In product labeling class actions, consumer plaintiffs must provide a damages methodology that is both admissible under Fed. R. Evid. 702 (i.e. survives a challenge under Daubert v. Merrell Dow Pharms. Inc., 509 U.S. 579 (1973)) and satisfies the requirements of Comcast Corp. v. Behrend, 133 S.Ct. 1426, 1433 (2013) (“a model purporting to serve as evidence of damages in [a] class action must measure only those damages attributable to that theory”).

In In re: Dial Complete Marketing and Sales Practices Litigation, MDL Case No. 11-md-2263-SM, 2017 DNH 051 (D.N.H. March 27, 2017) (“In re: Dial”) (slip op. available here), the court found that the plaintiffs met both aspects of this challenge. In re: Dial was a consolidated, multi-district class action brought by consumers in multiple states, including California, Florida, and Illinois, against Dial based on alleged misrepresentations of the antibacterial properties of its “Dial Complete” soap. Slip op. at 3. The court denied Dial’s motion to strike the testimony of the plaintiffs’ expert, Stefan Boedeker, and held that the expert’s damages model based on conjoint analysis methodology “satisfies the requirements of Comcast and Rule 23.” Id. at 30. However, what sets apart In re: Dial from previous cases discussing conjoint analysis is its in-depth discussion of the economic principles of the methodology.

The plaintiffs in In re: Dial alleged that the label on “Dial Complete” soap contained a number of statements that were false and misleading, including claims that the product “Kills 99.99% of Germs,” that it is “#1 Doctor Recommended,” and that Dial Complete “Kills more germs than any other liquid hand soap.” Slip op. at 3. The expert’s task was to isolate a “measurable monetary portion” of the price of the soap attributable to the falsely-claimed product features. Id. at 19. The court began by noting that the expert’s conjoint analysis methodology “consists of three steps: data collection, data analysis and damages calculation” and then described in detail how the expert-designed “Choice Based Conjoint” consumer survey worked. Id. at 6-10. Then, observing that “conjoint analysis is a well-accepted economic methodology,” the court had no problem dismissing Dial’s criticisms of the expert’s survey as “going to the weight, not the admissibility,” of the expert’s testimony. Id. at 13-17.

The court’s decision had, in certain respects, an academic depth to its analysis, explaining economic concepts like demand curves (“a visual depiction of the relationship between a product’s price and quantity demanded”) and marginal consumers (“the last consumer willing to pay for a product at a given price and, consequently, the first to leave if the price is increased”), and how those concepts and research data combined to permit an expert to perform a “calculation [that] will yield the price premium associated with the ‘Kills 99.99% of Germs’ claim.” Slip op. at 25-27. Finally, the court rejected Dial’s expert’s critique of the damages model that it is “unconnected to supply side market forces” with a cogent explanation of why a “traditional” supply and demand approach was problematic and why the plaintiffs’ expert’s model, holding the number of products actually sold constant on the supply/demand graph, actually “captured the full measure of damages suffered by consumers who actually bought the allegedly misrepresented product.” Id. at 28.

The court’s illuminating discussion of surveys, economics, and conjoint analysis should be required reading for any litigator planning to develop a damages model for class certification.

Authored By:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

McDonald’s Restaurants of California (McDonald’s) operates over 100 corporate-owned fast food restaurants in California. Recently, McDonald’s has been embroiled in wage-and-hour litigation in California over its timekeeping and pay practices. See Sanchez, et al. v. McDonald Restaurants of California, et al., No. BC499888 (April 20, 2017, Los Angeles County Superior Court) (slip op. available here). The Sanchez litigation was brought because McDonald’s had configured its electronic timekeeping system to attribute all hours worked by a class member on a specific shift to the date on which the shift began rather than the date on which the work was actually performed. Slip op. at 2. For example, if an employee worked an overnight shift that began at 10:00 p.m. on December 28, 2013, and ended at 6:00 a.m. on December 29, 2013, and then worked another shift on December 29, 2013, that began at 2:00 p.m. and ended at 10:15 p.m., McDonald’s timekeeping software would attribute all eight hours of compensable time to the payroll date December 28, 2013, and the remaining 8.25 hours for December 29, 2013, resulting in just .25 hours of overtime work on December 29, 2013.

California Labor Code sections 510 and 500(a) require employers to pay an overtime premium of one and one-half times the employee’s regular rate of pay for “any work in excess of eight hours in one workday [defined as ‘any consecutive 24 hour period commencing at the same time each calendar day’]” and twice the employee’s regular rate of pay for “any work in excess of 12 hours in any one day [also defined as ‘any consecutive 24 hour period commencing at the same time each calendar day’.” (Emphasis added.) The Sanchez plaintiffs contended that McDonald’s timekeeping practice resulted in the failure to pay overtime to class members who worked an overnight shift followed by another shift the next day and who work more than eight hours in a 24-hour period. To illustrate, in the example above, if the hours worked were attributed to the day on which they were actually worked rather than the day on which the employee’s shift began, the employee would have worked 14.25 hours on December 29, 2013, which would have resulted in 4 hours of overtime and 2.25 hours of double-time for the hours worked in excess of 12 hours/day. This wage difference can be very meaningful to a typical McDonald’s employee who works at or near minimum wage.

In August 2016, the Sanchez court certified an “overtime subclass” defined as:

All class members who worked a shift that began on one calendar day and ended the next 10 calendar day parentheses an overnight shift) followed by a shift that began on the same calendar day as the overnight shift ended who were not paid all overtime for all time worked in excess of eight hours in a 24 hour period.

Slip op. at 1. The plaintiffs then moved for summary adjudication as to the issue of McDonald’s liability on the overtime cause of action. In opposing the motion, McDonald’s admitted that all the overtime subclass members experienced at least one week during which they recorded a shift that began on one calendar day and ended on the next calendar day, followed by a shift that began on the same calendar day the overnight shift ended, and were paid regular wages for hours that McDonald’s would have paid their overtime or double-time hours if McDonald’s had calculated their hours by reference to a calendar date.

On April 20, 2017, Judge Ann Jones of the Los Angeles County Superior Court granted summary adjudication against McDonald’s. In the ruling, the court cited Jakosalem v. Air Serv Corporation (N.D. Cal. Dec. 15, 2014, No. 13-CV-05944-SI), which held that “overtime calculations should be based on the amount of work completed by an employee during any single twenty-four hour workday period regardless of whether the employee works continuously through the day to divide.” Sanchez, at 4.

In crafting her ruling, Judge Jones also addressed McDonald’s claim that a workday need not be a calendar day and, in fact, McDonald’s set its workdays to start at 4:00 a.m. and end at 3:59 a.m. The problem, however, was that McDonald’s did not calculate overtime based on that workday. The court commented at the hearing that whether McDonald’s started its workday at 4 a.m. or midnight or another time was an “argument for another day,” because it would affect only damages in the case, not the fact that McDonald’s was liable for unpaid overtime. Law360.com, “McDonald’s Loses Calif. OT Fight, Queuing Up Damages Trial,” https://www.law360.com/articles/915697/(last accessed May 19, 2017). The court also overruled McDonald’s argument that it had substantially complied with California Labor Code section 510. The court found that the authority cited by McDonald’s only mentioned the “substantial compliance” doctrine in connection with Labor Code section 226(a), and that there is no authority for the “substantial compliance” doctrine applying to section 510.

The class action jury trial began last Tuesday, May 23, 2017, to determine what damages McDonald’s must pay to a class of nearly 14,000 employees and the related question of whether the company willfully skirted overtime law so as to entitle the employees to “waiting time” penalties under Labor Code section 203. This class trial should be manageable given that the underpayment of overtime wages and interest can be easily recalculated by an expert from the time punch records. Additional remedies would include interest, attorneys’ fees, and civil penalties under California’s Private Attorneys General Act. The trial is scheduled to conclude this Friday.

Authored By:
Robert Drexler, Senior Counsel
CAPSTONE LAW APC

In Vaquero v. Stoneledge Furniture LLC, No. B269657, 2017 WL 770635 (Cal. Ct. App. Feb. 28, 2017) (slip op. available here), the California Court of Appeal, Second Appellate District, reaffirmed that employees paid on commission are entitled to separate compensation for rest periods mandated by state law. In Vaquero, a retail furniture company paid its sales associates exclusively on a commission basis. If the sales associates did not earn at least $12.01 an hour in commissions during any given pay period, the employer would make up the difference with a “draw” against future commissions. (Stoneledge is also known as “Ashley Furniture HomeStore” in California.) Two Ashley Furniture commissioned sales associates filed a class action lawsuit to recover separate pay for rest periods as required by California law, alleging that the employer failed to provide paid rest periods because the employer’s agreement did not provide separate compensation for time when they were not performing sales duties, such as during meetings, rest periods, or participating in training.

The trial court certified the plaintiffs’ claims for unpaid rest periods, unpaid wages upon termination, and unfair business practices for California sales associates, but subsequently granted Stoneledge’s motion for summary judgment, finding that the employer’s commission plan guaranteed that sales associates were paid for all time worked, including their rest periods. The employer argued that, under the commission agreement, sales associates were guaranteed to be paid $12.01 per hour, including their rest periods; thus, “all time during rest periods was recorded and paid as time worked identically with all other work time.” Slip op. at 3. The trial court agreed, and held that under the agreement, “there was no possibility that the employees’ rest period time would not be captured in the total amount paid each pay period” because the employer tracked all hours the sales associates worked, including rest periods. Id. at 5.

The California Court of Appeal reversed. The California Court of Appeal determined that this commission plan violated California Wage Order No. 7, which “requires employers to count ‘rest period time’ as hours worked for which there shall be no deduction from wages.” Slip op. at 11. Because Stoneledge’s commission plan did not separately compensate the sales associates for the time they worked during which they could not earn commissions, it did not “separately account and pay for rest periods to comply with California law.” Id. at 25. Indeed, the “advances or draws against future commissions were not compensation for rest periods because they were not compensation at all. At best[,] they were interest-free loans.” Id. at 23. “[T]aking back money paid to the employee effectively reduces either rest period compensation or the contractual commission rate, both of which violate California law.” Id.

The Vaquero decision establishes that California employers using incentive-based pay systems must compensate those employees separately for time when they were not performing sales duties, such as during rest breaks. Moreover, employers may need to modify wage statements provided to employees to comply with California Labor Code section 226(a) to account for both the commissioned pay and the hourly pay during rest periods.

Authored By:
Bevin Allen Pike, Senior Counsel
CAPSTONE LAW APC

On April 6, 2017, in a unanimous decision, the California Supreme Court held that a provision in Citibank’s mandatory cardholder arbitration agreement that waives the statutory right to seek public injunctive relief is contrary to California public policy and is thus unenforceable under California law. McGill v. Citibank, N.A., No. S224086 (Cal. Sup. Ct. April 6, 2017) (slip op. available here). The court rejected Citibank’s “overbroad view” of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1, et seq., and concluded that the FAA does not preempt California law on this issue or otherwise require enforcement of the waiver provision. Slip op. at 1, 15. The court also found that public injunctive relief remains a remedy available to private plaintiffs with standing under California’s consumer protection statutes, and is not restricted to the class action context. Id. at 11-13.

In McGill, the plaintiff was a Citibank cardholder who paid a monthly premium for its “credit protector” plan, a type of credit insurance that deferred or credited certain amounts to her account upon a qualifying event, such as unemployment. She brought a class action based on Citibank’s deceptive marketing of this plan and handling of her claim when she became unemployed, alleging claims under California’s Unfair Competition and False Advertising laws (the “UCL” and “FAL,” respectively), the Consumers Legal Remedies Act (the “CLRA”), and the Insurance Code. McGill sought public injunctive relief, along with other remedies, against Citibank’s unlawful business practices. Relying on arbitration provisions imposed against the plaintiff through a unilateral “Notice of Change in Terms” to her Citibank card, Citibank filed a petition to compel arbitration on an individual basis. The trial court ordered all claims to arbitration except those for injunctive relief under the UCL, FAL, and CLRA based on the Broughton-Cruz rule, which provides that claims for public injunctive relief under these consumer protection statutes are not arbitrable under California law. Slip op. at 3. The Court of Appeal reversed, holding that the Broughton-Cruz rule is preempted by the FAA, and instructing the trial court to order all claims to arbitration, including the injunction claims.

In an opinion authored by Justice Ming Chin, the California Supreme Court reversed. The court found that the Broughton-Cruz rule was not at issue, as the parties agreed that the arbitration agreement purported to preclude McGill from seeking public injunctive relief in any forum, arbitral or judicial, whereas the Broughton-Cruz rule applies only when parties have agreed to arbitrate requests for such public injunctive relief. Slip op. at 8. The court addressed whether such an arbitration provision, which completely waives the right to seek public injunctive relief under the UCL, FAL, and CLRA, was unenforceable under California law. Applicable California law under Civil Code section 3513 provides that “a law established for a public reason cannot be contravened by a private agreement.” Noting that the public injunctive relief available under the UCL, CLRA, and FAL is primarily for the benefit of the general public and to remedy a public wrong rather than resolve a private dispute, the supreme court found that such a waiver under these statutes “would seriously compromise the public purposes the statutes were intended to serve.” Slip op. at 14. As such, Citibank’s arbitration provision that purports to waive the right to such public injunctive relief in all fora is invalid and unenforceable under California law. Id.

The court further found that the FAA, as construed in Concepcion, did not preempt this rule of California law, and rejected Citibank’s views to the contrary. Slip op. at 14-15. Under the FAA’s “savings clause” and U.S. Supreme Court precedent, arbitration agreements are only “as enforceable as other contracts, but not more so,” and may be invalidated by generally applicable contract defenses. Id. at 15. The court held that the contract defense at issue here, Civil Code section 3513’s proscription that a law established for a public reason cannot be contravened by a private agreement, is grounds under state law for revoking any contract, not just arbitration agreements, and thus a generally applicable contract defense. Id. at 15-16. The court concluded that the FAA does not require enforcement of a provision that, in violation of generally applicable California contract law, waives the right to seek in any forum public injunctive relief under the UCL, FAL, or CLRA. Id. at 17. The FAA does not require such enforcement “merely because the provision has been inserted into an arbitration agreement. To conclude otherwise would [be] contrary to Congress’s intent.” Id. at 16. The court specified that this holding is in line with recent U.S. Supreme Court precedent indicating that the FAA does not require enforcement of arbitration provisions that forbid the assertion of certain statutory rights or eliminate the right to pursue a statutory remedy. Id. Significantly, the court rejected Citibank’s contention that this principle only applies to the forfeiture of a federal statutory right, as opposed to a state statutory right. Id. at 17.

The court also held that the 2004 amendments to the UCL and FAL ushered in by voters under Proposition 64 do not preclude a private plaintiff, who has standing to file a private action (e.g., “suffered injury in fact and has lost money or property as a result of” a violation of the UCL or FAL), from requesting public injunctive relief in connection with that action, even if the plaintiff does not allege class claims, answering a question that had been left unanswered since 2004. Slip op. at 11-13.

Requesting a broad injunction to require businesses to change their unlawful acts is often the primary form of relief for consumers challenging unfair and deceptive business practices. As such, McGill provides broad protections to consumers who cannot be forced by businesses like Citibank into contractually waiving their right to public injunctive relief under California’s consumer protection statutes.

Authored By:
Liana Carter, Senior Counsel
CAPSTONE LAW APC