Arguelles-Romero v. Superior Court explains rules in Gentry and Discover Bank

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If you were an arbitration agreement, this is your moment in the spotlight.  In Arguelles-Romero v. Superior Court (May 13, 2010), the Court of Appeal (Second Appellate District, Division Three) granted a petition for a writ of mandate after the trial court ordered the plaintiff to submit to individual arbitration.  The trial court also ruled that a class action waiver provision in the automobile financing contract was not unconscionable.  That finding by the trial court prompted the Court of Appeal to spend a good deal of time discussing the two different tests presented in the California Supreme Court cases of Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005) (Discover Bank) and Gentry v. Superior Court, 42 Cal. 4th 443 (2007) (Gentry).  The Court of Appeal held:

While we hold the trial court did not err in finding the class action waiver was not unconscionable, we also conclude that it should have also performed a discretionary analysis on whether a class action is a significantly more effective practical means of vindicating the unwaivable statutory rights at issue. We therefore grant the petition and remand with directions.

Slip op., at 2.  To provide some context, the Court stated the basic standard of review as follows:

“California law, like federal law, favors enforcement of valid arbitration agreements.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97 (Armendariz).) Under both federal and California law, arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the voiding of any contract. (Id. at p. 98 & fn. 4.) Unconscionability is a recognized contract defense which can defeat an arbitration agreement. (Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 1099.)

Slip op., at 12.

Cutting right to it, here is the first money quote:

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California Supreme Court activity for the week of May 10, 2010

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

  • A Petition for Review and depublication was denied in Jaimez v. DAIOHS USA, Inc., et al., 181 Cal. App. 4th 1286 (February 8, 2010), (detailed analysis of certification standard as applied to various wage & hour claims) discussed on this blog here.  This opinion has already influenced trial courts considering certification motions in the wage & hour context.

I don't see anything else in this week's conference summary that would be of interest here.  If I missed anything after my very quick scan, I will update this post.

Corporate officer can use attorney status to obtain relief from default class action judgment

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My condolences to my colleague, Greg Karasik.  After almost two years of attempting to elicit some form of meaningful response from the defendant in Gutierrez v. G & M Oil Company, Mr. Karasik obtained something you don't see every day, a default judgment in a class action.  Sadly, that judgment of about $4 million was set aside by the trial court after it concluded that Michael Gray, Vice President and General Counsel for the defendant, could use his own neglect to set aside the default that he, in his capacity as corporate officer, knew about all along.  The Court of Appeal (Fourth Appellate District, Division Three) in Gutierrez v. G & M Oil Company (May 7, 2010) affirmed the decision.

The Court observed that the issue was one of first impression:

Today we face the related question of whether in-house attorneys come within the mandatory relief from default or dismissal provision of section 473 of the Code of Civil Procedure. The question is, as far as we are aware, one of first impression in California. However, based on what the Supreme Court said in General Dynamics and in PLCM about the role of in-house attorneys, there can be no doubt about the answer: yes.

There is a wrinkle in this case, however, that requires a little more explication. Here, the in-house attorney who negligently allowed a $4 million default judgment to be taken against his company and his employer, a gas station chain, had the title of “Vice President and General Counsel.” Thus, he was a corporate officer as well as being an in-house attorney. Should that make a difference?

Slip op., at 2.  Concluding that the issue was one of statutory construction, the Court found that "there is nothing in section 473 which suggests that in-house attorneys who are also officers of a corporation are somehow exempt from the operation of the mandatory provisions of the statute."  Slip op., at 3.

The opinion examines at some length the operation of section 473 as it pertains to in-house counsel.  I can credit the Court for a well-reasoned and well-written analysis (aside: though I regularly disagree with Division Three, there are some very good writers in that Division of the Fourth Appellate District).  Still, it is a disappointing outcome where an attorney that is also an officer of a company can avoid imputation of knowledge to the company by claiming that he was wearing his attorney hat.

Minor blog formatting adjustments and new tools...

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SquareSpace rolled out some new features, one of which you will find in the right sidebar.  SquareSpace now stores Twitter posts on its own servers to speed load times.  The widget is also interactive, allowing you to navigate back through older Twitter posts.

While I was at it, I slightly expanded the width of the content area and then increased the font size for posts to improve readability.  If these sorts of things matter to you, feel free to leave a comment.

District Court certifies a class of Kelly Services employees alleging unpaid wages

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United States District Court Judge Claudia Wilken (Northern District of California) granted plaintiff's motion to certify a class of California-based staffing agency employees that spent time and incurred expenses for interviews with the staffing agency's clients.  Sullivan v. Kelly Services, Inc., 2010 WL 1729174 (N.D. Cal. Apr. 27, 2010).  After prior cross-motions for summary judgment, the Court held that Plaintiff Catherine Sullivan should be compensated for the time she spent in her interviews, but not for her time preparing for and traveling to the interviews or her commuting expenses.  While the Court gives attention to the defendant's arguments, it looks as though this certification was not a close call after the summary judgment rulings.

Stolt-Nielsen S. A. et al. v. AnimalFeeds International Corp.: Less than meets the eye

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The interplay between class actions and arbitration provisions was a controversial topic for many years in California until Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005) and Gentry v. Superior Court, 42 Cal. 4th 443 (2007) eliminated a substantial amount of uncertainty about class arbitration waivers in the areas of consumer contracts and employment arbitration agreements. These decisions, and other applying their principles, declared that, in California, many class action waivers in the consumer and employment law settings are unconscionable under California law. Gentry, at 779. “[A]lthough ‘[c]lass action and arbitration waivers are not, in the abstract, exculpatory clauses’ (Discover Bank, supra, 36 Cal.4th at p. 161, 30 Cal.Rptr.3d 76, 113 P.3d 1100), such a waiver can be exculpatory in practical terms because it can make it very difficult for those injured by unlawful conduct to pursue a legal remedy.” Gentry, at 783.

On April 27, 2010, the United States Supreme Court issued its Opinion in Stolt-Nielsen S. A. et al. v. AnimalFeeds International Corp. Initial commentary quickly concluded that Stolt-Nielsen will eliminate many consumer and employment law class actions. Whether that is accurate at the macro level won’t be known for years. However, the question raised by Stolt-Nielsen, for the perspective of California litigation, is whether Stolt-Nielsen altered controlling California law negatively, or, perhaps unexpectedly, added strength to California’s approach to arbitration provisions.

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District Court certifies a class of Penske Logistics delivery drivers and installers

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United States District Court Judge Janis Sammartino (Southern District of California) granted plaintiff's motion to certify a class of California-based logistics employees that drove delivery trucks or rode along as installation helpers.  Dilts v. Penske Logsiticcs, LLC (S.D. Cal. Apr. 26, 2010) 2010 WL 1709807.  The analysis was long but not unusual in the wage & hour setting.  The Court offered these comments about its decision to certify the meal period subclass:

The first issue to deal with is the employer's obligation with respect to meal periods under California law. The legal uncertainty about this issue has been a recent source of heartburn for courts. Although it is presently before the California Supreme Court in Brinker Restaurant v. Superior Court, until that decision has issued this Court must proceed as best it can.

As such, the Court finds that California meal break law requires an employer to affirmatively act to make a meal period available where the employee are relieved of all duty. See Cicairos v. Summit Logistics, Inc., 133 Cal.App.4th 949, 35 Cal.Rptr.3d 243, 252-53 (Cal.Ct.App.2006) (“[T]he defendant's obligation to provide the plaintiffs with an adequate meal period is not satisfied by assuming that the meal periods were taken, because employers have ‘an affirmative obligation to ensure that workers are actually relieved of all duty.’ ”); Brown v. Fed. Express Corp., 249 F.R.D. 580, 585 (C.D.Cal.2008) (“It is an employer's obligation to ensure that its employees are free from its control for thirty minutes.”). An illusory meal period, where the employer effectively prevents an employee from having an uninterrupted meal period, does not satisfy this requirement. Cicairos, 35 Cal.Rptr.3d at 252-53; Brown, 249 F.R.D. at 585. However, the employee is not required to use the provided meal period.

Slip op., at 11.

Will the Ninth Circuit affirm nationwide certification of state law claims?

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In the matter of Mazza, et al v. American Honda Motor Company, the Ninth Circuit will hear oral argument on June 9, 2010, at 9:30 a.m., in Pasadena, California.  Defendant's Rule 23 Petition was granted after the District Court certified UCL and CLRA claims on a nationwide basis.  The District Court's extensive discussion of choice-of-law analysis may be the primary focus.  The outcome may prove to be significant for the many Toyota acceleration cases assigned to Judge Selna in the same Central District from which Mazza was issued.  I would like to attend and provide a detailed account of the argument, but my schedule may not permit it.  If I cannot attend, I will try to arrange for someone to report in my absence.

Coming soon: Posts on Dukes v. Wal-Mart and Stolt-Nielsen S.A. v. AnimalFeeds International Corp

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The blockbusters are coming fast and furious.  Too fast, in fact, to have comprehensive, same-day posts up.  Longer posts on Dukes v. Wal-Mart and Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (Supreme Court ruling on class arbitration issue) will be up in the next few days.