Articles from June 2011

Despite having conclusively jumped the public perception shark, Charlie Sheen has performed a remarkable reverse jump into relevance.  Just when reflexive references to “winning” and Sheen’s conspicuous zaniness had become conclusively played out, Sheen has made real, though sparsely-covered news with the Los Angeles Superior Court’s recent ruling in Sheen v. Lorre, rejecting the defendants’ motion to compel Sheen’s representative PAGA action to arbitration.  The complete ruling is available here.  In rejecting the attempt to apply the U.S. Supreme Court’s recent binge of anti-class action activity to PAGA claims, the meticulously-reasoned Sheen decision is of potentially far-reaching significance.

PAGA is the California Labor Code’s Private Attorneys General Act of 2004, a statute that authorizes “aggrieved employees” to act as the California Labor Workforce Development Agency’s (LWDA) proxy and seek civil penalties for Labor Code violations.  The civil penalties are predominantly paid to the LWDA (i.e., the state) and the California Supreme Court has expressly held that PAGA actions, though “representative” in nature, are not class actions and thus needn’t satisfy the familiar requisites of ascertainability, commonality, and superiority.  See Arias v. Superior Court, 46 Cal. 4th 969 (Cal. 2009).

The Sheen defendants, including Two and a Half Men creator Chuck Lorre and Warner Brothers, sought to seize on the Supreme Court’s AT&T v. Concepcion ruling with the contention that the federal government’s “liberal policy favoring arbitration” is equally applicable to PAGA actions as to class actions.  The court rejected defendants’ contention and refused to apply Concepcion and refer Sheen’s PAGA claim to arbitration, and stated that there are “at least three reasons” for this conclusion.  Sheen Ruling at 12.

First, “no reading of the arbitration clause in evidence supports or suggests a construction that its terms apply to a claim for collection of a penalty . . . arising under . . . PAGA.”  Second, a PAGA cause of action “seeks a remedy belonging not to any individual but to the state [LWDA].”  Third, the PAGA remedy “applies to persons who did not execute the arbitration clause at issue.”  Id. 

Far from the sort of cursory ruling that is occasionally generated by courts with busy calendars, this ruling elaborates on each of the stated reasons for PAGA claims not being subject to arbitration (and thus beyond the reach of AT&T v. Concepcion), a thoroughness at least partly attributable to both sides having been well-financed and submitting exhaustive, compelling briefs.  Id. at 13-18.  As such, the Sheen PAGA ruling is likely to be influential as other defendants attempt to ride the AT&T v. Concepcion wave and send PAGA claims to arbitration.  As such, when the legal history of the year 2011 is written, perhaps it will be said that Charlie Sheen was more a force for justice than the conservative majority on the Supreme Court.

In another 5-4 ruling as unsurprising as it is consequential, the U.S. Supreme Court today reversed the Ninth Circuit’s affirmance of a district court’s grant of class certification, and in doing so likely set more difficult standards for prospective class actions to meet the Rule 23 commonality requirement. Like the AT&T v. Concepcion decision before it, today’s decision in Dukes v. Wal-Mart has attracted considerable notice in the popular press as well as specialized legal publications, and prompted the New York Times to organize reader comments around the query “A Death Blow to Class Action?”

As to whether “there are questions of law or fact common to the class,” the Court divided along the identical ideological lines in its five-to-four array as in AT&T v. Concepcion. Writing for the majority, and elevating an argument frequently advanced by defendants opposing class certification to the status of controlling law, Justice Antonin Scalia reasoned that the only corporate policy that the plaintiffs’ evidence convincingly showed was Wal-Mart’s policy of giving discretion to its local supervisors over employment matters, about which he stated, “[o]n its face . . . that is just the opposite of a uniform employment practice that would provide the commonality needed for a class action; it is a policy against having uniform employment practices.”

Companies are widely expected to adopt policies against having uniform employment practices that violate the law. Finding that somewhat unsatisfactory, Patricia A. Barasch, President of the National Employment Lawyers Association, reacted to the decision by noting that “[t]oday’s judgment will make discrimination more prevalent unless Congress acts to reverse yet another misguided opinion by the Court.”

The full Dukes v. Wal-Mart decision is available here.

Too often, an objection to a class action settlement is, rather than a bona fide objection, a gambit by a law firm that has stood on the sidelines and hopes to extract a nuisance settlement from the larger, more established firm that negotiated the settlement. At best, settlements are delayed. At worst, fees are cut and returned to settling defendants, with no benefit at all to the class members.

The Ninth Circuit recently injected some much-needed reason into the objection process with its ruling in Glasser v. Volkswagen of America, No. 09-56618, 2011 U.S. App. LEXIS 9943 (9th Cir. May 17, 2011). Above all, Glasser clarifies the prevailing assumption that being a class member necessarily implies an unfettered entitlement to object. “In the class action context, simply being a member of the class does not automatically confer standing to challenge a fee award to class counsel—the objecting class member must be “aggrieved” by the fee award.” Glasser at *7-*8.

The at-issue settlement provided entirely for injunctive relief, whereby Volkswagen agreed to make disclosures about its “smart keys” that the underlying lawsuit, first filed in Los Angeles Superior Court and then removed to federal court under CAFA, had alleged were lacking. Specifically, the named plaintiff alleged that buyers of cars using the smart keys, which require computer programming and typically cost more than conventional keys, were not sufficiently informed as to either the expense or the difficulty attendant to getting replacements. See Glasser at *2. The objector, class member David Murray, argued that the attorney fees were excessive and that the settlement’s benefits were merely “illusory” and, in any event, the case lacked merit. Murray asked that the awarded fees of $417,663.75 be significantly reduced below the lodestar amount. Glasser at *5-*7.

The three-judge Ninth Circuit panel ruled that none of Murray’s specific objections gave rise to circumstances that would confer standing. For instance, his contention that the purportedly “excess” fee award would cause Volkswagen to pass costs along to customers failed to satisfy the “irreducible minimum” of an actual or imminent injury for Article III standing under the leading case on standing in federal courts, Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). And because the settlement was not styled as a “constructive common fund,” there was no basis for arguing that the fees directly depleted the class members’ recovery. Glasser at *10-*11.

By flatly prohibiting an objection that was little more than a generalized, indirect grievance about the settlement, Glasser is a modest victory for the fair and efficient administration of class action settlements.

Earlier this year, Bank of America agreed to pay $410 million to settle sprawling litigation stemming from allegations that consumers were charged unlawful overdraft fees. The cases were consolidated into an MDL action in the Southern District of Florida as In re Checking Account Overdraft Litig., No. 09-MD-02036-JLK (S.D. Fla. filed June 10, 2009). Bank of America was the first of the more than 30 bank defendants to settle—other defendants include JPMorgan Chase, Wells Fargo, U.S. Bank, and Citibank—and preliminary approval of the settlement is expected to signal the parameters of acceptable settlement terms to other defendants. The larger banks’ total exposure is estimated to be in the billions of dollars. Given that, and coupled with the fact that legislative and administrative reforms enacted since the cases were filed effectively outlaw the complained-of practices, it is unlikely that the banks, already financially challenged, will take their chances at trial. By settling first, Bank of America might well have worked that dynamic to its advantage, as the plaintiffs in the remaining actions communicate a willingness to go to trial and hold out for better settlements.

Further complicating the settlement calculus: Some of the defendants, led by JP Morgan Chase, are asking that the district court reconsider its earlier denial of a Rule 12 motion to dismiss in light of new authority concerning federal preemption—not AT&T v. Concepcion, but the considerably more arcane Baptista v. JP Morgan Chase Bank, No. 10-13105, 2011 U.S. App. LEXIS 9568 (11th Cir. May 11, 2011). Baptista, available here, concerns the preemptive effect of the National Bank Act (12 U.S.C. § 21 et seq.) and the complex interplay between federal and state regulation of banks.