a California-centric collection of comments and resources about complex litigation and class action practice
Don't do what I did. Don't accidentally copy curly quotes when pasting some html code into a code injection area (a little under-the-hood work for authorship signals). Even basic html hyperlinks don't behave so well when you use curly quotes. Just sayin'.
This one made me too sad to write about it quickly. I had to grieve first. Another day, another chance for the United States Supreme Court to pork litigants with an arbitration ruling. In today's chapter, American Express Co., et al. v. Italian Colors Restaurant, et al. (June 20, 2013), we have the last saga in a long-running case addressing effective vindication of statutory rights. Merchants who accept American Express cards brought a class action against Amex for violations of the federal antitrust laws. According to the merchants, American Express used its monopoly power in the market for charge cards to force merchants to accept credit cards at rates approximately 30% higher than the fees for competing credit cards. This tying arrangement, they said, violated §1 of the Sherman Act. They sought treble damages for the class under §4 of the Clayton Act. The agreement with Amex contains a clause that requires all disputes between the parties to be resolved by arbitration. The agreement also provides that“[t]here shall be no right or authority for any Claims to be arbitrated on a class action basis.” In re American Express Merchants’ Litigation, 667 F. 3d 204, 209 (CA2 2012). The Court of Appeal reversed an order compelling arbitration, agreeing with the merchants that the expense required to prove antitrust claims was so high that no individual merchant would be able to vindicate their statutory rights without the ability to aggregate claimants in a class action.
The 5 Justice majority opinion, authored by Justice Scalia, focused its analysis on the meaning of the “effective vindication” exception to the requirements of the FAA, concluding that it did not apply to a prohibitively expensive process for resolving claims on an individual basis only:
But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy. See 681 F. 3d, at 147 (Jacobs, C. J., dissenting from denial of rehearing en banc). The class-action waiver merely limits arbitration to the two contracting parties. It no more eliminates those parties’ right to pursue their statutory remedy than did federal law before its adoption of the class action for legal relief in 1938, see Fed. Rule Civ. Proc. 23, 28 U. S. C., p. 864 (1938 ed., Supp V); 7A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure §1752, p. 18 (3d ed. 2005). Or, to put it differently, the individual suit that was considered adequate to a
ssure “effective vindication” of a federal right before adoption of class-action procedures did not suddenly become “ineffective vindication” upon their adoption.
Slip op., at 7. The majority, in referring in later discussion to Concepcion, made it very clear that, while you may have a “right” conferred by statute, you have no right to insist on an effective method to enforce that “right.”
The dissent, authored by Justice Kagan, offers a passionate but ultimately unavailing criticism of the majority’s holding:
Here is the nutshell version of this case, unfortunately obscured in the Court’s decision. The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (imposing a tying arrangement), but the same contract’s arbitration clause prevents him from doing so. That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool’s errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.
Slip diss. op., at 1. The dissent began by positing an uncontroversial proposition: “We would refuse to enforce an exculpatory clause insulating a company from antitrust liability—say, ‘Merchants may bring no Sherman Act claims’—even if that clause were contained in an arbitration agreement.” Slip diss. op., at 2. But the dissent then observed, “If the rule were limited to baldly exculpatory provisions, however, a monopolist could devise numerous ways around it.” Slip diss. op., at 3.
Applied as our precedents direct, the effective- vindication rule furthers the purposes not just of laws like the Sherman Act, but of the FAA itself. That statute reflects a federal policy favoring actual arbitration—that is, arbitration as a streamlined “method of resolving dis- putes,” not as a foolproof way of killing off valid claims. Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U. S. 477, 481 (1989). Put otherwise: What the FAA prefers to litigation is arbitration, not de facto immunity. The effective-vindication rule furthers the statute’s goals by ensuring that arbitration remains a real, not faux, method of dispute resolution. With the rule, companies have good reason to adopt arbitral procedures that facili- tate efficient and accurate handling of complaints. With- out it, companies have every incentive to draft their agreements to extract backdoor waivers of statutory rights, making arbitration unavailable or pointless. So down one road: More arbitration, better enforcement of federal statutes. And down the other: Less arbitration, poorer enforcement of federal statutes. Which would you prefer? Or still more aptly: Which do you think Congress would?
Slip diss. op., at 5-6. The balance of the dissent is an effective and scathing dismantling of the majority reasoning. In conclusion, Justice Kagain writes: “To a hammer, everything looks like a nail. And to a Court bent on diminishing the usefulness of Rule 23, everything looks like a class action, ready to be dismantled.” Slip diss. op., at 14. But it is for naught at this point. The majority opinion is the one that will rule day, and it is the one that should cause great concern if not checked legislatively.
Paul Bland, of Public Justice, was more than up to the challenge of explaining the intellectual dishonesty and depravity of the Supreme Court's most recent hatchet job on employees and consumers. Well, he didn't use those words, so consider that my editorial paraphrase of what happened in Episode 3. Available for download, streaming audio in your browser and through iTunes.
I've been slammed the past month, but this Sunday is the beginning of my effort to dig out. My co-host and I will have a special guest on to record the Class Re-Action podcast. Paul Bland, of Public Justice, is as well versed in the twists of class arbitration law as anyone you could find. I should have the episode finalized and available by Sunday night.
The press of obligations at work left little time for my blogging, which I regret. And, I haven't seen anything all that interesting in the class action/complex litigation arena in the last few weeks. That did change last week when, in Faulkinbury v. Boyd & Associates, Inc. (May 10, 2013), the Court of Appeal (Fourth Appellate District, Division Three) [What?!?] reconsidered its prior decision following remand after Brinker. The Court concluded that, along with the overtime class it previously ordered certified, the meal period and rest break claims should also have been certified.
Just to summarize, if my prose above was too painful to follow, the trial court denied class certification as to all claims, covered by three subclasses referred to as the Meal Break Class, the Rest Break Class and the Overtime Class. The Court of Appeal, in a decision previously published as Faulkinbury v. Boyd & Associates, Inc., 185 Cal. App. 4th 1363 (2010), review granted Oct. 13, 2010, S184995 (Faulkinbury I), reversed the order denying certification of the overtime class but affirmed the order denying certification of the Meal Break Class and the Rest Break Class. Then Brinker. Then review granted. Then remand with an order to vacate Faulkinbury I and reconsider in light of Brinker.
Summarizing the Supreme Court's guidance regarding the consideration of merits at the certification stage, the Court said:
The Supreme Court confirmed a class certification motion should not be a vehicle for resolving the merits of a claim, but recognized too that “[w]hen evidence or legal issues germane to the certification question bear as well on aspects of the merits, a court may properly evaluate them.” (Brinker, supra, 53 Cal.4th at pp. 1023‑1024.) The court concluded: “Presented with a class certification motion, a trial court must examine the plaintiff’s theory of recovery, assess the nature of the legal and factual disputes likely to be presented, and decide whether individual or common issues predominate. To the extent the propriety of certification depends upon disputed threshold legal or factual questions, a court may, and indeed must, resolve them. Out of respect for the problems arising from one-way intervention, however, a court generally should eschew resolution of such issues unless necessary. [Citations.] Consequently, a trial court does not abuse its discretion if it certifies (or denies certification of) a class without deciding one or more issues affecting the nature of a given element if resolution of such issues would not affect the ultimate certification decision.” (Id. at p. 1025.)
Slip op., at 6. Continuing, the Court observed that the Supreme 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.'" Slip op., at 7. The support for that last proposition was summarized as follows:
Brinker court cited three Court of Appeal cases: 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 v. Dollar Financial Group, Inc. (2008) 162 Cal.App.4th 1193 (Bufil). In Jaimez, Ghazaryan, and Bufil, the Court of Appeal held the trial court abused its discretion by denying class certification. (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, therefore, 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 courts in Jaimez and Ghazaryan also concluded that common issues predominated even if the employment policy did not affect each employee in the same way and damages would need to be proved individually. (Jaimez, supra, at pp. 1301, 1303‑1305; Ghazaryan, supra, at p. 1536.)
Slip op., at 7, n. 1.
This is one area in which California certification procedural law appears to track somewhat more favorably for certification than does federal law applying Rule 23. At the very least, it appears to conceptually negate the flavor-of-the-month argument, magically extracted from Wal-Mart, that a defendant is entitled to assert individual defenses in every case against every class member, thereby defeating class certification in virtually every conceivable case (which, logically, could not be true or someone might have noticed this over the decades upon decades of class action jurisprudence, but I digress as I so often do). Wal-Mart, a case about a specific intent type of violation, says nothing of the sort, absent very creative quote extraction, coupled with very creative editorial content used to describe that very creative quote extraction. But stated another way, Brinker doesn't diverge from the federal track so much as hold the line that California has charted for some time, while cagey defense counsel try to move the tracks over on the federal side. I suspect that, when the dust settles, the tracks will have moved back to a point closer to convergence, but not until there isn't much left of that Wal-Mart horse to beat.
Turning back to the Faulkinbury II decision, other observations of note include:
I can't promise that work obligations won't steal blogging time, but I will keep doing my best to highlight major decisions and events, intermingled with my brand of commentary.
Federal Rule of Civil Procedure 68 allows a defendant to pony up the dough to resolve a claim and avoid the expense of litigation so long as the amount to fully resolve the claim can be clearly calculated in full and is offered in full (more can be offered if the defendant wants to be sure that the full claim under any method of calculation is fully resolved by the offer). In Genesis Healthcare v. Symczyk, 569 U. S. ____ (April 16, 2013), the Supreme Court entirely ducked the issue of whether a Rule 68 offer moots a collective action filed under the FLSA, instead resting on a concession by the plaintiff in the court below. And thanks for nothing.
To sum up, the plaintiff brought a collective action under the Fair Labor Standards Act of 1938 (FLSA) on behalf of herself and “other employees similarly situated.” She ignored defendant’s offer of judgment under Rule 68. The District Court, finding that no other individuals had joined and that the Rule 68 offer fully satisfied her claim, concluded that the suit was moot and dismissed it for lack of subject-matter jurisdiction. The Third Circuit reversed. It held that her individual claim was moot but that her collective action was not, explaining that allowing defendants to “pick off” named plaintiffs before certification with calculated Rule 68 offers would frustrate the goals of collective actions. The case was remanded to the District Court to allow the plaintiff to seek “conditional certification,” which, if successful, would relate back to the date of her complaint.
Relying on the case or controversy requirement, the Court ducked the entire "pick off" issue:
While the Courts of Appeals disagree whether an unaccepted offer that fully satisfies a plaintiff ’s claim is sufficient to render the claim moot, we do not reach this question, or resolve the split, because the issue is not properly before us. The Third Circuit clearly held in this case that respondent’s individual claim was moot. 656 F. 3d, at 201. Acceptance of respondent’s argument to the contrary now would alter the Court of Appeals’ judgment, which is impermissible in the absence of a cross-petition from respondent. See Northwest Airlines, Inc. v. County of Kent, 510 U. S. 355, 364 (1994); Trans World Airlines, Inc. v. Thurston, 469 U. S. 111, 119, n. 14 (1985). Moreover, even if the cross-petition rule did not apply, respondent’s waiver of the issue would still prevent us from reaching it. In the District Court, respondent conceded that “[a]n offer of complete relief will generally moot the [plaintiff ’s] claim, as at that point the plaintiff retains no personal interest in the outcome of the litigation.” App. 93; 2010 WL 2038676, at *4. Respondent made a similar concession in her brief to the Court of Appeals, see App. 193, and failed to raise the argument in her brief in opposition to the petition for certiorari. We, therefore, assume, without deciding, that petitioners’ Rule 68 offer mooted respondent’s individual claim. See Baldwin v. Reese, 541 U. S. 27, 34 (2004).
Slip op., at 5. So, given that the Supreme Court said that it is refusing to consider the "pick off" issue, what has been the general reaction of the defense bar? Naturally they have already written that this means the "pick off" is completely acceptable. I happen to think that this means you shouldn't concede anything ever, even if the court you are before thinks you are a punk for holding fast to your view of the law.
Justice Kagan had a few choice words for the 5-4 majority in her dissent. She wrote:
The Court today resolves an imaginary question, based on a mistake the courts below made about this case and others like it. The issue here, the majority tells us, is whether a “ ‘ collective action’ ” brought under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. § 201 et seq., “is justiciable when the lone plaintiff's individual claim becomes moot.” Ante, at ––––. Embedded within that question is a crucial premise: that the individual claim has become moot, as the lower courts held and the majority assumes without deciding. But what if that premise is bogus? What if the plaintiff's individual claim here never became moot? And what if, in addition, no similar claim for damages will ever become moot? In that event, the majority's decision—founded as it is on an unfounded assumption—would have no real-world meaning or application. The decision would turn out to be the most one-off of one-offs, explaining only what (the majority thinks) should happen to a proposed collective FLSA action when something that in fact never happens to an individual FLSA claim is errantly thought to have done so. That is the case here, for reasons I'll describe. Feel free to relegate the majority's decision to the furthest reaches of your mind: The situation it addresses should never again arise.
Slip diss. op., at 1-2. Justice Kagan then observed that the underlying issue was already answered indirectly by the Supreme Court recently:
We made clear earlier this Term that “[a]s long as the parties have a concrete interest, however small, in the outcome of the litigation, the case is not moot.” Chafin v. Chafin, 568 U.S. ––––, ––––, 133 S.Ct. 1017, 1023, –––L.Ed.2d –––– (2012) (internal quotation marks omitted). “[A] case becomes moot only when it is impossible for a court to grant any effectual relief whatever to the prevailing party.” Ibid. (internal quotation marks omitted). By those measures, an unaccepted offer of judgment cannot moot a case. When a plaintiff rejects such an offer—however good the terms—her interest in the lawsuit remains just what it was before. And so too does the court's ability to grant her relief. An unaccepted settlement offer—like any unaccepted contract offer—is a legal nullity, with no operative effect. As every first-year law student learns, the recipient's rejection of an offer “leaves the matter as if no offer had ever been made.” Minneapolis & St. Louis R. Co. v. Columbus Rolling Mill, 119 U.S. 149, 151, 7 S.Ct. 168, 30 L.Ed. 376 (1886). Nothing in Rule 68 alters that basic principle; to the contrary, that rule specifies that “[a]n unaccepted offer is considered withdrawn.” Fed. Rule Civ. Proc. 68(b). So assuming the case was live before—because the plaintiff had a stake and the court could grant relief—the litigation carries on, unmooted.
Slip diss. op., at 3. Don't forget this admonition from Justice Kagan when you receive the inevitable pick-off attempt, followed by a motion to dismiss.
The Rees-Levering Motor Vehicle Sales and Finance Act protects consumers involved in, you guessed it, motor vehicle sales and finance transactions. In Ramirez v. Balboa Thrift and Loan (pub. Ord. April 12, 2013 and published April 22, 2013), the Court of Appeal (Fourth Appellate District, Division One) concluded that the trial court's decision to deny class certification of Plaintiffs' UCL claim asserting violation of the Rees-Levering Act was predicated upon an erroneous legal analysis.
Ramirez financed a car, but didn't make many payments in a timely manner. Ramirez then voluntarily surrendered the car. Balboa sold the car and asserted a deficiency. Ramirez then sued, contending that the NOI failed to comply with the Act.
On the legal issue, the Court said:
[A] seller cannot recover a deficiency unless the NOI specifically and timely notifies the buyer of the conditions precedent to loan reinstatement OR timely notifies the buyer that there is no right of reinstatement and provides a statement of reasons for this conclusion. Reading together sections 2983.2 and 2983.3, a seller/holder who wishes to preserve its rights to claim a deficiency must determine within a 60-day period after repossession whether a buyer is entitled to a reinstatement, and then notify the buyer of this decision. Given the Legislature's manifest intent to set forth the exclusive process for creditors to obtain a deficiency balance after a vehicle repossession or surrender, there is no room for reading additional exceptions into the statutory scheme.
Slip op., at 18. More interesting for class purposes, the Court also noted the following:
Equally important for class certification purposes, even assuming the statutory exception could be asserted after the statutory time period had expired, Balboa did not proffer any facts showing that any such exception would apply to any of the other class members. Instead, it merely stated that individual issues would predominate because it should be provided the right to "investigate" each class member to determine whether it could find any facts showing the applicability of any of the statutory exceptions. Without any foundational basis showing that such evidence could or would be discovered, this possibility does not raise a likelihood that individual issues would predominate over common issues in the litigation. (See Brinker, supra, 53 Cal.4th at p. 1025 [in deciding certification question court must examine the plaintiff's theory of recovery and "assess the nature of the legal and factual disputes likely to be presented," italics added].)
Slip op., at 20. While plaintiffs often consider their obligations only at the time of certification, this is a reminder to examine the defendant's showing in opposition carefully; if the defendant failed to support a contention, point it out.
I've covered the very interesting moves of attorneys from Initiative Legal Group to Capstone Law here. Now, a suit filed in San Francisco Superior Court, entitled Maxon v. Capstone Law, CGC-13-528884, offers a possible context for the rapid movement of attorneys from Initiative Legal Group to Capstone Law, and that context is disturbing. In a column on law.com, Scott Graham, of The Recorder, reports on the allegations contending that Capstone Law was formed to hide assets from a fraud lawsuit filed against Initiative Legal Group related to dealings with 600 clients. Scott Graham, Plaintiffs Shop Hit With New Ethics Suit, The Recorder (February 21, 2013).
On April 10, 2013, the California held its (usually) weekly conference. Significant results include:
Today the Ninth Circuit, in Busk v. Integrity Staffing Solutions, Inc. (9th Cir. April 12, 2013) joined other circuits in concluding that FLSA opt-in collective actions are not incompatible with state law claims asserted as Rule 23 class actions:
In sum, we agree with the other circuits to consider the issue that the fact that Rule 23 class actions use an opt-out mechanism while FLSA collective actions use an opt-in
mechanism does not create a conflict warranting dismissal of the state law claims.
Slip op., at 9. I will write up a bit more later, but this holding should put an end to the wasteful motion practice around this issue in the Ninth Circuit. Given the agreement manifesting between the Circuits, it is unlikely that we will see Supreme Court review of this issue any time soon.
The Complex Litigator reports on developments in related areas of class action and complex litigation. It is a resource for legal professionals to use as a tool for examining different viewpoints related to changing legal precedent. H. Scott Leviant is the editor-in-chief and primary author of The Complex Litigator.
