Wednesday, December 28, 2011

Northern District Court Declines to Decertify Rule 23(b)(2) Restitutionary Class In Light of Dukes: In re Conseco Life Ins. Co.

On December 20, 2011, Northern District Court Judge, Susan Illston, denied a request to decertify a nationwide Rule 23(b)(2) class based on the premise that the U.S. Supreme Court’s decision in Wal-Mart v. Dukes bars certification of claims seeking money damages under Rule 23(b)(2).  See In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139 (N.D. Cal. Dec. 20, 2011).  Defendant Conseco challenged certification of the plaintiffs’ lawsuit – which alleges that defendant increased monthly cost-of-insurance deductions and expense charges in breach of the policy terms – on the grounds that individualized damage determinations for each policyholder would predominate over injunctive and declaratory relief, precluding certification under Rule 23(b)(2).

Although the Court did conclude that Dukes required that Rule 23(b)(2) classes involving monetary claims be limited exclusively to individuals impacted by ongoing conduct, which in this case required the exclusion of former policyholders from the certified class [In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139, at 17 (concluding that monetary claims for former policyholders “would by definition predominate over claims for injunctive or declaratory relief”)], the Court found certification appropriate with regard to existing policyholders notwithstanding Dukes because the plaintiff’s theory of damage flowed directly from the harm at issue in the underlying claim. In reaching this conclusion, the Court adopted the Fifth Circuit’s “incidental test”, which permits (b)(2) certification where the monetary relief sought is predicated primarily on the same facts and law relied upon to establish liability in the underlying claim:
In Dukes, the Supreme Court discussed but did not explicitly adopt the Fifth Circuit's "incidental test." Dukes, 131 S.Ct. at 2560. In Allison v. Citgo Petroleum Corp., 151 F.3d 402, 415 (5th Cir. 1998), the Fifth Circuit held that a (b)(2) class would permit the certification of monetary relief that is "incidental to requested injunctive or declaratory relief," which it defined as "damages that flow directly from liability to the class as a whole on the claims forming the basis of the injunctive or declaratory relief." According to the Allison court, such "incidental damage should not require additional hearings to resolve the disparate merits of each individual's case; it should neither introduce new substantial legal or factual issues, nor entail complex individualized determinations." Id. Numerous courts within the Ninth Circuit have since adopted the incidental test to determine proper certification under (b)(2). See Delarosa v. Boiron, Inc., 275 F.R.D. 582, 2011 WL 4389919 (C.D.Ca. Aug. 24, 2011) (Tucker, J.); Aho v. AmeriCredit Financial Services, Inc., 2011 U.S. Dist. LEXIS 80407, 2011 WL 3047677 (S.D.Ca. Jul. 25, 2011) (Sabraw, J.) This Court also adopts the incidental test as the appropriate test for Conseco's motion for decertification of the current policyholders.
See In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139, 21-22.

The Court reasoned that while a damage theory seeking broad return of all monies paid toward premiums would be incapable of satisfying this inquiry [In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139, 24 (“The Court agrees with Conseco that if plaintiffs' theory of damages required return of premiums paid, there would necessarily be individualized inquiries of the type that fail the incidental test”)], the plaintiffs here had put forward a more limited theory of damage that was tailored to the amounts of the alleged inflated costs of insurance and expense charges that formed the basis of liability. See id., at 25. As explained by the Court, such a damages theory permitted adjudication of damages based largely on the same facts and law without complex individualized damage calculations:
Seeking return of wrongfully charged costs and fees of this sort will not require additional hearings to resolve the disparate merits of each individual's case; nor will it introduce "substantial legal or factual issues, nor entail complex individualized determinations." Allison, 151 F.3d at 415. It will simply entail "computation by means of objective standards" based on data in Conseco's records. Id. As a result, the return of the improper deductions would flow directly from the claims forming the basis of the declaratory and injunctive relief. Damages arising from the costs of insurance and expense charges are therefore incidental to the declaratory and injunctive relief sought, and allowed under 23(b)(2).
In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139, 25-27.

Thus, “[t]he primary inquiry post-Dukes for classes seeking monetary damages under 23(b)(2) is the theory of damages that the class seeks” [Id ., at 24], which based on the forgoing analysis, would be appear to encompass claims seeking restitutionary disgorgement (rendering (b)(2) certification a useful vehicle for many claims brought under the UCL).

Friday, November 11, 2011

Fourth District Upholds Trial Court's Refusal to Enforce Arbitration Provision, Post-Concepcion: Roberts v. El Cajon Motors, Inc.

On November 8, 2011, the Fourth District (Division 1) upheld a trial court order denying a motion to compel individual arbitration of a class action case, post Concepcion, in Roberts v. El Cajon Motors, Inc., __ Cal.App.4th __ (2011). The Court upheld the trial court’s denial based on the finding that the defendant had waived any right to arbitration by actively engaging in litigation rather than promptly moving to compel:
Assuming, without deciding, the waiver of classwide claims in the arbitration provision at issue here is valid and enforceable in light of Concepcion, as El Cajon argues, we nonetheless conclude El Cajon waived arbitration when it waited five months to invoke arbitration.
Indeed, if El Cajon either had promptly moved to compel arbitration at or near the time it answered the complaint or informed Roberts at that time of its intention to compel arbitration (such as in its answer to the complaint), Roberts likely would not have propounded extensive written discovery involving the class action allegations in her complaint. Of course, if Roberts had been given timely notice by El Cajon of its intent to arbitrate and propounded the discovery in any event, it would have been at her peril.
However, because the record shows El Cajon waited months after Roberts propounded extensive written discovery (undoubtedly at great expense) to notify Roberts of its intent to arbitrate and because most, if not all, of this discovery would—under El Cajon's own analysis of Concepcion—be useless in arbitration, we conclude there is ample evidence in the record showing El Cajon's conduct (including in responding to this discovery) was inconsistent with the intent to arbitrate and that Roberts was prejudiced by that conduct. (See St. Agnes Medical Center v. PacifiCare of California, supra, 31 Cal.4th at p. 1196.)
See Slip Opinion, at 18-19.

The Court’s decision joins the ever growing list of potential exceptions to the U.S. Supreme Court’s ruling in Concepcion. (See previous posts here, here and here).

Tuesday, November 8, 2011

Debriefing Brinker: A Few Surprises and 7 Minutes of Frustrating Silence

I have spent the better part of the morning reviewing and digesting oral argument in Brinker. Initially, I had planned on attending the hearing in person, but cancelled my ticket yesterday after learning that the California Channel would be televising the event. Obviously, that was a mistake. However, notwithstanding the nearly seven minutes of dead air (due to problems with the feed), oral argument has left me with a few overarching impressions.

First, it would seem to be universally apparent that claims predicated on barriers impeding access to meal and rest periods will be largely unaffected by Brinker. Both the Court and the Parties seemed to agree on the point that whatever the standard ultimately is deemed to be, an employee must at a minimum have the opportunity to access a break. In the words of Justice Baxter when this issue arose in the context of rest breaks, “you cannot waive something that you were not authorized to take.” As my firm only takes cases which implicate this type of theory, this was good news to me.

Second, the Court appears to be seriously leaning in the direction of meal and rest period standards having a temporal component. With regard to meal breaks, the Court appears to believe that an employee is entitled to a new meal break on a “rolling 5 hour basis” (this is discussed in detail below). With regard to rest periods, the Court appears to be at least warm to the proposition that rest breaks must be provided before the employee completes a work period of 4 hours (as opposed to making the employee work 4 hours as the triggering event).

Finally, as expected, the Court appears to be grappling with multiple facets of a construction utilizing the “ensure” standard. Questioning on this front not only appeared to test the underlying scope and meaning of the rights at issue, but also the administrative feasibility and equitable impact of implementing an ensure standard. While popular thought on this issue seems to be that it cannot be done, or that it is simply bad for business, all of these very same arguments were asserted to the advent of overtime compensation. Of course, the Court has already analogized the right at issue with overtime compensation in Murphy to conclude that meal period premium pay is compensation (as opposed to a penalty). Whether the Court ultimately continues down that path is the $64,000 dollar question.

That said, here are my observations of the oral argument, with my own delineation of the various issues in play:
 
Real Party In Interest (Plaintiffs) (Kralowec)

Issue #1 (Are The Break Statutes A Ceiling or Floor?): Justice Kennard opens questioning by asking whether the Statutes (i.e. Labor Code 226.7 and 512) could be harmonized with the meal and rest period provisions of the Wage Orders, and if not, which would govern? First, Real Parties In Interest maintained that the statutes can be harmonized, asserting as an example the fact that the term “provide” contained in the Section 226.7 expressly incorporates the Wage Order standards by reference. See Cal Lab Code § 226.7(b) (“If an employer fails to provide an employee a meal period or rest period in accordance with an applicable order of the Industrial Welfare Commission….”). Second, Real Parties further contend that if the Court were to find that the Wage Orders provide more protection that the statutes, the Wage Orders should be given effect on the grounds that the statutes provide a baseline “floor” which the IWC would be entitled to go beyond in the Wage Order.

Justice Kennard questioned the premise that both statutes incorporated the Wage Orders by reference to Labor Code § 516, which she asserted overtly contradicts an intention by the Legislature to incorporate the Wage Orders into Section 512. [See Cal Lab. Code § 516 (“Except as provided in Section 512, the Industrial Welfare Commission may adopt or amend working condition orders with respect to break periods, meal periods, and days of rest for any workers in California consistent with the health and welfare of those workers.”)].

Before Real Party was able to complete a response to this issue, Chief Justice Cantil-Sakauye interrupted, inquiring as to the impact of the Court’s previous decision in Industrial Welfare Com. v. Superior Court, 27 Cal. 3d 690, 725 (1980) [which concluded that “[n]either federal nor state labor relation legislation precludes the IWC from establishing minimum wages, maximum hours or standard conditions of employment to protect the health and welfare of California employees”], and whether that decision permitted the IWC to construct wage order imposing more stringent requirements. Real Party acknowledged this seeming softball pitch by noting that to the extent that the current Wage Orders are more protective, this would be entirely permissible under this general principle.

Issue #2 (What Exactly Is the Right At Issue?): Thereafter, Justice Liu raises what he perceives to be a dilemma – namely, as the principle right at issue with regard to meal breaks is suspension of control over the employee, once released of that control, can’t an employee exercise that right by simply choosing to work? Real Party states no, asserting that control is only part of the equation. In addition to relinquishing control, the employer must also prevent an employee from being permitted to work. [Admittedly, this proposition is consistent with the definition of “hours worked” under the Wage orders, which includes both of these components. See e.g. 8 CCR 11050(2)(K) (“‘Hours worked’ means the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so….)]. Real Party asserted that the employer can, and must, ensure that the employee is not performing work for an employee to even enjoy the underlying right.

Issue #3 (Can An Employer Comply With An Ensure Standard?): Real Parties’ statement in this regard immediately invokes questioning by Justice Kennard on the central issue at play – how does an employer implement a standard requiring it to ensure that hundreds (or thousands) of employees are actually not performing work during a meal period? Real Party responded by noting that employers control employee conduct in this regard all the time, such as scheduling standard workdays to avoid incurring overtime.

Issue #2 (What Exactly Is the Right At Issue): Justice Liu returns to his prior line of questioning exploring the nature of the right at issue. Justice Liu asks – based on the interpretative policy of the Court to construe labor provisions in favor of the employee – whether it is true that the most worker friendly construction the Court could provide is a construction that permits the employee to do whatever they chose during the meal period? Real Party disagrees, stating that a construction that also precludes the employee from being suffered or permitted to work is the most the most expansive construction [and technically Real Party is correct considering the dual definitional standards for “hours worked” under the wage orders]. Real party further asserts that a construction that prevents any work from being performed is necessary to protect the average employee, who otherwise would be deprived of any meal period for their entire shift absent such a construction (presumably under the guise that the employer would always claim that the employee simply chose to continue working).

Issue #3 (Can An Employer Comply With An Ensure Standard?): This prompted a question from Justice Baxter – should employees be punished or terminated for working through their break? Real Party asserts yes, eliciting a response from Justice Baxter highlighting the paradox; namely, that an employee who works through a break because he/she loves the job being fired would not serve to protect the employee. Real Party responds that this is no different than an employee being terminated for repeatedly working unauthorized overtime, and that employers can, and in fact do, control employee behavior in this scenario by imposing a system of incremental discipline.

Justice Baxter further questions what should happen when an employee disobeys the employer's order to take a meal break and not work, and the employer is aware of it – does the employer then have to compensate the employee with premium pay? Real Party responds in the affirmative, highlighting that this is analogous to the same scenario in the context of overtime; an employer must compensate the employee with premium pay when it knew or should have know that the employee was working though breaks, even if the employee is ultimately terminated for violating the employer's directive not to work.

[It is important to highlight that the analogy to overtime in this context was not happenstance, as the Court’s holding in Murphy that Section 226.7 proscribed a wage (as opposed to a penalty) rested upon the finding that Section 226.7 was squarely analogous to daily overtime compensation in all material respects, including (1) that Section 226.7 compensation, exactly like daily overtime compensation, represents a statutorily proscribed rate of pay assigned by the Legislature to a situation “[w]here damages are obscure and difficult to prove…” (Murphy, 40 Cal. 4th at 1112-13), (2) that Section 226.7 compensation, exactly like daily overtime compensation, was intended from the outset to create an immediate statutory entitlement to compensation that would be due and payable without filing an enforcement action (Murphy, 40 Cal. 4th at 1108), and (3) that the objective of the premium compensation provided by Section 226.7, exactly like daily overtime compensation, was intended to shape employer behavior regarding the maximum hours an employee should work. (Murphy, 40 Cal. 4th at 1110, 1113-14)]

 Real Party In Interest (Rubin)

Issue #4 (Are Rest Period Claims Susceptible to Class Adjudication?): Justice Liu opens up questioning on rest breaks, asking how rest breaks, which do not have a recordation requirement like meal breaks under the wage order, may be susceptible to class treatment? Acknowledging that rest periods operate under the differing “authorize and permit” standard, Real Party contends that class treatment is proper where there is class-wide evidence that an employer “impedes, discourages or dissuades” an employee from taking a rest break. Real Party asserts three grounds, including a practice which deprives the employee of taking tips when they leave for break [later, Justice Liu questions the foundation for the assertion that the employees in this case have a legal entitlement to tip money.  In my opinion, this issue would not seem to be material here, as that issue is one relating to the merits of the case which would play out post certification].

Issue #5 (Are Rest Periods Governed by a Timing Requirement?): Justice Werdegar interrupts, questioning on whether Brinker has a uniform rest period policy susceptible to common resolution. At issue is whether Brinker’s policy of not permitting a rest period until the end of the fourth hour violates Wage Order 5 because it only permits a single rest break over the course of an 8 hour shift. Justice Werdegar essentially communicates that she is of the view that this would be a proper issue for class adjudication, as the issue of whether this policy complied with the Wage Order would be resolved as to the class as a whole.

Justice Baxter asks whether the fact that company policy did not permit an employee the option to take this second rest period precludes a claim of waiver (in the words of Justice Baxter, “you cannot waive something that you were not authorized to take.”). Real Party responds in the affirmative, stating an employee can waive a rest period only if there is no pressure from the employer.

[This is where the feed disruption occurred, which cut off the end of questioning of Real Party and approximately 7 minutes of oral argument by Petitioner]

Petitioner (Defendant)

Issue #6 (Does the Employer Have An Obligation to Remove Pressures To Perform Work?): The feed resumes with Justice Liu – in a devils’ advocate line of questioning (at least in relation to his questioning above) – asking Petitioner whether an employer must adjust the workload to enable the employee exercise his or her ability to take a break. In the words of Justice Liu, “the employer can’t say that I am giving you this 30-minutes and you are not expected to work, but meanwhile your work is piling-up and you are obligated to discharge the work later.” Petitioner agreed that the employer must adjust the workload for the 30 minutes to be 30 duty-free minutes.

Issue #7 (Does the Wage Order Require Meal Periods on a Rolling 5-Hour Basis?): Justice Baxter thereafter asks whether its Petitioner’s position that the Wage Order does not impose a “rolling 5 hour” requirement (i.e. that the Order requires a meal break every 5 hours, as opposed to before the 5th hour of a shift only), or that the Wage Order does impose this requirement, but that this requirement conflicts with the statutes (Section 226.7 and 512). Petitioner states that it believes both positions are true. Justice Baxter is quick to note, however, that the Wage Order in question has no provision for a section meal period.

[Note: There was some confusion on this point, as Section 11(D) technically refers to a second break, but upon close reading, that section only makes passing reference to waiver of a second meal break by persons employed in the health care field. Thus, it is clear that the point being made here is that if Section 512 constitutes the “floor”, and if Section 512 imposes two meal breaks (one at the 5th and the other at the 10th hour), then the Wage Order necessarily must be interpreted as requiring meal breaks be provided on a “rolling 5 hour” standard. This is so because a contrary construction would force the Wage Order to fall below the “floor.” This becomes more apparent based on Justice Liu’s follow-up questioning below].

Justice Liu follows up, noting that although Section 11(a) of the Wage Order does not clearly state that the standard is a rolling 5 hour requirement, the Wage Order provides that a 30 minute meal period is required for every 5 hour work period, EXCEPT when a work period of not more than six (6) hours will complete the day's work the meal period may be waived by mutual consent. Justice Liu states that he believes the language of this exception logically requires a rolling 5 construction. To demonstrate this point, Justice Liu poses a hypothetical of an employee who works a shift between 9am to 6pm, with lunch taken at 12:30, leaving 5 ½ remaining hours to finish the work day. Justice Liu asserts that the plain language of the Wage Order requires a meal period to be provided during this 5½ hour period (despite the lack of reference to a second meal break in the Wage Order language), and that not adhering to this construction would render the second clause meaningless because if it did not there would be nothing to be waived.

Issue #1 (Are The Break Statutes A Ceiling or Floor?): Petitioner thereafter poses his own hypothetical in response to Justice Liu’s. Petitioner’s hypothetical involves an employee scheduled to work 9 hours, who takes a meal break at the 4th hour, and then works another 5 hours. Petitioner contends that under Real Party’s construction, the employer would be required to provide an additional meal period – a proposition which Petitioner believes violates the 10-hour requirement imposed by Section 512. Justice Liu disagreed, stating “it’s not contrary, it’s just more protective.” According to Justice Liu, that the Wage Order would require a second break at the 9th hour "is not inconsistent with the statute, it’s just more protective."

Justice Werdegar poses the question to Petitioner as to whether, assuming the Section 512 only imposes a set number of meal breaks (as opposed to standards relating to timing), whether he would concede that the Wage Orders can properly go beyond the statute to impose meal breaks based on timing? Petitioner dodged the premise of the question, claiming that the language of the Wage Order does not impose a meal break requirement based on timing. Justice Werdegar overtly stated her disagreement this proposition, citing the IWC’s use of the phrase “work period”, which she stated meant a “sub-set of a shift.” Based on this construction, meal breaks must be provided based on “blocks of time” during any given shift.

Issue #8 (Will The Court’s Opinion Have Retroactive Application?): At the close, Justice Baxter inquired whether a decision of the court would have prospective application only, or whether it would have retroactive application. Petitioner conceded that he was not in a position to respond on that point (as this exceeded the scope of issues), but that he believed that under applicable U.S. Supreme Court standards, a decision would have retroactive application.

Real Party In Interest Rebuttal (Kralowec)

On rebuttal, Real Party asserted several points, without much direct questioning by the Court.

First, that without a timing requirement, an employer could require an employee to work an entire 9 hour shift without providing a meal break (presumably, the employer complies in this hypothetical by proving a meal period at the very end of the shift).

Second, that there are numerous methods for employers to comply with the timing requirement, such as (1) by scheduling the meal period during the window of the 3rd and 5th hour, (2) scheduling short shifts, (3) pay the premium wage. Justice Werdegar questioned whether an employer and employee could utilize a mutual waiver, which Real Party agreed was permitted, but only if the specific requirements for waiver are met. Real part asserted that to permit a universal waiver would render the express waiver provisions meaningless.  This proposition was not really explored by the Court.

Tuesday, October 25, 2011

Second District Upholds Order Finding Arbitration Provision Unconscionable, Post-Concepcion: Sanchez v. Valencia Holding Co.

On October 24, 2011, the Second District (Division 1) upheld a trial court order denying a motion to compel arbitration of a class action case, post Concepcion, in Sanchez v. Valencia Holding Co., __ Cal.App.4th __ (2011). Although the trial court had denied the defendant’s motion on the grounds that the class action waiver was unenforceable because it violated statutory rights under CLRA, the Court of Appeal did not affirm the trial court’s order on these grounds, finding instead that the arbitration agreement was unconscionable under the Armendariz balancing test. As held by the Court, this test continues to survive notwithstanding Concepcion:
Before applying Armendariz to the present case, we note that Concepcion, supra, 131 S.Ct. 1740, does not preclude the application of the Armendariz principles to determine whether an arbitration provision is unconscionable. Concepcion disapproved the "Discover Bank rule," stating: "In Discover Bank, the California Supreme Court applied [the doctrine of unconscionability] to class-action waivers in arbitration agreements and held as follows: [¶] '[W]hen the [class action] waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then . . . the waiver becomes in practice the exemption of the party "from responsibility for [its] own fraud, or willful injury to the person or property of another." Under these circumstances, such waivers are unconscionable under California law and should not be enforced.'" (Concepcion, at p. 1746, italics added.) With the exception of the Discover Bank rule, the Court acknowledged that the doctrine of unconscionability is still a basis for invalidating arbitration provisions. (Concepcion, at pp. 1746, 1747; see Kanbar v. O'Melveny & Myers (N.D.Cal. 2011) 2011 U.S. Dist. Lexis 79447, pp. *15-*16, *23-*24, 2011 WL 2940690, pp. *6, *9.) Thus, Concepcion is inapplicable where, as here, we are not concerned with a class action waiver or a judicially imposed procedure that conflicts with the arbitration provision and the purposes of the Federal Arbitration Act (FAA) (9 U.S.C. §§ 1-16). (See Concepcion, at pp. 1748-1753.)
Slip Opinion, at 11-12.

The Court's decision joins a growing list of potential exceptions to the U.S. Supreme Court’s ruling in Concepcion. (See previous posts here and here)

Thursday, October 20, 2011

Second District Overturns Cert Denial in Bait-and-Switch/Fraud Action Brought on Behalf of Residents of a Senior Citizen Mobilehome Park: Marler v. E.M. Johansing LLC

On October 19, 2011, the Second District Court of Appeal (Division 6) reversed the denial of certification of contract and fraud claims arising out of an alleged scheme designed to secure consent from residents of a rent controlled senior citizen mobilehome park to convert the park to a condominium development. See Marler v. E.M. Johansing LLC, __ Cal.App.4th __ (2011). As stated in the Opinion, plaintiffs allege “that Park owners induced them to convert the Park to a condominium development through false promises about the purchase price they would pay for their lots; after Park residents approved the conversion, Park owners raised the lots prices so high that the majority of Park residents could not afford them.” Slip Opinion, at 1-2. By way of example, the named plaintiffs “lot price increased from $126,500 to $215,000, a price they could not afford. See id., at 4. The trial court denied certification on the grounds that the class was not ascertainable and that there was no community of interest, which the Court of Appeal deemed an abuse of discretion for multiple reasons.

The Court’s Opinion is one that plaintiff attorneys will want to note, as it contains excellent discussion of applicable rules relating to acertainability, including:
  1. Identification of dual tests concerning the evaluation of the class definition [Slip Opinion, at 7-8],
  2. Standards for addressing overly-broad definitions [Id., at 9],
  3. The permissibility of defining the class by facts relating to “ultimate issues” in the action [Id., at 9-10], and
  4. The obligation of the trial court to permit the class to be redefined if doing so would facilitate certification. Id., at 10.
Similarly, the Opinion also contains great discussion on the use of “inferred reliance” in the context of fraud, which in this case was deemed appropriate based on the use of a standardized “pitch” letter sent to park residents, as well as a survey utilized to gauge support of the conversion to condominium tracts. Id., at 13-14.

Friday, October 7, 2011

Central District Finds PAGA Waiver Unconscionable, Post-Concepcion: Urbino v. Orkin Services of California

On October 5, 2011, Central District Court Judge, Cormac J. Carney, denied a motion to compel arbitration of a PAGA claim brought by Orkin Services of California, Inc. and Rollins, Inc. (“Defendants”) on the grounds that the arbitration agreement contained an unconscionable PAGA arbitration waiver, rendering the agreement unenforceable under California law. See Urbino v. Orkin Servs. of Cal., 2011 U.S. Dist. LEXIS 114746 (C.D. Cal. Oct. 5, 2011).  As reasoned by the Court, the U.S. Supreme Court's analysis in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) was inapplicable, as PAGA embodies “representative” and “public right” aspects which are fundamental and inseparable features of a PAGA claim, and as such, cannot be set aside by private agreement:
[A]s Plaintiff correctly notes, AT&T concerned the enforceability of a consumer class action arbitration waiver, rather than a representative PAGA claim waiver. (Pls.' Opp. at 21 (citing Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489, 500 (2011); Plows v. Rockwell Collin, Inc., No. SACV 10-01936, 2011 U.S. Dist. LEXIS 88781, at *14–*15 (C.D. Cal. Aug. 9, 2011)).) In Brown, the California appellate court refused to extend AT&T to a PAGA action in light of the fundamental nature and purpose of a PAGA claim. Brown, 197 Cal. App. 4th at 500-03; see also Plows, 2011 U.S. Dist. LEXIS 88781, at *14–*15. Specifically, the Brown court explained that the purpose of PAGA "contrasts with the private individual right of a consumer to pursue class action remedies in court or arbitration, which right, according to AT&T may be waived by agreement so as not to frustrate the FAA – a law governing private arbitration. AT&T does not provide that a public right, such as that created under the PAGA, can be waived if such a waiver is contrary to state law." Brown, 197 Cal. App. 4th at 500. Furthermore, as noted by the Brown court, the Quevedo court failed to take into account that there are no separate individual claims in a PAGA action; rather, the individual must bring a PAGA claim as a representative action on behalf of himself and other aggrieved employees. See id. at 503 n.8.n13 The Court finds the reasoning offered by the Brown court persuasive. See also Plows, 2011 U.S. LEXIS 88781, at *14–*15 (agreeing with the Brown court's reasoning of why class action waivers in arbitration agreements may not be used to divest plaintiffs of their right to bring representative actions under PAGA and denying defendant's motion to compel arbitration of plaintiffs' PAGA claims). Because the PAGA arbitration waiver in the Agreement is unconscionable, and the waiver taints the entirety of the Agreement with illegality, the Court deems the Agreement unenforceable.
See Urbino, 2011 U.S. Dist. LEXIS 114746, at 39-40.

The Court's decision joins a growing list of opinions finding Concepcion inapplicable in the wage and hour context.  (See previous post here)

Tuesday, October 4, 2011

California Supreme Court Sets Oral Argument in Brinker v. Superior Court

On October 4, 2011, the California Supreme Court issued Notice that oral argument in Brinker Restaurant v. Superior Court will take place on Tuesday, November 8, 2011 at 9:00 a.m. in San Francisco.  There is little need for me to state the issues in play.  For all wage and hour practitioners, this decision has been a long time coming.

Wednesday, September 14, 2011

Concepcion Revisited: Developing Exceptions to FAA Preemption

It has been a while since I have discussed the impact of the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) (previously discussed here). As generally occurs after a decision of this magnitude has some time to settle, exceptions begin to percolate to the surface. Below are two recent favorable District Court opinions highlighting separate exceptions Concepcion’s preemption analysis:

First, in Plows v. Rockwell Collins, Inc., 2011 U.S. Dist. LEXIS 88781, 12-14 (C.D. Cal. Aug. 9, 2011), Central District Court Judge David O. Carter concluded that in the employment context, the California Supreme Court’s decision in Gentry v. Superior Court, 42 Cal.4th 443 (2007) remained valid law not withstanding Concepcion. Citing to the recent decision in Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489, 494 (2011) – previously discussed here – the Court concluded that Gentry remained valid law because the Gentry rule (i.e. the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, etc) is not predicated upon unconscionability:
[T]he Brown opinion highlights the differences between Discover Bank and Gentry, citing Arguelles-Romero v. Superior Court, 184 Cal. App. 4th 825, 836, 109 Cal. Rptr. 3d 289 (2010) for the proposition that "Discover Bank is a rule about unconscionability, [whereas] the rule set forth in Gentry is concerned with the effect of a class action waiver on unwaivable rights regardless of unconscionability." Id. (emphasis in original). The California Court of Appeals goes on to state that Concepcion "specifically deals with the rule enunciated in Discover Bank," declining to adopt a broad interpretation of the Supreme Court's opinion. 197 Cal. App. 4th 489, Id. at 5. Finally, Judge Kriegler, concurring in the Brown decision, notes that, although Concepcion may have called Gentry's survival into doubt, "Gentry remains the binding law of this state which we must follow," until the California or United States Supreme Court rules otherwise. 197 Cal. App. 4th 489, Id. at 8 (Krieger, J., concurring) (citing Auto Equity Sales v. Superior Court, 57 Cal. 2d 450, 455, 20 Cal. Rptr. 321, 369 P.2d 937 (1962)).
Finding this reasoning persuasive, the Court holds that, for the purposes of the present Motion to Compel Arbitration, Gentry is valid law. Plows thus may avoid arbitration if he can demonstrate that his arbitration agreement is unenforceable under Gentry.  As in Brown, however, the Court finds that there is insufficient evidence to determine whether the Gentry test is satisfied. This lack of evidence makes sense: the fact that Defendant did not move to compel arbitration until the filing of the instant motion means that there previously was no need to conduct discovery on this issue. Now that this need for information has arisen, however, the parties must be afforded an opportunity to gather the appropriate evidence.
See Plows, 2011 U.S. Dist. LEXIS 88781, at 12-14.

Second, in In re Directv Early Cancellation Fee Mktg. & Sales Practices Litig., 2011 U.S. Dist. LEXIS 102027, 37-39 (C.D. Cal. Sept. 6, 2011), Central District Court Judge Andrew J. Guilford declined to compel arbitration of UCL and CLRA injunctive relief claims on the grounds that they were brought by the plaintiffs “as private attorneys general, seeking to vindicate a public right.” This is analogous the the decision in Brown, which concluded that Conepcion did not apply to PAGA claims.  As held by the Court here, the California Supreme Court’s prior finding that UCL and CLRA private attorney general claims were not arbitrable in Broughton v. Cigna Healthplans of California, 21 Cal. 4th 1066 (1999) and Cruz v. PacifiCare Health Systems, Inc., 30 Cal. 4th 303 (2003) remained valid law not withstanding Concepcion:
The Court has also reviewed subsequent authority submitted by the parties and the Court is not convinced that Cruz and Broughton are overruled by Concepcion.
Both Cruz and Broughton are more nuanced in their holdings than an "outright" prohibition of certain claims.  In Cruz, the court held that arbitration was improper for injunctive claims brought on behalf of the general public but declined to rule on all injunctive claims, such as "UCL injunctive relief actions brought by injured business competitors." Cruz, 30 Cal. 4th at 315. And in Broughton, the court again shied away from a broad holding about all injunctive relief claims. Broughton, 21 Cal. 4th at 1079 ("We need not decide the broad question framed by the Court of Appeal and by plaintiffs as to whether an arbitrator may ever issue a permanent injunction."). Instead, the holding in Broughton is that, when a plaintiff is functioning as a private attorney general, the injunctive claim is not arbitrable. Id. at 1080. Thus, both Cruz and Broughton acknowledge that certain injunctive claims may be arbitrable and instead provide guidelines for determining when injunctive claims are not subject to arbitration. It is not clear that Concepcion intended to overrule the Cruz and Broughton line of cases.
Further, as set forth thoroughly in Broughton, there are compelling reasons why arbitration is not the proper forum for vindicating a broad public right. Broughton notes that "[o]ur path . . . begins by recalling that the purpose of arbitration is to voluntarily resolve private disputes in an expeditious and efficient manner." Id. at 1080. And the court was "cognizant of the evident institutional shortcomings of private arbitration in the field of such public injunctions." Id. at 1081. Broughton goes on to discuss these shortcomings. For example, a superior court retains jurisdiction over a public injunction, but arbitrators are not bound by earlier decisions of arbitrators in the same case, and this could cause inconsistency. Id. at 1081. And arbitration awards don't automatically have effect on non-parties, so even a public injunction could be enforceable only by the parties to the original case. Id. If another consumer plaintiff sought to enforce an injunction, he or she would need to re-arbitrate the same claim. Further, judges are accountable to the public in ways that arbitrators are not, so Broughton stated that judges are more suitable for overseeing injunctive remedies designed for public protection. Id.
See In re Directv, 2011 U.S. Dist. LEXIS 102027, at 37-39.

Saturday, September 10, 2011

Northern District Certifies Meal Period Class on Behalf of Tesoro Refinery Plant Operators: Delagarza v. Tesoro Ref. & Mktg. Co.

On September 8, 2011, Northern District Judge Edward M. Chen granted certification of meal period claims on behalf of “12-hour shift employees at the Golden Eagle refinery in Martinez, … alleging that they were required to be on duty at the refinery for the entirety of their shifts due to the dangerous work environment under which they operate, the potential need for emergency response, and Tesoro's efforts to keep the refinery running 24 hours a day, 365 days a year.”  See Delagarza v. Tesoro Ref. & Mktg. Co., 2011 U.S. Dist. LEXIS 101127 (N.D. Cal. 2011). The Court’s certification opinion and analysis is analogous to Judge Claudia Wilken’s order in Gardner v. Shell Oil Co., 2011 U.S. Dist. LEXIS 44851 (N.D. Cal. Apr. 21, 2011), discussed previously here.

While the Court’s opinion contains discussion on several important points – including the non-impact of Wal-Mart v. Dukes, 131 S. Ct. 2541(2011), as was predicted in a previous post contained here – the most interesting point concern the Court’s discussion of a meal break theory predicated upon the issue of “control.” It bears noting that one of the biggest misconceptions with regard to meal period compliance is that an employer’s duty is exhausted by merely affording employees an opportunity to eat. This, however, narrowly construes the law, as compensable working time in not confined to time spent working. To the contrary, “California law requires that employees be compensated for all time ‘during which an employee is subject to the control of an employer’” [Rutti v. Lojack Corp., 596 F.3d 1046, 1061 (9th Cir., 2010)], and importantly, “an employee who is subject to an employer's control does not have to be working during that time to be compensated under [the] Wage Order.” See Morillion v. Royal Packing Co., 22 Cal. 4th 575, 582 (2000).

As explained by Judge Chen, making breaks "available" is not synonymous with giving employees 30 minutes to eat, and as such, the fact that “an employee had time to eat during his or her shift does not establish that such a meal satisfied the California requirements for off-duty meal periods”:
“Defendant's argument that it need only make meal periods available in order to satisfy the law does not answer Plaintiffs' central allegations; it merely begs the question whether those meal periods that were made available complied with applicable law regarding off-duty meal breaks. For example, Defendant emphasizes Plaintiffs' acknowledgments that they have been able to eat during their employment at the refinery. See, e.g., Gutierrez Depo., Docket No. 139, Exh. L, at 67-68; Brunell Decl., Docket No. 142, ¶ 5 (Operators "regularly have much more than 30-minutes of uninterrupted time every five hours during their shifts to eat their meals"). However, that an employee had time to eat during his or her shift does not establish that such a meal satisfied the California requirements for off-duty meal periods. See IWC Wage Order 1-2001 § 11(C) ("Unless the employee is relieved of all duty during a 30 minute meal period, the meal period shall be considered an "on duty" meal period and counted as time worked.").
Delagarza, 2011 U.S. Dist. LEXIS 101127, at 39-40.

Rather, as the Court properly pointed out, “Courts have interpreted [meal period] provisions to mandate that employers ‘ensure that [their] employees are free from [their] control for thirty minutes.’” See id., at 42. Based on this distinction, the Court reasoned that the issue of whether Tesoro made meal breaks “available” within the meaning of the law existed whether or not employees were given 30 minutes to eat their lunch:
Even under the more lenient "available" standard advocated by Defendant, there is still a classwide dispute over whether Plaintiffs' meal periods were "off-duty" given the restrictions on their activities during shifts. This dispute "can be resolved for all members of the class in a single adjudication." Hanlon, 150 F.3d at 1022. That Defendant disputes Plaintiffs' interpretation of its legal duties to the class does not make the resolution of such a dispute "individualized"; quite the opposite.
See Delagarza, 2011 U.S. Dist. LEXIS 101127, at 43.

Tuesday, August 23, 2011

Ninth Circuit Reverses Denial of UCL Certification in Deceptive Online Coupon Scheme: Stearns v. Ticketmaster Corp.

On August 22, 2011, the Ninth Circuit issued an opinion in Stearns v. Ticketmaster Corp., 2011 U.S. App. LEXIS 17454, 4-5 (9th Cir. Cal. Aug. 22, 2011), reversing a district court’s denial of certification of the plaintiffs' claim under the UCL. The practice at issue pertained to consumers – subsequent to making an online Ticketmaster purchase – allegedly being signed up for a third party service through a standardized money-back coupon scheme which imposed a reoccurring monthly service charge without the purchaser’s knowledge or consent. As acknowledged by the Court, this type of business practice poses a unique “reliance” scenario capable of fragmenting a proposed class, as the alleged deception is one based on a complete omission which potentially engenders no affirmative reliance whatsoever with regard to the subsequent reoccurring charge:
The gravamen of Appellants' claims is that the Appellees’ website presentations and practices are designed to lull and induce people, who really only intended to purchase tickets from Ticketmaster, into inadvertently becoming committed to purchasing EPI's services, which they neither expected, nor wanted, nor used, and that EPI then proceeds to mulct them with continuing charges. EPI even goes so far as to make charges to their credit cards, or take money directly from their bank accounts, all without specific authorization. And EPI does not issue a confirmation at the end of the internet transaction to memorialize the fact that a deal has been consummated.
See Stearns, 2011 U.S. App. LEXIS 17454, at 4-5.

Because class members generally will have no idea how they were signed up for the service under this type of practice, it is only reasonable that a defendant will seek to defeat certification by eliciting a wide array of potential factual scenarios from class members as to how they believe the subscription came to be, wreaking havoc on framing a certifiable class. This was an apparent issue in this case, as the Court upheld the district court’s finding that two of the named representative’s were inadequate based on an inability to articulate just how such charges were initiated:
As the district court pointed out, because Mancini insisted that he was not really deceived into joining the Entertainment Rewards program and, indeed, decided that he would not do so, but must have accidentally clicked on "Yes," he is not at all typical of the proposed class. And Sanders never saw the site or signed up for the program, and does not really know how his son did so; he too is far from typical of the class. His claim to the contrary abounds in crocodility. The district court did not err in refusing to accept Mancini and Sanders as class representatives.
Stearns, 2011 U.S. App. LEXIS 17454, at 10-11.

While this approach was successful in making a mess of the plaintiff’s CLRA claim (the denial of which the Court upheld), the potential for diverging reliance scenarios among class members was deemed an improper criteria on which to rest denial of certification of the plaintiff's UCL claim. In fact, the Court concluded that the district court erred in finding that predominance was lacking based on concerns that individualized proof of reliance and causation would be required. See id., at 13 (noting that Prop 64 “decidedly did not change the California rule ‘that relief under the UCL is available without individualized proof of deception, reliance and injury’” and as such “the district court's concerns about reliance and causation were not well taken.”). As reasoned by the Court, the determinative factor was whether class members were exposes to uniform representations / omissions which were reasonably likely to deceive, not whether each putative class member was in fact so deceived:
We do not, of course, suggest that predominance would be shown in every California UCL case. For example, it might well be that there was no cohesion among the members because they were exposed to quite disparate information from various representatives of the defendant. See, e.g., Wal-Mart, U.S. at , 131 S. Ct. at 2554-57; Kaldenbach v. Mut. of Omaha Life Ins. Co., 178 Cal. App. 4th 830, 849-50, 100 Cal. Rptr. 3d 637, 652 (2009). On this record, that does not appear to be the case, and the district court did not rule that it was.
Nor do we agree with Appellees' argument that because it need not be shown that class members have suffered actual injury in fact connected to the conduct of the Appellees, the alternative to the district court's ruling must be that the class lacks standing under Article III of the United States Constitution. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S. Ct. 2130, 2136, 119 L. Ed. 2d 351 (1992). No doubt a plaintiff's injury must be "concrete and particularized." Id. at 560, 112 S. Ct. at 2136. The injury here meets both of those requirements. Each alleged class member was relieved of money in the transactions. Moreover, it can hardly be said that the loss is not fairly traceable to the action of the Appellees within the meaning of California substantive law. Id.; see also Canyon Cnty. v. Syngenta Seeds, Inc., 519 F.3d 969, 974-75 n.7 (9th Cir. 2008). That law, as already noted, keys on the wrongdoing of Appellees and is designed to protect the public (including the proposed class members). Tobacco II, 46 Cal. 4th at 312, 207 P.3d at 30, 93 Cal. Rptr. 3d at 570. In other words, this is not a case, as was possible under California's UCL before it was amended, where the representative plaintiff need not even show any connection to a defendant's conduct;[] it is plainly a case where Appellants' claim is that they came, saw, were conquered by stealth, and were relieved of their money.[] Basically, Appellees' real objection is that state law gives a right to "monetary relief to a citizen suing under it"[] (restitution) without a more particularized proof of injury and causation.[] That is not enough to preclude class standing here.
Stearns, 2011 U.S. App. LEXIS 17454, 13-15.

Thursday, August 11, 2011

Ninth Circuit Finds Strategic Use of Rule 68 Offers of Judgment Incompatible with Rule 23: Pitts v. Terrible Herbst, Inc.

On August 9, 2011, the Ninth Circuit issued an opinion in Pitts v. Terrible Herbst, Inc. concluding that “an unaccepted Rule 68 offer of judgment – for the full amount of the named plaintiff's individual claim and made before the named plaintiff files a motion for class certification – does not moot a class action.” See Pitts, 2011 U.S. App. LEXIS 16368, at 23 (9th Cir. Nev. Aug. 9, 2011). Conversely, the Court further held that an offer made subsequent to denial of certification still does not necessarily moot a proposed class action. Rather, “[o]nly once the denial of class certification is final does the defendant's offer – if still available – moot the merits of the case because the plaintiff has been offered all that he can possibly recover through litigation.” See id., at 24.

This method of mooting a class-wide claim is generally asserted in the context of a FLSA collective action where it has received a small degree of success due to the “opt-in” nature of the class mechanism. In rejecting this litigation strategy in the Rule 23 context, the Ninth Circuit reasoned that the practice of "buying off" the named plaintiff affirmatively creates a “transitory claim” in the same respects as a claim that is inherently transitory, and as such, mootness is to be evaluated under “relation back” principles to the date of filing of the complaint:
[W]e conclude that Terrible's unaccepted offer of judgment did not moot Pitts's case because his claim is transitory in nature and may otherwise evade review. Accordingly, if the district court were to certify a class, certification would relate back to the filing of the complaint. We recognize that the canonical relation-back case—such as Gerstein or McLaughlin—involves an "inherently transitory" claim and, correspondingly, "a constantly changing putative class." Wade v. Kirkland, 118 F.3d 667, 670 (9th Cir. 1997). But we see no reason to restrict application of the relation-back doctrine only to cases involving inherently transitory claims. Where, as here, a defendant seeks to "buy off" the small individual claims of the named plaintiffs, the analogous claims of the class—though not inherently transitory—become no less transitory than inherently transitory claims. Thus, although Pitts's claims "are not 'inherently transitory' as a result of being time sensitive, they are 'acutely susceptible to mootness' in light of [the defendant's] tactic of 'picking off' lead plaintiffs with a Rule 68 offer to avoid a class action." Weiss v. Regal Collections, 385 F.3d 337, 347 (3d Cir. 2004) (internal citation omitted). The end result is the same: a claim transitory by its very nature and one transitory by virtue of the defendant's litigation strategy share the reality that both claims would evade review.
See Pitts, 2011 U.S. App. LEXIS 16368, at 20-21.

Importantly, the Court found that permitting a defendant to dispose of a class action through such strategic conduct would not only undermine the objectives of Rule 23 as a mechanism to adjudicate small value claims, but burden the courts by encouraging the filing of multiple, successive lawsuits:
Invoking the relation back doctrine in this context furthers the purposes of Rule 23. Where the class claims are so economically insignificant that no single plaintiff can afford to maintain the lawsuit on his own, Rule 23 affords the plaintiffs a "realistic day in court" by allowing them to pool their claims. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 809, 105 S. Ct. 2965, 86 L. Ed. 2d 628 (1985); see also Roper, 445 U.S. at 339 ("Where it is not economically feasible to obtain relief within the traditional framework of a multiplicity of small individual suits for damages, aggrieved persons may be without any effective redress unless they may employ the class-action device."). A rule allowing a class action to become moot "simply because the defendant has sought to 'buy off' the individual private claims of the named plaintiffs" before the named plaintiffs have a chance to file a motion for class certification would thus contravene Rule 23's core concern: the aggregation of similar, small, but otherwise doomed claims. Roper, 445 U.S. at 339; see also Weiss, 385 F.3d at 344 ("[A]llowing the defendants here to 'pick off' a representative plaintiff with an offer of judgment less than two months after the complaint is filed may undercut the viability of the class action procedure, and frustrate the objectives of this procedural mechanism for aggregating small claims . . . ."). It would effectively ensure that claims that are too economically insignificant to be brought on their own would never have their day in court. See Zeidman v. J. Ray McDermott & Co., 651 F.2d 1030, 1050 (5th Cir. 1981) ("[I]n those cases in which it is financially feasible to pay off successive named plaintiffs, the defendants would have the option to preclude a viable class action from ever reaching the certification stage."); Stewart v. Cheek & Zeehandelar, LLP, 252 F.R.D. 384, 386 (S.D. Ohio 2008) ("[T]reating pre-certification settlement offers as mooting the named plaintiffs' claims would have the disastrous effect of enabling defendants 'to essentially opt-out of Rule 23.'" (citation omitted)). And even if it does not discourage potential claimants, it "may waste judicial resources by 'stimulating successive suits brought by others claiming aggrievement.'" Weiss, 385 F.3d at 345 (quoting Roper, 445 U.S. at 339).
See Pitts, 2011 U.S. App. LEXIS 16368, at 21-23.

Tuesday, August 9, 2011

Central District Certifies Meal Period and Off-The-Clock Claims on Behalf of California H&R Block Workers: Ugas v. H&R Block Enterprises, LLC

On Aug. 4, 2011, Central District Judge Christina A. Snyder granted certification of meal period and overtime claims on behalf of California “Tax Professionals" employed by H&R Block. See Ugas v. H&R Block Enters., 2011 U.S. Dist. LEXIS 86769 (C.D. Cal. Aug. 4, 2011). According to plaintiffs, the (1) defendant maintained a policy of not paying Section 226.7 premium wages despite utilizing a standardized computer time tracking system which placed defendant on actual notice that meal breaks were regularly being missed, and (2) alleged that a district manager overseeing the plaintiff’s location maintained a de-facto policy of having employees adjust their working time to exclude overtime hours and record meal breaks as having been taken. See id., at 11-13.  According to plaintiffs, the later was to be established by testimony of the manager of plaintiff's location, as well as a comparison of time records and times recorded through the tax preparation software utilized by employees.

In certifying plaintiff’s meal break claim, the Court reasoned that defendant’s absolute policy of not paying section 226.7 premium wages provided a common issue upon which defendant's liability could be adjudicated as to the class as a whole:
In this case, the Court need not reach the question of whether defendants were required to ensure that employees took their meal breaks or whether defendants were required only to make them available. Plaintiffs have presented sufficient evidence that defendants, as a policy, do not pay the legally required meal break premium pursuant to Cal. Labor Code § 226.7. This question of law and fact will be common to the class members and is central to plaintiffs' meal break claim. See Exh. 2, Plaintiffs' Compendium of Cited Portions of Depositions (deposition testimony of Kaye Micek stating that an associate will be paid "for the time that he is working" when a meal break is missed); Ugas Decl. ¶ 18, Guerra Decl. ¶ 18 ("While I was paid for working through the meal breaks, I was not reimbursed by H&R Block at a rate of an hour's pay at my regular rate of pay"). n5 Moreover, plaintiffs meets the typicality standard of Rule 23(a) because they, and all class members, were employed by defendants on an hourly basis during the class period, were subject to the same policies and procedures, and were allegedly improperly compensated. Therefore, the Court concludes that it is proper to certify the California subclass with respect to plaintiffs' meal break claim, and it is not necessary to stay that decision until the resolution of Brinker.
See Ugas, 2011 U.S. Dist. LEXIS 86769, at 23-25.

However, with regard to plaintiff’s off-the-clock claim, the Court concluded that deposition testimony by the office manager that district manager had instructed her to have employees adjust time records to exclude overtime was sufficient to only certify a sub-class for the specific district which the plaintiff worked:
In reaching this conclusion, the Court first finds that plaintiffs have satisfied the requirements of Rule 23(a). With respect to numerosity, plaintiffs establish that even if the class were limited to the Pomona region, it would include 148 putative class members, which is sufficient to meet this requirement. Moreover, as to commonality, plaintiffs have offered sufficient evidence that they may be able to show that defendants pursue an unwritten policy to improperly withhold overtime wages from class members in this district. Plaintiffs' evidence includes the comparison of computer programs tracking clock-in and clock-out times with time logged in to Tax Preparation Software, and testimony by Cabrera that she was instructed by the District Manager that she should alter time records to remove overtime and to add meal breaks. Cabrera Depo. 82:21-83:2 ("[I]f there was over time, there was yellow. And she says, 'Okay, you're going to take this off.' And then, 'Look, this person, so-and-so doesn't have a lunch break. You need to put at least 15 to 30 minutes in there.' Okay. So I'd go and fix it. And that's how I was taught how to do it"); Cabrera Depo. 87:7-12 ("She was training me, and she was telling me what all this is, yellow and red, and says 'See how this is? This has overtime here. You have to take that overtime because there's no overtime allowed right now. . .' it was part of what she was showing me how to do"). n6 This evidence is sufficient to establish a common method of proof as to the liability of defendants, based on the existence of an unwritten company policy. It is also sufficient to establish a common method of proof as to damages, as the Court finds the comparison of the STAR data with the TPS data seems to the Court to be a viable methodology to make a class-wide calculation.
See Ugas, 2011 U.S. Dist. LEXIS 86769, at 26-28.

In certifying the subclass, the Court rejected the defendant’s argument that the Supreme Court’s decision Wal-Mart precluded a finding of commonality based solely on the testimony of the discrict managers alleged de facto policy:
The Court also rejects defendants' argument that the recent Supreme Court decision in Wal-Mart Stores, Inc. v. Dukes, et al., No. 10-277, 564 U.S. (June 20, 2011) precludes certification in the instant case. Unlike in Wal-Mart, here plaintiffs have shown that there was "a common mode of exercising discretion that pervades the entire company," at least with respect to the Pomona district. Defendants may be able to prove at trial, or on a motion for summary judgment, that their policies, written and unwritten, do not violate any labor laws. However, plaintiffs' claims, as alleged, and as supported by sufficient, though controverted, evidence, support certification of the subclasses as defined by the Court.
See Ugas, 2011 U.S. Dist. LEXIS 86769, at 30.

Wednesday, July 20, 2011

California Supreme Court Grants Review in In Re Lamps Plus Overtime Cases

On July 20, 2011, the California Supreme Court granted review of the Second District (Division 8) opinion upholding denial of certification of meal break claims in In Re Lamps Plus Overtime Cases, 195 Cal. App. 4th 389 (2011). This comes on the heels of the Court taking the same action with regard Division 8’s identical opinions in Hernandez v. Chipotle Mexican Grill, Inc., Case No. S188755, and Tien v. Tenet Healthcare, Case No. S191756.

Per the Court's website, briefing in Lamps Plus is stayed pending the Court’s decision in Brinker:
The petition for review is granted. Further action is this matter is deferred pending consideration and disposition of a related issue in Brinker Restaurant v. Superior Court, S166350 (see Cal. rules of Court, rule 8.524 (c)), or pending further order of the court. Submission of additional briefing, pursuant to California Rules of Court, rule 8.528, is deferred pending further order of the court. Votes: Cantil-Sakauye, C.J., Kennard, Baxter, Werdegar, Chin, Corrigan, JJ.

Tuesday, July 12, 2011

Second District Finds PAGA Claims Not Subject to FAA Preemption Under Concepcion: Brown v. Ralphs Grocery

On July 12, 2011, the Second District (Division Five) held that the U.S. Supreme Court’s preemption analysis in AT&T Mobility LLC v. Concepcion does not apply to PAGA claims. See Brown v. Ralphs Grocery, __Cal.App.4th __ (2011).  The Court remanded the action for further consideration as to “whether the provision in the arbitration agreement waiving plaintiff’s right to pursue a representative action under the PAGA can be severed or whether the presence of that one invalid provision in the arbitration agreement renders the entire agreement or portions thereof unenforceable.”  The ultimate holding on this question may provide a basis to exclude labor class actions from the scope of FAA preemption under Concepcion whenever a PAGA claim is alleged.  More on this decision later.

Friday, July 1, 2011

California Supreme Court Holds California Overtime Provisions Apply to Colorado / Arizona Residents Working in California, But that the UCL Does Not Permit Enforcement of FLSA Overtime Claims For Work Performed By Nonresidents In Other States: Sullivan v. Oracle Corp.

On June 30, 2011, the California Supreme Court issued an opinion in Sullivan v. Oracle Corp., __ Cal. 4th __ (2011) resolving the set of questions pertaining to the scope of California’s Overtime and UCL provisions certified by the Ninth Circuit in Sullivan v. Oracle Corp., 557 F.3d 979 (9th Cir. Cal. 2009). These questions, and the Court’s response thereto, is as follows:

First, the Court was asked to determine whether the California Labor Code's overtime provisions apply to work performed in California by nonresidents. In ruling on this question, the Court acknowledged that it could not provide a sweeping response applicable to the residents of all 50 States, as a response to this question was not simply dependent on whether the applicable provisions of the California Labor Code covered non-residents working in California, but also turned on “whether conflict-of-laws principles direct us to apply California law in the event another state also purports to regulate work performed here.” See Sullivan, 2011 Cal. LEXIS 6537, at 7-8.

With regard to the first component, the Court concluded that California overtime provisions expressly applied to “any work” and “any employee” [see id., at 8 (citing Labor Code §510(a) and 1194(a))], and that the “preambular section of the wage law [] confirms that our employment laws apply to ‘all individuals’ employed in this state[.]” See id. (citing (Lab. Code § 1171(a)). Moreover, the Court reasoned that a construction of these provisions as governing work performed by non-residents not only fell squarely within the State’s police powers to regulate activity with California’s borders, but was actually necessary to ensure that the objectives of California’s overtime provisions were given full effect:
That California would choose to regulate all nonexempt overtime work within its borders without regard to the employee's residence is neither improper nor capricious. As a matter of federal constitutional law, "[s]tates possess broad authority under their police powers to regulate the employment relationship to protect workers within the State. Child labor laws, minimum and other wage laws, laws affecting occupational health and safety, and workmen's compensation laws are only a few examples." (De Canas v. Bica (1976) 424 U.S. 351, 356.) Furthermore, the overtime laws serve important public policy goals, such as protecting the health and safety of workers and the general public, protecting employees in a relatively weak bargaining position from the evils associated with overwork, and expanding the job market by giving employers an economic incentive to spread employment throughout the workforce. (Gentry v. Superior Court (2007) 42 Cal.4th 443, 456.) The Legislature has considered these purposes sufficiently important to make the right to overtime compensation unwaivable (Lab. Code, § 1194) and the failure to pay overtime a crime (id., § 1199; see Gentry, at p. 456). To exclude nonresidents from the overtime laws' protection would tend to defeat their purpose by encouraging employers to import unprotected workers from other states. Nothing in the language or history of the relevant statutes suggests the Legislature ever contemplated such a result. A contrary conclusion would be difficult, if not impossible, to reconcile with the Legislature's express declaration that "[a]ll protections, rights, and remedies available under state law . . . are available to all individuals . . . who are or who have been employed, in this state." (Lab. Code, § 1171.5, subd. (a).)
See Sullivan, 2011 Cal. LEXIS 6537, at 10-12.

With regard to the second component, the Court made clear that whether California overtime provisions applied to the residents of any given State turned (in part) on whether such application would create a conflict with the resident's home state law. The Court’s analysis here – which was limited to the laws of Colorado and Arizona – determined that no arguable conflict could exist because Arizona has no overtime laws and Colorado's overtime law only governs work performed within the boundaries of Colorado:
Whether a true conflict exists under the circumstances of this case is doubtful, at best. California has, and has unambiguously asserted, a strong interest in applying its overtime law to all nonexempt workers, and all work performed, within its borders. (See Lab. Code, § 1171.5, subd. (a) ["All protections, rights, and remedies available under state law . . . are available to all individuals . . . employed, in this state."]; see also id., §§ 510, subd. (a) ["[a]ny work"], 1194, subd. (a) ["any employee"], 1199 [criminal sanctions]; see also discussion ante, at p. 6 et seq.) California's interests, as this court has identified them, are in protecting health and safety, expanding the labor market, and preventing the evils associated with overwork. (Gentry v. Superior Court, supra, 42 Cal.4th 443, 456.) Similar interests underlie the FLSA's overtime provisions (Barrentine v. Arkansas-Best Freight System (1981) 450 U.S. 728, 739) and, we may assume, Colorado law as well. Neither Arizona nor Colorado, however, has asserted an interest in regulating overtime work performed in other states. Arizona, as mentioned, has no overtime law at all, and Colorado's overtime law purports to govern only "work performed within the boundaries of the state of Colorado . . ." (7 Colo. Code Regs. § 1103-1(1) (2011)). These circumstances reveal no genuine basis for concluding a true conflict exists.
See Sullivan, 2011 Cal. LEXIS 6537, at 24-25.

Based on these two findings, the Court concluded that “[t]he California Labor Code does apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case….” See id., at 30.

Second, the Court was asked to determine whether the violation of the overtime provisions in Question 1 also constituted a violation under the UCL. The Court answered this in the affirmative:
We have already decided that the failure to pay legally required overtime compensation falls within the UCL's definition of an "unlawful . . . business act or practice" (Bus. & Prof. Code, § 17200; see Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 177 [UCL authorizes, as restitution, order for payment of unlawfully withheld wages]), and the parties offer no argument on the point.
Sullivan, 2011 Cal. LEXIS 6537, 32 (Cal. June 30, 2011)

Third, the Court was asked to determine whether the UCL applies to a FLSA overtime claim for work performed by nonresidents in other States, which here, was predicated on the fact the decision to classify such workers as exempt was made at the company’s corporate headquarters in California. The Court held it did not. The Court’s reasoning was based on the fact that an erroneous classification determination is not what is prohibited under the FLSA; rather, the prohibited activity is the failure to pay overtime compensation:
The Ninth Circuit has asked us to decide whether the UCL applies to plaintiffs' FLSA claims "in the circumstances of this case" (Sullivan III, supra, 557 F.3d 979, 983), which we understand to mean in accordance with the same stipulated facts on which the federal courts have based their decisions. Those stipulated facts identify only a single instance of relevant conduct occurring in California: "The decision-making process to classify Instructors as exempt from the requirement to be paid overtime wages under the FLSA occurred primarily from within the headquarters offices of Oracle Corporation located in Redwood Shores, California." Certainly the UCL reaches any unlawful business act or practice committed in California. (See Bus. & Prof. Code, § 17200 ["As used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice . . . ."].) But for an employer to adopt an erroneous classification policy is not unlawful in the abstract. (Cf. Walsh v. IKON Office Solutions, Inc. (2007) 148 Cal.App.4th 1440, 1462 [addressing California wage law].) What is unlawful, and what creates liability under the FLSA, is the failure to pay overtime when due. (See 29 U.S.C. § 207(a)(1) ["no employer shall employ any of his employees . . . for a workweek longer than forty hours unless such employee receives [overtime] compensa tion"].) Accordingly, that Oracle's decision to classify its Instructors as exempt was made in California does not, standing alone, justify applying the UCL to the nonresident plaintiffs' FLSA claims for overtime worked in other states. n10 Nor does any other basis for applying the UCL to those claims appear in the stipulated facts.
See Sullivan, 2011 Cal. LEXIS 6537, at 34-35.

Importantly, the court reasoned that “the UCL might conceivably apply to plaintiffs' claims if their wages were paid (or underpaid) in California,” but explained that this issue was not before the Court as “the stipulated facts do not speak to the location of payment.” See Sullivan, 2011 Cal. LEXIS 6537, at 36.

Central District Certifies Paystub Claim Against FedEx: McKenzie v. Fed. Express Corp.

On June 16, 2011, Central District court Judge Gary Allen Feess ordered certification of a Labor Code section 226(e) paystub claim against FedEx in McKenzie v. Fed. Express Corp., 2011 U.S. Dist. LEXIS 65278 (C.D. Cal. June 16, 2011). Plaintiff's alleged that Fedex violated Cal Lab Code § 226(a) by (1) failing to provide a separate category calculating the total hours worked, (2) including an overtime rate that only identified the amount above the regular rate, rather than expressly identifying an all-inclusive, precise overtime rate, and (3) failing to provide an end-date for the pay-period.

The case is somewhat noteworthy as it really underscores the fact that the threshold burden necessary to certify a paystub claim is very low. Due to the systemic nature which pay-stubs are created, the only defense an employer generally has is to focus on the element of injury. However, as the Court’s predominance analysis makes clear, how each class member was injured does not require an individualized inquiry under section 226(e). See McKenzie, 2011 U.S. Dist. LEXIS 65278, at 25.

First, citing to the prior decision in Jaimez v. DAIOHS USA, Inc., 181 Cal. App. 4th 1286 (2010), the Court concluded that an alleged practice of failing to adhere to the requirements of Section 226 itself – not the alleged injury – is the basis on which certification of a paystub claim must rest. As explained by the Court, Jaimez made clear that certification was required “even though there was no evidence in the record of the plaintiff's injury resulting from the inaccurate paystubs….” See McKenzie, 2011 U.S. Dist. LEXIS 65278, at 25-26. As further noted by the Court on this point:
[E]ven if there was no evidence in the record that McKenzie suffered an injury from the wage statements issued by FedEx, and some individualized proof of damages may be necessary in this case, the holding in Jaimez also supports McKenzie's position that common issues nevertheless predominate in the present action. See 105 Cal. Rptr. 3d at 460 (holding that "[t]he fact that individualized proof of damages may ultimately be necessary does not mean . . . that [the plaintiff's] theory of recovery is not amenable to class treatment. A common legal issue predominates the claim, and it makes no sense to resolve it in a piecemeal fashion.")
See McKenzie, 2011 U.S. Dist. LEXIS 65278, at 30 fn. 3.

Second, citing to the decision in Ortega v. J.B. Hunt Transp., Inc., 258 F.R.D. 361 (C.D. Cal. 2009), the Court reasoned that an inherent injury necessarily accompanies a violation of a section 226(e) that will be common to the class. Specifically, “the court in Ortega explained that the plaintiff's ‘statement that he could usually do the math in [his] head and figure out approximately what [he] was going to get gross is consistent with the type of injury that has been found sufficient to support a claim for violation of Section 226.’” See McKenzie, 2011 U.S. Dist. LEXIS 65278, at 26-27. Moreover, the Court reasoned that “this lawsuit, and the difficulty and expense incurred by McKenzie and the proposed class in reconstructing time and pay records is sufficient evidence that they suffered a common injury.” See id., at 29-30.

Thus, based on the forgoing analysis, it is fairly clear that the threshold burden necessary to certify a paystub claim under Section 226 is very low. Essentially all that is required is evidence that the alleged violation was standardized among the employees which comprise the class.

Tuesday, June 21, 2011

U.S. Supreme Court’s Decision in Wal-Mart Stores, Inc. v. Dukes et al Unlikely To Significantly Impact Rule 23(b)(3) Certification

On June 20, 2011, the U.S Supreme Court reversed the Ninth Circuit’s certification decision in Wal-Mart Stores, Inc. v. Dukes et al, 564 U. S. ____ (2011), concluding that the Ninth Circuit applied improper criteria with regard to Rule 23(b)(2) (which was expected) and commonality under Rule 23(a)(2), which was somewhat surprising.

The Court’s Rule 23(a)(2) analysis unquestionably elevates the burden required to establish commonality, which up until now “has been construed permissively.” See Hanlon v. Chrysler Corp., 150 F.3d 1011, 1019 (9th Cir. Cal. 1998). As held by the Majority, this standard was improper, as the element of commonality requires a more demanding showing establishing that the defined class is not simply bound together by the same legal claim or common questions, but rather, is bound by (1) the same theory of liability that (2) is also capable of classwide resolution:
Commonality requires the plaintiff to demonstrate that the class members “have suffered the same injury,” Falcon, supra, at 157. This does not mean merely that they have all suffered a violation of the same provision of law. Title VII, for example, can be violated in many ways—by intentional discrimination, or by hiring and promotion criteria that result in disparate impact, and by the use of these practices on the part of many different superiors in a single company. Quite obviously, the mere claim by employees of the same company that they have suffered a Title VII injury, or even a disparate impact Title VII injury, gives no cause to believe that all their claims can productively be litigated at once. Their claims must depend upon a common contention—for example, the assertion of discriminatory bias on the part of the same supervisor. That common contention, moreover, must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.
Slip Opinion, at 19.

The clear objective of this standard, in the view of the Majority, is to produce cohesion to the class found lacking in this case.  See id., at 12 (“Without some glue holding the alleged reasons for all those decisions together, it will be impossible to say that examination of all the class members’ claims for relief will produce a common answer to the crucial question why was I disfavored.”).

As the dissent points out, however, the practical effect of the Majority's standard elevates a court's commonality analysis to the functional equivalent of a Rule 23(b)(3) predominance analysis. See Dissent, at 9 (“The Court’s emphasis on differences between class members mimics the Rule 23(b)(3) inquiry into whether common questions “predominate” over individual issues.”). The majority rejects this criticism:
The dissent misunderstands the nature of the foregoing analysis. It criticizes our focus on the dissimilarities between the putative class members on the ground that we have “blend[ed]” Rule 23(a)(2)’s commonality requirement with Rule 23(b)(3)’s inquiry into whether common questions “predominate” over individual ones. See post, at 8–10 (GINSBURG, J., concurring in part and dissenting in part). That is not so. We quite agree that for purposes of Rule 23(a)(2) “‘[e]ven a single [common] question’” will do, post, at 10, n. 9 (quoting Nagareda, The Preexistence Principle and the Structure of the Class Action, 103 Colum. L. Rev. 149, 176, n. 110 (2003)). We consider dissimilarities not in order to determine (as Rule 23(b)(3)requires) whether common questions predominate, but in order to determine (as Rule 23(a)(2) requires) whether there is “[e]ven a single [common] question.” And there is not here. Because respondents provide no convincing proof of a companywide discriminatory pay and promotion policy, we have concluded that they have not established the existence of any common question.
Slip Opinion, at 19

While it is true that the procedural standard articulated by the Majority does not focus on whether common questions predominate, the Majority’s explanation on this point does not dispute the fact that the substantive effect of this commonality standard will likely limit the requisit issues to only those capable of satisfying predominance (which seemed to be the point articulated by Justice Ginsburg).
 
While the Court's standard likely will substantially impact certification under Rule 23(b)(1) and (b)(2) moving forward, it is unlikely to have significant impact Rule 23(b)(3) certification.  It is generally held that “the commonality element is of less importance in a Rule 23(b)(3) class action … because the class must also meet the more stringent predominance requirement of Rule 23(b)(3).”  See In re Educ. Testing Serv. Praxis Principles of Learning & Teaching: Grades 7-12 Litig., 2006 U.S. Dist. LEXIS 9726, 10 (E.D. La. Mar. 13, 2006).  “The Rule 23(b)(3) predominance inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation.”  See Amchem Prods. v. Windsor, 521 U.S. 591, 623 (U.S. 1997).  Based on this fact, a court’s Rule 23(b)(3) inquiry generally subsumes Rule 23(a)(2) analysis altogether.  See Hanlon v. Chrysler Corp., 150 F.3d 1011, 1022 (9th Cir. Cal. 1998) (a court’s “[Rule 23(b)(3) predominance] analysis presumes that the existence of common issues of fact or law have been established pursuant to Rule 23(a)(2)[.]”); In re Ford Motor Co. Bronco II Prod. Liab. Litig., 177 F.R.D. 360, 366 (E.D. La. 1997) (“courts usually do not spend a great deal of time addressing whether common issues exist, but instead focus on the related issue under Rule 23 (b)(3) of whether common issues predominate over individual ones.”).

Friday, June 17, 2011

U.S. Supreme Court Severely Limits Preclusive Effect Afforded To Denials of Class Certification: Smith v. Bayer Corp.

On June 16, 2011, the U.S. Supreme Court issued an important class action decision in Smith v. Bayer Corp., 564 U. S. ____ (2011) (2011 U.S. LEXIS 4559) relating to the preclusive effect which may be given to a Federal court order denying class certification.  This opinion involves an issue I have litigated at length before.  See Johnson v. GlaxoSmithKline, Inc., 166 Cal. App. 4th 1497 (2d Dist. 2008).  In Smith, the Court considered whether a district court exceeded the bounds of its authority under the “relitigation exception” to the Anti-injunction Act (28 U.S.C. § 2283) by enjoining a State court class action from proceeding based on a prior certification denial in Federal court.  The Court resolved this question in the affirmative, finding that two elements of issue preclusion – i.e. the “identity of issues” and “identity of parties” requirements – could not be met.

With regard to the “identity of issues” requirement, the Court focused on whether variations in class action procedure at the State and Federal level could ever produce a finding that the "same issues" had actually been litigated and decided. The Court concluded that while such a finding was possible, this finding could not be predicated upon the mere fact that the State adopted Rule 23 procedural standards, as doing so would infringe upon each State’s right to develop its own class action jurisprudence.  According to the Court, this was the starting point in the analysis, and to the extent any uncertainty exists, this requires the issue be left for resolution at the state court level:
The Court of Appeals and Smith offer us two competing ways of deciding whether the West Virginia and Federal Rules differ, but we think the right path lies somewhere in the middle. The Eighth Circuit relied almost exclusively on the near-identity of the two Rules' texts. See 593 F.3d at 723. That was the right place to start, but not to end. Federal and state courts, after all, can and do apply identically worded procedural provisions in widely varying ways. If a State's procedural provision tracks the language of a Federal Rule, but a state court interprets that provision in a manner federal courts have not, then the state court is using a different standard and thus deciding a different issue. See 18 Wright & Miller § 4417, at 454 (stating that preclusion is "inappropriate" when "different legal standards . . . masquerad[e] behind similar legal labels"). At the other extreme, Smith contends that the source of law is all that matters: a different sovereign must in each and every case "have the opportunity, if it chooses, to construe its procedural rule differently." Brief for Petitioners 22 (quoting ALI, Principles of the Law, Aggregate Litigation § 2.11, Reporters' Notes, cmt. b, p. 181 (2010)). But if state courts have made crystal clear that they follow the same approach as the federal court applied, we see no need to ignore that determination; in that event, the issues in the two cases would indeed be the same. So a federal court considering whether the relitigation exception applies should examine whether state law parallels its federal counterpart. But as suggested earlier, see supra, at 6, the federal court must resolve any uncertainty on that score by leaving the question of preclusion to the state courts.
See Smith, 2011 U.S. LEXIS 4559, at 20-21.

With regard to the “identity of parties” requirement, the Court extended its "virtual representation" analysis in in Taylor v. Sturgell, 553 U.S. 880 (2008) to conclude that a prior order denying certification of a class cannot be imposed on a completely different representative plaintiff, even if the subsequent action is otherwise identical in all other respects.  As reasoned by the Court, the proposition that a denial of certification can itself be imposed on a class-wide basis rests squarely upon fallacious logic:
Indeed, the very ruling that Bayer argues ought to be given preclusive effect is the District Court's decision that a class could not properly be certified. So Bayer wants to bind Smith as a member of a class action (because it is only as such that a nonparty in Smith's situation can be bound) to a determination that there could not be a class action. And if the logic of that position is not immediately transparent, here is Bayer's attempt to clarify: "[U]ntil the moment when class certi-fication was denied, the McCollins case was a properly conducted class action." Brief for Respondent 37. That is true, according to Bayer, because McCollins' interests were aligned with the members of the class he proposed and he "act[ed] in a representative capacity when he sought class certification." Id., at 36.
But wishing does not make it so. McCollins sought class certification, but he failed to obtain that result. Because the District Court found that individual issues predominated, it held that the action did not satisfy Federal Rule 23's requirements for class proceedings. In these circumstances, we cannot say that a properly conducted class action existed at any time in the litigation. Federal Rule 23 determines what is and is not a class action in federal court, where McCollins brought his suit. So in the absence of a certification under that Rule, the precondition for binding Smith was not met. Neither a proposed class action nor a rejected class action may bind nonparties. What does have this effect is a class action approved under Rule 23. But McCollins' lawsuit was never that.
See Smith, 2011 U.S. LEXIS 4559, at 29-30.

This latter conclusion is the kicker, as it all but eliminates any argument that issue preclusion can be applied to subsequent lawsuits.  The Court acknowledged as much, asserting that the policy objective of preventing a successive line of separate actions “flies in the face of the rule against nonparty preclusion.”

Friday, June 10, 2011

Northern District Certifies False Advertisement Class Based on Walnut Manufacturer Health Claims: Zeisel v. Diamond Foods, Inc.

On June 7, 2011, Northern District Judge Jeffrey S. White certified a nationwide UCL/CLRA class based on allegations that the defendant engaged in promotional activities that “‘used express and implied statements about the positive effects of omega-3 fatty acid consumption on health to entice consumers to purchase its’ Shelled Walnut Products.” See Zeisel v. Diamond Foods, Inc., 2011 U.S. Dist. LEXIS 60608, 12-13 (N.D. Cal.). The Court’s opinion contains interesting analysis on issues relating to absent class member standing, as well as the element of ascertainability.

With regard to the first issue, the defendant attempted to re-hatch an issue, raised and rejected in Tobacco II, that absent class members must independently establish Article III standing. The defendant maintained that the California Supreme Court’s ruling in Tobacco II only applies in State court (a line of argumentation that I have been seeing with increasing frequency on various issues).  The Court rejected the argument, reasoning that the Tobacco II court relied on Federal authorities interpreting Article II standing under Rule 23 in making its determination:
Diamond also urges the Court to deny class certification because absent class members lack Article III standing. [] Diamond argues that although the California Supreme Court has held that "state courts may permit uninjured individuals to pursue UCL actions in state court, so long as the class representative has established standing," the Supreme Court's decision did not and could not "remove the standing requirements set forth in Article III, including injury-in-fact and causation." (Opp. Br. at 14:8-13 (emphasis in original, citing Tobacco II, 46 Cal. 4th at 324).) The Court does not read Tobacco II to hold that a class may include members who have not been injured by a defendant's conduct. Rather, the Tobacco II court held that Proposition 64 "was not intended to, and does not, impose section 17204's standing requirement on absent class members in a UCL class action where class requirements have otherwise been found to exist." Tobacco II, 46 Cal. 4th at 324. This holding appears to be in accord with federal authority construing Rule 23. Indeed, the Tobacco II court relied heavily on federal cases interpreting the requirements of Rule 23. Thus, it noted that, in general, "standing in a class action is assessed solely with respect to class representatives, not unnamed members of the class." Id., 46 Cal. 4th at 319 (quoting In re General Motors Corp. Dex-Cool Prod. Liab. Litig., 241 F.R.D. 305, 310 (S.D. Ill. 2007)).
See Zeisel, 2011 U.S. Dist. LEXIS 60608, at 13-14.

With regard to the second issue, the Court the rejected the defendant’s argument that the lack of records enabling one to confirm whether individual consumers actually purchased the products in question foreclosed a finding of ascertainability. As reasoned by the Court, it was sufficient that the class was defined in such a way that consumers could identify themselves:
Diamond argues that it is not administratively feasible to determine if a person is a member of the proposed class because it sells its Shelled Walnut products to retailers and it does not track consumer purchases. Diamond also argues that it sells numerous other nut products and that neither the prospective class members nor the Court would have a means by which they could determine whether they purchased the Shelled Walnut products at issue in this litigation. The Court is not persuaded. [] The proposed class includes (1) all persons (2) who purchased Shelled Walnut Products in 6 ounce, 10 ounce, 16 ounce and/or 3 pound bags (3) which bore labels bearing the Structure Function Claim and Banner (4) from March 22, 2006 through the present. The Court does not find this definition to be subjective or imprecise. Rather, it includes objective characteristics that would permit a consumer to identify themself as a member of the proposed class. See, e.g. Parkinson v. Huyndai Motor America, 258 F.R.D. 580, 594 (C.D. Cal. 2008); cf. Keilholtz, 268 F.R.D at 336 (finding class definition that included persons who lived in the United States who own a home in which the disputed product was installed after a particular date was not subjective or imprecise); Chavez v. Blue Sky Nat. Bev. Co., 268 F.R.D. 365, 377 (N.D. Cal. 2010) (concluding that class of persons who purchased beverage bearing disputed mark or brand, in the United States, during a particular period was ascertainable).
See Zeisel, 2011 U.S. Dist. LEXIS 60608, at 20-21.