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1 TIMOTHY J. LONG (STATE BAR NO. 137591)
tjlong@orrick.com
2 ORRICK, HERRINGTON & SUTCLIFFE LLP
400 Capitol Mall, Suite 3000
3 Sacramento, CA 95814-4497
Telephone: +1 916 447 9200
4 Facsimile: +1 916 329 4900
5 STEPHANIE GAIL LEE (STATE BAR NO. 285379)
stephanie.lee@orrick.com
6 ORRICK, HERRINGTON «& SUTCLIFFE LLP
777 South Figueroa Street, Suite 3200
7 Los Angeles, CA 90017-5855
Telephone: +1-213-629-2020
8 Facsimile: +1-213-612-2499
9 Attomeys for Defendant
HEALTH NET OF CALIFORNIA, INC.
10
11 SUPERIOR COURT OF THE STATE OF CALIFORNIA
12 COUNTY OF SACRAMENTO
13, ANDREA SPEARS, an individual, on behalf Consolidated Case No. 34-2017-00210560-
of herself and on behalf of all persons similarly CU-OE-GDS
14 situated.
Plaintiff, REPLY MEMORANDUM OF POINTS
15 AND AUTHORITIES IN SUPPORT OF
V. DEFENDANT HEALTH NET OF
16 CALIFORNIA, INC.'S MOTION FOR
HEALTH NET OF CALIFORNIA, INC., a SUMMARY ADJUDICATION
17 Califomia Corporation; and Does 1 through 50,
inclusive. Hearing Date: April 26, 2018
.18 Time: 9:00 a.m.
Defendants. Judge: Hon. Christopher E. Kraeger
19 Dept.: 54
20 Complaint Filed: April 5, 2017
FAC Filed: June 29, 2017
21 Consolidated Complaint Filed: Dec. 21, 2017
22
TOMAS R. ARANA, on behalf of himself, all
others similarly situated. Complaint Filed: August 1, 2017
23
24 Plaintiff,
25
26 HEALTH NET OF CALIFORNIA, INC., a
Califomia corporation; and DOES 1-50,
27 inclusive.
28 Defendant.
REPLY IN SUPPORT OF DEFENDANT'S MOTION FOR SUMMARY ADJUDICATION
1 L INTRODUCTION • t/iUORSEO
2 HNCA has moved for summary adjudication oneigSlgsiggMaf^fbagedcp n four alleged
3 wrongfiil acts. Those wrongful acts are that HNCA: (1) imnmbfeU^MfclMed from,the regular
4 rate all contributions to the HNI Plan, including the cash benefit payments the Plan made to
5 HNCA non-exempt employees such Plaintiff Spears who declined some or all of the Plan benefits
6 (what Plaintiff Spears refers to as "cash-in-lieu of benefits"); (2) improperly excluded from the
7 regular rate bonuses paid to Plaintiffs and other putative class members; (3) improperly calculated
8 the regular rate paid to non-exempt employees by not including shift differentials; and (4)
9 employed an unlawful rounding program when it calculated Plaintiffs' pay. The undisputed
10 evidence that HNCA has submitted proves that there is no triable issue as to any of these
11 allegations. Indeed, Plaintiff Spears does not dispute HNCA's showing as to the alleged
12 wrongful acts (2), (3) and (4), therefore the Court must grant summary adjudication on the issues
13 tied to those allegations. Plaintiff Arana did not oppose this motion at all; the Court must
14 therefore grant summary adjudication on all eight issues as to Plaintiff Arana. The only issues
15 left for the Court to decide are those associated with alleged wrongfiil act (1): did HNCA properly
16 exclude benefit contributions, and specifically the cash benefits paid out by the Plan, from the
17 regular rate? Stated differently, have all the requirements of the Benefit-Plan Contributions
18 Exception (29 U.S.C. § 207(e)(4); 29 C.F.R. § 778.215(a)) been satisfied? The answer is, "YES."
19 The Court should reject Plaintiff Spears' opposition arguments as to alleged wrongfiil
20 act (1) and grant this motion in its entirety. Indeed, Plaintiff Spears' opposition arguments reveal
21 a basic misunderstanding of how the Plan worked, as well as the governing law. For example,
22 plaintiff Spears seems to believe that HNCA paid the cash benefits directly to her and other
23 putative class members. Not so. Rather, it is undisputed that HNCA "paid the actual costs of the
24 benefits [which included funds for "Flex DoUeirs" which included cash benefits]" by depositing
25 these funds "into an account maintained and controlled by HNI as the Plan's sponsor." RUF 8.'
26 And once paid, "HNCA's contributions were irrevocable - once made to HNI, HNCA was unable
27
28 ' References to "RUF" are to HNCA's Reply Separate Statement of Undisputed Material Facts
filed herewith.
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REPLY IN SUPPORT OF DEFENDANT'S MOTION FOR SUMMARY ADJUDICATION
1 to recapture or divert the funds to HNCA's use or benefit." RUF 6-9. Plaintiffs then received
2 "Flex Dollars pursuant to the terms of the Plan." RUF 13. Those Flex Dollars, including cash
3 benefit, came from the aforementioned account administered by HNI as the Plein's sponsor, into
4 which HNCA irrevocably deposited money to be used by the Plan. Id.
5 How the Plan worked and the flow of contributions and benefits is illustrated below:
6
7
8 Iirevocable contributions Account Where HNCA employee HNCA
(monies) to be used for controlled elects both deatal and employee
9 Plan purposes related to and medical, contrtbutioiis used covered by
providing benefits to adnuinistered to pay for the cost of benefits
10 HNCA employees benefit(s) employee selected
selection
by HNI
11 WTiereHNCA
employee
12 declines either
medical or
13 dental, the
Plan provided
a"cash
14 benefit"
15
16
17 HNCA
employee
18 receives the
cash benefit
19
20 What is clear and undisputed is that the relevant fiow of fimds, including any cash benefit an
21 employee received when she did not elect medical and/or dental benefits, is all part of the Plan.
22 In this case, every requirement of the Benefit-Plzui Contributions Exception (29 U.S.C. §
23 207(e)(4); 29 C.F.R. § 778.215(a)) is satisfied. HNCA is therefore entitled to summary
24 adjudication on the issues associated with Plaintiff Spears' alleged wrongful act (1), as well as
25 every other issue that is the subject of this Motion.
26 ///
27 ///
28 ///
REPLY IN SUPPORT OF DEFENDANT'S MOTION FOR SUMMARY ADJUDICATION
1 II. ARGUMENT
2 A. Contributions Made Irrevocably By HNCA To HNI, Including Cash Benefits
Ultimately Received by Plaintiff Spears From The Plan, Were Properlv
3 Excluded From The Regular Rate.
4 The parties agree that one exception to general rale that all remimeration paid to
5 employees should be included in the regular rate is the Benefit-Plan Contributions Exception,
6 found at 29 U.S.C. section 207(e)(4) ("Section 207(e)(4)"). To satisfy the Benefit-Plan
7 Contributions Exception, one must satisfy five requirements. See 29 C.F.R. § 778.215(a).
8 Notwithstanding Plaintiff Spears' attempt to obfuscate the analysis, the undisputed facts prove
9 that all five requirements are satisfied in this case.
i() 1. Contributions Were Made Pursuant To The Plan And Communicated
To HNCA Employees.
11
Plaintiff Spears does not dispute that the Plan meets the first requirement. She concedes
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that HNCA's contributions were made pursuant to a specific plan adopted by HNCA and
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communicated to the employees via the Plan SPD and EOC documents. RUFs 3-10; see 29
14
C.F.R. § 778.215(a)(1).
15
2. The Primary Purpose Of The Plan Was To Provide Health And
16 Welfare Benefits to HNCA Employees.
17 Plaintiff Speeu^s also does not dispute that the Plan meets the second requirement because
18 the primary purpose of the Plan was to provide health and welfare benefits to HNCA employees.
19 UFs 10-12, Ex. K-L; see 29 C.F.R. § 778.215(a)(2). The Plan provided ehgible employees with
20 "core" benefits, including basic life and basic AD&D insurance, at no cost to the employees.
21 RUF 11.
22 3. Benefits Were Specified Pursuant To The Plan.
23 Plaintiff Spears does not dispute that the Plan meets the third requirement because the
24 Plan, Plan SPD and EOC documents specified the benefits and coverage available under the Plan.
25 RUF 10; see 29 C.F.R. § 778.215(a)(3).
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REPLY IN SUPPORT OF DEFENDANT'S MOTION FOR SUMMARY ADJUDICATION
1 4. HNCA's Contributions Were Paid Irrevocably To Third Party HNI,
The Plan Sponsor and Administrator.
Plaintiff Spears does not dispute that the Plan meets the fourth requirement either. See 29
C.F.R. § 778.215(a)(4). Pursuant to the funding arrangement between Plan sponsor and
administrator HNI and HNCA, HNCA deposited its employer contributions under the Plan into
an account maintained and controlled by HNI. RUFs 6, 8. The contributions made by HNCA
pursuant to the Plan were irrevocable - once the contributions were made to HNI, HNCA was
unable to recapture or divert the fimds for HNCA's use or benefit. RUF 9.
This concession by Plaintiff Spears, which she must make, is critical. Her opposition tries
to mislead the Court into thinking that the monetary value of certain Plan benefits she received,
including the cash benefits, came from HNCA. In a sense the money did, because HNCA
initially sent the money to HNI by irrevocably transferring money to HNI as the Plan sponsor and
administrator to pay for these benefits (RUF 9) But because the money was transferred
irrevocably to HNI, a point Plaintiff Spears does not and cannot dispute, and then was used by
HNI to administer the Plan, including paying to Plaintiff Spears (and others) any cash benefits
(again something that she cannot and does not dispute), this prong of the Benefit-Plan
Contributions Exception is satisfied. RUFs 3-12. Moreover it proves that Plaintiff Spears did not
receive the benefits that she alleges should have been included in the regular rate from HNCA.
Those benefits came from the Plan.
Finally, it is irrelevant for the purposes of the Benefit-Plan Contributions Exception that
the monetary value of the Plan benefits Plaintiff Spears received (e.g., MedlxWave and
DeFlxElct) is listed on her wage statement. Similarly, the tax treatment of these Plan benefits is
also irrelevant. What matters for the Benefit-Plan Contributions Exception is that Plaintiff
Spears received these benefits from the Plan, which she did.
1 (seeking "time records"), she would have been able determine whether the cash benefits were
2 incidental, or not. Opp. Mem. 12:10-14. As the Court knows these RFPs were the subject of
3 three recent discovery motions.
4 Apart from the substantively defective nature of her Section 437c(h) request eind that
5 Plaintiff Spears chose not to initiate any discovery on the points about which she now complains,
6 as discussed in section II.E below, the payroll records and time records that Plaintiff Spears
7 claims she needs do not contain the information that the undisputed evidentiary showing HNCA
8 has provided to prove that this prong of the Benefit-Plan Contributions Exception is satisfied.
9 First, payroll records of the non-exempt employees Plaintiff Spears seeks to represent do
10 not yield the data the HNCA declarant (Ms. Sarabia) relied upon when she provided the
11 undisputed evidence to prove that the fifth requirement is met. Even if HNCA had produced all
12 the payroll records for each and every non-exempt employee, the information in those records
13 would not provide a complete picture of what one needs to know to determine that the fifth
14 requirement is satisfied. For example, since the Plan applied to all HNCA employees (UF 3, 7),
15 not just non-exempt employees, the data would not tell one whether the cash benefits were higher
16 or lower than 20% the total amount of the contributions HNCA paid irrevocably to the Plan.
17 Stated differently, the data would be at best incomplete since it excludes a large percentage of
18 Plan Participants - i.e., exempt employees. The payroll records also do not show whether the
19 amount of Flex Dollars provided was generally less than the total cost of benefit(s) that
20 Pauticipants elected because it is again incomplete. Furthermore, individual non-exempt class
21 member payroll records do not show whether in a majority of cases. Participants were required to
22 contribute some amount toward the cost of benefits elected. And these records do not show the
23 total cash benefits paid out by the Plan as compared to HNCA's overall contributions to the Plan.
24 Second, what time records have to do with anything relevant to this Motion is anyone's
25 guess, and Plaintiff Spears does not explain. The times recorded by non-exempt employees as to
26 when they started or stopped work have nothing to do with how much the Plan paid out in cash
27 benefits, the contributions made by HNCA to the Plan, or the stracture of the Plan itself
28 .
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REPLY IN SUPPORT OF DEFENDANT'S MOTION FOR SUMMARY ADJUDICATION
1 The vmdisputed evidence proves that the total value of the cash benefits paid out by the
2 Plan was indeed "incidental" and well below the 20% cap referenced in the DOL regulations.
3 The fifth requirement of the Benefit-Plan Contributions Exception is satisfied and HNCA is
4 entitled to summary adjudication. See Abarca v. Manheim Servs. Corp., No. 05 C 3873, 2007
5 WL 188034, at *6-7 (where undisputed facts demonstrate that employer's plain has satisfied all
6 parts of 29 C.F.R. § 778.215(a), "excess" flex credits paid as "cash" provided to employee
7 through the plan does not need to be included in the regular rate of pay calculation).
8 B. Flores Does Not Hold That Cash Benefits Can Never Be Excluded From The
Regular Rate Of Pay.
9
Plaintiff Spears relies heavily on Flores for the proposition that the cash benefits received
10
by Plaintiff Spears and others may never be excluded under Section 207(e)(4). She is wrong.
11
Unlike the health and welfare plan in Flores, it is undisputed that HNCA did not administer its own
12
benefits plan; instead HNCA made irrevocable contributions to third party HNI in its capacity as
13
the Plan sponsor and administrator. RUFs 3-10; see Flores v. City of San Gabriel, 824 F.3d 890,
14
901 (2016) (City argued that it should not be penalized for administering its own flexible benefits
15
plan).
16
In Flores, the Ninth Circuit rejected the City's argument that its cash-in-lieu of benefits
17
payments were properly excluded pursuant to Section 207(e)(4) because the City made these
18
payments directly to its employees and not "to a trustee of third person." Flores, 824 F.3d at 901.
19
The Flores court explained that the cash-in-lieu of benefits payments fell outside the ambit of the
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Benefit-Plan Contributions Exception because the payments in that case were not made to a trastee
21
or third party - nothing more. The payments the City made were not Plan benefits. Of course,
22
those are not the facts here. Unlike the City's health and welfare plan in Flores, HNCA did not
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administer its own benefits plan — HNI did. Nor did HNCA make payments directly to its
24
employees. Instead, HNI was responsible for disbursing HNCA's irrevocable contributions for
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proper Plan purposes, which HNI did. RUFs 5, 9. Thus, the cash benefits, as well as all the other
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benefits provided under the Plan, did not need to be included in the regular rate. Abarca, 2007 WL
27
188034, at *6-7.
28
REPLY IN SUPPORT OF DEFENDANT'S MOTION FOR SUMMARY ADJUDICATION
1
C. Plaintiffs Concede That HNCA Appropriately Allocated Bonus Payments
2 And Shift Differential Premiums In Determining The Regular Rate Of Pay.
3 HNCA provided undisputed evidence that it properly allocated bonuses and shift
4 differentials when calculating the regulair rate in compliance with applicable law. RUFs 23, 46.
5 Plaintiffs do not dispute this showing, HNCA is therefore entitled to summary adjudication.
6 D. Plaintiffs Concede That HNCA Did Not Have A Rounding Practice.
7 Plaintiffs do not dispute that during the pertinent time period, HNCA did not utilize or
g implement any rounding program. RUFs 47-49. HNCA is therefore entitled to summary
9 adjudication on this allegied wrongful act, as well.
10 E. The Court Should Reject Plaintiff Spears' Section 437c(h) "Request."
11 The Court should reject Plaintiff Spears' "request" to deny summary adjudication based
12 on her (1) failure to conduct any discovery as to the evidence HNCA submitted in support of this
13 motion (such as deposing one of the declarants) and (2) her claim that payroll records and time
14 records for all non-exempt employees would have allowed her to evaluate whether HNCA has
15 satisfied the fifth requirement of the Benefit-Plan Contributions Exception. Opp. Mem., 13:6-16.
16 First, Plaintiff Spears' is procedurally and substantively deficient. Relief under Section
17 437c(h) can only be provided upon a good faith showing by affidavit that a continuance is needed
18 to obtain facts essential to justify opposition to the summary judgment motion. Oldcastle
19 Precast, Inc. v. Lumbermens Mut. Cas. Co., 170 Cal.App.4th 554, 577 (2009). Plaintiff Spears
20 has failed to provide such an affidavit, and for this reason alone, the Court should deny her
21 "request."
22 Second, as pointed out above in Section II.A.5. above, the payroll records and time
23 records at issue would not provide the information that she claims. Those records are incomplete
24 and irrelevant.
25 Finally, Plaintiff Spears has had ample time to seek discovery from HNCA relating to the
26 issues addressed in this Motion, but chose instead to do no such discovery. In the Case
27 Management Conference ("CMC") Statement HNCA submitted prior to the December 8, 2017
28 CMC, HNCA informed Judge Perkins and Plaintiffs that it intended to file this Motion attacking
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REPLY IN SUPPORT OF DEFENDANT'S MOTION FOR SUMMARY ADJUDICATION
1 Plaintiffs' regular rate and rounding claims. To the extent that HNCA included additional
2 evidence in its moving papers (about which neither Plaintiff had asked for up to that point).
3 Plaintiff Spears has had ample opportunity to propound written discovery conceming that
4 evidence or to depose the declarants who submitted declarations in support of this Motion. To
5 date, neither Plaintiff has inifiated any such discovery. Plainfiff Spears' decision not to diligently
6 seek discovery is not a basis to confinue this Motion. Cooksey v. Alexakis, 123 Cal.App.4th 246
7 (2004) (lack of diligence may be a ground for denying a request for a continuance of a summary
8 judgment motion hearing, since a good faith showing that further discovery is needed to oppose
9 summary judgment requires some justification of why such discovery could not have been
10 completed sooner). The Court should therefore deny Plaintiff Spears' request to continue this
11 Motion.
12 III. CONCLUSION
13 For all the foregoing reasons, the Court should grant HNCA's Motion for Summary
14 Adjudication.
15
16 Dated: April 20, 2018 ORRICK, HERRINGTON & SUTCLIF
17
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19 TIMOTH^.XLONG
AttorneySior Defendant
20 HEALTH NET OF C A L I F O R M A H N C
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REPLY IN SUPPORT OF DEFENDANT'S MOTION FOR SUMMARY ADJUDICATION