The UCL Practitioner

New Ninth Circuit opinion on CAFA and standing: Polo v. Innoventions International, LLC

In Polo v. Innoventions International, LLC, ___ F.3d ___ (9th Cir. Aug. 18, 2016), the plaintiff brought UCL, CLRA, and other claims, alleging that she purchased the defendant's allegedly mislabeled diabetes medication, and that taking the medication made her diabetes worse.   The district court held that Article III standing was lacking, and dismissed the case.  The plaintiff appealed as to the CLRA class claim only, arguing that instead of being dismissed, the case should have been remanded back to state court, where it was initially filed before the defendant removed it under CAFA.  Slip op. at 4.  The Ninth Circuit agreed:

The rule that a removed case in which the plaintiff lacks Article III standing must be remanded to state court under § 1447(c) applies as well to a case removed pursuant to CAFA as to any other type of removed case.

Slip op at 7. The court then explained that the CLRA class claim might be viable in state court even if the plaintiff did not suffer "injury in fact" for Article III purposes: 

A plaintiff who purchased goods in light of deceptive practices has standing to sue pursuant to the CLRA if she alleges (a) that she purchased a product from the defendant, and (b) that “the purchase would not have been made but for the misrepresentation.” Kwikset Corp. v. Superior Court, 246 P.3d 877, 890 (Cal. 2011); see also Hinojos v. Kohl’s Corp., 718 F.3d 1098, 1108 (9th Cir. 2013). The injury Polo asserts with respect to her CLRA claim fits these requirements:

Plaintiff and California Class members suffered injuries caused by Defendants’ misrepresentations about DiabeStevia because: (a) Plaintiff and the California Class members would not have purchased DiabeStevia on the same terms had they known the true facts; (b) Plaintiff and the California Class paid a premium price due to the false and misleading advertising of DiabeStevia; and (c) DiabeStevia did not have the level of safety, quality, effectiveness or value as promised.

Polo’s standing to bring her CLRA claim does not depend upon her allegation that taking DiabeStevia made her diabetes worse. Indeed, with respect to Polo’s CLRA claim, when Polo ceased taking her diabetes medication—or whether she had diabetes at all—is irrelevant. What matters are her allegations that she thought she had diabetes; that Innoventions marketed DiabeStevia as a treatment for diabetes; and that but for that marketing, she would not have bought DiabeStevia.

Were that the end of the allegations, Polo would likely have standing under Article III. See Hinojos, 718 F.3d at 1104 n.3. But the district court held that because Innoventions fully compensated Polo for “her entire purchase price,” her CLRA claim is moot.⁵ Under California law, however, that sort of “picking off” of class plaintiffs is ineffective: “[O]nce a person has been the victim of a proscribed practice under the CLRA and makes a demand on behalf of a class, remedying the plaintiff’s individual complaint does not disqualify her as class representative.” Meyer v. Sprint Spectrum, L.P., 200 P.3d 295, 300 (Cal. 2009). Instead, to defeat a class action based on practices proscribed under the CLRA, the defendant “must adequately notify the members of the class and provide an opportunity for an appropriate remedy for the defective goods or services.” Id. (citing Cal. Civ. Code § 1782(c)).

Polo made a demand on behalf of a class on April 6, 2012. Innoventions refunded Polo’s purchase price on May 11, 2012, but does not contend that it provided the notice and remedy to class members required by the CLRA. See Cal. Civ. Code § 1782(c); Meyer, 200 P.3d at 300. Thus, Polo likely retains standing under California law. At a minimum, we cannot say with “absolute certainty” that remand would be futile. Therefore, the district court should have remanded this case to state court pursuant to 28 U.S.C. § 1447(c).

⁵ This conclusion is questionable, see Chen v. Allstate Ins. Co., 819 F.3d 1136, 1141–43 (2016), but Polo expressly waived any argument to the contrary on appeal. ....

Slip op. at 10-12 (footnote 4 omitted). 

It seems to me that the district court erred by dismissing the action in the first place. The "no-pickoff" rule applies in federal court, too.  See Gomez v. Campbell-Ewald Co., 768 F.3d 871, 874-75 (9th Cir. 2014) (discussed here); Diaz v. First American Home Buyers Protection Corp., 732 F.3d 948 (9th Cir. 2013) (discussed here); Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011) (discussed here).  Even if the medication did not worsen plaintiff's diabetes, if she purchased the mislabeled product, she probably has a viable CLRA claim, and if she doesn't, the defendant can't eliminate the case by picking her off, regardless of whether the case is in federal or state court.  The good news is the plaintiff can now proceed with the case in state court, which is where she wanted to be in the first place. It's too bad about all the wasted time and effort in federal court, though. 

"Employer alert: Your arbitration clause is going to be tested at SCOTUS"

This was an interesting article last week by Alison Frankel on the Ninth Circuit's opinion in Morris v. Ernst & Young, LLP, ___ F.3d ___ (9th Cir. Aug. 22, 2016) (discussed in this blog post).

The article points out that in May, the Seventh Circuit also held that the NLRA does not permit no-class-action arbitration clauses in employment contracts (notwithstanding the FAA and Concepcion).  Lewis v. Epic Systems C0rp., 823 F.3d 1147 (7th Cir. 2016).  Together, those two opinions create a split with the Fifth Circuit (in its D.H. Horton opinion) and the Second and Eighth Circuits.

The article notes that Epic Systems has sought an extension of time to file a cert. petition challenging the Seventh Circuit's decision (see this link for the docket), and the petition is now due on September 23.  The article colorfully concludes (and I tend to agree):

When the Supreme Court agrees to resolve the circuit split, it’s going to be a gigantic case, affecting hundreds of thousands if not millions of workers who have signed arbitration provisions with classwide waivers. The amici are going to be thick on the ground on this one.

[h/t: How Appealing]

Supreme Court takes up appellate standing issue: Hernandez v. Restoration Hardware

In June, the Supreme Court granted the petition for review in Hernandez v. Muller (Restoration Hardware), No. S233983.  This is the statement of the issue on review:

Must an unnamed class member intervene in the litigation in order to have standing to appeal? (See Eggert v. Pac. States S. & L. Co. (1942) 20 Cal.2d 199.)

(Hyperlink added.)  In an opinion handed down in March, the Court of Appeal said yes.  Hernandez v. Restoration Hardware, Inc., 245 Cal.App.4th 651 (2016), review granted.  (The grant of review renders the opinion uncitable pursuant to former Rule of Court 8.1115.)

Hernandez is a class action alleging violations of the Song-Beverly Credit Card Act.  245 Cal.App.4th at 654.  After class certification, the case went to trial, and the class prevailed.  Judgment in the amount of approximately $36 million was entered.  Id. at 655.  Plaintiffs then moved for an award of attorneys' fees for class counsel from out of the common fund.  An unnamed class member opposed the motion, and argued, among other things, that notice of the fee motion should be provided to all class members, and an opportunity object afforded.  The trial court disagreed, and granted the fee motion in full.  Id. at 656.  The objector appealed.

The Court of Appeal dismissed the appeal for lack of jurisdiction, holding that the unnamed class member was not a "party," as required for standing to appeal under Code of Civil Procedure section 902 and the Supreme Court's opinion in Eggert, which the Court of Appeal described as "on all fours" and binding under Auto Equity Sales.  245 Cal.App.4th at 658-63.

The Court of Appeal did not reach the objector's substantive complaints about the fee award, which included the argument that the trial court, "by calculating the award based on a percentage of the common fund rather than by a properly rigorous lodestar multiplier approach, transgressed controlling California precedent."  Id. at 657.  This argument was, of course, rejected in Laffitte this month (as discussed in this blog post).  The objector in Hernandez is represented by the same counsel as the objector in Laffitte.  The opening brief is due on September 19, 2016.

Recent opinion addressing UCL's extraterritorial reach: Aghaji v. Bank of America, N.A.

In Aghaji v. Bank of America, N.A., 247 Cal.App.4th 1110 (May 31, 2016), more than 200 plaintiffs from California and other states brought UCL and other claims against numerous lenders and loan servicers related to the handling of their home mortgages.  Id. at 1112-13.

Among other holdings, the Court of Appeal (Second Appellate District, Division Four) determined that the non-California plaintiffs could not assert UCL claims without alleging that the harm they suffered emanated from California, which their complaint failed to do:

In addition to alleging facts sufficient to show violations of [the underlying federal regulations on which the UCL claims were predicated], plaintiffs who are not California residents must also allege facts to show that the alleged violations occurred within California, because California's unfair competition law does not apply extraterritorially. (See Sullivan v. Oracle Corp. (2011) 51 Cal.4th 1191, 1207; Norwest Mortgage, Inc. v. Superior Court (1999) 72 Cal.App.4th 214, 222-227.)  Plaintiffs assert in their appellants' reply brief that “although many of the Defendant servicers are entities formed in states other than California and have their headquarters outside of California, they have processing facilities and personnel in California and, upon information and belief, that is where the misapplied payments were received or that is from where the improper charges or improper crediting of payments occurred with respect to out of state Plaintiffs/Appellants.” But plaintiffs' assertion is insufficient for two reasons. First, plaintiffs state that many—not all—defendant servicers have facilities and personnel in California, and therefore appear to concede that at least some of the defendants do not. Second, plaintiffs do not disclose what information they have that leads them to believe that the alleged violations occurred in those California facilities. (See Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1158-59 [“a pleading made on information and belief is insufficient if it ‘merely assert[s] the facts so alleged without alleging such information that “lead[s] [the plaintiff] to believe that the allegations are true” ’ ”].)

In short, plaintiffs have not shown that they can truthfully allege facts necessary to allege a violation of [the underlying statutes] in California as to any plaintiff, let alone all plaintiffs.  ....

Id. at 1119-20 (emphasis in original).  My original post on Sullivan is here.  See this post for a discussion of Norwest Mortgage. 

Recent UCL preemption decision: Roberts v. United Healthcare Services, Inc.

In Roberts v. United Healthcare Services, Inc., ___ Cal.App.4th ___ (Aug. 4, 2016), the Court of Appeal (Second Appellate District, Division Two) held that UCL, FAL, and other claims brought on behalf of a putative class of members of a health care plan governed by the federal Medicare Advantage program (a Part C plan) were expressly preempted by the Medicare Act.  Slip op. at 7-16.

With express preemption clauses, Congress’s intent to preempt is clear; our job is reduced to “‘“‘identify[ing] the domain expressly pre-empted.’”’”  (Quesada, supra, 62 Cal.4th at p. 308, quoting Brown v. Mortensen (2011) 51 Cal.4th 1052, 1062.)  The “best evidence concerning th[at] breadth” is “the statutory text” itself.  (Quesada, at p. 308.)  Here, the plain language of section 1395w-26(b)(3) plainly spells out Congress’s intent that the standards governing Medicare Advantage plans will displace “any State law or regulation” except for State laws regarding licensing or plan solvency.  (Italics added.)  Because the Secretary has promulgated standards governing the content of a Medicare Advantage plan’s marketing materials (42 C.F.R. §§ 422.2260-422.2276) as well as the adequacy of its network (42 C.F.R. §§ 422.100 & 422.112), those standards fall within the ambit of the preemption clause.  Because plaintiff’s claims for violation of the unfair competition law, for unjust enrichment and for financial elder abuse do not deal with either of the preemption clause’s exceptions for licensing or plan solvency, they are preempted “with respect to [United Healthcare’s] plan.”

Slip op. at 9.

Ninth Circuit declines to enforce no-class-action abitration clause in employment contract: Morris v. Ernst & Young, LLP

In Morris v. Ernst & Young, LLP, ___ F.3d ___ (9th Cir. Aug. 22, 2016), the Ninth Circuit held that a class action ban in an employment contract's arbitration clause ran afoul of the National Labor Relations Act because the provision prohibited concerted, collective action by employees.  In so holding, the court adopted the NLRB's reasoning in In re D. R. Horton, Inc., 357 NLRB No. 184, 2012 WL 36274 (N.L.R.B. Jan. 3, 2012) (even though the Fifth Circuit later overruled that decision).  Slip op. at 6-14.  

Chief Judge Thomas, writing for the two-judge majority, explained why the class action ban (which required that all employment-related disputes be adjudicated in "separate proceedings" in arbitration) was unenforceable notwithstanding the Federal Arbitration Act and Concepcion.  Id. at 14-26. In particular:

The illegality of the “separate proceedings” term here has nothing to do with arbitration as a forum. It would equally violate the NLRA for Ernst & Young to require its employees to sign a contract requiring the resolution of all work-related disputes in court and in “separate proceedings.” The same infirmity would exist if the contract required disputes to be resolved through casting lots, coin toss, duel, trial by ordeal, or any other dispute resolution mechanism, if the contract (1) limited resolution to that mechanism and (2) required separate individual proceedings. The problem with the contract at issue is not that it requires arbitration; it is that the contract term defeats a substantive federal right to pursue concerted work-related legal claims.

Id. at 16 (footnote omitted).  Later in the opinion, Chief Judge Thomas reiterated the point:

The dissent makes dire predictions about the future of workplace arbitration if the holding is not that arbitration may not be used in workplace disputes. Quite the contrary. Rather, our holding is simply that when arbitration or any other mechanism is used exclusively, substantive federal rights continue to apply in those proceedings. The only role arbitration plays in today’s case is that it happens to be the forum the Ernst & Young contract specifies as exclusive.  The contract here would face the same NLRA troubles if Ernst & Young required its employees to use only courts, or only rolls of the dice or tarot cards, to resolve workplace disputes—so long as the exclusive forum provision is coupled with a restriction on concerted activity in that forum. At its heart, this is a labor law case, not an arbitration case.

....  Do not be misled. Arbitration is consistent with, and encouraged by, the NLRA following today’s opinion.

Id. at 24-26 (emphasis in original).  The opinion leaves it to the district court to determine whether the "separate proceedings" provision "is severable from the contract."  Id. at 27. 

Judge Ikuta dissented (id. at 27-44), explaining that in his view, invalidating the class action ban is contrary to the FAA and the Supreme Court's view (expressed in Concepcion and other decisions) that "arbitration agreements must be enforced according to their terms unless Congress has given an express contrary command."  Id. at 43 (Ikuta, J., dissenting).  The majority disagreed with this framing of the issue, but it also believed that the NLRA contained a sufficiently "express contrary command."   See id. at 23.  Judge Ikuta did not agree.  See id. at 31-36.

The California Supreme Court concurred with Judge Ikuta on this point in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348, 366-74 (2014).  Justice Werdegar strenuously dissented.  Id. at 397-406.  The U.S. Supreme Court denied the ensuing cert. petition in early 2015.  It seems probable that Ernst & Young will file a cert. petition here, perhaps preceded by a petition for en banc rehearing.

Supreme Court depublishes UCL and CLRA standing opinion: Brooks v. CarMax Auto Superstores California LLC

On August 10, 2016, the Supreme Court issued an order depublishing the Court of Appeal's opinion in Brooks v. CarMax Auto Superstores California LLC, 246 Cal.App.4th 973 (2016), which was handed down in April. 

The opinion, which is now uncitable, summarizes the claims and trial court's ruling as follows:

After a court trial on stipulated facts, the court ruled Brooks had suffered no damage from CarMax's alleged violations of [Vehicle Code] section 11713.18 [which governs mandatory CQI Certificates for "certified" used vehicles], and therefore concluded she did not have standing to pursue claims under the CLRA or the UCL.  The court entered judgment for CarMax.  Brooks asserts on appeal that reversal is required because she adequately demonstrated the type of damage necessary to prosecute a claim under the CLRA or the UCL or, alternatively, she was entitled to prosecute her claims under the CLRA or the UCL without showing any injury.

Slip op. at 2. The Court of Appeal (Fourth Appellate District, Division One) disagreed with the trial court on the standing points, but affirmed the judgment after finding no deficiency in the defendant's CQI Certificate:

We agree with Brooks that the legislative scheme contemplates certain minimal standards must be met before a dealer may promote or sell a vehicle as certified, among which is that a dealer must provide a "completed inspection report indicating all the components inspected" to the buyer.  We also agree that, if those standards are not satisfied, a vehicle marketed and sold as certified has been mislabeled, and a buyer who establishes they would not have purchased the vehicle absent that "certified" label has standing to pursue claims for violation of the CLRA and UCL under the rationale of Kwikset, regardless of whether the particular vehicle purchased might be as mechanically sound or intrinsically valuable as a certified vehicle.

However, we conclude the trial court correctly entered judgment against Brooks (Rappleyea v. Campbell, supra, 8 Cal.4th at p. 981) because we reject Brooks's claim that the CQI Certificate was deficient in its content. ....

.....

Although the trial court premised its judgment on Brooks's lack of actual injury, we affirm the judgment as correct (Rappleyea v. Campbell, supra, 8 Cal.4th at p. 981) because we conclude both the content of the CQI Certificate and the mode it was provided to Brooks satisfied the requirements of section 11713.18, subdivision (a)(6).

Id. at 12-13, 20 (emphasis in original).

The successful depublication request was filed by Consumers for Auto Reliability and Safety, which presumably disagreed with the Court of Appeal's reading of the CQI certification requirements.

Judicial Conference Committee on Rules of Practice and Procedure proposed amendments to Rule 23

This month, the Judicial Conference Committee on Rules of Practice and Procedure published a preliminary draft of proposed amendments to Federal Rule of Civil Procedure 23, governing class actions.  The proposed changes to Rule 23, and the proposed Committee Note, appear at pp. 211-232 of the pdf file. 

To my eye, most of the changes do nothing more than codify what is already standard class action practice and procedure.  Only one of the changes stands out.  Proposed amended Rule 23(e)(5)(B) would require court approval of any payment (or other "consideration") to an objector (or objector's counsel) to drop the objection.  This would weaken professional objectors' leverage and perhaps deter frivolous objections. 

Last week, the National Law Journal had an article (subscription) on this proposed amendment:

Many practitioners say they see the rules change as a means of curbing what they consider to be an abuse of the class action settlement process.

"What's new about that proposal is it basically says that an objector can't be paid off to drop their objection without approval by the district court," said Leslie Brueckner, senior attorney at Public Justice. "That could have a big impact because it could effectively halt the problem of so-called 'professional objectors,' who basically hold up class action settlements for their own pecuniary gain, by basically exposing that kind of practice to the light of day."

(Hyperlink added.)  Comments on the proposed rule changes (which include changes to other provisions besides Rule 23) are due on February 15, 2017.

An opinion on fees to consider in view of Laffitte: Roos v. Honeywell International, Inc.

In November 2015—well after the merits briefing in Laffitte was complete—the Court of Appeal (First Appellate District, Division One) handed down its opinion in Roos v. Honeywell International, Inc., 241 Cal.App.4th 1472 (2015).  Roos is another case involving an objector's challenge to the fees awarded to class counsel, and I remember thinking at the time that it was a good candidate for a "grant and hold" pending resolution of Laffitte. However, no review petition was filed.

Roos addresses many of the same topics considered in Laffitte.  The opinion's discussion of the history of the lodestar-multiplier method and the percentage method under federal and California law (Roos, 241 Cal.App.4th at 1490-94) is ground thoroughly covered by Justice Werdegar in Laffitte (slip op. at 8-27).  To the extent there may be any inconsistencies between the two opinions, Laffitte, of course, governs.  The Roos analysis is informed by the no-longer-accurate assumption that "[t]he extent to which the percentage-of-recovery method should be relied upon in common-fund cases litigated in California courts remains unresolved."  Roos, 241 Cal.App.4th at 1492.  In Laffitte, the Supreme Court resolved that question (to the extent there was ever any doubt) by holding that the percentage method is alive and well in common fund cases. 

Relying on Serrano, the Roos opinion also describes the lodestar method as "the primary means of calculating the reasonableness of attorney fees in California."  Id. at 1495 (citing Serrano v. Priest, 20 Cal.3d 25, 48 n.23 (1977)).  This sentence from Roos can no longer be considered good law.  In Laffitte, the Supreme Court rejected the argument that the cited Serrano footnote means that the lodestar method should be accorded primacy in common fund cases.  Laffitte, slip op. at 20-21. 

I do think that the outcome in Roos would have been the same under Laffitte.  The Court of Appeal affirmed an order granting class counsel's motion for a fee award amounting to 37.5% of the settlement fund, which represented a fractional lodestar multiplier of 0.20.  Roos, 241 Cal.App.4th at 1480.  Laffitte makes clear that such an exercise of discretion is unlikely to be disturbed.

The Roos opinion also has interesting discussions of class member standing to object (241 Cal.App.4th at 1483-86) and the propriety of distributing residual settlement funds to cy pres recipients (id. at 1487-88).  The opinion is well worth a re-read after Laffitte.

SCOCAblog analysis of Laffitte v. Robert Half International Inc.

Professors David Levine and Scott Dodson of U.C. Hastings, writing for SCOCAblog, have this detailed analysis of the Supreme Court's opinion in Laffitte v. Robert Half International Inc., ___ Cal.4th ___ (Aug. 11, 2016).  My own analysis of the opinion is here. 

Over at The Complex Litigator, Scott Leviant also has a post on the opinion.  His comments begin, "I take this opportunity to say I told you so." 

Amended rules governing publication of Court of Appeal opinions

For over a century, the rule in California has been that when the Supreme Court grants review, the Court of Appeal's opinion, if previously published, is automatically depublished and rendered uncitable, unless the Supreme Court otherwise directs.  See Former Rule of Court 8.1105, subd. (e)(1). 

Effective July 1, 2016, this has changed.  The Rules of Court were amended to state that a grant of review by the Supreme Court no longer automatically depublishes a published Court of Appeal opinion.  Instead, a published Court of Appeal opinion "may be cited for potentially persuasive value."  Rule of Court 8.1105, subd. (e)(1).  However, while review is pending, the opinion "has no binding or precedential effect," and "[a]ny citation to the Court of Appeal opinion must also note the grant of review and any subsequent action by the Supreme Court."   Id.

After the Supreme Court renders its decision on review, the Court of Appeal opinion then becomes both “citable and has binding or precedential effect, except to the extent it is inconsistent with the decision of the Supreme Court or is disapproved by that court.”  Id., subd. (e)(2) (emphasis added). 

Since the July 1 effective date, the Supreme Court has granted review in six cases in which the Court of Appeal's opinion was published.  Five of those are criminal or habeas matters; the fifth is an anti-SLAPP case, Crossroads Investors, L.P. v. Federal National Mortgage Association, 246 Cal.App.4th 529 (2016), review granted, No. S234737 (Cal. Jul. 27, 2016). 

Westlaw is on top of things.  The Crossroads opinion is shown with a yellow flag and a citation to the amended Rule, whereas the Court of Appeal's opinion in Laffitte, in which review was granted before the effective date of the amended Rule, is shown with a red flag. 

Judge Kozinski on overlength briefs in the Ninth Circuit: Cuevas v. Hartley

Recently, in Cuevas v. Hartley, ___ F.3d ___ (9th Cir. Aug. 4, 2016), Judge Kozinski dissented from an order granting the California Attorney General leave to file an overlength brief — which he referred to as a "fat" and "chubby" brief — that exceeded the word-count limit of Circuit Rule 32 (a)(7)(B)(i).  He said that "no coherent explanation" was given for why the AG needed an extra 14 pages of briefing space: 

This has become a common and rather lamentable practice: Instead of getting leave to file an oversized brief before the deadline, lawyers wait for the last minute to file chubby briefs and dare us to bounce them. Of course, it’s hard to decide cases without a brief from one of the parties, and denying the motion usually knocks the briefing and argument schedule out of kilter. Denying the motion is thus more trouble than allowing the brief to be filed and putting up with the additional unnecessary pages. Sly lawyers take advantage of this institutional inertia to flout our page limits with impunity. This encourages disdain for our rules and penalizes lawyers, like petitioner’s counsel, who make the effort to comply.

Slip op. at 3-4 (emphasis added).

He went on to say that he would not read past the first 14,000 words of the overlength brief, and invited the state to file, within 7 days, "a substitute brief" that met the word-count limit.  Id. at 4. 

The lesson is obvious: comply with the word-count limit, or provide strong justifications for requesting extra space.  I do feel for the AG's lawyers, however.  Judge Kozinski must have had good reasons for suggesting that they had engaged in "sly" behavior that showed "disdain" for the rules, but it is always disappointing when judges become so frustrated that they use that kind of language about members of the bar.  "Sly" essentially means dishonest, which is a heavy accusation to hear from any judge, let alone a former Chief Judge of the Ninth Circuit. 

Recent Ninth Circuit class certification opinion: Moyle v. Liberty Mutual Retirement Benefit Plan

In Moyle v. Liberty Mutual Retirement Benefit Plan, 823 F.3d 948 (9th Cir. May 20, 2016), the Ninth Circuit affirmed both class certification and the judgment in an action against an ERISA employee benefit plan.

The case asserted a series of claims arising out of alleged misstatements in the summary plan description.  Id. at 956.  The district court and the Ninth Circuit both rejected the argument that individualized proof of reliance was necessary, or that it precluded class certification: 

[W]e affirm the district court on the ground that where the defendant's representations were allegedly made on a uniform and classwide basis, individual issues of reliance do not preclude class certification. See Hanon v. Dataproducts Corp., 976 F.2d 497, 509 (9th Cir. 1992) (“We emphasize that the defense of non-reliance is not a basis for denial of class certification.”). Therefore, the district court correctly held that Appellants met the commonality and typicality requirements.

Id. at 964-65.  The Ninth Circuit also held that common questions predominated, and that class certification was proper even though "some [class members potentially] would receive relief while others would not."  Id. at 965.

On the merits, however, the Ninth Circuit affirmed summary judgment in the defendant's favor on all but one claim, holding that reliance, classwide or otherwise, had not been proven.  Id. at 962-64.  The upshot, therefore, is that the class members are bound by this judgment. 

Supreme Court confirms percentage method is alive and well in common fund cases: Laffitte v. Robert Half Int'l Inc.

Yesterday, in Laffitte v. Robert Half International Inc., ___ Cal.4th ___ (Aug. 11, 2016), the Supreme Court confirmed that the law is what we thought it was all along:

We therefore agree with the Court of Appeal below that “[t]he percentage of fund method survives in California class action cases, and the trial court did not abuse its discretion in using it, in part, to approve the fee request in this class action.”  We hold further that trial courts have discretion to conduct a lodestar cross-check on a percentage fee, as the court did here; they also retain the discretion to forgo a lodestar cross-check and use other means to evaluate the reasonableness of a requested percentage fee.

Slip op. at 31. And, if the trial court does choose to conduct a lodestar cross-check, it may rely on "counsel declarations summarizing overall time spent," and need not "demand[] and scrutiniz[e] daily time sheets in which the work performed [is] broken down by individual task."  Id. at 30.

Justice Werdegar's carefully drafted opinion catalogs the history of the percentage method and the lodestar-multiplier method, both nationally (id. at 8-18) and in California (id. at 18-27).  Notably, the opinion did not adopt any "benchmark" for percentage awards, even after observing that the Ninth Circuit had "approved" a 25% benchmark.  Id. at 15 (citing Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1047 (9th Cir. 2002)).  Instead, the Court affirmed an award of one third (33.33%) of the common fund.  See id. at 2-5. 

In fact, given that the Supreme Court declined to adopt a 25% benchmark, it would seem that such a benchmark should no longer apply in federal court, either, in cases in which California law governs the fee motion.  In Vizcaino, the lead Ninth Circuit decision adopting the 25% benchmark, both the claims and the fee motion were governed by Washington law, and the Ninth Circuit relied on a Washington Supreme Court decision in which a 25% benchmark was adopted. Vizcaino, 290 F.3d at 1047 (citing Bowles v. Dep't of Ret. Sys., 847 P.2d 440, 451 (Wash. 1993)).  After Laffitte, there is no reason for the Ninth Circuit to continue to apply this benchmark in cases governed by California law. 

The Laffitte opinion also definitively rebuffs any suggestion that the percentage method was rejected for common fund cases in Serrano v. Priest, 20 Cal.3d 25 (1977) ("Serrano III"):

For his claim that Serrano III mandates primary use of the lodestar method in every case, the objector relies on ... our allusions to “ ‘the court’s role in equity’ ” in awarding fees, a role that includes awards in common fund cases, and to the lodestar as the “ ‘starting point of every fee award.’ ”  (Serrano III, supra, 20 Cal.3d at p. 48, fn. 23, italics added.)  The quoted text and footnote, however, concern calculation of a fee awarded under the private attorney general theory.  In Serrano III,  this court simply did not address the question of what methods of calculating a fee award may or should be used when the fee is to be drawn from a common fund created or preserved by the litigation.  For this reason, the passages quoted cannot fairly be taken as prohibiting the percentage method’s use in a common fund case.

....  Had we meant, in our later discussion of the lodestar calculation of a private attorney general fee, to disapprove the percentage method of calculation used in these common fund cases, we would have said so.

Slip op. at 20-21. 

I think Laffitte will, as a practical matter, change little about the way percentage fees are calculated and awarded in state court cases.  It may end up having a broader impact in federal cases governed by California law, so many of which land in federal court due to CAFA.  An argument might be made that we (the plaintiffs' bar) dodged a bullet with this opinion, but I don't think the Supreme Court ever planned to fire one when it decided to take up this case.  I believe it wished to forestall misreadings of Serrano III and to prevent erosion of the law confirming the vitality of the percentage method in common fund cases in California. 

Supreme Court to hand down attorneys' fees opinion today: Laffitte v. Robert Half International

The Supreme Court has announced that this morning it will hand down its opinion in Laffitte v. Robert Half International, no. S222996.  When the opinion is posted online at approximately 10:00 a.m., it should be available at this link:

• Laffitte v. Robert Half International, ___ Cal.4th ___ (Aug. 11, 2016)

This is the issue on review, according to the docket:

Does Serrano v. Priest (1977) 20 Cal.3d 25 permit a trial court to anchor its calculation of a reasonable attorney's fees award in a class action on a percentage of the common fund recovered?

(Hyperlink added.)  The Court of Appeal said yes.  Laffitte v. Robert Half Int'l Inc., 231 Cal.App.4th 860 (2014), review granted.  For more on the case, see these blog posts.

Class action fee opinion to be handed down this month: Laffitte v. Robert Half International

On May 27, 2016, the Supreme Court heard oral argument in Laffitte v. Robert Half International, no. S222996.  This is the case in which the Court of Appeal (Second Appellate District, Division Seven) affirmed an attorneys' fees award in a wage and hour class action of 33.33% of the $19 million common fund. Laffitte v. Robert Half Int'l Inc., 231 Cal.App.4th 860 (2014), review granted. My original post on the opinion is here. 

The opinion was initially unpublished; my publication request for CAOC was one of two filed in late 2014. 

The objector's petition for review was granted  in February 2015.  The petition essentially argued that the percentage method should never be used in common-fund cases, and that under Serrano v. Priest, 20 Cal.3d 25 (1977), fees should be fixed using only the lodestar method — even though Serrano was not a common-fund case and contained no such holding.  The subsequently-filed merits briefs included a laundry list of other things the objector thought the trial court should have done differently in ruling on the fee motion. 

U.C. Hastings Professors David Levine and Scott Dodson had an excellent and detailed summary of the oral argument at SCOCAblog in June. Based on the justices' questioning, they concluded that "it seems fairly clear that the court will conclude that Serrano does permit a trial court to anchor its fee calculation in a class action on a percentage of the common fund recovered."  The only question, according to the professors, is how much "additional guidance" the Court will provide for future fee motions. 

We can expect the opinion by Thursday, August 25, 2016 (ninety days from May 27, 2016). 

UPDATE:  This afternoon, the Supreme Court posted its bi-weekly Notice of Forthcoming Filings indicating that its opinion in Laffitte will be filed tomorrow, August 11, 2016.  

Merits determination at class certification stage: Palacio v. Jan & Gail's Care Homes, Inc.

I'm catching up on opinions of interest handed down during my blogging hiatus.  Here's a decision from last December.

In Palacio v. Jan & Gail's Care Homes, Inc., 242 Cal.App.4th 1133 (Dec. 7, 2015), a wage and hour case, the trial court denied class certification after holding that the plaintiff had not proven a uniform unlawful policy -- because the alleged policy was not unlawful.  Id. at 1137.  The Court of Appeal affirmed this merits determination and the ensuing order denying class certification.  Id. at 1138. 

The opinion does not mention the long-established general rule that merits questions should not be considered at the certification stage, and that courts should instead "assum[e] for purposes of the certification motion that any claims have merit."  Brinker Restaurant Corp. v. Superior Court, 53 Cal.4th 1004, 1023 (2012).  Evidently, the plaintiffs did not raise this argument on appeal, perhaps for strategic reasons.  Sometimes, if you're going to lose your case on the merits, it's better to find that out early.

The merits question considered by the Court of Appeal involved employees of a 24-hour residential care facility governed by Wage Order 5.  Under paragraph 11(E), such facilities may require on-duty meal periods if certain conditions are met, but these facilities need not also comply with paragraph 11(A), a "general provision" that governs agreed on-duty meal periods, not required ones.  Palacio, 242 Cal.App.4th at 1138-41.

Recent decision affirms denial of class certification: Schermer v. Tatum

Earlier this year, in Schermer v. Tatum, 245 Cal.App.4th 912 (Mar. 18, 2016), the Court of Appeal (Fourth Appellate District, Division One) affirmed the trial court's order sustaining the defendants' demurrer to the class allegations without leave to amend. The action alleged UCL and other violations in connection with various aspects of defendants' operation of eighteen separate mobilehome parks.

In a fact-heavy discussion, the Court of Appeal determined that common questions did not predominate.  Id. at 922-30.

New class certification opinion: Schmidt v. California Highway Patrol

In Schmidt v. California Highway Patrol, ___ Cal.App.4th ___ (Aug. 1, 2016), the Court of Appeal (Second Appellate District, Division Six) affirmed an order granting class certification (slip op. at 8-9), as well as the ensuing judgment (id. at 10-11) and attorneys' fees award under Code of Civil Procedure section 1021.5 (id. at 11-12).

The opinion (briefly) discusses the elements of class certification, mainly ascertainability, numerosity and typicality.  A class consisting of "the vast majority" of 187 persons was sufficiently numerous; the class members' identities need not be proven at the certification stage; and "[t]ypicality refers to the nature of the claim of the class representative, not the specific facts from which the claim arose.  (Seastrom v. Neways, Inc. (2007) 149 Cal.App.4th 1496, 1502.)"  Slip op. at 9.

New class settlement opinion: Duran v. Obesity Research Institute, LLC

In Duran v. Obesity Research Institute, LLC, ___ Cal.App.4th ___ (Jun. 23, 2016; pub. ord. Jul. 15, 2016), the Court of Appeal (Fourth Appellate District, Division One) reversed an order granting final approval of a nationwide, claims-made class action settlement.  The case alleged CLRA and UCL violations against the maker of certain dietary supplements that were allegedly not "clinically proven" to help users lose weight, contrary to assertions made on the package. 

Among other problems, the court noted that certain statements in the claim form (which the court treated as part of the class notice) were inconsistent with the terms of the parties' revised settlement agreement.  See slip op. at 13-15. One of the problems was that the claim form referred to products that were excluded from the scope of the settlement!  Id. at 13. It sounds like the parties amended the original settlement agreement in response to the trial court's comments at an initial approval hearing, but forgot to make corresponding changes to the claim form.  See id. at 14.  The Court of Appeal considered this problem so significant (and no wonder) that it reversed on that ground, even though the objectors had not raised the issue, either below or in their appellate briefing.  Id. at 15-17.

The panel then turned to the method of class notice to be provided on remand (assuming preliminary approval is again granted).  Id. at 18-24.  Direct notice was sent by email to those who purchased the products on the defendant's website (but not those who purchased the products on Wal-Mart's website); published notice was made in USA Today; and a settlement website was established.  Id. at 19.  The court held that evidence should have been presented on the feasibility and cost of obtaining contact information for, and providing direct notice to, class members who purchased online from Wal-Mart, Amazon, CVS, Walgreens, and other retailers.  Id. at 19-21. 

The court also directed the lower court to reconsider whether published notice in USA Today was sufficient, observing that the products were never advertised in that paper, and noting the lack of evidence that the parties made any effort to target the relevant demographic (i.e., people interested in weight loss).  Id. at 21-24.  "For example, in Wershba, supra, 91 Cal.App.4th at page 251, a class action involving support for Apple computers, notice was published not only in USA Today, but also in MacWorld."  Id. at 23.

Finally, the court held that the injunctive relief portion of the settlement, which required the defendant to make certain changes to its advertising, was "illusory" and duplicated relief already obtained by the FTC in a related proceeding.  Id. at 24-26.  "As such, it is difficult to conceive how this injunctive relief adds value."  Id. at 26.

New Ninth Circuit class certification opinion: Vaquero v. Ashley Furniture Industries, Inc.

In June, the Ninth Circuit handed down a wonderful new class certification opinion, Vaquero v. Ashley Furniture Industries, Inc., ___ F.3d ___ (9th Cir. Jun. 8, 2016). 

Vaquero is a wage and hour class action alleging that the defendant, who paid its sales associates on commission, failed to pay for time the associates spent working on tasks unrelated to sales.  Citing Dukes, the Court held that those allegations presented common questions: 

[T]he complaint contains a “common contention” that easily “is capable of classwide resolution”: it is one type of injury allegedly inflicted by one actor in violation of one legal norm against a relatively small number of class members who all generally performed the same work. Dukes, 564 U.S. at 350. The district court permissibly concluded that Vaquero had pleaded a common injury capable of class-wide resolution.

Slip op. at 7.

The court also reconfirmed that even in the post-Comcast world, under the Ninth Circuit's own precedents, including Yokoyama, Leyva, Jimenez, and Pulaski & Middleman, variations in damages do not defeat class certification:

Our precedent is well settled on this point. In Yokoyama, we held that “damage calculations alone cannot defeat certification.” 594 F.3d at 1094. That is, the “amount of damages is invariably an individual question and does not defeat class action treatment.” Id. (quoting Blackie v. Barrack, 524 F.2d 891, 905 (9th Cir. 1975)). We have repeatedly confirmed the Yokoyama holding that the need for individualized findings as to the amount of damages does not defeat class certification. See Leyva, 716 F.3d at 514 (holding that “the presence of individualized damages cannot, by itself, defeat class certification under Rule 23(b)(3)”); Jimenez v. Allstate Ins. Co., 765 F.3d 1161, 1167 (9th Cir. 2014) (holding that Leyva was the “controlling case,” and that individual damages calculations did not defeat class certification), cert. denied, 135 S. Ct. 2835 (2015). Indeed, “Yokoyama remains the law of this court, even after Comcast.” Pulaski & Middleman, 802 F.3d at 988.

Slip op. at 9.  (Notably, on June 6, 2016, the U.S. Supreme Court denied the cert. petition in Pulaski & Middleman.)

The opinion also considers the U.S. Supreme Court's decision, handed down in March, in Tyson Foods, Inc. v. Bouaphakeo, 136 S.Ct. 1036 (2016).  In Tyson Foods, the Supreme Court "declined to establish" a "'broad rule against the use in class actions of what the parties call representative evidence.'"  Vaquero, slip op. at 10 (quoting Tyson Foods, 136 S.Ct. at 1046).  Instead, the Supreme Court "held that class certification was appropriate even though class members might have to prove liability and damages individually."  Id. (citing Tyson Foods, 136 S.Ct. at 1046) (emphasis in original).  The opinion goes on to cite claim forms and special master proceedings as examples of management tools that would not preclude assertion of individual defenses, and to note that Tyson Foods permits use of representative sampling in a proper case.  Id. at 11-12.

Congratulations to my friends Michael Rubin, Kevin Barnes, Gregg Lander, and Michael Singer on this great result.

You know, after Dukes, and again after Comcast, I was very concerned that those opinions would be misconstrued in the lower courts and employed as tools to deny class certification far more often than we had previously seen.  These fears were unfounded, at least within the Ninth Circuit. 

Recent Ninth Circuit UCL opinion: Beaver v. Tarsadia Hotels

In Beaver v. Tarsadia Hotels, 816 F.3d 1170 (9th Cir. Mar. 10, 2016), the Ninth Circuit considered a UCL "unlawful" prong claim predicated on violation of a federal statute.  The UCL's four-year statute of limitations governed, the court held—not the shorter limitations period of the "borrowed" federal statute.  Id. at 1177-78.  Nor did the shorter limitations period preempt "the UCL's more generous" one.  Id. at 1778-81.

A cert. petition was filed in June and remains pending.  Possibly, the petition focuses on the court's holdings in the second half of the opinion, which considered whether the "borrowed" federal statute (the Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1701 et seq.) applied to the defendant's conduct.  Id. at 1781-88. 

Many thanks to the blog reader who brought this case to my attention.  Although I have not been blogging as frequently this year as I have in the past, I always enjoy and appreciate hearing from my wonderful readers. 

New class arbitration opinion: Sandquist v. Lebo Automotive, Inc.

In Sandquist v. Lebo Automotive, Inc., ___ Cal.4th ___ (Jul. 28, 2016), the Supreme Court considered who decides whether an arbitration agreement prohibits or allows class arbitration:  the arbitrator, or the court?  Justice Werdegar's majority opinion holds that the answer depends on the parties' agreement, which is construed under state-law contract principles.  Slip op. at  4-5.  In the particular arbitration clause before the Court, the parties agreed that the arbitrator would decide.  Id. at 6-12.  Federal law did not mandate a different result.  Id. at 15-29.

Justice Kruger filed a dissenting opinion, in which she was joined by Justices Chin and Corrigan.  The dissent reasoned that federal law does, in fact, dictate that the class arbitrability question be determined by the court, not the arbitrator, because it is  a "gateway question of arbitrability."  Dissent, slip op. at 2. 

A cert. petition seems likely here.