Second Interim Report on class actions in California sheds new light on certification

Earlier this month, the Administrative Office of the Courts released its Second Interim Report from the Study of California Class Action Litigation.  The Second Interim Report specifically analyzed class certifications in cases initially filed with a class action designation.  The findings were surprising.

First, over the period of 2000 to 2005, certification rates plummeted: "The rate of class certification (by any means) decreased by more than 50 percent over the study years."  Report, at 6.  This sharp decline mirrored findings in federal courts.

Second, a meager 13% of cases initially filed as a class action ever had a motion for class certification filed before final disposition, and only 46% of those motions were granted.  Report, at 8-9.  However, three times more cases were certified as part of a settlement.  Report, at 11.  The Report speculated that the rate of certification by settlement could be attributable to the State's complex litigation programs:  "In California, the frequency of classes certified as part of a settlement agreement may be another product of the Complex Civil Litigation Program."  Report, at 11.  Sadly, the apparent success of this program hasn't ensured that class actions filed in Los Angeles County receive the careful attention of the Complex Civil Litigation Program.  Due to limited resources, the Los Angeles County Complex Courts are rejecting most class actions to focus on construction defect cases, mass torts, and other multi-party suits.

The Second Interim Report also examined data to test the hypothesis that class certification pressures settlements from defendants.  The data did not support that hypothesis.  For example, the lack of interlocutory review of orders granting certification did not reveal a settlement pressure when compared to federal courts:

Given the absence of an interlocutory appeal option in California, one may conclude that settlement pressure would exert more effect and more cases would be compelled to settle after the granting of a motion for class certification as compared to federal court. However, the disposition composition for certified cases that reached a final outcome in California does not support this hypothesis. Table 16 shows that the rate of settlement after certification through a court-granted motion for certification is 69%. This is actually slightly lower than the rate of 72% in the federal court. California‘s lack of intermediate recourse in response to the granting of class certification does not result in a higher rate of settlement in that situation when compared to data from federal court.

Report, at 26.  Summing up the data analysis related to the theorized pressure to settle, the Report concluded:

In sum, California data show that very few cases could be included in a category in which the commonly discussed parameters that define settlement pressure from class certification may have been a factor in the decision to settle. Many cases circumvented the issue altogether by including class certification as an element of the settlement itself. In cases with a class certified through a court-granted motion for certification, neither the overall disposition composition nor the time-to-settlement analyses seem to suggest an automatic or immediate progression from certification through motion to settlement which would allow the determination that pressure results in inevitable settlement. The conclusion here is not that the idea of settlement pressure is fabricated, or even altogether negligible, but rather that the pervasive effect of settlement pressure in California does not appear to be supported by the data.

Report, at 28.  It is at least fair to say that the only comprehensive study of California class action data available does not provide support for the recent, repeated claims by CJAC, Governor Schwarzenegger, and others that class actions are out of control, forcing settlements or in need of reforms such as the right to immediately appeal any order certifying a class.  Such a reform would likely lower the number of contested settlements from meager to negligible.  Certainly, that is a desirable result for businesses that underpay employees, sell defective products, or falsely advertise goods and services.  It is not, however, necessary to save our bankrupt state.

More thoughts on Jaimez v. DAIOHS USA, Inc.

There is quite a bit to absorb in  Jaimez v. DAIOHS USA, Inc., et al. (February 8, 2010), and I wanted to provide some further commentary.  For example, no California Court of Appeal has interpreted or provided any guidance to trial courts regarding the wage statement "injury" requirement.  Jaimez holds that: (1) "a very modest showing" will satisfy the injury requirement; (2) the filing of a lawsuit and "the difficulty and expense ... encountered in attempting to reconstruct time and pay records" may satisfy the wage statement injury requirement; (3) the "injury" requirement is distinct from "damages"; and, (4) trial courts may certify wage statement classes even without evidence of an injury arising from inaccurate wage statements. Opinion at 22-23.

Jaimez also re-affirms and clarifies key standards applicable to class certification motions, including the fact that the proper predominance analysis is comparative. Jaimez appears to be the first published California Court of Appeal decision since the issuance of Sav-On Drug Stores, Inc. v. Superior Court, 34 Cal. 4th 319 (2004) to hold that the "relevant comparison lies between the costs and benefits of adjudicating plaintiffs' claims in a class action and the costs and benefits of proceeding by numerous separate actions- not between the complexity of a class suit that must accommodate some individualized inquiries and the absence of any remedial proceeding whatsoever." Opinion at 13 (quoting Sav-On, 34 Cal. 4th at 339  n.10). This holding is a good reminder of the "relevant comparison" predominance analysis when examining whether to certify a class.

Jaimez clarifies the role of the trial court when considering issues surrounding certification of meal break classes, holding that trial courts may certify a meal break class regardless of any legal uncertainty regarding an employer's obligation to provide meal breaks. Opinion at 18-19.

Jaimez also establishes important precedent regarding meal break timing requirements.  Employers and employees continue to dispute when employees are entitled to meal breaks.  No California Court of Appeal has offered guidance on this frequently disputed issue. Jaimez holds that trial courts may certify meal break classes based on the theory that an employer failed to provide meal breaks within the first five hours of a shift.

Labor Code § 226 directs employers to provide their employees with "an accurate itemized statement in writing" showing "total hours worked" and "all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate."  When a violation occurs, "[a]n employee suffering injury as a result of a knowing and intentional failure by an employer to comply with [section 226(a)] is entitled to" specified damages. Id.  While this statutory language appears to differentiate between injury and damage, employees in California continue to face substantial resistance to the type of analysis supplied by Jaimez.

No California Court of Appeal has directly construed the wage statement "injury" requirement. Rather, only federal authorities have discussed this issue.  California employers, employees and courts continue to dispute the meaning of the wage statement injury requirement.  Jaimez now provides the first comments from a California Court of Appeal interpreting the wage statement injury requirement, assisting trial courts and litigants in the process.  On this point, Jaimez holds: "While there must be some injury in order to recover damages, a very modest showing will suffice." Opinion at 22.  Going further, Jaimez explains that '''this lawsuit, and the difficulty and expense [Jaimez has] encountered in attempting to reconstruct time and pay records,' may well be 'further evidence of the injury' he has suffered." Opinion at 22.  Adopting the federal approach to identifying injury, Jaimez explains that injury can include "the possibility of not being paid overtime, employee confusion over whether they received all wages owed them, difficulty and expense involved in reconstructing pay records, and forcing employees to make mathematical computations to analyze whether the wages paid in fact compensated them for all hours worked."  Opinion at 22.  This clearly articulated standard was missing from California jurisprudence.

Finally, with respect just to the wage statement aspects of the opinion, Jaimez holds that the absence of evidence at the certification stage of an injury arising from inaccurate wage statements does not preclude class certification because the plaintiff's theory (an erroneous wage statement form) is suitable for class treatment. Opinion at 22-23.

Despite many decisions regarding aspects of class certification, the actual application of certification standards to the facts of a particular case remains an area of substantial confusion for litigants and many trial courts.  Jaimez, citing Ghazaryan v. Diva Limousine, Ltd., 169 Cal.App.4th 1524 (2008), tacitly recognized this ongoing area of difficulty for trial courts when it said, "The trial court misapplied the criteria, focusing on the potential conflicting issues of fact or law on an individual basis, rather than evaluating 'whether the theory of recovery advanced by the plaintiff is likely to prove amenable to class treatment.'"  Opinion, at 13.

Following this general observation about the application of incorrect criteria to the certification question, the Jaimez Opinion follows with one of the more thorough discussions of how to apply correct certification criteria to the specific facts of a case, on a claim-by-claim basis, spanning some 10 pages of the Opinion.  For example, the Opinion provides concrete examples regarding the correct method for evaluating evidence submitted in support or opposition to the motion for class certification:

[H]ad the trial court focused on the correct criteria, it would have necessarily found the First Choice declarations, while identifying individual effects of policies and practices that may well call for individual damages determinations, nevertheless confirm the predominance of common legal and factual issues that make this case more amenable to class treatment.  For example:

• Eight of the First Choice Declarations admit that RSR’s regularly “forego” meal breaks and one states that he never takes a meal break; and
• The First Choice declarations also fail to state that the RSR’s were compensated with an additional hour of pay, as required by California law, when the RSR’s failed to follow their “normal” practice and/or did not receive a 30-minute uninterrupted meal period.

The First Choice declarations actually demonstrate there are numerous predominant common factual issues.  The fact that individual RSR’s may have different damages does not require denial of the class certification motion.  Furthermore, declarations from a small percentage of objectors do not bar class certification.  In sum, the trial court applied improper criteria in evaluating the merits of the First Choice declarants’ statements rather than considering whether they rebutted plaintiff’s substantial evidence that predominant factual issues (if not legal, too) make this case more amenable to class treatment than to myriad individual adjudications (Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715, 743 (Bell); Richmond, supra, 29 Cal.3d at p. 475.)

Opinion at 15-16.  Opinions with this degree of practical detail about the correct method for evaluating evidence submitted in support of and in opposition to class certification are uncommon.  The rarity of such discussions about the practical mechanics of certification makes this Opinion that much more valuable for practitioners and trial courts alike.  Clarity of legal standards tends to reduce the duration and cost of litigation.

Just as important as the practical demonstration of how to assess evidence supplied by the parties on a contested certification motion is the Opinion's restatement of the correct legal test for evaluating predominance.  Since Sav-On, trial courts have continued to deny certification on the erroneous ground that a complex class action would, by necessity, require management of some individualized inquiries.  Jaimez provides a needed reminder that “'[T]he established legal standard for commonality . . . is comparative.'”  Opinion at 13, citing Sav-On.  Jaimez continues, "Specifically, '[t]he relevant comparison lies between the costs and benefits of adjudicating plaintiffs’ claims in a class action and the costs and benefits of proceeding by numerous separate actions—not between the complexity of a class suit that must accommodate some individualized inquiries and the absence of any remedial proceeding whatsoever.  [Citations.]'"  Ibid.  Though simple to state, this principle has received inconsistent application in practice.  Where a legal standard is applied inconsistently, repeated affirmations of the principle will help guide trial courts towards greater homogeneity of their analyses.   

The Supreme Court is currently considering appeals of the decisions in Brinker Restaurant Corp. v. Superior Court [previously reported at 165 Cal. App. 4th 25 (2008)] and Brinkley v. Public Storage, Inc. [previously reported at 167 Cal. App. 4th 1278 (2008)], both of which address, among other things, issues surrounding meal period requirements.  Jaimez bluntly observes that the law in this area is unsettled.  Despite this uncertainty, since Petitions for Review were granted in Brinker and Brinkley, trial courts throughout the state have routinely declined to decide matters based on existing law, proposing to stay wage & hour class actions while awaiting Supreme Court decisions that may not be issued until late 2010 or later.

Prior to publication, no California case addressed the issue of how to apply the standards for class certification to meal and rest break claims while the Brinker and Brinkley cases are pending before the California Supreme Court.  Moreover, the conflict between the court of appeal's decision in Cicairos v. Summit Logistics, Inc., 133 Cal. App. 4th 944 (2005) and a number of federal district court decisions also remains unresolved.  The Court, in Jaimez, found a way to avoid paralysis while awaiting Supreme Court decisions in Brinker and Brinkley. Jaimez held that a court "need not try to predict the outcome of the Supreme Court's review [of, in this case, Brinker and Brinkley], as we are not, at this stage, charged with adjudicating the legal or factual merits of Jaimez's causes of action."  Opinion at 19.

Jaimez makes it clear that trial courts need not stay class actions pending the outcome of the Supreme Court's proceedings in Brinker and Brinkley simply because they involve meal and rest break claims. California trial courts that are frequently being asked to deny or delay class certification of meal and rest break claims will find the Court's demonstrative application of class certification principles to meal and rest break claims helpful.

There is also a strong argument that, under California law, employees must have a 30-minute, uninterrupted meal break within the first five hours of a shift.  Labor Code § 512 say, "An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes .... "  Wage orders provide: "No employer shall employ any person for a work period of more than five (5) hours without a meal period of not less than 30 minutes .... "  And the California Supreme Court said, "Pursuant to IWC wage orders, employees are entitled to an unpaid 30-minute, duty-free meal period after working for five hours .... "  Murphy v. Kenneth Cole Productions, Inc., 40 Cal. 4th 1094, 1104 (2007).

Despite these and other suggestive authority, trial courts continue to encounter employers and employees that dispute when employees are entitled to meal breaks. No California Court of Appeal has offered explicit guidance on this issue before this opinion. Jaimez found that trial courts may certify meal break classes based on the theory that an employer failed to provide meal breaks within the first five hours of a shift. See Opinion at 19 (observing that individual issues do not predominate because the First Choice's declarations "fail to establish that any of the meal breaks were: (1) uninterrupted, (2) for 30 continuous minutes, or (3) provided within the first five, hours of a shift").

There is a lot to chew on in Jaimez (much of it not all that palatable to employers).  I can't imagine that, with an opinion this comprehensive, we've heard the last about Jaimez.  There is more to read about in Jaimez (like what to do when the plaintiff is inadequate), but I am done writing about it.

Court of Appeal reverses trial court order sustaining demurrer to class allegations for lack of commonality

The Seventh Division of the Second Appellate District has been lucky (or unlucky - I don't know what they think about it) to draw a number of major class-related appeals in the past several year.  Today, they add another to their growing list.  In Arce v. Kaiser Foundation Health Plan, Inc. (January 27, 2010) the Court of Appeal (Second Appellate District, Division Seven) reviewed a trial court order sustaining a demurrer without leave to amend to a claim arising under the UCL.  The plaintiff alleged that Kaiser breached its health plan contract and violated the Mental Health Parity Act (Health & Saf. Code,1 § 1374.72) by categorically denying coverage for behavioral therapy and speech therapy to plan members with autism spectrum disorders.  The trial court's ruling sustaining the demurrer was based on the doctrine of judicial abstention and the lack of commonality among class members.

In this instance, rather than clip elements from the opinion, I am going to quote one section, discussing the community of interest standard, in its entirety:

A. Community of Interest among Class Members

Section 382 of the Code of Civil Procedure authorizes class action suits “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court . . . .” (Code Civ. Proc., § 382.) The party seeking certification of a class must establish the existence of both an ascertainable class and a well-defined community of interest among the class members. (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326.) “The 'community of interest' requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. [Citation.]” (Ibid.) “'[T]his means “each member must not be required to individually litigate numerous and substantial questions to determine his [or her] right to recover following the class judgment; and the issues which may be jointly tried, when compared with those requiring separate adjudication, must be sufficiently numerous and substantial to make the class action advantageous to the judicial process and to the litigants.” ' [Citation.]” (Lockheed Martin Corp. v. Superior Court (2003) 29 Cal.4th 1096, 1108.) “Other relevant considerations include the probability that each class member will come forward ultimately to prove his or her separate claim to a portion of the total recovery and whether the class approach would actually serve to deter and redress alleged wrongdoing. [Citation.]” (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435.)

It is often premature for a trial court to make determinations pertaining to class suitability on demurrer. Rather, “all that is normally required for a complaint to survive demurrers to the propriety of class litigation is that the complaint allege facts that tend to show: (1) an ascertainable class of plaintiffs, and (2) questions of law and fact which are common to the class.” (Beckstead v. Superior Court (1971) 21 Cal.App.3d 780, 784.) As our Supreme Court has recognized, for purposes of determining whether a demurrer should have been overruled, “it is sufficient that there is a reasonable possibility plaintiffs can establish a prima facie community of interest among the class members . . . .” (Vasquez v. Superior Court (1971) 4 Cal.3d 800, 813; see also Beckstead v. Superior Court, supra, at p. 783 [“[T]he California Supreme Court has mandated that a candidate complaint for class action consideration, if at all possible, be allowed to survive the pleading stages of litigation.”].) Accordingly, “[w]here there is a 'reasonable possibility' that the plaintiff in a class action can establish a community of interest among class members, 'the preferred course is to defer decision on the propriety of the class action until an evidentiary hearing has been held on the appropriateness of class litigation. ' [Citation.]” (Canon U.S.A. v. Superior Court (1998) 68 Cal.App.4th 1, 5; see also Prince v. CLS Transportation, Inc. (2004) 118 Cal.App.4th 1320, 1329 [demurrer to class action complaint improper where the plaintiff “alleges institutional practices . . . that affected all of the members of the potential class in the same manner, and it appears from the complaint that all liability issues can be determined on a class-wide basis”].)

“The wisdom of allowing survival is elementary. Class action litigation is proper whenever it may be determined that it is more beneficial to the litigants and to the judicial process to try a suit in one action rather than in several actions . . . . It is clear that the more intimate the judge becomes with the character of the action, the more intelligently he [or she] may make the determination. If the judicial machinery encourages the decision to be made at the pleading stages and the judge decides against class litigation, he [or she] divests the court of the power to later alter that decision . . . . Therefore, because the sustaining of demurrers without leave to amend represents the earliest possible determination of the propriety of class action litigation, it should be looked upon with disfavor.” (Beckstead v. Superior Court, supra, 21 Cal.App.3d at p. 783.)

In sustaining Kaiser's demurrer to the UCL claim, the trial court concluded that Arce could not establish a predominance of common issues because resolution of the claim would require the court to make individualized determinations as to whether the therapies at issue were “medically necessary” for each member of the putative class. However, based on the allegations in the second amended complaint, the UCL claim presents two central legal issues that are common to all putative class members. First, does Kaiser's health plan contract exclude from coverage Applied Behavior Analysis therapy or speech therapy for autism spectrum disorders on the grounds that such therapies are “non-health care services,” “academic or educational interventions,” or “custodial care”? Second, assuming that the therapies are excluded from coverage by the health plan contract, does the Mental Health Parity Act allow Kaiser to categorically apply such exclusions on the basis that the therapies are not health care services, or are provided by persons not licensed or certified by the state? While these issues clearly raise questions of contractual and statutory interpretation, neither would require the court to make individualized determinations of medical necessity for class members.

Slip op., at 13-15.  The Court's discussion of the Doctrine of Judicial Abstention is even more detailed, but I confess that my Diet Coke supply is insufficient to keep me conscious through that discussion.

Impressive work by Scott C. Glovsky.

In Weinstat v. Dentsply International, Inc., Court of Appeal reverses decertification order based on Tobacco II decision

While the appellate court opinions that have avoided Tobacco II received extensive commentary in the media, including here, not all Courts of Appeal have followed that course.  In Weinstat v. Dentsply International, Inc. (January 7, 2010), the Court of Appeal (First Appellate District, Division Four) considered an appeal from an order decertifying a class of dentists as to their causes of action under the unfair competition law (UCL) and for breach of express warranty against the manufacturer of the Cavitron ultrasonic scaler (Cavitron).   The trial court decertified the class, based upon an "appellate court decision interpreting the Proposition 64 amendments to the UCL as requiring that all class members—not just the representatives—show an injury in fact."  Slip op., at 1.  The Court was swift in rejecting that basis for decertification:  "Recently, the state's high court issued its decision in In re Tobacco II Cases (2009) 46 Cal.4th 298 (Tobacco II). Tobacco II rejects the legal premises underpinning the decertification order as to the UCL claim and mandates reversal."  Slip op., at 1.

The Court of Appeal continued with its summary of its Order reversing the decertification order:

We must also reverse the order decertifying the class as to the breach of express warranty claims. Procedurally, the order was improper because it was rendered in the absence of new law or evidence. Substantively, the order was contrary to law because it improperly grafted an element of prior reliance onto the express warranty claims; this error infected the entire ruling as to those claims.

Slip op., at 1.  As did the Court of Appeal in Vioxx, the Court here outlined the contours of a UCL claim after Tobacco II:

In Tobacco II, our Supreme Court rejected the rationale that informed the trial court's decertification order. First, it held that Proposition 64's standing requirements for UCL actions apply only to the class representatives. (Tobacco II, supra, 46 Cal.4th at p. 306.) Second, the standing requirements as modified by Proposition 64 impose an actual reliance requirement on representative plaintiffs prosecuting a private enforcement action under the fraud prong of the UCL. (Id. at p. 326.) Further, while only the class representative need establish personal reliance on the defendant's misrepresentation or nondisclosure resulting in damage, the representative need not show that such reliance was “ ' “the sole or even the predominant or decisive factor in influencing his conduct. . . . It is enough that the representation has played a substantial part, and so has been a substantial factor, in influencing his decision.” [Citation.] [¶] Moreover, a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material. [Citations.]' ” (Id. at pp. 326-327.) A misrepresentation is “material” if a reasonable person would attach importance to its existence or nonexistence in deciding his or her course of action in the transaction in question. (Id. at p. 327.) Finally, the class representative need not demonstrate individualized reliance on a specific misrepresentation. (Ibid.)

Slip op., at 7.  The defendant, at oral argument, "took a different tack" and argued that the Court of Appeal should "affirm the UCL decertification order because one of the trial court's UCL decertification rulings was untainted by Proposition 64 standing concerns, namely the ruling that the UCL claims were inappropriate for class treatment because individual issues about the nature and extent of any material misrepresentation would predominate over common issues," citing Kaldenbach v. Mutual of Omaha Life Ins. Co., 178 Cal.App.4th 830, 844 (2009).  Slip op., at 7, n. 8.  While not directly commenting on Kaldenbach, the Court said:

First, procedurally this ruling was improper because Dentsply offered no new law or newly discovered evidence regarding the nature and extent of any material misrepresentation. (See post, pt. II.B.2.) Second, the ruling was substantively wrong.

The UCL prohibits as unfair competition “any unlawful, unfair or fraudulent business act or practice . . . .” (Bus. & Prof. Code, § 17200.) The act focuses on the defendant’s conduct, rather than the plaintiff's damages, in keeping with its larger purpose of protecting the general public against unscrupulous business practices. (Tobacco II, supra, 46 Cal.4th at p. 312.) This case involves alleged uniform fraudulent practices—misrepresentations regarding the Cavitron's safety for surgical use and the concomitant nondisclosure of biofilm risk—by Dentsply, directed to the entire class. To sustain a UCL cause of action based on such fraudulent or deceptive practices, a plaintiff must show that “ ' “members of the public are likely to be deceived.” ' ” (Aron v. U-Haul Co. of California (2006) 143 Cal.App.4th 796, 806, quoting Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 211; Massachusetts Mutual Life Ins. Co. v. Superior Court (2002) 97 Cal.App.4th 1282, 1291; accord, Kaldenbach v. Mutual of Omaha Life Ins. Co., supra, 178 Cal.App.4th at p. 847.)

A plaintiff's burden thus is to demonstrate that the representations or nondisclosures in question would likely be misleading to a reasonable consumer. (See Aron v. U-Haul Co. of California, supra, 143 Cal.App.4th at p. 807.) The question of materiality, in turn, is whether a reasonable person would attach importance to the representation or nondisclosure in deciding how to proceed in the particular transaction—in other words, would a reasonable dentist attach importance to Dentsply's claim that the Cavitron was safe for use in surgery. (Tobacco II, supra, 46 Cal.4th at p. 327.) The safety of the Cavitron would be material to any dentist regardless of when the representation was made. The materiality of Dentsply's representations concerning the Cavitron's safety for surgical uses was established objectively by appellants' actual use of the device for oral surgery, in accordance with those representations, regardless of whether appellants saw the Directions before or after purchasing the device. There are no individual issues concerning the nature and extent of material misrepresentations.

Slip op., at 8, n. 8.  The Court then directed the trial court to consider the limited question of whether the plaintiffs could meet the standing requirement outlined in Tobacco II:  "We remand for the limited purpose of determining whether the named representatives can meet the UCL standing requirements announced in Tobacco II and if not, whether amendment should be permitted."  Slip op., at 9.

The Court of Appeal then considered the decertification ruling as it related to the breach of warranty claim.  In doing so, the Court held that a party seeking to decertify a certified class must demonstrate new facts and circumstances, as with any other motion for reconsideration:

Dentsply is adamant that there is no requirement of changed circumstances or new evidence when the trial court revisits certification prior to a decision on the merits. The dicta in Green v. Obledo, supra, 29 Cal.3d 126, quoted above, concerning prejudgment decertification, would suggest otherwise. The standard announced in Green allows flexibility while curtailing defendant abuse. In the case at hand, Dentsply's motion for decertification was accompanied by changed circumstances, most notably the Pfizer decision. However, this circumstance only pertained to the UCL cause of action. Nevertheless, the trial court went on to address Dentsply's reassertions as to why the breach of warranty class should be decertified as well. Decertifying one theory should not sanction decertifying another absent some commonality with the changed circumstance or some other situation justifying reconsideration. Here there was none.

Slip op., at 11-12.  Then, over another 11 pages of opinion, the Court of Appeal explained the basis for the following observation:

The lower court ruling rests on the incorrect legal assumption that a breach of express warranty claim requires proof of prior reliance. While the tort of fraud turns on inducement, as we explain, breach of express warranty arises in the context of contract formation in which reliance plays no role.

Slip op., at 12.  Does this opinion add any fuel to the Cohen Petition for Review currently before the California Supreme Court?

More on the Vioxx decision

In December, I promised more detailed comments about In re Vioxx Class Cases (December 15, 2009), decided by the Second Appellate District, Division Three.  As promised, I provide more pithy commentary (or blather, as you see fit to classify it).  The Court's discussion began with a reminder that is worth repeating.  The standard of review on a appeal challenging a trial court's decision to grant or deny certification is reviewed for an abuse of discretion, absent certain specific errors:

“ ‘Because trial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action, they are afforded great discretion in granting or denying certification. . . . "[I]n the absence of other error, a trial court ruling supprted by substantial evidence generally will not be disturbed “unless (1) improper criteria were used [citation]; or (2) erroneous legal assumptions were made [citation].” ’ ”

Slip op., at 14, citing Tobacco II.  Next, the Court stated the requisites for class certification.  The discussion was the usual stuff, but for one statement regarding predominance of common issues of law or fact:  "To determine whether the questions of fact and law at issue in the litigation are common or individual, it is necessary to consider the individual causes of action pleaded, and the issues raised thereby."  Slip op., at 15.  It is difficult to find any guidance about how to assess predominance.  Here, the Court indicates that the analysis proceeds on a cause-of-action by cause-of-action basis.

Turning to the various casues of action, the Court first addressed the claim arising under the CLRA.  The Court followed decisions that permit an inference of reliance when a misrepresentation is material:

The language of the CLRA allows recovery when a consumer “suffers damage as a result of” the unlawful practice. This provision “requires that plaintiffs in a CLRA action show not only that a defendant’s conduct was deceptive but that the deception caused them harm.” (Massachusetts Mutual Life Ins. Co. v. Superior Court, supra, 97 Cal.App.4th at p. 1292.) Causation, on a class-wide basis, may be established by materiality. If the trial court finds that material misrepresentations have been made to the entire class, an inference of reliance arises as to the class. (Id. at p. 1292.) This is so because a representation is considered material if it induced the consumer to alter his position to his detriment. (Caro v. Proctor & Gamble Co., supra, 18 Cal.App.4th at p. 668.) That the defendant can establish a lack of causation as to a handful of class members does not necessarily render the issue of causation an individual, rather than a common, one. “ ‘[P]laintiffs [may] satisfy their burden of showing causation as to each by showing materiality as to all.’ ” (Massachusetts Mutual Life Ins. Co. v. Superior Court, supra, 97 Cal.App.4th at p. 1292.) In contrast, however, if the issue of materiality or reliance is a matter that would vary from consumer to consumer, the issue is not subject to common proof, and the action is properly not certified as a class action. (Caro v. Proctor & Gamble Co., supra, 18 Cal.App.4th at p. 668.)

Slip op., at 16.

The Court then discussed claims arising under the UCL. The authority cited by the Court was described in a manner that was fairly favorable to consumers.  For example, the Court said, "Consumer class actions under the UCL serve an important role in the enforcement of consumers’ rights."  And, as to remedies, the Court observed, "The UCL balances relaxed liability standards with limits on liability."  Slip op., at 18.  The fraudulent prong of the UCL received a similarly broad construction through the authority noted by the Court:

In order to obtain a remedy for deceptive advertising, a UCL plaintiff need only establish that members of the public were likely to be deceived by the advertising.  (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1267; Massachusetts Mutual Life Ins. Co. v. Superior Court, supra, 97 Cal.App.4th at p. 1290.) The question has arisen as to which members of the public need be likely to be deceived. The law focusses on a reasonable consumer who is a member of the target population. (Lavie v. Proctor & Gamble Co. (2003) 105 Cal.App.4th 496, 508.) “Where the advertising or practice is targeted to a particular group or type of consumers, either more sophisticated or less sophisticated than the ordinary consumer, the question whether it is misleading to the public will be viewed from the vantage point of members of the targeted group, not others to whom it is not primarily directed.”

Slip op., at 18.  The Court then discussed the countours of the restitution remedy under the UCL.  Here, Tobacco was cited, but the Court's summary of the extent of restitution foreshadowed the Court's determination that a means for proving a restitutionary value were lacking:

As to restitution, the UCL provides that “[t]he court may make such orders or judgments . . . as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition.”15 (Bus. & Prof. Code, § 17203.) This language, providing restitution of funds which “may have been acquired,” has been interpreted to allow recovery without proof that the funds were lost as a result of actual reliance on defendant’s deceptive conduct. (Tobacco II, supra, 46 Cal.4th at p. 320; Fletcher v. Security Pacific National Bank, supra, 23 Cal.3d at p. 450-451; Prata v. Superior Court (2001) 91 Cal.App.4th 1128, 1144.) While the “may have been acquired” language of Business and Professions Code section 17203 is so broad as to allow restitution without individual proof of injury, it is not so broad as to allow recovery without any evidentiary support. (Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663, 697.) The difference between what the plaintiff paid and the value of what the plaintiff received is a proper measure of restitution. (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 174.) In order to recover under this measure, there must be evidence of the actual value of what the plaintiff received. When the plaintiff seeks to value the product received by means of the market price of another, comparable product, that measure cannot be awarded without evidence that the proposed comparator is actually a product of comparable value to what was received. (Colgan v. Leatherman Tool Group, Inc., supra, 135 Cal.App.4th at p. 675.)

Slip op., at 19.

Having discussed what must be established for CLRA and UCL claims, the Court then analyzed predominance as to each cause of action.  For the CLRA, the Court agreed that reliance/materiality issues could not be resolved on a classwide basis:

The trial court found that the decision to prescribe Vioxx is an individual decision made by a physician in reliance on many different factors, which vary from patient to patient. The trial court quoted from Dr. Silver’s declaration, indicating eight individual factors which a physician must assess in determining whether and what to prescribe for pain.

Slip op., at 22.  In reality, this decision is an example of why tort-type issues frequently undermine attempts to certify classes.  The Court noted some of the complicated reliance variables:

On appeal, plaintiffs draw this court’s attention to Merck’s alleged common campaign of hiding the cardiovascular risks of Vioxx, arguing that such common misrepresentations support a common inference of reliance. Plaintiffs suggest that Merck hid “an increased risk of death,” associated with Vioxx, and argue, “there can be nothing more material than an increased risk of death.” Plaintiffs’ argument is a vast oversimplification of the matter, and one which overlooks all of the evidence to the contrary on which the trial court relied.

First, evidence indicated that Vioxx did not present “an increased risk of death” compared to traditional NSAIDs for all patients. Traditional NSAIDs killed 16,500 people per year due to gastrointestinal bleeds. For patients with stomach ulcers or other gastrointestinal risk factors, traditional NSAIDs presented a higher risk of death than the risk of cardiovascular death posed by Vioxx. Second, evidence indicated that the cardiovascular risks of Vioxx were not material for all patients. Some patients would still take Vioxx today if it were on the market; some physicians would still prescribe it regardless of risks. Indeed, it cannot be disputed that other drugs pose similar, or even greater, risks of death than Vioxx, but are still in use – because, for some patients, the benefits outweigh the risks. Third, Merck introduced substantial evidence that all physicians are different and obtain their information about prescriptions from myriad sources. For those physicians with a distrust of statements made by the pharmaceutical industry, Merck’s statements could not have been material. For those patients whose TPPs required pre-approval of Vioxx (or would only pay for Vioxx under certain circumstances), the TPP’s decision likely would override any patient or physician reliance on Merck’s statements. Fourth, physicians consider many patient-specific factors in determining which drug to prescribe, including the patient’s history and drug allergies, the condition being treated, and the potential for adverse reactions with the patient’s other medications – in addition to the risks and benefits associated with the drug. When all of these patient-specific factors are a part of the prescribing decision, the materiality of any statements made by Merck to any particular prescribing decision cannot be presumed. All of this evidence supports the trial court’s conclusion that whether Merck’s misrepresentations were material, and therefore induced reliance, is a matter on which individual issues prevailed over common issues, justifying denial of class certification with respect to the CLRA claim.

Slip op., at 23-24.

Similar problems with the UCL were then discussed by the Court:

[T]he court specifically found that class damages are not subject to common proof. The court concluded that the monetary value plaintiffs wish to assign to their claim – the difference in price between Vioxx and a generic, non-specific NSAID, implicates a patient-specific inquiry and therefore fails the community of interest test. In short, the trial court rejected the entire premise of plaintiffs’ class action. While the trial court allowed the possibility that plaintiffs could recover for having been exposed to misrepresentations, the trial court concluded that the theory that the entire class was harmed because Vioxx was no more effective, and less safe, than naproxen implicated individual issues of proof.

On appeal, plaintiffs mount a two-pronged challenge to the trial court’s conclusions. First, they argue that they offered sufficient factual evidence that naproxen is a valid comparator to Vioxx. Specifically, they rely on the declaration of their medical expert to the effect that, based on the VIGOR study, Vioxx was, overall, no more effective, and less safe, than generic naproxen. The trial court did not err in rejecting naproxen as a valid class-wide comparator. Defendants introduced substantial evidence that, after Vioxx was withdrawn from the market, most Vioxx patients switched to another COX-2 inhibitor, not a generic NSAID such as naproxen. As this evidence indicates that Vioxx was worth more than naproxen to a majority of class members, it is more than sufficient to support the trial court’s conclusion that naproxen is not a valid comparator on a class-wide basis.

Plaintiffs’ second argument is that the validity of naproxen as a comparator goes to the merits of the action, and should not be addressed on a motion for class certification. Plaintiffs argue that since the UCL and FAL allow an award of restitution without individualized proof of deception, reliance and injury, the trial court should not have been considering the validity of naproxen as a comparator. We do not disagree that a trial court has discretion to order restitution even in the absence of individualized proof of injury. (Fletcher v. Security Pacific National Bank, supra, 23 Cal.3d at p. 452.) However, in order to obtain class wide restitution under the UCL, plaintiffs need establish not only a misrepresentation that was likely to deceive (Corbett v. Superior Court, supra, 101 Cal.App.4th 649, 670) but the existence of a “measurable amount” of restitution, supported by the evidence. (Colgan v. Leatherman Tool Group, Inc., supra, 135 Cal.App.4th at p. 698.) The failure of naproxen as a viable class-wide comparator thus defeats the claim for class-wide restitution.

Slip op., 26-27.  With accepted reasons for denying certification as to each cause of action, the trial court was affirmed.  I skipped one other basis for the Court's decision that a denial of certification was appropriate.  The Court found that a typicality problem was created by the interaction with third-party payors.  Some TPPs would only pay for Vioxx when other NSAIDs did not work for the patient.  Some co-pay situations with flat rate copays rendered the economic comparison argument moot.  Generally, the Court noted that the defined class was overbroad, creating a number of problems for itself that could not be reconciled.  See, Slip op, at 20-22.  Here is yet another example why tort-type issues routinely sink class actions.

Those defense lawyers are fighting back: new Class Action Countermeasures blog offer tips on defending against class actions!

Andrew J. Trask, of McGuire Woods, is authoring a new blog, entitled Class Action Countermeasures.  Looks like there is some interesting information of interest to both sides of the class action bar.   Looks like there is some grammatical grammar in my grammar, grammatically speaking.

Follow @classstrategist on twitter.

Via ClassActionBlawg.com

Breaking News: Denial of class certification affirmed in Vioxx Class Cases

With the holidays upon us, the topical and interesting news stories have been few and far between.  But the drought cannot last forever.  Today, the Court of Appeal (Second Appellate District, Division Three) issued an Opinion in which it affirmed the trial court's denial of class certification in the matter of In re Vioxx Class Cases (December 15, 2009).  I will need to read this Opinion with some deliberation before writing an extended post about it.  However, a few things jumped out immediately and are worth noting now.  Tobacco II is mentioned early in the Opinion, and I assumed that the Opinion would join the few recent Opinions that appear to conflict with Tobacco II.  That does not appear to be the case here:  "Nonetheless, it is clear from Supreme Court authority that recovery in a UCL action is available in the absence of individual proof of deception, reliance, and injury. (Tobacco II, supra, 46 Cal.4th at p. 320.)"  (Slip op., at 25 n. 19.)  Instead, the Court of Appeal affirmed the trial court's denial of class certification on the basis of damage-related issues: "The trial court’s findings with respect to the measure of damages are sufficient to support its denial of class certification with respect to the UCL and FAL causes of action."  (Slip op., at 25, emphasis added.)  This damages discussion, and some remarks about typicality, will require more reading and a longer post.

Update on 2009-12-15 23:27 by The Complex Litigator

The trial court judge was Victoria Chaney.  Associate Justice Victoria Chaney now sits in Division One of the Second Appellate District.

Barboza v. West Coast Digital GSM, Inc. holds that the obligations of class counsel to a certified class include enforcement of a judgment

After a short quiet spell, class actions return with a splash.  In Barboza v. West Coast Digital GSM, Inc., the Court of Appeal (Second Appellate District, Division Four) had the opportunity to discuss the extent of class counsel's obligations to a certified class.  The conundrum arose when class counsel learned that the defendant had ceased operations, sold its assets to a third party, and intended to file for bankruptcy:

What are the obligations of class counsel when he learns that the defendant in the class action he is prosecuting has ceased operations, sold its assets to a third party, and intends to file for bankruptcy? In the case before us, counsel obtained a stipulated default and a default judgment that included more than $4 million in aggregate damages for the class, plus more than $1 million in prejudgment interest. So far, so good. But counsel then asserted that his job would be completed once his motion for attorney fees was heard, i.e., that he had no obligation to enforce the judgment on behalf of the class. The trial court disagreed. It ruled that “by assuming the responsibility of pursuing claims on behalf of the class, class counsel assumed the obligation to pursue it until the end (i.e., enforcement of the judgment) and not just until judgment.” Based upon the principles guiding class actions, we agree that class counsel's obligations to the class do not end with the entry of judgment, and hold that class counsel's obligations continue until all class issues are resolved, which may include enforcement of the judgment.

Slip op., at 2.  In its analysis, the Court of Appeal examined the sources of the obligations owed by class counsel (and the named plaintiff) to the certified class:

First, the representative plaintiffs must establish that they will adequately represent the class before a class may be certified. (Sav-On, supra, 34 Cal.4th at p. 326.) Part of that showing involves establishing that the counsel they have chosen can and will adequately represent the interests of the class as a whole. (Cal Pak Delivery, Inc. v. United Parcel Service, Inc. (1997) 52 Cal.App.4th 1, 12; McGhee v. Bank of America (1976) 60 Cal.App.3d 442, 450.) Second, both the representative plaintiffs and the counsel they have chosen owe absent class members a fiduciary duty to protect the absentees‟ interests throughout the litigation. (Janik v. Rudy, Exelrod & Zieff, supra, 119 Cal.App.4th at p. 938.) Finally, the trial court, “as the guardian of the rights of the absentees, is vested broad administrative, as well as adjudicative, power.” (Greenfield v. Villager Industries, Inc., supra, 483 F.2d at p. 832.) Thus, unlike situations in which the litigant has retained an attorney to conduct litigation, where the litigant and the attorney agree upon the scope of the engagement, and their rights and duties are governed by their agreement, in class actions, where there is no agreement with absentee class members to define the scope of the engagement, class counsel must represent all of the absent class members' interests throughout the litigation to the extent there are class issues, and it is the duty of the trial court to ensure at every stage of the proceeding that counsel is adequately representing those interests.

Slip op., at 7-8.  Ultimately, the Court of Appeal described a reasonable way out of the quandry faced by class counsel that must collect a judgment from an insolvent debtor:

It may be that, given the specialized knowledge needed to enforce judgments, class counsel is not competent to provide enforcement services without assistance. But nothing prevents class counsel from associating in counsel with that expertise, and the cost of that association can be paid by the class from any recovery achieved. And if, after diligent inquiry, class counsel determines there are no recoverable assets, counsel may present such findings to the trial court, and the trial court, as guardian of the rights of the absent class members, may determine whether counsel should be relieved of any further obligations to the class.

Slip op., at 8-9.

This opinion is a necessary reminder of the extent of the duty assumed by class counsel when that fateful line is crossed and the proposed class is certified.

in brief: Evans v. Lasco Bathware, Inc. has a little something for everyone

While it deserves a more substantial discussion, Evans v. Lasco Bathware, Inc. (November 6, 2009) requires at least a brief mention.  In Evans, the Court of Appeal (Fourth Appellate District, Division One) reviewed an Order denying class certification.  The Court of Appeal affirmed.  The interesting elements of the opinion include (1) a discussion of when, in the Evans Court's view, damages become an issue of sufficient complexity to justify a denial of certification and (2) a discussion of "liability only" certification.  In this case, the complications arising when a defective shower pan caused varying degrees of damages in different homes convinced the Court to reject the "liability only" certification option in this case.  Nevertheless, that aspect of class actions is so infrequently discussed in California that it is of note that it was even considered here.

California Supreme Court activity for the week of October 26, 2009

The California Supreme Court held its (usually) weekly conference on October 28, 2009.  Notable results include:

• A Petition for Review was denied in Messenger Courier Association of the Americas, et al. v. California Unemployment Insurance Appeals Board.  See this blog's prior post on this matter here.
• A Petition for Review was denied in Ali v. U.S.A. Cab.  The interesting texture to this denial is that (1) I argued the appeal so I didn't cover this decision on this blog, and (2) aspects of Ali's construction of the Borello opinion are contrary to language in Messenger Courier, but both originate in the Fourth Appellate District, Division One.
• A Depublication Request was denied in Clark v. American Residential Services LLC, et al.  See this blog's prior post on this matter here.