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.