Plaintiff filed a putative class action against Calumet City, Illinois, alleging that she suffered damage because the enforcement of a local ordinance interfered with her ability to sell real property that she owned in the City; the class action complaint alleged that “the ordinance violated her right to procedural due process and unreasonably restrained the alienability of her property.” Walker v. Calumet City, Illinois, 565 F.3d 1031, 1032 (7th Cir. 2009). Specifically, the class action complaint challenged the City’s Point of Sale (POS) ordinance, which provides that real property within the city limits “cannot be sold until it is inspected and deemed in compliance with city codes, a fee is paid, and transfer stamps are issued.” Id. In the normal course of events, while the class action complaint was pending, plaintiff’s property was inspected under the City’s Rental Dwelling Inspection (RDI) ordinance, which requires annual inspections of rental properties to ensure compliance with city health, zoning and building codes. Id., at 1033. The inspection of plaintiff’s property revealed “multiple areas…where repair was necessary”; plaintiff completed the required repairs, and the City “pronounced her property compliant with the City’s building and zoning codes.” Id. Defense attorneys then moved to dismiss the class action as moot because, since plaintiff’s property passed the RDI, “an inspection under the POS ordinance to check for the same violations would be redundant.” Id. Over plaintiff’s objection, the district court dismissed the class action as moot based on the City’s representations that it would not enforce the POS ordinance against plaintiff, id., at 1032, 1033. Plaintiff then moved for an award of attorney fees, arguing that she was the “prevailing party” 42 U.S.C. § 1988; defense attorneys countered that the class action had been dismissed as moot “prior to any judicial determination on the merits.” Id., at 1033. The district court agreed with plaintiff and awarded her $189,000 in attorney fees, id. The Seventh Circuit reversed.
The Circuit Court did not find this to be a difficult case because, while the “catalyst rule” for evaluating attorney fee awards had been used in the Seventh Circuit prior to 2001, the Supreme Court rejected that rule in Buckhannon Board & Care Home, Inc. v. West Virginia Department of Health & Human Resources, 532 U.S. 598 (2001), holding at page 606 that a party was not a prevailing party unless there was a “material alteration in the legal relationship of the parties.” Walker, at 1033-34 (citations omitted). This “alteration” in the relationship of the parties “must arise from a court order.” Id., at 1034 (citation omitted). The Seventh Circuit explained at page 1034, “In Buckhannon, the Supreme Court gave two examples of when a party should be considered prevailing: first, when ‘the plaintiff has received a judgment on the merits’; second, when the plaintiff has ‘obtained a court-ordered consent decree.’ [Citation.] In general, we have stated that ‘[i]t could not be clearer that a voluntary settlement by the defendant ... does not entitle a plaintiff to attorneys' fees.’ [Citation.]”
]]> Here, the dismissal order clearly revealed that the class action was dismissed as moot without a finding as to the validity of the claims asserted in the class action complaint. Walker, at 1034. The case does not fit into the first Buckhannon category because plaintiff did not obtain a judgment on the merits, and the case does not fit into the second Buckhannon category because plaintiff did not obtain a consent decree. Id. Nor does the case qualify for the possible exception applicable in the case of certain settlement agreements, because “this case does not involve a settlement at all.” Id., at 1035. Put simply, the City simply agreed not to enforce the POS against plaintiff because the requirements of the POS, as they concerned plaintiff’s property, “had already been met,” id., at 1036. The Seventh Circuit concluded, therefore, that plaintiff was not a prevailing party and, accordingly, reversed the district court order awarding her attorney fees, id., at 1037.NOTE: The Seventh Circuit summarized the three claims for relief in plaintiff’s class action complaint at page 1033 as follows: “First, she alleged that the POS ordinance unreasonably restrained the alienability of her property. Second, she claimed that the POS ordinance failed to accord her procedural due process. Third, Walker alleged that she was deprived of her ability to sell her property by the application of the POS ordinance to ‘legal non-conforming property,’ i.e., property that does not comply with the relevant zoning but is nonetheless deemed legal. Specifically, Walker claimed that the City refused to grant rebuild permits for non-conforming property and that such permits were necessary before lenders would extend money to potential buyers. Additionally, Walker sought to certify a class action on behalf of all property owners in the City.”
Download PDF file of Walker v. Calumet City]]>Plaintiff filed a putative class action against her employer, Bayer Pharmaceuticals, in California state court alleging labor law violations; specifically, the class action complaint asserted that Bayer misclassified pharmaceutical sales representatives (PSRs) as exempt employees, and accordingly failed to pay them overtime or provide them with meal breaks to which they would be entitled as non-exempt employees. D'Este v. Bayer Corp., 565 F.3d 1119, 1121-22 (9th Cir. 2009). Defense attorneys removed the class action to federal court, and the district court granted Bayer’s motion for summary judgment “finding that [plaintiff] was exempt under California's outside sales exemption”’ and based on that finding, the district court did not address whether Bayer also was correct in relying on the “administrative exemption” in its classification of PSRs. Id., at 1122. Plaintiff appealed, id., at 1122. The Ninth Circuit observed that “The question whether PSRs are exempt under California's outside salesperson and administrative exemptions is the central issue in multiple class action lawsuits in the Ninth Circuit as well as in other circuits.” Id. Accordingly, the Circuit Court – pursuant to Rule 8.548 of the California Rules of Court – certified two questions to the California Supreme Court, id., at 1120.
The Ninth Circuit summarized the relevant facts as follows. Bayer gave plaintiff a list of doctors and hospitals, as well as a list of products, for which she was responsible: “[Plaintiff’s] job was to communicate information about her Bayer products to her roster of doctors and seek their non-binding commitment to write prescriptions for those products. She was also responsible for communicating with hospitals in her territory to influence them to add the Bayer products for which she was responsible to their formularies.” D’Este, at 1121. Plaintiff was “trained on a message” and was required to “adhere closely to the information provided by Bayer about its products”; beyond this, however, “she had the freedom to develop her own strategy for communicating with and influencing doctors.” Id. Additionally, she “had flexibility regarding how she spent her day,” id., at 1122. Specifically, “[Plaintiff] developed her own schedule for meeting with the doctors on her list. She received little or no daily supervision, and saw her manager once every six to eight weeks.” Id. According to the class action complaint, plaintiff regularly worked more than 8 hours per day and more than 40 hours per week, id. For this, she received between $81,000 and $103,000 per year in compensation, id., at 1121. And plaintiff was “not required to keep or maintain set hours.” Id., at 1122.
]]> The questions certified to the California Supreme Court are as follows:1. The Industrial Welfare Commission's Wage Orders 1-2001 and 4-2001 define “outside salesperson” to mean “any person, 18 years of age or over, who customarily and regularly works more than half the working time away from the employer's place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.” 8 Cal.Code Regs., tit. 8, §§ 11010, subd. 2(J); 11040, subd. 2(M). Does a pharmaceutical sales representative (PSR) qualify as an “outside salesperson” under this definition, if the PSR spends more than half the working time away from the employer's place of business and personally interacts with doctors and hospitals on behalf of drug companies for the purpose of increasing individual doctors' prescriptions of specific drugs?
2. In the alternative, Wage Order 4-2001 defines a person employed in an administrative capacity as a person whose duties and responsibilities involve (among other things) “[t]he performance of office or non-manual work directly related to management policies or general business operations of his/her employer or his employer's customers” and “[w]ho customarily and regularly exercises discretion and independent judgment.” Cal.Code Regs., tit. 8 § 11040, subd. 1(A)(2)(a)(I), 1(A)(2)(b). Is a PSR, as described above, involved in duties and responsibilities that meet these requirements?
D’Este, at 1120-21.
NOTE: The Ninth Circuit gave a detailed explanation of its request, and why it “believe[s] there is no controlling precedent or clear state court guidance on the question whether PSRs are exempt under the outside salesperson exemption,” id., at 1123, or the “applicability of the administrative exemption to PSRs, which is an important issue of first impression, id., at 1125. We do not here summarize that discussion.
Download PDF file of D'Este v. Bayer Corp.]]>Plaintiff filed a class action in Georgia state court against Bank of America and its wholly-owned subsidiary FIA Card Services (collectively “BofA”) alleging insurance fraud, unfair and deceptive acts, bad faith, and violations of the state’s Racketeer Influenced and Corrupt Organizations Act (RICO); the class action complaint was premised on the allegation that BofA “[sold] a bundled insurance product, known as Credit Protection Plus, to ineligible individuals.” Thomas v. Bank of America Corp., ___ F.3d ___, 2009 WL 1636535, *1 (11th Cir. June 12, 2009). According to the class action, BofA’s credit protection plan provides benefits for various contingencies, including “credit life insurance, credit accident and sickness insurance, involuntary unemployment insurance, hospitalization, and unpaid family leave of absence.” Id. However, the class action complaint alleged that most benefits were conditioned on the customer being gainfully employed for at least 30 hours per week, and that BofA sold the product to individuals (such as plaintiff) who were not so employed. Id. Among the damages prayed for by the class action were treble damages and attorneys’ fees under RICO, id. The class action complaint did not identify the number of individuals in the proposed class or the amount of money sought as damages. Id. Defense attorneys removed the class action to federal court under the Class Action Fairness Act (CAFA), id. However, because the class action complaint was silent on the amount of damages sought to be recovered, it fell to BofA to establish that the amount in controversy exceeded $5 million; it sought to meet this burden by presenting evidence that it collected more than $4.8 million from almost 78,000 customers during the class period, and that because plaintiff sought treble damages and attorney fees “the amount in controversy clearly exceeded $5,000,000.” Id. Plaintiff moved to remand the class action to state court on the grounds that the $5 million threshold had not been satisfied; the district court agreed, finding the $4.8 million inaccurate because the class action “did not allege that all of the Georgia Credit Protection Plus customers were entitled to relief for the entire amount of their Credit Production Plus fees.” Id. BofA appealed, and the Eleventh Circuit affirmed.
The Eleventh Circuit explained that under CAFA a class action is not removable until the defendant receives a document from the plaintiff “be it the initial complaint or a later received paper ... [that] unambiguously establish[es] federal jurisdiction.” Thomas, at *2 (citation omitted). The defendant then has 30 days to file a notice of removal, id. Here, however, the class action complaint does not unambiguously establish federal court jurisdiction under CAFA because it “provided no information indicating the amount in controversy or the number of individuals in the alternative classes.” Id. The Circuit Court concluded, therefore, that remand of the class action to state court was proper “because defendant has not shown the amount in controversy and the sizes of the alternative classes by a preponderance of the evidence,” id. Accordingly, it affirmed the judgment of the district court. Id.
Download PDF file of Thomas v. Bank of America]]>Various class action lawsuits against Merck were consolidated in the Los Angeles Superior Court under the title In re Vioxx Consolidated Cases; the class action lawsuits alleged that Merck knew of the cardiovascular dangers associated with Vioxx long before it voluntarily pulled it from the market. In re Vioxx Conxolidated Cases, Los Angeles Superior Court Case No. JCCP4247 (April 30, 2009) [Slip Opn., at 1-2]. The consolidated class action complaint alleged that “Merck’s deceptive marketing practices violate the unfair competition law [(UCL)]…and false advertising law…, constitute deceptive trade practices under the Consumers Legal Remedies Act [(CLRA)]…, and resulted in unjust enrichment.” Id., at 2. Interestingly, the class action “[did] not allege that Vioxx itself harmed anyone or was ineffective, only that consumers lost money in purchasing it because it was more expensive than, but not better than less expensive [alternatives].” Id. Plaintiffs’ lawyers moved the trial court to certify the litigation as a class action; defense attorneys opposed class action treatment, arguing that “individual issues of causation and reliance predominate over any common issues because Merck knew different things about Vioxx at different times and class members, physicians and TPPs [third party payors] were exposed to different representations at different times and were influenced by representations to varying extents.” Id., at 3. Additionally, defense attorneys argued that individual issues will predominate as to economic injury, and that the named representatives’ claims are not typical of the claims of the class. Id. The trial court denied the motion for class action certification.
After summarizing the standards governing class action certification of UCL and CLRA claims, see In re Vioxx, at 3-4, and after readily determining that the numerosity and ascertainability requirements for class action treatment had been met, id., at 5, the trial court turned its attention to the question of typicality – that is, “whether a sufficient relationship exists between the injury to the named plaintiff and the conduct affecting the class.” Id., at 5 (citation omitted). The trial court found that the claims of the individual plaintiffs were not typical of the TPPs based on Merck’s evidence that “the decisionmaking that goes into purchasing Vioxx on an individual basis is entirely distinct from the process of putting it into a group formulary.” Id. The trial court found further that plaintiffs failed to meet their burden of providing “substantial evidence” that common questions of law or fact will predominate over individual issues affecting the various class members. Id., at 6. The court did agree with plaintiffs that Merck engaged in a “uniform marketing scheme that was likely to deceive patients and physicians,” id., at 6-7, and that the information available to physicians was susceptible to common proof, id., at 8, but plaintiffs must additionally prove “damage suffered ‘as a result of’ a deceptive practice,” and this element was not subject to common proof, id., at 8-11. As the trial court explained at page 9, “Under all of plaintiffs’ causes of action, a central issue will be whether defendant’s alleged misrepresentations or nondisclosures were material to those who purchased Vioxx.” This means that plaintiffs will have to prove reliance, id., at 10, and the evidence presented in opposition to the motion for class certification demonstrates that class-wide proof of reliance will not exist. Id., at 10-11. And under the circumstances of this case, the necessary proof of reliance cannot be inferred. Id., at 11-12. Nor are the claims of the TPPs subject to common proof, id., at 11.
]]> The trial court next concluded that while the injuries allegedly suffered by the class may be susceptible to classwide proof, In re Vioxx, at 12, the damages suffered by the class will not be, id., at 13. And based on its conclusion that substantial individual issues exist, the trial court “[was] not satisfied substantial benefits would accrue to the litigants or the court from class treatment,” id., at 14. Accordingly, the court denied plaintiffs’ motion for class certification, id.Download PDF file of In re Vioxx Consolidated Cases]]>Six class actions – two in Massachusetts and one each in Connecticut, New Jersey, New York and Pennsylvania – were filed against Staples alleging violations of state and federal labor laws; specifically, the class action complaints allege that Staples failed to pay its assistant, operations and/or sales managers overtime pay under the federal Fair Labor Standards Act (FLSA) and/or various state wage and hour statutes. In re Staples, Inc., Wage & Hour Employment Practices Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. April 14, 2009) [Slip Opn., at 1]. Defense attorneys filed a motion with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization of the class actions pursuant to 28 U.S.C. § 1407 in the District of New Jersey or Massachusetts, id. No one opposed the motion; four groups of class action plaintiffs supported the selection of New Jersey, while plaintiffs in the other two class actions favored Connecticut. Id. In the end, all parties agreed on New Jersey as the appropriate transferee court, id. The Judicial Panel granted the motion to centralize the class action lawsuits and agreed that the District of New Jersey was the appropriate transferee court because “(1) this choice is supported by all parties at least in the alternative, and (2) this district is already presiding over a similar action against Staples which is in its final stages.” Id.
Download PDF file of In re Staples Transfer Order]]>Plaintiff filed a putative nationwide class action against his former employer, T-Mobile, after it fired him for poor attendance; the class action complaint alleged labor law violations. Vega v. T-Mobile USA, Inc., ___ F.3d ___, 1260-61 (11th Cir. 2009). Specifically, the class action alleged that “by charging back commissions advanced on sales of ‘deactivated’ prepaid service plans, T-Mobile violated the terms of the compensation program, failed to pay commissions earned by the sales representatives, and was unjustly enriched by retaining the benefit of its employees' services without fully compensating them for such services.” Id., at 1262. T-Mobile’s compensation package for retail sales representatives consisted of an hourly wage plus commissions. Id., at 1261. The commissions were incentive-based, paid on the employee’s “net activations” – if a customer canceled service within 180 days of activation then T-Mobile would “charge-back” the commission previously paid “in order to reclaim that amount from the sales representative.” Id. Under T-Mobile’s plan, commissions paid within the 180-day window are “paid as an advance against commissions anticipated to be earned in the future” and “[c]ommissions are not earned until the expiration of the 180-day commission charge back window.” Id. Additionally, T-Mobile, in its sole discretion, determined whether sales qualified for commission payments, id. The class action complaint was filed in Florida state court, id., at 1262, but defense attorneys removed the class action to federal court under the Class Action Fairness Act (CAFA), id., at 1263. Plaintiff moved the district court to certify the litigation as a class action; defense attorneys opposed class action treatment and moved for summary judgment. Id. The district court denied T-Mobile’s summary judgment motion, and granted class action certification on behalf of a Florida class only. Id., at 1263-64. Pursuant to Federal Rule of Civil Procedure 23(f), the Eleventh Circuit granted interlocutory review of the class action certification order and reversed. Id., at 1264.
The class action complaint did not impress the Circuit Court, which it characterized as “incomplete and ambiguous.” Vega, at 1263. The vague complaint “simply alleges: (1) that, because prepaid customers paid up-front for their service, T-Mobile ‘bore no risk of non-payment’; (2) that when T-Mobile charged its employees back for commissions on prepaid plans, ‘even though T-MOBILE received the full benefit of its agreement with the prepaid plan customers, T-MOBILE's commission based employees lost the benefits of those sales and the resulting commissions’; and (3) that ‘T-MOBILE has unfair [sic] and unjustly profited from its internal systems error by unduly charging back its employees on the prepaid plans and retaining its employee's [sic] wages for its own use and benefit.’” Id., at 1262. The class action asserted two claims – one for “unpaid wages” and one for “unjust enrichment” – arising out of the central allegation that “T-Mobile improperly withheld or charged back from its employees.” Id. The class action did not allege that employees nationwide were subject to the same compensation structure, id. The Eleventh Circuit noted that the district court certified the litigation as a class action despite two concerns: first, that a nationwide class “lacked commonality due to variations in the contract and employment laws of the fifty states,” and second, that the class action complaint’s allegations “focused on charge backs of commissions already paid, but indicated nothing about any failure to pay commissions in the first instance, the inclusion in the class of T-Mobile ‘employees ... who ... were entitled to receive[ ] commissions ... who did not receive their commissions’ would implicate claims falling outside the scope of the complaint, as pled, and, thus, failed the typicality requirement.” Id., at 1263-64.
]]> The Circuit Court began its analysis by discussing the “abuse of discretion” standard of review that governs district court class action certification orders. See Vega, at 1264-65. It further noted the “rigorous analysis” that must be conducted by a district court to ensure that the prerequisites of Rule 23 are met before granting class action certification. Id., at 1266. The Eleventh Circuit also explained, “‘Although the trial court should not determine the merits of the plaintiffs' claim at the class certification stage, the trial court can and should consider the merits of the case to the degree necessary to determine whether the requirements of Rule 23 will be satisfied.’” Id. (citations omitted).Turning to the numerosity requirement of Rule 23(a)(1), the Eleventh Circuit noted that plaintiff’s motion addressed solely the size of a nationwide class, but provided no evidence as to the number of class members that would be covered by a Florida only class. Vega, at 1266-67. It is the plaintiff’s burden to show that numerosity exists, yet there was no evidence in the record concerning the size of a Florida-only class, id., at 1267.This was particularly true given plaintiff’s concession “that, for commonality and typicality purposes, the class should have been limited only to T-Mobile sales employees who, like he, were subject to the 2004 Sales Incentive Compensation Program, as opposed to any other compensation plan.” Id., at 1267 n.11. The Circuit Court conceded that “T-Mobile is a large company, with many retail outlets, and, as such, it might be tempting to assume that the number of retail sales associates the company employed in Florida during the relevant period can overcome the generally low hurdle presented by Rule 23(a)(1).” Id., at 1267. But the district court’s finding of numerosity must be based on evidence presented by the plaintiff, not on inferences drawn “without the aid of a shred of Florida-only evidence,” which rendered the numerosity analysis “an exercise in sheer speculation.” Id. Accordingly, the district court erred in concluding that the numerosity test had been satisfied, id., at 1267-68.
Turning to the commonality test, the Circuit Court expressed grave concerns over the district court’s analysis, which appeared to conflate the predominance test of Rule 23(b)(3) with the commonality requirement of Rule 23(a)(2). See Vega, at 1268-69. The Eleventh Circuit explained that “the district court's apparent intermingling of the commonality and predominance inquiries demonstrates, at best, imprecision in the organization of the class certification order or, at worst, a fundamental misapplication of Rule 23.” Id., at 1269. In either event, the lower court clearly failed to perform the “rigorous analysis” required: “[W]hile the court arguably made an effective predominance determination, it managed to do so-as if by accident-without a single reference to Rule 23(b)(3) and with an all-too-cursory discussion of the relevant facts. Rule 23 demands significantly greater analytical rigor and precision; backing into the requisite findings, and relying on a reviewing court to connect the dots, is not enough.” Id. Accordingly, “the district court abused its discretion by following improper procedures in making its determinations, to the extent it made them at all, with respect to commonality and predominance.” Id., at 1269-70. (The Eleven Circuit further found that the district court's "substantive application of these Rule 23 requirements in this case was unreasonable enough to constitute an abuse of discretion," id., at 1270, but we do not here discuss that aspect of the Court's opinion, see id., at 1270-75.)
We do not discuss the balance of the Circuit Court opinion in detail. Suffice it to say that the district court additionally abused its discretion “by failing to conduct any typicality analysis of the class it ultimately certified,” Vega, at 1275, as it “did not even attempt to describe whether and how Vega's claims are typical of the remaining class that it actually certified of T-Mobile employees ‘who received commissions for the sale of T-Mobile prepaid cellular telephone plans, but were charged back by T-Mobile for those commissions,’” id., at 1276. And we note further the Eleventh Circuit’s conclusion that plaintiff’s claims “are not typical of the class he seeks to represent.” Id., at 1276. This is true as even plaintiff conceded on appeal that, at best, his claims were typical only of other employees governed by the compensation program that he was paid under, id., and because other employees governed by the same program but working in different areas may not have claims typical of the plaintiff and because members of the putative class who fully understood the compensation program may not have claims typical of the plaintiff, id., at 1277. Nor do we discuss in any detail the Circuit Court's analysis of Rule 23(b)(3), and its conclusion that the district court abused its discretion as to this issue, too. See id., at 1277-79. Suffice it to say that "the district court engaged in virtually no Rule 23(b)(3) analysis at all." Id., at 1277. Rather it consisted of a "conclusory statement, which cannot truly be called analysis, is grossly insufficient and easily rises to the level of an abuse of discretion." Id., at 1278. Accordingly, the Circuit Court reversed the class certification order and remanded the case "with the instruction that [plaintiff's] claims proceed individually." Id., at 1279-80.
Download PDF file of Vega v. T-Mobile USA]]>Plaintiff filed a putative class action against various Farmers Group entities alleging violations of the federal Fair Housing Act (FHA); specifically, the class action complaint alleged disparate impact race discrimination in that Farmers “used ‘a number of undisclosed factors’ to compute credit scores and price homeowners’ insurance policies.” Ojo v. Farmers Group, Inc., 565 F.3d 1175 (9th Cir. 2009) [Slip Opn., at 5700-01]. According to the class action, “Farmers charged minorities higher premiums for homeowners’ property and casualty insurance than the premiums charged to similarly situated Caucasians.” Id., at 5701. Defense attorneys moved to dismiss the class action under Rule 12(b)(1) for lack of subject matter jurisdiction and under Rule 12(b)(6) for failure to state a claim. Id. The district court granted the 12(b)(1) motion on the grounds that the class action claims were “reverse-preempted” by federal law. Id. The Ninth Circuit reversed finding two errors in the district court’s ruling: “First, the district court erroneously read [plaintiff’s] claim as challenging the practice of credit scoring per se. Second, the district court erroneously interpreted Texas state insurance law as permitting disparate impact race discrimination that results from credit scoring, thereby triggering McCarran-Ferguson reverse-preemption.” Id.
Plaintiff, an African-American resident Texas, filed suit after Farmers increased the insurance premium on his homeowner’s policy by 9% on the basis of “unfavorable credit information” revealed by Farmers’ automated credit scoring system. Ojo, at 5703. The class action complaint alleged that Farmers used various factors to target minorities for higher premiums than those charged to “similarly situated Caucasians.” Id. After discussing the McCarran-Ferguson Act which leaves the business of insurance to state law, see id., at 5704-06, and the federal Fair Housing Act (FHA) and Texas state law, see id., at 5706-08, the Ninth Circuit noted that Farmers sought to use Texas state law “as a shield against any scrutiny of its credit scoring practices,” id., at 5709. The Circuit Court rejected this attempt, explaining at page 5709 that the class action “does not challenge Farmers’ use of credit scoring per se”; rather, the class action complaint challenges only Farmers’ use of certain “undisclosed factors” as part of its credit scoring system. The Ninth Circuit agreed with plaintiff that he should have been given an opportunity to conduct discovery in an effort to learn the specific factors used by Farmers’ as part of its credit scoring system. Id.
]]> Reviewing the district court order de novo, Ojo, at 5710, the Ninth Circuit found that the district court erred. First, the Circuit Court held that the class action does not challenge credit scoring per se, but rather “only Farmers’ use of certain ‘undisclosed factors’ in credit scoring and the disparate impact that resulted.” Id. Accordingly, the lower court erred in finding that the class action complaint “challenges the very practice of credit scoring.” Id., at 5711. Secondly, the district court erred in finding that the class action claims were reverse-preempted by McCarran-Ferguson. The Ninth Circuit explained at page 5712, “A claim is reverse-preempted by McCarran-Ferguson when a federal law of general applicability conflicts with a state law relating to the business of insurance and when applying the federal law would ‘frustrate any declared state policy or interfere with a State’s administrative regime.’… Importantly, where the state and federal ‘regulatory goals are in harmony,’ reverse-preemption is not triggered….” (Citations omitted.) Specifically, the district court erred in concluding that Texas insurance law was invalidated, impaired, or superseded by the federal FHA. Id., at 5712. This was particularly true because “Texas’s own Fair Housing Act prohibits disparate impact race discrimination.” Id., at 5714. In essence, the district court’s ruling suggested that Texas insurance law would somehow condone discrimination – an obviously absurd conclusion. Id., at 5717-18. Accordingly, the Circuit Court reversed the district court order dismissing the class action and remanded the matter with instructions to allow the class action’s FHA claim to go forward. Id., at 5722.NOTE: The opinion was not unanimous. Judge Bea filed a dissenting opinion. See Ojo, at 5722-33. Judge Bea concluded, “It’s as simple as this: Bell Atlantic laid down the rules for class action pleading. Class action litigation is too expensive to allow a plaintiff to engage in discovery unless and until the plaintiff can at least in good faith allege the defendant has done something prohibited by law.” Id., at 5733. Because he believed plaintiff had not done so, he would have affirmed the district court.
Download PDF file of Ojo v. Farmers Group]]>Plaintiff, the general manager of an El Pollo Loco restaurant, filed a putative class action against El Pollo Loco alleging violations of California’s labor code; the class action complaint alleged inter alia that defendant misclassified its general managers as exempt when they “spent the majority of their time performing nonmanagerial tasks” and that it wrongfully denied its general managers overtime compensation and meal breaks. Olvera v. El Pollo Loco, Inc., 173 Cal.App.4th 447, 451 (Cal.App. 2009). As part of his employment, plaintiff received written materials that, in part, required that all work-related disputes be resolved through binding arbitration, governed by the Federal Arbitration Act (FAA). Id., 449-50. Class action litigation was prohibited, but the parties were permitted “to conduct discovery and bring motions in an arbitration as provided by the Federal Rules of Civil Procedure,” id., at 450. Defense attorneys moved to compel arbitration of the class action complaint as to plaintiff’s individual claims only, id., at 451. Plaintiff opposed the motion to compel arbitration, arguing that the arbitration clause was unconscionable; defense attorneys argued that the clause was not unconscionable because employees were not required to sign the acknowledgement form by which they were bound to the arbitration clause. Id., at 452. The trial court denied the motion to compel arbitration, concluding that the clause was both procedurally and substantively unconscionable. Id., at 453. Under California law, an order denying a motion t compel arbitration is an appealable order. Cal. Code Civ. Proc., § 1294. Defendant appealed, and the Court of Appeal affirmed.
After summarizing the relevant law regarding arbitration agreements, see Olvera, at 453-54, the appellate court turned first to the issue of procedural unconscionability. The Court of Appeal explained at page 454, “Procedural unconscionability focuses on oppression or unfair surprise, while substantive unconscionability focuses on overly harsh or one-sided terms.” (Citations omitted.) California courts view these two factors on a sliding scale: “The more procedural unconscionability is present, the less substantive unconscionability is required to justify a determination that a contract or clause is unenforceable. Conversely, the less procedural unconscionability is present, the more substantive unconscionability is required to justify such a determination.” Id., at 454 (citations omitted). The appellate court found that the arbitration clause was procedurally unconscionable because of (1) the unequal bargaining power between the employees and the employer, which “makes it likely that the employees felt at least some pressure to sign the acknowledgment and agree to the new dispute resolution policy” even if the company insists that they were not required to do so, and (2) agreement to the dispute resolution procedure was “not an informed decision” because the description of the dispute resolution policy “was totally inaccurate.” Id., at 455-56.
]]> The Court of Appeal also found that the class action waiver was substantively unconscionable. See Olvera, at 456-57. The Court reasoned at page 457 that the class action arbitration waiver “would insulate El Pollo Loco from employee class actions and class arbitrations on behalf of those employees who signed the acknowledgment.” However, “A class action or class arbitration may be the most effective way, and perhaps the only effective way, for those employees to vindicate their statutory rights.” Id., at 457 (footnote and citations omitted). Additionally, the class action waiver was “unfairly one-sided” because it was unlikely that El Pollo Loco would ever file a class action against its employees, id. Accordingly, the appellate court affirmed the trial court order denying defendant’s motion to compel arbitration of plaintiff’s individual claims. Id., at 458.Download PDF file of Olvera v. El Pollo Loco]]>Plaintiff filed a class action against Starbucks alleging violations of California’s Unfair Competition Law (UCL) and Labor Code; the class action complaint alleged that Starbucks alleged shift supervisors to participate in tip pools in violation of California law, specifically Labor Code section 351. Chau v. Starbucks Corp., 174 Cal.App.4th 688 (Cal.App. 2009) [Slip Opn., at 1-2]. The trial court certified the litigation as a class action, id., at 2. Starbucks moved to decertify the class, but the motion was denied. Id., at 6. Prior to trial, the court granted plaintiff’s in limine motion to exclude evidence that shift supervisors serve customers, finding that such evidence was “irrelevant” (though it did allow some evidence on the matter). Id., at 7. Ultimately, the trial court awarded the class $86 million as restitution based on its finding at the conclusion of a bench trial that plaintiff had proved the UCL claim. Id., at 2. Starbucks appealed. The Court of Appeal reversed, holding that Starbucks’ tip sharing policy did not violate California law: “The applicable statutes do not prohibit Starbucks from permitting shift supervisors to share in the proceeds placed in collective tip boxes.” Id. The Court explained that the tip-pooling practice challenged by the class action “concern[ed] an employer's authority to require equitable allocation of tips placed in a collective tip box for those employees providing service to the customer.” Id., at 2-3. The appellate court held at page 3, “There is no decisional or statutory authority prohibiting an employer from allowing a service employee to keep a portion of the collective tip, in proportion to the amount of hours worked, merely because the employee also has limited supervisory duties.” Accordingly, it reversed the trial court judgment.
Starbucks’ thousands of stores are staffed by baristas, shift supervisors, assistant store managers, and store managers. Chau, at 3. The Court of Appeal explained the differences between the store employees as follows: “Baristas are entry-level, part-time hourly employees responsible for customer service related tasks, such as working the cash register and making coffee drinks. Shift supervisors are also part-time hourly employees who perform all the duties of a barista, but are also responsible for some additional tasks, including supervising and coordinating employees within the store, opening and closing the store, and depositing money into the safe. A barista is eligible for promotion to shift supervisor after six months on the job. A store manager is a full-time salaried employee, and has the authority to recruit, hire, promote, transfer, schedule, discipline, and terminate baristas and shift supervisors. In some stores, a store manager is assisted by an assistant store manager, who is also a fulltime salaried employee.” Id., at 3-4. At trial, Starbucks introduced evidence that shift supervisors spend 90-95% of their time “performing the same jobs as baristas,” and that they had “no authority to hire, discipline, or terminate baristas.” Id., at 8. Moreover, shift supervisors are not considered “management” by the company, id. The trial court ruled against Starbucks because it found that shift supervisors “‘supervise’ and ‘direct’ the acts of other employees,” and that they were barred by California law to share in tip pools. Id., at 8-9.
]]> We do not here discuss the Court of Appeal’s detailed analysis of Labor Code section 351. See Chau, at 9-16. Suffice it to say that the Court concluded Section 351 does not bar the shift supervisors from sharing in tips: “Because—as plaintiffs concede—section 351 does not prohibit a shift supervisor from keeping gratuities given to him or her for his or her customer services, there is no logical basis for concluding that section 351 prohibits an employer from allowing the shift supervisor to retain his or her portion of a collective tip that was intended for the entire team of service employees, including the shift supervisor.” Id., at 14. Moreover, “[b]ecause a shift supervisor performs virtually the same service work as a barista and the employees work as a ‘team,’ Starbucks did not violate section 351 by requiring an equitable distribution of tips specifically left in a collective tip box for all of these employees.” Id. The Court of Appeal summarized its holding at page 25 as follows:Specifically, the undisputed facts show: (1) the vast majority of the time shift supervisors and baristas perform the same jobs; (2) these employees rotate jobs and work as a “team” throughout the day; (3) customers intend that their tips placed in the collective tip boxes collectively reward all of these service employees; and (4) Starbucks's manner of dividing the collective tip boxes among the service employees (based on the time worked by each employee) is fair and equitable. If Starbucks was to institute a policy permitting its store managers to share proceeds from a collective tip box, the facts would not be the same and would implicate issues not presented here; therefore our legal reasoning and conclusions would not be controlling.
“Because the trial court's interpretation of section 351 was not supported by the statutory language and led to a result contrary to the fundamental purpose of the statutory scheme, it is one that the Legislature could not have intended.” Id., at 26. Accordingly, the appellate court reversed the trial court judgment. Chau, at 25-26.
Download PDF file of Chau v. Starbucks]]>Two class actions – one in Central District of California and one in the Eastern District of California – were filed against Payless ShoeSource alleging violations of California’s Song-Beverly Act; specifically, the class action complaints allege that Payless “requests and records customers’ personal identification information in violation of California Civil Code § 1747.08.” In re Payless ShoeSource, Inc., California Song-Beverly Credit Card Act Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. April 9, 2009) [Slip Opn., at 1]. Defense attorneys filed a motion with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization of the class actions pursuant to 28 U.S.C. § 1407 in the Eastern District of California; plaintiffs in the class actions did not respond to the motion, and defense attorneys represented that they supported the request. Id. The Judicial Panel granted the motion to centralize the class action lawsuits and agreed that the Eastern District of California was the appropriate transferee court because no party objects to that district and the first-filed class action is pending there. Id.
Download PDF file of In re Payless ShoeSource Transfer Order]]>Plaintiff filed a putative class action in Illinois state court against various H & R Block companies alleging violations of the state’s Consumer Fraud Act; the class action complaint alleged that defendants “had used deceptive practices to sell ‘Peace of Mind’ insurance against mistakes by H & R Block that increased customers’ tax liabilities.” Marshall v. H & R Block Tax Services, Inc., 564 F.3d 826, 827 (7th Cir. 2009). The state court granted plaintiff’s motion to certify the litigation as a nationwide class action, identifying three classes and defining the defendant class (which it also certified) as “any entity with the names ‘H & R Block’ or ‘HRB’ in its name, or otherwise affiliated or associated with [TSI], and which sold or sells the [Peace of Mind] product.” Id. Eventually all of the defendants were dismissed from the class action except H & R Block Tax Services (TSI), id. “Subsequently, however, the court decertified the defendant class at TSI's request, leaving TSI, which already was the only defendant, with no class-representative status since there was no longer a defendant class. TSI had asked the court to decertify the plaintiff classes as well, and while the court refused to do so, it did narrow the classes to residents of 13 states.” Id. Defense attorneys removed the class action to federal court under CAFA (Class Action Fairness Act of 2005), id. TSI argued that “decertification of the defendant class had made the case removable under the Class Action Fairness Act because the decertification occurred after the Act's effective date, and had increased TSI's potential liability notwithstanding the elimination of claims by residents of 37 states.” Id., at 828. Plaintiff argued that TSI’s liability had not increased because it had been jointly and severally liable for the misconduct of the other H & R Block defendants, id. The district court found that CAFA did not apply and remanded the class action to state court. Id. TSI sought and received leave to appeal the remand order, and the Seventh Circuit reversed.
The Seventh Circuit explained that TSI is the franchisor of the H & R Block retail tax offices – it does not operate them. Marshall, at 828. TSI claimed that, based on the decertification order, its potential liability has increased by $60 million, and argued that “a ruling that increases a defendant's potential liability may make a case originally filed before the effective date of the Class Action Fairness Act removable if the ruling comes after that date, unless the alteration in the scope of the plaintiff's claim ‘relates back’ to the original claim.” Id. (citations omitted). The district court remanded the class action to state court because it believed that “only a formal amendment of the complaint could commence a new action for CAFA purposes”; the Circuit Court disagreed, noting that such an interpretation would elevate form over substance. Id. Turning to whether the class action complaint adequately alleged joint and several liability, the Circuit Court concluded that the class action did not meet this test and that plaintiff now sought to “pin the entire liability of all the former members of the defendant class on TSI.” Id., at 829. The Seventh Circuit concluded at page 829, “They may, for all we know, be able to do so, but that will, so far as appears, enlarge TSI's liability; the plaintiffs have presented no evidence to the contrary.” This significant change in potential liability did not “relate back” to the original class action complaint – “the expansion of potential liability was a surprise.” Id. Accordingly, the district court erred in remanding the class action to state court, id.
Download PDF file of Marshall v. H & R Block]]>Plaintiffs filed a class action against Chase Bank alleging violations of the federal Truth in Lending Act (TILA), and Regulation Z promulgated thereunder; the class action complaint alleged that plaintiffs “have been the victims of a practice they now call ‘adverse action repricing,’ which apparently means ‘raising . . . a preferred rate to an essentially non-preferred rate based upon information in a customer’s credit report.’” Barber v. Chase Bank USA, N.A., 566 F.3d 883 (9th Cir. 2009) [Slip Opn., at 5996 ]. Specifically, Chase increased plaintiffs’ annual percentage rate (APR) on their outstanding credit card balance from 8.99% to 24.24% based on information obtained from a consumer credit reporting agency; Chase stated that it increased the interest rate “‘outstanding credit loan(s) on revolving accounts . . . [were] too high’ and there were ‘too many recently opened installment/revolving accounts.’” Id., at 5995-96. The class action did not allege that Chase’s practice of increasing the APR based on information in a consumer’s credit report was illegal, but rather that Chase violated federal law by failing to fully disclose it to them. Id. Defense attorneys moved to dismiss the class action complaint for failure to state a claim; the district court agreed with Chase and dismissed the class action. Id., at 5997. Plaintiffs appealed, and the Ninth Circuit reversed.
The Ninth Circuit explained, “We must decide whether a credit card company violates the Truth in Lending Act when it fails to disclose potential risk factors that allow it to raise a cardholder’s Annual Percentage Rate.” Barber, at 5994. Given the purpose of TILA – viz., “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit,” 15 U.S.C. § 1601(a) – the Ninth Circuit reversed. The Circuit Court explained that TILA requires disclosure of “[t]he conditions under which a finance charge may be imposed,” “[t]he method of determining the amount of the finance charge,” and, “[w]here one or more periodic rates may be used to compute the finance charge, each such rate . . . and the corresponding nominal annual percentage rate.” Barber, at 5998 (quoting § 1637(a)(1), (a)(3) & (a)(4)). And under Reg. Z, “creditors must make the required disclosures ‘clearly and conspicuously in writing.’” Id., at 5999 (quoting 12 C.F.R. § 226.5(a)(1)). According to the class action, “Chase failed to disclose completely under the Act why it would change the APRs of its cardholders, in violation of subsection 226.6(a)(2) of Regulation Z.” Id., at 6000.
]]> In the Ninth Circuit’s words, “the gravamen of the [class action] complaint is that Chase did not disclose that if a cardholder’s credit report revealed certain information, what Chase calls ‘risk factors,’ the APR might go up.” Barber, at 6000. The Circuit Court agreed, explaining at page 6001, “even if the creditor could not know what a potential increased rate would be when it made the original disclosures, ‘the creditor must provide an explanation of the specific event or events that may result in the increased rate.’” (Quoting 12 C.F.R. Pt. 226 Supp. I, par. 6(a)(2) cmt. 11.) The Court rejected defense arguments that Chase was relying on information “too general to fall under the meaning of ‘specific events,’” id., at 6001; the class action plaintiffs “specifically accuse Chase of having a pre-existing program, at the time of the Agreement, whereby it planned to raise their APR if certain risk factors appeared in their credit history,” id., at 6002. The Ninth Circuit found that even this need not be disclosed, id., 6002-03. The question was, “what disclosures Chase must have made in order to disclose clearly and conspicuously what Regulation Z does demand: namely, any APR ‘that may be used.’” Id., at 6003 (quoting 12 C.F.R. § 226.6(a)(2)) (italics added by Court). As a matter of first impression, the Circuit Court held at page 6006, “Clear and conspicuous disclosures, therefore, are disclosures that a reasonable cardholder would notice and understand. No particular kind of formatting is magical…, but, in this case, the document must have made it clear to a reasonable cardholder that Chase was permitted under the agreement to raise the APR not only for the events of default specified in the ‘Finance Terms’ section, but for any reason at all.” (Citation omitted.) More specifically, the provision relied on by Chase was “buried too deeply in the fine print for a reasonable cardholder to realize that, in addition to the specific grounds for increasing the APR listed in the ‘Finance Charges’ section, Chase could raise the APR for other reasons.” Id., at 6007. Accordingly, the allegations of the class action complaint did not fail as a matter of law, necessitating reversal of the district court order. Id. Download PDF file of Barrer v. Chase Bank]]>