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Thursday, December 29, 2011

Harris v. Superior Court: Supreme Court Says Court of Appeal Erred in Finding Insurance Adjustors Not Exempt

The California Supreme Court has issued its decision in Harris v. Superior Court (Liberty Mutual Insurance).  I will post more later, but for the time being, here's the headline: 
This litigation tests whether certain insurance company claims adjusters are exempt employees, not entitled to overtime compensation under the Labor Code and regulations of the California Industrial Welfare Commission (IWC or Commission).  Reviewing the trial court’s denial of a summary adjudication motion, the Court of Appeal held the adjusters are not exempt employees as a matter of law.  In doing so, the Court of Appeal misapplied the substantive law.  We reverse. 

Thursday, December 22, 2011

Aleman v. AirTouch Cellular: Court Issues Decision on Reporting Time, Split Shifts

In Aleman v. AirTouch Cellular (12/21/11) --- Cal.App.4th ----, the Court of Appeal affirmed an order granting summary judgment (Los Angeles Superior Court, Judge William Highberger) to an employer in a putative class action.

The plaintiffs alleged that the defendant violated two separate provisions of Industrial Welfare Commission (IWC) Wage Order No. 4-2001. They alleged that defendant: (1) failed to pay reporting time pay for days when they were required to report to work just to attend work-related meetings; and (2) failed to pay split shift compensation for days on which they attended a meeting in the morning and worked another shift later the same day.

The trial court granted motions for summary judgment against two of the named plaintiffs. The Court of Appeal affirmed, issuing three holdings of note.

First, the defendant did not have to pay the plaintiffs “reporting time pay” for attending meetings at work, because all the meetings were scheduled, and the plaintiff worked at least half the scheduled time, even if the scheduled time was less than four hours.  In other words,  if an employee's only scheduled work for the day is a mandatory meeting of one and a half hours, and the employee works a total of one hour because the meeting ends a half hour early, the employer is not required required to pay reporting time pay pursuant to subdivision 5(A) of Wage Order 4 in addition to the one hour of wages because the employee was furnished work for more than half the scheduled time.  Slip op. at 10.

Second, the defendant did not owe the plaintiffs additional compensation for working “split shifts” because on each occasion he worked a split shift he earned more than the minimum amount required by the wage order.  Slip op. at 17.  In other words, the plaintiff would be entitled to split shift pay only if his total earnings for the day were less than the number of hours worked, plus the split shift premium of one hour's pay, at the minimum wage rate.  Ibid.

Third, the defendant could not recover its attorney fees from the plaintiffs because the claims arose under Labor Code section 1194, the one-way fee-shifting statute, rather than section 218.5, which allows either successful party to recover its fees.  Slip op. at 22.  "Ultimately, reporting time and split shift pay requirements serve the same general purpose as Labor Code section 1194."  Slip op. at 25.

The opinion is available here.

Thursday, December 15, 2011

Brinker-Watch 2012

The California Supreme Court held oral argument in Brinker on November 8, 2011. (You can view the oral argument on youtube.) The Court deemed the matter submitted as of that date, meaning that it would issue its opinion no later than 90 days later, or February 6, 2012. 

On December 2, the Court granted permission to the California Employment Law Council to file an amicus brief regarding the retroactive application of the Court's opinion. Yesterday, the Court vacated its prior order deeming the case submitted and held that it will be deemed "resubmitted" on January 13, 2012: 
Pursuant to California Rules of Court, rule 8.520(f)(7) and this court's December 2, 2011, order, the parties' answers to the amicus curiae brief of the California Employment Law Council, addressing the grounds for prospectively applying portions of this court's eventual decision on the merits, are due Tuesday, January 3, 2012. Each party may file a simultaneous reply to the other party's answer within 10 days thereafter. Submission of the cause is vacated. (See Cal. Rules of Court, rule 8.524(h)(1) [submission runs from expiration of the time in which to file briefs, including supplemental briefs].) The cause will be resubmitted on January 13, 2012.
The result is that we will have the opinion no later than April 12, 2012. Stay tuned. 

As a reminder, the Court's docket is here.

Christopher v. SmithKline Beecham: SCOTUS Grants Review in Pharmaceutical Sales Rep Action

On November 28, 2011, the Supreme Court of the United States granted certiorari in Christopher v. SmithKline Beecham Corp. (blogged here). The Ninth Circuit in Christopher upheld a district court's finding that pharmaceutical sales representatives (PSRs) are exempt employees under the Fair Labor Standards Act (FLSA).

Here are the questions presented:
The outside sales exemption of the Fair Labor Standards Act exempts from the overtime requirements of the Act "any employee employed ... in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary ...)." 29 U.S.C. § 213(a)(1). The Secretary of Labor has implemented various regulations that "define and delimit" the outside sales exemption and, filing as amici in this and other related matters, has interpreted these regulations to find the exemption inapplicable to pharmaceutical sales representatives. A split exists between the Second and Ninth Circuits concerning whether this interpretation is owed deference and whether the outside sales exemption of the Fair Labor Standards Act applies to pharmaceutical sales representatives.  
The questions presented are:  
(1) Whether deference is owed to the Secretary's interpretation of the Fair Labor Standards Act's outside sales exemption and related regulations; and 
(2) Whether the Fair Labor Standards Act's outside sales exemption applies to pharmaceutical sales representatives. 
The case number is 11-204, and the docket is here.

Wednesday, December 14, 2011

Haligowski v. Superior Court: Like FEHA, California Law Prohibiting Discrimination Against Members of Armed Services Does Not Permit Action Against Individual Supervisor

In Haligowski v. Superior Court (Pantuso) (11/10/11), 200 Cal.App.4th 983, the Court of Appeal reversed a trial court order (Los Angeles Superior Court, Judges Susan Bryant–Deason and Coleman A. Swart) overruling a demurrer, holding: 
  1. Like the California Fair Employment and Housing Act (FEHA), which contains similar language and embodies similar goals, Military and Veterans Code section 394, which prohibits employers from discriminating against members of the armed forces,allows servicemen and servicewomen plaintiffs to hold their employers, but not individual employees, liable for discrimination; and 
  2. The Uniformed Services Employment and Reemployment Rights Act (USERRA) (38 U.S.C. 4301 et seq.) does not supersede the California anti-discrimination statute. 
The opinion is available here

Nachshin v. AOL: Ninth Circuit Reverses Cy Pres Award

In Nachshin v. AOL, LLC (11/21/11) --- F.3d ----, 2011 WL 5839610, plaintiffs brought a class action against AOL on behalf of a putative class of more than 66 million paid AOL subscribers, alleging that AOL wrongfully inserted footers containing promotional messages into e-mails sent by AOL subscribers.

At mediation, the parties agreed that the maximum recovery at trial would have been the unjust enrichment AOL received as a result of its footer advertisement sales, or about $2 million. Divided among the more than 66 million AOL subscribers, each member of the class would receive only about 3 cents. The cost to distribute these payments would far exceed the maximum potential recovery.

In lieu of a cost-prohibitive distribution to the plaintiff class, the parties agreed that AOL would provide certain notices to its subscribers and make a series of donations to Los Angeles area charities.

The district court (C.D.Cal., Judge Christina A. Snyder) granted preliminary and final approval, and an objector appealed. The Ninth Circuit affirmed in part and reversed in part. Noting that "The cy pres doctrine takes its name from the Norman French expression, cy pres comme possible, which means as near as possible," the Court held that the charitable donations here failed to meet the test for cy pres distributions. Six (6) Mexican Workers v. Arizona Citrus Growers (9th Cir. 1990) 904 F.2d 1301. Two thirds of the donations would be made to Los Angeles-area charities. The proposed donation to the Federal Judicial Center Foundation would benefit a national organization, but this organization has no apparent relation to the objectives of the underlying statutes, and it is not clear how this organization would benefit the class. The Court thus concluded that the district court applied the incorrect legal standard and abused its discretion in approving the proposed cy pres distribution. Slip op. at 6. The Court even suggested that the parties find a beneficiary that "works to protect internet users from fraud, predation, and other forms of online malfeasance."  Ibid.  

The Court rejected the contention that Judge Snyder should have recused herself because her husband sat on the board of one of the proposed cy pres beneficiaries, the Legal Aid Foundation of Los Angeles.  Id. at 6-7.

The opinion is available here.

Pirjada v. Superior Court: Court Denies Leave to Find New Class Rep.

Can a defendant in a putative class action defeat or moot the action by settling with the putative class representative -- or merely by offering to settle?  

In Pitts v. Terrible Herbst, Inc., --- F.3d ----, 2011 WL 3449473 (9th Cir. 8/9/11) (blogged here) the Ninth Circuit held that a full value offer to a putative class representative in an action under the Fair Labor Standards Act (FLSA) and Nevada state law does not moot the action.  In Damasco v. Clearwire Corp., --- F.3d --- (7th Cir. 11/18/11), the Seventh Circuit held that such a full-value offer, if made before a class certification motion is filed, renders the putative collective action moot.  

A different issue arises when the putative class representative actually accepts the defendant's offer.  See Cameron-Grant v. Maxim Healthcare Serv., Inc., 347 F.3d 1240, 1248-49 (11th Cir. 2003) (accepted offer to class representatives moots FLSA collective action).  

In California class actions, this situation typically is addressed by allowing putative class counsel to conduct discovery to find a new class representative.  Best Buy Stores, L.P. v. Superior Court (2006) 137 Cal.App.4th 772.  

In Pirjada v. Superior Court (Pacific National Security, Inc.) (12/12/11), the Second District Court of Appeal held that the trial court (L.A. Superior Court, Judge Michael M. Johnson) did not abuse its discretion in denying as moot counsel's motion to compel defendant to identify the putative class members in response to pre-settlement discovery requests: 
[T]he decision to deny the motion to compel was also within the broad discretion of the court: By the time the motion was filed, the court had already chosen other means to protect the absent class members—it gave [counsel] leave to amend the complaint after using informal means to identify potential replacement class representatives and deferred any determination whether the entire case should be dismissed and, if so, how to comply with the notice requirements of Rule 3.770(c), to a later date. Although the court's decision to deny [counsel's] motion for notice to the class was based largely on a distinction between consumer and employee class actions, a distinction we implicitly rejected in Belaire–West Landscape, Inc. v. Superior Court, supra, 149 Cal.App.4th 554, the propriety of that ruling is not before us. [Counsel] did not seek writ review of the court's May 26, 2011 order. Instead, it elected to proceed by way of a motion to compel. The court's subsequent decision to deny that motion, finding the outstanding discovery requests propounded by Pirjada moot in light of his individual settlement, was in no way arbitrary or capricious or otherwise in excess of the bounds of reason. 
Slip op. at 8.  The Court also rejected counsel's argument that the trial court's refusal to require the defendant to identify the class members would interfere with notice to the class prior to dismissal of the action.  The court noted that the trial court had not yet dismissed the action and held, in essence, that the trial court should cross that bridge when it comes to it.  At that point, counsel "will have an opportunity to demonstrate to the court that some form of notice is required to avoid prejudice to absent class members."  Slip op. at 9.  

The opinion is available here

Sullivan v. Oracle Corp. Returns to Ninth Circuit

In 2009, the Ninth Circuit asked the California Supreme Court to rule on certain issues regarding work performed inside and outside of California by non-California residents.  

In Sullivan v. Oracle Corp. (2011) 541 Cal.4th 1191 (blogged here) the California Supreme Court held: (1) California's overtime requirements apply to work performed in California for a California employer by non-residents; and (2) Business and Professions Code section 17200, known as the Unfair Competition Law or "UCL" applies to such overtime work; but (3) the UCL does not apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs.  

In an opinion yesterday, the Ninth Circuit addressed two remaining issues, holding that application of the California Labor Code to non-residents working in California does not violate violates Due Process Clause of the Fourteenth Amendment or the Dormant Commerce Clause of the United States Constitution.  Sullivan v. Oracle Corp., --- F.3d ----, 2011 WL 6156942 (9th Cir. 12/13/11).  

The opinion is available here.  

Wednesday, November 9, 2011

Sonic-Calabasas A, Inc. v. Moreno: SCOTUS Vacates and Remands to California Supreme Court

On October 31, the Supreme Court of the United States granted certiorari and vacated the California Supreme Court's decision in Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659, which held: (1) an employee's "statutory right to seek a Berman hearing [a wage hearing before the DLSE or Labor Commissioner], with all the possible protections that follow from it, is itself an unwaivable right that an employee cannot be compelled to relinquish as a condition of employment;" (2) waiver of an employee's right to seek a Berman hearing is a substantively unconscionable contract term; and (3) the Federal Arbitration Act does not preempt the Court's holdings on points one and two.

SCOTUS remanded the case to the California Supreme Court for further consideration in light of AT&T Mobility LLC v Concepcion.

The California Supreme Court lists the issues presented as follows:

1. Can a mandatory employment arbitration agreement be enforced prior to the conclusion of an administrative proceeding conducted by the Labor Commissioner concerning an employee's statutory wage claim?

2. Was the Labor Commissioner's jurisdiction over employee's statutory wage claim divested by the Federal Arbitration Act under Preston v. Ferrer (2008) __ U.S. __, 128 S.Ct. 978, 169 L.Ed.2d 917?

The Court's web page for the case is here.

Monday, November 7, 2011

Kairy v. SuperShuttle: Ninth Circuit Holds that District Court Has Jurisdiction to Determine Whether Drivers Are Employees or Independent Contractors

In Kairy v. SuperShuttle International, 660 F.3d 1146 (9th Cir. 11/3/11), the Ninth Circuit Court of Appeals considered whether the district court lacks subject matter jurisdiction to determine whether certain drivers are employees or independent contractors under California law. Specifically, the Court considered whether such a decision by the district court would hinder, frustrate, interfere with, or obstruct the regulatory authority exercised by the California Public Utilities Commission (“PUC”) over passenger stage corporations (“PSCs”), as prohibited by California Public Utilities Code section 1759(a). 

On review of a district court (N.D.Cal., Judge Jeffrey S. White) order granting the defendants' motion to dismiss, the Court examined the relationship of section 1759 and section 2106, which allows a private right of action against any public utility that violates the law. Applying a three-part test adopted by the California Supreme Court, the Court found:
  1. The Public Utilities Commission has the authority to regulate the relationship between PSCs and their drivers. 660 F.3d at 1151. 
  2. The PUC may have exercised its authority to regulate that relationship. 660 F.3d at 1153. 
  3. Judicial action in this case would not hinder or interfere with the PUC's exercise, if any, of regulatory authority over the PSC-driver relationship. 660 F.3d at 1154. 
Because this third factor is not present, Public Utilities Code section 1759 is not implicated, and the district court retains subject matter jurisdiction over the case. 660 F.3d at 1155.  On remand, the Court directed the district court to determine whether the drivers at issue were employees or independent contractors under California law.  

The opinion is available here

Tuesday, October 4, 2011

California Supreme Court Schedules Oral Argument in Brinker

The California Supreme Court just announced that it will hear oral argument in Brinker v. Superior Court (Hohnbaum) on Tuesday, November 8, 2011 at 9:00 a.m. in San Francisco. So we will have a decision by Valentine's Day. That's about 3 1/2 years after the petition for review was filed. Still well short of the 5 years that they spent on Martinez v. Combs.

Wang v. Chinese Daily News: SCOTUS Vacates Judgment, Remands for Reconsideration in Light of Dukes

The Supreme Court of the United States yesterday vacated the judgment in Wang v. Chinese Daily News, the long-running Fair Labor Standards Act (FLSA) class action by employees of the Chinese language newspaper. The Court granted certiorari, vacated the judgment, and remanded to the Ninth Circuit for further consideration in light of Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ___ (2011).

The Ninth Circuit's opinion (blogged here) had addressed a number of important issues, including exempt status of reporters, class certification, invalidation of coerced opt outs, trial issues, preemption of claims under California's Unfair Competition Law (UCL), and attorney fees.

Sunday, September 18, 2011

Ellis v. Costco: On Remand Following Dukes, Ninth Circuit Vacates Order Granting Certification in Discrimination Action

The theory of liability in Dukes v. Wal-Mart (discussed here) is that a company's policy of allowing local decision-makers to make hiring and promotion decisions can have a disparate impact on women and violate Title VII.  Brad Seligman, lead counsel for the plaintiffs in Dukes, has said that this is a very narrow and rarely used theory.  Regardless, the same theory is at issue in another of Seligman's cases, Ellis v. Costco Wholesale Corporation, 657 F.3d 970 (9th Cir. 9/16/11). 

On remand following the SCOTUS decision in Wal-Mart, the Ninth Circuit vacated the district court's order granting class certification under Federal Rules 23(b)(2) and 23(b)(3).  The Court held as follows:
  1. Because at least one named plaintiff (Sasaki) alleged a concrete injury that is both directly traceable to Costco's allegedly discriminatory practices and is redressable by both injunctive relief and monetary damages, the Court affirmed the district court's holding that she had standing to pursue the action.
  2. The Court  vacated and remanded the district court's ruling as to commonality under Rule 23(a) because the district court failed to conduct the required “rigorous analysis” to determine whether there were common questions of law or fact among the class members' claims and instead relied on the admissibility of the plaintiffs' evidence to reach its conclusion on commonality.
  3. The Court vacated the district court's ruling as to typicality under Rule 23(a) because the district court failed to consider the effect that defenses unique to the named Plaintiffs' claims have on that question. 
  4. The Court affirmed the district court's ruling that Sasaki, a current employee who continues to be denied promotion, has incentive to vigorously pursue injunctive relief as well as monetary damages on behalf of all the class members and is an adequate class representative under Rule 23(a).  However, the Court vacated the district court's finding that the other named plaintiffs, as former employees with "no incentive" to pursue injunctive relief, could adequately represent the class. 
  5. In light of Wal-Mart's rejection of the predominance test under Rule 23(b)(2), the Court vacated the district court's certification of the class under that Rule and remanded for the district court to consider whether the claims for various forms of monetary relief will require individual determinations and are therefore only appropriate for a Rule 23(b)(3) class. 
The opinion is available here

Wednesday, September 7, 2011

Supreme Court Schedules Oral Argument in Exemption Case

The California Supreme Court will hear oral argument in Harris v. Superior Court (Liberty Mutual Insurance) on Monday, October 3, 2011, at 9:00 a.m., in San Francisco. Harris raises the following issue:
Do claims adjusters employed by insurance companies fall within the administrative exemption (Cal. Code Regs, tit. 8, section 11040) to the requirement that employees are entitled to overtime compensation?
For more information on this case, go here.

Saturday, September 3, 2011

Goodwin Liu and Julie Su Confirmed

Governor Brown on Thursday swore in Goodwin Liu as the California Supreme Court's newest justice. Brown nominated Liu to the Supreme Court in July, after Liu withdrew his name from consideration for the Ninth Circuit Court of Appeals. Republicans had blocked Liu's nomination by President Obama, complaining that he was too liberal for the Ninth Circuit. Liu replaces Justice Carlos Moreno, the author of a number of important employment and class action decisions, who retired in February. Recent articles re. Liu: Sacramento Bee; Los Angeles Times.

On Tuesday, Julie Su was confirmed as California's Labor Commissioner. Su will lead the Division of Labor Standards Enforcement, or DLSE.

Congratulations to Justice Liu and Commissioner Su.

Thursday, September 1, 2011

Supreme Court to Determine Federal Preemption of Driver Misclassification Action

On August 10, 2011, the California Supreme Court granted review in People ex rel. Harris v. Pac Anchor Transportation, Inc. This is the issue on review:
Is an action under the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) that is based on a trucking company's alleged violation of state labor and insurance laws "related to the price, route, or service" of the company and, therefore, preempted by the Federal Aviation Administration Authorization Act of 1994 (49 U.S.C. § 14501)?
The Court of Appeal held that the federal statute, popularly known as the FAAAA, did not preempt such an action. Discussed here.

The Supreme Court's web page on the case is here. It is Case No. S194388. Go here to sign up for automatic email notifications about developments in the case. 

Wednesday, August 31, 2011

Zelasko-Barrett v. Brayton-Purcell: Court Finds that Law School Graduate Was Exempt Professional

A number of recent cases address the scope of the white collar exemptions under California law. The Cal. Supremes have Harris v. Superior Court, (blogged here) in which they will determine whether insurance adjustors are exempt administrative employees, on their docket. They have granted review in two other cases pending their decision in Harris:

Hodge v. AON Insurance Services (blogged here) (whether insurance adjustors are administrative exempt) and Pellegrino v. Robert Half Intern., Inc. ("Pellegrino I," blogged here) (whether account executives are administrative exempt).

In June, the Second District Court of Appeal issued Soderstedt v. CBIZ (blogged here) holding that unlicensed employees of a public accounting firm may be exempt as learned professionals, and the Ninth Circuit Court of Appeals issued Campbell v. PricewaterhouseCoopers LLP (blogged here) reaching the same conclusion.

And now the First District Court of Appeal has issued the battle of the hyphenated names, Zelasko-Barrett v. Brayton-Purcell, LLP (8/17/11) --- Cal.App.4th ----, 2011 WL 3594015, holding that a law school graduate who was not licensed to practice law but who worked for a law firm and performed tasks customarily performed by junior attorneys was exempt as a learned professional.

I will not get into the details of the case, because I assume that the plaintiffs will petition for review and have an odd's on chance of it being granted pending Harris.

The opinion is available here.

Plancich v. UPS: Another Court Addresses Prevailing Defendant Costs in Wage Dispute

In Kirby v. Immoos Fire Protection, Inc. (blogged here), the Cal. Supreme Court will address the following issues:
  1. Does Labor Code section 1194 apply to a cause of action alleging meal and rest period violations (Lab. Code 226.7) or may attorney's fees be awarded under Labor Code section 218.5?
  2. Is our analysis affected by whether the claims for meal and rest periods are brought alone or are accompanied by claims for minimum wage and overtime?
In Plancich v. United Parcel Service, Inc. (8/11/11) --- Cal.App.4th ----, 2011 WL 3506066, the Fourth District Court of Appeal held that while Labor Code section 1194 gives a prevailing employee the right to recover attorney's fees and costs, it "does not contain express language excluding prevailing employers from recovering their costs. Slip op. at 3.
Accordingly, based on the plain meaning of the words of the statutes in question, section 1194 does not provide an “express” exception to the general rule permitting an employer, as a prevailing party, to recover costs under Code of Civil Procedure section 1032, subdivision (b), because section 1194 makes no mention of prevailing employers.
Ibid. To avoid this result, the plaintiff argued that Labor Code section 218.5, rather than section 1032, controlled. The Court responded to this argument:
Assuming, without deciding, that Plancich is correct and Labor Code section 218.5 controls the awarding of costs in suits brought for unpaid wages, then UPS should still be awarded its costs. UPS was the prevailing party in this action. In UPS's answer to Plancich's complaint, UPS requested that UPS “be awarded its reasonable costs and attorneys' fees.” Accordingly, UPS fulfilled the requirements for being awarded costs under Labor Code section 218.5, namely, it was the prevailing party and it requested costs be awarded at the initiation of the action. Accordingly, we are not persuaded by Plancich's argument.
Slip op. at 4. Finally, the Court distinguished Earley v. Superior Court (2000) 79 Cal.App.4th 1420, in which the Court held that a successful defendant cannot recover its attorney fees and costs in a minimum wage action under Labor Code section 1194.
We do not find the Earley opinion to be persuasive authority in this case, because the Earley opinion did not discuss the costs provision of section 1194 in relation to Code of Civil Procedure section 1032, subdivision (b). Rather, the opinion was focused on the issue of attorney's fees in section 1194, and how that provision related to Labor Code section 218.5, as well as issues related to absent class members.
Slip op. at 5. Having distinguished Earley, the Court again reasoned that section 1194 does not provide an express exception to section 1032.

Will the Supreme Court grant and hold Plancich pending its decision in Kirby? The Court already has one case on hold, In re. UPS Wage and Hour Cases (2/24/11) (blogged here). Perhaps Plancich will be grant-and-hold number two.

The opinion is available here.

Tuesday, August 30, 2011

Pitts v. Terrible Herbst: Ninth Circuit Holds that Offer of Judgment for Full Amount Owed to Class Rep. Does Not Moot Class Action

In Pitts v. Terrible Herbst, Inc., --- F.3d ----, 2011 WL 3449473 (9th Cir. 8/9/11) , the plaintiff filed a putative class and collective action under the Fair Labor Standards Act (FLSA) and Nevada state law. Before the plaintiff filed her motion for class certification, the defendant made a Rule 68 offer of judgment for $900, even though the plaintiff claimed only $88 in damages for himself. The plaintiff rejected the offer.
Because Terrible's offer fully compensated Pitts for his individual monetary claim, Terrible filed a motion to dismiss the action for lack of subject matter jurisdiction. Specifically, Terrible argued that its offer of judgment rendered the entire case moot. Following the Fifth Circuit's decision in Sandoz v. Cingular Wireless LLC, 553 F.3d 913 (5th Cir.2008), the district court, in March 2010, held that a Rule 68 offer of judgment does not moot a putative class action so long as the class representative can still file a timely motion for class certification. Nevertheless, the district court then held that Terrible's offer mooted the action because Pitts failed to timely seek class certification.... The court then dismissed the entire action with prejudice for lack of subject matter jurisdiction, entered judgment in the defendant's favor, and ordered Terrible to pay $900 to Pitts and $3,500 to Pitts's attorney.
Slip op. at 1-2.

The Ninth Circuit reversed. Reviewing a line of Supreme Court decisions regarding mootness of class actions, the Court discerned several important principles:
First, if the district court has certified a class, mooting the putative class representative's claim will not moot the class action. [After certification], a defendant may moot a class action through an offer of settlement only if he satisfies the demands of the class; an offer to one cannot moot the action because it is not an offer to all.

Second, if the district court has denied class certification, mooting the putative class representative's claim will not necessarily moot the class action. The putative class representative retains an interest in obtaining a final decision on class certification that allows him to litigate the denial of class certification on appeal.

Third, even if the district court has not yet addressed the class certification issue, mooting the putative class representative's claims will not necessarily moot the class action. “[S]ome claims are so inherently transitory that the trial court will not have even enough time to rule on a motion for class certification before the proposed representative's individual interest expires.” McLaughlin, 500 U.S. at 52 (internal quotation marks omitted). An inherently transitory claim will certainly repeat as to the class, either because “[t]he individual could nonetheless suffer repeated [harm]” or because “it is certain that other persons similarly situated” will have the same complaint. Gerstein, 420 U.S. at 110 n. 11. In such cases, the named plaintiff's claim is “capable of repetition, yet evading review,” id., and “the ‘relation back’ doctrine is properly invoked to preserve the merits of the case for judicial resolution,” McLaughlin, 500 U.S. at 52; see also Geraghty, 445 U.S. at 398; Sosna, 419 U.S. at 402 n. 11. Application of the relation back doctrine in this context thus avoids the spectre of plaintiffs filing lawsuit after lawsuit, only to see their claims mooted before they can be resolved.
Slip op. at 6. Applying these principles to the case at hand, the Court held that "Terrible's unaccepted offer of judgment did not moot Pitts's case because his claim is transitory in nature and may otherwise evade review. Accordingly, if the district court were to certify a class, certification would relate back to the filing of the complaint." Slip op. at 7. The Court reasoned that allowing a defendant to "buy off" a class action by offering to satisfy the named plaintiff's claim would make the matter transitory such that it would evade review. Ibid.
Accordingly, we hold that an unaccepted Rule 68 offer of judgment-for the full amount of the named plaintiff's individual claim and made before the named plaintiff files a motion for class certification-does not moot a class action.
Slip op. at 8.

The opinion is available here.

Monday, August 29, 2011

Paton v. Advanced Micro Devices: Sabbatical Leave May Be Protected as Vacation under Labor Code 227.3

In Paton v. Advanced Mirco Devices, Inc. (8/5/11) 197 Cal.App.4th 1505, a former employee brought a class action against his former employer, alleging that he was entitled to be paid for an eight-week sabbatical that he had earned but not used at time he resigned. The trial court (Santa Clara Superior, Judge Jack Komar) granted the employer's motion for summary judgment, and the employee appealed. The Court of Appeal reversed, holding that it could not determine as a matter of law that the sabbatical leave was not vested vacation pay subject to Cal. Labor Code section 227.3.

The Court first asked, "What is vacation?"
It is paid time off that accrues in proportion to the length of the employee's service, is not conditioned upon the occurrence of any event or condition, and usually does not impose conditions upon the employee's use of the time away from work. (See DLSE Opn. Letter [as of Jul. 26, 2011] “Leave time which is provided without condition is presumed to be vacation no matter what name is given to the leave.”)
Slip op. at 7.
In contrast to regular vacation, sabbatical leave, as it originated in the academic setting, is a conditional type of paid leave. The dictionary definition of “sabbatical” is “a period of paid leave granted to a university teacher for study or travel (traditionally one year for every seven years worked).” (Concise Oxford English Dict. (11th ed.2004) p. 1262, col. 2.) Sabbaticals are usually granted for one academic semester or for a full year. During the sabbatical the faculty member engages in a project intended to promote his or her professional development and, in turn, enhance the institution's status as an institute of higher learning. (Boening & Miller, Research and Literature on the Sabbatical Leave: A Review (Univ. of Ala., Higher Education Administration Program 1997), available at [as of Jul. 26, 2011].) Sabbaticals are granted with the expectation that the faculty member will return to the employing institution and put his or her newly acquired expertise to use there after the sabbatical is over. (Ibid.) Thus, traditional sabbaticals are like special-purpose, conditional types of leave in that the employee is expected to use time for the identified purpose. They also have an incentive component to the extent they encourage the employee to continue in the service of the institution that provides the opportunity for professional growth.
Ibid. Adopting three tests promulgated by the DLSE and adding a fourth test, the Court held that sabbatical leave differs from vacation as follows:
First, leave that is granted infrequently tends to support the assertion that the leave is intended to retain experienced employees who have devoted a significant period of service to the employer [and thus is sabbatical, not vacation]....

Second, the length of the leave should be adequate to achieve the employer's purpose. Since we are concerned here with unconditional sabbaticals given for the purpose of reenergizing the employee then, as the Labor Commissioner suggested, the length of the leave should be longer than that “normally” offered as vacation. Since regular vacation time may be used for rest, a sabbatical ought to provide the extended time off work that regular vacation does not.

Third, a legitimate sabbatical will always be granted in addition to regular vacation. And this point carries more weight when the regular vacation program is comparable in length to that offered by other employers in the relevant market. Because an employer could offer a minimal vacation plan and reward senior staff with sabbaticals as a way to avoid the financial liability of a more generous vacation plan, the employer's regular vacation policy should be comparable to the average vacation benefit offered in the relevant market.

A fourth factor is one that is implicit in the DLSE test but is not called out specifically. Since a sabbatical is designed to retain valued employees, then a legitimate sabbatical program should incorporate some feature that demonstrates that the employee taking the sabbatical is expected to return to work for the employer after the leave is over.

As to the nature of the employee to whom the sabbatical is offered, we are not persuaded that employers must limit sabbaticals to upper management or professional employees. Nor does it seem necessary to preclude offering sabbaticals to all employees, or to all employees in a class. The fundamental question is whether the leave is compensation earned over the course of the employment, the enjoyment of which is deferred, or whether the leave is intended to retain the most experienced or valued employees and to enhance their future service to the employer. The rank or classification of the employee to whom the sabbatical is offered may or may not be relevant to that question. Indeed, any number of other factors could apply as well as the four we have set forth above. As the Labor Commissioner suggested when first confronting the question, “The point is that each case will have to be decided on its own facts.”
Slip op. at 9. The Court found the record inconclusive and thus reversed the order granting summary judgment.
Although the underlying facts, such as they are, are essentially undisputed, the ultimate fact to be determined is defendant's purpose in establishing its sabbatical policy. That is the central fact in dispute and the record before us does not resolve it conclusively. While there are facts to support a finding that the sabbatical was intended as incentive to induce experienced employees to continue working for defendant and increase their productivity or creativity upon return to work, reasonable minds could find, instead, that the leave was actually intended as additional vacation for longer term employees.
Slip op. at 11. The opinion is available here.

Ingram v. Oroudjian: Ninth Circuit Issues Fee Award Decision

The Ninth Circuit touched on a number of attorney fee issues in Ingram v. Oroudjian, --- F.3d ----, 2011 WL 3134530 (9th Cir. 7/27/11) . In Ingram, a tenant and a fair housing civil rights advocacy organization brought a discrimination and retaliation action against the owner and manager of an apartment building. After settlement, the district court (C.D. Cal., Judge Feess) awarded the plaintiffs attorney fees, and the plaintiffs appealed. The Ninth Circuit held:

1. The district court did not abuse its discretion by considering the settlement negotiations (plaintiffs had rejected the same settlement offer that they later accepted) in deciding a reasonable attorney fee;

2. The district court did not abuse its discretion by disallowing attorney fees for 40 hours spent opposing a summary judgment motion because the plaintiffs should have pursued settlement more aggressively earlier in the case, and plaintiffs' counsel unduly extended the duration of the litigation;

3. The district court did not abuse its discretion by disallowing attorney fees spent briefing an issue with which counsel should have been familiar; and

4. The district court did not abuse its discretion by relying on its own familiarity with the legal market in setting counsel's reasonable hourly rates, particularly where plaintiffs failed to submit affidavits from local attorneys or from a fee expert to show that the requested rates matched the prevailing market rates.

The opinion is available here.

In re Van Dusen: District Court Must Analyze FAA Exemption Claim Before Ordering Arbitration

In In re Van Dusen, --- F.3d ----, 2011 WL 3134584 (9th Cir. 7/27/11), the plaintiffs were two interstate truck drivers who entered independent contractor operating agreements (ICOAs) with a putative employer. The plaintiffs filed a putative collective and class action alleging violation of the Fair Labor Standards Act (FLSA) and state labor laws. The company moved to compel arbitration. The plaintiffs opposed the motion, alleging that the the ICOAs were exempt from arbitration under Section 1 of the Federal Arbitration Act (FAA), which exempts “contracts of employment of seaman, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from the FAA's provisions. 9 U.S.C. § 1.

The District Court (D. Ariz) declined to rule on the applicability of the exemption, holding that the question of whether an employer/employee relationship existed between the parties was a question for the arbitrator to decide in the first instance. Finding that the ICOAs contained valid arbitration clauses, the District Court ordered arbitration. The plaintiffs moved for certification of an interlocutory appeal, which the District Court denied. The plaintiffs then sought mandamus relief before the Ninth Circuit.

The Ninth Circuit held that the district court erred in failing to analyze the FAA exemption issue. however, because there was no case law directly on point, the Court held that the district court's error was not "clear error" sufficient to justify a writ of mandate:
We agree that [the plaintiffs] make a strong argument that the District Court erred, but we nonetheless hold that this case does not warrant the extraordinary remedy of mandamus. We therefore deny the petition.
Slip op. at 1. The opinion is available here.

Hensel Phelps Construction Co: Project on Public Land Subsidized by Rent Credits is Subject to Prevailing Wage Law

Interesting prevailing wage case: Hensel Phelps Construction Company v. San Diego Unified Port District (7/26/11) 197 Cal.App.4th 1020.

The Department of Industrial Relations (DIR) determined that a hotel construction project on public land leased from a government entity was covered by the Prevailing Wage Law (PWL). The developer and general contractor petitioned for writ of mandate, and a trade union intervened. The trial court (San Diego Superior, Judge William R. Nevitt) granted the developer's petition, and the trade union appealed.

The Court of Appeal reversed, holding that the construction project qualified as a public work where the lease required the lessor to build a hotel on the property, according to the government entity's specifications, and provided a rent credit to subsidize the project. A public agency may pay for construction out of public funds either by reducing rent or by charging rent at less than fair market value, and the rent credit constituted a reduction and waiver of rent for purposes of Labor Code Sec. 1720(b)(4). Because the project was paid for out of public funds, the PWL applied.

The opinion is available here.

NewLife Sciences v. Weinstock: Court Did Not Err in Granting Trade Secret Injunction as Discovery Sanction

In NewLife Sciences v. Weinstock (July 15, 2011) 197 Cal.App.4th 676, a medical device corporation brought a trade secret action against the device's inventor for trade secret and other claims, including an injunction to enforce a non-competition agreement. Following a number of discovery disputes, the court (Los Angeles Superior, Judge Charles F. Palmer) entered issue sanctions against the inventor. Relying on the issue sanctions, the Court later granted a preliminary injunction against the inventor, prohibiting him from competing against the corporation. After further discovery disputes, the court entered terminating sanctions.

On appeal from the order granting the order granting the preliminary injunction, the Court held that the trial court did not abuse its discretion in granting the preliminary injunction based on the issue sanctions.
Weinstock argues that the court erred in relying on the issue sanctions rather than holding a hearing to determine, without regard to the sanctions, whether the noncompete agreement was enforceable. He argues that had the court not granted the issue sanctions, it would have determined that the noncompete clause was invalid and unenforceable and would have found that NLS did not demonstrate a probability of success on the merits. Essentially, Weinstock argues that the court should have ignored the issue sanctions and determined the issues anew. This misunderstands the nature of issue sanctions. Such sanctions for discovery abuse may be proper even when inconsistent evidence is available, leaving the jury with a misimpression as to actual facts, because the sanctions “effectively remove[ ] from the jury's consideration evidence favorable to the offending party's position, or ... deem [ ] issues in favor of the aggrieved party even though the offending party has strong evidence to the contrary. Such is the natural consequence of serious discovery violations.” (Karlsson v. Ford Motor Co., supra, 140 Cal.App.4th at 1220, fn. 11, 45 Cal.Rptr.3d 265.) The court did not abuse its discretion in relying on the issue sanctions in granting the preliminary injunction.
The issue sanctions established that Weinstock knowingly breached his employment contract, including the noncompete clause, and engaged in unfair competition; that the employment contract and the noncompete clause were enforceable; that Weinstock used the TMR machine in doing so, and without the proper supervision of a physician; and that NLS suffered damages. These issues having been deemed determined against Weinstock, the court was entitled to consider them in determining NLS's likelihood of success. Given that the determined issues virtually assured that NLS would prevail at trial, there was a very strong showing of likelihood of success on its claim that Weinstock had violated the enforceable noncompete clause and had used the TMR device in doing so, to the detriment of NLS.
Slip op. at 10.

The opinion is available here.

Back from Hiatus - Ready to Catch Up

I'm back from hiatus and ready to catch up on some recent developments.

In Life Technologies Corp. v. Superior Court (7/14/11) 197 Cal.App.4th 640, the plaintiff in a discrimination and wrongful termination action sought detailed information regarding certain of his former co-workers, including:
(a) The names of all employees terminated during a two-year period, November 1, 2008 to June 28, 2010.

(b) The department each worked for when terminated.

(c) The date of termination.

(d) The age of each at termination.

(e) The reason for termination.

(f) Whether severance benefits were offered.

(g) Whether offered severance benefits were accepted.

(h) A description of any offered severance benefits.

(i) A detailed explanation of reasons for any failure to offer severance benefits.

(j) The identity (including name, address and telephone number) of all former Applied Biosystems employees still employed by LTC after the RIF.

(k) Whether the terminated employees were former employees of Appelera or Applied Biosystems.
Slip op. at 4. The trial court (San Mateo Superior, Judge Joseph C. Scott) granted the plaintiff's motion to compel, and the Court of Appeal granted the defendant's writ application. The Court held that the information sought "implicates significant privacy rights of the third party employees/former employees." Slip op. at 6. The Court distinguished Pioneer Electronics, Crab Addison, and Lee v. Dynamex because the potential witnesses were not class members. Slip op. at 8. The Court concluded:
We therefore conclude the trial court abused its discretion in ordering further answers to the challenged special interrogatories. The court failed to evaluate, with regard to each category of information requested by Joyce, whether a compelling need for the information outweighs the third parties' privacy interests, taking into consideration whether less intrusive means exist for Joyce to obtain the information he seeks. (See Britt, supra, 20 Cal.3d at pp. 855–864, 143 Cal.Rptr. 695, 574 P.2d 766; Harding Lawson Associates v. Superior Court, supra, 10 Cal.App.4th at p. 10, 12 Cal.Rptr.2d 538; El Dorado Savings & Loan Assn. v. Superior Court, supra, 190 Cal.App.3d at p. 346, 235 Cal.Rptr. 303.) The court also failed to provide sufficient notice to the third party employees/former employees affording them a simple, reasonable means of objecting to the disclosure of their personal information, and failed to provide for the protection of any such information ultimately ordered disclosed. (See Alch, supra, 165 Cal.App.4th at p. 1418, 82 Cal.Rptr.3d 470; cf. Code Civ. Proc., § 1985.6, subds. (b)–(f).)
Slip op. at 10. The opinion is available here.

Thursday, August 11, 2011

Boschma v. Home Loan Center: Compliance with Truth in Lending Act Does Not Provide Safe Harbor in Fraud and UCL Action

Just a brief note on this case. In Boschma v. Home Loan Center, Inc. (8/10/11) 198 Cal.App.4th 230, the plaintiffs were borrowers who brought an action against a mortgage lender for fraudulent omissions and violations of Unfair Competition Law (UCL). Cal. Bus. & Prof. Code 17200. Specifically, the plaintiffs alleged that the lender's loan documents failed to disclose the essential terms of the loans, "namely that plaintiffs would suffer negative amortization if they made monthly payments according to the only payment schedule provided to them prior to the closing of the loan."

The trial court (Orange County Superior, Judge Andler) sustained the lender's demurrer without leave to amend, and the borrowers appealed. The Court of Appeal reversed, holding that the borrowers adequately alleged fraud and violation the UCL to withstand demurrer based on defendant’s allegedly misleading, incomplete, and/or inaccurate disclosures. 

The opinion is available here.

Saturday, August 6, 2011

More District Court Reaction to Dukes

Last week I noted Spellman v. American Eagle Express, No. 10-1764 (E.D. Pa. July 21, 2011), in which the district court declined to reconsider its order granting conditional certification in light of Walmart v. Dukes. I have learned of three similar orders in other cases:

Jasper v. C.R. England, Inc., No. 08-05266 (C.D. Cal. June 30, 2011), in which the court denied an application to vacate an order certifying a Rule 23 class action alleging violation of California wage law on behalf of a class of truck drivers deemed independent contractors.

Butcher v. United Airlines, Inc., No. 09-11681 (D. Mass. July 22, 2011), in which the court denied a motion for reconsideration following Dukes:
Dukes does not involve the FLSA, and its holding does not apply to conditional certification. It is well settled that Rule 23 is more stringent than § 216(b) generally, see Lewis v. Wells Fargo Co., 669 F. Supp. 2d, 1124, 1127 (N.D. Cal. 2009) (The requisite showing of similarity of claims under the FLSA is considerably less stringent than the requisite showing under Rule 23 of the Federal Rules of Civil Procedure, quoting Wertheim v. Arizona, 1993 WL 603552, at *1 (D. Ariz. 1993)), and especially so at the conditional certification stage.
And Ramos v. SimplexGrinnell LP, No. 07-CV-981 (E.D. NY June 21, 2011), in which the court granted a Rule 23(b)(3) motion for class certification in an action for unpaid prevailing wages under New York law.
The Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. _, 2011 WL 2437013 (2011), issued earlier this week, does not command a different result. In Wal-Mart, the Court considered whether plaintiffs had bridged the “conceptual gap” between an individual’s claim of injury and the existence of a class of persons who have suffered the same injury. 2011 WL 2437013, at *8. The Court held that the gap could be bridged with “significant proof that [defendant] operated under a general policy of discrimination.” Id. (internal quotation marks omitted). The Court found that such proof was “entirely absent” and emphasized that plaintiffs did not allege “any express corporate policy” of discrimination, id. at *4, and that the challenged pay and promotion decisions were “generally committed to local managers’ broad discretion, which [was] exercised in a largely subjective manner.” Id. at *3. The relevant facts and circumstances in Wal-Mart have little bearing here. As indicated above, plaintiffs have come forward with significant proof that defendant routinely failed to account for labor performed on public works projects and pay prevailing wages for covered work. Moreover, there is little discretion or subjective judgment in determining an employee’s right to be paid prevailing wages; the right arises automatically, by operation of law, provided the nature of the construction project and the type of labor performed fall within the scope of New York Labor Law § 220. In addition, whereas in Wal-Mart defendant had an “announced policy” prohibiting discrimination, id. at *8, defendant here has not come forward with evidence of an expressed uniform policy that ensured the payment of prevailing wages to its employees when due. Finally, although the efforts of the Wal-Mart plaintiffs to prove their case with statistical evidence failed, plaintiffs here have come forward with class-wide proof culled from defendant’s electronic data that, as discussed in greater detail below, is sufficiently reliable to be presented at trial.
Slip op. at 9-10.

On the other hand, there is Cruz v Dollar Tree Stores Inc., Nos. 07-2050 SC, 07-4012 SC (N.D. Cal. July 7, 2011), in which the court decertified a class of store managers because plaintiffs' plan to rely at trial on "representative testimony from a handful of class members" became untenable following Marlo v. United Parcel Service, Inc. ("Marlo II") --- F.3d --- (9th Cir. 4/28/11) and Dukes.

Thursday, August 4, 2011

Spellman v. American Eagle: Dukes Does Not Apply to FLSA Conditional Certification Order

Spellman v. American Eagle Express, No. 10-1764 (E.D. Pa. July 21, 2011) is a FLSA collective action in which the plaintiffs allege that American Eagle (AEX) misclassified them and their co-workers as independent contractors, rather than employees. In May, the court granted conditional certification. After the Supreme Court issued its decision in Walmart v. Dukes, the defendant moved for reconsideration. The court denied the motion:
On May 11, 2011, this Court granted Plaintiffs’ motion for conditional certification of a Fair Labor Standards Act (FLSA) collective class, represented by the named Plaintiffs and consisting of all former and current AEX delivery drivers who may be owed unpaid overtime wages under the FLSA. AEX asks this Court to reconsider its Order, arguing the Supreme Court’s recent decision in Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011), renders conditional certification inappropriate. In Dukes, the Supreme Court declined to certify a class pursuant to Federal Rule of Civil Procedure 23 on the basis that Rule 23(a)(2)’s commonality requirement could not be satisfied. Id. at **18.

The instant case is a collective action brought pursuant to the FLSA, 29 U.S.C. § 216(b). Unlike Rule 23 class actions. the FLSA requires collective action members to affirmatively opt in to the case. See § 216(b). To determine whether the proposed group of plaintiffs is “similarly situated,” and therefore qualified to proceed as a conditional collective action, a district court applies a two-step test. See Smith v. Sovereign Bancorp, Inc., No. 03-2420, 2003 U.S. Dist. LEXIS 21010 (E.D. Pa. Nov. 13, 2003). In the first step, which is assessed early in the litigation process, the plaintiff at most must make only a “modest factual showing” that the similarly situated requirement is satisfied. See Bosley v. Chubb Corp., No. 04 - 4598, 2005 U.S. Dist. LEXIS 10974, at *7-9 (E.D. Pa. Jun. 3, 2005). The Plaintiffs have made this modest factual showing, and this Court’s analysis is not affected by Dukes. The second step of the collective action certification process will be conducted at the close of class-related discovery, at which time this Court will conduct “a specific factual analysis of each employee’s claim to ensure that each proposed plaintiff is an appropriate party.” Harris v. Healthcare Servs. Grp., Inc., No. 06-2903, 2007 U.S. Dist. LEXIS 55221, at *2 (E.D. Pa. Jul. 31, 2007). At this second stage, AEX may argue that Dukes’s analysis of what constitutes a “common question” is persuasive to this Court’s analysis of whether an FLSA collective action should be certified. In the interim, AEX’s motion for reconsideration is denied.
Slip. op at 1 fn. 1.

Tuesday, July 26, 2011

Governor Brown Nominates Goodwin Liu to California Supreme Court

The Los Angeles Times is reporting that Governor Brown has nominated UC Berkeley law professor Goodwin Liu to fill the California Supreme Court vacancy left earlier this year by retired Justice Carlos Moreno. Liu had been nominated by President Obama for a seat on the Ninth Circuit Court of Appeals, but Republican member of the Senate had blocked his nomination, and Professor Liu withdrew his name in May.

The article is here.

Thursday, July 21, 2011

Cal. Supremes Grant and Hold in Lamps Plus

The California Supreme Court yesterday granted review in Lamps Plus Overtime Cases (5/10/11) pending its decision in Brinker v. Superior Court. In Lamps Plus, the Second District Court of Appeal held that the trial court (L.A. Superior, Judge West) did not abuse its discretion in denying class certification of a wage and hour action alleging, among other causes of action, violation of California's meal and rest period requirements.

Pearl Law Firm associate Leonard H. Sansanowicz wrote an amicus letter to the California Supreme Court on behalf of the California Employment Lawyers Association (CELA), asking the Court to grant review.

Wednesday, July 20, 2011

California's Budget Cuts To Worsen California Court Delays, Officials Say

The Los Angeles Times is reporting that the recently passed budget cuts $350 million from court funding -- 10% of its $3.5 billion annual budget. California's courts have seen more than a 30% reduction in state general funds over the last three years. The report is available here.

Tuesday, July 19, 2011

Review of LACBA Dinner on Dukes and Concepcion

I organized and had the honor of introducing the speakers at last night's Los Angeles County Bar Association program on class action practice after Wal-Mart v. Dukes and AT&T Mobility v. Concepcion: Nancy Abell of Paul Hastings, Brad Seligman of The Impact Fund, and our moderator, Aaron Cole of Irell & Manella. 158 people attended, making it the most successful dinner that the Labor and Employment Law Section has presented.

Wal-Mart v. Dukes: Aaron did a nice job of explaining the decision. Not surprisingly, Nancy and Brad disagreed strongly on its impact going forward. Brad emphasized that the theory of the case -- that a company policy giving discretion to local decision-makers can have a disparate impact on employees -- is very narrow and rarely used, so that the ultimate impact of Dukes may be more narrow than we all may assume. Nancy emphasized more broadly applicable rules found in the decision, such as the limitation on the use of aggregated statistics and the use of Daubert motions on class certification. Brad countered that Daubert challenges have been used for several years and will continue to be used, but whether they will succeed in keeping social scientists out of the certification debate in the future remains to be seen.

Nancy argued that the Hilao v. Estate of Marcos method of trying class actions -- what Justice Scalia referred to as "trial by formula" -- is dead, at least in Title VII cases, and cited Marlo v. UPS II (9th Cir.) and the more recent Cruz v. Dollar Tree (N.D. Cal.). Brad countered that this part of the decision rests on the language of Title VII (limiting its impact in other class cases) and in any case, the plaintiffs never relied on Hilao, which was inserted sua sponte by the Ninth Circuit in its en banc decision. He said that in Dukes, the plaintiffs have full data on the disparate impact of Wal-Mart's policies and can try the case based on that data, rather than on sampling. The Supreme Court, however, did not address this issue.

Brad conceded that the most significant impact of Dukes outside of the Title VII context is that if a plaintiff seeks a monetary recovery, Rule 23(b)(2) is out, and the case will be analyzed under Rule 23(b)(3). Nancy added that plaintiffs likely will seek to work with the EEOC, which may intervene in Title VII cases and which is not bound by Rule 23. Brad said that we likely will see larger cases broken down regionally. "Stay tuned."

AT&T Mobility v. Concepcion: Again, Aaron did a nice job summarizing the case. Nancy argued that along with Discover Bank, Gentry v. Superior Court is dead, and last week's Brown v. Ralph's Grocery is wrongly decided. Brad argued that California courts are going to follow their own line -- as in Brown -- until the Supreme Court says no, and that AT&T's arbitration agreement was unusually generous and that more standard arbitration agreements may not receive such a warm welcome in the courts.

Justice Moreno then asked what impact AT&T might have on the California Supreme Court's decision in Sonic-Calabasas A, Inc. v. Moreno, which he authored. Nancy stated, no offense to Justice Moreno, that it is dead. Brad countered that enforcement actions before the DLSE or under PAGA may not be subject to arbitration under the Supreme Court's EEOC v. Waffle House decision.

Asked whether a class action ban might violate the National Labor Relations Act by interfering with concerted activity, Brad responded that at least one such case is under consideration by the NLRB.

All in all, a very interesting night for us class action wonks. Thank you to Nancy, Brad, Aaron, and everyone else involved for making it such a success.

Thursday, July 14, 2011

Brown v. Ralphs Grocery: Court of Appeal Says Concepcion Does Not Apply in PAGA Actions

Brown v. Ralphs Grocery Company (July 12, 2011) --- Cal.App.4th ----, 2011 WL 2685959, mod. July 20, 2011 at 2011 WL 2892118, is the first California case that I'm aware of dealing with a class arbitration waiver in the wake of the Supreme Court's ruling in AT&T Mobility v. Concepcion.

The plaintiff brought a putative class and representative action under the Private Attorney General Act of 2004 (PAGA) against her employers (Ralphs) for alleged Labor Code violations. Ralphs petitioned to compel individual arbitration under its arbitration policy, which provided:
This Arbitration Policy applies to any and all employment-related disputes that exist or arise between Employees and Ralphs [Grocery Company] (or any of them) that would constitute cognizable claims or causes of action in a federal, state or local court or agency under applicable federal, state or local laws (referred to in this Arbitration Policy as ‘Covered Disputes').... “[T]here is no right or authority for any Covered Disputes to be heard or arbitrated on a class action basis, as a private attorney general, or on bases involving claims or disputes brought in a representative capacity on behalf of the general public, of other Ralphs [Grocery Company] employees (or any of them), or of other persons alleged to be similarly situated.... [T]here are no judge or jury trials and there are no class actions or Representative Actions permitted under this Arbitration Policy.
Ibid. (emphasis in original). The trial court (Los Angeles Superior, Judge Richard Rico) denied the petition, finding that the agreement was unconscionable and unenforceable, and Ralphs appealed. After submission of the appeal, the Supreme Court of the United States issued its decision in AT & T. The Court of Appeal affirmed in part, reversed in part, and remanded for further consideration.

The Court first considered the trial court's ruling that the arbitration waiver was unconscionable under Gentry v. Superior Court (2007) 42 Cal.4th 443 (invalidating class arbitration waiver in wage and hour class action):
Contrary to plaintiff's assertion, the court in Gentry, supra, 42 Cal.4th at page 446, required a factual showing under the four-factor test established in that case ["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' rights ... through individual arbitration"]. Plaintiff, however, made no such showing in opposing the petition to compel arbitration. Thus, there was no evidence, much less substantial evidence, supporting the trial court's finding that under Gentry, plaintiff had established a basis not to enforce the class action waiver. As a result, we reverse the trial court's ruling invalidating the class action waiver.
Accordingly, we do not have to determine whether, under AT & T, supra, 131 S.Ct. 1740, the rule in Gentry, supra, 42 Cal.4th 433 concerning the invalidity of class action waivers in employee-employer contract arbitration clauses is preempted by the FAA. (See Arguelles–Romero v. Superior Court (2010) 184 Cal.App.4th 825, 836 [“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 rights regardless of unconscionability”]; People v. Landry (1996) 49 Cal.App.4th 785, 791 [California Supreme Court interpretation of federal law binding when there is “no contrary United States Supreme Court decision” on the issue]; see also Perry v. Thomas (1987) 482 U.S. 483, 489–491 [FAA preempted former § 299, which permits wage claims to be brought in court even though the parties had an arbitration agreement].)
Slip op. at 6-7. Having disposed of that issue without discussion, the Court next considered whether Ralphs could enforce the agreement's apparent waiver of plaintiff's right to bring a PAGA representative action.
The representative action authorized by the PAGA is an enforcement action, with one aggrieved employee acting as a private attorney general to collect penalties from employers who violate the Labor Code. “Such an action is fundamentally a law enforcement action designed to protect the public and penalize the employer for past illegal conduct. Restitution is not the primary object of a PAGA action, as it is in most class actions."
Slip op. at 8, citing Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277, and Arias v. Superior Court (2009) 46 Cal. 4th 969, 986. The Court then held that PAGA representative actions, unlike individual actions, are not subject to the rule in AT&T, supra,which held that because “it ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress’ [citation], California’s Discover Bank rule is preempted by the FAA.” The Court reasoned:

AT & T does not purport to deal with the FAA's possible preemption of contractual efforts to eliminate representative private attorney general actions to enforce the Labor Code. As noted, the PAGA creates a statutory right for civil penalties for Labor Code violations “that otherwise would be sought by state labor law enforcement agencies.” (Amalgamated Transit Union, Local 1756, AFLCIO v. Superior Court (2009) 46 Cal.4th 993, 1003.) The “aggrieved employee acts as the proxy or agent of state labor law enforcement agencies, representing the same legal right and interest as those agencies, in a proceeding that is designed to protect the public, not to benefit private parties.” (Ibid.) This purpose contrasts with the private individual right of a consumer to pursue class action remedies in court or arbitration, which right, according to AT & T may be waived by agreement so as not to frustrate the FAA—a law governing private arbitrations. AT & T does not provide that a public right, such as that created under the PAGA, can be waived if such a waiver is contrary to state law.
Slip op. at 9. Applying a relatively narrow reading of AT & T, the Court concluded:
United States Supreme Court authority does not address a statute such as the PAGA, which is a mechanism by which the state itself can enforce state labor laws, for the employee suing under the PAGA “does so as the proxy or agent of the state's labor law enforcement agencies.” ( Arias, supra, 46 Cal.4th at p. 986, 95 Cal.Rptr.3d 588, 209 P.3d 923.) And, even if a PAGA claim is subject to arbitration, it would not have the attributes of a class action that the AT & T case said conflicted with arbitration, such as class certification, notices, and opt-outs. Until the United States Supreme Court rules otherwise, we continue to follow what we believe to be California law.
Slip op. at 13.

In a separate opinion concurring in part and dissenting in part, Justice Kriegler wrote:
I respectfully dissent, however, from the majority's further conclusion that Brown's waiver of the right to file a representative action under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab.Code, § 2698 et seq.) was unenforceable. The preemptive effect of the Federal Arbitration Act (FAA) requires enforcement of the PAGA waiver in the employment arbitration agreement in this case under the holding of AT & T Mobility LLC v. Concepcion et ux. (2011) ––– U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742 (AT & T).
Slip op. at 16.

I assume that the defense will petition the Supreme Court for review. It will be interesting to see whether the Court takes it up. My guess is that it will not do so.

The opinion is available here.

Fairbanks v. Farmers New World Life: Court Affirms Denial of Class Cert. in Universal Life Insurance Class Action

In Fairbanks v. Farmers New World Life Insurance Co. (July 13, 2011) --- Cal.App.4th ----, 2011 WL 2714173, the Court of Appeal affirmed a trial court (Los Angeles Superior, Judge Mohr) denying class certification:
Plaintiffs and appellants Pauline Fairbanks and Michael Cobb appeal from an order denying their motion for class certification in their action against Farmers New World Life Insurance Company and Farmers Group, Inc. (collectively, Farmers). Plaintiffs' action alleges violations of the Unfair Competition Law (Bus. & Prof.Code, § 17200, henceforth UCL) in connection with Farmers' marketing and sale of universal life insurance policies. The trial court denied the motion for class certification on the basis that common issues did not prevail, specifically concluding that Farmers did not use a common marketing strategy with respect to the policies. As such, the trial court concluded that whether any proposed class member actually heard any alleged misrepresentation was an issue incapable of common proof, requiring denial of the class certification motion.

As substantial evidence supports the trial court's factual finding, we affirm. On appeal, plaintiffs argue that the order denying class certification can be reversed on bases other than those argued to the trial court below. Specifically, although they argued before the trial court that a class action should be certified on the basis of the common marketing of the policies in combination with certain other allegedly improper practices of Farmers, plaintiffs now argue that the other allegedly improper practices standing alone support class certification. As this argument was not made before the trial court, we need not reach or consider it.
Slip op. at 1. I wanted to note this case, but it seems to me to be of limited usefulness, particularly because the plaintiffs failed to preserve their arguments for appeal. Frankly, I'm a little surprised the Court chose to publish the decision, which is available here.

Zullo v. Superior Court: Court Invalidates Arbitration Agreement as Unconscionable

Since the SCOTUS decision in AT&T Mobility v. Concepcion, attorneys on both sides of the bar have wondered whether California courts would entirely abandon unconscionability analysis of arbitration agreements. If the Sixth District Court of Appeal's decision in Zullo v. Superior Court (Inland Valley Publishing Co.) (June 21, 2011, pub. July 12, 2011) is any indicator, the answer is no.

In Zullo, the plaintiff filed a FEHA discrimination and retaliation action. The trial court (Santa Clara Superior, Judge Elfving) granted the defendant's motion to compel arbitration, and the plaintiff filed for writ of mandate. The Court of Appeal reversed, holding that the agreement was unconscionable.

Relying on Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114, the Court found that the agreement was procedurally unconscionable as a contract of adhesion, implemented on a take-it-or-leave-it basis. Slip op. at 4. The Court also noted that the agreement called for the use of AAA rules, but the defendant did not provide the rules to the plaintiff. Id. at 5.

The Court also found the agreement substantively unconscionable:
As to substantive unconscionability, the arbitration policy is one-sided and harsh. Inland insists that the policy imposes a mutual obligation to arbitrate but the argument does not square with the language of the policy. Inland is right that the first paragraph expressly applies to any dispute arising out of the termination; but disputes “arising out of the termination” of an employee are the very claims that “are virtually certain to be filed against, not by [the employer].” Indeed, the arbitration policy adds a nonexclusive list of the statutes and laws to which it applies, all are of equal employment and nondiscrimination laws. Employees bring actions under these laws. Furthermore, what is implicit in the first paragraph of the arbitration policy is explicit in the second, where it states that “no other action will be brought by any employee,” that “Employees shall not have the right to raise any claim” other than by arbitration, and that “Employee agrees” to make a written request for arbitration within a year of when the dispute arises. And finally, in the acknowledgment of receipt the employee confirms that the handbook contains “an arbitration policy requiring me to submit any and all disputes” to arbitration and that “ I cannot pursue such claims before a judge or a jury.” There is nothing about the policy to support Inland's contention that it would be bound to arbitrate any claim it might have against an employee.

The instant policy also lacks mutuality in that it requires the employee, but not the employer, to respond to any communications regarding the arbitration proceedings within 10 days or forfeit her claim. This requirement is indisputably one-sided and unfairly prejudicial to petitioner. Under the plain terms of the arbitration policy Inland may delay the selection of an arbitrator, or any other action that might be needed to move the process along, without risking a penalty of any kind. The employee, on the other hand, is bound to respond to any communication within 10 days or lose her claim altogether. A fair agreement would impose the same time constraints upon both parties.
Id. at 5-6 (citations omitted).

Finally, the Court declined to excise the unconscionable provisions from the agreement. "The illegality cannot be excised here. Striking the forfeiture provision would not cure the other problem, which is that the agreement applies only to the petitioner. There is no single provision we can strike in order to remove that unconscionable taint." Id. at 6.

The opinion is available here.