Tuesday, September 29, 2009

Second District Upholds Denial of Cert in Cohen v. DirecTV, Inc.

On September 28th the Second District Court of Appeal affirmed the trial court's denial of class certification in Cohen v. DirecTV, Inc. The Court's Opinion, which is unpublished, concluded that the trial court correctly denied class certification of a class that included persons who had not viewed alleged deceptive promotions by Direct TV. The Court reasoned that "we do not understand the UCL to authorize an award for injunctive relief and/or restitution on behalf of a consumer who was never exposed in any way to an allegedly wrongful business practice" and thereafter deemed the California Supreme Court's decision in Tobacco II "irrelevant because the issue of 'standing' simply is not the same thing as the issue of 'commonality.'" See Cohen, at pp. 15-16.

With all due respect to the Cohen Court, it got it wrong. The California Supreme Court rejected this very proposition in In Re Tobacco II, concluding that “to hold that the absent class members on whose behalf a private UCL action is prosecuted must show on an individualized basis that they have ‘lost money or property as a result of the unfair competition” (§ 17204) would conflict with the language in section 17203 authorizing broader relief – the ‘may have been acquired’ language….” See In re Tobacco II Cases, 46 Cal.4th 298, 320 (2009).

Moreover, the Court expressly rejected the argument that standing requirements could be "back-doored" on absent class members through the class elements:
At argument, defendants acknowledged that the text of Proposition 64 does not apply the standing requirements to unnamed class members. Defendants maintained, rather, that application of these requirements to absent class members is mandated by class action principles, specifically, that a class member must have standing to bring the action individually and that the aggregation of individual claims into a class action cannot be used to transform the underlying claim. We reject these arguments.
See Tobacco II, 46 Cal. 4th at 321 (emphasis added).

Importantly, the Court rejected this line of reasoning because it would substantively alter the focus of UCL which is concerned solely with the defendant’s conduct:
Defendants also argue that Proposition 64's standing requirement must be applied to all class members because otherwise the class representative would be permitted “to assert ‘claims’ that the absent class members do not have.” According to defendants this would violate the principle that the aggregation of individual claims into a class action “does not serve to enlarge substantive rights or remedies.” [] We disagree.
The substantive right extended to the public by the UCL is the “'right to protection from fraud, deceit, and unlawful conduct’” [], and the focus of the statute is on the defendant's conduct. As we have already observed, the proponents of Proposition 64 told the electorate that the initiative would not alter the statute's fundamental purpose of protecting consumers from unfair businesses practices. Rather, the purpose of the initiative was to address a specific abuse of the UCL's generous standing provision by eliminating that provision in favor of a more stringent standing requirement. That change, as we observed in Mervyn's, did not change the substantive law.
See Tobacco II, 46 Cal. 4th at 324 (emphasis added).

In re Tobacco unquestionably permits certification of the very type of restitutionary class at issue in Cohen. My further thoughts on this may be found here: The Scope of Class Restitution in the Wake of In Re Tobacco II Cases, Mealey's Litigation Report: Class Actions, Vol. 9, #14 (Sept. 17, 2009).

Saturday, September 26, 2009

New post Tobacco II UCL Opinion

On September 23, 2009 the Second District Court of Appeal issued a new class related opinion in Morgan v. AT&T Wireless,__ Cal.App.4th __ (2009). The opinion is one of the first to address pleading requirements under the UCL/FAL after In Re Tobacco II. A significant amount of attention is spent discussing the substantive requirements of the underlying UCL/FAL claims (relevant to the class), and Prop 64 standing requirements (relevant only to the named representative).

The decision also contains discussion of the accepted practice of pleading an injunctive CLRA claim prior to sending prelitigation notice (Cal. Civ. Code § 1782(d)). If my recollection serves me correctly, a depublication request was recently filed in Yabsley v. Cingular Wireless, LLC, 176 Cal. App. 4th 1156, 1165 n.4 (2009) over concerns the Second District included a footnoted discussion that omitted this distinction from its analysis. The Morgan opinion, which discusses this issue in significant detail, likely resolves any confusion that may have been caused by Yabsley's conclusory analysis.

Brother Can You Spare a Dime: Court Rejects Chase Bank's Claim that New York Law Does Not Require the Payment of Overtime Compensation

On September 4, 2009, New York District Court Judge, Hon. Roslynn R. Mauskopf, rejected efforts by JPMorgan Chase Bank, N.A. ("Chase") to disavow the existence of the New York State regulation empowering its hourly paid employees to receive overtime compensation. (Andrade v. JP Morgan Chase Bank, N.A., 2009 U.S. Dist. LEXIS 80836 (E.D.N.Y. Sept. 4, 2009)). Chase’s argument, which sought to set employee rights back 100 years to the era of Lochner v. New York, 198 U.S. 45 (1905), asserted that hourly employees in New York could claim overtime compensation under New York State law only if the employee had personally negotiated such a right with financial behemoth Chase by way of contract. The Lochner decision – which invalidated early efforts by the States to regulate sweatshop-like working conditions during the industrial revolution – reduced employee protections solely to the right of contract under a pro-business judicial philosophy that was subsequently abandoned in the post Depression era. In modern times, however, Chase’s claim insisting that New York does not have a mandatory overtime law is an extreme, if not outrageous, proposition. This fact was underscored by Judge Mauskopf, who reasoned that “the cases recognizing the validity of New York's overtime regulation are legion.” See Andrade, 2009 U.S. Dist. LEXIS 80836, at 5-7, n.1. Thus, the Andrade decision reflects a victory for New York hourly employees who are entitled by law to receive overtime compensation for going the extra mile to generate profits for their corporate employers.

The "Nature of the Work" Catch-22: Using the Meal Period Exemption to Establish a Class Wide Barrier to Rest Breaks

In the world of wage and hour class action litigation, employers are increasingly seeking to use the “on-duty” meal break exemption as a waiver defense to the action. Yet, employers who seek to defend a meal break class action by such means not only ensure a basis for class-wide adjudication of meal period claims [See Bufil v. Dollar Financial Group, Inc., 162 Cal. App. 4th 1193 (2008)], they may be unwittingly setting up an argument for class adjudication of rest periods claims as well.

An on-duty meal break is a codified exception to the requirement that “off-duty” meal breaks be given, and may be utilized by the employer “onlywhen the nature of the work prevents an employee from being relieved of all duty ….” See e.g. 8 CCR 11040(11)(A). “The test of whether the nature of the work prevents an employee from being ‘relieved of all duty’ is an objective one” [DLSE Enforcement Manual, at § 45.2.3.1], and is focused on the employer’s business “overall.” See West v. Circle K Stores, Inc., 2006 U.S. Dist. LEXIS 42074, 14 (E.D. Cal., 2006).

In light of the forgoing standards, an employer who advocates that it was entitled to invoke the on-duty meal break exemption based on the nature of its work may unwittingly be making an admission that common impediments existed that precluded free access to all breaks – including rest periods. Such an admission is material – not only because the on-duty exemption applies only to meal periods, but also because the existence of a common barrier provides a basis for class adjudication of a rest period claim.

Thus, the astute class advocate should evaluate whether the “on-duty” exemption may be used to the employee’s advantage. An employer cannot have it both ways. An employer who claims the “nature of the work” precludes access to meal periods may not defeat class certification of rest period claims by arguing it is not an insurer of breaks. Under most circumstances, the employer’s effort to avail itself of the “on-duty” exemption all but ensures that rest break claims will be amenable to class adjudication as well.

The Pursuit of PAGA: Does the Named Plaintiff Have an Obligation to Bring PAGA Claims on Behalf of an Employment Class After Arias v. Superior Court?

For some time a proposition has been bandied about the California class action community concerning whether counsel in a wage and hour class action litigation should assert PAGA (“Private Attorney General Act of 2004”) penalty claims on behalf of the class as a matter of course. Proponents of this position have maintained that litigation of the underlying wage violation itself bars subsequent litigation of PAGA claims under principles of res judicata, and as such, the named plaintiff in wage and hour class litigation should affirmatively plead and prosecute PAGA penalty claims on behalf of the class to preserve the right to recover penalties.

This view was seemingly gaining traction earlier this year when the Second District Court of Appeal held that PAGA penalty claims may be barred on res judicata grounds, even if not pled in the prior litigation. (Deleon v. Verizon Wireless, 170 Cal. App. 4th 519, 531 (2008), rev. granted by Deleon v. Verizon, 94 Cal.Rptr.3d 322 (Cal., May 13, 2009)). As reasoned by the Deleon Court, a PAGA penalty claim is not an action on behalf of the State, and as such, may be waived by an employee if not affirmatively pled and litigated.

However, Deleon’s analysis seems to have taken a major hit in light of the California Supreme Court’s recent ruling in Arias v. Superior Court, 46 Cal. 4th 969 (2009). While the Arias Court concluded that actual litigation of a PAGA claim is binding on all interested parties (including both employees and the State), the Arias Court seemingly knocked out the fundamental premise of the Deleon Court’s holding by concluding that “an action to recover civil penalties ‘is fundamentally a law enforcement action designed to protect the public and not to benefit private parties.’” (Arias, 46 Cal. 4th at 986). This conclusion – which is supported by the fact an employee plaintiff may bring the action only after giving written notice to the Workforce Development Agency – draws into doubt whether a PAGA action and the underlying wage violation involve the same “primary right.” If this is the case, then it logically follows that a PAGA claim would not be subsequently barred if not asserted on behalf of the class in the complaint.

Putting this issue aside, however, the premise that PAGA penalty claims will increase overall recovery to class members is currently a dubious proposition. For example, in the context of a class settlement, the requirement that 75% of PAGA penalties recovered be paid to the State paradoxically places pressure on class counsel to minimize the amounts apportioned to a PAGA claim to fulfill his or her fiduciary duty of maximizing recovery to the class. As no definitive standards currently exist to evaluate the subsequent apportionment of settlement funds between compensation for PAGA penalties and wages paid to the class for the underlying wage violations (Cal. Lab. Code § 2699(l)), counsel in many cases have successfully obtained approval of settlements allocating only a nominal fraction of the overall recovery to a PAGA claim. Were a mechanical pro-rata apportionment between the value of the penalty claims and the value of the underlying wage claims at issue applied, inclusion of a PAGA claim in many cases could stand as a losing proposition for members of the class – especially in settlements where only limited funds are on the table to resolve all claims. Under such circumstances, it is conceivable that the class may benefit more by not mixing PAGA claims with claims to recover wages.

In sum, even if the Deleon Court’s res judicata analysis can survive Arias – which seems unlikely – the ultimate impact of including a PAGA claim in light of the statue’s vague enabling provisions presents more questions than answers. As such, the issue of whether inclusion of a PAGA claim will ultimately benefit the class in the long run remains an open question.

In re Tobacco II and the Myth of the Uninjured Restitutionary Class

In its recent opinion in the Tobacco II Cases, the California Supreme Court rejected extension of Proposition 64 standing requirements to putative class members on the grounds that doing so would invalidate the “patently less stringent” remedies afforded under Business & Professions Code Section 17203. See In re Tobacco II Cases, 46 Cal. 4th 298, 320 (2009). In practical terms, the Court’s decision requires only the named plaintiff in a UCL action to establish that he or she in fact “has lost money or property as a result of the unfair competition”, whereas putative class members would be entitled to restitution of money or property “which may have been acquired’ [] by means of the unfair practice.” See id. (italics in original). This distinction has been the subject of significant debate – leading some to reject a literal reading of the Court’s analysis based on the perception that it would improperly permit a certified UCL restitution class to include putative class members who may not have actually been injured. Such a criticism is unfounded, as it disregards fundamental tenants of the UCL reaffirmed in the Court’s opinion.

Unlike other tort remedies, the UCL is intended to uproot burgeoning deceptive business practices before they have an opportunity to bloom. To achieve this objective, the UCL focuses solely on a defendant’s business conduct – imposing liability based on a liberal “likely to deceive” standard without any concern as to whether consumers were actually deceived or sustained an injury by relying on a deceptive practice. Yet, that a UCL class includes persons who did not act in reliance on the challenged practice does not mean that the class includes members who were not injured. Such a conclusion is flawed, as it disregards the fact that the overall impact of a deceptive business practice will generally be distributed evenly among the entire purchaser/client base. For example, even when only a handful of consumers purchase a product based on a deceptive advertising campaign, the cost of the deceptive advertising campaign itself is passed on to all purchasers as a component of the purchase price of that product. Similarly, where a business promotes a deceptive feature of a product to justify a purchase price that is above the price of the competing brand, all purchasers are damaged by having to pay the enhanced price whether they relied on the deceptive representation or not. Permitting restitution in such cases is consistent with the UCL’s objective that “wrongdoers not retain the benefits of their misconduct….” Id.

In short, Tobacco II does not create an issue as to whether a class action may be certified on behalf of a class encompassing persons who never relied on a deceptive business practice – that is the question the Court resolved. Efforts to reframe the issue by claiming the Court’s decision left unsolved the issue of whether a UCL class may include members that are uninjured conflates the clear distinction drawn by the Court between standing requirements imposed on the named plaintiff versus the broad relief afforded to member of the class.