Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_09-cv-02473/USCOURTS-casd-3_09-cv-02473-2/pdf.json

Nature of Suit Code: 790
Nature of Suit: Other Labor Litigation
Cause of Action: 28:1441 Petition for Removal- Labor/Mgmnt. Relations

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

ERIC STILLER and JOSEPH MORO,

on behalf of themselves individually

and all other similarly situated,

Plaintiffs,

v.

COSTCO WHOLESALE

CORPORATION and DOES 1 through

25, inclusive,

Defendants.

 

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Case No. 3:09-cv-2473-GPC-BGS

ORDER DENYING COSTCO’S

MOTION FOR PARTIAL

SUMMARY JUDGMENT

(ECF NO. 157)

In this collective and class-action case, plaintiffs Eric Stiller (“Stiller”) and

Joseph Moro (“Moro”) (together, “Plaintiffs”) allege defendant Costco Wholesale

Corporation (“Costco”) has violated federal and state labor laws through the

implementation of closing proceduresthatresult in unpaid off-the-clock (“OTC”) time. 

(ECF No. 96-1, Fourth Amend. Compl. (“4AC”).)

In November 2010, prior to this case’s transfer to the undersigned judge, the

Honorable Marilyn L. Huff, U.S. DistrictJudge, granted Costco’s request for summary

judgment with regard to the use of “extra compensation” that Costco paid to its

employees to offset Costco’s potential overtime liability under § 207 of the Fair Labor

Standards Act (“FLSA”). (ECF No. 92 at 4-7.) Judge Huff concluded that certain

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payments that Costco made to its employees qualified as the type of “extra

compensation” that would offset Costco’s potential overtime liability under the FLSA. 

Costco, for example, pays its employees 1.5 times their regular rate for hours worked

on Sundays and holidays. In deciding how this extra compensation (i.e., premium

credits) should offset Costco’s potential overtime liability, Judge Huff adopted the

minority approach, which permits an employer to use premium credits, whenever paid,

to cumulatively offset any overtime liability, whenever accrued. This is opposed to the

majority approach, which requires any credits to be applied in the same workweek or

pay period as when the credits were paid.

Thus, under the minority approach, Judge Huff concluded “that the extra

compensation paid by Costco to Plaintiffs Carroll, Moncauskas, Moro, Pytelewski, and

Vrismo may be credited across work periodsto satisfyCostco’s alleged FLSA overtime

obligations.” (ECF No. 92 at 7.) Finding that the extra compensation that Costco paid

to these plaintiffs exceeded their potential FLSA overtime claims, Judge Huff

dismissed these plaintiffs’ FLSA overtime claims against Costco. For the same

reasons, Judge Huff limited plaintiff Stiller’s potential FLSA recovery to $949.24.

Following Jude Huff’s Order, the parties endeavored to take the depositions of

forty-eight opt-in plaintiffs. Ultimately, the partiestook only thirty-seven depositions. 

Thereafter, Costco filed the instant motion for partial summary judgment, seeking (1)

the dismissal of the FLSA overtime claims of twenty-nine opt-in plaintiffs whose

potential FLSA overtime claims are exceeded by the extra compensation that Costco

paid them; (2) the limitation of the FLSA overtime claims of eight other opt-in

plaintiffs whose potential FLSA overtime claims are not fully offset by the extra

compensation that Costco paid them; (3) a declaration that the remaining, un-deposed

opt-in plaintiffs’ claims are limited by the amounts of extra compensation that Costco

paid them; and (4) the dismissal of opt-in plaintiff Jienette Jackson’s FLSA claim as

time barred. (ECF No. 157.)

Plaintiffs have filed a response in opposition to Costco’s Motion for Partial

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Summary Judgment, in which they urge the Court to reconsider Judge Huff’s adoption

of the minority view with regard to applying premium credits. (ECF No. 172.)

Costco has filed a reply in support of its Motion, in which it argues that the time

for reconsideration of Judge Huff’s Order has passed and that Judge Huff’s adoption

of the minority view is now the law of the case.

Despite Costco’s assertion that the law of the case doctrine prohibits this Court

from reconsidering Judge Huff’s Order, this Court concludes that it may revisit Judge

Huff’s prior ruling because this Court has not been divested of jurisdiction over Judge

Huff’s Order. See United States v. Smith, 389 F.3d 944, 949 (9th Cir. 2004) (“The law

of the case doctrine is‘wholly inapposite’ to circumstances where a district court seeks

to reconsider an order over which it has not been divested of jurisdiction.” (citing City

of Los Angeles, Harbor Div. v. Santa Monica Baykeeper, 254 F.3d 882, 888 (9th Cir.

2001))). 

The Court is not persuaded that Plaintiffs’ failure to raise this issue in a timely

motion pursuant to Civil Local Rule 7.1.i.2 bars the Court from reconsidering Judge

Huff’s Order, as both Federal Rule of Civil Procedure 54(b) and this Court’s inherent

power provide sufficient bases on which to reconsider Judge Huff’s Order. See Fed.

R. Civ. P. 54(b) (“[A]ny order other decision, however designated, that adjudicates

fewer than all the claims or the rights and liabilities of fewer than all the parties does

not end the action as to any of the claims or parties and may be revised at any time

before the entry of a judgment adjudicating all the claims and all the parties’ rights and

liabilities.” (emphasis added)); see also United States v. Martin, 226 F.3d 1042, 1048

n.8 (9th Cir. 2000) (observing district court’s “inherent jurisdiction to modify, alter, or

revoke” its own orders before they become final).

The Court further finds that it may revisit Judge Huff’s Order because, as set

forth in the following paragraphs, this Court isleft with a “definite and firm conviction

that a mistake has been committed.” See Concrete Pipe & Prods. v. Constr. Laborers

Pension Trust, 508 U.S. 602, 623 (1993) (internal quotation marks omitted); see also

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United States v. Alexander, 106 F.3d 874, 876 (9th Cir. 1997) (“A court may have

discretion to depart from the law of the case where . . . the first decision was clearly

erroneous.”)

29 U.S.C. § 207(a) provides that an employer cannot employ any of its

employees for a “workweek longer than forty hours unless such employee receives

compensation for his employment in excess of [forty hours] at a rate not less than one

and one-half times the regular rate at which he is employed.” (Emphasis added.)

An employee’s “regular rate” is generally “deemed to include all remuneration

for employment paid to, or on behalf of, the employee.” 29 U.S.C. § 207(e). Several

types of payments, however, are excluded from the calculation of an employee’s

“regular rate,” including:

(5) extra compensation provided by a premium rate paid for certain hours

worked by the employee in any day or workweek because such hours are

hours worked in excess of eight in a day or in excess of the maximum

workweek applicable to such employee under subsection (a) of this

section or in excess of the employee’s normal working hours or regular

working hours, as the case may be;

(6) extra compensation provided by a premium rate paid for work by the

employee on Saturdays, Sundays, holidays, or regular days of rest, or on

the sixth or seventh day of the workweek, where such a premium rate is

not less than one and one-half times the rate established in good faith for

like work performed in nonovertime hours on other days;

(7) extra compensation provided by a premium rate paid to the employee,

in pursuance of an applicable employment contract or collectivebargaining agreement, for work outside of the hours established in good

faith by the contract or agreement asthe basic, normal, orregular workday

(not exceeding eight hours) or workweek (not exceeding the maximum

workweek applicable to such employee under subsection (a) of this

section, where such premium rate is not less than one and on-half times

the rate established in good faith by the contract or agreement for like

work performed during such workday or workweek.

29 U.S.C. §§ 207(e)(5)-(7).

Section 207 goes on to provide that the payments excluded from the calculation

of an employee’s “regular rate” under subsection (e) “shall not be creditable toward .

. . overtime compensation required under this section.” 29 U.S.C. § 207(h)(1). The

types of extra compensation described in paragraphs (5), (6), and (7) of subsection (e),

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however, are the exception. Id. § 207(h)(2). Payments under these paragraphs are

“creditable toward overtime compensation payable pursuant to this section.” Id.

Thus, once an employee’s “regular rate” is calculated, one may first determine

the amount of any unpaid overtime compensation by multiplying the number of unpaid

overtime hours by 1.5 times the employee’s “regular rate.” This amount is the

employer’s overtime liability.

Once the employer’s overtime liability is calculated, one may next determine

whether the employer has paid any extra compensation to the employee that could be

used to offset the employer’s overtime liability. To do this, one must determine

whether the employer has paid any of the extra compensation described under

paragraphs (5), (6), and/or (7) of subsection (e). If the employer has paid such extra 1

compensation, then the amount of extra compensation should offset the employer’s

overtime liability.

The next question is how such extra compensation should be applied to any

overtime liability. Plaintiffs, two circuit courts, and at least six district courts would

permit an employer to offset overtime liability only with the extra compensation that

was paid in the same workweek or pay period in which the overtime liability accrued. 

Defendant, Judge Huff, and three district courts would permit an employer to aggregate

all extra compensation it paid to an employee during a particular time frame (e.g., a

class period) to cumulatively offset any overtime liability incurred during the same

period.

Judge Huff cited three circuit court cases in support of the minority position:

Singer v. City of Waco, 324 F.3d 813 (5th Cir. 2003), Alexander v. United States, 32

F.3d 1571 (Fed. Cir. 1994), and Kohlheim v. Glynn County, 915 F.2d 1472 (11 Cir.

1990). None of these cases, however, actually support the minority position. 

In Singer v. City of Waco, the employee plaintiffs argued the district court erred

The parties do not dispute that the types of extra compensation that Costco pays its employees 1

are creditable under 29 U.S.C. §§ 207(e)(5)-(7).

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in offsetting overpayments by the employer defendant in some work periods against the

overall damages owed. 324 F.3d 813, 825-28 (5th Cir. 2003). Among other theories,

the employees argued the district court’s offset was impermissible under 29 U.S.C. §

207(h). Id. at 826-27. The Fifth Circuit rejected this argument, however, finding §

207(h) did not apply because the district court did not use overtime premiums to offset

the employees’ damages but instead included “overpayments . . . in determining the

[plaintiffs]’ regular rate of pay.” Id. at 827-28. The court did not address how

premium credits under § 207(h)(2) should apply.

In Kohlheim v. Glynn County, the Eleventh Circuit held, without elaborating,

that, under § 207(h), the employee plaintiffs “should be allowed to set-off all

previously paid overtime premiums, not just those equal to or greater than 1 1/2 times

the regular rate, against overtime compensation found to be due and owing during the

damages phase of the trial.” 915 F.2d 1473, 1481 (1990) (emphasis in original). 

Notwithstanding the court’s emphasis on the word “all,” the court only addressed

whether previously paid overtime premiums were creditable at all. The court did not

address whether the premium credits should be applied on a workweek-by-workweek,

versus a cumulative, basis.

In Alexander v. United States, the Federal Circuit decided that overtime

compensation paid to border patrol agents pursuant to certain statutes constituted the

type of extra compensation described in paragraphs (5) and (6) of subsection (e). 32

F.3d 1571, 1575-78 (1994). In reciting the relevant legal rules, the court observed that

premium pay is “creditable toward any overtime compensation due under the FLSA.” 

Id. at 1575 (emphasis added). While some courts have read this reference to “any

overtime compensation due” as permitting a cumulative application of premiumcredits,

this Court finds that such a reading is unsupported by the remainder of the court’s

opinion. Simply put, the court did not decide how premium credits should apply; it

only decided whether certain payments were creditable.

While the foregoing circuit court cases did not directly address how premium

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credits should apply, a few district court cases have considered the question. In Abbey

v. City of Jackson, the Eastern District of Michigan held that premium payments for

overtime hours may be used to offset all deficiencies in overtime compensation under

the FLSA. 883 F. Supp. 181, 186-87 (1995). In reaching this conclusion, however, the

court relied on Alexander and Kolheim, which, as noted above, do not actually support

this proposition. See also O’Brien v. Town of Agawam, 491 F. Supp. 2d 170, 174-76 2

(D. Mass. 2007) (concluding employers were entitled to apply premium payment

credits to offset overtime liability regardless of when the premiums were paid and when

the overtime work occurred); Murphy v. Town of Natick, 516 F. Supp. 2d 153, 160-61

(D. Mass. 2007) (citing O’Brien to conclude premium credits should be applied

cumulatively). Thus, in reality, the minority view—that premium credits should apply

cumulatively—is supported only by a couple of district court cases in Massachusetts.

Comprising the majority view are at least two circuit court cases and at least six

district court cases, which provide that premium credits should apply on a workweekby-workweek basis. In Howard v. City of Springfield, Illinois, the Seventh Circuit

found that allowing an employer to cumulatively offset its overtime liability with

creditable premiums without regard to when the overtime liability was incurred or the

premiums paid “is contrary to the language and the purpose of [§ 207].” 274 F.3d

1141, 1148 (2001). Observing that the FLSA emphasizes timely overtime payments,

the court held that, “[b]ecause the statute contemplates that overtime will be paid and

calculated on a pay period basis, it is consistent with that language to calculate and

apply credits in the same manner.” Id. at 1149. The court noted that, just as an

employer may not average the number of hours worked over two weeks to avoid

overtime liability, neither may an employer apply credits (whenever paid) to overtime

liability (whenever incurred) to accomplish the same result. Id.

In Herman v. Fabri-Centers of America, Inc., the Secretary of Labor brought suit

Moreover, the Sixth Circuit’s decision in Herman v. Fabri-Centers of America, Inc., infra, 2

effectively overruled this district court’s conclusion that premium credits should apply cumulatively. 

308 F.3d 580, 590 (6th Cir. 2002).

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against an employer for violations of the FLSA. 308 F.3d 580 (2002). The Sixth

Circuit, in a lengthy analysis, concluded that creditable premiums can only offset

overtime liability incurred in the same workweek that the premium credits were paid.

Id. at 585-593. To reach this conclusion, the court first found that the plain language

of § 207(h) issilent asto when extra compensation credit may be used. Id. at 586. The

court thus examined the text of § 207(h) in light of relevant legislative history and in

context with the FLSA as a whole, including its implementing regulations. Id.

The Sixth Circuit observed that Congress first enacted the law that would

become § 207(h) in response to the Supreme Court’s decision in Bay Ridge v. Aaron,

334 U.S. 446 (1948). There, the Supreme Court held that certain contractual premiums

should be included in determining an employee’s regular rate for purposes of

calculating statutory overtime compensation. Fabri-Centers, 308 F.3d at 586-87. The

Supreme Court’s decision thusresulted in employee’s being compensated for “overtime

on overtime,” which Congress responded to by passing a law that allowed an employer

to credit extra compensation “toward any premium compensation due” under the

FLSA. Id. Shortly thereafter, Congress amended this provision to delete the word

“any,” resulting in a statute that allowed employers to apply credits “toward overtime

compensation payable pursuant to this section.” Id. at 587. The result of this

legislative history is reflected in §§ 207(e)(5), (6), and (7)–which exclude certain

permit payments from the computation of an employee’s regular rate (and thus

overtime rate)–while § 207(h) allows these payments to be credited against FLSA

overtime liability. Id.

After analyzing § 207(h)’s legislative history, the Sixth Circuit considered the

FLSA as a whole and its implementing regulations, finding that both supported the

court’s conclusion that premium credits can only apply to overtime liability incurred

during the workweek in which the premiums were paid. Id. at 589. The court observed

that the FLSA as a whole and its implementing regulations “highlight the primacy of

the workweek concept” and require prompt payment of overtime compensation. Id.

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Several district courts have reached the same conclusion. See Rudy v. City of

Lowell, 777 F. Supp. 2d 255, 262 (D. Mass. 2011) (disagreeing with O’Brien and

Murphy, supra, and concluding premiums should be applied on a workweek-byworkweek basis); Conzo v. City of New York, 667 F. Supp. 2d 279, 291 (S.D.N.Y.

2009) (concluding that an employer may only credit extra payments against overtime

liability accruing in the same workweek); Scott v. City of New York, 592 F. Supp. 2d

475, 485 (S.D.N.Y. 2008) (same); Bell v. Iowa Turkery Growers Co-op, 407 F. Supp.

2d 1051, 1063 (S.D. Iowa 2006) (same); Nolan v. City of Chicago, 135 F. Supp. 2d

324, 333 (N.D. Ill. 2000) (same); Gilmer v. Alameda-Contra Costa Transit Dist., 2011

U.S. Dist. Lexis 126845, at *34-36 (N.D. Cal. Nov. 2, 2011) (same). Thus, the

majority approach is supported by two circuit court cases and at least six district court

cases.

In a dissent to the Fabri-Centers majority opinion, Circuit Judge Siler opined

that, while it is not illogical to conclude that premium credits should be limited to the

same work period in which the premiums were paid, employers should not be penalized

for computing premium credits in a way that is not prohibited by the FLSA. 308 F.3d

at 593. Judge Siler would instead allow employers to calculate credits in any way that

the FLSA does not expressly prohibit, placing on Congress or the Department of Labor

the responsibility of passing some law or regulation that would clarify this dispute over

the application of premium credits. Id.

Indeed, Judge Huff took a similar approach. In adopting the minority view,

Judge Huff relied on the Supreme Court’s holding in Christensen v. Harris County, in

which the Supreme Court recognized that, unless an action is expressly or implicitly

prohibited by the FLSA, the Secretary of Labor could not argue that an employer

violated the FLSA. 529 U.S. 576, 588 (2000). The specific employer conduct at issue

in Christensen involved the employer’s policy of forcing employees to use their

accrued compensatory time to avoid having to cash out such time at a later date. In

concluding that the FLSA did not expressly or implicitly prohibit this type of policy,

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the Supreme Court noted that the FLSA provision at issue, § 207(o)(5), merely

provides that an employee who asks to use compensatory time must be allowed to do

so unless the employer’s operations would be unduly disrupted. The Supreme Court

then looked to other aspects of the FLSA to find support for its conclusion.

Unlike in Christensen, where the Supreme Court found that the FLSA did not

expressly or implicitly prohibit the policy at issue, this Court finds that the FLSA does

prohibit the minority approach of applying premium credits to cumulatively offset

overtime liability. To that end, this Court adopts the Seventh Circuit’s analysis in

Howard and the Sixth Circuit’s analysis in Fabri-Centers to conclude that the FLSA

implicitly prohibits an employer from applying premium credits across workweeks.

Further, while the NinthCircuit has not yetruled on thisissue directly, thisCourt

finds some indication of how the Ninth Circuit might view this question in Ballaris v.

Wacker Siltronic Corp., 370 F.3d 901 (2004). There, the Ninth Circuit wastasked with

deciding whether an employer could use payments for compensated lunch periods to

offset overtime liability. The court first broadly interpreted § 207(e)(2)—which

excludes “payments made for occasional periods when no work is performed due to

vacation, holiday, illness, [etc.]” fromthe calculation of an employee’s regular rate—to

also exclude payments for compensated lunch periods even though, arguably, lunch

periods are not “occasional” but are instead regular, usual, or ordinary. Id. at 909. The

court then concluded that, under § 207(h)(1), the employer could not use payments for

compensated lunch periods to offset any overtime liability because it was not a

premium payment as set forth in §§ 207(e)(5)-(7). Finally, the court emphasized that,

“[e]ven without [§ 207(h)], . . . it would undermine the purpose of the FLSA if an

employer could use agreed-upon compensation for non-work time (or work time) as a

creditso asto avoid paying compensation required by the FLSA.” Id. at 914 (emphasis

added). The Ninth Circuit went so far as to say that such an employer policy “is,

instead, false and deceptive ‘creative’ bookkeeping that, if tolerated, would frustrate

the goals and purposes of the FLSA.” Id. 

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It thus appears to this Court that, if presented with the question of how premium

credits should be applied under § 207(h)(2),the NinthCircuit would place considerable

weight on the FLSA’s goals and purposes as did the Sixth and Seventh Circuits in

Fabri-Centers and Howard. Indeed, the Ninth Circuit might again go so far as to say

that the application of premium credits across workweeks is yet another type of

“‘creative’ bookkeeping that, if tolerated would frustrate the goals and purposes of the

FLSA.”

Based on the foregoing, this Court finds that Judge Huff’s Order regarding the

application of credits under § 207(h) was clear error. Because Costco’s Motion for

Summary Judgment is premised on the erroneous adoption of the minority view

regarding the application of premium credits, this Court must DENY Costco’s Motion

for Summary Judgment as it pertains to the application of premium credits.

As both parties agree that plaintiff Jienette Jackson’s submission of her opt-in

form was untimely, the Court will GRANT Costco’s Motion for Summary Judgment

as it pertains to dismissing Ms. Jackson’s claims. The hearing on Costco’s Motion for

Summary Judgment, currently set for September 27, 2013, is VACATED. Remaining

on calendar is Costco’s Motion to Decertify.

IT IS SO ORDERED.

DATED: September 26, 2013

HON. GONZALO P. CURIEL

United States District Judge

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