Posts belonging to Category Caselaw Developments

In its most important class action ruling since Wal-Mart v. Dukes, the U.S. Supreme Court has affirmed a Ninth Circuit decision holding that securities fraud plaintiffs need only “plausibly allege” the materiality of a misleading statement to satisfy the requirements for class certification. See Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085 (S. Ct. Feb. 27, 2013). Hoping to build on the animus toward class actions in recent decisions like Dukes and AT&T Wireless v. Concepcion, attorneys for Amgen and their amicus allies had argued for a requirement that materiality be affirmatively proven at the class certification stage.

The Amgen case arose from statements made by the defendant about the safety of two drugs that stimulate red blood cell production ― statements that the plaintiffs contended were materially false and, per the fraud on the market theory, had inflated the company’s stock price. Unlike the Dukes and Concepcion majorities, the 6-3 Amgen decision represents a clear victory for the plaintiffs’ bar.

Justice Ruth Bader Ginsburg authored the majority opinion. The Court’s liberal bloc — Ginsburg and Justices Breyer, Sotomayor, and Kagan — remained unified, and they welcomed defections from conservative members Chief Justice John Roberts and Justice Samuel Alito. Roberts also crossed ideological lines in last year’s “Obamacare” decision, leading some observers to conclude that the Chief Justice is deliberately shaping a legacy of true deliberation rather than reflexively ideological voting. Demonstrating just how fractured the conservative bloc was in deciding this case, Justices Scalia and Thomas wrote dissents, with Justice Kennedy joining in the Thomas dissent.

A federal district court’s ruling has solidified the principle that actions seeking civil penalties for workplace violations under California’s Private Attorneys General Act (PAGA) needn’t satisfy the requirements applicable to class actions. See Alcantar v. Hobart Service, No. 11-1600 (C.D. Cal. Jan. 14, 2013) (order denying defendants’ motion in limine).

In Alcantar, the plaintiff alleged claims arising under the California Labor Code for unpaid overtime, uncompensated commute time, and meal break violations, and sought standard compensatory damages in a putative class action. The plaintiff’s motion for class certification was denied, and on that basis, defendants filed a motion in limine arguing that the plaintiff was also precluded from seeking civil penalties predicated on the same Labor Code violations. However, in denying defendants’ motion, Judge Philip S. Gutierrez distinguished class actions and PAGA actions: “Unlike a class action, which allows individuals to seek financial remuneration as a way to redress personal injuries, a PAGA action is brought on behalf of the state labor agencies to punish noncompliant employers.” Order at 2. Thus, “PAGA is a law-enforcement mechanism, and not an action designed to confer a private benefit.” Id. As such, actions seeking civil penalties on behalf of aggrieved employees under PAGA need not satisfy the Federal Rule 23 requirements applicable to class actions.

In ruling that the familiar Rule 23 requirements — numerosity, commonality, and so forth — do not apply to PAGA actions, Alcantar mirrors the California Supreme Court’s holding in Arias v. Super. Ct., 46 Cal. 4th 969 (2009), that PAGA actions need not satisfy California’s analogous class certification criteria because, unlike a class action, “a plaintiff suing under PAGA steps into the shoes of the state labor law enforcement agencies.” Order at 2. In so ruling, Judge Gutierrez is in accord with the bulk of California district courts to have confronted the same question. See Thomas v. Aetna Health of California, No. 10-01906, 2011 WL 2173715, *12-13 (E.D. Cal. June 2, 2011).

At least as significant as Arias being applied in federal court was Judge Gutierrez’s rejection of defendants’ due process argument, which posited that the adjudication of PAGA claims with representative evidence constituted the sort of “trial by formula” that the U.S. Supreme Court proscribed in the landmark Wal-Mart v. Dukes decision. Judge Gutierrez distinguished Dukes (which he described as “notably different” from Alcantar) based on the fact that Dukes arose out of Title VII of the Civil Rights Act of 1964, while the Alcantar claims are predicated solely on California Labor Code violations. Order at 5-6. Using expansive language potentially applicable beyond the PAGA context, Judge Gutierrez noted that “both the Ninth Circuit and California courts have permitted district courts to award damages for Labor Code violations based on a representative sampling of class members.” Order at 6.

Wal-Mart has again found itself at the center of developing class action jurisprudence. The retail giant is now before the high court of Pennsylvania appealing a $187 million damages award granted to employees alleging off-the-clock violations. Wal-Mart maintains that because the substantial damages award was based solely on the testimony of six workers, the procedure exemplifies “trial-by-formula,” a means of finding liability proscribed by the U.S. Supreme Court’s landmark Dukes decision, whereby a representative group of class members’ claims are used to determine the value and validity of the claims of the remainder of the class. See Braun v. Wal-Mart Stores Inc., No. 32 EAP 2012 (Penn. 2012) and Hummel v. Wal-Mart Stores Inc., No. 33 EAP 2012 (Penn. 2012).

Plaintiffs argue that Wal-Mart is invoking trial-by-formula beyond its intended scope: “Contrary to Wal-Mart’s arguments on appeal, the ‘trial-by-formula’ catchphrase does not outlaw the use of routine and well-regarded summaries of voluminous business records.” Braun at 22. Because federal and other state jurisdictions regularly confront the question of what proportion of class members must have experienced violations in order to trigger classwide liability for a defendant, the resulting Pennsylvania Supreme Court rulings are expected to be widely influential.

Pennsylvania’s intermediate appellate court affirmed the $187 million judgment in a sprawling opinion, but failed to address the trial-by-formula argument. This is the only issue on which the Pennsylvania Supreme Court requested briefing in its order granting allowance of appeal of the judgment. See Petition for Allowance of Appeal from the Order of the Superior Court, No. 551 EAL 2011 (Penn. July 2, 2012).

In a major win for consumers, the Ninth Circuit has affirmed a district court’s denial of Toyota’s petition to compel arbitration in a class action alleging brake defects in certain models of the automaker’s hybrid cars. See Kramer v. Toyota Motor Corp., __ F.3d __ (9th Cir. 2013), No. 12-55050. The court definitively sided with the plaintiffs, rejecting Toyota’s equitable estoppel argument, which sought to bind the plaintiffs to arbitration terms embodied in a contract that Toyota itself was not a signatory to. Apart from its effect on the Toyota brake defect litigation, the ruling is expected to be influential as to the numerous arbitration petitions pending in Ninth Circuit trial courts and beyond, particularly in consumer class actions where a viable equitable estoppel theory supporting arbitration is asserted.

The equitable estoppel issue arose around Toyota’s contention that the purchase agreements between the plaintiffs and the dealerships where they purchased the at-issue vehicles provided the contractual basis for arbitration, notwithstanding that Toyota was not a signatory to these agreements. See slip op. at 10. However, both the district court and Ninth Circuit took a more traditional view of contractual privity, with the appellate panel holding that “the arbitration agreements do not contain clear and unmistakable evidence that Plaintiffs and Toyota agreed to arbitrate.” Slip op. at 11. Further, and specifically bearing on Toyota’s equitable estoppel theory, the Ninth Circuit found none of the limited circumstances in which a nonsignatory may compel arbitration to be applicable. See slip op. at 24-25. In considerable detail, the decision finds neither that the plaintiffs brought claims “intertwined with” the purchase agreement nor that the plaintiffs’ claims were “intimately connected with the obligations of the” purchase agreement. Id.

Consequently, plaintiffs in numerous other class actions implicating equitable estoppel — such as so-called “lemon law” cases where automakers regularly advance equitable estoppel arguments premised on the purchase agreements between customers and dealers — are expected to benefit directly from the Kramer decision.