Cal Biz Lit

SCOTUS To Cal Supremes: We Said FAA Preempts. Did You Hear Us?

In three major cases this year, California appellate courts or the Supreme Court have refused to enforce arbitration agreements.  Two of them (Brown v. Ralph’s Grocery Company (2011) ___ Cal.App.4^th ___ (2^nd Dist., B222689) and Sanchez v. Valencia Holding Company, LLC (2011) ___Cal.App.4^th___ (2^nd Dist., B228027), came after AT & T Mobility v. Concepcion (2011) ___ U.S. ___.CBL has been wondering if SCOTUS was likely to smite them down. 

Well, here's a hint.  In February, before Concepcion, the Cal Supremes decided Sonic Calbassas A., Inc. v. Moreno (2011) 51 Cal.4th 659. This was a wage and hour case, in which Cal Supremes held that an arbitration agreement did not bar an employee from using a statutory, pro-employee administrative procedure before the State Labor Commissioner to try to get a favorable ruling instead of going straight to contractual arbitration. 

The employer filed a cert petition, to which the US Supreme Court tersely responded: 

The petition for a writ of certiorari is granted.  The judgment is vacated, and the case is remanded to the Supreme Court of California for further consideration in light of AT&T Mobility LLC v. Concepcion, 563 U.S. ___ (2011).

Somehow I think we may be seeing some more rulings like that one.

Cal Court of Appeal to US Supremes: "Oh yeah, says who?"

Let's review where we are on arbitration agreements and class action waivers. 

• First, there was Discover Bank v.  Superior Court (2005) 36 Cal.4th 148,  where the Cal Supremes held that "at least under some circumstances, the law in California is that class action waivers in consumer contracts of adhesion are unenforceable, whether the consumer is being asked to waive the right to class action litigation or the right to classwide arbitration” and that “the FAA [does not preempt] California law in this respect."
• Next, we had AT&T Mobility LLC v. Concepcion (2011) ___ US ___, overruling Discover Bank and holding that the rules it established were preempted by the FAA.
• And now we have a mad scramble in California to try to find the cracks and crevices and exceptions that will keep consumer lawsuits and employment lawsuits out of the clutches of FAA preemption and alive in the good old fashioned California court system..

First out of the box in this regard:  plaintiff in Brown v. Ralph's Grocery Stores (July 12, 2011) ___Cal.App.4th ___ (2nd Dist., B222689).

(Ralph's Grocery Stores sure has been active in high profile appellate news this year.)

In this latest Ralph's case, the Plaintiff brought an action against his employer under Calfiornia's Private Attorney General Act, or "PAGA."  PAGA says that an aggrieved employee who is entitled to Labor Code penalties against his or her employer can sue on his own behalf of "other current or former employees" to recover those penalties for everybody (although 75% of the penalties go the State). 

Brown files a PAGA case against Ralph's.  Ralph's says:  "oh no you don't, you signed an arbitration agreement and class action waiver."  Ralph's loses at the trial court, the case goes to the Court of Appeal, everybody briefs, argues, submits it.  And then the US Supremes decide AT&T.  At which point Ralph's and its lawyers are feeling pretty good.  The Court of Appeal invites more briefing.  And then it lowers the boom.

On Ralph's. 

The purpose of the PAGA is not to recover damages or restitution, but to create a means of “deputizing” citizens as private attorneys general to enforce the Labor Code. . . . Here, the relief is in large part “for the benefit of the general public rather than the party bringing the action” . . . .

Dontcha' know, it's not a class action.  It's a representative action.  And AT&T doesn't say anything about representative actions.

So Ralph's comes in second in the case.  So says the Court of Appeal, 2 - 1.

To which I've got two words in response.

 

NINO SCALIA.

 

A Real Federal Court Experience

Yesterday's Drug & Device Law talked about a recent decision by District Judge Manual Real, of California's Central District, dismissing a pacemaker case at the pleadings phase on grounds of preemption, lack of injury and failure to plead facts with particularity.  The blog notes that the eighty-five year old Judge Real, one of the most reversed judges in California, is, uhm, a little controversial, but lauds him as a "no nonsense" judge, whose rulings are "clear and direct." 

As California lawyers, we here at CBL have had some experience over the years in Judge Real's courtroom.  And it is true that those on the right side of the "v" in civil cases tend to have an easier time there than civil plaintiffs or criminal defendants.  But we also know the judge's coutroom demeanor is, shall we say, a little different than what we are used to in either State or Federal courts.  For example, as reported by the L.A. Times, there was this criminal defendant, yanked from a hospital bed, brought to court in handcuffs and his hospital gown, forthwith tried for violation of the tax laws, convicted in a bench trial and sent to prison for 19 months.

In a 1999 profile published by law.com, Judge Real explains how he came by his judicial demeanor:

A federal jury indicted two men for mailing pornography to each other. AUSA Real was assigned the case.

"These guys were mailing slides of Busty Brown" -- a famous 1950s stripper -- "and all it was was bare boobs. But this was the 1950s and it was against the law," Real recalls.

One defendant pleaded guilty while the other went to trial before Hall without a jury. Hall acquitted the guy. The other defendant promptly asked the judge to set aside his guilty plea, which Hall agreed to do despite Real's arguments.

In a fit of pique, Real demanded a jury trial instead of a bench trial before Hall. "Fine," Hall answered. "Mr. Clerk, call a jury for 10 o'clock tonight." When a flabbergasted Real replied that he needed more than a few hours to prepare for trial, Hall dismissed the case "for lack of prosecution."

"Of course, he was right," Real says. "And that's where I learned how to be a judge."

Well, that's certainly clear and direct.

 

Federal Court Removal: Ninth Circuit Adopts "Later-Served" Rule

Companies who find themselves on the right side of the "v" in California product liability litigation like federal court.  Why?  Let's count the ways:  (a)  In Federal Court, the 
admissibility of expert testimony is governed by Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993).  On the other hand, the rule in California is that an expert is somebody who went to college and has a briefcase;  (b)  In California state court, a verdict requires nine out of twelve jurors, while in Federal Court, the verdict must be unanimous, including on damages (although we typically only get six to eight jurors);  (c) in Federal Court, pretrial orders require highly structured discovery and early disclosure of expert information, while in State Court, experts are disclosed and deposed in a mad scramble right before trial;  (d)  in Federal Court, a defendant can actually get summary judgment granted once in awhile in a meritless case, while in California Superior Courts, the summary judgment law is somewhat akin to the tax code and the culture is to deny; and (e)  while there really are plenty of good California State judges, in Federal Court the odds increase that you'll get a judge who is willing to rule and who believes in making both sides follow the law.

So here's a chronic problem.  28 U.S.C.§ 1448 says that removal to Federal Court must occur within thirty days "after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based. . . ." 

Consider this scenario:  Plaintiff files a product liability case in California Superior Court and sues five defendants.  The first defendant sends the summons and complaint to its insurer, who sends the case to defense counsel, who doesn't think about removal jurisdicition.  Counsel for Defendant 1 lets the thirty days go by, after which Plaintiff serves Defendants 2 through 5.  Assuming 2 through 5 can get Defendant 1's consent, can they remove within 30 days of when they were served?  There is a disagreement in the Federal Courts.  Compare:  Brown v. Demco, Inc., 792 F.2d 478, 481-82 (5th Cir. 1986) (thirty days starts running as to everybody with service on first defendant) and Brierly v. Alusuisse Flexible Packaging, Inc., 184 F.3d 527, 533 (6th Cir. 1999) (each defendant gets 30 days from when it was served). 

Obviously, defendants who like Federal Court like the Brierly rule  (the "later served" rule), not the Brown decision (the "first served" rule).  And now, the Ninth Circuit has decided that the Later Served rule is the order of the day in California, Nevada, Alaska, Hawaii, and the other Ninth Circuit states.  Per Judge Kozinski: 

The removal statute speaks of “the defendant”—not “first defendant” or “initial defendant”—and its most straightforward meaning is that each defendant has
thirty days to remove after being brought into the case.

Destfino v. Reiswig, ___ F.3d ___ , 2011 WL 182241 (9th.Cir. 2011).  So in these parts, every defendant in a removeable case gets thirty days.

Ninth Circuit Punts Marriage Case to Cal Supremes

This is a little bit out of our usual discussion areas, but pretty interesting.  It looks as though Perry v. Schwarznegger (the Proposition 8 marriage case, soon to be renamed Perry v. Brown) will stand or fall on whether the proponents have standing to appeal the District Court's ruling throwing out Proposition 8.  So the Ninth Circuit has certified that standing issue to the California Supreme Court.  And by the way, the deputy clerk from Imperial County who wanted to defend Prop 8?  No standing.

Meanwhile, Judge Rheinhardt, the liberal lion of the Ninth Circuit, files a concurrence both bemoaning highly technical standing rules, lambasting Plaintiff's counsel David Boies and Ted Olson for suing only two counties, and questioning whether the (former) governator and (former) attorney general (and now governor redux) shouldn't have defended the case.

News From The Cal Biz Lit Sports Department

 

            Over here in the CBL Sports Department, baseball division, we are still basking in the glow of the San Francisco Giants’ first World Series victory ever, and the franchise’s first win since 1956, back in their right coast days.  Now we just need the Golden Bears of California to go to a Rose Bowl (last visit – 1959, and the next one sure won't be 2011) and life will be complete. 

            Meanwhile, some odds and ends:

            Odd/end number one:  A while back, CBL posted a story about a big nasty punitive damage verdict in the conservative central valley jurisdiction of Sacramento, observing that this was "California's conservative state capitol, where the jurors know the value of a dollar. . . ."  

                 At the rate things are going, we’re going to have to stop writing things like that.  Comes word now of a Sacramento Federal Court verdict in a union dispute involving California’s powerful California Correctional Peace Officer’s Association, which got tagged for a $10 million punitive award in the case of Brian Dawe, et al.  v. Corrections USA, et al., Eastern District No. Civ. S-07-1790 LLK.  A copy of the verdict is here.  The compensatory award, BTB, was $2.8 million, so the ratio is problematic.

            Odd/end number two:  Meanwhile, Wall Street Journal’s Law Blog reports on corporate concerns about the whistleblowing provisions of the recently enacted Dodd-Frank Bill.  The bill has bounty hunter provisions that give whistleblowers who take evidence of Securities Fraud to the SEC between 10% and 30% of any penalties over $1 million.  According to the WSJ,

. . . plaintiffs lawyers eager to handle complaints on behalf of whistleblowers are getting the word out, issuing press releases and publishing articles about the new law and in some instances, running ads soliciting work.

            CBL is reminded of the considerable (and understandable) consternation California companies expressed in 2003, when the legislature passed and the governor signed legislation that created a bounty hunter right for employees to report Labor Code violations and keep a share of the proceeds.   To date, the sky has not fallen.  Other bounty-hunter provisions (see Proposition 65) create much more havoc for businesses.

            Odd/end number three:  Happy Birthday to Drug & Device Law Blog, which just celebrated its fourth birthday.  Founded by Jim Becks of Dechert LLP (“Bexis”) and Mark Herrmann (formerly of Jones Day and since retired from the blog), this blog for pharmaceutical and medical device defense lawyers has everything a big-firm law blog ought to have, and practically none of them do:  regular and current postings, detailed analysis, and a good dose of ‘tude.  Best of all, it never looks as though the posts got processed through a big firm committee before they were published.  If you want to see what good blogging can look like, check out this post by Steve McConnell on the problem of documents produced in confidence, or this one on the U.S. Supremes’ grant of cert in two important personal jurisdiction cases:  Brown v. Meter, 681 S.E.2d 382  (N.C. App. 2009), appeal denied, 695 S.E.2d 756 (N.C. 2010), and Nicastro v. McIntyre Machinery America, Ltd., 987 A.2d 575 (N.J. 2010).

            Bexis observes that of all the law blogs started up by practicing lawyers at about the same time as Drug & Device Law, only little ol’ CalBizLit (Est. December 8, 2006) is still posting.  CBL appreciates the recognition, but thinks it only fair to mention that, on the other side of the “v,” Kimberly Kralowec’s venerable UCL Practitioner has been going even longer.  So anyway, congratulations to all of us.

New SCOTUS Diversity Ruling Adopts Nerve Center Test

Let's face it, most companies who get sued love diversity jurisdiction, and from the point of  view of a corporate defendant, what's not to like?  Unanimous juries!  Strict procedural requirements!  And most important of all, particularly in California, Daubert!  (See CBL's earlier discussion here.) 

Most removals are based on diversity of citizenship under 28 U.S.C. § 1332, and a for purposes of diversity, a corporation is a citizen of the state where it is incorporated and of its "principal place of business." 

And what does "principal place of business" mean?  According to the Ninth Circuit, it means the place that  "contains a substantial predominance of corporate operations."  Tosco Corporation v. Communities for a Better Environment, 236 Fed. 3d 495 (CA9th 2001).  At least that's what it meant until yesterday, when everything changed as a result of a California wage and hour case filed against Hertz Corporation.

SCOTUS issued its decision in Hertz Corporation v. Friend, ___US___(2010) adopting the "nerve center test."  A corporation's principal place of business is now "the place where it's high level officers direct, control and coordinate the corporation's activities, i.e., the 'nerve center.'"  Id., slip op. at 14.  And this will typically be found at its corporate headquarters.