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

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

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

The Ninth Circuit held that the district court erred in failing to analyze the FAA exemption issue. however, because there was no case law directly on point, the Court held that the district court's error was not "clear error" sufficient to justify a writ of mandate:

We agree that [the plaintiffs] make a strong argument that the District Court erred, but we nonetheless hold that this case does not warrant the extraordinary remedy of mandamus. We therefore deny the petition.

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

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

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

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

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

The opinion is available here.

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

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

On appeal from the order granting the order granting the preliminary injunction, the Court held that the trial court did not abuse its discretion in granting the preliminary injunction based on the issue sanctions.

Weinstock argues that the court erred in relying on the issue sanctions rather than holding a hearing to determine, without regard to the sanctions, whether the noncompete agreement was enforceable. He argues that had the court not granted the issue sanctions, it would have determined that the noncompete clause was invalid and unenforceable and would have found that NLS did not demonstrate a probability of success on the merits. Essentially, Weinstock argues that the court should have ignored the issue sanctions and determined the issues anew. This misunderstands the nature of issue sanctions. Such sanctions for discovery abuse may be proper even when inconsistent evidence is available, leaving the jury with a misimpression as to actual facts, because the sanctions “effectively remove[ ] from the jury's consideration evidence favorable to the offending party's position, or ... deem [ ] issues in favor of the aggrieved party even though the offending party has strong evidence to the contrary. Such is the natural consequence of serious discovery violations.” (Karlsson v. Ford Motor Co., supra, 140 Cal.App.4th at 1220, fn. 11, 45 Cal.Rptr.3d 265.) The court did not abuse its discretion in relying on the issue sanctions in granting the preliminary injunction.

The issue sanctions established that Weinstock knowingly breached his employment contract, including the noncompete clause, and engaged in unfair competition; that the employment contract and the noncompete clause were enforceable; that Weinstock used the TMR machine in doing so, and without the proper supervision of a physician; and that NLS suffered damages. These issues having been deemed determined against Weinstock, the court was entitled to consider them in determining NLS's likelihood of success. Given that the determined issues virtually assured that NLS would prevail at trial, there was a very strong showing of likelihood of success on its claim that Weinstock had violated the enforceable noncompete clause and had used the TMR device in doing so, to the detriment of NLS.

Slip op. at 10.

The opinion is available here.

Back from Hiatus - Ready to Catch Up

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

In Life Technologies Corp. v. Superior Court (7/14/11) 197 Cal.App.4th 640, the plaintiff in a discrimination and wrongful termination action sought detailed information regarding certain of his former co-workers, including:

(a) The names of all employees terminated during a two-year period, November 1, 2008 to June 28, 2010.

(b) The department each worked for when terminated.

(c) The date of termination.

(d) The age of each at termination.

(e) The reason for termination.

(f) Whether severance benefits were offered.

(g) Whether offered severance benefits were accepted.

(h) A description of any offered severance benefits.

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

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

(k) Whether the terminated employees were former employees of Appelera or Applied Biosystems.

Slip op. at 4. The trial court (San Mateo Superior, Judge Joseph C. Scott) granted the plaintiff's motion to compel, and the Court of Appeal granted the defendant's writ application. The Court held that the information sought "implicates significant privacy rights of the third party employees/former employees." Slip op. at 6. The Court distinguished Pioneer Electronics, Crab Addison, and Lee v. Dynamex because the potential witnesses were not class members. Slip op. at 8. The Court concluded:

We therefore conclude the trial court abused its discretion in ordering further answers to the challenged special interrogatories. The court failed to evaluate, with regard to each category of information requested by Joyce, whether a compelling need for the information outweighs the third parties' privacy interests, taking into consideration whether less intrusive means exist for Joyce to obtain the information he seeks. (See Britt, supra, 20 Cal.3d at pp. 855–864, 143 Cal.Rptr. 695, 574 P.2d 766; Harding Lawson Associates v. Superior Court, supra, 10 Cal.App.4th at p. 10, 12 Cal.Rptr.2d 538; El Dorado Savings & Loan Assn. v. Superior Court, supra, 190 Cal.App.3d at p. 346, 235 Cal.Rptr. 303.) The court also failed to provide sufficient notice to the third party employees/former employees affording them a simple, reasonable means of objecting to the disclosure of their personal information, and failed to provide for the protection of any such information ultimately ordered disclosed. (See Alch, supra, 165 Cal.App.4th at p. 1418, 82 Cal.Rptr.3d 470; cf. Code Civ. Proc., § 1985.6, subds. (b)–(f).)

Slip op. at 10. The opinion is available here.

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

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

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

The opinion is available here.

More District Court Reaction to Dukes

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

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

Butcher v. United Airlines, Inc., No. 09-11681 (D. Mass. July 22, 2011), in which the court denied a motion for reconsideration following Dukes:

Dukes does not involve the FLSA, and its holding does not apply to conditional certification. It is well settled that Rule 23 is more stringent than § 216(b) generally, see Lewis v. Wells Fargo Co., 669 F. Supp. 2d, 1124, 1127 (N.D. Cal. 2009) (The requisite showing of similarity of claims under the FLSA is considerably less stringent than the requisite showing under Rule 23 of the Federal Rules of Civil Procedure, quoting Wertheim v. Arizona, 1993 WL 603552, at *1 (D. Ariz. 1993)), and especially so at the conditional certification stage.

And Ramos v. SimplexGrinnell LP, No. 07-CV-981 (E.D. NY June 21, 2011), in which the court granted a Rule 23(b)(3) motion for class certification in an action for unpaid prevailing wages under New York law.

The Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. _, 2011 WL 2437013 (2011), issued earlier this week, does not command a different result. In Wal-Mart, the Court considered whether plaintiffs had bridged the “conceptual gap” between an individual’s claim of injury and the existence of a class of persons who have suffered the same injury. 2011 WL 2437013, at *8. The Court held that the gap could be bridged with “significant proof that [defendant] operated under a general policy of discrimination.” Id. (internal quotation marks omitted). The Court found that such proof was “entirely absent” and emphasized that plaintiffs did not allege “any express corporate policy” of discrimination, id. at *4, and that the challenged pay and promotion decisions were “generally committed to local managers’ broad discretion, which [was] exercised in a largely subjective manner.” Id. at *3. The relevant facts and circumstances in Wal-Mart have little bearing here. As indicated above, plaintiffs have come forward with significant proof that defendant routinely failed to account for labor performed on public works projects and pay prevailing wages for covered work. Moreover, there is little discretion or subjective judgment in determining an employee’s right to be paid prevailing wages; the right arises automatically, by operation of law, provided the nature of the construction project and the type of labor performed fall within the scope of New York Labor Law § 220. In addition, whereas in Wal-Mart defendant had an “announced policy” prohibiting discrimination, id. at *8, defendant here has not come forward with evidence of an expressed uniform policy that ensured the payment of prevailing wages to its employees when due. Finally, although the efforts of the Wal-Mart plaintiffs to prove their case with statistical evidence failed, plaintiffs here have come forward with class-wide proof culled from defendant’s electronic data that, as discussed in greater detail below, is sufficiently reliable to be presented at trial.

Slip op. at 9-10.

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

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

Spellman v. American Eagle Express, No. 10-1764 (E.D. Pa. July 21, 2011) is a FLSA collective action in which the plaintiffs allege that American Eagle (AEX) misclassified them and their co-workers as independent contractors, rather than employees. In May, the court granted conditional certification. After the Supreme Court issued its decision in Walmart v. Dukes, the defendant moved for reconsideration. The court denied the motion:

On May 11, 2011, this Court granted Plaintiffs’ motion for conditional certification of a Fair Labor Standards Act (FLSA) collective class, represented by the named Plaintiffs and consisting of all former and current AEX delivery drivers who may be owed unpaid overtime wages under the FLSA. AEX asks this Court to reconsider its Order, arguing the Supreme Court’s recent decision in Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011), renders conditional certification inappropriate. In Dukes, the Supreme Court declined to certify a class pursuant to Federal Rule of Civil Procedure 23 on the basis that Rule 23(a)(2)’s commonality requirement could not be satisfied. Id. at **18.

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

Slip. op at 1 fn. 1.