Posts belonging to Category Settlements

McDonald’s Corporation has agreed to pay $3.75 million to settle a certified wage-and-hour class action lawsuit in Ochoa, et al. v. McDonald’s Corp., et al., No. 3:14-cv-02098-JD (ND. Cal.). See Plaintiff’s Motion for Preliminary Approval of Class Action Settlement (Oct. 28, 2016) (available here). According to the motion seeking preliminary approval of the deal, the settlement marks the first of its kind in the fast food giant’s history between McDonald’s and a certified class of non-exempt “crew members” at a franchisee-operated restaurant.

In Ochoa, the plaintiffs sued McDonald’s and a franchisee alleging that the franchisee had violated various provisions of California’s Labor Code by miscalculating wages, incorrectly reporting timecards, failing to pay overtime and premium payments for noncompliant meal and rest breaks, failing to reimburse employees for the time and expense of maintaining uniforms, and issuing inaccurate wage statements. McDonald’s was named as a co-defendant on a theory of direct and vicarious liability. In August 2016, the court orally granted final approval to the plaintiffs’ settlement with the franchise owner, The Edward J. Smith and Valerie S. Smith Family Limited Partnership, leaving the claims against McDonald’s Corporation pending.

Certain preliminary rulings in the case were crucial to the first-ever settlement of its kind in McDonald’s history. In September 2015, Judge Donato of the United States District Court for the Northern District of California partially granted summary judgment in favor of McDonald’s, rejecting the plaintiffs’ claims that McDonald’s directly employs the plaintiffs and the putative class. Ochoa, No. 3:14-cv-02098-JD (N.D. Cal. Sept. 24, 2015) (slip op. available here). Critically, however, the district court denied summary judgment as to whether McDonald’s is potentially liable as a joint employer under an agency theory. The court held that the plaintiffs’ evidence demonstrating their belief that McDonald’s was their employer (being required to wear McDonald’s uniforms, serving McDonald’s food in McDonald’s packaging, receiving paystubs and orientation materials marked with McDonald’s name and logo, and applying for the job through McDonald’s website) was sufficient to follow a line of cases that found ostensible agency on similar facts. Further, the court found “that the ostensible agency theory would appear to apply with equal force against both McDonald’s USA and McDonald’s, Inc., despite the fact that the latter has no contractual relationship with Smith [the franchisee], because the plaintiffs and putative class may well not distinguish between McDonald’s corporate entities.” Slip op. at 15.

Almost a year after ruling on the summary judgment motion, in July 2016, the court handed another victory to the plaintiffs by certifying their “miscalculated wages claims, overtime claims and maintenance-of-uniform claims, and any claims that are derivative of those claims.” Ochoa, at 15, No. 3:14-cv-02098-JD (N.D. Cal. July 7, 2016) (slip op. available here). In rejecting McDonald’s argument challenging the plaintiffs’ agency theory as incapable of class-wide resolution due to individualized questions of personal belief and reasonable reliance, the court found that the “[p]laintiffs have tendered substantial and largely undisputed evidence that the putative class was exposed to conduct in common that would make proof of ostensible agency practical and fair on a class basis.” Id. at 5. That evidence included declarations showing that the plaintiffs “were required to wear McDonald’s uniforms, packaged food in McDonald’s boxes, received paystubs, orientation materials, shift schedules and time punch reports all marked with McDonald’s name and logo, and in most cases applied for a job through a McDonald’s website.” Id. The court also noted the fact that employees “spent every work day in a restaurant heavily branded with McDonald’s trademarks and name,” and found that “[t]hese facts are shared in common across the proposed class and make classwide adjudication of ostensible agency against McDonald’s a suitable and appropriate procedure.” Id.

These preliminary rulings on summary judgment and class certification are significant both because they yielded the first settlement of its kind in McDonald’s history, and because Ochoa may portend future findings of joint employer liability across franchisee and franchisor. Only time will reveal Ochoa’s true impact, but it is clear that courts will start to look past the franchisee to the franchisor as the source of violative practices that result in wage-and-hour violations.

Authored by:
Suzy Lee, Associate
CAPSTONE LAW APC

In Laffitte v. Robert Half International Inc., No. S222996 (Cal. Aug. 11, 2016) (slip op. available here), the California Supreme Court joined “the overwhelming majority” of the nation’s courts in holding that judges may award fees in class actions as a percentage of a common fund created for the class’ benefit (the “percentage of the recovery method”). Slip op. at 27. Prior to Laffitte, some litigants—often class settlement objectors—had argued that the high court’s earlier ruling in Serrano v. Priest required judges to use only the “lodestar method” for calculating fees: “The starting point of every fee award . . . must be a calculation of the attorney’s services [measured by] the time he has expended on the case.” Serrano v. Priest, 20 Cal.3d 25, 26 (1977) (“Serrano III”). However, the California Supreme Court had not directly addressed on the issue before Laffitte.

Laffitte involved a $19 million common fund that was established to settle the claims of a class of staffing professionals who had been misclassified by their staffing agency, Robert Half, as exempt under the Labor Code, and thereby were disentitled to overtime, meal breaks, rest breaks, and other benefits guaranteed to non-exempt employees. As part of the settlement, plaintiffs’ counsel requested one-third of the common fund ($6,333,333) as a contingency fee. One class member, David Brennan, filed several objections to the settlement, including an objection to the requested fee. Brennan claimed that the fee request was unreasonable because it exceeded the contingency fee plaintiffs’ counsel would be entitled to under the lodestar method (counsel’s lodestar was $2,968,620).

The trial court overruled Brennan’s objections to the settlement. With respect to fees, the court found that the requested contingency fee was reasonable under both the percentage of the recovery and lodestar methods. On appeal, Brennan claimed that the trial court had erred by using the percentage of the recovery method to calculate the fee, and made mistakes in its application of the lodestar method, such as relying only on summaries of counsel’s billing records (rather than the actual billing records) and by awarding more than double counsel’s lodestar. The California Court of Appeal rejected these arguments, finding that the trial court had not abused its discretion by awarding a percentage of the common fund in attorneys’ fees, nor by performing a lodestar calculation based on the declarations of counsel to confirm the reasonableness of the fee as a percentage of the recovery.

On appeal to the California Supreme Court, Brennan again argued that calculating the fee award as a percentage of the settlement ran afoul of Serrano III. The court disagreed, finding that Serrano III was factually distinguishable:

The quoted text [from Serrano III] . . . concern[s] calculation of a fee awarded under the private attorney general theory. In Serrano III, this court simply did not address the question of what methods of calculating a fee award may or should be used when the fee is to be drawn from a common fund created or preserved by the litigation. For this reason, the passages quoted cannot fairly be taken as prohibiting the percentage method’s use in a common fund case . . . . Since Serrano III, we have several times, in fee shifting cases, endorsed the lodestar . . . method of calculating an attorney fee award; none of our decisions involved a case where the fee was to be awarded from a common fund created or preserved by the litigation.

Id. at 20-22 (internal citations omitted; emphasis in original).

The California Supreme Court ultimately found that “whatever doubts may have been created by Serrano III,” use of the percentage method to calculate a fee in a common fund case, where the award serves to spread the attorney fee among all the beneficiaries of the fund, does not in itself constitute an abuse of discretion. “The recognized advantages of the percentage method . . . convince us [that it] is a valuable tool that should not be denied our trial courts.” Id. at 27 (internal citations omitted). Turning to the facts of the case, the California Supreme Court held that the trial court had not abused its discretion by awarding one-third of the common fund as a contingency fee, nor by double-checking the reasonableness of the percentage fee through a lodestar/multiplier calculation based on billing summaries, stating, “[a] lodestar cross-check [] provides a mechanism for bringing an objective measure of the work performed into the calculation of a reasonable attorney fee. If a comparison between the percentage and lodestar calculations produces an imputed multiplier far outside the normal range, . . . the trial court will have reason to reexamine its choice of a percentage.” Id. at 28-29 (internal citations omitted).

Of particular interest for practitioners is the California Supreme Court’s ruling that the lodestar cross-check “does not override the trial court’s primary determination of the fee as a percentage of the common fund and thus does not impose an absolute maximum or minimum on the potential fee award.” Id. at 30. Rather, “[i]f the multiplier calculated by means of a lodestar cross-check is extraordinarily high or low, the trial court should consider whether the percentage used should be adjusted so as to bring the imputed multiplier within a justifiable range, but the court is not necessarily required to make such an adjustment.” Id. In so holding, Laffitte ensures that the application of the lodestar method to cross-check the percentage fee will not undercut the reasons for applying the percentage of the recovery method in the first instance; namely, the “alignment of incentives between counsel and the class, a better approximation of market conditions in a contingency case, and the encouragement it provides counsel to seek an early settlement and avoid unnecessarily prolonging the litigation.” Id. at 27.

Authored by: 
Eduardo Santos, Associate
CAPSTONE LAW APC

Professional objectors make a handsome living exploiting the flaws in class action rules, particularly regarding the objector’s right to appeal. While well-taken objections focus on deficiencies in a settlement that the court may have missed, often forcing parties to return to renegotiate terms more favorable to the class, professional objectors specialize in boilerplate filings that will likely be denied but that the objector then may appeal, often holding up the class settlement for years. This is the source of leverage for professional objectors. To avoid a protracted appeal, the class or class counsel will sometimes pay what amounts to a ransom to these unscrupulous objectors. Even if class counsel refuses to give in and defeats the objector on appeal, the ensuing delay causes substantial harm to class members.

However, professional objectors may soon see their leverage substantially reduced. In June of 2016, the California Supreme Court granted review in Hernandez v. Restoration Hardware, Inc., No. S233983, to decide the broad question of whether an objector must first intervene before having standing to appeal. The court below dismissed Francesca Muller’s appeal because she had not attempted to intervene but merely interposed an objection to a fee award. See Hernandez v. Restoration Hardware, Inc., 245 Cal. App. 4th 651, 662-63 (2016) (slip op. available here, superseded by grant of review). Muller had ample opportunity to participate as a party. Upon receipt of the class notice (after a contested certification motion), Muller had filed a notice of appearance for her attorney, Lawrence Schonbrun, who represented the objector-appellant in the recently-issued Laffitte v. Robert Half Int’l, Inc., 1 Cal. 5th 480 (2016), among other objectors. Slip op. at 3. She was thereafter represented in the case, but she did not move to intervene or move to join in the action or replace the existing class representative. Id. Only after the Hernandez plaintiffs obtained a verdict for $36.4 million on Song-Beverly Credit Card claims after a bench trial —and only after the plaintiffs moved for attorneys’ fees—did Muller object. At the hearing, she marshalled many of the same objections raised by Mr. Schonbrun in Laffitte—that class members should have been given notice of the fee application, and that attorneys’ fees must be calculated under the lodestar-multiplier method—all of which were overruled. Id. at 3-7. She then appealed.

The intermediate appellate court dismissed Muller’s appeal for lack of appellate standing, relying on a decades-old high court decision, Eggert v. Pac. States S. & L. Co., 20 Cal.2d 199 (1942). Eggert, like this case, involved an appeal by a class member who objected to a fee award in a case litigated to judgment, without having moved to intervene. Slip op. at 11. Although it recognized that a different rule may apply to settlements (see id. at 14 n.6), the intermediate court passed up an opportunity to craft a narrow opinion limited to cases litigated to judgment. Instead, the court expressly disapproved of the influential Trotsky v. Los Angeles Fed. Sav. & Loan Assn., 48 Cal.App.3d 134 (1975), its progeny and its federal analogues, all of which conferred appellate standing on absent class members who filed timely objections to a class action settlement. Id. at 13-16. The intermediate court further reasoned that even if Eggert did not apply, California policy and the objectives of the class action device are better served by a rule that limits appellate standing to class members who tried to intervene. Id. at 16. The contrary rule, allowing each class member to individually appeal, would result in class actions that are “unmanageable and unproductive.” Id.

However, given the prevailing trend in favor of conferring appellate standing to objectors (see, e.g., Devlin v. Scardelletti, 536 U.S. 1 (2002), Powers v. Eichen, 229 F.3d 1249 (9th Cir. 2000)), the California Supreme Court is unlikely to fully endorse the decision below. More likely, the California Supreme Court will affirm on narrow grounds, restricting objectors’ appellate standing only in actions litigated to judgment.

Authored By:
Ryan Wu, Senior Counsel
CAPSTONE LAW APC

In June, U.S. District Judge Edward M. Chen granted preliminary approval of a $6.75 million settlement between Vector Marketing Corporation and sales representatives for alleged violations of California, Florida, Illinois, Michigan, and New York state wage and hour laws and the national Fair Labor Standards Act. See Woods, et al. v. Vector Marketing Corp., No. 14-CV-00264 (N.D. Cal. June 30, 2016), Third Revised Order Granting Plaintiff’s Motion for Preliminary Approval of Class and Collective Action Settlement (slip op. available here). Before becoming sales representatives, the plaintiffs had been trainees who attended a mandatory training program over the course of three days to learn how to sell Cutco products through in-home demonstrations. The training lasted for five hours each day, and at some point during the three-day training, recruits were required to create lists of potential customers who might want to buy Cutco products after the training ended. Vector did not pay recruits for the training time and the plaintiffs filed a lawsuit in January 2014 alleging that they qualified as employees under the respective state laws and the FLSA.

The class and collective action covered recruits who either had completed all three days of training or who partially completed training and created the customer lists. Vector had challenged the certification of these classes in 2015, arguing that the recruits were not employees and that there were significant dissimilarities between those who completed all the days but did not create customer lists and those who did create lists. Both parties agreed that application of the Portland Terminal test would resolve the question of whether the trainees were employees. Under this test, the following factors are considered:

(1) the “training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school”; (2) the “training is for the benefit of the trainee”; (3) the “trainees do not displace regular employees, but work under close observation”; (4) the “employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion his operations may actually be impeded”; (5) the “trainees are not necessarily entitled to a job at the completion of the training period”; and (6) the “employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.”

Order (1) Granting in Part and Denying in Part Plaintiffs’ Motion for Class Certification; and (2) Denying Defendant’s Motion to Partially Decertify FLSA Collective Action (N.D. Cal. Sept. 4, 2015) (quoting Harris II, 753 F. Supp. 2d 1006). Although the court did not decide whether the plaintiffs had been “employees” under the Portland Terminal test, Judge Chen granted class certification, holding that five of the six factors could be decided collectively and any dissimilarities could be addressed in a trial. Following certification, the plaintiffs and Vector engaged in extensive negotiations and eventually reached a settlement in December 2015.

Court papers indicate there are approximately 91,000 putative class members. The average recovery is estimated to be $42.50 per recruit after factoring in fees, costs, and enhancements. The final approval hearing of the settlement is scheduled for October 6, 2016.

Authored by: 
Anthony Castillo, Associate
CAPSTONE LAW APC