Articles from January 2013

Gutierrez v. Wells Fargo: Ninth Circuit Holds Defendant Waived Arbitration, Affirms Liability for Fraudulent Conduct Under UCL

The new year began auspiciously for consumers and the plaintiffs’ bar with the Ninth Circuit issuing a twin victory for consumers by underscoring the focus on defendants’ conduct under the “fraudulent” prong of California’s Unfair Competition Law (UCL) and holding that the defendant waived any entitlement to compel arbitration. See Gutierrez v. Wells Fargo Bank, NA, ___ F.3d ___ (9th Cir. Dec. 26, 2012). Though the ruling remanded the action for the district court to apply the proper remedy, and in so doing vacated a judgment entered in favor of the plaintiff class, the Court of Appeals panel affirmed both the district court’s granting of class certification and the finding of classwide liability. See Slip op. at 2-4.

As to the class’ allegations that Wells Fargo made affirmative misstatements about its practices for posting deposits and transactions and making overdraft assessments to consumers’ accounts, the Ninth Circuit first concluded that the UCL is not preempted by federal banking legislation. See Slip op. at 25-27. With the preemption issue resolved, the panel found that the plaintiffs had adduced sufficient evidence of Wells Fargo making misleading statements as to how the bank would post deposits and charges, in particular the order in which such transactions would be recorded, which has direct implications as to the assessment of overdraft fees. See Slip op. at 34.

The court did not respond favorably to Wells Fargo’s contention that individual reliance issues predominate because “some class members would have engaged in the same conduct irrespective of the alleged misrepresentation,” stating, “we are hard pressed to agree that any class member would prefer to incur multiple overdraft fees.” Slip op. at 32.

Additionally, the Ninth Circuit clarified Article III standing vis-à-vis class actions by holding that only a single named class representative – not every class member – must have standing. Slip op. at 30-31.

Finally, with respect to arbitration, the Ninth Circuit held that Wells Fargo had waived any right to seek to compel arbitration, rebuffing Wells Fargo’s contention that seeking to move the action to an arbitral forum would have been futile before the U.S. Supreme Court’s AT&T Mobility v. Concepcion decision. See Slip op. at 10-17.

Bank of America Agrees to Massive Settlements Related to Disastrous Countrywide Acquisition

Bank of America agreed to two settlements this week in connection with the home mortgage meltdown and Bank of America’s ill-fated acquisition of now-defunct mortgage lender Countrywide. In doing so, the bank took substantial, if costly, steps to shed itself of the Countrywide albatross.

The first settlement, between Bank of America and Fannie Mae, is valued at $11.6 billion and seeks to resolve claims resulting from mortgage-backed derivative investments. The value of these investments precipitously fell as some borrowers were unable to repay home loans, while others with “underwater” mortgages – in which the outstanding balance on mortgages exceeded appraised home values – simply opted to stop making regular payments. Under the terms of the settlement, Bank of America has agreed to repurchase some of the $6.75 billion in loans that Countrywide had sold to Fannie Mae, and also make a direct cash payment of $3.6 billion in cash to Fannie Mae. An additional $1.3 billion will be paid as effectively a punitive assessment for Bank of America’s delayed response to foreclosures.

The second settlement arises from a suit brought by the federal government against Bank of America and a host of other mortgage lenders. This settlement is valued at $8.5 billion and is intended to benefit individual consumers. While substantial, the settlement is only expected to yield payments to about ten percent of the 4 million consumers who were subject to foreclosure.

Bank of America’s common stock declined in value by only 8 cents per share in trading following the announcement of the more than $20 billion in settlements, suggesting that the prospect of settlements of this magnitude was already largely reflected in the share price.

Bank of America’s Countrywide acquisition was inauspiciously finalized in the summer of 2008, just weeks before the demise of Lehman Brothers set off the events underlying the “Great Recession.” Countrywide was not Bank of America’s only problematic acquisition, as last fall, Bank of America agreed to pay $2.43 billion to settle a class action related to its similarly troubled $20 million Merrill Lynch acquisition.

New California Workplace Legislation for 2013

Now that we’ve said goodbye to 2012 and 2013 has begun, employers and employees alike should take note of the various changes to California’s labor and employment laws. Among the legislation which took effect on January 1, 2013, are the following, each of which is likely to rely principally on private litigation for its enforcement.

  • Pay Stub Statute Clarified: Labor Code section 226 is clarified, by SB 1255, to specify that “suffering injury” is generally coextensive with an employer’s violation of one of the nine enumerated requirements of wage statements issued in California. This is expected to foreclose the argument that the “suffering injury” requirement gives rise to individual inquiries, thereby precluding class treatment of pay stub claims.
  • Social Media Privacy: AB 1844 prohibits employers from requiring that either job applicants or employees disclose user names and/or passwords to provide the employer with access to private social media information.
  • Enhanced “Whistleblower” Protection: AB 2492 expands the cover age of California’s False Claims Act (aka “Baby Qui Tam”) beyond employees, to cover all contractors and agents.
  • Right to Inspect Personnel Files: AB 2674 clarifies that employers must retain employee personnel files for at least three years after an employee’s tenure ends.
  • Breastfeeding Discrimination: AB 2386 expands the California Fair Employment and Housing Act (FEHA) definition of “sex” to include breastfeeding, thereby making discrimination based on breastfeeding actionable.
  • Religious Clothing: FEHA’s coverage of employers’ reasonable accommodation of employees’ religious beliefs is expanded by AB 1964 to include dress and grooming under the rubric of “beliefs and observances.”

Year in Review: 2012’s Notable Settlements

The past year saw a substantial range of complex litigation settlements benefitting consumers and workers. The California Supreme Court’s long-awaited Brinker decision, a mixed bag for employees, confirmed that employers still face substantial class-wide liability for violations of meal and rest laws, making settlement a prudent option. On the consumer front, numerous settlements put cash directly into the pockets of those victimized by deceptive practices. The year was also notable as several prosecutions by federal and state government entities led to meaningful results for plaintiffs. The following is an overview of 2012’s most notable impact litigation settlements.

Consumers Benefit from Substantial Settlements

The popular “Madden” video game was the subject of the settlement in Pecover v. Electronic Arts Inc., No. 08-2820 (N.D. Cal.). The settlement provides for aggregate payments of more than $27 million to plaintiffs who had alleged that video game leader Electronic Arts violated antitrust and consumer-protection statutes. The preliminarily approved settlement will pay class members as much as $70 each in compensation for Electronic Arts’ having exploited its monopoly-pricing advantage.

After a first attempt at settlement was rejected by a federal judge, the parties in Fraley v. Facebook, No. 11-01726 (N.D. Cal.) came back with a second settlement that addressed the first attempt’s most glaring deficiency — no payments to class members — in resolving the plaintiffs’ allegations that Facebook has effectively conscripted its members, without pay or consent, to endorse Facebook’s “Sponsored Stories.” On December 4, 2012, Judge Richard Seeborg granted preliminary approval to a settlement that provides broader injunctive relief than the first settlement proposal and payments of up to $10 per class member. The Fraley final approval hearing is scheduled for June of 2013.

Another web-based business, LivingSocial, agreed to settle a class action alleging that the company violated consumer-protection laws that mandate a minimum five-year redemption period for gift certificates in In re LivingSocial Mktg. & Sales Practices Litig., No. 11-0472 (D.D.C.).

In In re Bayer Corp. Combination Aspirin Prods. Mktg. & Sales Practices Litig., No. 09-02023 (E.D.N.Y.), the well-known aspirin maker and global pharmaceutical concern settled a class action for $15 million that alleged Bayer’s marketing had been misleading, specifically that particular products were sold without FDA approval and without proof that the medications were safe and effective as advertised.

In Hohenberg v. Ferrero U.S.A., No. 11-0205 (S.D. Cal.), the parties reached a $3 million settlement by which the class members are entitled to receive $4 per jar of Nutella purchased, up to a maximum of five jars, to resolve allegations that Nutella was deceptively advertised as a healthy food. In addition to providing monetary relief to consumers, Nutella will also be required to remove misleading health claims from its packaging, website, and advertising.

Brinker Affirms Continued Vitality of Wage and Hour Class Actions

Oil refinery workers and ConocoPhillips Co. settled meal break claims for $15 million in United Steelworkers v. ConocoPhillips Co., No. 08-2068 (C.D. Cal.), underscoring that despite being a mixed result, the California Supreme Court’s Brinker decision affirmed the relevance of meal break class actions.

Clarifying Reliance Doctrine

In a settlement more notable for having expounded on the “fraud on the market” doctrine than its terms, in In re Am. Int’l Grp., Inc. Secs. Litig., No. 10-4401 (2d Cir.), the Second Circuit Court of Appeals held that securities fraud plaintiffs need not prove that fraud-on-the-market applies to satisfy the predominance requirement for certification of a settlement class. The decision is expected to be an impetus to settling securities class actions.

Government Prosecutions Yield Substantial Settlements

In re Am. Int’l Grp. also yielded perhaps the year’s largest settlement, with Bank of America agreeing to pay $2.3 billion to resolve claims related to its 2008 acquisition of Merrill Lynch. The settlement’s principal beneficiaries will be the pension funds that suffered substantial losses in their Bank of America investments following the ill-fated Merrill Lynch acquisition.

A $22.5 million settlement was reached between Google and the Federal Trade Commission in U.S. v. Google Inc., 12-04177 (N.D. Cal.), to resolve charges that Google tracked users of Safari (the Apple web browser) without their knowledge or permission. The settlement received final approval from federal district judge Susan Illston in November. The Google Safari settlement will be the largest penalty the FTC has ever obtained for a consent violation.

The federal Consumer Financial Protection Bureau (CFPB) — the continued existence of which might have been in jeopardy had the presidential election turned out differently — mandated its first major enforcement action this past July, negotiating a $210 million settlement with Capital One Bank to resolve charges of deceptive marketing. Of the settlement fund, fully $150 million is dedicated to paying restitution to customers who bought “add-on” credit card services that were deceptively marketed.

In In re Electronic Books Antitrust Litigation, No. 11-02293 (S.D.N.Y.), another enforcement action brought chiefly by government entities, the U.S. Justice Department and various state attorneys general negotiated settlements with publishers alleged to have colluded and charged above-market prices for e-books. By the preliminarily approved settlement’s terms, consumers will receive refunds in their online accounts on iTunes, Amazon and Barnes & Noble, while those who bought their e-books through Google or Sony will receive checks.

Finally, a relatively rare public/private partnership between the Orange County District Attorney and a private plaintiff’s firm has yielded a $1.3 billion settlement in In re Toyota Motor Corp. Unintended Acceleration Mktg., Sales Practices, and Products Liab. Litig., No. 10-02151 (C.D. Cal.).  This settlement is one of the largest of 2012, and possibly the largest automobile defect settlement in U.S. history.