In re Wells Fargo Home Mortg. Overtime Pay Lit.

Decision Date07 July 2009
Docket NumberNo. 08-15355.,08-15355.
Citation571 F.3d 953
PartiesIn re WELLS FARGO HOME MORTGAGE OVERTIME PAY LITIGATION. Jason Mevorah, Genaro Perez, and Perry Derrick, Plaintiffs-Appellees, v. Wells Fargo Home Mortgage, Defendant-Appellant.
CourtU.S. Court of Appeals — Ninth Circuit

Lindbergh Porter, Jr., Littler Mendelson, P.C., San Francisco, CA, for the defendant-appellant.

Arthur W. Lazear (briefed), Hoffman & Lazear, Oakland, CA; Kevin J. McInerney (argued), McInerney & Jones, Reno, NV, for the plaintiffs-appellees.

Raymond A. Cardozo, Reed Smith, LLP, San Francisco, CA, Piper Hoffman, Otten & Golden, LLP, New York, NY, for the amici.

Appeal from the United States District Court for the Northern District of California, Marilyn Hall Patel, District Judge, Presiding. D.C. No. CV-06-01770-MHP.

Before: BARRY G. SILVERMAN and CONSUELO M. CALLAHAN, Circuit Judges, and RICHARD MILLS, District Judge.*

MILLS, District Judge:

This interlocutory appeal challenges a district court order certifying a group of California plaintiffs as a class.1

The dispute is whether the court abused its discretion in finding that the predominance requirement of Federal Rule of Civil Procedure 23(b)(3) was satisfied, based—in large part—on an employer's internal policy of treating its employees as exempt from overtime laws.

While such uniform exemption policies are relevant to the Rule 23(b)(3) analysis, we hold that it is an abuse of discretion to rely on such policies to the near exclusion of other relevant factors touching on predominance.

I.

The plaintiffs ("California plaintiffs") are current and former home mortgage consultants ("HMCs") who were employed by Wells Fargo Home Mortgage ("Wells Fargo") in California. Since 2001, there have been some 5000 such HMCs.

HMCs are charged with marketing and selling mortgages. Previously, they were compensated solely through a type of sales commission. In 2005, Wells Fargo changed the commission system to include a minimum, non-recoverable draw against commissions.

During the class period, Wells Fargo neither paid overtime nor tracked the hours of the HMCs. Rather, it treated nearly all of its HMCs as exempt from state and federal overtime requirements. Believing this exemption decision was contrary to law, several groups of plaintiffs brought putative class actions for violations of state labor and overtime laws. They also asserted that Wells Fargo engaged in unfair and unlawful business practices in violation of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof.Code § 17200 et seq., by violating various parts of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq. These cases, as well as those filed by non-California plaintiffs, were consolidated in the Northern District of California by the Judicial Panel on Multidistrict Litigation.

II.

The California plaintiffs sought class certification. In opposition, Wells Fargo argued that individual issues predominated and that class treatment was not superior. In particular, Wells Fargo pointed to a number of exemptions under the FLSA (applicable through the UCL) and California labor law that would require individualized inquiries.

In an order dated October 17, 2007, the district court carefully reviewed each exemption identified by Wells Fargo and found that individual inquiries would be necessary with respect to five exemptions: the federal outside sales exemption, 29 U.S.C. § 213(a)(1); California's outside sales exemption, Cal. Lab.Code § 1171; California's commissioned sales exemption, 8 Cal.Code Regs. § 11040(3)(D); California's administrative exemption, 8 Cal.Code Regs. § 11040(1)(A)(2); and the federal highly compensated employee exemption, 29 C.F.R. § 541.601. These inquiries, the court found, would require an analysis of the job experiences of the individual employees, including the amount of time worked by each HMC, how they spend their time, where they primarily work, and their levels of compensation.

In contrast, the court found that common issues arose only with respect to two exemptions: whether Wells Fargo qualifies as a "retail or service establishment" for purposes of a federal exemption for commissioned sales, 29 U.S.C. § 207, and whether the employees earned "commission wages" under California's commissioned sales exemption, 8 Cal.Code Regs. § 11040(3)(D). The remaining exemption, the federal administrative exemption, 29 C.F.R. § 541.200, was deemed irrelevant. Neither party directly challenges the district court's findings on any of these issues.

Despite the conclusion that numerous individualized inquiries would be necessary, the district court ultimately granted certification by relying on Wells Fargo's uniform exemption policies:

Taken together, defendants' declarations have raised serious issues regarding individual variations among HMC job duties and experiences. However, the common factual and legal issues nonetheless predominate. Wells Fargo's uniform policies regarding HMCs weigh heavily in favor of class certification. As numerous courts have recognized, it is manifestly disingenuous for a company to treat a class of employees as a homogenous group for the purposes of internal policies and compensation, and then assert that the same group is too diverse for class treatment in overtime litigation. This is particularly true in a situation such as this, where the difficulty of proving hours worked and compensation received is exacerbated by defendants' complete failure to maintain pertinent records. Accordingly, plaintiffs have satisfied their burden and demonstrated that common issues predominate.

E.R. 17.2

Following this order, Wells Fargo successfully petitioned for interlocutory review pursuant to Rule 23(f) and 28 U.S.C. § 1292(e).

III.

In a Rule 23(f) appeal, an appellate court must "limit [its] review to whether the district court correctly selected and applied Rule 23's criteria." Parra v. Bashas', Inc., 536 F.3d 975, 977 (9th Cir.2008). A district court's decision to certify a class under Rule 23 is reviewed for abuse of discretion. Lozano v. AT & T Wireless Servs., Inc., 504 F.3d 718, 724-25 (9th Cir.2007). Abuse exists in three circumstances: (1) reliance on an improper factor, (2) omission of a substantial factor, or (3) a clear error of judgment in weighing the correct mix of factors. Parra, 536 F.3d at 977-78 (citing Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288, 295 (1st Cir.2000)).

IV.

Under Rule 23(b)(3), a class may be certified where "the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed. R.Civ.P. 23(b)(3).3 The predominance inquiry of Rule 23(b)(3) asks "whether proposed classes are sufficiently cohesive to warrant adjudication by representation." Local Joint Executive Bd. of Culinary/Bartender Trust Fund v. Las Vegas Sands, Inc., 244 F.3d 1152, 1162 (9th Cir. 2001) (citation and internal quotation marks omitted). The focus is on "the relationship between the common and individual issues." Hanlon v. Chrysler Corp., 150 F.3d 1011, 1022 (9th Cir.1998).

The question here is whether the district court abused its discretion in finding Rule 23(b)(3)'s predominance requirement was met based on Wells Fargo's internal policy of treating all HMCs as exempt from state and federal overtime laws. To succeed under the abuse of discretion standard, Wells Fargo must demonstrate that the district court either (a) should not have relied on its exemption policy at all or (b) made a clear error of judgment in placing too much weight on that single factor vis-a-vis the individual issues.4

The first line of attack, that Wells Fargo's exemption policy was an impermissible factor, is a non-starter. An internal policy that treats all employees alike for exemption purposes suggests that the employer believes some degree of homogeneity exists among the employees. This undercuts later arguments that the employees are too diverse for uniform treatment. Therefore, an exemption policy is a permissible factor for consideration under Rule 23(b)(3).

Wells Fargo's arguments are better construed as a challenge to the weight accorded to the internal exemption policies under the third abuse of discretion prong: mulling the proper factors but committing clear error in weighing them. To analyze this question, we first ask how much weight the district court gave to the exemption policy. Plaintiffs suggest the weight was minimal; Wells Fargo claims that the district court's reliance was tantamount to estoppel.

A review of the California certification order lends substantial credence to Wells Fargo's position. Although the court's analysis of each exemption was careful and considered, its ultimate decision was clearly driven by Wells Fargo's uniform exemption policy. Indeed, the court found "serious issues regarding individual variations among HMC job duties and experiences" but nevertheless concluded that common questions predominated because "it is manifestly disingenuous for a company to treat a class of employees as a homogenous group for the purposes of internal policies and compensation, and then assert that the same group is too diverse for class treatment in overtime litigation." E.R. 17. As such, we must conclude that the district court's reliance on Wells Fargo's internal exemption policy was substantial.

This leads to the central question: whether such heavy reliance constituted a clear error of judgment in assaying the predominance factors. District courts within this circuit have split on the relevance of exemption policies. The district court relied primarily on Wang v. Chinese Daily News, Inc., 231 F.R.D. 602, 612-13 (C.D.Cal.2005), which found predominance of common issues based on an employer's policy of treating all employees in a...

To continue reading

Request your trial
228 cases
  • Senne v. Kan. City Royals Baseball Corp.
    • United States
    • U.S. District Court — Northern District of California
    • July 21, 2016
    ..."uniform corporate policies will often bear heavily on questions of predominance and superiority." In re Wells Fargo Home Mortg. Overtime Pay Litig., 571 F.3d 953, 958 (9th Cir. 2009) ("[C]ourts have long found that comprehensive uniform policies detailing the job duties and responsibilitie......
  • Duran v. U.S. Bank Nat'l Ass'n
    • United States
    • California Supreme Court
    • May 29, 2014
  • Ahle v. Veracity Research Co.
    • United States
    • U.S. District Court — District of Minnesota
    • August 25, 2010
  • Raniere v. Citigroup Inc.
    • United States
    • U.S. District Court — Southern District of New York
    • November 22, 2011
    ...concern in the predominance inquiry: the balance between individual and common issues.’ ”) (quoting In re Wells Fargo Mortgage Overtime Pay Litig., 571 F.3d 953, 957, 959 (9th Cir.2009)); Damassia v. Duane Reade, Inc., 250 F.R.D. 152, 159–60 (S.D.N.Y.2008) (noting common exemption policy's ......
  • Request a trial to view additional results
3 firm's commentaries

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT