Ninth Circuit: Rule 12(f) cannot be used to strike a claim for damages unavailable as a matter of law

Rule 12(f) of the Federal Rules of Civil Procedure states that a district court “may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.”  In Whittlestone v. Handi-Craft Co. (9th Cir. Aug. 17, 2010), the Ninth Circuit answered a question of first impression regarding the permissible uses of a Motion to Strike.  The district court struck a claim for damages that it found to be unavailable as a matter of law.  The Court wasted no time answering the question and reversing the district court:

It is quite clear that none of the five categories covers the allegations in the pleading sought to be stricken by Handi- Craft. First, the claim for damages is clearly not an insufficient defense; nobody has suggested otherwise. Second, the claim for damages could not be redundant, as it does not appear anywhere else in the complaint. Third, the claim for damages is not immaterial, because whether these damages are recoverable relates directly to the plaintiff’s underlying claim for relief. See Fogerty, 984 F.2d at 1527 (“Immaterial matter is that which has no essential or important relationship to the claim for relief or the defenses being plead.”) (quoting 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1382, at 706-07 (1990) (quotation marks omitted)). Fourth, the claim for damages is not impertinent, because whether these damages are recoverable pertains directly to the harm being alleged. Id. (“Impertinent matter consists of statements that do not pertain, and are not necessary, to the issues in question.”) (quotation marks and citation omitted). Finally, a claim for damages is not scandalous, and Handi-Craft has not alleged as much.

Slip op., at 12066-67.  The Court concluded that to permit the use attempted by the defendant would create a redundancy within the federal rules.  I say let's have less time-wasting on pleadings squabbles and more time on substance.

District Court de-CAFA-nates Hollinghurst v. Lacoste USA

United States District Court Judge Christina A. Snyder granted a motion to remand an action removed pursuant to the Class Action Fairness Act ("CAFA").  Hollinghurst v. Lacoste USA (C.D.Cal. June 28, 2010).  That part isn't so interesting.  The interesting part is that the Court found that the face of the initial complaint had enough information from which the defendant could have extrapolated an amount in controversy over $5 million.  The defendant argued that it was not until discovery responses were received that the calculation was possible.  The Court disagreed:

The only new information from plaintiff’s supplemental responses that defendant cites to in its notice was the frequency by which plaintiff was denied her meal breaks and rest periods (two to fifteen meal and/or rest breaks per week) and the amount of time plaintiff was made to work off-the-clock (twenty minutes to one hour per week). The frequency by which plaintiff was denied her meal breaks and rest periods was not a critical discovery because plaintiff has always sought unpaid wages and penalties based on the claim that all class members “were also prevented from taking all daily meal periods . . . and also prevented from taking any and all rest breaks.” See Compl. ¶ 5.  Therefore, from the outset defendant could have calculated the amount in controversy under the assumption that all rest breaks and meal periods had been denied to class members.

Slip op., at 8, fn. 5.  The Court briefly noted a second ground supporting remand:

Additionally, the Court finds that defendant waived its right to remove when it demurred to dismiss the class allegations, a substantial affirmative action in which defendant submitted issues for determination in state court. By doing so, defendant indicated its willingness to litigate in state court before it filed its notice of removal to federal court.

Slip op., at 9.  It's a one-two punch:  a strict standard applied to the timing of first awareness of the right to remove under CAFA and a definitive finding that a demurrer to class action allegations is a submission to the jurisdiction of the superior court.

You can view the embedded opinion in the acrobat.com flash viewer below:

If the viewer isn't working for you (say, if you are viewing this on an iPad or iPhone), you can download the opinion here.  Thanks to the reader that alerted me to this decision.

If an arbitration agreement allows the arbitrator to determine if the agreement is enforceable, the arbitrator can, unless that agreement is challenged...huh?

Today, the United States Supreme Court added to its recent spate of arbitration-related decisions.  In Rent-A-Center, West, Inc. v. Jackson (June 21, 2010), the Supreme Court considered one aspect of when a court determines arbitration agreement enforceability and when that determination must be left to the arbitrator.  In short, the Court held that, under the FAA, where an agreement to arbitrate includes anagreement that the arbitrator will determine the enforceability of that agreement, if a party specifically challenges the enforceability of the specific agreement to give the arbitrator the power to determine enforceability, the trial court considers that specific challenge.  But if a party challenges the enforceability of the agreement as a whole, the challenge is reserved for the arbitrator because of the delegation of that power to the arbitrator.

The dissent is rightly perplexed by this strange outcome:

In other words, when a party raises a good-faith validity challenge to the arbitration agreement itself, that issue must be resolved before a court can say that he clearly and unmistakably intended to arbitrate that very validity question. This case well illustrates the point: If respondent’s unconscionability claim is correct—i.e., if the terms of the agreement are so one-sided and the process of its making so unfair—it would contravene the existence of clear and unmistakable assent to arbitrate the very question petitioner now seeks to arbitrate. Accordingly, it is necessary for the court to resolve the merits of respondent’s unconscionability claim in order to decide whether the parties have a valid arbitration agreement under §2.  Otherwise, that section’s preservation of revocation issues for the Court would be meaningless.

Dissent, at 7.  In light of the current Court's view on arbitration agreements, it will likely take legislation to protect consumers and employees from adhesive arbitration agreements.

Will grant of certiorari in Laster v. AT&T Mobility LLC affect other cases? Not so far.

The Ninth Circuit's decision in Laster v. AT & T Mobility LLC, 584 F.3d 849 (9th Cir.2009) will be reviewed by the Supreme Court in AT & T Mobility LLC v. Concepcion, --- S.Ct. ----, 2010 WL 303962, 78 USLW 3454, 78 USLW 3677, 78 USLW 3687 (U.S. May 24, 2010) (NO. 09-893).  The issue presented in Concepcion has been framed by some as calling for a determination of whether the Federal Arbitration Act (“FAA”) preempts the State of California from conditioning the enforcement of an arbitration agreement on the availability of class-wide arbitration.  Others have more aggressively described the issue more broadly.  In either event, the question of concern to litigants now is the effect, if any, of that decision to grant review in other cases.  In at least one case, there was no evident effect.

United States District Court Judge Jeremy Fogel (Northern District of California) denied a motion to stay that was predicated upon the Supreme Court's decision to grant certiorari in Concepcion.  Kaltwasser v. Cingular Wireless LLC, 2010 WL 2348642 (June 8, 2010) (unpublished).

While the Ninth Circuit still hasn't defined "similarly situated" under the FLSA, California's federal courts continue to apply the two-stage process

United States Magistrate Judge Edward M. Chen (Northern District of California) granted plaintiff's motion to conditionally certify a collective action of Sales Representatives working for Defendant Vector Marketing Corporation.  Harris v. Vector Marketing Corp., 2010 WL 1998768 (N.D. Cal. May 18, 2010).  In doing so, Magistrate Judge Chen added his name to the long list of federal courts in California that have adopted a two-step approach for determining whether a class is “similarly situated.” Under this approach, a district court first determines, based on the submitted pleadings and, perhaps, a few declarations, whether the proposed class should be notified of the action.  At the first stage, the determination of whether the putative class members will be similarly situated is made using a "fairly lenient" standard, and typically results in "conditional certification" of a representative class. District courts have held that conditional certification requires only that “ ‘plaintiffs make substantial allegations that the putative class members were subject to a single illegal policy, plan or decision.’ ”

The second-step usually occurs after discovery is complete, at which time the defendants may move to decertify the class.  In the second step, the court makes a factual determination about whether the plaintiffs are similarly situated by weighing such factors as (1) the disparate factual and employment settings of the individual plaintiffs, (2) the various defenses available to the defendant which appeared to be individual to each plaintiff, and (3) fairness and procedural considerations. If the court determines that the plaintiffs are not similarly situated, the court may decertify the class and dismiss the opt-in plaintiffs' action without prejudice. Even when the parties settle, the court must make some final class certification finding before approving a collective action settlement.

AT&T's preemption argument based on Stolt-Nielsen is dead before it hits the floor

United States District Court Judge Claudia Wilken (Northern District of California) has already been gifted with the privilege of considering whether Stolt-Nielsen S. A. et al. v. AnimalFeeds International Corp. (discussed on this blog here) preempts any state law that would preclude enforcement of an arbitration agreement.  McArdle v. AT & T Mobility LLC, 2010 WL 1532334 (N.D.Cal. May 10, 2010).  Judge Wilken took care of that argument in one sharp paragraph:

Defendants assert that Stolt-Nielsen creates a substantial question as to whether the “FAA would preempt any holding that California law precludes enforcement of McArdle's agreement to arbitrate his disputes with” them on an individual basis. Mot. for Leave at 4. The Court disagrees. The issue presented in Stolt-Nielsen was “whether imposing class arbitration on parties whose arbitration clauses are ‘silent’ on that issue is consistent with the Federal Arbitration Act (FAA).” 2010 WL 1655826, at *4. The Supreme Court did not address FAA preemption. Nor did it overrule its precedent upon which the Ninth Circuit relied in Shroyer v. New Cingular Wireless Services, Inc., which held that California law on unconscionability could render an arbitration clause unenforceable, 498 F.3d 976, 986-87 (9th Cir.2007).  Stolt-Nielsen is distinguishable both on the facts and the law and, therefore, does not require this Court to reconsider its order on Defendants' motion to stay this action pending their appeal.

Slip op., at 1.  One interesting bit of information is also included in the Order.  The Ninth Circuit recently held that Shroyer continues to control the issue of unconscionability analysis under California law.  Laster v. AT & T Mobility LLC, 584 F.3d 849 (9th Cir.2009). AT&T filed a petition for certiorari in Laster, upon which they expect the Supreme Court to rule by May 24.  If the Supreme Court takes up Laster, they will be forced to explicitly address carve-outs alluded to by the dissent in Stolt-Nielsen but not addressed by the majority opinion.

Discovery ruling in McArdle v. AT&T Mobility LLC finds that notice is unnecessary when ordering class member contact information produced

United States Chief Magistrate Judge Maria-Elena James, as if predicting the very contents of my April 21, 2010 Daily Journal article, ordered Defendants AT & T Mobility LLC, New Cingular Wireless PCS LCC, and New Cingular Wireless Services, Inc. to produce the contact information for thousands of customers that had complained after incurring international roaming charges without first issuing a privacy notice.  McArdle v. AT & T Mobility LLC, 2010 WL 1532334 (N.D.Cal. Apr 16, 2010).

Chief Magistrate Judge James said:

As to providing a written notice to the customers, the Court finds such notice unnecessary. First, Pioneer does not impose a notice requirement. Second, notice would make no sense here, as witnesses cannot choose to “opt out” of civil discovery.  Tierno v. Rite Aid Corp., 2008 WL 3287035, at *3 (N.D.Cal.2008). “Generally, witnesses are not permitted to decline to participate in civil discovery, even when the information sought from them is personal or private.” Puerto v. Superior Court, 158 Cal.App.4th at 1242, 1256-57 (2008). The Court notes that the minimal information Plaintiff requests is indeed contemplated under the Federal Rules of Civil Procedure as basic to the discovery process. Specifically, Rule 26(a)(1)(A) requires each party to disclose before formal discovery begins “the names, addresses and telephone numbers of each individual likely to have discoverable information that the disclosing party may use to support its claims or defenses.” Here, many of Defendants' complaining customers may be considered percipient witnesses to the relevant issue - international-roaming charges, and could therefore be considered persons having discoverable knowledge and proper subjects of discovery.

Slip op., at 4; see also, Boo-ya, at page bite me.  Defendants were given 14 days to provide the contact information.

“Generally, witnesses are not permitted to decline to participate in civil discovery, even when the information sought from them is personal or private.”  Yes.  Witnesses don't get to opt-out of being witnesses.

in brief: Ninth Circuit joins others in holding that denial of certification does not destroy CAFA jurisdiction

In United Steel, Paper & Forestry, Rubber, Manufacturing, Energy, Allied Industrial & Service Workers International Union, AFL-CIO, CLC, et al. v. Shell Oil Company (9th Cir. Apr. 21, 2010) (say that three times fast), a putative class action alleging various wage & hour violations was removed to federal district court pursuant to 28 U.S.C. § 1332(d)(2) (CAFA).  Certification was eventually denied.  The district court concluded that it lacked jurisdiction and remanded the matter to state court.  On appeal, the Ninth Circuit joined the Seventh and Eleventh Circuits in holding that denial of class certification does not divest the federal district court of jurisdiction.  The Court recognized the general principles that jurisdiction is evaluated at the time it is invoked, and subsequent developments do not destroy jurisdiction if it was properly invoked originally.  All else equal, this decision should reduce the overall degree of hapiness experienced by district court judges.  Now they can't put an unsuccessful, removed class action out of its misery with a remand bullet to the head.  Thus, federal district courts will have the pleasure of overseeing more individual, state law-based actions.

Judge Patel offers interesting comments about the puzzle of PAGA

United States District Court Judge Marilyn Hall Patel (Northern District of California) offered some interesting comments, but no clear solutions, to the puzzle posed by litigation of PAGA claims as representative actions.  Ochoa-Hernandez v. Cjaders Foods, Inc.. (N.D. Cal. Apr. 2, 2010) 2010 WL 1340777.  In the course of denying plaintiff's motion to preclude the defendant from contacting current or former employees about the litigation, the Court said:

From a practical perspective, plaintiff's analogy between class actions and PAGA claims is also misplaced. While both fall within the general category of virtual representation, there are significant differences between the two. Unlike a class action seeking damages or injunctive relief for injured employees, the purpose of PAGA is to incentivize private parties to recover civil penalties for the government that otherwise may not have been assessed and collected by overburdened state enforcement agencies. Id. (“The act's declared purpose is to supplement enforcement actions by public agencies, which lack adequate resources to bring all such actions themselves.”). Unlike class actions, these civil penalties are not meant to compensate unnamed employees because the action is fundamentally a law enforcement action. Moreover, unlike the binding finality of a class action with respect to damages, the individual employee has less at stake in a PAGA representative action: if the employer defeats a PAGA claim, the nonparty employees, because they were not given notice of the action or afforded an opportunity to be heard, are not bound by the judgment as to remedies other than civil penalties. Id. at 987, 95 Cal.Rptr.3d 588, 209 P.3d 923. Thus, nonparty employees can bring an action against the employer based on identical facts so long as they do not seek civil penalties. Class members, however, would be bound by a judgment against the class, independent of the remedy later sought.

*5 Class actions litigated in federal court also contain numerous procedural protections that are not available in PAGA claims. Unnamed employees need not be given notice of the PAGA claim, nor do they have the ability to opt-out of the representative PAGA claim. There is no indication that the unnamed plaintiffs can contest a settlement, if any, reached between the parties. The court does not have to approve the named PAGA plaintiff, nor does the court inquire into the adequacy of counsel's ability to represent the unnamed employees. These procedural protections ensure the fidelity of the attorney-client arrangement in a class action. Their absence further militate against considering a PAGA claim akin to a certified class action.

Additionally, in order to bridge the gap between Arias and the creation of an attorney-client relationship, at least two inferential steps are required, and neither is present. First, Arias is silent on what procedures, if not class action procedures, are sufficient to perfect representative status in representative actions. While representative status may accrue once administrative requirements have been satisfied, Arias does not so hold and plaintiff cites no further authority. Second, assuming that representative status is perfected once administrative requirements are satisfied, Arias does not contemplate the practical issue of when, if at all, an attorney-client relationship arises between plaintiff's counsel and the current or former employees.

Slip op., at 4-5.  If it isn't obvious from this long excerpt, the argument up for discussion was whether an attorney-client relationship existed between the absent employees and the attorney for the named plaintiff.  While the Court's comments explain why a PAGA claim is different from a class action, the discussion is not intended to address the case management question posed by PAGA.  Nevertheless, the brief observations by this Court are of interest to practitioners in this area of law.