A class action alleging unpaid overtime and other wage and hour violations under the federal Fair Labor Standards Act and California law has been decertified by the U.S. Court of Appeals for the Ninth Circuit in light of the U.S. Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). Wang v. Chinese Daily News, Inc., No. 08-56740 (9th Cir. Mar. 4, 2013). The Court returned the case to the district court to reconsider its class certification analysis under Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure. The Court also directed the district court to re-examine its damages calculations if it decides to recertify the class.

Background

Lynne Wang and about 200 other individuals (collectively, “Wang”) worked as reporters for the Chinese Daily News, Inc. In 2004, on behalf of herself and all others similarly situated, Wang sued CDN for alleged violations of the federal Fair Labor Standards Act, the California Labor Code, and the California Unfair Business Practices Law. She claimed CDN misclassified the reporters as exempt creative professionals and denied them overtime compensation. Wang sought damages, restitution, attorneys’ fees, and injunctive relief.

The district court certified the FLSA claim as a collective action and certified the state-law claims as a class action under the standards of Rule 23(b)(2) of the Federal Rules of Civil Procedure. The court granted summary judgment on the FLSA claim to Wang, holding the reporters did not fall within the creative professional exemption and were thus entitled to overtime. After a bench and jury trial, the district court entered judgment in favor of Wang and awarded $2.5 million in damages. The U.S. Court of Appeals for the Ninth Circuit affirmed the judgment. The case then was appealed to the U.S. Supreme Court. The Supreme Court vacated and remanded the case to the Ninth Circuit for reconsideration in light of Dukes.

Erred in Certifying Class

The district court had found the proposed class satisfied the class action standards under Fed. R. Civ. P. 23(a). Rule 23(a) spells out the criteria for class certification, which include common issues of law or fact. The district court certified the class because it determined numerous common questions of law and fact arose from CDN’s “alleged pattern of violating state labor standards.” However, in Dukes, the U.S. Supreme Court stated, “What matters to class certification is not the raising of common questions — even in droves — but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.” On remand, in light of Dukes, the Ninth Circuit concluded that the district court erred in certifying the class because there were “potentially significant differences among the class members.” The Court instructed that, on remand, the district court must determine whether the claims of the proposed class “depend upon a common contention . . . of such a nature that it is capable of classwide 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.” 

Turning to Fed. R. Civ. P. 23(b)(2), the Court noted that Wang conceded that class certification for the monetary claims under that rule could not stand in light of Dukes, in which the Supreme Court held that individualized monetary claims fall under Fed. R. Civ. P. 23(b)(3). 

The Court also ruled that the district court must reconsider its certification under Fed. R. Civ. P. 23(b)(3), which permits class certification when “the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” The district court had concluded that common questions predominated based on CDN’s alleged uniform policy of classifying all reporters and account executives as exempt employees. The Court pointed out, however, that it had criticized a similar predominance inquiry for “disregard[ing] the existence of other potential individual issues that may make class treatment difficult if not impossible.” The Court also noted that, at the time of certification, the district court was unable to consider the California Supreme Court’s decision In Brinker Rest. Corp. v. Superior Court, 273 P.3d 513 (Cal. 2012), which clarified California law concerning an employer’s duty to provide meal breaks. Accordingly, the Court remanded the case to the district court to reconsider its analysis under Fed. R. Civ. P. 23(b)(3).

Finally, the Ninth Circuit directed the district court to reconsider its damages calculations. The Court noted that in Dukes, the Supreme Court disapproved what it called “Trial by Formula,” where damages are determined for a sample set of class members and then extrapolated to the rest of the class “without further individualized proceedings.” The Supreme Court emphasized that employers are “entitled to individualized determinations of each employee’s eligibility” for monetary relief and are entitled to litigate any affirmative defenses to the employees’ claims. Accordingly, the Ninth Circuit ruled that, if the district court re-certified the class, it must re-calculate damages in light of Dukes.

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The courts continue to set a high bar for class certification in light of Dukes and Brinker. Employers have more defenses available to them in fighting class action litigation than ever before, especially in the wage and hour arena. Still, where a plaintiff can show commonality, such as the employer’s promulgation of an unlawful policy, cases will be allowed to proceed as class litigation.