Case Name: Xuehua Wang, et al. v. Art of Reflexology Milpitas, LLC, et al.
Case No.: 2015-1-CV-283659

This is a class action alleging that defendants misclassified employees as independent contractors and committed other wage and hour violations. Before the Court is plaintiffs’ motion for terminating or, alternatively, issue or evidence sanctions, as well as monetary sanctions. Plaintiffs contend that defendants violated the Court’s July 16, 2018 discovery order. Defendants oppose plaintiffs’ motion and seek monetary sanctions against plaintiffs.

I. Factual and Procedural Background

According to the operative First Amended Complaint (“FAC”), the “Defendant LLCs” owned, operated, and managed at least 11 massage establishments and hired massage therapists as full-time, non-exempt employees. (FAC, ¶¶ 5, 29.) Six of the Defendant LLCs remain active. (FAC, ¶ 6.) Individual defendants Chiu Hung Lam and Wah Yiu Lee created the Defendant LLCs for purposes of evading individual liabilities and they are the members of the LLCs. (FAC, ¶ 29.)

Defendants are the joint employers of plaintiffs Xuehua Wang and Wenwei Gu. (FAC, ¶ 30.) They classified plaintiffs as independent contractors and caused them to sign “independent contractor” agreements through coercion, fraud, or misrepresentation. (FAC, ¶ 31.) Lam and Lee set work hours, weekly schedules, pay rates, and pay schedules for plaintiffs, selected their work locations, and required them to perform services on the business premises and to remain there during work hours even if no patrons came in. (FAC, ¶ 33.) Plaintiffs typically worked 11 hours a day, from 10:00 a.m. until 9:00 p.m., six days a week. (FAC, ¶ 34.) Defendants generally distributed service fees and gratuities to plaintiffs three times a month, but intentionally delayed the distribution of each payment for about 10 days. (FAC, ¶ 36.) Lam and Lee required plaintiffs to pay a monthly fee in advance for the next month’s usage of equipment and materials by the 24th day of each month. (FAC, ¶ 37.) Defendants paid neither overtime compensation nor minimum wages to plaintiffs. (FAC, ¶ 38.)

The FAC, filed on November 10, 2015, sets forth the following causes of action: (1) failure to pay overtime; (2) failure to pay minimum wages; (3) failure to furnish itemized wage statements; (4) unlawful repayment of wages; (5) failure to timely pay wages due and owing upon termination of employment; (6) willful misclassification; (7) unfair competition; (8) actions under the Private Attorney General Act of 2004; and (9) failure to provide personnel files.

On September 28, 2016, the Court (Hon. Kirwan) granted plaintiffs’ motion for class certification. Due to a series of disputes between the parties, notice was not disseminated to the class until September 20, 2018. This followed the Court’s issuance of a temporary order restricting defendants’ and their counsel’s communications with class members based on evidence of prior improper contacts, and its order that the notice contain curative language addressing class members’ rights.

According to a recent case management statement, the putative class consisted of a total of 62 members, and the administrator has advised the parties that it received and verified 53 opt-out forms. This leaves nine individuals in the class, including the two named plaintiffs. Plaintiffs contend that irregularities were present in the opt-out process, which require further investigation and additional discovery. No trial date has been set.

II. Discovery Dispute

The instant motion follows the Court’s July 16, 2018 order granting plaintiffs’ motion to compel the production of documents in response to deposition subpoenas. In relevant part, Court ordered that

Defendants’ objections to the document demands are overruled, except for any objections based on the attorney-client privilege and work product doctrine applicable to individual documents. The limitations announced in defendants’ supplemental responses to requests 3, 4, 5, 6, and 9 are rejected. Upon the resumption of their depositions, Lam and Lee shall produce any remaining unprivileged documents encompassed by plaintiffs’ requests, and shall provide testimony confirming that their productions are complete as to each document demand and/or clearly stating the reason for their inability to comply with a demand or that privileged documents were withheld where appropriate.

To protect class members’ privacy interests in their financial and other information, defendants’ depositions shall not resume until after the notice and opt-out process has been completed. The class notice shall inform class members that if they elect to remain in the class, their information in defendants’ possession, including information regarding their hours worked, service fees, and tips will be produced to plaintiffs’ counsel, but that plaintiffs’ counsel will use this information only in pursuit of their rights in this action.

Given the unusually high number of opt-outs that were received, a dispute developed over the scope of the document production that defendants would make at their resumed depositions, and plaintiffs have not yet attempted to resume the depositions.

On March 22, 2019, plaintiffs filed the instant motion for sanctions. At an informal discovery conference (“IDC”) conducted on April 26, 2019, defendants’ counsel Brian Stewart agreed, without waiving defendants’ contention that no information regarding those who opted out was required to be divulged by defendants, that he would obtain the contact information of the putative class, including email and telephone numbers if available, and provide that information to plaintiffs’ counsel by May 3, 2019. The parties’ dispute regarding defendants’ privacy objections on behalf of employees who assertedly opted out of the class remains unresolved—although the Court expressed its preliminary views on the subject during the IDC—and it is unclear to what extent defendants will continue to withhold documents based on those objections. In the Court’s view, the validity of these objections is, at least in part, intertwined with the issue of whether the opt-outs that have been received were coerced.

III. Evidence of Continued Improper Communications with the Putative Class

Along with their motion to compel, plaintiffs filed two declarations addressing what they allege are defendants’ continuing improper communications with the putative class. The first declaration, by plaintiffs’ counsel, states that he and the plaintiffs

have spoken to a number of class members, who stated that defendants through proxy had contacted them and solicited them to opt out. They did not receive the class notice, and defendant mailed them only the opt-out forms. It appears that defendants intentionally provided false addresses so that they actually received the class notice, not the class members.

Plaintiffs also filed a declaration by class member Hua Liao, who states that he executed a declaration supporting defendants’ opposition to plaintiffs’ motion for class certification only because he “felt I had to sign the document because I needed the job.” He never received a class notice and never lived at the address that was listed as his for notice purposes. Mr. Liao further declares that an individual employees call “Boss Yi,” representing defendants, called him on numerous occasions in September or October of 2018 and requested that he opt out of the class and provide an address to which Boss Yi could mail the opt-out form. Boss Yi left a message on November 7, 2018, again requesting Mr. Liao’s address. Despite these requests, Mr. Liao has not signed the opt-out form. Plaintiffs’ counsel declares that he is in the process of acquiring more declarations along these lines, “and will file a properly formulated motion to address the issue.”

Defendants object to the introduction of these declarations but do not respond to them in substance. Particularly considering the unusual number of opt-outs in this case and the Court’s previous concerns about improper communications with the class, this is very troubling.

The Court intends to get a clear picture of any improper communications with the class, through testimony at a live hearing if necessary. Defendants Lam and Lee previously submitted declarations to this Court stating that they “did not initiate communications with the workers / independent contractors about their opting out of the litigation or express any personal opinions about whether the independent contractors should or should not opt out of the case once the Notice of Class Action is served.” They acknowledged their attorneys’ advice “not to have communications with [class members] about Plaintiffs’ claims and case.” However, plaintiffs now allege that defendants used proxies to solicit opt-outs from class members, a plausible conclusion based on the unusual number of opt-outs and the testimony of at least one class member. Given that allegation, the Court questions whether defendants’ declarations were submitted in good faith. If a closer look at the issue appears warranted in light of further discovery, the Court may issue an order to show cause addressed to this issue. (See Code Civ. Proc., § 128.5, subd. (a) [“A trial court may order a party, the party’s attorney, or both, to pay the reasonable expenses, including attorney’s fees, incurred by another party as a result of actions or tactics, made in bad faith, that are frivolous or solely intended to cause unnecessary delay.”].)

In the meantime, the Court will continue the hearing on the instant motion to enable plaintiffs to resume Lam and Lee’s depositions so that they may complete their production of documents in response to the deposition subpoenas and plaintiff may question them about their—and their surrogates’—contacts with the class. Plaintiffs shall also use this time to acquire additional declarations from any potential class members who were improperly contacted by defendants or their surrogates, ensuring that any translations of the declarations comply with Evidence Code section 753.

Given the serious allegations of improper communications with the class that have been made to the Court, the most recent of which defendants have not denied, and the history of issues in this regard as already discussed, the Court will also re-impose its prior order barring defendants and their counsel from communicating with potential class members about this action. “Unsupervised communications urging individuals to opt out, by their very nature, are likely to produce distorted statements on the one hand and the coercion of individuals on the other. This is especially true where the parties are engaged in an ongoing employer-employee relationship.” (Wang v. Chinese Daily News, Inc. (C.D. Cal. 2006) 236 F.R.D. 485, 490, aff’d (9th Cir. 2010) 623 F.3d 743, cert. granted, judgment vacated on another ground by (2011) 565 U.S. 801, citation omitted.) Here, there is evidence of improper communications during the opt-out period despite the Court’s clear warning to defendants regarding such communications and its ordering of curative notice on a prior occasion. The harm arising from such communications is likely and severe, and there is no less onerous alternative than restricting defendants’ communication with the class while the issue is resolved. (See ibid.; see also Gainey v. Occidental Land Research (1986) 186 Cal.App.3d 1051, 1058 [defendant does not have an unrestricted right to communicate with class members during the opt-out period].)

IV. Conclusion and Order

Plaintiffs’ motion for sanctions is CONTINUED TO AUGUST 2, 2019 at 9:00 a.m. in Department 1. The resumed depositions of defendants Lam and Lee, which shall address their communications with the class at any time during this action, shall be completed by June 7, 2019. Plaintiffs shall file the deposition transcripts with the Court by July 12, 2019, along with any additional declarations by potential class members who may have been improperly contacted by defendants or their agents. By July 19, 2019, the parties shall file supplemental briefs not to exceed 10 pages in length addressing the merits of plaintiffs’ allegations that defendants have improperly contacted class members during this litigation. Defendants’ supplemental brief shall identify the specific categories of documents that were withheld from production on the basis of class member privacy, if any. Because the Court will not address the privacy issues raised by the parties until the August 2 hearing, the parties shall brief their positions regarding the privacy issues assuming that (1) the opt-outs that were received are valid, or (2) the opt-outs were coerced. At that time, the Court will also address defendants’ argument that plaintiffs’ motion for sanctions was improperly filed.

From the time this order is entered until further order of the Court, defendants and their counsel are barred, directly or through any employee or other agent or surrogate, from (1) initiating any communications with potential class members regarding this action and (2) expressing any view to potential class members regarding whether they should remain in the action or opt out of it.

The Court will prepare the order.