Ramirez v. Balboa Thrift and Loan: Court of Appeal Reverses Denial of Class Certification in UCL Action

Ramirez v. Balboa Thrift and Loan (3/21/13, pub. 4/22/13) is an interesting case on class certification.

The plaintiff, Ramirez, brought a putative class action, alleging that a car finance company, Balboa, violated the Unfair Competition Law by improperly pursuing a deficiency claim after Ramirez surrendered her car to Balboa. Specifically, Ramirez alleged that Balboa violated the UCL and the Rees-Levering Motor Vehicle Sales and Finance Act (the Act) by failing to comply with the Act's requirement that its "Notice of Intention to Dispose of Motor Vehicle" (NOI) contain the specific "conditions precedent" to reinstatement of her vehicle loan.

The trial court denied certification, finding that individual issues predominated. Specifically, the trial court held that it was unclear "whether there were grounds to deny reinstatement" of each putative class member's motor vehicle loan under Civil Code section 2983.3(b)(1). Section 2983.3(b)(1) provides that a buyer has no right to reinstate her loan if the seller or holder "reasonably and in good faith" determines that the buyer "intentionally provided false or misleading information of material importance on his or her credit application."

The Court of Appeal reversed.

Ramirez challenges the court's reliance on section 2983.3(b)(1) to deny her class certification motion. We agree this ground was not a proper basis for denying class certification. The court's conclusion was based on an improper legal assumption, i.e., that Balboa would be entitled to assert this statutory exception as a valid affirmative defense to the UCL claim alleged by class members who were given a reinstatement right in the NOI.

Slip op. at 17. 

The Court relied on the fact that under the Act, "a seller/holder who wishes to preserve its rights to claim a deficiency must determine within a 60-day period after repossession whether a buyer is entitled to a reinstatement, and then notify the buyer of this decision." If the seller determines that the buyer is not entitled to reinstatement, it must state the reasons for this determination. Slip op. at 18-19.

With regard to Balboa's argument that individual issues predominated because other class members may not have had the right to reinstatement, the Court held that "Balboa did not proffer any facts showing that any such exception would apply to any of the other class members." Slip op. at 20.

The Court did not consider Balboa's other grounds for opposing certification because it found that the trial court had relied primarily on the mistaken legal analysis discussed above. Instead, the Court remanded for reconsideration on the proper legal analysis. Slip op. at 20-22.

The opinion is available here.  

Natalini v. Import Motors: Court Affirms Order Denying Enforcement of Arbitration Clause Found To Be Unconscionable

Another quick note on a case from earlier this year. In Natalini v. Import Motors (1/7/13, pub. 2/5/13) --- Cal.App.4th ---, a car buyer filed an action action alleging individual and class claims against a car dealer, for, inter alia, violation of the Consumer Legal Remedies Act, the Rees-Levering Motor Vehicle Sales and Finance Act, the Unfair Competition Law.

The dealer filed a petition to compel arbitration pursuant to a provision in the car sales contract, but the trial court denied the petition because it concluded the arbitration provision was unconscionable. The Court of Appeal affirmed, holding:

• Concepcion does not invalidate unconscionability analysis. Slip op. at 3-7. 
• The arbitration agreement was procedurally unconscionable because: (a) the seller presented it on a take it or leave it basis, and the buyer could not negotiate it; and (b) it was located on the back of the purchase contract and was not pointed out to the buyer. Slip op. at 7-8. 
• The arbitration agreement was substantively unconscionable because it was designed to benefit the seller in a number of ways: (a) it permitted an appeal only in case of an award of $0 or greater than $100,000; (b) it permitted an appeal if the award included injunctive relief; and (c) it allowed self-help remedies, including repossession. Slip op. at 8-12. 

The Court declined to sever the unconscionable aspects of the agreement. Slip op. at 12-13.

The seller has filed a petition for review, and I assume that the California Supreme Court will grant and hold pending its decision in Iskanian v. CLS Transportation of Los Angeles (Case No. S204032) (discussed here).

Natalini v. Import Motors is available here.

Radcliffe v. Experian: Ninth Circuit Reverses Settlement Approval in Fair Credit Reporting Act Case

In Radcliffe v. Experian Information Solutions Inc., ___ F.3d ___ (9th Cir. 4/23/13) the Ninth Circuit reversed a district court order approving the $45 million settlement of an action under the Fair Credit Reporting Act where: (a) the class representatives' enhancement awards were conditioned on their support of the settlement, creating a conflict of interest between them and the absent class members; and (b) the conditional incentive awards ($5,000) "significantly exceeded in amount what absent class members could expect to get upon settlement approval" (up to $1,400 per class member who demonstrated actual harm, depending on the type of harm suffered, plus $26 for any inconvenience suffered). 

Objecting Plaintiffs contend that the settlement agreement, which provides for incentive awards to named plaintiffs “in support of the [s]ettlement,” created a conflict of interest between the class representatives and the class. Objecting Plaintiffs also assert that, as a result of this conflict, class counsel engaged in conflicted representation by continuing to represent the settling class representatives (“Settling Plaintiffs” or “class representatives”) and the class at large after the two groups developed divergent interests. Objecting Plaintiffs thus contend that the class representatives and class counsel were inadequate to represent the absent class members. See Fed. R. Civ. P. 23(a)(4), 23(g)(1)(B). Upon review of the record and reflection on our precedents, we agree. 

Slip op. at 13.  

The opinion is available here.  

McVeigh v. Recology: Court of Appeal Reverses Summary Judgment on Whistleblower Claims

A quick note on a case from earlier this year.  

In McVeigh v. Recology San Francisco (1/31/13) --- Cal.App.4th ---, plaintiff Brian McVeigh worked for Recology, which provides waste collection services in San Francisco. Mr. McVeigh alleged that Recology terminated him in retaliation for reporting possible fraud in connection with payments for recycled materials. The trial court granted summary judgment for Recology, and McVeigh appealed. The Court of Appeal reversed, holding:

• A plaintiff in an action for violation of the California False Claims Act (CFCA) need not prove the merits of a potential qui tam action. Instead, he "need only show a genuine and reasonable concern that the government was possibly being defrauded in order to establish that he or she engaged in protected conduct." However, a CFCA claim fails where the plaintiff admits that the alleged fraud resulted in no economic harm to the government. Slip op. at 10-23. 
• To state a whistle-blower cause of action under the CFCA, an employee who is "charged with discovering fraud in the normal course of [his or her] job duties" must meet a "heightened notice standard" by giving notice to his employer that legal action may follow from the malfeasance being reported. Slip op. at 23-25. 
• An employee's report of allegedly illegal activity can constitute protected conduct under Labor Code section 1102.5, subdivision (b) even if she "was simply doing her job" in making the report. Further, section 1102.5, subdivision (b) protects employee reports of unlawful activity by third parties such as contractors and employees, as well unlawful activity by an employer.  Slip op. at 27-31.  

The opinion is available here.  

U.S. Airways v. McCutchen: SCOTUS Decides ERISA Plan Reimbursement Case

On April 16, the Supreme Court of the United States issued its decision in U.S. Airways v. McCutchen, which presents the following issue:

Whether the Third Circuit correctly held -- in conflict with the Fifth, Seventh, Eighth, Eleventh, and D.C. Circuits -- that Section 502(a)(3) of the Employee Retirement Income Security Act (ERISA) authorizes courts to use equitable principles to rewrite contractual language and refuse to order participants to reimburse their plan for benefits paid, even where the plan’s terms give it an absolute right to full reimbursement.

In a 5-4 decision written by Justice Kagan, the Court held that the Third Circuit improperly resorted to equitable principles in deciding the issue. I am not an ERISA lawyer and I am taking the easy way out on this one by just re-printing the decision's syllabus: 

The health benefits plan established by petitioner US Airways paid $66,866 in medical expenses for injuries suffered by respondent McCutchen, a US Airways employee, in a car accident caused by a third party. The plan entitled US Airways to reimbursement if McCutchen later recovered money from the third party. McCutchen’s attorneys secured $110,000 in payments, and McCutchen received $66,000 after deducting the lawyers’ 40% contingency fee. US Airways demanded reimbursement of the full $66,866 it had paid. When McCutchen did not comply, US Airways filed suit under §502(a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA), which authorizes health-plan administrators to bring a civil action “to obtain . . . appropriate equitable relief . . . to enforce . . . the terms of the plan.” McCutchen raised two defenses to US Airways’ request for an equitable lien on the $66,866 it demanded: that, absent overrecovery on his part, US Airways’ right to reimbursement did not kick in; and that US Airways had to contribute its fair share to the costs he incurred to get his recovery, so any reimbursement had to be reduced by 40%, to cover the contingency fee. Rejecting both arguments, the District Court granted summary judgment to US Airways.  

The Third Circuit vacated. Reasoning that traditional “equitable doctrines and defenses” applied to §502(a)(3) suits, it held that the principle of unjust enrichment overrode US Airways’ reimbursement clause because the clause would leave McCutchen with less than full payment for his medical bills and would give US Airways a windfall.  

Held: 

1. In a §502(a)(3) action based on an equitable lien by agreement—like this one—the ERISA plan’s terms govern. Neither general unjust enrichment principles nor specific doctrines reflecting those principles—such as the double-recovery or common-fund rules invoked by McCutchen—can override the applicable contract. Pp. 5–11.  

(a) Section 502(a)(3) authorizes the kinds of relief “typically available in equity” before the merger of law and equity. Mertens v. Hewitt Associates, 508 U. S. 248, 256. In Sereboff v. Mid Atlantic Medical Services, Inc., 547 U. S. 356, the Court permitted a healthplan administrator to bring a suit just like this one. The administrator’s claim to enforce its reimbursement clause, the Court explained, was the modern-day equivalent of an action in equity to enforce a contract-based lien—called an “equitable lien ‘by agreement.’ ” Id., at 364–365. Accordingly, the administrator could use §502(a)(3) to obtain funds that its beneficiaries had promised to turn over. The parties agree that US Airways can do the same here. Pp. 5–6.  

(b) Sereboff’s logic dooms McCutchen’s argument that two equitable doctrines meant to prevent unjust enrichment—the double recovery rule and common-fund doctrine—can override the terms of an ERISA plan in such a suit. As in Sereboff, US Airways is seeking to enforce the modern-day equivalent of an equitable lien by agreement. Such a lien both arises from and serves to carry out a contract’s provisions. See 547 U. S., at 363–364. Thus, enforcing the lien means holding the parties to their mutual promises and declining to apply rules—even if they would be “equitable” absent a contract—at odds with the parties’ expressed commitments. The Court has found nothing to the contrary in the historic practice of equity courts. McCutchen identifies a slew of cases in which courts applied the equitable doctrines invoked here, but none in which they did so to override a clear contract that provided otherwise. This result comports with ERISA’s focus on what a plan provides: §502(a)(3) does not “authorize ‘appropriate equitable relief’ at large,” Mertens, 508 U. S., at 253, but countenances only such relief as will enforce “the terms of the plan” or the statute. Pp. 6–11.  

2. While McCutchen’s equitable rules cannot trump a reimbursement provision, they may aid in properly construing it. US Airways’ plan is silent on the allocation of attorney’s fees, and the common fund doctrine provides the appropriate default rule to fill that gap. Pp. 12–16. 

(a) Ordinary contract interpretation principles support this conclusion. Courts construe ERISA plans, as they do other contracts, by “looking to the terms of the plan” as well as to “other manifestations of the parties’ intent.” Firestone Tire & Rubber Co. v. Bruch, 489 U. S. 101, 113. Where the terms of a plan leave gaps, courts must “look outside the plan’s written language” to decide the agreement’s meaning, CIGNA Corp. v. Amara, 563 U. S. ___, ___, and they properly take account of the doctrines that typically or traditionally have governed a given situation when no agreement states otherwise. Pp. 12–13.  

(b) US Airways’ reimbursement provision precludes looking to the double-recovery rule in this manner because it provides an allocation formula that expressly contradicts the equitable rule. By contrast, the plan says nothing specific about how to pay for the costs of recovery. Given that contractual gap, the common-fund doctrine provides the best indication of the parties’ intent. This Court’s cases make clear that the doctrine would govern here in the absence of a contrary agreement. See, e.g., Boeing Co. v. Van Gemert, 444 U. S. 472, 478. Because a party would not typically expect or intend a plan saying nothing about attorney’s fees to abrogate so strong and uniform a background rule, a court should be loath to read the plan in that way. The common-fund rule’s rationale reinforces this conclusion: Without the rule, the insurer can free ride on the beneficiary’s efforts, and the beneficiary, as in this case, may be made worse off for having pursued a third party. A contract should not be read to produce these strange results unless it specifically provides as much. Pp. 13–16. 

The opinion is available here.  SCOTUSblog's page for McCutchen is here.  SCOTUSblog has an interesting analysis here. 

The State Bar of California's Labor and Employment Law Section will present a Watch List webinar on McCutchen within the next two weeks.  The speakers are Noah Lipschultz of Littler Mendelson in Minneapolis, who represents U.S. Airways as plan administrator, and Matthew Wessler of Public Justice in Washington, D.C., who argued in the Supreme Court for  the respondent, James McCutchen.  I will post once I know the date of the webinar.  

Genesis Healthcare Corp. v. Symczyk: SCOTUS Rules on Justiciability of "Headless" FLSA Collective Action

Genesis Healthcare Corp. v. Symczyk has been on our Watch List for a while, and on April 16 we got the decision.

Laura Symczyk brought a FLSA putative collective action against her former employer, Genesis Healthcare. Genesis answered and served a Rule 68 offer to pay Symczyk $7,500, plus attorney fees and costs set by the court. Symczyk ignored the offer, Genesis asked the district court to dismiss the case. The district court did so, holding that it lacked subject-matter jurisdiction because no other plaintiffs had joined the action. 

The Third Circuit reversed, holding that Symczyk's individual case was moot, but that she should have the opportunity to move for conditional certification. If conditional certification were granted, that decision should relate back to the filing of the complaint, thus avoiding the question of mootness.

In a 5-4 decision authored by Justice Thomas, the Supreme Court reversed. 

The Court began by noting that "Article III, §2, of the Constitution limits the jurisdiction of federal courts to 'Cases' and 'Controversies,' which restricts the authority of federal courts to resolving 'the legal rights of litigants in actual controversies.'" Slip op. at 3-4. The Court then held that Symczyk had waived her right to contest that the unaccepted settlement offer mooted her individual claim:

While the Courts of Appeals disagree whether an unaccepted offer that fully satisfies a plaintiff’s claim is sufficient to render the claim moot, we do not reach this question, or resolve the split, because the issue is not properly before us. The Third Circuit clearly held in this case that respondent’s individual claim was moot. Acceptance of respondent’s argument to the contrary now would alter the Court of Appeals’ judgment, which is impermissible in the absence of a cross-petition from respondent. Moreover, even if the cross-petition rule did not apply, respondent’s waiver of the issue would still prevent us from reaching it. In the District Court, respondent conceded that “[a]n offer of complete relief will generally moot the [plaintiff’s] claim, as at that point the plaintiff retains no personal interest in the outcome of the litigation.” Respondent made a similar concession in her brief to the Court of Appeals, and failed to raise the argument in her brief in opposition to the petition for certiorari. We, therefore, assume, without deciding, that petitioners’ Rule 68 offer mooted respondent’s individual claim. 

Slip op. at 5 (citations omitted). Having assumed this point without deciding it, the Court then held that the relation back doctrine did not apply, and the action did not remain justiciable based solely on the collective action allegations made in the complaint.  The Court distinguished cases arising in the Rule 23 class action context, "both because Rule 23 actions are fundamentally different from collective actions under the FLSA ... and because these cases are, by their own terms, inapplicable to these facts."  Slip op. at 6.  

First, the Court held that Symczyk did not retain a personal stake in the case because she had not yet moved for conditional certification before her case became moot.  Slip op. at 7-8.  Second, the Court held that the action was not inherently transitory and likely to evade review because un-joined plaintiffs remain capable of bringing their own actions to enforce their rights.  Slip op. at 8-10. Third, because Symczyk had conceded that her case was moot, she "failed to assert any continuing economic interest in shifting attorney's fees and costs to others," and therefor she could not argue that "the purposes served by the FLSA's collective action procedures ... would be frustrated by defendant's use of Rule 68 to 'pick off' named plaintiffs before the collective-action process had run its course."  Slip op. at 10-11.  

In dissent, Justice Kagan questioned the underlying premise that the majority opinion "assumed without deciding," that Symczyk's individual case became moot when she rejected Genesis's settlement offer.  

We made clear earlier this Term that “[a]s long as the parties have a concrete interest, however small, in the outcome of the litigation, the case is not moot.” “[A] case becomes moot only when it is impossible for a court to grant any effectual relief whatever to the prevailing party.” By those measures, an unaccepted offer of judgment cannot moot a case. When a plaintiff rejects such an offer—however good the terms—her interest in the lawsuit remains just what it was before. And so too does the court’s ability to grant her relief. An unaccepted settlement offer—like any unaccepted contract offer—is a legal nullity, with no operative effect.  As every first-year law student learns, the recipient’s rejection of an offer “leaves the matter as if no offer had ever been made.” Nothing in Rule 68 alters that basic principle; to the contrary, that rule specifies that “[a]n unaccepted offer is considered withdrawn.” So assuming the case was live before—because the plaintiff had a stake and the court could grant relief—the litigation carries on, unmooted. 

Slip op. at 3 (internal citations omitted).  

The opinion is available here, and SCOTUSblog has its coverage here. 

Flores v. West Covina Auto Group: Supreme Court Issues Another Iskanian Grant-and-Hold

In Flores v. West Covina Auto Group (1/11/13) (discussed here), the Court of Appeal affirmed an order granting individual arbitration in an action alleging individual claims and putative class claims under the Consumer Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.), the Automobile Sales Finance Act (ASFA) (Civ. Code, § 2981 et seq.), and the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.). 

Not surprisingly, the California Supreme Court on April 10 granted review and deferred briefing pending Iskanian v. CLS Transportation of Los Angeles (Case No. S204032) (discussed here).  

Flores is Case No. S208716, and the Court's web page for it is here.  

Kilgore v. Keybank: Ninth Circuit Issues Decision on Arbitration of "Public Injunction" Actions

The Ninth Circuit yesterday issued its decision in Kilgore v. Keybank, N.A., ___ F.3d ___ (4/11/13), which considered whether a district court erred in denying a defendant's motion to compel arbitration of an action seeking injunctive relief on behalf of approximately 120 individuals who had borrowed money from the bank to attend a now-defunct helicopter school. The Court reversed the district court order denying the motion to compel.

First, the Court held that the arbitration agreement was neither substantively nor procedurally unconscionable. "Plaintiffs claimed below that the Note’s ban on class arbitration is unconscionable under California law, but that argument is now expressly foreclosed by Concepcion, 131 S. Ct. at 1753. Plaintiffs’ assertion that students may not be able to afford arbitration fees fares no better." Slip op. at 12-13.

Second, and of greater interest, the Court declined to decide whether Concepcion overrules California's Broughton-Cruz rule, which prohibits arbitration of "public injunction" cases that are brought for the benefit of the general public rather than the party bringing the action. Slip op. at 16. "Even assuming the continued viability of the Broughton-Cruz rule, Plaintiffs’ claims do not fall within its purview." Ibid. Instead, the injunctions requested related only to past harms and would benefit only the approximately 120 putative class members. Slip op. at 17.

The central premise of Broughton-Cruz is that “the judicial forum has significant institutional advantages over arbitration in administering a public injunctive remedy, which as a consequence will likely lead to the diminution or frustration of the public benefit if the remedy is entrusted to arbitrators.” Broughton, 988 P.2d at 78. That concern is absent here, where Defendants’ alleged statutory violations have, by Plaintiffs’ own admission, already ceased, where the class affected by the alleged practices is small, and where there is no real prospective benefit to the public at large from the relief sought. 

Slip op. at 17-18. The opinion is available here. 

I am very pleased that James Sturdevant of The Sturdevant Law Firm, who argued in the Ninth Circuit for the plaintiffs, and Donald Falk of Mayer Brown LLP, who represents the defendant, have agreed to join us for a Watch List webinar on Kilgore.  I will post as soon as I have the date.  In the mean time, don't forget that we will present our Watch List program on Comcast Corp. v. Behrend (discussed here) on April 16 at noon.

Baltazar v. Forever 21: Supreme Court Issues Grant and Hold of Arbitration Decision

In Baltazar v. Forever 21, Inc. (12/20/12) 212 Cal.App.4th 221 (discussed here), an individual discrimination, harassment, and constructive discharge action, the trial court denied the defendants' motion to compel arbitration, and the Court of Appeal reversed, holding:

• Unconscionability analysis survives Concepcion. 
• The defendant did not offer evidence to show that the agreement evidenced "a transaction involving commerce," so the California Arbitration Act (CAA) applied, rather than the Federal Arbitration Act (FAA). 
• Because the CAA allows parties to seek provisional remedies in court, arbitration agreement allowing parties to do so was not substantively unconscionable. 

On March 20, the California Supreme Court granted review and deferred briefing pending Wisdom v. Accentcare (discussed here). 

Comcast v. Behrend Watch List Webinar April 16

In Comcast Corp. v. Behrend, ___ U.S. ___ (3/27/13), a 5-4 majority of the United States Supreme Court reversed a district court order granting class certification in an antitrust action. The Court held that the plaintiffs had not met their burden to show that common questions predominated over individual questions under Federal Rule 23(b)(3) because their damage model fell "far short of of establishing that damages are capable of measurement on a classwide basis."  Slip op. at 7.

At 12:00 p.m. on April 16, 2013, the State Bar's Labor and Employment Law Section, in conjunction with the Antitrust Section, will present the latest in its Watch List series of webinars:

Comcast v. Behrend: A View From The Supreme Court

We are very pleased that the attorneys who argued the case in the Supreme Court, plaintiffs' counsel Barry Barnett of Susman Godfrey, and defendant's counsel, Miguel A. Estrada of Gibson, Dunn & Crutcher, will join us for this program. Christopher T. Handman of Hogan Lovells will moderate.  Registration is here. 

If, like me, you cannot attend on the 16th, the program will be available for later on demand viewing.  

State Bar Public Sector Labor and Employment Conference, May 3 in Berkley

Those who practice in the public sector will want to attend the State Bar Labor and Employment Law Section's 19th Annual Public Sector Conference on Friday, May 3, at the Claremont Hotel in Berkeley. The Section normally holds the Conference in Sacramento, and the Claremont Hotel is a serious upgrade.

Speakers include the Director of DFEH, the Chair of PERB, the General Counsel of CalPERS, and other distinguished attorneys from both sides of the bar.  Topics include annual updates in employment and labor law, pension reform, post-employment benefits, ethics and social media, and more. The Conference costs only $140 for Section members, which is an incredible bargain.

More information is available here.