Kutzman v. Derrel's Mini Storage, Inc.

354 F.Supp.3d 1149

Rick KUTZMAN and Jamie Leonardo, Individuals, and on Behalf of Themselves, and on Behalf of Others Similarly Situated, Plaintiffs,

v.DERREL'S MINI STORAGE, INC., a California Corporation, Defendant.

CASE NO. 1:18-CV-755 AWI-JLT

United States District Court, E.D. California.

Signed December 18, 2018

Aparajit Bhowmik, Kyle R. Nordrehaug, Norman Blumenthal, Ricardo Ramon Ehmann, Ruchira Piya Mukherjee, Victoria Bree Rivapalacio, Blumenthal, Nordrehaug & Bhowmik, La Jolla, CA, Molly Ann DeSario, Blumenthal Nordrehaug & Bhowmik, San Diego, CA, for Plaintiffs.

Charles Paul Hamamjian, Howard A. Sagaser, Ian Blade Wieland, Sagaser, Watkins & Wieland, PC, Fresno, CA, for Defendant.

ORDER ON PLAINTIFFS' MOTION TO INVALIDATE SETTLEMENT AGREEMENTS AND SEND CURATIVE NOTICE TO PUTATIVE CLASS MEMBERS

Anthony W. Ishii, SENIOR DISTRICT JUDGE

In a class action, where is the line between a party's permissible ex parte communications with putative class members and those to be deemed misleading, obfuscating, or coercive?

In the fall of 2018, Defendant Derrel's Mini Storage sent letters to and hosted voluntary informational sessions for their current and former employees—all putative class members in Rick Kutzman and Jamie Leonardo's wage-and-hour class action suit. Defendant's ultimate purpose was to obtain a settlement and release with these individual putative class members. Plaintiffs contend the communications were coercive, arguing they contained factual inaccuracies, omitted material facts, disparaged named Plaintiffs and their counsel, and were otherwise misleading. They now request for the Court to invalidate any executed settlement agreements, to send a curative notice to all putative class members, and to bar all communications between Defendant and the absent class members about the case. Defendant maintains its conduct was both lawful and appropriate, and requests the Court deny Plaintiffs' motion.

For the reasons that follow, the Court will grant the motion in part and deny in part.

Background

Plaintiffs Kutzman and Leonardo worked for Derrel's Mini Storage from October 2017 to February 2018. See Doc. No. 12. They allege that during this time, Defendant required employees to sign a background check authorization that included an unlawful credit check provision, and failed to provide the required rest breaks, accurately pay overtime, compensate them for business expenses, or provide them with complete and accurate wage statements. Id. Plaintiffs filed a class-action complaint in California state court, and Defendant removed to this Court. Doc. No. 1. Plaintiffs sought remand, which this Court denied on July 31. Doc. No. 15.

On August 21, 2018, the parties informed Magistrate Judge Thurston of their intent to mediate, set for December 13, 2018. See Doc. No. 17. The day prior, Defendant sent a letter to its current employees, as putative class members, generally notifying them of the existence of the class lawsuit and the possibility that Plaintiffs' counsel may contact them. Doc. No. 22-1 at p. 4 (Ex. 1, the "Letter to Current Employees"). This letter stated Defendant was open to speaking with any concerned employees, would not retaliate against any employees who choose to speak with Plaintiffs, and otherwise generally disputed the claims. Id. It also referred to Kutzman and Leonardo as employees "that worked for the company for less than six months," misstated the name of Plaintiffs' counsel's firm, failed to include a copy of the complaint, and omitted the case number, this Court's information, and any details about the scheduled mediation. Id. The letter states it advises employees about "your rights involving this lawsuit," states "we appreciate all of our employees and respect your hard work," and refers to Plaintiffs' counsel as "out of town attorneys." Id. One current employee stated he felt the letter, "which was purportedly sent by Defendant ‘to inform’ me about the lawsuit is, in fact, blatantly one-sided and decidedly uninformative." Doc. No. 19-4 at ¶ 4 (Pomilla decl.) (emphasis in original).

On September 12, current employees were invited to a "voluntary" meeting in Bakersfield, CA to " ‘update’ them on the status of the case." Id. at ¶ 10. There, a paralegal for defense counsel read a prepared statement that included the case name and number, the correct name of Plaintiffs' counsel, a detailed list of Plaintiffs' claims, the Company's general disagreement with the claims, and the employees right to independent counsel. Doc. No. 21-2 at p. 5 (Ex A to Covarrubias decl.). This "Meeting Statement" also called for the paralegal to state that the company was looking for "your understanding of the facts," as well as that "[e]ven though [Derrel's] believes the lawsuit has no merit, [it] wishes to pay YOU and other employees, instead of the out of town attorneys to end the lawsuit and focus on getting the company back up to speed and getting more employees back to work." Id. At this meeting, Defendant provided a copy of the operative complaint, and showed the employees a settlement and release agreement, with a specific amount of consideration detailed for each employee. Id. ; Doc. No. 19-4 at ¶ 10. Before employees left, Defendant collected the settlement papers. Id. One current employee stated he was left feeling like he had little choice whether to accept settlement, that he should "fall in line." Id. at ¶ 11. A copy of the settlement agreement was sent to this employee in mid-October. Id.

Additionally, in mid-October, Defendant mailed a letter (similar to the Letter to Current Employees) to those former employees it deemed members of the putative class. Doc. No. 22-1 at p. 6. (Ex. 2, the "Letter to Former Employees"). This letter, entitled "Offer to Employees to Settle Individual Wage and Hour Claims," listed Plaintiffs' names, the case number and court name, a general description of Plaintiffs' claims and Defendant's "strong" denial of liability, the right to seek counsel, and the correct name of Plaintiffs' counsel's firm. Id. However, it misspelled counsel's name multiple times and omitted the firms contact information, as well as any indication about the scheduled mediation. Id. It also repeated the "significant" payout to "out of town attorneys" line, and stated "[s]ettlement with you now will allow us to move on with our business and frankly, we would rather pay you than pay attorneys a lot of money in legal fees and costs." Id. Included with the letter was a copy of the settlement agreement and release form, but not the operative complaint. Id. One former employee stated the culmination of the above statements, mistakes, and omissions "feels like pressure to sign." Doc. No. 19-3 at ¶ 9 (Madden decl.).

Plaintiffs now requests the Court order a notice be sent to all putative class members curing the defects and invalidating any executed settlement agreements. Doc. No. 19. They also request a prophylactic order barring Defendant from communicating with the class about the case, arguing its communications demonstrate an intent to mislead and coerce. Id. Defendant objects to any such relief, contending their communications are allowed and acceptable. Doc. No. 21.

Parties' Arguments

Plaintiffs contend Defendant's ex parte communications with putative class members were rife with omissions, misleading statements, inaccuracies, and inflammatory language that demonstrate an effort to coerce class members into opting-out of the class. Doc. No. 19. Plaintiffs therefore argue Court intervention is required to protect the putative class members. They request the Court invalidate any executed settlement agreements, and otherwise generally provide to all putative class members a factually-correct and unbiased notice of the claims and status of the case. Plaintiffs also request the Court issue an order prohibiting Defendant from communicating further with class members "about settlement or the value of their claims without the consent of Plaintiffs or, in the alternative, without Court approval."

Defendant generally opposes these requests, arguing the rules allow it to contact putative class members about settlement, and its communications were not misleading or coercive. Doc. No. 21. Defendant maintains the current employees were given a copy of the complaint at a voluntary company meeting, and all putative class members otherwise had enough information to make an independent, informed decision. The company contends the text of each letter itself demonstrates an unbiased presentation of the case, whereas Plaintiffs' affidavits supporting the coercive nature of the letters—made by proposed additional named plaintiffs—are self-serving. Defendant concludes that since nothing in the communications indicates coercion, the Court need not invalidate any agreement or issue a curative notice, much less issue a complete ban on its communications with the putative class members.

A. Defendant's ex parte communications with putative class members, on the whole, were misleading, obfuscating, and potentially coercive

Legal Standard

Before a class is certified, counsel for both parties maintain a free-speech right to communicate with putative class members, ex parte , about the lawsuit—including a right to offer to settle. Gulf Oil Co. v. Bernard , 452 U.S. 89, 99-100, 101 S.Ct. 2193, 68 L.Ed.2d 693 (1981) ; see also Retiree Support Grp. of Contra Costa Cty. v. Contra Costa Cty. , 2016 WL 4080294, at *6 (N.D. Cal. July 29, 2016) ("The parties (and non-parties) are free to encourage class members to opt out of or vote against a class action settlement, provided they do so in a fair manner that avoids material misrepresentations or omissions."). However, "when a party engages in behavior that threatens the fairness of the litigation," the court has "both the duty and the broad authority [to] regulate of the notice and opt-out processes and impose limitations" on the parties. Gulf Oil , 452 U.S. at 100, 101 S.Ct. 2193 ; Wang v....