Wednesday, June 23, 2010

Second District Concludes That “Doctrine of Continuing Violations” Inapplicable to UCL: Aryeh v. Canon Business Solutions, Inc.

On June 23, 2010, the Second District (Division 8) affirmed a trial court order dismissing plaintiff’s UCL claim at the pleading stage on statute of limitations grounds in Aryeh v. Canon Business Solutions, Inc., __ Cal.App.4th __ (2010). According to the Court, the plaintiff’s UCL action, which involved an alleged reoccurring excessive copying charge, could not avoid the defendant’s statute of limitations defense based on the “doctrine of continuing violations” under the facts of his case:
Appellant does not dispute that the four-year statute of limitations prescribed in section 17208 applies to his action. However, appellant asserts the statutory clock not only starts at the time of the first occurrence -- i.e., the time an allegedly offending act was committed and caused injury -- but rather “re-starts” each time the defendant invades the plaintiff’s rights and causes injury. Specifically, appellant argues that a doctrine of continuing violations should be applied to violations of the UCL. We reject appellant’s contention. His UCL cause of action accrued more than four years before he filed his action, and the continuing violation doctrine does not apply to the circumstances of this case.
Slip Opinion, at 6.

In reaching its decision, the Court found it material that the complaint admitted (1) that plaintiff had known of the charges six years before filing the lawsuit, and (2) and that the complaint was not filed until the underlying copy service agreement had expired. According to the Court, these facts, as well as the nature of the alleged violations at issue, removed plaintiff’s case from the policy justifications underpinning application of the doctrine in employment discrimination context (which is where the continuing violations doctrine is derived):
We find no correlation between appellant’s claim seeking recovery for individual instances in which he purports to have been wrongfully charged for “test” copies and the plaintiffs’ claims in Richards and Alch, which were not based upon specific acts of alleged misconduct, but instead upon on-going, accumulative harassment in the case of Richards or a broad and longstanding corporate policy of employment discrimination in the case of Alch. (Richards, supra, 26 Cal.4th at p. 822; Alch, supra, 122 Cal.App.4th at pp. 375-376.) Here, once appellant was aware he was being “overcharged” for test copies and that his protests to Canon were futile, he could and should have taken diligent action. He could not wait for years until the agreement expired while more “overcharges” accumulated before filing a complaint.
Routinely billing and collecting for “test” copies is not the type of harassing and egregious conduct the continuing violation doctrine is designed to deter. No comparable policy considerations compel applying the continuing violations doctrine to violations of the UCL. (Cortez, supra, 23 Cal.4th at pp. 173.) The UCL is not an “all-purpose substitute” for a tort or contract action. (Ibid.) The Legislature has expressed a goal that the UCL be “a streamlined procedure for the prevention of ongoing or threatened acts of unfair competition.” (Id. at pp. 173-174.) A claim for recovery of past damages is not within the contemplation of the UCL.
Slip Opinion, at 11-12.

Putting the unique factual issues aside, the reach of this opinion is nonetheless unclear. As explained in the Dissent, the majority opinion only considered the “continuing violation” doctrine, which the dissent deemed was facially inapplicable insofar as the plaintiff was not pursuing claims dependent on conduct occurring both inside and outside of the statutory period. See Slip Opinion (dissent), at 3-4 (“If appellant were arguing that his pre-January 31, 2004 claims are nevertheless actionable because the continuing violation rule allows them to be joined with his timely claims, then we would have the issue the majority raises: Does the continuing violation rule apply to UCL claims? But that is not appellant’s argument.”). According to the dissent, the fact pattern at issue implicated the “continuous accrual” doctrine – a doctrine which was not considered or encompassed within the holding by the Majority:
A careful parsing of “continuing violation” and “continuous accrual” reveals more than a semantical difference. The former describes what is essentially a fiction: a wrong committed sometime in the past will be deemed to have also been committed later if it is closely connected with more recent misconduct. The original violation will be treated as continuing even if the earlier act is completed. Continuous accrual is different. Rather than extending the impact of prior conduct, it acknowledges the reality that similar acts can continue to occur: one can breach the same contract over and over again in substantially the same manner. Earlier conduct is not extended but repeated. Witkin describes the rule as follows: “In several types of cases it has been held that, where a right or obligation is continuing, successive causes of action to enforce it continuously accrue, and the bar of the statute can only be set up against those causes on which the period has run.” (3 Witkin Cal. Procedure, supra, Actions, § 669, p. 886.)
Slip Opinion (dissent), at 5.

Monday, June 21, 2010

U.S. Supreme Court Holds that Arbitrator to Decide Question of Whether Arbitration Agreement is Unconscionable: Rent-A-Center, West, Inc. v. Jackson

On June 21, 2010, the U.S. Supreme Court issued an opinion in Rent-A-Center, West, Inc. v. Jackson, 561 U. S. ____ (2010), reversing a Ninth Circuit opinion concluding that a challenge to the validity an arbitration agreement on unconscionability grounds was to be decided by the court, rather than the arbitrator. The case involved somewhat specialized facts, as the disputed agreement itself contained a clause expressly delegating issues of arbitability to the arbitrator. However, the plaintiff did not specifically contest that provision, but instead claimed that the entire agreement was unconscionable, and therefore invalid, under Nevada state law.  As explained in the opinion, the issue on review was “whether, under the Federal Arbitration Act [], a district court may decide a claim that an arbitration agreement is unconscionable, where the agreement explicitly assigns that decision to the arbitrator.” See Slip Opinion, at 1. As held by the Court under the facts of that case, the district court could not.

As reasoned by the Court, “[t]here are two types of validity challenges under §2: ‘One type challenges specifically the validity of the agreement to arbitrate,’ and ‘[t]he other challenges the contract as a whole, either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract’s provisions renders the whole contract invalid.’” See id., at 6 (citing Buckeye, 546 U. S., at 444). Under applicable precedent, the Court noted that “only the first type of challenge is relevant to a court’s determination whether the arbitration agreement at issue is enforceable.” See id. As reasoned by the Court, “a party’s challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate.” See id., at 7.

Yet, despite concluding that “the underlying contract is itself an arbitration agreement” [see id., at 8], and that the plaintiff was indeed challenging the validity of that agreement [see id., at 9 (concluding that “Jackson challenged only the validity of the contract as a whole…”)], the Court held that the first category did not apply the present case (i.e. the Court concluded this was an “other challenge” type of case). As reasoned by the Court, there was not a single arbitration agreement at issue, but rather, two distinct arbitration agreements:
The Agreement here contains multiple “written provision[s]” to “settle by arbitration a controversy,” §2. Two are relevant to our discussion. First, the section titled “Claims Covered By The Agreement” provides for arbitration of all “past, present or future” disputes arising out of Jackson’s employment with Rent-A-Center. App. 29. Second, the section titled “Arbitration Procedures” provides that “[t]he Arbitrator . . . shall have exclusive authority to resolve any dispute relating to the . . . enforceability . . . of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable.” Id., at 32, 34. The current “controversy” between the parties is whether the Agreement is unconscionable. It is the second provision, which delegates resolution of that controversy to the arbitrator, that Rent-A-Center seeks to enforce.
Slip Opinion, at 4.

Based thereon, the Court concluded that the fact that the underlying contract was itself an arbitration agreement “makes no difference” to a court’s analysis, as “[s]ection 2 operates on the specific ‘written provision’ to ‘settle by arbitration a controversy’ that the party seeks to enforce.” See id., at 8. In the case at hand, the plaintiff failed to include the “delegation” provision as part of its unconscionability challenge, but rather, only sought to challenge the agreement to arbitrate claims arising out of his employment as being unconscionable. As a result, the Court concluded that “we must treat it [i.e. the delegation provision] as valid under §2, and must enforce it under §§3 and 4, leaving any challenge to the validity of the Agreement as a whole for the arbitrator.” See id., at 8-9. 

Admittedly, the Court’s analysis is somewhat puzzling from a logical perspective, as it is difficult to imagine how, when applying the applicable state-law unconscionability test, a provision to arbitrate employment claims may be deemed unconscionable without equally impacting a delegation provision contained in the same agreement. The Court provides no insight on how this may occur beyond the waiver-type scenario that occured in this case. Based on this fact, the Court’s decision may ultimately have a very narrow reach, applying only to the rare situation where: (1) an arbitration agreement contains a delegation clause, and (2) the party opposing arbitration fails to dispute the validity of that clause in the underlying proceeding.

Thursday, June 17, 2010

California Supreme Court Denies Petition for Review and Depublication Request in Pfizer, Inc. v. Superior Court

On June 17, 2010, the California Supreme Court denied the petition for review and request for depublication in Pfizer, Inc. v. Superior Court, 182 Cal. App. 4th 622 (2d Dist., 2010). The docket statement to this effect is contained here. The Court of Appeal’s decision was discussed in a prior post located here.

Wednesday, June 16, 2010

More District Courts Beginning To See Wisdom of Pre-Certification Production of Class Lists

The past week has seen two separate district court orders compelling employer defendants to produce class lists, pre-certification. In Capitani v. McDonald's Corp., 2010 U.S. Dist. LEXIS 57873 (D. Del. June 11, 2010) and Whitehorn v. Wolfgang's Steakhouse, 2010 U.S. Dist. LEXIS 58460 (S.D.N.Y. June 14, 2010), the respective district courts each granted plaintiff motions to compel production of the proposed class list prior to plaintiff moving for conditional collective action certification under the FLSA. Although the right to obtain a class list is more or less a foregone conclusion in California, this is not the case in all jurisdictions. As both opinions note, a split in authority exists among district courts as to whether production of a class list is appropriate prior to certification. See Capitani, 2010 U.S. Dist. LEXIS 57873, 8-9; see also Whitehorn, 2010 U.S. Dist. LEXIS 58460, 4-5.

In granting plaintiff’s motion, the Capitani Court reasoned that pre-certification discovery of employee contact information falls well within the FRCP’s liberal disclosure standard and furthers the objectives of certification by supplying plaintiff counsel access to witnesses having first-hand knowledge on the question of whether employees were/are impacted by a uniform policy:
[I]n this action, the Court concludes that a list containing the names and contact information of potential class members "appears reasonably calculated to lead to the discovery of admissible evidence" on the claim that Defendant engages in a policy of wrongly classifying assistant manager trainees. See Fed. R. Civ. P. 26(b)(1). Accordingly, under the liberal discovery standards of Rule 26, Defendant will be ordered to provide such a list to Plaintiffs. [] Likewise, the Court concludes that a list of all corporate-owned stores in operation since July 2005 is relevant to identifying where potential witnesses may have worked, and Defendant will also be ordered to produce that information.
See Capitani, 2010 U.S. Dist. LEXIS 57873, at 9-10.

The Whitehorn Court too concluded that such information was material to certification issues. See id., at 7 (“pre-certification discovery is appropriate to enable Plaintiff to define the class and identify similarly situated employees.”).

While both opinions considered the issue in the context of the FLSA, no principled basis exists for denying such discovery in the context of a Rule 23 action. In Whitehorn the Court noted that at least one NY court has declined such production in a Rule 23 cases based concerns of solicitation [Whitehorn, 2010 U.S. Dist. LEXIS 58460, at 8-9 n.2], but distinguished such authority on the policy of prompt consideration of the certification question in FLSA actions (due to the continued running of the limitations period). See id., at 8. Yet, this distinction does not justify why such information is needed "precertification." Even putting that aside, however, it is incapable of justifying preclusion of pre-certification production in the Rule 23 context, not only because Rule 23 also embodies a policy favoring prompt consideration of the certification question [See FRCP, Rule 23(c)(1)(A) (“At an early practicable time after a person sues or is sued as a class representative, the court must determine by order whether to certify the action as a class action”)], but also because the need for such witness evidence is stronger in the Rule 23 context where the court is obligated to engage in a rigorous evidentiary analysis of the certification elements. Unlike Rule 23, a rigorous evidentiary analysis is generally not applied under the FLSA until the second stage of certification (which traditionaly occurs right before trial). In many jurisdictions, conditional certification of a FLSA action may be obtained based on bare allegations alone.

Wednesday, June 9, 2010

Eastern District Rejects FDA “Safe Harbor” Defense to Proposed Deceptive Advertising Class in Koenig v. Snapple Bev. Corp.

On May 7, 2010, Judge Frank C. Damrell, Jr., of the Eastern District of California, issued an order in Koenig v. Snapple Bev. Corp., 2010 U.S. Dist. LEXIS 55987, 26-28 (D. Cal. 2010), denying in substantial part defendant Snapple’s motion to dismiss false advertising claims arising out of promotional statements claiming that Snapple is “all natural.” As set forth in the Court’s Order, the plaintiffs action alleges that “Defendant does not mention that its drink products contain HFCS [i.e. High Fructose Corn Syrup], except in inconspicuous and hard-to-read type in the ‘Ingredients’ statement on the back or sides of its products.” See id., at 2-4. According to plaintiffs, “by using an ‘All Natural’ marketing strategy, Snapple implies that its products are superior to, better than, more valuable, and more nutritious than competing products.” See id.

Defendant moved to dismiss plaintiff’s action on various grounds, including that plaintiffs’ claims were barred by the safe harbor exception to the UCL because the challenged conduct was authorized by what defendant claims was a binding FDA policy – comprised of an informal FDA policy statement and opinion letter – regarding use of the term "natural." 

The Court disagreed, reasoning that although “federal agency action taken pursuant to statutorily granted authority short of formal, notice and comment rulemaking may … have ‘the force of federal law…’” [See id., at 14-15], Snapple could not cobble together an FDA policy statement and opinion letter regarding the use of the term “natural” to construct a safe harbor defense to claims under the UCL/FAL. According to the Court, the informal actions undertaken by the FDA were insufficient to rise to the level of being afforded the weight of Federal law authorizing the challenged conduct:
…[T]he FDA's policy regarding the use of the term "natural" does not have the force of law. Neither the FDA policy statement set forth in 1993 nor the July 2008 FDA letter regarding the use of the term "natural" were the result of a formal, deliberative process akin to notice and comment rulemaking or an adjudicative enforcement action. Indeed, the FDA acknowledged that "the ambiguity surrounding use of [the] term that results in misleading claims could be abated" if it was adequately defined, but declined to engage in the rulemaking process. That the FDA has subsequently enforced this policy on a handful of occasions does not change the nature of the FDA's formation of its policy regarding the term "natural."
Because the court concludes that the FDA's policy cannot be accorded the weight of federal law for purposes of the safe harbor rule, there is no law which expressly authorizes defendant's conduct. Accordingly, defendant's motion to dismiss plaintiffs' complaint on this basis is without merit.
See Koenig, 2010 U.S. Dist. LEXIS 55987, at 20-21.

In addition to the forgoing, the Court also rejected Snapple’s argument that plaintiffs failed to assert a viable restitutionary theory insofar as they and the class received the “benefit of the bargain” in their purchase of the Snapple product. The Court reasoned that while “[c]ourts have held that being induced to purchase a product one would not otherwise have purchased is not loss of money or property within the meaning of the statute as long as one still receives the benefit of the bargain” [see id., at 25-26], the plaintiffs’ allegations were distinguishable insofar as they alleged that defendant sold Snapple at an inflated price as a direct result of the alleged deceptive advertising:
In this case, in addition to asserting that they would have purchased alternative drink products, plaintiffs also allege that they paid more for defendant's drink products and would have been willing to pay less if they had not been misled by defendant's labeling. (Compl. PP 6, 7, 12, 34, 36, 38, 82, 94.) As such, plaintiffs have alleged that they did not receive the benefit of the bargain because they assert that the product they received was worth less than what they paid for it. See Koh, 2010 WL 94265 at *2 (holding that the plaintiff sufficiently alleged injury under the UCL, FAL, and CLRA, where he asserted that the product cost more than similar products without misleading labeling). They also allege that they were seeking a product without HFCS and thus, defendant's drink product was unsatisfactory. Cf. Hall, 158 Cal. App. 4th at 855. Moreover, plaintiffs allege that defendant benefitted from these purchases by selling more drink products, which plaintiffs found unsatisfactory, at a higher price. (Compl. PP 59, 82, 109.) Plaintiffs seek the difference in price between the product received and its value. (Compl., Relief Demanded, P E (seeking "[d]isgorgement of the excessive and ill-gotten monies obtained by Defendant Snapple as a result" of its labeling practices)); Cf. Germain, 2009 WL 1971336, at *7 (holding that the plaintiff failed to allege restitution injury where he sought the return of all monies, not the difference in price between the apparel received and its value). Accordingly, plaintiffs have sufficiently alleged that, due to defendant's labeling practices, they suffered a loss that benefitted defendants through more sales and a higher profits. See Shersher v. Superior Court, 154 Cal. App. 4th 1491, 1500 (2007) (holding that the plaintiff could recover restitution from a manufacturer even though the product was purchased from a third-party retailer); Hirsch v. Bank of Am., 107 Cal. App. 4th 708 (2003) (concluding that the plaintiff in a UCL action my obtain restitution from a defendant with whom the plaintiff did not deal directly where that defendant received the benefit); cf. id. (holding that the plaintiff failed to allege restitution injury where the money expended in processing and mailing forms did not benefit the defendants).
See Koenig, 2010 U.S. Dist. LEXIS 55987, at 26-28.