Posts belonging to Category Certification Rulings

Earlier this month, the Seventh Circuit Court of Appeal held that “commonality of damages” was not required under Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011) and Comcast v. Behrend, 133 S. Ct. 1426 (2013) for class certification in a consumer case involving claims that “organic” roof shingles did not meet an industry standard. In the Matter of IKO Roofing Shingle Prods. Liab. Litig., No. 14-1532 (7th Cir. July 2, 2014) (slip opinion available here). Purchasers of the shingles sued IKO, alleging that the defendant falsely told customers that the shingles met an industry standard. Plaintiffs asked the district court to certify a class that would cover IKO’s sales of the product in various states since 1979, but the motion was denied by the multidistrict litigation judge in the Central District of Illinois. The district court stated that Comcast and Dukes required proof “that the plaintiffs will experience a common damage and that their claimed damages are not disparate” and that “’commonality of damages’ is essential.” Slip op. at 6.

Circuit Judge Frank Easterbrook authored the opinion for the panel consisting of Judges Wood and Kanne. The panel wrote that the district court incorrectly interpreted Comcast; such an interpretation would make “class actions about consumer products impossible.” Slip op. at 6. Distinguishing Dukes as having “nothing to do with commonality of damages,” the opinion stated, “[i]t dealt instead with the need for conduct common to members of the class, and it concerned Rule 23(a)(2) rather than Rule 23(b)(3).” Id. However, in a suit like IKO Roofing, which alleges a defect common to all instances of a consumer product, “the conduct does not differ.” Id. at 6-7.

Furthermore, while Comcast does discuss injury under Rule 23(b)(3), all it requires is that the theory of loss (damages) match the theory of liability. Id. at 7. In Comcast, the plaintiffs specified four theories of liability, but the district judge had only certified a class limited to one of the four theories. However, the plaintiffs’ damages expert estimated harm assuming all four of the theories were established. Because there was only one certified theory of liability but four theories of damages, the theory of loss failed to match the theory of liability. Id. In IKO Roofing, the panel found that the plaintiffs submitted two theories of damages that matched their theory of liability: the first being the difference between the market price between the product as represented and a tile that does not satisfy the industry standard, which is applied to every purchaser, and the second being purchasers whose tiles actually failed could recover damages if the alleged defect (not meeting the industry standard) caused the failure.

The panel stated that although the district court was not required to certify this class action if there were other issues that make class treatment unwieldy despite any common issues, here, the lower court failed to apply the correct legal standard—“commonality of damages” is not a requirement for certification. It is too early to tell, but IKO Roofing’s holding may have positive implications for wage-and-hour class actions, if utilized in employee class certification arguments.

The U.S. Court of Appeal for the Ninth Circuit recently reversed a district court’s refusal to certify a class of San Francisco police officers’ age bias claims. Stockwell v. City & County of San Francisco, Case No. 12-15070 (April 24, 2014) (slip opinion available here). The police officers, over the age of 40, alleged that an updated policy (using a new promotional exam) adopted by the city in 2005 caused an age-based disparate impact as to how officers were selected for promotions. The district court denied the officers’ motion for class certification under Rule 23(b)(2), finding that the plaintiffs had only met three of the four prerequisites for class certification and failed to demonstrate commonality; it ruled that their statistical study (submitted to demonstrate disparate impact) failed to include a regression analysis accounting for possible alternative explanations for the statistical imbalance. The district court then expressly declined to evaluate the plaintiffs’ arguments that the putative class satisfied the predominance and superiority requirements under Rule 23(b)(3).

The Ninth Circuit reversed, relying heavily on the Supreme Court’s Amgen decision to conclude that the district court had erred by failing to consider the existence of a common question and instead taking issue with the plaintiffs’ statistical study. Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 133 S. Ct. 1184 (2013). The Stockwell panel stated that the lower court, in conducting its inquiry on commonality, improperly evaluated the merits, stating that “[w]hile some evaluation of the merits frequently cannot be helped . . . , that likelihood of overlap with the merits is no license to engage in free-ranging merits inquiries at the certification stage.” Slip op. at 9 (internal quotations omitted). Instead, “[m]erits questions may be considered to the extent — but only to the extent — that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.” Id. (citing Amgen, 133 S. Ct. at 1195). Further, the panel wrote, a common contention does not need to be one that “will be answered, on the merits, in favor of the class.” Id. Rather, it only “must be of such a nature that it is capable of class-wide resolution — which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” Id. (citing Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2010)). Stockwell thus represents an important constraint on the dictum in Wal-Mart Stores Inc. v. Dukes endorsing the conduct of merits-analysis at the class certification stage. Dukes, 131 S. Ct. at 2551-52.

The case was remanded to the district court to reconsider whether the putative class satisfies Rule 23(b)(3) requirements, as well as the other prerequisites for class certification. Stockwell is one of the first decisions to apply Amgen’s reasoning in the context of employment class actions and may have a significant impact on such cases going forward.

At the end of May, the California Supreme Court issued its decision in Duran v. U.S. Bank National Association. Case No. S 200923 (May 29, 2014) (available here). In December 2001, the plaintiff filed a class action lawsuit alleging that U.S. Bank had misclassified its loan officers as exempt employees under the outside salesperson exemption. The outside sales exemption applies to employees who spend more than 50 percent of their workday engaged in sales activities outside the office.

In Duran, the trial court certified a class of 260 officers and then began a two-stage approach to determine liability and damages. During the first phase, the court created a trial plan to determine the extent of U.S. Bank’s liability by extrapolating from a random sample of 20 officers and heard testimony about the work habits from these loan officers. The court did not allow U. S. Bank to introduce evidence about the work habits of officers outside of this sample. The trial court held that the class members were misclassified and owed overtime; damages for the overtime wages were to be determined in phase two of the trial. The second phase focused on the statistics experts’ testimony. The trial court then extrapolated the average amount of overtime reported by the sample group to the whole class, and issued a verdict of approximately $15 million.

The Court of Appeal reversed the trial court’s decision, and the plaintiff petitioned the California Supreme Court for review. The Supreme Court affirmed the Court of Appeal’s judgment in its entirety, finding that although “[s]tatistical sampling may provide an appropriate means of proving liability and damages” in class actions, “the trial court’s particular approach to sampling here was profoundly flawed.” Slip op. at 2. Notably, however, the opinion held that certification is still viable even where there are individualized issues, indicating that the important question is the manageability of the action. Id. at 24. A trial court may allow parties to use surveys and statistical sampling as management tools; and an employee may use sampling to show an employer’s uniform policy, but the plan must be conducted with “sufficient rigor.” Id. at 25-26.

Additionally, the Court rejected U.S. Bank’s argument that it had a due process right to adjudicate its exemption defense by calling each class member to testify. The Court held that the defendant must be allowed to present affirmative defenses according to the trial management plan (finding that the lower court’s plan failed to do so) and that those defenses should be considered, but the defendant’s presentation of proof of such defenses must be within the method the court and parties fashioned to try the issues. Id. at 29-35. In its opinion, the Court provided guidance on how to develop and use sampling evidence, distinguishing sampling used to provide liability versus sampling used to prove damages. See id. at 40-49. The Court further held that when sampling is used, it must be utilized carefully, e.g. the sample size needs to be large enough and the sample must be randomly selected, representative, and may not include named plaintiffs. Id. at 40-44. Also, the margin of error in the sampling method must not be too high. Id. at 46.

Duran was remanded for a new trial on both liability and restitution, and the opinion indicated that the trial court may also entertain a renewed class certification motion. It remains to be seen whether the case will ultimately turn out to be a win for the plaintiffs’ bar, but even the Court noted that this case was “an exceedingly rare beast,” meaning that the problems in Duran are not likely to occur again. Slip op. at 1.

On April 15, 2014, U.S. District Judge Consuelo B. Marshall re-certified a class of non-exempt newspaper employees who had brought wage-and-hour claims, finding that the plaintiffs’ allegations satisfied the commonality and predominance requirements for certification under the more stringent standards articulated by the U.S. Supreme Court’s Wal-Mart Stores Inc. v. Dukes (131 S.Ct. 2541 (2011)). Wang v. Chinese Daily News, Inc., No. 2:04-cv-01498 (C.D. Cal. April 15, 2014) (slip opinion available here). Thus, the court held that plaintiffs satisfied rule 23(b)(3). Id.

In 2008, the plaintiffs had obtained a $5.1 million judgment on behalf of the same class of employees under the Fair Labor Standards Act and California state law for the failure to pay overtime and to provide meal and rest breaks, among other violations. The Ninth Circuit affirmed that judgment in 2010 (623 F.3d 743 (9th Cir. 2010)), but after Dukes, the U.S. Supreme Court granted certiorari, vacated the Ninth Circuit’s opinion, and remanded to the Ninth Circuit for it to reconsider applying Dukes. The Ninth Circuit subsequently reversed the district court’s certification from 2005 and ordered it to reconsider its analysis under Rules 23(a)(2) and 23(b)(3), in light of Dukes, Brinker Rest. Corp. v. Superior Court (273 P.3d 513 (Cal. 2012)), and other caselaw developments. Wang v. Chinese Daily News, Inc., No. 08-55483 (9th Cir. Sept. 3, 2013).

Upon remand, Judge Marshall reexamined whether there were common questions of law or fact, and found many. Citing Dukes on the standard of commonality, the court stated, “[w]hat matters to class certification . . . is not the raising of common ‘questions’—even in droves—but rather, the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.” Slip op. at 4 (internal citations omitted). One question, which the court focused on, was whether the defendant failed to pay overtime compensation to non-exempt employees who worked over 40 hours per week. Id. at 5-7. The court found the plaintiffs had proffered enough evidence to show that the employer had treated the class members consistently and that supervisors had little or no discretion to deviate from the uniform policy of not providing overtime pay and/or meal and rest breaks. Id. at 6, 10. Plaintiffs also informed the court that because there were currently no identifiable class members still employed by the newspaper, they were no longer seeking certification under Rule 23(b)(2), the injunctive relief standard, so Judge Marshall declared that issue moot. Id. at 8.

The district court’s re-certification of the class shows that class certification of wage-and-hour cases is still appropriate in a post-Dukes era, if the plaintiffs allege that the treatment of class members is consistent and not subject to the discretion of individual managers.