Secretary of Labor, United States Department of Labor v. Valley Wide Plastering Construction Incorporated

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Secretary of Labor, United States Department No. CV-18-04756-PHX-GMS of Labor, 10 ORDER Plaintiff, 11 v. 12 Valley Wide Plastering Construction 13 Incorporated, et al.,

14 Defendants.

15 16 Pending before the Court is Defendants Valley Wide Plastering Construction, Inc. 17 (“Valley Wide”), Jesus Guerrero, Rose Guerrero, and Jesse Guerrero, Jr.’s (collectively, 18 “Defendants”) Motion to Enjoin the Secretary of Labor from Improperly Communicating 19 with Current and Former Valley Wide Employees, (Doc. 147), Rule 37(C)(1) Motion to 20 Prohibit Plaintiff’s Use of New Damage Methodology, (Doc. 149), and Motion to Extend 21 Deadline to Produce Documents, (Doc. 161). The motion to enjoin is granted in part and 22 denied in part, the Rule 37(C)(1) motion is granted, and the motion to extend is granted.1 23 BACKGROUND 24 Plaintiff Secretary of Labor (the “Secretary”) filed suit against Defendants on 25 December 18, 2018. (Doc 1.) The Secretary alleges that Defendants violated the Fair 26 Labor Standards Act (“FLSA”). On May 24, 2019 the Court set the initial scheduling order

27 1 The parties requested oral argument. Those requests are denied because the parties have had an adequate opportunity to discuss the law and evidence and oral argument will not 28 aid the Court’s decision. See Lake at Las Vegas Invs. Grp., Inc. v. Pac. Malibu Dev. Corp., 933 F.2d 724, 729 (9th Cir. 1991). 1 in this matter. (Doc. 22.) It called for Plaintiff to provide full and complete expert 2 disclosures no later than October 25, 2019. On October 7, 2020, the Court amended the 3 May 24, 2019 Case Management Order, (Doc. 22), by extending the deadline for the final 4 supplementation of Mandatory Initial Discovery Pilot (“MIDP”) responses and completion 5 of fact discovery to December 4, 2020, (Doc. 72). On December 4, 2020, the Secretary 6 moved for a third time to extend the discovery deadline and other case management 7 deadlines. (Doc. 105.) Specifically, the Secretary notified the Court that he had served 8 multiple requests for production, that Defendants had not produced, regarding 9 communications about hours worked, schedules, terms and conditions of employment, and 10 work performed. Id. at 3. Additionally, the Secretary stated that Defendants failed to 11 respond to his most recent requests for production and interrogatories. Id. at 5. On January 12 6, 2021, the Court granted in part and denied in part the Secretary’s motion, extending the 13 deadline for final supplementation of MIDP responses and completion of fact discovery as 14 to newly discovered information only to March 5, 2021. (Doc. 117.) 15 On March 1, 2021, the Secretary filed a fourth motion to extend the discovery 16 deadline and other case management deadlines. (Doc. 128.) In his motion, the Secretary 17 explained that Defendants refused to produce the discovery the Secretary sought in his 18 December 4, 2020 request for extension. Id. at 3. On March 3, 2021, the Court extended 19 the completion of fact discovery to May 7, 2021, limited to the Secretary obtaining full and 20 complete answers to his then outstanding interrogatories and requests for production. 21 (Doc. 129.) 22 Additionally, as relevant here, the Secretary disclosed his damages methodology on 23 March 26, 2019 (the “Original Methodology”) (Doc. 149-1 at 34). On January 27, 2021, 24 the Secretary attached a different damages computation (the “New Methodology”) to a 25 memorandum submitted in connection with a settlement conference before a Magistrate 26 Judge. (Doc. 158 at 4.) Later, on March 5, 2021, the Secretary disclosed supporting 27 documents for the New Methodology to Defendants. (Doc. 149 at 5.) 28 Defendants assert that, since December 4, 2020, the Secretary continues to contact 1 Valley Wide employees to solicit witnesses in the case and gather new information. 2 Defendants also take issue with the Secretary’s disclosure of the New Methodology after 3 the December 4, 2020 deadline. Based on these concerns, Defendants move to enjoin the 4 Secretary from improperly communicating with current and former Valley Wide 5 employees and to prohibit the Secretary’s use of the New Methodology. 6 DISCUSSION 7 I. Motion to Enjoin 8 A. Legal Standard 9 Courts possess inherent authority “to manage their own affairs so as to achieve the 10 orderly and expeditious disposition of cases.” Am. Unites for Kids v. Rousseau, 985 F.3d 11 1075, 1088 (9th Cir. 2021) (quoting Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 12 1178, 1186 (2017)). That authority includes the power to fashion appropriate sanctions for 13 “conduct which abuses the judicial process[,]” whether before the court or beyond the 14 court’s confines. Id. 15 B. Analysis 16 Since the December 4, 2020 deadline for discovery passed, the Secretary has 17 reached out to Valley Wide’s employees and the public to apparently gather more 18 information about this case.2 For instance, in a January 21, 2021 letter, the Secretary’s 19 counsel informed Valley Wide’s employees about the instant suit and stated that “we need 20 more employees to reach out to us.” (Doc. 147-1, Ex. 1.) Additionally, a Daily 21 Independent article, published on March 12, 2021, included the following quote from the 22 Secretary’s counsel: “We need to hear from workers to help us against the case and also to 23 help us determine how much back wages are owed.” Id., Ex. 3. As the deadline for fact 24 discovery and supplementation of MIDP responses passed, the Secretary cannot seek out 25 new witnesses or gather new facts for use at trial; nor can he represent to Valley Wide’s 26 employees or the public that he can do so. To the extent he has done so, he has acted 27 2 As previously discussed, the Court extended the discovery deadline in limited instances. 28 The Secretary does not contend that these two limited exceptions permitted his actions at issue here. 1 improperly and is enjoined from asserting that the information he is seeking to collect is in 2 conjunction with this lawsuit. 3 Despite the Secretary’s contrary assertions, this prohibition does not conflict with 4 the FLSA. In enforcing the FLSA, the Secretary “may investigate and gather data 5 regarding the wages, hours, and other conditions and practices of employment.” 29 U.S.C. 6 § 211(a). The Court’s prohibition does not prevent the Secretary from contacting Valley 7 Wide’s current and former employees or seeking out information to use in future cases. 8 Additionally, the parties dispute whether the Secretary told a former employee that 9 Defendants engaged in illegal transactions and told other employees that they are entitled 10 to vacation and holiday pay by law. (Doc. 147 at 6.) The Court is unable to discern from 11 the briefing whether the Secretary made these statements. However, neither party contends 12 that making false statements is permissible and therefore, the Court deems it unnecessary 13 to enjoin the making of false statements to potential witnesses. If either party wishes the 14 Court to determine whether false statements were or are being made, that party may request 15 an evidentiary hearing on the issue, and, if merited, an appropriate sanction will result. 16 II. Rule 37(C)(1) Motion 17 A. Legal Standard 18 Federal Rule of Civil Procedure 37(c)(1) provides that “[i]f a party fails to provide 19 information or identify a witness as required by Rule 26(a) or (e), the party is not allowed 20 to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, 21 unless the failure was substantially justified or is harmless.” Rule 37(c) therefore 22 establishes an “automatic sanction to provide a strong inducement for disclosure of 23 material.” Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 24 2001) (alterations and quotation marks omitted). The rule represents a “broadening of the 25 sanctioning power” and district courts have wide discretion to issue sanctions under it. 26 R&R Sails, Inc. v. Ins. Co. of Pa., 673 F.3d 1240, 1245 (9th Cir. 2012). The party facing 27 sanctions has the burden to show that the failure to disclose was substantially justified or 28 harmless. Torres v. City of Los Angeles, 548 F.3d 1197, 1213 (9th Cir. 2008). 1 B. Analysis 2 The Secretary disclosed the New Methodology after the applicable deadlines in the 3 scheduling order and without requesting leave from the Court. The Court’s extension of 4 deadlines in January and March only applied to certain discovery that the Secretary 5 identified as insufficiently answered. When the Secretary supplied the New Methodology 6 in his memorandum for the settlement conference in January, Defendants had not yet 7 responded to those requests at all. Therefore, his late supplementation is not covered by 8 the extensions. Accordingly, the question is whether the Secretary’s late disclosure is 9 substantially justified or harmless. 10 First, the Secretary’s disclosure is not substantially justified. The Original 11 Methodology relied, in part, on Defendants’ records. (Doc. 149 at 2.) Since the beginning 12 of the litigation, the Secretary has contended that Defendants’ records are inaccurate, and 13 that Defendants pay employees through non-payroll accounts. Id. at 10–11. The Secretary 14 justifies his late disclosure on newly discovered information from a deposition and a 15 subpoena of bank records in November and December 2020. See (Doc. 152 at 11–12.) 16 The Secretary contends that, although he had always suspected inaccuracies in Defendants’ 17 records, the subpoenaed bank records “revealed that Defendants have falsified [ ] records 18 to an extent far greater than he previously realized.” Id. at 12. Based on this new 19 information, the Secretary sought to reduce reliance on Defendants’ records and therefore 20 created the New Methodology, which no longer uses Valley Wide’s records to reconstruct 21 an average regular rate of pay. Id. at 6. 22 Although it appears that the deposition and subpoena brought to light more detailed 23 information, the Secretary had represented, as early as June 2020, that there was a 24 “complete absence of reliable time and pay records.” (Doc. 149-1 at 101.) Knowing this 25 in June 2020, the Secretary had plenty of time to adjust his methodology before December. 26 At the very least, the Secretary could have informed the Court about the newly discovered 27 information and asked for an extension to revise the methodology. The Secretary provides 28 no adequate explanation for failing to do so. Accordingly, the Secretary fails to show his 1 late disclosure is substantially justified. 2 Second, the Secretary’s late disclosure is not harmless. The New Methodology is a 3 substantial revision of the Original Methodology. If the Court accepted the Secretary’s 4 late disclosure, the Court would allow Defendants an opportunity to conduct additional 5 discovery. As previously discussed, the discovery deadline has passed. The reopening of 6 discovery, almost three years into the case, is not harmless. See, e.g., Hoffman v. Constr. 7 Protective Servs., Inc., 541 F.3d 1175, 1180 (9th Cir. 2008) (“Later disclosure of damages 8 would have most likely required the court to create a new briefing schedule and perhaps 9 re-open discovery, rather than simply set a trial date. Such modifications to the court’s and 10 the parties’ schedules supports a finding that the failure to disclose was not harmless.”); 11 SiteLock LLC v. GoDaddy.com LLC, No. CV-19-02746-PHX-DWL, 2021 WL 2895503 12 (D. Ariz. July 9, 2021) (“[T]o even the playing field, the Court would be required to reopen 13 fact discovery. This would be an expensive and delay-inducing outcome in a case that is 14 already over two years old.”); Dayton Valley Invs., LLC v. Union Pac. R. Co., 15 No. 2:08-cv-00127-ECR-RJJ, 2010 WL 3829219, at *6 (D. Nev. Sept. 24, 2010) 16 (“Multiple courts within the Ninth Circuit have found that failure to provide a computation 17 of damages . . . is not harmless for purposes of Rule 37(c) precisely because it results in 18 the need to reopen discovery.”). 19 As it now stands, therefore, the Secretary may not introduce the New Methodology 20 at trial. The Court notes, however, that, on July 15, 2021, the Secretary filed a motion to 21 modify the scheduling order to extend the deadline for supplementing MIDP responses. 22 (Doc. 166.) This motion, filed months and perhaps years after the applicable deadline, is 23 subject to the standards set forth in Fed. R. Civ. P. 16 and Johnson v. Mammoth 24 Recreations, Inc., 975 F.2d 604 (9th Cir. 1992). Those standards require Plaintiff to 25 establish both good cause and diligence before a modification of a scheduling order can be 26 granted. The Court cannot yet conclude whether the Secretary will be able to meet these 27 standards. 28 1 Accordingly, 2 IT IS THEREFORE ORDERED that Defendants’ Motion to Enjoin the Secretary 3|| of Labor from Improperly Communicating with Current and Former Valley Wide Employees (Doc. 147) is GRANTED in part and DENIED in part. The Secretary is 5 || enjoined from (1) seeking out new witnesses or gathering new facts for use at trial in this 6 || case; and (2) representing to Valley Wide’s employees or the public that he can seek out new witnesses or gather new facts for use at trial in this case. 8 IT IS FURTHER ORDERED that Defendants’ Rule 37(C)(1) Motion to Prohibit 9|| Plaintiff's Use of New Damage Methodology and Calculations Disclosed After the Close □□ of Discovery (Doc. 149) is GRANTED. 11 IT IS FURTHER ORDERED that Defendants’ Motion to Extend Deadline to 12 || Produce Documents Responsive to the Secretary’s Request for Production Numbers 23 & 13 || 24 (Doc. 161) is GRANTED. Defendants shall have 45 days from the date of this Order to produce the remaining responsive documents to the Secretary’s Request for Production 15|| Numbers 23 and 24. No further extensions shall be granted absent compelling 16 || circumstances. 17 Dated this 12th day of August, 2021. 18 - 19 A Whacrsay Fotos Micrrey 20 Chief United States District Judge 21 22 23 24 25 26 27 28

-7-