Labor Law Class Action Defense Cases–Vinole v. Countrywide: Ninth Circuit Affirms Order Granting Defense Motion To Deny Class Action Treatment To Labor Law Class Action

Jul 27, 2009 | By: Michael J. Hassen

District Court did not Err in Granting Defense Motion to Deny Class Action Certification in Labor Law Class Action because Rule 23 does not Preclude Defendants from Filing such Motions, Plaintiffs had Adequate Time to Conduct Discovery, and District Court did not Abuse its Discretion in Concluding Rule 23(b)(3)’s Predominance Requirement could not be Satisfied Ninth Circuit Holds

Plaintiffs filed a putative class action against Countrywide Home Loans alleging labor law violations; the class action complaint alleged that defendant misclassified its 1,140 External Home Loan Consultants (HLCs) as “exempt” and, accordingly, failed to pay them overtime and other wages lawfully due non-exempt employees. Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935 (9th Cir. 2009) [Slip Opn., at 8299, 8303]. Plaintiffs filed the class action in California state court, but defense attorneys removed the class action to federal court. Id., at 8305. According to the allegations underlying the class action, Countrywide employs HLCs to sell loan products and pays them entirely on a commission basis. HLCs “are focused on outside sales and ‘represent Countrywide in local communities, and specifically work with realtors, builders, and other potential business partners in order to develop business relationships and obtain referral business.’” Id., at 8304. Prior to the discovery cut-off date and before plaintiffs moved for class certification, defense attorneys filed a motion to deny class action treatment. Id., at 8303. Countrywide admitted that it “applies a uniform wage exemption to HLCs,” classifying them as “exempt” outside salespeople under California law and the federal Fair Labor Standards Act (FLSA). See id., at 8304-05. But Countrywide asserted that it does not monitor what the HLCs do and that it “has no control over what HLCs actually do during the day”; rather, each HLC independently decides “how much, or how little time HLCs spend in the office, or working overall,” “how they want to market themselves,” and “how much money they want to make.” Id., at 8304. With respect to this last issue, the average HLC was paid more than $100,000 per year, and some earned “several hundreds of thousands of dollars,” id. Countrywide additionally introduced evidence that the amount of time individual HLCs spent in the office “varies greatly” and that it tracks only “the number and value of loans that HLCs close each month.” Id., at 8305. The district court granted Countrywide’s motion, concluding that class action treatment was not warranted. Id., at 8303. Plaintiffs appealed, and the Ninth Circuit affirmed.

The class action complaint alleged twelve causes of action against Countrywide, each premised on the assumption that Countrywide misclassified HLCs as exempt. Vinole, at 8305. The appeal centered on “whether the district court abused its discretion by (1) considering Countrywide’s motion to deny class certification before Plaintiffs had filed a motion to certify and prior to the pretrial and discovery cutoffs, and (2) denying class certification based on its reasoning that individual issues predominate over common issues.” Vinole, at 8303. We do not belabor the Ninth Circuit’s holding that “Rule 23 does not preclude a defendant from bringing a ‘preemptive’ motion to deny certification.” Id., at 8307. Other courts have reached a similar conclusion, and it rests on the solid observation that “[n]othing in the plain language of Rule 23©(1)(A) either vests plaintiffs with the exclusive right to put the class certification issue before the district court or prohibits a defendant from seeking early resolution of the class certification question.” Id., at 8307-08. In resolving this issue of first impression in the Ninth Circuit, the Court explained that “no rule or decisional authority prohibited Countrywide from filing its motion to deny certification before Plaintiffs filed their motion to certify, and Plaintiffs had ample time to prepare and present their certification argument.” Id., at 8303.

The Ninth Circuit also held that the “district court did not abuse its discretion by denying certification under Rule 23(b)(3) because the record supports its conclusion that individual issues predominate over common issues.” Vinole, at 8303. The district court granted Countrywide’s motion based on its holdings that “(1) it was not obligated to wait for the pretrial motion deadline before considering the class certification issue, and (2) Plaintiffs had ‘sufficient time to prepare for Defendant’s motion’ despite the fact that the discovery cutoff was three weeks away.” Id., at 8311. Plaintiffs argued that the district court’s action was “fundamentally unfair” in that it “deprived of the opportunity to present their argument based on a full record.” Id. The Ninth Circuit disagreed, noting that “offer virtually no factual assertions in support of their claim,” id., and that plaintiffs had ample time to conduct discovery, id., at 8312. The district court also concluded that the predominance requirement of Rule 23(b)(3) could not be met because an analysis of whether the outside salesperson exemption applied would require individualized inquiries into how each HLC spent their time. Id., at 8316-17. The district court concluded, “in cases where exempt status depends upon an individualized determination of an employee’s work, and where plaintiffs allege no standard policy governing how employees spend their time, common issues of law and fact may not predominate.” Id., at 8320. The Circuit Court held that the district court did not abuse its discretion in finding that Rule 23(b)(3)’s predominance requirement could not be met. See id., at 8315 et seq. Accordingly, the Circuit Court affirmed the district court orders. Id., at 8322-23.

NOTE: In part, the Court believed that plaintiffs’ opposition to Countrywide’s motion was strategic: “Plaintiffs, in a strategic gamble, relied on their position that Countrywide’s motion was procedurally improper—an argument we have rejected—to avoid having the district court\ decide the motion on the merits.” Vinole, at 8314. This belief was buttressed by plaintiffs’ failure to request additional time to respond to the motion, id., at 8315.

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