Mevorah v. Wells Fargo ( 2009 )

FOR PUBLICATION
UNITED STATE COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: WELLS FARGO HOME MORTGAGE 
JASON MEVORAH, GENARO PEREZ, No. 08-15355

and PERRY DERRICK, D.C. No. CV-06-
Plaintiffs-Appellees, 01770-MHP
v. OPINION
WELLS FARGO HOME MORTGAGE,
Defendant-Appellant.

Appeal from the United States District Court
for the Northern District of California
Marilyn Hall Patel, District Judge, Presiding
Argued and Submitted
February 5, 2009—Pasadena, California
Filed July 7, 2009
Before: Barry G. Silverman and Consuelo M. Callahan,
Circuit Judges, and Richard Mills, District Judge.*
Opinion by Judge Mills
*The Honorable Richard Mills, United States District Judge for the
Central District of Illinois, sitting by designation.
8325
IN RE WELLS FARGO HOME MORTGAGE 8327
COUNSEL
Lindbergh Porter, Jr., Littler Mendelson, P.C., San Francisco,
California, for the defendant-appellant.
Arthur W. Lazear (briefed), Hoffman & Lazear, Oakland,
California; Kevin J. McInerney (argued), McInerney & Jones,
Reno, Nevada, for the plaintiffs-appellees.
8328 IN RE WELLS FARGO HOME MORTGAGE
Raymond A. Cardozo, Reed Smith, LLP, San Francisco, Cali-
fornia, for the amici.
Piper Hoffman, Otten & Golden, LLP, New York, New York,
for the amici.
OPINION
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 discre-
tion to rely on such policies to the near exclusion of other rel-
evant factors touching on predominance.
I.
The plaintiffs (“California plaintiffs”) are current and for-
mer 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.
1
We defer ruling on the claims of the nationwide plaintiffs until resolu-
tion of the issues raised in Sullivan v. Oracle Corp., 557 F.3d 979 (9th Cir.
2009). Counsel is directed to notify us when a resolution has been reached
in that case.
IN RE WELLS FARGO HOME MORTGAGE 8329
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 commis-
sion 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 Compe-
tition 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 oppo-
sition, Wells Fargo argued that individual issues predomi-
nated 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 care-
fully reviewed each exemption identified by Wells Fargo and
found that individual inquiries would be necessary with
respect to five exemptions: the federal outside sales exemp-
tion, 29 U.S.C. § 213(a)(1); California’s outside sales exemp-
tion, Cal. Lab. Code § 1171; California’s commissioned sales
exemption, 8 Cal. Code Regs. § 11040(3)(D); California’s
administrative exemption, 8 Cal. Code Regs.
8330 IN RE WELLS FARGO HOME MORTGAGE
§ 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 experi-
ences 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 quali-
fies 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 dis-
trict court’s findings on any of these issues.
Despite the conclusion that numerous individualized inqui-
ries 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 pre-
dominate. 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
IN RE WELLS FARGO HOME MORTGAGE 8331
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) reli-
ance on an improper factor, (2) omission of a substantial fac-
tor, 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.
[1] 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
2
Although our ruling focuses primarily on the predominance analysis,
we note that the district court’s superiority analysis also leaned heavily on
the exemption policy.
3
There is no dispute concerning the Rule 23(a) factors.
8332 IN RE WELLS FARGO HOME MORTGAGE
inquiry of Rule 23(b)(3) asks “whether proposed classes are
sufficiently cohesive to warrant adjudication by representa-
tion.” 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 indi-
vidual 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 require-
ment was met based on Wells Fargo’s internal policy of treat-
ing 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 pol-
icy that treats all employees alike for exemption purposes
suggests that the employer believes some degree of homoge-
neity exists among the employees. This undercuts later argu-
ments 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 chal-
lenge to the weight accorded to the internal exemption poli-
cies 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
4
Nothing in the briefs implicates the remaining abuse prong: the omis-
sion of a substantial factor.
IN RE WELLS FARGO HOME MORTGAGE 8333
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 substan-
tial 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 uni-
form 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 disingenu-
ous for a company to treat a class of employees as a homoge-
nous 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.
[2] 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 predomi-
nance of common issues based on an employer’s policy of
treating all employees in a certain position as uniformly
exempt from overtime compensation requirements. In con-
trast, another district court has expressed doubt about Wang,
and found that uniform exemption policies are merely a minor
factor in the predominance analysis. See Campbell v. Price-
waterhouseCoopers, LLP, 253 F.R.D. 586, 603-04 (E.D. Cal.
2008) (rejecting “estoppel” position of Wang).
[3] In determining which rule is appropriate, we begin by
examining Rule 23 itself. A principal purpose behind Rule 23
class actions is to promote “efficiency and economy of litiga-
tion.” Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538, 553
(1974). In particular, Rule 23(b)(3)’s predominance and supe-
8334 IN RE WELLS FARGO HOME MORTGAGE
riority requirements were added “to cover cases ‘in which a
class action would achieve economies of time, effort, and
expense, and promote . . . uniformity of decision as to persons
similarly situated, without sacrificing procedural fairness or
bringing about other undesirable results.’ ” Anchem Prods.,
Inc. v. Windsor, 521 U.S. 591, 615 (1997) (quoting Fed. R.
Civ. P. 23(b)(3) Adv. Comm. Notes to 1966 Amendment).
Thus, the “ ‘notion that the adjudication of common issues
will help achieve judicial economy’ ” is an integral part of the
predominance test. Zinser v. Accufix Research Inst., Inc., 253
F.3d 1180, 1189 (9th Cir. 2001) (quoting Valentino v. Carter-
Wallace, Inc., 97 F.3d 1227, 1234 (9th Cir. 1996)). Whether
judicial economy will be served in a particular case turns on
close scrutiny of “the relationship between the common and
individual issues.” Hanlon, 150 F.3d at 1022.
Viewed in light of these principles, the rule espoused in
Wang has little justification. Wang essentially creates a pre-
sumption that class certification is proper when an employer’s
internal exemption policies are applied uniformly to the
employees. Such an approach, however, disregards the exis-
tence of other potential individual issues that may make class
treatment difficult if not impossible. Indeed, this case is a
prime example, as the district court identified “serious issues
regarding individual variations” that were not susceptible to
common proof, but nevertheless felt compelled to certify the
class.
[4] Of course, uniform corporate policies will often bear
heavily on questions of predominance and superiority. Indeed,
courts have long found that comprehensive uniform policies
detailing the job duties and responsibilities of employees
carry great weight for certification purposes. Damassia v.
Duane Reade, Inc., 250 F.R.D. 152, 160 (S.D.N.Y. 2008)
(“Where . . . there is evidence that the duties of the job are
largely defined by comprehensive corporate procedures and
policies, district courts have routinely certified classes of
employees challenging their classification as exempt, despite
IN RE WELLS FARGO HOME MORTGAGE 8335
arguments about ‘individualized’ differences in job responsi-
bilities.”). Such centralized rules, to the extent they reflect the
realities of the workplace, suggest a uniformity among
employees that is susceptible to common proof.
[5] But Wells Fargo’s blanket application of exemption sta-
tus, whether right or wrong, is not such a rule. In contrast to
centralized work policies, the blanket exemption policy does
nothing to facilitate common proof on the otherwise individu-
alized issues.
[6] To illustrate, consider the federal outside salesperson
exemption. This exemption applies where, among other
things, the employee is “customarily and regularly away from
the employer’s place of . . . business . . . .” 29 C.F.R.
§ 541.500(a). Often, this exemption will militate against certi-
fication because, as the district court noted, it requires “a fact-
intensive inquiry into each potential plaintiff’s employment
situation. . . .” E.R. 11. A centralized policy requiring
employees to be at their desks for 80% of their workday
would change this individual issue into a common one. There-
fore, such a corporate policy would be highly relevant to the
predominance analysis. A uniform exemption policy, how-
ever, has no such transformative power. Whether such a pol-
icy is in place or not, courts must still ask where the
individual employees actually spent their time. As one court
succinctly explained, “[t]he fact that an employer classifies all
or most of a particular class of employees as exempt does not
eliminate the need to make a factual determination as to
whether class members are actually performing similar
duties.” Campbell, 253 F.R.D. at 603.
[7] In short, Wells Fargo’s uniform exemption policy says
little about the main concern in the predominance inquiry: the
balance between individual and common issues. As such, we
hold that the district court abused its discretion in relying on
8336 IN RE WELLS FARGO HOME MORTGAGE
that policy to the near exclusion of other factors relevant to
the predominance inquiry.5
V.
Finding that the district court abused its discretion, we
REVERSE its order certifying the California class and
REMAND this case for a new certification analysis consistent
with this opinion..
5
Wells Fargo also argues that the California plaintiffs cannot bring a
state law opt-out class action because the opt-out procedures are in tension
with the FLSA opt-in procedures. The cases cited in support, however,
only address concurrent FLSA and state law claims, whereas the Califor-
nia plaintiffs have not brought a collective action under the FLSA.
Whether an unasserted FLSA claim bars a state law suit is a question of
preemption. Wells Fargo, however, largely disclaims making preemption
arguments and, in any event, has not cited this Court’s FLSA preemption
jurisprudence, e.g., Williamson v. Gen. Dynamics Corp., 208 F.3d 1144,
1149-55 (9th Cir. 2000); Pac. Merch. Shipping Ass’n v. Aubry, 918 F.2d
1409 (9th Cir. 1990); see also Anderson v. Sara Lee Corp., 508 F.3d 181,
195 n.12 (4th Cir. 2007) (discussing Ninth Circuit law regarding the FLSA
preemption of parallel state claims), or that of other circuit courts, e.g.,
Anderson, 508 F.3d at 191-95 (finding parallel claims preempted). See
generally Rachel K. Alexander, Federal Tails and State Puppy Dogs: Pre-
empting Parallel State Wage Claims to Preserve the Integrity of Federal
Group Wage Actions, 58 Am. Univ. L.R. 515 (2009). As such, we decline
to explore the question.