Summary
striking representative claim under UCL to the extent it sought restitution because amount of restitution per party was large and amounts of overtime were not recorded, making determination of amount of restitution complicated
Summary of this case from Nelson v. S. Cal. Gas Co.Opinion
No. C 03-00753 CRB.
September 9, 2004
MEMORANDUM AND ORDER RE: CALIFORNIA UNFAIR BUSINESS PRACTICES CLAIMS
These related lawsuits allege that defendants failed to pay overtime and provide rest and meal periods to loan officers working at a Santa Rosa, California telephone center in violation of federal and California law. Now pending before the Court are defendants' motions for judgment on the pleadings on plaintiffs' California unfair business practices claims, Business and Professions Code section 17200 et seq.
BACKGROUND
Plaintiffs were loan officers who sold home mortgage loans for one-to-four unit family residences over the telephone to customers throughout the country. The loan officers answered incoming calls from people responding to mail solicitations and also called existing customers to inquire about refinancing.
Plaintiffs allege that for overtime purposes, defendants internally classified plaintiffs as non-exempt employees. Complaint ¶ 14. Nevertheless, defendants did not regularly pay plaintiffs overtime and, when they did, they did not pay the amount required by federal and state law. Id. ¶ 15. The complaints also contend that while defendants required plaintiffs to complete time sheets to record the number of hours worked, defendants repeatedly instructed plaintiffs not to report the overtime hours they worked. Id. ¶ 16. In some instances, defendants altered time sheets to remove reported overtime hours.Id. Defendants also allegedly warned plaintiffs that if they reported overtime hours they would receive a lower commission rate. Id.
PROCEDURAL HISTORY
Numerous individual loan officers have filed 10 related lawsuits. These actions make the same claims: (1) failure to pay overtime in violation of the Fair Labor Standards Act ("FLSA"), (2) willful violation of the FLSA, (3) failure to pay overtime in violation of California law, (4) failure to provide rest and meal periods as required by California law, (5) failure to pay compensation due at time of termination (namely, the overtime payments), and (6) violation of California Business and Professions Code section 17200 et seq.Now pending before the Court are defendants' motion for judgment on the pleadings on plaintiffs' section 17200 non-class representative claims and motion for judgment on the pleadings on plaintiffs' section 17200 claims on preemption grounds.
DISCUSSION
Business and Professions Code section 17200 prohibits three types of wrongful business practices: any (1) unlawful, (2) unfair, or (3) fraudulent business practice or act. See People ex rel. Bill Lockyer v. Fremont Life Ins. Co., 104 Cal.App.4th 508, 515 (2002). "With respect to the unlawful prong, [v]irtually any state, federal or local law can serve as the predicate for an action under section 17200." Id. (internal citation and quotation marks omitted). "`[I]n essence, an action based on Business and Professions Code section 17200 to redress an unlawful business practice `borrows' violations of other laws and treats these violations, when committed pursuant to a business activity, as unlawful practices independently actionable under section 17200 et seq. and subject to the distinct remedies provided thereunder.'" Id. (quoting Farmers Ins. Exchange v. Superior Court, 2 Cal.4th 377, 383 (1992)). Plaintiffs allege that defendants engaged in unfair competition by failing to pay overtime in accordance with state and federal labor laws.
I. Motion regarding the section 17200 non-class representative claims
California's unfair business practices law permits plaintiffs to bring actions as representatives of the general public. See Cal. Bus. and Prof. Code § 17204. Such actions seek restitution on behalf of persons other than or in addition to the named plaintiffs and are not certified as class actions. These types of claims are known as "representative actions." See Krauss v. Trinity Management Servs., Inc., 23 Cal.4th 116, 126 n. 10 (2000). Plaintiffs purport to bring their unfair business practices claims as a "representative action" on behalf of the general public and the non-plaintiff loan officers affected by defendants' wage practices. In other words, they seek to recover unpaid wages on behalf of non-plaintiff loan officers without following the class action procedures set forth in Federal Rule of Civil Procedure 23.
Defendants move to strike plaintiffs' representative unfair business practices claims on two grounds. First, they argue that the section 17204 non-class representative action is unavailable in federal court under the Erie doctrine. Second, they assert that a representative unfair business practices proceeding is otherwise inappropriate. Because the Court concludes in its discretion that these actions as presently framed are not appropriate for a non-class representative recovery, it need not and does not address the Erie argument.
Defendants rely on Bronco v. Wine Co. v. Frank A. Logoluso, 214 Cal.App.3d 699 (1989) to support their argument that this case is not appropriate for a non-class representative procedure. In Bronco, the plaintiff grape grower sued a wine manufacturer for breach of contract. The complaint also included a section 17200 unfair business practices claim and sought restitution on behalf of all growers under contract with Bronco Wine Company in 1982. The plaintiff alleged that Bronco had wrongfully rejected grapes, adopted arbitrary quality standards, applied quality standards so as to pay less for grapes than the price contemplated by the growers' contracts, and sued and threatened to sue growers who complained of this conduct. After a bench trial the court awarded restitution to 27 non-party growers on the unfair business practices claim.
The Court of Appeals reversed the award of restitution to the non-parties. The court found that the trial court abused its discretion in denying the defendant's motion to strike the non-class representative claims because the lack of notice to the non-party growers raised due process concerns for several reasons. First, the determination of whether the business practice was unfair was complex. Second, the potential amount of restitution was great. Third, the process for determining the amount of restitution was not automatic. Id. at 720.
The second and third factors are present in this lawsuit. The potential amount of restitution is great; potentially in the tens of thousands of dollars for each former loan officer. Moreover, and perhaps most importantly, the process for determining the amount of restitution is not automatic. Plaintiffs allege that although they maintained time cards, those time cards do not accurately reflect their hours worked. They contend that defendants instructed them not to record their overtime hours and that when they did record such hours defendants sometimes altered the time cards to reflect that no overtime was worked. Thus, the amount of restitution, and, indeed, whether restitution is even owed for any particular loan officer, will vary by officer.
Cortez v. Purolator Air Filtration, 23 Cal.4th 163 (2000) is distinguishable. Cortez, like this case, involved representative non-class unfair business practices claims for violation of the overtime laws. The employer had imposed a ten hour, four days a week work schedule and failed to pay overtime. Id. at 169. The trial court found that the employer was not exempt from the overtime laws and therefore owed its employees overtime wages. It nonetheless declined to order restitution on behalf of non-party employees on the ground that since it was not issuing an injunction it could not award restitution. Id. at 170. While the case was on appeal the California Supreme Court held that the unfair business practices statute authorizes an award of restitution on behalf of absent employees in the absence of an injunction. ABC International Traders, Inc. v. Matsushita Electric Corp., 14 Cal.4th 1247 (1997). On appeal the defendant argued that the trial court's refusal to award restitution on behalf of absent employees should nonetheless be affirmed pursuant to Bronco Wine Co., 214 Cal.App.3d 699. The appellate court rejected the defendant's argument. It found that an award of restitution on behalf of non-party employees would not raise due process concerns because the trial court "had before it the identity of all the workers, the hours worked, wages paid, and the amount of overtime paid to them." Id. at 171 (discussing the appellate decision).
Here, unlike in Cortez, the Court will not have before it the hours each loan officer worked. Plaintiffs allege that defendants ensured that plaintiffs did not accurately record their hours; thus, unlike Cortez, there is no accurate written record of hours worked by each loan officer. Moreover, unlike in Cortez, plaintiffs do not allege that defendants directed plaintiffs to work a certain number of hours per day. See Marshall v. Standard Ins. Co., 214 F.Supp.2d 1062, 1070 (C.D. Cal. 2000) (concluding that unfair business practices claims were not appropriate for resolution as representative action because, among other reasons, "the amount of restitution to which any non-party would be entitled could not be determined through a simply, straightforward mathematical calculation.").
Plaintiffs respond that "[t]he amount that the Santa Rosa loan officers worked is readily subject to sampling and extrapolation, as it recently was in Bell v. Farmers Insurance Exchange, 115 Cal.App.4th 715 (2004)." Bell, however, was a certified class action in which the employees had an opportunity to opt out if they did not want their number of hours worked to be determined by statistical extrapolation. Id. at 751 (noting that sampling necessarily yields an average figure which will overestimate or underestimate the right to relief of an individual employee).
In sum, for purposes of this motion the Court assumes that it has discretion to permit plaintiffs' unfair business practices claims to proceed as a non-class representative action. The Court concludes in its discretion, however, that such an action is not appropriate given the large amount of restitution per loan officer sought by plaintiffs and the nature of plaintiffs' allegations, namely, that the actual numbers of hours worked by each loan officer were not recorded and vary by individual. In addition, the Court notes that counsel for plaintiffs in nine of the ten individual actions pending before the Court have already filed two class actions based on the circumstances of this case. Assuming the class is certified, notice will have to be sent in any event to all loan officers with respect to the non-unfair business practices claims.
At oral argument plaintiffs asserted that if the Court strikes the representative claims in these actions, the class claims in the later-filed class action should relate back to the filing of these actions for statute of limitations purposes. Defendants disagree and have submitted a memorandum arguing that it would be unprecedented for class claims in one action to relate back to an earlier-filed individual action. Plaintiffs did not respond to the merits of defendants' argument; instead, they contend that the Court should require defendants to stipulate to the tolling of the statute of limitations as a condition to plaintiffs proceeding in these actions as a class action.
The section 17200 claims should proceed as a class action for the reasons stated above regardless of the statute of limitations implications. Accordingly, the Court declines to condition its decision upon defendants' stipulation to a tolling of the statute of limitations. If plaintiffs decide to amend the claims in these related actions to assert class claims, the Court will address the relation-back issue when it is properly presented to the Court in context.
For the foregoing reasons the Court strikes plaintiffs' section 17200 claim to the extent it seeks restitution as a representative action.
II. Preemption
Defendants also argue that plaintiffs' unfair business practices claims are preempted by the FLSA to the extent the claims are based on violations of the FLSA. They note that the statute of limitations for a FLSA claim is two years, or three years if the defendant's violation was willful, whereas the statute of limitations under section 17200 is four years regardless of the defendant's intent. Defendants also note that traditional "opt out" class actions are available under the California law, whereas under the FLSA class members must "opt in."
Article VI of the Constitution provides that the laws of the United States "shall be the supreme Law of the Land; . . . any Thing in the Constitution or laws of any state to the Contrary notwithstanding." "Consideration of the issues arising under the Supremacy Clause `start[s] with the assumption that the historic police powers of the states [are] not to be superseded by . . . Federal Act unless that [is] the clear and manifest purpose of Congress.'" Williamson v. Gen. Dynamics Corp., 208 F.3d 1144, 1149 (9th Cir. 2000) (quoting Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992)). In the Ninth Circuit, preemption analysis is based "on the Supreme Court's three categories: (1) express preemption — where Congress explicitly defines the extent to which its enactments preempt state law; (2) field preemption — where state law attempts to regulate conduct in a field that Congress intended the federal law exclusively to occupy; and (3) conflict preemption — where it is impossible to comply with both state and federal requirements, or where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. Id. (internal citations and quotations omitted).
Defendants do not argue that the FLSA expressly preempts plaintiffs' unfair business practices claims. They also do not argue field preemption. Nor could they. In Williamson, the Ninth Circuit held that the FLSA's savings clause "is evidence that Congress did not intend to preempt the entire field." Id. at 1151. The FLSA's savings clause provides that nothing in the FLSA "shall excuse noncompliance with any Federal or State law or municipal ordinance establishing a minimum wage higher than the minimum wage established under this chapter or a maximum work week established under this chapter." 29 U.S.C. § 218(a).
What remains, then, is the possibility of conflict preemption. "There are two types of conflict preemption: (1) where it is impossible to comply with both state and federal requirements; and (2) where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Williamson, 208 F.3d at 1152 (internal quotations and citations omitted). Defendants do not expressly argue conflict preemption; instead, citing a district court case from the 1970's, Lerwill v. Inflight Motion Pictures, Inc., 343 F.Supp. 1027 (N.D. Cal. 1972), they contend that the FLSA is the exclusive remedy for claims that duplicate or are equivalent of rights protected by the FLSA.
In Lerwill, the plaintiff brought a class action claim for breach of a collective bargaining agreement ("cba") with respect to the payment of overtime. The cba's overtime provisions were apparently not as stringent as the FLSA; accordingly, the plaintiffs argued that the court should construe the requirements of the FLSA as incorporated into the cba. Id. at 1028. The plaintiffs chose not to pursue their claims under the FLSA because of certain disadvantages inherent in that cause of action. Id. The court rejected the plaintiffs' efforts. Notwithstanding the savings clause, it concluded that Congress intended the FLSA "to be the sole means by which employees could enforce the rights created" by the Act. Id. at 1029. The court also noted that the legislature is better suited for adopting alternative remedies and therefore "[j]udicial construction of an alternative remedy would not only be unwarranted, but unwise." Id. Lerwill does not persuade the Court that plaintiffs' claim is preempted. The Ninth Circuit has noted that Lerwill is "weak precedent" for the proposition that state claims that duplicate or are equivalent of rights protected by the FLSA are preempted by the FLSA. Williamson, 208 F.3d at 1153. Lerwill is not a preemption case and the court did not engage in a preemption analysis. Moreover, the issue was whether to incorporate the provisions of the FLSA into a private contract. The plaintiffs were thus asking the court to make new California law on breach of contract. Here, in contrast, plaintiffs bring their claims under a California statute which expressly includes a cause of action premised on a violation of federal law, including the FLSA.
In Pacific Merchant Shipping Ass'n v. Aubry, 918 F.2d 1409 (9th Cir. 1990), the plaintiffs sought to apply state wage laws to California-resident seamen. The FLSA exempted seamen from its provisions and defendants argued that this exemption evidenced Congress' intent to not have overtime laws — federal or state — apply to such employees. The Ninth Circuit disagreed: "we hold that, in light of the plain language of the FLSA' savings clause and in the absence of a clear indication from Congress to the contrary, [the FLSA exemption] does not preclude enforcement of California's overtime provisions to protect California-resident seamen in this case." Id. at 1419. Similarly, here, Congress' adoption of a FLSA statute of limitation and class action opt-in procedure does not preclude enforcement of California's unfair business practices law with a longer statute of limitation and opt-out class action procedure in light of the savings clause and the absence of a clear indication from Congress to the contrary.
Defendants' reliance on Williamson is also unavailing.Williamson addressed FLSA preemption of state law career fraud claims. As defendants point out, the Ninth Circuit stated in dicta that "[c]laims that are directly covered by the FLSA (such as overtime and retaliation disputes) must be brought under the FLSA." 208 F.3d at 1154. Nonetheless, it also stated earlier in the opinion:
If the district court is correct in arguing that (1) the anti-retaliation provision covers these claims and (2) the FLSA is the exclusive remedy for claims duplicated by or equivalent of rights covered by the FLSA, then the fraud claims would be an obstacle to enforcement of the FLSA. The district court's assumptions, however, are incorrect.Id. at 1152 (Emphasis added). The court thus stated that the assumption that the FLSA is the exclusive remedy for claims duplicated by or equivalent of rights covered by the FLSA is incorrect. Williamson, therefore, does not support defendants' preemption argument.
Defendants also argue that to permit plaintiffs to proceed with an unfair business practices claim premised on a violation of the FLSA would "eviscerate the thoughtful and balanced protections put in place by Congress in enacting and amending the FLSA." In other words, permitting plaintiff's state claim would frustrate the purpose of Congress as evidenced by the FLSA. They note that in 1947 Congress enacted the Portal to Portal Act amending the FLSA to create remedies with advantages and disadvantages to employees, including limiting retroactive relief and including a statute of limitations. See Williamson, 208 F.3d at 1154. As the district court noted in Aragon v. Bravo, 1 Wage Hour Cas.2d (BNA) 982, 1993 WL 432402 (D. Ariz. 1993), however, the Portal to Portal Act was enacted in response to judicial interpretations of the FLSA — not in response to a proliferation of state wage claims. Id. at *6. The court also observed that Congress specifically provided that the FLSA statute of limitation would not apply to state wage claims. Id. Moreover, the "Supreme Court and the Ninth Circuit have consistently found that the central purpose of the FLSA is to enact minimum wage and maximum hour provisions designed to protect employees,"Williamson, 208 F.3d at 1154 (citations omitted), rather than to protect employers who fail to pay overtime.
Finally, defendants argue that plaintiffs' unfair business practices claim is not based upon a state wage law and therefore does not fall within the FLSA's savings clause. In this case, however, plaintiffs' claim is for unpaid overtime and therefore can be characterized as a state wage claim.
In short, defendants have not met their burden of proving that plaintiffs' unfair business practices claim is preempted by the FLSA to the extent it is premised upon a violation of the FLSA.
CONCLUSION
For the reasons stated above, defendants' motion to strike plaintiffs' representative section 17200 claims is GRANTED and defendants' motion to dismiss plaintiffs' section 17200 claims on preemption grounds is DENIED.