Ninth Circuit examines arbitration and PAGA claims in Mohamed v. Uber Technologies, Inc.

The Ninth Circuit tackles a complicated set of arbitration issues in Mohamed v. Uber Technologies, Inc. (9th Cir. Sept. 7, 2016).  Among other things, the panel held that the District Court erred when it decided the question of arbitrability, since the question of arbitrability was delegated under the agreement to an arbitrator.  But the panel agreed that the defendants could not compel arbitration of the PAGA claim asserted in the case, severing that claim for further proceedings in before the trial court.  Finally, the panel agreed that a separate defendant not party to the arbitration agreement could not assert a right to enforce the agreement as an agent of Uber.

That's right -- common fund attorney fee awards can be calculated as a percentage of the fund

I take this opportunity to say I told you so.  "We clarify today that when an attorney fee is awarded out of a common fund preserved or recovered by means of litigation (see Serrano III, supra, at p. 35), the award is not per se unreasonable merely because it is calculated as a percentage of the common fund."  Laffitte, et al. v. Robert Half International, Inc., et al., at p. 2 (August 11, 2016).  See the rest if you have the time, but this should put an end to the spreading nonsense that lodestar is the method for calculating fees in common fund class action settlements.

Allstate tests new method for mooting class claims; falls short in Chen v. Allstate Ins. Co.

Normal people see laws as barriers. Lawyers see laws as an agility course.  After Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011) and Gomez v. Campbell-Ewald Co., 768 F.3d 871 (9th Cir. 2014), aff’d, 136 S. Ct. 663 (2016), you'd have to forgive ordinary citizens for thinking that the question of whether you can moot a class action by offering up full individual relief to the putative class representative was pretty well settled. But where some see finality, Allstate insurance saw...opportunity.  Specifically, Allstate looked to Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016) for the secret to mooting class representative claims.  In Chen v. Allstate Inc. Co. (9th Cir. Apr. 12, 2016), the Ninth Circuit sent the wily insurance coyote back to the drawing board.

The plaintiffs filed a class action complaint against Allstate, alleging he received unsolicited automated telephone calls to his cellphone, in violation of the Telephone Consumer Protection Act (TCPA). Before a motion for class certification had been made, Allstate made an offer of judgment to the plaintiffs under Rule 68 of the F.R.C.P., depositing $20,000 in full settlement of individual monetary claims in an escrow account “pending entry of a final District Court order or judgment directing the escrow agent to pay the tendered funds to Pacleb, requiring Allstate to stop sending non-emergency telephone calls and short message service messages to Pacleb in the future and dismissing this action as moot.”  Slip op. at 4, 7.  Allstate extended the Rule 68 offer beyond 14 days and then moved for entry of judgment and dismissal.  One plaintiff accepted the offer while the motion was pending.

The district court denied the motion, holding that, under Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011), the plaintiff's class allegations presented a justiciable controversy and rejected the notion that Pitts was no longer good law.  The district court later certified the issue for interlocutory appeal.

On appeal, Allstate asked the Court to take up the hypothetical issue raised in Campbell-Ewald, which was whether the deposit of the full amount of a plaintiff's individual claim in an account payable to the plaintiff, followed by entry of judgment for the plaintiff in that amount, is sufficient to moot the case.  Allstate argued that the judgment it consented to would offer complete relief, the district should be compelled to enter judgment on those terms, mooting the plaintiff's individual claims, and the remaining class allegations would then be insufficient to preserve a live controversy.  While the Court agreed with the first contention, it rejected the second and third contentions.

The Court began by reviewing the relief that Allstate had consented to in the district court.  Considering both the monetary and injunctive aspects of that relief, the Court found that complete individual relief was offered.  Slip op., at 12-14.

Next, the Court considered whether the decision in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013) vitiated Pitts.  The Court concluded that it did not:

In Gomez, 768 F.3d at 875–76, however, we squarely rejected that very argument. Because Genesis Healthcare concerned collective actions brought under the Fair Labor Standards Act (FLSA) rather than class actions under Federal Rule of Civil Procedure 23, Gomez held Pitts was not clearly irreconcilable with Genesis Healthcare. See id. Although Genesis Healthcare “undermined some of the reasoning employed in Pitts . . . , courts have universally concluded that the Genesis discussion does not apply to class actions.” Id. at 875. “In fact, Genesis itself emphasizes that ‘Rule 23 [class] actions are fundamentally different from collective actions under the FLSA.’” Id. at 875–76 (alteration in original) (quoting Genesis Healthcare, 133 S. Ct. at 1529).

Slip op., at 16.  The Court then held that it was bound by Gomez, which was decided en banc.

Next, the Court went further, holding that even if Pitts were not controlling, the Court would reject an attempt to moot the action prior to a fair opportunity to move for class certification.  The Court noted that placing funds in an escrow account was not the same as the actual receipt of all relief by a plaintiff.  This will likely just bait the next enterprising defendant into actually tendering the funds into an account in the name of the plaintiff to see if the outcome is any different (remember, there are no obstacles, only new paths).

Finally, the Court considered whether to order the district court to enter judgment.  The Court concluded that doing so would be inconsistent with Campbell-Ewald, which affords a putative class representative with a live claim a fair opportunity to show certification is warranted:

Even if that is true, however, Campbell-Ewald clearly suggests it would be inappropriate to enter judgment under these circumstances. As Campbell-Ewald explained, “[w]hile a class lacks independent status until certified, a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.” Campbell-Ewald, 136 S. Ct. at 672 (emphasis added) (citation omitted) (citing Sosna, 419 U.S. at 399). Accordingly, when a defendant consents to judgment affording complete relief on a named plaintiff’s individual claims before certification, but fails to offer complete relief on the plaintiff’s class claims, a court should not enter judgment on the individual claims, over the plaintiff’s objection, before the plaintiff has had a fair opportunity to move for class certification.

Slip op., at 22-23.  The Court noted the long-recognized principle that class relief is the only feasible relief in many circumstances and concluded that "a district court should decline to enter a judgment affording complete relief on a named plaintiff’s individual claims, over the plaintiff’s objection, before the plaintiff has had a fair opportunity to move for class certification." Slip op., at 26.

The Court affirmed the district court.

If you anticipate that the Supreme Court will take up the first case to test its Genesis Healthcare hypothetical, don't hold your breath. If anything, the Supreme Court would want to see more than one Circuit tackle the issue and see if a significant split develops before wading back into these waters. That doesn't mean that enterprising defendants won't look for another way to moot class claims before certification.

Pull up a chair...and listen to the nightmarish tale of....suitable seating (in Kilby v. CVS Pharmacy, Inc.)

I can still remember when the first suitable seating cases were filed.  I reckon' it happened right about the time that the wage & hour landscape became unsettled in the meal period and rest break areas, class certification decisions were all over the place prior to Brinker, and PAGA claims were getting a long look as an alternative and supplemental approach to class claims.  The suitable seating cases went through an initial wave of appellate court analysis, but, without California Supreme Court guidance on the issue, federal courts were left to speculate about what the California Supreme Court would say on the matter.  The Ninth Circuit addressed that lack of clarity by certifying questions to the California Supreme Court.  In Kilby v. CVS Pharmacy, Inc. (April 4, 2016), the California Supreme Court answered those questions.

The questions, as posed by the Ninth Circuit were:

(1) Does the phrase “nature of the work” refer to individual tasks performed throughout the workday, or to the entire range of an employee’s duties performed during a given day or shift? 

(2) When determining whether the nature of the work “reasonably permits” use of a seat, what factors should courts consider?  Specifically, are an employer’s business judgment, the physical layout of the workplace, and the characteristics of a specific employee relevant factors? 

(3) If an employer has not provided any seat, must a plaintiff prove a suitable seat is available in order to show the employer has violated the seating provision? 

Slip op., at 2.  The short answers (which were followed by an extensive discussion) are:

(1) The “nature of the work” refers to an employee’s tasks performed at a given location for which a right to a suitable seat is claimed, rather than a “holistic” consideration of the entire range of an employee’s duties anywhere on the jobsite during a complete shift.  If the tasks being performed at a given location reasonably permit sitting, and provision of a seat would not interfere with performance of any other tasks that may require standing, a seat is called for. 

(2) Whether the nature of the work reasonably permits sitting is a question to be determined objectively based on the totality of the circumstances.  An employer’s business judgment and the physical layout of the workplace are relevant but not dispositive factors.  The inquiry focuses on the nature of the work, not an individual employee’s characteristics. 

(3) The nature of the work aside, if an employer argues there is no suitable seat available, the burden is on the employer to prove unavailability. 

Slip op., at 2.  Before looking at any of the more interesting parts of the Court's discussion, we now know with certainty that suitable seating is a task-based, not a position-based, requirement.  And I immediately concluded after reading this opinion that I wanted to start a business that specializes in making narrow and light barstool-style swivel chairs for cashiers in the retail and grocery sectors.  That's where the real money is going to be found.

Anyhow, chair empire plans aside, the Court began by explaining the history of the IWC and the suitable seating provision in the various wage orders.  Next, the Court looked at pronouncements on the most recent standard by the IWC and DLSE. For instance, the Court took note of a DLSE amicus curiae brief filed in a federal action:

[T]he DLSE filed an amicus curiae brief in Garvey v. Kmart Corp. (N.D.Cal. Dec. 18, 2012, No. CV 11-02575 WHA) 2012 WL 6599534 (Garvey), a federal class action suit claiming Kmart cashiers were entitled, under section 14(A), to seats while working.  The DLSE emphasized reasonableness as the guiding standard:  “If called upon to enforce Section 14, DLSE would apply a reasonableness standard that would fully consider all existing conditions regarding the nature of the work performed by employees.  Upon an examination of the nature of the work, DLSE would determine whether the work reasonably permits the use of seats for working employees under subsection (A) of Section 14, and whether proximate seating has been provided for employees not engaged in active duties when such employees are otherwise required to stand under subsection (B).”

Slip op., at 11.  After reviewing the DLSE and IWC commentary on the suitable seating requirement, the Court then set about the task of examining the IWC wage order language. After reviewing the language, the Court rejected the defendants' position that jobs should be classified as "sitting" jobs or "standing" jobs:

Defendants’ argument sweeps too broadly and is inconsistent with the purpose of the seating requirement.  As discussed, the IWC’s wage orders were promulgated to provide a minimum level of protection for workers.  The requirement’s history reflects a determination by the IWC that “humane consideration for the welfare of employees requires that they be allowed to sit at their work or between operations when it is feasible for them to do so.”  (IWC, Statement of Findings by the Industrial Welfare Commission of the State of Cal. in Connection with the Revision in 1976 of its Orders Regulating Wages, Hours, and Working Conditions (Aug. 13, 1976) p. 15.)  Defendants’ proposed consideration of all tasks included in an employee’s job description ignores the duration of those tasks, as well as where, and how often, they are performed.  This all-or-nothing approach could deprive an employee of a seat because most of his job duties are classified as “standing” tasks, even though the duration, frequency, and location of the employee’s most common tasks would make seated work feasible while performing them.  There is no principled reason for denying an employee a seat when he spends a substantial part of his workday at a single location performing tasks that could reasonably be done while seated, merely because his job duties include other tasks that must be done standing.

Slip op., at 14.  The Court expressed concern that the all-or-nothing approach could result in a situation where two employees performing the same task could have different seating rights, based on the overall classification of their job. Yet, the Court also found the plaintiffs' position too narrow, focusing on a single task to determine if that one task could be performed seated.  The Court found that focusing on the work done and the tasks performed in a location alleviated the problems created by both the defendants' approach and the plaintiffs' approach.

The Court then examined the "reasonably permits" portion of the seating requirements. The Court found that the employer's assessment of overall job performance (its business judgment) was a factor that could be considered, as was the physical layout of the workplace .  These factors, however, must be considered "in light of the overall aims of the regulatory scheme, which has always been employee protection."  The Court disagreed that differences between employees was a factor, since the regulation focused on the "work," and not the "worker."

Finally, the Court swiftly rejected the idea that a plaintiff must prove that a suitable seat is available, after showing that the nature of the work would reasonably permit the use of a seat.

The Court concluded by saying, "Sit on that."  No, not really.  But the Court was unanimous.

Overreach results in rare class action dismissal via demurrer in Schermer v. Tatum

While getting a class certified is often a serious fight, defeating class allegations at the demurrer stage is generally rare.  But never say never.  In Schermer v. Tatum (March 18, 2016), the Fourth Appellate District, Division One, affirmed a trial court ruling sustaining a demurrer to class allegations in the plaintiffs' second amended complaint (SAC).  The plaintiffs brought a class action on behalf of residents who live in the 18 mobilehome parks.  The plaintiffs alleged they were subjected to uniform unconscionable lease agreements and leasing practices by a collection of related defendants.  The SAC involved 18 mobilehome parks allegedly owned and/or operated by two defendants (Tatums and Kaplan), and were managed through defendant Mobile Community Management Company (MCM).  The plaintiffs also named as defendants the 18 "single-purpose" business entities that are each described as the owners of one of the mobilehome park in California.

The Court of Appeal began by summarizing the first amended complaint, the demurrer hearing related to it, and the SAC. And that summary is all you need to read to know where things are headed.  The Court described the "highlights" of the FAC as follows:

In the FAC, plaintiffs again alleged defendants Tatum and Kaplan, through MCM, engaged in unlawful conduct at each of the 18 mobilehome parks.  Specifically, they alleged defendants "charg[ed] excessive rent, pursu[ed] arbitrary evictions, and implement[ed] unreasonable polices."  Plaintiffs further alleged in their FAC that defendants Tatum and Kaplan took "advantage of vulnerable prospective and current residents" including "non-[E]nglish speaking and elderly residents" who, plaintiffs claimed, were "especially susceptible" to defendants' unlawful business practices.  Plaintiffs alleged defendants "most egregious practice" was the use of a "one-sided, standardized lease" agreement.  Plaintiffs provided 32 examples of lease clauses that allegedly violated California's Mobilehome Residency Law (Civ. Code, § 798 et seq.; MRL).

 Plaintiffs' FAC also set forth about 11 "factors" that plaintiffs alleged showed procedural unconscionability between plaintiffs and the putative class, on the one hand, and defendants, on the other.  Such factors included among others "residents' poor socio-economic background" and defendants' "knowledge of residents' vulnerability to oppression."  Plaintiffs also listed about 17 examples of substantive unconscionability in their FAC in connection with defendants' use of the standardized lease agreement in the 18 mobilehome parks.  As before, plaintiffs' class action allegations included any person who had an ownership interest in a mobilehome in any of the 18 parks, and a senior citizen and non-English-speaking subclass. 

Slip op., at 3-4.  Then, discussing the hearing on the demurrer to the FAC, the Court said, "At the demurrer hearing, plaintiffs' counsel agreed with the court that plaintiffs' FAC was 'a mess' and counsel admitted they 'did a horrible job in succinctly and systematically putting forth facts that show what the [FAC] -- what the case is about and how it shows a pattern of conduct that is deserving of being treated in a class action.' "  Slip op., at 4.  Not looking good.

Describing the subsequently issued Order on the demurrer to the FAC, the Court set forth key parts of the trial court's ruling:

"Plaintiffs allege multiple causes of action, all of which related in some way to the Lease Agreements utilized at the Defendants['] parks.  Based upon the allegations in the [FAC], it appears that some of the claims involved the alleged unconscionability of the contracts themselves, while others involve each Defendant's alleged actions in executing or enforcing the individual contracts as to individual Plaintiffs.  [¶]  The Court finds that multiple factual allegations predominate.  Plaintiffs['] measure of damages will be unique to each park.  The proposed class does not all reside at the same location or under the same circumstances.  Each putative class member is/was a resident at one of the eighteen separate mobilehome parks located throughout the State of California, giving rise to individualized factual questions related to causation, liability, and damages.

"Example of the individualized issues include the remedy (determining excess rents paid at each space requires a factual showing of fair market values for rents in a particular area [at] a particular time and park-by[-]park appraisal).  Further, there appear to be multiple lease agreements.  Although Plaintiffs allege Defendants used a 'standardized' Lease Agreement, they attach at least five different variations of the Lease Agreement and/or Amendments to the Lease Agreement.  (See Exhibits 'A,' 'B,' 'C,' 'D,' and 'E,' attached to the [FAC].)

Slip op., at 5. The trial court went on to identify additional issues, including the fact that many class members would not be able to state certain claims if they had not attempted to sell their homes, and there were no putative class representative plaintiffs for many of the mobilehome parks.

The SAC filed by the plaintiffs attempted to address many of the trial court's concerns, but a number of its allegations were found by the trial court to be conclusory assertions about defendants, and not allegations of fact.  The SAC did not address damage issues that would arise, which included the fact that several of the mobilehome parks were in cities with their own rent control ordinances.  The trial court was particularly concerned by the fact that each agreement at each park with each potential class member was individually negotiated and by the fact that a unique damage calculation would be required for each park and each person at each park. Moreover, the trial court took notice of the fact that many individuals were involved in their own litigation with their own park.

After discussing the procedural background, the Court made sure to note that it is undisputed that class allegations can be decided on demurrer:

It is beyond dispute that trial courts are permitted to decide the issue of class certification on demurrer.  (Tucker, supra, 208 Cal.App.4th at p. 212; see Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 440 [noting the issue is "settled" that courts are authorized to "weed[] out" legally meritless class action suits prior to certification by demurrer or pretrial motion].)  A trial court may sustain a demurrer to class action allegations where " 'it concludes as a matter of law that, assuming the truth of the factual allegations in the complaint, there is no reasonable possibility that the requirements for class certification will be satisfied.  [Citations.]'  [Citations.]"  (Tucker, at p. 211, italics added; see Canon U.S.A., Inc. v. Superior Court (1998) 68 Cal.App.4th 1, 5 [noting that when the "invalidity of the class allegations is revealed on the face of the complaint, and/or by matters subject to judicial notice, the class issue may be properly disposed of by demurrer or motion to strike," and noting that "[i]n such circumstances, there is no need to incur the expense of an evidentiary hearing or class-related discovery"].)

Slip op., at 14. Much of the discussion that follows is unsurprising, given the discussion of the trial court's analysis.  The Court did wade into the murky waters of attempting to categorize an allegation as either an "ultimate fact" or a "conclusion":

We conclude plaintiffs' allegations in their SAC—which were noticeably absent from their original complaint—that defendants implemented a uniform policy and procedure in each and every lease transaction with plaintiffs and the putative class members over a four-year period (i.e., the proposed class period), in each of the 18 mobilehome parks owned and/or operated by Tatum and Kaplan, are not properly admitted for purposes of demurrer because such allegations are not ultimate facts but rather merely contentions and/or improper factual conclusions.

Slip op., at 17-18. In my experience, this is very much an eye-of-the-beholder call that deserves a clarifying opinion with more objective guidance as to how to distinguish between the two.

In any event, the Court agreed with the trial court's assessments, finding, in particular, that the individual nature of the transactions was such that each course of dealing is unique, and damages, because of different circumstances, park locations, and local ordinances, are also unique to each potential class member.  The Court declined to grant leave to amend to the plaintiffs, agreeing with the trial court that the problems were insurmountable.  The lesson here is that overreach can be fatal.  It might have been more workable to describe uniform leasing practices at one mobilehome park and seek class relief for the aspects of the transaction that were common to all of the residents, while, at the same time, addressing how damages will be calculated and distributed.

The "separate location" argument seems better suited to this sort of consumer circumstance than it is in the wage & hour context, where defendants nevertheless try the "each of our stores is unique and different" argument, as if they have no uniform policies regulating employees and allow each store to run their own affairs like the wild West. Hey, at least this Court cited Brinker (but it felt like an ironic cite to me).

Hernandez v. Restoration Hardware, Inc. tells class action objectors to get party status or get lost

I frequently contemplate things without any real expectation that I will get an answer.  One thing I wonder about in the practice of law is whether California Courts of Appeal develop cultures as an institution (i.e., whether each Appellate District has a significant impact on its constituent members over time), or whether the tendencies are happenstance of the appointments (i.e., whether the tendencies of each Appellate District -- and Division therein -- is just the sum of random events like the preferences of the appointing administration and the timing of open seats). An application of this pondering occurred to me mere moments ago, when I read Hernandez v. Restoration Hardware, Inc. (March 14, 2016), in which the Fourth Appellate District, Division One, held that named party status is required to appeal a class action judgment. Jinkies!

In Hernandez v. Restoration Hardware, a bench trial resulted in a class recovery of up to $36,412,350.  The class representatives requested fees of $9,103,087.50 (25 percent of the total maximum fund). Francesca Muller, a class members, requested that the court order notice of the fee motion be sent to all class members.  The court denied the request, awarded the fees, and entered judgment.  Muller filed a notice of appeal. Class representative Hernandez substantively opposed the appeal but argued that Muller lacked standing to appeal at all. The Court of Appeal addressed the threshold issue of whether Muller had standing to appeal.

Recognizing that only an aggrieved party has standing to appeal, the Court began by recognizing the distinction between names class representatives and absent class members:

Indeed, "[t]he structure of the class action does not allow absent class members to become active parties, since 'to the extent the absent class members are compelled to participate in the trial of the lawsuit, the effectiveness of the class action device is destroyed.' "  (Ibid., fn. omitted.)  Although unnamed class members may be deemed "parties" for the limited purposes of discovery (Southern California Edison Co. v. Superior Court (1972) 7 Cal.3d 832, 840), unnamed class members are not otherwise considered "parties" to the litigation.  (Cf. National Solar Equipment Owners' Assn. v. Grumman Corp. (1991) 235 Cal.App.3d 1273, 1282 ["unnamed class members do not 'stand on the same footing as named parties' "].)

Slip op., at 9.  The Court then began its analysis by considering Eggert v. Pac. States S. & L. Co., 20 Cal. 2d 199 (1942), which considered the same issues presented here.  Concluding that Eggert was factually almost identical, theCourt concluded that Eggert required dismissal of the action:

Eggert appears to be on "all fours" with the present action: both involved a class action; both involved a matter litigated to judgment; both involved a challenge to the postjudgment attorney fee award to the counsel for the named plaintiff; both involved appellants who were members of the class, but not named parties, and who had appeared through counsel to object to the attorney fee award; and both involved members who took no steps to be added as named plaintiffs.  Accordingly, under Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, we must adhere to Eggert and dismiss the appeal.

Slip op., at 11.  The Court then commented on several decisions from Courts of Appeal that permitted appeals by non-party class members:

Muller also cites several cases in which California appellate courts stated a class member who was not a party to the action obtains appellate standing to challenge the judgment merely by interposing an objection to the judgment below.  However, neither of the cases cited by Muller, Consumer Cause, Inc. v. Mrs. Gooch's Natural Food Markets, Inc. (2005) 127 Cal.App.4th 387 and Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, made any effort to reconcile their conclusions with Eggert, and instead rooted their conclusions in the analysis contained in Trotsky v. Los Angeles Fed. Sav. & Loan Assn. (1975) 48 Cal.App.3d 134 (Trotsky).  (See Wershba, at pp. 235-236 [citing only Trotsky on issue of standing]; Consumer Cause, at pp. 395-396 [citing Trotsky and Wershba on issue of standing].)  Accordingly, we examine Trotsky.

Slip op., at 12.  That examination of Trotsky was not flattering, and the Court quickly concluded that Trotsky had failed to consider the "party" element of section 902:

Trotsky focused primarily on whether an objector to a settlement was "aggrieved" within the meaning of Code of Civil Procedure section 902, concluding objectors were aggrieved because " '[i]t is possible that, within a class, a group of small claimants might be unfavorably treated by the terms of a proposed settlement. For them, the option to join is in reality no option at all,' " and reasoning that because those claimants might be forced to choose between "equally unpalatable alternatives"—of accepting either nothing or an unfair settlement—those parties were sufficiently aggrieved for purposes of the right to appeal.  (Trotsky, supra, 48 Cal.App.3d at pp. 139-140.)  However, Trotsky did not examine the distinct "party" element of Code of Civil Procedure section 902, nor make any effort to reconcile its conclusion with Eggert's holding that unnamed class members whose only appearance was to object to the attorneys' fees had no standing to appeal because they were not "parties" and did not avail themselves of the "ample opportunity . . . to become parties of record . . . ."  (Eggert, supra, 20 Cal.2d at p. 201.)  Because Eggert teaches the "party" requirement of Code of Civil Procedure section 902 is not met merely because the "aggrieved" requirement of section 902 might also be satisfied as to a nonparty class member, we conclude Trotsky's analysis of standing is flawed and that Trotsky and its progeny (which includes both Consumer Cause, Inc. v. Mrs. Gooch's Natural Food Markets, Inc., supra, 127 Cal.App.4th 387 and Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th 224) should not be followed.

Slip op., at 13-14.  Well now.  That's....interesting.  The Court went on to point out that federal courts handle this differently, but California courts aren't federal courts, and there is no requirement that California follow the federal approach.  You have to at least respect the cut of this Court's jib to state that they are bound to follow a factually similar 1942 decision and reject much more recent decisions for failing to address the California Supreme Court's Eggert decision. That said, of the many things I ponder, one is whether this case case more than 90 days of shelf life.

Anti-SLAPP Motion fails to satisfy the first "arising from" prong under the customary two-part analysis

I regret that the press of work kept me away from this site for quite some time, other than the podcasts that I've continued to work on.  It looks like I'm going to be able to come up for air, so I am going to get back to posting on a more regular basis.

In Trilogy at Glen Ivy Maintenance Association, et al. v. Shea Homes, Inc., et al. (pub. ord. Mar. 19, 2015), the Court of Appeal (Fourth Appellate District, Division One) affirmed a trial court finding that an anti-SLAPP Motion lacked merit for failure to satisfy even the first prong of the two-part anti-SLAPP analysis.  As summarized by the Court, under the first step, "the defendant bringing an anti-SLAPP motion must make a prima facie showing that the plaintiff's suit is subject to section 425.16 by showing the plaintiff's claims arise from conduct by the defendant taken in furtherance of the defendant's constitutional rights of petition, or free speech in connection with a public issue, as defined by the statute."  Slip op., at 7-8.

The Court explained that, when evaluating whether a claim arises from protected speech, a trial court must look to the gravamen of the claim:

[W]e disregard the labeling of the claim (Ramona Unified School Dist. v. Tsiknas (2005) 135 Cal.App.4th 510, 522) and instead "examine the principal thrust or gravamen of a plaintiff's cause of action to determine whether the anti-SLAPP statute applies" and whether the trial court correctly ruled on the anti-SLAPP motion. (Id. at pp. 519-522.) We assess the principal thrust by identifying "the allegedly wrongful and injury-producing conduct . . . that provides the foundation for the claim." (Martinez v. Metabolife Internat., Inc. (2003) 113 Cal.App.4th 181, 189.) If the core injury-causing conduct on which the plaintiff's claim is premised does not rest on protected speech, collateral or incidental allusions to protected activity will not trigger application of the anti-SLAPP statute. (Ibid.)

Slip op., at 9. Following from this distinction, the Court concluded that the unusual choice of wording in the complaint was irrelevant to the analysis of the actual gravamen of the claim.  Specifically, the plaintiff used the word "repudiation" to describe a species of fiduciary breach, leading the defendant to claim that the complaint was about speech.  The Court was not persuaded, correctly identifying the fiduciary breach "gravamen" of the complaint.

Percentage of the fund is still an approved method of awarding fees in California class actions

Funny timing on this one.  In Episode 14 of the Class Re-Action podcast, our discussion turned at one point to fee awards in class actions.  We briefly mentioned Laffitte v. Robert Half International, Inc. (November 21, 2014), but didn't dive under the hood.  But now that I've had a chance to read it, I see that a postscript to the podcast is in order.  In Laffitte, the Court of Appeal (Second Appellate District, Division Seven) considered an appeal by an objector to a class action settlement.  One issue the Court touched on was the propriety of using a percentage of the fund to award fees (with a lodestar crosscheck), rather than the currently trendy approach of using lodestar with a percentage crosscheck.  Here's a rundown of the Court's opinion.

The plaintiff settled a class action lawsuit against a group of defendants related to Robert Half International Inc. for $19 million.  The trial court granted the parties’ ex parte application for an order amending the settlement agreement, class notice, and claim form. Among other things, the amended settlement agreement said that Robert Half would pay a gross settlement amount of $19,000,000. Subject to court approval, the settlement agreement listed the following payments would be made from the gross settlement amount: class counsel attorneys’ fees of not more than $6,333,333.33 (one third of the gross settlement amount) and costs not to exceed counsel’s actual costs, class representative payments not to exceed $80,000, settlement administrator fees not to exceed $79,000, civil penalties owed to the California Labor and Workforce Development Agency, and applicable payroll taxes on the employees’ recovery.

In support of their motion for attorneys’ fees, class counsel submitted declarations from the attorneys in each of the three law firms serving as class counsel. The attorneys did not submit detailed time records. The declarations stated that class counsel worked a total of 4,263.5 hours on the case (and anticipated working 200 hours on the appeal) and, using the hourly rate for each attorney, calculated that the total lodestar amount was $2,968,620 ($3,118,620 including the appeal). Class counsel requested a lodestar multiplier of between 2.03 to 2.13 for a total requested attorneys’ fee award of $6,333,333.33.

David Brennan, a member of the class, objected to the settlement and the amount awarded in attorney’s fees. The trial court overruled his objections and approved the settlement, which included an award of attorneys’ fees to class counsel of one-third of the settlement, or approximately $6.3 million. Brennan appealed from the order approving the settlement and entering final judgment, challenging both the class action settlement notice regarding the award of attorneys’ fees and the amount of attorneys’ fees awarded. Laffitte asked that the Court affirm the trial court’s order. The Robert Half defendants had no strong position on the appropriate amount of fees, but asked that the Court affirm the order “in order to bring this lawsuit to closure.”

The Court began its discussion of the challenge to attorney’s fees by observing that the Notice stated the maximum amount of fees that would be sought by class counsel:

The class notice describing the preliminarily-approved settlement included the proposed attorneys’ fees award for class counsel, a schedule for final approval, and the procedure for making objections. The notice stated: “Class Counsel, consisting of Law Offices of Kevin T. Barnes, Law Office of Joseph Antonelli, and Appell | Hilaire | Benardo LLP, will seek approval from the Court for the payment in an amount not more than $6,333,333.33 for their attorneys’ fees in connection with their work in the Actions, and an amount not more than $200,000 in reimbursement of their actual litigation expenses that were advanced in connection with the Actions. Class Counsel’s attorneys’ fees and litigation expenses as approved by the Court will be paid out of the Gross Settlement Amount.”

Slip op., at 10.  The Court then considered and rejected the argument that the motion for an award of fees should be available to the class members before the deadline to object expires, as Fed. R. Civ. P. 23 requires, as interpreted by the Ninth Circuit decision, In re Mercury Interactive Corp. Securities Litigation, 618 F.3d 988 (9th Cir. 2010):  “Rule 23 does not control in California. ‘As a general rule, California courts are not bound by the federal rules of procedure but may look to them and to the federal cases interpreting them for guidance or where California precedent is lacking. [Citations.] California courts have never adopted Rule 23 as “a procedural strait jacket. To the contrary, trial courts [are] urged to exercise pragmatism and flexibility in dealing with class actions.” [Citations.]’ ”  Slip op., at 11-12.  Instead, the Court said that California had adequate rules for notice:

California precedent and authority governing court approval of class action settlements and attorneys’ fees applications, however, are not lacking. Rule 3.769 of the California Rules of Court states the procedure for including an attorneys’ fees provision in a class action settlement agreement and for giving notice of the final approval hearing on the proposed settlement. Under rule 3.769(b) of the California Rules of Court, “[a]ny agreement, express or implied, that has been entered into with respect to the payment of attorney’s fees or the submission of an application for the approval of attorney’s fees must be set forth in full in any application for approval of the dismissal or settlement of an action that has been certified as a class action.”

Slip op., at 12.  The Court concluded that the notice given complied with Rule 3.769:

The notice given to the class members complied with California Rules of Court rule 3.769 by apprising them of the agreement concerning attorneys’ fees. The notice told the class members that class counsel could receive up to $6.3 million in attorneys’ fees. The notice also advised the class members of the procedures for objecting to the proposed settlement and appearing at the settlement hearing, where they could present their objections to any aspect of the settlement, including the amount of attorneys’ fees to be awarded to class counsel.

Slip op., at 13.  Positive number one from this opinion: no need to copy the approach of In re Mercury Interactive.

Next, the Court looked at the reasonableness of the fee award, noting discussion first the lodestar method of calculation:

In Lealao v. Beneficial California, Inc., supra, 82 Cal.App.4th 19 the court stated that “[t]he primacy of the lodestar method in California was established in 1977 in Serrano [v. Priest (1977)] 20 Cal.3d 25. . . . [O]ur Supreme Court declared: ‘“The starting point of every fee award . . . must be a calculation of the attorney’s services in terms of the time he has expended on the case.”’” (Id. at p. 26.) The court added that “[i]n so-called fee shifting cases, in which the responsibility to pay attorney fees is statutorily or otherwise transferred from the prevailing plaintiff or class to the defendant, the primary method for establishing the amount of ‘reasonable’ attorney fees is the lodestar method. The lodestar (or touchstone) is produced by multiplying the number of hours reasonably expended by counsel by a reasonable hourly rate. Once the court has fixed the lodestar, it may increase or decrease that amount by applying a positive or negative ‘multiplier’ to take into account a variety of other factors, including the quality of the representation, the novelty and complexity of the issues, the results obtained, and the contingent risk presented. [Citation.]”

Slip op., at 16-17.   The Court then noted that percentage of the fund remains a viable method of awarding fees in common fund cases:

Subsequent judicial opinions have made it clear that a percentage fee award in a common fund case “may still be done.” For example, in Chavez v. Netflix, Inc. (2008) 162 Cal.App.4th 43 the court stated that “the Lealao court did not purport to mandate the use of one particular formula in class action cases. The method the trial court used here and that [was] discussed in Lealao are merely different ways of using the same data—the amount of the proposed award and the monetized value of the class benefits—to accomplish the same purpose: to cross-check the fee award against an estimate of what the market would pay for comparable litigation services rendered pursuant to a fee agreement. [Citation.]” (Id. at p. 65.) Therefore, “fees based on a percentage of the benefits are in fact appropriate in large class actions when the benefit per class member is relatively low . . . .” (Id. at p. 63.)

Slip op., at 18.  In this matter, the Court held proper the trial court’s use of a percentage of the fund method with a lodestar crosscheck:

The trial court did not use the percentage of fund method exclusively to determine whether the amount of attorneys’ fees requested was reasonable and appropriate. The trial court also performed a lodestar calculation to cross-check the reasonableness of the percentage of fund award. This was entirely proper. “[A]lthough attorney fees awarded under the common fund doctrine are based on a ‘percentage-of-the-benefit’ analysis, while those under a fee-shifting statute are determined using the lodestar method, ‘[t]he ultimate goal . . . is the award of a “reasonable” fee to compensate counsel for their efforts, irrespective of the method of calculation.’ [Citations.]” (Apple Computer, Inc. v. Superior Court (2005) 126 Cal.App.4th 1253, 1270.) It therefore is appropriate for the trial court to cross-check an award of attorneys’ fees calculated by one method against an award calculated by the other method in order to confirm whether the award is reasonable.

Slip op., at 19-20.  Positive number two from this opinion: focusing on the percentage of the fund is still appropriate (courts claiming otherwise are misrepresenting the authority out there, though it probably doesn't matter, since what this really points out is that any rational method for evaluating the fee against the benefit conferred).  The Court added to the beneficial discussion by holding that detailed time records are not required:

Brennan argues that, in connection with the court’s lodestar calculations, class counsel did not submit detailed attorney time records. Such detailed time records, however, are not required. “It is well established that ‘California courts do not require detailed time records, and trial courts have discretion to award fees based on declarations of counsel describing the work they have done and the court’s own view of the number of hours reasonably spent.

Slip op., at 20.  That's right - more confirmation that there is no requirement to maintain detailed time records.  Positive number three.  The Court then soundly rejected the objector’s challenge to the application of a multiplier to compare the percentage of the fund award to the lodestar.  Finally, the Court concluded that the “clear sailing” provision in the settlement agreement was not improper in general:

“While it is true that the propriety of ‘clear sailing’ attorney fee agreements has been debated in scholarly circles [citations], commentators have also noted that class action ‘settlement agreement[s] typically include[] a “clear sailing” clause . . . .’ [Citation.] In fact, commentators have agreed that such an agreement is proper. ‘[A]n agreement by the defendant to pay such sum of reasonable fees as may be awarded by the court, and agreeing also not to object to a fee award up to a certain sum, is probably still a proper and ethical practice. This practice serves to facilitate settlements and avoids a conflict, and yet it gives the defendant a predictable measure of exposure of total monetary liability for the judgment and fees in a case. To the extent it facilitates completion of settlements, this practice should not be discouraged.’ [Citation.]” (Consumer Privacy Cases, supra, 175 Cal.App.4th at p. 553, fn. omitted; see Cellphone Termination Fee Cases (2009) 180 Cal.App.4th 1110, 1120 [“[c]lass action settlements frequently contain a ‘clear sailing’ agreement, whereby the defendant agrees not to object to an attorney fee award up to a certain amount”].)

Slip op. at 24-25.  The Court then concluded that there was no reason to find the “clear sailing” provision suspect in this matter.  The trial court was affirmed and costs were awarded to the plaintiff and defendants, indicating the Court’s view of the lack of merit in the appeal.

Overstock.com, Inc., et al. v. The Goldman Sachs Group, Inc., et al. analyzes sealing orders in California

Parties love to mark things "confidential" in discovery (by "parties," I mean defendants in most cases).  Protective orders that allow for such designations also typically require, generally, that "confidential" material be submitted to the court provisionally under seal.  However, this general framework is frequently abused.  In Overstock.com, Inc., et al. v. The Goldman Sachs Group, Inc., et al. (November 13, 2014), the Court of Appeal (First Appellate District, Division One) examined the propriety of the trial court's sealing orders, reaching other interesting questions:

On our way to reaching these conclusions, we address several issues pertaining to sealing orders that have remained unsettled, including the reach of California Rules of Court, rules 2.550 and 2.551, and media participation in sealing hearings. We also discuss tools available to the trial courts to deal with abusive litigation tactics impacting the handling of sealing issues. Indeed, we are appalled at the burden the parties foisted on the trial court here and view this case as a companion to the decision of our brethren in Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243, 289–290, decrying unnecessary and oppressive summary judgment tactics.

Slip op., at 2.

"Nearly all jurisdictions, including California, have long recognized a common law right of access to public documents, including court records."  Slip op., at 8.  "More recently, many jurisdictions, including California, have recognized a constitutional right of access to certain court documents grounded in the First Amendment."   Slip op., at 9.  "Not all documents submitted or filed by the parties, however, fall within the ambit of the constitutional right of access. NBC Subsidiary hastened to add the courts have held 'the First Amendment does not compel public access to discovery materials that are neither used at trial nor submitted as a basis for adjudication.'"  Slip op., at 10.  "In response to NBC Subsidiary, the Judicial Council promulgated 'the sealed records rules,' rules 2.550, 2.551."  Slip op., at 11.

Turning to an unsettled question regarding the application of Rule 2.550, the Court rejected the construction argued by the defendants, which would have left it up to the trial court to decide first if it was relying on material before deciding whether Rule 2.550 applies:

Defendants maintain Mercury sets forth a bright-line standard: confidential discovery material merely filed (or, more accurately, lodged) with the court, but not actually “considered or relied on” by the court in connection with the basis on which it rules, is not “submitted as a basis for adjudication” and, thus, is not subject to the sealed records rules. We do not agree Mercury can or should be boiled down to such a limited view.

Slip op., at 21.  Instead, the Court held that by "submitting" material for adjudication of (non-discovery) pre-trial motions, the submitting party triggered application of the sealing rules: "defendants’ narrow construction would necessarily mean sealing decisions would be made after-the-fact—that is, after the trial court issues its substantive ruling—because only then would the ground or grounds on which the court rules be known."  Slip op., at 23.

After holding that materials "submitted" for adjudication are properly regulated by the sealing rules, the Court then discussed the consequences of submitting irrelevant material as part of a pre-trial motion.  "As every court to consider the question has observed, the right of access applies only to discovery materials that are relevant to the matters before the trial court." Slip op., at 25.  After raising the subject of irrelevant material, the Court turned to abuses related to the sealing rules:

The problem is two-fold—parties who fail to exercise any discipline as to the confidential documents with which they inundate the courts, and parties who indiscriminately insist every document satisfies the rigorous requirements of the sealed records rules. This case exemplifies both.

Slip op., at 26.  Describing the abuses, the Court said:

Plaintiffs submitted a veritable mountain of confidential materials in opposition to defendants’ motions for summary judgment. Entire documents were submitted, when only a page or two were identified as containing matter relevant to the issues. Multiple documents were submitted to support a claim, when one would have sufficed. No mention at all was made of hundreds of the exhibits. Inundating the trial court with this deluge of confidential materials was brute litigation overkill. (See Nazir v. United Airlines, Inc., supra, 178 Cal.App.4th at pp. 289–290.)

Slip op., at 26-27 (footnotes omitted).  The Court encouraged trial courts to sanction parties for abuses or strike improper material to curb such abuses.

Next, the Court discussed the evidentiary requirements for sealing:

A party seeking to have records sealed under the sealed records rules must make an evidentiary showing sufficient to support the findings required by those rules. (Rule 2.551(b)(1).) While “conclusory or otherwise unpersuasive” declarations that parrot statutory or rule-based requirements are generally inadequate (Providian, 96 Cal.App.4th at p. 301), the privacy interest in some documents, like medical records, is so apparent a declaration is not required (Oiye, supra, 211 Cal.App.4th at p. 1070).

Slip op., at 29.  The balance of the opinion, nearly 30 pages, sets forth the Court's analysis of the propriety of the sealing order for specific documents.  In many instances, the Court held that either a small portion of a long document should have been sealed or the entire document should have been stricken.

Appellate court provides some guidance on electronic discovery obligations under California law

Vasquez v. CA School of Culinary Arts (pub. ord. September 26, 2014) (Second Appellate District, Division Two) is ostensibly about an award of attorney's fees following the plaintiffs' successful opposition of a motion to quash their electronic records subpoena directed to student loan servicing entity Sallie Mae, Inc.  After all, the Court describes the appeal as follows: "Sallie Mae, Inc. (Sallie Mae) appeals from an order awarding plaintiffs and respondents Daniel Vasquez, et al. (collectively, plaintiffs) $11,487 in attorney fees and costs incurred after plaintiffs successfully opposed Sallie Mae’s motion to quash a business records subpoena seeking electronically stored information pertaining to student loans made to them by Sallie Mae."  Slip op., at 2.

The real value of the case is found in its discussion of what defines a reasonable electronics evidence request:

The motion to quash was premised on the ground that the subpoena was improper because it required Sallie Mae to do more than produce records as they already exist and that Sallie Mae could not be compelled to perform research, or to compile data through a programming effort in order to create a spreadsheet.

There is little California case law regarding discovery of electronically stored information under section 1985.8. We look, therefore, to federal case law on the discovery of electronically stored information under the Federal Rules of Civil Procedure for guidance on the subject. “‘Because of the similarity of California and federal discovery law, federal decisions have historically been considered persuasive absent contrary California decisions.’ [Citation.]” (Ellis v. Toshiba America Information Systems, Inc. (2013) 218 Cal.App.4th 853, 862, fn. 6, quoting Liberty Mutual Ins. Co. v. Superior Court (1992) 10 Cal.App.4th 1282, 1288.)

Slip op., at 8.  Citing Gonzales v. Google, Inc.,  234 F.R.D 674 (N.D.Cal. 2006), the Court held that "a nonparty cannot avoid complying with a subpoena seeking electronically stored information on the ground that it must create new code to format and extract that information from its existing systems."  Slip op., at 9.

Until California Courts uniformly depart from this holding, or the statutory law is modified, it looks like federal courts will supply strong guidance in on the questions that arise during electronic discovery.