Brinker Restaurant Corporation, et al. v. Hohnbaum, et al. covered in Daily Journal

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Greatsealcal100Brinker Restaurant Corporation, et al. v. Hohnbaum, et al. (July 22, 2008) keeps on making news.  Yesterday, I attempted to collect as much coverage as I could in one post.  However, Brinker isn't remotely done making news.  In today's edition of the Daily Journal (July 25, 2008), D. Gregory Valenza asks, "Meal and Break Class Actions: On the 'Brink' of Extinction?"  (Subscription required.)  Mr. Valenza's article follows closely on the heels of a July 23, 2008 article by Daily Journal Staff Writer Pat Broderick, which briefly summarized the core of the Brinker decision.

Mr. Valenza's analysis is substantially more thorough than the July 23, 2008 article, but it is, essentially, a further summary of the Court's primary holdings.  While the article discusses several sources of law at issue in the Brinker decision, Mr. Valenza doesn't delve into the competing policies that are suggested but left unresolved by that opinion.  In fact, no commentator has yet addressed the full set of economic incentives at play within and without the Brinker world view of wage & hour class actions.  The Brinker opinion opens the door to this analysis but fails to step through.  Instead, the Court picks one of many economic incentives at work to justify its conclusion:  "It would also create perverse incentives, encouraging employees to violate company meal break policy in order to receive extra compensation under California wage and hour laws."  (Slip op., at p. 44, quoting Brown v. Federal Express Corp. (C.D.Cal. 2008) ___ F.R.D. ___ [2008 WL 906517 at *6].)  In selectively discussing such incentives, the Court overlooks employer economic incentives to cheat the system and employee economic incentives to adhere to a meal break policy where job loss is the consequence for failure to do so.  These incentives are likely far stronger, due to the amounts at issue, than one employee's desire to obtain an extra hour of pay.

If policy considerations are going to drive the judicial determination of the meal and rest break obligations, the Brinker decision must be viewed with some measure of skepticism until the full picture of incentives is faily presented and fully analyzed.

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Future class action? Dancers in Los Angeles file a wage & hour suit over independent contractor classification

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(Un)covering this story requires some care, as I don't want The Complex Litigator black-listed by content filters, hence the oblique references to follow.

It has been reported on latimes.com and abajournal.com that four dancers of the quasi-prurient-arts variety are suing nightclubs over unpaid wages and tips.  (Normal references omitted; see hyperlinks.)  The dancers are challenging their classification as independent contractors, contending that they are employees, who signed "independent contractor agreements" under duress.

Several thoughts sprang to mind when I read this story.  First, it is unclear from the reporting whether these dancers are so-called "go-go dancers" at mainstream nightclubs (the dancers you might see in clubs dancing in elevated cages as part of the effort at ambience) or are dancers at clubs of the tip-for-tat sort.  Second, this sounds suspiciously like either (1) a wage & hour class action in the works, or (2) an effort to avoid the pitfalls one encounters in wage & hour class actions by attempting to generate interest in a "mass action" of similarly situated dancers.  Either way, the press coverage of the filing will probably generate a significant number of inquiries about how to join the suit.  Third, both articles talk about how the independent contrator "agreements were signed under duress and are therefore void."  This blog has previously covered independent contractors misclassification cases, discussed previously here and here.  The terms of an independent contractor agreement are far down the list of factors examined when attempting to determine whether an employment relationship exists.  And, finally, I just wanted the chance to discuss news about dancers suing for better wages, and now I have.

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After Sprint's home run, Verizon is at bat in cell phone cancellation fee class action

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On June 12, 2008, Sprint avoided liability when a California jury ruled in its favor in a trial involving the contentious issue of early termination fees (ETFs) in wireless service contracts.  Now, in an Alameda County Superior Court, attorney will present opening arguments as Verizon goes on trial in the second of four coordinated class actions against cell phone companies.  (Evan Hill, Cell Phone Fee Case Set for Trial (June 23, 2008) www.law.com.)

In light of the verdict in the Sprint class action, attorneys for the class will shift their trial strategy:

“At the heart of the class actions is California Civil Code §1671(d), which lays out how to collect liquidated damages when someone breaks a contract. For the early termination fees to be legal under the statute, the cell phone companies need to prove that the fee reasonably reflects the money they lost when the customers left.

[Jeffrey] Lawrence [of Coughlin Stoia Gellar Rudman & Robbins] said the burden was on Sprint to prove it had made a reasonable estimate in establishing the fees. In their closing trial brief, the plaintiffs argued that Sprint never presented any evidence that it based its fees on how much it would lose from customers breaching their contracts. They pointed to testimony by Sprint's vice president of marketing, who said the company set its early termination fees after seeing how competitors used theirs to keep more customers from leaving.

(Ibid.) However, all of this maneuvering may be moot, if the FCC takes action.  The week after the Sprint verdict was issued, FCC Chairman Kevin Martin stated that he was "skeptical" that class actions can solve customer concerns about ETFs.  Martin wants the FCC to make an "initial decision" in July or August about how to regulate ETFs.

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Scrutiny of options backdating settlement results in massive increase to settlement offer

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In a post from April 27, 2008, this blog discussed a pair of noteworthy decisions, by Judge William Alsup of the United States District Court of the Northern District of California, in two options backdating lawsuits involving Zoran Corporation and CNET Networks.  As it turns out, Judge Alsup's intense scrutiny of those settlements has had a therapeutic effect on the value of the settlement.

As described by Forbes.com, Judge Alsup was less than pleased with the manipulation of the value of the settlement by Plaintiff's counsel:

“The lawyers painted the value of the package as $1.6 million, based on a Dec. 3, 2007, stock price of $21.99 a share. When Alsup asked how they arrived at that date, lawyers first indicated that was when they had signed a memorandum of understanding, but when Alsup ordered a copy of the memorandum, it turned out to have been signed Dec. 21 and wasn't filed with the court until Feb. 26. By then Zoran's stock was down 50%, and the options concessions were worth far less.

(Daniel Fisher, Fee Fixers (June 9, 2008) www.forbes.com.)  Judge Alsup described the initial settlement as having a value of, potentially, a meager $200,000, and quite possibly less.  In a revised settlement filed May 29, 2008, $3.4 million in hard cash materialized ($3 million from Zoran's insurance company and $395,000 from Zoran Chief Executive Levi Gerzberg and another executive).  Keller Rohrback, counsel for plaintiff, had the confidence (chutzpah? nerve? temerity?) to request $1.5 million in fees and expenses, $300,000 more than the first time around.  (Ibid.)

I would guess (and it is only a guess) that the publicity surrounding Judge Alsup's scrutiny and criticism of pigs with lipstick may rub off on other judges that routinely handle class action matters.  Thus, it would benefit both sides of the settlement equation to be sure that a motion for preliminary approval does not mislead the Court, hide negative facts, or avoid self-criticism.  A dose of introspection may lend credibility to the motion for preliminary approval.

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OFF TOPIC: Happy Father's Day

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Ameliecancuninset In light of Father's Day, I am posting a picture of my daughter that I was lucky enough to capture on a vacation last year.  Happy Father's Day to all those dad's out there (including me.)  Now, here's a Sunday observation that's also way off topic for this blog: while watching Tiger Woods claw his way into a playoff at the U.S. Open on a bum knee, I can't help but be in awe of the fact that I'm watching history being written, tournament by tournament.  Generations from now, people will talk about the insurmountable standard he set.  I hope that I have the opportunity to contribute something in the field of law that stands the test of time, and, if I do, I hope that I have what it takes to seize that opportunity.  (As an aside, I have no idea how to play golf.)

Now I'm going to make myself sick to my stomach, watching the Lakers finish their finals tank job.  As I said, Happy Father's Day.

UPDATE: Shocked, I say.  Shocked and amazed that the Lakers pulled it out.  Hence, sincere, rather than sarcastic, Happy Father's Day.

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BREAKING NEWS: In class action, jury finds Sprint's early cancellation fees were properly charged

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Sprint Nextel Corp. announced today that a California jury ruled in its favor in a trial involving the contentious issue of early termination fees (ETFs) in wireless service contracts.  (Roger Cheng, Jury Sides With Sprint on Early Exit Charges (June 12, 2008) www.smartmoney.com.)  A number of similar class actions have been in various stages of progress, but the Sprint class action was the first to return a verdict.

Meanwhile, The Federal Communications Commission (FCC) held a lengthy hearing today on whether wireless carriers' ETFs are justified and if jurisdiction over those fees should switch from the states to the federal government.  (Chloe Albensius, FCC Debates Need for Cell-Phone Termination Fees (June 12, 2008) www.pcmag.com.)  Since this issue gained traction in 2006, with the filing of class action suits, all major carriers have adjusted their practices to allow for pro-rated ETFs.  Until the FCC determines whether these ETFs constitute federally regulated "rates," consumers and carriers will remain uncertain as to whether states have any jursidiction over carriers' ETFs.  At least in the Sprint case, it is undoubtedly pleased that California currently has jursidiction over this issue.

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Slowly the lumbering beast awoke: "Law Firms" just now waking up to law blog PR issues

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ABAJournal has an article about the recent awareness in law firms that law blogs can create PR issues for them to manage.  (Martha Neil, Law Firms Waking Up to PR Issues Posed by Law Gossip Blogs (June 3, 2008) www.abajournal.com.)  Amazing.  How can law firms continue to be so slow to respond to the world of technology when they spend so much energy counseling clients to err on the side of caution and best practices?  The article summarizes the incongruity:

“Today, leaked information can potentially reach huge numbers of strangers throughout the world in record time, thanks to electronic communications and legal gossip blogs—yet many law firms aren't focusing on this risk.

(Ibid.)  In addition to the PR disasters and issues mentioned in the ABAJournal article, perhaps it will take a few high-profile PR implosions on law blogs to convince the techo-phobes at the top of the law firm food chain to recognize law blogs as a new avenue for journalism, editorial commentary and public discourse.

The complex litigation mavens are ahead of the curve.  To survive the demands of modern complex/class litigation, litigators need every technological advantage they can find.  Online information, including law blogs, are now a staple for such attorneys.  But, in the grand scheme of things, complex (including class action) litigation is a tiny slice of the civil litigation pie.  It will take time for the techonolgy tools and resources of complex litigators to migrate into widespread, general use.  (Actually, I worry that it may take centuries for the legal profession to "get with it," as the legal profession, in general terms, strikes me as the most resistant to change of any profession on earth...save that really old profession that never need to change, and even that profession has embraced technology to deliver its wares.)  Until all civil litigators unite in their awareness and use of law blogs, be proud that you are on the leading edge, just by reading this post.

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Supreme Court declines to consider whether state laws limiting class actions ban clauses are preempted by federal law

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According to the Associated Press, the United States Supreme Court rejected T-Mobile's appeal in three related cases.  The issue in the three cases is identical: whether state laws limiting class action ban clauses in consumer contracts are preempted by federal law.  As of this posting, the Supreme Court docket does not yet reflect the denial of the Petition in case 07-976.

T-Mobile sought review of a Ninth Circuit decision that precluded enforcement of a class action ban on the ground that a recent "Third Circuit decision (Gay v. Creditinform) created a conflict among the lower courts."  (Gupta, Supreme Court Refuses to Hear Class-Action Ban Issue (May 27, 2008) pubcit.typepad.com.)  [Note: Public Citizen participated in the opposition to T-Mobile's petition.]

State and federal courts have been holding of late that class-action bans in arbitration clauses are unconscionable under state contract law, a result seen in the Discover Bank decision (Discover Bank v. Superior Court (2005) 36 Cal.3d. 148) in California.  Defendants routinely argue that the Federal Arbitration Act preempts state law on this issue.  However, that argument has not met with success; the Federal Arbitration Act expressly saves generally-applicable state contract law of unconscionability from preemption.

UPDATE:  The May 28, 2008 Order List from the Supreme Court includes the Laster v. T-Mobile determination.

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How is this a "tough year for class action attorneys?"

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Yesterday Law.com published an article entitled Tough Year for Class Action Attorneys Continues, authored by Lynne Marek.  What I want to know is, how does Lynne Marek know what kind of year I'm having?  The article is ostensibly about three Lexington, Kentucky attorneys, William J. Gallion, Shirley A. Cunningham Jr., and Melbourne Mills Jr., that are facing charges for allegedly stealing $46 million in settlement funds obtained for their clients in Fen-Phen diet drug litigation.

I say "ostensibly" because this column strikes me as a gratuitous shot at all attorneys that litigate class actions.  For example, the column digresses from the factual discussion about the Kentucky attorneys to offer this:

“With criminal prosecutions of class action attorneys who have made millions of dollars off their cases unfolding through indictments from New York to Mississippi to Kentucky, government officials are starting to call for more scrutiny of such litigation.

(Lynne Marek, Tough Year for Class Action Attorneys Continues (May 21, 2008) www.law.com.)  "From New York to Mississippi to Kentucky..."  From the sound of it, we have a pandemic of class action practitioners under indictment by prosecutors.  In reality, the only other examples of such prosecutions include Mississippi lawyer Richard "Dickie" Scruggs and Melvyn Weiss and William Lerach, securities class action lawyers at the New York firm formerly known as Milberg Weiss.

Nevermind the facts; this crisis gives the author a chance to work in a quote from American Tort Reform Association President Sherman Joyce: "Maybe these are isolated incidents, but we have no way of knowing that right now."  Actually, Sherman, you do know the answer.  Most lawyers in most states are conducting their business in lawful manner, without stealing any client funds or paying clients or bribing judges.  Some are rotten apples, and the various state bars catch a fair number of those, even if it takes a while.  The chickens eventually came home to roost for Mr. Lerach.

But Lynne Marek's article isn't about evenhanded journalism.  It's about pushing an angle, an agenda.  As a modest proposal, I suggest honesty for future columns.  Instead of a whole page full of life-stealing prose, just say, "I hate class action and class action lawyers and I hope the government regulates them out of existence."  Look at how much time I just saved everyone.  Now we'll all have about 5 minutes of our lives back when the next column comes out.

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When legislators decide to "fix" things, the remedy is often worse than the ailment

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Paul KarlsgodtClassActionBlawg.com has a short post, entitled "Congressmen seek investigation on practices of class action lawyers: A good use of taxpayer dollars," that says a lot.  Referring to a CFO.com news story, ClassActionBlawg.com offers a modest proposal to the legislators that want to put the entire class action system under the microscope, all on account of recent media coverage of a few bad apples (Lerach, et al.).  (See, Plourd, On the Hill, Trying to Put Plaintiffs' Bar on the Defensive (May 6, 2008) www.cfo.com.)

The post on ClassActionBlawg.com is short, so I repeat the core of it here:

Certainly, there have been some high-profile abuses among members of the plaintiffs’ class action bar recently. But these are examples of individual arrogance and greed, not evidence of an epidemic in need of a Congressional investigation–especially in light of the myriad other things Congress could be doing these days. The acts of a few bad apples shouldn’t ruin the bunch.

Among other things, Boehner and Smith seek “[r]eforms that Congress can make to rid the judicial system of [class action] abuses.” If you really want to spend government money to prevent class action abuse, here’ s a modest proposal from a class action defense lawyer’s perspective: try better funding for the courts. If there were more, better-paid judges available to give the time and thoughtful analysis needed in carrying out their function as gatekeepers rather than simply doing whatever they can to manage their overflowing dockets, maybe there wouldn’t be any incentive to pursue frivolous class actions and abusive tactics. Just an idea.

It is worth emphasizing that Paul Karlsgodt practices primarily on the defense side of class actions.  The class action device isn't "broken" because of few bad actors.  Every profession has them.  Let's entrust our court system to talented jurists that are appropriately compensated.  Let's give them the resources they need to do their job in an orderly manner, and let's give them facilities that aren't crumbling and overcrowded.  The Complex Litigator seconds ClassActionBlawg.com's proposal.

[Via ClassActionBlawg.com]

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