Moore & Leviant LLP

I didn't anticipate all the twists and turns that led to this day, but here it is.  I'm excited (and nervous) to see what comes next.  You can find our new firm at www.mllawyers.net.

Episode 5 of the Class Re-Action podcast is now available

Episode 5 is now available for streaming, direct download, and, shortly, through iTunes and the XBox music store.  Thanks to Keith Jacoby of Littler and Josh Konecky of Schneider Wallace for contributing as guests.  My apologies for the bit of echo in this episode, but it was beyond my control.

PAGA claims of multiple employees are not a "common and undivided interest"

In  Urbino v. Orkin Servs. of California, Inc. (9th Cir. Aug. 13, 2013), the Ninth Circuit took up the question of whether PAGA claims aggregate for purposes of CAFA's damage prerequisite.  Plaintiff, a California citizen, worked in a nonexempt, hourly paid position for defendants, each of whom is a corporate citizen of another state, in California. Alleging that defendants illegally deprived him and other nonexempt employees of meal periods, overtime and vacation wages, and accurate itemized wage statements, plaintiff filed a representative PAGA action.  Defendants removed.  Plaintiff moved to remand.  The district court was obligated to decide whether the potential penalties could be combined or aggregated to satisfy the amount in controversy requirement. If they could, federal diversity jurisdiction would lie because statutory penalties for initial violations of California’s Labor Code would total $405,500 and penalties for subsequent violations would aggregate to $9,004,050. If not, the $75,000 threshold would not be met because penalties arising from plaintiff’s claims would be limited to $11,602.40.  Acknowledging a split of opinion, the district court found PAGA claims to be common and undivided and therefore capable of aggregation.

The Court examined the "common and undivided interest" exception to the rule that multiple plaintiffs cannot aggregate claims.  Observing that common questions do not create that common and undivided interest, the Court said:

But simply because claims may have “questions of fact and law common to the group” does not mean they have a common and undivided interest.  Potrero Hill Cmty. Action Comm. v. Hous. Auth., 410 F.2d 974, 977 (9th Cir. 1969). Only where the claims can strictly “be asserted by pluralistic entities as such,” id., or, stated differently, the defendant “owes an obligation to the group of plaintiffs as a group and not to the individuals severally,” will a common and undivided interest exist, Gibson v. Chrysler Corp., 261 F.3d 927, 944 (9th Cir. 2001) (quoting Morrison v. Allstate Indem. Co., 228 F.3d 1255, 1262 (11th Cir. 2000)).

Slip op., at 8.

The defendants then argued that the interest asserted by plaintiff was not his, but was actually the state's interest.  The Court's majority did not find that argument compelling:

To the extent Plaintiff can—and does—assert anything but his individual interest, however, we are unpersuaded that such a suit, the primary benefit of which will inure to the state, satisfies the requirements of federal diversity jurisdiction. The state, as the real party in interest, is not a “citizen” for diversity purposes. See Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 461 (1980) (courts “must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy.”); Mo., Kan. & Tex. Ry. Co. v. Hickman, 183 U.S. 53, 59 (1901); see also Moor v. Cnty. of Alameda, 411 U.S. 693, 717 (1973) (explaining that “a State is not a ‘citizen’ for purposes of the diversity jurisdiction”).

Slip op., at 9.   By the way, this cleverly avoids deciding an unnecessary issue that is of some consequence in the world of arbitration.  It does, however, suggest a point upon which the California Supreme Court will likely have to express an opinion when it decides whether PAGA claims are excused from arbitration clause enforcement or, alternatively, from arbitration clauses that preclude “class” claims.

The dissent, like the majority opinion, is also relatively short, but it is also well argued.

Thanks to the tipster for directing me to the decision (since I don't know whether you want to be identified, you remain anonymous).

NOTE:  This is an updated version of an earlier post on this case.  The older post has been removed. 

Ninth Circuit confirms that Lowdermilk is overruled and damage caps won't save you from CAFA (Rodriquez v. AT&T Mobility)

In Rodriguez v. AT&T Mobility Services LLC (9th Cir. Aug. 27, 2013), the plaintiff brought a putative class action against AT&T Mobility Services, LLC, on behalf of himself and all other similarly situated retail sales managers of AT&T wireless stores in Los Angeles and Ventura counties.  The plaintiff asserted various claims related to alleged unpaid wages, overtime compensation, and damages for statutory violations, filing in Los Angeles County Superior Court in a doomed effort to escape federal court.  AT&T removed the case to federal court under 28 U.S.C. § 1332(d)(2).  Plaintiff moved to remand the case to state court, arguing that defendant could not establish subject-matter jurisdiction because the total amount in controversy did not exceed $5 million.  Plaintiff cited his First Amended Complaint, in which he alleged as much, that “the aggregate amount in controversy is less than five million dollars.” To bolster his position, in that pleading, he also “waive[d] seeking more than five million dollars ($5,000,000) regarding the aggregate amount in controversy for the class claims alleged.”  The district court rejected AT&T’s argument and ordered remand to state court.  The trial court did not address the parties’ calculations of amount in controversy.

The Ninth Circuit recognized the applicability of the U.S. Supreme Court's first CAFA decision, Standard Fire Ins. Co. v. Knowles, ___ U.S. ___, 133 S.Ct. 1345 (2013).  As to Standard Fire, the parties agreed that Standard Fire mandated reversal of the district court's remand order, which was issued before Standard Fire was decided.  The Ninth Circuit directed the district court to reconsider the remand motion. Slip op., at 7.

On the second issue involved in the appeal, the burden of proof, the Court held that Standard Fire overruled Lowdermilk v. U.S. Bank National Association, 479 F.3d 994 (9th Cir. 2007), which had imposed a "legal certainty" standard, instead of a “preponderance of the evidence” standard, for defeating a pleading’s allegations of amount-in-controversy:

The reasoning behind Lowdermilk's imposition of the legal certainty standard is clearly irreconcilable with Standard Fire. We hold that Standard Fire has so undermined the reasoning of our decision in Lowdermilk that the latter has been effectively overruled. A defendant seeking removal of a putative class action must demonstrate, by a preponderance of evidence, that the aggregate amount in controversy exceeds the jurisdictional minimum. This standard conforms with a defendant's burden of proof when the plaintiff does not plead a specific amount in controversy.

Slip op., at 14.  The Court went on to observe that a “lead plaintiff of a putative class cannot reduce the amount in controversy on behalf of absent class members, so there is no justification for assigning to the allegation weight so significant that it affects a defendant's right to a federal forum under § 1332(d)(2).”  Slip op., at 15.

With this decision in mind, a lead plaintiff is taking a serious chance with their adequacy if there is an attempted waiver of any recovery exceeding $5 million that cannot be supported down the road as having been based on a good faith calculation of recoverable damages.

It's always commonality that gets you in the end (Hendelman v. Los Altos)

When it comes to certification, you can fix almost any problem other than commonality (community of interest).  Inadequate representative?  Get a new one.  Problem with inexperienced class counsel?  Co-counsel.  Numerosity is not really amenable to correction, but most of the time firms just pass on the tiny classes.  But commonality, there's where the rubber meets the road.  In Hendelman v. Los Altos Apartments, L.P. (Jul. 22, 2013; pub. ord. Aug. 20, 2013), the Court of Appeal (Second Appellate District, Division Three) affirmed a trial court order denying plaintiffs' motion for class certificaiton for lack of ascertainability, community of interest, and superiority.  The bulk of the Court of Appeal opinion addresses the commonality-related failings.

The Court first held that the warranty of habitability claim was not suitable for resolution through common proof:

[T]he mere “existence of a prohibited (uninhabitable) condition or other noncompliance with applicable code standards does not necessarily constitute a breach of the warranty of habitability.” (Friedman et al., Cal. Practice Guide: Landlord-Tenant (The Rutter Group 2012) § 3:39, p. 3-13, citing Green v. Superior Court, supra, 10 Cal.3d at pp. 637-638.) “Whether the defect or code noncompliance is ‘substantial’ (and thus a cognizable breach) or ‘de minimis’ (no actionable breach) is determined on a case-by-case basis.” (Friedman et al., supra, § 3:40, p. 3-13.) “In considering the materiality of an alleged breach, both the seriousness of the claimed defect and the length of time for which it persists are relevant factors. Minor housing code violations standing alone which do not affect habitability must be considered de minimis and will not entitle the tenant to reduction in rent; and likewise, the violation must be relevant and affect the . . . common areas which [the tenant] uses.” (Hinson v. Delis (1972) 26 Cal.App.3d 62, 70, disapproved on other grounds by Knight v. Hallsthammar (1981) 29 Cal.3d 46, 55, fn. 7.) Stated otherwise, whether a particular defect or violation of a housing code constitutes a breach of the implied warranty of habitability depends on the severity and duration of the defect or violation. Breach is a rebuttable presumption affecting the burden of producing evidence. (Friedman et al., supra, §§ 3:46 to 3:47, pp. 3-14 to 3-15.)

Slip op., at 11.  The trial court concluded that even the code violations impacting all tenants did so differently and to different degrees, and the Court of Appeal, giving deference to the trial court, agreed.  One question raised by this decision is whether variation in entitlement to damage tainted the analysis as to whether liability could be shown through common proof, especially where strict liability is imposed on the landlord.  At times the Court seems to conflate proof of liability with nominal damages.

The Court then found that the claim for increased rent injected the same individualized questions about whether services to each tenant were reduced in any substantial manner that amounted to an implied increase in rent.

As to the retaliation claim, the Court found that no representative could state that claim, either due to statute of limitations problems or a failure to have been a tenant during the relevant time period.  And as with the habitability claim, the Court agreed that a nuisance action depended heavily on facts unique to each tenant, defeating commonality.

The Court declined to consider the many proposed adjustments or amendments to claims or the class definition on Appeal, finding that such arguments are, in the first instance, matters for the trial court.

Evidence still matters when moving to compel arbitration (Avery v. Integrated Healthcare)

Once again, I find myself playing catch-up after devoting a lot of spare time to examining the logistics of career moves.  In this installment, we see that evidence still matters when moving to compel (or resist) arbitration.  In Avery v. Integrated Healthcare Holdings, Inc., (Jun. 27, 2013; pub. ord. Jul. 23, 2013), the Court of Appeal (Fourth Appellate District, Division Three) affirmed a trial court order denying motions to compel individual arbitration.  The plaintiffs filed a wage & hour class action against defendants, alleging failure to pay overtime properly for employees working on 12-hours shifts.  Defendants filed eight motions to compel individual arbitration against the plaintiffs.  The trial court denied all motions, finding Integrated “failed to meet [its] burden to show that any of the Plaintiffs are subject to an enforceable arbitration agreement."

The Court of Appeal agreed with the trial court’s conclusion that defendants could not simply collect an assortment of documents, modified over time, and claim enforceable arbitration agreements or class waiver clauses:

Integrated sought to compel Plaintiffs to individually arbitrate their claims based on two arbitration agreements: (1) the Fair Treatment Process in the Tenet Employee Handbook, and (2) the Alternative Dispute Resolution Process in the Integrated Employee Handbook. We conclude Integrated is limited to the Fair Treatment Process because (1) it issued the Integrated Employee Handbook and its Alternative Dispute Resolution Process after Plaintiffs’ claims accrued, and (2) it failed to notify Plaintiffs or any other employees about the Integrated Employee Handbook.

Four months after Avery filed her initial class action complaint, Integrated unilaterally modified the Fair Treatment Process in the Tenet Employee Handbook by renaming it the Alternative Dispute Resolution Process and adding a class arbitration waiver. Integrated modified the Fair Treatment Process based on a provision that authorized the employer to “change or modify the FTP procedures from time-to-time without advance notice and without the consent of employees.” Integrated posted the Integrated Employee Handbook containing the Alternative Dispute Resolution Process on its intranet page, but it did not provide employees with a copy of the new handbook, instruct employees to review the new handbook on the intranet page, or even notify employees of the new handbook’s existence.

Slip op., at 10.  The Court went on to hold that the right to unilateral modification is governed by the covenant of good faith and fair dealing:  “An arbitration agreement between an employer and an employee may reserve to the employer the unilateral right to modify the agreement. (24 Hour Fitness, supra, 66 Cal.App.4th at pp. 1214-1215.) But the covenant of good faith and fair dealing implied in every contract requires the employer to exercise that right fairly and in good faith so as not to deprive the employee of his or her reasonable expectations under the agreement.”  Slip op., at 10.

The Court also found that defendant failed to provide adequate evidence of an enforceable agreement accepted by the plaintiffs.  Having affirmed the trial court on that ground, the Court declined to analyze whether the class waivers that defendants added later were simply statements of existing law under Stolt-Nielsen.

The Court concluded its opinion by stating that an arbitration agreement in an employee handbook could be enforceable, so long as the agreement and its acceptance are adequately proven by substantial evidence.