Recent California Supreme Court Activity

While I configured and wired a veritable recording studio, the world marched on, with the issuance of interesting appellate opinions here and elsewhere in U.S.  The California Supreme Court has been up to some interesting activity this year as well.  For instance, the recent debpulication of opinion from the Second Appeallate District, Division Eight, that seemed inconsistent with the manner in which Brinker instructed courts to evaluate class issues, at least in the wage & hour field.  And in the last few weeks the California Supreme Court's Conference events included the following item of note:

  • The Court granted review in Ayala v. Antelope Valley Newspapers, Inc. (pub ord. Oct. 17, 2012), previously published at 210 Cal. App. 4th 77.  In Ayala the Court of Appeal partially reversed a trial court order denying class certification.  The wage & hour case stems from the classification of workers as independent contractors.

The grant of review in Ayala raises the question of whether Bradley v. Networkers International LLC, 211 Cal. App. 4th 1129 (2012), as modified (Jan. 8, 2013), might turn on some issue that the Supreme Court intends to resolve in Ayala.

Brinker Analysis: California still protects employees

The California Supreme Court has been consistent in its recognition that California law protects employees as part of a fundamental policy of the state of California. For instance, in Sav-On, the California Supreme Court observed that “California’s overtime laws are remedial and are to be construed so as to promote employee protection.” More recently, in an easily overlooked opinion in the matter of Brinker Restaurant Corporation, et al. v. Superior Court (Hohnbaum) (April 12, 2012), the California Supreme Court began its opinion by observing, “For the better part of a century, California law has guaranteed to employees wage and hour protection, including meal and rest periods intended to ameliorate the consequences of long hours.” At this point, it should be clear that, at least to some degree, Brinker will be consistent with the Court’s employee-protective view of California law. Brinker is long and complex. The unanimous opinion is 54 pages long, and Justice Werdegar offered an additional concurring opinion about four pages long to offer further guidance on the certification issue remanded for further consideration.
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$15 million misclassification class judgment reversed in Duran v. U.S. Bank National Association

Exemption-based misclassification cases are hard to certify.  But when you certify an overtime exemption misclassification case, try it, and win a $15 million verdict, you'd think that the hard times are behind you.  Not so fast.  In Duran v. U.S. Bank National Association (February 6, 2012), the Court of Appeal (First Appellate District, Division One) reversed that verdict, decertified the class, and sent the whole thing back down to the trial court for further consideration of how to resolve the individual break claims in light of Brinker.

The plaintiffs in the case were 260 current and former business banking officers (BBO's) who claimed they were misclassified by USB as outside sales personnel exempt from California‘s overtime laws.  The procedural history was messy.  Exemption defenses were summarily adjudicated.  The defendant moved unsuccessfully to decertify.  The trial included motions about evidentiary exclusions.  It appears from the summary that a substantial amount of evidence the defendant sought to introduce was excluded from the trial.  Significantly, a small survey was conducted and then relied upon by a statistics expert to determine class-wide liability.

The Court issued a number of significant holdings, which all revolve around the propriety of proving liability in a misclassification class action with statistical evidence, as opposed to proving damages once liability is established.  For example, the Court held that use of statistical evidence to prove liability is inconsistent with cases examining such evidence at certification:

USB claims California law precludes class-wide liability determinations based on evidence obtained from a representative sample in employment cases alleging misclassification. USB relies on several state and federal wage and hour class action cases for the proposition that surveying, sampling, and statistics are not valid methods of determining liability because representative findings can never be reasonably extrapolated to absent class members in misclassification claims given that time spent performing exempt tasks may differ between employees. While all the cases cited by USB involve rulings on motions to certify or decertify class actions, they support the conclusion that improper procedures were followed in this case.

Slip op., at 47-48.  The Court also held that statistical sampling for proof of liability is inconsistent with its Bell III decision:

The procedures we approved in Bell III are only superficially similar to the procedures utilized in the present case.  Again, in Bell III we did not have occasion to consider the use of a representative sample to determine class-wide liability, since liability was not an issue on appeal. Accordingly, the only issue we addressed was the damages calculation itself, and not whether the plaintiff employees had a right to recover damages in the first place. And our assessment was based on a record evidencing cooperation and agreement among the parties and their counsel.

Slip op., at 45.  With respect to Bell III, the Court explained that the present case suffered a number of flaws (sample too small, no test studies to set sample size, lack of randomness, and no cooperation between the parties) not found in Bell III.  The Court then said:

Fifth, the restitution award here was affected by a 43.3 percent margin of error, more than 10 percentage points above the margin of error for the double-overtime award we invalidated in Bell III. In absolute terms, the average weekly overtime hour figure could conceivably be as low as 6.72 hours per week, as opposed to the 11.86 hour figure arrived at here. While we again will not set a bright line for when a margin of error becomes so excessive as to be deemed unconstitutional, we are troubled by this result.

Slip op., at 46.

Next, the Court concluded that the exclusion of 78 sworn statements that, if admitted, would have reduced the class size by about one-third, was a prejudicial error that violated the defendant's due process right to present relevant evidence in its defense: "The evidence USB sought to introduce, if deemed persuasive, would have established that at least one-third of the class was properly classified. Thus, this evidence USB sought to introduce is unquestionably relevant and therefore admissible."  Slip op., at 55.

The Court then explained that the fatal flaw in the trial management plan was the exclusion of virtually all means by which the defendant could have defended against class-wide liability:

Fundamentally, the issue here is not just that USB was prevented from defending each individual claim but also that USB was unfairly restricted in presenting its defense to class-wide liability. With that in mind, the cases relied on by plaintiffs are inapposite. Both Long v. Trans World Airlines, Inc. (N.D.Ill. 1991) 761 F.Supp. 1320 [protective order limited discovery of information from plaintiff flight attendants to a representative sample of class members], and In re Antibiotic Antitrust Actions (S.D.N.Y. 1971) 333 F.Supp. 278 [states sought recovery for alleged overcharges in the sale of certain antibiotics], concerned the damages phase of a trial, not the liability phase.

Slip op., at 58.  So, when a defendant asserts that this case stands for the proposition that it gets to defend agasint each individual class member's claim, be sure to remind the defendant and Court that the holding actually criticized the absence of any means to mount a defense, rather than specifying the specific forms that a reasonable opportunity to defend must take:

In sum, the court erred when, in the interest of expediency, it constructed a set of ground rules that unfairly prevented USB from defending itself. These ground rules were the product of the trial court. We do not suggest that the implementation of any particular additional procedural tool would have satisfied due process. We simply hold that the court, having agreed to try this matter as a class action, denied USB the opportunity to defend itself by flatly foreclosing the admission of potentially relevant evidence.

Slip op., at 60.

The Court spent some additional time commenting on the margin of error near 44 percent, which it found to be unacceptably large to form the basis of any reasonable result.  The Court concluded its opus by finding that, under the second motion to decertify, the trial court erred by failing to decertify the class.

I think I can sum all this up by observing that (1) misclassification cases in the exemption context are difficult cases and getting tougher all the time, and (2) defendants will incorrectly claim that this decision stands for a mythical due process right that the defendant gets to challenge each class member's claim.  Can't help with one, and can't stop two, but as to two, you can point out that there are many ways to provide a defendant with a reasonable opportunity to defend against class liability.

In the "Pitts" of despair, a "Terrible" attempt to pick off a class representative fails

I remember when what was probably the first Terrible Herbst gas station opened a mere block from my home in Las Vegas.  Refilled a lot of bike tires there.  But enough about my childhood.  Terrible Herbst isn't the friendly local gas station of my youth.  Now it's just another corporate slave to the whisperings of defense counsel skilled in the dark arts.  In Pitts v. Terrible Herbst, Inc. (August 9, 2011), the Ninth Circuit considered whether a rejected offer of judgment for the full amount of a putative class representative's individual claim moots a class action complaint where the offer precedes the filing of a motion for class certification.  The Ninth Circuit concluded that it did not.

Pitts filed a hybrid FLSA and Nevada labor law class action.  The defendant removed it to federal court.  With a discovery motion pending, Terrible made a Rule 68 offer of judgment in the amount of $900.  Pitts claimed $88.00 in damages but rejected the offer.  Terrible then sought to have the matter dismissed.  The Ninth Circuit rejected this attempt to impede consideration of the class certification question:

An inherently transitory claim will certainly repeat as to the class, either because “[t]he individual could nonetheless suffer repeated [harm]” or because “it is certain that other persons similarly situated” will have the same complaint. Gerstein, 420 U.S. at 110 n.11. In such cases, the named plaintiff’s claim is “capable of repetition, yet evading review,” id., and “the ‘relation back’ doctrine is properly invoked to preserve the merits of the case for judicial resolution,” McLaughlin, 500 U.S. at 52; see also Geraghty, 445 U.S. at 398; Sosna, 419 U.S. at 402 n.11.

Slip op., at 10453.  The Court then discussed the argument that the claims in this matter were not "inherrently" transitory:

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.”

Slip op., at 10454.  Interestingly, the Court essentially found that the right to certify a class was an additional right not satisfied by the Rule 68 offer, and that right could not be extinguished unless certification were denied and all appellate efforts were exhausted.

Next, the Court ruled that it was error to find that Pitts failed to timely file a motion for class certification when the trial court refused to rule on a pending discovery motion to obtain evidence necessary for certification.

Other issues raised in the appeal were not addressed by the Court once it concluded that the trial court erred in its ruling regarding the timing of certification.

Central District certifies false advertising class of consumers that purchased YoPlus yogurt

United States District Court Judge Cormac J. Carney (Central District of California) certified a class of California consumers that purchased YoPlus yogurt.   Johnson v. General Mills, Inc., --- F.R.D. ----, 2011 WL 1514702 (C.D.Cal. Apr 20, 2011).  The Court followed Tobacco II when analyzing whether reliance affected commonality:

Mr. Johnson may bring these UCL and CLRA claims on behalf of a class. Although Proposition 64 requires that Mr. Johnson actually relied on General Mills' alleged misrepresentations to bring his UCL claim, that requirement does not apply to absent class members. See In re Tobacco II Cases, 46 Cal.4th 298, 321, 326 (2009) (finding that Proposition 64 “was not intended to have any effect at all on unnamed members of UCL class actions”). Indeed, “relief under the UCL is available without individualized proof of deception, reliance and injury.” Id. at 320; see also In re Steroid Hormone Prod. Cases, 181 Cal.App. 4th 145, 154 (2010) (explaining that once the named plaintiff meets standing requirements “no further individualized proof of injury or causation is required to impose restitution liability [under the UCL] against the defendant in favor of absent class members”).

As the Supreme Court of California has explained in the UCL context, " ‘a presumption, or at least an inference, of reliance arises whenever there is a showing that a misrepresentation was material.’ " In re Tobacco II Cases, 46 Cal.4th at 327 (quoting Engalla v. Permanente Med. Grp., Inc., 15 Cal.4th 951, 977 (1997)). Similarly, a CLRA claim can be litigated on a classwide basis when the “record permits an ‘inference of common reliance’ to the class.” McAdams v. Monier, Inc., 182 Cal.App. 4th 174, 183 (2010) (quoting Mass. Mut. Life Ins. Co. v. Superior Court, 97 Cal.App. 4th 1282, 1293 (2002)). A representation is material “if a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question.” In re Tobacco II Cases, 46 Cal.4th at 327 (internal quotation marks omitted); see also Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1025 (9th Cir.2008) (explaining that a concealed fact is “material” under the UCL if reasonable consumers are likely to be deceived). This “objective standard ... is susceptible to common proof.” Wolph v. Acer Am. Corp., ––– F.R.D. ––––, No. C 09–01314 JSW, 2011 WL 1110754, at *9 (N.D.Cal. Mar. 25, 2011). And materiality is generally a question of fact for the jury. In re Tobacco II Cases, 46 Cal.4th at 327.

Accordingly, Mr. Johnson's UCL and CLRA claims present core issues of law and fact that are common and suitable for adjudication on a classwide basis. These issues include: (1) whether General Mills communicated a representation—through YoPlus packaging and other marketing, including television and print advertisements—that YoPlus promoted digestive health; (2) if so, whether that representation was material to individuals purchasing YoPlus; (3) if the representation was material, whether it was truthful; in other words, whether YoPlus does confer a digestive health benefit that ordinary yogurt does not; and (4) if reasonable California consumers who purchased YoPlus were deceived by a material misrepresentation as to YoPlus' digestive health benefit, what is the proper method for calculating their damages. The commonality requirement is also met here.

Slip op., at 2-3.  Seems like products claiming digestive health benefits inevitably cause indigestion for the companies making those claims.

Northern District Court certifies under 23(b)(2) a class of shift workers alleging meal period violations at a Shell refinery

United States District Court Judge Claudia Wilken (Northern District of California) granted a motion for class certification in a suit alleging failure to comply with California's meal period requirements and pay an additional hour of pay for each instance of a violation.  Gardner v. Shell Oil Co., 2011 WL 1522377 (N.D.Cal. Apr 21, 2011).  The particularly interesting aspect of this case is the Court's decision to permit certification under Fed. R. Civ. P. 23(b)(2):

"Claims for money relief may be certified as part of a Rule 23(b)(2) class, but the rule ‘does not extend to cases in which the appropriate final relief relates exclusively or predominantly to money damages.’ "  Wang v. Chinese Daily News, Inc., 623 F.3d 743, 753 (9th Cir.2010) (internal quotation marks omitted) (citing Dukes, 603 F.3d at 615 n. 38).

Citing Allison v. Citgo Petroleum Corp., 151 F.3d 402, 412–16 (5th Cir.1998), Defendants contend that monetary relief in this case predominates because Plaintiffs seek damages for alleged unpaid wages and waiting-time penalties. However, the Ninth Circuit has expressly rejected the Allison approach to determining whether monetary relief in a given case disqualifies the class from certification under Rule 23(b)(2). In Wang, the Ninth Circuit explained, “In Dukes, we rejected as ‘deficient’ ... the Allison ‘incidental damages standard’ that permits certification of claims for monetary relief under Rule 23(b)(2) only when they are ‘incidental to requested injunctive or declaratory relief,’ because it is unduly restrictive.” 623 F.3d at 753–54. In this circuit, Rule 23(b)(2) is interpreted to require “only that claims for monetary relief not predominate over claims for injunctive relief” and certification is acceptable when the claims are on “equal footing.” Id. at 754.

Plaintiffs in the present case, like those in Wang, have a substantial claim for injunctive relief because they seek to end long-standing employment policies. Id. The claims for injunctive and monetary relief are closely related because back wages are sought for those who were deprived of lawful meal periods due to the policies Plaintiffs seek to enjoin. As a result of this close relationship, the request for monetary relief does not introduce “new and significant legal and factual issues,” nor raise particular due process or case management concerns. Id. Furthermore, courts have held that back wages are a form of relief that may be permitted in a Rule 23(b)(2) action. Dukes, 603 F.3d at 618–19 (holding that back pay in a Title VII case is fully consistent with certification of a Rule 23(b)(2) class action and noting that “every circuit to have addressed the issue has acknowledged that Rule 23(b)(2) does allow for some claims for monetary relief.”). In Dukes, the Ninth Circuit reasoned that back pay in the Title VII context generally involves relatively uncomplicated factual determinations and few individualized issues, and is an integral component of Title VII's “make whole” remedial scheme. Id. at 619. Nor are waiting-time penalties so significant or complex that they render Plaintiffs' monetary claim predominant over their request for injunctive relief. Accordingly, class certification under Rule 23(b)(2) is warranted.

Slip op., at 6.  The balance of the opinion discusses predominance, and the Court concluded that common issues predominate and certified a Rule 23(b)(3) class as well.

The slip opinion on Westlaw does not identify the counsel involved in this uncommon attempt at 23(b)(2) certification in the wage & hour context, and I don't have time to track that down.  Thus, I don't know who to applaud.  If you do, given them a pat on the back.

In Mora, et al., v. Big Lots Stores, Court affirms denial of certification in manager misclassification case

I've comment previously that misclassification cases (especially in the retail and restaurant sectors) appear to be an increasingly difficult sell.  See post regarding Arenas v. El Torito Restaurants, Inc., 183 Cal. App. 4th 723 (2010).  Since then, I haven't seen anything to change my opinion that the tide has shifted from the Sav-on high water mark.  Yesterday, in Mora, et al. v. Big Lots Stores (April 18, 2011), the Court of Appeal (Second Appellate District, Division Seven) affirmed a trial court order denying certification of a class of Big Lots store managers alleged to have been misclassified as exempt from overtime pay and other labor code obligations.

The Court summarized the two ends of the legal spectrum defining the legal criteria applied to certification:

As the Supreme Court held in Sav-On, supra, 34 Cal.4th at page 326, the central issue in a class certification motion is whether the questions that will arise in the action are common or individual, not the plaintiffs' likelihood of success on the merits of their claims. (Accord, Ghazaryan v. Diva Limousine, Ltd. (2008) 169 Cal.App.4th 1524, 1531 ["trial court must evaluate whether the theory of recovery advanced by the plaintiff is likely to prove amenable to class treatment"].) The putative class representatives contend the trial court disregarded this standard, improperly focusing on the potential conflicting issues of fact that may arise on an individual basis rather than the common questions presented by their theory of recovery. To the contrary, the court employed the correct analysis and concluded the theory of recovery advanced—operational standardization imposed by Big Lots—was not supported by substantial evidence and thus not amenable to class treatment. No legal error was committed: "[A] class action will not be permitted if each member is required to 'litigate substantial and numerous factually unique questions' before a recovery may be allowed. . . . '[I]f a class action "will splinter into individual trials," common questions do not predominate and litigation of the action in the class format is inappropriate.'" (Arenas v. El Torito Restaurants, Inc. (2010) 183 Cal.App.4th 723, 732 [affirming order denying certification on misclassification allegations where trial court found tasks performed by restaurant managers and time devoted to each task varied widely from restaurant to restaurant].)

Slip op., at 12.  The Court noted that the outcome was much like Arenas and Dunbar v. Albertson’s, Inc., 141 Cal. App. 4th 1422 (2006).

The outcome was driven by the standard of review.  The Court emphasized on several occasions that it couldn't second guess the trial court's decision to credit Big Lots' evidence over the plaintiffs' evidence:

In essentially rejecting the putative class representatives' evidentiary submission, the court observed that for more than half of the declarants the percentage of time estimated to have been spent on non-managerial, non-exempt duties was different from the estimates given in deposition testimony or statements to third party prospective employers.

Slip op., at 14, n. 10.  The trial court also credited the very individualized manager declarations submitted by Big Lots over the declarations from the plaintiffs.  The Court of Appeal found that that trial court did not abuse its discretion because substantial evidence supported the trial court's conclusion.  This is the anti-Sav-on.

District Court grants motion to deny class certification where plaintiff not a victim of the alleged FDCPA violation

United States District Court Judge M. James Lorenz (Southern District of California) granted a defense motion to deny class certification.  Mansfield v. Midland Funding, LLC, 2011 WL 1212939 (S.D. Cal. Mar. 30, 2011).  Plaintiff, on behalf of a putative class, alleged that defendants were routinely filing and assisting in the litigation of lawsuits to collect time-barred consumer credit card debt incurred primarily for personal, family or household purposes, in violation of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq.  If true, that is very shady conduct.  But wait!  We have a problem:

Midland's claim against Mansfield was timely as determined by the Arizona state court. That judgment as not been challenged. Because Midland's claim against Mansfield was found to be timely, the action was not filed on a time-barred debt and plaintiff has not suffered an injury in fact or an injury based on defendants' filing of their action against him in the Arizona court. Without a claim, Mansfield may not represent others who could have such a claim.

Slip op., at 3.  The Court looked no further at certification requisites, given that the threshold issue of standing could not be satisfied.

In Safaie v. Jacuzzi Whirlpool Bath, Inc., Court holds that decertification order, affirmed on appeal, bars subsequent motion to certify

Stephen v. Enterprise Rent-a-Car, 235 Cal. App. 3d 806 (1991) held that a party has no right to bring a second motion to certify a class after the court has denied the first motion and the time for appeal has passed.  Stephen arose when a plaintiff failed to timely appeal an order denying certification.  But Stephen did not consider all of the unusual permutations that could occur.  In Safaie v. Jacuzzi Whirlpool Bath, Inc. (February 22, 2011), the Court of Appeal (Fourth Appellate District, Division One) examined whether, after an unsuccessful appeal of an order decertifying a class, the plaintiff could move for recertification on the basis of new law (Tobacco II).  The Court concluded that, because the plaintiff did not petition for review while Tobacco II was pending, the order affirming decertication was final and no further attempts at certification were permissible absent equitable considerations necessary to prevent unfairness.

The Court offered interesting comments about the course that it expects class actions to follow:

We agree with Stephen's holding and find its rationale persuasive. To ensure fairness to the class action plaintiff, trial courts are required to liberally grant continuances and ensure a plaintiff has the opportunity to make a complete record before the court rules on class certification. (See Stephen, supra, 235 Cal.App.3d at pp. 814- 815.) Once the record is complete, if the trial court issues a final order denying a class certification motion in its entirety, the plaintiff has the right to seek immediate appellate review and to obtain a written ruling from a Court of Appeal on the disputed issues, and then, if dissatisfied, to petition for review in the California Supreme Court. Thus, unlike the situation with most interlocutory orders, the plaintiff is provided the right to an immediate appeal even though the case is still pending. However, this special status has a necessary ramification: once the appellate period has passed or once the appellate court has affirmed the order and a remittitur has issued, the order is final and plaintiff is bound by the final decertification decision.

Slip op., at 12.  The Court later discussed the possibility of equitable exceptions to the rule in Stephen:

In reaching this conclusion, we recognize trial courts have broad discretion to determine the propriety of class actions, including to be procedurally innovative in certifying an appropriate class and in formulating procedures to ensure fairness and avoid manifest injustice in class action litigation. (See Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 339.) Moreover, a court has the discretion to move sua sponte to certify a class. (See City of San Jose v. Superior Court (1974) 12 Cal.3d 447, 453-454.) However, to the extent there may be equitable exceptions to the rule precluding successive class certification motions after a final order denying certification, the circumstances here do not come within this exception.

Slip op., at 17.

From all of this I take away two possible lessons.  First, you must file a petition for review with the California Supreme Court if there is any chance that a change in law could help your certification arguments.  Second, the farther away you get from the wellspring of all consumer and employee protection, the more likely it is that your class action will receive the firing squad, not a certification order.  This theory would explain why Los Angeles is dicey, Orange County is perilous, and San Diego is the kiss of death.  But it's just a theory.

District Court denies certification in consumer case involving appliance repair insurance

United States Magistrate Judge Jan M. Adler (Southern District of California) denied a motion for class certification in a suit alleging improper practices and representations about a home warranty insurance product.  Campion v. Old Republic Home Protection Co., Inc., 2011 WL 42759 (S.D.Cal. Jan. 06, 2011).  The Court found that individual issues would predominate because each denial of warranty coverage would reuqire an inquiry into the basis for the denial.  The Court also relied heavily on the construction of Tobacco II that was advanced in Cohen v. DirectTV, 178 Cal. App. 4th 966 (2009) when it refused to presume reliance on the part of absent class members.