Chinese Wang decision is big news

Wrong, but necessary somehow.  A little later than promised, but Wang v. Chinese Daily News, Inc. (9th Cir. Sept. 27, 2010) has too much going on not to receive some additional attention.  At the outset, Wang was a basic wage & hour case.  The plaintiffs alleged that employees were made to work in excess of eight hours per day and/or forty hours per week. They alleged that they were wrongfully denied overtime compensation, meal and rest breaks, accurate and itemized wage statements, and penalties for wages due but not promptly paid at termination.  The subsequent procedural twists and turns were anything but standard.  But despite the many moving parts in the decision, the Ninth Circuit summarized the case in a few sentences:

The district court certified the FLSA claim as a collective action. It certified the state-law claims as a class action under Rule 23(b)(2) and, alternatively, under Rule 23(b)(3). In the state-law class action, it provided for notice and opt out, but subsequently invalidated the opt outs. It granted partial summary judgment to plaintiffs; held jury and bench trials; entered judgment for plaintiffs; awarded attorney’s fees to plaintiffs; and conducted a new opt-out process. CDN appeals, challenging aspects of each of these rulings, as well as the jury’s verdict.

Slip op., at 16393.  After the trial court certified a narrowed class under Rule 23(b)(2) (finding that injunctive relief was on "equal footing" with monetary relief), the trial court approved a notice that authorized class members to opt into the FLSA action and out of the state law-based class action.  The notice precipitated the first major upheaval in the case:

Forms were mailed to 187 individuals, and notice was posted and forms made available at CDN’s Monterey Park facility. Plaintiffs received back about 155 opt-out forms, including 18 from individuals not on the original list of class members.  Plaintiffs filed a motion to invalidate the opt outs, for curative notice, and to restrict CDN’s communication with class members. On June 7, 2006, the court granted the motion, finding that “the opt out period was rife with instances of coercive conduct, including threats to employees’ jobs, termination of an employee supporting the litigation, the posting of signs urging individuals not to tear the company apart, and the abnormally high rate of opt outs.” Wang v. Chinese Daily News, Inc., 236 F.R.D. 485, 491 (C.D. Cal. 2006). The district court deferred any future opt-out procedure until after the trial on the merits.

Slip op., at 16395.  Facing cross-motions for summary judgment, the trial court then ruled that news reporters were not exempt professionals.  Next, the matter proceeded to a trial.  The defendant contended that only the FLSA claims should be tried and that UCL claims were pre-empted by the FLSA, but the trial court elected to retain supplemental jurisdiction, rejected the pre-emption argument and tried the state law claims as well.

The Court of Appeal first tacked the exemption analysis.  After examining decisions from other Circuits, the Court concluded that the reporters did not satisfy the creative professionals exemption.

Although the evidence submitted revealed disputes over how to characterize CDN’s journalists, we agree with the district court that, even when viewing the facts in the light most favorable to CDN, the reporters do not satisfy the criteria for the creative professional exemption.

Slip op., at 16400.  Next, the Court examined whether the trial court had applied the correct criteria for determining whether certification under Rule 23(b)(2) was appropriate.  The Court concluded that, although the matter was decided prior to Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010) (en banc), the trial court applied essentially identical standards and correctly decided the issue.

The Court then turned to the invalidation of opt-outs.  The Court first held that a trial court's authority to regulate class communications and the notice process implicitly confers that power to take corrective action when that process has been tainted.  The Court then considered whether the evidence submitted was sufficient to support the trial court's decision.  The Court noted in particular the evidence submitted by a class action notice company regarding normal opt-out rates:

Finally, plaintiffs submitted a declaration from the president of a class action notice company explaining that ordinarily opt-out rates do not exceed one percent. In this case, the district court found that current employees opted out at a 90 percent rate, whereas former employees opted out at a 25 percent rate.

Slip op., at 16407.  After concluding that the decision to invalidate the opt-outs was supported, the Court examined whether deferring a new opt-out period until after the trial was appropriate.  Again the Court noted the trial court's broad discretion to regulate the notice process: "The ordinary procedure is to give notice at the time of class certification. But the rule does not mandate notice at any particular time. See Fed. R. Civ. P. 23(c)(2)."  Slip op., at 16408.  The Court then affirmed the trial court's conclusion that it was necessary to delay a new notice and opt-out process in order to avoid the taint imposed during the initial process.

Finally, after observing that the evidence supported the jury verdict regarding meal periods under either the "provide" or "ensure" standards currently up for review by the California Supreme Court, the Court ended its Opinion by explicitly holding what most courts in the Ninth Circuit had already concluded: the FLSA does not preempt state law claims like the UCL.

On October 11th much will be revealed about Windows Phone 7

At a New York launch event, Microsoft will officially announce the upcoming release of Windows Phone 7-based handsets.  According to Engadget, which has been invited to the event, T-Mobile and AT&T should both have some handsets to show off to members of the media.  Verizon and Sprint will have to wait until early 2011 for CDMA handsets.  As for AT&T and T-Mobile, handsets should go on sale around November 8th.

District Court decertifies class of customer service representative employed by Safety-Kleen Systems, Inc.

United States District Court Judge Phyllis J. Hamilton (Northern District of California) granted Defendant Safety-Kleen Systems, Inc.'s motion to decertify a class of "customer service representatives."  Wamboldt v. Safety-Kleen Systems, Inc., 2010 WL 3743925 (N.D. Cal. Sept. 20, 2010).  The CSRs had duties extending well beyond what one might expect from the job title, including customer sales, client collections, and various telephone responsibilities, as well as on-site servicing of equipment, transportation of hazardous waste, and driving of company vehicles in order to perform customer service calls.  The hazardous waste transportation and the occasional use of large vehicles (in excess of 30,000 lbs. gross vehicle weight) were the primary culprits underlying the motion to decertify.

Breaking News: Ninth Circuit issue two class action opinions addressing novel issues in the Ninth Circuit

After a bit of a lull on the class action front, the Ninth Circuit had a busy morning.  Two major opinions on class action issues were just issued by Ninth Circuit panels, and both opinions are sure to generate a good deal of discussion.  Both address areas of unsettled law among various federal courts.  The first is of interest to wage & hour practitioners and the second addresses the argument that large statutory damage awards defeat "superiority" of the class action procedure:

• Wang v. Chinese Daily News, Inc. (9th Cir. Sept. 27, 2010) is something of a kitchen sink of class action issues.  Among other things, the Ninth Circuit affirmed (1) the concurrent prosecution of a FLSA opt-in collective action and a Rule 23 opt-out class action, (2) the invalidation of Rule 23 opt-outs due to coercion, (3) the decision to conduct a corrective opt-out process after the trial, and (4) certification under Rule 23(b)(2).  The Court also held that the UCL was not preempted by the FLSA.
• Bateman v. American Multi-Cinema, Inc. (9th Cir. Sept. 27, 2010) concerned the singular issue of a class certification denial on superiority grounds.  The Ninth Circuit concluded that none of the three grounds relied upon by the district court — the disproportionality between the potential statutory liability and the actual harm suffered, the enormity of the potential damages, or AMC’s good faith compliance — justified the denial of class certification on superiority grounds.

Both opinions are substantial, and I will try to give both an extended treatment this evening.  Full disclosure: Greg Karasik of Spiro Moss represents Plaintiff Bateman.

District Court narrows but does not entirely decertify class alleging misclassification as exempt from overtime

United States District Court Judge Samuel Conti (Northern District of California) granted in part and denied in part Defendant Dollar Tree Stores, Inc.'s Motion to Decertify a class of store managers contending that they were misclassified as exempt from overtime.  Cruz v. Dollar Tree Stores, Inc., 2010 WL 3619800 (N.D. Cal. Sept. 9, 2010).  The facts and result here are interesting.

Dollar Tree requires its store managers to certify that they spend more than fifty percent of their actual work time each week performing tasks on a list of 17 items that are all arguably managerial-type duties. Dollar Tree's expert, Robert Crandall, MBA, analyzed employee task certifications comprising 29,431 workweeks during the class period.  The analysis shows that approximately 62 percent of store managers "always certified that they spent the majority of their workweeks on the seventeen managerial tasks, 2.5 percent reported that they never spent most of their time performing these tasks, and about 35 percent of SMs fall somewhere in between."  Slip op., at 2.

The Court then offered this interesting analysis:

In this case, unlike in Wells Fargo II, Whiteway, and Weigele, Plaintiffs have common proof of how SMs were actually spending their time. Plaintiffs can rely on the certification forms that SMs signed every week to, in the words of the Ninth Circuit, transform what would otherwise be an individual issue into a common one. See Wells Fargo I, 571 F.3d at 959. However, the Ninth Circuit's reasoning in Vinole and Wells Fargo I persuades the Court of the need to narrow the class definition to include only SMs who responded “no” on their certification forms during the class period. Narrowing the class in this way ensures that common issues will predominate over individual ones, and significantly lessens the risk that the class consists of both injured and uninjured parties.

In this case, Plaintiffs “must show that it is more likely than not that [Dollar Tree's] exemption as applied to [SMs] was a policy or practice of misclassification.” Marlo, 251 F.R.D. at 483. In order to make this showing, Plaintiffs can point to common evidence including Dollar Tree's decision to uniformly classify SMs as exempt, Dollar Tree's employment hierarchy and structure, its standardized policies and training procedures for SMs, the common tools it requires SMs to utilize, and, most importantly of all, the fact that SMs often certified on a weekly basis that they were not spending most of their time on managerial tasks. Dollar Tree's common policy of having SMs fill out weekly certifications obviates the need for much individual testimony from SMs concerning how they spent their time.

The Court is persuaded that common issues will predominate over individual ones only if it narrows the class to SMs who responded “no” at least once on the weekly payroll certification forms. According to Dollar Tree's analysis of certification forms comprising 29,431 workweeks, approximately 62 percent of SMs always certified that they spent a majority of their time performing managerial tasks. Crandall Decl. ¶¶ 15, 22-23. If the class were to continue to include SMs who always certified “yes,” then Plaintiffs would be required to show that these SMs were not always being truthful, and this issue could not be resolved without resorting to individualized inquiries that would quickly overwhelm the common issues in this case.

No such individualized inquiries are necessary if the Court focuses its attention on SMs who certified “no.” Dollar Tree classified this group of employees as exempt, yet they certified at least once that they were spending most of their time during particular workweeks performing non-managerial tasks. With regard to this group of employees, Plaintiffs can use the weekly payroll certifications and the other evidence of Dollar Tree's standardized practices and procedures in their attempt to convince the jury that “misclassification was the rule rather than the exception” at Dollar Tree. See Sav-On Drugs Stores, Inc. v.Super. Ct., 34 Cal.4th 319, 330, 17 Cal.Rptr.3d 906, 96 P.3d 194 (2004).

Slip op., at 6-7.  The Court then addressed what is, perhaps, the most obvious challenge to this approach:

Nonetheless, the Court recognizes that some SMs may have always certified “yes” even though they were not spending most of their time on managerial tasks. The Court does not want to preclude these SMs from pursuing their misclassification claims on an individual basis. The Court is willing to entertain a motion to equitably toll the statute of limitations on their misclassification claims so as to preserve their right to pursue individual claims against Dollar Tree. See Marlo, 251 F.R.D. at 476, 488 (after decertification of case, inviting parties to brief question of whether statute of limitations on plaintiff's individual claims should be tolled).

Slip op., at 8.  The balance of the opinion consists mostly of a discussion about the positions of the respective experts used by the parties.  While that is also an educational read, the Court's solution regarding the class definition (only those persons that certified at least once that they did not meet the 50% level) is worth taking the time to evaluate carefully.

Surreptitious "flash cookies" track web activity, are hard to remove, and are now the subject of class action lawsuits

You likely have heard of "cookies," the small bits of code stored by websites in your browser.  Cookies allow sites to look up your preferences when you return, or present different content to new visitors.  Cookies can improve your internet experience, but they can also be used to track your movements across websites.  Generally speaking, this is often accomplished through "third-party cookies," which belong to an advertising site, and not the website you are visiting.  When you visit subsequent sites that have relationships with an ad network, that network can ask your browser if it is storing one of its cookies.  If it is, the network can assemble a profile of your internet activity.

Many people know that browser settings can be adjusted to reject third-party cookies.  Or, you can clear out all cookies stored in your browser.  Don't you feel safe now that you've cleared all those cookies?

Turns out that clearing cookies isn't enough anymore.  Adobe's flash technology allows sites providing flash video of any sort to store a code snippet on a user's computer when the user views that flash content.  These "Flash cookies" are larger in size than html cookies (100 kilobytes of information in the case of flash cookies, or 25 times what a browser html cookie can hold).  This added size allows for the storage of far more information about a user's internet activities.  Moreover, flash cookies can be used for one particularly despicable purpose - they can be used to restore deleted html cookies.  In other words, you think you actively protected your privacy by deleting all "cookies" (really, just the html cookies), and when a site that can read a flash cookie sees that you used to have a related html cookie on your browser, it can restore that deleted cookie.  Thus the recent trend to refer to these cookies as "zombie cookies," the cookies that cannot die.

This sneaky new form of visitor tracking has resulted in a number of class action lawsuit.  The New York Times reported on several such lawsuits in an article earlier today.  Wired reported on other suits in July of this year.  These days you need your own home IT support just to know whether you are being spied on by the websites you visit.

COMPLEX TECH: Windows Phone 7 news rundown

I'm exceedingly interested in the potential of Windows Phone 7 as a mobile platform for information access.  It has the potential to replace the iPhone as the standard for innovative platform design.  And it might ultimately do a better job of allowing clear access to many types of information that those in the legal industry currently access through other smartphone platforms.  If you aren't up to speed on this release that may be less than 2 months away, here is a sample of recent news: 

• As reported on Engadget, Microsoft shows off a few major applications that will be available at launch or soon thereafter and releases the final set of developer tools.  If you aren't a tech junkie, this won't mean much to you, but, no matter what you may think of Microsoft, the fact is that Microsoft makes some of the best developer tools out there.  The ease of application development will open Windows Phone 7 to a large number of potential developers.  Winsupersite.com discusses the developer advantage.
• Here is a thorough preview of Windows Phone 7 from Engadget.
• And Winsupersite.com has a massive, multi-part examination of the phone by Paul Thurrott, who will be releasing a book about Windows Phone 7 at or right after launch.
• HTC will be releasing Windows Phone 7 hardware.  This may be video of what to expect.
• Samsung will also have Windows Phone 7 hardware available at launch.
• Verizon will likely carry Windows Phone 7 hardware, but possibly not until 2011.
• Some pre-release applications already look like they will provide a superior experience on Windows Phone 7, such as Seesmic.

I didn't upgrade to the antenna-on-the-outside iPhone 4.  I'm keeping the powder dry for a phone running Windows Phone 7.  Looks like the restraint will be rewarded. 

Ninth Circuit considers "crux of the complaint" rule to determine when arbitrator decides arbitrability

It's not to early to nominate the year 2010 as the year of the arbitration wars.  In our latest installment, Obi Wan is asked to assemble forces...sorry, Clone Wars.  Today the Ninth Circuit examined the question of "whether the 'crux of the complaint' rule requires the question of arbitrability to be determined by the arbitrator when a plaintiff’s challenge to the arbitration clause does not appear in his complaint." Bridge Fund Capital Corporation v. Fastbucks Franchise Corporation, Slip op., at 14205 (9th Cir. Sept. 16, 2010).

In the span of a few paragraphs, the Court set out the essentials of the "crux of the complaint" test:

“The arbitrability of a particular dispute is a threshold issue to be decided by the courts,” Nagrampa, 469 F.3d at 1268, unless that issue is explicitly assigned to the arbitrator, see Rent-A-Ctr., W., Inc. v. Jackson, ___ U.S. ___, 130 S. Ct. 2772, 2775 (2010) (holding that arbitrability is a question for the arbitrator “where the agreement explicitly assigns that decision to the arbitrator”). While the validity of an arbitration clause can be a question for the arbitrator where the “crux of the complaint is that the contract as a whole (including its arbitration provision)” is invalid, the court determines the validity of the clause where the challenge is “specifically [to] the validity of the agreement to arbitrate.” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 (2006).

In other words, when a plaintiff’s legal challenge is that a contract as a whole is unenforceable, the arbitrator decides the validity of the contract, including derivatively the validity of its constituent provisions (such as the arbitration clause). See Buckeye, 546 U.S. at 445-46 (explaining that “as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. [U]nless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance.”). However, when a plaintiff argues that an arbitration clause, standing alone, is unenforceable—for reasons independent of any reasons the remainder of the contract might be invalid—that is a question to be decided by the court. See Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1120 (9th Cir. 2008) (“[O]ur case law makes clear that courts properly exercise jurisdiction over claims raising (1) defenses existing at law or in equity for the revocation of (2) the arbitration clause itself.”).

After Buckeye, we have applied the “crux of the complaint” rule as a method for differentiating between challenges to the arbitration provision alone and challenges to the entire contract. Nagrampa, 469 F.3d at 1268. In Buckeye, the Court held that “because [the plaintiffs] challenge[d] the Agreement, but not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the contract. The challenge should therefore be considered by an arbitrator, not a court.” 546 U.S. at 446. In Nagrampa, we distinguished Buckeye because “the complaint in Buckeye, unlike Nagrampa’s complaint, did not contain claims that the arbitration provision alone was void and unenforceable, but rather alleged that the arbitration provision was unenforceable because it was contained in an illegal usurious contract which was void ab initio.” Nagrampa, 469 F.3d at 1268. Fastbucks contends that Buckeye, and not Nagrampa, applies here because Plaintiffs’ complaint does not contain a specific challenge to the arbitration clause.

We disagree. This case presents a third scenario not described in either Buckeye or Nagrampa; namely, a specific challenge to the arbitration clause that is not raised as a separate claim in the complaint. See Winter v. Window Fashions Prof’ls, Inc., 83 Cal. Rptr. 3d 89, 93 (Ct. App. 2008) (distinguishing Buckeye and Nagrampa and holding that arbitrability was for the court to decide where the plaintiff’s specific “challenge to the arbitration clause was [raised] in response to [a] petition to compel arbitration” rather than in the complaint). Because the material question is whether the challenge to the arbitration provision is severable from the challenge to the contract as a whole, Buckeye, 546 U.S. 444-45; Rent-A-Ctr., 130 S. Ct. at 2778, the inclusion of, or failure to include, a specific challenge in the complaint is not determinative. See Winter, 83 Cal. Rptr. 3d at 93. What matters is the substantive basis of the challenge.

Slip op., at 14209-11.

I report on this decision primarily because the sudden explosion of arbitration issues in different contexts is interesting, at least to me.  Tomorrow I will find out whether I successfully beat back a claim that Stolt-Nielsen preempts Gentry.  It looks like I will be paying attention to arbitration decisions for some time to come.

State Court Docket Watch Summer 2010 now available from the Federalist Society

Like the headline says, State Court Docket Watch Summer 2010 is now available here on the The Federalist Society website.   The newest edition includes thoughts on Business and Professions Code section 17200 after the passage of Proposition 64.  Pay no attention to the odd coincidence that one of the contributors has a name very similar to mine.  I would never engage in shameless self-promotion and how dare you say that.

COMPLEX TECH: IE9 beta now available for public download from Microsoft

If living on the cutting edge is just your thing, then you might be interested in looking at Internet Explorer 9 beta.  IE9 beta is available for download now.  It is a beta product, so quirks are to be expected.  If you want to know what you are getting into before jumping into murky beta waters, read this review.

The newest version of IE is a great looking program.  I've seen a few layout quirks, but this blog looks right, so everything is mostly right in the world.  Of course, I did discover that the Create a Post pop-up doesn't work on SquareSpace under IE9 beta.  If the connection isn't obvious already, this blog is hosted on SquareSpace (thus I write this post in Chrome).

I did notice that, not surprisingly, Exchange web access works just like it should.  If I notice any other bugs on any law-related sites, I will post a follow-up.