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Friday, October 15, 2010

9th Circuit Issues Wide-Ranging Opinion in Wang v. Chinese Daily News

Wage and Hour practice has changed dramatically over the past ten to fifteen years. In the 1990s and early 2000s, cases rarely if ever went to trial. (Bell v. Farmers Insurance Exchange being a notable exception.) The majority of cases resolved prior to certification, let alone trial. As wage and hour law has developed, more cases have gone through certification and approached or gone through trial.

Wang v. Chinese Daily News, Inc., --- F.3d --- (9th Cir., September 27, 2010), is one of those cases. It went to trial before both a jury (on legal issues) and the court (on equitable issues). Because the appeal is from a judgment on the merits, it addresses a number of important points.

The Ninth Circuit described the case as follows:
Chinese Daily News, Inc. (“CDN”), a Chinese-language newspaper, appeals the district court's judgment in an action brought by some of its California-based employees under the federal Fair Labor Standards Act (“FLSA”) and under California law. The district court [Judge Marshall, C.D.Cal] certified the FLSA claim as a collective action. It certified the state-law claims as a class action under Rule 23(b)(2) and, alternatively, under Rule 23(b)(3). In the state-law class action, it provided for notice and opt out, but subsequently invalidated the opt outs. It granted partial summary judgment to plaintiffs; held jury and bench trials; entered judgment for plaintiffs; awarded attorney's fees to plaintiffs; and conducted a new opt-out process. CDN appeals, challenging aspects of each of these rulings, as well as the jury's verdict. We have jurisdiction under 28 U.S.C. § 1291 and we affirm.
Slip op. at 1.

Exempt Status of Reporters

CDN argued "that the district court erred in holding on summary judgment that CDN's reporters were non-exempt employees entitled to overtime. Specifically, CDN argues that its reporters were subject to the 'creative professional exemption' and were therefore exempt employees not subject to FLSA and state-law overtime pay and break requirements." Slip op. at 3.

The Court noted the Department of Labor regulation, which explains that “[t]he majority of journalists, who simply collect and organize information that is already public, or do not contribute a unique or creative interpretation or analysis to a news product, are not likely to be exempt.” 29 C.F.R. § 541.302(d) (2004). Slip op. at 4. The Court also looked at other reporter exemption cases, noting that reporters typically are not considered exempt unless they are "high-level investigative journalist[s]." Ibid.

After reviewing the evidence on summary judgment, the Court "agree[d] with the district court that, even when viewing the facts in the light most favorable to CDN, the reporters do not satisfy the criteria for the creative professional exemption." Slip op. at 5. The Court affirmed the order granting summary judgment. Slip op. at 6.

Class Certification Order

Next, the Court examined whether the district court properly certified the case under Rules 23(b)(2) and, in the alternative, 23(b)(3).

CDN argued that 23(b)(2) certification was not appropriate because "claims for money damages predominated." Slip op. at 6. The Court held that the district court acted properly because it employed a certification standard "at least as stringent" as the one set forth recently in Dukes v. Wal-Mart.
The district court certified the class only after concluding that “the monetary relief claims do not predominate in this case but rather appear to be on equal footing with the claims for injunctive relief.” Wang, 231 F.R.D. at 612. Because Dukes interpreted Rule 23(b)(2) to require only that claims for monetary relief not predominate over claims for injunctive relief, the district court did not err in applying a standard allowing Rule 23(b)(2) certification when the claims are on “equal footing.”
Slip op. at 6.
Nor did the district court abuse its discretion in holding that plaintiffs' claims for monetary relief did not, in fact, predominate. There were substantial claims for injunctive relief in this case. Plaintiffs sought to enjoin a longstanding set of employment policies and sought monetary relief for current and past employees allegedly injured by those policies. Because the claims for monetary and injunctive relief were closely related, the request for monetary relief neither “introduce[d] new and significant legal and factual issues,” nor raised particular due process or manageability concerns. See Dukes, 603 F.3d at 617, 621-22. CDN's current employees-who constitute the vast majority of the class-stood to benefit significantly from an award of injunctive relief. As the district court pointed out in its certification ruling,”[d]efendant's future compliance with the law may be more valuable to the class than the present claims for back pay.” Wang, 231 F.R.D. at 612.
Slip op. at 7.

Attorneys and courts frequently overlook this point, not only in analyzing class certification, but also in analyzing settlements. An employer's agreement to re-classify employees or to change policies and practices can bring great benefits going forward, and those benefits frequently outweigh the monetary payments being made.

Because the Court held that the district court properly certified the class under Rule 23(b)(2), it did not examine whether certification was proper under Rule 23(b)(3). Given Wal-Mart's pending petition for certiorari in Dukes, it may have been more helpful to have a 23(b)(3) analysis here.

Invalidation of Opt Outs

The district court found that CDN had pressured class members to opt out and invalidated the opt outs. After noting the district court's broad discretion "to regulate the notice and opt-out processes," especially when notice and the opportunity to opt out are not required by Rule 23 but are ordered by the district court in the exercise of its discretion, the Court held that invalidating the opt outs was not an abuse of discretion.

After reviewing the evidence, the district court found that “the opt out period was rife with instances of coercive conduct, including threats to employees' jobs, termination of an employee supporting the litigation, the posting of signs urging individuals not to tear the company apart, and the abnormally high rate of opt outs.” Wang, 236 F.R.D. at 491. Although CDN disputes whether some of this conduct took place, the district court's factual findings were supported by the evidence before it and were not clearly erroneous. Based on these findings, the district court did not abuse its discretion in invalidating the opt outs and in restricting CDN's ability to communicate with class members.

Slip op. at 9. Given CDN's alleged conduct, it is not surprising that the district court would act as it did, or that the Ninth Circuit would affirm those actions.

Deferral of Second Opt-Out Procedure Until After Trial on the Merits

CDN next challenged the district court's order that a second opportunity to opt out be deferred until after trial on the merits. "CDN argues that the process must take place early in the litigation so that members of the putative class cannot gauge the progress of the case, or know the result, before choosing whether to opt out." Slip op. at 9. The Court held that the district court did not abuse its discretion.

The ordinary procedure is to give notice at the time of class certification. But the rule does not mandate notice at any particular time. See Fed.R.Civ.P. 23(c)(2). When, as here, there is a need to regulate the notice and opt-out processes to maintain the integrity of the action in the face of a party's coercive activity, a district court does not abuse its discretion in delaying the process substantially-even, if necessary, until after the trial on the merits. We reiterate that a district court's discretion to manage the notice and opt-out processes is particularly broad in a Rule 23(b)(1) or (b)(2) class action where notice and the opportunity to opt out are not mandatory.

The district court in this case determined that holding another opt-out election immediately would not only delay the trial, but also would not avoid the coercion that had tainted the initial process. The court made these determinations only after it made specific findings regarding CDN's coercive behavior. We hold that in these circumstances the district court acted within its discretion to regulate the opt-out process to diminish the effects of the prior coercion and to avoid further coercion.

Slip op. at 10.

Reduction of Damages Award

CDN next challenged the district court's decision not to reduce the damage award to account for a smaller class size than presented to the jury. The Court held that this argument was premature, given the district court's decision to "await the running of the statute of limitations on the filing of individual suits against CDN before calculating any distribution of excess and unclaimed funds."

Slip op. at 10. CDN apparently did not challenge – and the Court did not discuss – the propriety of waiting until after each individual’s statutory period runs before calculating the distribution of any excess or unclaimed funds.

Challenge to Jury Verdict

CDN next challenged the jury's finding that it failed to provide its reporters with meal periods under California law. CDN argued that it only need make meal periods available, not ensure that they be taken. The Court noted that Brinker v. Superior Court (Hohnbaum) is pending in the Cal. Supreme Court, then held:

We need not resolve this dispute or wait for the California Supreme Court to do so. Even if the California Supreme Court interprets California law to place only minimal obligations on employers, the evidence presented to the jury was sufficient to support a finding that CDN did not “provide” reporters with meal breaks. The evidence showed that reporters did not have time to take meal breaks because they worked long, harried hours and faced tight deadlines. There was testimony that reporters were required to carry pagers all the time and be on call from morning until night without ever getting a sustained off-duty period. The evidence showed that reporters did not keep time cards and that pay stubs did not reflect time actually worked. Several reporters also testified that they could rarely take uninterrupted 30 minute breaks. CDN never told reporters that meal breaks were available and never told them to keep track of meal breaks on a time card.

Slip op. at 11. This discussion should help to guide parties and courts deciding these issues while we await the Supreme Court's decision in Brinker.

Preemption of Unfair Competition Law Claim

CDN next argued that FLSA preempts the plaintiffs' claims under California's Unfair Competition Law (UCL). Cal. Bus. & Prof. Code section 17200.

The Court first noted a number of Ninth Circuit and district court decisions that hold that FLSA does not preempt state wage law and that FLSA "sets a floor rather than a ceiling on protective legislation." Slip op. at 12. The Court then held that a prior case, Williamson v. General Dynamics Corp., 208 F.3d 1144, 1152-53 (9th Cir.2000), "forecloses the possibility of express or conflict preemption in this case. In Williamson, we held express preemption inapplicable to FLSA because no statutory language expressly preempted state law claims. Id. at 1151-53. We held field preemption inapplicable because FLSA explicitly permits states and municipalities to enact stricter wage and hour laws. Id." Slip op. at 12.

The Court then explained that the third type of preemption, conflict preemption, does not apply because there is no conflict between the purposes of federal and California wage law.

In Williamson, we rejected the argument that the purpose of FLSA “was to protect employers as well as employees,” instead holding that “the central purpose of the FLSA is to enact minimum wage and maximum hour provisions designed to protect employees.” 208 F.3d at 1153-54. Allowing the § 17200 claim in this case to proceed furthers this purpose of protecting employees.

Slip op. at 13. The Court thus disposed of this issue, which arises occasionally in actions removed to district court.

Supplemental Jurisdiction Over State Law Claims

CDN next argued that the district court erred in exercising supplemental jurisdiction over the plaintiffs' state law claims. First, the Court noted that FLSA collective actions use an "opt in" procedure and typically involve fewer individual claimants than Rule 23 "opt out" class actions. Slip op. at 13.

Next, the Court considered opinions from two other circuits that considered supplemental jurisdiction. It distinguished De Asencio v. Tyson Foods, Inc., 342 F.3d 301, 309-11 (3d Cir.2003), in which the Third Circuit held that the district court abused its discretion in exercising supplemental jurisdiction over a state law wage class action. Analogizing to Lindsay v. Government Employees Insurance Co., 448 F.3d 416 (D.C.Cir.2006), the Court held:

[I]t was within the district court's discretion to exercise supplemental jurisdiction over the § 17200 claim in this case. The § 17200 claim does not pose novel questions of state law akin to those present in De Asencio. Indeed, the FLSA and § 17200 claims are closely related. Although the number of claimants and amount of potential damages in the § 17200 claim may have been higher, as Lindsay states, "[p]redomination under section 1367(c)(2) relates to the type of claim and here the state law claims essentially replicate the FLSA claims-they plainly do not predominate. Id. at 425 (emphasis added).

Slip op. at 14. Moreover, the Court noted that CDN waited until "after class certification, summary judgment, and opt-out invalidation motions - all of which were largely decided against CDN - before raising its objection based on § 1367(c)." Ibid.

Attorney Fees

Finally, CDN asked the Court to reverse or modify the award of attorney fees to plaintiffs' counsel to the extent that the Court reversed or modified the judgment. Because the Court affirmed the judgment, it affirmed the attorney fee award as well.


Wang deals with a number of important issues that more parties and courts will face as more wage cases move deeper in the litigation process before resolving -- if they resolve at all.

The opinion is here.

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