Articles from July 2011

In the California Court of Appeal’s first major statement on the reach of the U.S. Supreme Court’s recent decision concerning Federal Arbitration Act (FAA) preemption in Concepcion v. AT&T, 131 S.Ct. 1740 (2011), the Court of Appeal for the Second Appellate District today held that Concepcion does not apply to representative actions brought pursuant to PAGA, the California Labor Code’s Private Attorneys General Act of 2004. In Brown v. Ralph’s Grocery Co. (opinion available here), the Court of Appeal held unequivocally that Concepcion “does not apply to representative actions under the PAGA.” Slip. Op. at 2. Consequently, “the trial court correctly ruled that the waiver of plaintiff’s right to pursue a representative action under the PAGA was not enforceable under California law.” Id.

The Brown v. Ralph’s panel had specifically requested supplemental briefing following the Supreme Court’s issuance of Concepcion, and its decision to designate its opinion as a published decision was likely made in light of this being a ruling with considerable implications for numerous pending and still-to-be filed cases. The panel noted that Concepcion “provided that ‘at least under some circumstances, the law in California is that class action waivers in consumer contracts of adhesion are unenforceable, whether the consumer is being asked to waive the right to class action litigation or the right to classwide arbitration’ and that ‘the FAA [does not preempt] California law in this respect.’” Slip. Op. at 9, quoting Concepcion, 131 S.Ct. at 153. After then undertaking an extensive analysis that identified PAGA’s purpose as a statute that deputizes citizens to assist the State with the collection of civil penalties and not a statute aimed at recovering damages (see Slip. Op. at 10-12), the Brown v. Ralph’s court concluded that “representative actions under the PAGA do not conflict with the purposes of the FAA.” Slip. Op. at 12.

Striking a pragmatic note, the panel also observed that “[i]f the FAA preempted state law as to the unenforceability of the PAGA representative action waivers, the benefits of private attorney general actions to enforce state labor laws would, in large part, be nullified.” Id.

A team of attorneys from Initiative Legal Group, APC represented the plaintiffs both before the trial court and on appeal, and will continue to represent the plaintiffs as the action is remanded to the trial court pursuant to the Court of Appeal’s direction. Apart from its direct application to nearly identical factual circumstances in other PAGA actions, the Brown v. Ralph’s decision is also expected to be influential with federal courts considering motions to remand PAGA actions to state court, as the same concerns would arise about the purposes of PAGA being vitiated if the unique procedural posture of PAGA actions is not heeded.

The labyrinthine class action alleging sudden, unintended acceleration of Toyota vehicles yielded a major victory for the plaintiffs with Judge James Selna’s recent ruling that accepted an “economic loss” theory of liability. See In re Toyota Motor Corp. Unintended Acceleration Mktg., Sales Practices, and Products Liab. Litig., No. 8:10ML-02151, 2011 U.S. Dist. LEXIS 52529 (C.D. Cal. May 13, 2011). The detailed and meticulously-reasoned Order is available here.

Under the economic loss theory, damages resulting from the alleged unintended acceleration are not limited to circumstances in which this defect proximately caused either property or bodily damage. Rather, the spectrum of compensable damages includes “overpayment, loss in value, or loss in usefulness.” Order at 14-15. Accordingly, those who either would not have bought a Toyota vehicle, or would not have paid as much for the car, had they known of the sudden acceleration defect, are entitled to compensation, even if they have not tangibly realized the decreased value attributed to the defect.

Apart from substantially expanding the size of a prospective class to essentially everyone who bought one of the at-issue Toyota cars, the ruling represents a victory for plaintiffs generally. First, the ruling affirms that economic loss satisfies the Article III “injury in fact” standing requirement. See Order at 14-16. In so holding, the California Supreme Court’s ruling in Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (Cal. 2011) realizes its most direct and unadulterated application to a standing ruling in federal court. Second, Judge Selna rejected Toyota’s argument—made in innumerable other class actions pending in federal court—that Bell Atl. Corp. v. Twombly, 550 U.S. 554 (U.S. 2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (U.S. 2009) require that Plaintiffs provide a detailed level of pleading as to economic loss in order to “allege enough facts to plausibly infer that the pleader is entitled to relief.” See Order at 21-25. Reaffirming the essence of the notice pleading that has prevailed in modern civil jurisprudence, Judge Selna concluded that “[b]ecause every lead Plaintiff alleges a safety defect, and defective cars are not worth as much as defect-free cars, Plaintiffs plausibly establish an economic loss.” Order at 25.

While binding on neither other federal district courts nor California’s trial courts, the rulings in In re Toyota are likely to influence other judges, not least owing to Judge Selna’s characteristic thoroughness.