Opposition Brief — Microsoft Corp. v. Vizcaino

FILED

NOY 39

eooas OFFICE OF THE CLRK |

SUPREMECEOR!, US. |

In The

Supreme Court of the United States

¢

MICROSOFT CORPORATION, et al.,

Petitioners,

VS.

DONNA VIZCAINO, et al.,

Respondents.

+

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

*

RESPONDENTS’ BRIEF IN OPPOSITION

+

STEPHEN K. STRONG

Counsel of Record

Davip F. StoBAUGH

BRIAN J. Warp

BENDICH, STOBAUGH &

STRONG, P.C.

Attorneys for Respondents

900 Fourth Avenue, Suite 3800

Seattle, WA 98164

(206) 622-3536

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTIONS PRESENTED

In 1996 and 1997, the Ninth Circuit ruled twice, by a

panel and en banc, on the construction and enforcement

under Washington State law of Microsoft’s employee

stock purchase plan (ESPP), a discount-price stock pur-

chase plan under IRC § 423 (not an ERISA plan). The

Ninth Circuit determined, with respect to a certified class

of common-law employees of Microsoft, that they were

wrongly excluded from the ESPP. It held that, under the

Washington common law of contracts, all common-law

employees of Microsoft should be allowed to purchase

shares at a discount, despite being required by Microsoft

to sign forms incorrectly stating they were not eligible.

Vizcaino I, 96 F.3d 1187 (9th Cir. 1996) (panel); Vizcaino II,

120 F.3d 1006 (9th Cir. 1997) (en banc). Microsoft previ-

ously sought review by this Court of the merits of the

Washington law issues, saying these Vizcaino I and II

decisions were contrary to Washington law. This Court

denied certiorari. 118 S.Ct. 899 (1998).

Following remand, the district court, acting sua

sponte, substantially decertified the class by reducing it to

a tiny “sliver” of the former class, i.e., those hired before

April 1, 1990. The district court ruled that thousands of

other common-law employees of Microsoft who were

within the original stipulated class definition, and who

were eligible to participate in the ESPP under the Ninth

Circuit’s 1996-97 decisions, now had to individually pur-

sue their identical ESPP claims, either by mass interven-

tions in this case or by separate actions.

il

QUESTIONS PRESENTED - Continued

Upon a petition for mandamus, the Ninth Circuit

reversed and enforced its prior mandate, ruling that the

district court’s substantial decertification of the class after

the class prevailed on the merits was contrary to the

Ninth Circuit’s mandate and contrary to Rule 23(c)(1).

Vizcaino III, 173 F.3d 713 (9th Cir. 1999). Microsoft again

sought rehearing en banc by the Ninth Circuit. This time,

rehearing was denied without a single vote for rehearing.

Not even the dissenters from the 1996-97 Ninth Circuit dect-

sions on the merits voted for rehearing. 184 F.3d 1070. Micro-

soft now petitions for certiorari a second time.

This case does not involve any split in the circuits,

any substantive issue of federal law, or any new princi-

ples of law. Microsoft simply contends the Ninth Circuit

misapplied certain well-established procedures and that it

misunderstood its own prior decisions on Washington

contract law. Thus, the questions presented here are

these:

Whether this Court should review Microsoft's argu-

ment that the court of appeals misunderstood the scope

of its own prior mandate and its own prior decisions on

matters of Washington State law — issues which this Court

previously declined to review on the merits — and thus

whether the court of appeals abused its discretion in

enforcing the prior mandate by way of mandamus rather

than waiting for another appeal.

Whether, even if the court of appeals misinterpreted

its mandate and its own prior decisions on the merits of

Washington State law issues, this Court should review

ill

QUESTIONS PRESENTED - Continued

Microsoft’s argument that the court of appeals also

abused its discretion in holding that the district court

erred in its sua sponte drastic reduction of the class to a

“sliver” of its former size, where this would result in

thousands of identical claims on the same issues of Wash-

ington law resolved in the Ninth Circuit’s prior decisions,

and in ruling that the district court should not have

altered the class definition after the appellate “decision

on the merits” under Rule 23(c)(1).

Whether this Court should review Microsoft’s argu-

ment that the court of appeals erred in reiterating its

previous mandate under principles of Washington State

common law pursuant to Erie Railroad v. Tompkins and

Microsoft’s argument that the court of appeals should

instead have created and applied some sort of federal

common law to override Washington common law, to

somehow provide in advance for “orderly resolution” of

unspecified, possibly similar, arguments in two pending

federal district court ERISA cases in Los Angeles and

New York.!

,

1 These two cases are cited in the Pet., p. 4 and n. 2.

iv

LIST OF PARTIES

The petition lists the named parties. In addition, in

1993 the parties agreed to, and the district court certified,

a class. Pet. A89, n. 1. The plaintiffs and members of the

court-certified class are collectively referred to herein as

the “Workers” (A48-A49).

TABLE OF CONTENTS

Page

CASE Ieee FCN ORE ons a cin vnwcndannsdscncnan i

Re Ge PSD 60nd 6 bnnntncoes4e seanowesaeeccel iv

OPINIONS AND ORDERS BELOW ................ 1

LEAs SOT RPREE oa oh esac nae hccenabecesseas anus 1

SRPRE SMUT AUP BURY GAs a cic ex wdinaica eeancnes 2

BOD BSCS Cee Kh iin ids ces ecc awed 7

1996-97 Ninth Circuit Decisions Concerning the ESPP

Lv SEES uo EROK WS EN 6S KARDNAS FA OERMERRD ETTORE 8

Preceemiigs Alter TOGMNG. «2.06 ci.Wexdccvawdadins 11

REASONS FOR DENYING THE WRIT............. 14

I.

THE NINTH CIRCUIT’S DISCRETIONARY USE OF

MANDAMUS IN WHAT MICROSOFT AGREES IS

ITS “TRADITIONAL” FUNCTION - “TO ENFORCE

THE LAW OF THE CASE” —- CANNOT BE A DEPAR-

TURE FROM “THE ACCEPTED AND USUAL

COURSE OF JUDICIAL PROCEEDINGS” AND,

CONSEQUENTLY, DOES NOT COMPEL THE

“EXERCISE OF THIS COURT’S SUPERVISORY

POWER” TO REVIEW WHETHER THE NINTH CIR-

CUIT MISUNDERSTOOD ITS OWN PRIOR MAN-

DATE UNDER WASHINGTON LAW .............. 14

I.

THE NINTH CIRCUIT APPLIED ESTABLISHED

PRINCIPLES UNDER RULE 23(c)(1) IN HOLDING

THAT THE DISTRICT COURT SHOULD NOT

HAVE SUBSTANTIALLY DECERTIFIED A CLASS

AFTER THE CLASS PREVAILED IN TWO NINTH

CIRCUIT DECISIONS ON THE MERITS UNDER

WASETEIMGSEGAN SEALE BAAWW. cc cc cde ccnacecccesss 18

vi

TABLE OF CONTENTS - Continued

Page

III.

THE NINTH CIRCUIT’S THREE DECISIONS IN

VIZCAINO I, Il AND III ARE ALL BASED ON

WASHINGTON STATE COMMON LAW PRINCI-

PLES, THIS COURT ALREADY DENIED CER-

TIORARI ON THE MERITS OF THOSE STATE

LAW ISSUES IN 1998, AND MICROSOFT’S

EFFORTS TO PROMOTE SOME SORT OF FED-

ERAL COMMON LAW TO OVERRIDE WASHING-

TON’S COMMON LAW OF CONTRACTS

SHOULD BE REJECTED PURSUANT TO ERIE

RAILROAD V. TOMPKINS............06000000005: 24

CPP UIE 6 6 05605560444 055050600404600080000085 29

vii

TABLE OF AUTHORITIES

Page

CASES

Boggs v. Whitaker, 784 P.2d 1273 (Wash. App. 1990) .... 28

Britt v. Simi Valley Unified School Dist., 708 F.2d 452

| ere er nee Bee 3

Burrey v. Pacific Gas & Elec., 159 F.3d 388 (9th Cir.

ROOD ob bo 500 0000500 000000 20eeecenndeseneePelne 29

Celotex Corp. v. Catrett, 477 U.S. 317 (1986).......... 27

Deckert v. Independence Shares Corp., 311 U.S. 282

(ROG) s000000000d86s dele ed 0s 6500008000 17

Deposit Guar. National Bank v. Roper, 445 U.S. 326

(EOD 0 cc ceeddatdadciseettncaadsdeueeeesaaseee 22

Dopps v. Alderman, 121 P.2d 388 (Wash. 1942)........ 28

Erie Railroad v. Tompkins, 304 U.S. 64 (1938) ...... 26, 29

Firth v. U.S., 554 F.2d 990 (9th Cir. 1977)............ 16

Forbush v. J.C. Penney Co., 994 F.2d 1101 (5th Cir.

SPUNK 6000s b6000b00nennbieeneesessaensansecniaee 22

Herman v. Time-Warner, 56 F.Supp.2d 411 (S.D.N.Y.

WOUU 00 6db0deneensncnsaegassessenneasdebanenu 25

me RE, Ee Ga Bie Cees éikckoudesdccdedsnecss 14

In re Chambers Development Corp., 148 F.3d 214 (3d

RM MOONE scscnndbusadcersanndssaaaguseneeeeeseees 16

In Re Prudential Ins. Co. of Am. Sales Prac. Lit., 148

Fes BD Ge GO BOM ods vecbnedciudckaxccsesoocas 22

Internat'l Brotherhood of Teamsters v. United States,

GOR WR. SG GHGs oven es vecéuséececssiclkadedsaiua 27

Kerr v. U.S. District Court, 426 U.S. 394 (1976)....... 14

Vili

TABLE OF AUTHORITIES — Continued

Page

NLRB v. Town & County Elec., 519 U.S. 85 (1995) .... 28

Ortiz v. Fibreboard Corp., 119 S.Ct. 2295 (1999)....... 22

Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) .... 22

Rho Co. v. Dep't of Revenue, 782 P.2d 986 (Wash.

WED aikseesnacsdecacankdewsaveccsaceuseereaseess 28

Sibbold v. United States, 37 U.S. 488 (1838)........... 14

Thornburgh v. Amer. College of Obs. and Gyn., 476

Sea: Pe SU os buncdcansossbetcedseasckenwneiaes 17

STATUTES

Be Deane B ED 6 0 sn ca cecndesvatanccidvcuaunens 29

Be Diese BH Ra 0 bn kor Weadccabudecsersenseks 17

ls PE Sacieandsateccaccdevecsucddsuabenacesneesads 9

Rues

FRCP

ree re 22

SE EEE Sa cU ahd cee en bane cbdonnsuneunuse 19, 23

Rule 23(b)(1)A and (b)(2) .................. 22, 23, 24

i ec ccncinnes behaencainn ahha eead khenwes 23

EE csc edaccseavastuucanees 1, 19, 20, 22, 24

PE Cee siseCdsh oe esse ds heerdedandaeddeaadhetns 27

ME SN ceak ak edes duc deakeusenas spade teens ee Ws 3

OTHER

5 Newberg on Class Actions § 24.71 (3d ed. 1992)..... 19

RESPONDENTS’ BRIEF IN OPPOSITION

OPINIONS AND ORDERS BELOW

The Ninth Circuit’s opinions are reported at 97 F.3d

1187 (9th Cir. 1996) (Pet. A86), on rehearing, 120 F.3d 1006

(9th Cir. 1997) (en banc) (Pet. A47), cert. denied, 118 S.Ct.

899 (1998), enforced by mandamus, 173 F.3d 713 (A4),

amended and rehearing en banc denied, 184 F.3d 1070 (9th

Cir. 1999) (Al).

There were also two pertinent district court orders

which are not in the petition’s appendix. On Dec. 4, 1998,

the district court, Judge John C. Coughenour, ordered

that individuals who were formerly, but no longer, class

members because of the class reduction orders of Judge

Carolyn Dimmick (Pet. A25, A33) could individually inter-

vene in this case, raising the prospect of this case having

over one thousand individual plaintiffs instead of simply

continuing as a class action. Petition, p. 10 n. 6. Similarly,

Microsoft relies (Pet. 11 and n. 8) on one sentence from a

partial dissenting opinion in Vizcaino II at 1018-19 (Pet.

A75), for an argument that Vizcaino II] was wrong. The

district court explicitly and correctly rejected Microsoft's

previous argument that this statement in a dissent was

part of the mandate. CR 307, Order (by Judge Dimmick),

1998 WL 122084 at 2-4.

RULE INVOLVED

Rule 23(c)(1), FRCP, states:

As soon as practicable after the commence-

ment of an action brought as a class action, the

court shall determine by order whether it is to

be so maintained. An order under this subsec-

tion may be conditional, and may be altered or

amended before the decision on the merits.

¢

STATEMENT OF THE CASE

Microsoft’s discussion of the facts and the proceed-

ings below is replete with errors and statements of fact

with no basis in the record. For example, Microsoft con-

tends it neither agreed to the scope of the class here nor

did it agree that the class members “generally were com-

mon law employees of Microsoft” (Pet., p. 14 and n. 9; see

also pp. 16-18), despite numerous judicial findings to the

contrary. Microsoft contends that the Ninth Circuit mis-

stated Microsoft’s various concessions in 1993-94 on those

matters (Pet., p. 14, n. 8) and that “the Magistrate Judge’s

finding was rejected by the District Court prior to the

appeal that resulted in the Vizcaino I decision” (id.,

emphasis by Microsoft). In fact, the district court did not

reject the magistrate judge’s finding since this matter was

never presented to the district court by Microsoft because

Microsoft expressly agreed to the magistrate judge’s find-

ings.* The district court later specifically found that

2 Vizcaino I at 1190 n. 1 (p. A89 n. 1); 1193 n. 4 (p. A96 n. 4);

1195 n. 9 (p. A101 n. 9): Vizcaino II at 1010 (p. A53); 1010 (p. A54);

1011 (p. A57); 1012 (p. A58); 1013 (p. A61); Vizcaino III at 720 \ ».

Al3, Al4).

3 The magistrate judge said (CR 187 at 34):

Microsoft does not really contend at this point that

Plaintiffs were not “common law employees,” as

(Continued on next page)

Microsoft had conceded these points. 1998 WL 122084

at 3.4 Thus, the Ninth Circuit said “Microsoft's

found by the IRS for tax purposes, and such a

contention, were it to be made, would fly in the face

of all of the material facts concerning Plaintiffs’ work

at Microsoft, the existence of which Microsoft

acknowledges.

Microsoft limited its objection to the magistrate judge’s

recommendation as follows (CR 195 at 2):

This objection rests on one simple basis. The

Plaintiffs’ claim for ESPP participation is governed by

state contract law. And there was never a contract,

express or implied, between Microsoft and the

Plaintiffs that entitled them to ESPP participation. ...

Defendants do not object to the factual findings

embodied in the Report and Recommendation.

(Emphasis added.)

Under FRCP 72(b), a party’s “failure to object to a magistrate’s

findings of fact waives the right to contest those findings on

appeal.” Britt v. Simi Valley Unified School Dist., 708 F.2d 452, 454

(9th Cir. 1983).

4 The district court found (1998 WL 122084 at 3):

It is clear that Microsoft conceded that

“plaintiffs” were common law employees at a number

of stages in this case, beginning in 1994, on its motion

for summary judgment on the SPP. See Doc. 130 at 4.

While Microsoft may have made this concession

merely for the sake of argument, it had the potential

to backfire when made elsewhere. For example, in

responding to plaintiffs’ motion for summary

judgment on the ESPP, Microsoft indicated it would

not contest the status of plaintiffs as common-law

employees. Doc. 152 at 9 n. 6. Magistrate Judge

Wilson clearly understood Microsoft’s position as

such, and recommended a partial verdict for plaintiffs

(Continued on next page)

argument . . . that its earlier concession regarding the

common-law employee status of the members of the class

was merely arguendo, is without merit. Not only did

Microsoft stand by this concession throughout the litiga-

tion but the district court also found it was supported by

the facts and ruled that Microsoft continued to be bound

by it.” Vizcaino III at 722 (A18).

Microsoft inaccurately asserts that the “named plain-

tiffs worked for Microsoft between 1987 and 1990; they

were classified and treated as independent contractors by

Microsoft, and performed a variety of jobs.” Pet., p. 6.

Microsoft then uses its inaccurate statement regarding the

facts of the named plaintiffs to support its argument that

“[t]he district court properly excluded from the class the

new generation of temporary workers [hired after the so-

called “conversion” in April 1990] who had not worked

for Microsoft in an independent contractor capacity dur-

ing the pertinent time period, because the named plain-

tiffs are not representative of such people.” Pet., p. 15.

in reliance thereon. See Doc. 187 at 30 (indicating that

plaintiff employee status was dispositive); id. at 34

(indicating that defendant d'd not and could not

logically contest their employee status). Judge Wilson

assumed pre- and post-conversion claims were at

issue, id. at 6, 11-12, and defendant did nothing to

challenge that assumption.

More important, Microsoft conceded to the Ninth

Circuit that plaintiffs were common-law employees,

and again did not qualify that concession as applying

only to pre-conversion workers. See Vizcaino II, 120

F.3d at 1010; Vizcaino I, 97 F.3d at 1193 n. 4.

The actual record facts in the district court and court of

appeals contradict Microsoft's assertion.

The class representatives in Vizcaino I, II, and III

included Workers employed at Microsoft and both mis-

classified as “independent contractors” and assigned to

third-party “temporary” agencies.5 It included those at

Microsoft prior to Microsoft’s “conversion” process (i.e.,

prior to April 1, 1990), and those who worked at Micro-

soft after the 1990 “conversion.” The class definition

explicitly referred to Workers called employees of “third-

party employment agencies.” Pet., p. A89 n. 1. Five of the

eight original class representatives were paid by Microsoft

> In 1994 the magistrate judge said that Microsoft’s term

“freelancers” means “persons working at Microseft in either

‘independent contractor’ or ‘temporary agency employee’

statuses, who did not receive employee benefits.” CR 187, p. 4.

This definition was before the court of appeals in Vizcaino I and

II. Similarly, Microsoft told the court of appeals in Vizcaino I and

II (Appellees’ Brief, No. 94-35770, p. 1):

Microsoft has supplemented its regular employees

with individuals identified as “freelancers.” All of the

plaintiffs were classified by Microsoft (and

considered themselves) as “freelancers,” rather than

“regular employees.” ER 91-92. “Freelancers” were

persons working at Microsoft in either “independent

contractor” or “temporary agency employee” categories,

who did not receive employee benefits. [Emphasis

added.]

© In April, 1993, Microsoft described the class

representatives as “eight individuals who, during various periods

of time between 1987 and the present [i.e., April 1993],” provided

“services to Microsoft . . . in positions categorized as freelancers

and/or temporary agency personnel.” CR 23, p. 2 (emphasis

added). There was no limitation to those hired before April,

1990.

through third-party agencies after April 1, 1990.7 Further-

more, class representative Jon Waite was originally

employed at Microsoft as an “independent contractor” in

1988. CR 9, 43. Mr. Waite left Microsoft in 1989, only to be

rehired by Microsoft into a different job in August, 1992

and he worked for Microsoft while paid through third-

party agencies until he was reclassified as a Microsoft

“headcount” employee on April 5, 1993. CR 9 45, 6; CR 90

1125-27, 31.

All of this information concerning the class represen-

tatives’ post-1990 employment and employment through

third-party agencies was before the district court when

the class was certified in 1993, before the court of appeals

in Vizcaino I and II, and before this Court when it denied

review in 1998.

Similarly, Microsoft contends (Pet., pp. 11, 26) that

the Ninth Circuit should not have decided, “as a matter

of law” and “without [a] factual record,” that Microsoft,

during the course of this case, continued its practice of

assigning its own common-law employees to the payroll

of “temp” or “payroll service” agencies (a practice known

as “payrolling”). See Vizcaino I at 1191 (p. A91); Vizcaino

III at 716 (p. A6). In fact, the uncontroverted factual record

before the Ninth Circuit in Vizcaino III showed that

Microsoft had, during this litigation, continued and

expanded the same practices that originally resulted in

this case and which were discussed in the prior Vizcaino |

and II decisions. Pl. Reply, 9th Cir. No. 98-71388, pp.

7 CR 9, 495-6; CR 11, 93; CR 12, 3; CR 13, 3; CR 14, 43.

24-25; CR 345, 349-57. Microsoft simply failed to contro-

vert plaintiffs’ evidence on summary judgment.

The 1993 Class Certification

This case was filed as a class action, seeking inter alia,

prospective injunctive relief. CR 2, {16. A class was certi-

fied pursuant to FRCP 23(b)(1) and (b)(2), specifically

because prospective injunctive relief was sought. CR 47,

p. 11. On July 21, 1993, the Court certified a class “for all

issues remaining in the case,” defined as follows (Pet., p.

A89 n. 1):

All persons employed by the Microsoft Corpora-

tion in the United States who are denied

employee benefits because they are considered

independent contractors or employees of third-

party employment agencies, but who meet the

definition of employees of Microsoft Corpora-

tion under the common law. The definition

includes all such persons [not limited to those

hired after April, 1990] so employed within the

applicable statute of limitations. [Emphasis

added.]

Expecting to win, and hoping to achieve a broad res

judicata effect for strategic purposes, Microsoft conceded

the correctness of this class definition in the district court

and on appeal. Vizcaino I at 1190 n. 1 (A89); CR 23, pp. 3,

6. Microsoft itself acknowledged, in the class certification

briefing in 1993, prior to Vizcaino I and II, that the class “is

not restricted to free lancers or to those with respect to whom

determinations [i.e., IRS determinations or Microsoft

reclassifications] have been made.” CR 23, p. 4 n. 2

(emphasis added). Accordingly, the entire class of mis-

classified workers was before the Court in Vizcaino I and

II, not just those who were personally “reclassified” or

“converted” by Microsoft in 1990.8

The magistrate judge who initially considered plain-

tiffs’ claims concluded that Microsoft’s incorporation of

IRC § 423 into the ESPP meant, as a matter of Washington

law, that the ESPP must be extended to all Microsoft

common-law employees. Vizcaino I at 1191-92, 1197 (A93,

A105-A108). The district court disagreed and dismissed

the case.

1996-97 Ninth Circuit Decisions Concerning the ESPP

On appeal, Vizcaino I explained that the ESPP itself

required that it shall be construed in accordance with IRC

§ 423 and this contract construction requirement is part of

the contract under Washington law. The ESPP stated

(A106):

8’ The words “IRS-reclassified” and “Microsoft-converted”

were neither in the original 1993 class definition, nor even

suggested by any party or the district court at the time of class

certification. The original class definition also did not require

“continuous” employment since 1990 at Microsoft; indeed, the

terms of the ESPP itself do not require “continuous”

employment. The 1993 class definition also states the class

includes all persons “so employed within the applicable statute

of limitations” (A89 n. 1). Nevertheless, the district court, after

remand, imposed all of these limitations on class membership.

A28, A41-A45. This effectively, as the district court stated,

reduced the class to a small “sliver” of the class that previously

numbered in the “thousands.” A37, A38 n. 3.

It is the intention of the Company to have the

Plan qualify as an “employee stock purchase

plan” under Section 423 of the Internal Revenue

Code of 1954. The provisions of the Plan shall,

accordingly, be construed so as to extend and limit

participation in a manner consistent with the

requirements of that Section of the Code. [Emphasis

by the Court.]

Vizcaino I held (pp. A106-A113) the ESPP is an offer to all

common-law employees of Microsoft who meet the

ESPP’s eligibility rule incorporating IRC § 423 (id. at

A106-A107):

. . . Because the term “employees” in § 423 is

construed to refer to “common-law employees,”

the ESPP, when construed in a manner consis-

tent with the requirements of § 423, extends

participation to all common-law employees not

covered by one of the express exceptions set

forth in the plan. Accordingly, we find that the

ESPP, through its incorporation of § 423, expressly

extends eligibility for participation to the plaintiff

class and affords them the same options to acquire

stock in the corporation as all other employees.

{Emphasis added and footnotes omitted.]

The Vizcaino I panel also concluded (A109):

Although Microsoft may have generally

intended to exclude individuals who were in

fact independent contractors, it could not, con-

sistent with its express intention to extend par-

ticipation in the ESPP to all common-law

employees, have excluded the Plaintiffs. Indeed,

such an exclusion would defeat the purpose of

including § 423 in the plan, because the exclusion of

common law employees not otherwise excepted would

10

result in the loss of the plan's tax qualification.

[Emphasis added.]

Following the panel decision, the en banc Ninth Cir-

cuit further stated that Microsoft managers could not

exclude the plaintiff class from the ESPP, as a matter of

corporate law and contract law (Vizcaino II at 1010-11,

A63-A65):

The ESPP was created and offered to all

employees, the Workers knew it, even if they were

not aware of its precise terms, and their labor gave

them a right to participate in it. Of course, Micro-

soft’s officers would not allow that participation

because they were under the misapprehension

that the board and the shareholders had not

extended the offer to the Workers. That error on

the officers’ part does not change the fact that

there was an offer, which was accepted by the

Workers’ labor. Of course, the ESPP provides for

a somewhat unusual benefit. An employee, who

chooses to participate, must pay for any pur-

chase of stock, and the Workers never did that.

We, however, leave the determination of an

appropriate remedy to the district court.

[Emphasis added; footnote omitted.]

Thus, the Ninth Circuit held in Vizcaino I and II that

Microsoft could not exclude any of its common-law

employees from participating in the ESPP without violat-

ing the explicit terms of the ESPP and the dictates of

Microsoft’s shareholders. This was the mandate of the

appellate court.

Microsoft sought review by this Court of the merits

of these ESPP issues governed by Washington law, as

11

decided in Vizcaino I and II, arguing that the Ninth Cir-

cuit misapplied Washington law. This Court denied cer-

tiorari. 118 S.Ct. 899 (1998).

Proceedings After Remand

Following remand, the district court first decided

whether the Vizcaino mandate “applies to the entire plain-

tiff class [both pre-conversion and post-conversion] or

only a specific part of it.” CR 307, p. 1; 1998 WL 122084, p.

1. In rejecting Microsoft’s contention that only “pre-con-

version” (i.e., pre-1990)? claims had been before the Court

in Vizcaino I and II, the district court correctly concluded

that “the mandate [of the Court of Appeals] applies to all

plaintiffs who were common-law employees, and all periods in

which they were common-law employees.” 1998 WL 122084 at

4 (emphasis added).

Later, in a Microsoft district court reply on its motion

to amend class certification (to which plaintiffs were

allowed no response), Microsoft included a footnote sug-

gesting the district court should sua sponte redefine the

class. CR 407, p. 12 n. 10. Without briefing cr oral argu-

ment, the district court then, sua sponte, redefined and

drastically reduced the class on July 15, 1998 (almost five

9 “Conversion,” in Microsoft's terminology, was its process

in 1990 of turning misclassified “independent contractors” into

either recognized “headcount” employees or assigning them to

become “payroll service” or “temporary agency” employees.

Vizcaino I at 1191 (A91). The named plaintiffs were employed

before and after “conversion” and/or were re-hired after

“conversion.”

12

years to the day after the original class certification) as

follows (A28):

This case has always been about a particular

group of Microsoft workers who share distinct

circumstances with the named plaintiffs. The

group consists of all Microsoft workers who,

like all the named plaintiffs, worked as indepen-

dent contractors between 1987 and 1990 and

whose positions were reclassified as employee

positions after the IRS reviewed them. This case,

as the Court found in its order on the scope of

remand in February, includes the claims brought

by the same workers for their work after 1990,

when many of them, including four named

plaintiffs, were transferred to temporary

employment agencies. This is the scope of the

plaintiff class.

Other groups of potential claimants, those who have

worked for Microsoft in a non-employee capacity, but

were not reclassified by the IRS or converted by

Microsoft, have never, as a practical matter,!°

10 Plaintiffs’ facts (rather than facts of unnamed putative

class members) were before the district court as a “practical

matter” because liability in this class action was, as is normal in

a class action, litigated primarily on the named plaintiffs’ facts.

Therefore, it was incorrect that a substantially reduced class was

permitted because “the [revised] definition conforms to the facts

Plaintiffs presented to the Court.” CR 488, p. 4 (emphasis added).

Microsoft correctly stated “this is a class action” and “[a]bsent

class members are not active participants in this action.” Id., p.

19 (emphasis by Microsoft). Indeed, Microsoft specifically

objected to consideration of factual situations of any Workers

other than the named plaintiffs “because the essence of a class

action is that it is litigated based upon the facts presented by the

representatives of a certified class.” CR 376, p. 10.

13

been involved in this case. At this time, they remain

outside the plaintiff class. [Emphasis added.]

The district court’s class redefinition thus imposed

major new limitations upon class membership that were

never in the original 1993 stipulated class definition, i.e.,

it added requirements that each class member be hired

before April 1, 1990, and aiso be either “reclassified” by

the IRS or “converted” by Microsoft. The district court

thereby excluded the vast majority of original class mem-

bers from participating in the fruits of the victory won by

the class in Vizcaino I and II. The excluded workers were

thus forced to pursue many individual claims, potentially

thousands, by mass interventions in this action or by

separate lawsuits. CR 553; Pet., p. 10 n. 6. Creation of

such obstacles to relief effectively rewarded Microsoft for

continuing and expanding its breach of the ESPP contract

after this lawsuit began.

14

REASONS FOR DENYING THE WRIT

I.

THE NINTH CIRCUIT’S DISCRETIONARY USE OF

MANDAMUS IN WHAT MICROSOFT AGREES IS ITS

“TRADITIONAL” FUNCTION - “TO ENFORCE THE

LAW OF THE CASE” - CANNOT BE A DEPARTURE

FROM “THE ACCEPTED AND USUAL COURSE OF

JUDICIAL PROCEEDINGS” AND, CONSEQUENTLY,

DOES NOT COMPEL THE “EXERCISE OF THIS

COURT’S SUPERVISORY POWER” TO REVIEW

WHETHER THE NINTH CIRCUIT MISUNDERSTOOD

ITS OWN PRIOR MANDATE UNDER WASHINGTON

LAW.

Microsoft agrees that a “traditional office of man-

damus is to enforce the law of the case doctrine” and

make sure a lower court carries out a decree by a higher

court in the same case. Pet., p. 21, citing In re Blake, 175

U.S. 114, 117 (1899), and Sibbold v. United States, 37 U.S.

488, 492 (1838). This is precisely what occurred here. Pet.,

p. 3; Vizcaino III at 719-20 (A11-A12).

Microsoft also agrees that issuance of a writ is a

matter within the appellate court’s discretion. Id. at

719-20 (A12), citing Kerr v. U.S. District Court, 426 U.S.

394, 403 (1976). Microsoft thus must show that the Ninth

Circuit so thoroughly misunderstood its own mandate

that it abused its discretion and it went “so far” beyond

the “accepted and usual course of judicial proceedings”

as to compel both this Court’s review and this Court’s

independent construction of the Ninth Circuit's prior

mandate (Pet., p. 22 and n. 10), even though review of the

substance of that prior Ninth Circuit mandate was previ-

ously denied by this Court, 118 S.Ct. 899 (1998).

15

Here, the Ninth Circuit in Vizcaino III carefully

reviewed the scope of its prior mandate (A14):

The class certification is a central premise of

both [prior] opinions. Thus, in Vizcaino I, the

panel relied on the Magistrate Judge’s finding

that “Microsoft conceded the fact that the

named plaintiffs and the class they represent

generally were common law employees” and

that Microsoft “reserved only the right to object

to the employment status of particular plaintiffs

during certain periods of their tenure with

Microsoft.” 97 F.3d at 1193 n. 4. It went on to

“hold that the named plaintiffs and the class

they represent are covered by the specific provi-

sions of the ESPP.” Id. at 1197. In Vizcaino II, the

en banc court states that “the ESPP must, essen-

tially, be made available to all employees” and

“It]he ESPP was created and offered to all

employees.” 120 F.3d at 1011, 1014. And the

class is an integral element of the mandate

which remanded “for the determination of any

questions of individual eligibility for benefits

that may remain following issuance of this opin-

ion and for calculation of the damages or bene-

fits due the various class members.” Vizcaino I,

97 F.3d at 1200; see also Vizcaino II, 120 F.3d at

1015 (“Any remaining issues regarding the

rights of a particular workers in the ESPP and

his available remedies must be decided by the

district court upon remand.”). Thus, the district

court’s statement that this case is about a partic-

ular group of Microsoft employees who share

“distinct circumstances” is unfounded.

Thus, the Ninth Circuit held in Vizcaino II] that in Vizcaino

I and II the district court was instructed that “all

employees” of Microsoft (as “employee” is defined in the

16

common law) are entitled to participate in the ESPP, by

the terms of the ESPP itself, as construed under Washing-

ton State law. Vizcaino III at 720-21 (A114). The court of

appeals further held in Vizcaino III that “the class [as

originally defined] is an integral element of the mandate” in

Vizcaino I and II (A14, emphasis added).

Microsoft only slightly quibbles with the correctness

of the Ninth Circuit’s explanation of its own prior deci-

sions and mandate. It contends the Ninth Circuit did not

expressly limit the district court’s authority to substan-

tially decertify the class in its remand for the district

court’s “determination of any questions of individual

eligibility for benefits” and its calculation of amounts due

these individuals. Pet., pp. 21-22. It does not dispute,

however, that the mandate includes both matters explic-

itly and implicitly decided. E.g., Firth v. U.S., 554 F.2d 990,

994 nn. 3-4 (9th Cir. 1977); In re Chambers Development

Corp., 148 F.3d 214, 224 (3d Cir. 1998).

Microsoft maintains the mandate of Vizcaino I and II

is not “obvious” and therefore it scolds the Ninth Circuit

for deciding the question of the district court’s compli-

ance with those prior decisions and mandate by way of

mandamus instead of by an eventual appeal. Pet., p. 22.

Of course, such an appeal would occur only long after the

harm addressed in Vizcaino III had already occurred - i.e.,

former class members who had prevailed on appeal in

Vizcaino I and II were being forced to pursue thousands of

individual claims to win the same relief they had previ-

ously won on appeal as class members.

There was no abuse of discretion by the Ninth Circuit

in utilizing the mandamus procedure to enforce its own

17

prior mandate since, Microsoft agrees, this is a traditional

and proper function of mandamus.!! Pet., p. 21. Further-

more, the Ninth Circuit did not misunderstand its own

‘1 Whether the court of appeals should have exercised its

mandamus power does not present a compelling issue for this

Court’s review for two additional reasons. First, the mandamus

petition in Vizcaino III was consolidated with an appeal of the

district court’s denial of a permanent injunction (Pet., pp. A9-

A10). The court of appeals undisputedly had jurisdiction over

the permanent injunction appeal. 28 U.S.C. § 1292(a)(1). An

injunction appeal brings up for review any underlying matters

“inextricably intertwined” with the injunction order from which

the appeal is taken. Thornburgh v. Amer. College of Obs. and Gyn.,

476 U.S. 747, 755-57 (1986) (court of appeals reviewing district

court’s ruling on preliminary injunction properly reviewed

merits as well); Deckert v. Independence Shares Corp., 311 U.S. 282,

287 (1940) (court of appeals reviewing order granting

preliminary injunction also had jurisdiction to review order

denying motions to dismiss). The district court denied

plaintiffs’ application for a permanent injunction primarily

because class members excluded by the district court’s class

redefinition order had not yet “prevailed.” Pet., pp. A9-A10.

Thus, the correctness of the class redefinition was before the

court of appeals in the injunction appeal and that court would

have been required to address these same issues in that appeal

regardless of whether it exercised its mandamus powers.

Vizcaino III explained (A24): “[b]lecause our opinion also

disposes of the issues raised in plaintiffs’ appeal from the denial

of a permanent injunction, we DISMISS that appeal without

prejudice.” Accordingly, even if the court of appeals had abused

its discretion in exercising its mandamus powers, plaintiffs’

permanent injunction appeal involving the same issues would

still need to be decided by that court.

Second, this sort of procedural issue may no longer arise

since FRCP 23(f) was amended effective Dec. 1, 1998 to allow

interlocutory review of certain class certification rulings. This

amended rule was not in effect until after the district court's

1998 rulings were entered and the mandamus petition filed.

18

prior mandate and there was no departure from the

accepted course of judicial proceedings that compels

review by this Court. Indeed, the Ninth Circuit was

entirely correct in enforcing its own prior mandate and

not even the dissenters on the merits from the prior man-

date in Vizcaino I and II voted to rehear the Vizcaino III

enforcement order. 184 F.3d 1070.

Il.

THE NINTH CIRCUIT APPLIED ESTABLISHED PRIN-

CIPLES UNDER RULE 23(c)(1) IN HOLDING THAT

THE DISTRICT COURT SHOULD NOT HAVE SUB-

STANTIALLY DECERTIFIED A CLASS AFTER THE

CLASS PREVAILED IN TWO NINTH CIRCUIT DECI-

SIONS ON THE MERITS UNDER WASHINGTON

STATE LAW.

Microsoft contends the Ninth Circuit made “a signifi-

cant misapplication of Rule 23” and it thus abused its

discretion in preventing Microsoft from repudiating its

previous explicit waiver of any dispute over the class

definition.!? Pet., pp. 13-20. Because the Court does not

review alleged “misapplication[s]” of established princi-

ples of civil procedure, S.Ct. Rule 10, Microsoft must

demonstrate with “compelling reasons” that the alleged

“misapplication” of Rule 23 in the decision below was

such an extraordinary departure “from the accepted and

usual course of judicial proceedings .. . as to call for an

12 Microsoft argues “it was error here to forbid the district

court” from changing the class on remand even though, “at the

very outset of this action, the parties may have agreed” on the

class definition. Pet., p. 15.

19

exercise of this Court’s supervisory power.” S.Ct. Rule

10(a). Microsoft makes no such showing of “compelling

reasons” for review; indeed, the decision below was com-

pletely consistent with all relevant authorities.

First, Microsoft argues that all class certification

orders are inherently “provisional” and may be changed

“at any time before final judgment,” even after a decision

“on the merits,” as there was here. Pet., pp. 16-17. The

Ninth Circuit rejected Microsoft’s position, following the

precise language of Rule 23, which provides a class certi-

fication “may be altered or amended before the decision on

the merits.” Rule 23(c)(1) (emphasis added). The Ninth

Circuit, following other circuits, held that a class-wide

appellate decision “on the merits” of liability issues, leav-

ing only “questions of individual eligibility” and calcula-

tions of amounts due, is a “decision on the merits” within

Rule 23(c)(1) even though such individual calculations

may remain at issue until final judgment under Rule

23(c)(3).13 Vizcaino III at 721 (A15-A16) explained:

Rule 23(c)(1) permits a certification order to be

altered or amended “before the decision on the

merits,” not afterward. See Scott v. City of

Anniston, 682 F.2d 1353, 1357 (11th Cir. 1982)

13 Microsoft cites (Pet., p. 17) authorities indicating that a

class may be decertified in a few situations, e.g., 5 Newberg on

Class Actions § 24.71, pp. 24-228 to 229 (3d ed. 1992), where the

plaintiffs turned out to have a conflict of interest or otherwise

were inadequate representatives. In such cases, the class should

not be bound by res judicata. Here, the representative plaintiffs

were not only “adequate,” they were successful. There could be

no basis for the district court to deny Vizcaino I and II class

members the fruits of their class-wide victory in the Ninth

Circuit based on “adequacy” of the representation.

20

(ruling that appellate decision finding evidence

sufficient to make prima facie case and insuffi-

cient to sustain proferred defense and remand-

ing for further proceedings as to individual

class members’ damages was a “decision on the

merits” precluding subsequent class modifica-

tion under Rule 23(c)(1); Jimenez v. Weinberger,

523 F.2d 689, 697 (7th Cir. 1975) (holding that

Rule 23(c)(1)’s “explicit permission to alter or

amend a certification order before decision on

the merits plainly implies disapproval of such

alteration or amendment thereafter”). This

court’s prior decision adjudicates the merits of

the plaintiff class’ claim, leaving only “questions

of individual eligibility for benefits that mav

remain . . . and calculation of the damages or

benefits due the various class members.” Viz-

caino I, 97 F.3d at 1200.

Second, Microsoft quarrels with the Ninth Circuit's

account of the proceedings, contending (Pet., p. 14) the

Ninth Circuit was wrong in finding (Vizcaino III at 721,

Al6) that Microsoft had conceded the commonality and

typicality issues it argues now and it was wrong (Pet., pp.

17-18), in finding (Vizcaino III at 722, A18) that Microsoft

agreed the Workers are generally common-law employees

of Microsoft, with potential individual exceptions. These

findings are more than amply supported by the record, as

explained by the court of appeals.

Moreover, the Ninth Circuit pointed out Microsoft's

hypocrisy on this matter. Microsoft maintains the 1994

decisions of the district court in favor of Microsoft which

were not appealed (and thus were not reversed) may not

be relitigated by the original class. CR 363 at p. 5. Vizcaino

III explained that Microsoft cannot have it both ways,

21

claiming the benefits of a class-wide decision for Microsoft

while denying any effect to the class-wide decision of the

Ninth Circuit against Microsoft (at 720, A13):

[If Microsoft had won on all the issues and] the

judgment had not been reversed, it would have

been preclusive as to all the workers now

excluded from the class under the district

court’s revised class certification. Were the case

before us now in that posture - i.e., had this

court affirmed rather than reversed - there is

little doubt what Microsoft’s position would be

as to who is included in the class. Microsoft's

argument that the scope of the class was not

material to the issue on appeal is not tenable for

that reason alone - substantial rights were at

issue for all the members of the certified class.

Third, Microsoft contends that the district court was

correct in substantially decertifying and drastically

reducing the class because this made sure the class was

represented “appropriately” and “adequately.” Pet., p. 19.

There are, however, only various immaterial differences

between the remaining “sliver” of the class and the much

larger excluded part of the former class, basically (1) the

particular years they worked and (2) whether Microsoft,

in retrospect, admitted they were in the class.'4 These

14 The latter point - “Microsoft’s admissions” — was

emphasized by the district court (p. A44). Accordingly, the

district court effectively limited the plaintiff class to only those

Microsoft still agreed on, thereby excluding from the class many

who had prevailed on appeal against Microsoft because

Microsoft did not agree, pp. A44-A45. To limit the class, after

(Continued on next page)

22

“distinct circumstances” (Pet., p. 19 and A28) had no

relationship whatsoever to the class claims or their enti-

tlement to benefits. Class certification under Rule 23 is

based upon common claims and common questions of

law and fact, not on identical facts. FRCP 23(a); see, e.g., In

Re Prudential Ins. Co. of Am. Sales Prac. Lit., 148 F.3d 283,

311 (3d Cir. 1998); Forbush v. J.C. Penney Co., 994 F.2d

1101, 1105 (5th Cir. 1993). The existence of non-material

factual differences does not preclude class certification in

the first instance, and it is even less reason for substantial

decertification of an existing class that already prevailed

on the merits. Rule 23(c)(1). Moreover, the district court

did not give notice to the class of the possibility of

decertification before the class definition was changed

and it refused to give the larger excluded part of the class

an opportunity to add “appropriate” additional class rep-

resentatives. CR 553.

Finally, Microsoft raises a point that it never pre-

sented to the district court or the Ninth Circuit and

therefore could not be appropriate for review by cer-

tiorari, .e., that class members should have “been given

individual notice of the action [and] the opportunity to

opt out of the class.” Pet., p. 19, citing Phillips Petroleum

Co. v. Shutts, 472 U.S. 797, 812 (1985), and Ortiz v.

Fibreboard Corp., 119 S.Ct. 2295, 2313 (1999). This is, how-

ever, as Microsoft expressly agreed in 1993, a class action

under Rule 23(b)(1)(A) and (b)(2) and these categories are

success on the merits, to only those the defendants “admits”

should prevail is not consistent with the district court’s

responsibility to protect the class. Deposit Guar. National Bank v.

Roper, 445 U.S. 326, 331 (1980).

23

undisputedly appropriate in light of plaintiffs’ pending

request for injunctive relief (A9-A10, A18-A19, A24). This

was not a Rule 23(b)(3) “opt-out” class action. Moreover,

Microsoft itself successfully opposed giving any notice

about this case to the class in the district court. CR 57.

Ortiz was certainly correct in holding that a Rule

23(b)(3) “opt-out” class action could not be converted

into a Rule 23(b)(1)(B) mandatory class action through a

settlement by the parties which arbitrarily established a

“limited fund” by simply agreeing to a “limited” settle-

ment amount. This class here, however, is not a settle-

ment class, nor is this a “limited fund” case. Due to the

need for declaratory and injunctive relief, this is properly

a class action under Rule 23(b)(1)(A) and (b)(2). Microsoft

does not argue otherwise.

Moreover, the district court here did not give thou-

sands of class members a chance to “opt out.” Rather, it

simply expelled them from the class without giving them

notice, and without providing any chance to propose new

class representatives as Microsoft itself had suggested

(CR 407 at p. 8).'° Moreover, the district court ruled that

thousands of workers who had been in the original class

that prevailed in the Ninth Circuit must individually inter-

vene or file new lawsuits to pursue the same claims on

which they had, as class members, already prevailed in

the Ninth Circuit. A9; CR 553.

'S The district court denied plaintiffs’ request to name

additional class representatives who were working in the period

from 1989-98 in positions covered by the original class

definition. Vizcaino II] at 718 (A9).

24

Thus, the Ninth Circuit’s Vizcaino III decision is not

such a “far” departure from “the accepted and usual

course of judicial proceedings” as to compel the “exercise

of this Court’s supervisory power,” S.Ct. Rule 10(a), nor

is it in conflict with any other circuits on the application

of Rule 23(c)(1) to appellate decisions on the merits in

favor of class. It is also completely consistent with

numerous decisions holding similar claims are certified

as class claims under Rule 23(b)(1)(A) and (b)(2). Finally,

the Ninth Circuit was entirely correct, on the record in

this case, in finding that Microsoft repeatedly waived any

dispute concerning the class certification.

Ill.

THE NINTH CIRCUIT’S THREE DECISIONS IN VIZ-

CAINO I, II AND III ARE ALL BASED ON WASHING-

TON STATE COMMON LAW PRINCIPLES, THIS

COURT ALREADY DENIED CERTIORARI ON THE

MERITS OF THOSE STATE LAW ISSUES IN 1998, AND

MICROSOFT’S EFFORTS TO PROMOTE SOME SORT

OF FEDERAL COMMON LAW TO OVERRIDE WASH-

INGTON’S COMMON LAW OF CONTRACTS

SHOULD BE REJECTED PURSUANT TO ERIE RAIL-

ROAD V. TOMPKINS.

This Court does not review the application of issues

of state law which a petitioner may contend were

wrongly decided by the court of appeals. S.Ct. Rule 10.

The parties here agreed that the ESPP issues in Vizcaino I

and I] were governed by Washington State law. Vizcaino I

at 1196 (A105); Vizcaino II at 1014 (A64). This Court

denied certiorari in 1998 when Microsoft previously

sought review of these same Washington law issues

25

concerning the ESPP. No. 97-854, 118 S.Ct. 899 (1998).16

Now, after the Ninth Circuit enforced and reiterated some

aspects of those same decisions under Washington law in

Vizcaino III, Microsoft disregards Washington law and

urges the Court to create a federal common law of

employee benefits to override state law.!7

Microsoft argues there should be some sort of federal

common law of employee benefits contracts that “res-

torles] order to the law of employee benefits” (evidently

tor the computer industry in particular). Pet., pp. 4 and n.

2, 24-27. Microsoft contends there needs to be a common

tederalized “order” for all employee benefit cases, includ-

ing this contract case under Washington common law, to

‘

provide, among other things, for “orderly resolution” of

two cited pending district court ERISA cases. Pet., pp. 4

n. 2 and 24-27.'!8 Microsoft’s position is contrary to Erie

‘© The Petition for Certiorari and the Respondents’ Brief in

Opposition in No. 97-854 discuss the Washington State law

issues presented in Vizcaino | and II.

'7 Microsoft argues that Vizcaino III dealt with the merits of

ERISA claims governed by federal law, as well as ESPP claims

governed by Washington state law. Pet. p. 12. This is incorrect

because Vizcaino II remanded ERISA claims to the plan

administrator (A63, A66), and those claims were further

remanded by the district court on Feb. 13, 1998 (1998 WL

122084, p. 4). The plan administrator did not complete review

until Sept. 28, 1999.

'§ Microsoft cites two pending district court cases in New

York and Los Angeles as the reason why this Court should

review the merits of the Washington common law issues in

Vizcaino III. Pet. 4n. 2. Both cited cases are ERISA cases at a very

early stage, e.g., Herman v. Time-Warner, 56 F.Supp.2d 411

(Continued on next page)

26

Railroad v. Tompkins, 304 U.S. 64 (1938), which held there

can be no federal common law governing such claims

arising under state law and the federal courts will apply

state law to state law claims such as those here.

Microsoft further contends that the Ninth Circuit was

wrong in relying on IRS employee status determinations

tor several positions to create a presumption of employee

status for workers in those IRS-reclassified positions,

thereby shifting the burden of proof to Microsoft to estab-

lish any exceptions. Pet., pp. 11, 20, 25. This is, first of all,

exactly what Microsoft agreed to. The IRS determinations

covered job classifications, not individuals.'? Microsoft

(S.D.N.Y. 1999). Microsoft does not explain how this Court's

decision on the Washington common law of contracts could

affect those EF ISA cases, nor does it even try to show how its

proposal for . federal common law of non-ERISA state law

contractual employee benefits would cause an “orderly

resolution” of cases under ERISA. It certainly does not propose

any compelling reason to overrule Erie Railroad v. Tompkins

'° The 1989 Internal Revenue Service examinations of

certain types of Microsoft workers determined common-law

employee status based upon job positions, stating for example:

As a result of our Federal Employment Tax

examination, we have determined that services

performed for Microsoft by an individual in the position

commonly referred to as “Formatter” constitute an

employer-employee relationship. This determination

is based on information received from Microsoft and on

information received from a representative sampling of the

workers in that job position .. .

This determination covers the employment position

named in the first paragraph of this letter and all

(Continued on next page)

27

expressly accepted these findings, agreeing to “review

other job positions to insure compliance.” CR 444, p.

004195. Moreover, Microsoft agreed in this case that these

workers were “generally” employees of Microsoft. Viz-

caino I at 1193 n. 4 (A96); Vizcaino II at 1010 (A53);

Vizcaino III at 722 (A18). The burden was thus correctly

placed on Microsoft in Vizcaino I at 1193 n. 4, 1200 (A96,

Al113-A114), which this Court declined to review. 118

S.Ct. 899 (1998). In light of Microsoft’s general conces-

sions, placing the burden on Microsoft to prove specific

exceptions is both logical and consistent with the rule

that a class action defendant that has been found respon-

sible for a pattern and practice of conduct must prove any

specific exceptions. Cf. Internat’! Brotherhood of Teamsters v.

United States, 431 U.S. 324, 359 (1977). Nevertheless, fol-

lowing remand, the Workers also submitted extensive

uncontroverted evidence in support of summary judg-

ment as to the common-law employee status of the IRS-

reclassified job positions at Microsoft. Microsoft neither

controverted nor rebutted that evidence. Thus, consistent

with Rule 56 and Celotex Corp. v. Catrett, 477 U.S. 317, 322

(1986), the Ninth Circuit was correct in its determinations

that the workers in Microsoft's IRS-reclassified positions

are entitled to participate in the ESPP.

differently named positions that are substantially similar

in nature. This determination pertains to all tax

periods beginning after December 31, 1985.

(Emphasis added.)

“Formatter” is but one of the positions reviewed by the IRS, and

is used here for purposes of explaining the IRS approach to

determining common-law employee status by position. CR 444,

p. 004298. The panel decision in Vizcaino I at 1190 n. 2 (A91)

quoted this language from the IRS letters.

28

Microsoft’s argument that the Workers are seeking

double benefits (from Microsoft and its payroll agencies) is

groundless; plaintiffs are seeking Microsoft employee ben-

efits to which they are entitled, under governing Washing-

ton State law, by the explicit terms of Microsoft’s plan.

Vizcaino II at 1014 (A63-A65); Vizcaino I at 1196-97 (A105-

A108). Microsoft “payrolled” the workers through agen-

cies to deny them employee benefits, not to give them

“benefits” through its payroll agencies. Vizcaino | at 1191

(A91-A92). There is no record evidence that an employee

of Microsoft (as the Workers are) could obtain duplicate

ESPP benefits through the payroll agencies, nor is there

any record evidence that the payroll agencies offer any

such benefit. All that the Ninth Circuit said (A19), as a

subsidiary alternative point, was that, hypothetically,

“le]ven if” Microsoft could somehow push the Workers

into some kind of employment relationship with the agen-

cies by payrolling the Workers through these “paymaster”

agents, as they are defined in Washington law, see Rho Co.

v. Dep't of Revenue, 782 P.2d 986, 992-93 (Wash. 1989), this

would not destroy the Workers’ common-law employee

status at Microsoft. Vizcaino III at 723 (A19-A20).

For this subsidiary alternative point, the Ninth Cir-

cuit cited Washington law and tax law cases, including

tax law principles which were expressly incorporated

into the ESPP by Microsoft. Vizcaino I at 1196-97; Dopps v.

Alderman, 121 P.2d 388, 391 (Wash. 1942) (federal statute

affecting “construction” of contract is incorporated into

and “becomes a part” of the contract, under Washington

contract law); Boggs v. Whitaker, 784 P.2d 1273, 1274-75

(Wash.App. 1990). This point is also consistent with gen-

eral common law principles. NLRB v. Town & County Elec.,

519 U.S. 85, 94-95 (1995).

29

Finally, Microsoft's allies in the amici brief of ITAA et

al. propose some sort of federal common law to override

Washington law, based on the tax law concept of “leased

employees.” Aside from running directly against this

Court's instructions in Erie Railroad, supra, that there is no

federal common law for state law claims, there are no

“leased employees” in this case. Common-law employees

of Microsoft, members of the class here, cannot by defini-

tion also be “leased employees” of Microsoft at the same

time. Burrey v. Pacific Gas & Elec., 159 F.3d 388, 393 (9th

Cir. 1988); 26 USC § 414(n)(2).

¢

CONCLUSION

The petition does not establish any compelling rea-

sons to review the court of appeals’ enforcement of its own

mandate based on Washington State law, particularly

where review of that mandate itself was previously

denied. 118 S.Ct. 899 (1998). The petition should be denied.

DATED: November 19, 1999.

Respectfully submitted,

STEPHEN K. STRONG

Counsel of Record

Davip F. STOBAUGH

BRIAN J. Warp

BENDICH, STOBAUGH &

STRONG, P.C.

Attorneys for Respondents

900 Fourth Avenue, Suite 3800

Seattle, WA 98164

(206) 622-3536