Class-related: Court of Appeal affirms wage law policies, power of trial court to direct order of proof

I briefly direct your attention to Pellegrino v. Robert Half International, Inc., in which the Court of Appeal (Fourth Appellate District, Division Three) affirmed a trial court judgment that invalidated a contractual agreement purporting to shorten statutes of limitation for wage & hour claims and decided an equitable defense of "administrative exemption" before the jury phase of the trial.

Court of Appeal reverses trial court order sustaining demurrer to class allegations for lack of commonality

The Seventh Division of the Second Appellate District has been lucky (or unlucky - I don't know what they think about it) to draw a number of major class-related appeals in the past several year.  Today, they add another to their growing list.  In Arce v. Kaiser Foundation Health Plan, Inc. (January 27, 2010) the Court of Appeal (Second Appellate District, Division Seven) reviewed a trial court order sustaining a demurrer without leave to amend to a claim arising under the UCL.  The plaintiff alleged that Kaiser breached its health plan contract and violated the Mental Health Parity Act (Health & Saf. Code,1 § 1374.72) by categorically denying coverage for behavioral therapy and speech therapy to plan members with autism spectrum disorders.  The trial court's ruling sustaining the demurrer was based on the doctrine of judicial abstention and the lack of commonality among class members.

In this instance, rather than clip elements from the opinion, I am going to quote one section, discussing the community of interest standard, in its entirety:

A. Community of Interest among Class Members

Section 382 of the Code of Civil Procedure authorizes class action suits “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court . . . .” (Code Civ. Proc., § 382.) The party seeking certification of a class must establish the existence of both an ascertainable class and a well-defined community of interest among the class members. (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326.) “The 'community of interest' requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. [Citation.]” (Ibid.) “'[T]his means “each member must not be required to individually litigate numerous and substantial questions to determine his [or her] right to recover following the class judgment; and the issues which may be jointly tried, when compared with those requiring separate adjudication, must be sufficiently numerous and substantial to make the class action advantageous to the judicial process and to the litigants.” ' [Citation.]” (Lockheed Martin Corp. v. Superior Court (2003) 29 Cal.4th 1096, 1108.) “Other relevant considerations include the probability that each class member will come forward ultimately to prove his or her separate claim to a portion of the total recovery and whether the class approach would actually serve to deter and redress alleged wrongdoing. [Citation.]” (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435.)

It is often premature for a trial court to make determinations pertaining to class suitability on demurrer. Rather, “all that is normally required for a complaint to survive demurrers to the propriety of class litigation is that the complaint allege facts that tend to show: (1) an ascertainable class of plaintiffs, and (2) questions of law and fact which are common to the class.” (Beckstead v. Superior Court (1971) 21 Cal.App.3d 780, 784.) As our Supreme Court has recognized, for purposes of determining whether a demurrer should have been overruled, “it is sufficient that there is a reasonable possibility plaintiffs can establish a prima facie community of interest among the class members . . . .” (Vasquez v. Superior Court (1971) 4 Cal.3d 800, 813; see also Beckstead v. Superior Court, supra, at p. 783 [“[T]he California Supreme Court has mandated that a candidate complaint for class action consideration, if at all possible, be allowed to survive the pleading stages of litigation.”].) Accordingly, “[w]here there is a 'reasonable possibility' that the plaintiff in a class action can establish a community of interest among class members, 'the preferred course is to defer decision on the propriety of the class action until an evidentiary hearing has been held on the appropriateness of class litigation. ' [Citation.]” (Canon U.S.A. v. Superior Court (1998) 68 Cal.App.4th 1, 5; see also Prince v. CLS Transportation, Inc. (2004) 118 Cal.App.4th 1320, 1329 [demurrer to class action complaint improper where the plaintiff “alleges institutional practices . . . that affected all of the members of the potential class in the same manner, and it appears from the complaint that all liability issues can be determined on a class-wide basis”].)

“The wisdom of allowing survival is elementary. Class action litigation is proper whenever it may be determined that it is more beneficial to the litigants and to the judicial process to try a suit in one action rather than in several actions . . . . It is clear that the more intimate the judge becomes with the character of the action, the more intelligently he [or she] may make the determination. If the judicial machinery encourages the decision to be made at the pleading stages and the judge decides against class litigation, he [or she] divests the court of the power to later alter that decision . . . . Therefore, because the sustaining of demurrers without leave to amend represents the earliest possible determination of the propriety of class action litigation, it should be looked upon with disfavor.” (Beckstead v. Superior Court, supra, 21 Cal.App.3d at p. 783.)

In sustaining Kaiser's demurrer to the UCL claim, the trial court concluded that Arce could not establish a predominance of common issues because resolution of the claim would require the court to make individualized determinations as to whether the therapies at issue were “medically necessary” for each member of the putative class. However, based on the allegations in the second amended complaint, the UCL claim presents two central legal issues that are common to all putative class members. First, does Kaiser's health plan contract exclude from coverage Applied Behavior Analysis therapy or speech therapy for autism spectrum disorders on the grounds that such therapies are “non-health care services,” “academic or educational interventions,” or “custodial care”? Second, assuming that the therapies are excluded from coverage by the health plan contract, does the Mental Health Parity Act allow Kaiser to categorically apply such exclusions on the basis that the therapies are not health care services, or are provided by persons not licensed or certified by the state? While these issues clearly raise questions of contractual and statutory interpretation, neither would require the court to make individualized determinations of medical necessity for class members.

Slip op., at 13-15.  The Court's discussion of the Doctrine of Judicial Abstention is even more detailed, but I confess that my Diet Coke supply is insufficient to keep me conscious through that discussion.

Impressive work by Scott C. Glovsky.

Ninth Circuit holds that the Higher Education Act (HEA), and its Federal Family Education Loan Program (FFELP), preempt state law claims for unfair billing practices

The Higher Education Act (HEA) was passed “to keep the college door open to all students of ability, regardless of socioeconomic background.” Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 1028, 1030 (9th Cir. 2009).  Congress also Congress established the Federal Family Education Loan Program (FFELP), a system of loan guarantees meant to encourage lenders to loan money to students and their parents on favorable terms. See 20 U.S.C. §§ 1071-1087-4; Rowe, 559 F.3d at 1030.  In Chae, et al. v. SLM Corporation, dba Sallie Mae, et al. (9th Cir. January 25, 2010), the Ninth Circuit considered whether the HEA and FFELP preempted state law consumer protection claims in a putative class action alleging false and misleading disclosures about billing practices.

The Court excluded field preemption from its analysis, noting: "Turning now to the issues before us, we have previously held that field preemption does not apply to the HEA."  Chae, at 1382.  With that, the Court analyzed whether "express preemption" or "conflict preemption" were present.

The Ninth Circuit found that express preemption applied to the claims in Chae:

Congress has enacted several express preemption provisions applicable to FFELP participants. See, e.g., 20 U.S.C. §§ 1078(d), 1091a(a)(2)(B), 1091a(b)(1)-(3), 1095a(a), 1098g. These provisions expressly preempt the operation of state usury laws, statutes of limitations, limitations on recovering the costs of debt collection, infancy defenses to contract liability, wage garnishment limitations, and disclosure requirements. This last provision, 20 U.S.C. § 1098g, is entitled, “Exemption from State disclosure requirements.” The text of the statute reads: “Loans made, insured, or guaranteed pursuant to a program authorized by Title IV of the Higher Education Act . . . shall not be subject to any disclosure requirements of any State law.” Id. The FFELP falls within Title IV of the HEA, and is thus subject to its express preemption provision. 

Chae, at 1383.  The Court then explained its disagreement with the plaintiffs' characterization of their claims as misrepresentation claims, not disclosure claims:

At bottom, the plaintiffs’ misrepresentation claims are improper-disclosure claims. The plaintiffs do not contend that California law prevents Sallie Mae from employing any of the three loan-servicing practices at issue. We consider these allegations in substance to be a challenge to the allegedly misleading method Sallie Mae used to communicate with the plaintiffs about its practices. In this context, the state-law prohibition on misrepresenting a business practice “is merely the converse” of a state-law requirement that alternate disclosures be made. See Cipollone, 505 U.S. at 527. 

Chae, at 1384.  The Court was not sympathetic to the plaintiffs' argument that a finding of preemption would eliminate any recourse for unfair practices by Sallie Mae.  The Court, in a footnote, suggested that the plaintiffs' only remedy was to complain to the Department of Education.  Chae, at 1384-85, n. 6.

Finally, the Court concluded, after a lengthy discussion, that application of state consumer protection laws would directly conflict with the uniformity and stability goal behind the FFELP.

Consumer Attorneys of California makes it to the bleeding edge: Twitter and Facebook

Consumer Attorneys of California (CAOC) is breaking into new media territory with presence on Facebook and Twitter.  You can find CAOC on Twitter by following @ConsumerAttysCA.  You can become a fan of CAOC on Facebook here.  Personally, I've almost given up on Facebook, purely because of its deplorable disregard for user privacy.  Facebook needs to keep its act clean for a while just to get back to zero with me.  The problem is, half the planet is using Facebook, so my protestations are unlikely to start a grass roots movement.

California Supreme Court activity for the week of January 18, 2010

The California Supreme Court held its (usually) weekly conference on January 20, 2010.  The only interesting, if not significant bit of information, is the fact that some well-known cases are still kicking around:

• Review denied in Gattuso v. S.C. (Harte-Hanks Shoppers)
• Review denied in Harper v. S.C. (24 Hour Fitness) (Successful plaintiff-appellant in initial appeal challenged the striking of their 170.6 challenge on remand.  Court of Appeal affirmed.)

Breaking News: New appellate court decision in Steroid Hormone Product Cases at odds with Cohen panel's rebuke of Tobacco II

The initial appellate decisions in which In re Tobacco II Cases (2009) 46 Cal.4th 298, 311 (Tobacco II) was ignored or criticized are beginning to see an equalizing counterbalance from appellate decisions that approvingly apply Tobacco II.  Today, in Steroid Hormone Product Cases (January 21, 2010), the Court of Appeal (Second Appellate District, Division Four) reversed an order denying class certification.  While the Court didn't directly address Cohen, it did include this footnote with a very interesting choice of language that was ostensibly directed at the trial court's order:

GNC tries to avoid the required reversal by arguing in its respondent's brief that the trial court's ruling does not conflict with Tobacco II because Tobacco II addressed standing, while the trial court specifically stated that standing was irrelevant to the certification analysis.  Although the court did state that standing was irrelevant, it nevertheless found that Proposition 64 added actual injury as an element of a cause of action for restitution under the UCL, and therefore injury must be established for each class member. Tobacco II made clear, however, that Proposition 64 only affected the named plaintiff's standing in a UCL class action seeking restitution; it did not add an additional element to be satisfied by all class members. (Tobacco II, supra, 46 Cal.4th at p. 321.)

Slip op., at 11, n. 8 (bold emphasis added).  This is a direct repudiation of Cohen's analysis.  The question this decision raises is whether it will encourage the California Supreme Court to depublish Cohen and send a signal that the analysis of Steroid Hormone Product Cases is the correct construction, take up Cohen to explicitly resolve this split, or let more Courts of Appeal weigh in on the issue.

I may write a longer summary and analysis of this decision at a later time, but, for now, the quote above is where most of the action can be found.

Ninth Circuit holds that a class representative can voluntarily settle individual claims but retain a personal stake sufficient to appeal the denial of class certification

In the last few years, California Courts of Appeal have examined the question of whether an putative class representative can voluntarily settle individual claims while "agreeing" with the defendant that the plaintiff would retain a right to appeal the denial of class certification.  That examination hasn't gone well for plaintiffs:  "The parties' intent cannot compel this court to issue an advisory opinion on issues in which, after the settlement, Larner no longer retains any individual, personal stake."  Larner v. Los Angeles Doctors Hospital Associates, LP, 168 Cal. App. 4th 1291, 1298 (2008).  However, the Larner Court suggested that, had Larner "reserved any right to shift attorney fees to other class members," she might have retained an interest in the litigation sufficient to support her right to appeal.  Larner, at 1304.

After Larner, the trend continued, and with increasing momentum against plaintiffs.  Watkins v. Wachovia Corp., 172 Cal. App. 4th 1576 (2009) actually criticized Larner: "We believe that it is illogical to import the law governing 'pick off' cases into the context of a voluntary settlement."  Watkins, at 1591.  Watkins bluntly declared, "There are no public policy interests implicated by a settlement voluntarily accepted."  Watkins, at 1591.

The Ninth Circuit had occasion to examine this same issue.  In Narouz v. Charter Communications (9th Cir. Jan. 15, 2010), the Court examined "whether the settlement and voluntary dismissal by a class representative of his personal claims in a putative class action lawsuit renders moot his appeal of the denial of class certification."  Slip op., at 1172.  Identifying the issue as one open in the Ninth Circuit, the Court began its analysis with an examination of decisions arising in the context of "involuntary" claim expiration:

The Supreme Court held in Geraghty that when a class representative’s claims expire involuntarily, that representative “retains a ‘personal stake’ in obtaining class certification sufficient” to maintain jurisdiction to appeal a denial of class certification. Id. at 404. The Court reasoned that the class representative maintained at least an interest in spreading litigation costs and shifting fees and expenses to the other litigants with similar claims. Id. at 403; see also Deposit Guar. Nat’l Bank, Jackson Miss. v. Roper, 445 U.S. 326, 334 n.6 (1980).

Slip op., at 1175.  Much like the Larner Court, the Ninth Circuit held:

We hold that when a class representative voluntarily settles his or her individual claims, but specifically retains a personal stake as identified by Geraghty and Roper, he or she retains jurisdiction to appeal the denial of class certification. In so holding, we join several other circuits. See Richards v. Delta Air Lines, Inc., 453 F.3d 525 (D.C. Cir. 2006); Potter v. Norwest Mortgage, Inc., 329 F.3d 608 (8th Cir. 2003); Toms v. Allied Bond & Collection Agency, Inc., 179 F.3d 103 (4th Cir. 1999); Love v. Turlington, 733 F.2d 1562 (11th Cir. 1984).

Slip op. at 1175.  The Court then emphasized that "a class representative cannot release any and all interests he or she may have had in class representation through a private settlement agreement" and still assert the existence of a "personal stake" in the litigation.  Slip op. at 1175.

The Court then briefly criticized the District Court's failure to create a proper record for review when it refused to certify the proposed class for settlement purposes:  "It is clear here that the district court erred in denying class certification without providing any findings or providing any analysis of the Rule 23 factors."  Slip op., at 1179.  The Court succinctly said, "Meaningful appellate review is impossible."  Slip op., at 1179.

There was also a spirited exchange between District Judge Korman (Senior United States District Judge for the Eastern District of New York, sitting by designation), who concurred in the decision, and Circuit Judge Rymer, who dissented.

United States District Court Judge Florence Marie Cooper passes

As reported by the Los Angeles Times, United States District Court Judge Florence Marie Cooper died of lymphoma on January 15, 2010.  Judge Cooper was appointed to the federal bench by President Bill Clinton in 1999.

in brief: service of a complaint on a consumer is a "communication" under the FDCPA

While I can't say that this will ultimately prove to be a class issue, the Fair Debt Collection Practices Act (“FDCPA”) is receiving increased attention in recent years, particularly as an increase in the number of consumers in economic distress increases their interactions with debt collectors.  It is with this in mind that I pass on one sentence from a case involving the FDCPA.  In Donohue v. Quick Collect, Inc., (9th Cir. January 14, 2009), the Ninth Circuit held:  "We . . . conclude that a complaint served directly on a consumer to facilitate debt-collection efforts is a communication subject to the requirements of §§ 1692e and 1692f."  Slip op., at 1006.

California Supreme Court activity for the week of January 11, 2010

The California Supreme Court held its (usually) weekly conference today.  The only notable result (in my view) was:

• A depublication request was denied in Clement v. Alegre (September 23, 2009) (conduct during discovery)

The Supreme Court also issued a number of "Grant and Hold" orders in criminal cases.