Despite daunting facts, Court of Appeal confirms that California class actions are "opt-out" classes

Use of an opt-in approach for class actions has been rejected as contrary to California law.  Hypertouch Inc. v. Superior Court, 128 Cal. App. 4th 1527 (2005).  In Los Angeles Gay & Lesbian Center v. Superior Court, the rule in Hypertouch was tested with a more challenging set of facts, namely, the need to protect medical privacy rights.  The Court of Appeal (Second Appellate District, Division One) held, in Los Angeles Gay & Lesbian Center v. Superior Court (April 13, 2011), that the opt-out rule stated in Hypertouch is indeed the rule for class notice.  However, the Court fashioned other relief intended to protect the substantial privacy interest in medical information.

This matter was before the Court of Appeal for the second time.  In Bomersheim v. Los Angeles Gay & Lesbian Center, 184 Cal. App. 4th 1471, 1478 (2010) (Bomersheim I), the Court reversed the denial of class certification.  The matter alleged that, from January 1999 to March 2004, the Center administered an incorrect form of penicillin to person with confirmed or suspected cases of syphilis.

Once the matter was certified, the issue of notice became a focus of the litigation.  The Center argued that, due the sensitive nature of medical nature of the claims at issue, the court should utilize an opt-in mechanism.  The trial court held that an opt-out notice was appropriate and the Center filed a petition for a writ of mandate.  The Court heard the matter, saying, "This case presents the novel issue of whether an opt-out class is appropriate under California law where privacy rights and the physician-patient privilege will be severely compromised by the traditional opt-out procedure."  Slip op., at 11.

In concluding that opt-out notices were the only appropriate approach to class action notice proceedings, the Court said:

We recognize the benefits of a class action do not as readily accrue where members must affirmatively join the class. Here, the putative class members are those seeking free medical advice, and only approximately two-thirds of them responded to the Center's explanation of the error in medication and sought free retreatment. It is less likely that such members would affirmatively seek to join a class. Without the mandatory joinder effect of an opt-out class action, the Center will not obtain res judicata effect of a judgment; small individual class plaintiffs will not obtain the benefit of a settlement; and the cost of administering many small actions will not be avoided. Nonetheless, the Center points out that it has been more than six years since the error in medication, and if small class plaintiffs had wanted to come forward and file individual suits, they would have. This fact only underscores the point that the class plaintiffs in this action are likely of limited means and have limited access with which to pursue their claims judicially. A class action in which they automatically become participants benefits them.

Slip op., at 16-17.  However, the Court issued very specific instruction to protect the privacy of class members from disclosure without consent:

To the extent putative class members opt-out of the class, their names, other identifying information, and Medical Information shall not be subject to disclosure and shall remain sealed. With respect to those class members who do not opt-out of the class action, no class members' name, identifying information, or medical information is to be disclosed without that class members' prior authorization. Further, the trial court is to take steps to ensure that the names, identifying information, and medical information of the class members are not subject to disclosure under any circumstances in any public proceeding or public filing.

Slip op., at 24.  The Court limited disclosure of the class list to the third party administrator that would handle mailing of the notice.

District Court grants motion to deny class certification where plaintiff not a victim of the alleged FDCPA violation

United States District Court Judge M. James Lorenz (Southern District of California) granted a defense motion to deny class certification.  Mansfield v. Midland Funding, LLC, 2011 WL 1212939 (S.D. Cal. Mar. 30, 2011).  Plaintiff, on behalf of a putative class, alleged that defendants were routinely filing and assisting in the litigation of lawsuits to collect time-barred consumer credit card debt incurred primarily for personal, family or household purposes, in violation of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq.  If true, that is very shady conduct.  But wait!  We have a problem:

Midland's claim against Mansfield was timely as determined by the Arizona state court. That judgment as not been challenged. Because Midland's claim against Mansfield was found to be timely, the action was not filed on a time-barred debt and plaintiff has not suffered an injury in fact or an injury based on defendants' filing of their action against him in the Arizona court. Without a claim, Mansfield may not represent others who could have such a claim.

Slip op., at 3.  The Court looked no further at certification requisites, given that the threshold issue of standing could not be satisfied.

District Court holds defendant to four corners of complaint when granting motion to remand

United States District Court Judge William Alsup (Northern District of California) granted a motion by plaintiff Pineda to remand a class action back to the California Superior Court from whence it came.  Pineda v. Bank of America, N.A., 2011 WL 1134467 (N.D. Cal. Mar. 28, 2011).  "Wait, isn't that case name very similar to a recent decision from the California Supreme Court regarding statutes of limitation in Labor Code section 203 cases?"  So right you are.  That's why this isn't a garden-variety remand order.  In this case, the defendant argued that it analyzed the complaint back in 2007 and concluded that the amount in controversy should have been calculated on the basis of a one-year statute of limitation.  But when the California Supreme Court held otherwise, Bank of America claimed that it learned for the first time that the case was removable.  Judge Alsup rejected that argument, observing that the parties agreed that the complaint alleged a four-year statute of limitation, and under that four-year statute, the amount in controversy exceeded $5 million.  The time to remove expired back in 2007, when the defendant was in possession of a complaint that, within its four corners, alleged an amount in controvery high enough to invoke CAFA jursidiction.

And, as I noted when reporting on Pineda previously, this matter is handled by Gregory Karasik at Spiro Moss.

In re Baycol Cases I and II provides more guidance on operation of "death knell" doctrine in class action appeals

In California, the right to appeal is generally governed by the “one final judgment” rule, under which most interlocutory orders are not appealable.  (See Code Civ. Proc., § 904.1.)1  But Daar v. Yellow Cab Co.,  67 Cal.2d 695 (1967) concluded that an exception was necessary because orders dismissing all class action claims might in some instances escape review.  The Supreme Court created what is now referred to as the “death knell” doctrine, allowing a party to appeal such class action claim dismissal orders immediately, even though they are not final.  In re Baycol Cases I and II (February 28, 2011) marks the the Supreme Court's return to that docrine.

In 2007, after consolidation with other actions in a Judicial Council Coordinated Proceeding, Plaintiff filed a first amended complaint, adding to the UCL and unjust enrichment claims a claim under the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq.). Bayer demurred to both the class allegations and each substantive claim. On April 27, 2007, the trial court sustained the demurrer in its entirety without leave to amend. It thereafter denied Shaw's motion for reconsideration on both class and individual claims and entered a judgment of dismissal. Bayer served a notice of entry of judgment on October 29, 2007, and Shaw filed his notice of appeal on December 20, 2007. The Court of Appeal reversed dismissal of Shaw's individual UCL claim, concluding he should have been granted leave to amend. However, it declined to consider on the merits the appeal of the class claims dismissal and instead dismissed that portion of the appeal. Relying on cases that have held death knell orders terminating class claims are immediately appealable, the Court of Appeal reasoned that, upon entry of the April 27, 2007, order sustaining Bayer's demurrer, the class claims dismissal, unlike the individual claims dismissal, was appealable. Consequently, the December 20, 2007, notice of appeal was, as to the class claims, untimely. (See Cal. Rules of Court, rules 8.104, 8.108(e).)

The Supreme Court reversed, concluding that the preservation of individual claims is an essential prerequisite to application of the death knell doctrine. The doctrine renders appealable only those orders that effectively terminate class claims but permit individual claims to continue. When an order terminates both class and individual claims, there is no need to apply any special exception to the usual one final judgment rule to ensure appellate review of class claims. Instead, routine application of that rule suffices to ensure review while also avoiding a multiplicity of appeals.

In Safaie v. Jacuzzi Whirlpool Bath, Inc., Court holds that decertification order, affirmed on appeal, bars subsequent motion to certify

Stephen v. Enterprise Rent-a-Car, 235 Cal. App. 3d 806 (1991) held that a party has no right to bring a second motion to certify a class after the court has denied the first motion and the time for appeal has passed.  Stephen arose when a plaintiff failed to timely appeal an order denying certification.  But Stephen did not consider all of the unusual permutations that could occur.  In Safaie v. Jacuzzi Whirlpool Bath, Inc. (February 22, 2011), the Court of Appeal (Fourth Appellate District, Division One) examined whether, after an unsuccessful appeal of an order decertifying a class, the plaintiff could move for recertification on the basis of new law (Tobacco II).  The Court concluded that, because the plaintiff did not petition for review while Tobacco II was pending, the order affirming decertication was final and no further attempts at certification were permissible absent equitable considerations necessary to prevent unfairness.

The Court offered interesting comments about the course that it expects class actions to follow:

We agree with Stephen's holding and find its rationale persuasive. To ensure fairness to the class action plaintiff, trial courts are required to liberally grant continuances and ensure a plaintiff has the opportunity to make a complete record before the court rules on class certification. (See Stephen, supra, 235 Cal.App.3d at pp. 814- 815.) Once the record is complete, if the trial court issues a final order denying a class certification motion in its entirety, the plaintiff has the right to seek immediate appellate review and to obtain a written ruling from a Court of Appeal on the disputed issues, and then, if dissatisfied, to petition for review in the California Supreme Court. Thus, unlike the situation with most interlocutory orders, the plaintiff is provided the right to an immediate appeal even though the case is still pending. However, this special status has a necessary ramification: once the appellate period has passed or once the appellate court has affirmed the order and a remittitur has issued, the order is final and plaintiff is bound by the final decertification decision.

Slip op., at 12.  The Court later discussed the possibility of equitable exceptions to the rule in Stephen:

In reaching this conclusion, we recognize trial courts have broad discretion to determine the propriety of class actions, including to be procedurally innovative in certifying an appropriate class and in formulating procedures to ensure fairness and avoid manifest injustice in class action litigation. (See Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 339.) Moreover, a court has the discretion to move sua sponte to certify a class. (See City of San Jose v. Superior Court (1974) 12 Cal.3d 447, 453-454.) However, to the extent there may be equitable exceptions to the rule precluding successive class certification motions after a final order denying certification, the circumstances here do not come within this exception.

Slip op., at 17.

From all of this I take away two possible lessons.  First, you must file a petition for review with the California Supreme Court if there is any chance that a change in law could help your certification arguments.  Second, the farther away you get from the wellspring of all consumer and employee protection, the more likely it is that your class action will receive the firing squad, not a certification order.  This theory would explain why Los Angeles is dicey, Orange County is perilous, and San Diego is the kiss of death.  But it's just a theory.

Ninth Circuit holds that district courts are limited to the complaint in deciding certain local controversy criteria for CAFA remand

On November 30, 2010, the Ninth Circuit agreed to hear a discretionary appeal in Coleman v. Estes Express Lines, Inc.  See prior post.  The Ninth Circuit accepted the appeal and provided some guidance in the Ninth Circuit as to whether such appeals should be taken.  Today, the Ninth Circuit issued its Opinion on the underlying issue.  Coleman v. Estes Express Lines, Inc. (9th Cir. Jan. 25, 2011).  Asked to decide whether a federal district court is limited to the complaint in deciding whether two of the criteria for the local controversy exception are satisfied, the Court held that the district court is so limited.

Coleman moved for remand under the local controversy exception. Estes opposed, arguing that two of the criteria for the local controversy exception were not satisfied. "First, Estes argued that Estes West had insufficient funds to satisfy a judgment, and that 'significant relief' therefore had not been 'sought' from it. See 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa). Second, Estes argued that Estes Express had almost complete control over the operations of Estes West, and that Estes West’s 'alleged conduct' therefore did not 'form a significant basis for the claims asserted by the proposed plaintiff class.' Id. § 1332(d)(4)(A)(i)(II)(bb)."  Slip op., at 5.  Estes then supplied a declaration to support its contentions.  The District Court refused to consider the declaration, finding that the complaint satisfied the criteria for remand.

Looking at the plain language of the statute, the Court found support for the concept that the pleadings govern the analysis:

The first criterion is whether “significant relief is sought” from a defendant who is a citizen of the state in which the suit is filed. 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa) (emphasis added). The word “sought” focuses attention on the plaintiff’s claim for relief — that is, on what is “sought” in the complaint — rather than on what may or may not be proved by evidence. The second criterion is whether the defendant’s “alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class.” Id. § 1332(d)(4)(A)(i)(II)(bb) (emphasis added). Like the word “sought,” the word “alleged” makes clear that the second criterion is based on what is alleged in the complaint rather than on what may or may not be proved by evidence.

Slip op., at 8.

The Court then reviewed the legislative history and concluded that it supported the construction applied by the Court.  The Court commentd in passing that the declaration supplied by Estes was probably insufficient even if the District Court could have considered it.

The Court ended with a note about variations in pleading standards between state and federal courts:

We are aware of the difficulties that can be created by different pleading requirements in state and federal courts. A plaintiff filing a putative class action in state court need satisfy only the pleading standards of that court. It is therefore possible that if a putative class action is removed from state to federal court under CAFA the complaint, as originally drafted, will not answer the questions that need to be answered before the federal court can determine whether the suit comes within the local controversy exception to CAFA jurisdiction. In that circumstance, the district court may, in its discretion, require or permit the plaintiff to file an amended complaint that addresses any relevant CAFA criteria.

Slip op., at 21-22. The Court then affirmed the remand.

Wal-Mart Stores v. Dukes set for oral argument before Supreme Court

The Unites States Supreme Court moves right along once it grants a writ of certiorari.  Wal-Mart Stores v. Dukes has been set for oral argument on Tuesday, March 29, 2011.  We won't have to wait that long before (potentially) receiving some guidance from the current Supreme Court about class action standards.  The only uncertainty is whether the Court will limit its analysis to sex discrimination cases or offer more widely applicable guidelines.

Thanks to SCOTUSblog for the argument schedule.

Court certifies wage statement, late pay claims for 20,000 seasonal tax preparers working for H & R Block in California

United States District Court Judge Susan Illston (Northern District of California) certified a class action alleging violation of Labor Code §§ 203, 226 and 2699.   Lemus v. H&R Block Enterprises, LLC (N.D. Cal. December 7, 2010).  It appears from the decision that the case was trimmed down from a broader set of claims; a Fourth Amended Complaint was filed by stipulation of the parties after the motion for certification was filed.  The Court's fairly simple discussion suggests that the Court viewed these statutory violations as well-suited to class treatment.  It is interesting to see that, thus far, most plaintiffs are apparently avoiding the uncertainty of pursuing a representative action under PAGA by simply certifying that claim along with other claims.

Mileage reimbursement class certified in part; class definition corrected by Court

United States District Court Judge Susan Illston (Northern District of California) certified in part a class action alleging the failure to reimburse work-related mileage expenses.  Wilson v. Kiewit Pacific Co. (N.D. Cal. December 6, 2010).  As an initial matter, the Court refused to certify a class of "all" employees, noting that it was overbroad:

As an initial matter, plaintiff cannot seek to certify a class of “all current and former” California employees of defendant from July 6, 2006 to present. Motion at 3; Reply at 3-4. On its face, that definition is impermissibly overbroad as it includes employees who never incurred unreimbursed business mileage expenses under California law.

Slip op., at 3.  Next, the Court observed that the plaintiff did not submit evidence demonstrating that the Northern California district was operated under the same policies as the Southern California District.  The Court found the plaintiff inadequate to represent the Northern California District employees on the basis of thin evidence of any uniform policy that was actionable.

With respect to the Southern California District, the Court agreed with the defendant that the plaintiff's proposed class definition was problematic, but not for the reason argued:

The Court agrees that there is a problem with the way plaintiff has proposed to define this particular subclass, but not the ascertainability problem defendant asserts. Instead, plaintiff's proposed definition-all Southern California district employees who drove their non-company owned vehicles “over” 25/35 miles-would seem to include only those who received some reimbursement under defendant's policy and not those employees who drove under 25/35 miles but were nonetheless owed reimbursement for non-commute time under plaintiff's theories. The Court doubts plaintiff intended to exclude those employees from the proposed class.

Slip op., at 7.  The Court then revised the class definition, declaring it ascertainable and better defined:

All of defendant's past and present non-union employees working in the Southern California district at any time from July 6, 2005 to present who were not reimbursed for non-commute mileage expenses incurred in using personal vehicles to travel to off-site meetings or trainings.

Slip op., at 7.  This, in particular is very helpful to litigants.  It demonstrates an engaged Court that has provided a concrete example of how to refine and improve a class definition.

The Court found unpersuasive the defendant's argument that some class members had individual deals in place to get company cars.  The Court finished by offering some comments about the obligation to supplement witness lists provided with initial disclosures, finding that those concerns were not at issue due to the rapidly shifting nature of the plaintiff's claims.

In Greenwood v. Compucredit Corp., District Court denies motion to decertify, criticizing Cohen line of cases

United States District Court Judge Claudia Wilken (Northern District of California) denied defendants' motion to decertify a class alleging violations of the federal Credit Repair Organization Act (CROA), 15 U.S.C. § 1679 et seq., and California's Unfair Competition Law (UCL), Cal. Bus. and Prof.Code § 17200 et seq.  Greenwood v. Computcredit Corp., 2010 WL 4807095 (N.D. Cal. Nov. 19, 2010).  The defendant relied, in part, on Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023 (8th Cir.2010).  While my amicus briefing efforts were not successful in Avritt, this Court didn't pull any punches:

The decision in Avritt does not bind this Court, and it is unpersuasive. Avritt acknowledges that federal courts “do not require that each member of a class submit evidence of personal standing.” 615 F.3d at 1034.

Slip op., at 3.  The Court the criticized Avritt on another ground:

Defendants rely on Avritt for the additional argument that the class should be decertified for failure to satisfy Rule 23(b) (3), because of individualized issues of reliance. The present case is factually distinguishable on this point. First, class members in this case by definition have been exposed to Defendants' advertising, unlike the proposed class members in Avritt. The class in this case comprises California residents who were mailed a solicitation by CompuCredit Corporation for the issuance of an Aspire Visa by Columbus Bank and Trust. In Avritt, class members were not required to have received any promotional materials, and the named plaintiffs did not recall receiving any printed sales materials or brochures.

Slip op., at 4.  The Court then took exception with the analysis of Tobacco II supplied by Cohen:

To the extent that the court of appeal's decision in Cohen might be read to require individualized evidence of class members' reliance, it is inconsistent with Tobacco II. The California Court of Appeal made the same point in In re Steroid Hormone Product Cases, 181 Cal.App.4th 145, 158, 104 Cal.Rptr.3d 329 (2010). The court stated:

As Tobacco II made clear, Proposition 64 did not change the substantive law governing UCL claims, other than the standing requirements for the named plaintiffs, and “before Proposition 64, ‘California courts have repeatedly held that relief under the UCL is available without individualized proof of deception, reliance and injury.’ [Citation]” Id. (citing Tobacco II, 46 Cal.4th at 326, 93 Cal.Rptr.3d 559, 207 P.3d 20).

This is a question of the meaning of a California state law, on which the California Supreme Court's decision in Tobacco II is determinative.

Slip op., at 5.  Interesting that a District Court seems more clear on the weight given to California Supreme Court decisions than some Courts of Appeal.