The UCL Practitioner

Last week's arguments in Rose and Zhang

As I previously reported, last week the Supreme Court heard oral arguments in two cases potentially implicating the ordinary rule that a UCL "unlawful" prong may proceed regardless of whether the legislature intended the "borrowed" law to carry a private right of action.  Zhang v. Superior Court (Cal. Cap. Ins.), no. S178542, was argued last Wednesday, and Rose v. Bank of America, no. S199074, was argued Tuesday. 

Emily Green of the Daily Journal had a story on the Zhang argument in last Thursday's paper.  An excerpt:

Plaintiffs lawyers and insurance companies have waited more than three years for the state Supreme Court to take up the case of Yanting Zhang, a homeowner who sued her insurance company for false advertising after it repeatedly stalled her efforts to get recovery after an apartment fire.

But at oral argument Wednesday, ... the questions posed by the justices suggested the court is inclined to rule in favor of Zhang, who wants to move forward with her claim.

....

The backdrop to the case is a prior California Supreme Court decision that says private citizens can't privately sue insurers who commit unfair practices under the state's Unfair Insurance Practices Act. Only the insurance commissioner can do that.  Moradi-Shalal v. Fireman's Fund Ins. Companies, 46 Cal.3d 287 (1988).

Much of oral argument centered on whether Moradi-Shalal affected Zhang's case.  ....

[Justice] Corrigan questioned why Zhang should be precluded from suing the company for false advertising. If one of the parties has no intention of living up to its side of the contract, she said, then the contract is "fraudulently induced." 

Justice Corrigan is one of the more conservative members of the Court, so if her questions favored the plaintiff, that is a strong signal that the plaintiff may ultimately prevail. 

I have seen no press coverage of Rose, but an attorney present reported that the questioning in that case also seemed to favor the plaintiffs' position.  The attorney said that from the questioning, it appeared that the justices were accepting the argument that the repeal of the private right of action for violations of the Truth in Savings Act (12 U.S.C. § 4301 et seq.) did not affect the Act's preemption language or establish a federal policy precluding state enforcement of its provisions. 

Both opinions are due to be filed no later than the week of August 5, 2013.  

Oral argument preview: Zhang v. Superior Court

Today at 1:00 p.m. in San Francisco, the Supreme Court will hear oral argument in Zhang v. Superior Court (Cal. Cap. Ins.), no. S178542:

• Issues: (1) Can an insured bring a cause of action against its insurer under the unfair competition law (Bus. & Prof. Code, § 17200) based on allegations that the insurer misrepresents and falsely advertises that it will promptly and properly pay covered claims when it has no intention of doing so? (2) Does Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287 bar such an action?
• Court of Appeal Opinion:Zhang v. Superior Court (Cal. Cap. Ins. Co.), 178 Cal.App.4th 1081 (Oct. 29, 2009.

For more on the case, see this blog post.  The opinion will be due in ninety days, or by August 6, 2013.

It appears that the Supreme Court sees the issues raised in this case as somewhat related to those presented in in Rose v. Bank of America, no. S199074, which was argued yesterday.  In Rose, review was granted in March 2012, barely a year ago.  Zhang, on the other hand, has been pending since February 2010.  It could be coincidence, but I think there must be a reason for the setting on adjacent days.  The issues appear to be substantively related, as I explained here.

Unfortunately, the press of business has prevented me from attending either of the arguments.  If you attended yesterday (or are planning to attend today) and would like your report to appear here, please drop me a line. 

Oral argument preview: Rose v. Bank of America

This morning at 9:00 a.m. in San Francisco, the Supreme Court will hear oral argument in Rose v. Bank of America, no. S199074:

• Issue: Can a cause of action under the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) be predicated on an alleged violation of the Truth in Savings Act (12 U.S.C. § 4301 et seq.), despite Congress's repeal of the private right of action initially provided for under that Act?
• Court of Appeal Opinion: Rose v. Bank of America, N.A., 200 Cal.App.4th 1441 (2011)

Justice Louis R. Mauro of the Third Appellate District will sit in place of Justice Chin, who is recused.  For more on this case, see this blog post. 

Once the case is submitted, the opinion will be due in 90 days, or by August 5, 2013. 

California Courts YouTube channel

Here is the link to the YouTube channel of the California Courts: The Judicial Branch of California.  "Video content on this channel was produced exclusively by or in partnership with the California Administrative Office of the Courts." 

It includes video of Judicial Council meetings; speeches by court officials including the Chief Justice; courthouse groundbreaking ceremonies; confirmation ceremonies; and various other videos. 

The channel was created in January 2009, but I will admit I was unaware of it until now.  This explains how the Brinker video could have been posted on YouTube before it was available on the California Channel website. 

Supreme Court hears oral argument in class certification case: Brinker Restaurant Corp. v. Superior Court (Hohnbaum)

Yesterday, the Supreme Court heard oral argument in Brinker Restaurant Corp. v. Superior Court (Hohnbaum), no. S166350.  I had the privilege of presenting the argument on behalf of the workers along with my co-counsel Michael Rubin. 

The argument focused primarily on the substantive Labor Code issues.  There was comparatively little argument or questioning on the class certification issues.  Of the few questions asked during my brief rebuttal, none related to class certification. 

Matt Bailey has an interesting summary of the argument at his blog, the Bailey Class Action Daily.  Unfortunately it turns out that the live web feed had some technical glitches.

The complete video of the argument is available on YouTube at this link.  It should also soon be available at the California Channel website, but it isn't up yet.

There has been quite a bit of press coverage as well.   According to Laura Ernde's article in this morning's Daily Journal (link not available), the justices were "skeptical" of the idea that meal periods should be mandatory in the sense that workers can never choose to work through them, but seemed to accept the idea that employees cannot be required to work more than five hours at a time without a meal period.  The article does not address any of the class certification issues. 

The opinion will be due in 90 days, which is going to be no later than early February.

Oral argument in Harris v. Superior Court (Liberty Mutual Insurance)

Last week, I attended the oral argument in Harris v. Superior Court (Liberty Mutual Insurance), no. S156555.  In Harris, the Court of Appeal reversed the trial court's order decertifying the plaintiff insurance adjusters' overtime claims, which were predicated on the adjusters' alleged misclassification as exempt from the overtime laws. 

I did not think that any of the justices' questions were particularly illuminating.  The class certification issues were not really discussed at all.  Justice Liu's scholarly bent was evident from his questions. 

Laura Ernde of the Daily Journal had a different take.  Her headline described the justices as "skeptical of overtime for insurance adjusters."  Either way, we'll know in 90 days.

Justice Liu confirmed to California Supreme Court

Happy Labor Day!  In case you haven't already heard, Justice Goodwin Liu was sworn in as the newest Associate Justice of the California Supreme Court on September 1, 2011, the day after his confirmation hearing.  (The video of the swearing-in ceremony is available here.)

On Friday, the Supreme Court issued an amended oral argument calendar for this week. It indicates that Justice Liu will hear six of the seven cases that are set for argument (in lieu of the pro tem justices previously assigned to those cases).  I imagine he is having a busy holiday weekend.

One of the cases is of particular interest (and no, I don't mean the Prop. 8 case, which will be argued Tuesday morning and broadcast live by California Channel).  In Serrano v. Stefan Merli Plastering, no. S183372 (review granted 08/18/10), the Court will consider Code of Civil Procedure section 1021.5 and whether a plaintiff is eligible for fees for work in a case that established a legal precedent.  The Court of Appeal said no in Serrano v. Stefan Merli Plastering Co., 184 Cal.App.4th 178 (2010).  

Serrano is scheduled for argument on Wednesday, September 7, 2011 at 1:30 p.m.  The argument is part of a special session taking place at U.C. Hastings College of the Law.   

Oral argument preview: Erica P. John Fund, Inc. v. Halliburton Co.

The U.S. Supreme Court will hear oral argument today at 10:00 a.m. Eastern in Erica P. John Fund, Inc. v. Halliburton Co., no. 09-1403. 

Transcripts of U.S. Supreme Court arguments are generally available within hours after the argument takes place.  When it is posted online, the Erica P. John Fund transcript should be available at this link.  [UPDATE:  The broken link to the transcript has been fixed.]

These are the issues on review as stated in the cert. petition:

(1) Whether the Fifth Circuit correctly held, in direct conflict with the Second Circuit and district courts in seven other circuits and in conflict with the principles of Basic v. Levinson, 485 U.S. 224 (1988), that plaintiffs in securities fraud actions must not only satisfy the requirements to trigger a rebuttable presumption of fraud on the market, but must also establish loss causation at class certification by a preponderance of admissible evidence without merits discovery;

(2) whether the Fifth Circuit improperly considered the merits of the underlying litigation, in violation of both Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974), and Federal Rule of Civil Procedure 23, when it held that a plaintiff must establish loss causation to invoke the fraud-on-the-market presumption.

Class action attorneys in all areas of practice, not just securities, have been closely watching this case given its potential to construe the Eisen case and the rule against unnecessary merits determinations at the class certification stage.  The Fifth Circuit's opinion is Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co., 597 F.3d 330 (5th Cir. 2010).

For an interesting analysis of the issues in the case, see this article by Professor Linda S. Mullinix of the University of Texas School of Law, Austin.  (Via SCOTUSblog.)

Oral argument report: Sullivan v. Oracle Corp.

Many thanks to Thomas R. Kaufman of Sheppard Mullin's Los Angeles office for attending and providing the following report of the oral argument yesterday morning in Sullivan v. Oracle Corp., no. S170577:

I attended the oral argument today at the California Supreme Court for Sullivan v. Oracle. The case raised essentially two main issues: (1) If an employee who normally works out of state for a company headquartered in California comes to California for a short stint of work, does he have to be paid overtime under California's overtime laws? and (2) if an employer who is headquartered in California makes a decision in California to classify employees across the country as exempt, can a class action under the California Unfair Competition Law borrow the FLSA as a predicate act and sue for misclassification of the nationwide class? I am more interested in issue (2), but almost the entirety of the argument focused on issue (1).

From the questioning, it looks as though most of the justices are leaning to holding that out-of-state employees of a California-based company who come to California must be paid overtime under California law (e.g., daily overtime and California exemptions apply). The few comments there were on the second question give me some hope that the Court may find for the employer on the nationwide UCL issue, but that is far less clear because the questioning on that issue was so minimal.

Charles Russell of Callahan, Thompson, Sherman & Caudill argued for Sullivan and Paul Cane of Paul Hastings argued for Oracle. The case was well argued on both sides, but Cane faced a lot more questioning and the questioning he faced was much more aggressive. I took copious notes, so here is my best effort at a play by play recounting of the oral argument:

Sullivan Argument

Charles Russell started by claiming that the answer to question (1) is answered by the plain meaning of Labor Code section 510, which states that "any work" in excess of eight hours in one workday must be paid at overtime rates. There is no exception made for work of employees who reside out of state. Justice Kennard interjected that there is language in the preamble to the statute (not sure what statute she is referring to) that suggests that it applies to all individuals employed in the state. Russell agreed.

Justice Kennard then asked what law applies to work outside the state of California. Russell stated that, for the plaintiff's Labor Code claims, he was not contending that work performed outside California is subject to the Labor Code. The issue is simply employees who worked for Oracle within California (note, this is somewhat misleading, as he is claiming that employees everywhere can sue under California law, but just via the UCL rather than the Labor Code).

Justice Chin then interjected that there is a 9th Circuit case involving a Texas company holding that California law applies to employees who are paid in the State of California. Russell did not really respond to the question, but stated that the issue here was simply employees who worked in California. Russell said in the Tidewater decision, the court examined whether California law applied to work by employees who lived in California and worked in California, but the dispute there was whether the employees were actually working in the state. Russell contended that the case implied that California law applies to all work performed in California. Justice Chin corrected Russell, stating that Tidewater did not involve employees who lived out of state, so it didn't really address the issue. Russell backed off his original statement a bit and said that Tidewater at least left the issue open.

Chief Justice Cantil-Sakauye interjected about the plain meaning again. She noted that there are exceptions delineated in Labor Code section 510 as to when overtime pay is required, and there wasn't one for out-of-state employees. Russell agreed.

Russell then noted that the "parade of horribles" imagined by the defense really has no application to the issue of daily overtime. For example, an employee who is working on a plane that merely flies through California airspace would not work more than eight hours in a day within California, so the daily overtime rule would not apply. The case is limited to situations where employees come to California for a long enough stint that they actually work daily overtime that is not also weekly overtime compensable under the FLSA. Russell said that there is nothing unusual about applying state laws to people who visit a state. When you drive into California, you are governed by the California speed limit even if the state where you drove from has a higher speed limit.

Justice Chin asked Russell if the plaintiffs were seeking retroactive overtime pay. Russell explained that, in the course of the litigation, Oracle reclassified all the subject employees as non-exempt and now pays them overtime (it was unclear whether they pay California overtime for visitors, but I assume not). The issue is that Oracle did not concede they were misclassified in the first instance, so this case seeks overtime for the period in which the employees were classified as exempt. California law is relevant to determine amount of damages if employees were misclassified as well as the statute of limitations (to the extent UCL is used to extend statute of limitations to four years on claims for restitution of wages).

At this point, Russell began a long recitation and did not receive questions for a while. He made some policy arguments about how the statute is to be liberally construed (recently reiterated in the Martinez v. Combs case) and how that justifies supporting Sullivan's position. He cast Oracle's argument as trying to create a "non-residents exception" for overtime that is not supported by public policy or the text of the statute.

The last comment on issue (1) came from Justice Kennard who asked whether the result would be different for other Labor Code sections or for employees of a company that was not based in California. She suggested that the Court need not address other statutes or non-California companies because that is outside the facts of the case. Russell eagerly agreed that the Court need not address those issues, but could limit the holding to the facts before the Court. Russell indicated that it would be administratively easy for employers based in California simply to follow the California overtime rules when their employees are working in California.

The only discussion of issue (2) was Russell making an analogy to someone living in a house and throwing rocks at other houses. He said that if you consider California as a house, California law can punish the conduct of the homeowner who is throwing rocks into other states and hurting people in those other states because the conduct took place in California. It doesn't matter where the victims are when the rocks hit them; for jurisdiction purposes, the UCL can apply so long as the rock is thrown from California. In a rather strained analogy, Russell stated that the rock throwing here was Oracle misclassifying employees under the FLSA from their company headquarters in California. This violation of the FLSA impacted employees throughout the country, but the decision to classify the employees as exempt emanated from California, and that was sufficient to trigger the UCL for all victims of the California-based act.

Justice Boren, sitting by designation, was the only judge to ask any questions to Russell about issue (2). He asked whether you could sue under the UCL for a claim by a Colorado employee that arose under Colorado law. Russell sidestepped the question and said that the issue here was the FLSA, which also applies in California. By suing under the UCL, you give up some relief (penalties, attorney's fees) and are limited to restitution under the UCL. I don't know if this concerned Justice Boren in that he was worried now that employees anywhere who happen to work for a company based in California can use state laws and transform them into UCL claims. He provided no further explanation of these questions. 

Oracle Argument

Paul Cane began by providing the example of a New York Times reporter in attendance to watch this argument. He began to state that by merely coming here for this story, under Sullivan's argument, the employee would be subject to all of California's wage and hour laws.

Before he could finish making this point, Justice Kennard interjected that this case need not reach all California wage and hour laws or all types of employers. It is just addressing California-based employers and the narrow issue of overtime pay. She asked whether this could be answered by the plain language of the preamble of the statute without addressing broader issues.

Cane said because the broader issue of which state law applies to an employee visiting another state is unavoidable.  There is a Washington state case that said that Washington law applies to truckers whose home base is in Washington but who drive for the day into Oregon. Similarly here, the state where most of the employee's work is performed should apply. This same standard has been adopted by the state Labor Commissioner for California employees working temporarily out of state. You couldn't have it be that California law applies to employees whose base is California when they go to another state AND employees based on other states are also governed by California law when they come to California. There is no reason to believe California sought to ignore general principles of comity and to have its law trump every other state's laws.

Justice Baxter asked whether Cane was arguing that a Mexican national who comes to this country to perform agricultural labor has no right to protections of California law but instead is protected only by Mexican law. (As a parenthetical, when the justices start comparing your employees to Mexican farmworkers, it doesn't bode well for the employer.) Cane explained to Justice Baxter that the analogy was inapt because the employee's work relationship with the employer was not primarily in Mexico even if the employee resided there when he wasn't working in California. The only employment relationship between that employee and the employer in the hypothetical would be in California (presuming the employee was not working for a Mexican company visiting California for an assignment-- which Cane did not address).

Justice Kennard then stated that Mr. Russell had allegedly conceded that the rule would be different for an employee of a non-California company temporarily visiting California, but this case dealt with employees of a California-based company. Cane replied that Mr. Russell had not agreed that a different rule applied to a non-California company, but rather that Russell's position was that the headquarters of the company is irrelevant. Cane stated that he agreed that the state of incorporation of the employing company should not bear on the issue. Justice Kennard stated that she thought it was relevant and that Mr. Russell had agreed.

Cane then argued further that it would be irresponsible to decide this issue focused solely on California-based companies and overtime law while leaving the employer community in the dark as to how this rule would be applied to other wage and hour laws and non-California companies. Cane noted that as soon as this case came down, the broader issues would be litigated next, and the employment community would be in a state of panic and extreme confusion about how to handle employees visiting California. The potential penalties for non-compliance could be massive and it would take years for this issue to be sorted out in the appellate courts. Cane then noted that the issue was not limited to daily overtime but also conflicting exemptions. In New York the laws governing whether newspaper reporters are exempt are different than in California. Could a company be expected to perform an exemption analysis for every employee that visited California. How would you deal with the exemption for an employee who was exempt four days in a week (under NY law) and non-exempt three days?

Chief Justice Cantil-Sakauye jumped in again and stated that the Ninth Circuit certified only a very narrow question, so what basis would the Court have to address other questions?

Cane stated that the Court must be mindful that rules it announces can be applied. Why should the determination of whether an employee is treated as exempt or non-exempt or paid daily overtime turn on where the company is headquartered?

Justice Corrigan responded that companies headquartered or doing most of their business in California are more likely to be familiar with California laws than a company headquartered in Rhode Island.

Cane stated that, whether that is true or not, exposing employers to a more punitive standard would scare businesses out of headquartering in California.

Chief Justice Cantil-Sakauye asked why it was such a burden to pay daily overtime.

Cane responded that laws are different all over because different states strike different balances between the interests of employees and those of the business community. California should respect those balances and defer to the other states where the work of that employee is primarily in the other state.

Justice Werdegar -- who seemed most sympathetic to Oracle's position -- asked whether a conflict of laws analysis would apply and, if so, which state would have the greater interest.

Cane stated that the state where more work was performed would have the greater interest. That is why you look to the state where the employee is primarily employed to determine which law to apply. Cane asserted that if the Court looked at the amicus briefing, it would see that no company pays according to the rule Sullivan advocates. That is, no company pays employees under California law when they visit California for a temporary visit.

Chief Justice Cantil-Sakauye asked what Cane meant by the issue being controlled by where the employment being primarily based in a state.

Cane responded that this analysis is from the Restatement of Contracts which allegedly says you look to where the majority of the work is performed in the relationship.

Justice Baxter interjected with his Mexican laborer example again and asked why that wasn't a proper analogy. Cane explained (again) that the focus is on the employment relationship between the employer and employee -- not on the state of residence of the employee. In the Mexican laborer example, the entirety of the employment relationship is in California, so California law applies. This is different from the analysis of which speed limit applies (Russell's analogy) because that question is geographically based. Wage/hour law is governed by where the employment relationship is primarily based.

Justice Corrigan asked whether Oracle's proposed rule actually hurts California employees because employers would have an incentive when they need a teacher for an assignment to use non-Californians rather than Californians. Cane indicated that this example was unrealistic because employers would need to send a wave of "shock troops" from out-of-state, over and over again each week, but Justice Corrigan corrected him that it would apply whenever an employer had a need for teachers for a limited stint. Cane stated that those were not the facts of the case, but Justice Corrigan chided him that Oracle wants the Court to consider real world consequences when it advantages them but not when it doesn't (that is a paraphrase, not a quote).

Cane regained his footing here a bit and stated that the case deals with situations of a business traveler who is primarily employed in another state. If an employee is hired just to come to California to work from another state but doesn't have a primary employment relationship with the same employer in another state, California law would apply. He didn't say (but probably should have said) that it was not realistic that employers are going to repeatedly fly employees from their Minnesota office to California for two-week stints to avoid overtime because the cost of transporting and housing them in California would swamp the savings from avoiding daily overtime.

Cane reiterated that if the rule is that you suffer more punishing regulation by being headquartered in California, then you are encouraging employers to relocate their headquarters to Arizona. That is not in California's interest.

Cane then briefly turned to issue (2). He challenged the notion of the rock throwing analogy by stating that where an employee who resides, works and is paid outside California (and may have never even been to California), you cannot say that the violation of the law happened in California. Even if a decision to classify the employee as exempt was made by someone in California, the "violation" is having the employee work more hours than 40 under the FLSA (which happens outside California) and then paying the employee no overtime pay (which happens outside California).

Rebuttal Argument

The rebuttal went a bit better for Oracle as Charles Russell had to backpedal from a couple points he made. Justice Werdegar did most of the questioning and was rather tough on Russell.

Justice Werdegar said she was troubled if it was true that no company follows the rule that Sullivan was advocating of paying employees under California law when they visit California.

Russell denied that there was any factual basis in the record for Cane's assertion of that alleged "fact." He claimed that Cane essentially made it up. I suspect there were statements in industry amicus briefs without evidence actually being part of the appellate record.

Justice Werdegar then asked whether the Restatement really announced a rule that the law that governs is where the employment relationship is principally based.

Russell conceded that was the common-law standard, but stated that the common law does not apply here. Under Martinez v. Combs, the IWC regulations trump the common law (unclear which IWC regulation he was referring to).

Justice Werdegar then asked whether what Justice Kennard has said was true. Was he conceding that different rules would apply if the company was not headquartered or principally based in California?

Russell stated that he made no such concession, but rather just stated that the Court did not need to reach that issue to decide the case (this is what Cane had also pointed out). Russell stated the laws that apply to an employer are the FLSA and the law of the state where the employee works.

Justice Werdegar then asked whether that meant that employees who work stints in multiple different states are governed by the different state law wherever they happen to work?

Russell somewhat sidestepped that question and stated that it wasn't a burden to make employers comply with California law because complying with California law generally has you comply with all states' laws (note, this is actually not true in all circumstances -- e.g. commission sales exemption is broader under California law than under FLSA; tip-pooling laws more onerous in Massachusetts than California).

Justice Werdegar finally asked Russell a question about issue (2). She asked if it really was a violation of California law if an employee who worked totally outside California experiences an FLSA violation, even when the only contact to California was that the company's headquarters is in California?

Russell said, yes, and said that similar conclusions were reached in Wersheba v. Apple and Norwest. So long as the bad conduct occurred in California, UCL applied. None of the justices explored the question of whether "misclassification" is bad conduct in California, or whether the conduct is where the work is performed and where the employee is paid.

Justice Boren then asked "what about the statute of limitations?" Russell stated that the UCL borrows the violation of the underlying law and applies its own (4-year) statute of limitations. So the UCL's statute of limitations would apply regardless of the statute of limitations for the underlying law. On the other hand, the UCL has lesser remedies than some of the underlying laws it borrows. I'm not sure that is what Justice Boren was asking.

Conclusions

As stated above, except perhaps Justice Werdegar, the justices who spoke seemed uniformly skeptical of Oracle's position that employees who visit California to work are governed only by the state law from the state where they principally worked. It appeared that Justice Baxter was not accepting the notion that this was not a residence issue, but an issue of where the primary employment relationship was. If forced to bet, I'd predict 6-1 or 7-0 for Sullivan on that issue.

The only questions asked about the nationwide UCL/FLSA claim seemed to question the notion of applying California law to employees who worked totally outside California. Justice Boren's questions suggested that he may be concerned about this issue. Justice Werdegar expressed at least some skepticism of the notion of applying California law to employees working out of state who experienced a violation of federal law. Five of the seven justices made no comment whatsoever on the issue though, so there is a lot more ambiguity.  If forced to bet, I'd bet they follow the Ninth Circuit's original ruling and state that the UCL cannot apply to create a nationwide UCL/FLSA class under the facts of the case.

Oral argument preview: Dukes v. Wal-Mart

This morning at 10:00 a.m. Eastern, the U.S. Supreme Court will hear oral argument in Wal-Mart Stores, Inc. v. Dukes, no. 10-277.

Transcripts of U.S. Supreme Court arguments are generally available within hours after the argument takes place.  When it is posted online, the Dukes transcript should be available at this link. 

Wal-Mart's reply brief was filed just twelve days ago, on March 17.  Links to the other briefs are available at this blog post. 

UCL case set for argument in April: Sullivan v. Oracle Corp.

The Supreme Court has released its oral argument calendar for April.  The following UCL case will be heard on Wednesday, April 6, 2011 at 10:00 a.m. in Los Angeles: 

Sullivan v. Oracle Corp., no. S170577 (questions accepted 04/22/09)

• Issues: (1) First, does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week? (2) Second, does § 17200 apply to the overtime work described in question one? (3) Third, does § 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the FLSA?
• Ninth Circuit Opinion:  Sullivan v. Oracle Corp., 547 F.3d 1177 (9th Cir. 2008) (withdrawn) (see this blog post)

Presiding Justice Roger W. Boren of the Second Appellate District, Division Two, has been assigned to sit pro tem in place of Justice Moreno, who is now retired. 

I probably will not make it down to L.A. for this argument, so I'm seeking a volunteer to attend for me and provide a report.  Please drop me a line at uclpractitioner@gmail.com if you can do this.  Your report can be with or without attribution, your choice.  Thanks! 

Argument transcript available in class action case: Smith v. Bayer Corp.

The transcript of this morning's oral argument in Smith v. Bayer Corp., no. 09-1205 (U.S.), discussed in my post immediately below, is now available at this link. 

Yesterday's Supreme Court arguments: Pineda v. Williams-Sonoma and Bruns v. E-Commerce

I attended yesterday morning's arguments, which were the first over which new Chief Justice Tani Cantil-Sakauye presided.  Associate Justice Kennard, the most senior of the associate justices, delivered a very nice welcoming address, which she said will be reported in the official reports.  She talked about the history of discrimination experienced in this country by immigrants of Filipino and other Asian descent, and said that Chief Justice Cantil-Sakauye represents the embodiment of the American dream.

The Clerk, Mr. Ohlrich, told us before the justices took the bench that they had received an email Tuesday from former Chief Justice Ronald George, who is currently vacationing in the antarctic, heading soon to Chile.  (Will this impact the timing of the eagerly-anticipated opinion in the Kwikset case, or the other cases in which Chief Justice George heard arguments last year?  I don't know.  If anyone deserves a vacation, he does!)

My purpose in attending the arguments today was not to provide the kinds of reports that I normally do.  But I will briefly share some of my thoughts on the first two cases on the calendar.

The first case argued was Pineda v. Williams-Sonoma Stores, Inc., no. S178241, which raises this issue:

Does a retailer violate the Song-Beverly Credit Card Act of 1971 (Civ. Code, § 1747 et seq.), which prohibits retailers from recording a customer’s “personal identification information” when the customer uses a credit card in a transaction, by recording a customer’s zip code for the purpose of later using it and the customer’s name to obtain the customer’s address through a reverse search database?

The trial court and the Court of Appeal both answered "no."  In the Supreme Court, the questioning largely focused on whether part of a person's address (namely, the zip code) was "personal identification information," which "means information concerning the cardholder, other than information set forth on the credit card, and including, but not limited to, the cardholder's address and telephone number."  Civ. Code § 1747.08(b) (emphasis added). 

Based on the questions, I think most of the justices are leaning in favor of the plaintiff on this issue.   These days, a person's name plus their zip code is enough information to find out their address, which is precisely what the Legislature meant to prevent retailers from obtaining from credit card customers.  The justices' questions revealed keen interest not only in the plain text but also the legislative history.  Justices Kennard and Werdegar both quoted from legislative history reports during the argument. 

The only defense point that seemed to make any headway was offered by counsel for the Gap, participating as amicus curiae.  She explained that the Gap collects zip codes from customers but does not use them to obtain addresses.  Instead, the Gap uses them for market analysis and making decisions such as where to open new stores.  She said that in the twenty years since the statute was enacted, no enforcement actions were ever brought on the theory that collecting zip codes was unlawful, and no judicial decision had ever so held.  She argued it would be unfair (perhaps rising to the level of a due process violation) to impose civil penalties on retailers under such circumstances. 

(This reminded me of the Supreme Court's decision some years ago in Kearney v. Salomon Smith Barney, Inc. , 39 Cal.4th 95 (2006).  There, the Court held that California law prohibited recording telephone calls without both parties' consent (and that California law trumped Georgia law, which permitted recording with just one party's consent).  The Court further held, however, that this ruling would apply only to future conduct.) 

That argument was well presented and the justices were definitely listening to it.  On balance, however, I think the questioning suggests that the plaintiff has a very good chance of prevailing in this case.

The second case argued was Bruns v. E-Commerce Exchange, Inc., no. S172684, which presents this issue:

Does a stay of discovery constitute a stay of the action within the meaning of Code of Civil Procedure section 583.340, subdivision (c), such that the period during which discovery was stayed should be excluded in determining the time within which the action had to be brought to trial?

I did not focus on this case when the Court of Appeal decided it in March 2009, but it could be highly relevant in class action litigation.  The action itself was a putative class action, one of several coordinated actions pending in Los Angeles County Superior Court.  The Court of Appeal opinion details a series of stays, some of discovery, some of law and motion, some of all proceedings, beginning almost immediately after the case was filed.  Bruns v. E-Commerce Exchange, Inc., 72 Cal.App.4th 488 (2009).

Discovery stays are not unusual in complex litigation, so the Supreme Court's decision could impact how the five-year rule is calculated in many class action cases.  Based on the questioning (which was somewhat quieter than in Pineda), I think many of the justices were open to the argument that periods during which a case is partially stayed, and discovery cannot be conducted, should not be counted as part of the five years. 

Oral argument preview: AT&T Mobility LLC v. Concepcion

Today at 10:00 a.m. Eastern, the U.S. Supreme Court will hear oral argument in AT&T Mobility LLC v. Concepcion, no. 09-893.   AT&T's reply brief (which consists mainly of a frontal attack against the validity of Discover Bank) was only just filed eleven days ago, on October 29, 2010. 

Transcripts of U.S. Supreme Court arguments are generally available within hours after the argument takes place.  When it is posted online, the argument transcript in Concepcion should be available at this link.  (Also, here's the link to the main argument transcripts page.)

Sunday's San Francisco Chronicle had an opinion piece called "Supreme Court case could end class action suits," and on November 5 the Los Angeles Times reported that "Consumers' right to file class actions is in danger."  The American Bar Association's preview of the case summarizes the proceedings and holdings below and the arguments made in the briefs.   [Links via SCOTUSblog.]

Oral argument report: Kwikset Corp. v. Superior Court (Benson)

The Supreme Court heard oral argument on November 3, 2010 in Kwikset Corp. v. Superior Court (Benson), no. S171845.  Jonathan W. Cuneo of Cuneo Gilbert & DaLuca, LLP in Washington, D.C. argued for the plaintiffs.  Fredrick A. Rafeedie of Jones, Bell, Abbott, Fleming & Fitzgerald LLP in Los Angeles argued for the defendant. 

Mr. Cuneo began: This Court must reverse the Court of Appeal to confirm the power of Californians who every day vote with their wallets by choosing products in whole or in part based on how the products were made.  Consumers care about process as well as the final result.

Justice Werdegar:  Our concern is that after Proposition 64 it’s required that the consumer has lost money or property.  If the consumer buys a product, and it works as it’s supposed to work, and it’s not defective, even if the consumer preferred a made in the USA product how would they have lost money? 

Cuneo: People buy things for lots of reasons.  Sometimes to support a social cause.

Justice Corrigan:  I agree, but it seems a more tenuous argument when you’re talking about locksets.  Cuneo:  It applies across the board.  There are many people who want to purchase products made in the US. 

Justice Corrigan:  What if there are two locksets, side by side, they both cost $50.  They are the same except one is labeled made in the USA.  How have I lost money or property?

Cuneo:  Because you made a purchase decision based on a misrepresentation.  You have lost $50.  Justice Moreno:  Is that the measure of restitution?  Cuneo:  No.  Justice Moreno:  How would you measure it?  Cuneo: Restitution under the UCL is flexible.  In this case we never sought rescission.  Justice Moreno:  You’re not seeking the full amount of out-of-pocket loss?  Cuneo:  Absolutely not.  One of the beauties of the UCL is that it allows the judge to fashion an appropriate remedy. That is what happened here.  [And he described the three forms of injunctive relief ordered by the trial court, described at 171 Cal.App.4th at 649.]  This discretion is a significant limitation on the UCL’s reach.  Restitution is necessarily a flexible remedy.  Sometimes the defendant receives a benefit in circumstances in which the plaintiff is not harmed – did not pay extra.  In that case, the court has the ability to fashion injunctive relief and grant limited restitution as in this case.

Justice Kennard: What Prop. 64 says is [and she quoted it].  As I listen to your argument in response to questions from the bench, you said your client lost money when your client paid for a particular lock.  Cuneo:  Yes. Justice Kennard: But so long as your client received a lock that’s working, where’s the harm?  Cuneo:  The harm is he did not get the benefit of the bargain—which is a lockset made in America. 

Justice Kennard: So your argument is that this was fraud?  Justice Chin (interjecting):  But the locksets weren’t inferior?  Cuneo: No.  Justice Chin: They were not overpriced?  Cuneo: We are prepared to amend our complaint to allege a price differential. 

Justice Kennard:  I’m trying to find an argument that is implicit in the rest of your argument.  Is the implicit argument this:  Is it your view that that would allow defendants to make misrepresentations with impunity?  Cuneo:  Yes. 

Justice Baxter:  How much was paid for the locksets?  Let’s say $50, and the consumer relies on the representation made in the US and then discovers later that parts were not—a misrepresentation.  And let’s assume that it’s clear that you could put it on eBay and it would sell for at least what the consumer paid.  Is it your position that that’s irrelevant to your suit?  Cuneo:  I think the answer’s no.  That’s almost a man bites dog story.  Justice Baxter: Let’s say a watch represented to be a Rolex and it’s not.  Cuneo: In that case you’d be very badly damaged.  There is a category of products where you can’t tell by looking at something whether it’s been misrepresented.  Justice Baxter:  Knockoffs.  But let’s say it’s worth more or equal in value to what you paid.  Is that relevant?

Cuneo:  In the ordinary case the answer is no.  There are extreme examples, where you might have lost money or property but were not injured in fact.  If you bought a piece of costume jewelry and found out later it’s the Hope diamond.  You have lost money or property but were not injured in fact.

Justice Chin:  So injury in fact is something different from lost money or property?  Cuneo:  Yes.  In this case, both are met.  Justice Corrigan: And that’s where the issue is joined.  I don’t disagree that they suffered injury in fact.   But if those two are different, where’s the lost money or property?  Cuneo:  No, by putting down your credit card or cash, you’ve lost money. 

Justice Moreno: Is any part of our claim for ill-gotten gains vis-à-vis the defendant’s gaining a competitive advantage?  Cuneo:  Yes.  What the defendant was able to save by shifting jobs to Mexico.  The thing about this case is there’s a statute that makes it a per se offense.  People cared enough about products made in the US that the legislature enacted a statute.  Suppose your religion requires you to eat only kosher foods.  You buy a hot dog mislabeled as kosher.  You’ve lost money or property.  If one examines the language of Prop. 64, its background and what the voters were told, it supports our position.

Justice Corrigan:  With misrepresentation off the table, it’s your position that when I bought a lock, I lost money or property?  Cuneo:  In the context of Prop. 64, what lost money means is you had a business transaction with the defendant.  In your hypothetical, there would be no violation because it doesn’t meet the “as a result of” requirement.

Justice Corrigan:  In my opinion it doesn’t meet “lost money or property” either.   Cuneo:  Pre-Prop. 64 we had unusually broad standing.  Prop. 64 meant to ensure that the plaintiff had a business dealing with the defendant.  The standing requirements don’t say anything about having to prove damages.  Lots of impractical things would result from defendant’s position.  One is valuation and damages would have to be decided at the outset.  Every UCL case would turn into a trial on market pricing.  There’s nothing in the legislative history that said the consumer would be stripped of the right to sue unless they prove a defect or a price differential.  [Then he turned to an example from the ballot materials involving bottled water that had not been properly tested, but was not necessarily bad water.]  There was no indication that the water was dangerous or overpriced.  But the proponents assured the voters that that case would survive.

Justice Corrigan: Well that case could survive if someone lost money or property because of the failure to test.  Cuneo:  But there was nothing about any additional proof.  Justice Corrigan:  No—the requirements are set out in the threefold test.  Cuneo:  In your hypothetical it doesn’t pass the “as a result of” test. 

Justice Baxter:  What if we didn’t have the UCL and the plaintiff sued for restitution under the common law.  What would the result be?  Cuneo:  It’s hard to answer because we’ve had the UCL for so long.  We should not throw out the baby with the bathwater.  [At this point in the argument I felt that the question of standing was being conflated with the question of restitution and how it might be measured.]  Justice Baxter: My question is whether rescission and restitution, in their common-law form, can be obtained if there’s a material misrepresentation that’s relied on.  Cuneo:  Under those circumstances you’re positing a situation in which the streamlined remedies of the UCL, which don’t require the same showing as fraud, would be gone and that would be a significant loss to the people of California. 

That was the end of Mr. Cuneo’s opening argument.  Before Mr. Rafeedie could say anything, Justice Baxter interjected:

Justice Baxter: In that hypothetical we were just discussing, why wouldn’t a consumer who discovered the misrepresentation about made in the USA, why couldn’t that person go into court and get rescission and restitution?  Rafeedie:  I’m not sure they couldn’t do that.  That’s not a cause of action alleged in this case.  Justice Baxter:  Would it be conditioned on proof that that they paid more for the product than it was worth?  Rafeedie:  No.  It would be conditioned on returning the product.

Chief Justice George:  That’s a pretty heavy burden.  Rafeedie:  I’m not sure you would have to go to court to do that.  You could go back to the store and say I found out this product was mislabeled and get your money back.  Chief Justice George:  In some cases a legal action might be required.  Justice Corrigan:  If you had to spend money to go to court then would you have lost money or property?  Rafeedie:  Yes, if you had to spend money to go to court. 

Justice Werdegar:  The purpose of the UCL is to protect consumers and competitors by promoting fair competition.  The mislabeling in this case is unfair competition.  Consumers are motivated to buy products made in the USA.  Prop. 64 requires economic damage.  If someone buys a lockset because it was labeled made in the USA, why have they not suffered economic injury if the implication is they would not have parted with their money for that lockset?  Rafeedie: That would satisfy injury in fact but not money or property.  Justice Werdegar:  The money is gone and the consumer would not have purchased the product.  Rafeedie:  One does not necessarily lose money or property under those circumstances.  Here, plaintiffs purchased locksets and they have had no problems with them.

Justice Kennard:  What is your response to the argument that manufacturers could engage in deceit with impunity so long as the product does what it’s supposed to do?  Rafeedie:  To the extent it does involve monetary loss, consumers can bring UCL actions.  If it does not, public prosecutors can bring the action.  Justice Kennard: But here we’re dealing with Prop. 64 standing.  Is your argument that under the language of Prop. 64, the consumer has not alleged injury in fact?  Rafeedie:  No.  The Court of Appeal found injury in fact satisfied and we have not argued against that.  We argue no lost money resulted from the misrepresentation.

Justice Werdegar:  But if I allege I would not have bought this property except for the misrepresentation, why have I not suffered economic loss?  Rafeedie:  You were in the market for a lock and you got one.  Justice Werdegar:  I don’t think the UCL requires a defect. We’re looking at defective products.  Rafeedie:  The Court of Appeal’s use of the term defective, if the misrepresentations induced you to buy something. 

Justice Werdegar:  You might have paid more for the label.  If kosher is important to me, even though the hot dog is delicious and has full nutritional value, have I not suffered injury because I would not have suffered the economic loss but for the label?  Rafeedie:  Not necessarily.  It depends on the circumstances.  Maybe the label allowed the manufacturer to command a premium price. 

Justice Moreno:  Is the plaintiff allowed a claim for ill-gotten gains due to the competitive advantage gained over other competitors?  Does the consumer have a UCL claim for that profit?  Rafeedie:  No, the consumer does not.  Justice Chin:  But a competitor might?  Rafeedie: Yes, a competitor might, but not a consumer. 

Chief Justice George:  Is your answer the same if the claim is a product was labeled organically grown?  Is it inconsequential that it was falsely labeled? Rafeedie: Yes.  Justice Chin:  Unless a premium was paid.  Rafeedie: Yes.

Justice Corrigan:  If you lost money or property returning the item; because you had to consult with a spiritual adviser because you ate non-kosher food; if you got sick.  There are lots of ways a consumer could lose money or property.  Rafeedie:  I agree.  Not necessarily limited to paying a premium.  That’s one type.  There might be consequential damages, conceivably lost profits.  These are the sorts of things fraud law allows recovery for. 

Chief Justice George:  There is a recent case that this Court decided called Bronco Wine.  In that case wine was labeled as from Napa Valley when it should have been labeled Lodi.  Assume the wine was just as good.  How would you recover restitution?  Rafeedie:  If that’s the only allegation it depends on the circumstances whether a loss was suffered.  If I wasn’t in the marketplace and wouldn’t have bought anything but for the misrepresentation.

Justice Werdegar: Whose burden is it to show that the plaintiff was really going to buy wine or a hot dog?  That they would not have bought something exactly comparable?  Rafeedie:  The plaintiff’s.  Justice Werdegar:  But the plaintiff has already alleged he would not have bought the product.  Does he have to show he never would have bought anything comparable?  Rafeedie:  Yes.  That’s what the plaintiff has to prove. Here we have no allegations that the plaintiff would have paid less for a comparable lockset.  Justice Werdegar: But they do allege they would not have given money for those locksets.  Rafeedie: That is part of the greater allegation that if we had known, we would not have bought. 

Justice Moreno: How is this case different from the Napa wine case? Would it be easy to measure restitution?  Rafeedie: Because there are no allegations of any differential in price.  Justice Moreno: Would you agree that in the Napa/Lodi example there is a difference?  Rafeedie: If there’s a differential in price that would be the difference.  Justice Moreno:  You’re saying here because the locksets are equal in quality there is no loss.  Rafeedie:  Yes, no allegation the locks are any different than they would have been if they had been made in the US.

Justice Baxter: But we’re not talking about damages under the UCL; were talking about restitution and injunctive relief.  If the purchaser can mitigate damages by selling on eBay, does that have any impact on the ability to proceed under the UCL?  Rafeedie:  Yes. 

Justice Corrigan: If the plaintiff alleged that he had lost money because he had to pay a fee to sell the product on eBay, pay shipping costs, then that would be sufficient?  Rafeedie:  Consequential damages could be.  Justice Corrigan:  If they could prove they suffered those damages then the expenditure of those moneys could constitute lost money or property?  Rafeedie:  Yes it could.  It’s not recoverable as restitution, however. 

That was the end of Mr. Rafeedie’s argument.  The rebuttal:

Cuneo:  In response to Justice Baxter’s questions about eBay, and I think Justice Chin had the same question.  If you can resell it for more on eBay, that is the same circumstance this Court just considered in Clayworth.  The pharmacists passed on the overcharge.  The holding of that case was they lost money or property when they paid for the price-fixed pharmaceuticals.  Clayworth was also—  Justice Chin (interrupting): This is not a question of passing on the value by selling on eBay.  If you get the value of the property, where’s the loss? 

Cuneo:  The second you pay for it you’ve got the loss under Clayworth.  The primary purpose of the UCL is injunctive relief, to enable people to stop misrepresentations in their tracks.  On the less than meritorious cases, let’s bear in mind that the UCL gives courts tremendous discretionary power to limit the remedies. The court can find a violation and the judge can say it’s not substantial enough for any relief.  Or the court can issue an injunction only, but nothing to the consumers.  The courts have the tools to address the concerns raised in the Tobacco II dissent by Justice Baxter.  What adoption of the Court of Appeal opinion would do is impose vast new burdens at the front end of UCL actions.  On the public prosecutor point, public prosecutors have their hands full.  That’s why the DAs filed an amicus brief on our side.

Justice Werdegar:  What remedies did the trial court order in this case.  Cuneo: [he described the three forms of injunctive relief].  Justice Werdegar: It denied restitution to consumers, correct?  Cuneo:  It did.  Justice Werdegar: It engaged in the discretionary, nuanced remedies you referenced, didn’t it?  Cuneo:  It did. 

And that was the end of the argument.  

It's not hard to guess where Justice Corrigan will come down on this question, but I don't think any of the other justices feel as strongly as she does.  Justices Werdegar and Kennard and even the Chief Justice appear to favor the plaintiff's position.  The one thing that I think can be safely predicted is a split decision.

The opinion will be due in 90 days.

Oral argument report coming on Kwikset v. Superior Court (Benson)

First of all it was a complete and total madhouse at the Civic Center this morning.  My husband drove me through an obstacle course including part of the parade route on McAllister just to get to the courthouse (mind you, this was 8:15 a.m.), and then afterwards (at about 10:15) to get to the BART station I had to walk all the way around City Hall, up Van Ness, past the Bill Graham auditorium.  Yeah, it was exciting.

This is a much better picture than the one I got on my phone.  If you're not familiar with the area, that's the state building to the left where the Supreme Court is:

[photo from sfgate.com]

The sidewalk in front of the building was packed.  As for the argument, it was not very heavily attended (hard to imagine why), but it was very interesting. I'll be typing up my report and posting it here later.  For now I'll just say it's going to be a split decision. 

Oral argument preview: Kwikset Corp. v. Superior Court (Benson)

This morning at 9:00 a.m., the Supreme Court will hear oral argument in in Kwikset Corp. v. Superior Court (Benson), no. S171845, in which the issue on revivew is as follows:

Does a plaintiff's allegation that he purchased a product in reliance on the product label's misrepresentation about a characteristic of the product satisfy the requirement for standing under the Unfair Competition Law (Bus. & Prof. Code, section 17200 et seq.) that the plaintiff allege a loss of money or property, or is such a plaintiff unable to allege the required loss of money or property because he obtained the benefit of his bargain by receiving the product in exchange for the payment?

The Court of Appeal opinion, which found no standing under those facts, is here: Kwikset Corp. v. Superior Court (Benson), 171 Cal.App.4th 645 (2009) (rev. granted 06/10/09). 

I'm planning to attend the argument and will endeavor to provide a report later in the week.

Supreme Court briefs in Kwikset Corp. v. Superior Court (Benson)

The Supreme Court has posted online copies of the briefs in Kwikset Corp. v. Superior Court (Benson), no. S171845, which is scheduled for oral argument in San Francisco on Wednesday, November 3, 2010 at 9:00 a.m.:

S171845 - KWIKSET CORPORATION v. S.C. (BENSON)

• Real Parties' in Interest Petition for Review
• Petitioners' Answer to Petition for Review
• Real Parties' in Interest Reply to Answer to Petition for Review
• Real Parties' in Interest Opening Brief on the Merits
• Petitioners' Answer Brief on the Merits
• Real Parties' in Interest Reply Brief on the Merits
• Real Parties' in Interest Supplemental Brief

This case will address important questions relating to the proper interpretation of the UCL's post-Prop. 64 standing requirement.  Chief Justice George is not recused in this case, which is one factor that distinguishes it from Tobacco II.

After the case is argued on November 3, the opinion will be due in 90 days.  That works out to February 1, 2011.  However, Chief Justice George's term ends on January 2, 2011.  Will the Court expedite decision in the cases on the November calendar?  How will it handle the December calendar (scheduled for the week of December 6, 2010)?  I don't have an answer to either of these questions. 

UPDATE:  In response to my questions, the folks from At the Lectern undertook a review of opinions issued after the retirements of other Supreme Court justices. They found that many of the retired justices continued to sign opinions for several months after they departed from the Court.  At the Lectern predicts that the Acting Chair of the Judicial Council will assign Chief Justice George as a pro tem justice in all of the cases that he hears through the December calendar.  This is a logical prediction and is one solution that had crossed my mind.

Supreme Court sets UCL restitution case for oral argument: Pineda v. Bank of America

Yesterday, the Supreme Court posted its oral argument calendar for October.  One case of interest, Pineda v. Bank of America, no. S170758, has been set for argument, on Tuesday, October 5, 2010 at 1:30 p.m.  The Court is holding a special oral argument session that week at the Fifth District Court of Appeal in Fresno.

These are the issues on review in Pineda:  

(1) When a worker files an action to recover penalties for late payment of final wages under Labor Code section 203, but does not concurrently seek to recover any other unpaid wages, is the statute of limitations the one-year statute for penalties under Code of Civil Procedure section 340, subdivision (a), or the three-year statute for unpaid wages under Labor Code section 202? (2) Can penalties under Labor Code section 203 be recovered as restitution in an Unfair Competition Law action (Bus. & Prof. Code, § 17203)?

(Emphasis added.)  My original post on the Court of Appeal opinion in Pineda is at this link.

Three cases of interest set for oral argument in late May and June

The Supreme Court has set three cases of interest for argument on its late May and June calendars.

Tuesday, May 25, 2010, 9:00 a.m. (San Francisco): Lu v. Hawaiian Gardens Casino, Inc., no. S171442. This case addresses whether Labor Code section 351, which prohibits employers from taking "any gratuity or part thereof that is paid, given to, or left for an employee by a patron," creates a private right of action for employees.

Wednesday, May 26, 2010, 9:00 a.m. (San Francisco):  Reid v. Google, Inc., no. S158965.  This is the case involving summary judgment motion standards.

Wednesday, June 2, 2010, 9:00 a.m. (Los Angeles): Clark v. Superior Court (Western Life Ins. Co.), no. S147229.  This case addresses whether statutory penalties for elder abuse are recoverable as restitution under the UCL.  It was set for argument amazingly fast.   

I am not planning to attend any of these arguments. If you would like to do so and provide a report for posting here, please let me know by email (uclpractitioner@gmail.com).

Oral argument report: County of Santa Clara v. Superior Court (Atlantic Richfield Co.)

On Wednesday, May 5, 2010, the Supreme Court heard oral argument in County of Santa Clara v. Superior Court (Atlantic Richfield Co.), no. S163681. 

Justices Baxter and Corrigan were both recused.  Justice Maria P. Rivera of the First Appellate District, Division Four, and Justice James A. Richman of the First Appellate District, Division Two, sat in their stead.

Philip Curtis of Arnold & Porter (representing Atlantic Richfield Co.) and Elwood Lui of Jones Day (representing Sherwin-Williams Co.) divided the defense argument time.  San Francisco Deputy City Attorney Owen Clements presented the public entities' position.  [Note:  Messrs. Curtis and Clements also argued this case in the Sixth District in 2008.  See this blog post for my report on that argument.] 

Mr. Curtis argued first.  The Court, he began, should reverse the Court of Appeal's judgment and reinstate the trial court's order disapproving the public entities' contingency-fee agreement with outside counsel.  He briefly summarized the basic background facts of these public nuisance actions, emphasizing that the actions sought a form of relief -- an order of abatement -- available only to government plaintiffs.  He then gave three reasons why the public entities should not be permitted to retain outside contingency-fee counsel to handle the case: (1) the need for prosecutorial neutrality, even-handedness, and balance; (2) the destructive effect of a contingency-fee arrangement on that neutrality; and (3) the incurability of the problem and the inefficacy of contract provisions purporting to limit the outside lawyers' control.

Chief Justice George then interrupted:  I assume you'll address the extent to which the government lawyers' control over the litigation is relevant and the extent to which the Clancy case applies.  [People ex rel. Clancy v. Superior Court, 39 Cal.3d 740 (1985).]  Mr. Curtis said he would address that now.  The payment of contingency fees would destroy neutrality.  Can some form of control by government lawyers restore neutrality? The answer is no for three reasons. First, control is not realistic.  As the lower court said, the lawyer is not a potted plant.  There are any number of acts that can affect the outcome of a case.  This Court has repeatedly pointed out that the need for neutrality goes to so many decisions such as which witnesses to call, trial strategy, and more.

Chief Justice George:  Aren't those akin to the tasks performed by a deputy city attorney?  Curtis:  It would be improper for a deputy city attorney to receive a contingency fee.  Chief Justice George:  But we're talking now about the ability to form independent judgments and the extent to which you have to be subject to control.  The same decisions would be subject to the control of one's supervisor in a public office.  Curtis:  They would be subject to the supervision or control of the superior or the client.  All attorneys are subject to the control of the client.  It doesn't eliminate the lawyer exercising influence over the outcome.  In part one of the Eubanks case, it said having an interest runs afoul of neutrality.  [People v. Eubanks, 14 Cal.4th 580 (1996).] 

Chief Justice George:  But Eubanks was a criminal case.  Are you equating these civil cases with that?  Curtis:  I am doing so and this court did in Clancy.  Public nuisance cases should require neutrality in the same way as criminal cases.

Justice Moreno:  Isn't the control here quite distinct from the lack of control in Clancy?  Curtis: It was not.  The facts are very much like the facts here.  We asked the Court to take judicial notice of the contract in that case.  

Justice Moreno:  You're saying it's virtually impossible to get sufficient control.  Curtis:  Yes, it's unrealistic and therefore impossible.  This is so for two other reasons.  Circumstances can arise during the course of the prosecution. It's inherent in the contingency-fee agreement.  It provides an opportunity to profit from a successful prosecution.

Chief Justice George:  But your position is that not all civil prosecutions are subject to the Clancy rule.  Curtis:  Not all are subject to the neutrality requirement, that's correct.

Chief Justice George:  I'm having trouble equating a criminal proceeding, where someone's freedom is at stake, with the proceeding here against a manufacturer of lead paint.  Curtis:  There are two sources for a neutrality requirement in civil matters.  First, Clancy talks about the prosecutor's need for weighing competing interests.  In a public nuisance case, the question is whether the conduct is a reasonable invasion of the public interest.  Second, in the first section of Eubanks, where it says the neutrality rule arises from the fact that the lawyer is representing the public as a whole.  That is especially so here.  Those are the origins of the application of the neutrality rule in a civil case.

Justice Richman:  The balance in a public nuisance case is between the public and the property owners who would be affected by the abatement order.  Are the defendants property owners?  Curtis:  That was true in Clancy.  The defendants aren't property owners but the question will be whether many members of the public who own property will be affected.  Justice Richman:  And your client has the right to assert those interests?  Curtis:  We have the right to assert a neutrality requirement.

Justice Chin:  You have asked for discovery on the question of control and you ran into the attorney-client privilege.  What problems does that raise?  Curtis:  This leads to my third point.  It's not possible to cure lack of neutrality through control.  It would have to get into the most sensitive strategy matters.  When we tried to get to this we were stopped. 

Chief Justice George:  The language of the declaration of the public officer says we have complete control of the litigation.  Isn't that pretty comprehensive or are you saying unless you're a fly on the wall you would not have the assurance you need?  Curtis:  We would not and the public and the court would not.  This is not about the integrity of the public officials.  This is about letting an outside actor in. 

Mr. Curtis then yielded the floor to Mr. Lui. 

First, Mr. Lui referenced Chief Justice George's initial question, and distinguished the control of a district attorney over his deputy.  That relationship is unaffected by any contingency-fee arrangement, he said.  One failing of the Sixth District's opinion was they accepted blindly that these statements in the contract and declarations mean what they say and that there can be this type of supervision.  What Clancy stands for -- and we think it's good law -- is ensuring the integrity of the judicial process.  So whether you strip aside the attorney-client privilege you still have a contingency.  There is an absolute bar to the court's reviewing the conversations about strategy and control.  The harm that can result is not worth the risk. 

He went on.  Clancy lays down a bright line, a prophylactic rule.  The government lawyer said you must trust us, have the trial court judge supervise.  But the trial court judge can't ask the questions that would be necessary.  Then he discussed a number of cases including Vasquez.  [People v. Vasquez, 39 Cal.4th 47 (2006).]

Justice Moreno:  But aren't those criminal cases?  Lui: Because the case involves the state's soveriegn powers it's the same as the criminal cases.  He then quoted language from Eubanks and other cases, and also mentioned the Rhode Island Supreme Court case.  [Rhode Island v. Lead Industries Ass'n, 951 A.2d 428 (R.I. 2008).]  Justice Moreno:  But these are all criminal cases.  You're saying that in this civil case we should import those principles.  Lui:  Yes. 

Chief Justice George:  The Rhode Island case seems in every respect the same as this one.  The Rhode Island case involved the control exception and said Clancy was not a bright-line rule, didn't it?  Lui:  Yes and that takes us back to the origins of Clancy.  This court is the best court to decide what Clancy means.

Justice Moreno:  It's evidence that public counsel does not have enough resources because they are asking private lawyers to come in.  Chief Justice George:  If we're comparing resources I have a hard time seeing this as a David and Goliath situation when you have Atlantic Richfield and Sherwin-Williams on one side and a cash-strapped government agency on the other.  It's not like you're facing a huge government power.  Lui: But the government agencies choose which cases to prioritize. 

Justice Rivera:  In Clancy, the issues of concern to the court were the delicate balance of harms.  The interest of the public vs. the landowner.  In this case where would that misalignment occur? Where could there be a misalignment between the plaintiffs' lawyers' interests and the public?  What outcome could create that? 

Lui:  Knowing what's happened in other states, these cases have not been successful.  Contingency lawyers are not going to want to dismiss because they want to protect their investment.  For six years the contingency lawyers have been litigating this case.  Justice Rivera:  What are the realistic potential outcomes?  Lui:  An abatement order directed to the defendants for injunctive relief, not monetary.  There could be a difference of opinion with the public prosecutors.

Chief Justice George:  Should we not presume such an agreement is valid and consider that these are attorneys, they are officers of the court, with ethical duties?  You seem to assume they're not telling the truth.  Lui:  The risk of harm is too high even if they are telling the truth.  And in Clancy you didn't accept the same types of clauses re control.  They should not be accepted now because of the risk. 

[Note:  I have to say that's a very good answer to that difficult question and a strong note on which to end his argument.]

Mr. Clements then argued for the public entities.  Defendants, he said, are arguing for an absolute rule where all public agencies would be precluded from hiring outside lawyers.  This would negatively impact our ability to bring such cases. 

Justice Chin: Don't you have to rely heavily on private counsel's judgment and recommendations?  And aren't you going to private counsel because of their expertise in those areas?  Clements:  That's one of the reasons.  Also, the amount of work was not sustainable by a public office.  Also these particular counsel had past experience and knowledge of these issues.  So yes we do.  Just as we would with hourly lawyers.  But that's not financially viable. 

Chief Justice George:  You yourself are a deputy and your boss directs how you handle this prosecution.  Clements:  Absolutely.  The public lawyers have appeared, taken a very active role, and they have veto power. 

Justice Werdegar: Contingency fee means monetarily something has to be awarded, doesn't it?  Clements:  Typically, yes.  Justice Werdegar:  So, so far there's no basis for fees?  Clements:  Yes.  Justice Werdegar:  You are now seeking an order of abatement.  Clements:  Yes.  Justice Werdegar:  What are the other remedies?  Clements:  That's not clear yet.  Justice Werdegar:  Would the attorneys be influenced in deciding what relief to argue for?  Clements:  Yes, and that's where we would exercise control. 

Justice Werdegar:  If the outside lawyers invested money, would not the city be influenced by loyalty to them?  Clements:  No, we understand our responsibility.  Werdegar:  But wouldn't it impact the remedies you decide to seek?  Clements: There could be many available remedies and the government attorneys would decide.  Werdegar:  Wouldn't you be influenced and like to see those attorneys compensated?  Clements:  Yes, there are always incentives even with hourly lawyers and we would monitor those as well.  In Clancy, a private attorney appeared instead of the public one.  That's improper under any fee arrangement.  It's an excessive delegation of public authority.

Justice Werdegar:  Your opponent argues for a bright-line rule.  What rule would you advance?  Clements:  One bright-line rule is the one in the Rhode Island case.  Contingency-fee contracts are allowed in civil cases and not criminal cases.  We've advocated a case-by-case analysis.  The court should look at the fee contract.  And it's not true that we gave no discovery.  We produced the agreements and the correspondence surrounding their formation. 

Justice Chin:  But discovery regarding strategy was withheld.  Clements:  In part.  Justice Chin:  So how do we monitor control?  Clements:  First, look at the contingency agreement and make sure there's no improper delegation.  Next, look at the declarations from the private and public attorneys on foundational facts regarding who exercises control.  For example, as in the Anaheim case involving Priceline.  [Priceline.com v. City of Anaheim, 180 Cal.App.4th 1130 (2010).]  [See this blog post for a discussion of that case.] 

Justice Rivera:  Are those the only things?  Clements:  You'd require the public attorney to appear in the case as counsel of record.  If defendants come forward with evidence of improper delegation then you go into case-by-case analysis.  Justice Rivera:  Under Clancy there's no element other than control?  Clements:  The contract and control.  Justice Rivera:  Anything else?  Clements:  Actual likelihood of a miscarriage of justice.  Overlap with criminal case ramifications.

Justice Rivera:  Regarding remedies, wouldn't use of the common fund or substantial benefit doctrine be an end-run around the cases saying that public entities aren't entitled to fees in a public nuisance case.  Clements:  No.  That's cost spreading vs. cost shifting.  Justice Rivera:  Where do you get a fund?  Clements:  There could be a fund created when property owners apply for a share of money to make repairs.  Justice Rivera:  Can you cite a case where such a fund was created?  Clements:  Not off the top of my head.

Justice Chin:  Why should this case be treated differently from Clancy?  Clements:  The main reason is the public attorneys appear as counsel of record.  Justice Chin:  How do we ensure that the public attorneys are appropriately monitoring the case?  What do we write in the opinion?  Clements:  You can do what the Court of Appeal did in the Priceline case.  The parties' declarations.  The public attorneys affirm they have maintained control and there's not an excess delegation of authority.  Justice Chin:  How does the other side show excess delegation of authority?  Clements:  From their observations during the course of the case as in any other case of prosecutorial misconduct.

Chief Justice George:  Would it help if there were guidelines as in the Rhode Island case, such as control, veto power by the public attorneys, public attorneys involved in all stages?  Perhaps adding public attorneys must be involved in all decisions to settle or dismiss?  This could be included in the opinion. 

[Note: So here, the Chief Justice simply answered Justice Chin's question himself.]

Clements:  Absolutely.  It would give private attorneys every incentive not to overstep the bounds or risk disqualification.  Justice Chin:  Do you have any other factors?  Clements:  Those are sufficient.  You're relying on the professional judgment and good faith of the public attorneys and the ethics of the outside lawyers not to let their interests trump those of the clients.  This is precisely what courts presume.  Absent a prima facie showing that the public attorneys are not exercising control, then the arrangement should be allowed.  That is how courts handle all cases of prosecutorial misconduct.  This is strictly a civil case and the attorneys have no power to seek warrants etc. 

He went on.  Authorities following Clancy have been unanimous in allowing these arrangements except in one nonpublished superior court order issued by Judge Ikola who later authored the Priceline decision as Justice Ikola. 

Justice Rivera:  But the facts were different.  Clements:  In the twenty years since Clancy you have an absence of authority for the rule defendants advance.  We are talking about a balancing vs. a per se test.  A per se test would assume the conduct in question is necessarily bad.  The Rhode Island case recognized that there are some cases that can only be brought with this arrangement.  A rule prohibiting it is unwarranted.

And Mr. Clements ended his argument there, although his time was not up.

Before Mr. Curtis began his rebuttal, Justice Chin made a request:  Please address whether the protections adopted in the Rhode Island case are adequate.  Curtis:  They are not adequate.  They are window-dressing.  They are explicit but they are not specific.  They don't come to grips with the reality that there are myriad instances in the prosecution of a case where an attorney with an interest can influence the case. 

Justice Werdegar:  In this case where would that come up?  Curtis:  What remedies to seek; what witnesses to call; how to question them.  Justice Werdegar:  How would those decisions be impacted?  Witnesses, I don't see that.  Curtis:  Whether the case should be dismissed.  Whether to proceed with the case at all.  Contingency fee lawyers would have a natural tendency to expand the litigation and interpret the law as broadly as possible.

[Note:  I have to disagree with that.  In deciding what cases to take, the strength of the legal arguments and the likelihood of success on the merits are critical considerations.  No contingency-fee lawyer is going to take a dud case.  It makes no sense to take on the risk.  The goal is to take cases with as little risk as possible, which means the strongest possible cases based on existing law, not the reverse.]  

Chief Justice George:  But if the public entity has veto power; and requiring a senior member of the public office to participate; allowing them to decide to settle without any input from the private attorney: those aren't specific?  Curtis:  They are not adequately specific.  Chief Justice George: Does your argument stand or fall with the analogy to criminal cases?  Curtis:  It does indeed.  We believe Clancy was correctly decided and properly put the facts of that case in the criminal column.

Justice Chin:  If we were to adopt the Rhode Island factors what would you change or add to them?  Curtis:  I don't know how to answer that.  Justice Chin: Answer quickly.  [The courtroom laughed.]  Curtis at this point reiterated that he couldn't say what should be changed or added because he did not think any protections were adequate. 

Justice Moreno asked the final question:  Can you describe the remedy from which attorneys' fees might come?  Curtis:  I cannot; we don't know yet.

And then Mr. Curtis, likewise, concluded before his time was up.

I think Chief Justice George agrees with the Rhode Island analysis and will follow it.  The question is whether his colleagues will go along.  Justice Chin obviously has serious concerns about how to monitor the attorneys.  On the other hand, the Chief Justice ends up in the majority in nearly every case.  They say that appellate judges use the questioning to communicate with each other as much as to gain information from the attorneys.  This argument exemplified that.  We'll find out what happens in 90 days. 

Oral argument preview: County of Santa Clara v. Superior Court (Atlantic Richfield Co.)

This morning at 9:00 a.m., the Supreme Court will hear oral argument in County of Santa Clara v. Superior Court (Atlantic Richfield Co.), no. S163681.  This case addresses whether governmental entities may hire outside counsel on a contingency-fee basis.  I am planning to attend and hope to post a report here tomorrow.

On Monday, I mentioned the announcement that Justice Kennard would miss a number of oral arguments in May and June because she is having surgery.  The docket in this case indicates that by letter dated April 28, 2010, all counsel were asked to stipulate that Justice Kennard may participate by reviewing the video recording of the argument.  All parties advised the Court that they had "no objection to Justice Kennard's participation in the deliberations and decision in this matter notwithstanding her absence from oral argument."

The docket also indicates two pro tem assignments: "Hon. Maria Rivera, CA 1/4 (for Baxter, J.) Hon. James Richman, CA 1/2 (for Corrigan, J.)."

Oral argument report: Clayworth v. Pfizer, Inc.

On Monday, May 3, 2010, the Supreme Court heard oral argument in Clayworth v. Pfizer, Inc., no. S166435.

The seven-Justice court included three pro tem members.  Justice Ignazio J. Ruvolo of the First Appellate District, Division Four, sat in for Justice Kennard.  Justice Ronald B. Robie of the Third Appellate District sat in place of Justice Chin.  And Justice Douglas P. Miller of the Fourth Appellate District, Division Two, took Justice Corrigan's seat. 

Joseph M. Alioto, Jr. of the Alioto Law Firm argued for the plaintiffs, while William J. Fenrich of Davis Polk & Wardwell presented the defense position.  Procedurally, the case was before the court following entry of summary judgment in the defendants' favor on Cartwright Act and UCL claims. 

Mr. Alioto began by restating the question on review -- whether the Court should recognize a "pass-on" defense that would allow defendants to escape all liability for their wrongful conduct.

Justice Werdegar interrupted, wanting to know if that was a fact, that there would be no way the defendant would be accountable.  Mr. Alioto replied that it was a fact, and that it was one of four facts he wanted to impress upon the Court.  First, plaintiffs paid an overcharge.  Second, plaintiffs passed it on as any reasonable business would do.

Justice Moreno then interrupted asking when do you maintain the injury was suffered?  Alioto:  At the moment the purchase was made.  Justice Moreno: Do you agree there was no net loss because it was passed on?  Alioto:  You could say that if later events are taken into account; but defendants have not made a showing that the plaintiffs have suffered no injury; only that the overcharge was passed on.  And there is a difference.

He went on.  Third, defendants are presumed liable for purposes of this appeal.  They are presumed to have fixed prices.  Fourth, no other plaintiff (such as an end-user) has brought suit, which goes to Justice Werdegar's question a moment ago.

The Cartwright Act must be interpreted such that the plaintiff suffers injury at the moment of purchase.  Justice Baxter then interjected:  Are you saying that the pass-on defense does not apply only if the ultimate consumers are not involved, or that it would not apply in any case?  Alioto:  We contend the latter but as an alternative holding, adopt the reasoning of the dissent in Illinois Brick.  Baxter:  Then how does the court avoid the issue of duplication of damages?  Alioto: That's what drove the decision in Illinois Brick, and some history behind that decision may be helpful.  He discussed three lines of authority leading up to that decision.  In one line of cases, the one adopted by the Illinois Brick dissent, the courts held that the possiblity of duplication of damages can be avoided through existing procedural mechanisms such as compulsory joinder.

Justice Moreno: How did our Legislature react to Illinois Brick?  Alioto:  They roundly rejected it.  In fact, 25 states rejected Illinois Brick.  And, eleven of those jurisdictions have considered the pass-on defense, and every one of those rejected it. 

Chief Justice George put in his first question:  Are you relying on legislative acquiescence?  Alioto:  Not exactly because the Legislature acted so quickly as to overrule Illinois Brick, but what we are relying on is the purpose behind the law, which should drive the interpretation; on the fact that the Legislature did seem to adopt certain parts of Hanover Shoe in several enactments; and that in 1978 the Legislature added a provision to deal with multiple liability in parens patriae actions, one patterned after the Hart-Scott-Rodino Antitrust Improvements Act of 1976.  Justice Robie:  You mean the provision that says no double recovery?  Alioto:  Yes. 

Justice Ruvolo:  Regarding your argument that no pass-on defense should ever be allowed, in your case the plaintiffs used percentage-based pricing so that when the price went up so would the profit.  Would you exclude that profit from the recovery or would you allow that and treble it? 

Alioto:  No.  The damages are those calculated at the time plaintiff made the purchase.  Ruvolo:  So would the defendant be entitled to an offset for profit?  Alioto:  No.  Nothing that happens after the purchase should be considered.  This effectuates the purpose of the law.  This is no different than what California law already provides.  It's no different from the collateral source rule.

Justice Ruvolo:  Then how do you account for consequential damages?  Doesn't your theory wipe that remedy out?

Alioto:  No because there are three types of damages in Cartwright Act cases.  First, the overcharge.  Second, lost sales (i.e., when prices are higher you sell less).  Third, loss of the business value as a going concern.  Those are all available.  Justice Ruvolo:  The first one is the only type calculated at the time of purchase?  Alioto:  Yes.  The other two we've waived in this case. 

Justice Werdegar:  In other cases where they are not waived they would be available if proven?  Alioto:  That's correct. 

Alioto then discussed the UCL claim.  He said the first issue is one of standing.  The First District said in its opinion that the plaintiffs lacked standing because restitution was not an available remedy.  Justice Robie here interrupted:  Standing depends on whether the plaintiff suffered damage or not.  Is the damage suffered under the Cartwright Act enough to confer standing?  Alioto:  There are two parts to standing.  The first is injury in fact under the U.S. Constitution. Plaintiffs have standing by virtue of the purchase.  Justice Robie:  Are you saying that's not enough?  Alioto:  No.  The second element is lost money.  This Court has not had an opportunity to address this elelement.  The Court of Appeal has in Aron v. U-Haul and Hall v. Time, Inc.

[Note:  As a plaintiffs' attorney I would not have chosen those particular cases to illustrate the "lost money "element of UCL standing.  They are not exactly the most plaintiff-favorable cases.] 

Justice Ruvolo:  Is there any difference between the standing requirements under the UCL and the Cartwright Act?  Alioto:  Not for all practical purposes.  I'm arguing that the Court should adopt the reasoning of Aron and Hall.  Here, it's uncontroverted that plaintiffs paid more for the drugs than they were worth and they did not get the benefit of their bargain.  [Note:  I guess I can see why he thought those cases were good ones to cite given the particular facts of his case, but this leads straight into the Benson v. Kwikset problem.]

Alioto:  Now on to the restitition issue.  The First District relied almost exclusively on Madrid v. Perot Systems.  The defendants have abandoned Madrid and not cited it in their briefs.   In Tobacco this Court said that the restitution language is "patently less stringent" than the standing language.  If the plaintiffs have standing then they necessarily can recover restitution. 

And that was the end of his time.

Mr. Fenrich began by observing that at the beginning of Mr. Alioto's presentation he conceded that the plaintiffs have not sustained damage.  He said the lower courts properly applied the plain meaning of the Cartwright Act and the UCL under the unique facts of this case.  On this unique record, plaintiffs strategically chose only to seek one kind of damages -- the overcharge.  The record is undisputed that plaintiffs passed on 100% of the overcharge.

Justice Werdegar:  But the argument they make is depending on when the overcharge was paid.   Fenrich:  We think they've conflated two elements, injury and damages.  Justice Miller:  So are you conceding they have standing and suffered injury?  Fenrich:  Well it's an interesting issue on these unique facts.  This Court need not decide it because for the Cartwright Act claim, they have suffered no damages that could be recovered under the Cartwright Act's private right of action.  This centers on plaintiffs' ability to recover damages.  For the UCL claim, it's fair to say plaintiffs have not lost money or property, but again the Court need not reach that issue because they can't recover restitution. 

Justice Werdegar:  You keep saying this case is unique. Why is this case unique?  Fenrich: In another case a plaintiff might seek a variety of damages for an antitrust violation, but here, for strategic reasons, they chose to waive much of it and also concede that they passed on 100%.  It's only in this case and on this record that the result would be that the defendant escapes liability.  Nor do we concede that defendants should be presumed to have violated the law.  Whenever defendants' prices went up so too did plaintiffs'.  This would not be the result in other cases.

Chief Justice George:  What interpretation do you have of the State legislative history?  Fenrich:  You're referring to the 1978 amendments?  [The Chief Justice nods.]  It's California's reaction to Illinois Brick.  Chief Justice George:  What about Hanover Shoe?   Fenrich: There's no mention of Hanover Shoe surrounding the 1978 amendments.  Nor can it be interpreted as consistent with Hanover Shoe because once indirect purchasers have standing California is implicitly disagreeing with the policy underpinnings of Illinois Brick and Hanover Shoe, including (a) that pass-on is too difficult to show; and (b) the choice to place full recovery in the hands of the direct purchasers.  California is free to make different policy choices and this is reflected in what the Legislature did.

Justice Miller:  What is the purpose of the Cartwright Act?  Is it deterrence, compensation, disgorgement?  Fenrich:  All of the above.  Justice Miller:  Then there'd be no deterrence in this case.  Fenrich:  Compensation is the primary purpose.  Our argument would continue to allow damaged persons to recover treble damages.  Therefore our argument is consistent with all three purposes.  Plaintiffs' would denigrate the compensation purpose.  It's the Legislature's job to balance these purposes.  When a court is faced with two interpretations, one consistent with one purpose and the other three with all three purposes, the court should choose the one consistent with all three.

Justice Ruvolo:   Do you agree that for purposes of damage one looks solely at the time of purchase, and if so, what do you do with the Hanover Shoe language about cost-plus contracts?  Fenrich:  No we do not agree.  Going back to the 1800s (and he cited cases) damages has meant actual loss and recoupment.  One must necessarily look at what happened after.  Nothing shows that the Legislature in 1907 when it enacted the Cartwright Act meant to adopt some other rule.

Justice Robie:  Isn't passing it on a subsequent act?  They paid too much for the product so they then charge too much.  They are two separate actions.  Fenrich:  That's injury, but not damages.  (And then he discussed several cases to support this point.)  California did not adopt Hanover Shoe in 1978 or otherwise.  It's a rule based on policy not text.  California made other policy choices regarding where the incentives should lie in the distribution chain.  As for other states, there is no uniformity.  In eleven states the pass-on defense was rejected through legislative action.  There's no authority for courts doing that when interpreting language that's silent.

Justice Ruvolo:  You would be better off if the end-user consumers had been joined because there would be an offset of the profit?  In response, Fenrich acknowledged that the consumers would have suffered that damage.  Ruvolo:  But you've got a different case here.  Where the consumer plaintiffs are barred by the statute oflimitations you've developed a case that's symmetrical with federal law.  Fenrich:  This case could not have been brought under federal law because the pharmacies are not direct purchasers.  They bought from wholesalers who were direct purchasers.  There may be less risk of multiple recovery where the ultimate purchasers have a statute of limitations problem.  Justice Ruvulo:  Federal courts would rather have direct purchasers recover than let defendants get away with it entirely.

Justice Werdegar:  You said that the issue was decided in the federal courts based on policy not language.  But here is a quotation, and she read some language from California v. ARC America Corp., which did appear to say that the holding in question was text-based.  Fenrich:  What the court did not do was start with the language.  Justice Werdegar:  But the language is similar isn't it?  Fenrich:  Yes.  Justice Werdegar:  So they've told us what it means.  Fenrich:  Yes as a matter of federal law but we think it's not a reasonable interpretation under state law. 

Fenrich: Plaintiffs' lost profit waiver is unequivocal.  So the lost profits argument is a distraction.  The Utilicorp (phonetic) decision cemented the Illinois Brick ban on indirect purchaser recovery.  Pass-on is too hard to prove.  Regarding the 1978 enactment of the parens patriae multiple-liability provision (Bus. & Prof. Code section 16760), plaintiffs say this reflects California's adoption of Hanover Shoe.  We say the Legislature would have done it explicitly.

Fenrich then turned to the UCL claim.  For the same reasons plaintiffs aren't entitled to damages, they are not entitled to restitution.

Justice Werdegar:  Are they entitled to an injunction?  Fenrich:  That claim has been waived in this case, so no.  The Court doesn't have to answer that question.  On restitution, though, it is our position that whatever interest they had in the overcharge was passed on.  Plaintiffs say they somehow kept it, but when the wholesalers sold to them ithe interest passed, and then it passed again.

Mr. Fenrich then concluded his argument before his time had been called.

In rebuttal, Mr. Alioto first addressed the UCL claim.  First, the Tobacco II case said that restitution must be read to prevent a wrongdoer from retaining the fruit of its illegality.  Second, regarding the injunction waiver, plaintiffs were opposing defendants' motion, which said nothing about the injunction claim.  And here he read from the statement of undisputed material facts.  Justice Ruvolo:  You pleaded that as an alternative?  Alioto:  That's correct.  Defendants' motion did not mention injunctive relief.  They waived it.

Justice Robie:  But if you have standing don't you have it regardless of the remedy?  I'd think if you have standing you can seek either remedy.  They are separate issues, standing and remedy, are they not?  Alioto:  That's correct.  That's what the Court said in Tobacco.  Restitution is patently less stringent.  Otherwise you violate the maxim that a wrongdoer shall not profit from his wrong.

Alioto then turned to the Cartwright Act and read a quotation from the 1978 amendment's legislative history.  It's a pro-enforcement amendment, he said.  It cannot be read to create a loophole for defendants.  Bruno rejected federal cases that said compensation was the only purpose.  Prevention and punishment is not an insignifcant purpose.  As for cost-plus contracts, that is not an issue in this case.  Plaintiffs have no contracts requiring them to buy a fixed amount regardless of price.  The issue was not briefed before the Court of Appeal and on rehearing, that court struck its discussion of that issue from its opinion. 

Alioto then turned back to Justice Ruvolo's question:  You are right this is a perfect case to apply Hanover Shoe.

Then he, too, concluded his argument before his time was up. 

If I were to try to read some tea leaves, I'd say the argument with the most traction was that the pass-on defense would allow a defendant to keep its ill-gotten gains.  Several of the justices' questions suggested that they did not think this should happen.  We can expect an opinion within 90 days (i.e., by August 1, 2010). 

Oral argument preview: Clayworth v. Pfizer, Inc.

This afternoon at 1:30 p.m., the Supreme Court will hear oral argument in Clayworth v. Pfizer, Inc., no. S166435.  In that case, the question is whether an intermediate purchaser (of, for example, price-fixed goods) may recover damages under the Cartwright Act or restitution under the UCL.  In other words, can the defendant assert a "pass-on" defense if the plaintiff resold the goods and passed on the overcharges?  I am planning to attend the argument and provide a report here tomorrow. 

Also, a recent article in the Recorder said that Justice Kennard is going to miss a number of upcoming arguments while she recovers from surgery, including this week's arguments:

An avid and persistent questioner, Kennard would still get to participate by viewing videotapes of the arguments, unless the parties refuse to stipulate to her absence. If that happens, Chief Justice Ronald George said he would need to decide on a case-by-case basis whether to continue the matter or appoint a pro tem justice from the appellate courts to hear it instead.

The Clayworth docket indicates that three pro tem justices have been assigned to the case: "Hon. Ignazio J. Ruvolo, CA 1/4 (for Kennard, J.); Hon. Ronald B. Robie, CA 3 (for Chin, J.); Hon. Douglas P. Miller, CA 4/2 (for Corrigan, J.) ." 

Two Supreme Court cases set for oral argument next week: Clayworth v. Pfizer and County of Santa Clara v. Superior Court (ARCO)

The Supreme Court has scheduled oral argument in two of the cases I've been following, Clayworth v. Pfizer and County of Santa Clara v. Superior Court (ARCO).  I'm going to try to attend both and provide reports here.

Monday, May 3, 2010, 1:30 p.m., San Francisco

Clayworth v. Pfizer, Inc., no. S166435 (review granted 11/19/08)

• Issues: (1) When plaintiffs pay overcharges on goods or services as a result of the anticompetitive conduct of defendant sellers but recover the overcharges through increased prices at which the goods or services are sold to end users, may defendants assert a "pass-on" defense and argue that plaintiffs were not injured because they did not suffer financial loss as a result of the anticompetitive conduct? (2) Is restitution available under the Unfair Competition Law (Bus. & Prof. Code, 17200 et seq.) to plaintiffs who recovered from third persons the overcharges paid to defendants? (3) When plaintiffs recover from third persons the overcharges paid to defendants, have they suffered actual injury and lost money or property for purposes of establishing standing under the Unfair Competition Law, as amended by Proposition 64?
• Court of Appeal Opinion: Clayworth v. Pfizer, Inc., 165 Cal.App.4th 209 (2008)

Wednesday, May 5, 2010, 9:00 a.m., San Francisco

County of Santa Clara v. Superior Court (Atlantic Richfield Co.), no. S163681 (review granted 07/23/08)

• Issue: May a public entity retain private counsel to prosecute a public nuisance abatement action under a contingent fee agreement?
• Court of Appeal Opinion: County of Santa Clara v. Superior Court (Atlantic Richfield Co.), 161 Cal.App.4th 1140 (2008)
• Briefs: Some of the briefs are collected at this link

Oral argument report: McAdams v. Monier, Inc.

On Monday, January 25, 2010, the Court of Appeal (Third Appellate District) in Sacramento held further oral argument in McAdams v. Monier, Inc., no. C051841, which is one of the Tobacco II "grant and hold" cases.  My post on the original McAdams opinion from 2007 (in which the Court of Appeal reversed the trial court's order denying certification of UCL and CLRA claims) is here.

Many thanks to the blog reader who attended the argument and provided the following anonymous report:

Spirited oral argument from a Panel consisting of Justices Sims, Butz and Sakauye in this case, which alleges that defendant Monier failed to disclose that its “slurry” coated cement tiles would lose their color and degrade down to bare concrete. The majority of questions came from Justice Sims, who was focused on whether subsequent purchasers of the product could be part of the class, asking about the situation where a family buys a home with the roofing tiles already installed. Justice Sims noted, they have no idea about any misrepresentations made by Monier, so could they get damages? Appellant’s counsel, after first noting that only restitution is available under the UCL, indicated that yes, those homeowners would be in the class but that restitution would only be provided once for any property and that no double recovery (i.e., for the original purchaser of the home/roofing tiles and any subsequent purchaser) would be sought.

Monier’s main argument to the panel, as in its briefs, was that post-Tobacco II, there still needed to be proof that individual class members actually received a misrepresentation as an element under the fraud prong of the UCL and Justice Sims wanted to know whether defendant is arguing that plaintiffs are not entitled to any class, or only a class of those who saw the misrepresentations. Defense counsel responded that the determination of whether a class is appropriate is one that should be made on remand, by the trail court.

On rebuttal, in response to further questions by Justice Sims about whether a class could include individuals who never received defendant’s representations and whether it is simply enough under the UCL to show a representation was misleading even if no one actually saw it, plaintiff’s counsel replied that post-Proposition 64, only the named plaintiff had to prove they received and relied on the misrepresentation. In closing, appellant’s counsel emphasized that that under both pre- and post-Tobacco II decisions courts have held that no individualized proof is necessary if a defendant’s advertisement is “likely to deceive.”

One interesting thing about this report is the fact that, apparently, none of the original three panelists is now assigned to the case.  The original opinion's author, Justice Davis, retired in early 2009.  It is unclear why the other two original justices are no longer on the panel.  In any event, it will be very interesting to see how this opinion comes out. 

I note that we still have not yet seen an opinion in the other Tobacco II "grant and hold" case, Pfizer v. Superior Court (Galfano), no. B188106, which was argued on December 7, 2009.  According to the "scheduled actions" page of the docket, the Pfizer opinion is due to be filed by March 1, 2010.

Oral argument report #2: Arias v. Superior Court (Angelo Dairy)

Many thanks to attorney Tom Kaufman for providing a second report on the Arias argument last week.  Read Tom's report after the jump.

Oral argument reports: Arias and Amalgamated

Many thanks to attorney Kelly Chen for attending the Arias and Amalgamated arguments last week and for providing very detailed reports.  Read Kelly's reports after the jump.

Report on Amalgamated and Arias arguments coming soon

I have received a report on the Amalgamated and Arias arguments as promised from attorney Kelly Chen, and a second surprise report from another blog reader. I will be getting these up as soon as I can, probably over the weekend. Check back on Monday.

Oral argument report: Dukes v. Wal-Mart, Inc.

Yesterday afternoon, an eleven-judge en banc Ninth Circuit panel heard oral argument in Dukes v. Wal-Mart, Inc., nos. 04-16688 & 04-16720. Theodore Boutrous of Gibson Dunn & Crutcher argued for Wal-Mart.  Brad Seligman of the Impact Fund represented the certified class of female Wal-Mart workers. 

The eleven judges sat in two rows, eight in front and three (Chief Judge Kozinski and Judges Reinhardt and Rymer)  in an elevated row in back.  The acoustics in the room was poor and the system of microphones was not working very well.  It was sometimes hard to hear.  It was also not always immediately apparent which judge was speaking.  The following report should be read as a very broad-brush account of the argument and it may not be 100% accurate in every respect. 

By way of background, recall that class certification was granted under Rule 23(b)(2), which applies in cases in which injunctive relief is the predominant form of relief sought, as distinct from Rule 23(b)(3), which applies in cases involving damages claims, and has a more stringent predominance requirement.  The main question on appeal is whether the trial court erred by applying Rule 23(b)(2) rather than Rule 23(b)(3).  Recall, further, that this case involves gender discrimination in violation of Title VII, which assertedly resulted in both unequal pay and also inequitable promotions.  To facilitate certification under Rule 23(b)(3), the plaintiffs elected to waive compensatory damages, leaving injunctive relief, back pay (which is considered an equitable remedy), and punitive damages as the available remedies. 

Mr. Boutrous argued first and reserved five minutes for rebuttal.  He began by saying that the district court committed legal error by certifying a class under Rule 23(b)(2) instead of Rule 23(b)(3) because monetary relief predominated in the case.  He said that Rule 23(b)(2) was intended to apply to injunctive relief cases, and the quoted something from the Rules Advisory Committee.

Judge Marsha Berzon broke in and said something about the claim for back pay.  Boutrous responded by citing the Allison (phonetic) case.  Judge Berzon said let's talk about this case, and then I couldn't catch the rest of the exchange.  Boutrous said that the plaintiffs forfeited compensatory damages.  Judge Michael Daly Hawkins asked if that's the same as waived, and Boutrous said it was.  He then went on with the argument that punitive damages and back pay (both forms of monetary relief) clearly predominate over the injunctive relief claim.

Judge Raymond C. Fisher asked Boutrous whether he would be objecting to certification if the case were just an injunctive relief case.  Boutrous said that if it were purely an injunctive relief case, Rule 23(b)(2) would apply, but then you would still have the issue of the standard for evaluating the evidence [presented at the class certification stage].  Judge Fisher said but beyond that, the issue of battle of the experts etc., would you have a problem with certification under Rule 23(b)(2)?

Boutrous began to say yes when Judge Rymer broke in and asked, How in your mind should we decide predominance?  If there were fewer employees and less damages, you couldn't argue that punitive damages predominated just because they are big.  Boutrous said he's not arguing that Rule 23(b)(3) should have been applied just because the punitive damages claim is big or the class is big, but rather because of the nature of the claims.  He talked about the U.S. Supreme Court's opinion in the Teamsters case.  He said that a punitive damages award could conceivably be made that would be fair, but here, the problem is the nature of the claims.

Chief Judge Kozinski said that plaintiffs seek injunctive relief, back pay, and punitive damages.  Talk to me about the back pay; is that individualized?  Boutrous said it is in this case.  There would have to be a determination of whether each class member worked at a store that had discriminatory practices.  Judge Kozinski asked how do class members collect back pay.  Boutrous said as it's set up now, under the trial plan the district court proposed, Wal-Mart would have no participation in that determination.  The presumption of Teamsters would be applied. 

At this point I'm pretty sure Chief Judge Kozinski said, "Do you speak plain English?" and Boutrous said, "Yes."  Tell me in plain English what would happen.  Say you're a woman in Kansas City who works for Wal-Mart.  Boutrous replied that a special master or someone would sit down with the payroll records and determine whether her pay was less than the national average as determined by plaintiffs' expert.  Judge Kozinski said something like, so regarding the predominance of the back pay claim ....  Boutrous said that cuts against it because it's monetary, individualized.

Judge Kozinski then said so your full answer is that it's not just the punitive damages, but also the back pay, that makes this case inappropriate for certification under Rule 23(b)(2).  He asked would each woman have to apply to receive an award of back pay.  Boutrous said that ordinarily, they would have a minimum burden to come forward, but they wouldn't have to in this case.

Judge Susan Graber asked, Are we reviewing the trial plan now?  Won't it change?  Aren't we reviewing certification only?  Boutrous said that the trial plan goes to the question of manageability.  Judge Kozinski said something to the effect of, it doesn't matter that Wal-Mart can't participate, the point is if they want money they can come and apply.  I did not catch Boutrous' response to this.

Judge Hawkins asked whether it's really 1.5 million class members, a number Boutrous had previously mentioned.  Boutrous said if past employees are excluded [which is what the amended three-judge opinion suggested should be done] it's fewer.  Hawkins said so it's about 60% of 900,000.  Boutrous said yes.  Hawkins said so it's 2/3 less than 1.5 million.  Boutrous said yes. 

At this point, Judge Berzon had an exchange with Boutrous about the difference between the pay claim and the promotion claim.  Boutrous kept emphasizing that it was the nature of the particular claims in this case that made them inappropriate for certification.  Judge Berzon said that the liability stage will take care of the issue of whether the defendant had a pattern and practice of discrimination.  She said you keep losing sight of that.  They could lose that issue.  Boutrous said yes they could lose it, but in terms of the first stage, Teamsters creates a presumption that the pattern and practice injures.  He said Teamsters was not about back pay; it was about a seniority system; completely different.  As a matter of due process, you can't just take phase one and say that entitles you to monetary relief. 

Judge Berzon said yes, you have to identify the women, etc., but this is just a question of proof problem, how you're going to let someone prove something.  Boutrous said but that's important.  The defendant has a right to a defense.  That pushes Rule 23(b)(2) too far and takes away rights from defendants.  And here he cited an article by Professor Coffee apparently about this case.  He said that to get class certification, plaintiffs gave up their mixed-motive claim, which would have been their easiest path to injunctive relief.  The predominant relief sought is monetary.

Judge Berzon asked whether the problem would be solved if you had a notice and opt-out procedure as to the whole case (which is what you do under Rule 23(b)(3)).  She said that's the only difference between the two rules, isn't it?  Boutrous said that one of the crucial differences is the predominance requirement of Rule 23(b)(3).  Engrafting an opt-out requirement on (b)(2) creates a watered-down version of (b)(3).  The rule provides for discretionary notice under (b)(2) but not opt-out. 

Judge Hawkins asked, so what relief does your client want from us?  Boutrous said you can decertify, or you could vacate certification; and remand for the trial court to determine whether (b)(2) or (b)(3) can be appropriately applied in light of the fact that most class members are former employees, and for the principles of IPO and Hydrogen Peroxide to be applied to the evidence.  He said the law has changed significantly since the original class certification order.  The district court applied the rule of Caridad, but the Second Circuit has since disavowed that case.

[I will jump in with an editorial comment here.  First of all, the argument that the district court should revisit class certification is significant because everyone knows that the judge who originally granted class certification is no longer sitting and Chief Judge Vaughn Walker will take up the case on remand.  Second, not a single judge on the panel seemed remotely interested in the IPO or Hydrogen Peroxide cases or in revamping the way that class certification evidence is evaluated in the Ninth Circuit.  As mentioned here, the three-judge panel in this case did not even mention IPO, even though the case was decided two months before the original opinion and a year before its amended opinion (which mentions the case only in a footnote).]

Judge Hawkins said, then you're not challenging the commonality or typicality elements?  Boutrous said yes we are.  Backing up, as a matter of law plaintiffs' expert did not apply the correct procedures.  The only way to determine if discrimination is occurring is to look at each individual store.  Judge Fisher asked, Why is that the case?  If the plaintiff is arguing it's the culture, they'd be doing that in an individual case.  In an individual case you'd look upstream and argue it's not a rogue manager.  Boutrous said we're not saying plaintiffs couldn't introduce that evidence (although we'd probably oppose it). 

Judge Berzon then said they don't have to prove discrimination, they only have to prove commonality.  Boutrous said yes.  Judge Berzon said they only have to prove the common policy.  Why do they have to prove more?  Boutrous said if you prove the policy that doesn't prove that it had a common effect.  Judge Berzon said but why do they have to prove that now?  They have to at trial; if they don't, they lose.  Why do they have to prove more than that now?  Boutrous said under the Hydrogen Peroxide case, they have to be prove that impact can be established by common proof.  [Another editorial comment:  Hydrogen Peroxide was an antitrust case; here, Boutrous is borrowing the idea of antitrust impact and applying it to Title VII.]

Judge Berzon asked, Is there any Ninth Circuit or U.S. Supreme Court authority supporting that?  Boutrous said there are no published opinions in which the court has grappled with this.  He mentioned a case called something like Staten (phonetic), which involved a settlement class.  He said that in this case you're talking about the discretion of thousands of managers. 

Judge Berzon then said why isn't it good enough just to show the policy?  Boutrous replied that it shows that injunctive relief isn't the focus of this case.  Plaintiffs are focused only on the disparate impact part of the case (i.e., the part of the case that supports back pay and punitive damages).  Judge Berzon said but you can get back pay under a disparate impact claim.  Boutrous said yes.  But you would need to apply IPO and Hydrogen Peroxide and what the [Staten (phonetic)] case hinted at.  He then started making conclusion-like statements such as in Amchem, the Supreme Court said that courts need to exercise caution to protect not only the class members but also the defendant and to make sure that there's a fair procedure.

Judge Hawkins said, If we affirm, the case goes back to [Chief] Judge  [Vaughn] Walker, correct?  Boutrous: Yes.  Hawkins: Can he revisit the size of the class at that time?  Boutrous:  Yes.  Hawkins: Could he decide whether subclasses are appropriate?  Could he decide to modify the trial plan?  Could he decertify the class?  Boutrous answered yes to each question.  But I urge the court to adopt clear procedures for doing so.

Brad Seligman began his argument by saying that the evidence accepted below showed that in all 41 of Wal-Mart's regions, women got paid less than men, by a couple of thousand dollars, even though they had better performances and seniority. Wal-Mart's argument would mean they have no remedy.The size of the damages would make it impossible to pursue these claims.  Wal-Mart had a pay policy with no objective factors.

Judge Berzon jumped in here and said well they actually did.  They're fairly specific (and she went on to list some of them).  Seligman said there's a national policy, no question, but it doesn't say that a worker's experience level is a factor in pay.  Wal-Mart has a detailed personnel management system that includes every possible objective factor that Wal-Mart says is relevant to setting pay.

Chief Judge Kozinski said how does someone in the class go about getting paid?  (Same question he asked Boutrous.)  Seligman said that under the trial plan, if the plaintiffs prove adverse impact or pattern and practice, the damages would be based on Wal-Mart's objective data.  Kozinski said would this be true for everyone in the class?  Seligman said everyone in the class is entitled under the model.  Kozinski said, whatever that money is, that goes on the side of the balance for monetary relief, no injunctive relief.  Seligman said I respectfully disagree.  The model to determine back pay, Wal-Mart has every right to challenge it.  Kozinski said I'm trying to get a picture of what's on the other side of the balance.  Punitives?  Seligman said that punitive damages do not always go on the monetary side.  Back pay, every circuit has authority saying it's integral to the injunctive relief and fully consistent with Rule (b)(2).  And on this point, he quoted language from the Rules Advisory Committee.

Judge Berzon said that's pretty simple.  But the promotion claim creates problems.  In this case is it correct that none of the plaintiffs will get a promotion?  Seligman said we sought broad injunctive relief for both back pay and promotion.  Judge Berzon said again, there will be no injunctive relief requiring a promotion?  Seligman said we're seeking broad-based, not individualized, injunctive relief.  (Later he explained that this includes orders requiring Wal-Mart to change its promotion practices.)

Judge Richard A. Paez asked who decides what goes into the formula for calculating back pay.  Seligman said the trial judge.  Judge Paez asked whether the jury would be involved.  Seligman said no, it's an equitable remedy.  Judge Paez said so what's the role of the jury?  Seligman said they will decide punitive damages.  Judge Paez said so without punitive damages, no jury?  Seligman said that's correct.  Judge Paez asked whether the jury would be involved in the first phase of the case (which involves deciding whether Wal-Mart had a pattern and practice of discrimination).  Seligman said they would because it will be relevant to punitive damages and in fact the trial court would be bound by the jury's finding. 

Judge Graber asked what is the range of options available to the court?  Are you saying we just affirm everything?  It seems like there are lots of ways to slice and dice this.  Seligman said the court has a number of ways and he discussed several options. 

Here, Judge Carlos T. Bea spoke for the first time.  In a back pay case, one of the questions is always whether someone was about to be fired for other reasons.  Seligman said that information on performance is included in Wal-Mart's database.  Judge Bea said but what if Wal-Mart wants to argue that a particular women had higher absentee rates or something like that.  Seligman said there's no evidence Wal-Mart ever considered such factors in their pay decisions. 

Judge Bea also raised the punitive damages claim, saying doesn't it depend on the reprehensibility of the conduct of an individual actor?  Seligman said it depends on the state of mind of the corporation.  Judge Bea said wasn't the corporation's state of mind to delegate the decision to individual managers?   Seligman said, respectfully, no, and cited a case involving a reckless disregard standard.  Judge Bea asked is it reckless disregard to let each manager make up his own mind?  Is it too much delegation that you're complaining about?  Seligman said no, the question is Wal-Mart's overall state of mind. 

Judge Bea asked if only 14% of district managers are women, is that evidence of discrimination against women?  Seligman said it's evidence of a pattern and practice of discrimination.  Judge Bea said, another example of a body in which females are underrepresented are the U.S. Senate and House of Representatives.  Are you saying there's discrimination in the electorate?  [I think the answer on the tip of most everyone's tongue would be yes to that question. Seligman's answer was more politic.]  Seligman said no, that's not our claim. 

Judge Fisher said, you've been focused on back pay. On failure to promote, how do you prove that without individualzed proof? Seligman said it's a tougher case. But what courts have recognized, when it's too hard to prove who would have been promoted, then the steps are: Is there liability? And if so, the court acts as a Chancellor of Equity .... Judge Fisher interrupted. Is Wal-Mart at the table? Seligman said yes, in determining what factors are taken into account. Fisher said, so every woman in the class will get damages? Seligman said the court will refine it by looking at various factors such as performance minimums. It's not all or nothing. The case law says that the court has the duty to work substantial justice with the information that's avaialble. The alternative, which Wal-Mart is arguing for, is no relief at all.

Judge Fisher then asked when is the determination of the amount of money made and how does it get fixed? Seligman said everybody is at the table in arguing these factors. The first question is what's the aggregate number based on the women who earned less than they should? The next question is how to distribute it.

Judge Kozinski said the claim Boutrous is making is that it's really store by store. Some may not follow the national policy. What's your response? Seligman said I have several. I'll give you my favorite. Kozinski said don't give us your favorite response, give us your best one. Seligman said I'll give you my favorite one which is also my best one. Evidence of national policy and evidence of movement from store to store ....

Judge Rymer did not allow him to finish answering Judge Kozinski's question. She said in 25 words or less, what is the claim in this case? Seligman said uniform delegation of discretion regarding pay decisions in a business with a culture of discrimination. Judge Rymer said, first of all, Seligman's statement of the claim was internally inconsistent, and then said what's the culture that implicates Title VII and is it common? Judge Berzon interrupted before Seligman could answer. What is the connection between the culture and the employment practices? It is subjective but capable of being supervised. Seligman said it's known [by Wal-Mart] at every step. Every promotion is reviewed at higher levels. They've known exactly what's been going on for years.

Judge Fisher said where does the sexism come in? Seligman said you have to separate pay from promotion. For pay, every pay decision is approved by the district level and above. The info about pay decisions includes information on gender. For promotion, those are not done at the store level. Those decisions are made by the district manager or higher.

Judge Berzon asked where does the disparate impact claim come in? Seligman said the court would have to find no impact, or a business necessity, to avoid a finding of disparate impact. Judge Berzon then asked what's wrong with an opt-out procedure? Why not broaden the opt-out procedure to cover the entire case? Seligman said we promoted that idea. It's not clear that the current order wouldn't cover back pay claims. It could be done. We don't object to it.

Judge Berzon asked how do you have a trial for back pay before the punitive damages trial? Seligman said the trial court hasn't decided yet. Nothing prevents us from putting in evidence of harm. Case law doesn't require that compensatory damages be decided prior to punitive damages. In fact, the case law doesn't require any compensatory damages award as a prerequisite to punitive damages.

Judge Paez said you mean the jury could fix an amount of punitive damages without knowing what the compensatories are? Seligman reiterated that the case law doesn't require it. Judge Paez asked when do the class members get the money? Seligman said not until after the whole case is over and all damages have been determined. Judge Bea asked, Are you saying there is no relation between compensatory damages and punitive damages, and that a punitive damages award can be made independently of the compensatories without offending State Farm [and he recited the holding of that case regarding the ratio of punitives to compensatories]? It doesn't apply? Seligman said we don't think you have to go that far because we think the ratio will be reasonable.

[Another editorial comment here. Clearly Judge Paez and Judge Bea have some problems with the punitive damages claim, but I think Seligman is correct to point out that, at this stage of the case, it's impossible to know whether the punitive damages award will offend State Farm. Until the court knows what the two awards are, the ratio cannot be calculated or its reasonableness evaluated.]

Judge Bea went back to the standard for proving punitive damages. Don't you have to show the reprehensibility of the conduct suffered by the individual? Seligman said we're not suing the individual managers. The question is whether the corporation acted in reckless disregard. Judge Bea: The state of mind of the CEO? Seligman: Of the corporation as a whole.

Judge Kozinski said you have no answer to Boutrous' point. (Not exactly a fair comment given that Seligman was interrupted before he had a chance to answer.) Seligman said that studies show that aggregated data can sometimes be more probative. Kozinski said but his point is how can you decide back pay on a national level when the discrimination occurs at the store level? Seligman said it's a pattern of discrimination, a companywide policy of discrimination. Our burden will be to show a common pattern of discrimination. Kozinski said what if a woman worked at a store where there was no discrimination? Seligman said our model proposes an individual assessment when you get to remedies. Wal-Mart could try to prove there was such a store (although I don't know how they would do it) and that's a proper factor to take into account.

On rebuttal, Boutrous said that Wal-Mart's expert did a store-by-store analysis and 90% showed no evidence of a statistically significant difference in pay. Plaintiffs' expert never analyzed store-by-store. If 90% show no disparity, there can be no classwide way to prove disparate impact. We are not saying you could never have a class action in a Title VII case.

Judge Graber asked what is your answer to the question about the range of options. Is it an all-or-nothing proposition? Affirm or decertify? Or can we differentiate among [claims or elements]? Boutrous said it's not all-or-nothing. But if the court looked at [i.e., questioned] certain parts, the proper thing is to send the whole thing back to Judge Walker to apply the proper standards.  [Again, here Boutrous is urging the court to revise Ninth Circuit standards by adopting IPO or Hydrogen Peroxide, and also urging remand to a judge who may be less likely to certify any claim]

Next, Boutrous said that Seligman was wrong on punitive damages. He said the EEOC has argued that due process doesn't apply to Title VII cases. That's wrong. It's completely unmanageable to have a class action on the punitive damages and the back pay claims.

And that concluded the argument. I have to agree with the Recorder reporter that, although some of the judges made their views clear, it's difficult to say where the panel as a whole will come out.  Judges Graber was very focused on whether the court could do something less than order the class decertified.  One of Judge Hawkins' main points seemed to be it's pointless to pass on the propriety of a trial plan that the trial judge might completely revamp between now and judgment.  Judges Reinhardt, Silverman, and Ikuta said nothing at all during the entire argument. 

As I mentioned above, there may very well be significant errors or omissions in this report.  If you see any mistakes in my summary, please post a comment or send me an email (uclpractitioner@gmail.com).