The UCL Practitioner

New Ninth Circuit class action decision: Negrete v. Allianz Life Insurance Co.

In Negrete v. Allianz Life Insurance Co., ___ F.3d ___ (9th Cir. Apr. 29, 2008), the Ninth Circuit invalidated a district court order that would have prohibited the defendant from settling similar class actions pending in other jurisdictions without the participation of plaintiff's co-lead counsel in the certified nationwide class action case before it. The concluding paragraphs of the opinion read:

The district court was troubled by the fact that settlements in other courts might draw the fangs from at least a portion of the class action case that it was then considering. Perhaps they will. But in this instance it was improper for the district court to react by issuing an injunction against other federal and state court proceedings.

Rather, the district court must live with the vicissitudes and consequences of our elegantly messy federal system. The restrictions inherent in the All Writs Act and explicit in the Anti-Injunction Act have helped to concinnate the elements of our national polity; this is not the time to disrupt the harmony.

Slip op. at 4594. There's no "harmony" when someone else files on top of you and then tries to settle your case out from under you — especially if the district court can do nothing to prevent it. However, the Ninth Circuit was concerned about a different kind of "harmony." This morning's Daily Journal reports that "Panel Finds Judge's Order Went Too Far" (subscription).

[Vocabulary word of the day: Concinnate. Verb, tr. "To place fitly together; to adapt; to clear."]

New Seventh Circuit CAFA opinion: Springman v. AIG Marketing

In Springman v. AIG Marketing, Inc., ___ F.3d ___ (7th Cir. Apr. 15, 2008), the Seventh Circuit noted a split among the circuits respecting whether post-removal activity can re-"commence" a case for CAFA removal purposes. Slip op. at 3. This question frequently came up in cases filed before CAFA's effective date of February 18, 2005. According to the opinion, "[t]he outlier is the Ninth Circuit." Id. at 3 (citing McAtee v. Capital One, F.S.B., 479 F.3d 1143, 1145-48 (9th Cir.2007)) (see this post for more on McAtee).

On the Ninth Circuit's view, a plaintiff can defeat removal by first filing a complaint that does not include a claim or a defendant that would trigger the Act's right of removal and later substituting a claim or defendant that would have triggered the right. Suppose that with the Act's effective date looming, the plaintiff had not completed even a minimal pre-complaint investigation. Under the Ninth Circuit's view, the plaintiff could sue Donald Duck for violating a Chicago noise ordinance and then at his leisure amend the complaint to substitute a proper claim against a proper defendant, and the new defendant would not be able to remove.

But even the cases that reject the Ninth Circuit's position forbid removal if the new claim or defendant (new in the sense of having been added after the effective date of the Class Action Fairness Act) "relates back" to the original claim or the original defendant. It would not do so in the Donald Duck case, although that would not faze the Ninth Circuit, which considers relation back important only when necessary to avoid a statute of limitations defense, since, if successful, the defense kills the plaintiff's claim rather than just forcing it to be litigated in a different court system. McAtee v. Capital One, F.S.B., supra, 479 F.3d at 1147.

Id. at 4 (emphasis added). The tone of this passage evinces a remarkable lack of respect for the Ninth Circuit judges who authored the McAtee opinion. It makes you wonder whether briefs filed by lawyers in that court are read with any respect, if the published opinions of other federal appellate judges are not. I also do not think that an analogy that assumes a breach of counsel's professional ethical duties has any place in a federal appellate court opinion.

It is important to remember that in McAtee, the Ninth Circuit was considering the effect of substitutions of named defendants for "fictitious" defendants, which are permitted by California Code of Civil Procedure section 474. Fictitious defendants are usually named "Doe," but section 474 allows them to be "designated ... by any name," including, presumably, "Donald Duck." Defendants with fictitious names are included in virtually all civil complaints filed in California state courts. Fictitious names are particularly useful when the client just brought you the case, the statute of limitations is about to run, and you've had time to identify only one of several potentially liable defendants. California law does not give plaintiffs unlimited "leisure" to substitute the true name for the fictitious name, but the unique California "Doe" procedure certainly justifies the outcome in McAtee — even applying what the Seventh Circuit calls the "majority view." That is because, in McAtee, the plaintiff appears to have acted diligently in naming the "Doe" defendant.

In Springman, the Seventh Circuit held that amending the complaint to substitute one named defendant for another "commenced" a new action for CAFA purposes because, under either federal or state law (there, Illinois law), the amendment would not "relate back" to the original filing date. Id. at 4-10. The "relation back" doctrine would not apply because of the plaintiff's "protracted and inexplicable delay" — he waited three years after learning he had sued the wrong entity — "in changing defendants." Id. at 6-7. Hence, the new defendant may remove the action to federal court under CAFA and the district court correctly denied the remand motion. Id., passim.

"Class Action Lawsuits"

A blog called Disgusted Beyond Belief has an interesting post refuting the criticisms often levied against class action cases generally and the class action bar in particular. An excerpt:

Dealing with the [class action attorney's] fees [and] whether they are "deserved" - I say that they clearly are. Were it not for those fees, as noted above, the poor could be trod upon with impunity (as it is, they still often are, but it would be much much worse without [class action cases]). Putting together a class action suit is hard work that requires specialized lawyers with years of experience and also requires spending a lot of cash upfront on the part of the law firm. Only a large, rich law firm can handle class action suits for that reason. Veteran lawyers with highly specialized skills are needed. They don't come cheap, for good reason. They work hard, working long hours, sometimes for years, and all with the chance that in the end, they will get nothing. So the winning cases not only have to pay them for their time for those cases, they also have to cover all of the money spent on losing cases or on cases that, despite winning, still did not cover the cost of their actual time spent. In short, they deserve every penny - they work hard for it.

Thank you. I don't necessarily think that only a "rich, large law firm" can handle a class action case, but you definitely have to be persistent and very hard-working to succeed in this area of practice.

[Via ClassActionBlawg.com]

Supreme Court depublishes class certification opinion: Bell v. Superior Court (H.F. Cox, Inc.)

As mentioned in my post immediately below, on Wednesday the Supreme Court issued an order denying review and depublication in Bell v. Superior Court (H.F. Cox, Inc.), no. S160423. However, today, the Supreme Court issued the following order:

The order filed on April 23, 2008 is hereby amended to read in its entirety: The petition for review is denied. The requests for an order directing depublication of the opinion are granted. The Reporter of Decisions is directed not to publish in the Official Appellate Reports the opinion in the above-entitled appeal filed November 21, 2007, which appears at 158 Cal.App.4th 147. (Cal. Const., art. VI, section 14; rule 8.1125(c)(1), Cal. Rules of Court.) George, C.J., was absent and did not participate. Kennard J., is of the opinion the petition should be granted.

Accordingly, the Court of Appeal's opinion, Bell v. Superior Court (H.F. Cox, Inc.), 158 Cal.App.4th 147 (2007), may no longer be cited as precedent. I must say I'm very pleased with this development, because I filed one of the two depublication requests and this is my first successful depublication request. Many thanks to the blog reader who emailed me to advise of this development.

UPDATE: Here is a copy of my depublication request in Bell.

Supreme Court denies review and depublication in class certification case: Bell v. Superior Court (H.F. Cox, Inc.)

On Wednesday, the Supreme Court denied review and depublication in Bell v. Superior Court (H.F. Cox, Inc.), no. S160423. The case apparently made the Court's reputed "A" list. Justices Kennard and Moreno were of the opinion that review should be granted, and Chief Justice George was absent and did not participate. My post on the Court of Appeal's opinion, Bell v. Superior Court (H.F. Cox, Inc.), 158 Cal.App.4th 147 (2007), is available at this link.

UPDATE: On Friday, April 25, 2008, the Supreme Court issued an amended order granting the depublication request. Therefore, the Court of Appeal's opinion may no longer be cited as precedent.

New class action objector opinion: Chavez v. Netflix, Inc.

In Chavez v. Netflix, Inc., ___ Cal.App.4th ___ (Apr. 21, 2008), the Court of Appeal (First Appellate District, Division One) rejected the objectors' challenges to a class action settlement and attorneys' fees award. The case challenged Netflix's DVD rental practices, which allegedly reduced the number of DVDs "that high-consuming members would receive ... per month." Slip op. at 3. The settlement was tailored to the alleged violation, providing class members with a month of free DVD rentals. Id. at 1, 5. The benefits of the settlement were valued at $4.29 million. Id. at 6. The attorneys' fees award was $2,040,000, which constitutes about a 2.5 multiplier and amounts to 21.8% of $4.29 million. Id. at 6, 26-27.

The settlement agreement appears to have been extensively negotiated. In fact, the Federal Trade Commission filed an amicus brief objecting to one of the terms of a prior settlement. Id. at 5. That term would have allowed Netflix to automatically renew the accounts of those class members who chose to take part in the settlement. Id. at 4-5. The parties went back to the negotiating table and eventually agreed to simply eliminate that objectionable settlement term. Id. at 5. The FTC and 428 other objectors then formally withdrew their objections. Id. Four objectors remained to pursue an appeal. Id. at 6.

The Court of Appeal rejected all of the objectors' challenges to the settlement and the notice provided to class members. Id. at 8-18. The opinion is noteworthy for its discussion of coupon settlements. The Court took pains to explain that the settlement before it was not a pure coupon settlement and, what's more, it was fair, adequate and reasonable:

Only one objector, Ellis, continues to argue that the settlement is unreasonable. Ellis makes no claim that any of the factors supporting a presumption of fairness is not present in this case. Instead, Ellis bases her entire argument on the premise that this is a coupon settlement and that such settlements are, in general, inherently suspect and improper. In fact, these premises are neither entirely accurate nor particularly useful for evaluating the fairness of the specific settlement terms before us. Although the settlement reached in this case may be classified as a variant of the coupon settlement, it does not in fact share all of the attributes of the category. In a pure coupon settlement, the class members would receive a coupon, voucher, or discount that would partly defray the cost of making a new purchase of goods or services from the defendant. In many cases, the coupon might induce the member to make a purchase he or she would not otherwise have made, which may actually produce a net benefit for the defendant. That is not the case here. The Netflix class members are not being offered a discount that requires them to make new purchases. They are being offered an opportunity to obtain a limited number of rentals at no charge. While it is possible that some existing customers might be induced by the free rentals to purchase a higher level of service and some past customers might be induced to resume their lapsed subscriptions, the potential for Netflix to actually benefit financially from the settlement is much reduced compared to a pure coupon discount program. Ellis’s generic discussion of the evils of coupon settlements completely ignores the distinguishing features of this settlement.

The claim that coupon settlements are inherently suspect or improper is also not persuasive. Ellis relies on a law review article and a handful of cases not decided under California law.[fn2] She also asserts that the federal Class Action Fairness Act of 2005 (CAFA) (28 U.S.C. § 1712), although inapplicable to this proceeding, is “highly suspicious” of coupon settlements because it requires the court to hold a special hearing to determine their value. But while the valuation of coupon settlements may pose special challenges, neither CAFA nor any of the authorities Ellis cites hold that coupon settlements are per se improper. Notably, Ellis does not discuss or distinguish California cases in which coupon settlements have been found to be fair and reasonable. (See, e.g., In re Microsoft I–V Cases, supra, 135 Cal.App.4th at pp. 711–713; Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 247; Dunk, supra, 48 Cal.App.4th at pp. 1804–1805.)

Most importantly, Ellis failed to perform any analysis of the settlement terms to try to overcome the presumption of fairness to which they are entitled. Ellis cites one of the federal cases she relies on for the proposition that the most important factor in evaluating the fairness of a settlement is the strength of the plaintiff’s case weighed against the amount of the settlement. (See Synfuel Technologies, Inc. v. DHL Express (USA), supra, 463 F.3d at p. 653.) Nowhere in her 14-page discussion of coupon settlements, does Ellis attempt such a comparative analysis. In fact, the benefit provided by the settlement—free DVD rentals worth $6 to current subscribers and $16.99 to former subscribers—directly addresses the harm alleged in the complaint, which was Netflix’s alleged failure to deliver as many DVD’s as promised. While the dollar value of the settlement per class member is small, it must be remembered that the damages allegedly caused by Netflix’s allocation and delivery policies were hardly unlimited either, and plaintiffs would have encountered considerable difficulties in trying to prove their amount.

Other than suggesting that a cash settlement would have had more value to class members and more deterrent value, Ellis fails to explain why the settlement terms are not fair and reasonable in relation to the range of possible results further litigation might have produced, including no class certification and/or zero or minimal recovery of damages by class members. The issue before the trial court was not whether the settlement agreement was the best one that class members could have possibly obtained, but whether it is “fair, adequate, and reasonable.” (Dunk, supra, 48 Cal.App.4th at p. 1801.) On that question, we find nothing in Ellis’s arguments to overcome the presumption of fairness that applies in this case.

[fn2] The cases Ellis cites are not particularly germane on their facts. (See Acosta v. Trans Union, LLC (C.D.Cal. 2007) 240 F.R.D. 564 [free credit report as part of settlement had little or no value because consumers are entitled to one free credit report per agency per year and few take advantage of that right]; Bloyed v. General Motors Corp. (Tex.Ct.App. 1994) 881 S.W.2d 422 [$1,000 coupon toward purchase of new van or truck within 15 months]; Synfuel Technologies, Inc. v. DHL Express (USA) (7th Cir. 2006) 463 F.3d 646 [in-kind compensation worth less than cash since some goods or services offered will not be used and will have no cost for defendant].) The law review article is Leslie, A Market-Based Approach to Coupon Settlements in Antitrust and Consumer Class Action Litigation (2002) 49 UCLA L.Rev. 991 (hereafter Leslie), which argues that coupon settlements will be overused as long as class counsel are compensated in cash.

Id. at 10-12 (emphasis added).

A couple of things are noteworthy in the opinion's discussion of the class notice. First, the Court of Appeal held that a class notice need not specify the amount originally sought in damages or compare that sum to the settlement amount actually achieved:

Ellis’s claim that the notices were deficient for failing to provide a dollar estimate of the overall value of the settlement in relation to the damages sought by plaintiffs is also without merit. Ellis cites no authority requiring that such notice be given. The notice gave sufficient information to allow each class member to decide whether to accept the benefit he or she would receive under the settlement, or to opt out and pursue his or her own claim. (See Oswald v. McGarr (7th Cir. 1980) 620 F.2d 1190, 1197 [notice should contain sufficient information to enable a class member to determine whether to accept the offer to settle, the effects of settling, and the available avenues for pursuing his claim if he does not settle].) No more than that was required. The class-wide damages claimed by one side in the litigation, which the opposing party hotly contests, does not in any event provide very useful information for evaluating the fairness of the overall settlement, much less for enabling an individual class member to decide whether to opt out.

Id. at 13-14 (emphasis added).

Also worthy of note, the Court of Appeal approved the use of emailed summary notice coupled with an online long-form notice and an online claims submission process:

The summary notice and long-form notice together provided all of the detail required by statute or court rule, in a highly accessible form. The fact that not all of the information was contained in a single e-mail or mailing is immaterial. The manner of giving notice is subject to the trial court’s virtually complete discretion. Using a summary notice that directed the class member wanting more information to a Web site containing a more detailed notice, and provided hyperlinks to that Web site, was a perfectly acceptable manner of giving notice in this case. (See Browning v. Yahoo! Inc. (N.D.Cal. 2006) 2006 WL 3826714 at *8–9 [approving two-tiered notice system using summary e-mail and long-form notice posted on Web site].) The class members conducted business with defendant over the Internet, and can be assumed to know how to navigate between the summary notice and the Web site. Using the capability of the Internet in that fashion was a sensible and efficient way of providing notice, especially compared to the alternative Vogel apparently preferred—mailing out a lengthy legalistic document that few class members would have been able to plow through. We find no abuse of discretion or deprivation of due process in the trial court’s approval of the form and content of the notice given in this case.

Id. at 16 (emphasis in original).

Finally, in approving the attorneys' fees award, the Court of Appeal held (among other things) that the trial court appropriately considered the fee award as part of the benefit achieved for the class when conducting its percentage-of-the-benefit analysis:

To establish a benchmark for determining the enhanced lodestar amount, the court used the percentages that a hypothetical enhanced fee would represent of the sum of the fee plus the aggregate value of the benefits claimed by class members under the Original Agreement ($4.29 million). It viewed the resulting number as being equivalent to a contingency fee percentage that might be specified in the typical contingent fee contract. For illustrative purposes using the $4.29 million figure, the court plugged different hypothetical fee amounts into this formula that would translate into contingency fee percentages of 20, 25, and 40 percent, which the court believed encompassed the 20 to 40 percent range of contingency fee contracts found in the marketplace. It established class counsel’s initial award in an amount ($1.3 million) that would translate into a contingency fee percentage, approximately 23 percent, that was close to the low end of the 20 to 40 percent range. ....

We find no error or abuse of discretion in the court’s methodology. If a contingency fee contract provides that the attorneys are to receive, for example, 25 percent of the plaintiff’s recovery, the plaintiff who recovers $100,000 keeps $75,000 and pays $25,000 to his attorneys. If we did not already know the contingency fee percentage set by the parties’ fee contract, that number could be calculated by dividing the amount received by the attorney ($25,000) by the sum of the amount received by the client and the amount received by the attorney ($100,000). That is the same formula the court used to calculate a benchmark for enhancing the lodestar amount in this case.

Vogel appears to be arguing that it was error for the court not to use the exact same percentage-of-the-benefit method discussed in Lealao, supra, 82 Cal.App.4th at pages 25–36, which would typically look at the straight ratio of proposed fees to class benefits and compare that to the percentage of fees awarded in common fund cases. (See Lealao, at p. 36.) In our view, the Lealao court did not purport to mandate the use of one particular formula in class action cases. The method the trial court used here and that discussed in Lealao are merely different ways of using the same data—the amount of the proposed award and the monetized value of the class benefits—to accomplish the same purpose: to cross-check the fee award against an estimate of what the market would pay for comparable litigation services rendered pursuant to a fee agreement. (See Lealao, at pp. 47–50.) It is not an abuse of discretion to choose one method over another as long as the method chosen is applied consistently using percentage figures that accurately reflect the marketplace.[fn11]

[fn11] Using the percentage of the benefits to class claimants as a benchmark, class counsel’s initial award was 30.3 percent of the benefits, and the final fee award was 27.9 percent of the benefits. This is not out of line with class action fee awards calculated using the percentage-of-the-benefit method: “Empirical studies show that, regardless whether the percentage method or the lodestar method is used, fee awards in class actions average around one-third of the recovery.” (Shaw v. Toshiba America Information Systems, Inc. (E.D.Tex. 2000) 91 F.Supp.2d 942, 972.)

Id. at 24-25.

New Ninth Circuit UCL "likely to deceive" decision: Williams v. Gerber Products Co.

On Monday, the Ninth Circuit handed down an opinion applying the "likely to deceive" formulation of the UCL's "fraudulent" prong. Williams v. Gerber Products Co., ___ F.3d ___, 2008 WL 1776522 (9th Cir. Apr. 21, 2008). In Williams, the Ninth Circuit reversed an order dismissing the plaintiff's UCL claims (Williams v. Gerber Products Co., 439 F.Supp. 2d 1112 (S.D. Cal. 2006)), holding that the district court erred by assessing for itself whether the defendant's allegedly misleading labeling was "likely to deceive a reasonable consumer":

Here, the district court based its decision to grant the motion to dismiss solely on its own review of an example of the packaging. It is true that “the primary evidence in a false advertising case is the advertising itself.” Brockey v. Moore, 107 Cal.App.4th 86, 100 (Cal.App. 2003). California courts, however, have recognized that whether a business practice is deceptive will usually be a question of fact not appropriate for decision on demurrer. See e.g., Linear Technology Corp. v. Applied Materials, Inc., 152 Cal.App.4th 115, 134-35 (Cal.App. 2007) (“Whether a practice is deceptive, fraudulent, or unfair is generally a question of fact which requires ‘consideration and weighing of evidence from both sides’ and which usually cannot be made on demurrer.” (quoting McKell v. Washington Mutual, Inc., 142 Cal.App.4th 1457, 1472 (Cal.App. 2006))); Committee on Children’s Television, 35 Cal.3d at 197 (finding demurrer inappropriate in case where parents alleged deceptive advertising of sugar cereals).

....

The facts of this case ... do not amount to the rare situation in which granting a motion to dismiss is appropriate. Here, there are a number of features of the packaging Gerber used for its Fruit Juice Snacks product which could likely deceive a reasonable consumer. The product is called “fruit juice snacks” and the packaging pictures a number of different fruits, potentially suggesting (falsely) that those fruits or their juices are contained in the product. Further, the statement that Fruit Juice Snacks was made with “fruit juice and other all natural ingredients” could easily be interpreted by consumers as a claim that all the ingredients in the product were natural, which appears to be false. And finally, the claim that Snacks is “just one of a variety of nutritious Gerber Graduates foods and juices that have been specifically designed to help toddlers grow up strong and healthy” adds to the potential deception.

Slip op. at 4195-96. At this point, the opinion has an interesting footnote with a useful quotation for advertising cases:

Gerber’s claim that Snacks is “nutritious,” were it standing on its own, could arguably constitute puffery, since nutritiousness can be difficult to measure concretely. See Cook, Perkiss and Liehe, Inc. v. Northern Cal. Collection Serv., Inc., 911 F.2d 242, 246 (9th Cir. 1990) (finding that statements are non-actionable puffery where they constituted “general assertions of superiority” rather than “factual misrepresentations”). This statement certainly contributes, however, to the deceptive context of the packaging as a whole. Given the context of this statement, we decline to give Gerber the benefit of the doubt by dismissing the statement as puffery. “It is not difficult to choose statements, designs, and devices which will not deceive.” United States v. Ninety-Five Barrels More or Less of Alleged Apple Cider Vinegar, 265 U.S. 438, 443 (1924).

Slip op. at 4196 n.3. The opinion goes on:

The district court suggests that “no reasonable consumer upon review of the package as a whole would conclude that Snacks contains juice from the actual and fruit-like substances displayed on the packaging particularly where the ingredients are specifically identified.” Williams, 439 F.Supp.2d at 1116. We disagree with the district court that reasonable consumers should be expected to look beyond misleading representations on the front of the box to discover the truth from the ingredient list in small print on the side of the box. The ingredient list on the side of the box appears to comply with FDA regulations and certainly serves some purpose. We do not, however, think that a busy parent walking through the aisles of a grocery store should be expected to verify that the representations on the front of the box are confirmed in the ingredient list. Instead, reasonable consumers expect that the ingredient list contains more detailed information about the product that confirms other representations on the packaging. We do not think that the FDA requires an ingredient list so that manufacturers can mislead consumers and then rely on the ingredient list to correct those misinterpretations and provide a shield for liability for the deception.

Slip op. at 4196-97 (emphasis added). Finally, to illustrate these holdings, the opinion includes a copy of the challenged label:

Slip op. at 4199 (a full-size copy of the image is available at this link; click on the image to enlarge it).

The Ninth Circuit's reversal of the District Court's published order in Williams may necessitate reconsideration (or reversal) of other orders in which other District Courts followed Williams. See, e.g., McKinniss v. General Mills, Inc., 2007 WL 4762172 (C.D. Cal. Sept. 18, 2007); McKinnis v. Kellogg USA, 2007 WL 4766060 (C.D. Cal. Sept. 19, 2007).

"Study Shows State Courts Vacating Many Arbitration Awards for Employees, but Not for Employers"

Yesterday's National Law Journal reported on a new study by Professor Michael H. LeRoy of the University of Illinois at Urbana-Champaign College of Law showing that courts reverse arbitration awards in favor of employees more frequently than awards that favor employers. The article also disusses various legislative reform proposals that lawmakers are considering. Marcia Coyle, "Study Shows State Courts Vacating Many Arbitration Awards for Employees, but Not for Employers," National Law Journal (April 21, 2008).

"Impact of CAFA on the Federal Courts: Fourth Interim Report"

The Federal Judicial Center's Impact of CAFA on the Federal Courts: Fourth Interim Report to the Judicial Conference Advisory Committee on Civil Rules (April 2008) is now available online.

Other reports and interim reports on CAFA's impact on the federal courts are collected at this link. Articles on class actions in the federal courts generally are collected at this link.

[Via ClassActionBlawg.com, The Complex Litigator]

"Garment firm's owners off hook on unpaid wages"

In yesterday's San Francisco Chronicle, Bob Egelko had an article on the Court of Appeal's opinion in Bradstreet v. Wong, ___ Cal.App.4th ___ (Apr. 16, 2008). The article provides more of the unfortunate backstory leading up to the suit. My blog post on the published opinion is here.

On a related note, yesterday's Chronicle also had an editorial on the steps some large corporations take to avoid complying with wage and hour laws. Steven Greenhouse, "Tough times for American workers," San Francisco Chronicle (Apr. 18, 2008).

Off-topic post: Upcoming San Francisco MCLE - "Meet the Discovery Commissioners"

For those of us who practice in state court in San Francisco, an upcoming MCLE program will be of particular interest. Next Wednesday, April 23, 2008, the Litigation Section of Bar Association of San Francisco will present "Meet the Discovery Commissioners," featuring the two San Francisco Superior Court discovery commissioners, the Hon. Everett Hewlett and the Hon. Bruce Chan. Registration begins at 11:30 a.m. and the program runs from noon to 1:30 at the BASF Conference Center, 301 Battery Street, 3rd Floor. If you are handling a case in San Francisco that isn't single assigned, the views of Commissioners Hewlett and Chan on discovery are critical.

"Cutting Class"

Attorney H. Scott Leviant, author of the new blog The Complex Litigator, had a Forum piece in Tuesday's Daily Journal called "Cutting Class" (subscription). It primarily addresses A.B. 1905, which died in committee last month. That bill would have allowed defendants to immediately appeal orders granting class certification. As Scott ably points out, such a rule would create an automatic interruption of pretty much every class action case, while every order granting class certification is appealed. The interruption would probably last two years or more, depending on the docket of the particular appellate district where the appeal is filed.

There is a good reason why orders denying class certification are immediately appealable while orders granting certification are not. Orders denying certification of an entire class are considered final and not subject to reconsideration or later amendment. Orders granting certification, by contrast, are constantly subject to challenge through repeated motions for decertification both before and after trial. Defendants take advantage of this right — a right that plaintiffs who lose class certification do not enjoy — all the time. The proponents of A.B. 1905, who claimed to want parity in the system, could have drafted a bill that would make orders denying certification subject to reconsideration and amendment by the trial courts instead of immediately appealable. That, of course, does not comport with their broader goal, which is (in Scott's words) "the immediate cessation of litigation in the trial court upon the issuance of an order granting or denying certification" and the "plac[ing of] class actions in the deep freeze of appellate activity until the cost of litigation broke the plaintiff."

Congratulations to Scott on his second published Daily Journal article.

New UCL restitution decision: Bradstreet v. Wong

The Court of Appeal's opinion in Bradstreet v. Wong, ___ Cal.App.4th ___ (Apr. 16, 2008) addresses "vested interest" restitution, which is one of the three types of UCL restitution. The California Supreme Court has held that the Labor Code gives employees a vested interest in earned but unpaid wages, which are therefore recoverable as restitution in a UCL action. Cortez v. Purolator Air Filtration Products Co., 23 Cal.4th 163 (2000); see slip op. at 19-20 (citing Cortez). In Bradstreet, the Court of Appeal (First Appellate District, Division One) held that a defunct corporation's individual owner-officers could not be required to restore unpaid wages earned by the corporation's employees. The plaintiff-employees had a vested right to be paid by the corporate employer, but that right did not extend to its owner-officers:

There is no dispute ... that the unpaid wages could be recovered from the Wins Corporations as restitution pursuant to Business and Professions Code section 17203. “[A]n order that a business pay to an employee wages unlawfully withheld is consistent with the legislative intent underlying the authorization in [Business and Professions Code] section 17203 for orders necessary to restore to a person in interest money or property acquired by means of an unfair business practice.” (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 178.) ....

The issue in the case before us is whether [the individual] defendants, who were not the employers, and who were not found to have required any employee to work for them personally, or to have misappropriated corporate funds for their own use, may also be required to pay the earned but unpaid wages as restitution.

“[A]n order for restitution is one ‘compelling a UCL defendant to return money [or earned wages for service performed] obtained through an unfair business practice to those persons in interest from whom the property was taken, that is, to persons who had an ownership interest in the property or those claiming through that person.’ ” (Korea Supply, supra, 29 Cal.4th at p. 1149.) The problem with requiring defendants, rather than the Wins Corporations, to pay unpaid wages as restitution is that the labor intervener performed was not for defendants personally, but for the employers, the Wins Corporations. Defendants did not personally obtain the benefit of those services, and the duty to pay wages was owed by the corporations as employers, not by defendants as owners, officers or managers. (See Reynolds, supra, 36 Cal.4th at p. 1087.)

Nor is this a case in which defendants “misappropriated to themselves, as individuals for their individual advantage, the unpaid wages” the Wins Corporations owed. (Reynolds, supra, 36 Cal.4th at p. 1090.) Although intervener cites evidence that she contends establishes defendants did take funds out of the Wins Corporations for their personal use, the court, as trier of fact, found that defendants did not personally obtain any “money or gains from which to . . . pay restitution.” It resolved against intervener conflicts in the evidence on the issue of withdrawal of funds from the Wins Corporations for defendants’ personal use. It found, instead, that defendants “put far more personal funds into the corporations in the form of capital infusions and loans than were alleged to have been improperly taken out. . . . [E]vidence indicated capital contributions and loans from Defendants to the corporations in excess of $1,000,000. These capital contributions and loans came largely toward the end of the Wins Corporations’ existence in an unsuccessful effort to keep the corporations afloat.”

In the absence of a finding that intervener performed labor for defendants personally, rather than for the benefit of Wins Corporations, or that defendants appropriated for themselves corporate funds that otherwise would have been used to pay the unpaid wages, we agree with the trial court’s conclusion that an order requiring defendants to pay the unpaid wages would not be “restitutionary as it would not replace any money or property that [defendants] took directly from” intervener. (Korea Supply, supra, 29 Cal.4th at p. 1149.) “[T]he notion of restoring something to a victim of unfair competition includes two separate components. The offending party must have obtained something to which it was not entitled and the victim must have given up something which he or she was entitled to keep.” (Day v. AT&T Corp. (1998) 63 Cal.App.4th 325, 340.) Therefore, restitution is available where “ ‘a defendant has wrongfully acquired funds or property in which a plaintiff has an ownership or vested interest.’ ” (Feitelberg v. Credit Suisse First Boston, LLC (2005) 134 Cal.App.4th 997, 1012.) Defendants cannot be required to return or restore to intervener something they never obtained. (See Madrid v. Perot Systems Corp. (2005) 130 Cal.App.4th 440, 456 [noting absence of authority for proposition that “a UCL plaintiff may recover money from a defendant who never received it . . . ].) The intervener provided her labor to the employer, i.e., the Wins Corporations. The Wins Corporations, not their owners, officers or managers, owed the earned wages that became due and payable when the labor was performed. (See Reynolds, supra, 36 Cal.4th at p. 1087.) Not having acquired or directly and personally benefited from intervener’s labor without paying for it, or having misappropriated for their personal use corporate funds that could have been used to pay her wages, defendants could not be required to pay the unpaid wages as restitution. Such relief would not be “restitutionary as it would not replace any money or property that [defendants] took directly from” intervener. (Korea Supply, at p. 1149.)

Slip op. at 20-22 (emphasis in original) (footnote omitted). It is critical here that the owner-officers never misappropriated funds for their own use and contributed more capital to the corporation than they took out. Otherwise, a stronger argument might have been made that the value of the employees' labor passed from the employees, to the corporation, to the owners, and was thus traceable and subject to a restitutionary award.

Preliminary Final approval granted in Ford UCL/CLRA case

The Sacramento Bee reports this morning that Judge De Alba granted final approval yesterday of the settlement in the Ford case (Ford Explorer Cases, JCCP nos. 4266 & 4270). The article reports that only some of the plaintiffs' attorneys' fee requests were approved and that further briefing on the remaining fee requests is expected. Crystal Carreon, "Ford case settled except for legal fees," Sacramento Bee (Apr. 16, 2008).

UPDATE: The Daily Journal also has a story on the settlement: "Judge Approves Settlement of Suit Against Ford," Daily Journal (Apr. 17, 2008) (subscription).

California Blog of Appeal hosts Blawg Review

Blawg Review #155 is up this morning at the California Blog of Appeal.

Article on impact of Second Circuit's "light" cigarettes opinion on consumer class actions

Findlaw.com had an article last week on the Second Circuit's recent class certification opinion, McLaughlin v. American Tobacco Co., ___ F.3d ___ (2d Cir. Apr. 3, 2008) (discussed briefly in this blog post). In "The U.S. Court of Appeals for the Second Circuit Deals a Severe Blow to the Plaintiffs in a Class Action Involving Allegations of Fraud Relating to 'Lights' Cigarettes," Findlaw.com (April 8, 2008), Professor Anthony J. Sebok asked whether McLaughlin "shuts the door for furture consumer class actions" in the Second Circuit. His ultimate answer was no, and he explains why:

I don't think so. It is important to note that the Second Circuit went out of its way to distance itself from the Fifth Circuit's 1996 decision in Castano v. Am. Tobacco Co., [84 F.3d 734 (5th Cir. 1996),] which the Second Circuit described as imposing a "blanket rule" against class certification whenever issues of individual reliance exist.

Furthermore, the phrase "material variation," which the court used to map out the boundary between acceptable and unacceptable class-wide treatment, is not meaningless -- although [plaintiffs' counsel Michael] Hausfeld, in oral argument, seemed to suggest it was.

Rather, "material variation" clearly contemplates that will be some individual differences between the reasons for reliance among the members of a class. Thus, it does not require, for certification, a presumption that all members of the class have identical reasons for acting (as is the case in fraud-on-the-market in the securities context, where investors are presumed to all know about and act on public information).

Consider, for example, a hypothetical consumer fraud claim based on the purchase of word-processing software that fails to work with a certain type of computer, despite contrary representations by the manufacturer on the box. It may be the case that some of the class of consumers who purchased the software did not, in fact, rely on that representation. For example, some of these purchasers might not have owned a computer incompatible with the software until after they bought the software, so the misrepresentation may have been irrelevant to them at the point of purchase.

However, one might assume that, at the point of purchase, all of the purchasers would have placed a value on the full functionality of the software, even if their decision to buy was not motivated by a desire to exploit that functionality. Let's assume -- quite realistically, I think -- that functionality with a typical range of computers is part of the core set of elements that consumers expect in a commercial software program. If so, then the fact that some did not actually subjectively respond to the misrepresentation about functionality should not be, even after last week's Second Circuit decision, a bar to class certification. That is because the differences in various class members' reasons for purchasing the software do not vary in any "material" sense, and thus, the hypothetical class proposed by this example should not fail the Second Circuit's "material variation" test.
If I am correct, then the news for consumer class actions is not as bleak as some commentators have suggested -- although Hausfeld's tactics in oral argument last year have not made things any easier for the plaintiffs' bar. Instead, it is most accurate to say simply that the rules for class-wide reliance in the Second Circuit were not settled in McLaughlin. If anything, the hard work of developing a coherent set of rules has just begun.

(Italics and hyperlink added.) While California class certification law looks nothing like McLaughlin, Professor Sebok's conceptualization of common reliance nonetheless could be useful in some UCL and CLRA cases.

"Women Lawyers Blog for Workplace Equality: Blogging as a Feminist Legal Method"

Here is an excerpt from the introduction of an article recently posted on SSRN:

Based on a detailed, empirical analysis of women lawyers in law firms, this Comment argues that, similar to Ellickson’s cattle ranchers and Bernstein’s diamond traders, a growing number of women lawyers in law firms have developed their own methods of rights assertion. They have rejected the law as a viable means of personal advocacy and are instead, using blogging—an alternative, informal and impersonal form of engagement—to advocate for their rights and interests in the workplace. One would expect that women lawyers, when confronted with unfair hiring practices, unequal pay, or unjust choices, would turn to the legal system. They are legally trained and undoubtedly immersed in the law, and therefore, one might presume that they are particularly attentive to legal rights and predisposed to think of personal grievances in a legal framework. Nonetheless, a growing group of women lawyers are using the Internet—and, in particular, blogging—to resolve their disputes, address their personal grievances, challenge implicit male bias engrained in the profession, and share and obtain the information they need to become stronger bargainers in the workplace. For a variety of reasons, these women have found it effective and rewarding to use blogging—and not traditional legal and legislative avenues—to advocate for their own personal rights in the workplace and to openly challenge “the rules under which success is defined and the structures that continue to reinforce men’s dominance” in the legal profession.

Alison I. Stein, "Women Lawyers Blog for Workplace Equality: Blogging as a Feminist Legal Method" (March 24, 2008). The article relies heavily on the blog Ms. JD and cites other articles with interesting titles, including Jill Filipovic, Blogging While Female: How Internet Misogyny Parallels ‘Real-World’ Harassment, 19 YALE J.L. & FEMINISM 295 (2007) and Rosa Brooks, What the Internet Age Means for Female Scholars, 116 YALE L.J. POCKET PART 46 (2006).

[Via Legal Blog Watch and Feminist Law Professors]

Second District remands Gentry "grant and hold" case back to trial court: Massie v. Ralph's Grocery Co.

After the Supreme Court decided Gentry, it remanded all of the "grant and hold" cases back to their respective Courts of Appeal. This week, in an unpublished opinion, the Court of Appeal (Second Appellate District, Division Seven) disposed of one of those Gentry "grant and hold" remand cases. Massie v. Ralph's Grocery Co., no. B187844 (nonpub. opn. Apr. 7, 2008). The case has been remanded back to the trial court for it to decide, in the first instance, whether the arbitration provisions are enforceable under the standards set forth in Gentry:

An employer appeals from orders denying its petitions to compel arbitration of two class action lawsuits filed by its employees, alleging Labor Code and Unfair Competition Law violations. The employer unsuccessfully sought arbitration of these disputes in accordance with provisions in various agreements that subject such claims to individual binding arbitration and prohibit proceedings on a class or representative basis. In a prior opinion, we affirmed. (McLeod v. Ralphs Grocery Company (May 14, 2007, B187844/B187854) [nonpub. opn.], review granted Aug. 8, 2007, S153059.) Our Supreme Court has remanded the cause to us with directions to vacate our prior opinion and reconsider this matter in light of Gentry v. Superior Court (2007) 42 Cal.4th 443.

In Gentry v. Superior Court, supra, 42 Cal.4th at pages 462 and 463, our Supreme Court stated: “We cannot say categorically that all class arbitration waivers in overtime cases are unenforceable. . . . Nonetheless, when it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider the[se] factors . . . : the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members’ rights to overtime pay through individual arbitration.” Accordingly, Gentry’s application to the factual record in this case should be performed by the trial court in the first instance. (See Gentry v. Superior Court, supra, 42 Cal.4th at p. 472 [“we remand the matter to the Court of Appeal with directions to remand to the trial court to determine whether the class arbitration waiver is void”].) We therefore reverse and remand this matter to the trial court with directions to reconsider this case in light of Gentry, supra, 42 Cal.4th 443. Each side shall bear its own costs of appeal.

Slip op. at 2-3. See this blog post for more on Gentry.

San Diego MCLE program this Saturday on use of statistical and survey evidence as a method of classwide proof

This Saturday, April 12, 2008, Consumer Attorneys of San Diego is sponsoring an all-day MCLE program called "How to Find, Litigate and Try Class Action Lawsuits." Notwithstanding the title of the program, its primary focus is the use of statistical and survey evidence and representative testimony as a method of classwide proof -- a very important subject for class action litigators. Click through to the registration page for a more detailed summary of what will be discussed. Speakers include San Diego County Superior Court Judge Ronald S. Prager and Professor Jon Krosnick, a survey expert. If I were down in San Diego, I definitely would attend.

Thoughts on County of Santa Clara v. Superior Court (ARCO)

Several things stand out in yesterday's opinion in County of Santa Clara v. Superior Court (Atlantic Richfield Co.), ___ Cal.App.4th ___ (Apr. 8, 2008) (Sixth Appellate District) ("Santa Clara").

As an initial matter, the Court of Appeal explained that under People ex rel. Clancy v. Superior Court, 39 Cal.3d 740 (1985) ("Clancy"), there is a "class of civil cases in which the government's representative must be absolutely neutral. ... [O]rdinary civil cases brought by the government do not fall within this class of cases, and therefore contingent fee arrangments in ordinary civil cases are permitted." Slip op. at 7 (citing Clancy, 39 Cal.3d at 748) (footnote omitted) (emphasis added). Both Clancy and Santa Clara were public nuisance abatement actions. Under Clancy, public nuisance abatement actions "fall within the class of civil cases in which the government's representative must be absolutely neutral" because they entail discretionary decisionmaking involving "'a delicate weighing of values' and 'balancing of interests.'" Id. at 7 (quoting Clancy, 39 Cal.3d at 748).

The Santa Clara opinion does not go on to address whether other types of cases (such as UCL public prosecutor actions) constitute "ordinary civil cases" in which contingent fee arrangments are permitted under Clancy, or whether they fall within that "class of civil cases" in which the prosecutor must have "absolute neutrality." As will be seen, it may not matter, because the Santa Clara Court holds that even in cases demanding "absolute neutrality," contingency-fee agreements are still permissible so long as they do not purport to delegate the public entities' discretionary decision-making power to private attorneys with a financial stake.

The Court in Santa Clara held that contingency fee agreements with private lawyers can be appropriate even in cases (such as public nuisance abatement cases) in which "absolute neutrality" is required. The public entities established through declarations "that their private counsel serve in a subordinate role in which private counsel merely assist in-house counsel and lack any authority to control the litigation." Id. at 10. Under such circumstances, the principle of "absolute neutrality" is not undermined:

[W]here private counsel are merely assisting government attorneys in the litigation of a public nuisance abatement action and are explicitly serving in a subordinate role, in which private counsel lack any decision-making authority or control, private counsel are not themselves acting “in the name of the government” and have no role in the “balancing of interests” that triggers the absolute neutrality requirement. Private counsel serving in such a subordinate role do not supplant the public entities’ in-house attorneys, who must be absolutely neutral, and are not in a position where their interest in maximizing their contingent fee can influence the balancing of interests or any of the other decisions that are made exclusively by the public entities’ in-house attorneys. Because Clancy’s holding is limited to the facts that were before the California Supreme Court in Clancy, a private attorney serving as the sole representative of the government in a public nuisance abatement action and completely controlling the litigation, Clancy does not justify the superior court’s order barring the public entities from compensating, by means of a contingent fee agreement, their private counsel, who are merely assisting in-house counsel and lack any control over the litigation.

Id. at 11-12 (emphasis in original) (footnote omitted). "[T]here is a critical distinction between a private attorney who supplants the public entity's 'duly authorized counsel' and a private attorney who serves only in a subordinate role as 'co-counsel' to the public entity's in-house counsel." Id. at 14 (citing Sedelbauer v. State, 455 N.E.2d 1159 (Ind. App. 1983)) (emphasis in original).

The Court of Appeal reversed the trial court's contrary order as a matter of law, with no other directions:

Clancy itself does not bar the public entities from engaging private counsel under a contingent fee arrangement to assist in this litigation, so long as the public entities’ in house counsel retain control over all decision-making. The record before us contains absolutely no evidence that private counsel have ever engaged in any conduct that invaded the sphere of control exercised by the public entities’ in-house counsel. No authority supports barring private counsel from assisting the public entities under a contingent fee arrangement in this litigation. Therefore, the superior court’s order is unjustified, and we will direct the court to set it aside.

Id. at 16 (footnote omitted). During the oral argument, much time was spent discussing whether the trial court should make factual findings at the end of the case about whether the public entities' in-house counsel did, in fact, exercise appropriate discretionary control throughout the litigation. The opinion does not require any such findings or any further action by the trial court at all, absent a renewed motion by the defense: "No doubt the companies will seek disqualification of the public entities’ private attorneys if they acquire evidence that the private attorneys are improperly exercising control over this action." Id. at 16 n.11.

Justice Bamattre-Manoukian filed a concurring opinion in which she agreed with the result but expressed the view that courts must engage in a broader consideration of the factual circumstances surrounding the specific contingency-fee agreements. Slip op., concurrence at 7, 11-15. "[T]he propriety of a contingency fee agreement in a public nuisance action must be evaluated by caferul consideration of the many important factors in each case, including the factual circumstances, the terms of the contingency fee agreement, and the conduct of plaintiff's counsel ...." Id. at 14. The concurrence concludes by "respectfully invit[ing] the California Supreme Court to review this issue and to provide guidance ot the courts and public entities in this important and developing area of the law." Id. at 15.

I would be very surprised if a petition for review were not filed. Copies of many of the appellate briefs from the case are available at this link.

"Sixth District Lets Counties Pay on Contingency"

In today's Recorder, Mike McKee reports that "Sixth District Lets Counties Pay on Contingency" (subscription):

The ruling is great news for local governments, which claim they would have a hard time prosecuting nuisance abatement suits — such as oil spill or toxic landfill cases — without outside lawyers.

"It's important to counties and cities throughout the state," said Santa Clara County Counsel Ann Ravel, whose office was leading the lead-paint litigation at the center of the ruling, "because, due to financial issues and the size of a lot of counties' and cities' offices … [they] can't pursue cases of this sort without the aid of contingency counsel." Government agencies, she said, simply can't afford to pay hourly fees.

BREAKING NEWS: Court of Appeal holds public entities may retain private counsel on contingency-fee basis: County of Santa Clara v. Superior Court (Atlantic Richfield Co.)

This afternoon, the Court of Appeal (Sixth Appellate District) handed down its eagerly-anticipated opinion in County of Santa Clara v. Superior Court (Atlantic Richfield Co.), ___ Cal.App.4th ___ (Apr. 8, 2008). The Court held that the public entities' contingency-fee agreements with their private counsel were valid and directed the trial court to vacate its order holding otherwise. I will post more on the decision tomorrow.

U.S. Supreme Court preemption decision: Riegel v. Medtronic, Inc.

You've probably already heard about the U.S. Supreme Court's decision in Riegel v. Medtronic, Inc., ___ U.S. ___ (Feb. 20, 2008), earlier this year. Last Thursday, The American Lawyer had an interesting article, "For Defendants Alone?" (subscription), about that and other preemption cases now before the Supreme Court: "All three cases turn on the court's developing view of federal preemption of state torts. Specifically, whether or not approval by the Food and Drug Administration immunizes the makers of pharmaceuticals and medical devices from state court damages claims."

Sunday's New York Times also reported that "Drug Makers Near Old Goal: A Legal Shield." The article points out that the FDA is not in a position to substitute for products liability lawsuits:

A series of independent assessments have concluded that the agency is poorly organized, scientifically deficient and short of money. In February, its commissioner, Andrew C. von Eschenbach, acknowledged that the agency faces a crisis and may not be “adequate to regulate the food and drugs of the 21st century.”

The F.D.A. does not test experimental medicines but relies on drug makers to report the results of their own tests completely and honestly. Even when companies fail to follow agency rules, officials rarely seek to penalize them. “These are scientists, not cops,” said David Vladeck, a professor at Georgetown Law School.

New Second Circuit class certification decision: McLaughlin v. American Tobacco Co.

In McLaughlin v. American Tobacco Co., ___ F.3d ___ (2d Cir. Apr. 3, 2008), the Second Circuit reversed an order granting class certification of civil RICO claims involving "light" cigarettes. My original post from September 2006 on the district court's class certification order is at this link. [Via How Appealing.]

The New York Law Journal reported on Friday that "2nd Circuit Decertifies Light Cigarette Class." Other press coverage appears in the New York Times ("Appeals Court Panel Throws Out Class Action Over Light Cigarettes") and the New York Sun ("Judge Stamps Out a Cigarette Class Action").

"In Web World of 24/7 Stress, Writers Blog Till They Drop"

An article on the front page of today's New York Times reports that "In Web World of 24/7 Stress, Writers Blog Till They Drop":

A growing work force of home-office laborers and entrepreneurs, armed with computers and smartphones and wired to the hilt, are toiling under great physical and emotional stress created by the around-the-clock Internet economy that demands a constant stream of news and comment.

Of course, the bloggers can work elsewhere, and they profess a love of the nonstop action and perhaps the chance to create a global media outlet without a major up-front investment. At the same time, some are starting to wonder if something has gone very wrong. In the last few months, two among their ranks have died suddenly.

....

Other bloggers complain of weight loss or gain, sleep disorders, exhaustion and other maladies born of the nonstop strain of producing for a news and information cycle that is as always-on as the Internet.

I haven't heard of that level of stress among law bloggers, although I've always wondered how Howard manages to be so prolific. Blogging is definitely a lot of work and can certainly cut into sleep time if you let it.

May 14th State Bar UCL Conference - Registration now open!

Registration is now open for the