Posts belonging to Category Caselaw Developments

California’s Court of Appeal continues to articulate a measured, well-reasoned class action jurisprudence, most recently by taking a second look at its own order affirming a trial court’s denial of class certification. See Faulkinbury v. Boyd & Assocs., Inc., ___ Cal. Rptr. 3d ___ (Cal. Ct. App. 2013) (slip opinion available here).

In the underlying action, the plaintiffs sued on behalf of some 4,000 fellow security guards, alleging nonpayment of overtime as well as meal and rest break violations. The trial court denied certification across the board, and on appeal the certification as to the overtime claims was granted. However, pre-Brinker, the Court of Appeal affirmed the denial of certification for the meal and rest break claims. See Faulkinbury v. Boyd & Assocs., Inc., 185 Cal. App. 4th 1363 (2010).

The California Supreme Court later granted review and held pending further decision in its landmark Brinker decision (53 Cal. 4th 1004). Upon review in light of Brinker, the Court of Appeal has now ordered that the same meal and rest break claims be certified. Increasingly, despite having been assessed as something of a draw when it was issued, Brinker is looking like a net benefit to workers seeking to enforce California’s meal and rest break statutes, with Faulkinbury vividly illustrating what workers faced both before and after Brinker.

While the court’s pre-Brinker analysis was barely indistinguishable from a rough finding on the merits (“the trial court reasonably could conclude there was insufficient evidence of classwide denial of off-duty meal breaks” (185 Cal. App. 4th at 1383)), the post-Brinker analysis focused on the plaintiff’s theory of liability, consistent with Brinker and other similarly-reasoned authority. The court found persuasive evidence that the defendant’s meal break policy “was uniformly and consistently applied to all security guard employees.” As such, citing Brinker, the court held that “‘[c]laims alleging that a uniform policy consistently applied to a group of employees is in violation of the wage and hour laws are of the sort routinely, and properly, found suitable for class treatment.’” Slip op. at 13 (internal citation omitted).

This most recent Faulkinbury decision is notable in making direct reference to and relying on Justice Werdegar’s Brinker concurrence, noting that “if an employer’s records show no meal period for a given shift, a rebuttable presumption arises that the employee was not relieved of duty and no meal period was provided, shifting the burden to the employer to show the meal period was waived.” Slip op. at 10, citing Brinker, 53 Cal. 4th at 1052 (Werdegar, J, concurring). Thus, rather than giving rise to individual questions that destroy the predominance necessary for certification because such records speak to the “why” behind missed breaks, the Werdegar concurrence, and now Faulkinbury, sensibly regards such evidence as tending to validate a plaintiff’s theory of meal break liability.

The Faulkinbury panel included Acting Presiding Justice William F. Rylaarsdam, Associate Justice Richard D. Fybel, and Associate Justice Eileen Moore. Justice Fybel wrote the unanimous opinion.

The Third Circuit is currently considering whether, under the Class Action Fairness Act (CAFA), removal of a toxic tort class action from state to federal court is proper where it is undisputed that all of the sites alleged to be toxic are within one state or territory. See Abraham v. St. Croix Renaissance Group, L.L.L.P., No. 12-0011 (Dist. V.I. Dec. 7, 2012) (remand order under appeal in Third Circuit, available here).

CAFA expressly provides for “local controversies” to be heard in state, not federal court. The plaintiffs based their remand motion on CAFA’s provision that removal is improper when all claims arise from “an event or occurrence” within a single state (or its territorial equivalent). See order at 4 (“The question presented is whether the allegations as pleaded concerning the continual release of red mud, red dust, and coal dust as well as the friable asbestos over a period of years fit within the meaning of ‘an event or occurrence’ as set forth in [CAFA].”).

The district court found the “event or occurrence” requirement satisfied and ordered the action to be remanded to the Virgin Islands court it was filed in, reasoning as follows: “We think that an event, as used in CAFA, encompasses a continuing tort which results in a regular or continuous release of toxic or hazardous chemicals” and, therefore, “[w]e see no reason to distinguish between a discrete happening, such as a chemical spill causing immediate environmental damage, and one of a continuing nature, such as is at issue here.” Order at 8 (footnote omitted).

Whether the Third Circuit will affirm the district court’s remand order remains to be seen. Last week’s oral argument revealed that there is an apparent consensus on the panel that all pertinent events happened on St. Croix; thus, like the district court, the Third Circuit must determine whether that constitutes a “single event or occurrence.” In addition to the issue of statutory interpretation, the plaintiffs’ counsel argued on appeal that remand is consistent with CAFA’s motivating purpose, which is to send interstate disputes to federal court, but keep genuinely local controversies in state court. The Third Circuit’s ruling is likely to indicate whether CAFA’s primary function is to provide a rational means of dividing complex litigation labor between federal and state courts, or to serve as a device (like arbitration) deployed mainly to frustrate class and representative actions.

The Third Circuit’s decision is expected to issue shortly, possibly by mid-May.

The Supreme Court has issued the most recent installment in its serial neutering of class and representative actions. See Genesis HealthCare Corp. v. Symczyk, 569 U.S ___ (2013) (slip opinion available here). Justice Clarence Thomas wrote the 5-4 majority opinion that staked out a holding contrary to longstanding authority prohibiting class and collective action defendants from “picking off” named plaintiffs.

The Symczyk plaintiffs had alleged that their employer arbitrarily subtracted 30 minutes from employees’ daily aggregate clocked-in time to account for meal breaks, irrespective of whether any breaks were actually taken, which resulted in employees not receiving overtime pay they were entitled to. The employer/defendant offered the named plaintiff $7500 to abandon the suit. When the plaintiff didn’t respond to the offer, the defendant asked the federal trial court to dismiss the case as moot, since the settlement offer met or exceeded any amount that the plaintiff would be able to recover in an individual lawsuit. Slip op. at 1-2.

The majority opinion first acknowledges (and declines to resolve) a Circuit split before concluding that the Supreme Court was simply without the power to address the issue: “The Third Circuit clearly held in this case that respondent’s individual claim was moot. 656 F. 3d, at 201. Acceptance of respondent’s argument to the contrary now would alter the Court of Appeals’ judgment, which is impermissible in the absence of a cross-petition from respondent.” Slip op. at 5. The immovable constraint of the mootness issue not being properly before the court thus had the fortuitous consequence of allowing the Third Circuit’s ruling to stand, to the effect that the $7500 offer had in fact mooted the case. By contrast, the Third Circuit had also ruled that, even though the plaintiff’s personal claim was moot, the case could nonetheless go forward if other employees opted into the FLSA collection action. On this point, the majority found itself fully empowered to overrule the Third Circuit, and did so. See slip op. at 10-11.

The dissent took the position long-codified in class and representative action case law that a mere offer to pay off a named plaintiff does not suffice to “moot” a case, the essence of which concerns the numerous other employees who are not the named plaintiff. The dissent presented a lengthy and pragmatic hypothetical, where fictional plaintiff Ms. Smith is presented with a settlement offer, which she declines in favor of moving forward with a representative action. After stating unequivocally that such a scenario could not serve to moot Smith’s claims, Justice Kagan added a twist to the hypo to highlight the absurdity of the result in this case:

[S]uppose the defendant additionally requests that the court enter judgment in Smith’s favor—though over her objection—for the amount offered to satisfy her individual claim. Could a court approve that motion and then declare the case over on the ground that Smith has no further stake in it? That course would be less preposterous than what the court did here; at least Smith, unlike Symczyk, would get some money. But it would be impermissible as well.

Slip op. dissent at 6-7 (Kagan, J.).

Although the underlying legal analysis is entirely unrelated to doctrines applicable to the Federal Arbitration Act (FAA) or satisfaction of Federal Rule 23’s predominance requirement, the Symczyk majority is composed of precisely the same justices as AT&T Mobility v. Concepcion and Wal-Mart v. Dukes.

Judge Susan Illston has stymied an employer’s attempt to force into arbitration a group of employees alleging that they were erroneously classified as independent contractors. See Zaborowski v. MHN Govt. Servs., Inc., No. 12-5109 (N.D. Cal. Apr. 3, 2012) (order denying motion to compel arbitration). The plaintiffs contend that by misclassifying them as independent contractors, their employer avoided providing them with benefits they are entitled to under California law. Judge Illston found the employment contract that plaintiffs signed to be “so permeated with unconscionability” that the arbitration clause within the contract was rendered unenforceable. Order at 13.

She began her analysis by noting that “Concepcion explicitly reaffirmed California’s general contract defense of unconscionability as applied to arbitration agreements,” adding that “[o]nly ‘defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue’ are preempted by the FAA, and therefore invalid,” quoting directly from the Supreme Court’s Concepcion decision to underscore the continued vitality of California’s unconscionability doctrine. Order at 4.

Judge Illston proceeded to enumerate the various ways in which the at-issue arbitration clause is unconscionable (order at 5-10):

• The arbitration clause is buried in the last of 23 paragraphs, and not set apart or highlighted in any way;
• Signing the arbitration clause was a condition of employment, with no opportunity to negotiate the terms;
• The clause imposes a six-month statute of limitations, far shorter than the usual three-year statute of limitations applicable to workplace violations;
• The clause unilaterally empowers the employer to choose the pool of arbitrators;
• Discovery is limited so as to disadvantage employees;
• The arbitration provision has the effect of negating California fee-shifting statutes designed to address the inherent asymmetry in resources between employers and employees; and
• Similarly, by prohibiting the arbitrator from awarding punitive damages, the arbitration provision further eliminates statutory protections.

Judge Illston concluded that the unconscionable provisions so permeated the at-issue arbitration clause as to not be severable, and on that basis denied the defendant’s motion. While unconscionability analysis is typically fact- and case-specific, the Zaborowski decision is likely to be much-cited by counsel and relied on by judges, as it addresses provisions that frequently appear in the arbitration clauses that are part of employment contracts.