In Vasquez v. State of California Supreme Court declines to impose a pre-filing resolution requirement to all 1021.5 fee requests, but...

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Greatsealcal100This morning the California Supreme Court issued an opinion that examined the limits on its attorney fee opinion in Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 560 (Graham). "  In Vasquez v. State of California (November 20, 2008), the Supreme Court was asked to extend Graham, a catalyst theory case, to all Code of Civil Procedure section 1021.5 requests for fees resulting from a public benefit.  The summary of the holding neatly encapsulates the Supreme Court's "no, and yes" answer to that invitation: 

“Today we revisit one of the “limitations on the catalyst theory” adopted in Graham, supra, 34 Cal.4th 553, 575 — specifically, the rule that the plaintiff in a “catalyst case,” to recover attorney fees under section 1021.5, “must have engaged in a reasonable attempt to settle its dispute with the defendant prior to litigation” (Graham, at p. 561). While this is not a catalyst case (see post, at p. 19), defendant argues the rule just mentioned should apply whenever fees are sought under section 1021.5. We hold that no such categorical rule applies in noncatalyst cases. In all cases, however, section 1021.5 requires the court to determine that “the necessity and financial burden of private enforcement . . . are such as to make the award appropriate . . . .” (Ibid., italics added.) In making this determination, one that implicates the court’s equitable discretion concerning attorney fees, the court properly considers all circumstances bearing on the question whether private enforcement was necessary, including whether the party seeking fees attempted to resolve the matter before resorting to litigation.

(Slip op., at pp. 2-3.)  So you don't have to attempt to resolve a matter before litigation to claim sectin 1021.5 fees, but the Court can consider whether you did as a factor when deciding if it will award fees under section 1021.5.  I suppose this means that the reasonability of the defendant and its counsel and the inclinations of the particular judge hearing the case will now have a lot more to do with whether a plaintiff is successful in recovering fees under 1021.5.  An intractable defendant with obstructive counsel will have a hard time convincing a court that it would have cooperated without the need for litigation had the plaintiff but asked.  On the other hand, a very cooperative defendant could save itself fees under this section by demonstrating its willingness to change practices and correct problems.

I wonder if this mixed set of incentives will change any behaviors on either side of the bar.

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In Kullar v. Foot Locker Retail, Inc., Court of Appeal sides with objector to class action settlement

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Greatsealcal100Objectors to class action settlements have limited prospects for success.  I haven't seen any data, but the success rate of objectors looks to be exceedingly low.  So it is of some note when a published opinion accepts an objector's contention that a class action settlement is "fair, reasonable and adequate."  In Kullar v. Foot Locker Retail, Inc. (Echeverria as Objector and Appellant) (November 7, 2008), the Court of Appeal (First Appellate District, Division Three) did just that.

Echeverria contended that the trial court erred in finding a settlement "fair, reasonable and adequate without any evidence of the amount to which class members would be entitled if they prevailed in the litigation...." (Slip op., at p. 1.) The Court of Appeal agreed that the trial court was obligated to consider the potential range of possible recoveries before concluding that a settlement meets that standard:

“More fundamentally, neither Dunk, 7-Eleven, nor any other case suggests that the court may determine the adequacy of a class action settlement without independently satisfying itself that the consideration being received for the release of the class members’ claims is reasonable in light of the strengths and weaknesses of the claims and the risks of the particular litigation. The court undoubtedly should give considerable weight to the competency and integrity of counsel and the involvement of a neutral mediator in assuring itself that a settlement agreement represents an arm’s length transaction entered without self-dealing or other potential misconduct. While an agreement reached under these circumstances presumably will be fair to all concerned, particularly when few of the affected class members express objections, in the final analysis it is the court that bears the responsibility to ensure that the recovery represents a reasonable compromise, given the magnitude and apparent merit of the claims being released, discounted by the risks and expenses of attempting to establish and collect on those claims by pursuing the litigation. “The court has a fiduciary responsibility as guardians of the rights of the absentee class members when deciding whether to approve a settlement agreement.” (4 Newberg on Class Actions, supra, § 11.41 at p. 118; 7-Eleven, supra, 85 Cal.App.4th at p. 1151.) “The courts are supposed to be the guardians of the class.” (Dickerson, Class Actions: The Law of 50 States (2008 ed.) § 9.02[2], p. 9-6.)

(Slip op., at pp. 13-14.)  The Court of Appeal acknowledged the factual circumstances that guided the trial court but ultimately dismissed those circumstances (a possible mediation privilege) as a basis for presuming the fairness of a settlement without testing it against the range of potential recoveries: 

“Here, the trial court acknowledged that “in logic” it would have been preferable for it to have been presented with data permitting it to review class counsel’s evaluation of the sufficiency of the settlement, but felt that this was precluded because the supporting information was exchanged in the course of mediation. We disagree with this conclusion for two reasons. First, the fact that the settlement was reached during mediation to which Evidence Code section 1119 applies does not eliminate the court’s obligation to evaluate the terms of the settlement and to ensure that they are fair, adequate and reasonable. If some relevant information is subject to a privilege that the court must respect, other data must be provided that will enable the court to make an independent assessment of the adequacy of the settlement terms. Secondly, the fact that communications were made during the mediation and writings prepared for use in the mediation that are inadmissible and not subject to compulsory production does not mean that the underlying data, not otherwise privileged, is also immune from production. (Evid. Code, § 1120 [“Evidence otherwise admissible or subject to discovery outside of a mediation . . . shall not be or become inadmissible or protected from disclosure solely by reason of its introduction or use in a mediation . . .]; Rojas v. Superior Court (2004) 33 Cal.4th 407, 417; Wimsatt v. Superior Court (2007) 152 Cal.App.4th 137, 157-158.) Foot Locker’s payroll records, for example, if relevant to the quantification of the claims being settled, are subject to discovery and may be introduced in opposition to the settlement even if they were disclosed to class counsel during the mediation, and even if class counsel was shown only a summary or analysis of those records that is not itself subject to production because prepared for use in the mediation.

(Slip op., at pp. 16-17.)

Easy moral:  Give the trial court something to hang its hat on when seeking approval of a settlement.  Sample calculations for claimants would be a good start, coupled with a discussion of how risk impacts a claim calculated at any particular recovery level.

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Petition for Review filed in Johnson v. Glaxosmithkline, Inc.

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Greatsealcal100This blog briefly reported on a new opinion in Johnson v. Glaxosmithkline, Inc. (September 19, 2008).  You can read that post here.  A Petition for Rehearing was filed on October 7, 2008.  It was denied the day it was filed.  On October 14, 2008, the Court of Appeal modified its opinion, without changing the judgment.  In a later post, I guessed (not a stretch) that a Petition for Review was coming.  Last week the expected Petition was filed with the Supreme Court.

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Brinker redux in Brinkley v. Public Storage, Inc.

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Greatsealcal100On October 22, 2008, the Supreme Court has GRANTED the Petition for Review in Brinker Restaurant Corporation, et al. v. Superior Court (Hohnbaum).  See this blog's coverage here and here for more information. The calm didn't last long though, as another Division of the Court of Appeal has re-asserted portions of the Brinker holding that were rendered uncitable with the grant of review.

In Brinkley v. Public Storage, Inc. (October 28, 2008), the Court of Appeal (Second Appellate District, Division Three), relying on the same federal court decision used by the Court of Appeal in Brinker, determined that employers need only "provide" meal breaks, not "ensure" that they are taken:

“In fact, the obligation to affirmatively ensure that workers are relieved of all duty is consistent with the rule requiring employers to provide a meal break. (White v. Starbucks Corp. (N.D.Cal. 2007) 497 F.Supp.2d 1080, 1089 (White) [interpreting Cicairos].) In White, the court rejected the plaintiff’s argument under sections 226.7 and 512 that employers “must affirmatively enforce the meal break requirements.” (White, at p. 1088.) The court noted that it would be impossible for employers with large work forces to enforce such meal breaks. (Ibid.) It further stated that “employees would be able to manipulate the process and manufacture claims by skipping breaks or taking breaks of fewer than 30 minutes, entitling them to compensation of one hour of pay for each violation. This cannot have been the intent of the California Legislature, and the court declines to find a rule that would create such perverse and incoherent incentives.” (Id. at p. 1089.) We agree with this analysis.

(Slip op., at pp. 10-11.)  The California Courts website has been difficult to access today, so have patience if you are looking for the full opinion there.

I authored a column, published in the Daily Journal, where I discussed the weakness in the Brinker/White economic analysis of employer and employee incentives.  (A Bad Meal Deal: 'Brinker' Gets the Incentive Question Wrong, Daily Journal (Los Angeles), August 6, 2008.)  The same criticisms apply with equal force.  Here is a brief excerpt of that column:

“The fundamental flaw in Brinker's analysis is that it is premised on false assumptions. The idea that it is "impossible" to control breaks is inconsistent with the observable fact that employers of all sizes control employees in a variety of ways every day. In fact, since S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989), "[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." As one example of such control, employers habitually set hours of work for their employees. Under the analysis supplied by White and adopted by Brinker, a large employer should find it impossible to control when its employees arrive and depart each day. And yet somehow, they do. The primary manner in which they do so is through a combination of positive and negative incentives. An employee who is punctual and performs well will receive favorable reviews, earn raises or qualify for promotions. A habitually tardy employee may ultimately face termination. For most employees, these combined incentives control their behavior. An employer's failure to modify a recalcitrant employee's behavior is the fault of the employer, not evidence of the impossibility of employee control.

As a result of accepting the White conclusions, Brinker misses many obvious incentives that could overwhelm the financial incentive on an employee to work during a meal break. The potential loss of employment is a larger financial incentive on an employee than an additional hour of pay. Rational employees, working for an employer that enforces its meal break policy, will respond to the larger financial incentive of job retention. Similarly, an employer faces an economic incentive to affirmatively relieve all employees of work duties for 30 minutes during shifts of sufficient length. The employer must then determine whether enforcement of policy is the preferred course to paying meal break premiums. In addition, the employer faces the additional, strong incentive to avoid meal break litigation by employees seeking to recover meal break premium payments. These incentives on employers and employees seem sufficient to overwhelm the singular incentive mentioned in Brown and accepted by Brinker.

(A Bad Meal Deal: 'Brinker' Gets the Incentive Question Wrong, Daily Journal (Los Angeles), August 6, 2008.)  If Courts are considering a discussion of economics as a supporting basis for an opinion's analysis, such Courts would be well advised to either offer a complete discussion of the economic forces at work or avoid the topic entirely.  An incomplete economic analysis in Brinker, and now Brinkley, results in conclusions that don't stand up to scrutiny.

It's very disappointing to see the law premised upon a suspect rationale that individuals without an economics background might not notice.  It creates the appearance, whether accurate or not, of outcome-driven decisions.  The integrity of our legal systems requires our citizens to believe that the law is dispassionately interpreted without a pre-determined outcome in mind.  I don't perceive that to be the case here.

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Court of Appeal reverses order decertifying a class in Harper v. 24 Hour Fitness, Inc.

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Greatsealcal100This is proving to be a busy day in the world of class actions.  And once again, Division Seven in the Second Appellate District is in the mix.  Division Seven seems to be one of those lucky divisions that attracts interesting class action issue appeals (I don't know if they consider themselves "lucky" to be the beneficiaries of these questions).  Just the last year was a busy one for them.  Division Seven recently took some of the sting out of Alvarez v. May Dept. Stores Co., 143 Cal.App.4th 1223 (2006) with their decision in Johnson v. Glaxosmithkline, Inc., 166 Cal.App.4th 1497 (September 19, 2008), as modified (October 14, 2008).  In Lee v. Dynamex (2008) 166 Cal.App.4th 1325 (discussed here), Division Seven reversed an Order denying class certification after the trial court refused to allow discovery of class member identity and contact information.  And in Puerto v. Superior Court (2008) 158 Cal.App.4th 1242, Division Seven added to the body of post-Pioneer decisions confirming the right to discovery putative class member (witness) identity.  And that's just the published decisions.

Division Seven also decided Belaire-West Landscape, Inc. v. Superior Court (2007) 149 Cal.App.4th 554, the first post-Pioneer decision confirming the right to discovery putative class member identity.  Other notable, fairly recent opinions include: Aron v. U-Haul Co. of California (2006) 143 Cal.App.4th 796; Aguiar v. Cintas Corp. No. 2 (2006) 144 Cal.App.4th 121; Singh v. Superior Court (2006) 140 Cal.App.4th 387; Caliber Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.4th 365; Consumer Cause, Inc. v. Mrs. Gooch's Natural Food Markets, Inc. (2005) 127 Cal.App.4th 387; and, Newell v. State Farm General Ins. Co. (2004) 118 Cal. App. 4th 1094.  There are many substantial class action issues implicated in that list, including fee awards, insurance claims arising out of the Northridge earthquake, PAGA interpretation, and wage & hour law issues.  And the list includes decisions both favorable and unfavorable to positions advocated by the respective class action proponents.  But, uniformly, this Division endeavors to correctly state and apply highly nuanced issues arising in class actions.

Division Seven's latest opinion in the class action arena, Harper v. 24 Hour Fitness, Inc. (October 22, 2008), in a 2-1 opinion, reverses a trial court order decertifying a class action.  The bulk of the opinion examines the trial court's reliance on the pre-Proposition 64 formulation of the UCL.  I will leave discussion of that aspect of the opinion to the UCL Practitioner.  However, the opinion also offers some confirming language as to how the "ascertainability" requisite is measured.  The Court explains that "ascertainability" exists when the class members can tell if they are included, irrespective of whether anyone else knows the constituency of the class:

“With respect to the difficulty in confirming the identity of all class members prior to a determination on the merits, Division One of this court recently affirmed certification of a class consisting of FedEx drivers over FedEx’s objection “the members of this class shifted ‘in and out, sometimes on a day-to-day basis.’” (Estrada v. FedEx Ground Package System, Inc. (2007) 154 Cal.App.4th 1, 14.) The court explained, “The class is ascertainable if it identifies a group of unnamed plaintiffs by describing a set of common characteristics sufficient to allow a member of that group to identify himself as having a right to recover based on the description. [Citation.] [¶] . . . If FedEx’s claim is that every member of the class had to be identified from the outset, FedEx is simply wrong.” (Ibid.; accord, Lee v. Dynamex, Inc., supra, 166 Cal.App.4th at p. 1335; see also Sav-On Drug Stores, supra, 34 Cal.4th at p. 333 [“‘a class action is not inappropriate simply because each member of the class may at some point be required to make an individual showing as to his or her eligibility for recovery’”]; Bufil v. Dollar Financial Group, Inc. (2008) 162 Cal.App.4th 1193, 1207 [class of employees ascertainable in spite of absence of specific rest period records; “speculation that goes to the merits of ultimate recovery [is] an inappropriate focus for the ascertainability inquiry”]; Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715, 744 [fact that class may ultimately turn out to be overinclusive not determinative; most class actions contemplate eventual individual proof of damages, including possibility some class members will have none].)

(Slip op., at pp. 11-12.)  This is an important distinction.  Too many trial courts succumb to arguments that the class identity can't be explicitly stated at the time of certification.

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More on Brinker under review

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Wage Law also notes that the Supreme Court has GRANTED the Petition for Review in Brinker Restaurant Corporation, et al. v. Superior Court (Hohnbaum).  But Wage Law then asks a very intriguing question:  Will the DLSE update its enforcement manual that was revised immediately to reflect the decision in Brinker?  Wage Law guesses that the current administration will do nothing unless forced to do so by a Court decision.  My initial post on that enforcement decision can be found here.  Perhaps the California Labor Federal Federation will have something to say on a further update to the manual, after their strongly-worded criticism of the initial update.

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BREAKING NEWS: Petition for Review granted in Brinker Restaurant v. Superior Court (Hohmbaum)

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Greatsealcal100The Supreme Court has just GRANTED the Petition for Review in Brinker Restaurant Corporation, et al. v. Superior Court (Hohnbaum).  View the Supreme Court docket here.  Aside from Justice Werdegar, who was absent and did not participate, all other justices voted in favor of the Petition.  As I obliquely suggested in this post, so much for Brinker Restaurant Corporation's prediction that this matter would quietly return to the Superior Court after turning wage & hour class action precedent on its head.

UPDATE:  This post has been marked as "featured" so as to appear first on the home page of this blog while interest in this news remains high.

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Procedural news in Johnson v. Glaxosmithkline, Inc.

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Greatsealcal100This blog briefly reported on a new opinion in Johnson v. Glaxosmithkline, Inc. (September 19, 2008).  You can read that post here.  To recap, the Court of Appeal (Second Appellate District, Division Seven) examined the validity of the decision in Alvarez v. May Dept. Stores Co. (2006) 143 Cal.App.4th 1223 and whether Alvarez was effectively nullified by the United States Supreme Court decision in Taylor v. Sturgell, supra, __ U.S. __ [128 S.Ct. 2161].

A few things have occured since the September 19, 2008 opinion.  First, a Petition for Rehearing was filed on October 7, 2008.  It was denied the day it was filed.  You can view the docket here.  On October 14, 2008, the Court of Appeal modified its opinion, without changing the judgment.  The modification added a footnote and added some clarifying language about record review.

The logical guess is that the Petition for Rehearing is a prelude to a Petition for Review.

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Hewlett-Packard Co. v. Superior Court discusses important distinction between certification issues and merits issues

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Greatsealcal100Hewlett-Packard makes very nice laser printers.  And really important class action appellate decisions.  In fact, I wanted to direct attention to this decision when it was released on Friday because it confronts a point of class certification jurisprudence that I have long thought was overlooked: what should the trial court do in the event that a possible defense to a claim exists that could defeat some or all of the class claims?  The Court of Appeal answered this question (in my opinion, correctly) with a resounding "Nothing."

In Hewlett-Packard Co. v. Superior Court (September 26, 2008), the Court of Appeal (Sixth Appellate District) reviewed a petition for a peremptory writ of mandate after a Trial Court refused to decertify a class on the ground that the decision in Daugherty v. American Honda Co., Inc. (2006) 144 Cal.App.4th 824 provided a partial or complete defense to claims, destroying predominance.  Summarizing the core allegation of the complaint, the Court said:

“The complaint alleged that HP had marketed and distributed Pavilion Series Notebook computers, knowing that the computers had defective inverters that could potentially cause dim displays, but without disclosing such defects to consumers; the complaint asserted causes of action for violation of the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.), violation of the Consumer Legal Remedies Act (Civ.Code, § 1750 et seq.), breach of express warranty and “Unjust Enrichment.”

(Slip op., at p. 2.)

The decision includes some discussion of warranty claims.  That's not the good part.  The important aspect of Hewlett-Packard Co. is its concise explanation about the demarcation between merits issues and certification issues:

“The crux of plaintiffs’ claim is that certain HP notebook computers contained types of inverters that HP knew would likely fail and cause the screens to dim and darken at some time before the end of the notebook’s “useful life.” HP asserts that under Daugherty, this claim would not establish its liability. Daugherty holds there can be no claim for breach of express warranty or UCL violations arising from proof that the manufacturer knew at the time of the sale that the component part might fail at some point in the future. (Daugherty, supra, 144 Cal.App.4th at pp 838-839.)

While Daugherty may have implications for the merits of underlying action, and indeed may serve to bar claims by plaintiffs that occurred outside the warranty period, it does not affect a determination of class certification. Daugherty is distinguished from the present action because it related to a substantive question on demurrer rather than a procedural question as here on a motion for class certification. And the question in a determination of class certification is “essentially . . . procedural . . . [and] does not ask whether an action is legally or factually meritorious.” (Linder, supra, 23 Cal.4th 429, 439-440, emphasis added.)

If we were to accept HP’s argument regarding the application of Daugherty to the present action, we would be considering the merits of the underlying action. And the question of class certification “does not ask whether an action is legally or factually meritorious.” (Linder, supra 23 Cal.4th at pp. 439-440.) Rather, a ruling on a certification motion determines whether “the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants.” (Rocha, supra, 7 Cal.3d at p. 238.)

(Slip op., at pp. 8-9.)  Continuing, the Court said:

“In this writ, HP requests that we order the trial court to vacate its order certifying the class because some of the plaintiffs’ claims may be substantively invalid under Daugherty. This is not a proper consideration on the question of class certification. The merits of the case can and will be decided at a later point in this case. Indeed, the trial court noted that stating with regard to Daugherty that it was “neither ruling on the merits of the causes of action not what limits to recovery for any class member might be.”

(Slip op., at p. 10.)  In other words, even if there is a substantial likelihood that the class members' claims will fail due to some defense, consideration of that fact is a merits analysis and ultimately improper.  That, in my experience, is not how trial courts customarily view this situation.

I recall suggesting to one trial court that if the defendant were truly sincere that it was factually innocent, it should stipulate to certification and obtain a defense verdict against the entire class, rather than just one plaintiff.  The court scoffed at my suggestion.  But that, and other certification experiences, has led me to the conclusion that when a trial court perceives a likely defense to claims, certification approaches the impossible.  I've been waiting for a decision that, in plain language, said success or failure of claims is irrelevant to the question of certification.  So there you have it.

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Lenders catch a break - Seventh Circuit rejects class-wide rescission under TILA

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With major segments of the financial industry wobbling on the brink (due to really bad judgment by a bunch of idiots turning shady mortgages into the next big investment vehicle), the lending industry caught a break today.  In Andrews v. Chevy Chase Bank (September 24, 2008), the Seventh Circuit Court of Appeals held, in a 2-to-1 decision, that rescissions under the Truth in Lending Act (TILA) were intended to be "a purely individual remedy that may not be pursued" on a class-action basis.  (Ruth Simon, Court Rejects Class Action on Option ARM Loans (September 24, 2008) online.wsj.com.)  This outcome is consistent with California's approach to the issue (Laliberte v. Pacific Mercantile Bank, 147 Cal.App.4th 1, 53 Cal.Rptr.3d 745 (2007)), and reflects what appears to now be the solid majority view as to whether rescission rights are available as a class-wide remedy under TILA.  Having personally pursued that issue through to a Petion for a Writ of Certiorari at the United States Supreme Court in Laliberte, I was hopeful for a while that Andrews might push the pendulum back and generate some interest for review.  Many prognosticators thought such a pro-borrower ruling was likely.  But, in light of the current mess swirling around the banking industry, I'd imagine that such a ruling in Andrews would have simply generated some emergency legislation that eliminated class-wide loan rescissions under TILA.

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