Court of Appeal Reverses Order Denying Class Certification

In Bomersheim v. Los Angeles Gay and Lesbian Center (May 26, 2010) --- Cal.App.4th ---, 2010 WL 2089653, the Second District Court of Appeal held that the trial court abused its discretion in denying class certification in an action by patients alleging that a health care provider negligently treated them with a drug that had not been approved for that purpose.

The trial court denied the plaintiffs' motion for class certification, finding that no community of interest existed among the putative class members "because individual issues of causation and damages predominated over common issues of duty and breach." Slip op. at 3. It also found that "proof of damages for pain and suffering would require the personal testimony of each class member," that "class treatment of putative members' claims would not be superior to individual treatment because the amount of damages potentially available-from $8,000 to $18,000, by one estimate-made individual action feasible, especially if more plaintiffs joined the action," and that the "individual issues in this case necessarily overwhelm the common issues." Slip op. at 4.

The Court held that causation could be inferred on a class-wide basis and need not require individual proof:

An inference of causation arises when a material event impacts an individual whose subsequent actions constitute a reasonable response. In the class context, where individuals are uniformly subjected to a material stimulus and thereafter uniformly act in a manner consistent with a reasonable response, a classwide inference is raised that the stimulus caused the response.

Here, putative class members all came to the Center seeking treatment for syphilis, a potentially life-threatening disease. They were given the wrong medication. After being informed that the treatment may have been ineffective, they sought retreatment. A reasonable inference as to the entire class is that the initial mistreatment caused members to seek retreatment. Causation can therefore be presumed on common proof.

After finding that the action would require individual proof of damages, the Court concluded that common issues still predominated:

Plaintiffs propose a number of ways to streamline the determination of damages, including making exemplar findings to establish a range of recovery, utilizing a proof of claim questionnaire, and establishing a special arbitration forum. Defendant offers no response to the proposals, and the trial court made no comment on them other than to note that they may require defendant to waive its right to a jury trial. Plaintiff's proposals suggest that damages can be determined fairly and expediently. Nothing suggests otherwise. If, after reasonable discovery, it appears that damages in this matter cannot be handled efficiently class wide, the court can divide the class into subclasses or decertify it altogether.

***

As discussed above, issues subject to common proof include those of duty, breach and causation. Though damages are not subject to common proof, they are susceptible to streamlined determination. We therefore conclude class treatment would be a superior method of resolving the claims.

California Court of Appeal Clarifies Test for Class Arbitration Waivers

In Arguelles-Romero v. Superior Court (AmeriCredit Financial Services, Inc.) (May 13, 2010) ___ Cal.App.4th ___, the Court of Appeal clarified how to analyze a class action waiver in an arbitration clause.

The plaintiffs brought a putative class action for consumer loan violations. The defendant moved to compel individual arbitration. The Court of Appeal held:

While we hold the trial court did not err in finding the class action waiver was not unconscionable, we also conclude that it should have also performed a discretionary analysis on whether a class action is a significantly more effective practical means of vindicating the unwaivable statutory rights at issue. We therefore grant the petition and remand with directions.

Slip op. at 2.

After laying out the basics of California law on the enforcement of arbitration agreements and class arbitration waivers, the Court held:

The confusion in this case arises because plaintiffs seek to combine the doctrines set forth in Discover Bank and Gentry into a single test for unconscionability. Yet while Discover Bank is a case about unconscionability, the rule set forth in Gentry is concerned with the effect of a class action waiver on unwaivable statutory rights regardless of unconscionability. (Sanchez v. Western Pizza Enterprises, Inc., supra, 172 Cal.App.4th at p. 172.) While, in certain circumstances, a class action waiver may be both unconscionable and violate the rule of Gentry, the Supreme Court has established two separate tests which should be considered separately.

Slip op. at 13-14.

Discover Bank v. Superior Court (2005) 36 Cal.4th 148

Unconscionability in California is comprised of two parts, procedural unconscionability and substantive unconscionability. (Discover Bank, supra, 36 Cal.4th at p. 160.) Both must be present for a contract term to be considered unconscionable, although there is a sliding scale. “In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Armendariz, supra, 24 Cal.4th at p. 114.)

Slip op. at 14.

The Discover Bank court did not set forth a three-part test for unconscionability of a class action waiver in a consumer contract, although it is clear that the presence of three elements – (1) adhesion contract; (2) the dispute predictably involves small amounts of damages; and (3) allegations that the defendant has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money – was necessary to its analysis. (Discover Bank, supra, 36 Cal.4th at pp. 162-163.) For this reason, some federal cases applying Discover Bank have concluded that it established a three-part inquiry for determining the unconscionability of a class action waiver under California law. (See e.g., Shroyer v. New Cingular Wireless Services, Inc. (9th Cir. 2007) 498 F.3d 976, 983; In re Apple & AT&T Antitrust Litigation (N.D.Cal. 2008) 596 F.Supp.2d 1288, 1298; Stiener v. Apple Computer, Inc. (N.D. Cal. 2008) 556 F.Supp.2d 1016, 1024.) This is not strictly accurate. While it is true that the presence of the three Discover Bank factors is sufficient to establish the unconscionability of a class action waiver, the Supreme Court did not hold that class action waivers are unconscionable only when those three elements are present. (Cohen v. DIRECTV, Inc. (2006) 142 Cal.App.4th 1442, 1451.) A court is instead required to consider whether, to the extent the elements are not present, the facts might still compel the conclusion that the class action waiver is unconscionable. (Ibid.)

Slip op. at 16-17.

Gentry v. Superior Court (2007) 42 Cal.4th 443

In contrast, what we will call “the rule of Gentry” is not a rule of unconscionability. Indeed, the absence of procedural unconscionability is not relevant to striking a class action waiver as violative of the rule of Gentry. (Gentry, supra, 42 Cal.4th at p. 451.) 

The seeds for the rule of Gentry were planted not in Discover Bank, but in Armendariz, supra, 24 Cal.4th 83. Armendariz considered whether a plaintiff could be compelled to arbitrate discrimination claims brought under the Fair Employment and Housing Act (FEHA). The Supreme Court began with the premise that FEHA rights are unwaivable. (Armendariz, supra, 24 Cal.4th at p. 112.) The court agreed that, as a general matter, assuming the arbitral forum is adequate, an agreement to arbitrate a non-waivable statutory claim does not waive the claim, it simply submits its resolution to another forum. (Id. at pp. 98-99.) However, if the arbitral forum is not adequate, an agreement to arbitrate a non-waivable statutory claim may, in fact, improperly compel the claimant to forfeit his or her statutory rights. (Id. at pp. 99-100.) The Armendariz court then considered the minimum requirements that any arbitral forum would have to meet so that forcing a party to pursue non-waivable statutory claims in that forum would still enable the party to vindicate his or her rights. (Id. at p. 113.) These requirements included arbitrator neutrality, the provision of adequate discovery, a written decision that will permit a limited form of judicial review, and certain limitations on the costs of arbitration. (Id. at pp. 90-91.)   

The question that arose in Gentry was whether the right to a class arbitration should also be included among the Armendariz protections as a necessary minimum requirement for the arbitration of a non-waivable statutory right. The Supreme Court concluded that it should, “at least in some cases.” (Gentry, supra, 42 Cal.4th at p. 450.)  

Gentry involved a class of employees who alleged that their employer had improperly characterized them as exempt and therefore did not pay them overtime. (Gentry, supra, 42 Cal.4th at p. 451.) The statutory right to recover overtime is unwaivable. (Id. at p. 455.) The Supreme Court then concluded that, in wage and hour cases, a class action waiver would frequently have an exculpatory effect and would undermine the enforcement of the statutory right to overtime pay. (Id. at p. 457.) The court identified several factors which, if present, could establish a situation in which a class action waiver would undermine the enforcement of the unwaivable statutory right. These factors included: (1) individual awards “tend to be modest” (id. at p. 457); (2) an employee suing his or her current employer is at risk of retaliation (id. at p. 459); (3) some employees may not bring individual claims because they are unaware that their legal rights have been violated (id. at p. 461); and (4) even if some individual claims are sizeable enough to provide an incentive for individual action, it may be cost effective for an employer to pay those judgments and continue to not pay overtime – only a class action can compel the employer to properly comply with the overtime law (id. at p. 462). 

Gentry did not establish an absolute four-part test for the enforceability or unenforceability of class action waivers. Instead, “when it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider the factors discussed above: the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members' right to overtime pay through individual arbitration. If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer's violations, it must invalidate the class arbitration waiver to ensure that these employees can vindicate [their] unwaivable rights in an arbitration forum. [Citation.] (Gentry, supra, 42 Cal.4th at p. 463.) The Gentry court remanded to the trial court to determine “whether, in this particular case, class arbitration would be a significantly more effective means than individual arbitration actions of vindicating the right to overtime pay of the group of employees whose rights to such pay have been allegedly violated by [the defendant].” (Id. at p. 466.) As this determination is within the discretion of the trial court, and is similar to the inquiry made on a motion for class certification, we have previously held that the standard of review for a Gentry determination is abuse of discretion.15 (Sanchez v. Western Pizza Enterprises, Inc., supra, 172 Cal.App.4th at p. 169.)

Slip op. at 17-21.

Differences Between Discover Bank and Gentry 

Discover Bank and the rule of Gentry are, in the words of the Supreme Court, both applications “of a more general principle: that although '[c]lass action and arbitration waivers are not, in the abstract, exculpatory clauses' [citation], such a waiver can be exculpatory in practical terms because it can make it very difficult for those injured by unlawful conduct to pursue a legal remedy.” (Gentry, supra, 42 Cal.4th at p. 457.) One must be careful, however, not to attempt to distill a rule that any time a class action waiver is, in practical terms, exculpatory, the waiver cannot be enforced. This is so because some rights, even statutory ones, can be waived. (Armendariz, supra, 24 Cal.4th at p. 100.) Discover Bank and Gentry considered circumstances in which those waivers would not be upheld – either because they were procedurally and substantively unconscionable (Discover Bank), or because they were likely to result in a waiver of unwaivable statutory rights (Gentry).  

While Discover Bank and Gentry were applications of the same general principle, it is also apparent that they involved different legal theories. Discover Bank is based on unconscionability, which is a legal determination subject to de novo review, while Gentry is based on whether a class arbitration (or action) is a significantly more effective practical means of vindicating unwaivable statutory rights, which is a discretionary determination subject to abuse of discretion review.

Slip op. at 22.

Thus, the Court held that the trial court must "consider each test on its own merits, as it applies to the specific circumstances of a case."  

If the plaintiff can establish procedural unconscionability, the court should consider whether, under the circumstances alleged, the class action waiver is substantively unconscionable as a matter of law. If the plaintiff can establish a non-waivable statutory right is at issue, the court should make a discretionary determination under the rule of Gentry.  

Slip op. at 23.  

The opinion is available here. 

California Supreme Court Defines "Employer" Under California Wage Law

The California Supreme Court has issued its decision in Martinez v. Combs, addressing who is and who is not an “employer” under California wage law. Martinez includes a number of important rulings that employment lawyers need to know.

By way of background, Labor Code section 1194 gives employees the right to recover “the legal minimum wage or the legal overtime compensation.” The question of who must pay minimum wage or overtime under section 1194 has been addressed only once since 1913, when California passed its minimum wage law. That one decision was Reynolds v. Bement (2005) 36 Cal.4th 1075, in which the Court “looked to the common law rather than the applicable wage order to define employment in an action under section 1194 seeking to hold a corporation's directors and officers personally liable for its employees' unpaid overtime compensation.” Slip op. at 31, citing Reynolds, 36 Cal.4th at 1086-1088.

The Martinez plaintiffs were seasonal agricultural workers who worked during the 2000 strawberry season and who alleged that they were not paid minimum wages. They filed suit against their employer, Munoz, two of the “produce merchants” through whom Munoz sold strawberries, the principals of one of the “produce merchants,” and one of their supervisors. They alleged failure to pay minimum wages (LC 1194, 1194.2), failure to pay contract wages (LC 216), waiting time penalties (LC 203), penalties for failure to provide timely and accurate wage and hour statements (LC 226), and breach of contract.

The trial court granted summary judgment in favor of the produce merchants, their principals, and the supervisor. The Court of Appeal affirmed in part and reversed in part, using the federal “economic reality” test to find that those defendants were not the plaintiffs’ employers. The Supreme Court granted review and held pending its decision in Reynolds.

The Court began by laying out the arguments made by each of the parties:

Plaintiffs contend the language and history of section 1194 show the Legislature intended generally to defer to the IWC’s regulatory definitions of the employment relationship in its wage orders. Plaintiffs would give those definitions sweeping breadth. Specifically, plaintiffs argue defendants “suffer[ed], or permit[ted plaintiffs] to work” (Wage Order No. 14, Cal. Code Regs., tit. 8, § 11140, subd. 2(C)), because defendants knew Munoz would need to hire workers to fulfill his contracts with defendants, and that defendants thus, in some sense, suffered or permitted plaintiffs to work for their benefit. Plaintiffs further argue defendants “exercise[d] control over [plaintiffs’] wages, hours, or working conditions” (Wage Order No. 14, Cal. Code Regs., tit. 8, § 11140, subd. 2(F)), because defendants, under the terms of their contracts with Munoz, controlled the remittance to him of his share of the proceeds of sale, and thus a portion of the income from which he paid his employees.

Slip op. at 14-15.

Defendants, in opposition, cite our decision in Reynolds, supra, 36 Cal.4th 1075, where we looked to the common law to define employment in a suit under section 1194 seeking to hold the directors and officers of a corporation liable for its employees’ unpaid overtime compensation. (Reynolds at pp. 1086-1087.) Alternatively, in the event Reynolds is distinguishable and the wage order’s definitions do apply, defendants argue we should construe the wage order as if it incorporated the federal economic reality definition of employment developed in cases arising under the Fair Labor Standards Act of 1938 (29 U.S.C. § 201 et seq. (FLSA); see Goldberg v. Whitaker House Coop., supra, 366 U.S. 28, 33) and articulated in federal regulations promulgated under the FLSA; see 29 C.F.R. § 791.2) and the Migrant and Seasonal Agricultural Worker Protection Act (29 U.S.C. § 1801 et seq.; 29 C.F.R. § 500.20(h)(5) (2009)).

Slip op. at 15. The Court agreed with the plaintiffs, yet affirmed the Court of Appeal’s decision. It held:

In actions under section 1194 to recover unpaid minimum wages, the IWC’s wage orders do generally define the employment relationship, and thus who may be liable. An examination of the wage orders’ language, history and place in the context of California wage law, moreover, makes clear that those orders do not incorporate the federal definition of employment. Applying these conclusions to the facts of the case, we affirm the Court of Appeal’s judgment.

Slip op. at 15.

In reaching this holding, the Supreme Court made a number of extremely important points for both employees and employers.

First, “An examination of section 1194 in its statutory and historical context shows unmistakably that the Legislature intended the IWC's wage orders to define the employment relationship in actions under the statute.” Slip op. at 16. This point is primary, because the defendants had argued strenuously that Reynolds controlled and that section 1194 did not incorporate the Wage Order’s employer definition.

Second, the Wage Orders set forth a multi-pronged, disjunctive definition of employment: an employer is one who, directly or indirectly, or through an agent or any other person, engages, suffers, or permits any person to work, or exercises control over the wages, hours, or working conditions of any person. Slip op. at 25-26. The “engage, suffer, or permit” component of the definition does not require a common law “master and servant” relationship, but is broad enough to cover “irregular working arrangements the proprietor of a business might otherwise disavow with impunity.” Slip op. at 25. Further, “phrased as it is in the alternative (i.e., wages, hours, or working conditions”), the language of the IWC's 'employer' definition has the obvious utility of reaching situations in which multiple entities control different aspects of the employment relationship, as when one entity, which hires and pays workers, places them with other entities that supervise the work.” Slip op. at 26-27. Finally, the IWC’s “employer” definition is intended to distinguish state law from the federal FLSA.

Third, the IWC Wage Orders are entitled to “extraordinary deference.” Slip op. at 28-29. “Only by deferring to wage orders’ definitional provisions do we truly apply section 1194 according to its terms by enforcing the “legal minimum wage.” Slip op. at 31.

Fourth, as noted above, the Court’s decision in Reynolds does not decide the issues presented. The Court explained that the Reynolds plaintiffs conceded that “the plain language of Wage Order No. 9 defining employer does not expressly impose liability under section 1194 on individual corporate agents.” Slip op. at 32. “In a footnote, we added that the “plaintiff . . . ha[d] not persuaded us that one may infer from the history and purposes of section 1194 a clear legislative intent to depart, in the application of that statute, from the common law understanding of who qualifies as an employer.” Slip op. at 33. "[A]n examination of section 1194 in its full historical and statutory context shows unmistakably that the Legislature intended to defer to the IWC’s definition of the employment relationship in actions under the statute.” Slip op. at 33-34. As a result, the Court limited Reynolds to its facts:

In sum, we hold that the applicable wage order‘s definitions of the employment relationship do apply in actions under section 1194. The opinion in Reynolds, supra, 36 Cal.4th 1075, properly holds that the IWC‘s definition of employer does not impose liability on individual corporate agents acting within the scope of their agency. (Reynolds, at p. 1086.) The opinion should not be read more broadly than that.

Slip op. at 37.

Fifth, the common law employment definition continues to play a role in the IWC’s definition of the employment relationship, although it is only one alternative in the multi-prong definition. “In fact, the IWC‘s definition of employment incorporates the common law definition as one alternative.” Slip op.at 34. To “engage,” in this definition, means “to create a common law employment relationship.” Slip op.at 35.

To employ, then, under the IWC‘s definition, has three alternative definitions. It means: (a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship.

***

One cannot overstate the impact of a such a holding on the IWC‘s powers. Were we to define employment exclusively according to the common law in civil actions for unpaid wages we would render the commission‘s definitions effectively meaningless.

Slip op. at 35-36.

Sixth, the IWC’s definition of the employment relationship does not incorporate federal law. “In no sense is the IWC’s definition of the term ‘employ’ based on federal law.” Slip op. at 37. As a result, California law does not incorporate the “economic reality” test found under federal law.

Having made these points, the Court turned its attention to the facts of the Martinez matter and the trial court’s order granting summary judgment.

The Court first held that the defendants did not “suffer or permit” the plaintiffs to work:

Here, neither Apio nor Combs suffered or permitted plaintiffs to work because neither had the power to prevent plaintiffs from working. Munoz and his foremen had the exclusive power to hire and fire his workers, to set their wages and hours, and to tell them when and where to report to work. Perhaps Apio or Combs, by ceasing to buy strawberries, might as a practical matter have forced Munoz to lay off workers or to divert their labor to other projects, such as harvesting berries for [others]. But any substantial purchaser of commodities might force similar choices on a supplier by withdrawing its business. Such a business relationship, standing alone, does not transform the purchaser into the employer of the supplier's workforce.

Slip op. at 43. In other words, to “suffer or permit to work” appears to co-terminate with the right to hire and fire, set wages and hours, and tell workers when and where to report to work.

The Court next held that the defendants did not “exercise control over” the plaintiffs’ wages and hours:

Certainly Wage Order No. 14's definition of “employer,” which encompasses “any person . . . 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,” is broad enough to reach through straw men and other sham arrangements to impose liability for wages on the actual employer [...] [t]he undisputed facts, however, show that Munoz alone controlled plaintiffs' wages, hours and working conditions.

Slip op. at 45. Munoz “alone, decided which fields to harvest on any given day and whether to harvest strawberries for fresh market sale or for the freezer.” Slip op. at 46. He “operated a single, integrated business operation, growing and harvesting strawberries for several unrelated merchants and combining revenue from all sources with a personal investment, in the hope of earning a profit at the end of the season. Munoz paid his employees out of those combined revenues and assets.” Slip op. at 46-47. “Finally, Munoz alone, with the assistance of his foremen, hired and fired plaintiffs, trained and supervised them, determined their rate and manner of pay (hourly or piece-rate), and set their hours, telling them when and where to report to work and when to take breaks.” Slip op. at 47.

Query whether the result would have been different if Munoz had harvested berries for only one land owner, as in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, or if such a land owner had retained the right to hire and fire or otherwise control the plaintiffs’ work. The Court declined to decide Borello's relevance to the issues presented. Slip op. at 48.

The Court held that defendant Ruiz, who was the supervisor for one of the defendant “produce merchants,” also did not “exercise control over” the plaintiffs’ “wages, hours, or working conditions”:

Relying on the same evidence, plaintiffs also contend that Ruiz personally exercised control over their wages and hours and is thus personally liable as an “employer” under section 1194 and Wage Order No. 14. The claim fails under our holding in Reynolds, supra, 36 Cal.4th 1075, that the IWC’s definition of “employer” does not impose liability on individual corporate agents acting within the scope of their agency. (Reynolds, at p. 1086.) Plaintiffs specifically allege in the operative complaint that Ruiz, in making the alleged statements on May 27, 2000, was “acting in his capacity as agent for [Combs] . . . .”

Slip op. at 51. Despite the Court’s earlier language limiting Reynolds, it continues to provide a defense for individuals acting in their role as corporate agents.

The Court next held that the defendant produce merchants did not control the plaintiffs working conditions “through their field representatives’ activities in the areas of quality control and contract compliance.” Slip op. at 51.

Supervision of the work, in the specific sense of exercising control over how services are performed, is properly viewed as one of the working conditions mentioned in the wage order. To read the wage order in this way makes it consistent with other areas of the law, in which control over how services are performed is an important, perhaps even the principal, test for the existence of an employment relationship.

Slip op. at 52. However:

No evidence suggests Munoz’s employees viewed the field representatives as their supervisors or believed they owed their obedience to anyone but Munoz and his foremen. Plaintiffs, relying on cases interpreting other bodies of law, argue the right to exercise control over the manner in which work is performed is sufficient to prove the existence of an employment relationship, whether or not the right is exercised. But even assuming the same rule applies here, Munoz’s contracts with Apio and Combs gave the merchants no right to direct his employees’ work. Neither does any evidence in the record suggest that anyone — Munoz, Apio, Combs, the merchants' field representatives, or plaintiffs — believed the merchants or their representatives had such a right. Confusion on this point was not likely to arise, since Munoz and his foremen were present when the field representatives interacted with Munoz's employees.

Slip op. at 53.

Finally, the Court held that the plaintiffs were not third party beneficiaries of the contract between Munoz and his produce merchant. Even assuming that the plaintiffs had standing to enforce the contract, its provision requiring Munoz to pay the plaintiffs lawful wages would confer no benefit on the plaintiffs. Slip op. at 54.

The full opinion is available on the Court's web site in .pdf or .doc format. 

California Supreme Court Issues anti-SLAPP Decision in Class Action Advertising Case

In Simpson Strong-Tie Company, Inc. v. Gore (May 17, 2010) 49 Cal.4th 12, a manufacturer of galvanized screws filed an action for defamation and related claims against an attorney after the attorney placed newspaper advertisements stating that owners of wood decks, built with manufacturer's galvanized screws, “may” have legal rights to compensation or other relief. The trial court granted the attorney's anti-SLAPP motion to dismiss the action, and the manufacturer appealed.

The Supreme Court granted review "to consider the limited issue whether [the manufacturer's] complaint was exempt from the anti-SLAPP statute because of section 425.17, subdivision (c), which excludes causes of action arising from representations of fact about the speaker's or a competitor's 'business operations, goods, or services ... made for the purpose of obtaining approval for, promoting, or securing sales or leases of, or commercial transactions in, the person's goods or services' or 'made in the course of delivering the person's goods or services.'"

The Court found that the plaintiff -- in this case the manufacturer -- bears the burden of proving that its complaint is not exempt from dismissal under the anti-SLAPP statute. The Court then held that the manufacturer had not met this burden and affirmed the trial court order dismissing the complaint.

9th Cir. Affirms Class Denial In Starbucks Assistant Manager Off the Clock Action

In an unpublished opinion, the Ninth Circuit Court of Appeal has affirmed a district court's denial of class certification to a group of former Starbucks assistant managers, who allege that Starbucks required them to work off the clock without pay. Koike v. Starbucks Corp. (9th Cir., May 5, 2010) 2010 WL 1784727.

Although the opinion shares few details on the underlying action, before Judge Vaughn R. Walker in the Northern District of California, the Court makes the following points:

Although the plaintiffs presented evidence that showed "business pressures exist which might lead assistant managers to work off-the-clock... [t]he district court did not abuse its discretion in finding that individualized factual determinations are required to determine whether class members did in fact engage in off-the-clock work and whether Starbucks had actual or constructive knowledge of off-the-clock work performed." Slip op. at 1.

Although Starbucks' statistical expert testimony was "consistent with Koike's assertion that class members regularly needed to work more than forty hours per week to complete assigned tasks," the district court properly "assumed as true that assistant managers' job tasks require work in excess of forty hours per week, yet nonetheless properly determined that individual issues predominate" in that certain stores "had excess non-overtime capacity, thus allowing those assistant managers with more than forty hours of work per week to delegate work to others. This conclusion speaks to variations in Starbucks' liability as opposed to merely at the damages stage." Slip op. at 1.

Unlicensed Used Car "Finder" Can Recover Unpaid Wages from Car Dealer

This case has a pretty limited scope, but it's entertaining. The plaintiff alleged that he entered into an oral contract with a used car dealer to act as a used car "finder." The used car dealer refused to pay the plaintiff his "finder's fees," and the plaintiff sued. The trial court sustained the car dealer's demurrer, holding that the plaintiff could not recover because he was not licensed as a used car dealer. The Court of Appeal reversed.

Here's the good part. The Court wrote:

Back in the 194o's, a character in a theatrical comedy flatly stated that there is no such thing as a perfect crime. To which the retort was: “Ever buy a used car?”

The exchange might be a bit out of date today. California law has not only required car dealers to be licensed since 1959 (see Veh. Code, § 117002; added by Stats. 1959, ch. 3), but has subjected car dealers to specific statutes against fraud (see generally § 11711) since that date as well. And a relatively recent statute, section 11711.3 (added by Stats. 2002, ch. 407, § 2) goes so far as to completely preclude any recovery by a dealer of the price of a car if the dealer is not licensed. The “dominant purpose” of California‟s statutory car dealer licensing scheme is, of course, the protection of car buyers from irresponsible or unscrupulous dealers. (Valiyee v. Department of Motor Vehicles (1999) 74 Cal.App.4th 1026, 1032, italics added.)

The irony of the present case is that a scheme designed to protect consumers from unscrupulous dealers has, at least under the law as interpreted by the trial court on a successful demurrer, resulted in a car dealer reaping the benefit of an outright fraud on one of its salespeople, to whom it owed substantial finder‟s fees. The theory, which the trial court accepted on demurrer, was that the salesman really was himself a used car dealer, and, because he did not have a dealer‟s license, he could not complain when he was not paid his finder‟s fees for about 11 cars he obtained for the dealership.

At this stage we deal only with the facts in the complaint. That said, to affirm would be to allow the car dealership to get away with a perfect crime. We reverse.

Wald v. Truspeed Motorcars, LLC (May 3, 2010) --- Cal. App. 4th ----, 2010 WL 1744893.

Lu v. Hawaiian Gardens Oral Argument Set for May 25, 2010

The California Supreme Court has announced that it will hear oral arguments in Lu v. Hawaiian Gardens Casino (Case No. S171442), on Tuesday, May 25, 2010, at 9:00 a.m., in San Francisco.

California Supreme Court Issues Whistleblower Decision

Just a quick summary for this case:

In Runyon v. Board of Trustees of the California State University (May 3, 2010) --- Cal.4th ---, 2010 WL 1740907, the California Supreme Court held that a CSU employee, after exhausting his administrative remedies for whistleblower retaliation, need not bring a petition for writ of mandate as a prerequisite to suing for damages under the Whistleblower Protection Act, Cal. Gov.Code § 8547 et seq. Disapproving Ohton v. Board of Trustees of California State University (2007) 148 Cal.App.4th 749. The Court also held that CSU's adverse administrative findings did not have preclusive effect in a subsequent Superior Court damages action.