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AAA Requires Separate Arbitration Petitions by Employees Subject to Arbitration Clause with Class Action Waiver but JAMS Permits Plaintiff to Unilaterally Join Dozens of Individual Employee Claims in Single Arbitration

JMBM recently litigated a labor law class action where the employees were bound by arbitration clauses with class action waivers. Some of those agreements require arbitration before AAA. Others required arbitration before JAMS.

JMBM obtained a court order requiring “binding individual arbitration” before JAMS. Plaintiff’s counsel responded by filing an arbitration petition on behalf of 20 individuals. Plaintiff’s counsel also filed another arbitration petition with AAA on behalf of 7 individuals. In other words, plaintiff’s counsel sought to proceed with a “group” arbitration rather than “individual.” We objected.

AAA promptly decided that, as a purely procedural matter, it would not compel our client to participate in a group arbitration over its objection. Because we were not willing to stipulate to such a proceeding, it required plaintiff’s counsel to file 7 separate petitions. It took AAA but a few days to make this decision.

JAMS, on the other hand, took more than a month to conclude that, purportedly as a procedural matter, it would compel our client to participate in a group arbitration over its objection. Even more disturbing than its decision was the process utilized by JAMS to resolve the issue and the reasoning behind it.

As a preliminary matter, it is well established that the scope of an arbitration clause is to resolved either by the court or by the arbitrator. Even plaintiff’s counsel admitted this to be the law. Our disagreement with plaintiff’s counsel centered on our belief that it was a decision for the trial court to resolve under the facts of this case, while they argued that it was a matter for the arbitrator to resolve.

Unable to resolve the procedural question without a legal opinion, JAMS unilaterally appointed one of its mediators to rule on the issue. In other words, rather than appoint an arbitrator to address the issue – a decision that would necessitate all of the required disclosures from the arbitrator and that would provide each side with their right to object to the particular arbitrator being appointed – JAMS put the matter in the hands of a panel mediator. No statute or case authority permits such an individual to rule on the scope of an arbitration clause, but nevertheless JAMS followed this procedure.

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California Attorney Richard Watts Publishes Book Based On His Experience In Representing The “Super-Wealthy”

Richard Watts, a personal friend of the author and a superb lawyer, has published a book based on his 30-year career representing individuals with a net worth in excess of $100 million. The book is entitled, “Fables of Fortune: What Rich People Have That You Don’t Want.”

The author of the Class Action Defense Blog found Rich’s book to be a great read, particularly in its ability to illustrate through real-life examples the proverb that “the grass is always greener.” Rich does a great job weaving in experiences with his own family to show that one need not be super wealthy to experience the joy of true friendship or the treasure of a close-knit family.

For more information about Rich Watts, please visit his website

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An Introduction To Issues That Must Be Addressed By Any Country Considering Enacting Or Modifying Class Action Legislation

Several countries are considering the use of class action lawsuits. This article’s purpose is to identify the important issues one should consider in evaluating the fairness and efficacy of class action litigation.

A class action lawsuit can be devastating. The staggering costs of merely defending against one – let alone the cost of actually losing – have forced many American corporations into bankruptcy or caused their management teams to be replaced. The U.S. Supreme Court has recognized that class action discovery can be a form of extortion; it can force a company to surrender and settle a lawsuit, because it cannot afford to properly defend itself.

When it devised the class action lawsuit as a procedure to streamline civil litigation, Congress did not anticipate it would be used as a weapon to injure companies which may have technically violated that law, but not caused any harm. In California, alone, up to 100 class action lawsuits are filed every week – thousands every year. Most are not properly class actions in the true sense; they are not legal proceedings in which persons represent interests common to a large group of persons who have been actually injured. Instead, most are premised on the technical violation of some statute, where the supposed violation has not actually harmed anyone. Frequently, an attorney files a class action so he can compel defendants to settle it, and he can demand attorney fees as a direct result. Essentially, most class action lawsuits are “attorney fee motions” disguised as “legitimate” lawsuits.

A country considering implementing a class action system should learn from our flawed system. The author cannot address all of the factors a country should consider in determining whether to implement a class action procedure, or what limits to impose to prevent lawsuits from being filed for the sake of generating attorney fees rather than helping injured people. But the author hopes it will give legislative bodies pause to consider consequences that follow class action litigation.

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The author of the Class Action Defense Blog is pleased to share with you the first edition of the JMBM “OC Litigation News” newsletter, written by members of the Litigation Department in the Orange County office of Jeffer Mangels Butler & Marmaro LLP.

JMBM has represented Orange County businesses since the firm was founded in 1981. In 2007, we opened an office in Orange and it continues to grow. Our lawyers include Orange County residents who have practiced law at the area’s most reputable firms for decades, and have supported the needs of Orange County’s businesses and communities throughout their careers.

In the Spring 2010 edition of our OC Litigation News, you will find the following articles:

Pause Before Sending: Using Unenforceable Non-Competes Can be Very Costly

Mark S. Adams explains why the use of unenforceable non-compete agreements can be very costly to companies that use them to limit the number of competitors in the marketplace. In two separate jury trials, his trial team prevailed in Orange County Superior Court against STAAR Surgical Company for tortiously interfering with the prospective economic relationships of clients Parallax Medical Systems and Scott C. Moody, Inc., costing STAAR $11.4 million in damages.

Served Today, Trial Tomorrow

Mark S. Adams discusses Corporations Code section 709 actions, which can be used by stockholders to overturn or validate board elections and are required to go to trial within five days of filing.

Just the Right Fit, Just in Time: Utilizing Outside Counsel to Save Legal Expenses

Eudeen Y. Chang reports on the increased use of General Counsels’ reliance on outside counsel to help reduce costs and staff “just in time.”

Protecting Ownership of Your Property: The Importance of Employment Agreements

Stanley M. Gibson reports on a recent decision from the Federal Circuit Court of Appeals that highlights the importance of employment agreements in protecting the ownership of intellectual property.

The Section 998 Minefield

Monica Q. Vu discusses the use of Code of Civil Procedure section 998 settlement offers which, if not properly understood, may not provide the intended strategic benefit in litigation maneuvers.

To read a PDF version of the entire newsletter, click here.

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Marty Orlick Discusses Impact of New Credit Card Act on Gift Card Programs

More than half (55%) of people asked in a survey will request a gift card as their gift of choice this holiday season. Shoppers, on average, will each spend $139.91 on gift cards this year and 77.2% of people will buy at least one gift card during the holidays, according to a survey by the National Retail Federation and BIGresearch.

According to the Code of Federal Regulations,

“A gift card is a prepaid card that is designed to be purchased by one consumer and given to another consumer as a present or expression of appreciation or recognition. When provided in the form of a plastic card, a user of a gift card is able to access and spend the value associated with the device by swiping the card at a point-of-sale terminal, much as a person would use a debit card. Among the benefits of a gift card are the ease of purchase for the gift-giver and the recipient’s ability to choose the item or items ultimately purchased using the card.”

While gift cards have been successful for retailers in attracting new customers and keeping old ones, implementing them requires retailers to follow state and federal laws which are often complex and conflicting. California and an increasing number of states have already enacted gift certificate and gift card laws restricting transaction, maintenance and dormancy fees and prohibiting expiration. By now, few, if any, retailers sell gift certificates or gift cards that will expire. Some leading retailers have even eliminated dormancy and maintenance fees altogether.

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Marilyn Barrett, California Tax Attorney at Jeffer Mangels, Discusses Select Tax Provisions of President Obama’s Economic Stimulus Package

Effective February 17, 2009, President Barack Obama signed into law the American Recovery and Reinvestment Act of 2009 (otherwise known as the “Stimulus Bill”), $787 billion economic stimulus legislation which President Obama said marks a “major milestone on our road to recovery.” Tax provisions account for over $288 billion of this amount. One of the author’s partners, Marilyn Barrett — a former chair of the Taxation Section of the State Bar of California and the Los Angeles County Bar Association and who works in the Tax Department of Jeffer Mangels Butler & Marmaro LLP — assists clients on corporate and partnership tax matters and tax controversy matters, and serves as outside general counsel to mid-market public and privately held companies. Ms. Barrett has written and lectured extensively in the tax area, and has prepared an article addressing select tax provisions of the Stimulus Package. The first section describes business tax incentives, the second section describes energy-related tax incentives, and the third section describes tax provisions affecting individual taxpayers Several non-tax provisions have also been included.

Tax Incentives for Business

Extension of Bonus Depreciation
IRC § 168(k) allows additional depreciation in the first year certain assets are placed in service equal to 50% of the basis of the property (referred to as “bonus depreciation”). Bonus depreciation is allowed for both regular tax and the AMT. Property eligible for bonus depreciation is (i) MACRS property with an applicable recovery period of 20 years or less; (ii) water utility property; (iii) computer software (other than purchased software); or (iv) qualified leasehold improvement property, the original use of which commences with the taxpayer. Bonus depreciation expired at the end of 2008 except for certain transportation property which has an expiration date of December 31, 2009.

The Stimulus Bill extends the expiration date for one year to the end of 2009 and through 2010 for the transportation property.

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In Split Decision, California Supreme Court Holds that State’s Ban on Gay Marriage is Unconstitutional; Concurring and Dissenting Opinions Conclude that Legality of Same Sex Marriages is a Legislative rather than Judicial Matter

While the six cases consolidated for argument before the California Supreme Court were not class action lawsuits, the author has received numerous inquiries from attorneys, both from within the State of California and from sister states, inquiring into the status of the California Supreme Court decision in the same sex marriage cases. Accordingly, while the decision does not arise out of a class action, the author notes that today the Supreme Court issued its opinion and, by a 4-3 vote, struck down California’s ban on same sex marriages as unconstitutional. In re Marriage Cases, ___ Cal.4th ___ (Cal. May 15, 2008). Chief Justice George wrote the majority opinion, joined by Justices Kennard (who also penned a short concurring opinion), Werdegar and Moreno. Two concurring and dissenting opinions were filed: one by Justice Baxter, joined by Justice Chin, and one by Justice Corrigan. The court’s opinions may be found below. The file is large, so please be patient.

Download PDF file of In re Marriage Cases

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On June 27, 2006, U.S. Surgeon General Richard H. Carmona released a mammoth report on secondhand cigarette smoke that is likely to benefit the class action plaintiff lawyers far more than the children the report seeks to protect. The report – entitled, “The Health Consequences of Involuntary Exposure to Tobacco Smoke” – spans more than 700 hundreds pages with exhibits, and provides a comprehensive analysis of the health risks associated with “passive” smoking, or in the words of the report, “involuntary smoking.” Those risks are substantial, increasing the risk of developing heart disease and lung cancer by an estimated 25-30% and 20-30%, respectively. The risk to infants and children are even more substantial, and is now known to be a cause of SIDS (sudden infant death syndrome), respiratory problems, including asthma, and ear infections in that group. And the risks are unavoidable: the Surgeon General concludes that there is no “risk-free” level of exposure to secondhand smoke; even brief exposure immediately effects the cardiovascular system adversely.

California state and federal court class action defense attorneys should anticipate that the report is likely to lead to class action test cases, particularly in light of California’s act of becoming the first state to declare secondhand smoke a “toxic air contaminant.” On January 26, 2006, the California Environmental Protection Agency announced, “Today the California Air Resources Board (ARB) identified environmental tobacco smoke (ETS), or second-hand smoke, as a Toxic Air Contaminant (TAC). ETS is now formally identified as an airborne toxic substance that may cause and/or contribute to death or serious illness. ARB’s action to list ETS as a TAC was based on a comprehensive report on exposure and health effects of ETS.” Now that the U.S. Surgeon General has announced that there is no safe level for exposure to secondhand smoke, and has confirmed in a comprehensive report the health risks associated with exposure to secondhand smoke, class action plaintiff lawyers are likely to test the waters on new and novel theories.

In part this prediction is based on experience: California class action plaintiff lawyers have already threatened to sue banks, property managers and property owners for “wrongfully” exposing customers to the secondhand smoke of other customers while using or standing in line to use bank ATM machines, as well as near entrances to banks. The California Attorney General has weighed on that subject, warning at least one plaintiffs’ lawyer to consider carefully before filing such a lawsuit. The author predicts that it will not be long before a plaintiffs’ lawyer seeks to use the Surgeon General’s report as the foundation in a class action lawsuit. As a class action defense attorney, the author sincerely hopes that he is wrong. Only time will tell.

Download California Attorney General Letter

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28 U.S.C. S 1447 – 30 day Time Limit

Defendants in class actions often remove their case to federal court whenever possible. Plaintiffs invariably seek to remand class actions to state court. Thus, once a class action has been removed to federal court, it can be expected that plaintiff’s counsel will file a motion to remand the matter to state court. Remand of cases to state court is governed by 28 U.S.C. S 1447(c). “A motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal,” 28 U.S.C. S 1447(c). However, “If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” Id.

Thus, like its removal counterpart (28 U.S.C. S 1446(b), which requires removal within 30 days of receipt of the necessary pleading or other paper), Section 1447(c) requires that any motion to remand – except one based on lack of subject matter jurisdiction – “must be made within 30 days after the filing of the notice of removal.” The United States Supreme Court summarized the requirement this way:

Once a defendant has filed a notice of removal in the federal district court, a plaintiff objecting to removal “on the basis of any defect in removal procedure” may, within 30 days, file a motion asking the district court to remand the case to state court. S 1447(c). This 30-day limit does not apply, however, to jurisdictional defects: “If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” Ibid.

Caterpillar Inc. v. Lewis, 519 U.S. 61, 69, 117 S.Ct. 467, 473 (1996).

The exception for subject-matter jurisdiction cases simply reflects the general rule that jurisdictional defects may be asserted at any time and cannot be waived. See, Regents of University of California v. Bakke, 438 U.S. 265, 380 n.1, 98 S.Ct. 2733, 2794 n.1 (1978) (“lack of jurisdiction . . . touching the subject matter of the litigation cannot be waived by the parties”) (quoting United States v. Griffin, 303 U.S. 226, 229, 58 S.Ct. 601, 602, 82 L.Ed. 764 (1938)). See also, United States v. Meyer, 439 F.3d 855, 863 (8th Cir. 2006) (“[l]ack of subject matter jurisdiction cannot be waived by the parties or ignored by the court”) (quoting In re Wireless Tel. Fed. Cost Recovery Fees Litig., 396 F.3d 922, 928 (8th Cir.2005)).

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California Law on Enjoining a Former Employee from Competing Unfairly

In a misguided effort to catch up to a competitor, a business may hire a competitor’s key employees for the purpose of using the trade secret information known to the employee. Or, an employee may quit and go into competition with the former employer, using the confidential, proprietary and trade secret information learned while on the job. Whether characterized as misappropriation or theft of trade secrets, or as unfair competition, the bottom line is that such conduct represents an unfair business practice that can be enjoined under California law.

In a separate article, we explored the enforceability of non-compete agreements in California in light of the statutory prohibition against such agreements set forth in Business & Professions Code section 16600. We noted there that broad exceptions exist to the statutory prohibition, centering around an employer’s legitimate need to protect confidential and proprietary information. We address here the quantum of proof required to enjoin a former employee from using trade secrets in the service of a competitor.

We first address the validity of the “inevitable discovery” rule in California. The inevitable disclosure doctrine permits an employer to enjoin a former employee from working for a competitor “by demonstrating the employee’s new job duties will inevitably cause the employee to rely upon knowledge of the former employer’s trade secrets.” Whyte v. Schlage Lock Co., 101 Cal.App.4th 1443, 1446 (2002). Prior to Whyte, “[n]o published California decision ha[d] accepted or rejected the inevitable disclosure doctrine.” Id. Whyte unambiguously rejected it. Id., at 1447. Thus, California court decisions upholding non-compete agreements have not done so based on the inevitable discovery rule.

However, these decisions have not always required actual proof of use, either. It may be sufficient if the company can demonstrate the actual “threat” that confidential information will be used by the former employee to benefit a competitor.

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