In D'Este v. Bayer Corporation, Ninth Circuit certifies interesting issue to California Supreme Court

The Ninth Circuit has been certifying questions to various state Supreme Courts with increasing frequency.  After giving this observed increase some thought, I theorize that at least one reason for this increase is the shift of some class actions to federal court as a result of CAFA.  For example, in a post on this blog, I noted a recent question certified to the California Supreme Court about e-mail spam.  Other issues certified to state supreme courts are simply questions of first impression, at least as the caselaw is viewed by the Ninth Circuit.  One example of such an issue involves a question about statutes of limitation in California, noted in this post on Products Liability Prof Blog.  The most famous recent example involves the certification of questions in Sullivan v. Oracle Corp., covered on The UCL Practitioner.

On May 5, 2009, in D'Este v. Bayer Corporation (link now corrected) the Ninth Circuit certified a challenging question that actually a colleague of mine fits in a class action we both worked on several years ago.  Here is the key question certified to the California Supreme Court:

“The Industrial Welfare Commission’s Wage Orders 1-2001 and 4-2001 define “outside salesperson” to mean “any person, 18 years of age or over, who customarily and regularly works more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.” 8 Cal. Code Regs., tit. 8, §§ 11010, subd. 2(J); 11040, subd. 2(M). Does a pharmaceutical sales representative (PSR) qualify as an “outside salesperson” under this definition, if the PSR spends more than half the working time away from the employer’s place of business and personally interacts with doctors and hospitals on behalf of drug companies for the purpose of increasing individual doctors’ prescriptions of specific drugs?

(Order, at p. 5193.)  But the question doesn't really capture the issue.  The underlying issue, developed in the factual description, turns on the fundamental nature of sales for purposes of the "outside salesperson" overtime exemption.  The pharmaceutical representatives in question promote Bayer products to doctors and hospitals, but they don't actually enter into bindings sales agreements.  Instead, they attempt to influence the prescription decisions of doctors and hospitals.  Are they "selling" when they engage in this promotion that does not end in a commercial transaction?  The Ninth Circuit thinks that the wage order can be interpreted in either manner.  Without CAFA, this issue would certainly have made its way to a California Court of Appeal.  Instead, it has moved outside the state court system, up to the Ninth Circuit, and may end up at the California Supreme Court through this inefficient route.

Update on 2009-05-07 23:39 by The Complex Litigator

UPDATE:  With apologies to the UCL Practitioner, I've fixed the link error to the 9th Circuit opinion.  It happens from time to time when posting while tired.

The Complex Litigator Blog will "move" on May 16, 2009

Over the weekend of May 16, 2009, the CNAME DNS record that points to this blog on the Typepad service will be revised to point at this blog on the SquareSpace service.  I will post multiple warnings about the switch, with information about how RSS subscriptions will be affected and what to do in general terms to restore a feed to your preferred reader.  The copy of the site is nearing completion and can be viewed at thecomplexlitigator.squarespace.com until the CNAME record is updated.  There are a few hiccups left to iron out; a few posts were either mis-titled or mis-dated in the import process, but most of this blog has been copied over successfully.  SquareSpace offers more design flexibility and the ability to expand the site in a number of interesting ways.

Answer on the merits filed in Brinker Restaurant v. Superior Court (Hohnbaum)

When the Supreme Court granted the Petition for Review in Brinker Restaurant v. Superior Court (Hohnbaum), the news opportunities in the case diminshed substantially.  For those in need of a Brinker news fix, its worth a mention that on April 28, 2009, Brinker Restaurant submitted its Answer on the merits, along with an application for permission to file an overlong Answer Brief.  Since the Real Party in Interest received approval from the Court to file an overlong Opening Brief, it's safe to assume that the Answer will be approved as well.

The docket also shows that the Amicus filings are already underway.  If Branick is instructive, expect the Amicus briefing period to continue until well into the Fall.

Cashcall revisited: Safeco Insurance Company of America, et al. v. Superior Court confirms that trial court can grant plaintiff lacking standing the right to discover proper class plaintiff

In 2008, CashCall, Inc. v. Superior Court (2008) 159 Cal.App.4th 273 surprised class action practitioners when a Court of Appeal approved of a trial court decision granting a proposed class representative that never had standing the right to pursue class member identity discovery for the purpose of locating a suitable replacement plaintiff. At the time, the decision was viewed as potentially conflicting with First American Title Ins. Co. v. Superior Court (2007) 146 Cal.App.4th 1564. Defendants characterized First American as creating a blanket prohibition on precertification discovery by a plaintiff that cannot represent the proposed class. As it turns our, the appellate Court panel that issued First American had something to say about how its opinion should have been interpreted. In Safeco Insurance Company of America, et al. v. Superior Court (April 30, 2009), the First American panel (Second Appellate District, Division Three) affirmed a Trial Court Order authorizing precertification discovery for the purpose of locating a suitable class representative with standing to assert claims on behalf of the class.

Before turning to the comments of substance, its worth a moment to offer sympathies to everyone involved in the litigation. The action was filed in January 2002. (Slip op., at p. 3.) The case was then stayed for a year while the Insurance Commissioner evaluated the case. (Slip op., at p. 4.) Once the Insurance Commissioner declined to take the case, litigation moved forward, but hit another road block when the Trial Court stayed the matter to await rulings in potentially controlling appeals in other insurance cases. (Slip op., at pp. 4-5.) Then Proposition 64 passed, and the original plaintiff, the Proposition 103 Enforcement Project had to find a new plaintiff. Much hilarity ensued. You get the idea. Thirteen pages of procedural history tell the tale.

The Court then reviewed a number of precertification discovery cases, including CashCall:

“CashCall rejected the argument that, in cases where the plaintiffs have never been class members, a bright-line rule precluding precertification discovery to identify class members should apply and the weighing test from Parris, supra, 109 Cal.App.4th 285, should be inapplicable. (CashCall, supra, 159 Cal.App.4th at pp. 285-286, 290-291.) Citing the general rule liberally allowing amendments of complaints to substitute new plaintiffs with standing (id. at pp. 287-288), CashCall stated that a class action plaintiff without standing should be allowed to move for, and potentially obtain, precertification discovery to identify potential class members. (Id. at p. 290.) CashCall stated that class action plaintiffs who never had standing should not necessarily be treated less favorably than class action plaintiffs who once had but then lost standing, and that the Parris weighing test should apply in both circumstances. (CashCall, supra, at p. 290.)

(Slip op., at p. 24.) The Court then harmonized its ruling in First America with CashCall and reinforced the holding of CashCall:

“First American, supra, 146 Cal.App.4th 1564, does not stand for the proposition that a plaintiff who was never a class member in a UCL action necessarily is not entitled to conduct precertification discovery to identify a substitute class representative. Although we emphasized the potential for abuse of the class action procedure in those circumstances (id. at pp. 1566, 1573, 1578), we did not establish any categorical rule against precertification discovery. Instead, we weighed the potential for abuse of the class action procedure against the rights of the parties and decided that to allow precertification discovery in the particular circumstances of that case would be an abuse of discretion. (Id. at pp. 1576-1577.) CashCall, supra, 159 Cal.App.4th 273, held that there was no bright-line rule against allowing plaintiffs who never had standing to conduct precertification discovery for the purpose of identifying potential class members with standing. (Id. at pp. 285-286, 290-291.) We agree, and conclude that the weighing test from Parris, supra, 109 Cal.App.4th 285, applies in UCL cases, as in other cases.

(Slip op., at pp. 26-7.) There are at least two morals of this story. First, don't make the mistake of telling a Court of Appeal what it meant when it issued a prior decision unless you are really sure you know exactly what it meant. Second, make sure that, if you move for precertification discovery to find a new class representative, the trial court engages in the balancing test required in Parris.

California Supreme Court grants review in Lu v. Hawaiian Gardens Casino, Inc.

The Supreme Court has granted review in Lu v. Hawaiian Gardens Casino, Inc.  The docket indicates that review has been granted on the limited issue of whether a private right of action exists under Labor Code section 351.  In Lu, the Court of Appeal was called upon to determine whether plaintiffs challenging a tip-pooling arrangment could bring a private right of action under Labor Code section 351.  The Court of Appeal concluded that Labor Code section 351 did not create a private right of action. The Court of Appeal then noted that such Labor Code sections could nevertheless serve as predicates for the “unlawful” conduct prong under the UCL:

“Nevertheless, Lu alleged a cause of action under the UCL for violation of Labor Code sections 351 and 450. “ ‘Virtually any law -- federal, state or local -- can serve as a predicate for an action under Business and Professions Code section 17200.’ [Citation.]” (Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th 528, 539; cf. Louis v. McCormick & Schmick Restaurant Corp. (C.D.Cal. 2006) 460 F.Supp.2d 1153, 1156, fn. 5; Matoff v. Brinker Restaurant Corp., supra, 439 F.Supp.2d at pp. 1037-1038.) The UCL is a proper avenue for Lu to challenge violations of these Labor Code provisions. Therefore, we turn to the substantive question of whether the tip pool procedure here violates the Labor Code sections enumerated in the complaint such as would support UCL causes of action.

(Slip op., at p. 11.)  My original post on Lu is here.  Lu was the first in a group of tip-pooling decisions that were all decided in the last few months.  See a recap here.

California Supreme Court depublishes Liceaga v. Debt Recovery Solutions LLC, 169 Cal.App.4th 901 (December 29, 2008)

In Liceaga v. Debt Recovery Solutions LLC (December 29, 2008) the Court of Apppeal (First Appellate District, Division One) held that the federal Fair Credit Reporting Act completely preemted private rights of action under California's Consumer Credit Reporting Agencies Act.  Today, the Supreme Court directed The Reporter of Decisions not to publish the opinion in the official report.  This depublication is something of a boon consumers.  Until a Court in California holds otherwise, private actions under California’s Consumer Credit Reporting Agencies Act, Civil Code section 1785.1 et seq. (CCRAA), are not preempted by the corresponding federal Fair Credit Reporting Act (15 U.S.C. § 1681 et seq.) (FCRA)).  For some reason, the Court's weekly conference summary isn't available online, but the docket confirms the depublication Order of April 29, 2009.  My original post on Liceaga is here.

in brief: Gomez v. Lincare, Inc. provides a satisfying "I told you so"

In Gomez v. Lincare (April 28, 2009), the Court of Appeal (Fourth Appellate District, Division Three) reversed portions of various Trial Court Orders that caused the dismissal of a putative class action by employees that provided respiratory services and medical equipment setup to patients in their homes. The opinion, from the habitually conservative Fourth Appellate District, was originally unpublished. I find the decision particularly satisfying because I worked on that case for several years while employed by Plaintiffs' counsel. I may post more on this decision later.

in brief: another employment class arbitration waiver is rejected as unconscionable in Olvera v. El Pollo Loco, Inc.

Once again, an employer tried to avoid the potential for class-wide liability to employees by creating an arbitration agreement that included a class action waiver provision. Once again, that effort met with failure. In Olvera v. El Pollo Loco, Inc. (April 27, 2009), the Court of Appeal (Second Appellate District, Division Three) affirmed the Trial Court (Judge Peter Lichtman) Order denying a motion to compel arbitration.

Ninth Circuit gives some solace to class action objectors when it directs trial court to re-consider whether a fee award to objectors' counsel is justified

Class action objectors don’t get much love. Usually the trial court overrules their objections. Usually their attorneys get nothing or some sliver of fees paid out by class counsel to buy the objector’s silence. But in Rodriguez, et al. v. West Publishing Corporation, et al. (April 23, 2009), the Ninth Circuit gives a little bit of that much-needed love to some objectors. But first, the bad news for the objectors: the Court affirmed the trial court’s approval of a class action settlement in the antitrust class action brought by those who purchased BAR/BRI bar review course materials between August 1, 1997 and July 31, 2006.

Now the good news for the objectors: the Court remanded the matter for consideration of several issues, including whether the class counsel fee award should be reduced and whether the objectors’ counsel should receive some compensation for benefits conferred upon the class:

“ The district court should have recognized that Objectors’ position on the impropriety of incentive agreements had some effect on its decision to deny the request for incentive awards; and it should have considered what effect, if any, the ethics implications of a conflict of interest created by the incentive agreements had on class counsel’s request for an award of attorney’s fees.

Therefore, we affirm approval of the settlement. We reverse and remand the award of attorney’s fees to class counsel for consideration of the effect, if any, of the incentive agreements on entitlement to fees. We also reverse and remand the denial of fees to Objectors’ counsel for a determination of a reasonable amount given their contribution to the denial of the requests for incentive awards.

(Opinion, at pp. 4776-77.) Class counsel bought themselves quite a bit of unnecessary grief by including some provisions in their retainers that promised requests for incentive awards of specific size if various settlement value targets were achieved:

“ By tying their compensation — in advance — to a sliding scale based on the amount recovered, the incentive agreements disjoined the contingency financial interests of the contracting representatives from the class. As the district court observed, once the threshold cash settlement was met, the agreements created a disincentive to go to trial; going to trial would put their $75,000 at risk in return for only a marginal individual gain even if the verdict were significantly greater than the settlement. The agreements also gave the contracting representatives an interest in a monetary settlement, as distinguished from other remedies, that set them apart from other members of the class. Further, agreements of this sort infect the class action environment with the troubling appearance of shopping plaintiffships. If allowed, ex ante incentive agreements could tempt potential plaintiffs to sell their lawsuits to attorneys who are the highest bidders, and vice-versa. In addition, these agreements implicate California ethics rules that prohibit representation of clients with conflicting interests. See Image Tech. Serv., Inc. v. Eastman Kodak Co., 136 F.3d 1354, 1358 (9th Cir. 1998) (noting that “[s]imultaneous representation of clients with conflicting interests (and without informed written consent) is an automatic ethics violation in California”); Flatt v. Superior Court, 885 P.2d 950, 955 (Cal. 1994).

(Opinion, at pp. 4760-61, footnote omitted.) Not a great outcome when the Ninth Circuit goes out of its way to note various ethics rules that are “implicated” by the conduct of class counsel. Beyond this case (in which counsel actually obtained a commendable $49 million settlement), the result, if any, will be to encourage objectors to try their luck in contesting a settlement in the hope that some modest fee award is issued by the trial court to safeguard against any appellate review.