Kwikset: Broad Standing Rule Applies in 17200 False Advertising Case

In Kwikset Corporation v. Superior Court (Benson) (January 27, 2011) --- Cal.4th ----, 2011 WL 240278, the California Supreme Court decided an important standing issue in Unfair Competition Law (UCL) cases post-Prop. 64.

In 2000, plaintiff James Benson filed a representative action against defendant Kwikset, alleging Kwikset falsely marketed and sold locksets labeled as “Made in U.S.A.” that in fact contained foreign-made parts or involved foreign manufacture. Mr. Benson prevailed at trial, the trial court (Orange County Superior, Judge Velasquez) ordered injunctive relief, and Kwikset appealed. While the appeal was pending, the voters passed Proposition 64, which imposed new standing requirements in UCL cases.

We granted review to address the standing requirements of the unfair competition and false advertising laws in the wake of Proposition 64. We conclude Proposition 64 should be read in light of its apparent purposes, i.e., to eliminate standing for those who have not engaged in any business dealings with would-be defendants and thereby strip such unaffected parties of the ability to file “shakedown lawsuits,” while preserving for actual victims of deception and other acts of unfair competition the ability to sue and enjoin such practices. (Voter Information Guide, Gen. Elec. (Nov. 2, 2004) argument in favor of Prop. 64, p. 40; see also Prop. 64, § 1.) Accordingly, plaintiffs who can truthfully allege they were deceived by a product's label into spending money to purchase the product, and would not have purchased it otherwise, have “lost money or property” within the meaning of Proposition 64 and have standing to sue. Because plaintiffs here have so alleged, we reverse.

Slip op. at 1.

The opinion is available here.

Monterey Building and Construction Trades Council: Court of Appeal Issues Wide-Ranging Prevailing Wage Decision

This is an interesting case, as long as you find prevailing wage issues interesting: Monterey/Santa Cruz County Bldg. and Const. Trades Council v. Cypress Marina (1/10/11, pub. 1/24/11) --- Cal.App.4th ----, 2011 WL 63101.

Plaintiffs, who are labor organizations, an association of contractors, and two City of Marina taxpayers, prevailed in their action for declaratory and injunctive relief against Cypress Marina Heights LP (CMH). CMH had acquired Fort Ord land from the City of Marina's Redevelopment Agency (MRDA) for the development of CMH's Marina Heights project. MRDA had acquired that land from the Fort Ord Reuse Authority (FORA). Deed covenants in the FORA/MRDA deeds required payment of the prevailing wage to workers on all development of the land. CMH refused to commit to pay the prevailing wage to workers on the Marina Heights project. It claimed that its purchase agreement with MRDA did not require payment of the prevailing wage. The trial court granted plaintiffs' summary adjudication motion and found that it was undisputed that CMH was required to pay the prevailing wage on the Marina Heights project. The court thereafter entered judgment for plaintiffs and awarded plaintiffs their attorney's fees under Code of Civil Procedure section 1021.5.
CMH appeals. It claims that triable issues of fact precluded summary adjudication of the prevailing wage issue. CMH also contends that the trial court abused its discretion in awarding plaintiffs their attorney's fees and awarded plaintiffs an excessive amount of fees. We find no error or abuse of discretion in the trial court's rulings and affirm the judgment.

Slip op. at 1.

The Court held that the redevelopment agency's "Master Resolution," which required all developers of Fort Ord land to "pay or cause to be paid" prevailing wages "to all workers employed in connection with the development of such property," unambiguously established prevailing wage requirement as to all development of the property, not only as to public works contracts. Slip. op at 6-9.

The agreement to transfer the land from the redevelopment agency to the city required the city to “use or transfer” the land in compliance with the Master Resolution and specific deed restrictions, including a requirement that any development of the land be done in accordance with the Master Resolution. The Court held that these deed restrictions ran with the land and unambiguously obligated the developer to pay prevailing wages on all development projects. Slip op. at 9-12.

The Court next held that the plaintiffs had standing to assert the prevailing wage issues:

Here, the individual contractors represented by plaintiffs were “interested under a written instrument” in the enforcement of the prevailing wage covenant. There was an “actual controversy” about this issue because CMH insisted that the covenant did not apply to its Marina Heights project. A declaratory relief action was authorized even though CMH had yet to breach the covenant. The interests that plaintiffs sought to protect were germane to the purposes of their associations, and the participation of individuals members was not necessary. Consequently, the unions and associations had standing to litigate this action on their members' behalf.

Slip op. at 14.

Finally, the Court upheld the award of attorney fees to the prevailing plaintiffs under Code of Civil Procedure section 1021.5. Slip op. at 15.

The opinion is available here.

Cortez v. Abich: Residential Demolition and Remodeling Project is "Employment" Under Cal-OSHA

This is not a wage and hour case, but it is worth noting. In Cortez v. Abich (January 24, 2011) --- Cal.4th ----, 2011 WL 198105, the California Supreme Court considered whether a home demolition and remodeling project is subject to the California Occupational Safety and Health Act of 1973 (Cal-OSHA). The Court held that it is.

Under the California Occupational Safety and Health Act of 1973 (Cal-OSHA or the Act) (Lab.Code, § 6300 et seq.; all further unlabeled statutory references are to this code), employers are required to “furnish employment and a place of employment that is safe and healthful” for their employees. (§ 6400, subd. (a).) For purposes of the Act, “employment” is defined as “the carrying on of any trade, enterprise, project, industry, business, occupation, or work, including all excavation, demolition, and construction work, or any process or operation in any way related thereto, in which any person is engaged or permitted to work for hire, except household domestic service.” (§ 6303, subd. (b), italics added.)

The narrow question before us is this: Does work rendered on a residential remodeling project in which significant portions of a house are demolished and rebuilt, and new rooms are added, fall within the statutory “household domestic service” provision for employment excluded under the Act? Based on the plain meaning of the statutory language, we conclude the answer is no.

Slip op. at 1.

The opinion is available here.

Cal. Supremes Grant Review in Hernandez v. Chipotle Pending Brinker

The California Supreme Court today granted review in Hernandez v. Chipotle Mexican Grill, Inc. (October 28, 2010) --- Cal.App.4th ---, 2010 WL 4244583, pending its decision in Brinker v. Superior Court (Hohnbaum). The Court of Appeal in Hernandez -- which I blogged here -- affirmed a trial court order denying class certification of meal and rest period claims on grounds that individual issues predominated over common issues, and class treatment was not superior to individual actions.

This increases the list of Brinker grant-and-holds to five: Brinkley v. Public Storage, Bradley v. Networkers Int'l LLC, Faulkinbury v. Boyd & Associates, Brookler v. Radioshack Corp., and now Hernandez v. Chipotle.

That’s more than the number of licks that it takes to get to the center of a tootsie roll tootsie pop, so here’s hoping that the Supremes will get Brinker on calendar and let us know where we all stand on these cases. BTW, the Court's Brinker case summary is here. You can go to the page and request email alerts, so you'll be the first of your friends to know when they schedule Brinker for oral argument.

Heritage Residential: Court Limits "Inadvertence" Defense In Check Stub Penalty Action

At issue in this appeal is a civil penalty, assessed under Labor Code section 226.3, for appellant’s failure to provide itemized wage statements to all of its employees as statutorily required. Appellant unsuccessfully challenged the penalty below, first at an administrative hearing and later in the trial court, arguing that its noncompliance was inadvertent within the meaning of the statute and that respondent erred in determining otherwise. Appellant renews those arguments here.

Interpreting the pertinent statutory language as a matter of first impression, we conclude that the statute’s references to “inadvertent” violations offer no grounds for setting aside the penalty assessed against appellant. We therefore affirm the judgment.

Heritage Residential Care, Inc. v. DLSE (1/26/11) --- Cal.App.4th ----, 2011 WL 227691. Slip op. at 1.

Heritage Residential Care (Heritage) operated seven residential care facilities. Heritage employed 24 people, 16 of whom did not have social security numbers. Heritage treated them as independent contractors and did not provide them with the check stub information required by Labor Code section 226. The Division of Labor Standards Enforcement (DLSE) cited Heritage under Labor Code Section 226.3 in the amount of $72,000: 288 violations at $250 per violation.

After an administrative hearing, the DLSE found that the violations were not inadvertent and affirmed the citation. Heritage then filed an action for administrative mandamus. After hearing, the Superior Court (Santa Clara County Superior, Judge Elfving) denied the petition and entered judgment for DLSE.

On appeal, Heritage argued that its alleged inadvertence should have been a defense to the citation and that a mitigated penalty should have applied. The Court rejected these arguments and affirmed the judgment.

Section 226.3 requires the Labor Commissioner to “take into consideration whether the violation was inadvertent” and permits respondent to “decide not to penalize an employer for a first violation when that violation was due to a clerical error or inadvertent mistake.” As parties both acknowledge, the statute envisions a two-part analysis: first, a mandatory consideration of whether the violation was inadvertent; second, if inadvertence is found, a discretionary decision about whether to penalize a first violation. The parties disagree on the meaning of the statutory term “inadvertent.” As noted, resolving that dispute requires us to engage in statutory construction. We undertake that task de novo.

Slip op. at 4.

Absent a definition of the word "inadvertent" in the Labor Code, the Court adopted its ordinary meaning: “inadvertent” means “unintentional,” “accidental,” or “not deliberate.” The Court explained that "inadvertent" does not mean the lack of mens rea. "Inadvertence thus denotes no particular mental state." Slip op. at 5.

At bottom, appellant's claim rests on its erroneous contention that both mental state and conduct must be considered in determining inadvertence. For reasons discussed above, that contention is unavailing. The statute does not require the Labor Commissioner or the court to “attempt to divine the employer's subjective belief about the law.”

Appellant also urges that respondent erred in not considering its assertion that its noncompliance was based on a good faith mistake of law. Appellant acknowledges the general rule that “ignorance of a law is not a defense to a charge of its violation.” But appellant insists that it was not ignorant of the requirements of section 226.3, as evidenced by its provision of itemized wage statements to some of its workers. Instead, appellant claims, it was operating under a good faith but mistaken belief about the law's requirements when it misclassified other employees as independent contractors.

Appellant's argument is unpersuasive. This is not a case where the legal requirements of the statute were unclear or unsettled. Under these circumstances, appellant's mistake of law is not a defense to noncompliance. Appellant's conduct thus cannot be characterized as “inadvertent” for purposes of section 226.3.

Finally, appellant asserts an abuse of discretion, based on its claim that respondent failed to consider evidence of its inadvertence, thereby contravening the statutory command that “the Labor Commissioner shall take into consideration whether the violation was inadvertent....” (§ 226.3.)

We find no basis to sustain appellant's contention that evidence of its “mental state and inadvertent violation ... was disregarded.” Concerning appellant's mental state, respondent had no reason to consider such evidence, since the employer's state of mind is irrelevant under the statute. Concerning inadvertence, appellant's evidence was considered. The hearing officer invited proof from appellant, saying “if you can show clerical error or inadvertent mistake, I may be able to exercise some discretion.” After receiving all of the proffered evidence, the hearing officer again discussed inadvertence with appellant and agreed to “give it some consideration.” No failure to comply with the statutory directive appears on this record.

We therefore reject appellant's claim that respondent misapplied section 226.3. In light of our conclusion that appellant's failure to issue itemized wage statements was not inadvertent within the meaning of the statute, we need not and do not reach appellant's alternative argument for a mitigated civil penalty.

Slip op. at 8-9.

Heritage thus brings Labor Code section 226.3 into line with the "willfulness" requirement of Labor Code section 203:

The term “willful” within the meaning of section 203, means the employer “intentionally failed or refused to perform an act which was required to be done.” It does not mean that the employer's refusal to pay wages must necessarily be based on a deliberate evil purpose to defraud workers of wages which the employer knows to be due.

Road Sprinkler Fitters Local Union No. 669 v. G & G Fire Sprinklers, Inc. (2002) 102 Cal.App.4th 765, 781.

The Heritage opinion is available here.

Thompson v. North American Stainless: SCOTUS Upholds Associational Retaliation in Title VII Case

In Thompson v. North American Stainless, LP, --- S.Ct. ----, 2011 WL 197638 (January 24, 2011), the Supreme Court of the United States held that an employee who alleged he was fired in retaliation for his fiancée’s filing of a Equal Employment Opportunity Commission complaint against their mutual employer could state a claim under Title VII of the Civil Rights Act since a reasonable worker might be dissuaded from engaging in protected activity if she knew that her fiancé would be fired.

Justice Scalia wrote for the Court:

Thompson was an employee of NAS, and the purpose of Title VII is to protect employees from their employers' unlawful actions. Moreover, accepting the facts as alleged, Thompson is not an accidental victim of the retaliation-collateral damage, so to speak, of the employer's unlawful act. To the contrary, injuring him was the employer's intended means of harming Regalado. Hurting him was the unlawful act by which the employer punished her. In those circumstances, we think Thompson well within the zone of interests sought to be protected by Title VII. He is a person aggrieved with standing to sue.

Slip op. at 6.

Justice Ginsberg wrote a very brief concurring opinion, in which Justice Breyer joined. Justice Kagan did not take part.

The opinion is available here.

Collins v. Gee West: Employee Who Leaves Job When Business Closes Suffers "Employment Loss" under Federal WARN Act

In Collins v. Gee West Seattle, LLC, --- F.3d ----, 2011 WL 182447 (9th Cir. January 21, 2011), the Ninth Circuit held:

[I]f an employee leaves a job because the business is closing, that employee has not "voluntarily departed" within the meaning of the WARN Act. [29 U.S.C. § 2101 et seq.] Rather, that employee has suffered an "employment loss."

Gee West had approximately 150 employees. On September 26, 2007, Gee West informed its employees that it would close its doors on October 7, 2007. After the announcement, employees began to stop reporting to work. By October 5, 2007, ten days after the announcement, only 30 employees remained.

The District Court (W.D. Wash., Judge Pechman) held that those who left before Gee West closed had "voluntarily departed" and did not suffer an "employment loss" under the WARN Act. The Ninth Circuit reversed:

[U]nless there is some evidence of imminent departure for reasons other than the shutdown, it is unreasonable to conclude that employees voluntarily departed after receiving notice of the upcoming closure. For example, Gee West argues that 150 affected employees reasonably expected loss of employment, and those employees' positions were eliminated, but that only 30 employees actually experienced employment loss. Gee West claims that all other employees voluntarily departed after notice was given. This argument would allow an employer to escape responsibility for failing to give proper notice simply because its employees subsequently leave the business due to its imminent closure. The unexpected and urgent need to find new employment is precisely the type of pressure that this Court held that Congress was attempting to eliminate by creating the WARN Act. Employees' departure because of a business closing, therefore, is generally not voluntary, but a consequence of the shutdown and must be considered a loss of employment when determining whether a plant closure has occurred. Gee West's argument that only 30 employees lost employment as a consequence of the plant closing is thus not credible. Indeed, Gee West's records note that all employees who were terminated after Sept. 26, 2007, left as a consequence of the business closing.

Slip op. at 5. As the Court notes, this holding leaves intact the "faltering business" exception to the WARN Act, which allows businesses to refrain from giving notice under circumstances. Slip op. at 6.

The opinion is available here.

NASA v. Nelson: Informational Privacy (If It Exists) Does Not Bar Background Checks of Contract Employees

This is not a wage case, but I find it interesting. In National Aeronautics and Space Administration v. Nelson, --- S.Ct. ----, 2011 WL 148254 (1/19/11), contract employees at NASA's Jet Propulsion Laboratory (JPL), which is operated by the California Institute of Technology (Cal Tech), challenged a new government policy mandating that they complete a standard background check.

The Supreme Court (Alito, with Scalia and Thomas concurring and Kagan taking no part) held as follows:

In two cases decided over 30 years ago, this Court referred broadly to a constitutional privacy “interest in avoiding disclosure of personal matters.” Whalen v. Roe, 429 U.S. 589, 599-600, Nixon v. Administrator of General Services, 433 U.S. 425, 457. In Whalen, the Court upheld a New York law permitting the collection of names and addresses of persons prescribed dangerous drugs, finding that the statute's “security provisions,” which protected against “public disclosure” of patient information, 462 U.S. at 600-601, were sufficient to protect a privacy interest “arguably ... root[ed] in the Constitution,” id. at 605. In Nixon, the Court upheld a law requiring the former President to turn over his presidential papers and tape recordings for archival review and screening, concluding that the federal Act at issue, like the statute in Whalen, had protections against “undue dissemination of private materials.” 433 U.S. at 458. Since Nixon, the Court has said little else on the subject of a constitutional right to informational privacy.

Assuming, without deciding, that the Government's challenged inquiries implicate a privacy interest of constitutional significance, that interest, whatever its scope, does not prevent the Government from asking reasonable questions of the sort included on SF-85 and Form 42 in an employment background investigation that is subject to the Privacy Act's safeguards against public disclosure.

The opinion is available here.

Note: FantasySCOTUS, which I blogged about here, correctly predicted this result. Scoreboard!

Kullar v. Foot Locker II: Court Refuses to Disqualify Class Counsel Based on Representation of Objectors in Overlapping Action

Kullar v. Foot Locker Retail, Inc. (1/18/11) --- Cal.App.4th ----, 2011 WL 135771, is an interesting, albeit unusual case.

In Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, employees brought a class action against their employer for Labor Code violations including requiring purchase of work uniforms, withholding wages for purchase of work uniforms, failure to compensate for all hours worked or at the minimum wage, and failure to provide meal and rest periods. The trial court (San Francisco Superior, Judge Kramer) approved a settlement, over the objection of certain class members. The objectors appealed, and the Court of Appeal reversed, holding that the trial court lacked sufficient information to determine that the settlement was fair and reasonable.

Prior to the final approval order in Kullar, the objectors filed their own class action, partially overlapping Kullar, in Alameda County Superior Court. Echeverria I. That action was stayed pending Kullar. The same objectors, represented by the same attorneys, filed yet another overlapping action, this one in San Francisco Superior Court. Echeverria II. This action also was stayed.

On remand, the trial court again gave final approval to the settlement in Kullar. The objectors dismissed Echeverria I, and the court lifted the stay in Echeverria II. Foot Locker then moved to disqualify Qualls and Workman, the firm that represented the objectors in Kullar and the plaintiffs in Echeverria I and Echeverria II. The trial court denied the motion, and Foot Locker appealed. The Court of Appeal affirmed, finding no conflict of interest between the Echeverria II plaintiffs, or their counsel, and the class of individuals they seek to represent:

[A]s the trial court observed, there is no conflict of interest requiring disqualification. The issue to which the objectors and their attorneys directed their argument in Kullar is whether the proposed settlement is fair and reasonable, and whether the settling parties have made a sufficient showing that it is. While other unnamed class members in Kullar may not have filed objections to the settlement or opted out of the settlement, they have not expressly indicated they believe the settlement is in their best interests or that they are not entitled to a greater recovery than provided in the settlement agreement. As we pointed out in our prior opinion in this case, it is the court that has the ultimate responsibility to determine the fairness and adequacy of the settlement. The class representatives (and their attorneys, as well as Foot Locker and its attorneys) disagree with the objectors and their attorneys over this issue and they have submitted their respective arguments to the court for decision. While the consequence of the objectors prevailing would be to forestall the recovery class members will receive under the proposed settlement, such may nonetheless be in their best interests if they are likely to obtain a much greater recovery by pursuing the litigation. There is no more of a conflict between the objectors (and their attorneys) and the unnamed members of the class who favor the settlement than there is between the class representatives (and their attorneys) and unnamed members of the class who do not favor the settlement but who have refrained from expressing their views and do not want to be excluded from the recovery if the settlement is approved

The putative class members favoring the proposed Kullar settlement may be adverse to objectors in the sense that they disagree as to the adequacy of the settlement and in their desire to have it approved or rejected, but their common interests in the outcome of the litigation are unaffected by that disagreement. There is no suggestion that Q & W has obtained any confidential information from the putative class members who favor the settlement, nor have the attorneys engaged in any conduct displaying disloyalty to any of the putative class members. Disqualification under the circumstances here would be no more justified than the automatic disqualification of class counsel whenever a dispute arises among class members or class representatives as to the advisability of settlement.

Slip op. at 4.

Whether courts will apply this reasoning to the conflict of interest arguments that sometimes arise in the class certification context remains to be seen.

The opinion is available here.

Holmes v. Petrovich Development: Employee Emails Sent from Work Not Protected

In Holmes v. Petrovich Development Corp. (1/13/11) --- Cal.App.4th ----, 2011 WL 117230, an employee filed suit against her employer and supervisor for sexual harassment, retaliation, wrongful termination, violation of the right to privacy, and intentional infliction of emotional distress. After the court (Sacramento Superior Court, Judge Chang) granted summary adjudication on the discrimination, retaliation, and wrongful termination causes of action, a jury found for the defendants on the two remaining causes of action. The plaintiff appealed, and the Court of Appeal affirmed.

Of greatest interest here is the Court's holding that the plaintiff's emails to her attorney regarding possible legal action against the defendants did not constitute "confidential communication between client and lawyer" within the meaning of Evidence Code section 952 because the plaintiff used a computer of defendant company to send the e-mails even though: (1) she had been told of the company's policy that its computers were to be used only for company business and that employees were prohibited from using them to send or receive personal e-mail; (2) she had been warned that the company would monitor its computers for compliance with this company policy and thus might "inspect all files and messages ... at any time;" and (3) she had been explicitly advised that employees using company computers to create or maintain personal information or messages "have no right of privacy with respect to that information or message." Slip op. at 1.

The opinion is available here.

Predicting the Supremes on FantasySCOTUS

THE ABA Journal's recent article on the Top 100 Blawgs led me to FantasySCOTUS, which bills itself as follows:

FantasySCOTUS is the Internet’s Premier Supreme Court Fantasy League. Last year, over 5,000 attorneys, law students, and other avid Supreme Court followers made predictions about all cases that the Supreme Court decided. On average, members of the league correctly predicted the cases nearly 60% of the time, and accurately predicted that Elena Kagan would be nominated as the 100th Associate Justice of the Supreme Court.

Of greatest interest here, FantasySCOTUS predicts that the Supreme Court will affirm in AT&T Mobility v. Concepcion, a Ninth Circuit decision (sub nom. Laster v. AT&T Mobility LLC (2009)) holding that a class arbitration waiver was unconscionable and unenforceable in a class action against a telephone company. Our posts on Concepcion are here and here, and our post on Laster is here.

FantasySCOTUS has not yet published its prediction on Dukes v. Wal-Mart Stores, which we've followed pretty closely.

FantasySCOTUS is here. Create an account and log on to review past results and vote on upcoming decisions. Fun for law geeks!

Goldbaum v. Regents: UC Regents Immune from 218.5 Attorney Fees

In Goldbaum v. Regents (1/6/11) --- Cal.App.4th ----, the Court of Appeal held that the Regents of the University of California are constitutionally immune from Labor Code section 218.5’s requirement that a prevailing party in an "action brought for the nonpayment of wages, fringe benefits, or...pension fund contributions" be awarded attorney fees and costs.

The plaintiff was a tenured professor at UC San Diego. He sued the Regents for declaratory relief and breach of contract regarding his pension rights. The parties settled, and the plaintiff moved for an award of attorney fees. The court (San Diego Superior, Judge Bloom) denied the motion, and the Court of Appeal affirmed.

The opinion is available here.

FLSA Developments from the FLSA Overtime Law Blog

The Overtime Law Blog (http://flsaovertimelaw.com/) is a great resource for FLSA updates. Andrew Frisch, who writes the blog, posted on three new cases over the weekend:

• Martin v. PepsiAmericas, Inc. (5th Cir.): Severance Payment Not A Set-off To FLSA Damages for Unpaid Overtime;
• Tran v. Thai (S.D.Tex. ): FLSA Does Not Impose A Duty On Employees To Mitigate Their Damages By Notifying Employers Of Their Failure To Pay Proper Overtime; and
• McBurnie v. City of Prescott (D.Ariz.): Employee Who Resolved His Claims For Unpaid Overtime Prior To Lawsuit Entitled To Award Of Attorney’s Fees Under § 216.

Thanks to Mr. Frisch for his excellent work.