Oral argument scheduled in Sullivan et al. v. Oracle Corporation et al.

On Wednesday, April 6, 2011, the California Supreme Court will hear argument in the matter of Sullivan, et al. v. Oracle Corporation, et al.  On February 17, 2009, the matter was certfied to the California Supreme Court by the Ninth Circuit.  Justice Roger Boren, from the Second Appellate District, Division Two, was assigne as justice pro tempore.  The questions certified to the California Supreme Court are:

First, does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?

Second, does § 17200 apply to the overtime work described in question one?

Third, does § 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the FLSA?

As a side note, the argument calendar also shows that Brinker is not on the April agenda.  Do I hear May anyone?  And by "May," you all know I mean May 2012, right?

Ninth Circuit holds that district courts are limited to the complaint in deciding certain local controversy criteria for CAFA remand

On November 30, 2010, the Ninth Circuit agreed to hear a discretionary appeal in Coleman v. Estes Express Lines, Inc.  See prior post.  The Ninth Circuit accepted the appeal and provided some guidance in the Ninth Circuit as to whether such appeals should be taken.  Today, the Ninth Circuit issued its Opinion on the underlying issue.  Coleman v. Estes Express Lines, Inc. (9th Cir. Jan. 25, 2011).  Asked to decide whether a federal district court is limited to the complaint in deciding whether two of the criteria for the local controversy exception are satisfied, the Court held that the district court is so limited.

Coleman moved for remand under the local controversy exception. Estes opposed, arguing that two of the criteria for the local controversy exception were not satisfied. "First, Estes argued that Estes West had insufficient funds to satisfy a judgment, and that 'significant relief' therefore had not been 'sought' from it. See 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa). Second, Estes argued that Estes Express had almost complete control over the operations of Estes West, and that Estes West’s 'alleged conduct' therefore did not 'form a significant basis for the claims asserted by the proposed plaintiff class.' Id. § 1332(d)(4)(A)(i)(II)(bb)."  Slip op., at 5.  Estes then supplied a declaration to support its contentions.  The District Court refused to consider the declaration, finding that the complaint satisfied the criteria for remand.

Looking at the plain language of the statute, the Court found support for the concept that the pleadings govern the analysis:

The first criterion is whether “significant relief is sought” from a defendant who is a citizen of the state in which the suit is filed. 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa) (emphasis added). The word “sought” focuses attention on the plaintiff’s claim for relief — that is, on what is “sought” in the complaint — rather than on what may or may not be proved by evidence. The second criterion is whether the defendant’s “alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class.” Id. § 1332(d)(4)(A)(i)(II)(bb) (emphasis added). Like the word “sought,” the word “alleged” makes clear that the second criterion is based on what is alleged in the complaint rather than on what may or may not be proved by evidence.

Slip op., at 8.

The Court then reviewed the legislative history and concluded that it supported the construction applied by the Court.  The Court commentd in passing that the declaration supplied by Estes was probably insufficient even if the District Court could have considered it.

The Court ended with a note about variations in pleading standards between state and federal courts:

We are aware of the difficulties that can be created by different pleading requirements in state and federal courts. A plaintiff filing a putative class action in state court need satisfy only the pleading standards of that court. It is therefore possible that if a putative class action is removed from state to federal court under CAFA the complaint, as originally drafted, will not answer the questions that need to be answered before the federal court can determine whether the suit comes within the local controversy exception to CAFA jurisdiction. In that circumstance, the district court may, in its discretion, require or permit the plaintiff to file an amended complaint that addresses any relevant CAFA criteria.

Slip op., at 21-22. The Court then affirmed the remand.

In Lewis v. Verizon Communications, Inc., Ninth Circuit offers guidance on burden of proof showing required in CAFA-based removals

In Abrego Abrego v. Dow Chemical Co., 443 F.3d 676, 685 (9th Cir. 2006), the Ninth Circuit held that, under the Class Action Fairness Act (“CAFA”), Pub. L. No. 109-2, 119 Stat. 4 (2005) (codified in scattered sections of 28 U.S.C.), the burden of establishing removal jurisdiction is, as it was before CAFA, on the party asserting jurisdiction in federal court.  CAFA authorizes removal to federal court of class actions where the amount in controversy exceeds $5 million (excluding interest and costs).  In the Ninth Circuit, when the complaint does not allege a specific amount of damages, the party attempting removal under diversity bears the burden of showing, by a preponderance of the evidence, that the amount in controversy exceeds the statutory amount. Guglielmino v. McKee Foods Corp., 506 F.3d 696, 699 (9th Cir. 2007); see also Lowdermilk v. U.S. Bank Nat’l Ass’n., 479 F.3d 994 (9th Cir. 2007).  In Lewis v. Verizon Communications, Inc. (November 18, 2010), the Ninth Circuit considered whether the defendant's unrebutted affidavit showing a potential amount in controversy was sufficient to meet the burden of showing the amount in controversy.

The Ninth Circuit held that, on the uncontested showing by Verizon, the amount in controversy was sufficiently demonstrated:

The amount in controversy is simply an estimate of the total amount in dispute, not a prospective assessment of defendant’s liability. See McPhail v. Deere & Co., 529 F.3d 947, 956 (10th Cir. 2008) (“The amount in controversy is not proof of the amount the plaintiff will recover. Rather, it is an estimate of the amount that will be put at issue in the course of the litigation.”). To establish the jurisdictional amount, Verizon need not concede liability for the entire amount, which is what the district court was in essence demanding by effectively asking Verizon to admit that at least $5 million of the billings were “unauthorized” within the meaning of the complaint.

Slip op., at 11.  The Ninth Circuit noted that its standard of proof is higher than some Circuits:

The law in our circuit is articulated a little differently from that of others, in that we expressly contemplate the district court’s consideration of some evidentiary record. See generally Diane B. Bratvold & Daniel J. Supalla, Standard of Proof to Establish Amount in Controversy When Defending Removal Under the Class Action Fairness Act, 36 WM. MITCHELL L. REV. 1397 (2010). We employ a preponderance of the evidence standard when the complaint does not allege a specific amount in controversy. Guglielmino, 506 F.3d at 699. The Seventh Circuit, along with the First and Second Circuits, apply what may be a lower standard of proof: a “reasonable probability” standard. See, e.g., Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 449 (7th Cir. 2005) (when the complaint is “silent or ambiguous on one or more of the ingredients needed to calculate the amount in controversy . . . the removing litigant must show a reasonable probability that the stakes exceed the minimum.”); see also Amoche v. Guarantee Trust Life Ins. Co., 556 F.3d 41, 48 (1st Cir. 2009); DiTolla v. Doral Dental IPA of New York, 469 F.3d 271, 277 (2nd Cir. 2006). The Fourth Circuit has not adopted a specific standard of proof, although “several district courts within the Fourth Circuit have concluded that the appropriate standard of proof is preponderance of the evidence.” Laws v. Priority Trustee Services of N.C., L.L.C., 2008 WL 3539512 at * 2 (W.D.N.C. Aug. 11, 2008). Both the Seventh Circuit in Spivey and the Fourth Circuit in Strawn have looked to evidence outside the complaint when the complaint is silent as to the amount. Regardless of the label applied to the standard of proof, the result in this case should be the same as that in the Seventh and Fourth Circuits’ decisions in Spivey and Strawn.

Slip op., at 12.  The Ninth Circuit then observed that Spivey was closest to the case before it and approvingly followed the same analysis.

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.

Widespread manifestation of a defect is not essential to class certification

The Ninth Circuit giveth and it taketh away.  On the one hand, the Fourth Amendment is better described as the Fourth Suggestion around these parts.  But consumer class actions received a booster shot last week.  In Wolin v. Jaguar Land Rover (9th Cir. Aug. 17, 2010), the Ninth Circuit reversed a denial of class certification in a consumer class action alleging a defective design in an automobile.  Plaintiffs Gable and Wolin each brought a class action lawsuit against Jaguar Land Rover North America, LLC (“Land Rover”) alleging that Land Rover’s LR3 vehicles suffer from an alignment geometry defect that causes tires to wear prematurely. The district court declined to certify a class because Gable and Wolin were unable to prove that a majority of potential class members suffered from the consequences of the alleged alignment defect.  The Ninth Circuit reversed.

The Court first examined commonality:

Federal Rule of Civil Procedure 23(a)(2) provides that “questions of law or fact common to the class” are a prerequisite to class certification. Commonality exists where class members’ “situations share a common issue of law or fact, and are sufficiently parallel to insure a vigorous and full presentation of all claims for relief.” Cal. Rural Legal Assistance, Inc. v. Legal Servs. Corp., 917 F.2d 1171, 1175 (9th Cir. 1990) (internal quotation marks and citation omitted). “The existence of shared legal issues with divergent factual predicates is sufficient, as is a common core of salient facts coupled with disparate legal remedies within the class.” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1019 (9th Cir. 1998). [2]

Appellants easily satisfy the commonality requirement. The claims of all prospective class members involve the same alleged defect, covered by the same warranty, and found in vehicles of the same make and model. Appellants’ complaints set forth more than one issue that is common to the class, including: 1) whether the LR3’s alignment geometry was defective; 2) whether Land Rover was aware of this defect; 3) whether Land Rover concealed the nature of the defect; 4) whether Land Rover’s conduct violated the Michigan Consumer Protection Act or the Florida Deceptive and Unfair Trade Practices Act; and 5) whether Land Rover was obligated to pay for or repair the alleged defect pursuant to the express or implied terms of its warranties. These common core questions are sufficient to satisfy the commonality test. See Hanlon, 150 F.3d at 1019-20.

Slip op., at 11991.  The Court then rejected the argument that individualized factors would affect tire wear:  "What Land Rover argues is whether class members can win on the merits. For appellants’ claims regarding the existence of the defect and the defendant’s alleged violation of consumer protection laws, this inquiry does not overlap with the predominance test."  Slip op., at 11993.

Then, discussing typicality, the Court made what is probably the most striking pronouncement of the opinion:

Whether they experienced premature tire wear at six months, nine months, or later goes to the extent of their damages and not whether named appellants “possess the same interest and suffer[ed] the same injury as the class members.” E. Tex. Motor Freight Sys. Inc. v. Rodriguez, 431 U.S. 395, 403 (1977) (internal quotation marks omitted). Typicality can be satisfied despite different factual circumstances surrounding the manifestation of the defect. See Daffin, 458 F.3d at 553. Gable and Wolin, like the rest of the class, may have a viable claim regardless of the manifestation of the defect. The fact that Gable and Wolin already received discounts and some free services also does not defeat typicality. See Lymburner v. U.S. Fin. Funds, Inc., 263 F.R.D. 534, 540 (N.D. Cal. 2010) (finding named plaintiff typical of class despite availability of plaintiff-specific remedy and finding “no authority for the argument that typicality is defeated because the remedies may be different for class members or that the availability of rescission as a remedy will monopolize this case”). Gable’s and Wolin’s claims are typical of the class.

Slip op., at 11996.  Finally, the Court concluded that superiority is closely connected to commonality:

Appellants aver that no other prospective class members have filed other related actions, and Land Rover does not dispute this point. The amount of damages suffered by each class member is not large. Forcing individual vehicle owners to litigate their cases, particularly where common issues predominate for the proposed class, is an inferior method of adjudication.

Slip op., at 11997.

Fun fact:  This same panel also heard the Mazza, et al. v. American Honda Motor Company case.

The government can sneak on your property and track your car with GPS, no warrant required; illegal options exist to jam trackers

In United States v. Pineda-Moreno, 591 F.3d 1212 (9th Cir. 2010), a panel of the Ninth Circuit concluded that no Fourth Amendment issues were implicated when police snuck onto Pineda-Moreno’s property at night and attached a GPS tracking device to the underside of his car. The device continuously recorded the car’s location, allowing police to monitor all of Pineda-Moreno’s movements without the need for visual surveillance and without a warrant. The panel held that none of that implicated the Fourth Amendment, even though the government conceded that the car was in the curtilage of Pineda-Moreno’s home at the time the police attached the tracking device.

A petition for rehearing en banc was filed.  The petition did not receive the majority vote necessary for rehearing and was denied.  Chief Judge Kozinski had some choice words for the Court:

Having previously decimated the protections the Fourth Amendment accords to the home itself, United States v. Lemus, 596 F.3d 512 (9th Cir. 2010) (Kozinski, C.J., dissenting from the denial of rehearing en banc); United States v. Black, 482 F.3d 1044 (9th Cir. 2007) (Kozinski, J., dissenting from the denial of rehearing en banc), our court now proceeds to dismantle the zone of privacy we enjoy in the home’s curtilage and in public. The needs of law enforcement, to which my colleagues seem inclined to refuse nothing, are quickly making personal privacy a distant memory. 1984 may have come a bit later than predicted, but it’s here at last.

Slip op., at 11504.  On fire, the Chief Judge continued:

The panel authorizes police to do not only what invited strangers could, but also uninvited children—in this case crawl under the car to retrieve a ball and tinker with the undercarriage. But there’s no limit to what neighborhood kids will do, given half a chance: They’ll jump the fence, crawl under the porch, pick fruit from the trees, set fire to the cat and micturate on the azaleas. To say that the police may do on your property what urchins might do spells the end of Fourth Amendment protections for most people’s curtilage.

Slip op., at 11508.  In a particularly introspective moment, the Chief Judge argues that the bench is lacking in persons familiar with the life experiences of the poor:

There’s been much talk about diversity on the bench, but there’s one kind of diversity that doesn’t exist: No truly poor people are appointed as federal judges, or as state judges for that matter. Judges, regardless of race, ethnicity or sex, are selected from the class of people who don’t live in trailers or urban ghettos. The everyday problems of people who live in poverty are not close to our hearts and minds because that’s not how we and our friends live. Yet poor people are entitled to privacy, even if they can’t afford all the gadgets of the wealthy for ensuring it. Whatever else one may say about Pineda-Moreno, it’s perfectly clear that he did not expect—and certainly did not consent—to have strangers prowl his property in the middle of the night and attach electronic tracking devices to the underside of his car. No one does.

Slip op., at 11508-9.  Ouch.

Speaking of ways to protect your privacy from a government run amok, Gizmodo points out that certain cheap (but illegal) GPS jammers are available in an article prompted by this decision.  Please don't engage in any unlawful conduct to protect your constitutional rights.  That would be wrong.

Ninth Circuit: Rule 12(f) cannot be used to strike a claim for damages unavailable as a matter of law

Rule 12(f) of the Federal Rules of Civil Procedure states that a district court “may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.”  In Whittlestone v. Handi-Craft Co. (9th Cir. Aug. 17, 2010), the Ninth Circuit answered a question of first impression regarding the permissible uses of a Motion to Strike.  The district court struck a claim for damages that it found to be unavailable as a matter of law.  The Court wasted no time answering the question and reversing the district court:

It is quite clear that none of the five categories covers the allegations in the pleading sought to be stricken by Handi- Craft. First, the claim for damages is clearly not an insufficient defense; nobody has suggested otherwise. Second, the claim for damages could not be redundant, as it does not appear anywhere else in the complaint. Third, the claim for damages is not immaterial, because whether these damages are recoverable relates directly to the plaintiff’s underlying claim for relief. See Fogerty, 984 F.2d at 1527 (“Immaterial matter is that which has no essential or important relationship to the claim for relief or the defenses being plead.”) (quoting 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1382, at 706-07 (1990) (quotation marks omitted)). Fourth, the claim for damages is not impertinent, because whether these damages are recoverable pertains directly to the harm being alleged. Id. (“Impertinent matter consists of statements that do not pertain, and are not necessary, to the issues in question.”) (quotation marks and citation omitted). Finally, a claim for damages is not scandalous, and Handi-Craft has not alleged as much.

Slip op., at 12066-67.  The Court concluded that to permit the use attempted by the defendant would create a redundancy within the federal rules.  I say let's have less time-wasting on pleadings squabbles and more time on substance.

Ninth Circuit: Court faced with question of first impression when asked to construe CCRAA

In a suit alleging violation of the California Consumer Credit Reporting Agencies Act (“CCRAA”), Cal. Civ. Code § 1785.1 et seq., the Ninth Circuit, in Carvalho v. Equifax Information Services LLC (9th Cir. Aug. 18, 2010), faced a question of statutory interpretation not yet answered by a California Court.  Explaining its task, the Court said:

The California courts have yet to consider whether a plaintiff must demonstrate that a disputed item is inaccurate to obtain relief for a violation of the CCRAA’s reinvestigation provisions. However, because the CCRAA “is substantially based on the Federal Fair Credit Reporting Act, judicial interpretation of the federal provisions is persuasive authority and entitled to substantial weight when interpreting the California provisions.” Olson v. Six Rivers Nat’l Bank, 3 Cal. Rptr. 3d 301, 309 (Ct. App. 2003) (internal citations omitted).

Slip op., 12117.  After examining how federal courts approached the same question under the FCRA, the Court concluded that "inaccuracy" would be a requirement of a claim arising under California's CCRAA:

“We generally adhere to the maxim of statutory construction that similar terms appearing in different sections of a statute should receive the same interpretation.” United States v. Nordbrock, 38 F.3d 440, 444 (9th Cir. 1994); see also Chiang v. Verizon New Eng. Inc., 595 F.3d 26, 37 (1st Cir. 2010) (deeming the term “inaccurate” in section 1681i(a) to be “essentially the same” as the term “incomplete or inaccurate” in section 1681s-2(b)). Moreover, we operate under the assumption that California courts would interpret the FCRA and CCRAA consistently. See Olson, 3 Cal. Rptr. 3d at 309. Accordingly, in considering whether Carvalho’s credit report was inaccurate within the meaning of the CCRAA, we are guided by Gorman’s “patently incorrect or materially misleading” standard.

Slip op., at 12119.

The Court also rejected a preemption argument, finding that the savings provision of the FCRA would not have saved a state law violation statute if the state law remedy were not also available.

Mazza, et al. v. American Honda Motor Company was argued before the Ninth Circuit today

In the matter of Mazza, et al. v. American Honda Motor Company, the Ninth Circuit heard oral argument today.  Defendant's Rule 23 Petition was granted after the District Court certified UCL and CLRA claims on a nationwide basis.  The District Court's choice-of-law analysis was the primary focus.  If reports are accurate, The Ninth Circuit may very well send the matter back to the trial court for some adjustment to the choice of law analysis and further consideration of whether any other state's interests outweigh California's strong interests in regulating the conduct of its corporate citizens and ensuring that they deal appropriately with all consumers, wherever situated.  Or the Court might decide that, in this particular case, the comparison of interests was not shown to require the application of other laws.  You can listen and decide for yourself here.

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

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.