Posts belonging to Category Certification Rulings

California’s Second Appellate District has clarified the proper application of the “death knell” doctrine to denials of class certification, and in the process has carved out an exception to the general rule proscribing successive class certification motions. See Aleman v. AirTouch Cellular, No. B231142, ___ Cal. App. 4th ___ (Sept. 20, 2012) (available here). The unanimous opinion, certified for publication, thus provides important guidance for practitioners navigating California’s rules pertaining to appealing denials of class certification and determining when multiple class certification motions are, and are not, permissible in California trial courts. In particular, Aleman is clear in its holding that, where class certification is denied without prejudice, the death-knell doctrine may not be invoked to allow an appeal. Aleman thus also underscores that, notwithstanding the general rule that a plaintiff may only bring one class certification motion in a California trial court, it is a permissible exercise of a trial court’s discretion to deny certification without prejudice and subsequently allow successive class certification motions.

In the underlying wage and hour class action, employees who worked at AirTouch stores and mall kiosks alleged violations concerning both split shift and reporting time pay. See slip op. at 2-3. The plaintiffs moved for class certification while issues bearing on the split shift and reporting time claims were on appeal. See slip op. at 6-7. The trial court denied the class certification motion, but did so “without prejudice” to the plaintiffs bringing a subsequent class certification motion, after the disposition of the pending appeal. Id. Additionally, the trial court provided express guidance as to the first class certification motion’s weaknesses, noting that the plaintiffs would have to reconcile potential intra-class conflicts to satisfy the adequacy requirement. See slip op. at 7.

Rather than awaiting the resolution of the appeal concerning the split shift and reporting time issues, the plaintiffs appealed the trial court’s denial of class certification, thereby giving rise to the central legal question in Aleman: Was the plaintiffs’ appeal a proper invocation of the “death-knell” doctrine? See slip op. at 29-31. The Aleman panel answered in the negative, formulating a bright-line rule that where class certification is denied without prejudice, an interlocutory appeal is not appropriate: “The death knell has not yet sounded. The remaining plaintiffs’ ability to pursue class certification has not been terminated. Because the denial order was without prejudice, the remaining plaintiffs are free to move for class certification again.” Slip op. at 30.

Therefore, it is critical for practitioners, when a California state trial court judge denies class certification “without prejudice,” to establish on the record (as in Aleman) that the trial court will in fact exercise its authority to hear a second class certification motion. See slip op. at 29 (“The court made clear that plaintiffs would be able to bring a new motion.”). A similar record in which the trial court’s intentions are unambiguous coupled with citation to Aleman should suffice to overcome a defendant’s argument based on the abundant authority holding that, in California state court, plaintiffs may move only once for class certification. See, e.g., Stephen v. Enterprise Rent-A-Car, 235 Cal. App. 3d 806 (1991) (explaining that California’s strict one-certification-motion rule necessitates applying the death-knell doctrine).

A Los Angeles Superior Court judge has certified a class of insurance adjusters alleging that they were improperly classified as exempt from overtime pay and meal and rest breaks. See Wilson v. Farmers Ins. Exch., No. BC 371597 (L.A. Super. Ct. Oct. 5, 2012) (order granting motion for class certification) (available here).

The plaintiffs contend that Farmers misclassified more than 600 claims representatives, and consequently failed to comply with California’s meal and rest break laws and pay overtime. Farmers invoked the administrative exemption, which, it argued, gives rise to predominant individual questions, thereby precluding class treatment. However, Superior Court Judge John Shepard Wiley, Jr. rejected Farmers’ argument, citing relatively recent Court of Appeal authority that compelled certification, and holding that certification is appropriate because the proposed class worked under standardized policies and performed the same core set of duties company-wide.

Judge Wiley relied extensively on another insurance adjuster decision, the long-awaited Harris v. Liberty Mutual, in which California’s Second Appellate District (following California Supreme Court consideration and remand back to the Court of Appeal) made it more difficult for employers to avail themselves of the administrative exemption to block class treatment. See Harris v. Liberty Mut. Ins., 207 Cal. App. 4th 1225 (Cal. Ct. App. 2012) (available here).

In Harris, the defendant argued that the administrative exemption’s requirement that work must be “directly related” to administrative functions gave rise to a predominance problem, since it would require the court to ascertain the duties of many individual claims adjusters, working in different offices, under different managers, and with different skill sets. However, the majority concluded that “no evidence shows that any class members primarily engage in work that satisfies the qualitative component of the ‘directly related’ requirement. That conclusion disposes of Employers’ affirmative defense based on the administrative exemption, and it is a predominant issue that is common to the claims of all class members.” Harris at 1247-48.

While the Harris panel was careful to clarify that it was not holding that claims implicating the administrative exemption are per se amenable to class treatment, the ruling in Wilson makes clear that the position asserted by many employer/defendants — that raising an administrative exemption defense is a guaranteed bulwark against class treatment — is similarly without merit. The Wilson action will now proceed to the class notice and merits phases before Judge Wiley.

In a ruling that substantially intersects with bankruptcy jurisprudence, the Fifth Circuit has denied Countrywide’s motion to decertify a class of borrowers who claim they were charged illegal fees. See Rodriguez v. Countrywide Home Loans, Inc., No. 11-40056, 2012 U.S. App. LEXIS 19372 (5th Cir. Sept. 14, 2012) (available here). Formally, the Fifth Circuit affirmed both the bankruptcy court’s certification of a class seeking injunctive relief and its denial of Countrywide’s motion to reconsider the certification ruling. A bankruptcy court’s granting of class certification, a relatively unusual occurrence, is authorized by Federal Bankruptcy Rule 7023, which provides for the use of Federal Rule of Civil Procedure Rule 23 in bankruptcy proceedings.

This litigation arose when plaintiffs, after emerging from Chapter 13 bankruptcies, were assessed fees by Countrywide, their mortgage lender, which had accrued while their bankruptcy cases were pending. The plaintiffs had all cured their pre-petition mortgage arrearages, completed their Chapter 13 plans, and received discharges. Despite these factors, Countrywide still threatened to foreclose on the plaintiffs’ homes if they refused to pay the fees. See Rodriguez at *1-2. Accordingly, the plaintiffs alleged that Countrywide’s insistence that they pay the fees violated Federal Rule of Bankruptcy Procedure 2016(a). The plaintiffs also alleged that Countrywide misapplied mortgage payments to satisfy some of the unauthorized fees, rather than properly applying the payments towards the amount due each month. Id.

As assets of their bankruptcy estates, the plaintiffs’ litigation against Countrywide proceeded in the bankruptcy court, which certified a class seeking an injunction mandating that “Countrywide shall not collect or attempt to collect any fees that (1) were incurred during the pendency of a class member’s bankruptcy case, (2) are governed by Rule 2016(a), and (3) have not yet been authorized pursuant to Rule 2016(a).” Id. at *5.

Countrywide moved to overturn the bankruptcy court’s 2010 class certification ruling, arguing that its conduct in imposing the fees was not generally applicable to the class because the company had no policy regarding the assessment of fees during bankruptcy proceedings. Notwithstanding the lack of a formal, written compliance policy, the court found that Countrywide did have a generally applicable practice. Id. at *17-18. Despite the rarity of class certification proceedings in federal bankruptcy courts, the court’s analysis in this case was notably detailed and rigorous. See id. at 16-17.

With the plaintiffs’ Chapter 13 bankruptcies now discharged and the certification ruling secure, it appears likely that the action will be transferred to an Article III federal district court for post-certification proceedings. Countrywide, acquired by Bank of America in 2008, has already settled numerous class actions for billions of dollars in connection with its conduct concerning home mortgages.

In a case that continues to deal surprise rulings, the U.S. Supreme Court has denied a certiorari petition filed by Merrill Lynch in a case challenging the certification of a class of brokers alleging race discrimination. See Merrill Lynch v. McReynolds, No. 12-113, (U.S. Oct. 1, 2012). The Supreme Court’s declination to review McReynolds (despite its decision in Wal-Mart v. Dukes tightening class certification standards) follows the Seventh Circuit’s affirmative reversal of the trial court’s denial of class certification, thereby exhausting Merrill Lynch’s avenues for judicial review. Judge Richard Posner, generally regarded as holding to a conservative orientation, defied ideology-based expectations by authoring the Seventh Circuit’s opinion. See McReynolds v. Merrill Lynch, 672 F.3d 482 (7th Cir. 2012).

The Supreme Court’s denial of review, together with the Seventh Circuit’s ruling, are expected to be heralded as indications that Dukes is not the “death knell” for class actions, as many had predicted. Judge Posner’s opinion pointedly distinguished Dukes, noting that, while “there was no company-wide policy to challenge in Wal-Mart,” this was not the case with Merrill Lynch, whose policies were alleged to be company-wide and therefore better suited to class action treatment. McReynolds v. Merrill Lynch 672 F.3d at 488. While Dukes arguably imposes greater rigor on the analysis attendant to grants of class certification, McReynolds exemplifies that a similar rigor is required of judicial orders denying class certification. Thus, Dukes appears to have established standards that are fully accessible to plaintiffs presenting strong evidence of employer practices applicable across a tightly-defined class.

The denial of Merrill Lynch’s petition for review preserves the practical note that Judge Posner struck when he acknowledged the familiar argument by defendants that numerous “mini trials” could be necessary to resolve particular individual issues. Id. at 490-91. However, in a passage likely to appear in many reply briefs in support of class certification, Posner reasoned that “at least it wouldn’t be necessary in each of those trials to determine whether the challenged practices were unlawful.” Id. at 491.

Judge Posner also addressed the possibility of “issue classes,” stating: “Rule 23(c)(4) provides that ‘when appropriate, an action may be brought or maintained as a class action with respect to particular issues.’ The practices challenged in this case present a pair of issues that can most efficiently be determined on a class-wide basis, consistent with the rule just quoted.” Id.

Whether the parties will in fact propose the use of 23(c)(4) procedures on remand, and whether the rebuked trial court will adopt such procedures, remains to be seen. However, to the extent that the McReynolds case continues to demonstrate workable class action devices, it is expected to be copiously cited to by plaintiffs seeking to emulate its successful formula.