California Supreme Court's Class Action Decision in Duran

Employees and employers alike have awaited the California Supreme Court's opinion in Duran v. U.S. Bank Natl Assoc. for some time.  Our little firm submitted an "amicus curiae" brief on behalf of the California Chamber of Commerce, supporting the employer (available here).  And, we're happy to say, the Court saw things our way, not that we are taking credit. #humblebrag.

That said, as the California Supreme Court is wont to do lately, the Court left a lot open to interpretation and further litigation.  There are some guidelines, but no bright line rules.  So, let's see what we have ....

Duran and the class were loan officers. USB classified them as outside sales, who are exempt if they spend more than 50% of their time outside the office making sales.

Per the Court:

After certifying a class of 260 plaintiffs, the trial court devised a plan to determine the extent of USB’s liability to all class members by extrapolating from a random sample. In the first phase of trial, the court heard testimony about the work habits of 21 plaintiffs. USB was not permitted to introduce evidence about the work habits of any plaintiff outside this sample. Nevertheless, based on testimony from the small sample group, the trial court found that the entire class had been misclassified. After the second phase of trial, which focused on testimony from statisticians, the court extrapolated the average amount of overtime reported by the sample group to the class as a whole, resulting in a verdict of approximately $15 million and an average recovery of over $57,000 per person.

You don't hear about many class action trials.  In fact, this was one of the only cases in California history to go to trial on an exemption case.  The trial court, apparently believing 260 class members should not be testifying about their duties, selected 21 people, at random, to testify.  Then, statisticians testified how much overtime the 260 people worked to calculate their damages.

So, about 240 employees did not testify about their duties or their time worked at all. US Bank had this notion that it should be able to prove employees are exempt by using any employee or manager's testimony, and that any employee who did not deserve overtime should not be paid based on a statistical extrapolation.  The trial court would not allow any such testimony.

The Court of Appeal agreed with US Bank, holding that the plaintiff's statistical proof of liability violated USB's entitlement to due process of law.  As such, the Court reversed the $15 million judgment.

The Supreme Court upheld the Court of Appeal in full, unanimously. So, this case will be sent back to the trial court for a new trial, and a new fight over class certification.  The Supreme Court did not rule on the constitutional "due process" issue.   The Court also did not draw any bright line rules about whether statistical evidence is appropriate at the liability phase.  But the Court strongly criticized the superior court's methods, and there is very helpful language for employers.  There is some helpful language for the plaintiff's bar too.

Here are the main takeaways with supporting quotes:

1.  Courts must consider not just whether there are common questions, but also whether it is feasible to try those common questions in one proceeding:

In the misclassification context, as in other types of cases, trial courts deciding whether to certify a class must consider not just whether common questions exist, but also whether it will be feasible to try the case as a class action. Depending on the nature of the claimed exemption and the facts of a particular case, a misclassification claim has the potential to raise numerous individual questions that may be difficult, or even impossible, to litigate on a classwide basis. Class certification is appropriate only if these individual questions can be managed with an appropriate trial plan.

2.  The issue of "manageability" is a co-equal and separate issue from whether common questions predominate.  Manageability goes to whether the class action is "superior" to individual lawsuits:

Although predominance of common issues is often a major factor in a certification analysis, it is not the only consideration. In certifying a class action, the court must also conclude that litigation of individual issues, including those arising from affirmative defenses, can be managed fairly and efficiently. ... In wage and hour cases where a party seeks class certification based on allegations that the employer consistently imposed a uniform policy or de facto practice on class members, the party must still demonstrate that the illegal effects of this conduct can be proven efficiently and manageably within a class setting. (Brinker, at p. 1033; Dailey v. Sears, Roebuck & Co. (2013) 214 Cal.App.4th 974, 989.)

* * *

Trial courts must pay careful attention to manageability when deciding whether to certify a class action. In considering whether a class action is a superior device for resolving a controversy, the manageability of individual issues is just as important as the existence of common questions uniting the proposed class.

3.  Class certification in wage-hour cases alleging misclassification will depend on whether individual questions predominate as to the liability for overtime, not the amount of overtime pay due:

Defenses that raise individual questions about the calculation of damages generally do not defeat certification. (Sav-On, supra, 34 Cal.4th at p. 334.) However, a defense in which liability itself is predicated on factual questions specific to individual claimants poses a much greater challenge to manageability. This distinction is important. As we observed in City of San Jose v. Superior Court, supra, 12 Cal.3d at page 463: “Only in an extraordinary situation would a class action be justified where, subsequent to the class judgment, the members would be required to individually prove not only damages but also liability.”

4.  Class certification is more likely to be appropriate in cases where the job is highly standardized, and if the corporate policy uniformly requires overtime work:

Where standardized job duties or other policies result in employees uniformly spending most of their time on nonexempt work, class treatment may be appropriate even if the case involves an exemption that typically entails fact-specific individual inquiries.

5.  Statistical proof cannot establish liability without additional "glue" binding a class together.  Courts should consider whether statistical proof is a viable way of handling individual issues at the certification stage:

if sufficient common questions exist to support class certification, it may be possible to manage individual issues through the use of surveys and statistical sampling. Statistical methods cannot entirely substitute for common proof, however. There must be some glue that binds class members together apart from statistical evidence. . . .

If statistical evidence will comprise part of the proof on class action claims, the court should consider at the certification stage whether a trial plan has been developed to address its use. A trial plan describing the statistical proof a party anticipates will weigh in favor of granting class certification if it shows how individual issues can be managed at trial. Rather than accepting assurances that a statistical plan will eventually be developed, trial courts would be well advised to obtain such a plan before deciding to certify a class action. In any event, decertification must be ordered whenever a trial plan proves unworkable.

And

While representative testimony and sampling may sometimes be appropriate tools for managing individual issues in a class action, these statistical methods cannot so completely undermine a defendant’s right to present relevant evidence.

And, this language, which casts some doubt on how there can be statistical proof of liability in mis-classification cases that are fact intensive:

We need not reach a sweeping conclusion as to whether or when sampling should be available as a tool for proving liability in a class action. It suffices to note that any class action trial plan, including those involving statistical methods of proof, must allow the defendant to litigate its affirmative defenses. If a defense depends upon questions individual to each class member, the statistical model must be designed to accommodate these case-specific deviations. If statistical methods are ultimately incompatible with the nature of the plaintiffs’ claims or the defendant’s defenses, resort to statistical proof may not be appropriate. Procedural innovation must conform to the substantive rights of the parties.

6.   The employer's "blanket" classification of a group of employees as exempt is not sufficient to justify certification of a class based on common questions.

7.  The way to defeat certification remains by demonstrating that individual issues will swamp the common ones.

. . . USB’s exemption defense raised a host of individual issues. While common issues among class members may have been sufficient to satisfy the predominance prong for certification, the trial court also had to determine that these individual issues could be effectively managed in the ensuing litigation. (See Brinker, supra, 53 Cal.4th at p. 1054 (conc. opn. of Werdegar, J.); Sav-On, supra, 34 Cal.4th at p. 334.) Here, the certification order was necessarily provisional in that it was subject to development of a trial plan that would manage the individual issues surrounding the outside salesperson exemption.

In general, when a trial plan incorporates representative testimony and random sampling, a preliminary assessment should be done to determine the level of variability in the class. (See post, at p. 40.) If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable. No such assessment was done here. With no sensitivity to variability in the class, the court forced the case through trial with a flawed statistical plan that did not manage but instead ignored individual issues.

8.  The trial of a class action must allow for litigation of affirmative defenses.  Therefore, courts evaluating certification must weigh that litigation in deciding the manageability issue.  If a court does not make this finding at the certification stage, the certification is reversed:

Although courts enjoy great latitude in structuring trials, and we have encouraged the use of innovative procedures, any trial must allow for the litigation of affirmative defenses, even in a class action case where the defense touches upon individual issues. As we will explain, the trial plan here unreasonably prevented USB from supporting its affirmative defense. Accordingly, the class judgment must be reversed. The trial court is of course free to entertain a new certification motion on remand, but if it decides to proceed with a class action it must apply the guidelines set out here.

* * * 

the trial court could not abridge USB’s presentation of an exemption defense simply because that defense was cumbersome to litigate in a class action. Under Code of Civil Procedure section 382, just as under the federal rules, “a class cannot be certified on the premise that [the defendant] will not be entitled to litigate its statutory defenses to individual claims.” (Wal-Mart Stores, Inc. v. Dukes (2011) 564 U.S. __, __ [131 S.Ct. 2541, 2561].) These principles derive from both class action rules and principles of due process. (See Lindsey v. Normet (1972) 405 U.S. 56, 66; Philip Morris USA v. Williams, (2007) 549 U.S. 346, 353.)

9.  Classwide liability in misclassification cases is possible, but just got harder:

This is not to say that an employer’s liability for misclassification may never be decided on a classwide basis. A class action trial may determine that an employer is liable to an entire class for misclassification if it is shown that the employer had a consistently applied policy or uniform job requirements and expectations contrary to a Labor Code exemption, or if it knowingly encouraged a uniform de facto practice inconsistent with the exemption.

10. Statistical proof may be allowed to prove damages. However, estimates of damages cannot be based on overtime that was worked by those employees found to be exempt. That alone creates a major impediment to class-wide trials in misclassification cases.

So, I'm sure others will have more to say.  But this is a lot.  Although the Supreme Court's unanimous opinion is not definitive about the use of sampling and statistics for liability, the Court has left only a narrow gap in the door.

This case is Duran v. U.S. Bank Nat. Assn. and the opinion is here.

Cal. Court of Appeal Applies Avoidable Consequences Defense to Discrimination Claim

This case illustrates the benefit of a good internal complaint procedure.  Employers may rely on effective "grievance" or "open door" policies to reduce potential liability, particularly when employees rush to court without first relying on them.

Rosenfeld, a teacher, sued her employer, a school, for age discrimination. She claimed she was forced out by having her hours cut.  However, the school showed there was a decline in enrollment, and that it would have offered her the same hours in the year following her resignation.

At trial, the school argued that Rosenfeld's failure to use the school's internal complaint procedure should work to cut off her damages, based on an "avoidable consequences" theory.   That is a state law defense that says your recovery may be reduced by your failure to reasonably avoid harm.  The California Supreme Court applied this defense to a sexual harassment case (State Dept. of Health Servs. v. Superior Court), rejecting the more employer-friendly federal standard.

Quoting the Supreme Court opinion, the Court of Appeal explained the defense:

State Department of Health Services held “that in a FEHA action against an employer for hostile environment sexual harassment by a supervisor, an employer may plead and prove a defense based on the avoidable consequences doctrine. In this particular context, the defense has three elements: (1) the employer took reasonable steps to prevent and correct workplace sexual harassment; (2) the employee unreasonably failed to use the preventive and corrective measures that the employer provided; and (3) reasonable use of the employer’s procedures would have prevented at least some of the harm that the employee suffered. [¶] This defense will allow the employer to escape liability for those damages, and only those damages, that the employee more likely than not could have prevented with reasonable effort and without undue risk, expense, or humiliation, by taking advantage of the employer’s internal complaint procedures appropriately designed to prevent and eliminate sexual harassment.” (State Department of Health Services, supra, 31 Cal.4th at p. 1044, italics added.)

Here, the Court of Appeal held that the trial court properly admitted the school's defense in the context of a discrimination claim, rather than a harassment claim:

the trial court properly allowed Heschel to present evidence that Rosenfeld failed to pursue the internal grievance procedure which could have prevented at least some of Rosenfeld’s damages. [fn 6] [n.6]As indicated, the evidence showed that shortly after Rosenfeld submitted her letter of resignation, five more teaching hours became available, so that Rosenfeld could have taught 15 hours per week, instead of 10 hours. Therefore, had Rosenfeld pursued the internal grievance procedure, she would have taught the same number of hours during the 2007-2008 school year that she taught the year before.

This opinion also includes a good discussion of the difference between disparate treatment and disparate impact.  The plaintiff tried to try the case based on a "disparate impact" theory, arguing the school's new criteria for evaluating teachers had a disparate impact on older teachers.  But the trial court excluded this effort because the plaintiff had been treating the case as "disparate treatment" - intentional discrimination - all along.   Quoting from a Ninth Circuit decision, Coleman v. Quaker Oats, (9th Cir. 2000) 232 F.3d 1271, The Court of Appeal rejected the argument that a FEHA claim can be proved by either method without any previous notice to the defendant (in the complaint):

allowing the plaintiffs “to proceed with their disparate impact theory after the close of discovery would prejudice [defendant] Quaker. A complaint guides the parties’ discovery, putting the defendant on notice of the evidence it needs to adduce in order to defend against the plaintiff’s allegations. A disparate impact theory, lacking the requirement that the plaintiff prove intent and focusing on statistical analyses, requires that the defendant develop entirely different defenses, including the job relatedness of the challenged business practice or its business necessity. Neither of these are necessary to defend against a disparate treatment theory. This case illustrates the problem. At no time prior to summary judgment did [plaintiffs] identify which facially neutral Quaker employment practice they challenged as having a discriminatory impact. . . . The lack of notice on this issue central to the cause of action makes it difficult, if not impossible, for Quaker to know how to defend itself. After having focused on intentional discrimination in their complaint and during discovery, the employees cannot turn around and surprise the company at the summary judgment stage on the theory that an allegation of disparate treatment in the complaint is sufficient to encompass a disparate impact theory of liability.” (Coleman, supra, 232 F.3d at pp. 1292-1293, italics added.)

This case is Rosenfeld v. Abraham Joshua Heschel Day School, Inc. and the opinion is here. 

Court of Appeal: Employer Not Responsible for Off-the-Clock Work

Kaiser won summary judgment against an employee who claimed he was working off the clock, contrary to Kaiser policy and procedures for reporting time worked.

To recover on a claim for unpaid work time, the employee must prove that the employer knew or should  have known (via the exercise of reasonable care) that the employee was working off the clock. That is called "actual" or "constructive" knowledge.  This court distinguished between "should" have known and "could" have known.  That is, it is not enough for the employee to argue that the employer somewhere had enough data to infer that an employee was working off the clock. Quoting analogous federal authorities interpreting the federal Fair Labor Standards Act, the Court of Appeal explained:

In Forrester v. Roth’s I.G.A. Foodliner, Inc. (9th Cir. 1981) 646 F.2d 413, the court held that “where an employer has no knowledge that an employee is engaging in overtime work and that employee fails to notify the employer or deliberately prevents the employer from acquiring knowledge of the overtime work, the employer’s failure to pay for the overtime hours is not a violation of § 207.” (646 F.2d at p. 414.) “An employer must have an opportunity to comply with the provisions of the FLSA. This is not to say that an employer may escape responsibility by negligently maintaining records required by the FLSA, or by deliberately turning its back on a situation. However, where the acts of an employee prevent an employer from acquiring knowledge, here of alleged uncompensated overtime hours, the employer cannot be said to have suffered or permitted the employee to work in violation of § 207(a).” (Id. at pp. 414-415; see also, e.g., Kellar v. Summit Seating, Inc. (7th Cir. 2011) 664 F.3d 169, 176-178; cf. Brown v. Scriptpro, LLC (10th Cir. 2012) 700 F.3d 1222, 1230-1231.) This qualification was implicitly endorsed by our Supreme Court in a different context (Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 585 [“ ‘ “[T]he words ‘suffer’ and ‘permit’ as used in the statute mean ‘with the knowledge of the employer.’ ” ’ ”]

Here is what the plaintiff-employee testified to:

Jong acknowledged that he “knew of Kaiser’s written policy that OPMs should be clocked in whenever they were working,” that he was always paid for time he recorded on Kaiser’s recording system, including overtime hours, that he was instructed he was eligible to work and be paid for overtime hours, that there was never an occasion when he requested approval to work overtime that was denied and there were occasions when he worked and was paid overtime even though he did not seek pre-approval, that he was not told by any of his managers or supervisors or any other Kaiser management personnel that he should perform work before he clocked in or after he clocked out or otherwise work off-the-clock,1 and that he signed the attestation form and understood it was an attestation that he would not work off-the clock.

The plaintiff tried to get around that testimony by arguing that Kaiser knew he was working off the clock - or should have known - because other employees dong the same job testified that they were working off the clock; sort of "me-too" wage hour evidence.

Agreeing with the trial court, the Court of Appeal held that "me too" evidence was irrelevant:

Under these admitted circumstances, evidence that Kaiser was aware that many OPMs worked more than 40 hours a week before being reclassified would not support a finding that after the reclassification Kaiser knew or should have known that Jong was not correctly reporting his hours.

The Court of Appeal also rejected the plaintiff's argument that Kaiser "should have known" the plaintiff was working off the clock because the "alarm code" records showed he was reporting to work before his shift started, and activated the alarm code long after he punched out.

We again find the trial court’s reason for rejecting the sufficiency of this evidence to be persuasive: “[E]ven assuming that the availability of such data could otherwise meet the ‘should have known’ requirement, as opposed to ‘could have known’ [citation], the alarm data does not show what Jong was doing during the time between disarming the alarm and clocking in, or between checking out and arming the alarm.” While the summary judgment papers may have contained evidence that Jong was working whenever the alarm was off, that information was not before Kaiser when paying Jong and Kaiser could reasonably believe that he did not begin or end work except as he reported.

So, although this case involves an individual employee's summary judgment loss, this case is going to help in class action cases involving off the clock work.  The court will not accept the premise that other employees' testimony that a job took them more than 40 hours to perform proves that it takes more than 40 hours to perform ALL class members' job duties. 

There are good take-aways for employers prevention efforts here, as well.  It is key to have a written policy prohibiting off-the-clock work.  Employers also should have employees acknowledge, in writing, and perhaps under penalty of perjury, that they accurately report hours worked.  It is helpful, too, to have proof of paying overtime when work is reported. 

This case is Jong v. Kaiser Foundation Health Plan, Inc. and the opinion is here. 

Quick Reminder: California Employers Must Update Minimum Wage Posters

The California minimum wage goes up on 7/1/14 to $9.00 per hour.
Get your new poster here.

Remember, the exempt minimum salary for executives, administrative and professional workers will go up to $37,440, or $3120 per month.  So, make sure any exempt employee earning less than those minimums gets a raise!

Have a good holiday weekend!

California Court of Appeal: Certify 'Em All!

The California Supreme Court has to clarify class action standards again.  If there were any doubt, the Court of Appeal's decision in Hall v. Rite Aid, opinion here, seals it.  Strong words, I know.  But read on and you'll see what I mean.

In Hall,  the Rite-Aid cashiers sued because they claim they were denied "suitable seating" under the California wage orders:

Kristin Hall filed this action, on behalf of herself and similarly situated persons, alleging defendant Rite Aid Corporation did not provide seats to employees while the employees were operating cash registers at Rite Aid check-out counters in violation of section 14 of Wage Order 7-2001 (section 14) (Cal. Code Regs., tit. 8, § 11070(14)), promulgated by California's Industrial Welfare Commission (IWC). Section 14 requires an employer to provide employees with suitable seats "when the nature of the work reasonably permits the use of seats." (Cal. Code Regs., tit. 8, § 11070(14)(A).)

Hall moved for class certification arguing the following:

(1) all Cashier/Clerks are covered by the same job description and have similar job duties, including check-out work; (2) on average, Cashier/Clerks spend a 4 majority of their hours working at the register; (3) most check-out work (which largely involves scanning and bagging merchandise, processing payments, and handing the bags and receipt to the customer) can be done while seated, but Rite Aid required its Cashier/Clerks to stand while performing check-out work; and (4) Rite Aid's standard counter configurations could accommodate a seat with minimal modifications.

Rite-Aid pointed out in opposition to class certification:

(1) its stores differed in size, sales volume, number of Cashier/Clerks, and sales counter configurations; (2) when Cashier/Clerks are not performing check-out counter work they are tasked with duties that varied among the stores; and (3) the percentage of time each Cashier/Clerk spent behind the check-out counter varied from 2 percent to 99 percent (with an average of about 42 percent) and the time spent on stockroom or floor duties was equally varied. Rite Aid's evidence also showed that, even when performing duties at the check-out counter, the distance Cashier/Clerks had to move away from the register (to retrieve controlled items such as tobacco and liquor) varied depending on the specific configuration of each store, and they often or very often performed tasks requiring them to lift, bend, twist, lean over, or move around while working at the check-out register. Because of the variety of tasks, 69 percent of surveyed Cashier/Clerks reported they spent at least half their time moving behind the counter, and 31 percent reported they spent at least 3/4 of their time moving behind the counter.

So, do common issues predominate (making class certification appropriate)?  Or do individual issues predominate, making class certification inappropriate?  To answer this question, don't you have to know what the "nature of the work" means under the Wage Order?  You would have to know whether the common issues, if decided in the plaintiff's favor, would lead to victory for the plaintiff, wouldn't you?  For example, don't you need to know whether suitable seating is required even if significant parts of the job involve moving around?

That's what the trial court did. It looked at the term "nature of the work," and decided that the variances in employees duties made it impossible to generalize on a class wide basis.

Specifically, it concluded, contrary to Hall's postulated theory, that section 14 does not mandate the provision of suitable seats when the nature of a substantial task within an employee's range of duties would reasonably permit the use of seats, but instead mandates the provision of suitable seats only when the nature of an employee's work as a whole would reasonably permit the use of seats. Based on that construction of section 14, the trial court concluded decertification was proper because individual issues as to each class member's "job as a whole" would predominate over common questions.

Wrong, said the Court of Appeal.

Our review of Brinker, which is binding on this court (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450), compels the conclusion the trial court erroneously based its decertification order on its assessment of the merits of Hall's claim rather than on the theory of liability advanced by Hall.

The Court went even further:

Rite Aid asserts the trial court properly reached the merits of (and correctly rejected) Hall's theory of liability when it ruled on the decertification motion because Brinker cannot be read to permit a plaintiff to "invent a class action by proposing an incorrect rule of law and arguing, 'If my rule is right, I win on a class basis.' "

* * *

We read Brinker to hold that, at the class certification stage, as long as the plaintiff's posited theory of liability is amenable to resolution on a class-wide basis, the court should certify the action for class treatment even if the plaintiff's theory is ultimately incorrect at its substantive level, because such an approach relieves the defendant of the jeopardy of serial class actions and, once the defendant demonstrates the posited theory is substantively flawed, the defendant "obtain[s] the preclusive benefits of such victories against an entire class and not just a named plaintiff." (Brinker, supra, 53 Cal.4th at pp. 1034, 1033.) For these reasons, Brinker has concluded "[i]t is far better from a fairness perspective to determine class certification independent of threshold questions disposing of the merits, [because] defendants who prevail on those merits, equally with those who lose on the merits" (id. at p. 1034) have the benefits of their substantive legal victory applied to the class as a whole.

So, the Court of Appeal now held that trial courts must rely virtually exclusively on whether the plaintiff's "theory" presents common questions.  But a class action is not a lawsuit to prove a plaintiff's theory.  It's a lawsuit to prove something illegal happened to a group.   As the U.S.  Supreme Court put it in the Wal-Mart v. Dukes case,

That common contention, moreover, must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.

Frankly, the California Supreme Court in Brinker also did not go as far as the Court of Appeal in Hall.  In Brinker, the Supreme Court recognized:

Presented with a class certification motion, a trial court must examine the plaintiff's theory of recovery, assess the nature of the legal and factual disputes likely to be presented, and decide whether individual or common issues predominate. To the extent the propriety of certification depends upon disputed threshold legal or factual questions, a court may, and indeed must, resolve them.

The Hall court even quoted this language - repeatedly - but appeared to have ignored its significance.

Let's put the Hall court's holding into practice with a (rather extreme) example:  Let's say a plaintiff files a class action that alleges:   the Defendant law firm has a policy of requiring its lawyers  to wear red ties. Therefore, the law firm  misclassified the lawyers as exempt from overtime.  Under the Hall decision, the class must be certified, because under the plaintiff's "theory," the red-tie policy is common to all members of the class and can be resolved on a class wide basis.  True, but answering that common question proves nothing. The red-tie policy will not determine the employees' exempt status.  Lawyers are exempt because they are licensed professionals.  The legal standard for who is exempt does not take into consideration tie color.  Therefore, red ties and the policy requiring them to have red ties are common, but have no bearing on the relevant legal issue.

Four thoughts. First, the Court of Appeal's theory is an abdication of the trial court's role to protect defendants from unmeritorious class actions as a gatekeeper.  Certify now, ask questions later is no way to ensure due process.  When certification happens, cases settle out of fear.

Second, the Court of Appeal's suggestion that defendants can rely on summary judgment motions and motions for judgment on the pleadings to defeat unmeritorious class actions is cold comfort.  Anyone who litigates in state court lastly knows that the odds of winning summary judgment are low, even in the best of cases  And losing summary judgment is not appealable.  If there's anything less likely than winning summary judgment, it is obtaining writ review of summary judgment rulings.  Perhaps the courts of appeal will consider more writs. But that remains to be seen.  As for judgment on the pleadings, they are based on the four-corners of the complaint.  The plaintiffs' bar is capable of developing a complaint that will survive a motion for judgment on the pleadings.

Third thought:  Easy certification means that attorneys' fees for class actions will climb precipitously, as will employer commitment to discovery and depositions. Depending on how the Supreme Court rules in the upcoming Duran case, class action litigation may end up focusing on expert witnesses and motions for summary judgment. Or mediation.

Fourth thought:  When the legal theory is frivolous, despite the commonality of factual issues, Defendants will have to strongly consider motions for sanctions under Civ. Proc. Code section 128.7 to stop class action claims that simply have no substantive merit.  Those motions are granted less frequently than summary judgment motions.  But perhaps when the stakes are this high, superior courts will begin taking these motions more seriously.

So, I know this is a long post, but if your company or clients face class actions, this case is a game-changer.  Perhaps the Supreme Court will take it up. I'm hoping Rite-Aid is preparing its Petition for Review.

DGV

Court of Appeal: Arbitrator Can Decide Unconscionability

Here's a case that could favor employment arbitration in California.  If it stays on the books.  The Court of Appeal held that an arbitration agreement lawfully delegated to the arbitrator the responsibility to determine if the arbitration agreement was enforceable.  That is, the arbitrator, not the court, would decide if the agreement is unconscionable.

In a nutshell, as stated by the Court:

Several years after she was hired, Lourdes Tiri signed an agreement with her employer, Lucky Chances, Inc., requiring disputes between them to be resolved by arbitration. In one of the provisions, the parties agreed to delegate questions about the enforceability of the agreement to the arbitrator, instead of a court. Tiri was subsequently fired, and she filed a complaint in superior court for wrongful discharge. Lucky Chances petitioned to compel arbitration, but the trial court denied the petition on the basis that the arbitration agreement was unconscionable and therefore unenforceable.

Lucky Chances appeals the court’s order denying arbitration. We hold that the trial court lacked the authority to rule on the enforceability of the agreement because the parties’ delegation of this authority to the arbitrator was clear and is not revocable under state law. Accordingly, we reverse.

What-what-what?  Read on.

The arbitration agreement contained this language:

The agreement also includes an explicit provision that delegates to the arbitrator issues regarding the agreement’s enforceability: “The Arbitrator, and not any federal, state, or local court or agency, shall have the exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including, but not limited to, any claim that all or any part of this Agreement is void or voidable.” 

As the court noted, that is a delegation clause, which grants the arbitrator the jurisdiction to determine  whether the arbitration agreement is enforceable.  In the absence of that sort of clause, a court determines whether there is a valid agreement, including whether the agreement is "unconscionable."
As you know if you're reading this, in California, there is a lot of litigation in court over that issue.

Here's why the delegation clause is important. The trial court denied the employer's motion to compel arbitration?  Why?  1) the agreement was "take it or leave it," i.e., procedurally unconscionable and 2) the employer did not attach the AAA arbitration rules, even though it cited the website where they must be found.  Those two facts rendered the agreement "unconscionable," a word that has been stretched into meaninglessness.  It used to mean something like "so one-sided as to shock the judicial consciousness," but now it simply means "not exactly perfect."

The court of appeal made some important rulings. First, the court recognized its decision would be the same under California's or the federal arbitration acts.  Second, the court explained that the court may consider challenges to the delegation clause itself, but not to the enforceability of the agreement to arbitrate as a whole.

Third, the court explained that a delegation clause is enforceable if (1) it is clear and unmistakable (2) if the clause itself is not void because of some defense applicable to any contract (fraud, duress, unconscionability).

The court found the language above was clear and unmistakable.  The employee argued that the clause was unconscionable.  The court of appeal found it was procedurally unconscionable (because it was "take it or leave it.").  But the court also found no reason that a delegation clause automatically is substantively unconscionable.  And there was nothing about this delegation clause that rendered it one-sided or non-mutual. Therefore, it was not unconscionable as a whole.

Of course, the arbitrator is free to rule on whether the agreement as a whole is unconscionable. So, there may still be litigation over such agreements. But they will be in arbitration.  If this ruling stands, it will certainly make arbitration agreements easier to enforce without court litigation.

This case is Tiri v. Lucky Chances, Inc. and the opinion is here.