Employment Class Action Blog

Court Partially Dismisses and Denies Conditional Certification In Tip-Credit Case

Greg Mersol — Thu, 23 May 2013 13:44:14 -0500

Anyone who has dined at a restaurant is aware of the importance of tipping, even if the exact rules, like the percentage and how it should be calculated, may be a bit fuzzy at times. From the standpoint of the restaurant, too, the standards of what may or may not be tipped work for taking advantage of the FLSA’s tip credit may be less than clear. A recent case from the Northern District of Indiana demonstrates not only some of the issues to be considered, but also that it may be difficult for a plaintiff to pursue claims challenging the amount of tipped work on a class-wide basis.

In Roberts v. Apple Sauce, Inc., Cause No. 3:12-CV-830-TLS (N.D. Ind. May 13, 2013), the plaintiff, a former Applebee’s waitress, brought suit against the franchisee for whom she had worked, contending that it had not properly taken advantage of the tip credit exception contained in section 6(a)(1)(C) of the FLSA. The significance of such a claim, by the way, is that if the tip credit does not apply the employer cannot take advantage of tips to make up the difference between $2.13 per hour and the minimum wage (or a difference of $5.13 per hour at present). The crux of the plaintiff’s claim was that she was required, in addition to waiting tables, to perform various non-tipped duties such as dishwashing, food preparation, cleaning the kitchen and bathrooms (hopefully at very different times), and trash removal. She also contended, somewhat incredibly, that she had not been advised that the employer would be taking advantage of the tip credit, a specific requirement of the applicable regulation. As if often the case, she sought to pursue her claims on a collective basis on behalf of the wait staff at 24 Applebee’s restaurants.

The defendant moved to dismiss the claims under Rule 12(b)(6), and the plaintiff, in essence, sought conditional certification of the proposed class as well as to toll the statute of limitations. In a relatively compact but thoughtful opinion, the court granted the motion to dismiss, at least in part, but also denied the plaintiff’s motions. As to the motion to dismiss, the court noted that the Department of Labor guidance specifically recognized that incidental duties such as “general preparation work or maintenance” like cleaning, table-setting, making coffee, and dishwashing, did not destroy the exemption so long as they do not exceed 20% of the tipped employee’s time. The court noted that despite the general allegation that such work was done, the precise allegations were somewhat “sparse.” Citing the pleading standard of Ashcroft v. Iqbal, 556 U.S. 662 (2009), the court dismissed that aspect of the plaintiff’s claims.

The court did find that the complaint stated a claim that the employer had failed to inform her that it would be taking advantage of the tip credit. Of course, the court was obligated under the applicable standard to accept the allegations of the complaint as true, but one could legitimately question in this day and age how a waitress would not realize that she was receiving a sub-minimum wage and that the employer was taking a credit for tips to make up the difference. While the court held that the complaint stated such a claim, however, it also found that it relied upon what the plaintiff was told in orientation, not a uniform policy, and that the case could therefore not be handled as a collective action. It therefore denied conditional certification and it also rejected tolling because there were no extraordinary circumstances that would justify tolling the statute of limitations.

The Roberts case is significant because the court took at least a cursory review of the plaintiff’s claims and denied conditional certification even though it found that she had stated, at least in part, a claim. A contrary holding would have resulted in a class being conditionally certified that likely would have been decertified only after the parties had spent considerable sums advancing or defending their claims.

The bottom line: A court has denied conditional certification of a tip credit case because of the need for individual inquiries.

California Courts Issue Multiple Decisions for Employers in Class Cases

Greg Mersol — Fri, 17 May 2013 09:36:52 -0500

Posted by Greg Mersol

Just two years ago, a California case declining certification of an action would have been cause for comment. But since then, in 2011 the United States Supreme Court decided Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011); in 2012 the California Supreme Court decided Brinker Rest. Corp. v. Superior Court, 53 Cal. 4th 1004 (2012); and only weeks ago the United States Supreme Court decided Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). We’ll save for another blog the effect of the Supreme Court’s decisions on arbitration in California. Since the beginning of this year, several California courts have refused to certify cases or have even decertified cases that had previously been certified. Just some of these cases include:

Forrand v. Federal Express Corp., Case No. 2:08-cv-01360-DSF-PJW (C.D. Cal., Apr. 25, 2013). Citing Comcast, the Central District of California declined to certify a class of hourly workers in an off-the-clock case claiming violations of California law. The case had previously been remanded by the Ninth Circuit on the certification issue to consider the question of employer control. The district court concluded that the plaintiffs could not meet Comcast’s requirement that they both develop a method to measure damages AND tie each class member’s recovery to that theory in a reliable manner that could be managed on a class-wide basis.

Zulewski v. The Hershey Company, Case No. 4:11-cv-05117-KAW (N.D. Cal., Apr. 23, 2013). In Zulewski, the plaintiffs brought suit on behalf of a proposed class of retail service representatives who claimed that they were misclassified as exempt under state and federal law. The court granted the defendant’s motion to deny certification brought under the rubric of Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935 (9th Cir. 2009). Interestingly (in light of the issue of commonality addressed in Dukes), although the court found that their claims met the commonality and typicality requirements, they could not maintain their claims as a class because they could not meet the predominance standard of Rule 23(b)(3).

Alberts v. Aurora Behavioral Health Care, Case No. BC419340 (Los Angeles Sup. Ct., Apr. 10, 2013). The Los Angeles Superior Court denied certification of a class of health care workers at two area psychiatric hospitals claiming violation of California’s rest and meal period requirements due to factual variations among their claims.

Dailey v. Sears, Roebuck & Co., Case No. D061055 (Cal. Ct. App., 4th Dist., Mar. 21, 2013). The California 4^th District Court of Appeals upheld the denial of certification in a class action challenging the exempt status of Sears Auto Center managers and assistant managers, finding that individual issues predominated.

Heffelfinger v. Electronic Data Services, Case No. 2-07-cv-00101-MMM-E (C.D. Cal Feb. 26, 2013). In a case with important ramifications in the technology industry, the Central District of California decertified a case it had previously certified following the remand of the action from the Ninth Circuit on its grant of summary judgment. The district court concluded that the reverse of summary judgment necessitated individual inquiries, negating the element of predominance.

Pedroza v. PetSmart Inc., Case No. 5:11-CV-00298 (C.D. Cal. Jan. 28, 2013). Pedroza was a garden-variety California wage and hour case in which the plaintiffs claimed that the PetSmart retail chain misclassified its store managers as exempt under California law. Such claims were once routinely brought and almost as routinely certified. The district court, relying on Dukes, found that commonality did not exist due to differences among the different managers’ situations and also found Rule 23(b)(3) predominance to be lacking.

Can California employers break out the champagne? Hardly. First, while the latest spate of cases has largely favored employers, courts are still ruling for employees under the right circumstances. Just a few days ago, in Faulkinbury v. Boyd & Associates, Inc., Case No. G041712 (Cal. 4th App., May 10, 2013), a California court of appeals largely reconsidered its own order affirming the trial court’s decision not to certify a meal period class and held that, under the circumstances, certification should have been granted. Second, some plaintiffs’ attorneys are exploring the use of conditional certification under the FLSA to take advantage of the easier “conditional certification standard.” Most ominously, as reflected in the PetSmart case, there exists a conflict among California district courts as to whether a plaintiff must satisfy Rule 23 for claims under the Private Attorneys General Act (PAGA). Certification is no longer a largely foregone conclusion, but cannot be dismissed out of hand either. Due to the large sums of money involved, we can expect to continue to see developments in this arena in the years to come.

The bottom line: The tide may have turned on the easy certification of employment class action cases under California law, but don’t count them out yet.

Court Refuses To Certify Class of Unpaid Student Interns

Greg Mersol — Mon, 13 May 2013 08:36:56 -0500

Posted by Greg Mersol

Student internships can provide worthwhile benefits to the students involved, who gain experience, contacts, and accomplishments to place on their resumes. Employers, too, can benefit from the work and insight of the intern, but may also want to take advantage of the benefits of free intern time. Recognizing the benefit to the interns, the Department of Labor permits an intern’s time to be unpaid if, in general terms, the parties understand that it is unpaid and the arrangement is primarily for the student’s educational benefit

In the wake of the recent recession, there has been a spate of lawsuits challenging whether various unpaid internships should be compensable because, it is generally argued, they are primarily for the benefit of the employer. A recent case from the Southern District of New York, while suggesting that such claims might be viable, also exposes the problem for the plaintiffs that they are probably not suitable for class action treatment.

In Wang v. The Hearst Corporation, Case No. 12 CV 793 (HB) (S.D.N.Y. May 8, 2013), the plaintiff brought a putative class and collective action arguing that the employer, a magazine publisher, improperly refused to pay its interns because, she argued, the internships were primarily for its own benefit. Several other interns opted into the litigation. The plaintiff claimed that the class had 3,000 potential members. The defendant moved for summary judgment and the plaintiffs moved for class certification.

The court first addressed, in a straightforward fashion, the allegations of the plaintiffs and opt-ins and whether the employer was entitled to summary judgment. The court looked to the Department of Labor’s Fact Sheet No. 71 at least for a framework to review the employer’s actions. Incidentally, as noted by the court, there is a substantial split of authority as to whether the fact sheet is binding, whether it is simply a guide, and the extent to which all six factors must be satisfied. The factors set forth in that fact sheet are:

(1) The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

(2) The internship experience is for the benefit of the intern;

(3) The intern does not displace regular employees, but works under close supervision of existing staff;

(4) The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

(5) The intern is not necessarily entitled to a job at the conclusion of the internship; and

(6) The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The court found that while the defendant had clearly established some of the elements necessary for an unpaid internship, other elements differed by degree, such as the amount of training, the level of supervision, and the benefit to the employer. It thus denied summary judgment.

But for the same reasons, the court also denied the plaintiffs’ motion for class certification. Although the employer had a uniform policy of not paying interns, it found that the fact that such an analysis was required and the variations among different departments meant that Rule 23(a) commonality did not exist. Further, it found no superiority or predominance under Rule 23(b)(3) due to the need for individualized proof. Thus, the court found no basis to certify the proposed class.

The Wang case is significant for at least two reasons. First, it is one of the first cases in what could have been a wave of litigation involving unpaid internships generally. While employers should obviously not take advantage of student interns, a contrary holding would have discouraged employers from having such programs and had a negative effect on hands-on educational opportunities for students.

Second, the Wang case reveals one of the fundamental issues in these types of actions. Plaintiffs will often seek certification based on uniform policies, but then argue inconsistently that individual differences or issues create fact issues when the employer moves for summary judgment. The Wang court, by ruling on both motions at the same time, shows that these cases are best handled on an individual basis.

The bottom line: Cases challenging unpaid internships are generally not suitable for class action treatment.

Pennsylvania Court Denies Certification Of Disability Discrimination Claims

Greg Mersol — Fri, 26 Apr 2013 13:06:34 -0500

Posted by Greg Mersol

In the vast majority of discrimination cases, there is little dispute over whether the plaintiff is actually in a protected group. For example, in sex discrimination cases, for the most part, they are either male or female; in age cases either over or under 40. Despite the demographic changes in the country, there are few disputes over whether even a plaintiff of mixed ancestry belongs in a particular group for purposes of race discrimination claims.

But disability claims are different. While with the ADAAA the definition of a disability has been expanded under federal law, there remain threshold questions of whether the plaintiff is even in a protected group. If so, there remain questions as to the extent of the disability and whether the plaintiff can perform the essential functions of the job. While there is a generally limited number of genders, races, and ages, there are likely hundreds of conditions that may be considered disabilities. Further, the admonition under most disability discrimination statutes includes the requirement of reasonable accommodation, one that virtually by definition requires an individual consideration of the plaintiff’s condition and job circumstances.

Because of these highly individualized inquiries, disability discrimination claims generally make poor candidates for class action claims, as a recent case from the Western District of Pennsylvania demonstrates. In Semenko v. Wendy’s International, Inc., Case No. 2:12-cv-0836 (W.D. Pa. Apr. 12, 2013), the plaintiff brought a putative class action against the Wendy’s fast food chain for alleged disability discrimination under federal and Pennsylvania law. With respect to her own claim, she contended that Wendy’s failed to accommodate her degenerative arthritis after her return for a leave of absence.

As an aside, while any disability may be difficult to treat on a class basis, degenerative arthritis is an especially hard condition as it differs greatly even among those who have it and, as the name reflects, changes over time even for one individual. The plaintiff further was not helped by a relatively vague class definition that simultaneously referenced accommodations after returns from leaves of absence and accommodations generally. Even during the course of briefing, she shifted her class definition to include reference to “permanent medical restrictions” and those who “applied for long-term disability benefits.” As suggested below, the plaintiff may not have aided her own cause by failing to have a clearer class definition.

In any event, the employer filed a Rule 12(f) motion to strike the class allegations without awaiting discovery. The court noted that such a motion could only be granted in “rare” cases, but in a welcome burst of common sense, found that it was facing just such a case. Citing the decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), it found no commonality due to the need to determine whether each potential class member was disabled and “otherwise qualified.” The need for the additional personalized inquiries under the ADA made such cases even less appropriate for class action treatment than those under Title VII. It similarly found that the claims would require consideration of whether the class member requested accommodations, the reasonableness of the proposed accommodations, undue hardship, and the ultimate question of whether the employer had discriminated against the individual. These inquiries undercut both the elements of commonality and typicality. Further, the court found that the need for individualized inquiries made Rules 23(b)(2) and 23(b)(3) inapplicable due to the prayers for money damages and the lack of sufficiently predominant class issues. The court therefore struck the class allegations.

The Semenko case underscores the problems with plaintiffs trying to seek certification of ADA classes. While some courts have certified such cases, they are particularly hard in the absence of a uniform policy or a tight definition of the types of disabilities to which it applies.

The bottom line: Plaintiffs seeking to assert class-wide disability claims face an uphill battle.

Ninth Circuit Finds Rule 23 Class Actions and FLSA Collective Actions Compatible

Greg Mersol — Thu, 18 Apr 2013 10:25:26 -0500

Posted by Greg Mersol

As we’ve noted before, circuit court authority on collective action issues is relatively sparse. Although we like to comment on such cases, the most recent such opinion is in many respects a nonevent.

Several lower courts have refused to combine state law Rule 23 class actions and federal FLSA collective actions in the same case, citing troublesome case management issues and likely confusion among class members due to the Rule 23 opt-out rights and FLSA opt-in requirements. Courts of appeal, however, have generally found no inherent conflict. See Knepper v. Rite-Aid Corp., 675 F.3d 249 (3d Cir. 2012); Ervin v. OS Res. Servs., Inc., 632 F.3d 971 (7^th Cir. 2011).

On April 12, 2013, the Ninth Circuit joined the Third and Seventh Circuits in holding that there is no theoretical bar to maintaining both a class and collective action in the same case. Busk v. Integrity Staffing Solutions, Inc., Case No. 11-16882 (9^th Cir. Apr. 12, 2013). In that case, Integrity Staffing operated warehouses in Nevada that filled orders for web retailer Amazon.com. It required hourly warehouse employees to undergo security checks at the end of the day and upon leaving their work areas for lunch. They contended that they were not paid for the time waiting for the security checks, which could take upwards of 25 minutes. They sought a Rule 23 class action under Rule 23 and a collective action under section 16(b) of the FLSA. The district court dismissed the state law class action as incompatible with section 16(b) and dismissed the remaining claims on the merits.

On appeal, the Ninth Circuit found without much difficulty that the time waiting for security checks was at least arguably compensatory time, distinguishing the case from situations in which security was being undertaken for reasons other than the employer’s purposes. See, e.g,. Bonilla v. Baker Concrete Construction Co., 487 F.3d 1340 (11^th Cir. 2007) (time spent in airport security not compensable). It did, however, find no claim for alleged disruptions in the employees’ lunch periods. Most importantly for purposes of this discussion, also found no inherent incompatibility between a Rule 23 state law class action and an FLSA collective action, and remanded the case.

So, is Busk a significant case? Not so much. While some plaintiffs have attempted to combine class and collective action claims, they frequently do not and for good reasons. Over a dozen states, for example, including Texas, have no FLSA equivalent. In California, generous state law penalties and, at least until recently, ready certification render FLSA claims far more complicated and less attractive. Even in other states, a plaintiff may prefer FLSA collective actions due to the lower standards for conditional certification and increasing difficulties in obtaining Rule 23 certification in the wake of Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011), and other authority. Further, while orders granting conditional certification are not appealable, Rule 23 grants of certification may be under Rule 23(f). There are many other reasons not to include both types of claims, including the different standards under different state laws and the likelihood that trying to graft a Rule 23 class action onto an FLSA collective action may make the task of decertification of the FLSA claim that much easier for the employer.

At the same time, nothing in Busk or the other circuit court decisions requires the use of both a Rule 23 class and a section 16(b) collective action. When such situations are presented, employers are likely to raise a host of arguments related to commonality, typicality, predominance, superiority, and adequacy of representation that will tarnish the 16(b) collective claims as well. The Busk decision simply leaves these arguments to a different stage of the case.

The Bottom Line: The Ninth Circuit joins other courts of appeals in holding that a Rule 23 state law class action can theoretically be combined with an FLSA collective action, but the decision will have little practical impact in most cases.

Supreme Court Upholds Use of Rule 68 Offers of Judgment in FLSA Collective Actions

Greg Mersol — Tue, 16 Apr 2013 14:39:16 -0500

Posted by Greg Mersol

Today the United States Supreme Court delivered an unexpected present to employers facing FLSA collective actions and held that a defendant may moot such a case by making a Rule 68 offer of judgment to the named plaintiff. Genesis Healthcare Corp. v. Symczyk, Case No. 11-1059 (Apr. 16, 2013). We wrote about the lower court’s decision in Symczyk on September 8, 2011 [link], as well as a similar case decided by the Ninth Circuit at roughly the same time, Pitts v. Terrible Herbst, Inc. In the Symczyk case, the plaintiff brought FLSA claims challenging the employer's use of an “auto-deduct” policy for meal periods. Along with its answer, the defendant made a Rule 68 offer to the plaintiff of judgment for $7,500, plus attorney fees and costs to be determined by the court. The offer, by its terms, was open for 10 days. When the plaintiff did not respond to the offer, the defendant moved to dismiss the case. The district court dismissed the FLSA claims on the basis of Rule 68 and remanded the remaining state law claims. The Third Circuit, however, citing its concern that a defendant could simply “pick off” named plaintiffs in FLSA collective cases by using Rule 68, reversed.

The Supreme Court reversed the Third Circuit and found that the district court had correctly dismissed the case. Because the plaintiff did not contest that her own personal claim would have been satisfied by the offer, the majority assumed that it did, indeed, moot her individual claim. This is a significant assumption because, as noted by the dissent, not all circuits agree that an unaccepted offer, as opposed to one the plaintiff does accept, will moot a plaintiff's claim. Finding the claim moot, the Court concluded that the had no personal stake in the outcome of the remainder of the case. It further found that there was no basis to have claims of other future opt-ins “relate back” because at the time the employer filed its Rule 68 offer, no motion to certify a class was pending. The Court specifically rejected the argument that a district court could disregard an offer of judgment to prevent a defendant from “picking off” plaintiffs. It found that such concerns could only arise in cases under Rule 23, such as certain Constitutional claims, in which the relief sought was “transitory” or “fleeting.” Claims under the FLSA are not “fleeting” because they involve monetary damages.

The Court concluded that an offer of judgment under Rule 68 that satisfies the representative plaintiff’s claims moots a putative collective action under the FLSA.

As we noted before, courts have been less than receptive to offers of judgment. Decisions like that of the Third and Ninth Circuits, which presume an improper motive on the part of the defendant, ignore the fact that FLSA collective action litigation is unduly expensive and time-consuming even for employers that have complied with the statute. As with the issue of arbitration and the Supreme Court’s decision in AT&T Mobility v. Concepcion, 563 U.S. ____(2011), it may be that this decision will start a thaw in the courts’ reluctance to enforce Rule 68’s provisions. With this opinion, offers of judgment may become a more viable means for employers to cut off FLSA collective actions brought by individual disgruntled employees before undertaking the substantial cost of their defense.

Offers of judgment, however, are still not a panacea for collective action woes. First, to make such an offer, one must agree to pay the amount of the claim and attorney fees. The amount of the claim may not be ascertainable, and with a potential three-year statute of limitations and liquidated damages, the amount in many cases may be substantial. If, for example, a well-compensated employee complains of having been misclassified and of working 10 hours per week of overtime, the number may fall into the tens of thousands of dollars and lose the right to demonstrate that the number of hours worked was far lower or, for that matter, its defense on the merits. The defense is also taking on an unknown quantity of attorney fees and will likely have to incur the cost of litigating what a reasonable fee might be. If there are state law Rule 23 claims, the offer may be of lesser utility, although this issue is unsettled. Moreover, there remains a split in the circuits as to the effect of such an offer if the plaintiff rejects it, as well as the serious skepticism with which courts have greeted Rule 68 offers in the past. Even with this new Supreme Court decision, offers of compromise will not be of benefit in every case, but might be considered as part of an overall strategy.

The bottom line: The Supreme Court has held that a Rule 68 offer of judgment to the named plaintiff may moot the case, but such offers should still be explored carefully before making them.

California District Court Rejects Proposed Class Action Settlement

Greg Mersol — Fri, 12 Apr 2013 16:20:58 -0500

Posted by Greg Mersol

Court Finds No Support For 33%+ Attorney Fee Award

It is axiomatic that the class action vehicle exists for the benefit of the claimants. An inherent conflict of interest may arise between the class and plaintiffs’ counsel over the issue of attorney fees, and resolution of that conflict may ultimately cause a court to reject a proposed settlement, as a recent case demonstrates. In Plaisted v. The Dress Barn, Inc., Case No. 2:12-CV-10451-ODW (SHx) (C.D. Cal. Apr. 8, 2013), the plaintiffs brought employment claims for underpayment of wages under California law both as a class and under the California Private Attorney General Act, better known as PAGA. The case, which involved approximately 300 class members, was settled for a total of $400,000. We’ll put aside for the moment the effect of claims being brought pursuant to PAGA.

The parties divided the $400,000 among two sets of claims, with $300,000 for one set and $100,000 for the other. The agreement provided that the plaintiffs’ attorneys would receive up to 33% of the $300,000 fund for attorney fees, and 50% of the $100,000 fund. Put another way, out of a $400,000 pool, up to $150,000 (or 37.5%) could go to the attorneys. The agreement further provided, as is true in many cases, that the defendant would not oppose the plaintiffs’ attorney fee application. Significantly, as the court found, even if the court did reject or reduce the attorney fee award, the difference would revert to the employer and not the class.

The court rejected the settlement. It noted that in common fund settlements, the normal range for attorney fees was between 20-30%. The court did NOT hold that the settlement could not be approved with the attorney fee provisions as is, but questioned how these provisions worked as a whole and noted no support in the record for such a fee award. In particular, the court found significant shortcomings in basic factual information such as the number of class members, the amounts they had claimed, the amounts they were to receive, and the value of injunctive relief. Put another way, the parties needed to show why the settlement was fair and reasonable to the class.

As to the $100,000 fund, the court noted that the total attorney fees and costs were $80,000, the state of California was to receive only $3,750 under PAGA, and the named plaintiff received a $15,000 incentive. Although the court left open the question of the parties being able to demonstrate the propriety of that aspect of the settlement, its opinion reflects skepticism, ending with the understated observation that “[t]hese proportions seem askew.”

The Plaisted decision is a reminder that some courts will scrutinize the attorney fee provisions of class action settlements for fairness and that larger percentage fee awards require additional support. It also highlights one of the difficulties with PAGA litigation from the plaintiffs’ perspective. Under PAGA, 75% of the amounts recovered must go to the state. Thus, even if the attorney fees are only 25%, if a case is settled under PAGA, the proposed class members will only receive at most 18.25% (25% of 75%) of the amount claimed. Put another way, for cases settled solely under PAGA, unless the attorney fees are less than about 20% of the amount paid, the attorneys will get more than the putative class members. We expect to see more courts questioning PAGA settlements as more plaintiffs rely upon that statute to avoid the higher hurdles they now face in traditional Rule 23 class litigation.

The Bottom Line: Attorneys seeking disproportionately large attorney fee awards as part of class action settlements need to show their work.

Surveying the Damages: Comcast Opinion Extends Wal-Mart v. Dukes' Standards for Class Certification

John Lewis — Thu, 28 Mar 2013 16:50:53 -0500

Posted by John Lewis

Co-Authored By: Dustin M. Dow

In the latest class action case before the U.S. Supreme Court, a majority of the Court extended the Wal-Mart v. Dukes analysis to damages and held: proposed damages must be measurable on a classwide basis.

The Justices waged yet another class action philosophical battle on Wednesday when the Court issued its opinion in Comcast Corp. v. Behrend, No. 11-864, 569 U.S. __ (2013). The majority opinion, authored by Justice Antonin Scalia, created a new analytical model by which class action plaintiffs must adhere. At the same time, Justice Scalia created for class action defendants a potentially valuable tool to combat against class certification efforts. The opinion commanded a slim 5-4 majority and prompted an aggressive dissent from Justices Ruth Bader Ginsburg and Stephen Breyer who attempted to minimize the impact of Justice Scalia’s opinion, arguing it was limited to merely the underlying antitrust case.

The thrust of Justice Scalia’s opinion, however, was clear: an action cannot be certified under Rule 23(b)(3) for class treatment when it is evident that “individual damage calculations will inevitably overwhelm questions common to the class.” In Comcast, plaintiffs fell “far short of establishing that damages are capable of measurement on a classwide basis.” What’s more, Justice Scalia held, a district court may consider as much of the merits of a claim as necessary to determine whether a putative class of plaintiff’s meets the certification requirements of Rule 23. “Repeatedly,” he wrote, “we have emphasized that it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question.”

Although Justice Scalia labeled his opinion as a “straightforward application of class-certification principles,” it nevertheless raised the bar for certification of class actions. Before Comcast, several Court decisions, including Wal-Mart v. Dukes, held that class certification pursuant to Rule 23(b)(3) could only occur if common questions of fact or law were applicable to the class from a liability standpoint. Whereas Dukes is widely viewed as a business-friendly decision for its strict common “question of law or fact” requirement with respect to class liability, Comcast takes Dukes a step further by applying that same commonality test to classwide damages. As the dissenting Justices pointed out, until Comcast, “individual damages calculations [did] not preclude class certification under Rule 23(b)(3).” Indeed, Justices Ginsburg and Breyer tried to limit the Comcast majority’s influence by writing “the decision should not be read to require, as a prerequisite to certification, that damages attributable to a classwide injury be measurable on a class-wide basis.”

Yet, the dissent’s attempt to restrain the opinion’s influence is difficult to square with what the majority opinion actually says. In applying what Justice Scalia termed “the proper standard for evaluating certification,” he reversed a Third Circuit decision certifying an antitrust class where damages were “not capable of measurement on a classwide basis.”

The facts of Comcast illustrate how the case may alter the contours of class certification. Comcast plaintiffs were Philadelphia area cable subscribers who alleged that cable operator Comcast violated federal antitrust laws by illegally obtaining a monopoly over the Philadelphia market. And as Justices Ginsburg and Breyer noted, the plaintiffs had no trouble showing that potential liability could be measured on a classwide basis because Comcast, with more than 60 percent of the Philadelphia market share, had “power to raise prices significantly above the competitive levels.” As to damages, the plaintiff proffered expert analysis purportedly showing general damages throughout the Philadelphia area because of the alleged anticompetitive behavior but untethered to a particular theory of anti-trust impact.

For the dissenting Justices, any damage model that showed class members generally would suffer because of such anticompetitive behavior by Comcast was sufficient to certify a class. Justices Ginsburg and Breyer asserted that only liability need be measured on a classwide basis. But for the majority, the plaintiffs’ damages model was not sufficient because—even though liability could be measured classwide—the model revealed that it could not measure classwide damages for the type of injury involved. In fact, the majority expressly disagreed with the Third Circuit’s conclusion that the damages model would “not require labyrinthine individual calculations.” And so because common questions as to both liability and damages could not be shown to predominate over individual questions, the Court reversed the Third Circuit’s certification grant.

Notably, the majority did not explicitly address whether a district court must conduct a Daubert evidentiary analysis when considering a motion to certify a class. Both sides had briefed and presented oral arguments on whether a Daubert analysis, which examines whether expert evidence is admissible, should be required for certification. In addition, BakerHostetler attorneys filed an amicus brief on behalf of the Cato Institute, arguing that Daubert analyses are necessary prior to certification. The brief also asserted that the Court should enforce the basic commonality requirement of Rule 23. The majority sidestepped dealing with Daubert head-on by concluding that the plaintiffs’ damages measurement could not comport with Rule 23 requirements.

One implication of the majority opinion may be that a Daubert-like analysis should be used at the class certification stage if an expert opines on whether the type of damages proposed can be measured classwide. In Comcast, application of the damages model classwide depended on whether the model could apply to the underlying theory of the case. So the Court had to examine the plaintiffs’ damages model to gauge its relevance to the merits of the type of injury alleged. Ultimately, the Court concluded that the damages model could not apply to the underlying theory of the case, and therefore was not capable of classwide application, leaving it short of meeting Rule 23’s common question predominance requirement.

The dissenting consistency opinion seized on the majority’s factual interpretations regarding the damages model, accusing it of “[i]ncautiously entering the fray” and thereby articulating “a profoundly mistaken view of antitrust law.” By focusing on the larger standards of Rule 23(b)(3), however, Justice Scalia’s majority opinion discounted any limited application to antitrust law and instead laid down broad coverage for Rule 23 requirements. Analysis of the facts supporting the damages model was necessary, Justice Scalia wrote, because plaintiffs had to show that the model could be applied to measure damages on a classwide basis. And Comcast, although it arguably forfeited the right to argue admissibility of the evidence by failing to object to the district court, did not forfeit its right to argue that the damages model “failed to show that the case is susceptible to awarding damages on a class-wide basis.”

Bottom Line:

The Comcast ruling sheds new light on plaintiffs’ burdens for meeting Rule 23(b)(3)’s requirements. Comcast articulates a Rule 23 standard that requires a putative class to show that both liability and damages can be measured on a classwide basis and that common questions are not overwhelmed by individualized determinations. The holding grants district courts broad authority to analyze the merits of underlying claims in determining class certification, particularly when analyzing whether a proposed measure of damages is applicable classwide.

Sixth Circuit Affirms Defense Verdict In FLSA Case Involving Insurance Investigators

Greg Mersol — Fri, 22 Mar 2013 09:31:13 -0500

Posted by Greg Mersol

Is It Time To Deep-Six The “Administration-Production” Dichotomy?

There is a very funny set of books under the title “Unuseless Japanese Inventions” by Kenji Kawakami. The books depict, in a matter-of-fact fashion, a series of pointless inventions of a type the Japanese call a “chingdogu” or “worthless tool”. The closest American analogy is a Rube Goldberg contraption, one far more complicated and likely awkward than the problem it was intended to solve. These include things like stickers depicting open eyes you can put on your eyelids while sleeping in class, or plastic protectors for your tongue so it won’t burn on soup, etc. One is a dusting device you attach to your cat so that it cleans your house as it chases mice (or in the case of my cats harasses you for tuna fish). Some might seem like a good idea of sorts until you realize that they have no practical application or simply defeat the very purpose of the task they are trying to simplify.

Years ago, the U.S. Department of Labor added what it surely thought was helpful language on the administrative exemption under the FLSA, noting that it was intended to cover employees who were helping run the business rather than “working on a manufacturing production line or selling product in a retail or service environment.” 29 C.F.R. § 541.201(a). Simple enough – the exemption covers those assisting in the servicing of the business and not actually making its product or making sales. Unfortunately, this simple language, intended as one of many tools to assist in applying this complex exemption, has become the chingdogu of wage and hour jurisprudence.

Some courts in the past seized on this language and created what they called the “administration-production dichotomy” wielding it like a claymore to find that even positions the Department of Labor described as exempt to be mere “production workers” not falling within the DOL’s definition of exempt employment. The most frequent example of this involves the insurance industry. Despite extremely clear DOL guidance that insurance claims adjusters are exempt (29 C.F.R. § 541.203(a)), “production dichotomy” arguments are a virtual staple of plaintiff claims.

Fortunately, most recent cases have limited the application of this notion and are now routinely finding that insurance claims adjusters and investigators are not production workers, as demonstrated by a recent Sixth Circuit opinion. In Foster v. Nationwide Mutual Insurance Co., Case No. 12-3107 (6^th Cir. Mar. 21, 2013), the plaintiffs were 91 Special Investigation Unit investigators who challenged their exempt status based on, among other things, the administration-production dichotomy. As their title implies, it was their job to investigate potentially fraudulent insurance claims.

Now, everyone knows that insurance companies sell insurance policies. The plaintiffs, however, argued that the real “business” of insurance is “asset protection” and thus argued that any employee working to protect assets must be a non-exempt production worker. Fortunately, the trial court rejected this argument on summary judgment. It did, however, find a genuine issue of material fact as to whether the plaintiffs exercised discretion and independent judgment. The plaintiffs waived their jury demand and, following a seven-day bench trial, the district court found in the defendant’s favor.

The plaintiffs appealed on essentially two grounds. The first, as one would expect, was to argue the administration-production dichotomy. The Sixth Circuit, citing the wealth of contrary authority rejected it. Second, the plaintiffs argued that despite the district court’s findings, the plaintiffs did not exercise discretion and independent judgment. The plaintiffs were savvy enough not to argue that the findings were clearly erroneous, a difficult standard at best, but rather that the court’s findings related to tasks there did not constitute discretion as a matter of law. This argument devolved into a corollary to the administration-production dichotomy – their contention that investigatory work did not require discretion. The Sixth Circuit rejected this argument as well.

The Foster decision demonstrates two important things. First, plaintiffs are continuing to make production-dichotomy arguments despite the multiple pronouncements of several courts and will likely do so until that chingdogu tool is scrapped entirely. Second, the case demonstrates one of the perils for plaintiffs in these cases, which is that employers prevail on a significant number that are tried.

The bottom line: Another Circuit Court has rejected the administration-production dichotomy in the insurance context.

The Fourth Circuit Uncovers A Lack Of Certification Analysis In Recent Pinkerton Class Action

Jeffrey Vlasek — Thu, 21 Mar 2013 13:27:04 -0500

Posted by Jeffrey Vlasek

On November 6, 1860, Abraham Lincoln was elected the 16th President of the United States. Shortly after his election, rumors of a possible plot to assassinate the decidedly pro-Union President-elect began to circulate. With several Southern states threatening secession from the Union, the tension in the D.C. area was palpable. On February 23, 1861, Lincoln disguised himself and snuck through Baltimore at night, so that he could arrive at his inauguration safely. (It should be noted that this sequence did not appear in the Spielberg film Lincoln. In this blogger’s opinion, the absence of such a scene contributed to the film’s loss of Best Picture to Argo – a film, which, coincidentally, involved several Americans sneaking through hostile territory in disguise…)

Although the conspiracy surrounding the Baltimore Plot has never been proven, one man emerged a hero from the affair. Allan Pinkerton, founder of the Pinkerton National Detective Agency, managed Lincoln’s security throughout the journey. Pinkerton founded the famous (and infamous) detective agency eleven years earlier, in 1850, and it survives to this day in various forms, including Pinkerton Government Services, which was the subject of a recent Fourth Circuit decision in Ealy v. Pinkerton Gov't Servs. Inc., 4th Cir., No. 12-1252, unpublished opinion 3/14/13.

To anyone but a wage and hour attorney, the facts are not as interesting as sneaking President-elect Lincoln into Washington at night. The plaintiffs at issue in Ealy were security guards working for a federal subcontractor at Andrews Air Force Base in the Maryland suburbs of Washington, D.C. The plaintiffs sued under the FLSA, as well as Maryland law, alleging Pinkerton violated state and federal law by not compensating them for “disarming” time—that is, the time it took for them to report to the armory at the beginning and end of their shifts to collect and return weapons used during patrol. The plaintiffs claimed that disarming took approximately fifteen minutes to complete. In addition, the plaintiffs alleged that Pinkerton’s 45-minute uncompensated meal breaks were a violation of state and federal law, as the plaintiffs were required to remain on-call.

In January 2012, the district court approved an FLSA collective action and later granted certification of the guards’ Maryland claims, as well. Pinkerton appealed the order shortly after the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), and demanded that the class be vacated because the district court failed to sufficiently analyze whether the plaintiffs satisfied the requisite commonality and typicality required under Rule 23(a), and show common issues predominate under Rule 23(b)(2). (Much like the potential assassins in Maryland failed to “rigorously” investigate whether that man dressed like a woman was future President Lincoln.)

The Fourth Circuit agreed, and held that “consistent with Wal-Mart Stores Inc. v. Dukes, a more rigorous analysis into the Rule 23 requirements is necessary in this case to ensure meaningful appellate review,” and specifically, there must be a more thorough investigation into whether there are “common questions of law or fact,” along with typicality and predominance among the class members. As a result, the class certification was vacated, and returned to the district court for review.

The Bottom Line: Nearly a year and a half later, the Wal-Mart decision continues to fulfill its intended purpose: to provide employers with teeth to bite back at plaintiffs who try and slide through the certification process.