Martinez v. Costco Wholesale Corporation

• Court: District Court, N.D. California
• Decided: July 25, 2022
• Docket: 3:19-cv-05624
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 BENJAMIN FERNANDO MARTINEZ, Case No. 19-cv-05624-EMC

8 Plaintiff, ORDER PRELIMINARILY 9 v. APPROVING SETTLEMENT AND PROVIDING FOR NOTICE 10 COSTCO WHOLESALE CORPORATION, Docket No. 37 11 Defendant.

12 13 14 On or about June 11, 2019, Plaintiff Benjamin Fernando Martinez filed a putative class 15 action in the Superior Court of California, County of Alameda entitled: Benjamin Fernando 16 Martinez v. Costco Wholesale Corporation, Case No. RG19022389 (“Complaint”) asserting the 17 following causes of action: (1) Failure to Pay Lawful Wages including Overtime Wages and 18 Minimum Wage (Labor Code §§510, 1194, and 1199, and the IWC Wage Order); (2) Failure to 19 Provide Lawful Meal Periods or Compensation in Lieu Thereof (Labor Code §§226.7 and 512, 20 and the IWC Wage Order); (3) Failure to Provide Rest Periods or Compensation in Lieu Thereof 21 (Labor Code § 226.7 and IWC Wage Order); (4) Failure to Timely Pay Wages Due at Termination 22 (Labor Code §§ 201-203); (5) Knowing and Intentional Failure to Comply with Itemized 23 Employee Wage Statement Provisions (Labor Code § 226); and (6) Violation of Unfair 24 Competition Law (Business & Professions Code § 17200-17208). On September 6, 2019, 25 Defendant removed the action to the United States District Court, Northern District of California, 26 where the action is currently pending as Case No. 3:19-cv-05624-EMC. Defendant denies 27 Plaintiff’s allegations and denies liability on all claims. In or about March 2022, the Parties 1 Agreement (“Settlement”, “Settlement Agreement”). 2 NOW THEREFORE, having read and considered the Settlement and Exhibits thereto, for 3 the reasons stated on the record at the July 15, 2022 hearing and those that follow, IT IS HEREBY 4 ORDERED: 5 1. The Order hereby incorporates by reference the definitions of the Settlement as 6 though fully set forth herein, and all terms used herein shall have the same meaning as set forth in 7 the Settlement. 8 The Court conditionally certifies and approves, for settlement purposes only, a Class as 9 defined as follows: all non-exempt employees employed by Defendant in California during the 10 Class Period who have not sued Costco on any Released Claim and who received an Extra Check 11 during the Class Period. The Class Period is from June 11, 2015, extending through the date of 12 Preliminary Approval. 13 Here, based on the information obtained from Costco, the Class is composed of 14 approximately 29,138 current and former employees, all of whom are readily identifiable from the 15 Class Members’ Data. Hawkins Decl. ¶ 25. Because it would be impracticable to join such a 16 large number of employees in a single action, the numerosity requirement is met. Id. Plaintiff and 17 Class Members share common legal and factual questions, e.g., whether Costco accurately 18 calculated the Extra Check bonus regular rate and therefore underpaid overtime wages in violation 19 of Lab. Code sections 510 and 1194. This claim and the derivative claims for waiting time 20 penalties and inaccurate wage statements can be resolved and proven for all Class Members by 21 reference to Costco’s uniformly applied policies and practices. Hawkins Decl. ¶ 26. The class 22 claims are well-suited for class-wide resolution as they present common questions of law and fact. 23 Plaintiff’s Extra Check claim and derivative claims are premised on allegations that Costco failed 24 to correctly calculate the Extra Check bonus regular rate and thus failed to pay accurate overtime 25 compensation. Hawkins Decl. ¶ 27. The legal standards and requirements for proving these wage 26 and hour claims under the California Labor Code are the same for Plaintiff’s individual claims and 27 those of all Class Members. Id. Here, there do not appear to be any conflicts of interest between 1 warehouse in a non-exempt hourly position during the Class Period and received an Extra Check 2 bonus payment. Compl. ¶¶ 12-18; Hawkins Decl. ¶ 28. Moreover, plaintiff’s counsel has 3 substantial class action experience, including in actions alleging similar violations of the 4 California Labor Code, worked to investigate and identify the potential claims in this action. 5 Hawkins Decl. ¶¶ 28, 33. Individual cases would be uneconomical for potential plaintiffs and 6 their counsel because the cost of litigation dwarfs their potential recovery, which Plaintiff 7 estimates to be an average of approximately $30 per Extra Check period. Id. These individual 8 cases would cause duplication of efforts and resources. Therefore, a class action is the superior 9 method of resolution under Rule 23(b)(3). 10 2. James R. Hawkins and Isandra Y. Fernandez of James Hawkins, APLC (Class 11 Counsel) shall represent the Class for purposes of the Settlement in this Action. Any Class Member 12 may enter an appearance in the Action, at their own expense, either individually or through counsel 13 of their own choice. However, if they do not enter an appearance, they will be represented by 14 Class Counsel. 15 3. The Class Representative shall be Plaintiff. 16 4. The Court hereby preliminarily approves the proposed Settlement upon the terms, 17 conditions, and all release language set forth in the Settlement attached to the Declaration of James 18 R. Hawkins as Exhibit 1. For the reasons stated on the record and those that follow, the Court 19 finds that the Settlement appears to be within the range of reasonableness necessary for 20 preliminary approval by the Court. It appears to the Court that the Settlement terms are fair, 21 adequate, and reasonable as to all potential Class Members when balanced against the probable 22 outcome of further litigation, given the risks relating to liability and damages. 23 The settlement agreement provides for a non-reversionary Gross Settlement Amount of 24 $2,250,000. Hawkins Decl. ¶ 22. This amounts to 56.25% of the maximum verdict value of $4 25 million if liability were established for the entire class period, and 86% of the more plausible 26 expected verdict value of $2.6 million if liability were established from the begging of the class 27 period until March 2019. If the Court were to grant Plaintiff’s fee and costs requests, an estimated 1 maximum verdict value and approximately 56% of the more plausible verdict value. 2 Plaintiff recognize several weaknesses in its case. First, Plaintiff concedes that discovery 3 demonstrated a lack of evidence to support the standalone wage and hour, rest break and meal 4 break claims that Plaintiff asserted in the complaint. Mot. at 12. Instead, Plaintiff states that the 5 “predominant claim against Defendant turned out to be that Costco failed to properly calculate the 6 non-discretionary “Extra Check” bonus payment in the regular rate of pay for purposes of 7 calculating overtime compensation during the class period.” Id. Accordingly, the scope of the 8 Released Claims in the Settlement Agreement is limited to claims relating to overtime 9 compensation stemming from the Extra Check payment. See Settlement ¶ 8.1; Hawkins Decl. ¶ 10 14; Mot. at 13-14 (“In sum, the claims that form the basis for this class action settlement all arise 11 from Defendant’s alleged failure to properly calculate the regular rate of pay relative to Costco’s 12 Extra Check bons program and thus consequential failure to properly calculate overtime wages for 13 Plaintiff and the Class”). 14 Second, Costco maintains that, for the class period prior to March 17, 2019, it is not liable 15 based on the Court of Appeal’s holding in Marin and strongly disputes any liability after March 16 2019 when it changed the calculation to comply with Alvarado. In support of its position, Costco 17 relies on the California Court of Appeal case, Marin v Costco Wholesale Corp, 169 Cal. App. 4th 18 804 (2008), in which the Court of Appeal ruled that Costco’s Extra Check bonus calculation -- the 19 very calculation that Plaintiff is challenging here -- did not violate California law—at least as 20 applied to workers who had not worked 1,000 hours in an Extra Check period. Moreover, while 21 maintaining that it has always paid the regular rate correctly with respect to the Extra Check, 22 Costco also contends that as of March, 2019, its bonus regular rate calculation also complies with 23 Alvarado, thus precluding any liability for failure to correctly pay overtime compensation from 24 March 2019 forward. Id. Plaintiff contends that Alvarado applies retroactively, and that, at a 25 minimum, from the inception of the class period through the March 17, 2019, Costco’s regular 26 rate calculation was incorrect under Alvarado and thus Defendant underpaid the overtime amounts 27 during said time period. Hawkins Suppl. Decl. ¶ 5. Thus, there is a contested question of law as 1 law. 2 Third, Plaintiff admits that even if he were to succeed in establishing that Costco is liable 3 for miscalculating employees overtime wages under Alvarado, Plaintiff’s derivative claims for 4 Failure to Timely Pay Final Wages and Inaccurate Wage Statements were highly unlikely to 5 succeed, because Plaintiff would need to show that Costco violated those sections of the labor 6 code, Cal. Lab. Code §§ 203, 225, willfully, knowingly or intentionally. See Suppl. Br. at 3-4. 7 Costco’s good faith argument and reliance on Marin for its calculation procedures strongly 8 undermines Plaintiff’s ability to show willfulness to establish liability on those derivative grounds. 9 Considerable disagreement exists between the parties on the facts and the law, particularly 10 with respect to whether the Extra Check bonus is a “flat sum” under Alvarado, as Plaintiff 11 contends, or a hybrid under Marin as Defendant argues, and as to whether Costco is liable under 12 Alvarado with respect to the pre-March, 2019 bonus overtime calculations. Id. Moreover, Costco 13 contends that Plaintiff will not be able to certify a class, especially post-March 2019, based on 14 allegations that certain class members were still not accurately paid the bonus overtime. Plaintiff 15 seems to concede this point in admitting that Costco’s calculation procedures after March 2019 are 16 likely compliant with Alvarado. There is also a risk that Costco could obtain summary judgment 17 as to plaintiff’s Extra Check claims, relying on Marin, and thus Class Members would not obtain 18 any recovery at all. See e.g., Brown v. Federal Express Corp., 249 F.R.D. 580 (C.D. Cal. 2008). 19 Accordingly, absent the present Settlement, the further conduct of this litigation will likely span 20 several additional years and require the dedication of extensive resources, if class certification was 21 granted, to establish the merits of Plaintiff’s class claims at trial or through contested motion 22 practice and through appeal. Hawkins Decl. ¶ 19. 23 In light of these litigation risks, the amount offered in settlement, compensating between 24 34% and 56% of the maximum and reasonable verdict values, the settlement amount offered to 25 Class Members appears reasonable. See Nat’l Rural Telecomm. Coop. v. DIRECTV, Inc., 221 26 F.R.D. 523, 528 (C.D. Cal. 2004) (“in balancing, a proposed settlement is not to be judged against 27 a speculative measure of what might have been awarded in a judgment in favor of the class.”); id. 1 amounts to only a fraction of the potential recovery that might be available to the class members at 2 trial.”); see Bellinghausen v. Tractor Supply Co., 306 F.R.D. 245, 256 (N.D. Cal.2015) (finding a 3 wage and hour class settlement fair where the settlement fund represented between 9% and 27% of 4 the total potential recovery); Jones v. Agilysys, Inc., No. C 12–03516 SBA, 2014 WL 2090034 5 (N.D. Cal. May 19, 2014) (finding a FLSA settlement that constituted between 30% to 60% of 6 recoverable damages to be a “tangible monetary benefit” for the class members); Alleyne v. Time 7 Moving & Storage Inc., 264 F.R.D. 41, 57–58 (E.D.N.Y. 2010) (settlement fund within range of 8 reasonableness when it represented approximately 13% to 17% of the maximum possible 9 recovery); Knight v. Red Door Salons, Inc., No. 08–01520 SC, 2009 WL 248367, *5 (N.D. Cal. 10 Feb. 2, 2009) (recovery of 50% of possible damages in a wage and hour action was “substantial 11 achievement on behalf of the class”); Glass v. UBS Fin. Serv., Inc., No. C–06–4068, 2007 WL 12 221862, at *4 (N.D. Cal. Jan. 26, 2007), aff'd 331 Fed.Appx. 452 (9th Cir. 2009) (finding a wage 13 and hour settlement in the range of 25 to 35% of claimed damages fair and reasonable in light of 14 the uncertainties involved in the litigation). 15 It further appears that investigation and research has been conducted such that counsel for 16 the Parties at this time are reasonably able to evaluate their respective positions. It further appears 17 to the Court that the Settlement at this time will avoid substantial additional costs by all parties, 18 such as the delay and risks, that would be presented by the further prosecution of the Action. It 19 appears that the Settlement has been reached as a result of arms-length negotiations utilizing an 20 experienced third-party neutral. Here, the parties arrived at the Settlement Agreement after 21 engaging in formal and informal discovery, participating in a full-day session with a professional 22 mediator, Jeffrey A. Ross, and engaging in subsequent discussions between March and July 2021. 23 Hawkins Decl. ¶¶ 7-8. The parties engaged in multiple post-mediation conferences between 24 counsel and further communications with the mediator, before they finally agreed to a proposal 25 and additional settlement terms put forward by the mediator. Id. 26 5. The Court confirms Atticus Administration, LLC as the Settlement Administrator 27 and preliminarily approves that settlement administration costs shall be paid from the Gross 1 administration to Atticus Administration, less than the amount requested, will result in the non- 2 awarded amount to be awarded to Class Members who have not properly excluded themselves 3 from the Settlement on a proportionate basis to the amount of their Individual Settlement 4 Payments. The cost of administration includes all tasks required of the Settlement Administrator 5 by this Settlement Agreement, including the issuance of the Notice of Settlement and other 6 documents as explained in the Settlement. Atticus Administration is directed to perform all other 7 responsibilities set forth for the Settlement Administrator as set forth in the Settlement. 8 6. A Final Approval Hearing (the “Hearing”) shall be held on January 19, 2023 at 9 1:30 p.m. before the Honorable Edward M. Chen in the San Francisco Division, Courtroom 5 of 10 the above- referenced Court. The purpose of such Hearing will be to: (a) determine whether the 11 proposed Settlement should be approved by the Court as fair, reasonable and adequate; (b) 12 determine the reasonableness of Class Counsel’s request for attorneys’ fees and costs; (c) the 13 reasonableness of the Service Award requested for Plaintiff; and (d) Order entry of Judgment in 14 the Action, which shall constitute a complete release and bar with respect the Released Claims 15 described in Paragraph 13, below. 16 7. The Court hereby approves, as to form and content, the Notice of Class Action 17 Settlement (“Class Notice”) attached as Exhibit A to the Settlement Agreement. The Court finds 18 that the mailing and distribution of the Class Notice in the manner set forth in Paragraph 9 of this 19 Order meet the requirements of due process and are the best notice practicable under the 20 circumstances and shall constitute due and sufficient notice to all persons entitled thereto. 21 8. The Court directs the mailing of the Court approved Class Notice via First Class 22 U.S. Mail to the Class Members in accordance with the schedule and procedures set forth in the 23 Settlement. The Court finds that the dates and procedure selected for the mailing of the Class 24 Notice meet the requirements of due process, provide the best notice practicable under the 25 circumstances, and constitute due and sufficient notice to all persons entitled to notice. 26 a. Prior to mailing, the Settlement Administrator will perform a search based 27 on the National Change of Address Database information to update and correct for 1 of returned or undeliverable mail, then the Settlement Administrator shall promptly 2 forward the original Class Notice to the updated address via first-class regular U.S. 3 mail indicating on the original mailed package the date of such remailing. 4 9. Class Members may request exclusion from the Settlement by submitting a timely 5 written request to be excluded from the Class as set forth in the Stipulation. In order to be valid, 6 the Request for Exclusion letter must be postmarked and sent to the Settlement Administrator 7 within seventy-five (75) calendar days after the Settlement Administrator mails the Class 8 Notice to Class Members. Any Class Member who submits a valid and timely Request for 9 Exclusion will not be entitled to any recovery under the Settlement and will not be bound by the 10 Settlement or have any right to object, appeal or comment thereon. Class Members who fail to 11 submit valid and timely Requests for Exclusion shall be bound by all terms of the Settlement and 12 any Final Judgment. 13 10. Class Members who do not request exclusion may object to the Settlement and 14 appear at the Final Approval Hearing to show cause why the proposed Settlement should not be 15 approved, Judgment in the Action should not be entered, and to present any opposition to the 16 application of Class Counsel for attorneys’ fees, costs and expenses. In order to object to the 17 proposed Settlement, the Class Member must send a Notice of Objection and copies of any papers 18 in support of his or her position pursuant to the terms of the Stipulation to the Settlement 19 Administrator within seventy-five (75) calendar days after the Settlement Administrator mails 20 the Class Notice to Class Members. Any Class Member who does not make his or her objection 21 in the manner provided for herein shall be deemed to have waived such objection and shall forever 22 be foreclosed from making any objection to the fairness or adequacy of the proposed Settlement as 23 incorporated in the Settlement or to the award of attorneys’ fees and costs and expenses to Class 24 Counsel unless otherwise ordered by the Court. 25 The Court hereby preliminarily approves the definition and disposition of the Gross 26 Settlement Amount as that term is defined in the Settlement. The Gross Settlement Amount is 27 equal to, and shall not exceed, Two Million Two Hundred Fifty Thousand Dollars ($2,250,000), 1 Hundred Forty- Nine Thousand Nine Hundred Twenty-Five Dollars ($749,925.00); Class 2 Counsel’s costs not to exceed Twenty Thousand Dollars ($20,000); the Settlement Administration 3 Costs not to exceed Twelve Thousand Dollars ($90,000); the Net Distribution Fund to be 4 distributed to Class Members who do not exclude themselves from the Settlement; the Service 5 Award to Plaintiff in an amount not to exceed Six Thousand Dollars ($6,000). Defendant shall be 6 required to pay only the Gross Settlement Amount, in addition to Defendant’s portion of any 7 payroll taxes (which will be paid by Defendant in addition to the Gross Settlement Amount). 8 The Court preliminarily approves the above distribution of the Gross Settlement Amount, 9 all subject to the Court’s Final Approval of the Settlement. With respect to the amount allocated 10 for attorney fees, the Court has expressed reservations regarding the reasonableness of the amount 11 requested subject to further scrutiny at final approval. “[C]ourts have an independent obligation to 12 ensure that [an attorneys’ fee] award, like the settlement itself, is reasonable, even if the parties 13 have already agreed to an amount.” In re Bluetooth Headset, 654 F.3d at 941. “Where a 14 settlement produces a common fund for the benefit of the entire class, courts have discretion to 15 employ either the lodestar method or the percentage-of-recovery method” in awarding attorneys’ 16 fees. Id. at 942 (citation omitted). “Because the benefit to the class is easily quantified in 17 common-fund settlements,” courts may “award attorneys a percentage of the common fund in lieu 18 of the often more time-consuming task of calculating the lodestar.” Id. “Applying this calculation 19 method, courts typically calculate 25% of the fund as the ‘benchmark’ for a reasonable fee 20 award.” Id. If the Court departs from that benchmark, the record must indicate the Court's 21 reasons for doing so. See e.g., Powers v. Eichen, 229 F.3d 1249, 1256-57 (9th Cir. 2000). Here, 22 Plaintiffs’ counsel seeks 33.33% of the Gross Settlement Amount, approximately $749,925. 23 Settlement ¶¶ 7.3, 9.3. The Court observes that, at this juncture, Plaintiff’s counsel’s hours spent 24 on this case are unlikely to justify an upward departure from the 25% benchmark. Plaintiff’s 25 counsel states it has expended $195,725 on this case, using a lodestar calculation. Adjusting the 26 benchmark to 33.33% or $750,000 in attorneys’ fees would constitute a multiplier of more than 27 3.75 on Plaintiff’s lodestar amount. The Court reserves judgment on the final fee award until the 1 11. Upon entry of Judgment by the Court, all Class Members who did not exclude 2 themselves from the Settlement shall fully and finally release and discharge Costco Wholesale 3 Corporation, in accordance with the terms of the Settlement. 4 12. In addition to the releases made by the Class Members described in Paragraph 13, 5 upon entry of Judgment by the Court, Plaintiff will for himself only, as of the Effective Date, grant 6 a general release, including a California Civil Code §1542 Waiver of Rights, in accordance with 7 the Settlement. 8 13. The Court reserves the right to adjourn the date of the Hearing without further 9 notice to the Class Members and retains jurisdiction to consider all further applications arising 10 out of or connected with the proposed Settlement. 11 14. Pending final determination as to whether the settlement contained in the 12 Settlement should be approved, Plaintiff and Class Members, whether directly, representatively, or 13 in any other capacity, whether or not such persons have appeared in the Action, shall not institute 14 or prosecute any claims against the Released Parties, which have been or could have been asserted 15 in the Action based upon the acts and transactions alleged therein, including any claims related to 16 or arising out of the allegations in the Action. 17 15. All further proceedings in this Action shall be stayed except such proceedings 18 necessary to review, approve, and implement this Settlement. 19 16. In the event: (i) the Court does not finally approve the Settlement as contemplated 20 by the Settlement; (ii) the Court does not enter a Final Approval Order as contemplated by the 21 Settlement, which becomes final as a result of the occurrence of the Effective Date (as that term is 22 defined by in the Settlement); (iii) Defendant elects to void the Settlement as provided under the 23 terms of the Settlement; or (iv) the Settlement does not become final for any other reason, the 24 Settlement shall be null and void and any order or judgment entered by this Court in furtherance of 25 the Settlement shall be deemed as void from the beginning. In such a case, the Parties and any 26 funds to be awarded under this Settlement shall be returned to their respective statuses as of the 27 date and time immediately prior to the execution of the Settlement, and the Parties shall proceed in 1 17. Neither the Settlement, preliminarily approved or not approved, nor any exhibit, 2 document or instrument delivered hereunder, nor any statement, transaction or proceeding in 3 connection with the negotiation, execution or implementation of this Settlement, shall be 4 admissible in evidence for any purpose except as provided in the Settlement. 5 18. The Court orders the following implementation schedule for further proceedings:

6 Deadline for Defendant to provide Settlement 30 calendar days after Preliminary 7 Administrator with list of Class Members Approval 8 Deadline for Settlement Administrator to mail 14 calendar days from receiving list of Class and email Notice of Class Settlement to Class Members from Defendant 9 Members 10 Last day to submit Requests for Exclusion or 75 calendar days from mailing of Notice of Objections Settlement 11 Settlement Administrator to provide At least fourteen calendar days prior to the 12 declaration reporting on Requests for Fairness Hearing Exclusion, Objections, and other results of 13 class notice 14 Deadline to file motion for Attorneys’ fees, December 15, 2022 costs, and class representative service award 15 Deadline to file motion for Final Approval December 15, 2022 16 Fairness hearing on Final Approval and on January 19, 2023 at 1:30 p.m. PST 17 Class Counsel Award and Service Award

18 19 20 IT IS SO ORDERED. 21 22 Dated: July 25, 2022 23 24 ______________________________________ EDWARD M. CHEN 25 United States District Judge 26 27