Posts belonging to Category Caselaw Developments



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

Spokeo v. Robins Recalls the Power of the Well-Pleaded Complaint

On May 16, 2016, the United States Supreme Court ruled on Spokeo, Inc. v. Robins, a class action based on Spokeo’s “willfully” failing to comply with Fair Credit Reporting Act (FCRA) requirements. No. 13-1339 (U.S. Sup. Ct. May 16, 2016), 578 U.S. ___ (2016) at 4 (slip op. available here). Plaintiff Robins alleged that Spokeo, a consumer reporting agency offering aggregate online personal “profiles” for its users (including prospective employers), published inaccurate information about him in violation of the FCRA, which prohibits certain inaccurate reporting. Seeking the statutory penalties available, Robins argued that “he encountered ‘[imminent and ongoing] actual harm to [his] employment prospects’” flowing directly from Spokeo’s conduct. Id., Ginsburg dissenting op. at 2. The U.S. District Court for the Central District of California had dismissed the plaintiff’s claims, finding that “Robins had not ‘properly pled’ an injury in fact” sufficient to establish Article III standing. Id. at 4. The Ninth Circuit reversed on appeal, and the Supreme Court granted certiorari.

In its 6-2 decision authored by Justice Samuel Alito, the Court confirmed that a plaintiff must have suffered—and sufficiently alleged—a “concrete” injury to have Article III standing. The Court cited the test for standing established by Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992), which requires a plaintiff to allege an injury in fact that is “both concrete and particularized,” as well as “actual or imminent.” Slip op. at 7 (internal citations omitted). Justice Alito observed further that an intangible harm, particularly one Congress has identified by statute, can be “concrete” for the purpose of standing. Id. at 9 (internal citations omitted). Although “Congress’ role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right” (id. at 9), the “risk of real harm” might satisfy the standing requirement of a concrete injury when invoking a statutory violation. Id. at 10 (emphasis added). Furthermore, the “violation of a procedural right granted by statute can be sufficient in some circumstances,” such that the plaintiff need not allege any “additional harm beyond the one Congress has identified.” Id. (emphasis in original). Without taking a position on the ultimate conclusion, the Court ordered the Ninth Circuit on remand to address “whether the particular procedural violations alleged in this case entail a degree of risk sufficient to meet the concreteness requirement.” Id. at 11.

Notably, Justices Ruth Bader Ginsburg and Sonia Sotomayor would have affirmed the Ninth Circuit’s judgment, indicating in their dissent that the inaccuracies Spokeo allegedly reported regarding Robins’ employment status, relative affluence, and age were sufficiently concrete to establish injury in fact based on the risk of diminishing his desirability as a potential employee. Id., Ginsburg dissenting op. at 2-3.

Statutes designed to protect consumer rights are not, in and of themselves, legal rights, because not all violations result in harm. See slip op. at 10. The potential implications for plaintiffs are significant, however, where allegations of similar statutory violations are readily discounted by defendants as “bare procedural violations” from which no harm can possibly flow. Id. Thus, a properly-framed class action complaint may still successfully plead a defendant’s failure to conform to statutory requirements based on a concrete, though intangible, harm.

Authored by: 
Karen Wallace, Associate
CAPSTONE LAW APC

Chen v. Allstate: “Pick-Off” Attempt to Moot Class Claims Fails in 9th Cir.

In Chen v. Allstate Insurance Co., Allstate asked the Ninth Circuit Court of Appeals to answer the hypothetical question raised in Campbell-Ewald v. Gomez, 136 S. Ct. 663 (Jan. 20, 2016) (previously covered on the ILJ here): whether a defendant can defeat a class action by depositing the full amount of the named plaintiff’s individual claim in an escrow account payable to the plaintiff, followed by entry of judgment for the plaintiff in that amount, thereby mooting the plaintiff’s individual claims. No. 13-16816 (9th Cir. April 12, 2016) (slip op. available here). Holding that such a tactic does not moot the class’s claims under Article III, the Ninth Circuit declined to direct the district court to enter judgment on the named plaintiff’s individual claims before he had a fair opportunity to move for class certification.

Plaintiff Florencio Pacleb sued Allstate for violations of the Telephone Consumer Protection Act stemming from automated calls made to his cell phone without his consent. In April of 2013, before a motion for class certification had been filed, Allstate initially made Plaintiff Pacleb a Rule 68 offer of judgment in the amount of $20,000 (including reasonable attorneys’ fees and costs accrued to date), which allegedly more than satisfied his individual claim. When the two named plaintiffs did not accept the offer within 14 days, Allstate then filed a motion to dismiss the plaintiffs’ entire case for lack of subject matter jurisdiction, arguing that, under Gomez v. Campbell-Ewald Co., 768 F.3d 871 (9th Cir. 2014), the district court should be required to enter judgment against Allstate and order payment to the plaintiff. While the motion to dismiss was pending, the other named plaintiff accepted the offer, though Pacleb did not; then, the district court denied Allstate’s motion. After the Supreme Court decided Campbell-Ewald, Allstate took the additional step of depositing the $20,000 in a bank escrow account and offering to cease sending Pacleb non-emergency telephone calls and text messages.

On appeal, Allstate argued that the judgment to which it consented would offer complete relief to the plaintiff and that the district court should be compelled to enter judgment on those terms, thus mooting the plaintiff’s individual claims and rendering the remaining class allegations insufficient to preserve a live controversy. The Ninth Circuit agreed with Allstate’s first contention only (that the offer of relief was apparently “complete”), but affirmed the district court’s denial of their motion to dismiss. The court noted that even if the district court entered judgment affording Pacleb complete relief on his individual damages and injunctive relief claims, effectively mooting those claims, Pacleb would still be able to seek certification under Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011). Pitts held that a plaintiff could continue to represent a class despite a settlement offer for complete individual relief from defendant, as long as the plaintiff could still file a timely motion for class certification at the time the offer was made. Chen now expands the logic of Pitts from mere settlement offers to actual monetary deposits and holds that, even if Pitts were not binding and Allstate could moot the plaintiff’s individual claims, the plaintiff could still seek class certification despite the absence of a live individual claim. Following the circuit’s prior analysis in Gomez, the panel determined that Pitts remained good law after the Supreme Court’s decision in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), because Genesis Healthcare concerned collective actions brought under the Fair Labor Standards Act rather than class actions under Rule 23 (of the Federal Rules of Civil Procedure) and that “courts have universally concluded that the Genesis discussion does not apply to class actions.” Id. at 16 (internal citations omitted).

Second, assuming Pitts was not controlling and Allstate could moot the plaintiff’s individual claims for damages and injunctive relief, the court rejected Allstate’s attempt to moot the action prior to a fair opportunity to move for class certification. The Chen court noted that placing funds in an escrow account was not the same as the actual receipt of all relief by a plaintiff and concluded that the depositing of funds into an escrow account was not enough to moot the claim because the plaintiff did not yet have the money in his possession. Lastly, the Ninth Circuit considered whether to order the district court to enter judgment before the plaintiff has had an opportunity to move for certification and concluded that doing so would be inconsistent with Campbell-Ewald:

. . . Campbell-Ewald clearly suggests it would be inappropriate to enter judgment under these circumstances. As Campbell-Ewald explained, “[w]hile a class lacks independent status until certified, a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.” Campbell-Ewald, 136 S. Ct. at 672. Accordingly, when a defendant consents to judgment affording complete relief on a named plaintiff’s individual claims before certification, but fails to offer complete relief on the plaintiff’s class claims, a court should not enter judgment on the individual claims, over the plaintiff’s objection, before the plaintiff has had a fair opportunity to move for class certification.

Id. at 22-23 (internal citations omitted). Thus, the appeals court affirmed the district court’s ruling and denied Allstate’s motion to dismiss for lack of subject matter jurisdiction, a victory for the plaintiffs’ bar foreclosing defendant “pick-off” tactics in the Ninth Circuit.

Authored by: 
Daniela Saspe, Associate
CAPSTONE LAW APC

Representative “Averages” Permitted Where Employer Fails To Keep Records of Time Worked Following Tyson

On March 22, 2016, the Supreme Court affirmed a district court’s class certification decision following the $2.9 million judgment against Tyson Foods. Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146 (U.S. Sup. Ct. March 22, 2016) (slip op. available here) (previously covered on the ILJ here). Tyson had been sued under the Fair Labor Standards Act of 1938 (FLSA) for failing to pay workers at a pork processing plant for time spent donning and doffing protective gear required for their jobs. Following certification as a collective action under 29 U.S.C. §216 and as a class action under Rule 23 of the Federal Rules of Civil Procedure, the jury awarded $2.9 million to the class. Tyson appealed to the 8th Circuit Court of Appeals and lost; Tyson filed a cert petition in the Supreme Court, which was granted.

In the Supreme Court, Tyson argued that the class action judgment should be reversed because the case should not have been certified. It also argued that judgment should be reversed because the plaintiffs identified no distribution mechanism that would not improperly compensate those class members who were not entitled to payment because they did not work more than 40 hours per week. The Supreme Court rejected Tyson’s bid to overturn the certification order and remanded to the district court for a determination of how the proceeds would be disbursed.

The plaintiffs’ problem, which they ultimately overcame, related to off-the-clock nature of the claims: Tyson’s time records did not demonstrate the amount of time necessary to don and doff the protective gear. Slip op. at 5. To prove damages, the Tyson plaintiffs retained Dr. Kenneth Mericle, an industrial relations expert, to conduct an observational study, which included 744 videotaped observations demonstrating that the average donning and doffing time was 18 minutes a day for employees in the cut and retrim department and 21.23 minutes per day for the kill department. A second expert, Dr. Liesl Fox, analyzed time records to identify whether or not the average donning and doffing time would result in more than 40 hours/week and by how much. Dr. Fox’s opinion was that there was $6.7 million in aggregate, uncompensated overtime. Slip op. at 7.

Tyson argued against the plaintiffs’ methods of using average donning and doffing times, since individual employees could have spent less (or more) time, and suggested a categorical rejection of using statistical evidence to approximate damages in such cases. Slip op. at 9. However, the Supreme Court rejected Tyson’s categorical argument, finding that such evidence has been used historically and often provides “the only practicable means to collect and present relevant data.” Id. at 10 (internal citations omitted). Critically, the Supreme Court relied on Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), which held that, where an employer does not maintain records of uncompensated time worked, the employee’s “just and reasonable inference” of the time worked would be accepted, with the burden then shifting to the employer to show either the actual time worked or negate the reasonableness of the inference. Slip op. at 11-12. In Tyson, as in Anderson, there were not sufficient records for the employees to rely on to establish the amount of time spent donning and doffing. Thus, “[i]n FLSA actions, inferring the hours an employee has worked from a study such as Mericle’s has been permitted by the Court so long as the study is otherwise admissible [under Fed. Rules Evid. 402 and 702].” Id. at 15.

Tyson also argued that there was no way to apportion damages, especially where the jury ultimately rejected the plaintiffs’ damages estimates, ultimately awarding a number less than half of what Dr. Fox found. Slip op. at 16. Thus, the defendant argued, there was no way to determine which class members the jury was considering when it awarded damages. The Supreme Court ultimately remanded this issue to the district court for a determination of how to separate out of the jury’s aggregate damages the individual award payments to uninjured class members, allowing Tyson to raise the same argument before the district court.

Thus, the Court affirmed, holding that plaintiffs may use statistical evidence to demonstrate class certification under Rule 23 and to prove classwide liability.

Authored by: 
Matthew Theriault, Partner
CAPSTONE LAW APC