Posts belonging to Category Caselaw Developments

In the continuing battle over class and representative actions, in which arbitration agreements have been increasingly found to be a valid tool for preventing groups of plaintiffs to adjudicate claims in a single proceeding, workers scored a victory this week: California’s Sixth Appellate District has held that the Federal Arbitration Act (FAA) does not require the enforcement of arbitration agreements that nullify workers’ statutory right to bring actions for recovery of civil penalties under PAGA, the California Labor Code’s Private Attorneys General Act. See Brown v. Super Ct. (Morgan Tire), No. H037271 (Cal. Ct. App. June 4, 2013) (available here).

“[A] private agreement purporting to waive the right to take representative action is unenforceable,” the unanimous three-judge panel held, “because it wholly precludes the exercise of this unwaivable statutory right.” Slip op. at 1. The panel noted that AT&T Mobility v. Concepcion, the leading case for those seeking to squelch representative actions through arbitration agreements, “does not require otherwise.” Slip op. at 2.

The plaintiffs worked for the defendant’s “Wheel Works” subsidiary and alleged various wage-and-hour violations. See slip op. at 2. In addition to seeking restitution and damages, the plaintiffs also sought to recover civil penalties, as the state’s proxy, arising from the same workplace violations. The plaintiffs signed a standard dispute-resolution contract, which provided for arbitration of disputes and prohibited arbitration “‘on a class basis or as a collective action or representative action.’” Slip op. at 3. When the action was filed, California had unambiguously made a public policy choice to invalidate representative action waivers in both consumer and wage-and-hour cases. Thereafter, however, a narrow majority of U.S. Supreme Court justices held, in Concepcion, that at least in the consumer context, the FAA trumped California’s policy decision as to representative action waivers. Seizing on the opportunity to extend Concepcion, the Brown defendant moved to compel arbitration, arguing that the FAA also abrogated California’s invalidation of representative action waivers in wage-and-hour actions. The trial court agreed and granted the defendant’s motion. Slip op. at 3.

The Court of Appeal reversed, formally by way of a writ of mandate. See slip op. at 4, 20. The decision comes amid anything but judicial unanimity on the dispositive issue, with Iskanian v. CLS Transportation coming down in favor of enforcing representative action waivers, whereas Franco v. Arakelian Ent. and Brown v. Ralphs hold that Concepcion does not require the enforcement of such waivers. The California Supreme Court is likely to forge the issue’s ultimate resolution when it decides whether to reverse or uphold Iskanian. And if, as did Associate Justice Eugene Premo in Brown v. Morgan Tire, the Supreme Court relies on Brown v. Ralphs, then reversal would appear likely in Iskanian, too.

Justice Premo explained that, similar to the Ralphs appellate court’s holding that FAA preemption would essentially nullify the benefits of PAGA, “[i]n the present case, the EDRP does not explicitly prohibit private attorney general actions but it does prohibit representative actions. Accordingly, it effectively prohibits the employee from prosecuting any PAGA claim at all.” Slip op. at 16. Thus, neither the FAA nor a particular arbitration contract may altogether block a worker from pursuing PAGA civil penalties on a class or collective basis, because a PAGA claim is intrinsically representative. See slip op. at 17.

U.S. District Judge John W. Lungstrum has denied a defendant’s motion to decertify a class of plaintiffs and refused to apply the Behrend v. Comcast Corp. decision. The defendant claimed that the plaintiff’s damages expert considered rejected theories of liability, as in the Comcast case. Judge Lungstrum’s ruling also ordered Dow to pay $1.2 billion in damages to the plaintiffs, who had alleged antitrust violations by Dow. In re Urethane Antitrust Litigation, No. 04-1616 (D. Kan. May 15, 2013) (order denying motion to decertify class) (available here).

Judge Lungstrum declined to apply Comcast, giving particular emphasis to Dow’s belated move to decertify, as the decision criticized Dow’s untimeliness in bringing its motion, “literally on the eve of trial.” Slip op. at 2. “Dow has not offered any reason why it could not have filed its motion much earlier. . . . Reconsideration of the Court’s certification order at that time or even post trial would cause severe prejudice to plaintiffs, who prepared for a long and complex trial at great expense.” Id.

A California federal judge has largely rejected efforts by food giant Del Monte to dismiss the claims in a consumer class action alleging violations of California’s Food, Drug, and Cosmetics Act (FDCA). See Kosta v. Del Monte Corp., No. 12-1722 (N.D. Cal. May 15, 2013) (order on motion to dismiss, available here). The plaintiffs allege FDCA violations based on Del Monte’s packaging and labeling of pasteurized and chemically preserved fruit (typically found in opaque cans on supermarket shelves) in transparent containers and with a deceptive “Must Be Refrigerated” label. The company is also accused of labeling vegetables containing calcium chloride as having “No Preservatives”, and labeling as “natural” tomatoes containing citric acid. See Order at 2-3.

Del Monte sought to foreclose these issues from ever being assessed on the merits with a motion to dismiss based on standing, preemption, and abstention. See Order at 4-6. While District Court Judge Yvonne Gonzalez Rogers formally denied in part and granted in part the motion, as a practical matter the motion was denied, as the claims emerged nearly fully unscathed.

Del Monte’s basis for dismissal with perhaps the broadest resonance was its theory that the named plaintiffs lacked standing by not having plead injury-in-fact. See Order at 15-17. Specifically, Del Monte argued that the diminution in value alleged by the plaintiffs (i.e., the quantum by which the products were priced above their true market value owing to the deceptive labeling) was insufficiently tangible and particularized to satisfy Article III standing requirements. Id. Additionally, Del Monte contended that the plaintiffs failed to satisfy purportedly more exacting standing requirements under California’s Unfair Competition Law. Id. The court sided with the plaintiffs, however, holding: “Plaintiffs allege they paid a premium for Del Monte’s products which they otherwise would not have paid but for Del Monte’s misrepresentations. As with Article III standing, the Court finds that Plaintiffs have alleged economic injury resulting from Del Monte’s alleged unfair competition and false advertising.” Order at 17.

Del Monte had argued that the claims are preempted by federal food-labeling legislation, the determination of which turned on whether the plaintiffs’ claims seek to impose labeling requirements in excess of those mandated by federal law. Order at 7. Judge Rogers held that there was no federal preemption, as the plaintiffs sought to impose labeling requirements coextensive with federal law. Order at 10-11. Additionally, Judge Rogers rejected Del Monte’s theory of implied preemption. Order at 13.

No more availing was Del Monte’s abstention theory, based on the primary jurisdiction doctrine, which allows trial courts to stay cases pending resolution of the same issues by an administrative agency with special competence in the issue being litigated. See Order at 13-14. Del Monte posited the FDA to be the federal agency with special food labeling competence, but because the plaintiffs’ claims did not encroach on the FDA’s role in promulgating regulations, and merely sought to enforce what the FDA and California law both already required, the abstention theory of dismissal was also rejected. Order at 15.

In the most significant victory yet for workers and other would-be plaintiffs following the U.S. Supreme Court’s Behrend v. Comcast, 113 S. Ct. 1426 (2013), a unanimous three-judge Ninth Circuit panel has reversed a federal district court’s denial of class certification, holding that the trial court abused its discretion in concluding that individualized damages calculations precluded certification. See Leyva v. Medline Indus., Inc., ___ F.3d ___, No. 11-56849 (9th Cir. May 28, 2013) (slip opinion available here).

The plaintiff’s claims were typical of those in wage and hour class actions, with each individual employee’s damages likely to be too small to be economically feasible to support individual actions. The Leyva plaintiff sought to represent 500-plus fellow employees who worked in the warehouse of Medline Industries, a maker of medical products. Slip op. at 3. The plaintiff alleged that Medline’s policy of rounding employees’ start times according to 29-minute increments systematically resulted in off-the-clock work and that Medline improperly calculated employees’ overtime pay rates, in addition to waiting-time penalty and wage statement claims. Slip op. at 3-4.

The district court had denied certification principally because “[e]ach of the 500 putative class members are allegedly entitled to different damage awards for being ‘short-changed’ by the rounding policy and/or the [overtime calculation] policy.” Slip op. at 6. The court also found that management of the case of a class action would be too unwieldy, again because of the differences in the class members’ damages. In rejecting Central District Judge R. Gary Klausner’s reasoning, the Ninth Circuit underscored the continuing validity of a maxim many had thought imperiled by Comcast: that variations in damages cannot, alone, defeat certification. See slip op. at 7-8, citing Blackie v. Barrack, 524 F.2d 891, 905 (9th Cir. 1975).

The decision also emphasized that “damages determinations are individual in nearly all wage-and-hour class actions” (slip op. at 7, referencing Brinker), implying that Comcast would not be allowed to indirectly eliminate what has been recognized as the only practical way of enforcing California’s workplace protections. The decision explained as follows: “Here, unlike in Comcast, if putative class members prove Medline’s liability, damages will be calculated based on the wages each employee lost due to Medline’s unlawful practices. . . . Medline’s computerized payroll and time-keeping database would enable the court to accurately calculate damages and related penalties for each claim.” Slip op. at 8-9.

The Leyva decision goes on to demonstrate how Medline had used these computerized records in its Notice of Removal, and had separately calculated each prospective class member’s potential damages. Slip op. at 9. While defendants will likely take this as a reason to avoid offering up similar calculations, the data underlying those calculations is typically available through discovery in wage-and-hour class actions.