Court of Appeal Affirms Summary Judgment in Check Stub Class Action

In Morgan v. United Retail Incorporated (filed June 23, 2010, publication ordered July 19, 2010) --- Cal.App.4th ---, the plaintiffs filed a putative class action for violation of Labor Code section 226. The Court of Appeal described the case as follows:

[Plaintiffs] alleged that United Retail's wage statements failed to comply with section 226, subdivision (a) because they listed the total number of regular hours and the total number of overtime hours worked by the employee, but did not list the sum of the regular and overtime hours worked in a separate line. The trial court granted summary adjudication in favor of United Retail on the section 226 claim. We conclude that the trial court properly granted summary adjudication because United Retail's wage statements complied with the statutory requirements of section 226 by “showing ... total hours worked.” ( § 226, subd. (a)(2).) We accordingly affirm.

Slip op. at 1.

Scott Leviant has a thorough discussion of this case on his blog, The Complex Litigator. Scott's blog is an excellent read, and I recommend it highly.

Ninth Circuit Reverses Order Finding Drivers Independent Contractors

In Narayan v. EGL, Inc., --- F.3d ----, 2010 WL 2735708 (9th Cir., July 13, 2010), the plaintiffs were California residents

who were engaged to provide freight pick-up and delivery services for EGL in California. All three Drivers signed agreements with EGL for “Leased Equipment and Independent Contractor Services” (the “Agreements”). The Agreements provided that the “intention of the parties is to ... create a vendor/vendee relationship between Contractor and [EGL],” and acknowledged that “[n]either Contractor nor any of its employees or agents shall be considered to be employees of” EGL. The terms of the Agreements provide, inter alia, that the Drivers “shall exercise independent discretion and judgment to determine the method, manner and means of performance of its contractual obligations,” although EGL retained the right to “issue reasonable and lawful instructions regarding the results to be accomplished.”

The plaintiffs filed suit in California, alleging California Labor Code violations. EGL removed to District Court and moved for summary judgment, arguing that Texas law applied, as stated in the Agreements, and that the plaintiffs were independent contractors, not employees. The District Court granted the motion, holding that Texas law applied, that the Agreement controlled, and that the same result would apply under California law.

The Court of Appeals reversed. First, the Court held that California law applied to the action: "the claims arose under the Labor Code, a California regulatory scheme, and consequently, California law should apply to define the boundaries of liability under that scheme." Slip op. at 3.

The Court then reviewed the burden of proof on the employee v. independent contractor issue:

[O]nce a plaintiff comes forward with evidence that he provided services for an employer, the employee has established a prima facie case that the relationship was one of employer/employee... Once the employee establishes a prima facie case, the burden shifts to the employer, which may prove, if it can, that the presumed employee was an independent contractor.

Slip op. at 4. The Court held that the plaintiffs had established a prima facie case that they were employees, and that the defendants had not met their burden on summary judgment of establishing, by uncontroverted evidence, "that a jury would be compelled to find that it had established by a preponderance of the evidence that the Drivers were independent contractors" under S.G. Borello & Sons, Inc. v. Dep't of Indus. Relations (1989) 48 Cal.3d 341. Ibid. Reviewing the facts of the case and the Borello factors, the Court held that "under California's multi-faceted test of employment, there existed at the very least sufficient indicia of an employment relationship between the plaintiff Drivers and EGL such that a reasonable jury could find the existence of such a relationship." Slip op. at 9.

Second Circuit Court of Appeals Issues FLSA Exemption Rulings in Phrama Sales Rep Class Actions

In In re Novartis Wage and Hour Litigation, --- F.3d ----, 2010 WL 2667337 (2nd Cir., July 6, 2010) the Court of Appeals for the Second Circuit reversed a trial court order granting summary judgment on grounds that the putative class members, pharmaceutical sales representatives, are exempt from the requirements of the Fair Labor Standards Act ("FLSA") as outside salespeople and/or administrative employees.

The Second Circuit held that the Department of Labor ("DOL") regulations "define and delimit the terms used in the statute; that under those regulations as interpreted by the Secretary, the Reps are not outside salesmen or administrative employees; and that the Secretary's interpretations are entitled to 'controlling' deference." Slip op. at 7.

The Court held that the class members are not exempt as outside salespeople because they do not make sales:

In sum, where the employee promotes a pharmaceutical product to a physician but can transfer to the physician nothing more than free samples and cannot lawfully transfer ownership of any quantity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase, and cannot lawfully even obtain from the physician a binding commitment to prescribe it, we conclude that it is not plainly erroneous to conclude that the employee has not in any sense, within the meaning of the statute or the regulations, made a sale.

Slip op. at 11.

The Court held that the class members are not administrative employees because their “primary duty” does not “include the exercise of discretion and independent judgment with respect to matters of significance."

Comparing the record as to the Reps' primary duties against the illustrative factors set out in § 541.202(b), for example, we see no evidence in the record that the Reps have any authority to formulate, affect, interpret, or implement Novartis's management policies or its operating practices, or that they are involved in planning Novartis's long-term or short-term business objectives, or that they carry out major assignments in conducting the operations of Novartis's business, or that they have any authority to commit Novartis in matters that have significant financial impact.

Slip op. at 14.

In an unpublished companion case, Kuzinski v. Schering Corp., 2010 WL 2669304 (2nd Cir., July 06, 2010), the Court affirmed a District Court order denying the defendant's motion for summary judgment on the outside sales exemption.

Court of Appeal Clarifies Standard for Approving Class Settlement

In Munoz v. BCI Coca-Cola Bottling Company of Los Angeles (June 10, 2010, publication ordered July 2, 2010) --- Cal.App.4th ---, the plaintiffs filed a putative class action alleging various wage and hour violations stemming from the defendant's mis-classification of the putative class members as exempt employees. The parties entered into a $1.1 million claims-made settlement, with attorney fees of 30%. After notice, two class members opted out, and 172 filed valid claims, resulting in an average distribution of $4,300 per class member.

One class member objected. Citing Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, and Clark v. American Residential Services LLC (2009) 175 Cal.App.4th 785, both of which found the trial court had abused its discretion in approving a class action settlement, he argued that the release given to the employer was overly broad, the parties failed to provide the total potential value of the claims being released, the settlement sum was “relatively low," there was “a lack of meaningful pre-trial discovery,” making it difficult to intelligently evaluate the value of the claims and compare it to the settlement amount, and the notice did not provide sufficient information to allow class members to calculate how much they could expect to receive for their claims. The trial court rejected these arguments and approved the settlement, and the objector appealed.

The Court of Appeal affirmed. It found that the plaintiffs had given the trial court sufficient information to determine the "realistic range of outcomes of the litigation:"

Greenwell misunderstands Kullar, apparently interpreting it to require the record in all cases to contain evidence in the form of an explicit statement of the maximum amount the plaintiff class could recover if it prevailed on all its claims - a number which appears nowhere in the record of this case. But Kullar does not, as Greenwell claims, require any such explicit statement of value; it requires a record which allows “an understanding of the amount that is in controversy and the realistic range of outcomes of the litigation.” (Kullar, supra, 168 Cal.App.4th at p. 120, 85 Cal.Rptr.3d 20.) That record exists in this case.

Slip op. at 6. The Court then distinguished Kullar and Clark:

As a final observation on this topic, we note that the evidentiary records in Kullar and Clark, upon which Greenwell relies so heavily, are significantly different from this case. In Kullar (which did not involve the misclassification of exempt employees), there was no discovery at all on meal period claims that were added in an amended complaint and were the focal point of the objections to the settlement. (Kullar, supra, 168 Cal.App.4th at pp. 121-122, 85 Cal.Rptr.3d 20.) While Kullar class counsel argued that the relevant information had been exchanged informally and during mediation (id. at p. 126, 85 Cal.Rptr.3d 20), nothing was presented to the court - no discovery, no declarations, no time records, no payroll data, nothing (id. at pp. 128-129, 132, 85 Cal.Rptr.3d 20) - to allow the court to evaluate the claim. And in Clark, the problem was that the trial court was not given sufficient information on a core legal issue affecting the strength of the plaintiffs' case on the merits, and therefore could not assess the reasonableness of the settlement terms. (Clark, supra, 175 Cal.App.4th at p. 798, 96 Cal.Rptr.3d 441.) The record in this case contains neither of the flaws that doomed the Kullar and Clark settlements.

In sum, we can see no basis for finding an abuse of discretion. As we have seen, the record contains sufficient information from which the trial court could gain an adequate understanding of the amount in controversy, and there was likewise considerable information from which to assess the strength of the class claims and the risks and expense of litigating them. The question whether the class could be certified, based on the substantial differences in individual circumstances, was a significant one. The uncertain state of the law with respect to meal and rest period claims was likewise a substantial concern. And the “ ‘reaction of the class members to the proposed settlement’ “ (Kullar, supra, 168 Cal.App.4th at p. 128, 85 Cal.Rptr.3d 20) was favorable, with only two opt-outs and one objection. Under these circumstances, the trial court's observations - that the class “may not be certifiable,” that “it would be extremely difficult to try this case,” and that $4,300 for each member of the class was “as good a deal as you can get” - were fully supported by the record.

Slip op. at 7. Munoz seems put Kullar and Clark in proper perspective.

US Supreme Court Issues Arbitration Decision

On January 15, 2010, the Supreme Court granted certiorari in Rent-A-Center, West, Inc. v. Jackson (U.S. June 21, 2010) --- S.Ct. ---, 2010 WL 2471058. My original post, which gives the background, is here.

The Supreme Court issued its decision on June 21, holding that a provision of an employment agreement that delegated to an arbitrator exclusive authority to resolve any dispute relating to the agreement's enforceability was a valid delegation under the Federal Arbitration Act ("FAA") and that the district court did not abuse its discretion in granting the employer's petition to compel arbitration.

The Complex Litigator has an interesting take on the case here.

Ninth Circuit Rejects Appeal of Partial Summary Judgment in Home Care Wage Case

In Solis v. Jasmine Hall Care Homes, Inc., --- F.3d ----, 2010 WL 2612692 (9th Cir., July 1, 2010), the Ninth Circuit dismissed as improper an appeal from an order granting partial summary judgment.

The defendants operated residential care facilities for developmentally disabled adults. The Department of Labor ("DOL") sued to enjoin violations of the federal Fair Labor Standards Act ("FLSA"), alleging that the defendants willfully violated FLSA's overtime compensation requirements. The parties brought cross-motions for partial summary judgment on the impact of a federal regulation on the action. The District Court granted partial summary judgment for the DOL, and the employer appealed.

The Ninth Circuit held that it did not have jurisdiction to hear the appeal because there was no final decision.

Where there really is very strong reason for interlocutory correction of a district court error, even though the case falls within no exception from the final judgment rule, we can use mandamus. Beyond that, it is a rare district court case indeed that can be interrupted by an appeal if it does not fall within a statutory exception to the statutory final decision rule. The interlocutory appeal in this case is not the albino black bear that Gillespie excepts from the “final decision” requirement, so this interlocutory appeal must be dismissed for lack of jurisdiction.

Slip op. at 4.

Court of Appeal Overturns Summary Judgment on Alter Ego Issue

With all of the attention on Martinez v. Combs, Reynolds v. Bement, the Labor Code Private Attorneys General Act (PAGA), and the question of who is responsible for employees' unpaid wages, I wanted to note this case on alter ego. Reports of alter ego's death in wage and hour law have been greatly exaggerated. See Reynolds v. Bement (2005) 36 Cal. 4th 1075, 1089 (nothing in the Berman hearing procedure "precludes hearing officers from finding individual corporate agents liable for unpaid wages when such liability is proven on established common law..." citing Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538 (alter ego doctrine)).

Zoran Corp. v. Chen (June 15, 2010) --- Cal.App.4th ---, is not a wage and hour case, but it bears mentioning. Plaintiff sued an individual and seven corporations for breach of contract, misrepresentation, and related causes of action. The trial court granted summary judgment to the individual, and the Court of Appeal reversed, finding triable issues of fact.

The Court relied on evidence that the individual “had considerable influence, and even domination and control,” over the alleged alter ego entities, even though he was not the president or CEO of any of the entities and was not a shareholder, director, officer, or employee of one entity.

Zoran has presented a triable issue on the question of whether Chen made all the decisions for the defendant companies. Based on conversations he had had with Chen as well as others, Schneider came to the understanding that Chen was the person who would deal with Zoran on behalf of all the defendant companies. Wu told Schneider that Chen “called all the shots,” that Ricky Huang (CFO of Citron) “worked for ... a company that [Chen] controlled.” Chen also made representations to Gertzberg that he controlled “everything,” that he “ma[d]e the decisions, eventually it's me,” thus contributing to the inference of control.

Taken together, Zoran's evidence reveals a businessman with heavy influence on the decisions made by executives of several companies. Chen promised to use his influence to see that Zoran was paid the overdue amounts from the defendant companies, although he did not promise to be directly responsible for those obligations. The evidence further suggests that Chen permitted the diversion of money destined from Cyberhome to Zoran by persuading Wu to send payments to Protop instead of directly to Zoran. While we cannot draw the further inference as a matter of law that there was such a unity of interest between Chen and Citron, Cyberhome, or Iwin that each of these companies must be deemed the alter ego of Chen, neither can we say on this record that Zoran will be unable to make the requisite showing at trial.

Should Zoran succeed in showing such unity of interest and ownership, it will then be obligated to demonstrate that “an injustice would result from the recognition of separate corporate identities.”

Slip op. at 10-11.

Court of Appeal Issues Another Arbitration Waiver Decision

Zamora v. Lehman (June 29, 2010) --- Cal.App.4th --- presents a unique set of facts and the question of when one waives his or her right to compel arbitration. The Court stated the facts as follows:

A trustee in bankruptcy filed this action against three former officers of a defunct company, alleging breach of fiduciary duty. Two of the officers engaged in discovery; the third attempted to settle the action as to himself only. Four months before trial, defendants remembered that their employment agreements contained an arbitration provision. They moved to compel arbitration. In opposition, the trustee argued defendants had waived the right to arbitrate by delay in bringing the motions and by engaging in discovery not available under the arbitration provision.

Slip op. at 1. The Court held that the first two officers, who delayed in bringing their petition to compel arbitration and engaged in discovery, waived their right to arbitration because their arbitration agreement did not allow for discovery. It did not matter that they had forgotten about their right to arbitrate because waiver of one's right to arbitrate does not require knowing relinquishment of that right. Slip op. at 10-12. The third officer, who had attempted to settle his case and had not engaged in discovery, did not waive his right to compel arbitration. Slip op at 12-13.