In, perhaps, the most important wage and hour class action post-Comcast, the District Court for the Southern District of New York (Judge J. Paul Oetken) granted in part and denied in part a pharmacy chain’s motion for reconsideration of the court’s previous order certifying a class of assistant store managers’ (“ASMs”) state law overtime claims, holding that a court can bifurcate adjudication of liability and damages by limiting its class certification order to a liability only class under Rule 23(c)(4) where individualized proof of damages may overwhelm common questions to defeat predominance under Rule 23(b)(3). Jacob et. al. v. Duane Reade, Inc. (S.D.N.Y. Aug. 8, 2013).

In support of their motion, defendants argued that the U.S. Supreme Court’s decision in Comcast Corp. v. Behrend and its grant, vacate, and remand order (“GVR order”) of the Seventh Circuit’s RBS Citizens, N.A. v. Ross, 133 S. Ct. 1722 (2013) mandated decertification of the class of ASMs because the individualized proof of damages would overwhelm common questions. Plaintiffs argued that the causation and predominance issues implicated in Comcast, an antitrust class action, were absent in an employee misclassification case and, alternatively, urged the court to employ Rule 23(c)(4) and certify the class as to liability, but not as to damages.

Judge Oetken began his opinion by analyzing Comcast Corp. v. Behrend and explained how courts have “grappled with the scope, effect, and application” of that holding. Based upon his analysis of those cases, Judge Oetken determined that those courts applying Comcast fell into three distinct groups: (1) courts distinguishing Comcast and finding predominance with a common formula to calculate damages, (2) courts, applying Comcast, rejecting class certification because no common formula existed for determining damages on a classwide basis, and (3) courts that have embraced a “middle approach” whereby a class is certified as to liability under Rule 23(c)(4), leaving damages for separate, individualized determination. Rule 23(c)(4) states that “[w]hen appropriate, an action may be brought or maintained as a class action with respect to particular issues.”

Judge Oetken ultimately sanctioned the “middle approach” of certifying a liability only class under Rule 23(c)(4) though not before recognizing a disagreement among the circuits as to the use of this approach and notwithstanding the Supreme Court’s GVR order, in light of Comcast, of the Sixth Circuit’s decision certifying a liability only class under Rule 23(c)(4) in Whirlpool Corp. v. Glazer, 133 S. Ct. 1722 (2013). For Judge Oetken, Comcast does not foreclose the possibility of certifying a liability only class under Rule 23(c)(4). Approving the use of Rule 23(c)(4) to certify a liability only class, Judge Oetken wrote

Rule 23(c)(4) cannot cure every ill that troubles a putative class. It can, however, serve as a useful and fair case management tool where (1) damages track liability in the manner contemplated by Comcast; (2) Rule 23(a) and (b) are satisfied as to common issues; and (3) individualized issues of proof predominate over a discrete, uncommon issue, such as damages, and due process impels that a defendant have the opportunity to respond to such individual positions. Accordingly, . . . Rule 23(c)(4) [is] a viable option within the context of classwide damages.

Applying this middle approach to the instant case, Judge Oetken acknowledged that misclassification cases create issues with respect to classwide proof. Judge Oetken determined that the regular rate of pay formula, applied here, was not capable of classwide proof because there were at least three different sub-classes of ASMs and a determination of the subclasses to which each ASM belonged would require individualized, miniature trials. Any assumptions as to the groupings of the ASMs could result in violations of the defendants’ due process right to raise individualized defenses. “In light of Comcast, these discrepancies, coupled with the individualized proof that they require, demonstrate that certification of this class for all purposes would be inappropriate under Rule 23(b)(3).” Thus, in light of Comcast, Judge Oetken concluded the class should be partially decertified, requiring the plaintiffs, if successful on the merits, to proceed individually on their damages claim. But, for Judge Oetken and his approval of liability only certification under Rule 23(c)(4), “[t]his reality, . . . [was] not fatal to the class.”

For Judge Oetken, regardless of how the regular rate of pay was calculated for each ASM, each ASM’s claims were the same: he/she was wrongfully classified as a statutorily exempt employee, and, as such, was never paid the overtime compensation to which they were entitled. Thus, unlike in Comcast, the injury here – lack of overtime – clearly stems from one, common harm – the uniform misclassification of all ASMs. Thus, as previously determined, the putative class had satisfied the predominance requirement as to liability only under Rule 23(a), Rule 23(b)(3), and, now, Rule 23(c)(4). Judge Oetken explained

While Rule 23(c)(4) cannot work an end-run around the requirement that there be a linkage between a class’s theory of liability and its theory of damages, or lessen the rigor of a traditional 23(b)(3) analysis, it can act as a tool that is appropriate and useful when classwide proof and predominance exist as to some, but not all issues.

Judge Oetken concluded that if proved, defendant’s misclassification of ASMs necessarily will have caused a uniform type of injury to class members: namely, the lack of overtime to which all class members would be entitled. The only remaining question then will be how much each individual is owed – an inquiry that may require varying levels of individualized proof for the reasons discussed above. Accordingly, this instance is one in which the certification of the liability class is particularly appropriate.

TAKEAWAY

Following the Supreme Court’s pronouncements in Wal-Mart Stores, Inc. v. Dukes and, more recently, Comcast Corp. v. Behrend, the plaintiffs’ bar has had to retool its class certification strategies. One such strategy is what was sanctioned here: the use of Rule 23(c)(4) to certify a class with respect to the issue of liability only. Following the Supreme Court’s GVR order in light of Comcast, in Whirlpool Corp. v. Glazer, the Sixth Circuit, once again, re-affirmed its liability only class certification order under Rule 23(c)(4) noting that the Supreme Court’s GVR order did not necessarily suggest that the prior decision was erroneous. See In re Whirlpool Corp. Front-Loading Washer Products Liability Litig. (Whirlpool II), No. 10-4188 (6th Cir. Jul. 18, 2013). Supreme Court review of Whirlpool II would address the very issues raised in Jacob v. Duane Reade, i.e., the propriety of a 23(c)(4) liability only class when “classwide proof and predominance” with respect to damages cannot be achieved under Rule 23(b)(3) and, whether and to what extent, can plaintiffs use 23(c)(4) to work an end-run around the dictates of Comcast? The resolution of these issues will have significant implications for employers facing state law wage and hour class actions. We will continue to track this emerging issue in post-Comcast class action litigation.