Brown v. Wal-Mart: Good News for Plaintiffs Seeking Standing and Class Cert in Seating Cases

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In April, Wal-Mart attempted and failed to defeat class certification and challenge standing for employee plaintiffs seeking redress for seating violations before the Northern District of California. On April 27, 2018, the district court released a scathing order denying Wal-Mart’s motion to decertify the class in Brown, et al. v. Wal-Mart Store, Inc., Case No. 09-cv-03339-EJD, stating that addressing Wal-Mart’s motion is “an exercise in futility” (slip op available here). The order dealt with the interpretation of two aspects of section 14 of California Wage Order 7-2001—one involving class certification requirements and the other involving standing.

Wal-Mart fought long and hard to decertify the class in Brown ever since it was first certified. In August 2012, the district court certified a class of “[a]ll persons who, during the applicable statute of limitations, were employed by Wal-Mart in the State of California in the position of Cashier.” Slip op. at 1. Wal-Mart appealed the certification to the Ninth Circuit. Two other appeals were pending before the Ninth Circuit at the time that dealt with similar issues, one of which was Kilby v. CVS, No. S215614 (Cal. April 4, 2016) (Kilby was previously covered on the ILJ here, and the Brown appeal was previously covered on the ILJ here). The Ninth Circuit had certified questions regarding interpretation of the Wage Order to the California Supreme Court in those two cases. Once the California Supreme Court issued its decision in Kilby, the Ninth Circuit decided to affirm certification in Brown in June 2016. Slip op. at 2. Proceedings in the district court resumed, but Wal-Mart again raised the issue less than two years later, filing a motion to decertify the class in January 2018. After briefing concluded, the district court rejected Wal-Mart’s arguments entirely.

Wal-Mart’s decertification argument failed largely because it relied on rehashed arguments (see slip op. at 4). Wal-Mart presented arguments regarding cashier duties that the district court had already explicitly rejected: Wal-Mart’s 30(b)(6) witness testified all cashiers perform the same essential tasks and the district court found her credible. Wal-Mart claimed newly-raised evidence as well, but failed to sufficiently describe how it was meaningfully different. Wal-Mart’s decertification argument also stumbled because it relied on arguments and evidence that “ignor[ed] or misapprehend[ed]” the Kilby decision. See slip op. at 5. The California Supreme Court stated in Kilby that “courts must examine subsets of an employee’s total tasks and duties by location . . . and consider whether it is feasible for an employee to perform each set of location-specific tasks while seated” Kilby, at 564. This means that the amount of time plaintiffs spend doing each duty is irrelevant in seating cases—the correct inquiry is whether the duties at each work location can reasonably be performed seated. See Cal. Code Regs., tit.8, § 11040, subd. 14(a) (Wage Order No. 4-2001). Disregarding this precedent, Wal-Mart argued that one of the named plaintiff’s claims were not typical of the class because she “was on register nearly 100% of her working time” and “did not spend time on tasks away from her checkstand, unlike other [c]ashiers.” Slip op. at 6 (internal citations omitted). In short, the district court wrote that as to decertification, Wal-Mart “does not have a leg to stand on.” Slip op. at 3.

Issuing a final blow, the district court denied Wal-Mart’s argument that the plaintiffs in Brown lacked standing using a bit of wordplay: “In a final ironic twist, Wal-Mart digresses from its tirade against sitting and takes a swipe at standing.” Slip op. at 6. Wal-Mart again ignored precedent set by Kilby by arguing that Brown plaintiffs could not satisfy the injury-in-fact requirement of Article III standing because the Wage Order was a procedural requirement rather than a substantive provision. In Kilby, however, the California Supreme Court explained that the Wage Order “provide[s] a minimum level of protection for workers.” Kilby, at 563. “In other words,” the district court wrote, “the Wage Order does not prescribe a procedure that businesses must follow but instead protects an employee’s concrete interest in her own well-being, and therefore “clearly sits in the [substantive provision] group.” Slip op. at 6.

This order is a victory for plaintiffs in seating claims, as it substantially strengthens arguments in favor of standing and class certification. This validation of Kilby may be one of many to come as the weight of precedent builds in favor of seating plaintiffs.

Authored by:
Ariel Harman-Holmes, Associate
CAPSTONE LAW APC

McGill v. Citibank Breathes New Life into Roberts v. AT&T Mobility

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A consumer class action against AT&T Mobility for cell phone data “throttling” was revived on March 14, 2018, by the Northern District of California, courtesy of a motion to reconsider and subsequent denial of a motion to compel arbitration (as to all but one of the plaintiffs) in Roberts v. AT&T Mobility, No. 15-cv-03418-EMC (slip op. available here). The case was on remand from the Ninth Circuit after it affirmed the district court’s order compelling arbitration. Roberts v. AT&T Mobility LLC, 877 F.3d 833 (9th Cir. Dec. 11, 2017), petition for cert. filed (U.S. March 9, 2018) (No. 17-1287). While Roberts was on appeal, the California Supreme Court handed down its decision in McGill v. Citibank, 2 Cal.5th 945 (2017), holding that an arbitration agreement that waives the right to seek the statutory remedy of public injunctive relief in any forum is contrary to California public policy and therefore unenforceable. On reconsideration, the district court relied on McGill to deny AT&T’s motion to compel arbitration because it contained a pre-dispute waiver of public injunctive relief.

The Roberts arbitration saga began in April 2016 when the district court compelled arbitration, rejecting the plaintiffs’ First Amendment challenge to the Federal Arbitration Act (FAA). On appeal, the plaintiffs argued that an order forcing arbitration would violate the Constitution’s Petition Clause because the plaintiffs had not “knowingly and voluntarily give[n] up their right to have a court adjudicate their claims.” Roberts v. AT&T Mobility LLC, 877 F.3d 833, 836 (9th Cir. 2017). However, the First Amendment right to petition is a guarantee only against abridgment by the government, and a plaintiff must get over the threshold showing of a state action to make a valid Petition Clause claim. Id. at p. 837. The Ninth Circuit shot down the plaintiffs’ constitutional argument primarily because AT&T’s conduct was not fairly attributable to the state. Id. at 839.

One month after Roberts was remanded to the district court, the plaintiffs filed for reconsideration of the district court’s order compelling arbitration based on McGill. In granting reconsideration, Judge Edward Chen noted that two other judges in the Northern District already had relied on McGill to deny motions to compel arbitration in similar circumstances. See McArdel v. AT&T Mobility LLC, 2017 WL 4354998 (N.D. Cal. Oct. 2, 2017), appeal docketed, No. 17-17246 (Nov. 2, 2017); Blair v. Rent-A-Center, Inc., No. C-17-2335 WHA (Oct. 25, 2017), appeal docketed, No. 17-17221 (Oct. 30, 2017).

Procedurally, the district court rejected AT&T’s argument that the plaintiffs had delayed in bringing the motion to reconsider, finding that the plaintiffs had exercised “reasonable diligence.” Slip op. at 3. On the merits, the district court examined the California Supreme Court’s rationale in McGill. Id. at 6. The court noted that McGill had not held that public injunctive relief claims are inarbitrable, but rather that the at-issue agreement in that case was “unenforceable because it prohibited her from pursuing public injunctive relief in any forum—arbitration or otherwise.” Id. This distinction is important as it avoids potential preemption by the FAA. See, e.g., Ferguson v. Corinthian College, 733 F.3d 928, 929 (9th. Cir. 2013) (noting that the Broughton-Cruz rule exempting claims for “public injunctive relief” from arbitration is preempted by the FAA). The district court also noted that the anti-waiver defense adopted in McGill applied to contract formation in general, not just arbitration contracts. Slip op. at 7. As such, it met the U.S. Supreme Court’s mandate that courts place arbitration agreements on equal footing with other contracts. AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).

Finally, the district court rejected AT&T’s preemption argument, that claims for public injunctive relief interfere with the fundamental attributes of arbitration because they are “indistinguishable” from class-wide injunctive relief, which can be forcibly waived via an arbitration agreement consistent with the FAA. Slip op. at 9. The court analogized claims for public injunctive relief under the consumer protection statutes to representative actions under the California Private Attorneys General Act (PAGA), which the California Supreme Court has likewise held to be unwaivable. Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal.4th 348, 381 (2014), accord Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425, 427 (9th Cir. 2015).

It can reasonably be expected that Roberts will return to the Ninth Circuit. However, given the logical parallels between claims for public injunctive relief and PAGA, there is a good chance of another opinion like Sakkab upholding the California Supreme Court’s analysis, including with respect to FAA preemption. In any event, Roberts stands as a good reminder to the plaintiffs’ bar to be aware of the evolving law involving arbitration; a favorable decision in a recently-decided case may revive a class action from an order compelling arbitration.

Authored By:
John Stobart, Senior Counsel
CAPSTONE LAW APC

Turman v. Superior Court: Alter Ego & Joint Employer Liability Clarified by CA Ct. of Appeal

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On November 29, 2017, the California Court of Appeal, Fourth District, addressed when the corporate veil can be pierced for wage-and-hour violations. Turman, et al. v. Superior Court of Orange County, No. G051871 (4th Dist. Div. 3 Nov. 7, 2017) (slip op. available here). The plaintiffs sued their former employer, Koji’s Japan, Inc. (“Koji’s”), along with A.J. Parent Company, Inc. a.k.a. “America’s Printer,” and Arthur Parent, who was the president, sole shareholder, and director of Koji’s and America’s Printer, in a class and collective action lawsuit. Among other rulings, the former restaurant employees appealed the trial court’s decision that Mr. Parent and America’s Printer were not alter egos of Koji, and that Mr. Parent was not liable as a joint employer for their state labor law claims.

The Turman plaintiffs initiated the underlying lawsuit in 2010 against Koji’s and Mr. Parent (as an individual). Each plaintiff was employed by the Koji’s entity and worked at one or both of its restaurants at some point between 2006 until early 2012, when Mr. Parent closed the restaurants. In 2012, the plaintiffs filed their third amended complaint against Koji’s and Mr. Parent, and added America’s Printer as a defendant.

In 2010, in Martinez v. Combs, 49 Cal.4th 35 (2010), the California Supreme Court set forth three alternative definitions of “employer” derived from the Industrial Wage Commission’s (IWC) Wage Orders that apply to wage-and-hour actions: to employ is to “(a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship.” Martinez, 49 Cal.4th at 64. In Turman, the plaintiffs argued that under Martinez, Mr. Parent was a joint employer because he exercised significant control over Koji’s restaurant employees, including hiring and firing non-exempt managers, instructing his managers to fire one of the plaintiffs who initiated the lawsuit, and laying off all employees when he closed the restaurants. The trial court was concerned that, under this argument, all owners of closely-held corporations would be liable as joint employers because of their ultimate control of their businesses. Thus, rather than following Martinez (by distinguishing it as applicable to corporate joint employers), the trial court turned to the common law rule that corporate agents acting within the scope of their agency are not personally liable for a corporate employer’s failure to pay its employees.

In late 2017, the Court of Appeal held that the trial court should have followed Martinez, and therefore the IWC Wage Orders, as controlling authority for defining an employer because, “[w]ere we to define employment exclusively according to the common law in civil actions for unpaid wages[,] we would render the commission’s definitions effectively meaningless.” Slip op. at 27 (quoting Martinez, 49 Cal.4th at 65). Turning to the facts of the underlying case, this court noted that, per the trial court’s statement of decision, Mr. Parent was not a remote shareholder, but was the “big boss” who “had the ability to control [Koji’s and America’s Printer], whether he chose to delegate that responsibility or not.” Slip op. at 28. Thus, the appellate court directed the trial court to reconsider the issue of Mr. Parent’s joint liability by applying the three possible definitions of an employer from Martinez. Under this analysis, owners of closely-held corporations are not presumed to be immune from personal liability as corporate agents, but instead, courts will look to their activities with employees and/or business operations.

Additionally, the trial court had found that the plaintiffs did not prove that “failure to disregard the corporate entity would sanction a fraud or an injustice,” citing that Koji’s was a real business that was not “formed for the purpose to commit fraud or other misdeeds.” Slip op. at 22. The Court of Appeal held this was a misapplication of California law, which states there are only two requirements that must be met to invoke the alter ego doctrine: “a unity of interest and ownership between the corporation and its equitable owner [such] that the separate personalities of the corporation and the shareholder do not in reality exist; and . . . an inequitable result if the acts in question are treated as those of the corporation alone.” Slip op. at 21 (emphasis in original; quoting Sonora Diamond Corp v. Superior Court, 83 Cal.App.4th 523, 538 (2000)). Thus, the question is not whether the corporate entity was formed for a fraudulent purpose, but whether removing the entity from the equation would lead to an inequitable result. As with the joint-employer analysis, this alter ego analysis can be helpful for potential employee-plaintiffs because under this formulation, courts must look at the facts at hand instead of the more detached incorporation process.

Authored by:
Anthony Castillo, Associate
CAPSTONE LAW APC

Chase v. Hobby Lobby: Court Takes Consumers’ POV on False Discounts

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In Chase v. Hobby Lobby Stores, Inc., No. 17-00881 (S.D. Cal. Feb. 8, 2018) (slip op. available here), the plaintiff alleged that Hobby Lobby engages in a scheme to defraud consumers by advertising fake discounts, using false reference pricing, on its store merchandise. For example, Hobby Lobby places price tags on individual store products stating their “Marked” price, such as $17.99 for a photo frame. In the store aisles, amongst other photo frames, Hobby Lobby also advertises on an 8”x11” placard, “Photo Frames 50% OFF the Marked Price” in large boldface type, and sells the product to the customer at half of the “Marked” price, or $8.99. As a result of what she saw on the placard, the plaintiff purchased the frame believing it was worth significantly more than the $8.99 that she paid. Slip op. at 2-3. However, the plaintiff contends that this “Marked” price is fictitious, because the frame never sold for the “Marked” price of $17.99 during the 90-day period preceding her purchase nor was it offered for sale. Chase filed a class action based on this practice alleging violations of California’s consumer protection statutes, including the Unfair Competition Law (“UCL”), False Advertising Law (“FAL”), and the Consumers Legal Remedies Act (“CLRA”). Id. at 3.

On February 8, 2018, Hobby Lobby moved to dismiss the class complaint. It argued that reasonable consumers would not be deceived into believing the discounted price represented a reduction from Hobby Lobby’s own “marked” price because the placards contained disclaimers in small print. Specifically, the word “always” appeared in small print sandwiched between the words “Photo Frames” (below) and “50% OFF” (above) in larger font, and the term “the Marked Price” was followed by an asterisk directing the reader to more fine print, stating “discounts provided every day; marked prices reflect general U.S. market value for similar products.” Slip op. at 5 (attached as Exhibit B to the First Amended Complaint). The plaintiff alleged she did not notice these disclaimers at the time of her purchase. Id. at 8, 10 n.7. Nevertheless, Hobby Lobby relied on Freeman v. Time Inc., 68 F.3d. 285 (9th Cir. 1995) to argue that a reasonable consumer would have read and understood the disclaimers to mean that Hobby Lobby had not previously sold the merchandise at the “Marked” price. Id. at 9. See Freeman, 68 F.3d at 289-90 (holding, unremarkably, that no reasonable recipient of a sweepstakes offer would be deceived by language in large print that he or she had won the sweepstakes where adjacent language in small print expressly and repeatedly stated, “[i]f you return the grand prizewinning entry”).

The court rejected the application of Freeman and held that, under the reasonable consumer standard, Hobby Lobby’s “disclaimers” did not immunize it from liability for its deceptive pricing scheme. In doing so, the court considered Hobby Lobby’s representations from the point of view of the consumer. It stated, “there is a significant difference between viewing a . . . mailed advertisement [distinguishing Freeman] and viewing a placard in a store aisle amidst a sea of photo frames.” Slip op. at 10. “[I]t is plausible that a reasonable consumer—viewing the [in-store] ad from a distance—could have failed to take note of the word ‘ALWAYS’ and ignored disclaimers in light of the size and bolded font of the ‘50 % off’ language in the overall context of the advertisement.” Id. In the context of food labeling, the Ninth Circuit had previously stated, “[w]e disagree . . . that reasonable consumers should be expected to look beyond misleading representations on the front of the box to discover the truth from the ingredient list in small print on the side of the box.” Williams v. Gerber Prods., 552 F.3d 934, 939 (9th Cir. 2008). Hobby Lobby extends this analysis to in-store advertising, where consumers cannot be expected to search for small print to discover whether discounts that they have been promised are truthful.

Authored By:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC