# Opposition Brief — Microsoft Corp. v. Vizcaino

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386014_0078%3A3

## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2000
- **Citation:** 528 U.S. 1105

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386014_0078%3A3. Public record. Not legal advice.