Case Name: Gerardo Castellanos v. Service by Medallion, et al.
Case No.: 2015-1-CV-288369

This is a putative wage and hour class action by employees of defendant Service by Medallion. Before the Court is plaintiff’s unopposed, renewed motion for preliminary approval of a class settlement.

Plaintiff’s request for judicial notice of his prior motion for preliminary approval and the Court’s order denying that motion without prejudice is GRANTED. (Evid. Code, § 452, subd. (d).)

I. Factual and Procedural Background

According to the complaint, defendant is a building services management company offering janitorial and maintenance supplies, facilities temporary staffing, tenant improvement, building repair and maintenance, and other services. (Complaint, ¶ 12.) It has over 800 full time employees and is headquartered in Mountain View, California. (Ibid.) Plaintiff alleges that he and other class members spent a majority of their working hours performing non-exempt duties such as event setup, building repairs and maintenance, janitorial services, cleaning, and servicing customers. (Id. at ¶ 13.) However, defendant did not comply with various wage and hour laws applicable to the putative class. (Id. at ¶ 16.)

Plaintiff filed this action on November 23, 2015. The complaint asserts claims for (1) failure to pay overtime wages; (2) failure to provide meal periods; (3) failure to provide rest periods; (4) failure to furnish accurate wage statements; (5) failure to pay earned wages upon termination or discharge; (6) failure to maintain required records; (7) failure to indemnify for expenses; and (8) unfair competition (Business & Professions Code section 17200 et seq.).

In addition to this putative class action, plaintiff filed an individual action against defendant alleging disability discrimination and wrongful termination. That action was assigned to another department in this Court and was dismissed following a settlement in October 2016. Meanwhile, a second plaintiff filed a related action against defendant under the Private Attorneys Act (“PAGA”) in San Mateo County. That action, Gamarra v. Service By Medallion, et al. (Super. Ct. San Mateo County, No. CIV538661) (hereinafter, “Gamarra”), was stayed in favor of this one in October 2016.

The parties reached a global settlement of the instant action and the Gamarra PAGA action. On January 31, 2018, plaintiff filed her original motion for preliminary approval of the settlement. The Court denied the motion without prejudice, citing the low value of the settlement in light of its reversionary, claims-made structure. The parties subsequently re-engaged in settlement discussions and arrived at a revised settlement.

Plaintiff now moves for an order preliminarily approving the revised 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 Standard 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.)

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. (2008) 168 Cal.App.4th 116, 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” the Private Attorneys General Act (“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 a 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 the declaration supporting plaintiff’s original motion, plaintiff served written discovery requests and received information regarding the class size, time and punch records for a sample of approximately 7.5 percent of the class, defendant’s written policies and procedures, and contact information for class members. Counsel interviewed a number of putative class members regarding their work experience and the claims at issue herein. After analyzing this information and performing other research, counsel evaluated defendant’s potential liability as well as its financial status and ability to fund a settlement.

After eighteen months of litigation, the parties participated in a full-day mediation with Jeffrey Krivis. They were unable to come to agreement that day, but the session resulted in a mediator’s proposal to which the parties agreed after further negotiations. The Court denied plaintiff’s motion for preliminary approval of this original settlement.

Counsel now declares that in the months that followed the Court’s ruling, the parties re-engaged in settlement discussions and again mediated their case before Mr. Krivis. They executed an amended settlement agreement that eliminated the claims process and reversion to defendant that the Court had rejected. The gross settlement amount was also increased, from $1,300,000 to $1,350,000.

IV. Resolution of Related Actions

Plaintiff Castellanos’s individual settlement agreement was lodged confidentially for the Court’s review prior to the hearing on his original motion for preliminary approval. Having completed that review, the Court is satisfied that plaintiff’s individual claims were settled independently and fairly to the putative class.

The parties have agreed that, in the event their settlement is preliminarily approved, plaintiff’s counsel will dismiss the Gamarra action and will file an amended complaint herein adding a PAGA claim and naming Mr. Gamarra as a plaintiff in addition to Mr. Castellanos. The Court finds no issue with this procedure.

V. Provisions of the Settlement

The $1,350,000 non-reversionary settlement includes a $5,000 payment to the California Labor and Workforce Development Agency associated with plaintiffs’ PAGA claim (seventy-five percent of the $6,667 allocated to PAGA penalties). Attorney fees of up to $472,500 (thirty-five percent of the gross settlement), litigation costs not to exceed $20,000, and administration costs not to exceed $23,500 will also be paid from the gross settlement. The named plaintiffs—both Castellanos and, following the amendment of this action, Gamarra—will seek enhancement awards of $7,500 each. Class member payments will be allocated 35 percent as wages and otherwise as penalties and interest. Defendant will pay its share of any payroll taxes separately, without reducing the settlement fund.

Due to defendant’s financial condition, the settlement will be funded in two payments, with the first installment of $850,000 due within three weeks of final approval and the second installment of $500,000 due a year later. The class representative service awards and LWDA payment will be satisfied in full from the first installment, while the class member payments and other fees and costs will be satisfied 62.4 percent from the first installment and the remainder from the second installment.

The net settlement will be distributed to class members pro rata based on the number of weeks worked by each class member during the class period. Class members will not be required to submit a claim to receive their payments. Checks uncashed after 180 days will be voided and the associated funds will be paid to cy pres recipients specified by the parties. The average class member payment will be $197.76 to each of the 4,116 class members, increased from $157.92 under the original settlement.

Class members who do not opt out of the settlement will release all claims “that could have been asserted against the Released Parties based upon the facts alleged in the Class Action Complaint filed in [this] Action, or in [Gamarra] … from November 23, 2011 to February 23, 2018,” including specified wage and hour claims.

VI. Settlement Fairness

In support of plaintiff’s original motion for preliminary approval, plaintiff’s counsel submitted a declaration discussing the merits of the settled claims. According to the declaration, defendant produced compliant written policies and time records reflecting that substantially compliant meal periods were provided. Defendant argued that any occasional violations resulted from individual supervisors failing to comply with its policies or from individual class members choosing to skip their meal or rest breaks. It further urged that all employees were paid overtime at the proper rates, again as supported by time and payroll records. Defendant argued that its employees work different schedules at different customer sites, and that the practices and procedures at the various sites would require individualized analysis. Meanwhile, plaintiff’s counsel reviewed defendant’s profit and loss statements and other financial documents to confirm that defendant’s financial condition put a ceiling on the amount that it could pay to resolve this case while remaining in business.

At the Court’s direction, counsel submitted a supplemental declaration on February 22 that disclosed plaintiff’s valuation of the claims in this action. Counsel explained that, based on the theory that defendant falsified its records, plaintiff estimated the maximum value of the case at over $16 million. He assumed a 20 to 25 percent violation rate for meal and rest periods and an hour of unpaid overtime per pay period. Plaintiff estimated that the case had a realistic value of approximately $2,676,169, accounting for issues like the risk that the class will not be certified for lack of commonality. The revised settlement thus represents about eight percent of the maximum value of the case, as compared to the original settlement of about four percent. The supplemental declaration emphasized that defendant’s financial condition was a critical factor in the settlement, and with his renewed motion, plaintiff submits declarations on this subject by defendant’s chairman and founder and by its accountant. The declarations support plaintiff’s conclusion that defendant would risk failing to meet its other financial obligations if it paid more to settle this action than the parties have agreed.

While the revised settlement still represents a relatively small percentage of the maximum value of the case, the Court finds it within the range of reasonableness for purposes of preliminary approval. A large part of the settlement’s maximum value is attributable to penalties whose recovery is highly uncertain, and collecting on a larger judgment against defendant without driving it to bankruptcy appears unlikely considering its financial condition. Notably, the parties improved the settlement after the Court denied plaintiff’s original motion for preliminary approval by removing the requirement that class members submit a claim to receive payment and by increasing the consideration for the settlement by $50,000. The Court appreciates these efforts and credits the parties’ conclusion that this is the best result that can be achieved in light of defendant’s financial condition.

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.) To be clear, the Court is disinclined to award more than the typical 1/3 of the common fund in attorney fees in this case; in any event, 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].)

VII. Proposed Settlement Class

Plaintiff requests that the following settlement class be provisionally certified:

All current and former non-exempt employees employed by Defendant in California at any time between November 23, 2011 and February 23, 2018, excluding any officers or directors of Defendant and any person who has already released the Released Claims through a prior action or settlement.

Plaintiff proposes that both he and Mr. Gamarra be certified as class representatives.

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 4,116 class members have already been identified based on defendant’s records, and the class is clearly defined. The parties have limited both the class period and the release to accommodate the delay occasioned by the renegotiation of their settlement without reducing class members’ individual settlement payments. The Court consequently 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. Plaintiffs’ claims all arise from defendant’s 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, plaintiffs were employed by defendant and allege that they missed meal and rest breaks and were not paid overtime. The anticipated defenses are not unique to plaintiffs, and there is no indication that plaintiffs’ 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.)

Plaintiffs have the same interest in maintaining this action as any class member would have. Further, they have hired experienced counsel. Plaintiffs have 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 4,116 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. 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 60 days to request exclusion from the class, dispute their workweek information, or submit a written objection. The notice will be provided in English with a Spanish translation.

The notice is generally adequate, but must be modified to indicate that class members may appear at the final fairness hearing to make an oral objection without submitting a written objection or notice of intention to appear. In addition, the notice must be modified to provide class members’ estimated payments on the first page of the notice. Finally, the first page of the notice must clearly explain that the settlement will be paid in two installments, specify the timing of the installments, and disclose that final distributions will likely not be made for over a year following final approval of the settlement. The notice must instruct class members to keep their contact information updated for this reason.

Turning to the notice procedure, the parties have selected CPT Group, Inc. as the settlement administrator. The administrator will mail the notice packet within 30 calendar days of preliminary approval, after updating class members’ addresses using the National Change of Address database. Any notice packets returned as undeliverable will be re-mailed to any forwarding address provided or updated address located through reasonable efforts. Class members whose notice packets are re-mailed shall have are least 14 days to submit a response. These notice procedures are appropriate and are approved.

IX. Conclusion and Order

Plaintiff’s motion for preliminary approval is GRANTED subject to the modifications to the class notice ordered above. The final approval hearing shall take place on April 26, 2019 at 9:00 a.m. in Dept. 1.

The following class is provisionally certified for settlement purposes:

All current and former non-exempt employees employed by Defendant in California at any time between November 23, 2011 and February 23, 2018, excluding any officers or directors of Defendant and any person who has already released the Released Claims through a prior action or settlement.

The Court will prepare the order.