Posts belonging to Category Caselaw Developments

This month, Judge Gonzalo P. Curiel of the Southern District of California issued a decision that bodes well for consumers seeking relief under the Rackateer Influenced and Corrupt Organizations Act’s (“RICO”) civil action provision. See Cohen v. Donald J. Trump, No. 3:13-cv-02519 (S.D. Cal. Aug. 2, 2016) (slip op. available here). The consumer class action, brought by former attendees of Donald Trump’s “Trump University,” gained national attention after Trump questioned the court’s impartiality given Judge Curiel’s Mexican heritage. Notwithstanding the hype, Judge Curiel’s order denying Trump’s Motion for Summary Judgment offers consumer plaintiffs a roadmap in the sometimes murky landscape surrounding RICO-based class actions.

RICO, enacted in 1970, contains a civil provision providing for treble damages and a private right of action, against certain fraudulent conduct. 18 U.S.C. § 1964(c). Liability under § 1962(c) requires (1) the conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985). “Racketeering activity” can include fraud with intent, including misrepresentations and material omissions, made over the mails or “wires.” Slip op. at 7.

The class, certified in 2014, alleged that Trump had violated RICO’s civil provision by portraying Trump University (“TU”) as a “university,” with instructors personally “handpicked” by Donald Trump himself. Slip op. at 2. TU sent consumers “Special Invitation[s] from Donald J. Trump” stating, “[m]y handpicked instructors and mentors will show you how to use real estate strategies,” and that “I can turn anyone into a successful real estate investor, including you.” Id. Discovery revealed an internal TU’s policy encouraging TU employees to “[t]hink[] of Trump University as a real University, with a real admissions process” and encouraging TU employees to “[u]se terminology such as ‘Enroll,’ ‘Register,’ and ‘Apply.’” Id. at 3.

In its motion, Trump argued that the plaintiffs sought “an unprecedented expansion of RICO law” by allowing civil RICO to become “a federal cause of action and treble damages” for every plaintiff in “garden-variety business disputes.” Slip op. at 7. Trump also argued policy dictated against applying civil RICO to consumer class action cases (a false advertising class action, Low, et al. v. Trump University, LLC, et al., No. 3:10-cv-00940, had already been filed; this Cohen RICO action was separately filed and litigated to address different harms). Id. at 10. Judge Curiel noted that while courts have often struggled with the scope of RICO’s civil provision, the U.S. Supreme Court in 1985 noted that Congress stated RICO should be “liberally construed,” and the policy implications of the statute’s breadth were issues for Congress, not the courts, to address. See Sedima, 473 U.S. at 481. The court also rejected the defendant’s argument that several courts have declined to apply RICO to “routine commercial relationships,” finding that in such cases, the plaintiffs had failed to establish an underlying element, such as knowing participation, financial loss, or the existence of an “enterprise.” See slip op. at 9-10.

The defendant further argued the plaintiffs could not show Mr. Trump “conducted the affairs of TU.” Slip op. at 10. Civil RICO requires the defendant to have “participated in the operation or management of the enterprise itself.” Id. (quoting Reves v. Ernst & Young, 507 U.S. 170, 183 (1993)). Mr. Trump argued his role was limited that of an investor and executive. The court noted that the statute’s use of the word “participated” makes clear that RICO liability is not limited to an individual or exclusive director or manager—it is enough for a defendant to play “some part” in directing the enterprise’s affairs. Id. at 12. Further, the court found persuasive the testimony of TU’s Chief Marketing Operator, who stated that, following the publication of TU’s first advertisement, Mr. Trump had asked why the advertisement had been placed on an even numbered page, when odd numbered pages are more visible to readers, calling Mr. Trump “very hands on.” Id. at 10-11 n5. The court found the plaintiffs had made a prima facie showing Mr. Trump had failed to rebut.

The court also rejected Trump’s arguments that the alleged omissions and misrepresentations were not material, finding that the plaintiffs’ evidence, including internal TU policies encouraging employees to use “real university” terminology such as “apply,” and “enroll,” and mailers addressed from Mr. Trump himself stating he had “handpicked” instructors, raised a genuine issue of material fact. Id. at 13-14. Lastly, the court rejected Mr. Trump’s argument that the plaintiffs had failed to show the requisite knowledge and intent, noting that “direct proof of knowledge and fraudulent intent—of what a person is thinking—is almost never available.” Id. at 16.

The court previously vacated pre-trial deadlines while the Motion for Summary Judgment was under submission. With the court’s recent order denying the motion in its entirety, trial dates will likely be reset.

Authored by:
Cody Padgett, Associate
CAPSTONE LAW APC

In Martin, et al. v. Yasuda, et al., No. 15-55696 (9th Cir. July 21, 2016) (slip op. available here), the Ninth Circuit Court of Appeals reaffirmed its holding that a court—not the arbitrator—determines whether arbitration has been waived, unless the arbitration agreement specifically reserves that task for the arbitrator, and found that the defendants’ litigation conduct over a seventeen-month period resulted in a waiver of the defendants’ right to arbitrate. This important ruling rejects the defendants’ attempt to manipulate the judicial and arbitral systems to gain an unfair advantage due to their litigation conduct. Slip op. at 21.

In Martin, students of the Milan Institute of Cosmetology (“Milan”) sued the school in federal court alleging that Milan was, in fact, their “employer” because they were required to perform unpaid work to graduate from Milan’s cosmetology program, including cleaning, sweeping, selling retail products, and promoting Milan’s services. Slip op. at 4. The students’ Enrollment Agreement contained an arbitration agreement that stated, “[a]ll determinations as to the scope, enforceability and effect of this arbitration agreement shall be decided by the arbitrator and not by a court.” Id. The plaintiffs filed their complaint on October 28, 2013, and the following events transpired during litigation: (1) the parties filed a Joint Stipulation to extend the time to file a motion for conditional and class certification, noting the considerable time and effort spent by the parties to conduct discovery to focus on the issue of whether Milan employed the students; (2) the court denied in part and granted in part the defendants’ motion to dismiss the plaintiffs’ First Amended Complaint, holding the plaintiffs could assert California state law claims; (3) the defendants answered a Second Amended Complaint and asserted arbitration as an affirmative defense; (4) the parties submitted a Joint Rule 26(f) Report detailing an eight-month period of discovery related to the “employee” issue and, at the scheduling conference, the court warned defense counsel about possibly waiving their right to arbitrate; (5) written discovery occurred and the deposition of Milan’s CEO was taken; and (6) seventeen months after the start of the case, the defendant moved to compel arbitration. Id. 5-9. The district court denied the defendant’s motion to compel arbitration, finding that the defendant had waived its right to arbitrate. The defendants then appealed.

The Ninth Circuit first held that there is a presumption that that the court, and not the arbitrator, should decide the waiver issue. Citing the Ninth Circuit’s decision in Cox v. Ocean View Hotel Corp., 533 F. 3d 1114, 1120-21 (9th Cir. 2008), the panel stated that waiver by litigation conduct is a gateway issue to be decided by the court, not the arbitrator, under the Supreme Court’s decision in Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002). Slip op. at 10-11. The broad language in Milan’s arbitration agreement assigning duties to the arbitrator does not overcome the presumption because the clause did not contain “clear and unmistakable language” that the arbitrator may decide the waiver issue. Id. at 12-13. Presumably, the arbitration agreement must clearly and specifically provide that only the arbitrator can determine whether litigation conduct waives the right to arbitrate. But, the court reasoned, such a provision would place this decision in the hands of the arbitrator, who is less familiar with the litigation than the court and with someone who has a financial interest in finding no waiver so that the arbitrator may keep the case. See id. at 12 n3.

The Court of Appeals, applying its arbitration waiver test announced in Fisher v. A.G. Becker Paribas, Inc., 791 F.2d. 691, 694 (9th Cir. 1986), then found that the defendants waived the right to arbitrate because they had engaged in conduct inconsistent with the right to arbitrate that prejudiced the plaintiffs. In so doing, the appeals court held that a statement by a party that is has the right to arbitration in the pleadings or motions is not enough to defeat a claim of waiver. Further, the court found it particularly key that the defendants had structured discovery, including a deposition, so that the trial court could rule on the defendants’ motion to dismiss on a key merits issue: whether the Cosmetology Act legally precluded the students from being classified as employees. Because the court found for the plaintiffs on the issue, the plaintiffs would be prejudiced by the delay in moving to arbitrate because they would be forced to re-litigate an issue on the merits on which they had already prevailed in court. Slip op. at 17. Finally, spending a lengthy amount of time litigating in the more complex federal court system inevitably causes the parties to spend more time, money, and effort than had they proceeded to arbitration. Id. at 18.

In affirming the district court’s decision, the Ninth Circuit agreed that the defendants couldn’t have their cake and eat it too: a party that signed a binding arbitration agreement and then is sued “can either seek to compel arbitration or agree to litigate in court. It cannot choose both.” Slip op. at 21 (emphasis added).

Authored By:
Robert Drexler, Senior Counsel
CAPSTONE LAW APC

In June, the Ninth Circuit Court of Appeals issued a ruling that could provide a significant boon to class action plaintiffs. In Vaquero v. Ashley Furniture Industries, Inc., et al. (9th Cir. June 8, 2016) (slip op. available here), the appellate panel affirmed a district court order granting certification in a wage and hour class action. In doing so, the court considered the applicability of several United States Supreme Court opinions from recent years, finding in favor of the Vaquero plaintiffs in each instance.

The Vaquero plaintiffs were commission-only salespeople who alleged that they were required to perform additional, non-sales work without being paid the requisite minimum wage for these tasks. The lower court certified the class, and the defendant-employer appealed, citing landmark U.S. Supreme Court cases Wal-Mart Stores, Inc. v. Dukes (564 U.S. 338 (2011)) and Comcast Corp. v. Behrend (133 S. Ct. 1426 (2013)), neither of which involved wage and hour issues.

Examining the commonality requirement, which requires that plaintiffs’ claims be capable of classwide resolution, the Ninth Circuit rejected the defendants’ reliance on Dukes. The appeals court distinguished Dukes from Vaquero, pointing out that the former was a Title VII discrimination case involving millions of employees and innumerable managerial decisions across thousands of store locations, while the present case has a proposed class of 600 employees who perform the same work, and whose injury is focused and objective as compared to Dukes. Thus, the Ninth Circuit in Vaquero limited the impact of Dukes on wage and hour commonality analyses.

As for the predominance requirement (that issues of law and fact predominate over individual issues), the court again shot down the defendants’ reasoning, this time with regard to Comcast, a consumer antitrust class action where the Supreme Court found a lack of predominance because the plaintiffs used a faulty damages model and were unable to demonstrate that their damages could be determined on a classwide basis. The panel concluded that the defendants’ interpretation of Comcast—that predominance cannot be found unless damages can be determined on a classwide basis—was too broad, and instead held that the plaintiffs need only “prove that damages resulted from the defendant’s conduct” in order to prevail. Slip op. at 8. Here, there was no doubt that the class members’ injuries had been caused by the employer’s conduct, unlike in the much more attenuated context of an antitrust action in Comcast. Id. at 9.

Finally, Vaquero references the recent Supreme Court decision in Tyson Foods v. Bouaphakeo, 136 S. Ct. 1036 (2016) (finding that representative evidence can be used to show both damages and liability) (previously covered on the ILJ here), noting that: “[t]he Supreme Court has not disturbed our precedent” and “the need for individual damages calculations does not, alone, defeat class certification.” Slip op. at 10. The Vaquero ruling not only paves the way for certification of this class of 600 Ashley Furniture employees, but will no doubt be helpful to many more California employees in the future.

Authored by: 
Robin Hall, Associate
CAPSTONE LAW APC

Last month, the Ninth Circuit applied the “suitable seating” framework from the California Supreme Court’s opinion in Kilby v. CVS Pharmacy, Inc., No. S215614 (Cal. April 4, 2016), for the first time in Brown v. Wal-Mart Stores, Inc., an unpublished decision. No. 12-17623 (9th Cir. June 8, 2016) (slip op. available here). Brown involved the Court of Appeals’ review of the district court’s grant of certification of a class of cashiers employed by Wal-Mart in California. In Kilby, the California Supreme Court answered questions certified by the Ninth Circuit involving California wage order requirements that “[a]ll working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.” Cal. Code Regs., tit. 8, § 11040, subd. 14(a) (Wage Order No. 4-2001) (Kilby previously covered on the ILJ here). After the California Supreme Court weighed in on the Kilby questions, the Ninth Circuit reversed and remanded two seating cases that were on appeal following denials of class certification: Kilby, No. 12-56130 (S.D. Cal. May 31, 2012, D.C. No. 09-cv-2051-MMA-KSC) and Henderson v. JPMorgan Chase Bank NA, No. 13-56095 (C.D. Cal March 4, 2013, D.C. No. 2:11-cv-03428-PSG-PLA).

In Brown, the Ninth Circuit applied the Kilby framework, affirming the lower court’s order granting certification. Wal-Mart had challenged the district court’s decision to certify the class, arguing the court had abused its discretion in finding that the requirements of commonality and predominance were met. See Fed. R. Civ. P. 23(a)(2) and 23(b)(3). Regarding commonality, the Ninth Circuit found the district court had not abused its discretion based on the lower court’s finding that both a common policy and a common nature of work were applicable to the proposed class, that is, that Wal-Mart had a common policy of not providing cashiers with seating, that cashiers spent the majority of their time working at registers, and that the work done by cashiers at registers was generally the same across variations in the stores, locations, and shifts. See slip op. at 2-3.

The Court of Appeals also noted that the district court’s consideration of whether cashiers spent the “majority” of their time working at register was inconsistent with Kilby, since the California Supreme Court rejected this “holistic approach” in favor of a more narrow analysis into each subset of tasks that employees were expected to perform in a particular location within the workplace. See slip op. at 3 n.1. However, since the Kilby interpretation would have been more beneficial for the plaintiffs than the “holistic approach” used by the district court and the district court had certified the class anyway, the Ninth Circuit found the application of the wrong legal standard to have been harmless error. Id. As to the predominance inquiry, the Ninth Circuit also found the district court had not abused its discretion based on the court’s conclusion that “a trier of fact could determine whether these common tasks could reasonably be performed while seated, and such a determination would apply to all Wal-Mart cashiers at its California stores,” since the answer to this question would determine whether Wal-Mart violated the Wage Order’s suitable seating provision as to all class members. Id. at 3-4.

The panel further noted that the plaintiffs’ claim under California’s Private Attorneys General Act (“PAGA”) does not require an individualized penalty assessment that would defeat certification. Slip op. at 4. The Ninth Circuit’s wording on this last issue apparently caused the defendants concern, as they have now filed a petition seeking rehearing en banc, despite the fact that the Brown decision is unpublished. Wal-Mart’s petition (available here) states that the panel’s conclusion failed to provide clear guidance and could lead to an expansive interpretation of PAGA that would permit aggregate penalties without any sort of individual assessment. In the alternative, Wal-Mart requests the court to grant rehearing and remand for reconsideration on the grounds that the Ninth Circuit’s reasoning that the Kilby framework appeared to be more beneficial for the plaintiff fell short of the “rigorous analysis” required by Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350-51 (2011).

The Ninth Circuit’s simple and straightforward application of the Kilby framework is a welcome sign of things to come for plaintiffs seeking to certify seating claims.

Authored by: 
Brandon Brouillette, Associate
CAPSTONE LAW APC