The RICO Trend in Class Action Warfare looks at the use of RICO suits against plaintiffs' counsel in mass action and class action filings, concluding that the tactic incorrectly attacks aggregate litigation procedures rather than specific, underlying fraudulent conduct.
The California Supreme Court held its (usually) weekly conference on December 23, 2009. The only notable event I noticed was:
- A Petition for Review was granted in O'Neil v. Crane Company. O'Neil is a toxic tort decision that concerns manufacturer liability when a non-dangerous component is incorporated into a package or system that is dangerous. In this case, the manufacturer supplies valves and pumps that were covered with an asbestos lagging/insulation. The Court of Appeal concluded that the component part defense did not apply when the parts were designed to be incorporated into a system that was not altered by the customer and had but one intended use. The decision conflicts with a recent opinion in Taylor v. Elliott Turbomachinery Co., 171 Cal. App. 4th 564 (2009).
June 29, 2009 was a busy day for California Supreme Court news. In Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (First Transit, Inc.) (June 29, 2009), the California Supreme Court issued the second of companion opinions addressing aspects of California’s unfair competition law (“UCL”) and the Labor Code Private Attorneys General Act of 2004 (“PAGA”) (Cal. Lab. Code § 2698, et seq.). See previous post on Arias. Because the decisional authority analyzing the recently-passed PAGA is sparse, Amalgamated is important to understanding the reach of PAGA and its role in securing civil penalties for California employees.
Amalgamated addressed two issues. First, the Supreme Court rhetorically asked whether “a plaintiff labor union that has not suffered actual injury under the unfair competition law, and that is not an ‘aggrieved employee’ under the Labor Code Private Attorney General Act of 2004, nevertheless bring a representative action under those laws (1) as the assignee of employees who have suffered an actual injury and who are aggrieved employees, or (2) as an association whose members have suffered actual injury and are aggrieved employees.” Slip op., at 2. Second, the Supreme Court asked whether “a representative action under the unfair competition law be brought as a class action.” Slip op., at 2.
As to the second issue, the Supreme Court noted that Arias sufficiently addressed that issue, holding that an action under the unfair competition law must be brought as a class action.
Before turning to the first issue, the procedural background of Amalgamated touches on a procedural practice recently the subject of appellate consideration. If you have practiced in the Civil Central West courthouse in Los Angeles, you may be familiar with that Court’s former practice of allowing parties to obtain early determinations of “threshold” issues. See post on Magana Cathcart McCarthy v. CB Richard Ellis, Inc. (May 21, 2009) (holding that early determination of "threshold issues" is not a substitute for the summary adjudication procedural requirements). As in Magana, the parties in Amalgamated briefed threshold issues. The trial court found that plaintiff unions lacked standing under the unfair competition law because the union had not suffered any injury themselves. The trial court further found that the unions lacked standing under PAGA because they were not “aggrieved employees.” The unions appealed and a divided Court of Appeal denied the petition.
The Supreme Court, however, granted the Petition and affirmed the trial court’s ruling. The unions could not be assigned the right to sue under the unfair competition law as a result of amendments passed as part of Proposition 64. The Supreme Court reasoned that the new requirement of “injury in fact” would be undermined by allowing non-injured assignees to stand in the shoes of the injured parties.
With direct standing through assignment precluded, associational standing was next considered. The Supreme Court found that the post-Proposition 64 UCL was at odds with the doctrine of associational standing: In proposing the amendment to the unfair competition law, section 1 of Proposition 64 sets forth its findings and declarations of purpose. Subdivision (e) of section 1 states: “It is the intent of California voters in enacting this act to prohibit private attorneys from filing lawsuits for unfair competition where they have no client who has been injured in fact under the standing requirements of the United States Constitution.” (Voter Information Guide, Gen. Elec. (Nov. 2, 2004) text of proposed law, p. 109, italics added.) That intent is reflected in the amended statutory language stating that an unfair competition law action can be brought only by a person who has suffered “injury in fact.” (Bus. & Prof. Code, § 17204, italics added.) This standing requirement is inconsistent with the federal doctrine of associational standing. That doctrine applies only when the plaintiff association has not itself suffered actual injury but is seeking to act on behalf of its members who have sustained such injury.
Slip op. at p. 10. Hence, the unions could neither be assigned the right to sue or bring suit as an association whose members had suffered actual injury.
Regarding PAGA, the Supreme Court repeated comments from Arias, observing:
In bringing such an action, the aggrieved employee acts as the proxy or agent of state labor law enforcement agencies, representing the same legal right and interest as those agencies, in a proceeding that is designed to protect the public, not to benefit private parties. (Arias v. Superior Court, supra, ___ Cal.4th ___, ___ [pp. 16-17]; see People v. Pacific Land Research Co. (1977) 20 Cal.3d 10, 17.)
Slip op. at p. 8. Keeping with the theme from Arias, it is interesting that the Supreme Court has again pointed out that, under PAGA, an aggrieved employee acts like a “proxy or agent” of the state labor law enforcement agencies.
Because PAGA created neither a property right nor any other substantive right, and because it did not create any legal obligations, PAGA claims cannot be assigned. That prohibition on assignment is not new; rather, it is consistent with previous Supreme Court holdings that preclude the assignment of a right to collect statutory penalties. Further, because PAGA allows only an aggrieved employee to bring an action to recover civil penalties, unions are foreclosed from asserting PAGA claims on behalf of their members. In effect, there is no associational standing available for a claim uniquely assigned to the employee by the State.
[Editor’s Note: A Contributing Author byline has been added for Shawn Westrick, given that he did not flake after one post.]
It is the conventional wisdom that multi-plaintiff litigation (mass actions) provides a superior vehicle for litigating tort claims. University of Pavia Ph.D. student Margherita Saraceno offers an alternative analysis. In her thesis, Group Litigation, Access to Justice and Deterrence, Saraceno utilizes economic analysis to propose that mass actions may reduce the overall deterrence effect of tort law. The working paper is available through the Social Science Research Network website. The abstract for the paper is as follows:
“Policy makers are currently evaluating group litigation as a device to guarantee effective access to justice and to improve deterrence in torts with multiple victims. This paper focuses on how group litigation affects: 1) access to justice, 2) the choice between settlement and litigation, 3) the settlement amount, and finally, 4) deterrence. The main finding is that group litigation does not always improve access to justice and deterrence. On the one hand, group litigation makes it easier for victims to sue, by creating scale economies and improving their confidence in the outcome of a trial. On the other hand, the group is costly for victims to organize and reduces the injurer‘s liability costs by facilitating settlement and creating scale economies at trial. The combined effect might be a reduction, rather than an increase, in the deterrent effect of tort law.
(Margherita Saraceno, Group Litigation, Access to Justice and Deterrence (2008) Amsterdam Center for Law & Economics Working Paper No. 2008-04 Available at SSRN: http://ssrn.com/abstract=1128058.)
As a economics major in my salad days, I find the premise underlying the research interesting, if a bit scanty on sufficiently broad econometric data to convince me that she's on to something. After reading the article, its seems like it should have been obvious that a mass litigation does create different economic incentives for a defendant. There are two key variables that jeopardize any overarching conclusion. First, it is difficult to say that any particular mass action will incorporate more or less litigants than single plaintiff litigation over the same issue againt the same defendant. If the mass action accumulates more plaintiffs (perhaps because the fear factor is lessened), then the mass tort may improve deterrence. It is difficult to find viable data to construct an econometric model that would generate valid results.
Second, it is difficult to determine whether a mass action will generate, on average, a higher or lower recovery for the relevant group than would have been recovered in individual suits. Certainly, the defendant faces higher litigation costs if numerous litigants sue individually. On the other hand, the extent of this effect may be de minimis, in light of the many procedural tools for consolidating or coordinating actions in a single court. A defendant can often avoid costs imposes by multiple, concurrent litigation.
In any event, it is good food for thought.