Posts belonging to Category Caselaw Developments

Last month, Judge David O. Carter of the Central District of California issued an order granting in part Hyundai’s Motion to Dismiss and/or Strike Allegations in First Amended Complaint in Glenn, et al. v. Hyundai Motor America, et al. No. SA CV 15-2052-DOC (June 24, 2016 C.D. Cal.) (slip op. available here). The Glenn plaintiffs had alleged that the Hyundai vehicles’ panoramic sunroofs had a tendency to spontaneously shatter. Notably, the National Highway Traffic Safety Administration (“NHTSA”) had already begun investigating the same sunroof issues in the Sorento, a vehicle produced by Kia, Hyundai’s sister company. The Glenn plaintiffs demanded injunctive relief in the form of a recall. Hyundai moved to dismiss the plaintiffs’ prayer for a recall injunction under the doctrines of primary jurisdiction and preemption. The district court, in addition to leaving intact the plaintiffs’ remaining fraud-based claims and allowing the plaintiffs to have standing to represent consumers who purchased different vehicles, denied Hyundai’s motion on the grounds of primary jurisdiction and preemption, providing guidance for other class action plaintiffs on how to avoid such a dismissal.

The primary jurisdiction doctrine applies, exempting an issue from federal court jurisdiction, based on: “(1) the need to resolve an issue (2) that has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration.” Slip op. at 24 (quoting Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 760 (9th Cir. 2015) (internal citations omitted)). The district court in Glenn held that, applying these considerations, the primary jurisdiction doctrine did not apply. As to the first two elements, the court found that because the plaintiffs sought monetary relief—relief beyond what NHTSA can provide in a recall—there is a substantial need to resolve the issue in court. Id. Regarding the third factor, there was also no authority suggesting that Congress intended NHTSA to have exclusive regulatory authority over vehicle safety. Id. at 24. Even though Hyundai had been asked to cooperate with NHTSA in its Kia Sorento sunroof investigation, the court found that the scope of NHTSA’s investigation did not clearly cover all of the Glenn class vehicles and thus, no actual conflict existed between the plaintiffs’ claims regarding the Hyundai sunroofs and NHTSA’s Kia investigation. Id. at 25 (quoting In re Toyota Motor Corp. Unintended Acceleration Mktg. Sales Practices and Prods. Liab. Litig., 754 F. Supp. 2d 1145, 1199 (C.D. Cal. 2010)). Finally, the court noted that the plaintiffs’ claims were strictly based on state and federal consumer protection laws, as opposed to the National Traffic and Motor Vehicle Safety Act (“Safety Act”) or NHTSA regulations, and thus there is no need to ensure uniformity of regulation and NHTSA is not better-equipped than the court to address the issues presented. Id.

Similarly, the court held that the plaintiffs’ request for injunctive relief was not preempted by the Safety Act at this point, finding that Hyundai had not “met its burden of showing that it was Congress’ clear and manifest intent for the Safety Act to preempt the relief Plaintiffs seek pursuant to their State law claims.” In re Toyota, at 1197 (emphasis added). Hyundai failed to show that the ongoing NHTSA investigation with Kia encompasses all the models of the Glenn class vehicles, and thus, the court declined to find preemption because there was no actual conflict between the relief the plaintiffs sought and the Safety Act. Slip op. at 26.

These findings are instructive when developing a car class action where a NHTSA investigation is already ongoing and the plaintiff is confronted with a defendant’s argument that its claims for a recall injunction should be dismissed due to the doctrines of primary jurisdiction or preemption. Plaintiffs should consider demanding monetary relief, distinguishing the vehicles at hand from those under investigation by NHTSA, and basing their claims strictly on state and federal consumer protection laws, with no reference to the Safety Act or NHTSA Regulations, to avoid primary jurisdiction and preemption.

Authored by: 
Tarek Zohdy, Associate
CAPSTONE LAW APC

Earlier this year, the United States Supreme Court decided Campbell-Ewald Co. v. Gomez, No. 14-857 (U.S. Sup. Ct. Jan. 20, 2016) (previously covered on the ILJ here). The Court, in a majority opinion authored by Justice Ginsburg, focused on traditional contract law principles and concluded that a class action plaintiff’s case is not mooted where the plaintiff rejects an offer to settle his or her individual claim. The case was sent back to the district court for adjudication. However, the Court’s decision in Campbell-Ewald provided arguably more questions than answers in the debate over the Article III consequences of plaintiffs’ unaccepted offers of individual relief in class actions. In particular, the Supreme Court left it to the lower courts to reconcile the suggestion that an individual claim may be moot where “a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount” while emphasizing that “a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.” Campbell-Ewald Co. v. Gomez, slip op. at 11.

The Ninth Circuit has since attempted to address the ambiguities left by the Court in Campbell-Ewald. In Chen v. Allstate Insurance Co., a class action alleging violations of the Telephone Consumer Protection Act, the defendant deposited the full amount of the named plaintiff’s individual claim in an escrow account payable to the plaintiff and agreed to an injunction to satisfy the plaintiff’s individual claims. No. 13-16816 (9th Cir. April 12, 2016) (previously covered on the ILJ here). However, the Ninth Circuit in Chen concluded that the defendant’s actions were insufficient to moot the plaintiff’s claim based on its interpretation of Campbell-Ewald. The appeals court in Chen concluded that the escrow account did not equate to actual receipt of the complete relief available to plaintiff and entering judgment on the plaintiff’s individual claims before he had a fair opportunity to move for class certification contradicts the Court’s reasoning in Campbell-Ewald.

On June 3, 2016, Judge Dolly M. Gee of the Central District of California, now equipped with guidance from the U.S. Supreme Court and Ninth Circuit, turned to Campbell-Ewald’s motion to dismiss for lack of jurisdiction, or, in the alternative, the defendant’s motion for entry of judgment for the plaintiff and a motion for leave to deposit funds with the court, which were filed in March 2016. See Order re: Defendant’s Motion to Dismiss, Gomez v. Campbell-Ewald Co., No. CV-10-2007 DMG (slip op. available here). Following the Supreme Court’s decision, Campbell-Ewald sent the plaintiff’s counsel a certified check for $10,000 and asked the district court to accept a payment in the same amount. The defendant argued that the certified check to the plaintiff’s counsel constituted an “unconditional, irrevocable” payment and, as such, had been actually received and accepted by the plaintiff, and therefore rendered the plaintiff’s claims moot. Id. at 3. However, the court disagreed, stating that the defendant may not “force Gomez to accept a settlement which has not been negotiated for or accepted merely by sending his counsel an unsolicited check and deeming it ‘unconditional’ and ‘irrevocable.’” Id. Further, the court followed Chen, finding that a judgment of complete relief on a plaintiff’s individual claim is inappropriate in a class action where the plaintiff has not yet been afforded a “fair opportunity to show that certification is warranted.” Id. (quoting Chen, internal citations omitted).

Ultimately, the district court denied Campbell-Ewald’s motions to dismiss and for leave to deposit funds with the court, and did not enter judgment in the plaintiff’s favor. By preserving Gomez’s claims and narrowing the types of transactions that may constitute acceptance of an individual settlement offer in a class action, the district court further limited the ability of a defendant in a class action to unilaterally moot a case via an unaccepted offer of judgment. Additionally, the district court, as in Chen, highlighted the Supreme Court’s emphasis on providing plaintiffs with a fair opportunity to move for certification in class actions.

Authored by: 
Trisha Monesi, Associate
CAPSTONE LAW APC

Plaintiffs’ attorneys are more than familiar with the term “document dump.” This practice, particularly problematic in the plaintiffs’ class action bar, involves a defendant producing a large volume of documents that either includes (a) numerous irrelevant documents randomly mixed with relevant documents, or (b) documents generally produced in no cognizable order whatsoever. In wage-and-hour class actions, some of the most important documents to the case are time and pay records. Those records can help confirm or bolster theories of liability based on the employer’s actual practices, they can help demonstrate that the employer actually implemented illegal policies (such as non-compliant meal period policies or a policy of paying overtime at the wrong rate), and they are vital in establishing class-wide damages.

A document dump of time and pay records produced in “no cognizable order” presents unique problems for plaintiffs’ attorneys who need to analyze those records to calculate class damages. Under the seminal decision in Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), the Supreme Court held that when it comes time to prove damages: 

When the employer has kept proper and accurate records the employee may easily discharge his burden by securing the production of those records. But where the employer’s records are inaccurate or inadequate and the employee cannot offer convincing substitutes a more difficult problem arises. The solution, however, is not to penalize the employee by denying him any recovery on the ground that he is unable to prove the precise extent of uncompensated work. . . . In such a situation we hold that an employee has carried out his burden if he proves that he has in fact performed work for which he was improperly compensated and if he produces sufficient evidence to show the amount and extent of that work as a matter of just and reasonable inference.

Mt. Clemens, 328 U.S. at 687-88 (emphasis added). Employers may try to limit Mt. Clemens to cases brought under the Fair Labor Standards Act (“FLSA”), cases in which keeping specific records is required by statute, or cases involving off-the-clock work. However, two separate rulings in Villalpando v. Exel Direct, Inc., Consolidated Case Nos. 12-cv-04137-JCS, 13-3091-JCS (N.D. Cal.), provide some hope—and persuasive authority—for using the Mt. Clemens standard in various types of cases, including cases brought under the California Labor Code.

The Villalpando plaintiffs are delivery drivers for Exel Direct who filed a class action suit alleging that they were misclassified as independent contractors and asserting state labor law claims. On April 21, 2016, in ruling on the defendant’s motion to decertify a class, the Villalpando court first held that “[t]he Mt. Clemens rule is not limited to FLSA cases. It has also been invoked in cases involving state law wage and hour claims based on the same reasoning . . . that it would unfairly penalize employees to deny recovery because of the employer’s to keep proper records.” Villalpando v. Exel Direct, Inc., Consolidated Case Nos. 12-cv-04137-JCS, 13-3091-JCS, 2016 WL 1598663, at *6 (N.D. Cal. April 21, 2016) (“Villalpando I”) (slip op. available here).

The interesting part of Villalpando I was the court’s rejection of Exel’s argument that the plaintiffs could not rely on the Mt. Clemens rule “because it has produced to Plaintiffs over 4 million paper documents that included paper manifests and timesheets, and that it was Plaintiffs’ obligation to review all of these documents to determine the actual damages of the class members.” Slip op. at *8. The decision addressed what it truly means to keep adequate records. The court observed that, “[a]side from the difficulty of reviewing millions of paper documents,” the documents “were not organized in any particular manner, were mixed up with other, irrelevant documents, and are sometimes illegible” and that there was no way to know if they were complete. Id. at *9. Under such circumstances, “[Defendant] Exel has not demonstrated that it maintained adequate records,” and the court ruled that the Mt. Clemens rule applied. Keeping “adequate records” thus means something more than simply technical compliance with recordkeeping obligations, it means keeping records in a manner that allows others to access them, interpret them, and audit them. Further, the Villalpando I court held that the Mt. Clemens rule applies to cases even where there is no statutory duty to keep the specific records at issue. The case asserted claims for expense reimbursements under California Labor Code section 2802. Although the Labor Code does not require employers to keep records of employee expenses, the court held that it was “obvious” that the employer’s duty to reimburse employees for expenses triggered some recordkeeping obligation. Id. at *9. Thus, the Mt. Clemens “just and reasonable” rule for establishing damages extends beyond FLSA cases and beyond situations involving an explicit statutory recordkeeping obligation.

About one month later, the Villalpando I court decided motions in limine. In Villalpando v. Exel Direct, Inc., __ F.R.D. __, 2016 WL 2937480, at *15 (N.D. Cal. May 20, 2016) (“Villalpando II”) (slip op. available here), plaintiffs moved to preclude the employer from arguing that plaintiffs “may not prove their claims based on reasonable inference, estimates and representative testimony.” The court granted the motion and prohibited the employer from arguing that the damages methodology was unreasonable for failure to use the actual receipts or rely on the employer’s paper records, which the court reiterated were inadequate. Id. The court, recognizing that the decision of whether to use the Mt. Clemens rule “turns on the Court’s determination of whether Exel maintained adequate records,” affirmed the April 21 order and held that the employer’s records were inadequate. Id. The court also dismissed the employer’s argument “that the employees must demonstrate that an employer’s records are inadequate before they will be entitled to prove their claims by ‘just and reasonable inference’.” Id. The court placed the burden on the employer to demonstrate that it did maintain adequate records because “it is the employer who is in the best position to demonstrate that its records are complete and accurate.” Id. The court again found that the employer had not carried its burden, and that the Mt. Clemens rule applied.

The two Villalpando rulings are important authority of which every wage-and-hour practitioner in California should be aware. This case holds three victories for employees: (1) the Mt. Clemens rule applies outside the FLSA, to California Labor Code claims; (2) it is the employer’s burden to establish that it produced “adequate records”; and (3) an employer’s recordkeeping obligation are not limited to those specified by statute. The cases also give plaintiffs’ counsel some authority to point to when employers demand a “to-the-penny” damages calculation. For example, in cases involving overtime or meal and rest period violations—where overtime hours and meal/rest premiums are paid at the “regular rate”—the employer may attempt to escape liability by holding plaintiffs to this type of overly strict, to-the-cent damages standard. Of course, in such cases, when trial arrives, the employer has already executed the “document dump” and effectively told the plaintiff “good luck trying to figure out our records and proving damages.” In those situations, plaintiff’s counsel can, and must, argue for the appropriate “just and reasonable inference” damages standard under Mt. Clemens, whether via motion in limine, in the final pretrial order, or in jury instructions.

Authored By:
Andrew Sokolowski, Senior Counsel
CAPSTONE LAW APC

On May 16, 2016, the United States Supreme Court ruled on Spokeo, Inc. v. Robins, a class action based on Spokeo’s “willfully” failing to comply with Fair Credit Reporting Act (FCRA) requirements. No. 13-1339 (U.S. Sup. Ct. May 16, 2016), 578 U.S. ___ (2016) at 4 (slip op. available here). Plaintiff Robins alleged that Spokeo, a consumer reporting agency offering aggregate online personal “profiles” for its users (including prospective employers), published inaccurate information about him in violation of the FCRA, which prohibits certain inaccurate reporting. Seeking the statutory penalties available, Robins argued that “he encountered ‘[imminent and ongoing] actual harm to [his] employment prospects’” flowing directly from Spokeo’s conduct. Id., Ginsburg dissenting op. at 2. The U.S. District Court for the Central District of California had dismissed the plaintiff’s claims, finding that “Robins had not ‘properly pled’ an injury in fact” sufficient to establish Article III standing. Id. at 4. The Ninth Circuit reversed on appeal, and the Supreme Court granted certiorari.

In its 6-2 decision authored by Justice Samuel Alito, the Court confirmed that a plaintiff must have suffered—and sufficiently alleged—a “concrete” injury to have Article III standing. The Court cited the test for standing established by Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992), which requires a plaintiff to allege an injury in fact that is “both concrete and particularized,” as well as “actual or imminent.” Slip op. at 7 (internal citations omitted). Justice Alito observed further that an intangible harm, particularly one Congress has identified by statute, can be “concrete” for the purpose of standing. Id. at 9 (internal citations omitted). Although “Congress’ role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right” (id. at 9), the “risk of real harm” might satisfy the standing requirement of a concrete injury when invoking a statutory violation. Id. at 10 (emphasis added). Furthermore, the “violation of a procedural right granted by statute can be sufficient in some circumstances,” such that the plaintiff need not allege any “additional harm beyond the one Congress has identified.” Id. (emphasis in original). Without taking a position on the ultimate conclusion, the Court ordered the Ninth Circuit on remand to address “whether the particular procedural violations alleged in this case entail a degree of risk sufficient to meet the concreteness requirement.” Id. at 11.

Notably, Justices Ruth Bader Ginsburg and Sonia Sotomayor would have affirmed the Ninth Circuit’s judgment, indicating in their dissent that the inaccuracies Spokeo allegedly reported regarding Robins’ employment status, relative affluence, and age were sufficiently concrete to establish injury in fact based on the risk of diminishing his desirability as a potential employee. Id., Ginsburg dissenting op. at 2-3.

Statutes designed to protect consumer rights are not, in and of themselves, legal rights, because not all violations result in harm. See slip op. at 10. The potential implications for plaintiffs are significant, however, where allegations of similar statutory violations are readily discounted by defendants as “bare procedural violations” from which no harm can possibly flow. Id. Thus, a properly-framed class action complaint may still successfully plead a defendant’s failure to conform to statutory requirements based on a concrete, though intangible, harm.

Authored by: 
Karen Wallace, Associate
CAPSTONE LAW APC