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, due to defendants’ asserted violation of the Court’s July 16, 2018 discovery order. Defendants oppose plaintiffs’ motion and seek monetary sanctions against plaintiffs.

As discussed below, the resolution of plaintiffs’ motion has been delayed by a series of disputes regarding the issuance of notice to the class and the unusual number of opt-outs that were received after notice issued. Given the evidence that improper communications with the class tainted the notice process, the Court will issue an order to show cause regarding the invalidation of the opt-outs that have been received and the issuance of curative notice to be paid for by the defendants.

I. Allegations of the Operative Complaint

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. (Id. at ¶ 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. (Id. at ¶ 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. (Id. at ¶ 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. (Id. at ¶ 33.) Plaintiffs typically worked 11 hours a day, from 10:00 a.m. until 9:00 p.m., six days a week. (Id. at ¶ 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. (Id. at ¶ 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. (Id. at ¶ 37.) Defendants paid neither overtime compensation nor minimum wages to plaintiffs. (Id. at ¶ 38.)

The FAC, filed on November 10, 2015, sets forth the following causes of action on behalf of plaintiffs and a class of similarly situated workers: (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.

II. Factual and Procedural Background

Over three years ago, on September 28, 2016, the Court (Hon. Kirwan) granted plaintiffs’ motion to certify the class in this action. Notice was not disseminated to potential class members for more than two years due to a series of disputes between the parties. In March of 2018, plaintiffs brought these disputes to the Court’s attention by filing a motion to compel the production of documents in response to deposition subpoenas, as well as a motion for “prophylactic measures” regarding defendants’ allegedly improper communications with the class.

A. Motion for Prophylactic Measures

In an order filed on July 16, 2018, the Court temporarily restricted defendants’ and their counsel’s communications with class members based on evidence of prior improper contacts, and ordered that the class notice contain curative language addressing class members’ rights. The Court’s order was based on defense counsel Brian Stewart’s statement in meet and confer correspondence that “[i]t is my understanding that other than [the named plaintiffs], all other potential members of the ‘class’ have indicated that they will opt out once notice is given.” In response to plaintiffs’ motion for prophylactic measures, defendants initially failed to explain Mr. Stewart’s statement or deny that improper communications with the class occurred. Accordingly, the Court continued the hearing on the motion and ordered defendants Lam and Lee to file declarations “fully disclosing and describing their communications with class members—before or after the class was certified—regarding this action and class members’ option to opt out of it,” and to file declarations “on the same subjects by any counsel or former counsel at the Law Offices of Sam X.J. Wu, APC who communicated directly with class members.”

In his subsequent declaration, Mr. Stewart explained that his statement regarding opt-outs was based on his review of the evidence filed in opposition to plaintiff’s motion for class certification, and that he did not personally communicate with any of the class members. The evidence Mr. Stewart referred to consisted of 46 virtually identical class member declarations that were submitted in opposition to plaintiffs’ motion to certify the class, each of which stated that the declarant did not intend “to file or join a lawsuit as plaintiff against Art of Reflexology because I am at all times an independent contractor …. I do not believe I have any grounds or evidence to substantiate any legal or administrative actions, including class actions …[,] in regards to misclassification of employees as independent contractors.” The declarations concluded with the statement, “I hereby certify that Art of Reflexology never owes me any fees or incomes [sic.] during my work relationship with it.”

Along with Mr. Stewart’s declaration, defendants Lam and Lee filed declarations stating in identical terms that class members signed the declarations relied on by Mr. Stewart voluntarily, were not offered compensation to sign, and were not threatened with termination if they did not sign. Each defendant declared that “[a]fter the Declarations were signed, I 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 ….” However, “some of them casually approached me to ask about the litigation and to express their desire not to be part of the action filed against Defendants. As these brief conversations occurred years ago, I do not presently recall which workers / independent contractors approached me or exactly when such brief conversations occurred.” Defendants also submitted declarations by various attorneys at Mr. Wu’s firm who have represented them over the course of the action, who all declared that they had no direct communications with the class. The defendants and their various attorneys consistently declared that defendants were advised not to communicate with class members about this case.

In an order filed on August 15, 2018, the Court concluded there was no evidence that improper communications with that class had occurred “after the class was certified,” and stated that it “accepts defendants’ representations that they will follow their attorneys’ instructions not to communicate directly with the class about this action.” The Court consequently lifted the formal order restricting defendants’ communications with the class, but ordered that a curative statement addressing the class member declarations be included in the class notice.

B. Motions to Compel the Production of Documents and for Sanctions

Meanwhile, on July 16, 2018, the Court granted plaintiffs’ motion to compel responses to 44 document demands included in deposition notices served on defendants Lam and Lee, ordering as follows:

Defendants’ objections to the document demands are overruled …. 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.

Notice incorporating the curative statement ordered by the Court was disseminated to the class on September 20, 2018.

According to a subsequently filed case management statement, although the putative class consisted of only 62 individuals (including the two named plaintiffs), the administrator received 53 opt-out forms in response to the class notice. Plaintiffs contend that defendants interfered with the opt-out process and even falsified employees’ signatures on opt-out forms.

Plaintiffs raised these issues in connection with the instant motion for discovery sanctions, which was filed on March 22, 2019. The grounds for the motion are defendants’ asserted violations of the Court’s July 16th order granting plaintiffs’ motion to compel the production of documents at defendants’’ resumed depositions. However, by the time plaintiffs filed their motion, a dispute had developed over the scope of the document production that defendants would make at their resumed depositions in light of the opt-outs that were received, and plaintiffs had not attempted to resume the depositions. In an order filed on May 16, 2019, the Court observed that the proper scope of defendants’ document production was “at least in part, intertwined with the issue of whether the opt-outs that have been received were coerced,” and discussed preliminary evidence that an individual known as “Boss Yi” had solicited opt-outs on defendants’ behalf. It stated that it would

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.

The Court ordered the parties to file supplemental briefs “addressing the merits of plaintiffs’ allegations that defendants have improperly contacted class members during this litigation” and as well as “their positions regarding the privacy [objections raised by defendants] assuming that (1) the opt-outs that were received are valid, or (2) the opt-outs were coerced.”

C. Continued Proceedings on Plaintiffs’ Motion for Sanctions

Prior to the continued hearing on the motion for sanctions, the deposition of defendant Lee was resumed but was only partially completed, and the deposition of defendant Lam was not resumed. Plaintiffs filed additional employee declarations to support their claims of improper communications with the class, which are discussed below. The Court issued a tentative ruling indicating that it would briefly continue the hearing on the motion for sanctions for a second time to enable plaintiffs to complete defendants’ depositions as directed.

Meanwhile, on July 30, 2019—three days before the continued hearing on plaintiffs’ motion—defendants’ counsel Sam X.J. Wu filed a notice indicating that this action was stayed with regard to all parties as a result of the automatic stay triggered by the bankruptcy of defendant Art of Reflexology Newark, LLC, one of the several LLC defendants. The Court discussed the bankruptcy with the parties at the hearing on plaintiffs’ motion for sanctions and stated in its subsequent order (filed on August 12), that it would “take no further action on the case, including with regard to the pending motion for sanctions, until it decides a motion to stay to be filed by defendants by August 16, 2019.” The Court subsequently denied the motion to stay, which it found to be meritless. Its order filed on September 23, 2019 concluded:

As agreed by the parties at the hearing, the deposition of defendant Wah Yiu Lee will be completed on October 21, 2019, and the deposition of defendant Chiu Hung Lam will be completed on November 4, 2019 or an earlier date selected by the parties. The hearing on plaintiffs’ motion for discovery sanctions will proceed on November 22, 2019 at 9:00 A.M. in Department 1. Plaintiffs shall lodge transcripts of defendants’ depositions and file any additional employee declarations that they may obtain in support of their claims of improper communications with the class and forging of employees’ signatures on opt-out forms as soon as possible, and in any event by November 7, 2019. Also by November 7, the parties shall submit supplemental briefs of up to three pages addressing the status of defendants’ document production following the depositions and identifying the specific categories of documents that were withheld from production on the basis of class member privacy, if any. No further briefing is authorized.

Defendants’ counsel Sam Wu shall make all future appearances before this Court on defendants’ behalf, whether they be in person or by telephone. The Court’s tentative ruling on plaintiffs’ motion for sanctions will indicate whether Mr. Wu will be required to appear in person on November 22.

The Court has now received the transcripts of Lam and Lee’s depositions, which were completed on October 21 and 22, 2019, as well as the parties’ supplemental briefing filed in response to its May 16th and September 23rd orders. It has also received and reviewed further supplemental briefing regarding the status of defendants’ document production filed at its direction on November 18 and 20. Having reviewed and considered these materials, as well as the declarations filed by plaintiffs regarding defendants’ alleged interference with the notice process, the Court is prepared to address plaintiffs’ motion for discovery sanctions and their allegations of improper communications with the class.

III. Motion for Discovery Sanctions

Plaintiffs move for terminating, issue, or evidence sanctions against defendants pursuant to Code of Civil Procedure sections 2025.480, et seq., based on defendants’ asserted violation of the Court’s June 16th, 2018 discovery order. Plaintiffs also seek monetary sanctions against defendants and their counsel to defray the fees and costs they incurred in bringing their motion. Defendants oppose plaintiffs’ motion and request monetary sanctions against plaintiffs and their counsel.

A. Legal Standard

If a responding party fails to obey an order compelling a response to a deposition notice, the court may make those orders that are just, including the imposition of issue, evidence, or terminating sanctions under Code of Civil Procedure section 2023.030, subdivision (c). (Code Civ. Proc., § 2025.480, subd. (k).) In lieu of or in addition to those sanctions, the court may impose a monetary sanction. (Id., §§ 2023.030, subd. (a), 2025.480, subd. (k).)

Two facts are generally prerequisite to the imposition of non-monetary sanctions: (1) there must be a failure to comply with a court order and (2) the failure must be willful. (Liberty Mutual Fire Ins. Co. v. LcL Administrators, Inc. (2008) 163 Cal.App.4th 1093, 1102.) It is the moving party’s burden to demonstrate the responding party’s failure to obey the earlier discovery order. (Do It Urself Moving & Storage, Inc. v. Brown, Leifer, Slatkin & Berns (1992) 7 Cal.App.4th 27, 37, superceded by statute on another ground as stated in Union Bank v. Superior Court (Demetry) (1995) 31 Cal.App.4th 573, 582-583.) If that burden is satisfied, the burden of proof then shifts to the responding party to prove its failure to comply was not willful. (Cornwall v. Santa Monica Dairy Co. (1977) 66 Cal.App.3d 250, 252-253, citing Frates v. Treder (1967) 249 Cal.App.2d 199, 204.)

Although a failure to obey a prior court order is generally required to impose a nonmonetary sanction, some courts have made exceptions for sufficiently egregious misconduct. (See New Albertsons, Inc. v. Superior Court (Shanahan) (2008) 168 Cal.App.4th 1403, 1426 [requirement of a prior order “provides some assurance that such a potentially severe sanction will be reserved for those circumstances where the party’s discovery obligation is clear and the failure to comply with that obligation is clearly apparent”; however, egregious discovery misconduct may justify the imposition of nonmonetary sanctions without a prior order]; see also Bell v. H.F. Cox, Inc. (2012) 209 Cal.App.4th 62, 76 [plaintiffs not entitled to evidence sanction absent violation of a court order “or other egregious misconduct”].) These courts have imposed nonmonetary sanctions where the sanctioned party cannot provide discovery it promised it would provide; the sanctioned party misrepresented the existence or availability of discovery; an order would be futile because discovery is unavailable, or was stolen or destroyed; the sanctioned party repeatedly and falsely assured the requesting party that all responsive discovery had been produced; or the sanctioned party’s actions materially impaired the court’s ability to ensure the orderly administration of justice. (New Albertsons, supra, 168 Cal.App.4th at pp. 1424-1431.)

B. Defendants’ Compliance with the Court’s Order

In their supplemental brief filed on November 7, 2019, plaintiffs contend that defendants have failed to fully respond to document requests in Lam and Lee’s deposition notices as follows:

(a) Documents in response to RFD No. 2 are incomplete as Defendants did not provide contact phone numbers for the 19 omitted class members.
(b)
(c) in response to Plaintiff requests for documents (RFD), No. 3-10, Defendants produced the documents only pertaining to some of the nine (9) class members, and even on them, the documents appear to be incomplete. In other words, Defendants are still withholding the documents relating to those “opt-out” and “omitted” class members. The scope of the production was discussed and confirmed by the opposing counsel at deposition of Susan Lam on October 22, 2019.
(d)
(e) No documents were produced in response to No., 15, 18, 22, 41-44.
(f)
(g) Documents in response to RFD No. 34-35, 39-40 are incomplete.
(h)

At the Court’s direction, defendants filed a supplemental brief on November 18, 2019 responding to these assertions. With regard to categories (a), (c), and (d), defendants state that the requested documents have been produced, cannot be located, or do not exist, although they state that they are still looking for documents responsive to request nos. 15 (which seeks defendants’ lease agreements) and 39 (which seeks documents showing wages or other compensation paid to defendant Lee by the LLC defendants). Defendants also state that they produced documents responsive to request no. 43 (which seeks documents showing any cash distributions to defendant Lam by the LLC defendants) on November 4 and 18, 2019—after the resumed depositions of Lam and Lee had been completed. Finally, in their supplemental brief filed on November 5, 2019, defendants state that they made other supplemental productions on October 24 and November 4, again after the depositions were completed. Thus, defendants essentially admit they did not fully comply with the Court’s order by producing, at the resumed depositions, all documents called for by the deposition notices that were in their possession at the time.

In addition, defendants state that they did not respond to request nos. 3-10 as to workers who opted out of the class, in order to protect the workers’ privacy interests in their financial information. However, request no. 3, which seeks documents reflecting “service fees collected from massage customers” and request no. 5, which seeks documents showing “tips collected from massage customers” do not appear to implicate workers’ privacy in their financial information. The Court thus concludes that defendants have not fully complied with the Court’s order as to these requests, either.

In a responsive supplemental brief filed on November 20, 2019, plaintiffs dispute that defendants do not have documents responsive to the requests identified in categories (a), (c), and (d) above. While they fail to cite evidence to support this conclusion as to most of the requests, they do so as to two categories of documents. First, request no. 22 seeks documents regarding payments of the premiums of professional malpractice/liability insurance or E&O (errors and omissions) insurance. Defendants state in their supplemental brief that they purchased no such insurance; however, Lee testified during his October 21st deposition that “[t]he company bought liability insurance.” Similarly, request no. 41 seeks documents concerning payments of wages or other compensation to “the manager whose first name is Lisa” from the LLC defendants. Defendants state in their supplemental brief that “[n]one of the companies paid Lisa.” However, in his June 18th deposition, Lee testified that the company did pay Lisa wages by check, and that it issued wage statements to her. Based on Lee’s testimony, the Court concludes that defendants have not fully complied with its order as to these requests as well.

Remaining to be addressed are defendants’ responses to request nos. 4 and 6-10. Again, defendants indicate that they responded to these requests, which seek information regarding payments made to potential class members, only as to those individuals who did not opt out of the class. They correctly note that the Court’s June 16th, 2018 discovery order anticipated this approach and recognized that class members have valid privacy interests in their financial information. Given these circumstances, the Court does not find that defendants violated its June 16th order by declining to produce the financial information of individuals who apparently opted out of the class.

Plaintiffs assert that defendants’ privacy objections lack merit because such objections are invalid in the context of a PAGA action; class members’ privacy interests are appropriately balanced against plaintiffs’ need to discover their financial information through the production of the information subject to a protective order; and workers who signed declarations supporting defendants’ opposition to plaintiffs’ motion for class certification waived their privacy rights, which defendants also waived by failing to raise a privacy objection at the first opportunity. Plaintiffs cite no authority supporting their waiver argument, which lacks merit. (See Boler v. Superior Court (Everett) (1987) 201 Cal.App.3d 467, 472, fn. 1 [cautioning against the application of an “inflexible waiver rule” in the context of privacy objections, particularly where third party privacy is at issue]; Heda v. Superior Court (Davis) (1990) 225 Cal.App.3d 525, 530 [rejecting argument that privacy objection must be raised at earliest opportunity; no privacy waiver where defendant had not disclosed or consented to the disclosure of a significant part of the information at issue].) The Court also finds that workers’ privacy interests remain valid in the context of a PAGA action and notes that Williams v. Superior Court (Marshalls of CA, LLC) (2017) 3 Cal.5th 531 appears to endorse the notice and opt-out procedure adopted in this case and typically employed in the class action context as an appropriate means of balancing workers’ privacy interests against a plaintiff’s need to discover their employment information.

Still, the Court recognizes plaintiffs’ argument that the resolution of privacy objections requires the balancing of the specific privacy interests at stake against the plaintiff’s need for discovery in a particular case. It acknowledges that plaintiffs were not able to brief this issue given defendants’ belated assertion of privacy objections in response to plaintiffs’ motion to compel. Moreover, the extremely unusual number of opt-outs that were ultimately received was not anticipated by plaintiffs or the Court, and may bear on plaintiffs’ need for the information of individuals that have purportedly opted out of the class. For the reasons discussed below, the Court is prepared to find that the opt-outs that have been received must be invalidated and curative notice must issue. In light of these circumstances, plaintiffs will be permitted to renew their argument that their need for discovery outweighs workers’ privacy interests in their financial information in a future motion, if appropriate.

C. Plaintiffs’ Requests for Sanctions

As discussed above, the Court finds that defendants have not fully complied with its June 16th, 2018 discovery order. While defendants have failed to offer a satisfactory explanation for their noncompliance, the Court declines to impose nonmonetary sanctions at this juncture. Terminating sanctions are clearly premature, and plaintiffs fail to specify the issue or evidence sanctions that they believe would be appropriate under the circumstances. In any event, “[t]he discovery statutes … evince an incremental approach to discovery sanctions, starting with monetary sanctions and ending with the ultimate sanction of termination.” (Lopez v. Watchtower Bible & Tract Society of New York, Inc. (2016) 246 Cal.App.4th 566, 604, internal citation and quotations omitted.) A severe nonmonetary sanction such as a terminating sanction “should generally not be imposed until the court has attempted less severe alternatives and found them to be unsuccessful and/or the record clearly shows lesser sanctions would be ineffective.” (Ibid.) Here, such circumstances are not yet present.

However, in lieu of or in addition to a nonmonetary sanction, the Court may impose a monetary sanction for noncompliance with an order compelling responses to a deposition notice. (Code Civ. Proc., § 2025.480, subd. (k).) There is no requirement that the failure to comply have been willful. (See Puritan Ins. Co. v. Superior Court (Tri-C Machine Corp.) (1985) 171 Cal.App.3d 877, 883-884.) The Court finds a monetary sanction is appropriate here. Although defendants have urged that plaintiffs’ motion for sanctions was premature because it was filed before Lam and Lee’s depositions were resumed, those depositions have now been resumed and completed, and defendants still have not fully complied with the Court’s order. The Court finds that a monetary sanction is warranted in light of these circumstances, and is necessary to ensure that defendants finally produce all documents responsive to plaintiffs’ requests that may still be in their possession. While defendants urge that they would have complied with the Court’s order without the need for plaintiffs to move for sanctions, the Court does not accept this representation and finds that plaintiffs acted reasonably, if somewhat prematurely, in filing their motion.

Plaintiffs request $7,275 in monetary sanctions against defendants and their counsel, jointly and severally. Their counsel submits a declaration stating that he spent 19.2 hours conducting legal research and drafting the moving papers in support of plaintiffs’ motion for sanctions, and expected to spend 3 more hours reviewing defendants’ opposition and attending the hearing. This is a reasonable amount of time to have spent on the motion, and counsel’s billing rate of $325 is also reasonable. The Court will therefore award the requested sanctions for attorney time (22.2 hours x $325/hr. = $7,215), in addition to the $60 filing fee.

D. Defendants’ Request for Monetary Sanctions

Finally, defendants request monetary sanctions against plaintiffs and their counsel, arguing that their motion for sanctions was frivolous and “unnecessary.” The Court disagrees with this characterization for the reasons already discussed. In any event, defendants fail to cite appropriate authority supporting their request: Code of Civil Procedure section 2030.290 governs motions to compel further responses to interrogatories and Code of Civil Procedure section 2023.030 does not itself support an award of sanctions. (See New Albertsons, Inc. v. Superior Court, supra, 168 Cal.App.4th at p. 1422 [“Section 2023.030 authorizes a court to impose the specified types of sanctions, “[t]o the extent authorized by the chapter governing any particular discovery method or any other provision of this title.” (Ibid.) This means that the statutes governing the particular discovery methods limit the permissible sanctions to those sanctions provided under the applicable governing statutes.”].) Defendants’ request will accordingly be denied.

D. Conclusion and Order

Plaintiffs’ motion for discovery sanctions is DENIED as to nonmonetary sanctions and GRANTED IN PART as to monetary sanctions. Defendants and their counsel shall pay plaintiffs’ counsel $7,275 within 20 calendar days of the filing of this order.

Defendants’ request for monetary sanctions is DENIED.

IV. Order to Show Cause Regarding Curative Notice to the Class

While discovery sanctions are not the appropriate method to address plaintiffs’ allegations that the unusual number of opt-outs in this action resulted from coercion, the Court finds that these allegations have merit and must be addressed. For the reasons discussed below, it will issue an order to show cause regarding the invalidation of the opt-outs and the issuance of curative notice to be paid for by the defendants.

A. Evidence of Improper Communications with the Class

On July 22, 2019, plaintiffs submitted a declaration by class member Hua Liao stating that Mr. Liao stopped working for defendants in October of 2016, never lived at the address to which his notice was sent, and never received the class notice. In September or October of 2018, an individual called “Boss Yi” called Mr. Liao and asked him to sign the opt-out form included with the class notices. Boss Yi called again after May 10, 2019, when the Court re-imposed its order barring defendants from communicating with the class about this action.

Plaintiffs also submitted a declaration by potential class member Feng Xiao, stating that the declarant never received the class notice or opt-out postcard, and is “positively sure” that a signature on a postcard bearing his name is not his signature.

In addition, plaintiffs provided a declaration by potential class member Yanjun Xu, also stating that the declarant never received the class notice. Mr. Xu declares as follows:

On the afternoon of September 27, 2018, Mr. Lee asked me to meet him at a restaurant in the mall where the Newark massage parlor was stationed, to discuss the matter of arranging for me to be transferred to other massage parlor, and to pay me the wages owed. But once we met, he immediately asked me to sign [an opt-out postcard]. I did not know what the document was, and Mr. Lee did not explain what it was, either, but in order to get the wages and job, I signed it. … Now I understand what I signed is a Request to be Excluded from the Class Action …. But I do not want to be excluded from the class action, I implore the court to allow me to withdraw the request to be excluded ….

Defendants deny that these statements are true. In his partial deposition on June 18, 2019, defendant Lee testified that Mr. Xu formerly rented space at 27570 Stromberg Court in Hayward, a property rented by the defendants from 2003 or 2004 until 2016 “[s]o that the masseuse have a place to stay.” Defendants sublet the home to massage workers, first for “five or six dollars a day” because they came and went so frequently, then for $300-400 a month per room. Lee initially testified that he purchased the house in 2016 or 2017 and continued to rent it to massage workers until he sold it because it “was in such a decrepit condition, it was too difficult to continue to rent it.” He stated that the remaining massage workers moved out in July or August of 2018—around the same time that the parties were litigating the form of notice that would issue to the class and defendants filed their declarations denying that they had any improper communications with the class. Still, defendants continued to mail documents—including class notices—to the Stromberg Court house as workers’ last-known address.

With regard to Mr. Xu, Lee testified that

He was staying [at Stromberg Court] the whole time until that time when he want to move out. After he moved out, we didn’t have his new address. That was his last-known address. When I went to collect rent, my renter gave me some mail, and I found a mail for him, Mr. Xu, X-u. So I delivered the letter to him [at the mall where he was working at the time].

Lee denied opening this “letter” and stated that he gave it to Mr. Xu with several other unopened letters and did not ask Mr. Xu to sign the opt-out postcard. He acknowledged delivering mail to other former Stromberg Court residents in the same manner. Although he had previously stated that he sold the house, Lee later testified that after the massage workers moved out in August of 2018, “I rent out the place to other people. It’s very easy to rent places now. The rent I get is quite high.” When plaintiffs’ counsel reminded Lee that he had testified that the house was in such bad condition in August of 2018 that it was too difficult to rent, Lee responded, “But for Chinese people, they rented it because it’s cheap. Once they rent the whole place, it’s cheap.” He testified that an individual with the last name of Yang rented the house for about three months and sublet it to other people, but moved out in early 2019.

During his resumed deposition on October 21, 2019, Lee denied forging any signatures on opt-out forms, but stated that he “[didn’t] know” whether an agent for the company signed Mr. Xiao’s opt-out form. He stated that “Boss Yi was a previous boss of Hua Liao,” meaning that he was an owner of one of the therapist facilities for which defendants’ workers performed services. He stated that Boss Yi never worked for any of the defendants “formally,” but testified that “he’s a friend. Sometimes he helped out.” After plaintiffs’ counsel asked how Boss Yi came into possession of the class notice, Lee initially responded, “How would he get the notification? I don’t even understand what you’re talking about.” However, after reading Mr. Liao’s declaration, he stated, “After looking at this paragraph, I recall that because Liao Hua used to work for Boss Yi, so we tried to get Mr. Liao’s correct address through Boss Yi.” He stated that the address to which Mr. Liao’s notice was mailed, 1632 Canton Drive in Milpitas, “was the address [Liao] shared with his ex-wife.” He confirmed that he asked Boss Yi to contact Mr. Liao for his address.

On November 7, 2019, plaintiffs filed another declaration by Mr. Liao, again stating that Boss Yi called him “on many occasions” in September or October of 2018 and “asked me to sign a document to be excluded from the class” and “to provide my address so that he could mail the document to me.” On November 7, 2018, Boss Yi again sent a message: “Hi, Hua Liao, I have not received your address yet.” Boss Yi called again on May 21, 2019 but Mr. Liao did not pick up the phone. Mr. Liao and the named plaintiffs all declare that Boss Yi “is one of the managers for the companies, and he is re[s]ponsible for collecting payments from the massage parlors, and for their interior remodeling and maintenance.” Mr. Liao further declares that he “never lived at 1632 Canton Dr., Milpitas, CA,” the address to which the administrator mailed his class notice. While defendant Lee testified that Mr. Liao’s notice was mailed to that address because his ex-wife had lived there, “[t]his is completely false.” Mr. Liao notes that the class notice was mailed to his ex-wife, Qiao Yang, at a different address, 1666 Ontario Drive in Sunnyvale.

B. Analysis

In managing a class action, a court “has both the duty and the broad authority to exercise control over [the] action and to enter appropriate orders governing the conduct of counsel and parties.” (Gulf Oil Co. v. Bernard (1981) 452 U.S. 89, 100.) As this Court has previously observed,

It is … improper for defendants to coerce class members into opting out of the class, because such coercion runs contrary to the Court’s supervisory role with regard to the notice and opt-out processes. A defendant’s unauthorized, competing communications with the class and invitations for class members to opt out “defeat[] the whole point of the court’s holding a hearing to approve the notice to the class” and constitute “an end run around the court’s supervisory powers.” (Gainey v. Occidental Land Research (1986) 186 Cal.App.3d 1051, 1058.) For this reason, a defendant does not have an unrestricted right to communicate with class members once a class has been certified. (Ibid.) Where improper communications have occurred, “[t]he proper remedy … is that those who [opted out at defendant’s request] be restored to the class, and that a remedial notice be sent giving them a new period in which to make a new and unfettered decision whether to opt out.” (Ibid.)

“Courts have … recognized that in the context of an employer/worker relationship, there is a particularly acute risk of coercion and abuse when the employer solicits opt-outs from its workers.” (Guifu Li v. A Perfect Day Franchise, Inc. (N.D. Cal. 2010) 270 F.R.D. 509, 517 [invalidating improperly solicited opt-outs and ordering corrective notice]; see also Laguna v. Coverall North America, Inc. (S.D. Cal., Nov. 30, 2010, No. 09-CV-2131-JM (BGS)) 2010 WL 11508987 [same].) Courts have issued orders restricting defendants’ communications with class members where the record supports it in light of these concerns. (See 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 [granting such an order based on the criteria stated in Kleiner v. First Nat. Bank of Atlanta (11th Cir. 1985) 751 F.2d 1193]; see also Aldapa v. Fowler Packing Company Inc. (E.D. Cal., Mar. 18, 2016, No. 115CV00420DADSAB) 2016 WL 1073252 [restricting both parties from initiating communications with putative class members during the opt-out period].)

Having considered the evidence before it at this time, the Court is inclined to conclude that defendant Lee—directly and through an agent, Boss Yi—solicited opt-outs from class members, and that Lee or an agent forged class members’ signatures on opt-out forms. In addition to the evidence discussed above, the Court finds the unusual number of opt-outs submitted in this case to be telling. Except in the rare circumstance where a settlement campaign was condoned by plaintiffs’ counsel and union, the Court has never presided over a case with such a high percentage of exclusions that even approaches the one at issue here. Moreover, the defendants have consistently maintained that they lack current contact information for many class members because these individuals have returned to China or are otherwise difficult to locate. These circumstances are wholly inconsistent with an opt-out rate of over 85 percent. Finally, the Court also considers the unusual number of identical worker declarations submitted by defendants in opposition to plaintiffs’ motion for class certification, which show that defendants have a history of attempting to influence the outcome of this action by soliciting cooperation from class members. While it accepted defendants’ representations that they would not engage in further communications with class members about this action after it was certified, the Court sees no way to avoid the conclusion that defendant Lee, at a minimum, did not abide by this promise or sought to avoid it by communicating through a surrogate.

In addition to the authorities discussed above, an opinion issued by a federal court just a few days ago is in accord with the Court’s reasoning. In that case, which also involved low-wage workers who were born in a foreign country, the court reasoned that

Plaintiffs represented, and Defendants did not dispute, that Defendants have collected and produced to Plaintiffs’ counsel, more than thirty pre-printed forms and over seventy handwritten notes—over 100 statements—from putative class members purporting to affirmatively opt-out. Plaintiffs contend that the opt-outs are the product of putative members’ fear of economic and physical retaliation. Defendants on the other hand, declare that they have not made any threats, attempts to coerce, retaliated, nor “entered into any settlements or agreements to settle claims raised in these proceedings.” Defendants instead declare that “[s]everal current and former workers employed by [Defendants] have voluntarily provided statements … indicating their desire or intention to not be involved in these proceedings.”

(Altamirano-Santiago v. Better Produce, Inc. (C.D. Cal., Nov. 13, 2019, No. 19CV3964DDPFFMX) 2019 WL 6039941, at *2, citations omitted.) While “recogniz[ing] that Plaintiffs ha[d] not presented a clear picture of the threats Defendants have made,” the court nonetheless concluded that curative notice was warranted, emphasizing that “Defendants have not provided a credible explanation for the volume of ‘voluntary’ opt-out forms Defendants have collected at this early stage of the proceedings.” (Ibid.)

C. Conclusion and Order to Show Cause

For good cause shown as described above, IT IS HEREBY ORDERED that defendants, personally or through their attorneys, shall appear before the Honorable Brian C. Walsh on December 19, 2019 at 9:00 a.m. in Department 1 of the above-entitled Court located at 191 North First Street, San Jose, California, and show cause, if any they have, why the Court should not invalidate the opt-outs that have been received in this case and require the issuance of curative notice to the class to be paid for by the defendants.

By December 6, 2019, defendants shall file a brief of up to 10 pages setting forth the law and facts supporting their opposition to the entry of the order contemplated by the Court, assuming they oppose it. Plaintiffs may file a responsive brief of up to 10 pages by December 12, 2019.

At the hearing on the order to show cause, defendants will be permitted to introduce evidence regarding their contacts with potential members of the class about this action and their conduct in connection with the notice and opt-out procedure; evidence concerning any such contacts and conduct by “Boss Yi” or other associates of the defendants; and any evidence that could explain the unusual number of opt-outs received by the administrator. Any written evidence, including any declarations, shall be filed by December 6, 2019. If the parties intend to present live testimony, they must provide the Court and opposing counsel with 48 hours’ notice of the testimony they will offer.

Also on December 19, 2019, immediately following the hearing on the order to show cause, the parties shall appear at a trial setting conference.

In anticipation of the possibility that curative notice will be ordered, counsel shall be prepared to meet and confer regarding the language of such notice at the hearing on plaintiffs’ motion for sanctions on November 22, 2019. As previously ordered by the Court, defendants’ counsel Sam Wu must appear at the November 22nd hearing, either in person or telephonically. Should Mr. Wu elect to appear telephonically, another attorney from his office must appear in person with the authority to enter into agreements regarding the form of curative notice. The Court will provide the parties with time and space to conduct their discussions, and expects them to reach agreement on the form of notice on November 22, so that curative notice may issue promptly if the Court determines such notice is appropriate following the hearing on the order to show cause.

The Court will prepare the order.