The UCL Practitioner

Oral argument report: Meyer v. Sprint Spectrum

Many thanks to attorney Kelly Chen for attending Wednesday's argument in Meyer v. Sprint Spectrum, no. S153846.  Here is her report: 

This Wednesday morning in Los Angeles, the California Supreme Court heard oral argument in Meyer v. Sprint Spectrum. This case presents the following issues:

(1) Has a person suffered "damage" within the meaning of the CLRA, such as to allow that person to bring an action under the CLRA if that person is a party to an agreement containing an unconscionable term, even though no effort has been made to enforce the unconscionable term?

(2) Did plaintiffs have standing to seek declaratory relief?

J. David Franklin and Monique Olivier argued on behalf of the plaintiffs/appellants (i.e., consumers).  Raymond A. Cardozo and Donald M. Falk argued for the defendant/respondent.

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I missed the first half of Mr. Franklin’s argument (my apologies).

When I walked into the moot court, Justice Kennard seemed to be grilling Mr. Franklin about specifically what “damages” his clients suffered, and Justice Baxter suggested that plaintiffs are asking this court to issue what’s close to an advisory opinion.

At this time, Chief Justice George asked Mr. Franklin about the practical consequences if plaintiffs were to get declarative relief. Mr. Franklin responded that the practical consequences would be for plaintiffs to seek class actions to have these unconscionable provisions removed from these sorts of contracts. Mr. Franklin added: “Do we have to remove the class action waiver every time we have an unconscionable waiver involved in a class action?”

Justice Kennard then interjected: “How do you respond to the idea that declarative reliefs generally resolve controversies…In this case, there seems to be no controversy.” [I missed Mr. Franklin’s long response to this…]

Justice Werdegar then referred to the code section, which states: “the court may refuse to grant declarative relief…[in any case where its declaration or determination is not necessary or proper at the time under all the circumstances.]” (I think this is from CCP § 1061.) Mr. Franklin’s response seems to focus on the word “may” in the statute; he argued that the problem is that the lower court did not exercise its discretion at all.

Justice Moreno jumped in and asked a hypothetical from the context of an insurance contract: “In an insurance contract, for example, even in the absence of a controversy over coverage, can an insured seek declarative relief simply because he wants to remove a provision from the contract?” Mr. Franklin answered this hypo by referring to the purposes of declarative relief, one of which, he said, is to prevent future violations. He pointed to the arbitration clause in this type of commercial contract (and the line of cases brought against big corporations that continue to insert arbitration clauses in commercial and employment contracts). He further pointed out how these contracts (like the Spirit contracts) ask consumers to waive jury, suggesting that declarative relief is necessary to stop this type of practice.

Baxter then asked: “how do you deal with a provision that is unfair to regular consumers but not to companies [in a business to business contract]...?” In other words, Justice Baxter was asking Mr. Franklin about the definition of unconscionability and how broad it should be (I think). (Interestingly, during his questioning, Baxter again states that plaintiffs are seeking an advisory opinion from this court.) Mr. Franklin responded by saying that unconscionability is determined by the circumstances at the time of contract formation.

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Ms. Olivier, counsel for amicus curiae National Consumer Law Center, also argued on behalf of the Plaintiffs/Appellants.

Ms. Olivier started by addressing the earlier question from Justice Kennard about what exactly are plaintiffs’ damages in this case. Ms. Olivier pointed out that §1770(a)(19) of the CLRA specifically prohibits the insertion of unconscionable contract provisions, and that §1780 speaks of one who suffers any damages, not just pecuniary damages.

At this time, Chief Justice George jumped in and asked: “So you are saying that the actual damage is the insertion of unconscionable provision? If plaintiffs never suffer any ‘practical damage,’ they still have standing to file a claim? ” Ms. Olivier responded that there has to be a nexus between the violation cited in section 1770 and the lawsuit (i.e., a causal connection).

After the discussion about the causal connection, Justice Kennard interjected: “Is that ‘damage’ in your view?” She then continued: “No matter how you define [damage], the customer just isn’t damaged when a provision is inserted in to a contract.” Ms. Olivier responded: “I would disagree, Your Honor. CLRA prohibits this…” She then discussed how the word “inserting” was actually used in the language of section 1770. Thus, CLRA does not just simply prevent unconscionability at the time of contract enforcement, it also prevents the insertion of unconscionablity at the time of contract formation.

At this time, Justice Moreno voiced about a “chilling effect to consumers.” Ms. Olivier agreed: “This is absolutely the case, as we are dealing with consumers who may not be so sophisticated.” She then went on and discussed the violations prohibited by section 1770 of CLRA and how several of them don’t require “damage.”

Justice Chin interjected: “Section 1780 talks about 5 remedies….all of which are available for a consumer who suffers ‘any damages.’ He asked how plaintiffs can get around with the term “any damage?” Ms. Olivier responded, “I don’t think we need to get around that, Your Honor.” She then stressed how the CLRA prohibits unconscionable provisions not just at “enforcement” of the contract, but also at the “formation” of the contract, as its goal is to stop unlawful business practices.

Justice Werdegar then asked the last question about whether what plaintiffs are seeking serves as “a deterrent effect of unlawful terms.” Ms. Olivier said yes, and when she tried to explain more, Justice Werdegar stopped her with a smile and said: “that’s it.”

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Mr. Cardozo argued on behalf of the defendant/respondent.

He first discussed the statutory language in section 1780 which says “any consumer who suffers any damages ‘as a result of’ the use or employment by any person of…an [unlawful act]….” He said the inclusion of the phrase “as a result of…” requires something more than just the violation itself. Rather, there must be some kind of “consequential loss.”

Justice Werdegar then interjected: “Why wouldn’t a deterrent effect be the damage?” I don’t have notes on Cardozo’s response, but I recall he discussed the potential exposure to Sprint and the implication that anyone can bring a lawsuit. 

Before I had a chance to write any notes on Cardozo’s response, Justice Kennard jumped in: “You started your argument by focusing on section 1789 … in trying to figure out what the word ‘damage’ means ….  Black's Law Dictionary says it means ‘harm suffers from victim … to person or property.” Isn’t your view, given this definition, that plaintiff has suffered no harm, and consequentially no damage?” Mr. Cardozo affirmed and, again, reiterated his position that loss or damage must be a consequence of a violation.

Justice Moreno then asked a follow-up question: “What about being subject to it and the chilling effect on consumers?” Mr. Cardozo argued that simply being subject to the unconscionable provision is not enough.

Mr. Cardozo then proceeded to differentiate Kagan v. Gibraltar Sav. & Loan Assn., 35 Cal.3d 582 (1984), which the plaintiffs/appellants relied on heavily in their briefs, from the facts of this case. He pointed out how in Kagan the fees were actually deducted from an account; thus, there was a monetary loss. Also, he respectfully suggested to the court that: “what matters is not what Kagan said in 1984, but it’s what this court says today going forward.”

Justice Kennard then asked if it was Mr. Cardozo’s view that the opposing side (i.e., plaintiffs) misstated Kagan. She asked: “Your position is that Kagan is not on point?” Mr. Cardozo affirmed this position.

At this time, Mr. Cardozo moved to the issue of declarative relief. He pointed to P. 36 of his brief and pointed to how the authority to grant declarative relief is permissive one because of the word “may.”

Justice Werdegar asked: “What do you say to plaintiffs’ argument that no discretion was exercised?” Mr. Cardozo responded that he was surprised by that argument. He then talked about the history of the amended complaints in this case and referred to the language employed by the trial court in response to each amended complaint.

Justice Baxter then asked: “So when would declarative judgment be proper? Does plaintiff have to wait until plaintiff wants to sue?” Mr. Cardozo responded by pointing out to the court that the critical issue is whether there is an actual controversy. He then explained that, in order to have actual controversy, there must be a lawsuit, a dispute, or something imminent (e.g., a letter from counsel, a demand letter, etc.).

Before Mr. Cardozo had an opportunity to finish his argument, Justice Kennard cut him off and said: “I thought … you said the trial court would be first court to go to, blah blah blah … what then do you made by this decision by the federal court in Ting v. AT&T …. I realize we are not bound by federal decisions, but the court there granted declarative relief … so it has been done before.”

Mr. Cardozo questioned whether Ting v. AT&T is a replication of this case. Just right before his time was up, he said: “I’m left puzzled by that decision.”

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Mr. Falk, counsel for the U.S. Chamber of Commerce as amicus curiae,  also argued on behalf of Sprint.

He began his argument by pointing to the possible consequence of adopting an abstract definition of “damage” -- one consequence, he said, would be to “open the court doors to triviality.” His argument focused on “opening the backdoor to injury-less lawsuits.” “There are plenty of consumers who are [actually] injured,” he said. He then suggested that after Prop. 64 passed, courts started to see “uninjured” plaintiffs bringing lawsuits under CLRA. “The problem with CLRA is that it is so broad,” he argued. He worried that such broad language under CLRA might led to a situation where a consumer “thinking about” buying a TV can come to court and talk about what “might have happened.”

Justice Moreno asked Mr. Falk to respond to the argument that consumers are damaged when they signed the contract with the unconscionable provision. In response, Mr. Falk stressed that there must be some “tangible” loss -- it might not be pecuniary loss, but there must be some kind of loss which isn’t present in this case. (But he didn’t give an example).

Mr. Falk then proceeded to talk about how the CLRA is not an “advisory act.” He said CLRA outlaws misrepresentation, for example, but only those who are “damaged” by misrepresentation may come into the court.

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Plaintiffs’ rebuttal was presented by Ms. Olivier. First, she suggested that Sprint is asking the court to allow it to retain these unconscionable provisions in these contracts. “This is the action that the CLRA prevents,” she argued.

Justice Baxter asked if this means a consumer may seek declarative relief to have such unconscionable provisions removed from a contract, so that he/she can enter into a contract without such a provision. In response, Ms. Olivier said that because consumers will be bound by the unconscionable provision, consumers should be able to get injunctive and declarative relief with respect to these provisions under CLRA.

With respect to the opposition’s position on Kagan, Ms. Olivier pointed out that the Kagan court noted two things. First, she said, the Kagan noted the specific acts/prohibitions enumerated in Section 1770. Second, Kagan noted the importance of injunctive relief which is to prevent further violations. She indicated that plaintiff did not allege specific economic harm.

Finally, with regard to Mr. Falk’s mentioning of Proposition 64, Ms. Olivier beautifully argued that the CLRA is not Proposition 64. She pointed to the specific language in Proposition 64 (i.e., "loss of money or property.” She said the language in CLRA does not say that. She ended her rebuttal by suggesting that defendant is asking this court to rewrite CLRA (or something to that affect).

PREDICTIONS:

ISSUE 1: Werdegar and Moreno: for the plaintiffs. Kennard and Baxter: for defendants. George, Chin, Corrigan: not sure.

ISSUE 2: Werdegar and Moreno, George: for the plaintiffs. Kennard and Baxter: for defendants. Chin, Corrigan: not sure.

Thank you, Kelly, for providing an extremely interesting report on the argument. Now, what do you think?

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Oral argument preview: Meyer v. Sprint Spectrum

This morning at 9:00 a.m., the Supreme Court will hear oral argument in Los Angeles in an important CLRA case, Meyer v. Sprint Spectrum, no. S153846. These are the issues on review in Meyer:

(1) Has a person suffered "damage" within the meaning of the Consumer Legal Remedies Act (Civil Code, section 1780, subd. (a)), such as to allow that person to bring an action under the Act if that person is a party to an agreement containing an unconscionable term (see Civil Code, section 1770, subd. (a)(19)), even though no effort has been made to enforce the unconscionable term? (2) Did plaintiffs have standing to seek declaratory relief?

The Court of Appeal said "no" to both questions. Meyer v. Sprint Spectrum L.P., 150 Cal.App.4th 1136 (2007) (review granted). See these two blog posts for more on the Court of Appeal's opinion.

An intrepid roving reporter is attending the argument on my behalf, and I hope to be able to put up an argument summary tomorrow or Friday.  Meanwhile, here are some of the briefs from the case.  Many thanks to the several people who helped me obtain copies of these: 

• Opening Brief on the Merits (filed 11/13/07)
• Answer Brief on the Merits (filed 12/12/07)
• Reply Brief on the Merits (filed 01/04/08)
• Amicus Curiae Brief of National Consumer Law Center (filed 02/15/08)
• Amicus Curiae Brief of U.S. Chamber of Commerce (filed 02/15/08)
• Answer to Chamber of Commerce Amicus Brief (filed 02/26/08)
• Answer to NACA Amicus Brief (filed 03/06/08)

Supreme Court sets CLRA case for argument: Meyer v. Sprint Spectrum

On Wednesday, the Supreme Court scheduled oral argument in a case raising CLRA issues, Meyer v. Sprint Spectrum, no. S153846. The argument will take place on December 3, 2008 at 9:00 a.m. in Los Angeles. These are the issues on review in Meyer:

(1) Has a person suffered "damage" within the meaning of the Consumer Legal Remedies Act (Civil Code, section 1780, subd. (a)), such as to allow that person to bring an action under the Act if that person is a party to an agreement containing an unconscionable term (see Civil Code, section 1770, subd. (a)(19)), even though no effort has been made to enforce the unconscionable term? (2) Did plaintiffs have standing to seek declaratory relief?

The Court of Appeal said "no" to both questions. Meyer v. Sprint Spectrum L.P., 150 Cal.App.4th 1136 (2007) (review granted). See these two blog posts for more on the Court of Appeal's opinion.

Supreme Court sets attorneys' fees case for oral argument: Vasquez v. Superior Court

The Supreme Court has set Vasquez v. Superior Court, no. S143710, for oral argument on September 3, 2008 at 9:00 a.m. in San Francisco. The Court will be deciding this issue:

Does the rule that, in order to receive attorney fees under Code of Civil Procedure section 1021.5, the plaintiff must first reasonably attempt to settle the matter short of litigation, apply to this case? (See Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 557; Grimsley v. Board of Supervisors (1985) 169 Cal.App.3d 960, 966-967.)

The Court of Appeal determined that the party opposing the fee award waived that issue by not raising it below. Vasquez v. State of California, 138 Cal.App.4th 550 (2006) (Fourth Appellate District, Division Two).

Oral argument report: County of Santa Clara v. Superior Court (ARCO)

Yesterday, in County of Santa Clara v. Superior Court (ARCO), the Court of Appeal for the Sixth Appellate District heard oral argument on whether public entities may hire private attorneys to represent them on a contingency-fee basis. The panel consisted of Acting Presiding Justice Patricia Bamattre-Manoukian, Justice Nathan D. Mihara, and Justice Richard J. McAdams. They are the same justices who issued a prior opinion in this case, County of Santa Clara v. Atlantic Richfield Co., 137 Cal.App.4th 292 (2006).

Owen J. Clements of the San Francisco City Attorney's office presented the County's argument. Philip H. Curtis of Arnold & Porter argued on behalf of ARCO. Both of them were extremely well prepared and presented excellent arguments.

Mr. Clements began his argument by pointing out the importance of the legal question and the fact that the issue is of very great importance to public entities across the state (as borne out by his participation in the case). He characterized the question as whether public attorneys can ever retain private attorneys on a contingency-fee basis in a public nuisance case. The trial court held that there is an absolute bar, relying on Clancy (People ex rel. Clancy v. Superior Court, 39 Cal.3d 740 (1985)). But Clancy is distinguishable. The private attorney in Clancy appeared in place of the government attorneys, rather than to assist them.

Justice Bamattre-Manoukian then broke in, saying that many helpful briefs had been filed, and that there are strong policy arguments on both sides and language in Clancy that supports both sides. She pointed out that the trial court was concerned about a number of things. First, what recovery was being sought and where the money for the contingency fee would come from. Second, even if you assume there's assistance by private counsel, the briefs say that the public attorneys are going to exercise complete control over the case. The trial court said how can you ensure this? Third, even if you can ensure this, the issue in Clancy is neutrality. Shouldn't this determination be made at the end of the case? Isn't this premature?

Turning to the first issue, Justice Bamattre-Manoukian then asked what is the recovery being sought? Is the case limited to abatement [of the public nuisance]? Mr. Clements replied that no damages are being sought, but abatement can take several forms. Until abatement has actually been awarded, it's hard to say what the contingency fee might look like. He referred to a similar case pending in Rhode Island, and said that abatement was being sought there, and that there are many possibilities for what abatement might look like here. [The Rhode Island Supreme Court case cited in the briefs is State of Rhode Island v. Lead Industries Ass'n, 898 A.2d 1234 (R.I. 2006).] The common fund doctrine and the substantial benefit doctrine may also be asserted as a possible basis for fees. One possible remedy would be for this Court to send the case back to the trial court with instructions to monitor the proceedings. But don't ban at the outset an arrangement that's very helpful to the public attorneys.

Justice Bamattre-Manoukian pointed out the County's argument that they are being deprived of counsel of their choice. The law seems clear, maybe, that you can hire outside lawyers on an hourly basis. Mr. Clements said yes, that's conceded in this case, and it's an absolute necessity because not all public entities have in-house lawyers. [An aside: For a number of years in the 1980s, my dad was City Attorney of the City of Porterville. The City of Porterville had no attorneys on staff. My dad stayed with his private firm throughout his tenure as City Attorney.]

Justice Bamattre-Manoukian said that Clancy requires "absolute neutrality," and then she read a lengthy quotation from the case. Mr. Clements said that Clancy requires neutrality of the decision-maker. Justice Bamattre-Manoukian said that may or may not be "complete" or "absolute" control; it may be "what's necessary," for example, if private counsel is in court handling a hearing, making objections, etc., they're in control. Mr. Clements said yes, as they would be if they were paid by the hour. Justice Bamattre-Manoukian said, so "complete" or "absolute" control is not necessary. Clements said the concern is whether the power of the government is being used by the private attorney for private gain.

Justice McAdams pointed out what appeared to him to be an inconsistency in the County's position. The public attorneys are saying they don't have the resources or expertise to handle some of this litigation, yet on the other hand you say you're exercising complete control over the outside attorneys. Clements said that absolute control is not possible, but control that involves making strategic decisions, deciding what motions to file, what experts to retain, approving settlement terms, is possible. Those are the concerns that Clancy addresses. It's not necessary under Clancy to have "absolute" control.

Justice Bamattre-Manoukian asked, "Do you have to be present at every deposition and every hearing? What does 'control' mean?" Clements said we don't have to be omnipresent, looking over the shoulder of the outside attorneys. But we'll oversee to make sure there's no overreaching. This is all Clancy requires. It's the same thing we do with our hourly co-counsel. Our contract with the outside lawyers says so.

Justice Bamattre-Manoukian then said: You're asking us to make this statement. How do we know whether you're in compliance with Clancy until the trial court looks at the proceeding. Don't we wait until the end of the case to determine whether the public entity has exercised neutrality (and here she quoted more language from Clancy) and then let the trial court determine, if there is any recovery, whether a contingency fee would be appropriate, the amount of the fee, and whether the award is in the public interest? Clements said that's what happening in Rhode Island. That's one way to do it. This Court could overturn the trial court's ruling and say there's no absolute bar. The trial court should not assume that there will be misconduct. The rules say you don't presume that attorneys will act unethically. You wait for evidence of misconduct.

Justice Bamattre-Manoukian broke in to say we're an intermediate court. We have to follow the Supreme Court. We have one case before us. Other states are struggling with the issue of neutrality. She then quoted some more language from Clancy, saying that certain language suggested that contingency-fee arrangements are antithetical to the principle of neutrality, but that footnotes 4 and 5 suggest otherwise. Shouldn't a pronouncement on this come from the Supreme Court? Isn't it sufficient to say a determination should be made at the end of the case as to whether there's been neutrality? Shouldn't we take an intermediate position at this point?

Clements replied that he understands that might improve judicial economy and provide a better record for the Supreme Court. But he wants to argue for a higher ruling (by which he meant that the Court should go ahead and rule that there is no per se bar to contingency-fee arrangements). Later cases interpreting Clancy say that the issue is the degree of control and this is what ensures neutrality. He cited Philip Morris, Inc. v. Glendening, 709 A.2d 1230 (Md. 1988) and City and County of San Francisco v. Philip Morris, 957 F.Supp. 1130 (N.D. Cal. 1997). Justice Bamattre-Manoukian said the second one is a tort action. She said this Court can make that ruling as a matter of law, because we can't really tell right now. Clements said the trial court will always have jurisdiction to deal with it if there's evidence of misconduct. He said in the most recent case, Grass Valley [2007 U.S. Dist. LEXIS 8917], the court said look at the fee contract and see if there's any provision that constitutes an improper delegation of public power. For example, a contract that gave the private attorney the power to veto a settlement. Such a pronouncement from this Court would not preclude the trial court from keeping an eye on what's happening.

Justice Bamattre-Manoukian: Is there any statutory authority for recovery of attorneys' fees in public nuisance abatement cases? Clements: No, except equitable theories such as common fund or substantial benefit theories. Bamattre-Manoukian: There are no criminal proceedings associated with this enforcement case? Clements: No. That's a second basis on which to distinguish Clancy.

Justice McAdams then pointed out that there were First Amendment issues in Clancy. Clements said yes. The City of Corona was trying to shut down a bookstore. There was no question in that case that the city sought a prior restraint on speech. That's another way to distinguish that case from this one. Also, this case will involve no ongoing supervision of business conduct, as in Clancy. The conduct in this case has been banned by law since 1978.

Justice Mihara then spoke for the first time. You'd like us to focus on the holding of Clancy vs. other language in Clancy suggesting a broader approach. The fact that attorney James Clancy was in total control. How does that affect neutrality? This case is different, wouldn't you say? Clements caught the softball: I would say. Clancy was the only attorney who appeared. There was an undertone of vendetta against the bookstore owners. Here, we have city attorneys who are very involved. He then pointed out footnote 3 in Clancy, where the Court distinguished Sedelbauer [v. State, 455 N.E.2d 1159 (Ind. App. 1983)] on that basis.

Justice Mihara then said, reviewing the fee agreement, the facts show that the private attorneys have a subordinate role and that the public attorneys have total control, and your argument is that's perfectly acceptable because it protects neutrality. Clements: That's correct. Mihara: Looking at this case from an analytical point of view -- how the court should tackle this -- the issue in the main is the validity of the fee agreement. Clements: Yes, that's what this case is all about. The agreements have been modified to make the issue of control clearer. If there's a problem, the remedy is to modify the fee agreement rather than disqualify counsel.

Justice Mihara went on: Is there any evidence that would suggest a conflict of interest that would impede neutrality? Clements: Only the suggestion that contingency-fee arrangements inherently undermine neutrality. However, private outside counsel are ethically bound to subordinate their interests to those of their clients, the People, just like hourly attorneys. Justice Mihara: You're saying we control this case, we have outside counsel assisting us, let us try this case. If any problem comes up, opposing counsel will bring it to the court's attention. But as far as the fee agreements are concerned, there is no difficulty, and the trial court would have the opportunity to ferret out any improper exercise of control?

Clements: Yes. We have had 7 years of litigation and there is no specific evidence of bias or misconduct. There is no need to categorically bar the contingency-fee arrangement. The approach this Court is suggesting is much wiser.

Justice McAdams: What is the practical effect on the hiring of counsel if we leave this to the end of the case? Clements: That's the reason why I'm arguing for what I called a "higher ruling" -- that there's nothing wrong with this arrangement absent evidence of wrongdoing. Leaving it to the end creates more risk for the outside attorney. Of course, the outside attorney is already bearing a lot of risk, including the risk that the case will not succeed.

Justice Bamattre-Manoukian: Hourly work also creates problems. There is self-interest inherent in hourly fee relationships as well. Clements: Yes. Bamattre-Manoukian: How do you interpret footnote 3 of Clancy? Clements: It's the control that any client has to say I want you to file this suit. In Clancy the public attorney wasn't involved in those decisions. In this case we have a much higher level of control than in other cases -- strategic decisions regarding the exercise of government power are made by the public attorneys.

And that was the end of Clements' argument.

Mr. Curtis pulled no punches. The first words he said were, "The poison is already in the system. It's been in the system since those agreements were signed." He said he was pleased to hear the Court quote Clancy (and he repeated part of the quotation). There's a lot at stake here about the system. We've repeatedly heard about "private attorneys," "private attorneys," "private attorneys." The attorneys with power to bring this case are public attorneys. I disagree with the idea that Clancy contains language supporting both sides.

Justice Bamattre-Manoukian broke in with another quotation from Clancy: "Nothing we say herein should be construed as preventing the government, under appropriate circumstances, from engaging private counsel. Certainly there are cases in which a government may hire an attorney on a contingent fee to try a civil case." [Clancy, 39 Cal.3d at 748.] Curtis: I agree with that completely. The distinction is between a proprietary action vs. a representative action. [This public nuisance case is considered a "representative" action.] The rule that Clancy laid down applies to a public representative action. There are no exceptions.

Justice Bamattre-Manoukian then asked if neutrality is preserved, why should a contingency-fee agreement be precluded if the trial court addresses it at the end of the case and the trial court finds that the public attorneys retained control so as to preserve neutrality, that the interests of the public have been served, and there has been no misuse of public funds? How does it offend the sense of neutrality? There is no criminal prosecution in this case. Many counties lack resources. Some have very few staff attorneys. How does that offend Clancy?

Curtis: Clancy answered that question. The attorney argued I'm an independent contractor. The Court said "a lawyer cannot escape the heightened ethical requirements of one who performs governmental functions merely by declaring he is not a public official. The responsibility follows the job: if Clancy is performing tasks on behalf of and in the name of the government to which greater standards of neutrality apply, he must adhere to those standards." [Clancy, 39 Cal.3d at 747.] There's no "control exception" in that language. Clancy recognized the big issues in play regarding public confidence -- if the public prosecutor is tainted by personal gain that undermines public confidence. It's the agreement itself that's the problem. Clancy sets down a categorical rule that a government lawyer (and these private attorneys are government lawyers) -- if they have a financial stake in the outcome we have a very serious problem. There's no control exception.

Curtis went on: There are two foundations to Clancy. One is constitutional and the other is ethical. The constitutional foundation is in the language that's been read into the record today at pages 746-747 ("When a government attorney has a personal interest in the litigation, the neutrality so essential to the system is violated." [Clancy, 39 Cal.3d at 746]) and also in the four cases the Clancy Court cited. All four are constitutional authorities.

Justice Bamattre-Manoukian interjected: All of those cases have facts distinguishable from the facts we have here. Curtis: Clancy says those cases are not to be distinguished. Clancy is the controlling authority and says those distinctions don't matter. Toomey [phonetic] makes clear that the United States Supreme Court recognizes that there's a difference between some types of biases and the government officer having a personal financial stake in the outcome. Clancy says the first type of bias might be tinkered with by the Legislature but the other can't be. "The responsibility follows the job." [Clancy, 39 Cal.3d at 747.]

Justice McAdams: How is this different from any other contingency-fee contract? Curtis: The difference is who the client is. That's a good way to turn to the ethical strain in Clancy. The client is the sovereign; it has a duty to ensure justice is done. This means its agents can't have a personal financial stake in one side or another. Not even twelve dollars or twenty-five dollars. In Rhode Island, the plaintiffs are seeking billions of dollars in relief and they're going to try to get their fees out of it. The issue is going to the court right now. Briefing is about to be submitted [he might have said already submitted; can't recall].

Curtis continued: There is no "supervision exception" in Clancy. It's been made from whole cloth in these other cases, which were either not public nuisance cases or wrongly decided. The question came up of what use Clancy made of Sedelbauer. He said the issue the Court was addressing was how the case should be styled under the Code of Civil Procedure. They were saying it should be brought in the name of the District Attorney. In footnote 3, the Sedelbauer footnote, the Court was grasping at straws. It cited an Indiana case. It's inconceivable that the Court was articulating a "supervision exception" in footnote 3 because on page 750 the Court says that on remand the case must be styled "People ex. rel [District Attorney] Dallas Holmes" -- it's okay for Holmes to hire Mr. Clancy. [The language from Clancy reads: "Thus on remand the action herein should be brought in the name of Dallas Holmes, the Corona City Attorney. The City may hire Clancy to represent Holmes. (Gov. Code, § 37103.)." Clancy, 39 Cal.3d at 750 n.5.]

Curtis went on: The Court understood perfectly well what a towering principle it was dealing with. We will have a neutral judge and neutral public lawyers. This does not mean the lawyers can have a profit stake without running afoul of the ethics rules.

Justice McAdams then referred to some of the language in ARCO's brief: "incentive to maximize the monetary award by any means possible." You argue that the mere existence of the contingency-fee agreement creates this incentive. How would the private attorney do this if their actions are being controlled by the public attorney? [An aside: I thought it was interesting at this point that Justice McAdams continued to refer to the outside lawyer as a "private attorney," despite Curtis' argument that a private attorney acting on behalf of a government entity becomes a "public attorney."] How does it play out as a practical matter?

Curtis said that no court will ever be in the conference room where strategy decisions are made. We're never going to know where there's an impact. The attorneys with billions of dollars at stake are not going to be potted plants. For example, there has been some success in cases dealing with childhood lead exposure. [This case involves "the public nuisance created by lead paint." County of Santa Clara, 137 Cal.App.4th at 298.] A neutral might not think it's a good idea to hire thousands of workers to abate every single one. There are lots of different ways that influence can be brought to bear. In the Louis Vuitton case, the court rejected a "harmless error" argument. It said we're dealing with a fundamental, systemic problem. We don't look at harmless error. In the federal system, for a public prosecutor to have a financial interest in a prosecution is "a go-to-jail offense." Those exercising the government's discretion may not have a financial interest in the outcome.

Justice McAdams said but couldn't the same argument be made by the hourly attorney -- who's no shrinking violet -- saying to the meek public attorney, let's not settle this case; let's go all the way. Curtis said of course. Hourly retentions have conceivably some issue. But what's so troublesome about the contingency-fee arrangement is that it depends on the outcome as to the defendant. Clancy and other authorities say it's so erosive to our system of law and government that we're not going there. We understand that the risk of influence, and the public perception of the risk of influence, is too overwhelmingly great.

Justice Bamattre-Manoukian then asked Curtis the same question she asked Clements: Is there any statutory authority for fees in a public nuisance case? Curtis said what they're asking for is common fund -- it's mentioned in the agreements. These attorneys are not in the business of working for free. That's why this is not premature. You're entitled to neutrality from the beginning of the case.

Justice Bamattre-Manoukian then said: What about the Rhode Island case where they decided to wait? (And she read a quotation from the Rhode Island case.) Curtis said: I think the Rhode Island Supreme Court got it wrong. I think the United States Supreme Court and the California Supreme Court got it right. Rhode Island chose not to recognize the principle. Go back to Clancy and look at how the court dealt with Sedelbauer.

At this point, Mr. Curtis spent quite a while parsing the County's writ petition (specifically, pages 29-31) and basically arguing that the petition misrepresented the holding of Clancy. He concluded that part of his argument by emphasizing "the principles upon which the Clancy opinion was based -- constitutional and ethical principles. If you're acting on behalf of the government, you must act with neutrality. Clancy controls. The trial court got it right. This is a problem that has to be nipped in the bud."

From the tone of his voice, that sounded like the end of his argument. But no, there were more questions. (The same thing happened near the end of Clements' argument.)

Justice Bamattre-Manoukian said what about cases where small counties have no funds to pursue these cases? Pursuing the case is in the public interest, but the only way they can pursue it is if private lawyers step up. You would say to them that Clancy precludes that? Curtis replied, We've got to decide the case before us. This case involves ten counties. They have hundreds of employees and budgets that add up to billions. But even in your more extreme case, the constitution and ethics cannot give way there. When an attorney exercises government power, that government attorney cannot have a financial stake in the outcome against the defendant.

Justice Bamattre-Manoukian then summarized the Court's three options for disposing of the case. First, the Court could affirm, which would likely lead to further review before the Supreme Court. Second, the Court could remand for the issue to be resolved by the trial court at the end of the case. Mr. Curtis jumped in to say that that is contrary to Clancy and "the federal constitutional authorities I've cited." Justice Bamattre-Manoukian then said that the Court's third option is to hold that the trial court didn't get it right, and instruct that court to monitor the case. Curtis objected to that proposal by saying that if there are exceptions to Clancy (which is what such a holding would imply), it's for the California Supreme Court to identify them.

And that was the end of his argument.

On rebuttal, Mr. Clements said Mr. Curtis was advancing a reading of Clancy as an absolute, categorical rule. That's not the holding of Clancy. It's the job of courts to look at cases and distinguish them. Clancy is distinguishable.

Justice Bamattre-Manoukian said that footnote 5 of Clancy says you can hire Mr. Clancy back, but presumably on an hourly basis. Mr. Clements replied that you'd still have an issue regarding delegating authority on an hourly basis. They're inferring a lot from footnote 5. Footnote 5 relates to how the case should be captioned. Bamattre-Manoukian: But it does seem a little inconsistent with their holding, which was to disqualify Mr. Clancy. Justice Bamattre-Manoukian and Mr. Clements then talked back and forth about the fact that the footnote doesn't specify hourly vs. contingency nor does it specify whether Mr. Clancy could be hired as the sole attorney for the DA, as opposed to working in a co-counsel capacity with the DA. Mr. Clements said that no court has extended Clancy as an absolute rule that applies when private attorneys are co-counseling and assisting public attorneys and when the public attorneys retain control.

Justice Bamattre-Manoukian said that there were no California cases that address the issue at all. Clements said that the Grass Valley case, which is the opinion of a federal district court in California, did. He also cited the "interest of justice" provision in Code of Civil Procedure section 128 [which relates to the trial court's power to control the proceedings before it] and a case called People of Santa Monica, which recognized a balancing test.

Responding to Curtis' argument that the Court should decide just the case before it, Clements said this is a case that will make a rule for all. It will affect all public entities including those who don't have an in-house attorney. There's a public interest in deciding issues on the merits, especially in a case like this.

Clements went on: You need actual evidence of improper bias or violation of ethical duties, and there's none of that in this case after seven years. The order should be that the trial court got it wrong and the rule should be that contingency-fee agreements are acceptable if the agreement preserves the government attorney's control. Justice Bamattre-Manoukian broke in: It's not really "misconduct," is it? Rather, it's neutrality and control. Clements replied that "excessive delegation" might be a better way to put it. There are five lines of defense here. The first line of defense is the ethical duty of all attorneys. Courts do not assume that attorneys are going to breach their ethical duties. The second line of defense is the public officials who will be supervising the private lawyers. The law presumes that public officials discharge their duties. Third, the fee contracts have been approved by the public entities, here, the Board of Supervisors. Fourth, able defense counsel are on the watch. And fifth, the trial court will take action if any evidence of excessive delegation arises.

That was the end of the argument. As I mentioned early this morning, my sense at the conclusion of the argument was that the justices were leaning in favor of the County's position. I think they will either adopt the County's legal argument, or remand for the trial court to consider, at the end of the case, whether the government attorneys exercised sufficient control throughout the litigation so as to make an award of contingency fees proper. Either result would be a victory for the County. An opinion will be due by mid-April.

Yesterday's oral argument: County of Santa Clara v. Superior Court (ARCO)

I attended yesterday's argument in County of Santa Clara v. Superior Court (ARCO) and will put up my report later today. For now, suffice it to say that the presentations were excellent and that the justices' comments suggest that they are leaning in favor of the County's position.

Oral argument preview: County of Santa Clara v. Superior Court (ARCO)

This morning at 9:30, the Court of Appeal for the Sixth Appellate District will hear oral argument in County of Santa Clara v. Superior Court (ARCO), no. H031540. In this case, the issue is whether a public prosecutor may hire private outside counsel to represent it on a contingency-fee basis. Barry Barnett of Blawgletter has an interesting post on some of the practical ramifications of the case.

I'm planning to attend the argument and will provide a report most likely tomorrow. Meanwhile, here are the trial court's order and some of the appellate briefs:

• Petition for Writ of Mandate (filed 05/11/07)
  

• Return by Real Parties in Interest to Petition for Writ of Mandate (filed 07/30/07)
  

• Petitioners' Reply to Real Parties' Return (filed 08/20/07)
  

• Amici Curiae Brief of the California State Association of Counties and the League of California Cities (filed 08/29/07)
  

• Amicus Curiae Brief of the Association of California Water Agencies (filed 08/29/07)
  

• Amici Curiae Brief of Public Justice, P.C., Healthy Children Organizing Project, and Western Center for Law and Poverty (filed 08/29/07)
  

• Amici Curiae Brief of the Chamber of Commerce of the United States and the American Tort Reform Association (filed 08/29/07)
  

• Amicus Curiae Brief of American Chemistry Council (filed 09/10/07)
  

• Real Parties' Response to Amici Curiae Briefs of (a) Association of California Water Agencies and (b) Public Justice, P.C., Healthy Children Organizing Project, and Western Center for Law and Poverty (filed 09/13/07)
  

• Petitioners' Response to Amicus Curiae Brief of American Chemistry Council (filed 09/25/07)
  

Many thanks, again, to Santa Clara County Counsel Ann Miller Ravel for providing copies of these briefs.

Oral argument report: Farm Raised Salmon Cases

My sincere thanks to Kelly Chen, who just passed the bar (congratulations, Kelly!), for attending Tuesday's argument in Farm Raised Salmon Cases, no. S147171, and for providing the following detailed report (complete with an outcome prediction):

Case Name: FARM RAISED SALMON CASES
California Supreme Court
Case No.: S147171 December 4, 2007 -- 9 a.m.

This morning in Los Angeles, the California Supreme Court heard oral argument in Farm Raised Salmon Cases. The issue presented before the court is: Does the Federal Food, Drug, and Cosmetic Act (“FDCA”) impliedly preempt plaintiffs' state law claims, including claims based on the UCL and CLRA?

Craig R. Spiegel argued on behalf of the plaintiffs (i.e., consumers). Rex S. Heinke argued for the defendants. Justice George recused himself from the case, and Justice Mihara from the court of appeal was assigned as justice pro tempore for this case. Justice Kennard took over the role as chief justice in this session.

Mr. Spiegel started his argument by discussing the reasoning behind the court of appeal’s holding that section 337(a) of the FDCA preempts plaintiffs’ state claims. Citing to the history of the regulation on the use of coloring on food, Mr. Spiegel discussed how California enacted regulations concerning this area as early as in 1905, long before the FDCA (which was enacted in 1938).

Justice Kennard then interjected and asked: Isn’t there another section of the FDCA that would help the argument against preemption? Specifically, Kennard referred to section 343-1, which permits states to establish standards concerning the use of coloring on food so long as those standards are “identical” to those imposed by FDCA. She asked: “Am I right to say that the language of these provisions helps your position?” Mr. Spiegel affirmed.

Note: Congress enacted section 343-1 in the Nutrition Labeling and Education Act of 1990 (“NLEA”).

Mr. Spiegel then discussed how Congress enacted section 337 in 1938, but in 1990, Congress via the enactment of section 341-1 permitted the states to establish and continue in effect regulations that are identical to the federal requirements.

Justice Moreno then jumped in and asked: “Are you relying on any of the FDCA violations?” Spiegel: “No.” Spiegel then explained that plaintiffs are relying on UCL violations, and that plaintiffs are only claiming that Congress via the enactment of section 341-1 says that states may establish or continue in effect regulations that are identical to the FDCA requirements.

Justice Kennard interjected and asked whether Spiegel’s reasoning is based on the language in section 341-1, which says that no states may establish or continue in effect a requirement for labeling of food “that is not identical to the requirement” of FDCA. Spiegel affirmed.

Justice Kennard continued: “So section 343-1 expressly preempts only non-identical state labeling requirements?” Spiegel: “Yes.”

Justice Kennard then asked: “What about the police power … as being another argument?” Spiegel agreed that the police power is another argument against preemption.

At this time, Justice Mihera jumped in (but I missed the question). Mr. Spiegel’s response talked about two cases that were cited against plaintiffs’ position, one of which is Buckman (where the USSC held that section 337(a) is clear evidence that Congress intended FDCA be enforced exclusively by the federal government). Spiegel nicely distinguished Buckman from the present case, explaining that the plaintiff in Buckman alleged “fraud on the FDA” -- thus, there was no police power argument in Buckman, because fraud on a federal agency is not within the realm of the police power.

Justice Moreno asked Spiegel whether FDA has a position regarding state enforcement. Spiegel was very prepared to answer this question. He cited a 1993 official rule and quoted “nothing in this act will preclude the states from enforcing their own requirement under their own [law].”

Spiegel then went on to talked about the interplay between sections 343 and 343-1 and 337(b), noting that 343 and 343-1 were adopted as part of the FDCA in 1990. I think his main idea was that if Congress meant to create FDCA preemption in section 337, then why did Congress bother to enact section 343-1, which permits states to “establish or continue in effect” state requirements?

Justice Mihera noted that barring non-identical state requirements seems to infer that identical state requirements will be okay. He then asked about defendants’ argument based on NLEA section 343-1, subsection 6(c)(3).

At this point, Justice Kennard pointed to subsection 6(c) of section 343-1 which states that NLEA “shall not be construed to preempt any provision of State law, unless such provision is expressly preempted….” Justice Kennard asked: “Is there any express preemption in the statute?” Response: “No.”

Mr. Heinke then argued on behalf of the defendants.

Justice Baxter jumped in with his first question: “Why wouldn’t Congress want private enforcement of these requirements?” Justice Chin then asked about the plain language of NLEA which seems to say there is no preemption if state requirements are identical to those required by NLEA. Mr. Heinke responded by explaining that the question presented is whether there can be private enforcement, citing section 337. Mr. Heinke noted that Congress in 1938 via section 337 said there is no private enforcement of FDCA. He added: “Did Congress really intend to change that by section 334-1? If yes, then Congress would have just said that it overturned the bar on private enforcement instead.”

Mr. Heinke then emphasized that section 334-1 didn’t say anything about “private enforcement.”

Justice Kennard, at this point, interjected and asked about the language in NLEA. She specifically asked why this court should agree with defendants’ arguments? Mr. Heinke’s response was that NLEA is not the basis for defendants’ argument. Instead, he noted that defendants are arguing section 337 as the basis for preemption. He then argued that Congress didn’t change a word in section 337 (since its enactment).

Justice Mihera jumped in: “But they added section 334-1!” Mihera then asked: “Who bears the burden?” Response: “There is no burden.” Mihera: “There is!”

Justice Mihera then explained that because there is no express preemption, the defendants are relying on “implied” preemption -- which means that the defendants will need to establish an “obstacle to a federal objective.” He then asked what is the obstacle that will result in the private enforcement of state law that is identical & parallel to FDCA?

In response, Heinke cited the preamble of NLEA and talked about legislative history of what Congress is doing concerning private enforcement.

Justice Kennard then asked about the two USSC cases cited by the plaintiffs (i.e., Bates and Medtronics, in both cases the USSC upheld state private actions as long as they are not inconsistent to the federal requirement). Mr. Heinke’s response focused on 337 and the idea that there is no private enforcement of FDCA. First, he indicated Bates is not about FDCA. Second, he noted Medtronics was an FDCA case, but Medtronics did not discuss section 337, and therefore is not controlling here. Heinke then noted it is Buckman that should be looked at here.

Justice Moreno asked: “But one of the principles of Medtronics is to allow private enforcement of claims?” Response: “Yes, but that’s without looking at section 337.”

Justice Mehera and Mr. Heinke then had some discussion back and forth about the language in 334-1. Mr. Heinke said that Congress changed the language to “state enforcement” and not “private enforcement.” Justice Mehera corrected him by noting that section 334 does not use the word “enforcement” -- rather, it only talks about state “establishment” of it own requirements.

At this point, Justice Werdegar asked her first question: “What’s the policy reason [for no private enforcement]?” Response: Congress wants to ensure expertise -- private parties don’t have expertise in this area (and I think he mentioned something about plaintiffs’ lawyers and fees!).

Justice Baxter then said: “Congress did not provide private enforcement in the federal courts?” Response: “Exactly.”

Justice Kennard then jumped in: “You were saying you are not relying on NLEA, right? But just a moment ago you cited Congressman Waxman's comment which started out with ‘The NLEA….’” Justice Kennard was basically saying that in one context Mr. Heinke is relying on NLEA; whereas, in another context, he chose not to rely on NLEA.

At this time, it was Mr. Spiegel’s turn again. He started out indicating that the defendants had mischaracterized plaintiffs’ argument. Spiegel clarified that plaintiffs are basically arguing that defendants’ claim concerning section 337 is incorrect.

He then talked about how defendants are arguing Congress in 1938 through section 337 basically decided that there should be no more state law claims (without saying a word about it in the statute). He also noted that the cases defendants have cited all concerned FDA “approval” process and that states have never regulated such approval processes.

Justice Werdegar then asked questions that focused on “private enforcement” and the policy reason of whether private enforcement is a problem. Mr. Spiegel indicated the issue of private enforcement of FDCA has nothing to do with this case.

Justice Baxter then asked why shouldn’t section 334(b)[??] control? Mr. Spiegel explained because that section says “enforcement of FDCA.” Justice Baxter followed up with a question on section 337. Spiegel’s response talked about Buckman. He again explained that the claim in Buckman is preempted because the plaintiff there only relied on FDCA violations (and not state claims).

Predictions:
Mihera, Kennard, Chin, Moreno: for the plaintiffs.
Werdgar, Baxter: for defendants.
Corrigan: not sure.

Thank you, Kelly, for providing such a detailed and interesting report of the argument! Yesterday's Daily Journal also had a (much less detailed) report on the argument, and also predicted that the plaintiffs are the likely winners: "Court Backs Salmon-Labeling Suit" (subscription). The decision is due by early March.

Still more on the Gentry argument

Wage Law has a detailed report today on the Gentry argument.

Oral argument report #2: Gentry v. Superior Court

Thanks to Anthony Zaller and Brian Van Vleck, authors of California Labor & Employment Defense Blog, for sending in their perspective on the Gentry argument:

We probably can’t improve much on Kelly Chen’s excellent factual reportage of the oral arguments in Gentry. Kelly concludes, however, that “as a recent law school graduate, I have to humbly admit I’m too junior to make a prediction.” Our predictions are surely no better than Kelly’s but we aren’t constrained by her prudent good sense. Consequently, below is our take on the hearing as well as some speculation about where we think the Justices may be heading with their eventual opinion.

Certain aspects of the hearing had an unmistakable “play within a play” quality. For example, the respective parties and their counsel were arguing first and foremost about whether the particular arbitration agreement drafted by Circuit City and signed by Mr. Gentry would be upheld and enforced. On the other hand, the assembled observers (and the larger community of class action practitioners), were more intently focused on just one sub-issue -- i.e, the enforceability of the agreement’s provision prohibiting Gentry from pursuing a class-wide arbitration.

Based on the representations of counsel at the hearing (and, as a disclaimer, we are not independently familiar with the briefs or appellate record), the record appears to contain more than enough ammunition for the Court to shoot down Circuit City’s agreement based on the application of familiar Armendariz factors, including lack of mutuality, a purported waiver of certain damages, a shortened statute of limitations, etc. But will the Court simply strike down the agreement based on the “totality of the circumstances,” and thereby leave open the possibility that a class arbitration ban could be upheld if it were part of a less unconscionable agreement? Or will the Court use Gentry as a vehicle to create a categorical rule that invalidates all pre-dispute restrictions on class arbitration?

Cliff Paleski, appearing on behalf [of] amici, argued forcefully in favor of a nearly per se rule that would prohibit any restrictions on class arbitration under any circumstances in employment disputes. His advocacy, while forceful and persuasive as always, was based essentially on public policy arguments. Moreover, to our bourgeois ears at least, his arguments had a radical flavor – advocating for example, that “all employment is inherently oppressive,” and that leaving the door open even a crack will lead to “no end of mischief” by avaricious employers seeking to strip workers of their rights.

As legal support for their proposition that employees can never waive their right to act as a class representative in arbitration, Gentry’s team could only cite to Labor Code section 923. This is nothing more than a vague Depression-era proclamation that collective bargaining is favored by public policy. We’ve never heard of anyone invoking Section 923 as support for employee class action rights and the argument didn’t seem to get a foothold with any of the justices either. All things considered, we’d have to rate this Section 923 argument as a prohibitive long shot.

Justice Kennard was by far the most active questioner and we wouldn’t be surprised if she is the author [of] the majority opinion. Some of her questions implied that she might have reservations about whether there was any principled basis for a broad ruling on the permissibility of class arbitration waivers. Justice Chin also focused on the tension between the competing public policies to enforce agreements and yet allow class wide procedural remedies. Chin seemed to come down on the side of enforcing arbitration agreements. The other Justices, by and large, avoided the big issues and focus[ed] more on the facts of this particular case that might render the agreement procedural or substantive unconscionability.

So what’s the bottom line? Our prediction is that the Court will hold the Circuit City agreement to be unenforceable. We are also willing to bet that, while the Court’s opinion may contain some language that the class arbitration ban contributed to this result, it will stop short of announcing any categorical rule against such provisions. As a result, a case-by-case analysis will be required and a properly drafted arbitration agreement may still offer an arguable defense to class certification. But it goes without saying that we could be wrong.

Thanks, Anthony and Brian, for that analysis. In addition to Kelly's summary, two readers (one of whom is Michael Walsh of the blog Wage Law) provided their thoughts in the comments to this post.

A couple of the reports on the argument mentioned Armendariz, but it will also be interesting to see how Discover Bank plays out as precedent in the employment context. As mentioned in these posts, I noticed a while back that the Supreme Court appeared to be granting review in cases upholding no-class-action arbitration clauses, and denying review in cases striking them down. The outcome predictions so far in Gentry are consistent with the idea that the Supreme Court felt that Discover Bank was being applied too leniently, or at least that lower courts needed more guidance. It would not be unreasonable for the Court to conclude that a public policy favoring access to the judicial system (which is what the class action device facilitates) should outweigh any countervailing public policy favoring a procedural device (arbitration) that serves to limit access. To a large degree, Discover Bank stands for exactly that proposition.

Oral argument previews: Prachasaisoradej and Tobacco

Two cases involving UCL claims are set to be heard this morning at 9:00 a.m. in Los Angeles. Prachasaisoradej v. Ralph’s Grocery Co., no. S128576, is a UCL/employment case (decided on preemption grounds below). In re Tobacco Cases II, no. S128576, is a preemption case. For more detail, see these posts. If you attended one or both of these arguments, it would be great if you'd send me a report by email for posting here (with or without attribution). Meanwhile, the first report I received on the Gentry argument is immediately below.

Oral argument report: Gentry v. Superior Court

Many thanks to Kelly Chen, a recent graduate of U.C. Hastings Law School, who attended the Gentry argument yesterday and wrote up this detailed report:

Kelly Chen’s Notes Re: Gentry Oral Argument
California Supreme Court Case No. S141502
June 5, 2007 -- 2pm

(NOTE: I observed the argument from a staff lounge on a 28” tv with a room full of about 40 people. It was quite difficult to “see” anything. Although I could distinguish the voices amongst the female justices, I was unable to differentiate the voices of the male justices.)

This afternoon in Los Angeles, the California Supreme Court heard oral argument regarding the enforceability of an arbitration provision that prohibits employee class actions in litigation concerning alleged violations of California's wage and hour laws. Michael Rubin and Cliff Palefsky argued on behalf of the employees. Rex Berry argued for Circuit City.

Mr. Rubin started by pointing to the exculpatory purpose and effect of class action bans in employment cases. He argued that such a class action ban is inconsistent with the policy underlying Labor Code section 923, which provided that employees shall be free from employers' interference in “concerted activities” for the purpose of “mutual aid and protection.”

Justice Kennard quickly jumped in and asked: “Would this court take into consideration the relatively small awards in wage and hour cases?” She then cited the statistical average of $6,000 in individual wage claims. Mr. Rubin indicated that in overtime claims where the statute of limitation is running, some workers in a class might have begun work at the end of the claim period.

One of the male justices (not Moreno) then asked: “Would you say that the public policy in favor of class actions should trump the public policy in favor of arbitration?” Mr. Rubin indicated that he would not characterize it that way. He explained that Gentry’s position actually furthers the public policy regarding arbitration -- that is, a “fair” policy of arbitration. He argued that employers can not have an arbitration policy that undermines the policy of a fair arbitration.

Another male justice (Moreno I think) then interjected by saying that this case is not like Discover Bank where the contract of adhesion was sent in stuffed mails. Mr. Rubin responded by arguing that there is still a procedural unconscionability issue here, because this case involved a scenario where employees were asked to “take it or leave it.” Rubin explained that the nature of the work environment itself is inherently oppressive.

At this time, Justice Kennard interjected and asked about the employment handbook. Mr. Rubin said that the employment handbook indicated the oppressive nature of the agreement, given that Circuit City retained the right to unilaterally change the terms of the agreement. “That goes beyond the reasonable expectations of the employees,” Mr. Rubin argued. Mr. Rubin articulated that certain special provisions just cannot be "buried" in the handbook, including things like a class action bar, the unilateral change of the terms, and the reduction of the statute of limitations. He argued that these special provisions must be explained in a “pre-dispute” scenario.

One of the male justices (Baxter or George) then asked if it is Mr. Rubin’s opinion that his client's claims cannot be adequately adjudicated through a Berman hearing? Mr. Rubin indicated that individual claimants in a Berman hearing have to pay for attorneys fees; he then focused on his class action argument. The Justice commented that isn’t it the purpose of the Berman hearing that the employees can represent themselves in these wage claims without representation. The Justice did not seem eager to hear the class action argument. Rather, the Justice pursued his original inquiry and asked Rubin: “What’s wrong with the Berman hearing process? Or arbitration?”

At this time, Mr. Rubin’s time was up. Mr. Rubin quickly answered the questions. With the Berman hearing, Mr. Rubin pointed to the limited resources and attorneys fees as two problems. I wish Mr. Rubin had had a little bit more time to discuss the inadequacy of the Berman process in a more comprehensive manner.

Mr. Palefsky argued also on behalf of the employees.

I missed the beginning of Mr. Palefsky’s presentation and the first question posed by Justice Corrigan.

A male justice (George, Chin, or Baxter) asked a hypothetical of whether it would make a difference if the plaintiff is an employment specialist working at a law firm who is capable of understanding the terms of the employment agreement. Mr. Palefsky responded in the negative. Mr. Palefsky’s position was that employers just can’t prohibit class actions.

Justice Moreno then asked if Circuit City gave up its rights in any way in the agreement. Mr. Palefsky firmly responded: “No!” Mr. Palefsky then argued that that if one has to waive his right to a jury, etc… you can’t do it in a document with a title “Receipt.”

Justice Kennard eagerly interjected: “Is it your view that class action waiver is always invalid? Or is it a case by case analysis?” Mr. Palefsky answered that class action bars (in this context) are always invalid. He, like Mr. Rubin, cited Labor Code section 923. At one point, Mr. Palefsky used the phrase “in a wage case” during his response to Justice Kennard’s question. Upon hearing the phrase, Justice Kennard commented: “ah….you just said the magic term! It is this case!” Mr. Palefsky then used “in an employment case” when he moved on to explain the pre-dispute waiver in this case (and how it shouldn’t be allowed).

Justice Werdgar then asked whether the particularity of this case is irrelevant (i.e., whether the fact that the relevant provisions were buried in the handbook?). Mr. Palefsky indicated that the particularity of this case tells us the importance of a clear cut rule. He argued that we just can’t open the door to a class action bar with an opt-out process; hence, there must be a clear cut rule.

Justice Werdgar then followed up by asking about Gentry’s options to resolve his dispute: “If he had opted out, what are you saying it will happen to him?” Mr. Palefsky went on with his argument, but the justices interrupted and asked him to directly answer the question. “Retaliation!” Mr. Palefsky responded.

At this time, Mr. Berry argued on behalf of Circuit City. He started out by arguing that there are two flaws to Gentry’s arguments. First, he pointed to what’s on the record -- the agreement. One of the male justices (George I think) then interjected and asked about the “voluntariness” of the context of the agreement -- whether it is a contract of adhesion. Berry responded: “absolutely not… if he (i.e., Gentry) felt coerced, I suppose he could put a declaration before the Superior Court…but he did not.”

Justice Werdgar asked: “We’ve been told that Labor Code section 923 prohibits class action waivers. Is that correct?” Berry responded in the negative and argued that assertion is a stretch.

Berry then moved on and focused his arguments on the pro-arbitration public policy.

Justice Werdgar then commented that the opposing counsels focused on the class action part, not arbitration part. She asked: “Are we not talking about class action waivers?”

Berry then argued that Gentry is asking this court to render the agreement unenforceable because there was a class action waiver. He argued that this is not a commercial contract of adhesion. He indicated that employees were given a presentation about the terms of the agreement and an opportunity to opt out. At this time, one of the male justices added: “didn’t they go beyond and advise…the employees to counsel with attorneys?” (I really couldn’t “see” which of the male justices said this.)

Justice Chin (I think) then said that he sees this as a tension between class action policy verses the arbitration policy. He asked if they are both legislative policies? Berry said that the policy concerning arbitration is a legislation policy, but the policy concerning class actions is a “judicial” policy. Justice Kennard then quickly pointed out that the policy concerning overtime wages is a legislative concern. She said: “why are we in dangerous territory? I think we’re simply looking at whether a class waiver is okay. I think everyone will agree that arbitration is favored. But legislature also concerns overtime…etc…”

Justice Kennard then asked Berry to articulate what is (and what is not) in the employment handbook. She specifically asked for examples like: (i) the reduction of the statute of limitation from four to one year, and (ii) the restriction of backpay to one year. Berry didn’t address Kennard’s question directly. Instead, he talked about the presentation to the employees and how even till now no one else indicated to them what they should have said to the employees. Kennard interjected and asked Berry to respond to the question posed. Berry said “yes” and indicated that the employees signed a receipt, etc.

Justice Moreno then asked Berry to address to the issue regarding reciprocity of the contractual terms, specifically whether Circuit City gave up some rights? “Absolutely,” said Berry. He explained that his clients gave up appellate review (i.e., given that arbitration awards are not subject to appellate review). Also, he gave an example of how Circuit City also gave up suing its employees (i.e., something about collecting money from employees about traveling expenses -- I thought this was weak in comparison to the rights that the employees are giving up…for obvious reasons).

At this time, it’s Mr. Rubin’s turn again. Justice Kennard asked Mr. Rubin, in response to Berry’s earlier assertions, whether the employment handbook indeed expressly contained certain explanations about things like the reduction of the statute of limitations, etc? Mr. Rubin responded with confidence: “No!” He then referenced specific page numbers in the handbook. Rubin said: “It doesn’t say ‘no statute of limitation of more than 1 year’ or ‘no punitive damages.’” He then took the opportunity and went back to Justice Moreno’s question regarding reciprocity by referencing a page in the handbook which expressly bars lawsuits “brought by associates.”

One justice asked about Labor Code section 923 and how Circuit City claimed this section only applies to a collective bargaining situation. One of the male justices asked: “Is there any legislative intent you can cite that favors class action over arbitration?” Mr. Rubin once again indicated that they are not making such a distinction (see above). The Justice then asked about the term “concerted activity” in the section 923. Mr. Rubin responded by saying that federal courts have permitted people to apply the term “concerted activity” to consolidate cases.

At this time, Mr. Rubin articulated that a class action bar in pre-dispute employment cases (as in Gentry’s case) is unenforceable “if it is reasonably foreseeable that the ‘effect’ is to eliminate non-waiveable statutory claims.” I thought this point beautifully tied to his opening remark!

Justice Werdgar then asked: if this court were to agree with you….are you saying that class action arbitration is not okay?” Mr. Rubin said: “Oh, no.” Werdgar then cleared out two issues: (1) class action waiver, and (2) the arbitration agreement itself. She asked if Gentry’s first position is to strike out the entire agreement, and the second position is to allow arbitration without the class action bar. Rubin affirmed.

The next question posed at Mr. Rubin is whether a class action waiver is never enforceable. Mr. Rubin responded, again, that it is unenforceable in a pre-dispute situation in the employment context if it is reasonably foreseeable that the effect is to eliminate non-waiverable statutory claims.

As a recent law school graduate, I have to humbly admit I’m too junior to make a prediction.

Thanks, Kelly! Readers, what do you think? Feel free to post a comment based on Kelly's summary as well as the summary posted by a reader in the comments to this post. I'm hoping to receive at least one more summary later today.

Oral argument preview: Gentry v. Superior Court

This afternoon at 2:00 p.m., the Supreme Court will hear oral argument in the no-class-action arbitration case, Gentry v. Superior Court, no. S141502. The argument will take place in Los Angeles, and I hope to be able to post at least one report here tomorrow. Meanwhile, for everyone's reading pleasure, the Court of Appeal's opinion is here: Gentry v. Superior Court (Circuit City Stores, Inc.), 135 Cal.App.4th 944 (2006) (Second Appellate District, Division Five).

UPDATE: A reader who attended the argument today has put up a nice summary as a comment to this post. I'm expecting to receive additional reports shortly.

Recording of Murphy v. Kenneth Cole oral argument available online

The Supreme Court has posted a 64-minute video recording of the Murphy v. Kenneth Cole oral argument, which took place on March 7, online at this link. My lengthy summary of the argument is here.

More on the Murphy v. Kenneth Cole oral argument

The blog Wage Law has a nice report on the argument, compiled by Michael Walsh from notes provided to him by several attorneys who attended. The post concludes with a round-up of outcome predictions. The common theme is that everyone seems to expect a split decision. Try as we might to be objective, the defense attorneys all predict a win for the employer, while the plaintiffs' attorneys expect the employee to emerge victorious. My own lengthy report on the argument is at this link.

"Calif. High Court Grapples With Limitations Period in Meal-Pay Law"

This morning's Recorder has this report on the argument in Murphy v. Kenneth Cole Productions. My own report on the argument is in the post immediately below.

Yesterday's oral argument: Murphy v. Kenneth Cole Productions

Yesterday, in Murphy v. Kenneth Cole Productions, the California Supreme Court heard oral argument on whether the "additional hour of pay" mandated by the Labor Code for meal period and rest break violations is compensation, governed by a three-year statute of limitations, or a penalty, governed by a one-year statute of limitations. Donna M. Ryu of the Hastings Civil Justice Clinic argued on behalf of plaintiff John Paul Murphy. Robert W. Tollen of Seyfarth Shaw LLP argued for defendant Kenneth Cole Productions. Mr. Tollen shared his time with Steven Drapkin, counsel for amicus curiae California Employment Law Council.

Ms. Ryu began her argument by pointing out that the primary purpose of Labor Code section 226.7 is to provide compensation where no compensation previously existed. Section 226.7 provides compensation for tangible harms, including fatigue, stress, the inability to make personal phone calls, etc. These are real harms that employees suffer when they do not take their meal periods and rest breaks.

Justice Kennard wasted no time. "Let's get to the heart of the issue—the applicable provisions," she said. "I assume you place your primary reliance on Labor Code section 226.7, subdivision (a)," and then she quoted the provision. She asked whether it was correct to say that for two weeks straight, the plaintiff was required to give up his entire lunch period and work through it. Ms. Ryu said yes, and in fact, due to Kenneth Cole's policies, for two years, plaintiff got no rest breaks at all, and he got meal periods only about once every two weeks. Justice Kennard then quoted Labor Code section 226.7, subdivision (b), and said, "What is your argument to this Court regarding the applicability of this provision?" Ryu said that this provision tells us that the additional hour of pay is compensation, not a penalty. The legislature used the word "pay." They didn't use the word "penalty," and in fact rejected that word.

Justice Kennard continued: "Would you be so kind as to differentiate between a wage, or pay, and a penalty?" Ryu responded that for purposes of the statute of limitations, a statute is a penalty if it is primarily intended to penalize or punish. Justice Moreno then interjected, "Is it your position that this provision is unambiguous on its face?" Ryu said yes. The use of the word "pay" is unambiguous. Also, the word "penalty" is used in two other statutes. Justice Werdegar asked whether the statute we're concerned with is in the section of the Code relating to penalties. Ryu said that it began in a section where there was a true penalty element. Justice Chin then spoke up: "What does the legislative or administrative history say about section 226.7?" (That would turn out to be Justice Chin's only question during the entire argument.) Ryu explained that they started with a remedial scheme with both a compensatory and a penal component. The legislature then dropped the penal component. What remained was the compensatory element. They changed this so that it would be a vested right. With respect to the IWC, the IWC specifically said we're creating this as compensation beyond injunctive relief (the only form of relief previously available). They specifically invoked an analogy to premium pay. This is like overtime, they said.

Justice Baxter then asked, "Does the fact that the amount to be paid is pegged to the employee's hourly rate, does that help or hurt you?" Ryu said it helps. It operates a lot like other forms of pay. It's written in such a way that it's vested. Justice Moreno then said, "What weight do we give to the conflicting IWC letters and references to overtime penalties?" After Ryu started to explain what the Labor Commissioner said, Justice Moreno interrupted and said, "He calls it a penalty." Ryu said, "Yes." Justice Moreno said, "Are we bound by that?" Ryu responded that the Commissioner wasn't talking about it in terms of the statute of limitations.

Justice Moreno then said, "What about other forms of premium pay, such as split shift and reporting time premiums? Are they pay or a penalty?" Ryu said they are pay. They all operate the same way. They are meant to shape or prod the employer's behavior. This is why overtime is referred to as the primary mechanism for enforcing the wage standards. Justice Moreno then asked how that analysis applies to the extra hour of pay for meal and rest break violations. Ryu explained that this is the only compensation available to employees for missed meal and rest breaks. It gives an incentive to the employer to comply with the law. Justice Moreno asked, "What about the argument that the amount doesn't bear a reasonable relationship to the harm? With overtime, it does." Ryu responded that it's still compensation. It's the only compensation that exists. The question is does it fit the violation? It's based on the employee's regular hourly rate. It's a modest form of compensation.

Justice Werdegar then jumped back into the discussion. She pointed out that 30 minutes are required for lunch periods, but the law requires an hour of pay. So the employee has been paid. This gives the employee not only thirty minutes extra but double that. Why is that not a penalty? Ryu said, "An employee is entitled to be paid for time worked." Justice Werdegar said, "Yes, and he gets that." Ryu said it's capped at one hour of compensation for the real harms that employees suffer when they miss their breaks.

Justice Kennard then said, "You acknowledge that they get paid for the half hour. But if here, the defendant violated this by requiring the employee to work through the break, then under section 226.7(b), it becomes an additional hour of pay .... Then under the statute, it's not just a half hour of pay but double. One could make an argument, and reasonably so, because this comes across as a penalty." Ryu said it's important to look at it in the context of the statute of limitations. It's still compensation. We may quibble with how the Legislature decided to provide it, but it's still compensation. She suggested comparing it to split shift pay. The employee may wait around two hours between shifts. Maybe that's not such a serious harm. But what if the employee is required to wait around four hours. That could be a serious disruption, the employee might go home and incur travel expenses, etc. Still, in both situations, the employee gets one hour of pay. Maybe this isn't a perfect fit, but it's a close fit, and more important, it's the only compensation provided.

Justice Kennard then offered a clarification of her prior question, pointing out that under the Labor Code, meal periods are not paid (if taken). Ryu said yes, with rest periods, the time is paid, with meal periods, it's not. (This also served to clarify Justice Werdegar's prior question.) Justice Kennard went on: "You're asking us to agree with your position because it's reflected in the pretty clear statutory scheme, the use of the word 'pay' in (b)." Ryu said, "Yes." Justice Kennard then said, "Let's assume we say, yes, that's a pretty good argument, but also, there's a pretty good argument on the other side, you'd agree that we can then look at extrinsic sources to interpret the statute. Explain how you win."

Ryu said that you have to look at it in the context of the Labor Code. It looks, acts, feels, behaves identically to other premium pay devices. For the plaintiff to win, the Court need only to decide that the payment is not a penalty. (That is because Code of Civil Procedure section 338(a) provides a three-year statute of limitations for "[a]n action upon a liability created by statute, other than a penalty or forfeiture.") The legislative and regulatory history, Ryu said, show a penalty scheme was considered and rejected. What was adopted was a compensation scheme, to compensate employees for real harms. There's no other compensation in the statutory scheme, and the defendant has not identified any.

Justice Moreno asked, "Do penalty provisions exist in other parts of the Labor Code?" Ryu said, "They absolutely do." Justice Moreno said, "How do you differentiate those" from section 226.7? Ryu said that the Legislature knew how to draft a penalty provision when it wanted to. For example, Labor Code section 203 talks about waiting time penalties. It uses the word penalties. Justice Moreno said, "And those were awarded here, weren't they?" Ryu said they were. She said that section 203 creates a penalty amount that is in addition to other compensation. Here, this is the only compensation in the code.

Justice Baxter then threw a heavy wrench into the discussion: "I'm interested in the income tax treatment. Is there any impact on the tax treatment?" Ryu said that wasn't part of the case, but she believes there is an IRS ruling that treats compensation as a wage. "And if it is a penalty?" asked Baxter. Ryu said she was sorry, but she didn't know. (This issue was not mentioned in the briefs that I read.)

Ryu then resumed her argument by saying, "Because the statute is designed to compensate, it must be governed by a three-year statute of limitations." Justice Werdegar broke in: "Excuse me, but the Court of Appeal disagreed with the first part of your argument. To say it's compensation is conclusory; we have to determine whether it is or isn't." Ryu suggested looking to some cases to illustrate the point. She mentioned the Hansen case (phonetic) from the 1920s. In that case, a statute required power companies to provide power to all persons living within a certain distance from their power plants, or pay a $1,000 fee plus $100 per day. The Supreme Court said that's a penalty because there was no harm to be compensated.

Justice Moreno interrupted, saying these aren't Labor Code cases. Ryu acknowledged that none of the prior cases addressing the statute of limitations issue is a Labor Code case. This will be the first time that the issue will be decided in the Labor Code context.

Justice Werdegar then asked, "What do we do with the fact that the most pertinent agency has come forth with an interpretation that this is a penalty?" Ryu said that in this case, the DLSE was counsel with her for Mr. Murphy, and the DLSE argued on his behalf that it was a wage. Nothing has changed since then. The law hasn't changed; the regulations did not change. What changed was the administration (from Governor Davis to Governor Schwarzenegger). Justice Werdegar said, "Did they explain their change in position? Certainly they wouldn't explain it the way you did." The courtroom laughed rather heartily at that. Ryu said they did not. The new interpretive letter gives a very cursory analysis to the question, she said.

Ryu then resumed her argument, saying again that because the statute is intended to compensate, it must be governed by the three-year statute of limitations. Mr. Murphy's remedy should not be cut short by two years; it makes no sense to let Kenneth Cole off for those two years. Justice Moreno then mentioned Labor Code section 226(e) (which relates to remedies for an employer's failure to provide an accurate itemized wage statement). Ryu's response was that in section 226(e) cases, the employee can prove up actual damages or obtain the penalty, which distinguishes it from 226.7 cases.

Justice Moreno then turned the discussion to the second question on which the Court granted review, which was (to quote the docket): "When an employee obtains an award on a wage claim in administrative proceedings and the employer seeks de novo review in superior court, can the employee pursue additional wage claims not presented in the administrative proceedings?" Justice Moreno pointed out that the trial court elected to consolidate all of Mr. Murphy's claims, including those not expressly addressed during the administrative proceeding. Ryu said yes, in this case Mr. Murphy took the administrative route. He did his best to explain what the problem was but he wasn't aware of all of the ramifications. He won before the Labor Commissioner; Kenneth Cole filed suit to challenge the ruling; counsel came in and they noticed other legal claims.

And that was the end of Ryu's time.

Mr. Tollen started out by saying, "I assume from most of the argument and the questions that the Court's primary interest is in section 226.7. But if the court will indulge me, I would like to speak for a moment about the jurisdictional issue." The main point he made, which he said was not addressed in the briefs, related to the plaintiff's argument that while an administrative proceeding is pending before the Labor Commissioner, the time (i.e., the statute of limitations) will run out. He said it's written into the statute to provide a speedy remedy, quoted various deadlines provided by the statute, and said it's a total of 145 days. The administrative proceeding will be resolved less than five months from the time the plaintiff first goes to the Labor Commissioner. If the "plaintiffs' bar" thinks that the Labor Commissioner is violating these provisions by taking too long, then they should file an administrative enforcement action against him.

He then went on to section 226.7. He said that the question is what is the effect or function of the statute, not what the Legislature intended. Nevertheless, to the extent the Court might consider intent, "I don't understand" how counsel can contend that the Legislature intended to enact something that is not a penalty, when it told us what it was doing. First, the statute included a $50 penalty. That was stricken. Then, the words we now have were adopted. The Legislature wrote that it was deleting the provisions relative to penalties and instead was adopting the lower penalty amounts that the IWC had promulgated. In addition, the Department of Industrial Relations and the DLSE told the governor that the bill supported the underlying purpose of providing a penalty.

Tollen then addressed Ryu's point relating to the DLSE's representation of Mr. Murphy early in the case. He said that the DLSE (which he referred to as "the Labor Commissioner's agency") is required by statute to provide counsel to an unrepresented employee who wins in the administrative proceeding, and whose victory is challenged in a de novo appeal. The DLSE is required to argue on the employee's behalf. This doesn't affect the official position taken by the Labor Commissioner.

Justice Moreno then interjected: "Back to AB 2509, weren't there other amendments to the Labor Code where they retained the 'penalty' language?" Tollen said the reason the Legislature retained the language that is used in section 226.7 is because they adopted, lock, stock and barrel, the words the IWC adopted in early 2000, just before this bill was introduced. Justice Moreno said, "But they kept the 'penalty' language in sections 203.1 and 226 in the same bill." Tollen said that's because those provisions weren't adopting something that the IWC had previously done. He pointed out that section 203 talks about employer liability for 30 days' additional "wages" as a "penalty." He said that the even when the Legislature uses the word "wages," that can actually mean a "penalty."

Here, Chief Justice George spoke for the first time. "But that's very different from this section, which doesn't use the word 'penalty,'" he said. Tollen said, "Yes, but my position is that use of the word 'wage' does not mean it's not a penalty." Chief Justice George continued, "But couldn't one argue even more persuasively that if it doesn't use the word 'penalty,' it's not a penalty?" Tollen said, "No, I don't think it can be interpreted that way, especially when they told us what they intended to do." Chief Justice George said, "You don't place much weight on its placement within the Labor Code?" Tollen said yes, it's in a row of statutes that also include penalties. Section 226.3 provides a civil penalty; section 227 provides for a fine or imprisonment. They put 226.7 smack in the middle.

Justice Baxter then interjected with: "I have a concern. As I understand it, the amount of a penalty generally follows the culpability of the conduct. The worse the conduct, the higher the penalty. Yet here, the failure to provide meal or rest breaks for a person earning minimum wage is significantly less than for a person with a higher position. I can't see any difference in the conduct. From the employer's perspective, there's no difference between violating the law for a low-level employee than for a high-level employee. To me, that strikes me more as compensation. Whereas if it were a uniform figure, that would seem more like a penalty. I can't imagine the Legislature would want to go on record saying that denying breaks to a minimum wage employee is less important than a higher-level employee."

Tollen said that the Legislature has done that in section 203 for termination penalties. It's going to vary from a low-level to a high-level employee, yet they're all going to get 30 days' pay. Tollen observed that it's an interesting argument, not one that the plaintiff has made. Plaintiffs argue it's compensation. We say that to be compensation, it must be proportionate to the violation. What are the consequences of the violation? The employee may be fatigued, but what's not mentioned is that the employee might be actually injured from working while fatigued, or the employee may not be injured at all. This payment is not designed to analyze whether the employee is injured or the extent of the injury.

Justice Baxter said, "But it's pinned to the employee's compensation." Tollen said it's a mixed situation. Yes, it's pegged to compensation. That's what our opponent grabs onto. But on the other hand, it's not related to the injury.

Justice Corrigan then spoke for the first time: "You'd take the position, then, that even though they're denied the break, they're paid for the work?" Tollen said yes. The employee is compensated for time worked, plus the employee gets an extra compensation, a full hour of pay. It makes no difference the extent of the loss, the length of the lost time. Justice Corrigan said that if an employee is required to work through two 15-minute breaks, they are entitled to: (a) pay for 30 minutes and (b) an extra hour of pay. "So double." Tollen said there is a distinction for rest breaks. Justice Corrigan said but in the context of rest breaks they get double pay. Tollen said yes, but it's more than double pay. They get 20 minutes of pay and an additional hour. (Here, Tollen was correcting Justice Corrigan. The Labor Code requires 10-minute, not 15-minute, rest breaks.) Justice Corrigan asked how it would work differently in the context of meal breaks. Tollen said that if an employee takes the meal break, they are not paid. If the employer violates the law by requiring an employee to work through the meal break, there are two consequences. The time worked must be paid, and the employer has to pay an additional hour of pay even though the employee only lost a 30-minute meal period. Justice Corrigan said, "Thank you."

Tollen resumed his argument by saying, "I want to go back to the intent of enacting 226.7, the letter that the author of the bill sent to Governor Davis." He then quoted parts of the letter where the word "penalty" was used. Then, he referred back to some of the earlier questioning about reporting time and split shift payments, but Justice Kennard interrupted. She pointed out that he may be out of time and that she had hesitated to ask him further questions for that reason. Chief Justice George then informed Tollen that he was out of time.

Before the argument started, the clerk came out and addressed the waiting audience about the procedure. He confirmed that Tollen planned to take 15 minutes of argument time, and to give the other 15 minutes to Mr. Drapkin. Tollen then specifically asked the clerk whether the Chief Justice would notify him when his 15 minutes were up. The clerk said the Chief Justice would. However, he did not. By the time Justice Kennard mentioned that Tollen might be out of time, more than 15 minutes had clearly passed. But Tollen certainly can't be blamed here for not keeping track of the time himself. He was told that the Chief Justice would interrupt when his 15 minutes were over.

In any event, Mr. Drapkin then rose and prefaced his argument by saying that he had a lot to say. He referenced back to Justice Kennard's question at the outset about what a penalty is. He said that the Court has defined the term "penalty" consistently for the past 100 years in the statute of limitations context and related contexts. A penalty is an amount a plaintiff is allowed to recover against a wrongdoer without reference to injury. An alternative test, from Ballarino (phonetic), is for an act in the nature of a public wrong. This is the definition. It's been applied again and again.

Justice Kennard said, "If we were to agree with you, would it cause some problems with the principle that the Court must construe the statute liberally in favor of the employee? If we agree with you, would we have to go against that?" Drapkin said that this case is primarily about the Code of Civil Procedure, not the Labor Code. Further, if you were interpreting the Labor Code, there are countless cases saying that the rule of liberal construction is not a substitute for legislative intent.

Justice Kennard replied sardonically, "You mean this case is strictly about the Code of Civil Procedure? And here I thought we were dealing with the Labor Code." (In my opinion, it was crystal clear from the first 40+ minutes of the argument, especially the very beginning when Justice Kennard took the time to actually quote subdivisions (a) and (b) of section 226.7, that the Court thinks this case is about interpreting the Labor Code.) Tollen stuck to his guns, saying no, we're dealing with the Code of Civil Procedure, the statute of limitations, in a particular context. So, cases interpreting the Code of Civil Procedure are entirely relevant.

He said that some Labor Code provisions have been interpreted as a penalty. He mentioned the Hansen case (phonetic) against the power company, in which the Court found a penalty. He said it could be that failure to provide utilities might cause no injury or great injury. Yet the penalty doesn't vary. That's our case here.

At this point Justice Baxter interrupted with another question about the tax consequences of the holding that the payment is a wage vs. a penalty. I believe, but did not catch every word, that Drapkin said that wages are deductible by the employer, which is what Justice Baxter seemed to be interested in.

Drapkin then referred back to the prior question about the fact that the amount payable is higher or lower based on the employee's rate of pay. He said that this may, in fact, be irrational. It may be unconstitutional. It may constitute a penalty upon penalty and there may be due process concerns (although this has not been argued here). He said the function is what controls. He observed it was interesting that there had been no discussion of the plaintiff's hybrid theory.

He said he agreed that the primary purpose of section 226.7 was to secure or compel compliance with the law. Injunctive relief wasn't strong enough. This is where the penalty came from. Employer groups came forward and said the IWC doesn't have the power to impose a penalty. That's where this came from. There was no discussion in the legislative history about compensating for fatigue etc. The only focus was to secure compliance with the law. And that's the hallmark of a civil penalty.

Plaintiffs say, well, it's a hybrid. Well, if it is, which we vehemently disagree with, then he has a new case to cite. 13 Cal.2d 285. The Court found the payment in question was damages. But the Court said where damages are given wholly to the plaintiff, the action is not penal.

(It is not clear how this argument supports his position. The cited case does include this language: "Where the damages are given wholly to the party injured as compensation for the wrong and injury, the statute having for its object more the indemnification of the plaintiff than the punishment of the defendant, the action is not penal, properly so called, but remedial." Agudo v. County of Monterey, 13 Cal.2d 285, 289-90 (1939). But that language supports the plaintiff's position. The extra hour of pay under section 226.7 is "given wholly to" the employee who missed a meal or rest break. Therefore, under the cited case, it would not be a penalty.)

Mr. Drapkin pressed on. He said that where the primary purpose is to compel or coerce compliance, it is a penal purpose. This goes back forever in the case law. Mr. Drapkin's final point was that the DLSE's contemporaneous analysis to Governor Davis was that the payment was a penalty. Governor Davis was told that the provision was needed to compel compliance with the law.

On rebuttal, Ms. Ryu had not uttered a single word before Justice Corrigan said, "If an employee who is compelled to work through rest breaks and lunch and they are paid for the time they work, and the employer is compelled to pay an additional hour of pay, that seems like a penalty." Ryu said, "Absolutely not." Justice Corrigan said, "OK, then help me." Ryu said let's use an example, a farm worker. The worker knows that under the law they will work for 7 hours and 40 minutes and get paid for 8 hours of work. They also know they will get to rest twice. Justice Corrigan interjected, "And if they don't get it and they are paid, they are compensated and the employer is punished. Isn't that right?" Ryu said, "No. They worked all day in the sun. Even if the employer pays 8 hours, they really haven't been compensated for working under these more strenuous conditions. There is no other compensation in the Labor Code for this."

Justice Werdegar said, "But as opposing counsel observed, it's not tied to the injury. Which sounds like a penalty." Ryu said you have to remember we're talking about conduct within a certain scope and range of behavior. The question is for this to be a penalty, does there have to be an exactly perfect fit? For example, the 50% overtime requirement. The employee doesn't have to prove that he worked 50% harder to get the overtime pay. It's rough justice. But it's close enough.

Justice Werdegar further said, "What do you say to the defense argument that we're talking about the Code of Civil Procedure, not the Labor Code?" Ryu said this Court would disagree. Its precedents say that the Court must look at the entire statutory scheme. This is a case about the Labor Code.

Justice Kennard summed up: "And according to your view, the Labor Code is very much at issue here because at the outset you and the Court talked about the language of the Labor Code section. The question is whether its language is clear or ambiguous. So in short, your view is we're not just dealing with the Code of Civil Procedure, but also the Labor Code." Ryu replied, "Yes, that's absolutely right." Then Chief Justice George announced that her rebuttal time was up.

In light of the justices' remarks and questions, I would not be surprised to see a split decision in the employee's favor. The opinion will be due in 90 days, or by June 5. Comments?

Oral argument preview: Murphy v. Kenneth Cole Productions

This afternoon at 1:30, the Supreme Court will hear oral argument in Murphy v. Kenneth Cole Productions, no. S140348. Although Murphy is neither a UCL action nor a class action, I'm planning to cover the oral argument today and report on it here tomorrow. The primary legal issue has raised a lot of interest in wage and hour class action circles:

Is a claim under Labor Code section 226.7 for the required payment of "one additional hour of pay at the employee's regular rate of compensation" for each day that an employer fails to provide mandatory meal or rest periods to an employee (see Cal. Code Regs., tit. 8, § 11010, subds. (11)(D), 12(B)) governed by the three-year statute of limitations for a claim for compensation (Code Civ. Proc., § 338) or the one-year statute of limitations for a claim for payment of a penalty (Code Civ. Proc., § 340)?

Last week, a request for extended media coverage (presumably, cameras) was filed, and promptly denied. So old-fashioned print/web coverage will have to do. Meanwhile, for everyone's reading pleasure, here are the main briefs:

• Opening Brief on the Merits (filed 06/08/06)

• Answer Brief on the Merits (filed 08/21/06)

• Reply Brief on the Merits (filed 10/11/06)

• Omnibus Response to Employer Group Amici Briefs (filed 12/19/06).

Many thanks to the reader who graciously provided copies of these briefs.

Call for briefs in Murphy v. Kenneth Cole Productions

I would be grateful to anyone who can send me copies of the Supreme Court briefs in Murphy v. Kenneth Cole Productions, no. S140348. Please send them by email to [email protected]. I'm not planning to post them online (unless I am asked to by popular demand), but I would like to read them. Thanks in advance. UPDATE: Thanks to the reader who forwarded copies of the key briefs.

More thoughts on the Fireside Bank oral argument

On January 30, I posted a summary of the Fireside Bank oral argument, which a reader who attended the argument kindly provided. Another reader who also attended the argument subsequently emailed me with some more thoughts about the argument:

I was interested in seeing the observations one of your readers sent about oral argument before the Supreme Court last week. I think the reader generally got the gist of both the argument and the Court’s questions, but I hope that reader’s prediction about the outcome is wrong.

Your reader missed one central [fact about the underlying case]. The trial court ruled on [the plaintiff's] motion for judgment on the pleadings (MJOP)—which the trial court said would be off-calendar but was decided anyway—at the same time it granted [the plaintiff's] motion for class certification. The MJOP ruling itself was a mistake which no one expected. That ruling was what Fireside claimed was the impermissible one-way intervention.

But [the plaintiff's] MJOP only tested the validity of Fireside’s collection complaint against [him]. The validity of the class claims—[the plaintiff's] cross-complaint against Fireside—were never litigated or determined. Thus, the [plaintiff's] central [argument was] that the “rule” against one-way intervention only applies when the class claims are decided. Put another way, the rule only comes into play when the defendant’s liability is determined. Here, [the plaintiff's] liability to Fireside was determined.

.... I was really puzzled by the Supreme Court’s questions (or lack thereof). No one questioned Fireside’s counsel about its position that “the merits” of anything can’t be decided until after the class is certified; no one pointed out that the “rule” now applies only to the merits of class claims, not to the merits of any issue in the case, including the cross-complaint; no one asked about the conflict that Civil Code § 1781(c) seems to present in allowing class certification and “no merits” rulings in CLRA cases to be decided independent of each other or at the same time. Just a few questions about whether Fireside thought the case should be remanded to a different trial judge and why did the trial judge rule on the MJOP anyway??

After thinking about this ... , I conclude that the Court had already decided the case and didn’t feel like asking too many questions after its very active questioning in Balboa Island Village Inn v. Lemen, the first case argued.

Your point that defendants often agree to have the merits of class claims decided before class certification is well taken, and supported by authority. Here, you are correct that Fireside didn’t waive the “rule.” Rather, it asserted the rule at the same time it was withholding discovery necessary for the plaintiff to determine whether class certification was appropriate. (As the Ct of Appeal observed, delay is often the main defense tactic.) If the Supreme Court reverses, it will have to expand the “rule.” [Perhaps] the Court will note that the factual grounds of this case never presented an opportunity for one-way intervention; otherwise, in my opinion, defendants are likely to seize on any merits ruling in a case as critical to the class claims, and insist that the class be certified and notified before any merits issues can be decided.

This is quite interesting and adds another dimension to the argument. Many thanks again to the reader who took the trouble to write and share these thoughts.

Report on yesterday's oral argument in Fireside Bank

Yesterday, the Supreme Court heard oral argument in the "one-way intervention" case, Fireside Bank v. Superior Court, no. S139171. (See my prior posts on this case here and here.) A reader in Sacramento who attended the argument very kindly wrote up the following report:

Fireside Bank v. Superior Court of Santa Clara County (Sandra Gonzalez, Real Party) S139171

Oral argument before California Supreme Court, Jan 29, 2007.

For Petitioner: Jan T. Chilton, S.F. For Real Party: Carol McLean Brewer, S.F.

Petition for writ of review after the Court of Appeal denied a petition for peremptory writ of mandate. This case includes the following issue: May a trial court ever depart from the preferred practice of deciding whether to certify a class action before adjudicating any class claims on the merits, or it the rule against such a “one way intervention” in class actions a firm prohibition applicable in all circumstances?

Counsel for petitioner contended that the courts balance the rights of plaintiffs and defendants. Petitioner asked the Supreme Court to reverse the decision of the court of appeal, (1) reaffirm the Rule of Home Savings against deciding any class claims on the merits prior to determination as to class certification, as mandatory, and reject the appellate court’s opinion that the Rule is merely a “preference”. The class action issues must be decided first, including the opt out period. (2) Where premature merits rulings are made, the plaintiff may only proceed as an individual, not as a class action.

Petitioner argued that the Rule has worked well in federal courts for over 40 years, and in the California state courts for 30 years. There are few appellate court cases because the Rule is well known and easy to follow. No amicus briefs were filed, and even the plaintiff’s bar is comfortable with the Rule.

Justice Werdegar asked whether the Rule was mandatory, and precluded the trial court from exercising its discretion to deviate.

Petitioner insisted that the Rule could not work that way. If some plaintiffs have the merits decided first, all plaintiffs will want to do so. It’s a no lose strategy. Use of a mere “preference” would have dramatic effect on defendants.

Justice Werdegar asked what the Court should do if they agree.

Petitioner responded they should reverse. There is only a single remedy: once the trial judge has issued an erroneous premature ruling on the merits, there can be no class, citing Peritz v. Liberty Loan Corp. (7th Cir. 1975) 523 F.2d 349.

Both Justices Baxter and Kennard questioned petitioner about a remand to a different judge.

Petitioner said neither party suggested that remedy, because judges respect and are influenced by their peers, and this is not a case involving bias, only error by the trial judge.

Petitioner contended that the Rule should not be abolished as the practical effect would be to have plaintiff’s cases converted to class actions after rulings on the merits were made. This would force the defense to litigate every action as though a million dollars was at stake.

Here, Real Party Gonzalez filed a motion for judgment on the pleadings. The defense warned her in its opposition papers, that based on the Rule of One Way Intervention, she was electing not to have a class action in this case. Nonetheless, she persisted. The only appropriate remedy is to preclude the plaintiff in this case from bringing a class action. It will not preclude this plaintiff from obtaining relief, nor preclude other members of the putative class from brining their own actions, or a separate class action.

Counsel for the Real Party argued that the merits of this action have never been decided. The lower courts only determined that the complaint did not state a cause of action on the judgment on the pleadings. The one-way-intervention rule never came into effect, as the merits were never decided.

The only reason for the delay in the motion to certify the class was Fireside’s failure to respond to discovery requests, requiring a motion to compel. Once the discovery had been obtained, Gonzalez filed her motion to certify the class within six weeks.

J. Chin asked Real Party’s counsel is she was surprised by the Court’s order and conclusion that Green was discretionary.

Real party stated that counsel thought that the motion for judgment on the pleadings had been taken off calendar by the trial judge. However, Real Party agreed with the court of appeal’s interpretation of Green v. Obledo (1981) 29 Cal. 3d 126. There is no ironclad Rule in Green.

Also, the Rule is not ironclad because of the Consumers Legal Remedies Act. Civil Code section 1781(c) permits the court to decide if a consumer class action is appropriate and to determine the merits of the action.

Real party argued that Peritz was distinguishable, because there the case went to trial, and the trial court certified the class after a trial by jury.

Decertification is not the appropriate remedy here, as Gonzalez did everything she could to certify the class as promptly as possible.

That's the end of the reader's report on the argument, but the reader also writes: "My take on this case is that the Supreme Court will find the Rule against a determination on the merits prior to class certification to be mandatory, and will apply the remedy of a bar against a class action brought by this plaintiff."

That would be a pretty harsh outcome. What if the defendant waives the one-way-intervention problem by not raising it in response to a plaintiff's request for a pre-certification merits-related ruling? I've had that happen. I've also used the "one-way-intervention" rule to try to convince the court that my class certification motion should be heard before the defendant's summary judgment motion. The defendant responded, basically, that's our problem, and we choose to waive the protection of the "one-way intervention" rule. From the summary of the argument, it sounds like the defendant in Fireside Bank did not waive the issue. It will be extremely interesting to see what the Supreme Court says about all this. A decision is due in 90 days. Many thanks to the reader who provided us with this report.

Upcoming Supreme Court oral arguments in two class action cases

Next week, on January 29 and 30, 2007, the Supreme Court will hear oral arguments in two pending class action cases:

• Monday, January 29, 1:00 p.m.: Fireside Bank v. Superior Court, no. S139171. This is the "one-way intervention" case, Fireside Bank v. Superior Court, 133 Cal.App.4th 742 (2005) (Sixth Appellate District). My prior posts on this case are here and here.

• Tuesday, January 30, 9:00 a.m.: Alan v. American Honda Motor Co. Inc., no. S137238. This case addresses the appealability of orders denying class certification. See Alan v. American Honda Motor Corp., 131 Cal.App.4th 886 (2005) (Second Appellate District, Division Three). My original post on Alan is here.

These arguments will take place in Sacramento at the Stanley Mosk Library and Courts Building. Please let me know if you're planning to attend one or both of the arguments and would like to email a written report to be posted on the blog.

More thoughts on the Pioneer Electronics argument

I received a couple of emails from readers in response to my summary of Tuesday's oral argument in the Pioneer Electronics case. Here's what one reader, who also attended the argument, had to say:

I read your report of the argument with great interest and some amazement that you could recount so accurately everything that was said. .... I'm not sure, though, that I agree with your crystal-gazing on what the outcome will be. It seemed clear to me from the remarks made at argument that Justice Kennard was with the plaintiffs and that Justices Chin and Baxter were with the defendants. I'm also guessing that Justice Corrigan was with the defendants, too, because she placed such emphasis on the desirability of giving the putative class members as much control as possible about whether they would be contacted or not. If I'm right, it would just take one more vote to turn the balance to the defense side, and I'm guessing that that vote would be most likely to come from the chief justice. Now all we have to do is wait 90 days.

It's interesting that two people who sat through the same argument could reach such differing conclusions. I thought Justice Corrigan's and Justice Chin's comments were the most plaintiff-favorable of all. We'll see what happens. Thank you, readers, for sharing your thoughts.

Yesterday's oral argument on class member communications: Pioneer Electronics v. Superior Court

Yesterday's oral argument in Pioneer Electronics did not focus on the fact that the case was a class action. The attorneys and justices spent more time debating whether the putative class members (whom Justice Kennard referred to as "percipient witnesses") had any right to privacy under the circumstances of the case, whether it was fair that the defendant, but not the plaintiffs, had access to these witnesses, and how hard it would really be for the witnesses to return a card if they did not want to be contacted.

By way of background, the action alleged that certain Pioneer DVD players would not play some types of DVDs because of compatibility problems. The plaintiffs sought the names and addresses of persons who had contacted Pioneer to complain about the performance of their DVD players. Pioneer produced its summaries of the complaints, but refused to identify the complainants, citing the right to privacy. Plaintiffs moved to compel. Ultimately, the Court of Appeal held that the complainants' names and contact information could be released only if they affirmatively consented after notice was sent to them by first class mail.

Jeff S. Westerman of Milberg Weiss argued for the plaintiffs. He started out by saying that, regardless of whether it's a class action or not, the case involved three issues: (1) whether there was a right to privacy under the circumstances of the case; (2) whether parties to litigation should be allowed equal access to witnesses; and (3) whether it is appropriate to allow witnesses to "self-select" or "veto their role in the case."

Justice Corrigan interrupted to ask who should be in control of a witness's role. If other people have decided to litigate over an issue, she asked, do we mandate a witness's participation? Westerman responded that the court should be involved in deciding whether a witness will have to participate in a case. Justice Chin then interrupted to ask whether it was appropriate for the Court of Appeal to rely on the Colonial Life case (which adopted a notice procedure similar to that mandated by the Court of Appeal). Westerman said no. The problem is in letting the witnesses self-select. It sets up a situation where the witnesses who are the maddest, or who have the most free time, participate in the case, but these witnesses are not necessarily those with the most relevant information. Also, he pointed out, the other side has full access to all witnesses with no limits. He cited the Discovery Act, the purpose of which is to ensure equal access by all parties to all relevant information.

Justice Chin then asked whether the procedures in Colonial Life were mandated by a statute? Westerman answered yes (and this, in my view, is a key distinction between this case and Colonial Life). Chin said, "Do we have such a statute in this case?" Westerman said, "No." Chin said, "Isn't that the difference?" Westerman said, "That's a big difference."

Justice Kennard (whose questions tend to be more detailed than those of the other justices) then mentioned the fact that the case was brought as a class action. She pointed out that Pioneer redacted the names of the complainants, and asked Westerman whether his argument was that his client has the right to know the identities of those persons. She then said that she assumes Westerman relies heavily on the Court's opinion in Hill, and that he focuses on the first element of Hill, and argues that the complainants have no privacy right because they voluntarily gave their identifying information to Pioneer, so that would be the end of the analysis.

Westerman responded that his answers were yes and yes. He also mentioned the second and third prongs of Hill, and said that the complainants did not request privacy, they weren't offered privacy, there's no privacy agreement, and Pioneer's website says it can do whatever it wants with information provided by customers.

Justice Corrigan said, "So if I complain, I no longer have a reasonable privacy expectation?" Westerman said yes, you have a diminished expectation of privacy. The fact that the person complained suggests that the person is a more knowledgeable witnesses (than a DVD owner who did not complain). Justice Corrigan asked if they had given up the right to privacy. Westerman said that's a case-by-case question, but in this case, the Court of Appeal went too far. Justice Kennard interjected that a key fact in this case is that the people who complained are "not just potential witnesses but percipient witnesses" with knowledge of a defect. Percipient witnesses have no right to conceal their knowledge from the court, she said, but then she asked Westerman if he would acknowledge that they have the right to refuse to talk to plaintiffs' counsel if contacted. Westerman agreed with that, and said that if he were to attempt to contact them, it would be in his best interest to try not to antagonize them.

Here, Justice Kennard interrupted again, but if she had not it would have been interesting to see if Westerman was going to point out that ultimately, they could be compelled to participate by subpoena. In any event, Justice Kennard made the point that witnesses have no legally protected right to conceal their identities as witnesses. Westerman readily agreed. He mentioned that law enforcement agencies have filed amicus briefs suggesting that the Court of Appeal's opinion would hinder their own enforcement efforts. He said that the way to deal with the problem is to enter a protective order restricting the use of information about the witnesses.

Justice Chin then asked Westerman's opinion on the trial court's ruling (which required notices to be sent to the witnesses, but their failure to respond would be deemed consent to disclose their names to plaintiffs' counsel). Westerman said that he would not have challenged that order in the appellate courts, even though he thought that a letter was not strictly necessary.

Justice Baxter asked about the "chilling effect on consumers who knew that if they choose to complain they'd suddenly be open game for use in a class action lawsuit. Shouldn't we be concerned about this?" He then asked whether "the most important thing is that the consumer be told in a very conspicuous way what his failure to respond will mean?" Westerman cited the Valley Bank case, and said that someone who complains about a product has no more reasonable expectation of privacy than someone who gets up in the morning, drives down the street and witnesses an accident. He argued that there would be no chilling effect because people make decisions to return products for all kinds of reasons and that would not stop.

Justice Moreno asked whether notice by first class mail is appropriate. Westerman said yes. Justice Moreno asked if he agreed with the concern that some people won't read it and therefore won't respond. Westerman said that if there's a notification on the outside of the envelope stating that it relates to a lawsuit people will be more likely to open it. Justice Chin said what about notice by fax or email. Westerman pointed out that this was the only contact information available for some people. Justice Chin asked if that's all you have, what's wrong with giving notice that way. Westerman said nothing's wrong with it; in fact it indicates a preference on the part of the witness as to how they'd like to be contacted.

Westerman's argument time was then over.

William T. Bissett of Hughes Hubbard & Reed argued for Pioneer. He started out by saying that although he's Pioneer's counsel, he's representing the interests of the witnesses. He said that Pioneer is trying to do what the consumers would want. Justice Kennard interrupted to point out that we're not just dealing with potential witnesses, but rather with percipient witnesses. Bissett said we have to start out with the proposition that everyone has a constitutional right to be left alone. Justice Chin said, "Is it absolute?" Bissett said no. Chin said, "How is it limited?" Bissett explained that it depends on whether another interest outweighs it. He then went into a detailed discussion of the facts, and was not interrupted for some time. He said that out of 1.5 million DVD players sold, between 700 and 800 people contacted the company. Not all of these were complaints about the DVD players; some were just inquiries. He said that the notice program (presumably that required by the Court of Appeal's opinion) was implemented; 731 letters were sent; 88 were returned as undeliverable; 178 people wrote back and said that plaintiffs' counsel may contact them.

He then asked whether you can really say, in the context of this case, this class action case, which alleges that everyone is similarly situated, and you have 178 people who waived their right to privacy, do you really need 500 more?

Justice Corrigan then said, "What about the argument that you know who they are and the plaintiffs don't?" Bissett said that these people provided information to Pioneer for a limited purpose and did not agree to let Pioneer do anything else with it. Justice Corrigan observed that you're reading something into it either way (i.e., either you assume that they thought Pioneer would not use their complaints for any other purpose, or you assume that they willingly shared their information with Pioneer thereby waiving any privacy right). Bissett said that when you call a company with a complaint you expect them to get back to you in response to the complaint, not to be called by a lawyer. Justice Corrigan says that goes to what's a reasonable expectation. Bissett said yes, it becomes a policy question. Justice Corrigan said she agreed. Bissett said that the 800 million people who signed up for the "do not call" list think it's important to be left alone. (I would point out, however, that those people affirmatively said they did not want to be contacted. The "do not call" list operates in the manner plaintiffs are advocating, not Pioneer (i.e., people may be called unless they affirmatively say "do not call").)

Justice Kennard then said that if you go back to the allegations of the complaint, she would think that these people would expect to be contacted later. Bissett said that they would expect someone at the company to get back to them, but they don't expect to hear from anyone else. "If a class had been certified," he started to say, but then Justice Kennard interrupted and said "I know this is a pre-certification case, but getting back to the point, what is your response to the argument that the name and address isn't particularly sensitive because it doesn't relate to business secrets, intimate information, things of that nature, nor does it constitute an undue intrusion such as a marketing campaign." Bissett said that if we were only talking about the name and address, it would not be a problem, but what we're really talking about is people being contacted at home, with some kind of court approval of that.

Justice Kennard then asked, "If we agree with you," how should the court deal with the argument made by the California District Attorneys' Association that it would have an adverse impact on government attorneys' ability to investigate and remedy consumer-related problems. Bissett said, basically, that it has to depend on the particular case. This is not a situation where one size fits all. You have to balance the rights. Justice Kennard asked whether the court has to engage in balancing when the other side is arguing under the first prong of Hill that there is no privacy right at all. Bissett then talked about the Hill case at some length, basically saying that it's factually distinguishable. Justice Chin joined in discussing the Hill case as well. Eventually Bissett circled back to the argument that 178 people have consented; why do you need 500 more? He pointed out that no one is going to call 500 witnesses to the stand at trial, and argued that all it would do is establish that everyone's circumstances are different (thereby defeating class certification).

Justice Baxter asked what happens if you tell them that if they don't respond, their information will be disclosed? Bissett said that you put the burden on them to act. Justice Chin asked what's wrong with that? Tell them if you really want to be left alone, return this post card. Bissett said it should be made as easy as possible for people to exercise their privacy rights. Justice Corrigan said both are easy. Requiring them to respond to protect their privacy rights is "not hair-raisingly unreasonable." Bissett had to agree with the "not hair-raisingly unreasonable" characterization. Justice Corrigan said that this puts the individual consumer in the driver's seat AND serves to strike a balance between the adversaries in the litigation. (I think this strongly suggests where she is going; in fact Corrigan, Chin and Baxter all seem to be favoring the plaintiffs' position so far.)

Bissett then made what might be described, with 20-20 hindsight, as a mistake. He said he did not think that the fact that one side does not know all the witnesses is that important. Justice Chin said, "But that's becase you know!" and the courtroom chuckled. Bissett re-grouped. If you're saying someone can waive the right to privacy, he argued, why not make it an affirmative choice? Why presume someone has chosen to waive their rights by inaction? Justice Corrigan said, "Why not? It is such a huge deal either way?" Bissett said, "Well, you have to pick." Justice Corrigan said, "Yes, yes, that's why we're here." (This was an interesting exchange because during an earlier argument that morning, Justice Corrigan had said that she was trying to keep the argument focused on a particular issue because "we have to write a rule" on that issue.)

Bissett gamely responded that in this particular case, we are way at one end of the spectrum, there's just no need to presume that people waived their rights. Both sides know what these people's complaints were (about the DVD players). Justice Corrigan pointed out that both sides don't know whether the people who affirmatively consented are the ones who had the most serious complaints. Bissett said that all of the complaints had to do with the compatibility problem alleged in the action, and that there's no need to call people at home if you already know what they said, and especially where you have 178 people who have consented to being called—unless the court holds that merely contacting Pioneer constitutes waiver. Why burden the exercise of the right to complain without a significant need on the other side? There might be other cases in which the balancing of the rights comes out differently, and he posed as a hypothetical a case in which the private information might help find a kidnapped child. But in this case, the rights at stake are not very important. He said that Pioneer has won summary judgment in five out of five cases (apparently there are other cases pending in other states that allege the same defect; Bissett took pains to point out that these were "filed by the same law firm"). The claim is that some DVDs won't play right.

And that was the end of Bissett's time.

Before Westerman could say word one in rebuttal, Justice Kennard broke in with a lengthy summary of what she understood Westerman's argument to be. Westerman agreed that she had accurately summarized his position. He pointed out that Pioneer did produce their summaries of the complaints, but that those summaries are not evidence. To establish the right to class certification, he needs evidence. He then pointed out that this issue happens to have arisen in the context of a class action, but the principles laid out by the Court of Appeal apply to all cases. He said that the "defense bar" has seized on the right to privacy as a way to prevent access to witnesses. But if the Court of Appeal's opinion stands, then "if I'm in an auto accident and a witness gives me his card, I can refuse to identify that person" to the other side. Nothing in the Court of Appeal's opinion prevents its application that way.

And that was the end of the argument. Neither Chief Justice George nor Justice Werdegar made any comments, so it is hard to read their tea leaves, but I think on balance the justices' comments suggest that they are leaning in favor of the plaintiffs, primarily due to the unequal access to witnesses and because of how easy it would be for a potential witness to return a card affirmatively saying that they do not wish to be contacted. I also think that the argument would have been very different if the witnesses had been members of a certified class. It does not seem that the fact that they are putative class members is going to affect the court's analysis at all; it had no impact on the argument. A decision is due in ninety days.

Oral argument preview: Pioneer Electronics v. Superior Court

Today, the California Supreme Court will hear oral argument in Pioneer Electronics v. Superior Court, no. S133794, which involves pre-certification communications with putative class members. I am planning to attend the argument, and hope to be able to put up a post either later today or tomorrow morning.

My prior posts on this case are collected here, and one of the amicus briefs is available here. In a nutshell, the Court of Appeal imposed a limitation on the plaintiff's right to discover information about the putative class members, citing the right to privacy: "The court must take reasonable steps to assure that the consumer receives actual notice of his or her right to grant or withhold consent of the release of personal information, and that consent for such release be by the consumer's positive act, rather than by mere failure to respond." Pioneer Electronics (USA), Inc. v. Superior Court (Olmstead), 128 Cal.App.4th 246, 249 (2005) (Second Appellate District, Division Four). The amicus brief linked to above refers to this as an "opt-in discovery mechanism" and argues that it is inconsistent with the policies behind the class action device and will hinder employment and civil rights litigation.

Today's oral argument on Prop. 64 retroactivity

In Californians for Disability Rights v. Mervyn's, James C. Sturdevant of the Sturdevant Law Firm in San Francisco argued for the plaintiff, while David F. McDowell of Morrison & Foerster's Los Angeles office appeared for Mervyn's. In Branick v. Downey Savings & Loan Assn., plaintiff Branick was represented by Michael C. Spenser of Milberg Weiss in New York, while Matthew A. Hodel of Hodel Briggs Winter in Irvine argued for Downey Savings.

Every seat in the courtroom was taken, and my handwritten notes are eighteen pages long. All seven justices asked at least one question, and Justices Kennard and Baxter were particularly active questioners. However, there were also periods of silent listening, most notably during the discussion of the "statutory repeal rule." I don't think any justice asked even one question relating to that rule.

McDowell went first, and he had hardly begun speaking when Justice Kennard interrupted, asking him to articulate the "main differences between the old law and the current law." He obliged, focusing on the standing and "actual injury" requirements. Justice Kennard then asked why, in light of the ordinary presumption against retroactive application, reaffirmed just two years ago in Elsner (phonetic), the Court should agree with his client's position. McDowell started to talk about the "statutory repeal rule," but was again interrupted. Justice Kennard said she wanted to focus on the principle she just mentioned. "What do we have in this piece of legislation" that is a "clear indication that the legislature intended it to apply retroactively?"

McDowell argued that standing is an ongoing jurisdictional requirement, and that there is no issue of "retroactive" application if a new standing rule is applied to a pending action. Then Chief Justice George asked whether McDowell was saying that the general rule Justice Kennard mentioned doesn't apply. McDowell said yes. A new statute applies retroactively only if it affects "existing rights." In other words, the questions of Justices George and Kennard combined to focus the argument, at the outset, on whether the amendments (at least the standing amendment) was substantive or procedural.

McDowell then cited Government Code section 9606, which he views as a codification of the "statutory repeal rule." Justice Moreno asked McDowell to confirm whether he considered the standing amendments to be a procedural change, which McDowell did. Justice Chin then asked whether Prop. 64 changed or expanded the liability standards. McDowell said no, except possibly the element of causation.

Justice Baxter then asked, "What consequence is there, if any, where plaintiff and counsel have expended substantial funds (such as attorneys fees) prior to the change in law?" McDowell said, essentially, that's too bad for them, there have been plenty of cases in which the plaintiffs prevailed only to lose out on appeal after a change in law. He then pointed out that the plaintiff in Mervyn's sought injunctive relief only, that any injured persons still have a claim. No one has lost any rights, he said; Mervyn's could still be sued.

Justice Kennard then said that retrospective application is one that improperly changes the legal consequences of past conduct. "Focusing on past conduct, is it your view that the legal consequences have not changed?" McDowell said that the question of whether Mervyn's discriminated against people with disabilities has not changed. Justice Kennard then said, basically, "So your view is that the unfair competition alleged is still illegal?" McDowell said the claim still exists. Justice Kennard then asked whether it would be "proper to say that the only party whose rights have been changed are the rights of the injured party." McDowell was careful not to adopt Justice Kennard's term "rights," and argued that it is merely a change in procedure. Justice Kennard replied, "You argue that because standing is a jurisdictional issue, applying it to pending cases would be prospective application," and McDowell agreed.

Chief Justice George then interrupted saying McDowell's time was up.

Mr. Sturdevant's first question came from Justice Moreno: "Is it correct you're only seeking injunctive relief? If so, what law applies"? Sturdevant replied yes, but standing, in the context of this case, when you look at its effect, not its label, is a substantive issue. In 2002, he said, when Californians for Disability Rights ("CDR") filed suit, and in 2003 when the case went to trial, Stop Youth Addiction and Korea Supply allowed anyone to sue. The change in the standing requirement is substantive, not procedural, he argued.

Justice Moreno then said let's assume you do have standing, but in the interim the law changes, and you are seeking injunctive relief, does the trial court apply the old or new law? Sturdevant said there is no change in the cause of action, the remedy or the liability standards. CDR had standing when it brought the case and tried it, and it should have standing to continue to prosecute it. He pointed out that the trial court made three specific findings of disability discrimination, but ruled in Mervyn's favor only because it permitted Mervyn's to assert certain defenses that only exist under federal law, not state law. (That was apparently the original basis for the appeal that was pending in Nov. 2004, when Prop. 64 passed.) Assuming CDR prevailed on that substantive argument, the only issue on remand for the trial court to address is the scope of the injunctive relief.

Justice Chin then said, "Didn't the voters intend to allow these actions to continue?" Sturdevant caught this soft ball and replied that "intent is paramount"; nothing in the language of the initiative says anything about retroactive intent; at best the language sends a mixed message. He then quoted from Myers (without naming the case), in which the Supreme Court said that if the retroactivity language is ambiguous, then the amendment is "unambiguously prospective." He pointed out that caselaw holds that voters should not be presumed to understand "complex legal documents and technical terms." He said that Mervyn's argues the statutory repeal rule, which hinges on an assessment of whether the rights have a common-law origin or are purely statutory, and asserts that the amendments are merely procedural rather than substantive, yet there's nothing in the ballot materials that explains this. There's nothing in those materials suggesting that the voters knew all this.

Justice Baxter asked (following up on Justice Moreno's earlier question) if it's irrelevant whether the plaintiff's claim is for "damages" or injunctive relief. Sturdevant said there is no real distinction for purposes of the amendments here. He pointed out that there are other "grant and hold" cases that involve both injunctive relief and restitution. He gave two examples: Schwartz, in which a multi-million-dollar restitution award was reversed (see my posts on Schwartz here and here); and Benson v. Kwikset, in which the trial court ordered a "refund system" (to rectify misstatements about whether certain products were "Made in U.S.A."). Sturdevant then said, "We're asking the Court in this case to provide clarity to voters" that their intent is paramount, and also that amendments will apply prospectively only if there's a clear retroactive intent.

Justice Corrigan then asked her first question: "Is standing a question of jursidictional magnitude?" Sturdevant said yes, it is. The question is whether CDR had standing when the case was brought. Justice Corrigan replied, "If it's a question of jurisdiction, doesn't that requirement exist throughout the case, and isn't that a problem?" Sturdevant said that to apply the amendment to this case, the Court would have to hold that it is retroactive, but there is no retroactive intent. Corrigan was dissatisfied with that response, and basically told him to answer the question. Sturdevant rose to the challenge, pointing out that standing can be lost in many ways, for example, as in the LaSala case (phonetic), or if the plaintiff files bankruptcy and the trustee has to step in, or in cases of death or disability. Here, none of those things happened. The only thing that happened was Prop. 64, but there is no indication in Prop. 64 that it should apply retroactively.

Justice Corrigan said, "If standing can be lost at any time because of a change in circumstances, why can't we hold there's been a change in the law. Why not be consistent?" Sturdevant said the Court should not so hold because there's been no expression of retraoctive intent. He also pointed out that the Court has said (citing the case involving Prop. 51) that amendments should not be held retroactive when substantial resources have been expended in reliance on the old law. He invoked "fundamental notions of fairness, notice, reasonable reliance, fair play and substantial justice," and argued that CDR took steps based on the law that was in effect in 2002.

Justice Baxter then said: "Suppose there was a restrictive standing requirement, but because of an amendment it was expanded. In other words, reverse it. Would your argument be the same?" Sturdevant cited the Aetna Casualty case, in which an amendment expanded the measure of payments owed to the plaintiff. The Court held this amendment was not retroactive because there was no unambiguous expression of intent. Sturdevant's point was yes, his argument would be the same, even if it would be to the plaintiff's detriment, because the ultimate question is intent.

Sturdevant then turned, of his own accord, to the "statutory repeal rule." He talked about this for quite a long time with no questions from any justices.

At length, Justice Kennard brought up something that I've never heard anyone mention in the discussions about Prop. 64 retroactivity. She asked whether the Court should consider the ramifications of Code of Civil Procedure section 1021.5 (the statute that allows attorneys fees awards in cases in which the plaintiff achieved a substantial benefit for the general public or a large class of persons). Sturdevant said no, other than as the Court construed Prop. 51 in the Evangelatos case, affording deference to the parties' reasonable expectations and reliance.

Sturdevant wrapped up his argument with a bang. He accused Mervyn's of perpetrating a "fiction." He asked the Court to assume that the proponents took a poll and that poll told them that they'd likely get a "yes" vote without retroactivity language, but with it, the proposition would probably fail. (Which probably is not far from the truth; in late 2004, the newspapers reported interviews with the drafters saying they deliberately omitted express retroactivity language.) Sturdevant said the drafters called Prop. 64 an "amendment"; included no statement of retroactivity; nothing saying it's a repeal; and lots of forward-looking language. "It's the intent of the voters that should be paramount. The voters should get what they enacted, not more and not less" (quoting one of the Supreme Court cases).

Then it was McDowell's turn for rebuttal. He cited a case called McKinney v. Board of Trustees (phonetic), holding that a plaintiff who lacks standing cannot state a valid claim. Justice Kennard jumped in: "What is your response to the argument that it would destroy the settled rights and expectations of the other side?" McDowell said that argument "rings quite hollow in light of the Government Code provision" and is inconsistent with the Court's holding in Tapia that the rules governing trials are subject to change.

Chief Justice George asked whether we are to infer that the voters had knowledge of all that. McDowell said that the voters, like the legislature, are presumed to know what the law is. Justice Kennard asked, "What about the expectation of fees under section 1021.5?" McDowell said that's not relevant. If the plaintiff has no claim, then it has no expectation of anything. Justice Kennard said is it your position that it's not a right but just an expectation, contingent on success in the litigation. McDowell confirmed it's not a right, and then sat down.

Next, Mr. Hodel argued on behalf of Downey Savings. He began his argument by discussing the "statutory repeal rule," and again was allowed to go on for quite some time with no questions. Much of what he said responded to Sturdevant's argument on this point. Eventually, he said that the true underpinning of the plaintiffs' position is that the voters aren't smart enough to understand the law. Chief Justice George then chimed in, "Of course, you're saying voters should be smart enough to know" all the rules about retroactive application. Hodel said, "Absolutely, because that's the law. Voters are presumed to know the law."

Justice Baxter then asked an interesting hypothetical question: "Isn't this also an area where advocates on both sides have an opportunity to explain to the voters the potential adverse impacts or positive consequences?" Hodel said, "That is not how the statutory repeal rule works"—attempting, I suppose, to get away from the question of the voters' intent. Justice Baxter said, "I'm not sure you understood my question. Don't they have an opportunity to present argument in the voters' pamphlets about the potential adverse impacts or positive consequences?" Hodel said yes, but it would not be incumbent upon anyone proposing a new law to warn the voters about the statutory repeal rule. He argued that in essence, plaintiffs are saying that there ought to be a different law for amendments by initiative.

Justice Baxter persisted: "What I'm really suggesting is that if a statute could be applied retraoctively, that is an argument that those opposed to the initiative could make in the ballot materials."

An aside here: If I were drafting the ballot argument against Prop. 64, there's no way I would feel comfortable asserting that if enacted, it would apply retroactively to pending cases and halt those cases in their tracks. We already know that the Courts of Appeal themselves have split on this issue. Without express retroactivity language, what would justify the opponents in unequivocally asserting that the amendments would apply retroactivity and halt pending cases? Plus, if you put that in your argument against the measure, then if the measure passed, that itself would certainly be taken as evidence of the voters' retroactive intent. Justice Baxter's hypothetical creates a no-win situation for the opponents.

Hodel turned back to the language of the ballot materials, saying that they put the voters on notice that there will be a change in law, and that rights will be affected. He said that the harm (that the voters were trying to rectify) is "immediate merely by the existence of attorney-driven cases with professional plaintiffs." These "unsupervised" cases "clog our courts" and cause businesses to leave the state. Voters were on notice, he argued, that the new law would change this.

He then said that the cases plaintiffs cite fall into one of two categories: (1) cases involving a change in a common-law rule (such as Evangelatos); or (2) cases like Myers, which involved a change in the consequences of past conduct (the substantive/procedural argument).

Justice Kennard then brought up the issue of whether it is proper to allow these unaffected plaintiffs (who have had no opportunity to seek leave to amend) to ask the trial court to be allowed to substitute an affected person. (The Supreme Court granted review of this question in Branick but not in Mervyn's). She asked whether it would frustrate the objectives of the voters to allow this, pointing out that the main objective was to prevent frivolous lawsuits and make sure that they involve only plaintiffs who have been harmed. She also asked whether this issue isn't always one for the trial court's sound discretion.

Hodel answered no, then started back on retroactivity, when Justice Werdegar jumped in for the first time, basically telling him to answer the question about leave to amend. Hodel said no, "for three reasons." He only got a chance to give the first two: (1) Granting leave to amend would "do violence" to the statutory repeal rule. The action terminates, disappears. The right to maintain the action no longer exists. Plaintiffs here have no duties to anyone, they are strangers to the dispute. The Court would have to find an exception to the statutory repeal rule that would resuscitate their rights; allow them to be "professional place holders"; but the voters don't want them to be. (2) "Wouldn't the voters be surprised to hear, after saying we no longer want you or your counsel involved, that they're grandfathered in; that they're still in control; that they get to pick the new plaintiff and communicate with them; that they get to draft the motion to amend?"

Another aside here: I do not think it serves the interests of any appellate advocate to adopt an insulting tone of voice. Prop. 64 did not purport to alter the First Amendment or curtail anyone's right to "communicate" with potential class representatives. Hodel went too far with this argument, in my opinion.

Justice Corrigan then said that there is a long-standing notion that when circumstances change, the complaint can be amended. Hodel said yes, but here, the proposal is simply to substitute one plaintiff for another with "no further scrutiny." Justice Kennard pointed out that amendment is within the trial court's discretion (in other words, the trial court would scrutinze whether the proposed amendment was proper). Hodel said there's no discretion where the plaintiff has no rights, no standing, no authority. Justice Kennard said that the plaintiff would merely be substituting an injured party. Hodel cited two cases involving proposed amendments substituting parties, in which leave to amend was denied.

Chief Justice George then said that Hodel's time was up.

Mr. Spencer began his argument by saying he would respond to Justice Baxter's question about whether the voters should be "allowed to engage in a robust debate" about retroactivity. He said that everyone would agree that the voters should be able to. The problem is, in this case, it was not clear that retroactivity was part of the debate.

Chief Justice George asked whether we presume that the voters are aware of the governing law. Spencer said yes. The Government Code provision talks about a "repeal"; the question is whether Prop. 64 is a repeal. The Government Code provision is not self-executing, he said. Are the voters cognizant of case law? They are presumed to know it — but what do these cases say? Is there such a thing as an automatic, mechanical repeal rule? "That is not the law." (In other words, the voters are presumed to know the law, but the law is not clear that a statutory repeal automatically applies retroactively.)

He then went on to discuss the "statutory repeal rule" in more detail, again with no questions from the justices. After he concluded by saying that the courts look at intent, Justice Werdegar asked, "If we do that, what do we see here?" Spencer then talked about how the word "repeal" is never used, but the present-tense word "file" is used repeatedly in the ballot materials.

Justice Werdegar then asked Spencer to address the right to amend. Spencer replied that he would get to that in a minute, but that first he wanted to talk about the "statutory repeal rule" some more. He said that numerous cases from the 1930s forward involved a "repeal" of a statutory right, yet the Court held that the amendments applied prospectively only (and he named a series of cases, ending with Myers). He then said there is no language in Prop. 64 clearly suggesting in either direction what the law will be, so there can't be informed public debate.

Justice Baxter took the hint, and asked: "Did the opponents have an opportunity to point this out in the arguments against?" Spencer said he respectfully disagreed that the voters rely on the ballot arguments (as opposed to other parts of the ballot materials). Justice Baxter said, "It seems to me so obvious that the issue of whether it was retroactive was common knowledge among the plaintiff's bar and the defense bar" prior to the election, and "both sides were afraid to mention it. The voters were, in effect, denied a discussion of the issue."

Another aside here: I personally do not recall any discussion of retroactivity until after Prop. 64 passed. Prop. 64 was trailing in the polls all the way up to election day, and I did not think it was going to pass. Perhaps Justice Baxter is referring to something in the record in either Mervyn's or Branick that I haven't seen.

Spencer replied that for the voters to have an opportunity for discussion, retroactivity language should have been put in the text of the law, explicitly. Justice Baxter then said he thought both sides made a political decision not to address the issue in the ballot arguments, and instead to "dump it in the laps of the judiciary." Spencer replied that's why there's a clear rule in the case law: when in doubt, apply the amendment prospectively.

Spencer then turned to the amendment issue, pointing out that amendment would also allow a public prosecutor to be substituted in. Justice Kennard asked whether it was his view that Prop. 64 doesn't say anything about amendment and therefore doesn't affect the normal rules regarding amendment? Spencer said yes, Prop. 64 does not affect Code of Civil Procedure section 473. He said that the fundamental rule that cases should be decided on the merits favors allowing amendment.

Justice Chin asked about one of the cases cited by Hodel at the end of his argument, in which leave to amend was not granted to substitute a new plaintiff. (That case apparently involved two sisters who were in a car wreck, only one was injured, and their lawyer accidentally put the wrong name in the complaint. The problem was not noticed until after the statute of limitations had run, and the court denied leave to amend.) Spencer distinguished the case on its facts, saying that amendment was not fair to the defendant in that case because the complaint gave no notice that any other person had even been present during the accident. This case, by contrast, was brought for the benefit of all injured persons, and it raises the same issues that any injured plaintiff would have raised. The general rule is that amendment should be allowed unless it brings up a wholly different liability or obligation. The amended complaint would be "virtually the same lawsuit."

Justice Moreno asked whether Spencer was saying that the trial court would have virtually no discretion, then, in deciding whether to grant leave to amend. He pointed out that typically, the trial court considers a variety of factors (e.g., due diligence, etc.), and here we have a change in the legal landscape. Spencer replied that, in his view, the scope of the trial court's discretion is the most important issue in the case. He said that unless the Court wants these cases coming back up with differing results, the Court should give some indication of what the trial courts should do.

Spencer then addressed two arguments raised in amicus curiae briefs about why leave to amend should not be granted. He dismissed the first—prejudice to the defendant—as a non-issue. He then addressed the second, which was that if the case is allowed to proceed as a class action, that would impose additional burdens on the defendant. He then made a very interesting argument. He said that all Prop. 64 says is that the case must "meet the requirements of" Code of Civil Procedure section 382 (the class action statute). However, section 382 "doesn't say that the case needs to be class certified. In appropriate cases, a class does not need to be certified when it goes back to the trial court." He pointed out that the injunctive relief statute (Code of Civil Procedure section 572(b)(1)) states that injunctive relief can be prosecuted in a class action "whether or not a class is certified." In injunctive relief cases, the trial court does not have to hold class certification proceedings because the injunction can proceed without that. He said it should be an easy matter for the trial court to decide that the "requirements" of section 382 are met.

Then, he turned to restitution cases. He mentioned the Schwartz case as an example, and said that if the Court holds Prop. 64 retroactive, that case will go back to the trial court, which entered a large restitution judgment. What will the trial court do then? He said that the Supreme Court had always been very liberal in allowing consumer claims to go forward without class certification (citing cases called Jensen, Gas Retailers, Pacific Land, Lowery (a Court of Appeal decision) and Kraus).

He then said that the trial courts should be told that on remand, pre-existing proceedings, especially judgments, should be left intact once a substitute person or public entity is added.

That was the end of his time.

On rebuttal, Mr. Hodel said that if the plaintiffs' argument is that, with every statutory repeal, the inquiry should be intent, then why have a statutory repeal rule? "To find for plaintiffs, you'd have to repeal the repeal rule, or say that you have a different rule for voters." He said that no one would argue that the legislature didn't know about the repeal rule, and that it would be "paternalistic" to hold that the voters needed it explained to them.

He then went into a fact-specific discussion of two more cases involving substitution of plaintiffs. One case involved substitution of one decedent's estate for another, a technical change where amendment was allowed. Another case involved a homeowners' association. While the case was pending, the Court of Appeal ruled that homeowners' associations lack standing, so the members were substituted in. Hodel distinguished these cases on the facts, arguing that these cases involved "simple X-ing out of one plaintiff's name and putting in another."

Hodel argued that the plaintiffs in this case have suffered no prejudice because they have no rights, and they always knew they had no rights because statutory rights are subject to repeal at any time. He also observed that no one is clamoring to bring these claims. He asked, if substitution is allowed, "How will this be supervised? Why does this plaintiff have a right to continue to control, dictate, communicate, to draft the motion to amend?" "Plaintiffs always knew that this day would come, since the Younger case in 1978. You always operate in full contemplation that your rights could end at any time." He ended by referring to the plaintiff's right as an "unnatural right" (as distinct from a "natural right" deriving from the common law).

And that was the end of the argument. I'm not going to venture a guess as to the outcome here. I think the justices' questions revealed very little. I'd like to hear what others think. Please post comments (or send me an email) with your thoughts, and for those who attended, please add feel free to expand on my summary (or offer corrections) about any aspect of the arguments.