Court of Appeal Decides Exemption and Trial Issues - "Pellegrino I"

On January 28, 2010, the Court of Appeal issued the first of two decisions in Pellegrino v. Robert Half Intern., Inc., --- Cal.Rptr.3d ----, 2010 WL 316808 (January 28, 2010) ("Pellegrino I"). Six former account executives sued their former employer for failure to pay overtime compensation and commissions, failure to meal periods and itemized wage statements, and violation of the Unfair Competition Law (UCL). The defendant, RHI, "asserted two affirmative defenses to plaintiffs' claims. First, RHI contended plaintiffs' claims were barred because a provision, entitled “Limitation on Claims,” in their employment agreements shortened the statute of limitations for such claims to six months. Second, RHI argued each plaintiff was exempt from the wage and hour laws based on the administrative exemption." Slip op. at 1.

The trial court determined the limitation on claims provision contained in the employment agreements was unenforceable and granted motions for summary adjudication on that issue accordingly. Plaintiffs' unfair competition claims were tried to the court sitting in equity and began with a trial on the merit of RHI's exemption affirmative defense. The trial court granted plaintiffs' motion for judgment under section 631.8 of the Code of Civil Procedure, having concluded the administrative exemption did not apply to plaintiffs. The parties stipulated as to the amount of damages, penalties, and interest to be awarded each plaintiff; the court entered judgment accordingly.

Ibid. The Court of Appeal affirmed.

First, the Court held that "the plaintiffs' claims were based on unwaivable and fundamental statutory rights, and the provision drastically shortening to six months the time in which an employee might vindicate such rights violates [Cal. Labor Code] section 219 and public policy, and is thus unenforceable." Slip op. at 6, citing Gentry v. Superior Court (2007) 42 Cal.4th 443, 455-456, and Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277, among other cases. (Gentry came down before I started the blog, but my post on Franco v. Athens is here.) The Court criticized and declined to follow the District Court decision in Perez v. Safety-Kleen Sys. (N.D.Cal., June 27, 2007) 2007 WL 1848037, a case that is better known for its discussion of meal and rest period requirements.

Second, the Court held that the trial court did not abuse its discretion by bifurcating the trial and trying the equitable issues to the court first. "It is well established that, in a case involving both legal and equitable issues, the trial court may proceed to try the equitable issues first, without a jury ... and that if the court's determination of those issues is also dispositive of the legal issues, nothing further remains to be tried by a jury." Slip op. at 15. This procedure does not deprive either party of its Seventh Amendment right to jury trial. Slip op. at 18.

Third, the Court held that substantial evidence supported the trial court's finding that the administrative exemption did not apply to the plaintiffs. The Court reviewed the five-part test of the exemption under the Wage Order, explained the narrow construction of the exemption under Ramirez v. Yosemite Water (1999) 20 Cal.4th 785, 794-795, and reviewed the federal regulations that the Wage Order incorporates. The Court then held that "substantial evidence showed plaintiffs' duties as account executives for RHI were not directly related to management policies because they instead constituted sales work." Slip op. at 22. The Court then noted that its conclusion is consistent with opinion letters written by Miles Locker when at the DLSE.

This is a decision that touches on a number of important issues. Lawyers on both sides of wage and hour are going to need to be familiar with it. Our post on Pellegrino II, in which the Court of Appeal affirmed in part and reversed in part the trial court's order on attorney fees, is here.

Court of Appeal Issues UCL and CLRA Class Certification Decision

In McAdams v. Monier, Inc., --- Cal.Rptr.3d ----, 2010 WL 630973 (February 24, 2010) the Third District Court of Appeal once again reversed a trial court order denying class certification in a case under the Unfair Competition Law (UCL) and the Consumer Legal Remedies Act (CLRA).

The plaintiffs alleged that the defendant failed to disclose that the color composition of its roof tiles would erode away, leaving bare concrete, well before the end of the tiles' represented 50-year lifetime. In a prior published opinion, the Court of Appeal reversed the trial court's order denying certification. The California Supreme Court granted review and held pending its decision in In re Tobacco II Cases (2009) 46 Cal.4th 298 (Tobacco II), which concerned standing issues arising from the 2004 amendment to the UCL by Proposition 64. (My post on Tobacco II is here.) On remand following Tobacco II, the Court of Appeal held that an “inference of common reliance” may be applied to a CLRA class that alleges a material misrepresentation consisting of a failure to disclose a particular fact:

The record here permits an inference of common reliance among the CLRA class. Plaintiff alleges that Monier made a single, material misrepresentation to class members that consisted of a failure to disclose a particular fact regarding its roof tiles. Plaintiff has tendered evidence that Monier knew but failed to disclose to class members that the color composition of its roof tiles would erode to bare concrete well before the end of the tiles' represented 50-year life; and that this failure to disclose would have been material to any reasonable person who purchased tiles in light of the 50-year/lifetime representation, or the permanent color representation, or the maintenance-free representation. If plaintiff is successful in proving these facts, the purchases common to each class member-that is, purchases pursuant to this alleged failure to disclose in light of the 50-year life, permanent color, or maintenance-free representations-would be sufficient to permit an inference of common reliance among the class on the material misrepresentation comprising the alleged failure to disclose. This is also why the CLRA class definition is subject to the proviso specified at the end of this opinion's introduction. (See p. 3, ante.)

Slip op. at 5.

After reviewing Tobacco II with regard to the UCL, the Court held: "Since individualized proof of reliance and injury is not required for non-representative class members, the issues of reliance and injury do not foreclose a UCL class action here." Slip op. at 11. The Court then remanded for the trial court "to determine if the representative plaintiff meets the UCL standing requirements set forth in Tobacco II." Slip op. at 11.

California Supreme Court Remands "Virtual Representation" Case

I missed this while I was out with my broken leg last fall.

On September 9, 2009, the Cal. Supreme Court remanded Deleon v. Verizon Wireless to the Second District Court of Appeal for reconsideration in light of the Court's decision in Arias v. Superior Court (Angelo Dairy). In Deleon, the Court of Appeal originally held that where the plaintiff in a class action pleads the same set of operative facts violating the same primary rights as were raised in a prior class action against the same defendant -- that employer made unlawful chargebacks against employees’ commissions -- even though parties sought different forms of relief, the primary right invaded was identical, and the latter class action was barred by res judicata to the extent that the plaintiff sought relief on behalf of class members who had settled the prior class action. The Court also held that the trial court abused its discretion in denying the plaintiff leave to amend his complaint to state claims that accrued after the settlement date of the prior action.

Our post on Deleon is here, and our post on the Supremes' decision in Arias is here.

Ninth Circuit Issues FLSA Tip Pooling Case

In Cumbie v. Woody Woo, Inc., --- F.3d ----, 2010 WL 610603 (9th Cir. (Or) February 23, 2010), the Ninth Circuit held that a restaurant that pays its wait staff cash wages in excess of the FLSA minimum wage but requires them to participate in a tip pool that redistributes some of their tips to the kitchen staff does not violate the Fair Labor Standards Act (FLSA). The Court explained that:

1. Tip pooling agreements are presumed to be valid under FLSA; 
2. FLSA requires employers to pay their employees a minimum wage, but this may include a partial tip credit; and 
3. FLSA does not prevent employers from including in a tip pool employees who do not customarily receive tips. 

The Court rejected the plaintiff's argument that allowing employees who do not customarily receive tips to participate in a tip pool allows an employer to subsidize the wages of non-tipped employees with the tips of others. 

Court of Appeal Rejects Attack on Arbitration Award

Oaktree Capital Management, L.P. v. Bernard --- Cal.Rptr.3d ----, 2010 WL 598756 (February 22, 2010) is a very interesting case dealing with efforts to overturn an arbitrator's award in a wage and hour matter.

Russel Bernard was a fund manager at Oaktree, a real estate investment hedge fund. Bernard quit in November, 2005, and formed his own fund, Westport. Before he quit, Bernard allegedly breached his fiduciary duties to Oaktree by failing to present it with the opportunity to buy a building he had identified, instead allowing Westport to purchase it. Based on his breach of fiduciary duty, Oaktree formally discharged Bernard in December, 2005, one month after he had resigned, and refused to pay him incentive fees to which he claimed he was entitled.

The arbitrator issued an award in Oaktree's favor. She rejected Bernard's claim that his incentive fees vested upon a fund's reaching its performance benchmarks. She found instead that the fees vested only if Oaktree employed Bernard when Oaktree distributed the fees. Further, the arbitrator found Bernard breached his fiduciary duty to Oaktree by attempting to steer investors to Westport. The arbitrator awarded Oaktree $12.3 million in damages and $6.7 million in attorneys fees, costs, and interest.

Oaktree moved to confirm the award, the trial court entered judgment, and Bernard appealed. (Can't blame him, with that kind of money at stake.) What's interesting here is the way that Bernard attempted to attack the judgment:

Appellant contends the court committed two principal errors in confirming the arbitration award. First, the court adopted the arbitrator's findings that, in appellant's view, divested appellant of fees he claims he had already earned, a forfeiture that, among other sins, violates the public policy protecting an employee's compensation. Second, the court adopted the arbitrator's findings making appellant liable for the profits Oaktree lost from its delayed management fees in Fund IV, a liability that violates the public policy prohibiting an employee from being responsible for his employer's ordinary business losses. Respondents counter that we need not address the merits of appellant's contentions because appellant's response to their petition to confirm the arbitration award was untimely. Appellant's untimeliness, according to respondents, waived his right to contest the petition's allegations and the court's confirmation of the arbitrator's award. We hold appellant's response was timely, but we nevertheless affirm the award because it did not satisfy the narrow grounds for judicial review of an arbitration award.

Slip op. at 2. Frankly, I'm not surprised that the Court rejected Bernard's public policy attack on the award, but I find the effort interesting. All the more so because Bernard was represented by a well-known defense firm that undoubtedly has argued the defense side of this issue before.

Court of Appeal Invalidates Unconscionable Arbitration Agreement

This case does not break any real new ground, but it is worth a mention. In Suh v. Superior Court (Cha Hollywood Medical Center) --- Cal.Rptr.3d ----, 2010 WL 551410 (February 18, 2010), the Second District Court of Appeal held that an arbitration agreement between a hospital and a medical group did not bind individual doctors who did not sign the agreement and derived no benefits from the medical group’s relationship with the hospital during the time that the agreement was in effect. Further, the Court held that the arbitration provision in a second agreement were procedurally and substantively unconscionable where they contained "egregious and draconian" limitations on potential remedies, required each party to share in arbitration expenses, empowered arbitrator to assess expenses against any of the parties, placed limitations on discovery, and did not compel a reasoned opinion or findings by the arbitrator. Such unconscionablity so tainted the agreement that the offensive provisions could not be severed, rendering the agreement to arbitrate unenforceable.

Cal. Supreme Court Rules in Sick Pay Case

In McCarther v. Pacific Telesis Group, --- Cal.Rptr.3d ----, 2010 WL 547321 (February 18, 2010), two employees brought a putative class action, seeking a determination that Cal. Labor Code section 233, which permits an employee to use accrued paid sick leave to care for ill relatives, applies to paid sick leave policies in a collective bargaining agreement that provide for an uncapped number of compensated days off. Prior to class certification, the parties filed competing motions for summary judgment as to whether employers had the relevant duty under the Labor Code.

What about Fireside Bank v. Superior Court (2007) 40 Cal. 4th 1069 (discussing rule against one-way intervention), you ask? The Court did not address it.

Judge Freedman of the Alameda Superior Court granted summary judgment in favor of employer, and the employees appealed. The Court of Appeal reversed, but the Supreme Court granted review and affirmed the trial court. "We conclude, contrary to the Court of Appeal, that Labor Code section 233 does not apply to paid sick leave policies that provide for an uncapped number of compensated days off." Slip op. at 1.

Court of Appeal Issues Significant Class Certification Decision

In Jaimez v. DAIOHS USA, Inc. --- Cal.Rptr.3d ----, 2010 WL 93848 (Second District, January 12, 2010), a former routes sales representative filed a putative class action alleging that his former employer applied a uniform policy of misclassifying the putative class members as exempt employees. The plaintiff moved to certify four separate classes: (1) overtime; (2) meal periods; (3) rest periods; and (4) pay stub violations. The trial court denied class certification:

The trial court found Jaimez failed, however, to establish a “community of interest” among the putative class members in that: (1) Jaimez's claims were not representative of the proposed class, as demonstrated by First Choice's 25 declarations; (2) Jaimez was not an adequate class representative because he lied on his First Choice employment application about his felony conviction and incarceration, he admitted his view that it is acceptable to lie in order to obtain or maintain employment, questions surrounded his purported falsification of time records and other documents (notably, manifests), and his declaration may be contradicted by his deposition testimony; (3) common questions of law and fact did not predominate because First Choice's evidence demonstrated a strong indication of conflicting testimony at trial, which therefore precluded a finding of common questions of fact; and (4) a class action was not the superior method for adjudicating the claims in the Complaint given the lack of commonality and typicality and thus the corresponding need for individualized inquiry.

Slip op. at 5. The Court also denied the plaintiff's motion for leave to amend naming two new class representatives.

The Court of Appeal reversed in part and affirmed in part. First, the Court noted that trial courts have broad discretion in certification decisions unless they apply improper criteria or make erroneous legal assumptions. After citing Sav-On v. Superior Court for the proper class certification criteria, the Court held that the trial court had used the wrong criteria in denying class certification:

The trial court misapplied the criteria, focusing on the potential conflicting issues of fact or law on an individual basis, rather than evaluating “whether the theory of recovery advanced by the plaintiff is likely to prove amenable to class treatment.” (Ghazaryan, supra, 169 Cal.App.4th at p. 1531, 87 Cal.Rptr.3d 518 [italics added]; see also Sav-On Drug Stores, supra, 34 Cal.4th at p. 327, 17 Cal.Rptr.3d 906, 96 P.3d 194 [“[I]n determining where there is substantial evidence to support a trial court's certification order, we consider whether the theory of recovery advanced by proponents of certification is, as an analytical matter, likely to prove amenable to class treatment. [Citations.]”).) “Although individual testimony may be relevant to determine whether these policies unduly restrict ... the drivers as a whole ..., the legal question to be resolved is not an individual one. To the contrary, the common legal question remains the overall impact of [respondent's] policies on its drivers....” (Ghazaryan, supra, 169 Cal.App.4th at p. 1536, 87 Cal.Rptr.3d 518; see also Prince v. CLS Transportation, Inc. (2004) 118 Cal.App.4th 1320, 1329, 13 Cal.Rptr.3d 725 [reversing trial court's order sustaining defendant's demurrer to class allegations in complaint as premature, court observed that plaintiff had alleged “institutional practices by CLS that affected all of the members of the potential class in the same manner, and it appears from the complaint that all liability issues can be determined on a class-wide basis.”].)

Plaintiff's “theory of recovery” involves uniform policies applicable to the RSR's that are more amenable to class treatment. Predominant questions of fact and law include whether First Choice misclassified RSR's as exempt employees, thereby misapplying meal and rest break requirements, as well as the attendant record-keeping duties. Plaintiff alleges First Choice consistently administered a uniform corporate policy that violated overtime and meal and rest break requirements. Even when properly classified, RSR's were still subject to uniform policies and practices, notably, failure to properly compensate them, failure to pay them proper straight time, premium overtime, double time, missed meal and rest period compensation, and failure to provide them with compliant pay stubs and waiting time penalties.

Additionally, under plaintiff's theory of recovery, uniform corporate practices applicable to RSR's (even once they were reclassified as non-exempt) are more amenable to class treatment. Plaintiff submitted evidence of the following practices and policies: that RSR's performed the same duties; regardless of the exempt or non-exempt status of RSR's, First Choice failed to properly pay overtime compensation, although RSR's earned it; First Choice created routes and delivery schedules which it pressured RSR's to complete in 8 hours; rather than promoting meal and rest breaks, this action had the opposite effect, despite supervisors' statement or encouragement that RSR's should take their breaks; First Choice failed to compensate RSR's for missed, late, or interrupted meal and rest breaks Under the Sav-On Drug Stores standard, Plaintiff's theory of recovery, focused on uniform policies and practices applicable to RSR's within the relevant time period, as compared to individual claims, was and is more amenable to class treatment than individual disposition.

Slip op. at 8.

Next, the Court held that common issues of law and fact predominated over individual issues. The Court identified common issues in the declarations submitted by the defendants: several admitted that they regularly missed meal periods, and none stated that defendants paid them extra for their missed meal periods. The Court also noted that the need to prove individual damages does not defeat class certification. Slip op. at 9.

The Court held that common issues predominated with regard to the overtime claims. The Court held that the predominant issues were whether the defendants had a practice of deeming the class members as exempt employees and failing to pay them overtime compensation. The Court further held:

The absence of time sheets (during the time when First Choice misclassified its RSR's as exempt) does not make it “impossible” to ascertain overtime hours worked by particular employees. In fact, as the Class declarations demonstrate, RSR's routinely worked overtime, and it is a straightforward matter to determine the relevant numbers of hours. The Class RSR's performed the same duties every day, including making daily deliveries to preset customers and counting all items that were loaded and delivered, as well as those items returned to the First Choice facility. The RSR's also stated that they often worked more than eight hours per day without taking all required uninterrupted meal and/or rest breaks. RSR's who made such deliveries on a daily basis could attest to the typical amount of overtime time they worked each day, even in the absence of time records. Variations in individual RSR overtime hours go to damages and do not preclude class certification. The possible use of survey evidence or testimony from a random and representative sampling of class members can certainly be explored to facilitate the necessary calculations.

Slip op. at 10.

With regard to the meal and rest period claims, the Court first held that defendant's assertion that its policy complied with the law was beside the point. Contrasting Cicairos with Brinker and Brinkley, the Court reiterated that its role was not to determine the merits of the case on certification. Slip op at 11. Rather, the question is whether the defendants' policies and practices present predominant questions of fact and law that are amenable to class treatment. Ibid. On this question, the Court held that the plaintiff "presented evidence of these predominant common factual issues:

• RSR's often were not able to take their required rest breaks;
• The delivery schedules made it extremely difficult for RSR's to timely complete the deliveries and take all required rest breaks;
• After First Choice reclassified the RSR's as hourly employees, RSR's were told to complete their deliveries within eight hours, making it even more difficult for RSR's to take all required rest breaks; and
• RSR's never received compensation for missed rest breaks.

Slip op. at 12. The Court noted that even the defendants' declarants "did not indicate they always received every rest break to which they were entitled." Ibid.

As to the paystub claims, the Court rejected the defendant's argument that the class members' need to show injury arising from the violations made certification improper. Citing Wang v. Chinese Daily News, Inc. (C.D.Cal.2006) 435 F.Supp.2d 1042; Elliot v. Spherion Pacific Work, LLC (C.D.Cal.2008) 572 F.Supp.2d 1169. The Court then held common issues predominate with regard to this claim. Slip op. at 13.

The Court held that: the plaintiff's claims were typical of the class members', as evidenced by the nine almost identical declarations submitted in support of the motion; the plaintiff's credibility issues - lying on his job application and testifying in deposition that it was OK to do so - make him inadequate as a class representative; and class treatment was the superior method of resolving the case. Slip op. at 14. Finally, the Court held that the trial court abused its discretion in denying the plaintiff's motion for leave to substitute new class representatives. Slip op. at 15.

Ninth Circuit Invalidates Another Class Arbitration Waiver

In Omstead v. Dell, Inc., --- F.3d ----, 2010 WL 396089 (C.A.9 (Cal.), February 05, 2010), customers who purchased notebook computers directly from manufacturer's website brought a putative class action against Dell, alleging violations of California's Consumer Legal Remedies Act, fraudulent concealment, and breach of express and implied warranty, alleging that Dell sold them defective notebook computers. District Judge Phyllis J. Hamilton (N.D. CA) granted manufacturer's motion to stay proceedings and compel arbitration, and denied customers' motion for reconsideration. 473 F.Supp.2d 1018; 533 F.Supp.2d 1012. After the plaintiffs failed to comply with the arbitration order, the Court granted Dell's motion to dismiss for failure to prosecute. The plaintiffs appealed.

The Ninth Circuit reversed, holding, in part:

1. The District Court abused its discretion when it dismissed plaintiffs' action for failure to prosecute because the plaintiffs had not caused unreasonable delay: "Plaintiffs sufficiently communicated to Dell and the district court that they wanted to prosecute their claims on a classwide basis, they believed the district court's arbitration order was fatal to their action, and they wanted the district court to enter an order that would permit appellate review of the arbitration issue. Not only was the district court's Rule 41(b) dismissal unsupported by the facts of this case, it also failed to accomplish plaintiffs' requested result because under our law, an appeal from a Rule 41(b) dismissal does not permit review of interlocutory orders." Slip opinion at pp. 2-3.
2. The District Court erred when it granted Dell's motion to stay proceedings and compel arbitration. First, the agreement's choice of law provision was unenforceable, and the Court should have applied California law. Second, the class action waiver is unconscionable under California law because it satisfies the Discovery Bank test, and California has a materially greater interest than Texas in applying its own law. Slip opinion at p. 4.
3. The class action waiver could not be severed from the remainder of the arbitration agreement because the waiver was "central" to the arbitration provision. Slip opinion at p. 4.

Court of Appeal Upholds Arbitration Agreement

In Dotson v. Amgen, Inc. --- Cal.Rptr.3d ----, 2010 WL 189653 (January 21, 2010), an in-house attorney sued Amgen for wrongful termination. The parties' employment agreement contained an arbitration clause and arbitration procedures, including the following:

Each party shall have the right to take the deposition of one individual and any expert witness designated by another party.... Additional discovery may be had where the arbitrator selected pursuant to this agreement so orders, upon a showing of need.

The trial court denied the employer's petition to compel arbitration, finding that the arbitration clause was unconscionable, and the employer appealed. The Second District Court of Appeal reversed, holding as follows:

1. Mr. Dotson was "a highly educated attorney, who knowingly entered into a contract containing an arbitration provision in exchange for a generous compensation and benefits package," and the agreement entailed only a small degree of procedural unconscionability, as a result.
2. The agreement's limitation on discovery was not substantively unconscionable because it helped achieve arbitration's goal of streamlining dispute resolution and, in any case, Mr. Dotson could apply to the arbitrator for additional discovery.
3. Even if the discovery limitation clause had been substantively unconscionable, it did not permeate the agreement with unconscionability, and the trial court should have severed it.
4. The agreement's provision allowing the defendant to make motions for summary judgment was not substantively unconscionable and did not render the limitation on discovery substantively unconscionable.
5. A clause giving the arbitrator "exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement...." did not render the agreement substantively unconscionable.
6. The agreement's standard of review clause was not substantively unconscionable. The clause provided: "A party opposing enforcement of an award may not do so in an enforcement proceeding, but must bring a separate action in any court of competent jurisdiction to set aside the award, where the standard of review will be the same as that applied by an appellate court reviewing a decision of a trial court sitting without a jury."

It is possible that Mr. Dotson's status as an attorney changed either court's procedural unconscionability analysis and the outcome of the case. This reminds me of another case, Olinick v. BMG Entertainment 138 Cal. App. 4th 1286 (2006), another case that went poorly for an attorney plaintiff. In that case, the Court upheld a New York choice-of-law provision against an attorney employee who had counsel negotiate his employment agreement.

Ninth Circuit Reverses Order Denying Settlement Approval

In Narouz v. Charter Communications, LLC 591 F.3d 1261 (C.A.9 (Cal.), 2010) a former employee brought a putative class action in state court against former employer alleging wrongful termination, and violations of the California Labor Code and Unfair Competition Law ("UCL"). Following removal and fairly extensive litigation, the parties entered into separate agreements resolving the employee's individual claims and the class claims. District Court Judge Real denied certification of the class for settlement purposes and refused to approve the settlement. The Court stated only that it could not ascertain the class and offered no further analysis.

The employee appealed, and the Ninth Circuit reversed. The Court held:

(1) As a matter of first impression, the appeal from denial of class certification was not rendered moot by the class representative's settlement of his individual claims, since the class representative retained a personal stake in the class litigation. "In order to retain such a 'personal stake,' a class representative cannot release any and all interests he or she may have had in class representation through a private settlement agreement.... Conversely, a settlement agreement that specifically provides that the class representative is solely releasing individual claims may permit the class representative to retain a 'personal stake' in the class claim." 591 F.3d at 1264.

(2) The employer's appeal of the District Court's earlier decisions denying the employer's motions to strike and ex parte application to extend the dates in the scheduling order were not ripe for review. 591 F.3d at 1265-1266.

(3) The District Court's decision denying certification of settlement class was not entitled to the traditional deference given to class certification decisions because the Court "fail[ed] to make sufficient findings to support its application of the Rule 23 criteria." 591 F.3d at 1266.

The Ninth Circuit remanded the case for further proceedings and ordered that it be reassigned to a different judge. 591 F.3d at 1267.

Cal. Supreme Court Rules in FEHA Attorney Fee Case

On January 14, 2010, the California Supreme Court has issued its decision in Chavez v. City of Los Angeles (2010) 47 Cal.4th 970, and - as many predicted - the resulted was not pretty for the plaintiff and his lawyer.

In 1998, the plaintiff filed an action against the City of Los Angeles, alleging defamation and other violations. The Court dismissed that action. In May, 2000, the plaintiff filed a second action, this one for discrimination, harassment, and retaliation. In August, 2000, the plaintiff filed a third action, this one for federal civil rights violations. In November, 2004, the plaintiff filed a fourth action, this time alleging that the City retaliated against him for filing his earlier actions. Ultimately, the plaintiff won a verdict of $11,500 in this fourth action, well below the $25,000 threshold for "limited actions."

The plaintiff then asked for attorney fees of $870,000 -- 2.0 times the fees incurred on all work done from 2000 through the date of judgment, including fees incurred in the prior litigation. The trial court denied the motion for fees, but the Court of Appeal reversed, holding that the trial court had “applied the wrong statutory standard and abused its discretion.” Slip opinion at p. 5. The Supreme Court granted review.

The Court started by going through Cal. Code Civ. Proc. section 1033, which gives the court discretion to award fees and costs when the plaintiff chooses to proceed with an unlimited civil case, but recovers less than $25,000. The Court then noted that the Fair Employment and Housing Act (FEHA) also gives courts discretion to award fees: “In actions brought under this section, the court, in its discretion, may award to the prevailing party reasonable attorney's fees and costs....” Cal. Gov. Code section 12965(b). Next, the Court held that there was no conflict between these two sections, and a trial court has discretion in an appropriate FEHA case to deny a successful plaintiff his attorney fees, although the Court was clear that this should not be an exercise in Monday morning quarterbacking:

If, based on the available information, the plaintiff's attorney might reasonably have expected to be able to present substantial evidence supporting a FEHA damages award in an amount exceeding the damages limit (now $25,000) for a limited civil case, or if the plaintiff's attorney might reasonably have concluded that the action could not be fairly and effectively litigated as a limited civil case, the trial court should not deny attorney fees merely because, for example, the trier of fact ultimately rejected the testimony of the plaintiff's witnesses or failed to draw inferences that were reasonably supported, although not compelled, by the plaintiff's evidence. But if, to the contrary, the trial court is firmly persuaded that the plaintiff's attorney had no reasonable basis to anticipate a FEHA damages award in excess of the amount recoverable in a limited civil case, and also that the action could have been fairly and effectively litigated as a limited civil case, the trial court may deny, in whole or in part, the plaintiff's claim for attorney fees and other litigation costs.

Slip opinion at p. 9. Finally, the Court held that the trial court did not abuse its discretion in denying fees to Mr. Chavez.

Chavez may be a good cautionary tale for those who may be tempted to overreach, but employers should not try to rely on it too heavily in wage and hour cases. FEHA, which was at issue in Chavez, varies substantially from California wage law. FEHA makes an award of attorney fees to a successful plaintiff discretionary and allows successful defendants to recover their attorney fees and costs.

In stark contrast, a number of California Labor Code sections provide for one-way fee shifting in favor of successful plaintiffs, make such fee awards mandatory, rather than discretionary, and forbid attorney fee awards to successful defendants. See, e.g., Cal. Labor Code section 1194; Earley v. Superior Court (2000) 79 Cal. App. 4th 1420.

Ninth Circuit Reverses Denial of Class Certification in Meal Period Case

In United Steel Workers Intern. Union v. ConocoPhillips Co., 2010 WL 22701, ___ F.3d ___ (C.A.9 (Cal.), 2010), the United Steel Workers union ("USW") and three of its members filed a class action against ConocoPhillips, alleging that it failed to provide the required meal periods. Plaintiffs alleged that the class members could not leave their units during their meal breaks and were subject to interruptions to which they must respond, so that their meal periods were “on duty” and should be compensated.

Plaintiffs moved for class certification. On March 16, 2009, the district court denied class certification without prejudice. The district court held that although plaintiffs had demonstrated the existence of three of the four Rule 23(a) prerequisites to class certification -- numerosity, commonality, and typicality -- plaintiffs failed to satisfy the “adequate representation” requirement. Specifically, the district court held that due to counterclaims then pending against USW, “USW's interests [we]re not properly aligned with those of the class” and that because then-class counsel also represented USW, “it could not adequately represent the interests of the class.”

The class representative obtained new counsel unrelated to USW, USW successfully moved for Rule 12(b)(6) dismissal of all pending counterclaims against it, and plaintiffs renewed their motion for class certification. The district court again denied class certification, holding that the plaintiffs had satisfied all four requirements of Rule 23(a), but failed to satisfy any of the three provisions of Rule 23(b). With respect to Rule 23(b)(3), the so-called “predominance” requirement, the court held that “if Plaintiffs’ ‘on duty’ theory is rejected ... the Court will be faced with a case ... requiring individualized trials on each class member's meal period claims,” and “a class action w[ould] not be the superior method of resolving this suit.” The court ultimately held that “this problem ... is an insurmountable barrier to class certification,” and therefore “decline[d] to certify the class under Rule 23(b)(3)."

The Ninth Circuit reversed:

Critically, the district court did not hold that plaintiffs' actual legal theory (what the district court referred to as “Plaintiffs’ ‘on duty’ theory of liability”) was one in which common issues of law or fact did not predominate over individual questions. Instead, the district court treated plaintiffs' actual legal theory as all but beside the point, holding that because “there can be no assurances that [plaintiffs] w[ould] prevail on this theory,” (emphasis added), the district court's predominance inquiry would instead focus on the question whether plaintiffs “actually missed meal breaks,” an admittedly individualized inquiry. By refusing to analyze plaintiffs’ “on duty” argument as the basis for its predominance inquiry because “there c[ould] be no assurances that they w[ould] prevail on this theory,” the district court ignored Ninth Circuit precedent and ultimately abused its discretion.

“In determining the propriety of a class action, the question is not whether the plaintiff or plaintiffs have stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met[,]” and “nothing in either the language or history of Rule 23 ... gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action.” Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974) (quotation marks and citation omitted). Although certification inquiries such as commonality, typicality, and predominance might properly call for some substantive inquiry, “[t]he court may not go so far ... as to judge the validity of these claims.” Staton v. Boeing Co., 327 F.3d 938, 954 (9th Cir.2003). “[N]either the possibility that a plaintiff will be unable to prove his allegations, nor the possibility that the later course of the suit might unforeseeably prove the original decision to certify the class wrong, is a basis for declining to certify a class which apparently satisfies [Rule 23].” Blackie v. Barrack, 524 F.2d 891, 901 (9th Cir.1975).

Here, the district court not only “judge[d] the validity” of plaintiffs’ “on duty” claims, it did so using a nearly insurmountable standard, concluding that merely because it was not assured that plaintiffs would prevail on their primary legal theory, that theory was not the appropriate basis for the predominance inquiry. But a court can never be assured that a plaintiff will prevail on a given legal theory prior to a dispositive ruling on the merits, and a full inquiry into the merits of a putative class's legal claims is precisely what both the Supreme Court and we have cautioned is not appropriate for a Rule 23 certification inquiry. See Eisen, 417 U.S. at 177-78, 94 S.Ct. 2140; Cummings v. Connell, 316 F.3d 886, 896 (9th Cir.2003)(noting that “this circuit does not favor denial of class certification on the basis of speculative conflicts”); Staton, 327 F.3d at 954; Moore v. Hughes Helicopters, Inc.,708 F.2d 475, 480 (9th Cir.1983) (holding that “it is improper to advance a decision on the merits to the class certification stage”).

Slip op. at 5. I think the District Court pretty clearly got it wrong, and the Ninth Circuit got it right.

Interesting Ruling on Arbitration and Attorney Fees

In re Cellphone Termination Fee Cases (2009) 180 Cal. App. 4th 1110, presents a novel issue. The parties settled a class action case and agreed that a mutually selected arbitrator would determine the plaintiffs' attorney fees within a range agreed by the parties. After a class member objected that he would not be able to participate in the fee arbitration, the trial court refused to enforce this part of the settlement agreement, holding that the fee arbitration provision was “void in its entirety because it improperly excluded the members of the class from the fee application process.” The trial court then determined the fees itself, within the range agreed on by the parties.

The Court of Appeal held that the trial court abused its discretion by refusing to send the issue out to arbitration, but affirmed the trial court's decision because the defendant failed to show actual prejudice resulting from determination of the amount of the attorney fee award by the court rather than by the arbitrator selected by the parties.

Supreme Court to Hear Oral Argument on Martinez v. Combs

Martinez v. Combs has been on the Supreme Court's desk for more than five years. The Court just announced that it will hear oral argument on Tuesday, March 2, 2010, at 9:00 a.m., in San Francisco. See the Court's docket here. The Court states the issues presented as follows:

Petition for review after the Court of Appeal affirmed in part and reversed in part the judgment in a civil action. The court ordered briefing deferred pending decision in Reynolds v. Bement, S115823, which includes the following issue: Can the officers and directors of a corporate employer personally be held civilly liable for causing the corporation to violate the statutory duty to pay minimum and overtime minimum wages, either on the ground such officers and directors fall within the definition of "employer" in Industrial Welfare Commission Wage Order 9 or on another basis?

The real issue is this: when the Wage Orders say that an "employer" is "any person as defined in Section 18 of the Labor Code, who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person," what does that mean, and what impact does that have on the enforcement of the wage laws in California?

Martinez is an extremely important case that we've been waiting on for a long time. Plaintiffs' counsel did a phenomenal job briefing it, and I am sure they will perform equally well in front of the Court. Assuming that the Court does not strain to mis-interpret the Wage Order, I look forward to a positive ruling that puts greater teeth into California's wage laws.

Court of Appeal Upholds Order Decertifying Store Manager Class

In Keller v. Tuesday Morning, Inc. (November 4, 2009, Second District) 179 Cal.App.4th 1389, the Court of Appeal held that the trial court did not abuse its discretion in granting motion to decertify a class of retail store managers "where multiple witness declarations asserted in detail that tasks performed by each class member were dissimilar, and so individualized issues of liability and damages would predominate over issues common to the class." The opinion includes a detailed discussion of the evidence presented on the motion to decertify, including declarations, deposition testimony, and the testimony of defendant's expert witness, David Lewin of UCLA, who watched video of two store managers and testified as to the amount of time each spent on "managerial" and "non-managerial" duties.

The plaintiffs had asked the Court to certify the issue of whether tasks were exempt or non-exempt. The Court declined to do so. 

Barbosa v. IMPCO: Employer Cannot Terminate Employee Who Makes Good Faith But Mistaken Claim for Overtime

In Barbosa v. IMPCO Technologies, Inc. (November 30, 2009) 179 Cal.App.4th 1116, the Court of Appeal held that the public policy in favor of an employer’s duty to pay overtime wages protects an employee from termination for making a good faith but mistaken claim to overtime.

Manuel Barbosa was a shift leader who was paid by the hour. Two of the employees whom he supervised approached him and stated that they had not been paid for two hours of overtime work. Mr. Barbosa complained to management, who paid him and the other employees for the two hours of overtime. Upon investigation, the employer found that Mr. Barbosa and the other employees had not worked the overtime and terminated Mr. Barbosa, even though he offered repeatedly to pay the money back.

Mr. Barbosa sued for wrongful termination in violation of public policy. At trial, the court granted the employer's motion for non-suit after Mr. Barbosa rested. The Court of Appeal reversed.

After noting that the common law recognizes a tort for wrongful termination in violation of public policy (Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 178), the Court stated: "The duty to pay overtime wages is a well-established fundamental public policy affecting the broad public interest." Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137, 1148-1149. The Court then cited a long line of cases holding in other contexts that an employee's good faith but mistaken belief is protected from employer retaliation in the whistleblowing context. Collier v. Superior Court (1991) 228 Cal.App.3d 1117; Green v. Ralee Engineering Co. (1998) 19 Cal.4th 66; and Freund v. Nycomed Amersham (9th Cir. 2003) 347 F.3d 752. Finally, the Court applied these precedents to the present case, holding that this public policy protected Mr. Barbosa's mistaken but good faith claim to overtime compensation.

Barbosa presented evidence that he had a reasonable good faith belief he was entitled to overtime. Under the previous time clock system, mistakes in timekeeping had been made; the new system had been in place less than a month. Barbosa's co-workers convinced him the overtime was unpaid, and he in turn convinced DeSantos. He testified he was confused. In fact, the trial court acknowledged Barbosa had presented sufficient evidence to support a good faith belief when it granted the nonsuit.

IMPCO argues Barbosa cannot prove he was terminated for making a claim for overtime, asserting he was terminated for misrepresenting that he worked overtime when he did not. IMPCO contends it is not a violation of public policy to fire an employee for lying and cheating his employer. IMPCO misses the point. Barbosa must prove he had a reasonable good faith belief he was entitled to overtime wages and that IMPCO terminated him because he claimed overtime based on that reasonable good faith belief. If Barbosa proves he had a reasonable good faith belief in his right to overtime, ipso facto he did not attempt to cheat IMPCO. Because Barbosa presented sufficient evidence to support both elements in his case-in-chief, the case should have been allowed to progress to its conclusion and be submitted to a jury.