Rahman v. Gate Gourmet, Inc.

— 1 — — 2 — — 3 — 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA — 6 — 7 MOHAMMED RAHMAN, Case No. 3:20-cv-03047-WHO 8 Plaintiff, ORDER LIFTING STAY v. — 9 — Re: Dkt. No. 35 10 GATE GOURMET, INC., et al., Defendants. — 11 — — 12 — 13 The parties in this putative class action agreed to stay the case to examine a proposed 14 settlement reached in California state court. That state-court case had previously been in federal 15 court and is between the defendant here, Gate Gourmet1, and a different named plaintiff 16 representing essentially the same putative class. The plaintiff here, Mohammed Rahman, sought 17 to intervene in that matter to prevent the settlement from being approved. According to him, it 18 does a disservice to the class and may be collusive. The state-court judge, the Hon. Elihu M. 19 Berle, has yet to rule on that motion. 20 Rahman moves to lift the stay. That motion is granted.2 Because this case was filed before 21 the state-court action, Judge Berle asked the parties to inquire about my views on whether that 22 case should be stayed in favor of this one. In response to Judge Berle’s inquiry, I explain below 23 why I conclude that this case is the better vehicle for these overlapping claims to proceed. This 24 case was the first-filed—both California and federal law usually favor that case over others. And 25 the state-court action shows indications of being a “reverse auction” (in which a class-action — 26 — — 27 — 1 “Gate Gourmet” refers to defendants Gate Gourmet, Inc., and Gategroup U.S. Holdings, Inc. 1 defendant chooses its favorite class counsel to negotiate a settlement that binds the class, 2 regardless of which case was first) leading to a collusive settlement and a stipulated remand to 3 state court (to avoid federal rules indicating that case to being stayed or dismissed in favor of this 4 one). That said, whether to stay the state-court case is a decision for Judge Berle, not me. 5 The case management conference set for December 1, 2021, is CONTINUED to January 4, 6 2022, so that we can discuss the status of this case after Judge Berle holds an upcoming hearing on 7 these issues. 8 BACKGROUND 9 Rahman worked as a non-exempt employee of Gate Gourmet, located at the San Francisco 10 International Airport, from January 2014 until March 2020. First Amended Complaint (“FAC”) 11 [Dkt. No. 12] ¶ 11. Gate Gourmet is incorporated in Delaware with its principal place of business 12 in Virginia. Id. ¶¶ 9–10. Rahman alleges—on behalf of himself, on behalf of a proposed class, 13 and under the California Private Attorneys General Act (“PAGA”)—that Gate Gourmet failed to 14 compensate Rahman and other employees for all hours worked. Id. ¶ 17. In brief, he alleges that 15 Gate Gourmet required employees to submit to searches off-the-clock and without compensation, 16 including during what should have been overtime and during meal breaks. Id. ¶¶ 17–19. 17 Rahman filed his complaint in this court in May 2020. Dkt. No. 1. The case proceeded to 18 discovery. In May 2021, Gate Gourmet filed a notice of a related matter, seven months after that 19 action had been filed. Dkt. No. 31. The related matter (“Diaz”) was a PAGA suit and class action 20 by a different plaintiff against Gate Gourmet for materially similar alleged violations in the U.S. 21 District Court for the Central District of California. See Alicia Noemi Bautista Diaz v. Gate 22 Gourmet, Inc., C.D. Cal. No. 2:20-cv-09454. 23 In June 2021, Rahman moved to put these two cases (and a third not at issue here) into 24 multi-district litigation (“MDL”). See In re: Gate Gourmet, Inc., Wage and Hour Employment 25 Prac. Lit., MDL No. 3012. Three days later, the parties in Diaz reached a proposed class action 26 settlement. Dkt. No. 33 at 3. Gate Gourmet represented that the settlement “would release all 27 claims asserted by Plaintiff Rahman in this action, if approved.” Id. The Diaz parties stipulated to 1 the Superior Court of California before Judge Berle. Id.; see Diaz v. Gate Gourmet, et al., Sup. 2 Ct. Cal., 20STCV34299. 3 In July 2021, I approved the parties’ stipulation staying the case. See Dkt. Nos. 32, 33. 4 The parties sought a stay because of the “cost of discovery and motion practice,” because the case 5 “may become moot” by the Diaz settlement, and for the “orderly administration of justice.” Dkt. 6 No. 33 at 4. 7 On October 15, 2021, Judge Berle held a hearing in Diaz on Rahman’s motion to intervene 8 in that case. See Reporter’s Transcript of Proceedings, Oct. 15, 2021 [Dkt. No. 35-1, Ex. F]. He 9 ultimately continued the hearing without ruling so that he could receive supplemental briefing on 10 the issue of intervention and so that counsel for all parties could attempt to reach a “global 11 settlement.” Id. at 22:21–23:6. He also requested: 12 I am going to ask the parties to contact -- to file an appropriate pleading -- not to contact orally, obviously -- but the parties together; that is, the counsel for Diaz, counsel for 13 Rahman, and defendant to file an inquiry with the federal court in the Northern District as to whether the Northern District would consider whether or not the case in the Northern — 14 — District should proceed and whether or not this case should be stayed. — 15 — In light of the fact that the case in the Northern District was filed first -- I realize there is an 16 issue of concurrent jurisdiction but the case is now pending in different courts -- one in the state court, one in the federal court, so it’s an issue of comity rather than any requirement — 17 — of one case proceed before the other case. 18 Id. at 23:7–22. 19 The parties filed a joint a joint status report three days later alerting me to these 20 developments, see Dkt. No. 34, and Rahman moved to lift the stay four days after that, see 21 Corrected Motion to Lift Stay (“Mot.”) [Dkt. No. 36]. The hearing before Judge Berle is set for 22 December 13, 2021. 23 LEGAL STANDARD 24 “[T]he power to stay proceedings is incidental to the power inherent in every court to 25 control the disposition of the causes on its docket.” Landis v. N. Am. Co., 299 U.S. 248 , 254 26 (1936). Whether to stay a case—and therefore whether to lift that stay—is committed to the 27 district court’s discretion. Id. To assess whether a stay is warranted, the court weighs the 1 of a stay, the hardship or inequity which a party may suffer in being required to go forward, and 2 the orderly course of justice measured in terms of the simplifying or complicating of issues, proof, 3 and questions of law which could be expected to result from a stay.” Lockyer v. Mirant Corp., — 4 — 398 F.3d 1098, 1110 (9th Cir. 2005) (citation omitted). The court should also consider whether 5 changed circumstances affect those considerations. See, e.g., Akeena Solar Inc. v. Zep Solar Inc., 6 No. C 09-05040 JSW, 2011 WL 2669453 , at *2 (N.D. Cal. July 7, 2011). 7 DISCUSSION 8 For the reasons that follow, I conclude that the stay of this case should be lifted. Because 9 that question depends in large measure on Diaz and because Judge Berle has requested my views, 10 I also explain why I conclude that this case, not Diaz, should proceed—though I emphasize that 11 whether to stay Diaz is Judge Berle’s decision. Gate Gourmet is ORDERED to file a notice in this 12 case when Judge Berle determines whether or not to stay Diaz and when he determines whether or 13 not to permit Rahman to intervene. 14 Rahman argues that the stay in this case should be lifted so that it may be fully litigated 15 and that Diaz can be stayed by that court. Mot. 1; Reply ISO Mot. [Dkt. No. 39] 13–17. Gate 16 Gourmet replies that the stay should be maintained for the reasons it was entered in the first place. 17 Opposition to the Mot. (“Oppo.”) [Dkt. No. 39] 4–6.3 18 The stay was only put in place to assess the impact of the Diaz proposed settlement. Now 19 that Rahman has sought to intervene and Judge Berle has asked for my views on which action 20 should proceed, I see no reason to maintain the stay. Further, if this action proceeds instead of 21 Diaz, there would not even be an arguable reason for a stay because there would be no parallel 22 proceeding. Cf. Lockyer, 398 F.3d at 1112 (holding a stay inappropriate because, among other 23 reasons, the parallel proceeding would not significantly impact the case). For these reasons—and 24 in light of Judge Berle’s request—the core issue is whether this case or Diaz is the proper vehicle 25 to litigate these matters. That analysis, too, implicitly dictates the result of the classic stay factors — 26 — 3 Rahman’s motion took the preemptive position that abstention was not appropriate under — 27 — Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976). See Mot. 16–18. 1 because it determines the competing harms and interests. 2 To start, this case was filed first. Usually, considerations of efficiency, economy, and 3 avoiding duplicative litigation give favor to the first-filed case. See, e.g., Barapind v. Reno, 225 4 F.3d 1100, 1109 (9th Cir. 2000). If Diaz had remained pending in federal court, it would likely 5 have been subject to the first-to-file rule and stayed or dismissed in favor this case. See Pacesetter 6 Sys., Inc. v. Medtronic, Inc., 678 F.2d 93 , 94–95 (9th Cir. 1982) (discussing the rule); Molander v. 7 Google LLC, 473 F. Supp. 3d 1013 , 1018 (N.D. Cal. 2020) (collecting cases applying the principle 8 to class actions with the same class). Or it may have been put into an MDL. See 28 U.S.C. § 9 1407. But the parties in Diaz stipulated to remand to state court, where the federal first-to-file rule 10 does not apply and the MDL process cannot reach. California law, though, also gives primacy to 11 the first-filed case, even when that case is in federal court. See, e.g., Thomson v. Cont’l Ins. Co., — 12 — 66 Cal. 2d 738, 747 (1967) (discussing state courts’ discretion to stay actions in favor of a 13 “previously filed federal court suit on the same issues”).4 Indeed, it would be an unfortunate 14 development in the law to incentivise defendants to pick their favorite proposed class action and 15 stipulate to remanding it to escape the first-to-file rule. 16 Further, the parties’ conduct in Diaz smacks of a “reverse auction” leading to a collusive 17 settlement. Gate Gourmet removed Diaz to federal court in October 2020. Even though there is 18 significant overlap in the claims (because both cases are proposed class actions), Gate Gourmet 19 failed to put Rahman and me on notice that there was a related case. See Civ. L.R. 3-13(a) 20 (mandating notice of such actions). If it had done so, there presumably would have been motions 21 about the first-to-file rule or an earlier motion about MDL transfer. Instead, Gate Gourmet 22 negotiated a pre-certification settlement with the plaintiffs’ counsel in Diaz and swiftly stipulated 23 to remand the case to state court once it did so. It only filed notices in this case and Diaz a month — 24 — — 25 — 4 Rahman argues that California law requires Judge Berle to stay Diaz in favor of this case. How to apply California law in his court is up to Judge Berle. But as I read the cases, they give him the — 26 — discretionary choice whether to stay the matter or not. See Thomson, 66 Cal. 2d at 747 ; Benitez v. Williams, 219 Cal. App. 4th 270, 276 (2013) (“It is black letter law that, when a federal action has — 27 — been filed covering the same subject matter as is involved in a California action, the California 1 before that remand. See Dkt. No. 31. Even today, it has offered no principled reason for choosing 2 to settle a later-filed case. 3 All of this indicates a typical reverse auction in which “the defendant in a series of class 4 actions picks the most ineffectual class lawyers [or those most willing to compromise the class’s 5 interest] to negotiate a settlement with in the hope that the district court will approve a weak 6 settlement that will preclude other claims against the defendant.” Negrete v. Allianz Life Ins. Co. 7 of N. Am., 523 F.3d 1091, 1099 (9th Cir. 2008). Courts are highly skeptical of reverse auctions. 8 See id. Class action settlements bind the entire class, so it is important to be vigilant that class 9 counsel has not sacrificed the class’s interest for their own self-interest. See In re Bluetooth 10 Headset Prod. Liab. Litig., 654 F.3d 935, 946 (9th Cir. 2011). And Diaz is a pre-certification 11 settlement, a type that merits especially exacting scrutiny because such settlements often signal 12 impermissible collusion. See id. at 946–47. 13 The remand to state court is also difficult to understand unless it was meant to serve only 14 class counsel and Gate Gourmet, not the putative class.5 As I have already noted, remand to state 15 court put a layer of insulation between this first-filed case and Gate Gourmet’s favored case by 16 ensuring that it would not be halted by the first-to-file rule. Further, after Rahman learned about 17 Diaz, he sought to transfer it here through the MDL process on June 15, 2021. See In re: Gate 18 Gourmet, MDL No. 3012. The Diaz settlement was reached three days later and the case was 19 remanded 10 days after that. See Diaz, C.D. Cal. No. 2:20-cv-09454, Dkt. Nos. 25, 26. 20 In short, if this case were to yield to Diaz, it would reward a case that appears to be reverse 21 auction. It would incentivise class-action defendants to pick their favorite class counsel from 22 among various cases; reach a pre-certification settlement that is good for the defendants, good for 23 class counsel, and potentially bad for the class; and then stipulate to remanding to state court to 24 escape the first-to-file rule. 25 While there is no proposed settlement here, which in some sense means that Diaz is at a — 26 — — 27 — 5 The remand stipulation included no rationale other than the fact of settlement, which of course 1 more advanced stage than this case, that does not argue for a different result here. To the contrary, 2 || the Diaz settlement was not reached after going through the crucible of class certification and 3 dispositive motions. Diaz, like this case, was still in discovery before the parties hurriedly settled. 4 || The indications of collusion present there make me discount any argument that this case should 5 remain stayed. 6 Gate Gourmet’s primary response is that the same reasons that the parties entered the stay 7 initially still favor it. See Oppo. 1, 4-6. As I have explained, the stay was only entered pending 8 || review of the Diaz proposed settlement. The parties have now done so, and Rahman has 9 concluded it is insufficient and moved to intervene there. Circumstances have also changed, 10 || including that Judge Berle inquired about my views of which case should be stayed. Gate 11 Gourmet argues that pursuing this action will cost it money and time. Jd. 4-5. True enough, but 12 || that is the case in any judicial proceeding; Rahman has the right to pursue his claims unless there 5 13 are compelling reasons to keep the case stayed. 14 All that I am deciding today is whether to lift the stay in this matter. In response to Judge 3 15 Berle’s inquiry, I have explained why it seems to me that this action, rather than Diaz, should 16 || proceed. But it is his decision whether Diaz should be stayed, not mine. He is also better 3 17 positioned than I to assess the concerns about collusion that I have raised. If Diaz proceeds and is 18 settled, I will apply whatever res judicata rules are appropriate to this case. 19 CONCLUSION 20 The motion to lift the stay is GRANTED. Gate Gourmet is ORDERED to file a copy of 21 this Order on the docket in Diaz within 24 hours. The December 1, 2021, case management 22 conference is CONTINUED to January 4, 2022, at 2:00 pm. The parties’ Joint Case Management 23 Statement, due December 28, 2021, should update me on the status of Diaz and make any 24 || proposals necessary to adjust the case schedule in light of these developments. 25 IT IS SO ORDERED. 26 || Dated: November 22, 2021 □ \f CE 27 . 28 iliam H. Orrick United States District Judge