Luckey v. Superior Court says no to temporary judges for class settlement approval

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.”

Misclassifcation of independent contractors gets a boost in Ayala v. Antelope Valley Newspapers

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.

Analysis of Iskanian v. CLS Transportation Los Angeles LLC

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.

Analysis of Duran v. U.S. Bank National Association

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.

BREAKING NEWS: Iskanian v. CLS Transportation Los Angeles, LLC eulogizes Gentry and buttresses PAGA

The California Supreme Court has just issued its opinion in Iskanian v. CLS Transportation Los Angeles, LLC (June 23, 2014). In a nutshell, here's the scorecard:

• The question is whether a state's refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA. We conclude that it is and that our holding to the contrary in Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) has been abrogated by recent United States Supreme Court precedent. 

• [W]e conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy. In addition, we conclude that the FAA's goal of promoting arbitration as a means of private dispute resolution does not preclude our Legislature from deputizing employees to prosecute Labor Code violations on the state‘s behalf. Therefore, the FAA does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.

Slip op., at 1-2. Tough day to be opposed to the FAA's all-consuming rights grab. But the PAGA ruling is a small salve.

Ninth Circuit joins the list of other Circuits rejecting Norris-LaGuardia and NLRA-based challenges to individual arbitration requirements

While I'm sad to report it, I am not particularly surprised at this point. Today, in Johnmohammadi v. Bloomingdale’s, Inc. (9th Cir. June 23, 2014), the Ninth Circuit came rather close to joining other Circuits when it rejected a challenge to the enforcement of an arbitration clause that precludes collective enforcement of claims in any forum, whether judicial or arbitral. While they Court recognized that there was some support for the plaintiff's position, it also found on the facts that the protections called for by the plaintiff were unavailable. A key passage is as follows:

Johnmohammadi contends that filing this class action on behalf of her fellow employees is one of the “other concerted activities” protected by the Norris-LaGuardia Act and the NLRA. There is some judicial support for her position. See, e.g., Eastex, Inc. v. NLRB, 437 U.S. 556, 565–66 (1978); Brady v. Nat’l Football League, 644 F.3d 661, 673 (8th Cir. 2011); Mohave Elec. Coop, Inc. v. NLRB, 206 F.3d 1183, 1189 (D.C. Cir. 2000); Salt River Valley Water Users’ Ass’n v. NLRB, 206 F.2d 325, 328 (9th Cir. 1953). But we need not decide whether Johnmohammadi has correctly interpreted this statutory phrase. To prevail, she must still show that Bloomingdale’s interfered with, restrained, or coerced her in the exercise of her right to file a class action. In our view, Bloomingdale’s did none of these things.

Slip op., at 8.

BREAKING NEWS: Opinion in Duran v. U.S. Bank National Association now available

Finally, the news drought comes to an end, and class action practitioners have been waiting for this one for some time.  Today, the California Supreme Court issued its opinion in Duran v. U.S. Bank National Association (May 29, 2014). A more extensive analysis will have to wait, but the introduction includes some very telling statements, namely that the Supreme Court is not holding that statistics cannot be used for both liability and damages in class actions:

We encounter here an exceedingly rare beast: a wage and hour class action that proceeded through trial to verdict. 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. (Lab. Code, § 1171.) This exemption applies to employees who spend more than 50 percent of the workday engaged in sales activities outside the office. (Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785 (Ramirez).)

After certifying a class of 260 plaintiffs, the trial court devised a plan to determine the extent of USB‘s liability to all class members by extrapolating from a random sample. In the first phase of trial, the court heard testimony about the work habits of 21 plaintiffs. USB was not permitted to introduce evidence about the work habits of any plaintiff outside this sample. Nevertheless, based on testimony from the small sample group, the trial court found that the entire class had been misclassified. After the second phase of trial, which focused on testimony from statisticians, the court extrapolated the average amount of overtime reported by the sample group to the class as a whole, resulting in a verdict of approximately $15 million and an average recovery of over $57,000 per person.

As even the plaintiffs recognize, this result cannot stand. The judgment must be reversed because the trial court‘s flawed implementation of sampling prevented USB from showing that some class members were exempt and entitled to no recovery. A trial plan that relies on statistical sampling must be developed with expert input and must afford the defendant an opportunity to impeach the model or otherwise show its liability is reduced. Statistical sampling may provide an appropriate means of proving liability and damages in some wage and hour class actions. However, as outlined below, the trial court‘s particular approach to sampling here was profoundly flawed.

Slip op., at 1-2.  Didn't expect that outcome, did you?

Decertification reversal in suitable seating case

Rage, rage against the dying of the light. Chastise the universe for failing you, and sometimes it responds. Just earlier today I decried the absence of any decisions having anything to do with the subjects usually covered here. But soft! what light through yonder window breaks? It is an opinion, and suitable seating is the sun. In Hall v. Rite Aid Corporation (May 16, 2014), the Court of Appeal (Fourth Appellate District, Division One) reversed a trial court order decertifying a suitable seating claim.

The plaintiff successfully certified a class action alleging failure to provide suitable seating. Later, defendant Rite Aid moved for decertification, citing to other decisions and to evidence it offered. The trial court granted the motion to decertify and denied the cross-motion to permit the matter to proceed as a non-class representative action. (Oh my gosh, this is already exciting!) Based on the analytic framework of Brinker ("O, speak again, bright angel! for thou art As glorious to this night, being o'er my head As is a winged messenger of heaven Unto the white-upturned wondering eyes Of mortals that fall back to gaze on him When he bestrides the lazy-pacing clouds And sails upon the bosom of the air."), the Court of appeal concluded that the trial court erroneously considered the merits of the action, rather than whether the action was amenable to class treatment.

The decertification train got rolling after Rite Aid cited the recently decided matter of Duran v. U.S. Bank Nat. Assn., 203 Cal. App. 4th 212 (2012) (review granted).  Rite Aid then pounced, asking the trial court to sua sponte decertify.  The trial court declined, but briefing was requested. Rite Aid then submitted federal court decisions and declarations from cashiers that had opted out of the action, along with other evidence. In spite of numerous bases for opposition, the trial court granted the motion to decertify and denied the motion to permit the case to proceed as a representative action.

The Court began its review by thoroughly analyzing Brinker and its progeny. Describing several of those subsequent decisions, the Court said:

Subsequent cases have concluded, considering Brinker, that when a court is considering the issue of class certification and is assessing whether common issues predominate over individual issues, the court must "focus on the policy itself" and address whether the plaintiff's theory as to the illegality of the policy can be resolved on a class-wide basis. (Faulkinbury v. Boyd & Associates, Inc. (2013) 216 Cal.App.4th 220, 232 (Faulkinbury); accord, Bradley, supra, 211 Cal.App.4th at pp. 1141-1142 ["[o]n the issue whether common issues predominate in the litigation, a court must 'examine the plaintiff's theory of recovery' and 'assess the nature of the legal and factual disputes likely to be presented' "]; Benton v. Telecom Network Specialists, Inc. (2013) 220 Cal.App.4th 701, 726 (Benton) ["under Brinker . . . for purposes of certification, the proper inquiry is 'whether the theory of recovery advanced by the plaintiff is likely to prove amenable to class treatment' "].) Those courts have also agreed that, where the theory of liability asserts the employer's uniform policy violates California's labor laws, factual distinctions among whether or how employees were or were not adversely impacted by the allegedly illegal policy does not preclude certification. (See, e.g., Bradley, supra, at pp. 1150-1153 [where theory of liability was employer's uniform policy violated labor laws by not authorizing employees to take meal and rest breaks, class certification is proper and fact some employees in fact took meal and rest breaks is a damage question that " 'will rarely if ever stand as a bar to certification' "].)

Slip op., at 13. Once the Court turned to plaintiff's theory, it wasted no time in applying the mandates of Brinker (and I sense no trace of bitterness):

Our review of Brinker, which is binding on this court (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450), compels the conclusion the trial court erroneously based its decertification order on its assessment of the merits of Hall's claim rather than on the theory of liability advanced by Hall. We are instructed under Brinker that the starting point for purposes of class certification commences with Hall's theory of liability because, "for purposes of certification, the proper inquiry is 'whether the theory of recovery advanced by the plaintiff is likely to prove amenable to class treatment.' " (Benton, supra, 220 Cal.App.4th at p. 726.) Here, as in Brinker and its progeny, Hall alleged (and Rite Aid did not dispute) that Rite Aid had a uniform policy of the type envisioned by Brinker: Rite Aid did not allow its Cashier/Clerks to sit (and therefore provided no suitable seats for its Cashier/Clerks) while they performed check-out functions at the register. Hall's theory of liability is that this uniform policy was unlawful because section 14 mandates the provision of suitable seats when the nature of the work reasonably permits the use of seats, and the nature of the work involved in performing check-out functions does reasonably permit the use of seats. Hall's proffered theory of liability is that, regardless of the amount of time any particular Cashier/Clerk might spend on duties other than check-out work, Rite Aid's uniform policy transgresses section 14 because suitable seats are not provided for that aspect of the employee's work that can be reasonably performed while seated.

Slip op., at 18-19. The Court then dismissed Rite Aid's arguments on appeal:

Rite Aid's arguments on appeal largely ignore the analysis of Bradley, Benton and Faulkinbury. Instead, Rite Aid asserts the trial court properly reached the merits of (and correctly rejected) Hall's theory of liability when it ruled on the decertification motion because Brinker cannot be read to permit a plaintiff to "invent a class action by proposing an incorrect rule of law and arguing, 'If my rule is right, I win on a class basis.' "

Slip op., at 20.

The Court found it unnecessary to address the representative action theory and declined the plaintiff's request to address the correct standard applicable to section 14's seating mandate.

I remarked on a number of occasions during Class Re-Action podcast episodes that Brinker's true impact was in the certification sphere, not the wage & hour issues it addressed. Q.E.D. Well, that's insanely smug and pretentious. But, you know, scoreboard.

Arbitration agreement that arguably applied California law on the issue of enforceability is, ironically, unenforceable

It's been a while since I have posted here.  It's not for lack of interest in finding something appropriate to address, but the interesting decisions have been few and far between.  Plus this "start your own firm" thing tends to eat up a lot of time in the early days.  Of course, with several big decisions likely to drop from the California Supreme Court any day, this may have been the calm before the storm.  While we wait for those fireworks, here's a fascinating arbitration decision.  In Imburgia v. DirecTV, Inc. (April 7, 2014), the Court of Appeal (Second Appellate District, Division One) affirmed the denial of a petition to compel arbitration.  The analysis is striking for the fact that it forcefully challenges some contrary conclusions by federal courts.  Whether it remains published while other arbitration decisions have been taken and held is another question.

The particulars of the case are all but ignored as irrelevant, though it is clear that the case is a consumer class action from the claims alleged.  The customer agreement specified that JAMS rules would apply.  However, the agreement went on to state as follows:

“Neither you nor we shall be entitled to join or consolidate claims in arbitration by or against other individuals or entities, or arbitrate any claim as a representative member of a class or in a private attorney general capacity. Accordingly, you and we agree that the JAMS Class Action Procedures do not apply to our arbitration. If, however, the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 is unenforceable.”

Slip op., at 3.  The customer agreement also specified that Section 9, containing the arbitration requirement, was governed by the FAA and that the entire section was unenforceable if the agreement to dispense with class arbitration procedures was found to be unenforceable.

The trial court found the agreement unenforceable.  On appeal, the Court considered the conundrum created by a clause incorporating state law into the determination as to whether a class action waiver was unconscionable:

The question before us, then, is how to interpret section 9’s choice of law concerning enforceability of the class action waiver. Where section 9 requires us to consider whether “the law of your state would find this agreement to dispense with class arbitration procedures unenforceable,” does it mean “the law of your state to the extent it is not preempted by the FAA,” or “the law of your state without considering the preemptive effect, if any, of the FAA”? Plaintiffs argue that it means the latter, and we agree

Slip op., at 6.  The Court agreed that the basic rule of construction under which the specific controls the general where the two are inconsistent.  The Court observed that:

If we apply state law alone (for example, the antiwaiver provision of the CLRA) to the class action waiver, then the waiver is unenforceable. If we apply federal law, then the class action waiver is enforceable and any state law to the contrary is preempted. That is a sufficient inconsistency to make plaintiffs’ principle of contract interpretation applicable. Indeed, the entire preemption analysis of Concepcion is based on a conflict or inconsistency between the Discover Bank rule and the FAA.

Slip op., at 6.  The Court then addressed decisions identified by DirecTV as having rejected the plaintiffs' argument.  After dismissing two as inapplicable to the issue before it, the Court squarely addressed the third:

The third case, however, is a decision in the federal multidistrict litigation that parallels the instant state court actions. In an “[i]ndicative [r]uling” under rule 62.1 of the Federal Rules of Civil Procedure, the federal district court stated that the reference to “the law of your state” in section 9 of the customer agreement could not mean that enforceability of the class action waiver should be determined exclusively under state law, because that would render “meaningless” section 10’s general statement that the arbitration agreement is governed by the FAA. (In re DIRECTV Early Cancellation Fee Marketing and Sales Practices Litigation (C.D.Cal. 2011) 810 F.Supp.2d 1060, 1071.) We disagree. The specific reference to state law concerning the enforceability of the class action waiver creates a narrow and specific exception to the general provision that the arbitration agreement will be governed by the FAA. It does not render that general provision meaningless. In addition, the district court’s analysis does not address the principles that a specific provision controls over a general one and that ambiguous language is construed against the interest of the drafter. For all of these reasons, we decline to follow the district court’s decision.

Slip op., at 8-9.

The Court then discussed Murphy v. DIRECTV, Inc.  724 F.3d 1218 (9th Cir. 2013), decided after briefing was completed, for its holding that federal law "is the law of ever state":

We find the analysis in Murphy unpersuasive. On the one hand, insofar as the court’s reasoning is a matter of contract interpretation, it means that when the parties used the phrase “the law of your state,” they meant “federal law plus (nonfederal) state law.”  Murphy provides no basis for concluding that the parties intended to use the phrase “the law of your state” in such a way, and we a re aware of none. On the contrary, a reasonable reader of the customer agreement would naturally interpret the phrase “the law of your state” as referring to (nonfederal) state law, and any ambiguity should be construed against the drafter.  On the other hand, insofar as the court reasoned that contract interpretation is irrelevant because the parties are powerless to opt out of the FAA by contract, we are aware of no authority for the court’s position. Rather, as we have already observed, if the customer agreement expressly provided that the enforceability of the class action waiver “shall be determined under the (nonfederal) law of your state without considering the preemptive effect, if any, of the FAA,” then that choice of law would be enforceable; Murphy cites no authority to the contrary.  Consequently, the dispositive issue is whether the parties intended to make that choice.  As a result, “the parties’ various contract interpretation arguments” are not “largely irrelevant.”

Slip op., at 9-10 (parentheticals added by Court when discussing Murphy because Murphy asserted that all federal law is state law; footnotes omitted).  After ripping a few federal decisions to shreds, the Court concluded that the entire arbitration provision was nullified by its own terms.

What will happen now?  We'll have to wait for the petition for review to see.

I'll be back with a podcast the day before Easter and any case write-ups that come along before then.  Sorry to be away so long.

A bit of clarity added to lodestar fee applications

I've had a long-running debate going with several of the judges in the complex litigation program regarding fee awards in class actions.  I contend that California has long recognized contingent fee awards, and there is nothing about class actions that justifies a "lodestar first" approach that seems to be a trend.  A decision issued yesterday didn't settle the debate (it's a decision in a lodestar award situation, not a common fund recovery), but it adds a bit of clarity in other respects.  If you are a plaintiff-side practitioner, you need to know about this one.  In Concepcion v. Amscan Holdings, Inc. (February 18, 2014), the Court of Appeal (Second Appellate District, Division Seven) considered a defendant's appeal of a $350,000 fee award following settlement of a Song-Beverly Credit Card Act suit.

Counsel for plaintiffs submitted declarations describing, in general terms, the categories of work they performed.  The trial court then required the in camera submission of billing records that were not provided to the defendant's attorneys. On appeal, the defendant argued that class counsel failed to submit sufficient evidence to justify the fee award and, in particular, did not demonstrate the time expended by the six law firms involved was reasonably necessary and nonduplicative.  The defendant also argued that the trial court’s in camera review of class counsel’s billing records to support the award was fundamentally unfair and denied it due process.  The Court agreed that it was improper for the court to rely upon billing information not provided to the defendant, preventing any opportunity to challenge it.

Upon learning that the Court rejected in camera review of billing records, you might be tempted to conclude that this means that detailed billing records must be provided to the defendant.  That is not required, and it is also why this case is important.

As the Court explained, it is not necessary to provide detailed billing records in order to support a fee award:

It is not necessary to provide detailed billing timesheets to support an award of attorney fees under the lodestar method. (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 254 [affirming lodestar fee award based on “declarations evidencing the reasonable hourly rate for [the attorneys’] services and establishing the number of hours spent working on the case”; “California case law permits fee awards in the absence of detailed time sheets”]; see Mardirossian & Associates v. Ersoff (2007) 153 Cal.App.4th 257, 269 [“there is no legal requirement that an attorney supply billing statements to support a claim for attorney fees”].) Declarations of counsel setting forth the reasonable hourly rate, the number of hours worked and the tasks performed are sufficient. (Steiny & Co. v. California Electric Supply Co. (2000) 79 Cal.App.4th 285, 293 [“[a]n attorney’s testimony as to the number of hours worked is sufficient to support an award of attorney fees, even in the absence of detailed time records”].) “‘Although a fee request ordinarily should be documented in great detail, it cannot be said . . . that the absence of time records and billing statements deprive[s] [a] trial court of substantial evidence to support an award . . . .’” (City of Colton v. Singletary (2012)
206 Cal.App.4th 751, 784-785.)

Slip op., at 17.  The Court then noted that, while the declarations of counsel provided total hours, the declarations, for the most part, did not break out the total number of hours each attorney spent on each type of work in a category.  This spartan showing was found to be insufficient by the Court:

As discussed, class counsel had the burden of proving the reasonable number of hours they devoted to the litigation, whether through declarations or redacted or unredacted time sheets or billing records. (See, e.g., Ellis v. Toshiba America Information Systems, Inc. (2013) 218 Cal.App.4th 853, 883; El Escorial Owners’  Assn. v. DLC Plastering, Inc., supra, 154 Cal.App.4th at p. 1366.) “A trial court may not rubberstamp a request for attorney fees, but must determine the number of hours reasonably expended.” (Donahue v. Donahue (2010) 182 Cal.App.4th 259, 271.)

Slip op., at 18.  The clear message is that, while it is proper for counsel to decline to submit billing sheets, the "reasonable" fees must be supported with a detailed declaration as an alternative approach.  It would appear that, to be definitely safe, a declaration for this purpose must include a thorough summary of the number of hours spent on various categories of work in the case.  But the practice of requiring the submission of detailed billing records is improper.  Whether you want to go that route and tell the trial court it is improper is another story.

Next, the Court considered the argument that the review of billing records in camera denied defendant a due process right to challenge the records.  The Court swiftly concluded that it did: "Under our adversarial system of justice, once class counsel presented evidence to support their fee request, Party City was entitled to see and respond to it and to present its own arguments as to why it failed to justify the fees requested."  Slip op., at 18.)

The Court essentially held that, while billing records weren't necessary to support a fee request, once provided, they had to be shared.  The Court dismissed the argument that the records were likely to contain a large volume of privileged information, suggesting that redaction would suffice.  The Court also found that cursory declarations with total numbers of hours were insufficient.  So, sufficient lies somewhere between billing records and cursory declarations with total hours listed.  Now you know what you can't do, what you don't have to do, and what you probably ought to do.