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In Bufil v. Dollar Financial Group, Inc., ___ Cal.App.4th ___ (Apr. 17, 2008; pub. ord. May 13, 2008), the Court of Appeal (First Appellate District, Division Four) reversed an order denying class certification of certain wage and hour claims. Notably, the Court distinguished Alvarez v. May Department Stores Co., 143 Cal.App.4th 1223 (2006), the collateral estoppel case.
In an unpublished memorandum disposition, Sepulveda v. Wal-Mart Stores, Inc., 2008 WL 1868333 (Apr. 25, 2008), the Ninth Circuit partially reversed an order denying class certification, holding that the district court correctly denied certification under Rule 23(b)(3), but applied the wrong standard in denying certification under Rule 23(b)(2). The underlying suit alleges misclassification of certain Wal-Mart assistant managers as exempt from California overtime laws, and it includes a UCL claim. See Sepulveda v. Wal-Mart Stores, Inc., 237 F.R.D. 229 (C.D. Cal. 2006).
The Ninth Circuit remanded for the district court to reconsider class certification under Rule 23(b)(2). The memdispo reads, in its entirety:
Plaintiffs, current and former Assistant Managers of Defendant, Wal-Mart Stores, Inc., appeal the district court’s order denying their motion for class certification. We have jurisdiction under 28 U.S.C. § 1292(e) and Federal Rule of Civil Procedure 23(f).
The district court misapplied Ninth Circuit precedent when, relying on its conclusion that Plaintiffs’ claims for monetary relief were non-incidental, it denied class certification under Federal Rule of Civil Procedure 23(b)(2). See Molski v. Gleich, 318 F.3d 937, 949–50 (9th Cir. 2003) (refusing to adopt the incidental damages approach set forth by the Fifth Circuit in Allison v. Citgo Petroleum Corp., 151 F.3d 402 (5th Cir. 1998)). The district court must focus on the intent of the Plaintiffs in bringing suit. Id. at 950. We therefore hold that the district court abused its discretion in denying class certification. See Sw. Voter Registration Educ. Project v. Shelley, 344 F.3d 914, 918 (9th Cir. 2003) (en banc) (per curiam).
On remand the district court shall reconsider class certification under Federal Rule of Civil Procedure 23(b)(2), and, in the alternative, also reconsider using Rule 23(c)(4) to certify specific issues under the Rule 23(b)(2) standard. See Society for Individual Rights, Inc. v. Hampton, 528 F.2d 905, 906 (9th Cir. 1975). In reconsidering these issues, the district court may find the California Supreme Court’s decision in Gentry v. Superior Court, 42 Cal. 4th 443, 457–59, 462, 464–65 (2007), instructive.
The district court did not abuse its discretion in denying class certification under Federal Rule of Civil Procedure 23(b)(3), and we therefore affirm that portion of its order. Each party shall bear its own costs on appeal.
REVERSED in part; AFFIRMED in part.
The Ninth Circuit cited some of the most pro-class-action parts of Gentry. For example, in the middle of page 462 of Gentry, the Supreme Court wrote:
We also agree with the Bell court that “class actions may be needed to assure the effective enforcement of statutory policies even though some claims are large enough to provide an incentive for individual action. While employees may succeed under favorable circumstances in recovering unpaid overtime through a lawsuit or a wage claim filed with the Labor Commissioner, a class action may still be justified if these alternatives offer no more than the prospect of ‘random and fragmentary enforcement’ of the employer's legal obligation to pay overtime.” (Bell, supra, 115 Cal.App.4th at p. 745, quoting Vasquez, supra, 4 Cal.3d at p. 807.) “By preventing ‘a failure of justice in our judicial system’ (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 434), the class action not only benefits the individual litigant but serves the public interest in the enforcement of legal rights and statutory sanctions.” (Bell, supra, at p. 741.) In other words, absent effective enforcement, the employer's cost of paying occasional judgments and fines may be significantly outweighed by the cost savings of not paying overtime.
Gentry, 42 Cal.4th at 462. And here is what the Supreme Court said at pages 464-65:
It is true that an employee may seek administrative relief from overtime violations with the Labor Commissioner through a “Berman” hearing procedure pursuant to [Labor Code] sections 98 to 98.8. (Added by Stats.1976, ch. 1190, §§ 4-11, pp. 5368-5371.) But a losing employer has a right to a trial de novo in superior court, where the ruling of the Labor Commissioner's hearing officer is entitled to no deference. (§ 98.2, subds. (b), (c); Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1116 (Murphy).) Thus, Berman hearings may result in no cost savings to the employee. Moreover, in Bell, in rejecting the same argument, the court considered a declaration by a former chief counsel of the DLSE, who stated that “ ‘[r]equiring two thousand or so class members to go through individual “Berman” hearings would obviously be extremely inefficient as compared to a single class action. Also, a deluge of claims would simply outstrip the resources of the DLSE ... impacting not only these claimants but others unrelated to this suit.’ ” [*465] (Bell, supra, 115 Cal.App.4th at p. 746, 9 Cal.Rptr.3d 544.) In short, Berman hearings are neither effective nor practical substitutes for class action or arbitration.
Id. at 464-65. I think we know where the Ninth Circuit wants the district court to go on remand.
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.
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.
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.
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 In re New Motor Vehicles Canadian Export Antitrust Litigation, ___ F.3d ___, 2008 WL 820922 (1st Cir. Mar. 28, 2008), the First Circuit reversed (without prejudice) an order granting class certification of state-law antitrust claims. It is an interesting opinion because it tackles the extent to which merits issues may be resolved at the class certification stage and talks about differing law of the federal circuits on that issue. (See this blog post for more.) One judge dissented, and I must say I agree with that judge's observation that the majority opinion itself acknowledges that the key liability questions are common to the class. Slip op. at 58, 60. Perhaps a petition for en banc rehearing will be filed. [Via How Appealing.]
During its conference last week, the Supreme Court declined to review the Court of Appeal's decision in Lewis v. Robinson Ford Sales, Inc., 156 Cal.App.4th 359 (2007). In that case, the Court of Appeal (Fourth Appellate District, Division One) reversed an order denying class certification. My original post on the opinion is here.
Today's San Francisco Chronicle reports that U.S. District Judge Martin Jenkins has been nominated to serve on the First District Court of Appeal based in San Francisco, replacing Justice Joanne Parrilli, who recently retired. Bob Egelko, "Federal judge nominated to state appeals court," San Francisco Chronicle (Jan. 26, 2008). This is important because, according to the article, Judge Jenkins was assigned to the Wal-Mart gender discrimination case and is the judge who granted class certification in that case. Right now, after two opinions from a three-judge Ninth Circuit panel, a petition for en banc rehearing is pending. The article says that on remand the case would be assigned to a new judge.
Howard Bashman of How Appealing has posted a copy of the petition for en banc rehearing as well as a useful redline comparing the two Ninth Circuit opinions (pdf).
In Bell v. Superior Court (H.F. Cox, Inc.), ___ Cal.App.4th ___ (Nov. 21, 2007; pub. ord. Dec. 20, 2007), the Court of Appeal affirmed in part and reversed in part the trial court's order denying certification of certain Labor Code claims. The opinion contains some interesting language on the "superiority" element of class certification:
The party seeking class certification has the burden to establish that class action will be a superior means of resolving the dispute. (Aguiar v. Cintas Corp. No. 2, supra, 144 Cal.App.4th at pp. 132-133.) Our Supreme Court recently addressed the issue of the superiority of a class action in a wage and hour case. In Gentry v. Superior Court (2007) 42 Cal.4th 443, the Supreme Court concluded that both factors on which the trial court relied in this case – the size of some claims suggesting individual enforcement and the possibility of administrative proceedings before the Labor Commissioner – were insufficient to deny class certification. The court noted that there are many other factors in favor of class resolution in such cases, including that current employees might not bring individual claims out of a fear of retaliation, that current employees might not know of their rights (especially where, as here, the employer has affirmatively told them they are not eligible for overtime), and the necessity of class actions to give teeth to wage and hour laws even when some employees may have claims large enough for individual enforcement. (Id. at p. 459-462.) The court specifically held that an administrative action before the Labor Commissioner was an inadequate substitute for a class action. (Id. at p. 465.) As such, the trial court’s conclusion that a class action is not superior cannot stand.
Slip op. at 35-36 (footnotes omitted).
Yesterday, the Ninth Circuit withdrew its opinion from February in the Wal-Mart gender discrimination case, Dukes v. Wal-Mart, Inc., 474 F.3d 1214 (9th Cir. 2007), and issued a new, slightly revised opinion, Dukes v. Wal-Mart, Inc., ___ F.3d ___ (Dec. 11, 2007). The panel also denied the petition for en banc rehearing as "moot," and indicated that the "parties may file a new petition for rehearing or suggestion for rehearing en banc as provided for by Federal Rule of Appellate Procedure 40."
I have not yet had an opportunity to read the new opinion and compare it to the prior one. Today, however, in an article called "Ninth Circuit Limits Wal-Mart Class," the Recorder reports that "[t]he largest substantive change involved standing within the class: The panel instructed U.S. District Judge Martin Jenkins to consider dropping class members who were no longer employed by Wal-Mart at the time the complaint was filed. However, the circuit shot down Wal-Mart's argument that this standing issue should tank the entire class." From the article, it sounds like the new opinion more thoroughly discusses whether the primary relief sought is declaratory and injunctive, vs. monetary, which is relevant to class certification under Federal Rule of Civil Procedure 23(b)(2).
UPDATE: Howard Bashman has a few thoughts on the new opinion at his blog, How Appealing.
I hope to have a report on the Farm Raised Salmon Cases argument by tomorrow, but meanwhile, here is an interesting new decision. In Ortiz v. Lyon Management Group, Inc., ___ Cal.App.4th ___ (Dec. 3, 2007), the Court of Appeal (Fourth Appellate District, Division Three) held that after winning summary judgment as to the named plaintiff's claims, the defendant may not move for class certification in hopes of obtaining a judgment that will be res judicata as to all of the absent class members:
We hold defendant could not obtain class certification after the court decided the merits of plaintiff’s individual claim. As a general procedural rule, class certification should be determined before the merits are adjudicated. And as a general substantive rule, a precertification decision on the merits against a named plaintiff does not bind absent class members. The court did not abuse its discretion by holding defendant to these general rules.
Slip op. at 3. The opinion calls this question "a novel class action issue" and said several times that there is "no case in which a defendant has even tried this tactic." Id. at 2, 15. Indeed, I have never heard of a defendant moving for class certification in any context.
The Court of Appeal began its analysis by construing Fireside Bank v. Superior Court, 40 Cal.4th 1069 (2007), and holding that such a procedure would violate Fireside Bank's directives absent changed circumstances justifying the delayed class certification motion:
Fireside sets forth a strict rubric for postmerits certification. “If a party seeks and obtains a merits ruling before moving for class certification, it must demonstrate changed circumstances to justify its belated motion for class certification. [Citation.] Absent a showing of changed circumstances, the trial court may not consider the motion; absent a further finding of a compelling justification, it may not grant it.” (Fireside, supra, 40 Cal.4th at p. 1088.)
This rubric provides a procedural reason to affirm the court’s denial of defendant’s class certification motion. Defendant, having “s[ought] and obtain[ed] a merits ruling before moving for class certification,” failed to “demonstrate changed circumstances to justify its belated motion for class certification.” (Fireside, supra, 40 Cal.4th at p. 1088.) The record suggests no practical reason why defendant could not have moved for class certification sooner, other than to maximize its strategic advantage.
Slip op. at 16-17.
The Court of Appeal then held that "postmerits certification would wrongly give binding effect to a non-binding judgment":
Despite 50-plus pages of exhaustively researched briefing covering 30 years of federal and California class action jurisprudence, defendant cannot cite a single case in which a defendant obtained class certification after first obtaining summary judgment against the named plaintiff’s individual claim. This lack of precedent is telling.
....
None of [the cases on which defendant relies] allowed a defendant to seek postmerits certification. None allowed precertification summary judgment against the plaintiff’s individual claim to bind absent class members. None support defendant’s attempt to foist a binding judgment against absent class members by seeking postmerits certification. ....
.... Rather than seeking postmerits certification, defendant must resort to some other doctrine to combat the onslaught it fears of subsequent litigation by absent class members. Possible doctrines may include res judicata or stare decisis. But defendant must wait to assert these doctrines in subsequent litigation, if any; we express no opinion on their viability. We note only that they do not support postmerits certification in this case.
Id. at 22-24 (citation omitted).
Last week, in Gattuso v. Harte-Hanks Shoppers, Inc., ___ Cal.4th ___ (Nov. 5, 2007), the Supreme Court held that the Court of Appeal had improperly affirmed the trial court's order denying class certification of certain Labor Code claims:
The remaining issue is whether the trial court abused its discretion in denying plaintiffs’ motion to certify a plaintiff class defined as all current and former Harte-Hanks outside sales representatives who were not reimbursed for the expenses they incurred in using their own automobiles after January 1, 1998, to discharge their employment duties.
Under Code of Civil Procedure section 382, a class action is permitted “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court . . . .” Class certification requires both an ascertainable class and a well-defined community of interest among class members. (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326; accord, Fireside Bank v. Superior Court (2007) 40 Cal.4th 1069, 1089.) Here, the trial court concluded that plaintiffs had established an ascertainable class but also that they had failed to satisfy the “community of interest” requirement.
“The ‘community of interest’ requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.” (Sav-On Drug Stores, Inc. v. Superior Court, supra, 34 Cal.4th at p. 326.) The trial court here concluded that plaintiffs had failed to show the existence of predominant questions of law or fact.
The trial court’s ruling on the class certification motion is reviewed for abuse of discretion. (Sav-On Drug Stores, Inc. v. Superior Court, supra, 34 Cal.4th at p. 326.) If supported by substantial evidence, a class certification ruling “generally will not be disturbed ‘unless (1) improper criteria were used [citation]; or (2) erroneous legal assumptions were made [citation].’ ” (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435-436; accord, Sav-On Drug Stores, Inc. v. Superior Court, supra, at pp. 326-327.)
In concluding that common issues did not predominate here, the trial court reasoned that plaintiffs’ claims under section 2802 would “turn[] on the determination of two issues (1) whether each individual Harte-Hanks outside sales representative has an agreement about the manner in which he is compensated for expenses, or (2) whether the compensation paid to each individual sales representative is reasonable to compensate for business expenses incurred” and that both determinations would require “an individualized inquiry as to each outside sales representative.”
The class that plaintiffs sought to certify consisted of all Harte-Hanks outside sales representatives “who were not reimbursed for the expenses they incurred in using their own automobiles after January 1, 1998.” We construe this to refer to the Harte-Hanks outside sales representatives who were not separately reimbursed, apart from their base salary and commissions. Not included in the proposed class, therefore, are the relatively few Harte-Hanks outside sales representatives who received automobile expense reimbursement through a separate payment, whether as the result of an individually negotiated compensation package or otherwise. (See fn. 2, ante, at p. 2.)
Harte-Hanks has taken the position that as to the members of this proposed class, it fulfilled its reimbursement obligation under section 2802 by paying them higher commission rates and higher base salaries than it paid to inside sales representatives. As we explained in the previous section, the validity of this claim will turn on the resolution of these questions: (1) Did Harte-Hanks adopt a practice or policy of reimbursing outside sales representatives for automobile expenses by paying them higher commission rates and base salaries than it paid to inside sales representatives? (2) If so, did it establish a method to apportion the enhanced compensation payments between compensation for labor performed and expense reimbursement? (3) If so, was the amount paid for expense reimbursement sufficient to fully reimburse the employees for the automobile expenses they reasonably and necessarily incurred? Neither the trial court nor the Court of Appeal framed the class certification issue in that way, and so neither court considered whether these inquiries are capable of resolution on a class-wide basis. Accordingly, the class certification issue is to be reconsidered upon remand.
Slip op. at 24-26.
In an opinion published yesterday, the Court of Appeal (Fourth Appellate District, Division One) reversed a trial court order denying class certification with directions to grant class certification. Lewis v. Robinson Ford Sales, Inc., ___ Cal.App.4th ___ (Sept. 28, 2007) (pub. ord. Oct. 24, 2007). The underlying case involved the treatment and disclosure of negative equity financing under the Automobile Sales Finance Act (Civ. Code §§2981 et seq.), and included UCL and CLRA claims. Here are a few highlights from the opinion.
Regarding whether UCL claims may be certified for class treatment:
In Feitelberg v. Credit Suisse First Boston, LLC (2005) 134 Cal.App.4th 997, 1015, the court clarified that a UCL claim may be properly subject to treatment as a class action " 'when the statutory requirements of section 382 of the Code of Civil Procedure are met.' [Citation.] That authority is now explicit in the amended statute, which authorizes the pursuit of 'representative claims or relief on behalf of others' provided that the claimant 'complies with Section 382 of the Code of Civil Procedure . . . . ' " (Ibid. [of the three varieties of unfair competition established by section 17200, plaintiff mainly asserts the unlawful prong, based on the other alleged statutory violations].)
Slip op. at 12.
Regarding the ascertainability prong of class certification:
Here, the trial court's ruling focused on the ascertainable class issue, by apparently giving undue credit to the defense argument that since various customers had engaged in individual negotiations, regarding the purchase price and trade-in value, individual fraud issues must be predominant, along with punitive damages questions. To the extent the trial court was concerned with punitive damages, that reasoning could only apply to the CLRA claim (§§ 1780, subd. (a)(2), 1781, subd. (a)), and would have no application to the ASFA or UCL theories. In any case, those were not appropriate considerations for determining ascertainability of the class regarding the issues raised on statutory disclosure standards. Rather, to determine the identity of potential class members, the court will look to whether there are any objective criteria to describe them and whether they can be found without unreasonable expense or effort through business or official records. (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 706; Rose v. City of Hayward (1981) 126 Cal.App.3d 926, 932.)
Id. at 13.
Regarding the difference between fraud claims and CLRA and UCL claims:
Contrary to the apparent view of the trial court, plaintiff is not seeking to prove common law fraud in the individual transactions. (See Massachusetts Mutual Life Ins. Co. v. Superior Court (2002) 97 Cal.App.4th 1282, 1292 [CRLA claims do not require individualized proof of causation of injury from a deceptive practice].)
Likewise, any related UCL allegations are not dependent on a finding of separate instances of fraud, because the business transactions here could still qualify as unlawful or likely to deceive the public, through any proven violations of the ASFA. (Bus. & Prof. Code, § 17200.)
Id. at 15 (emphasis added).
Finally, the opinion has this interesting discussion of the treatment of punitive damages claims at the class certification stage:
Regarding the possibility of punitive damages awards under CRLA, it was premature for the trial court to consider that issue with respect to class certification, because the merits of the statutory claims had not yet been resolved. (§§ 1780, subd. (a)(2), 1781, subd. (a).) Also, the fact that punitive damages are pled will not alone bar class certification. (Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 477.) Even though defendant was denying the existence of any fraudulent intent, those equitable considerations are not dispositive of the statutory claims at the class certification stage of the proceedings. (See Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 179 "[L]egal and factual issues that go to remedies simply cannot outweigh the common issues related to liability," when deciding on a plaintiff's motion for class certification; also see Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435-436.)
Id. Throughout the opinion, this panel very carefully adhered to the rule that merits questions are not to be decided at the class certification stage.
In Capitol People First v. Department of Developmental Services, ___ Cal.App.4th ___ (Sept. 25, 2007), the Court of Appeal (First Appellate District, Division Four) reversed an order denying class certification and remanded with directions to enter a new order granting certification. The decision is very interesting and definitely worth reading. Among other things, the Court of Appeal held that the trial court had improperly "restricted" the "use of sampling or statistical proof" at the class certification stage. Slip op. at 16.
Yesterday, the Ninth Circuit affirmed class certification of a UCL "unfair" prong claim in Lozano v. AT&T Wireless Services, Inc., ___ F.3d ___ (9th Cir. Sept. 20, 2007). I have not had time to review the decision in detail, but I did notice this paragraph on restitution, which is particularly interesting in light of the recent Shersher decision:
The next question we address is whether these injuries are recoverable under the UCL. The only types of relief available under the UCL actions are injunctive and restorative. Cal. Bus. & Prof. Code § 17203; see also Cel-Tech, 83 Cal. Rptr. 2d at 560. While restoring Lozano's overage payments, if any, fits squarely within the restorative context of the UCL, we question whether restoring Lozano's "reserved" minutes falls into this category. Restitution in the UCL context, however, includes restoring money or property that was not necessarily in the plaintiff's possession. The California Supreme Court has stated that the concept of restoration or restitution, as used in the UCL, is not limited only to the return of money or property that was once in the possession of that person. Instead, restitution is broad enough to allow a plaintiff to recover money or property in which he or she has a vested interest. See Juarez v. Arcadia Fin., Ltd., 61 Cal. Rptr. 3d 382, 400 (Cal. Ct. App. 2007) (citing Korea Supply Co. v. Lockheed Martin Corp., 131 Cal. Rptr. 2d 29, 42 (2003)). Here, Lozano has a vested interest in 400 free anytime minutes. Due to out-of-cycle billing, however, Lozano found it necessary to reserve, and therefore lose, a certain number of those minutes each billing period. Accordingly, we find that Lozano has properly stated an injury that he did not receive the full value of his contract with AWS due to its alleged failure to disclose out-of-cycle billing, and that this injury is redressable under the UCL. See Daghlian v. DeVry Univ., Inc., 461 F. Supp. 2d 1121, 1155 (C.D. Cal. 2006) (accepting plaintiff's theory that he suffered injury under the UCL because he paid thousands of dollars of tuition to defendant university and "did not receive what he had bargained for" due to its alleged unfair business practices).
Slip op. at 12772. The court also declined to employ the third, intermediate formulation of "unfair" adopted by the Court of Appeal in Camacho v. Automobile Club of Southern California, 142 Cal.App.4th 1394 (2006). Instead, it held that the district court did not err by applying the pre-Cel-Tech formulation set forth in South Bay Chevrolet v. General Motors Acceptance Corp., 72 Cal.App.4th 861 (1999) (and other cases). Slip op. at 12775-77.
In Krzesniak v. Cendant Corp., 2007 WL 1795703 (N.D. Cal. June 20, 2007), the court (Magistrate Judge Maria-Elena James) distinguished Walsh v. IKON Office Solutions, Inc., 148 Cal.App.4th 1440 (2007), and granted class certification in a misclassification case:
Finally, in Walsh, the trial court had certified a class of managers, but later decertified the class. Walsh, 148 Cal.App.4th at 1445, 1447, 56 Cal.Rptr.3d 534. The appellate court upheld the decision to decertify based on the lower court's finding that common questions of law and fact did not predominate over individual issues. In decertifying the class, the lower court found that post-certification discovery showed that "the circumstances of each class member's employment differs significantly from every other member of the class." Id. at 1447, 56 Cal.Rptr.3d 534. Here, as discussed above, the Court can make no such finding at this stage in the proceedings. Unlike the plaintiff in Walsh, Plaintiff is not arguing that Defendants could be liable without regard to the work SMs perform. Id. at 1461, 56 Cal.Rptr.3d 534. Further, the proposed class in this case is relatively small and, if such an issue arises after certification, the Court has the ability to manage individual issues through case management procedures, including decertification if deemed necessary. As stated above, there is no "requirement that the courts assess an employer's affirmative exemption defense against every class members' claim before certifying an overtime class action." Sav-On Drug Stores, 34 Cal.4th at 336-37, 17 Cal.Rptr.3d 906, 96 P.3d 194.
Id. at *17.
In Estrada v. FedEx Ground Package System, Inc., ___ Cal.App.4th ___ (Aug. 13, 2007), the Court of Appeal (Second Appellate District, Division One) affirmed a judgment in favor of a class of FedEx delivery truck drivers, holding that the trial court correctly determined that the drivers were FedEx employees, not independent contractors, and that their expenses should have been reimbursed pursuant to Labor Code section 2802. The Court also held that some of the expenses were improperly disallowed, and remanded for redetermination of the amount (as well as for recalculation of attorneys' fees under Code of Civil Procedure section 1021.5).
The Court also rejected FedEx's post-trial challenge to the trial court's order granting certification and its approval of plaintiffs' use of representative ("anecdotal") testimony to establish their claims classwide:
The decision whether to certify a class is one within the trial court’s discretion and will be set aside only upon a showing of abused discretion. (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326-327; Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435-436.) On this record, FedEx cannot make the required showing because it is clear that common issues -- whether the drivers were employees and, if so, which expenses would be reimbursable -- predominated. The anecdotal evidence was admitted to show FedEx’s power to interpret the Operating Agreement and was relevant to the class as a whole, not just to the drivers who happened to be the subject of a particular anecdote. FedEx’s failure to raise this point below suggests it understood that it would fail (it did not at any time during the nine-week trial move for decertification on the basis of the anecdotal evidence). (Telles Transport, Inc. v. Workers’ Comp. Appeals Bd. (2001) 92 Cal.App.4th 1159, 1166-1167; Mesecher v. County of San Diego (1992) 9 Cal.App.4th 1677, 1685-1686.)
Slip op. at 15-16 (emphasis added).
Last Wednesday, July 11, 2007, the Supreme Court denied the multiple requests to depublish Walsh v. IKON Office Solutions, Inc., 148 Cal.App.4th 1440 (2007) (one of which was filed by yours truly).
Two more UCL decisions came down last week:
Akkerman v. Mecta Corp., ___ Cal.App.4th ___ (June 27, 2007) (Second Appellate District, Division Six) (affirming denial of class certification of UCL claim)
Benson v. Kwikset Corp., ___ Cal.App.4th ___ (June 29, 2007) (Fourth Appellate District, Division Three) (another post-Mervyn's remand decision)
I recently found an interesting paper by Michael F. Ram of Levy, Ram & Olson in San Francisco. The paper is called "Recent Developments in Class Certification of Consumer Products Cases in California Under the Consumers Legal Remedies Act and the Unfair Competition Law." The paper, which appears to be dated late 2006, discusses Chamberlan, Bardin, Pfizer, and other relatively recent decisions. It's quite good and is worth a read.
On Thursday, the Daily Journal had another article, "Pioneering Intrusion" (subscription), on Pioneer Electronics (USA) Inc. v. Superior Court, 40 Cal.4th 360 (2007). In the article, attorney Gordon E. Bosserman argues that "Belaire-West Landscape Inc. v. Superior Court, 2007 DJDAR 4611 (April 9, 2007), [in which] the 2nd District Court of Appeal applied the holding in Pioneer to employee contact information for a class action regarding wage-and-hour violations ... is an unnecessary and paternalistic extension of the Pioneer decision."
In Iliadis v. Wal-Mart Stores, Inc., ___ A.2d ___ (N.J. May 31, 2007), the New Jersey Supreme Court reversed an order denying class certification of meal and rest break and off-the-clock claims against Wal-Mart. Last Friday, the New Jersey Law Journal reported that "Wal-Mart Workers' Wage and Hour Suit Valid as Class Action, N.J. Court Says."
The opinion addresses the predominance, superiority, and manageability prongs of class certification. The Court's discussion of predominance and affirmative defenses (which it termed "remainder issues") is particularly interesting:
The core of the present dispute is whether Wal-Mart engaged in a systematic and widespread practice of disregarding its contractual, statutory, and regulatory obligations to hourly employees in this State by refusing to provide earned rest and meal breaks and by encouraging off-the-clock work. Essential to that issue are other salient and common questions, most notably the meaning and significance of Wal-Mart’s corporate policies concerning breaks and off-the-clock work. The impact of the Associate Handbook’s disclaimer and the uniformity of new employee orientation also are prominent common questions.
....
To be sure, as plaintiffs conceded at oral argument, resolution of those and other common questions may not dispose of the litigation. Individual questions may yet remain, such as: whether particular employees voluntarily missed rest and meal breaks; why employees who worked off-the-clock did not avail themselves of the curative time-clock procedures; how much time was worked off-the-clock; whether employees worked off-the-clock with the expectation of compensation; and how much in damages employees suffered, if any. However, the mere existence of remainder issues is insufficient to defeat class certification in New Jersey ... and elsewhere ....
So too, the individualized defenses advanced by Wal-Mart do not necessarily foreclose a finding of predominance. Although “different factual situations may arise with respect to the defenses as to different plaintiffs[, such] does not derogate from the fact that the affirmative cause of action itself has the community of interests and of questions of law or fact which justify the class action concept.” Our Appellate Division has stated: “[i]t is true that possibly different factual questions may come into play when the defense of waiver or other defenses are raised as against individual members of the class. This is not a bar to maintainability of the action as a class action.”
Slip op. at 26-29 (citations omitted) (italics added). The Court also explained that class certification would not diminish Wal-Mart's ability to present its defenses:
In finding that common questions predominate, however, we do not limit Wal-Mart’s defenses nor diminish its procedural safeguards and rights. Rather, in defending itself, Wal-Mart may argue that employees voluntarily worked through rest or meal breaks for myriad personal reasons, may contend that the conclusions of Baggett and Shapiro are flawed, may question the credibility of the July 2000 internal audit, and may advance any other relevant contentions. We are confident that, on remand, the trial court and parties’ counsel can resolve the practical challenges presented by this litigation’s individualized questions of law or fact.
Slip op. at 30-31.
The Court then addressed the superiority prong, and concluded that "[w]e cannot ignore the reality that if the proposed class is not certified, thousands of aggrieved employees will not seek redress for defendant’s alleged wrongdoing." Slip op. at 35.
Finally, as to the manageability prong, the Court noted that courts in other states (notably, California and my firm's own Wal-Mart case, Savaglio v. Wal-Mart), successfully managed "similarly-pled, state-wide class actions against Wal-Mart." Slip op. at 38. The Court went on:
We are confident that the Law Division will properly employ its broad, equitable authority and sound discretion to manage the instant litigation and appropriately address the important concerns of both parties in respect of the permissible uses of statistical extrapolation, evidentiary redundancy, and any other procedural, administrative, and evidentiary issues that may arise. We are guided by the observation that “[e]xperience . . . shows that visions of unmanageability soon disappear, because courts, together with counsel, have been able to manage litigation of constantly increasing complexity and magnitude.”
Slip op. at 40 (citation omitted).
The opinion concludes with a strong statement of the important public policies that underlying the class action device:
By equalizing adversaries, we provide access to the courts for small claimants. By denying shelter to an alleged wrongdoing defendant, we deter similar transgressions against an otherwise vulnerable class -- 72,000 hourly-paid retail workers purportedly harmed by their corporate employer’s uniform misconduct. Individually, the aggrieved Wal-Mart employees lack the strength in terms of resources and motivation to assert their grievances in court. Collectively, as a class, they are able to pursue their claims.
Slip op. at 40-41.
According to the Supreme Court's docket, four separate letters have been filed requesting depublication of Walsh v. IKON Office Solutions, Inc., 148 Cal.App.4th 1440 (2007). One of the depublication requests was filed last Friday by yours truly. No petition for review has been filed.
As explained in my two prior posts, the opinion adds nothing to class certification jurisprudence and therefore does not meet the standards for publication of Rule of Court 8.1105(c). Worse, the opinion contains language that contradicts the Supreme Court's holdings in Sav-on and Lockheed, and that could lead to misuse of the opinion as precedent, especially if the language is quoted out of context. The latter point is the basis for my depublication request.
UPDATE: On July 11, 2007, the Supreme Court denied the depublication requests.
Yesterday, in McAdams v. Monier, Inc., ___ Cal.App.4th ___ (May 30, 2007), the Court of Appeal (Third Appellate District) reaffirmed that UCL and CLRA class actions alleging failure to disclose material information are alive and well in California. The Court reversed a trial court order denying class certification of such claims, holding that they may be established through a classwide inference of reliance, and that individualized proof of each class member's actual reliance is not required. The Supreme Court is expected to decide this precise question in In re Tobacco Cases II.
Regarding the CLRA claim, the McAdams court explained:
The court in Massachusetts Mutual concluded ... that th[e] causation requirement under the CLRA did not render the case before it unsuitable for class treatment. Drawing from two state Supreme Court decisions, Vasquez v. Superior Court (1971) 4 Cal.3d 800 (Vasquez) and Occidental Land, Inc. v. Superior Court (1976) 18 Cal.3d 355 (Occidental), Massachusetts Mutual concluded that this causation requirement can be satisfied if the record permits an “inference of common reliance” to the class. (Massachusetts Mutual, supra, 97 Cal.App.4th at pp. 1292-1293.)
Slip op. at 10. After carefully considering Vasquez, Occidental, and Massachusetts Mutual, the Court of Appeal concluded that "[t]he record here permits an inference of common reliance among the CLRA class." Slip op. at 12. "The class action is based on a single, specific, alleged material representation. Monier knew but failed to disclose that its color roof tiles would erode to bare concrete long before the life span of the tiles was up. ... [I]n this context, class treatment is appropriate." Id. at 9.
As for the UCL claim, it was "based on the same material misrepresentation" as the CLRA claim — "Monier's failure to disclose the premature color erosion of the roof tiles" (slip op. at 20) — so the same analysis applied:
The real nub of the issue of UCL class suitability here turns on the element of reliance (causation). As amended by Proposition 64, section 17204 requires, for purposes of standing, that a private plaintiff have “suffered injury in fact and [have] lost money or property as a result of such unfair competition.” Furthermore, it is a basic principle of standing that “‘[t]he definition of a class cannot be so broad as to include individuals who are without standing to maintain the action on their own behalf. Each class member must have standing to bring the suit in his own right.’” (Collins v. Safeway Stores, Inc. (1986) 187 Cal.App.3d 62, 73, quoting McElhaney v. Eli Lilly & Co. (D.S.D. 1982) 93 F.R.D. 875, 878; Feitelberg v. Credit Suisse First Boston, LLC (2005) 134 Cal.App.4th 997, 1018.) As we shall explain, the concept of “inference of common reliance” (as opposed to “actual reliance”) can be applied here to satisfy these two quoted principles of standing, rendering plaintiff’s UCL action suitable for class treatment.
Massachusetts Mutual again points the way. As we discussed in the previous section of this opinion, that decision applied an “inference of common reliance” in determining that a fraud-based class action under the CLRA was suitable for class treatment.
Slip op. at 22-23. The Court of Appeal found no reason why the "inference of reliance" analysis should not apply to both the CLRA claim and the UCL claim for class certification purposes:
Several factors support our conclusion that this standard of “inferred reliance” from the CLRA class context may also be applied to the Proposition 64 UCL class context, instead of requiring a showing of “actual reliance.” The CLRA and the UCL are both consumer protection statutes with traditionally less rigorous proof burdens than common law fraud. (See Civ. Code, § 1760; § 17200; Consumer Advocates v. Echostar Satellite Corp. (2003) 113 Cal.App.4th 1351, 1360; Comment, The California Consumers Legal Remedies Act (1973) 10 Cal. Western L. Rev. 161.) After Proposition 64, the two acts’ language on reliance is similar (i.e., suffer “damage” (CLRA), or “injury in fact” (UCL), “as a result of”). (Civ. Code, § 1780, subd. (a); § 17204.) The two acts are often alleged in the same lawsuit, and a CLRA violation can serve as the “unlawful” prong and furnish the “fraudulent” basis of a UCL action. (See Daugherty, supra, 144 Cal.App.4th at pp. 837-838.) The Proposition 64 amendments on UCL standing at issue here were designed simply to close a “loophole” that allowed private persons to bring UCL actions on behalf of the abstract “general public,” even though no one had been damaged or misled. (Voter Information Pamp., supra, analysis by Legislative Analyst, pp. 38-39; argument in favor of Prop. 64, p. 40; see Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 232 (Mervyn’s) [Proposition 64 “left entirely unchanged the substantive rules governing business and competitive conduct”].) And if the principle of inferred reliance is sufficient to satisfy the element of reliance/causation as to a CLRA fraud-based class action, in which damages can be awarded, it certainly is sufficient to satisfy that element for a similar UCL class action where the remedies are essentially limited to injunctive and restitutionary relief.
Slip op. at 25-26 (footnote omitted). McAdams is the first opinion that comes anywhere close to acknowledging the holding in Mervyn's that Prop. 64's amendments were "procedural," not substantive. However, any reliance requirement, whether inferred or actual, would be a substantive change to the UCL, not a procedural one. This opinion gamely tries to find a middle ground by holding that reliance on material omissions may be inferred. But any holding that Prop. 64 imports reliance as an element still runs afoul of Mervyn's.
In Seastrom v. Neways, Inc., ___ Cal.App.4th ___ (Apr. 23, 2007), the Court of Appeal (Fourth Appellate District, Division One) addressed the "adequacy" element of class certification. The two proposed plaintiffs (who were substituted into the case after the original plaintiff lost standing in the wake of Prop. 64) were participants in a pyramid scheme. That scheme sold "an anti-aging dietary supplement" called BioGevity. One ingredient in BioGevity is federally regulated and is supposed to be sold only with a prescription. Slip op. at 2-4.
The Court of Appeal determined that the trial court did not abuse its discretion in holding that the two plaintiffs, who profited from selling the dietary supplement, were not adequate representatives of a proposed class of persons who bought the dietary supplement. Their conflict of interest, the court held, "goes to the very subject matter of the litigation." Id. at 6-7 (quoting Richmond v. Dart Industries, Inc., 29 Cal.3d 462, 470 (1981)). It seems to me that if someone who sold a product in violation of the UCL wished to facilitate a class action to recitify that misconduct, what they should do is notify their customers of the violation and encourage them to retain counsel. The Court of Appeal declined to address whether leave to amend the complaint to add another plaintiff should be granted. Id. at 11 n.2.
This case reminds me of Yoo v. Jho, ___ Cal.App.4th ___ (Feb. 23, 2007), in which the Court of Appeal (Second Appellate District, Division Three) held that two manufacturers of counterfeit designer bags could not bring their contract dispute into the court system and expect equitable relief. What were they thinking?
In addition to my own preliminary thoughts on Fireside Bank (the one-way intervention case), more blogosphere commentary can be found at Wage Law by Michael Walsh (who has two separate posts on the case), Cal Biz Lit (Bruce Nye), and Legal Pad (Mike McKee).
The opinion is open to varying interpretations, some of which are reflected in these blog posts. To be completely candid, I don't think the Supreme Court realized all of the potential implications of some of the language it used in the opinion. In retrospect, this may have been due to a lack of amicus participation. I think it may turn out to be very difficult, for example, to determine exactly what types of pre-class-certification motions implicate the "one way intervention" problem. For example, what if the plaintiff files a putative class action then immediately seeks a TRO followed by a motion for a preliminary injunction? To issue a preliminary injunction, the trial court has to find a likelihood of success on the merits. This is sufficiently related to the merits of the action that no one may peremptorily challenge the judge later under Code of Civil Procedure section 170.6. After Fireside Bank, can the defendant prevent a plaintiff from obtaining a preliminary injunction on pain of losing the right to seek class certification later?
Thoughts are welcome. And, readers, please keep me apprised of trial-level cases in which the judges are asked to address Fireside Bank. We may just have to wait and see how these issues play out in the lower courts.
UPDATE: In response to my hypothetical, a reader wrote in with the following analysis:
Re: your question about whether a trial court is able to issue a TRO in a class action before the class is certified: See CCP § 527(b), which provides that “a temporary restraining order or a preliminary injunction, or both, may be granted in a class action,… whether or not the class has been certified.” Apparently this was the legislative reaction to the ruling in Clemons v. Western Camera Photo Hut (1981) 117 Cal.App.3d 392, which held that issuance of a preliminary injunction did constitute one-way intervention. This issue is discussed in the Court of Appeal’s now-vacated Fireside opinion, 35 Cal.Rptr.3d 80, 93, fn 10:
In Clemons v. Western Photo Camera Hut (1981) 117 Cal.App.3d 392, 172 Cal.Rptr. 782, the same court that decided Home Savings embraced the argument the Supreme Court refused to reach in Pacific Land, supra, 20 Cal.3d 10, 141 Cal.Rptr. 20, 569 P.2d 125: That because a motion for preliminary injunction requires a showing that the plaintiff is likely to succeed on the merits, the trial court is powerless to grant such a motion if the complaint includes class allegations and no class has yet been certified. More precisely, the court held that the trial court there had acted within its discretion by denying a preliminary injunction on the basis of Home Savings. (Id. at pp. 395-396, 172 Cal.Rptr. 782.) Under this holding, if a defendant were spewing toxic waste into a shared reservoir and a class action were filed on behalf of the reservoir's users, the trial court would act within its discretion by refusing to grant a preliminary injunction solely because to do so might forecast to class members the ultimate outcome of the case. It is hardly a surprise that the Legislature promptly overturned this holding by amending the governing statute to permit preliminary injunctions in class actions “upon the same grounds as in other actions, whether or not the class has been certified.” (1982 Stats., ch. 812, § 1, p. 3101; see now Code Civ. Proc., § 527, subd. (b).)
Thank you; that's very helpful.