Friday, August 27, 2010

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

On August 26, 2010, the Second District (Division Seven), issued an unpublished opinion regarding meal periods in Brookler v. Radio Shack, siding with the Third District’s opinion in Cicairos v. Summit Logistics, Inc., 133 Cal.App.4th 949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

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

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

On August 25, 2010, the Sixth District altered its opinion in Fireside Bank Cases from unpublished to published.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

Tuesday, August 24, 2010

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

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 App. 4th __ (2010) from unpublished to published.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

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

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

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

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

Wednesday, August 18, 2010

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

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

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

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

Monday, August 9, 2010

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

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

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

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

Friday, August 6, 2010

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

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

Tuesday, August 3, 2010

First District Publishes Class Objector Opinion: Cellphone Fee Termination Cases

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

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

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

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

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