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Pliego v. Los Arcos Mexican Rests., Inc.

United States District Court, D. Colorado

February 8, 2016

BELICE PLIEGO on her own behalf and on behalf of all others similarly situated, Plaintiff,
LOS ARCOS MEXICAN RESTAURANTS, INC., d/b/a Los Arquitos Mexican Restaurant, Los Arquitos, Los Arquitos, Inc., Los Arcos, Inc. and Los Arcos Mexican Restaurant, AMR-LONE TREE, INC., d/b/a Los Arcos Mexican Restaurant, AMR-WESTLAND, INC., JUAN LUEVANO, IGNACIO LUEVANO, RAMON LUEVANO, SANDRA LUEVANO, and LIZ LUEVANO, Defendants

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          For Belice Pliego, on her own behalf and on behalf of all others similarly situated, Plaintiff: Brandt Powers Milstein, Milstein Law Office, Boulder, CO.

         For Los Arcos Mexican Restaurants, Inc., doing business as Los Arcos Mexican Restaurant, doing business as Los Arquitos Mexican Restaurant, doing business as Los Arquitos, doing business as Los Arcos, Inc., doing business as Los Arquitos, Inc., AMR-Lone Tree, Inc., doing business as Los Arcos Mexican Restaurant, AMR-Westland, Inc. Juan Luevano, Ignacio Luevano, Ramon Luevano, Sandra Luevano, Liz Luevano, Defendants: Emily Hobbs-Wright, Gregory Alan Eurich, Holland & Hart, LLP-Denver, Denver, CO.

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         Kathleen M. Tafoya, United States Magistrate Judge.

         This matter is before the court on the parties' " Joint Motion for Preliminary Approval of Proposed Class Action Settlement" [Doc. No. 70] (" Joint Mot." ). The parties have

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consented to Magistrate Judge disposition of these two motions pursuant to 28 U.S.C. § 636(c)(1) and D.C.COLO.LCivR 72.2. [Doc. No. 72.] Thereafter the motions were referred to this court by District Judge Raymond P. Moore. [Doc. No. 73.] The court has reviewed the motions, the pleadings, the entire case file, and the applicable law and is sufficiently advised in the premises.

         On June 17, 2014, Plaintiff filed this collective and class action lawsuit. (Compl. [Doc. No. 1].) Plaintiff alleged that Defendants violated the FLSA and the Colorado Minimum Wage Order (7 CCR 1103-7) (the " MWO" ) by failing to pay overtime premiums to current and former employees. Plaintiff has further alleged that Defendants improperly rounded their current and former employees' hours and improperly charged their employees for employer-required uniforms. The settlement Proposed resolves both FLSA claims as an opt-in collective and the MWO claims pursuant to the opt-out provisions under Fed.R.Civ.P. 23.

         Settlement Terms

         The Parties stipulate to the certification of an Opt-in/Rule 23 Class consisting of " All individuals employed by Defendants at the Westminster and Lone Tree Los Arcos Restaurants between June 17, 2011 and July 20, 2014." (Joint Mot. at 4.)

         The Settlement Agreement [Doc. No. 70-2] provides that Defendants will make a reversionary Settlement Payment of $178,928.84 into a Settlement Fund to compensate Plaintiff and the combined Opt-in/Rule 23 Class (collectively, the " Class" ) for their damages and liquidated damages, inclusive of attorney fees and costs. In addition to the Settlement Payment, Defendants will pay settlement administration costs, including all charges of the Settlement Administrator as well as the costs of class notice and notice of proposed settlement. Also in addition, Defendants will pay the employer's portion of required withholding and payroll taxes per the terms of the Settlement Agreement, attached as Exhibit 2 to the Joint Motion. The Members of the Class shall be responsible for paying their own respective federal, state and local tax obligations.

         The Settlement Agreement includes a proposed settlement payment and distribution plan. The individual settlement allocation for each Class Member is contained in Exhibit A to the Settlement Agreement. Payments to the Plaintiff and the Opt-in/Rule 23 Class Members will be allocated as follows: After payment of amounts for uniform charge violations, one-half of each award is attributable to back wages, is subject to payroll tax withholding and will be reported by Defendants or the Settlement Administrator per IRS Form W-2. The remaining one-half of each share will be attributable to FLSA liquidated damages, and will not be subject to payroll tax withholding and will be reported by Defendants or the Settlement Administrator per IRS Form 1099.

         The Settlement Fund is reversionary. Any remaining amounts after all submitted claims have been satisfied, Plaintiff's damages and service award have been paid, and attorney fees and costs deducted, shall revert to Defendants.

         The Settlement Agreement provides for appointment of Settlement Services, Inc., as Settlement Administrator to administer the settlement process under the supervision of the Parties' counsel and the Court. The settlement process set forth in the Settlement Agreement provides for notice to the proposed Class and an opportunity to opt-in or opt-out of the settlement or to object to the settlement.

         The Parties have agreed to the payment of a service award to Class Representative Belice Pliego in the amount of $7,500.00 from the Settlement Fund.

         Plaintiff's counsel seeks an award of 33% of the Settlement Fund ($59,046.52), claiming this percentage to be a customary fee.[1]

         In exchange for the settlement, Plaintiff and Members of the Opt-In/Rule 23 Class and Class Members who do not timely opt-out of the Rule 23 Class will release Defendants from all claims pleaded in the Action and all claims for rounding and uniform

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charge violations whether arising under state or federal law, including the FLSA.


         Proceeding with the proposed settlement means that the case will become a " hybrid" class action, with a smaller opt-in class with respect to the FLSA claims and a larger opt-out class with respect to the state law claims under Rule 23.

         A. Jurisdiction

         This court has jurisdiction over this case under 28 U.S.C. § 1331 (federal question), 29 U.S.C. § 216(b) (Fair Labor Standards Act), and 28 U.S.C. § 1367 (supplemental jurisdiction). The parties have not briefed or addressed the issue of supplemental jurisdiction, but in a decision from this district, Judge Daniel declined to exercise supplemental jurisdiction over a Rule 23 state law class action together with FLSA claims. See In re American Family Mut. Ins. Co. Overtime Pay Litigation, 638 F.Supp.2d 1290, 1298-1302 (D. Colo. 2009)(declining to exercise supplemental jurisdiction over state law Rule 23 portion of " hybrid" class action because doing so would " would undermine Congress's intent to limit the number of plaintiffs in a FLSA action" ). However, several other courts in this district have exercised supplemental jurisdiction over a Rule 23 state law class claim in similar circumstances because requiring two parallel actions " would not serve the interests of judicial economy, convenience, and fairness." [2] Bass v. PJCOMN Acquisition Corp., No. 09-cv-01614-REB-MEH, 2011 WL 2149602, *5 (D. Colo. June 1, 2011); Lozoya v. AllPhase Landscape Constr., Inc., No. 12-CV-1048-JLK, 2015 WL 1524639, at *1 (D. Colo. Mar. 31, 2015). This court likewise finds that the exercise of supplemental jurisdiction to combine consideration of the FLSA collective claim and the state law Rule 23 class claims is appropriate in this case.

         B. Hybrid Class Action

         The filing of hybrid lawsuits involving both a Rule 23 class action and a FLSA collective action is a relatively recent trend. See Thomas A. Linthorst & Richard G. Rosenblatt, Wage and Hour Class Actions: Courts Grapple With Conflict Between Rule 23 and FLSA's Opt-in Requirement, 188 N.J. L.J. 118 (April 2007). Hybrid actions have troubled district courts across the country because of the inherent conflict between the opt-in requirement of FLSA collective actions and the opt-out provisions of Rule 23(b)(3) class actions.

         Class actions based on state wage laws are governed by Rule 23 of the Federal Rules of Civil Procedure. Rule 23 allows one or more class members to sue, as a representative party, on behalf of all class members as long as certain prerequisites are met. Fed.R.Civ.P. 23(a). If the court certifies the class under Rule 23(b)(3), class members must be sent notice that, among other things, informs them of the nature of the action, their right to exclude themselves from the action, and the binding effect of the class judgment. Any member who does not wish to be bound by the judgment must timely exclude themselves by affirmatively opting-out of the class. Fed.R.Civ.P. 23(c)(2)(B).

         On the other hand, group actions brought asserting FLSA rights are known as collective actions and are governed by § 216(b) of the FLSA. " Congress enacted the FLSA in 1938 with the goal of protect[ing] all covered workers from substandard wages and oppressive working hours." Christopher v. SmithKline Beecham Corp., 132 S.Ct. 2156, 2162, 183 L.Ed.2d 153 (2012). The " prime purpose" in enacting the FLSA " was to aid the unprotected, unorganized and lowest paid of the nation's working population; that is, those employees who lacked sufficient bargaining power to secure for themselves a minimum subsistence wage." Brooklyn Savings Bank v. O'Neil, 324 U.S. 697, 707 n.18, 65 S.Ct. 895, 89 L.Ed. 1296 (1945). To help further its goals, the FLSA provides that an employee or multiple employees may bring an action " on behalf of

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himself or themselves and other employees similarly situated." 29 U.S.C. § 216(b).

         Section 216(b) of the FLSA states that " [n]o employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party . . . ." 29 U.S.C. § 216(b). Based on this language, courts have found that employees must affirmatively opt-in to the case in order to be bound by a judgment in FLSA collective actions. Employees who do not opt-in are not similarly bound by the results of the litigation, including any settlement. See Dolan v. Project Constr. Corp., 725 F.2d 1263, 1266 (10th Cir. 1984), abrogated on other grounds by Hoffmann-- La Roche Inc. v. Sperling, 493 U.S. 165, 110 S.Ct. 482, 107 L.Ed.2d 480 (1989).

         One of the more significant effects of using either an opt-in or opt-out scheme is the resulting class size. " Historically, the FLSA's opt-in mechanism has limited the size of the FLSA action, with estimates indicating that typically only between fifteen and thirty percent of potential plaintiff-employees opt-in." Rachel K. Alexander, Federal Tails and State Puppy Dogs: Preempting Parallel State Wage Claims to Preserve the Integrity of Federal Group Wage Actions, 58 Am. U. L.Rev. 515 (February 2009). The most probable explanation for the low response rate is the idea that " the notice received in the mail is just another piece of junk that the recipient has neither the time nor the interest to read, let alone act on." Ellis v. Edward D. Jones & Co., 527 F.Supp.2d 439, 444 (W.D. Pa.2007) (citing Noah H. Finkel, Symposium, The Fair Labor Standards Act, State Wage--and--Hour Law Class Actions: The Real Wave of " FLSA" Litigation?, 7 Emp. Rts. & Emp. Pol'y J. 159, 161, 174 (2003) ). See Kuncl, 660 F.Supp.2d at 1251. This theory behind low opt-in rates in collective actions is also the most likely explanation for the low opt-out rates in Rule 23 class actions. Id. at 445. Because of these low opt-in and opt-out rates, Rule 23 classes are generally " much larger than the corresponding § 216(b) collective action groups" and the large group is bound by the ultimate judgment if they don't opt-out. Id. By filing a hybrid action, plaintiffs, or more aptly their attorneys, are attempting to bring large class/collective actions in federal court by using the Rule 23 opt-out procedure to avoid the opt-in requirement that would be applicable to a pure FLSA collective action. Employers are sometimes the beneficiaries of this tactic because of the binding nature of the class result on future individual litigation. Having the Rule 23 opt-out provisions as part of a settlement will often result in increased attorney's fees for the class attorney, because, just as in this case, the lawyer can be compensated on the percentage basis of the totality of the damages of all the affected workers, not just those who actively join the case and receive their benefit.

         A number of district courts in California, in cases where some or all of a fund set aside to pay FLSA claims regarding earned wages will go back to an employer, have been considering whether it would be contrary to § 216(b) to bind putative collective members to a release of FLSA claims by virtue of their failure to opt-out of the Rule 23 class action where the members have not affirmatively elected to participate in the lawsuit by filing a written consent form. See e.g. Millan v. Cascade Water Servs., Inc., 310 F.R.D. 593, 612 (E.D.Cal. 2015) (where " a statute's objectives include deterrence, as does the FLSA's, 'it would contradict these goals to permit the defendant to retain unclaimed funds.'" ). See also Khanna v. Inter-- Con Sec. Sys. Inc., No. CIV S-09-2214 KJM GGH, 2012 WL 4465558, at *11 (E.D.Cal. Sept. 25, 2012) (quoting, inter alia, Six (6) Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1308 (9th Cir. 1990)); La Parne v. Monex Deposit Co., No. SACV 08-0302 DOC (MLGx), 2010 WL 4916606, at *4 (C.D.Cal. Nov. 29, 2010) (" Relatively low interest in settlement does not mean that [a] [d]efendant should receive a windfall benefit as a result of absent class members failing to submit claims" in light of the deterrent goals of the FLSA.) In these cases, as in the case at bar, the Settlement Agreement does not separate the settlement fund based on claims; it simply proposes to distribute payments with respect to all of the claims based on hours worked by the class members. This line of cases, of course, is not binding on this court.

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          While courts across the country have reached differing conclusions as to whether a Rule 23 state law wage claim may proceed in the same action as an FLSA collective wage claim, the most recent cases arising in this District tend toward approving such arrangements. Bass, 2011 WL 2149602 at *5; Lozoya v. AllPhase Landscape Constr., Inc., No: 12-cv-1048-JLK, 2015 WL 1524639, *1 (D. Colo. Mar. 31, 2015). But see In re American Family Mut. Ins. Co. Overtime Pay Litigation, 638 F.Supp.2d at 1298-1302. This case is at the settlement stage and both sides have agreed to treat the settlement as a hybrid action. The putative Class Members are identical for the FLSA claims and the state MWO claims. The putative Class Members in this case are low wage employees of a restaurant, many of whom are not United States citizens. Without the vehicle of class notice, most would never know of the alleged wage violations and would have never brought overtime issues to the attention of the employer. With ample current precedent to support proceeding with a hybrid class action, the court will allow such a settlement class here.


         The review and approval of a class action settlement is undertaken in three steps: (1) preliminary approval of the proposed settlement after submission of a written motion for preliminary approval, the proposed class settlement, and the proposed class notice; (2) dissemination of mailed and/or published notice of the settlement to all affected settlement class members; and (3) a formal fairness hearing or final settlement approval hearing, at which time class members may be heard regarding the settlement, and at which time evidence and argument concerning ...

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