Horne v. International Union of Painters and Allied Trades: Court Allows After-Acquired Evidence to Show That Plaintiff Was Not Qualified for Position in FEHA Action

Horne v. International Union of Painters and Allied Trades, District Council 16 (12/3/13) --- Cal.App.4th ---, deals with the after-acquired evidence doctrine in a FEHA discrimination case.

The plaintiff, Horne, sued the defendant, a labor union, for failing to hire him as a union organizer. During discovery, the union learned that Horne had a prior conviction for possession of narcotics for sale. The union moved for summary judgment, arguing that under federal law, the conviction rendered Horne ineligible for the position sought. The trial court granted the motion, Horne appealed, and the Court of Appeal affirmed.

The Court held that Horne failed to establish a prima facie case of racial discrimination because the undisputed evidence showed that his criminal conviction rendered him unqualified for the organizer position for which he was not hired. 29 U.S.C. § 504(a)(2). Slip op. at 4-5.

The after-acquired evidence doctrine did not preclude the trial court from considering this evidence even though the union did not know of the conviction at the time it decided not to hire Horne: 

The after-acquired evidence doctrine applies to bar consideration of Horne’s criminal record and the federal law rendering him ineligible for the organizer position if the issue is the council’s motive for not hiring him in February 2010... But the council’s motive in declining to hire Horne is not at issue unless he first establishes a prima facie case of racial discrimination, including evidence that he was qualified for the organizer position.

Slip op. at 5. Evidence that the applicant was disqualified as a matter of law at the time of the employment decision is relevant, whenever the employer acquired that information. Slip op. at 6. 

In the second part of the opinion, the Court held that the conviction at issue did in fact render Horne ineligible for the position sought. Slip op. at 7-8. 

The opinion is available here. 

Muniz v. UPS: Ninth Circuit Affirms $700,000 in Attorney Fees Following $27,000 FEHA Verdict

In Muniz v. United Parcel Service, Inc., ___ F.3d ___ (9th Cir. 12.5.13), the Ninth Circuit affirmed an award of $700,000 in attorney's fees where a jury awarded only $27,000 in damages for violation of California’s Fair Employment and Housing Act (FEHA). The Court held:

Plaintiff's counsel's declaration stating that he watched his paralegal reconstruct her working hours using the same information he used constituted inadmissible hearsay, and the portion of the fee award attributable to the paralegal's work should be reconsidered on remand. Slip op. at 13-15.

The district court court did not abuse its discretion in only deducting 10 percent from the lodestar amount for plaintiff’s unsuccessful claims, since California law allows for such percentage adjustments, and neither party was able to segregate hours spent exclusively on the unsuccessful claims. Slip op. at 15-18.

California law did not require the district court to reduce the disparity between damages and attorney fees. Slip op. at 18-19.

The district court did not abuse its discretion in declining to reduce the fee request further because the initial fee request of almost $2 million (calculated using a $1.2 million lodestar and 1.5 multiplier) was inflated. Slip op. at 19-22. 

The opinion is available here.

Mondragon v. Capital One Auto Finance: Ninth Circuit Clarifies CAFA "Local Controversy" Rule

Mondragon v. Capital One Auto Finance, ___ F.3d ___ (9th Cir. 11/27/13) concerns the "local controversy" exception to the general rules of federal jurisdiction set forth in the Class Action Fairness Act of 2005 (CAFA). 

The Court gives a good overview of CAFA and the local controversy exception: 

Through CAFA, Congress broadened federal diversity jurisdiction over class actions by, among other things, replacing the typical requirement of complete diversity with one of only minimal diversity, see id. § 1332(d)(2), and allowing aggregation of class members’ claims to satisfy a minimum amount in controversy of $5 million, see id. § 1332(d)(6). However, Congress also provided exceptions allowing certain class actions that would otherwise satisfy CAFA’s jurisdictional requirements to be remanded to state court. Among these is the exception commonly referred to as the local controversy exception, set forth in 28 U.S.C. § 1332(d)(4)(A). One of the requirements of the local controversy exception is that “greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed.” Id. § 1332(d)(4)(A)(i)(I). 

Slip op. at 3-4. 

The Court held that the plaintiff failed to show that a class of people who "purchased a vehicle in California for personal use to be registered in the State of California" would necessarily be California citizens, and the district court erred in relying on an inference that more than two-thirds of such class members would be California citizens. The Court remanded with instructions that the district court allow the plaintiff an opportunity to renew his motion to remand and to take jurisdictional discovery tailored to proving that more than two-thirds of the putative class are citizens of California. 

The opinion is available here.

Moncada v. West Coast Quartz: Court Rules On Misrepresentation Claims

A quick word on Moncada v. West Coast Quartz Corporation (10/28/13, pub. 11/22/13) --- Cal.App.4th ---, which involves allegations that an employer failed to pay a promised retention bonus. (A retention bonus is a bonus paid to compensate employees who agree to remain employed for some period of time, typically during a transition period, such as a sale or shut-down.)

In this case, the plaintiffs alleged that their employer offered them a retention bonus pending the sale of the business, then refused to pay. The plaintiffs sued for fraud, breach of contract, and other causes of action, trial court sustained the defendants' demurrer, the plaintiffs appealed, and the Court of Appeal reversed, holding:

Plaintiffs adequately fraud by alleging that the defendants "concealed the fact that they wanted plaintiffs to remain employed at West Coast to make the company more attractive to potential buyers, and only intended to give plaintiffs a nominal or no bonus for remaining employed." Slip op. at 5-8.

Plaintiffs adequately alleged breach of contract by alleging that "defendants told plaintiffs that if they stayed and continued to work for West Coast until the company sold, defendants would give plaintiffs bonuses that would be sufficient for plaintiffs to retire." Slip op. at 8-11.

Plaintiffs adequately alleged promissory estoppel by alleging that defendants "promised to pay them an amount sufficient to retire upon the sale of West Coast if they remained employed." Slip op. at 11-12.

Plaintiffs did not allege conduct sufficiently extreme or outrageous to support a cause of action for intentional infliction of emotional distress. Slip op. at 12-13.

Plaintiffs did not allege a cause of action for negligent misrepresentation because they alleged that the defendants knew their promises to be false at the time offered. Slip op. at 13-14.

Plaintiffs did not allege a cause of action for estoppel in pais, or equitable estoppel, which is defensive only and cannot be stated as an independent cause of action in California. Slip op. at 14-15.

The opinion is available here.

Ferguson v. Corinthian Colleges: Ninth Circuit Rejects Broughton-Cruz Rule

California's Broughton-Cruz rule prohibits arbitration of "public injunction" cases that are brought for the benefit of the general public rather than just the party bringing the action. Back in April, in Kilgore v. Keybank, N.A., ___ F.3d ___ (4/11/13) (discussed here), we thought that an en banc panel of the Ninth Circuit was going to give us its view of the continued viability of the rule in the wake of Concepcion. The Ninth Circuit did not address the issue in Kilgore, but addressed it directly in Ferguson v. Corinthian Colleges, Inc., ___ F.3d ___ (10/28/13), holding that the Federal Arbitration Act (FAA) preempts Broughton-Cruz. 

The Court started with the rule, stated in Concepcion, that “[w]hen state law prohibits outright the arbitration of a particular type of claim ... [the] conflicting rule is displaced by the FAA.” Slip op. at 11-12. The Court continued: 

That rule resolves this case. By exempting from arbitration claims for public injunctive relief under the [Consumer Legal Remedies Act], [Unfair Competition Law], and [False Advertising Law], the Broughton-Cruz rule similarly prohibits outright arbitration of a particular type of claim.

Slip op. at 12. 

The decision appears to leave a number of open questions: 

We decline to resolve in advance the question of what, if any, court remedy Plaintiffs might be entitled to should the arbitrator determine that it lacks the authority to issue the requested injunction. That is beyond the scope of this appeal. If the arbitrator comes to that conclusion, Plaintiffs may return to the district court to seek their public injunctive relief. We express no opinion on any question that might arise at that time. Similarly, we decline to resolve now questions that could arise if a motion is brought in court to confirm an arbitration award that includes injunctive relief, or whether it might be necessary for a court to enforce a public injunction awarded by an arbitrator. Those questions can be better addressed in the context of an actual case, with arguments directed more specifically to the questions raised in that case. 

Slip op. at 17. 

Ferguson v. Corinthian Colleges is available here. 

D.R. Horton v. NLRB: Fifth Circuit Overturns Ruling on NLRA Preemption of Class Action Waivers

A little more information on the Fifth Circuit's decision in D.R. Horton, Inc. v. NLRB, ___ F.3d ___ (5th Cir. 12/3/13).

In In re DR Horton, Inc., 357 NLRB 184 - 2012 (discussed here), the National Labor Relations Board (Board or NLRB) held that an employer violated section 8 of the National Labor Relations Act (NLRA) by requiring its employees to sign an arbitration policy. Horton appealed the decision to the Fifth Circuit Court of Appeals, which overturned the Board's decision.

After discussing a number of procedural and jurisdictional issues, the Court got to the heart of the analysis. The Court began with the premise that the Federal Arbitration Act (FAA) requires courts to enforce arbitration agreements according to their terms, then noted two exceptions to the rule: (1) an arbitration agreement may be invalidated on any ground that would invalidate a contract under the FAA’s “saving clause,” or (2) application of the FAA may be precluded by another statute’s contrary congressional command.

The Court held that under Concepcion, the Board’s rule "does not fit within the FAA’s saving clause." Slip op. at 19. "While the Board's interpretation [invalidating class action waivers] is facially neutral – requiring only that employees have access to collective procedures in an arbitral or judicial forum – the effect of this interpretation is to disfavor arbitration." Slip op. at 20. 

The Court then held that neither the text of the NLRA nor its legislative history evidences a "congressional command to override the FAA." Slip op. at 22. 

Finally, the Court affirmed the Board's holding that the arbitration language at issue violated the NLRA because it would lead employees to a reasonable belief that they were prohibited from filing unfair labor practice charges with the Board. Slip op. at 26-28.  

According to the Court, every Circuit Court of Appeals to consider D.R. Horton "has either suggested or expressly stated that [it] would not defer to the NLRB’s rationale, and held arbitration agreements containing class waivers enforceable." See Richards v. Ernst & Young, LLP, – F.3d — , No. 11-17530, 2013 WL 4437601, at *2 (9th Cir. Aug. 21, 2013); Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297-98 n.8 (2d Cir. 2013); Owen v. Bristol Care, Inc., 702 F.3d 1050, 1055 (8th Cir. 2013). 

The Fifth Circuit's opinion is available here. 

Angelica Textile Services v. Park: Employer Could State Non-Trade Secret Claims Against Former Officer

In Angelica Textile Services, Inc. v. Park (10/15/13) --- Cal.App.4th ---, an employer, Angelica, sued a former officer, Park, and his new employer for misappropriating trade secrets, violating the Unfair Competition Law (Cal. Bus. & Prof. Code 17200), interfering with business relationships, breaching his employment contract, converting documents, and breaching his fiduciary duties. Angelica alleged that Park disparaged it to a local bank and, in negotiating new contracts with two of its large customers, gave the customers cancellation rights that are not customary in the industry and that permitted those customers to shortly thereafter take their business to Park's new employer.

Before trial, the court dismissed Angelica's claims, other than its claim for violation of the Uniform Trade Secret Act (UTSA). Cal. Civil Code section 3426 et seq. The Court found that all non-UTSA claims were based on the alleged misappropriation of trade secrets and were therefore preempted by UTSA. A jury then found for the defendants on the trade secret claim.

The Court of Appeal reversed the judgment as to the non-UTSA causes of action. It held:

The UTSA did not preempt Angelica's non-UTSA claims. Slip op. at 10-16.

Breach of contract claims, even when they are based on misappropriation or misuse of a trade secret, are not displaced by UTSA. Slip op. at 15. Angelica's breach of contract claim was not based on any misappropriation of a trade secret but on Park's violation of a noncompetition agreement and was outside the scope of UTSA displacement on that basis as well. Ibid.

Angelica's claims for breach of fiduciary duty, unfair competition, and interference with business relations also alleged Park's violation of a noncompetition agreement and were outside the scope of UTSA displacement. Slip op. at 16. Angelica's conversion claim alleged that Park took non-trade secret documents and was not displaced by the UTSA. Slip op. at 16.  

Business and Professions Code section 16600, which limits the use of non-competition agreements, "does not affect limitations on an employee's conduct or duties while employed." Slip op. at 17. As a corporate officer, Park owed Angelica "broad fiduciary duties" while employed there, and section 16600 did not apply. Ibid. 

The opinion is available here.