Munoz v. BCI Coca-Cola Bottling Company of Los Angeles (Greenwell, objector) provides much-needed words of restraint concerning Kullar

Since Kullar v. Foot Locker Retail, Inc., 168 Cal. App. 4th 116 (2008) (Kullar) and Clark v. American Residential Services LLC, 175 Cal. App. 4th 785 (2009) (Clark) were decided, trial courts and settling parties in class actions have been looking over their shoulder at every settlement, concerned about the amount of information necessary to meet the Kullar/Clark standard for adequate settlement review.  For example, the Los Angeles Superior Court appears to be utilizing some form of checklist derived, in part, from Kullar to analyze proposed class action settlements.  Fortunately, in Munoz v. BCI Coca-Cola Bottling Company of Los Angeles (ord. pub. July 2, 2010) (Greenwell, objector), the Court of Appeal (Second Appellate District, Division Eight) explains that much of the angst over Kullar/Clark is overblown because their requirements have been overstated and/or misconstrued.

Plaintiffs in Munoz filed a class action lawsuit against BCI Coca-Cola Bottling Company of Los Angeles (BCI), alleging unpaid overtime wages, missed meal and rest period wages, and other Labor Code violations and unfair business practices. The proposed class consisted of production supervisors and merchandising supervisors who were allegedly misclassified as exempt.  After mediation, the parties agreed to settle the matter for $1.1 million. Notice of the proposed settlement elicited one objection. Two of the 188 class members opted out.  The average net payment to each class member would be about $4,300. The trial court found the settlement fair and reasonable. The objector, Greenwell, appealed, arguing that the trial court abused its discretion in approving the settlement, principally because the parties did not provide the court with the information necessary to make a finding that the settlement was reasonable and fair.

The Court of Appeal summarized the obligation of a trial court evaluating a class action settlement:

Some cases state that a presumption of fairness exists “where: (1) the settlement is reached through arm's-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small.” (Dunk, supra, 48 Cal.App.4th at p. 1802.) Kullar emphasizes that this is only an initial presumption; a trial court's approval of a class action settlement will be vacated if the court “is not provided with basic information about the nature and magnitude of the claims in question and the basis for concluding that the consideration being paid for the release of those claims represents a reasonable compromise.” (Kullar, supra, 168 Cal.App.4th at pp. 130, 133.) In short, the trial court may not determine the adequacy of a class action settlement “without independently satisfying itself that the consideration being received for the release of the class members' claims is reasonable in light of the strengths and weaknesses of the claims and the risks of the particular litigation.” (Id. at p. 129.)

Slip op., at 10.  However, after explaining that the objector complained "that the record before the trial court contained no evidence of 'the potential value of the claims,'" the Court went on to explain that Kullar is misunderstood:

Greenwell misunderstands Kullar, apparently interpreting it to require the record in all cases to contain evidence in the form of an explicit statement of the maximum amount the plaintiff class could recover if it prevailed on all its claims--a number which appears nowhere in the record of this case. But Kullar does not, as Greenwell claims, require any such explicit statement of value; it requires a record which allows “an understanding of the amount that is in controversy and the realistic range of outcomes of the litigation.”

Slip op., at 11.  Continuing, the Court noted, "Indeed, the standard list of factors a trial court should consider in determining whether a settlement is fair and reasonable does not expressly include specification of the maximum amount of recoverable damages (see Kullar, supra, 168 Cal.App.4th at p. 128), and Kullar is clear that the most important factor '"'is the strength of the case for plaintiffs on the merits, balanced against the amount offered in settlement.'"' (Id. at p. 130.)"  Slip op., at 11, n. 6.

The Court itemized the information available to the trial court in the case before it:

The information before the court included the size of the class (188) and the payroll data on all class members during the class period (including total amounts of salaries paid during the class period). It also included declarations from 30 class members (15 percent of the class) indicating the number of hours worked per week and per day (and the significant differences in those numbers): e.g., 70 hours per week, 48 hours per week, 60 hours per week, 42-44 hours per week, 55 hours per week, “no more than 50 hours per week,” 45 hours per week in winter and 50-60 hours per week at other times of the year, eight to nine hours per day, 45 hours per week, and so on. These declarations also showed significant variations....

Slip op., at 11.  In other words, the trial court had more than enough information to evaluate the "strength of the case" and compare that to the amount offered in settlement.

As an additional measure of assistance, the Court highlighted the facts from Kullar and Clark that undermined those settlements:

As a final observation on this topic, we note that the evidentiary records in Kullar and Clark, upon which Greenwell relies so heavily, are significantly different from this case. In Kullar (which did not involve the misclassification of exempt employees), there was no discovery at all on meal period claims that were added in an amended complaint and were the focal point of the objections to the settlement. (Kullar, supra, 168 Cal.App.4th at pp. 121-122.) While Kullar class counsel argued that the relevant information had been exchanged informally and during mediation (id. at p. 126), nothing was presented to the court--no discovery, no declarations, no time records, no payroll data, nothing (id. at pp. 128-129, 132)--to allow the court to evaluate the claim. And in Clark, the problem was that the trial court was not given sufficient information on a core legal issue affecting the strength of the plaintiffs' case on the merits, and therefore could not assess the reasonableness of the settlement terms. (Clark, supra, 175 Cal.App.4th at p. 798.) The record in this case contains neither of the flaws that doomed the Kullar and Clark settlements.

Slip op, at 13.

Munoz v. BCI clearly holds that there is no obligation on parties seeking approval of a class action settlement to state a specific sum that would represent the maximum possible recovery if the class prevailed on all theories.  Rather, the Court must have information that permits it to evaluate the strength of the claims compared to the amount offered in settlement.  This showing ought to be satisfied by a discussion of the specific risk factors associated with the various theories, along with data about such things as the size of the class.  In other words, if a trial court can roughly approximate the magnitude of the claims and the likelihood of recovery, it can fashion the necessary metric.

In addressing other arguments, the Court rejected a challenge to the $5,000 incentive awards approved by the trial court.

Mundy v. Neal confirms that pre-filing settlement attempt necessary for catalyst theory fees sought via Civil Code section 55

The plaintiff sued to force a land owner to install a van-accessible handicap parking space.  The landowner installed the space.  Plaintiff filed a dismissal with prejudice.  Plaintiff then sought his attorney fees under a catalyst theory because his lawsuit motivated corrective action that inures to the public benefit.  The trial court denied the motion for fees. The Court of Appeal, in Mundy v. Neal (June 30, 2010) (Second Appellate District, Division Two) affirmed, holding that the plaintiff did not attempt to settle prior to filing suit and was not the prevailing party under Graham v. DaimlerChrysler Corp., 34 Cal. 4th 553, 577 (2004).  Simple as that.

In Simpson Strong-Tie Co. Inc. v. Gore, California Supreme Court strengthens protections surrounding attorney speech

The California Supreme Court, in Simpson Strong-Tie Co. Inc. v. Gore (May 17, 2010) explicitly examined the narrow issue of the scope of the commercial speech exemption to the anti-SLAPP statute.  (See Code Civ. Proc., §§ 425.16, 425.17, subd. (c).)  Indirectly, the opinion concerns the scope of protection available to attorney communications directed at potential clients, class members or witnesses.  The issue arose when, in February 2006, plaintiff Simpson Strong-Tie Company, Inc. (Simpson) filed an action for defamation and related claims against defendants Pierce Gore and The Gore Law Firm after publication of a newspaper advertisement placed by Gore a few weeks earlier. The advertisement, directed to owners of wood decks constructed after January 1, 2004, advised readers that “you may have certain legal rights and be entitled to monetary compensation, and repair or replacement of your deck” if the deck was built with galvanized screws manufactured by Simpson or other specified entities, and invited those persons to contact Gore “if you would like an attorney to investigate whether you have a potential claim.”

Gore moved successfully in the superior court to have the entire complaint by Simpson stricken under section 425.16, the anti-SLAPP statute, and the Court of Appeal affirmed.  The Supreme Court affirmed as well, though limiting its review exclusively to the applicability of the commercial speech exemption to the anti-SLAPP statute set forth in section 425.17(c)(1).

The ruling offers additional protection to law firms prosecuting class actions.  A defendant will have little recourse against an advertisement that is crafted to satisfy the analysis supplied in this decision.

Update on 2010-05-20 07:35 by The Complex Litigator

Forgive the (corrected) typo in the title.  Some of those slip through.

Corporate officer can use attorney status to obtain relief from default class action judgment

My condolences to my colleague, Greg Karasik.  After almost two years of attempting to elicit some form of meaningful response from the defendant in Gutierrez v. G & M Oil Company, Mr. Karasik obtained something you don't see every day, a default judgment in a class action.  Sadly, that judgment of about $4 million was set aside by the trial court after it concluded that Michael Gray, Vice President and General Counsel for the defendant, could use his own neglect to set aside the default that he, in his capacity as corporate officer, knew about all along.  The Court of Appeal (Fourth Appellate District, Division Three) in Gutierrez v. G & M Oil Company (May 7, 2010) affirmed the decision.

The Court observed that the issue was one of first impression:

Today we face the related question of whether in-house attorneys come within the mandatory relief from default or dismissal provision of section 473 of the Code of Civil Procedure. The question is, as far as we are aware, one of first impression in California. However, based on what the Supreme Court said in General Dynamics and in PLCM about the role of in-house attorneys, there can be no doubt about the answer: yes.

There is a wrinkle in this case, however, that requires a little more explication. Here, the in-house attorney who negligently allowed a $4 million default judgment to be taken against his company and his employer, a gas station chain, had the title of “Vice President and General Counsel.” Thus, he was a corporate officer as well as being an in-house attorney. Should that make a difference?

Slip op., at 2.  Concluding that the issue was one of statutory construction, the Court found that "there is nothing in section 473 which suggests that in-house attorneys who are also officers of a corporation are somehow exempt from the operation of the mandatory provisions of the statute."  Slip op., at 3.

The opinion examines at some length the operation of section 473 as it pertains to in-house counsel.  I can credit the Court for a well-reasoned and well-written analysis (aside: though I regularly disagree with Division Three, there are some very good writers in that Division of the Fourth Appellate District).  Still, it is a disappointing outcome where an attorney that is also an officer of a company can avoid imputation of knowledge to the company by claiming that he was wearing his attorney hat.

Geico's attempt to "pick off" class representative in UCL action is unsuccessful

Oh, the riches that come to those who wait.  After a fairly dry spell, California's Courts of Appeal bestow no fewer than three opinions about issues related to class actions and the Unfair Competition Law ("UCL").  The first up for commentary is Wallace v. Geico General Insurance Company (April 19, 2010).  In Wallace, the Court of Appeal (Fourth Appellate District, Division One) considered whether GEICO's offer of monetary compensation to Wallace after she filed her lawsuit caused her to lose standing as the representative plaintiff.  Concluding that she did not, the Court reversed the trial court's order striking class allegations.

Wallace filed a proposed class action complaint against GEICO. According to Wallace, her vehicle was damaged in an accident and required body work. She obtained an estimate from a repair shop of her choice and presented the estimate to GEICO. GEICO told her that it would not pay the full amount of the estimate because the hourly rate for labor charged by that business was above what GEICO considered to be the prevailing labor rate.

Meanwhile, following a consent order issued by the California Department of Insurance, GEICO was obligated to calculate reimbursements in an alternative fashion.  Two months after Wallace filed her lawsuit, GEICO sent a check for $387.56 to Wallace to cover the amount that Wallace paid out of pocket for the repair of her vehicle.  Based on the fact of that payment, the trial court ruled that Wallace lacked standing but gave Wallace time to locate an adequate class representative and allowed discovery for that purpose.  Less than two months later, GEICO moved to strike class allegations.  The trial court granted the motion on the ground that the class had no representative.

The Court of Appeal began its review by examining the "pick off" cases:

In the specific situation where a defendant in a class action has forced an involuntary settlement on the representative plaintiff after the lawsuit is filed, case law creates an exception to the requirement that a representative plaintiff continue to be a member of the proposed class. These cases, which are "sometimes referred to as 'pick off ' cases" (Watkins v. Wachovia Corp. (2009) 172 Cal.App.4th 1576, 1590), "arise when, prior to class certification, a defendant in a proposed class action gives the named plaintiff the entirety of the relief claimed by that individual. The defendant then attempts to obtain dismissal of the action, on the basis that the named plaintiff can no longer pursue a class action, as the named plaintiff is no longer a member of the class the plaintiff sought to represent. . . . [T]he defendant seeks to avoid exposure to the class action by 'picking off ' the named plaintiff, sometimes by picking off named plaintiffs serially." (Ibid., citing, among others, La Sala, supra, 5 Cal.3d 864.) In this situation, "the involuntary receipt of relief does not, of itself, prevent the class plaintiff from continuing as a class representative." (Watkins, at p. 1590; see also Larner v. Los Angeles Doctors Hospital Associates, LP (2008) 168 Cal.App.4th 1291, 1299 [case law "prevents a prospective defendant from avoiding a class action by 'picking off' prospective class-action plaintiffs one by one, settling each individual claim in an attempt to disqualify the named plaintiff as a class representative"]; Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th 528, 548 [" '[A] prospective defendant is not allowed to avert a class action by "picking off " prospective plaintiffs one-by-one. Thus, precertification payment of the named plaintiff 's claim does not automatically disqualify the named plaintiff as a class action representative.' "].) 

Slip op., at 11-12.  Having explained that the "pick off" attempt was improper, the Court then explained what the trial court should have done in that situation:

Instead of a reflexive dismissal of the representative plaintiff on the basis that he or she lacks standing as the trial court did here — the proper procedure in a pick off situation is for the trial court to consider whether "the named plaintiffs will continue fairly to represent the class" in light of the individual relief offered by the defendant. (La Sala, supra, 5 Cal.3d at p. 872.) As a practical matter, in most cases, that evaluation may be performed in the context of a ruling on a motion for class certification, where the trial court inquires into the existence of, among other things, "(1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class." (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326, italics added; see also Weiss, supra, 385 F.3d at p. 348 [allowing class certification motion to be filed after defendant attempted to pick off the representative plaintiff].)

Slip op., at 13.  Next, the Court explicitly held that the "pick off" cases apply to UCL actions, even after Proposition 64:

We agree with the parties that the pick off cases are persuasive here, regardless of the injury-in-fact requirement set forth in section 17204. As required by section 17204, Wallace "suffered injury in fact" and "lost money or property" as a result of the practices at issue in this lawsuit. (§ 17204.) Specifically, Wallace was injured by paying for the repair work to her vehicle that GEICO did not agree to cover. Thus, at the time Wallace filed suit she was a proper plaintiff under section 17204. We see no indication in the history of Proposition 64, as reviewed by our Supreme Court in Californians for Disability Rights, supra, 39 Cal.4th 223, 228, that the voters amended section 17204 with the intent of allowing defendants in class actions brought under section 17200 et seq. to defeat class status by forcing an involuntary settlement.

Slip op., at 15-16.  The Court went on to explain that Proposition 64 focused on "the filing of lawsuits by attorneys who did not have clients impacted by the defendant's conduct."  Slip op., at 16.  Thus, "[b]ecause the doctrine expressed in the pick off cases is an established part of class action procedure, there is no reason to believe that Proposition 64 was intended to alter that doctrine in the context of suits brought under section 17200 et seq."  Slip op., at 17, relying on In re Tobacco II Cases (2009) 46 Cal.4th 298, 318.

I still can't get over the fact that an insurance company wouldn't pay for the full cost of vehicle repair.  Inconceivable.

Judge Patel offers interesting comments about the puzzle of PAGA

United States District Court Judge Marilyn Hall Patel (Northern District of California) offered some interesting comments, but no clear solutions, to the puzzle posed by litigation of PAGA claims as representative actions.  Ochoa-Hernandez v. Cjaders Foods, Inc.. (N.D. Cal. Apr. 2, 2010) 2010 WL 1340777.  In the course of denying plaintiff's motion to preclude the defendant from contacting current or former employees about the litigation, the Court said:

From a practical perspective, plaintiff's analogy between class actions and PAGA claims is also misplaced. While both fall within the general category of virtual representation, there are significant differences between the two. Unlike a class action seeking damages or injunctive relief for injured employees, the purpose of PAGA is to incentivize private parties to recover civil penalties for the government that otherwise may not have been assessed and collected by overburdened state enforcement agencies. Id. (“The act's declared purpose is to supplement enforcement actions by public agencies, which lack adequate resources to bring all such actions themselves.”). Unlike class actions, these civil penalties are not meant to compensate unnamed employees because the action is fundamentally a law enforcement action. Moreover, unlike the binding finality of a class action with respect to damages, the individual employee has less at stake in a PAGA representative action: if the employer defeats a PAGA claim, the nonparty employees, because they were not given notice of the action or afforded an opportunity to be heard, are not bound by the judgment as to remedies other than civil penalties. Id. at 987, 95 Cal.Rptr.3d 588, 209 P.3d 923. Thus, nonparty employees can bring an action against the employer based on identical facts so long as they do not seek civil penalties. Class members, however, would be bound by a judgment against the class, independent of the remedy later sought.

*5 Class actions litigated in federal court also contain numerous procedural protections that are not available in PAGA claims. Unnamed employees need not be given notice of the PAGA claim, nor do they have the ability to opt-out of the representative PAGA claim. There is no indication that the unnamed plaintiffs can contest a settlement, if any, reached between the parties. The court does not have to approve the named PAGA plaintiff, nor does the court inquire into the adequacy of counsel's ability to represent the unnamed employees. These procedural protections ensure the fidelity of the attorney-client arrangement in a class action. Their absence further militate against considering a PAGA claim akin to a certified class action.

Additionally, in order to bridge the gap between Arias and the creation of an attorney-client relationship, at least two inferential steps are required, and neither is present. First, Arias is silent on what procedures, if not class action procedures, are sufficient to perfect representative status in representative actions. While representative status may accrue once administrative requirements have been satisfied, Arias does not so hold and plaintiff cites no further authority. Second, assuming that representative status is perfected once administrative requirements are satisfied, Arias does not contemplate the practical issue of when, if at all, an attorney-client relationship arises between plaintiff's counsel and the current or former employees.

Slip op., at 4-5.  If it isn't obvious from this long excerpt, the argument up for discussion was whether an attorney-client relationship existed between the absent employees and the attorney for the named plaintiff.  While the Court's comments explain why a PAGA claim is different from a class action, the discussion is not intended to address the case management question posed by PAGA.  Nevertheless, the brief observations by this Court are of interest to practitioners in this area of law.

"Approved as to form and content" language added to many agreements finally held to be just shy of worthless

You've seen them.  The settlement agreements with "Approved as to form and content" at the end of document, with a place for the attorneys to sign right along with the parties.  I know a lawyer that has, for many years, refused to sign off on such language.  His reason?  He's not a party to the agreement; his client is.  It turns out that his instincts were pretty accurate.  In what it believes to be a case of first impression, the Court of Appeal (Second Appellate District, Division Four), in Freedman v. Brutzkus (March 11, 2010), examined at least some of the legal import of that language:

The signature block on a contract bears an attorney signature under the legend “approved as to form and content.” Does that signature amount to an actionable representation to an opposing party‟s attorney? We conclude that it does not.

Slip op., at 2.  The Court noted the lack of authority directly construing the import of this recital:

Apart from the signature approving the agreement “as to form and content,” Freedman does not allege, nor does the record show, that Brutzkus made any representation as to the agreement‟s validity, or affirmed any representation of his clients. We find little authority in California or elsewhere addressing the meaning of this recital. (See, e.g., In re Marriage of Hasso (1991) 229 Cal.App.3d 1174, 1181 [declining to find an attorney‟s approval “as to form” a condition precedent to enforceability of an agreement]; Ahrenberg Mech. Contractor v. Howlett (Mich. 1996) 545 N.W.2d 4, 5-6, citing Kirn v. Ioor (Mich. 1934) 253 N.W. 318 [finding approval as to form and content of a court order insufficient to establish a consent judgment]; First American Title Ins. Co. v. Adams (Tex.Ct.App. 1992) 829 S.W.2d 356, 364 [determining that an attorney‟s approval as to form and substance does not establish a consent judgment or relinquish a party‟s right to appeal]; CIC Prop. Owners v. Marsh USA, Inc. (5th Cir. 2006) 460 F.3d 670, 672-673 [agreement stating it was “„reviewed by counsel for parties and approved as to form and content‟” indicates that parties were separately advised by counsel].)

Slip op., at 5.  Having no direct authority to answer the question raised on appeal, the Court did the only thing it could do, apply common sense: 

We conclude that the only reasonable meaning to be given to a recital that counsel approves the agreement as to form and content, is that the attorney, in so stating, asserts that he or she is the attorney for his or her particular party, and that the document is in the proper form and embodies the deal that was made between the parties.

Slip op., at 5-6.

This isn't a complex litigation issue, or a class action issue.  It's just a fine example of all those mindless acts of habit that attorneys insist upon without a good reason.

in brief: Coito v. Superior Court may alter the way in which information is gathered in some class actions

Yesterday, in Coito v. Superior Court (March 4, 2010), the Court of Appeal (Fifth Appellate District) addressed an issue that nominally concerned the collection of evidence in a wrongful death lawsuit naming California as one defendant.  The facts are particularly sad in that the case involved the death of a child, but, then, the facts of all wrongful death cases are sad.  The issue addressed in Coito is whether an attorney's collection of a witness statement after the attorney selected the witness to interview is work product (absolute or qualified).  Coito holds that even attorney-collected statements are not, unless the attorney's independent thoughts and analysis are inextricably intertwined with the statements of the witness.  The majority is exceedingly critical of Nacht & Lewis Architects, Inc. v. Superior Court, 47 Cal.App.4th 214 (1996), a case frequently relied upon to shield putative class member declarations from discovery.  Coito puts that argument in jeopardy.  I may be wrong, but I think that this decision may affect the manner in which putative class members are handled during interviews by counsel on both sides.  The case, and especially the long and thoughtful concurring and dissenting opinion, deserves more attention than I can provide today, so I may post a longer comment over the weekend.

California Supreme Court activity for the week of February 1, 2010

The California Supreme Court held its (usually) weekly conference today.  Notable results include:

• A Petition for Review was denied in Princess Cruise Lines, Ltd. v. Superior Court (November 10, 2009) (reliance as an element of certain UCL cases) - discussed on this blog here
• A Request for Depublication was denied in Nazir v. United Airlines, Inc. (October 9, 2009) (abusive practices in summary judgment motions) - discussed on this blog here