Last week, in the U.S. District Court for the Eastern District of Michigan, the U.S. Department of Justice (DOJ) filed a civil lawsuit, on behalf of the U.S. Environmental Protection Agency (EPA), against Volkswagen AG (VW) and other related entities for equipping approximately 600,000 diesel engine vehicles with “defeat device” software designed to evade emissions testing by allowing emissions to exceed EPA standards, resulting in dangerous and unlawful air pollution. United States of America v. Volkswagen AG et al., Case No. 2:16-cv-10006 (complaint available here). The complaint also named Audi AG, Volkswagen Group of America Inc., Volkswagen Group of America Chattanooga Operations LLC, Porsche AG, and Porsche Cars North America Inc. as defendants in this civil suit.

In the fall of 2015, VW admitted that it had been cheating vehicle emissions standards for years by installing software in at least 11 million of its diesel cars worldwide. These “defeat devices” would detect when the vehicles were undergoing EPA emissions testing and would cause the vehicles to operate in a mode utilizing the full emissions controls only during that testing process. However, once the vehicles were in consumers’ hands and out on the road, in normal driving conditions, these controls were substantially reduced, allowing the vehicles to emit levels of nitrogen oxide up to 40 times the EPA standard for compliance. Earlier this week, the EPA and the California Air Resources Board (CARB) rejected the automaker’s plans for a proposed recall, on the grounds that the plan had insufficient detail and the proposed fixes were not specifically described in a way that would allow regulators to evaluate their technical feasibility. This is yet another blow to VW’s voluntary ameliorative efforts. See CARB Rejection Notice, available here.

The lawsuit alleged that Volkswagen violated the Clean Air Act, 42 U.S.C. §§ 7523 and 7524, by selling, introducing into commerce, or importing into the United States motor vehicles that were materially different in design from what was listed in VW’s applications to obtain certification to sell the vehicles in the United States. Notably, the DOJ has stated in a press release that its civil complaint, which seeks civil penalties and injunctive relief, but does not address criminal charges or sanctions, does not preclude the government from seeking other legal remedies. Further, the DOJ plans to seek to transfer its case and participate in the related multi-district litigation involving more than 500 consumer class actions, before U.S. District Judge Charles Breyer in the Northern District of California.

Relatedly, last week, the U.S. House of Representatives passed the Fairness in Class Action Litigation (H.R. 1927) bill, otherwise known as the “VW Bailout Bill” (available here), which would allow companies to escape so-called “no-injury” class action lawsuits by requiring courts to conduct “a rigorous analysis of the evidence” to determine that the class representative and “each proposed class member suffered the same type and scope of injury” before certifying a class under Fed. R. Civ. P. 23(c)(1). The measure is expected to stall in the Senate, and the White House has already threatened to veto it.

Authored by: 
Mao Shiokura, Associate
CAPSTONE LAW APC

On September 28, 2015, the Ninth Circuit Court of Appeals weighed in on a very contentious issue—the enforceability of waivers of claims brought pursuant to the Private Attorneys General Act (“PAGA”)—an issue that had divided the district courts for the last several years. See Sakkab v. Luxottica Retail North America, Inc., 803 F.3d 425 (9th Cir. 2015) (slip op. available here). The majority, agreeing with the California Supreme Court’s decision in the landmark Iskanian case (Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014)), found that an employee cannot waive the right to bring a representative PAGA action, and that any agreement seeking to waive such rights prospectively is unenforceable, a holding that is now becoming known as the “Iskanian Rule.” As a result, the lower court’s holding that the Iskanian rule is preempted by the Federal Arbitration Act (“FAA”) was reversed in part, and the case was remanded for the district court to decide in which forum (court or arbitration) the plaintiff’s representative PAGA claims would be resolved.

The plaintiff, a former employee of LensCrafters, had filed an employment class action lawsuit against Luxottica, alleging that the defendant misclassified the plaintiff and other employees as supervisors, in order to improperly exempt them from overtime wages and meal and rest break requirements. The defendant sought to compel arbitration pursuant to an alternative dispute resolution (ADR) agreement contained in its “Retail Associate Guide.” The plaintiff argued that the portion of the ADR agreement prohibiting him from bringing PAGA claims on behalf of other employees was unenforceable under California law; thus, even if his claims were compelled to arbitration, he could not be denied a forum for his PAGA claims. The district court rejected the plaintiff’s argument and granted the defendant’s motion to compel arbitration only of the plaintiff’s individual claims, concluding that the FAA preempted the state law Iskanian rule. The plaintiff in Sakkab appealed.

Judge Milan Smith authored the majority opinion, arguing that Iskanian is not preempted by the FAA because it has nothing directly to do with arbitration. The thrust of the majority’s position was that PAGA actions are not necessarily “procedurally” complex, and that only state law rules that would require complex procedures in arbitration, resulting in “procedural morass,” run afoul of Concepcion’s rule against states interfering with “fundamental attributes of arbitration.” Slip op. at 19, 25-27. The majority bolstered its conclusion by adopting the preemption framework set out by the Iskanian court, which rested on the notion that PAGA claims are unique in that they are brought on behalf of the state to enforce the law, unlike private actions for damages which involve only private rights. As such, the United States Supreme Court’s FAA preemption case law, which mandates preemption of state law rules that implicate private rights, does not extend to a state law rule that disallows employers from enforcing waivers of PAGA claims. The dissent, however, reiterating the holding in AT&T Mobility v. Concepcion, 563 U.S. 333 (2007), would find that the FAA generally preempts any law that creates a special rule disfavoring arbitration or conflicts with the FAA’s objectives, and views no distinction between bans on PAGA claims and bans on class action waivers for the purpose of FAA preemption.

This ruling is particularly significant since it is the first endorsement of Iskanian, a state case, by a federal appellate court, and California federal courts will now be required to follow this rule. The defendant Luxottica has filed a petition seeking rehearing en banc, the plaintiff-appellant’s response to which is due by January 15, 2016.

Authored by: 
Robin Hall, Associate
CAPSTONE LAW APC

The California Court of Appeal, Second Appellate District, recently partially reversed a key trial-court ruling that had been in favor of the Los Angeles Metropolitan Transportation Authority (MTA), thereby clearing the way for MTA employees to pursue claims for statutory minimum wages and under the Private Attorneys General Act (PAGA). The appellate court’s opinion was certified for publication on December 17, 2015. See Flowers v. Los Angeles Cnty. Metro. Transp. Auth., No. B256744 (Cal. Ct. App. Nov. 25, 2015) (slip op. available here).

In July 2013, former MTA bus driver Nathan Flowers filed a class, collective, and representative action on behalf of approximately 7,000 current and former MTA bus and train operator employees, asserting that the MTA failed to pay minimum wages, provide rest periods, or pay rest period premiums in violation of state labor laws. The MTA argued that Public Utilities Code sections 30257 and 30750 give it exclusive authority to set wages and working conditions for employees in a good-faith bargain with the designated union, and that it was therefore exempt from the requirements of Industrial Welfare Commission (IWC) Order 9, which governs wage-and-hour issues in the transportation industry. The trial court agreed with the MTA and dismissed three out of four of the plaintiff’s claims. Plaintiff Flowers voluntarily dismissed the only remaining claim, for violations of the Fair Labor Standards Act, and appealed the trial court’s order.

First, the Court of Appeal found the MTA to be exempt from the California law rest period requirements. Section 12(C) of IWC Order 9 states that California rest break requirements do not apply to public transit bus drivers covered by a valid collective bargaining agreement “if the agreement provides for (1) rest periods . . . , (2) final and binding arbitration of disputes concerning application of its rest period provisions, (3) ‘premium wage rates for all overtime hours worked,’ and (4) ‘regular hourly rate of pay of not less than 30 percent more than the State minimum wage.'” Slip op. at 15 (emphasis added). In his appeal, the plaintiff argued the rest period exemption did not apply because the agreement did not fulfill the third requirement, since it excluded certain tasks performed by operator employees, such as filling out accident reports, from overtime pay, and defining overtime in this way violated the requirement of “premium wage rates for all overtime hours worked.” The appellate court then analyzed the overtime compensation requirements in the collective bargaining agreement at issue and in federal and state law. California Labor Code section 514 exempts from section 510 overtime requirements employees covered by a valid collective bargaining agreement that provides “premium wage rates for all overtime hours worked” and a regular hourly rate of pay of not less than 30 percent more than the state minimum wage. Citing Vranish v. Exxon Mobil Corp., 223 Cal.App.4th 103 (2014), the panel found that Labor Code section 514 only required the MTA to pay a premium for all overtime worked as it’s defined in the collective bargaining agreement, and that this collective bargaining agreement indisputably did so. Thus, in light of the exemptions under Labor Code section 514 and in section 12(C) of IWC Order 9, the appellate court found the MTA met those requirements, and therefore affirmed the trial court’s dismissal of the rest break claim. 

However, the Court of Appeal reversed the trial court’s dismissal of the minimum wage claim and civil penalties under PAGA, rejecting the MTA’s contention that the Public Utilities Code immunizes it from state minimum wage requirements simply because it authorizes the MTA to adopt a general personnel system defined by a collective bargaining agreement. See Pub. Util. Code § 30257. The opinion, citing Grier v. Alameda-Contra Costa Transit Dist., 55 Cal. App. 3d 325, 332 (1976), unequivocally states that compliance with California’s statutory minimum wage requirement in no way limits or restricts the MTA’s ability to bargain in good faith and execute a written collective bargaining agreement. Because the MTA failed to show how complying with the applicable minimum wage requirement would prevent it from carrying out its obligations to its employees under the Public Utilities Code, it is now potentially liable for its failure to pay minimum wages for all hours worked, pursuant to Labor Code section 1194. The reversal of the trial court’s ruling also resuscitates the plaintiff’s PAGA claim for that alleged violation.

Authored by: 
Karen Wallace, Associate
CAPSTONE LAW APC

California’s highest court will decide whether the appellate court correctly upheld the constitutionality of California’s background check law, the Investigative Consumer Reporting Agencies Act (“ICRAA,” Cal. Civ. Code § 1786, et seq.) in Connor v. First Student, Inc., No. B256075, B256077 (2nd Dist. Div. 4, Aug. 12, 2015) (slip op. available here), rev. granted, 360 P.3d 1022 (Nov. 24, 2015). The Connor appeal was filed by Eileen Connor and Jose Gonzalez, two bellwether plaintiffs among the roughly 1,200 bus drivers who filed a series of coordinated mass actions against employers First Student, Inc. and First Transit, Inc. and against credit reporting agency HireRight, Inc. for violations of the ICRAA. Specifically, the drivers asserted that First Student violated the ICRAA by running background checks without the proper disclosure language or written consent required under the ICRAA. First and HireRight sought to dismiss the lawsuits on the ground that the ICRAA is unconstitutionally vague and moved for summary judgment, which was granted by Judge Wiley of the Los Angeles County Superior Court. Plaintiffs Connor and Gonzalez separately appealed and their cases were later consolidated (the consolidation order was subsequently vacated).

In Connor, the Second Appellate District overturned the trial court’s grant of summary judgment for the employer, holding that the ICRAA is not void for vagueness just because the Consumer Credit Reporting Agencies Act (“CCRAA,” Cal. Civ. Code § 1785.1, et seq.)—another California statute that regulates consumer reporting agencies—might also apply to those same background checks. Slip op. at 3 (“There is nothing in either the ICRAA or the CCRAA that precludes application of both acts to information that relates to both character and creditworthiness.”). In so holding, the Connor court expressly disagreed with a prior decision by a sister court in the Fourth District in Ortiz v. Lyon Management, 157 Cal.App.4th 604 (2007), which held that the ICRAA was “unconstitutionally vague” because both the ICRAA and CCRAA governed certain background reports, and agreed with the plaintiff that “Ortiz was wrongly decided because it failed to consider case law governing the interpretation of overlapping statutes.” Slip op. at 5, 9 (rejecting the employer’s vagueness argument that was “based upon the faulty premises that (1) any given consumer report must be governed by either the CCRAA or the ICRAA, but not both, and (2) the CCRAA ‘authorizes’ certain conduct.”). The Connor court also found that the application of ICRAA and CCRAA are not mutually exclusive in that the employer can comply with each act without violating the other “because each act expressly excludes those specific reports governed by the other act.” Id. at 14.

The Connor decision is a long-awaited and much-needed victory for plaintiffs in ICRAA litigation. As noted in Connor, “two federal district courts have followed and extended Ortiz, and no court has criticized or departed from it.” Slip op. at 5. Indeed, Judge Wiley stated that he found the Ortiz ruling “surprising,” but was nonetheless bound by it to rule in favor of First Student and HireRight on their constitutionality challenge. Thus, prior to Connor, the fate of ICRAA litigation involving background checks within the employment context was grim; no claim under ICRAA would have survived no matter how egregious the violation. Such a result was significant because “generally, the ICRAA imposes greater obligations and stricter limitations, and allows greater remedies.” Id. at 2. Connor, however, gave new life to claims arising under ICRAA; it is therefore of critical importance that Connor be kept alive.

Authored by: 
Suzy Lee, Associate
CAPSTONE LAW APC