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District Court Applied Wrong Legal Standard in Finding Named Plaintiffs and Their Counsel to be Adequate Representatives of the Proposed Class under Rule 23(a)(4) and thus Abused its Discretion in Certifying Class and Approving Nationwide Class Action Settlement Third Circuit Holds

Several putative class actions were filed against various defendants, including Community Bank of Northern Virginia (CBNV), Guarantee National Bank of Tallahassee (GNBT) and Residential Funding Corporation (RFC), arising out of “the alleged predatory lending scheme of the Shumway/Bapst Organization (‘Shumway’), a residential mortgage loan business involved in facilitating the making of high-interest, mortgage-backed loans to debt-laden homeowners.” In re Community Bank of N. Va. & Guar. Nat’l Bank of Tallahassee Second Mortgage Loan Litig., 622 F.3d 275 (3d Cir. 2010) [Slip Opn., at 10]. According to the allegations underlying the class action complaints, Shumway entered into relationships with CBNV and GNBT in order to circumvent state-law restrictions on fees that it could charge; the alleged scheme permitted Shumway to make it appear as if the fees were paid to depository institutions (which are not subject to the fee restrictions) when in reality they were being funneled to Shumway. Id. RFC allegedly aided this conspiracy by purchasing CBNV and GNBT loans on the secondary market, even though it allegedly knew that these institutions were acting as mere “straw parties” for Shumway. Id., at 11. The class actions were consolidated, see id., at 11-12, and ultimately a proposed nationwide class action settlement was reached, id., at 13. Certain members of the class objected to the proposed class action settlement, and certain class members sought leave to intervene in the consolidated class action lawsuit; the district court denied the motion to intervene and overruled the objections to the class action settlement. Id., at 9. The Third Circuit affirmed the district court’s denial of intervention, but reversed and remanded the approval of the class action settlement. Id. The district court again approved the class action settlement, and again the objectors appealed: “The Objectors contend that the failure [to make claims against the defendants under the Truth in Lending Act (TILA) and the Home Ownership and Equity Protection Act (HOEPA)] renders the named plaintiffs and class counsel inadequate class representatives.” Id. The Circuit Court again reversed.

We do not discuss in detail the Circuit Court’s 100-page opinion. In sum, the Third Circuit concluded that “by approaching the adequacy-of-representation questions on remand as though it were ruling on a motion to amend pursuant to Federal Rule of Civil Procedure 15(c) or a motion to dismiss pursuant to Rule 12(b)6)[,] [the district court] applied the wrong legal standard in ruling on class certification under Rule 23.” In re Community Bank, at 9. Accordingly, the Court “reluctantly” vacated the district court order certifying the class action and approving the class action settlement, and again remanded the matter for further proceedings. Id. The Third Circuit also noted, “we continue to reject (i) the claim that the District Court abused its discretion in denying the Objectors’ renewed motion to intervene, and (ii) their renewed petition for mandamus to recuse the District Judge in this case.” Id.

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Class Action Treatment of Sex Discrimination in Promotion Claim Against Wal-Mart not Proper because Commonality Requirement not Met and because Rule 23(b)(2) Class Inappropriate given Monetary Relief Sought Supreme Court Holds

Plaintiffs filed a putative labor law class action against Wal-Mart Stores, alleging systematic discrimination against women in pay and promotion in violation of Title VII. Wal-Mart v. Dukes, 564 U.S. ___ (June 20, 2011) [Slip Opn., at 1]. The class action sought injunctive and declaratory relief, but also sought monetary damages in the form of backpay. Id. The theory underlying the class action against Wal-Mart was not that the company had “any express corporate policy against the advancement of women” but, rather, that Wal-Mart’s local managers “[exercised] discretion over pay and promotion…disproportionately in favor of men, leading to an unlawful disparate impact on female employees.” Id., at 4. As the Supreme Court explained, “The basic theory of the[] case is that a strong and uniform ‘corporate culture’ permits bias against women to infect, perhaps subconsciously, the discretionary decisionmaking of each one of Wal-Mart’s thousands of managers – thereby making every woman at the company the victim of one common discriminatory practice.” Id. The district court certified a nationwide class action against Wal-Mart consisting of approximately 1.5 million current and former female employees, id., at 1. The Ninth Circuit affirmed the class action certification order, id. The Supreme Court granted certiorari and reversed.

By way of background, the Supreme Court noted that Wal-Mart is the largest private employer in the United States, operating 4 types of retail stores (Discount Stores, Neighborhood Markets, Sam’s Clubs and Superstores) that are “divided into seven nationwide divisions, which in turn comprise 41 regions of 80 to 85 stores apiece,” each with 40-53 separate departments and anywhere 80-500 employees. Wal-Mart, at 1-2. Decisions regarding pay and promotion “are generally committed to local managers’ broad discretion, which is exercised ‘ in a largely subjective manner.’” Id., at 2, quoting 222 F.R.D. 137, 145 (N.D. Cal. 2004). With respect to the individual named plaintiffs, Betty Dukes began working for Wal-Mart in 1994 and was eventually promoted to customer service manager before being demoted all the way down to greeter due to “a series of disciplinary violations.” Id., at 3. Dukes admitted that she violated company policy, but claimed that her demotions were “retaliation for invoking internal complaint procedures and that male employees have not been disciplined for similar infractions.” Id. Christine Kwapnoski worked at Sam’s Club “for most of her adult life” and held various positions, “including a supervisory position,” but she claimed that her male manager yelled at her and other female employees (but not at men) and told her to dress better, wear makeup and “doll up.” Id. Edith Arana worked at Wal-Mart from 1995-2001, and in 2000 repeatedly asked her store manager about management training “but was brushed off.” Id. She followed internal complaint procedures and was advised to bypass her store manager and apply directly to the district manager for management training, but she elected not to do so. Id. Arana was fired in 2001 for failing to comply with the company’s timekeeping policy. Id.

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To assist class action defense attorneys anticipate the types of cases against which they will have to defend in California, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the relevant time frame. This report covers the time period from June 3 – 9, 2011, during which time 52 new class actions were filed in these courts. Labor law class actions retained the top spot, but still do not commonly reach the 50% mark of past years. During this reporting period, for example, only 23 of the new class actions filed involved employment-related claims (44% of the total number of new class actions filed) involved employment-related claims. The only other category to break the 10% threshold involved class actions alleged violations of California’s Unfair Competition Law (UCL), which includes false advertising claims, with 7 new filings (13% of the total number of new class actions filed).

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As a resource to California class action defense attorneys, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the relevant time frame. In past years, the number of new class actions filed in these California state and federal courts generally fell within the range of 40-50, but throughout most of this year, that number has been significantly higher. This report covers the time period from May 27 – June 2, 2011, during which time 42 new class actions were filed in these courts. This represents the third straight week in which the number of new class actions filed in these California courts was much more in line with the total number of class actions filed in past years. Only 16 of these 42 class actions, however, involved employment-related claims, representing a relatively low 38% of the total number of new class actions filed. (As regular readers of this blog know, in past years labor law class actions routinely accounted for more than half of the number of new class actions filed each week.) The only other categories to break the 10% threshold involved class actions alleging violations of California’s Unfair Competition Law (UCL), which includes false advertising claims, with 9 new filings, representing 21% of the total number of new class actions filed this past week, and class actions alleging violations of federal securities laws, with 5 new filings, representing 12% of the total number of new class actions filed.

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In order to assist class action defense attorneys anticipate the types of lawsuits against which they will have to defend in California, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the relevant time frame. This report covers the time period from May 20 – 26, 2011, during which time a relatively low number of new class actions (41) were filed in these courts; we note, however, that this number is more in line with the total number of class actions filed in past years, as opposed to the very large number filed each week this year. Of these 41 class actions, 21 involved employment-related claims (representing 51% of the total number of new class actions filed). The only other category to break the 10% threshold involved class actions alleging violations of California’s Song-Beverly statute (which prohibits requesting personal identifiable information at point of sale in debit or credit card transactions) with 5 new filings, representing 12% of the total number of new class actions filed this past week.

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As a resource to California class action defense attorneys, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the relevant time frame. This report covers the time period from May 13 – 19, 2011, during which time 46 new class actions were filed in these courts — a number much more in line with the total number of class actions filed in past years, as opposed to the very large number filed each week during this year. Of these 46 class actions, 21 involved employment-related claims (representing 46% of the total number of new class actions filed). The only other category to break the 10% threshold involved class actions alleging violations of California’s Unfair Competition Law (UCL), which includes false advertising claims, with 15 new filings, representing 33% of the total number of new class actions filed this past week.

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As a resource for California class action defense attorneys, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the relevant time frame. This report covers the time period from May 6 – 12, 2011, during which time 70 new class actions were filed in these courts. The unusually large number of class actions being filed each week has dramatically impacted the relative percentage of labor law class actions filed each week, as in previous years, class actions alleging employment-related claims often accounted for more than half of all class actions filed in these California courts. This reporting period, 27 new labor law class actions were filed (representing 39% of the total number of class actions filed during the week). The only other category to break the 10% threshold were class actions alleging violations of California’s Unfair Competition Law (UCL), which includes false advertising claims, with 20 new lawsuit (13 of which involved class actions arising out of the hacking of Sony’s Play Station network) representing 29% of the total number of new class actions filed this past week.

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To assist class action defense attorneys anticipate the types of cases against which they will have to defend in California, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the relevant time frame. This report covers the time period from April 29 – May 5, 2011, during which time 66 new class actions were filed in these courts. In previous years, class actions alleging employment-related claims often accounted for more than half of all class actions filed in these California courts, but this year has been a different story. This reporting period, aided by several class actions arising out of the hacking of Sony’s Play Station network, class actions alleging violations of California’s Unfair Competition Law (UCL), which includes false advertising claims, seized the top spot, with 19 new filings (8 against Sony), representing 29% of the total number of new class actions filed this past week. The only other categories to break the 10% threshold involved labor law class actions, with 16 new filings (representing 24% of the total number of class actions filed), and class actions alleging violations of federal securities laws, with 9 new filings (14% of the total number of new class actions filed).

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Trial Court Order Requiring Starbucks to Identify and Disclose Job Applicants with Marijuana Convictions Violates the Privacy Rights Sought to be Redressed by Putative Class Action California Appellate Court Holds

Plaintiffs filed a putative class action against Starbucks for allegedly violating California marijuana laws by asking prospective employees to disclose, on a preprinted form, whether they had suffered any marijuana convictions. Starbucks Corp. v. Superior Court, ___ Cal.App.4th ___ (Cal.App. April 25, 2011) [Slip Opn., at 2]. The class action complaint was premised on the fact that “[I]n the mid-1970s, the California Legislature reformed the state’s marijuana laws to require the ‘destruction’ by ‘permanent obliteration’ of all records of minor marijuana convictions that were more than two years old. Employers were prohibited from even asking about such convictions on their job applications, with statutory penalties of the greater of actual damages, or $200 per aggrieved applicant.” Id. The class action sought $26 million on behalf of 135,000 job applicants, alleging that Starbucks “failed to adequately advise job applicants not to disclose minor marijuana convictions more than two years old.” Id., at 2-3. During the litigation, the Court of Appeal held that the plaintiffs lacked standing to prosecute the class action “because none had any marijuana convictions to reveal.” Id., at 2 (citing Starbucks Corp. v. Superior Court (2008) 168 Cal.App.4th 1436). Accordingly, the trial court subsequently granted Starbuck’s motion for summary judgment and dismissed the named plaintiffs as class representatives. Id. However, rather than dismissing the lawsuit, the trial court ruled that plaintiffs could “file a first amended complaint to include only job applicants with marijuana convictions” as class members, and could “conduct further discovery to find a ‘suitable’ class representative.” Id. Toward that end, Starbucks was ordered “to randomly review job applications until it identifies job applicants with prior marijuana convictions” and to then disclose those names to plaintiffs’ counsel “unless they affirmatively opt out to a neutral administrator.” Id. Starbucks again sought writ review and the Court of Appeal reversed.

This case is surprisingly simple. As the Court of Appeal summarized its opinion, “By providing for the disclosure of job applicants with minor marijuana convictions, the discovery order ironically violates the very marijuana reform legislation the class action purports to enforce. We fail to understand how destroying applicants’ statutory privacy rights can serve to protect them.” Starbucks, at 2-3.

By way of background, the trial court believed plaintiffs had standing to prosecute this putative class action: “None of the plaintiffs had been convicted of a marijuana-related crime. But they contended that California law allowed any job applicant to receive a minimum statutory penalty of $200 per applicant if they filled out an improper job application.” Starbucks, at 3. The trial court agreed with plaintiffs, and found that every job applicant was entitled to receive the $200 statutory penalty “even those who never had sustained a marijuana conviction,” id. The appellate court disagreed, holding that “neither plaintiffs nor the tens of thousands of job applicants they purported to represent were entitled to recover statutory penalties where they did not have any marijuana convictions to disclose.” Id. Rather, “Only an individual with a marijuana-related conviction falls within the class of people the Legislature sought to protect.” (168 Cal.App.4th at 1449.)

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Trial Court did not Abuse Discretion in Denying Class Action Certification of Store Manager Misclassification Claim because Individual Questions Predominate California Appellate Court Holds

Plaintiffs filed a putative class action against their former employer, Big Lots Stores, alleging violations of California’s Labor Code for failure to pay them overtime or to compensate them for missed meal and rest periods. Mora v. Big Lots Stores, Inc., ___ Cal.App.4th ___ (Cal.App. April 18, 2011) [Slip Opn., at 2]. According to the allegations underlying the class action complaint, defendant “uniformly misclassifies its store manager as exempt employees based on their job description alone rather than on consideration of actual work performed, which involves a significant amount of time on nonexempt tasks.” Id. Specifically, plaintiff’s class action complaint alleged that Big Lots operates “closeout retail stores in California, [and] has intentionally and improperly designated certain employees as ‘exempt’ store managers in order to avoid payment of overtime wages and other benefits required by [California law].” Id. Plaintiffs’ counsel moved to certify the litigation as a class action; the trial court denied the motion finding “the company does not operate its stores in a standardized manner and has no systematic practice of misclassification of managers.” Id. Plaintiffs appealed. The California Court of Appeal affirmed.

The evidence presented by both sides was substantial. Plaintiffs cited defendant’s deposition testimony to establish that Big Lots “classified all its store managers in California as falling within the ‘executive exemption’” as its basis for failing to pay them overtime or provide meal and rest breaks. Mora, at 4, Plaintiffs also submitted declarations from 44 putative class members to “demonstrate[] that the basic job duties of store managers in California are the same regardless of location and that Big Lots runs all its stores in the state in a uniform and standardized manner.” Id. These declarations also stated that “Strict compliance with corporate manuals and actions plans, which set forth state-wide policies and procedures, is required; and such compliance is ensured by district managers, who supervise all store managers.” Moreover, “training of store managers is standardized, and their job performance is evaluated on the same basis and on the same form regardless of purported store-to-store differences.” Id. The declarations “averred that store managers are primarily engaged in nonexempt activities and routinely work more than 40 hours per week,” and that they “typically spend more than 75% of their time performing the same physical labor and routine clerical tasks” as nonexempt employees. Id., at 4-5. Finally, plaintiffs submitted an expert declaration in support of their motion for class action treatment. Id., at 5-6.

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