Muldrow v. Surrex: On Remand After Brinker, Court of Appeal Affirms Holding that Class Members Were Commissioned Sales Exempt and Employer Provided Meal Periods

In Muldrow v. Surrex Solutions Corporation (1/24/12) 202 Cal.App.4th 1232 (blogged here), a recruiter sued his employer for failure to pay overtime and meal period compensation. The trial court (San Diego Superior, Judge Nugent) certified the class, and the parties tried the case to the court. The trial court found that the class members were subject to the commissioned sales exemption from the overtime requirements, that the employer provided meal periods to them, and that it was not obligated to ensure that they took their meal periods. The Court of Appeal affirmed, but the California Supreme Court granted review pending its decision in Brinker v. Superior Court (4/12/12) 53 Cal.4th 1004.  

On remand, the Court of Appeal affirmed its prior decision -- not impacted by Brinker -- that the recruiters were subject to the commissioned sales exemption because: 

1. The class members were engaged principally in selling services (slip op. at 12-15); 
2. The class members' commissions were sufficiently related to the price of those services (slip op. at 16-22); and 
3. The employer's payment of draws against commissions constituted a bona fide commission system (slip op. at 22-24). 

The Court also affirmed its prior decision that the employer had provided the required meal periods to the class members and was under no obligation to ensure that they took their meal periods.  Slip op. at 24-25.  

The opinion is available here. 

Howard Entertainment v. Lisa Kudrow: Court Erred In Excluding Expert Witness Evidence of Custom and Usage in Personal Management Dispute

In 1991, Scott Howard and actress Lisa Kudrow entered into an oral agreement for Howard to act as Kudrow's personal manager. Kudrow agreed to pay Howard 10% of her earnings. In 1994, Kudrow landed the role of "Phoebe" on the television show "Friends." She earned up to $1 million per episode, plus 1 1/4 % of the show's "backend" earnings. 

Kudrow terminated Howard in 2007, and Howard made a demand for commissions on income Kudrow earned following the termination of their relationship for work she performed during the relationship. Kudrow rejected the demand, and Howard filed suit. On summary judgment, Howard presented the declaration of an expert, who stated that custom and practice in the entertainment industry required clients to pay their personal managers post-termination commissions on the services that they rendered, and on engagements that they entered into, when the personal managers were representing them.

Kudrow objected to the expert's declaration, and Howard sought an extension of time to supplement it. The trial court (Los Angeles Superior Court, Judge Cesar Sarmiento) denied the request for continuance, sustained Kudrow's objections to the expert's declaration, and granted summary judgment. Howard appealed, and the Court of Appeal remanded to the trial court with directions to exercise its discretion to determine if Howard was entitled to a continuance to file a supplemental expert declaration.

On remand, the trial court granted Howard's request to file a supplemental expert witness declaration. The trial court then held that the declaration lacked foundation and again granted summary judgment. Howard again appealed, and the Court of Appeal reversed, holding:

Howard's expert was qualified as an expert witness (slip op. at 15-17); 

The expert's declaration provided adequate foundation for the opinions expressed, despite a "lack of specific details in portions of the ... declaration" (slip op. at 17-23); and 

Because the expert declaration was admissible, Howard raised triable issues of material fact as to the proper interpretation of the parties' agreement, and the trial court erred in granting summary judgment (slip op. at 23).

The opinion is available here.

Peabody v. Time Warner Cable: Ninth Circuit Certifies Commission Questions to California Supreme Court

The last time that the Ninth Circuit Court of Appeals asked the California Supreme Court to clarify an issue of California wage law was Sullivan v. Oracle Corp. (2011) 51 Cal.4th 1191 (discussed here) in which the Court held that the California Labor Code and Unfair Competition Law apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs.

In Peabody v. Time Warner Cable, the Ninth Circuit has asked the California Supreme Court to decide the following issue:

To satisfy California’s compensation requirements, whether an employer can average an employee’s commission payments over certain pay periods when it is equitable and reasonable for the employer to do so.  

The facts are as follows: Susan Peabody worked for Time Warner Cable (TWC) as  an account executive, working an average of 45 hours per week and earning salary plus commissions based on her monthly sales.  TWC paid Ms. Peabody her salary biweekly and paid commissions monthly.  In those pay periods that included a commission payment, TWC paid Ms. Peabody more than one and one-half times the minimum wage; in those pay periods that did not include a commission payment, TWC paid Ms. Peabody less than one and one-half times the minimum wage.  

Ms. Peabody filed a putative class action alleging that TWC failed to pay her  less than one and one-half times the minimum wage, such that she did not qualify for the commissioned sales exemption.  To qualify for the commissioned sales exemption, one must earn wages in excess of one and one-half times the minimum wage, one-half of which must be commissions.  

The central question is whether Ms. Peabody's commissions should be averaged over the month in which they were earned or applied only to the pay periods in which they were paid.  

The Ninth Circuit's certification order is available here.  I have added Peabody v. Time Warner Cable to our Watch List of pending cases.  

Daily Journal Opens Nominations for California's Top Neutrals

Each year, the Daily Journal publishes its list of 50 top neutrals in the State. This year, the Daily Journal has opened the process to allow attorneys to nominate their favorite neutrals.  You can nominate your favorite neutral on the Daily Journal's web site: dailyjournal.com.  Nominations close on September 7th. 

As always, we appreciate your support.  

Dahlia v. Rodriguez: First Amendment Does Not Protect Police Officer Whistleblowers

In Dahlia v. Rodriguez, --- F.3d --- (9th Cir. 8/7/12), the Ninth Circuit held that the First Amendment does not protect a police officer who reports allegedly illegal conduct by fellow officers. The Court's introduction does a good job of explaining the case:  

Four days after Angelo Dahlia, a detective in the City of Burbank Police Department, disclosed the alleged use of abusive interrogation tactics by his colleagues to the Los Angeles Sheriff’s Department, he was placed on administrative leave by Chief of Police Tim Stehr. That decision prompted Dahlia to file a 42 U.S.C. § 1983 suit against Stehr and lieutenants, sergeants, and a detective of the Burbank Police Department, alleging that his placement on administrative leave was unconstitutional retaliation for the exercise of his First Amendment rights. The district court dismissed the suit, concluding that our decision in Huppert v. City of Pittsburg, 574 F.3d 696 (9th Cir. 2009), controlled Dahlia’s case “unless and until overruled” and that, therefore, Dahlia’s speech was not protected by the First Amendment. The district court, correctly noting that “the nature of an official’s job duties are generally a question of fact,” concluded that Huppert held “as a matter of law that disclosure of incriminating facts is within the official duties of a police officer in the State of California.” Although we have significant reservations about the validity of the Huppert decision, we must agree with the district court that, under Huppert, Dahlia’s disclosure to the Los Angeles Sheriff’s Department was made in the course of his official duties, and thus falls outside the protection offered by the First Amendment. We therefore affirm the judgment of the district court.

Slip op. at 8803.  

Courts considering First Amendment retaliation cases must consider the following:  

(1) whether the plaintiff spoke on a matter of public concern; 

(2) whether the plaintiff spoke as a private citizen or public employee; 

(3) whether the plaintiff’s protected speech was a substantial or motivating factor in the adverse employment action; 

(4) whether the state had an adequate justification for treating the employee differently from other members of the general public; and 

(5) whether the state would have taken the adverse employment action even absent the protected speech.

The district court (C.D. Cal., Judge Margaret M. Morrow) held that Dahlia failed to establish factors two and five: that his speech was “spoken in the capacity of a private citizen and not a public employee,” or that placement on administrative leave constitutes an adverse employment action.  

The Ninth Circuit affirmed on factor two, with quite a bit of hesitation:  

The upshot of Huppert is a rule, binding only in our Circuit, that the act of whistleblowing is itself a professional duty of police officers, thus stripping such speech of the First Amendment’s protection....  Huppert’s treatment of the reporting of police misconduct and corruption as a routine professional duty belies the personal and professional hazards of such acts. If reporting police abuse and misconduct during the course of an internal investigation, or even a federal or third-party investigation, is considered a professional duty, and is thus unprotected speech, as a matter of law, it is inevitable that police officers will be even less willing to report misconduct than they are now, particularly regarding their superiors. The reasoning in Huppert that professional duties can be determined as a matter of law is wrong, and the result that reports of police misconduct are not protected by the First Amendment is dangerous.

Slip op. at 8821-8822.

Although affirming on the first point resolves the appeal, the Ninth Circuit took the opportunity to reverse on the second issue, holding that "under some circumstances, placement on administrative leave can constitute an adverse employment action."  Slip op. at 8822-8824.

The opinion is available here.

Touchstone Television v. Superior Court: Decision Not To Renew Employee's Contract Does Not Give Rise To Action For Wrongful Termination

Touchstone Television Productions v. Superior Court (Sheridan) (8/16/12) --- Cal.App.4th ---, involves actress Nicollette Sheridan's allegation that her contract on the television show Desperate Housewives was not renewed because she complained about the show's creator.

Touchstone Television Productions hired actress Nicollette Sheridan to appear in the first season of the television series Desperate Housewives. The agreement gave Touchstone the exclusive option to renew Sheridan's services on an annual basis for an additional six seasons. Touchstone renewed Sheridan's services up to and including Season 5. During Season 5, Touchstone informed Sheridan it would not renew her contract for Season 6.  

Sheridan sued Touchstone for wrongful termination in violation of public policy. Sheridan alleged that Touchstone had fired her because she had complained about a battery allegedly committed upon her by Desperate Housewives' creator Marc Cherry. The jury deadlocked on this claim and the trial court declared a mistrial. Touchstone moved for a directed verdict, contending that it had not terminated Sheridan, but rather had simply not renewed her contract for an additional season. The trial court [Los Angeles Superior, Judge Elizabeth Allen White] denied the motion. Slip op. at 2. 

The Court of Appeal reversed.

A cause of action for wrongful termination in violation of public policy does not lie if an employer decides simply not to exercise an option to renew a contract. In that instance, there is no termination of employment but, instead, an expiration of a fixed-term contract. (Daly v. Exxon Corp. (1997) 55 Cal.App.4th 39.) To hold otherwise would require the creation of a new tort for nonrenewal of a fixed-term employment contract in violation of public policy. We decline to do so.

Slip op. at 2. 

In a very unusual move, the Court held that on remand Sheridan could amend to bring a brand new cause of action under Labor Code section 6310, alleging that "Touchstone retaliated against her for complaining about unsafe working conditions (e.g., Cherry's conduct) by deciding not to exercise its option to renew her contract." Ibid. Touchstone apparently did not object at oral argument to Sheridan amending on remand. Slip op. at 8, n. 6.

I honestly cannot remember another opinion in which the appellate court said, "You lose on the cause of action that you brought, but on remand you should bring this cause of action instead." Much more frequently, parties attempt to assert new arguments or theories of recovery on appeal, and the appellate court holds that such arguments have been waived because they were not timely asserted.

The opinion is available here.

Ralphs Grocery v. UFCWU: California Supreme Court Schedules Oral Argument in First Amendment Case

On Wednesday, October 3, 2012, the California Supreme Court will hear oral argument in Ralphs Grocery v. United Food and Commercial Workers Union (Case No. S185544).  Ralphs Grocery raises the following issues:

(1) Did the Court of Appeal err in concluding that the parking area and walkway in front of the entrance to plaintiff's retail store, which is part of a larger shopping center, do not constitute a public forum under Robins v. Pruneyard Shopping Center (1979) 23 Cal.3d 899 and its progeny? 

(2) Do the Moscone Act (Code Civ. Proc. ? 527.3) and Labor Code section 1138.1, which limit the availability of injunctive relief in labor disputes, violate the First and Fourteenth Amendments of the United States Constitution because they afford preferential treatment to speech concerning labor disputes over speech about other issues?

The Court will have 90 days after oral argument, or until January 2, 2013, to issue its ruling. 

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

Harris v. Superior Court (Liberty Mutual): On Remand, Court of Appeal Again Reverses Orders Decertifying Class and Denying Plaintiffs' Motion for Summary Judgment of Exemption Defense

In Harris v. Superior Court (Liberty Mutual Ins. Co.) (2011) 53 Cal.4th 170 (discussed here), a unanimous California Supreme Court held that that the “administrative/production worker dichotomy” is not dispositive of the administrative exemption defense. 

On remand, the Court of Appeal has held once again that the trial court (Los Angeles Superior, Judge Carolyn B. Kuhl) erred in granting the defendants' motion to decertify the class and in denying the plaintiffs' motion for summary judgment on the administrative exemption defense.  

Here's the Court's summary, which describes the ruling pretty clearly: 

Employers claim that the administrative exemption to the overtime compensation requirements applies to claims adjusters.  Adjusters claim that the exemption does not apply.  In addition, Adjusters contend that the issue of whether their work duties are of the kind required for application of the administrative exemption is a predominant issue common to the claims of all putative class members, warranting class certification.  The trial court initially agreed and certified Adjusters' proposed class.  Later, however, the court revisited the issue and decertified the class for all claims arising after October 1, 2000, on the ground that under Wage Order 4-2001, but not under Wage Order 4-1998, the work duties issue is neither dispositive nor a predominant issue that would justify class treatment of Adjusters' claims.  

Both sides petitioned for writ review.  Employers seek decertification of the portion of the class that remains certified.  Adjusters seek recertification of the decertified portion of the class and also challenge the trial courts denial of their motion for summary adjudication of Employers' affirmative defense based on the administrative exemption.  We grant Adjusters' petition and deny Employers' petition because Adjusters' primary work duties are the day-to-day tasks of adjusting individual claims not directly relating to management policies or general business operations. 

Slip op. at 3.  Here's my more detailed review: 

Overview of California and Federal Regulations.  

The 2001 series of Wage Orders incorporates the Federal regulations -- as they existed as of January 1, 2001 -- into the definition of what work meets the test of the exemption.  "So, just as the statute is understood in light of the wage order, the wage order is construed in light of the incorporated federal regulations."  Slip op. at 8. 

Parsing the language of the regulation reveals that work qualifies as "administrative" when it is "directly related" to management policies or general business operations.  Work qualifies as "directly related" if it satisfies two components.  First, it must be qualitatively administrative.  Second, quantitatively, it must be of substantial importance to the management or operations of the business.  Both components must be satisfied before work can be considered "directly related" to management policies or general business operations in order to meet the test of the exemption.  (Fed. Regs. § 541.205(a) (2000).) 

Slip op. at 9-10.  At issue in Harris is whether the adjusters' work satisfies the "qualitatively administrative" requirement of the "directly related" test.  Ibid.  

Wage Order 4-1998 and the Federal Regulations.  

Next, the Court explained that the Federal regulations -- which are not incorporated into the 1998 wage orders -- none-the-less guide the Court's interpretation of the 1998 wage orders.  

Accordingly, because we conclude that the same federal regulations that are incorporated into Wage Order 4-2001 must be used as a guide to interpreting Wage Order 4-1998, we agree with the parties that the analysis of the administrative exemption should be the same under both wage orders.

Slip op. at 11.  

The Qualitative Component of the “Directly Related” Requirement

Under the federal regulations ... an employee's work duties meet the test of the exemption only if they "relat[e] to the administrative operations of a business as distinguished from "production" or, in a retail or service establishment, 'sales' work" (Fed. Regs. § 541.205(a) (2000)), but the import of that statement is not perfectly clear.  We take it to mean that only duties performed at the level of policy or general operations can satisfy the qualitative component of the "directly related" requirement.  In contrast, work duties that merely carry out the particular, day-to-day operations of the business are production, not administrative, work.

Slip op. at 11-12 (emphasis added).  An employee who is primarily engaged in work that is not "directly related to the administrative operations of a business" cannot fall under the administrative exemption.  Ibid.  

Application of the Qualitative Component of the “Directly Related” Requirement

The undisputed evidence showed that the adjusters are not exempt employees because they are "primarily engaged in work that fails to satisfy the qualitative component of the 'directly related' requirement because their primary duties are the day-to-day tasks involved in adjusting individual claims."  Slip op. at 13.  This non-exempt work includes investigating and estimating claims, making coverage determinations, setting reserves, negotiating settlements, making settlement recommendations for claims beyond their settlement authority, and identifying potential fraud.  

This work is not carried on at the level of management policy or general operations.  Administratively exempt work would include, for example, serving on committees to develop company policies and practices.  Defendants' summary judgment fails because defendants did not show that any class members spent more than 50% of their time engaged in such work.  Slip op. at 14.  

The undisputed facts show that Adjusters are primarily engaged in work that fails to satisfy the qualitative component of the "directly related" requirement. Adjusters therefore are not primarily engaged in work that is "directly related to management policies or general business operations." Accordingly, Adjusters cannot be exempt administrative employees under either Wage Order 4-1998 or Wage Order 4-2001.

Slip op. at 15.  

Application of Federal Regulations Former Part 541.205(b) (2000)

Federal Regulations former part 541.205(b) (2000) provided: 

The administrative operations of the business include the work performed by so-called white-collar employees engaged in "servicing" a business as, for[] example, advising the management, planning, negotiating, representing the company, purchasing, promoting sales, and business research and control.

Defendants argued that the Adjusters are exempt because they are engaged in this type of work.  The Court rejected this argument, holding that "not all activities that involve advising management, planning, negotiating, and representing the company satisfy the qualitative component of the 'directly related' requirement."  Slip op. at 16.  The Court then held: "Because Employers make no attempt to specify where the line should be drawn, let alone to show that Adjusters' work falls on the proper side, their argument fails."  Slip op. at 17.  

This holding would appear to have fairly broad application to other professions, and the Court used the example of legal secretaries to illustrate the point.  Legal secretaries perform many of the types of work described in the regulation, but "it is difficult to see how any of that secretarial work could constitute work that is 'directly related to management policies or general business operations.'"  Slip op. at 18.  

The Court then emphasized an important point that it undoubtedly hopes will help insulate its ruling from further review before the California Supreme Court: 

The Supreme Court observed that "the one element of the administrative exemption" that is at issue in these proceedings concerns "the character of [Adjusters'] duties," and the court pointed out that the analysis in the Bell cases was based on the plaintiffs' role in their employer's business and consequently did not address the character of those plaintiffs' duties. Nowhere in this opinion do we in any way rely upon the Bell cases, and our discussion of Employers' argument concerning Federal Regulations former part 541.205(b) (2000) concerns only Adjusters' duties and is entirely independent of Adjusters' role in Employers' business. 

Slip op. at 19 (internal citations omitted).  

Producing the Employer’s Product

"Employers argue that Adjusters do not produce Employers' product because Employers' product is the transference of risk, not claims adjusting."  Slip op. at 19. The Court rejected this argument for two reasons: first, because adjusting claims is "an important and essential part of transferring risk;" and second, because "workers who do not produce their employer's product can still do work that fails to satisfy the qualitative component of the 'directly related' requirement."  Slip op. at 20.  

The Court here demonstrates the Supreme Court's point that the production worker / administrative dichotomy does not always work.  The Court again uses the example of the legal secretary.  He or she does not produce the law firm's product -- legal advice -- but he or she also does not perform work that is directly related to the firm's management policies or general business operations.  Slip op. at 21.  

Effect of Federal Regulations Former Part 541.205(c)(5) (2000)

Federal Regulations former part 541.205(c) (2000) provided: 

The test of "directly related to management policies or general business operations" is also met by many persons employed as advisory specialists and consultants of various kinds, credit managers, safety directors, claim agents and adjusters, . . . and many others.  

Defendants again argued that the Adjusters are exempt because they are engaged in this type of work.  The Court rejected the argument, holding that this regulation is related to the quantitative element of the "directly related" requirement, and the Supreme Court has already held that only the qualitative element is at issue.  Slip op. at 22.  

Agency Opinion Letters and Federal Case Law

The Court declined to follow opinion letters from the DOL or the DLSE.  It also declined to follow district court cases.  Slip op. at 22-24.  

The Alleged Heterogeneity of the Class

Finally, the Court addressed the Defendants' argument that "the qualitative component of the "directly related" requirement cannot be dispositive, and class treatment cannot be appropriate because the certified class is so heterogeneous." Slip op. at 24.  The Court dismissed this argument, again relying on its conclusion that "no evidence shows that any class members primarily engage in work at the level of management policy or general business operations."  Slip op. at 24.  In other words, absent evidence that any class members are subject to the administrative exemption, the Defendants' exemption defense fails.  And that is a predominant issue common to the class members.  Slip op. at 25.  

Conclusion

The parties do not disagree as to Adjusters' work duties. Indeed, the evidence is essentially undisputed as to what those duties are. We hold that, with the few exceptions we have noted, Adjusters' work duties do not satisfy the qualitative component of the "directly related" requirement because they are not carried on at the level of policy or general business operations. Adjusters therefore are not primarily engaged in work that is "directly related to management policies or general business operations." (Fed. Regs. § 541.205(a) (2000).) It follows that Adjusters are not exempt administrative employees under either Wage Order 4-1998 or Wage Order 4-2001. Accordingly, Adjusters' motion for summary adjudication should have been granted, and, because the qualitative component of the "directly related" requirement is a predominant common issue under both wage orders, Employers' motion for class decertification should have been denied in its entirety.

Slip op. at 25-26. Defendants undoubtedly will petition the California Supreme Court for review, and it will be very interesting to see how the Supreme Court responds.  

As I said regarding the Supreme Court's decisions in Harris and Brinker, this court seems to be looking for its identity, at least in employment law cases.  Perhaps by the time Harris goes back up -- if it does go back up -- this Court will have a better sense of how it is going to approach and resolve employment cases and it will give us a more definitive decision than it did the first time around.  On the other hand, perhaps the Court of Appeal has done enough to satisfy the concerns raised by the Supreme Court the first time around, and the Supreme Court will deny review.  

The opinion is available here.  

Aleman v. AirTouch Cellular: Supreme Court Denies Publication Request

In March, the California Supreme Court granted review in Aleman v. AirTouch Cellular (blogged here) pending its decision in Kirby v. Immoos Fire Protection, Inc.  The Court issued its decision in Kirby (discussed here) in April and transferred Aleman back to the Court of Appeal for reconsideration in light of Kirby.  

The Supreme Court today denied the employer's request that the Court of Appeal's prior decision in Aleman be published.  I have not read the briefs, but I assume the request was based on the fact that Aleman covered reporting time and split shift issues that were not impacted by Kirby.  I assume that the Court of Appeal will not change its rulings on those issues, but it will be interesting to see whether the Court of Appeal publishes its decision on remand and, if so, how the Supreme Court responds.

Fahlen v. Sutter Central Valley Hospitals: Healthcare Whistleblower Need Not File Mandamus Before Filing in Court

Fahlen v. Sutter Central Valley Hospitals (8/14/12) --- Cal. App.4th --- addresses exhaustion requirements for whistleblowers in the healthcare industry.  

Health and Safety Code section 1278.5 is a whistleblower protection law designed to encourage health care workers to notify authorities of “suspected unsafe patient care and conditions.” (§ 1278.5, subd. (a).) One of the issues we must decide is whether a doctor claiming he lost his hospital privileges as a form of whistleblower retaliation must exhaust his judicial remedy of pursuing review, via writ of mandate, of the hospital's action before he can file a whistleblower lawsuit under section 1278.5. A section 1278.5 claim cannot be asserted in writ proceedings, so applying the exhaustion requirement would delay relief for a whistleblower.   

In two recent cases interpreting the California Whistleblower Protection Act (Gov. Code, § 8547 et seq.), the California Supreme Court held that a state employee sanctioned by an agency need not file a mandate petition against the agency before suing it under the whistleblower statute. The court recognized the Legislature's intent to encourage employees to report threats to public health without fear of retribution. (Runyon v. Board of Trustees of California State University (2010) 48 Cal.4th 760, 763, 774; State Bd. of Chiropractic Examiners v. Superior Court (2009) 45 Cal.4th 963, 977-978.) For the same reason, prior filing of writ proceedings also is not required here. 

Slip op. at 2.  The Court held that the same rule applied to the plaintiff's cause of action for declaratory judgment under Business and Professions Code Section 803.1, but he would have to exhaust administrative remedies on the following common law and statutory causes of action:  interference with the right to practice an occupation; interference with prospective economic advantage; retaliation for advocating for appropriate care for his patients in, violation of Business and Professions Code sections 510 and 2056; and wrongful termination of hospital privileges.  

The opinion is available here.

In re Matter of Eber: Ninth Circuit Considers Role of Arbitration in Bankruptcy Proceedings

In the Matter of Eber, --- F.3d --- (7/5/12), is not an employment case, but it is interesting because brings the Arbitration Wars to an unusual forum: the Bankruptcy Court.

This case arises on appeal from a bankruptcy court order denying motion to compel arbitration of claims for breach of contract, fraud, and breach of fiduciary duty. The bankruptcy court found that enforcing the arbitration agreement would allow the arbitrator to determine the dischargeability of the alleged debt, infringing on the bankruptcy court's exclusive jurisdiction to determine the dischargeability of debts for fraud, breach of fiduciary duty, and willful and malicious injuries. 11 U.S.C. 523(a).

The creditors appealed to the district court (C.D. Cal., Judge George H. Wu), which affirmed. They then appealed to the Ninth Circuit, which also affirmed.

The question for the Court was how to reconcile the Federal Arbitration Act (FAA) with the Bankruptcy Code.

While the FAA establishes a federal policy of favoring arbitration, “[l]ike any statutory directive, the Arbitration Act’s mandate may be overridden by a contrary congressional command.” Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987). The party that is opposing arbitration has the burden of proving “that Congress intended to preclude a waiver of judicial remedies for [the particular claim] at issue.” Id. at 227.   

To determine if Congress intended to override the FAA’s policy favoring arbitration in a particular statute, courts must examine: (1) the text of the statute; (2) its legislative history; and (3) whether an inherent conflict between arbitration and the underlying purposes of the statute exist. Id.  

***  

This Circuit and sister circuits applying the McMahon factors to the Bankruptcy Code have found no evidence in the text of the Bankruptcy Code or in the legislative history suggesting that Congress intended to create an exception to the FAA in the Bankruptcy Code.... The relevant inquiry then becomes “whether there is an inherent conflict between arbitration and the underlying purposes of the Bankruptcy Code.” 

Slip op. at 7898.

The Court held that "allowing an arbitrator to decide issues that are so closely intertwined with dischargeability would 'conflict with the underlying purposes of the Bankruptcy Code.'" Slip op. at 7901. These "underlying purposes" include "centralization of disputes concerning a debtor’s legal obligations, and protection of debtors and creditors from piecemeal litigation." Ibid. As a result, the bankruptcy court did not abuse its discretion in denying the motion to compel arbitration. Ibid. 

This decision of course brings to mind D.R. Horton (discussed here), in which the National Labor Relations Board found (1) no conflict between Federal labor law and the FAA, and (2) even if such a conflict exists, the FAA must yield.  D.R. Horton is pending before the Fifth Circuit Court of Appeals (Case No. 12-60031), and I have added it to our watch list of pending cases.  

The opinion is available here.

Aleksick v. 7-Eleven: Franchisor Not Liable for Wage and Hour Violations

In Patterson v. Domino's Pizza (6/27/12) --- Cal.App.4th --- (discussed here), Division Six of the Second District Court of Appeal (Justices Gilbert, Yegan, and Perren) held that a franshisor may be liable for a franchisee's alleged violations of the Fair Employment and Housing Act (FEHA).  

In Aleksick v. 7-Eleven (5/8/12) --- Cal.App.4th ---, Division One of the Fourth Appellate District (Justices McConnell, Huffman, and Nares) held that 7-Eleven is not liable for allegedly shorting its franchisees' employees of earned wages.   

Plaintiff Kimberly Aleksick worked for Michael Tucker, who owned franchises for two 7-Eleven stores.  Tucker's franchise agreement with 7-Eleven required him to use 7-Eleven's payroll services.  After her employment ended, Aleksick sued 7-Eleven, alleging that: 

7-Eleven's practice of converting hours worked from minutes to hundredths of an hour sometimes shorts employees of time and commensurate pay, and thus violates Labor Code wage statutes.  She focuses on the following elementary example:  20 minutes is one-third of an hour, and at an hourly rate of $12, pay should be $4.  When 7-Eleven converts the 20 minutes to 0.33, however, and multiplies that figure by $12, pay is $3.96. 

Slip op. at 1-2.  Aleksick alleged that 7-Eleven violated the unlawful and unfair prongs of the UCL.  The parties stipulated to class certification and made cross-motions for summary judgment / summary adjudication.  

As a side note, 7-Eleven's stipulation to class certification is very interesting.  As a result of that stipulation and the Court's decision, 7-Eleven now has a binding judgment against all class members, not just against Aleksick.  Had 7-Eleven moved for summary judgment against Aleksick alone, absent class members would have been free to bring subsequent actions alleging the same violations.  See Smith v. Bayer Corp., 564 U.S. ---, 131 S.Ct. 2368 (6/16/11) (discussed here); Bridgeford v. Pacific Health Corp. (2012) 202 Cal.App.4th 1034 (discussed here). 

The trial court (Imperial County Superior, Judge Jeffrey B. Jones) granted 7-Eleven's motion for summary judgment and denied Aleksick's motion for summary adjudication, holding that 7-Eleven's system was "inherently reasonable."  The Court did not address 7-Eleven's arguments that Aleksick failed to identify a statutory predicate for her UCL claim or that 7-Eleven is not the class members' employer.  Aleksick appealed, and the Court of Appeal affirmed. 

First, the Court held that Aleksick failed to identify a statutory predicate for her UCL claim, thus forfeiting the argument: 

Her complaint does not allege any statutory predicate for the UCL cause of action.  The complaint merely alleges 7-Eleven "has violated both California law and/or its own contractual promise, thereby depriving the class members of money earned by them."  This vague allegation did not notify 7-Eleven that in moving for summary judgment it was required to address Labor Code sections 204, subdivision (a), 223, 510, subdivision (a), 1182.12, and 1194, subdivision (a) [which Aleksick identified for the first time on appeal].  

Slip op. at 9-10.  

Second, the Court held that the "undisputed evidence shows 7-Eleven was not the class members' employer."  Slip op. at 10.  Relying on Martinez v. Combs (2010) 49 Cal.4th 35 (discussed here) and Futrell v. Payday California, Inc. (2010) 190 Cal.App.4th 1419 (discussed here), the Court held: 

7-Eleven exercised no control over Tucker's employees, including their hiring or firing, rate of pay, work hours and conditions; 7-Eleven did not "suffer or permit" the employees to work; and it did not engage them in work. 

Aleksick did not meet her burden of raising a material issue of fact on the employment issue.  Indeed, in supplemental briefing we requested, Aleksick concedes "it is undisputed that 7-Eleven is not the employer of the class members."

Slip op. at 17 (emphasis in original).  

Third, the Court held that Aleksick failed to raise a triable issue of fact on her claim that 7-Eleven violated the UCL's "unfair" prong.  Noting the uncertainty regarding the scope of that prong in consumer cases, the Court followed Gregory v. Albertson's, Inc. (2002) 104 Cal.App.4th 845, 854, which held: 

[Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163]  . . . may signal a narrower interpretation of the prohibition of unfair acts or practices in all unfair competition actions and provides reason for caution in relying on the broad language in earlier decisions that the court found to be 'too amorphous.'  Moreover, where a claim of an unfair act or practice is predicated on public policy, we read Cel-Tech to require that the public policy which is a predicate to the action must be 'tethered' to specific constitutional, statutory or regulatory provisions." 

Slip op. at 20-21.  

Aleksick argued that 7-Eleven had violated the public policy in favor of full and prompt payment of wages, but she cited only to cases in which employees sued their employers.  Because the Court held that7-Eleven could not be liable as the class members' employer, it held that these cases were inapposite, and Aleksick's claim failed.  

The Court did not reach the issue of whether an employer could be liable under the Labor Code wage statutes and the UCL for the conversion of any partial hour worked from minutes to hundredths of an hour. 

The opinion is available here.  

Arias v. Kardoulias: Trial Court Does Not Have Jurisdiction to Award Attorney Fees Against Employee Who Files Untimely Appeal of Labor Commissioner Award

In Arias v. Kardoulias (7/26/12) --- Cal.App.4th ---, the Court of Appeal held as follows: 

Labor Code section 98.2, subdivision (c) states that if a party files an appeal in the superior court seeking review of the California Labor Commissioner's (commissioner) decision and is “unsuccessful in the appeal,” the court shall determine the reasonable attorney fees and costs incurred by the other parties to the appeal and assess that amount as a cost upon the party filing the appeal.  “An employee is successful [on appeal] if the court awards an amount greater than zero.”  The commissioner awarded Rebecca C. Arias $6,319.69 in unpaid wages, but her untimely appeal to the superior court was dismissed on jurisdictional grounds.  The superior court considered Arias “unsuccessful on appeal,” and assessed $6,395 in attorney fees and costs against Arias, the party filing the appeal.   

In this case of first impression, we must determine whether the dismissal on jurisdictional grounds of an untimely appeal from the commissioner's decision is equivalent to an “award of zero” for purposes of assessing attorney fees and costs against an unsuccessful employee under section 98.2, subdivision (c).  Unlike a conventional case, when a party timely appeals the commissioner's decision, the superior court conducts a new trial on the merits of the employee's wage claim.  (§ 98.2, subd. (a).)  The statutory right to recover attorney fees under section 98.2, subdivision (c) depends upon success at trial.  Because the purpose behind this one-way fee-shifting provision is to discourage unmeritorious appeals, based upon the statutory language and the legislative intent, we hold that section 98.2, subdivision (c) does not become operative unless the superior court has jurisdiction to conduct a trial on the merits of the employee's wage claim.  We therefore reverse the attorney fees and costs assessed in this action.  

Slip op. at 2.  From the basis that the statutory intent to discourage unmeritorious appeals, the Court reasoned that an employee files an unmeritorious appeal "only if the superior court, upon a trial de novo, reaches the merits of the wage claim and concludes the employee has no right to recover unpaid wages."  Slip op. at 8.  That obviously does not happen if the trial court determines, as a preliminary matter, that the appeal was not timely.  Ibid.  As an illustration, in the case here, the plaintiff ended up with an enforceable judgment -- based on the Labor Commissioner's order, decision or award ("ODA") in the amount of $6,319.69.  Slip op. at 9.  

The opinion is available here.  

Headley v. Church of Scientology: Forced Labor Claims v. Church of Scientology Fail Because Plaintiffs Could Have Left Church

Headley v. Church of Scientology International, ---F.3d --- (9th Cir. 7/24/12) presents unique issues regarding human trafficking and forced labor and gives a remarkable view of the workings of the Church of Scientology.  I find the opinion's introduction fascinating and will quote it at length.  

This case centers around the Church of Scientology International (the Church) and its component Sea Organization (or Sea Org). The Church exercises overall ecclesiastical management of the Scientology religion. The Sea Org is an elite religious order of the Church and acts as Scientology’s evangelical wing. The Sea Org demands much of its members, renders strict discipline, imposes stringent ethical and lifestyle constraints, and goes to great efforts to retain clergy and to preserve the integrity of the ministry. These features of the Sea Org flow from the teachings and goals of the Scientology religion.  

Scientology teaches that man is an immortal spiritual being that, over time, becomes distressed as his mind experiences moments of pain or lowered consciousness.  Scientology maintains, however, that man can overcome that distress—he can become “clear”—by using methods developed by Scientology founder L. Ron Hubbard. Scientology aims to disseminate Hubbard’s teachings to  “clear the planet”—that is, to help enough people to overcome spiritual distress to free the planet of crime, war, and irrationality. That effort is entrusted largely to the Sea Org.   

Before embarking on that effort, each Sea Org member makes a symbolic one-billion-year commitment to serve the Church.  A member may make that commitment only after undergoing extensive training and study, passing a fitness exam, and obtaining a Church-issued certification attesting that the applicant is qualified for Sea Org life.  During their training, Sea Org members learn that the ministry will require them to work long hours without material compensation, to live communally, to adhere to strict ethical standards, and to be subject to firm discipline for ethical transgressions.  The Church, in turn, agrees to provide Sea Org members with all living necessities and a weekly allowance for incidental items.     

The Sea Org’s lifestyle constraints include strict policies on outside communications, marriage, and children.  Sea Org members’ mail is censored and phone calls are monitored as part of ministry discipline and policy. Because Sea Org life may at any moment require a member indefinitely to serve anywhere in the world, the Church prohibits Sea Org members from having children unless they leave the order. A Sea Org member who chooses to have a child must transfer out of the Sea Org (but can still work for the Church).  And staff members in Scientology’s Religious Technology Center (the Center)—which promotes the orthodox practice of Scientology—are permitted to marry only other Center staff.   

Sea Org members learn that strict discipline is central to preserving the integrity of Scientology’s ministry. If a member fails to meet Scientology’s ethical standards, he may be disciplined with verbal warnings or rebukes, loss of privileges, removal from a post, diminution of responsibilities, manual labor, or expulsion. Sea Org members also participate in religious training and practices, including “confessionals.” In a confessional, a member confesses transgressions and may then be absolved or disciplined.   

This demanding, ascetic life is not for everyone—and is not even for many of those who go through the Sea Org’s extensive training and preparation. Members thus often wish to leave the Sea Org for a more normal life. A member may formally withdraw his vows and leave the ministry through a process called “routing out.” Routing out allows a member to remain a Scientologist in good standing. The process involves filling out a form and normally includes participating in Scientology ethics programs. Routing out can take weeks or months. During that time members are excused from their posts but are expected to continue serving the Church by performing chores.    

Some Scientologists leave the Sea Org without routing out —a practice known as “blowing”—but the Sea Org discourages members from doing so. When a member leaves without routing out, other members may band together to try to locate that member and attempt to  persuade him to return to the Sea Org.  Scientologists believe that such an effort—known as a “blow drill”—is integral to their efforts to clear the planet and to help their members (even departed ones) achieve salvation. So important is this to the Church that a blown member may be disciplined if he returns or may be declared a “suppressive person.” Being so declared is akin to being excommunicated or shunned, and can cause blown members to lose contact with Scientologist family or friends. 

Plaintiffs Marc and Claire Headley were members of the Church and the Sea Org.  After leaving the Sea Org, they sued for violation of the Trafficking Victims Protection Act, which prohibits an employer from obtaining another’s labor  “by means of” force, physical restraint, serious harm, threats, or an improper scheme. 22 U.S.C. 7100 et seq.  The district court granted summary judgment for the Church, and the plaintiffs appealed.  

The Ninth Circuit affirmed, holding that the plaintiffs had not shown that the Church obtained their labor "by means of" serious harm, threats, or other improper methods. The Court found that the plaintiffs worked voluntarily for the Church and could not show that that "serious harm" would befall them "if they did not continue to work" or that threats “compel[ed] [them] to remain" with the employer. The threat that they could in effect be excommunicated from the Church if they left is not "'serious harm'—and warning of such a consequence is not a 'threat'—under the Trafficking Victims Protection Act."  

The Court did not reach the question of whether the ministerial exception would bar a claim under the Trafficking Victims Protection Act. See, e.g., Hosanna-Tabor Evangelical Lutheran Church & School v. EEOC, 132 S. Ct. 694, 702 (2012) (discussed here).  

The opinion is available here. 

Wohlgemuth v. Caterpillar: Where Plaintiff Accepts 998 Offer That Is Silent as to Attorney Fees and Costs, Plaintiff Is Prevailing Party and May Recover Fees and Costs

Wohlgemuth v. Caterpillar Inc. (7/23/12) --- Cal.App.4th --- is not an employment case, but it demonstrates an important point for counsel in employment matters, particularly defense counsel: when dealing with a CCP section 998 offer to compromise, be sure that the offer states clearly whether prevailing party costs and fees are included in the amount of the offer.  Failure to do so can lead to a very uncomfortable situation for the defendant and its counsel.  

"Where a [Code of Civil Procedure] section 998 offer is silent on costs and fees, the prevailing party is entitled to costs and, if authorized by statute or contract, [attorney] fees." (Engle v. Copenbarger & Copenbarger, LLP (2007) 157 Cal.App.4th 165, 168.)  This is a "brightline rule," meaning that "a [Code of Civil Procedure] section 998 offer to compromise excludes [attorney] fees only if it says so expressly." (Id. at p. 169, italics added.)

Slip op. at 6.   

Plaintiffs filed suit for violation of the Song-Beverly Consumer Warranty Act. Before trial, defendant made a CCP 998 offer to pay plaintiffs $50,000 in exchange for a dismissal with prejudice and release of all claims. The offer was silent as to attorney fees and costs.  

The plaintiffs accepted the offer and moved to recover their attorney fees and costs.  The trial court (Fresno County Superior, Judge Jeffrey Y. Hamilton) found that plaintiffs prevailed and awarded them their fees and costs.  Defendant appealed, and the Court of Appeal affirmed.  

First, the Court rejected defendant's argument that the trial court could not award attorney fees and costs because the case was dismissed, and no judgment was entered.  A "compromise agreement contemplating payment by defendant and dismissal of the action by plaintiff is the legal equivalent of a judgment in plaintiff's favor." Slip op. at 8.  

Second, the Court held that the trial court did not abuse its discretion in finding that the plaintiffs were the prevailing parties.  While defendant could be the prevailing party because a dismissal was entered, plaintiffs also could be the prevailing parties because they obtained a net monetary recovery.  In this case, the trial court did not abuse its discretion by finding that plaintiffs were the prevailing parties.  

The moral of the story is clear. Be very careful with CCP 998 offers.  Read the statute and the offer carefully to avoid nasty surprises.  

The opinion is available here. 

Nominations Open for ABA Journal Blawg 100

The ABA Journal is working on its annual list of the 100 best legal blogs, and they'd like your advice on which blawgs you think they should include:  

Use the form at this link to tell us about a blawg—not your own—that you read regularly and think other lawyers should know about. Or if you don't have particular blawgs in mind but think blawgs from a certain practice areas should be represented in the Blawg 100, you can use this form to let us know. Send us a separate message for each blawg you want to support. We may include some of the best comments in our Blawg 100 coverage. But keep your remarks pithy—you have a 500-character limit. Friend-of-the-blawg briefs are due no later than 7 p.m. ET on Friday, Sept. 7, 2012.  

Please feel free to nominate The California Employment Law Blog.  Thanks!  

Daily Journal Quotes Steven G. Pearl on Current State of Arbitration Law

The Daily Journal ran a front page article today noting the confused state of California law on mandatory arbitration and class action waivers after Concepcion. Daily Journal writer Emily Green quoted retired California Supreme Court Justice Carlos Moreno, Los Angeles Superior Court Judge William Highberger, and yours truly in discussing California law pre- and post-Concepcion.

Emily did a very nice job of describing the current situation:

After a history of consumer- and employee-friendly decisions by the state Supreme Court limiting mandatory arbitration, California appellate courts are considering whether to gut those precedents in an effort to comport with a new controversial standard set by the U.S. Supreme Court. 

The state appeals courts are seeing a glut of arbitration-related cases, largely brought by employers and businesses seeking to compel disgruntled consumers and employees to resolve their claims privately instead of through the courts.  

The courts have responded by issuing disparate and sometimes contradictory opinions, especially on the issue of unconscionability, the question of whether arbitration claims are enforceable. The opinions have left litigants in legal limbo, unsure if they are bound by arbitration. 

Sounds right to me. And while decisions from the California Supreme Court in its current docket of arbitration cases may help resolve some of these issues, we all should recognize that the Supreme Court of the United States likely will not hesitate to correct what it perceives as an improper decision. See Sonic-Calabasas A, Inc. v. Moreno (discussed here) and Coleman v. Court of Appeals of Maryland, 132 S.Ct. 1327 (3/20/12) (discussed here).

Hester v. Vision Airlines: Ninth Circuit Affirms Terminating Sanctions in Class Action for Discovery Abuse

Hester v. Vision Airlines, Inc., --- F.3d --- (7/18/12) is an unusual case that deals with a couple of interesting points.

Plaintiff Gerald Hester worked as a pilot for Vision Airlines. Vision was subcontracted to deliver supplies through war zones to U.S. military posts in Iraq and Afghanistan. The United States provided substantial “hazard pay” for the pilots and crew members who made those flights.

Hester sued Vision, alleging that it failed to pay more than $21 million in "hazard pay" to its employees. The trial court certified the class.

After extensive discovery disputes, the district court sanctioned Vision by striking its answer, entered default judgment, and held a jury trial to determine damages. Vision appealed.

First, the Court rejected Vision's argument that the district court abused its discretion by not considering less drastic sanctions, as required. The district court specifically "determined that no alternative sanction would be sufficient and Vision’s conduct warrants striking its Answer." Slip op. at 12. The district court "warned Vision on the record several times about the possibility of a case-dispositive sanction, and the court’s written order contained an explicit, three-and-a-half-page discussion of why less drastic sanctions were insufficient." Slip op. at 13.

Second, the Court rejected Vision’s argument that the complaint's allegations were insufficient to support a the judgment. As to the claim for conversion, "In Nevada, a defendant’s wrongful dominion over a plaintiff’s commission of money is sufficient for a conversion claim, even when no personal property is involved." Slip op. at 15.  Vision could not merely dispute the allegations made as a way to relitigate the facts alleged in the complaint.  Ibid.

Third, the Court rejected Vision's argument that the district court erred in certifying the class because Hester had an employment contract and other class members did not, defeating the typicality, predominance, and adequacy requirements for class certification. The Court found that Vision "did not produce any evidence that Hester had an employment contract with Vision," and the "single page, unilateral memorandum from Vision to Hester, which informed Hester of changes in rates at which Vision would pay captains and first officers" did not show "that Hester was a party to an employment contract with Vision or that he was situated differently from other members of the Class." Slip op.a t 16.

On the class's cross-appeal, the Court held that the district court improperly struck the class's claim for punitive damages. The Court held that punitive damages were allowed under Nevada law because the claims did not arise under contract.

[I]n this case, the Complaint alleges facts that could allow a jury to conclude that Vision engaged in oppression, fraud, or malice when it refused to pay its employees the hazard pay they were due, when it fired those employees to whom it had already paid hazard pay, or when it continued to accept hazard pay monies from upstream contractors for years with no intention of distributing that money.

Slip op. at 17-18.

The opinion is available here. 

Skilstaf v. CVS: Ninth Circuit Affirms Dismissal Where Claims Alleged Were Released in Prior Class Action

Skilstaf, Inc. v. CVS Caremark Corp., ---F.3d --- (9th Cir. 2/9/12) presents an unusual fact pattern. 

Skilstaf, Inc., was a member of a certified class in an action filed in Massachusetts district court against  McKesson Corporation, alleging a conspiracy to violate RICO.  The case resolved after certification, with McKesson paying a substantial settlement.  

Skilstaf filed a "limited objection" in the Massachusetts action, arguing that the release language proposed in the settlement was overly broad.  Under the release provision, the class members, including Skilstaf, not only released their claims against the McKesson, but also agreed not to sue "any other person seeking to establish liability based, in whole or in part," on the claims released.  The Massachusetts district court overruled Skilstaf's objection, but gave Skilstaf a second opportunity to opt out of the settlement.  Skilstaf declined to do so.  

Skilstaf instead pursued a separate action in California district court, alleging that other entities had conspired with McKesson to violate RICO, as alleged in the Massachusetts action.  Skilstaf sued on behalf of the same class certified and settled in the Massachusetts action.  

The California district court dismissed Skilstaf's claims under Federal Rule of Civil Procedure 12(b)(6) "on the basis that they were precluded by the covenant not to sue that the Massachusetts court had approved as part of the settlement agreement in [the earlier action] and included in the final judgment."  Skilstaf appealed.  

Skilstaf raises three arguments on appeal. First, Skilstaf argues that the district court erred by dismissing the case on the pleadings without allowing discovery. Skilstaf contends that California law on contract interpretation mandates discovery when a party claims that extrinsic evidence makes a contract ambiguous; when third parties—like the retailpharmacy defendants—seek to benefit from a contract; or when a party asserts the defense of mutual mistake to the enforcement of a contract. Second, Skilstaf argues that by limiting the due process analysis to the issue of whether the covenant not to sue was enforceable against Skilstaf, the district court failed to provide what the final judgment entered in New England Carpenters promised: the right to have the California district court determine the enforceability of the covenant not to sue against all members of the Massachusetts class, not just Skilstaf. And third, Skilstaf argues that even if the district court properly limited its due process analysis to whether the covenant not to sue was enforceable against Skilstaf, due process was not met merely by providing Skilstaf, the objector, with a second opt-out opportunity. 

The Ninth Circuit rejected each of these arguments and affirmed the dismissal.  

The opinion is available here.  

Day v. AT&T Disability Income Plan: Ninth Circuit Affirms Plan Administrator's Reduction of Former Employee's Long Term Disability Benefits

In Day v. AT&T Disability Income Plan, --- F.3d --- (9th Cir. 7/3/12), the Ninth Circuit Court of Appeal held that a plan administrator did not abuse its discretion by reducing a former employee's long term disability benefits after the employee rolled his pension benefits into an individual retirement account.  

David Day, an ERISA plan beneficiary, elected to roll over his pension benefits into an individual retirement account (IRA) upon separation from his employer, AT&T. Exercising its discretion, the plan's claims administrator construed Day's lump sum rollover as the equivalent of his having "received" his pension benefits and, according to the terms of AT&T's Disability Income Benefit Plan, reduced Day's long-term disability (LTD) benefits by the amount of the rollover. Day argues that having his pension payout deposited directly into an IRA subject to tax penalties for early withdrawals meant he did not actually receive the funds, an interpretation that finds support in Blankenship v. Liberty Life Assurance Co. of Boston, 486 F.3d 620, 624-25 (9th Cir. 2007). Reviewing the claims administrator's decision for an abuse of discretion, however, we must defer to the administrator's reasonable interpretation of the plan. We also reject Day's further contentions that AT&T failed to sufficiently disclose the possibility that his LTD benefits would be reduced by his receipt of pension benefits, and that the administrator's actions violate the Age Discrimination in Employment Act (ADEA). Accordingly, we affirm the judgment of the district court.

Slip op. at 1.  The opinion is available here.  

Bullock v. Berrien: Ninth Circuit Addresses Exhaustion Requirements in Federal Employee's Disability Discrimination Action

Bullock v. Berrien, --- F.3d --- (9th Cir. 7/30/12), deals with a federal employee's duty to exhaust administrative remedies before filing a civil action for disability discrimination suit under the Rehabilitation Act of 1973.  29 U.S.C. § 701 et seq.  In short, the Court held that an employee who files an optional administrative appeal after an ALJ adjudicates her case may dismiss her appeal and file in the district court, even if she does not wait the 180 days required by the regulations.

The opinion is available here. 

Los Angeles Superior Court Implements Checklist for Preliminary and Final Class Action Settlement Approval

Last year, the Los Angeles Superior Court published a set of Guidelines for Motions for Preliminary and Final Approval of Class Settlement. The guidelines are there to help attorneys make better motions and help judges evaluate them more consistently. You can find the Guidelines on the Court's web site here.

At the State Bar's Advanced Wage and Hour Conference last week, Judge Kevin Brazile announced that the Court has been working on a check-list for evaluation of settlements. It is not yet available on the Court's web site, but he sent me a draft that I can pass along to you.

The check-list really is a tentative ruling that the court can use to request additional briefing on a list of ares that the judge can check off: "The Court Orders further briefing on the items checked below...."

The items are organized into categories: Class Certification, Case Summary, Settlement Terms and Evaluation, Submission of Claims, Cy Pres, Notice, Fees and Costs, and Exhibits to the Motion. Many of the items include authorities, such as the following, under the Attorney Fees category:

Need to provide a lodestar analysis. Consumer Privacy Cases (2009) 175 Cal.App.4th 545, 556-558. See also Dunk v. Ford Motor (1996) 48 Cal.App.4th 1794, 1809 ("Later cases have cast doubt on the use of the percentage method to determine attorney fees in California class actions.")

The blog does not allow me to attach documents, but if you call or email me, I will send the check-list to you.

Roberts v. El Cajon Motors: Defendant's Chindarah Pick-Off Was "Inconsistent with Intent To Arbitrate" and Supported Trial Court's Order Denying Petition to Compel Arbitration

Roberts v. El Cajon Motors, Inc. (11/8/11) 200 Cal.App.4th 832, is not an employment case, but it is another battle in the Arbitration Wars, with an interesting Chindarah v. Pick-Up Stix twist.  

Plaintiff filed a putative class action against Defendant for violation of the Automobile Sales Finance Act (Civ. Code § 2981 et seq.; ASFA), the Consumers Legal Remedies Act (id., § 1750 et seq.) and the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.; UCL).  Defendant answered the complaint, and the parties exchanged discovery requests.  Defendant also solicited and received releases from a number of putative class members.  

The trial court denied Defendant's petition to compel arbitration, finding that Defendant waived the right to compel arbitration and that the arbitration agreement was unconscionable.  Defendant appealed, and the Court of Appeal affirmed.  

The Court first held that Defendant had waived its right to compel arbitration because its conduct was inconsistent with its intent to arbitrate and such conduct prejudiced Plaintiff.  Plaintiff conducted discovery related to the putative class and if arbitration were ordered "much, if not all, of this discovery likely would be rendered useless" in light of the arbitration agreement's class action waiver language.  200 Cal.App.4th at 845.  Plaintiff would not have propounded this discovery if Defendant had moved promptly to compel arbitration, rather than waiting to do so five months after filing its answer.  Id. at 846.  

The Court also found that Defendant's solicitation of releases from putative class members was inconsistent with its right to arbitrate.  

El Cajon argues its conduct in identifying and contacting putative class members and seeking to resolve their claims was "completely outside the litigation system" and thus does not support waiver. We disagree.   

Instead, the record shows El Cajon offered the putative class members $50 to settle their claims in this lawsuit in order to mitigate their damages in this lawsuit. What's more, El Cajon conditioned settlement on the putative class members' release of their claims against El Cajon stemming from this lawsuit, a settlement it undoubtedly would enforce, if necessary, in this lawsuit. The record also shows about 30 putative class members accepted the settlement and ostensibly released their claims against El Cajon in this lawsuit.  

Id. at 847.

This is a quirky case that I do not expect to have particularly broad application. I do not understand the Defendant's delay in seeking to compel arbitration, nor do I understand the Court's reasoning. I agree with the Court that the Chindarah pick-off was not "completely outside the litigation system," but that is not the test for waiver. The test is whether the party's conduct was "inconsistent with an intent to invoke arbitration." The Court does not seem to have analyzed this case under the proper standard.

The opinion is available here.