Articles from August 2012

A federal judge in New York’s Southern District has certified a class of investors alleging that IndyMac MBS, various individual officers and six underwriters failed to disclose the risk attendant to the mortgage-backed securities that were instrumental in the economic meltdown that is generally associated with the September 2008 collapse of Lehman Brothers. See In re: IndyMac Mortgage-Backed Sec. Litig., No. 09-4583 (S.D.N.Y. Aug. 17, 2012) (Memorandum Opinion) (available here).

As is often the case, the issue of predominance proved decisive here, with defendants arguing that the 700-plus potential class members raised far too many individual issues to meet this requirement. The proposed class was indeed diverse, both in terms of their knowledge and status (being comprised of both individual investors with little or no sophistication as well as experienced institutional investors) and the facts surrounding their purchases (differences in timing, notice received, prospectus materials relied upon, liability and damages).

Though U.S. District Judge Lewis A. Kaplan conceded the existence of individual issues, he nonetheless found that common issues predominated, stating, “[t]he Court is convinced that issues subject to generalized proof significantly predominate over any individualized considerations that are likely to arise in this case.” Opinion at 32. Judge Kaplan gave particular emphasis to the link between predominance and superiority, noting that “concentrating this dispute in a class action in a single forum has clear benefits that outweigh any issues raised by defendants.” Opinion at 34.

The Missouri Supreme Court, sitting en banc, has issued a potentially groundbreaking decision, overruling one of its own cases and rejecting a statute that limits the award of noneconomic damages to plaintiffs. See Watts v. Lester E. Cox Med. Ctrs., No. SC91867 (Mo. Jul. 31, 2012) (available here). In a 4-3 decision, the court determined that the state’s $350,000 statutory cap on noneconomic damages conflicts with the right to a jury trial guaranteed by the Missouri constitution.

The plaintiff, a child born with severe brain damage caused by medical negligence, was awarded $3.371 million in compensatory medical damages and $1.45 million in noneconomic damages by the jury at the trial level. However, the trial court reduced the noneconomic damages to $350,000, consistent with the statutory cap. The trial court also approved defendants’ payment plan as to the compensatory damages, which the plaintiff contended was unreasonable due to its extremely low interest rate and 50-year payment schedule.

On appeal, the defense relied heavily on Adams v. Children’s Hospital, 832 S.W.2d 898 (Mo. 1992), where the Missouri Supreme Court clearly stated that a statutory cap on damages is not violative of the right to a jury trial under the state constitution. The plaintiff argued that Adams was wrongly decided and should be overturned. In a bold and surprising move, the court agreed with the plaintiff, holding its own precedent to be unconstitutional. Thus, Adams was overruled, and the court remanded Watts back to the trial level to have the damages award reinstated, and also instructed the lower court to adopt a new payment plan that will ensure full recovery for the plaintiff.

The Watts case was featured in the 2011 documentary Hot Coffee, a film which explores the dangers of “tort reform” and how it can undermine the role of the jury and lead to unjust results for injured plaintiffs.

In a recent ruling involving employer-employee arbitration agreements, the California Court of Appeal has again demonstrated the continuing vitality of California’s unconscionability doctrine, despite the U.S. Supreme Court’s aggressively pro-arbitration ruling in AT&T Mobility v. Concepcion. See Jara v. JP Morgan Chase Bank, No. B234089 (Cal. Ct. App. Jul. 30, 2012) (order affirming denial of motion to compel arbitration) (available here).

Just as it did in Sparks v. Vista Del Mar, the Second Appellate District upheld a trial court ruling that an arbitration agreement between the defendant employer and plaintiff employee was both procedurally and substantively unconscionable. Order at 5-7. The plaintiff, then 60 years old and of Mexican and Filipino background, filed a complaint against her former employer, JPMorgan, alleging harassment and wrongful termination. JPMorgan moved to compel arbitration based on a company-drafted arbitration agreement which was among the many papers signed by Jara at the outset of her employment. The trial court denied JPMorgan’s motion and the Court of Appeal affirmed.

The panel found that the at-issue arbitration agreement lacked mutuality and impermissibly limited discovery, to the extent that “[t]he discovery limits imposed upon Jara here, combined with other one-sided and harsh terms, constituted substantive unconscionability.” Id. at 7. The court also agreed that the plaintiff’s assent to the standard JPMorgan arbitration agreement was obtained by procedurally unconscionable means: “We conclude that the agreement is procedurally unconscionable because it was presented on a take it or leave it basis and did not include copies of the arbitration rules.” Id.

While the panel acknowledged that the evidence as to procedural unconscionability was rather meager, they nonetheless found that, “[w]here, as here, the arbitration agreement is permeated with substantive unconscionability, a minimal showing of procedural unconscionability is sufficient to render the agreement unenforceable.” Id.

Central District Judge Michael W. Fitzgerald has granted a motion to certify a class alleging meal and rest break violations under California law, and in the process has instructively interpreted the California Supreme Court’s landmark ruling in Brinker v. Super. Ct., 53 Cal. 4th 1004 (2012). See Paige v. Consumer Programs, Inc., No. 07-2498 (C.D. Cal. Jul. 16, 2012) (order granting in part plaintiffs’ amended motion for class certification) (available here).

The action was stayed pending the issuance of Brinker, after which the parties submitted supplemental briefing as to whether, in light of Brinker, the plaintiff’s “meal and rest break claims satisfied the requirements of Rule 23(b)(1) or, in the alternative, Rule 23(b)(3).” Order at 2. As is typical of class certification motions that turn on whether the predominance of common questions is established, the court focused on the portions of Brinker that “examined whether, when assessing meal and rest break claims under California law, ‘individual questions or questions of common or general interest predominate.’” Order at 3, citing Brinker at 1017.

The parties’ supplemental briefing presented starkly different interpretations of Brinker’s implications as to predominance, with Judge Fitzgerald finding that, while “the Brinker court did not elaborate on every possible form of common proof that may satisfy a predominance assessment,” the plaintiff in Paige sufficiently “allege[d] the existence of various uniform policies that were consistently applied to purported class members,” and thereby established the requisite predominance. See Order at 3. For instance, each of the plaintiff’s declarants attested to the defendant regularly (though not always) scheduling shifts with only one employee on the premises. Id. Additionally, the defendant allegedly had policies dictating that “customers could not be turned away and employees could not leave the business operations unattended during open hours,” which accrued in favor of certification. Id. The plaintiff also presented evidence of “corporate records show[ing] break-free schedules of multiple employees.” Order at 4.

The defendant submitted a Notice of New Authority in order to draw the court’s attention to a ruling on a decertification motion concerning not the interpretation of Brinker but on whether the non-payment of meal and rest break violation premiums is a proper basis for class certification. See Notice of New Authority, Paige v. Consumer Programs, Inc., No. 07-2498 (C.D. Cal. Jul. 11, 2012) (No. 120) (available here). Despite not being bound by the ruling of a peer trial court, Judge Fitzgerald nonetheless “reviewed the order,” but stated that the purported new authority did not affect his reasoning as to certification and the interpretation of Brinker’s predominance doctrine. Order at 4.