Wage Law notes a recent California trend of disapproving of "claims made" settlements in wage & hour class actions

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Although it sounds a little bit like hearsay (or maybe just protection of confidential sources), Wage Law is reporting that some Superior Court judges, particularly in the Bay Area, believe that a "claims made" class action settlement should never be approved in a wage & hour case.  (The Emerging Trend Against Claims Made Wage & Hour Settlements (June 6, 2008) wagelaw.typepad.com.)  One opinion that may be swaying the hearts and minds of judges is the 2007 Order of Judge William Alsup denying preliminary approval of a class action settlement in Kakani v. Oracle Corp.  In his initial opinion, Judge Alsup said:

“Under the settlement, all wage-and-hour rights (not just overtime) of putative class members would be completely extinguished and replaced by an exclusive claims procedure. By expressly obligating itself only on a "claims-made" approach, Oracle would pay only those who submit claims up to a total of nine million dollars less all fees and expenses. Counsel wants $2.25 million in attorney's fees and $75,000 in expenses. In addition to their own shares of the settlement, $45,000 total would be paid to the three named plaintiffs as "incentive payments." Costs of administration would also be deducted. Because it will be a "claims-made" settlement, there will be no residue. All unclaimed amounts will revert to Oracle. Counsel now desire preliminary approval under Rule 23(e) and recommend notice be sent by mail to last known addresses of 1500 or so workers granting them a brief period for filing claims -- after which all of their claims and rights would be forever barred, even as to those who never receive actual notice or submit a claim.

The description of the terms is enough to telegraph where that one was going.  But this should come as no surprise.  Judge Alsup has made the news with his high-profile policing of class action settlements, particularly in options backdating suits.  (See this blog's posts of April 27 and June 17.)

As to the substance of Wage Law's observation, that "claims made" settlements in wage & hour matters are falling into disfavor, my own observations tend to confirm that view.  A primary argument for why "claims made" settlements in wage & hour matters are undesirable stems from the policies embodied by wage & hour laws generally.  If wages were earned but not paid to each class member, then each class member should get those wages, not just those that file a claim.  A core policy of labor laws is to ensure the full payment of all wages owed for work actually performed.

However, there are circumstances (probably not present in the Oracle suit) that weigh in favor of the "claims made" approach.  For example, small classes with relatively modest individual recoveries provide the majority of their benefit in the correction of violations, not in the sums paid to class members.  In those cases, it is cost efficient to reserve a modest class fund for those individuals willing to take the small step of submitting a claim.  In cases where records do not allow for an exact calculation of monies owed to each employee, such as meal break cases where records are absent, a "claims made" approach can be described as a proxy for a declaration of damages.

California in particular faces another issue in wage & hour class actions: the population of unlawfully present aliens (they are not exactly "illegal" aliens, because if they are not citizens, then they are, by definition, aliens - and it isn't illegal to be an alien, it's just illegal to be present in the U.S. without legal permission).  Employers whose workforce consists (allegedly) of unlawfully present aliens present a problem in wage & hour class actions - the workforce, if very transitory, may be hard to locate or unwilling to come forward to participate in any settlement.  So you can easily face a situation where the wage & hour violations are pandemic but the class is hard to locate.  In that instance, a "claims made" settlement is particularly suited to resolution.  Given the usually low hourly wages of this particular employee demographic, such classes often also include the problem of a low recovery level that provides its own justification for a "claims made" settlement.

See the balance of Wage Law's post for more choice words from Judge Alsup and commentary about settlement structure.

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Scrutiny of options backdating settlement results in massive increase to settlement offer

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In a post from April 27, 2008, this blog discussed a pair of noteworthy decisions, by Judge William Alsup of the United States District Court of the Northern District of California, in two options backdating lawsuits involving Zoran Corporation and CNET Networks.  As it turns out, Judge Alsup's intense scrutiny of those settlements has had a therapeutic effect on the value of the settlement.

As described by Forbes.com, Judge Alsup was less than pleased with the manipulation of the value of the settlement by Plaintiff's counsel:

“The lawyers painted the value of the package as $1.6 million, based on a Dec. 3, 2007, stock price of $21.99 a share. When Alsup asked how they arrived at that date, lawyers first indicated that was when they had signed a memorandum of understanding, but when Alsup ordered a copy of the memorandum, it turned out to have been signed Dec. 21 and wasn't filed with the court until Feb. 26. By then Zoran's stock was down 50%, and the options concessions were worth far less.

(Daniel Fisher, Fee Fixers (June 9, 2008) www.forbes.com.)  Judge Alsup described the initial settlement as having a value of, potentially, a meager $200,000, and quite possibly less.  In a revised settlement filed May 29, 2008, $3.4 million in hard cash materialized ($3 million from Zoran's insurance company and $395,000 from Zoran Chief Executive Levi Gerzberg and another executive).  Keller Rohrback, counsel for plaintiff, had the confidence (chutzpah? nerve? temerity?) to request $1.5 million in fees and expenses, $300,000 more than the first time around.  (Ibid.)

I would guess (and it is only a guess) that the publicity surrounding Judge Alsup's scrutiny and criticism of pigs with lipstick may rub off on other judges that routinely handle class action matters.  Thus, it would benefit both sides of the settlement equation to be sure that a motion for preliminary approval does not mislead the Court, hide negative facts, or avoid self-criticism.  A dose of introspection may lend credibility to the motion for preliminary approval.

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More on Amaral v. Cintas: in wage & hour class actions, burdens of proof are appropriately shifted to employers when records are nonexistent

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Greatsealcal100As promised in this earlier post, Amaral v. Cintas (June 11, 2008) ___ Cal.Rptr.3d ___ deserves more commentary.  By way of background, Amaral concerns a living wage ordance (LWO) passed by the City of Hayward.  The LWO requires any company contracting with the City of Hayward to pay specified hourly wages to "any individual employed by a service contractor on or under the authority of any contract for services with the City. . . ."  (Slip op., at p. 19.)  On appeal, Cintas complained that the trial court erred in shifting the burden to require Cintas to prove which of its employees worked on the City of Hayward contracts in order to limit the scope of the class, certified by the trial court and defined as "all production and stockroom workers employed by Cintas at its facilities in Union City and San Leandro between July 1, 1999 and June 30, 2003."  (Slip op., at p. 5.)  The Court of Appeal held wage & hour class actions constitute a special, limited circumstance in which the burden of proof does not rest with the party that must establish the elements of a claim or defense:

“In general, “[e]xcept as otherwise provided by law, a party has the burden of proof as to each fact the existence or nonexistence of which is essential to the claim for relief or defense that he is asserting.”  (Evid. Code, § 500.)  On occasion, however, courts may alter the normal allocation of the burden of proof.  (National Council Against Health Fraud, Inc. v. King Bio Pharmaceuticals, Inc. (2003) 107 Cal.App.4th 1336, 1346; see, e.g., Sargent Fletcher, Inc. v. Able Corp. (2003) 110 Cal.App.4th 1658, 1670 [burden of proof on issue of causation will be shifted to the defendant when circumstances make it impossible for the plaintiff to prove its case].)  “ ‘In determining whether the normal allocation of the burden of proof should be altered, the courts consider a number of factors:  the knowledge of the parties concerning the particular fact, the availability of the evidence to the parties, the most desirable result in terms of public policy in the absence of proof of the particular fact, and the probability of the existence or nonexistence of the fact.’  [Citation.]”  (Lakin v. Watkins Associated Industries (1993) 6 Cal.4th 644, 660-661.)

One long-standing application of burden-shifting occurs in the wage-and-hour context when an employer’s compensation records are so incomplete or inaccurate that an employee cannot prove his or her damages.  When the United States Supreme Court addressed this problem with regard to claims under the Fair Labor Standards Act of 1938 (29 U.S.C. § 201 et seq.), it observed that the remedial nature of the statute and public policy “militate against making [the evidentiary burden] an impossible hurdle for the employee.”  (Anderson v. Mt. Clemens Pottery Co. (1946) 328 U.S. 680, 687 (Anderson).)  Considering that an employer has a statutory duty to maintain proper records of wages, hours and work conditions and is in the best position to know salient facts about the nature and amount of work performed, the court concluded it is appropriate to shift the burden of proof to the employer.  (Id. at pp. 687-688.)  Specifically, once an employee proves he or she “has in fact performed work” that was improperly compensated, and presents enough evidence to allow an inference as to the amount of this work, the burden shifts to the employer to prove the precise amount of work performed or to negate the inference drawn from the employee’s evidence.  (Ibid.)  The high court observed that applying the normal burden of proof in such circumstances would unfairly penalize an employee for the employer’s failure to keep proper records and would allow the employer to keep the benefits of the employee’s labors without paying full compensation.  (Id. at p. 687.)

Relying on Anderson, California courts have shifted the burden of proof to employers when inadequate records prevent employees from proving their claims for unpaid overtime hours (Hernandez v. Mendoza (1988) 199 Cal.App.3d 721, 726-728) and unpaid meal and rest breaks (Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, 961-963).  Anderson’s reasoning has also been applied to permit class action plaintiffs to prove their damages for unpaid overtime by the use of statistical sampling.  (Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715, 746-751.

(Slip op., at pp. 24-25.)  In wage & hour class actions, putative class member employees should use discovery tools at the earliest possible opportunity to ascertain what records do or do not exist.  This should occur before attempting certification so that the Court can be apprised (1) of the availability of common evidence to prove class claims, or (2) the absence of evidence, coupled with a discussion of the burden shift endorsed by Amaral and others.  In order to convice the trial court that a class action is superior, the plaintiff probably needs to explain the manner in which class claims would be established.  If the employer has no records of hours worked, for example, the plaintiff would show evidence of the absence of records, the type of testimony that would be offered to show unpaid hours, and the presumption and burden shift triggered by that evidence.

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e-DISCOVERY: CLE course on Developments in Employment Cases

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Aliabalogo The American Law Institute-American Bar Association Continuing Professional Education (ALI-ABA)  is offering a live telephone seminar on e-Discovery Developments in Employment Cases.  Since you don't actually have to leave your office to attend, it might fit into your habitually congested schedule.  As an interactive seminar, the program affords the opportunity to submit questions for faculty discussion in advance of and during the event.  The course of study, comprised of 120 minutes of instruction, provides guidance on the e-Discovery issues involved in Employment Cases.

From the Seminar materials:

E-Discovery has led to the explosion of litigation budgets, arcane technological disputes beyond the expertise of most practitioners, and, quite recently, to a client and ethical disaster in the now famous Qualcomm case. We are delighted to have two federal magistrate judges, Paul Grimm from the District of Maryland and James Francis from the Southern District of New York, both of whom have been in the forefront in the upsurge of ESI collateral litigation. For example, Judge Grimm is the author of the Lorraine decision which is a 100 page soup-to-nuts tutorial on the authentication and admissibility of ESI, and Judge Francis is the author of Treppel case where he articulated the legal principles applicable to disputes over the preservation and searching of back-up tapes. The Judges will discuss, analyze, and, most importantly, provide practice tips on ESI retention programs, when and how to implement a litigation hold, spoliation avoidance techniques and avoidance of a Qualcomm disaster, framing Rule 34 discovery requests in light of the new E-Discovery rules (TIF, pdf and when and how to go native), the importance of the Rule 26(f) conference, keyword search terms, the role of experts and lawyers in constructing search protocols in light of O’Keefe and Lundin, techniques to manage the exploding cost of E-Discovery, authentication and admissibility of ESI, attorney-client privilege issues, the proposed new Rule 502, Hopson, and clawback agreements, allocation of costs between the parties, and malpractice avoidance and the Hunton Williams model.

Topics include:

  • Implementation of litigation holds
  • Spoliation avoidance
  • Costs – who pays?
  • Keyword search terms, the role of lawyers and experts, and O’Keefe and Lundin
  • Attorney-client privilege issues, Hopson, and clawback agreements
  • Framing Rule 35 e-discovery requests -- when and how to go native
  • Sedona conferences influence

Live Telephone Seminar / Live Audio Webcast Cost: $169
Tuesday, June 24, 2008, 1 - 3 pm EDT
For more information or to register go to www.ali-aba.org/TSNU22/

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OFF TOPIC: Happy Father's Day

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Ameliecancuninset In light of Father's Day, I am posting a picture of my daughter that I was lucky enough to capture on a vacation last year.  Happy Father's Day to all those dad's out there (including me.)  Now, here's a Sunday observation that's also way off topic for this blog: while watching Tiger Woods claw his way into a playoff at the U.S. Open on a bum knee, I can't help but be in awe of the fact that I'm watching history being written, tournament by tournament.  Generations from now, people will talk about the insurmountable standard he set.  I hope that I have the opportunity to contribute something in the field of law that stands the test of time, and, if I do, I hope that I have what it takes to seize that opportunity.  (As an aside, I have no idea how to play golf.)

Now I'm going to make myself sick to my stomach, watching the Lakers finish their finals tank job.  As I said, Happy Father's Day.

UPDATE: Shocked, I say.  Shocked and amazed that the Lakers pulled it out.  Hence, sincere, rather than sarcastic, Happy Father's Day.

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Losing plaintiff in dangerous public property case does not suffer adverse award of fees under the request for admission "cost of proof" scheme or Code of Civil Procedure section 1038

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Greatsealcal100The mechanisms available for recovering attorney's fees are a factor routinely considered by parties to litigation and their counsel.  The topic is of sufficient import that a new blog, California Attorney's Fees, is dedicated to that one area of practice.  Given the elevated fees incurred in class actions and complex litigation generally, the issue of fee recovery is magnified in importance.  In Laabs v. City of Victorville (June 12, 2008) ___ Cal.Rptr.3d ___, the Fourth Appellate District, Division Two, reviewed a mechanism for recovering fees that has moved into the spotlight in recent weeks, the "cost of proof" fee recovery provision of Code of Civil Procedure section 2033.420.

Plaintiff (and minor) Amanda Laabs was injured in an automobile collision.  She sued various governmental entities, alleging a dangerous condition of public property. The City moved for summary judgment, which the court granted. The court subsequently denied the City’s motion for expenses incurred in proving matters that plaintiff had denied (pursuant to Code of Civil Procedure section 2033.420).

On the issue of "cost of proof" fees, the Court stated the statutory rule:

“Under Code of Civil Procedure section 2033.420, a party that denies a request for admission may be ordered to pay the costs and fees incurred by the requesting party in proving that matter. The court “shall” order the payment of such fees and costs unless it finds: (1) that an objection to the request was sustained or a response to the request was waived; (2) the admission sought was of no substantial importance; (3) the party failing to make the admission had reasonable ground to believe that the party would prevail on the matter; or (4) there was other good reason for the failure to admit the request.

(Slip op., at pp. 49-50.)  Then, examining various requests at issue, the Court, relying upon Brooks v. American Broadcasting Co. (1986) 179 Cal.App.3d 500 [interpreting former Code of Civil Procedure section 2034], concluded that three requests were not of substantial importance to the matter at issue (government liability) and, as to the remainder, the plaintiff had a reasonable basis for denying the requests.  (Slip op., at pp. 50-51.)

Several points are worth noting.  First, this matter provides an interesting couterpoint to the unpublished decision outcomes discussed by California Attorney's Fees in posts on June 6 and June 11.  But the fact that fees were awarded in the two cases discussed by California Attorney's Fees, and not in this case, only serves to highlight the need for care when denying Requests for Admissions; the recovery of fees will place tremendous discretion in the hands of the trial court judge.  And it was a close call in this matter - the decision was 2-1, with an extensive dissent on the attorney's fee issue.  Third, it didn't hurt the Plaintiff's chances of getting the benefit of the doubt on appeal that she was a minor.

It's easy to overlook Requests for Admissions as a litigation tool, especially in complex matters.  Don't.

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BREAKING NEWS: In class action, jury finds Sprint's early cancellation fees were properly charged

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Sprint Nextel Corp. announced today that a California jury ruled in its favor in a trial involving the contentious issue of early termination fees (ETFs) in wireless service contracts.  (Roger Cheng, Jury Sides With Sprint on Early Exit Charges (June 12, 2008) www.smartmoney.com.)  A number of similar class actions have been in various stages of progress, but the Sprint class action was the first to return a verdict.

Meanwhile, The Federal Communications Commission (FCC) held a lengthy hearing today on whether wireless carriers' ETFs are justified and if jurisdiction over those fees should switch from the states to the federal government.  (Chloe Albensius, FCC Debates Need for Cell-Phone Termination Fees (June 12, 2008) www.pcmag.com.)  Since this issue gained traction in 2006, with the filing of class action suits, all major carriers have adjusted their practices to allow for pro-rated ETFs.  Until the FCC determines whether these ETFs constitute federally regulated "rates," consumers and carriers will remain uncertain as to whether states have any jursidiction over carriers' ETFs.  At least in the Sprint case, it is undoubtedly pleased that California currently has jursidiction over this issue.

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Attorneys in labor violation class action are awarded 1.65 multiplier--$1,199,550--plus $60,611 for fee petition expenses in winning a million dollar award in City of Hayward living wage ordinance case

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Greatsealcal100The Court of Appeal (First Appellate District, Division Three) was presented with more than the usual mouthful of major legal issues in Amaral v. Cintas (June 11, 2008) ___ Cal.Rptr.3d ___.  The case addresses issues of constitutionality of a living wage ordinance, class action issues, wage & hour issues, unfair competition claims, interest calculations, and attorney fee multipliers in class actions...to name a few.  The introduction to the case provides an excellent preview for what lies below:

“These appeals concern the constitutionality and application of a living wage ordinance enacted by the City of Hayward (City) and incorporated into its municipal contracts.  Although Cintas  entered into such contracts with the City, it did not provide the minimum wages or benefits required by the ordinance to employees who worked in the company’s stockroom or laundry production facilities, which are located outside of Hayward.  Plaintiffs, representing a class of such employees, sued Cintas for violations of the living wage ordinance, Labor Code section 200 et seq., Business and Professions Code section 17200 and breach of contract.  The trial court rejected Cintas’s challenges to the constitutionality of the ordinance and, on cross-motions for summary judgment or summary adjudication, found that Cintas violated the ordinance, breached its contracts with the City, and violated several Labor Code provisions as well as Business and Professions Code section 17200.  The court awarded back wages and unpaid benefits, imposed penalties for the Labor Code violations pursuant to the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.), and awarded plaintiffs statutory attorneys’ fees and costs.  Cintas challenges nearly every aspect of these rulings on appeal.  In separate cross-appeals, plaintiffs dispute the trial court’s finding that Cintas’s conduct was not “willful,” challenge the court’s calculation of penalties, and claim they are entitled to recover additional costs.

(Slip op., at pp. 1-2.)

This case is worth several posts, but one item in particular, the analysis of retroactivity of the Labor Code Private Attorneys General Act (PAGA), is worth a first mention.  Analyzing whether PAGA applied retroactively, the Court first noted that PAGA did not increase Cintas's liability, since the Labor Commissioner could have recovered the same penalties previously.  Continuing, the Court said:

“It does not matter that Cintas’s wrongful conduct occurred before PAGA was enacted because the legal consequences of this conduct remained the same.  “A statute is retroactive if it substantially changes the legal effect of past events.  [Citations.]  A statute does not operate retroactively merely because some of the facts or conditions upon which its application depends came into existence prior to its enactment.  [Citations.]”  (Kizer v. Hanna (1989) 48 Cal.3d 1, 7-8.)  Nor does it matter that Cintas may have expected to be held accountable for penalties to the Labor Commissioner instead of to plaintiff class members.  “A statute does not operate ‘retrospectively’ merely because it is applied in a case arising from conduct antedating the statute’s enactment [citation] or upsets expectations based in prior law.  Rather, the court must ask whether the new provision attaches new legal consequences to events completed before its enactment.”  (Landgraf v. USI Film Products, supra, 511 U.S. at pp. 269-270, fn. omitted.)  Because PAGA did not increase Cintas’s liability for Labor Code penalties, its application in this case was not retroactive.  (See Myers v. Philip Morris Companies, Inc., supra, 28 Cal.4th at p. 839 [defining a retroactive statute as one that operates to increase a party’s liability for past conduct].)

(Slip op., at p. 36.)

Brace yourselves for the PAGA explosion...

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THANK YOU, GENEROUS BLOGOSPHERE

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New blog, California Attorney's Fees, sets out to "provide a resource tool to practitioners, jurists, and the public about the law governing attorneys’ fees/costs awards, but focused on the law and pragmatic experiences in California state or California federal judicial forums."  Authored by Attorneys Marc D. Alexander and William M. (Mike) Hensley of Adorno Yoss Alvarado & Smith in Santa Ana, California Attorney's Fees should compliment this blog's discussion of class action issues.  The topic of attorney's fees in class actions is one that frequently triggers acrimonious commentary.  A common area of criticism in class actions arises when attorney's fees approved in a settlement exceed the actual or imputed recovery by the class.  I have to assume that Mr. Hensley and Mr. Alexander will be tackling issues of this ilk as the law in this area continues to develop.  For example, will California fully accept the Ninth Circuit's benchmark of 25 percent of the fund as an appropriate fee award in class action settlements?  Inquiring minds want to know.

Like many gracious bloggers did for me, I extend my best wishes and a warm welcome to California Attorney's Fees.

[While several blogs noted this newcomer to the blogosphere, credit goes to California Blog of Appeal for reminding me to get this post up.]

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COMPLEX TECH: iPhone 3G, announced today, will include "enterprise" features

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Enterprise_iphone_small_2 At the Worldwide Developers Conference (WWDC) in San Francisco, Apple announced the second generation of the iPhone, or, iPhone 3G.  The slight cosmetic updates are exciting to gadget fans, but a few changes are significant for business customers.  First, the new iPhone has built-in support for Microsoft Exchange ActiveSync so that users will now have access to "push" email.  In other words, iPhones can now be configured, apparently out of the box, to receive push e-mail in a Microsoft Exchange environment.  As part of that support, IT administrators can securely manage any iPhone that contains confidential company information using remote wipe and enforced security and password policies. These device configuration and remote management capabilities allow IT departments to quickly and seamlessly deploy iPhone throughout their companies.  Second, iPhone 2.0 software supports Cisco IPSec VPN to ensure the highest level of IP-based encryption for transmission of sensitive company information.  Third, with the iPhone now supporting 3G data transmission, the desktop-style browser will provide an incredible tool for information retrieval in the field.  Finally, the sweetness factor is very high.

You can covet the phone (and learn more about it) at Apple's iPhone website.  But you'll have to wait until at least July 11th to get your hands on one.

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