Wells Fargo ordered to repay an estimated $203 million in overdraft fees to customers

United Stated District Court Judge William Alsup (Northern District of California) issued a number of Orders, including injunctive relief and an order requiring refunds in the estimated amount of $203 million, after finding defendant Wells Fargo guilty of "gouging and profiteering" when it reordered bank charges from highest to lowest so as to maximize the number of overdrafts that could occur in an account.  Gutierrez v. Wells Fargo & Co.  See this previous post for more on the case.

Civil Code section 3345 cannot be used to treble restitutionary remedy under UCL

In Clark v. Superior Court, the California Supreme Court examined the interplay between the UCL and Civil Code section 3345, which provides that in an action brought by senior citizens to redress unfair competition, a trier of fact may award up to three times the amount imposed as “a fine, or a civil penalty or other penalty, or any other remedy the purpose or effect of which is to punish or deter.”  Without belaboring the extensive analysis of the legislative histories of the two statutes, the unanimous Court held:

We conclude that because Civil Code section 3345 authorizes the trebling of a remedy only when it is in the nature of a penalty, and because restitution under the unfair competition law is not a penalty, an award of restitution under the unfair competition law — which plaintiffs seek here — is not subject to section 3345's trebling provision.

Slip op., at 2.  You can find more analysis of the reversed decision from the Court of Appeal at The UCL Practitioner.

District Court finds waiver of right to compel arbitration

United States District Court Judge Marilyn Hall Patel (Northern District of California) found that the defendant waived its right to enforce an arbitration agreement when it availed itself of the Court to file multiple motions to dismiss. Gonsalves v. Infosys Technologies, Ltd., 2010 WL 3118861 (N.D.Cal. Aug. 5, 2010).  The key factor, from the Courts perspective, was that Infosys sought and obtained the dismissal of certain claims in court:

The court therefore holds that Infosys-by waiting to file its motion to compel arbitration until after it filed two separate motions to dismiss for failure to state a claim which ultimately resulted in dismissal, with prejudice, of Gonsalves' FEHA and wrongful termination claims-waived its right to enforce the arbitration clause in Gonsalves' employment agreement.

Gonsalves, slip op., at 5.  This case concerns an individual employment claim, but the issue of arbitration has been and continues to be significant in class actions.  I will report on them when they are of interest.

District Court grants unopposed motion to strike nationwide class allegations; denies attempt to impose actual reliance on California class members at pleading stage

United States District Court Judge Thelton E. Henderson (Northern District of California) granted in part and denied in part a motion to strike class allegations.  Collins v. Gamestop Corp., 2010 WL 3077671 (N.D.Cal. Aug. 6, 2010).  The case concerns the sale of used video games that promote additional, online features that are not available with the used game.  The discussion is short, so I quote the majority of the opinion here:

As GameStop correctly observes, Collins failed to oppose GameStop's motion to strike the nationwide class claims as to the first and second causes of action for violation of the CLRA and UCL, respectively, and also failed to oppose the motion to strike the third claim for violation of consumer protection laws in non-California jurisdictions. In particular, Collins does not contest that he does not have standing to pursue claims based on laws in jurisdictions besides California; that a class action based on laws of fifty-two jurisdictions would be unmanageable; or that a nationwide UCL or CLRA class would be improper because those statutes do not reach conduct lacking any connection to California. Accordingly, the Court GRANTS GameStop's motion to strike these class allegations from the complaint without leave to amend.

GameStop's motion to strike the remaining class allegations relies on its argument that Article III requires all members of the class to have standing, which in turn, according to GameStop, requires a showing of actual reliance. As a result, GameStop argues, a nationwide fraud claim would require individualized inquiries making class treatment inappropriate, and the UCL and CLRA putative classes cannot be certified because they include individuals who did not rely on the allegedly concealed facts and therefore lack standing.  

The Court finds GameStop's motion as to these claims to be premature and is not prepared to find, based on the pleadings alone, that Collins cannot state valid class claims. For example, although GameStop relies heavily on Sanders for the proposition that a nationwide fraud claim cannot be certified because individualized issues as to reliance would predominate, the Sanders court did not state that no such class could be certified; instead, the court granted leave to amend and “urge[d] Plaintiffs to consider whether a more narrowly defined class might be appropriate.” Sanders, 672 F.Supp.2d at 991 (emphasis added). Moreover, in a later case, the same court rejected an argument similar to GameStop's here:

Defendants argue that Plaintiffs cannot sustain classwide claims on their fraud-based claims because they must demonstrate individual reliance on the alleged concealment. However, “courts have recognized that this element, which is often phrased in terms of reliance or causation, may be presumed in the case of a material fraudulent omission.”

Tietsworth v. Sears, Roebuck & Co., Case No. C09-0288 JF (HRL), ---F.Supp.2d ----, 2010 WL 1268093, at *20 (N.D.Cal. Mar. 31, 2010) (quoting Plascensia v. Lending 1st Mortg., 259 F.R.D. 437, 447 (N.D.Cal.2009)).

More recently, another court in this district certified a nationwide class for UCL, CLRA, and common law fraud claims based on the defendants' alleged omissions. Chavez v. Blue Sky Natural Beverage Co., Case No. C06-6609 VRW, --- F.R.D. ----, 2010 WL 2528525 (N.D. Cal. June 18, 2010).FN1 The Chavez court specifically rejected defendants' arguments that the class could not be certified because no unnamed class members established Article III standing and that plaintiffs' UCL, CLRA, and common law fraud claims required individualized proof of reliance. Id. at *9-11, 13.

FN1. The court allowed nationwide UCL and CLRA claims because, unlike here, “Defendants are headquartered in California and their misconduct allegedly originated in California”; thus, “application of the California consumer protection laws would not be arbitrary or unfair to defendants.” Chavez, 2010 WL 2528525, at *14.

Another court in this district has similarly certified a class action that raised a UCL fraud claim among other causes of action. Estrella v. Freedom Fin. Network, LLC, Case No. C09-3156 SI, 2010 WL 2231790 (N.D. Cal. June 2, 2010). The defendant “argue[d] that neither plaintiff can show typicality under [the UCL fraud] claim because reliance is an individualized inquiry.” Id. at *10. The court rejected that argument, concluding that “[i]ndividualized reliance may be presumed ... where the alleged misrepresentation is material,” and that, “[f]or purposes of the class certification inquiry, plaintiffs have sufficiently alleged that the misrepresentations they have identified were material.” Id.

In light of the above case law, the Court does not find it clear from the complaint's allegations that a class action cannot be maintained. GameStop's motion to strike is therefore DENIED as to the fraud class allegations for the nationwide and California classes, and as to the UCL and CLRA class allegations for the California class.

Collins, slip op., at 2-3.

Elena Kagan confirmed as newest Supreme Court Justice

By a vote of 63-37, the Senate today confirmed Elena Kagan as the newest Supreme Court Justice.  Predicting what will come of this is pointless, but several observations suggest that little will change immediately from this confirmation.  Kagan is believed to be liberal, but she replaces John Paul Stevens, the Justice viewed as the leader of the liberal segment of the Court.  Thus, she isn't likely to have an immediate impact on the idealogical balance of the Court unless she proves to be one of the occasional wildcard Supreme Court Justices that come along every so often.  In the long term, her age makes it likely that the seat will remain a liberal seat for many decades.

District Court certifies a class of newspaper carriers classified as independent contractors

United States District Court Judge Barry Ted Moskowitz (Southern District of California) certified a class of newspaper home delivery carriers classified as independent contractors by Lee Publications, Inc. but alleging their status as employees of Lee Publications.  Dalton, et al. v. Lee Publications, Inc., ___ F.R.D. ___, 2010 WL 2985130 (July 27, 2010).  As is usually the case, commonality was the primary area of dispute.  The Court succinctly stated California's approach to identifying the employer-employee relationship:

Under California law, the most important aspect of the employee-employer relationship is the “right to control the manner and means of accomplishing the result desired.” Cristler v. Express Messenger Sys., Inc., 171 Cal.App.4th 72, 77, 89 Cal.Rptr.3d 34 (2009) (citing Empire Star Mines Co. v. Cal. Employment Comm'n, 28 Cal.2d 33, 43-44, 168 P.2d 686 (1946), overruled on other grounds by People v. Sims, 32 Cal.3d 468, 479 n. 8, 186 Cal.Rptr. 77, 651 P.2d 321 (1982)).

Although control is the primary factor, California courts also consider several secondary factors. “Strong evidence in support of an employment relationship is the right to discharge at will, without cause.” Empire Star Mines, 28 Cal.2d at 43, 168 P.2d 686. Other secondary factors include (1) whether the one performing services is engaged in a distinct occupation; (2) the kind of occupation and whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (3) the skill required; (4) whether the principal or the worker supplies the tools and the place of work; (5) the length of time for which the services are to be performed; (6) the method of payment, by time or by job; (7) whether the work is a part of the regular business of the principal; (8) whether the parties believe they are creating an employer-employee relationship; (9) the hiree's degree of investment in his business and whether the hiree holds himself or herself out to be in business with an independent business license; (10) whether the hiree has employees; (11) the hiree's opportunity for profit or loss depending on his or her managerial skill; and (12) whether the service rendered is an integral part of the alleged employer's business. JKH Enterprises, Inc. v. Dep't of Indus. Relations, 142 Cal.App.4th 1046, 1064 n. 14, 48 Cal.Rptr.3d 563 (2006) (citing S.G. Borello & Sons, Inc. v. Dep't of Indus. Relations, 48 Cal.3d 341, 350-55, 256 Cal.Rptr. 543, 769 P.2d 399 (1989)).

Slip op., at 5.

District Court certifies class of borrowers allegedly subjected to discrimination based on race

United States District Court Judge Thelton E. Henderson (Northern District of California) certified a class of African-American and Hispanic borrowers allegedly charged higher rates on mortgage loans compared to whites as a result of Defendant GreenPoint Mortgage Funding, Inc.'s practice of allowing its brokers to mark up the price of wholesale loans.  Ramirez v. Greenpoint Mortg. Funding, Inc., ___ F.R.D. ___, 2010 WL 2867068 (July 20, 2010).  The suit alleges violation of federal fair lending and housing laws.  The alleged conduct presents an interesting theory:

The pricing of GreenPoint's mortgage loans consisted of an objective and a subjective component. GreenPoint relied on objective risk factors-such as FICO score, property value, and loan-to-value ratio-to determine credit parameters and set prices for its loan products. This information was communicated to brokers on a rate sheet listing GreenPoint's “par” interest rate, which did not result in any broker compensation. That objective component of loan pricing is not at issue here.

Plaintiffs' allegations relate to GreenPoint's discretionary pricing policy, which governed brokers' compensation for their services. GreenPoint paid brokers a “yield spread premium” or “rebate” when they set the interest rate higher than par; brokers were also permitted to charge loan origination and processing fees. GreenPoint did not set any objective criteria for the imposition of these higher rates and fees, which were set by the brokers according to their discretion. Brokers were paid more for loans that cost more to the borrower, but their compensation was capped at 5 percent of the loan amount. GreenPoint monitored the fees charged by its brokers to ensure they complied with its policies.

Slip op., at 1-2.

Supporting online whistleblowers is now subversive activity

A security researcher involved with the Wikileaks web site was allegedly detained by U.S. agents at the border for three hours and questioned about the whistleblower project as he entered the country on Thursday to attend a hacker conference in Las Vegas.  (Elinor Mills, Researcher detained at U.S. border, questioned about Wikileaks (July 31, 2010) news.cnet.com.)  In other words, discover the truth at your own risk.  While I believe that a sovereign nation may need to engage in covert activity for national security and national interest purposes, I don't support the almost unaccountable power used to examine those who learn about secret activities.