On January 20, 2017, the Ninth Circuit Court of Appeals reversed a district court’s dismissal of a class action filed against an employer, holding that the inclusion of a liability release in an employment background check disclosure form violated the Fair Credit Reporting Act (FCRA). Syed v. M-I, LLC, No. 14-17186 (9th Cir. Jan. 20, 2017) (amended March 20, 2017) (slip op. available here). On a nationwide issue of first impression, a three-judge panel said that the FCRA requires that a disclosure form must “solely consist” of the disclosure and that inclusion of the liability waiver is a willful violation of the statute, entitling the plaintiff to statutory damages, punitive damages, and attorneys’ fees and costs. On March 20, 2017, the judicial panel unanimously voted to deny a petition for panel rehearing and a petition for rehearing en banc. The opinion was amended to clarify that Syed’s allegations were sufficient to establish standing under Spokeo Inc. v. Robins, 136 S. Ct. 1540 (2016).

In 2011, Syed applied for a job with M-I, LLC (“M-I”). M-I provided Syed with a document labeled “Pre-employment Disclosure Release.” In addition to the disclosure that Syed’s credit history and other information could be collected and used as a basis for the employment decision, the form contained a paragraph that authorized M-I to procure Syed’s consumer report, followed by the language:

I understand the information obtained will be used as one basis for employment or denial of employment. I hereby discharge, release and indemnify prospective employer, PreCheck, Inc., their agents, servants and employees, and all parties that rely on this release and/or the information obtained with this release from any and all liability and claims arising by reason of the use of this release and dissemination of information that is false and untrue if obtained by a third party without verification. (Emphasis added.)

Slip op., Appendix A. The document contained a single signature line, thus Syed’s signature served simultaneously as an authorization for M-I to procure his consumer report, and as a broad release of liability.

The court looked to the language of the statute to determine whether M-I violated the FCRA by including the liability waiver on the disclosure form. The court said that the relevant section, section 1681b(b)(2)(A), was unambiguous about the requirement that the form “consists solely of the disclosure” (emphasis added). M-I contended that the section was ambiguous about the term “solely” because subsection (ii) provides that a consumer authorization may appear on the same document as the disclosure. The court rejected that argument, holding that the “two clauses are consistent because the authorization clause is an express exception to the requirement that the document consist ‘solely of the disclosure.’ While the statute does not designate it as such, the authorization clause immediately follows the disclosure clause, and makes express reference to it.” Slip op. at 15. The court further explained that the purpose of the statute is to protect consumers from improper invasions of privacy, and the authorization and disclosure requirements work together to meet this purpose because the authorization to procure a consumer report would be less effective without a clear disclosure. Id. In other words, an applicant would be better informed if the authorization immediately follows the disclosure. Id. at 16.

While the court was willing to find that the authorization requirement was an exception to the “solely of the disclosure” clause, it was not willing to find an explicit or implicit exception that permitted a liability waiver on the same document. Referring back to the purpose of the FCRA as guarding the privacy rights of job applicants, the court stated:

An authorization requiring the job applicant’s signature focuses the applicant’s attention on the nature of the personal information the prospective employer may obtain, and the employer’s inability to obtain that information without his consent. But a liability waiver does just the opposite—it pulls the applicant’s attention away from his privacy rights protected by the FCRA by calling his attention to the rights he must forego if he signs the document.

Slip op. at 17.

After finding that the FCRA unambiguously requires that the disclosure “consist solely” of the disclosure language, and that the statute does not explicitly or implicitly allow a liability release in the disclosure, the court concluded the opinion finding that M-I’s interpretation of the FCRA was not objectively reasonable, and that M-I ran an “unjustifiably high risk of violating the statute.” Slip op. at 26. This “reckless disregard of the law” was therefore a willful violation of the FCRA. Id. Thus, the plaintiff could seek statutory penalties of $100 to $1,000 per willful violation, along punitive damages and attorneys’ fees and costs. As a case of first impression in the nation’s largest circuit, Syed is an important decision that protects the privacy of job applicants and that should discourage employers’ inclusion of liability waivers and other extraneous language in required FCRA disclosure forms.

Authored by:
Anthony Castillo, Associate
CAPSTONE LAW APC

The extent to which California’s wage-and-hour protections apply to airline industry employees was recently clarified in two decisions out of the Northern District of California: first in Bernstein v. Virgin America, No. 15-cv-02277 (N.D. Cal. Jan. 5, 2017) (“Bernstein”) (slip op. available here), and second, in Oman v. Delta Airlines, No. 15-cv-00131 (N.D. Cal. Jan. 6, 2017) (“Oman”) (slip op. available here). Together, these decisions affirm that airline industry employees who work in California may be protected by the California Labor Code and provide a framework for how courts will analyze whether the Labor Code applies to employees in positions that require interstate travel.

In Bernstein, the plaintiff brought a class action lawsuit on behalf of Virgin American flight attendants who worked in California, seeking classwide relief for Virgin America’s alleged failure to pay overtime and minimum wages, failure to provide meal and rest breaks, and failure to provide accurate wage statements. After the court certified a class of California-based flight attendants and a California residents subclass, Virgin America moved for summary judgment on the plaintiffs’ claims on the basis that California labor law did not apply to their employment because of the presumption against extraterritorial application of California’s labor laws and the Dormant Commerce Clause. Slip op. at 6. Virgin America also moved for summary judgment on the plaintiffs’ meal and rest break claims based on preemption under the Federal Aviation Act and Airline Deregulation Act, but those arguments were rejected. Id.

Virgin America’s primary argument was that California labor law did not apply to the flight attendants because they did not work either exclusively or principally in California, but rather across multiple jurisdictions and in federally-regulated airspace. Slip op. at 6. The court rejected the premise of Virgin America’s argument that job situs alone was determinative. Id. at 7. Instead, the court relied on the California Supreme Court’s decision in Sullivan v. Oracle Corp., 51 Cal. 4th 1191 (2011), in adopting a “multi-faceted approach,” in which the court considers several factors, including: 1) California residency; 2) receipt of pay in California; 3) exclusive or principal “job situs” in California; 4) the employer’s residency; and 5) whether the employee’s absence from the state was temporary in nature. Slip op. at 8. Applying these factors, the court found the plaintiffs were California residents who received their pay in California and that Virgin America is a California-based airline headquartered in California. Id. at 8-9. The court further relied on evidence that Virgin received millions of dollars in state subsidies to train its flight attendants in California and that between 88 and 99 percent of Virgin America’s flights each day departed or arrived in a California airport. Id. at 9. Importantly, the court found the fact that the plaintiffs spent only about 25 percent of their total work time in California was not only not dispositive, but relatively less important where temporary out-of-state travel is an inherent part of the job. Id.

In Oman, the court distinguished Bernstein in holding that Labor Code section 226 did not apply to a class of Delta flight attendants, stating that, in contrast to Bernstein where the court recognized multiple factors supporting application of the Labor Code, the plaintiffs sought to apply section 226 “based solely on a flight attendant’s performance of a de minimis amount of work in California during any pay period.” Slip. op. at 9 (italics in original). The court stressed the plaintiffs’ failure to raise any additional facts supporting the application of section 226, noting the plaintiffs did not rely on the flight attendants’ residence, the employer’s residence or other “deep ties” to California, or the performance of a significant amount of work in California during a particular pay period. Id.

Read together, these decisions support plaintiffs’ ability to pursue California Labor Code violations against airlines and other interstate employers. Although it remains unclear just how much of an evidentiary showing is required for the Labor Code to apply, and such determinations will be made on a case-by-case basis, Oman provides that something more than a de minimis amount of work in California is required, while Bernstein provides even as little as 25% of an employees’ work in California will not preclude application of California law as long as there are other facts tying the employee and/or the employer to California. This rather flexible standard should allow plaintiffs to pursue Labor Code claims against interstate employers in industries that that had previously evaded wage-and-hour liability, like the commercial airline industry.

Authored by:
Brandon Brouillette, Associate
CAPSTONE LAW APC

Earlier this year, the Ninth Circuit joined the Sixth, Seventh, and Eighth Circuits in declining to add “administrative feasibility” to Rule 23’s class certification requirements. Briseno v. ConAgra Foods, Inc., No. 15-55727 (9th Cir. Jan. 3, 2017) (slip op. available here). The ConAgra decision has been widely considered a victory for plaintiffs’ attorneys, as the Ninth Circuit refused to expand the requirements that plaintiffs must show for class certification and provided in-depth rebuttals to arguments made by the Third Circuit in requiring an additional showing of administrative feasibility to satisfy Rule 23.

In ConAgra, the Ninth Circuit upheld U.S. District Judge Margaret Morrow’s decision granting class certification to consumers in 11 states who allege that they were misled by the “all natural” claims on ConAgra’s Wesson cooking oil. Plaintiff Briseno, on behalf of himself and the class of consumers, alleged that ConAgra’s Wesson-brand cooking oil claims to be “all natural” but, in fact, contains genetically modified organisms (GMOs) and that Plaintiff Briseno and other consumers, to their detriment, relied on ConAgra’s misleading “all natural” claims when purchasing the cooking oil.

ConAgra opposed the district court’s certification decision on appeal, arguing that the Ninth Circuit should join the Third Circuit and reverse certification because the plaintiff failed to provide an “administratively feasible” plan to determine ascertainability. See Byrd v. Aaron’s Inc., 784 F.3d 154, 162-63 (3d Cir. 2015); Carrera v. Bayer Corp., 727 F.3d 300, 306-08 (3d Cir. 2013) (imposing “administrative feasibility” as a prerequisite to class certification). However, Circuit Judge Michelle T. Friedland, writing for the court, sharply disagreed with ConAgra’s stance stating, “ . . . Rule 23’s enumerated criteria already address the policy concerns that have motivated some courts to adopt a separate administrative feasibility requirement, and do so without undermining the balance of interests struck by the Supreme Court, Congress, and the other contributors to the Rule.” Slip op. at 4.

Rule 23 specifies four distinct requirements that parties seeking certification must satisfy: numerosity, commonality, typicality, and adequacy. The Third Circuit previously voiced concerns, which ConAgra relied upon in its appeal, over the potential for fraudulent claims and defendant’s due process rights if administrative feasibility was not an additional pre-requisite for class certification. Slip op. 15-23. In this context, “administrative feasibility” would have meant that the plaintiffs would also be required to proffer a reliable method of identifying members of the certified class. However, Judge Friedland pointed to several means by which Rule 23 already addresses those concerns, most notably via the claims administration process, and found the enumerated list to be exhaustive. Id.

In March, the Ninth Circuit agreed to postpone making official its decision to stay issuance of the mandate in light of ConAgra’s request for Supreme Court review. The ConAgra decision further serves to defend and strengthen the role that class actions play in today’s jurisprudence, as Judge Friedland consistently expressed that small dollar consumer class actions exemplify the necessity of class actions and that imposing additional hurdles on consumers is inconsistent with the legislative intent of Rule 23.

Authored by:
Trisha Monesi, Associate
CAPSTONE LAW APC

In Norcia v. Samsung Telecommunications America, LLC, et al., No. 14-16994 (9th Cir. Jan. 19, 2017) (slip op. available here), the Ninth Circuit Court of Appeals sided with a consumer in denying Samsung’s attempt to enforce an “in-the-box” arbitration clause (contained within a warranty brochure) accompanying his purchase of a Galaxy S4 phone. In February 2014, Plaintiff Norcia filed a consumer class action lawsuit alleging Samsung made misrepresentations as to the storage capacity and performance of the Galaxy S4 phone. Samsung moved to compel arbitration based on an arbitration clause buried within the 101-page “Product Safety & Warranty Information” brochure that accompanied the phone inside the box. The district court denied the motion to compel arbitration, holding that no agreement to arbitrate claims had formed between the two parties, and Samsung appealed.

On appeal, Samsung principally argued that the inclusion of the arbitration provision in the “Product Safety & Warranty Information” brochure created a valid contract under California law between Samsung and the plaintiff to arbitrate all claims related to the Galaxy S4 phone. The Ninth Circuit disagreed, relying on well-established principles of California contract law that generally an offeree’s silence in response to an offer does not constitute assent to a contract when the offeree reasonably did not know that an offer had been made. Slip op. at 9.

The court indicated that the inclusion of an offer by Samsung to arbitrate “[a]ll disputes with Samsung arising in any way from . . . the sale, condition or performance of the products” in a “Product Safety & Warranty Information” brochure would not put a “reasonable person in [Plaintiff] Norcia’s position . . . on notice that the brochure contained a freestanding obligation outside the scope of the warranty” and that a “reasonable person [would not] understand that receiving the seller’s warranty and failing to opt out of an arbitration provision contained within the warranty constituted assent to a provision requiring arbitration of all claims against the seller, including claims not involving the warranty.” Slip op. at 19. Thus, because the evidence before the court demonstrated that the plaintiff had not expressly assented to any agreement in the brochure, and that he had not signed the brochure or otherwise acted in a manner that would show his intent to use silence, or failure to opt out, as a means of accepting the arbitration agreement, no valid agreement to arbitrate had been formed. The court also separately rejected Samsung’s argument that it was a third-party beneficiary of the customer agreement between Verizon and Norcia and that Norcia had agreed to arbitrate his claims by signing the Customer Agreement based on the complete absence of any evidence that the plaintiff and Verizon had intended Samsung to benefit from the arbitration agreement.

This ruling denying Samsung’s push for arbitration is a narrow victory for consumer rights in what is an otherwise unfavorable climate for defeating such industry efforts. This ruling may also bode well for those consumers whose Galaxy Note 7 phones exploded or caught fire. The Galaxy Note 7, like the Galaxy S4 in Plaintiff Norcia’s case, was accompanied “in the box” by an arbitration clause tucked away in the safety and warranty brochure. If so, absent any evidence that the consumer expressly assented to the arbitration clause and in the event California law is applied, the Ninth Circuit’s ruling in Norcia should provide support for defeating any motion to compel arbitration in those actions. 

Authored By:
Lee Cirsch, Senior Counsel
CAPSTONE LAW APC