Many thanks to attorney Tom Kaufman for providing a second report on the Arias argument last week. Read Tom's report after the jump.
By Tom Kaufman:
Arias v. Superior Court Argument - 9:00 AM on April 8, 2009.
The petitioner opened by stating that the UCL and PAGA both serve the important purpose of enforcing labor laws. She stated that there were two points she would address: (1) Proposition 64 did not require that UCL actions necessarily must proceed as class actions; and (2) PAGA actions brought on behalf of other aggrieved employees do not need to proceed as certified class actions.
The petitioner began by saying that where the language of the ballot initiative is plain, the inquiry should stop at the language and extrinsic evidence should not be considered.
Justice Kennard interrupted to ask whether the plain language of Prop 64 really helps the petitioner's position. Didn't the plain language show there was a requirement that UCL actions proceed as class actions? The petitioner said the plain language of the initiative helps and it did not make any express references to class certification. There was only reference to CCP 382.
Justice Kennard then asked whether the references to CCP Section CCP 382 would be beyond the understanding of the common voter so that voters would be expected to consider the ballot pamphlets? The petitioner responded that the voters would probably understand that Prop 64 focused on standing and making sure that only people who were injured had standing to bring these actions.
Kennard then asked the petitioner to confirm that she understood that Prop 64 altered the standing requirements for the UCL. The petitioner agreed. Justice Kennard stated that under Prop 64, before anybody could bring a collective action, they had to suffer injury. The petitioner initially disagreed, but then said she had heard wrong and agreed. Justice Kennard then asked that, isn't it the case that the attorney general had a statement in the ballot materials that Prop 64 will "require representative claims to comply with class action requirements"? Should that just be ignored?
The petitioner responded that you do not ignored it, but the legislative analysis in the ballot materials does not interpret the statute. Justice Kennard corrected petitioner that she was not referring to the legislative analysis but statements from the attorney general in the ballot materials.
Justice George then interjected that the ballot materials were before the voters, and the voters likely read them, no? Petitioner responded that they may have read them, but you only resort to them when the text of the initiative itself is ambiguous which it wasn't in this case.
Justice Kennard spoke up again, and revisited the ways the ballot materials suggest that Prop 64 was supposed to place class certification requirements on UCL actions. There were comments from the attorney general and the secretary of state. Was petitioner really suggesting that should all be ignored? And if so, does she really think the voters clearly and unambiguously understood that "Section 382" in the text of Prop 64 meant something different from class certification? Petitioner said that Section 382 was unambiguous [and did not mean class certification].
Justice Moreno then questioned how "Section 382" language in Prop 64 should be interpreted. Petitioner stated that CCP 382 does not set forth all the requirements of class certification. Petitioner stated that, going back to Weaver v. Tournament of Roses, CCP 382 actions could proceed without necessarily meeting all the elements of class certification (note, my recollection is that Weaver is a case where certification was denied for lack of ascertainability).
Justice George then asked petitioner whether the Cal Supremes in Mervyns, held that CCP 382 was California's class action mechanism. Petitioner responded that the court had held that CCP 382 allowed for class actions, but did not state that all actions under Section CCP 382 are class actions. CCP 382 also allows for representative actions. It was not until 2002 when the California Rules of Court were amended that the detailed requirements for class certification were enacted.
Justice Kennard then asked petitioner whether agreeing with her position would negate the intent of the voters. If the voters tried to change the law, they really would have changed nothing. Petitioner disagreed and stated that Prop 64 made substantial changes to the standing requirement for UCL actions and said that UCL actions must comply with the requirements of CCP 382. It just didn't hold that UCL actions may proceed only as certified class actions.
Justice Werdegar (who appeared most sympathetic to plaintiff's position) then asked whether, before Prop 64, a UCL plaintiff had to have a common interest with the group on behalf of whom the plaintiff was suing. Petitioner said no. Werdegar then sought confirmation that anyone could have sued for a UCL violation pre-prop 64, right? Petitioner said yes. Baxter then asked what the problem was with a petitioner meeting the requirements for class certification.
Petitioner stated that a small group of poor employees may not be able to meet numerosity, or they may lack the funds to afford the sending of class notice. The trial court should have discretion to decide whether the class certification device is necessary and to simply use inherent equitable powers to handle a case where it determines class certification protections are unnecessary. The petitioner also stated that in Kraus and Cortez the California Supreme Court supposedly held that pre-prop 64 UCL collective actions did not deprive defendants of due process (note-I thought the cases held that the defendants had not been deprived of due process under the facts of those cases; but did not set forth any sort of blanket rule on non-class collective actions and due process). Petitioner stated that if a defendant pays an absent member of the collective group, he need not pay the person again if the person comes back and sues in his/her own name.
Petitioner then turned to the second question about PAGA. Petitioner stated that PAGA was a law enforcement mechanism designed to address problems of non-compliance with the Labor Code in the underground economy. They set up the alternative private attorney general system for the Labor Code.
Justice Kennard asked petitioner to clarify exactly what she wanted the ruling to be any why? Petitioner stated that there should be a holding that no class certification is necessary because that is a result consistent with both the text of PAGA and the legislative history.
Petitioner explained that 2699 states that it applied "notwithstanding any other provision of law" and that it sets forth its own procedure, separate from CCP 382, within 2699.3. The procedure in 2699.3 sets up protections in the form of (1) a required written notice to the LWDA before suing; (2) the LWDA must decide whether to investigate; (3) a statute of limitations is only one year; (4) the employer has a chance to cure with some violations; (5) the court must approve any settlement; and (6) the court has the power to reduce the amount of penalties from the maximums. Those protections render class certification protections unnecessary.
Kennard then said that, if she agreed with Petitioner on the UCL question they had previously discussed, didn't that create a due process problem with CCP 382? Isn't there a problem with aggrieved employees not receiving notice and an opportunity to be heard?
Petitioner answered no, and stated that under Kraus there is no chance for double recovery (note- this did not seem to respond to Justice Kennard's point). Trial courts using equity can resolve these problems. Kennard then asked whether petitioner was just suggesting that all protections be left to the discretion of trial courts? Petitioner said yes, and said that this was deemed sufficient protection even pre-prop 64 (under Kraus).
Justice Werdegar, who had previously seemed sympathetic, then asked a tough question that went back to the UCL issue again. Did petitioner have any authority for the notion that in interpreting a ballot initiative, the court could ignore statements in the ballot materials? Petitioner admitted she did not, but stated that, generally speaking, if a statute is clear, you do not turn to extrinsic interpretation devices.
Werdegar pressed, that wouldn't this be the first time the court ever decided to ignore statements by the attorney general in the ballot materials? Petitioner stated that she did not know, but the court should go with plain meaning.
Justice Kennard then asked whether they should undertake a literal interpretation in face of evidence that they were frustrating the intent of the voters. Petitioner stated that the initiative text plainly references Section CCP 382 and not any other class action procedures.
Justice Werdegar then asked whether the meaning of Section CCP 382 was clear to the voters. Petitioner said that there is no reason to think that "class certification procedures" mentioned in the ballot materials is any clearer to a lay person than CCP 382. That is why they need to go with what the text says. Werdegar's body language suggested she agreed.
That was the end of the petitioner's time.
The respondent started by noting that the California Supreme Court's Fireside Bank case identified due process problems that arise in collective litigation. It addressed Prop 64 and stated that representative non-class actions are no longer allowed. The Court has ruled that Prop 64 requires class certification.
Justice Kennard then asked whether there was a general principle that when construing an initiative, the court first looks to the text of the initiative and that the text was usually the most reliable indicator. Respondent agreed but said that you stop at the text only when it is not subject to multiple interpretations. Kennard then asked whether the reference to CCP 382 rather than "class certification," even if it is clear, would frustrate voter intent. Respondent said that the various language about class certification in the pamphlets can create latent ambiguity. Kennard asked whether intent controlled over the letter. Respondent said it would but they are consistent here. The California Supreme Court's City of San Jose case from the 1970s said that CCP 382 set forth class action procedure that followed those in Federal Rule 23. Thus, the reference to CCP 382 could indeed be interpreted as "class certification requirements."
Justice Kennard noted that if you look at the ballot materials, it seems evidence they told people this would institute class action procedures. She mentioned again the statements by the attorney general and secretary of state, as well as the formal legislative analysis. Kennard asked, however, if the court were to adopt petitioner's view that the reference to CCP 382 in the text of Prop 64 was clear and did not equate with class certification, would there be a due process problem?
Respondent stated that there would be several due process problems if CCP 382 were interpreted as not incorporating the class certification requirements. City of San Jose and Vasquez, which were from the 1970s, both recognized that CCP 382 incorporated Rule 23 concepts of notice to the absent class members, adequacy of representation, and the right to opt out. Petitioner had suggested eliminating the numerosity requirement, but that is one of the requirements expressly stated in CCP 382, where the parties must be too numerous for the to be able to be brought before the court.
Justice Moreno then stated that CCP 382 plainly allows class action procedures, but does it mandate them and preclude other types of representative actions? Respondent answered yes. In a PAGA suit trying to recover penalties on behalf of undefined group of other employees you need class certification procedures because they provide consistent guidance to trial courts. You do not want ad hoc selection of procedures by different trial courts. Respondent noted that in the recent DeLeon case, DeLeon opted out of a class settlement and tried to assert PAGA claims on behalf of himself of the people who had settled out their Labor Code claims. DeLeon said that he could not do so (note: this seems off point to me). If no class certification were required, you would just have open ended litigation.
Justice Moreno then asked, if the court agrees that class certification procedures were incorporated into the UCL, what impact would that have on PAGA?
Respondent answered that they would need to be incorporated into PAGA as well or else there would be due process problems. If a plaintiff brought a PAGA claim and a court found that there had been no violations as to aggrieved employees who were not parties to the case, that finding would not be res judicata on the absent employees. If the plaintiff won, the employer would be required to pay, and still would not have a res judicata bar as to the absent employees. Employer would not be able to reach a definitive settlement. The class certification procedures ensure due process protections.
Justice Baxter then asked whether there are circumstances where an employer may prefer to have a non-class collective action, such as where there are a small number of employees. Wouldn't it be cheaper and simpler to avoid class certification requirements?
Respondent said that if the class were small, the absent employees could be brought into the case through compulsive joinder which would provide due process protections. But petitioners were not talking about compulsive joinder. Instead, they wanted to litigate on behalf of employees who are never brought within the court's jurisdiction.
Justice Baxter then asked whether Prop 64 means what it says and parties cannot agree to another procedure. Respondent said yes.
Justice Werdegar then asked respondent to agree that the main purpose of Prop 64 was to create a standing requirement. Respondent agreed that was a major purpose, but not the only purpose. Class action procedures were mentioned and that is a commonly enough understood term that people knew they were imposing class certification procedures on UCL actions. Werdegar asked whether pre-prop 64 you could have collective actions brought under CCP 382 that did not meet collective action requirements. Respondent conceded that some court had said yes.
That was all for respondent, and amicus (Steve Drapkin) had an opportunity to address just the PAGA issue. The justices did not ask amicus many questions.
Amicus first suggested that the language in LC 2699 about PAGA providing recovery "notwithstanding any other provision" of the law not intended to make PAGA an island separate from the rest of the California civil codes. Otherwise, you could bring a PAGA action without a filing fee and without anyone taking discovery. The "notwithstanding" language was just intended to establish that PAGA remedies are cumulative to other remedies. The procedure set forth in 2699.3 is not a substitute for class certification, but just some specific procedures for exhaustion of administrative remedies under PAGA.
The mere fact that PAGA makes no express reference to CCP 382 is immaterial. Labor Code Section 1194 (overtime) has no reference to CCP 382 and yet there is case law such as Dunbar v. Albertsons that recognizes that an overtime case under 1194 cannot proceed on a collective basis unless it meets the requirements for class certification. Otherwise, you could go forward with a collective action even after counsel has been found inadequate, and the class has been deemed unascertainable. That would be an absurd result. Amicus also noted that Justice Baxter, when he was an appellate jurist, in Bronco Wine recognized the due process problems on non-class collective actions.
Justice Kennard interrupted to point out two grounds the appellate court identified for allowing PAGA claims to proceed collectively without the class device: (1) no reference to CCP 382 and (2) PAGA involves a person bringing a law enforcement action to protect the public.
Amicus stated that neither ground was valid. As to point (2), it is not correct that PAGA plaintiff stands in the shoes of the attorney general, but rather the action is a private substitute for state action. Amicus mentioned a case I am unfamiliar with called People v. Pacific Land Research, 20 Cal. 3d 10, that supposedly distinguishes private attorney general actions from actual attorney general actions. Amicus also noted that proponents for PAGA had argued that it would not be subject to abuse like the pre-Prop 64 UCL.
As to point (1), Amicus noted that the reason UCL claims were exempted from CCP 382 requirements pre-prop 64 was that it said so expressly at Section 17203. The rule did not merely arise from the absence of an express reference to CCP 382 in the UCL. Amicus again referred back to his analogy concerning Labor Code 1194.
Petitioner had only a brief rebuttal. She again emphasized that Kraus and Cortez both allowed non-class collective actions under the pre-prop 64 UCL which allegedly shows that there are no inherent due process problems with such a procedure. Although she didn't articulate it, I think she was saying that trial courts could decide when there would be due process problems and allow non-class collective actions on a case-by-case basis.
On PAGA, she repeated that it was enacted to deal with a lack of enforcement of the Labor Code. She noted that employers arguing against the bill argued that, if enacted, it would allow non-class collective actions, and now they are arguing to the contrary. She noted that the DeLeon (Verizon) case respondent discussed above was off point and dealt with the res judicata effect of class members' release pursuant to a class action settlement and whether it barred a subsequent PAGA action (I think she is right on this point).
The justices seemed much more interested in what I thought was the easy question-whether Prop 64 imposed class certification requirements on UCL actions. I did not even realize that issue was in dispute. The only judges who showed any overt sympathy for the argument that UCL actions could proceed under some lesser standard within the scope of CCP 382 was Justice Werdegar. I noticed she and Justice Moreno were passing notes back and forth, so maybe he is a second vote for that point. At the end of the day, I expect that issue to go unanimously to the employer because the only way to defend that outcome is to rule that the text of Prop 64 was completely unambiguous, which seems like a stretch.
There was just too little commentary on the PAGA issues to really draw any conclusions. What comments there were seemed to raise concerns about due process problems. Justice Baxter had, in fact, raised those issues some twenty years ago when he wrote the Bronco Wine decision, so I expect he will side with those holding that collective actions under PAGA need to comply with class certification procedures. Overall, the arguments raised in favor of a need for non-class collective PAGA actions seemed fairly weak. Petitioner mentioned that a class might be too small to meet numerosity, but if that is so, it would seem that all parties could be brought before the court. If the cost of notice is a problem, it would seem the court could decide to shift the cost of the notice. Given that Labor Code class actions are routinely certified, a rule that PAGA actions also need to be certified would not seem to impose any particular hardship.
If I had to go out on a limb, I'd predict the employer wins on the PAGA issue as well, but there really were not enough comments from the justices to strongly support that interpretation.
[Thank you again, Tom, for the detailed report and for your thoughts on the possible outcome. --KAK]