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.

View recent legal commentary through the never-before-utlilized Huey Lewis prism

Blawg Review #219 is up, and somehow manages to chronicle recent legal commentary from the blogosphere betwixt more information about rocker Huey Lewis than you could conceivably want.  Or maybe it is conceivable.  In any event, it's very creative and highly informative.

Learn more about this floating legal blog carnival at Blawg Review.

The standards for adequate class settlement review received a confirmatory boost in Clark v. American Residential Services LLC, et al.

Last year, in Kullar v. Foot Locker Retail, Inc., 168 Cal. App. 4th 116 (2008), the Court of Appeal held that a trial court reviewing a class action settlement must receive and independently consider information sufficient to assess the reasonableness of the terms of the settlement.  Id. at 130, 133.  In Kullar, the Court of Appeal vacated a trial court's approval of a class action settlement because the court was not "provided with basic information about the nature and magnitude of the claims in question and the basis for concluding that the consideration being paid for the release of those claims represents a reasonable compromise."  Id. at 133.  In Clark v. American Residential Services LLC, et al. (July 6, 2009), the Court of Appeal (Second Appellate District, Division Eight) articulated the same standard, to the same result.

Adopting the Kullar analysis, the Court said:

In Kullar, the court pointed out that "neither Dunk . . . nor any other case suggests that the court may determine the adequacy of a class action settlement without independently satisfying itself that the consideration being received for the release of the class members' claims is reasonable in light of the strengths and weaknesses of the claims and the risks of the particular litigation."

Slip op., at 14.  Elaborating on what the trial court must do to assess the validity of a class action settlement, the Court continued:

Kullar further explains that, while there is usually an initial presumption of fairness when a proposed class action settlement was negotiated at arm's length by counsel for the class, "'to protect the interests of absent class members, the court must independently and objectively analyze the evidence and circumstances before it in order to determine whether the settlement is in the best interests of those whose claims will be extinguished.'"  (Kullar, supra, 168 Cal.App.4th at p. 130.) To make that determination, "'the factual record before the . . . court must be sufficiently developed,'" and the initial presumption to which Dunk refers "'must then withstand the test of the plaintiffs' likelihood of success.'" (Ibid.) Again, "'"The most important factor is the strength of the case for plaintiffs on the merits, balanced against the amount offered in settlement."'"  (Ibid.)  In Kullar, because the trial court was not presented with data permitting it to review class counsel's evaluation of the sufficiency of the settlement, the order approving the settlement was vacated.  (Kullar, supra, 168 Cal.App.4th at p. 131.)  As we shall see, the same result is required here.

Slip op., at 15.  The Court of Appeal was particularly concerned about the absence of information in the record that would permit the trial court to independently assess whether an overtime claim in the case was essentially valueless:

When the objectors protested, at the fairness hearing, that overtime is to be calculated on the technician's actual commission wages, not on the minimum wage, and contended that class counsel's evaluation was thus based on a "staggering mistake of law," the trial court made no comment, and proceeded to approve the settlement. This, it seems to us, demonstrates the court made no independent assessment of the strength of the plaintiffs' case, simply accepting class counsel's assessment of value, including his assertion that the overtime claim – which "is what this [case] was about" – had "absolutely no" value. But if in fact there is a legitimate dispute on the appropriate way to calculate overtime, then the class's overtime claim obviously has some value, and if the objectors were correct on the law, the claim may have had considerable value. None of these possibilities was considered or evaluated when the trial court approved the settlement; instead, the trial court simply accepted class counsel's assessment. Without some kind of evaluation of this legal point – and in light of declarations from objectors stating they worked at least 10 hours of overtime every week without compensation – we cannot see how the trial court could "satisfy itself that the class settlement is within the 'ballpark' of reasonableness." (Kullar, supra, 168 Cal.App.4th at p.133.)

Slip op., at 17-18.  On a second issue in the appeal, the Court reversed class representative enhancement awards of $25,000, noting that they were approximately 44 times more than what the average class member received in the proposed settlement.

The consequences of this standard are likely to be seen first in the realm of mediation.  Parties interested in settling a class action are going to need to be a bit more forthcoming with concrete data that can then be provided, at least in summary form, to the trial court asked to give its blessing to a proposed class action settlement.

Judge Victoria Chaney confirmed for seat on California Court of Appeal

Judge Victoria Gerrard Chaney, of the Superior Court of Los Angeles County, was confirmed as an Associate Justice of the Second Appellate District, Division One.   The Judicial Council's press release can be found here.

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.]

In Doe v. MySpace Incorporated the Court of Appeal holds that the Communications Decency Act immunizes MySpace and similar web sites

When you see that "Doe" in the case name, you already know that an opinion is likely to tread where you'd rather it didn't.  In Doe v. MySpace Incorporated (June 30, 2009), the Court of Appeal (Second Appellate District, Division Eight) has the thankless task of deciding whether Myspace Incorporated is liable for sexual assaults by men that the minors met through MySpace.com.  The Court framed the issue in simple terms: "Can an internet Web server such as MySpace Incorporated, be held liable when a minor is sexually assaulted by an adult she met on its Web site?"  Slip op., at 2.  The Court determined that the answer hinged upon application of section 230 of the Communications Decency Act, which provides limited immunity for certain content publishers.

The Court described the test for immunity under section 230:

Immunity under section 230 requires proof of three elements: (1) MySpace is an interactive computer services provider, (2) MySpace is not an information content provider with respect to the disputed activity, and (3) appellants seek to hold MySpace liable for information originating with a third party user of its service. (Zeran v. America Online, Inc. (4th Cir. 1997) 129 F.3d 327, 330 (Zeran); Delfino v. Agilent Technologies, Inc. (2006) 145 Cal.App.4th 790, 804-805.)

Slip op., at 7.  After examing federal authority that consistently found immunity existed in similar circumstances, the Court nevertheless discharged its obligation to examine the issue under California law:

While the Fifth Circuit‟s holding in Doe v. Myspace, Inc. is certainly persuasive, especially as it relates to an interpretation of a federal statute, its holding is not binding upon this court. Neither are the other federal precedents cited above. (Southern Cal. Ch. of Associated Builders etc. Com. v. California Apprenticeship Council (1992) 4 Cal.4th 422, 437; Wagner v. Apex Marine Ship Management Corp. (2000) 83 Cal.App.4th 1444, 1451.) However, where the decisions of the federal courts on a federal question are " ' "both numerous and consistent," we should hesitate to reject their authority [citation].' " (Barrett v. Rosenthal (2006) 40 Cal.4th 33, 58 (Barrett).) Nevertheless, we must look to our own state‟s treatment of section 230 immunity to confirm the above analysis.

Slip op., at 10-11.  The Court's survey of California decisions didn't reveal any basis for departing from the federal cases construing section 230, and the Court concluded that MySpace was immunized by section 230.  Go hug your child.  Teach them what not to do online, even if you don't understand it all that well.  And pay attention to what they are doing on the internet anyhow. 

e-Discovery: California Governor signs AB 5, the delayed e-discovery bill

After several weeks of slim pickings, this week is turning out to have more than enough news.  As a big for-instance, on June 29, 2009, Governor Schwarzenegger signed into law AB 5.  The Governor had previously vetoed a prior version of the bill for reasons probably related to some budgetary brinkmanship.  As before, the new rules track closely with the federal rules and would spell out how and when records from fax machines, computer databases, e-mails and cell phones should be exchanged in litigation. They also set up procedures for settling disputes over data that one party contends are trade secrets or privileged attorney work-product.

Arias Opinion now available

The Supreme Court's Opinion in Arias v. Superior Court (Dairy, RPI) (June 29, 2009) is now available. The Complex Litigator will have a more thorough commentary available soon. In addition, the Opinion in Amalgamated Transit Union, Local 1756, AFL-CIO et al. v. Superior Court (First Transit, Inc., et al., RPI) (June 29, 2009) is also available now.

I'm posting via iBlogger, a blogging application for the iPhone, so my editing tools are limited.

[Posted with iBlogger from my iPhone]

Supreme Court will issue opinion in Arias v. Superior Court (Dairy, RPI) and other cases on Monday, June 29, 2009

The Supreme Court pre-announces the release of opinions one business day before they are made available to the public.  This morning, the Supreme Court announced forthcoming decisions in two cases that are of interest to wage & hour class/mass action practitioners.  The first, Arias v. Superior Court (Dairy, RPI), concerns issues related to the Labor Code Private Attorneys General Act of 2004 ("PAGA").  The Court lists two questions that will be answered in the opinion:  "(1) Must an employee who is suing an employer for labor law violations on behalf of himself and others under the Unfair Competition Law (Bus. & Prof. Code, § 17203) bring his representative claims as a class action? (2) Must an employee who is pursuing such claims under the Private Attorneys General Act (Lab. Code, § 2699) bring them as a class action?"

The Supreme Court will also render its opinion in Amalgamated Transit Union, Local 1756, AFL-CIO et al. v. Superior Court (First Transit, Inc., et al., RPI).  Amalgamated addresses novel issues under PAGA and the UCL:  "(1) Does a worker’s assignment to the worker’s union of a cause of action for meal and rest period violations carry with it the worker’s right to sue in a representative capacity under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.) or the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.)? (2) Does Business and Professions Code section 17203, as amended by Proposition 64, which provides that representative claims may be brought only if the injured claimant "complies with Section 382 of the Code of Civil Procedure," require that private representative claims meet the procedural requirements applicable to class action lawsuits?"

Los Angeles County Bar Association Solo & Small Firm Conference

I am speaking at the Los Angles County Bar Association Solo & Small Firm Conference. Specifically, I am talking about social media as a marketing tool for attorneys. Go figure. Below is a fascinating widget that displays twitter tweets with the hashtag #solo09: