Ninth Circuit makes overtime misclassification cases a little bit tougher with opinions in Vinole v. Countrywide Home Loans, Inc. and In re: Wells Fargo Home Mortgage

Overtime misclassification cases were first out of the blocks when wage & hour employment class actions surged in the last decade or so.  Misclassification cases, when successful, usually generate larger per-class member recoveries than other wage & hour class actions.  But their early success was eventually met with more sophisticated defense tactics in the perpetual chess match of move and counter-move.  For those misclassification cases unfortunate enough to end up in federal court, the Ninth Circuit has just made them a bit harder than they were a few days ago.

The first of this duo, In re: Wells Fargo Home Mortgage (July 7, 2009), considered whether the trial " court abused its discretion in finding that the predominance requirement of Federal Rule of Civil Procedure 23(b)(3) was satisfied, based — in large part — on an employer’s internal policy of treating its employees as exempt from overtime laws."  Slip op., at 8328.  The Trial Court though that Wells Fargo was unfairly trying to have its cake and eat it too:

Wells Fargo’s uniform policies regarding HMCs weigh heavily in favor of class certification. As numerous courts have recognized, it is manifestly disingenuous for a company to treat a class of employees as a homogenous group for the purposes of internal policies and compensation, and then assert that the same group is too diverse for class treatment in overtime litigation.

Slip op., at 8330.  The Ninth Circuit focused its review on whether the Trial Court's treatment of that classification policy was correct:

District courts within this circuit have split on the relevance of exemption policies. The district court relied primarily on Wang v. Chinese Daily News, Inc., 231 F.R.D. 602, 612-13 (C.D. Cal. 2005), which found predominance of common issues based on an employer’s policy of treating all employees in a certain position as uniformly exempt from overtime compensation requirements. In contrast, another district court has expressed doubt about Wang, and found that uniform exemption policies are merely a minor factor in the predominance analysis. See Campbell v. PricewaterhouseCoopers,, 253 F.R.D. 586, 603-04 (E.D. Cal. LLP 2008) (rejecting “estoppel” position of Wang).

Slip op., at 8333.  The Ninth Circuit concluded that the approach in Wang went too far, but then emphasized that employer policies remain very important in the majority of certification analyses in this area of law:

Of course, uniform corporate policies will often bear heavily on questions of predominance and superiority. Indeed, courts have long found that comprehensive uniform policies detailing the job duties and responsibilities of employees carry great weight for certification purposes. Damassia v. Duane Reade, Inc., 250 F.R.D. 152, 160 (S.D.N.Y. 2008) (“Where . . . there is evidence that the duties of the job are largely defined by comprehensive corporate procedures and policies, district courts have routinely certified classes of employees challenging their classification as exempt, despite arguments about ‘individualized’ differences in job responsibilities.”).  Such centralized rules, to the extent they reflect the realities of the workplace, suggest a uniformity among employees that is susceptible to common proof.

Slip op., at 8334-35.  So too much Wang is no good, but some Wang is okay.  Got it.  The Ninth Circuit concluded that exemption policies, in particular, are less likely to have a "transformative" power that turns an otherwise individual issue into a common one.

In Vinole v. Countrywide Home Loans, Inc. (July 7, 2009), the Ninth Circuit considered two primary issues, one of which matters.  Countrywide filed a motion to deny class certification before the plaintiffs could file their motion for class certification.  The defendant's motion was granted.  As an issue of first impression, the Ninth Circuit was asked to determine whether it was per se improper for the trial court to hear defendant's motion.  The Ninth Circuit concluded that it was not per se improper:

Rule 23(c)(1)(A) addresses the timing of a district court’s class certification determination, and states: “Time to Issue: At an early practicable time after a person sues or is sued as a class representative, the court must determine by order whether to certify the action as a class action.” Fed. R. Civ. P. 23(c)(1)(A). Nothing in the plain language of Rule 23(c)(1)(A) either vests plaintiffs with the exclusive right to put the class certification issue before the district court or prohibits a defendant from seeking early resolution of the class certification question. The only requirement is that the certification question be resolved “[a]t an early practicable time.”  The plain language of Rule 23(c)(1)(A) alone defeats Plaintiffs’ argument that there is some sort of “per se rule” that precludes defense motions to deny certification, and Plaintiffs have produced no authority to the contrary.

Slip op., at 8307-8.  That seems simple enough.  But these things rarely are.  The Ninth Circuit was particularly interested in the fact that the plaintiffs had (1) failed to bring their motion in almost a year, (2) admitted during a hearing that they didn't need additional discovery to file their motion, and (3) didn't request any sort of continuance of the hearing of defendant's motion:

First, at the time of the hearing Plaintiffs had conducted significant discovery and did not intend to propound any additional discovery seeking information from Countrywide regarding the propriety of class certification. Second, it is evident that Plaintiffs had made a strategic choice to limit the amount of evidence it presented to the district court in opposition to Countrywide’s motion; they proffered their class certification arguments through their “preview” declarations. Third, Plaintiffs’ real complaint is not that they were deprived of adequate time in which to complete discovery, but that they “didn’t want to be on defendants’ schedule.” But, again, this is just a variation on Plaintiffs argument in favor of a per se rule.

Slip op., at 8314.  I can only assume that Defendants will now race to be the first to file a motion related to certification.  Plaintiffs will need to be diligent in their litigation and discovery efforts to fend off this counter-assault.  One thing is certain - different trial courts will deal with this complication in a wide variety of ways.

Arias v. Superior Court (June 29, 2009) analyzes certification obligations under two of California's representative action statutes

[Editor’s Note: This post was prepared by new Contributing Author, Shawn Westrick. Mr. Westrick is an attorney at Initiative Legal Group, LLP, and it is the Editor’s hope that this column is the first of many such posts. Mr. Westrick has spent considerable time in his career litigating PAGA issues, and the Arias decision was of particular interest as source material for a first blog post submission.]

By Shawn Westrick:

In Arias v. Superior Court (Angelo Dairy) (June 29, 2009), the California Supreme Court issued its long-anticipated opinion addressing when conventional class action procedural requirements must be met in representative actions filed against employers.

Plaintiff Jose Arias sued his employer Angelo Dairy, alleging, among other things, violations of the unfair competition law and under the Labor Code Private Attorneys General Act of 2004 (“PAGA”) (Cal. Lab. Code § 2698, et seq.). The trial court granted defendant’s motion to strike the causes of action based on the unfair competition law. The trial court’s reasoning was that claims brought under the unfair competition law and PAGA had to plead class action requirements.

In essence, the appellate court affirmed a portion of the trial court’s Order, directing the trial court to “issue a new order striking the representative claims alleged in the seventh through tenth causes of action, but not the eleventh cause of action” (slip op., at 3), the eleventh cause of action being the claim arising under PAGA.

The Supreme Court began its analysis with a thorough discussion of Proposition 64. Proposition 64 amended the unfair competition law to ensure that a plaintiff suffering injury in fact must comply with Code of Civil Procedure § 382. However, Proposition 64 did not specifically use the phrase “class action” in any of its statutory language. Nevertheless, the Supreme Court ruled that a literal construction would frustrate the purpose of Proposition 64. A review of the Voter Information Guide, the official summary of Proposition 64, and the ballot measure summary suggested that the purpose of Proposition 64 was to require plaintiffs to meet the requirements for a class action.

Turning to PAGA, the Supreme Court then analyzed the question of whether PAGA claims must be certified as class actions to proceed on a representative basis. As an important distinction to be aware of, it has already been determined that actions under the Labor Code Private Attorneys General Act of 2004 may be brought as class actions. (Amaral v. Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1173.) At issue in Arias was whether such actions must be brought as a class action. Beginning its discussion, the Supreme Court noted that the statute was passed because of the lack of adequate financing for labor law enforcement. Employees would act as private attorneys general to collect civil penalties for violations of the Labor Code:

Before bringing a civil action for statutory penalties, an employee must comply with Labor Code section 2699.3. (Lab. Code, § 2699, subd. (a).) That statute requires the employee to give written notice of the alleged Labor Code violation to both the employer and the Labor and Workforce Development Agency, and the notice must describe facts and theories supporting the violation. (Id., § 2699.3, subd. (a).) If the agency notifies the employee and the employer that it does not intend to investigate (as occurred here), or if the agency fails to respond within 33 days, the employee may then bring a civil action against the employer. (Id., § 2699.3, subd. (a)(2)(A).) If the agency decides to investigate, it then has 120 days to do so. If the agency decides not to issue a citation, or does not issue a citation within 158 days after the postmark date of the employee‘s notice, the employee may commence a civil action. (Id., § 2699.3, subd. (a)(2)(B).)

Slip op., at 9.

The Supreme Court rejected the employer’s convoluted argument that permitting employees to proceed with representative actions that did not satisfy class action requirements would cause absurd results. Explaining the strange reasoning of the employer, the Supreme Court said:

Defendants read the Court of Appeal‘s decision as holding that class action requirements do not apply to actions under Labor Code section 2699, subdivision (a) only because class action requirements are "provisions of law" and subdivision (a) says that it applies regardless of, or notwithstanding, "any other provision of law." Defendants then argue that because Labor Code section 2699, subdivision (g) does not contain subdivision (a)'s "[n]otwithstanding any other provision of law" language, it follows that actions under that subdivision must comply with class action requirements. According to defendants, to conclude that subdivision (g) actions must satisfy class action requirements but subdivision (a) actions need not is "absurd" and therefore the Court of Appeal's statutory construction must be wrong. We disagree.

Slip op., at 11. According to the Supreme Court, Defendants' argument presupposed that class action requirements apply to all representative actions unless the Legislature affirmatively precludes their application by inserting the phrase "notwithstanding any other provision of law," or similar words, in the statute authorizing the representative action. The Court rejected that assumption.

The Supreme Court then turned to the employer’s argument that the legislative history required PAGA actions be brought as class actions. The Supreme Court noted that some committee reports expressed concerns that PAGA would allow employees to sue as a class action and some commentators were concerned that without a class action there could be no preclusive effects. The Supreme Court rejected committee report comments as insufficient to demonstrate any particular legislative intent regarding certification of PAGA claims.

The Court then turned to the due process issue of collateral estoppel. The employer argued that in the absence of class action requirements, employers would be subject to constant one-way intervention, violating their rights to due process. However an action under PAGA is binding not only on the named employee but also on the government agencies and any aggrieved employee not a party to the proceeding. An employee suing under PAGA does so as a “proxy or agent of the state’s labor law enforcement agencies.” Slip op., at p. 16. The employee can only bring a PAGA action after giving written notice pursuant to Section 2699.3. Id. An employee acts as a substitute for “the government itself” and a “judgment in an action binds all those ... who would be bound by a judgment in an action brought by the government.” Slip op., at p. 17.

Overall, the Court’s decision on the unfair competition law is straightforward. The long term effect of the Court’s foray into res judicata could have far reaching consequences for class actions in California. Taken as a whole, Arias should be a lesson to lawyers representing employers during settlements. Arias is clear that a PAGA action can only be commenced by adhering to the requirements under Section 2699.3. Slip op., at p. 16. In conjunction with the Supreme Court’s suggestion that the State of California has a vested interest in the civil penalties in PAGA, employers who settle class actions but do not settle PAGA actions with an employee who is authorized to file a PAGA action may find themselves liable for civil penalties owed to California (and, if authorized, other employees) for the same time period and the same class members who participated in a previous class action.

[Full Disclosure: Mr. Westrick is counsel in the matter of Deleon v. Verizon Wireless, in which the Supreme Court issued a “grant and hold” Order pending disposition of Arias. The Deleon matter directly raises the issue of whether settlement of wage & hour claims implicitly settles PAGA claims based upon the same underlying violations.]

Haro v. City of Rosemead confirms that "opt-in" class actions are unavailable under California's class action statute, Code of Civil Procedure section 382

In a case of flirting with issues of first impression, the Court of Appeal (Second Appellate District, Division Eight) was asked to review an order denying plaintiffs' motion for class certification pursuant to Code of Civil Procedure section 382. The plot twist? Haro v. City of Rosemead (June 9, 2009) concerns plaintiffs' attempt to certify pursuant to section 382 a claim for violation of 29 U.S.C. § 216(b), a part of the Fair Labor Standards Act of 1938 (FLSA). After concluding that FLSA claims cannot be certified under section 382 as a matter of law, the Court of Appeal dismissed the appeal.

The Court first summarized the FLSA provision at issue in the appeal:

Section 216(b) goes on to provide that an action under this provision may be brought against any employer in a federal or state court “by any one or more employees for and in behalf of himself or themselves and other employees similarly situated. No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.” The italicized sentence is colloquially referred to as an “opt-in” provision (7B Wright et al., Fed. Practice and Procedure (3d ed. 2005) § 1807, p. 472) and it is this opt-in provision that this purported appeal addresses.

(Slip op., at p. 2.) The Court then expressed the tension between the FLSA's "opt-in" procedure and the "opt-out" mechanism of California's class action statute:

As one court has put it: “There is a fundamental, irreconcilable difference between the class action described by Rule 23 and that provided for by FLSA § 16(b). In a Rule 23 proceeding a class is described; if the action is maintainable as a class action, each person within the description is considered to be a class member and, as such, is bound by judgment, whether favorable or unfavorable, unless he has 'opted out' of the suit. Under § 16(b) of FLSA, on the other hand, no person can become a party plaintiff and no person will be bound by or may benefit from judgment unless he has affirmatively 'opted into' the class; that is, given his written, filed consent.” (LaChapelle v. Owens-Illinois, Inc., supra, 513 F.2d at p. 288, fn. omitted.)

The fact that the opt-in feature is irreconcilable with a class action has not only been reaffirmed as a matter of federal civil procedure (Whalen v. W.R. Grace & Co. (3d Cir. 1995) 56 F.3d 504, 506, fn. 3), at least one California court has held that the opt-in feature cannot be adopted in California class actions. (Hypertouch, Inc. v. Superior Court (2005) 128 Cal.App.4th 1527, 1550 (Hypertouch).)

(Slip op., at p. 3.) After concurring in the analysis supplied by Hypertouch, the Court then added yet another reason why "opt-in" class actions are not available in California:

We add to the foregoing the observation that it is no small matter that California Rules of Court, rule 3.766, which governs notice to class members, makes no provision for notice when the class members opt into, rather than out of, the class. Rule 3.766 addresses the contents of the notice and the manner of giving notice in considerable detail; notice in class actions is not a simple matter. The same is true of notice to persons “similarly situated” in FLSA actions. Evidently, there may be as many as three distinct procedures employed by federal courts in dealing with notice in FLSA cases. Some courts employ a two-step process that extends to the time that discovery is complete, others follow class action procedures and yet others have adopted the old procedures employed in the pre-1966 spurious class action cases. (Thiessen v. General Electric Capital Corp. (2001) 267 F.3d 1095, 1102-1103.) Given such disparities, it is unthinkable that if California class actions under section 382 include opt-in classes, the giving of notice in such classes would not be regulated by rule 3.766. Putting the same point more directly, given the potential complexities with notice to persons “similarly situated” in opt-in FLSA actions, the fact that rule 3.766 does not deal with opt-in notices is a very clear indication that there are no opt-in class actions in California.

(Slip op., at p. 9.) In an interesting procedural close to the opinion, the Court dismissed the appeal because it could not meet the "death knell" standard for the appeal of the denial of class certification:

First. Appellants cannot maintain their FLSA action with the opt-in feature as a class action under section 382. (Hypertouch, supra, 128 Cal.App.4th 1527, 1550.) In other words, as a matter of California law appellants are not entitled to a class action certification.

Second. Ordinarily, under the death knell doctrine the appellate court will review the merits of the decision denying certification. That is not true of this case; neither the trial court nor this court addressed the substantive merits of class action certification in this case.

Third. The order denying class certification is not the death knell of appellants‟ action. The order does not produce a terminal result, i.e., there is no reason why the action cannot go forward with appellants as plaintiffs. Specifically, there is nothing to prevent this action going forward as an opt-in, collective FLSA action. While there may or may not be issues about the statute of limitations, there is no question that this FLSA action as it is presently constituted can go forward to trial.

(Slip op., at p. 11.) In case anyone missed it, no "opt-in" class actions can be certified in California under Code of Civil Procedure section 382.

BREAKING NEWS: Tobacco II Cases Opinion is available and does not impose classwide reliance showing under the UCL

In re Tobacco II Cases is available for viewing now.  The summary of the case is best that I can provide for now:

On review, we address two questions: First, who in a UCL class action must comply with Proposition 64’s standing requirements, the class representatives or all unnamed class members, in order for the class action to proceed? We conclude that standing requirements are applicable only to the class representatives, and not all absent class members. Second, what is the causation requirement for purposes of establishing standing under the UCL, and in particular what is the meaning of the phrase "as a result of" in section 17204? We conclude that a class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions. Those same principles, however, do not require the class representative to plead or prove an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements when the unfair practice is a fraudulent advertising campaign. Accordingly, we reverse the order of decertification to the extent it was based upon the conclusion that all class members were required to demonstrate Proposition 64 standing, and remand for further proceedings regarding whether the class representatives in this case have, or can demonstrate, standing.

(Slip op., at pp. 2-3.)  There should be some very interesting adjustments to positions in consumer class actions alleging UCL claims for deceptive or misleading statements.