I received news earlier today that attorney Bruce C. Fishelman died on November 25, 2014 of a heart attack (this is one of those times that I'd be glad to have my facts wrong). My condolences to his family. Bruce was a partner at the first law firm to employ me. Many years later, he was a co-sponsor of my application for admission to the bar of the United States Supreme Court. Beneath his gruff exterior was a person who cared deeply about the well-being of others. Sad to say that I won't be pocket dialing Bruce anymore.
Episode 13 of the Class Re-Action podcast is now available. Our Episode 13 guest is Andrew Satenberg of Manatt, who predicted a year ago our need to discuss Martinez v. Joe's Crab Shack Holdings (November 10, 2014).
Because of the changes to MCLE printed material rules, the Class Re-Action podcasts will now be 30-45 minutes longs, rather than an hour or more.
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.
I'm sure you missed me immensely. All five of you. Between the demands of work and some under the hood adjustments, I haven't had an opportunity to post anything since September. I am pleased (or just relieved) to report that I have moved safely to SquareSpace hosting platform 7 without any major glitches thus far. I took the opportunity to fiddle with site design to make things ever so slightly cleaner to look at and easier to read. I may do more in the design area, but, for now, the plumbing overhaul is done.
Oh, and there are some cases begging for some special attention. I will take care of that forthwith.
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.
When despicable loan modification practices meet desperate homeowners filing their own lawsuit, you get Fleet v. Bank of America (pub ord. September 24, 2014), from the Court of Appeal (Fourth Appellate, Division Three).
In Luckey v. Superior Court (July 22, 2014), the Court of Appeal (Second Appellate District, Division Three), the Court considered a writ following the denial of a stipulation to utilize a temporary judge to handle a class settlement approval. Plaintiff filed a putative class action alleging violation of FACTA arising from printing “more than the last 5 digits of the card number or the expiration date” on an electronically printed receipt provided to the cardholder at the point of the transaction. (15 U.S.C. § 1681c(g).) The operative complaint alleged causes of action for violation of FACTA, negligence, and declaratory relief. Plaintiff defined the putative class as “All individuals who purchased merchandise using a personal credit card or personal debit card at any retail store operated by Defendant within the United States during the Class Period2 who: [¶] Subclass A: Were issued an electronically printed receipt that reflected more than the last five digits of the card; and/or [¶] Subclass B: Were issued an electronically printed receipt that reflected the card's expiration date....” Plaintiff sought, on behalf of the class, damages of between $100 and $1000 for each receipt which violated FACTA (with separate damages for each violation), punitive damages, and reasonable attorney fees. Plaintiff also sought an order declaring that Cotton On's credit and debit card receipt practices violate FACTA and an order enjoining Cotton On from continuing to do so. No responsive pleading was filed. The only other documents filed in this case consisted of stipulations for continuance of the initial status conference, and the stipulation for appointment of a temporary judge which is at issue in this writ proceeding. Plaintiff represented that, from the time the complaint was filed, the parties engaged in “informal discovery and exchanged information” in preparation for a mediation.
The mediation was held before a retired superior court judge. A class action settlement was reached at the mediation, and memorialized in a written settlement agreement. It is a class settlement, defining the settlement class as “all individuals who purchased merchandise using a personal credit card or personal debit card at any retail store operated by Cotton On within the United States since May 9, 2008, who were issued an electronically printed receipt that reflected more than the last five digits of the card and/or were issued an electronically printed receipt that reflected the card's expiration date.” It excludes persons who validly opt out of the class.
Under the terms of the settlement, the class was to receive compensation in the form of “Merchandise Credits,” which was really a $5 credit on any transaction at or exceeding $25 at one of Cotton On's retail stores, during one pre-selected week. Notice was to be provided to the class by means of e-mail notice to be provided “to all [Cotton On]'s customers in the United States for whom [Cotton On] possesses a valid e-mail address.” Notice would also be given on Cotton On's website and near each of its retail stores' cash registers.
Cotton On agreed to fund the settlement in the amount of $1,000,000. Of that amount, the parties agreed that Luckey's counsel could seek an award of attorney's fees and costs in an amount of $302,000. The parties also agreed that Luckey himself could receive a payment of $5,000 as class representative, and that $135,000 would be allocated to the administrative costs of the settlement.
In sum the settlement provided as for: (1) $5,000 paid to Luckey (whereas each class member would receive, at most, a merchandise credit for one one-thousandth of that amount); (2) $302,000 paid to Luckey's counsel (for work which, to that point, consisted of filing a complaint and amended complaint, and preparing for and attending a one-day mediation); and (3) a one-week $5 off $25 sale, of which Cotton On would send notice to its e-mail customer list.
Pursuant to the settlement agreement, the parties stipulated for appointment of a temporary judge to hear the matter “until final determination thereof.” Specifically, the parties intended to submit to the temporary judge the issues related to preliminary and final approval of the class action settlement. The same retired judge who had served as the mediator in this matter was identified by the parties as the proposed temporary judge. The temporary judge would be privately compensated by the parties.
The stipulation was presented to the Supervising Judge of the Civil Division, as required by the Superior Court of Los Angeles County, Local Rules, rule 2.24(a)(1). On June 2, 2014, the court issued a minute order declining to approve the stipulation. The court's analysis explained that, although plaintiff’s counsel could stipulate to the appointment of the temporary judge on behalf of the plaintiff, the “submitted papers do not demonstrate that the named plaintiffs or the attorneys are authorized to speak for all class members.” Without the stipulation of all putative class members, the case could not be transferred to a temporary judge. The plaintiff filed a petition for a writ to compel appointment of the temporary judge. The Court of Appeal issued an Order to Show cause.
In responding to the Court of Appeal, the plaintiff challenged the Superior Court’s standing to oppose the writ petition:
In this case, Luckey suggests that the Superior Court lacked standing to oppose his writ petition because the Superior Court “has presented no evidence that the issues presented impact the operations or procedures of the Court or that the decision will impose any financial obligations on the court's operations.” The argument is puzzling given the arguments Luckey makes in support of his petition. First, Luckey argues that he is, in fact, challenging a procedure of the court, not merely an isolated ruling. Luckey represents that the Superior Court previously “routinely issued orders appointing temporary judges to preside over class action matters,” but, “in or around November 2013,” the court “stopped” approving those stipulations and began denying them. Second, Luckey argues at length, although without evidentiary basis, that the court's financial obligations are, in fact, at issue. Luckey argues that lengthy delays are now the reality in class action litigation, and that parties should be permitted to avoid these delays by the use of temporary judges—a procedure which, according to Luckey, would “alleviate[ ] space for other litigants” at Superior Court. Indeed, Luckey represents that the Superior Court previously appointed temporary judges to serve in class action matters “in part[ ] due to congested and backlogged dockets.” As the Superior Court's procedures and financial obligations are at issue, the Superior Court has a right to appear.
Slip op., at 15-16. The Court then examined whether the trial court erred when it denied the stipulation of the parties to use a “temporary judge” to decide the fairness of the class settlement. The Court began by examining the complex question of whether absent putative class members are “parties” for purposes of the stipulation at issue. The Court concluded they were not:
[W]hile Luckey and Cotton On were the only “parties litigant” at the time of the stipulation to the temporary judge, they were also the only parties who could be bound by such a stipulation. As the conceded purpose of the stipulation was to bind all putative class members to the stipulation, and they could not be bound until they had been given notice and an opportunity to appear, the stipulation was ineffective. The state Constitution provides that, for a stipulation to a temporary judge to be effective, that stipulation must be made by the parties litigant. In a pre-certification class action, the parties litigant have not yet been identified; thus, no such stipulation can be effectively made.
Slip op., at 22-23. Next, the Court concluded that the Rules of Court directed the same conclusion, because of the right of objectors to intervene:
Our consideration of the applicable rules of court leads us to the same conclusion. California Rules of Court, rule 2.835(b) governs requests to intervene in matters pending before temporary judges. It states, in pertinent part, “A motion for leave to file a complaint for intervention in a case pending before a temporary judge requested by the parties must be filed with the court and served on all parties and the temporary judge. The motion must be heard by the trial court judge to whom the case is assigned or, if the case has not been assigned, by the presiding judge or his or her designee. If intervention is allowed, the case must be returned to the trial court docket unless all parties stipulate ... to proceed before the temporary judge.” In other words, when a party seeks to intervene in a matter pending before a temporary judge, that party's right to intervene must be determined by the trial court, not the temporary judge. Furthermore, if intervention is permitted, the case must be returned to trial court unless the intervenor also agrees to the temporary judge.
Slip op., at 23-24. Finally, the Court observed that public policy concerns weighed against the procedure advocated by the petitioner, having earlier observed: “A class member objecting to the settlement as unfair will certainly believe he or she is facing an uphill battle in convincing the temporary judge of the merits of the objection; the temporary judge clearly believed in the propriety of the settlement when acting as a mediator. This could well raise a question of an appearance of impropriety.”
As I fill the backlog, we have yet another big decision from the California Supreme Court. In Ayala v. Antelope Valley Newspapers, 59 Cal. 4th 522 (June 30, 2014), the Supreme Court examined how the question of certification should be answered in the context of misclassification of independent contractors. Newspaper carriers, classified as independent contractors, filed suit to obtain remedies available to employees under California’s wage & hour laws. Plaintiffs moved for class certification. The trial court concluded the case could not proceed as a class action, holding that on the critical question whether plaintiffs and the class were employees, plaintiffs had not shown common questions predominate. The trial court held that to determine employee status for the class would necessitate numerous unmanageable individual inquiries into the extent to which each carrier was afforded discretion in his or her work. The Court of Appeal disagreed in part, holding that the trial court had misunderstood the nature of the inquiries called for, and remanded for reconsideration of the class certification motion as to five of the complaint’s claims.
The Supreme Court affirmed the Court of Appeal. Beginning with the test for employee status as the key issue for evaluating the commonality issue, the Court said:
We begin by identifying the principal legal issues and examining the substantive law that will govern. In doing so, we do not seek to resolve those issues. Rather, the question at this stage is whether the operative legal principles, as applied to the facts of the case, render the claims susceptible to resolution on a common basis. (Brinker, supra, 53 Cal.4th at pp. 1023–1025, 139 Cal.Rptr.3d 315, 273 P.3d 513; Sav–On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 327, 17 Cal.Rptr.3d 906, 96 P.3d 194 [the focus “is on what type of questions—common or individual—are likely to arise in the action, rather than on the merits of the case”].)
The trial court and Court of Appeal correctly recognized as the central legal issue whether putative class members are employees for purposes of the provisions under which they sue. If they are employees, Antelope Valley owes them various duties that it may not have fulfilled; if they are not, no liability can attach. In turn, whether putative class members' employee status can be commonly resolved hinges on the governing test for employment.
Ayala v. Antelope Valley Newspapers, Inc., 59 Cal. 4th 522, 530 (2014). The Court observed that the test relied upon in the Courts below was the Borello common law test. After considering the need to examine other employment tests, the Court concluded that the case could be resolved by focusing on the common law test exclusively. The Court then restated the essentials of the common law test for employment:
Under the common law, “ ‘[t]he principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.’ ” (Borello, supra, 48 Cal.3d at p. 350, 256 Cal.Rptr. 543, 769 P.2d 399, quoting Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 946, 88 Cal.Rptr. 175, 471 P.2d 975; accord, Empire Star Mines Co. v. Cal. Emp. Com. (1946) 28 Cal.2d 33, 43, 168 P.2d 686.) What matters is whether the hirer “retains all necessary control” over its operations. (Borello, at p. 357, 256 Cal.Rptr. 543, 769 P.2d 399.) “ ‘[T]he fact that a certain amount of freedom of action is inherent in the nature of the work does not change the character of the employment where the employer has general supervision and control over it.’ ” (Burlingham v. Gray (1943) 22 Cal.2d 87, 100, 137 P.2d 9; see Toyota Motor Sales U.S.A., Inc. v. Superior Court (1990) 220 Cal.App.3d 864, 876, 269 Cal.Rptr. 647; Grant v. Woods (1977) 71 Cal.App.3d 647, 653, 139 Cal.Rptr. 533.) Perhaps the strongest evidence of the right to control is whether the hirer can discharge the worker without cause, because “[t]he power of the principal to terminate the services of the agent gives him the means of controlling the agent's activities.” (Malloy v. Fong (1951) 37 Cal.2d 356, 370, 232 P.2d 241; see Borello, at p. 350, 256 Cal.Rptr. 543, 769 P.2d 399; Kowalski v. Shell Oil Co. (1979) 23 Cal.3d 168, 177, 151 Cal.Rptr. 671, 588 P.2d 811; Isenberg v. California Emp. Stab. Com. (1947) 30 Cal.2d 34, 39, 180 P.2d 11; Burlingham, at pp. 99–100, 137 P.2d 9.)
Ayala, 59 Cal. 4th at 531. The Court added an additional, significant observation to this formulation, observing, “The worker's corresponding right to leave is similarly relevant: “ ‘An employee may quit, but an independent contractor is legally obligated to complete his contract.’ ” (Perguica v. Ind. Acc. Com. (1947) 29 Cal.2d 857, 860, 179 P.2d 812.)” Ayala, 59 Cal. 4th at 531 n. 2. The Court then listed the secondary factors that a court may consider, including: (a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee.
Next the Court turned to the question of whether certification should have been granted in this matter. Before doing so, however, the Court framed the core question, right to control, at issue in the case:
Significantly, what matters under the common law is not how much control a hirer exercises, but how much control the hirer retains the right to exercise. (Perguica v. Ind. Acc. Com., supra, 29 Cal.2d at pp. 859–860, 179 P.2d 812 [“The existence of such right of control, and not the extent of its exercise, gives rise to the employer-employee relationship.”]; Empire Star Mines Co. v. Cal. Emp. Com., supra, 28 Cal.2d at p. 43, 168 P.2d 686 [“If the employer has the authority to exercise complete control, whether or not that right is exercised with respect to all details, an employer-employee relationship exists.”]; Industrial Ind. Exch. v. Ind. Acc. Com. (1945) 26 Cal.2d 130, 135, 156 P.2d 926 [“The right to control and direct the activities of the alleged employee or the manner and method in which the work is performed, whether exercised or not, gives rise to the employment relationship.”]; S.A. Gerrard Co. v. Industrial Acc. Com. (1941) 17 Cal.2d 411, 414, 110 P.2d 377 [“the right to control, rather than the amount of control which was exercised, is the determinative factor”]; Hillen v. Industrial Acc. Com. (1926) 199 Cal. 577, 581–582, 250 P. 570 [“It is not a question of interference, or non-interference, not a question of whether there have been suggestions, or even orders, as to the conduct of the work; but a question of the right to act, as distinguished from the act itself or the failure to act.”].) Whether a right of control exists may be measured by asking “ ‘ “whether or not, if instructions were given, they would have to be obeyed” ’ ” on pain of at-will “ ‘ “discharge[ ] for disobedience.” ’ ” (Toyota Motor Sales U.S.A., Inc. v. Superior Court, supra, 220 Cal.App.3d at p. 875, 269 Cal.Rptr. 647.)
Ayala, 59 Cal. 4th at 533. Applying this test to the case before it, the Court observed that:
at the certification stage, the relevant inquiry is not what degree of control Antelope Valley retained over the manner and means of its papers' delivery. It is, instead, a question one step further removed: Is Antelope Valley's right of control over its carriers, whether great or small, sufficiently uniform to permit classwide assessment? That is, is there a common way to show Antelope Valley possessed essentially the same legal right of control with respect to each of its carriers? Alternatively, did its rights vary substantially, such that it might subject some carriers to extensive control as to how they delivered, subject to firing at will, while as to others it had few rights and could not have directed their manner of delivery even had it wanted, with no common proof able to capture these differences?
Ayala, 59 Cal. 4th at 533-34. The Court concluded that the trial court lost sight of these questions in its analysis:
The trial court lost sight of this question. Its order reveals the denial of certification ultimately rested on two related determinations: (1) the record reflected considerable variation in the degree to which Antelope Valley exercised control over its carriers; and (2) the putative class as a whole was not subject to pervasive control as to the manner and means of delivering papers. Neither of these considerations resolves the relevant inquiry. Whether Antelope Valley varied in how it exercised control does not answer whether there were variations in its underlying right to exercise that control that could not be managed by the trial court. Likewise, the scope of Antelope Valley's right to control the work does not in itself determine whether that right is amenable to common proof.
Ayala, 59 Cal. 4th at 534. The Court discussed briefly the evidence available to the Court, focusing heavily on the contract between the newspaper carriers and the defendant. The Court found that even variations in the actual degree of control over different carriers was likely irrelevant if the right to control them all was effectively identical:
[T]he existence of variations in the extent to which a hirer exercises control does not necessarily show variation in the extent to which the hirer possesses a right of control, or that the trial court would find any such variation unmanageable. That a hirer may monitor one hiree closely and another less so, or enforce unevenly a contractual right to dictate the containers in which its product is delivered, does not necessarily demonstrate that the hirer could not, if it chose, monitor or control the work of all its hirees equally. (See Estrada v. FedEx Ground Package System, Inc. (2007) 154 Cal.App.4th 1, 13–14, 64 Cal.Rptr.3d 327 [recognizing that how a hirer exercised control over a particular hiree might show, not the hirer's differential control of that hiree, but the extent of its common right to control all its hirees].) For class certification under the common law test, the key question is whether there is evidence a hirer possessed different rights to control with regard to its various hirees, such that individual mini-trials would be required. Did Antelope Valley, notwithstanding the form contract it entered with all carriers, actually have different rights with respect to each that would necessitate mini-trials?
Ayala, 59 Cal. 4th at 535-36. The Court then explained the frequent error made in the certification analysis of claims based on independent contractor misclassification:
Certification of class claims based on the misclassification of common law employees as independent contractors generally does not depend upon deciding the actual scope of a hirer's right of control over its hirees. The relevant question is whether the scope of the right of control, whatever it might be, is susceptible to classwide proof. Bypassing that question, the trial court instead proceeded to the merits. In so doing, the court made the same mistake others have when deciding whether to certify claims predicated on common law employee status, “focus[ing] too much on the substantive issue of the defendant's right to control its newspaper deliverers, instead of whether that question could be decided using common proof.” (Dalton v. Lee Publications, supra, 270 F.R.D. at p. 564.) Moreover, by purporting to resolve on a classwide basis the scope of Antelope Valley's right to control its carriers, the trial court contradicted its own conclusion, that classwide assessment of Antelope Valley's right to control is infeasible.
Ayala, 59 Cal. 4th at 537. The Court concluded by noting that many of the secondary factors must also be evaluated correctly to determine if common proof will adequately determine the secondary factor in question:
Preliminarily, we caution that courts assessing these secondary factors should take care to correctly identify the relevant considerations. Here, for example, the trial court noted variation in the “place of work.” The inquiry that sheds light on a hiree's common law employee status, however, is into who provides the place of work, the hirer or hiree (Borello, supra, 48 Cal.3d at p. 351, 256 Cal.Rptr. 543, 769 P.2d 399; Rest.3d Agency, § 7.07, com. f, p. 211; Rest.2d Agency, § 220, subd. (2)(e)), and thus the relevant inquiry is whether there is variation in who provides facilities. That carriers could pick up papers at any of several Antelope Valley warehouses or drop locations, as Antelope Valley argued, does not show variation in the underlying secondary factor.
Ayala, 59 Cal. 4th at 538.
The Court remanded with instructions to consider the certification question in light of the Court’s guidance.
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.
It is a bit belated, but I'm getting some write-ups of the big cases up for your reading pleasure (or agony). First up is Duran v. U.S. Bank National Association (May 29, 2014). 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. Plaintiffs moved to certify the case as a class action. Plaintiffs provided declarations from 34 current and former putative class members, all stating that they worked overtime hours and spent less than half of their workday engaged in sales-related activities outside their branch office. USB argued that plaintiffs could not establish a predominance of common issues or that the class action device was superior to other methods of adjudication. USB filed declarations from 83 putative class members, 75 of whom said they usually spent more than 50 percent of their workday engaged in outside sales. USB also submitted deposition testimony from the four former class representatives stating that they regularly worked more than half the day outside the office. The Court certified the class of 260 individuals.
The trial court then devised a plan to determine the extent of USB’s liability to all class members by extrapolating from a random sample. After considering competing proposals, the court expressed concern about the potential for biased survey results and proposed an alternative of its own devising. The court opted to select a random sample of 20 class members to testify at trial. A decertification motion was denied. The court later ruled on a key motion in limine, denying USB the ability to introduce any testimony or declarations from class members or other loan officers not in the random sample group.
Phase one of the bench trial lasted 40 court days. The two named plaintiffs and 19 of the 20 other RWG members testified. USB called several corporate witnesses and the direct supervisors of some of the RWG witnesses.
In anticipation of phase two, plaintiffs moved to amend the declaration of their expert, Jon Krosnick, to permit trial testimony about the results of a telephone survey Krosnick had conducted of class members’ work hours. The court allowed the amendment. USB moved to exclude the survey evidence. In opposition, plaintiffs filed a declaration from their statistics expert, Richard Drogin, whon opined that phase one findings of liability and average weekly hours of unpaid overtime could be “reliably projected to the whole class” because they were based on a random sample. Drogin calculated a weighted average of overtime for the RWG at 11.87 hours per week, with a margin of error of plus or minus 5.14 hours at a 95 percent confidence interval. The relative margin of error for the overtime estimate was plus or minus 43.3 percent. The Court then concluded USB did not carry its burden of proof on the outside salesperson exemption. Based primarily on testimony from RWG witnesses, the court ruled that the entire class employed by USB was misclassified as exempt, and all class members were owed overtime in amounts to be determined in phase two of the trial.
During the damages phase, USB’s statistician testified that it was statistically possible that 13 percent of the class was properly classified as exempt. He calculated that up to 14 percent of the class, or 36 members, could have been properly classified as exempt.
Nevertheless, the court calculated the total amount of overtime restitution owed to the class at $8,953,832. With prejudgment interest, the total award as of May 15, 2009, came to $14,959,565. The impact of a 14 percent error on the judgment total would have been approximately $2 million. On appeal, the Court of appeal ordered the class decertified and reversed the judgment. A petition for review was then granted.
The Supreme Court began its discussion by reviewing the outside sales person exemption and how the exemption test interacts with class proof:
We have observed that some common questions about the exemption “are likely to prove susceptible of common proof” in a class action. (Sav-On, supra, 34 Cal.4th at p. 337.) Job requirements and employer expectations of how duties are to be performed may often be established by evidence relating to a group as a whole. (Ramirez, supra, 20 Cal.4th at p. 802.) But litigation of the outside salesperson exemption has the obvious potential to generate individual issues because the primary considerations are how and where the employee actually spends his or her workday. (Sav-On, at pp. 336-337; Ramirez, at p. 802.) Of course, the questions of actual performance and employer expectations can be intertwined.
Slip op., at 21. The Court noted that, while predominance “requires a determination that group, rather than individual, issues predominate,” that does not “preclude the consideration of individual issues at trial when those issues legitimately touch upon relevant aspects of the case being litigated.” Slip op., at 22. The Court then scrutinized the unique manageability issues inherent in the affirmative defenses likely to arise in misclassification cases:
In her concurring opinion in Brinker, Justice Werdegar drew an instructive distinction between the types of affirmative defenses that can undermine manageability: “For purposes of class action manageability, a defense that hinges liability vel non on consideration of numerous intricately detailed factual questions, as is sometimes the case in misclassification suits, is different from a defense that raises only one or a few questions and that operates not to extinguish the defendant’s liability but only to diminish the amount of a given plaintiff’s recovery.” (Brinker, supra, 53 Cal.4th at p. 1054 (conc. opn. of Werdegar, J.), fn. omitted.) Defenses that raise individual questions about the calculation of damages generally do not defeat certification. (Sav-On, supra, 34 Cal.4th at p. 334.) However, a defense in which liability itself is predicated on factual questions specific to individual claimants poses a much greater challenge to manageability.
Slip op., at 25. The Court then observed that many courts have been reluctant to certify misclassification cases unless uniform policies or practices violate wage and hour laws:
Unless an employer’s uniform policy or consistent practice violates wage and hour laws (see, e.g., Brinker, supra, 53 Cal.4th at p. 1033), California courts have been reluctant to certify class actions alleging misclassification. (E.g., Arenas v. El Torito Restaurants, Inc. (2010) 183 Cal.App.4th 723, 734; Dunbar v. Albertson’s, Inc., supra, 141 Cal.App.4th 1422, 1431; see also Soderstedt v. CBIZ Southern California, LLC (2011) 197 Cal.App.4th 133, 153-154 [certification denied, despite employer’s uniform policies, due to variations in how the policies were implemented with different employees].)
However, individual issues will not necessarily overwhelm common issues when a case involves exemptions premised on how employees spend the workday. In Sav-On, supra, 34 Cal.4th 319, for example, we upheld certification of an overtime class action based on a showing that all plaintiffs performed jobs that were highly standardized. As a result, class members performed essentially the same tasks, most of which were nonexempt as a matter of law. (Id. at pp. 327-328.) Further, the defendant’s corporate policy required all class members to work overtime. (Id. at p. 327.) Where standardized job duties or other policies result in employees uniformly spending most of their time on nonexempt work, class treatment may be appropriate even if the case involves an exemption that typically entails fact-specific individual inquiries.
Slip op., at 25-26. In this matter, the Court concluded that the trial court did not adequately manage individual issues when it essentially precluded litigation of individual issues:
The primary consideration in a misclassification case pertains to “the realistic requirements of the job.” (Ramirez, supra, 20 Cal.4th at p. 802.) The trial court ultimately made detailed findings to the effect that the BBO position was essentially a telemarketing job, most easily performed in the office. However, at the certification stage, it should have been apparent that litigation of the outside salesperson defense would also involve significant inquiry into how each of the class’s 260 members “actually spen[t] his or her time.” (Ibid.)
Slip op., at 28. Thus, it was the failure to manage individualized issues, rather than the predominance of common issues that the Court found to be a fatal flaw in the management of the case:
USB’s exemption defense raised a host of individual issues. While common issues among class members may have been sufficient to satisfy the predominance prong for certification, the trial court also had to determine that these individual issues could be effectively managed in the ensuing litigation. (See Brinker, supra, 53 Cal.4th at p. 1054 (conc. opn. of Werdegar, J.); Sav-On, supra, 34 Cal.4th at p. 334.) Here, the certification order was necessarily provisional in that it was subject to development of a trial plan that would manage the individual issues surrounding the outside salesperson exemption.
In general, when a trial plan incorporates representative testimony and random sampling, a preliminary assessment should be done to determine the level of variability in the class. (See post, at p. 40.) If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable. No such assessment was done here.
Slip op., at 28. When considering the impact of Duran, it is imperative to emphasize that the Court did not overturn the predominance finding at the time of certification. Rather, the Court found that the subsequent trial plan was an inadequate method of managing individualized issues. Related to that finding, the Court held that the trial management inappropriately abridged the right to assert affirmative defenses:
While class action defendants may not have an unfettered right to present individualized evidence in support of a defense, our precedents make clear that a class action trial management plan may not foreclose the litigation of relevant affirmative defenses, even when these defenses turn on individual questions.
Slip op., at 30. Here, too, plaintiffs must be alert to overreach in the characterization of Duran by defendants. Duran does not promise an unfettered right to force the trial of every affirmative defense as to every class member. The trial decision in Duran, however, simply cannot be supported with any conviction:
The court’s decision to extrapolate classwide liability from a small sample, and its refusal to permit any inquiries or evidence about the work habits of BBOs outside the sample group, deprived USB of the ability to litigate its exemption defense. USB repeatedly submitted sworn declarations from 75 class members stating that they worked more than half their time outside the office. This evidence suggested that work habits among BBOs were not uniform and that nearly one-third of the class may have been properly classified as exempt and lacking any valid claim against USB.
Slip op., at 31. The Court rejected analogies to disparate treatment discrimination cases, where individual treatment is of little relevance and aggregate group treatment is the singular question.
The Court did not foreclose class proof in misclassification cases, saying only that it would be appropriate in instances where common proof of treatment or practices is compelling:
This is not to say that an employer’s liability for misclassification may never be decided on a classwide basis. A class action trial may determine that an employer is liable to an entire class for misclassification if it is shown that the employer had a consistently applied policy or uniform job requirements and expectations contrary to a Labor Code exemption, or if it knowingly encouraged a uniform de facto practice inconsistent with the exemption. (See, e.g., Bell, supra, 115 Cal.App.4th at p. 743.) In such a case, the evidence for uniformity among class members would be strong, and common proof would be sufficient to call for the employer to defend its claimed exemption.
Slip op., at 34-35. Next, the Court discussed statistical evidence. It began by noting, “Questions about the use of statistical evidence to prove classwide liability and damages are far from settled.” Slip op., at 35. The Court recognized the widely divergent opinions on the use of statistical evidence:
It is an open question, hotly contested among the parties and amici curiae, whether statistical sampling can legitimately be used to prove a defendant’s liability to absent class members. The question has arisen in numerous contexts, ranging from mass torts (e.g., Cimino v. Raymark Industries, Inc. (5th Cir. 1998) 151 F.3d 297, 319-320) to employment discrimination (e.g., Wal-Mart Stores, Inc. v. Dukes, supra, 564 U.S. at p. __ [131 S.Ct. at pp. 2560-2561]). In the wage and hour context, recent decisions from federal district courts have disagreed about whether statistical sampling may be used to prove liability.
Slip op., at 36-37. The Court then discussed Bell, noting that the “statistical evidence in Bell was heard only after classwide liability had been established.” Slip op. at 37. The Court concluded its general assessment of statistical models for proof of liability by noting that no general rule is necessary:
We need not reach a sweeping conclusion as to whether or when sampling should be available as a tool for proving liability in a class action. It suffices to note that any class action trial plan, including those involving statistical methods of proof, must allow the defendant to litigate its affirmative defenses. If a defense depends upon questions individual to each class member, the statistical model must be designed to accommodate these case-specific deviations.
Slip op., at 38. The Court expressly noted that the Mt. Clemens use of statistical evidence to calculate damages in overtime pay cases, while well accepted by courts, did not provide a sound rationale for accepting too much error in the liability phase of a misclassification case.
The Court then discussed errors in the Court’s statistical methodology, noting that (1) the sample size was too small, (2) the sample was not random, suffering from non-response bias and self-selection bias, (3) the 43 percent margin of error was far too large, (4) the response rate was poor, (5) measurement errors were likely, and (6) the methodology differed significantly from Bell, where two experts worked together to determine a reliable sampling methodology.
Concurring in the opinion, Justice Liu authored a concurrence that agreed with the conclusion that the trial court’s statistical approach was hopelessly flawed but questioned whether enough guidance had been provided for future misclassification class actions. First, with respect to the outside sales exemption in California, Justice Liu said:
[I]n recognizing that California’s definition of an outside salesperson is quantitative in nature, Ramirez did not say that the test boils down to whether a particular employee actually spends more than 50 percent of his or her working hours on outside sales. Instead, the ultimate question is: what are “the realistic requirements of the job”?
Slip op. conc., at 4. Justice Liu then explained how both aggregate evidence and individualized evidence should be considered to address the misclassification question:
[N]either an aggregate method of proof (like sampling or representative witness testimony) nor individualized evidence (like a declaration) is necessarily dispositive when the ultimate issue at trial is to determine “the employer’s realistic expectations” or “the realistic requirements of the job.” (Ramirez, supra, 20 Cal.4th at p. 802.) The two types of evidence must be considered and weighed alongside each other, and more broadly, they must be considered and weighed together with the full range of evidence bearing on the ultimate issue, including the employer’s job description, company policies, industry customs, and testimony of supervisors or managers who monitored, evaluated, or otherwise set expectations for employees in the class. We entrust our trial courts with the task of weighing such multidimensional evidence, and their judgments will be sustained if supported by substantial evidence.
Slip op. conc., at 10. Justice Liu concluded by observing that the trial court was correct as to how it framed the certification question:
Today’s opinion properly identifies the shortcomings of the representative witness group in this case and the trial court’s failure to give due consideration to the individualized evidence that U.S. Bank National Association (USB) sought to introduce in its defense. But it is important to note that the trial court focused on the right question on the merits: What were the realistic requirements of the BBO position?
Slip op. conc., at 11. There is little doubt that Duran will be oversold as a bar on all forms of aggregate proof in class actions. The only remedy will be to present a thorough analysis of what Duran does and does not stand for in misclassification cases and the greater class certification context.