Ninth Circuit Issues A Trilogy Of Decisions That May Significantly Enhance Defendants’ Ability To Contest Class Certification And Liability

July 14, 2009

Last week, the U.S. Court of Appeals for the Ninth Circuit issued three published opinions that should help defendants challenge labor-and-employment and other types of class actions:  (1) Vinole v. Countrywide Home Loans, Inc., No. 08-55223 (9th Cir. July 9, 2009), which held that a defendant may bring a "preemptive" motion to deny class certification; (2) Doe v. Wal-Mart, No. 08-55706 (9th Cir. July 10, 2009), which affirmed the dismissal of a labor class action on the pleadings and instructed courts to apply careful scrutiny to complaints that provide little or no factual basis for their conclusions; and (3) In re Wells Fargo Home Mortgage, No. 08-15355 (9th Cir. July 7, 2009), which rejected employees’ attempts at resolving wage-and-hour claims on a class-wide basis simply because their employer had uniformly exempted them from overtime requirements.

While these three decisions are of particular interest to companies facing labor-and-employment class actions, they should be of interest to defendants in all putative class actions brought in the Ninth Circuit and elsewhere.  In particular, these decisions may enhance the ability of defendants to defeat class certification, and even liability, much earlier on in the litigation.

I.  Ninth Circuit Endorses Growing Trend of "Preemptive" Motions to Deny Class Certification

In Vinole, the Ninth Circuit held, for the first time, that Rule 23 of the Federal Rules of Civil Procedure allows a defendant in a putative class action to bring a "preemptive" motion to deny class certification.  The Seventh Circuit and many district courts had previously approved of such a procedure, as have the California state appellate courts.  This decision confirms that district judges in the Ninth Circuit have wide discretion to resolve the certification question before a plaintiff brings a motion to certify a class, and potentially even before the discovery and pretrial motion cutoff dates.

Ten months after filing their putative wage-and-hour class action in Vinole, the plaintiffs still had not yet moved to certify a class.  At that point, the defendant filed its own motion to deny certification.  Over plaintiffs’ objection, the district court granted that motion, rejecting the plaintiffs’ argument that it was per se improper for a defendant to move to deny certification before plaintiffs had raised the certification issue.

The Ninth Circuit affirmed, holding that Rule 23 does not prevent "a defendant from seeking early resolution of the class certification question."  Slip Op. 8308.  While the court acknowledged that plaintiffs are traditionally the party to initiate the certification process, neither the text of Rule 23 nor prior case law gives plaintiffs "complete control over the timing of a district court’s consideration of the class certification issue."  Id. at 8312.

The Ninth Circuit also agreed with the district court that the defendant’s motion was not premature, because "Plaintiffs had sufficient time to prepare for Defendant’s motion despite the fact that the discovery," id. at 8311, and pretrial motion cutoff dates were merely weeks away.  In addition, the court highlighted plaintiffs’ delay in prosecuting their case–plaintiffs had ten months to pursue discovery by the time of the certification ruling, and "[n]othing in the record suggests that Plaintiffs could not have more diligently prepared their certification argument."  Id. at 8314.

II.  Courts Should Thoroughly Examine Allegations in Complaints and Reject Conclusions Lacking an Adequate Factual Basis

In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), the United States Supreme Court endorsed a rigorous interpretation of Federal Rule of Civil Procedure 8’s pleading burden.  In Doe, the Ninth Circuit applied these pleading standards to affirm the district court’s dismissal of a labor-law class action on the pleadings.  Doe involved claims challenging the working conditions in a domestic company’s overseas factories.  In particular, the defendant’s supply contracts included a code of conduct, entitled "Standards for Suppliers," that specified various labor standards that suppliers were required to meet (e.g., pay, hours, forced labor, child labor, and discrimination) and that authorized periodic inspections to ensure compliance with these standards.  Plaintiffs alleged that the defendant’s inspection efforts were inadequate, that it knew some suppliers were violating the standards, and that the pressures of deadlines and low prices made compliance with the standards impossible.

The Ninth Circuit rejected each of plaintiffs’ legal theories under California law, including their claim that the defendant was the "joint employer" of these plaintiffs because it exercised control over their "day-to-day" employment.  The district court had dismissed this theory because plaintiffs had not alleged any factual basis for their conclusion that the defendant exercised such control.  The Ninth Circuit agreed, holding that plaintiffs’ "general statement that [the defendant] exercised control over their day-to-day employment is a conclusion, not a factual allegation with any specificity," and the court refused to "accept Plaintiffs’ unwarranted conclusion in reviewing a motion to dismiss."  Slip. Op. 8621.  Citing Twombly and Iqbal, the Ninth Circuit stressed that "a plaintiff’s obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions and a formulaic recitation of the elements of a cause of action will not do."  Id.  Doe thus confirms that the pleading standards announced in Twombly and Iqbal apply to labor cases to require that plaintiffs do more than simply plead the legal conclusions supporting their causes of action. 

III.  A Policy of Uniformly Exempting a Group of Employees from Overtime Requirements Does Not Necessarily Warrant Class Treatment of Those Employees’ Claims

In Wells Fargo and Vinole, the Ninth Circuit rejected class certification for groups of employees with similar job descriptions whom the defendants had uniformly categorized as exempt from overtime requirements.  Both cases involved groups of outside salespersons employed by mortgage companies who were compensated primarily on a commission basis.  The Court held that a policy of uniform exemption does not, without more, support a finding of predominance under Rule 23(b)(3) of the Federal Rules of Civil Procedure.

The Ninth Circuit in Wells Fargo rejected the oft-cited decision in Wang v. Chinese Daily News, Inc., 231 F.R.D. 602 (C.D. Cal. 2005), in which the district court espoused an "estoppel" theory that presumed "class certification is proper when an employer’s internal exemption policies are applied uniformly to the employees."  Slip. Op. 8334.  Under this theory, a corporate defendant may not treat a group as uniformly exempt from overtime laws for the purposes of compensating them, but then argue that the group’s heterogeneity should disqualify it from class status. 

The Ninth Circuit acknowledged that uniform corporate policies may be a substantial factor in favor of certification, especially where "there is evidence that the duties of the job are largely defined by comprehensive corporate procedures and policies."  In cases where "[s]uch centralized rules . . . reflect the realities of the workplace," the class action device can efficiently resolve the employees’ claims because "uniformity among employees . . . is susceptible to common proof."  Id. at 8335.

In other circumstances, however, such "common proof" might be elusive.  In Wells Fargo, the employer’s "blanket exemption policy does nothing to facilitate common proof on the otherwise individualized issues."  Id.  Because each employee could allocate his or her time differently, each salesperson’s exempt status depended upon an individualized determination of that employee’s work habits. 

In Vinole, the Ninth Circuit affirmed the denial of class certification for substantially the same reasons as in Wells Fargo.  The Court noted that the "overarching focus remains whether trial by class representation would further the goals of efficiency and judicial economy."  Slip. Op. 8319.

Importantly, Vinole also rejected plaintiffs’ proposal to mitigate the burdens of a "fact-intensive, individual analysis of each employee’s exempt status" by using "’innovative procedural tools,’ such as questionnaires, statistical or sampling evidence, representative testimony, separate judicial or administrative proceedings, expert testimony," and other devices.  Id. at 8321.  While noting that the decision to use such tools "is within the sound discretion of the district court," the Ninth Circuit expressed skepticism whether "these tools would actually assist the court."  Id.  Thus, as Vinole demonstrates, some courts are unwilling to permit plaintiffs to use statistical sampling and other types of indirect evidence as a substitute for individual proof in class actions.  See also McLaughlin v. Am. Tobacco Co., 522 F.3d 215 (2d Cir. 2008) (rejecting the use of statistical sampling to establish class-wide damages).

Gibson, Dunn & Crutcher LLP

Gibson, Dunn & Crutcher’s Labor and Employment and Class Action and Complex Litigation Practice Groups are available to assist in addressing any questions you may have regarding these issues.  Please contact the Gibson Dunn attorney with whom you work, or any of the following:

Eugene Scalia - Washington, D.C. (202-955-8206, [email protected])
William D. Claster - Orange County (949-451-3804, [email protected]
Julian W. Poon – Los Angeles (213-229-7758, [email protected]
Gail E. Lees – Los Angeles (213-229-7163, [email protected])
Andrew S. Tulumello – Washington, D.C. (202-955-8657, [email protected])
G. Charles Nierlich – San Francisco (415-393-8239, [email protected])
Christopher Chorba – Los Angeles (213-229-7396, [email protected])

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