Posts belonging to Category Caselaw Developments

A recently published case from California’s Court of Appeal underscores the continuing vitality of the state’s unconscionability doctrine, despite the “strong public policy favoring arbitration.”  Ajamian v. CantorCO2e, No. A131025 (Cal. Ct. App. Feb. 16, 2012) (available here).  In Ajamian, a unanimous panel of the First Appellate District considered the arbitration provision in an employment contract and concluded that “the provision was procedurally unconscionable and substantively unconscionable in more than one respect, such that the [trial] court did not abuse its discretion in concluding that the provision could not be saved by severing the offending terms.”  Slip. op at 1-2.

The Ajamian plaintiff had signed an acknowledgement form presented to her at the start of her employment, which made reference to an online compliance manual that she had not reviewed.  Slip op. at 2.  The manual contained an arbitration agreement.  Slip op. at 2.  Later, the plaintiff received a promotion, at which point the defendant required her to sign an employment agreement containing an express arbitration provision.  Slip op. at 3-5.  The employment agreement also contained a clause stating that the plaintiff would potentially be liable for the defendant’s attorney fees.  Slip op. at 4.  When the plaintiff sued the defendant for issues arising out of her employment, the defendant sought to enforce the arbitration agreement.  Slip op. at 6.

 In a decision authored by Judge Needham, the Court of Appeal found that the trial court, not the arbitrator, properly decided the enforceability of the at-issue arbitration provision.  Slip. op. at 8-10.  The panel also concluded that the provision was procedurally unconscionable, as the plaintiff “had no realistic bargaining power and was required to sign the Employment Agreement to receive her promised compensation—for work she had already performed.  Furthermore, the Employment Agreement was not the subject of any negotiation.”  Slip op. at 26.  Likewise, the panel found that the agreement was substantively unconscionable, because the plaintiff was required to relinquish certain unwaivable statutory damages and remedies.  Slip op. at 28-31.  Further, the non-mutual attorneys’ fees provision, whereby the plaintiff but not the defendant would potentially pay prevailing party fees, was substantively unconscionable.  Slip op. at 31.

The plaintiff is now expected to pursue her claims against the defendant in San Francisco County Superior Court before the Hon. Peter J. Busch.

The U.S. Supreme Court has denied a petition for review brought by defendant Farmers Insurance, in the process strengthening the argument advocated by the plaintiffs’ bar that individual reliance need not be established in consumer class actions.  See Strawn v. Farmers Ins. Co., 256 P.3d 100 (Or. 2011), cert. denied, No. 11-445 (U.S. Jan. 23, 2012) (available here). 

The underlying ruling by the Oregon Supreme Court affirmed a jury verdict for the plaintiffs finding that Farmers Insurance had defrauded and breached its contractual obligations to class members.  Id. at 102.  The Oregon high court specifically rejected the defendant’s contention that the plaintiffs were required to show reliance by every class member on the allegedly fraudulent misrepresentations.  Id.  In a prior ruling in this case, the court explained that reliance among class members could be inferred if the defendant made the same misrepresentation to all, and if class members would have reasonably understood the misrepresentation in the same way.  Strawn v. Farmers Ins. Co., 258 P.3d 1199, 1213 (Or. 2011).

The Oregon Supreme Court thus endorsed a presumption of classwide reliance in consumer fraud class actions, further reinforcing the trend among trial and appellate courts to infer the reliance of absent class members.  See also Wolph v. Acer, 272 F.R.D. 477 (N.D. Cal. Mar. 25, 2011) (classwide reliance is presumed upon a showing that the misrepresentation is material); Fitzpartick v. General Mills, No. 10-11064, 2011 U.S. App. LEXIS 6047 (11th Cir. Mar. 25, 2011) (same); Cole v. Asurion Corp., 267 F.R.D. 322 (C.D. Cal. 2010) (same).

In denying Farmers Insurance’s certiorari petition, the U.S. Supreme Court has implicitly endorsed the Oregon court’s reasoning, and signaled that it is not willing to expand the reach of Dukes to the degree that some had predicted.  

According to a recent Ninth Circuit decision, parens patriae actions are not removable under the federal Class Action Fairness Act (CAFA).  See Arizona v. Countrywide Financial Corp., No. 11-80086 (9th Cir. Jan. 3, 2012).  Parens patriae actions are those brought by a state based on its interest in the well being of its citizens.  The appellate decision, which endorses a more extensive district court opinion, may prove critical to ensuring that state enforcement actions, such as PAGA (Private Attorneys General Act) actions, are not removable under CAFA. 

The lawsuit, which was filed by the Attorney General of Arizona in December of 2010, alleged that Countrywide violated state laws by deceiving customers about the terms of its loan modification program.  See Arizona v. Countrywide Financial Corp., No. CV-11-131, 2011 U.S. Dist. LEXIS 35203 (D. Ariz. Mar. 18, 2011) (available here).  Countrywide sought to remove the case to federal court under CAFA, on grounds that the borrowers who would receive restitution from the lawsuit were the real parties in interest.  Id. at *4-5.  The Arizona district court disagreed, holding that the state was the real party in interest and therefore CAFA did not apply.  The district court then remanded the case to state court. Id. at *7-11, 17.  Countrywide’s successor in interest, Bank of America, brought a motion for reconsideration before the Ninth Circuit, which the appellate court denied in its January 3 order.

The state Attorney General is now expected to proceed with claims against Countrywide in Arizona state court.

Citing policy interests in protecting workers, the Ninth Circuit recently concluded that California law applies to the interpretation of an independent contractor agreement between California truck drivers and Affinity, a Georgia transportation company.  See Ruiz v. Affinity Logistics Corp., No. 10-55581, 2012 U.S. App. LEXIS 2450 (9th Cir. Feb. 8, 2012) (available here).  The appellate court found that the agreement’s Georgia choice of law provision was unenforceable, and remanded the case to the district court to assess the drivers’ misclassification claims pursuant to California law.  Id. at *13.

The Ruiz class action arose over allegations that Affinity misclassified its truck drivers in order to avoid paying them overtime and benefits.  Id. at *2-5.  To work for the company, truck drivers were required to sign “Independent Truckman’s Agreements.”  However, the plaintiff driver claimed that Affinity exercised sufficient control over the drivers’ work to be considered their employer.  The district court applied California’s choice of law framework to find that Georgia law governed disputes arising out of the Independent Truckman’s Agreement.  Id.  After a three day bench trial, the district court concluded that under Georgia law there is a presumption of independent contractor status, which the plaintiff failed to rebut.  Id.   

However, the Ninth Circuit reversed the district court’s judgment, holding that the Georgia choice of law provision was unenforceable and finding that California law applied under the state’s choice of law framework.  Id. at *7-14.  Although the district court properly found that Georgia had a “substantial relationship to the parties,” it erred by failing to undertake two additional steps in California’s choice of law framework: “(1) whether applying Georgia’s law ‘is contrary to a fundamental policy of California,’ and then (2) ‘whether California has a materially greater interest than [Georgia] in resolution of the issue.’”  Id. at *8-9 (quoting ABF Capital Corp. v. Osley, 414 F.3d 1061, 1066 (9th Cir. 2005) (quoting Nedlloyd Lines B.V. v. Super. Ct., 834 P.2d 1148, 1152 (Cal. 1992)) (emphasis in original)).  After undertaking the omitted steps in the choice of law analysis, the Ninth Circuit concluded that California law applied.  The appellate court emphasized that California law differs from Georgia law in placing the burden on employers to rebut the presumption of an employer/employee relationship.  Id. at *7-10.  Furthermore, the drivers lived and worked in California, and the state’s public policy favors worker protections.  Id. at *11-14.

On remand, the district court will apply California law to determine whether the drivers were employees or independent contractors.