The UCL Practitioner

Supreme Court confirms broad scope of Civil Discovery Act: Williams v. Superior Court (Marshalls of CA, LLC)

Yesterday, the Supreme Court held that the trial court abused its discretion by placing unreasonable restrictions on the plaintiff's right to seek discovery of percipient witness names and contact information in an action under the Labor Code Private Attorneys General Act ("PAGA").  Williams v. Superior Court (Marshalls of CA, LLC), ___ Cal.5th ___ (Jul. 13, 2017).

The unanimous opinion by Justice Werdegar (perhaps one of her last opinions before her retirement) confirms principles of civil discovery that will have broad application not only in PAGA cases, but also in class actions and in civil litigation generally.

For example, right off the bat, the opinion begins with this summary of its core holdings:

Our prior decisions and those of the Courts of Appeal firmly establish that in non-PAGA class actions, the contact information of those a plaintiff purports to represent is routinely discoverable as an essential prerequisite to effectively seeking group relief, without any requirement that the plaintiff first show good cause.  Nothing in the characteristics of a PAGA suit, essentially a qui tam action filed on behalf of the state to assist it with labor law enforcement, affords a basis for restricting discovery more narrowly. 

Slip op. at 2.  The opinion subsequently confirms that in any putative class or representative action seeking relief on behalf of others, the "default rule" is that contact information for others whom the defendant may have harmed is discoverable:

On its face, the complaint alleges Marshalls committed Labor Code violations, pursuant to systematic companywide policies, against Williams and others among its nonexempt employees in California, and seeks penalties and declaratory relief on behalf of Williams and any other injured California employees.  The disputed interrogatory seeks to identify Marshalls’s other California employees, inferentially as a first step to identifying other aggrieved employees and obtaining admissible evidence of the violations and policies alleged in the complaint. The Courts of Appeal have, until the decision in this case, uniformly treated such a request as clearly within the scope of discovery permitted under Code of Civil Procedure section 2017.010.  ....  [T]he default position is that such information is within the proper scope of discovery, an essential first step to prosecution of any representative action.

....

In a class action, fellow class members are potential percipient witnesses to alleged illegalities, and it is on that basis their contact information becomes relevant.  (Pioneer Electronics (USA), Inc. v. Superior Court, supra, 40 Cal.4th at p. 374; Crab Addison, Inc. v. Superior Court, supra, 169 Cal.App.4th at p. 969; Puerto v. Superior Court, supra, 158 Cal.App.4th at p. 1254.)  Likewise in a PAGA action, the burden is on the plaintiff to establish any violations of the Labor Code, and a complaint that alleges such violations makes any employee allegedly aggrieved a percipient witness and his or her contact information relevant and discoverable.

....

[O]verlapping policy considerations support extending PAGA discovery as broadly as class action discovery has been extended.  California public policy favors the effective vindication of consumer protections.  (Pioneer Electronics (USA), Inc. v. Superior Court, supra, 40 Cal.4th at p. 374.)  State regulation of employee wages, hours and working conditions is remedial legislation for the benefit of the state’s workforce.  (Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1026–1027.)  Discovery of fellow consumer or employee contact information can be an essential precursor to meaningful classwide enforcement of consumer and worker protection statutes.  (Pioneer Electronics, at p. 374; Crab Addison, Inc. v. Superior Court, supra, 169 Cal.App.4th at p. 968; Puerto v. Superior Court, supra, 158 Cal.App.4th at p. 1256.)  Similar state policies animate PAGA.  Representative PAGA actions “directly enforce the state’s interest in penalizing and deterring employers who violate California’s labor laws.”  (Iskanian v. CLS Transportation Los Angeles, LLC, supra, 59 Cal.4th at p. 387; see Arias v. Superior Court, supra, 46 Cal.4th at pp. 980–981.)  Hurdles that impede the effective prosecution of representative PAGA actions undermine the Legislature’s objectives.  (See Iskanian, at p. 384.)  It follows that in PAGA cases, as in the class action context, state policy favors access to contact information for fellow employees alleged to have been subjected to Labor Code violations.

Id. at 9, 11, 15, 16-17 (footnote omitted).

The Court flatly rejected the argument that the plaintiff should be required to prove his claims on the merits before such discovery is permitted:

California law has long made clear that to require a party to supply proof of any claims or defenses as a condition of discovery in support of those claims or defenses is to place the cart before the horse.  The Legislature was aware that establishing a broad right to discovery might permit parties lacking any valid cause of action to engage in “fishing expedition[s],” to a defendant’s inevitable annoyance.  (Greyhound Corp. v. Superior Court, supra, 56 Cal.2d at p. 385.)  It granted such a right anyway, comfortable in the conclusion that “[m]utual knowledge of all the relevant facts gathered by both parties is essential to proper litigation.”  (Id. at p. 386.)

Id. at 20; see also id. at 31.

What is more, discovery of the identities of other persons whom the defendant may have subjected to similar violations is permitted—even without any class or representative allegations: 

That the eventual proper scope of a putative representative action is as yet uncertain is no obstacle to discovery; a party may proceed with interrogatories and other discovery methods precisely in order to ascertain that scope.  (Union Mut. Life Ins. Co. v. Superior Court (1978) 80 Cal.App.3d 1, 9–12.)  In Union Mut. Life Ins. Co., the plaintiff in an insurance dispute issued interrogatories seeking information about other insureds nationwide.  The defendant objected on the ground no national class action had been alleged and the answers at best would inform the plaintiff as to whether to amend to allege such a class action.  The Court of Appeal explained, “[t]his is the precise reason why the discovery should be permitted.”  (Id. at p. 12.)  “California law permits the use of discovery to get information necessary to plead a cause of action” (id. at p. 11); it also permits the use of discovery to determine whether an individual dispute is only a drop in the pond and a broader representative action is warranted. ....

It follows that a party allegedly subject to an illegal employment policy need not already have direct, personal knowledge of how prevalent that policy is to seek contact information for other employees that may allow the plaintiff to determine the proper extent of any representative action.  Instead, the contact information is reasonably understood as a legitimate “starting point for further investigations” through which a plaintiff may “ ‘educate [himself or herself] concerning [the parties’] claims and defenses.’ ”  (Puerto v. Superior Court, supra, 158 Cal.App.4th at pp. 1250, 1249.)

Id. at 20-21 (emphasis added).

The final section of the opinion discusses the defendant's privacy arguments.  Slip op. at 22-32.  The opinion explains that the plaintiff was "willing to accept as a condition of disclosure, and share the costs of, a Belaire-West notice to employees affording them an opportunity to opt out of having their information shared."  Id. at 26 (citing Belaire-West Landscape, Inc. v. Superior Court, 149 Cal.App.4th 554 (2007)).  Under such circumstances, the trial court's order imposing such a condition was appropriate, even though the trial court should have, but did did not, apply the governing balancing test stated in Hill.  Id. at 24 (citing Hill v. National Collegiate Athletic Assn., 7 Cal.4th 1 (1994)). 

Conducting the Hill balancing test itself, the Court determined that two of the three elements were unmet as to ordinary home contact information.  Slip op. at 24-26.  The Court overruled a series of lower appellate opinions erroneously holding that a "compelling state interest" or a "compelling need" must be shown "whenever discovery of facially private information is sought."  Id. at 27-30 & n.8

New UCL and class certification opinion: Espejo v. The Copley Press, Inc.

In Espejo v. The Copley Press, Inc., ___ Cal.App.5th ___ (Jul. 7, 2017), the Court of Appeal (Fourth Appellate District, Division One) considered a series of challenges to a post-trial judgment in a certified class action alleging that the plaintiff newspaper carriers were incorrectly classified as independent contractors, in violation of the Labor Code and thus the UCL. The 81-page opinion affirmed the judgment on liability, but directed that certain adjustments be made to the amount of the restitution and attorneys' fees awards on remand. 

Given that trials in UCL class actions are relatively rare, this case is instructive procedurally. 

The trial court bifurcated the equitable UCL claim from the remaining claims, and heard the equitable claim first, in a bench trial.  Slip op. at 5-9.  Because the plaintiffs prevailed in the bench trial and were awarded full monetary restitution, no jury trial went forward.  See id.  Attorneys' fees were awarded under Code of Civil Procedure section 1021.5, rather than under any applicable Labor Code provision.  See id.  A portion of the fees were to be paid by the defendant, with the rest payable from the common fund.  Id. at 9-10.

In the first section of its opinion, the Court of Appeal affirmed the trial court's holding that the newspaper carriers were the defendant's employees, not independent contractors.  Slip op. at 10-25.

In the next section, the court rejected the defendant's argument that the class should have been decertified because the class representatives became inadequate after certification, adhering to the "changed circumstances" rule: "We find no significant change in circumstances between the time the class was certified and the time of trial that would support our decertifying the class or reversing the judgment on the ground of inadequacy of the class representatives."  Id. at 28 (citing Kight v. CashCall, Inc., 231 Cal.App.4th 112, 125-26 (2014)).  The court also rejected the argument that all but one of the class representatives became inadequate because they did not testify at the trial.  Id. at 30. 

The third section considered the defendant's argument that the trial court had awarded classwide relief on an uncertified claim.  The opinion examined the trial court's class certification order and found it broad enough to encompass that claim.  Id. at 32-36.

The next section affirmed the trial court's order allowing post-trial amendment of the complaint to conform to proof, rejecting the defendant's argument that such amendments should not be allowed in a certified class action.  Id. at 36-39.  "We see no reason why a trial court has any less discretion to allow amendment of a pleading to conform to proof in a class action than in other civil actions."  Id. at 37.

Next, the opinion considered the trial court's order bifurcating the equitable UCL claim and trying it first, and held that the defendant had acquiesced in the order and therefore could not challenge it on appeal.  Id. at 39-42.

The defendant's next series of arguments challenged various aspects of the $4.95 million in restitution and prejudgment interest awarded to the class, which included several different types of expense reimbursements under Labor Code section 2802, as construed in Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal.4th 554 (2007).  Slip op. at 42-67.

Several of the holdings in this section of the opinion are worthy of note:

• The court had no difficulty concluding that unpaid expense reimbursements were recoverable as restitution under the UCL because such reimbursements are considered part of an employee's wages. Id. at 50-51 (citing, inter alia, Cortez v. Purolater Air Filtration Products Co., 23 Cal.4th 163 (2000)).
• The court also held that certain "credits and reversals" should have been subtracted from the restitution award because those sums had been "already paid" to the class.  Id. at 51-56.
• A UCL restitution award, like a damages award, need not be calculated with strict "mathematical precision," and the trial court did not err in accepting the plaintiffs' expert's "reasonable estimate" of the amount owed the class in mileage reimbursements.  Id. at 57-58 (citing Duran v. U.S. Bank Nat. Assn., 59 Cal.4th 1, 40 (2014)). 
• However, the trial court did err in accepting an unreasonable estimate of the amount of another type of reimbursement.  Id. at 59-61.
• The trial court properly exercised its discretion to award prejudgment interest on the restitution award.  Id. at 62-67.  The panel rejected the defendant's argument that prejudgment interest is not recoverable under the UCL, but determined that the amount of interest should be recalculated after the adjustments to the base restitution award, discussed above, were made.  See id.

The final sections of the opinion largely affirmed the attorneys' fees award under section 1021.5, but remanded for the trial court to determine, in the first instance, whether the amount of the award should be reduced because the base restitution award would be adjusted downward on remand.  Slip op. at 67-76.  The opinion also held that the trial court did not abuse its discretion in declining to apply a lodestar multiplier in fixing the amount of the fee award.  Id. at 77-80.

Supreme Court agrees to answer certified question in UCL "unlawful" prong case: De La Torre v. CashCall

On June 12, 2017, the Supreme Court agreed to answer questions certified by the Ninth Circuit in De La Torre v. CashCall, no. S241434.  As explained in the Ninth Circuit's order, De La Torre is a certified class action asserting a UCL "unlawful" prong claim based on alleged violations of Finance Code provisions concerning interest rates. 

The Supreme Court's website frames the issue as follows:

Can the interest rate on consumer loans of $2,500 or more governed by California Finance Code section 22303 render the loans unconscionable under section 22302?

The eventual opinion may or may not end up addressing the UCL directly.  According to the Ninth Circuit's order, one of the defendant's arguments was that California law "only recognize[s] unconscionability as a defense to a suit by a lender, not an affirmative UCL action for restitution."  Another was that section 22303 creates a Cel-Tech "safe harbor." 

Recent Ninth Circuit UCL decision considers all three prongs: Friedman v. AARP, Inc.

In Friedman v. AARP, Inc., 855 F.3d 1037 (9th Cir. May 3, 2017), the plaintiff alleged that the defendant "solicited" and "transacted" insurance without a license, in violation of several California Insurance Code provisions, and that the defendant collected and kept a 4.95% commission on each sale. Id. at 1049-50.  The complaint alleged that the policyholders paid this commission on top of the premium they otherwise would have paid for the insurance.  Id.

The Ninth Circuit held that these facts adequately alleged a UCL "unlawful" prong claim, as well as "unfair" and "fraudulent" prong claims.  Id. at 1051-57. 

Notably, as to the "fraudulent" prong claim, the court adhered to Tobacco II in holding that "actual reliance [for purposes of a UCL claim] ... is inferred from the misrepresentation of a material fact."  Id. at 1055, 1056 (citing In re Tobacco II Cases, 46 Cal.4th 298, 326 (2009); Chapman v. Skype, Inc., 220 Cal.App.4th 217, 229 (2013)) (alterations in original).

Accordingly, to have alleged reliance on Defendants’ misrepresentation of material facts, Friedman only needed establish it to be plausible that a “reasonable man would attach importance to [their] existence or nonexistence in determining his choice of action in the transaction in question.” .... 

We think it is not, as a matter of law, an “obviously unimportant” consideration for a reasonable purchaser of insurance to know that an undisclosed fee charged to a group insurance policyholder would be collected in addition to—rather than from—the actual cost of the insurance. 

Id. at 1056-67 (quoting Tobacco II, 46 Cal.4th at 326; citing Chapman, 220 Cal.App.4th at 229).