Court of Appeal construes Labor Code section 2810, which authorizes suits against contractors by certain employees of subcontractors

Labor Code section 2810 states that "[a] person or entity may not enter into a contract or agreement for labor or services with a construction, farm labor, garment, janitorial, or security guard contractor, where the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided."   Section 2810 is a fairly new statute, and one that had not been the subject of any Court of Appeal decision.  But in Castillo v. Toll Brothers, Inc. (July 28, 2011), that changed.  I could tell you that this very exciting opportunity to read an opinion in a truly novel area of law prompted my review of the case.  But, in truth, it was just the defendant's name that caught my eye.

In any event, the trial court, dealing with summary judgment motions and lots of supplemental briefing, evidently had its hands full with a large number of arguments intersecting Labor Code section 2810.  The Court of Appeal commended the trial court's diligent efforts:

The order is a masterful synthesis of a sprawling factual record, reflecting the court's careful work with the parties over the course of several months. We recount the decision in some detail because it forms the foundation for our own ruling.

Slip op., at 6.

A key legal issue addressed in the appeal was determination of whether minimum wage or local prevailing wage sets the standard for insufficiency.  The Court also clarified that actual labor cost, and not the base wage, sets the correct standard.

As to the standard for insufficiency, the Court held that the "minimum wage" sets the standard:

Plaintiffs' position is untenable because there is no general law requiring an employer to pay its workers the average local wage for a particular skill or trade, if that average wage is higher than the legal minimum. Merely to pay less than the prevailing wage therefore violates no law. In the absence of a local, state, or federal law requiring the payment of a wage higher than the legal minimum, a contract cannot be insufficient under section 2810 merely because it does not provide sufficient funds to pay that higher wage, since section 2810 imposes nothing more than compliance with legal requirements.

Slip op., at 14.  (Note: Earlier in the opinion the Court clarified that "minimum wage" would depend upon the industry and wage order at issue in a particular case.)  While this soundbite quote seems clear enough, the opinion goes on for pages, reviewing legislative history and addressing, in detail, the contentions of the plaintiffs regarding the correct measure of sufficiency of funding.

On the second issue, the Court observed that compliance with all laws sets the standard for compliance, which requires analysis of total labor cost, not just the wage that would be paid to employees:

Because an employer is required to pay all of these costs to comply with applicable laws when employing a laborer, it is appropriate to use the total labor cost, rather than the worker‘s wage, in determining sufficiency under section 2810.

Slip op., at 7.

The second half of the opinion addresses (1) the sufficiency of evidence for summary judgement purposes on the issue of whether specific contracts were sufficiently funded, and (2) some over-reaching pre-emption arguments by Toll Brothers.  If that stuff floats your boat, this is a page turner.

California Grocers Association v. City of Los Angeles holds that City may regulate wholesale replacement of a workforce after purchase of a business

In California Grocers Association v. City of Los Angeles (July 18, 2011), the California Supreme Court considered whether a worker retention ordinance -- regulating the ability of some employers to summarily replace a workforce after purchasing the business -- is preempted as intruding upon either matters of health and safety already regulated by the state or matters of employee organization and collective bargaining fully occupied by federal law.  The six Justices in the majority explained in their 38-page opinion that the neutral ordinace promulaged by the City of Los Angeles did not run afoul of preemption landmines.  The dissenting opinion, all 27 pages of it, concluded otherwise, essentially on the ground that the NLRA is intended to confer upon employers the right to hire anyone they want.  The majority wasn't persuaded by this analysis, opining instead that the NLRA was actually passed to protect employees and regulate employers.  Crazy talk.

The City of Los Angeles passed an ordinance much like those passed in other municipalities.  The Los Angeles Ordinance, focused on grocery stores, was summarized by the Court:

For grocery stores of a specific size (15,000 square feet or larger) that undergo a change of ownership, the Ordinance vests current employees with certain individual rights during a 90-day transition period. First, the incumbent owner is to prepare a list of nonmanagerial employees with at least six months' employment as of the date of transfer in ownership, and the successor employer must hire from that list during the transition period. (L.A. Mun. Code, § 181.02.) Second, during that same period, the hired employees may be discharged only for cause. (Id., § 181.03(A)-(C).) Third, at the conclusion of the transition period, the successor employer must prepare a written evaluation of each employee's performance. The Ordinance does not require that anyone be retained, but if an employee's performance is satisfactory, the employer must "consider" offering continued employment. (Id., § 181.03(D).) If the workforce is unionized, however, the union and the employer may agree on terms that supersede the Ordinance. (Id., § 181.06.)

Slip op., at 2.  The California Grocers Association did not like this ordinance and sued to enjoin its implementation.

The Court began its analysis with state law preemption in the health and safety field.  The majority had little difficulty explaining why an ordinance regulating mass terminations had little direct impact on any health and safety regulations controlling how food is handled in grocery stores.

Next, the Court examined federal preemption:

We consider as well whether the Ordinance is preempted by the NLRA, a federal law enacted to protect "the right of employees to organize and bargain collectively." (29 U.S.C. § 151.)

Slip op., at 11.  Summarizing the post-Machinists preemption cases, the Court first explained that preemption was directed at regulations of bargaining process, not local employment laws setting substantive minimum labor standards for all employees.  Next, the Court considered whether there was evidence of a clear and manifest congressional intent to bar at any level the regulation of employee retention during ownership transitions.  Working their way through the history of such decisions, the Court found solid support for the notion that the NLRA was silent as to an obligation to hire the employees of a purchased business.  The Court finished its analysis by concluding that the retention ordinance should not have a meaningful impact on successorship obligations.

Finally, the Court declined to set aside the ordinance on equal protection grounds, observing that a rational relationship exists between the stated goal of the ordinance and the decision to focus on large grocery stores.

The dissent contested the majority's decision by asserting, again and again, that the NLRA provides employers with a protected right to hire as they see fit.  The majority directly dispatched this argument with great brevity, and the length of the dissent does not make it more persuasive in my view.

More on AT&T Mobility LLC v. Concepcion

Unless you've been living in a compound, off the grid with no internet access in a medium sized city outside the capital of a troubled nation in South Asia, you undoubtedly are aware of the Supreme Court's decision in AT&T Mobility LLC v. Concepcion (April 27, 2011).  For a number of reasons, which I will revisit obliquely in a moment, I decided against providing any immediate analysis.  Apparently this silence was disconcerting to some, as several readers actually inquired about my silence.  Beginning first with a synopsis, here are some, but not all, of my comments on Concepcion.

The result was all but pre-determined by the way in which the issue was framed: "We consider whether the FAA prohibits States from conditioning the enforceability of certain arbitration agreements on the availability of classwide arbitration procedures."  Slip op., at 1.  But Justice Scalia, writing for the Court, went ahead with the rest of the opinion.  The Court summarized the findings in the courts below:

In March 2008, AT&T moved to compel arbitration under the terms of its contract with the Concepcions. The Concepcions opposed the motion, contending that the arbitration agreement was unconscionable and unlawfully exculpatory under California law because it disallowed classwide procedures. The District Court denied AT&T’s motion. It described AT&T’s arbitration agreement favorably, noting, for example, that the informal disputeresolution process was “quick, easy to use” and likely to “promp[t] full or . . . even excess payment to the customer without the need to arbitrate or litigate”; that the $7,500 premium functioned as “a substantial inducement for the consumer to pursue the claim in arbitration” if a dispute was not resolved informally; and that consumers who were members of a class would likely be worse off. Laster v. T-Mobile USA, Inc., 2008 WL 5216255, *11–*12 (SD Cal., Aug. 11, 2008). Nevertheless, relying on the California Supreme Court’s decision in Discover Bank v. Superior Court, 36 Cal. 4th 148, 113 P. 3d 1100 (2005), the court found that the arbitration provision was unconscionable because AT&T had not shown that bilateral arbitration adequately substituted for the deterrent effects of class actions. Laster, 2008 WL 5216255, *14.

The Ninth Circuit affirmed, also finding the provision unconscionable under California law as announced in Discover Bank. Laster v. AT&T Mobility LLC, 584 F. 3d 849, 855 (2009). It also held that the Discover Bank rule was not preempted by the FAA because that rule was simply “a refinement of the unconscionability analysis applicable to contracts generally in California.” 584 F. 3d, at 857. In response to AT&T’s argument that the Concepcions’ interpretation of California law discriminated against arbitration, the Ninth Circuit rejected the contention that “ ‘class proceedings will reduce the efficiency and expeditiousness of arbitration’ ” and noted that “ ‘Discover Bank placed arbitration agreements with class action waivers on the exact same footing as contracts that bar class action litigation outside the context of arbitration.’ ” Id., at 858 (quoting Shroyer v. New Cingular Wireless Services, Inc., 498 F. 3d 976, 990 (CA9 2007)).

Slip op., at 3.  At this point, I parenthetically comment as follows: "Right."

After describing the "liberal" federal policy favoring arbitration agreements, the Court described the savings clause of the FAA thusly:

The final phrase of §2, however, permits arbitration agreements to be declared unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract.” This saving clause permits agreements to arbitrate to be invalidated by “generally applicable contract defenses, such as fraud, duress, or unconscionability,” but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue. Doctor’s Associates, Inc. v. Casarotto, 517 U. S. 681, 687 (1996); see also Perry v. Thomas, 482 U. S. 483, 492–493, n. 9 (1987). The question in this case is whether §2 preempts California’s rule classifying most collective-arbitration waivers in consumer contracts as unconscionable. We refer to this rule as the Discover Bank rule.

Slip op., at 5.  California law includes an unconscionability defense to any contract.  The consumers in Concepcion argued that this generally applicable defense, and California's general policy against exculpation, are not arbitration-specific, and even if they are, the same principles apply to any dispute resolution contract.  The Court commented:

When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA. Preston v. Ferrer, 552 U. S. 346, 353 (2008). But the inquiry becomes more complex when a doctrine normally thought to be generally applicable, such as duress or, as relevant here, unconscionability, is alleged to have been applied in a fashion that disfavors arbitration. In Perry v. Thomas, 482 U. S. 483 (1987), for example, we noted that the FAA’s preemptive effect might extend even to grounds traditionally thought to exist “ ‘at law or in equity for the revocation of any contract.’ ” Id., at 492, n. 9 (emphasis deleted). We said that a court may not “rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable, for this would enable the court to effect what . . . the state legislature cannot.” Id., at 493, n. 9.

Slip op., at 7-8.  Before this decision was rendered, I knew that the outcome is dependent upon how you choose to look at the situation.  It is very subjective.  If one views a policy against exculpation as a policy applicable to all contracts, it is arbitration neutral.  If one views a policy against exculpation as directed at arbitration agreements, it would be invalidated under just that logic.  When the outcome is so subjective, the result is highly dependent upon the predilictions of the majority.

The Court then did something that I find highly inconsistent with Justice Scalia's professed refusal to consider legislative intent and other indicia of legislative meaning.  The Court restricted the FAA's savings clause to preclude any generally applicable contract defense that might interfere with the FAA (which begs the question of what defense that overcomes an arbitration agreement does not do so):

Although §2’s saving clause preserves generally applicable contract defenses, nothing in it suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives. Cf. Geier v. American Honda Motor Co., 529 U. S. 861, 872 (2000); Crosby v. National Foreign Trade Council, 530 U. S. 363, 372–373 (2000). As we have said, a federal statute’s saving clause “ ‘cannot in reason be construed as [allowing] a common law right, the continued existence of which would be absolutely inconsistent with the provisions of the act. In other words, the act cannot be held to destroy itself.’ ” American Telephone & Telegraph Co. v. Central Office Telephone, Inc., 524 U. S. 214, 227–228 (1998) (quoting Texas & Pacific R. Co. v. Abilene Cotton Oil Co., 204 U. S. 426, 446 (1907)).

Slip op., at 9.  After spending some time criticizing the dissent for disputing the majority's characterization of the legislative purpose in passing the FAA, the Court rejected the Discover Bank rule as a rule interfering with the FAA.  In doing so, the Court candidly declared all consumer contracts to be contracts of adhesion:

California’s Discover Bank rule similarly interferes with arbitration. Although the rule does not require classwide arbitration, it allows any party to a consumer contract to demand it ex post. The rule is limited to adhesion contracts, Discover Bank, 36 Cal. 4th, at 162–163, 113 P. 3d, at 1110, but the times in which consumer contracts were anything other than adhesive are long past.

Slip op., at 12.  Troubling comment pepper the Court's opinion.  For instance the Court observes, "And faced with inevitable class arbitration, companies would have less incentive to continue resolving potentially duplicative claims on an individual basis."  Slip op., at 13.  So what this evidently means is that, if a company faces only sporadic, individual challenges to its misconduct, it will have some incentive to buy those few people off, but if it faces a whole class, it will fight tooth and nail to retain its ill-gotten goods.  Charming.  What a great reason to favor arbitration agreements and bar class actions.

Wrapping up, the Court said, "States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons."  Slip op., at 17.  One might observe two things at this point:  (1) There is a notable absence of conservative protection of federalism where the federal government is imposing dispute resolution procedures on state law claims in state courts, and (2) setting aside the unconstitutionality of federal interference in state dispute resolution procedures related to their substantive law, the federal government can certainly impose procedures that are inconsistent with the FAA.

Justice Thomas "reluctantly" concurred.  In his view, "As I would read it, the FAA requires that an agreement to arbitrate be enforced unless a party successfully challenges the formation of the arbitration agreement, such as by proving fraud or duress."  Slip op., concurrance, at 1-2.

Justice Breyer delivered the dissenting opinion, crisply defining the subjectivity of this debate in his summary of the issue:

The Federal Arbitration Act says that an arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U. S. C. §2 (emphasis added). California law sets forth certain circumstances in which “class action waivers” in any contract are unen­ forceable. In my view, this rule of state law is consistent with the federal Act’s language and primary objective. It does not “stan[d] as an obstacle” to the Act’s “accomplish­ment and execution.” Hines v. Davidowitz, 312 U. S. 52, 67 (1941). And the Court is wrong to hold that the federal Act pre-empts the rule of state law.

Slip op., dissent, at 1.  The dissent found good support for its position in other California decisions:

The Discover Bank rule does not create a “blanket policy in California against class action waivers in the consumer context.” Provencher v. Dell, Inc., 409 F. Supp. 2d 1196, 1201 (CD Cal. 2006). Instead, it represents the “appli­ cation of a more general [unconscionability] principle.” Gentry v. Superior Ct., 42 Cal. 4th 443, 457, 165 P. 3d 556, 564 (2007). Courts applying California law have enforced class-action waivers where they satisfy general uncon­ scionability standards. See, e.g., Walnut Producers of Cal. v. Diamond Foods, Inc., 187 Cal. App. 4th 634, 647–650, 114 Cal. Rptr. 3d 449, 459–462 (2010); Arguelles-Romero v. Superior Ct., 184 Cal. App. 4th 825, 843–845, 109 Cal. Rptr. 3d 289, 305–307 (2010); Smith v. Americredit Financial Servs., Inc., No. 09cv1076, 2009 WL 4895280 (SD Cal., Dec. 11, 2009); cf. Provencher, supra, at 1201 (considering Discover Bank in choice-of-law inquiry). And even when they fail, the parties remain free to devise other dispute mechanisms, including informal mechanisms, that, in con­text, will not prove unconscionable. See Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468, 479 (1989).

Slip op., dissent, at 2-3.  The dissent then questioned the majority's asseration that individual, rather than class, arbitration is a "fundamental attribute" of arbitration:

When Congress enacted the Act, arbitration procedures had not yet been fully developed. Insofar as Congress considered detailed forms of arbitration at all, it may well have thought that arbitration would be used primarily where merchants sought to resolve disputes of fact, not law, under the customs of their industries, where the parties possessed roughly equivalent bargaining power.

Slip op., dissent, at 6.  If fact, the dissent spent a good deal of time challenging the assertions of the majority, which appear thinly supported in some areas:

the majority provides no convincing reason to believe that parties are unwilling to submit high-stake disputes to arbitration. And there are numerous counterexamples.

Slip op., dissent, at 8.    And the dissent also observed:

Because California applies the same legal principles to address the unconscionability of class arbitration waivers as it does to address the unconscionability of any other contractual provision, the merits of class proceedings should not factor into our decision. If California had applied its law of duress to void an arbitration agreement, would it matter if the procedures in the coerced agreement were efficient?

Slip op., dissent, at 9.  It is with irony not lost on me that the dissent concluded as follows:

[F]ederalism is as much a question of deeds as words. It often takes the form of a concrete decision by this Court that respects the legitimacy of a State’s action in an individual case. Here, recognition of that federalist ideal, embodied in specific language in this particular statute, should lead us to uphold California’s law, not to strike it down. We do not honor federalist principles in their breach.

Slip op., dissent, at 12.  So Concepcion ends with the "liberal" justices decrying the death of federalist principles.  I think we need to revisit the "strict constructionist" labels that get tossed around.  Maybe Posner really has it right when he says, essentially, that every judge does whatever they damn well want, reverse engineering a justification that makes them feel good about their decision.

I've seen a number of theories floated around for responding to Concepcion.   In Marks v. United States, 430 U.S. 188 (1977), the Supreme Court oexplained how the holding of a case should be viewed where there is no majority supporting the rationale of any opinion: “When a fragmented Court decides a case and no single rationale explaining the result enjoys the assent of [the majority], the holding of the Court may be viewed as that position taken by those Members who concurred in the judgments on the narrowest grounds.” Marks, 430 U.S. at 193.  I don't think it likely that California courts will parse the holdings of the Court and the concurring opinion for a narrower holding.  Justice Thomas said that, even though he differs slightly in the reasoning, the result will generally be the same.  Marks isn't going to accomplish what plaintiffs would like it to accomplish.

Calling for legislative action is just silly.  Either something gets through Congress or it doesn't.  If it does, it may moot all of this, but the assumption must be that it won't.  With that in mind, non-legislative responses to Concepcion should occupy the plaintiffs' class action bar.

I've suggested on several occasions that I favor the argument that the FAA is unconstitutional when applied to state law claims in state courts.  I believe, and will believe even if a Court says otherwise, that the FAA is exclusively a procedural statute regulating how substative claims are to be resolved.  Unless the federal government would purport to pre-empt contract law of the states, a dubious effort in its own right, I believe the Commerce Clause goes too far when it treads upon the sovereignty of states deciding their own dispute resolution procedures.  Procedural rules are no place for some form of partial pre-emption.  But I also doubt that any Court would have the stomach to declare the FAA unconstitutional as applied to state law claims in state courts.

I have a project in the works that may affect how far Concepcion applies in, at least, the wage & hour context.  Once it is in the can and safe from intermeddlers, I'll report in detail on that project and what I view as better ways to keep Concepcion in its proper place.

Breaking News: Supreme Court invalidates Discover Bank in AT&T Mobility LLC v. Concepcion

Today, in AT&T Mobility LLC v. Concepcion (April 27, 2011), the Supreme Court held, 5-to-4, that California's Discover Bank rule is preempted by the Federal Arbitration Act.  What a thing to wake up to after sleeping extra to try and recover faster from being sick.  I'll write more about the deaths of class arbitration and state's rights later.  So much for federalism.  This is truly the era of the Central Planning Bureau.

Chinese Wang decision is big news

Wrong, but necessary somehow.  A little later than promised, but Wang v. Chinese Daily News, Inc. (9th Cir. Sept. 27, 2010) has too much going on not to receive some additional attention.  At the outset, Wang was a basic wage & hour case.  The plaintiffs alleged that employees were made to work in excess of eight hours per day and/or forty hours per week. They alleged that they were wrongfully denied overtime compensation, meal and rest breaks, accurate and itemized wage statements, and penalties for wages due but not promptly paid at termination.  The subsequent procedural twists and turns were anything but standard.  But despite the many moving parts in the decision, the Ninth Circuit summarized the case in a few sentences:

The district court certified the FLSA claim as a collective action. It certified the state-law claims as a class action under Rule 23(b)(2) and, alternatively, under Rule 23(b)(3). In the state-law class action, it provided for notice and opt out, but subsequently invalidated the opt outs. It granted partial summary judgment to plaintiffs; held jury and bench trials; entered judgment for plaintiffs; awarded attorney’s fees to plaintiffs; and conducted a new opt-out process. CDN appeals, challenging aspects of each of these rulings, as well as the jury’s verdict.

Slip op., at 16393.  After the trial court certified a narrowed class under Rule 23(b)(2) (finding that injunctive relief was on "equal footing" with monetary relief), the trial court approved a notice that authorized class members to opt into the FLSA action and out of the state law-based class action.  The notice precipitated the first major upheaval in the case:

Forms were mailed to 187 individuals, and notice was posted and forms made available at CDN’s Monterey Park facility. Plaintiffs received back about 155 opt-out forms, including 18 from individuals not on the original list of class members.  Plaintiffs filed a motion to invalidate the opt outs, for curative notice, and to restrict CDN’s communication with class members. On June 7, 2006, the court granted the motion, finding that “the opt out period was rife with instances of coercive conduct, including threats to employees’ jobs, termination of an employee supporting the litigation, the posting of signs urging individuals not to tear the company apart, and the abnormally high rate of opt outs.” Wang v. Chinese Daily News, Inc., 236 F.R.D. 485, 491 (C.D. Cal. 2006). The district court deferred any future opt-out procedure until after the trial on the merits.

Slip op., at 16395.  Facing cross-motions for summary judgment, the trial court then ruled that news reporters were not exempt professionals.  Next, the matter proceeded to a trial.  The defendant contended that only the FLSA claims should be tried and that UCL claims were pre-empted by the FLSA, but the trial court elected to retain supplemental jurisdiction, rejected the pre-emption argument and tried the state law claims as well.

The Court of Appeal first tacked the exemption analysis.  After examining decisions from other Circuits, the Court concluded that the reporters did not satisfy the creative professionals exemption.

Although the evidence submitted revealed disputes over how to characterize CDN’s journalists, we agree with the district court that, even when viewing the facts in the light most favorable to CDN, the reporters do not satisfy the criteria for the creative professional exemption.

Slip op., at 16400.  Next, the Court examined whether the trial court had applied the correct criteria for determining whether certification under Rule 23(b)(2) was appropriate.  The Court concluded that, although the matter was decided prior to Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010) (en banc), the trial court applied essentially identical standards and correctly decided the issue.

The Court then turned to the invalidation of opt-outs.  The Court first held that a trial court's authority to regulate class communications and the notice process implicitly confers that power to take corrective action when that process has been tainted.  The Court then considered whether the evidence submitted was sufficient to support the trial court's decision.  The Court noted in particular the evidence submitted by a class action notice company regarding normal opt-out rates:

Finally, plaintiffs submitted a declaration from the president of a class action notice company explaining that ordinarily opt-out rates do not exceed one percent. In this case, the district court found that current employees opted out at a 90 percent rate, whereas former employees opted out at a 25 percent rate.

Slip op., at 16407.  After concluding that the decision to invalidate the opt-outs was supported, the Court examined whether deferring a new opt-out period until after the trial was appropriate.  Again the Court noted the trial court's broad discretion to regulate the notice process: "The ordinary procedure is to give notice at the time of class certification. But the rule does not mandate notice at any particular time. See Fed. R. Civ. P. 23(c)(2)."  Slip op., at 16408.  The Court then affirmed the trial court's conclusion that it was necessary to delay a new notice and opt-out process in order to avoid the taint imposed during the initial process.

Finally, after observing that the evidence supported the jury verdict regarding meal periods under either the "provide" or "ensure" standards currently up for review by the California Supreme Court, the Court ended its Opinion by explicitly holding what most courts in the Ninth Circuit had already concluded: the FLSA does not preempt state law claims like the UCL.

Breaking News: Ninth Circuit issue two class action opinions addressing novel issues in the Ninth Circuit

After a bit of a lull on the class action front, the Ninth Circuit had a busy morning.  Two major opinions on class action issues were just issued by Ninth Circuit panels, and both opinions are sure to generate a good deal of discussion.  Both address areas of unsettled law among various federal courts.  The first is of interest to wage & hour practitioners and the second addresses the argument that large statutory damage awards defeat "superiority" of the class action procedure:

  • Wang v. Chinese Daily News, Inc. (9th Cir. Sept. 27, 2010) is something of a kitchen sink of class action issues.  Among other things, the Ninth Circuit affirmed (1) the concurrent prosecution of a FLSA opt-in collective action and a Rule 23 opt-out class action, (2) the invalidation of Rule 23 opt-outs due to coercion, (3) the decision to conduct a corrective opt-out process after the trial, and (4) certification under Rule 23(b)(2).  The Court also held that the UCL was not preempted by the FLSA.
  • Bateman v. American Multi-Cinema, Inc. (9th Cir. Sept. 27, 2010) concerned the singular issue of a class certification denial on superiority grounds.  The Ninth Circuit concluded that none of the three grounds relied upon by the district court — the disproportionality between the potential statutory liability and the actual harm suffered, the enormity of the potential damages, or AMC’s good faith compliance — justified the denial of class certification on superiority grounds.

Both opinions are substantial, and I will try to give both an extended treatment this evening.  Full disclosure: Greg Karasik of Spiro Moss represents Plaintiff Bateman.

California Supreme Court activity for the week of September 1, 2010

The California Supreme Court held its (usually) weekly conference today.  Notable results include:

  • A Petition for Review was granted in Parks v. MBNA (May 12, 2010) (whether state statute establishing a disclosure requirement for preprinted checks constitutes an impairment of the power of the issuing bank sufficient to trigger preemption under the National Bank Act)
  • A Request for Depublication was denied in Bomersheim v. Los Angeles Gay And Lesbian Center (May 26, 2010) (reversed denial  of class certification in a negligence class action)

Ninth Circuit: Court faced with question of first impression when asked to construe CCRAA

In a suit alleging violation of the California Consumer Credit Reporting Agencies Act (“CCRAA”), Cal. Civ. Code § 1785.1 et seq., the Ninth Circuit, in Carvalho v. Equifax Information Services LLC (9th Cir. Aug. 18, 2010), faced a question of statutory interpretation not yet answered by a California Court.  Explaining its task, the Court said:

The California courts have yet to consider whether a plaintiff must demonstrate that a disputed item is inaccurate to obtain relief for a violation of the CCRAA’s reinvestigation provisions. However, because the CCRAA “is substantially based on the Federal Fair Credit Reporting Act, judicial interpretation of the federal provisions is persuasive authority and entitled to substantial weight when interpreting the California provisions.” Olson v. Six Rivers Nat’l Bank, 3 Cal. Rptr. 3d 301, 309 (Ct. App. 2003) (internal citations omitted).

Slip op., 12117.  After examining how federal courts approached the same question under the FCRA, the Court concluded that "inaccuracy" would be a requirement of a claim arising under California's CCRAA:

“We generally adhere to the maxim of statutory construction that similar terms appearing in different sections of a statute should receive the same interpretation.” United States v. Nordbrock, 38 F.3d 440, 444 (9th Cir. 1994); see also Chiang v. Verizon New Eng. Inc., 595 F.3d 26, 37 (1st Cir. 2010) (deeming the term “inaccurate” in section 1681i(a) to be “essentially the same” as the term “incomplete or inaccurate” in section 1681s-2(b)). Moreover, we operate under the assumption that California courts would interpret the FCRA and CCRAA consistently. See Olson, 3 Cal. Rptr. 3d at 309. Accordingly, in considering whether Carvalho’s credit report was inaccurate within the meaning of the CCRAA, we are guided by Gorman’s “patently incorrect or materially misleading” standard.

Slip op., at 12119.

The Court also rejected a preemption argument, finding that the savings provision of the FCRA would not have saved a state law violation statute if the state law remedy were not also available.

Trial court, in Avalos v. La Salsa, Inc., offers early glimpse of how California courts may reconcile Stolt-Nielsen and Gentry

Earlier today, in Avalos v. La Salsa, Inc., JCCP 4488, the Santa Barbara Superior Court, Judge Denise deBellefeuille presiding, granted the defendants’ motion for reconsideration of a class certification order in to consider the impact of the recent United States Supreme Court decision in Stolt-Nielsen S. A. v. AnimalFeeds International Corp., 130 S.Ct. 1758 (2010) on the coordinated proceedings before the Court.  After an extensive analysis of Stolt-Nielsen, including its interaction with Gentry v. Superior Court, 42 Cal. 4th 443 (2007), the Court affirmed the certification order previously entered.  While the certification aspect is mildly interesting, the Court's extensive discussion of the interplay between arbitration clauses and class actions in California is the pot of gold in this unusually thorough trial court order.  While the attached opinion is a tentative ruling, the Court adopted its tentative without modification.

You can view the embedded opinion in the acrobat.com flash viewer below:

If the viewer isn't working for you (say, if you are viewing this on an iPad or iPhone), you can download the opinion here.