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M.D.Fla.: Plaintiffs Entitled to Irrebuttable Presumption That Their Damage Calculations Are Correct Where Defendant Spoliated Payroll Records
This case was before the court on the plaintiffs’ motion for sanctions. Specifically, plaintiffs sought sanctions as a result of the defendant-employers intentional destruction of the relevant payroll records pertaining to plaintiffs’ employment. While the court denied plaintiffs’ motion to the extent that it sought a default judgment, the court ordered that—to the extent plaintiffs prevailed on liability at trial—their calculation based on payroll records available from a third-party would be deemed irrebuttably correct, subject to the court’s approval.
The court provided the following history of the defendants’ egregious discovery misconduct:
This case arises under the Fair Labor Standards Act of 1938 (“FLSA“), as amended, 29 U.S.C. § 201 et seq. Plaintiff alleges that Defendants mischaracterized their licensed practical nurse and registered nurse employees as independent contractors. (Compl., Doc. 1, at 3). On December 3, 2015, this Court entered a scheduling order directing the parties to exchange all documents germane to this case by January 15, 2016. (FLSA Scheduling Order, Doc. 29, ¶ 1). Defendants failed to timely comply with the disclosure of documents and, as a result, an Order to Show Cause why sanctions should not be imposed was issued. (Feb. 25, 2016 Order, Doc. 32, at 1-2). After a hearing on the matter, this Court found that sanctions were warranted against Defendants and Defendants’ counsel for their failure to comply with the Court’s order, but held the sanctions in abeyance so long as Defendants produced all relevant documents in their possession, custody, or control by March 21, 2016. (Mar. 7, 2016 Order, Doc. 37, ¶¶ 1-3).
On March 11, 2016, Plaintiff filed a motion for sanctions against Defendants. (Mot. for Sanctions, Doc. 38). Therein, Plaintiff alleged that Defendants willfully destroyed, or negligently allowed to be destroyed, payroll records prior to May 2015, despite an ongoing investigation by the Department of Labor (“Department”). (Id. at 12-13). Additionally, Plaintiff asserted that since May 2015, an administrative employee had been deleting payroll records on a weekly basis by writing [*3] over them at the end of each work week. (Id. at 15-16). Defendants acknowledged that an employee was writing over the payroll week-to-week but claimed that the records prior to May 2015 were destroyed by a disgruntled former employee, Karen Reyes. (Id. at 7). On September 22, 2016, this Court entered an order denying the motion for sanctions because there was a factual dispute regarding whether Reyes deleted the payroll records and because Plaintiff had not yet determined what, if any, prejudice Plaintiff had suffered. (Sept. 22, 2016 Order, Doc. 55, at 6-7, 9). Nevertheless, the Court was troubled by Defendants’ actions and ordered Defendants to “immediately halt the destruction of any Current Payroll Records” and produce all payroll records to Plaintiff on a bi-weekly basis. (Id. at 10). Now, Plaintiff again seeks sanctions against Defendants and Defendants’ counsel pursuant to Federal Rule of Civil Procedure 37(b), 28 U.S.C. § 1927, and this Court’s inherent authority.
Following a discussion of the relevant standards for sanctions under Fed. R. Civ. Proc. 37, the court determined that the appropriate “punishment to fit the crime” in this case was to order that plaintiffs’ damages calculations would be subject to an irrebuttable presumption of correctness. Specifically, the court explained that plaintiffs could not show the extreme prejudice to warrant a default judgment, because they were apparently ultimately able to obtain the payroll records at issue from defendants third-party payroll company, notwithstanding defendants’ destruction of the copies in defendants’ possession.
Thus, the court held:
Plaintiff represented at the evidentiary hearing that he was able to obtain a sampling of nurses’ paychecks from Caring First’s bank. From these paychecks, which contain the hours worked by the nurses and their pay rate, Plaintiff claims he will be able to accurately calculate back wages. Therefore, as a sanction the Court will order the production of the nurses’ paychecks from Caring First’s bank. In addition, the Court will allow Plaintiff to recalculate potential back wages based on these paychecks. If Plaintiff prevails as to liability at trial, this calculation will be irrebuttably presumed to be correct, subject to Court approval.
This is definitely a case for all wage and hour practitioners to hold on to, because the circumstances of this case are unfortunately far from unique.
Click Sec’y of Labor v. Caring First, Inc. to read the entire Opinion of the court.
Knepper v. Rite Aid Corp.
In one of the most anticipated wage and hour decisions pending at the circuit court level, the Third Circuit held yesterday that Rule 23 state law wage and hour class actions (opt-out) are not inherently incompatible with FLSA collective action (opt-in). Likely ending one of the longest running and hotly contested issues in wage and hour litigation the Third Circuit “join[ed] the Second, Seventh, Ninth and D.C. circuits in ruling that this purported ‘inherent incompatibility’ does not defeat otherwise available federal jurisdiction.”
At the court below the plaintiffs had asserted a hybrid cause of action– claims under both the FLSA’s collective action mechanism and multiple states’ wage and hour laws (Rule 23 class actions). Unlike some so-called hybrids though, here the Court’s jurisdiction over the Rule 23 state law claims was based on the original jurisdiction of CAFA, rather than the supplemental jurisdiction of 1367. While the court below had held that the Rule 23 claims could not be brought together with the FLSA collective action claims, based on “inherent incompatibility” the Third Circuit disagreed and reversed.
Framing the issue, the court explained:
“This case involves a putative conflict between an opt-out Fed.R.Civ.P. 23(b)(3) damages class action based on state statutory wage and overtime laws that parallel the federal Fair Labor Standards Act (FLSA) and a separately filed opt-in collective action under 29 U.S.C. § 216(b) of the FLSA. Both suits allege violations arising from the same conduct or occurrence by the same defendant. At issue is whether federal jurisdiction over the Rule 23 class action based solely on diversity under the Class Action Fairness Act (CAFA), 28 U .S.C. § 1332(d), is inherently incompatible with jurisdiction over the FLSA action, and whether the FLSA preempts state laws that parallel its protections. ”
Although there had been many prior trial level decisions from the courts within the Third Circuit holding that so-called hybrids were “inherently incompatible,” the panel noted that “The concept of inherent incompatibility has not fared well at the appellate level. Four courts of appeals have rejected its application to dual-filed FLSA and class actions.”
Looking first to the text of the FLSA, the court agreed with the Seventh Circuit “that that the plain text of § 216(b) provides no support for the concept of inherent incompatibility.” The court then explained that a look at legislative history was unnecessary in light of the unambiguous nature of the FLSA’s text in this regard. Nonetheless, looking at the legislative history, the court concluded, “we disagree that certifying an opt-out class based on state employment law contravenes the congressional purpose behind the Portal–to–Portal Act.”
Perhaps most significantly, the court revisited its decision in De Asencio and noted that it was “distinguishable, as the Seventh, Ninth, and D.C. Circuits have all concluded. Ervin, 632 F.3d at 981 (“De Asencio represents only a fact-specific application of well-established rules, not a rigid rule about the use of supplemental jurisdiction in cases combining an FLSA count with a state-law class action.”); Wang, 623 F.3d at 761; Lindsay, 448 F.3d at 425 n. 11. Unlike the state law claims at issue in De Asencio, there is no suggestion that the claims under the MWHL and the OMFWSA are novel or complex; Rite Aid’s principal objection is that these state claims are too similar to federal claims with which the federal courts are well familiar. Nor does this case present an instance of supplemental jurisdiction, where there is statutory authority to decline jurisdiction in the factual circumstances of De Asencio. Here, independent jurisdiction exists over plaintiffs’ claims under CAFA, which provides no statutory basis for declining jurisdiction in this instance. For these reasons, we do not believe De Asencio supports dismissal.”
The court concluded:
“In sum, we disagree with the conclusion that jurisdiction over an opt-out class action based on state-law claims that parallel the FLSA is inherently incompatible with the FLSA’s opt-in procedure. Nothing in the plain text of § 216(b) addresses the procedure for state-law claims, nor, in our view, does the provision’s legislative history establish a clear congressional intent to bar opt-out actions based on state law. We join the Second, Seventh, Ninth, and D.C. Circuits in ruling that this purported “inherent incompatibility” does not defeat otherwise available federal jurisdiction.”
The court also rejected the contention that the FLSA somehow preempts more beneficial state wage and hour laws.
Click Knepper v. Rite Aid Corp. to read the entire Opinion of the Court. Click here to read the Secretary of Labor’s amicus brief in support of the plaintiff-appellant and here to read the amicus brief submitted on behalf of several employee rights’ organizations, including the National Employment Law Association (NELA).