Articles from February 2012

According to a recent Ninth Circuit decision, parens patriae actions are not removable under the federal Class Action Fairness Act (CAFA).  See Arizona v. Countrywide Financial Corp., No. 11-80086 (9th Cir. Jan. 3, 2012).  Parens patriae actions are those brought by a state based on its interest in the well being of its citizens.  The appellate decision, which endorses a more extensive district court opinion, may prove critical to ensuring that state enforcement actions, such as PAGA (Private Attorneys General Act) actions, are not removable under CAFA. 

The lawsuit, which was filed by the Attorney General of Arizona in December of 2010, alleged that Countrywide violated state laws by deceiving customers about the terms of its loan modification program.  See Arizona v. Countrywide Financial Corp., No. CV-11-131, 2011 U.S. Dist. LEXIS 35203 (D. Ariz. Mar. 18, 2011) (available here).  Countrywide sought to remove the case to federal court under CAFA, on grounds that the borrowers who would receive restitution from the lawsuit were the real parties in interest.  Id. at *4-5.  The Arizona district court disagreed, holding that the state was the real party in interest and therefore CAFA did not apply.  The district court then remanded the case to state court. Id. at *7-11, 17.  Countrywide’s successor in interest, Bank of America, brought a motion for reconsideration before the Ninth Circuit, which the appellate court denied in its January 3 order.

The state Attorney General is now expected to proceed with claims against Countrywide in Arizona state court.

Citing policy interests in protecting workers, the Ninth Circuit recently concluded that California law applies to the interpretation of an independent contractor agreement between California truck drivers and Affinity, a Georgia transportation company.  See Ruiz v. Affinity Logistics Corp., No. 10-55581, 2012 U.S. App. LEXIS 2450 (9th Cir. Feb. 8, 2012) (available here).  The appellate court found that the agreement’s Georgia choice of law provision was unenforceable, and remanded the case to the district court to assess the drivers’ misclassification claims pursuant to California law.  Id. at *13.

The Ruiz class action arose over allegations that Affinity misclassified its truck drivers in order to avoid paying them overtime and benefits.  Id. at *2-5.  To work for the company, truck drivers were required to sign “Independent Truckman’s Agreements.”  However, the plaintiff driver claimed that Affinity exercised sufficient control over the drivers’ work to be considered their employer.  The district court applied California’s choice of law framework to find that Georgia law governed disputes arising out of the Independent Truckman’s Agreement.  Id.  After a three day bench trial, the district court concluded that under Georgia law there is a presumption of independent contractor status, which the plaintiff failed to rebut.  Id.   

However, the Ninth Circuit reversed the district court’s judgment, holding that the Georgia choice of law provision was unenforceable and finding that California law applied under the state’s choice of law framework.  Id. at *7-14.  Although the district court properly found that Georgia had a “substantial relationship to the parties,” it erred by failing to undertake two additional steps in California’s choice of law framework: “(1) whether applying Georgia’s law ‘is contrary to a fundamental policy of California,’ and then (2) ‘whether California has a materially greater interest than [Georgia] in resolution of the issue.’”  Id. at *8-9 (quoting ABF Capital Corp. v. Osley, 414 F.3d 1061, 1066 (9th Cir. 2005) (quoting Nedlloyd Lines B.V. v. Super. Ct., 834 P.2d 1148, 1152 (Cal. 1992)) (emphasis in original)).  After undertaking the omitted steps in the choice of law analysis, the Ninth Circuit concluded that California law applied.  The appellate court emphasized that California law differs from Georgia law in placing the burden on employers to rebut the presumption of an employer/employee relationship.  Id. at *7-10.  Furthermore, the drivers lived and worked in California, and the state’s public policy favors worker protections.  Id. at *11-14.

On remand, the district court will apply California law to determine whether the drivers were employees or independent contractors.

The Third Circuit Court of Appeals has taken a moderate approach to the predominance analysis required by the U.S. Supreme Court’s ruling in Dukes v. Wal-Mart, 131 S. Ct. 2541 (2011).  See Sullivan v. DB Investments, No. 08-2784 (3rd Cir. Dec. 20, 2011) (order affirming class certification for settlement purposes) (available here).  In an en banc decision, the Sullivan majority interpreted Dukes as holding that “the focus is on whether the defendant’s conduct was common as to all of the class members, not on whether each plaintiff has a ‘colorable’ claim.”  Id. at 42. 

Two of the panel’s nine judges dissented, arguing that the majority’s relaxed commonality standard resulted in the improper certification of a nationwide class that “includes people who have no legal claim whatsoever.”  Id. at 1 (Jordan, J., dissenting).  The dissenters claim that Dukes expressly requires classwide common questions and answers, which necessarily entail a finding that each class member has a colorable legal claim.  Id. at 10 (Jordan, J., dissenting) (discussing Dukes, 131 S. Ct. 2551).  However, the dissenters do not acknowledge or confront the fact that class members who are ultimately found to lack a viable claim may nevertheless share common questions with the rest of the class. 

The majority addressed the dissent’s contentions and affirmed its holding as consistent with Dukes:

In Dukes, the Court held that commonality and predominance are defeated when it cannot be said that there was a common course of conduct in which the defendant engaged with respect to each individual.  But commonality is satisfied where common questions generate common answers “apt to drive the resolution of the litigation.”  Dukes, 131 S. Ct. at 2551.  That is exactly what is presented here, for the answers to questions about De Beers’s alleged misconduct and the harm it caused would be common as to all of the class members, and would thus inform the resolution of the litigation if it were not being settled.

 Id. at 42.

Because the disagreement between the majority and dissent is likely to play out in other trial and appellate courts, practitioners would do well to anticipate the dissent’s position and to note the majority’s compelling reasoning in response.

A federal appellate court has further limited the application of the U.S. Supreme Court’s ruling in Concepcion v. AT&T.  The Second Circuit has invalidated a class action waiver contained in the arbitration agreement between American Express and the merchant plaintiffs.  See In re American Express Merchants’ Litigation, No. 06-1871-cv (2nd Cir. Feb. 1, 2012) (available here).  The agreement precluded the merchants from having any claim arbitrated on a collective basis.  Slip op. at 8-12 (discussing Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1775 (2010) (holding that parties cannot be compelled into classwide arbitration absent a clear contractual basis)).  The appellate court held that the waiver was unenforceable despite Concepcion, because a prohibition against collective actions would impair the plaintiffs’ ability to enforce their statutory rights under the Sherman Act.  Slip op. at 24.  Specifically, “the cost of plaintiffs’ [sic] individually arbitrating their dispute with Amex would be prohibitive, effectively depriving plaintiffs of the statutory protections of the antitrust laws.”  Slip op. at 21-22.  The panel remanded the case to the district court with instruction to deny American Express’ motion to compel arbitration.  Slip op. at 25.