Governor Brown Nominates Goodwin Liu to California Supreme Court

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

The article is here.

Cal. Supremes Grant and Hold in Lamps Plus

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

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

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

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

Review of LACBA Dinner on Dukes and Concepcion

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

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

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

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

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

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

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

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

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

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

The plaintiff brought a putative class and representative action under the Private Attorney General Act of 2004 (PAGA) against her employers (Ralphs) for alleged Labor Code violations. Ralphs petitioned to compel individual arbitration under its arbitration policy, which provided:

This Arbitration Policy applies to any and all employment-related disputes that exist or arise between Employees and Ralphs [Grocery Company] (or any of them) that would constitute cognizable claims or causes of action in a federal, state or local court or agency under applicable federal, state or local laws (referred to in this Arbitration Policy as ‘Covered Disputes').... “[T]here is no right or authority for any Covered Disputes to be heard or arbitrated on a class action basis, as a private attorney general, or on bases involving claims or disputes brought in a representative capacity on behalf of the general public, of other Ralphs [Grocery Company] employees (or any of them), or of other persons alleged to be similarly situated.... [T]here are no judge or jury trials and there are no class actions or Representative Actions permitted under this Arbitration Policy.

Ibid. (emphasis in original). The trial court (Los Angeles Superior, Judge Richard Rico) denied the petition, finding that the agreement was unconscionable and unenforceable, and Ralphs appealed. After submission of the appeal, the Supreme Court of the United States issued its decision in AT & T. The Court of Appeal affirmed in part, reversed in part, and remanded for further consideration.

The Court first considered the trial court's ruling that the arbitration waiver was unconscionable under Gentry v. Superior Court (2007) 42 Cal.4th 443 (invalidating class arbitration waiver in wage and hour class action):

Contrary to plaintiff's assertion, the court in Gentry, supra, 42 Cal.4th at page 446, required a factual showing under the four-factor test established in that case ["the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members' rights ... through individual arbitration"]. Plaintiff, however, made no such showing in opposing the petition to compel arbitration. Thus, there was no evidence, much less substantial evidence, supporting the trial court's finding that under Gentry, plaintiff had established a basis not to enforce the class action waiver. As a result, we reverse the trial court's ruling invalidating the class action waiver.

Accordingly, we do not have to determine whether, under AT & T, supra, 131 S.Ct. 1740, the rule in Gentry, supra, 42 Cal.4th 433 concerning the invalidity of class action waivers in employee-employer contract arbitration clauses is preempted by the FAA. (See Arguelles–Romero v. Superior Court (2010) 184 Cal.App.4th 825, 836 [“while Discover Bank is a case about unconscionability, the rule set forth in Gentry is concerned with the effect of a class action waiver on unwaivable rights regardless of unconscionability”]; People v. Landry (1996) 49 Cal.App.4th 785, 791 [California Supreme Court interpretation of federal law binding when there is “no contrary United States Supreme Court decision” on the issue]; see also Perry v. Thomas (1987) 482 U.S. 483, 489–491 [FAA preempted former § 299, which permits wage claims to be brought in court even though the parties had an arbitration agreement].)

Slip op. at 6-7. Having disposed of that issue without discussion, the Court next considered whether Ralphs could enforce the agreement's apparent waiver of plaintiff's right to bring a PAGA representative action.

The representative action authorized by the PAGA is an enforcement action, with one aggrieved employee acting as a private attorney general to collect penalties from employers who violate the Labor Code. “Such an action is fundamentally a law enforcement action designed to protect the public and penalize the employer for past illegal conduct. Restitution is not the primary object of a PAGA action, as it is in most class actions."

Slip op. at 8, citing Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277, and Arias v. Superior Court (2009) 46 Cal. 4th 969, 986. The Court then held that PAGA representative actions, unlike individual actions, are not subject to the rule in AT&T, supra,which held that because “it ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress’ [citation], California’s Discover Bank rule is preempted by the FAA.” The Court reasoned:

AT & T does not purport to deal with the FAA's possible preemption of contractual efforts to eliminate representative private attorney general actions to enforce the Labor Code. As noted, the PAGA creates a statutory right for civil penalties for Labor Code violations “that otherwise would be sought by state labor law enforcement agencies.” (Amalgamated Transit Union, Local 1756, AFL–CIO v. Superior Court (2009) 46 Cal.4th 993, 1003.) The “aggrieved employee acts as the proxy or agent of state labor law enforcement agencies, representing the same legal right and interest as those agencies, in a proceeding that is designed to protect the public, not to benefit private parties.” (Ibid.) This purpose contrasts with the private individual right of a consumer to pursue class action remedies in court or arbitration, which right, according to AT & T may be waived by agreement so as not to frustrate the FAA—a law governing private arbitrations. AT & T does not provide that a public right, such as that created under the PAGA, can be waived if such a waiver is contrary to state law.

Slip op. at 9. Applying a relatively narrow reading of AT & T, the Court concluded:

United States Supreme Court authority does not address a statute such as the PAGA, which is a mechanism by which the state itself can enforce state labor laws, for the employee suing under the PAGA “does so as the proxy or agent of the state's labor law enforcement agencies.” ( Arias, supra, 46 Cal.4th at p. 986, 95 Cal.Rptr.3d 588, 209 P.3d 923.) And, even if a PAGA claim is subject to arbitration, it would not have the attributes of a class action that the AT & T case said conflicted with arbitration, such as class certification, notices, and opt-outs. Until the United States Supreme Court rules otherwise, we continue to follow what we believe to be California law.

Slip op. at 13.

In a separate opinion concurring in part and dissenting in part, Justice Kriegler wrote:

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

Slip op. at 16.

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

The opinion is available here.

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

In Fairbanks v. Farmers New World Life Insurance Co. (July 13, 2011) --- Cal.App.4th ----, 2011 WL 2714173, the Court of Appeal affirmed a trial court (Los Angeles Superior, Judge Mohr) denying class certification:

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

As substantial evidence supports the trial court's factual finding, we affirm. On appeal, plaintiffs argue that the order denying class certification can be reversed on bases other than those argued to the trial court below. Specifically, although they argued before the trial court that a class action should be certified on the basis of the common marketing of the policies in combination with certain other allegedly improper practices of Farmers, plaintiffs now argue that the other allegedly improper practices standing alone support class certification. As this argument was not made before the trial court, we need not reach or consider it.

Slip op. at 1. I wanted to note this case, but it seems to me to be of limited usefulness, particularly because the plaintiffs failed to preserve their arguments for appeal. Frankly, I'm a little surprised the Court chose to publish the decision, which is available here.

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

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

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

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

The Court also found the agreement substantively unconscionable:

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

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

Id. at 5-6 (citations omitted).

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

The opinion is available here.