Articles from May 2012

The California Court of Appeal has issued a unanimous decision reinforcing that California’s unconscionability doctrine is still substantially intact, notwithstanding the U.S. Supreme Court’s ruling in AT&T Mobility v. Concepcion.  See Samaniego v. Empire Today LLC, ___ Cal. App. 4th ___ (Cal. Ct. App. 2012) (available here).  The Court of Appeal affirmed the trial court’s ruling that the at-issue arbitration clause was “highly unconscionable from a procedural standpoint” and exhibited “strong indicia of substantive unconscionability,” while denying the defendant’s motion for reconsideration in light of Concepcion.  See slip op. at 3-4.

The action arose when plaintiffs, installers for prominent carpet company Empire, brought claims alleging that they had been misclassified as independent contractors, and challenged the mandatory arbitration provision which was part of an agreement that Empire required the plaintiffs to execute both at the inception of their employment and, again, during their employment.  Id. at 2-3.  The court gave particular emphasis to the procedural unconscionability of the agreement, noting that it was presented to plaintiffs only in English, though some had only a rudimentary grasp of the language and others could not read English at all.  Id. at 2.  Additionally, “[t]he contracts were offered on a non-negotiable, take it or leave it basis, with little or no time for review.  The Agreement is 11 single-spaced pages of small-font print riddled with complex legal terminology.  The arbitration provision is set forth in the 36th of 37 sections.”  Id.

The arbitration clause was also deemed substantively unconscionable, as it shortened the statute of limitations to sue under the contract from one year to six months and contained a unilateral fee-shifting provision which required employees to pay Empire’s attorneys’ fees.  Id. at 3.  Similarly, claims to enforce non-compete agreements — which, as a practical matter, are only brought by employers — were excluded from the arbitration clause’s ambit.  Id.

The court found its analysis unaltered by Concepcion, noting that the Supreme Court’s decision “explicitly reaffirmed that the FAA ‘permits agreements to arbitrate to be invalidated by “generally applicable contract defenses, such as fraud, duress, or unconscionability,’” and “arbitration agreements remain subject, post-Concepcion, to the unconscionability analysis employed by the trial court in this case.”  Id. at 11-12 (internal citations omitted).  California federal courts have also stricken unconscionable arbitration clauses.  See, e.g., Chavarria v. Ralphs Grocer Co., No. 11-CV-02109, 2011 U.S. Dist. LEXIS 104694 (C.D. Cal. Sept. 15, 2011).

The Samaniego ruling comes on the heels of the Consumer Financial Protection Bureau’s announcement that it has undertaken a critical examination of the impact of mandatory arbitration agreements on consumers. See http://s559594427.onlinehome.us/impactlitigation/2012/04/27/federal-consumer-protection-agency-to-assess-impact-of-mandatory-arbitration-on-consumers/. In holding that Concepcion does not alter the unconscionability analysis, the Samaniego court’s ruling will likely be influential as other courts, trial and appellate, state and federal, continue to confront the same issue.

The California Supreme Court has granted the Petition for Review in Duran v. U.S. Bank National Ass’n, No. S200823 (Cal. May 16, 2012) (order granting petition for review).  The docket is available here.  All seven Justices voted in favor of review.

Many observers saw the proverbial writing on the wall for Duran with the Supreme Court’s Brinker decision, which endorsed the type of sampling and statistical methods received skeptically in Duran. As the Brinker concurring justices noted, without statistical evidence, many class actions would be, as a practical matter, virtually impossible to pursue. See Brinker Restaurant Corp. v. Super. Ct., No. S166350 (Cal. Apr. 12, 2012) (Werderger, J., concurring).

Duran was widely criticized in the Petition for Review and amicus letters for encroaching on trial courts’ autonomy and was held up as an exemplar of the maxim that “bad facts make bad law,” as even advocates of statistical methods were critical of the particular methods deployed by the Duran plaintiffs. With the grant of review, Duran is rendered “depublished.” 

A class action suit filed in February 2011 alleged that the maker of Nutella, Ferrero U.S.A., misleads consumers into believing that Nutella is healthy using deceptive advertisements.  See Hohenberg v. Ferrero U.S.A., No. 11-0205 (S.D. Cal. filed Feb. 1, 2011).  Now, the parties have reached a $3 million settlement, which provides relief to members of California and nationwide subclasses.  $2.5 million of the settlement is earmarked for division among claimants, with each claimant entitled to receive $4 per jar of Nutella purchased, up to five jars. 

In Hohenberg, the plaintiff claimed that Ferrero conceals the fact that Nutella is nearly three-quarters saturated fat and that it contains none of the nutritional properties associated with the fruit and other healthy foods pictured in Nutella ads.  In addition to providing monetary relief to customers, Ferrero will also be required to remove misleading health claims from its packaging, website, and advertising.

District Court Judge Christina A. Snyder of the Central District of California has granted certification of two consumer subclasses in an action alleging that L’Oreal failed to warn consumers of the flammability of its Garnier Fructis Sleek & Shine Anti-Frizz Serum.  See Guido v. L’Oreal, USA, No. 2:11-cv-01067 (C.D. Cal. May 7, 2012) (available here).

The ruling is notable in part because the defendants had predicated their opposition to class certification on Dukes v. Wal-Mart, 131 S. Ct. 2541 (2011).  Despite adhering to the “rigorous analysis” mandated by Dukes, Judge Snyder nevertheless found that the plaintiffs had established each of the Rule 23 class certification requirements.  Guido, No. 2:11-cv-01067 at *4, n.4 (citing Ellis v. Costco Wholesale Corp., 657 F.3d 970, 980 (9th Cir. 2011) (citing Dukes, 131 S. Ct. at 2551)).

Although L’Oreal has vowed to challenge the still “tentative” certification ruling, Judge Snyder’s comprehensive order reflects that the parties have already argued the pivotal legal issues.  For instance, Judge Snyder rejected the defendants’ contention that the plaintiffs lacked Article III standing, on grounds that the plaintiffs “would have paid less than [Sleek & Shine’s] retail price or would not have purchased it at all,” had they been forewarned of the product’s flammability.  Guido, No. 2:11-cv-01067 at *8.  As such, the plaintiffs had adequately alleged a cognizable “economic injury.”  Slip op. at 7.

Additionally, the certification ruling adds to the long line of state and federal cases holding that, under California’s Unfair Competition Law, “‘a presumption or at least an inference[] of reliance arises whenever there is a showing that a misrepresentation was material’”  Slip op. at 8-9 (quoting In re Tobacco II Cases, 46 Cal. 4th 298, 326–27 (2009).  Thus, “so long as plaintiffs establish that defendants’ omissions and misrepresentations are ‘material,’ they may bring a UCL claim on behalf of a class without individualized proof of reliance.”  Slip op at 9 (quoting In re Tobacco II, 46 Cal. 4th 326-27).  See also Wolph v. Acer, 272 F.R.D. 477 (N.D. Cal. Mar. 25, 2011) (class-wide reliance presumed from showing that misrepresentation would be material to a reasonable consumer).