Martinez v. Costco Wholesale Corporation

Background

Benjamin Fernando Martinez filed a putative class action against Costco Wholesale Corporation in California state court. The complaint alleged six California-law violations involving unpaid overtime and minimum wages, meal and rest periods, final wages, wage statements, and unfair competition. Costco removed the case to the U.S. District Court for the Northern District of California and denied the allegations and liability.

The parties reached a settlement after discovery, mediation, and later negotiations. The court explained that the principal remaining issue concerned whether Costco correctly included its non-discretionary “Extra Check” bonus when calculating the regular rate used to determine overtime pay. The proposed release was limited to claims relating to overtime compensation arising from the Extra Check payment. The opinion states that the plaintiff acknowledged weaknesses in the standalone wage-and-hour, meal-period, and rest-period claims and that the parties disputed Costco’s potential liability under competing California decisions and the timing of Costco’s calculation changes.

Settlement Class

For settlement purposes only, the court conditionally certified a class consisting of non-exempt employees employed by Costco in California during the class period who had not sued Costco on a released claim and who received an Extra Check during the class period. The class period began June 11, 2015, and extended through July 25, 2022, the date of preliminary approval. The court stated that the class included approximately 29,138 current and former employees.

The court found that the requirements for class treatment were met for settlement purposes. It identified common questions concerning whether Costco accurately calculated the Extra Check bonus’s regular rate and whether that calculation resulted in underpaid overtime. It also found that class-wide resolution was superior because individual cases would be uneconomical compared with the potential recovery. James R. Hawkins and Isandra Y. Fernandez of James Hawkins, APLC were appointed as class counsel, and Martinez was designated the class representative.

Preliminary Settlement Approval

The court preliminarily approved the proposed settlement and found that it appeared fair, adequate, and reasonable when weighed against the risks, delay, and expense of continued litigation. The settlement provided for a non-reversionary gross settlement amount of $2,250,000. The court also preliminarily approved the proposed distribution of the fund, subject to final approval, including attorney fees and costs, administration expenses, payments to participating class members, and a service award to Martinez.

The court expressed reservations about the requested attorney-fee amount. Class counsel sought one-third of the gross settlement amount, approximately $749,925. The court noted that 25 percent is generally used as a benchmark for fees from a common settlement fund and stated that the requested amount might not be justified by the hours reported. The court reserved judgment on the final fee award.

Notice and Class Member Options

The court approved the form and content of the class notice and found the proposed mailing procedure sufficient under due process requirements. It directed the settlement administrator, Atticus Administration, LLC, to mail and email notice according to the settlement schedule and to use address-update procedures for returned or undeliverable mail.

Class members could request exclusion by sending a timely written request within 75 calendar days after the notice was mailed. A person who validly excluded themselves would not receive a settlement payment, would not be bound by the settlement, and would not have the right to object, appeal, or comment on it. Class members who did not exclude themselves could object to the proposed settlement and related fee, cost, and service-award requests within the same 75-day period.

Ruling and Further Proceedings

The court preliminarily approved the settlement, approved the class notice, directed its distribution, confirmed the settlement administrator, and scheduled a final approval hearing for January 19, 2023, at 1:30 p.m. The hearing was to address final settlement approval, attorney fees and costs, the requested service award, and entry of judgment. The court did not finally approve the settlement in this order.

The court stayed further proceedings except those needed to review, approve, and implement the settlement. If final approval did not occur, or if the settlement otherwise became void under its terms, the settlement and related orders would also become void as provided in the agreement. Judge Edward M. Chen retained jurisdiction over matters connected with the proposed settlement.