Medrano v. Flowers Food, Inc. et al

RESPONSE in Opposition re MOTION to Exclude the Testimony of Plaintiff's Expert Under Federal Rule of Evidence 702

D.N.M.January 25, 2019

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO PAUL MEDRANO, on his own behalf and ) on behalf of all others similarly situated, ) ) Plaintiff, ) ) NO.1:16-CV-00350-JCH-KK v. ) ) FLOWERS FOODS, INC., and ) FLOWERS BAKING CO. OF ) EL PASO, LLC ) ) Defendants. ) PLAINTIFFS' RESPONSE IN OPPOSITION TO DEFENDANTS' AMENDED MOTION TO EXCLUDE THE TESTIMONY OF PLAINTIFFS' EXPERT UNDER FEDERAL RULE OF EVIDENCE 702 Plaintiff Paul Medrano, individually and on behalf of all other similarly situated individuals ("Plaintiffs"), by and through their undersigned counsel, and in opposition to Defendants' Amended Motion to Exclude the Testimony of Plaintiffs' Expert Under Federal Rule of Evidence 702 (ECF Doc. 161) ("Motion to Exclude"), filed jointly by Defendants Flowers Foods, Inc. and Flowers Baking Company of El Paso, LLC (together, the "Defendants"), state as follows: I. INTRODUCTION The jury in this case will be tasked with a complex calculation of damages, entailing analysis of voluminous data while also making sense of incomplete and obscure information. Instead of acknowledging this reality, Defendants' Motion to Exclude advances a simplistic and impractical view of damages relating to Plaintiffs' claims. While Defendants argue that the report and testimony of Plaintiffs' expert witness, Dr. Brian McDonald, is irrelevant to the facts of this Case 1:16-cv-00350-JCH-KK Document 170 Filed 01/25/19 Page 1 of 14 2 case, Defendants' own damages expert presents a nearly identical methodology. Further, not only will Dr. McDonald's report and testimony be helpful to the trier of fact in assessing the amount of damages to award, they are also relevant to the evaluation of liquidated damages and applicable statute of limitations. Because Dr. McDonald's report and proposed testimony meet the standards for admission of expert testimony prescribed in Daubert v. Dow Merrell Pharmaceuticals, Inc., 509 U.S. 579 (1993), and Federal Rule of Evidence 702, Defendants' Motion to Exclude should be denied. II. ARGUMENT A. Daubert and Rule 702 Prescribe a Liberal Standard for the Admission of Expert Witness Testimony. Since the United States Supreme Court decided Daubert in 1993, trial courts have undertaken a "gatekeeper" role in assessing the admissibility of expert testimony under two main prongs of reliability and relevance. See e.g., Etherton v. Owners Ins. Co., 829 F.3d 1209, 1217 (10th Cir. 2016) (analyzing Daubert and Rule 702). This standard is now delineated in Rule 702 as: A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: (a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert has reliably applied the principles and methods to the facts of the case. Fed. R. Evid. 702. As applied in this Circuit, "[t]he reliability determination calls for a 'preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue.'" Case 1:16-cv-00350-JCH-KK Document 170 Filed 01/25/19 Page 2 of 14 3 Etherton, 829 F.3d at 1217 (citing Daubert). The relevancy determine examines whether "the proposed expert testimony logically advances a material aspect of the case," or has "a valid scientific connection to the disputed facts in the case." Norris v. Baxter Healthcare Corp., 397 F.3d 878, 884 n.2 (10th Cir. 2005). "Relevant evidence 'means evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.'" Bitler v. A.O. Smith Corp., 400 F.3d 1227, 1234 (10th Cir. 2005) (citing Fed. R. Evid. 401); accord United States v. McCluskey, CR. No. 10-2734 JCH, 2013 WL 12334168, at *5 (D.N.M. Apr. 29, 2013). Under Daubert's "relaxed" standard, "rejection of expert testimony is the exception rather than the rule." Fed. R. Evid. 702 advisory committee's note to 2000 amendments; see McCluskey, 2013 WL 12334168, at *5 (noting the "liberal thrust" of the Federal Rules, which "encourages the admission of expert testimony"). Rather than exclusion, "[v]igorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence." Daubert, 509 U.S. at 596. In other words, "the rule is in favor of liberal admission of expert evidence" and courts should afford opposing parties the same liberal allowance to cross examine and present expert evidence rather than exclude expert testimony under Rule 702 and Daubert. McCluskey, 2013 WL 12334168, at *15; see also Synergetics, Inc. v. Hurst, 477 F.3d 949, 955-56 (8th Cir. 2007) (affirming admission of expert testimony and noting that nonmoving party had opportunity to cross-examine and present own expert witness on damages). Case 1:16-cv-00350-JCH-KK Document 170 Filed 01/25/19 Page 3 of 14 4 In this case, Defendants' efforts to exclude the testimony and expert report of Dr. McDonald should be rejected. As further explained below, Dr. McDonald's testimony is both reliable and relevant, and should be submitted to the jury at trial. B. Defendants Do Not Challenge Dr. McDonald's Qualifications or the Reliability of His Testimony. Dr. McDonald is an economist and former director of the Bureau of Business and Economic Research at the University of New Mexico. Ex. 1, Dr. McDonald Curriculum Vitae, at 1. He has qualified as a damages expert in various cases in New Mexico federal and state courts since 1979, and has worked as an economic consultant for the past two decades. Id. Mr. McDonald is largely qualified by his knowledge, skill, experience, training and education to perform damage calculations in this case, and Defendants do not dispute this. Dr. McDonald's calculations require data extrapolation from various complex sources that would not be readily understandable to a jury, including weekly financial statement spreadsheets, various tax documents, and statements prepared by Defendants' accountants to track revenues and expenses. Ex. 2, Dr. McDonald's evaluation of damages sustained by Plaintiffs Medrano and Ruacho ("McDonald Report"), at 2-3. Dr. McDonald examined this data in relation to Plaintiffs' wages, business costs and expenses reimbursed to Defendants, and in comparison to earnings of employees typically performing the type of duties that Plaintiffs performed. Ex. 2, McDonald Report, at 1. While Defendants also do not challenge the reliability of Dr. McDonald's calculations and methods, Defendants appear to suggest that Dr. McDonald has somehow failed as an expert by not studying the language of the Fair Labor Standards Act ("FLSA"). Motion to Exclude 1, 7, 9. This argument is misplaced because Dr. McDonald is an economic expert, not a lawyer. His function in this case is to aid the jury in understanding and making sense of numerical data and calculations, Case 1:16-cv-00350-JCH-KK Document 170 Filed 01/25/19 Page 4 of 14 5 not educate any party or the Court about the law. Cf. Okland Oil Co. v. Conoco Inc., 144 F.3d 1308 (10th Cir. 1998) ("Generally, an expert may not state his or her opinion as to legal standards nor may he or she state legal conclusions drawn by applying the law to the facts.") (citations omitted). Because Dr. McDonald is qualified to provide a damages analysis in this case, has applied reliable methodology—all of which is not contested by Defendants—and, as further explained below, provides helpful testimony, his expert report and proposed testimony is admissible. C. Dr. McDonald's Testimony and Expert Report are Helpful to the Trier of Fact to Assess the Calculation of Damages, Liquidated Damages, and the Applicable Statute of Limitations. Dr. McDonald performs two kinds of calculations in his expert report: (1) an assessment of the business costs and expenses incurred by Plaintiffs as a result of their misclassification as independent contractors instead of employees ("Costs and Expenses Calculation"); and (2) an assessment of Plaintiffs' lost wages due to Defendants' failure to pay a market wage for regular hours worked and overtime wage for overtime hours worked ("Lost Wages Calculation"). Ex. 2, McDonald Report, at 1. Both types of calculations are helpful to the trier of fact in this case. First, the Costs and Expenses Calculation will assist the jury in understanding a disputed fact—the amount of money Plaintiffs earned from Defendants. Second, the Lost Wages Calculation, which Defendants' own expert also utilizes, will assist the trier of fact to perform a complex damages calculation that will involve various estimations. Additionally, both calculations are relevant to the question of whether liquidated damages should be awarded in this case. Finally, both calculations are relevant to determination of the applicable statute of limitations for Plaintiffs' FLSA claims. Case 1:16-cv-00350-JCH-KK Document 170 Filed 01/25/19 Page 5 of 14 6 1. Dr. McDonald's Costs and Expenses Calculation is Helpful to the Trier of Fact to Assess How Much Money Plaintiffs Earned Free and Clear. Defendants present a falsely simplistic argument by stating that "the purported damages for Plaintiffs' 'business costs and expenses' is not available under the FLSA." Motion to Exclude 6. A more thorough examination of FLSA and the applicable case law reveals that integral to any damage calculation is an assessment of what plaintiffs were paid by defendants. The calculation of this amount, in turn, must take into account expenses borne by plaintiffs after they received payments from defendants. The Code of Federal Regulations on FLSA wage payments instructs that "'wages' cannot be considered to have been paid by the employer and received by the employee unless they are paid finally and unconditionally or 'free and clear.'" 29 C.F.R. § 531.35 (2016).1 "The wage requirements of the Act will not be met where the employee 'kicks-back' directly or indirectly to the employer or to another person for the employer's benefit the whole or part of the wage delivered to the employee." § 531.35. Accordingly, courts examining wage calculations under the FLSA take into account, as they must, business and cost expenses that employers kick back to the employee. See, e.g., Donovan v. Crisostomo, 689 F.2d 869, 872 (9th Cir. 1982) (employer "kickback" for board and lodging resulted in FLSA violation); Mayhue's Super Liquor Stores, Inc. v. Hodgson, 464 F.2d 1196, 1199 (5th Cir. 1972) (reversing district court finding that agreements requiring employees to pay back cash register shortages were valid under FLSA); Lasater v. DirecTV, LLC, 322 F. Supp. 3d 988, 1018-19 (C.D. Cal. 2017) (calculation of regular rate under 1 Regulations from the Department of Labor "are entitled to judicial deference and are the primary source of guidance for determining the scope and extent of exemptions to the FLSA." Spradling v. City of Tulsa, 95 F.3d 1492, 1495 (10th Cir. 1996) (citation omitted). Case 1:16-cv-00350-JCH-KK Document 170 Filed 01/25/19 Page 6 of 14 7 FLSA required deduction of business expenses and chargebacks such as tools, gasoline for vehicles, wear-and-tear on cars, and uniform shirts); Solis v. A Touch of Glass Enters., Inc., Civ. No. 07-01289 MV/LFG, 2010 WL 11597440, at *5-6 (D.N.M. Mar. 23, 2010) (deductions for uniform expenses, tool purchases, and damage to vehicles resulted in FLSA minimum wage violation); see also Villalpando v. Exel Direct Inc., Consolidated Cases Case Nos. 12-cv-04137- JCS, 13-3091-JCS, 2016 WL 1598663, at *3, 22 (N.D. Cal. Apr. 21, 2016) (expert testimony about plaintiff's costs of furnishing a truck and defendant's alleged savings from treating drivers as independent contractors rather than employees was relevant under California labor code overtime provision similar to FLSA). In this case, Dr. McDonald's analysis regarding the business costs and expenses incurred by Plaintiffs is helpful to the jury because Plaintiffs contend that these expenses should not have been borne by them, but rather by the employer. See Ex. 2, McDonald Report, at 3. These expenses are the type of "kick-backs" contemplated by 29 C.F.R. § 531.35, and their amounts are integral to the jury's determination of how much money Plaintiffs made "free and clear" under the FLSA. In fact, such kickbacks are so integral to the fact finder's role that it would be error for such amounts to be excluded and shielded from the jury. 2. Dr. McDonald's Lost Wages Calculation is Helpful to the Trier of Fact to Assess an Estimation of Plaintiffs' Wages. Experts for both parties have performed a Lost Wages Calculation (Ex. 2, McDonald Report, at 5-7; Ex. 3, Analysis of Employee and Independent Contractor Earnings for Distributors of Flowers Foods, Inc., and Flowers Baking Co. of El Paso, LLC by Dr. Paul F. White, Ph.D. ("White Report"), at 7-10), yet Defendants now seek only to exclude the calculation of Dr. McDonald. While Defendants argue that the Lost Wages Calculation is irrelevant to this case, its Case 1:16-cv-00350-JCH-KK Document 170 Filed 01/25/19 Page 7 of 14 8 own expert report contains a nearly identical calculation. Because the Lost Wages Calculation is helpful to the trier of fact, it must be admitted. At trial, the jury will necessarily embark on a complex calculation of damages. Plaintiffs were not paid a simple, easily discernable wage for hours worked. Instead, Plaintiffs were compensated under a formula that took into account differences between the amount a Plaintiff "paid" for a product and what that product ultimately sold for, the cost of business expenses, insurance, delivery trucks and gas, and even the initial cost of "purchasing" a service territory, for which Plaintiffs sometimes spent years paying back to Defendants. See, e.g., Ex. 4, Deposition of Paul Medrano ("Medrano Dep."), 11:23-12:1; 84:18-85:9; Ex. 5, Deposition of Joe Ruacho ("Ruacho Dep."), 26:8-28:6, 56:12-22. At times, the balance of this formula was a negative amount, resulting in a debt rather than a credit in Plaintiffs' accounts. See Ex. 5, Ruacho Dep., 35:22-36:10. From week to week, the amount of Plaintiffs' paychecks fluctuated wildly, and at times they did not receive paychecks at all for reasons unknown. See Ex. 4, Medrano Dep., 111:21- 113-13. The wage earned by each Plaintiff also fluctuated by circumstances, such as major customers opening or closing businesses in their territories. See Ex. 5, Ruacho Dep., 32:16-33:16. Complicating the damages calculation further, Defendants' records do not adequately or completely reflect wages actually earned or hours worked, and the jury will need to assess damages based on estimations, available records, and testimony, just as Dr. McDonald did in his expert report. See Donovan v. United Video, Inc., 725 F.2d 577, 584 (10th Cir. 1984) (employees' uncompensated work shown through testimony, payroll records, and compliance officer's computations when employer failed to keep adequate records); Perez v. ZL Rest. Corp., 81 F. Supp. 3d 1062, 1073 (D.N.M. 2014) (estimates for hours worked and wages permissible when employer Case 1:16-cv-00350-JCH-KK Document 170 Filed 01/25/19 Page 8 of 14 9 records were insufficient); see also Villalpando, 2016 WL 1598663, at *20 (interpreting FLSA law and noting that "representative data may be used where an employer does not keep adequate records of employee work time"); McLaughlin v. DialAmerica Mktg., Inc., 716 F. Supp. 812, 827 (D.N.J. 1989) (average production rate for all employees was equitable for determination of back wages due when employer failed to maintain proper records); Ex. 2, McDonald Report, at 2-3. In this context, Defendants' argument that Dr. McDonald's Lost Wages Calculation is "singularly unhelpful" to the jury is again, overly simplistic. See Motion to Exclude 3 (emphasis omitted). First, Defendants emphasize that the relevant question for the jury is the actual earnings of Plaintiffs, Motion to Exclude 8-9, but they overlook that one part of the Lost Wages Calculation does calculate the actual earnings of Plaintiffs.2 Ex. 2, McDonald Report, at 5-6 (calculating the "actual compensation or wages paid by Flowers to each plaintiff" after review of W-2s, Schedule Cs, Statements of Revenue and Expenses, and Settlement charts containing data regarding weekly payments). Additionally, Defendants focus too narrowly on selective statutory language and miss the larger picture—that assessing "total renumeration" for employment in this case will necessarily involve varied approximations. Information about the average earnings of an employee performing the tasks that Plaintiffs performed will be largely helpful to a jury that is tasked with estimating damages from representative data and varying numbers among Plaintiffs. Where 2 Dr. McDonald has in fact assessed a calculation of damages that includes dividing salary by regular hours worked in a workweek. See Ex. 6, Plaintiffs' Fed. R. Civ. P. 26(a)(1) Initial Disclosures, at 3. This method, however, resulted in overtime damages that appeared inflated in favor of Plaintiffs—for example, for Plaintiff Paul Medrano, the estimated overtime damage calculation showed an hourly wage of $30.12, entitling him to an overtime wage of $45.19, which Dr. McDonald believed was inflated for the type of work being performed. See id. In this context, the calculations set forth in Dr. McDonald's expert report appear a more reasonable measurement of damages to assist the jury in this case. Case 1:16-cv-00350-JCH-KK Document 170 Filed 01/25/19 Page 9 of 14 10 records are sparse and difficult to understand, such as those Defendants have produced, knowledge about the wages of a comparable worker is an important metric for the jury. To some extent, Defendants must agree. Their expert, Dr. White, states: "I was asked to estimate the earnings of Flowers Independent Distributors in the FLSA conditional class under the assumption that they were classified as employees." Ex. 3, White Report, at 6. In essence, Defendants tasked their expert with computing the same figure that Defendants now seek to exclude from Dr. McDonald's testimony. Dr. McDonald and Dr. White's reports employ the same methodology to estimate the type of wage Plaintiffs would have earned had they been employees, based on information from the U.S. Bureau of Labor Statistics Occupational Employment Statistics program, and both reports then compare that amount to estimates of what Plaintiffs appear to have earned from Defendants. Ex. 2, McDonald Report, at 5-7; Ex. 3, White Report, at 7-10. In this situation, exclusion of one report is improper and instead, both reports should be provided for assessment by the jury. See Fed. R. Evid. 702 advisory committee's note to 2000 amendments (favoring cross-examination and presentation of contrary evidence as method of challenging opinion testimony). 3. Dr. McDonald's Expert Report and Proposed Testimony are Helpful to the Trier of Fact to Assess the Award of Liquidated Damages. Plaintiffs seek liquidated damages under the FLSA in this case. Complaint (ECF Doc. 1) ¶ 63(F)(ii). "The purpose behind liquidated damages in the FLSA context lies in 'the reality that the retention of a workman's pay may well result in damages too obscure and difficult of proof for estimate other than by liquidated damages.'" Mumby v. Pure Energy Servs. (USA), Inc., 636 F.3d 1266, 1272 (10th Cir. 2011) (citation omitted). Relevant to the question of whether to award liquidated damages is whether the employer acted reasonably and in good faith. Id. (affirming Case 1:16-cv-00350-JCH-KK Document 170 Filed 01/25/19 Page 10 of 14 11 district court's award of liquidated damages based on finding of unreasonable behavior by employer); see Solis, 2010 WL 11597440, at *8 (upholding liquidated damages award). In this case, the Costs and Expenses Calculation is helpful to understand the extent to which Plaintiffs were required to shoulder costs and expenses as a result of Defendants' scheme of classifying them as independent contractors. The amount of these financial burdens on Plaintiffs is not only relevant to whether Defendants acted reasonably and in good faith, but is also relevant to assessing the "damages too obscure and difficult of proof for estimate other than by liquidated damages." See Mumby, 636 F.3d at 1272. Likewise, the Lost Wages Calculation, which includes estimates of wages earned by employees performing duties similar to those performed by Plaintiffs, quantifies the extent to which Defendants benefited and Plaintiffs lost from their misclassification as independent contractors. These are the "obscure" damages that are central to an award of liquidated damages, and Dr. McDonald's expert report and proposed testimony are directly relevant. 4. Dr. McDonald's Report and Proposed Testimony are Helpful for the Trier of Fact to Assess the Applicable Statute of Limitations. As Defendants seem to acknowledge, it is undetermined whether a two-year or three-year statute of limitations will apply to Plaintiffs' FLSA claims. While ordinary violations of the FLSA are subject to a two-year statute of limitations, a cause of action "arising out of a willful violation" may be subject to a three-year statute of limitations. 29 U.S.C.A. § 255(a) (2011).3 "In order to 3 Defendants state that the approximately five-year period used by Dr. McDonald to calculate damages is "irrelevant," but this is a case in which a longer timeframe is more helpful to a jury than a timeframe that is too short. A jury could easily utilize the portions of Dr. McDonald's calculations upon instruction by this Court, after a finding of the appropriate applicable statute of limitations in this case. Additionally, as Defendants acknowledge, Motion to Exclude 6, this matter currently contains a claim by Plaintiff Paul Medrano under the New Mexico Minimum Case 1:16-cv-00350-JCH-KK Document 170 Filed 01/25/19 Page 11 of 14 12 establish that a violation is willful, the plaintiff must show either that the defendant knew its conduct violated the FLSA or showed reckless disregard for the matter of whether its conduct violated the FLSA." Solis, 2010 WL 11597440, at *7 (citations omitted). In this case, Dr. McDonald's report and proposed testimony is relevant to whether Defendants exhibited a willful violation of the FLSA. As explained above, see supra pp. 10-11, Dr. McDonald's report provides an estimated quantification of how much Defendants improperly benefited from their misclassification of Plaintiffs as independent contractors. Ex. 2, McDonald Report, at 5-7. This information is relevant because, for example, the greater the difference between what Plaintiffs earned as independent contractors and would have earned as employees, the more likely Defendants, as sophisticated corporations, knew that the money paid to Plaintiffs likely was much less than that earned by comparable employees and in violation of the FLSA. In other words, Dr. McDonald's quantifications tend "to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." Bitler, 400 F.3d at 1234 (internal quotation marks and citation omitted). In fact, Defendants' expert report likely belies its own intention of pointing out that Plaintiffs may have actually earned more money as independent contractors as they would have earned as employees. Ex. 3, White Report, at 10-11. Such calculation is relevant to Defendants' defense, and is similarly relevant to Plaintiff's claims. This is exactly the type of situation contemplated by the Court in Daubert and the advisory committee to Rule 702, which encourages the presentation of contrasting evidence and cross-examinations to the jury instead of shielding Wage Act, under which damages are calculated for a period of time including all violations, so long as one violation falls within the applicable statute of limitations. N.M. Stat. Ann. § 50-4-32 (2009). Case 1:16-cv-00350-JCH-KK Document 170 Filed 01/25/19 Page 12 of 14 13 opinion testimony. See Fed. R. Evid. 702 advisory committee's note to 2000 amendments ("[T]he trial court's role as gatekeeper is not intended to serve as a replacement for the adversary system.") (citation omitted); McCluskey, 2013 WL 12334168, at *5 ("As the ultimate fact-finder, it is the jury that must determine, finally, where the truth in any case lies, and the district judge as gatekeeper may not usurp this function.") (citation omitted). III. CONCLUSION Dr. McDonald is an expert qualified to testify as to damages in this matter, and his proposed testimony and expert report are reliable and relevant under the liberal standard of Daubert and Federal Rule of Evidence 702. Defendants' Motion to Exclude should be denied in its entirety. Respectfully Submitted, JONES, SNEAD, WERTHEIM & CLIFFORD, P.A. By: /s/ Jiadai Lin JERRY TODD WERTHEIM SAMUEL C. WOLF JENNY F. KAUFMAN JIADAI LIN 141 E. Palace Ave., Suite 220 Post Office Box 2228 Santa Fe, New Mexico 87504 Tel. (505) 982-0011 Fax. (505) 989-6288 Case 1:16-cv-00350-JCH-KK Document 170 Filed 01/25/19 Page 13 of 14 14 CERTIFICATE OF SERVICE I hereby certify that on January 25, 2019, I filed the foregoing document electronically through the CM/ECF system, which will send notification of such filing to all counsel of record to be served by electronic means, as more fully reflected on the Notice of Electronic Filing. /s/ Jiadai Lin Jiadai Lin Case 1:16-cv-00350-JCH-KK Document 170 Filed 01/25/19 Page 14 of 14