The UCL Practitioner

U.S. Supreme Court hands down FLSA "pick-off" opinion: Genesis Healthcare Corp. v. Symczyk

This morning the U.S. Supreme Court handed down its opinion in Genesis Healthcare Corp. v. Symczyk, ___ U.S. ___ (Apr. 16, 2013), which involves whether a defendant may "pick off" the representative plaintiff in a collective action brought under the Fair Labor Standards Act.

I will have more on the opinion in a later post.  My original post on the grant of cert. is here.  SCOTUSblog with its three-hour advantage already has a detailed summary of the decision, which apparently includes a strongly-worded dissent by Justice Kagan. 

Ninth Circuit en banc panel issues narrow arbitration opinion: Kilgore v. KeyBank, N.A.

In its original three-judge panel opinion last year, the Ninth Circuit held in no uncertain terms that under Concepcion, "the FAA preempts the Broughton-Cruz rule."  Kilgore v. KeyBank, N.A., 673 F.3d 947, 951 (9th Cir. 2012) (hyperlinks added). 

We hold that the Broughton-Cruz rule does not survive Concepcion because the rule "prohibits outright the arbitration of a particular type of claim"—claims for broad public injunctive relief. Concepcion, 131 S.Ct. at 1747. Therefore, our statement in Davis—that Broughton and Cruz prohibit the arbitration of public injunctive relief claims in California—is no longer good law. See 485 F.3d at 1082.

Id. at 960.

In its opinion handed down last week, the en banc panel did not reach the issue.  Kilgore v. KeyBank, N.A., ___ F.3d ___ (9th Cir. Apr. 11, 2013).  The rewritten en banc opinion reads:  

The UCL authorizes broad injunctive relief to protect the public from unfair business practices. Cal. Bus. & Prof. Code § 17203. The Supreme Court has suggested that claims arising from a statute whose underlying purpose creates an “inherent conflict” with the federal policy favoring arbitration may be exempt from the FAA.  Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991). Relying on Gilmer, the California Supreme Court has found an inherent conflict between the FAA policy favoring arbitration and California statutes authorizing “public” injunctive relief. Broughton v. Signa Healthplans of Cal., 988 P.2d 67, 73, 78 (Cal. 1999).

The Broughton plaintiffs “were covered by Medi-Cal, which had negotiated a contract with Cigna ... for health care coverage.” Id. at 71. They sued Cigna under California’s Consumer Legal Remedies Act (“CLRA”), Cal. Civ. Code §§ 1750–85, seeking damages for medical malpractice and injunctive relief against Cigna’s allegedly deceptive advertising. Broughton, 988 P.2d at 71. The California Supreme Court held the damages claim subject to the arbitration clause in the Cigna policy because “[s]uch an action is primarily for the benefit of a party to the arbitration, even if the action incidentally vindicates important public interests.” Id. at 79. But the Court also found that because the plaintiffs were “functioning as a private attorney general, enjoining future deceptive practices on behalf of the general public,” id. at 76, their injunction claims were not arbitrable, id. at 75–78.

The California Supreme Court expanded upon Broughton in Cruz v. PacifiCare Health Systems, Inc., 66 P.3d 1157 (Cal. 2003). .... Extending the reasoning of Broughton to claims brought under the UCL and Business and Professions Code, the Cruz court found “the request for injunctive relief is clearly for the benefit of health care consumers and the general public” and therefore not subject to arbitration. Id. at 1164.

We applied the Broughton-Cruz framework in Davis, 485 F.3d at 1081-84. ....

Defendants argue that Davis was vitiated by Concepcion, and the Broughton-Cruz rule no longer exempts a public injunction claim from arbitration. We need not reach that broad argument. Even assuming the continued viability of the Broughton-Cruz rule, Plaintiffs’ claims do not fall within its purview.

Public injunctive relief “is for the benefit of the general public rather than the party bringing the action.” Broughton, 988 P.2d at 78. A claim for public injunctive relief therefore does not seek “to resolve a private dispute but to remedy a public wrong.” Id. at 76. Whatever the subjective motivation behind a party’s purported public injunction suit, the Broughton rule applies only when “the benefits of granting injunctive relief by and large do not accrue to that party, but to the general public in danger of being victimized by the same deceptive practices as the plaintiff suffered.” Id.

The claim for injunctive relief here does not fall within the “narrow exception to the rule that the FAA requires state courts to honor arbitration agreements.” Cruz, 66 P.3d at 1162.

Slip op. at 14-17 (footnote omitted).

The opinion concludes, as did the original opinion, that the arbitration clause was not unconscionable under Armendariz.  Id. at 10-14. 

Judge Pregerson dissented.  His opinion provides some additional factual context and includes the plaintiffs' fine-print contracts (for tuition loans for an education they never received) as an appendix.  Slip op. at 18-26 & Appx. A.

The new opinion is not the legal watershed as it could have been.  The California Supreme Court has denied review in two cases holding that the Broughton/Cruz rule remains good law.  The dissent is worth reading.

In article on the opinion Friday, the San Francisco Chronicle reported that "[s]tudents at an Oakland helicopter pilot school that folded in 2008 can't sue a bank for relief from unpaid loans and must take their cases to arbitration, a federal appeals court ruled Thursday.  ....   In an indignant dissent, Judge Harry Pregerson said the [arbitration] fee, a confidentiality requirement and other arbitration provisions were one-sided and unfair. KeyBank 'participated in the fraud that Silver State [Helicopters] perpetrated on unwitting students' and should be held accountable in court, Pregerson said."

Congratulations to the 2013 CLAY Award winners, including my Brinker co-counsel

Today is the one-year anniversary of the Supreme Court's issuance of its opinion in Brinker.  It is an opportune day for me to publicly congratulate my co-counsel, Tracee Lorens and Michael Rubin, who were both selected by California Lawyer magazine as recipients of 2013 CLAY Awards in Employment Law for their work on behalf of the employees in Brinker.  (I was also an honoree.) The Awards were announced in the March 2013 issue of the magazine. 

I am so proud of them, as I am of Michael Singer and Dave Mara, whose contributions were invaluable and who really should have been honored too. With three lawyers from the plaintiffs' team already selected by the editors of California Lawyer for our work, however, it seems not everyone could be named. 

As I have said before, we could not be happier with the Supreme Court's ruling that employers may not simply "offer" meal periods, but rather must take affirmative steps to actually relieve workers of all duty, while at the same time refraining from doing anything to interfere with employees' ability to actually take their meal periods.  We are pleased that the editors of California Lawyer saw fit to recognize our work. 

Congratulations also to the rest of the 2013 CLAY Award recipients.  My co-counsel in LCDs, Fran Scarpulla, received a well-deserved award for his work on that antitrust class action, and Michael Rubin's partner Danielle Leonard was the first attorney ever to receive two CLAY Awards in the same year (Education Law and Voting Rights).  Contratulations to her and to all. 

BREAKING NEWS: Ninth Circuit hands down en banc opinion in arbitration case: Kilgore v. KeyBank, N.A.

Today, the Ninth Circuit handed down its opinion on en banc rehearing in Kilgore v. KeyBank, N.A., ___ F.3d ___ (9th Cir. Apr. 11, 2013). I will have more on the opinion in a later post.

The original 3-judge panel opinion was handed down in March 2012, and a petition for en banc rehearing was granted in September 2012.  The original opinion, briefs and other materials are available in this very large pdf file from the court's en banc cases page.

Upcoming MCLE program on Comcast Corp. v. Behrend

On April 16, 2013 at noon Pacific, the Antitrust and Unfair Competition Law Section and the Labor and Employment Law Section of the State Bar of California will jointly present a webinar called "Comcast v. Behrend – View from the United States Supreme Court." 

The webinar should be very interesting.  It will feature the two attorneys who argued the case in the United States Supreme Court:  Barry Barnett of Susman Godfrey (for Ms. Behrend and the class) and Miguel Estrada of Gibson Dunn (for Comcast).  The moderator will be Christopher Handman of Hogan Lovells.

This is the program description:

Comcast v. Behrend is the latest word from the United States Supreme Court on class certification. Hear the attorneys who argued the case before the Supreme Court discuss the Court’s opinion – and the impact it will have on class action litigation.

Barry Barnett writes a weblog called Blawgletter where he had this post on the Comcast decision.  He says that he and his co-counsel "look forward to satisfying the Court's narrow methodological concerns on remand to the trial court and to trying the case on the merits as soon as practicable."

"Lawyers increasingly exposed to Unfair Competition Law liability"

The April 2013 issue of the California Bar Journal has an "Ethics Byte" article by attorney Diane Karpman called "Lawyers increasingly exposed to Unfair Competition Law liability."

An excerpt:

Sometimes you can see clear trends developing in legal ethics. We are seeing an explosion of unfair competition law claims against lawyers, by lawyers, and against online legal service providers. By the way, according to insurance mavens, your coverage should include UCL claims, since they are incurred in the performance of legal services.

The article discusses People ex rel. Herrera v. Stender, ___ Cal.App.4th ___ (Dec. 4, 2012; pub. ord. Jan. 3, 2013) (discussed in this blog post), but, curiously, does not mention Law Offices of Mathew Higbee v. Expungement Assistance Services, ___ Cal.App.4th ___ (Mar. 14, 2013) (discussed here).

The article does mention a pending bill that would allow the State Bar to recover the civil enforcement penalties authorized by the UCL for public prosecutor actions.  The bill does not add the State Bar to the list of public prosecutor offices permitted to bring UCL claims; rather, it would allow the State Bar to bring civil enforcement actions for violations of some of the Business & Professions Code provisions governing lawyers, and to recover the civil penalties of the UCL (Bus. & Prof. Code section 17206) in such actions. 

In other words, if passed, the new law would "borrow" the UCL's civil penalty provisions. 

Supreme Court puts two UCL cases on May argument calendar: Rose v. Bank of America and Zhang v. Superior Court

Last week, the Supreme Court released its May oral argument calendar.  Two UCL cases will be heard.

On Tuesday, May 7, 2013 at 9:00 a.m., the Court will hear Rose v. Bank of America, no. S199074.  Justice Louis R. Mauro of the Third Appellate District will sit in place of Justice Chin, who is recused.  Links to the briefs in this case are available here. 

Then, on Wednesday, May 8, 2013 at 1:30 p.m., the Court will hear Zhang v. Superior Court (Cal. Cap. Ins.), no. S178542.  Review was granted in Zhang in February 2010 and the briefing was completed in August 2010.  It is one of the oldest civil cases on the Court's docket.   

The issues raised in these cases are somewhat related.  The usual rule is that a statutory violation can lead to UCL liability regardless of whether the underlying, "borrowed" statute carries a private right of action. 

In Zhang, the Court of Appeal considered whether Moradi-Shalal, in which the Supreme Court held that the legislature did not intend to create a private right of action for violations of the Unfair Insurance Practices Act, also barred UCL "unlawful" prong claims for violations of the Act. An earlier case said it did, but in Zhang the Court of Appeal held that if the defendant's conduct not only violates the Act but is also otherwise unlawful, it can be pursued under the UCL.  Zhang v. Superior Court (Cal. Cap. Ins. Co.), 178 Cal.App.4th 1081 (Oct. 29, 2009). 

Rose involved the Truth in Savings Act (12 U.S.C. § 4301 et seq.), a federal statute that used to carry a private right of action, but Congress allowed it to sunset.  The Court of Appeal reasoned that permitting a UCL "unlawful" prong claim would contravene Congress's intent to preclude the statute's private enforcement.  Rose v. Bank of America, N.A., 200 Cal.App.4th 1441 (2011).  Rose, unlike Zhang, has federal preemption implications. 

Both arguments will take place in San Francisco.  I hope to be able to attend at least one of them.

Oral argument report: Sonic-Calabasas A, Inc. v. Moreno

Here is the first report on yesterday's argument in n Sonic-Calabasas A, Inc. v. Moreno, No. S174475.  My sincere thanks to Eric Kingsley of Kingsley & Kingsley in Encino for attending the argument and taking the time to summarize it for us. Here is Eric's report: 

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The California Supreme Court heard oral argument in Sonic-Calabasas, Inc. v. Moreno on Wednesday morning, April 3, 2013, regarding the issue of whether or not ATT v. Concepcion would affect the prior order of the Court that held that a Berman hearing process with the Labor Commissioner’s office should take place before submitting a matter to arbitration.  By way of background, the first Sonic case was decided 4-3 by this Court and was subsequently remanded by SCOTUS after Concepcion to reconsider in light of that opinion.  Two of the majority justices have since departed but none of the dissenters.  As such all eyes were on the Chief Justice and Justice Liu who have since joined the Court.  True to this Justice Liu took center stage at the proceedings and dominated the discussion between the lawyers.

What was interesting about the arguments is that all sides suffered from some major deficiencies.  It was clear that Justice Liu and his colleagues were not buying into to the plaintiff’s arguments that Concepcion had no effect; clearly it did.  Justice Liu, who is brilliant by the way, made it clear that in his view unconscionability analysis is not eliminated by Concepcion but it must yield if it gets in the way of the FAA.  There was much discussion by Cliff Palefsky and Miles Locker about policy considerations but the justices did not want to deal with those points.  If the FAA was offended it was clear they had no choice but to send the matter to arbitration.  Justice Baxter began the proceeding by asking Miles Locker if this was a class action, so any tea leaves are unlikely to be had in Iskanian.  Whether Gentry remains good law or not may be gleaned from this opinion but it doesn’t appear likely it will be clearly stated.  I would wager Gentry won’t appear in the opinion at all.  Justice Liu was primarily focused at the beginning of the case about the concept of speediness and indicated that the Berman hearing likely slows down the process significantly so that speediness is not achieved as a goal.  While Locker did indicate that a Berman process only takes 4½ months by statute (this may be true in theory but not in practice; interestingly defendants did not refute this), Justice Liu was clearly not convinced.  Once Locker left the podium Cliff Palefsky who argued for CELA emphasized the intertwining of rights in the Berman hearing, specifically, one-way fee shifting could be lost, as would a free lawyer and/or bonding of the award.  In a weaker moment for him he claimed Concepcion helped the plaintiffs.  This clearly fell flat.  In his defense the bench was not buying into his American Express v. Italian Colors vindication of statutory rights type argument.  About half-way through Palefsky’s argument there was a murmur on the Court by Justice Chin, the Chief Justice and Justice Liu to potentially remand the case to the trial court to examine the unconscionability analysis.  Later Justices Corrigan, Kennard and Baxter joined in this chorus. 

Justice Liu made clear at this point in the argument that Sonic I will not survive.  That point did not change.  The question then becomes what to do next. Justice Liu admitted that the Sonic agreement clearly had shortcomings but the general principle of Sonic I could not survive.  He even quoted Justice Scalia’s comments in Concepcion regarding the fact that rights won’t be vindicated, “Too bad.”  For the liberal wing of the California Supreme Court to be quoting Justice Scalia from the bench was disheartening.

The amicus for defense Felix Shafir was next and his argument devolved into arguing the distinction between unconscionability and constitutional due process limitations.  Justice Liu schooled the young man on this point but I believe this entire discussion was not germane to the issue at hand and what to do with this case.

As John Boggs, attorney for Sonic, took the podium the discussion moved.  I must say of all the advocates that presented arguments today, clearly Mr. Boggs had the most compelling case.  Before he took the podium it appeared to me there was a strong consensus on the bench to remand the matter to the trial court.  I believe he may have turned them in a different direction.  Sonic, win lose or draw should be happy with his performance at the Court. 

Justice Kennard began her questioning by trying to determine what standard should be used for unconscionability, listing three alternatives. Justice Liu then asked a series of questions and he and Boggs were in complete agreement on what Concepcion held. Boggs then brought up three very important points.  Remand would not make sense because the issue was not addressed below, or in the Court of Appeal and therefore waived.  Furthermore, he continued, this agreement’s identical language has been “vetted” (my word not his) by this Court in Little v. Auto Stiegler.   He further argued that plaintiffs conceded the agreement was enforceable and the only issue was the Berman waiver, and in fact none exists.

Boggs moved further in arguing that all rights and protections inside the Berman hearing process would apply in the arbitration such as one-way fee shifting.  The court was confused and surprised by this concession and perhaps Boggs played too much of his hand when he did not need to.  In his defense though it seemed clear to me he was trying to convince the Court that the employee would be no worse off and would have the same protections in arbitration as if the Berman process had occurred.  In many ways if that’s the law that might not be a bad thing for employees.  If the Berman/arbitration allowed for one-way fee shifting and government lawyers, there might not be a dissuasion of employees to move forward.  I think likely this is not the real motivation behind this case and I think Justice Liu was aware of this fact.  Boggs appears to me, though I must say I’m reading into his motivations, to be using a factual situation like ATT that seems fair to the plaintiff and not causing undue burden, to create a rule that in the end will be very harmful to plaintiffs and employees.  The Chief Justice and Justices Liu and Baxter cross-examined Boggs on these points as his time expired as to the rights in a Berman hearing that would be protected in arbitration.

In rebuttal, Locker may have saved the day, I don’t think so though if I had to bet on it.  He pointed out in no uncertain terms that there was a Berman waiver if not in name but in effect.  Further, he indicated that Little did not deal with the Berman issue and while there was an acknowledgment at the trial court level it is the denial of Berman rights that makes the agreement unconscionable.

Bottom line:  Two possible outcomes.  Either way Sonic I dies.  They could punt and remand the unconscionability analysis in light of Concepcion back to the trial court and articulate a standard for them to consider.  Justice Baxter was concerned at the outset about how much the plaintiff earned per hour so a modified Gentry test could be established without citing Gentry.  This would likely be a split decision 4-3 perhaps.  The other option is for them to order the matter to arbitration in a narrow 7-0 ruling though Justice Wederger might dissent.  It’s hard to say as she was so quiet.  In this view of the case I don’t think defense lawyers get a big ruling but rather the ruling would speak of the protections the arbitration agreement provided that were identical to the protections in the Berman hearing.  Since the plaintiff waived his right to contest this in any event they would be forced to send the case to arbitration.  Either way I don’t expect a sweeping ruling and I don’t think it will change much in arbitration jurisprudence.  We must wait for Iskanian, unless as Cliff Palefsky said at the conclusion of his argument “I beg you, don’t do it, don’t read tea leaves.”  I don’t think they will.  This plaintiff will likely lose but it won’t be that bad.  On the broader point of whether Gentry is a dead letter, I fear many of Justice Liu’s comments and he may be inclined to strike it down.  It’s hard to tell but I would not want to bet on it.

****

Thank you again, Eric.  I was promised one other report on the argument, which will go up when received. 

Supreme Court hears oral argument today in arbitration-related case: Sonic-Calabasas A, Inc. v. Moreno

This morning at 9:00 a.m., the Supreme Court will hear oral argument in Los Angeles in Sonic-Calabasas A, Inc. v. Moreno, S174475. This is an arbitration-related case, and while not a class action, it should be of interest because the Supreme Court is expected to construe Concepcion for the first time. 

See this blog post for more detail on the case. 

The Court granted requests of both parties to share their argument time.  Ten minutes of the employee's alloted argument time will go to CELA, and ten minutes of the employer's time will be shared with the California New Car Dealers Association. 

I am expecting to receive at least one report on the argument.  Check back here later for those. 

U.S. Supreme Court remands class certification case for further consideration: Whirlpool Corp. v. Glazer

Yesterday, the U.S. Supreme Court took action in one of the cases I've been following, Whirlpool Corp. v. Glazer, No. 12-322.  The Court granted the cert. petition, vacated the Sixth Circuit's opinion and remanded the case back "for further consideration in light of Comcast Corp. v. Behrend, 569 U.S. ___ (2013)." 

The docket indicates that both parties filed supplemental briefs last Thursday, March 28.  I haven't seen those briefs, but my guess would be that they both addressed Comcast, which was handed down on March 27. 

It will be interesting to see what the Sixth Circuit does with this case on remand.  Its original opinion was In re Whirlpool Corp. Front-Loading Washer Products Liab. Litig., 678 F.3d 409 (6th Cir. 2012), discussed in this blog post.

Pending cert. petition of interest: Pom Wonderful LLC v. The Coca-Cola Co.

In June, the Ninth Circuit handed down its opinion in Pom Wonderful LLC v. The Coca-Cola Co., 679 F.3d 1170 (9th Cir. 2012), discussed in this blog post.  Pom sued Coca-Cola for allegedly mislabeling its "pomegranate blueberry" juice, which according to the lawsuit actually consists mostly of grape and apple juices.  The Ninth Circuit allowed Pom's state-law claims, including its UCL claim, to proceed, but found the Lanham Act claims barred. 

In December, Pom filed a cert. petition with the U.S. Supreme Court.  POM Wonderful LLC v. The Coca Cola Co., No. 12-761 (U.S.).  The case was distributed for conference on March 22, 2013, and on March 25, the Court invited the Solicitor General to file a brief.  This development suggests some interest in the case. 

Pom Wonderful is mainly a Lanham Act case, but its UCL holdings are important, as the Court of Appeal recently recognized in Law Offices of Mathew Higbee v. Expungement Assistance Services, ___ Cal.App.4th ___ (Mar. 14, 2013) (discussed here).  This is the question presented, according to the cert. petition:

Whether the court of appeals erred in holding that a private party cannot bring a Lanham Act claim challenging a product label regulated under the Food, Drug, and Cosmetic Act.