Pendergrass Rule Ends Run a Little Shy of 80 Years

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Since Bank of America etc. Assn. v. Pendergrass, 4 Cal. 2d 258, 263 (1935) (Pendergrass), California Courts have, to various degrees, excluded evidence of fraud when the fraud is directly contrary to the terms of a written agreement.  In Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Association (January 14, 2013), the California Supreme Court revisited the Pendergrass rule, concluding that it was time to overrule Pendergrass.

The plaintiffs in Riverisland restructured debt, secured by real property. They defaulted and the Association recorded a notice of default. After the plaintiffs repaid their loan, the Association dismissed the foreclosure proceedings. The plaintiffs then sued for fraud, contending that they were promised two years of forbearance by the Association’s Vice President in exchange for additional collateral. The plaintiffs did not read the subsequently prepared agreement and simply signed it. The trial court granted summary judgment, excluding evidence of fraud at odds with the writing pursuant to the Pendergrass rule. On appeal, the Court of Appeal reversed, narrowly construing Pendergrass. The Supreme Court granted review.

The Supreme Court observed that the Pendergrass rule has been criticized but followed by California courts, although Courts attempting to avoid its result have narrowly construed it.  The Supreme Court noted that the Court of Appeal in this case adopted such a narrow construction, deciding that evidence of an alleged oral misrepresentation of the written terms themselves is not barred by the Pendergrass rule.

Plaintiffs asked the Supreme Court to reconsider Pendergrass.  The Court agreed that there were good reasons to do so:

There are good reasons for doing so. The Pendergrass limitation finds no support in the language of the statute codifying the parol evidence rule and the exception for evidence of fraud. It is difficult to apply. It conflicts with the doctrine of the Restatements, most treatises, and the majority of our sister-state jurisdictions. Furthermore, while intended to prevent fraud, the rule established in Pendergrass may actually provide a shield for fraudulent conduct. Finally, Pendergrass departed from established California law at the time it was decided, and neither acknowledged nor justified the abrogation. We now conclude that Pendergrass was ill-considered, and should be overruled.

Slip op., at 2.

While this case arises in the context of an individual suit for fraud, it provides substantial relief for consumer class action cases alleging claims of fraud stemming from misrepresentations about the subject of a later written agreement.

The U.S. Supreme Court has agreed to hear Oxford Health Plan LLC's appeal of an order requiring it to consent to class arbitration

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Here we have yet another opportunity for the United States Supreme Court to clarify whether class arbitrations are appropriate without express consent to participate in a class arbitration.  The issue is described as follows:

Whether an arbitrator acts within his powers under the Federal Arbitration Act (as the Second and Third Circuits have held) or exceeds those powers (as the Fifth Circuit has held) by determining that parties affirmatively “agreed to authorize class arbitration,” Stolt-Nielsen S.A. v. Animalfeeds Int'l Corp., based solely on their use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under their contract.

This case concerns reimbursements to doctors.  And yet, the question that will likely remain unanswered is whether, in the employment context, the National Labor Relations Act preserves a right to concerted activity, including class litigation, even if in the arbitration context.  The case is entitled Oxford Health Plan LLC v. Sutter, and the docket is here.

More Supreme Court News from the December 14, 2012 Weekly Conference

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While I reported on two depublication orders on Wednesday, other activity of note occured at the California Supreme Court's Weekly Conference hed on December 14, 2012.  The Court Granted a Petition for Review in Reyes v. Liberman Broadcasting (in which the Court of Appeal reversed the denial of a petition to compel arbitration) and Ordered the matter Held pending the outcome of Iskanian.  Many years from now we may know more about the extent to which arbitration agreements will be enforced in different settings.

Bradley v. Networkers International LLC reverses denial of class certification after remand following Brinker decision

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The Brinker-related news is still flowing today.  While the Supreme Court was busy depublishing decisions that affirmed certification denials purportedly based on Brinker, the Court of Appeal (Fourth Appellate District, Division One) in Bradley v. Networkers International LLC (December 12, 2012) reversed the trial court's decision to deny class certification as to all but one cause of action (off-the-clock work).  The decision of the Court of Appeal follows an extended detour through the California Supreme Court.  The California Supreme Court granted plaintiffs' petition for review, and ordered the first Bradley decision (unpublished) held pending the high court's decision Brinker Restaurant Corp. v. Superior Court, 53 Cal. 4th 1004 (2012). The court then remanded the first Bradley opinion to the Court "with directions to vacate its decision and to reconsider the cause in light of Brinker . . . ."

The Court took its instructions seriously.  The Court received extensive supplemental briefing on Brinker and other decisions from the parties.  The Court concluded that the trial court erred when it refused to certify every claim.

The Court carefully reviewed Brinker's approach for analyzing class claims based on policies applicable to the class:

In finding that common issues predominated on this rest break issue, the high court emphasized that "[c]laims alleging that a uniform policy consistently applied to a group of employees is in violation of the wage and hour laws are of the sort routinely, and properly, found suitable for class treatment," citing with approval three Court of Appeal decisions: Jaimez v. Daiohs USA, Inc. (2010) 181 Cal.App.4th 1286 (Jaimez); Ghazaryan v. Diva Limousine, Ltd. (2008) 169 Cal.App.4th 1524 (Ghazaryan); and Bufil, supra, 162 Cal.App.4th 1193. (Brinker, supra, 53 Cal.4th at p. 1033.) In each of these decisions, the Court of Appeal held the trial court abused its discretion in denying class certification based on the predominance issue. (Jaimez, supra, at pp. 1299-1307; Ghazaryan, supra, at pp. 1534-1538; Bufil, supra, at pp. 1205-1206.) These courts reasoned that the plaintiffs were challenging a uniform employment policy that allegedly violated California law and thus this violation could be proved (or disproved) through common facts and law. (Jaimez, supra, at pp. 1299-1300; Ghazaryan, supra, at pp. 1536-1538; Bufil, supra, at p. 1206.) The Jaimez and Ghazaryan courts further found that common issues predominated even if the policy did not affect each employee in the same way and damages would need to be proved individually. (See Jaimez, supra, at pp. 1301, 1303-1305; Ghazaryan, supra, at p. 1536.)

Slip op., at 17-18.  (Moment of self-aggrandizement: At this point, I'm feeling pretty good about my work on Ghazaryan.)   The Court continued with a thorough analysis of the clarified standards for meal and rest period claims.  Notably, the Court highlighted the guidance provided by Justice Werdegar on the questions of whether meal period claims are categorically uncertifiable if the defendant raises as an issue the reason for the missed meal period:

Justice Werdegar stated that if an employer's records show no meal period for a given shift, a rebuttable presumption arises that the employee was not relieved of duty and no meal period was provided, shifting the burden to the employer to show the meal period was waived. (Id. at p. 1053.) Justice Werdegar further stated that "[w]hile individual issues arising from an affirmative defense can in some cases support denial of certification, they pose no per se bar [citations]." (Ibid.)

Slip op., at 20.

Later in the opinion, the Court also concluded that the question of independent contractor status is generally one that turns on common issues:

Under both the Borello and Martinez standards, the evidence relevant to the factual question whether the class members were employees or independent contractors is common among all class members. Each of the class members signed a standard "Independent Contractor Agreement" that characterized the worker as an independent contractor; each class member was engaged in a similar occupation (skilled labor in installing or servicing cell sites); each class member was required to work full time and to be available on every working day and during assigned "on call" times; each class member was told how to prioritize each day's jobs; each class member received hourly pay, rather than pay by the job; each class member submitted timesheets to Networkers and Networkers' customers for approval; and each class member was required to use a specific set of tools on the job and to obtain those tools from Networkers. Additionally, although Networkers' standard contract stated that the workers had the right to control the manner and means of the work, including that the workers were permitted to subcontract the work, Networkers had specific time and place job requirements that all workers were required to follow, and the workers could not deviate from these rules or delegate the work.

Slip op., at 23.  The Court continued:

Networkers argued below that there would be a need for individualized proof because of differences among the workers pertaining to job titles, skill levels, pay grades, and the specific type of repair or installation work. However, with respect to the issues "likely to be presented" in the litigation (Brinker, supra, 53 Cal.4th at p. 1025), these distinctions are not significant. The fact that some workers engaged in repair work and others engaged in installation work, or that workers had different pay grades or worked for different lengths of times on particular days, is not central to the issue whether the workers here were employees or independent contractors under the Borello or Martinez tests. (See Martinez, supra, 49 Cal.4th at p. 76; Borello, supra, 48 Cal.3d at pp. 350-351.) Under the analysis, the focus is not on the particular task performed by the employee, but the global nature of the relationship between the worker and the hirer, and whether the hirer or the worker had the right to control the work. The undisputed evidence showed Networkers had consistent companywide policies applicable to all employees regarding work scheduling, payments, and work requirements. Whether those policies created an employer-employee relationship, as opposed to an independent contractor relationship, is not before us. The critical fact is that the evidence likely to be relied upon by the parties would be largely uniform throughout the class.

Slip op., at 24-25.  Unequivocal.  Seems like that IC pendulum is swinging back towards a presumption that IC classification is customarily a question suitable for certification.

The Court then returned to the specific claims in the case before it, applying Brinker's standards to the claims and trial court record.  Rather than wade through that discussion, I will offer this observation.  The employer chose to classify installers and repair techs as independent contractors.  When it made that choice, it also chose not to provide meal periods and authorize rest breaks.  It had no policy for them.  Based on Brinker, the Court concluded that this arrangement raised common questions and let the employer live with the consequences of its choice.

And, while the Court distinguished Lamps Plus and Chipotle, it need not have worried about them; they were depublished today.

Supreme Court depublishes Hernandez v. Chipotle and Lamps Plus

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After a long dry spell, we finally have a busier day for class action news.  And it all relates to Brinker!  I've missed you, Brinker news!  As part of its weekly conference, the California Supreme Court depublished the post-Brinker appellate court decision in Lamps Plus Overtime Cases and Hernandez v. Chipotle Mexican Grill.  It appears as though the California Supreme Court is not entirely supportive of the analysis supplied by the Second Appellate District, Division Eight, as it applied the Supreme Court's guidance in Brinker.

Upcoming Bridgeport Wage & Hour Program in Los Angeles

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On December 13 and 14, at the Westin Bonaventure Hotel, Bridgeport will hold its annual Wage & Hour Litigation and Management Conference.  Here is an excerpt from the summary of program:

This year's program will focus on the ever increasing use of PAGA in wage and hour litigation; key developments in the case law interpreting the white collar exemptions, the enforcement of arbitration agreements and the rules for settling class claims; and increased and coordinated efforts by government agencies to enforce the wage and hour laws. The program will also explore the unique challenges associated with trying wage and hour claims on a class and individual basis with practitioners who have actually tried such cases in court.

I will be accepting the challenge of making Discovery Strategies sound exciting right after lunch.  I can do; I know I can.

Second Appellate District concludes that Gentry remains good law, despite Concepcion

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While it may not last much longer than it takes the ink to dry on the opinion, the Court of Appeal (Second Appellate District, Division One), in Franco v. Arakenian Enterprises, Inc. (November 26, 2012) considered a significant question: "The question on appeal is whether Gentry was overruled by Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) 559 U.S. ___ [130 S.Ct. 1758] (Stolt-Nielsen) and AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ [131 S.Ct. 1740] (Concepcion)."  Slip op., at 3.  Summarizing a 65-page opinion, the Court said:

We conclude that Gentry remains good law because, as required by Concepcion, it does not establish a categorical rule against class action waivers but, instead, sets forth several factors to be applied on a case-by-case basis to determine whether a class action waiver precludes employees from vindicating their statutory rights. And, as required by Stolt-Nielsen, when a class action waiver is unenforceable under Gentry, the plaintiff's claims must be adjudicated in court, where the plaintiff may file a putative class action. Accordingly, we affirm.

Slip op., at 3.

The decision follows an earlier opinion in the matter, Franco v. Athens Disposal Co., Inc., 171 Cal. App. 4th 1277 (2009) (Franco I).  That procedural and factual history is extensive, and I won't summarize it.  The opinion also contains a footnote indicating that it invited comment on D.R. Horton, but because Franco did not respond to the request, the Court declined to address the impact of that matter.

 The decision also has an exhaustive review of arbitration decisions in the context of statutory claims.  After that history, the Court examined the reach of the Concepcion.  An extended portion of the Court's analysis cited approvingly to a law review analysis: Gilles & Friedman, After Class: Aggregate Litigation in the Wake of AT&T Mobility v. Concepcion (2012) 79 U.Chi. L.Rev. 623.

Ultimately, after looking at the Question Presented in Concepcion, the Court concluded that, in this case, Franco lacked the means, not the incentive, to pursue his claims.  That distinction, the Court held, justified the trial court's decision to deny the petition to compel arbitration.

Then, tucked right into the end of the opinion, the Court offered a monumental observation that would have had great significance if the Court had considered D.R. Horton:

Which brings us to the subject of Concepcion's effect, if any, on PAGA claims. We have already concluded that Athens Services's arbitration agreement — the MAP — contains two unenforceable clauses: the class action waiver and the prohibition on acting as an attorney general. (See Franco I, supra, 171 Cal.App.4th at pp. 1297–1300, 1303; fn. 2, ante.) Those clauses operate independently of each other: One restricts Franco‘s pursuit of his rest and meal period claims while the other prohibits his recovery under the PAGA. Together, they render the MAP tainted with illegality, making it unenforceable and permitting Franco to adjudicate his claims in a judicial forum. (See Franco I, at p. 1303; fn. 2, ante.) Concepcion does not preclude a court from declaring an arbitration agreement unenforceable if the agreement is permeated by an unlawful purpose.

Slip op., at 64.  See that?!  Right there?!  This Court gets it!  If you impose a contract that violates the law (e.g., the NLRA), then the contract is unenforcable in Court on the general ground of illegality.  Any contract that violates the NLRA, not just arbitration agreements, is void and unenforceable.  How hard is this, really?  And here we finally see a Court clearly articulate the illegality defense analysis, but the Court declined to address the NLRA argument because one of the parties was too busy to answer.  Wonderful.

Of course, this case may vanish for years when it gets sucked up into the California Supreme Court's Gentry re-examination.