1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 MONICA SMITH and ERIKA SIERRA, Case No.: 3:18-cv-00780-KSC individually and on behalf of all other 12 similarly situated individuals, ORDER DENYING MOTION FOR 13 PRELIMINARY APPROVAL OF Plaintiff, CLASS/COLLECTIVE ACTION 14 v. SETTLEMENT [DOC. NO. 67] 15 KAISER FOUNDATION HOSPITALS, a 16 California corporation, 17 Defendant. 18 19 20 This matter is before the Court on plaintiffs’ Motion for Preliminary Approval of 21 Class/Collective Action Settlement. [Doc. No. 67.] No opposition or objection to the 22 motion has been filed, however, for the reasons set forth below, the Motion is DENIED. 23 I. Background 24 This lawsuit arises out of defendant Kaiser Foundation Hospitals’ (“Kaiser”) alleged 25 failure to properly compensate certain call center employees. Kaiser offers call center 26 services to patients and insured members located in California, Georgia and Hawaii. [Doc. 27 No. 70, First Amended Complaint (“FAC”), ¶ 2.] It employs “Telemedicine Specialists,” 28 “Customer Support Specialists,” and “Wellness Specialists” to receive and respond to call 1 center calls, among other duties. [Id.] Some of the Telemedicine Specialists, Customer 2 Support Specialists and Wellness Specialists are employed at a brick-and-mortar facility in 3 San Diego, California. Kaiser also employs “Remote” Telemedicine Specialists, Customer 4 Support Specialists and Wellness Specialists, who work most or all of their hours from 5 their residences in California. [Id. at ¶ 6.] 6 Plaintiffs alleged that Kaiser does not compensate its Telemedicine Specialists, 7 Customer Support Specialists and Wellness Specialists for certain activities required of 8 their employment, including primarily: 1) starting-up and logging-into computers, 9 programs and applications, before each shift and prior to clocking into Kaiser’s 10 timekeeping system; 2) performing computer, program and application shutdown and log- 11 in tasks off-the-clock during their uncompensated meal periods; and 3) shutting-down and 12 logging-out of computers, programs and applications, subsequent to each shift and after 13 clocking out of Kaiser’s timekeeping system. [Id. at ¶10.] Additionally, they contend 14 Kaiser fails to pay Telemedicine Specialists, Customer Support Specialists and Wellness 15 Specialists for time spent: prior to each shift locating equipment; subsequent to each shift 16 shredding and disposing of patient notes; driving to Kaiser’s brick-and-mortar locations on 17 days they experience technical or connectivity issues with computers, programs and 18 applications; in connection with reviewing their hours and punches on Kaiser’s 19 timekeeping system; and traveling to mandatory training and staff meetings or to pick up 20 necessary equipment. [Id. at ¶¶ 10-11.] They also claim Kaiser fails to reimburse 21 Telemedicine Specialists, Customer Support Specialists and Wellness Specialists for 22 necessary business expenditures incurred in the execution of their job duties. [Id. at ¶11.] 23 Plaintiff Monica Smith was initially employed by Kaiser as a Telemedicine 24 Specialist at its brick-and-mortar call center, but has worked as a Remote Telemedicine 25 Specialist since May 2012. [Id. at ¶¶ 31–33.] She is compensated at a base rate of $59.42 26 per hour with a shift differential and typically works approximately 40 or more hours per 27 week (and more than 8 hours per day). [Id. at ¶ 31.] Her typical shift runs from 6:45 a.m. 28 to 3:15 p.m. [Id.] From October 2012 through August 1, 2015, as part of her duties as a 1 Remote Telemedicine Specialist, Kaiser required Smith to work one shift per month at its 2 San Diego brick-and-mortar call center location. [Id. at ¶ 34.] Since August 1, 2015, Kaiser 3 has required Smith to travel to its San Diego brick-and-mortar call center once every six 4 month period to meet with her supervisor. [Id. at ¶ 35.] 5 Plaintiff Erika Sierra is employed as a Customer Support Specialist and has worked 6 for Kaiser since September 7, 2004. [Id. at ¶ 36.] Sierra is compensated at a base rate of 7 $26.74 per hour, $.55 extra per hour for acting as a Qualified Interpreter of Spanish, and 8 an additional $.35 per hour for longevity. She typically works approximately 40 or more 9 hours per week (and more than 8 hours per day). Sierra’s typical schedule is Monday 10 through Friday from 6:00 a.m. to 2:30 p.m. and she rotates every other weekend and 11 holidays, at the San Diego, California brick-and-mortar call center. [Id.] 12 On December 21, 2017, Smith filed a hybrid class and collective action complaint 13 in the District Court for the Northern District of California, asserting Kaiser had engaged 14 in willful violations of the Fair Labor Standards Act (“FLSA,” or 29 U.S.C. § 201, et seq.); 15 California Labor Code §§ 221, 223, 226, 226.7, 510, 512, 1174, 1194, 1197, 1197.1, 1198, 16 2802; California Industrial Welfare Commission Wage Order No. 4; California Business 17 & Professions Code § 17200; and the Private Attorneys General Act (“PAGA”), California 18 Labor Code § 2698, et seq, with respect to its policies and practices for the payment of 19 Telemedicine Specialists and Advice Nurses. [Doc. No. 1.] On April 20, 2018, the case 20 was transferred to this Court, pursuant to the parties’ stipulation, and on June 5, 2018, the 21 case was transferred to the undersigned for all purposes, pursuant to the parties’ consent. 22 [Doc. Nos. 28 & 43.] Thereafter, the parties reached an agreement for conditional 23 certification of a FLSA collective action and dissemination of Court-authorized notice, 24 which was adopted by the Court. [Doc. Nos. 44 & 48.] At that time the conditionally 25 certified collective action members were identified as: 26 All current and former hourly telemedicine specialists who work or have worked for Kaiser Foundation Hospitals, or KP on Call, LLC, any time since 27 May 21, 2015. 28 1 [Doc. No. 44-1.] A Notice of Right to Join Lawsuit was then disseminated to the 286 2 conditionally certified collective action members. [Doc. No. 67-3, Decl. of Kevin J. Stoops, 3 ¶ 16.] By the time the opt-in period closed, 64 Telemedicine Specialists had filed their 4 consent to join this action. [Id.] 5 Starting in July 2018, the parties engaged in a voluntary exchange of discovery and 6 two mediation sessions with wage and hour class action mediator David Rotman. 7 Additionally, plaintiffs informed Kaiser of their intention to amend the Complaint to 8 expand it to include claims on behalf of Kaiser’s Customer Support Specialists. Kaiser 9 agreed to provide data and discovery concerning the Customer Support Specialists so that 10 their claims could be thoroughly and adequately analyzed prior to mediation. This data 11 sharing and mediation process culminated in a settlement between the parties, which was 12 reached in February 2019. [Id. at ¶¶ 17-23.] 13 Several months later, on May 30, 2019, plaintiffs filed the FAC, pursuant to the 14 parties’ Joint Motion. [Doc. Nos. 66 & 70.] The FAC adds Sierra, who had previously 15 opted in as a FLSA collective action member, as a class representative, and adds two causes 16 of action (Violation of California Labor Code § 226.7, 512 and IWC Wage Order 5-2001 17 – Failure to Provide Rest Breaks and Violation of California Labor Code §§ 201-203 – 18 Waiting Time Penalties) on behalf of Customer Service Support Specialists. It also 19 redefines and broadens the scope of the proposed FLSA collective action to include 20 Customer Support Specialists and Wellness Specialists (formerly referred to as Advice 21 Nurses), and reaches back an additional five months to December 21, 2014. In this 22 pleading, which was filed contemporaneously with the instant Motion, the FLSA collective 23 action group is nationwide and is defined as: 24 All similarly situated current and former hourly Telemedicine Specialists, Customer Support Specialists and Wellness Specialists, who work or have 25 worked for Defendant (in a brick and mortar location or remotely) at any time 26 from December 21, 2014 through judgment.
28 [Doc. No. 70, ¶ 84 (emphasis added).] 1 The FAC defines the Fed. R. Civ. P. 23 California-based putative class: 2 All similarly situated current and former hourly Telemedicine Specialists, Customer Support Specialists and Wellness Specialists, who work or have 3 worked for Defendant (in a brick and mortar location or remotely) in 4 California at any time from December 21, 2013 through judgment.
6 [Id. at ¶ 98 (emphasis added).] 7 II. Settlement Agreement Terms 8 On May 28, 2019, plaintiffs filed the instant Motion, pursuant to which they request 9 the Court enter an order “(1) preliminarily certifying a class for settlement purposes under 10 the Federal Rules of Civil Procedure, Rule 23 (e.g., “Rule 23”) and conditionally certifying 11 a FLSA collective for settlement purposes under 29 U.S.C. §201., et seq. (as defined in the 12 Parties’ Stipulation of Settlement); (2) preliminarily approving the parties’ Settlement; (3) 13 preliminarily appointing plaintiffs Monica Smith and Erika Sierra as Class Representatives 14 for the Class/Collective and Plaintiffs’ counsel as Class Counsel; (4) approving the form 15 of the Parties’ proposed Notice; and (5) scheduling a hearing on the final approval of the 16 Settlement and approval of the application of Class Counsel and Plaintiffs for their 17 requested attorneys’ fees, costs, and service awards.” [Doc. No. 67, p. 2.] 18 Plaintiff’s Motion includes a Settlement Agreement, which is unsigned, but is 19 purported to accurately reflect the parties’ agreement. [Doc. No. 67-2.] The definition of 20 the putative class that is offered in the Settlement Agreement is narrower than the FAC, in 21 that it is limited to employees who worked at defendant’s San Diego location, specifically: 22 All current and former employees who, between December 21, 2013 and preliminary approval (the “Class Period”), worked for Kaiser Foundation 23 Hospitals at its San Diego, California location, with the job title of Customer 24 Support Specialist, Wellness Specialist, or Telemedicine Specialist, in job codes 20005, 50278, and 20186. 25
26 [Doc. No. 67-2, ¶ 1.6.] A separate definition is not offered for the FLSA Collective 27 Action. 28 1 The Settlement Agreement requires Kaiser to pay a gross settlement amount of 2 $1,475,000, in addition to any employer payroll taxes. [Id. at ¶ 5.1.] The manner in which 3 the gross settlement amount, which is non-reversionary, is to be allocated is described 4 somewhat differently in the Motion than the parties’ Settlement Agreement. The 5 Settlement Agreement allocates this amount as follows: 6 Fees not to exceed $442,500, as well as incurred litigation costs, to plaintiffs’ counsel (the motion indicates counsel’s recovery of litigation costs shall not 7 exceed $55,000, however, the Settlement Agreement contains no restriction) 8 [cf. Id. at ¶ 5.2 and Doc. No. 67-1, p. 19.];
9 $7,500 as an incentive award for named plaintiff Smith, $5,000 to opt-in 10 plaintiff Fox, and $2,500 to named plaintiff Sierra [Doc. Nos. 67-2, ¶ 5.3, 67- 1, p. 19.]; 11
12 $40,000 to settlement of PAGA claims, of which $30,000 is earmarked to go to the California Labor & Workforce Development Agency (“LWDA”) and 13 $10,000 will remain in the settlement fund for distribution thereof [Doc. No. 14 67-2, ¶ 5.4.];
15 $12,000 or $15,000 to Simpluris, Inc., the Settlement Administrator, for 16 administrative costs [cf. Doc. No. 67-2, ¶ 5.1 (allocating $15,000 for administrative costs) and Doc. No. 67-1, p. 19 (allocating $12,000 for same).]; 17
18 The remainder, i.e., the Net Settlement Amount, is to be distributed as Individual Settlement Payments to Class Members, including each Class 19 Member’s respective share of any payroll taxes owed. [Doc. No. 67-2, ¶ 1.23.] 20 21 Plaintiffs estimate the Net Settlement Fund will total $920,500, however, it is not 22 clear how this total was calculated given the inconsistencies between the Settlement 23 Agreement and the Motion. [Doc. No. 67-1, p. 19.] They estimate a class size of 437 class 24 members, which they represent would yield an average payment of $2,104.40 per class 25 member. [Id.] 26 In exchange for these payments, the Settlement Agreement provides that 27 participating Class Members will release the following claims: 28 1 any and all claims, debts, liabilities, demands, obligations, guarantees, costs, expenses, attorney’s fees, damages, action or causes of action, contingent or 2 accrued for, which relate in any way to the allegations and claims asserted in 3 the Complaint, failure to pay overtime compensation (Cal. Lab. Code §§ 510, 1194, 1198, 1199, and Wage Order 4-2001); failure to reimburse business 4 expenses (Cal. Lab. Code § 2802); failure to pay minimum wages and regular 5 wages for all hours worked (Cal. Lab. Code §§ 223, 1194, 1197.1 and Wage Order 4-2001); unlawful wage deductions (Cal. Lab. Code §§ 221 and 223); 6 failure to provide compliant meal breaks (Cal. Lab. §§ 226.7 and 512 and 7 Wage Order 4-2001); failure to provide compliant rest periods (Cal. Lab. § 226.7 and Wage Order 4-2001); failure to provide accurate itemized wage 8 statements (Cal. Lab. § 226(a)); failure to pay all wages owed upon 9 termination in violation of Cal. Lab. Code §§ 201-203; violations of the PAGA (Cal. Lab. § 2698, et seq.); Unfair Competition (Bus. & Prof. Code § 10 17200); violations of the FLSA (29 U.S.C. §§ 201, et seq.); claims for 11 restitution and other equitable relief, liquidated damages, punitive damages, off the clock work, rounding/grace period, overtime, minimum wage, interest, 12 wages, on call time, meal and rest period penalties, waiting time penalties, 13 penalties of any nature whatsoever, any other benefit claimed on account of the allegations asserted in the operative Complaint (“Released Claims”). This 14 release shall extend through the date of final approval. 15 16 [Doc. No. 67-2, ¶ 6.1.] The Agreement then further provides that Class Members release 17 all FLSA claims by virture of cashing, depositing, or endorsing their settlement checks: 18 In addition to the claims enumerated above, each member of the Settlement Class who endorses his or her Individual Settlement Payment check by 19 signing the back of the check and depositing or cashing the check shall release 20 and forever waive any and all claims the Settlement Class member may have under claims asserted in the Complaint for violations of the Fair Labor 21 Standards Act; and any and all claims for restitution, including without 22 limitation back pay, attorneys’ fees and costs, interest, and liquidated damages under the FLSA (“FLSA Release”). 23
24 25 26 27 28 1 [Id.] Additionally, each Settlement Class Member waives all rights provided by California 2 Civil Code section 1542. [Id.] 3 III. Legal Standards For Approval of a Settlement of a Hybrid FLSA 4 Collective/Rule 23 Class Action 5 A Rule 23 class action may not be settled without approval of the court. Hanlon v. 6 Chrysler Corp., 150 F.3d 1011, 1025-26 (9th Cir. 1998) (citing Fed. R. Civ. P. 23(e)). “The 7 primary concern . . . is the protection of those class members, including the named 8 plaintiffs, whose rights may not have been given due regard by the negotiating parties.” 9 Officers for Justice v. Civil Serv. Comm'n of City & Cty. of San Francisco, 688 F.2d 615, 10 624 (9th Cir. 1982). “Approval of a class action settlement requires a two-step process—a 11 preliminary approval followed by a later final approval.” Spann v. J.C. Penney Corp., 314 12 F.R.D. 312, 319 (C.D. Cal. 2016). The instant motion involves the first step of the process. 13 The settlement also purports to settle and release the FLSA claims in the FAC (as 14 well as any other FLSA claims the class may have). FLSA claims brought on behalf of 15 similarly situated individuals are frequently referred to as collective actions. See Leuthold 16 17 1 See also 18 4.2 FLSA Opt-In. The back of all Individual Settlement Payment checks will provide 19 that Class Members who endorse their Individual Settlement Payment check by signing the back of the check and depositing or cashing the check will opt in to the FLSA 20 Release. 21 Specifically, each check shall be affixed with the following endorsement: 22 By cashing this check, you are releasing any and all claims, rights, causes of action and 23 liabilities, whether known or unknown, for any and all types of relief under the Fair Labor Standards Act, including without limitation claims for failure to pay minimum 24 wage, overtime, and for all hours worked, and any and all claims for recovery of 25 compensation, overtime pay, minimum wage, liquidated damages, interest, and/or penalties tied to such claims, that arose or accrued at any time from December 21, 2014 26 through [Preliminary Approval Date], arising from your employment with Kaiser Foundation Hospitals. Your release does not include, however, any claims, rights, causes 27 of action or liabilities that cannot be released as a matter of law.
28 1 v. Destination Am., Inc., 224 F.R.D. 462, 466 (N.D. Cal. 2004); see also Does v. Advanced 2 Textile Corp., 214 F.3d 1058, 1064 (9th Cir. 2000) Similar to Rule 23 class actions, 3 “[s]ettlement of an FLSA claim, including a collective action claim, requires court 4 approval.” Kempen v. Matheson Tri-Gas, Inc., No. 15-cv660-HSG, 2016 WL 4073336, at 5 *4 (N.D. Cal. Aug. 1, 2016); see also Dunn v. Teachers Ins. & Annuity Assoc. of Am., No. 6 13-cv-5456-HSG, 2016 WL 153266, at *3 (N.D. Cal. Jan. 13, 2016) (“Most courts hold 7 that an employee’s overtime claim under FLSA is non-waivable and, therefore, cannot be 8 settled without supervision of either the Secretary of Labor or a district court.”). 9 However, “Rule 23 actions are fundamentally different from collective actions under 10 the FLSA.” Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523, 1529 (2013). One of 11 the primary differences is that the “FLSA and Rule 23 provide different means for 12 participating in a class action.” Leuthold, 224 F.R.D. at 469. Specifically: 13 In a class action, once the district court certifies a class under Rule 23, all class members are bound by the judgment unless they opt out of the suit. By 14 contrast, in a collective action each plaintiff must opt into the suit by “giv[ing] 15 his consent in writing.” 29 U.S.C. § 216(b). As a result, unlike a class action, only those plaintiffs who expressly join the collective action are bound by its 16 results. 17 18 McElmurry v. U.S. Bank Nat. Ass’n, 495 F.3d 1136, 1139 (9th Cir. 2007). Despite these 19 differences, when considering a motion to approve the settlement of either a Rule 23 class 20 or an FLSA collective action, before a class or collective has been certified, the Court must 21 first certify the class or collective for the purpose of the settlement. See generally Millan 22 v. Cascade Water Servs., Inc., 310 F.R.D. 593, 602-07 (E.D. Cal. 2015). 23 IV. Preliminary Certification of Rule 23 Class 24 A court “must pay undiluted, even heightened, attention to class certification 25 requirements in a settlement context.” Hanlon, 150 F.3d at 1019 (internal quotation marks 26 omitted). Thus, before approving the settlement itself, the Court’s “threshold task is to 27 ascertain whether the proposed settlement class satisfies the requirements of Rule 23(a) of 28 the Federal Rules of Civil Procedure applicable to all class actions, namely: (1) numerosity, 1 (2) commonality, (3) typicality, and (4) adequacy of representation.” Id. In addition, the 2 Court must determine whether class counsel is adequate (Fed. R. Civ. P. 23(g)), and 3 whether “the action is maintainable under Rule 23(b)(1), (2), or (3).” In re Mego Fin. Corp. 4 Sec. Litig., 213 F.3d 454, 462 (9th Cir. 2000) (quoting Amchem Prod. v. Windsor, 521 U.S. 5 591, 614 (1997)). 6 The settlement here envisions a class consisting of “[a]ll current and former 7 employees who… worked for Kaiser Foundation Hospitals at its San Diego, California 8 location, with the job title of Customer Support Specialist, Wellness Specialist, or 9 Telemedicine Specialist” between December 21, 2013 and preliminary approval. [Doc. No. 10 67-2, ¶ 1.6.] Plaintiffs seek certification of this class pursuant to Rule 23(b)(3), which 11 requires that “the questions of law or fact common to class members predominate over any 12 questions affecting only individual members, and that a class action is superior to other 13 available methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P. 14 23(b)(3). 15 A. Numerosity 16 The class must be so numerous that joinder of all members individually is 17 “impracticable.” Fed. R. Civ. P. 23(a)(1). “A proposed class of at least forty members 18 presumptively satisfies the numerosity requirement.” Valle v. Glob. Exch. Vacation Club, 19 No. SACV162149DOCJCGX, 2017 WL 433998, at *2 (C.D. Cal. Feb. 1, 2017). In their 20 Motion plaintiffs estimate there are approximately 437 class members. Although no 21 evidence has been proffered in support of this assertion, for the purpose of preliminary 22 approval the Court will accept this representation and find this requirement has been met. 23 B. Commonality 24 This requirement is satisfied if “there are questions of law or fact common to the 25 class.” Fed. R. Civ. P. 23(a)(2). “All questions of fact and law need not be common to 26 satisfy the rule.” Hanlon, 150 F.3d at 1019. However, “[c]ommonality requires the plaintiff 27 to demonstrate that the class members ‘have suffered the same injury.’” Wal-mart Stores, 28 Inc. v. Dukes, 564 U.S. 338, 349-50 (2011) (quoting Gen. Tel. Co. of Southwest v. Falcon, 1 457 U.S. 147, 157 (1982)). This means that each member’s claims must depend upon a 2 common contention capable of class wide resolution, “which means that determination of 3 its truth or falsity will resolve an issue that is central to the validity of each one of the 4 claims in one stroke.” Id. at 350. Here, this requirement is satisfied because the class claims 5 involve common questions of law and fact surrounding Kaiser’s policies, which plaintiffs 6 allege lead to the systemic underpayment of employees at the beginning, middle and end 7 of their shifts. 8 C. Typicality 9 The typicality requirement is met if “the claims or defenses of the representative 10 parties are typical of the claims or defenses of the class.” Fed. R. Civ. P. 23(a)(3). “Under 11 the rule’s permissive standards, representative claims are ‘typical’ if they are reasonably 12 co-extensive with those of absent class members; they need not be substantially identical.” 13 Hanlon, 150 F.3d at 1020. “Typicality refers to the nature of the claim or defense of the 14 class representative, and not to the specific facts from which it arose, or the relief sought. 15 The test of typicality is whether other members have the same or similar injury, whether 16 the action is based on conduct which is not unique to the named plaintiffs, and whether 17 other class members have been injured by the same course of conduct.” Hanon v. 18 Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992.) 19 Here, the named plaintiffs’ claims and those of putative class members are based on 20 the claims that Kaiser’s policies violate various California labor laws, as well as the FLSA. 21 Moreover, Smith, Sierra and the putative class members are alleged to have suffered the 22 same injuries, including the non-payment for time spent on required job functions at the 23 beginning of their shifts and end of their shifts, as well as during uncompensated meal 24 breaks, as well as penalties for various other labor code violations. Therefore, for purposes 25 of preliminary certification, plaintiffs have made an adequate showing of typicality. 26 D. Adequacy 27 The adequacy requirement asks whether the representative “will fairly and 28 adequately protect the interest of the class.” Fed. R. Civ. P. 23(a)(4). “The proper resolution 1 of this issue requires that two questions be addressed: (a) do the named plaintiffs and their 2 counsel have any conflicts of interest with other class members and (b) will the named 3 plaintiffs and their counsel prosecute the action vigorously on behalf of the class?” In re 4 Mego Fin. Corp. Sec. Litig., 213 F.3d at 462. 5 Plaintiffs have not provided the Court with any evidence upon which it could 6 conclude that neither the named plaintiffs nor counsel have a conflict of interest with other 7 class members. Mr. Stoops’ declaration does not address this issue and no declarations 8 have been provided by either named plaintiff. 9 Furthermore, while plaintiffs’ counsel appears to have extensive experience in 10 litigating wage and hour class actions, as explained herein, plaintiffs’ Motion has numerous 11 deficiencies that are an impediment to preliminary approval. Of particular concern is the 12 structuring of the settlement, which requires Rule 23 class members to also opt-in and 13 release all FLSA collective action claims, without any separate compensation, in order to 14 receive the benefit of the settlement of the state law based claims under Rule 23, as 15 discussed below. The complete failure to properly structure the settlement of this hybrid 16 action raises questions as to counsel’s understanding of the procedural rules applicable to 17 the FLSA claims. Notwithstanding the foregoing, because the Court is denying the Motion 18 on other grounds, it need not reach a conclusion at this stage as to whether the named 19 plaintiffs or counsel adequately represent the class. 20 E. Predominance and Superiority 21 “In addition to meeting the conditions imposed by Rule 23(a), the parties seeking 22 class certification must also show that the action is maintainable under Fed. R. Civ. P. 23 23(b)(1), (2) or (3).” Hanlon, 150 F.3d at 1022. “Rule 23(b)(3) permits a party to maintain 24 a class action if . . . ‘the court finds that the questions of law or fact common to class 25 members predominate over any questions affecting only individual members, and that a 26 class action is superior to other available methods for fairly and efficiently adjudicating the 27 controversy.’” Connecticut Ret. Plans & Trust Funds v. Amgen, Inc., 660 F.3d 1170, 1173 28 (9th Cir. 2011), aff’d, 133 S. Ct. 1184, 185 L. Ed. 2d 308 (2013) (citing Fed. R. Civ. P. 1 23(b)(3)). The Ninth Circuit refers to these questions as the “predominance” and 2 “superiority” inquiries. Hanlon, 150 F.3d at 1022-23. 3 The “predominance inquiry tests whether proposed classes are sufficiently cohesive 4 to warrant adjudication by representation.” Id. at 1022 (quoting Amchem, 521 U.S. at 623). 5 “[T]he presence of commonality alone is not sufficient. . . .” Id. “If anything, Rule 6 23(b)(3)’s predominance criterion is even more demanding than Rule 23(a).” Comcast 7 Corp. v. Behrend, 133 S.Ct. 1426, 1432 (2013). Further, “[s]ettlement benefits cannot form 8 part of a Rule 23(b)(3) analysis; rather the examination must rest on ‘legal or factual 9 questions that qualify each class member’s case as a genuine controversy, questions that 10 preexist any settlement.’” Id. (quoting Amchem, 521 U.S. at 623). Here, the main injuries 11 to the putative class members seem to be largely identical and are all alleged to be the result 12 of Kaiser’s labor policies. Although the scope of the underpayment of wages and the 13 amount of penalties may in the end vary from member to member, the determination of 14 whether the policies at issue actually violate California labor laws predominate over the 15 individual damages issues. 16 The superiority inquiry “requires determination of whether the objectives of the 17 particular class action procedure will be achieved in the particular case.” Hanlon, 150 F.3d 18 at 1023. “In resolving the Rule 23(b)(3) superiority inquiry, the court should consider class 19 members' interests in pursuing separate actions individually, any litigation already in 20 progress involving the same controversy, the desirability of concentrating in one forum, 21 and potential difficulties in managing the class action—although the last two 22 considerations are not relevant in the settlement context.” Mitchinson v. Love’s Travel 23 Stops & Country Stores, Inc., No. 115CV01474DADBAM, 2016 WL 7426115, at *6 (E.D. 24 Cal. Dec. 22, 2016). The Court is satisfied that in light of the relatively limited potential 25 recovery for the class members as compared with the costs of litigating the claims, each of 26 these requirements weighs in favor of finding that the superiority requirement is satisfied. 27 / / 28 / / 1 V. Conditional Certification of FLSA Collective Action 2 The standards for certifying an FLSA collective are not as well-defined as those for 3 Rule 23 class actions. The FLSA provides for a private right of action to enforce its 4 provisions “by any one or more employees for and in [sic] behalf of himself or themselves 5 and other employees similarly situated.” 29 U.S.C. § 216(b). “Neither the FLSA, nor the 6 Ninth Circuit, nor the Supreme Court has defined the term ‘similarly situated.’” Millan, 7 310 F.R.D. at 607. However, “a Court has a considerably less stringent obligation to ensure 8 fairness of the settlement in a FLSA collective action than a Rule 23 action because parties 9 who do not opt in are not bound by the settlement.” Id. (internal quotations marks omitted). 10 Here, plaintiffs have not provided adequate information to determine the size and 11 scope of the FLSA collective action. As mentioned earlier, plaintiff’s Motion appears to 12 apply the same parameters for the collective action group as the Rule 23 putative class, 13 which are: 14 All current and former employees who, between December 21, 2013 and preliminary approval (the “Class Period”), worked for Kaiser Foundation 15 Hospitals at its San Diego, California location, with the job title of Customer 16 Support Specialist, Wellness Specialist, or Telemedicine Specialist, in job codes 20005, 50278, and 20186. 17
18 [Doc. No. 67-2, ¶ 1.6 (emphasis added.] They represent, again without any evidentiary 19 substantiation, the collective class action group consists of approximately 437 potential 20 opt-in plaintiffs, the same size estimated for the Rule 23 class action. [Id.] In addition to 21 lacking evidentiary substantiation, plaintiffs’ definition for the collective action is 22 problematic for these reasons: 23 First, the FAC seeks recovery for a shorter time period than collective action 24 definition currently posited, dating back only to December 21, 2014. [cf. Doc. No. 70, ¶ 25 84 and Doc. No. 67-2, ¶ 1.6.] The Court cannot certify a collective action that is defined 26 more broadly than the scope of the pleadings. 27 Second, the parameters for the collective action group set forth in plaintiffs’ Motion 28 are also inconsistent with the language of the Settlement Agreement, including specifically 1 the release language set forth in Section 4.2, which indicates FLSA claims would be 2 released for the time period December 21, 2014 through the preliminary approval date. 3 Third, the Court previously conditionally certified a nationwide collective action 4 group of Telemedicine Specialists. Notice of Right to Join Lawsuit was disseminated to 5 members of this group, of which 64 Telemedicine Specialists opted-in to this lawsuit. 6 Plaintiffs now seek conditional certification of a group that is limited to San Diego based 7 employees but do not address the fact that 64 individuals from a nationwide group have 8 already opted-in to the case. The Court’s concern, thus, is whether any of the 64 opt-in 9 plaintiffs, who are now party plaintiffs, were excluded from the newly defined collective 10 action group and settlement, which is limited to San Diego. See e.g. Campbell v. City of 11 Los Angeles, 903 F.3d 1090, 1104-05 (9th Cir. 2018); see also Mickles v. Country Club, 12 Inc., 887 F.3d 1270, 1278 (“[O]pt-in plaintiffs remain party plaintiffs until the district court 13 determines they are not similarly situated and dismisses them.”). 14 Because of these concerns, the Court cannot preliminarily certify the collective 15 action group. 16 VI. Preliminary Review of Settlement Terms 17 A. Rule 23 Class Action Legal Standards 18 With respect to Rule 23 class actions, “[a]t the preliminary approval stage, the Court 19 may grant preliminary approval of a settlement if the settlement: (1) appears to be the 20 product of serious, informed, non-collusive negotiations; (2) has no obvious deficiencies; 21 (3) does not improperly grant preferential treatment to class representatives or segments of 22 the class; and (4) falls within the range of possible approval.” Sciortino v. PepsiCo, Inc., 23 No. 14-CV-00478-EMC, 2016 WL 3519179, at *4 (N.D. Cal. June 28, 2016) (quoting 24 Harris v. Vector Mktg. Corp., No. C-08-5198 EMC, 2011 WL 1627973, at *7 (N.D. Cal. 25 Apr. 29, 2011)). “At the preliminary approval stage, a full fairness analysis is unnecessary.” 26 Zepeda v. PayPal, Inc., No. C 10-1668 SBA, 2014 WL 718509, at *4 (N.D. Cal. Feb. 24, 27 2014) (internal quotation marks and citation omitted). “Closer scrutiny is reserved for the 28 final approval hearing.” Sciortino, 2016 WL 3519179, at *4. 1 Federal Rule of Civil Procedure 23(e) instructs that “[t]he claims, issues, or defenses 2 of a certified class may be settled, voluntarily dismissed, or compromised only with the 3 court’s approval.” Fed. R. Civ. Pro. 23(e). “Adequate notice is critical to court approval of 4 a class settlement under Rule 23(e).” Hanlon, 150 F.3d at 1025. In addition, Rule 23(e) 5 “requires the district court to determine whether a proposed settlement is fundamentally 6 fair, adequate, and reasonable.” Id. at 1026. This determination requires the Court to 7 “evaluate the fairness of a settlement as a whole, rather than assessing its individual 8 components.” Lane v. Facebook, Inc., 696 F.3d 811, 818-19 (9th Cir. 2012). 9 “Assessing a settlement proposal requires the district court to balance a number of 10 factors: the strength of the plaintiffs’ case; the risk, expense, complexity, and likely 11 duration of further litigation; the risk of maintaining class action status throughout the trial; 12 the amount offered in settlement; the extent of discovery completed and the stage of the 13 proceedings; the experience and views of counsel; the presence of a governmental 14 participant; and the reaction of the class members to the proposed settlement.” Hanlon, 150 15 F.3d at 1026. Further, because the Settlement Agreement here was negotiated prior to 16 formal class certification, “there is an even greater potential for a breach of fiduciary duty 17 owed the class. Accordingly, such agreements must withstand an even higher level of 18 scrutiny for evidence of collusion or other conflicts of interest than is ordinarily required 19 under Rule 23(e) before securing the court’s approval as fair.” Radcliffe v. Experian Info. 20 Sols. Inc., 715 F.3d 1157, 1168 (9th Cir. 2013) (quoting In re Bluetooth Headset Prods. 21 Liab. Litig., 654 F.3d 935, 946 (9th Cir. 2011)). However, “the question whether a 22 settlement is fundamentally fair within the meaning of Rule 23(e) is different from the 23 question whether the settlement is perfect in the estimation of the reviewing court.” Lane, 24 696 F.3d at 819. Ultimately, a “district court’s final determination to approve the settlement 25 should be reversed ‘only upon a strong showing that the district court’s decision was a clear 26 abuse of discretion.’” Hanlon, 150 F.3d at 1027 (quoting In re Pacific Enter. Sec. Litig., 27 47 F.3d 373, 377 (9th Cir. 1995)). 28 / / 1 B. FLSA Collective Action Legal Standards 2 Although the Ninth Circuit has not established a standard for district courts to follow 3 when evaluating an FLSA settlement, California district courts frequently apply the 4 standard established by the Eleventh Circuit in Lynn’s Food Stores, Inc. v. U.S. by and 5 Through U.S. Dep’t of Labor, 679 F.2d 1350, 1352 (11th Cir. 1982). Dunn, 2016 WL 6 153266, at *3. Under that standard, the settlement must constitute “a fair and reasonable 7 resolution of a bona fide dispute over FLSA provisions.” 29 U.S.C. § 216(b); Lynn’s Food 8 Stores, 679 F.2d at 1355; see also Ambrosino v. Home Depot U.S.A., Inc., No. 11cv1319 9 L(MDD), 2014 WL 3924609, at *1 (S.D. Cal. Aug. 11, 2014) (“A district court may 10 approve an FLSA settlement if the proposed settlement reflects ‘a reasonable compromise 11 over [disputed] issues.’”) (quoting Lynn’s Food Stores, 679 F.2d at 1354). 12 The standard for approving FLSA collective actions may be nominally different 13 from the standard for approving class actions under Federal Rule of Civil Procedure 23, 14 but “many courts begin with the well-established criteria for assessing whether a class 15 action settlement is fair, reasonable and adequate under [Rule] 23(e) and reason by analogy 16 to the FLSA context.” Millan v. Cascade Water Servs., Inc., No. 1:12-cv-1821-AWI-EPG, 17 2016 WL 3077710, at *3 (E.D. Cal. Jun. 2, 2016) (internal quotation marks omitted); see 18 also Otey v. Crowdflower, Inc., No. 12-cv5524-JST, 2014 WL 1477630, at *11 (N.D. Cal. 19 Apr. 15, 2014) (“[T]he factors that courts consider when evaluating a collective action 20 settlement are essentially the same as those that courts consider when evaluating a Rule 23 21 settlement.”). Accordingly, if the settlement here warrants approval under Rule 23(e), it is 22 likely to warrant approval under the FLSA as well. 23 C. Analysis 24 For the reasons discussed below, there are multiple issues that preclude preliminary 25 approval of the parties’ settlement at this time: 26 / / 27 / / 28 / / 1 1. Inclusion of FLSA Claims 2 Plaintiffs seek to link settlement of state and federal claims via a single check with 3 disclosure language on the reverse. Under their proposal, Rule 23 class members would 4 opt-in to the FLSA collective action and release all FLSA claims, for no separate 5 compensation, when they cash their checks for settlement of the state law claims. (Doc. 6 No. 67-2, ¶ 4.2.) This procedure and the inclusion of FLSA claims renders this settlement 7 improper. Indeed, the many flaws in this proposed settlement demonstrate why the question 8 of whether a Rule 23 class action can co-exist with a related FLSA collective action has 9 divided district courts in the Ninth Circuit. See Pitts v. Terrible Herbst, Inc., 653 F.3d 1081, 10 1093 (9th Cir. 2011). These numerous deficiencies must be remedied in any subsequent 11 motion for preliminary approval of a settlement. 12 First, this procedure does not obtain the consent required under the FLSA. 29 U.S.C. 13 § 216(b). (“No employee shall be a party plaintiff to any such action unless he gives his 14 consent in writing to become such a party and such consent is filed in the court in which 15 such action is brought.”) Individuals who file a consent and affirmatively join in the 16 collective action, of course, can be bound to a full release of all federal and state rights. It 17 is unconscionable, however, to try to take away the FLSA rights of all the Rule 23 class 18 members, whether or not they choose to affirmatively consent and join in to the FLSA 19 collective action. 20 Second, as is discussed further in Section IV.C.5 below, the proposed procedure and 21 language does not give adequate notice or explanation of the FLSA implications. As the 22 Supreme Court has explained, the benefits of collective action “depend on employees 23 receiving accurate and timely notice concerning the pendency of the collective action, so 24 that they can make informed decisions about whether to participate.” Hoffmann-La Roche, 25 Inc. v. Sperling, 493 U.S. 165, 170 (1989)). Under the proposed procedure, however, 26 individuals would have notice of the opportunity opt-in to the case only upon receipt of the 27 settlement check, which is issued after approval of the final settlement agreement. [Doc. 28 No. 67-2, ¶ 4.2.] Even if this procedure could be construed as adequate consent, which it 1 cannot, obtaining consent to join the litigation after final approval of the settlement leaves 2 an opt-in plaintiff with little opportunity to participate meaningfully in the litigation. 3 Third, the procedure proposed by plaintiffs forces Rule 23 class members to opt-out 4 of the settlement of their state law claims if they do not wish to opt-in to the FLSA 5 collective action and also release those claims. As a result, “Class Members are assessed a 6 penalty (in the full amount of their share of the settlement) for not opting-into the FLSA 7 class.” Sharobiem v. CVS Pharmacy, Inc., No. CV139426GHKFFMX, 2015 WL 8 10791914, at *3 (C.D. Cal. Sept. 2, 2015). “Under no circumstances can counsel collude 9 to take away FLSA rights including the worker's right to control his or her own claim 10 without the burden of having to opt out of someone else's lawsuit.” Kakani v. Oracle Corp., 11 2007 WL 1793774 at *7 (N.D. Cal., June 19, 2007.) As discussed in Sharobiem, the legality 12 of this opt-in structure is suspect. 13 Lastly, no separate value is being paid for the FLSA claim. The fact that the 14 settlement calls for a release of FLSA claims in exchange for no consideration is 15 problematic. “No one should have to give a release and covenant not to sue in exchange 16 for zero (or virtually zero) dollars.” Daniels v. Aeropostale West, Inc., No. C 12-5755 17 WHA, 2014 WL 2215708, at *3 (N.D. Cal. May 29, 2014); see also Selk v. Pioneers Mem. 18 Healthcare Dist., 159 F.Supp. 3d 1164, 1178 (S.D. Cal. 2016) (“Only when opt-in plaintiffs 19 receive independent compensation, or provide specific evidence that they fully understand 20 the breadth of the release, will a broad release of claims survive a presumption of 21 unfairness.”). It is no answer to say that members deserve nothing, so no harm is done in 22 extracting the release and covenant. Daniels, 2014 WL 2215708, at *3. A release of FLSA 23 claims in exchange for no consideration is not “a fair and reasonable resolution of a bona 24 fide dispute over FLSA provisions.” 29 U.S.C. § 216(b). As a result, courts that have 25 approved settlements releasing both FLSA and Rule 23 claims generally do so only when 26 the parties expressly allocate settlement payments to FLSA claims. Millan, 31 F.R.D. at 27 602; see also Khanna v. Intercon Sec. Systems, Inc., No. 2:09-CV-2214 KJM EFB, 2014 28 WL 1379861, at *2 (E.D. Cal. Apr. 8, 2014) (approving hybrid settlement that allocated 1 two-thirds of net settlement amount to state claims and one-third of net settlement amount 2 to FLSA claims); Pierce v. Rosetta Stone, Ltd., No. C 11-01283 SBA, 2013 WL 1878918, 3 at *3 (N.D. Cal. May 3, 2013) (same). 4 Accordingly, if Kaiser wants a release of bona fide FLSA claims, it should have to 5 pay fair and reasonable consideration for that release. On the other hand, if there is no bona 6 fide dispute over FLSA provisions, plaintiffs should dismiss the FLSA claims without 7 prejudice, and the parties can limit their settlement to the Rule 23 class action claims. 8 2. Estimated Exposure 9 The motion lacks sufficient evidence or information that would allow the Court to 10 evaluate the reasonableness of the settlement amount. To determine whether a settlement 11 amount is reasonable, the Court must consider the amount obtained in recovery against the 12 estimated value of the class claims if successfully litigated. Millan, 310 F.R.D. at 611. 13 While plaintiffs have explained how they calculate Kaiser’s potential exposure on the Off- 14 the-Clock wage claims, alleged Labor Code violations and PAGA claim, they have not 15 provided any such assessment of the FLSA claims. [Doc. No. 67-3, Stoops Decl. ¶ 40.] 16 Furthermore, the information provided as to how plaintiffs calculated Kaiser’s 17 potential exposure on the Off-the-Clock wage claims, alleged Labor Code violations and 18 PAGA claim is highly generalized and where specifics are provided, seemingly 19 incomplete. For example, plaintiffs’ counsel summarily explains he retained expert 20 economists who, “with [counsel’s] assistance, prepared a time consuming and complicated 21 damage analysis of all claims at issue in this case.” [Id. at ¶ 37.] Counsel then explains the 22 first step of the analysis was to identify class metrics, which was done for Telemedicine 23 Specialist and Customer Support Specialist class members based on timekeeping and pay 24 records for periods of time that are more limited than the Class Period.2 [Id. at ¶ 38 & 39.] 25 26 27 2 The time period analyzed for Telemedicine Class Members was December 21, 2013 through September 4, 2018. [Id. at ¶ 37.] The time period analyzed for Customer Service Support Specialists was 28 1 No metrics are offered for Wellness Specialists, the third category of class members. Nor 2 is any explanation is offered as to how the metrics offered for the Telemedicine Specialist 3 and Customer Support Specialist were applied more broadly to the entire class. Lastly, the 4 explanation offered as to how plaintiffs calculated the damage estimates for the alleged 5 Labor Code violations [Id. at ¶ 40(b)i, ii & iii] or their PAGA claim [Id. at ¶ 40(c).] is 6 highly generalized and the Court cannot reliably discern from the record presented whether 7 the proposed settlement falls within the range of possible approval. See Thio v. Genji, LLC, 8 et al., 14 F. Supp. 3d 1324, 1335 (N.D. Cal. 2014) (stating that in evaluating whether a 9 proposed settlement falls within the range of possible approval, “courts primarily consider 10 plaintiff's expected recovery balanced against the value of the settlement offer.”). 11 3. Attorneys’ Fees, Costs and Administrative Expenses 12 As previously discussed, there are discrepancies between the Settlement Agreement 13 and plaintiffs’ Motion with respect to what they propose be allocated for Costs and 14 Administrative Expenses. 15 With respect to attorney fees, plaintiffs’ counsel represents that over 300 hours and 16 $200,000 in fees have been incurred thus far. [Doc. No. 67-3, Stoops Decl. ¶ 51.] According 17 to the Motion, counsel will request up to $442,500 in fees, which is 30% of the overall 18 settlement. Although the Court need not resolve the issue at this preliminary stage 19 (particularly when there are other issues that preclude the approval of settlement at this 20 time), the Court has some concern regarding plaintiffs' request for 30% of the settlement, 21 in light of the fact that the benchmark is 25% and counsel has incurred less than half the 22 requested amount thus far. See In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d at 23 942. Plaintiffs' counsel should bear this in mind if or when he presents a fees motion for 24 final approval. 25 4. Service Awards 26 As discussed, plaintiffs seek $7,500 as an incentive award for named plaintiff Smith, 27 $5,000 to opt-in plaintiff Fox, and $2,500 to named plaintiff Sierra [Doc. Nos. 67-2, ¶ 5.3, 28 67-1, p. 19.] While service awards are permissible, they must also be reasonable. Staton v. 1 Boeing North American, Inc., 327 F.3d 938, 977 (9th Cir.) Courts must evaluate such 2 awards individually, using “relevant factors includ[ing] the actions the plaintiff has taken 3 to protect the interests of the class, the degree to which the class has benefitted from those 4 actions, ... the amount of time and effort the plaintiff expended in pursuing the litigation ... 5 and reasonabl[e] fear[s of] workplace retaliation.” Id. (internal quotations and citation 6 omitted). 7 Here, named plaintiff Smith will seek $7.500, an award that is over three and a half 8 times plaintiffs’ estimate of the average $ 2,104.40 payment they say class/collective 9 members may expect to receive. Named plaintiff Sierra will seek $2,500, just a little more 10 then the average, and Fox, who is not a named plaintiff and who opted-in to the case fairly 11 recently, will seek $5,000, over twice the estimated average. 12 These may be reasonable ratios, but plaintiffs' counsel has provided very little detail 13 about these individuals’ efforts in this case. [Doc. No. 67-3, Stoops Decl. ¶¶ 53-54.] 14 Additionally, no explanation is offered as to why the requested service awards are 15 reasonable in relation to the overall settlement and the individual payments to class 16 members. Lastly, the Court has not been provided with any legal authority to support 17 granting a service award to Fox, who is an opt-in plaintiff for the FLSA claims, but is not 18 a named plaintiff. If or when plaintiffs formally apply for service awards, the Court would 19 benefit from additional discussion of the justification, as well as declarations or other 20 evidence supporting their request. 21 5. Proposed Notice 22 The notice to the class is not adequate. In a FLSA action, “the court must provide 23 potential plaintiffs ‘accurate and timely notice concerning the pendency of the collective 24 action, so that they can make informed decisions about whether or not to participate.’” 25 Adams v. Inter-Con Sec. Sys., 242 F.R.D. 530, 539 (N.D. Cal. 2007) (quoting Hoffmann- 26 La Roche, Inc, 493 U.S. at 170.). In light of this requirement, and because of the inherent 27 differences between Rule 23 class actions and FLSA collective actions, courts considering 28 approval of settlements in these hybrid actions consistently require class notice forms to 1 || explain: “(1) the hybrid nature of th[e] action; (2) the claims involved in th[e] action; and 2 ||(3) the options that are available to California Class members in connection with the 3 || settlement, including how to participate or not participate in the Rule 23 class action and 4 ||the FLSA collective action aspects of the settlement; and (4) the consequences of opting- 5 ||in to the FLSA collective action, opting-out of the Rule 23 class action, or doing nothing.” 6 || Pierce, 2013 WL 1878918 at *4; see also Sharobiem, 2015 WL 10791914, at *4 (noting 7 because the proposed claim form did not distinguish between a Rule 23 class action 8 FLSA class action, it was “not clear and easy to follow”). 9 Here, the proposed notice does not list the claims asserted in the FAC. Nor does it 10 || acknowledge the hybrid nature of this lawsuit. It also does not provide any mechanism for 11 recipient to participate in the Rule 23 class but not opt in to the FLSA collective action. 12 ||To remedy this deficiency, if the parties wish to continue with a settlement of both 13 California and FLSA claims, any notice must: (1) explain how much of the settlement 14 |}amount will be paid for the release of the FLSA claims; (2) explain and provide a 15 ||mechanism for recipients to opt-in to the collective action that complies with the FLSA; 16 || and (3) explain the consequences of opting into the FLSA collective, opting out of the Rule 17 || 23 class, or doing nothing.’ Alternatively, plaintiffs can dismiss their FLSA claims without 18 || prejudice and seek approval solely of a Rule 23 class for the California claims, without any 19 release of FLSA claims for class members. 20 Dated: November 7, 2019 Yy JA 21 Mfc Ye 9 Hori. Karen 8S. Crawford United States Magistrate Judge 23 24 25 26 3 Necessarily, a prerequisite to remedying this deficiency is to reach an agreement as to a settlement 27 || fund in exchange for the release of FLSA claims. The Court will not approve a settlement that asks 28 members of the class action or collective action to release FLSA claims without compensation for doing so. 23