Articles from August 2011

With the issuance of its opinion in Plows v. Rockwell Collins, the Central District has added to the list of cases circumscribing the application of the U.S. Supreme Court’s Concepcion v. AT&T, articulating a doctrine of waiver that is likely applicable to many defendants that have suddenly moved for arbitration following the April 27, 2011 issuance of Concepcion; underscoring the California Court of Appeal’s holding in Brown v. Ralphs Grocery Co. that Concepcion is inapplicable to representative actions brought pursuant to PAGA (the Labor Code Private Attorney General Act of 2004); and holding that Gentry v. Superior Court remains good law.  See Plows v. Rockwell Collins, Inc., No. SACV-10-1936 DOC, 2011 U.S. Dist. LEXIS 88781 (C.D. Cal. Aug. 9, 2011) (available here).

In finding that Rockwell Collins had waived any entitlement to arbitration, Central District Judge David O. Carter found that the defendant had behaved in a manner “inconsistent with a demand for arbitration” by availing itself of the court system with venue transfer and removal motions, propounding discovery, participating in meeting and scheduling conferences, and waiting to move to compel arbitration until nearly 13 months after the case was filed, just a matter of days after Concepcion was issued.  Plows at *6.

Additionally, Judge Carter denied the defendant’s motion to compel arbitration as to PAGA claims, citing to the Court of Appeal’s Brown v. Ralphs decision concerning precisely the same issue:

The California Court of Appeals, in Brown, comprehensively and persuasively discussed the reasons why class action waivers contained in arbitration agreements may not be used to divest plaintiffs of their right to bring representative actions under PAGA.  Specifically, the Court of Appeals emphasized that “the purpose of the PAGA is not to recover damages or restitution, but to create a means of ‘deputizing’ citizens as private attorneys general to enforce the labor code.”

Plows at * 14-15, quoting Brown v. Ralphs, 197 Cal. App. 4th at 501.

Finally, Plows distinguished Gentry v. Superior Court (which establishes a four-factor test for determining whether mandatory arbitration provisions are unenforceable in employment contracts) from Discover Bank v. Superior Court (which governed arbitration clauses in consumer contracts and was expressly overruled by Concepcion).  Plows, relying on Brown v. Ralphs, notes that, in contrast to Discover Bank, Gentry’s focus is on unwaivable rights, and that the Supreme Court expressly limited itself to overruling Discover Bank.  Again lauding Brown v. Ralphs as being “persuasive” (Plows at *13), Judge Carter ruled that the plaintiff would be permitted to conduct discovery precisely directed at establishing whether the at-issue employment agreement and arbitration clause are enforceable under Gentry.

In Pitts v. Terrible Herbst, a Ninth Circuit panel has taken up the familiar circumstance whereby a defendant offers a “pick-off” settlement to the named plaintiff before a class certification motion has been filed.  The court held that “an unaccepted . . . offer of judgment that fully satisfies a named plaintiff’s individual claim before the named plaintiff files a motion for class certification . . . does not moot the case.”  Pitts v. Terrible Herbst, Inc., No. 10-15965, 2011 U.S. App. LEXIS 16368, at *36 (9th Cir. Aug. 9, 2011) (available here).

This action arose in Nevada state court, where the plaintiff filed a class action complaint against his employer, Terrible Herbst (a prominent Las Vegas-area convenience store), for unpaid overtime and minimum wage violations under the federal Fair Labor Standards Act (FLSA), as well as Nevada workplace-protection statutes and breach of contract.  While a motion to compel production of the prospective class members’ names and contact information was pending, Terrible Herbst made a settlement offer to Pitts, offering to pay him $900 plus reasonable attorney fees and costs, when Pitts had alleged his own damages to be only $88.

Terrible Herbst then moved to dismiss the action for lack of subject matter jurisdiction, arguing that since its offer would have “fully compensated Pitts for his individual monetary claim,” the offer had therefore “rendered the entire case moot.”  Id. at *3.  The district court rejected the defendant’s theory that the settlement offer had mooted the class action, and the Ninth Circuit agreed.

The question before the Ninth Circuit was essentially “whether a putative class action becomes moot when the named plaintiff receives an offer of settlement that fully satisfies his individual claim before he files a motion for class certification.”  Id. at *17.  With considerable reference to and reliance on the two leading Supreme Court cases—Deposit Guaranty Nat’l Bank v. Roper, 445 U.S. 326 (1980) and United States Parole Comm’n v. Geraghty, 445 U.S. 388 (1980)—the panel struck a pragmatic note concerning class actions:

Where the class claims are so economically insignificant that no single plaintiff can afford to maintain the lawsuit on his own, Rule 23 affords the plaintiffs a “realistic day in court” by allowing them to pool their claims. . . . A rule allowing a class action to become moot “simply because the defendant has sought to ‘buy off’ the individual private claims of the named plaintiffs” before the named plaintiffs have a chance to file a motion for class certification would thus contravene Rule 23’s core concern: the aggregation of similar, small, but otherwise doomed claims.

Id. at *21-22 (citing Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 809 (1985); Deposit Guaranty Nat’l Bank v. Roper, 445 U.S. 326, 339 (1980).

Addressing an issue related to the California Labor Code Private Attorney General Act of 2004 (PAGA) that has not yet been taken up by an appellate court, the San Francisco Superior Court recently ruled that when a named plaintiff (or “aggrieved employee” in PAGA parlance) becomes unavailable, it is appropriate to substitute a different, similarly aggrieved, employee to take the original plaintiff’s place, without replicating the PAGA-mandated notice already given by the original named plaintiff.  Peña v. Top Prods., LLC, No. CGC-10-496879 (S.F. Super. Ct. July 19, 2011) (order overruling demurrer to third amended complaint).

In Peña, the original plaintiff, Marco Ruelas, filed a representative PAGA action in February of 2010, giving the required notice to California’s Labor and Workforce Development Agency (LWDA) and to the defendant, Top Productions, LLC.  However, Ruelas later became unable to continue in his role as the plaintiff.  Thereafter, Jose Peña, a then-current employee of Top Productions, assumed the role of named plaintiff.  The defendant’s demurrer did not directly contest the substitution; rather, the defendant alleged that Peña was obligated to re-notify both the LWDA and the defendant.

Judge Peter J. Busch overruled the demurrer, holding that the original notices given by Peña’s predecessor satisfied PAGA’s notice requirement.  Indeed, the court took the relatively unusual step of substituting Peña’s name on the case’s caption, which originally read “Ruelas v. Top Productions, LLC.”  Typically, even where there is a substitution of the named plaintiff in a representative action, the case title retains the name of the original plaintiff.

In a PAGA action, the named plaintiff functions as an agent of the State, recovering civil penalties that are distinct from any statutory or common law damages that might also be recovered in either an individual or a class action.  In light of AT&T v. Concepcion, the recent United States Supreme Court ruling that constrains the ability to bring class actions in circumstances where an arbitration agreement with a class action waiver exists (as in the employer-employee context), PAGA is an important enforcement mechanism, as it is not subject to requirements applicable to class actions.

Following on the Second Appellate District’s extensive and closely-reasoned holding in Brown v. Ralphs Grocery Co., in which the court held that the U.S. Supreme Court’s recent decision concerning arbitration preemption in Concepcion v.  AT&T does not apply to representative actions brought pursuant to PAGA, the Fourth Appellate District has now weighed in, as well.  In Mission Viejo Emergency Med. Assocs. v. Beta Healthcare Grp. (opinion available here), the court briefly addressed Concepcion and unmistakably held that Concepcion does not preempt all California contractual unconscionability law.

Although the underlying motion to compel arbitration was ultimately granted, Mission Viejo is significant in that it extends, beyond PAGA, the applicability of California’s unconscionability doctrine within the realm of arbitration agreements.  While the Mission Viejo defendants suggested in supplemental briefing that “AT&T [v. Concepcion] essentially preempts all California law relating to unconscionability,” the Mission Viejo panel sharply rejected this absolutist interpretation of Concepcion, stating:  “We disagree, as the case [Concepcion] simply does not go that far.”  Mission Viejo Emergency Med. Assocs. v. Beta Healthcare Grp., No. G043815, slip op. at 13 n.4 (Cal. Ct. App. June 29, 2011).  Thus, while the at-issue arbitration agreement in Mission Viejo was not found to be unconscionable, the ruling signifies the continued vitality of California’s unconscionability doctrine against defendants urging that Concepcion effectively eliminates the doctrine altogether.