Strategies for Settlement of Individual and Wage & Hour Class Actions

Transcription

1 Strategies for Settlement of Individual and Wage & Hour Class Actions NB1_ Bridgeport Mid Year Wage & Hour Litigation Conference June 3, 2011 San Diego, California

2 Panelists Adam J. Karr O Melveny & Myers LLP Timothy G. Williams Pope, Berger & Williams, LLP 1

3 Topics of Discussion I. Settlement Issues Arising in Both Individual & Class Action Settings A. Evidence Code Sections Affecting Settlement Discussions When, Where and How are You Having Settlement Communications? B. California Rules of Professional Conduct Implicated in Settlement Dialogue How Far are You Going with Your Communication? C. Labor Code Sections Affecting Settlement of Wage Claims What Claims Can You Settle? II. D. Tax Issue Arising from Settlement Payments Made Resolve Wage Claims Be Careful or Risk Being Subjected Tax Assessments, Penalties, and Interest! Settlement Issues Affecting Class/Representative Litigation A. Timing of Mediation or Settlement Discussions When are You Prepared Talk? B. Settling a Class Action C. Settlements with Individuals Instead? 2

4 Settlement Issues Arising in Both Individual & Class Action Settings Evidence Code Sections Affecting Settlement Discussions When, Where and How are You Having Settlement Communications? Evidence Code Section 1152: Evidence of an offer compromise is generally inadmissible prove liability as against party making settlement offer. Evidence Code Sections 1115, et seq. Highlights: Section 1115 Section 1117 Section 1118 Section 1119 Section 1120 Applies only private mediations, not direct settlement discussions that are had without use of a mediar. (Note TGW example for discussion.) Does not apply judicial settlement conferences. (See, California Rules of Court, Rule ) Oral agreements settle are enforceable, under certain conditions. Written or oral communications related a mediation are confidential, including discussions with mediar and parties, verbally and in writing. Evidence discoverable outside of context of mediation is not inadmissible simply because used in mediation. 3

5 Settlement Issues Arising in Both Individual & Class Action Settings California Rules of Professional Conduct Implicated in Settlement Dialogue How Far are You Going with Your Communication? California Rules of Professional Conduct, Rule Communication with a Represented Party: (A) While representing a client, a member shall not communicate directly or indirectly about subject of representation with a party member knows be represented by anor lawyer in matter, unless member has consent of or lawyer. 4

6 Settlement Issues Arising in Both Individual & Class Action Settings Digest: Rule of California Rules of Professional Conduct prohibits direct and indirect communication with a party represented by counsel. Any direct communication on merits of a dispute in writing, by telephone, face--face or orwise between an atrney and an opposing party known be represented by counsel is prohibited unless opposing counsel consents. The parties, however, have right communicate with each or without ir counsel present. When content of such communication originates with or is directed by atrney, communication is prohibited as indirect communication under rule When content of such communication originates with and is directed by client and not atrney it is a permitted communication under rule. 5

7 Settlement Issues Arising in Both Individual & Class Action Settings Thus, Thus, an an atrney atrney is is prohibited prohibited from from drafting drafting documents, documents, correspondence, correspondence, or or or or written written materials, materials, be be delivered delivered an an opposing opposing party party represented represented by by counsel counsel even even if if y y are are prepared prepared at at request request of of client, client, are are conveyed conveyed by by client client and and appear appear be be from from client client rar rar than than atrney. atrney. An An atrney atrney is is also also prohibited prohibited from from sending sending opposing opposing party party materials materials and and simultaneously simultaneously sending sending copies copies party's party's counsel. counsel. An An atrney atrney is is also also prohibited prohibited from from scripting scripting questions questions be be asked asked or or statements statements be be made made in in communications communications or or orwise orwise using using client client as as a a conduit conduit for for conveying conveying represented represented opposing opposing party party words words or or thoughts thoughts originating originating with with atrney. atrney. When When content content of of communication communication be be had had with with opposing opposing party party originates originates with with and and is is directed directed by by client, client, it it is is permitted permitted by by rule rule Thus, Thus, an an atrney atrney may may confer confer with with client client as as strategy strategy be be pursued pursued in, in, goals goals be be achieved achieved by, by, and and general general nature nature of of communication communication client client intends intends initiate initiate with with opposing opposing party party as as long long as as communication communication itself itself originates originates with with and and is is directed directed by by client client and and not not atrney. atrney. 6

8 Settlement Issues Arising in Both Individual & Class Action Settings Labor Code Sections Affecting Settlement of Wage Claims What Claims Can You Settle? California Labor Code Section (a) An employer shall not require execution of a release of a claim or right on account of wages due, or become due, or made as an advance on wages be earned, unless payment of those wages has been made. A release required or executed in violation of provisions of this section shall be null and void as between employer and employee.. (b) For purposes of this section, execution of a release includes requiring an employee, as a condition of being paid, execute a statement of hours he or she worked during a pay period which employer knows be false. 7

9 Settlement Issues Arising in Both Individual & Class Action Settings California Labor Code Section 1194 (a) Notwithstanding any agreement work for a lesser wage, any employee receiving less than legal minimum wage or legal overtime compensation applicable employee is entitled recover in a civil action unpaid balance of full amount of this minimum wage or overtime compensation, including interest reon, reasonable atrney's fees, and costs of suit. 8

10 Settlement Issues Arising in Both Individual & Class Action Settings Employees may release wage claims, however, when a bona fide dispute exists as wher wages are owed (e.g., exempt/nonexempt case), and/or amount of wages owed (e.g., no accurate record of, or conflict in recording actual hours worked). (See, e.g., Chindarah v. Pick Up Stix, Inc. (2009) 171 Cal.App.4th 796.) 9

11 Settlement Issues Arising in Both Individual & Class Action Settings Expense reimbursement claims under Labor Code Section 2802 are unwaivable, per Labor Code Section (Edwards v. Arthur Andersen (2008) 44 Cal.4th 937 (holding employee could not release any claims under California Labor Code section 2802 for indemnification of expenses incurred in discharging his job duties). 10

12 Settlement Issues Arising in Both Individual & Class Action Settings Tax Issue Arising from Settlement Payments Made Resolve Wage Claims Be Careful or Risk Being Subjected Tax Assessments, Penalties, and Interest! Q: Are any taxes owed on settlement payments employees or former employees? What are defendant-employer s withholding and tax reporting obligations? A: Depends on on wher W-2, 1099, and and any any not not taxable income (i.e., (i.e., expense reimbursement) are are paid, as as well well as as any any consideration for for plaintiff-employee s atrneys fees. 11

13 Settlement Issues Arising in Both Individual & Class Action Settings Q: Incentive lower W-2 aspect of settlement payments, benefit both employer and employee? A: Settlement payments must reasonably characterize monies as as attributed relationship between W-2 W-2 wages claimed be be owed, 1099 elements claimed be be owed (e.g., interest on on wage per per Labor Code Section 218.6, penalties owed under Labor Code Section 203), and and any any potentially nontaxable monies allegedly owed. non- 12

14 Settlement Issues Arising in Both Individual & Class Action Settings In In addition, supplemental wage payments wages paid paid an an employee that that are are not not regular wages are are subject different withholding standards than than regular wage payments (e.g., bonuses, severance, fringe benefits, etc.). (See, IRS IRS Publication (2011), Section 7, 7, Supplemental Wages, pp (attached as as handout); see see also, California Employment Development Department California Employer s Guide 2011 ( How Withhold PIT PIT on on Supplemental Wages, p.14 p.14 (attached as as handout).) 13

15 Settlement Issues Arising in Both Individual & Class Action Settings Furr, expense re payments employees may also be taxable. The three part test is wher employer has a qualified accountable plan, a non accountable plan, or no plan at all. From IRS Publication 463 (2010): Accountable Plan. Employer s reimbursement or allowance arrangement must include all of following: 1) Employee expenses must have a business connection (i.e., employee paid or incurred deductible expenses while performing services as an employee of your employer); 2) Employee must adequately account employer for expenses within a reasonable period of time; and 3) Any excess reimbursement or allowance must be retuned by employee within a reasonable period of time. 14

16 Settlement Issues Arising in Both Individual & Class Action Settings Non Accountable Plan. 1) A reimbursement or expense allowance arrangement that does not meet one or more of three rules for an Accountable Plans; 2) Any expenses not properly incurred, returned, or reported by employee; and 3) An arrangement that repays employee for business expenses by reducing amount reported as wages, salary, or or pay. Expenses incurred while employer had an accountable plan may be able be re paid in settlement as non taxable, orwise y may be taxed as W 2 wage payments! 15

17 Settlement Issues Affecting Class/Representative Litigation 16

18 Settlement Issues Affecting Class/Representative Litigation Timing of Mediation or Settlement Discussions When are You Prepared Talk? Before or After Class Certification: Risks change after class certification, but all parties atrneys fees and costs also increase as case proceeds. What information do parties need settle case? Is discovery necessary or is an informal exchange of information going be sufficient? Protective orders? 17

19 Settlement Issues Affecting Class/Representative Litigation Settling a Class Action Court Supervision: California Rules of Court ( CRC ), rule Class actions are governed by CRC, rules CRC, rule requires court approval of any class action settlement which is generally accomplished by a preliminary approval hearing, a notice and claims process, and n a final approval hearing. (CRC, rules 3.769(c) & (e).) The focus of this process is evaluate reasonableness and fairness of proposed class settlement. (CRC, rule 3.769(g).) If a sufficient showing is made as propriety of settlement at time of preliminary approval, a court may provisionally certify case as a class action for purposes of settlement. (CRC, rule 3.769(d).) The court must, among or things, specify manner in which notice class members will be provided explain settlement in detail, explain procedures for class members file written objections settlement, and advise of procedures for final approval. (CRC, rule 3.769(f).) The court must also approve and provide notice of any provision that provides for payment of atrneys fees class counsel. (CRC, rule 3.769(b).) 18

20 Settlement Issues Affecting Class/Representative Litigation To discharge its duty protect class, a court must undertake an independent assessment of any proposed settlement, which includes an informed evaluation of reasonableness of settlement terms in light of claims alleged and valuation of case based on risks associated with continued litigation. (Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 120, 133.) The court needs a record with enough information garner an understanding of amount that is in controversy and realistic range of outcomes in litigation. (Munoz v. BCI Coca Cola Bottling Co. of Los Angeles (2010) 186 Cal.App.4th 399, 409 (explaining Kullar standard); see also, Clark v. American Residential Servs. LLC (2009) 175 Cal.App.4th 785, 801.) 19

21 Settlement Issues Affecting Class/Representative Litigation Identify class! Who is in, who is out, and what about inevitable requests join a settlement class, or discovery of class members during or after notice and/or claims process, or even after distribution? Class lists and class distribution data concerns. In Bates v. Rubio Restaurants, Inc. (2009) 179 Cal.App.4th 1125, a California court of appeal affirmed a trial court s refusal permit defendant add 140 late identified class members a class action settlement that trial court had already approved. The trial court had initially ruled that late identified class members could be wrapped in existing $7.5 million settlement of wage and hour class claims, but later, sua sponte, vacated its order. The appellate court upheld trial court s decision because defendant failed meet its burden of showing reversible error. 20

22 Settlement Issues Affecting Class/Representative Litigation What claims can be settled in a class action? Typically, released claims are limited class claims at issue in case at time of settlement. Courts are more likely approve releases that relate allegations in class complaint. (See, William B. Rubenstein, Alba Conte & Herbert B. Newberg, 4 Newberg on Class Actions 12:15 (4th ed. 2010); see also, Vasquez v. Coast Valley Roofing, Inc. (E.D.Cal. 2009) 670 F. Supp. 2d 1114.) Broader releases are subject heightened levels of scrutiny. (Trotsky v. Los Angeles Fed. Sav. & Loan Ass n (1975) 48 Cal.App.3d 134; see also, Munoz v. BCI Coca Cola Bottling Co. of Los Angeles (2010) 186 Cal.App.4th 399, 411 (declining find broad release supported by additional consideration improper as a matter of law).) Yet, often class settlement agreement will include Code of Civil Procedure Section 1542 waivers, as related released claims. (See, e.g., Casey v. Procr (1963) 59 Cal.2d 97; see also, Kelly v. City & County of San Francisco (N.D. Cal. June 30, 2008) No. C SI, 2008 WL , at *2. 21

23 Settlement Issues Affecting Class/Representative Litigation What about settlement of Private Atrney General s Act claims? Parties may settle PAGA claims as part of a larger class settlement, even without any payment of claims for alleged PAGA violations being made class or State. In In re Nordstrom Comm n Cases (2010) 186 Cal.App.4th 576, an almost $9 million settlement allocated no monies asserted PAGA claims, upheld on appeal because parties explained that such claims had potentially no validity (sales commissions were calculated in accordance with a federal district court plan approved more than a decade prior in a similar case). 22

24 Settlement Issues Affecting Class/Representative Litigation The Primary Rights Theory: PAGA actions, by definition, are premised on same Labor Code violations ( alleged injuries) that serve as foundation for wage and hour class action claims. As a result, subsequent PAGA actions may be barred where claims alleged are encompassed by and related a prior action which settled underlying wage claims. (See, Deleon v. Verizon Wireless (2008) 170 Cal.App.4th 519 (unciteable), petition for rev. dismissed and remanded, 216 P.3d 520, 528 (2009); see also, Villacres v. ABM Indus. Inc. (2010) Cal. Rptr. 3d, 2010 WL , at *11, *13 (finding both actions were related payment of wages and penalties by same employer ).) 23

25 Settlement Issues Affecting Class/Representative Litigation The Same Party or Privity Theory: Since PAGA empowers plaintiffs file actions on behalf of aggrieved employee[s], y are true plaintiffs in PAGA suits, not State. But see, Arias v. Superior Court (2009) 46 Cal. 4th 969, 986: An employee plaintiff suing under [PAGA], does so as proxy or agent of state s labor law enforcement agencies. [T]he employee plaintiff represents same legal right and interest as state labor law enforcement agencies namely, recovery of civil penalties that orwise would have been assessed and collected by [LWDA]. 24

26 Settlement Issues Affecting Class/Representative Litigation Named Plaintiff Enhancement Fees. It is an abuse of discretion for court approve service awards that are not supported by specific facts in record. (Clark, 175 Cal.App.4th at pp (general statements about amount of time spent and potential stigma or risk were insufficient justify $25,000 awards in case where average class member recovery was $550). What Plaintiff s counsel should do is submit declarations at preliminary approval describing: (a) amount and type of work named plaintiff committed case, as well as any financial resources used (e.g., travel, time off from work, expenses); and (b) that named plaintiff knowingly assumed risks inherent in class litigation, including potential risk of loss and related financial consequences. 25

27 Settlement Issues Affecting Class/Representative Litigation Atrneys Fees. California Rules of Court, Rule 3.769(b) requires notice class of provisionally awarded fees. Plaintiff s counsel should be prepared include a detailed argument in support of a requested fee award at preliminary approval in State court; in Federal court, it is required: Ninth Circuit has held that Federal Rule of Civil Procedure 23(h) requires that plaintiffs be afforded a meaningful opportunity review and comment on data supporting counsel s fee request. (In re Mercury Interactive Corp. Securities Litigation (9th Cir. 2010) 618 F.3d 988.) 26

28 Settlement Issues Affecting Class/Representative Litigation Claims; Reversion/No Reversion; Cy Pres and Escheat. Claim forms. Is a claims process necessary? How deal with late claims? What about challenges claim amounts? In Marrana v. Marlin & Saltzman (2009) 175 Cal.App.4th 697, class counsel was found have had no duty follow up with a class member who failed file a timely claim form receive his allocated share of a class action settlement. While class counsel owes a duty of care class, class counsel did not breach that duty where y had no active role in class member s failure submit a claim after receiving mailed class notice within claim filing period, nor had any knowledge that class member was incapable of submitting a timely response. The class member was also barred under doctrine of collateral esppel from suing class counsel for malpractice for failure adopt a different notice procedure because class notice was approved by trial court. *Note, a recent trend is skip a claim process alger and just send out notices, n distribution payments. 27

29 Settlement Issues Affecting Class/Representative Litigation What happens funds that class members do not collect? In a no reversion settlement, are unclaimed monies re allocated among claiming class members? If so, how expensive is that going be? Are additional searches conducted? What about any remainder following a second distribution? 28

30 Settlement Issues Affecting Class/Representative Litigation Reversion/claims made settlements: Do funds aumatically revert employer? If so, how do you negotiate a settlement with monies that will almost certainly be reverted back employer? A common basis for rejecting a reversion is that such a term may encourage collusion. (See, Navarro v. Servisair (N.D.Cal. 2007) No. C MHP, 2010 WL , at *4 (finding that reversion artificially padded settlement by over $150k). But, settlements with reversionary clauses may be approved if overall settlement is fair and reasonable class. (See, e.g., Glass v. UBS Fin. Servs. Inc. (9th Cir. 2009) 331 Fed. Appx. 452, 456 (approving reverter based on district court s determination that exceptional results were achieved for class, which included settlement prior issuance of an unfavorable DOL Opinion Letter and inclusion of prospective relief address class claims). 29

31 Settlement Issues Affecting Class/Representative Litigation Code of Civil Procedure Section 384 requires a determination of tal amount payable class members and a subsequent accounting of unpaid class funds, and specifies that such funds shall be subject cy pres distribution. Section 384(b) was amended in 2001 enhance ability of court distribute money a variety of groups. When not orwise addressed by parties in a settlement agreement, Code of Civil Procedure Section 384 mandates that courts order class action defendants (excluding certain public entities and employees), pay unpaid residuals one of following types of organizations: (1) Nonprofit organizations or foundations support projects that will benefit class or similarly situated persons or that promote law consistent with objectives and purposes of underlying cause of action; (2) Child advocacy programs; or (3) Nonprofit organizations providing civil legal services indigent. 30

32 Settlement Issues Affecting Class/Representative Litigation Notwithstanding plain language of statute, a state appellate court has found that Section 384 applies both common fund and claims made settlements. (See, Cundiff v. Verizon California, Inc. (2008) 167 Cal.App.4th 718, ) But, at least one federal court has found that escheatment mechanism of Code of Civil Procedure Section 1518 should apply undistributed settlement funds, since such a result is most likely benefit class claimants. (Moore v. California, (E.D.Cal. 2005) Nos. S DFL GGH, CIV. S DFL GGH, 2005 U.S. Dist. LEXIS 29092, at *6 *7 (FLSA settlement).) The Moore court explained that state controller is required notify owners and surrender funds if entitlement can be established, and furr noted that it had access contact information and databases that were not available parties, and hosted a website that allowed claimants determine wher or not y were owed monies that had escheated State. 31

33 Settlement Issues Affecting Class/Representative Litigation Settlements with Individuals Instead? Pre certification: Court approval is not required. Employers may settle disputed wage claims with potential class members directly, without court approval prior class certification; however, settlement dialogue must disclose individuals existence of class action, class claims being asserted, etc. (See, Chindarah v. Pick Up Stix, Inc.; see also Watkins v. Wachovia Corp. (2009) 172 Cal.App.4th 1576.) 32

34 Settlement Issues Affecting Class/Representative Litigation Settlements with Individuals Instead? Post certification. Once a class is certified, Class Counsel represents individual class members. Employers may not seek settle individual class member s claims without Court approval. Employer s counsel also cannot communicate directly with class members. But, [s]o long as employer s communications are even handed and re is no clear indicia of coercion, communications are not likely be found improper even though parties are engaged in an ongoing business relationship. (See, In re M.L. Stern Overtime Litig. (S.D.Cal. 2008) 250 F.R.D. 492, ) 33

35 Settlement Issues Affecting Class/Representative Litigation Settlements with Individuals Instead? With Named Plaintiff. Settlement of named plaintiff s wage claims at issue in class action renders plaintiffs claims moot and undermines his/her standing continue with action. (Larner v. Los Angeles Docrs Hospital Associates (2008) 168 Cal.App.4th 1291; see also, Watkins v. Wachovia Corp. (2009) 172 Cal.App.4th 1576 (appellate court dismissed plaintiff s appeal of trial court s denial of her motion for class certification because she voluntarily settled her wage claim after denial and thus no longer had a legally cognizable interest in action).) 34

36 Strategies for Settlement of Individual and Wage & Hour Class Actions ~ Questions & Answers ~ 35