Plaintiffs Must Offer "Significant Proof" Of A Common Policy Or Practice To Satisfy Commonality Under Rule 23 Post-Dukes

by Sheppard Mullin Richter & Hampton LLP

On January 28, 2013, Hon. George King of the United States District Court for the Central District of California issued an order in Pedroza v. PetSmart, Inc. denying class certification of exempt misclassification claims brought by a former PetSmart store manager. The opinion is interesting in that it contains a detailed examination of certification requirements pursuant to Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011). The analysis Judge King employed would lead to denial of certification in many exemption cases. However, Judge King separately ruled that the case could proceed as an uncertified PAGA collective action, leaving open the possibility that PAGA penalties could somehow be determined notwithstanding the Court’s finding that common issues predominated on the underlying exemption issue.

The Plaintiff’s Underlying Allegations

Plaintiff, a former store manager, alleged that PetSmart uniformly misclassified its store managers as exempt employees resulting in unpaid overtime, meal and rest period violations, inaccurate wage statements and waiting time penalties. The plaintiff asserted that the store managers were improperly classified as exempt because they allegedly did not “customarily and regularly exercise discretion and independent judgment” and because they did not “primarily engage in duties which meet the test of exemption” under California law.

The District Court’s Analysis in Denying Certification

The district court began its analysis for class certification by examining whether the plaintiff had established commonality under Rule 23(a)(2) based on the standards announced in Dukes v. Wal-Mart. Quoting the Supreme Court in Dukes, the district 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. Dissimilarities within the proposed class are what have the potential to impede the generation of common answers.” Under Dukes, the district court stated that it “must conduct a ‘rigorous analysis’ to determine if [p]laintiff has offered ‘significant proof’ of a common policy or practice ‘that could affect the class as a whole.’” The court then conducted such an analysis as to the two elements of the exemption at issue—whether the managers spent the majority of time on exempt duties and whether store managers customarily and regularly exercised discretion and independent judgment.

Analysis of Evidence That Managers Spent Majority of Time on Non-Exempt Tasks

The plaintiff contended that defendant had a common policy or practice of requiring store managers to spend the majority of their time on nonexempt tasks. The district court concluded that plaintiff failed to offer “significant proof” that there was such a common practice that could affect the class as a whole.

The plaintiff relied on declarations from 12 former store managers attesting to spending more than 50% of their time performing non-managerial tasks, a uniform scheduling system allegedly used to show that store managers were performing the work of hourly associates, and business records allegedly showing store managers performing nonexempt tasks.

The court found the plaintiff’s “common proof” inadequate to satisfy commonality. With respect to the scheduling system, even if it could show how much time the store managers were performing the duties of an hourly associate, it was not common proof of liability because plaintiff had not established how the court could determine on a classwide basis what tasks the store managers were otherwise performing and the amount of time spent on them. Without data showing the store managers total work hours and tasks performed, the scheduling system alone could not tell the court whether the store managers spent more than 50 percent of their time on nonexempt tasks. Plaintiff’s business records evidence likewise was inadequate because the records did not offer a complete picture of how a store manager allocates his or her time between exempt and nonexempt tasks on a weekly basis let alone do so on a classwide basis. The court found plaintiff’s declarations inadequate under Dukes because they were not “representative in number and in geography.” There were only 12 declarations, and they were all from Southern California stores. In addition, the declarations contradicted subsequent deposition testimony calling their accuracy into question. Thus, the court concluded that the declarations “at most give rise to a weak inference of a common practice, if at all.”

Plaintiff next argued that the company’s uniform treatment of all store managers as nonexempt established commonality and predominance. The court noted, however, that a “‘blanket exemption policy,’ unlike a centralized policy that details the job duties and responsibilities of employees, ‘does nothing to facilitate common proof on the otherwise individualized issues.’” Quoting In re Wells Fargo Home Mortg. Overtime Pay Litig., 571 F.3d 953, 955 (9th Cir. 2009).

The Plaintiff also argued that he would be able to prove liability classwide by using expert testimony to identify which job duties were non-exempt and the percentage of time managers devoted to those duties. The court rejected the expert’s proffered testimony entirely because the expert did not actually conduct a study, but instead merely declared that he could perform such a study. The expert did not “explain what data he plan[ned] to use in developing the survey, why such data is sufficiently complete and reliable, how he plan[ned] to use such data to develop a survey, how he plan[ned] to select a representative sample of [store managers] to participate in the survey, why such a selection would be representative, and why the survey [would] reliably show how the [store managers] allocated their time between exempt and non exempt tasks.” As a result, the court concluded that “this type of unsupported, conclusory ‘promise’ of reliable data is insufficient” to support class certification.

Finally, the plaintiff argued that the “primarily engaged” requirement is subject to class resolution pursuant to Sav-on Drug Stores, Inc. v. Superior Court, 34 Cal. 4th 319 (2004) because the predominant issue is how the various tasks should be classified—as exempt or non-exempt—which could be determined as a matter of law by the trial court. The court once again rejected this argument because determining how the various tasks should be classified is only a preliminary inquiry to the broader issue which is determining whether the company had a common practice of requiring store managers to spend more than 50 percent of their time on nonexempt tasks. Even if you resolved the issue of which tasks were exempt and which tasks were nonexempt, you would still need to determine how much time was spent by store managers performing those tasks. Thus, “under Dukes, the classification of tasks cannot ‘resolve an issue that is central to the validity of each of [plaintiff’s] claims in one stroke.’” Quoting Dukes, 131 S.Ct. at 2551.

Analysis of Evidence That Managers Lacked Discretion and Independent Judgment

Separately, the plaintiff attempted to show that managers failed to exercise discretion and independent judgment. But the Court found that the plaintiff’s “common proof” of this element also fell fall short of the type of evidence necessary to establish liability across an entire class. Plaintiff pointed to manuals and corporate directives providing directions on numerous work functions down to minute details as evidence that store managers lacked discretion. Upon examining the manuals and policies, the district court disagreed with plaintiff’s characterization and found that they implicitly or expressly required store managers to exercise discretion on consequential matters. The court found the following store manager responsibilities examples of discretion and independent judgment: distributing shifts among employees, determining how to conduct meetings, what to say at the meetings, what to do with employee feedback, and determining whether an associate’s conduct merited some type of an award. In addition, the district court pointed out that store managers were evaluated based on several factors indicative of independent judgment and discretion such as their ability to understand vision and strategy, develop talent, lead the culture, manage personal insight and growth, think critically, and exercise good judgment. Accordingly, the district court concluded that Plaintiff failed to offer “significant proof” that the company had a common policy or practice of leaving store managers with little discretion.

The Court Determined That The Case Could Proceed as a PAGA Action

While the district court denied plaintiff’s motion for class certification, the court did permit plaintiff to pursue her Private Attorneys General Act (“PAGA”) claim on a representative basis because the court concluded that a party need not satisfy Rule 23 class action requirements with respect to PAGA claims. Following the lead of the California Supreme Court’s decision in Arias v. Superior Court, 46 Cal. 4th 969 (2009) and some other California federal district courts, the court found that a PAGA action serves a fundamentally different purpose from a class action because a PAGA action is a law enforcement action designed to protect the public and penalize the employer as opposed to a means of recovering damages on behalf of other members for the sake of efficiency and practicality. In coming to this conclusion, the district court did note, however, that California district courts are split over whether a representative PAGA claim must comply with Rule 23 class action requirements.

Important Takeaways

Pedroza emphasizes the significant burden plaintiffs must meet in order to establish the requirements for class certification in the wake of the U.S. Supreme Court’s holding in Dukes. It is not enough to simply point to a common issue; rather, the plaintiff must provide significant proof of a common issue “that 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.” Dukes, 131 S. Ct. at 2551. Although the court considered all the evidence, the fact that the plaintiff had only 12 declarations, had declarations contradicting deposition testimony, and had an expert who merely promised to do an analysis some day in the future, show that the quality of the evidence presented can be very important in the certification analysis.

The PAGA holding, while potentially alarming, is actually quite limited. Judge King merely concluded that PAGA actions do not have to meet Rule 23 requirements. It remains to be seen whether the plaintiff could formulate a manageable trial plan to actually determine which of the employees are “aggrieved” as necessary to determine who is entitled to penalties under the statute. The employee may not need to meet the Rule 23 requirements, but he or she must certainly do more than prove his or her own individual claims. The court did not bless any particular trial plan as to how liability could be determined as to each purportedly aggrieved employee. Given how individualized issues predominate on the underlying exemption issue, it is hard to see how such a trial could be conducted without having each manager come forth to testify about his or her unique situation.

Written by:

Sheppard Mullin Richter & Hampton LLP

Sheppard Mullin Richter & Hampton LLP on:

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