Articles from June 2014

Earlier this month, the U.S. Court of Appeal for the Ninth Circuit affirmed the district court’s approval of a proposed class action settlement and an award of attorneys’ fees. Laguna v. Coverall North America, Inc., No. 12-55479 (9th Cir. June 3, 2014) (slip op. available here). The suit alleged that Coverall, a janitorial franchising company, misclassified its California franchisees as independent contractors and improperly removed customer accounts from franchisees to re-sell them to other franchisees.

The decision came after one franchisee objected to the settlement, which included cash payouts, credits toward a new franchise, and a promise from Coverall to assign customer accounts to current franchisees once full franchise fees were paid, among other relief. As to the settlement as a whole, the panel found that the district court had not erred by considering the Churchill factors in granting approval, such as the difficulty of obtaining class certification in the wake of Dukes, the defendant’s poor financial health, the fact that no governmental entity had participated in the matter, the experience of class counsel, and the fact that only two class members had opted out of participating in the settlement. Slip op. at 8-10 (citing Churchill Vill., L.L.C. v. Gen. Elec., 361 F.3d 566, 575 (9th Cir. 2004) (internal citations omitted). The objector argued that the district court had not properly assessed the value of the non-monetary injunctive relief, the assignment of customer accounts. The panel found, however, that the district court was not obligated to conduct such a monetary valuation to determine whether the proposed settlement was fair, stating, “[w]e have never required a district court to assign a monetary value to purely injunctive relief.” Id. at 10.

The Ninth Circuit also held that the lower court had not abused its discretion in awarding fees based on the lodestar method “because the lodestar method is most appropriate where the relief sought is ‘primarily injunctive in nature,’ and a fee-shifting statute authorizes ‘the award of fees to ensure compensation for counsel undertaking socially beneficial litigation.’” Slip op. at 6. Furthermore, the panel found the award of approximately $995,000 in attorneys’ fees to be fair where the value of the cash settlement and injunctive relief provided (the assignment of accounts and the promise of programmatic changes) was likely more than $4 million. Id. at 7-8. Also, the district court had not abused its discretion in finding that the fee award, which was approximately a third of the lodestar amount, was reasonable. Id. at 8.

Dissenting Judge Edward M. Chen from the Northern District of California, sitting by designation, wrote that he would have remanded the case for fuller development of the record, due to the lack of “crucial information,” such as the proportion of the class eligible to receive the non-monetary benefit of the settlement, the value of the monetary relief to the class, and the justification (if any) for imposing a claims process with a reverter of unclaimed funds back to Coverall, without which the district court could not fully evaluate the adequacy of the settlement or the reasonableness of the attorneys’ fee award. Slip op. at 17.

The California Supreme Court will be handing down its decision in Iskanian v. CLS Transportation Los Angeles, LLC, No. S204032, on Monday, June 23, 2014 at 10 a.m. Oral argument in Iskanian took place earlier this year.

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

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

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

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

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

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

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

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