a California-centric collection of comments and resources about complex litigation and class action practice
United States District Court Judge James Ware, of the Northern District of California, certified certain claims in a class action lawsuit alleging that the 5-year iPhone exclusivity arrangement between Apple and AT&T created a monopoly of sorts. WindowsITPro has additional, interesting comments here. I feel like such a victim. Luckily, they didn't get my money for the iPhone 4 yet, which apparently has a bit of an issue with its exposed antennas.
In Hanover Shoe v. United Shoe Mach., 392 U.S. 481 (1968) (Hanover Shoe), the United States Supreme Court held that antitrust violators generally could not assert as a defense that any illegal overcharges had been passed on by a suing direct purchaser to indirect purchasers. In Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) (Illinois Brick), the United States Supreme Court concluded that only direct purchasers, not indirect purchasers, could sue for price fixing. In 1978, in direct response to Illinois Brick, the California Legislature amended the state's Cartwright Act (Bus. & Prof. Code, § 16700 et seq.) to provide that, contrary to federal law, indirect purchasers as well as direct purchasers could sue under California law (§ 16750, subd. (a)). However, until July 12, 2010, California had not considered the other question: whether a pass-on defense was available.
In Clayworth v. Pfizer, Inc. (July 12, 2010), the California Supreme Court considered that unresolved question, holding that "under the Cartwright Act, as under federal law, generally no pass-on defense is permitted." Slip op., at 2. The Supreme Court also examined whether, under the UCL, the pharmacies alleging price fixing could state a claim. The trial court and Court of Appeal concluded that the pharmacies lacked standing and were ineligible for relief. The Supreme Court reversed:
While Manufacturers argue that ultimately Pharmacies suffered no compensable loss because they were able to mitigate fully any injury by passing on the overcharges, this argument conflates the issue of standing with the issue of the remedies to which a party may be entitled. That a party may ultimately be unable to prove a right to damages (or, here, restitution) does not demonstrate that it lacks standing to argue for its entitlement to them. (See Southern Pac. Co. v. Darnell-Taenzer Co., supra, 245 U.S. at p. 534 [“The plaintiffs suffered losses . . . when they [over]paid. Their claim accrued at once in the theory of the law and it does not inquire into later events.”]; Adams v. Mills, supra, 286 U.S. at p. 407 [“In contemplation of law the claim for damages arose at the time the extra charge was paid,” notwithstanding any subsequent reimbursement].) The doctrine of mitigation, where it applies, is a limitation on liability for damages, not a basis for extinguishing standing.
Slip op., at 39. Turning to the separate issue of remedies, the Supreme Court said:
The Court of Appeal affirmed summary judgment on a second, overlapping ground: Pharmacies were not entitled to any remedy. Pharmacies' complaint seeks two forms of relief: restitution and an injunction. We need consider only the latter. If a party has standing under section 17204 (as Pharmacies do here), it may seek injunctive relief under section 17203. (See § 17204 [authorizing without limitation “[a]ctions for relief pursuant to this chapter” to be brought by parties who satisfy the provision‟s standing requirement].) Manufacturers‟ papers identify no obstacle that would preclude Pharmacies from obtaining injunctive relief if they establish Manufacturers were engaged in an unfair business practice.
Slip op., at 40. "Section 17203 makes injunctive relief 'the primary form of relief available under the UCL,' while restitution is merely 'ancillary.' (In re Tobacco II Cases (2009) 46 Cal.4th 298, 319.)" Slip op., at 41.
While the discussion about the pass-on defense issue is much longer, it leads inevitably to the unanimous conclusion that California would apply the federal approach of denying a pass-on defense. Thus, unless you practice in that specific area, the discussion would not be interesting, despite the thoroughness. There are also some brief comments about the respective burdens on summary judgment. The decision is worth scanning for just the UCL and summary judgment remarks.
Since Kullar v. Foot Locker Retail, Inc., 168 Cal. App. 4th 116 (2008) (Kullar) and Clark v. American Residential Services LLC, 175 Cal. App. 4th 785 (2009) (Clark) were decided, trial courts and settling parties in class actions have been looking over their shoulder at every settlement, concerned about the amount of information necessary to meet the Kullar/Clark standard for adequate settlement review. For example, the Los Angeles Superior Court appears to be utilizing some form of checklist derived, in part, from Kullar to analyze proposed class action settlements. Fortunately, in Munoz v. BCI Coca-Cola Bottling Company of Los Angeles (ord. pub. July 2, 2010) (Greenwell, objector), the Court of Appeal (Second Appellate District, Division Eight) explains that much of the angst over Kullar/Clark is overblown because their requirements have been overstated and/or misconstrued.
Plaintiffs in Munoz filed a class action lawsuit against BCI Coca-Cola Bottling Company of Los Angeles (BCI), alleging unpaid overtime wages, missed meal and rest period wages, and other Labor Code violations and unfair business practices. The proposed class consisted of production supervisors and merchandising supervisors who were allegedly misclassified as exempt. After mediation, the parties agreed to settle the matter for $1.1 million. Notice of the proposed settlement elicited one objection. Two of the 188 class members opted out. The average net payment to each class member would be about $4,300. The trial court found the settlement fair and reasonable. The objector, Greenwell, appealed, arguing that the trial court abused its discretion in approving the settlement, principally because the parties did not provide the court with the information necessary to make a finding that the settlement was reasonable and fair.
The Court of Appeal summarized the obligation of a trial court evaluating a class action settlement:
Some cases state that a presumption of fairness exists “where: (1) the settlement is reached through arm's-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small.” (Dunk, supra, 48 Cal.App.4th at p. 1802.) Kullar emphasizes that this is only an initial presumption; a trial court's approval of a class action settlement will be vacated if the court “is not provided with basic information about the nature and magnitude of the claims in question and the basis for concluding that the consideration being paid for the release of those claims represents a reasonable compromise.” (Kullar, supra, 168 Cal.App.4th at pp. 130, 133.) In short, the trial court may not determine the adequacy of a class action settlement “without independently satisfying itself that the consideration being received for the release of the class members' claims is reasonable in light of the strengths and weaknesses of the claims and the risks of the particular litigation.” (Id. at p. 129.)
Slip op., at 10. However, after explaining that the objector complained "that the record before the trial court contained no evidence of 'the potential value of the claims,'" the Court went on to explain that Kullar is misunderstood:
Greenwell misunderstands Kullar, apparently interpreting it to require the record in all cases to contain evidence in the form of an explicit statement of the maximum amount the plaintiff class could recover if it prevailed on all its claims--a number which appears nowhere in the record of this case. But Kullar does not, as Greenwell claims, require any such explicit statement of value; it requires a record which allows “an understanding of the amount that is in controversy and the realistic range of outcomes of the litigation.”
Slip op., at 11. Continuing, the Court noted, "Indeed, the standard list of factors a trial court should consider in determining whether a settlement is fair and reasonable does not expressly include specification of the maximum amount of recoverable damages (see Kullar, supra, 168 Cal.App.4th at p. 128), and Kullar is clear that the most important factor '"'is the strength of the case for plaintiffs on the merits, balanced against the amount offered in settlement.'"' (Id. at p. 130.)" Slip op., at 11, n. 6.
The Court itemized the information available to the trial court in the case before it:
The information before the court included the size of the class (188) and the payroll data on all class members during the class period (including total amounts of salaries paid during the class period). It also included declarations from 30 class members (15 percent of the class) indicating the number of hours worked per week and per day (and the significant differences in those numbers): e.g., 70 hours per week, 48 hours per week, 60 hours per week, 42-44 hours per week, 55 hours per week, “no more than 50 hours per week,” 45 hours per week in winter and 50-60 hours per week at other times of the year, eight to nine hours per day, 45 hours per week, and so on. These declarations also showed significant variations....
Slip op., at 11. In other words, the trial court had more than enough information to evaluate the "strength of the case" and compare that to the amount offered in settlement.
As an additional measure of assistance, the Court highlighted the facts from Kullar and Clark that undermined those settlements:
As a final observation on this topic, we note that the evidentiary records in Kullar and Clark, upon which Greenwell relies so heavily, are significantly different from this case. In Kullar (which did not involve the misclassification of exempt employees), there was no discovery at all on meal period claims that were added in an amended complaint and were the focal point of the objections to the settlement. (Kullar, supra, 168 Cal.App.4th at pp. 121-122.) While Kullar class counsel argued that the relevant information had been exchanged informally and during mediation (id. at p. 126), nothing was presented to the court--no discovery, no declarations, no time records, no payroll data, nothing (id. at pp. 128-129, 132)--to allow the court to evaluate the claim. And in Clark, the problem was that the trial court was not given sufficient information on a core legal issue affecting the strength of the plaintiffs' case on the merits, and therefore could not assess the reasonableness of the settlement terms. (Clark, supra, 175 Cal.App.4th at p. 798.) The record in this case contains neither of the flaws that doomed the Kullar and Clark settlements.
Slip op, at 13.
Munoz v. BCI clearly holds that there is no obligation on parties seeking approval of a class action settlement to state a specific sum that would represent the maximum possible recovery if the class prevailed on all theories. Rather, the Court must have information that permits it to evaluate the strength of the claims compared to the amount offered in settlement. This showing ought to be satisfied by a discussion of the specific risk factors associated with the various theories, along with data about such things as the size of the class. In other words, if a trial court can roughly approximate the magnitude of the claims and the likelihood of recovery, it can fashion the necessary metric.
In addressing other arguments, the Court rejected a challenge to the $5,000 incentive awards approved by the trial court.
United States District Court Judge Stephen V. Wilson refused to award a percentage-of-fund fee award, choosing, instead, to apply a lodestar approach with no multiplier and refused to award an incentive payment to the plaintiffs, as part of an Order granting in part and denying in part a final award of attorneys' fees, costs and incentive payments. Anderson, et al. v. Nextel Retail Stores LLC (June 30, 2010).
The opinion includes an incredibly thorough analysis of hourly rates and fee billing entries (it is helpful reading in that regard), among other things, as part of the Court's decision to examine the lodestar and then cross-check against the requested 25% of the available fund in the wage & hour class action settlement. After determining that the lodestar would need to multiplied by all of 1.64 to arrive at the percentage-of-fund request at the 25% level, the Court offers this surprising analysis:
In the present case, the Court is unable to conclude that counsel is entitled to a multiplier over the lodestar amount. The lodestar amounts provide perfectly adequate compensation, see generally Perdue, 130 S.Ct. 1662, 1674-75, and none of the relevant considerations justify an upward increase in the amount of compensation. For example, the considerations raised in Vizcaino – the complexity of the case, the duration of the litigation, the risk of nonpayment – are inapplicable. This case was little more than a run-of-the-mill wage-and-hour dispute.
Slip op., at 17. I find this statement astounding. No wage & hour class action is "run-of-the-mill" in federal court. A survey of outcomes in the last few years would, I submit, confirm that.
If a trend favoring lodestar awards over percentage of the fund awards develops, plaintiffs' firms will face an asymmetrical result when compared to firms paid on an hourly basis. The contingent award (the percentage of the fund in class actions) offsets to some degree the fact that a good percentage of cases generate no recovery to speak of. This mitigation of risk allows plaintiffs with no resources to challenge unlawful practices causing comparatively smaller amounts of harm on a per capita basis. An increase in lodestar awards won't cause children to starve, but it will likely result in decisions to decline difficult cases and induce some unscrupulous members of the bar to inflate billing entries. Courts will then view all fee bills with even more skepticism, further punishing the ethical billers in the plaintiffs' bar.
"See, with those plaintiffs' lawyers, it's all about the fees." Come closer so I can do that Moe thing to your eyes. "Why I oughta..." You don't like working for free any more than I do or anyone else does. If I won the lottery, I'd be willing to work for a trifling. Then it would be just about the ability to help others and the intellectual reward. But I digress. Taking percentage of the fund awards off the table means that a good portion of the work done by plaintiffs' attorneys in class actions will be done for free. I hear that at some defense firms, partners don't get paid their shares unless they collect their clients' accounts receivable. Who's all about the fees again?
In another fairly uncommon move, the Court declined to award any incentive payment to the plaintiffs that obtained the recovery for the class. So much for rewarding the plaintiffs that accept the stigma associated with suing their employer.
You can view the embedded opinion in the acrobat.com flash viewer below:
If the viewer isn't working for you (say, if you are viewing this on an iPad or iPhone), you can download the opinion here. Thanks to the (other) reader that alerted me to this decision.
The plaintiff sued to force a land owner to install a van-accessible handicap parking space. The landowner installed the space. Plaintiff filed a dismissal with prejudice. Plaintiff then sought his attorney fees under a catalyst theory because his lawsuit motivated corrective action that inures to the public benefit. The trial court denied the motion for fees. The Court of Appeal, in Mundy v. Neal (June 30, 2010) (Second Appellate District, Division Two) affirmed, holding that the plaintiff did not attempt to settle prior to filing suit and was not the prevailing party under Graham v. DaimlerChrysler Corp., 34 Cal. 4th 553, 577 (2004). Simple as that.
United States District Court Judge Christina A. Snyder granted a motion to remand an action removed pursuant to the Class Action Fairness Act ("CAFA"). Hollinghurst v. Lacoste USA (C.D.Cal. June 28, 2010). That part isn't so interesting. The interesting part is that the Court found that the face of the initial complaint had enough information from which the defendant could have extrapolated an amount in controversy over $5 million. The defendant argued that it was not until discovery responses were received that the calculation was possible. The Court disagreed:
The only new information from plaintiff’s supplemental responses that defendant cites to in its notice was the frequency by which plaintiff was denied her meal breaks and rest periods (two to fifteen meal and/or rest breaks per week) and the amount of time plaintiff was made to work off-the-clock (twenty minutes to one hour per week). The frequency by which plaintiff was denied her meal breaks and rest periods was not a critical discovery because plaintiff has always sought unpaid wages and penalties based on the claim that all class members “were also prevented from taking all daily meal periods . . . and also prevented from taking any and all rest breaks.” See Compl. ¶ 5. Therefore, from the outset defendant could have calculated the amount in controversy under the assumption that all rest breaks and meal periods had been denied to class members.
Slip op., at 8, fn. 5. The Court briefly noted a second ground supporting remand:
Additionally, the Court finds that defendant waived its right to remove when it demurred to dismiss the class allegations, a substantial affirmative action in which defendant submitted issues for determination in state court. By doing so, defendant indicated its willingness to litigate in state court before it filed its notice of removal to federal court.
Slip op., at 9. It's a one-two punch: a strict standard applied to the timing of first awareness of the right to remove under CAFA and a definitive finding that a demurrer to class action allegations is a submission to the jurisdiction of the superior court.
You can view the embedded opinion in the acrobat.com flash viewer below:
If the viewer isn't working for you (say, if you are viewing this on an iPad or iPhone), you can download the opinion here. Thanks to the reader that alerted me to this decision.
After weeks in the doldrums, a California Court of Appeal finally got around to issuing an opinion related to class actions. Unfortunately, it isn't very exciting. In Faulkinbury v. Boyd & Associates, Inc. (June 24, 2010), the Court of Appeal (Fourth Appellate District, Division Three) reviewed an order denying class certification of meal period, rest break and overtime (regular rate calculation) claims.
The Court confirmed what is, by now, a fairly well-established set of standards for appellate review of certification rulings:
Trial courts have discretion in granting or denying motions for class certification because they are well situated to evaluate the efficiencies and practicalities of permitting a class action. (Sav-On, supra, 34 Cal.4th at p. 326.) Despite this grant of discretion, appellate review of orders denying class certification differs from ordinary appellate review. Under ordinary appellate review, we do not address the trial court's reasoning and consider only whether the result was correct. (Kaldenbach v. Mutual of Omaha Life Ins. Co. (2009) 178 Cal.App.4th 830, 843.) But when denying class certification, the trial court must state its reasons, and we must review those reasons for correctness. (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435-436 (Linder).) We may only consider the reasons stated by the trial court and must ignore any unexpressed reason that might support the ruling. (Id.; see also Bufil v. Dollar Financial Group, Inc. (2008) 162 Cal.App.4th 1193, 1204-1205 (Bufil).)
Slip op., at 7. The majority of the opinion simply confirms that, in the face of evidence apparently in conflict, the determination of which evidence to credit is left to the trial court.
The Court did reverse the trial court as to the overtime claim. The Court found that the issue of whether certain payments should be included in the calculation of the regular rate is an issue well-suited to class-wide determination.
Get back to work.
After installing iOS4 on my iPhone 3GS and using it for a day, I can confirm that it is snappy and seems stable. The new email format and folder icon features are immediately useful.
But before installing, I suggest that you do the following:
Today, the United States Supreme Court added to its recent spate of arbitration-related decisions. In Rent-A-Center, West, Inc. v. Jackson (June 21, 2010), the Supreme Court considered one aspect of when a court determines arbitration agreement enforceability and when that determination must be left to the arbitrator. In short, the Court held that, under the FAA, where an agreement to arbitrate includes anagreement that the arbitrator will determine the enforceability of that agreement, if a party specifically challenges the enforceability of the specific agreement to give the arbitrator the power to determine enforceability, the trial court considers that specific challenge. But if a party challenges the enforceability of the agreement as a whole, the challenge is reserved for the arbitrator because of the delegation of that power to the arbitrator.
The dissent is rightly perplexed by this strange outcome:
In other words, when a party raises a good-faith validity challenge to the arbitration agreement itself, that issue must be resolved before a court can say that he clearly and unmistakably intended to arbitrate that very validity question. This case well illustrates the point: If respondent’s unconscionability claim is correct—i.e., if the terms of the agreement are so one-sided and the process of its making so unfair—it would contravene the existence of clear and unmistakable assent to arbitrate the very question petitioner now seeks to arbitrate. Accordingly, it is necessary for the court to resolve the merits of respondent’s unconscionability claim in order to decide whether the parties have a valid arbitration agreement under §2. Otherwise, that section’s preservation of revocation issues for the Court would be meaningless.
Dissent, at 7. In light of the current Court's view on arbitration agreements, it will likely take legislation to protect consumers and employees from adhesive arbitration agreements.
The Ninth Circuit's decision in Laster v. AT & T Mobility LLC, 584 F.3d 849 (9th Cir.2009) will be reviewed by the Supreme Court in AT & T Mobility LLC v. Concepcion, --- S.Ct. ----, 2010 WL 303962, 78 USLW 3454, 78 USLW 3677, 78 USLW 3687 (U.S. May 24, 2010) (NO. 09-893). The issue presented in Concepcion has been framed by some as calling for a determination of whether the Federal Arbitration Act (“FAA”) preempts the State of California from conditioning the enforcement of an arbitration agreement on the availability of class-wide arbitration. Others have more aggressively described the issue more broadly. In either event, the question of concern to litigants now is the effect, if any, of that decision to grant review in other cases. In at least one case, there was no evident effect.
United States District Court Judge Jeremy Fogel (Northern District of California) denied a motion to stay that was predicated upon the Supreme Court's decision to grant certiorari in Concepcion. Kaltwasser v. Cingular Wireless LLC, 2010 WL 2348642 (June 8, 2010) (unpublished).
The Complex Litigator reports on developments in related areas of class action and complex litigation. It is a resource for legal professionals to use as a tool for examining different viewpoints related to changing legal precedent. H. Scott Leviant is the editor-in-chief and primary author of The Complex Litigator.
