Judge Lucy H. Koh Invalidates 38 “Opt-Out” Forms, Grants Curative Notice, and Orders Defendants to Show Cause Why They Should Not be Sanctioned Pursuant to Rule 11

by charlesjung

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Issuing a robust opinion in a putative wage and hour class and FLSA collective action, Judge Lucy H. Koh invalidated opt-out forms solicited by defendants, granted plaintiff’s request for a curative notice at defendants’ expense, and ordered defendants to show cause why they should not be sanctioned pursuant to Rule 11.  Li v. A Perfect Day Franchise, Inc., No. 10-CV-01189-LHK, 2010 WL 3835596 (N.D. Cal. Sept. 29, 2010).  The court concluded that based on the record, it appeared likely that “the opt-out forms submitted by Defendants on September 7, 2010 were fraudulently created after the September 2, 2010 hearing on the underlying motions.”  Id. *11.  The court admonished that “Defendants will not be permitted to defraud this Court by submitting false testimony.” Id. *12.


Named plaintiffs are former workers for A Perfect Day Franchise, Inc., which owns and operates spas. Id. *1. Named plaintiffs describe themselves and the majority of the putative class as being native Chinese speakers, with limited English proficiency and little or no formal education. Id. Plaintiffs claim that they paid for a massage training course offered by an entity related to Perfect Day, the Minjian Hand Healing Institute.  Id. Plaintiffs allege they paid for the course based on promises, contained in advertisements for the training program, that they would be employed by Perfect Day and would earn a minimum income once it was completed, but that these promises were not honored by Perfect Day, and that Perfect Day has miscategorized them as independent contractors rather than employees. Id. Plaintiffs allege that Perfect Day failed to pay minimum wages and overtime, wrongly subtracted materials costs from Plaintiffs’ wages, wrongly took Plaintiffs’ tips, and committed other violations of California wage and hour laws. Id. Based on these allegations, Plaintiffs claim violations of both the Fair Labor Standards Act (FLSA, 29 U.S.C. §§ 201-19) and California law.  Id.

After plaintiffs filed the complaint, they contacted putative class members to communicate with them about the suit. Id. In response, Perfect Day held individual meetings with each massage therapist at which Perfect Day admitted to presenting “opt-out” forms to its workers. Id. Perfect Day did not provide workers with copies of the form to take away from these meetings. Id.

At the hearing, the Court ordered Defendants to submit all signed opt-out forms to the Court the following day; But on that day, counsel for Defendants submitted a declaration stating that it would be “impossible to comply” with the Court’s order because, Mr. Ma, the only person with access to the forms was on family vacation.  Id. Defendants later submitted 38 signed opt-out forms, representing the substantial majority of class members.  Id. But Plaintiffs filed a statement that one of the named Plaintiffs had seen Mr. Ma working at a booth for Perfect Day while he was supposedly out on vacation.  Defendants later admitted that Mr. Ma admits was at a fair in Millbrae but stated he was there for leisure purposes only and not for work.  Id.

“Opt-Out” Forms

Plaintiffs accused Perfect Day of holding mandatory group and one-on-one meetings at which Perfect Day managers threatened workers with retaliation if they participate in the class action.  Id. Plaintiffs submitted anonymous declarations from three individuals claiming who said they were called to individual meetings by Perfect Day managers where they were presented with an opt-out form. Id. *2. Defendants denied the facts alleged by Plaintiffs, and argued that it is Plaintiffs rather than Defendants who have been intimidating Perfect Day workers in connection with this case.  Id. *3. Defendants submitted declarations by Mr. Ma and another manager in which both declared an attached opt-out form to be “Defendant’s opt out notice.”  Id. But the court noted that the exemplar forms attached to the Li and Ma declarations differ in several respects from the signed opt-out notices Defendants filed with the Court, including containing different formatting, variance in translation, and different signature fields. Id.

Motion for Anonymity for Declarants

Plaintiffs brought two motions: the first seeking anonymity for declarants who are current or former workers and who fear retaliation by Perfect Day if their participation in the case becomes known. Id. *4.  The second motion asked for a number of curative measures pursuant to Fed. R. Civ. P. 23(d), to remedy alleged harm caused by Perfect Day’s communications with its workers and its success in obtaining signed opt-out forms from substantially all of its current massage therapists.  Id.

The court concluded that the fear of retaliation was not sufficiently severe to justify anonymity:

The Ninth Circuit distinguished the threats facing the workers in Advanced Textile from “threats of termination and blacklisting [that] are perhaps typical methods by which employers retaliate ….” Id. The Ninth Circuit also held that if plaintiffs cannot show a danger of physical injury, only a reasonable fear of “extraordinary retaliation, such as deportation, arrest, and imprisonment” can justify an order granting anonymity. Id. 214 F.3d at 1071. Therefore, the severity of harm factor is a gating issue under Advanced Textile; if the harm feared is economic, and less than “extraordinary,” no anonymity order can issue.

Cases applying Advanced Textile support this finding. For example, plaintiff exotic dancers asserting FLSA claims expressed fears of termination if their identities became known to their employer; the court held that even though their fears were likely reasonable and the plaintiffs were likely vulnerable to the retaliation, a threat of termination did not rise to the level of “extraordinary” injury and therefore anonymity could not be granted. 4 Exotic Dancers v. Spearmint Rhino, No. CV 08-4038 ABC (SSx), 2009 WL 250054 at *2 (C.D.Cal., Jan. 29, 2009). Likewise, a criminal sex offender was not granted the right to proceed anonymously despite his fear of physical retaliation in prison, because his fears would be “equally present for all similarly situated sex offenders who face prison sentences” and therefore not extraordinary. United States v. Stoterau, 534 F.3d 988, 1012-13 (9th Cir.2008).

Proceeding anonymously is the exception to the rule. Advanced Textile, 214 F.3d at 1067. A finding that the “perhaps typical” retaliations of FLSA defendants, such as termination, blacklisting, or even threatened IRS reporting constitute “extraordinary” harm would permit plaintiffs in many FLSA actions the right to proceed anonymously. Such a rule would be inconsistent with the Advanced Textile analysis, which held that anonymity may only be granted in the “unusual case.” Id. As a result, the threatened reprisals do not meet the high standard of “extraordinary harm,” and the Court must deny Plaintiffs’ request to proceed anonymously.

Id. *7.

Motion for Curative Measures

The court noted “ex parte communications soliciting opt-outs, or even simply discouraging participation in a case, undermine the purposes of Rule 23 and require curative action by the court.”  Id. *8.  “Courts have also recognized that in the context of an employer/worker relationship, there is a particularly acute risk of coercion and abuse when the employer solicits opt-outs from its workers.” Id.

The court concluded that the meetings where defendants presented opt-out forms to workers during required, one-on-one meetings with managers during work hours and at the workplace “were inherently coercive.” Id. *9.  “Obtaining opt-out forms ex parte at this stage of the litigation–before a class has been certified by the Court– unquestionably frustrates the purposes of Rule 23. When and if a class is certified, the Court will approve a class notice and means for members to opt out, per Rule 23.” Id.

The court invalided the opt-outs and ordered a curative notice to be mailed at Defendant’s expense:

Having determined that the opt-out forms were obtained through coercion, the Court finds they must be invalidated. Moreover, given that workers may now believe they are prohibited from participating in the case by having signed the opt-out forms, the Court finds that corrective notice is required. Therefore, the Court proposes notice to the putative class members as set forth below.


Plaintiff’s also requested that the Court ban all communications between Defendants and the putative class regarding this case; compel disclosure of all communications between potential class members and Defendants or their counsel; compel an opportunity to meet with the class on paid time at A Perfect Day’s three locations; and impose sanctions against Defendants. Id. *10.  Regarding the request for a communications ban, “although the Court is troubled by Defendants’ actions encouraging putative plaintiffs to opt out before the class has even been certified” the Court found the remedial measures ordered to be sufficient.  The court “reiterate[d] the warning it gave to Defendants at the hearing that any retaliation against workers for participating in this case would constitute a violation of this Court’s order and could lead to the imposition of sanctions.”  Id.

The court denied the request for disclosure of all communications between Defendants and putative class members, the request for an opportunity to meet with workers on paid time, and Plaintiffs’ request for sanctions.  Id. **10-11.

Defendants’ Request to Invalidate Opt Ins

Defendants argued that it was Plaintiffs, not Defendants, who have abused the right to communicate with putative class members, and that any opt-in forms obtained by Plaintiffs must be invalidated.  Id. *11. The court found insufficient evidence of such communications, and noted that “In light of the Court’s concern over the apparent misrepresentations contained in the declarations submitted by both Perfect Day managers and its attorneys (discussed further below in the Order to Show Cause), the Court does not credit these accounts.” Id.

Rule 11 Sanctions

The court concluded that based on the record, it appeared likely that “the opt-out forms submitted by Defendants on September 7, 2010 were fraudulently created after the September 2, 2010 hearing on the underlying motions.”  Id. *11.

Contrary to the declaration submitted by Defendants’ attorney, it seems it was not “impossible” for Perfect Day to comply with the Court’s order to submit the forms by September 3, 2010. See Dkt. No. 74 (Wahng Decl.) at 2. This declaration stated that because Mr. Ma was on “a family vacation for the Labor Day Weekend” and “would not return to work until Tuesday, September 7, 2010,” there was no way for Perfect Day to file the forms by September 3, 2010, as the Court ordered it to do. Id. However, Mr. Ma’s later declaration reveals that he was in Millbrae, where one of the Perfect Day branches is located, on at least Saturday, September 3, 2010. See Dkt. No. 82 (Ma.Decl.) at 2. If Mr. Ma had the forms in his personal possession in the Bay Area, Defendants’ attorneys could have sent a messenger to pick them up from him without disturbing his family vacation, or he could have dropped them off at the Perfect Day booth at the Millbrae fair. If the forms were at one of the Perfect Day locations, another manager could have provided them to attorney Wahng. Assuming that the forms originally signed by workers were not the exemplar forms submitted with the declarations of Mr. Ma and Ms. Li, evading the Court’s Order on a pretense would have given Defendants four additional days to create new forms to match the exemplar forms submitted.

Moreover, the signed opt-out forms submitted do not exactly match the exemplar opt-out forms, further suggesting an after-the-fact falsification of the submitted forms. The exemplar contained a line for the signor to date, while the signed forms contain no date field and are undated. The exemplar was only in English, while the signed forms contain Chinese instructions. There also are a number of significant formatting changes between the two forms. Finally, several individuals who submitted declarations on Defendants’ behalf, stating that they signed the forms, do not appear to have submitted signed forms (though, as previously noted, the lack of clearly-typed names on the signed forms makes it difficult to assess this). Overall, the Court has serious doubts about the veracity of the submitted forms.

The Court’s decision to invalidate the submitted forms does not depend on whether the forms submitted were those originally signed or not. However, Defendants will not be permitted to defraud this Court by submitting false testimony.

Id. **11-12.

Thus the court ordered defendants to show cause why they should not be sanctioned for violating Rule 11 by:

a) Submitting declarations by Jade Li and Jun Ma falsely declaring that the attached Exhibit A was the form provided to workers

b) Submitting a declaration by attorney Wahng falsely stating that it would be impossible to comply with the Court’s order to submit forms by September 3, 2010

c) Submitting falsified opt-out forms on September 7, 2010 that were signed by workers only after the September 2, 2010 Order to submit signed forms, with a declaration by Jun Ma falsely stating that these forms were read to workers in “May 2010”

Id. *12.

The court set a special evidentiary hearing to decide whether sanctions should be imposed and ordered defendants to “bring Mr. Ma and Ms. Li to the hearing for questioning.” Id.


District Judge Lucy H. Koh.