Source: http://www.baileydaily.com/2011/
Timestamp: 2019-04-22 04:22:27+00:00

Document:
Northern District Court Declines to Decertify Rule 23(b)(2) Restitutionary Class In Light of Dukes: In re Conseco Life Ins. Co.
On December 20, 2011, Northern District Court Judge, Susan Illston, denied a request to decertify a nationwide Rule 23(b)(2) class based on the premise that the U.S. Supreme Court’s decision in Wal-Mart v. Dukes bars certification of claims seeking money damages under Rule 23(b)(2). See In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139 (N.D. Cal. Dec. 20, 2011). Defendant Conseco challenged certification of the plaintiffs’ lawsuit – which alleges that defendant increased monthly cost-of-insurance deductions and expense charges in breach of the policy terms – on the grounds that individualized damage determinations for each policyholder would predominate over injunctive and declaratory relief, precluding certification under Rule 23(b)(2).
In Dukes, the Supreme Court discussed but did not explicitly adopt the Fifth Circuit's "incidental test." Dukes, 131 S.Ct. at 2560. In Allison v. Citgo Petroleum Corp., 151 F.3d 402, 415 (5th Cir. 1998), the Fifth Circuit held that a (b)(2) class would permit the certification of monetary relief that is "incidental to requested injunctive or declaratory relief," which it defined as "damages that flow directly from liability to the class as a whole on the claims forming the basis of the injunctive or declaratory relief." According to the Allison court, such "incidental damage should not require additional hearings to resolve the disparate merits of each individual's case; it should neither introduce new substantial legal or factual issues, nor entail complex individualized determinations." Id. Numerous courts within the Ninth Circuit have since adopted the incidental test to determine proper certification under (b)(2). See Delarosa v. Boiron, Inc., 275 F.R.D. 582, 2011 WL 4389919 (C.D.Ca. Aug. 24, 2011) (Tucker, J.); Aho v. AmeriCredit Financial Services, Inc., 2011 U.S. Dist. LEXIS 80407, 2011 WL 3047677 (S.D.Ca. Jul. 25, 2011) (Sabraw, J.) This Court also adopts the incidental test as the appropriate test for Conseco's motion for decertification of the current policyholders.
See In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139, 21-22.
Seeking return of wrongfully charged costs and fees of this sort will not require additional hearings to resolve the disparate merits of each individual's case; nor will it introduce "substantial legal or factual issues, nor entail complex individualized determinations." Allison, 151 F.3d at 415. It will simply entail "computation by means of objective standards" based on data in Conseco's records. Id. As a result, the return of the improper deductions would flow directly from the claims forming the basis of the declaratory and injunctive relief. Damages arising from the costs of insurance and expense charges are therefore incidental to the declaratory and injunctive relief sought, and allowed under 23(b)(2).
In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139, 25-27.
Thus, “[t]he primary inquiry post-Dukes for classes seeking monetary damages under 23(b)(2) is the theory of damages that the class seeks” [Id ., at 24], which based on the forgoing analysis, would be appear to encompass claims seeking restitutionary disgorgement (rendering (b)(2) certification a useful vehicle for many claims brought under the UCL).
On July 12, 2011, the Second District (Division Five) held that the U.S. Supreme Court’s preemption analysis in AT&T Mobility LLC v. Concepcion does not apply to PAGA claims. See Brown v. Ralphs Grocery, __Cal.App.4th __ (2011). The Court remanded the action for further consideration as to “whether the provision in the arbitration agreement waiving plaintiff’s right to pursue a representative action under the PAGA can be severed or whether the presence of that one invalid provision in the arbitration agreement renders the entire agreement or portions thereof unenforceable.” The ultimate holding on this question may provide a basis to exclude labor class actions from the scope of FAA preemption under Concepcion whenever a PAGA claim is alleged. More on this decision later.
Central District Certifies Paystub Claim Against FedEx: McKenzie v. Fed. Express Corp.
On June 16, 2011, Central District court Judge Gary Allen Feess ordered certification of a Labor Code section 226(e) paystub claim against FedEx in McKenzie v. Fed. Express Corp., 2011 U.S. Dist. LEXIS 65278 (C.D. Cal. June 16, 2011). Plaintiff's alleged that Fedex violated Cal Lab Code § 226(a) by (1) failing to provide a separate category calculating the total hours worked, (2) including an overtime rate that only identified the amount above the regular rate, rather than expressly identifying an all-inclusive, precise overtime rate, and (3) failing to provide an end-date for the pay-period.
The case is somewhat noteworthy as it really underscores the fact that the threshold burden necessary to certify a paystub claim is very low. Due to the systemic nature which pay-stubs are created, the only defense an employer generally has is to focus on the element of injury. However, as the Court’s predominance analysis makes clear, how each class member was injured does not require an individualized inquiry under section 226(e). See McKenzie, 2011 U.S. Dist. LEXIS 65278, at 25.
See McKenzie, 2011 U.S. Dist. LEXIS 65278, at 30 fn. 3.
Second, citing to the decision in Ortega v. J.B. Hunt Transp., Inc., 258 F.R.D. 361 (C.D. Cal. 2009), the Court reasoned that an inherent injury necessarily accompanies a violation of a section 226(e) that will be common to the class. Specifically, “the court in Ortega explained that the plaintiff's ‘statement that he could usually do the math in [his] head and figure out approximately what [he] was going to get gross is consistent with the type of injury that has been found sufficient to support a claim for violation of Section 226.’” See McKenzie, 2011 U.S. Dist. LEXIS 65278, at 26-27. Moreover, the Court reasoned that “this lawsuit, and the difficulty and expense incurred by McKenzie and the proposed class in reconstructing time and pay records is sufficient evidence that they suffered a common injury.” See id., at 29-30.
Thus, based on the forgoing analysis, it is fairly clear that the threshold burden necessary to certify a paystub claim under Section 226 is very low. Essentially all that is required is evidence that the alleged violation was standardized among the employees which comprise the class.
U.S. Supreme Court Severely Limits Preclusive Effect Afforded To Denials of Class Certification: Smith v. Bayer Corp.
On June 16, 2011, the U.S. Supreme Court issued an important class action decision in Smith v. Bayer Corp., 564 U. S. ____ (2011) (2011 U.S. LEXIS 4559) relating to the preclusive effect which may be given to a Federal court order denying class certification. This opinion involves an issue I have litigated at length before. See Johnson v. GlaxoSmithKline, Inc., 166 Cal. App. 4th 1497 (2d Dist. 2008). In Smith, the Court considered whether a district court exceeded the bounds of its authority under the “relitigation exception” to the Anti-injunction Act (28 U.S.C. § 2283) by enjoining a State court class action from proceeding based on a prior certification denial in Federal court. The Court resolved this question in the affirmative, finding that two elements of issue preclusion – i.e. the “identity of issues” and “identity of parties” requirements – could not be met.
The Court of Appeals and Smith offer us two competing ways of deciding whether the West Virginia and Federal Rules differ, but we think the right path lies somewhere in the middle. The Eighth Circuit relied almost exclusively on the near-identity of the two Rules' texts. See 593 F.3d at 723. That was the right place to start, but not to end. Federal and state courts, after all, can and do apply identically worded procedural provisions in widely varying ways. If a State's procedural provision tracks the language of a Federal Rule, but a state court interprets that provision in a manner federal courts have not, then the state court is using a different standard and thus deciding a different issue. See 18 Wright & Miller § 4417, at 454 (stating that preclusion is "inappropriate" when "different legal standards . . . masquerad[e] behind similar legal labels"). At the other extreme, Smith contends that the source of law is all that matters: a different sovereign must in each and every case "have the opportunity, if it chooses, to construe its procedural rule differently." Brief for Petitioners 22 (quoting ALI, Principles of the Law, Aggregate Litigation § 2.11, Reporters' Notes, cmt. b, p. 181 (2010)). But if state courts have made crystal clear that they follow the same approach as the federal court applied, we see no need to ignore that determination; in that event, the issues in the two cases would indeed be the same. So a federal court considering whether the relitigation exception applies should examine whether state law parallels its federal counterpart. But as suggested earlier, see supra, at 6, the federal court must resolve any uncertainty on that score by leaving the question of preclusion to the state courts.
See Smith, 2011 U.S. LEXIS 4559, at 20-21.
Indeed, the very ruling that Bayer argues ought to be given preclusive effect is the District Court's decision that a class could not properly be certified. So Bayer wants to bind Smith as a member of a class action (because it is only as such that a nonparty in Smith's situation can be bound) to a determination that there could not be a class action. And if the logic of that position is not immediately transparent, here is Bayer's attempt to clarify: "[U]ntil the moment when class certi-fication was denied, the McCollins case was a properly conducted class action." Brief for Respondent 37. That is true, according to Bayer, because McCollins' interests were aligned with the members of the class he proposed and he "act[ed] in a representative capacity when he sought class certification." Id., at 36.
But wishing does not make it so. McCollins sought class certification, but he failed to obtain that result. Because the District Court found that individual issues predominated, it held that the action did not satisfy Federal Rule 23's requirements for class proceedings. In these circumstances, we cannot say that a properly conducted class action existed at any time in the litigation. Federal Rule 23 determines what is and is not a class action in federal court, where McCollins brought his suit. So in the absence of a certification under that Rule, the precondition for binding Smith was not met. Neither a proposed class action nor a rejected class action may bind nonparties. What does have this effect is a class action approved under Rule 23. But McCollins' lawsuit was never that.
See Smith, 2011 U.S. LEXIS 4559, at 29-30.

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