Hewlett-Packard Co. v. Superior Court discusses important distinction between certification issues and merits issues

/

Greatsealcal100Hewlett-Packard makes very nice laser printers.  And really important class action appellate decisions.  In fact, I wanted to direct attention to this decision when it was released on Friday because it confronts a point of class certification jurisprudence that I have long thought was overlooked: what should the trial court do in the event that a possible defense to a claim exists that could defeat some or all of the class claims?  The Court of Appeal answered this question (in my opinion, correctly) with a resounding "Nothing."

In Hewlett-Packard Co. v. Superior Court (September 26, 2008), the Court of Appeal (Sixth Appellate District) reviewed a petition for a peremptory writ of mandate after a Trial Court refused to decertify a class on the ground that the decision in Daugherty v. American Honda Co., Inc. (2006) 144 Cal.App.4th 824 provided a partial or complete defense to claims, destroying predominance.  Summarizing the core allegation of the complaint, the Court said:

“The complaint alleged that HP had marketed and distributed Pavilion Series Notebook computers, knowing that the computers had defective inverters that could potentially cause dim displays, but without disclosing such defects to consumers; the complaint asserted causes of action for violation of the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.), violation of the Consumer Legal Remedies Act (Civ.Code, § 1750 et seq.), breach of express warranty and “Unjust Enrichment.”

(Slip op., at p. 2.)

The decision includes some discussion of warranty claims.  That's not the good part.  The important aspect of Hewlett-Packard Co. is its concise explanation about the demarcation between merits issues and certification issues:

“The crux of plaintiffs’ claim is that certain HP notebook computers contained types of inverters that HP knew would likely fail and cause the screens to dim and darken at some time before the end of the notebook’s “useful life.” HP asserts that under Daugherty, this claim would not establish its liability. Daugherty holds there can be no claim for breach of express warranty or UCL violations arising from proof that the manufacturer knew at the time of the sale that the component part might fail at some point in the future. (Daugherty, supra, 144 Cal.App.4th at pp 838-839.)

While Daugherty may have implications for the merits of underlying action, and indeed may serve to bar claims by plaintiffs that occurred outside the warranty period, it does not affect a determination of class certification. Daugherty is distinguished from the present action because it related to a substantive question on demurrer rather than a procedural question as here on a motion for class certification. And the question in a determination of class certification is “essentially . . . procedural . . . [and] does not ask whether an action is legally or factually meritorious.” (Linder, supra, 23 Cal.4th 429, 439-440, emphasis added.)

If we were to accept HP’s argument regarding the application of Daugherty to the present action, we would be considering the merits of the underlying action. And the question of class certification “does not ask whether an action is legally or factually meritorious.” (Linder, supra 23 Cal.4th at pp. 439-440.) Rather, a ruling on a certification motion determines whether “the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants.” (Rocha, supra, 7 Cal.3d at p. 238.)

(Slip op., at pp. 8-9.)  Continuing, the Court said:

“In this writ, HP requests that we order the trial court to vacate its order certifying the class because some of the plaintiffs’ claims may be substantively invalid under Daugherty. This is not a proper consideration on the question of class certification. The merits of the case can and will be decided at a later point in this case. Indeed, the trial court noted that stating with regard to Daugherty that it was “neither ruling on the merits of the causes of action not what limits to recovery for any class member might be.”

(Slip op., at p. 10.)  In other words, even if there is a substantial likelihood that the class members' claims will fail due to some defense, consideration of that fact is a merits analysis and ultimately improper.  That, in my experience, is not how trial courts customarily view this situation.

I recall suggesting to one trial court that if the defendant were truly sincere that it was factually innocent, it should stipulate to certification and obtain a defense verdict against the entire class, rather than just one plaintiff.  The court scoffed at my suggestion.  But that, and other certification experiences, has led me to the conclusion that when a trial court perceives a likely defense to claims, certification approaches the impossible.  I've been waiting for a decision that, in plain language, said success or failure of claims is irrelevant to the question of certification.  So there you have it.

Read More

California Supreme Court construes validity of employees' release agreements

/

Greatsealcal100Last Thursday, the Supreme Court issued its decision in Edwards v. Arthur Andersen, LLP (August 7, 2008) __ Cal.4th __.  That decision addressed two questions, but the one of interest is the second of the two issues, which asks, "[I]s a contract provision requiring an employee to release “any and all” claims unlawful because it encompasses nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802?"  (Slip op., at p. 1.)  The answer, according to the Supreme Court, is no, but only because "any and all" is ambiguous, requiring resort to statutory presumptions that legal contructions are to be preferred over illegal constructions:  "[A] contract provision releasing 'any and all' claims does not encompass nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802 and, accordingly, is not void under Labor Code section 2804." (Slip op., at pp. 18-19, 21.)  The reaction to that holding is what interests me for purposes of this post.

While I routinely examine new appellate decisions, I first learned about Edwards through a post at WageLaw.  What caught my eye in the post was the statement that, as Justice Kennard mentioned in her dissent, the case may be misunderstood, to the detriment of employees.  Thus, I had to read the opinion for myself to see whether I agreed that negative consequences are likely.  Having read and considered the opinion, and although I habitually agree with WageLaw's analysis, I don't believe that this case presents the risk articulated by Justice Kennard and WageLaw.

The Supreme Court was faced with two possible outcomes to the question of how to construe a release of "any and all" claims, when the language could potentially waive claims that are statutorily nonwaivable.  The first option was to declare such a release entirely void.  The second option was to construe the release as encompassing only those claims that can be lawfully released.  The Supreme Court selected the second option.

Justice Kennard (with Justice Werdegar concurring) argues that the release may have been devised to trick employees into not bringing indemnity claims, even though such a release was void:

“As the Court of Appeal observed, Andersen’s actions suggest a possible purpose of misleading employees into thinking they had waived rights that could not be waived, thereby minimizing the number of indemnity claims these employees might bring against Andersen.

(Slip dissent, at p. 5.)  While Andersen's actions may have been intentional, I don't see why the intent is a significant factor in analyzing whether employees will be deceived.  An innocently vague release of "any and all" claims may also cause an employee to relinquish a statutorily protected claim out of the mistaken belief that it had been released.  In fact, had the Supreme Court declared such releases completely void, the use of such a release could still trick employees into believing that they had released claims when they had not.  Ultimately, an employee needs to seek legal counsel if they have any question about the extent of their rights with respect to releases, or any other employment issue.  The value of the Edwards decision is that a definitive ruling has found that general release language cannot be construed as any sort of release or waiver of statutorily protected claims or rights.  The concerns about its negative consequences are, I think, overstated.

Read More

Lenders catch a break - Seventh Circuit rejects class-wide rescission under TILA

/

With major segments of the financial industry wobbling on the brink (due to really bad judgment by a bunch of idiots turning shady mortgages into the next big investment vehicle), the lending industry caught a break today.  In Andrews v. Chevy Chase Bank (September 24, 2008), the Seventh Circuit Court of Appeals held, in a 2-to-1 decision, that rescissions under the Truth in Lending Act (TILA) were intended to be "a purely individual remedy that may not be pursued" on a class-action basis.  (Ruth Simon, Court Rejects Class Action on Option ARM Loans (September 24, 2008) online.wsj.com.)  This outcome is consistent with California's approach to the issue (Laliberte v. Pacific Mercantile Bank, 147 Cal.App.4th 1, 53 Cal.Rptr.3d 745 (2007)), and reflects what appears to now be the solid majority view as to whether rescission rights are available as a class-wide remedy under TILA.  Having personally pursued that issue through to a Petion for a Writ of Certiorari at the United States Supreme Court in Laliberte, I was hopeful for a while that Andrews might push the pendulum back and generate some interest for review.  Many prognosticators thought such a pro-borrower ruling was likely.  But, in light of the current mess swirling around the banking industry, I'd imagine that such a ruling in Andrews would have simply generated some emergency legislation that eliminated class-wide loan rescissions under TILA.

Read More

Apple and AT&T continue to receive class action grief over iPhone 3G

/

The benefit of having one's own blog is the ability to choose the content.  I happen to have an iPhone 3G.  I was one of those thralls to commerce that actually stood in line (admittedly, a short line) to get the Jesus Phone version 2.0.  That's why I am interested in all the class actions that have been filed against Apple and AT&T over the phone's performance and design.

After the iPhone 3G was released, there was a substantial bit of consumer grumbling that AT&T's faster 3G network was not univerally available.  On August 19, 2008, Alabama resident Jessica Alena Smith filed the first know class action complaint yesterday against Apple, "alleging that the new iPhone's 3G performance and reliability has been subpar, despite the claims made by Apple's aggressive marketing campaign."  (Jacqui Cheng, AT&T hit with yet another iPhone 3G lawsuit (August 20, 2008) www.arstechnica.com.)  Around the beginning of September, a second class action lawsuit was filed against Apple and AT&T.  ABC News reported:  "The main issue is that AT&T's 3G network isn't strong enough to support the millions of people who are iPhone 3G users," Michael Rott, a partner with the San Diego-based law firm Hiden, Rott & Oertle, LLP, told ABCNews.com. "Apple violated [California law] by misrepresenting the actual speed and performance of its 8G and 16G models."  (Ki Mae Heussner, IPhone 3G Draws Second Class Action Suit (September 4, 2008) abcnews.go.com.)

A third class action suit was filed in New Jersey.  A fourth, filed this week, alleges that the iPhone does not live up to Apple's and AT&T's claims of speed and performance and that the rear plastic housing in the iPhone 3G is defective, resulting in hairline cracks.  (Chris Foresman, iPhone 3G lawsuit blames Apple, AT&T for cracks, slow speed (September 23, 2008) www.arstechnica.com.)

I don't want to write off these class actions at such and early stage, but it seems to me that connectivity issues will vary widely by location, rendering class treatment over large geographic areas challenging at a minimum.  My ancecdotal experience is that the two software updates issued by Apple both improved the performance of the phone, including its 3G connectivity performance.  And while everyone is lamenting AT&T's terrible 3G coverage, I'm writing this post after connecting with my AT&T 3G modem when my cable internet was having issues tonight.  My iPhone works fine on 3G here, it works fine on 3G in Las Vegas, and it works fine on 3G in New Orleans.  Basically, the iPhone 3G is awesome (unless you have fat fingers, in which case you should look elsewhere and save yourself the pain of typing on a virtual keyboard).

Read More

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

/

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

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

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

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

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

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

Read More

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

/

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

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

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

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

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

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

Read More

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

/

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

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

Read More

Reversing trial court, Martinez, et al. v. Regents of the University of California, et al. holds that California's authorization of in-state tuition for "illegal immigrants" violates federal law

/

Greatsealcal100The law waits for no one, not even The Complex Litigator (who has just finished a long deposition excursion, interspersed with efforts to encrust his face with powdered sugar as he jams beignets in his pie-hole). In that regard (the law, not the beignets), the Court of Appeal, in Martinez, et al. v. Regents of the University of California, et al. (September 15, 2008, Third Appellate District), essentially held that California Education Code § 68130.5 violates is preempted by United States Code (U.S.C.) section 1623 by allowing certain "illegal immigrants" to pay lower (roughly $17,000 lower) resident tuition rates.

The case was filed as a class action by "United States citizens who pay nonresident tuition for enrollment at California’s public universities/colleges . . . ." (Slip op., at pp. 2-3.)  But this case is interesting because it runs squarely into a socio-political minefield that is probably even more contentious a topic than the recent same-sex marriage decision from the California Supreme Court.  You know a case is going to be worth a read when a footnote is probably enough to incite public protests:

“Defendants prefer the term “undocumented immigrants.” However, defendants do not cite any authoritative definition of the term and do not support their assertion that the terms “undocumented mmigrant” and “illegal alien” are interchangeable. We consider the term “illegal alien” less ambiguous. Thus, under federal law, an “alien” is “any person not a citizen or national of the United States.” (8 U.S.C. § 1101(a)(3).) A “national of the United States” means a U.S. citizen or a noncitizen who owes permanent allegiance to the United States. (8 U.S.C. § 1101(a)(22).) Under federal law, “immigrant” means every alien except those classified by federal law as nonimmigrant aliens. (8 U.S.C. § 1101(a)(15).) “Nonimmigrant aliens” are, in general, temporary visitors to the United States, such as diplomats and students who have no intention of abandoning their residence in a foreign country. (8 U.S.C. § 1101(a)(15)(F), (G); Elkins v. Moreno (1978) 435 U.S. 647, 664-665 [55 L.Ed.2d 614, 627-628] [under pre-1996 law, held the question whether nonimmigrant aliens could become domiciliaries of Maryland for purposes of in-state college tuition was a matter of state law].) The federal statutes at issue in this appeal refer to “alien[s] who [are] not lawfully present in the United States.” (8 U.S.C. §§ 1621(d), 1623.) In place of the cumbersome phrase “alien[s] who [are] not lawfully present,” we shall use the term “illegal aliens.”

(Slip op., at p. 3.)  Having settled on "illegal alien" as the operative nomenclature, the Court moved on to the actual questions at issue.  First, the Court of Appeal addressed a number of procedural issue after the defendants argued that plaintiffs had waived or forfeited certain arguments by not raising them in the trial court:

“We reject defendants’ position that plaintiffs cannot raise
new theories on appeal that they did not allege in their
complaint or present in the trial court. When a demurrer is
sustained without leave to amend, the plaintiff may advance on
appeal new legal theories as to why the complaint’s allegations
state, or can be amended to state, a cause of action.

(Slip op., at p. 17.)  However, the Court of Appeal concluded that plaintiffs failed to adequate raise an issue in their Opening Brief regarding whether a private right of action exists for violation of title 8 U.S.C. section 1623.  (Slip op., at pp. 17-23.)  The Court of Appeal then spends almost nine pages addressing arguments about the trial court's failure to grant judicial notice to various materials.  In some other post I will comment on what I believe to be the pandemic misuse of requests for judicial notice, but with respect to this opinion, one has the sense that this Court is painfully aware of the potential for much higher levels of scrutiny of this opinion.  They seem to be dotting i's and crossing t's that would normally be relegated to footnote commentary, if that.

Finally turning to the merits, the Court of Appeal quickly dismissed an argument by plaintiffs that they could "amend the complaint to allege a viable claim that section 68130.5 constitutes discrimination in violation of section 68062."  (Slip op., at p. 33.)  The Court noted that any conflict between section 68062 and 68130.5 would not be resolved in plaintiffs' favor, given that section 68130.5 was enacted after 68062, triggering application of the doctrine of implied repeal.

The Court then turned to the question of federal preemption.  First, the Court identified De Canas v. Bica (1976) 424 U.S. 351 [47 L.Ed.2d 43] as authority identifying three tests to be used in determining whether a state statute related to immigration is preempted.  (Slip op., at p. 35.)  "First, the court must determine whether the state statute is a 'regulation of immigration' (i.e., a determination of who should or should not be admitted into the country and the conditions under which a legal entrant may remain)."  (Slip op., at p. 35.)  "Second, even if the state statute does not regulate immigration, it is preempted if Congress manifested a clear purpose to effect a complete ouster of state power, including state power to promulgate laws not in conflict with federal laws, with respect to the subject matter which the statute attempts to regulate."  (Slip op., at pp. 35-36.)  "Third, a state law is preempted if it 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'"  (Slip op., at p. 36.)  Applying this test, the Court concluded that plaintiffs stated a cause of action for federal preemption.

In its analysis, the Court determined that in-state tuition is, in fact, a benefit to the recipients of that lower tuition rate:

“Defendants argue the term “benefit” in title 8 U.S.C.
section 1623 is limited, because the federal statute refers to
“amount,” which means monetary payments, and in-state tuition
does not involve the payment of any money to students. However,
defendants cite no authority supporting their illogical
assumption that “amount” must mean monetary payment to the
beneficiary.

(Slip op., at p. 38.)  The Court then spends nearly 20 pages of its opinion considering whether section 68130.5 constitutes a de facto residency surrogate.  (Slip op., at pp. 42-61.)  The Court ultimately concludes that section 68130.5 was intended to benefit illegal aliens on the basis of residency in California.

The Court then determined that section 68130.5 was preempted by federal law.  In part, the Court determined that section 68130.5 interferes with an important federal policy: "It is a compelling government interest to remove the incentive for illegal immigration provided by the availability of public benefits."  (Slip op., at p. 65, citing title 8 U.S.C. section 1601.)  Using much of the same analysis, the Court held that "plaintiffs have stated a cause of action that section 68130.5 is preempted by title 8 U.S.C. section 1621," which generally precludes certain public education benefits to illegal aliens.

Several other claims were found insufficient by the Court of Appeal, but because several claims were found to have legal sufficiency, the Court reversed and remanded to the trial court.

I will be curious to see whether this case is reviewed by the California Supreme Court or the United States Supreme Court.

Read More

Civil Rights Lawsuits

/

On July 18, 2008, this blog reported on two class actions filed against Google for the alleged sale of "low quality" ads on parked domains and error pages.  The first such suit was filed by attorneys from the San Francisco-based law firm of Schubert Jonckheer Kolbe & Kralowec, including Kimberly Kralowec, author of the established and widely-read blog, The UCL Practitioner.  The second suit was filed six days later by the firm of Kabateck Brown Kellner.

It now looks like Google's woes have spread outside of California.  It has just been reported that JIT Packaging sued Google in a federal district court in Chicago.  (Google Hit with Another Suit For Fraud From PPC Program: Is this Final Straw For Domain Parking? (August 14, 2008) www.thedomains.com.)  The Domains wonders whether this will ultimately result in the demise of the domain registration industry.  If anyone has the power to force a change in the domain registration market, Google is on that short list.

Read More

The Complex Litigator will have a limited number of new posts in the next two weeks

/

I am out of California taking depositions for the next two weeks. I will have limited time available to post during this fun-filled excursion.  There will still be new posts during the next two weeks, but not the one-a-day target I customarily attempt to meet.

Read More