Judge Lon F. Hurwitz, Case 21-01198968 2023-08-18 Tentative Ruling

Judge: Lon F. Hurwitz, Case: 21-01198968, Date: 2023-08-18 Tentative Ruling

Motion for PAGA Approval

RELIEF SOUGHT: Plaintiff Gilberto Morales seeks approval of his PAGA-only settlement

FACTS/OVERVIEW: This case contains individual wage-and-hour claims and a PAGA representative claim, but no class claims. On May 5, 2021, Plaintiff Gilberto Morales (“Plaintiff”) filed a Complaint against Defendants California Team Realty, Cedelco Construction Inc., Saul Rene Delgado, and Cesar Delgado (collectively, “Defendants”). (ROA 2). The Complaint asserts the following 11 causes of action:

1. Failure to Pay Minimum Wage;

2. Failure to Compensate For All Hours Worked;

3. Failure to Pay Overtime Compensation;

4. Failure to Pay Rest Period Compensation;

5. Failure to Pay Meal Period Compensation;

6. Failure to Furnish Accurate Wage and Hour Statements;

7. Failure to Pay Wages Upon Discharge;

8. Statutory Penalties (Labor Code §§ 203, 558);

9. Failure to Indemnify and Illegal Deductions from Wages;

10. Violation of the Private Attorneys General Act;

11. Unfair Competition.

On August 31, 2022, Plaintiff filed the current Motion for Approval of PAGA Settlement. (ROA 37). On January 6, 2023, the Court continued the hearing on the motion so that counsel could address several issues. (ROA 48). The Order incorrectly stated the continued hearing was scheduled for April 23, 2023, which was a Sunday. (ROA 48, at 2). Nevertheless, supplemental papers were due no later than nine court days prior to the continued hearing. However, as of April 23, 2023, counsel had not filed any papers.

On April 28, 2023, given the Court’s error, the hearing was continued to June 9, 2023. (ROA 50). The Court ordered counsel to file supplemental papers no later than 10 calendar days prior to the continued hearing. However, as of June 5, 2023, counsel had not filed any papers.

At the hearing on June 9, 2023, the Court continued the matter to August 18, 2023. (ROA 53). The Court once again ordered counsel to file supplemental papers, including redlined versions of all revised papers, no later than 14 calendar days before the continued hearing. The Court also noted that failure to comply would result in an OSC re sanctions pursuant to CCP section 177.5. (Ibid.)

On August 4, 2023, counsel filed a supplement brief in support of the motion. (ROA 56). Counsel has also filed two versions of the Proposed Judgment—one with Notice of Settlement attached (ROA 58), and one without (ROA 59).

ANALYSIS:

The Court previously identified the following concerns after reviewing the proposed Settlement Agreement, proposed Notice, and accompanying papers:

1. Are there any other representative or class actions in any other courts that assert claims similar to those alleged? (See Guidelines for PAGA Settlements No. 10.)

RESOLVED. Counsel states that there are no other representative or class actions asserting similar claims against these Defendants.

2. The LWDA letter sent February 24, 2021 (Ex. 1 to Sirmabekian Decl.) does not include claims for Failure to Pay All Hours Worked under Labor Code § 1198 (COA 2) or Illegal Deductions from Wages under Labor Code § 2802 (COA 9). Why should these claims be settled and released?

RESOLVED. Counsel notes that Labor Code § 2802 is mentioned in the third paragraph on page 2 of the LWDA letter.

Regarding Labor Code § 1198, counsel notes that the statute references “standard conditions of labor fixed by the commission,” and those standards are referenced in the LWDA letter with the phrase “applicable Industrial Welfare Commission Wage Orders.”

Labor Code section 1198 states: “The maximum of hours of work and the standard conditions of labor fixed by the commission shall be the maximum hours of work and the standard conditions of labor for employees. The employment of any employee for longer hours than those fixed by the order or under conditions of labor prohibited by the order is unlawful.” Courts have held that this provision incorporates by reference California’s Wage Orders, whereby a violation of a Wage Order also violates Section 1198. (See, e.g., McKenzie v. Federal Exp. Corp. (C.D. Cal. 2011) 756 F.Supp.2d 1222, 1235; Home Depot U.S.A., Inc. v. Superior Court (2010) 191 Cal.App.4th 210, 218 [phrase “conditions of labor prohibited by the order” manifests legislative intent to limit liability to clear violations of IWC labor conditions].)

3. No claim valuation was provided. Please provide the estimated maximum value of the claims being settled, the reasonable settlement value, how much the claims were discounted for settlement purposes, and reasons for discounts.

ISSUE: Counsel states there are approximately 416 pay periods in the statutory period, and the maximum value of claims is 416 x $100. Counsel further states that through payroll record sampling and analysis, mediation, and negotiations, the parties settled as a percentage of the maximum value due to the risk posed to aggrieved employees by the relatively small size of Defendants’ business.

However, counsel still has not provided details about the reasonable settlement value and the size of the discount as to each claim. Moreover, the MOU and the Joint Stipulation of Settlement (apparently both documents together are considered the “Settlement Agreement”) state there are a total of 750 pay periods in the PAGA Period. (See, MOU, ROA 37, Exh. 2, ¶ 11; Joint Stipulation, ROA 37, Exh. 3, 8:19-20.) Counsel needs to clarify this discrepancy in the pay periods.

4. Please provide a rough breakdown of attorney hours spent on the various categories of activities and calculate the lodestar. Copies of billing records are not necessary.

RESOLVED. Counsel has provided a breakdown of attorney hours spent on various activities. (See, Supp. Brief (ROA 56), Exh. A.) Counsel states he spent 93.2 hours in litigating this case, but he does not provide the calculated lodestar. However, in the original moving papers, counsel attested that his hourly rate is $550. Accordingly, it appears the lodestar is $51,260.00. The MOU (ROA, Exh. 2, ¶ 7) and the Joint Stipulation (ROA 37, Exh. 3, p. 10) provide for attorney’s fees of 1/3 of the GSA, which is $8,333.33.

5. The court has concerns with the aggrieved employees being responsible for all taxes. Will the employer issue an IRS Form 1099 for the individual settlement payments? If not, why not?

ISSUE. Counsel notes that in the Settlement Agreement, it states that the balance of the PAGA Gross Settlement Amount—after deductions for attorney’s fees, costs, and administration—“shall be classified for tax purposes as civil penalties.” (Joint Stipulation, ROA 37, Exh. 3, p. 10, lines 22-24.) However, the MOU does not contain any such language, but instead states that “Plaintiff has sole responsibility for all tax consequences of payments and penalties and agrees to indemnify Defendants regarding same.” (ROA 37, Exh. 2, ¶ 10.) This discrepancy needs to be addressed.

In addition, although counsel also states that Defendants will issue an IRS Form 1099 for the individual settlement payments, it does not so state in the Settlement Agreement. A provision requiring Defendants to issue 1099s should be included in the Settlement Agreement.

6. The Release includes claims under Labor Code §§ 206.5, 210, 223, 224, and 225.5, which are not claimed in the LWDA letter or pleaded in the Complaint. Please remove these claims from the Release in the Settlement Agreement and Notice or provide an explanation as to why they should be included.

ISSUE. Although counsel has provided a clean and redlined version of the MOU showing that these statutes have been deleted from the Release, the Joint Stipulation still includes these statutes in its definition of “PAGA Claims” (see, Joint Stipulation, ROA 37, Exh. 3, p. 9, lines 11-19) and its Release provision (p. 11, lines 14-23). This discrepancy needs to be corrected.

7. Please provide proof of service of the settlement agreement on the LWDA.

RESOLVED. See Exh. C to Supplemental Brief (ROA 56).

8. The following need to be addressed in the Proposed Order and Judgment so that the allegedly aggrieved employees have a fuller understanding of the essential terms and consequences of the settlement:

ISSUE. Counsel has inexplicably provided two versions of the Proposed Judgment (ROA 58 and 59). The version (ROA 58) with a copy of the Notice attached as Exhibit 1 is the version that will be analyzed.

a. The Settlement Agreement needs to be referenced in the Judgment by the ROA number of the declaration to which it is attached.

ISSUE. Proposed Judgment (ROA 58) still does not reference Settlement Agreement by the ROA number of the declaration to which it is attached.

b. A copy of the Notice must be attached to the Judgment as Exhibit 1.

RESOLVED.

c. A proposed date for the final accounting hearing must be included in the Proposed Judgment.

ISSUE. The Proposed Judgment still does not contain a proposed date for the Final Accounting. (ROA 58, ¶ 6.)

d. The Judgment needs to instruct the Plaintiff to submit a copy of the Judgment to the LWDA within ten calendar days after entry of the Judgment.

RESOLVED.

e. The Judgment needs to indicate that the court will retain jurisdiction pursuant to CCP §664.6.

RESOLVED.

RULING:

The hearing on the Motion for Approval of PAGA Settlement is CONTINUED to October 20, 2023, at 1:30 p.m. in Department CX103 so that counsel may address the issues identified below. Counsel is ORDERED to file supplemental declarations or other supplemental materials addressing the Court’s concerns no later than fourteen (14) calendar days prior to the continued hearing date. Counsel is ORDERED to provide red-lined versions of all revised papers, and an explanation of how the pending issues were resolved.

At the January 6, 2023 hearing, the Court provided a detailed ruling discussing the significant issues that needed to be address. The supplemental brief and accompanying materials do not adequately address all of the issues previously identified by the Court.

The following significant problems remain unresolved:

PRIOR ISSUE No. 3: No claim valuation was provided. Please provide the estimated maximum value of the claims being settled, the reasonable settlement value, how much the claims were discounted for settlement purposes, and reasons for discounts.

Counsel states there are approximately 416 pay periods in the statutory period, and the maximum value of claims is 416 x $100. Counsel further states that through payroll record sampling and analysis, mediation, and negotiations, the parties settled as a percentage of the maximum value due to the risk posed to aggrieved employees by the relatively small size of Defendants’ business.

PRIOR ISSUE No. 5: The court has concerns with the aggrieved employees being responsible for all taxes. Will the employer issue an IRS Form 1099 for the individual settlement payments? If not, why not?

Counsel notes that in the Settlement Agreement, it states that the balance of the PAGA Gross Settlement Amount—after deductions for attorney’s fees, costs, and administration—“shall be classified for tax purposes as civil penalties.” (Joint Stipulation, ROA 37, Exh. 3, p. 10, lines 22-24.) However, the MOU does not contain any such language, but instead states that “Plaintiff has sole responsibility for all tax consequences of payments and penalties and agrees to indemnify Defendants regarding same.” (ROA 37, Exh. 2, ¶ 10.) This discrepancy needs to be addressed.

PRIOR ISSUE No. 6: The Release includes claims under Labor Code §§ 206.5, 210, 223, 224, and 225.5, which are not claimed in the LWDA letter or pleaded in the Complaint. Please remove these claims from the Release in the Settlement Agreement and Notice or provide an explanation as to why they should be included.

Although counsel has provided a clean and redlined version of the MOU showing that these statutes have been deleted from the Release, the Joint Stipulation still includes these statutes in its definition of “PAGA Claims” (see, Joint Stipulation, ROA 37, Exh. 3, p. 9, lines 11-19) and its Release provision (p. 11, lines 14-23). This discrepancy needs to be corrected.

PRIOR ISSUE No. 8: The following need to be addressed in the Proposed Order and Judgment so that the allegedly aggrieved employees have a fuller understanding of the essential terms and consequences of the settlement:

a. The Settlement Agreement needs to be referenced in the Judgment by the ROA number of the declaration to which it is attached.

The Proposed Judgment (ROA 58) still does not reference Settlement Agreement by the ROA number of the declaration to which it is attached.

c. A proposed date for the final accounting hearing must be included in the Proposed Judgment.

The Proposed Judgment still does not contain a proposed date for the Final Accounting. (ROA 58, ¶ 6.) Counsel must provide an actual proposed date for the final accounting hearing.

Plaintiff to give notice of this Court’s ruling, including to the LWDA, and file proof of service.