Opinion
NO. CIV. S-08-0965 LKK/GGH
01-10-2013
SAMUEL BRANDON KRESS, et al., on behalf of themselves and all others similarly situated, Plaintiffs, v. PRICEWATERHOUSECOOPERS LLP, Defendant.
ORDER
Plaintiffs have brought this wage and hour action arising under the Fair Labor Standards Act, 29 U.S.C. § 201, et seq. (FLSA), and California labor laws, against defendant PricewaterhouseCoopers LLP ("PwC"). They have brought their federal claims as a "collective action" under Section 16(b) of the FLSA, 29 U.S.C. § 216(b), and their state claims as a state-wide class action. This court conditionally certified a nationwide collective action under Section 16(b). Kress v. PricewaterhouseCoopers, LLP, 263 F.R.D. 623 (E.D. Cal. 2009).
In regard to the California labor law claims, plaintiffs now seek to proceed as a state-wide class action. They accordingly move, pursuant to Fed. R. Civ. P. 23(a) and 23(b)(3), to certify the following class:
All current and former individuals employed by PricewaterhouseCoopers LLP ("Defendant" or "PwC") in the State of California as Senior Associates in the Assurance line of service at any point from October 27, 2003 through the time this action is certified as a class action ("Class Period"), who were not Certified Public Accountants ("CPAs") and who engaged in providing audit services to PwC's clients (hereinafter, "Senior Audit Associates" or the "Class").Plaintiffs' Motion for Class Certification (ECF No. 321) p.1 (ECF p.8). For the reasons set forth below, the motion will be granted.
Plaintiffs seek to certify a class under Federal Rule of Civil Procedure 23(b)(3), which provides for an "opt out" class action. See Anchem Products, Inc. v. Windsor, 521 U.S. 591, 614-15, 617 (1997).
I. INTRODUCTION
The Second Amended Complaint alleges that PwC violated California wage and hour laws by, among other things, failing to pay required overtime to plaintiffs. California law:
provides that a California employee is entitled to overtime pay for work in excess of eight hours in one workday or 40 hours in one week.Harris v. Superior Court, 53 Cal.4th 170, 177-78 (2011), citing Cal. Labor Code § 510(a).
California law also requires, in general, that the employer provide meal breaks, and that it not require employees to work through meal or rest breaks mandated by the California Industrial Welfare Commission. See Cal. Labor Code §§ 226.7(a) & 512.
Plaintiffs allege, and defendant disputes, that PwC improperly classified plaintiffs as "exempt" employees under California labor laws. This classification, if correct, would allow PwC to, among other things, avoid paying plaintiffs overtime wages for overtime work. As relevant here, California Law exempts from the overtime pay requirement, "administrative, and professional employees" whose primary duties meet the test of the exemption, and who regularly exercise "discretion and independent judgment" in performing those duties. Harris, 53 Cal.4th at 178, citing Cal. Labor Code § 515(a).
The law also exempts "executive" employees. However, defendant does not assert that exemption.
The court notes that under California law, "exemptions from statutory mandatory overtime provisions are narrowly construed." Ramirez v. Yosemite Water Co., Inc., 20 Cal.4th 785, 794 (1999).
A. FACTUAL BACKGROUND
Defendant PricewaterhouseCoopers LLP ("PwC") is a public accountant firm employing over 30,000 people in its United States offices. See Campbell v. PricewaterhouseCoopers, LLP, 253 F.R.D. 586, 590 (E.D. Cal. 2008) (Karlton, J.).
PwC's organizational structure is complex and multi-tiered. PwC's subdivision of its professional services begins with three lines of service, which are Assurance, Tax, and Advisory. See Deposition of Michael F. Schini ("Schini Depo.") at 10:11-13 (Exh. 1 to Declaration of Peter A. Muhic, ECF No. 322-1) Only the Assurance line is at issue in this motion. Within the Assurance line, only the audit function is at issue.
It appears that the Assurance line is further divided into the "Attest," "Systems Process Assurance" and "Transaction" divisions, and that the audit function is performed by the Attest division.
An audit, for these purposes, is a function provided by PwC for its audit (or Attest) clients in which PwC provides "an expression of an opinion on a client's financial statements and, in some cases, their internal controls over financial reporting." Schini Depo at 36:4-9.
There are several personnel job titles within PwC. These include, in increasing level of authority, Associate, Senior Associate, Manager, Senior Manager, Director, Managing Director, and Partner. See Schini Depo. at pp.30-31. The named plaintiffs in this action worked as Associates and/or Senior Associates in the Assurance, Advisory or Tax lines of service. See Second Amended Consolidated Class/Collective Action Complaint ("Complaint"), ECF No. 214 ¶¶ 33-46.
The present class certification motion, however, only involves unlicensed (that is non-CPA) Senior Associates employed to work on audits in the Attest division of the Assurance line of service in PwC's California offices. See Motion To Certify at p.1 (ECF p. 8). Named plaintiffs Samuel Brandon Kress and Jesse Kenny were such Senior Associates during the class period. See Complaint ¶¶ 33 & 41; Answer (ECF No. 32) ¶¶ 37 & 41. Some Senior Associates are hired directly into that position from outside PwC. Schini Depo. at 102:7-9. However, the majority of PwC's Senior Associates started as Associates and were promoted into the Senior Associate position. Id., at 103:2-5.
Within PwC, the terms "attest" and "audit" are used interchangeably. See Schini Depo. at 29:9-11.
Antoine Powell was a named plaintiff who was also such a Senior Associate during the class period. Powell has withdrawn from the lawsuit. See ECF No. 275.
This is PwC's Answer to Plaintiffs' Consolidated Class/Collective Action Complaint, which is deemed to be the Answer to the current Complaint. See ECF No. 198.
PwC uniformly classifies its Senior Associates as administrative and/or professional employees and therefore exempt from California's labor laws. Id., at 170-71. Senior Associates regularly work overtime hours, but PwC does not pay them overtime wages. In addition, PwC does not formally provide its Senior Associates with the meal and rest breaks that would be required if they were not exempt employees.
See, e.g., Declaration of Claudia Bonilla (ECF No. 322-3) ¶ 18 (Exh. 3 of the Declaration of Peter A. Muhic). The Muhic declaration is ECF No. 322.
See, e.g., Declaration of Melissa Tucker, (ECF No. 322-6) ¶ 19 (Exh. 6 of the Muhic Decl.).
B. Potential Class Representatives - Kress and Kenny.
Named plaintiffs Kress and Kenny were hired by PwC as Associates, and were later promoted to the Senior Associate position. See Deposition of Samuel Brandon Kress at pp. 20-21 (Associate from September 2002 to 2005; promoted to Associate in 2005); Deposition of Kenny at pp. 259-60 (worked as Associate in San Diego office; moved to Los Angeles office when promoted to Senior Associate). PwC hired Kress as an Associate in September 2002. Kress Depo. at 21-22. In 2005, Kress was promoted to Senior Associate. Id. He left PwC in December 2006. Id. PwC hired Kenny as an Associate, also. Kenny Depo. at 41-42. Kenny was promoted to Senior Associate in or about September 2005. Kenny Dep. at 50-51. She left PwC shortly after passing the CPA exam. Kenny Dep. at 202-03.
Plaintiff submitted both depositions to the court, and served them on defendant, by email when they submitted their Motion To Certify, pursuant to Local R. 133(j).
II. STANDARDS
A. Class Certification - Allocation of Burdens.
Plaintiffs, as the proponents of the motion seeking class certification, have the initial burden "of affirmatively demonstrating that the class meets the requirements of Federal Rule of Civil Procedure 23." Mazza v. American Honda Motor Co., Inc., 666 F.3d 581, 588 (9th Cir. 2012); United Steel Workers v. ConocoPhillips Co., 593 F.3d 802, 807 (9th Cir. 2010) ("The party seeking class certification bears the burden of demonstrating that the requirements of Rules 23(a) and (b) are met").
B. Class Certification - Rule 23(a).
Class certification is proper only "if the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied." General Telephone Co. of Southwest v. Falcon, 457 U.S. 147, 161 (1982). Rule 23(a) provides:
One or more members of a class may sue or be sued as representative parties on behalf of all members only if: (1) the class is so numerous that joinder of all members is impracticable ["numerosity"];(2) there are questions of law or fact common to the class ["commonality"]; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the classFed. R. Civ. P. 23(a).
["typicality"]; and (4) the representative parties will fairly and adequately protect the interests of the class ["adequacy" (of representation)].
The court must be satisfied that plaintiffs have "affirmatively demonstrate[d]" that "there are in fact sufficiently numerous parties, common questions of law or fact, etc." Wal-Mart Stores, Inc. V. Dukes, 564 U.S. __, 131 S. Ct. 2541, 2551-52 (2011). The present context is a lawsuit alleging mis-classification of employees as exempt under California law. Thus, plaintiffs bear the burden of showing that the mis-classification "'was the rule rather than the exception.'" Marlo v. United Parcel Service, Inc., 639 F.3d 942, 947 (9th Cir. 2011), quoting Marlo v. United Parcel Service, Inc., 251 F.R.D. 476, 482 (C.D. Cal. 2008).
C. Class Certification - Rule 23(b).
In addition, class certification is proper only if "at least one of the requirements of Rule 23(b)" is satisfied. Ellis v. Costco Wholesale Corp., 657 F.3d 970, 979-80 (9th Cir. 2011). One of those requirements provides as follows:
A class action may be maintained if Rule 23(a) is satisfied and if: ... [1] the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and [2] 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 Rule 23(b)(3) predominance inquiry asks whether the proposed classes "are sufficiently cohesive to warrant adjudication by representation. The focus is on the relationship between the common and individual issues." Mevorah v. Wells Fargo Home Mortgage (In re Wells Fargo Home Mortg. Overtime Pay Litigation), 571 F.3d 953, 957 (9th Cir. 2009) (citations and internal quotation marks omitted).
Quoting Local Joint Executive Bd. of Culinary/Bartender Trust Fund v. Las Vegas Sands, Inc., 244 F.3d 1152, 1162 (9th Cir. 2001) and Hanlon v. Chrysler Corp., 150 F.3d 1011, 1022 (9th Cir. 1998).
III. ANALYSIS - RULE 23(a)
A. Numerosity.
To satisfy the "numerosity" requirement of Rule 23(a)(1), plaintiffs must show that "the class is so numerous that joinder of all members is impracticable." See Fed. R. Civ. P. 23(a)(1). Pursuant to this rate, an attempt to join all parties need only be difficult or inconvenient, it need not be "impossible." Harris v. Palm Springs Alpine Estates, Inc., 329 F.2d 909, 913-14 (9th Cir. 1964). Although impracticability does not hinge only on the number of members in the putative class, joinder is usually impracticable if a class is "large in numbers." See Jordan v. Los Angeles County, 669 F.2d 1311, 1319 (9th Cir. 1982), vacated on other grounds, 459 U.S. 810 (1982).
Here, plaintiffs contend that they anticipate a class numbering 315 persons. Motion To Certify at p.18, citing the Schini Depo. at 191:14-21. While there is no set number of members required, courts have found classes numbering in excess of one hundred to be sufficient to satisfy the numerosity requirement. See, e.g., Gay v. Waiters' & Dairy Lunchmen's Union, Local No. 30, 549 F.2d 1330, 1332-34 (9th Cir. 1977) (reversing district court's finding that 184 potential members is insufficient to fulfill Rule 23(a)(1)'s requirements); see also, Int'l Molders & Allied Workers' Local 164 v. Nelson, 102 F.R.D. 457, 461 (N.D. Cal. 1983) (456 class members satisfies numerosity).
Defendant does not dispute that the numerosity requirement is met. The court therefore finds that plaintiffs have satisfied the numerosity requirement.
B. Commonality.
To satisfy the "commonality" requirement of Rule 23(a)(2), plaintiffs must show that "that there are one or more questions of law or fact common to the class." Costco, 657 F.3d at 980, citing Fed. R. Civ. P. 23(a)(2). Rule 23(a)(2) does not require that every question of fact or law be common or identical. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1019 (9th Cir. 1998). To the contrary, "for purposes of Rule 23(a)(2) even a single [common] question will do." Wal-Mart, 131 S. Ct. at 2556 (internal quotation marks omitted).
In this case, it appears to be undisputed that the class members are California employees who work overtime hours, but are not granted overtime pay or formal meal breaks. Therefore, at least two dispositive common questions plainly present themselves: (1) are the class members entitled to overtime pay for overtime work pursuant to California labor laws; and (2) are the class members entitled to formal meal breaks under those laws?
Wal-Mart emphasizes, however, that the common question or questions identified, must be such as "'to generate common answers apt to drive the resolution of the litigation.'" Id., at 2551. PwC argues that Wal-Mart precludes a finding of commonality here because its affirmative defenses make common answers impossible. Specifically, PwC asserts that the plaintiff class is exempt from California's labor laws - and therefore not entitled to overtime pay or formal meal breaks - because they are "administrative" employees, and because they are "professional" employees as defined by California's labor laws. PwC further argues that the court will have to delve deeply into the specific work done by each employee, on a week-by-week basis in order to determine whether the specific employee fits the claimed exemptions. The court accordingly turns to those affirmative defenses.
Quoting Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U.L. Rev. 97, 131-132 (2009). Thus, the plaintiffs' burden is not as simple as identifying any trivial common question, such as "were the class members all employees of PwC during the class period?" Nor is it as difficult as having to show that there are droves of issues common to the class, since just one will do.
Defendant's Opposition makes no reference to the "executive" employee exemption. Also, the court notes that PwC does not concede that it actually denies meal breaks to the class members.
1. Learned Profession Exemption.
The first exemption defendant claims is the "learned profession" exemption. To prevail on the merits of this defense, defendant will have to show that a Senior Associate is a person primarily engaged in:
Work requiring knowledge of an advanced type in a field [of] science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as distinguished from a general academic education and from an apprenticeship ... [and]Cal. Code Regs. tit. 8 § 11040(1)(A)(3)(b).
Who customarily and regularly exercises discretion and independent judgment in the performance of duties set forth in subparagraphs (a) and (b).
Another qualification for the "professional" employee exemption is if the employee is a "licensed" professional, a CPA in this case. However, the class definition excludes any licensed professionals. Moreover, a license is not required to fit this exemption, so long as the above requirements are met. See Campbell v. PricewaterhouseCoopers, LLC, 642 F.3d 820 (9th Cir. 2011).
As a threshold showing on the merits, defendant will have to show that the Senior Associate position "requires advanced knowledge customarily acquired by a prolonged course of specialized intellectual instruction." Solis v. Washington, 656 F.3d 1079, 1081 (9th Cir. 2011). The referenced "instruction" must be "sufficiently specialized" and "relate directly to the position." Id., at 1088-89. Indeed, "[t]he phrase 'customarily acquired by a prolonged course of specialized intellectual instruction' restricts the exemption to professions where specialized academic training is a standard prerequisite for entrance into the profession." Id., at 1084 (emphasis added).
Both parties accept the federal law and regulations, and the Ninth Circuit interpretation thereof of, as at least providing relevant guidance to this court in construing the state law and regulations. Moreover, some Federal regulations are expressly incorporated into the state's law regarding these exemptions. See Cal. Admin. Code tit. 8 § 11040 (1)(A)(2)(F) (administrative exemption) & 11040 (1)(A)(3)(e) (professional exemption).
It is apparent, then, that this exemption presents a common question: does acceptance or promotion into the Senior Associate position require, as a standard prerequisite, advanced knowledge customarily acquired by a prolonged course of specialized academic instruction? It is also apparent on its face that this exemption is susceptible to common proof. One simple example of common proof here would be the resumes of Senior Associates. That evidence would tend to show whether or not Senior Associates have the supposedly required academic training. Another example of common proof is the testimony of hiring managers or documents showing the requirements for being hired or promoted into the Senior Associate position, to establish whether or not the academic credentials are a standard prerequisite for the hiring or promotion of a Senior Associate.
To meet their initial burden for certification purposes, plaintiffs have established that Senior Associates are most commonly promoted into that position after having been PwC Associates. See Schini Depo. at 103:2-5. This court has already held that the prolonged study requirement is not required of Associates, the pool from which Senior Associates are promoted. See Campbell v. PricewaterhouseCoopers LLC, Case No. 2:06-cv-2376 (E.D. Cal. November 29, 2012) (Karlton, J.). Accordingly, if the prolonged study requirement applies to Senior Associates, it must be imposed after their hire as Associates. However, plaintiffs have directed the court's attention to a PwC document that appears to set forth the requirements for promotion from Associate to Senior Associate, and which does not seem to include any prolonged academic study requirement. Muhic Decl. Exh. 2 at PwC-LE014637 (ECF No. 322-2 p.7).
2012 WL 5989377, 2012 U.S. Dist. LEXIS 169957.
Accordingly, plaintiffs have met their burden to show that there is common proof establishing that defendant will not be able to invoke the "learned profession" exemption. However, defendant can still defeat the class certification motion if it can demonstrate that certification is not appropriate for its affirmative defense that plaintiffs are exempt as "administrative employees."
2. Administrative Exemption.
Defendant next asserts that plaintiffs are exempt "administrative" employees. That exemption applies to an employee:
(a) ... [w]hose duties and responsibilities involve ... [t]he performance of office ... work directly related to management policies or general business operations of his/her employer or his employer's customers; andCal. Code Regs. tit. 8, § 11040(1)(A)(2).
(b) Who customarily and regularly exercises discretion and independent judgment; and ...
(d) Who performs under only general supervision work along specialized or technical lines requiring special training, experience, or knowledge; ... and
(f) Who is primarily engaged in duties that meet the test of the exemption.
Plaintiffs bear the burden of establishing that they can present common proof on this exemption. They assert that they can meet their burden by establishing that no Senior Associate is permitted - by the laws, professional rules and PwC policies governing auditor independence - to engage in work "directly related to management policies or general business operations" of PwC's clients. Further, they assert that they can produce common proof to show that Senior Associates are not "primarily engaged" in such work for PwC itself, and that in any event Senior Associates do not regularly exercise discretion and independent judgment.
In order to qualify for the administrative employee exemption, the Senior Associate's work must be "directly related to management policies or general business operations" of PwC or its clients. The California Supreme Court recently clarified what this means:
Work qualifies as "directly related" if it satisfies two components. First, it must be qualitatively administrative. Second, quantitatively, it must be of substantial importance to the management or operations of the business. Both components must be satisfied before work can be considered "directly related" to management policies or general business operations in order to meet the test of the exemption.Harris, 53 Cal.4th at 181-82. In addition, the Ninth Circuit has stated:
The regulation goes on to further explicate both components. Federal Regulations former part 541.205(b) discusses the qualitative requirement that the work must be administrative in nature. It explains that administrative operations include work done by "white collar" employees engaged in servicing a business. Such servicing may include, as potentially relevant here, advising management, planning, negotiating, and representing the company.
The test is whether the activities are directly related to management policies or general business operations. The district court correctly captured the essence of this requirement by interpreting it to mean "the running of a business, and not merely ... the day-to-day carrying out of its affairs."Bratt v. County of Los Angeles, 912 F.2d 1066, 1070 (9th Cir. 1990) (interpreting 29 C.F.R. § 541.205(b)), cert. denied, 498 U.S. 1086 (1991).
(a) Advising PwC's Clients.
Both sides choose as their principal battleground, the question of whether Senior Associates regularly "advise" PwC's audit clients. Plaintiffs argue on two fronts here. First, they assert that PwC itself is prohibited by independence rules from advising its audit clients. Second, they assert that California law prohibits the Senior Associates from advising PwC's clients because they are not licensed accountants. Defendant responds through declarations seeming to show that Senior Associates do advise PwC's clients.
(i) The Audit and Auditor Independence.
An audit, for these purposes, is a function provided by PwC for its audit (or Attest) clients in which PwC provides "an expression of an opinion on a client's financial statements and, in some cases, their internal controls over financial reporting." Schini Depo at 36:4-9. A financial statement, in turn, is a report of the client's financial condition as of a specified date. See Black's Law Dictionary ("financial statement").
See also, Edenfield v. Fane, 507 U.S. 761, 769 (1993) ("a CPA reviews financial statements and attests that they have been prepared in accordance with generally accepted accounting principles and present a fair and accurate picture of the firm's financial condition"); AICPA AU § 110 ("The objective of the ordinary audit of financial statements by the independent auditor is the expression of an opinion on the fairness with which they present, in all material respects, financial position, results of operations, and its cash flows in conformity with generally accepted accounting principles"). "AICPA AU" refers to American Institute of Certified Public Accountants, Professional Standards. The parties agree that PwC is required to follow these standards.
In carrying out this work, PwC and indeed "[a]ll members of the engagement team," must be "independent of the client, both in fact and in appearance." Schini Depo. at 84:12-20. To qualify as an "independent" public or certified accountant, PwC must maintain "total independence from the client at all times." See U.S. v. Young & Co., 465 U.S. 805, 818 (1984). The U.S. Securities & Exchange Commission ("SEC"), with whom financial statements of public companies are filed:
will not recognize an accountant as independent, with respect to an audit client, if the accountant is not, or a reasonable investor with knowledge of all relevant facts and circumstances would conclude that the accountant is not, capable of exercising objective and impartial judgment on all issues encompassed within the accountant's engagement.17 C.F.R. § 210.2-01(b) (emphasis added).
An accountant is not independent if its work with the audit client places it "in the position of auditing his or her own work." 17 C.F.R. § 210.2-01 (preliminary notes to SEC regulations); AU § 220.03 (independent auditor cannot be a director of the audited entity "since he would be in effect auditing decisions which he had a part in making"). Plaintiffs thus implicitly argue that PwC cannot advise the audit client on any matter relating to the audit, since if it did so, it would then be auditing his own work, rather than the client's work. This description thus gives the impression that the client's financial statements are essentially already written by the time PwC receives them, and it is PwC's job to say only, "we agree," or "we disagree."
The AICPA rules upon which plaintiffs rely however, specifically permit an independent auditor to advise the audit client on matters relating to the audit without surrendering its independence. Specifically:
Plaintiffs rely upon the AICPA rules, and do not assert that the rules are in conflict with any laws or other rules addressing auditor independence. Accordingly, the court interprets the applicable AICPA rules without also attempting to determine whether the state and federal laws and regulations conform.
The independent auditor may make suggestions about the form or content of the financial statements or draft them, in whole or in part, based on information from management during the performance of the audit.AU § 110.03 (emphasis added); see also AU § 380.38 ("[t]he auditor should explain to those charged with governance why the auditor considers a significant accounting practice not to be appropriate and, when considered necessary, request changes") (emphasis added); AU § 380.40 (auditor communicates misstatements to management, and reports to those in the entity's governance structure those misstatements which management does not correct).
In short, the auditor independence rules do not prohibit PwC from advising management on matters relating to the client's financial statements, during the audit. To the contrary, the rules appear to permit the "independent" auditor to "draft" the financial statements themselves, without surrendering its independence.
(ii) Senior Associates' Role.
Plaintiffs next argue that Senior Associates cannot advise PwC's clients on matters relating to the audit because they are precluded from doing so by state law. In fact, California law provides that only a licenced accountant may engage in the "practice of public accountancy." Cal. Bus. & Prof. Code § 5050(a).
There is an exception to this exclusion, however. A Senior Associate - as an unlicensed accountant - is permitted to practice accounting as "an employee of, or an assistant to" a CPA or public accounting firm. Cal. Bus. & Prof. Code § 5053. This exception itself however, has a limiting clause that prohibits the Senior Associate from issuing "any statement over his or her name." Id. (emphasis added).
In sum, as the court reads the statutes, it appears that since the proposed class includes only unlicensed accountants, no one in the class may engage in the practice of public accountancy, except as an employee of PwC or an assistant to a licensed CPA. Even then however, Senior Associates may not engage in that practice in their own right, or in their own name, but only as employees or assistants of PwC or a licensed CPA.
The defendant nevertheless has produced declarations which it asserts shows that the Senior Associates are exempt - or at least that individual inquiries are needed to determine this - because they have: advised PwC's clients regarding on-going audits; managed, staffed and budgeted for audits; and supervised other unlicensed accountants working on audits.
For example, the Shackley Declaration (ECF No. 258-22), asserts that Brian Shackley, as an unlicensed Senior Associate, advised a public company client that, in his view, it had improperly accounted for a certain "related lease-back agreement." After getting the go-ahead from the Senior Manager on the engagement, Shackley advised the public client of the misclassification. Thereupon, according to Shackley, the public client accepted Shackley's critique, and based upon that, the public client re-classified the lease and included the re-classified lease in its financial statement which was then "issued to the SEC and the public." Shackley Decl. ¶ 25.
Such a statement could not be filed with the SEC without an opinion from an independent CPA. See, e.g., 15 U.S.C. §§ 77g, 77aa(25)-27) (financial statements are required to be included in securities registration statements, and they "shall be certified by an independent public or certified accountant").
The declaration is apparently submitted to show that Shackley advised the audit client of his own view - which his supervisor agreed with - on how it should account for a particular item, and that the client took Shackley's advice by accounting for the item as Shackley had advised.
The court, reading the declarations in light of the law (and AICPA standards) governing the Senior Associates' behavior, does not read the declaration so broadly. Indeed, reading the declaration in light of the governing law, a different picture emerges.
California law prohibits Shackley, as an unlicensed accountant, from, on his own, holding himself out to the public "in any manner as one skilled in the knowledge, science and practice of accounting, and as qualified and ready to render professional service therein as a public accountant for compensation." Cal. Bus. & Prof. Code § 5051(a); Moore v. California State Bd. of Accountancy, 2 Cal.4th 999, 1004 (1992) (listing activities that may only be engaged in by licenced public accountants). Similarly, an unlicensed accountant like Shackley cannot render "professional services to clients for compensation in any or all matters relating to accounting procedure and to the recording, presentation, or certification of financial information or data." Cal. Bus. & Prof. Code § 5051(e); Moore, 2 Cal.4th at 1004.
Even with the exception extended to employees of accounting firms and assistants to CPA's, an unlicensed accountant still may not hold himself out in this way in his own name. In other words, it is not the unlicensed accountant - even if a PwC employee - who can advise a client that in his own view, the client needs to change his accounting procedures. However, nothing in the law appears to prohibit that same employee from expressing the views of PwC or of his CPA supervisor - presumably with the consent of PwC or the supervisor - so long as it is clear that it is not his own views that he is expressing, and not he who is recommending the change in accounting procedures.
Accordingly, the court reads Shackley's declaration to mean that, whatever important work Shackley contributed to the audit, Shackley did not "advise" the client. Rather, he passed along to the client PwC's or his supervisor's advice and recommendation. The court does not believe that relaying someone else's advice counts as "advising" the client. Accordingly, plaintiffs have met their burden to show that through common proof - namely the constraints placed on all Senior Associates by California law - they can show that no Senior Associate advises PwC clients.
Plaintiffs also submit declarations in an attempt to show that Senior Associates do not advise clients. The problem with plaintiffs' showing, however, is that their declarations - of class plaintiffs - is not "common proof," in that it only shows, at best, that these declarants never advised PwC's clients.
(b) Managing the audit.
The other way plaintiffs can be exempt under the "directly related" prong is if their work is directly related to the management of PwC itself. PwC asserts that Senior Associates participated in the management of PwC by supervising others on audits, and by planning, staffing and budgeting for the audit.
However, each of these activities, as they relate to audits, is a part of the audit process, and is therefore committed to the care of a licensed CPA, not left to be conducted by unlicensed accountants. See, e.g., AU § 230.02 (requiring auditor to plan the audit with due care); AU § 230.06 ("[t]he auditor with final responsibility is responsible for the assignment of tasks to, and supervision of, assistants"). Even the collection of audit evidence - and the determination of what should be collected - is a matter committed to the licenced CPA auditor, not an unlicensed accountant. See AU § 230.08 & 230.11 (auditor must exercise "professional skepticism" in gathering audit evidence).
PwC's declarations often contain sweeping statements about how Senior Associates planned and staffed the audit, supervised others on the audit and generally managed the entire audit.However, when the sweeping declarations are examined in greater detail, and in light of the governing standards, once again a different picture emerges.
See, e.g., Declaration of Ryan Adams ¶ 7, Exh. 2 to the Declaration of Julian W. Poon (ECF No. 258-2) ("I was responsible for ... planning and staffing the audit"); Declaration of Lauren McClelland ¶¶ 10-11, Exh. 14 to Poon Decl. (ECF No. 258-14) ("I assigned one of the Associates on the engagement the responsibility of developing and documenting the audit risks facing the company that year"); Decl. of Rashid ¶ 13, Exh. 20 to Poon Decl. (ECF No. 258-20) ("I also staff the engagement with Associates and sometimes Senior Associates as well").
See, e.g., Declaration of Ryan Adams ¶ 7, Exh. 2 to the Declaration of Julian W. Poon, ECF No. 258-2.
It appears that the supervising CPA or CPAs on the engagement, not the unlicensed Senior Associate actually did the work committed to the judgment of a licensed CPA: planning and staffing, supervising and managing the audit. While the Senior Associates may have taken the "first pass" at the audit plan, which presumably included staffing, it was the licensed CPA who made the decision to implement the plan, or made the decision on which audit plan would be followed. The court does not intend here to underplay the role played by the Senior Associates; they were not the automatons plaintiffs portray in their papers. However, most of the declarations, read in light of the restrictions on the work of unlicensed accountants, make clear that the Senior Associates "assisted" the licensed CPA's in these endeavors.
See, e.g., Botta Decl. ¶ 8 ("As a Senior Associate at PwC, I would usually complete the first draft of the audit plan for my engagements"); Devlin Decl. ¶ 19 ("In my experience, Senior Associates take the first pass at almost all audit planning"); Peters Decl. ¶¶ 8-9 ("After I completed my draft of the ASM [Audit Strategy Memo], the Manager reviewed it and provided feedback"); Piziali Decl. ¶ 8 ("On all of the engagements that I was assigned to, I would complete a first draft of the audit plan and then work with the Manager and Partner to finalize it").
Indeed, nothing in this order is intended to diminish the importance, difficulty or even creativity of the assistance they provided. However, to the degree PwC is arguing that an informal practice has developed in which unlicensed Senior Associates performed work that it was illegal for them to perform (by state law and AICPA rules), the court does not see how that work can be the basis for arguing that the employees were therefore exempt from state labor laws.
See, e.g., Adams Decl. ¶¶ 8-11 (Senior Associate performed an impressive amount of work on planning the audit, which was then "reviewed and approved" by the "Manager and Partner on the engagement"). To the degree an unlicensed accountant can be seen as actually doing the planning, staffing, budgeting and supervising of an external audit - especially of a public client whose financial statements will be filed with the SEC - the court believes that under the law and AICPA rules, he or she must be working under the close supervision of their supervising CPA's. In that case, the "administrative" exemption does not apply because only those working under only "general supervision" are exempt. See Cal. Code Regs. tit. 8, § 11040(1)(A)(2)(d).
IV. ANALYSIS - PREDOMINANCE
Defendant argues that individual issues predominate over any common contentions. It does not argue that it is illegally withholding overtime pay from some employees while properly withholding it from others. However, it does argue that in order to show how it is properly withholding overtime pay (and other benefits) from all Senior Associates, it must be able to show as to each individual employee how that employee is exempt. Accordingly, defendant believes it is entitled to require that individual lawsuits be brought by individual Senior Associates.
Of course that would seemingly discourage any individual Senior Associate from asserting their rights through a lawsuit:
The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone's (usually an attorney's) labor.
Specifically, defendant argues that neither exemption can be determined without examining the actual work performed by each Senior Associate on a week-by-week basis. This type of examination, it argues would defeat any showing of predominance.
The court disagrees with defendant's premise. As discussed above, plaintiffs have made a sufficient showing that the class of unlicensed Senior Associates cannot be engaged in the work PwC says would exempt them from California's labor laws. Thus, until defendant can show that all class members are required to have the threshold academic background required for the "professional" exemption, there is no need, on this motion, to examine what work they actually do on an employee-by-employee, week-by-week basis. Further, until defendant shows that unlicensed accountants are permitted to do the things California law and AICPA rules say they cannot do, there is no need to conduct the requested point-by-point examination of their actual work.
In light of the foregoing, the court also finds that proceeding with this case as a class action is superior to other methods of trying this case.
V. CONCLUSION
For the foregoing reasons, the motion to certify the class of Senior Associates is GRANTED.
IT IS SO ORDERED.
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LAWRENCE K. KARLTON
SENIOR JUDGE
UNITED STATES DISTRICT COURT
Amchem, 521 U.S. at 617, quoting Mace v. Van Ru Credit Corp., 109 F.3d 338, 344 (1997). However, defendant is correct that this policy cannot be used to deprive it of the right to a meaningful defense.