Discovery ruling in McArdle v. AT&T Mobility LLC finds that notice is unnecessary when ordering class member contact information produced

United States Chief Magistrate Judge Maria-Elena James, as if predicting the very contents of my April 21, 2010 Daily Journal article, ordered Defendants AT & T Mobility LLC, New Cingular Wireless PCS LCC, and New Cingular Wireless Services, Inc. to produce the contact information for thousands of customers that had complained after incurring international roaming charges without first issuing a privacy notice.  McArdle v. AT & T Mobility LLC, 2010 WL 1532334 (N.D.Cal. Apr 16, 2010).

Chief Magistrate Judge James said:

As to providing a written notice to the customers, the Court finds such notice unnecessary. First, Pioneer does not impose a notice requirement. Second, notice would make no sense here, as witnesses cannot choose to “opt out” of civil discovery.  Tierno v. Rite Aid Corp., 2008 WL 3287035, at *3 (N.D.Cal.2008). “Generally, witnesses are not permitted to decline to participate in civil discovery, even when the information sought from them is personal or private.” Puerto v. Superior Court, 158 Cal.App.4th at 1242, 1256-57 (2008). The Court notes that the minimal information Plaintiff requests is indeed contemplated under the Federal Rules of Civil Procedure as basic to the discovery process. Specifically, Rule 26(a)(1)(A) requires each party to disclose before formal discovery begins “the names, addresses and telephone numbers of each individual likely to have discoverable information that the disclosing party may use to support its claims or defenses.” Here, many of Defendants' complaining customers may be considered percipient witnesses to the relevant issue - international-roaming charges, and could therefore be considered persons having discoverable knowledge and proper subjects of discovery.

Slip op., at 4; see also, Boo-ya, at page bite me.  Defendants were given 14 days to provide the contact information.

“Generally, witnesses are not permitted to decline to participate in civil discovery, even when the information sought from them is personal or private.”  Yes.  Witnesses don't get to opt-out of being witnesses.

in brief: Fees denied to prevailing defendant in Swearingen v. Haas Automation, Inc.

United States District Court Judge Barry Ted Moskowitz (Southern District of California) denied Defendants' motion for an award of attorney's fees after the Defendants obtained a dismissal of plaintiff's Second Amended Complaint.  Swearingen v. Haas Automation, Inc., 2010 WL 1495204 (S.D.Cal. Apr 14, 2010).  The Court held that changes to Penal Code section 502 removed a bilateral fee provision and a claim sounding in tort was outside the attorney fee provision of a lease agreement between the parties.

Daily Journal article on right to discover witness identities in class actions

The April 21, 2010 edition of the Daily Journal includes my article, entitled "Witnesses Cannot Hide," in the Perspective column. It explains that the right to discover putative class member identity in class actions is really the right to discover witness identity in general. Discovery of witnesses is a foundational element of civil discovery rights. The arguments about privacy notices are intended to distract from this core right. The article is posted below with permission of Daily Journal Corp. (2010).

If you have difficulty viewing the flash object, the direct link is here.  I thank the editorial staff of the Daily Journal for providing the posting permission.

in brief: Ninth Circuit joins others in holding that denial of certification does not destroy CAFA jurisdiction

In United Steel, Paper & Forestry, Rubber, Manufacturing, Energy, Allied Industrial & Service Workers International Union, AFL-CIO, CLC, et al. v. Shell Oil Company (9th Cir. Apr. 21, 2010) (say that three times fast), a putative class action alleging various wage & hour violations was removed to federal district court pursuant to 28 U.S.C. § 1332(d)(2) (CAFA).  Certification was eventually denied.  The district court concluded that it lacked jurisdiction and remanded the matter to state court.  On appeal, the Ninth Circuit joined the Seventh and Eleventh Circuits in holding that denial of class certification does not divest the federal district court of jurisdiction.  The Court recognized the general principles that jurisdiction is evaluated at the time it is invoked, and subsequent developments do not destroy jurisdiction if it was properly invoked originally.  All else equal, this decision should reduce the overall degree of hapiness experienced by district court judges.  Now they can't put an unsuccessful, removed class action out of its misery with a remand bullet to the head.  Thus, federal district courts will have the pleasure of overseeing more individual, state law-based actions.

Companion opinions involving billing practices by Sharp Healthcare (Durell and Hale) examine UCL standing

Sharp Healthcare is responsible for two of the three published decisions issued today that concern class action issues.  Hale v. Sharp Healthcare (April 19, 2010) and Durell v. Sharp Healthcare (April 19, 2010) both concern putative class actions.  Both involve billing practices by Sharp Healthcare related to its "regular" billing rate.  Both concern trial court orders sustaining demurrers to UCL causes of action.  And both pronounce new situations where "reliance" is required for UCL claims.  However, the outcomes in the two appeals differ by the width of, at most, a couple of sentences of allegations; one passes muster as a "reliance" allegations and one does not.

Both cases concern the basic theory that Sharp engaged in deceptive and unfair practices by billing uninsured patients its full standardized rates for services, when it substantially discounts those rates for patients covered by Medicare or private insurance.  Both cases questioned, in slightly different ways, what actually constitutes the "regular rates" charged to patients.

In the Durell opinion, the Court focused on the causation aspect of standing:

The court sustained the demurrer to the UCL cause of action without leave to amend on the ground Durell lacks standing to pursue the claim. The court found the SAC insufficiently alleges "injury in fact" and causation. (Bus. & Prof. Code, § 17204.) As to causation, the court explained the SAC fails to allege Durell was harmed "as a result of" Sharp's conduct. (Ibid.) For instance, the SAC does not allege he "relied on Sharp charging its 'usual and customary rates' in receiving treatment." We turn first to the causation issue, which we find dispositive.

Durell, at 12.  The Court found the absence of allegations of "reliance" to be the key defect in Durell's pleading: 

The SAC does not allege Durell relied on either Sharp's Web site representations or on the language in the Agreement for Services in going to Sharp Grossmont Hospital or in seeking or accepting services once he was transported there. Indeed, the SAC does not allege Durell ever visited Sharp's Web site or even that he ever read the Agreement for Services.

Durell, at 14.

Plaintiff Hale, on the other hand, alleged facts that satisfied the Court's examination of "injury in fact" and standing: 

Even though the SAC alleges Hale has paid only $500 of her $14,447.65 medical bill, it also alleges the Admission Agreement obligates her to pay Sharp the balance on her account. Thus, she faces at least an imminent invasion or injury to a legally protected interest. (See Troyk, supra, 171 Cal.App.4th at p. 1346.) The term "imminent" is defined as "ready to take place," "hanging threateningly over one's head," and "menacingly near." (Webster's 3d New Internat. Dict. (1993) p. 1130.) Certainly, this is not the type of action Proposition 64 was intended to squelch. Hale was a bona fide consumer of medical services.

Hale, at 11.  Though thin, the Court agreed that Hale did plead a form of "reliance" sufficient to withstand demurrer: 

We agree with Hale, however, that "to the extent [she] is bringing a fraud-based claim under the UCL, she has reasonably pled reliance." The SAC alleges Hale signed the Admission Agreement, and "at the time of signing the contract, she was expecting to be charged 'regular rates,' and certainly not the grossly excessive rates that she was subsequently billed." (Italics added.) This allegation appears in the breach of contract cause of action, but the UCL cause of action incorporates the allegations of all other causes of action. We must interpret the complaint reasonably, "reading it as a whole and its parts in their context." (Stearn v. County of San Bernardino (2009) 170 Cal.App.4th 434, 439.) As Hale notes, the "difference between 'expecting' to be charged regular rates and 'relying' on being charged regular rates is a distinction without a difference." We see no utility in requiring Hale to amend her complaint to exchange the term "expecting" for the term "relying."

Hale, at 14-15.  Lesson one from these cases is that small differences in pleading facts can make a big difference.

But discussing allegations was not the headline-worthy event in these two opinions.  The Court extended the concept of "reliance" discussed in Tobacco II's discussion of the UCL "fraudulent" prong to any "unlawful" prong claim asserting a legal violation that involves deception:

Construing the phrase "as a result of" in Business and Professions Code section 17204 in light of Proposition 64's intention to limit private enforcement actions under the UCL, we conclude the reasoning of Tobacco II applies equally to the "unlawful" prong of the UCL when, as here, the predicate unlawfulness is misrepresentation and deception. A consumer's burden of pleading causation in a UCL action should hinge on the nature of the alleged wrongdoing rather than the specific prong of the UCL the consumer invokes. This is a case in which the "concept of reliance" unequivocally applies (Tobacco II, supra, 46 Cal.4th at p. 325, fn. 17), and omitting an actual reliance requirement when the defendant's alleged misrepresentation has not deceived the plaintiff "would blunt Proposition 64's intended reforms." (Cattie v. Wal-Mart Stores, Inc. (S.D.Cal. 2007) 504 F.Supp.2d 939, 948.)

Durell, at 14.

With a new category of "reliance" pleading required for certain "unlawful" prong claims, the Court turned its high-powered, neutrino-powered conservative ray on the "unfair" prong of the UCL.  Durell's "unfair" prong claim also found no success.  After reviewing the post-Cel-Tech hairball, the Court applied its own prior precedent that defines a very strict test for "unfair" conduct:

Here, the court's order does not specifically address the "unfair" prong of the UCL. The SAC alleges Sharp's conduct violates public policy, and is "immoral, unethical, oppressive, and unscrupulous," a vague test of unfairness this court rejects. The SAC does not allege the conduct is tethered to any underlying constitutional, statutory or regulatory provision, or that it threatens an incipient violation of an antitrust law, or violates the policy or spirit of an antitrust law. In his briefing, Durell does not address Cel-Tech, supra, 20 Cal.4th 163, and its affect on the definition of "unfair" in consumer UCL cases, or this court's opinions in Scripps Clinic, supra, 108 Cal.App.4th 917, and Byars, supra, 109 Cal.App.4th 1134. We conclude the court properly granted the demurrer as to the claim under the "unfair" prong of the UCL.

Durell, at 19.

On the flip side, Hale's CLRA claim lives to fight another day, benefiting from the Court's "reliance" pleading analysis set forth in its discussion of Hale's UCL claim:

Again, however, to the extent Hale's CLRA claim is fraud-based, the SAC adequately alleges the reliance element. Thus, the court erred by sustaining the demurrer to the CLRA cause of action.

Hale, at 16.

I will look forward to reading The UCL Practitioner's assessment of these two opinions.

Geico's attempt to "pick off" class representative in UCL action is unsuccessful

Oh, the riches that come to those who wait.  After a fairly dry spell, California's Courts of Appeal bestow no fewer than three opinions about issues related to class actions and the Unfair Competition Law ("UCL").  The first up for commentary is Wallace v. Geico General Insurance Company (April 19, 2010).  In Wallace, the Court of Appeal (Fourth Appellate District, Division One) considered whether GEICO's offer of monetary compensation to Wallace after she filed her lawsuit caused her to lose standing as the representative plaintiff.  Concluding that she did not, the Court reversed the trial court's order striking class allegations.

Wallace filed a proposed class action complaint against GEICO. According to Wallace, her vehicle was damaged in an accident and required body work. She obtained an estimate from a repair shop of her choice and presented the estimate to GEICO. GEICO told her that it would not pay the full amount of the estimate because the hourly rate for labor charged by that business was above what GEICO considered to be the prevailing labor rate.

Meanwhile, following a consent order issued by the California Department of Insurance, GEICO was obligated to calculate reimbursements in an alternative fashion.  Two months after Wallace filed her lawsuit, GEICO sent a check for $387.56 to Wallace to cover the amount that Wallace paid out of pocket for the repair of her vehicle.  Based on the fact of that payment, the trial court ruled that Wallace lacked standing but gave Wallace time to locate an adequate class representative and allowed discovery for that purpose.  Less than two months later, GEICO moved to strike class allegations.  The trial court granted the motion on the ground that the class had no representative.

The Court of Appeal began its review by examining the "pick off" cases:

In the specific situation where a defendant in a class action has forced an involuntary settlement on the representative plaintiff after the lawsuit is filed, case law creates an exception to the requirement that a representative plaintiff continue to be a member of the proposed class. These cases, which are "sometimes referred to as 'pick off ' cases" (Watkins v. Wachovia Corp. (2009) 172 Cal.App.4th 1576, 1590), "arise when, prior to class certification, a defendant in a proposed class action gives the named plaintiff the entirety of the relief claimed by that individual. The defendant then attempts to obtain dismissal of the action, on the basis that the named plaintiff can no longer pursue a class action, as the named plaintiff is no longer a member of the class the plaintiff sought to represent. . . . [T]he defendant seeks to avoid exposure to the class action by 'picking off ' the named plaintiff, sometimes by picking off named plaintiffs serially." (Ibid., citing, among others, La Sala, supra, 5 Cal.3d 864.) In this situation, "the involuntary receipt of relief does not, of itself, prevent the class plaintiff from continuing as a class representative." (Watkins, at p. 1590; see also Larner v. Los Angeles Doctors Hospital Associates, LP (2008) 168 Cal.App.4th 1291, 1299 [case law "prevents a prospective defendant from avoiding a class action by 'picking off' prospective class-action plaintiffs one by one, settling each individual claim in an attempt to disqualify the named plaintiff as a class representative"]; Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th 528, 548 [" '[A] prospective defendant is not allowed to avert a class action by "picking off " prospective plaintiffs one-by-one. Thus, precertification payment of the named plaintiff 's claim does not automatically disqualify the named plaintiff as a class action representative.' "].) 

Slip op., at 11-12.  Having explained that the "pick off" attempt was improper, the Court then explained what the trial court should have done in that situation:

Instead of a reflexive dismissal of the representative plaintiff on the basis that he or she lacks standing as the trial court did here — the proper procedure in a pick off situation is for the trial court to consider whether "the named plaintiffs will continue fairly to represent the class" in light of the individual relief offered by the defendant. (La Sala, supra, 5 Cal.3d at p. 872.) As a practical matter, in most cases, that evaluation may be performed in the context of a ruling on a motion for class certification, where the trial court inquires into the existence of, among other things, "(1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class." (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326, italics added; see also Weiss, supra, 385 F.3d at p. 348 [allowing class certification motion to be filed after defendant attempted to pick off the representative plaintiff].)

Slip op., at 13.  Next, the Court explicitly held that the "pick off" cases apply to UCL actions, even after Proposition 64:

We agree with the parties that the pick off cases are persuasive here, regardless of the injury-in-fact requirement set forth in section 17204. As required by section 17204, Wallace "suffered injury in fact" and "lost money or property" as a result of the practices at issue in this lawsuit. (§ 17204.) Specifically, Wallace was injured by paying for the repair work to her vehicle that GEICO did not agree to cover. Thus, at the time Wallace filed suit she was a proper plaintiff under section 17204. We see no indication in the history of Proposition 64, as reviewed by our Supreme Court in Californians for Disability Rights, supra, 39 Cal.4th 223, 228, that the voters amended section 17204 with the intent of allowing defendants in class actions brought under section 17200 et seq. to defeat class status by forcing an involuntary settlement.

Slip op., at 15-16.  The Court went on to explain that Proposition 64 focused on "the filing of lawsuits by attorneys who did not have clients impacted by the defendant's conduct."  Slip op., at 16.  Thus, "[b]ecause the doctrine expressed in the pick off cases is an established part of class action procedure, there is no reason to believe that Proposition 64 was intended to alter that doctrine in the context of suits brought under section 17200 et seq."  Slip op., at 17, relying on In re Tobacco II Cases (2009) 46 Cal.4th 298, 318.

I still can't get over the fact that an insurance company wouldn't pay for the full cost of vehicle repair.  Inconceivable.

California Supreme Court activity for the week of April 12, 2010

The California Supreme Court held its (usually) weekly conference today.  Notable results include:

• A Petition for Review and Request for Depublication were both denied in Weinstat v. Dentsply International, Inc. (January 7, 2010), (reversed trial court order decertifying class after applying Tobacco II) - discussed on this blog here.  It appears from this denial that the California Supreme Court is in no rush to take up Tobacco II issues again.
• A Petition for Review was denied in Cellphone Termination Fee Cases, ___ Cal. App. 4th ___ (Dec. 31, 2009) (affirming final approval of class action settlement and attorneys' fees award)
• A Petition for Review was denied in Steroid Hormone Product Cases (January 21, 2010, as mod. Feb. 8, 2010) - discussed on this blog here and here.  This denial is more significant than the denial in Weinstat because of the very strong criticism of Cohen v. DIRECTV, Inc., 178 Cal. App. 4th 966 (2009).

Judge Patel offers interesting comments about the puzzle of PAGA

United States District Court Judge Marilyn Hall Patel (Northern District of California) offered some interesting comments, but no clear solutions, to the puzzle posed by litigation of PAGA claims as representative actions.  Ochoa-Hernandez v. Cjaders Foods, Inc.. (N.D. Cal. Apr. 2, 2010) 2010 WL 1340777.  In the course of denying plaintiff's motion to preclude the defendant from contacting current or former employees about the litigation, the Court said:

From a practical perspective, plaintiff's analogy between class actions and PAGA claims is also misplaced. While both fall within the general category of virtual representation, there are significant differences between the two. Unlike a class action seeking damages or injunctive relief for injured employees, the purpose of PAGA is to incentivize private parties to recover civil penalties for the government that otherwise may not have been assessed and collected by overburdened state enforcement agencies. Id. (“The act's declared purpose is to supplement enforcement actions by public agencies, which lack adequate resources to bring all such actions themselves.”). Unlike class actions, these civil penalties are not meant to compensate unnamed employees because the action is fundamentally a law enforcement action. Moreover, unlike the binding finality of a class action with respect to damages, the individual employee has less at stake in a PAGA representative action: if the employer defeats a PAGA claim, the nonparty employees, because they were not given notice of the action or afforded an opportunity to be heard, are not bound by the judgment as to remedies other than civil penalties. Id. at 987, 95 Cal.Rptr.3d 588, 209 P.3d 923. Thus, nonparty employees can bring an action against the employer based on identical facts so long as they do not seek civil penalties. Class members, however, would be bound by a judgment against the class, independent of the remedy later sought.

*5 Class actions litigated in federal court also contain numerous procedural protections that are not available in PAGA claims. Unnamed employees need not be given notice of the PAGA claim, nor do they have the ability to opt-out of the representative PAGA claim. There is no indication that the unnamed plaintiffs can contest a settlement, if any, reached between the parties. The court does not have to approve the named PAGA plaintiff, nor does the court inquire into the adequacy of counsel's ability to represent the unnamed employees. These procedural protections ensure the fidelity of the attorney-client arrangement in a class action. Their absence further militate against considering a PAGA claim akin to a certified class action.

Additionally, in order to bridge the gap between Arias and the creation of an attorney-client relationship, at least two inferential steps are required, and neither is present. First, Arias is silent on what procedures, if not class action procedures, are sufficient to perfect representative status in representative actions. While representative status may accrue once administrative requirements have been satisfied, Arias does not so hold and plaintiff cites no further authority. Second, assuming that representative status is perfected once administrative requirements are satisfied, Arias does not contemplate the practical issue of when, if at all, an attorney-client relationship arises between plaintiff's counsel and the current or former employees.

Slip op., at 4-5.  If it isn't obvious from this long excerpt, the argument up for discussion was whether an attorney-client relationship existed between the absent employees and the attorney for the named plaintiff.  While the Court's comments explain why a PAGA claim is different from a class action, the discussion is not intended to address the case management question posed by PAGA.  Nevertheless, the brief observations by this Court are of interest to practitioners in this area of law.

Conditionally certified FLSA class of United Auto Credit Corporation Supervisors classified as exempt

United States District Court Judge Ronald M. Whyte (Northern District of California) granted United Auto Credit Corporation's motion to decertify a class of California-based Supervisor (and related) employees after the class was conditionally certified under the FLSA.  Hernandez v. United Auto Credit Corporaiton (N.D. Cal. Apr. 2, 2010) 2010 WL 1337702.  In FLSA actions, many Courts employ a two-phase process for "certification" of FLSA classes, an approach used by the trial court here:

Under the two-step approach, the court first considers whether to certify a collective action and permit notice to be distributed to the putative class members. See Thiessen, 267 F.3d at 1102; Russell v. Wells Fargo & Co., 2008 WL 4104212, at *2-3 (N.D.Cal. Sept.3, 2008). At this first stage, the standard for certification is fairly easy to satisfy. Courts have required only “substantial allegations, supported by declarations or discovery, that the putative class members were together the victims of a single decision, policy, or plan.” Russell, 2008 WL 4104212, at *2.

At the second stage, after discovery has been taken, the court may decertify the class if it concludes that the class members are not similarly situated. Id. at *3. The court can consider a number of factors in deciding whether an action should ultimately proceed collectively, including: (1) the disparate factual and employment settings of the individual plaintiffs; (2) the various defenses available to the defendant and whether they appear to be individual to each plaintiff; (3) fairness and procedural considerations; and (4) whether plaintiffs made the required filings before filing suit. Thiessen, 267 F.3d at 1103. However, a requirement that the class members be identical would be inconsistent with the intent of FLSA's provision that a case can proceed as a collective action. Pendlebury v. Starbucks Coffee Co., 518 F.Supp.2d 1345, 1361 (S.D.Fla.2007).

Slip op., at 2.  The motion filed by the defendant in this case concerned the more rigorous showing required in the second stage.  (Side Note:  The Ninth Circuit has not yet explicitly held that it concurs with the two-stage approach, but District Courts have been employing that approach in the Ninth Circuit for many years without opposition.)

In the course of briefing, the plaintiffs apparently advanced the novel argument that the supervision requirement included in the executive exemption test created a ratio requirement where an employer had to show that there were at least two non-exempt employees for every executive:

Plaintiffs' argument overstates the requirement of the pertinent FSLA regulation. Plaintiffs are correct that in order to qualify for the executive exemption, an employee must “customarily and regularly direct[ ] the work of two or more other employees.” 29 C .F.R. § 541.100(a)(3). The language of the regulation, however, does not require a strict mathematical ratio between an “employee employed in a bona fide executive capacity” and “other employees.” All the regulation requires is that an employee customarily or regularly direct the work of two or more other employees. The other employees whose work the executive directs may or may not themselves be executives. Thus, the FLSA does not create a “ratio requirement.” Whether the present conditional class should be decertified, then, depends on the individualized assessment of whether the class members are “similarly situated.” The court now turns to that inquiry.

Slip op., at 3.  No dice.  Turning to the merits of the motion by defendant, the Court, as did the District Court in Weigele v. Fedex (discussed here), placed little weight on the uniform classification of employees by a central office:  "[T]he recent decision of In re Wells Fargo Homes Mortg. Overtime Litig., 571 F.3d 953 (9th Cir.2009), which involved certification under Federal Rule of Civil Procedure 23(b)(3), cautions against placing too much weight on an internal policy of classifying all members of a particular class of employees as exempt."  Slip op., at 5.  More importantly, however, the Court discussed the plaintiffs' inability to rebut substantial evidence showing great disparity in the job duties of different Supervisors.

Are there really that many large businesses out there that let their employees do whatever they want?

Certified class of fedex managers is subsequently decertified

United States District Court Judge Janis Sammartino (Southern District of California) granted FedEx's motion to decertify a class of California-based Dock Service Managers.  Weigele v. Fedex Ground Package System, Inc. (S.D. Cal. Apr. 5, 2010) 2010 WL 1337031.  Taking In re Wells Fargo Home Mortgage Overtime Pay Litig. (Wells Fargo II), 571 F.3d 953 (9th Cir. 2009) really seriously, the Court concluded that predominance was lacking.  Perhaps the Court took Wells Fargo II a bit too seriously: "The Court's second reason [for] its finding that common issues do not predominate is that with the substantially decreased importance of Defendant's common classification scheme, the common issues are a relatively minor portion of this litigation."  I don't think that Wells Fargo II said that a common classification scheme should be viewed with substantially decreased importance.  It said that a common classification scheme could not treated as the sole factor used in a certification analysis.  In any event, the Court's changed view was very clear:

[T]he Court is unclear how a jury will be able to sort out the issues placed before it. It appears that they will need to determine whether each testifying witness was or was not exempt and determine to what extent that witness was not provided with mandated overtime, meal, and rest breaks. They will then need to extrapolate from all of the testifying witnesses to the entire class. But it is unclear which the tools they will have to perform that extrapolation. At worst it appears that they would be left to guess. This is too amorphous to expect a reasonable and rational result from any jury.

Order, at 11.

As I said the other day, another misclassification theory, another class that doesn't make the cut.