Thursday, December 23, 2010

Second District Again Holds That Wage Order 7's “Suitable Seating” Provision is a Mandatory Labor Requirement Subjecting Employers to PAGA Penalties: Home Depot U.S.A., Inc. v. Superior Court

On December 22, 2010, the Second District, Division 4, joined its sister division’s conclusion in Bright v. 99¢ Only Stores, 189 Cal. App. 4th 1472 (2010) that Wage Order 7’s "suitable seating" requirement (8 CCR 11070(14)) imposes a mandatory labor requirement that is governed by the enhanced PAGA penalty ascribed by Labor Code section 2699(f). See Home Depot U.S.A., Inc. v. Superior Court, __ Cal. App. 4th __ (2010).

Relying largely on the analysis in Bright (discussed in a previous post contained here), the Court denied Home Depot’s petition for writ relief from the trial court’s order overruling demurrer to plaintiff’s PAGA claim (predicated on Home Depot’s alleged failure to provide seating to employees at cashier and counter areas):
On November 12, 2010, while Home Depot’s petition was pending before us, Division Five of this district held that the default remedy stated in section 2699, subdivision (f), encompasses violations of section 1198 based on the seating requirement in Wage Order 7-2001. (Bright v. 99¢ Only Stores (2010) 189 Cal.App.4th 1472 (Bright).) We agree with this conclusion. Subdivision (f) of section 2699 establishes civil penalties for violations of “all provisions of [the Labor Code] except those for which a civil penalty is specifically provided.” As we elaborate below, section 1198 meets this description: an employer’s failure to provide seating under Wage Order 7-2001 is unlawful under section 1198, but no civil penalty for such conduct is “specifically provided” in section 1198 or elsewhere. Accordingly, violations of this type are subject to the default remedy stated in section 2699, subdivision (f).
See Slip Opinion, at 7-18.

Wednesday, December 15, 2010

Northern District Holds CAFA Not Implicated in PAGA Representative Action: Sample v. Big Lots Stores, Inc.

On November 29, 2010, Northern District Court judge, Saundra Brown Armstrong, granted plaintiff’s motion to remand a PAGA action (predicated on alleged overtime, meal and rest period violations) on the grounds that a PAGA representative action does not trigger CAFA jurisdiction as a matter of law. See Sample v. Big Lots Stores, Inc., 2010 U.S. Dist. LEXIS 131130 (N.D. Cal. Nov. 29, 2010).

In evaluating the defendant’s removal under CAFA, the Court explained that “[t]he salient issue presented is whether a representative enforcement action under PAGA is a ‘class action’ subject to removal under CAFA.” See id., at 6. Relying largely on the California Supreme Court's decision in Arias v. Super. Ct., 46 Cal.4th 969 (2009) – which concluded that a PAGA action is distinct from a class action, and therefore, not subject to the requirements necessary maintain a class action – the Court held that it was not. See id., at 6-8. As reasoned by the Court, Arias’ explanation of PAGA as fundamentally a law enforcement action to recover penalties on behalf of the State removes PAGA claims from the reach of CAFA:
While it is true that Arias did not address CAFA per se, the California Supreme Court's decision nonetheless informs the Court's analysis in this case. C.f., Murtishaw v. Woodford, 255 F.3d 926, 964 (9th Cir. 2001) (noting that the California Supreme Court's interpretations of California law are binding on federal courts). On its face, CAFA applies only to state statutes or procedural rules that are "similar" to a federal class action brought under Rule 23. While Arias may not have directly involved CAFA, it clarifies that a PAGA claim is fundamentally distinct in both purpose and effect from a class action. Arias, 46 Cal.4th at 986. "Unlike a class action seeking damages or injunctive relief for injured employees, the purpose of PAGA is to incentivize private parties to recover civil penalties for the government that otherwise may not have been assessed and collected by overburdened state enforcement agencies." Ochoa-Hernandez v. Cjaders Foods, Inc., No. C 08-2073 MHP, 2010 U.S. Dist. LEXIS 32774, 2010 WL 1340777, at *4 (N.D. Cal. April 2, 2010) (citing Arias, 46 Cal.4th at 986) (Patel, J.). As such, Arias instructs that "PAGA claims are law enforcement actions, not class actions." Mendez v. Tween Brands, Inc., No. 2:10-CV-00072-MCE-DAD, 2010 U.S. Dist. LEXIS 66454, 2010 WL 2650571, 4 (E.D. Cal., July 1, 2010) (emphasis added).
See id., at 8-9.

Tuesday, December 7, 2010

8th Circuit’s Disapproval of Tobacco II Deemed “Unpersuasive” by Northern District Court: Greenwood v. Compucredit Corp.

On November 19, 2010, Northern District Judge Claudia Wilken declined to follow the 8th Circuit’s recent decision in Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023 (8th Cir. 2010) as a basis for decertification of a UCL deceptive advertising class.  See Greenwood v. Compucredit Corp., 2010 U.S. Dist. LEXIS 127719 (N.D. Cal. Nov. 19, 2010).  As explained by the Court, Avrit “disapproved of Tobacco II’s holding that absent class members were excused from establishing individual reliance on misrepresentations alleged in UCL claims.”  See id., at 7.  In no uncertain terms, the Court concluded that “[t]he decision in Avritt does not bind this Court, and it is unpersuasive.”  See id. As reasoned by the Court, Arvitt’s conclusion regarding absent class member standing was contrary to Ninth Circuit authority [see id.], and ultimately, the issue of absent class member reliance “is a question of the meaning of a California state law, on which the California Supreme Court's decision in Tobacco II is determinative.”  See id., at 15.

Discussion of the Court's certification order in Greenwood is contained in a previous post contained here.

Monday, December 6, 2010

U.S. Supreme Court To Review Propriety of Rule 23(b)(2) Certification of Claims Involving Monetary Relief in Dukes. v. Wal-Mart

On December 6, 2010, the U.S. Supreme Court granted Wal-Mart’s petition for a writ of certiorari in Dukes. v. Wal-Mart.   The petition challenges the Ninth Circuit's ruling earlier this year upholding grant of certification of the largest gender discrimination class action in U.S. history. As stated on the Supreme Court's website (here), the issue presented is limited to the following:
Petition GRANTED limited to Question I presented by the petition. In addition to Question I, the parties are directed to brief and argue the following question: "Whether the class certification ordered under Rule 23(b)(2) was consistent with Rule 23(a)."
Question I, as stated in the Petition (here), is as follows:
I. Whether claims for monetary relief can be certified under Federal Rule of Civil Procedure 23(b)(2)—which by its terms is limited to injunctive or corresponding declaratory relief—and, if so, under what circumstances.
A detailed discussion of the Ninth's Circuit's class certification analysis was dicussed previously here (Rule 23(a) analysis), and here (Rule 23 (b)(2)).

Friday, November 19, 2010

California Supreme Court Holds 3 Year Statute Governs All Section 203 Penalty Actions, But Finds Penalties Non-Restitutionary Under the UCL: Pineda v. Bank of America

On November 18, 2010, the California issued its opinion in Pineda v. Bank of Am., N.A., __ Cal. 4th __ (2010), on the issues of whether (1) a Labor Code 203 penalty action brought without alleging an underlying wage claim is governed by the one year statute of limitations of CCP 340(a), rather than the limitations period under Labor Code 203(b), which references “an action for the wages from which the penalties arise”, and (2) whether Section 203 penalties, which the statute itself identifies as a continuation of “wages”, may be recovered as restitution under the UCL. The Court resolved both issues in the negative.

With regard to the first issue, the Court reasoned that an interpretation of section 203(b) which would condition the application of the 3 year statute for wages on the concurrent filing of an underlying wage claim was not reasonable construction of the language of Section 203(b), and would “lead to unwieldy and inconsistent results”, inlcuding (1) rendering it impossible to know what statute of limitation governed at the time a Section 203 claim accrued, and (2) permiting the anomalous situation of an employer escaping Section 203 liability altogether by waiting a year to pay unpaid wages. Slip Opinion, at 5-10.

Moreover, the Court deemed such a construction contrary to the important public policy objective underpinning Section 203 penalties, which is to prevent injury to the “public at large” in addition to the individuals affected:
Finally, as we have acknowledged on multiple occasions, "[t]he public policy in favor of full and prompt payment of an employee's earned wages is fundamental and well established" and the failure to timely pay wages injures not only the employee, but the public at large as well. (Smith, supra, 39 Cal.4th at p. 82.) We have also recognized that sections 201, 202, and 203 play an important role in vindicating this public policy. (Smith v. Rae-Venter Law Group (2002) 29 Cal.4th 345, 360.) To that end, the Legislature adopted the penalty provision as a disincentive for employers to pay final wages late. (See BLS, 20th Biennial Rep.: 1921-1922, supra, p. 36.) It goes without saying that a longer statute of limitations for section 203 penalties provides additional incentive to encourage employers to pay final wages in a prompt manner, thus furthering the public policy.
Slip Opinion, at 12-13.

Based on these considerations, the Court concluded “there is but one reasonable construction: section 203(b) contains a single, three-year limitations period governing all actions for section 203 penalties irrespective of whether an employee's claim for penalties is accompanied by a claim for unpaid final wages.” See id., at 10, 13.

With regard to the Second issue, the Court concluded Section 203 penalties are not restitutionary in nature for purposes of the UCL because they are not “earned” wages within the meaning Labor Code 200, but rather wages which an employee is entitled to recover to punish an employer’s inaction when failing to pay “earned” wages when the become due:
[P]ermitting recovery of section 203 penalties via the UCL would not "restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest." (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1149.) Section 203 is not designed to compensate employees for work performed. Instead, it is intended to encourage employers to pay final wages on time, and to punish employers who fail to do so. In other words, it is the employers' action (or inaction) that gives rise to section 203 penalties. The vested interest in unpaid wages, on the other hand, arises out of the employees' action, i.e., their labor. Until awarded by a relevant body, employees have no comparable vested interest in section 203 penalties. We thus hold section 203 penalties cannot be recovered as restitution under the UCL.
Slip Opinion, at 13-15.

Wednesday, November 17, 2010

California Supreme Court Grants Review in Kirby v. Immoos Fire Protection

On November 17, 2010, the California Supreme Court granted review of the Third District’s decision in Kirby v. Immoos Fire Protection, 186 Cal. App. 4th 1361 (2010).  The Kirby decision upheld a fee award in favor of an employer who successfully defended a rest period claim, concluding that meal and rest period claims were governed by Labor Code 218.5’s two-way fee shifting provisions, rather than the one way fee shifting of Section 1194. This holding poses a significant issue, as two way fee shifting would severely chill private enforcement of an employee's statutory right to recover meal and rest period premium wages. 

The thrust of the argument in opposition is that Section 226.7 premium wages should be governed by Section 1194, not only because Section 226.7 proscribes a statutorily mandated wage, but also because the California Supreme Court concluded in Murphy v. Kenneth Cole Productions, Inc., 40 Cal. 4th 1094 (2007) that meal and rest break premium pay is itself a form of  overtime compensation.

As set forth on the California Supreme Court’s website, the issue on review is as follows:
Does Labor Code section 218.5 govern attorney's fees awarded on a cause of action alleging violation of the statutorily mandated wage payment for missed meal and rest periods (Lab. Code, 226.7), or is an attorney's fee award governed by Labor Code section 1194?
The plaintiff’s Petition was supported numerous Amici, including one drafted by myself on behalf of the CAOC. Congratulations to everyone involved on a great effort securing review of such an important issue.

Friday, November 12, 2010

Second District Holds That Employer Subject to PAGA Penalties For Failure to Provide “Suitable Seating”: Bright v. 99¢ Only Stores

On November 12, 2010, the Second District (Division 5), in Bright v. 99¢ Only Stores, __ Cal.App. 4th __ (2010), overturned a trial court order dismissing a PAGA claim predicated upon Wage Order 7’s “suitable seating” requirement. The requirement, which is codified under various wage orders within subpart 14, states as follows:
(A) All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.
(B) When employees are not engaged in the active duties of their employment and the nature of the work requires standing, an adequate number of suitable seats shall be placed in reasonable proximity to the work area and employees shall be permitted to use such seats when it does not interfere with the performance of their duties.
See 8 CCR 11070(14).

The trial court concluded that the plaintiff’s PAGA claim was non-viable, asserting that “suitable seating” was not required under the language of the Wage Order, and that PAGA penalties were not recoverable insofar as subpart 20 of the Wage Order provided penalties, which were restricted to instances where the employee was underpaid. Slip Opinion, at 4. The Court of Appeal reversed.

First, the Court rejected the argument that the “suitable seating” provision, which the employer claimed was phrased in permissive terms, was not a requirement under the Wage Order. As reasoned by the Court, everything detailed in the Wage Order, as part of an “order” enacted by the IWC pursuant to Labor Code 1198, is mandatory:
Under 99¢ Only Stores’ theory, because the mandatory provisions are not expressed in prohibitory language, they are merely suggestions, a conclusion we reject as not in keeping with the remedial purpose of the statute. “[The suitable seating provision] is not permissive. It is a part of an order which states what employers ‘shall’ do. It is implied that failing to do what the provision orders is prohibited. To interpret the Wage Orders as not prohibiting, and therefore allowing, any work condition unless the provision is phrased in the negative, i.e., using the word ‘not,’ would be contrary to common sense.” (Kilby v. CVS Pharmacy, Inc. (S.D.Cal. 2010) __ F.Supp.3d __ [2010 U.S.Dist.Lexis 86515, *7].) Moreover, if the mandatory conditions are not required by law, they could not be enforced, yet violations are enforceable in both criminal actions and injunctive proceedings. (See §§ 1199, 1194.5.) Further, compliance with the mandatory conditions of labor is required by section 1185, which provides that orders fixing standard conditions of labor are “valid and operative.”
Slip Opinion, at 6-7.

Second, the Court rejected the employer’s argument that the penalties provision of subpart 20 of the Wage Order governed. See id, at 8-10. The Court reasoned that subpart 20 – which was a generalized penalty provision – did not provide an “exclusive penalty” for violation of the suitable seating under subpart 14. Id., at 9-10. As a result, PAGA’s default penalty provision under Labor Code 2699(f) applied, permitting for the recovery of a penalty amount of $100 for initial violations, and subsequent penalties in the amount of $200 per pay period.

Wednesday, November 10, 2010

U.S. Supreme Court Hears Oral Argument in AT&T Mobility LLC v. Concepcion

On Tuesday, November 9, 2010, the U.S. Supreme Court heard oral argument AT&T Mobility LLC v. Concepcion, which considers whether the invalidation of class action waivers on state-law unconscionability grounds (i.e. the Discover Bank rule) is preempted under the Federal Arbitration Act.  The case involves the 9th Circuit’s decision in Laster v. AT&T Mobility LLC, 584 F.3d 849 (9th Cir. Cal. 2009), which upheld an order denying a motion to compel “individual” arbitration based on the Discover Bank rule.  This one is potentialy a game-changer.  A transcript of the oral argument may be obtained on the official Supreme Court website here.  Although one would think that the present composition of the Court would tend to favor AT&T, I have read through it, and admittedly, the Court seems to be leaning against preemption. 

Tuesday, November 2, 2010

Courts Of Appeal Uphold Denial of Certification in Two Cases: Sevidal v. Target Corp. and Hernandez v. Chipotle Mexican Grill

On October 29, 2010, the Fourth District (Division 1) upheld denial of certification of a “made in the USA” false advertising class in Sevidal v. Target Corp., __ Cal.App.4th __ (2010).  In upholding the trial court’s order, the Court concluded that the element of ascertainability was lacking based on evidence that Target “was unable to determine from its computer records the identity of the individuals who purchased an item when its country of origin was improperly designated.”  Slip Opinion, at 16-22.  Further, the Court concluded that the class was overlybroad, as the evidence demonstrated that only a minority of consumers clicked the “additional info” icon containing the alleged offending statements on Target’s website, causing a substantial portion of the class to lack any right to recover on the asserted legal claims.  See id., at 23-31.

On October 28, 2010, the Second District (Division 8) altered the status of its opinion in Hernandez v. Chipotle Mexican Grill, __ Cal.App.4th __ (2010) from unpublished to published. The opinion, which upheld a trial court’s denial of certification of meal and rest period claims, does not add much to the mix in terms of new law, and appears to simply mirror the issues presently before the California Supreme Court in Brinker.  In fact, the Court ruled on the Brinker issue itself.  This being the case, there was no basis for the status of this case being altered to published, and it is worth noting that Division 7, in an opinion going the opposite direction on the Brinker issue (previously discussed here), refused to publish its opinion despite publication requests.  That issue aside, it appears that plaintiff counsel may have invited the Brinkeresque result, as plaintiff attempted to establish certification of an alleged barrier to breaks based solely on class member testimony and time records, as opposed to focusing on evidence of the defendant’s standardized company policies.  

Monday, October 25, 2010

Second District Holds that PAGA Claims Are Encompassed Within a Wage Settlement Regardless of Whether Basis For Claims Are Pled or Litigated: Villacres v. Abm Indus.

On October 22, 2010, the Second District Court of Appeal in Villacres v. Abm Indus., __ Cal. App. 4th __ (2010) held that a PAGA action brought by an individual encompassed within a prior class action settlement was barred on res judicata grounds.  As explained in the Court’s opinion, the plaintiff’s participation in the settlement of a prior action involving overtime claims precluded his PAGA action despite the fact that (1) the settlement agreement released only those claims that “could have been raised as part of the Plaintiffs’ claims”, and (2) the bulk of violations alleged in his action were not included in the prior action, including  meal and rest break violations, wage statement violations, untimely mage payments.

Although the Court declined to delve into whether a PAGA claim involves a different primary right [Slip Opinion, at 17 (“We need not decide whether, as defendants argue, the primary rights theory treats all wage-related Labor Code violations and PAGA penalties as a single cause of action or whether, as Villacres contends, every Labor Code violation and PAGA penalty involves a separate primary right.”)], the Court nonetheless concluded that plaintiff’s PAGA action implicated the same claims asserted and settled in the prior action.  The Court based this determination on the more broad finding that “Villacres's PAGA claims could have been raised in the prior action for purposes of res judicata.”  See id., at 14-29.  According to the Court, plaintiff could have acted in numerous ways to preserve and/or protect his rights subsequent to receiving notice:
In response to the Notice, Villacres could have (1) objected to the proposed settlement on the ground it should have included additional Labor Code violations and corresponding PAGA penalties, (2) sought to intervene in Augustus to pursue the same goal, or (3) opted out of the settlement and preserved his right to bring an independent action. (See Home Sav. & Loan Assn. v. Superior Court, supra, 42 Cal.App.3d at p. 1010; accord, Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial, supra, P 14:133, p. 14-80; Cohelan on California Class Actions (2009-2010 ed.) §§ 4:28, 9:11-9:12, pp. 64-65, 377-381; 4 Newberg on Class Actions (4th ed. 2002) §§ 11:55, 11:58, pp. 168-181, 186-211 [discussing objections]; 5 Newberg on Class Actions, supra, § 16:9, at pp. 171-179 [discussing intervention]; Cal. Rules of Court, rule 3.767(a)(4).)
Slip Opinion, at 21.

As asserted by Justice Chaney in the dissent, this approach was flawed for several reasons, not the least of which, it ignored the language in settlement agreement purporting to release only those claims that “‘could have been raised as part of the Plaintiffs’ claims….’”  See id., at 8 (dissent).   As Justice Chaney reasoned, this limiting language not only reflected an intent by the parties to confine the release to wage issues that were actually raised in the lawsuit [id.], such limiting language was required by existing class action settlement precedent:
[T]he parties had good reason to install a limited release-they needed court approval of the settlement. Class representatives have no standing to release all claims, and overbroad general releases should be avoided. "Any attempt to include in a class settlement terms which are outside the scope of the operative complaint should be closely scrutinized by the trial court to determine if the plaintiff genuinely contests those issues and adequately represents the class." (Trotsky v. Los Angeles Fed. Sav. & Loan Assn. (1975) 48 Cal.App.3d 134, 148.) "[T]o exercise this power of careful scrutiny over the inclusion of additional claims in the settlement, the trial court has the right to expect the settling parties to disclose the effect of such terms at the time the proposed settlement is brought to the attention of the court." (Ibid.) Judge Minning presumably would have found a release of all conceivable claims to be overbroad.
Slip Opinion, at 8-9.

The insightful issues raised by Justice Chaney are significant, and poke material holes in the analysis of the majority.

First, the existence of such limiting language in the scope of the settlement release would eliminate any basis for a class member to believe they were required to object or opt-out to preserve their rights on other issues. Indeed, the release language expressly stated that it did not encompass wage/employment issues not raised in the lawsuit. From this proposition, as Justice Chaney highlights, the majority’s position encourages (if not requires) class members to always take affirmative action to preserve their rights, by way of opt-out or objection, on grounds that are infinite. See id., at 10 (“a release of any claim that can be articulated in an objection or complaint in intervention, even frivolously, would be truly limitless”).

Second, insofar as this limiting language was insufficient to exclude other wage issues not raised in the litigation, the majority’s broad holding seemingly compels a de facto release of all wage/employment claims in every class settlement regardless of efforts to restrict the release of claims in the settlement agreement to the claims actually litigated in the action. This proposition has the potential to unleash a due process Pandora’s Box by compelling the inclusion of “all claims” within every class action settlement – even those claims that, if included in the lawsuit, would render class adjudication improper. As Justice Chaney aptly explains, “[a] class member would not be permitted to intervene where his or her separate claim threatens to destroy the community of interest” and “[e]ven if the trial court were to contemplate establishing a subclass, it would not do so to accommodate a single class member's separate claim.” See id., at 10-11.

In sum, the majority's res judicata analysis appears to be detached from numerous class adjudication principles, not the least of which being that settlement of a class action is contractual in nature.

Friday, October 22, 2010

California Supreme Court Grants Review in Aryeh v. Canon Business Solutions

On October 20, 2010, the California Supreme Court granted plaintiff/appellant’s petition for review in Aryeh v. Canon Business Solutions, Inc., 185 Cal. App. 4th 1159 (2010).  As previously discussed here, the Second District concluded that the continuing violations doctrine does not apply to claims brought under the UCL, barring claims predicated on reoccurring conduct commencing more than four years prior to filing.  The statement of issues contained on the California Supreme Court's website is as follows:
Petition for review after the Court of Appeal affirmed the judgment in a civil action. This case presents the following issues: (1) May the continuing violation doctrine, under which a defendant may be held liable for actions that take place outside the limitations period if those actions are sufficiently linked to unlawful conduct within the limitations period, be asserted in an action under the Unfair Competition Law (Bus. & Prof. Code, ? 17200 et seq.)? (2) May the continuous accrual doctrine, under which each violation of a periodic obligation or duty is deemed to give rise to a separate cause of action that accrues at the time of the individual wrong, be asserted in such an action? (3) May the delayed discovery rule, under which a cause of action does not accrue until a reasonable person in the plaintiff's position has actual or constructive knowledge of facts giving rise to a claim, be asserted in such an action?

Friday, October 15, 2010

Northern District of California Certifies UCL Class Against Ebay: Ewert v. Ebay, Inc.

On September 30, 2010, Northern District Court Judge, Ronald M. Whyte, certified a deceptive promotion/advertisement UCL class against Ebay arising out of alleged systemic delays in fulfilling material terms of service in Ebay’s “But It Now” listing service.  See Ewert v. Ebay, Inc., 2010 U.S. Dist. LEXIS 108838 (N.D. Cal. Sept. 30, 2010).  Under plaintiff’s theory, individuals who post items for auction on Ebay are offered the option, for an additional fee, “to have a ‘Buy It Now’ price on an auction-style listing” which is purchased for a set “duration, such as 1, 3, 5, 7, or 10 days.”  See id., at 3.  The rub, as alleged by plaintiffs, is that “[a]ll listings are affected by technical delays caused by the time necessary to index and load listings” and “eBay also does not extend the listing period to compensate for these delays.” See id. at 3-4. Ebay’s opposition, which was predicated largely upon the argument that individualized inquiry would be required as to reliance and restitution under the UCL, failed to carry the day.  See id. at 34-35 (As “there is no need for individualized inquiries into contract interpretation, reliance, consumer status, damages, or restitution, the court concludes that the proposed class is sufficiently cohesive to warrant adjudication by representation….”).

Wednesday, October 13, 2010

California Supreme Court Grants Review in Faulkinbury v. Boyd & Associates

On October 13, 2010, the California Supreme Court granted review of the Fourth Distirct's decision in Faulkinbury v. Boyd & Associates, Inc., 185 Cal. App. 4th 1363 (2010). I previously discussed this case in a post located here. As stated on the California Supreme Court’s website, briefing on the case is deferred pending the Court’s decision in Brinker:
The petition for review is granted. Further action is this matter is deferred pending consideration and disposition of a related issue in Brinker Restaurant v. Superior Court, S166350 (see Cal. rules of Court, rule 8.524 (c)), or pending further order of the court. Submission of additional briefing, pursuant to California Rules of Court, rule 8.528, is deferred pending further order of the court. Votes: George, C.J., Kennard, Baxter, Werdegar, Chin, Moreno and Corrigan, JJ.
Kudos to Kim Kralowec and the other counsel whose efforts securing review here clearly paid off. 

Friday, October 8, 2010

Governor Signs Bill Limiting Meal Period Provisions of Labor Code Section 512: AB 569

Perhaps a bit late to the game on this, but on September 30, 2010 the Governor signed into law AB 569, which amended Labor Code Section 512's provisions regarding meal breaks.  The amendments -- which presumably do not operate retroactively -- provide the following changes (per the statement in the legislative digest):
This bill would exempt from these provisions employees in a construction occupation, commercial drivers, employees in the security services industry employed as security officers, and employees of electrical and gas corporations or local publicly owned electric utilities, as defined, if those employees are covered by a valid collective bargaining agreement containing specified terms, including meal period provisions. It would specify that its provisions do not affect the requirements for meal periods for certain other employees or employers.

Second District Concludes that Invalidation of Wage Order 16 CBA Exception Does Not Insulate Employer From Meal Period Premium Pay Obligations: Lazarin v. Superior Court

On October 7, 2010, the Second District (Division 7) issues an opinion in Lazarin v. Superior Court, __ Cal.App. 4th __ (2010), concluding that a proposed class of employees governed by Wage Order 16 were entitled to premium meal period wages for second meal periods notwithstanding Division Four’s prior opinion in Bearden v. U.S. Borax, Inc., 138 Cal.App.4th 429 (2006):
The superior court erred in applying Bearden, supra, 138 Cal.App.4th 429, which held the IWC had exceeded its statutory authority in adopting the exemption for union-represented employees contained in wage order 16, section 10(E), but gave its decision prospective effect only. The failure of an employer to provide second meal periods as required by section 512, subdivision (a), and wage order 16, section 10(B), is subject to an award of premium pay as specified in section 226.7. Accordingly, we grant the petition for writ of mandate filed by Lazarin, Quamina and Skinner and direct the court to vacate its order of February 11, 2010 granting TWI‟s motion for summary adjudication as to the fifth cause of action and to enter a new and different order denying that motion.
See Slip Opinion, at 3.

According to the Court, invalidation of section 10(E) does not insulate an employer for the time period prior to the invalidation of the provision.  The Court based this finding on the fact the Wage Order 16 contained a severability clause (section 19), causing section 10(E) to be surgically excised, leaving section 10(A) and (B) in place. See id., at 19-20. Moreover, the Court distinguished Bearden’s finding that its opinion could only have prospective application based in large part on the fact the Bearden was decided prior to Kenneth Cole when the additional hour of pay required by section 226.7 was viewed as a penalty (as opposed to a premium wage). See id., at 22-25.

Wednesday, September 29, 2010

Ninth Circuit Reverses Order Denying FACTA Class Certification Grounded on Concerns Penalty Liability Was Too Large: Bateman v. American Cinema, Inc.

On September 27, 2010, the Ninth Circuit reversed a district court order denying certification of a Fair and Accurate Credit Transactions Act (“FACTA”) claim in Bateman v. American Cinema, Inc., __ F.3d __ (2010). The district court couched its denial on a failure to meet the element of superiority due to concerns that FACTA’s statutory damages provision, which allows a consumer to recover damages between $100 and $1,000, would impose undue liability on the defendant. The Ninth Circuit deemed this to be an abuse of discretion:
The district court refused to certify the class because it concluded that the proposed class failed to meet Rule 23(b)(3)’s superiority requirement. See Bateman, 252 F.R.D. at 650-51. At the heart of its ruling, the district court determined that class treatment would render the magnitude of the defendant’s potential liability “enormous and completely out of proportion to any harm suffered by Plaintiff.” Id. at 651. In its first order denying class certification without prejudice, the court also considered significant AMC’s good faith efforts to bring its machines into compliance with FACTA shortly after the lawsuit was filed. We conclude that none of these three grounds —the disproportionality between the potential liability and the actual harm suffered, the enormity of the potential damages, or AMC’s good faith—justified the denial of class certification and hold that the district court abused its discretion in relying on them.
Slip Opinion, at 16365-66.

As reasoned by the Court, Rule 23(b)(3) does not permit consideration of a comparison of actual harm relative to the aggregate amount of statutory liability when deciding whether to certify FACTA class case. Slip Opinion, at 16366-81.

The Court further reasoned that while a court’s decision to certify a class may put pressure on a defendant to settle “even unmerited claims”, this fact standing alone cannot provide a basis to deny certification. See id., at 16382-83 (“If the size of a defendant’s potential liability alone was a sufficient reason to deny class certification, however, the very purpose of Rule 23(b)(3) – 'to allow integration of numerous small individual claims into a single powerful unit' – would be substantially undermined.”). The issue of “whether the potential for enormous liability can justify a denial of class certification depends on congressional intent” [See id., at 16383], which in light of the record surrounding enactment of FACTA’s statutory penalty provisions, did not support denial of certification. See id., at 16383-84 (“To limit class availability merely on the basis of ‘enormous’ potential liability that Congress explicitly provided for would subvert congressional intent.”).

Finally, the Court reasoned that the district court’s consideration of the defendant’s post-complaint good faith compliance was inconsistent with congressional intent in enacting FACTA, as “Congress did not include any safe harbor or otherwise limit damages for good faith compliance with the statute after an alleged violation.” See id., at 16385. Rather, certification was required to further the purpose of deterrence underpinning FACTA’s statutory penalty scheme. See id.

Monday, September 27, 2010

Ninth Circuit Upholds Rule 23(b)(2) Certification of Wage Claims, Weighs in On Pressure-Based Meal Break Violations: Wang v. Chinese Daily News, Inc.

On September 27, 2010, the Ninth Circuit issued an opinion in Wang v. Chinese Daily News, Inc., __ F.3d. __ (2010), addressing numerous challenges by the employer to a judgment entered in favor of classes certified under Rule 23(b)(2).  The opinion addresses numerous issues that are noteworthy.

Perhaps most significant, the Court upheld the district court’s certification of wage related claims under Rule 23(b)(2). The Court concluded that certification of wage claims under this subpart is appropriate under the framework set forth in Dukes v. Wal-Mart when claims for monetary relief are on equal footing with the claims for injunctive relief. See id., at 16402-03. As reasoned by the Court, the record supported the district court’s finding that monetary relief claims did not predominate, as the injunctive/monetary claims were closely related and did not introduce new and significant legal/factual issues:
Nor did the district court abuse its discretion in holding that plaintiffs’ claims for monetary relief did not, in fact, predominate. There were substantial claims for injunctive relief in this case. Plaintiffs sought to enjoin a longstanding set of employment policies and sought monetary relief for current and past employees allegedly injured by those policies. Because the claims for monetary and injunctive relief were closely related, the request for monetary relief neither “introduce[d] new and significant legal and factual issues,” nor raised particular due process or manageability concerns. See Dukes, 603 F.3d at 617, 621-22. CDN’s current employees – who constitute the vast majority of the class – stood to benefit significantly from an award of injunctive relief. As the district court pointed out in its certification ruling, “[d]efendant’s future compliance with the law may be more valuable to the class than the present claims for back pay.” Wang, 231 F.R.D. at 612.
Slip Opinion, at 16403-04.

Additionally, the Court also upheld the district court’s judgment on the class’ meal period claims. Significantly, the Court concluded that the California Supreme Court's pending decision in Brinker was largely irrelevant, reasoning that the evidence of a barrier to meal periods was sufficient to establish class member’s claims regardless of how the California Supreme Court rules on the meaning of the term “provide”:
We need not resolve this dispute or wait for the California Supreme Court to do so. Even if the California Supreme Court interprets California law to place only minimal obligations on employers, the evidence presented to the jury was sufficient to support a finding that CDN did not “provide” reporters with meal breaks. The evidence showed that reporters did not have time to take meal breaks because they worked long, harried hours and faced tight deadlines. There was testimony that reporters were required to carry pagers all the time and be on call from morning until night without ever getting a sustained off-duty period. The evidence showed that reporters did not keep time cards and that pay stubs did not reflect time actually worked. Several reporters also testified that they could rarely take uninterrupted 30 minute breaks. CDN never told reporters that meal breaks were available and never told them to keep track of meal breaks on a time card.
In short, reporters could not take daily, uninterrupted 30 minute breaks regardless of whether they desired to do so. Under either possible reading of California Labor Code § 512(a), CDN did not “provide” its reporters with meal breaks. Substantial evidence therefore supports the jury’s verdict.
Slip Opinion, at 16410-11.

In addition to the forgoing, the Court also upheld the district court’s finding that (1) reporters were non-exempt employees that did not qualify for the professional exemption (under either California law or the FLSA), and (2) that the district court did not abuse its discretion in entertaining a UCL claim predicated upon violation of the FLSA.

Central and Southern District Courts Conclude “Pioneer Notice” Unnecessary for Federal Wage & Hour Class Actions:

On September 21, 2010, magistrate judges in two separate actions issued rulings concluding that the “opt-out” notice procedure approved in Pioneer Electronics, Inc. v. Superior Court, 40 Cal. 4th 360 (2007) was unnecessary for wage and hour class actions brought in Federal court.  Both orders collectively provide a solid basis for dispensing with an employer’s resistance to producing the contact information of the putative class, precertification.

In Alvarez v. Hyatt Regency Long Beach, 2010 U.S. Dist. LEXIS 99281 (C.D. Cal. 2010), Central District Magistrate Judge, Hon. Victor B. Kenton, noted that “[i]n the class action context, disclosure of names, addresses and telephone numbers is common practice” and that “federal courts faced with these types of discovery issues routinely overcome objections as to privacy interests when balanced against reasonable discovery needs.” See id., at 5. As reasoned by the Court, these considerations, in conjunction with the limited period for conducting precertification discovery, led the Court to conclude that a Pioneer opt-out style notice unnecessary:
Moreover, the Court is not persuaded that an opt-out system is necessary, both for pragmatic and legal reasons. As to the first, such a procedure would be extremely time-consuming, given the short pre-certification discovery period. Further, in Pioneer Electronics, supra, the California Supreme Court supported the proposition that an opt-in style of notice would not be required, but did not impose an opt-out style of notice. See also Tierno v. Rite Aid Corp., 2008 U.S. Dist. LEXIS 58748, 2008 WL 3287035 (N.D. Cal. 2008). Although Plaintiffs initially offered, as a compromise, to utilize a third party and an opt-out system, that is no longer feasible, given the looming deadline for the class certification motion.
See Alvarez, 2010 U.S. Dist. LEXIS 99281, at 5-6.

In Stone v. Advance America, Cash Advance Centers Inc., 2010 U.S. Dist. LEXIS 99754 (S.D. Cal. 2010), Southern District Magistrate Judge, Hon. William McCurine, Jr., followed the court's analysis in Puerto v. Superior Court, 158 Cal. App. 4th 1242 (2008), which had concluded that a “Pioneer” opt-out notice was inapplicable because (1) disclosure of contact information of employees making up the class was “witness” information required by statute, and (2) “‘… a percipient witness’s willingness to participate in civil discovery has never been considered relevant -- witnesses may be compelled to appear and testify whether they want to or not.’” See Stone, 2010 U.S. Dist. LEXIS 99754, at 5-6. Based on this reasoning, the Court concluded that such information was of the variety that should be disclosed in an employer’s pretrial disclosures without a formal discovery demand:
Further, under Federal Rule of Civil Procedure 26(a)(1)(A) "[a] party must, without awaiting a discovery request, provide to the other parties... [t]he name and, if known, the address and telephone number of each individual likely to have discoverable in the information...." Moreover, subsection (b) of that Rule states a party "may obtain discovery regarding any non-privileged matter that is relevant to any parties claim or defense-including... The identity and location of persons who know any discoverable matter." Under the Federal Rules, the information plaintiff seeks is clearly discoverable. Moreover, there is no requirement for any notice provision that would limit this very basic discovery to which plaintiff is clearly entitled under our rules.
See Stone, 2010 U.S. Dist. LEXIS 99754, at 6-7.

Tuesday, September 21, 2010

First District Follows Fifth District in Concluding that Meal/Rest Break Statutes Are Inapplicable to Public Employees: California Correctional Peace Officers’ Association v. State of California

On September 17, 2010, the First District (Division Four) changed the status of its opinion in California Correctional Peace Officers’ Association v. State of California from unpublished to published. The opinion affirmed the trial court’s determination that Labor Code Sections 226.7 and 512 relating to meal and rest periods  do not apply to public employees. As reasoned by the Court, “[a] traditional rule of statutory construction is that, absent express words to the contrary, governmental agencies are not included within the general words of a statute.” See Slip Opinion, at 5. From this starting point, the Court rejected arguments that the Legislature’s failure to expressly exclude public entities in Section 226.7 and 512, while expressly excluding public entities in other Labor Code provisions was a sufficient basis to conclude that the Legislature intended such provisions to extend to public employees. See id., at 5-6.

The Court’s holding follows similar analysis by the Fifth District last year in Johnson v. Arvin-Edison Water Storage Dist., 174 Cal.App.4th 729 (2009)

Monday, September 20, 2010

District Court Extends Dukes v. Walmart To Certify Off-the-Clock and Meal Period Claims Using Statistical Sampling: Adoma v. Univ. of Phoenix

On August 31, 2010, Eastern District Court Judge, Lawrence K. Karlton, certified off-the-clock and meal period claims of enrollment counselors in Adoma v. Univ. of Phoenix, 2010 U.S. Dist. LEXIS 96388 (E.D. Cal. Aug. 31, 2010).  Plaintiffs’ off-the-clock and meal period claims derived from an alleged requirement that enrollment counselors be available at any time to take calls forwarded by defendant’s nationwide automated call-routing system, which plaintiffs claimed resulted in employees not being paid for time spent working through meal periods.  The Court’s analysis in certifying such claims is noteworthy for the use of statistical sampling to overcome issues with predominance.

With regard to the off-the-clock claim – which “a plaintiff may establish … by proving that (1) he performed work for which he did not receive compensation; (2) that defendants knew or should have known that plaintiff did so; but that (3) the defendants stood ‘idly by’” [See id., at 11] – plaintiffs asserted that the requisite elements would be established by using records from defendant’s automated call-routing system. Significantly, Court noted that this method of proof was imperfect, as it included defects which would necessitate an individualized fact specific inquiry:
Plaintiffs argue that rather than relying on login/logout times, they can look at records of calls made in combination with the aux codes to determine what work an employee was actually doing and when. [] Defendants respond that the aux codes are also unreliable. Some evidence, including depositions of the named plaintiffs, indicates that employees often fail to enter the appropriate aux code or change in aux code when the employee leaves for or returns from lunch, especially when the employee is in a meeting or engaged in another "aux" activity immediately prior to or after lunch. Although defendants further argue that employees inappropriately fail to distinguish between other aux codes, the "meal break" code is the only potentially non-compensable code, so ambiguity among the others is not relevant to the reconstruction of hours worked. Plaintiffs acknowledge that employees sometimes improperly record meal periods. Plaintiffs nonetheless argue that the question is whether an employee, or employees generally, "regularly forgot to log out for lunch." The court cannot agree. Plaintiffs' claim is for failure to pay for hours actually worked, and this is a fact specific inquiry. This is not to say that individual issues predominate: trends may establish, by a preponderance of evidence, that most days in which meal periods were not recorded, the employee in fact took no meal period. The issue, however, is whether the trend is evidence of individual days, not vice versa.
See Adoma, 2010 U.S. Dist. LEXIS 96388, at 15-16.

Yet, despite acknowledging that “[a]nother court has held that similar computerized data could not demonstrate predominance of common issues where the data did not ‘take into account the possibility that an employee may not have actually worked between the punch-in time and start time or between the end-time and punch-out time.’” [Adoma, 2010 U.S. Dist. LEXIS 96388, at 14 (citing Forrand v. Federal Exp. Corp., 2009 U.S. Dist. LEXIS 22912, *12 (C.D. Cal. Feb. 18, 2009)], a point which even plaintiffs agreed was an issue here, the Court concluded that individual inquiry could be overcome by the use of statistical sampling similar to that approved by the Ninth Circuit in Hilao v. Estate of Marcos, 103 F.3d 767 (9th Cir. 1996), and reaffirmed  in Dukes v. Walmart, 603 F.3d at 625-27:
All potential class members used both the Avaya and MyHR systems. While defendants argue that the Avaya system provides an inadequate indicator of the number of hours employees actually worked, the types of arguments are common to all class members. Hilao appears to permit a representative inquiry to determine the magnitude of these effects, and at this stage, the court cannot distinguish Hilao. The remaining questions are also common. Notably, the question of whether the Avaya system gave defendants at least constructive knowledge of the employee overtime is a common question. Thus, it appears that common questions predominate. Although defendants argue that the named plaintiffs are not typical, the asserted atypicalities pertain to facts irrelevant to the above theories of liability and proof. Accordingly, plaintiffs have shown commonality, typicality, and predominance of common issues as to their state law off-the-clock claim.
See Adoma, 2010 U.S. Dist. LEXIS 96388, at 22-23.

With regard to meal period claims, the Court acknowledged the Brinker issue, but nonetheless concluded that certification was appropriate (at least for now), based on the same statistical analysis:
Of course, the legal question regarding the scope of the employer's obligation is itself a common question of law. As to common questions of fact, plaintiffs contend that they will use the Avaya phone records system to demonstrate how often employees skipped meal periods. For the reasons stated above it appears that this predicate factual question is susceptible to common proof. Accordingly, common issues predominate.
See Adoma, 2010 U.S. Dist. LEXIS 96388, at 26-27.

Thursday, September 16, 2010

Southern District Certifies "Vacation/Uniform/Paycheck/Wages/Breach of Contract" Class in Lopez v. G.A.T. Airline Ground Support

On September 13, 2010, Southern District Judge Irma E. Gonzalez, issued an order granting (in part) plaintiffs’ motion for certification of multiple wage claims in Lopez v. G.A.T. Airline Ground Support, 2010 U.S. Dist. LEXIS 95636, 22-23 (S.D. Cal. Sept. 13, 2010).  As discussed previously in a post here, the Court granted a plaintiff-side summary judgment as to two of the claims at issue (i.e. the vacation claim and the wage statement clam).

Over the defendant’s objection that the sheer number of distinct wage violations at issue should itself compel the denial of certification, the concluded that common issues predominated, based in large part, on evidence that company policies applied uniformly at all locations:
Defendants argue that Plaintiffs' proposed "Vacation/Uniform/Paycheck/Wages/Breach of Contract" Class requires individual inquiries of fact and the application of five different areas of law, such that the proposed class fails the predominance inquiry under Rule 23(b)(3). As explained below, however, each of the claims asserted by this proposed class are based upon company policies which were consistently applied to all of GAT's employees at the four designated airports. Although individual inquiries would be necessary to determine whether the class members were damaged by the policies, the Court believes most of these individual inquiries are manageable in light of the size of the class.
See Lopez v. G.A.T. Airline Ground Support, 2010 U.S. Dist. LEXIS 95636, at 22-23.

The thrust of the Court’s predominance analysis on each of these claims is as follows:
  • Vacation Pay Claim: “Plaintiffs challenge GAT's policy of denying accrued and vested vacation benefits to those employees who leave the company before their one year anniversary. The Court has already found that the policy required employees to forfeit vested vacation pay in violation of Labor Code § 227.3. … Where, as here, the claim asserted by a proposed class is based upon a consistent employer practice, class certification is usually appropriate.” See id., at 24.
  • Uniforms Claim: “Although Plaintiffs' uniform deposit/refund claim presents more questions of individual fact than their unpaid vacation benefits claim, it also stems from a consistently applied company-wide policy.” See id., at 23-24.
  •  Paycheck Claim: “Plaintiffs' paycheck claim also stems from a consistently applied company-wide policy of issuing payroll checks to California employees from an out-of-state bank, without indicating on the face of the check where it could be cashed on demand and without discount. The Court has already determined this practice violated Labor Code § 212, regardless of whether any individual plaintiff suffered actual injury. If a putative class member incurred a fee or delay in cashing the check, that plaintiff may be entitled to damages. However, those individual issues do not predominate over the common issue of law regarding whether GAT's consistently applied policy was unlawful.” See id., at 24-25.
  • Section 203/Late Wage Claim: “Plaintiffs' claim that GAT failed to pay its employees all wages due within the required time upon separation of employment arises out of the same nucleus of facts as its Vacation claim and Uniform claim. Plaintiffs allege GAT's practice of not paying vested vacation time to those employees who separated from employment before their one-year anniversary, and GAT's practice of mailing deposit checks to separated employees, both result in wages not being paid when due. Both of these claims are predicated on common legal issues.” See id., at 25.
  • Unpaid Compelled “Shuttle” Time: “As to each of the three airports subject to this claim, Plaintiffs allege GAT has designated employee parking lots far from the work area and requires employees to park in those lots and take a shuttle bus to the site.… Based upon GAT's alleged policy of requiring employees to use these shuttles, there is a common question of law as to whether GAT is required to compensate its employees for that travel time. Although Defendants argue there are individual inquiries regarding whether employees could have utilized other methods of transportation or were required to park in the employee lots and travel to the site on the employee shuttle, these inquiries go directly to the common legal question of whether GAT should have compensated employees for their travel time.” See id., at 26-27.

Thursday, September 9, 2010

Second District Concludes Los Angeles Ordinance Requiring LAX Hotel Employees Retain Service Charge Funds Not Preempted By Labor Code Tip Provisions: Garcia v. Four Points Sheraton Lax

On September 8, 2010, the Second District Court of Appeal (Division Three) reversed a trial court order concluding that the Los Angeles Hotel Service Charge Reform Ordinance was preempted by Labor Code sections 350 through 356, which govern the disposition of gratuities. See Garcia v. Four Points Sheraton Lax, __ Cal.App.4th __ (2010). The Ordinance was enacted by the City of Los Angeles to require non-unionized hotels in the Century Corridor near LAX to pass along the mandatory service charges to workers who render the services for which the charges have been collected:
Section 184.02 states in pertinent part: "Service Charges shall not be retained by the Hotel Employer but shall be paid in the entirety by the Hotel Employer to the Hotel Worker(s) performing services for the customers from whom the Service Charges are collected." (LAMC, § 184.02, subd. (A).) Service charges may not be paid to "supervisory or managerial employees," and must be paid to "Hotel Worker(s) equitably and according to the services that are or appear to be related to the description of the amounts given by the hotel to the customers." n6 (LAMC, § 184.02, subd. (A).) Service charges collected for banquets or catered meetings "shall be paid equally to the Hotel Workers who actually work the banquet or catered meeting"; service charges collected for room service "shall be paid to the Hotel Workers who actually deliver the food and beverage associated with the charge"; and service charges collected for porterage services "shall be paid to the Hotel Workers who actually carry the baggage associated with the charge." (LAMC, § 184.02, subd. (A)(1)-(3).) Gratuities and tips left by customers for a hotel worker are excluded.
Slip Opinion, at 8-9.

In concluding that the Ordinance was not preempted, the Court reasoned that “a service charge by definition is not a gratuity” under Labor Code Section 350, and rejected outright the hotel employer’s counter argument that this finding would vest them with a property right to such funds under Section 351. See id., at 10-11 (“We do not read section 351 or any other provision in the Labor Code governing gratuities to address employers' property rights.”).

Friday, August 27, 2010

Second District Reverses Decertification of Meal Period Claim, Siding With Third District’s Cicairos Analysis Pending Ruling in Brinker

On August 26, 2010, the Second District (Division Seven), issued an unpublished opinion regarding meal periods in Brookler v. Radio Shack, siding with the Third District’s opinion in Cicairos v. Summit Logistics, Inc., 133 Cal.App.4th 949 (2005). The opinion reversed a trial court order decertifying a previously certified class based on Brinker. The Court concluded that “[u]nless and until our Supreme Court holds otherwise, we agree with the analysis in Cicairos which held an employer’s obligation under the Labor Code and related wage orders is to do more than simply permit meal breaks in theory; it must also provide them as a practical matter.”

As reflected on the Supreme Court website – still no date set for oral argument (here).

Sixth District Hold Court’s UCL Does Not Provide Court Broad Power to Set Aside Judgments: Fireside Bank Cases

On August 25, 2010, the Sixth District altered its opinion in Fireside Bank Cases from unpublished to published. There, the Court concluded that a court’s equitable power under the UCL does not include the ability to sidestep principles of res judicata to set aside existing judgments, en masse.

Tuesday, August 24, 2010

Second District Reaffirms Strict Limitations on Disposing of Proposed Wage Class Actions By Way of Demurrer: Gutierrez v. Cal. Commerce Club

On August 23, 2010, the Second District (Division One) issued an order changing the publication status of Gutierrez v. Cal. Commerce Club, __ Cal. App. 4th __ (2010) from unpublished to published. The opinion deals with the impropriety of forcing a named plaintiff to establish an entitlement to certification of a class through allegations in the operative complaint.

At issue was a trial court order sustaining a demurrer to the plaintiff’s third amended complaint (alleging meal/rest period claims) without leave “on the ground the plaintiffs had failed to show the existence of a class….” Slip Opinion, at 2. Significantly, the trial court had previously overruled demurrer to the plaintiff’s first amended complaint, finding the allegations of that pleading minimally adequate. See id., at 3-4. The third amended complaint came about after the plaintiff had sought, and obtained, leave from the court to file a second amended complaint.  Id.

In reversing, the Court of Appeal concluded that “[i]n this action, as in the vast majority of wage and hour disputes, class suitability should not be determined on demurrer.” Slip Opinion, at 2. As reasoned by the Court, a demurrer can be used to dispose of class allegations only when class certification can be shown, based on the face of the complaint, that that there is no reasonable possibility a class will be certified (which is the applicable standard for dismissal by way of demurrer). See id., at 7-10. Importantly, the Court concluded that in actions involving claims in the wage and hour context – which have historically been recognized as especially amenable to class-wide adjudication – class allegations should not be disposed by way of demurrer:
We return again to and rely upon the well-established principle, that “only in mass tort actions (or other actions equally unsuited to class action treatment) [should] class suitability . . . be determined at the pleading stage. In other cases, particularly those involving wage and hour claims, [such as the instant action,] class suitability should not be determined by demurrer.” (Prince, supra, 118 Cal.App.4th at p. 1325, italics added; see also Tarkington, supra, 172 Cal.App.4th at p. 1512.)
Slip Opinion, at 11.

Moreover, the Court further noted that the trial court abused its discretion by doing an about-face on the sufficiency of the plaintiff’s complaint without any change in circumstances:
The trial court found far the less specific allegations minimally adequate when it overruled the Club‘s demurrer to the FAC. At that time it noted, correctly, that there would be “ample time later to determine whether there is a single class, several classes and whether this plaintiff can represent some or all of the classes . . . [and that,] in this case, the statement that defendant has not provided its employees with proper rest periods states both the facts and the theory.” The record reveals no explanation for the court‘s abrupt reversal of course in sustaining demurrers to the SAC and TAC, which contain virtually identical (or more specific) allegations.
Slip Opinion, at 10 n.5.

This line of analysis, which also was at issue in the Fourth District’s opinion in Weinstat v. Dentsply Internat., Inc, 180 Cal.App.4th 1213 (2010), demonstrates that a trial court use of its discretion to change its mind must be rooted in a legitimate change in circumstances capable of justifying the reversal in position.

Wednesday, August 18, 2010

Third District Upholds Class Action Waiver: Walnut Producers of California v. Diamond Foods, Inc.

On August 16, 2010, the Third District issued an opinion in Walnut Producers of California v. Diamond Foods, Inc., __ Cal.App.4th __ (2010), upholding the trial’s court order striking class allegations based on a class action waiver. The case was not a typical consumer case, as it involved a walnut marketing association challenge to “marketing agreement” with a walnut processor brought on the behalf of a class of walnut growers.

Material to the Court’s decision was its finding that the plaintiff could not establish procedural unconsciability due to the fact the association was comprised of sophisticated business people who, as members of the association, yielded significant power and control:
Plaintiffs have not successfully pleaded the Agreement is a contract of adhesion under the unusual circumstances of this case. It is true that plaintiffs pleaded the Agreement is a standardized contract drafted by Diamond Foods that was presented to plaintiffs without any opportunity to negotiate its terms. However, it is not true according to plaintiffs' allegations that Diamond Foods had superior bargaining strength or that plaintiffs had no real alternatives available to them at the time they entered into the Agreement.
The obvious alternative for plaintiffs was not to approve the Co-op's merger into Diamond Foods. Plaintiffs' choice was not limited to entering into the Agreement. Rather, their choice was between continuing in the Co-op, or merging the Co-op with Diamond Foods and entering into the Agreement. Since plaintiffs controlled the Co-op as members, we cannot say the Agreement was imposed on the members by a party of superior bargaining strength or that they had no other alternative but to merge the Co-op and enter into the agreement.
Slip Opinion, at 15-16.

On the issue of substantive unconscionability, the Court concluded that under Discovery Bank, “the issue of a class action waiver's substantive unconscionability must be decided on its exculpatory effect, not merely on whether a class action may be an amenable or even favored remedy.” See Slip Opinion, at 22-23. As reasoned by the Court, the claims of each individual walnut grower was sufficiently large so as to not render adjudication contingent on the class mechanism:
Unlike in Discover Bank, plaintiffs' complaint does not establish that the Agreement's class action waiver acted as an exculpatory clause or unduly hindered plaintiffs from pursuing a legal remedy. Plaintiffs' amended complaint shows that a class action is not the only viable means for recovering plaintiffs' damages or enforcing the contract against Diamond Foods. The amended complaint seeks damages for the class of “at least $ 70 million.” Divided evenly among 1,600 class action plaintiffs, the alleged size of the class, a damage award of $ 70 million would provide each plaintiff with an award of $ 43,750. Obviously, the actual awards would be larger or smaller than that depending on each grower's claim, but, when considered for unconscionability, requiring a grower to file an individual action for roughly $ 43,000 in damages does not shock the conscience. n6 (See Arguelles-Romero v. Superior Court (2010) 184 Cal.App.4th 825, 844 [109 Cal. Rptr. 3d 289] [a claim for $ 16,000 is not so small as to justify not enforcing class action waiver].)
Slip Opinion, at 20-21.

Monday, August 9, 2010

California Supreme Court Holds Section 3345(b) Trebling For Acts Against Senior Citizens Inapplicable to UCL: Clark v. Superior Court

On August 9, 2010, the California Supreme Court issued its opinion in Clark v. Superior Court, __ Cal.4th __ (2010), concluding that “an award of restitution under the unfair competition law ... is not subject to section 3345’s trebling provision.” In reaching its decision, the Court concluded that Civil Code Section 3345(b)’s trebling provision was not limited to claims brought under the CLRA [Slip Opinion, at 5-7], but rather, was applicable any statute which “permits a remedy that is in the nature of a penalty.” See id., at 7-9. From that point, the Court reasoned that “[b]ecause restitution in a private action brought under the unfair competition law is measured by what was taken from the plaintiff, that remedy is not a penalty and hence does not fall within the trebled recovery provision of Civil Code section 3345, subdivision (b).” See id., at 9-10.

California Supreme Court Holds Labor Code Section 351 Does Not Provide Employees A Private Right of Action to Recover Tips: Lu v. Hawaiian Gardens Casino, Inc

On August 9, 2010, the California Supreme Court issued its opinion in Lu v. Hawaiian Gardens Casino, Inc, __ Cal.4th __ (2010), concluding “section 351 does not contain a private right to sue.” As reasoned by the Court, Section 351 does not contain an enabling provision, or language susceptible of legislative intent to afford employees a private right to sue. That was not the end of the story, however, as the Court held that Section 351’s acknowledgement that employees have a property right to tip income provided other avenues on which to adjudicate a violation of that right, such as a claim for conversion. The opinion was silent as to whether Section 351 could serve as a predicate violation under the unlawful prong of the UCL.

Friday, August 6, 2010

Drug Manufacturer's Precertification Settlement Effort Invalidated As Improper Class Communication: County of Santa Clara v. Astra USA, Inc.

On July 8, 2010, District Court Judge William Alsup entered an interesting order in County of Santa Clara v. Astra USA, Inc., 2010 U.S. Dist. LEXIS 78312, 22-23 (N.D. Cal. July 8, 2010), relating to defendant Bristol-Meyers Squibb’s effort to obtain accord and satisfaction of pending, but uncertified, overcharging claims by mass-mailing refund checks to putative class members. The Court noted that 2003 amendments to Rule 23 made it unclear whether pre-certification settlements required court approval. However, the plaintiffs approached the issue from a different angle, attacking the substance of the communication with the class as improper. The Court agreed, concluding that the defendant had omitted significant information in its communication, and as a result, the release obtained was deemed invalid under California law:
The duty and authority to protect the putative plaintiff class and uphold the policies of Rule 23 extends to the limited ruling in this case. BMS has omitted material information and misled the putative plaintiff class: the letter did not contain the complaint or Ninth Circuit opinion, did not describe the claims, did not contain the current status of the case, did not provide contact information for the plaintiffs' attorneys, did not explain how the aggregate net basis methodology can actually decrease the payment amount, and tried to establish a veneer of CMS authorization that was clearly not accurate. Indeed, misleading the putative plaintiffs, offering a potentially much decreased settlement, and not cooperating with the plaintiffs all show a lack of good faith. Thus, the plaintiffs' motion for corrective action is Granted. The accord and satisfaction release is invalid in California. Any checks cashed will be deducted from any recovery obtained herein (or presumably elsewhere) by the recipients. It is not necessary for BMS to make any corrective communications.
See County of Santa Clara, 2010 U.S. Dist. LEXIS 78312, 22-23.

Tuesday, August 3, 2010

First District Publishes Class Objector Opinion: Cellphone Fee Termination Cases

On July 27, 2010, the First District (Division five) issued an order changing the publication status of the Cellphone Fee Termination Cases, __ Cal.App.4th __ (2010) from unpublished to published. The opinion, which deals with an objector appeal to a class settlement, discusses several issues relating to settlement notice standards, and the propriety of incentive payments to the named plaintiff.

First, the Court rejected an objection to the use of an abbreviated “short-form notice” which referred class members to a website containing a more detailed “long-from notice.” As reasoned by the Court, this method of providing notice was the most practicable and met minimal standards of due process:
A similar procedure for notice of a class settlement, utilizing a summary notice directing class members to a Web site containing more detailed notice, was approved in Chavez as a “perfectly acceptable” manner of giving notice. (Chavez, supra, 162 Cal.App.4th at p. 58.) We agree with the observation in Chavez that “[u]sing the capability of the Internet in [this] fashion was a sensible and efficient way of providing notice, especially compared to the alternative [objector] apparently preferred—mailing out a lengthy legalistic document that few class members would have been able to plow through.” (Id. at p. 58, fn. omitted.) We do not look for perfection. “[A] large body of case law reflect[s] the view that ‘the whole concept of a large class-action might easily be stultified by insistence upon perfection in actual notice to class-members … .’ [Citation.]” (Hypertouch, supra, 128 Cal.App.4th at p. 1540.
Slip Opinion, at 12-13.

[More on electronic class notice may be found in an article I authored, located here]

Second, citing to federal authority, the Court concluded that minimal standards of adequacy of the notice does not require disclosure of class size:
Zobrist also argues that notice was defective in failing to disclose the “enormous size” of the class to the EFT Assessed Class. She contends that this did not provide the class members with adequate information for the members to make an informed decision about whether to participate, object, or opt out. She cites no authority for her position that information as to the size of the potential class, or the contingencies of recovery in any particular amount, is required. Courts which have considered such objections in the context of class settlement have rejected the claim. n18 “[T]here is no requirement that the class size be specified in the notice [citations] … .” (In re Lorazepam & Clorazepate Antitrust Litigation (D.D.C. 2002) 205 F.R.D. 369, 379; see also In re Insurance Brokerage Antitrust Litigation (D.N.J., Feb. 16, 2007, MDL No. 1663, No. 04-5184(FSH)) 2007 U.S. Dist. LEXIS 11163 [nonpub. opn.] [rejecting objection to notice that it “do[es] not provide details about the size of the class and the actual individual settlement values”]; In re: Managed Care Litigation; Class Plaintiffs v. Aetna Inc. (S.D.Fla., Oct. 24, 2003, MDL No. 1334, No. 00-1334-MD-Moreno) 2003 U.S. Dist. LEXIS 27228 [nonpub. opn.] [rejecting objection to notice that there was “no way to calculate the actual value of the settlement as to each class member since no estimate of size of class was provided”].)
Slip Opinion, at 13.

Finally, the Court rejected the objector’s argument that incentive awards provide preferential treatment to the named plaintiff that amount to a breach of the named plaintiff’s fiduciary duty to the class. As reasoned by the Court, incentive payments are a necessary aspect of class litigation, in that such compensation may be required to induce the representative to participate in the suit, but that such payments must be proportionate to the circumstances of the case:
“[T]he rationale for making enhancement or incentive awards to named plaintiffs is that they should be compensated for the expense or risk they have incurred in conferring a benefit on other members of the class.” (Clark, supra, 175 Cal.App.4th at p. 806.) An incentive award is appropriate “‘if it is necessary to induce an individual to participate in the suit.’ [Citation.]” (Id. at p. 804.) “[C]riteria courts may consider in determining whether to make an incentive award include: 1) the risk to the class representative in commencing suit, both financial and otherwise; 2) the notoriety and personal difficulties encountered by the class representative; 3) the amount of time and effort spent by the class representative; 4) the duration of the litigation and; 5) the personal benefit (or lack thereof) enjoyed by the class representative as a result of the litigation. [Citation.]” (Van Vranken v. Atlantic Richfield Co. (N.D.Cal. 1995) 901 F.Supp. 294, 299.) These “incentive awards” to class representatives must not be disproportionate to the amount of time and energy expended in pursuit of the lawsuit. (See Dornberger v. Metropolitan Life Ins. Co. (S.D.N.Y. 2001) 203 F.R.D. 118, 124–125.)
Slip Opinion, at 21-22.

Thursday, July 29, 2010

Southern District Certifies Newspaper Carrier Misclassification Suit: Dalton v. Lee Publ'ns, Inc

On July 27, 2010, Southern District Court judge, Barry Ted Moskowitz, entered an order in Dalton v. Lee Publ'ns, Inc, 2010 U.S. Dist. LEXIS 75132 (S.D. Cal. July 27, 2010), granting certification of a class of newspaper carriers. As set forth within the Court’s order, plaintiffs alleged various wage violations based on the theory that defendant had uniformly misclassified news carriers as independent contractors. The Court’s decision to certify turned in large part on the element of “control” being subject to common proof through form contracts utilized by the defendant:
The primary factor, the right to control, is also susceptible to common proof. This is because the rights and obligations of the class members and Defendant are set forth in two sets of substantially identical contracts. The contracts set forth the following: (a) the carrier's primary duties, including assembling and delivering the newspapers timely and in good condition; (b) the carrier's obligation to supply a vehicle and equipment; (c) the carrier's pay schedule; (d) the purported understanding of the parties regarding the carrier's independent contractor status; (e) the penalties for excessive complaints, misdeliveries, and subscription cancellations; (f) the requirement to get auto insurance in specific liability amounts; (g) which party bears the risk of loss from non-payment, non-delivery, and other liabilities; (h) the contract is unassignable, but the carrier may hire substitutes or helpers; (i) the carrier will not attend employee meetings and is free to ignore all suggestions offered by the Defendant; (j) the manner and rate of compensation; (k) the carrier must use his or her best effort to increase circulation; (I) the parties must exchange updated information regarding subscriber cancellations and enrollments; (m) the duration of the contract; and (n) termination rights, among other things. There is no evidence before the Court that the parties' rights and obligations were substantially different from those set forth in the contracts.
Thus, the contracts sets forth the contours of Defendant's control over the class. The Court makes no findings yet about the extent of Defendant's control, but only observes that the contracts provide a basis to do so.
See Dalton, 2010 U.S. Dist. LEXIS 75132, 19-21.

The Court’s opinion is quite detailed, as it appears that the defendant pulled out all the stops in its attempt to defeat certification. One of the more interesting arguments raised was that class members would be unable to establish liability by overcoming the independent contractor defense alone, but rather, would have to overcome a second-level “outside sales” exemption defense.  The Court reasoned that this defense was implausible on its face, but in any event, would not create individualized issues sufficient to overcome certification:
Lastly, Defendant argues that its outside-salesperson defense will require individualized analysis. Under California regulations, an outside salesperson is defined as someone "who customarily and regularly works more than half the working time away from the employer's place of business selling tangible or intangible items or obtaining orders or contracts for products, services, or use of facilities." Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935, 938 (9th Cir. 2009) (citing California Industrial Wage Commission Wage Order 4-2001, § 2(M)). The claim that home-delivery newspaper carriers are salesman is dubious on its face. They deliver newspapers; they generally do not sell them. Moreover, because of Defendant's estimates and records--including Plaintiffs' time spent folding newspapers, whether they used Defendant's facilities to do so, and Plaintiff's time spent delivering newspapers--one could easily calculate whether a particular Plaintiff spent "more than half the working time away from the employer's place of business." Vinole, 571 F.3d at 938. So even if the carriers could be considered salespeople, determining where they spent their time would not entail so much individual analysis as to defeat certification.
See Dalton, 2010 U.S. Dist. LEXIS 75132, 26-27

The Court’s opinion covers many issues, too many to discuss in detail. Definitely a must read.

Friday, July 23, 2010

District Court Grants Plaintiffs Summary Judgment On Vacation and Wage Statement Claims: Lopez v. G.A.T. Airline Ground Support, Inc.

On July 19, 2010, Southern District Judge Irma E. Gonzalez, issued an order granting (in part) a plaintiff-side motion for summary judgment of various wage claims in Lopez v. G.A.T. Airline Ground Support, Inc., 2010 U.S. Dist. LEXIS 73029 (S.D. Cal. July 19, 2010). In my opinion, the Court’s discussion regarding the plaintiffs’ vacation pay and wage statement claims are noteworthy.

With regard to plaintiffs’ vacation pay claim, the Court held that the following policy contained in the defendant’s employee handbook violated Labor Code § 227.3 as a matter of law: “Upon completion of one year of continuous employment, hourly employees will receive 5 days of paid vacation. Employees will continue to receive 5 days of paid vacation annually on their Anniversary Date.” See Lopez, 2010 U.S. Dist. LEXIS 73029, at 10. Plaintiff claimed that this policy required employees to forfeit vested vacation pay if they are not employed on the one-year anniversary of their start date, in violation of Section 227.3. See id. Conversely, the defendant claimed that the policy merely conditioned an employee’s right to vacation on satisfying a “probationary period”, a practice which the defendant claimed was deemed lawful in Owen v. Macy's, Inc., 175 Cal. App. 4th 462 (2009).

The Court sided with plaintiffs, reasoning that defendant’s policy was distinguishable from Owen because it did not condition the “accrual” of vacation rights on satisfying the one year probationary period:
GAT's policy is distinguishable from the one in Owen. The policy in Owen expressly stated that employees did not "earn and vest in paid vacation" for the first six months of employment. [] Then, after the first six months, the employees in Owen received vacation days as an advance for the coming year, on the assumption that the employees would remain with the company during the coming year. Here, GAT's policy does not specify that no vacation is earned or vested during the first year, only that employees do not "receive" the five vacation days until their one-year anniversary. Also, unlike the policy in Owen, the vacation GAT employees receive on their first-year anniversary is not an "advance" for vacation earned during the second year of employment. Douglas Gray, a GAT payroll manager, testified employees receive five days of vacation after one year, and then accrue vacation time on a pro-rata basis going into their second year of employment (and continuing onward). [] Therefore, GAT's vacation policy requires employees to forfeit vested vacation pay in violation of Section 227.3.
See Lopez, 2010 U.S. Dist. LEXIS 73029, 11-12.

The Court also granted summary judgment in favor of plaintiffs with regard to their Section 226 wage statement claims. There, the Court concluded that the defendant’s failure to include the applicable hourly rate of pay for regular and overtime hours required plaintiffs to do complex mathematical calculations to determine the accuracy of their paychecks, and thereon, violated Section 226(a) as a matter of law:
It is undisputed that GAT's paychecks do not indicate the applicable hourly rate of pay for the employee's regular rate, overtime rate, or double-time rate of pay. Plaintiffs' paychecks included only the total number of hours worked and the total amount paid. Therefore, Plaintiffs had to perform mathematical calculations to determine if their paychecks were accurate. Cicairos v. Summit Logistics, Inc., 133 Cal. App. 4th 949, 35 Cal. Rptr. 3d 243, 247 (Ct. App. 2005) ("If it is left to the employee to add up the daily hours shown on the time cards or other records so that the employee must perform arithmetic computations to determine the total hours worked during the pay period, the requirements of section 226 would not be met."). The failure to provide this information violates Section 226(a).
It is also undisputed that GAT's wage statements indicate only the end date for each pay period, and do not list the beginning date. Defendants argue the pay period was sufficiently identified on the paychecks, because the paychecks provide the pay period when reviewed sequentially. However, the Labor Code requires each wage statement to provide "the inclusive dates of the period." See Cal. Labor Code. § 226(a).
Therefore, Plaintiff is entitled to summary judgment on the issue of whether Defendants furnished accurate itemized wage statements. Defendants violated Labor Code § 226(a) by failing to include the inclusive dates of the period for which employees were paid, the applicable hourly rates, and the corresponding number of hours worked at each hourly rate.
See Lopez, 2010 U.S. Dist. LEXIS 73029, 18-19.