California Supreme Court activity for the week of April 12, 2010

The California Supreme Court held its (usually) weekly conference today.  Notable results include:

• A Petition for Review and Request for Depublication were both denied in Weinstat v. Dentsply International, Inc. (January 7, 2010), (reversed trial court order decertifying class after applying Tobacco II) - discussed on this blog here.  It appears from this denial that the California Supreme Court is in no rush to take up Tobacco II issues again.
• A Petition for Review was denied in Cellphone Termination Fee Cases, ___ Cal. App. 4th ___ (Dec. 31, 2009) (affirming final approval of class action settlement and attorneys' fees award)
• A Petition for Review was denied in Steroid Hormone Product Cases (January 21, 2010, as mod. Feb. 8, 2010) - discussed on this blog here and here.  This denial is more significant than the denial in Weinstat because of the very strong criticism of Cohen v. DIRECTV, Inc., 178 Cal. App. 4th 966 (2009).

Judge Patel offers interesting comments about the puzzle of PAGA

United States District Court Judge Marilyn Hall Patel (Northern District of California) offered some interesting comments, but no clear solutions, to the puzzle posed by litigation of PAGA claims as representative actions.  Ochoa-Hernandez v. Cjaders Foods, Inc.. (N.D. Cal. Apr. 2, 2010) 2010 WL 1340777.  In the course of denying plaintiff's motion to preclude the defendant from contacting current or former employees about the litigation, the Court said:

From a practical perspective, plaintiff's analogy between class actions and PAGA claims is also misplaced. While both fall within the general category of virtual representation, there are significant differences between the two. Unlike a class action seeking damages or injunctive relief for injured employees, the purpose of PAGA is to incentivize private parties to recover civil penalties for the government that otherwise may not have been assessed and collected by overburdened state enforcement agencies. Id. (“The act's declared purpose is to supplement enforcement actions by public agencies, which lack adequate resources to bring all such actions themselves.”). Unlike class actions, these civil penalties are not meant to compensate unnamed employees because the action is fundamentally a law enforcement action. Moreover, unlike the binding finality of a class action with respect to damages, the individual employee has less at stake in a PAGA representative action: if the employer defeats a PAGA claim, the nonparty employees, because they were not given notice of the action or afforded an opportunity to be heard, are not bound by the judgment as to remedies other than civil penalties. Id. at 987, 95 Cal.Rptr.3d 588, 209 P.3d 923. Thus, nonparty employees can bring an action against the employer based on identical facts so long as they do not seek civil penalties. Class members, however, would be bound by a judgment against the class, independent of the remedy later sought.

*5 Class actions litigated in federal court also contain numerous procedural protections that are not available in PAGA claims. Unnamed employees need not be given notice of the PAGA claim, nor do they have the ability to opt-out of the representative PAGA claim. There is no indication that the unnamed plaintiffs can contest a settlement, if any, reached between the parties. The court does not have to approve the named PAGA plaintiff, nor does the court inquire into the adequacy of counsel's ability to represent the unnamed employees. These procedural protections ensure the fidelity of the attorney-client arrangement in a class action. Their absence further militate against considering a PAGA claim akin to a certified class action.

Additionally, in order to bridge the gap between Arias and the creation of an attorney-client relationship, at least two inferential steps are required, and neither is present. First, Arias is silent on what procedures, if not class action procedures, are sufficient to perfect representative status in representative actions. While representative status may accrue once administrative requirements have been satisfied, Arias does not so hold and plaintiff cites no further authority. Second, assuming that representative status is perfected once administrative requirements are satisfied, Arias does not contemplate the practical issue of when, if at all, an attorney-client relationship arises between plaintiff's counsel and the current or former employees.

Slip op., at 4-5.  If it isn't obvious from this long excerpt, the argument up for discussion was whether an attorney-client relationship existed between the absent employees and the attorney for the named plaintiff.  While the Court's comments explain why a PAGA claim is different from a class action, the discussion is not intended to address the case management question posed by PAGA.  Nevertheless, the brief observations by this Court are of interest to practitioners in this area of law.

Conditionally certified FLSA class of United Auto Credit Corporation Supervisors classified as exempt

United States District Court Judge Ronald M. Whyte (Northern District of California) granted United Auto Credit Corporation's motion to decertify a class of California-based Supervisor (and related) employees after the class was conditionally certified under the FLSA.  Hernandez v. United Auto Credit Corporaiton (N.D. Cal. Apr. 2, 2010) 2010 WL 1337702.  In FLSA actions, many Courts employ a two-phase process for "certification" of FLSA classes, an approach used by the trial court here:

Under the two-step approach, the court first considers whether to certify a collective action and permit notice to be distributed to the putative class members. See Thiessen, 267 F.3d at 1102; Russell v. Wells Fargo & Co., 2008 WL 4104212, at *2-3 (N.D.Cal. Sept.3, 2008). At this first stage, the standard for certification is fairly easy to satisfy. Courts have required only “substantial allegations, supported by declarations or discovery, that the putative class members were together the victims of a single decision, policy, or plan.” Russell, 2008 WL 4104212, at *2.

At the second stage, after discovery has been taken, the court may decertify the class if it concludes that the class members are not similarly situated. Id. at *3. The court can consider a number of factors in deciding whether an action should ultimately proceed collectively, including: (1) the disparate factual and employment settings of the individual plaintiffs; (2) the various defenses available to the defendant and whether they appear to be individual to each plaintiff; (3) fairness and procedural considerations; and (4) whether plaintiffs made the required filings before filing suit. Thiessen, 267 F.3d at 1103. However, a requirement that the class members be identical would be inconsistent with the intent of FLSA's provision that a case can proceed as a collective action. Pendlebury v. Starbucks Coffee Co., 518 F.Supp.2d 1345, 1361 (S.D.Fla.2007).

Slip op., at 2.  The motion filed by the defendant in this case concerned the more rigorous showing required in the second stage.  (Side Note:  The Ninth Circuit has not yet explicitly held that it concurs with the two-stage approach, but District Courts have been employing that approach in the Ninth Circuit for many years without opposition.)

In the course of briefing, the plaintiffs apparently advanced the novel argument that the supervision requirement included in the executive exemption test created a ratio requirement where an employer had to show that there were at least two non-exempt employees for every executive:

Plaintiffs' argument overstates the requirement of the pertinent FSLA regulation. Plaintiffs are correct that in order to qualify for the executive exemption, an employee must “customarily and regularly direct[ ] the work of two or more other employees.” 29 C .F.R. § 541.100(a)(3). The language of the regulation, however, does not require a strict mathematical ratio between an “employee employed in a bona fide executive capacity” and “other employees.” All the regulation requires is that an employee customarily or regularly direct the work of two or more other employees. The other employees whose work the executive directs may or may not themselves be executives. Thus, the FLSA does not create a “ratio requirement.” Whether the present conditional class should be decertified, then, depends on the individualized assessment of whether the class members are “similarly situated.” The court now turns to that inquiry.

Slip op., at 3.  No dice.  Turning to the merits of the motion by defendant, the Court, as did the District Court in Weigele v. Fedex (discussed here), placed little weight on the uniform classification of employees by a central office:  "[T]he recent decision of In re Wells Fargo Homes Mortg. Overtime Litig., 571 F.3d 953 (9th Cir.2009), which involved certification under Federal Rule of Civil Procedure 23(b)(3), cautions against placing too much weight on an internal policy of classifying all members of a particular class of employees as exempt."  Slip op., at 5.  More importantly, however, the Court discussed the plaintiffs' inability to rebut substantial evidence showing great disparity in the job duties of different Supervisors.

Are there really that many large businesses out there that let their employees do whatever they want?

Certified class of fedex managers is subsequently decertified

United States District Court Judge Janis Sammartino (Southern District of California) granted FedEx's motion to decertify a class of California-based Dock Service Managers.  Weigele v. Fedex Ground Package System, Inc. (S.D. Cal. Apr. 5, 2010) 2010 WL 1337031.  Taking In re Wells Fargo Home Mortgage Overtime Pay Litig. (Wells Fargo II), 571 F.3d 953 (9th Cir. 2009) really seriously, the Court concluded that predominance was lacking.  Perhaps the Court took Wells Fargo II a bit too seriously: "The Court's second reason [for] its finding that common issues do not predominate is that with the substantially decreased importance of Defendant's common classification scheme, the common issues are a relatively minor portion of this litigation."  I don't think that Wells Fargo II said that a common classification scheme should be viewed with substantially decreased importance.  It said that a common classification scheme could not treated as the sole factor used in a certification analysis.  In any event, the Court's changed view was very clear:

[T]he Court is unclear how a jury will be able to sort out the issues placed before it. It appears that they will need to determine whether each testifying witness was or was not exempt and determine to what extent that witness was not provided with mandated overtime, meal, and rest breaks. They will then need to extrapolate from all of the testifying witnesses to the entire class. But it is unclear which the tools they will have to perform that extrapolation. At worst it appears that they would be left to guess. This is too amorphous to expect a reasonable and rational result from any jury.

Order, at 11.

As I said the other day, another misclassification theory, another class that doesn't make the cut.

Salenga v. Mitsubishi Motors Credit of America, Inc. addresses issues of accrual of UCL claims

If The UCL Practitioner wasn't on a blogging hiatus, it would be all over this one like attorneys on a mass tort.  In Salenga v. Mitsubishi Motors Credit of America, Inc. (April 9, 2010), the Court of Appeal (Fourth Appellate District, Division One) reversed an Order dismissing a First Amended Cross-Complaint, after defendants demurred on the ground that cross-complainant did not file within the four-year limitations period applicable to the Unfair Competition Law ("UCL").  In the underlying complaint, Cavalry (as an assignee of MMCA) sued a consumer, seeking a deficiency judgment, after the consumer had defaulted on her MMCA auto loan in 2003 and the vehicle was repossessed. She was given a Notice of Intent to Dispose of Motor Vehicle ("NOI" or Notice) dated October 14, 2003, and the vehicle was sold at auction.  About four years later, Cavalry filed its complaint seeking payment of a deficiency balance of $10,288.56, plus interest from May 2004.

After being sued, the consumer brought a cross-complaint, contending that the NOI was defective and could not support a deficiency judgment.  See, Juarez v. Arcadia Financial, Ltd., 152 Cal. App. 4th 889 (2007).  That's when thing get interesting.  Okay, not really, but that's when things happen that are worth reporting.

On appeal, the Court considered whether any form of tolling or accrual-based delay was available to the consumer:

It is well accepted that a limitations period commences when the cause of action "accrues." (Code Civ. Proc., § 312; Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806.) " 'Generally speaking, a cause of action accrues at "the time when the cause of action is complete with all of its elements." ' " (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1317-1318.) "The cause of action ordinarily accrues when, under the substantive law, the wrongful act is done and the obligation or liability arises, i.e., when an action may be brought." (3 Witkin, Cal. Procedure (5th ed. 2008) Actions, § 493, p. 633.)

Here, the applicable substantive law includes both the Act and the UCL. It is well-established that "[a]n action for unfair competition under Business and Professions Code section 17200 'shall be commenced within four years after the cause of action accrued.' (Bus. & Prof. Code, § 17208.) The 'discovery rule,' which delays accrual of certain causes of action until the plaintiff has actual or constructive knowledge of facts giving rise to the claim, does not apply to unfair competition actions. Thus, 'the statute begins to run . . . irrespective of whether plaintiff knew of its accrual, unless plaintiff can successfully invoke the equitable tolling doctrine.' " (Snapp & Associates Ins. Services, Inc. v. Malcolm Bruce Burlingame Robertson (2002) 96 Cal.App.4th 884, 891.)

Slip op., at 9.  The consumer, on appeal, expressly disavowed any reliance on a continuing violation theory of delayed accrual.  The Court also concluded that the consumer was not asserting the concept of equitable tolling or a delayed discovery rule.  Instead, the consumer argued that she was not actually adversely affected by the defective NOI until cross-defendants made efforts to pursue a deficiency judgment on it and until she made a payment at that time.  The Court focused its examination on accrual rules:

The authors of 3 Witkin, California Procedure, supra, Actions, section 496, page 635, summarize the various categories of exceptions that have been made over time to the general rule of "accrual" of a cause of action as of the time of the wrongful act. These include, as potentially relevant here, "(2) Accrual when damage results. [Citation.] [¶] (3) Accrual postponed by condition precedent." The authors further explain that these "rules of delayed accrual are to be distinguished from rules that, despite accrual of the cause of action, toll or suspend the running of the statute." (Ibid.)

Slip op., at 10.

The Court then attempted to reconcile the "principles governing the accrual of causes of action to the pleadings before the court, with regard to the protective policies of the [Rees-Levering Motor Vehicle Sales and Finance] Act, including whether there is any reasonable possibility that Appellant can truthfully amend to allege facts establishing the timeliness of this cross-action."  Slip op, at 12.  The Court addressed the purposes of the Act:

Deficiency judgments are subject to certain restrictions under the Act. In Bank of America v. Lallana (1998) 19 Cal.4th 203 (Bank of America), the Supreme Court held that a secured creditor who sells a defaulting debtor's repossessed car may obtain a deficiency judgment, but only by complying with all the provisions of the Act, as well as the relevant provisions of the Uniform Commercial Code (Division 9). (Id. at p. 208; § 2983.8.) The court took this approach: " ' "[T]he rule and requirement are simple. If the secured creditor wishes a deficiency judgment he must obey the law. If he does not obey the law, he may not have his deficiency judgment." ' " (Bank of America, supra, 19 Cal.4th 203, 215.)

Slip op., at 13.

The Court then worked to sort out confusion in the parties' briefs regarding elements of causes of action and the concept of standing to assert a justiciable controversy:

There is some confusion in the briefs about the required elements of a cause of action that may be asserted by a borrower, for breach of a substantive right provided to the borrower by the Act (e.g., no deficiency judgment absent a compliant NOI; §§ 2983.2, subd. (a), 2983.8). The parties have discussed, for limitations purposes, the date of incurring actual injury, as that same concept has been developed in the law for determining whether a putative class representative has standing, under the restrictions of the UCL, to assert a particular claim. Normally, "standing" questions will arise in the related context of justiciability determinations (made upon intertwined criteria of ripeness and standing). " 'One who invokes the judicial process does not have "standing" if he, or those whom he properly represents, does not have a real interest in the ultimate adjudication because the actor has neither suffered nor is about to suffer any injury of sufficient magnitude reasonably to assure that all of the relevant facts and issues will be adequately presented.' " (3 Witkin, Cal. Procedure, supra, Actions, § 21, p. 84.)

In re Tobacco II Cases (2009) 46 Cal.4th 298, 318, includes extensive discussion of the modern concept of standing in UCL class actions. Under Proposition 64, the UCL's substantive purpose of protecting consumers from unfair businesses practices was not altered, and the focus of the initiative "was to address a specific abuse of the UCL's generous standing provision by eliminating that provision in favor of a more stringent standing requirement." (In re Tobacco II Cases, supra, at p. 324; Californians for Disability Rights v. Mervyn's (2006) 39 Cal.4th 223, 232.) The court held that a class representative must be capable of demonstrating traditional standing in terms of alleging actual injury and causation, including actual reliance on acts of unlawful or fraudulent competition. However, a broader rule was used for the required standing showing for a potential class member. (In re Tobacco Cases, supra, at pp. 319-322.)

Slip op., at 16-17.  The Court then applied all of its prior discussion of the contours of accrual and standing to the facts before it:

In our case, there should be no difficulty in analyzing UCL standing rules as of the date of all of the events that allegedly occurred, including the 2007-2008 efforts to obtain a deficiency judgment. We disagree with cross-defendants that the only relevant time period for assessing standing and/or accrual of a statutory cause of action is 2003, when the defective NOI was sent. Rather, Appellant should be allowed to make a greater effort to plead that she did not incur actual injury until the 2007-2008 attempts to enforce the allegedly inadequate NOI were made, through the demand letter and judicial procedures to obtain a deficiency judgment. That would not amount to splitting her cause of action, where the NOI procedure serves two separate statutory purposes: permitting reinstatement, and/or allowing a deficiency judgment, if proper notice was given. (See Miller v. Lakeside Village Condo. Assn. (1991) 1 Cal.App.4th 1611, 1622-1623.) This is not a case of a plaintiff resting upon her rights. (Davies, supra, 14 Cal.3d at p. 515.)

Moreover, we think that the Supreme Court's analysis of standing of a class representative, to assert violations of the Act, in Fireside Bank, supra, 40 Cal.4th 1069, 1089-1090, goes beyond technical class certification questions. That plaintiff, Gonzalez, was claiming she was deprived of a fair opportunity to redeem the financed vehicle, "followed by an unlawful demand for payment. The record demonstrates Fireside Bank repossessed Gonzalez's vehicle and pursued a deficiency judgment against her. She thus has standing to seek a declaration that Fireside Bank is unlawfully asserting a debt against her, as well as an injunction against all further collection efforts. The record further shows Gonzalez (or someone on her behalf) made a postrepossession payment against the alleged deficiency; upon proof she made that payment, Gonzalez also has standing to seek restitution." (Id. at p. 1090, italics added.) From that analysis, we think the courts may be receptive to a properly pled allegation that postponed accrual of a statutory cause of action may exist, under circumstances in which a deficiency judgment is sought based upon a defective NOI.

Slip op., at 18-19.  The unintended consequences of using the initiative process to tinker with laws are fascinating to behold.  While the Court didn't declare that the consumer could successfully amend, it certainly gave a pretty clear roadmap about how go about crafting that amendment.  The opinion all but states that the consumer wasn't injured, for UCL purposes, by the defective NOI until an attempt to secure a deficiency judgment based on it was attempted many years later.  This was despite the consumer's failure to exercise the reinstatement right triggered by the NOI.

Class allegations stricken in suit alleging defective control panels in certain Whirlpool and Kenmore machines

United States District Court Judge Jeremy Fogel (Northern District of California) granted, with leave to amend, a motion to strike class allegations in a suit alleging a defect in Whirlpool-manufactured top-loading Kenmore Elite Oasis automatic washing machines (“the Machines”) that Sears marketed, advertised, distributed, warranted, and offered to repair.  Tietsworth v. Sears Roebuck and Co., et al., 2010 WL 1268093 (N.D. Cal. Mar. 31, 2010).  The alleged defect in an electronic control board causes machines to stop mid-cycle.

The Court concluded that the class was not ascertainable as defined:

[T]he putative classes alleged in paragraph 98 cannot be ascertained because they include members who have not experienced any problems with their Machines' Electronic Control Boards-or for that matter with any other part of the Machine. “Such members have no injury and no standing to sue.” Hovsepian v. Apple, Inc., No. 08-5788 JF (PVT), 2009 WL 5069144, at *6 (N.D.Cal.2009); see also Bishop, 1996 WL 33150020, at *5 (“courts have refused to certify class actions based on similar ‘tendency to fail’ theories because the purported class includes members who have suffered no injury and therefore lack standing to sue.”).

Order, at 19.

The opinion also includes an extensive discussion of pleading standards applicable to many different claims for relief predicated on failure to disclose or concealment allegations.

Flat panel price fixing claims by indirect purchasers certified

United States District Court Judge Susan Illston (Northern District of California) certified a class of indirect purchasers harmed by an alleged global price-fixing conspiracy in the market for Thin Film Transistor Liquid Crystal Display (“TFT-LCD”) panels.  In re TFT-LCD (Flat Panel) Antitrust Litigation, 2010 WL 1286478 (N.D. Cal. Mar 28, 2010).

The opinion explains what a TFT-LCD panel is:

TFT-LCD panels are made by sandwiching liquid crystal compound between two pieces of glass called substrates. The resulting screen contains hundreds of thousands of electrically charged dots, called pixels, which form an image. The panel is then combined with a backlight unit, a driver, and other equipment to create a “module” allowing the panel to operate and be integrated into a television, computer monitor, or other product.

Order, at 1.

The Plaintiffs alleged that during the class period, defendants formed a cartel to interfere with the normal cycle of supply and demand for TFT-LCD panels. According to plaintiffs, defendants agreed on prices, agreed to limit production, and agreed to manipulate the supply of TFT-LCD panels and products so that prices remained artificially high.  But the plaintiffs had quite a bit more to go on than mere allegation.  Thus far, in connection with DOJ investigations that are ongoing, seven corporate defendants in the action have also pled guilty to Sherman Act violations relating to suppressing and eliminating competition by fixing the prices of TFT-LCD panels. Those defendants are Sharp Corporation (CR 08-802 SI); LG Display Co. Ltd. and LG Display America, Inc. (CR 08-803 SI), Chunghwa Picture Tubes, Ltd. (CR 08-804 SI); Hitachi Displays Ltd. (CR 09-247 SI); Epson Imaging Devices Corporation (CR 09-854 SI); and Chi Mei Optoelectronics Corporation (CR 09-1166 SI).

The defendants also sought to strike modifications to the class definition.  The court denied the request:

Defendants have moved to strike the proposed modifications to the class definitions on the ground that plaintiffs should be required to seek leave of Court and/or the consent of defendants in order to modify the class definition. Defendants rely on this Court's decision in Jordan v. Paul Financial LLC, No. C 09-4496 SI, 2009 WL 192888 (N.D.Cal. Jan.27, 2009), in which the Court denied the plaintiff's request, made at the class certification hearing, to withdraw the pending class certification motion in order to substantively redefine the class and conduct additional discovery. However, Jordan is distinguishable in that there the proposed redefinition of the class was significant, and would have required additional discovery. Here, the proposed modifications are minor, require no additional discovery, and cause no prejudice to defendants. The Court DENIES defendants' motion to strike the modified class definitions.

Order, at 5.

The opinion has some interesting comments about damage proof models at certification and conspiracy allegations.

Class certification denied to El Torito managers in misclassification suit

In other news, early reports now indicate that the Pope is Catholic.  Another day, another order denying certification in a misclassification suit is upheld.  More specifically, in Arenas, et al. v. El Torito Restaurants, Inc. (ord. pub. April 6, 2010), the Court of Appeal (Second Appellate District, Division Five) affirmed a trial court order denying certification to three subclasses of managerial employees at El Torrito restaurants.  At this point, misclassification suits have the feeling of an arms race where the defendant companies hold a significant technological lead.  Six years after all the excitement occasioned by Sav-On Drug Stores, Inc. v. Superior Court, 34 Cal. 4th 319 (2004), the upshot appears to be that, once a trial court picks a side, a Court of Appeal is unlikely to get involved.

In this particular decision, the Court relied heavily on a mix of California Supreme Court decisions and, somewhat disturbingly, a number of federal decisions.  For example, citing Marlo v. United Parcel Service, 251 F.R.D. 476 (C.D. Cal 2008), the Court said: 

The Marlo court identified the exact problem that this Court faces. Individual declarations submitted by the parties have anecdotal value but cannot be considered representative or common evidence. Specifically, the Marlo court stated the following:[¶] ‘Plaintiffs evidence is essentially individual testimony and an exemption policy. Under the circumstances in this case, where Plaintiff alleges that 1200 [class members] have been misclassified as exempt employees, Plaintiff had to provide common evidence to support extrapolation from individual experiences to a class-wide judgment that is not merely speculative. Plaintiff has not come forward with common proof sufficient to allow a fact-finder to make a class-wide judgment as to the class members. . . . Because Plaintiff lacks common experience, the Court has no confidence that the jury will be able to do anything but speculate as to a class-wide determination.’

Slip op., at 7.  The Court emphasized that it was not permitted to substitute its view of the evidence for the trial court's view:  "As the Supreme Court made clear in Sav-On Drug Stores, Inc., this court cannot now substitute its own judgment."  Slip op., at 12.

Plaintiffs appear to have argued that it is unfair to accept a uniform classification by defendant but require individualized proof of misclassification, an argument that has not been well received at the appellate level as of late.  The argument fared no better here: 

Plaintiffs argue defendants cannot on one hand assert they have determined, based on job activities, that all managers are exempt but on the other hand argue a court must examine each individual’s tasks to determine whether that person is exempt. This argument was answered in Campbell v. PricewaterhouseCoopers, LLP (E.D.Cal. 2008) 253 F.R.D. 586, 603-604, as follows: “Some courts . . . have determined that it is unfair for an employer to ‘on the one hand, argue that all [class members] are exempt from overtime wages and, on the other hand, argue that the Court must inquire into the job duties of each [class member] in order to determine whether that individual is “exempt.”’ [Citation.] But, under Walsh [v. IKON Office Solutions, Inc. (2007) 148 Cal.App.4th 1440, 1461,] there is no estoppel effect given to an employer’s decision to classify a particular class of employees as exempt—whether right or wrong, or even issued in bad faith; instead, the only legally relevant issue to alleged misclassification is whether the exemption in fact applies. 

Slip op., at 13.  Continuing with the extensive quotations from Campbell, the Court of Appeal wrote: 

“It may be intuitively unfair to permit an employer, who has historically classified a particular group of employees as exempt based on a uniform rule, to argue in the context of litigation that the exemption inquiry will require an individualized analysis. But the assumption behind such an intuitively appealing argument is that an employer should somehow be bound by its prior position—which is foreclosed by Walsh. ‘[I]n resolving questions of California law, this court is bound by the pronouncement of the California Supreme Court . . . and the opinions of the California Courts of Appeal are merely data for determining how the highest California court would rule . . . [but] the opinion of the Court of Appeals on questions of California law cannot simply be ignored.’ [Citation.]” 

Slip op., at 14.  After Ramirez in particular, misclassification suits were in no small supply.  But the arms race was equalizing by the time Sav-On was decided, and it looks like the defense bar has pulled ahead in this area.  To make misclassification suits a legitimate mechanism for correcting classification errors on a class-wide basis, plaintiffs will need to find news ways to show trial courts that systemic misclassification errors are really correctable on a class-wide basis.

Wells Fargo's attempt to decertify a consumer class action bounces

You can't blame them for trying.  Unless you are a judge.  Then you can.  In Gutierrez v. Wells Fargo & Co., 2010 WL 1233810 (N.D. Cal. Mar. 26, 2010, Judge William Alsup was not impressed with defendant's attempt to decertify a consumer class action involving over 1 million class members.  First, some background is in order.

Plaintiffs alleged that defendants Wells Fargo & Company and Wells Fargo Bank, N.A. improperly assessed overdraft charges on their customers' debit card transactions.  Two separate practices were allegedly employed by defendants: (1) the publication, in the “online banking” section of the Wells Fargo Bank website, of inaccurate available-balance information to their customers, and (2) the re-sequencing of debit card transactions from highest to lowest value-rather than in the order in which purchases were completed-prior to being posted against a customer's account. Plaintiffs alleged that the false balance information was employed to increase the likelihood that customers would incur overdraft charges, while the resequencing was employed to maximize the number of overdraft charges defendants could assess against their customers. Defendants denied these allegations. A few months into the dispute, defendant Wells Fargo & Company was voluntarily dismissed from the action, leaving only Wells Fargo Bank.  Both practices were used to certify classes, but the court later decertified claims resting upon the inaccuare balance theory.

Wells Fargo Bank then moved for summary judgment or decertificaiton of the re-sequencing class.  The court denied the request for decertification:

Counsel have been reminded on various occasions that the presence of individualized issues is not fatal to class actions brought under Rule 23 ( see, e.g., Dkt. No. 245 at 9). Rather, the rule tolerates some individualized issues, so long as “questions of law or fact common to the members of the class predominate over any questions affecting only individual members.” FRCP 23(b)(3). Rule 23 also requires a court to be ever cognizant of whether the class action device “is superior to other available methods for the fair and efficient adjudication of the controversy.”

The legal claims of the “re-sequencing” class target the alleged overcharging of overdraft fees for over a million different Wells Fargo customers (Dkt. No. 285, Exh. A at 37-38). All members of the “re-sequencing” class were charged overdraft fees due to defendant's accused high-to-low posting of transactions. The fees themselves, however, were only around $34 each. Given this backdrop, it cannot be disputed that a denial of class-certification would close the door of justice to a staggering amount of claimants. The deterrent value of class litigation and the desirability of providing recourse for the injured consumer who would otherwise be financially incapable of bringing suit clearly render the class action a viable and important mechanism in challenging an alleged fraud on the public. This is especially important here, where the allegedly unlawful practice disproportionately gouges those who maintain, due to choice or (more likely) financial hardship, a shallow amount of funds in their checking accounts.

On the other hand, this order must give full consideration to whether plaintiffs' revised damages study is sufficient to establish class-wide proof of actual injury and/or damages for each absent class member. Otherwise, Rule 23 would be used to truncate the required substantive elements of proof by each claimant in violation of the Rules Enabling Act, 28 U.S.C.2071-77. Having considered the various limitations inherent in Wells Fargo's transaction data (discussed in detail by this order), and the fact that proving actual injury if suits were brought individually would still require the same types of assumptions made by Olsen in his report, this order finds that plaintiffs have presented sufficient class-wide proof of actual injury to survive defendant's motion for decertification. Given this showing, there is no question that common questions predominate in this action. As such, defendant's motion for class decertification is Denied.

Slip op., at 13 -14.  It is interesting that the weaknesses in defendant's transaction data was used by the court to nullify challenges to the methodology used by plaintiffs' expert to assess damages for the class.  The court found that the same flaws in data would impact an individual's attempt to prove damages.  The opinion contains a detailed discussion, with an example, of the allged practices and the damage extrapolation methodology used by plaintiffs' expert.

Northern District Court certifies class in misclassification suit against Deloitte & Touche LLP

United States District Court Judge Susan Illston (Northern District of California) certified a class of salaried employees alleging that they were misclassified as exempt by Deloitte & Touche LLP.  Brady v. Deloitte & Touche LLP, 2010 WL 1200045 (N.D. Cal. Mar. 23, 2010).  The class consists of salaried employees in the audit line of service but who were not licensed accountants.  The Court identified common issues of law and fact as follows:

Common questions of law include whether the professional exemption under California law requires a license for accountants, whether accounting is a “learned profession” under California Wage Order 4-2001, and whether the duties of proposed class members would qualify for administrative exception under California law. Common factual questions include whether defendant's standardized policies and procedures prevented the class members from customarily and regularly exercising discretion and independent judgment with respect to matters of significance, whether defendant categorically classified all class members as exempt, whether defendant required class members to work overtime, along with a host of other questions relating to overtime, meal breaks, timekeeping and pay.

Slip op., at 4.  Generally, the Court maintained a sharp delineation between certification questions and merits issues.