More on Brinker under review

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Wage Law also notes that the Supreme Court has GRANTED the Petition for Review in Brinker Restaurant Corporation, et al. v. Superior Court (Hohnbaum).  But Wage Law then asks a very intriguing question:  Will the DLSE update its enforcement manual that was revised immediately to reflect the decision in Brinker?  Wage Law guesses that the current administration will do nothing unless forced to do so by a Court decision.  My initial post on that enforcement decision can be found here.  Perhaps the California Labor Federal Federation will have something to say on a further update to the manual, after their strongly-worded criticism of the initial update.

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BREAKING NEWS: Petition for Review granted in Brinker Restaurant v. Superior Court (Hohmbaum)

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Greatsealcal100The Supreme Court has just GRANTED the Petition for Review in Brinker Restaurant Corporation, et al. v. Superior Court (Hohnbaum).  View the Supreme Court docket here.  Aside from Justice Werdegar, who was absent and did not participate, all other justices voted in favor of the Petition.  As I obliquely suggested in this post, so much for Brinker Restaurant Corporation's prediction that this matter would quietly return to the Superior Court after turning wage & hour class action precedent on its head.

UPDATE:  This post has been marked as "featured" so as to appear first on the home page of this blog while interest in this news remains high.

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CAOC Board of Governors

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I am pleased to announce that I will be a member of the Board of Governors of Consumer Attorneys of California ("CAOC") for 2009.  I am looking forward to the opportunity to meet and work with attorneys from across California.  CAOC provides a mechanism for aggregating the collective voices of plaintiffs and their counsel.  That aggregation provides an opportunity to be heard by the the public and its elected representatives in a way that would be all but impossible otherwise.

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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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