Friday, January 29, 2010

Request for Publication filed in Jaimez v. DAIOHS USA, Inc.

On January 28, 2010, a request was filed with the Second District (Division One), to publish its decision in Jaimez v. DAIOHS USA, Inc., Case No. B209486. In Jaimez, the CAP reversed the trial court’s order denying certification of a multitude of wage and hour claims.

The fundamental component of the Court’s decision turned on the trial court’s reliance upon testimony submitted in 25 employee declarations as a basis for finding the class element of “predominance” to be lacking. See Slip Opinion, at 13-16. As reasoned by the Court, the trial court erred by focusing on the “individual effects of policies and practices” contained in such declaration testimony [Id., at 15], rather than evaluating whether “[p]laintiff’s 'theory of recovery' involves uniform policies … amenable to class treatment.” See id., at 14. As the Court explained, “[t]he fact that individualized proof of damages may ultimately be necessary does not mean, … that Jaimez’s theory of recovery is not amenable to class treatment.” See id., at 22-23. According to the Court, “had the trial court focused on the correct criteria, it would have necessarily found the First Choice declarations, while identifying individual effects of policies and practices that may well call for individual damages determinations, nevertheless confirm the predominance of common legal and factual issues that make this case more amenable to class treatment.” See Id., at 15.

The Jaimez opinion extends the court’s analysis in Ghazaryan v. Diva Limousine, Ltd., 169 Cal.App.4th 1524 (2008) to various types of claims, including claims for misclassification, unpaid overtime compensation, missed meal and rest periods, and the failure to provide compliant pay stubs.

Tuesday, January 26, 2010

Two Recent District Court Certification Opinions: Lymburner v. United States Fin. Funds and Jaegel v. County of Alameda

In Lymburner v. United States Fin. Funds, 2010 U.S. Dist. LEXIS 5081 (N.D. Cal. Jan. 22, 2010), the Court certified a nationwide TILA, fraud and UCL class arising out of alleged inadequate disclosures contained defendant’s loan documents. The Court’s decision was relatively straight forward, finding that the class elements on each claim were met by virtue of the fact all material representations were contained on the face of defendant’s singular set of loan documents. See Lymburner, 2010 U.S. Dist. LEXIS 5081, at 11-12, 14-15, 18-23.

In Jaegel v. County of Alameda, 2010 U.S. Dist. LEXIS 5125 (N.D. Cal. Jan. 22, 2010), the plaintiffs sought certification of 2 separately defined classes arising out of a strip search policy maintained by defendant as part of its booking procedures at the Alameda County Jail. Plaintiffs maintained that these searches violate California Penal Code § 4030 and the Fourth and Fourteenth Amendments of the Constitution.

With regard to plaintiffs’ proposed Section 4030 class, both plaintiffs’ arrests for felony charges deprived named plaintiffs’ standing under the statute, and thereon, rendered plaintiffs atypical of the proposed class:
In contrast to Plaintiffs' assertions, the Alameda County Sheriff's Department arrest records show that Plaintiffs were arrested for three crimes: Penal Code §§ 597(c), 597(b) and 597b. Sections 597(c) and 597b were charged as misdemeanors, but 597(b) was charged as a felony. Rockwell Decl., Exh. B, C; Luna Decl. P 2. Because § 4030(f) does not apply to detainees arrested for felony offenses, Plaintiffs' claims are not typical of those in the proposed classes. Therefore, the motion for class certification fails with respect to any claim of violation of California Penal Code § 4030(f).
See Jaegel, 2010 U.S. Dist. LEXIS 5125, at 11.

With regard to plaintiffs’ Section 1983 claim, plaintiffs’ asserted that defendant's blanket policy (which requires all persons who enter the Alameda County Jail undergo a strip search without regard to any individual factor bearing reasonable suspicion that the person poses a risk of possessing a weapon or contraband) was facially unconstitutional. See id., at 11-12. The Court reasoned that although post hoc determinations of reasonable suspicion would be required to determine class composition, this fact would not detract from the common issue of whether defendant’s blanket strip search policy was unconstitutional:
The class includes only those subjected to a strip search without any individualized reasonable suspicion that they were concealing contraband. Thus, those who were subjected to searches based on individualized reasonable suspicion are not included in the class. Although such post hoc determinations of reasonable suspicion weigh against certifying the class under Rule 23(b)(3), they do not compel the Court to find that this case must be tried on an individual basis. Post hoc determinations do not detract from the legal question of whether individuals were searched pursuant to an unconstitutional blanket strip search policy. See Bull v. City & County of San Francisco, C 03-1840, 2006 U.S. Dist. LEXIS 9120, *11 (N.D. Cal.). Moreover, even if some categories of individuals within the class could be permissibly strip searched, some of these determinations too could be resolved on a class-wide basis. See id. at 10.
See Jaegel, 2010 U.S. Dist. LEXIS 5125, at 13-14.

Thursday, January 21, 2010

Second District Reverses Order Denying Class Certification in Steroid Hormone Product Cases

On January 21, 2010, the Second District CAP issued an opinion overturning the trial court's denial of certification in the Steroid Hormone Product Cases.  Plaintiff’s sought certification of UCL and CLRA claims against defendant GNC for violation arising out of the “sale of products that contained androstenediol, a substance defined as a Schedule III controlled substance under California law.” Slip Opinion, at 1. The theory of plaintiff’s case was predicated upon GNC’s sale of products containing androstenediol without requiring a prescription and without notifying customers that the products contained a controlled substance. See id., at 3.

The trial court denied plaintiff’s motion to certify based on the premise that establishing causation and injury under both the CLRA and the UCL would require an individualized inquiry into whether the illegality of the androstenediol products was material to each class member (and thus individual issues predominated over common issues):
In its ruling on Martinez’s motion, the court reiterated that “the central issue” under both the CLRA and the UCL was “whether the illicit nature of defendant’s products was material to those who purchased them,” and that “[t]o recover, . . . each class member must demonstrate, or it must be inferable classwide, that the alleged injury was material.” The court concluded that materiality could not be inferred classwide, observing that it “requires no imaginative leap” to conclude that there exist “person[s] to whom legality is immaterial,” because “andro[stenediol] products are classified only as Schedule III substances; the proscriptions asserted by plaintiffs apply only against distributors, not buyers; and at any rate, a substantial black market exists in disregard of any proscription.”
Slip Opinion, at 6-7.

The CAP disagreed, reversing the court’s order. With regard to plaintiff’s claim under the UCL, the Court concluded that the trial court’s predominance analysis was based on an erroneous, pre-Tobacco II construction of Prop 64 standing, which required absent class members to establish reliance and injury individually:
In the present case, the trial court -- without the benefit of the Supreme Court decision in Tobacco II, which was issued several months after the class certification ruling at issue here -- concluded that Proposition 64 did have an effect on unnamed class members. The court noted that “[b]efore November 2004, ‘relief under the UCL, including restitution, [was] available without proof of individual deception, reliance and injury,’” but “after Proposition 64, the class may obtain restitution only upon a showing of reliance and causation.” Based upon this legal assumption, the court found that individual issues predominated because each class member would need to show that he or she was injured by GNC’s alleged unlawful sale of androstenediol products, which the court determined was dependant upon whether the legality of the sale was material to him or her. Because that legal assumption was erroneous, reversal of the order denying class certification as to the UCL claim is required. (Linder, supra, 23 Cal.4th at pp 435-436.)
Slip Opinion, at 10.

The Court concluded that, putting aside named plaintiff standing, plaintiff's UCL claim "presents two predominate issues ..., both of which are common to the class: (1) whether GNC's sale of androstenediol products was unlawful; and if so, (2) the amount of money GNC “may have . . . acquired by means of” those sales that must be restored to the class (Bus. & Prof. Code, § 17203)."  See id., at 11.

[As a side note, the Court's footnote 8 appears to take a position that knocks out a fundamental premise of its sister division’s analysis in Cohen v. Directv, as the Court concluded that “Tobacco II made clear … that Proposition 64 only affected the named plaintiff’s standing in a UCL class action seeking restitution; it did not add an additional element to be satisfied by all class members.”]

The Court’s analysis on the CLRA is very interesting. As a starting point, the Court acknowledged that the “CLRA claim requires a different analysis than the UCL claim, because the CLRA requires a showing of actual injury as to each class member.” See id., at 11.  However, the trial court was deemed to have nonetheless abused its discretion in finding that individualized issues of reliance and injury would predominate.

As reasoned by the CAP, the trial court erred by ascribing a narrow construction to meaning of “damage,” rather than a more broad construction that would encompass a restitutionary measure tethered to the alleged deceptive conduct:
In ruling that the materiality question depended upon each class member’s subjective belief regarding value, the trial court was led astray by GNC’s erroneous legal assumption. GNC’s argument that the examination of each class member’s subjective belief was necessary was based upon its assumption that the showing of “damage” required under the CLRA is governed by Civil Code section 3343, i.e., the measure of actual damages for persons defrauded in the purchase of property. That assumption is incorrect. The “damage” that a plaintiff in a CLRA action must show under Civil Code section 1780, subdivision (a) is “any damage,” which “is not synonymous with ‘actual damages’” and “may encompass harms other than pecuniary damages.” (Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 640.)

The “damage” Martinez alleged in this case is that, in reliance on GNC’s deceptive conduct, he bought an illegal product he would not have bought had he known it was illegal. He does not seek actual damages, but instead seeks restitution.
Slip Opinion, at 12-13.

As reasoned by the Court, the plaintiff “is entitled to show that GNC’s alleged deceptive conduct caused the same damage to the class by showing that the alleged misrepresentation was material”, which “is judged by a 'reasonable man' standard.” See id., at 13. Under this lens, the materiality of the omissions regarding illegality of the product naturally gave rise to an inference of reliance by the class as a whole:
the question that must be answered in this case is whether a reasonable person would find it important when determining whether to purchase a product that it is unlawful to sell or possess that product. It requires no stretch to conclude that the proper answer is “yes” -- we assume that a reasonable person would not knowingly commit a criminal act. (Cf. Garnette v. Mankel (1945) 71 Cal.App.2d 783, 787; Civ. Code, § 3548.)
Slip Opinion, at 13-14.

Northern District Certifies Credit Card Deceptive Advertising Class in Greenwood v. Compucredit Corp

On January 19, 2010, Northern District Judge Claudia Wilken granted plaintiffs’ motion to certify a California UCL class arising out of alleged deceptive promotion of a subprime credit card that was marketed to consumers with low or weak credit scores. See Greenwood v. Compucredit Corp., 2010 U.S. Dist. LEXIS 3839 (N.D. Cal. Jan. 19, 2010). The challenged marketing, which occurred through a massive direct-mail solicitations and the internet, represented to consumers that the card could be used to “rebuild your credit”, that there was “no deposit required,” and that consumers would immediately receive $300 in available credit when they received their credit card. See id., at 2-3. However, upon receipt the consumer was actually required to make a $20 purchase payment to activate the card, which then triggered $185.50 in fees and finance charges that were immediately assessed against the $300 credit limit. See id., at 3. While these facts were disclosed in the challenged advertisements, they were buried in fine print and not in proximity to the representations that no deposit was required. See id.

Defendants’ efforts to sway the Court that adjudication of claims under UCL would splinter into a multitude of individualized issues failed. As reasoned by the Court, the solicitation materials “all are alleged to contain the same, or almost the same, combination of deceptive features.” See id., at 10, 12. Moreover, defendants’ claim that individualized inquiry would be required to determine whether each class member’s credit score increased was also rejected, as the Court deemed that this fact bore no relation to the plaintiffs’ claimed misrepresentations. See id., at 10.  As reasoned by the Court, common issues predominated insfar as Defendants' liability would be adjudicated based on common proof without inquiry into the individual circumstances of each class member:
[I]n In re Tobacco II Cases, the California Supreme Court held that only the named plaintiff in a UCL class action need demonstrate injury and causation.
Here, Plaintiffs may prove with generalized evidence that Defendants' conduct was "likely to deceive" members of the public. The individual circumstances of each class member's credit card application need not be examined because the unnamed class members are not required to prove reliance and damage. Common issues will thus predominate on the UCL claim.
See Greenwood, 2010 U.S. Dist. LEXIS 3839, at 20-21.

Wednesday, January 20, 2010

Two Recent District Court Opinions: Pom Wonderful LLC v. Welch Foods and Hanni v. Am. Airlines, Inc.

In Hanni v. Am. Airlines, Inc., 2010 U.S. Dist. LEXIS 3410 (N.D. Cal. Jan. 15, 2010), the plaintiffs sought certification of 4 separately defined classes arising out of an incident in which passengers were confined to a grounded American Airlines airplane for approximately four hours. The Court denied certification in its entirety, concluding each of plaintiffs’ proposed theories failed to meet the elements of commonality, typicality, adequacy, predominance and superiority. See Hanni, 2010 U.S. Dist. LEXIS 3410, at 23-35. (I think that this is essentially a royal flush for the defense). The plaintiffs’ problems on certification turned in large part on the inherent individuality of damages that arise in the context of a mass tort (hence, the rule that mass torts are generally not amenable to certification).

In Pom Wonderful LLC v. Welch Foods, 2009 U.S. Dist. LEXIS 123329 (C.D. Cal. Dec. 21, 2009), the Court granted judgment on the pleadings on the grounds the named plaintiff’s alleged injury was couched under a non-restitutionary disgorgement theory, and as such, was incapable of establishing Prop 64 standing as a matter of law:
In this case, Pom seeks a remedy that is not available to it under the UCL or FAL. Pom alleges that Welch's allegedly misleading advertising has caused "confusion, deception and mistake in the pomegranate juice market as a whole," which has "deprived [Pom] of business and goodwill," "injure[d] [Pom's] relationships with existing and prospective customers," and "resulted in increased sales of Welch's own White Grape Pomegranate Product while hindering the sales of [Pom's] pomegranate juice products . . ." Complaint PP 25-26. Thus, the damages that Pom seeks are profits that Welch obtained as a result of its allegedly unfair and fraudulent business practices and advertising. The California Supreme Court has previously held that "disgorgement of profits allegedly obtained by means of an unfair business practice" is not "an authorized remedy under the UCL where the profits are neither money taken from a plaintiff nor funds in which the plaintiff has an ownership interest." Korea Supply, 29 Cal. 4th at 1152.
See Pom Wonderful, 2009 U.S. Dist. LEXIS 123329, 6-7.

Pom underscores the inherent difficulty in bringing a UCL "competittor" action Post-Prop 64.

Tuesday, January 19, 2010

Northern District Denies Renewed Motion For Certification of Misclassification Class in In re Wells Fargo Home Mortg. Overtime Pay Litig.

On January 12, 2010, Judge Marilyn Patel issued an opinion denying plaintiff’s renewed motion for class certification in In re Wells Fargo Home Mortg. Overtime Pay Litig., 2010 U.S. Dist. LEXIS 3132 (N.D. Cal. Jan. 12, 2010). The proposed class consisted of all California Home Mortgage Consultants (“HMC”), and sought certification of overtime claims arising out of Wells Fargo’s alleged misclassification of HMC employees as exempt. The Court’s decision comes on the heels of the Ninth Circuit’s opinion in In re Wells Fargo Home Mortgage Overtime Pay Litig., 571 F.3d 953, 959 (9th Cir. 2009), wherein the Court’s prior order granting certification was reversed. As held by the Ninth Circuit, the Court erred by presuming the element of predominance to be satisfied based solely on Wells Fargo’s categorical exemption policy without evaluating other factors which bear directly on whether individualized issues will present problems with class wide adjudication.

In ruling on the plaintiff’s renewed motion, the Court revisited the element of predominance and concluded that plaintiff could establish its burden that common issues would predominate. While the Court acknowledged the existence of substantial evidence of standardization, the Court concluded that individual issues would nonetheless predominate because plaintiff failed to identify common proof that would absolve the court from inquiring into how each HMC spent their working day:
In light of these principles, the court cannot see and plaintiff has not presented any viable method for certifying this action as a class action. To be certain, there are a number of common issues in this case. Wells Fargo does not dispute that all HMCs were uniformly classified as exempt. All class members had common job descriptions, uniform training, the same primary goal (to sell mortgages), uniform job expectations, similar compensation plans, and standardized employee evaluation standards. The record before the court indicates that all HMCs operated without supervision. However, this court has already held that analysis of five of the seven exemptions asserted by Wells Fargo would require fact-intensive inquiries into how individual HMCs performed their job. Under In re Wells Fargo and Vinole, the complexity of those inquiries must factor into this court's predominance analysis. In re Wells Fargo and Vinole also make clear that a plaintiff could satisfy the predominance requirement by coming forward with some form of common proof that would absolve this court from inquiring into how each HMC spent their working day. Plaintiff has not, however, done so. She has not produced (or even alleged the existence of) any policy that requires HMCs to spend a specified amount of time in or out of the office. At the very least, to determine if each HMC qualified for the outside sales exemption the court would need to conduct "inquiries into how much time each individual [HMC] spent in or out of the office and how the [HMC] performed his or her job; all of this where the [HMC] was granted almost unfettered autonomy to do his or her job." Vinole, 571 F.3d at 947. Those inquiries would inevitably consume the majority of a trial, and overwhelm the adjudication of common issues.
See In re Wells Fargo, 2010 U.S. Dist. LEXIS 3132, 20-21.

While the Court was well within its discretion to conclude that it believed such individualized inquiry would predominate on such grounds in this case, it is important to note that the fact that issues relating to actual working time must be resolved on an individualized basis does not require denial of certification. See Sav-On Drug Stores, Inc. v. Superior Court, 34 Cal. 4th 319, 336-37 (Cal. 2004) (concluding that “[p]resence in a particular overtime class action of the considerations reviewed in Ramirez does not necessarily preclude class certification” as “[a]ny dispute over ‘how the employee actually spends his or her time’ [], of course, has the potential to generate individual issues.”).

Friday, January 15, 2010

Northern District Holds that Settlement Objector’s Failure to Opt-out of Settlement Class Undermined Standing to Challenge Adequacy of Notice in Separate Lawsuit

In Skilstaf, Inc. v. Cvs Caremark Corp., 2010 U.S. Dist. LEXIS 2662 (N.D. Cal. Jan. 13, 2010), the Court granted summary judgment brought against the named plaintiff on the grounds that it was bound by a prior action settlement containing “a court-approved covenant not to sue any other person or entity for a claim based on the same facts.” See id., at 9. The Court’s decision was unique in that it was limited specifically to the named plaintiff, which had actually filed an objection to the covenant at the settlement action on the grounds that the covenant was not disclosed in the notice. Significantly, the trial court in the previous action had stated on the record that it did not believe that the covenant would withstand challenge on due process grounds, and concluded that a due process challenge to the release could be raised before another court if placed at issue. See id., at 12. Yet, despite being provided additional time to opt-out, the plaintiff failed to do so. As reasoned by the Court, the failure to opt-out under such circumstances eliminated the plaintiff’s ability to challenge the validity of the covenant in the subsequent lawsuit:
If Skilstaf's notice of the terms of the settlement agreement had come solely from these two documents, the Court would likely share Skilstaf's and the New England Carpenters court's due process concerns. Skilstaf's argument regarding the deficiencies in the class notice procedures described above, however, fails to mention its unique position in the settlement process. Skilstaf's counsel, apparently through its own diligence, discovered the broad scope of the release provision and specifically applied to the district court for clarification. At the final approval hearing, the court, defense counsel, class counsel, and Skilstaf's counsel had an extensive discussion regarding the provision, after which Skilstaf was given another opportunity to opt out of the settlement. Skilstaf acknowledges in its brief that it chose not to opt out or appeal the district court's decision because it "did not want to prevent the New England Carpenters class from immediately receiving the monetary benefits of the McKesson settlement." Pltf. Oppo. at 8. n5 Skilstaf's own actions undermine its contention that it lacked sufficient notice of the scope of the release. Having made an informed and strategic decision to remain in the New England Carpenters class in order to reap the benefits of the settlement with McKesson, Skilstaf cannot now attempt to circumvent the limitations that attended those benefits.
See Skilstaf, 2010 U.S. Dist. LEXIS 2662, at 17-18.

Thereafter, the Court declined the plaintiff's request for leave to amend to locate a replacement plaintiff, reasoning that pre-certification dismissal deprived the court of an Article III case or controversy that would permit class member substitution:
the Court is not persuaded that it would be appropriate to permit the substitution of another class representative at this stage. Ordinarily, substitution of class representatives is permitted only after a class has already been certified. This is because, when the named plaintiff's claim is dismissed at the pleading stage, there is no longer an Article III "case or controversy" between the parties, and the action must be dismissed. See, e.g., Kremens v. Bartley, 431 U.S. 119, 132-33 (1977); Bd. of Sch. Comm'rs of City of Indianapolis v. Jacobs, 420 U.S. 128, 129 (1975) (per curiam); Lierboe v. State Farm Mut. Auto Ins. Co., 350 F.3d 1018, 1022 (9th Cir. 2003). Skilstaf cites two cases in which substitution of the named class representative was permitted prior to certification. Both of these cases are factually distinguishable and do not present grounds for departing from the usual rule in this action. See December 22, 2008 Order, Strickrath v. Globalstar, Inc., No. 07-1941 (Docket No. 146), at 11 (where the named plaintiff's claim was found to be time-barred just prior to the class certification hearing, court allowed 28 days for substitution in the interest of judicial economy); Wiener v. The Dannon Co., 255 F.R.D. 658 (C.D. Cal. 2009) (after class certification hearing and issuance of order finding that all certification requirements had been met other than typicality, court allowed approximately two weeks for substitution of class representative).
Skilstaf, 2010 U.S. Dist. LEXIS 2662, at 19-21.

Tuesday, January 12, 2010

Eastern District of California Denies Certification of Negative Amortization Related Claims in Quezada v. Loan Center of California, Inc.

On December 17, 2009, Judge William B. Shubb of the Eastern District of California issued an opinion denying certification in Quezada v. Loan Ctr. of Cal., 2009 U.S. Dist. LEXIS 122537, 11-12 (E.D. Cal. Dec. 17, 2009). Plaintiff’s motion sought certification of fraud and UCL claims brought against various defendants based on an alleged failure to disclose material risks posed by defendants’ Option Adjustable Rate Mortgages, including an alleged failure to disclose that loans were based on an artificially low “teaser” interest rate that was “guaranteed” with certainty to increase. See id. at 2-3. In denying certification, the court relied heavily on the defendant’s evidence establishing that the named plaintiff “[did] not speak English, had the loan documents explained to her via translation, and admitted at her deposition that she did not read the terms of the loan documents outside of recognizing several numbers on the pages of those documents.” See id., at 11-12.

With regard to Plaintiff’s fraud claim, the Court reasoned that Plaintiff’s claim was rendered atypical, and subject to a unique defense, based on the fact she did not read the documents, and in the court’s view, likely would have been unable to appreciate a distinction between the term “may” and “will” due to her limited grasp of English:
Plaintiff did not read any of the loan documents at issue and likely could not have understood the distinction between a loan that "may" negatively amortize and "will" negatively amortize regardless, due to her limited grasp of the English language. Thus, plaintiff may have particular difficulty, which other members of the class may not share, in proving reliance on the loan terms that may become the focus of the litigation.
See Quezada, 2009 U.S. Dist. LEXIS 122537, at 12-13.

[I don’t know about you, but I am a bit confused at this stage of the court’s analysis. Didn’t the opinion just state the documents were explained to the plaintiff via translation?  The Court even later acknowledges that record contained evidence that "the notary at closing explained the loan documents to plaintiff."  See id., at 19]

Thereafter, the court further reasoned that the plaintiff was not entitled to a presumption of reliance based its determination that “[i]n all scenarios it is clear that plaintiff did not rely on the misrepresentations and omissions in the loan documents”:
Regardless of which version of the events surrounding the consummation of plaintiff's loan is true, it is clear that plaintiff did not rely on the loan documents that plaintiff contends are the unifying element between the class members. Either plaintiff did not read the terms at all, was not explained the terms, and simply relied on the representations of Ortega, or was explained the terms of the OARM by Ornelas or the notary at closing and was aware of the terms of the loan when she signed the loan documents. In all scenarios it is clear that plaintiff did not rely on the misrepresentations and omissions in the loan documents. As defendants have rebutted any presumption of reliance that plaintiff may be entitled to, plaintiff's fraud claim fails to meet the typicality requirement because plaintiff's claim is subject to a unique defense that threatens to dominate the proceedings.
See Quezada, 2009 U.S. Dist. LEXIS 122537, at 19-20.

This line of analysis is a bit troubling, as the court appears to be rendering a ruling on the merits of the underlying claim as a basis for its finding that typicality is not met. Even then, the Court is drawing upon inferences from the various facts in the defendant's favor to arrive at its own conclusion that the plaintiff is foreclosed from a availing herself presumption of reliance. Even in the confines of summary judgment (where consideration of the merits is appropriate), this analysis would likely constitute an abuse of discretion, as it is established that materiality cannot be overcome absent “evidence conclusively rebutting reliance.” See Engalla v. Permanente Medical Group, Inc., 15 Cal. 4th 951, 977 (1997) (reasoning that “the Engallas need only make a showing that the misrepresentations were material, and that therefore a reasonable trier of fact could infer reliance from such misrepresentations, in order to survive this summary-judgment-like proceeding, absent evidence conclusively rebutting reliance.”). Here, it remains entirely possible that the plaintiff in fact did rely on the alleged misrepresentations and omissions in the loan documents via the interpretive explanation notwithstanding the existence of the scenarios explained by the court.

With regard to the plaintiff’s UCL claim, the court similarly denied certification based on issues relating to typicality:
Plaintiff will have unique difficulty in proving her "unfair" and "fraudulent" theories of liability on her UCL claim for the same reasons she will have difficulty on her common law fraud claim. Plaintiff's unfair and fraudulent business practices theories allege that defendant's business practices were unfair and fraudulent because they were based on "a pattern of deceptive conduct and concealment" aimed at misrepresenting the true terms of their OARM loans. (TAC P 151.) Whether or not plaintiff actually relied on these fraudulent representations will become a major focus of this litigation. In fact, defendants have filed a motion for summary judgment that argues plaintiff's UCL claim should be dismissed because she cannot prove reliance on the fraudulent practices at issue. (See Docket No. 85.)
While only the named plaintiff in a UCL class action based on fraudulent conduct must demonstrate reliance and causation, In re Tobacco II Cases, 46 Cal. 4th at 321, plaintiff's unique susceptibility to a challenge based on her standing to pursue a UCL claim is fatal. Were the court to certify plaintiff as a class representative and later rule at summary judgment that plaintiff lacks standing to pursue her UCL claim, the class would be left without a representative to pursue this claim. For the same reasons articulated above, plaintiff is particularly susceptible to the argument that she did not rely on the loan documents when she agreed to her loan. Accordingly, the court finds that plaintiff has not satisfied the typicality requirement for her UCL claim since whether she relied on the loan documents will become a focus of the litigation.
See Quezada, 2009 U.S. Dist. LEXIS 122537, at 22-23.

In addition to the issues discussed above, however, the court’s analysis also appears to tread into another problematic area. Significantly, the court’s analysis appears to turn in large part on the fact that a summary judgment motion concerning the named plaintiff’s reliance was pending, and that certification was denied out of concern that the plaintiff may possibly not prevail on this issue. However, as discussed in my previous post (here), this very line of reasoning was deemed an abuse of discretion by the Ninth Circuit in United Steel v. ConocoPhillips.

While the court subsequently found predomiance lacking with regard to the plaintiff's fraud claim due to individualized issues relating to reliance [See id., at 27-28], the court did not conclude that predominance was lacking with regard to the plaintiff's UCL claim under the deceptive prong (and could not do so on such grounds).  To that end, the court's denial of certification on that claim rested solely upon its analysis re typicality.

Friday, January 8, 2010

Ninth Circuit Reverses Denial of Certification of Meal Break Claim in United Steel v. ConocoPhillips

On January 6, 2010, the Ninth Circuit issued an opinion in United Steel v. ConocoPhillips concluding that the district court abused its discretion in denying certification of a meal period class brought against defendant ConocoPhillips. The plaintiff’s theory of liability alleged that defendant had impermissibly availed itself the “on-duty” meal break exemption [8 CCR 11010(11)(C)] – a theory which, due to the inherent uniformity of the requisite elements, readily lends itself to class adjudication. However, the district court did not deny certification based on issues relating to plaintiff’s theory, but rather, on concerns that common issues would not predominate if plaintiff’s on-duty theory subsequently failed.  See Slip Opinion, at 384-85.

As held by the Ninth Circuit, “the district court abused its discretion by declining certification based on the possibility that plaintiffs would not prevail on the merits on their ‘on duty’ theory.” See id., at 390. The Court reasoned that the district court was obligated to examine the theory put forward by plaintiffs in determining whether predominance was met:
Critically, the district court did not hold that plaintiffs' actual legal theory (what the district court referred to as "Plaintiffs' 'on duty' theory of liability") was one in which common issues of law or fact did not predominate over individual questions. Instead, the district court treated plaintiffs' actual legal theory as all but beside the point, holding that because "there can be no assurances that [plaintiffs] w[ould] prevail on this theory," (emphasis added), the district court's predominance inquiry would instead focus on the question whether plaintiffs "actually missed meal breaks," an admittedly individualized inquiry. By refusing to analyze plaintiffs' "on duty" argument as the basis for its predominance inquiry because "there c[ould] be no assurances that they w[ould] prevail on this theory," the district court ignored Ninth Circuit precedent and ultimately abused its discretion.
See id., at 390-91.

The Court further reasoned that the district court violated established class action precedent, not only by prejudging the merits of the plaintiff’s claims, but by impermissibly conditioning certification on the plaintiff’s claims being meritorious:
the district court not only "judge[d] the validity" of plaintiffs' "on duty" claims, it did so using a nearly insurmountable standard, concluding that merely because it was not assured that plaintiffs would prevail on their primary legal theory, that theory was not the appropriate basis for the predominance inquiry. But a court can never be assured that a plaintiff will prevail on a given legal theory prior to a dispositive ruling on the merits, and a full inquiry into the merits of a putative class's legal claims is precisely what both the Supreme Court and we have cautioned is not appropriate for a Rule 23 certification inquiry. See Eisen, 417 U.S. at 177-78; Cummings v. Connell, 316 F.3d 886, 896 (9th Cir. 2003) (noting that "this circuit does not favor denial of class certification on the basis of speculative conflicts"); Staton, 327 F.3d at 954; Moore v. Hughes Helicopters, Inc., 708 F.2d 475, 480 (9th Cir. 1983) (holding that "it is improper to advance a decision on the merits to the class certification stage").
See id., at 390-91.

As explained by the Court, the proper course of action would be to certify the class and revisit the issue of certification if and when the plaintiff’s on-duty theory failed to pan out. See id. at 393.

Thursday, January 7, 2010

First District Rules Trial Court Erred By Decertifying UCL / Breach of Warranty Claims In Weinstat v. Dentsply International, Inc

On January 7, 2009, the First District Court of Appeal reversed a trial court’s decertification of a UCL / breach of warranty action in Weinstat v. Dentsply International, Inc, __ Cal.App. 4th __ (2009).  The case was brought on behalf of a class consisting of dentist purchasers of the “Cavitron ultrasonic scaler” (which appears to be an advanced version of a water-pick ) based on the alleged deceptive representation “that Cavitrons can be used in oral surgery” when “in fact they are unsafe for such use because the device is incapable of delivering a safe water stream during oral surgical procedures.” See Slip Opinion, at 3-4. The opinion turns on the trial court’s subsequent decertification of both the UCL and breach of warranty claims based on issues relating to absent class member reliance set forth in the Second District’s decision in Pfizer, Inc. v. Superior Court, 141 Cal.App.4th 290 (2006), an opinion issued just prior to the California Supreme Court granted review in Tobacco II. The opinion has some very interesting discussion, especially with regard to the breach of warranty claim.

The Court’ analysis on the UCL claim is relatively straight forward. Subsequent to the Second District’s decision in Pfizer, Dentsply moved to decertify the UCL claim based on Pfizer’s conclusion that Prop 64 standing extended to members of the class. See id., at 5-6. The motion was granted. On appeal, the CAP concluded that the trial court’s basis for reversal was erroneous in light of Tobacco II, and reversed with instruction to consider the limited issue of the named plaintiff’s standing:
Here it is abundantly clear that the trial court incorrectly believed that each class member must establish standing, thereby requiring the court to delve into individual proof of material, reliance and resulting damage. Tobacco II has dispatched that reasoning and therefore reversal is appropriate.
***
...we reverse that aspect of the order without further analysis or ado in light of the trial court’s indisputably erroneous reasons for decertification. We remand for the limited purpose of determining whether the named representatives can meet the UCL standing requirements announced in Tobacco II and if not, whether amendment should be permitted
See Slip Opinion, at 9.

The Court’ analysis on the Breach of Warranty is a bit more complex. As explained by the CAP, the trial court decertified the warranty class, based on the influence of Pfizer, despite a clear lack of any new law or evidence:
The trial court proceeded also to decertify the class as to the breach of express warranty claims, notwithstanding that there were no changed circumstances and no newly discovered evidence. Instead, based on existing law that predated the original certification motion, and obviously influenced by the Pfizer decision, the trial court ruled that (1) appellants could not prove reliance on Dentsply‟s alleged misrepresentations on a classwide basis; although reliance could be presumed under some circumstances, the presumption was rebuttable and use of the class procedure would circumvent Dentsply‟s right to rebut; and (2) variations in the wording of the Directions for the different Cavitron models created predominantly individual fact issues concerning reliance, so the court could not infer classwide reliance.
See Slip Opinion, at 6.

As reasoned by the Court, controlling Supreme Court authority deprived the trial court of discretion to reverse its prior ruling absent a material change in the law or the evidence:
In Green v. Obledo (1981) 29 Cal.3d 126, our state’s high court focused on the propriety of decertification after a decision on the merits. The court observed that prior to judgment “a class should be decertified ‘only where it is clear there exist changed circumstances making continued class action treatment improper.’ [Citation.] A fortiori, a similar showing must be made to warrant decertification after a decision on the merits. This standard will prevent abuse on the part of the defendant while providing the trial court with enough flexibility to justly manage the class action.” (Id. at p. 148 & fn. 17.) In that case, the court pointed out that the belated motion was not based on changed circumstances, nor did the defendant adduce new evidence. (Id. at p. 148.)
See Slip Opinion, at 11.

According to the Court, a trial court may not extend a changed circumstances warranting decertification of one theory as a basis to decertify claims predicated upon other non-effected theories:
In the case at hand, Dentsply’s motion for decertification was accompanied by changed circumstances, most notably the Pfizer decision. However, this circumstance only pertained to the UCL cause of action. Nevertheless, the trial court went on to address Dentsply’s reassertions as to why the breach of warranty class should be decertified as well. Decertifying one theory should not sanction decertifying another absent some commonality with the changed circumstance or some other situation justifying reconsideration. Here there was none.
See Slip Opinion, at 12.

Finally, the CAP concluded that the trial court also erred by assuming that the element of reliance is an element of an express warranty claim. The CAP engaged in significance analysis demonstrating that is not the case.  See id., at 12-18. The CAP's finding on this point is perhaps the most significant and far reaching, for obvious reasons.

Tuesday, January 5, 2010

Multiple Requests for Depublication filed in Cohen v. DirecTv

Prior to the holidays, several requests were filed with the California Supreme Court seeking depublication of the Second District’s decision in Cohen v. Directv, including one drafted by myself.  Depublication is based on the grounds that Cohen improperly concluded that a trial has discretion to deny certification of a UCL claim under the fraudulent prong based on individualized issues relating to absent class member reliance.  As discussed in a previous post (here), Cohen's holding in this regard is in direct conflict with the California Supreme Court’s decision in In Re Tobacco II.  Cohen's status was previously changed from unpublished to published based on a letter campaign initiated by members of the defense bar (copies of which were previously posted here).

The documents relating to depublication are contained below, including the two oppositions that were filed prior to the close of the response period (per CRC 8.1125(b)):

Monday, January 4, 2010

First District Rules that Trial Court Erred by Striking Class Settlement Provision Requiring Amount of Fee Award Be Decided by Private Arbitrator: Cellphone Termination Fee Cases

On December 31, 2009, the First District issued an interesting opinion relating to whether a trial court may properly strike a class settlement provision providing that the amount of class counsel’s fee award would be resolved by private arbitration. The opinion, styled Cellphone Termination Fee Cases, __ Cal. App. 4th __ (2009), considered whether the trial court abused its discretion in refusing to approve the fee arbitration provision, where the court had already determined that the range of possible fee awards was reasonable and that there was no evidence of collusion by the parties to the settlement. The Court of Appeal concluded it did, as the trial court’s justification that the provision would impair objector participation bore no rational relationship to the court’s duties in evaluating the fairness of the settlement on behalf of the class. As reasoned by the Court, objector participation is limited to issues relating to collusion and the reasonableness of the overall fee award – both features which were not impaired by submitting the amount of the ultimate fee award to arbitration:

Objectors may participate in settlement approval proceedings relating to fees to assist in determining whether there is any indication of collusion and the reasonableness of the overall fee award. (Id. at pp. 1800-1801; accord, Microsoft, supra, 135 Cal.App.4th at p. 723.) Where, as here, the objectors have had an opportunity to present their views on those matters, in light of documentation adequate to support a reasonableness determination, and the trial court has determined there was no collusion and the fee range is reasonable, the court has satisfied the purposes of its review of the agreement on fees. (See Dunk, at p. 1801 [the court’s inquiry “‘must be limited to the extent necessary to reach a reasoned judgment that the agreement is not the product of’ ” collusion and that the settlement is reasonable].) Here, the trial court’s refusal to approve the fee arbitration provision was not tethered to that purpose; that is, the trial court’s requirement of objector participation in the arbitration lacked any nexus to the goal of protecting unnamed class members, whose interests would not have been affected by the fee arbitration. Ultimately, the court misapprehended its role in the class action settlement process and failed to give “[d]ue regard . . . to what is otherwise a private consensual agreement between the parties.” (Ibid.; see also Evans v. Jeff D. (1986) 475 U.S. 717, 726-727.)
 See Slip Opinion, at 14-15.

Central to the Court’s opinion was the degree of deference that was to be given to the parties’ election to submit the amount of class counsel’s fee award to private arbitration – deference supported not only by the right of contract, but the strong public policy favoring the settlement of complex class actions. See id., at 15. At any rate, the Court’s finding of error was for not, as the appealing party (i.e. defendant Sprint) failed to demonstrate any actual prejudice.