Bell v. Farmers Ins. Exchange

• Decision Date: 09 February 2004
• Docket Number: No. A096721.,No. A097810.,No. A098799.,A096721.,A097810.,A098799.
• Citation: 9 Cal.Rptr.3d 544,115 Cal.App.4th 715
• Court: California Court of Appeals Court of Appeals
• Parties: Rose M. BELL et al., Plaintiffs and Respondents, v. FARMERS INSURANCE EXCHANGE, Defendant and Appellant.

9 Cal.Rptr.3d 544

115 Cal.App.4th 715

Rose M. BELL et al., Plaintiffs and Respondents, v. FARMERS INSURANCE EXCHANGE, Defendant and Appellant.

No. A096721.

No. A097810.

No. A098799.

Court of Appeal, First District, Division 1.

February 9, 2004.

As Modified on Denial of Rehearing March 9, 2004.

Review Denied May 12, 2004.

Winston & Strawn, Lee T. Paterson, Jessie A. Kohler, Los Angeles, Lascher & Lascher, Wendy Cole Lascher, Ventura, for Defendant and Appellant.

Gibson, Dunn & Crutcher, Pamela L. Hemminger, Los Angeles, for California Chamber of Commerce, California Manufacturers & Technology Association and California Retailers Association, as Amicus Curiae on behalf of Appellant.

Sheppard, Mullin, Richter & Hampton, Douglas R. Hart, Elicia N. Bernstein, Los Angeles, for the Personal Insurance Federation of California and the Association of California Insurance Companies, as Amicus Curiae on behalf of Appellant.

Rudy, Exelrod & Zieff, Steven G. Zieff, Kenneth J. Sugarman, Altshuler, Berzon, Nussbaum, Rubin & Demain, Michael Rubin, Scott A. Kronland, Laura Juran, San Francisco, for Plaintiffs and Respondents.

SWAGER, J.

In this class action for unpaid overtime, Farmers Insurance Exchange (FIE) has filed separate notices of appeal from a judgment awarding the plaintiffs' class $90,009,208.12 for unpaid overtime compensation plus prejudgment interest of $32,303,048 and from a series of postjudgment orders that inter alia adopted a plan of distribution and awarded common fund attorney fees and costs. We reverse the portion of the judgment for unpaid double-time hours worked, and remand the order re plan of distribution. In all other respects the judgment and postjudgment orders are affirmed.

PROCEDURAL BACKGROUND

1. Early Procedural History

The plaintiffs are former or current claims representatives working for FIE in California who brought this action on behalf of themselves and other claims representatives employed in a similar capacity. Their complaint filed October 2, 1996, and amended two months later alleges that FIE followed the practice of refusing to pay overtime compensation to claims representatives on the ground that they were employed in an administrative capacity and therefore exempt from the overtime pay regulations of the California Industrial Welfare Commission. The plaintiffs sought unpaid overtime compensation under Labor Code section 1194 for a period beginning on October 1, 1993, and continuing until trial, as well as injunctive relief to assure future compliance with state overtime regulations.

After extensive discovery, plaintiffs filed a motion for class certification supported by depositions of prospective class members and other evidence. Granting the motion in an order filed May 28, 1998, the trial court found that the class was "so numerous as to make it impracticable to join all members," there were "questions of law and fact common to the class," plaintiffs were representative of the class, and a class action was "superior to other available methods for the fair and efficient adjudication of the controversy." The order defined the class as consisting of claims representatives working for FIE's Personal Lines Division in California during the relevant period, who were assigned to handle property, automobile physical damage, and liability claims.

FIE sought review of the order certifying the class in an earlier appeal, which we dismissed as procedurally improper.

Plaintiffs effectively sought an adjudication of FIE's liability in a motion for summary adjudication of the exempt or nonexempt status of the class members. In an order filed April 21, 1999, the trial court rejected FIE's claim that the claims representatives were employed in an exempt administrative capacity and ruled that the class was subject to the overtime regulations of the Industrial Welfare Commission. The court found that claims adjusting was "a product or service which FIE's operation exists to provide" and that claims representatives "devote their time to carrying out [this] product/service as opposed to its `administrative' functions."

The trial court subsequently awarded the plaintiffs interim attorney fees on a finding that they had "prevailed on liability issues." Appealing from this award, FIE challenged the adjudication of nonexempt status as a predicate for the attorney fee award and questioned the trial court's statutory authority to award interim attorney fees. In our decision in Bell v. Farmers Ins. Exchange (2001) 87 Cal.App.4th 805, 105 Cal.Rptr.2d 59 (hereafter Bell II), we upheld the trial court's ruling that plaintiffs were nonexempt employees but reversed the interim award of attorney fees on separate statutory grounds.

2. Contested Class Certification

On September 22, 1999, approximately six months after the summary adjudication of nonexempt status, FIE moved for "an order granting declaratory judgment as requested by plaintiffs ..., decertifying the class and issuing an injunction requiring individual class members to commence administrative proceedings before the Labor Commissioner for a determination of individual damage claims." FIE argued that damages could best "be litigated on an individual basis" in an administrative proceedings pursuant to Labor Code section 98. Opposing the motion, plaintiffs relied in part on the rule that class decertification must be based on a showing of changed circumstances. The trial court denied the motion on this basis, finding "no changed circumstances rendering class certification no longer proper."

FIE next moved for the court to issue a second notice of pendency of action, both to employees who received the original notice mailed in July 1998 and those who were hired thereafter, which would give employees an opportunity to opt out of the class. The trial court ordered the notice, with a request for exclusion from the class, to be sent only to new employees who had not received the first notice. Approximately 5 percent of the class ultimately chose to opt out of the class action.

On May 24, 2001, less than a month before trial, FIE moved again to decertify the class on the ground that the recently completed depositions of the statistical sample of class members revealed that 9 percent of the class members did not claim unpaid overtime compensation. The trial court denied the motion on the ground that the inclusion of these employees in the class did not prejudice FIE and "judicial economy is served" by denying the motion.

3. Trial Management Rulings

Following the adjudication of the plaintiffs' nonexempt status, the parties submitted to the court a series of proposals and counterproposals for management of the damages-phase trial, which led to an initial ruling entered April 28, 2000, that set the context for later pretrial rulings. In status conference statements filed in 1999, plaintiffs proposed to prove class-wide aggregate damages by statistical sampling. FIE took the "position that damages recoverable by each class member must be tried on an individual basis" and announced an intention to take an initial 52 depositions of an estimated 2,500 individuals in the class.

By February 2000, both parties were assisted by statisticians — plaintiffs retained Richard Drogin and FIE retained Roy Weinstein. Plaintiffs submitted a proposed trial management plan for a scheduled hearing on April 21, 2000, supported by a declaration of Richard Drogin, which proposed statistical sampling to achieve a one-hour-per-week margin of error with a "confidence interval" of 95 percent. He calculated that a sample of 95 employees would be necessary to achieve this level of accuracy. In response, FIE called for "individual mini-trials," but, if they were not allowed, it proposed a sampling plan based on the same 95 percent confidence interval but designed to achieve a half-hour-per-week margin of error. Its statistician, Roy Weinstein, calculated that a sample of 1,325 employees would be required.

In reply, plaintiffs noted that the wide variation in estimated class size reflected different assumptions about the variability of the data. They proposed a two-stage plan. The parties would first conduct a pilot random sample of 50 class members to refine their assumptions as to the variability of the data, and then seek rulings on the appropriate margin of error and the size of the employee sample. Generally accepting this methodology, Weinstein filed a supplemental declaration shortly before the hearing on April 21, 2000, that characterized the plaintiffs' proposal as "reasonable." At the hearing itself, the parties announced an agreement on the initial step of taking depositions of a randomly chosen sample of 50 individuals.

The order following the hearing filed April 28, 2000, provided that "[t]he damages-phase trial" would "determine classwide aggregate damages" by extrapolating from "a representative sampling of class members." The order directed depositions of "an initial pilot sample of 50 randomly selected class members" and appointed a special master to resolve any disputes concerning these depositions. The court directed a target date for completion of these depositions and asked for the submission of a joint report of their experts. The order further directed the parties to "regularly meet-and-confer" following the depositions "in an attempt to reach agreement on the number of weekly overtime hours worked and/or the number of hours worked per week by each of the 50 deposed class members."

Both parties filed status conference statements for a hearing on August 4, 2000. Plaintiffs proposed a margin of error of 1.5 overtime hours per week and FIE proposed a margin of error of 0.75 hours per week. In a joint declaration submitted for the hearing, the experts, Drogin and Weinstein, announced that they had "identified a range of sample sizes associated with different margins of error. A decision as to the appropriate margin of error for purposes of...