Another PAGA versus arbitration decision, this time from the Second Appellate District in Perez v. U-Haul Co. of California

Law is driven as much by unforeseen consequences as it is by any rational planning. The Labor Code Private Attorneys General Act of 2004 (PAGA) is exhibit one.  Over the last five or so years, inexorable advance of the Federal Arbitration Act looked as if it would cut a fatal swath through many class actions. But, somewhat unexpectedly, PAGA has served as a counterpoint in the wage & hour sector.  In Perez v. U-Haul Co. of California (Sept. 16, 2016), the Second Appellate District, Division Seven, affirmed the trial Court's ruling that U-Haul could not assert an arbitration agreement to compel the plaintiffs to individually arbitrate whether they qualified as “aggrieved employee[s],” to determine in arbitration whether they had standing to pursue a PAGA claim.

The Court agreed with Williams v. Superior Court, 237 Cal. App. 4th 642 (2015), which also held that California law prohibits the enforcement of an employment agreement provision that requires an employee to individually arbitrate whether he or she qualifies as an “aggrieved employee” under PAGA, and then (if successful) to litigate the remainder of the “representative action in the superior court.”  Slip op., at 11-12.  The Court concluded by dismissively rejecting the notion that the FAA can apply to claim belonging to a governmental entity or its designated proxy.

Gregg A. Farley, of the Law Offices of Gregg A. Farley, and Sahag Majarian, of the Law Offices of Sahag Majarian, represented Plaintiff and Respondent Sergio Lennin Perez; Larry W. Lee and Nicolas Rosenthal. of the Diversity Law Group, and Sherry Jung, of the Law Offices of Sherry Jung, represented Plaintiff and Respondent Erick Veliz.

Hernandez v. Restoration Hardware, Inc. tells class action objectors to get party status or get lost

I frequently contemplate things without any real expectation that I will get an answer.  One thing I wonder about in the practice of law is whether California Courts of Appeal develop cultures as an institution (i.e., whether each Appellate District has a significant impact on its constituent members over time), or whether the tendencies are happenstance of the appointments (i.e., whether the tendencies of each Appellate District -- and Division therein -- is just the sum of random events like the preferences of the appointing administration and the timing of open seats). An application of this pondering occurred to me mere moments ago, when I read Hernandez v. Restoration Hardware, Inc. (March 14, 2016), in which the Fourth Appellate District, Division One, held that named party status is required to appeal a class action judgment. Jinkies!

In Hernandez v. Restoration Hardware, a bench trial resulted in a class recovery of up to $36,412,350.  The class representatives requested fees of $9,103,087.50 (25 percent of the total maximum fund). Francesca Muller, a class members, requested that the court order notice of the fee motion be sent to all class members.  The court denied the request, awarded the fees, and entered judgment.  Muller filed a notice of appeal. Class representative Hernandez substantively opposed the appeal but argued that Muller lacked standing to appeal at all. The Court of Appeal addressed the threshold issue of whether Muller had standing to appeal.

Recognizing that only an aggrieved party has standing to appeal, the Court began by recognizing the distinction between names class representatives and absent class members:

Indeed, "[t]he structure of the class action does not allow absent class members to become active parties, since 'to the extent the absent class members are compelled to participate in the trial of the lawsuit, the effectiveness of the class action device is destroyed.' "  (Ibid., fn. omitted.)  Although unnamed class members may be deemed "parties" for the limited purposes of discovery (Southern California Edison Co. v. Superior Court (1972) 7 Cal.3d 832, 840), unnamed class members are not otherwise considered "parties" to the litigation.  (Cf. National Solar Equipment Owners' Assn. v. Grumman Corp. (1991) 235 Cal.App.3d 1273, 1282 ["unnamed class members do not 'stand on the same footing as named parties' "].)

Slip op., at 9.  The Court then began its analysis by considering Eggert v. Pac. States S. & L. Co., 20 Cal. 2d 199 (1942), which considered the same issues presented here.  Concluding that Eggert was factually almost identical, theCourt concluded that Eggert required dismissal of the action:

Eggert appears to be on "all fours" with the present action: both involved a class action; both involved a matter litigated to judgment; both involved a challenge to the postjudgment attorney fee award to the counsel for the named plaintiff; both involved appellants who were members of the class, but not named parties, and who had appeared through counsel to object to the attorney fee award; and both involved members who took no steps to be added as named plaintiffs.  Accordingly, under Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, we must adhere to Eggert and dismiss the appeal.

Slip op., at 11.  The Court then commented on several decisions from Courts of Appeal that permitted appeals by non-party class members:

Muller also cites several cases in which California appellate courts stated a class member who was not a party to the action obtains appellate standing to challenge the judgment merely by interposing an objection to the judgment below.  However, neither of the cases cited by Muller, Consumer Cause, Inc. v. Mrs. Gooch's Natural Food Markets, Inc. (2005) 127 Cal.App.4th 387 and Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, made any effort to reconcile their conclusions with Eggert, and instead rooted their conclusions in the analysis contained in Trotsky v. Los Angeles Fed. Sav. & Loan Assn. (1975) 48 Cal.App.3d 134 (Trotsky).  (See Wershba, at pp. 235-236 [citing only Trotsky on issue of standing]; Consumer Cause, at pp. 395-396 [citing Trotsky and Wershba on issue of standing].)  Accordingly, we examine Trotsky.

Slip op., at 12.  That examination of Trotsky was not flattering, and the Court quickly concluded that Trotsky had failed to consider the "party" element of section 902:

Trotsky focused primarily on whether an objector to a settlement was "aggrieved" within the meaning of Code of Civil Procedure section 902, concluding objectors were aggrieved because " '[i]t is possible that, within a class, a group of small claimants might be unfavorably treated by the terms of a proposed settlement. For them, the option to join is in reality no option at all,' " and reasoning that because those claimants might be forced to choose between "equally unpalatable alternatives"—of accepting either nothing or an unfair settlement—those parties were sufficiently aggrieved for purposes of the right to appeal.  (Trotsky, supra, 48 Cal.App.3d at pp. 139-140.)  However, Trotsky did not examine the distinct "party" element of Code of Civil Procedure section 902, nor make any effort to reconcile its conclusion with Eggert's holding that unnamed class members whose only appearance was to object to the attorneys' fees had no standing to appeal because they were not "parties" and did not avail themselves of the "ample opportunity . . . to become parties of record . . . ."  (Eggert, supra, 20 Cal.2d at p. 201.)  Because Eggert teaches the "party" requirement of Code of Civil Procedure section 902 is not met merely because the "aggrieved" requirement of section 902 might also be satisfied as to a nonparty class member, we conclude Trotsky's analysis of standing is flawed and that Trotsky and its progeny (which includes both Consumer Cause, Inc. v. Mrs. Gooch's Natural Food Markets, Inc., supra, 127 Cal.App.4th 387 and Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th 224) should not be followed.

Slip op., at 13-14.  Well now.  That's....interesting.  The Court went on to point out that federal courts handle this differently, but California courts aren't federal courts, and there is no requirement that California follow the federal approach.  You have to at least respect the cut of this Court's jib to state that they are bound to follow a factually similar 1942 decision and reject much more recent decisions for failing to address the California Supreme Court's Eggert decision. That said, of the many things I ponder, one is whether this case case more than 90 days of shelf life.

In DeSaulles v. Community Hospital of the Monterey Peninsula, the California Supreme Court explains what "prevailing party" means

You thought you could figure this one out all by yourself, right?  You can read Code of Civil Procedure section 1032.  It's written in English (sort of). You know what a "prevailing party" is without some Supreme Court telling you what it means.  But this is law, and when we are talking about the law, you can guarantee that somebody figures out how to find that exception that threads the needle.  Thus, we have DeSaulles v. Community Hospital of the Monterey Peninsula (March 10, 2016), in which the Supreme Court had to determine whether a plaintiff who voluntarily dismisses an action after obtaining a monetary settlement on a few of the claims remaining in the case is the "prevailing party" for purposes of section 1032.

The Court of Appeal held that the plaintiff was a prevailing party because he received a net monetary recovery as consideration for his dismissal.  In so holding, the Court of Appeal disapproved of Chinn v. KMR Property Management, 166 Cal. App. 4th 17 (2008), which held that settlements were not net monetary recoveries. The Supreme Court affirmed.  In affirming, the Supreme Court also did everyone a favor by saying that the presumption of section 1032 could be altered by agreement of the settling parties.  Regardless, it's a good thing the Supreme Court held as it did; given the sorry state of our court funding, we don't need more issues complicating settlement discussions.
 

In Gilkyson, et al. v. Disney Enterprises, Inc., et al., doctrine of continuous accrual gets a boost in the licensing contract setting

The doctrine of continuous accrual serves to prevent the inequitable circumstance where one act of malfeasance is used to create immunity in perpetuity for even very recent bad acts.  In Gilkyson, et al. v. Disney Enterprises, Inc., et al., the Court of Appeal (Second Appellate District, Division Seven) found that the doctrine of continuous accrual should apply to a royalty contract for song reproduction rights.

Terry Gilkyson, a successful songwriter in the 1950’s and 1960’s.  He wrote a number of songs for the animated film The Jungle Book, one of which was used in the movie.  Gilkyson signed single-song contracts with Disney’s predecessor-in-interest, Walt Disney Productions, that obligated it to pay Gilkyson specified royalties for sales of sheet music and for licensing or other disposition of the mechanical reproduction rights. Disney paid Gilkyson over the years and, after his death in 1999, his heirs royalties for sheet music and for audio reproductions of Gilkyson’s songs (vinyl records, compact discs (CDs) and digital downloads).  However, Disney did not pay, and has never paid, Gilkyson or his heirs royalties for the use of his songs in any audiovisual medium, including digital video disc recordings (DVDs).  The heirs of Gilkyson sued Disney Enterprises, Inc. and other entities, alleging Disney had breached its contractual obligation to pay royalties in connection with the licensing or other disposition of the mechanical reproduction rights to Gilkyson’s songs. The trial court dismissed the lawsuit after sustaining Disney’s demurrer to the first amended complaint without leave to amend, ruling the Gilkyson heirs’ causes of action were barred by the applicable statutes of limitations.

The Court of Appeal first explained the continuous accrual doctrine as an exception to statutes of limitation:

Under the continuous accrual doctrine each breach of a recurring obligation is independently actionable.  (Aryeh, supra, 55 Cal.4th at p. 1199 [“‘[w]hen an obligation or liability arises on a recurring basis, a cause of action accrues each time a wrongful act occurs, triggering a new limitations period’”]; see ibid. [“[b]ecause each new breach of such an obligation provides all the elements of a claim—wrongdoing, harm, and causation [citations]—each may be treated as an independently actionable wrong with its own time limit for recovery”]; Howard Jarvis, supra, 25 Cal.4th at p. 809 [same]; Armstrong Petroleum Corp. v. Tri-Valley Oil & Gas Co. (2004) 116 Cal.App.4th 1375, 1388 (Armstrong) [continuous accrual applies to contract where performance is severed into intervals, such as installment contracts, leases with periodic rental payments and periodic pension payments]; Wells Fargo Bank v. Bank of America (1995) 32 Cal.App.4th 424, 439, fn. 7 [“a new breach occurs each month the bank persists in its refusal to pay [monthly] rent at the gold clause rate”].)  The effect of the doctrine is that “a suit for relief may be partially time-barred as to older events but timely as to those [acts of wrongdoing occurring] within the applicable limitations period.”  (Aryeh, at p. 1192; accord, Howard Jarvis, at p. 809.)[1]   In this way, the doctrine represents an equitable “response to the inequities that would arise if the expiration of the limitations period following a first breach of duty or instance of misconduct were treated as sufficient to bar suit for any subsequent breach of misconduct; [absent the doctrine,] parties engaged in long-standing misfeasance would thereby obtain immunity in perpetuity from suit even for recent and ongoing misfeasance.  In addition, where misfeasance is ongoing, a defendant’s claim to repose, the principal justification underlying the limitations defense, is vitiated.”  (Aryeh, at p. 1198.)

Slip op., at 6-7.  The Court then concluded that the continuous accrual doctrine applied to the contractual obligation to pay periodic royalties under a licensing arrangement:

Here, as in Aryeh, Disney’s obligation to pay royalties based on its licensing or other disposition of the mechanical reproduction rights to Gilkyson’s songs was unquestionably a continuing one.  As alleged in the first amended complaint (consistent with the original complaint), the parties agreed in paragraph 6 of the single-song agreements that Gilkyson “will receive as a royalty ‘[an] amount of money equal to Fifty Percent (50%) of the net amount received by our music publisher on account of licensing or other disposition of mechanical reproduction rights in and to material so written by you.’”  The first amended complaint also alleged Disney had issued quarterly royalty statements to Gilkyson and, after his death, to his heirs.  The continuing nature of the obligation to pay periodic royalties renders each breach of that obligation separately actionable.  (Aryeh, supra, 55 Cal.4th at p. 1201; see Armstrong, supra, 116 Cal.App.4th at p. 1392 [contract to provide periodic oil and gas royalties was severable, with each failure of the continuing obligation to pay a proper royalty separately actionable and subject to its own limitation period].)  The result is that, while portions of the Gilkyson heirs’ contract claim are undoubtedly time-barred, the action is timely as to those breaches occurring within the four-year limitations period preceding the filing of the original lawsuit.

Slip op., at 8-9.  The Court noted that it was not resolving the substantive issue, raised by Disney, of whether use of songs in DVDs and other audiovisual media was governed by the same portion of the agreement that governed mechanical reproduction.

IWC (or any agency) is limited by its statutory mandate

Agencies love their power.  They grow like a cancer, absorbing more and more of it from the body politic.  But every now and then a court reminds an agency that its power is limited by the terms of its statutory authority.  For instance, in Gerard v. Orange Coast Memorial Medical Center (Feb. 10, 2015), the Court of Appeal (Fourth Appellate District, Division Three) did just that with regard to a provision of an IWC Wage Order.

Health care workers sued their hospital employer in a putative class and private attorney general enforcement action for alleged Labor Code violations and related claims.  Plaintiffs alleged, among other things, that the hospital illegally let health care employees waive their second meal periods on shifts longer than 12 hours.  Under the Labor Code, employers are required to provide two meal periods for shifts longer than 12 hours. But an order of the Industrial Welfare Commission (IWC) authorizes employees in the health care industry to waive one of those two required meal periods on shifts longer than 8 hours.  The trial court, finding the IWC Wage Order valid, and granted summary judgment and denied class certification on that basis.

The Court examined Labor Code section 512 and Wage Order 5 to determine whether the Wage Order exemption was authorized.  The Court first observed that section 512 says: “An employer may not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal period of not less than 30 minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived.” (Italics added.)  And section 516 says: “Except as provided in Section 512, the [IWC] may adopt or amend working condition orders with respect to break periods, meal periods, and days of rest for any workers in California consistent with the health and welfare of those workers.” (Italics added.)

Next, the Court noted that the authority of an administrative agency is limited by enabling legislation, holding that the IWC is constrained where the Labor Code expressly sets forth requirements:

“The IWC has long been understood to have the power to adopt requirements beyond those codified in statute. [Citations.] Section 516 creates an exception; it bars the use of this power to diminish section 512’s protections. . . . While the Legislature in section 516 generally preserved the IWC’s authority to regulate break periods, it intended to prohibit the IWC from amending its wage orders in ways that ‘conflict[ ] with [the] 30-minute meal period requirements’ in section 512. [Citations.]” (Brinker, supra, 53 Cal.4th at pp. 1042-1043.)

Slip op., at 8.  In its discussion, the Court cited frequently to Bearden v. U.S. Borax, Inc., 138 Cal. App. 4th 429 (2006), which held that another provision of a Wage Order issued by the IWC was invalid as an act inconsistent with statutory provisions.

The Court then directed the trial court to determine the retroactive application of portions of the Court’s holding, since the issue of invalidity was not evaluated by the trial court, holding that “with the exception of plaintiffs’ premium wage claims based on section 226.7, the retroactive application of our decision must be litigated on remand.”  The Court concluded that “there is no compelling reason of fairness or public policy that warrants an exception to the general rule of retroactivity for our decision partially invalidating section 11(D).”  Slip op., at 17.

The Court then turned to the grant of summary judgment in the matter.  The discussion detoured into evidentiary disputes.  The defendant objected to the introduction of time cards attached to counsel’s declaration, saying that they were merely purported to be authentic.  The Court disagreed:

Evidence Code section 1414 provides: “A writing may be authenticated by evidence that: [¶] (a) The party against whom it is offered has at any time admitted its authenticity; or [¶] (b) The writing has been acted upon as authentic by the party against whom it is offered.” The Coats declaration satisfies both subdivisions.

Further, while Claudio v. Regents of University of California (2005) 134 Cal.App.4th 224, 244 did say the declaration of the plaintiff’s attorney was not proper authentication for the disputed letter, the critical problem was that, “Plaintiff’s [own] declaration did not mention the letter.” The same is not true in this case.

Here, Gerard’s own declaration (an exhibit to the Coats declaration) states: “Attached as Exhibit B are true and correct copies of a portion of my time records from August of 2004 through March of 2008, which were produced by Defendant in this litigation. Also attached as Exhibit B are true and correct copies [of] a portion of my wage records from August of 2004 through March of 2008, which were produced by Defendant in this litigation.” A comparison of the bates numbers in Exhibit B reveals they are the same as the relevant documents in Exhibits 7 and 8.

Slip op., at 18.  The Court concluded its analysis of the summary judgment motion by finding that triable issues of fact were shown by the plaintiffs.

Finally, the Court held that the trial court abused its discretion when it denied class certification, relying on incorrect criteria:

McElroy and Carl argue the court improperly denied class certification for several reasons. Among other things they cite as an abuse of discretion the court’s community interest analysis based on its erroneous “legal assumption that ‘liability is not established by an illegal policy.’” Plaintiffs contend that assumption is contrary to the holding of Brinker, supra, 53 Cal.4th at page 1033, and Faulkinbury v. Boyd & Associates, Inc. (2013) 216 Cal.App.4th 220, 232. We conclude this argument has merit.

Slip op., at 20.  The Court remanded the matter for further consideration of the other aspects of certification that were not fully considered by the trial court.

Anti-SLAPP Motion fails to satisfy the first "arising from" prong under the customary two-part analysis

I regret that the press of work kept me away from this site for quite some time, other than the podcasts that I've continued to work on.  It looks like I'm going to be able to come up for air, so I am going to get back to posting on a more regular basis.

In Trilogy at Glen Ivy Maintenance Association, et al. v. Shea Homes, Inc., et al. (pub. ord. Mar. 19, 2015), the Court of Appeal (Fourth Appellate District, Division One) affirmed a trial court finding that an anti-SLAPP Motion lacked merit for failure to satisfy even the first prong of the two-part anti-SLAPP analysis.  As summarized by the Court, under the first step, "the defendant bringing an anti-SLAPP motion must make a prima facie showing that the plaintiff's suit is subject to section 425.16 by showing the plaintiff's claims arise from conduct by the defendant taken in furtherance of the defendant's constitutional rights of petition, or free speech in connection with a public issue, as defined by the statute."  Slip op., at 7-8.

The Court explained that, when evaluating whether a claim arises from protected speech, a trial court must look to the gravamen of the claim:

[W]e disregard the labeling of the claim (Ramona Unified School Dist. v. Tsiknas (2005) 135 Cal.App.4th 510, 522) and instead "examine the principal thrust or gravamen of a plaintiff's cause of action to determine whether the anti-SLAPP statute applies" and whether the trial court correctly ruled on the anti-SLAPP motion. (Id. at pp. 519-522.) We assess the principal thrust by identifying "the allegedly wrongful and injury-producing conduct . . . that provides the foundation for the claim." (Martinez v. Metabolife Internat., Inc. (2003) 113 Cal.App.4th 181, 189.) If the core injury-causing conduct on which the plaintiff's claim is premised does not rest on protected speech, collateral or incidental allusions to protected activity will not trigger application of the anti-SLAPP statute. (Ibid.)

Slip op., at 9. Following from this distinction, the Court concluded that the unusual choice of wording in the complaint was irrelevant to the analysis of the actual gravamen of the claim.  Specifically, the plaintiff used the word "repudiation" to describe a species of fiduciary breach, leading the defendant to claim that the complaint was about speech.  The Court was not persuaded, correctly identifying the fiduciary breach "gravamen" of the complaint.

Appellate court provides some guidance on electronic discovery obligations under California law

Vasquez v. CA School of Culinary Arts (pub. ord. September 26, 2014) (Second Appellate District, Division Two) is ostensibly about an award of attorney's fees following the plaintiffs' successful opposition of a motion to quash their electronic records subpoena directed to student loan servicing entity Sallie Mae, Inc.  After all, the Court describes the appeal as follows: "Sallie Mae, Inc. (Sallie Mae) appeals from an order awarding plaintiffs and respondents Daniel Vasquez, et al. (collectively, plaintiffs) $11,487 in attorney fees and costs incurred after plaintiffs successfully opposed Sallie Mae’s motion to quash a business records subpoena seeking electronically stored information pertaining to student loans made to them by Sallie Mae."  Slip op., at 2.

The real value of the case is found in its discussion of what defines a reasonable electronics evidence request:

The motion to quash was premised on the ground that the subpoena was improper because it required Sallie Mae to do more than produce records as they already exist and that Sallie Mae could not be compelled to perform research, or to compile data through a programming effort in order to create a spreadsheet.

There is little California case law regarding discovery of electronically stored information under section 1985.8. We look, therefore, to federal case law on the discovery of electronically stored information under the Federal Rules of Civil Procedure for guidance on the subject. “‘Because of the similarity of California and federal discovery law, federal decisions have historically been considered persuasive absent contrary California decisions.’ [Citation.]” (Ellis v. Toshiba America Information Systems, Inc. (2013) 218 Cal.App.4th 853, 862, fn. 6, quoting Liberty Mutual Ins. Co. v. Superior Court (1992) 10 Cal.App.4th 1282, 1288.)

Slip op., at 8.  Citing Gonzales v. Google, Inc.,  234 F.R.D 674 (N.D.Cal. 2006), the Court held that "a nonparty cannot avoid complying with a subpoena seeking electronically stored information on the ground that it must create new code to format and extract that information from its existing systems."  Slip op., at 9.

Until California Courts uniformly depart from this holding, or the statutory law is modified, it looks like federal courts will supply strong guidance in on the questions that arise during electronic discovery.

Pro per meets bad bank in Fleet v. Bank of America

When despicable loan modification practices meet desperate homeowners filing their own lawsuit, you get Fleet v. Bank of America (pub ord. September 24, 2014), from the Court of Appeal (Fourth Appellate, Division Three).

Luckey v. Superior Court says no to temporary judges for class settlement approval

In Luckey v. Superior Court (July 22, 2014), the Court of Appeal (Second Appellate District, Division Three), the Court considered a writ following the denial of a stipulation to utilize a temporary judge to handle a class settlement approval.  Plaintiff filed a putative class action alleging violation of FACTA arising from printing “more than the last 5 digits of the card number or the expiration date” on an electronically printed receipt provided to the cardholder at the point of the transaction. (15 U.S.C. § 1681c(g).) The operative complaint alleged causes of action for violation of FACTA, negligence, and declaratory relief.  Plaintiff defined the putative class as “All individuals who purchased merchandise using a personal credit card or personal debit card at any retail store operated by Defendant within the United States during the Class Period2 who: [¶] Subclass A: Were issued an electronically printed receipt that reflected more than the last five digits of the card; and/or [¶] Subclass B: Were issued an electronically printed receipt that reflected the card's expiration date....” Plaintiff sought, on behalf of the class, damages of between $100 and $1000 for each receipt which violated FACTA (with separate damages for each violation), punitive damages, and reasonable attorney fees. Plaintiff also sought an order declaring that Cotton On's credit and debit card receipt practices violate FACTA and an order enjoining Cotton On from continuing to do so.  No responsive pleading was filed. The only other documents filed in this case consisted of stipulations for continuance of the initial status conference, and the stipulation for appointment of a temporary judge which is at issue in this writ proceeding. Plaintiff represented that, from the time the complaint was filed, the parties engaged in “informal discovery and exchanged information” in preparation for a mediation.

The mediation was held before a retired superior court judge. A class action settlement was reached at the mediation, and memorialized in a written settlement agreement. It is a class settlement, defining the settlement class as “all individuals who purchased merchandise using a personal credit card or personal debit card at any retail store operated by Cotton On within the United States since May 9, 2008, who were issued an electronically printed receipt that reflected more than the last five digits of the card and/or were issued an electronically printed receipt that reflected the card's expiration date.” It excludes persons who validly opt out of the class.

Under the terms of the settlement, the class was to receive compensation in the form of “Merchandise Credits,” which was really a $5 credit on any transaction at or exceeding $25 at one of Cotton On's retail stores, during one pre-selected week. Notice was to be provided to the class by means of e-mail notice to be provided “to all [Cotton On]'s customers in the United States for whom [Cotton On] possesses a valid e-mail address.” Notice would also be given on Cotton On's website and near each of its retail stores' cash registers.

Cotton On agreed to fund the settlement in the amount of $1,000,000. Of that amount, the parties agreed that Luckey's counsel could seek an award of attorney's fees and costs in an amount of $302,000. The parties also agreed that Luckey himself could receive a payment of $5,000 as class representative, and that $135,000 would be allocated to the administrative costs of the settlement.

In sum the settlement provided as for: (1) $5,000 paid to Luckey (whereas each class member would receive, at most, a merchandise credit for one one-thousandth of that amount); (2) $302,000 paid to Luckey's counsel (for work which, to that point, consisted of filing a complaint and amended complaint, and preparing for and attending a one-day mediation); and (3) a one-week $5 off $25 sale, of which Cotton On would send notice to its e-mail customer list.

Pursuant to the settlement agreement, the parties stipulated for appointment of a temporary judge to hear the matter “until final determination thereof.” Specifically, the parties intended to submit to the temporary judge the issues related to preliminary and final approval of the class action settlement. The same retired judge who had served as the mediator in this matter was identified by the parties as the proposed temporary judge. The temporary judge would be privately compensated by the parties.

The stipulation was presented to the Supervising Judge of the Civil Division, as required by the Superior Court of Los Angeles County, Local Rules, rule 2.24(a)(1). On June 2, 2014, the court issued a minute order declining to approve the stipulation. The court's analysis explained that, although plaintiff’s counsel could stipulate to the appointment of the temporary judge on behalf of the plaintiff, the “submitted papers do not demonstrate that the named plaintiffs or the attorneys are authorized to speak for all class members.” Without the stipulation of all putative class members, the case could not be transferred to a temporary judge.  The plaintiff filed a petition for a writ to compel appointment of the temporary judge. The Court of Appeal issued an Order to Show cause.

In responding to the Court of Appeal, the plaintiff challenged the Superior Court’s standing to oppose the writ petition:

In this case, Luckey suggests that the Superior Court lacked standing to oppose his writ petition because the Superior Court “has presented no evidence that the issues presented impact the operations or procedures of the Court or that the decision will impose any financial obligations on the court's operations.” The argument is puzzling given the arguments Luckey makes in support of his petition. First, Luckey argues that he is, in fact, challenging a procedure of the court, not merely an isolated ruling. Luckey represents that the Superior Court previously “routinely issued orders appointing temporary judges to preside over class action matters,” but, “in or around November 2013,” the court “stopped” approving those stipulations and began denying them. Second, Luckey argues at length, although without evidentiary basis, that the court's financial obligations are, in fact, at issue. Luckey argues that lengthy delays are now the reality in class action litigation, and that parties should be permitted to avoid these delays by the use of temporary judges—a procedure which, according to Luckey, would “alleviate[ ] space for other litigants” at Superior Court. Indeed, Luckey represents that the Superior Court previously appointed temporary judges to serve in class action matters “in part[ ] due to congested and backlogged dockets.” As the Superior Court's procedures and financial obligations are at issue, the Superior Court has a right to appear.

Slip op., at 15-16.  The Court then examined whether the trial court erred when it denied the stipulation of the parties to use a “temporary judge” to decide the fairness of the class settlement.  The Court began by examining the complex question of whether absent putative class members are “parties” for purposes of the stipulation at issue.  The Court concluded they were not:

[W]hile Luckey and Cotton On were the only “parties litigant” at the time of the stipulation to the temporary judge, they were also the only parties who could be bound by such a stipulation.  As the conceded purpose of the stipulation was to bind all putative class members to the stipulation, and they could not be bound until they had been given notice and an opportunity to appear, the stipulation was ineffective.  The state Constitution provides that, for a stipulation to a temporary judge to be effective, that stipulation must be made by the parties litigant.  In a pre-certification class action, the parties litigant have not yet been identified; thus, no such stipulation can be effectively made.

Slip op., at 22-23.  Next, the Court concluded that the Rules of Court directed the same conclusion, because of the right of objectors to intervene:

Our consideration of the applicable rules of court leads us to the same conclusion. California Rules of Court, rule 2.835(b) governs requests to intervene in matters pending before temporary judges. It states, in pertinent part, “A motion for leave to file a complaint for intervention in a case pending before a temporary judge requested by the parties must be filed with the court and served on all parties and the temporary judge. The motion must be heard by the trial court judge to whom the case is assigned or, if the case has not been assigned, by the presiding judge or his or her designee. If intervention is allowed, the case must be returned to the trial court docket unless all parties stipulate ... to proceed before the temporary judge.” In other words, when a party seeks to intervene in a matter pending before a temporary judge, that party's right to intervene must be determined by the trial court, not the temporary judge. Furthermore, if intervention is permitted, the case must be returned to trial court unless the intervenor also agrees to the temporary judge.

Slip op., at 23-24.  Finally, the Court observed that public policy concerns weighed against the procedure advocated by the petitioner, having earlier observed: “A class member objecting to the settlement as unfair will certainly believe he or she is facing an uphill battle in convincing the temporary judge of the merits of the objection; the temporary judge clearly believed in the propriety of the settlement when acting as a mediator.  This could well raise a question of an appearance of impropriety.”

Analysis of Iskanian v. CLS Transportation Los Angeles LLC

Next up on the update list is Iskanian v. CLS Transportation Los Angeles LLC (June 23, 2014). In Iskanian, a limousine driver filed a class action lawsuit on behalf of himself and similarly situated employees for his employer’s alleged failure to compensate its employees for, among other things, overtime and meal and rest periods.  Plaintiff also asserted a PAGA claim. The employee had entered into an arbitration agreement that waived the right to class proceedings. The defendant moved to compel arbitration. After the court granted the motion, Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) was decided and the Court of Appeal issued a writ of mandate directing reconsideration in light of Gentry. On remand, the defendant withdrew the motion and the plaintiff moved for certification. A class was certified.

After the United States Supreme Court issued AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740] (Concepcion) and invalidated Discover Bank v. Superior Court (2005) 36 Cal.4th 148 (Discover Bank), CLS renewed its motion to compel arbitration. The trial court granted the renewed motion.

On appeal, the Court of Appeal agreed that Concepcion invalidated Gentry.  The court also declined to follow a National Labor Relations Board ruling that class action waivers in adhesive employment contracts violate the National Labor Relations Act.  With respect to the PAGA claim, the Court of Appeal construed the plaintiff’s position to be that PAGA does not allow representative claims to be arbitrated, holding that the FAA precludes states from withdrawing claims from arbitration and that PAGA claims must be argued individually, not in a representative action, according to the terms of the arbitration agreement.

The Supreme Court granted review, examining (1) whether a state’s refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA, and (2) whether the FAA precludes the California Legislature from deputizing private litigants to pursue claims on behalf of the State.

While the plaintiff argued that Gentry survives Concepcion because it does not state a categorical rule such as that articulated in Discover Bank, the Court disagreed:

[T]he fact that Gentry’s rule against class waiver is stated more narrowly than Discover Bank’s rule does not save it from FAA preemption under Concepcion.  The high court in Concepcion made clear that even if a state law rule against consumer class waivers were limited to “class proceedings [that] are necessary to prosecute small-dollar claims that might otherwise slip through the legal system,” it would still be preempted because states cannot require a procedure that interferes with fundamental attributes of arbitration “even if it is desirable for unrelated reasons.”  (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1753]; see American Express Co. v. Italian Colors Restaurant (2013) 570 U.S. __, __ & fn. 5 [133 S.Ct. 2304, 2312 & fn. 5] (Italian Colors).)  It is thus incorrect to say that the infirmity of Discover Bank was that it did not require a case-specific showing that the class waiver was exculpatory.  Concepcion holds that even if a class waiver is exculpatory in a particular case, it is nonetheless preempted by the FAA.  Under the logic of Concepcion, the FAA preempts Gentry’s rule against employment class waivers.

Slip op., at 7-8. Next, the Court concluded that the reasoning in Sonic II was insufficient to save Gentry:

Sonic II went on to explain that “[t]he fact that the FAA preempts Sonic I’s rule requiring arbitration of wage disputes to be preceded by a Berman hearing does not mean that a court applying unconscionability analysis may not consider the value of benefits provided by the Berman statutes, which go well beyond the hearing itself.”  (Sonic II, supra, 57 Cal.4th at p. 1149, italics added.)  The Berman statutes, we observed, provide for fee shifting, mandatory undertaking, and several other protections to assist wage claimants should the wage dispute proceed to litigation.  (Id. at p. 1146.)  “Many of the Berman protections are situated no differently than state laws concerning attorney fee shifting, assistance of counsel, or other rights designed to benefit one or both parties in civil litigation.”  (Id. at p. 1150; see, e.g., Lab. Code, § 1194, subd. (a) [one-way fee shifting for plaintiffs asserting minimum wage and overtime claims].)  The value of these protections does not derive from the fact that they exist in the context of a pre-arbitration administrative hearing.  Instead, as Sonic II made clear, the value of these protections may be realized in “potentially many ways” through arbitration designed in a manner “consistent with its fundamental attributes.”  (Sonic II, at p. 1149; see ibid. [“Our rule contemplates that arbitration, no less than an administrative hearing, can be designed to achieved speedy, informal, and affordable resolution of wage claims . . . .”].)

Slip op., at 9-10.  Since Sonic II did not prohibit the use of an arbitration procedure that satisfied the Berman statutes, the Court concluded that Sonic II survived Concepcion, unlike Gentry, which directly compared class actions that interfered with arbitration to the arbitration procedure.

Next, the Court considered the holdings of D.R. Horton Inc. & Cuda (2012) 357 NLRB No. 184 [2012 WL 36274] (Horton I) and the subsequent decision by the Fifth Circuit (Horton II). The Court concluded that the NLRA did not overrule the FAA, consistent with other courts considering the issue:

We thus conclude, in light of the FAA’s “ ‘liberal federal policy favoring arbitration’ ” (Concepcion, supra, 563 U.S. at p.__ [131 S.Ct. at p. 1745]), that sections 7 and 8 the NLRA do not represent “a contrary congressional command” ’ overriding the FAA’s mandate.  (CompuCredit v. Greenwood, supra, 565 U.S. at p. __ [132 S.Ct. at p. 669.)  This conclusion is consistent with the judgment of all the federal circuit courts and most of the federal district courts that have considered the issue.  (See Sutherland v. Ernst & Young, LLP (2d Cir. 2013) 726 F.3d 290, 297 fn. 8; Owen v. Bristol Care, Inc. (8th Cir. 2013) 702 F.3d 1050, 1053–1055; Delock v. Securitas Sec. Servs. USA, Inc. (E.D.Ark. 2012) 883 F.Supp.2d 784, 789–790; Morvant v. P.F. Chang’s China Bistro, Inc. (N.D.Cal. 2012) 870 F.Supp.2d 831, 844–845; Jasso v. Money Mart Express, Inc. (N.D.Cal. 2012) 879 F.Supp.2d 1038, 1048–1049; but see Herrington v. Waterstone Mortg. Corp. (W.D.Wis. Mar. 16, 2012) No. 11-cv-779-bbc [2012 WL 1242318, at p. *5] [defendant advances no persuasive argument that the Board interpreted the NLRA incorrectly].)

Slip op., at 21. At this juncture, and given the composition of the U.S. Supreme Court, it is exceedingly unlikely that the conclusion of Horton I will be accepted.

After analyzing and rejecting the plaintiff’s waiver argument, the Court turned to the PAGA claim. After the Court explained the history of the statute, the first question examined was whether an employee’s right to bring a PAGA action is waivable. Concluding that PAGA rights could not be waived, the Court said:

The unwaivability of certain statutory rights “derives from two statutes that are themselves derived from public policy.  First, Civil Code section 1668 states:  ‘All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.’  ‘Agreements whose object, directly or indirectly, is to exempt [their] parties from violation of the law are against public policy and may not be enforced.’  (In re Marriage of Fell (1997) 55 Cal.App.4th 1058, 1065.)  Second, Civil Code section 3513 states, ‘Anyone may waive the advantage of a law intended solely for his benefit.  But a law established for a public reason cannot be contravened by a private agreement.’ ”  (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 100 (Armendariz).)

Slip op., at 34.  The Court then said, “Notwithstanding the analysis above, a state law rule, however laudable, may not be enforced if it is preempted by the FAA.” Examining that second question, the Court held that the PAGA right is not a “private” right, existing only as a grant of a public right:

We conclude that the rule against PAGA waivers does not frustrate the FAA’s objectives because, as explained below, the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the state Labor and Workforce Development Agency.

Slip op., at 36-37. This distinction, which was uncertain until this decision, was the source of inconsistent outcomes when other courts examined the issue of whether PAGA claims were subject to arbitration agreements.

Justice Chin authored a concurrence, though he restated his disagreement with the contention that Sonic II survived Concepcion.

Justice Werdegar concurred with the majority opinion regarding PAGA, but dissented as to the enforceability of any clause depriving employees of the right to engage in concerted action: “Eight decades ago, Congress made clear that employees have a right to engage in collective action and that contractual clauses purporting to strip them of those rights as a condition of employment are illegal.  What was true then is true today.” Werdegar diss. & conc., at 1.  Justice Werdegar strongly defended the right to engage in concerted activity, despite the FAA:

An arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract” (9 U.S.C. § 2, italics added).  Here, we deal with a provision—the waiver of the statutorily protected right to engage in collective action—that would be unenforceable in any contract, whether as part of an arbitration clause or otherwise.  The FAA codifies a nondiscrimination principle; “[a]s the ‘saving clause’ in § 2 indicates, the purpose of Congress in 1925 was to make arbitration agreements as enforceable as other contracts, but not more so.”

Werdegar diss. & conc., at 9. Justice Werdegar’s dissenting opinion as to the interaction of the NLRA, the Norris-Laguardia Act and the FAA is an exceptional defense of the position advocated by the plaintiff and in Horton I. If nothing else, it is worth a thorough reading by practitioner in the wage and hour field.