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Proskauer on Class and Collective Actions

Second Circuit Revives Contract Attorney’s Misclassification Suit

Posted in Appeals, Class/Collective Action, FLSA, Misclassification

On July 23, 2015, the Second Circuit, in Lola v. Skadden, Arps, Slate, Meagher & Flom LLP, Tower Legal Staffing, Inc., revived a putative collective action brought by David Lola, a contract attorney, against Skadden and Tower Legal Staffing, Inc., alleging violations of the overtime provisions of the Fair Labor Standards Act.  The Second Circuit held that the plaintiff adequately pled that document review may not necessarily constitute “practicing law” under North Carolina law.

Plaintiff David Lola, a contract attorney, conducted document review for Skadden in 2012 and 2013 in connection with a multi-district litigation.  Lola alleged that his document review was closely supervised and primarily consisted of:

  • looking at documents to see what search terms appeared;
  • categorizing those documents into predetermined categories; and
  • redacting documents based on specific protocols.

Lola was paid $25 an hour and generally worked between 45 and 50 hours per week.  He was classified as exempt under the FLSA and therefore did not not receive overtime pay.

Lola brought suit against Skadden and Tower Legal Staffing, Inc. as putative joint employers, on behalf of himself and similarly situated employees, alleging that he was misclassified as exempt  under the FLSA and seeking overtime pay.  While attorneys generally qualify for the FLSA’s professional exemption, Lola alleged that he and other contract attorneys performing document review for Skadden were not engaged in the practice of law because they “performed document review under such tight constraints that [they] exercised no legal judgment whatsoever.”  The defendants moved to dismiss the complaint, arguing that  Lola, as an attorney, was exempt under the FLSA’s professional exemption.

The district court granted the defendants’ motion to dismiss Lola’s complaint.  The court first found that the definition of “practice of law” is “primarily a matter of state concern,” and that because Lola resided at all relevant times in North Carolina, that state’s law should apply when analyzing whether he was practicing law under the FLSA.  The court then concluded that Lola was engaged in the practice of law under North Carolina law, and therefore an exempt employee under the FLSA.  Lola appealed the decision to the Second Circuit.

As a threshold matter, the Second Circuit agreed with the district court that North Carolina law should control the question of whether Lola was practicing law within the meaning of the FLSA’s professional exemption.  Constrained to accept the allegations in the complaint as true for purposes of the defendants’ motion to dismiss, however, the Court of Appeals disagreed with the district court’s conclusion that by undertaking the document review he was hired to conduct Lola was necessarily “practicing law” within the meaning of North Carolina law. To the contrary, the Second Circuit found that if all facts pled by Lola are taken as true, and he “provided services that a machine could have provide,” then he was not “practicing law” within the meaning of the FLSA and therefore did not qualify for the professional exemption.  For this reason, the Court of Appeals vacated the judgment of the district court dismissing the complaint, and remanded the case for further proceedings.

Second Circuit Adopts The “Highly Individualized” Primary Beneficiary Test In Unpaid Intern Lawsuits

Posted in Appeals, Class/Collective Action, FLSA, Misclassification

On July 2nd, the United States Court of Appeals for the Second Circuit issued its decisions in Glatt et al. v. Fox Searchlight Pictures, Inc. et al. and Wang et al.  v. The Hearst Corp., the two unpaid intern lawsuits heard in tandem by the court on January 30, 2015.  The court’s opinion in Glatt, and summary order in Wang, adopted the employer-proposed “primary beneficiary” test to determine whether an unpaid intern should be considered an “employee” under the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”) and thus entitled to compensation.

The court rejected the six-factor test promoted by the U.S. Department of Labor, and applied by the district court in Glatt, finding that it was “too rigid” and ill-suited to apply to the “particular facts [of] all workplaces.”  The “primary beneficiary” test examines “whether the intern or the employer is the primary beneficiary of the relationship.”  This test was preferred because “it focuses on what the intern receives in exchange for his work” and “accords courts the flexibility to examine the economic reality as it exists between the intern and the employer.”  This approach, the court remarked, “reflects a central feature of the modern internship—the relationship between the internship and the intern’s formal education,” as it recognizes the integration between the internship and classroom studies, as well as the receipt of academic credit.

In applying the “primary beneficiary” test, the court provided seven (7) factors, none of which is dispositive, to aid lower courts in examining the lawfulness of an unpaid internship.  These factors are not exhaustive, and a court may consider any other relevant factor; this requires “weighing and balancing all of the circumstances.”  The seven factors are set forth below:

  1. The extent to which the intern and employer clearly understand that there is no expectation of compensation.  Any promise of compensation, express or implied, suggests that the intern is an employee – and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.   

While the factors include several of the six factors previously urged by the DOL as relevant to the analysis, one previous requirement is excluded:  that 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.”  The exclusion of this factor was notable because it was the most difficult for any employer to satisfy in the context of an unpaid internship.  The court then vacated the district court’s ruling that Eric Glatt and Alexander Footman, former production interns on the Black Swan film, were “employees” and entitled to minimum wage, and remanded the decision to the district court.

In light of this new test, the court also vacated and remanded the Glatt district court’s Rule 23 class and FLSA collective certifications brought by Plaintiff Eden Antalik, a former corporate intern in Fox Searchlight’s New York Publicity Office.  Specifically, the court found that the Glatt district court “misconstrued” the Circuit’s standards to evaluate whether common questions predominate over individual ones under Rule 23(b)(3), and vacated the district court’s Rule 23 certification.  In this regard, the Second Circuit remarked that the “question of an intern’s employment status is a highly individualized inquiry,” and even if the district court properly found that “Fox had a policy of replacing paid employees with unpaid interns, it would not necessarily mean that every Fox intern was likely to prevail on her claim that she was an FLSA employee under the primary beneficiary test, the most important issue in each case.”

The court concluded in the same manner with respect to the FLSA conditional certification decision, acknowledging that the “proposed collective presents an even wider range of experience than her proposed class because it is nationwide in scope, rather than just limited to New York interns.”  The court found that under the standard it adopted, “courts must consider individual aspects of each intern’s experience” and “none of the common proof identified by Antalik and relied on by the district court, will address these questions.”  Indeed, the court concluded that “the plaintiffs in Antalik’s proposed collective are not similarly situated even under the minimal pre-discovery standard.”

In Wang, the Second Circuit, in a summary order, applied the same “primary beneficiary” test and affirmed the district court’s denial of Rule 23 certification, which was in accord with its decision in Glatt that the test for employment is a “highly individualized inquiry.”  The court also affirmed the district court’s denial of plaintiffs’ summary judgment motion, where the district court concluded that genuine issues of material facts prevailed when evaluating the question of whether several unpaid interns at Hearst were FLSA and NYLL “employees.”

These decisions established new law in the realm of unpaid internships, and provided explicit guidance to district courts in the Second Circuit as to how this test should be applied.  In addition, the decisions are important because the spate of unpaid internship lawsuits have all been brought as Rule 23 class and/or FLSA collective actions, and these decisions certainly suggest that classes and collectives will now be harder to certify.  The Second Circuit’s remark that the test is “highly individualized” casts doubt on whether district courts will certify Rule 23 classes under the “rigorous” standards set forth by the Supreme Court in Dukes and Comcast.  The court’s remark that Plaintiff Eden Antalik in Glatt failed to even satisfy the lower threshold for FLSA conditional certification is also noteworthy, and suggests that in evaluating unpaid internships, plaintiffs may have great difficulty meeting the “similarly situated” standard for FLSA certification.

Magistrate Recommends Denial of Class Certification in Goldman Sachs Gender Discrimination Suit

Posted in Class/Collective Action

On March 10, 2015, a group of plaintiffs suing Goldman Sachs for gender discrimination suffered another setback in their attempt to certify a company-wide class in the case of Chen-Oster et al. v. Goldman, Sachs & Co., 10 Civ. 6950, pending in the Southern District of New York.  In that decision, linked here, Magistrate Judge Francis issued a report and recommendation holding that individualized issues of causation would “swamp” any classwide questions and that the predominance requirement of Rule 23(b)(3) was not met.

The Chen-Oster plaintiffs allege that Goldman Sachs’ internal evaluation, promotion, and compensation policies disfavor women.  They rely primarily on an expert report stating that women tend to score lower than men on Goldman Sachs’ yearly evaluations, known as “360 Reviews,” even after controlling for factors such as experience and education; and that women were likely to be rated in a lower “quartile” by their supervisors as compared to similarly situated men.  The court held that, while this statistical evidence met the low burden of showing a common question under Rule 23(a), it did not meet the “more demanding” predominance standard of Rule 23(b)(3).  Even if the expert report created a “presumptive causal link” between the challenged processes and an individual class member’s alleged injury, “Goldman Sachs would retain the right to demonstrate that there were other, legitimate explanations for any shortfall in compensation or failure to be promoted.”  Certain factors that are necessarily unique to each potential plaintiff – her “particular skills, the nature of the work in her business unit, the unit’s profitability relative to other units, and, indeed, the extent to which the employee’s manager considered 360 review and quartiling evaluations — would effectively swamp the common question of whether the evaluative policies have, on average a discriminatory impact.”  Thus, even though the expert report may establish that, on average, women were disadvantaged by these processes, it was impossible to show that any particular plaintiff suffered an adverse employment action because of the challenged policies rather than because of her own individual job performance or her business group’s profitability. The Court also held that individualized factors were likely to play an even greater role with respect to plaintiffs’ intentional disparate treatment claims.

The court further noted that, in a previous decision in this action, District Judge Leonard B. Sand had found that the plaintiffs had no standing to seek certification for injunctive relief under Rule 23(b)(2) because they were no longer employed with Goldman Sachs.  The court declined to reconsider that decision despite its misgivings, citing the law of the case doctrine. Thus, because neither of the Rule 23(b) requirements for certification were met, Plaintiffs’ motion was denied.

Judge Francis’s report and recommendation emphasizes the heightened standard that plaintiffs face in certifying disparate impact classes in light of the Supreme Court’s seminal 2011 decision of Wal-Mart Stores, Inc. v. Dukes. This report is still subject to review by District Judge Analisa Torres and, potentially, the Second Circuit. Nonetheless, it is yet another sign that lower courts are paying close heed to the Supreme Court’s admonition that defendants are entitled to present individual defenses to individualized claims, and that a presentation of overarching classwide statistical evidence cannot override this right.

Fifth Circuit Refuses Application of Bright-Line Test in FLSA Seaman Exemption Dispute

Posted in Appeals, Class/Collective Action, FLSA, Misclassification

On November 13, 2014, the Fifth Circuit addressed the uncertainty stemming from its decision in Owens v. SeaRiver Maritime, Inc., 272 F.3d 698 (5th Cir. 2001), wherein the Court found that a plaintiff’s unloading and loading of vessels was considerednonseaman” work subject to the Fair Labor Standards Act’s (“FLSA”) overtime requirements. Subsequent to that decision, plaintiffs have advocated for a broad application of Owens’s rule, and district courts struggled with Owens’s  application to what are often fact-driven cases.

The Fifth Circuit provided necessary clarity in Coffin v. Blessey Marine Services, Inc., No. 13-20144, 2014 WL 5904734 (5th Cir. Nov. 13, 2014), when it reversed the district court on an interlocutory appeal and held that vessel-based crewmembers tasked with loading and unloading vessels are seamen under the FLSA rendering them exempt from the FLSA’s overtime requirements under 29 U.S.C. § 213(b)(6). In so ruling, the Fifth Circuit limited its prior holding in Owens, by finding that the unloading and loading of vessels is not strictly “nonseaman” work, and that each individual and case must be analyzed under a facts-and-circumstances test. Significantly, in dicta, the Court intimated that the Department of Labor’s “twenty percent rule,” which states that an employee loses his seaman status when “nonseaman” work occupies over twenty percent of his time, is also not a bright-line test.

Plaintiffs are tankermen who lived and worked aboard Defendant’s vessels. Though the parties and the court agreed that most of Plaintiffs’ job duties were “seaman” work exempt from the FLSA’s overtime requirements, Plaintiffs filed suit alleging that their job duties related to the loading and unloading of vessels constituted “nonseaman” work for which overtime pay was owed. Plaintiffs and the district court relied on the Fifth Circuit’s prior holding in Owens, and the district court denied Defendant’s motion for summary judgment. The district court and the Fifth Circuit granted Defendant’s interlocutory appeal under 29 U.S.C. § 1292(b).

Following oral argument, the Fifth Circuit issued its decision, which disagreed with Plaintiffs’ and the district court’s interpretation and application of Owens. Importantly, the Fifth Circuit distinguished Owens and emphasized that the analysis under the FLSA’s seaman exemption is a fact-based and flexible inquiry not subject to bright-line, categorical rules. The Court reasoned that the analysis required the consideration of the character of the work performed and the context in which it is performed and not the consideration of where the work is performed or how it is labelled. Unlike in Owens where the plaintiff was a non-crewmember who was not tied to a vessel and who only sought overtime for land-based loading and unloading, the Plaintiffs in this case lived on Defendant’s towboats, and their loading and unloading duties undisputedly affected the seaworthiness of the vessels and were integrated fully with their other seaman duties. Therefore, considering the character and context of the work performed, the Court concluded that the Plaintiffs’ unloading and loading duties were seaman work, thus exempting Plaintiffs from the FLSA’s overtime requirements.  For these reasons, the Court vacated the lower court’s ruling and remanded the matter to enter judgment in favor of Defendant.

Lawful Shmawful: Ninth Circuit Ignores Lawful Written Policy and Uses Statistical Sampling to Certify Class Based on Alleged “Unofficial Policy”

Posted in FLSA, Uncategorized

On September 3, 2014, the U.S. Court of Appeals for the Ninth Circuit upheld certification of a class of approximately 800 nonexempt insurance claims adjusters who claimed they worked overtime without compensation despite the employer’s lawful written policy to pay nonexempt employees for all hours worked.

In Jimenez v. Allstate Ins. Co., the Ninth Circuit upheld certification by finding three common questions existed.  First, whether Allstate had an unofficial policy of discouraging employees from reporting overtime.  Second, whether the employees’ workload forced them to work hours in excess of eight in one day or 40 in one week and third, whether Allstate’s timekeeping method caused an underpayment of overtime.

Specifically, the court found that the adjusters were not responsible for preparing time sheets or clocking in and clocking out.  Rather, their time cards were set to a default of eight hours per day and 40 hours per week, and their supervisors could submit “deviations” or “exceptions” for hours worked outside of this schedule.  Accordingly, the Ninth Circuit determined that a common question existed regarding whether this timekeeping method led to the adjusters working unpaid overtime.

Notably, the Ninth Circuit held that liability on these issues, as well as the issue of whether the employer should have known that employees were working off the clock, could be resolved via statistical sampling.  Importantly, neither the Ninth Circuit nor the trial court orders specified how the proposed statistical sampling would actually resolve these issues.  Similarly, neither decision explains how the certified claims will be managed at trial.

Even so, the court held that statistical sampling could only get the plaintiffs so far.  Indeed, the court held that plaintiffs would be prohibited from utilizing representative testimony or statistical sampling during the damages phase of the case because a contrary finding would prevent the company from exercising its right to raise individualized defenses.

Based on the Jimenez decision, an employer’s lawful written policy is not enough to insulate it from class certification.  The Court’s decision also deviates somewhat from the U.S. Supreme Court’s decisions in Walmart Stores v. Dukes and Comcast Corp. v. Behrend and the California Supreme Court’s decision in Duran v. Superior Court.  All of these decisions instruct trial courts to examine how any purportedly unlawful policy is applied to the putative class when deciding to certify the class and how any individualized issues surrounding this application will be managed at trial.  While the courts continue to sort these issues out, employers can help themselves by ensuring that employees accurately track and report their hours worked.

Employers Should Now Run – Not Walk – Toward Adopting Arbitration Agreements in California

Posted in FLSA, Uncategorized

Today, the California Supreme Court issued its long-awaited decision in Iskanian v. CLS Transp. Los Angeles, LLC, Case No. S204032, upholding class action waivers in employment arbitration agreements.  This means that the U.S. Supreme Court’s 2011 opinion in AT&T Mobility LLC v. Concepcion is to be given full force and effect in the employment setting in California.  That said, however, Iskanian distinguishes the right of an employee to bring a representative action under California’s Private Attorneys General Act of 2004 (“PAGA”) and holds that such claims may not be barred in an arbitration agreement.

Iskanian is a favorable decision for employers. First, Iskanian reaffirms that class actions are a procedural device that exists to make the resolution of certain claims more efficient; it is not a substantive right to which litigants are invariably entitled.  Iskanian also rejects the NLRB’s conclusion in D.R. Horton (discussed in detail here­) that class action waivers violate employees’ rights under Section 7 of the National Labor Relations Act to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

Iskanian confirms that an employer does not waive its right to enforce an arbitration agreement when the law suggests that moving to compel arbitration would be futile.  In Iskanian, for example, the employer withdrew its petition to compel arbitration when the California Supreme Court issued its opinion in Gentry v. Superior Court (which made clear that further petition would be futile) and renewed its petition after the U.S. Supreme Court decided Concepcion, which implicitly overruled Gentry.  In this context, Iskanian holds that a delay in moving to compel arbitration is permitted so long as it is not unreasonable.

In sum, Iskanian clears the way for employers to enter into enforceable arbitration agreements that also contain class action waivers.  Further, employers should know that arbitration agreements also operate as “wolfsbane” in warding off some of the most active members of the Plaintiffs’ bar who simply refuse to take a case to arbitration – they would much prefer to pluck at the heart strings of a sympathetic jury.  And, while representative PAGA actions will survive and probably multiply in the wake of Iskanian, these actions are subject to a significantly shorter statute of limitations period (one year) as compared to the four year statute of limitations employers typically see in other non-PAGA actions.  This means that any putative “representative group” will consist of significantly fewer employees (and possibly less exposure).

California Courts May No Longer Be Able to Certify a Ham Sandwich

Posted in FLSA

Commentators have quipped that class certification is so easy in California that with little effort a group of plaintiffs could certify even a ham sandwich.  In fact, as we have discussed here, we have seen a proliferation of recent appellate decisions hinging class certification on the mere existence of an employer’s uniform policy – no matter how facially lawful that policy may be or how diverse its application is to the putative class at issue.

The law may be changing.  On May 29, 2014, the California Supreme Court issued its long-awaited decision in Duran v. U.S. Bank Nat’l Ass’n, which sets forth the degree of rigorous analysis in which trial courts must engage before certifying a class action.  Importantly, Duran confirms that plaintiffs need more than the mere existence of a uniform policy to support their effort to certify a class.

Duran involves a group of loan officers for U.S. Bank who allege they were misclassified as overtime-exempt pursuant to the outside sales exception, which applies to employees who spend more than 50% of their workday engaged in sales activities outside their home office.  Plaintiffs argued that the common issue for certification purposes was the fact that U.S. Bank had a common policy that classified its loan officers as exempt and used a common job description.  Rejecting this argument, the Supreme Court confirmed that plaintiffs need more: “In wage and hour cases where a party seeks class certification based on allegations that the employer consistently imposed a uniform policy or de facto practice on class members, the party must still demonstrate that the illegal effects of this conduct can be proven efficiently and manageably within a class setting.”

Accordingly, Duran instructs trial courts to examine how any purportedly unlawful policy is applied to the putative class when deciding to certify the class and how any individualized issues surrounding this application will be managed at trial.  The Court said, “[t]rial courts must pay careful attention to manageability when deciding whether to certify a class action” and explained that “[i]f the court makes a reasoned, informed decision about manageability at the certification stage, the litigants can plan accordingly…”

In this way, Duran seems to adopt the reasoning of the U.S. Supreme Court’s 2011 decision in Wal-Mart Stores v. Dukes, thereby making Dukes’ application to California state law class actions apparent.  First, Duran relies on Dukes in affirming that a defendant has a due process right to litigate its defenses and that the individualized issues surrounding these defenses must be considered at the class certification stage.  Second, in stating that class certification must hinge on “some glue that binds class members together” Duran seems to echo the U.S. Supreme Court’s admonition in Dukes that plaintiffs need some “glue holding the alleged reasons for [the unlawful conduct] together” in order to support class certification.  Both Duran and Dukes similarly instruct that class certification is proper only where an examination of all of the class members’ claims for relief will produce a common answer to the critical liability question.

Additionally, Duran confirms that plaintiffs may propose using statistical or survey data to prove class wide liability at trial.  However, the Court clearly stated that plaintiffs cannot use statistical evidence as “an evidentiary substitute for demonstrating commonality.”  For example, in Duran, even though the trial court found certain allegations were common to the class (i.e. whether U.S. Bank uniformly classified the loan officers as exempt employees and allegedly failed to train or monitor their compliance with the exemption), these questions did not produce common answers as to how the 260 class members actually spent their time.  Moreover, the statistical model used by the trial court failed to ameliorate the problem.

The trial court permitted plaintiffs to submit a “random” sample of 20 employees chosen by the court and did not permit U.S. Bank to introduce any favorable evidence from employees who were not part of the sample.  Based on the evidence from this 20-employee sample and statistical extrapolations that were applied to the rest of the class, judgment was rendered against U.S. Bank for the misclassification of all 260 employees – even though some of those employees signed declarations demonstrating that they were properly classified as exempt.  Duran, therefore, emphasizes that when using statistical evidence, the defendant must be permitted to address questions supporting its defenses even if those questions must be answered on an individualized basis.  And, if these individualized questions become so numerous that the trial would be unmanageable, the class should not be certified.

Court Approves FLSA Settlement that Extinguishes Related State Law Claims

Posted in FLSA

When an employer settles a collective action lawsuit under the Fair Labor Standards Act (FLSA), may the settlement agreement also include a release of any rights to overtime pay which the plaintiffs may have under state law? In Wells Fargo Wage and Hour Employment Practices Litigation, MDL No. H-11-2266 (S.D. Tex. May 12, 2014), the court answered that question with a clear “yes.”

Wells Fargo was sued in five separate unpaid overtime lawsuits by plaintiffs who had worked as home mortgage consultants, mortgage consultants, loan originations, loan consultants, or in similar positions throughout the country.  Two of these suits – Richardson v. Wells Fargo and Chaplin v. Wells Fargo – purported to represent nationwide collectives under the FLSA. Another of these lawsuits, Chan v. Wells Fargo Home Mortgage, Inc., brought claims only under Washington state law.  The lawsuits were consolidated for proceedings in the Southern District of Texas.   The parties successfully mediated the Richardson and Chaplin suits, and the plaintiffs agreed to release any claims they may have had based on unpaid overtime, which would include state law claims as well. Over 4,000 employees opted into that settlement.  The named plaintiffs in the Chan action did not; instead, they filed objections.

The court denied the objections and a later motion for reconsideration.  It began by holding that the Chan plaintiffs lacked standing to object since they were not opt-in members of the Richardson or Chaplin collectives.  Since they lacked any personal stake in the settlement, those plaintiffs had no grounds to object.  The Chan plaintiffs attempted to claim standing based on their “fiduciary duty” to the settling employees, but the Court correctly held that no such duty existed because the settling employees had, by opting in, expressly consented to representation by the attorneys prosecuting the Richardson and Chaplin suits.  The court then went on to hold that, even if the Chan plaintiffs did have standing, they had failed to show that the settlement was substantively unfair or unreasonable.  The court recognized that, in settling the state law claims along with the FLSA claims, the plaintiffs were giving up potentially valuable legal rights; however, “compromise is part of a settlement,” and the plaintiffs were entitled to accept an immediate sum certain in lieu of a potential, uncertain recovery at some possible future date.  The court thus granted final approval to the settlement.

Rebuking “Trial by Formula,” Federal Court Decertifies Rule 23(b)(3) Class Action

Posted in FLSA

In Stiller v. Costco Wholesale Corp., No. 3:09-cv-2473-GPC-BGS, Plaintiffs Eric Stiller and Joseph Moro alleged that Costco’s loss-prevention closing procedures effectively “forced” employees to work off-the clock without getting paid because they were required to remain on-site after they had clocked out of their shifts to go through security screenings.  In December 2010, the district court certified a California-wide class finding that common questions predominated because Costco employed a centralized policy which applied to all employees.  However, on April 15, the Court decertified the class finding that the purportedly “common” question of whether Costco had a “de facto policy of detaining employees in warehouses during closing procedures without pay” would only determine whether “employees were sometimes detained without pay as a result of the alleged policy.”  Costco’s liability would still hinge on individualized determinations as to “whether, how often, and for how long [individual] class members actually experienced unpaid [off-the-clock] time.”

Stiller contrasts starkly with Williams v. Superior Court (Allstate Ins. Co.), where the California Court of Appeal characterized “trial by formula” as “a method of calculating damages” with “little, if any, relevance at the certification stage before the trial court and parties have reached the merits of the class claims.”  (See our blog post about Williams here.)  Citing the U.S. Supreme Court’s decision in Wal-Mart Stores, Inc.  v. Dukes, Stiller emphasized that “trial by formula” would thwart Costco’s right to assert defenses to individual claims of liability.  Moreover, the Court held that the plaintiffs’ proposal to determine Costco’s liability to the class by drawing inferences about class members’ work from expert testimony and Costco’s payroll records, scheduling records, and cash register logout data improperly “put the damages cart before the liability horse” because class members were not all subject to Costco’s policies in the same way.  Individualized questions relating to a class member’s right to recover, therefore, bore directly on the question of whether common questions predominated.

Hopefully, California courts take note.  While California courts are not bound by federal authority when ruling on class certification decisions, the California Supreme Court’s decision in Brinker Restaurant Corp. v. Superior Court clearly indicated that California’s certification standards are derived from “federal precedent.”  Hence, similar to Federal Rule of Civil Procedure 23, California courts require the party advocating for class treatment to, among other things, demonstrate the existence of a “well-defined community of interest,” which includes showing that “predominant common questions of law or fact” exist.  Thus, Dukes’ rejection of “trial by formula” should apply regardless of whether the class certification decision is being considered by a federal court or a California state court.

Ninth Circuit Clarifies Removal CAFA Removal Requirements

Posted in FLSA, Uncategorized

In its recent per curiam opinion in Rea v. Michaels Stores, Inc., the U.S. Court of Appeals for the Ninth Circuit clarified rules and procedures relevant to defendants seeking to remove cases to federal court.

In Rea, the plaintiffs filed a class action alleging that Michaels improperly classified California store managers as exempt from overtime.  Michaels removed the action to federal court under the Class Action Fairness Act (CAFA), but the district court remanded the case back to state court because Plaintiffs had expressly waived the right to recover more than $4,999,999.99, meaning that the case fell one-cent shy of the necessary $5,000,000 amount in controversy.  After remand, the U.S. Supreme Court decided Standard Fire Ins. Co. v. Knowles, which invalidated purported damage waivers used by plaintiffs to defeat CAFA removal.  Michaels once again removed to federal court under CAFA, but the district court deemed Michaels’ attempted removal barred by CAFA’s 30-day rule and found that Michaels failed to show that the amount in controversy exceeded $5 million.

The Ninth Circuit reversed, finding that the California state court’s post-remand decision to certify the class could not defeat federal removal jurisdiction “if jurisdiction was properly invoked as of the time of the filing.”  As to Michaels’ failure to remove within 30 days of receiving the complaint, the Ninth Circuit held that that CAFA’s 30-day time period does not start to run until a complaint or an amended pleading, motion, order, or other paper “affirmatively reveals on its face” that the case is removable. Because controlling law generally recognized damages waivers as valid and effective when plaintiffs filed their complaint, the Ninth Circuit ruled that the complaint did not “affirmatively reveal” the facts necessary for federal court jurisdiction and, therefore, did not trigger the initial 30-day removal period. Here, the Court explained, Michaels’ 30-day limit did not commence until the U.S. Supreme Court decided Standard Fire, after which Michaels timely filed for removal.  Even so, the Court found that Standard Fire amounted to “a relevant change in circumstances” that justified reconsideration of Michaels’ “successive, good faith petition for removal.”

The Ninth Circuit also held that Michaels satisfied CAFA’s $5 million amount-in-controversy requirement by providing evidence that managers were expected to work at least 45 hours per week and by pointing out that named plaintiffs testified that they actually worked at least 45 hours per week.  This, the Court found, was “substantial, plausible evidence” that the amount in controversy could exceed $5 million, despite the fact that Michaels did not proffer evidence that any of the other class members actually worked more than 45 hours per week.

Rea thus fortifies employers’ right to remove class actions under CAFA. Particularly valuable is Rea’s rejection of the “legal certainty” standard for establishing the amount in controversy and holding that defendants can establish the amount in controversy by pointing to plausible, rather than actual, damages.  Using such tactics, defendants should have an easier time establishing removal jurisdiction, especially since Rea indicates any plausible showing of an amount in controversy exceeding $5 million effectively shifts the burden to plaintiffs to affirmatively prove that the value of their case is less than $5 million, which few plaintiffs are likely to want to do.