Posts belonging to Category Caselaw Developments

Last month, the U.S. Court of Appeals for the Ninth Circuit ruled that, although the state of California was barred by res judicata (based on a prior class action settlement) from seeking restitution for purchasers of IntelliGender Prediction Test, it could seek civil penalties and injunctive relief on behalf of those purchasers. Writing for the court, Judge Kim McLane Wardlaw stated, “[b]ecause the State’s action is designed to vindicate broader governmental interests than the class action, the settlement agreement in the CAFA class action does not create privity sufficient to warrant enjoining the entire action.” The People of the State of California v. IntelliGender, LLC, No. 13-56806 (9th Cir. Nov. 7, 2014) (slip op. available here), slip op. at 4. This holding follows the Supreme Court’s recent decision in Mississippi ex rel. Hood, Attorney General v. AU Optronics Corp., et al., where the Court held that a parens patriae suit brought solely by a state on behalf of its injured citizens cannot be removed to federal court under CAFA. 134 S. Ct. 436 (2014).

In 2010, the plaintiff, Gram, filed a nationwide consumer class action against IntelliGender in federal court, invoking its jurisdiction under CAFA, for falsely advertising that the test could predict, from the mother’s urine sample, the gender of her fetus. In 2012, a California district court approved a settlement on behalf of purchasers of the gender prediction test. The class released its claims under the California Unfair Competition Law (UCL) and False Advertising Law (FAL) in exchange for payment by IntelliGender of $10 per approved claim and a promise to modify its advertising. Later in 2012, the state, by and through the San Diego City Attorney, filed suit against the company also for claims under the UCL and FAL, seeking injunctive relief, civil penalties, and restitution. The company moved to enjoin the state’s entire enforcement action and, separately, to enjoin the state’s restitution claims because they were barred by res judicata. Both motions were denied by the district court.

For res judicata to bar a later suit, the earlier suit must involve identical parties or parties in privity with one another. The Ninth Circuit found that there was insufficient privity between the state and the class members to warrant res judicata as to the defendant’s motion to enjoin the state’s enforcement action in its entirety. The court stated because the state’s action was brought on behalf of the people of California, thereby implicating public, in addition to private, interests. Slip op. at 17. The earlier class action settlement therefore did not bar the state in its sovereign capacity from seeking “remedial provisions [that] sweep much more broadly.” Id. Thus, the state may seek civil penalties and broad injunctive relief against IntelliGender. However, the panel held that the state’s action must be enjoined to the extent that it seeks restitution for individual class members, because, as to that relief, there was privity between the interests of the state and class members. The court held that the state’s restitutionary claims had to be barred both to preclude a double recovery and to ensure the finality of class settlements. Since the state had chosen not to participate when it was provided notice by the defendant under CAFA’s notification requirement (28 U.S.C. § 1715), the court held that the state was precluded from seeking the same relief as the CAFA class action.

Earlier in November, the California Court of Appeal revived a proposed overtime class action brought by Joe’s Crab Shack managers against their employer, reversing the trial court’s denial of class certification. Martinez v. Joe’s Crab Shack Holdings, No. B242807 (Second Dist. Div. 7 Nov. 10, 2014) (slip op. available here). The court initially had remanded the case back to the lower court to reconsider issues regarding the commonality of the managers. Martinez v. Joe’s Crab Shack Holdings, No. B242807 (Second Dist. Div. 7 Nov. 12, 2013). The prior decision was issued while Duran v. U.S. Bank National Assn. (59 Cal.4th 1 (2014)) was pending before the California Supreme Court; following the Duran decision, the Martinez matter was transferred back to the court of appeal for reconsideration in light of the case.

The court of appeal again remanded because it found the trial court had erred in denying certification because it had failed to adequately analyze the adequacy and typicality of the plaintiffs, as well as the commonality and predominance prongs under Brinker Rest. Corp. v. Superior Court (273 P.3d 513 (2012)), Duran, and Ayala v. Antelope Valley Newspapers, Inc. (59 Cal. 4th 522 (2014)). It reaffirmed that classwide relief remains “the preferred method” for resolving wage-and-hour claims, even in cases with difficult issues of proof, such as misclassification. Slip op. at 23. The court concluded, “[b]y refocusing its analysis on the policies and practices of the employer and the effect those policies and practices have on the putative class, as well as narrowing the class if appropriate, the trial court may in fact find class analysis a more efficient and effective means of resolving plaintiffs’ overtime claim.” Id.

The employees alleged that they worked overtime, were denied uninterrupted meal and rest breaks, and were misclassified as exempt despite having spent a majority of their time performing non-exempt “utility” tasks. The trial court had denied class certification, holding that, because the employees were unable to accurately estimate how much time they had spent doing exempt versus non-exempt tasks, individual inquiries were necessary. This finding meant that common issues did not “predominate” over individual issues, and that class treatment would not be the superior method for resolving the claims. Slip op. at 2.

The court of appeal’s second opinion in this case followed the California Supreme Court’s decision in Duran, a class action filed by former bank salespersons who alleged they had been misclassified. The Duran opinion addressed issues of class action manageability, ruling that individual issues do not necessarily overwhelm common issues when a case involves overtime exemptions premised on how employees spend the workday. Citing Duran, the Martinez court found that “courts in overtime exemption cases must proceed through analysis of the employer’s realistic expectations and classification of tasks rather than asking the employee to identify in retrospect whether, at a particular time, he or she was engaged in an exempt or nonexempt task.” Slip op. at 21.

Last week, the Ninth Circuit reversed a California federal court’s decision compelling individual arbitration of a putative class action alleging Sirius XM Radio violated the Telephone Consumer Protection Act (TCPA) by making unauthorized marketing calls to the plaintiff and other consumers. Knutson v. Sirius XM Radio Inc., No. 12-56120 (9th Cir. Nov. 10, 2014) (slip op. available here). The panel, comprised of circuit Judges Harry Pregerson, Marsha Berzon, and Michael Murphy (sitting by designation), held the at-issue arbitration agreement to be unenforceable due to lack of mutual assent, because the plaintiff was unaware he had entered into a contract with Sirius.

The plaintiff filed the suit as a class action in 2012, alleging that after he bought his new Toyota vehicle and began his 90-day free trial subscription for Sirius XM, he received three unsolicited marketing calls from Sirius to his cell phone, even though he had never provided his phone number to the company. Knutson alleged that the calls were a violation of the TCPA, a statute prohibiting the use of automatic dialing to cell phones. The defendant argued that the plaintiff’s failure to timely opt out of the agreement’s arbitration provision he had been sent just after his account activation, and failure to cancel his subscription, effected an implicit agreement to the customer agreement’s terms, including the binding arbitration provision. In June 2012, U.S. District Judge Anthony Battaglia sided with Sirius and sent the dispute to individual arbitration, dismissing the class action suit.

The Ninth Circuit reversed. In an opinion authored by Circuit Judge Pregerson, the panel wrote, “A reasonable person in Knutson’s position could not be expected to understand that purchasing a vehicle from Toyota would simultaneously bind him or her to any contract with Sirius XM, let alone one that contained an arbitration provision without any notice of such terms.” Slip op. at 13. The Court of Appeals found that Knutson had no reason to believe he was entering into a contract with Sirius when he purchased his car from Toyota and was given a Sirius trial subscription, because Sirius sent him the customer agreement over a month after the three-day period during which he could reject its terms. Moreover, because he never opened the welcome kit and therefore was not aware that he had ever entered into the contract, his continued use of the radio service after receiving the agreement did not constitute assent to the terms. Further, the panel rejected Sirius’ argument that Knutson could not avoid the terms of the contract simply because he had not read it and was similarly unconvinced by the defendant’s argument that the contract was enforceable even though it had only been sent after the service had already been activated, distinguishing it from other cases cited by Sirius, because Knutson had not specifically elected to receive the service. Since he did not initially receive any documentation from Sirius, the plaintiff was only aware of being in a contract with Toyota. Finally, finding that the arbitration clause in Sirius’ agreement was unenforceable for lack of mutual assent, the panel stated that it need not address whether the customer agreement was unconscionable. 

Last month, the California Court of Appeal affirmed an order by the Alameda County Superior Court certifying a class of drivers for various wage-and-hour violations against their employer, Oakland Port Services Corp, d/b/a AB Trucking. Godfrey v. Oakland Port Services Corp., No. A139274 (First Dist. Div. 2 Oct. 28, 2014) (slip op. available here). The drivers claimed that that they had not been paid for missed meal and rest periods, among other violations. The appellate court also upheld the lower court’s judgment for the plaintiffs after a bench trial in which the plaintiffs had been awarded nearly $1 million, in addition to attorney fees, litigation expenses, and class representative enhancement awards. It also found that the Federal Aviation Administration Authorization Act (FAAAA) did not preempt California’s meal and rest break requirements.

The plaintiffs had alleged that the defendant had failed to pay its drivers for all hours worked, misclassified some drivers as non-employee trainees, and failed to provide meal and rest breaks. Finding for the plaintiffs, the trial court’s statement of decision and judgment held that: (1) AB Trucking failed to pay for all hours worked because its records showed that “it deducted one hour per day from each employee . . . , even though the driver did not receive a one hour meal period”; (2) “AB misclassified drivers who were suffered or permitted to work as non- employees, or unpaid ‘trainees.’”; and (3) plaintiffs had “presented substantial and persuasive evidence that class members were routinely and consistently precluded by AB from taking meal periods and rest breaks.” Slip op. at 3-4.

AB Trucking argued, on appeal, that the trial court had found erroneously that the FAAAA did not preempt state law with regard to meal and rest breaks. The FAAAA provides for federal regulation of commercial carriers and preempts state law “related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1). The court disagreed with the defendant, finding that the FAAA does not preempt claims for missed meal and rest periods by the drivers and that the defendant failed to offer any evidence that the state’s break laws had any actual impact on its prices, routes, or services. Citing recent federal and California precedents such as Dilts v. Penske Logistics, LLC, No. 12-55705 (9th Cir. July 9, 2014), and People ex rel. Harris v. PAC Anchor Transportation, Inc., No. S194388 (July 28, 2014), which have limited the preemptive reach of the FAAAA, the court concluded that compliance with the state’s meal and rest break laws does not conflict with federal law.