Kirby v. Immoos Fire Protection, Inc. examines fee shifting triggers in wage & hour litigation

After a very brief trip to the Windy City (aka, the Humid City in Need of a Breeze and my apologies to JB for not visiting), I bring you the first of yesterday's opinions related to class actions.  In Kirby v. Immoos Fire Protection, Inc. (July 27, 2010), the Court of Appeal (Third Appellate District) examined an award of attorney fees to the defendant following a dismissal by the plaintiff when certification was denied.  Fees were awarded by the trial court on causes of action for UCL violations (first cause of action), rest period violations (sixth cause of action) and section 2810 violation for entering into contracts while knowing them to be insufficient to pay all wages owed (seventh cause of action).

The plaintiff argued that bilateral attorney fee awards are precluded in any "action" where a claim arising under section 1194 is included as one of the claims.  The Court explained why it rejected that construction:

Although Kirby advances a plausible reading of the legislative history, we reject it in favor of construing the section 1194 exception as applying only to causes of action for unpaid minimum and overtime wages. (Accord Earley, supra, 79 Cal.App.4th at p. 1430.) To adopt Kirby‟s statutory construction would allow the exception of section 1194's unilateral fee shifting to eviscerate the rule of section 218.5.

We harmonize sections 218.5 and 1194 by holding that section 218.5 applies to causes of action alleging nonpayment of wages, fringe benefits, or contributions to health, welfare and pension funds. If, in the same case, a plaintiff adds a cause of action for nonpayment of minimum wages or overtime, a defendant cannot recover attorney's fees for work in defending against the minimum wage or overtime claims. Nonetheless, the addition of a claim for unpaid minimum wages or overtime does not preclude recovery by a prevailing defendant for a cause of action unrelated to the minimum wage or overtime claim so long as a statute or contract provides for fee shifting in favor of the defendant.

Slip op., at 16-17.

More interesting is the Court's conclusion that section 218.5 applies to rest break claims:

Kirby's sixth cause of action alleged that Kirby was “owed an additional one hour of wages per day per missed rest period.”  As a claim seeking additional wages, the sixth cause of action was subject to section 218.5's provision of attorney's fees for “any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions . . . .” (Italics added.)

Slip op., at 19 (footnotes omitted).  The Court explained why the plaintiff was incorrect that section 1194 controlled the fee issue:

Kirby's claim was not based on a failure to pay the statutory minimum wage for hours he actually worked. Instead, the cause of action was one for failure to provide rest periods. If his claim had succeeded, Kirby would have been entitled to an additional wage “at the employee's rate of compensation.” (See fn. 25, ante.) The “employee's rate of compensation” refers to the contractual rate of compensation, not the legal minimum wage. Consequently, the claim is not one premised on failure to pay the minimum wage.

Slip op., at 19.  The Court relied, in part, on Murphy, which, oddly enough, seems to provide the answer to virtually all wage & hour mysteries.  It wouldn't be surprising to see an increase in minimum wage claims and a concurrent reduction in contractual wage payment claims.

The Court had less difficulty analyzing the arguments related to the UCL claim and the section 2810 claim for underfunded contracts.  Regarding the UCL, the Court observed that it was a settled issue that attorney's fees were not specified as available under the UCL.  As for the last claim, the Court found that the fee provision in the statute was a unilateral fee-shifting statute.

Efforts to prune Labor Code section 203 are relegated to compost status in Baker v. American Horticulture Supply, Inc.

An ever astute reader has directed my attention to the fact that the Court of Appeal (Second Appellate District, Division Six) today issued a modification of its June 23, 2010 Opinion in Baker v. American Horticulture Supply, Inc. (June 23, 2010) as mod. (July 21, 2010).  The modification, which is focused entirely on the "willful" definition used in Labor Code section 203, appears to respond to contentions raised in a petition for rehearing.  The majority of the text of the modification is as follows:

The application here of the ordinary definition of "willful" is supported by the judicial construction of Labor Code section 203, subdivision (a), which provides in relevant part: "If an employer willfully fails to pay . . . any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days." (Italics added.) "The settled meaning of 'willful,' as used in section 203, is that an employer has intentionally failed or refused to perform an act which was required to be done. [Citations.] '[T]he employer's refusal to pay need not be based on a deliberate evil purpose to defraud workmen of wages which the employer knows to be due.' [Citations.]" (Amaral v. Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1201.)

Slip op. (mod.), at 1-2.

We reject respondent's contention in its petition for rehearing that "conduct violating the Act is willful only if the manufacturer, jobber or distributor knows of its obligations but intentionally declines to fulfill them." The knowledge requirement would be difficult to prove and would encourage manufacturers to remain ignorant of their obligations under the Act. This would frustrate the legislative intent to provide "unique protection" to independent wholesale sales representatives. (§ 1738.10.) But a manufacturer's failure to comply with the Act would not be willful if the manufacturer proved that its failure was "the result of a good faith and reasonable belief the facts imposing the statutory obligation were not present." (Kwan v. Mercedes-Benz of North America, Inc. (1994) 23 Cal.App.4th 174, 185.) For example, a failure to comply would not be willful if the manufacturer reasonably and in good faith believed that a person did not qualify as a "wholesale sales representative" within the meaning of the Act. This interpretation "will not vitiate the intended deterrent effect of the [treble damages provision]." (Ibid.)

Slip op. (mod.), at 2.

The courts, however, have recognized that a finding of "willfulness" within the meaning of Labor Code section 203 may be negated by a reasonable, good faith belief in a legal defense to a wage claim. (Amaral v. Cintas Corp. No. 2, supra, 163 Cal.App.4th at p. 1201; Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314, 325; Barnhill v. Robert Saunders & Co. (1981) 125 Cal.App.3d 1, 8-9; see also Cal. Code Regs., tit. 8, § 13520.) Accordingly, we conclude that a finding of a willful failure "to pay commissions as provided in the written contract" (§ 1738.15) may be negated by a reasonable, good faith belief in a legal defense to a commissions claim.

Slip op. (mod.), at 2, n. 7.  The key here is the Court's rejection of a standard that would allow willfulness only when an employer "knows of its obligations but intentionally declines to fulfill them."  An employee does not have to show that the employer had any awareness of is actual obligations; it is enough to show that the employer acted but should have acted otherwise.

Courts draw lines on scope of statutory rights protected by Labor Code section 226

On one end of the Labor Code section 226 spectrum are the defendants who assert that the "injury" requirement of section 226 is met only when an employee suffers a broken leg as a result of the defective wage statement (this would occur when the statement is printed on stone and delivered by dropping it from a substantial height above the employee, whose legs are restrained in a horizontal position to ensure impact).  On the other end of the spectrum are the few optimistic plaintiff-side firms that argue that any violation of Labor Code section 226(a) requirements is an infringement of a legal right sufficient to entitle the employee to, at minimum, statutory penalty damages.

Jaimez v. DAIOHS USA, Inc., et al., 181 Cal. App. 4th 1286 (February 8, 2010), which is the current standard in California, splits the difference at the very minimal injury level.  Specifically, Jaimez holds: "While there must be some injury in order to recover damages, a very modest showing will suffice."  Jaimez went on to state that '''this lawsuit, and the difficulty and expense [Jaimez has] encountered in attempting to reconstruct time and pay records,' may well be 'further evidence of the injury' he has suffered."  In other words, it takes something, but not much.

Today, in Morgan v. United Retail (July 19, 2010), the Court of Appeal (Second Appellate District, Division Seven) added guidance as to what constitutes valid construction of section 226 requirements, or at least one small part of section 226.  Quickly summarizing the entire opinion, the Court said:

On behalf of a class of current and former non-exempt employees, Morgan alleged that United Retail's wage statements failed to comply with section 226, subdivision (a) because they listed the total number of regular hours and the total number of overtime hours worked by the employee, but did not list the sum of the regular and overtime hours worked in a separate line. The trial court granted summary adjudication in favor of United Retail on the section 226 claim. We conclude that the trial court properly granted summary adjudication because United Retail's wage statements complied with the statutory requirements of section 226 by “showing . . . total hours worked.” (§ 226, subd. (a)(2).) We accordingly affirm.

Slip op., at 2.  The Court of Appeal actually went out of its way to analyze the obligations imposed by section 226(a)(2):

Apart from the summary conclusion in Rubin, however, none of the published cases or DLSE opinion letters directly address whether the “total hours worked” component of section 226 may be satisfied by separately listing the total regular hours and the total overtime hours worked during the pay period. (§ 226, subd. (a)(2).) Section 226 itself does not define the terms “showing” or “total hours worked” anywhere in the statute. Yet in construing statutes, we must be mindful that “words are to be given their plain and commonsense meaning.” (Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1103.) In other words, we are not free to “give the words an effect different from the plain and direct import of the terms used.” (California Fed. Savings & Loan Assn. v. City of Los Angeles (1995) 11 Cal.4th 342, 349.)

Slip op., at 11.  After much analysis, the Court concluded that summary judgment was correctly granted:  "Consistent with the language of section 226 and the DLSE's May 17, 2002 opinion letter, United Retail's wage statements listed 'the precise, actual number of hours worked' by the employee at each hourly rate of pay in effect during the pay period."  Slip op., at 12.  You can't fault this panel for the work they did, construing statutory language, examining DLSE materials, looking at a wage statement exemplar on the DLSE's website, and analyzing the import of 1984 and 2000 legislation affecting section 226.

Other courts have been drawing their own lines around section 226 claims.  In an unpublished opinion, the Ninth Circuit, in Villacres v. ABM Industries Incorporated (June 17, 2010) (D.C. Case No. 2:07-cv-05327-VAP-OP), while not tackling the extent of injury required to satisfy section 226, was clear that the "intrusion upon the legally protected right" is not, in its view, sufficient to state a claim:

Villacres argued that violations of section 226(a) in and of themselves are injuries sufficient to make section 226(e) relief available to him and his proposed class. This is not how California courts typically have defined “injury.” See Steketee v. Lintz, Williams & Rothberg, 38 Cal. 3d 46, 54 (1985) (“‘Wrongful act’ and ‘injury’ are not synonymous.  The word ‘injury’ signifies both the negligent cause and the damaging effect of the alleged wrongful act and not the act itself.”)(citations omitted); Lueter v. California, 115 Cal. Rptr. 2d 68, 81 (Cal. Ct. App. 2002) (“Although the words ‘injury’ and ‘damage’ often are used interchangeably, a distinction may be made.  ‘Injury’ refers to the fact of harm suffered by the plaintiff due to the defendant’s conduct.  ‘Damages’ refers to the monetary sum that the plaintiff may be awarded as compensation for injury.”). We have no reason to believe that the California Supreme Court would interpret section 226(e) differently. The district court did not err when it held that section 226(e) relief was unavailable to Villacres and his proposed class.

Memorandum, at 3.  It is interesting to note, however, that this panel's construction of the term "injury" is at odds with another Ninth Circuit panel's view on injury, expressed days later.  In Edwards v. First American Title Insurance (9th Cir. June 21, 2010), the Ninth Circuit, in a published opinion, found that "injury" existed in a RESPA case, despite the absence of an overcharge:  "Because the statutory text does not limit liability to instances in which a plaintiff is overcharged, we hold that Plaintiff has established an injury sufficient to satisfy Article III.  Slip op., at 9095.  Applying that same analysis to a 226 claim, once could see that same Edwards panel concluding that the violation of a protected right under 226 causes the necessary "injury" and the alternative damage clause (greater of actual damage or statutory damages) is triggered when no "actual" damage exists.

So the Ninth Circuit has figured out what it thinks the California Supreme Court would do were it faced with the injury issue raised by section 226.

Until the California Supreme Court decides to tell us what it thinks about any of this, we'll have to settle for Jaimez, Morgan, and the Ninth Circuit's prognostications. 

Why Apple is full of it

Today Apple held a news conference of sorts.   The ostensible purpose was to respond to concerns about the antenna design in the new iPhone 4.  The real purpose was to see if everyone is as stupid as Apple seems to think we are.

Consider just the following  two contentions about iPhone 4:

1. It has the best reception of any iPhone to date.
2. The iPhone 4 drops less than one additional call per 100 drops, when compared to the 3GS (according to AT&T data on call drops)

Apple attempted to use the second contention to describe the antenna problem as an illusory issue, suggesting that the drop rate is so close to the 3GS drop rate that it is just a part of life with a cell phone, and not a design error.  This is false.  Apple touted the antenna in the iPhone 4, and independent testing of the phone has confirmed that, when you aren't touching the call signal zone of death, the iPhone 4 has better reception than its predecessors.  This is not surprising, given the big external antennas on the iPhone 4.

But if the iPhone 4 has a substantially better antenna, it should show a noticeable improvement in the drop rate.  It does not.  Based on Apple's own claims, I have to conclude that the most probable explanation for these observed results is that the external antenna holds calls longer, but suffers precipitous signal failure.  In other words, the design flaw slightly overwhelms the overall improvement in the antenna over the long haul.  You will probably have fewer drops in high signal strength areas, but you will drop more calls in low signal strength areas if you hold the phone like any normal person would.

I have an iPhone 3GS.  It is a very nice phone.  I have looked appreciatively at the iPhone 4.  But I don't like being called an idiot, and my intended upgrade to the iPhone 4 is going on the back burner.  I will give Windows Phone 7 a very thorough examination before deciding whether to give Apple another chance.  This isn't a problem with all smartphones (I also have a Blackberry Bold 9700, which has no such problem - for that matter, neither does my iPhone 3GS).  This is apparently a problem with a phone that was designed first and foremost with materials and appearance in mind.

My advice to Apple:  if you are going to go to the trouble to hold a news conference to address a widely-reported potential flaw in the normal use-case design of one of your flagship products, don't view that time as your chance to offer contradictory assertions as you bitterly deny that anything unusual is going on with your new phone.  It is just insulting.  Just admit it, say you will work on a fabrication correction to the issue, and move on.  A bit of humility goes a long way with the average consumer; Apple evidently has none.  Here's your free rubber bumper (you crybabies).

Update on 2010-07-17 02:46 by The Complex Litigator

View videos provided from Apple.  Via Engadget.

Written contact with putative class members for purpose of finding new plaintiff is not solicitation under California Rule of Professional Conduct 1-400

United States District Court Judge Susan Illston (Northern District of California) concluded that letters to putative class members seeking a new plaintiff were neither in violation of the Court's prior order governing class member contact nor a violation of California Rule of Professional Conduct 1-400, which governs solicitation.  Rand v. American National Insurance Company, 2010 WL 2758720 (N.D. Cal July 13, 2010).

In an earlier Order in that matter, the Court, in an effort to ensure protection of putative class members' privacy rights, instructed plaintiff's counsel to:

inform each policyholder at the outset of the initial contact that he or she has a right not to speak with counsel and that if he or she chooses not to speak with counsel, counsel will immediately terminate contact and not contact them again. Additionally, counsel will inform the policyholder that his or her refusal to speak with counsel will not prejudice his or her rights as a class member if the Court certifies a class. Finally, counsel is to keep a record for the Court of policyholders who make it known that they do not wish to be contacted.

Slip op., at 1.  After the death of the plaintiff, plaintiff's counsel sent a letter containing a first paragraph with substantially compliant language in the first paragraph.  The letter then went on to encourage contact to discuss the circumstances of annuity purchases.  The Court concluded that the inclusion of the disclaimer language in the first paragraph satisfied the Court's prior Order and was not an improper solicitation:

The Court also finds that the letter complies with California Rule of Professional Conduct 1-400. That rule defines “communication” as “any message or offer made by or on behalf of a member concerning the availability for professional employment....” Cal. R. Prof. Conduct 1-400(A). The rule defines “solicitation” as “any communication ... concerning the availability for professional employment of a member or a law firm in which a significant motive is pecuniary gain; and ... [w]hich is: (a) delivered in person or by telephone.” Id. at 1-400(B)(1)-(2). The rule generally prohibits “solicitations.” Id. at 1-400(C). As plaintiffs note, the letter was sent by mail, and thus it is not a “solicitation.” Defendant argues that because the letter invited policyholders to contact plaintiff's counsel by telephone, the letter is a “solicitation.” The Court disagrees, as the plain language of Rule 1-400(B) states that a solicitation is a communication “delivered” in person or by telephone. Here, the communication was delivered by mail. See Parris v. Superior Court, 109 Cal.App. 4th 285, 298 n. 6 (2003) (neither mail notice nor web site was “solicitation” under Rule 1-400(B)).

Slip op., at 2.

In Nelson v. Pearson Ford Co., Court of Appeal reviews judgment in class action, clarifies "causation" in UCL "omission" cases

The opinion in Nelson v. Pearson Ford Co. (July 15, 2010) is hot off the presses and over 50 pages long.  Plaintiff Nelson sued Pearson Ford, alleging violations of the Automobile Sales Finance Act (ASFA) (Civ. Code, § 2981 et seq.), California's unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.), and the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.)  The trial court certified the matter as a class action, with two classes: the backdating class and the insurance class. After a bench trial, the trial court found Pearson Ford not liable under the ASFA to the backdating class, but liable under the ASFA to the insurance class. It also found Pearson Ford liable to both classes under the UCL, but not the CLRA. The trial court issued certain remedies under the ASFA and the UCL, and awarded Nelson his attorney fees and costs under the ASFA. Both parties appealed.

With a 50-page-plus opinion, there is a lot to digest, but the comments regarding UCL "causation" are so valuable in and of themselves that I wanted to post them in full immediately:

A. Liability

The UCL defines "unlawful competition" to include an "unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising . . . ." (Bus. & Prof. Code, § 17200.) "By proscribing 'any unlawful' business practice, '[Business & Professions Code,] section 17200 "borrows" violations of other laws and treats them as unlawful practices' that the unfair competition law makes independently actionable." (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 (Cel-Tech).) After the 2004 amendment of the UCL by Proposition 64, a private person has standing to sue only if he or she "'has suffered injury in fact and has lost money or property as a result of [such] unfair competition.'" (In re Tobacco II Cases (2009) 46 Cal.4th 298, 305 (Tobacco II), citing Bus. & Prof. Code, § 17204, italics added.) In the context of a class action, only the class representatives must meet Proposition 64's standing requirements of actual injury and causation. (Tobacco II, supra, at pp. 315-316.)

The actual payment of money by a plaintiff, as wrongfully required by a defendant, "constitute[s] an 'injury in fact' for purposes of Business and Professions Code section 17204. [Citations.]" (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1347 (Troyk).) Causation for UCL standing purposes is satisfied if "a causal connection [exists] between the harm suffered and the unlawful business activity." (Daro v. Superior Court (2007) 151 Cal.App.4th 1079, 1099 (Daro); accord, Troyk, supra, at p. 1349.) However, "[t]hat causal connection is broken when a complaining party would suffer the same harm whether or not a defendant complied with the law." (Daro, supra, at p. 1099.)

For example, in Troyk, an insured filed a class action against his automobile insurer alleging the insurer violated the UCL by requiring him to pay a service charge for payment of his automobile insurance policy premium and, because the service charge was not stated in his policy, the insurer violated Insurance Code section 381, subdivision (f), requiring that this be done. (Troyk, supra, 171 Cal.App.4th at p. 1314.) Although the Troyk court found that the insurer had violated the Insurance Code as alleged (id., at p. 1334), it concluded that causation under the UCL did not exist because plaintiff did not show that had the insurer disclosed the monthly service charges in the policy documents as required by the Insurance Code, he would not have paid them. (Id. at p. 1350.) Significantly, the lack of disclosure of proper charges, not illegal charges, violated the UCL in Troyk.

Here, the trial court impliedly found that Pearson Ford had violated the UCL as to both classes through its violations of the ASFA, and we have affirmed that Pearson Ford is liable for its violations of the ASFA. (Ante, part II.A.2.) Pearson Ford does not challenge the conclusion that its violations of the ASFA support Nelson's UCL claims; rather its appeal is limited to the trial court's finding that Nelson had standing to pursue claims under the UCL. Pearson Ford focuses its argument on whether Nelson suffered injury "as a result of" its unfair competition under the UCL. (Bus. & Prof. Code, § 17204.) Relying on Troyk, Pearson Ford contends that Nelson needed to prove he would not have bought the car if he had known that the second contract: (1) charged him pre-consummation interest; (2) misstated the APR; and (3) failed to separately itemize the $250 insurance premium. We disagree.

The failure of Pearson Ford to comply with the ASFA caused Nelson to suffer an injury and lose money as to both classes because he paid pre-consummation interest (the backdating class), and paid sales tax and financing charges on the insurance premium (the insurance class). Unlike Troyk, these illegal charges violated the UCL and Pearson Ford improperly collected additional funds from Nelson. UCL causation exists because Nelson would not have paid pre-consummation interest, or sales tax and financing charges on the insurance premium had Pearson Ford complied with the ASFA. Because Nelson had standing to pursue claims under the UCL, we reject Pearson Ford's argument that the judgment in favor of both classes should be vacated to the extent it grants relief under the UCL.

Slip op., at 32-34.  This discussion adds some clarity to the situation where an unlawful act underlies the imposition of a charge or fee.  The plaintiff need not plead that the product or service wouldn't have been purchased had the truth been disclosed.  Instead, it is enough to plead that money was spent on the product or service and that the amount charged included some unlawful component that would not have been charged had the law been followed.  This won't resolve all cases alleging fraud or omissions, but it does offer some blunt guidance about so-called "causation" under the UCL.

I don't know if I will get around to posting more about Nelson, but you can follow the link above to peruse it yourself if automobile financing just gets you crazy with anticipation.

Ninth Circuit finds that propriety of independent contractor status is not well suited to summary adjudication in Narayan v. EGL, Inc.

In Narayan v. EGL, Inc. (July 13, 2010), the Ninth Circuit reviewed a district court order granting summary judgment to defendant EGL, Inc. on the theory that the plaintiffs were independent contractors, not employees as contended in their lawsuit.  After examining choice of law issues, the Court turned to the showing required to obtain summary judgment on the employment-status issue.  In particular, the Court explained the special burdens in this type of action:

There are two special circumstances that are relevant to the application of this standard here. First, under California law, once a plaintiff comes forward with evidence that he provided services for an employer, the employee has establisheda prima facie case that the relationship was one of employer/employee. Robinson v. George, 105 P.2d 914, 917 (Cal. 1940). As the Supreme Court of California has held, “[t]he rule . . . is that the fact that one is performing work and labor for another is prima facie evidence of employment and such person is presumed to be a servant in the absence of evidence to the contrary.” Id. at 916; see also Cristler v. Express Messenger Sys., Inc., 171 Cal. App. 4th 72, 83 (Ct. App. 2009). Once the employee establishes a prima facie case, the burden shifts to the employer, which may prove, if it can, that the presumed employee was an independent contractor. Cristler, 171 Cal. App. 4th at 84 (approving a jury instruction that “[t]he Defendant has the obligation to prove that the Plaintiffs were independent contractors”)

Slip op., at 10078.  The Court then discussed the employment test in California, saying:  "The Supreme Court of California has enumerated a number of indicia of an employment relationship, the most important of which is the 'right to discharge at will, without cause.' Borello, 769 P.2d at 404 (quoting Tieberg v. Unemployment Ins. App. Bd., 471 P.2d 975, 979 (Cal. 1970)).  Slip op., at 10079.  Incidentally, the right to discharge at will is concomitant with, and, to a large extent creates, the right to control.  The Court then listed the many additional employment test factors approved by Borello.  Such multi-factor tests, the Court concluded, don't lend themselves to summary adjudication:

Judge Easterbrook has keenly observed in a case under the Fair Labor Standards Act that:

[i]f we are to have multiple factors, we should also have a trial. A fact-bound approach calling for the balancing of incommensurables, an approach in which no ascertainable legal rule determines a unique outcome, is one in which the trier of fact plays the principal part. That there is a legal overlay to the factual question does not affect the role of the trier of fact.

Sec’y of Labor v. Lauritzen, 835 F.2d 1529, 1542 (7th Cir. 1987) (Easterbook, J., concurring) (internal citations omitted).

Slip op., at 10080-81.  The Court then reviewed the record, criticizing the trial court for not crediting evidence of the right to terminate at will set forth in the contracts between defendant and plaintiffs and other evidence consistent with employment, including the lack of any need for specialized training and the fact that the Internal Revenue Service declared the plaintiffs employees under its multi-factor employment test.

Judge Easterbrook received a number of nods from the Court.  In describing the policy goals of wage & hour statutes, the Court said:

As Judge Easterbrook observed in a closely analogous context, statutes enacted to confer special benefits on workers are “designed to defeat rather than implement contractual arrangements.” Sec’y of Labor v. Lauritzen, 835 F.2d 1529, 1545 (7th Cir. 1987) (Easterbook, J., concurring).

Slip op., at 10073.  In other words, the protections granted by California's Labor Code are designed, in part, to defeat employer attempts to circumvent them with "independent contractor" agreements. 

Court certifies Apple-AT&T monopoly abuse suit

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.

California rejects pass-on defense for antitrust conspirators

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.

Munoz v. BCI Coca-Cola Bottling Company of Los Angeles (Greenwell, objector) provides much-needed words of restraint concerning Kullar

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.