The Fourth District Court of Appeal’s decision earlier this month in Hall v. Rite Aid Corp.represents an unfortunate step backwards in the development of a coherent jurisprudence on class certification. In a misunderstanding of a general class action principle discussed in Brinker Restaurant Corp. v. Superior Court, 53 Cal. 4th 1004 (2012), the appellate court in Hall seemingly held that, where the plaintiff alleges that the employer has an unlawful policy, the trial cannot resolve the “merits” dispute over the actual elements of the underlying legal claim in determining whether the policy violates the law on a classwide basis. As explained below the case is infected by what I have formerly referred to as “Underpants Gnomes” thinking.
The Basic Facts and Holding of the Appellate Court
The parties in Hall agreed that Rite Aid did not provide seats to its cashiers, but the parties differed as to the elements of a claim for failure to provide suitable seating. Under the plaintiff’s view, if any part of the cashier job could be performed while seated, failure to provide seating to do that job duty violated the law. Under Rite Aid’s view, it had to provide a seat only if a job “considered as a whole” could be done seated, and there were material variations from store to store that enabled some class members, but not others, to do the job sitting on a stool.
After originally certifying the class, the trial court was persuaded based on intervening case law developments that the defendant’s interpretation of the essential elements was correct and presented predominant individualized issues. As such, the trial court decertified the class. The Fourth District reversed, and based on a strained interpretation of Brinker, held that the trial court could not decide the “merits” issue of which party properly stated the elements of the Labor Code claim, but had to assume the plaintiff’s version was right until after class certification. According to the appellate panel, the plaintiff must be assumed to have the elements correct and even evaluating the issue in connection with the certification analysis was an abuse of discretion.
The Analytical Flaws of the Hall Decision
The Underpants Gnomes were characters in a 1998 South Park episode who had a grand, three-step business plan: (1) gather lots of underpants, (2) ??, and (3) make lots of profit. Nobody knew the crucial step (2), but assumed somebody else in the organization understood how to convert the underpants to profit. With California Labor Code class actions at the time, the widespread gnomish reasoning was: (1) certify a class, (2) ??, (3) award a big judgment at trial. Neither plaintiff’s lawyers nor the courts seemed to focus much attention on how to do step two, a class trial that met with the requirements of due process, and the question rarely needed to be answered because the vast majority of cases settle once a class is certified.
In the intervening years, class action jurisprudence seemed to take a step away from this thinking, spurred by the Supreme Court’s landmark decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2562 (2011), which instructed that class certification requires the trial court to satisfy itself from a rigorous view of the evidentiary record that there are common issues that, if resolved, will resolve an important liability issue in the case “in one stroke.” Other cases since Dukes have underscored that the purpose of a class action is to create efficiencies by allowing a central issue to be resolved in one proceeding that will resolve liability classwide. In those few cases where deciding the class issues will not decide liability for the class, a court is supposed to certify a classonly where the resolution of a particular element of a claim classwide will save so much time that efficiencies will be created that warrant the expenditure of resources on an incomplete class trial. See, e.g., McReynolds v. Merrill Lynch, __ F.3d __ (7th Cir. 2012) (certification proper to decide limited issue of whether challenged policy created a disparate impact on African-American brokers even if each broker would need to individually come forth to litigate whether he or she was actually harmed by the policy).
Plaintiffs’ counsel, by contrast, have a vested interest in a jurisprudence where a class can be certified with a minimal showing and without a court thinking through how the case will actually be tried in a manageable way that respects the defendant’s due process rights. Plaintiffs always want to “certify now and resolve due process issues about individualized defenses later.” Of course, once a class is certified, it usually creates strong pressure to settle the action which renders the question of trial procedure moot.
The easy mechanism to certification in the pre-Dukes era was to cite the California Supreme Court’s 2004 Sav-On decision, argue that trial courts are allowed to be innovative in formulating class trial procedures, and generally to intone that “statistical evidence” or “sampling” could resolve any individual issues (without specifying how this could be done consistent with due process). Any trial court seeking to certify a class would use that same reasoning and then leave it for later to decide how the case would actually be tried.
After Dukes appeared to foreclose that simplistic argument, plaintiffs have now focused on language in Brinker that class certification is usually proper where the plaintiff challenges an admitted policy of common application to the class. More specifically, in Brinker one of the claims was for failure to provide rest periods. The defendant’s policy provided that one rest period would be provided per each four hours worked. The plaintiff alleged that the employer had to authorize a second rest period after 6 hours, such that the employer was violating the law by not authorizing a second rest period to employees who worked shifts between 6 and 8 hours as a matter of policy.
Although the California Supreme Court answered that “merits” question, it explained that the trial court had not actually needed to resolve this issue to decide class certification because, if one accepted the notion that there was a common policy to provide a second meal period only after 8 hours worked, whether the law required a second rest period after 6 hours or after 8 hours, the answer to that legal question would resolve class liability either way. As such, it was better to delay resolution of that merits question until after class certification so the liability holding would be binding on the entire class. The key sentence on this point was as follows:
While we agree trial courts must resolve any legal or factual issues that are necessary to a determination whether class certification is proper, the Court of Appeal went too far by intimating that a trial court must as a threshold matter always resolve any party disputes over the elements of a claim. In many instances, whether class certification is appropriate or inappropriate may be determined irrespective of which party is correct. In such circumstances, it is not an abuse of discretion to postpone resolution of the disputed issue.
Brinker, 53 Cal. 4th at 1023-24 (emphasis added).
This was really nothing new, but merely a restatement of earlier decisions (including Dukes) that merits should be decided only as necessary to answer the class certification question. As the highlighted language above shows, a trial court needs to decide the elements of a claim when the answer to that question impacts whether certification is proper. It would have been a sharp departure from Rule 23 precedent if the California Supreme Court had announced that, in any case where the employer had a policy, if the employee advanced a theory that the policy was unlawful, then the trial court had to assume that the elements of the underlying claim were as the plaintiff alleged even when the plaintiff was mistaken as a matter of law and the case could not be properly tried as a class action under the correct understanding of the elements of the claim.
The Court of Appeal in Hall missed this nuance, and interpreted Brinker as prohibiting the trial court from deciding the proper elements of a claim as part of the class certification ruling except in undefined “extraordinary circumstances.” But there is really nothing extraordinary about the circumstances, and they were present in the Hall case. The elements must be determined when it makes a difference as to whether the essential elements of the claim can be decided collectively or only individually.
By contrast, the trial court in Hall apparently grasped this distinction. It initially certified the class based on its conclusion that the question of when seating must be provided turned on whether a commonly performed job duty could be performed while seated without undue hardship to the employer. It decertified when developments in the law persuaded it that it was mistaken on the elements of the claim and that liability would turn on whether the job “as a whole” could be performed while seated. Because the employer showed that the amount of time spent ringing up sales (the duty that could most readily be performed seated) ranged from a small part of the job to the vast majority of the job at different stores, and other material factors varied from store to store, individualized issues predominated. The appellate court, by contrast, held that the question of the proper elements should be reserved for an ill-defined later proceeding so such a ruling could bind the class.
Such a holding is classic Underpants Gnomes thinking. Unlike Brinker, where the defendant would have been able to file a post-certification motion for summary judgment on the rest period claim and argue that its policy complied with the law as to the entire class under its proffered understanding of the rest period law, no such avenue appears available in Rite Aid’s case. That is, the employer’s theory was that it may have violated the seating law in some stores (where the vast majority of the job involved ringing up sales), but not in others. Because the existence of individual liability as to some class members precludes the granting of classwide summary judgment, there is no recognized pre-trial procedure by which a court could decide the proper elements of a suitable seating claim (unless the plaintiff consented to such a legal determination). As such, by avoiding deciding the merits at class certification, the court is just kicking the can down the road because it has to decide the issue eventually, and if it sides with the defendant, the action will not be able to proceed as a class action. But if decertification is foreclosed, that ruling can never happen.
The Court of Appeal appeared to end its inquiry with the fact that the parties agreed that a common policy applied classwide. But Brinker never stated that the existence of a common policy, in and of itself, requires certification. Rather, the Court held that certification is often proper when a trial court finds a “uniform policy consistently applied to a group of employees [that] is in violation of the wage and hour laws.” In other words, assuming the court could decide whether a policy is facially lawful or unlawful as to the whole class (considering the actual elements of the underlying claim), then one can certify a class based on the common application of that policy. But when the application of the common policy will be lawful in some cases and not in others, certification likely remains improper.
This is not merely an academic matter. Consider a common type of Labor Code class action in the previous decade, an exemption misclassification case. Plaintiffs frequently argued that employers had a common policy of classifying employees in a specific job as exempt without considering individual circumstances (referred to as “deliberate misclassification”). Under the reasoning of Hall, a court could certify a class in any exemption case that challenged a job that the employer uniformly treated as exempt because, under the plaintiff’s mistaken view of the law, it violates the Labor Code to collectively treat a job as exempt without analyzing the exemption as to each person. But that plainly is not the law, as recognized in such cases as Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935 (9th Cir. 2009) and Walsh v. IKON Office Solutions,148 Cal. App. 4th 1440, 1461-62 (2007).
Furthermore, if a court certified a class on that theory and the defendant could not establish that every class member was exempt under the proper standard of law, the employer could not win classwide summary judgment on the exemption issue. So, the parties should go forward all the way to a class trial merely because the plaintiff imagines a law that does not really exist and claims that the employer’s admitted policy violates the phantom law? What would be the purpose for such class action jurisprudence? When the court eventually applied the correct standard of law and the case became unmanageable, what then? These are all questions that the Hall court did not contemplate or address, but erroneously assumed were answered by Brinker.
The Limited Impact of Hall on Future Cases
Fortunately, Hall is just one appellate decision, and it is inconsistent with numerous other decisions affirming a denial of certification or decertification (e.g., Walsh). There is a chance that the California Supreme Court will issue some pronouncement in the pending Duran case that will effectively render this decision a nullity. The case also might be depublished. Whatever the outcome, Hall demonstrates the importance of the defense advocate in a Labor Code class action placing the certification decision in a broader context and not allowing the court to simply end the inquiry of class certification by identifying a “common policy.” In short, we on the defense side need to press courts to consider the important “step 2” in the gnomes’ grand plan.