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.