Case Name: Vanessa Camorlinga, et al. v. Zara USA, Inc., et al.
Case No.: 18-CV-332991
This is a putative wage and hour class action on behalf of employees of defendant Zara USA, Inc. Before the Court is plaintiff?s motion for preliminary approval of a settlement.
I. ?Factual and Procedural Background
Zara is a clothing retailer with numerous stores in the United States and California. (Complaint, ? 23.) Plaintiffs bring this action individually and on behalf of similarly situated employees working at Zara?s California retail locations as head cashiers, floor supervisors, assistant managers, and department managers. (Id. at ? 1.) They allege that, while they were classified as exempt employees by Zara, they spent at least half and often much more of their time performing duties of non-exempt employees. (Id. at ?? 2, 24.) Their claims are limited to the period ending on November 26, 2016, when Zara began paying overtime to employees in these positions. (Id. at ? 6.)
Based on their misclassification theory, plaintiffs assert claims for (1) failure to pay overtime, (2) failure to provide meal and rest periods, (3) failure to provide accurate itemized wage statements, (4) failure to pay full wages when due and waiting time penalties, and (5) unfair business practices.
The parties have reached a settlement. Plaintiffs now move for an order preliminarily approving the settlement, provisionally certifying the settlement class, approving the form and method for providing notice to the class, and scheduling a final fairness hearing.
II. Legal Standards for Approving a Class Action Settlement
Generally, ?questions whether a settlement was fair and reasonable, whether notice to the class was adequate, whether certification of the class was proper, and whether the attorney fee award was proper are matters addressed to the trial court?s broad discretion.? ?(Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 234-235, citing Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, disapproved of on other grounds by Hernandez v. Restoration Hardware, Inc. (2018) 4 Cal.5th 260.)
In determining whether a class settlement is fair, adequate and reasonable, the trial court should consider relevant factors, such as the strength of plaintiffs? case, the risk, expense, complexity and likely duration of further litigation, the risk of maintaining class action status through trial, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of the class members to the proposed settlement.
(Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at pp. 244-245, internal citations and quotations omitted.)
The list of factors is not exclusive and the court is free to engage in a balancing and weighing of factors depending on the circumstances of each case. ?(Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at p. 245.) ?The court must examine the ?proposed settlement agreement to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement, taken as a whole, is fair, reasonable and adequate to all concerned.? ?(Ibid., quoting Dunk v. Ford Motor Co., supra, 48 Cal.App.4th at p. 1801, internal quotation marks omitted.)
The burden is on the proponent of the settlement to show that it is fair and reasonable. ?However ?a presumption of fairness exists where: (1) the settlement is reached through arm?s-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small.?
(Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at p. 245, citing Dunk v. Ford Motor Co., supra, 48 Cal.App.4th at p. 1802.) ?The presumption does not permit the Court to ?give rubber-stamp approval? to a settlement; in all cases, it must ?independently and objectively analyze the evidence and circumstances before it in order to determine whether the settlement is in the best interests of those whose claims will be extinguished,? based on a sufficiently developed factual record. ?(Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 130.)
III. Settlement Process
According to declarations by plaintiffs? counsel, in March of 2017, a classwide settlement demand was issued, resulting in the parties? agreement to conduct pre-litigation discovery and mediation. At an October 5th, 2017 mediation before Jeffrey Ross, the parties negotiated the claims of assistant managers and floor supervisors, but were unable to achieve a settlement, in part because discovery on additional positions that were allegedly misclassified had not been provided. The parties agreed to exchange information about department managers and head cashiers, and to toll the statute of limitations to facilitate this process.
After several month of additional informal discovery, audits, and analysis, a second mediation was held with the assistance of Mr. Ross on April 27, 2018. An agreement regarding the amount of the settlement was apparently reached at this time. Thereafter, the parties continued to negotiate the remaining terms of the settlement agreement. After the settlement was finalized, plaintiffs filed this action on July 31, 2018.
Over two rounds of informal discovery, plaintiffs have now reviewed more than two thousand pages of documents produced by defendant. The documents include personal earning statements and timesheets for the named plaintiffs and a sampling of class members in each affected position, as well as class lists for the four positions reflecting store locations, final hourly rates, and dates of employment. From the documents provided by Zara, plaintiffs determined the number of work days and weeks at issue, the average hourly pay rate, and the number of current and former employees in the putative class. Plaintiffs also interviewed approximately 20 putative class members. Class counsel audited the time and payroll records of 48 individuals employed for various lengths of time during the class period, and used the average potentially owed to those employees to project the damages and penalties for the class.
IV. Provisions of the Settlement
The non-reversionary gross settlement amount is $1,820,000. ?Attorney fees of up to $606,060 (one-third of the gross settlement), litigation costs not to exceed $22,000, and administration costs estimated at $10,324 will be paid from the gross settlement. The named plaintiffs will also seek an enhancement award of $7,500 each.
The settlement provides that the net settlement fund will be divided among participating class members pro rata based on their eligible weeks worked during the settlement class period. ?Class members will not be required to submit a claim to receive their payments. Settlement awards will be allocated 20 percent to wages and 80 percent to interest and penalties, and defendant will separately pay the employer?s share of payroll taxes. Funds associated with checks uncashed after 90 days will be redistributed to the class unless the parties agree that it is not financially feasible to do so. In that event, unclaimed funds will be distributed fifty percent to the Legal Aid Society of Santa Clara County and fifty percent to Legal Aid at Work. By the Court?s calculation, based on the estimated 280 individuals in the putative class, the average payment to each class member will be $4,166.49.
Class members who do not opt out of the settlement will release all claims for relief based on the facts alleged in the action for specified wage and hour violations, ?any other claims or penalties under the wage and hour laws pleaded in the Action,? and any associated claims for relief under California and federal law, ?including but not limited to the [Fair Labor Standards Act] and the California Labor Code,? ?the applicable Wage Orders,? and ?the California Unfair Competition Law as to the facts alleged in the Action.?
V. Fairness of the Settlement
Plaintiffs? counsel declares that by auditing the time records and pay stubs produced by defendant, plaintiffs determined that, during the class period, defendant paid class members a fixed salary regardless of the number of hours they worked and did not pay overtime, provide compliant meal and rest breaks, or provide accurate itemized wage statements to these employees. A review of time and payroll records dated after November 26, 2016 confirmed that defendant reclassified employees in the relevant positions and began paying them for overtime and properly recording meal periods after this date.
By determining the average amounts owed to the 48 workers audited, including the named plaintiffs, plaintiffs estimate that the class claims for unpaid regular and overtime hours are worth $970,409.39; the claims for meal period premiums are worth $404,392.02; the rest period premium claims are worth $830,738.04; the paystub claims are worth $59,600; waiting time penalties are worth $1,227,101.73; and simple interest at ten percent per annum is valued at $623,337.50. Based on this analysis, plaintiffs estimate that the total value of the class claims is $4,115,578.68. Accordingly, the settlement of $1,820,000 represents over 44 percent of the value of the action.
Counsel declares that while plaintiffs? damages analysis provided a starting point for negotiations, ?the ?soaking wet? numbers for the underlying claims and penalties were difficult to corroborate because there were gaps in the time and payroll records provided by Defendant, which Defendant asserts it could not provide without incurring substantial expense and delaying any resolution significantly.? Still, plaintiffs? estimate of the value of the case appears to be reasonable and the settlement represents a good result for the class, at least with respect to the claims asserted in the complaint.
VI. Release of FLSA Claims
While the settlement otherwise appears fair and reasonable to the class, plaintiffs fail to address one significant and unusual feature of the parties? agreement: the settlement?s purported release of claims under the federal Fair Labor Standards Act (?FLSA?).
As explained in Haro v. City of Rosemead (2009) 174 Cal.App.4th 1067, the FLSA ?govern[s] minimum wages and maximum hours.? (At p. 1070.) Notably, the FLSA establishes an ?opt-in? procedure for collective actions under its authority, which is essentially the opposite of the ?opt-out? procedure typically employed in class actions. The ?opt-in? procedure requires that aggrieved employees ?give[] [their] consent in writing? to become a party to an FLSA action, which consent must be ?filed in the court in which such action is brought.? ?(29 U.S.C. ? 216(b); Haro v. City of Rosemead, supra, 174 Cal.App.4th at p.?1071.) ?As held by Haro, ?[a]n FLSA action has to be litigated according to rules that are specifically applicable to these actions? and may not be prosecuted as a class action. (Haro v. City of Rosemead, supra, 174 Cal.App.4th at p. 1077.)
Here, the parties have attempted to address the FLSA?s ?opt-in? requirement in connection with their settlement by requiring that class members consent to an endorsement on the back of their settlement checks stating that ?[b]y cashing this check, I consent to join the class/collective action settlement [herein], and release the Released Parties as set forth in the Agreement, including claims under the [FLSA].? While some unpublished federal decisions have approved ?hybrid? class action and FLSA settlements utilizing this procedure, these endorsements do not comply with the statutory requirement of written consents that are filed with the court. Further, as discussed in other federal cases, this approach raises a number of additional issues that lead the Court to conclude it should not be approved.
First, plaintiff?s motion for preliminary approval ?does not explicitly request certification of an FLSA collective action, even though [the structure of the settlement] clearly contemplates the existence of a collective action ?.? (Thompson v. Costco Wholesale Corporation (S.D. Cal., Feb. 22, 2017, No. 14-CV-2778-CAB-WVG) 2017 WL 697895, at *7.) In the Court?s view, this step is a prerequisite to approval of a hybrid settlement. Moreover, the settlement requires class members ?to release FLSA claims to benefit from the settlement of the[ir] state law claims,? while assigning no value to the FLSA claims. (Id. at *7-8.) The parties? failure to allow putative class members to participate in one but not the other form of action ?counsels against the court?s granting of preliminary approval.? (Maciel v. Bar 20 Dairy, LLC (E.D. Cal., Oct. 23, 2018, No. 117CV00902DADSKO) 2018 WL 5291969, at *8, citing Millan v. Cascade Water Services, Inc. (E.D. Cal. 2015) 310 F.R.D. 593, 602.) Likewise, a ?release of [an] FLSA claim in exchange for no consideration does not appear to be a fair and reasonable resolution of a bona fide dispute over FLSA provisions.? (Id. at *6, internal citation and quotations omitted.)
Finally, courts considering settlements in hybrid FLSA and class actions ?consistently require class notice forms to explain: (1) the hybrid nature of the action; and (2) the claims involved in the action; (3) the options that are available to [class] members in connection with the settlement, including how to participate or not participate in the ? class action and the FLSA collective action aspects of the settlement; and (4) the consequences of opting-in to the FLSA collective action, opting-out of the ? class action, or doing nothing.? (Id. at *6, quoting Thompson v. Costco Wholesale Corporation, supra, 2017 WL 697895, at *8.) Here, the notice simply states without further explanation that signing a settlement check constitutes opting-in ?to the Settlement Class for purposes of the Fair Labor Standards Act claims referred to in the Release Claims.? (Sic.)
While the Court might approve a fair and appropriately structured hybrid FLSA/class action settlement, here, significant changes to the settlement, as well as supplementation of plaintiffs? moving papers, would be required for the Court to approve the FLSA release before it. Further, the Court is unlikely to approve the FLSA release in this settlement unless additional consideration is provided, given that plaintiffs did not plead a claim under the FLSA or include such a claim in their damages analysis. Accordingly, unless the parties elect to simply remove the FLSA release from their settlement, the Court will deny preliminary approval without prejudice. The Court observes that the vast majority of wage and hour settlements it reviews make no reference to the FLSA and thus avoid the host of issues associated with hybrid settlements. It consequently appears that most employees and employers are satisfied with the consideration provided by a non-FLSA settlement.
Despite these reservations, the Court will address the remaining issues that must be considered at preliminary approval to facilitate approval of a modified settlement.
VII. ?Proposed Settlement Class
Plaintiff requests that the following settlement class be provisionally certified:
All employees who worked for Zara USA, Inc. in California with the job titles of Department Manager, Assistant Manager, Head Cashier, and/or Floor Supervisor at any time during the period from October 5, 2013 through November 27, 2016.
A. ?Legal Standard for Certifying a Class for Settlement Purposes
Rule 3.769(d) of the California Rules of Court states that ?[t]he court may make an order approving or denying certification of a provisional settlement class after [a] preliminary settlement hearing.? ?California Code of Civil Procedure Section 382 authorizes certification of a class ?when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court ?.? ?As interpreted by the California Supreme Court, Section 382 requires the plaintiff to demonstrate by a preponderance of the evidence (1) an ascertainable class and (2) a well-defined community of interest among the class members. ?(Sav-On Drug Stores, Inc. v. Superior Court (Rocher) (2004) 34 Cal.4th 319, 326, 332.)
The ?community-of-interest? requirement encompasses three factors: (1)?predominant questions of law or fact, (2) class representatives with claims or defenses typical of the class, and (3) class representatives who can adequately represent the class. ?(Ibid.) ??Other relevant considerations include the probability that each class member will come forward ultimately to prove his or her separate claim to a portion of the total recovery and whether the class approach would actually serve to deter and redress alleged wrongdoing.? ?(Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435.) ?The plaintiff has the burden of establishing that class treatment will yield ?substantial benefits? to both ?the litigants and to the court.? ?(Blue Chip Stamps v. Superior Court (Botney) (1976) 18 Cal.3d 381, 385.)
In the settlement context, ?the court?s evaluation of the certification issues is somewhat different from its consideration of certification issues when the class action has not yet settled.? ?(Luckey v. Superior Court (Cotton On USA, Inc.) (2014) 228 Cal.App.4th 81, 93.) ?As no trial is anticipated in the settlement-only context, the case management issues inherent in the ascertainable class determination need not be confronted, and the court?s review is more lenient in this respect. ?(Id. at pp. 93-94.) ?However, considerations designed to protect absentees by blocking unwarranted or overbroad class definitions require heightened scrutiny in the settlement-only class context, since the court will lack the usual opportunity to adjust the class as proceedings unfold. ?(Id. at p. 94.)
B. ?Ascertainable Class
?The trial court must determine whether the class is ascertainable by examining (1) the class definition, (2) the size of the class and (3) the means of identifying class members.? ?(Miller v. Woods (1983) 148 Cal.App.3d 862, 873.) ?Class members are ?ascertainable? where they may be readily identified without unreasonable expense or time by reference to official records.? ?(Rose v. City of Hayward (1981) 126 Cal.App.3d 926, 932.)
Here, the estimated 280 class members have already been identified based on defendant?s records, and the class is clearly defined. ?The Court finds that the class is numerous and ascertainable.
However, the proposed class definition is inconsistent with the definition set forth in the complaint, since the starting and ending dates for the class period are different in the current definition. Any future motion for preliminary approval shall address this discrepancy and explain why the class period is defined as it is.
C. ?Community of Interest
With respect to the first community of interest factor, ?[i]n order to determine whether common questions of fact predominate the trial court must examine the issues framed by the pleadings and the law applicable to the causes of action alleged.? ?(Hicks v. Kaufman & Broad Home Corp. (2001) 89 Cal.App.4th 908, 916.) ?The court must also give due weight to any evidence of a conflict of interest among the proposed class members. ?(See J.P. Morgan & Co., Inc. v. Superior Court (Heliotrope General, Inc.) (2003) 113 Cal.App.4th 195, 215.) ?The ultimate question is whether the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants. ?(Lockheed Martin Corp. v. Superior Court, supra, 29 Cal.4th at pp. 1104-1105.) ??As a general rule if the defendant?s liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages.? ?(Hicks v. Kaufman & Broad Home Corp., supra, 89 Cal.App.4th at p. 916.)
Here, common legal and factual issues predominate. ?Plaintiffs? claims all arise from defendant?s wage and hour practices applied to the similarly-situated class members.
As to the second factor,
The typicality requirement is meant to ensure that the class representative is able to adequately represent the class and focus on common issues. It is only when a defense unique to the class representative will be a major focus of the litigation, or when the class representative?s interests are antagonistic to or in conflict with the objectives of those she purports to represent that denial of class certification is appropriate. But even then, the court should determine if it would be feasible to divide the class into subclasses to eliminate the conflict and allow the class action to be maintained.
(Medrazo v. Honda of North Hollywood (2008) 166 Cal. App. 4th 89, 99, internal citations, brackets, and quotation marks omitted.)
Like other members of the class, plaintiffs were employed by defendant in the relevant positions and allege that they were misclassified. ?The anticipated defenses are not unique to plaintiffs, and there is no indication that plaintiffs? interests are otherwise in conflict with those of the class.
Finally, adequacy of representation ?depends on whether the plaintiff?s attorney is qualified to conduct the proposed litigation and the plaintiff?s interests are not antagonistic to the interests of the class.? ?(McGhee v. Bank of America (1976) 60 Cal.App.3d 442, 450.) ?The class representative does not necessarily have to incur all of the damages suffered by each different class member in order to provide adequate representation to the class. ?(Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 238.) ?Differences in individual class members? proof of damages [are] not fatal to class certification. ?Only a conflict that goes to the very subject matter of the litigation will defeat a party?s claim of representative status.? ?(Ibid., internal citations and quotation marks omitted.)
Plaintiffs have the same interest in maintaining this action as any class member would have. ?Further, they have hired experienced counsel. ?Plaintiffs have sufficiently demonstrated adequacy of representation.
D. ?Substantial Benefits of Class Certification
?[A] class action should not be certified unless substantial benefits accrue both to litigants and the courts. . . .? ?(Basurco v. 21st Century Ins. (2003) 108 Cal.App.4th 110, 120, internal quotation marks omitted.) ?The question is whether a class action would be superior to individual lawsuits. ?(Ibid.) ??Thus, even if questions of law or fact predominate, the lack of superiority provides an alternative ground to deny class certification.? ?(Ibid.) ?Generally, ?a class action is proper where it provides small claimants with a method of obtaining redress and when numerous parties suffer injury of insufficient size to warrant individual action.? ?(Id. at pp. 120-121, internal quotation marks omitted.)
Here, there are an estimated 280 members of the proposed class. ?It would be inefficient for the Court to hear and decide the same issues separately and repeatedly for each class member. ?Further, it would be cost prohibitive for each class member to file suit individually, as each member would have the potential for little to no monetary recovery. ?It is clear that a class action provides substantial benefits to both the litigants and the Court in this case.
VIII. ?Notice
The content of a class notice is subject to court approval. ?(Cal. Rules of Court, rule 3.769(f).) ??The notice must contain an explanation of the proposed settlement and procedures for class members to follow in filing written objections to it and in arranging to appear at the settlement hearing and state any objections to the proposed settlement.? (Ibid.) ?In determining the manner of the notice, the court must consider: ?(1) The interests of the class; (2) The type of relief requested; (3) The stake of the individual class members; (4) The cost of notifying class members; (5) The resources of the parties; (6) The possible prejudice to class members who do not receive notice; and (7) The res judicata effect on class members.? ?(Cal. Rules of Court, rule 3.766(e).)
Here, the notice describes the lawsuit, explains the settlement, and instructs class members that they may opt out of the settlement or object. ?The gross settlement amount and estimated deductions are provided, along with each class member?s estimated payment. Class members are informed of their qualifying work weeks as reflected in defendant?s records and instructed how to dispute this information. Class members are given 60 days to request exclusion from the class, dispute their workweek information, or submit a written objection. The notice will be provided in English and Spanish.
The notice is generally adequate, but must be modified to indicate that class members may appear at the final fairness hearing to make an oral objection without submitting a written objection. ?The notice must also be modified to highlight the estimates of class members? eligible workweeks and settlement payments by displaying this information in bold within a box set off from the rest of the text on the first page of the notice. ?In addition, substantial modifications to the notice will be required if the parties seek approval of a modified hybrid FLSA/class action settlement, as discussed above.
Turning to the notice procedure, the parties have selected Simpluris, Inc. as the settlement administrator. ?The administrator will mail the notice packet within 14 days of receiving the class data, after updating class members? addresses using the National Change of Address database. ?Any notice packets returned as undeliverable will be re-mailed to any forwarding address provided or located through reasonable efforts such as skip tracing within five business days of the location of an updated address. Class members whose notice packets are re-mailed shall have at least fourteen calendar days to respond. These notice procedures are appropriate.
IX. Conclusion and Order
In light of the issues with the FLSA release discussed above, the motion for preliminary approval is DENIED WITHOUT PREJUDICE.
The Court will prepare the order.