In Williams v. Yamaha Motor Co., the Ninth Circuit held that an alleged defect that results in “premature” failure of vehicle component cannot create a safety issue that is “unreasonable” and thus does not trigger a duty to disclose under California’s Unfair Competition Law (“UCL”) and Consumers Legal Remedies Act (“CLRA”)—at least, this is how defendants interpret Williams. No. 15-55924, 851 F.3d 1015 (9th Cir. 2017) (slip op. available here). In Williams, the consumer plaintiffs asserted claims that their Yamaha boat engines contained a design defect that resulted in severe corrosion, which could cause a sudden loss of steering control. In affirming an order granting the motion to dismiss, the Ninth Circuit noted that the liability standard is an “unreasonable safety risk,” not just any safety risk, and that a defect premised on “accelerated timing” of a failure, rather than a “wholly abnormal” condition that a consumer would never expect, cannot give rise to duty to disclose. Id. at 24. Predictably, since Williams issued, defendants in car cases have attempted to leverage Williams to argue that plaintiffs’ defect claims are simply “premature” failures of vehicle components and therefore not actionable.

However, Williams does not support these defendants’ attempts at extending Williams for several reasons. First, in Williams, the plaintiffs admitted that it was “normal and expected” that the boat engines would suffer from some corrosion or wear out at some point. Slip op. at 23. The court noted that the plaintiffs’ “’own characterization of the defect’ was that it “merely accelerated the normal and expected process of corrosion” and absent the defect, there was no allegation that corrosion would not occur.” Id. The panel reasoned that, were it to conclude that plaintiffs’ allegations of premature, but otherwise normal, wear and tear, plausibly establish an unreasonable safety hazard, the court would effectively open the door to claims that all of Yamaha’s motors eventually pose an unreasonable safety hazard. Thus, the first practice tip for plaintiffs is to not allege or acknowledge (or even bring an action) that the claimed defect is “normal or expected” or the result of typical “wear and tear.” Indeed, the crux of a failure to disclose action is that the vehicle component is defectively designed and would not fail prematurely absent the design defect, irrespective of wear and tear.

Second, Williams simply does not apply where plaintiffs properly allege that the vehicle component is defectively designed, as opposed to the acceleration of a normal condition. A consumer class action plaintiff should emphasize that her case is unequivocally not about premature wear, but rather is about an abnormal condition caused by a design defect: car components that otherwise should function properly, but fail specifically due to a defect in their design. Borkman, et al. v. BMW of North Am., LLC is instructive in discerning between an alleged defect based on normal wear and tear, and the Borkman plaintiffs’ contention that the component was defective in design. 2017 WL 4082420 *7 (C.D. Cal. Aug. 28, 2017) (Mr. Borkman was represented by Capstone Law APC). In Borkman, the plaintiffs alleged that certain vehicles contained a “design or manufacturing defect that causes the oil filter housing gaskets to prematurely break.” 2017 WL 4082420 at *1. The gaskets were allegedly defective because they were composed of a material that was “prone to premature wear and deterioration” when exposed to heat. Id. Citing Williams, BMW argued that the allegations were based on normal wear and tear that happened to occur prematurely, and thus the plaintiffs failed to establish a safety risk. Rejecting BMW’s argument, the court distinguished Williams because the plaintiffs alleged that the parts at issue were themselves defective, stating, “[h]ere, plaintiff does not allege that the [defect] merely accelerated the normal and expected process of cracking and breaking gaskets. Rather, plaintiff alleges that the oil filter housing units and its gaskets are defective due to their proximity to engine heat sources . . . .” Id. at 7. In Keegan v. American Honda Motor Co., Inc., decided prior to Williams, the district court made a similar determination, finding that “[w]hile tires must be replaced periodically . . ., [the rear suspension] is neither a maintenance item nor a part whose defect would be open and obvious to the regular driver. Moreover, the mere fact that a tire is a maintenance item does not foreclose the possibility that there are safety concerns with the class vehicles.” 838 F. Supp. 2d 929, 942 (C.D. Cal. 2012).

Third, the Court’s holding in Williams can be avoided entirely where the alleged defect arose during the warranty period. Courts have confirmed that plaintiffs are not required to plead or prove an “unreasonable safety defect” where a defect arises during the warranty period. See Salas v. Toyota Motor Sales, U.S.A., Inc., No. 15-CV-8629, 2016 WL 7486600 *8 (C.D. Cal. Sept. 27, 2016), and Salas v. Toyota Motor Sales, U.S.A., Inc., No. 15-CV-8629, Dkt. No. 81, n.8 (C.D. Cal. Sept. 27, 2017) (finding Williams does not hold that a safety-related defect is required for defects that manifest during the warranty period).

Finally, a California Court of Appeal decision calls into question whether a safety concern is even required at all to trigger a duty to disclose. In Rutledge v. Hewlett-Packard Co., 238 Cal. App. 4th 1164 (2015), as modified on denial of reh’g (Aug. 21, 2015), review denied (Nov. 10, 2015), the court held that a duty to disclose material information exists regardless of a safety concern. The court rejected defendant’s argument that “manufacturers do not have an independent duty to disclose a product defect absent an unreasonable risk of physical injury or other safety concern” and confirmed that a duty to disclose material information exists regardless of a safety concern. Rutledge, 238 Cal. App. 4th at 1173-74. Rutledge explained further that a manufacturer has “a duty to disclose a material defect in it product” where the allegedly defective component “is central and necessary” to the product’s function. Id. at 1174-1175.

Plaintiffs who allege failures to disclose design defects in car cases should bear in mind these pleading tips to avoid the Ninth Circuit’s Williams decision.

Authored By:
Jordan Lurie, Of Counsel
CAPSTONE LAW APC

Late last year, Hon. George H. Wu of the Central District of California granted final approval of a $12 million class action settlement in the action Casas, et al. v. Victoria’s Secret Stores, LLC, et al., No. 2:14-cv-06412 (C.D. Cal., Nov. 21, 2017) (slip op. available here). The settlement came while a decision from the Ninth Circuit Court of Appeals was still pending, regarding whether the plaintiffs’ allegations about Victoria’s Secret’s call-in scheduling policy were sufficient to state a claim for failure to provide reporting time pay. It resolves a more than three-year-long journey of litigation on behalf of a class of nearly 44,000 non-exempt employees in California from July 9, 2010, to August 11, 2017.

Although the settlement releases several other wage-and-hour claims, one of the core claims at issue was the plaintiffs’ allegation that Victoria’s Secret’s call-in scheduling practices violated California law. Specifically, the plaintiffs alleged that the retailer’s policy and practice of requiring its store employees to call in to work two hours before the start of their scheduled shifts to see if they would need to come in resulted in, among other things, a failure to pay minimum wages, applicable overtime wages, and reporting time pay. The plaintiffs further alleged that employees would be disciplined if they did not call when they were scheduled to do so.

At the pleading stage, the district court dismissed the plaintiffs’ reporting time claim based on an analysis of the plain meaning of Wage Order 7-2001’s reporting time requirements and legislative history, finding that Victoria’s Secret’s call-in policy did not violate the Wage Order. The applicable section of the Wage Order provides:

Each workday an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work, the employee shall be paid for half the usual or scheduled day’s work, but in no event for less than two (2) hours not more than four (4) hours, at the employee’s regular rate of pay, which shall not be less that the minimum wage.

Cal. Code Regs., tit. 8, § 11070(5)(A) (emphasis added). The district court had analyzed the meaning of the phrase “report for work and does report” and found that it means to “actually, physically show up at the workplace.” Tentative Order on Defendant’s Motion to Dismissed Plaintiffs’ First Amended Complaint (adopted as final), at 7. However, since Victoria’s Secret’s employees did not have to physically report to work and only had to call-in, the district court determined that the Wage Order did not provide a remedy and dismissed the claim with prejudice, while also noting that the policy was “somewhat unfriendly to employees and disrespects their time.” Id.

After dismissing the reporting time claim, the district court stayed the action to allow the plaintiffs to file an interlocutory appeal of the court’s order. The issue was fully briefed on appeal and, in October 2016, the parties presented oral argument before a Ninth Circuit panel. During oral argument, the panel commented that the issue would be more appropriately decided by the California Supreme Court and suggested that the Ninth Circuit would ultimately decide to certify the question for the California Supreme Court to answer. However, before the Ninth Circuit came to a decision on certification of the issue, the parties settled, leaving the question open for other pending litigation involving call-in scheduling policies.

Authored by:
Brandon Brouillette, Associate
CAPSTONE LAW APC

In Flores v. Southcoast Automotive Liquidators, Inc., No. B268271 (2nd District, Div. 5, Nov. 27, 2017) (slip op. available here), the California Court of Appeal affirmed that “an appropriate correction offer under the Consumers Legal Remedies Act [“CLRA”] does not prevent a consumer from pursuing causes of action for fraud and violation of the UCL [Unfair Competition Law] based on the same conduct, because the remedies are cumulative.” Slip op. at 2.

In 2013, defendant-appellant Southcoast Automotive Liquidators, a car dealership, marketed its inventory of used cars in print and online. Print ads included the caveat that the advertised price expires at 12:00 p.m. on the day of publication, though online advertisements (which were only posted for three hours at a time) did not contain this fine print regarding expiration. Slip op. at 3. Plaintiff-respondent Flores saw and printed an internet ad offering the car she intended to purchase the next day for $9,995. Ms. Flores, who was buying her first car, was assisted by her parents, who spoke to the dealership’s employees by phone to confirm the car’s price and condition. Id. at 3-4. When they arrived the following day, the advertised vehicle was not available, but the dealer offered the same model with more than twice as many miles and in worse condition for the same price. Id. at 4. The plaintiff accepted the deal; although the loan paperwork she signed listed higher prices, the dealership assured her the correct price would be inserted later. Id. at 5. The vehicle broke down almost immediately, and Ms. Flores eventually retained counsel, who sent the dealer a letter on May 31, 2013, asserting “that Dealer’s acts constituted unfair methods of competition and/or unfair or deceptive acts in violation of the CLRA.” Id. at 6.

On June 7, 2013, the plaintiff sued Southcoast Automotive alleging several causes of action, including violations of the CLRA, UCL, and Song-Beverly Consumer Warranty Act (Cal. Civ. Code, § 1790, et seq.); she sought an injunction under the CLRA and alleged violations of all three prongs of the UCL (unlawful, unfair, and fraudulent). On June 25, 2013, the dealership offered complete rescission of the purchase agreement with no offset for the payments Flores already made, plus $1,500 for incidental costs (a negotiable amount, so long as Flores provided receipts for incidental damages such as civil penalties and attorney fees). Then, on July 3, 2013, in response to the counter-demand for $15,000 for civil penalties and attorneys’ fees, the dealer fully denied her claims but offered to rescind the contract, refund all payments, and pay $1,500 for incidental costs. If Ms. Flores rejected the offer, Southcoast Automotive stated it “would deposit with the court the amount that Dealer believed to be a full remedy and seek a determination that it was the prevailing party entitled to fees and costs, including attorney fees, for being forced to respond to a complaint after a full remedy was offered.” Slip op. at 7-8.

Unable to resolve her claims, in February 2015, Ms. Flores filed an ex parte motion for permission to file an amended complaint seeking damages and restitution under the CLRA, in addition to injunctive relief. The defendant argued that Ms. Flores’ claims under the UCL were derivative of and precluded by the claim under the CLRA. Slip op. at 7-8. Ultimately, in a revised judgment entered on June 9, 2015, from which the Southcoast Automotive appealed, the trial court found in favor of the plaintiff but held that the dealership had made a valid settlement offer in good faith that precluded damages under the CLRA. Id. at 9. Relief included rescission of the purchase contract and a permanent injunction against the dealer under the UCL, “enjoining advertising any vehicle for sale in print or on the internet without clearly stating the date and time of any expiration.” Id. at 12.

The Court of Appeal subsequently affirmed the judgment in a decision based on the dealer’s contention that the CLRA is the exclusive remedy for the misconduct at issue. Slip op. at 14. Offering an extensive analysis of the statute, the court held that the CLRA expressly provides that remedies are cumulative, even for the same set of facts, noting that “plaintiffs routinely plead fraud, UCL, and CLRA claims based on similar allegations.” Id. at 15-16. Because the UCL claim “was based directly on evidence of fraudulent advertising practices [pursuant to statute] and was not dependent on finding an underlying violation of the CLRA,” the fact that damages under the CLRA were precluded by a reasonable correction offer had no effect on the viability of the plaintiff’s other causes of action. Id. at 18.

The Flores decision is good news for the plaintiffs’ bar, confirming that claims may be pleaded under the CLRA, UCL, and fraud for the same nucleus of operative facts, provided that they are applied appropriately to each cause of action.

Authored by:
Karen Wallace, Associate
CAPSTONE LAW APC

On December 7, 2017, in a published order, the Ninth Circuit rejected dismissal of an appeal of the denial of class certification by two plaintiff employees who had settled their individual claims and preserved certain class and representative claims for appeal, because the parties’ mutual settlement for consideration did not amount to “sham tactics” to manufacture an appealable final judgment under recent Supreme Court precedent. Brown v. Cinemark USA, Inc., No. 16-15377 (9th Cir. Dec. 7, 2017) (Ms. Brown and Mr. De La Rosa are represented by Capstone Law APC) (order available here). In an unpublished memorandum filed with the order, the panel reversed the denial of class certification and the dismissal of the claim under the Private Attorneys General Act (“PAGA”), finding that the district court had erred in denying class certification based on the pleadings and had erroneously dismissed the PAGA claim for failure to exhaust administrative remedies under Williams v. Superior Court, 3 Cal.5th 531 (2017), a case decided after the district court had issued its order (memorandum available here).

Plaintiffs Brown and De La Rosa were movie theater employees who brought a wage and hour class and representative action against their employer and consolidated their case with another action. The district court denied the plaintiffs’ joint motion for class certification, which, among others, sought to certify a direct wage statement claim under Labor Code section 226(a). The district court’s ruling was based solely on the pleadings, finding the wage statement claims had been pleaded derivatively rather than directly, and provided no Rule 23 class certification analysis. The court also dismissed the direct wage statement PAGA claim for failure to exhaust administrative remedies, finding that the PAGA notice letters had not provided sufficient information. Finally, the district court denied leave to amend the complaint and the remaining individual claims were set for trial. However, prior to trial, the parties settled all remaining individual claims for consideration, reserving the right to challenge the district court’s denial of class certification and the dismissal of Ms. Brown’s PAGA claim. Order at 4. Both plaintiffs appealed the issues reserved by the settlement. Id.

Cinemark subsequently brought a motion to dismiss the appeal in light of Microsoft Corp. v. Baker, 137 S. Ct. 1702 (2017), which was issued after the notice of appeal was filed. The Ninth Circuit denied the motion to dismiss the appeal. First, the Ninth Circuit distinguished Baker, noting that in Baker, the district court had denied class certification and the Ninth Circuit had denied discretionary interlocutory review under Rule 23(f). Order at 4. Then, “rather than pursue their individual claims on the merits, the plaintiffs voluntarily dismissed their own claims with the express purpose of creating a final judgment for appeal.” Id. The Baker plaintiffs subsequently only appealed the district court’s interlocutory order denying class certification. The Supreme Court of the United States found that such a voluntary dismissal did not qualify as a “final decision” within the parameters of 28 U.S.C. § 1291 and was a tactic that would undermine section 1291’s firm finality principle. Id. Here, however, the Ninth Circuit found that “unlike Baker, where the plaintiffs openly intended to sidestep Rule 23(f) when they voluntarily dismissed their claims[,]” after the district court denied certification, the Brown plaintiffs continued litigating their remaining individual claims, some of which resolved in favor of the defendants and some resulted in settlement. Id. at 5. The Brown plaintiffs did not engage in any “sham tactics to achieve an appealable final judgment,” and “the parties’ mutual settlement for consideration in this case does not raise the same concerns.” Id.

Second, the Ninth Circuit reversed the district court’s dismissal of Ms. Brown’s PAGA claim based on a failure to exhaust administrative remedies “[g]iven the import of Williams.” Memorandum at 2. The panel found that the PAGA notice letter “pleaded facts and theories sufficient to put the Defendants and the California Labor and Workforce Development Agency [LWDA] on notice for potential investigation, which satisfies the policy goal of California Labor Code section 2699.3(a).” Id. at 2-3. Quoting the California Supreme Court’s unanimous decision verbatim, the Ninth Circuit underscored that “[h]urdles that impede the effective prosecution of representative PAGA actions undermine the Legislature’s objectives.” Id. at 3. The panel further relied on the powerful dicta in Williams setting a very modest standard for PAGA notice letter sufficiency, recognizing that “[n]othing in Labor Code section 2699.3, subdivision (a)(1)(A), indicates the ‘facts and theories’ provided in support of ‘alleged’ violations must satisfy a particular threshold of weightiness, beyond the requirements of nonfrivolousness generally applicable to any civil filing.” Id.

Third, the Ninth Circuit found the district court erred in denying class certification of the direct wage statement claim on the basis of the pleadings. Memorandum at 3. Because the district court based its decision to deny certification solely on the pleadings rather than a Rule 23 analysis, the Ninth Circuit reviewed that decision de novo rather than applying the more deferential abuse of discretion normally reserved for certification rulings. It concluded that the pleadings put the defendants on sufficient notice of wage statement violations, whether direct or derivative, and further found that the plaintiffs’ pleadings merited a Rule 23 analysis for their direct wage statement claim. Id. It thus vacated the order and remanded for the district court to conduct a Rule 23 analysis.

The import of the Brown rulings is that Baker does not necessarily preclude federal appellate review of certification orders pursuant to partial settlements for consideration, particularly when the parties continue litigation. Further, with respect to PAGA notice letters, the Ninth Circuit has demonstrated that the California Supreme Court’s recent pronouncement in Williams is key—that PAGA notice letters need not meet any “threshold of weightiness,” but need only put defendants and the LWDA on notice of potential investigations, a low bar that need only pass the requirements of “non-frivolousness.”

Authored By:
Liana Carter, Senior Counsel
CAPSTONE LAW APC