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The Ninth Circuit Court of Appeals in a published opinion today, held that the Federal Arbitration Act broadly preempts state law invalidating class-action waivers in arbitration agreements, even where the waivers would preclude effective vindication of statutory rights.  The opinion can be found here: http://www.ca9.uscourts.gov/datastore/opinions/2012/03/16/09-35563.pdf.

More on this later.

By CHARLES JUNG

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In a per curiam opinion today applying the rule in Concepcion, the U.S. Supreme Court  reversed and remanded orders of the Supreme Court of Appeals of West Virginia, which held unenforceable all predispute arbitration agreements that apply to claims alleging personal injury or wrongful death against  nursing homes.  Marmet Health Care Center, Inc., et al. v.  Clayton Brown, et al., Case Nos. 11–391 and 11–394, 565 U. S. ____ (Feb. 21, 2012).

The U.S. Supreme Court held that the “Supreme Court of Appeals of West Virginia, by misreading and disregarding the precedents of this Court interpreting the FAA, did not follow controlling federal law implementing that basic principle.”  Id.  “When this Court has fulfilled its duty to interpret federal law, a state court may not contradict or fail to implement the rule so established.”

Background

In each of three negligence suits, a family member of a patient requiring extensive nursing care had signed an agreement with a nursing home on behalf of the patient.  Id. The agreements included arbitration clauses requiring the parties to arbitrate all disputes, other than claims to collect late payments owed by the patient.  Id. In each of the three cases, a family member of a patient who had died sued the nursing home in state court, alleging that negligence caused injuries or harm resulting in death. Id.

In a decision concerning all three cases, the Supreme Court of Appeals of West Virginia held that “as a matter of public policy under West Virginia law, an arbitration clause in a nursing home admission agreement adopted prior to an occurrence of negligence that results in a personal injury or wrongful death, shall not be enforced to compel arbitration of a dispute concerning the negligence.”  Id.

The state court considered whether the state public policy was pre-empted by the FAA:

The state court found unpersuasive this Court’s interpretation of the FAA, calling it “tendentious,” id., at 51a, and “created from whole cloth,” id., at 53a. It later concluded that “Congress did not intend for the FAA to be, in any way, applicable to personal injury or wrongful death suits that only collaterally derive from a written agreement that evidences a transaction affecting interstate commerce, particularly where the agreement involves a service that is a practical necessity for members of the public,”  id., at 84a.  The court thus concluded that the FAA does not pre-empt the state public policy against predispute arbitration agreements that apply to claims of personal injury or wrongful death against nursing homes.

Id.

Discussion

The Supreme Court held that the “West Virginia court’s interpretation of the FAA was both incorrect and inconsistent with clear instruction in the precedents of this Court.”  Id.  The Court held that the FAA includes “no exception for personal-injury or wrongful-death claims.”  Id.

Citing AT&T Mobility LLC v. Concepcion, 563 U. S. ___, ___ (2011), the Court wrote:

When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.”  AT&T Mobility LLC v. Concepcion, 563 U. S. ___, ___ (2011) (slip op., at 6–7).  That rule resolves these cases. West Virginia’s prohibition against predispute agreements to arbitrate personal-injury or wrongful-death claims against nursing homes is a categorical rule prohibiting arbitration of a particular type of claim, and that rule is contrary to the terms and coverage of the FAA. See ibid.  See also, e.g., Preston v. Ferrer, 552  U. S. 346, 356 (2008) (FAA pre-empts state law granting  state commissioner exclusive jurisdiction to decide issue the parties agreed to arbitrate); Mastrobuono v. Shearson  Lehman Hutton, Inc., 514 U. S. 52, 56 (1995) (FAA preempts state law requiring judicial resolution of claims  involving punitive damages);  Perry v.  Thomas, 482 U. S.  483, 491 (1987) (FAA pre-empts state-law requirement that litigants be provided a judicial forum for wage disputes); Southland Corp. v.  Keating, 465 U. S. 1, 10 (1984) (FAA pre-empts state financial investment statute’s  prohibition of arbitration of claims brought under that  statute).

Granting the petition for certiorari, the Court vacated the judgment of the Supreme Court of Appeals of West Virginia is and remanded the cases for proceedings not inconsistent with this opinion.

By CHARLES JUNG

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Editorial note:  The author of California Class Action Law appeared for respondent Ajamian in the opinion summarized below, Ajamian v. CantorCO2e, L.P., et al.  

In an opinion certified for publication, the First District Court of Appeal held that a broadly worded arbitration agreement that stated that “[a]ny disputes, differences or controversies arising under” a contract shall be settled by a panel of arbitrators was insufficient to establish “clear and unmistakable” evidence of an intent to delegate issues of enforceability or arbitrability to the arbitration panel.  Ajamian v. CantorCO2e, L.P., et al., No. A131025 (1st Dist., Div. 5 Feb. 6, 2012) (available at http://www.courtinfo.ca.gov/opinions/documents/A131025.PDF).

Although the arbitration provision was broadly worded and indicated that arbitration might be conducted under the rules of an arbitration service that gives arbitrators the power to decide the validity of arbitration agreements, it did not provide clear and unmistakable evidence that the parties intended to delegate authority to the arbitrator, rather than to the court, to decide the threshold issue of whether the arbitration provision itself was unconscionable.

Id.

Background

Plaintiff Ajamian filed a complaint against Defendants CantorCO2e and Margolis, asserting claims under the California’s Fair Employment and Housing Act, the California Labor Code, and other theories.  Id.  Defendants filed a petition to compel arbitration pursuant to the terms of a written employment agreement or, alternatively, an employee handbook.  Id.

The arbitration provision of the employment agreement read:

Any disputes, differences or controversies arising under this Agreement shall be settled and finally determined by arbitration.” (Italics added.) Further, the provision states: “It is expressly agreed that arbitration as provided herein shall be the exclusive means for determination of all matters arising in connection with this Agreement and neither party hereto shall institute any action or proceeding in any court of law or equity other than to request enforcement of the arbitrators’ award hereunder. The foregoing sentence shall be a bona fide defense to any action or proceeding instituted contrary to this Agreement.

Id.

Defendants contended that the threshold question of the enforceability of the arbitration provision should be decided by the arbitrator, Ajamian could not establish procedural unconscionability, and any provisions that were substantively unconscionable could simply be severed. Id.  Ajamian opposed the petition, contending that the court rather than the arbitrator was required to determine the issue and the arbitration provisions were unconscionable. Id. In addition, she argued that, even if there were a clear and unmistakable delegation of authority to the arbitrator to decide the enforceability of the arbitration provision, such a delegation is itself unconscionable and unenforceable. Id.

The Trial Court Order

The trial court judge Hon. Peter Busch of the San Francisco Superior Court agreed with Ajamian and denied the petition to compel arbitration. Id. By written order, the court ruled: (1) Ajamian is not bound by the arbitration provision in the handbook; (2) the court, rather than the arbitration panel, determines whether the arbitration provision of the Employment Agreement is enforceable; (3) the arbitration clause in the Employment Agreement is unconscionable; (4) the damages limitation in the arbitration provision of the Employment Agreement is unlawful and “the attorneys’ fee clause which the arbitration provision in the Employment Agreement would enforce is unconscionable;” and (5) the court would not sever the offending portions of the arbitration provision in order to save it. Id.

Discussion

Defendants contended that the employment agreement clearly and unmistakably sets forth an intent to delegate arbitrability issues to the arbitration panel.  Id.  Defendants “pointing primarily to the breadth of the arbitration provision and its proviso that arbitration may be conducted according to the rules of the AAA (under which an arbitrator has the power to determine the validity of an arbitration agreement).”  Id. Ajamian disagreed, and pointed to other language in the Employment Agreement that “suggests the arbitrator was not given exclusive authority to determine the enforceability of the arbitration provision.”

The Court of Appeal concluded that “Ajamian — and the trial court — have it right.”

We therefore hold that the clear and unmistakable evidence test is not met by language requiring arbitration of “[a]ny disputes, differences or controversies arising under” a contract. Even though, in this case, the agreement also contains language referring to “all matters” and purporting to preclude the parties from initiating a court proceeding, it remains uncertain whether this language merely buttresses the requirement that every substantive claim must be arbitrated. Thus, while there might be something short of an express delegation that constitutes clear and unmistakable evidence of the parties’ intent to arbitrate the unconscionability of an arbitration provision, this is not it.

Id.

Delegation Under AAA Rules

Defendants also contended that there was clear and unmistakable evidence of the parties’ intent to arbitrate the enforceability of the arbitration provision because the employment agreement specified that the arbitration could proceed according to the rules of the AAA, and those rules state that the arbitrator has the power to determine issues of his or her own jurisdiction.  Id.

The Employment Agreement stated that arbitration would be held “according to the rules of the National Association of Securities Dealers, Inc. (or, at [CantorCO2e's] sole discretion, the American Arbitration Association or any other alternative dispute resolution organization) now in force and hereafter adopted and the laws of the state of New York then in effect.” There is no evidence that Ajamian was given the AAA rules by the time she signed the Employment Agreement. After Ajamian sued, CantorCO2e exercised its unilateral discretion and demanded that Ajamian submit her claims to the AAA. As it turns out, the AAA rules provide: “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” (AAA Employment Arbitration Rules and Mediation Procedures (eff. Nov. 1, 2009) rule 6.a.)

Id.

In the end, the Court did not need to decide whether an “unqualified incantation of AAA rules establishes a clear and unmistakable delegation” since the Court concluded that the reference to AAA rules in the agreement was insufficient for another reason: the “Employment Agreement did not mandate that AAA rules would necessarily apply”.  Id.

Instead, the arbitration clause stated that the arbitration would be held according to NASD rules, AAA rules, or the rules of “any other alternative dispute resolution organization” selected by CantorCO2e in its sole discretion. As the trial court stated to appellants’ counsel: “But your argument depends on it being the AAA rules, and there’s . . . no way the plaintiff can know . . . as of the time that she signs this employment agreement that those are the rules that are going to apply.”

Id.

The Court concluded that the agreements language failed to clearly and unmistakably evince the parties’ mutual intent to have the arbitrators decide even the issue of enforceability.   Id. “The mere possibility that employer CantorCO2e might in the future require application of AAA rules does not show that employee Ajamian clearly and unmistakably assented to arbitrate the unconscionability of the arbitration agreement.”  Id.

Other Language in the Employment Agreement Raised Uncertainty

The Court further concluded that “[e]ven if the broad language of the arbitration provision and the reference to AAA rules evinced an intent to delegate the unconscionability issue to the arbitrators, in this case other provisions of the Employment Agreement create an ambiguity that renders the totality of the evidence on the issue neither clear nor unmistakable.”  Id.

Citing other California Court of Appeal decisions, the Court noted that as a “general matter, where one contractual provision indicates that the enforceability of an arbitration provision is to be decided by the arbitrator, but another provision indicates that the court might also find provisions in the contract unenforceable, there is no clear and unmistakable delegation of authority to the arbitrator.”  Id. (citing Parada v. Superior Court, 176 Cal.App.4th 1554, 1565-66 (2009) (fact that the contract’s severability clause authorized the “trier of fact of competent jurisdiction” — instead of “arbitration panel” or “panel of three (3) arbitrators” — to sever unenforceable contractual provisions suggests that the court could find the arbitration provision unenforceable); Hartley v. Superior Court, 196 Cal.App.4th 1249, 1257-58 (2011); Baker v. Osborne Development Corp., 159 Cal.App.4th 884, 888-94 (2008).

The agreement provided that a “court of competent jurisdiction” may determine that a covenant in the Employment Agreement is impermissibly “broad in scope, duration or geographical area” or in the nature of a penalty, in which case the court should limit the scope, duration or geographical area of such covenant or reduce the liquidated damages to the extent necessary to render the covenant reasonable and enforceable.  Id.  The Court concluded that this language shows that a court would in some circumstances have authority to rule on the breadth of the parties’ covenants.  Id.

Moreover, the Court found that the “fact that the Employment Agreement recognizes the court’s authority to adjudicate the proper scope of some covenants in the Employment Agreement is inconsistent with the assumption . . . that all issues in connection with the agreement must be determined by the arbitrator.”  Id.  Noting that other alternative inferences might be drawn from the agreement’s language, the court concluded that “[i]n the final analysis, the language creates an ambiguity that precludes a finding of clear and unmistakable evidence.” Id.

Arbitration Under the Handbook

As an alternative to enforcing the arbitration provision in the Employment Agreement, Defendants sought to enforce the arbitration provision in the Handbook.  Id.  The Court rejected this argument.  Id.

The employment agreement was “terminated as of March 1, 2010” and pursuant to a section of the agreement, at that point “the terms of Employee’s employment, including, but not limited to Employee’s compensation, shall be governed by Company’s policies then in effect. . . .”  Id. By continuing in CantorCO2e’s employ, Defendants argued, she agreed to abide by the arbitration policy and, more specifically, the arbitration agreement contained in the Handbook.  Id.

The Court disagreed:

Although section 4 of the Employment Agreement dictates that Ajamian’s employment would be “governed” by CantorCO2e’s “policies then in effect,” it does not specifically state she would be bound by any arbitration agreement or even mention arbitration at all. Nor was there evidence that she was provided, upon termination of the Employment Agreement, a copy of those “policies then in effect.” Moreover, while Ajamian did have the Handbook containing the company’s policy of arbitrating disputes, she never signed or agreed to the actual arbitration agreement in the Handbook, and she was never even asked to do so after the Employment Agreement was terminated. Under the circumstances, section 4 cannot be construed to validly obligate Ajamian to arbitrate her claims.

Id.

The Court further noted the oddity of the result sought by appellants:

Although not a basis for our ruling, we also note a certain oddity to the result appellants urge. Appellants do not contend Ajamian was bound by the arbitration provision in the Handbook until after the termination of the Employment Agreement on March 10, 2010. Because the arbitration provision in the Employment Agreement was unconscionable, Ajamian was not bound by any valid arbitration provision from the commencement of her employment in September 2006 through March 10, 2010; if the arbitration clause in the Handbook did apply, it applied only from March 10, 2010, until the termination of her employment on April 16, 2010. It would be a strange result indeed if, under the facts of this case, an arbitration clause covering approximately the last five weeks of Ajamian’s employment compelled arbitration of claims that had accrued within the 30 months prior. In our view, such a holding would permit the tail to wag the dog, an untenable proposition no matter how favored a breed arbitration might be.

The Court concluded that Defendants failed to establish error, and affirmed the trial court’s order.

Judges and Attorneys

Associate Justice Henry E. Needham, Jr. wrote the opinion for the Court.  Acting Presiding Justice Mark B. Simons and Associate Justice Terence L. Bruiniers concurred.

Trial court judge: Hon. Peter Busch of the San Francisco Superior Court.

Brian L. Johnsrud and Patrick M. Sherman of Curley, Hessinger & Johnsrud for Defendants and Appellants.

Charles H. Jung and Andrew R. Kislik of Nassiri & Jung LLP for Plaintiffs and Respondents.

William C. McNeill, Michael Gaitley, Claudia Center, Rachael Langston of The Legal Aid Society – Employment Law Center, Counsel for Amicus Curiae in Support of Plaintiff Lena Ajamian.

By CHARLES JUNG

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In an unpublished decision, the First District Court of Appeal affirmed the trial court’s denial of a motion to compel arbitration in a wage and hour class action, where defendants conducted voluminous discovery and filed and fully litigating two motions to compel further responses to discovery, a motion for sanctions and a motion for a protective order.    Partridge, et al. v. Hott Wings, Inc., et al., No. A130266, 2012 WL 470458 (Feb. 14, 2012).

Discussion

The Court found that Defendants’ delay in filing their petition to compel arbitration “connotes an intent not to arbitrate”.  Id. Defendants conducted substantial discovery:

Between March 2010 and the October 2010 hearing on defendants’ motion to compel arbitration, defendants engaged in voluminous written discovery to which plaintiffs responded.   In addition, defendants deposed numerous plaintiffs and third party witnesses.   Although plaintiffs had begun deposing witnesses, they had not yet obtained basic documents from defendants through discovery.   The discovery focused on the liability of individual defendants and the franchise defendants that employ plaintiffs.   As a result of defendants’ discovery requests, plaintiffs provided information regarding plaintiffs’ estimated damages, which defendants were responsible for which violations, and the liability of the individual as well as the franchise defendants.   A reasonable inference is that the information gained from defendants’ discovery goes to significant issues in plaintiffs’ case.

Id.

In addition, the Court found that Defendants “substantially invoked the litigation machinery” by:

filing and fully litigating two motions to compel further responses to discovery, a motion for sanctions and a motion for a protective order.   They also initiated numerous meet and confer proceedings and threatened to file additional motions to compel, for sanctions or to enforce discovery orders.   The court’s order noted it had presided over some of the discovery disputes, while others were before the appointed discovery referee.

Id.

Supporting the order, was trial court’s express finding that defendants “used the discovery processes of the court to gain information about Plaintiff’s claims that could not have been gained in arbitration.” Id.

The Court of Appeal concluded that the “circumstances here, considered as a whole, establish that defendants unreasonably delayed in moving to compel arbitration and conducted voluminous discovery to gain information regarding plaintiffs’ case not available in arbitration, and that plaintiffs were prejudiced.” Id.  Finding that substantial evidence supported the trial court’s finding that defendants waived the right to compel arbitration, the Court of Appeal affirmed the decision.  Id.

Justices and Attorneys

Associate Justice Mark B. Simons wrote the opinion for the court.  Presiding Justice Barbara J.R. Jones and Associate Justice Terence L. Bruiniers concurred.

Burton Fredrick Boltuch, Law Offices of Burton Boltuch, 1300 Clay Street, Suite 600, Oakland, CA 94612-1427, Rachel Elizabeth Brill, Goldstein, Demchak, Baller, et al, 300 Lakeside Drive-Suite 1000, Oakland, CA 94612, for Plaintiffs and Respondents.

Timothy Charles Cronin, Law Ofcs of Timothy C. Cronin, 744 Montgomery Street, Second Floor, San Francisco, CA 94111, for Defendants and Appellants.

By CHARLES JUNG

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The Court of Appeal for the First District granted plaintiff’s motion to dismiss an appeal, where the employer appellant sought review of a trial court order that did not compel an employee to arbitrate her PAGA claims.  Reyes v. Macy’s, Inc., No. A133411, 202 Cal.App.4th 1119 (1st Dist. Dec. 21, 2011).  The court held that the portion of the trial court’s order that failed to compel employee to arbitrate her class claims and PAGA claims was not immediately appealable; and plaintiff’s PAGA claim was not an individual claim and thus was not within the scope of arbitration request.  Id. (holding that the order granting Defendant’s own motion to compel arbitration of the individual claims “is not appealable, and the remainder of the order denying the motion to dismiss representative [PAGA] claims is not a final judgment and, therefore, also is not appealable . . . .”).

Background

Plaintiff and respondent Reyes brought action against her employer Macy’s, alleging numerous class action labor code violations and a cause of action under the Labor Code Private Attorneys General Act of 2004 (“PAGA”), as well as individual claims for discrimination, harassment, and retaliation.  Id.

In the trial court, Macy’s filed a “motion to compel arbitration on an individual basis, dismiss class allegations, and stay civil action,” asking the court to enforce the parties’ agreement to arbitrate, compel the plaintiff to arbitrate individual claims, dismiss class/representative claims and, if the motion were granted, stay the proceedings until arbitration is completed.  Id.  San Francisco Superior Court Judge Charlotte Walter Woolard held that:

All of plaintiff’s individual claims are severed and are subject to arbitration.   These individual claims are to proceed to arbitration.   Plaintiff’s class claims and PAGA claims, and discovery related to those claims, are stayed and shall remain in this court until the individual claims are arbitrated.

Macy’s filed a notice of appeal and plaintiff has moved to dismiss the appeal.

Discussion

An “order granting a motion to compel arbitration is not an appealable order.” Id. (citing Abramson v. Juniper Networks, Inc., 115 Cal.App.4th 638, 648-49 (2004)).  Macy’s argued that an order denying or dismissing a motion to compel arbitration is an appealable order, and “attempt[ed] to justify the present appeal by arguing that by refusing to compel plaintiff to arbitrate her class claims and the claim for penalties under PAGA, the trial court partially denied the motion to compel arbitration, rendering the order appealable.”  Id.  The court did not agree:

Neither literally nor functionally  did Macy’s request the trial court to compel the arbitration of these claims, nor did the court refuse to do so.   Macy’s moved the trial court “to dismiss Reyes’ class allegations set forth in her second amended complaint.”   Macy’s contention is not that the representative claims should be arbitrated, but that they should be dismissed.   The trial court stayed the class and PAGA claims; it has not yet determined whether some or all of these claims should eventually be dismissed or may warrant judicial relief.

Macy’s further argued that plaintiff’s PAGA claim sought relief for herself as well as for other employees and that the court’s order therefore is effectively a denial of the request to arbitrate her individual claim under PAGA.  The court disagreed, noting that “plaintiff may not and does not bring the PAGA claim as an individual claim, but as the proxy or agent of the state’s labor law enforcement agencies.” Id. (internal quotation omitted).

Although plaintiff’s complaint alleges, in conformity with the statutory language, that “as an aggrieved employee, [she] hereby seeks recovery of civil penalties as prescribed by the Labor Code Private Attorney General Act of 2004 on behalf of herself and other current and former employees of Defendant against whom one or more of the violations of the Labor Code was committed,” the claim is not an individual one. A plaintiff asserting a PAGA claim may not bring the claim simply on his or her own behalf but must bring it as a representative action and include “other current or former employees.”

Id.

The Court concluded that “[b]ecause the PAGA claim is not an individual claim, it was not within the scope of Macy’s request that individual claims be submitted to arbitration and the court’s order may not be construed as a denial of any such request.” Id.

Judges and Attorneys

Associate Justice Stuart R. Pollak wrote the opinion for the court.

Administrative Presiding Justice William R. McGuiness and Associate Justice Martin J. Jenkins concurred.

The trial court judge was Hon. Charlotte Walter Woolard of the San Francisco Superior Court.

Daniel H. Qualls, Robin G. Workman, Aviva N. Roller, Qualls & Workman, L.L.P., San Francisco, for plaintiff and respondent.

David S. Bradshaw, Jackson Lewis, L.L.P., Sacramento, Betty Thorne Tierney, Brian M. Parsons, for defendants and appellants.

By CHARLES JUNG

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The Court of Appeal for the Second District held that a denial of class certification cannot establish collateral estoppel against unnamed putative class members. Bridgeford v. Pacific Health Corporation, et al., No. B227486, 202 Cal.App.4th 1034 (2d Dist. Jan. 18, 2012).

Background

Plaintiffs Bridgeford and Tarin filed a class action complaint in May 2010 against Pacific Health Corporation and other entities, alleging that defendants committed numerous wage and hour violations, including (1) failure to pay wages due upon discharge or resignation, (2) failure to pay regular and overtime wages due semimonthly, (3) failure to provide meal breaks, (4) failure to provide rest breaks, (5) failure to provide itemized wage statements, (6) failure to pay minimum wages for time worked off-the-clock, (7) failure to pay overtime wages, and (8) unfair competition.  Id.

The trial court sustained a demurrer without leave to amend.  Id.  Plaintiff’s appealed, contending the trial court misapplied the doctrine of collateral estoppel in holding that their class claims are precluded, and there is no basis to dismiss their individual claims or their representative claims under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code section 2698, et seq.).

Discussion

Following the recent U.S. Supreme Court decision in Smith v. Bayer  Corporation, — U.S. —-, 131 S.Ct. 2368, 180 L.Ed.2d 341 (2011), the Second District held that unnamed putative members of a class that was never certified cannot be bound by collateral estoppel.   Id. The court concluded that “if no class was certified by the court in the prior proceeding, the interests of absent putative class members were not represented in the prior proceeding and the requirements for collateral estoppel cannot be established . . . .”  Id.

The Second District discussed the Bayer case:

Applying common law principles of issue preclusion, the high court held that unnamed putative class members cannot be bound by issue preclusion if the class was never certified in the prior proceeding.   (Id. at pp. 2380-2381.)   Smith v. Bayer  Corporation stated, “[n]either a proposed class action nor a rejected class action may bind nonparties” (id. at p. 2380), and, “[t]he great weight of scholarly authority … agrees that an uncertified class action cannot bind proposed class members.”   (Id. at p. 2381, fn. 11.)   The high court explained that unnamed putative class members as nonparties can be bound by issue preclusion only if there was a properly certified class because only in those circumstances can the court in the later proceeding conclude that their interests were adequately represented in the prior proceeding.   (Id. at pp. 2379-2381 & fn. 11.)

The Second District found the reasoning persuasive and concluded that “under California law, that the denial of class certification cannot establish collateral estoppel against unnamed putative class members on any issue because unnamed putative class members were neither parties to the prior proceeding nor represented by a party to the prior proceeding so as to be considered in privity with such a party for purposes of collateral estoppel.”  Id.

The court reasoned that since plaintiffs were not named plaintiffs in a prior case and the trial court in the prior case denied class certification, “plaintiffs as unnamed putative class members . . . cannot be bound by collateral estoppel with respect to any issue decided in connection with the denial of class certification.” Id.

Judges and Attorneys

Associate Justice H. Walter Croskey wrote the opinion for the Court.  Presiding Justice Joan D. Klein and Associate Justice Patti S. Kitching concurred.

Law Offices of Mark Yablonovich, Mark Yablonovich, Los Angeles, Neda Roshanian and Michael D. Coats for Plaintiffs and Appellants.

Silver & Freedman, Los Angeles, Andrew B. Kaplan and Jeffrey W. Mayes for Defendants and Respondents.

By CHARLES JUNG

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Magistrate Judge Elizabeth D. LaPorte granted final approval for a class of individuals who obtained an Option ARM loan originated by U.S. Financial Funding, Inc. with certain characteristics.  Lymburner v. U.S. Financial Funding, Inc., No. C0800325, 2012 WL 398816 (N.D. Cal., Feb. 7, 2012) (slip op.).  The net settlement amount was approximately $93,750, and the court granted plaintiff’s motion for attorneys’ fees in the amount of $36,250.  Id.

Background

Plaintiff Dian C. Lymburner brought a putative class action against Defendant U.S. Financial Funding alleging claims for fraudulent omissions, breach of contract, and breach of the implied covenant of good faith and fair dealing.  Id.  Plaintiff filed a motion to certify the class, and on January 22, 2010, the Court granted that motion.  Id.  After extensive negotiation, the parties reached a settlement. Id. After notice was mailed, no class members filed an objection or exclusion request. Id.

Discussion

With respect to the total settlement amount, the court noted that “importantly, the Settlement Agreement is premised on Defendant’s limited asset.”  Id.  “Defendant has no other source of funding other than an eroding insurance policy, which was valued at $174,000, and which is now valued at $145,000, which is the total settlement amount.”  Id.  The Court approved the settlement amount, in addition to $36,250 in fees and expenses, which is 25% of the estimated value of the settlement.  Id.  At this amount, Plaintiff’s attorneys received less than their lodestar.  Id.

Judge and Attorneys

United States Magistrate Judge Elizabeth D. LaPorte.

Edward Young Lee, Lee & Fields, A.P.C., Christopher Peter Fields, Los Angeles, CA, Jeffrey K. Berns, Arbogast & Berns LLP, Tarzana, CA, Michael C. Eyerly, Patrick Deblase, Paul R. Kiesel, Kiesel Boucher & Larson LLP, Beverly Hills, CA, for Plaintiff.

Shahram Nassi, Roger Scott Raphael, Lewis Brisbois Bisgaard & Smith, San Francisco, CA, for Defendant.

By CHARLES JUNG

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Plaintiffs in the Northern District of California moved to centralize litigation consisting of eleven actions pending in ten districts in the Northern District of California.  In Re Facebook Internet Tracking Litigation, — F.Supp.2d —-, 2012 WL 432607 (U.S. Jud. Pan. Mult. Lit. Feb. 8, 2012).  The MDL Panel transferred ten actions to the Northern District of California and, assigned to the Judge Edward J. Davila for coordinated or consolidated pretrial proceedings.  Id.

Background

No party opposed centralization.  Id.  The Panel found that six actions shared factual allegations that “Facebook improperly tracked users’ internet activity after users had logged out of their Facebook accounts.” Id. Plaintiffs in all actions brought claims under the federal Wiretap Act, 18 U.S.C. section 2511. Additional claims include violation of the Stored Electronic Communications Act, 18 U.S.C. section 2701, the Computer Fraud and Abuse Act, 18 U.S.C. section 1030, as well as common law claims for intrusion upon seclusion/invasion of privacy, unjust enrichment, and trespass to chattels.  Id.

The Panel concluded that “Centralization will eliminate duplicative discovery; prevent inconsistent pretrial rulings, including with respect to class certification; and conserve the resources of the parties, their counsel, and the judiciary.”  Id.

Judges

Before John G. Heyburn II, Chairman, Kathryn H. Vratil, Barbara S. Jones, Paul J. Barbadoro, Marjorie O. Rendell, and Charles R. Breyer.

By CHARLES JUNG

Horizon organic milk (Photo credit: Nicole Lee)

Defendants Dean Foods Co. and WhiteWave Foods Co. sought centralization of five actions based in Arkansas, California, Illinois and Florida.  Pursuant to 28 U.S.C. s 1407, the U.S. Judicial Panel on Multidistrict Litigation transferred the cases to the Southern District of Florida and assigned them to Hon. Joan A. Lenard for centralized pretrial proceedings.  In re Horizon Organic Milk Plus DHA Omega 3 Marketing And Sales Practices Litigation, — F.Supp.2d —-, 2012 WL 432621, MDL No. 2324 (U.S. Jud. Pan. Mult. Lit. Feb. 9, 2012).

Background

No party opposed centralization.  Plaintiffs in the Western District of Arkansas, Middle District of Florida and Southern District of Florida actions supported centralization in the Southern District of Florida.  Plaintiffs in the Southern District of California and the Northern District of Illinois actions supported centralization in the Northern District of Illinois.

The MDL Panel found that the actions shared factual questions arising out of allegations that defendants’ representations regarding certain milk products fortified with DHA Omega-3 FN1 under the brand name “Horizon Organic Milk” FN2 were misleading insofar as they claimed that the milk supports “brain health” in children and adults.

The Panel decided to order centralization in the Southern District of Florida because several plaintiffs supported centralization there, and that district “is presiding over fewer MDL dockets than other proposed districts.” Id.

Judges

Before John G. Heyburn, II, Chairman, Barbara S. Jones, Paul J. Barbadoro, Marjorie O. Rendell, Charles R. Breyer.

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Judge Dolly M. Gee of the Central District of California held that a Rule 68 offer that was not accepted by a lead plaintiff cannot moot either plaintiff’s claim or the putative class claim.  Gomez v. Campbell-Ewald Company, 2011 WL 3664354, No. CV 10-2007 (C.D. Cal. Apr. 6, 2011).

Background

Plaintiff filed a class action complaint alleging violation of the Telephone Consumer Protection Act alleging that Defendant directed the mass transmission of wireless spam to the cellular telephones of consumers across the nation to advertise on behalf of the U.S. Navy. Id. *1. Plaintiff received several text messages regarding pursuing a career in the Navy and did not consent to receiving such text messages from the Defendant. Id. Plaintiff sought damages, treble damages, injunctive relief, and attorneys’ fees and costs. Id.  Plaintiff also sought to certify a nationwide class of “all persons in the United States and its Territories who received one or more unauthorized text message advertisements from Defendant.” Id.

The Parties’ Stipulation

The parties stipulated that they agreed that the deadline for Plaintiff to file his motion for class certification would be extended until after the Defendant answered or otherwise responded to the complaint and conducted pre-certification discovery. Id. Defendant agreed that not waiting would be inefficient. Id. The Court approved the stipulation and extended the deadline until after all parties answered and a proposed discovery schedule was set forth to the Court. Id. *2.

Defendant filed its first motion to dismiss on May 19, 2010 and the Court denied it on November 5, 2010. Id. Defendant filed its Answer on November 19, 2010. Id. The Defendant then moved for reconsideration of its motion to dismiss on November 22, 2010 which the Court denied on December 9, 2010. Id. Plaintiff filed his motion for class certification on January 19, 2011. Id. The Court issued its Scheduling and Case Management Order on February 1, 2011. Id.

Defendant’s Rule 68 Offer and Offer of Settlement

Defendants filed a notice of offer of judgment pursuant to Federal Rule of Civil Procedure 68 on January 5, 2011. Id. Defendant offered to allow judgment to be entered against it (1) in the amount of $1503 for each unsolicited text messages, which was $501 trebeled, (2) pay any and all reasonable attorneys’ fees and costs, and (3) allow the court to enter an injunction against it. Id.

Defendant also made a settlement offer to the plaintiff on the same day with the same conditions. Id.

Plaintiff moved to strike and quash Defendant’s Rule 68 Offer and moved for class certification. Id. Defendant opposed both motions and filed a second motion to dismiss. Id.

Defendant’s Motion to Dismiss

The Court addressed the question of whether an offer of judgment made to a named plaintiff prior to class certification moots a putative class action. Id. *3. The parties did not dispute that the Rule 68 would have fully satisfied the original claims asserted by the Plaintiff or that an offer of judgment cannot moot a case once a class has been certified. Id.

Defendants argued that the Rule 68 offer mooted Plaintiff’s claim because there was no longer anything left for the Court to adjudicate. Id. Plaintiff argued that the Rule 68 offer was an improper attempt to “pick off Plaintiff’s claim” because he had no opportunity to file a class certification motion prior to such offer. Id.

The court noted that a case is moot when the issues presented are no longer live or the parties lack a legally cognizable interest in the outcome. Id. In other words, the parties must have a personal stake that continues throughout the existence of the litigation. Id.

The court also noted that in the class action context, the U.S. Supreme Court has allowed named plaintiffs whose individual claims were mooted to appeal a denial of class certification. Id. (citing Commission v. Geraghty, 445 U.S. 388, 395, 100 S.Ct. 1202, 63 L.Ed.2d 479 (1980) and Rosemere Neighborhood Ass’n v. U.S. Environmental Protection Agency, 581 F.3d 1169, 1172-73 (9th Cir.2009)). Plaintiffs who had a personal stake at the beginning of the action may continue to litigate where the claim is capable of repetition while evading review and where the claim is so inherently transitory that the trial could would not have enough time to rule on a motion for class certification before the proposed named plaintiff’s individual interest expires. Id.

Whether a Rule 68 Offer of Judgment Moots Plaintiff’s Class Claims

The Court reasoned that under the “relation back” doctrine, the court can consider a a motion for class certification as relating back to the time the original class complaint was filed so the named plaintiff retains standing to litigation the action even though his individual claims may have become moot otherwise. Id. *4.

The Court looked to the Ninth Circuit to determine how it should apply the “relation back” doctrine. Id. There was no direct case on point but the court noted the Ninth Circuit’s in  Smith v. T-Mobile USA, Inc., 570 F.3d 1119 (9th Cir. 2009) held that that because the plaintiffs voluntarily settled all of their FLSA claims after the district court’s denial of class certification, the plaintiffs failed to retain a personal stake in the litigation and their claims were moot. Id. (See Smith, 570 F.3d at 1123). The Ninth Circuit also held in Narouz v. Charter Communications, LLC, 591 F.3d 1261 (9th Cir. 2010) that even if a named plaintiff voluntarily settles his individual claims but specifically retains a personal stake, the plaintiff may appeal the denial of class certification. Id.

Other Circuits (Third, Fifth, and Tenth) have held that unaccepted offers of judgment will not moot a class action for monetary relief when the offer was received before the court could reasonably be expected to rule on the named plaintiff’s class certification motion. Id.

Defendant argued that the “relation back” doctrine cannot be applied, since Plaintiff did not seek to appeal a denial of class certification but rather sought to obtain a new ruling on the class certification issue. Id. *5. Defendant cited Lusardi v. Xerox Corp.,

975 F.2d 964 (3d Cir. 1992) to argue that the plaintiffs did not retain a requisite personal stake to pursue class certification after they voluntarily settled their claims. Id. The Court found defendant’s reliance on Lusardi misplaced, stating that in Lusardi the named plaintiffs settled their individual claims before filing their motion to certify and that Lusardi was not a case where the trial court lacked a reasonable opportunity to rule on the merits of a class certification or where the class-action defendant successfully prevented effective resolution of a class certification issue. Id.

The Court found that the relation back doctrine was the proper approach in this case:

“This Court rejects the notion that Defendant can make an end-run around a class

action simply by virtue of a facile procedural “gotcha,” i.e., the conveyance of a

Rule 68 offer of judgment to “pick off” the named plaintiff prior to the filing of

a class certification motion.” Id. *6.

The “Relation Back” Doctrine

The court found that plaintiff was not dilatory in filing his motion for class certification.  Defendant had asked Plaintiff to agree not to initiate discovery while its first motion was pending and stipulated that the Plaintiff could wait for Defendant to answer before filing the motion for class certification. Id. The Court thus extended Plaintiff’s deadline. Id. Plaintiff argued that he had no reasonable opportunity to move for class certification which the Court agreed with because the Defendant had filed its offer of judgment only one month after the Court had denied its motion for reconsideration on their first motion to dismiss. Id. *7. Plaintiff filed his motion for class certification without discovery within two months after Defendant filed its Answer. Id.

Additionally, the Defendants argued that Congress did not intend for TCPA claims to be litigated as class actions in federal court. Id. However, the Court reasoned that since TCPA was silent on the subject of class relief: thus the Court “must presume its availability.” Id.

Defendant further argued that its separate offer of settlement mooted Plaintiff’s case. Id. But the court concluded that the unaccepted Rule 68 offer did not moot Plaintiff’s putative class claim and also found that Defendant’s unaccepted settlement offer did not moot Plaintiff’s claim:

“In this case, Plaintiff has not accepted either the Rule 68 Offer or the Settlement Offer. In light of the Court’s ruling that Defendant’s unaccepted Rule 68 offer of judgment does not moot Plaintiff’s putative class claim, the Court also finds that Defendant’s unaccepted Settlement Offer does not moot Plaintiff’s claim.” Id.

Plaintiff’s Motion to Strike Defendant’s Rule 68 Offer

The Court also held that the Defendant was not entitled under Rule 68 to file the offer of judgment because Plaintiff did not accept Defendant’s offer of judgment. Id. Therefore, the Court struck the Rule 68 Offer. Id.

Plaintiff’s Motion for Class Certification

The Court found that the Plaintiff was pushed to file his Motion for Class Certification before the parties filed their Joint Rule 26(f) report, contrary to the spirit of their stipulation. Id. Therefore, the Court deferred its ruling on the Plaintiff’s Motion for Class Certification until after the parties had an opportunity to engage in class discovery and held that Defendant’s evidentiary objections were denied as moot. Id. *8.

Judges and Attorneys

District Judge Dolly M. Gee.

Evan M. Meyers, Michael J. McMorrow, Rafey S. Balabanian, Ryan D. Andrews, Edelson McGuire LLC, Chicago, IL, Sean Patrick Reis, Edelson McGuire LLP, Rancho Santa Margarita, CA, for Plaintiff.

Laura A. Wytsma, Christine M. Reilly, Michael L. Mallow, Loeb & Loeb LLP, Los Angeles, CA, for Defendant.

By CHARLES JUNG