Procedural news in Johnson v. Glaxosmithkline, Inc.

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Greatsealcal100This blog briefly reported on a new opinion in Johnson v. Glaxosmithkline, Inc. (September 19, 2008).  You can read that post here.  To recap, the Court of Appeal (Second Appellate District, Division Seven) examined the validity of the decision in Alvarez v. May Dept. Stores Co. (2006) 143 Cal.App.4th 1223 and whether Alvarez was effectively nullified by the United States Supreme Court decision in Taylor v. Sturgell, supra, __ U.S. __ [128 S.Ct. 2161].

A few things have occured since the September 19, 2008 opinion.  First, a Petition for Rehearing was filed on October 7, 2008.  It was denied the day it was filed.  You can view the docket here.  On October 14, 2008, the Court of Appeal modified its opinion, without changing the judgment.  The modification added a footnote and added some clarifying language about record review.

The logical guess is that the Petition for Rehearing is a prelude to a Petition for Review.

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Governor Schwarzenegger issues veto of e-discovery reform bill, AB 926

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Last week, California Governor Arnold Schwarzenegger issued a veto of the much anticipated e-discovery reform bill, AB 926, despite the passage of the bill without a single "no" vote (I didn't check, but maybe somebody voted "present").  After the Governor issued similar vetoes for over 300 bills, it has been speculated that the vetoes are intended to encourage the legislature to pass a budget that deals with the deficit problem in California (as an aside, if we tied every legilator's ability to run for any state office or receive any pay or benefits to the passage of a [projected] balanced State budget, what are the odds that we'd have a balanced budget every year?).  (Cheryl Miller, Schwarzenegger's Veto: A Raw Deal for E-Discovery? (October 3, 2008) www.law.com.)  The new rules tracked the federal rules and would spell out how and when records from fax machines, computer databases, e-mails and cell phones should be exchanged in litigation. They also set up procedures for settling disputes over data that one party contends are trade secrets or privileged attorney work-product.  Legislators promise to reintroduce the bill when the Governor isn't as cranky.

[Via ElectronicDiscovery]

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e-DISCOVERY: New e-discovery blog offers resources for e-discovery professionals

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I've just learned about a relatively new e-discovery blog, called ... wait for it ... ElectronicDiscovery.  David Jordan, the site creator, has this to say about this online resource:

“Welcome to Electronic Discovery. This e-discovery website is meant to provide free e-discovery resources to people seeking information about ESI (electronically stored information), computer-based evidence, e-discovery technology news, changes in e-discovery law, and more.Electronic Discovery is a little site I put together to keep track of my own ESI knowledge and possibly help visitors (mostly attorneys or corporate counsel) who want to learn E-Discovery 101.

ElectronicDiscovery has already helped me by pointing out a bit of e-discovery news that somehow slipped my attention last week.  I'll add this one to the e-discovery blogroll for ease of reference.

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Interesting brief excerpt persuasively argues that "independent contractors" are equally entitled to indemnity under Labor Code section 2802

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I've been off my game with respect to blogging, but an interesting item that just crossed my electronic desk prodded me to start back in on the pile of items and partially completed posts that I need to finish. A regular reader supplied me with a trial court brief that advances a fascinating proposition:  "independent contractors" are entitled to indemnification (read: reimbursement of necessary expenses) under Labor Code section 2802 because the definition of "employee" that applies to Labor Code section 2802 encompasses what would be "independent contractors."  If accepted by courts, that contention would have significant consequences for the many businesses that attempt to avoid all costs of employment by designing systems that classify groups of workers as "independent contractors" or "franchisees."  Because the analysis is so thorough and so thought-provoking, I include it here (divided so that only a part appears on the front page due to length), with minimal editing:

[BEGINNING OF EXCERPT]

“‘California has a strong public policy that favors the indemnification . . . of employees by their employers for claims and liabilities resulting from the employees’ acts within the course and scope of their employment.’ [Citation.] Labor Code section 2802 codifies this policy . . . .” Edwards v. Arthur Andersen LLP, 44 Cal.4th 937, 81 Cal.Rptr.3d 282, 293, 189 P.3d 285, 295 (2008). Section 2802(a) requires that “[a]n employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties . . . . (Emphasis added.) The “obvious purpose” of section 2802 is “to protect employees from suffering expenses in direct consequence of doing their jobs.” Grissom v. Vons Companies, Inc., 1 Cal.App.4th 52, 59-60, 1 Cal.Rptr.2d 808 (1990). Section 2802 “shows a legislative intent that duty-related losses ultimately fall on the business enterprise, not on the individual employee.” Janken v. GM Hughes Electronics, 46 Cal.App.4th 55, 74, fn. 24, 53 Cal.Rptr.2d 741 (1996). Section 2802 is unwaivable. Cal. Lab. Code § 2804 (“Any contract or agreement, express or implied, made by any employee to waive the benefits of this article or any part thereof, is null and void . . . .”) And “[a]rbitration awards have been reviewed to determine whether the arbitrators complied with statutes conferring unwaivable rights. [Citations.]” Cable Connection, supra, 44 Cal.4th at 1362.

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

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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.

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California Supreme Court construes validity of employees' release agreements

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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.

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

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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.

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

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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).

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

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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.

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

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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.

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