Arias v. Superior Court (June 29, 2009) analyzes certification obligations under two of California's representative action statutes

[Editor’s Note: This post was prepared by new Contributing Author, Shawn Westrick. Mr. Westrick is an attorney at Initiative Legal Group, LLP, and it is the Editor’s hope that this column is the first of many such posts. Mr. Westrick has spent considerable time in his career litigating PAGA issues, and the Arias decision was of particular interest as source material for a first blog post submission.]

By Shawn Westrick:

In Arias v. Superior Court (Angelo Dairy) (June 29, 2009), the California Supreme Court issued its long-anticipated opinion addressing when conventional class action procedural requirements must be met in representative actions filed against employers.

Plaintiff Jose Arias sued his employer Angelo Dairy, alleging, among other things, violations of the unfair competition law and under the Labor Code Private Attorneys General Act of 2004 (“PAGA”) (Cal. Lab. Code § 2698, et seq.). The trial court granted defendant’s motion to strike the causes of action based on the unfair competition law. The trial court’s reasoning was that claims brought under the unfair competition law and PAGA had to plead class action requirements.

In essence, the appellate court affirmed a portion of the trial court’s Order, directing the trial court to “issue a new order striking the representative claims alleged in the seventh through tenth causes of action, but not the eleventh cause of action” (slip op., at 3), the eleventh cause of action being the claim arising under PAGA.

The Supreme Court began its analysis with a thorough discussion of Proposition 64. Proposition 64 amended the unfair competition law to ensure that a plaintiff suffering injury in fact must comply with Code of Civil Procedure § 382. However, Proposition 64 did not specifically use the phrase “class action” in any of its statutory language. Nevertheless, the Supreme Court ruled that a literal construction would frustrate the purpose of Proposition 64. A review of the Voter Information Guide, the official summary of Proposition 64, and the ballot measure summary suggested that the purpose of Proposition 64 was to require plaintiffs to meet the requirements for a class action.

Turning to PAGA, the Supreme Court then analyzed the question of whether PAGA claims must be certified as class actions to proceed on a representative basis. As an important distinction to be aware of, it has already been determined that actions under the Labor Code Private Attorneys General Act of 2004 may be brought as class actions. (Amaral v. Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1173.) At issue in Arias was whether such actions must be brought as a class action. Beginning its discussion, the Supreme Court noted that the statute was passed because of the lack of adequate financing for labor law enforcement. Employees would act as private attorneys general to collect civil penalties for violations of the Labor Code:

Before bringing a civil action for statutory penalties, an employee must comply with Labor Code section 2699.3. (Lab. Code, § 2699, subd. (a).) That statute requires the employee to give written notice of the alleged Labor Code violation to both the employer and the Labor and Workforce Development Agency, and the notice must describe facts and theories supporting the violation. (Id., § 2699.3, subd. (a).) If the agency notifies the employee and the employer that it does not intend to investigate (as occurred here), or if the agency fails to respond within 33 days, the employee may then bring a civil action against the employer. (Id., § 2699.3, subd. (a)(2)(A).) If the agency decides to investigate, it then has 120 days to do so. If the agency decides not to issue a citation, or does not issue a citation within 158 days after the postmark date of the employee‘s notice, the employee may commence a civil action. (Id., § 2699.3, subd. (a)(2)(B).)

Slip op., at 9.

The Supreme Court rejected the employer’s convoluted argument that permitting employees to proceed with representative actions that did not satisfy class action requirements would cause absurd results. Explaining the strange reasoning of the employer, the Supreme Court said:

Defendants read the Court of Appeal‘s decision as holding that class action requirements do not apply to actions under Labor Code section 2699, subdivision (a) only because class action requirements are "provisions of law" and subdivision (a) says that it applies regardless of, or notwithstanding, "any other provision of law." Defendants then argue that because Labor Code section 2699, subdivision (g) does not contain subdivision (a)'s "[n]otwithstanding any other provision of law" language, it follows that actions under that subdivision must comply with class action requirements. According to defendants, to conclude that subdivision (g) actions must satisfy class action requirements but subdivision (a) actions need not is "absurd" and therefore the Court of Appeal's statutory construction must be wrong. We disagree.

Slip op., at 11. According to the Supreme Court, Defendants' argument presupposed that class action requirements apply to all representative actions unless the Legislature affirmatively precludes their application by inserting the phrase "notwithstanding any other provision of law," or similar words, in the statute authorizing the representative action. The Court rejected that assumption.

The Supreme Court then turned to the employer’s argument that the legislative history required PAGA actions be brought as class actions. The Supreme Court noted that some committee reports expressed concerns that PAGA would allow employees to sue as a class action and some commentators were concerned that without a class action there could be no preclusive effects. The Supreme Court rejected committee report comments as insufficient to demonstrate any particular legislative intent regarding certification of PAGA claims.

The Court then turned to the due process issue of collateral estoppel. The employer argued that in the absence of class action requirements, employers would be subject to constant one-way intervention, violating their rights to due process. However an action under PAGA is binding not only on the named employee but also on the government agencies and any aggrieved employee not a party to the proceeding. An employee suing under PAGA does so as a “proxy or agent of the state’s labor law enforcement agencies.” Slip op., at p. 16. The employee can only bring a PAGA action after giving written notice pursuant to Section 2699.3. Id. An employee acts as a substitute for “the government itself” and a “judgment in an action binds all those ... who would be bound by a judgment in an action brought by the government.” Slip op., at p. 17.

Overall, the Court’s decision on the unfair competition law is straightforward. The long term effect of the Court’s foray into res judicata could have far reaching consequences for class actions in California. Taken as a whole, Arias should be a lesson to lawyers representing employers during settlements. Arias is clear that a PAGA action can only be commenced by adhering to the requirements under Section 2699.3. Slip op., at p. 16. In conjunction with the Supreme Court’s suggestion that the State of California has a vested interest in the civil penalties in PAGA, employers who settle class actions but do not settle PAGA actions with an employee who is authorized to file a PAGA action may find themselves liable for civil penalties owed to California (and, if authorized, other employees) for the same time period and the same class members who participated in a previous class action.

[Full Disclosure: Mr. Westrick is counsel in the matter of Deleon v. Verizon Wireless, in which the Supreme Court issued a “grant and hold” Order pending disposition of Arias. The Deleon matter directly raises the issue of whether settlement of wage & hour claims implicitly settles PAGA claims based upon the same underlying violations.]

e-Discovery: California Governor signs AB 5, the delayed e-discovery bill

After several weeks of slim pickings, this week is turning out to have more than enough news.  As a big for-instance, on June 29, 2009, Governor Schwarzenegger signed into law AB 5.  The Governor had previously vetoed a prior version of the bill for reasons probably related to some budgetary brinkmanship.  As before, the new rules track closely with the federal rules and would spell out how and when records from fax machines, computer databases, e-mails and cell phones should be exchanged in litigation. They also set up procedures for settling disputes over data that one party contends are trade secrets or privileged attorney work-product.

Supreme Court will issue opinion in Arias v. Superior Court (Dairy, RPI) and other cases on Monday, June 29, 2009

The Supreme Court pre-announces the release of opinions one business day before they are made available to the public.  This morning, the Supreme Court announced forthcoming decisions in two cases that are of interest to wage & hour class/mass action practitioners.  The first, Arias v. Superior Court (Dairy, RPI), concerns issues related to the Labor Code Private Attorneys General Act of 2004 ("PAGA").  The Court lists two questions that will be answered in the opinion:  "(1) Must an employee who is suing an employer for labor law violations on behalf of himself and others under the Unfair Competition Law (Bus. & Prof. Code, § 17203) bring his representative claims as a class action? (2) Must an employee who is pursuing such claims under the Private Attorneys General Act (Lab. Code, § 2699) bring them as a class action?"

The Supreme Court will also render its opinion in Amalgamated Transit Union, Local 1756, AFL-CIO et al. v. Superior Court (First Transit, Inc., et al., RPI).  Amalgamated addresses novel issues under PAGA and the UCL:  "(1) Does a worker’s assignment to the worker’s union of a cause of action for meal and rest period violations carry with it the worker’s right to sue in a representative capacity under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.) or the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.)? (2) Does Business and Professions Code section 17203, as amended by Proposition 64, which provides that representative claims may be brought only if the injured claimant "complies with Section 382 of the Code of Civil Procedure," require that private representative claims meet the procedural requirements applicable to class action lawsuits?"

Your quarterly Brinker update

When the California Supreme Court grants a Petition for Review, it's okay to leave and go get a cup of coffee.  You have time.  But that doesn't mean that nothing is happening behind the scenes.  In Brinker Restaurant v. Superior Court (Hohnbaum) we have developments.  On May 7, 2009, Real Party in Interest Hohnbaum requested an extension until August 4, 2009 to file the Reply Brief on the merits.  On May 14, 2009 the Supreme Court granted an extension through June 22, 2009, with the additional proviso that no further extensions were contemplated.  However, today the Supreme Court granted a two-week extension to that previously firm deadline.  The Reply Brief on the merits is now due on July 6, 2009.  After that, the amicus bloodbath will ensue (they are due on July 20, 2009).

Reminder: no dismissals as a term of settlement in California class actions

In a recent Class Action Alert, DLA Piper reminds defendants that, as of January 2009, settlements of California class actions cannot include dismissal of the class action as part of the settlement.  (Totino, Briones & Tagvoryan, California: Defendants May No Longer Request Dismissal of Settled Class Actions (May 27, 2009) www.dlapiper.com.)  Instead, California Rule of Court 3.769 requires a trial court that approves a class action settlement to enter a judgment and prohibits the entry of an order dismissing the action with or after entry of judgment.  Speaking from personal experience, defendants are not thrilled with this new development and many practitioners are still unaware of this changed rule.

Other June 10, 2009 actions by the California Supreme Court

After two weeks without a conference, June 10, 2009 was an active day for the California Supreme Court.  Aside from the other activity posted today, some other notable actions include:

• A Petition for Review was denied in Chindarah v. Pick Up Stix, Inc. (2009) 171 Cal. App. 4th 796 [Operation of Labor Code section 206.5]
• A depublication request was denied in Tarkington v. California Unemployment Insurance Appeals Board (Albertson’s, Inc.) (April 13, 2009) [Regarding demurrers to class action allegations]

An unprecedented alliance of interests fails to elicit review or depublication of Troyk v. Farmers Group, Inc.

In a potentially singular confluence of interests, all parties in Troyk v. Farmers Group, Inc., distressed that the Court of Appeal reissued its opinion despite their notice of settlement, filed a Joint Petition for Review on April 20, 2009. The 72-page opinion from the Court of Appeal (Fourth Appellate District, Division One) addresses issues of standing under the UCL, alter-ego liability and insurance service charges as premiums. The petition was filed by Coughlin Stoia Geller Rudman & Robbins for class plaintiffs, Gibson, Dunn & Crutcher and Skadden, Arps, Slate, Meagher & Flom for defendants, and Fulbright & Jaworski for third-party movants. Consumer Attorneys of California, among others, filed a letter seeking depublication on the grounds that the appellate court's ruling "threatens to upend settled law."

Despite that unholy alliance, on June 10, 2009 the Supreme Court denied the Joint Petition for Review and the Requests for Depublication.  Justices Baxter, Chin, and Corrigan were of the opinion that the petition should have been granted.  I can't say that this result offers encouragement to parties that finally work to settle their disputes.  Such polarized interests rarely agree on anything.  When they do, its a signal that careful scrutiny is in order.  However, others have suggested that if all the parties are unhappy with the result, there may be some validity to it.  (Note: The Recorder article on Law.com appears to have been authored before the Supreme Court's decision to deny the Petition was publicly available.)

Haro v. City of Rosemead confirms that "opt-in" class actions are unavailable under California's class action statute, Code of Civil Procedure section 382

In a case of flirting with issues of first impression, the Court of Appeal (Second Appellate District, Division Eight) was asked to review an order denying plaintiffs' motion for class certification pursuant to Code of Civil Procedure section 382. The plot twist? Haro v. City of Rosemead (June 9, 2009) concerns plaintiffs' attempt to certify pursuant to section 382 a claim for violation of 29 U.S.C. § 216(b), a part of the Fair Labor Standards Act of 1938 (FLSA). After concluding that FLSA claims cannot be certified under section 382 as a matter of law, the Court of Appeal dismissed the appeal.

The Court first summarized the FLSA provision at issue in the appeal:

Section 216(b) goes on to provide that an action under this provision may be brought against any employer in a federal or state court “by any one or more employees for and in behalf of himself or themselves and other employees similarly situated. No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.” The italicized sentence is colloquially referred to as an “opt-in” provision (7B Wright et al., Fed. Practice and Procedure (3d ed. 2005) § 1807, p. 472) and it is this opt-in provision that this purported appeal addresses.

(Slip op., at p. 2.) The Court then expressed the tension between the FLSA's "opt-in" procedure and the "opt-out" mechanism of California's class action statute:

As one court has put it: “There is a fundamental, irreconcilable difference between the class action described by Rule 23 and that provided for by FLSA § 16(b). In a Rule 23 proceeding a class is described; if the action is maintainable as a class action, each person within the description is considered to be a class member and, as such, is bound by judgment, whether favorable or unfavorable, unless he has 'opted out' of the suit. Under § 16(b) of FLSA, on the other hand, no person can become a party plaintiff and no person will be bound by or may benefit from judgment unless he has affirmatively 'opted into' the class; that is, given his written, filed consent.” (LaChapelle v. Owens-Illinois, Inc., supra, 513 F.2d at p. 288, fn. omitted.)

The fact that the opt-in feature is irreconcilable with a class action has not only been reaffirmed as a matter of federal civil procedure (Whalen v. W.R. Grace & Co. (3d Cir. 1995) 56 F.3d 504, 506, fn. 3), at least one California court has held that the opt-in feature cannot be adopted in California class actions. (Hypertouch, Inc. v. Superior Court (2005) 128 Cal.App.4th 1527, 1550 (Hypertouch).)

(Slip op., at p. 3.) After concurring in the analysis supplied by Hypertouch, the Court then added yet another reason why "opt-in" class actions are not available in California:

We add to the foregoing the observation that it is no small matter that California Rules of Court, rule 3.766, which governs notice to class members, makes no provision for notice when the class members opt into, rather than out of, the class. Rule 3.766 addresses the contents of the notice and the manner of giving notice in considerable detail; notice in class actions is not a simple matter. The same is true of notice to persons “similarly situated” in FLSA actions. Evidently, there may be as many as three distinct procedures employed by federal courts in dealing with notice in FLSA cases. Some courts employ a two-step process that extends to the time that discovery is complete, others follow class action procedures and yet others have adopted the old procedures employed in the pre-1966 spurious class action cases. (Thiessen v. General Electric Capital Corp. (2001) 267 F.3d 1095, 1102-1103.) Given such disparities, it is unthinkable that if California class actions under section 382 include opt-in classes, the giving of notice in such classes would not be regulated by rule 3.766. Putting the same point more directly, given the potential complexities with notice to persons “similarly situated” in opt-in FLSA actions, the fact that rule 3.766 does not deal with opt-in notices is a very clear indication that there are no opt-in class actions in California.

(Slip op., at p. 9.) In an interesting procedural close to the opinion, the Court dismissed the appeal because it could not meet the "death knell" standard for the appeal of the denial of class certification:

First. Appellants cannot maintain their FLSA action with the opt-in feature as a class action under section 382. (Hypertouch, supra, 128 Cal.App.4th 1527, 1550.) In other words, as a matter of California law appellants are not entitled to a class action certification.

Second. Ordinarily, under the death knell doctrine the appellate court will review the merits of the decision denying certification. That is not true of this case; neither the trial court nor this court addressed the substantive merits of class action certification in this case.

Third. The order denying class certification is not the death knell of appellants‟ action. The order does not produce a terminal result, i.e., there is no reason why the action cannot go forward with appellants as plaintiffs. Specifically, there is nothing to prevent this action going forward as an opt-in, collective FLSA action. While there may or may not be issues about the statute of limitations, there is no question that this FLSA action as it is presently constituted can go forward to trial.

(Slip op., at p. 11.) In case anyone missed it, no "opt-in" class actions can be certified in California under Code of Civil Procedure section 382.

Court of Appeal limits complex litigation court's ability to resolve "threshold issues" as case management tool

"A 'complex case' is an action that requires exceptional judicial management to avoid placing unnecessary burdens on the court or the litigants and to expedite the case, keep costs reasonable, and promote effective decision making by the court, the parties, and counsel." (Cal. Rules of Court, rule 3.400(a).) California's complex litigation pilot project Courts are charged with managing, on average, some of the more complicated civil litigation matters in California. To handle that burden, complex litigation Courts have to balance obligations imposed by rule and statute with the application of creativity in the areas where discretion and flexibility are options. In my experience, particularly in the complex litigation departments in Los Angeles, one way in which complex cases have been managed has been through the early evaluation of pivotal "threshold" legal issues that tend to give direction to such cases.

That case management technique just hit something of a snag.  The Court of Appeal (Second Appellate District, Division Five), in Magana Cathcart McCarthy v. CB Richard Ellis, Inc. (May 21, 2009) held, at least on the facts before it, that early determination of "threshold issues" is not a substitute for the summary adjudication procedural requirements:

Without filing a motion for summary judgment or mandatory separate statements of undisputed facts, and for the purpose of creating appellate review of pretrial rulings, the parties to an action in a complex litigation case stipulated that the court would have granted summary judgment based upon its ruling on certain "threshold issues" in favor of the defendant. The stipulation also included a dismissal, without prejudice, of class action allegations.

We disapprove of the unauthorized procedure utilized to create appellate review without compliance with the mandatory requirements of a summary judgment, and reverse. The requirements of a motion for summary judgment and the supporting separate statements of undisputed facts are expressly mandated by statute and court rules. In the absence of such documents, the stipulated judgment cannot stand. The convenience of the parties in a complex litigation case, and their desire to be spared the expense of a summary judgment motion, do not warrant deviation from the procedural requirements of summary judgment applicable to litigants who do not have the benefit of appearing in the complex litigation court. In addition, the stipulated judgment in this case violates an express agreement between the parties and the trial court that rulings on the threshold issues would not be a substitute for a motion for summary judgment that complies with the Code of Civil Procedure. We also conclude there is nothing about this action that warrants an exception to the foregoing rules promulgated by the Legislature and Judicial Council in a case which, in its current posture, involves a potential penalty of $500 and treble damages.

(Slip op., at p. 2.)  The majority opinion (yes, there is a dissent) spends a great deal of time reviewing the obligatory nature of the separate statement and other requirements associated with summary judgment motions or anything purporting to finally resolve matters outside the four corners of the pleadings.  In reading the opinion, I come away with the sense that there is something like contempt for the complex litigation courts, including a suggestion that the issues coming from those courts are no more difficult than those coming up for review out of standard general jurisdiction courts.  I happen to strongly disagree with that apparent sentiment; the complex courts, by virtue of their experience and creativity, make complex cases move more smoothly through the system.

The dissenting opinion is extensive.  It includes its own statement of facts and procedural background.  Part of that extensive workup appears intended to demonstrate that the record was suitable for appellate review.  In the dissent, Justice Mosk first explained why the Trial Court's procedure was permitted:

The parties stipulated to a judgment based on a pronouncement of the law by the trial court that followed legal briefing and argument by the parties. The procedure used, which did not include a demurrer, summary judgment motion, or other dispositive statutory motion, was justified as being a case management tool under the complex litigation program of the Los Angeles County Superior Court (Super. Ct. L.A. County, Local Rules, rules 7.3(h), 7.6; see Cal. Rules of Court, rule 3.400 et seq.; 3.750 et seq.; Gov. Code, § 68612; Code of Civ. Proc., § 575.1).

Although trial courts in complex cases have broad discretion to manage those cases in a manner that promotes efficiency and the conservation of judicial resources (see, e.g., Cal. Rules of Court, rules 3.400 et seq., 3.750 et seq.), that discretion is limited by countervailing interests of litigants and the public. "Reviewing courts have not hesitated to strike down local court rules or policies on the ground they are inconsistent with statute, . . . [¶] A common theme in the appellate decisions invalidating local rules . . . is that a local court has advanced the goals of efficiency and conservation of judicial resources by adopting procedures that deviated from those established by statute, thereby impairing the countervailing interests of litigants as well as the interest of the public in being afforded access to justice, resolution of a controversy on the merits, and a fair proceeding." (Elkins v. Superior Court (2007) 41 Cal.4th 1337, 1352-1353.) Deviation from formal procedures may, in many instances, present on appeal a case without an adequate record. Therefore, statutory procedures, such as those governing summary judgment, are designed, inter alia, to provide the appellate court with a factual and analytical framework upon which there can be de novo review.

It is important to recognize that the trial court did not, in effect, depart from established summary judgment procedures because the parties entered into a stipulation in connection with those procedures; "[s]tipulations may be entered into concerning any step of an action." (Bardendregt v. Downing, supra, 175 Cal.App.2d at p. 735.) Moreover, the court did not dispense with any procedure over the objection and to the prejudice of one of the parties. Here, both parties agreed to the procedure employed by the trial court to determine the legal issues, stipulated to the entry of judgment as if it were based on an order granting summary judgment, and agreed that the ensuing judgment was appealable.

(Slip op., Dissent, at pp. 5-6.)  It's an interesting debate.  I come down on the side of permitting the complex courts to manage cases with the flexibility that has proven itself in real cases over and over again.  Despite that, I understand the majority's call for predictability of procedure in any instance where a case is summarily adjudicated.

in brief: on the "do's and don'ts" of Does in Pelayo v. J. J. Lee Management Co., Inc.

In Pelayo v. J. J. Lee Management Co., Inc. (May 28, 2009) the Court of Appeal (Second Appellate District, Division Four) offered priceless advice on Code of Civil Procedure section 474:  "In this case, we deal with the ―'do's and dont's'of Does."  (Slip op., at 2, first sentence.)  My compliments to Justice Willhite on that opening.  If you are planning on seeking a default judment against a Doe Defendant any time soon, be sure to read this opinion on a narrow matter of procedure.