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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Attending CAOC Committee Meetings and first Board Meeting

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I'm in San Francisco today to attend CAOC's Class Action Committee section meeting and my first CAOC Board of Governor's meeting after becoming a Board member-elect.  It's eye-opening to talk with other class action practitioners from around California and hear about their concerns and experiences.

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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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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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Johnson v. Glaxosmithkline, Inc. analyzes parts of Alvarez-type class action preclusion

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Greatsealcal100It's a bit dicey commenting on an appellate decision that isn't truly final.  By "comment," I mean something more than the soundbites one hears in the media when a high-profile decision is redered ("We're very pleased with this outcome and feel that justice was served...").  And while I'm not going to offer any detailed analysis of this new opinion, Johnson v. Glaxosmithkline, Inc. (September 19, 2008) is news that merits coverage, despite the fact that I contributed in a small way to that appeal.

Readers may know that I was counsel in Alvarez v. May Dept. Stores Co. (2006) 143 Cal.App.4th 1223.  I expressed some of my disappointment with the Alvarez decision in this post.  Since Alvarez, I have watched for signs that would indicate whether the opinion would receive further reinforcement or be limited into irrelevance.  Early signs suggested the later.  Last Friday, the Court of Appeal (Second Appellate District, Division Seven) had an opportunity to take a second look at Alvarez.  In doing so, the Court of Appeal noted the shadow cast over Alvarez by a recent U.S. Supreme Court decision:

“. . . Taylor v. Sturgell, supra, __ U.S. __ [128 S.Ct. 2161] would appear to preclude the use of collateral estoppel to bar absent putative class members from seeking class certification following the denial of a certification motion in an earlier lawsuit at least to the extent Taylor is understood as resting on due process considerations, and not simply federal common law. Because we reverse the trial court’s application of collateral estoppel on different grounds, however, we leave resolution of these important issues to another day.

(Slip op., at p. 15, n. 8.)  The Court noted the possibility that Taylor overruled Alvarez, but didn't go through that door because it found an alternative basis for reversing the trial court.  What the Court did conclude was something akin to, but more detailed in its analysis, than Bufil v. Dollar Financial Group, Inc. (2008) 162 Cal.App.4th 1193.  Specifically, the Court held that, because a prior attempt to certify a nationwide class action was not identical to the class at issue, collateral estoppel did not apply and the Alvarez approach of using a primary rights analysis for assessing the preclusive effect of the denial of class certification was not supportable:

“Moreover, the procedural right to prosecute a claim as a class action, “a means to enforce substantive law” by collectively litigating substantive claims (Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906, 918; see Alch v. Superior Court (2004) 122 Cal.App.4th 339, 388), shares none of the characteristics of a “cause of action” as defined by the primary rights theory. (See Crowley v. Katleman, supra, 8 Cal.4th at p. 681 [primary rights theory “provides that a ‘cause of action’ is comprised of a ‘primary right’ of the plaintiff, a corresponding ‘primary duty’ of the defendant, and a wrongful act by the defendant constituting a breach of that duty”].) A primary right in its simplest form is the plaintiff’s right to be free from the particular injury suffered. (Slater v. Blackwood, supra, 15 Cal.3d at p. 795.) The procedural means for protecting that right cannot be confused with the right itself.

(Slip op., at p. 22; see also, p. 16.)  Aside from noting these two points in the opinion, I will leave further analysis and commentary to others . . . at least for now.

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The Pioneer ripples continue to expand in Lee, et al. v. Dynamex, Inc., et al.

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Greatsealcal100Back on August 14th, I commented on yet another decision giving a further boost to the Supreme Court's decision in Pioneer Electronics (USA), Inc. v. Superior Court (Olmstead), 40 Cal.4th 360 (2007), in which the California Supreme Court confirmed the right of plaintiffs to discover the identity and contact information of putative class members.  Discussing Alch v. Superior Court (August 14, 2008) in this post, I commented that it furthered the trend of Belaire-West Landscape, Inc. v. Superior Court, 149 Cal.App.4th 554 (2007) and Puerto v. Superior Court, 158 Cal.App.4th 1242 (2008).  It turns out that appellate courts aren't done reminding parties about the fundamental right to engage in discovery in class actions.

On August September 17, 2008, the Second Appellate District (Division Seven) added to the discussion regarding the substantial right to basic discovery of information about putative class members.  In Lee, et al. v. Dynamex, Inc., et al., the Court of Appeal tied all of the threads emanating from Pioneer together and concluded that the failure to permit discovery about class member identity was grounds for reversing the trial court's order denying class certification:

“After first denying Lee’s motion to compel Dynamex to identify and provide contact information for potential putative class members, the trial court denied Lee’s motion for class certification. Because the trial court’s discovery ruling directly conflicts with the Supreme Court’s subsequent decision in Pioneer Electronics (USA), Inc. v. Superior Court (2007) 40 Cal.4th 360 (Pioneer), as well as our decisions in Belaire-West Landscape, Inc. v. Superior Court (2007) 149 Cal.App.4th 554 and Puerto v. Superior Court (2008) 158 Cal.App.4th 1242 (Puerto), and that ruling improperly interfered with Lee’s ability to establish the necessary elements for class certification, we reverse both orders and remand for further proceedings regarding class certification.

(Slip op., at p. 2.)  In light of Dynamex, defendants must carefully weigh whether to offer any opposition to plaintiffs seeking discovery of the identity and contact information for class members.  A successful opposition to such discovery may lead to a second chance at certification if the trial court denies certification.  In order to control costs and avoid such a result, we may see defendants electing to stipulate to an order to produce such discovery (as the expedient means of satisfying the defendant's obligation to maintain some degree of control over class member contact information).  As an aside, Dynamex had the misfortune of drawing the last panel they would have wanted to review this appeal.  I'd guess that Appellate Justices don't take kindly to trial court decisions that essentially ignore that panel's prior, controlling decisions on the issues confronting the trial court.

The opinion also includes an educational discussion about the "ascertainability" requisite for certification.  In short, the Court of Appeal again reminds us that all class members need not be identified or identifiable at the certification stage.

I'm still trying to catch up after two weeks of depositions out of state.  This has been a busy week for class-related decisions (and the week's not over yet); I'm working through the decisions and other news as fast as I can get to them.

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Media coverage of Martinez, et al. v. Regents of t...

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Martinez, et al. v. Regents of the University of California, et al. (September 15, 2008, Third Appellate District) is starting to generate a fair bit of press/media coverage:

This is just a sample of the dialog and reporting that are developing right now; more commentary will surely follow.

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