Nationwide class action against American Express goes to trial; Amex prevails

In the grand scheme of civil litigation, there aren't that many class actions as a percentage of lawsuits filed (probably around one half of one percent of unlimited civil filings in California, for example; see post).  Rarer still are the nationwide class actions.  And rarest of all, the nationwide class action that goes to trial.  Believed by some to be extinct, a recent sighting in the wild confirms that it still exists, at least in theory.

On March 26, after 11 weeks of testimony from the class, Judge George Hernandez of the California Superior Court in Fremont, California, in a nonjury trial, ruled that plaintiffs failed to prove their case.  (Pamela A. MacLean, Amex Wins Rare National Class Action Trial Over Allegations of Overcharging (March 31, 2009) and  The suit alleged that Amex charged a fee for airline travel purchased on its charge card and would sweep in inappropriate insurance charges for flights consumers later canceled, seat upgrades and baggage fees.

Not surprisingly, plaintiffs' counsel indicated that an appeal is on the way.

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HealthMarkets, Inc. v. Superior Court tries to add clarity to parent-subsidiary jurisdictional questions

Greatsealcal100I must apologize. I know that you have been wondering whether a parent company purposefully avails itself of a forum solely because a subsidiary does so. And it took me hours to bring the answer to you. For that, I am ashamed. But the opportunity for redemption is at hand, as the Court of Appeal (Second Appellate District, Division Three) answered that question in HealthMarkets, Inc. v. Superior Court (Berman) (March 9, 2009).

After providing a basic primer on general personal jurisdiction, specific personal jurisdiction and the current condition of California law on the jurisdictional impact of subsidiaries, the Court held: “A parent company purposefully avails itself of forum benefits through the activities of its subsidiary, as required to justify the exercise of specific personal jurisdiction, if and only if the parent deliberately directs the subsidiary’s activities in, or having a substantial connection with, the forum state.” (Slip op., at pp. 10-11.) You’d think that a holding this absolute would take care of jurisdictional questions about subsidiaries, but I expect that what we will get, instead, are complaints with generic allegations about how the parent corporation “deliberately directed” the activities of its subsidiary in the forum state. And the never-ending chess game continues.

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The Trial Practice Tips Weblog: another blog worth bookmarking

It has been a while since this site's Blogs of Note section saw an update.  That is a reflection of the demands of work and life, and not a comment on the state of the legal blogosphere, which is exploding with new content.  However, one long-established blog (heading into its sixth year) couldn't escape the recognition that it was due forever:  The Trial Practice Tips Weblog.

Class action litigation is, ultimately, about bringing a case to trial  (though it happens rarely).  To get to that mythical trial, a great deal of preparation is required.  The Trial Practice Tips Weblog offers advice that applies to all phases of civil litigation and encourages lawyers to prepare smarter and better.  Congratulations to The Trial Practice Tips Weblog for its longevity and quality.

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If a Protective Order governing trade secrets is issued in your case, don't do this (or get out your checkbook)

Greatsealcal100This blog is intended to cover topics related to complex litigation.  But, based solely on the appellate decisions covered here, one might think that this site is restricted to class action topics.  While it is true that the bulk of appellate decisions mentioned on this blog relate to class actions, that has more to do with the fact that class actions are an easily "ascertained" subset of complex litigation than any decision to limit coverage of other "complex litigation" decisions.  Today, in Wallis v. PHL Associates (November 25, 2008), the Court of Appeal (Third Appellate District) considered some of the thorny issues related to trade secrets and protective orders in the context of reviewing a sanction award in the eyebrow-raising amount of $43,678.42.

The Court explained the conduct resulting in that unusually high sanction: 

In the course of this long-running litigation, the parties agreed to a protective order, which the court issued, allowing the parties to file under seal certain confidential documents containing alleged trade secrets. Cross-complainant PHL Associates, Inc. (PHL) filed the declaration of its attorney Tory E. Griffin, with attachments containing what PHL alleged were trade secrets. Although the declaration designated that it was filed under seal pursuant to the protective order and was sent to the trial court in a sealed envelope and labeled appropriately, the document later appeared in the court file available to the public.

Upon learning of the public availability of the declaration, attorney Mendoza notified her clients of the public availability. In an attempt to defeat PHL’s claim that the information attached to the declaration contained trade secrets, the Wallises and Mendoza had third-parties view and copy the declaration.

PHL, along with fellow cross-complainants Jeffrey T. Wichmann and Mary B. Holmes, filed a motion for sanctions pursuant to Code of Civil Procedure section 128.5 (section 128.5) against the Wallises and Mendoza for their conduct relating to the declaration. The trial court granted the motion, finding that the actions of the Wallises and Mendoza were frivolous and taken in bad faith.

(Slip op., at pp. 2-3.)  The Court of Appeal wasn't any more impressed with the conduct or the arguments than the trial court:  "The position of the Wallises and Mendoza, that the appearance of the declaration in the court’s public file allowed them to disclose the information attached to the Griffin declaration, was frivolous. And they acted in bad faith when they disclosed the information."  (Slip op., at pp. 3-4.)

File this under too cute by half.  Protective Orders are fairly common in class actions and other types of complex litigation.  But, in my experience, Protective Orders are not taken as seriously as they should be.  This decision is a painful reminder that a court may not look favorably on cynical attempts to end-run a protective order.  And this (disregarding protective orders) may be more common that you might think.  I was commended by a trial court recently for not using information subject to a "use" protective order, despite an urgent need to do so.  Following the trial court's order shouldn't have been so unusual as to receive praise, but it was.  Just remember that they call them protective Orders for a reason.

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GUEST BLOGGER: Sergei Lemberg from on the "Loser Pays" system and why it hurts consumers

THE COMPLEX LITIGATOR:  As a new feature of this blog, I am hoping to provide regular visitors with some added variety through guest authors that cover topics related to, but outside the scope of, this blog. 

Sergei Lemberg, an attorney who practices lemon law and blogs at is sitting in the guest blogger’s chair today.

“Loser Pays” and Its Impact on Consumers

Every state has a Lemon Law, which requires a manufacturer to give you a refund or a replacement vehicle if they can’t fix a new car’s defect within a certain number of attempts. As we all know, car manufacturers will try to do whatever they can to get out of compensating a consumer who has a lemon. So, when a manufacturer refuses, it’s up to the consumer to file a Lemon Law claim.

A number of states require that the consumer enter an arbitration program run by either the manufacturer or the state. The rationale is that, if the two parties’ differences can be smoothed out, it won’t burden the court system. In practice, however, car manufacturers have legal teams that fight Lemon Law claims – whether in arbitration or in the court system. It’s much more likely that consumers will have positive outcomes and get the compensation they deserve when they hire a Lemon Law attorney. This is because most state laws say that, if the consumer wins the case, the manufacturer has to pay the consumer’s attorney’s fees. Therefore, manufacturers need to weigh the cost of fighting the claim (that is, the cost of their legal team plus the consumer’s lawyer) against agreeing to a buyback or replacement vehicle. If the consumer has a lawyer and a good case, chances are that the manufacturer will back down and pay up.

England and many other European countries have what’s termed a “loser pays” policy, whereby whomever is on the losing side of a legal action has to pay the legal fees of the prevailing party. While this might seem fair on the face of it, loser pays undermines the foundation of Lemon Laws and other laws that include what’s termed “fee-shifting.” Think about it. The average consumer simply doesn’t have the resources to risk filing a Lemon Law claim and having to pay GM’s or Chrysler’s legal bills. No one in their right mind would take a car manufacturer to court – even if they had a solid case.

Lemon Laws certainly don’t provide consumers with an unfair advantage; if anything, they make it difficult to get relief by imposing stringent requirements on consumers. Awarding attorneys’ fees in a successful Lemon Law claim puts the onus where it belongs: squarely on the shoulders of the car manufacturer who made and sold a defective product.

It goes without saying, however, that there are two sides to every story. There are some who think that attorney’s fees are causing the legal system to run amok, and who propose reforms that would make it harder for wronged consumers to fight back.

The problem with this position is twofold. First, consumers are regularly abused by big car companies, who have bottomless pockets with which to fight claims against them. Second, because Lemon Law claims result in relatively low dollar amount settlements (thousands of dollars instead of hundreds of thousands or millions of dollars) it’s impossible for attorneys to bring cases without also being awarded fees.

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A consumer must tender the purchase price for goods or services in order to have standing to sue for discriminatory practices (Surrey v. Truebeginnings)

Greatsealcal100California has tended to be on the flexible side when it comes to the issue of standing.  While arguing before one trial court judge in a complex litigation department, I mentioned the lenient standing requirements in California, and the judge interrupted and said, roughly, "I'd go further.  I'd say that California essentially has no concept of standing in most instances."  Thus, when a Court of Appeal defines standing parameters for a consumer-oriented statute, it is noteworthy.

In addition, there are decision that, though not directly conerning class actions, resolve issues that affect the potential for future class actions.  Decisions that define standing are one such category of cases.  In Surrey v. Truebeginnings, et al. (November 18, 2008), the Court of Appeal (Fourth Appellate District, Division One) defined standing to sue for violations of the Unruh Civil Rights Act (Civ. Code, § 51, et seq.) and the Gender Tax Repeal Act of 1995 (Civ. Code, § 51.6):

The critical issue in this appeal is whether someone who presents him or herself to a business with the intent of purchasing its services or products, but becomes aware of that business's practice of charging different amounts for such services or products based on gender and thereafter does not purchase those services or products, is aggrieved by that practice so as to have standing to sue for violations of the Unruh Civil Rights Act (Civ. Code, § 51 et seq. (the Unruh Act)) and the Gender Tax Repeal Act of 1995 (Civ. Code, § 51.6 (the Gender Tax Repeal Act)). (All further statutory references are to the Civil Code.) In a case of first impression in California, we answer this question in the negative and adopt a bright-line rule that a person must tender the purchase price for a business's services or products in order to have standing to sue it for alleged discriminatory practices relating thereto.

(Slip op., at p. 2.)  The core facts were easily summarized by the Court of Appeal:

In November 2003, TrueBeginnings, LLC, began operating an online matchmaking service, (referred to collectively with TrueBeginnings, LLC and its parent company, HDVE, LLC, herein as TrueBeginnings). The service was very successful, but it had a disproportionately high percentage of male patrons; in November 2004, TrueBeginnings sought to rectify this imbalance by offering certain free services to women who joined. In early May 2005, Surrey visited TrueBeginnings' website with the intent of utilizing its services; after discovering the discrepancy in its charges, he did not, however, subscribe to or pay for its services.

(Slip op., at p. 2.)

While I am inclined to agree with the Court's overall reasoning, it pains me to do so in this case.  I happen to believe that online dating services deserve tremendous scrutiny as an industry that has the ability (whether exercised or not) to get away with deceptive activities not tolerated in any other business.  The unwillingness of people to bring their customary skepticism into the world of online dating services leaves them open to all manner of deception schemes, including the potential for padded profile roles, computer-generated contacts, imposter members and other frauds difficult to detect or prove without unfettered access to the inner workings of the service's computer system.  If there is an industry where caveat emptor applies, online dating is it.

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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.

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LIVEBLOGGING CAALA: Hon. Lee Edmon discusses likely e-discovery laws

The Complex Litigator is here at CAALA, bringing you information selected from the best (my opinion) that the conferences have to offer.  First up is e-discovery developments presented by the Hon. Lee Edmon.

  • The scope of e-discovery in California will soon be comparable to the scope allowed by the Federal Rules.  Judge Edmon suggests that practitioners start looking at federal cases for guidance.
  • The demanding party will be able to demand the format of a production, including in native format, pdf, tiff, etc.  (CCP section 2031.030(a)(2).)
  • Protective Orders shift the burden onto the objecting party to show that information is from a source that is not reasonably accessible because of undue burden or expense.  The parties must meet and confer.  Judge Edmon believes that these "meet and confers" will be very important:  learn how and where documents are stored so that you know the cost of compelling the production.  You may have to do discovery specifically for the purpose of deciding whether data is inaccessible, the cost of retrieving it, and options.
  • Even if a party establishes that Electronically Stored Information (ESI) is unavailable due to the burden, the Court can still order the production if the requesting party establishes good cause for production.
  • Courts can limit ESI discovery if information is available from alternative sources.
  • The new law will allow a safe harbor for ESI inadvertently destroyed through the normal operation of an electronic system.
  • Send a preservation letter regarding ESI to the opposing party at the earliest opportunity to do so.
  • Responses:  If no format is specified in a demand, the producing party can specify the form, including form in which it is kept and a form that is reasonably usable.  Federal cases have held that placing production in a form that is not text-searchable is insufficient.  If a party objects that requested information is not reasonably accessible, the party must specify details as to why.
  • Data translation costs provision, CCP section 2031.280(e), allows responding party to translate, at requesting party's expense, productions into a reasonably usable format.
  • In the case of inadvertent production of privileged material, a new procedure will require prompt notification to the requesting party of the inadvertent production.  If the requesting party claims waiver, the requesting party will have to move within 30 days to retain the material and adjudicate the claim of waiver.
  • Many of these new procedures will also apply to subpoenas for ESI.  To protect third parties, courts and requesting parties must try to
  • CRC Rule 3.724 will now require the initial conference of counsel to address topics regarding conferring about ESI issues (form of production, clawback provisions, protection issues, and allocation of costs).
  • Judge Edmon believes that the new ESI provisions are going to be very complicated for Courts to apply.
  • If these measures are implemented, we will probably see them on January 1, 2008 (law was delayed by California budget crisis issues).

I will try to update this post later to elaborate on some of the points raised by Judge Edmon.  Please excuse any typos as I post from a conference ballroom.

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