Cal Biz Lit

Does The Class Action Suit Go to Arbitration? And Who Decides?

 

 

 

 Here comes Chapter Three in the law of arbitration and class actions in California. 

Chapter One:  In Discover Bank v. Superior Court (2005) 36 Cal. 4th 148, Cal Supremes rule that a consumer contract provision that waives the right to class action litigation as part of a binding arbitration agreement is unconscionable and void. 

Chapter Two: In AT & T Mobility LLC v. Concepcion (2011) 563  U.S. 333, SCOTUS responds to Cal Supremes with "the heck you say," overruling Discover Bank as preempted by the Federal Arbitration Act.  And now,

Chapter Three: If there is a binding arbitration agreement without a waiver of class action rights, does the class action matter go to arbitration or trial?  And who decides? That is the issue in the recently decided  Sandquist v. Lebo Automotive, Inc., ___ Cal.4th ___ (Jul. 28, 2016).

Sandquist was a case involving allegations of racial discrimination, harassment and retaliation.  The Plaintiff had signed three binding arbitration agreements, all stating he agreed that "any claim or dispute or controversy . . . which would otherwise require or allow resort to any court or other governmental dispute resolution forum" would be "submitted to and determine[d] exclusively by binding arbitration."  

The parties had a dispute about whether the agreement permitted or prohibited classwide arbitration. Cal Supremes held that, since this was a "claim or dispute" that would other wise be submitted to a court for decision, then as a matter of contract interpretation, the arbitrator would decide. "[W]ho decides is in the first instance a matter of agreement, with the parties' agreement subject to interpretation under state law." And since a majority of the Supremes found no contrary presumption under federal law and concluded that under California law, this language meant the decision went to the arbitrator, that's how the Court ruled.

This was a 4-3 decision, with Justices Kruger, Chin and Corrigan dissenting that under federal law, this was a decision for the court, not the arbitrator, as it was a "gateway question of arbitrability." 

So there is a conflict between four justices' position that state law applies and the minority's view that federal law governs. This certainly seems like a likely case for a cert petition to the SCOTUS. 

California Courts of Appeal Continue to Declare Independence From SCOTUS in Arbitration Matters

The California courts’ post-Concepcion Kabuki theater involving binding arbitration requirements in consumer and employment contracts continues.  CBL’s post on the course of events up to mid-July is here.

First, we had Brown v. Ralph’s Grocery Company (2011) ___ Cal.App.4^th ___ (2^nd Dist., B222689).  In Brown, an employment case, the Court of Appeal held that Concepcion only applies to class action waivers in arbitration agreements, not to “representative action waivers,” which are void as against public policy.  Last week, the Cal Supremes denied a hearing, so Brown is the law throughout California at least until the US Supremes get their talons into it.

Now we have Sanchez v. Valencia Holding Company, LLC (2011) ___Cal.App.4^th___ (2^nd Dist., B228027) a consumer case.  The short version:  an arbitration provision in an automobile dealership Retail Installment Sales Contract was held invalid as procedurally and substantively unconscionable.  The long version is after the jump.

What's New At Cal Supremes

Here are a couple of updates on cases CBL has reported on over the last few months.

First, under the category "Court of Appeals Pokes SCOTUS in Eye," binding arbitation division, CBL reported on July 14 about Brown v. Ralph's Grocery Stores (July 12, 2011) ___Cal.App.4th ___ (2nd Dist., B222689) wherein the Court of Appeals used some extremely convoluted reasoning to try to get around the US Supremes' disapproval of  Discover Bank v.  Superior Court (2005) 36 Cal.4th 148.  The Brown court essentially tossed a  binding arbitration provision with a class action waiver in an employment action brought under California's Private Attorney General Act.  The employer has petitioned the Cal Supremes for a hearing.  They have until November 21 to grant or deny a  hearing (if they grant themselves a 30-day extension).  The Cal Supremes' case number is S195850.

Second, under the category "Who just took my $15 million verdict away?" ancient precedent division, CBL reported in March on Leung v. Verdugo Hills Hospital (now an unciteable case) where the Court of Appeal relied on some very old authority to hold that release of one defendant in a multi-defendant lawsuit could result in the release of all defendants.  The Court of Appeal begged the Cal Supremes to take the case up.  The Cal Supremes have obliged and granted a hearing, and the first brief on the merits is due September 7.  The Cal Supremes' case number for this one is S192768.

Stay tuned.  CBL will keep you up to date.

Just Say No! To Headless Class Actions

"What is a headless class action?" CBL hears you ask.  The usual scenario is this:  Plaintiff, or plaintiffs, file a class action.  It then turns out the plaintiffs have no standing to 
sue because they aren't class members, either because they never had causes of action against the defendant or, because, as a result of changed circumstances or law, they no longer do.  In such headless class action cases, the question presented is whether the plaintiffs can conduct discovery from the defendant to try to find better class representatives.  There was quite a bit of appellate activity on this issue several years ago, which CBL blogged about here, here and here, among other places.  But in general, the answer to the question often was "yes."

Well, here's a case where the answer isn't just "no."  The answer is "hell no!"  We're talking Starbucks Corporation v. Superior Court (Lords) (April 25, 2011) ___Cal.App.4th___ (Fourth Dist., G043650). 

Facts:  back in the day when Jerry Brown was the youngest governor in the history of the Golden State, and long before he became the oldest, California passed a law that required the "destruction" by "permanent obliteration" of all records of minor marijuana convictions that were more than two years old, and made it illegal for employers to ask about such convictions on their job applications.  Violation brought either actual damages or statutory penalties of $200 per applicant.  The statutes can be found at Health & Safety Code sections 11361.5, subd. (a), 11361.7 and Labor Code section 432.7, subd. (a).

Starbucks allegedly had a "have you ever been convicted" question on its job application that didn't exclude old, minor marijuana convictions.  So three applicants -- who had nary a conviction among them -- had the bright idea of suing Starbucks on behalf of 135,000 job applicants, seeking some $26 million in penalties.  In a previous published decision, Starbucks Corporation v. Superior Court (2008) 168 Cal.App.4th 1436 (Starbucks I), the Court of Appeal reached the rather sensible conclusion that applicants who had no marijuana convictions had no standing and that as such, the plaintiffs could not serve as class representatives. 

So, after Starbucks I, everybody hauled themselves back to the trial court, where the plaintiffs asked to conduct discovery so they could find some better class representatives.  The idea was this:  Starbucks should search through all their job applications to find applicants with marijuana convictions.  They should then send this information to a "neutral administrator" who would write the convicted applicants and ask, "hey, how would you like to disclose your marijuana conviction to the world and be class representatives in our great big fancy case against Starbucks?"  And amazingly, the trial court said "Sure, why not?"

To which the Court of Appeal said "We'll tell you why not:"

Nobody can misunderstand this clear legislative purpose. Records of minor marijuana convictions are to be accorded the highest degree of privacy; they must be treated as if they never existed. Despite these strongly worded prohibitions, the subject discovery order requires Starbucks to rummage through old job applications to locate offenders whose existence otherwise would be hidden from public exposure.
Considering the manifest harm and the minimal benefit (all of which are wrapped up in the same legislation), the discovery order cannot possibly pass the Parris balancing test. As Hooper holds, publicly disclosing marijuana-related offenses covered by the marijuana reform legislation violates the individual offender's right of privacy.

But there's additioanal language CBL likes even more. 

Plaintiffs' attorneys say the class remedy is necessary because the $200 statutory penalty is de minimis. They frankly desire to achieve a “more powerful litigation posture” because “[i]n numbers there is strength.”
We recognize class counsel's tactical motivations to increase their side‟s bargaining leverage, but the argument militates against a class action, rather than in its favor. The excessive penalties sought by class counsel bear little relationship to any true public interest for what, at most, appears to be a technical violation of Labor Code section 432.8 by Starbucks. The strength that may be gained in numbers also may produce the “absurd result of turning the statute into the veritable adding machine that has been decried by our Supreme Court.”

Wow.  Language that will appear forever after in briefs opposing class certification in California.

One side note:  years ago, a friend who is also a marketing consultant told CBL that his blog posts would be more compelling if he included images.  So CBL often does.  But who knew we'd get to include both the Starbucks logo and a marijuana leaf in the same post!

Wal-Mart Class Certification Affirmed By Ninth Circuit En Banc

This just in:  class certification in Dukes v. Wal-mart, the wage discrimination class action filed in U.S. District Court for the Northern District of California, has been affirmed in part by the Ninth Circuit.  The slip opinion is here.  137 pages.  Knock your self out.

Bottom line:  class certification affirmed as to injunctive relief, and as to women employed by Wal-Mart when the case was filed.  Remanded for further consideration on punitive damages and on certification, or separate class status, for women who were ex-employees when case filed.

More later.

Los Angeles Jury Awards Piddling $7.5 Million For Punitive Damages In Employment Case Against Kaiser

    I've been following with interest the case of Radiologist Dr. Martin Martinucci, who contended that Kaiser Hospital forced him to quit because he complained about the quality of its care.  As reported in the San Francisco Chronicle, Martinucci was hired in 2003 and resigned three years later after his supervisor and a human resources staffer accused him of being racist and making sexual advances toward a male technologist.  His suit was a "constructive termination case," a difficult form of employment case in which the employee who resigns must prove that the resignation was essentially a firing because working conditions were so intolerable that no reasonable employee would have stayed.  This was established by the California Supremes in Turner v. Anheuser-Busch, Inc. (1994) 7 Cal.4th 1238.

    As California Punitive Damages, an Exemplary Blog has reported, the jury found for Martinucci last Monday and awarded compensatory damages of $3.9 million.  Under California law, the question of whether the defendant has acted with malice, fraud or oppression (the prerequisites for a punitive damage award) are decided at the same time the jury decides liability and compensatory damages.  But the defendant is entitled to have bifurcation -- i.e., a second phase of trial -- on the question of whether punitive damages should be awarded and how much.  Most defendants exercise this right to a two-phase trial, and Kaiser did here.

    Here's where it gets interesting.  In phase two, Martinucci asked the jury for $1 billion in punitive damages.  Most of us would think that's a little on the aggessive side.  Conventional defense lawyer wisdom would have it that a request this high risks turning off the jury.  But I'm not so sure.  There's a very good, albeit rather ponderous study of punitive damages called "Punitive Damages, How Juries Decide," by Cass Sunstein and others.  I've read it, so you don't have to.  Sunstein and company found that the most significant predictor for a large punitive damages award is a large request.  And in fact, there is no limit -- it's like the more the plaintiff attorney asks for, the more he gets.  So by asking the jury for a billion bucks, the plaintiff attorney doesn't get a billion bucks.  But he gets more, all other things being equal, than he would if he asked for a mere, say $700 million. 

    And sure enough, Dr. Martinucci was not awarded $1 billion.  Only $7.5 million.  A verdict, as California Punitive Damages points out, that has a much better chance of sticking on appeal than one for a billion.

Attorneys' Fee Awards in California III: More Attorney Fee Shifting Statutes

    In an earlier post, I wrote about contractual fees to the prevailing party, how a one-sided fee provision in a contract becomes bilateral by operation of law, and how a narrow fee provision can relate to all disputes between the parties to a contract.  In a second post, I discussed fee awards in civil rights, employment and public interest litigation.

    There are scores of fee-shifting statutes in California, many of them dealing with fairly rare and obscure kinds of litigation.  But in this post, I’m going to talk about a few of them, roughly in the order of likelihood that a business litigating in this state is likely to encounter them.

    The post continues after the jump.

When Can Attorneys' Fees Be Awarded in a FEHA Case?

I am two thirds of the way through a three part post on attorneys’ fees, and have gotten a little bogged down (the pesky details of my law practice have gotten in the way of long posts).  At any rate, the first post, on the contractual right to fees, is here.  The second, dealing with fees in civil rights, employment and public interest litigation, is here.  The final installment will cover fees in consumer litigation, and (I hope) it will be up in the next ten days or so.

But a recent decision, Villanueva v. City of Colton (2008) ___Cal.App.4th___ (4th Dist., E042188) reminds me that I should have mentioned the rare circumstance under which a successful defendant can be awarded attorneys’ fees against an unsuccessful plaintiff under California’s Fair Employment and Housing Act.  Fundamentally, the situation is this:

Government Code section 12965(b) authorizes an award of reasonable attorneys’ fees and costs “to the prevailing party” in a FEHA action.  But, tracking the comparable provisions in Federal Title VII actions and the U.S. Supreme Court’s decision in Christiansburg Garment Co. v. EEOC (1978) 434 U.S. 412,421, California courts have held that a prevailing defendant can be awarded attorneys’ fees only if the suit is objectively “frivolous, unreasonable or without foundation.”  Rosenmann v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro (2001) 91 Cal.App.4th 859;  Cummings v. Benco Building Services (1992) 11 Cal.App.4th 1383.

In order to ensure that plaintiffs are not unduly punished for asserting their civil rights, Rosenman requires that, before awarding fees to a defendant, the trial court must make findings that the plaintiff is capable of paying.  The same holding appears in Jersey v. John Muir Medical Center (2002) 97 Cal.App.4th 814, where the court of appeal also reversed a trial court of fees against the plaintiff based on a finding of “no merit” – not the proper standard.

In the recent Villanueva decision, the plaintiff failed to offer evidence of his inability to pay attorneys’ fees other than showing that he earned $25 per hour.  The court of appeal held that without such evidence, the trial court’s award of fees could not be an abuse of discretion, effectively placing the burden of proof  on this issue, or at least the burden of going forward, on the plaintiff.

Attorneys’ Fees and Fee Awards In California – Part II

    Last week, I posted about contractual attorney fee provisions, and situations where a prevailing party could be awarded attorneys’ fees because of a provision in a contract.  This week, the subject is the award of fees in civil rights, employment and public interest litigation.  This is a long post, so I'm putting the rest of it after the jump.  When all three posts are up, I'll probably try to incorporate them all into a white paper.

So as we often say, lots more after the jump.

Wrongful Termination Case Based on Labor Code Section 232.5 is Preempted by NLRA

California has two statutes, Labor Code sections 232 and 232.5, that protect the rights of employees to disclose information about their compensation or working conditions.  The first, Labor Code section 232, was enacted in 1984, provides:

No employer may do any of the following:

(a) Require, as a condition of employment, that an employee refrain from disclosing the amount of his or her wages.

(b) Require an employee to sign a waiver or other document that purports to deny the employee the right to disclose the amount of his or her wages.

(c) Discharge, formally discipline, or otherwise discriminate against an employee who discloses the amount of his or her wages.

This statute was broadly interpreted by the Court of Appeal in Grant-Burton v. Covenant Care, Inc. (2002) 99 Cal.App.4th 136.  There, the court upheld a claim for wrongful termination against public policy after an employee was allegedly terminated for telling co-employees (during an exchange of information between co-employees) that she did not receive a bonus.  The court held that (a) section 232 set forth the public policy of the state protecting employees from adverse employment action for disclosing information about “wages,” and (b) that the statute was intended to protect employees who wanted to discuss “some aspect of their compensation, for example, a possible increase in pay, perceived disparities in pay, or the awarding of bonuses.”

Only months after the court’s Grant Burton decision, the legislature enacted Labor Code section 232.5:

No employer may do any of the following:

(a) Require, as a condition of employment, that an employee refrain from disclosing information about the employer's working conditions.

(b) Require an employee to sign a waiver or other document that purports to deny the employee the right to disclose information about the employer's working conditions.

(c) Discharge, formally discipline, or otherwise discriminate against an employee who discloses information about the employer's working conditions.

(d) This section is not intended to permit an employee to disclose proprietary information, trade secret information, or information that is otherwise subject to a legal privilege without the consent of his or her employer.

In the following six years, no California court has issued a published decision involving section 232.5. . . . . until now.

More after the jump.