It's about time for a reminder about the purpose of discovery in civil litigation, and Clement v. Alegre provides much needed medicine

Twenty-three years ago, the Legislature enacted the Civil Discovery Act of 1986 (Code Civ. Proc., § 2016.010, et seq.)1 (the Act), a comprehensive revision of pretrial discovery statutes, the central precept of which is that civil discovery be essentially self-executing. More than 10 years ago, Townsend v. Superior Court (1998) 61 Cal.App.4th 1431 (Townsend) lamented the all too often interjection of "ego and emotions of counsel and clients" into discovery disputes, warning that "[l]ike Hotspur on the field of battle, counsel can become blinded by the combative nature of the proceeding and be rendered incapable of informally resolving a disagreement." (Id. at p. 1436.) Townsend counseled that the "informal resolution" of discovery disputes "entails something more than bickering with [opposing counsel]." (Id. at p. 1439.) Rather, the statute "requires that there be a serious effort at negotiation and informal resolution." (Id. at p. 1438.)

Clement v. Alegre (September 23, 2009), slip op., at 1-2.

So begins Clement v. Alegre (September 23, 2009), authored by the Court of Appeal (First Appellate District, Division Two).  The case involves a dispute over a real property transaction, but that's not all that relevant.  But it certainly isn't a class action matter, and it's not all that complex of a case.  The issue, however, permeates civil litigation to its core.  The discovery process is nearly, but not quite, broken.  The higher the stakes (like in class actions), the more entrenched and obstructive the positions taken by counsel.  Compromise is now a pleasant surprise.  Bitterness is the norm.  Clement reminds counsel and courts that it shouldn't be.

The discovery fight began with a set of 23 special interrogatories:

As described by the referee, plaintiffs‘ objections were of two types:

"Special Interrogatory No. 1 requested a description of 'all economic damages you claim to have sustained. . . .'  Clement objected that the question was 'vague and ambiguous'. Clement's contention that the term 'economic damages' is vague is based on propounding party's failure to specifically refer to Civil Code section 1431.2, [subdivision] (b)(1) which defines economic damages. Thus, reasons Clement, 'Responding Party reasonably construes the failure to adopt this definition as expressing Propounding Party's intention to define economic damages in a manner different than as provided in California Civil Code Section [1431. 2, subdivision] (b)(1).' Clement goes on to supply a restricted definition of his own, to wit: the lost profit from the potential sale of the property to a third party buyer. Thus limited, he answers that he is aware of none."

"Special Interrogatory No. 2 asks: 'Please state the amount of such damages as identified in interrogatory number 1.'  Clement's objections this time were (1) that this Special Interrogatory violates [section] 2030.060[, subdivision] (d) because it is not full and complete in itself, requiring, as it does, reference to the answer to an earlier interrogatory in the same set. He brands the reference to the answer to an earlier question as reference to 'other materials' in order to answer the question, citing Catanese v. Superior Court (1996) 46 Cal.App.4th 1159, 1164 [(Catanese)]." Plaintiff Clement also stated that he did not have to answer the interrogatory, because it would deny him 30 days to respond, as interrogatory No. 2 was a follow-up question that referred to the answer to interrogatory No. 1, and there could be no answer to interrogatory No. 1 in existence until the response to interrogatory No. 1 was rendered. The 30 days to answer interrogatory No. 2 would start after the answer to interrogatory 1. Finally, Clement stated that he would meet and confer in good faith with defendant to resolve any dispute, without the need for a motion. However, he also stated no response to a meet and confer communications could be given without "reasonable time and opportunity to consult with [his] attorney."

Slip op., at 3-4.  A great deal of correspondence followed the initial objections.  Eventually the defendant filed a motion to compel.  An award of sanctions in excess of $5,000 followed soon thereafter, and an appeal of right was next.  The Court of Appeal was not sympathetic:

Ample evidence supports the referee‘s determination that plaintiffs "deliberately misconstrued the question."  Plaintiffs themselves quoted the statute defining the term in their initial response. Yet, they objected, and then deliberately provided an answer using a definition narrower than that provided by statute. Somewhat artfully, plaintiffs urge that Goldstein agreed in his January 23, 2008 letter to respond to any definition of economic damages that plaintiffs chose to provide. However, even after defendant's counsel advised that the term was being used as defined in the statute plaintiffs had cited, plaintiffs did not answer the question, but demanded that defendant supply the definition in writing and allow them an extra 30 days from the date of receipt in which to respond. Clearly this was "game-playing" and supports the referee's findings and the sanctions award.

Slip op., at 8.  Then the Court noted that, though they believed the plaintiff fully intended to obstruct discovery, that intent was irrelevant:

Even assuming we agreed that neither plaintiffs nor Goldstein intended to be evasive — and we do not — their intent is not relevant here. "There is no requirement that misuse of the discovery process must be willful for a monetary sanction to be imposed." (Cal. Civil Discovery Practice (Cont.Ed.Bar 4th ed. May 2009 update) § 15.94, p. 1440, citing Code Civ. Proc. § 2023.030, subd. (a); 2 Hogan & Weber, Cal. Civil Discovery (2d ed. 2004) Sanctions, § 15.4, p. 15-8 ["Whenever one party's improper actions — even if not 'willful' — in seeking or resisting discovery necessitate the court's intervention in a dispute, the losing party presumptively should pay a sanction to the prevailing party." (Fn. omitted)]; Kohan v. Cohan (1991) 229 Cal.App.3d 967, 971.)

Slip op., at 8.  Then the Court turned to the nonsense contention that an interrogatory that refers to a prior interrogatory answer is not "full and complete" by itself:

Plaintiffs do not contend that any of the interrogatories to which they objected on this basis were unclear, or that the interrogatories, considered either singly or collectively, in any way undermined or violated the presumptive numerical limit of 35 interrogatories of section 2030.030. Yet plaintiffs seized on what might have been at most an arguable technical violation of the rule, to object to interrogatories that were clear and concise where the interrogatories did not even arguably violate the presumptive numerical limitation set by statute. In so doing, plaintiffs themselves engaged in the type of gamesmanship and delay decried by the drafters of the Act.

Slip op., at 9.  The Court goes on to explain that the prohibition on preface instructions, definitions, and references to other materials were enacted solely to prevent circumvention of the presumptive 35 interrogatory limit.  More choice commentary:

Plaintiffs rely upon Catanese, supra, 46 Cal.App.4th at p. 1164, and upon Weil & Brown, California Practice Guide: Civil Procedure Before Trial (The Rutter Group 2009) paragraph 8:979.5, which provides: "No incorporation of other questions: The requirement that each interrogatory be 'full and complete in and of itself' is violated where resort must necessarily be made to other materials in order to answer the question. [Citation.]" (Weil & Brown, supra, at p. 8F-21, citing Catanese at p. 1164, italics added.)

First, the paragraph heading — "No incorporation of other questions:" — is not mirrored by the substance of the paragraph, which identifies the violation as interrogatories requiring resort to "other materials" — not to a previous question — to answer the interrogatory. Second, the treatise clearly is relying upon Catanese, supra, 46 Cal.App.4th 1159, which involves a very different situation and which is demonstrably distinguishable. (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial, supra, ¶ 8:979.5, at p. 8F-21.)

In Catanese, supra, 46 Cal.App.4th 1159, after the plaintiff had been deposed for eight days, she propounded a series of five interrogatories inquiring whether the defendant contended that any of her answers to questions in the deposition were untruthful, and if so, what evidence supported that contention. (Id. at pp. 1161-1162.) The appellate court concluded that the interrogatories violated the "rule of 35" and the requirement of "self-containment" codified in the predecessor to the current statute.  (Id. at pp. 1163-1164.)  "This rule was violated here by interrogatories which necessarily incorporate, as part of each interrogatory, each separate question and answer in eight volumes of deposition. An interrogatory is not 'full and complete in and of itself' when resort must necessarily be made to other materials in order to complete the question. [Plaintiff] could have propounded interrogatories which inquire separately regarding each deposition question and answer, but if [she] had inquired separately in self-contained interrogatories, she would have violated the 'rule of 35.' " (Id. at p. 1164.) The court further explained that the "interrogatories as worded effectively posed upwards of 10,000 separate questions. It was a violation of the 'rule of 35' to propound these interrogatories without the supporting declaration required by [the statute]." (Id. at p. 1165.)

Slip op., at 11-12.  The opinion should be read fully and carefully by all litigators, but more is worth repeating here:

"It is a central precept to the Civil Discovery Act of 1986 (§ 2016 et seq.) . . . that civil discovery be essentially self-executing. [Citation.]" (Townsend, supra, 61 Cal.App.4th at p. 1434.) A self-executing discovery system is "one that operates without judicial involvement." (2 Hogan & Weber, Cal. Civil Discovery, supra, § 15.4, pp. 15-7 to 15-8.) Conduct frustrates the goal of a self-executing discovery system when it requires the trial court to become involved in discovery because a dispute leads a party to move for an order compelling a response. (Ibid.) The Reporter‘s Notes to the predecessor to section 2023.030, subdivision (a) confirms that revision of the "substantial justification" provision was "intended to encourage judges to be more alert to abuses occurring in the discovery process. On many occasions, to be sure, the dispute over discovery between the parties is genuine, though ultimately resolved one way or the other by the court. In such cases, the losing party is substantially justified in carrying the matter to court. But the rules should deter the abuse implicit in carrying or forcing a discovery dispute to court when no genuine dispute exists. And the potential or actual imposition of expenses is virtually the sole formal sanction in the rules to deter a party from pressing to a court hearing frivolous requests for or objections to discovery. . . . The proposed change provides in effect that expenses should ordinarily be imposed unless a court finds that the losing party acted justifiably in carrying his point to court.  At the same time, a necessary flexibility is maintained, since the court retains the power to find that other circumstances make an award of expenses unjust – as where the prevailing party acted unjustifiably. The amendment does not significantly narrow the discretion of the court, but rather presses the court to address itself to abusive practices. . . ." (2 Hogan & Weber, Cal. Civil Discovery, supra, Appendix D, Reporter‘s Notes at pp. AppD-19 to AppD-21, quoting Advisory Committee to Federal Rule of Civ. Proc. § 34(a)(4) as amended in 1970, italics added; see Cal. Law Revision Com. com., 21A West‘s Ann. Code Civ. Proc. (2007) foll. § 2023.030, p. 64.)

Slip op., at 14-15.  The Court concludes its discussion with a thorough review of the meet and confer efforts.  I won't quote from that discussion here, but it's cut from the same cloth.  I end with the Court's final admonitions:

Perhaps after 11 years it is necessary to remind trial counsel and the bar once again that "[a]rgument is not the same as informal negotiation" (id at p. 1437); that attempting informal resolution means more than the mere attempt by the discovery proponent "to persuade the objector of the error of his ways" (id. at p. 1435); and that "a reasonable and good faith attempt at informal resolution entails something more than bickering with [opposing]counsel . . . . Rather, the law requires that counsel attempt to talk the matter over, compare their views, consult, and deliberate." (Id. at p. 1439.)

Slip op., at 17-18.  I'd say these reminders were well overdue.

The choice between amending a complaint and appealing a demurrer can be challenging

There have been instances in litigation where my confidence in a legal position has tempted me to eschew the filing of an amended complaint in favor of appealing an order sustaining a demurrer.  Thus far, I haven't chosen to bypass an occasion to amend, but I've been very close.  Today, the Court of Appeal (Second Appellate District, Division Three) offers a reminder that such a choice can have substantial consequences, holding, in Las Lomas Land Company, LLC v. City of Los Angeles (September 18, 2009), that "having expressly declined an opportunity to amend its pleading in the trial court, Las Lomas cannot seek leave to amend for the first time on appeal."  Slip op. at 2.

As an aside, the subject matter of this case, a dispute over a rejected land development project, doesn't necessarily have much to do with this blog, aside from the fact that a multi-million dollar dispute over a land development project is decidedly more "complex" than your average civil lawsuit.  But the issue presented at the end of the opinion, the waiver of the right to amend, can surface anywhere, and procedural wrinkles like this interest me.

The Court summarized the law governing when a right to amend is not waived:

The sustaining of a demurrer without leave to amend is an abuse of discretion if there is a reasonable possibility that the defect could be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) The burden is on the plaintiff to show in what manner the pleading could be amended and how the amendment would change the legal effect of the pleading. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) The failure to request leave to amend in the trial court ordinarily does not prevent a plaintiff from making such a request for the first time on appeal. (Code Civ. Proc., § 472c, subd. (a); Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1386.)

Slip op., at 30-31, fn. omitted.  But it doesn't work that way when a potential amendment is possible:

The general rule allowing a plaintiff to request leave to amend for the first time on appeal does not apply, however, if the trial court sustains a demurrer with leave to amend and the plaintiff elects not to amend the pleading. (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1091.) In those circumstances, " 'it must be presumed that the plaintiff has stated as strong a case as he can.' " (Ibid.)  The trial court here did not enter an order sustaining the demurrer with leave to amend, but instead asked whether Las Lomas was requesting leave to amend.  By answering "No," counsel for Las Lomas expressly declined an opportunity to amend the pleading just as surely as if the court had granted leave to amend and Las Lomas had elected not to do so.  In our view, the result should be the same. We therefore conclude that Las Lomas forfeited its claim of error based on the denial of leave to amend and deny the motion for leave to amend its petition and complaint.

Slip op., at 31, fn. omitted.  Now, it may very well be the case that you want to frame an issue for appellate review in a specific way and decline an opportunity to amend for that very purpose.  Just be sure you intend the consequences if you pass on a chance to amend a complaint.

In Cho v. Seagate Technology Holdings, Inc. (Klausner, Objector), Court holds that allegations of collusion, without evidentiary support, are insufficient to overturn settlement or allow discovery to objector

In Kullar v. Foot Locker Retail, Inc., 168 Cal. App. 4th 116 (2008), the Court of Appeal (First Appellate District, Division Three) set aside a settlement and permitted an objector to obtain discovery to assess whether the settlement was "fair, reasonable and adequate."  See blog post.  However, the objector in Cho v. Seagate Technology Holdings, Inc. (Klausner, Objector) (September 15, 2009) did not achieve similar results, despite appealing to the very same First Appellate District, Divsion Three.

Cho alleged that Seagate overstated the size of its hard drives (its an ego thing, really) by using the decimal definition of “gigabyte” (equal to 1 billion bytes) which differed from the binary definition (equal to approximately 1.073 billion bytes) that was used by computer operating systems.  Slip op., at 2.  Eventually the matter settled, on the following terms:

For disc drives purchased before January 1, 2006, class members could choose either a cash payment equal to 5 percent of the net purchase price, or the Seagate Software Suite (the Software) that would allow users to perform enhanced computer and disc management functions. The estimated average cash benefit payable per hard drive was $7, and the Software had an estimated retail value of approximately $40. For disc drives purchased after January 1, 2006, when the packaging included more precise disclosures added by Seagate, class members were entitled to receive the Software.

Slip op., at 3.  One objection was filed.  The objector contended that "the notices of settlement were insufficient and inconsistent with the agreement.  He claimed it was not possible to determine 'whether someone who purchased a Seagate Hard Drive (‘Drive’) from a retailer that is not a Seagate authorized retailer, but that retailer purchased the Drive from an authorized distributor, is a class member under the
settlement agreement.'"  Slip op., at 4.  In response to the objection, Cho and Seagate agreed that "'the words "authorized retailer or distributor" in the settlement agreement--which are not defined terms--are meant to include drives purchased either directly or indirectly from the Authorized Retailers or
Authorized Distributors listed on the website, meaning that they include retailers who are not themselves listed on the website, but who purchased from one of the entities that are listed on the website. The only excluded resellers are those whose drive sales are of fake, grey market, used, or stolen drives.'"  Slip op. at 4-5.  The tiral court did not find the objector's concerns persuasive:

The trial court overruled Klausner’s objections. The order approving settlement states: “Mr. Klausner’s objection to the term authorized retailers or distributors, the limitation of claims to purchases from authorized retailers or distributors, and his related claims that the class is impermissibly narrowed, that plaintiff’s counsel have not adequately represented the class and the plaintiff is an inadequate class representative are overruled. The court finds that it is appropriate to limit the class to purchasers from authorized retailers or distributors. . . . The Court received no information that any class member, other than Mr. Klausner, was confused by the term authorized retailer or distributor. In that regard, neither the Agreement nor the form of notice caused any prejudice to the Plaintiff Settlement Class.” Klausner was granted leave to file his additional objections, which were overruled, but his request to undertake discovery was denied.

Slip op., at 6.  After discussing the current authority governing the review of class action settlements, the Court of Appeal concluded that mere inferences of collusion, with nothing more than accusations to support them, would not be considered:

There is no evidence that the parties to the settlement were intentionally deceptive or that they tried to mislead the court in seeking approval. We will not indulge Klausner’s suggestion that approval be reversed on the basis of misconduct by counsel.

Slip op., at 10.  On the other hand, the Court of Appeal was concerned about ambiguity in the Notice to the class:

A class definition that is ambiguous presents a problem of class ascertainability that “ ‘goes to the heart of the question of class certification, which requires a class definition that is “precise, objective and presently ascertainable.” ’ ” (Global Minerals & Metals Corp. v. Superior Court (2003) 113 Cal.App.4th 836, 858.) In the absence of an ascertainable class, “ ‘it is not possible to give adequate notice to class members or to determine after the litigation has concluded who is barred from relitigating.’ ” (Ibid.) The goal in defining the class is to use terminology that will convey sufficient meaning to enable persons hearing it to determine whether they are members of the class plaintiff wishes to represent.

Slip op., at 12.  Applied to the facts of the case before it, the Court of Appeal said:

We have no disagreement with the parties’ objective and no quarrel with the trial court’s finding that exclusion of “those who purchased outside of Seagate’s authorized retail channels” is “rationally based on legitimate considerations.”  The problem is that a fair reading of the class definition and the notice has the potential to lead some of those who purchased within Seagate’s authorized retail channels to conclude they are not members of the class.

Slip op., at 13.  The Court of Appeal then clarified that the defect in the Notice was not fatal to the settlement and vacated the trial court's Order approving the settlement so that a revised Notice could issue to the class.

The final issue, Klausner's request for discovery, was quickly rejected by the Court of Appeal.  The Court noted that objectors are not entitled to discovery unless some evidence of collusion existed.  Because Klausner presented no evidence to the trial court, the Court of Appeal affirmed the trial court's decision to deny discovery rights to the objector.

Meza v. H. Muehlstein & Co., et al. reinforces "common interest" doctrine that protects work product shared by parties with partially aligned goals

Class actions quite frequently involve multiple defendants.  In consumer class actions, manufacturers and distributors may both be named.  In employment law class actions, successor entity employers may share time with a former employer.  In such cases, it is often the case that the goal of beating back the plaintiff unifies defendants with divergent interests.  Efforts to drive a wedge between allies of convenience can involve attempts to discover information that is shared between defendants.  But California recognizes the "common interest" doctrine, which allows defendants' counsel to share information that relates to advancing their common goals in the litigation without waving the attorney work product "privilege."  In Meza v. H. Muehlstein & Co., et al. (August 18, 2009), the Court of Appeal (Second Appellate District, Division Three) provided additional guidance as to the application of that doctrine.

In Meza, a personal injury action, the "common interest" doctrine was implicated when an attorney for one of many defendants was later hired by plaintiff's firm:

[D]efendant and respondent Lucent Polymers, Inc. (Lucent) moved to disqualify the Metzger Law Group (the Metzger firm) from representing plaintiff and appellant Teresa Meza. Lucent and other joining defendants argued that the Metzger firm should be disqualified because it hired Bret Drouet, an attorney who previously represented one of the defendants and who participated in meetings in which defense counsel disclosed privileged work product.

Slip op., at 2.  The opinion reviews the basics of disqualification and the work product doctrine/privilege (the Court observes an issue about nomenclature that I have also noticed - the protection of work product is referred to as both a privilege and a doctrine - but offers only that the distinction is irrelevant because the protection is statutory).  The part of the opinion that may be particularly relevant in class actiosn concerns the "common interest" doctrine.  An extended excerpt is repeated here:

The protection offered by the attorney work product privilege can be waived if work product is disclosed to third parties. (OXY Resources California LLC v. Superior Court (2004) 115 Cal.App.4th 874, 891 (OXY).) However, “work product protection „is not waived except by a disclosure wholly inconsistent with the purpose of the privilege, which is to safeguard the attorney‟s work product and trial preparation.‟ ” (Ibid.)

Under the common interest doctrine, an attorney can disclose work product to an attorney representing a separate client without waiving the attorney work product privilege if (1) the disclosure relates to a common interest of the attorneys‟ respective clients; (2) the disclosing attorney has a reasonable expectation that the other attorney will preserve confidentiality; and (3) the disclosure is reasonably necessary for the accomplishment of the purpose for which the disclosing attorney was consulted. (See OXY, supra, 115 Cal.App.4th at p. 891.)

The common interest doctrine does not create a new privilege or extend an existing one. “Rather, the common interest doctrine is more appropriately characterized under California law as a nonwaiver doctrine, analyzed under standard waiver principles applicable to the attorney-client privilege and the work product doctrine.” (OXY, supra, 115 Cal.App.4th at p. 889.)

Meza does not dispute that California recognizes the common interest doctrine. She instead argues that under the facts of this case, the common interest doctrine does not apply.

Meza contends that because defendants had separate, dissimilar and at times adverse interests, defendants‟ attorneys could not disclose work product to each other without waiving the attorney work product privilege. This is incorrect. It is true that a defendant‟s attorney‟s disclosure of work product relating to the defendants‟ adverse interests results in a waiver of the attorney work product privilege. However, the disclosure of work product relating to the defendants‟ common interests does not result in a waiver so long as the second and third elements of the common interest doctrine are satisfied.

In this case, while all defendants had different and potentially adverse interests, they also indisputably had common interests. All defendants, for example, had common interests in Meza‟s medical condition, alleged discrepancies in her claims, and her presentation as a witness. Likewise, all defendants had common interests in anticipating and analyzing Meza‟s litigation strategies and in retaining joint defense consultants and experts. Furthermore, it is undisputed that defendants‟ attorneys disclosed work product to each other relating to the defendants‟ common interests.  Accordingly, the first element of the common interest doctrine is satisfied with respect to all such disclosures.

Meza contends that defendants failed to submit any evidence establishing the second element of the common interest doctrine—defense counsel‟s reasonable expectation of confidentiality. We reject this argument because the trial court‟s CMC order expressly authorized defendants‟ attorneys to disclose to each other attorney work product relating to issues of common interest without fear of waiver. In light of the CMC order, defendants‟ attorneys reasonably expected that counsel for co-defendants would preserve the confidentiality of attorney work product disclosed in communications regarding common interests. The second element of the common interest doctrine is thus satisfied.

With respect to the third element, Meza argues that although the sharing of work product among defense counsel may have made the litigation more efficient, it was not reasonably necessary. Meza is again incorrect.

Substantial evidence supports the trial court's finding that communications among defense counsel were “reasonably necessary” for the accomplishment of the purpose for which defense counsel were retained. It is clear from the declarations submitted by defendants that defense counsel shared their confidential ideas about the case with each other in order to better prepare for trial.  Accordingly, under the common interest doctrine, the attorney work product privilege was not waived.

Slip op, at 11-13 (footnotes omitted).  The Court of Appeal also reviewd sealed documents that the trial court examined in camera; the Court of Appeal concluded that they supported the trial court's order of disqualification.

I've tried breaking past the "common interest" doctrine in the past, with no success.  Meza confirms that I should keep my expectations of future success in this area on the low side.

Brinker news, and other California Supreme Court activity

This blog's last post on Brinker Restaurant v. Superior Court (Hohnbaum) indicated that the Reply Brief would be filed on July 6, 2009.  After a few unexpected bumps, the Reply Brief was filed on July 20, 2009.  The case is fully briefed.  Now the amicus bloodbath may commence.

In other Supreme Court news, today the Supreme Court denied review in Gomez v. Lincare (April 28, 2009).  See this prior post for information about Gomez.

And in Miller v. Bank of America, 46 Cal. 4th 630 (2009), the Supreme Court denied a Petition for Modification of the opinion.

Borello employment test influences areas outside workers' compensation law in Messenger Courier Association of the Americas, et al. v. California Unemployment Insurance Appeals Board

The Court of Appeal (Fourth Appellate District, Division One) issued an interesting opinion today that may have some employment class action implications. In Messenger Courier Association of the Americas, et al. v. California Unemployment Insurance Appeals Board (July 15, 2009), the Court considered the validity of NCM Direct Delivery v. Employment Development Department, Precedent Tax Decision No. P-T-495 (2007). The Court of Appeal affirmed the Trial Court's Order that upheld the validity of the Precedent Tax Decision. The interesting twist is that the Precedent Tax Decision applied the employment test of S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 to an unemployment insurance assessment matter. The class action angle comes into play if developments in the definition of employment conclusively govern actions alleging misclassification of independent contractors. Specifically, Messenger noted that the right to control is the first test for employment, but if that test of control is not dispositive, the "secondary" factors may be applied to determine the correct nature of a service relationship. Slip op., at 6.

In Amalgamated, the companion opinion to Arias, the Supreme Court analyzes whether PAGA and UCL claims can be assigned by individuals to their labor union

June 29, 2009 was a busy day for California Supreme Court news.  In Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (First Transit, Inc.) (June 29, 2009), the California Supreme Court issued the second of companion opinions addressing aspects of California’s unfair competition law (“UCL”) and the Labor Code Private Attorneys General Act of 2004 (“PAGA”) (Cal. Lab. Code § 2698, et seq.). See previous post on Arias.  Because the decisional authority analyzing the recently-passed PAGA is sparse, Amalgamated is important to understanding the reach of PAGA and its role in securing civil penalties for California employees.

Amalgamated addressed two issues. First, the Supreme Court rhetorically asked whether “a plaintiff labor union that has not suffered actual injury under the unfair competition law, and that is not an ‘aggrieved employee’ under the Labor Code Private Attorney General Act of 2004, nevertheless bring a representative action under those laws (1) as the assignee of employees who have suffered an actual injury and who are aggrieved employees, or (2) as an association whose members have suffered actual injury and are aggrieved employees.” Slip op., at 2. Second, the Supreme Court asked whether “a representative action under the unfair competition law be brought as a class action.” Slip op., at 2.

As to the second issue, the Supreme Court noted that Arias sufficiently addressed that issue, holding that an action under the unfair competition law must be brought as a class action.

Before turning to the first issue, the procedural background of Amalgamated touches on a procedural practice recently the subject of appellate consideration.  If you have practiced in the Civil Central West courthouse in Los Angeles, you may be familiar with that Court’s former practice of allowing parties to obtain early determinations of “threshold” issues. See post on Magana Cathcart McCarthy v. CB Richard Ellis, Inc. (May 21, 2009) (holding that early determination of "threshold issues" is not a substitute for the summary adjudication procedural requirements). As in Magana, the parties in Amalgamated briefed threshold issues. The trial court found that plaintiff unions lacked standing under the unfair competition law because the union had not suffered any injury themselves. The trial court further found that the unions lacked standing under PAGA because they were not “aggrieved employees.” The unions appealed and a divided Court of Appeal denied the petition.

The Supreme Court, however, granted the Petition and affirmed the trial court’s ruling. The unions could not be assigned the right to sue under the unfair competition law as a result of amendments passed as part of Proposition 64. The Supreme Court reasoned that the new requirement of “injury in fact” would be undermined by allowing non-injured assignees to stand in the shoes of the injured parties.

With direct standing through assignment precluded, associational standing was next considered.  The Supreme Court found that the post-Proposition 64 UCL was at odds with the doctrine of associational standing: In proposing the amendment to the unfair competition law, section 1 of Proposition 64 sets forth its findings and declarations of purpose. Subdivision (e) of section 1 states: “It is the intent of California voters in enacting this act to prohibit private attorneys from filing lawsuits for unfair competition where they have no client who has been injured in fact under the standing requirements of the United States Constitution.” (Voter Information Guide, Gen. Elec. (Nov. 2, 2004) text of proposed law, p. 109, italics added.) That intent is reflected in the amended statutory language stating that an unfair competition law action can be brought only by a person who has suffered “injury in fact.” (Bus. & Prof. Code, § 17204, italics added.) This standing requirement is inconsistent with the federal doctrine of associational standing. That doctrine applies only when the plaintiff association has not itself suffered actual injury but is seeking to act on behalf of its members who have sustained such injury.

Slip op. at p. 10.  Hence, the unions could neither be assigned the right to sue or bring suit as an association whose members had suffered actual injury.

Regarding PAGA, the Supreme Court repeated comments from Arias, observing:

In bringing such an action, the aggrieved employee acts as the proxy or agent of state labor law enforcement agencies, representing the same legal right and interest as those agencies, in a proceeding that is designed to protect the public, not to benefit private parties. (Arias v. Superior Court, supra, ___ Cal.4th ___, ___ [pp. 16-17]; see People v. Pacific Land Research Co. (1977) 20 Cal.3d 10, 17.)

Slip op. at p. 8.  Keeping with the theme from Arias, it is interesting that the Supreme Court has again pointed out that, under PAGA, an aggrieved employee acts like a “proxy or agent” of the state labor law enforcement agencies.

Because PAGA created neither a property right nor any other substantive right, and because it did not create any legal obligations, PAGA claims cannot be assigned. That prohibition on assignment is not new; rather, it is consistent with previous Supreme Court holdings that preclude the assignment of a right to collect statutory penalties.  Further, because PAGA allows only an aggrieved employee to bring an action to recover civil penalties, unions are foreclosed from asserting PAGA claims on behalf of their members. In effect, there is no associational standing available for a claim uniquely assigned to the employee by the State.

[Editor’s Note: A Contributing Author byline has been added for Shawn Westrick, given that he did not flake after one post.]

Arias v. Superior Court (June 29, 2009) analyzes certification obligations under two of California's representative action statutes

[Editor’s Note: This post was prepared by new Contributing Author, Shawn Westrick. Mr. Westrick is an attorney at Initiative Legal Group, LLP, and it is the Editor’s hope that this column is the first of many such posts. Mr. Westrick has spent considerable time in his career litigating PAGA issues, and the Arias decision was of particular interest as source material for a first blog post submission.]

By Shawn Westrick:

In Arias v. Superior Court (Angelo Dairy) (June 29, 2009), the California Supreme Court issued its long-anticipated opinion addressing when conventional class action procedural requirements must be met in representative actions filed against employers.

Plaintiff Jose Arias sued his employer Angelo Dairy, alleging, among other things, violations of the unfair competition law and under the Labor Code Private Attorneys General Act of 2004 (“PAGA”) (Cal. Lab. Code § 2698, et seq.). The trial court granted defendant’s motion to strike the causes of action based on the unfair competition law. The trial court’s reasoning was that claims brought under the unfair competition law and PAGA had to plead class action requirements.

In essence, the appellate court affirmed a portion of the trial court’s Order, directing the trial court to “issue a new order striking the representative claims alleged in the seventh through tenth causes of action, but not the eleventh cause of action” (slip op., at 3), the eleventh cause of action being the claim arising under PAGA.

The Supreme Court began its analysis with a thorough discussion of Proposition 64. Proposition 64 amended the unfair competition law to ensure that a plaintiff suffering injury in fact must comply with Code of Civil Procedure § 382. However, Proposition 64 did not specifically use the phrase “class action” in any of its statutory language. Nevertheless, the Supreme Court ruled that a literal construction would frustrate the purpose of Proposition 64. A review of the Voter Information Guide, the official summary of Proposition 64, and the ballot measure summary suggested that the purpose of Proposition 64 was to require plaintiffs to meet the requirements for a class action.

Turning to PAGA, the Supreme Court then analyzed the question of whether PAGA claims must be certified as class actions to proceed on a representative basis. As an important distinction to be aware of, it has already been determined that actions under the Labor Code Private Attorneys General Act of 2004 may be brought as class actions. (Amaral v. Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1173.) At issue in Arias was whether such actions must be brought as a class action. Beginning its discussion, the Supreme Court noted that the statute was passed because of the lack of adequate financing for labor law enforcement. Employees would act as private attorneys general to collect civil penalties for violations of the Labor Code:

Before bringing a civil action for statutory penalties, an employee must comply with Labor Code section 2699.3. (Lab. Code, § 2699, subd. (a).) That statute requires the employee to give written notice of the alleged Labor Code violation to both the employer and the Labor and Workforce Development Agency, and the notice must describe facts and theories supporting the violation. (Id., § 2699.3, subd. (a).) If the agency notifies the employee and the employer that it does not intend to investigate (as occurred here), or if the agency fails to respond within 33 days, the employee may then bring a civil action against the employer. (Id., § 2699.3, subd. (a)(2)(A).) If the agency decides to investigate, it then has 120 days to do so. If the agency decides not to issue a citation, or does not issue a citation within 158 days after the postmark date of the employee‘s notice, the employee may commence a civil action. (Id., § 2699.3, subd. (a)(2)(B).)

Slip op., at 9.

The Supreme Court rejected the employer’s convoluted argument that permitting employees to proceed with representative actions that did not satisfy class action requirements would cause absurd results. Explaining the strange reasoning of the employer, the Supreme Court said:

Defendants read the Court of Appeal‘s decision as holding that class action requirements do not apply to actions under Labor Code section 2699, subdivision (a) only because class action requirements are "provisions of law" and subdivision (a) says that it applies regardless of, or notwithstanding, "any other provision of law." Defendants then argue that because Labor Code section 2699, subdivision (g) does not contain subdivision (a)'s "[n]otwithstanding any other provision of law" language, it follows that actions under that subdivision must comply with class action requirements. According to defendants, to conclude that subdivision (g) actions must satisfy class action requirements but subdivision (a) actions need not is "absurd" and therefore the Court of Appeal's statutory construction must be wrong. We disagree.

Slip op., at 11. According to the Supreme Court, Defendants' argument presupposed that class action requirements apply to all representative actions unless the Legislature affirmatively precludes their application by inserting the phrase "notwithstanding any other provision of law," or similar words, in the statute authorizing the representative action. The Court rejected that assumption.

The Supreme Court then turned to the employer’s argument that the legislative history required PAGA actions be brought as class actions. The Supreme Court noted that some committee reports expressed concerns that PAGA would allow employees to sue as a class action and some commentators were concerned that without a class action there could be no preclusive effects. The Supreme Court rejected committee report comments as insufficient to demonstrate any particular legislative intent regarding certification of PAGA claims.

The Court then turned to the due process issue of collateral estoppel. The employer argued that in the absence of class action requirements, employers would be subject to constant one-way intervention, violating their rights to due process. However an action under PAGA is binding not only on the named employee but also on the government agencies and any aggrieved employee not a party to the proceeding. An employee suing under PAGA does so as a “proxy or agent of the state’s labor law enforcement agencies.” Slip op., at p. 16. The employee can only bring a PAGA action after giving written notice pursuant to Section 2699.3. Id. An employee acts as a substitute for “the government itself” and a “judgment in an action binds all those ... who would be bound by a judgment in an action brought by the government.” Slip op., at p. 17.

Overall, the Court’s decision on the unfair competition law is straightforward. The long term effect of the Court’s foray into res judicata could have far reaching consequences for class actions in California. Taken as a whole, Arias should be a lesson to lawyers representing employers during settlements. Arias is clear that a PAGA action can only be commenced by adhering to the requirements under Section 2699.3. Slip op., at p. 16. In conjunction with the Supreme Court’s suggestion that the State of California has a vested interest in the civil penalties in PAGA, employers who settle class actions but do not settle PAGA actions with an employee who is authorized to file a PAGA action may find themselves liable for civil penalties owed to California (and, if authorized, other employees) for the same time period and the same class members who participated in a previous class action.

[Full Disclosure: Mr. Westrick is counsel in the matter of Deleon v. Verizon Wireless, in which the Supreme Court issued a “grant and hold” Order pending disposition of Arias. The Deleon matter directly raises the issue of whether settlement of wage & hour claims implicitly settles PAGA claims based upon the same underlying violations.]

e-Discovery: California Governor signs AB 5, the delayed e-discovery bill

After several weeks of slim pickings, this week is turning out to have more than enough news.  As a big for-instance, on June 29, 2009, Governor Schwarzenegger signed into law AB 5.  The Governor had previously vetoed a prior version of the bill for reasons probably related to some budgetary brinkmanship.  As before, the new rules track closely with the federal rules and would spell out how and when records from fax machines, computer databases, e-mails and cell phones should be exchanged in litigation. They also set up procedures for settling disputes over data that one party contends are trade secrets or privileged attorney work-product.

Supreme Court will issue opinion in Arias v. Superior Court (Dairy, RPI) and other cases on Monday, June 29, 2009

The Supreme Court pre-announces the release of opinions one business day before they are made available to the public.  This morning, the Supreme Court announced forthcoming decisions in two cases that are of interest to wage & hour class/mass action practitioners.  The first, Arias v. Superior Court (Dairy, RPI), concerns issues related to the Labor Code Private Attorneys General Act of 2004 ("PAGA").  The Court lists two questions that will be answered in the opinion:  "(1) Must an employee who is suing an employer for labor law violations on behalf of himself and others under the Unfair Competition Law (Bus. & Prof. Code, § 17203) bring his representative claims as a class action? (2) Must an employee who is pursuing such claims under the Private Attorneys General Act (Lab. Code, § 2699) bring them as a class action?"

The Supreme Court will also render its opinion in Amalgamated Transit Union, Local 1756, AFL-CIO et al. v. Superior Court (First Transit, Inc., et al., RPI).  Amalgamated addresses novel issues under PAGA and the UCL:  "(1) Does a worker’s assignment to the worker’s union of a cause of action for meal and rest period violations carry with it the worker’s right to sue in a representative capacity under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.) or the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.)? (2) Does Business and Professions Code section 17203, as amended by Proposition 64, which provides that representative claims may be brought only if the injured claimant "complies with Section 382 of the Code of Civil Procedure," require that private representative claims meet the procedural requirements applicable to class action lawsuits?"