Thursday, April 29, 2010

Southern District Certifies Driver/Installer Wage Class in Dilts v. Penske Logistics, LLC

On April 26, 2010, Judge Janis L. Sammartino of the Southern District of California certified a multi-claim wage and hour class in Dilts v. Penske Logistics, LLC, 2010 U.S. Dist. LEXIS 40568, 25-26 (S.D. Cal. Apr. 26, 2010). The certified class encompassed “349 hourly appliance delivery drivers and installers in California who were assigned to its state-wide Whirlpool account”, and included 12 subclasses framed on various practices relating to the company’s alleged failure to provide (1) compensation for all time worked, (2) meal and rest breaks, (3) tool reimbursements, and (4) compliant wage statements.

Of particular note was the Court’s analysis of plaintiffs’ meal/rest period claims. Plaintiffs’ theory of liability was somewhat unique, asserting a “pressure” based theory on seven distinct practices, several of which appeared to be designed to conceal the fact that breaks were not being provided:
(1) PENSKE managers overseeing the Whirlpool account throughout the state regularly emphasized that breaks were not be taken until all installations were completed; (2) PENSKE never instituted a policy that either used the dispatch schedule to include a designated meal period nor did the company allow dispatchers to acknowledge, record or document when and if meal periods were actually taken; (3) PENSKE's use of a uniform scheduling algorithm resulted in delivery trucks being filled to capacity and built-in unrealistic installation and traffic estimates so that "driver/installers" were always at risk of maxing-out their regulatory "hours of service limits;" (4) PENSKE engaged in a common uniform policy and practice that required [class members] to be in constant communication with dispatch, management and customers and prevented them from turning off such devices during breaks; (5) PENSKE implemented a uniform policy that shifted the record-keeping requirement for meal periods to the driver/installer, who was told to record meals on the daily dispatch log, rather than be maintained by a central dispatch. The standard log included only one place entry of a single meal period and did not document whether the "installer" took a meal period[;] (6) PENSKE policy was to require a meal period to be recorded on the dispatch log before clerks were permitted to accept the end of day paperwork and allow the [class members] to clock out. This resulted in anecdotal evidence of clerks directing employees to fabricate a meal period entry whether taken or not; and (7) PENSKE managers, who were focused on maximizing productity (sic) and maintaining customer service engaged in a common practice of ridiculing, criticizing and/or reprimanding employees who returned to the yard with uninstalled appliances in a given workday.
See Dilts, 2010 U.S. Dist. LEXIS 40568, at 25-26.

Significantly, the Court found that common issues predominated, notwithstanding the fact that many of these defacto policies were to be established by way of anecdotal proof:
Thus, the question here is whether Defendant, by its policies, failed to provide meal breaks to the putative class members. Or, put another way, whether Defendant's policies effectively denied driver/installers and installers uninterrupted lunch periods. The majority of Plaintiff's evidence as to this question is anecdotal, consisting of the declarations of driver/installers and installers. (See Pl.'s Statement of Fact ## 28, 29, & 31.) Plaintiffs also offer some evidence from an employee of Defendant stating that dispatchers did not schedule lunches. (Hill Decl., Ex. 32 (Bloodworth Dep.) at 22:12-22.)
The evidence also indicates that truck activity was tracked by Defendant's "corporate XATA satellite positioning" system. (Memo. ISO Motion at 2.) Defendant also "provided each driver/installer a Nextel device for communication with the dispatchers, supervisor and customers during the day." (See, e.g., id. at 8.) This information is probative of whether breaks were received and whether Defendant's policies prevented uninterrupted meal breaks. The evidence also suggests that employees could not indicate that they had not taken a meal break and that Defendant never paid a premium wage for a missed break. (See Pl.'s Statement of Fact # 12.) Morever there seems to be no debate that Defendant's policies did not account for the statutorily mandated second meal break. These assertions should be largely provable through Defendant's records. Further, to the extent that these policies were informal and enforced through "ridicule" or "reprimand," they should be provable through common representative testimony. (See, e.g., Hill Decl., Ex. 9 (Davis Decl.) P 4.)
See Dilts, 2010 U.S. Dist. LEXIS 40568, at 31-33.

Wednesday, April 28, 2010

More on the Ninth Circuit’s Decision in Dukes v. Wal-Mart

Yesterday, in a post contained here, I examined the Ninth Circuit’s commonality analysis in Dukes v. Wal-Mart Stores, Inc., 2010 U.S. App. LEXIS 8576 (9th Cir. Cal. Apr. 26, 2010). Today I will examine the Court’s analysis concerning the propriety of certifying damage claims under Rule 23(b)(2). The Court’s analysis on this issue is significant, as it stands to permit certification of Rule 23(b)(2) damage classes beyond the discrimination context.

Under Rule 23(b)(2), certification is appropriate if “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief . . . is appropriate respecting the class as a whole.” See Fed. R. Civ. P. 23(b)(2). As a general rule, “Rule 23(b)(2) … ‘does not extend to cases in which the appropriate final relief relates exclusively or predominantly to money damages.’” See Dukes, 2010 U.S. App. LEXIS 8576, at 123 (quoting Fed. R. Civ. P. 23(b)(2) advisory committee's note to 1966 amends.). Here, Wal-Mart claimed that certification of a (b)(2) class, which included back pay and punitive damage claims, was error because such claims for monetary relief predominated over claims for injunctive and declaratory relief.

In addressing Wal-Mart’s challenge, the Ninth Circuit revisited the applicable standard for evaluating whether monetary relief “predominates” over declaratory and injunctive relief (as instructed by the advisory committee note statement quoted above). As reasoned by the Court, the “subjective intent” approach – which was the approach previously followed by the Ninth Circuit in Molski v. Gleich, 318 F.3d 937 (9th Cir. 2003) – provides an incomplete method for answering this question, as (1) “the sole emphasis on the plaintiff's intent ignores important indicators of the ‘strength, influence, [and] authority’ of a request for specific monetary relief” and (2) “requires courts to engage in a nebulous and imprecise inquiry into the plaintiffs' intent in bringing a particular suit.” See Dukes, 2010 U.S. App. LEXIS 8576, at 123-27. Based thereon, the “subjective intent” analysis in Molski was overruled. See id.

The Court similarly rejected the approach followed by other circuits providing that “monetary relief predominates over other forms of relief ‘unless it is incidental to requested injunctive or declaratory relief.’” See id., at 123 (citing Allison v. Citgo Petroleum Corp., 151 F.3d 402, 415-16 (5th Cir. 1998)). As reasoned by the Court, this approach (1) conflicted with the Advisory Note by equating the term “predominant” with the more restrictive phrase “more than incidental” and (2) “‘usurps the district courts' authority granted by Rule 23 . . . to rigorously analyze the case, probe behind the pleadings if necessary, and exercise its own discretion within the framework of the rules in determining whether the action is to be so maintained.’” See id., at 125-126.

According to the Court, the superior approach was to ascribe the term “predominant” a literal meaning, limiting Rule 23(b)(2) certification to “monetary damages that are not ‘superior [in] strength, influence, or authority’ to injunctive and declaratory relief.” See Dukes, 2010 U.S. App. LEXIS 8576, at 124 (quoting Merriam-Webster's Collegiate Dictionary 978 (11th ed. 2004)). Under this approach “a district court should consider, on a case-by-case basis, the objective ‘effect of the relief sought’ on the litigation”, evaluating “factors such as [1] whether the monetary relief sought determines the key procedures that will be used, [2] whether it introduces new and significant legal and factual issues, [3] whether it requires individualized hearings, and [4] whether its size and nature – as measured by recovery per class member – raise particular due process and manageability concerns ….” See id., at 127.

Under this approach, the district court was deemed to have acted within its discretion by including claims for back pay, but exceeded its discretion by including punitive damage claims.

With regard to backpay claims, the Court noted that every circuit to have addressed the issue, even those applying the most restrictive standard, has deemed backpay claims “fully compatible with the certification of a Rule 23(b)(2) class.” See Dukes, 2010 U.S. App. LEXIS 8576, at 130-131. As explained by the Court, such authorities have consistently concluded that awards of backpay do not predominate over the injunctive remedies because (1) “the ‘calculation of back pay generally involves [relatively un]complicated factual determinations and few[ ] individualized issues’” and (2) “back pay is ‘an integral component of Title VII's 'make whole' remedial scheme …which the drafters of the Federal Rules of Civil Procedure clearly intended Rule 23(b)(2) to apply.” See id., at 133-34 (noting that the advisory committee notes expressly contemplated “‘actions in the civil-rights field where a party is charged with discriminating unlawfully against a class’”).

Conversely, inclusion of a punitive damage claim was deemed an abuse of discretion, as the district court failed to undertake any analysis evaluating the impact of the inclusion of such a claim. See Dukes, 2010 U.S. App. LEXIS 8576, at 140-141. On remand, the district court was advised to consider the following issues: (1) whether the punitive damage claim would be tried to a jury, and if so, whether this procedural change causes the monetary damage claim to predominate; (2) whether addition of the element of “malice” necessary to recover punitive damages introduces significant evidentiary and legal arguments that would not have otherwise been necessary; (3) whether the potential size of individual punitive damage awards, which under Title VII is capped at $300k per individual, triggers due process issues requiring adjudication under Rule 23(b)(3); and (4) whether plaintiff’s punitive damage theory – which is based on a uniform theory of liability – would mitigate against a finding that punitive damages predominate. See id., at 141-44. Moreover, the district court was further advised, in the event Rule 23(b)(2) certification was not appropriate, to consider certification under Rule 23(b)(3) (which has been deemed appropriate in the Ninth Circuit). See id., at 144-45.

Finally, Wal-Mart challenged the propriety of including former employees under a Rule 23(b)(2) class on the grounds that any monetary relief would predominate due to such persons lacking standing to pursue injunctive relief. The Court agreed, but limited this finding solely to individuals who were no longer employed at Wal-Mart on the date the complaint was filed. See id., at 147-48. However, the Court did not leave excluded people hanging. With regard to individuals whose employment terminated pre-filing, the district court was advised to revisit whether certification of a Rule 23(b)(3) class was appropriate.  See id.

Monday, April 26, 2010

Ninth Circuit Affirms in Part Class Certification Order in Dukes v. Walmart

On April 26, 2010, the Ninth Circuit issued its long awaited opinion in Dukes v. Walmart, 2010 U.S. App. LEXIS 8576 (9th Cir. Cal. Apr. 26, 2010).  As reflected in the introduction of the opinion, the Court affirmed the lower court’s certification of the “23(b)(2) class of current employees with respect to their claims for injunctive relief, declaratory relief, and back pay.” The Court remanded for reconsideration certification of the punitive damages claims, as well as the claims of former employees.

Wal-Mart’s appeal claimed that “the district court erred by: (1) concluding that the class met Rule 23(a)'s commonality and typicality requirements; (2) eliminating Wal-Mart's ability to respond to individual Plaintiff's claims; and (3) failing to recognize that Plaintiffs' claims for monetary relief predominated over their claims for injunctive or declaratory relief.” See Dukes, 2010 U.S. App. LEXIS 8576, at 7-8. As the Court’s analysis is quite dense, I will address each of these arguments in successive postings.

With regard to the challenge to Rule 23(a) commonality, Wal-Mart claimed the evidence underpinning the district court’s certification analysis was insufficient to establish a common factual or legal question relating to the existence of discrimination. Such evidence challenged by Wal-Mart included “(1) facts supporting the existence of company-wide policies and practices that, in part through their subjectivity, provide a potential conduit for discrimination; (2) expert opinions supporting the existence of company-wide policies and practices that likely include a culture of gender stereotyping; (3) expert statistical evidence of class-wide gender disparities attributable to discrimination; and (4) anecdotal evidence from class members throughout the country of discriminatory attitudes held or tolerated by management.” See Dukes, 2010 U.S. App. LEXIS 8576, at 75-76. For several reasons, the Ninth Circuit disagreed.

First, the Court concluded that there was substantial, "undisputed" evidence in the record supporting plaintiffs’ contention that Wal-Mart operates a highly centralized company that promotes policies common to all stores and maintains a single system of oversight. As explained by the Court, this included evidence of (1) a uniform personnel and management structure across stores; (2) extensive oversight by Wal-Mart headquarters with regard to store operations, including the use of standardized company-wide policies governing pay and promotion decisions, and a strong, centralized corporate culture; and (3) consistent gender-related disparities in every domestic region of the company. See Dukes, 2010 U.S. App. LEXIS 8576, at 76.

Second, the Court rejected Wal-Mart-s claim that the trial court erred by relying upon expert evidence which concluded that “that Wal-Mart is ‘vulnerable’ to bias or gender stereotyping” at the “macro” level (i.e. involving all Wal-Mart stores). As reasoned by the Ninth Circuit majority, the district court acted well within its discretion by relying upon such evidence, as the district court affirmatively demonstrated that the expert opinion at issue was itself tied directly to the plaintiffs’ proffered undisputed evidence of centralization:
The district court reviewed Plaintiffs' and Wal-Mart's competing claims as to Wal-Mart's uniform culture and determined that "the evidence indicates that in-store pay and promotion decisions are largely subjective and made within a substantial range of discretion by store or district level managers, and that this is a common feature which provides a wide enough conduit for gender bias to potentially seep into the system." Id. at 152. Having evaluated this evidence in detail, the court determined "that given the evidence regarding strong uniform culture and policies, the degree and impact of this practice is a significant question of fact common to the class as a whole." Id. at 153. Such a reasoned determination is what our standard for Rule 23 requires.
See Dukes, 2010 U.S. App. LEXIS 8576, at 78.

As reasoned by the Court, Wal-Mart’s criticisms regarding the reliability of the conclusions rendered by plaintiff’s expert implicated a merits based issue that was reserved for the jury to resolve. See Dukes, 2010 U.S. App. LEXIS 8576, at 79-80. Moreover, the Court concluded that Wal-Mart’s Daubert challenge to plaintiff’s expert evidence was misplaced, as Walmart improperly challenged expert conclusions, not methodology used in arriving at the proffered opinions. See id., at 78-82 (“For the class certification, however, Dr. Bielby's opinions, for which Wal-Mart did not challenge the methodology, raised a question ‘of corporate uniformity and gender stereotyping that is common to all class members.’ [] We cannot say that considering Dr. Bielby's opinions in this method was an abuse of discretion.”).

Third, the Court similarly rejected Wal-Mart’s claim that the trial court erred by relying upon plaintiff’s statistical evidence, which evaluated discrimination at the “macro” level, as opposed to each store individually. As reasoned by the Court, “[i]t is well established that plaintiffs may demonstrate commonality by presenting statistical evidence, which survives a ‘rigorous analysis,’ sufficient to fairly raise a common question concerning whether there is class-wide discrimination.” See Dukes, 2010 U.S. App. LEXIS 8576, at 86. In the case at hand, the district court was deemed to have rendered its determination based on such as rigorous analysis, as the court relied on evidence demonstrating that “a store-by-store analysis would not capture: (1) the effect of district, regional, and company-wide control over Wal-Mart's uniform compensation policies and procedures; (2) the dissemination of Wal-Mart's uniform compensation policies and procedures resulting from the frequent movement of store managers; or (3) Wal-Mart's strong corporate culture.” See id., at 87-91.

Finally, the Court rejected Wal-Mart’s assertion that the 120 declarations submitted by plaintiffs containing anecdotal evidence of discrimination (1) was not competent evidence of discrimination, and (2) insufficient evidence of discrimination in light of the size of the certified class. As reasoned by the Court, “anecdotal evidence of discrimination is commonly used in Title VII ‘pattern and practice’ cases to bolster statistical proof by bringing ‘the cold numbers convincingly to life.’” See Dukes, 2010 U.S. App. LEXIS 8576, at 106. The Court further reasoned that, contrary to Wal-Mart’s argument, the district court did not rely upon such anecdotal evidence to establish commonality by itself, but in conjunction with the other evidence submitted by plaintiffs (as discussed above). See id., at 107-108.

In light of the forgoing, the Court concluded that the district court’s Rule 23(a)(2) commonality analysis failed to disclose any grounds on which an abuse of discretion could be framed:
The district court's analysis of Rule 23(a)(2) complies with the standard the Supreme Court has set down and we have explained today for a district court adjudicating a motion for class certification. Plaintiffs' factual evidence, expert opinions, statistical evidence, and anecdotal evidence provide sufficient support to raise the common question whether Wal-Mart's female employees nationwide were subjected to a single set of corporate policies (not merely a number of independent discriminatory acts) that may have worked to unlawfully discriminate against them in violation of Title VII. Evidence of Wal-Mart's subjective decision-making policies suggests a common legal or factual question regarding whether Wal-Mart's policies or practices are discriminatory. Many other courts have reached the same conclusion based on similar evidence. See, e.g., Staton, 327 F.3d at 955; Shipes, 987 F.2d at 316; Cox v. Am. Cast Iron Pipe Co., 784 F.2d 1546, 1557 (11th Cir. 1986); Segar v. Smith, 738 F.2d 1249, 1276 (D.C. Cir. 1984).
See Dukes, 2010 U.S. App. LEXIS 8576, at 113-114.

More on the Court's analysis tomorrow.

Friday, April 23, 2010

Ninth Circuit Upholds District Court’s Finding That Quixtar Arbitration Agreement is Unconscionable: Pokorny v. Quixtar, Inc.

On April 20, 2010, the Ninth Circuit issued an opinion in Pokorny v. Quixtar, Inc., 2010 U.S. App. LEXIS 8106 (9th Cir. Cal. Apr. 20, 2010), affirming a district court finding that a multi-tiered arbitration agreement maintained by Amway successor, Quixtar Inc., was unconscionable under California law.

The plaintiffs’ action alleges that the Quixtar business model constitutes an unlawful, two-tiered pyramid scheme, and pursues class wide claims under RICO and the UCL on behalf of lower tiered “independent business owners” (“IBOs”). Quixtar sought to dismiss the action based on an arbitration agreement which would have required plaintiffs to engage in two step “conciliation” process (headed by top-tiered sales people and Quixtar itself) before being permitted to move forward with binding arbitration. The district court denied Quixtar’s motion on the grounds that both the non-binding conciliation and the binding arbitration portions of the arbitration agreement were procedurally and substantively unconscionable under California law. The Ninth Circuit affirmed, finding that substantive and procedural unconscionability were both “present to a high degree.” See Slip Opinion, at 5988.

With regard to procedural unconscionability, the Court found the agreement oppressive, reasoning that Quixtar’s practice of incorporating by reference the terms of the arbitration process in a second, undisclosed document, failed to apprise plaintiffs of the conciliation/arbitration procedures, let alone enable them to negotiate the terms. See id., at 5988-90.

Similarly, the Court upheld the district court’s finding that the agreement was “exceedingly” substantively unconscionable due to (1) the agreement applying only unilaterally to IBOs, and not Quixar itself, (2) provisions foreclosing IBOs from challenging Quixtar rules of conduct, while reserving Quixtar the right to alter such rules within the confines of the proceedings itself, (3) a shortening of the limitations period to 2 years, (4) a gag order which “forever barred [only IBOs] from disclosing to anyone not involved in the resolution of that claim the basis for it, the evidence supporting it, or the outcome of the arbitration” and (5)  terms which incentivized the use of arbitration "neutrals" which had undergone training by Quixtar without adequate disclosures of bias to IBo's. See id., at 5991-03.

Admittedly, this opinion is somewhat routine. However, having been repeatedly cornered and subjected to the “plan” in the early 90’s, there is something about it I find uniquely satisfying.

Thursday, April 22, 2010

Ninth Circuit Rules that Denial of Class Certification Does Not Impact CAFA Jurisdiction: United Steel v. Shell Oil Co.

On April 21, 2010, the Ninth Circuit ruled that a Federal court’s CAFA jurisdiction is not contingent on certification of a class in United Steel v. Shell Oil Co., 2010 U.S. App. LEXIS 8208 (9th Cir. 2010). The Court’s opinion makes clear that “the subsequent denial of Rule 23 class certification does not divest the district court of jurisdiction” and as such, a case properly removed under CAFA “is not to be remanded to state court.” See Slip Opinion, at 6026.

The Court’s opinion cites with approval to the Eleventh Circuit’s analysis in Vega v. T-Mobile USA, Inc., 564 F.3d 1256 (11th Cir. 2009), which “reasoned that (1) § 1332(d)(5)(B)’s jurisdictional limitation applies to ‘proposed’ classes; (2) ‘jurisdictional facts are assessed at the time of removal’; and (3) ‘post-removal events [(including non- or de-certification)] do not deprive federal courts of subject matter jurisdiction.’” See id., at 6030 (quoting Vega, 564 F.3d at 1279-80).

As the Court reasoned, Congress’ failure to expressly state that denial of class certification divested a Federal court of CAFA jurisdiction reflected intent to adhere to the longstanding principle that post-filing developments do not impair Federal jurisdiction:
Had Congress intended that a properly removed class action be remanded if a class is not eventually certified, it could have said so. We think it more likely that Congress intended that the usual and long-standing principles apply -- post-filing developments do not defeat jurisdiction if jurisdiction was properly invoked as of the time of filing.
Slip Opinion, at 6031.

However, the Court was careful to note that exceptions to this rule may exist. See id., fn. 3 (“We recognize, as the Cunningham court did, exceptions to the general rule of ‘once jurisdiction, always jurisdiction’ -- such as when a case becomes moot in the course of litigation or when there was no jurisdiction to begin with because the jurisdictional allegations were frivolous from the start.”).

Wednesday, April 21, 2010

Fourth District Rules Longstanding Class Principle Precluding Defendant From “Picking Off” Named Plaintiff Applies to UCL, Post Prop 64: Wallace v. GEICO Gen. Ins. Co.

On April 19, 2010, the Fourth District Court of Appeal concluded that Prop 64 did not render the “pick off” doctrine inapplicable to class action claims brought under the UCL. See Wallace v. GEICO Gen. Ins. Co., __ Cal.App.4th __ (2010). In its ruling striking the class allegations, the trial court rejected the plaintiff’s citation to the principle expressed in La Sala v. American Sav. & Loan Assn., 5 Cal.3d 864 (1971), which precludes a defendant from “picking off” the named plaintiff by unilaterally settling out his or her claims to avoid a class action. See Slip Opinion, at 14. The trial court reasoned that “‘[t]he La Sala case relied on by [Wallace] is not persuasive in this setting, in light of the requirement under section 17200 that the plaintiff must have actually suffered injury.’” See id., at 14-15.

The Court of Appeal disagreed, reasoning that the “pick off” doctrine is an established part of class action procedure that was not altered Prop 64’s amendments to standing (which were focused on the “filing” of UCL lawsuits):
We see no indication in this statement of intent that Proposition 64 was intended to render the pick off cases inapplicable in class actions brought under section 17200 et seq. The voter’s focus was instead on the filing of lawsuits by attorneys who did not have clients impacted by the defendant’s conduct. Here, Wallace’s lawsuit was filed by a client directly impacted by GEICO ’s conduct. Further, as our Supreme Court stated in another case in which it reviewed evidence of the voter’s intent, the ballot materials for Proposition 64 contain no “indication that the purpose of the initiative was to alter the way in which class actions operate in the context of the [unfair competition law]” and there is no “indication that Proposition 64 was intended in any way to alter the rules surrounding class action certification.” (In re Tobacco II Cases (2009) 46 Cal.4th 298, 318 [].) Because the doctrine expressed in the pick off cases is an established part of class action procedure, there is no reason to believe that Proposition 64 was intended to alter that doctrine in the context of suits brought under section 17200 et seq.
Slip Opinion, at 16-17.

In the case at hand, the Court concluded that insofar as the defendant voluntarily offered to settle with plaintiff after she filed a class action lawsuit, the trial court erred by granting the motion to strike class allegations on the ground that the lawsuit lacked a representative plaintiff.  See id., at 17-19.

Monday, April 19, 2010

California Supreme Court denies Petitions for Review in Weinstat v. Dentsply International and Steroid Hormone Product Cases

On April 14, 2010, the California Supreme Court denied the petition for review in the Steroid Hormone Product Cases, 181 Cal. App. 4th 145 (2d Dist. 2010), and the petition for review and request for depublication in Weinstat v. Dentsply Internat., Inc., 180 Cal. App. 4th 1213 (1st Dist. 2010). These decisions were discussed previously, here and here.

Fourth District Companion Cases Conclude Prop 64 Reliance Applies to UCL “Unlawful” Prong When Claim is Rooted in Misrepresentation: Hale v. Sharp Healthcare and Durrell v. Sharp Healthcare

On April 19, 2010, the Fourth District Court of Appeal issued two opinions – Hale v. Sharp Healthcare, __ Cal.App.4th __ (2010) and Durrell v. Sharp Healthcare, __ Cal.App.4th __ (2010) – both of which extended Prop 64 reliance to UCL claims brought under the “unlawful” prong. The Court’s analysis, which drew largely from the California Supreme Court’s analysis in footnote 17 of Tobacco II, acknowledged that such application was to be strictly limited to unlawful prong claims involving false advertising and misrepresentations to consumers:
Construing the phrase "as a result of" in Business and Professions Code section 17204 in light of Proposition 64's intention to limit private enforcement actions under the UCL, we conclude the reasoning of Tobacco II applies equally to the "unlawful" prong of the UCL, when, as here, the predicate unlawful conduct is misrepresentation. Indeed, the court explained in Tobacco II: "We emphasize that our discussion of causation in this case is limited to such cases where, as here, a UCL action is based on a fraud theory involving false advertising and misrepresentations to consumers. The UCL defines 'unfair competition' as 'includ[ing] any unlawful, unfair or fraudulent business act or practice . . . .' [Citation.] There are doubtless many types of unfair business practices in which the concept of reliance, as discussed here, has no application." (Tobacco II, supra, 46 Cal.4th at p. 325, fn. 17, italics added.) The concept of reliance is unequivocally applicable here.
See Hale, at 13-14; Durrell, at 14.

Significantly, the Court was careful to note that pleading the requisite degree of “injury” for purposes of Prop 64 standing is not onerous:
We also relied on the United States Supreme Court's description of "injury in fact" for federal court standing purposes as " 'an invasion of a legally protected interest which is (a) concrete and particularized . . . and (b) "actual or imminent, not 'conjectural' or 'hypothetical,' " [citations].' " (Ibid., quoting Lujan v. Defenders of Wildlife (1992) 504 U.S. 555, 560-561.) We cited a federal opinion that explained, " 'Injury-in-fact is not Mount Everest. [Citation.] ("The contours of the injury-in-fact requirement, while not precisely defined, are very generous," requiring only that claimant "allege[] some specific, 'identifiable trifle' of injury").' " (Troyk, supra, at p. 1347, quoting Danvers Motor Co., Inc. v. Ford Motor Co. (3d Cir. 2005) 432 F.3d 286, 294.)
See Hale, at 2.

In fact, the difference between affirmance in Durrell and reversal in Hale turned on the simple allegation that the named plaintiff expected to be charged “regular rates” after reading the defendant hospital’s patient Admission Agreement at the time of being admitted. See Durrell, at 14-15 (“The SAC does not allege Durell relied on either Sharp's Web site representations or on the language in the Agreement for Services in going to Sharp Grossmont Hospital or in seeking or accepting services once he was transported there.”); but see Hale, at 14-15 (concluding that Hale “has reasonably pled reliance” because “[t]he SAC alleges Hale signed the Admission Agreement, and ‘at the time of signing the contract, she was expecting to be charged 'regular rates,' and certainly not the grossly excessive rates that she was subsequently billed.’”).

Friday, April 16, 2010

Ninth Circuit Upholds Certification of Off-The-Clock Wage Class in Kamar v. Radio Shack Corp.

On April 14, 2010, the Ninth Circuit issued an unpublished opinion upholding a district court certification order involving wage claims against Radio Shack. See Kamar v. Radio Shack Corp., 2010 U.S. App. LEXIS 7664 (9th Cir. Cal. Apr. 14, 2010). As reflected in the opinion, the district court certified the following class:
All California employees of defendant paid on an hourly basis as nonexempt employees for the period of March 2003 to the present who (a) were instructed to and attended a Saturday store meeting or district office meeting without receiving the full amount of mandated premium pay, or (b) worked a split shift schedule without receiving the full amount of mandated premium pay, or (c) fit into both (a) and (b).
Defendant appealed, claiming that the district court erred by certifying what it termed a “fail-safe class” – i.e. a class which utilizes a merits-based definition to conceal defects in predominance. See Kamar, 2010 U.S. App. LEXIS 7664, at 2-3. Under such circumstances, a defendant’s liability would have to be adjudicated as a precursor to ascertaining class membership. See id. The Court disagreed with Radio Shack’s analysis, reasoning that “the designation made by the district court should be seen as a way of narrowing the class to employees within the reporting time and split-shift classifications, without actually distinguishing between those who may and those who may not ultimately turn out to be entitled to premium pay.” See id., at 3. That the class definition was merits neutral was demonstrated by the fact that the definition was “not a circular one that determines the scope of the class only once it is decided that a class member was actually wronged.” See id.

Although unpublished, the Court’s opinion is citable authority pursuant to FRAP, Rule 32.1.

Wednesday, April 14, 2010

Northern District Certifies Icelandic Currency Investor Class in Vathana v. EverBank

On March 15, 2010, Judge Richard Seeborg, of the Northern District of California, certified a breach of contract claim on behalf of a class of investors against defendants EverBank, EverBank Financial Corporation, and EverBank World Markets in Vathana v. EverBank, 2010 U.S. Dist. LEXIS 35665 (N.D. Cal. Mar. 15, 2010). Plaintiff’s action alleges breach of contract arising out of an investment vehicle offered by defendants, known as a WorldCurrency CD (“WCCD”), involving the Icelandic krona (“ISK”). Under the terms and conditions, the WCCD at issue permitted conversion of US currency into ISK with a 3 month maturity date, affording the investor the option to rollover of the CD and its proceeds by re-investing in the same currency for the same maturity, at the current prevailing interest rate. See id., at 2-3. An issue arose, however, when in late 2008 when the Republic of Iceland placed controls on the amount of ISK that could be purchased by foreign investors as the result of a severe monetary crisis, eliminating defendants’ ability to purchase new ISK WCCDs for its customers. See id., at 4. As a result, defendants were forced to ISK WCCDs into USD at what plaintiff alleged “was ‘an incredibly low interest rate’ in comparison to published rates.” See id., at 4-5. Plaintiff filed a claim for breach of contract on behalf of persons similarly situated.

In opposing certification, defendants conceded that plaintiff met the requirements of Rule 23(a), but disputed that plaintiff made an adequate showing under Rule 23(b)(3). Defendant maintained that predominance was lacking, as individual proof would be required to determine (1) whether each putative class member consented to the closure of his or her CDs and/or received advance notice of the closure, (2) whether the agreement of each class member contained a force majeure clause that would entitle defendant was entitled to close out the ISK WCCD, and (3) and whether the conversion rate used by defendant on each CD was commercially reasonable. See id., at 10-11.

The Court disagreed, concluding that each of the issues raised by defendants were “objectively measurable and requires no individualized subjective determinations to be made by this Court.” See id., at 12-13. Significantly, the Court reasoned that defendants’ arguments sought to lure the Court to deny certification on grounds divorced from the plaintiff’s theory of liability – analysis the Ninth Circuit recently deemed to constitute an abuse of discretion:
This analysis also gibes with another recent appellate decision, United Steel, Paper & Forestry, Rubber, Manufacturing Energy, Allied Industrial & Service Workers International Union v. Conoco-Phillips Co., in which the Ninth Circuit criticized the district court for inappropriately emphasizing objectively determinable factual issues in denying class certification--even though the court did not deny that plaintiffs' actual legal theory was one in which common issues of law or fact predominated over individual questions. 593 F.3d 802, 808 (9th Cir. 2010). The Ninth Circuit found that the lower court had abused its discretion by "treat[ing] plaintiffs' actual legal theory as all but beside the point" and instead focusing its analysis on factual differences among the putative class which were admittedly individualized inquiries. Id.
In the present case, EverBank effectively urges this Court to make the same mistake. There can be no question that the putative class members differ among themselves in certain factual aspects, such as the amount of money each person invested in ISK WCCDs, which version of the Agreement applied to which CD, what ISK-USD conversion rate was used to close out each CD, how much (if any) that conversion rate differed from a commercially reasonable rate, and so forth. The fact remains, however, that Vathana's legal theory of recovery for breach of contract is one in which common issues of law and/or fact predominate over individual questions. The members of the proposed class all purchased ISK WCCDs from EverBank which matured during the last quarter of 2008 and which were closed by EverBank. This lawsuit simply poses the question whether those closures constituted a breach of contract. For these reasons, a class action is superior to individual adjudication of the putative class members' individual claims, and Vathana's motion for class certification is therefore meritorious.
See Vathana, 2010 U.S. Dist. LEXIS 35665, at 13-15.

Saturday, April 10, 2010

Fourth District Holds that Doctrine of “Delayed Accrual” Applies to UCL: Salenga v. Mitsubishi Motors Credit of Am.

On April 9, 2010, the Fourth District Court of Appeal held that the legal principle of “delayed accrual” was applicable to the UCL for purposes of ascertaining the initiation of the four year statute of limitations in Salenga v. Mitsubishi Motors Credit of Am., __ Cal.4th __ (2010). See Slip Opinion, at 9-12. The Court’s decision is significant, as previous decisions have found that statute extending doctrines, such as the discovery rule, are inapplicable to the UCL. Id., at 9 (citing Snapp & Associates Ins. Services, Inc. v. Malcolm Bruce Burlingame Robertson, 96 Cal.App.4th 884, 891(2002)). As explained by the Court, “delayed accrual” is an exception to the general rule that a cause of action accrues as of the time of the wrongful act. Id., at 10. In this manner, “‘rules of delayed accrual are to be distinguished from rules that, despite accrual of the cause of action, toll or suspend the running of the statute.’” Id. Situations where delayed accrual may apply include (1) accrual when damage results, and (2) accrual postponed by performance of a condition precedent. Id.

In Salenga, the issue of delayed accrual arose from a somewhat complicated series of events relating to an auto finance company’s efforts to obtain deficiency judgment against defaulting borrowers. There, the plaintiff, an assignee of an auto finance company, sued defendant, a defaulting borrow, seeking a $10,000 deficiency judgment after defendant had defaulted on her auto loan in 2003 and the vehicle was repossessed. Despite auctioning the borrower's vehicle in 2003, the lender did not attempt to enforce the $10K deficiency until 2007.  Upon being sued in 2008, the defendant filed a UCL class action cross complaint, alleging that the “Notice of Intent to Dispose of Motor Vehicle” used by the creditor in 2003 to initiate the entire process was legally defective under the Rees-Levering Motor Vehicle Sales and Finance Act, and therefore would not, as a matter of law, support a deficiency judgment. The trial court subsequently sustained the cross-defendant’s demurrer based on the cross claim being barred by the UCL’s four year statute of limitations, reasoning that that defendant’s “UCL claims were based on a defective NOI, sent in October 2003, but the cross-complaint was erroneously not filed until August 5, 2008, over four years later.” See id., at 6.

The CAP reversed. As held by the Court, the borrower’s cause of action did not accrue as a matter of law on the date the defective Notice was sent, reasoning that the borrower may be able to plead facts establishing that the date of actual injury was the date on which the creditor undertook efforts to enforce the allegedly inadequate Notice:
We disagree with cross-defendants that the only relevant time period for assessing standing and/or accrual of a statutory cause of action is 2003, when the defective NOI was sent. Rather, Appellant should be allowed to make a greater effort to plead that she did not incur actual injury until the 2007-2008 attempts to enforce the allegedly inadequate NOI were made, through the demand letter and judicial procedures to obtain a deficiency judgment. That would not amount to splitting her cause of action, where the NOI procedure serves two separate statutory purposes: permitting reinstatement, and/or allowing a deficiency judgment, if proper notice was given. (See Miller v. Lakeside Village Condo. Assn. (1991) 1 Cal.App.4th 1611, 1622-1623.) This is not a case of a plaintiff resting upon her rights. (Davies, supra, 14 Cal.3d at p. 515.)
Slip Opinion, at 18.

Wednesday, April 7, 2010

Northern District Certifies Misclassification Class in Brady v. Deloitte & Touche LLP

On March 23, 2010, Northern District Judge, Susan Illston, granted plaintiff’s motion to certify plaintiff’s misclassification claims in Brady v. Deloitte & Touche LLP (3:08-cv-00177-SI).  The certified class encompasses four distinct job positions (Audit Assistant, Audit Senior Assistant, Audit In-Charge, Audit Senior), all of which (1) were staffed by non-licensed individuals who (2) performed tasks contained within only one of the five distinct phases of the financial audit service performed by defendant. See Opinion, at 1-3. Plaintiff’s proposed theory alleges that such persons were improperly classified as exempt under the professional and administrative exemptions.

With regard to the professional exemption, plaintiffs maintained that the propriety of the exemption could be resolved on the singular legal question of whether Wage Order 4 requires that accountants have a license in order to qualify for the exemption. See Order, at 8.

With regard to the administrative exemption, plaintiffs maintained that the propriety of the exemption could be resolved “by inquiring whether or not class members worked ‘under only general supervision’ and whether class members’ work is ‘directly related to management policies or general business operations.’” See id. With regard to this issue, plaintiffs relied on statutes and defendant’s own policies as evidence that class member discretion was restricted on a common basis. Id.

As to both exemptions, plaintiff asserted a secondary argument claiming that the validity of every claimed exemption can be resolved through an inquiry of whether the proposed class members exercised discretion and independent judgment with respect to matters of significance. Relying on Campbell v. PricewaterhouseCoopers, LLP, 253 F.R.D. 586 (E.D. Cal. 2008), the plaintiffs maintained that this question could be resolved on a common basis due to the fact class members were restricted to performing limited tasks contained within a single phase of the audit process that were reserved solely for persons who were not certified CPA’s. See id., at 9.

Defendant maintained that certification was improper based on evidence which it maintained established a wide variation in tasks being performed, including (1) that different levels of the subject employees performed different tasks, and (2) that unlicensed employees performed work outside of their level, and (3) that tasks within a given level varied in complexity. See id., at 10.

The Court rejected defendant’s argument, reasoning that plaintiff’s theory of liability was framed on defendant’s own policies impacting the class as a whole, and that defendant’s evidence trying to disavow such policy evidence went to merits of the case:
The Court agrees with plaintiffs that common questions of law or fact predominate over individual questions. Most of defendant’s evidence regarding class members’ job duties and purported levels of discretion goes to the merits of plaintiffs’ claims, rather than whether certification is proper. Defendant asserts that plaintiffs will not be able to prove that the class members were exempt, because some unlicensed employees were able to exercise discretion while others were not. However, common questions are present in plaintiffs’ complaint, including whether accounting is a learned or artistic profession, whether plaintiffs worked under less than general supervision, and whether plaintiffs exercised discretion and independent judgment with respect to matters of significance. Resolution of these questions, according to plaintiffs, will not require factual inquiries into the experiences of every class member because the Court is only being asked to ascertain what effect the Deloitte policies and outside regulations have on the class as a whole. Without, at this juncture, evaluating plaintiffs’ likelihood of success on the merits, plaintiffs should have the opportunity to prove that Deloitte policies and procedures, along with other restrictive regulations mentioned in the briefs, produced such a restrictive environment that class members were not able to qualify for the professional and administrative exemptions.
See Opinion, at 11.

Southern District Decertifies Class in Weigele v. Fedex Ground Package Systems

On April 5, 2010, Southern District Court judge, Janis L. Sammartino, granted defendant Fedex’s motions to deceretify in Weigele v. Fedex Ground Package Sys., 2010 U.S. Dist. LEXIS 33305 (D. Cal. 2010). Defendant’s decertification motions targeted four certified sub-classes involving claims brought on behalf of approximately 500 Fedex California-based Dock Service Managers. Defendant’s motions targeted the elements of Rule 23(b)(3) (i.e. predominance and superiority), which the Court acknowledged had previously been met primarily due to Fedex’s uniform policy of classifying all managers as exempt. See Weigele, 2010 U.S. Dist. LEXIS 33305, at 12-13. In revisiting the certification question, the Court noted the Ninth Circuit’s decision in Vinole required the Court to look beyond the uniform classification policy itself and assess the relationship between individual and common issues at play in adjudication of the exemption defense. See id., at 16-17 (citing Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935 (9th Cir. 2009)).

In granting decertification, the Court concluded that the individualized nature of the “primarily engaged” and “independent discretion” elements of Fedex’s exemption defense would predominate in the action. As reasoned by the Court, the number of tasks comprising the universe of a Dock Service Manager's duties, which the plaintiff’s expert set at several hundred, “will make it difficult to extrapolate from the testimony of a few managers to the experiences of the whole class.” See Weigele, 2010 U.S. Dist. LEXIS 33305, at 22. Moreover, the Court reasoned that “the amount of time any particular manager spent in any particular area varies greatly” – a finding which was to be afforded “significant weight because it appears to be the dominant evidentiary factor in resolving Plaintiffs’ claims.” See id., at 22-23.  As further reasoned by the Court, the disparity among class members on these issues presented problems on the element of superiority, pitting the soundness of plaintiff’s statistical model directly against the efficiency of the litigating such claims on a class-wide basis. See id., at 29-31.

Thursday, April 1, 2010

Overdraft “Re-sequencing” Class Withstands Daubert Challenge to Damage/Restitution Model: Gutierrez v. Wells Fargo & Co.

On March 26, 2010, Northern District Judge, William Alsup, denied Wells Fargo’s motion for summary judgment and motion for decertification predicated largely upon a challenge to the plaintiffs’ proposed statistical damage model. The plaintiffs’ certified case alleges that Wells Fargo engaged in unfair and deceptive business practices by re-sequencing the order of debit card transactions from highest to lowest, rather than chronological posting, to maximize overdraft charges. As the certified class encompasses over one-million banking customers, each of whom was charged at least one overdraft fee of $34, the viability of the plaintiff’s damages model was unquestionably a lynch-pin issue to the ongoing viability of the case.

As reasoned by the Court, the fact that the methodology underlying the plaintiffs’ damage model was incapable of calculating damages with 100% accuracy was not a sufficient grounds for exclusion under FRE 702, especially when the primary issue with computation of damages was the direct result of Wells Fargo’s own failure to capture and maintain data:
While Wells Fargo is correct that neither methodology is perfect, the rules of evidence do not demand perfection. Rather, a court need only determine whether the reasoning and methods underlying the expert testimony are reliable, and whether they have been properly applied to the facts. See Daubert, 509 U.S. at 592-93; FRE 702. Here, even Wells Fargo's own damages expert, Dr. Cox, freely admits that "[fee] reversals are not tied to particular transactions" (Cox Dep. at 13-15). Given this reality, Wells Fargo cannot cry "foul" when plaintiffs' damages study fails to account for the subjective intent behind each and every fee reversal granted by their banks. Stated differently, plaintiffs cannot be expected to determine, with 100% accuracy, the exact overdraft charge associated with a particular fee reversal when defendant's own data system did not capture and store this information. Indeed, even if the claims were brought individually rather than on a class-wide basis, the same ambiguities in transaction data would be present for each individual customer. In sum, defendant cannot object to a damage study that is as close to the best possible using its own data, especially if class-wide methods of proof would be no less imprecise than individual methods of proof. See, e.g., Bigelow v. RKO Radio Pictures, 327 U.S. 251, 66 S. Ct. 574, 90 L. Ed. 652 (1946).
In light of this analysis, this order declines to exclude either method used by plaintiffs to account for overdraft fee reversals. Given the data available for their damages study, both methods -- to varying degrees -- employ reasonable inferences necessitated by the facts and circumstances of this case. Neither defendant nor its expert, Dr. Cox, knew of or presented any better alternatives to account for reversals, either individually or on a class-wide basis (Opp. 8). Moreover, Wells Fargo gave no indication of the magnitude of "inflated" damages produced by either method. Under Daubert, plaintiffs have met the threshold of reliability.
See Gutierrez, 2010 U.S. Dist. LEXIS 29117, at 33-35.

Moreover, for the same reasons, the Court rejected Wells Fargo’s argument that that the model could not be used to calculate “restitution” for purposes of the UCL due to the use of “approximations” where data was lacking:

Finally, Wells Fargo correctly points out that Section 17200 is equitable in nature, and therefore remedies are limited to restitution or injunctive relief. See Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1152, 131 Cal. Rptr. 2d 29, 63 P.3d 937 (2003). This order [sic] disagrees, however, with defendant's assertion that the revised study conducted by plaintiffs fails to present an adequate measurement of restitution "supported by substantial evidence, without approximations," and that summary judgment is warranted (Reply 23). As explained above, Olsen's report is aimed at determining the amount of overdraft fees Wells Fargo allegedly unfairly assessed on individual customers. The calculations were based upon all the data, and where approximations were made, they were necessitated by insufficient detail in defendant's own record-keeping process. As such, this order declines to find that Olsen's report is inadmissible to prove restitution.
See Gutierrez, 2010 U.S. Dist. LEXIS 29117, at 38-39.

Finally, the Court denied Wells Fargo’s motion to decertify the class, based in large part on the viability of plaintiff’s damage model, as well as the fact that the small-value damages at issue rendered each class member’s claims substantively dependent on the class action mechanism:

The legal claims of the "re-sequencing" class target the alleged overcharging of overdraft fees for over a million different Wells Fargo customers (Dkt. No. 285, Exh. A at 37-38). All members of the "re-sequencing" class were charged overdraft fees due to defendant's accused high-to-low posting of transactions. The fees themselves, however, were only around $ 34 each. Given this backdrop, it cannot be disputed that a denial of class-certification would close the door of justice to a staggering amount of claimants. The deterrent value of class litigation and the desirability of providing recourse for the injured consumer who would otherwise be financially incapable of bringing suit clearly render the class action a viable and important mechanism in challenging an alleged fraud on the public. This is especially important here, where the allegedly unlawful practice disproportionately gouges those who maintain, due to choice or (more likely) financial hardship, a shallow amount of funds in their checking accounts.
On the other hand, this order must give full consideration to whether plaintiffs' revised damages study is sufficient to establish class-wide proof of actual injury and/or damages for each absent class member. Otherwise, Rule 23 would be used to truncate the required substantive elements of proof by each claimant in violation of the Rules Enabling Act, 28 U.S.C.2071-77. Having considered the various limitations inherent in Wells Fargo's transaction data (discussed in detail by this order), and the fact that proving actual injury if suits were brought individually would still require the same types of assumptions made by Olsen in his report, this order [sic] finds that plaintiffs have presented sufficient class-wide proof of actual injury to survive defendant's motion for decertification. Given this showing, there is no question that common questions predominate in this action. As such, defendant's motion for class decertification is DENIED.
See Gutierrez, 2010 U.S. Dist. LEXIS 29117, at 40-41.