Ninth Circuit Affirms Decision Shifting Class Notice Costs to Defendant

Hunt v. Imperial Merchant Svcs. Inc., 560 F.3d 1137, is not a wage and hour case, but it is a class action and it makes a good point. The plaintiff in Hunt sued a debt collector for violating the Debt Collection Practices Act. The plaintiff moved for class certification and partial summary judgment. The District Court granted both motions and ordered the defendant to pay the cost of giving notice to the class members. The defendant appealed, and, on March 31, the Ninth Circuit affirmed:

District courts may order a class action defendant to pay the cost of class notification after they determine that the defendant is liable on the merits. They may in an appropriate case shift these notice costs even when the liability decision is under appeal. Here, considering the totality of circumstances, we conclude that the district court did not abuse its discretion by placing the cost of class notification on IMS.

You can read the full opinion here.

United States Supreme Court Issues Decision on Pleading Standards in Federal Court

The United States Supreme Court last week issued its decision in Ashcroft v. Iqbal 129 S.Ct., 173 L.Ed.2d 868 (2009). The following is the syllabus:

Following the September 11, 2001, terrorist attacks, respondent Iqbal, a Pakistani Muslim, was arrested on criminal charges and detained by federal officials under restrictive conditions. Iqbal filed a Bivens action against numerous federal officials, including petitioner Ashcroft, the former Attorney General, and petitioner Mueller, the Director of the Federal Bureau of Investigation (FBI). See Bivens v. Six Unknown Fed. Narcotics Agents, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619. The complaint alleged, inter alia, that petitioners designated Iqbal a person “of high interest” on account of his race, religion, or national origin, in contravention of the First and Fifth Amendments; that the FBI, under Mueller's direction, arrested and detained thousands of Arab Muslim men as part of its September-11th investigation; that petitioners knew of, condoned, and willfully and maliciously agreed to subject Iqbal to harsh conditions of confinement as a matter of policy, solely on account of the prohibited factors and for no legitimate penological interest; and that Ashcroft was the policy's “principal architect” and Mueller was “instrumental” in its adoption and execution. After the District Court denied petitioners' motion to dismiss on qualified-immunity grounds, they invoked the collateral order doctrine to file an interlocutory appeal in the Second Circuit. Affirming, that court assumed without discussion that it had jurisdiction and focused on the standard set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929, for evaluating whether a complaint is sufficient to survive a motion to dismiss. Concluding that Twombly 's “flexible plausibility standard” obliging a pleader to amplify a claim with factual allegations where necessary to render it plausible was inapplicable in the context of petitioners' appeal, the court held that Iqbal's complaint was adequate to allege petitioners' personal involvement in discriminatory decisions which, if true, violated clearly established constitutional law.

Held:

1. The Second Circuit had subject-matter jurisdiction to affirm the District *1940 Court's order denying petitioners' motion to dismiss. Pp. 1944 - 1947.

(a) Denial of a qualified-immunity claim can fall within the narrow class of prejudgment orders reviewable under the collateral-order doctrine so long as the order “turns on an issue of law.” Mitchell v. Forsyth, 472 U.S. 511, 530, 105 S.Ct. 2806, 86 L.Ed.2d 411. The doctrine's applicability in this context is well established; an order rejecting qualified immunity at the motion-to-dismiss stage is a “final decision” under 28 U.S.C. § 1291, which vests courts of appeals with “jurisdiction of appeals from all final decisions of the district courts.” Behrens v. Pelletier, 516 U.S. 299, 307, 116 S.Ct. 834, 133 L.Ed.2d 773. Pp. 1945 - 1946.

(b) Under these principles, the Court of Appeals had, and this Court has, jurisdiction over the District Court's order. Because the order turned on an issue of law and rejected the qualified-immunity defense, it was a final decision “subject to immediate appeal.” Behrens, supra, at 307, 116 S.Ct. 834. Pp. 1946 - 1947.

2. Iqbal's complaint fails to plead sufficient facts to state a claim for purposeful and unlawful discrimination. Pp. 1947 - 1954.

(a) This Court assumes, without deciding, that Iqbal's First Amendment claim is actionable in a Bivens action, see Hartman v. Moore, 547 U.S. 250, 254, n. 2, 126 S.Ct. 1695, 164 L.Ed.2d 441. Because vicarious liability is inapplicable to Bivens and § 1983 suits, see, e.g., Monell v. New York City Dept. of Social Servs., 436 U.S. 658, 691, 98 S.Ct. 2018, 56 L.Ed.2d 611, the plaintiff in a suit such as the present one must plead that each Government-official defendant, through his own individual actions, has violated the Constitution. Purposeful discrimination requires more than “intent as volition or intent as awareness of consequences”; it involves a decisionmaker's undertaking a course of action “ ‘because of,’ not merely ‘in spite of,’ [the action's] adverse effects upon an identifiable group.” Personnel Administrator of Mass. v. Feeney, 442 U.S. 256, 279, 99 S.Ct. 2282, 60 L.Ed.2d 870. Iqbal must plead sufficient factual matter to show that petitioners adopted and implemented the detention policies at issue not for a neutral, investigative reason, but for the purpose of discriminating on account of race, religion, or national origin. Pp. 1947 - 1949.

(b) Under Federal Rule of Civil Procedure 8(a)(2), a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” “[D]etailed factual allegations” are not required, Twombly, 550 U.S., at 555, 127 S.Ct. 1955, but the Rule does call for sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face,” id., at 570, 127 S.Ct. 1955. A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id., at 556, 127 S.Ct. 1955. Two working principles underlie Twombly. First, the tenet that a court must accept a complaint's allegations as true is inapplicable to threadbare recitals of a cause of action's elements, supported by mere conclusory statements. Id., at 555, 127 S.Ct. 1955. Second, determining whether a complaint states a plausible claim is context-specific, requiring the reviewing court to draw on its experience and common sense. Id., at 556, 127 S.Ct. 1955. A court considering a motion to dismiss may begin by identifying allegations that, because they are mere conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the complaint's framework, they must be supported by factual allegations. When there are well-*1941 pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. Pp. 1948 - 1951.

(c) Iqbal's pleadings do not comply with Rule 8 under Twombly. Several of his allegations-that petitioners agreed to subject him to harsh conditions as a matter of policy, solely on account of discriminatory factors and for no legitimate penological interest; that Ashcroft was that policy's “principal architect”; and that Mueller was “instrumental” in its adoption and execution-are conclusory and not entitled to be assumed true. Moreover, the factual allegations that the FBI, under Mueller, arrested and detained thousands of Arab Muslim men, and that he and Ashcroft approved the detention policy, do not plausibly suggest that petitioners purposefully discriminated on prohibited grounds. Given that the September 11 attacks were perpetrated by Arab Muslims, it is not surprising that a legitimate policy directing law enforcement to arrest and detain individuals because of their suspected link to the attacks would produce a disparate, incidental impact on Arab Muslims, even though the policy's purpose was to target neither Arabs nor Muslims. Even if the complaint's well-pleaded facts gave rise to a plausible inference that Iqbal's arrest was the result of unconstitutional discrimination, that inference alone would not entitle him to relief: His claims against petitioners rest solely on their ostensible policy of holding detainees categorized as “of high interest,” but the complaint does not contain facts plausibly showing that their policy was based on discriminatory factors. Pp. 1950 - 1953.

(d) Three of Iqbal's arguments are rejected. Pp. 1952 - 1954.

(i) His claim that Twombly should be limited to its antitrust context is not supported by that case or the Federal Rules. Because Twombly interpreted and applied Rule 8, which in turn governs the pleading standard “in all civil actions,” Rule 1, the case applies to antitrust and discrimination suits alike, see 550 U.S., at 555-556, and n. 14, 127 S.Ct. 1955. Pp. 1952 - 1953.

(ii) Rule 8's pleading requirements need not be relaxed based on the Second Circuit's instruction that the District Court cabin discovery to preserve petitioners' qualified-immunity defense in anticipation of a summary judgment motion. The question presented by a motion to dismiss for insufficient pleadings does not turn on the controls placed on the discovery process. Twombly, supra, at 559, 127 S.Ct. 1955. And because Iqbal's complaint is deficient under Rule 8, he is not entitled to discovery, cabined or otherwise. Pp. 1952 - 1954.

(iii) Rule 9(b)-which requires particularity when pleading “fraud or mistake” but allows “other conditions of a person's mind [to] be alleged generally”-does not require courts to credit a complaint's conclusory statements without reference to its factual context. Rule 9 merely excuses a party from pleading discriminatory intent under an elevated pleading standard. It does not give him license to evade Rule 8's less rigid, though still operative, strictures. Pp. 1953 - 1954.

(e) The Second Circuit should decide in the first instance whether to remand to the District Court to allow Iqbal to seek leave to amend his deficient complaint. P. 1954.

It remains to be seen how broadly the District Courts will interpret Iqbal (a good test of judicial restraint/activism?), whether Democrats in Congress will attempt to pass corrective legislation, or whether plaintiffs will attempt to use Iqbal to strike boilerplate from defendants' answers.

Ninth Circuit Limits Reach of So-Called Class Action "Fairness" Act

On March 27, the Ninth Circuit rejected a defendant's effort to consolidate multiple actions for purposes of remving the actions to federal court under the so-called Class Action "Fairness" Act (CAFA). CAFA extends federal removal jurisdiction only to civil actions in which monetary relief claims of 100 or more persons are proposed to be tried jointly. The Ninth Circuit held that CAFA does not permit a defendant to remove to federal court separate state court actions, each involving fewer than 100 plaintiffs, as one mass action. Tanoh v. Dow Chemical Company.

California Supreme Court Issues Important Decision on Unfair Competition Law

Much has been written already about the California Supreme Court's decision yesterday in In re Tobacco II Cases. I wanted to add a couple of points regarding the impact of this decision on wage and hour cases.

First, we should note that the Court reversed the trial court, finding that the trial court abused its discretion in decertifying a class. This was largely because the decertification decision relied upon the trial court's interpretation of Proposition 64, a question of law that the Supreme Court reviewed de novo. Although appellate opinions reversing trial court certification decisions are rare, they do happen. Tobacco II reminds us that parties who lose on certification in the trial court will have a much better chance of reversal if they can argue that the issue involved turns on statutory interpretation.

Second, Tobacco II deals with the UCL's "fraudulent act" prong. As a reminder, the UCL defines unfair competition as "any unlwful, unfair or fraudulent business practice...." Most wage and hour actions rely on the UCL "unlawful" and "unfair" act prongs. In appropriate circumstances, however, wage and hour plaintiffs may be able to allege that an employer committed common law fraud and violated the UCL's "fraudulent" prong, for example, in representing to employees that they are independent contractors or exempt from California's overtime requirements. Such a class action would be able to rely on Tobacco II to gain class certification. Where an employer relies on such a policy to misclassify a class of employees, such employees would have a strong argument for class certification under Tobacco II.

Another Decision on Class Arbitration Waivers

On March 17, the Second District Court of Appeal issued its in Sanchez v. Western Pizza Enterprises, Inc. The Court held:

1. Where a restaurant / employer moved to compel arbitration in an action by a delivery driver / employee alleging that the employer failed to pay minimum wage and failed to reimburse expenses as required under Labor Code Section 2802, the Federal Arbitration Act did not preempt state law in the absence of a conflict as applied, and the question whether to enforce the agreement on general contract law principles, including the question of whether the agreement was unconscionable or contrary to public policy, was for the court, rather than an arbitrator, to decide.

2. The trial court properly held that a class arbitration waiver was contrary to public policy and unenforceable where the action involved enforcement of unwaivable statutory rights (Labor Code Sections 1194 and 2802), and where any individual recovery was likely to be modest, class members faced significant potential of retaliation, and many were likely to be unaware of legal rights due to limited English skills.

3. The arbitration agreement was procedurally unconscionable where the parties' inequality in bargaining power made it likely that employees felt at least some pressure to sign, and where agreement suggested choice of arbitrator could be made from panel of multiple arbitrators that actually included only one.

4. The arbitrator selection provision was not rendered substantively unconscionable by the absence of express provisions requiring written arbitration award and allowing discovery -- which are implied as a matter of law -- or by a small claims provision, but was rendered substantively unconscionable by creating a false sense of mutuality in the selection of the arbitrator, where the agreement proivded that the arbitrator would be selected from a given panel, but in fact the panel only included a single arbitrator.

5. The arbitration agreement was permeated by unlawful purpose and unenforceable where the class arbitration waiver was contrary to public policy and the unconscionable arbitrator selection clause indicated an effort to impose on employees a forum with distinct advantages for the employer.

Cal. Supreme Court Agrees to Hear Case on Waiting Time Penalties

A few weeks ago, I blogged about a case that held, among other things, that Labor Code Section 203 "waiting time" penalties are not available as restitution under the Unfair Competition Law. Pineda v. Bank of America. I am surprised to report that the California Supreme Court has agreed to review Pineda. The Court's case summary is here.

Franco v. Athens Disposal: Court Rules on Class Arbitration Waivers

On March 10, the Second District Court of Appeal issued an interesting decision on a number of issues, including class arbitration waivers. The Court held:

1. An arbitration agreement between an employer and employee that purported to waive class arbitrations and preclude employee from acting in "a private attorney general capacity" was unconscionable and unenforceable.

2. Where the trial court erroneously found that the class arbitration waiver was enforceable, any subsequent motion for reconsideration or renewal in the trial court had no effect on the plaintiff's right to appeal that first order.

3. The trial court erred in considering the merits of plaintiff’s overtime claims in determining the enforceability of the class arbitration waiver.

4. Employees cannot waive -- and cannot be forced to waive -- the protections of California's meal and rest period laws.

5. The record did not support the trial court’s determination that the employees’ claims would be so individualized as to render class arbitration treatment significantly less effective than individual arbitrations where employer used a computer and an electronic timecard system to keep track of employees’ work hours, allegedly engaged in a systematic course of illegal practices and policies, and allegedly subjected all employees to the same unlawful conduct.

6. The arbitration agreement provision purporting to prevent the plaintiff from acting as a private attorney general impermissibly sought to nullify the Labor Code Private Attorneys General Act ("PAGA") and was unconscionable.