Articles from May 2013

Kosta v. Del Monte: Federal Court Upholds Food Labeling Claims

A California federal judge has largely rejected efforts by food giant Del Monte to dismiss the claims in a consumer class action alleging violations of California’s Food, Drug, and Cosmetics Act (FDCA). See Kosta v. Del Monte Corp., No. 12-1722 (N.D. Cal. May 15, 2013) (order on motion to dismiss, available here). The plaintiffs allege FDCA violations based on Del Monte’s packaging and labeling of pasteurized and chemically preserved fruit (typically found in opaque cans on supermarket shelves) in transparent containers and with a deceptive “Must Be Refrigerated” label. The company is also accused of labeling vegetables containing calcium chloride as having “No Preservatives”, and labeling as “natural” tomatoes containing citric acid. See Order at 2-3.

Del Monte sought to foreclose these issues from ever being assessed on the merits with a motion to dismiss based on standing, preemption, and abstention. See Order at 4-6. While District Court Judge Yvonne Gonzalez Rogers formally denied in part and granted in part the motion, as a practical matter the motion was denied, as the claims emerged nearly fully unscathed.

Del Monte’s basis for dismissal with perhaps the broadest resonance was its theory that the named plaintiffs lacked standing by not having plead injury-in-fact. See Order at 15-17. Specifically, Del Monte argued that the diminution in value alleged by the plaintiffs (i.e., the quantum by which the products were priced above their true market value owing to the deceptive labeling) was insufficiently tangible and particularized to satisfy Article III standing requirements. Id. Additionally, Del Monte contended that the plaintiffs failed to satisfy purportedly more exacting standing requirements under California’s Unfair Competition Law. Id. The court sided with the plaintiffs, however, holding: “Plaintiffs allege they paid a premium for Del Monte’s products which they otherwise would not have paid but for Del Monte’s misrepresentations. As with Article III standing, the Court finds that Plaintiffs have alleged economic injury resulting from Del Monte’s alleged unfair competition and false advertising.” Order at 17.

Del Monte had argued that the claims are preempted by federal food-labeling legislation, the determination of which turned on whether the plaintiffs’ claims seek to impose labeling requirements in excess of those mandated by federal law. Order at 7. Judge Rogers held that there was no federal preemption, as the plaintiffs sought to impose labeling requirements coextensive with federal law. Order at 10-11. Additionally, Judge Rogers rejected Del Monte’s theory of implied preemption. Order at 13.

No more availing was Del Monte’s abstention theory, based on the primary jurisdiction doctrine, which allows trial courts to stay cases pending resolution of the same issues by an administrative agency with special competence in the issue being litigated. See Order at 13-14. Del Monte posited the FDA to be the federal agency with special food labeling competence, but because the plaintiffs’ claims did not encroach on the FDA’s role in promulgating regulations, and merely sought to enforce what the FDA and California law both already required, the abstention theory of dismissal was also rejected. Order at 15.

Leyva v. Medline Industries: Ninth Circuit Reverses Class Cert. Denial; Comcast not a Bar to Certification

In the most significant victory yet for workers and other would-be plaintiffs following the U.S. Supreme Court’s Behrend v. Comcast, 113 S. Ct. 1426 (2013), a unanimous three-judge Ninth Circuit panel has reversed a federal district court’s denial of class certification, holding that the trial court abused its discretion in concluding that individualized damages calculations precluded certification. See Leyva v. Medline Indus., Inc., ___ F.3d ___, No. 11-56849 (9th Cir. May 28, 2013) (slip opinion available here).

The plaintiff’s claims were typical of those in wage and hour class actions, with each individual employee’s damages likely to be too small to be economically feasible to support individual actions. The Leyva plaintiff sought to represent 500-plus fellow employees who worked in the warehouse of Medline Industries, a maker of medical products. Slip op. at 3. The plaintiff alleged that Medline’s policy of rounding employees’ start times according to 29-minute increments systematically resulted in off-the-clock work and that Medline improperly calculated employees’ overtime pay rates, in addition to waiting-time penalty and wage statement claims. Slip op. at 3-4.

The district court had denied certification principally because “[e]ach of the 500 putative class members are allegedly entitled to different damage awards for being ‘short-changed’ by the rounding policy and/or the [overtime calculation] policy.” Slip op. at 6. The court also found that management of the case of a class action would be too unwieldy, again because of the differences in the class members’ damages. In rejecting Central District Judge R. Gary Klausner’s reasoning, the Ninth Circuit underscored the continuing validity of a maxim many had thought imperiled by Comcast: that variations in damages cannot, alone, defeat certification. See slip op. at 7-8, citing Blackie v. Barrack, 524 F.2d 891, 905 (9th Cir. 1975).

The decision also emphasized that “damages determinations are individual in nearly all wage-and-hour class actions” (slip op. at 7, referencing Brinker), implying that Comcast would not be allowed to indirectly eliminate what has been recognized as the only practical way of enforcing California’s workplace protections. The decision explained as follows: “Here, unlike in Comcast, if putative class members prove Medline’s liability, damages will be calculated based on the wages each employee lost due to Medline’s unlawful practices. . . . Medline’s computerized payroll and time-keeping database would enable the court to accurately calculate damages and related penalties for each claim.” Slip op. at 8-9.

The Leyva decision goes on to demonstrate how Medline had used these computerized records in its Notice of Removal, and had separately calculated each prospective class member’s potential damages. Slip op. at 9. While defendants will likely take this as a reason to avoid offering up similar calculations, the data underlying those calculations is typically available through discovery in wage-and-hour class actions.

Schwab Removes Class Action Waiver from Client Agreements

Seemingly bucking the trend of corporations fighting to force consumers into individual arbitration to avoid class actions, Charles Schwab Corp., the prominent “discount broker,” has decided to revise its client account agreements to eliminate a provision that had reliably allowed Schwab to prevent clients from filing class actions against it, by requiring clients to take any disputes to individual arbitration.

However, rather than an altruistic gesture on Schwab’s part, removal of the class action waiver comes as the result of a complex set of events, whereby a FINRA (Financial Industry Regulatory Authority) panel decided to permit such waivers, but the decision was later opposed by the larger body of the FINRA itself. Thus, rather than renouncing arbitration and class action waivers altogether, it appears that Schwab is temporarily opting out while the FINRA sorts out its ultimate policy decision. FINRA is the organization that has conducted the bulk of arbitrations between Schwab and its clients.

Proposed Overtime Legislation Passes House, Faces Uphill Battle in Senate

Republicans in Congress are pushing a bill that would amend a cornerstone provision of the Fair Labor Standards Act of 1938: overtime pay for more than 40 hours of work in a week. Under the proposal, private sector employees would have the same flexibility as do most government workers in choosing between the familiar time-and-a-half overtime pay or converting overtime hours into time off, known as “comp time.”

Republicans advocating for the bill’s passage have argued that the choice between comp time and overtime pay makes sense in a modern economy in which parents often struggle to spend more time with their children, and would value the chance to do so more than additional pay. The bill is seen as an attempt by Republicans to apply free-market principles that optimize individual choice and benefit average working people, following an election in which a substantial proportion of swing voters were alienated by the party’s perceived indifference to middle-class workers and close relationship with “the 1%.”

Democrats largely oppose the bill, contending that it would create an incentive for employers to pressure workers to opt against overtime pay, and would provide no assurance that workers would or could actually use the time off. President Obama has indicated that he would veto the bill if it is passed without sufficient protections for workers who prefer traditional overtime pay to comp time. The Republican-controlled House of Representatives has passed the bill by a 223-204 margin, which now faces a steep challenge in the Democrat-controlled Senate. Indeed, it is not even clear if the measure will be taken up on the Senate floor.