Articles from November 2012

A federal judge has certified a nationwide class of consumers who allege that pizza giant Papa John’s sent unsolicited text messages to them. See Agne v. Papa John’s International, Inc., No. 10-1139 (W.D. Wash. Nov. 9, 2012) (order granting class certification). The plaintiffs named several defendants in the suit, including Papa John’s, its franchisees, and the marketing company hired to send the text messages. U.S. District Judge John C. Coughenour found the case for certification so clear that he granted the class certification motion without oral argument. Order at 1.

Because the content of the at-issue text messages was identical across the class, Papa John’s did not have a viable challenge as to the predominance of common legal or factual issues, a frequent battleground in class certification disputes. Moreover, in that the claims of the nationwide class arose under the federal Telephone Consumer Protection Act (TCPA), there was no choice of law dispute burdening the plaintiffs’ argument for certification. Id. at 2. A subclass of Washington State residents, who alleged that they received text messages on their cell phones in violation of the Washington Consumer Protection Act, was also certified. Id.

Rather than focusing on predominance, therefore, the defendants chiefly attacked the plaintiffs’ Article III standing. Judge Coughenour made quick work of these arguments, however. See id. at 7-8. Notably, the opinion declined to adopt the defendants’ contention, relying on Mazza v. Amer. Honda Motor Co. (666 F.3d 581), that where even one prospective class member lacks standing, a class cannot be certified. Id. at 8.

In an attempt to challenge the commonality requirement, Papa John’s argued that individual questions existed as to whether particular class members consented to receive the text messages and as to whether individual text messages were actually received. Id. at 19. In response, the court concluded that “consent appears to the Court to be a non-issue,” and situated the resolution of any issues of consent squarely with Papa John’s, stating: “Papa John’s is in the best position to come forward with evidence of individual consent and will not be precluded from presenting admissible evidence of individual consent if and when individual class members are permitted to present claims.” Id.

The defendants also argued that the superiority requirement had not been met, because determining the actual recipients of the text messages in such a large class would be too burdensome, thus rendering the class unmanageable. Id. at 21. However, the court countered that the identity of the text message recipients could easily be determined by examining the business records of the marketing company and the cell phone providers, and noted that if defendants present persuasive evidence that certain class members did not receive the text messages, those individuals could be stricken from the class list. Id.

The California Court of Appeal has affirmed a trial court’s ruling in which it declined to hear the defendant’s motion to compel arbitration because to do so would have exceeded the trial court’s jurisdiction. See Ayyad v. Sprint Spectrum, L.P., __ Cal. App. 4th __ (Cal. Ct. App. 2012).

This ruling seemingly marks the end of a case with a long procedural history, including appeals to the California and U.S. Supreme Courts. Filed in 2003, the Ayyad complaint alleged that Sprint’s mandatory early-termination fees violated California consumer protection statutes. In 2006, the class was certified, but the certification order included a provision whereby Sprint would be able, upon a finding of liability on the termination fee claims, to offset the class’s damages with its own breach of contract claims. Thereafter, the case became one of the few class actions to go to trial, providing a rare illustration of classwide claims being adjudicated.

The month-long jury trial found the early-termination fees to be unenforceable contract terms and determined that the class was entitled to monetary damages in excess of $73 million as well as injunctive relief. However, the jury also found in favor of Sprint on its breach of contract cross claim, and assessed damages more than three times that of the class award, yielding a net recovery of some $151 million for Sprint. Because the class certification order provided that only the class could recover money damages, the $151 million was negated, and Sprint was required to enact the injunctive relief that was awarded to the class.

The arbitration dispute arose when Sprint, after unsuccessful appeals to the California and U.S. Supreme Courts, won a motion for a new trial, but as to damages only. Sprint appealed, but the Court of Appeal affirmed the trial court in all respects, circumscribing the trial court’s jurisdiction on remand only to the retrial of damages. Sprint moved to compel the new trial to arbitration, which the trial court denied.

In yet another appeal — the one that generated the instant ruling — Sprint invoked the U.S. Supreme Court’s then recently issued AT&T Mobility v. Concepcion ruling. See slip op. at 5-6. Sprint argued that Concepcion required that the entire matter be retried, not in court but in arbitration, and not as a class action, but rather as individual arbitrations. Id.

Rather than being grounded in an interpretation of Concepcion, as Sprint had urged, the Court of Appeal’s Ayyad decision is an exemplar of procedural formalism: “Our directions permitted the trial court to take the steps necessary to adjudicate the issues of Sprint’s damages and the setoff calculation; they ‘did not leave open the option of reconsidering prior rulings or reopening the case on the facts and allowing a trial.’” Id. at 13 (citation omitted). As such, “[t]he trial court correctly rejected Sprint’s eleventh-hour attempt to undo the result of years of litigation.” Id. (footnote omitted).

The Court of Appeal held to the strict terms of its remand order in denying Sprint’s attempt to begin anew with individual arbitration, and did not reach Concepcion, but for the implicit holding that Concepcion did not trump the remand order’s narrowly drawn mandate.

California’s intermediate appellate courts continue to fashion a post-AT&T v. Concepcion jurisprudence that largely mirrors the pre-Concepcion era, with arbitration clauses regularly being deemed unenforceable. Most recently, California’s influential Second Appellate District was called on to consider a trial court’s granting of a defendant’s motion to compel arbitration in a prospective class action in which the plaintiffs alleged they were misclassified as exempt from overtime pay and other employer obligations. See Elijahjuan v. Superior Court, ___ Cal. App. 4th ____ (Cal. Ct. App. 2012). The Court of Appeal reversed, holding the at-issue arbitration clause to be “outside the ambit of the arbitration provision” that the defendant had relied on and that the trial court applied to the alleged workplace violations. Slip op. at 6.

The at-issue arbitration clause was within a contract signed by plaintiffs that stated: “the terms and procedures set forth herein shall be controlling if a dispute arises with regard to its application or interpretation.” Slip op. at 3. Though the trial court held that the clause required the plaintiffs to arbitrate their misclassification claims, the panel’s majority concluded that “Petitioners’ lawsuit does not concern the application or interpretation of the Agreements, but instead seeks to enforce rights arising under the Labor Code . . . The parties’ dispute therefore cannot be characterized as regarding the application or interpretation of the Agreements.” Slip op. at 6.

The Elijahjuan decision analogized to similar reasoning applied by the Ninth Circuit, in a circumstance where the at-issue arbitration clause plainly applied to a choice of law provision to which the parties had contractually agreed, but not to the plaintiff’s claims arising under the California Labor Code. See Slip op. at 6, citing Narayan v. EGL, Inc., 616 F.3d 895, 899 (9th Cir. 2010).

The takeaway from the Elijahjuan decision is straightforward: In California state and federal courts alike, where an arbitration clause is not expressly applicable to wage-and-hour claims but instead concerns other circumstances, the arbitration clause should not be applied beyond its scope, notwithstanding either Concepcion or the FAA’s “liberal policy favoring arbitration agreements.”

Wal-Mart v. Dukes increasingly looks more like a source of heightened, though manageable, class certification criteria than the “death knell” for class actions that was predicted when it was issued. More evidence to support this trend has come with a federal judge’s supplemental analysis of his earlier grant of class certification to a class of Assistant Branch Managers who alleged that they were misclassified as exempt from receiving overtime pay. See Lyons v. Citizens Fin. Grp., No. 11-11187 (D. Mass. Nov. 9, 2012) (memorandum re class certification analysis). The court granted class certification on July 9, 2012, and issued this memorandum in response to the appellate court’s request for a “supplemental memorandum reflecting a more detailed and ‘rigorous’ Fed. R. Civ. P. 23 analysis of the sort contemplated in Wal-Mart Stores, Inc. v. Dukes 131 S. Ct.” Lyons v. Citizens Fin. Grp., No. 12-8028 (1st Cir. Oct. 1, 2012) (order requesting supplemental analysis).

As directed by the First Circuit, Judge George A. O’Toole, Jr. applied Massachusetts substantive law governing the proper exemption from overtime pay, and Federal Rule 23 as expounded in Dukes, in his response to the defendant’s Rule 23(f) appeal, and in doing so, substantiated his earlier certification ruling with the rigor mandated by Dukes. Judge O’Toole’s supplemental memorandum affirms his earlier certification ruling, addressing and rejecting a common argument posited by defendants in exemption-based overtime cases. He notes that affidavits proffered by both sides “may prove that an ABM’s work at one branch is not identical to another ABM’s work at another branch, but they do not show that the primary duties are dissimilar.” Memo at 4. Indeed, Judge O’Toole’s disposition of this frequently raised defense to certifying wage-and-hour classes would make for a concise response in many reply briefs supporting a class certification motion.