preliminary approval of a settlement, which is unopposed.

I. Factual and Procedural Background

Plaintiff works for defendants as an hourly employee at Regional Medical Center of San Jose. (Complaint, ¶ 7.) He alleges that defendants have failed to pay all wages due to employees due to illegal time rounding; failed to pay overtime for all overtime hours worked; failed to pay 7th-day overtime; violated Labor Code section 552’s prohibition on over six consecutive working days per week; failed to provide meal and rest periods; derivatively and independently failed to provide accurate wage statements; and are derivatively liable for penalties pursuant to Labor Code section 203, the Private Attorneys General Act (“PAGA”), and the Unfair Competition Law (“UCL”). (Id., ¶¶ 5, 8.) Based on these allegations, plaintiff asserts twelve causes of action against defendants, including putative class claims under the Labor Code and other statutes and a representative claim under PAGA.

The parties have reached a settlement. Plaintiff now moves for an order preliminarily approving the settlement, provisionally certifying the settlement class, approving the form and method for providing notice to the class, and scheduling a final fairness hearing.

II. Legal Standards for Approving a Class Action/PAGA Settlement

Generally, “questions whether a settlement was fair and reasonable, whether notice to the class was adequate, whether certification of the class was proper, and whether the attorney fee award was proper are matters addressed to the trial court’s broad discretion.” (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 234-235, citing Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, disapproved of on other grounds by Hernandez v. Restoration Hardware, Inc. (2018) 4 Cal.5th 260.)

In determining whether a class settlement is fair, adequate and reasonable, the trial court should consider relevant factors, such as the strength of plaintiffs’ case, the risk, expense, complexity and likely duration of further litigation, the risk of maintaining class action status through trial, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of the class members to the proposed settlement.

(Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at pp. 244-245, internal citations and quotations omitted.)

In general, the most important factor is the strength of plaintiffs’ case on the merits, balanced against the amount offered in settlement. (See Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 130.) Still, the list of factors is not exclusive and the court is free to engage in a balancing and weighing of factors depending on the circumstances of each case. (Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at p. 245.) The court must examine the “proposed settlement agreement to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement, taken as a whole, is fair, reasonable and adequate to all concerned.” (Ibid., quoting Dunk v. Ford Motor Co., supra, 48 Cal.App.4th at p. 1801, internal quotation marks omitted.)

The burden is on the proponent of the settlement to show that it is fair and reasonable. However “a presumption of fairness exists where: (1) the settlement is reached through arm’s-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small.”

(Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at p. 245, citing Dunk v. Ford Motor Co., supra, 48 Cal.App.4th at p. 1802.) The presumption does not permit the Court to “give rubber-stamp approval” to a settlement; in all cases, it must “independently and objectively analyze the evidence and circumstances before it in order to determine whether the settlement is in the best interests of those whose claims will be extinguished,” based on a sufficiently developed factual record. (Kullar v. Foot Locker Retail, Inc., supra, 168 Cal.App.4th at p. 130.)

Finally, Labor Code section 2699, subdivision (l) provides that “[t]he superior court shall review and approve any penalties sought as part of a proposed settlement agreement pursuant to” PAGA. Seventy-five percent of any penalties recovered under PAGA go to the Labor and Workforce Development Agency (“LWDA”), leaving the remaining twenty-five percent for the aggrieved employees. (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 380.) “[T]here is no requirement that the Court certify a PAGA claim for representative treatment” as in a class action. (Villalobos v. Calandri Sonrise Farm LP (C.D. Cal., July 22, 2015, No. CV122615PSGJEMX) 2015 WL 12732709, at *5.) “[W]hen a PAGA claim is settled, the relief provided … [should] be genuine and meaningful, consistent with the underlying purpose of the statute to benefit the public ….” (Id. at *13.) The settlement must be reasonable in light of the potential verdict value (see O’Connor v. Uber Technologies, Inc. (N.D. Cal. 2016) 201 F.Supp.3d 1110, 1135 [rejecting settlement of less than one percent of the potential verdict]); however, it may be substantially discounted given that courts often exercise their discretion to award PAGA penalties below the statutory maximum even where a claim succeeds at trial (see Viceral v. Mistras Group, Inc. (N.D. Cal., Oct. 11, 2016, No. 15-CV-02198-EMC) 2016 WL 5907869, at *8-9).

III. Settlement Process

According to a declaration by plaintiff’s counsel, plaintiff conducted factual and legal research, obtained formal discovery (including through the litigation of a motion to compel), and hired an expert to prepare damage calculations based on documents and data provided by defendants. On March 25, 2019, the parties attended a full-day mediation with Jeff Krivis Esq. and were able to reach a settlement.

IV. Provisions of the Settlement

The non-reversionary gross settlement amount is $2,713,500. Attorney fees of up to $904,500 (one-third of the gross settlement), litigation costs not to exceed $25,000, and administration costs of approximately $35,000 will be paid from the gross settlement. $50,000 will be allocated to PAGA penalties, 75 percent of which will be paid to the LWDA. The named plaintiff will also seek an enhancement award of $5,000.

The net settlement of approximately $1,706,500 will be distributed to individual class members pro rata based on their weeks worked during the class period. The average settlement payment will be approximately $530. Class members will not be required to submit a claim to receive their payments. Settlement awards will be allocated 1/3 to wages and 2/3 to interest and penalties, and defendants will pay their share of payroll taxes separately from the gross settlement. Funds associated with checks uncashed after 180 days will be tendered to the Controller of the State of California to be held pursuant to the Unclaimed Property Law.

Class members who do not opt out of the settlement will release claims “of any nature or description arising from or related to the facts and claims alleged in the Action, or that could have been alleged in the Action based on the facts and claims alleged in the Complaint, as amended,” including specified wage and hour claims and claims under the federal Fair Labor Standards Act (“FLSA”).

The settlement also provides for the filing of a First Amended Complaint, which would add a cause of action under the FLSA.

V. Fairness of the Settlement

With regard to plaintiff’s rounding claims, plaintiff analyzed a random sample of time and pay records and confirmed the policy has a disproportionate impact against employees. The rounding policy resulted in an average underpayment of one minute per shift, impacting sixty-five percent of putative class members. Plaintiff estimated the maximum total exposure on this claim at $3,058,425, with a realistic exposure of $2,477,324. Plaintiff estimated the meal period claims at $29,290,000, based on a sample of time records showing 41.5 percent of first meal breaks were taken late. Plaintiff estimated the realistic exposure on this claim at $3,661,250, given that defendants did pay some meal period premiums and considering the difficulties in proving such a claim on a classwide basis. Similarly, plaintiff estimated the rest period claims at $16,444,991 (assuming a 25 percent violation rate based on class member testimony), with a realistic exposure of $1,027,811. Total exposure on the wage statement claim was estimated at $9,564,000, with a realistic exposure of $478,200. Labor Code section 203 penalties were estimated at $20,319,618, with a realistic exposure of $1,015,980. Plaintiff concluded that the value of the PAGA claim was minimal given its duplication of the other claims. Finally, due to a lack of evidence to support this claim and an unfavorable change in the law, plaintiff determined the claim for violation of Labor Code section 552 had no value. Plaintiff thus estimates the realistic exposure in the case to be $8,660,565, with the maximum exposure being around $49 million on the primary claims and around $30 million for derivative claims and penalties.

Plaintiff urges that the settlement is fair and reasonable to the class in light of this evaluation. The Court is inclined to agree with this assessment, although the settlement falls within the lower end of the range that the Court would approve. The PAGA allocation provided by the settlement also appears to be genuine, meaningful, and reasonable. However, the Court is disinclined to approve the release of FLSA claims for the reasons discussed below.

In the event that it does grant preliminary approval, the Court retains an independent right and responsibility to review the requested attorney fees and award only so much as it determines to be reasonable. (See Garabedian v. Los Angeles Cellular Telephone Co. (2004) 118 Cal.App.4th 123, 127-128.) While 1/3 of the common fund for attorney fees is generally considered reasonable, counsel shall submit lodestar information prior to the final approval hearing in this matter so the Court can compare the lodestar information with the requested fees. (See Laffitte v. Robert Half Intern. Inc. (2016) 1 Cal.5th 480, 504 [trial courts have discretion to double-check the reasonableness of a percentage fee through a lodestar calculation].)

VI. Release of FLSA Claims

As explained in Haro v. City of Rosemead (2009) 174 Cal.App.4th 1067, the FLSA “govern[s] minimum wages and maximum hours.” (At p. 1070.) Notably, the FLSA establishes an “opt-in” procedure for collective actions under its authority, which is essentially the opposite of the “opt-out” procedure typically employed in class actions. The “opt-in” procedure requires that aggrieved employees “give[] [their] consent in writing” to become a party to an FLSA action, which consent must be “filed in the court in which such action is brought.” (29 U.S.C. § 216(b); Haro v. City of Rosemead, supra, 174 Cal.App.4th at p. 1071.) As held by Haro, “[a]n FLSA action has to be litigated according to rules that are specifically applicable to these actions” and may not be prosecuted as a class action. (Haro v. City of Rosemead, supra, 174 Cal.App.4th at p. 1077.)

While some unpublished federal decisions have approved “hybrid” class action and FLSA settlements, these settlements have not complied with the statutory requirement of written consents that are filed with the court. (See Smothers v. Northstar Alarm Services, LLC (E.D. Cal., Jan. 22, 2019, No. 217CV00548KJMKJN) 2019 WL 280294, at *10 [“Courts more elevated than this one have read the statutory language as requiring written consent filed with the court ….”].) Further, as discussed in other federal cases, “hybrid” settlements raise a number of additional issues that are wholly unaddressed by the parties here.

First, plaintiff’s motion for preliminary approval “does not explicitly request certification of an FLSA collective action, even though [the structure of the settlement] clearly contemplates the existence of a collective action ….” (Thompson v. Costco Wholesale Corporation (S.D. Cal., Feb. 22, 2017, No. 14-CV-2778-CAB-WVG) 2017 WL 697895, at *7.) In the Court’s view, this step is a prerequisite to approval of a hybrid settlement. Moreover, the settlement requires class members “to release FLSA claims to benefit from the settlement of the[ir] state law claims,” while assigning no value to the FLSA claims. (Id. at *7-8.) The parties’ failure to allow putative class members to participate in one but not the other form of action “counsels against the court’s granting of preliminary approval.” (Maciel v. Bar 20 Dairy, LLC (E.D. Cal., Oct. 23, 2018, No. 117CV00902DADSKO) 2018 WL 5291969, at *8, citing Millan v. Cascade Water Services, Inc. (E.D. Cal. 2015) 310 F.R.D. 593, 602.) Likewise, a “release of [an] FLSA claim in exchange for no consideration does not appear to be a fair and reasonable resolution of a bona fide dispute over FLSA provisions.” (Id. at *6, internal citation and quotations omitted.)

Finally, courts considering settlements in hybrid FLSA and class actions “consistently require class notice forms to explain: (1) the hybrid nature of the action; and (2) the claims involved in the action; (3) the options that are available to [class] members in connection with the settlement, including how to participate or not participate in the … class action and the FLSA collective action aspects of the settlement; and (4) the consequences of opting-in to the FLSA collective action, opting-out of the … class action, or doing nothing.” (Id. at *6, quoting Thompson v. Costco Wholesale Corporation, supra, 2017 WL 697895, at *8.) Here, the notice discloses the FLSA release, but does not explain what an FLSA claim is and misleadingly suggests that the original complaint alleges an FLSA violation.

While the Court might conceivably approve an appropriately structured hybrid FLSA/class action settlement, here, significant changes to the settlement would be required for the Court to approve the FLSA release before it. Further, the Court is unlikely to approve the FLSA release in this settlement unless additional consideration is provided, given that plaintiff has not included such a claim in his damages analysis. Accordingly, unless the parties agree to simply remove the FLSA release from their settlement, the Court is unlikely to grant preliminary approval at this time.

VII. Proposed Settlement Class

Plaintiff requests that the following settlement class be provisionally certified:

all persons employed in California by Defendants as hourly paid employees from January 5, 2013 through the date the Court grants Preliminary Approval of this Settlement.

A. Legal Standard for Certifying a Class for Settlement Purposes

Rule 3.769(d) of the California Rules of Court states that “[t]he court may make an order approving or denying certification of a provisional settlement class after [a] preliminary settlement hearing.” California Code of Civil Procedure Section 382 authorizes certification of a class “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court ….” As interpreted by the California Supreme Court, Section 382 requires the plaintiff to demonstrate by a preponderance of the evidence (1) an ascertainable class and (2) a well-defined community of interest among the class members. (Sav-On Drug Stores, Inc. v. Superior Court (Rocher) (2004) 34 Cal.4th 319, 326, 332.)

The “community-of-interest” requirement encompasses three factors: (1) predominant questions of law or fact, (2) class representatives with claims or defenses typical of the class, and (3) class representatives who can adequately represent the class. (Ibid.) “Other relevant considerations include the probability that each class member will come forward ultimately to prove his or her separate claim to a portion of the total recovery and whether the class approach would actually serve to deter and redress alleged wrongdoing.” (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435.) The plaintiff has the burden of establishing that class treatment will yield “substantial benefits” to both “the litigants and to the court.” (Blue Chip Stamps v. Superior Court (Botney) (1976) 18 Cal.3d 381, 385.)

In the settlement context, “the court’s evaluation of the certification issues is somewhat different from its consideration of certification issues when the class action has not yet settled.” (Luckey v. Superior Court (Cotton On USA, Inc.) (2014) 228 Cal.App.4th 81, 93.) As no trial is anticipated in the settlement-only context, the case management issues inherent in the ascertainable class determination need not be confronted, and the court’s review is more lenient in this respect. (Id. at pp. 93-94.) However, considerations designed to protect absentees by blocking unwarranted or overbroad class definitions require heightened scrutiny in the settlement-only class context, since the court will lack the usual opportunity to adjust the class as proceedings unfold. (Id. at p. 94.)

B. Ascertainable Class

“The trial court must determine whether the class is ascertainable by examining (1) the class definition, (2) the size of the class and (3) the means of identifying class members.” (Miller v. Woods (1983) 148 Cal.App.3d 862, 873.) “Class members are ‘ascertainable’ where they may be readily identified without unreasonable expense or time by reference to official records.” (Rose v. City of Hayward (1981) 126 Cal.App.3d 926, 932.)

Here, the estimated 3,300 class members have already been identified based on defendants’ records, and the class is clearly defined. The Court finds that the class is numerous, ascertainable, and appropriately defined.

C. Community of Interest

With respect to the first community of interest factor, “[i]n order to determine whether common questions of fact predominate the trial court must examine the issues framed by the pleadings and the law applicable to the causes of action alleged.” (Hicks v. Kaufman & Broad Home Corp. (2001) 89 Cal.App.4th 908, 916.) The court must also give due weight to any evidence of a conflict of interest among the proposed class members. (See J.P. Morgan & Co., Inc. v. Superior Court (Heliotrope General, Inc.) (2003) 113 Cal.App.4th 195, 215.) The ultimate question is whether the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants. (Lockheed Martin Corp. v. Superior Court, supra, 29 Cal.4th at pp. 1104-1105.) “As a general rule if the defendant’s liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages.” (Hicks v. Kaufman & Broad Home Corp., supra, 89 Cal.App.4th at p. 916.)

Here, common legal and factual issues predominate. Plaintiff’s claims all arise from defendants’ wage and hour practices applied to the similarly-situated class members.

As to the second factor,

The typicality requirement is meant to ensure that the class representative is able to adequately represent the class and focus on common issues. It is only when a defense unique to the class representative will be a major focus of the litigation, or when the class representative’s interests are antagonistic to or in conflict with the objectives of those she purports to represent that denial of class certification is appropriate. But even then, the court should determine if it would be feasible to divide the class into subclasses to eliminate the conflict and allow the class action to be maintained.

(Medrazo v. Honda of North Hollywood (2008) 166 Cal. App. 4th 89, 99, internal citations, brackets, and quotation marks omitted.)

Like other members of the class, plaintiff was employed by defendants as an hourly employee and alleges that he experienced the wage and hour violations at issue. The anticipated defenses are not unique to plaintiff, and there is no indication that plaintiff’s interests are otherwise in conflict with those of the class.

Finally, adequacy of representation “depends on whether the plaintiff’s attorney is qualified to conduct the proposed litigation and the plaintiff’s interests are not antagonistic to the interests of the class.” (McGhee v. Bank of America (1976) 60 Cal.App.3d 442, 450.) The class representative does not necessarily have to incur all of the damages suffered by each different class member in order to provide adequate representation to the class. (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 238.) “Differences in individual class members’ proof of damages [are] not fatal to class certification. Only a conflict that goes to the very subject matter of the litigation will defeat a party’s claim of representative status.” (Ibid., internal citations and quotation marks omitted.)

Plaintiff has the same interest in maintaining this action as any class member would have. Further, he has hired experienced counsel. Plaintiff has sufficiently demonstrated adequacy of representation.

D. Substantial Benefits of Class Certification

“[A] class action should not be certified unless substantial benefits accrue both to litigants and the courts. . . .” (Basurco v. 21st Century Ins. (2003) 108 Cal.App.4th 110, 120, internal quotation marks omitted.) The question is whether a class action would be superior to individual lawsuits. (Ibid.) “Thus, even if questions of law or fact predominate, the lack of superiority provides an alternative ground to deny class certification.” (Ibid.) Generally, “a class action is proper where it provides small claimants with a method of obtaining redress and when numerous parties suffer injury of insufficient size to warrant individual action.” (Id. at pp. 120-121, internal quotation marks omitted.)

Here, there are an estimated 3,300 members of the proposed class. It would be inefficient for the Court to hear and decide the same issues separately and repeatedly for each class member. Further, it would be cost prohibitive for each class member to file suit individually, as each member would have the potential for little to no monetary recovery. It is clear that a class action provides substantial benefits to both the litigants and the Court in this case.

VIII. Notice

The content of a class notice is subject to court approval. (Cal. Rules of Court, rule 3.769(f).) “The notice must contain an explanation of the proposed settlement and procedures for class members to follow in filing written objections to it and in arranging to appear at the settlement hearing and state any objections to the proposed settlement.” (Ibid.) In determining the manner of the notice, the court must consider: “(1) The interests of the class; (2) The type of relief requested; (3) The stake of the individual class members; (4) The cost of notifying class members; (5) The resources of the parties; (6) The possible prejudice to class members who do not receive notice; and (7) The res judicata effect on class members.” (Cal. Rules of Court, rule 3.766(e).)

Here, the notice describes the lawsuit, explains the settlement, and instructs class members that they may opt out of the settlement or object. The gross settlement amount and estimated deductions are provided, along with each class member’s estimated payment. Class members are informed of their qualifying workweeks as reflected in defendant’s records and instructed how to dispute this information. Class members are given 45 days to request exclusion from the class, dispute their wage statement information, or submit a written objection. The notice is generally adequate; however, it must be modified to direct class members that they may appear at the final fairness hearing and make an oral objection even if they do not submit a written objection.

Turning to the notice procedure, the parties have selected Rust Consulting Inc. as the settlement administrator. The administrator will mail the notice packet within 28 calendar days of receiving the class data, after updating addresses using the National Change of Address Database. Any notice packets returned as undeliverable will be re-mailed to any forwarding address provided or located through skip tracing. These notice procedures are appropriate.

IX. Conclusion and Order

Prior to the hearing on this matter, the parties shall meet and confer regarding the FLSA release and plaintiff’s counsel shall file a supplemental declaration addressing whether they have reached an agreement to modify the settlement in that regard.

If plaintiff’s motion for preliminary approval is granted, the final approval hearing shall take place on November 15, 2019 at 9:00 a.m. in Dept. 1.

The following class will be provisionally certified for settlement purposes:

all persons employed in California by Defendants as hourly paid employees from January 5, 2013 through the date the Court grants Preliminary Approval of this Settlement.

The Court will prepare the order.