Jesus Leyva v. Medlin Industries Inc , 716 F.3d 510 ( 2013 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
JESUS LEYVA , on behalf of himself No. 11-56849
and all other members of the general
public similarly situated, D.C. No.
Plaintiff-Appellant, 5:11-cv-00164-
RGK-MAN
v.
MEDLINE INDUSTRIES INC., a OPINION
California corporation,
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
R. Gary Klausner, District Judge, Presiding
Argued and Submitted
December 7, 2012—Pasadena, California
Filed May 28, 2013
Before: Harry Pregerson, Richard A. Paez,
and Andrew D. Hurwitz, Circuit Judges.
Opinion by Judge Pregerson
2 LEYVA V . MEDLINE INDUSTRIES, INC.
SUMMARY*
Class Certification
The panel reversed the district court’s order denying class
certification, and remanded with directions for the district
court to enter an order granting the motion for class
certification where plaintiffs sought to represent 538
employees of Medline Industries, Inc., and alleged violations
of California’s labor laws.
The panel held that the district court applied the wrong
legal standard and abused its discretion when it denied class
certification on the grounds that damages calculations would
be individual. The panel also held that the district court
abused its discretion by finding that the class would be
unmanageable despite the record’s demonstration to the
contrary.
COUNSEL
David M. deRubertis (argued) and Kimberly Y. Higgins, The
deRubertis Law Firm, Studio City, California; N. Nick
Ebrahimian and Jordan Bello, Lavi & Ebrahimian LLP,
Beverly Hills, California, for Plaintiff-Appellant.
Steven A. Groode (argued) and Matthew J. Sharbaugh, Littler
Mendelson, P.C., Los Angeles, California, for Defendant-
Appellee.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
LEYVA V . MEDLINE INDUSTRIES, INC. 3
OPINION
PREGERSON, Circuit Judge:
Plaintiff-Appellant Jesus Leyva appeals the district
court’s denial of class certification. Plaintiff seeks to
represent approximately 538 employees of Medline
Industries, Inc. (Medline). The complaint asserts claims
against Medline for violating California labor laws.
I. Allegations of Putative Class Members
Medline manufactures and delivers medical products.
The putative class members are current and former hourly
employees in Medline’s three California distribution
warehouses. Because Medline’s warehouse employees earn
low wages, the amount each could claim for unpaid wages is
relatively low—for example, Plaintiff’s individual claim is
for less than $10,000.
Plaintiff alleges that Medline violated the California
Labor Code, California Industrial Commission Wage Order
1-2001, and California’s Unfair Business Practices Law.
Plaintiff seeks to certify separate sub-classes to pursue the
following four claims1:
1. Rounding violation: Medline rounded its hourly
employees’ start times in twenty-nine minute increments. For
example, workers who clocked-in between 7:31 a.m. and
1
Medline removed this case to federal court under the Class Action
Fairness Act, 28 U.S.C. § 1332(d). M edline demonstrated in its removal
notice that its liability exposure to putative class members’ claims exceeds
five million dollars.
4 LEYVA V . MEDLINE INDUSTRIES, INC.
8:00 a.m. would be paid only from 8:00 a.m. onward even
though they began work beforehand. Putative class members
would clock-in before their scheduled start times because
they had to complete tasks such as inspecting their machines
and picking up scanners before they could begin their duties.
Plaintiff alleges that the rounding practices resulted in
employees performing unpaid work before their scheduled
start times, in violation of California Labor Code §§ 510 and
1197, and that they are entitled to compensation pursuant to
California Labor Code §§ 1194, 1194.2, and 1197.1.
2. Bonus violation: Medline allegedly excluded
nondiscretionary bonuses from employees’ overtime rates,
thus lowering overtime pay. Plaintiff claims that this practice
violated California law, citing to Marin et al. v. Costco
Wholesale Corp., 169 Cal. App. 4th 804, 807 (2008).
3. Waiting time penalties: Plaintiff alleges that because
of the time rounding and bonus violations, Medline owes its
employees penalties under California Labor Code § 203,
which provides that an employer who willfully fails to pay
any wages due to a terminated employee owes waiting time
penalties.
4. Wage statement penalties: Plaintiff alleges that
because of the rounding and bonus violations, Medline’s
payroll records did not accurately record the hours employees
worked and the wages they earned. California Labor Code
§ 226(e)(1) provides that an employee can recover up to four
thousand dollars in damages, and additional civil penalties,
for such violations.
LEYVA V . MEDLINE INDUSTRIES, INC. 5
II. Class Certification Requirements and the District
Court’s Ruling
To be certified, the putative class and sub-classes must
meet the four threshold requirements of Federal Rule of Civil
Procedure 23(a): numerosity, commonality, typicality, and
adequacy of representation. Fed. R. Civ. P. 23(a); see also
Hanlon v. Chrysler Corp., 150 F.3d 1011, 1019 (9th Cir.
1998). Moreover, the proposed class must satisfy the
requirements of Rule 23(b), which defines three different
types of classes. Plaintiff argues that the proposed sub-
classes meet the requirements of Rule 23(b)(3), which
requires that “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).
The district court found that “[t]he putative classes appear
to meet the requisites of Rule 23(a),” including the “rigorous”
commonality standard established in Wal-Mart Stores, Inc. v.
Dukes, __ U.S. __, 131 S. Ct. 2541, 2551 (2011) (requiring
that class members’ claims “depend upon a common
contention . . . [whose] truth or falsity will resolve an issue
that is central to the validity of each one of the claims in one
stroke.”). However, the district court nonetheless denied
class certification, holding that the putative class and sub-
classes did not meet the requirements of Rule 23(b)(3) for
two reasons. First, the district court concluded that common
questions did not predominate over individual questions
because “although Plaintiff appears to have established that
common questions exist with respect to Defendant’s liability
under state law, the damages inquiry will be highly
individualized.” The district court explained:
6 LEYVA V . MEDLINE INDUSTRIES, INC.
Each of the 500 putative class members
are allegedly entitled to different damage
awards for being ‘short-changed’ by the
rounding policy and/or the bonus policy.
Because evaluating each putative class
member’s claims would require fact-specific,
individualized inquiries into the amount of
pay to which he or she was entitled, the Court
finds that individual questions predominate
over commons questions in this case.
Therefore, the proposed classes are not
sufficiently cohesive to warrant adjudication
by representation.
Second, the district court concluded that because of the
size of the class, under Rule 23(b)(3) “alternative methods for
resolving this dispute are superior because of the likely
difficulties in managing this case as a class action.” The
district court did not explain which methods would be
superior. Instead, the court reasoned that “if these four
classes were certified, the Court would need to determine the
extent to which each putative class member lost wages and,
consequently, suffered damages. Since there are more than
500 putative class members, this process would tax the
Court’s resources.” The court also noted that it would have
to determine “which of several bonuses offered by Medline
to different putative class members were ‘nondicretionary’”
and that “employees within the bonus group each received
different bonuses at different pay periods.”
III. The District Court Abused its Discretion
We review the district court’s denial of class certification
for abuse of discretion. Knight v. Kenai Peninsula Borough
LEYVA V . MEDLINE INDUSTRIES, INC. 7
Sch. Dist., 131 F.3d 807, 816 (9th Cir. 1997). We apply a
two-step test to determine whether a district court abused its
discretion. United States v. Hinkson, 585 F.3d 1247, 1263
(9th Cir. 2009). First, we “look to whether the trial court
identified and applied the correct legal rule to the relief
requested. Second, we look to whether the trial court’s
resolution of the motion resulted from a factual finding that
was illogical, implausible, or without support in inferences
that may be drawn from the facts in the record.” Id.We find that the district court abused its discretion in
concluding that (1) individual questions predominated over
common questions, and (2) class certification was not
superior to other means of resolving the dispute.
A. Predominance of Common Questions
The district court applied the wrong legal standard by
concluding that individual questions predominate over
common questions. The only individualized factor that the
district court identified was the amount of pay owed. “In this
circuit, however, damage calculations alone cannot defeat
certification.” Yokoyama v. Midland Nat’l Life Ins. Co.,
594 F.3d 1087, 1094 (9th Cir. 2010).
The district court denied certification because for each
sub-class “the damages inquiry will be highly
individualized.” But damages determinations are individual
in nearly all wage-and-hour class actions. Brinker Rest.
Corp. v. Superior Court, 273 P.3d 513, 546 (Cal. 2012) (“In
almost every class action, factual determinations of damages
to individual class members must be made. Still we know of
no case where this has prevented a court from aiding the class
to obtain its just restitution. Indeed, to decertify a class on
8 LEYVA V . MEDLINE INDUSTRIES, INC.
the issue of damages or restitution may well be effectively to
sound the death-knell of the class action device.”) (internal
citation and quotation marks omitted). Thus, “[t]he amount
of damages is invariably an individual question and does not
defeat class action treatment.” Blackie v. Barrack, 524 F.2d
891, 905 (9th Cir. 1975); see also Yokoyama, 594 F.3d at
1089 (“The potential existence of individualized damage
assessments . . . does not detract from the action’s suitability
for class certification.”). In deciding otherwise, the district
court abused its discretion by applying the wrong legal
standard. See Hinkson, 585 F.3d at 1263.
Indeed, the Supreme Court clarified in Dukes that
“individualized monetary claims belong in Rule 23(b)(3).”
131 S. Ct. at 2558. Thus, the presence of individualized
damages cannot, by itself, defeat class certification under
Rule 23(b)(3). It is true that the plaintiffs must be able to
show that their damages stemmed from the defendant’s
actions that created the legal liability. Comcast Corp. v.
Behrend, 133 S. Ct. 1426, 1435 (2013) (“The first step in a
damages study is the translation of the legal theory of the
harmful event into an analysis of the economic impact of that
event.”) (internal quotation marks omitted). In Comcast, the
Supreme Court reversed an order granting class certification
because the plaintiffs relied on a regression model that “did
not isolate damages resulting from any one theory of antitrust
impact.” Id. at 1431. The Court concluded that “a model
purporting to serve as evidence of damages in this class
action must measure only those damages attributable to that
theory.” Id. at 1433.
Here, unlike in Comcast, if putative class members prove
Medline’s liability, damages will be calculated based on the
wages each employee lost due to Medline’s unlawful
LEYVA V . MEDLINE INDUSTRIES, INC. 9
practices. In the record, Plaintiff included deposition
testimony of Medline’s director of payroll operations, and
Medline’s Notice of Removal. Those documents show that
Medline’s computerized payroll and time-keeping database
would enable the court to accurately calculate damages and
related penalties for each claim. For example, in its removal
notice, Medline used its electronic database to separately
calculate its exposure for each putative class member’s claim.
The removal notice states that “to determine the potential
amount in controversy with regard to Plaintiff’s minimum
wage off-the-clock claim, Medline multiplied each
employee’s hourly rate by the number of workweeks he/she
was employed by Medline during the applicable period . . . .”
Medline listed the amount in controversy for each individual
claim and totaled the exposure on all the claims, calculating
a total amount in controversy of $5,934,761. Medline’s
removal notice thus demonstrates that damages could feasibly
and efficiently be calculated once the common liability
questions are adjudicated.
B. Superiority of Class Adjudication
The district court also applied the wrong legal standard
when it concluded that a class action was not the superior
method for resolving the putative class members’ claims.
The district court acknowledged that certification was
superior when considering three of the four Rule 23(b)(3)
factors—the class members’ interests in controlling litigation,
the nature of litigation, and the desirability of concentrating
the litigation of the claims—but denied class certification
based on manageability concerns.
The district court incorrectly held that class certification
was not the superior method of adjudication because of the
10 LEYVA V . MEDLINE INDUSTRIES, INC.
difficulty of managing the approximately 500 member class
and determining “the extent to which each putative class
member lost wages, and, consequently, suffered damages.”
The district court again abused its discretion when it based its
manageability concerns on the need to individually calculate
damages. See Cooter & Gell v. Hartmarx Corp., 496 U.S.
384, 405 (1990) (“A district court would necessarily abuse its
discretion if it based its ruling on an erroneous view of the
law . . . .”); Blackie, 524 F.2d at 905 (holding that the need to
determine individualized damages does not defeat class
certification).
Moreover, the district court’s reasoning regarding
manageability of the class action is “implausible” under
Hinkson’s second step. 585 F.3d at 1263. The district court
concluded that class certification is not the superior method
of adjudication but did not suggest any other means for
putative class members to adjudicate their claims. Indeed, it
appears that none exist.
The California Labor Code protects all workers regardless
of their immigration status or financial resources. California
Labor Code § 1171.5; see also Reyes v. Van Elk, Ltd., 56 Cal.
Rptr. 3d 68, 78 (Ct. App. 2007). In light of the small size of
the putative class members’ potential individual monetary
recovery, class certification may be the only feasible means
for them to adjudicate their claims. Thus, class certification
is also the superior method of adjudication. See Local Joint
Exec. Bd. of Culinary/Bartender Trust Fund v. Las Vegas
Sands, Inc., 244 F.3d 1152, 1163 (9th Cir. 2001) (“If
plaintiffs cannot proceed as a class, some—perhaps
most—will be unable to proceed as individuals because of the
disparity between their litigation costs and what they hope to
recover.”).
LEYVA V . MEDLINE INDUSTRIES, INC. 11
The district court’s denial of class certification because of
manageability concerns also lacks “support in inferences that
may be drawn from the facts in the record.” See Hinkson,
585 F.3d at 1262 (internal citations and quotation marks
omitted). The putative class and proposed sub-classes
contain approximately 538 people, and courts routinely
certify larger and more complex classes. See, e.g., Ortega v.
J.B. Hunt Transp., Inc., 258 F.R.D. 361, 364 (C.D. Cal. 2009)
(certifying class of “nearly 6,000” employees who alleged
that their employer failed to pay minimum wages, provide
proper meal and rest periods, provide accurate wage
statements, or provide wages due upon termination); Kamar
v. Radio Shack Corp., 254 F.R.D. 387, 402 (C.D. Cal. 2008)
(certifying class of 15,000 employees who alleged that their
employer’s policies violated state reporting time and split-
shift regulations).
Moreover, as noted above, Medline’s own documents
demonstrate the feasibility of calculating damages in this
case. Medline’s electronic payroll records contain much of
the data needed to calculate damages. In its notice removing
the case from state to federal court, Medline calculated the
damages exposure through a review of company payroll
records. Through a query of the computerized timekeeping
database, Medline’s director of payroll operations calculated
the amount of money plaintiff Leyva had lost due to
Medline’s rounding policy. The payroll director said the
calculation took him “probably an hour and a half,” and that
he could repeat the process for the entire class. The district
court, or a special master appointed under Federal Rule of
Civil Procedure 53, could use a similar method to calculate
damages once the court adjudicates liability. Thus, the
district court abused its discretion by ignoring the database’s
potential to alleviate the burden of determining damages.
12 LEYVA V . MEDLINE INDUSTRIES, INC.
IV. Conclusion
The district court applied the wrong legal standard and
abused its discretion when it denied class certification on the
grounds that damages calculations would be individual. The
court also abused its discretion by finding that the class would
be unmanageable despite the record’s demonstration to the
contrary. The district court’s order denying class certification
is REVERSED and REMANDED with directions to the
district court to enter an order granting Plaintiff’s motion for
class certification. Plaintiff is entitled to costs on appeal.