Opinion
NO. 2019-CA-001318-ME
05-15-2020
HITACHI AUTOMOTIVE SYSTEMS AMERICAS, INC. APPELLANT v. RONALD D. HELD AND CAROL LEAR, INDIVIDUALLY AND ON BEHALF OF CLASS OF PERSONS SIMILARLY SITUATED APPELLEES
BRIEFS FOR APPELLANT: Craig P. Siegenthaler Timothy J. Weatherholt Louisville, Kentucky BRIEF FOR APPELLEES: William R. Garmer Jerome P. Prather John E. Norman Lexington, Kentucky David W. Garrison Joshua A. Frank Nashville, Kentucky J. Chris Sanders Louisville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM MADISON CIRCUIT COURT
HONORABLE JEAN CHENAULT LOGUE, JUDGE
ACTION NO. 18-CI-00294 OPINION
AFFIRMING
** ** ** ** **
BEFORE: GOODWINE, JONES, AND KRAMER, JUDGES. GOODWINE, JUDGE: Two supervisors, Ronald D. Held, Jr. ("Held") and Carol Lear ("Lear") (collectively "Appellees"), employed in the Berea manufacturing facilities owned by Hitachi Automotive Systems Americas, Inc. ("Hitachi") filed an action against Hitachi alleging they and members of a putative class were entitled to recover unpaid and underpaid overtime wages under the Kentucky Wage and Hour Act ("KWHA") codified in KRS Chapter 337. The Madison Circuit Court granted Appellees' motion for class certification. Hitachi appealed. After careful review of the record, finding no error, we affirm.
Kentucky Revised Statutes.
BACKGROUND
Before filing the underlying action in the Madison Circuit Court, Lear filed an action in the United States District Court for the Eastern District of Kentucky alleging the same KWHA overtime claims at issue here and federal overtime claims under the Fair Labor Standards Act ("FLSA"). Senior United States District Judge Joseph M. Hood conditionally certified a class of supervisors under the FLSA. However, Judge Hood declined to exercise supplemental jurisdiction over Lear's KWHA claims due to the differences in the state and federal laws governing the claims. Judge Hood dismissed Lear's KWHA claims without prejudice, so she could refile the claims in state court.
On May 30, 2018, Held and Lear filed a class action on behalf of themselves and all similarly situated supervisors employed in the Berea manufacturing facilities owned by Hitachi. They alleged Hitachi failed to pay supervisors at the same hourly rate for all hours work and failed to pay them at the required overtime rate. Held and Lear asserted Hitachi's compensation policy for the class of supervisors violated the KWHA and sought to recover overtime pay under the Act. The circuit court action was dormant for approximately a year.
In the meantime, Lear continued to litigate the federal case and fact discovery proceeded. Discovery was set to expire on April 12, 2019, but shortly before that Lear moved to stay the case or dismiss the FLSA action without prejudice. Judge Claria Horn Boom inherited the case from Judge Hood and dismissed the FLSA case with prejudice after Lear agreed that would be an acceptable resolution.
On July 12, 2019, Appellees herein moved to certify the class. In their motion, Appellees proposed a class of "[a]ll current and former supervisors . . . employed by Hitachi in its Berea, Kentucky, manufacturing facilities at any time since April 24, 2012, excluding all supervisors who have only worked on the south side of the Berea Motors facility since April 24, 2012." Record ("R.") at 876.
Appellees also requested that the class be divided into two subclasses. The first subclass included "[a]ll Class Supervisors employed by Hitachi at any time from April 24, 2012 to present." Id. Appellees asserted that all employees in this class were hourly employees. The second subclass included a smaller subset of "[a]ll Class Supervisors employed by Hitachi at any time from April 24, 2012 through June 13, 2016." Id.
Before June 2016, supervisors received extra pay at an hourly rate but not overtime premium pay for every hour worked over forty hours per week. After June 2016, Hitachi revised its compensation policy, so supervisors only received extra pay for the first ten hours worked over forty hours per week, thus greatly reducing the disparity between actual pay and the guaranteed minimum.
Hitachi opposed certification of the class before the circuit court, arguing all the supervisors were paid on a salary basis, so the supervisors were not entitled to overtime pay. Alternatively, Hitachi argued that even if the supervisors were paid on an hourly basis, many members of the proposed class would not be entitled to recover damages under the reasonable relationship test under 803 KAR 1:070 Section 11(2). Hitachi asserted that the proposed class did not meet the numerosity, commonality, and predominance requirements for certification because many individuals would not ultimately be entitled to damages.
Kentucky Administrative Regulations.
The circuit court heard oral arguments on the motion on August 21, 2019. Although the circuit court did not conduct an evidentiary hearing, the court noted it reviewed the numerous volumes of record filed prior to the hearing. The court further noted the amount of discovery that had been conducted was somewhat unusual for the certification stage but understandable given the delay. The court entered an order certifying the class and two subclasses on August 22, 2019. The circuit court rejected Hitachi's merits-based arguments and found the proposed class met all requirements for certification. This appeal followed.
The record before the circuit court consisted of approximately twenty-four (24) volumes.
The circuit court action was delayed due to the retirement of then presiding Judge William G. Clouse, Jr. In early 2018, Judge Clouse accepted senior status and continued to preside over this matter in a limited fashion. Judge Brandy Oliver Brown won the November 2018 election and later recused. Thereafter, this case was assigned to Judge Logue.
STANDARD OF REVIEW
We review a trial court's decision to certify a class for abuse of discretion. Nebraska Alliance Realty Company v. Brewer, 529 S.W.3d 307, 311 (Ky. App. 2017) (citing Sowders v. Atkins, 646 S.W.2d 344, 346 (Ky. 1983)). "The test for abuse of discretion is whether the trial judge's decision was arbitrary, unreasonable, unfair, or unsupported by sound legal principles." Commonwealth v. English, 993 S.W.2d 941, 945 (Ky. 1999) (citations omitted). "Under this standard, we review the record and the ruling while giving deference to the trial court's factual findings and rulings because the trial court is in the best position to evaluate the evidence before it." Brewer, 529 S.W.3d at 311 (citing Miller v. Eldridge, 146 S.W.3d 909, 917 (Ky. 2004)).
Furthermore, our analysis may only address certification of the class, and we cannot make a conclusive determination on the merits.
Because of the strict parameters of interlocutory appeals, the only question this Court may address today is whether the trial court properly certified the class to proceed as a class action lawsuit. We must focus our analysis on this limited issue and in so doing scrupulously respect the limitations of the crossover between (1) reviewing issues implicating the merits of the case that happen to affect the class-certification analysis and (2) limiting our review to the class-certification issue itself. Most importantly, "As the certification of class actions . . . is procedural, such process cannot abridge, enlarge, or modify any substantive right of the parties." "The right of a litigant to employ the class-action mechanism . . . is a procedural right only, ancillary to the litigation of substantive claims."Hensley v. Haynes Trucking, LLC, 549 S.W.3d 430, 436-37 (Ky. 2018) (citations omitted).
ANALYSIS
Although not raised by Hitachi, we must address the threshold matter of whether the class definition is proper. A class cannot be a fail-safe class. A fail-safe class exists when it "predicates inclusion of class members on the ultimate finding of liability that the court must make." Id. at 449. An example of a fail-safe class is "[a]ll truck drivers who are entitled to the prevailing wage." Id. Here, the class definition is not fail-safe because it includes all supervisors who worked at the Hitachi facility during the relevant time and is not dependent on ultimate liability. As such, the class definition was proper and does not warrant decertification.
On appeal, Hitachi specifically argues that certification of the "reasonable relationship" subclass of supervisors employed from April 24, 2012 through June 13, 2016, was inappropriate. Hitachi's argument is based on the premise that many individual claims for damages fail under the reasonable relationship test because the ratio of total compensation to their guaranteed compensation does not meet the minimum threshold of 1.5-to-1. As a result, the compensation is within the bounds of what the law deems "reasonable."
"This appeal is limited to the Reasonable Relationship Subclass, which contains numerous members whom all parties agree cannot recover under Appellees' reasonable relationship theory, because the ratio of their total compensation to their guaranteed compensation is within the bounds of what the law terms as 'reasonable.'" See Appellant's Brief, p. 2. Hitachi does not challenge class certification of the "Hourly Rate" subclass, which concerns whether the supervisors were paid on an hourly basis or a salary basis. It concedes the "Hourly Rate" subclass would remain in force. Id.
Additionally, Hitachi argues the circuit court's failure to address its reasonable relationship argument in the order certifying the class shows the court's lack of understanding of Hitachi's position. As more fully set forth below, we agree with the circuit court's certification and hold that Hitachi's merits-based arguments do not warrant reversal.
Class certification requires a two-step analysis. Manning v. Liberty Tire Services of Ohio, LLC, 577 S.W.3d 102, 111 (Ky. App. 2019). First, CR 23.01 requires:
Kentucky Rules of Civil Procedure.
(a) the class is so numerous that joinder of all members is impracticable, (b) there are questions of law or fact common to the class, (c) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (d) the representative parties will fairly and adequately protect the interests of the class."The four requirements in CR 23.01 to maintaining a class action can be summed up as numerosity, commonality, typicality, and adequacy of representation requirements." Hensley, 549 S.W.3d at 442-43 (citing Brewer, 529 S.W.3d at 311).
If all CR 23.01 requirements are met, then the circuit court must also find the circumstances satisfy at least one of the following conditions under CR 23.02:
(a) The prosecution of separate actions by or against individual members of the class would create a risk of
(i) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or,
(ii) adjudications with respect to individual members of the class which would as a practical
matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or
(b) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or
(c) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (i) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (ii) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (iii) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (iv) the difficulties likely to be encountered in the management of a class action.
The circuit court found the proposed class satisfied all four requirements under CR 23.01. First, the circuit court found the proposed class met the numerosity requirement because it contained more than 150 members. In Hensley, our Supreme Court opined that "the numerosity question does not involve attempting to find that magic number where a court can proclaim numerosity to be satisfied; rather, the numerosity analysis must focus on the impracticability of joinder." Hensley, 549 S.W.3d at 446. Although the circuit court failed to address impracticability of joinder, Hitachi does not contest the court's finding that the proposed class met the numerosity requirement. As such, we are satisfied that the numerosity requirement was met.
Second, the circuit court found the proposed class met the commonality requirement as the overarching question was whether Hitachi was required to pay the proposed class members overtime pay. The court found all proposed class members were paid in the same manner, so a determination of whether Hitachi's pay policy meets the definition of a "salary basis" under the KWHA is a common question to all members of the proposed class. The crux of the commonality analysis is "[w]hether the class plaintiffs' claims 'depend upon a common contention . . . that is capable of class wide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.'" Id. at 447 (quoting Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350, 131 S.Ct. 2541, 2551, 180 L.Ed.2d 374 (2011)).
Hitachi argues the proposed subclass did not satisfy the commonality requirement because Hitachi would ultimately not be liable to many of the proposed class members under the Appellees' theory. Hitachi's argument is a damages question. During the hearing, the circuit court recognized Hitachi would likely not be liable to every individual class member because some of them may not have worked overtime hours. The Court reasoned that although some members may ultimately not have damages due to differences in hours worked, if Hitachi's pay policy violates the KWHA, then Hitachi must change its pay policy for everyone. As in Hensley, "we cannot find a factual difference between the purported class members and their claims that would destroy satisfaction of the commonality requirement." Id. All were paid under the same policy, and all their claims will be resolved under this common question.
Third, the circuit court found the typicality requirement was satisfied. "The claims and defenses are considered typical if they arise from the same event, practice, or course of conduct that gives rise to the claims of other class members and if the claims of the representative are based on the same legal theory." Id. at 443 (citation omitted). The circuit court found the claims were typical because whether the class members are entitled to payment of an overtime premium arises from Hitachi's pay policy, which is applicable to all class members.
Hitachi argues the class members' claims are not typical because some of the class members may be unable to recover damages. This is a merits question, not a certification question. The circuit court clearly articulated that the claims arise under Hitachi's pay policy, and all of their claims are based on the same legal theory. Thus, the typicality requirement was satisfied.
Fourth, the circuit court found the adequacy of representation requirement was satisfied.
Regarding the adequacy of representation requirement, "[a] court will normally look at two criteria: (1) the representative must have common interest with the unnamed members of the class; and (2) it must appear that the representative will vigorously prosecute the interests of the class through qualified counsel." "[T]he representative must not have any significant interests antagonistic to or conflicting with those of the unnamed members of the class."Id. (citations omitted). The court determined the Appellees and class members have a common interest of recovering unpaid overtime wages, and that the Appellees have no known interests that are antagonistic to the class members. The circuit court further found Appellees' counsel has significant experience in prosecuting class actions and other complex litigation. Hitachi does not contest the circuit court's finding that the adequacy requirement was met on appeal, and we are satisfied with the circuit court's analysis of this requirement.
Turning to the second step of our analysis, the circuit court also found that the proposed class satisfied one of the conditions under CR 23.02. The court found that, under CR 23.02(c), common questions of law predominate, and that class action is superior. The court found that there were at least five common questions involved in this action:
(1) whether Hitachi pays members of the Class based on the hours they work; (2) whether Hitachi pays members
of the Class on a salary basis; (3) if members of the Class are paid on a salary basis, whether the guaranteed minimum that they were paid reasonably related to the extra hourly compensation they were; (4) whether Plaintiffs and the Class are entitled to overtime premium pay for hours worked in excess of 40 hours per week, and for what time period; and (5) the formula to apply to Plaintiffs and the Class to pay them the overtime amount that they are owed.R. at 3584. The court further found resolution of these questions requires application of the KWHA to common facts regarding Hitachi's pay policy applicable to all members of the class.
The circuit court also found class action is superior to other potential methods of resolving the dispute. The court analyzed the four factors under 23.02(c) in reaching this conclusion. First, it found that few individuals possess a rational interest in prosecuting their claims in separate actions due to the significant cost of pursuing wage claim actions compared to the amount of any individual's lost wages. Second, the court found it was the appropriate forum because all class members worked at Hitachi's facility in Madison County, and the events at issue occurred there. Finally, the court found managing the litigation as a class action would be much less complicated than managing separate actions of more than 150 individual employees.
Hitachi again asserts a merits argument in contesting the circuit court's finding of predominance. Hitachi argues that because it will ultimately not be liable for damages to all class members, the predominance element is lacking. We disagree.
CR 23.02(c) "requires a showing that questions common to the class predominate, not that those questions will be answered, on the merits, in favor of the class." Hensley, 549 S.W.3d at 437) (citations and internal quotation marks omitted). . . . "This, in turn, entails identifying the substantive issues that will control the outcome, assessing which issues will predominate, and then determining whether the issues are common to the class[.]" Bell Atl. Corp. v. AT & T Corp., 339 F.3d 294, 302 (5th Cir. 2003) (quotation marks and citation omitted).Manning, 577 S.W.3d at 116. The issue at hand is whether Hitachi's pay policy, which applies to all class members, violates the KWHA. Hitachi failed to assert any individual issues, aside from ultimate liability to each class member, that would predominate over the questions common to the class. "[A] need for individual damages determinations is not necessarily fatal to class certification." Id. at 117 (citations omitted). As such, the circuit court did not abuse its discretion in finding that common issues predominate over any individual issues.
In sum, Hitachi asks us to reverse the circuit court's order certifying a subclass of supervisors, arguing several members of the subclass will not be entitled to damages. As noted by the circuit court during the hearing, ruling in Hitachi's favor would require us to make a merits determination, which is inappropriate at the class certification stage.
Additionally, "[e]very single member of the challenged subclass is also a member of the unchallenged subclass, so there would be no practical benefit of decertifying the 'reasonable relationship' subclass. Doing so would result in many of the members of that subclass filing individual actions in the Madison Circuit Court in addition to the class action of which they would all remain class members." See Appellees' Brief, p. 1. As the circuit court properly found, managing the litigation as a class action would be much less complicated than managing separate actions of more than 150 individual employees. Therefore, the circuit court did not abuse its discretion in certifying the class and subsequently two subclasses.
CONCLUSION
For the foregoing reasons, we affirm the Madison Circuit Court's order certifying the class.
ALL CONCUR. BRIEFS FOR APPELLANT: Craig P. Siegenthaler
Timothy J. Weatherholt
Louisville, Kentucky BRIEF FOR APPELLEES: William R. Garmer
Jerome P. Prather
John E. Norman
Lexington, Kentucky David W. Garrison
Joshua A. Frank
Nashville, Kentucky J. Chris Sanders
Louisville, Kentucky