On March 4, 2013 the Ninth Circuit issued a second opinion in the action, Wang v. Chinese Daily News (Wang II), in which it reversed the class certification it had previously affirmed and remanded the matter for further consideration of Rule 23(a) commonality and Rule 23(b)(3) predominance.  The Wang II decision follows a remand from the United States Supreme Court which had reversed the original Wang judgment in light of the inconsistencies between the lower courts' rulings and the certification standards the Supreme Court announced in Dukes v. Wal-Mart (“Dukes”).  As explained below, except for the last paragraph of the case, this mostly just restates holdings of other cases  But there is one highly significant holding at the end of the case concerning the application of “Trial by Formula” to wage/hour class actions that defense lawyers should be expected to cite in almost every class action they defend.

The Basic Facts

This case has been bouncing around in the courts for years.  The case alleges exempt misclassification and other related wage and hour claims on behalf of a class of about 200 reporters for the Chinese Daily News.  The case was filed in 2004, certified in 2005 and, in a trial in 2006, the class was awarded some $2.5 million in damages plus additional amounts for attorney’s fees, interest, and penalties.  The certification of the case was actually under Rule 23(b)(2) [although the district court indicated it could have also certified under Rule 23(b)(3)] on the legal theory that the request for injunctive relief was more important to the class representative than the claim for monetary relief.  The district court also found common issues under Rule 23(a) under the very low standard that was generally used for “commonality” pre-Dukes.  After the sea-change in class certification law effected by Dukes, however, the Supreme Court summarily reversed and remanded the decision to the Ninth Circuit for further consideration consistent with Dukes.

The Ninth Circuit’s Analysis

The Ninth Circuit had previously affirmed the district court in the original 2010 Wang decision.  This time, the Ninth Circuit reversed the certification under Rule 23(b)(2) and remanded for further consideration of Rule 23(a) and 23(b)(3).

Availability of Certification Under Rule 23(b)(2): The reversal of the certification under Rule 23(b)(2) did not really make any new law.  The U.S. Supreme Court in Dukes already held that Rule 23(b)(2) certification is not generally for a case seeking monetary relief (although it left the door open for some extraordinary unspecified way in which you might use Rule 23(b)(2) to get some monetary relief), and the Supreme Court also already determined that former employees lack standing to seek injunctive relief.  As such, it was unsurprising that the Ninth Circuit reversed the Rule 23(b)(2) certification.  In fact, it appears that the Wang plaintiffs conceded on the point.

Commonality Under Rule 23(a): For Rule 23(a), the Ninth Circuit recognized that Dukes had heightened the commonality requirement such that the district court’s articulation of commonality was insufficient to meet the test.  The alleged common issue the district court identified was the employer’s “alleged pattern of violating state labor standards.”  The Ninth Circuit held that what was required was “evidence that the entire class was subject to the same allegedly discriminatory practice.”  The Ninth Circuit further clarified, however, that even one truly “common” issue would qualify to satisfy Rule 23(a).  The Ninth Circuit noted that the class here was very different from the proposed class in Dukes in that it was only 200 employees working in one location as opposed to more than a million working nationwide.  The Ninth Circuit still recognized, however, that “there are potentially significant differences among the class members” that would impact commonality, so it remanded the case for further findings on that issue.

Predominance Under Rule 23(b)(3): For Rule 23(b)(3), the Ninth Circuit noted that, in its 2009 decision, Vinole v. Countrywide Home Loans (which I argued in the Ninth Circuit), it had previously criticized the Wang district court’s determination that the blanket classification of reporters as exempt was not enough, standing alone, to justify a finding that common issues predominated.  Previously, in Wang I, the Ninth Circuit declined to reach the issue as they affirmed the certification under Rule 23(b)(2).  This time, they sent it back down, noting the Vinole criticism and further noting that, for the meal period claim, the district court should follow the direction the California Supreme Court gave in Brinker of “providing a meal period” in deciding whether common issues predominated as to that claim.  The Ninth Circuit’s description of Brinker’s holding is not particularly noteworthy, as they simply quote from the Brinker opinion verbatim without any special “gloss” on the holding we might like or dislike.

The Most Significant Part of the Decision. Up to this point, the decision largely restates points already made in other cases. In Section II-D on damages, however, the Ninth Circuit announces a new holding that clarifies Dukes significantly. The panel holds that the prohibition on “trial by formula” set forth in the unanimous portion of Dukes was not intended to apply solely to discrimination cases, but to routine wage-hour cases as well.   Here is the quote in total:

“In Wal-Mart, the Supreme Court disapproved what it called “Trial by Formula,” wherein damages are determined for a sample set of class members and then applied by extrapolation to the rest of the class “without further individualized proceedings.” Wal-Mart, 131 S. Ct. at 2561. Employers are “entitled to individualized determinations of each employee’s eligibility” for monetary relief. Id. at 2560. Employers are also entitled to litigate any individual affirmative defenses they may have to class members’ claims. Id. at 2561. If the district court again certifies a class under Rule 23(b)(3), it should calculate damages in light of the Supreme Court’s admonitions in Wal-Mart.

This is potentially hugely significant, in that it holds that if a class is certified, the employer is entitled to raise defenses to damages as to each and every class member and cannot have the process short circuited by selecting a small “sample” of class members, trying the case as to that small sample, and then extrapolating the results to the broader class.   This will be controlling authority as to the California district courts and likely is to be influential on state courts hearing that the “Trial by Formula” portion of Dukes was just dealing with a specific Title VII issue.  Without using trial by formula, it is often impossible to try an exemption misclassification case because it becomes unmanageable to consider every potential class member’s individual situation and conduct a “mini trial” on each person. While this doesn’t make class certification impossible in all cases, it makes it much harder to develop a workable class trial.