Trial court, in Avalos v. La Salsa, Inc., offers early glimpse of how California courts may reconcile Stolt-Nielsen and Gentry

Earlier today, in Avalos v. La Salsa, Inc., JCCP 4488, the Santa Barbara Superior Court, Judge Denise deBellefeuille presiding, granted the defendants’ motion for reconsideration of a class certification order in to consider the impact of the recent United States Supreme Court decision in Stolt-Nielsen S. A. v. AnimalFeeds International Corp., 130 S.Ct. 1758 (2010) on the coordinated proceedings before the Court.  After an extensive analysis of Stolt-Nielsen, including its interaction with Gentry v. Superior Court, 42 Cal. 4th 443 (2007), the Court affirmed the certification order previously entered.  While the certification aspect is mildly interesting, the Court's extensive discussion of the interplay between arbitration clauses and class actions in California is the pot of gold in this unusually thorough trial court order.  While the attached opinion is a tentative ruling, the Court adopted its tentative without modification.

You can view the embedded opinion in the acrobat.com flash viewer below:

If the viewer isn't working for you (say, if you are viewing this on an iPad or iPhone), you can download the opinion here.

AT&T's preemption argument based on Stolt-Nielsen is dead before it hits the floor

United States District Court Judge Claudia Wilken (Northern District of California) has already been gifted with the privilege of considering whether Stolt-Nielsen S. A. et al. v. AnimalFeeds International Corp. (discussed on this blog here) preempts any state law that would preclude enforcement of an arbitration agreement.  McArdle v. AT & T Mobility LLC, 2010 WL 1532334 (N.D.Cal. May 10, 2010).  Judge Wilken took care of that argument in one sharp paragraph:

Defendants assert that Stolt-Nielsen creates a substantial question as to whether the “FAA would preempt any holding that California law precludes enforcement of McArdle's agreement to arbitrate his disputes with” them on an individual basis. Mot. for Leave at 4. The Court disagrees. The issue presented in Stolt-Nielsen was “whether imposing class arbitration on parties whose arbitration clauses are ‘silent’ on that issue is consistent with the Federal Arbitration Act (FAA).” 2010 WL 1655826, at *4. The Supreme Court did not address FAA preemption. Nor did it overrule its precedent upon which the Ninth Circuit relied in Shroyer v. New Cingular Wireless Services, Inc., which held that California law on unconscionability could render an arbitration clause unenforceable, 498 F.3d 976, 986-87 (9th Cir.2007).  Stolt-Nielsen is distinguishable both on the facts and the law and, therefore, does not require this Court to reconsider its order on Defendants' motion to stay this action pending their appeal.

Slip op., at 1.  One interesting bit of information is also included in the Order.  The Ninth Circuit recently held that Shroyer continues to control the issue of unconscionability analysis under California law.  Laster v. AT & T Mobility LLC, 584 F.3d 849 (9th Cir.2009). AT&T filed a petition for certiorari in Laster, upon which they expect the Supreme Court to rule by May 24.  If the Supreme Court takes up Laster, they will be forced to explicitly address carve-outs alluded to by the dissent in Stolt-Nielsen but not addressed by the majority opinion.

Ninth Circuit holds that the Higher Education Act (HEA), and its Federal Family Education Loan Program (FFELP), preempt state law claims for unfair billing practices

The Higher Education Act (HEA) was passed “to keep the college door open to all students of ability, regardless of socioeconomic background.” Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 1028, 1030 (9th Cir. 2009).  Congress also Congress established the Federal Family Education Loan Program (FFELP), a system of loan guarantees meant to encourage lenders to loan money to students and their parents on favorable terms. See 20 U.S.C. §§ 1071-1087-4; Rowe, 559 F.3d at 1030.  In Chae, et al. v. SLM Corporation, dba Sallie Mae, et al. (9th Cir. January 25, 2010), the Ninth Circuit considered whether the HEA and FFELP preempted state law consumer protection claims in a putative class action alleging false and misleading disclosures about billing practices.

The Court excluded field preemption from its analysis, noting: "Turning now to the issues before us, we have previously held that field preemption does not apply to the HEA."  Chae, at 1382.  With that, the Court analyzed whether "express preemption" or "conflict preemption" were present.

The Ninth Circuit found that express preemption applied to the claims in Chae:

Congress has enacted several express preemption provisions applicable to FFELP participants. See, e.g., 20 U.S.C. §§ 1078(d), 1091a(a)(2)(B), 1091a(b)(1)-(3), 1095a(a), 1098g. These provisions expressly preempt the operation of state usury laws, statutes of limitations, limitations on recovering the costs of debt collection, infancy defenses to contract liability, wage garnishment limitations, and disclosure requirements. This last provision, 20 U.S.C. § 1098g, is entitled, “Exemption from State disclosure requirements.” The text of the statute reads: “Loans made, insured, or guaranteed pursuant to a program authorized by Title IV of the Higher Education Act . . . shall not be subject to any disclosure requirements of any State law.” Id. The FFELP falls within Title IV of the HEA, and is thus subject to its express preemption provision. 

Chae, at 1383.  The Court then explained its disagreement with the plaintiffs' characterization of their claims as misrepresentation claims, not disclosure claims:

At bottom, the plaintiffs’ misrepresentation claims are improper-disclosure claims. The plaintiffs do not contend that California law prevents Sallie Mae from employing any of the three loan-servicing practices at issue. We consider these allegations in substance to be a challenge to the allegedly misleading method Sallie Mae used to communicate with the plaintiffs about its practices. In this context, the state-law prohibition on misrepresenting a business practice “is merely the converse” of a state-law requirement that alternate disclosures be made. See Cipollone, 505 U.S. at 527. 

Chae, at 1384.  The Court was not sympathetic to the plaintiffs' argument that a finding of preemption would eliminate any recourse for unfair practices by Sallie Mae.  The Court, in a footnote, suggested that the plaintiffs' only remedy was to complain to the Department of Education.  Chae, at 1384-85, n. 6.

Finally, the Court concluded, after a lengthy discussion, that application of state consumer protection laws would directly conflict with the uniformity and stability goal behind the FFELP.

From Bridgeport's 6th Annual Wage & Hour Litigation Conference: Future attacks on Gentry v. Superior Court

I'm attending Bridgeport's 6th Annual Wage & Hour Litigation Conference. Today, one topic of discussion is the subject of class arbitrations after Gentry. According to Steven Katz, partner at Reed Smith LLP, Gentry is one of the California Supreme Court's most erroneously-reasoned decisions in quite some time. That's not the interesting part (it's the funny part). The interesting commentary comes from how the defense bar hopes to limit Gentry.

Mr. Katz starts from the premise that Gentry. does not state a bright-line rule precluding class action waivers in all wage & hour class actions. The defense bar hopes to elicit further review of Gentry by challenging trial and appellate orders that impose a bright-line rule when invalidating arbitration agreements with such waivers. The protective measure that plaintiffs should take is to draft proposed orders that identify the four-factor test from Gentry as having been satisfied.

The second major challenge to Gentry that is being tested at the appellate level is a species of "field" preemption. The defense contention is that Gentry allows for a type of contract impairment that isn't directed at arbitration agreements directly, but nevertheless affects only those types of agreements. This argument disregards the fact that the principles in Gentry are subject-neutral. It is merely the nature of the effect of these agreements that renders them invalid. The factors in Gentry don't seek out just arbitration agreements with class action waivers. Despite that weakness in the defense-side argument, plaintiffs should handle these arguments with great care. This species of "field" premption is very complex, and the attorneys bringing these arguments often have an advantage in the form of repeated experience with them. Don't take a novel preemption argument lightly.

Back to the drawing board: AT&T's arbitration agreement that bans class actions is still unconscionable

It seems to me that the telecommunications and credit card industries are more determined to make an arbitration agreement with a class action ban stick than any other industry.  Most employers have given up that dream, but not the phone company and not the bank.  The latest arbitration agreement with a class action ban comes to us compliments of AT&T Mobility LLC.  But, in Laster v. AT&T Mobility LLC (October 27, 2009), the Ninth Circuit sends another class action ban to the unconscionability graveyard, and just in time for Halloween.

Those crazy mad scientists in the secret AT&T Arbitration Agreement Drafting Lab (also known as the "Triple A - DL" to those in the know), their latest scheme to ban class actions was ingenious, and could have helped them take over the world!  The plan was to circumvent the holding of Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976 (9th Cir. 2007) with a little bonus payment clause:

[T]he phone company points to a new wrinkle: unlike the arbitration clause in Shroyer, this arbitration clause provides for a “premium” payment of $7,500 (the jurisdictional limit of California’s small claims court) if the arbitrator awards the customer an amount greater than the phone company’s last written settlement offer made before selection of an arbitrator. Hence, says the phone company, the arbitration clause is not an artifice that has the practical effect of rendering it immune from individual claims.

Slip op., at 14391.  The Ninth Circuit disagreed, and shot down a preemption argument along the way:

We will find, on second blush, the new “premium” payment does not distinguish this case from Shroyer, and that under California law, the present arbitration clause is unconscionable and unenforcable [sic]. Further, we will also find no merit to the phone company’s claim the Federal Arbitration Act (FAA) preempts California unconscionability law.

Slip op., at 14391.  Back to the Triple A - DL, Snidely.  For those not satisfied with just the holding, the Court's analysis relied heavily on Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005):

The California Supreme Court addressed the unconscionability of class action waivers in arbitration agreements for the first time in Discover Bank v. Sup. Ct., 113 P.3d 1100 (Cal. 2005), holding that class action waivers were at least sometimes unconscionable under California law. 113 P.3d at 1108. Class actions, the court reasoned, serve the important policy function of deterring and redressing wrongdoing, particularly where a company defrauds large numbers of consumers out of individually small sums of money. Id. at 1105. Class action waivers pose a problem because, “small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights.” Id. at 1106. In this way, the class action waiver allows the company to insulate itself from liability for its wrongdoing and the policy behind class actions is thwarted. Id. at 1109.

Slip op., at 14394.  The Court then explained how it interpreted the test in Discover Bank:

We have interpreted Discover Bank as creating a three-part test to determine whether a class action waiver in a consumer contract is unconscionable: (1) is the agreement a contract of adhesion; (2) are disputes between the contracting parties likely to involve small amounts of damages; and (3) is it alleged that the party with superior bargaining power has carried out a scheme deliberately to cheat large numbers of consumers out of individually small sums of money. Id. at 983. In Shroyer, we noted that “there are most certainly circumstances in which a class action waiver is unconscionable under California law despite the fact that all three parts of the Discover Bank test are not satisfied.” Id. Because we hold that the class action waiver at issue satisfies all three parts of the test, as was true in Shroyer, “it is unnecessary to explore those circumstances here.” Id.

Slip op., at 14395.  The application of the Discover Bank test tracks Shroyer.  The Court then disposed of AT&T's contention that the promise of a premium payment distinguished this agreement from Shroyer:

The $7,500 premium payment is available only if AT&T does not make a settlement offer to the aggrieved customer in a sum equal to or higher than is ultimately awarded in arbitration, and before an arbitrator is selected. This means that if a customer files for arbitration against AT&T, predictably, AT&T will simply pay the face value of the claim before the selection of an arbitrator to avoid potentially paying $7,500. Thus, the maximum gain to a customer for the hassle of arbitrating a $30.22 dispute is still just $30.22. We held in Shroyer that a claim worth a few hundred dollars did not provide adequate incentive for a customer to bother pursuing individual arbitration. 498 F.3d at 986. The $30.22 at issue here is even less of an incentive to file a claim. As a result, aggrieved customers will predictably not file claims—even if the odds are that after the letter-writing and arbitrator-choosing, they will get a $30.22 offer—thereby “greatly reduc[ing] the aggregate liability” AT&T faces for allegedly mulcting small sums of money from many consumers. See id. The premium payment provision has no effect on this conclusion, nor do any of the other provisions of AT&T’s revised arbitration clause. The actual damages a customer will recover remain predictably small, thus under the rationale of Discover Bank and Shroyer, AT&T’s class action waiver is in effect an exculpatory clause, hence substantively unconscionable.

Slip op., at 14397-98.  I'll spare you any excerpts from the preemption discussion.  It's sufficient to say that the Court was impressed with a repeat of arguments rejected in Shroyer.

E-mail is "personal identification information," and CAN-SPAM does not pre-empt the Song-Beverly prohibition on requests for such information

Technology, which is forward looking, and law, which is backwards...looking, frequently bang heads.  In Powers v. Pottery Barn, Inc. (September 21, 2009), the Court of Appeal (Fourth Appellate District, Division One) examined whether the federal law "Controlling the Assault of Non-Solicited Pornography And Marketing Act of 2003" (tit. 15, U.S.C, § 7701 et seq.) (CAN-SPAM) pre-empted provisions of the Song-Beverly Credit Card Act of 1971 in a lawsuit challenging a merchant's practice of requesting consumer e-mail addresses at the time the consumer makes a credit card purchase.  The Court easily found that, because CAN-SPAM does not pre-empt state laws that "are not specific to electronic mail," it did not pre-empt the Song-Beverly prohibition on collecting personal identification information.  Slip op., at 2.

Regarding the purpose of Song-Beverly, the Court said:

Song-Beverly was enacted in 1971. "The act 'imposes fair business practices for the protection of the consumers. "Such a law is remedial in nature and in the public interest [and] is to be liberally construed to the end of fostering its objectives." ' [Citations.]" (Florez v. Linens 'N Things, Inc. (2003) 108 Cal.App.4th 447, 450.)

Slip op., at 4.  And the Court explained pre-emption by CAN-SPAM, and the limits on that pre-emption:

Congress expressly provided that CAN-SPAM pre-empts state anti-SPAM laws: "This chapter supersedes any statute, regulation, or rule of a State or political subdivision of a State that expressly regulates the use of electronic mail to send commercial messages, except to the extent that any such statute, regulation, or rule prohibits falsity or deception in any portion of a commercial electronic mail message or information attached thereto." (Tit. 15, U.S.C., § 7707(b)(1).) Importantly, Congress also expressly limited the pre-emptive impact of CAN-SPAM: "This chapter shall not be construed to preempt the applicability of—(A) State laws that are not specific to electronic mail, including State trespass, contract, or tort law; or (B) other State laws to the extent that those laws relate to acts of fraud or computer crime." (Tit. 15, U.S.C., § 7707 (b)(2).)

Slip op., at 7.  Applying both, the Court concluded that Song-Beverly was not pre-empted:

CAN-SPAM cannot be interpreted as pre-empting application of Song-Beverly to Pottery Barn's collection of e-mail from its credit card customers.  Song-Beverly does not expressly regulate any Internet activity, let alone use of "electronic mail to send commercial messages." (See Tit. 15, U.S.C § 7701(b)(1).) Rather, as we have discussed, Song-Beverly only governs the information businesses may collect in the course of transacting business with credit card users. Thus Song-Beverly does not fall within the scope of CAN-SPAM's express pre-emption provisions. Importantly, CAN-SPAM does not permit us to find any implied pre-emption here. CAN-SPAM not only has a carefully limited express pre-emption provision, but it also expressly excludes pre-emption of any state laws, such as Song-Beverly, which "are not specific to electronic mail."

Slip op., at 8.  So there you have it.  Collecting an e-mail address has now been recognized as collecting personal identification information, at least under Song-Beverly.

NOTE:  Sections V and VI of the opinion are not published.  However, the Court's Opinion inadvertently left out the Section V heading.  I believe that it should appear after the first two sentences of page 12, but that's just a best guess until they correct the opinion.

Update on 2009-09-21 22:50 by The Complex Litigator

The Court has issued a corrected opinion that inserts the missing roman numeral heading on page 12.  I commend their speedy correction.

In Gordon v. Virtumundo, Inc., Ninth Circuit engages in pioneering analysis of standing to sue under CAN-SPAM Act

"The CAN-SPAM Act became effective on January 1, 2004, and was enacted in response to mounting concerns associated with the rapid growth of spam e-mails."  Gordon v. Virtumundo, Inc. (9th Cir. August 6, 2009), at 10,491.  In Gordon, the Ninth Circuit was called upon, in a case of first impression amongst the Circuits, to determine when a private plaintiff possesses standing to sue under the CAN-SPAM Act.  In doing so, the Ninth Circuit attempted, at least in part, to thoroughly examine the standing issue:

As recognized by several courts, the case law regarding the relevant legal standards under the CAN-SPAM Act is “scant,” ASIS Internet Servs. v. Optin Global, Inc., No. 05-05124, 2008 WL 1902217, at *15 (N.D. Cal. Apr. 29, 2008), and few courts have construed the standing provision, ASIS Internet Servs. v. Active Response Group, No. 07-6211, 2008 WL 2952809, at *2 (N.D. Cal. July 30, 2008). Neither we nor any of our sister circuits have comprehensively addressed this issue. We endeavor to do so here, at least in part.

Slip op., at 10,494.  One important question in Gordon was whether the plaintiff, who provided e-mail addresses to some friends and family members through a domain housed on leased server space.  The Ninth Circuit described the basic standing inquiry:

We begin by acknowledging that the CAN-SPAM standing inquiry involves two general components: (1) whether the plaintiff is an “Internet access service” provider (“IAS provider”), and (2) whether the plaintiff was “adversely affected by” statutory violations. See, e.g., Brosnan v. Alki Mortgage, LLC, No. 07-4339, 2008 WL 413732, at *1-*2 (N.D. Cal. Feb. 13, 2008).  Beyond that, however, the statutory standing provision read as a whole is ambiguous—a point upon which all parties agree. We therefore employ familiar techniques of statutory construction to evaluate Congress’s intent with regard to both components and their relation to one another.

Slip op., at 10,494.  The Ninth Circuit then noted that the standing conferred by the Act was narrowly tailored by Congress:

Congress conferred standing only on a narrow group of possible plaintiffs: the Federal Trade Commission, certain state and federal agencies, state attorneys general, and IAS providers adversely affected by violations of the CANSPAM Act. See 15 U.S.C. § 7706(a), (b), (f), (g). The decision to restrict the right of action does not reflect an indifference or insensitivity to the effects of spam on consumers. The contrary is true. The CAN-SPAM Act’s express findings and legislative history are littered with references to the burdens shouldered by individuals, businesses, and other institutions.  The Act itself recognizes the “costs to recipients . . . for the storage of [unsolicited commercial e-mail], or for the time spent accessing, reviewing, and discarding such mail, or both.” 15 U.S.C. § 7701(a)(3). We surmise that Congress’s intent was to limit enforcement actions to those best suited to detect, investigate, and, if appropriate, prosecute violations of the CAN-SPAM Act—those well-equipped to efficiently and effectively pursue legal actions against persons engaged in unlawful practices and enforce federal law for the benefit of all consumers.

Slip op., at 10,496.  Then Ninth Circuit then had to address whether Gordon was, in fact, an IAS provider.  Struggling somewhat with that question, the Court said:

There may well be a technical or hardware component implicit in the definition. But, we find the parties’ briefing on the topic inadequate to reach an informed decision here. Because it is not necessary to our holding, we decline this opportunity to set forth a general test or define the outer bounds of what it means to be a provider of “Internet access service.”

Slip op., at 10,500.  Despite passing on the opportunity to define the outer bounds of IAS provision, the Ninth Circuit concluded that Gordon, who gave e-mail addresses to a few friends and family members, didn't meet any reasonable definition of IAS provider.

At this point, Gordon loses, because he lacks standing.  But the Ninth Circuit went on to address whether he had been adversely affected by the spam received in the various e-mail accounts he created.  That analysis, too, didn't favor plaintiff.

I was particularly interested in this decision because I, like Gordon, have a domain through which I provide a number of e-mail addresses to family.  Had things broken Gordon's way, I'd be an IAS provider right now.  But since I'm not, I'll also conclude that we won't see the CAN-SPAM Act in a class action unless a major provider like a cable or phone company decides to use the CAN-SPAM Act in some crazy way and allege a defendant class of spammers blasting their network.

The Ninth Circuit concluded its opinion with a thorough analysis of pre-emption, holding that the CAN-SPAM Act pre-empts all state efforts to regulate spam, save those predicated upon traditional tort theories related to fraud and deceit.  In case you were holding your breath, spam isn't going anywhere any time soon.