Villalpando v. Exel Direct: Damages & “Adequate Records” under Mt. Clemens

Plaintiffs’ attorneys are more than familiar with the term “document dump.” This practice, particularly problematic in the plaintiffs’ class action bar, involves a defendant producing a large volume of documents that either includes (a) numerous irrelevant documents randomly mixed with relevant documents, or (b) documents generally produced in no cognizable order whatsoever. In wage-and-hour class actions, some of the most important documents to the case are time and pay records. Those records can help confirm or bolster theories of liability based on the employer’s actual practices, they can help demonstrate that the employer actually implemented illegal policies (such as non-compliant meal period policies or a policy of paying overtime at the wrong rate), and they are vital in establishing class-wide damages.

A document dump of time and pay records produced in “no cognizable order” presents unique problems for plaintiffs’ attorneys who need to analyze those records to calculate class damages. Under the seminal decision in Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), the Supreme Court held that when it comes time to prove damages: 

When the employer has kept proper and accurate records the employee may easily discharge his burden by securing the production of those records. But where the employer’s records are inaccurate or inadequate and the employee cannot offer convincing substitutes a more difficult problem arises. The solution, however, is not to penalize the employee by denying him any recovery on the ground that he is unable to prove the precise extent of uncompensated work. . . . In such a situation we hold that an employee has carried out his burden if he proves that he has in fact performed work for which he was improperly compensated and if he produces sufficient evidence to show the amount and extent of that work as a matter of just and reasonable inference.

Mt. Clemens, 328 U.S. at 687-88 (emphasis added). Employers may try to limit Mt. Clemens to cases brought under the Fair Labor Standards Act (“FLSA”), cases in which keeping specific records is required by statute, or cases involving off-the-clock work. However, two separate rulings in Villalpando v. Exel Direct, Inc., Consolidated Case Nos. 12-cv-04137-JCS, 13-3091-JCS (N.D. Cal.), provide some hope—and persuasive authority—for using the Mt. Clemens standard in various types of cases, including cases brought under the California Labor Code.

The Villalpando plaintiffs are delivery drivers for Exel Direct who filed a class action suit alleging that they were misclassified as independent contractors and asserting state labor law claims. On April 21, 2016, in ruling on the defendant’s motion to decertify a class, the Villalpando court first held that “[t]he Mt. Clemens rule is not limited to FLSA cases. It has also been invoked in cases involving state law wage and hour claims based on the same reasoning . . . that it would unfairly penalize employees to deny recovery because of the employer’s to keep proper records.” Villalpando v. Exel Direct, Inc., Consolidated Case Nos. 12-cv-04137-JCS, 13-3091-JCS, 2016 WL 1598663, at *6 (N.D. Cal. April 21, 2016) (“Villalpando I”) (slip op. available here).

The interesting part of Villalpando I was the court’s rejection of Exel’s argument that the plaintiffs could not rely on the Mt. Clemens rule “because it has produced to Plaintiffs over 4 million paper documents that included paper manifests and timesheets, and that it was Plaintiffs’ obligation to review all of these documents to determine the actual damages of the class members.” Slip op. at *8. The decision addressed what it truly means to keep adequate records. The court observed that, “[a]side from the difficulty of reviewing millions of paper documents,” the documents “were not organized in any particular manner, were mixed up with other, irrelevant documents, and are sometimes illegible” and that there was no way to know if they were complete. Id. at *9. Under such circumstances, “[Defendant] Exel has not demonstrated that it maintained adequate records,” and the court ruled that the Mt. Clemens rule applied. Keeping “adequate records” thus means something more than simply technical compliance with recordkeeping obligations, it means keeping records in a manner that allows others to access them, interpret them, and audit them. Further, the Villalpando I court held that the Mt. Clemens rule applies to cases even where there is no statutory duty to keep the specific records at issue. The case asserted claims for expense reimbursements under California Labor Code section 2802. Although the Labor Code does not require employers to keep records of employee expenses, the court held that it was “obvious” that the employer’s duty to reimburse employees for expenses triggered some recordkeeping obligation. Id. at *9. Thus, the Mt. Clemens “just and reasonable” rule for establishing damages extends beyond FLSA cases and beyond situations involving an explicit statutory recordkeeping obligation.

About one month later, the Villalpando I court decided motions in limine. In Villalpando v. Exel Direct, Inc., __ F.R.D. __, 2016 WL 2937480, at *15 (N.D. Cal. May 20, 2016) (“Villalpando II”) (slip op. available here), plaintiffs moved to preclude the employer from arguing that plaintiffs “may not prove their claims based on reasonable inference, estimates and representative testimony.” The court granted the motion and prohibited the employer from arguing that the damages methodology was unreasonable for failure to use the actual receipts or rely on the employer’s paper records, which the court reiterated were inadequate. Id. The court, recognizing that the decision of whether to use the Mt. Clemens rule “turns on the Court’s determination of whether Exel maintained adequate records,” affirmed the April 21 order and held that the employer’s records were inadequate. Id. The court also dismissed the employer’s argument “that the employees must demonstrate that an employer’s records are inadequate before they will be entitled to prove their claims by ‘just and reasonable inference’.” Id. The court placed the burden on the employer to demonstrate that it did maintain adequate records because “it is the employer who is in the best position to demonstrate that its records are complete and accurate.” Id. The court again found that the employer had not carried its burden, and that the Mt. Clemens rule applied.

The two Villalpando rulings are important authority of which every wage-and-hour practitioner in California should be aware. This case holds three victories for employees: (1) the Mt. Clemens rule applies outside the FLSA, to California Labor Code claims; (2) it is the employer’s burden to establish that it produced “adequate records”; and (3) an employer’s recordkeeping obligation are not limited to those specified by statute. The cases also give plaintiffs’ counsel some authority to point to when employers demand a “to-the-penny” damages calculation. For example, in cases involving overtime or meal and rest period violations—where overtime hours and meal/rest premiums are paid at the “regular rate”—the employer may attempt to escape liability by holding plaintiffs to this type of overly strict, to-the-cent damages standard. Of course, in such cases, when trial arrives, the employer has already executed the “document dump” and effectively told the plaintiff “good luck trying to figure out our records and proving damages.” In those situations, plaintiff’s counsel can, and must, argue for the appropriate “just and reasonable inference” damages standard under Mt. Clemens, whether via motion in limine, in the final pretrial order, or in jury instructions.

Authored By:
Andrew Sokolowski, Senior Counsel
CAPSTONE LAW APC