Third Time’s the Charm for Karapetyan v. ABM Wage-and-Hour Settlement

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Following three rounds of briefing in support of Plaintiff Vardan Karapetyan’s motion for preliminary approval of his class action settlement, on June 12, 2017, U.S. District Judge George H. Wu granted preliminary approval of a $5 million wage-and-hour settlement on behalf of current and former employees of Defendants ABM Industries Incorporated and ABM Security Services, Inc. in Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Order Granting Preliminary Approval of Class Action Settlement (C.D. Cal. June 12, 2017) (slip op. available here).

The plaintiff alleged that ABM violated the California Labor Code by not providing class members with meal and rest breaks; failing to pay premium wages for missed meal and rest breaks, overtime wages, other unspecified unpaid wages, and wages upon termination; and by failing to provide accurate wage statements. Following the California Supreme Court’s decision in Augustus v. ABM Security Services, Inc. (2016) 2 Cal. 5th 257, which clarified that employers may not require employees to take on-duty and/or on-call rest periods (previously covered on ILJ here), the parties agreed to participate in mediation. With the mediator’s guidance, the parties settled the claims for a $5 million non-reversionary common fund, inclusive of class member payments (proportional to the number of weeks each class member worked during the class period), administrative costs, an incentive award, attorneys’ fees and costs, a payment to the Labor and Workforce Development Agency, and payroll taxes. The plaintiff moved for preliminary approval of the class action settlement on April 19, 2017.

On May 1, 2017, Judge Wu denied the motion on class certification grounds; namely, that Karapetyan had failed to demonstrate through sufficient evidence that the typicality and predominance elements of conditional class certification had been met. Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Order Denying Preliminary Approval of Class Action Settlement (C.D. Cal. May 1, 2017), at 2 (slip op. available here). Within a few weeks of the denial, the plaintiff renewed his motion for preliminary approval with an expanded typicality and predominance analysis. The renewed motion persuaded Judge Wu that conditional certification of the proposed settlement class was appropriate, but fell short of demonstrating to his satisfaction that the settlement was within the range of possible approval: “ . . . Plaintiff does not appear to provide the Court with any information of what amount he believes may have been recoverable if this case were litigated to completion. While the Court recognizes that settlement of complex actions such as the instant one are seen as favorable, . . . it may be difficult for the Court to determine whether the settlement figure is “within the range of possible approval” absent some information on the potential recovery. Plaintiff also does not indicate what the average recovery might be as a result of the settlement.” Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Order on Amended Motion for Preliminary Approval (C.D. Cal. June 5, 2017), at 4-5 (slip op. available here).

In the third and final round of briefing, the plaintiff argued that that the maximum possible award at trial would be between $12 and $16 million dollars, given which, the settlement was within the range of possible approval:

Augustus provides a benchmark [for evaluating the claims in this case], as it was litigated to completion under similar facts. Augustus was a $90 million judgment covering 10 years, almost 15,000 employees and certain undisputed evidence which led to a finding of liability, damages, interest and penalties. The case before this Court has about 4 years of exposure, 7,000 employees, the possibility of arbitration agreements impacting or limiting the litigation, less pre-judgment interest, and different testimony and documentation on liability. I believe the recovery in this case, had it proceeded, would reasonably be in the range of $12 million to $16 million.

Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Declaration of Michael B. Adreani in Support of Amended Motion for Preliminary Approval, at 6 (available here).

On the strength of these recitals, Judge Wu found that the settlement was within the range of possible approval, and, after having reviewed and approved the parties’ amendments to the settlement (the parties were asked to amend the settlement to address certain “nits”), granted preliminary approval of the $5 million settlement. Note that despite having to submit three rounds of briefing in support of the motion for preliminary approval, the concise analysis above was all that was needed to establish that the settlement was within the range of reasonableness. This is because at the preliminary approval stage, the moving party need only establish that the settlement is “’within the range of possible approval’ and whether or not notice should be sent to class members” rather than whether the settlement is in fact “fair, reasonable, and adequate,” pursuant to Fed. R. Civ. P. 23(e)(2), a determination which is made at the final approval stage. Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Order on Amended Motion for Preliminary Approval (C.D. Cal. June 5, 2017), at 2-3.

The final fairness hearing is set for September 7, 2017, at 8:30 a.m.

Authored by:
Eduardo Santos, Associate

Bruton v. Gerber Products: 9th Cir. Reverses Class Cert. Denial, Finds Label Claims Can Be “Technically True” Yet “Misleading”

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In April, the Ninth Circuit issued a decision that bodes well for consumer-plaintiffs suing for deceptive advertising based on foods with label claims that may technically be true, but are nonetheless misleading. See Bruton v. Gerber Products Company, No. 15-15173 (9th Cir., April 19, 2017) (slip op. available here). The three-judge panel reversed and remanded the Northern District of California’s denial of certification, among other orders. The court of appeals’ order provides a roadmap to consumers seeking relief after purchasing foods with labels that may be literally true, but still are deceptive.

In 2012, Plaintiff Natalia Bruton sued Gerber and its parent company, Nestle, in the Northern District of California after purchasing baby food labeled with health claims that violated Food and Drug Administration (FDA) regulations. She sought class certification in 2013, arguing the “No Added Sugar,” “As Healthy As Fresh,” and similar health claims were misleading and violated California’s Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumers Legal Remedies Act (CLRA). Bruton argued that even if the health claims were technically true, they were nevertheless misleading in context, as the offending products appeared on supermarket shelves alongside other foodmakers’ offerings whose labels lacked such claims.

The district court granted summary judgment to Gerber, finding that, because the label claims were literally true, there was no likelihood that a reasonable consumer would be deceived by the representations, as required to make out a claim under the CLRA, UCL, or FAL. The district court also denied the plaintiff’s motion for class certification for lack of “ascertainability,” finding that plaintiff’s suggested method of utilizing self-identifying affidavits from class members “administratively unfeasible,” due to the number of products at issue, the variations in product labeling during the class period, the uncertain length of time it takes for newly-labeled products to appear in stores, among other reasons. Bruton v. Gerber Products Company, No. 12-CV-02412-LHK (N.D. Cal. June 23, 2014), Order Denying Plaintiff’s Motion for Class Certification, at 15. Thus, the court concluded that the plaintiff did not put forth a class definition that was “sufficiently definite so that it is administratively feasible to determine whether a particular person is a class member.” Id. at 15 (citing Sethavanish v. ZonePerfect Nutrition Co., 2014 WL 580696 at *4) (internal citations omitted).

In reversing and remanding the district court’s summary judgment decision, the Ninth Circuit panel found that “Bruton’s theory of deception does not rely on proving that any of Gerber’s labels were false.” Slip op. at 3. The court of appeals accepted the plaintiff’s argument that the labels, while “technically true,” were misleading in context: “[W]hen the maker of one product complies with a ban on attractive label claims, and its competitor does not do so, the normal assumptions no longer hold, and consumers will possibly be left deceived.” Id. at 5. The panel also reversed the denial of certification, finding the decision was inconsistent with a Ninth Circuit decision, Briseno v. ConAgra Foods, Inc., 844 F.3d 1121 (9th Cir. 2017), which was decided after the district court issued its ruling. In Briseno, the Ninth Circuit held there was no separate “administrative feasibility” requirement for class certification. “Administrative feasibility,” the panel said here, was different terminology for the same concept—the notion that a class is not manageable because its members cannot be easily identified. Slip op. at 3. This portion of the ruling was remanded for the lower court to further consider whether class certification is appropriate.

The Bruton case shows that label claims can be literally true, yet still deceptive to consumers, such as food products that do not normally contain added sugars that claim they have “No Sugar Added.” Plaintiffs seeking relief after being misled by labels have yet another Ninth Circuit ruling to rely upon to bolster their consumer claims.

Authored by:
Cody Padgett, Associate

Class Certification Order in In re: Dial Complete Marketing Provides a Lesson in Economics

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In product labeling class actions, consumer plaintiffs must provide a damages methodology that is both admissible under Fed. R. Evid. 702 (i.e. survives a challenge under Daubert v. Merrell Dow Pharms. Inc., 509 U.S. 579 (1973)) and satisfies the requirements of Comcast Corp. v. Behrend, 133 S.Ct. 1426, 1433 (2013) (“a model purporting to serve as evidence of damages in [a] class action must measure only those damages attributable to that theory”).

In In re: Dial Complete Marketing and Sales Practices Litigation, MDL Case No. 11-md-2263-SM, 2017 DNH 051 (D.N.H. March 27, 2017) (“In re: Dial”) (slip op. available here), the court found that the plaintiffs met both aspects of this challenge. In re: Dial was a consolidated, multi-district class action brought by consumers in multiple states, including California, Florida, and Illinois, against Dial based on alleged misrepresentations of the antibacterial properties of its “Dial Complete” soap. Slip op. at 3. The court denied Dial’s motion to strike the testimony of the plaintiffs’ expert, Stefan Boedeker, and held that the expert’s damages model based on conjoint analysis methodology “satisfies the requirements of Comcast and Rule 23.” Id. at 30. However, what sets apart In re: Dial from previous cases discussing conjoint analysis is its in-depth discussion of the economic principles of the methodology.

The plaintiffs in In re: Dial alleged that the label on “Dial Complete” soap contained a number of statements that were false and misleading, including claims that the product “Kills 99.99% of Germs,” that it is “#1 Doctor Recommended,” and that Dial Complete “Kills more germs than any other liquid hand soap.” Slip op. at 3. The expert’s task was to isolate a “measurable monetary portion” of the price of the soap attributable to the falsely-claimed product features. Id. at 19. The court began by noting that the expert’s conjoint analysis methodology “consists of three steps: data collection, data analysis and damages calculation” and then described in detail how the expert-designed “Choice Based Conjoint” consumer survey worked. Id. at 6-10. Then, observing that “conjoint analysis is a well-accepted economic methodology,” the court had no problem dismissing Dial’s criticisms of the expert’s survey as “going to the weight, not the admissibility,” of the expert’s testimony. Id. at 13-17.

The court’s decision had, in certain respects, an academic depth to its analysis, explaining economic concepts like demand curves (“a visual depiction of the relationship between a product’s price and quantity demanded”) and marginal consumers (“the last consumer willing to pay for a product at a given price and, consequently, the first to leave if the price is increased”), and how those concepts and research data combined to permit an expert to perform a “calculation [that] will yield the price premium associated with the ‘Kills 99.99% of Germs’ claim.” Slip op. at 25-27. Finally, the court rejected Dial’s expert’s critique of the damages model that it is “unconnected to supply side market forces” with a cogent explanation of why a “traditional” supply and demand approach was problematic and why the plaintiffs’ expert’s model, holding the number of products actually sold constant on the supply/demand graph, actually “captured the full measure of damages suffered by consumers who actually bought the allegedly misrepresented product.” Id. at 28.

The court’s illuminating discussion of surveys, economics, and conjoint analysis should be required reading for any litigator planning to develop a damages model for class certification.

Authored By:
Robert Friedl, Senior Counsel

Trial Court Finds McDonald’s Timekeeping and Pay Practices Violate CA Law

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McDonald’s Restaurants of California (McDonald’s) operates over 100 corporate-owned fast food restaurants in California. Recently, McDonald’s has been embroiled in wage-and-hour litigation in California over its timekeeping and pay practices. See Sanchez, et al. v. McDonald Restaurants of California, et al., No. BC499888 (April 20, 2017, Los Angeles County Superior Court) (slip op. available here). The Sanchez litigation was brought because McDonald’s had configured its electronic timekeeping system to attribute all hours worked by a class member on a specific shift to the date on which the shift began rather than the date on which the work was actually performed. Slip op. at 2. For example, if an employee worked an overnight shift that began at 10:00 p.m. on December 28, 2013, and ended at 6:00 a.m. on December 29, 2013, and then worked another shift on December 29, 2013, that began at 2:00 p.m. and ended at 10:15 p.m., McDonald’s timekeeping software would attribute all eight hours of compensable time to the payroll date December 28, 2013, and the remaining 8.25 hours for December 29, 2013, resulting in just .25 hours of overtime work on December 29, 2013.

California Labor Code sections 510 and 500(a) require employers to pay an overtime premium of one and one-half times the employee’s regular rate of pay for “any work in excess of eight hours in one workday [defined as ‘any consecutive 24 hour period commencing at the same time each calendar day’]” and twice the employee’s regular rate of pay for “any work in excess of 12 hours in any one day [also defined as ‘any consecutive 24 hour period commencing at the same time each calendar day’.” (Emphasis added.) The Sanchez plaintiffs contended that McDonald’s timekeeping practice resulted in the failure to pay overtime to class members who worked an overnight shift followed by another shift the next day and who work more than eight hours in a 24-hour period. To illustrate, in the example above, if the hours worked were attributed to the day on which they were actually worked rather than the day on which the employee’s shift began, the employee would have worked 14.25 hours on December 29, 2013, which would have resulted in 4 hours of overtime and 2.25 hours of double-time for the hours worked in excess of 12 hours/day. This wage difference can be very meaningful to a typical McDonald’s employee who works at or near minimum wage.

In August 2016, the Sanchez court certified an “overtime subclass” defined as:

All class members who worked a shift that began on one calendar day and ended the next 10 calendar day parentheses an overnight shift) followed by a shift that began on the same calendar day as the overnight shift ended who were not paid all overtime for all time worked in excess of eight hours in a 24 hour period.

Slip op. at 1. The plaintiffs then moved for summary adjudication as to the issue of McDonald’s liability on the overtime cause of action. In opposing the motion, McDonald’s admitted that all the overtime subclass members experienced at least one week during which they recorded a shift that began on one calendar day and ended on the next calendar day, followed by a shift that began on the same calendar day the overnight shift ended, and were paid regular wages for hours that McDonald’s would have paid their overtime or double-time hours if McDonald’s had calculated their hours by reference to a calendar date.

On April 20, 2017, Judge Ann Jones of the Los Angeles County Superior Court granted summary adjudication against McDonald’s. In the ruling, the court cited Jakosalem v. Air Serv Corporation (N.D. Cal. Dec. 15, 2014, No. 13-CV-05944-SI), which held that “overtime calculations should be based on the amount of work completed by an employee during any single twenty-four hour workday period regardless of whether the employee works continuously through the day to divide.” Sanchez, at 4.

In crafting her ruling, Judge Jones also addressed McDonald’s claim that a workday need not be a calendar day and, in fact, McDonald’s set its workdays to start at 4:00 a.m. and end at 3:59 a.m. The problem, however, was that McDonald’s did not calculate overtime based on that workday. The court commented at the hearing that whether McDonald’s started its workday at 4 a.m. or midnight or another time was an “argument for another day,” because it would affect only damages in the case, not the fact that McDonald’s was liable for unpaid overtime., “McDonald’s Loses Calif. OT Fight, Queuing Up Damages Trial,” accessed May 19, 2017). The court also overruled McDonald’s argument that it had substantially complied with California Labor Code section 510. The court found that the authority cited by McDonald’s only mentioned the “substantial compliance” doctrine in connection with Labor Code section 226(a), and that there is no authority for the “substantial compliance” doctrine applying to section 510.

The class action jury trial began last Tuesday, May 23, 2017, to determine what damages McDonald’s must pay to a class of nearly 14,000 employees and the related question of whether the company willfully skirted overtime law so as to entitle the employees to “waiting time” penalties under Labor Code section 203. This class trial should be manageable given that the underpayment of overtime wages and interest can be easily recalculated by an expert from the time punch records. Additional remedies would include interest, attorneys’ fees, and civil penalties under California’s Private Attorneys General Act. The trial is scheduled to conclude this Friday.

Authored By:
Robert Drexler, Senior Counsel