Analysis of Iskanian v. CLS Transportation Los Angeles LLC

Next up on the update list is Iskanian v. CLS Transportation Los Angeles LLC (June 23, 2014). In Iskanian, a limousine driver filed a class action lawsuit on behalf of himself and similarly situated employees for his employer’s alleged failure to compensate its employees for, among other things, overtime and meal and rest periods.  Plaintiff also asserted a PAGA claim. The employee had entered into an arbitration agreement that waived the right to class proceedings. The defendant moved to compel arbitration. After the court granted the motion, Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) was decided and the Court of Appeal issued a writ of mandate directing reconsideration in light of Gentry. On remand, the defendant withdrew the motion and the plaintiff moved for certification. A class was certified.

After the United States Supreme Court issued AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740] (Concepcion) and invalidated Discover Bank v. Superior Court (2005) 36 Cal.4th 148 (Discover Bank), CLS renewed its motion to compel arbitration. The trial court granted the renewed motion.

On appeal, the Court of Appeal agreed that Concepcion invalidated Gentry.  The court also declined to follow a National Labor Relations Board ruling that class action waivers in adhesive employment contracts violate the National Labor Relations Act.  With respect to the PAGA claim, the Court of Appeal construed the plaintiff’s position to be that PAGA does not allow representative claims to be arbitrated, holding that the FAA precludes states from withdrawing claims from arbitration and that PAGA claims must be argued individually, not in a representative action, according to the terms of the arbitration agreement.

The Supreme Court granted review, examining (1) whether a state’s refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA, and (2) whether the FAA precludes the California Legislature from deputizing private litigants to pursue claims on behalf of the State.

While the plaintiff argued that Gentry survives Concepcion because it does not state a categorical rule such as that articulated in Discover Bank, the Court disagreed:

[T]he fact that Gentry’s rule against class waiver is stated more narrowly than Discover Bank’s rule does not save it from FAA preemption under Concepcion.  The high court in Concepcion made clear that even if a state law rule against consumer class waivers were limited to “class proceedings [that] are necessary to prosecute small-dollar claims that might otherwise slip through the legal system,” it would still be preempted because states cannot require a procedure that interferes with fundamental attributes of arbitration “even if it is desirable for unrelated reasons.”  (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1753]; see American Express Co. v. Italian Colors Restaurant (2013) 570 U.S. __, __ & fn. 5 [133 S.Ct. 2304, 2312 & fn. 5] (Italian Colors).)  It is thus incorrect to say that the infirmity of Discover Bank was that it did not require a case-specific showing that the class waiver was exculpatory.  Concepcion holds that even if a class waiver is exculpatory in a particular case, it is nonetheless preempted by the FAA.  Under the logic of Concepcion, the FAA preempts Gentry’s rule against employment class waivers.

Slip op., at 7-8. Next, the Court concluded that the reasoning in Sonic II was insufficient to save Gentry:

Sonic II went on to explain that “[t]he fact that the FAA preempts Sonic I’s rule requiring arbitration of wage disputes to be preceded by a Berman hearing does not mean that a court applying unconscionability analysis may not consider the value of benefits provided by the Berman statutes, which go well beyond the hearing itself.”  (Sonic II, supra, 57 Cal.4th at p. 1149, italics added.)  The Berman statutes, we observed, provide for fee shifting, mandatory undertaking, and several other protections to assist wage claimants should the wage dispute proceed to litigation.  (Id. at p. 1146.)  “Many of the Berman protections are situated no differently than state laws concerning attorney fee shifting, assistance of counsel, or other rights designed to benefit one or both parties in civil litigation.”  (Id. at p. 1150; see, e.g., Lab. Code, § 1194, subd. (a) [one-way fee shifting for plaintiffs asserting minimum wage and overtime claims].)  The value of these protections does not derive from the fact that they exist in the context of a pre-arbitration administrative hearing.  Instead, as Sonic II made clear, the value of these protections may be realized in “potentially many ways” through arbitration designed in a manner “consistent with its fundamental attributes.”  (Sonic II, at p. 1149; see ibid. [“Our rule contemplates that arbitration, no less than an administrative hearing, can be designed to achieved speedy, informal, and affordable resolution of wage claims . . . .”].)

Slip op., at 9-10.  Since Sonic II did not prohibit the use of an arbitration procedure that satisfied the Berman statutes, the Court concluded that Sonic II survived Concepcion, unlike Gentry, which directly compared class actions that interfered with arbitration to the arbitration procedure.

Next, the Court considered the holdings of D.R. Horton Inc. & Cuda (2012) 357 NLRB No. 184 [2012 WL 36274] (Horton I) and the subsequent decision by the Fifth Circuit (Horton II). The Court concluded that the NLRA did not overrule the FAA, consistent with other courts considering the issue:

We thus conclude, in light of the FAA’s “ ‘liberal federal policy favoring arbitration’ ” (Concepcion, supra, 563 U.S. at p.__ [131 S.Ct. at p. 1745]), that sections 7 and 8 the NLRA do not represent “a contrary congressional command” ’ overriding the FAA’s mandate.  (CompuCredit v. Greenwood, supra, 565 U.S. at p. __ [132 S.Ct. at p. 669.)  This conclusion is consistent with the judgment of all the federal circuit courts and most of the federal district courts that have considered the issue.  (See Sutherland v. Ernst & Young, LLP (2d Cir. 2013) 726 F.3d 290, 297 fn. 8; Owen v. Bristol Care, Inc. (8th Cir. 2013) 702 F.3d 1050, 1053–1055; Delock v. Securitas Sec. Servs. USA, Inc. (E.D.Ark. 2012) 883 F.Supp.2d 784, 789–790; Morvant v. P.F. Chang’s China Bistro, Inc. (N.D.Cal. 2012) 870 F.Supp.2d 831, 844–845; Jasso v. Money Mart Express, Inc. (N.D.Cal. 2012) 879 F.Supp.2d 1038, 1048–1049; but see Herrington v. Waterstone Mortg. Corp. (W.D.Wis. Mar. 16, 2012) No. 11-cv-779-bbc [2012 WL 1242318, at p. *5] [defendant advances no persuasive argument that the Board interpreted the NLRA incorrectly].)

Slip op., at 21. At this juncture, and given the composition of the U.S. Supreme Court, it is exceedingly unlikely that the conclusion of Horton I will be accepted.

After analyzing and rejecting the plaintiff’s waiver argument, the Court turned to the PAGA claim. After the Court explained the history of the statute, the first question examined was whether an employee’s right to bring a PAGA action is waivable. Concluding that PAGA rights could not be waived, the Court said:

The unwaivability of certain statutory rights “derives from two statutes that are themselves derived from public policy.  First, Civil Code section 1668 states:  ‘All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.’  ‘Agreements whose object, directly or indirectly, is to exempt [their] parties from violation of the law are against public policy and may not be enforced.’  (In re Marriage of Fell (1997) 55 Cal.App.4th 1058, 1065.)  Second, Civil Code section 3513 states, ‘Anyone may waive the advantage of a law intended solely for his benefit.  But a law established for a public reason cannot be contravened by a private agreement.’ ”  (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 100 (Armendariz).)

Slip op., at 34.  The Court then said, “Notwithstanding the analysis above, a state law rule, however laudable, may not be enforced if it is preempted by the FAA.” Examining that second question, the Court held that the PAGA right is not a “private” right, existing only as a grant of a public right:

We conclude that the rule against PAGA waivers does not frustrate the FAA’s objectives because, as explained below, the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the state Labor and Workforce Development Agency.

Slip op., at 36-37. This distinction, which was uncertain until this decision, was the source of inconsistent outcomes when other courts examined the issue of whether PAGA claims were subject to arbitration agreements.

Justice Chin authored a concurrence, though he restated his disagreement with the contention that Sonic II survived Concepcion.

Justice Werdegar concurred with the majority opinion regarding PAGA, but dissented as to the enforceability of any clause depriving employees of the right to engage in concerted action: “Eight decades ago, Congress made clear that employees have a right to engage in collective action and that contractual clauses purporting to strip them of those rights as a condition of employment are illegal.  What was true then is true today.” Werdegar diss. & conc., at 1.  Justice Werdegar strongly defended the right to engage in concerted activity, despite the FAA:

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, italics added).  Here, we deal with a provision—the waiver of the statutorily protected right to engage in collective action—that would be unenforceable in any contract, whether as part of an arbitration clause or otherwise.  The FAA codifies a nondiscrimination principle; “[a]s the ‘saving clause’ in § 2 indicates, the purpose of Congress in 1925 was to make arbitration agreements as enforceable as other contracts, but not more so.”

Werdegar diss. & conc., at 9. Justice Werdegar’s dissenting opinion as to the interaction of the NLRA, the Norris-Laguardia Act and the FAA is an exceptional defense of the position advocated by the plaintiff and in Horton I. If nothing else, it is worth a thorough reading by practitioner in the wage and hour field.

BREAKING NEWS: Iskanian v. CLS Transportation Los Angeles, LLC eulogizes Gentry and buttresses PAGA

The California Supreme Court has just issued its opinion in Iskanian v. CLS Transportation Los Angeles, LLC (June 23, 2014). In a nutshell, here's the scorecard:

• The question is whether a state's refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA. We conclude that it is and that our holding to the contrary in Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) has been abrogated by recent United States Supreme Court precedent. 

• [W]e conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy. In addition, we conclude that the FAA's goal of promoting arbitration as a means of private dispute resolution does not preclude our Legislature from deputizing employees to prosecute Labor Code violations on the state‘s behalf. Therefore, the FAA does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.

Slip op., at 1-2. Tough day to be opposed to the FAA's all-consuming rights grab. But the PAGA ruling is a small salve.

BREAKING NEWS: Opinion in Duran v. U.S. Bank National Association now available

Finally, the news drought comes to an end, and class action practitioners have been waiting for this one for some time.  Today, the California Supreme Court issued its opinion in Duran v. U.S. Bank National Association (May 29, 2014). A more extensive analysis will have to wait, but the introduction includes some very telling statements, namely that the Supreme Court is not holding that statistics cannot be used for both liability and damages in class actions:

We encounter here an exceedingly rare beast: a wage and hour class action that proceeded through trial to verdict. Loan officers for U.S. Bank National Association (USB) sued for unpaid overtime, claiming they had been misclassified as exempt employees under the outside salesperson exemption. (Lab. Code, § 1171.) This exemption applies to employees who spend more than 50 percent of the workday engaged in sales activities outside the office. (Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785 (Ramirez).)

After certifying a class of 260 plaintiffs, the trial court devised a plan to determine the extent of USB‘s liability to all class members by extrapolating from a random sample. In the first phase of trial, the court heard testimony about the work habits of 21 plaintiffs. USB was not permitted to introduce evidence about the work habits of any plaintiff outside this sample. Nevertheless, based on testimony from the small sample group, the trial court found that the entire class had been misclassified. After the second phase of trial, which focused on testimony from statisticians, the court extrapolated the average amount of overtime reported by the sample group to the class as a whole, resulting in a verdict of approximately $15 million and an average recovery of over $57,000 per person.

As even the plaintiffs recognize, this result cannot stand. The judgment must be reversed because the trial court‘s flawed implementation of sampling prevented USB from showing that some class members were exempt and entitled to no recovery. A trial plan that relies on statistical sampling must be developed with expert input and must afford the defendant an opportunity to impeach the model or otherwise show its liability is reduced. Statistical sampling may provide an appropriate means of proving liability and damages in some wage and hour class actions. However, as outlined below, the trial court‘s particular approach to sampling here was profoundly flawed.

Slip op., at 1-2.  Didn't expect that outcome, did you?

Decertification reversal in suitable seating case

Rage, rage against the dying of the light. Chastise the universe for failing you, and sometimes it responds. Just earlier today I decried the absence of any decisions having anything to do with the subjects usually covered here. But soft! what light through yonder window breaks? It is an opinion, and suitable seating is the sun. In Hall v. Rite Aid Corporation (May 16, 2014), the Court of Appeal (Fourth Appellate District, Division One) reversed a trial court order decertifying a suitable seating claim.

The plaintiff successfully certified a class action alleging failure to provide suitable seating. Later, defendant Rite Aid moved for decertification, citing to other decisions and to evidence it offered. The trial court granted the motion to decertify and denied the cross-motion to permit the matter to proceed as a non-class representative action. (Oh my gosh, this is already exciting!) Based on the analytic framework of Brinker ("O, speak again, bright angel! for thou art As glorious to this night, being o'er my head As is a winged messenger of heaven Unto the white-upturned wondering eyes Of mortals that fall back to gaze on him When he bestrides the lazy-pacing clouds And sails upon the bosom of the air."), the Court of appeal concluded that the trial court erroneously considered the merits of the action, rather than whether the action was amenable to class treatment.

The decertification train got rolling after Rite Aid cited the recently decided matter of Duran v. U.S. Bank Nat. Assn., 203 Cal. App. 4th 212 (2012) (review granted).  Rite Aid then pounced, asking the trial court to sua sponte decertify.  The trial court declined, but briefing was requested. Rite Aid then submitted federal court decisions and declarations from cashiers that had opted out of the action, along with other evidence. In spite of numerous bases for opposition, the trial court granted the motion to decertify and denied the motion to permit the case to proceed as a representative action.

The Court began its review by thoroughly analyzing Brinker and its progeny. Describing several of those subsequent decisions, the Court said:

Subsequent cases have concluded, considering Brinker, that when a court is considering the issue of class certification and is assessing whether common issues predominate over individual issues, the court must "focus on the policy itself" and address whether the plaintiff's theory as to the illegality of the policy can be resolved on a class-wide basis. (Faulkinbury v. Boyd & Associates, Inc. (2013) 216 Cal.App.4th 220, 232 (Faulkinbury); accord, Bradley, supra, 211 Cal.App.4th at pp. 1141-1142 ["[o]n the issue whether common issues predominate in the litigation, a court must 'examine the plaintiff's theory of recovery' and 'assess the nature of the legal and factual disputes likely to be presented' "]; Benton v. Telecom Network Specialists, Inc. (2013) 220 Cal.App.4th 701, 726 (Benton) ["under Brinker . . . for purposes of certification, the proper inquiry is 'whether the theory of recovery advanced by the plaintiff is likely to prove amenable to class treatment' "].) Those courts have also agreed that, where the theory of liability asserts the employer's uniform policy violates California's labor laws, factual distinctions among whether or how employees were or were not adversely impacted by the allegedly illegal policy does not preclude certification. (See, e.g., Bradley, supra, at pp. 1150-1153 [where theory of liability was employer's uniform policy violated labor laws by not authorizing employees to take meal and rest breaks, class certification is proper and fact some employees in fact took meal and rest breaks is a damage question that " 'will rarely if ever stand as a bar to certification' "].)

Slip op., at 13. Once the Court turned to plaintiff's theory, it wasted no time in applying the mandates of Brinker (and I sense no trace of bitterness):

Our review of Brinker, which is binding on this court (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450), compels the conclusion the trial court erroneously based its decertification order on its assessment of the merits of Hall's claim rather than on the theory of liability advanced by Hall. We are instructed under Brinker that the starting point for purposes of class certification commences with Hall's theory of liability because, "for purposes of certification, the proper inquiry is 'whether the theory of recovery advanced by the plaintiff is likely to prove amenable to class treatment.' " (Benton, supra, 220 Cal.App.4th at p. 726.) Here, as in Brinker and its progeny, Hall alleged (and Rite Aid did not dispute) that Rite Aid had a uniform policy of the type envisioned by Brinker: Rite Aid did not allow its Cashier/Clerks to sit (and therefore provided no suitable seats for its Cashier/Clerks) while they performed check-out functions at the register. Hall's theory of liability is that this uniform policy was unlawful because section 14 mandates the provision of suitable seats when the nature of the work reasonably permits the use of seats, and the nature of the work involved in performing check-out functions does reasonably permit the use of seats. Hall's proffered theory of liability is that, regardless of the amount of time any particular Cashier/Clerk might spend on duties other than check-out work, Rite Aid's uniform policy transgresses section 14 because suitable seats are not provided for that aspect of the employee's work that can be reasonably performed while seated.

Slip op., at 18-19. The Court then dismissed Rite Aid's arguments on appeal:

Rite Aid's arguments on appeal largely ignore the analysis of Bradley, Benton and Faulkinbury. Instead, Rite Aid asserts the trial court properly reached the merits of (and correctly rejected) Hall's theory of liability when it ruled on the decertification motion because Brinker cannot be read to permit a plaintiff to "invent a class action by proposing an incorrect rule of law and arguing, 'If my rule is right, I win on a class basis.' "

Slip op., at 20.

The Court found it unnecessary to address the representative action theory and declined the plaintiff's request to address the correct standard applicable to section 14's seating mandate.

I remarked on a number of occasions during Class Re-Action podcast episodes that Brinker's true impact was in the certification sphere, not the wage & hour issues it addressed. Q.E.D. Well, that's insanely smug and pretentious. But, you know, scoreboard.

When a party is added to an action, it bears the burden to show its interests are adverse to other parties for purposes of a 170.6 challenge

The Courts of Appeal are killing me. It has been a barren wasteland of decisions in state and federal appellate courts. Why aren't you people filing ridiculous appeals that elicit strange and wonderful new decisions about which I may write?  So, it has come to this.  I must comment on a peremptory challenge opinion.

In Orion Communications v. Superior Court (May 14, 2014), the Court of Appeal (Fourth Appellate District, Division One) granted a petition for writ of mandamus after the trial court granted a peremptory challenge pursuant to Code of Civil Procedure section 170.6. In the trial court, Plaintiff Orion obtained a judgment against DTS. After encountering difficulty enforcing the judgment, Orion filed a motion to amend the judgment to add Sameis as a judgment debtor. Orion argued Sameis was the alter ego of DTS and was liable as the successor to DTS's business. Sameis opposed the motion. Then, Sameis filed a section 170.6 peremptory challenge, asserting it was a proposed party in the action under the motion to amend and stating its belief a fair and impartial trial or hearing could not be had in that court. The trial court granted the challenge.

Granting the petition and directing that the challenge be denied, the Court of Appeal said:

Based on our review of the record, we conclude, as Orion asserts, the trial court erred by granting Sameis's section 170.6 peremptory challenge because Sameis did not present sufficient evidence showing it is not on the same side as DTS for purposes of section 170.6's one challenge per side limitation. In filing a section 170.6 peremptory challenge, Sameis, as a potential judgment debtor along with DTS, had the burden to present evidence showing it and DTS have substantially adverse interests with respect to the motion to amend the judgment in the action. (Home Ins., supra, 34 Cal.4th at p. 1037; People v. Escobedo (1973) 35 Cal.App.3d 32, 41 [no conflict shown between two defendants regarding motion to suppress evidence].) It is a question of fact whether two joined parties are on the same side for purposes of section 170.6 or whether they have substantially adverse interests. (Home Ins., supra, 34 Cal.4th at p. 1036.) Although the Order did not contain any express discussion of the issue, we conclude the trial court, by granting the peremptory challenge, implicitly found Sameis and DTS have substantially adverse interests and are not on the same side for purposes of section 170.6's one challenge per side limitation. Because that finding was based on the undisputed facts set forth in Sameis's peremptory challenge, we determine de novo, or independently, whether the trial court erred in so finding.

Slip op., at 11-12.  The Court then concluded that the declaration of counsel was insufficient because the majority of its contents were merely argument:

However, that declaration states only Sameis's belief that a fair and impartial trial or hearing cannot be held before Judge Taylor because he is prejudiced against it or its attorney or their interests. That declaration does not present any evidence on the question of whether Sameis and DTS have substantially adverse interests and therefore are not on the same side. The California Supreme Court has stated: "[A] party that seeks to exercise a subsequent peremptory challenge on the ground that, in effect, it is on a different side from another party despite appearances to the contrary, is required to provide evidence of a conflict to enable the trial court to decide whether the interests of the joined parties are actually substantially adverse." (Home Ins. Co., supra, 34 Cal.4th at p. 1037, italics added.)

Slip op., at 13. Elaborating on the insufficiency of the submitted declaration, the Court said:

The arguments and factual assertions made in Sameis's section 170.6 peremptory challenge appearing on the pages following Broker's declaration (i.e., those labeled as pages 2 and 3) are not evidence, but rather merely argument on the issue. (See § 2015.5 [regarding declarations]; Cal. Rules of Court, rule 3.1306(a) [regarding evidence allowed at law and motion hearings]; cf. Strauch v. Eyring, supra, 30 Cal.App.4th at p. 186; In re Marriage of Reese & Guy, supra, 73 Cal.App.4th at pp. 1222-1223 [unsworn declarations are improper and cannot be considered].)

Slip op., at 13.

The reason why this might be of interest to complex litigation practitioners if the frequency with which those matters are multi-party matters. If a newly arrived defendant tries to spoil your party with a 170.6, make sure they have submitted real evidence of the conflict.

Arbitration agreement that arguably applied California law on the issue of enforceability is, ironically, unenforceable

It's been a while since I have posted here.  It's not for lack of interest in finding something appropriate to address, but the interesting decisions have been few and far between.  Plus this "start your own firm" thing tends to eat up a lot of time in the early days.  Of course, with several big decisions likely to drop from the California Supreme Court any day, this may have been the calm before the storm.  While we wait for those fireworks, here's a fascinating arbitration decision.  In Imburgia v. DirecTV, Inc. (April 7, 2014), the Court of Appeal (Second Appellate District, Division One) affirmed the denial of a petition to compel arbitration.  The analysis is striking for the fact that it forcefully challenges some contrary conclusions by federal courts.  Whether it remains published while other arbitration decisions have been taken and held is another question.

The particulars of the case are all but ignored as irrelevant, though it is clear that the case is a consumer class action from the claims alleged.  The customer agreement specified that JAMS rules would apply.  However, the agreement went on to state as follows:

“Neither you nor we shall be entitled to join or consolidate claims in arbitration by or against other individuals or entities, or arbitrate any claim as a representative member of a class or in a private attorney general capacity. Accordingly, you and we agree that the JAMS Class Action Procedures do not apply to our arbitration. If, however, the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 is unenforceable.”

Slip op., at 3.  The customer agreement also specified that Section 9, containing the arbitration requirement, was governed by the FAA and that the entire section was unenforceable if the agreement to dispense with class arbitration procedures was found to be unenforceable.

The trial court found the agreement unenforceable.  On appeal, the Court considered the conundrum created by a clause incorporating state law into the determination as to whether a class action waiver was unconscionable:

The question before us, then, is how to interpret section 9’s choice of law concerning enforceability of the class action waiver. Where section 9 requires us to consider whether “the law of your state would find this agreement to dispense with class arbitration procedures unenforceable,” does it mean “the law of your state to the extent it is not preempted by the FAA,” or “the law of your state without considering the preemptive effect, if any, of the FAA”? Plaintiffs argue that it means the latter, and we agree

Slip op., at 6.  The Court agreed that the basic rule of construction under which the specific controls the general where the two are inconsistent.  The Court observed that:

If we apply state law alone (for example, the antiwaiver provision of the CLRA) to the class action waiver, then the waiver is unenforceable. If we apply federal law, then the class action waiver is enforceable and any state law to the contrary is preempted. That is a sufficient inconsistency to make plaintiffs’ principle of contract interpretation applicable. Indeed, the entire preemption analysis of Concepcion is based on a conflict or inconsistency between the Discover Bank rule and the FAA.

Slip op., at 6.  The Court then addressed decisions identified by DirecTV as having rejected the plaintiffs' argument.  After dismissing two as inapplicable to the issue before it, the Court squarely addressed the third:

The third case, however, is a decision in the federal multidistrict litigation that parallels the instant state court actions. In an “[i]ndicative [r]uling” under rule 62.1 of the Federal Rules of Civil Procedure, the federal district court stated that the reference to “the law of your state” in section 9 of the customer agreement could not mean that enforceability of the class action waiver should be determined exclusively under state law, because that would render “meaningless” section 10’s general statement that the arbitration agreement is governed by the FAA. (In re DIRECTV Early Cancellation Fee Marketing and Sales Practices Litigation (C.D.Cal. 2011) 810 F.Supp.2d 1060, 1071.) We disagree. The specific reference to state law concerning the enforceability of the class action waiver creates a narrow and specific exception to the general provision that the arbitration agreement will be governed by the FAA. It does not render that general provision meaningless. In addition, the district court’s analysis does not address the principles that a specific provision controls over a general one and that ambiguous language is construed against the interest of the drafter. For all of these reasons, we decline to follow the district court’s decision.

Slip op., at 8-9.

The Court then discussed Murphy v. DIRECTV, Inc.  724 F.3d 1218 (9th Cir. 2013), decided after briefing was completed, for its holding that federal law "is the law of ever state":

We find the analysis in Murphy unpersuasive. On the one hand, insofar as the court’s reasoning is a matter of contract interpretation, it means that when the parties used the phrase “the law of your state,” they meant “federal law plus (nonfederal) state law.”  Murphy provides no basis for concluding that the parties intended to use the phrase “the law of your state” in such a way, and we a re aware of none. On the contrary, a reasonable reader of the customer agreement would naturally interpret the phrase “the law of your state” as referring to (nonfederal) state law, and any ambiguity should be construed against the drafter.  On the other hand, insofar as the court reasoned that contract interpretation is irrelevant because the parties are powerless to opt out of the FAA by contract, we are aware of no authority for the court’s position. Rather, as we have already observed, if the customer agreement expressly provided that the enforceability of the class action waiver “shall be determined under the (nonfederal) law of your state without considering the preemptive effect, if any, of the FAA,” then that choice of law would be enforceable; Murphy cites no authority to the contrary.  Consequently, the dispositive issue is whether the parties intended to make that choice.  As a result, “the parties’ various contract interpretation arguments” are not “largely irrelevant.”

Slip op., at 9-10 (parentheticals added by Court when discussing Murphy because Murphy asserted that all federal law is state law; footnotes omitted).  After ripping a few federal decisions to shreds, the Court concluded that the entire arbitration provision was nullified by its own terms.

What will happen now?  We'll have to wait for the petition for review to see.

I'll be back with a podcast the day before Easter and any case write-ups that come along before then.  Sorry to be away so long.

A bit of clarity added to lodestar fee applications

I've had a long-running debate going with several of the judges in the complex litigation program regarding fee awards in class actions.  I contend that California has long recognized contingent fee awards, and there is nothing about class actions that justifies a "lodestar first" approach that seems to be a trend.  A decision issued yesterday didn't settle the debate (it's a decision in a lodestar award situation, not a common fund recovery), but it adds a bit of clarity in other respects.  If you are a plaintiff-side practitioner, you need to know about this one.  In Concepcion v. Amscan Holdings, Inc. (February 18, 2014), the Court of Appeal (Second Appellate District, Division Seven) considered a defendant's appeal of a $350,000 fee award following settlement of a Song-Beverly Credit Card Act suit.

Counsel for plaintiffs submitted declarations describing, in general terms, the categories of work they performed.  The trial court then required the in camera submission of billing records that were not provided to the defendant's attorneys. On appeal, the defendant argued that class counsel failed to submit sufficient evidence to justify the fee award and, in particular, did not demonstrate the time expended by the six law firms involved was reasonably necessary and nonduplicative.  The defendant also argued that the trial court’s in camera review of class counsel’s billing records to support the award was fundamentally unfair and denied it due process.  The Court agreed that it was improper for the court to rely upon billing information not provided to the defendant, preventing any opportunity to challenge it.

Upon learning that the Court rejected in camera review of billing records, you might be tempted to conclude that this means that detailed billing records must be provided to the defendant.  That is not required, and it is also why this case is important.

As the Court explained, it is not necessary to provide detailed billing records in order to support a fee award:

It is not necessary to provide detailed billing timesheets to support an award of attorney fees under the lodestar method. (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 254 [affirming lodestar fee award based on “declarations evidencing the reasonable hourly rate for [the attorneys’] services and establishing the number of hours spent working on the case”; “California case law permits fee awards in the absence of detailed time sheets”]; see Mardirossian & Associates v. Ersoff (2007) 153 Cal.App.4th 257, 269 [“there is no legal requirement that an attorney supply billing statements to support a claim for attorney fees”].) Declarations of counsel setting forth the reasonable hourly rate, the number of hours worked and the tasks performed are sufficient. (Steiny & Co. v. California Electric Supply Co. (2000) 79 Cal.App.4th 285, 293 [“[a]n attorney’s testimony as to the number of hours worked is sufficient to support an award of attorney fees, even in the absence of detailed time records”].) “‘Although a fee request ordinarily should be documented in great detail, it cannot be said . . . that the absence of time records and billing statements deprive[s] [a] trial court of substantial evidence to support an award . . . .’” (City of Colton v. Singletary (2012)
206 Cal.App.4th 751, 784-785.)

Slip op., at 17.  The Court then noted that, while the declarations of counsel provided total hours, the declarations, for the most part, did not break out the total number of hours each attorney spent on each type of work in a category.  This spartan showing was found to be insufficient by the Court:

As discussed, class counsel had the burden of proving the reasonable number of hours they devoted to the litigation, whether through declarations or redacted or unredacted time sheets or billing records. (See, e.g., Ellis v. Toshiba America Information Systems, Inc. (2013) 218 Cal.App.4th 853, 883; El Escorial Owners’  Assn. v. DLC Plastering, Inc., supra, 154 Cal.App.4th at p. 1366.) “A trial court may not rubberstamp a request for attorney fees, but must determine the number of hours reasonably expended.” (Donahue v. Donahue (2010) 182 Cal.App.4th 259, 271.)

Slip op., at 18.  The clear message is that, while it is proper for counsel to decline to submit billing sheets, the "reasonable" fees must be supported with a detailed declaration as an alternative approach.  It would appear that, to be definitely safe, a declaration for this purpose must include a thorough summary of the number of hours spent on various categories of work in the case.  But the practice of requiring the submission of detailed billing records is improper.  Whether you want to go that route and tell the trial court it is improper is another story.

Next, the Court considered the argument that the review of billing records in camera denied defendant a due process right to challenge the records.  The Court swiftly concluded that it did: "Under our adversarial system of justice, once class counsel presented evidence to support their fee request, Party City was entitled to see and respond to it and to present its own arguments as to why it failed to justify the fees requested."  Slip op., at 18.)

The Court essentially held that, while billing records weren't necessary to support a fee request, once provided, they had to be shared.  The Court dismissed the argument that the records were likely to contain a large volume of privileged information, suggesting that redaction would suffice.  The Court also found that cursory declarations with total numbers of hours were insufficient.  So, sufficient lies somewhere between billing records and cursory declarations with total hours listed.  Now you know what you can't do, what you don't have to do, and what you probably ought to do.

Enough with the "gotcha" Requests for Admissions and the procedural tyrants that use them

Requests for Admissions - in the hands of reasonable practitioners a tool for taking undisputed facts off the table.  But, like the other discovery tools available in California, they, too, have been transformed into tools to abuse opponents.  In St. Mary v. Superior Court (January 31, 2014), the Court of Appeal (Sixth Appellate District), granting a petition for a writ of mandamus directed at a discovery ruling (a true rarity), explained the full procedural framework related to Requests for Admissions.  The discussion by the Court is truly illuminating and is a must read for civil litigators (particularly ones concerned with civility).

A recap of the history is in order.  Defendants propounded 119 requests for admissions (RFAs) directed to St. Mary.  After making two written requests for a two-week extension to respond, and after Schellenberg denied the extension request one day after the due date for the responses, counsel served responses to the RFAs.  They were served four days late.  Four days later, defendants, without any attempt to meet and confer, filed a motion with the trial court requesting that the 119 RFAs in their entirety be deemed admitted, pursuant to Code of Civil Procedure section 2033.280, subdivision (b).  The court granted the Motion as to Defendant Schellenberg's RFAs, deemed 41 of the 105 RFAs admitted, and awarded sanctions in favor of Defendants.  The court’s order omitted any reference to the Motion to deem admitted the 14 RFAs propounded by Defendant Mills.

Plaintiff sought a writ of mandate directing the superior court to vacate its order deeming the 41 Schellenberg RFAs admitted.  Plaintiff contended that Defendants' Motion was defective in that it did not constitute a motion to compel further responses to RFAs under section 2033.290.  Instead, according to Plaintiff, Defendants included new matter for the first time in their reply papers—namely, argument directed to specific Schellenberg RFAs that Defendants claimed were deficient—and that the court granted the Motion based upon the presentation of such new arguments.  Plaintiff argued that the impact of the court’s order was extremely significant because, among other things, six of the RFAs deemed admitted are specifically directed to a potential statute of limitations defense asserted by real parties.

The Court summarized the scenarios that can occur when RFAs are not timely answered:

Under the RFA procedure postdating the Civil Discovery Act, a propounding party must take affirmative steps—by bringing a formal “deemed admitted” motion—to have RFAs to which timely responses are not received deemed admitted.  In the event responses to RFAs are not timely served, responding party waives any objections thereto (§ 2033.280, subd. (a)), and “[t]he requesting party may move for an order that the genuineness of any documents and the truth of any matters specified in the requests be deemed admitted, as well as for a monetary sanction” (id., subd. (b)).  Unless the court determines that the responding party “has served, before the hearing on the motion, a proposed response to the requests for admission that is in substantial compliance with Section 2033.220,” it must order the RFAs deemed admitted.  (Id., subd. (c).)  “[A] deemed admitted order establishes, by judicial fiat, that a nonresponding party has responded to the requests by admitting the truth of all matters contained therein.”  (Wilcox, supra, 21 Cal.4th at p. 979.)  The court must also impose monetary sanctions upon the party and/or the attorney for the failure to serve a timely response to the RFAs.  (§ 2033.280, subd. (c).)  But a responding party’s service, prior to the hearing on the “deemed admitted” motion, of substantially compliant responses, will defeat a propounding party’s attempt under section 2033.280 to have the RFAs deemed admitted.  (Tobin v. Oris (1992) 3 Cal.App.4th 814, 827 (Tobin).)  As one court put it:  “If the party manages to serve its responses before the hearing, the court has no discretion but to deny the motion.  But woe betide the party who fails to serve responses before the hearing.  In that instance the court has no discretion but to grant the admission motion, usually with fatal consequences for the defaulting party.  One might call it ‘two strikes and you’re out’ as applied to civil procedure.”  (Demyer v. Costa Mesa Mobile Home Estates (1995) 36 Cal.App.4th 393, 395-396, fns. omitted (Demyer).)

Slip op., at 13-14.  Next, to emphasize where the trial court erred, the reviewed again the types of motions applicable to RFAs:

We first address the nature of the Motion brought by real parties, because resolution of this issue is directly germane to the propriety of the challenged order.  As discussed ante, there are three types of motions that a party propounding RFAs may initiate:  (1) motions to deem RFAs admitted based upon the responding party’s failure to serve any responses at all in a timely fashion (§ 2033.280, subd. (b)); (2) motions to compel further responses to RFAs where the responses are claimed to be inadequate or the objections improper (§  2033.290, subd. (a)); and (3) motions to deem responses admitted and/or for sanctions based upon the responding party’s disobedience of an order compelling further responses (id., subd. (e)).  It is clear for a number of reasons that the Motion was of the first-described type pursuant to section 2033.280, subdivision (b).

Slip op., at 15-16.  After noting that nowhere in the original Motion did the Defendants indicated that they sought anything other than to deem the RFAs admitted (e.g., there was no declaration showing that a meet and confer occurred as would be required under a motion to compel further responses), the Court then examined whether the tardy responses of Plaintiff were in "substantial compliance" with 2033.220.  The Court began by examining authority for what constitutes "substantial compliance" in the discovery context.  Then the Court scrutinized the trial court's approach, finding it lacking:

We turn to examine whether St. Mary’s proposed response to the Schellenberg RFAs substantially complied with section 2033.220.  Initially, we take issue with respondent court’s approach.  The court examined the individual RFA responses, determined that some 41 of them were not Code-compliant, and found—explicitly in its announced reasoning at the hearing, and implicitly in the subsequent order—that the remaining 64 RFA responses did, in fact, comply with section 2033.220.  It therefore deemed admitted the RFAs corresponding with the 41 responses it determined to have been noncompliant, implicitly denying the deemed admitted Motion as to the responses to the remaining 64 RFAs. 

We find no authority for this piecemeal approach to adjudicating a tardy, proposed RFA response filed by a responding party prior to the hearing on a deemed admitted motion.  Subdivision (c) of section 2033.280 requires the court to evaluate whether the “proposed response to the requests for admission” substantially complies with section 2033.220.  (Italics added.)  This suggests that the court evaluate qualitatively the proposed response to RFAs in toto to determine whether it substantially complies with the Code.  It does not permit the court to segregate each individual RFA response for the purpose of finding that portions of the document are Code-compliant (and will therefore be accepted), while concluding that other portions are noncompliant (and will thus be rejected).  Furthermore, the fact that there is an effective statutory vehicle by which a propounding party may seek a court order compelling a responding party to cure individual RFA responses deemed not to be in compliance with section 2033.220—namely, a motion to compel further responses under section 2033.290—offers additional support for our view that the court’s seriatim approach to St. Mary’s proposed response to the RFAs was improper.  We therefore conclude that the court’s misapplication of section 2033.280 in granting the deemed admitted Motion in part and denying it in part constituted an abuse of discretion.  (See City of Sacramento v. Drew, supra, 207 Cal.App.3d at p. 1297 [“[a]ction that transgresses the confines of the applicable principles of law is outside the scope of discretion and we call such action an ‘abuse’ of discretion.”].){C}{C}{C}

Slip op., at 18-19.  The Court next rejected the trial court's conclusion that language in addition to "admit" or "deny" is improper in a response to RFAs.  The Court explained that reasonable qualifications are proper.

In several of the RFAs reviewed by the Court, the Court noted that Plaintiff included fairly reasonable, but occasionally very long, explanations for denying various propositions.  As to this practice, the Court had some friendly advice:

As we read St. Mary’s response to this RFA, we understand that she does not deny receiving the referenced letter, but otherwise denies that the letter contained the substance as described in the RFA.  If our understanding is correct, a more adroit response to the RFA would have been, in substance, “Admit receipt of the letter on or about April 9, 2008, but otherwise deny.”  (Since Schellenberg concurrently served upon St. Mary a set of interrogatories asking her to explain any of her responses to RFAs that were not unqualified admissions, she could have explained the reason for her partial denial of RFA number 91 in her interrogatory response.)  If Schellenberg believes that St. Mary’s response to this RFA, as phrased, is legally insufficient, the appropriate method of challenging it would be for him to seek an order compelling a further response under section 2033.290, which motion would be preceded by his attempting to resolve the dispute informally under subdivision (b). 

Slip op., at 21-22, fn. 21.  The Court then explained how the trial court's approach incorrectly looked at the sufficiency of each response, rather than question of whether the responses "in toto" were substantially compliant:

The court deemed admitted 41 specific RFA responses that it concluded were not Code-compliant, rather than considering whether the proposed response to the Schellenberg RFAs as a whole substantially complied with section 2033.220—thereby effectively converting real parties’ deemed admitted Motion under section 2033.280 into a motion to compel further responses under section 2033.290.  The court is authorized by statute to deem particular requests admitted if the responding party fails to comply with an order compelling further responses to RFAs.  (§ 2033.290, subd. (e).)  Here, the court, at real parties’ urging, bypassed four steps of the statutorily required process by deeming admitted the responses to 41 RFAs in St. Mary’s proposed response:  There was no prior (1) motion to compel further responses (§ 2033.290. subd (a)); (2) order compelling further responses; (3) noncompliance with an order compelling further responses; or (4) motion to deem specific RFAs admitted based upon noncompliance with a prior order compelling further RFA responses (id., subd (d)). 

Slip op., at 24.  If there was any doubt about the view of the Court, it removed all doubt by explaining the policies guiding its decision:

We do not read the statutes governing RFAs in a vacuum.  The purpose of the RFA procedure is to expedite trials and to eliminate the need for proof when matters are not legitimately contested.  (Cembrook, supra, 56 Cal.2d at p. 429; Studll, supra, 92 Cal.App.4th at p. 864.)  The RFA device is not intended to provide a windfall to litigants.  Nor is the RFA procedure a “gotcha” device in which an overly aggressive propounding party—who rejects facially reasonable requests for a short discovery extension and thereafter files the wrong discovery motion after service of a slightly tardy proposed RFA response that is substantially Code-compliant—may obtain a substantive victory in the case by having material issues deemed admitted.

Slip op., at 24-25.

We could probably use good reminders of the actual purpose of discovery tools on a more frequent basis these days.

Deposition length in California is regulated by statute, but Courts retain power to modify the limits

Class action practitioners often handle a smaller portfolio of cases than, say, a firm specializing in personal injury matters.  As a result, that practice group is sometimes slower to experience procedural changes first hand.  This is particularly true when the changes do not generally apply to class actions.  One such example of this is the change last year regarding the length of depositions in California  Superior Court.  Code of Civil Procedure § 2025.290 limits the length of depositions to seven hours, absent specific exceptions: "Except as provided in subdivision (b), or by any court order, including a case management order, a deposition examination of the witness by all counsel, other than the witness' counsel of record, shall be limited to seven hours of total testimony."  One exception applies to any case deemed complex under Rule 3.400.  That exception has an extra twist to it:

(3) To any case designated as complex by the court pursuant to Rule 3.400 of the California Rules of Court, unless a licensed physician attests in a declaration served on the parties that the deponent suffers from an illness or condition that raises substantial medical doubt of survival of the deponent beyond six months, in which case the deposition examination of the witness by all counsel, other than the witness' counsel of record, shall be limited to two days of no more than seven hours of total testimony each day, or 14 hours of total testimony.

Code Civ. Proc. § 2025.290(b)(3).

In Certainteed Corporation v. Superior Court (January 8, 2014), the Court of Appeal (Second Appellate District, Division Three) was called upon to determine whether the discretion provided to the trial court generally in section 2025.290 applied to the 14-hour limit on depositions in complex actions involving a deponent suffering from a potentially terminal illness or condition.

Examining the statute, the Court found the language of (b)(3) to be ambiguous as to whether the trial court could modify the 14-hour limit imposed on depositions of deponents with the aforementioned health limitations.  Nevertheless, the Court found that a clear enough indication existed in the statute to conclude that the trial court had discretion to alter the limits in all circumstances:

The second sentence of section 2025.290, subdivision (a) includes language requiring the court to allow additional time to examine a deponent “beyond any limits imposed by this section” if additional time is “needed to fairly examine the deponent . . . . ”  (Italics added.) We hold that this exception applies not only to the seven-hour limit, but also expressly applies to “any limits imposed by this section,” which necessarily includes the 14-hour limit set out in subdivision (b)(3). The Legislature’s use of the words “this section,” rather than “this subdivision,” and “any limits,” rather than “the limit,” establishes that the exception applies not only to the seven-hour limit in subdivision (a), but also to the 14-hour limit in subdivision (b)(3).

Slip op., at 11.

So, a trial court can alter the presumptive limits on deposition length in section 2025.290, but, since you class action is probably complex, it doesn't really matter unless the deponent is not likely to live more than six months.

For appellate procedure wonks, the Court granted the petitions for a writ and issues an accelerated Palma notice, given the plaintiff's health and his right to a trial preference.

It's always commonality that gets you in the end (Hendelman v. Los Altos)

When it comes to certification, you can fix almost any problem other than commonality (community of interest).  Inadequate representative?  Get a new one.  Problem with inexperienced class counsel?  Co-counsel.  Numerosity is not really amenable to correction, but most of the time firms just pass on the tiny classes.  But commonality, there's where the rubber meets the road.  In Hendelman v. Los Altos Apartments, L.P. (Jul. 22, 2013; pub. ord. Aug. 20, 2013), the Court of Appeal (Second Appellate District, Division Three) affirmed a trial court order denying plaintiffs' motion for class certificaiton for lack of ascertainability, community of interest, and superiority.  The bulk of the Court of Appeal opinion addresses the commonality-related failings.

The Court first held that the warranty of habitability claim was not suitable for resolution through common proof:

[T]he mere “existence of a prohibited (uninhabitable) condition or other noncompliance with applicable code standards does not necessarily constitute a breach of the warranty of habitability.” (Friedman et al., Cal. Practice Guide: Landlord-Tenant (The Rutter Group 2012) § 3:39, p. 3-13, citing Green v. Superior Court, supra, 10 Cal.3d at pp. 637-638.) “Whether the defect or code noncompliance is ‘substantial’ (and thus a cognizable breach) or ‘de minimis’ (no actionable breach) is determined on a case-by-case basis.” (Friedman et al., supra, § 3:40, p. 3-13.) “In considering the materiality of an alleged breach, both the seriousness of the claimed defect and the length of time for which it persists are relevant factors. Minor housing code violations standing alone which do not affect habitability must be considered de minimis and will not entitle the tenant to reduction in rent; and likewise, the violation must be relevant and affect the . . . common areas which [the tenant] uses.” (Hinson v. Delis (1972) 26 Cal.App.3d 62, 70, disapproved on other grounds by Knight v. Hallsthammar (1981) 29 Cal.3d 46, 55, fn. 7.) Stated otherwise, whether a particular defect or violation of a housing code constitutes a breach of the implied warranty of habitability depends on the severity and duration of the defect or violation. Breach is a rebuttable presumption affecting the burden of producing evidence. (Friedman et al., supra, §§ 3:46 to 3:47, pp. 3-14 to 3-15.)

Slip op., at 11.  The trial court concluded that even the code violations impacting all tenants did so differently and to different degrees, and the Court of Appeal, giving deference to the trial court, agreed.  One question raised by this decision is whether variation in entitlement to damage tainted the analysis as to whether liability could be shown through common proof, especially where strict liability is imposed on the landlord.  At times the Court seems to conflate proof of liability with nominal damages.

The Court then found that the claim for increased rent injected the same individualized questions about whether services to each tenant were reduced in any substantial manner that amounted to an implied increase in rent.

As to the retaliation claim, the Court found that no representative could state that claim, either due to statute of limitations problems or a failure to have been a tenant during the relevant time period.  And as with the habitability claim, the Court agreed that a nuisance action depended heavily on facts unique to each tenant, defeating commonality.

The Court declined to consider the many proposed adjustments or amendments to claims or the class definition on Appeal, finding that such arguments are, in the first instance, matters for the trial court.