On remand after Brinker, Court of Appeal reconsiders prior decision and orders certificaiton in Faulkinbury

The press of obligations at work left little time for my blogging, which I regret.  And, I haven't seen anything all that interesting in the class action/complex litigation arena ​in the last few weeks.  That did change last week when, in Faulkinbury v. Boyd & Associates, Inc. (May 10, 2013), the Court of Appeal (Fourth Appellate District, Division Three) [What?!?] reconsidered its prior decision following remand after Brinker​.  The Court concluded that, along with the overtime class it previously ordered certified, the meal period and rest break claims should also have been certified.

Just to summarize, if my prose above was too painful to follow, the trial court denied class certification as to all claims, covered by three subclasses referred to as the Meal Break Class, the Rest Break Class and the Overtime Class.  The Court of Appeal, in a decision previously published as Faulkinbury v. Boyd & Associates, Inc., 185 Cal. App. 4th 1363 (2010), review granted Oct. 13, 2010, S184995 (Faulkinbury I), reversed the order denying certification of the overtime class but affirmed the order denying certification of the Meal Break Class and the Rest Break Class.  Then Brinker​.  Then review granted.  Then remand with an order to vacate Faulkinbury I and reconsider in light of Brinker.

Summarizing the Supreme Court's guidance regarding the consideration of merits at the certification stage, the Court said:​

The Supreme Court confirmed a class certification motion should not be a vehicle for resolving the merits of a claim, but recognized too that “[w]hen evidence or legal issues germane to the certification question bear as well on aspects of the merits, a court may properly evaluate them.”  (Brinker, supra, 53 Cal.4th at pp. 1023‑1024.)  The court concluded:  “Presented with a class certification motion, a trial court must examine the plaintiff’s theory of recovery, assess the nature of the legal and factual disputes likely to be presented, and decide whether individual or common issues predominate.  To the extent the propriety of certification depends upon disputed threshold legal or factual questions, a court may, and indeed must, resolve them.  Out of respect for the problems arising from one-way intervention, however, a court generally should eschew resolution of such issues unless necessary.  [Citations.]  Consequently, a trial court does not abuse its discretion if it certifies (or denies certification of) a class without deciding one or more issues affecting the nature of a given element if resolution of such issues would not affect the ultimate certification decision.”  (Id. at p. 1025.)

Slip op., at 6.​  Continuing, the Court observed that the Supreme Court "emphasized that '[c]laims alleging that a uniform policy consistently applied to a group of employees is in violation of the wage and hour laws are of the sort routinely, and properly, found suitable for class treatment.'"  Slip op., at 7.  The support for that last proposition was summarized as follows:

Brinker court cited three Court of Appeal cases:  Jaimez v. Daiohs USA, Inc. (2010) 181 Cal.App.4th 1286 (Jaimez); Ghazaryan v. Diva Limousine, Ltd. (2008) 169 Cal.App.4th 1524 (Ghazaryan); and Bufil v. Dollar Financial Group, Inc. (2008) 162 Cal.App.4th 1193 (Bufil).  In Jaimez, Ghazaryan, and Bufil, the Court of Appeal held the trial court abused its discretion by denying class certification.  (Jaimez, supra, at pp. 1299‑1307; Ghazaryan, supra, at pp. 1534‑1538; Bufil, supra, at pp. 1205‑1206.)  These courts reasoned that the plaintiffs were challenging a uniform employment policy that allegedly violated California law, and, therefore, this violation could be proved (or disproved) through common facts and law.  (Jaimez, supra, at pp. 1299‑1300; Ghazaryan, supra, at pp. 1536‑1538; Bufil, supra, at p. 1206.)  The courts in Jaimez and Ghazaryan also concluded that common issues predominated even if the employment policy did not affect each employee in the same way and damages would need to be proved individually.  (Jaimez, supra, at pp. 1301, 1303‑1305; Ghazaryan, supra, at p. 1536.)

Slip op., at 7, n. 1.

​This is one area in which California certification procedural law appears to track somewhat more favorably for certification than does federal law applying Rule 23.  At the very least, it appears to conceptually negate the flavor-of-the-month argument, magically extracted from Wal-Mart​, that a defendant is entitled to assert individual defenses in every case against every class member, thereby defeating class certification in virtually every conceivable case (which, logically, could not be true or someone might have noticed this over the decades upon decades of class action jurisprudence, but I digress as I so often do).  Wal-Mart​, a case about a specific intent type of violation, says nothing of the sort, absent very creative quote extraction, coupled with very creative editorial content used to describe that very creative quote extraction. But stated another way, Brinker​ doesn't diverge from the federal track so much as hold the line that California has charted for some time, while cagey defense counsel try to move the tracks over on the federal side.  I suspect that, when the dust settles, the tracks will have moved back to a point closer to convergence, but not until there isn't much left of that Wal-Mart horse to beat.

Turning back to the Faulkinbury II decision, ​other observations of note include:

• Justice Werdegar's concurrence in Brinker is identified as providing guidance on the question of missed meal breaks, Slip op., at 10.​
• ​The Court agreed with the analysis of Brinker supplied by Bradley v. Networkers Internat., LLC, 211 Cal. App. 4th 1129 (2012), Slip op., at 16.
• Without deciding the lawfulness of the policy, the Court concluded that the question of whether the on-duty meal period policy was legal was a question suitable for certification, even if questions existed as to the frequency that meal periods were missed or the reasons as to why they were missed.  Slip op., at 15-16.
  

I can't promise that work obligations won't steal blogging time, but I will keep doing my best to highlight major decisions and events, intermingled with my brand of commentary.

California Supreme Court activity for week of April 8, 2013

On April 10, 2013, the California held its (usually) weekly conference.  Significant results include:

• in Flores v. West Covina Auto Group, the Petition was granted and the matter held, pending resolution of Iskanian v. CLS Transportation (Court of Appeal affirmed a trial court order compelling individual arbitration in a case alleging class claims).
  

Second Appellate District concludes that Gentry remains good law, despite Concepcion

While it may not last much longer than it takes the ink to dry on the opinion, the Court of Appeal (Second Appellate District, Division One), in Franco v. Arakenian Enterprises, Inc. (November 26, 2012) considered a significant question: "The question on appeal is whether Gentry was overruled by Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) 559 U.S. ___ [130 S.Ct. 1758] (Stolt-Nielsen) and AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ [131 S.Ct. 1740] (Concepcion)."  Slip op., at 3.  Summarizing a 65-page opinion, the Court said:

We conclude that Gentry remains good law because, as required by Concepcion, it does not establish a categorical rule against class action waivers but, instead, sets forth several factors to be applied on a case-by-case basis to determine whether a class action waiver precludes employees from vindicating their statutory rights. And, as required by Stolt-Nielsen, when a class action waiver is unenforceable under Gentry, the plaintiff's claims must be adjudicated in court, where the plaintiff may file a putative class action. Accordingly, we affirm.

Slip op., at 3.

The decision follows an earlier opinion in the matter, Franco v. Athens Disposal Co., Inc., 171 Cal. App. 4th 1277 (2009) (Franco I).  That procedural and factual history is extensive, and I won't summarize it.  The opinion also contains a footnote indicating that it invited comment on D.R. Horton, but because Franco did not respond to the request, the Court declined to address the impact of that matter.

 The decision also has an exhaustive review of arbitration decisions in the context of statutory claims.  After that history, the Court examined the reach of the Concepcion.  An extended portion of the Court's analysis cited approvingly to a law review analysis: Gilles & Friedman, After Class: Aggregate Litigation in the Wake of AT&T Mobility v. Concepcion (2012) 79 U.Chi. L.Rev. 623.

Ultimately, after looking at the Question Presented in Concepcion, the Court concluded that, in this case, Franco lacked the means, not the incentive, to pursue his claims.  That distinction, the Court held, justified the trial court's decision to deny the petition to compel arbitration.

Then, tucked right into the end of the opinion, the Court offered a monumental observation that would have had great significance if the Court had considered D.R. Horton:

Which brings us to the subject of Concepcion's effect, if any, on PAGA claims. We have already concluded that Athens Services's arbitration agreement — the MAP — contains two unenforceable clauses: the class action waiver and the prohibition on acting as an attorney general. (See Franco I, supra, 171 Cal.App.4th at pp. 1297–1300, 1303; fn. 2, ante.) Those clauses operate independently of each other: One restricts Franco‘s pursuit of his rest and meal period claims while the other prohibits his recovery under the PAGA. Together, they render the MAP tainted with illegality, making it unenforceable and permitting Franco to adjudicate his claims in a judicial forum. (See Franco I, at p. 1303; fn. 2, ante.) Concepcion does not preclude a court from declaring an arbitration agreement unenforceable if the agreement is permeated by an unlawful purpose.

Slip op., at 64.  See that?!  Right there?!  This Court gets it!  If you impose a contract that violates the law (e.g., the NLRA), then the contract is unenforcable in Court on the general ground of illegality.  Any contract that violates the NLRA, not just arbitration agreements, is void and unenforceable.  How hard is this, really?  And here we finally see a Court clearly articulate the illegality defense analysis, but the Court declined to address the NLRA argument because one of the parties was too busy to answer.  Wonderful.

Of course, this case may vanish for years when it gets sucked up into the California Supreme Court's Gentry re-examination.

In Ayyad v. Sprint Spectrum, L.P., Sprint's call cannot be completed as dialed

I did warn you, but in the post below, so you might not be aware that you were warned.  In Ayyad v. Sprint Spectrum, L.P. (October 29, 2012), the Court of Appeal (First Appellate District, Division Five) had yet more work to do in the long-running saga of the Cellphone Termination Fee Cases.  In Cellphone Termination Fee Cases, 193 Cal. App. 4th 298 (2011) the Court affirmed a December 2008 judgment in favor of the plaintiffs in this class action against Sprint Spectrum, L.P. (Sprint).  The Court also affirmed the trial court's order granting Plaintiffs a partial new trial on the issue of Sprint's actual damages and the calculation of a setoff to which Sprint might be entitled.  The case was then remanded for further proceedings limited to those issues.  But, when the matter returned to the trial court, Sprint moved to compel arbitration of the named plaintiffs' claims, the same claims addressed in the Court's affirmance of the 2008 judgment.  The trial court declined to consider the motion, finding that jurisdiction on remand was limited to the issues set forth in the Court's opinion.

While this sounds like it could be a case about arbitration law, it isn't.  It is entirely a decision about trial court jurisdiction after an appeal and remand with directions:

As the language of the cited cases indicates, the rule requiring a trial court to follow the terms of the remittitur is jurisdictional in nature. (People v. Dutra (2006) 145 Cal.App.4th 1359, 1367 (Dutra).) The issues the trial court may address in the remand proceedings are therefore limited to those specified in the reviewing court‘s directions, and if the reviewing court does not direct the trial court to take a particular action or make a particular determination, the trial court is not authorized to do so. (Bach, supra, 215 Cal.App.3d at pp. 302, 303, 304; accord, Hanna v. City of Los Angeles (1989) 212 Cal.App.3d 363, 376 (Hanna) [where on prior appeal reviewing court did not direct trial court on remand to determine whether statutory violations had occurred, any such determination would be in excess of jurisdiction on remand].)

Slip op., at 8.  The Court then explained that a new trial on damages only did not open the door for the trial court to consider other issues raised by Sprint.

Law firm cannot recover fees as prevailing party when represented by Of Counsel

This isn't really on topic, but it was interesting enough to note.  In Sands & Associates v. Martin Juknavorian (October 10, 2012), the Court of Appeal (Second Appellate District, Divsion One) held that the Of Counsel relationship is sufficiently "close, personal, continuous, and regular" that a firm represented by Of Counsel to the firm cannot recover fees as a prevailing party, even when a prevailing party clause applies to the dispute.

Do NOT cite opinions after review is granted by the California Supreme Court (even if you claim you aren't relying on them). Stop. No. Don't. I see that.

Generally speaking, unpublished cases cannot be cited or relied upon by parties or courts.  California Rules of Court, rule 8.1115 states, in part: "Except as provided in (b), an opinion of a California Court of Appeal or superior court appellate division that is not certified for publication or ordered published must not be cited or relied on by a court or a party in any other action."  Cal. Rules Ct., rule 8.1115(a).  The only exceptions arise when the same parties are involved, or the conduct of a party in one case is relevant in criminal or disciplinary proceedings in another.  When review of a published case is granted by the California Supreme Court, it is depublished: "Unless otherwise ordered under (2), an opinion is no longer considered published if the Supreme Court grants review or the rendering court grants rehearing."  Cal. Rules Ct., rule 8.1105(e).  In The People v. E*Poly Star, Inc. (May 14, 2012), the Court of Appeal (Second Appellate District, Division Seven) let E*Poly and the Trial Court have it for referencing Aryeh v. Canon Business Solutions, Inc. (2010) 185 Cal.App.4th 1159, review granted Oct. 20, 2010 (S184929) (Aryeh).

On the issue of improper citation of an unpublished decision, the Court said:

Supreme Court review in Aryeh was granted on October 20, 2010 (S184929), more than a month prior to the filing of the district attorneys' lawsuit. As of that date any citation to, or reliance upon, that decision was expressly prohibited by rule 8.1115(a) of the California Rules of Court except under the limited circumstances set forth in rule 8.1115(b), none of which appears to be applicable to the case at bar. (See rule 8.1105(e)(1) [“[u]nless otherwise ordered . . ., an opinion is no longer considered published if the Supreme Court grants review”].) Nonetheless, employing something akin to the rhetorical device formally known as paraleipsis or apophasis—that is, mentioning something while disclaiming any intention of mentioning it—E*Poly Star in the trial court and once again in its brief in this court, after noting the Court of Appeal decision in Aryeh is not citable, has discussed the case at length and argues we should defer to its reasoning.  This use of an unpublished, noncitable opinion is a direct violation of rule 8.1115(a) and is wholly unacceptable. (Cf. rule 8.276(a)(4) [authorizing sanctions on the court's own motion for any unreasonable violation of the Rules of Court].)

Slip op., at 12-13 (footnote references omitted).  But the Court wasn't done, stating in a footnote:

E*Poly Star's improper use of Aryeh transcends suggesting we consider the case for its persuasive value. While purporting to recognize the split panel decision by our colleagues in Division Eight is no longer even citable, E*Poly Star contends it is, in fact, binding on us: “It is respectfully submitted that it is not the function of this reviewing court to second-guess itself and re-address a prior published decision, merely and especially because the decision is being reviewed by the State Supreme Court.” That is simply wrong. Even were the case still published, we would not be obligated to adopt its result; there is no “horizontal stare decisis” in the Court of Appeal. (Jessen v. Mentor Corp. (2008) 158 Cal.App.4th 1480, 1489, fn. 10; In re Marriage of Shaban (2001) 88 Cal.App.4th 398, 409.) Although, as E*Poly Star states, we frequently follow a prior decision by another division of this court or another district, we will not do so if there is reason to disagree with the conclusion of that case. (People v. Kim (2011) 193 Cal.App.4th 836, 847; Greyhound Lines, Inc. v. County of Santa Clara (1986) 187 Cal.App.3d 480, 485.)

Slip op., at 12.  "Horizontal stare decisis."  Priceless.  There really ARE some things money can't buy.

Ending its discussion of the use of uncitable authority, the Court also chided the Trial Court:

Similarly, the trial court's reference to the Aryeh opinion and its implicit adoption of its holding with the statement it “agrees with Aryeh's analysis” constitute an impermissible use of a noncitable decision. If the trial court is somehow familiar with an unpublished opinion and finds its analysis persuasive, then it is free to utilize that analysis, just as courts may adopt as their own the analysis contained in the parties' briefs. Any reference to the unpublished case itself, however, violates rule 8.1115(a) even if, as here, accompanied by the qualification, “even though not citable.”

Slip op., at 13.  I saw this happen several times while Brinker was pending.  A number of trial courts observed that Brinker was under review but then said that they agreed with its analysis and were adopting it.  Naughty.

The Court also discusses statute of limitation and accrual issues that may be impacted by Aryeh, but I thought the discussion of uncitable authority was a lot more entertaining than a discussion that could be mooted by Aryeh and might be nullified on a grant and hold pending Aryeh in any event.

$15 million misclassification class judgment reversed in Duran v. U.S. Bank National Association

Exemption-based misclassification cases are hard to certify.  But when you certify an overtime exemption misclassification case, try it, and win a $15 million verdict, you'd think that the hard times are behind you.  Not so fast.  In Duran v. U.S. Bank National Association (February 6, 2012), the Court of Appeal (First Appellate District, Division One) reversed that verdict, decertified the class, and sent the whole thing back down to the trial court for further consideration of how to resolve the individual break claims in light of Brinker.

The plaintiffs in the case were 260 current and former business banking officers (BBO's) who claimed they were misclassified by USB as outside sales personnel exempt from California‘s overtime laws.  The procedural history was messy.  Exemption defenses were summarily adjudicated.  The defendant moved unsuccessfully to decertify.  The trial included motions about evidentiary exclusions.  It appears from the summary that a substantial amount of evidence the defendant sought to introduce was excluded from the trial.  Significantly, a small survey was conducted and then relied upon by a statistics expert to determine class-wide liability.

The Court issued a number of significant holdings, which all revolve around the propriety of proving liability in a misclassification class action with statistical evidence, as opposed to proving damages once liability is established.  For example, the Court held that use of statistical evidence to prove liability is inconsistent with cases examining such evidence at certification:

USB claims California law precludes class-wide liability determinations based on evidence obtained from a representative sample in employment cases alleging misclassification. USB relies on several state and federal wage and hour class action cases for the proposition that surveying, sampling, and statistics are not valid methods of determining liability because representative findings can never be reasonably extrapolated to absent class members in misclassification claims given that time spent performing exempt tasks may differ between employees. While all the cases cited by USB involve rulings on motions to certify or decertify class actions, they support the conclusion that improper procedures were followed in this case.

Slip op., at 47-48.  The Court also held that statistical sampling for proof of liability is inconsistent with its Bell III decision:

The procedures we approved in Bell III are only superficially similar to the procedures utilized in the present case.  Again, in Bell III we did not have occasion to consider the use of a representative sample to determine class-wide liability, since liability was not an issue on appeal. Accordingly, the only issue we addressed was the damages calculation itself, and not whether the plaintiff employees had a right to recover damages in the first place. And our assessment was based on a record evidencing cooperation and agreement among the parties and their counsel.

Slip op., at 45.  With respect to Bell III, the Court explained that the present case suffered a number of flaws (sample too small, no test studies to set sample size, lack of randomness, and no cooperation between the parties) not found in Bell III.  The Court then said:

Fifth, the restitution award here was affected by a 43.3 percent margin of error, more than 10 percentage points above the margin of error for the double-overtime award we invalidated in Bell III. In absolute terms, the average weekly overtime hour figure could conceivably be as low as 6.72 hours per week, as opposed to the 11.86 hour figure arrived at here. While we again will not set a bright line for when a margin of error becomes so excessive as to be deemed unconstitutional, we are troubled by this result.

Slip op., at 46.

Next, the Court concluded that the exclusion of 78 sworn statements that, if admitted, would have reduced the class size by about one-third, was a prejudicial error that violated the defendant's due process right to present relevant evidence in its defense: "The evidence USB sought to introduce, if deemed persuasive, would have established that at least one-third of the class was properly classified. Thus, this evidence USB sought to introduce is unquestionably relevant and therefore admissible."  Slip op., at 55.

The Court then explained that the fatal flaw in the trial management plan was the exclusion of virtually all means by which the defendant could have defended against class-wide liability:

Fundamentally, the issue here is not just that USB was prevented from defending each individual claim but also that USB was unfairly restricted in presenting its defense to class-wide liability. With that in mind, the cases relied on by plaintiffs are inapposite. Both Long v. Trans World Airlines, Inc. (N.D.Ill. 1991) 761 F.Supp. 1320 [protective order limited discovery of information from plaintiff flight attendants to a representative sample of class members], and In re Antibiotic Antitrust Actions (S.D.N.Y. 1971) 333 F.Supp. 278 [states sought recovery for alleged overcharges in the sale of certain antibiotics], concerned the damages phase of a trial, not the liability phase.

Slip op., at 58.  So, when a defendant asserts that this case stands for the proposition that it gets to defend agasint each individual class member's claim, be sure to remind the defendant and Court that the holding actually criticized the absence of any means to mount a defense, rather than specifying the specific forms that a reasonable opportunity to defend must take:

In sum, the court erred when, in the interest of expediency, it constructed a set of ground rules that unfairly prevented USB from defending itself. These ground rules were the product of the trial court. We do not suggest that the implementation of any particular additional procedural tool would have satisfied due process. We simply hold that the court, having agreed to try this matter as a class action, denied USB the opportunity to defend itself by flatly foreclosing the admission of potentially relevant evidence.

Slip op., at 60.

The Court spent some additional time commenting on the margin of error near 44 percent, which it found to be unacceptably large to form the basis of any reasonable result.  The Court concluded its opus by finding that, under the second motion to decertify, the trial court erred by failing to decertify the class.

I think I can sum all this up by observing that (1) misclassification cases in the exemption context are difficult cases and getting tougher all the time, and (2) defendants will incorrectly claim that this decision stands for a mythical due process right that the defendant gets to challenge each class member's claim.  Can't help with one, and can't stop two, but as to two, you can point out that there are many ways to provide a defendant with a reasonable opportunity to defend against class liability.

"Hot gas" case against Chevron lives to fight another day in Klein v. Chevron U.S.A., Inc.

Hot gas.  This is not a term of art describing oral argument.  It literally refers to gasoline, and its propensity to expand as it gets warmer.  In Klein v. Chevron U.S.A., Inc. (January 25, 2012), the Court of Appeal (Second Appellate District, Division Seven) dispensed wisdom, a drop at a time, about the viability of claims related to hot gas.  Before I pump up this case any more, allow me to fuel your appetite with some background.  After that we'll motor on to the significant holdings.

How does hot gas work again?  The Court explained:

Motor fuel expands in volume as it is heated. As a result of this thermal expansion, a gallon of motor fuel at a warmer temperature has less mass and less energy content than a gallon of motor fuel at a cooler temperature. A temperature increase of 15 degrees causes motor fuel to expand in volume by approximately one percent, with a corresponding one percent decrease in energy output. For example, when 231 cubic inches of motor fuel, which equals one volumetric gallon, is heated from 60 degrees Fahrenheit to 75 degrees Fahrenheit, the motor fuel will expand to occupy a volume of approximately 233 cubic inches.

Slip op., at 4.  Ahh.  Anyhow, after a lot of discussion about regulations, and how fuel must be temperature adjusted if sold in amounts about 5,000 gallons, the Court turned to the theories impacted by the trial court's rulings on a demmurer and motion for judgment on the pleadings.

First, the Court held that the trial court erred when it dismissed the plaintiffs' claims arising under the CLRA and UCL:

Chevron's arguments are predicated on the assumption that the only possible form of relief in this case is a court order mandating that Chevron offer its retail consumers temperature-adjusted motor fuel through the implementation of ATC technology or other similar technologies. The plaintiffs' complaint, however, seeks other relief, including a disclosure requirement that, if granted, might not require substantial changes to the way Chevron currently sells motor fuel at the retail level.

Slip op., at 26.  That "other relief" mentioned by the Court includes injunctive relief compelling disclosure to consumers.  The Court next concluded that no alternative means exist for addressing the plaintiffs' issues.  On that basis, the Court concluded that judicial abstention was improper.

The Court then turned to specific claims, beginning with a half-hearted standing challenge.  The Court wasn't impressed: "Chevron concedes that, at the pleading stage, a plaintiff asserting a UCL or CLRA claim 'satisfies its burden of demonstrating standing by alleging an economic injury.' (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 254.)"  Slip op., at 35.  (Had to get that Boschma cite in there - my colleague, J. Mark Moore, argued that appeal.)

Next, the Court tackled the prongs of the UCL, beginning with the "unfair" prong:

At the pleading stage, we cannot presume that these alleged harms are not “substantial” or are otherwise outweighed by benefits that consumers derive from Chevron's practice of selling non-temperature adjusted motor fuel at the retail level. (Camacho, supra, 142 Cal.App.4th at p. 1403.) Although the evidence in this case may show that consumers do not suffer any substantial injury from the sale of nontemperature adjusted fuel or that the costs associated with remedying such injuries outweigh any benefit to consumers, we agree with the trial court‟s conclusion that such issues must “be determined on a developed factual basis.”

Slip op., at 37.  Chevron argued that it was not obligated to pass along or disclose its profit margins.  The Court distinguished Chevron's authority:

There are, however, important distinctions between this case and McCann. First, the holding in McCann has no relevance to plaintiffs' claim that, by selling non-temperature adjusted fuel at retail, Chevron is able to charge consumers more in purported motor fuel tax than it is required to pay to the government. Plaintiffs' tax-based claim has nothing to do with Chevron's failure to disclose its profit margins or the price at which it procures motor fuel at wholesale.

Second, unlike in McCann, the “gist” of plaintiffs‟ unfairness claim is not that Chevron was required to “disclose their own costs or profit margins” to consumers. (McCann, supra, 129 Cal.App.4th at pp. 1387, 1395 [“gist” of plaintiff's claim was that defendant “fails to disclose . . . that it gets a more advantageous rate of exchange on the wholesale market than it gives the customer”].) Instead, plaintiffs argue that, by failing to compensate for temperature variations in retail motor fuel, Chevron is engaging in a practice that misleads consumers as to the actual amount of motor fuel they are purchasing and the actual price that they are paying for that fuel. By contrast, the plaintiffs in McCann were informed of the specific exchange rate they would receive in their retail transactions (id. at p. 1382), but argued that the money transmitter had a duty to disclose the more favorable wholesale rate at which it was able to purchase foreign currency and pass those benefits on to consumers.

Were plaintiffs in this case simply alleging that Chevron had a duty to disclose the price at which it procured motor fuel at wholesale, McCann might foreclose such a claim. However, nothing in McCann suggests that the UCL does not, as a matter of law, apply to conduct that allows a retailer to charge more in taxes than it is required to pay to the government or to obscure the true cost of goods at retail.

Slip op., at 39.  The Court then dismantled a "safe harbor" argument, explaining that the "safe harbor" statute must "explictly" prohibit liability for the conduct.  Chevron's attempt to fashion a "safe harbor" by implication was rejected.

The Court then concluded that plaintiffs stated a claim under the "fraudulent" prong:

At the pleadings stage, we cannot say, as a matter of law, that consumers are not likely to be deceived in the manner alleged by plaintiffs. As the trial court observed, plaintiffs have alleged “facts which, if true, may reveal that members of the public . . . [assumed] that . . . they were receiving standardized units of motor fuel when, in fact, the energy content of each gallon depended on the temperature of the motor fuel at the time of purchase.” Plaintiffs have also alleged facts that, if true, may reveal that consumers were deceived as to the true price of motor fuel, which may vary depending on the temperature at which it is sold.

Slip op., at 43.  The Court distinguished Bardin v. Daimlerchrysler Corp. (2006) 136 Cal.App.4th 1255 on the ground that the plaintiffs alleged a specific expectation in the public about what they receive at a gasoline pump.  Following that discussion, the Court immediately turned to the CLRA, noting that conduct which is "fraudulent" under the UCL also violates the CLRA.  And, stay with me here, since the plaintiffs stated a claim under the CLRA, based on the same deceptive conduct that satisfied a UCL "fraudulent" claim, they, by definition, stated a UCL claim under the "unlawful" prong, since it borrows the CLRA violation.  Presto.

The breach of contract and unjust enrichment claims didn't do so well.  Saved you eight pages of reading right there.

And to think that I was not impressed with the "hot gas" theory when I heard it years ago.  What was I thinking?

Arbitration agreement did not clearly and unequivocally delegate to arbitrator the power to determine unconscionability

Rent-A-Center, W., Inc. v. Jackson, 561 U.S. ___, 130 S.Ct. 2772 (2010) held that parties could delegate to the arbitrator the power to decide threshold decisions of arbitrability.  This, of course, leads to questions about how explicit such a delegation must be to pass muster.  Rent-A-Center observed that, unless the parties "clearly and unmistakably provide otherwise," the question of arbitrability is one for the Court.  In Ajamian v. CantorCO2e, L.P. (February 16, 2012), the Court of Appeal (First Appellate District, Division Five) examined an arbitration agreement to determine whether the trial court erred by deciding the arbitration question and concluding that the agreement was unconscionable.

The Court first considered the issue of who should decide the arbitrability question:

The “clear and unmistakable” test reflects a “heightened standard” of proof. (Rent-A-Center, supra, 130 S.Ct. at p. 2777, fn. 1.) That is because the question of who would decide the unconscionability of an arbitration provision is not one that the parties would likely focus upon in contracting, and the default expectancy is that the court would decide the matter. (First Options, supra, 514 U.S. at pp. 943-945.) Thus, the Supreme Court has decreed, a contract's silence or ambiguity about the arbitrator's power in this regard cannot satisfy the clear and unmistakable evidence standard. (Id. at pp. 943-945.)

Slip op., at 9.  Turning to the language of the agreement, the Court concluded that the agreement was ambiguous.  The Court held that a provision directing “[a]ny disputes, differences or controversies” to arbitration could apply to the threshold question of arbitrability or all substantive disputes.  Becasue the language was not clear and unmistakable, the Court held that no delegation of the threshold question was enforcable.

Next, the Court considered whether a reference to AAA rules, which give arbitrators the right to decide arbitrability, was sufficient to delegate that question to the arbitrator.  The Court examined existing decisions, finding a split of authority on the issue.  After identifying cases on both sides of the issue, the Court concluded that a reference to AAA rules, without more, was insufficient:

In our view, while the incorporation of AAA rules into an agreement might be sufficient indication of the parties' intent in other contexts, we seriously question how it provides clear and unmistakable evidence that an employer and an employee intended to submit the issue of the unconscionability of the arbitration provision to the arbitrator, as opposed to the court. There are many reasons for stating that the arbitration will proceed by particular rules, and doing so does not indicate that the parties' motivation was to announce who would decide threshold issues of enforceability.

Slip op., at 19.  The Court also noted that the agreement was unclear as to whether AAA rules or rules of another arbitration entity would govern.

The Court next reviewed the trial court's finding of unconscionability.  First, the Court exmained the procedural unconscionability:

Substantial evidence supports the court's finding. Ajamian, who had already been working as a broker for almost 10 months, had no realistic bargaining power and was required to sign the Employment Agreement to receive her promised compensation – for work she had already performed. Furthermore, the Employment Agreement was not the subject of any negotiation. Ajamian stated in her declaration that she wanted to make changes to the Employment Agreement and felt uncomfortable signing it, but felt she had no choice based on Margolis' statements.

Slip op., at 26.  The Court concluded that it was unnecessary to quantify the degree of procedural unconscionability, since substantive unconscionability was evident in several ways:

In finding that the arbitration provision was unconscionable, the court found that the damages limitation in the arbitration provision was unlawful and the attorney fees clause elsewhere in the Employment Agreement (which the arbitration provision would enforce) was unconscionable. Ajamian also argued, as she does here, that the arbitration provision is substantively unconscionable for reasons the trial court did not rule upon: the provision requires her to forfeit numerous unwaivable substantive California statutes; it grants CantorCO2e discretion to choose the arbitration rules and source of the arbitration panel; and it forces Ajamian to pay tens of thousands of dollars she did not have when she entered into the agreement to obtain relief by arbitrating before three arbitrators in New York.

Slip op., at 28-29.  During its extensive discussion, the Court explained by Pearson Dental did not apply:

As a general proposition (where the clear and unmistakable test does not apply), we agree that ambiguous terms should be construed, where reasonable, in favor of arbitration. But the Pearson Dental rule does not apply here. In Pearson Dental, the court considered a single potentially unconscionable term in an arbitration agreement; here, there are multiple unconscionable terms in the Employment Agreement. Moreover, the term in Pearson Dental was ambiguous and did not expressly preclude the plaintiff from pursuing any remedy; by contrast, the unconscionable terms in the Employment Agreement categorically mandate that arbitration proceed, under the laws of New York and an arbitration organization of CantorCO2e's choosing, without the relief to which Ajamian would be entitled in California, but with an obligation to pay CantorCO2e's attorney fees if unsuccessful. Further, the language of the arbitration provision does not lend itself to an interpretation that the arbitrator may make awards contrary to the terms of the Employment Agreement; indeed, the Employment Agreement explicitly states just the opposite. (See Wherry, supra, 192 Cal.App.4th at pp. 1249-1250.)

Slip op., at 33.  The Court concluded its analysis by rejecting an argument that an Employee Handbook referencing an arbitration policy that would be signed by employees could create an enforceable arbitration agreement.

The arbitration arms race continues...