Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_03-cv-01390/USCOURTS-cand-3_03-cv-01390-0/pdf.json

Nature of Suit Code: 710
Nature of Suit: Fair Labor Standards Act
Cause of Action: 28:1331 Fed. Question: Fair Labor Standards

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

MARK LEUTHOLD et al,

Plaintiffs,

v

DESTINATION AMERICA et al,

Defendants. /

No C-03-1390 VRW

ORDER

Plaintiffs are tour directors who allege that defendant

tour operators did not make overtime payments required by the Fair

Labor Standards Act (“FLSA”) because defendants improperly

classified plaintiffs as not covered by the FLSA. FAC (Doc #207)

at 12. On August 16, 2004, the court granted plaintiffs’ motion to

certify a FLSA collective action under 29 USC § 216(b) (“§ 216(b)”)

against defendants for the limited purpose of providing notice to

prospective class members. Doc #283. On May 20, 2005, the parties

stipulated to a settlement agreement and release for the case. Doc

#311. On May 25, 2005, the court preliminarily approved both the

proposed settlement and a proposed plan to notify other FLSA class
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members. Doc #317. The court also set deadlines for: (1)

defendants to provide the claims administrator with the FLSA class

members’ last known mailing addresses (June 16, 2005); (2) the

claims administrator, Gilardi & Co LLC, to mail the proposed notice

to the FLSA class members (June 30, 2005); (3) FLSA class members

to submit opt-in forms and other forms necessary to join the suit

(August 29, 2005); and (4) objectors to file objections (August 29,

2005). Id.

The parties now jointly move for final approval of the

proposed settlements. Final Settle Mot (Doc #320). Unopposed by

defendants, plaintiffs also move for attorneys’ fees and costs. 

Att Fee Mem (Doc #323). The court held a hearing on both of these

motions on October 6, 2005. For the reasons stated below, the

court GRANTS the parties’ joint motion for final approval of the

proposed settlement and GRANTS plaintiffs’ motion for attorneys’

fees and costs. This order will discuss each of these issues in

turn. Because previous orders have already described the

underlying facts in detail, this order will not rehash them.

I

The court first describes what types of settlements are

permissible under § 216(b) and then examines how the law applies to

the present case.

A

The FLSA provides a right of action to an employee

against his employer when the employer fails to pay overtime wages. 

See 29 USC §§ 203, 207. Such an employee may also bring a

collective action on behalf of similarly situated employees. Id §
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216(b); see also Doe v Advanced Textile Corp, 214 F3d 1058, 1064

(9th Cir 2000); Pfohl v Farmers Ins Group, 2004 US Dist LEXIS 6447,

*6 (CD Cal) (Tevrizian, J). The district court may authorize the

named FLSA plaintiffs to send notice to all potential plaintiffs

and may set a deadline for those potential plaintiffs to join the

suit. Pfohl, 2004 US Dist LEXIS 6447 at *6-*7 (citing Advanced

Textile Corp, 214 F3d at 1064). Potential plaintiffs must “opt-in”

to the suit by filing a written consent with the court. See §

216(b). Should an employee not file a written consent, then he is

not bound by the outcome of the collective action and may bring a

subsequent private action. Pfohl, 2004 US Dist LEXIS 6447 at *6

(citing EEOC v Pan Am Work Airways, Inc, 897 F2d 1499, 1508 n11

(9th Cir 1990)). Employees who succeed under the FLSA are entitled

to “wages lost and an additional equal amount as liquidated

damages.” § 216(b).

The Supreme Court has indicated that “to allow waiver of

statutory wages [granted under § 216(b)] by agreement would nullify

the purposes of the [FLSA].” Brooklyn Savings Bank v O’Neil, 324

US 697, 707 (1945); see also Lynn's Food Stores, Inc v United

States, 679 F2d 1350, 1355 (11th Cir 1982). Nonetheless, litigants

can settle § 216(b) claims if they can show that their proposed

settlement falls within one of two exceptions. Under the first

exception, which is created by 29 USC § 216(c), “an employee who

accepts [a back wage] payment supervised by the Secretary [of

Labor] thereby waives his right to bring suit for both the unpaid

wages and for liquidated damages * * *.” Lynn's Food Stores, 679

F2d at 1353. Under the second exception, “[w]hen employees bring a

private action for back wages under the FLSA, and present to the
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district court a proposed settlement, the district court may enter

a stipulated judgment after scrutinizing the settlement for

fairness.” Id. This second exception permits a court to approve a

settlement, even if the employees receive less than what the FLSA

allegedly requires, if the settlement is a reasonable compromise

over a bona fide dispute and the employees have been fairly

advised. See Jarrard v Southeastern Shipbuilding Corp, 163 F2d

960, 961 (5th Cir 1947).

A few courts have suggested that for § 216(b) collective

actions, courts could import the FRCP 23(e) class action settlement

analysis. See Garrett v Ernst & Young US LLP, 2003 US Dist LEXIS

24869, *3-*4 (SDNY) (Hellerstein, J); cf Woodall & Mutlu v The

Drake Hotel, Inc, 913 F2d 447, 451-52 (7th Cir 1990). Determining

whether settlements are proper under FRCP 23(e)(1)(C) requires

balancing at least eight factors. See Churchill Village v General

Electric, 361 F3d 566, 575 (9th Cir 2004) (citing Hanlon v Chrysler

Corp, 150 F3d 1011, 1026 (9th Cir 1998)).

But a strict application of these factors to a § 216(b)

collective action is not appropriate. There is no statutory

authority for applying the FRCP 23(e) factors to § 216(b)

collective actions. Moreover, importing FRCP 23(e) analysis would

ignore a crucial difference between the two actions: In a FRCP 23

class action, class members must opt-out to avoid being bound by

the judgment, but in a § 216(b) collective action, plaintiffs must

opt-in to become class members. Because a § 216(b) collective

action only binds plaintiffs who affirmatively choose to join,

settlement of such a suit raises fewer concerns than a FRCP 23

class action settlement. Accordingly, rather than rigidly applying
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the FRCP 23 criteria, the court will review only whether a § 216(b)

collective action settlement is fair to all parties.

B

Because this case involves a suit by employees against an

employer for back wages under § 216(b), the proposed settlement

falls within the second exception to the general rule barring FLSA

settlements. Moreover, after scrutinizing the settlement, the

court concludes that it is fair to all parties.

First, the settlement provides plaintiffs with an

overtime payment based on 12.75 hours of labor for each tour day

worked during the relevant time period. Final Settle Mot at 5. In

their first amended complaint, plaintiffs alleged that they were on

duty 24 hours a day for tours averaging over a week and that

overtime was due for that entire period. FAC at 12:19-25. 

Although the stipulated overtime payment is less than what

plaintiffs had initially sought, the court agrees that plaintiffs

faced certain litigation risks that could justify the present

settlement. For example, the parties disputed whether plaintiffs

were employees that were subject to the FLSA or instead independent

contractors or exempt employees. Final Settle Mot at 7. And, even

if plaintiffs were non-exempt employees, the parties disagreed

whether plaintiffs were entitled to compensation for 24 hours per

day or instead only for periods when they were actively engaged in

work. Id. Because plaintiffs could plausibly lose on these and

other issues at trial, these risks justify the present settlement,

which the court therefore deems reasonable.

The settlement also provides that if plaintiffs meet

certain qualifications, they will receive cash payments of 72.5% of
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the estimated employer matching contribution under defendants’

401(k) plan. Id at 6. The settlement assumes that defendants

would have matched up to 2.5% of plaintiffs’ salary, capped at a

maximum of $2,000 per year. Id. The cash payments will also be

adjusted for the historical performance of the 401(k) plan. Id. 

In total, the 401(k) settlement payment would give plaintiffs the

greater of: (1) $2,000, or (2) 72.5% * 2.5% = 1.8125% of their

salary, historically adjusted.

As with the overtime payments, the court recognizes that

plaintiffs might have received a larger payout had they gone to

trial. Nonetheless, the court believes that the settlement is

quite generous to plaintiffs and is reasonable in light of the

litigation risk that plaintiffs would otherwise face.

The settlement also requires plaintiffs to give up their

rights to assert any federal or state law claims arising out of or

related to their alleged misclassification as exempt employees

and/or independent contractors. Id at 6-7. Such a release is

reasonable and is a standard part of any settlement -- in exchange

for providing a relatively generous payment, defendants seek

assurance that they will not be sued again by the same plaintiffs

on the same dispute. Moreover, because a § 216(b) settlement only

binds plaintiffs who have opted-in, other eligible tour directors

who have not joined this case may still sue on similar claims in

the future.

Other miscellaneous factors also support the court’s

settlement approval. For example, defendants bear the burden of

paying reasonable settlement administrative costs. Id at 7. The

parties seem to have met the procedural requirements of the May 25,
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2005, preliminary settlement approval order. The claims

administrator sent timely notice to the 134 potential FLSA class

members. Britt Terkaly Dec (Doc #321) at 2. For notices that were

returned as undeliverable, the claims administrator re-sent the

mail to new addresses that were found using the missing class

members’ social security numbers. Id at 2-3. And, importantly, no

one seems to have filed a notice of objection to the proposed

settlement. Final Settle Mot at 4:7-12.

Finally, an expert report completed by CPA Thomas Neches

(Doc #312), on May 16, 2005, suggested that the 31 plaintiffs and

opt-ins as of that date would receive slightly less than $1.5

million, which averages to a handsome individual payout of about

$47,000. Id, Ex K. The claims administrator has since estimated

that a total of 101 plaintiffs and opt-ins joined before the

deadline of August 29, 2005; this suggests that the total payout

will be approximately $4.5 million. Dacey Dec (Doc #324) at 7. In

light of these considerations, the court GRANTS the parties’ joint

motion to approve the final settlement (Doc #320). The final

settlement has been filed with the court as Doc #318.

II

The settlement also requires defendants to pay

plaintiffs’ counsel up to $550,000 in attorneys’ fees and up to

$17,000 in attorneys’ costs. Final Settle Mot at 6. In an

unopposed motion, plaintiffs’ counsel have requested all $550,000

in fees and $16,407.30 in costs. Att Fee Mem at 1. 

As a preliminary matter, the court notes that plaintiffs

and their counsel do not get paid from the same fund. Put another
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way, this case differs from so called “common fund” cases because

plaintiffs and their counsel are not fighting a zero-sum battle

over a fixed pot of money. In common fund cases, defendants who

want to settle have an incentive to increase the attorneys’ fee

award -- at the expense of plaintiffs -- to induce plaintiffs’

counsel to settle. But in cases like the present one, in which

plaintiffs are paid a fair value separate from that paid to their

counsel, defendants have no incentive to inflate attorneys’ fees. 

Instead, a zero-sum battle is fought between plaintiffs’ counsel

and defendants, because every dollar that defendants pay in

attorneys’ fees in one less dollar that they keep. Hence, the

court believes that in such circumstances, it is more likely that

the adversarial process has prevented plaintiffs’ counsel from

negotiating exorbitant attorneys’ fees.

Nonetheless, the court believes it is always good

practice to use a lodestar calculation to cross check an attorneysfee calculation. See generally In re HPL Technologies, Inc

Securities Litigation, 366 F Supp 2d 912 (ND Cal 2005); Vaughn R

Walker & Ben Horwich, The Ethical Imperative of a Lodestar CrossCheck: Judicial Misgivings about “Reasonable Percentage” Fees in

Common Fund Cases, 18 Georgetown J Legal Ethics 1453 (2005). This

calculation appears to demonstrate that the above intuition was

correct: Plaintiffs’ counsel indeed have requested reasonable

attorneys’ fees.

Three figures are salient in a lodestar calculation: (1)

counsel’s reasonable hours, (2) counsel’s reasonable hourly rate

and (3) a multiplier thought to compensate for various factors

(including unusual skill or experience of counsel, or the ex ante
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risk of nonrecovery in the litigation). Plaintiffs’ counsel have

provided a detailed breakdown of their billable time and their

billing rates. Dacey Dec, Ex 1 (Doc #325); Irion Dec (Doc #327),

Ex A. In performing this lodestar cross-check, the multiplier is

implied by the ratio of the attorneys’ fee proposed by plaintiffs’

counsel to the computed lodestar fee.

The court first examines whether plaintiffs’ counsel --

which billed for 1593.70 hours -- spent a reasonable amount of time

on the case. Att Fee Mem at 1. After reviewing the detailed

breakdown of the billable time, the court believes that plaintiffs’

counsel was reasonable in its hours billed. Plaintiffs’ counsel

spent many hours on this suit because it involved many stages --

from defending against a motion to dismiss, through extensive

discovery, to the issue of class certification, to mediation, and

finally, to settlement negotiations. Presumably because of the

size and complexity of this case, plaintiffs’ chief counsel --

Dacey & Sitkin -- requested that another firm, Capstone Law Group

LLP, work on discovery and strategy issues. Irion Dec at 2. Both

plaintiffs and defendants have served tens of document requests,

requests for admissions and interrogatories, and both parties took

a total of 14 depositions. Dacey Dec at 3. Given this case’s size

and complexity and the ultimate favorable outcome for plaintiffs,

the court concludes that plaintiffs’ counsel spent a reasonable

number of hours.

Next, the court determines a reasonable hourly rate for

plaintiffs’ counsel. The court will simply use current (i e, 2005)

hourly rates; doing so simplifies the calculation and accounts for

the time value of money in that lead counsel has not been paid
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contemporaneously with their work in this case. See Vizcaino v

Microsoft Corp, 290 F3d 1043, 1051 (9th Cir 2002) (citing Gates v

Deukmejian, 987 F2d 1392, 1406 (9th Cir 1992)) (“Calculating fees

at prevailing rates to compensate for delay in receipt of payment

was within the district court’s discretion.”). Of course, the

annual rise in an attorney’s billing rate reflects not only

inflation but also the increased experience of the attorney, if

different hourly rates are used (as the court does here) for

lawyers of different experience and billing rates. But the

inflationary effect should not usually grossly affect the lodestar

calculation, unless the litigation is greatly prolonged, which is

not the case here. At any rate, the relevant data are these:

Attorney Experience 2005

Billing

Rate

(per hr)

 Total

 Hours

 Total

 Lodestar

Dacey & Sitkin

 John J Dacey 33 years $400.00 690.50 $276,200.00

 James M Sitkin 23 years $360.00 818.10 $294,516.00

 Andrew Yale 

 (paralegal)

 $80.00 11.70 $936.00

Capstone Law Group

LLP

 $295.00 73.4 $21,653.00

 Brian Irion 20 years

 Mitchell Rosenfeld 13 years 

Totals 1593.7 $593,305.00

The above figures are based on plaintiffs’ attorneys’ fee

memorandum and declarations by plaintiffs’ counsel. Att Fee Mem;

Dacey Dec; Irion Dec. The court notes that even though plaintiffs’
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counsel’s calculation indicates that they are entitled to almost

$600,000 dollars in attorneys’ fees, they are only requesting

$550,000. Id.

Although billing attorney time at a “blended” hourly rate

may be appropriate for most lodestar cross-check computations, it

is not appropriate here. As described earlier, this case involved

complex issues concerning the scope of the FLSA and the nature of

plaintiffs’ employment. The court believes that plaintiffs

received a favorable settlement in large part because plaintiffs’

counsel used their expertise to successfully navigate these

difficult issues. Applying a blended rate would ignore counsel’s

contribution and might deter counsel from taking these sorts of

cases again in the future. Cf Albion Pacific Property Resources,

LLC v Seligman, 329 F Supp 2d 1163, 1178 (ND Cal 2004) (holding, on

a successful motion to remand, “plaintiff is entitled to an

above-average hourly rate if it can demonstrate that its counsel

were more efficient than reasonably competent counsel would have

been” but that “[p]laintiff has made no such showing” and

accordingly awarding “a reasonable attorney fee at an hourly rate

of $190/hr for attorneys”). Accordingly, the court concludes that

use of a blended hourly rate is a poor fit for this case.

But the court must find some objective source for setting

counsel’s hourly rates; the court cannot simply look at a lone outof-context dollar figure and pronounce it “reasonable.” Because

the court has rejected the use of a blended rate here, another

problem arises: The court will need a variety of rates to account

for the various attorneys’ different levels of experience. One

well-established objective source for rates that vary by experience
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(126.39 - 115.98) / 115.98 = 0.08976, or about 9%.

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is the Laffey matrix used in the District of Columbia. See

http://www.usdoj.gov/usao/dc/Divisions/Civil_Division/Laffey_Matrix

_4.html (citing Laffey v Northwest Airlines, Inc, 572 F Supp 354 (D

DC 1983), aff’d in part, rev’d in part on other grounds, 746 F2d 4

(DC Cir 1984), cert denied, 472 US 1021 (1985)).

Under the 2005 Laffey matrix, attorneys with 20 or more

years of experience bill $390/hour; attorneys with 11-19 years of

experience bill $345/hour; and paralegals bill $110/hour. These

figures are, however, tailored for the District of Columbia, which

has a somewhat lower cost of living than the San Francisco Bay area

(in which lead counsel’s firm operates); the court will adjust

these figures accordingly. The locality pay differentials within

the federal courts -- which, like law firms, employ lawyers and

legal support staff -- can approximate this difference. See

http://www.opm.gov/oca/05tables/pdf/salhr.pdf. The WashingtonBaltimore area has a +15.98% locality pay differential; the San

Francisco-Oakland-San Jose area has a +26.39% locality pay

differential. Thus, adjusting the Laffey matrix figures upward by

approximately 9% will yield rates appropriate for the Bay area.1

Applying this adjustment and rounding, the court obtains

the following rates: Attorneys with 20 or more years of experience

bill $425/hour; attorneys with 11-19 years of experience bill

$376/hour; and paralegals bill $120/hour. Reproducing the table

above, but substituting these values and recomputing the totals

yields:

//
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Attorney Experience 2005

Billing

Rate

(per hr)

 Total

 Hours

 Total

 Lodestar

Dacey & Sitkin

 John J Dacey 33 years $425.00 690.50 $293,462.50

 James M Sitkin 23 years $425.00 818.10 $347,692.50

 Andrew Yale 

 (paralegal)

 $120.00 11.70 $1404.00

Capstone Law Group

LLP

 $401.00 73.4 $29,433.40

 Brian Irion 20 years

 Mitchell Rosenfeld 13 years 

Totals 1593.7 $671,992.40

Because Capstone Law Group, LLP, has one lawyer at the $425/hour

rate and another lawyer at the $376/hour rate, the court averaged

the two to reach a blended rate of $401/hour.

As this table demonstrates, plaintiffs’ counsel have made

a request that is reasonable in light of the standards applied

generally in federal court. Even with a lodestar multiplier of

one, counsel would be entitled to $671,992.40 under the Laffey

calculation, substantially more than requested here. Accordingly,

the court GRANTS plaintiffs’ counsel an award of $550,000.00, to be

paid by defendants.

As a final matter, plaintiffs’ counsel has provided a

detailed declaration of the expenses in this case, Dacey Dec, Ex 1,

and their quite modest request for $16,407.30 makes it easy to

conclude that counsel’s expenses are reasonable. Because

plaintiffs’ counsel mentioned in the October 6, 2005, hearing that

they may still incur some minor additional costs in this case, the
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court GRANTS plaintiffs’ counsel an award of $17,000.00, to be paid

by defendants.

III

In sum, the court GRANTS the parties’ joint motion to

approve the final settlement (Doc #320), and plaintiffs’ counsel’s

unopposed motion for attorneys’ fees and costs (Doc #323). 

Defendants must pay plaintiffs’ counsel an award of $550,000.00 in

attorneys’ fees and $17,000.00 in attorneys’ costs.

IT IS SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge