Posts belonging to Category Caselaw Developments

California’s Second Appellate District has clarified the proper application of the “death knell” doctrine to denials of class certification, and in the process has carved out an exception to the general rule proscribing successive class certification motions. See Aleman v. AirTouch Cellular, No. B231142, ___ Cal. App. 4th ___ (Sept. 20, 2012) (available here). The unanimous opinion, certified for publication, thus provides important guidance for practitioners navigating California’s rules pertaining to appealing denials of class certification and determining when multiple class certification motions are, and are not, permissible in California trial courts. In particular, Aleman is clear in its holding that, where class certification is denied without prejudice, the death-knell doctrine may not be invoked to allow an appeal. Aleman thus also underscores that, notwithstanding the general rule that a plaintiff may only bring one class certification motion in a California trial court, it is a permissible exercise of a trial court’s discretion to deny certification without prejudice and subsequently allow successive class certification motions.

In the underlying wage and hour class action, employees who worked at AirTouch stores and mall kiosks alleged violations concerning both split shift and reporting time pay. See slip op. at 2-3. The plaintiffs moved for class certification while issues bearing on the split shift and reporting time claims were on appeal. See slip op. at 6-7. The trial court denied the class certification motion, but did so “without prejudice” to the plaintiffs bringing a subsequent class certification motion, after the disposition of the pending appeal. Id. Additionally, the trial court provided express guidance as to the first class certification motion’s weaknesses, noting that the plaintiffs would have to reconcile potential intra-class conflicts to satisfy the adequacy requirement. See slip op. at 7.

Rather than awaiting the resolution of the appeal concerning the split shift and reporting time issues, the plaintiffs appealed the trial court’s denial of class certification, thereby giving rise to the central legal question in Aleman: Was the plaintiffs’ appeal a proper invocation of the “death-knell” doctrine? See slip op. at 29-31. The Aleman panel answered in the negative, formulating a bright-line rule that where class certification is denied without prejudice, an interlocutory appeal is not appropriate: “The death knell has not yet sounded. The remaining plaintiffs’ ability to pursue class certification has not been terminated. Because the denial order was without prejudice, the remaining plaintiffs are free to move for class certification again.” Slip op. at 30.

Therefore, it is critical for practitioners, when a California state trial court judge denies class certification “without prejudice,” to establish on the record (as in Aleman) that the trial court will in fact exercise its authority to hear a second class certification motion. See slip op. at 29 (“The court made clear that plaintiffs would be able to bring a new motion.”). A similar record in which the trial court’s intentions are unambiguous coupled with citation to Aleman should suffice to overcome a defendant’s argument based on the abundant authority holding that, in California state court, plaintiffs may move only once for class certification. See, e.g., Stephen v. Enterprise Rent-A-Car, 235 Cal. App. 3d 806 (1991) (explaining that California’s strict one-certification-motion rule necessitates applying the death-knell doctrine).

A pattern seems to be emerging among courts tasked with adjudicating attempts by defendant companies to force class action plaintiffs into arbitration, and the results are far more hopeful than initially expected of the post-AT&T Wireless v. Concepcion era. Most recently, a Nevada district court has joined this apparent trend, denying a motion to compel arbitration by the online retailer Zappos.com. See In re Zappos.com, Inc. Customer Data Security Breach Litig., No. 12-00325 (D. Nev. Sept. 27, 2012) (order denying motion to compel arbitration) (available here).

In the underlying lawsuit, the plaintiffs allege that they gave Zappos.com personal information in connection with purchases, and that the shoe retailer insufficiently protected their information from computer hackers. See Order at 2. The MDL proceeding that is pending in the District of Nevada comprises nine actions that were filed across the country. Earlier this year, Zappos.com moved to compel the totality of the proceedings to arbitration. Id. at 2 n.2.

Applying Nevada contract law to its analysis as to whether the parties did in fact agree to arbitrate, the court noted that the much-referenced “‘liberal federal policy regarding the scope of arbitrable issues is inapposite.’” Id. at 5, citing Comer v. Micor, Inc., 436 F.3d 1098, 1104 n.11 (9th Cir. 2006). On multiple grounds, Chief Judge Robert C. Jones found that there was no binding agreement to arbitrate. Foremost, he determined that the plaintiffs did not agree to the Zappos.com’s “Terms of Use,” which contained the at-issue arbitration clause. See id. at 7-10. In reasoning likely to influence other online retailers, Zappos.com was assailed for burying its Terms of Use “in the middle to bottom of every Zappos.com webpage among many other links,” with the court concluding that “[n]o reasonable user would have reason to click on the Terms of Use.” Id. at 8.

Moreover, in analysis akin to California’s unconscionability jurisprudence, the court also found the Zappos.com Terms of Use to be an illusory, and thus unenforceable, contract. See id. at 10-12. The court adopted the plaintiffs’ contention that the contract was illusory “because Zappos can avoid the promise to arbitrate simply by amending the provision, while Zappos.com users are simultaneously bound to arbitration.” Id. at 10.

California courts have similarly found such asymmetric contract terms to be unenforceable under the unconscionability doctrine, in cases such as Sanchez v. Valencia Holding Co. and Mayers v. Volt Management.
 

A Los Angeles Superior Court judge has certified a class of insurance adjusters alleging that they were improperly classified as exempt from overtime pay and meal and rest breaks. See Wilson v. Farmers Ins. Exch., No. BC 371597 (L.A. Super. Ct. Oct. 5, 2012) (order granting motion for class certification) (available here).

The plaintiffs contend that Farmers misclassified more than 600 claims representatives, and consequently failed to comply with California’s meal and rest break laws and pay overtime. Farmers invoked the administrative exemption, which, it argued, gives rise to predominant individual questions, thereby precluding class treatment. However, Superior Court Judge John Shepard Wiley, Jr. rejected Farmers’ argument, citing relatively recent Court of Appeal authority that compelled certification, and holding that certification is appropriate because the proposed class worked under standardized policies and performed the same core set of duties company-wide.

Judge Wiley relied extensively on another insurance adjuster decision, the long-awaited Harris v. Liberty Mutual, in which California’s Second Appellate District (following California Supreme Court consideration and remand back to the Court of Appeal) made it more difficult for employers to avail themselves of the administrative exemption to block class treatment. See Harris v. Liberty Mut. Ins., 207 Cal. App. 4th 1225 (Cal. Ct. App. 2012) (available here).

In Harris, the defendant argued that the administrative exemption’s requirement that work must be “directly related” to administrative functions gave rise to a predominance problem, since it would require the court to ascertain the duties of many individual claims adjusters, working in different offices, under different managers, and with different skill sets. However, the majority concluded that “no evidence shows that any class members primarily engage in work that satisfies the qualitative component of the ‘directly related’ requirement. That conclusion disposes of Employers’ affirmative defense based on the administrative exemption, and it is a predominant issue that is common to the claims of all class members.” Harris at 1247-48.

While the Harris panel was careful to clarify that it was not holding that claims implicating the administrative exemption are per se amenable to class treatment, the ruling in Wilson makes clear that the position asserted by many employer/defendants — that raising an administrative exemption defense is a guaranteed bulwark against class treatment — is similarly without merit. The Wilson action will now proceed to the class notice and merits phases before Judge Wiley.

In a case that continues to deal surprise rulings, the U.S. Supreme Court has denied a certiorari petition filed by Merrill Lynch in a case challenging the certification of a class of brokers alleging race discrimination. See Merrill Lynch v. McReynolds, No. 12-113, (U.S. Oct. 1, 2012). The Supreme Court’s declination to review McReynolds (despite its decision in Wal-Mart v. Dukes tightening class certification standards) follows the Seventh Circuit’s affirmative reversal of the trial court’s denial of class certification, thereby exhausting Merrill Lynch’s avenues for judicial review. Judge Richard Posner, generally regarded as holding to a conservative orientation, defied ideology-based expectations by authoring the Seventh Circuit’s opinion. See McReynolds v. Merrill Lynch, 672 F.3d 482 (7th Cir. 2012).

The Supreme Court’s denial of review, together with the Seventh Circuit’s ruling, are expected to be heralded as indications that Dukes is not the “death knell” for class actions, as many had predicted. Judge Posner’s opinion pointedly distinguished Dukes, noting that, while “there was no company-wide policy to challenge in Wal-Mart,” this was not the case with Merrill Lynch, whose policies were alleged to be company-wide and therefore better suited to class action treatment. McReynolds v. Merrill Lynch 672 F.3d at 488. While Dukes arguably imposes greater rigor on the analysis attendant to grants of class certification, McReynolds exemplifies that a similar rigor is required of judicial orders denying class certification. Thus, Dukes appears to have established standards that are fully accessible to plaintiffs presenting strong evidence of employer practices applicable across a tightly-defined class.

The denial of Merrill Lynch’s petition for review preserves the practical note that Judge Posner struck when he acknowledged the familiar argument by defendants that numerous “mini trials” could be necessary to resolve particular individual issues. Id. at 490-91. However, in a passage likely to appear in many reply briefs in support of class certification, Posner reasoned that “at least it wouldn’t be necessary in each of those trials to determine whether the challenged practices were unlawful.” Id. at 491.

Judge Posner also addressed the possibility of “issue classes,” stating: “Rule 23(c)(4) provides that ‘when appropriate, an action may be brought or maintained as a class action with respect to particular issues.’ The practices challenged in this case present a pair of issues that can most efficiently be determined on a class-wide basis, consistent with the rule just quoted.” Id.

Whether the parties will in fact propose the use of 23(c)(4) procedures on remand, and whether the rebuked trial court will adopt such procedures, remains to be seen. However, to the extent that the McReynolds case continues to demonstrate workable class action devices, it is expected to be copiously cited to by plaintiffs seeking to emulate its successful formula.