Articles from May 2013

Bank of America Agrees to Another Massive Settlement Related to Countrywide Acquisition

It has been said that history repeats itself, first as tragedy, then as farce. For Bank of America, its acquisition of Countrywide has been a persistent melding of farce and tragedy. Earlier this year, Bank of America agreed to pay $11.6 and $8.5 billion to settle, respectively, with Fannie Mae (over mortgage-backed derivative investments) and the federal government (on behalf of home-loan borrowers). Now, Bank of America and bond insurer MBIA have agreed to a complex set of terms that will settle allegations related to MBIA’s insurance obligations as to the mortgaged-backed securities, a deal which includes payment of $1.6 billion.

Founded in 1973, MBIA’s business model focused on relatively low-risk insurance against municipal bonds defaulting. However, by 2008, MBIA had become at least as prominent in insuring mortgage-backed securities, including those generated by two Bank of America acquisitions, Countrywide (which generated the risky home mortgages) and Merrill Lynch (which created and sold securities backed by the Countrywide mortgages). MBIA found itself faced with having to pay in excess of $3 billion in claims to Merrill Lynch, but without the funds to avoid default. The settlement restructures MBIA’s obligations to Bank of America, and the $1.6 billion in cash will allow MBIA to stay in business.

Announcement of the deal led to a sharp increase in Bank of America’s per-share price, suggesting that analysts had expected the settlement to be even more costly for the bank. For MBIA, the settlement’s timing was at least as important as the amount, as MBIA was believed to have only enough cash to sustain its operations for a matter of weeks at the time of the settlement. The price of MBIA stock increased by 45% on news of the settlement, strongly suggesting that the cash infusion from the settlement didn’t merely benefit MBIA, it saved the company.

Faulkinbury v. Boyd & Associates: California Appellate Court Reverses Denial of Certification

California’s Court of Appeal continues to articulate a measured, well-reasoned class action jurisprudence, most recently by taking a second look at its own order affirming a trial court’s denial of class certification. See Faulkinbury v. Boyd & Assocs., Inc., ___ Cal. Rptr. 3d ___ (Cal. Ct. App. 2013) (slip opinion available here).

In the underlying action, the plaintiffs sued on behalf of some 4,000 fellow security guards, alleging nonpayment of overtime as well as meal and rest break violations. The trial court denied certification across the board, and on appeal the certification as to the overtime claims was granted. However, pre-Brinker, the Court of Appeal affirmed the denial of certification for the meal and rest break claims. See Faulkinbury v. Boyd & Assocs., Inc., 185 Cal. App. 4th 1363 (2010).

The California Supreme Court later granted review and held pending further decision in its landmark Brinker decision (53 Cal. 4th 1004). Upon review in light of Brinker, the Court of Appeal has now ordered that the same meal and rest break claims be certified. Increasingly, despite having been assessed as something of a draw when it was issued, Brinker is looking like a net benefit to workers seeking to enforce California’s meal and rest break statutes, with Faulkinbury vividly illustrating what workers faced both before and after Brinker.

While the court’s pre-Brinker analysis was barely indistinguishable from a rough finding on the merits (“the trial court reasonably could conclude there was insufficient evidence of classwide denial of off-duty meal breaks” (185 Cal. App. 4th at 1383)), the post-Brinker analysis focused on the plaintiff’s theory of liability, consistent with Brinker and other similarly-reasoned authority. The court found persuasive evidence that the defendant’s meal break policy “was uniformly and consistently applied to all security guard employees.” As such, citing Brinker, the court held that “‘[c]laims alleging that a uniform policy consistently applied to a group of employees is in violation of the wage and hour laws are of the sort routinely, and properly, found suitable for class treatment.’” Slip op. at 13 (internal citation omitted).

This most recent Faulkinbury decision is notable in making direct reference to and relying on Justice Werdegar’s Brinker concurrence, noting that “if an employer’s records show no meal period for a given shift, a rebuttable presumption arises that the employee was not relieved of duty and no meal period was provided, shifting the burden to the employer to show the meal period was waived.” Slip op. at 10, citing Brinker, 53 Cal. 4th at 1052 (Werdegar, J, concurring). Thus, rather than giving rise to individual questions that destroy the predominance necessary for certification because such records speak to the “why” behind missed breaks, the Werdegar concurrence, and now Faulkinbury, sensibly regards such evidence as tending to validate a plaintiff’s theory of meal break liability.

The Faulkinbury panel included Acting Presiding Justice William F. Rylaarsdam, Associate Justice Richard D. Fybel, and Associate Justice Eileen Moore. Justice Fybel wrote the unanimous opinion.

Closing Arguments in Major Banks’ Arbitration Collusion Trial

For some companies, apparently even the famously liberal policy favoring arbitration isn’t enough of an assurance that they can avoid defending a consumer class action in court. Or so the plaintiffs in an antitrust bench trial pending in federal court in New York’s Southern District have posited, pointing to 28 meetings between 1999 and 2003, held among senior representatives of leading national banks, about implementing mandatory arbitration for credit card customers. See Ross v. American Express, No. 04-5723 (S.D.N.Y. filed July 22, 2004); Ross v. Bank of America, No. 05-7116 (S.D.N.Y. filed Aug. 11, 2005).

The trial opened in January of 2013, with the plaintiff himself testifying candidly: “I find it particularly abhorrent that all the credit card companies got together under the covers to basically screw the American consumer.” It is alleged that the banks reveled in the favorable quid pro quo likely to result from directing massive filing fees at reliably pro-defendant arbitrators, with the National Arbitration Forum (NAF) receiving particular praise from one of the bank defendants, First USA.

The meetings, with agenda items such as “the end of class actions,” brought together otherwise staunch competitors, including Bank of America, American Express, Capital One, Chase Bank, Discover, HSBC, MBNA, and Providian. Within three years, every major bank had implemented a mandatory arbitration policy for their credit card customers, and on starkly similar terms. The plaintiff is seeking an eight-year ban on arbitration clauses in credit card user agreements.

The antitrust action has already yielded results, as four of the bank defendants — JPMorgan Chase, Bank of America, HSBC and Capital One — settled in 2010, each agreeing to ban arbitration clauses for three-and-a-half years – a measure due to expire this year. The remaining defendants — American Express, Discover and Citigroup — have steadfastly resisted settlement, and in their closing arguments insisted that there was nothing nefarious in the 28 meetings that are the cornerstone of the plaintiff’s case.

If the plaintiff’s antitrust claims prevail before U.S. District Judge William Pauley and the eight-year arbitration clause ban is imposed, the banks will be unable to partake of the fully legal greasing of the arbitration skids provided by decisions like AT&T Mobility v. Concepcion. It appears that the banks did not foresee that the U.S. Supreme Court would undertake a remarkably similar agenda, and without the burden of antitrust compliance.

Bluford v. Safeway: California Appellate Court Reverses Denial of Class Certification

In a win for employees seeking to remedy broad, systematic employer violations of workplace protections, California’s intermediate appellate court has reversed a trial court judge’s denial of class certification. Bluford v. Safeway Stores, Inc., No. C066074 (Cal. Ct. App. May 8, 2013) (slip opinion available here). Focusing on the often-decisive predominance requirement for class certification, the unanimous three-judge panel took issue with the trial court’s findings that individual issues predominated over common issues as to the plaintiff’s meal and rest break claims and that the plaintiff failed to allege a common injury resulting from the inadequate wage statements. Holding that “[i]nsufficient evidence supports the trial court’s ruling,” the Court of Appeal found that common issues predominated as to the meal, rest and wage statement claims, and directed the trial court to certify each claim. Slip op. at 2.

The issues around certification of the meal break claim were familiar, with the plaintiff presenting evidence of a systematic, de facto policy of the defendant not providing second meal breaks after the tenth hour of a shift. Slip op. at 11-12. The Court of Appeal deemed inadequate the defendant’s proffering of three declarations from supervisors, attesting to having provided the workers under them sufficient opportunity to take second meal breaks, notwithstanding the company’s lack of any written second meal policy comparable to its written policy governing first meal breaks. Slip op. at 12-13.

As to the rest break claim, the Court of Appeal extensively considered the defendant’s proffered defense, which seemingly entailed extensive individual questions. Slip op. at 7-9. However, the Court of Appeal ruled that determining whether Safeway’s rest break policy and purported practice of including payment for rest breaks in mileage reimbursements complied with California law could be accomplished in a single, common adjudication. Slip op. at 9-10.

Safeway offered a familiar defense to certification of a wage statement class by focusing on the California Labor Code requirement (under Cal. Lab. Code § 226(e)) that there must be an “injury” coincident with a wage statement violation. However, consistent with the California Legislature’s recent clarification of the wage statement statute, the Court of Appeal reversed the trial court’s denial of certification as to the wage statement claim, noting that “‘a very modest showing will suffice.’” Slip op. at 15, citing Jaimez v. DAIOHS USA, Inc., 181 Cal. App. 4th 1286, 1306 (2010).

While this case is not currently designated as published, the Third Appellate District’s rigorously reasoned and detailed ruling as to some of the most frequently pleaded classwide claims would likely find considerable utility as a published case.