Articles from July 2013

US v. Apple: eBook Antitrust Ruling Reveals Conspiracy Between Apple and Publishers, Efficacy of Antitrust Enforcement

In a particularly vivid exemplar of the renewed potency of antitrust enforcement, District Judge Denise Cote, of the influential Southern District of New York, recently ruled that Apple had violated antitrust law by conspiring with publishers to raise retail prices of eBooks and to eliminate retail price competition. See United States v. Apple, Inc., No. 12-2826, Opinion & Order (S.D.N.Y. July 10, 2013) (available here).

As Judge Cote summarizes, “Apple and the Publisher Defendants shared one overarching interest — that there be no price competition at the retail level,” and the plan was largely successful. Opinion at 11. The crux of the problem, as Apple viewed it, was that Amazon’s pricing was too low for Apple to make a profit. “Through the vehicle of the Apple agency agreements, the prices in the nascent e-book industry shifted upward, in some cases 50% or more for an individual title. Virtually overnight, Apple got an attractive, additional feature for its iPad and a guaranteed new revenue stream, and the Publisher Defendants removed Amazon’s ability to price their e-books at $9.99.” Opinion at 12.

Apple thus set in motion a plan to conspire with publishers to force Amazon to raise its prices. To do so, Apple proposed that publishers adopt the “agency model” for eBooks, by which a publisher sets the retail price of the book, and the eBook store would then take 30 percent of that price. The agency model is reflected in the frequent apology seen at eBook sites such as Apple’s, noting that “prices are set by publishers” — a statement that is stunningly disingenuous in light of the close, conspiratorial relationship between Apple and the publishers.

After negotiating deals with Apple, five major publishers approached Amazon simultaneously with an offer it couldn’t refuse — either Amazon could move over to the new, higher-priced agency model, or it would have to wait months to begin selling best-selling titles in its store. See Opinion at 64-72. Only by colluding could the play work, because if any single publisher approached Amazon, Amazon could have balked and removed that publisher’s titles from the Kindle Store. Id.

The opinion documents Apple’s plan to undermine the dominance of Amazon and its Kindle in the emerging e-book technology, and with reference to astonishingly candid evidence including internal Apple emails and memos. In its initial meeting with publishers to discuss the conspiracy to fix prices, Apple outlined a strategy categorically at odds with U.S. antitrust laws, stating that the company “cannot tolerate a market where the product is sold significantly more cheaply elsewhere.” Opinion at 33.

Originally, the federal government had sued Apple along with the five other publishers — Lagardere SCA’s Hachette Book Group Inc and Macmillan, News Corp’s HarperCollins Publishers LLC, Pearson Plc’s Penguin Group (USA) Inc and CBS Corp’s Simon & Schuster Inc —in April of 2012. However, while the publishers settled with the government, Apple insisted they had done nothing wrong—a stance that Apple continues to hold in the wake of this week’s ruling, vowing to appeal to the Second Circuit.

Cunningham v. Leslie’s Poolmart: Representative PAGA Actions Unaffected by Concepcion, Federal Court Finds

In ruling on a motion to compel arbitration, U.S. District Judge Christina A. Snyder has held that an arbitration clause cannot prevent a plaintiff from pursuing intrinsically representative actions under PAGA, California’s Labor Code Private Attorneys General Statute, in arbitration. Cunningham v. Leslie’s Poolmart, Inc., No. 13-2122 (C.D. Cal. June 25, 2013) (order on defendant’s motion to compel arbitration, available here). Although the decision otherwise substantially sided with the defendant’s arguments that the U.S. Supreme Court’s AT&T Mobility v. Concepcion ruling preempted the plaintiff’s cited authority, Judge Snyder extensively distinguished representative PAGA actions from the class actions that fall within the ambit of Concepcion.

The plaintiff contended that PAGA claims were within the scope of the at-issue arbitration agreement, while the defendant argued that by not expressly authorizing the arbitration of representative PAGA claims, the arbitration agreement prohibited such claims altogether. See order at 7. From these divergent positions, Judge Snyder set forth a detailed survey of PAGA’s inception and provisions, and concluded that PAGA actions “are not a sub-species of class actions” but rather a type of qui tam action. Order at 11. Critically, therefore, because “a plaintiff’s right under PAGA to pursue a bounty through a representative action is closely analogous to a qui tam relator’s right to pursue a bounty, an aggrieved employee’s rights under PAGA should also be characterized as substantive.” Order at 12.

Based on that core holding, the Cunningham decision weighed in on multiple important, and often nuanced, PAGA issues, including reconciling the dissonant holdings in Franco v. Athens Disposal Co. and Quevedo v. Macy’s, Inc. The court found Quevedo to be premised on the erroneous assumption that there is such a thing as an “individual PAGA claim” and found that Franco is not preempted by Concepcion. See order at 13-14.

Moreover, Cunningham distinguishes PAGA actions from the class actions at the center of Gentry and Discover Bank, two California cases that have been in jeopardy during the post-Concepcion era: “The fact that PAGA accomplishes state policy goals through granting substantive rights rather than access to procedures distinguishes the Franco rule from the rules in Gentry and Discover Bank,” and “although the FAA preempts state law imposing the presence of certain procedures in the arbitration, the FAA does not preempt state laws ensuring that a plaintiff may assert substantive rights in arbitration.” Order at 15-16.

Finally, Cunningham distinguishes the U.S. Supreme Court’s Stolt-Nielsen S.A. v. AnimalFeeds holding. See order at 17. Although an agreement to arbitrate cannot necessarily be inferred to tacitly comprise class claims, “[t]his reasoning does not, however, apply when considering whether an agreement to arbitrate encompasses representative PAGA claims” because “PAGA claims do not bind absent employees, and hence do not require the complex proceedings that must be used when binding absent class members.” Order at 17.

California Appellate Court Reverses Denial of Certification

California’s Court of Appeal has reversed a trial court’s denial of a motion to certify claims alleging underpayment of earned overtime pay and miscalculation of pay rates. See Bowers Cos. Wage & Hour Cases, No. G046104 (Cal. Ct. App. June 27, 2013) (available here). The defendant conceded that the policies were as the plaintiff alleged, and as a result, the court found that common questions necessarily predominated and the claims should – indeed must – be adjudicated in a class action. The Fourth Appellate District remanded the case to the trial court with the directive to grant the plaintiff’s class certification motion consistent with the subclass definitions as revised by the unanimous three-judge appellate panel. Slip op. at 1-2.

The defendant, an ambulance company, employed the named plaintiffs as EMTs and pursuant to an alternative work schedule (AWS) paid the plaintiffs and their fellow workers overtime after they worked ten hours in a day, rather than after the usual eight hours. Slip op. at 5, 7. While California law provides for certain changes to overtime pay under a properly adopted AWS system, the plaintiffs here alleged that the defendant’s formulas for setting both regular and overtime pay rates did not comply with the applicable California AWS law. Id.

The Court of Appeal found that the trial court committed reversible error in multiple respects. First, the trial court based its denial of certification on a proposed regular rate subclass not being ascertainable, but “failed to consider whether the class definition could be modified” to resolve any ascertainability deficiency. Slip op. at 17. Connecting the ascertainability analysis to the defendant’s admittedly uniform pay-rate calculation policy, the Court of Appeal underscored a hard rule of class action jurisprudence with the observation that where there is “a theory of recovery challenging an undisputed policy uniformly applied to a readily identifiable group of employees” the proposed class or subclass is ascertainable as a matter of law. Slip op. at 18.

After dealing with the ascertainability issue, the Court of Appeal turned to the trial court’s finding that the plaintiffs hadn’t satisfied the numerosity requirement, and concluded that the modest numerosity threshold had been amply satisfied. Slip op. at 18-21.

Finally, as to the often-pivotal issue of whether common issues of law or fact predominate, the panel concluded that “Plaintiffs’ theory challenges the uniform policy Defendants applied to all class members and whether that policy violates California law is a question eminently suited for class treatment. The policy’s existence and terms may be established at trial through Defendants’ testimony and documents without any individualized evidence.” Slip op. at 23.

Though the decision has been designated as unpublished, it is likely to spark calls for that designation to be changed to published under the California Rules of Court insofar as it provides a clear, well-reasoned, and detailed statement of law concerning a much-repeated circumstance.