Opinion
Demian Camacho, U.S. Dept of Labor, Los Angeles, CA, Joseph Michael Lake, Marc Anthony Pilotin, Susan Seletsky, Kimberly Anne Robinson, U.S. Dept of Labor Office of the Solicitor, San Francisco, CA, for Plaintiff.
Jennifer Rachel Yee, Joshua Robert Woodard, Snell & Wilmer LLP, Phoenix, AZ, for Defendants.
ORDER
Honorable Roslyn O. Silver, Senior United States District Judge
Plaintiff Secretary of Labor ("Plaintiff") alleges Defendants Austin Electric Services LLC and Toby Thomas, Austin Electric’s President, (collectively "Defendants") violated the Fair Labor Standards Act ("FLSA") by failing to pay employees overtime compensation and by failing to keep employee records. After discovery concluded, Plaintiff alleges it received additional reports from Defendants’ employees that Defendants were continuing to violate the FLSA. Plaintiff alleges it then interviewed additional employees in January 2018, reviewed Defendants’ employees’ payroll records in February 2018, and determined that 99 additional employees should be added to the complaint. Plaintiff now moves for leave to amend its complaint to include these additional claimants. Because Plaintiff has satisfied the requirements of Rules 15 and 16, Plaintiff’s motion will be granted.
BACKGROUND
Plaintiff alleges Defendants both failed to pay employees overtime compensation and failed to keep employee records, in violation of the FLSA. (Doc. 1). The parties engaged in discovery, which concluded on October 1, 2017. (Docs. 79; 93-1). Plaintiff alleges it received additional reports from employees that Defendants were still violating the FLSA by instructing employees to underreport their hours on their time cards and not paying employees overtime. (Doc. 95 at 6). Thus, after the close of discovery, Plaintiff continued interviewing Defendants’ employees, both in person and over the phone, including employees who were not part of Plaintiff’s original investigation. (Docs. 97; 98). Specifically, Plaintiff interviewed some of Defendants’ employees on January 5 and 6, 2018, and then spoke to additional employees on January 18 and 19, 2018. (Doc. 95 at 6). Following these interviews, in February 2018, Plaintiff reviewed Defendants’ employees’ payroll records, which Plaintiff had subpoenaed from ADP payroll services and previously received on October 11, 2017. (Id. ). Plaintiff then determined that 99 additional employees should be added to the complaint. (Id. ). Of these 99 employees, Plaintiff alleges 37 employees experienced overtime violations after Plaintiff filed its most recent amended complaint. (Id. ).
The parties stipulated that discovery will be reopened 75 days before trial. During this time, Plaintiff will identify its informer witnesses and Defendants may interview or depose them. (Doc. 42).
Plaintiff conferred with Defendants’ counsel, and now moves for leave to file an amended complaint. In doing so, Plaintiff argues it was diligent in complying with the Court’s scheduling orders but only learned about Defendants’ additional misconduct after the deadline to amend passed. (Doc. 95). Defendants responded, arguing Plaintiff’s motion should be denied, in part because Plaintiff should have anticipated that it would discover additional FLSA violations, should have reviewed the employee records sooner, and that permitting Plaintiff to amend would prejudice Defendants and delay the litigation. (Doc. 99). Plaintiff replied, arguing it was diligent in designing a workable litigation schedule and in seeking leave to add new claims after recently learning of these new claimants and Defendants’ additional FLSA violations, that Defendants will not be prejudiced by the additional claims, and that the additional claims will not unduly delay the litigation. (Doc. 101).
ANALYSIS
When a party seeks to amend its pleading after the date specified in the scheduling order has passed, the party must first satisfy the requirements of Rule 16, and then must demonstrate amendment is proper under Rule 15. See Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 608 (9th Cir. 1992). Since the deadline for Plaintiff to amend the complaint has passed, Plaintiff must satisfy the requirements of both rules before leave to amend will be granted.
The first determination is whether leave to amend is appropriate under Rule 16. Under Rule 16, a court may only modify a scheduling order for "good cause." Fed.R.Civ.P. 16(b)(4). Rule 16’s "good cause" standard "primarily considers the diligence of the party seeking the amendment." Johnson, 975 F.2d at 609. Thus, a party demonstrates good cause by acting diligently to meet the original deadlines set forth by the court. Fed.R.Civ.P. 16 1983 Advisory Committee Notes; Zivkovic v. S. California Edison Co., 302 F.3d 1080, 1087 (9th Cir. 2002). In determining a party’s diligence, a court may look to: (1) the party’s diligence in assisting the court in creating a workable Rule 16 order; (2) whether the party’s noncompliance with a Rule 16 deadline occurred because of the development of matters which could not have been reasonably foreseen or anticipated at the time of the Rule 16 scheduling conference; and (3) whether the party was diligent in seeking amendment of the Rule 16 order once it became apparent the party could not comply. See, e.g., Morgal v. Maricopa Cty. Bd. of Sup’rs, 284 F.R.D. 452, 460 (D. Ariz. 2012) (citation omitted). Because the inquiry focuses on diligence, a party’s "carelessness is not compatible with a finding of diligence and offers no reason for a grant of relief." Johnson, 975 F.2d at 609.
To satisfy this good cause standard, Plaintiff first notes it "was diligent in assisting the Court in creating a workable scheduling order." Plaintiff also explains it did not request an extension of the amendment deadline earlier "because Defendants continuously and vehemently misrepresented they were complying with the FLSA" and, until recently, Plaintiff had no knowledge this was untrue. In addition, Plaintiff argues amendment is necessary because Plaintiff only learned that Defendants continued violating the FLSA after both the October 13, 2017 discovery deadline and the February 10, 2017 deadline to amend the complaint had passed. Finally, in regards to the third factor, Plaintiff argues that it was diligent in moving to amend the complaint after realizing in early 2018 it would be necessary to do so. In support, Plaintiff explains it spoke with Defendants’ employees in January 2018 regarding Defendants’ continuing FLSA violations, reviewed Defendants’ payroll records in February to confirm Defendants were engaging in additional FLSA violations, and then filed the present motion the same month. (Doc. 95). All of these factors show Plaintiff acted diligently and leave to amend should be granted.
Yet, Defendants argue Plaintiff cannot show good cause to amend the scheduling order, and that Plaintiff’s motion should be denied for several reasons. Defendants first argue Plaintiff has not assisted the Court in designing a workable scheduling order because in neither the five joint status reports nor the four proposed scheduling orders submitted by the parties has Plaintiff given the Court notice that it anticipated amending the complaint. (Doc. 99). In reply, however, Plaintiff explains that all but one of these filings were made before additional employees contacted the Plaintiff regarding Defendants’ ongoing FLSA violations, meaning they were filed before Plaintiff had any reason to suspect it would need to seek leave to amend. (Doc. 101). And in regards to the remaining filing, it was filed after the parties met and conferred about Plaintiff’s intent to add new claimants, and just days before Plaintiff filed the present motion for leave to amend the complaint. Together, this suggests Plaintiff acted diligently, and is not grounds for denying Plaintiff’s request for leave to amend.
Defendants next respond to Plaintiff’s argument that Plaintiff’s did not seek leave to amend earlier because Defendants denied they were engaging in ongoing FLSA violations. Defendants argue Plaintiff cannot excuse its failure to pursue the new claims earlier by suggesting Plaintiff was "lulled into inactivity" by Defendants’ denials that Defendants were engaging in ongoing FLSA violations, as doing so "would render Rule 16’s diligence requirement a nullity in every contested case." (Doc. 99). Defendants also note that Plaintiff’s conduct during discovery indicates that Plaintiff never relied on Defendants’ assurances that they were complying with the FLSA in the first place. (Id. ).
Yet, as Plaintiff points out, the core of Defendants’ argument is that Plaintiff should be faulted for not discovering sooner that Defendants’ assertions that it was not continuing to violate the FLSA were false, and that Defendants should profit from their deception. (Doc. 101). This outcome is clearly incompatible with the purpose of civil discovery. See generally De Amaral v. Goldsmith & Hull, No. 12-CV-03580-WHO, 2014 WL 572268, at *3 (N.D. Cal. Feb. 11, 2014) ("It is not up to the requesting party ... to question the veracity of an adversary’s denial of the existence of documents."). What is more, the parties have a continuing obligation to supplement the records of previously provided evidence. Fed.R.Civ.P. 26(e). Simply, a party cannot "hide the ball" during discovery when requests have been made. If they do, the party should not be permitted to profit from it; indeed, the party and their counsel may be sanctioned. See generally Haeger v. Goodyear Tire & Rubber Co., 906 F.Supp.2d 938 (D. Ariz. 2012), aff’d, 793 F.3d 1122 (9th Cir. 2015), and aff’d, 813 F.3d 1233 (9th Cir. 2016), and vacated and remanded, 869 F.3d 707 (9th Cir. 2017). For these reasons, Plaintiff’s decision not to question Defendants’ assertions that Defendants were not continuing to violate the FLSA will not be considered a basis for denying Plaintiff’s request for leave to amend.
Next, Defendants argue leave to amend should be denied because Plaintiff routinely litigates FLSA cases, meaning Plaintiff should know it is common to discover new claimants during discovery in FLSA cases and should have anticipated amending its complaint to add new claimants. (Doc. 99). Defendants also note that Plaintiff’s operative complaint alleged Defendants were engaged in continuing FLSA violations, suggesting Plaintiff anticipated an amended complaint would be necessary. (Id. ). To these points, Plaintiff argues that its operative complaint simply put Defendants on notice that— should Plaintiff discover continuing violations had occurred— Plaintiff would seek leave to address these additional grievances. (Doc. 101). But Plaintiff explains that it was not until January 2018 that Defendants’ employees informed Plaintiff of Defendants’ new violations, meaning Plaintiff had no basis for anticipating an amended complaint would be necessary before that time. (Id. ). Additionally, it would be unfair to penalize a party, such as Plaintiff, simply because it had competently and knowledgeably litigated the same cases previously. Thus, once again, Plaintiff has demonstrated it acted diligently in seeking leave to amend.
Defendants also make several arguments that leave to amend should be denied due to Plaintiff’s decision to wait until February 2018 to review the payroll records. First, Defendants argue Plaintiff cannot demonstrate diligence because Defendants produced payroll records in October and September 2017, but Plaintiff only reviewed them in February 2018. (Doc. 99). Moreover, Defendants argue the review of these payroll records could not have revealed additional FLSA violations because Plaintiff’s claim Defendants forced their employees to underreport hours, something the payroll records would not show. (Id. ). Plaintiff’s reply squarely addresses each of these arguments. First, Plaintiff concedes that "the violations are not evident on the face of these records." But, as Plaintiff explains, this means the payroll records only became useful in reconstructing employees’ overtime pay when coupled with the employees’ January 2018 reports that they were still being instructed to underreport their hours. (Doc. 101). And this is why Plaintiff did not review these additional payroll records until February 2018. (Id. ). Thus, once again, Plaintiff has shown it acted diligently. For the foregoing reasons, Plaintiff has satisfied the requirements of Rule 16.
In addition, Defendants argue Plaintiff fails to submit admissible evidence supporting its statement that Plaintiff’s February 2018 review of the payroll records was triggered after employees contacted Plaintiff in early 2018 regarding continuing FLSA violations. (Doc. 99). In reply, Plaintiff explains that the declaration suggesting employees contacted Plaintiff in January 2018 is not introduced for the truth of the matter asserted but is offered to show the effect on Plaintiff and the reason Plaintiff examined the payroll records for new claims. (Doc. 101).
Next, the Court must determine whether Plaintiff satisfies the requirements of Rule 15. Two subsections of Rule 15 are relevant to this analysis. Under Rule 15(a)(2), a party may amend its pleading with the court’s leave, which courts "should freely give leave when justice so requires." Fed.R.Civ.P. 15(a)(2). Similarly, under Rule 15(d), a party may request the Court’s leave to supplement its pleading and set forth any transaction, occurrence, or event that happened after the date of the pleading to be supplements. Fed.R.Civ.P. 15(d). In its motion, Plaintiff seeks leave to add 99 new claimants, 37 of whom experienced overtime violations after Plaintiff filed its most recent amended complaint. Thus, Plaintiff is requesting leave to amend its complaint to add 62 claimants, and is seeking leave to supplement its complaint to add 37 claimants.
That said, the standard for Rule 15(d) supplementation and Rule 15(a) amendment are the same. See Cole v. Educational Credit Mgmt. Corp., No. ED CV 17-00974, 2017 WL 8116538, at *1 (C.D. Cal. Oct. 13, 2017) (collecting cases). Under both standards, courts may deny leave for: (1) "undue delay, bad faith or dilatory motive on part of the movant," (2) "repeated failure to cure deficiencies by amendments previously allowed," (3) "undue prejudice to the opposing party," or (4) "futility." Wash. State Republican Party v. Wash. State Grange, 676 F.3d 784, 797 (9th Cir. 2012) (quoting Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 893 (9th Cir. 2010) ). Thus, the Court will analyze Plaintiff’s requests together.
Here, Plaintiff argues leave should be granted because none of the factors above are present. Plaintiff is correct. In particular, Plaintiff argues Defendants cannot claim Plaintiff’s delay in seeking leave is undue, since Plaintiff "only recently learned of Defendants’ continuing violations and additional aggrieved employees," and because "any delay resulted directly from Defendants’ obfuscation and dilatory discovery tactics." Moreover, Plaintiff argues amendment will not unduly prejudice Defendants, both because "Defendants have always been aware of their willful violations of the FLSA" and because "[t]he language in the Secretary’s Amended Complaint put Defendants on notice that additional employees could become part of this action if and when the Secretary learned of new employees that had also been denied overtime wages." Beyond this, Plaintiff also notes Defendants will not be prejudiced because Defendants will have an opportunity to depose or interview these witnesses when discovery reopens 75 days before trial, pursuant to the parties’ previously agreed-upon scheduling order. Finally, Plaintiff argues that granting leave to amend and supplement is warranted because it would advance the interests of justice and ensure Defendants’ employees are appropriately compensated. (Doc. 95).
Again, Defendants argue Plaintiff’s request for leave to amend and supplement should be denied for several reasons. Defendants first argue Plaintiff previously amended the complaint once to cure a pleading deficiency, that the parties conducted discovery based on this amended complaint, and that Plaintiff should have anticipated the need to amend its complaint earlier in the litigation. (Doc. 99). Defendants also argue Plaintiff’s request to amend is made in bad faith, that Plaintiff’s motion contains misstatements, and that Plaintiff is simply engaging in "gamesmanship" at the "eleventh-hour." (Id. ). On these points, however, Plaintiff argues it only learned of the additional violations in early 2018, months after it filed its most recent complaint. (Doc. 101). This means Plaintiff did not miss a prior opportunity to add these claimants to its earlier complaint. It also establishes Plaintiff is not engaged in "gamesmanship" by seeking leave to amend and supplement at the eleventh-hour.
Defendants next argue they will be unduly prejudiced if Plaintiff is allowed to amend and supplement the complaint. (Doc. 99). Defendants note that Plaintiff’s inquiry into Defendants’ payment practices began in October 2014, that the parties "have been litigating this case since August 15, 2016," that discovery already ended, that Defendants’ legal fees are growing, and that Defendants’ business resources are being diverted. (Id. ). However, as Plaintiff explains, none of this is sufficient to demonstrate undue prejudice. To show prejudice, the non-moving party must show that an unfair disadvantage or deprivation of the opportunity to provide facts or evidence will result by allowing the amendment. Fed. Deposit Ins. Corp. for Bank of Nev. v. Syndicate 2003 at Lloyds, No. CV-11-2083-PHX-SMM, 2012 WL 13020176, at *1 (D. Ariz. Nov. 14, 2012) (citing DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1987) ); see also Bechtel v. Robinson, 886 F.2d 644, 652 (3d Cir. 1989) (same).
Defendants have not shown either. Defendants can access their own payroll records and relevant evidence. And because the parties already agreed to reopen discovery 75 days before trial, Defendants will have an opportunity to interview and depose all of Plaintiff’s additional claimants without resulting in any additional delays in this litigation. This means Defendants have not shown that granting leave to amend will cause them to be deprived of the opportunity to provide any facts or evidence.
Moreover, regarding Defendants’ "mounting" legal fees and the "diversion ... of business resources," the additional cost associated with the addition of more claimants will not be undue. The parties have already completed discovery and produced all the relevant documents, including payroll records for these new claimants. Though Defendants may need to interview and depose Plaintiff’s additional informer witnesses, Defendants would likely incur some of the same— if not significantly greater— costs and inconveniences if Plaintiff were forced to initiate a second suit against Defendants to pursue additional claims, or if Plaintiff sought to, and likely would have been granted the right to, call them as witnesses during trial. For these reasons, Defendants have not shown Plaintiff’s request will result in undue prejudice.
Finally, Defendants make several arguments that Plaintiff’s request to supplement the complaint to add 37 new claimants who experienced overtime violations after Plaintiff filed its operative complaint should be denied. Defendants first argue Plaintiff fails to explain how the payroll records "revealed alleged overtime violations after the Amended Complaint was filed," because Plaintiff’s allegation— that Defendants forced employees to underreport hours— "cannot be proven by simply looking at [the] payroll report." (Doc. 99). In reply, Plaintiff again argues Defendants "misunderstand the process" by which Plaintiff determined the additional employees were being underpaid. (Doc. 101). Plaintiff concedes Defendants’ underpayment practices are not apparent on the face of its payroll records, but explains that the payroll records must be reviewed in conjunction with employees’ allegations that they were underpaid. (Id. ). Thus, Plaintiff explains it could not have discovered these additional violations until Defendants’ employees contacted Plaintiff to report additional FLSA violations, which then allowed Plaintiff to review those employees’ payroll records to confirm the allegations.
Finally, Defendants argue Plaintiff’s claim that Defendants engaged in continuing violations "is contrary to the sworn declarations submitted by field employees since this litigation commenced." (Doc. 99). But, as Plaintiff notes, just because some of Defendants’ employees signed declarations stating they were not instructed to underreport their hours does not mean the same is true for Defendants’ remaining employees. (Doc. 101). Thus, this is not sufficient to deny Plaintiff’s motion.
Accordingly,
IT IS ORDERED Plaintiff’s Motion to Amend, (Doc. 95), is GRANTED.