Articles from May 2011

In 1925, apparently responding to mass hostility toward arbitration agreements, Congress passed the Federal Arbitration Act (FAA), which expressly codified the enforceability of contractual arbitration provisions, “save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. It is this “saving clause” that provided the most formidable logical obstacle to the AT&T v. Concepcion majority’s creation of a plausible rationale for its holding.

Later, California pioneered the doctrine of unconscionability in both its common law and its statutory law, codifying the judicial authority to refuse enforcement of an unconscionable contract in California Civil Code section 1670.5(a) (and leaving no doubt as to the State’s policy choice about unconscionable contracts). Thus, the FAA’s “saving clause” would appear to quite straightforwardly apply, to the extent that California’s unconscionability doctrine bars the enforcement of all unconscionable contracts, not just contracts with arbitration provisions deemed unconscionable.

Faced with this reading of the FAA’s plain text, the Scalia-authored AT&T majority opinion offers what would be at best a C-plus exam answer, with a convoluted analogy to a case finding “unconscionable or unenforceable as against public policy consumer arbitration agreements that fail to provide for judicially monitored discovery.” AT&T v. Concepcion, 131 S. Ct. 1740, 1747 (2011). Expounding on the same idea, the opinion notes that “[o]ther examples are easy to imagine.” Id. No doubt they are, but this raises the question: How exactly is it that California Civil Code section 1670.5(a) doesn’t apply equally to all contracts? Section 1670.5 would seem to be the exemplar of a statute that puts contracts to arbitrate on “equal footing” with other contracts—the very equality that those who campaigned against arbitration abuse sought in fighting for and passing the FAA.

Yet after meandering through the implications of imagined statutes and implicitly conceding that California’s unconscionability doctrine does in fact apply equally to all contracts, the AT&T opinion simply concludes that as an “obstacle” to arbitration, the doctrine is preempted by the FAA—notwithstanding that the text of the FAA’s “saving clause” contains no such proviso. With an unexplained departure from his strict constructionist, stick-to-the-text jurisprudence, Scalia finds endorsements of arbitration’s efficiency in its legislative history sufficient to graft the necessary exception onto the FAA saving clause—ironic in light of Scalia’s embrace of the principle that “the act cannot be held to destroy itself.” Id. at 1748. In that the only way to deal with the FAA’s saving clause was to destroy it, though, that’s exactly what happened.

The full AT&T v. Concepcion opinion is available here.

Building on the trend in which consumer class actions increasingly adopt a doctrine of presumed reliance, Northern District Judge Jeffrey White recently certified a nationwide class in Wolph v. Acer, No. 09-01314 (N.D. Cal. filed Mar. 25, 2009). Other courts have embraced the same presumption of reliance, which as a practical matter typically defeats defendants’ most potent predominance arguments, to the effect that class treatment would be too unwieldy were it to entail an individualized inquiry into each class member’s motivation for buying the product. See, e.g., Fitzpatrick v. General Mills, No. 10-11064, 2011 U.S. App. LEXIS 6047 (11th Cir. Mar. 25, 2011) (adopting presumption of reliance as to purported health benefits of yogurt); Cole v. Asurion Corp., 267 F.R.D. 322 (C.D. Cal. 2010) (granting certification on omission-based liability theory); Wolin v. Jaguar Land Rover North America, 617 F.3d 1168 (9th Cir. 2010) (reversing denial of certification where district court abused discretion; common questions predominated as to defendant’s duty to disclose information a reasonable consumer would deem material).

By obviating the individualized causation inquiries that the defendants had argued precluded certification, the Fitzpatrick, Cole, Wolin and, now, Wolph courts have articulated what can fairly be called an established doctrine, at least as to consumer class actions.

The Wolph v. Acer plaintiffs alleged that the notebook computers they bought from Acer frequently froze, crashed, and required re-starting (which was typically slow), owing to an inherently deficient memory capacity. See cert. order at 1-2. The defendant’s opposition to certification argued a lack of ascertainability, typicality and adequacy, each of which was dispatched with relative ease. See Id. at 3-12. It was the defendant’s predominance argument, and specifically that the plaintiffs were not entitled to a class-wide presumption of reliance or causation under California’s consumer protection statutes, that plainly engaged the bulk of Judge White’s consideration, as he ultimately rejected the predominance defense, holding that individualized reliance on specific misrepresentations is not required, and that the standard for demonstrating class-wide reliance is presumed from a showing that the misrepresentation is material. Id. at 14.

The certification order is available here.

In re UPS Wage and Hour Cases: Court of Appeal Reverses Defendant’s Fee Award In a recent decision that is likely to discourage wage-and-hour class action defendants from seeking attorneys’ fees, California’s Second Appellate District, Division Eight, reversed the trial court’s award of $100,000 in fees to UPS after it prevailed at a rare jury trial as to misclassification-based overtime claims. See In re UPS Wage and Hour Cases, 192 Cal. App. 4th 1425, 1430 (Cal. Ct. App. 2011). Thus, despite having won the case, UPS was deemed not entitled to any attorneys’ fees whatsoever under California statutory and common law authority, which has deliberately guarded against creating disincentives to employees seeking to enforce workplace rights through class actions.

In a closely-reasoned decision, the unanimous three-justice panel carefully examined each of the plaintiff’s six causes of action on which UPS had prevailed, and concluded that there was not a basis for UPS’s recovery of attorneys’ fees as to any of the causes of action. Although the review of decisions awarding attorneys’ fees is ordinarily conducted under an abuse of discretion standard, here, because statutory interpretation was at issue, the In re UPS panel conducted an entirely de novo review. See id. at 1431.

Justice Grimes began by examining the interplay between Labor Code section 218.5, the bilateral fee-shifting statute, and Labor Code section 1194, which provides for the recovery of attorneys’ fees, but only to successful plaintiffs in minimum wage and overtime cases. See In re UPS at 1432-36. Underscoring that it was “[c]onstruing the entire statutory scheme with a view toward protecting employees,” the panel held that “a claim for remedial compensation under Labor Code section 226.7 does not trigger the reciprocal fee recovery provisions of Labor Code section 218.5. Since none of the claims on which UPS prevailed permit the recovery of attorney fees, the award of statutory fees to UPS was in error.” Id. at 1440.

The court’s exhaustive analysis noted that, although Section 1194 provides for fee awards only to prevailing employees on overtime compensation claims, Section 218.5 does not did not bar employers, here UPS, from seeking to recover the fees it incurred in defending the plaintiff’s other claims, such as: failure to provide meal and rest breaks; issuing statutorily non-compliant wage statements; common law conversion; and unfair competition. However, after analyzing each cause of action, the court concluded that there was no basis for UPS’s (or any similarly situated wage-and-hour defendant’s) recovery of fees. Section 1194 precluded recovery as to both state and federal overtime claims; Section 226 allowed fee awards to employees only; and California’s unfair competition law categorically does not authorize attorney fee awards. See In re UPS at 1432-35.

The key holding in this case for California’s wage-and-hour class action practitioners is that Section 218.5 does not reflexively imply that employer/defendants are entitled to recover attorneys’ fees, which will impact the numerous meal and rest break class actions still pending, many of which are stayed as the Supreme Court deliberates Brinker v. Superior Court, 80 Cal. Rptr. 3d 781 (Cal. Ct. App. 2008), rev. granted, 196 P.3d 216 (Cal. Oct. 22, 2008) (No. S166350).

The full opinion is available here.