Posts belonging to Category Caselaw Developments

California’ Second Appellate District has issued a ruling underscoring the fact that orders denying class certification do not operate, by collateral estoppel, to prevent those other than the named plaintiffs from filing a subsequent class action alleging the same claims.  See Ellis v. Pacific Health Corp., No. B229609 (Cal. Ct. App. Jul. 24, 2012) (order re appeal from judgment of dismissal) (available here).

Ellis usefully summarizes and affirms the controlling authorities, foremost Bridgeford v. Pacific Health Corp., 202 Cal. App. 4th 1034 (2012).  In Bridgeford, the court adopted the United States Supreme Court’s holding in Smith v. Bayer Corp., “[n]either a proposed class action nor a rejected class action may bind nonparties.”  131 S.Ct. 2368, 2380 (2011).  Ellis demonstrates that the Bridgeford holding (“unnamed putative class members of a class that was never certified cannot be bound by collateral estoppel”) is not an idle doctrine.  Bridgeford at 1037.  In Ellis, the trial court had sustained Pacific Health’s demurrer on the ground that the plaintiff was within the class definition of an earlier putative class action (Larner v. Pacific Health Corp.), which alleged the same claims against the same defendant.  However, as to the pivotal privity requirement for the application of collateral estoppel, the unanimous three-judge panel held that the plaintiff, as merely one among the many unnamed prospective class members, was neither a party to the prior action nor represented by a party to the prior action.  Order at 7.  The court explained that, while the named plaintiffs in Ellis had economic interests that were “substantially aligned with Larner’s,” the prior decision cannot bind them; since the Larner case was never certified, the Ellis plaintiffs could not have been parties to it. Id.

On remand from the California Supreme Court, the Second Appellate District has directed the trial court to recertify a class of Liberty Mutual insurance claims adjusters and has held that they are not exempt from overtime pay under California’s “administrative exemption.”  See Harris v. Super. Ct., ___ Cal. App. 4th ___ (Cal. Ct. App. 2012) (available here).  Defendants had presented an affirmative defense based on the administrative exemption, which the court rejected because the adjusters’ primary work duties were not directly related to either management policies or general business operations.  The decision is viewed as a clear victory for workers, and a sign that overtime exemption analysis is being revitalized to make it more difficult for employers to argue that they have no obligation to pay purportedly “exempt” employees for overtime work.

The ruling was preceded by a complex procedural history.  The trial court certified the class, whereupon Liberty Mutual put forth the affirmative defense that the adjusters were exempt under Wage Order No 4’s administrative exemption, and the plaintiffs moved for summary adjudication of the affirmative defense.  In addition to opposing the summary adjudication motion, Liberty Mutual also moved to decertify the class.  In a mixed ruling, the trial court decertified the class as to all claims arising after October 1, 2000, the effective date of the new Wage Order 4-2001, insofar as the adjusters were only exempt under an earlier version of Wage Order 4 (Wage Order 4-1998).  Liberty Mutual then sought decertification of the part of the class that remained certified, but the trial court denied the motion.  Subsequently, Liberty Mutual filed a Writ of Mandate Petition, which the Court of Appeal denied, holding the adjusters to be non-exempt.  Thereafter, the California Supreme Court reversed, holding that the Court of Appeal’s analysis of the amended wage order was flawed, since the court relied on case law that predated the most recent amendment to the applicable wage order and failed to consider the language of the amended order.

The matter was remanded to the Court of Appeal, which again denied the defendants’ writ petition, but with more thorough reasoning, per the direction of the Supreme Court.  In particular, the court further clarified the “directly related” requirement of the administrative exemption.  Harris at 25-26.  The court found that the primary responsibility of the Harris employees was adjusting individual insurance claims, a task which is not at the level of management policy or general operations.  Id.  Thus, their work was not directly related to administering the business and, as such, the administrative exemption did not apply.  Id. at 26. The Court of Appeal ordered the trial court to vacate its prior orders and deny defendants’ motion to decertify the post-2000 class, since the adjusters would be non-exempt under either Wage Order 4-1998 or Wage Order 4-2001.  Id.  The Court of Appeal’s reasoning is expected to be influential in other misclassification cases.

New York’s Southern District has generated another arbitration-related decision that contributes to a far less dire post-Concepcion narrative than many had predicted.  See Rame, LLC v. Popovich, No. 12-cv-01684 (S.D.N.Y. Jul. 9, 2012) (Opinion re: petition to vacate) (available here).  Rather than expounding on whether cases are referred to arbitration in the first instance, which was the primary focus of Concepcion, Popovich addresses whether or not classwide arbitration is permissible where parties neither expressly waive nor expressly agree to classwide arbitration.

The underlying FLSA action was filed in the Southern District of New York by employees of Café Centro, a Park Avenue-based bistro and subsidiary of the elite Patina Restaurant Group.  The defendants moved to compel arbitration based on a Dispute Resolution Agreement (DRA) and Dispute Resolution Policy (DRP) that all employees were subject to.  In response, plaintiffs voluntarily dismissed the action and stipulated to arbitration, seemingly handing the defendants a victory.  See Opinion at 3.  The parties also stipulated to preliminary motion practice before an arbitrator as to the threshold issue of whether the claims for unpaid wages “could be brought in arbitration on a class or collective action basis,” since both the DRA and DRP were (as noted by the court) “devoid of any reference to arbitration on a class-wide or collective basis.”  Id. at 3, 6.  The arbitrator found that the FLSA action could proceed through arbitration on a classwide basis, prompting defendants to file a petition with the Southern District to vacate that decision.  Id. at 4.

Defendants primarily based their petition on a pre-Concepcion Supreme Court case, Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010), which was widely assumed to stand for the inflexible proposition that, where an arbitration clause is silent as to collective or class treatment, classwide arbitration is impermissible, notwithstanding that the parties did not in fact expressly agree to foreclose it.  The defendants argued that collective or class treatment may not be compelled in such an instance, and an arbitrator who finds otherwise has exceeded his or her power under the Federal Arbitration Act.  See Opinion at 15-16.

However, the Popovich court distinguished Stolt-Nielsen, insofar as the parties in that case had stipulated to the at-issue arbitration clause being “silent” as to collective or class treatment.  See Opinion at 23.  The Second Circuit drew a similar distinction in Jock v. Sterling Jewelers Inc., 646 F.3d 113 (2d Cir. 2011), holding that, with no “silence” stipulation, a broadly-drafted arbitration clause constituted an implicit agreement to authorize class treatment.  Here, the DRA and DRP dictated that an arbitrator determine “all damages and relief allowed by law.”  Opinion at 25.  Analyzing Stolt-Nielsen, Jock, and New York state law principles of contract interpretation, the Popovich court found that, absent a stipulation of “silence,” broad language like that used in the DRA and DRP does in fact constitute an implicit agreement to submit to class arbitration.  Opinion at 23-25.  The Popovich court concluded that the arbitrator’s decision was not based upon the “alleged silence” on classwide arbitration in the DRA and DRP, but was instead based on the broad language that was actually present, to wit, that an arbitrator will decide “all claims” of an employee arising out of the employment and award “all damages and relief allowed by law.”  Id. at 24-25.  As such, the court found no basis for vacating the arbitrator’s decision.

Popovich, like Jock, demonstrates the limitations of the Stolt-Nielsen holding.  Indeed, Popovich demonstrates that, under Stolt-Nielsen, class arbitration may be proper even if the at-issue arbitration agreement contains no express authorization to that effect, and reaffirms that class arbitration is proper when parties have implicitly agreed to it.

It may soon be up to the California Supreme Court to determine the applicable scope of AT&T Mobility v. Concepcion (131 S. Ct. 1740 (2011)) in California.  Specifically at issue is the Second Appellate District’s ruling in Iskanian, which created multiple conflicts within California courts.  Iskanian v. CLS Transp. Los Angeles, LLC, ___ Cal. App. 4th ___ (2012) (available here).  As expected, the plaintiffs’ attorneys have filed a Petition for Review (available here), arguing the necessity of California Supreme Court intervention to resolve the numerous conflicting decisions.

The Petition for Review casts the Iskanian decision as a distinct outlier in California law, focusing on several new splits of authority within the California courts engendered by the Iskanian decision and requiring Supreme Court review.  Foremost, the Petitioners point out that, in Iskanian, the Second Appellate District, Division Two, rejected Brown v. Ralphs, 197 Cal. App. 4th 489 (2011), which was decided by Division Five of the same court just one year ago.  Whereas Brown held that PAGA waivers are outside the scope of the Supreme Court’s Concepcion decision, Iskanian disagreed, extending the scope of FAA preemption considerably to cover PAGA claims based on violations of employees’ workplace rights.  By ruling as it did, the Petition argues, the Iskanian court has ignored the California legislature, effectively “dismantle[ing] the entire statutory design of PAGA.”  Petition at 4.

The Petitioners also emphasize that the Iskanian decision, by purporting to invalidate the California Supreme Court’s Gentry decision (Gentry v. Super. Ct., 42 Cal. 4th 443 (2007)), upends years of California law that had treated employers’ arbitration agreements essentially as “choice-of-forum” clauses that in no case could force employees to give up their substantive rights.  Petition at 4.  The Petition asserts that Iskanian also disregards United States Supreme Court decisional law on this point, noting that the high Court “has never endorsed the notion that ‘arbitration agreements must be enforced according to their terms’ regardless of whether enforcement would eviscerate a party’s substantive rights, as the Court of Appeal did here.”  Petition at 3.  Moreover, the Petition contends that Iskanian usurps the California Supreme Court’s role by attempting to overrule the Gentry decision, a step that cannot be taken by an intermediate appellate court.  Petition at 5-6.

The Petition vividly evokes the practical considerations at stake: “If this decision takes root, California employers will demand arbitration not because of its traditional benefits of speed, cost-effectiveness and informality, but because it is a means to make any contract enforceable, thereby avoiding any liability for violations of California law.”  Petition at 8.

The Petition is expected to attract considerable amicus interest on both sides.