Articles from April 2014

Uber Asks Court to Reconsider Order to Stop Issuing Arb Clause to Drivers

Uber Technologies Inc. (“Uber”), the popular rideshare company, is currently the subject of a putative class action brought by former drivers who allege that Uber did not pay the full amount of tips that customers believed drivers were receiving and failed to reimburse drivers for business expenses, among other claims. O’Connor v. Uber Technologies, Inc., No. 13-03826-EMC (N.D. Cal.).

In July 2013, Uber had inserted an arbitration clause, along with onerous opt-out requirements, into its new driver agreement, before the O’Connor plaintiffs filed their case. However, similar class actions had been filed in Massachusetts and Illinois. Lavitman et al. v. Uber Technologies, Inc., et al., Mass. Super. Ct. (Suffolk), C.A. No. 12-4490; Ehret v. Uber Technologies, Inc., C.A. No. 12CH36714 (Circuit Court of Cook County, IL). Plaintiffs in O’Connor filed an emergency motion to strike the arbitration provisions, and the court granted it in part on December 6, 2013. See Order Granting in Part Plaintiffs’ “Renewed Emergency Motion for Protective Order to Strike Arbitration Clauses,” O’Connor v. Uber Technologies, Inc., No. 13-03826-EMC (N.D. Cal. 2013) (available here). While declining to rule on the alleged unconscionability of the arbitration provision, the court found the new clause to be “potentially misleading, coercive, and threatens to interfere with the rights of class members” and ordered Uber to stop issuing the arbitration agreement until the company revised it to give past, current, and new drivers notice of the pending class action and a reasonable means to opt out of arbitration. Id. at 11-12.

In its motion for reconsideration, Uber argued that the court exceeded the scope of its authority under Rule 23 last December. Defendant asserted that the court failed to consider a material fact, “that since the filing of the [c]omplaint[,] Uber has issued the challenged arbitration agreement only to prospective users of its software application service, who are by definition not members of the putative class.” See Defendant’s Motion for Reconsideration, at 3 (available here). Uber contends that the issuance of the agreement to new drivers does not affect the current litigation because future drivers fall outside of the class definition: “drivers who have worked for Uber.” Id. at 6 (citing Plaintiffs’ Complaint). Plaintiffs vigorously disagreed and replied that, while no class has been certified yet, the putative class encompasses all drivers who have driven for Uber, under the conditions described in the complaint through the date of judgment or at least through the date of class certification. See Plaintiffs’ Opposition to Defendant’s Motion for Reconsideration, at 4 (available here). Plaintiffs maintained that defendants’ argument “is based upon a flawed understanding of English grammar,” explaining that the function of the present perfect tense “have” is to describe an action that began in the past but continues into the present. Id. Uber was also accused of violating the court’s orders by continuing to send the new arbitration agreement to its existing drivers.

The motion for reconsideration was heard on April 18, 2014. No opinion has yet been issued.

Sweet Victory: Mott’s “No Sugar Added” Labeling Suit Beats Dismissal

Earlier this month, Judge Susan Illston of the Northern District of California denied defendant Mott’s motion to dismiss plaintiff’s second amended complaint. See Order Denying Defendant’s Motion to Dismiss, Rahman v. Mott’s LLP, No. CV 13-3482 SI (N.D. Cal. April 8, 2014) (available here). In Rahman, plaintiff alleged that Mott’s 100% Apple Juice is improperly labeled as having “no sugar added” under 21 C.F.R. section 101.60(c)(2) because it is not a product that normally contains added sugar and because it fails to disclose that the product is not a low/reduced calorie food (Mr. Rahman is represented by Capstone Law APC).

The court had dismissed plaintiff’s consumer deception and fraud-based claims, leaving only its Unfair Competition Law claim under the “unlawful” prong and holding that plaintiff had not explained how a reasonable consumer was likely to be deceived. Plaintiff amended his complaint, and defendant again sought dismissal on two grounds: (1) primary jurisdiction based ongoing FDA rulemaking and (2) failure to adequately plead claims under the Unfair Competition Law (“UCL”), False Advertising Law (“FAL”), and Consumers Legal Remedies Act (“CLRA”).

As to the primary jurisdiction argument, the plaintiff argued that his claims did not fall within the ambit of the recently proposed FDA rules. (On March 3, 2014, the FDA released a set of proposed rules regarding the nutrition facts label on packaged foods. One of the proposed rules would require manufacturers to disclose the presence or absence of added sugar in a product on the nutrition facts label.) The court agreed, finding that plaintiff’s allegations related to nutrient content claims made on the front label of the product, and not the nutrition facts label. Order at 5. These claims were not implicated by the proposed rules, the court opined, stating, “[n]utrient content claims are governed by 21 C.F.R. § 101.13, which expressly states: ‘Information that is required or permitted by § 101.9 or § 101.36 . . . to be declared in nutrition labeling, and that appears as part of the nutrition label, is not a nutrient content claim and is not subject to the requirements of this section. If such information is declared elsewhere on the label or in labeling, it is a nutrient content claim and is subject to the requirements for nutrient content claims.’ Consistent with this, [the proposed rule] itself states . . . ‘issues related to nutrient content claims and health claims are outside the scope of the rulemaking.’” Id. (internal citations omitted). Furthermore, the FDA expressly denied requests to “amend [its] regulations to prescribe nutrient content claims and health claims related to ‘added sugars,’ [because] those requests are not considered within the scope of this proposed rule.” 79 Fed. Reg. 11880, at 11903.

The court also found that plaintiff had adequately pled that a reasonable consumer could be deceived by the “No Sugar Added” labeling and believe that Mott’s juice is healthier or contains less sugar than other comparable products. Plaintiff had listed several comparable products in his complaint that did not carry the “No Sugar Added” claim, yet which had substantially similar calorie and sugar content. The court also found that plaintiff had properly alleged economic injury consistent with Kwikset Corp v. Superior Court—that the misrepresentations caused him to purchase more of the juice than he otherwise would have. 51 Cal. 4th 310, 330 (2011). Plaintiff’s second amended complaint thus survived Mott’s motion to dismiss fully intact.

Cal. Supreme Court Hears Iskanian v. CLS Oral Argument

Oral argument in Iskanian v. CLS Transportation Los Angeles, LLC, No. S204032, took place before the California Supreme Court on April 3, 2014 (Mr. Iskanian is represented by Capstone Law APC). Previously, the Court of Appeal had affirmed an order compelling individual arbitration of the plaintiff’s California Labor Code claims by enforcing class action and representative action waivers, relying heavily on Concepcion. Iskanian v. CLS Transp. Los Angeles, LLC, 206 Cal.App.4th 949 (2012).

The California Supreme Court granted review of the following issues:

(1) Did AT&T Mobility LLC v. Concepcion (2011) 563 U.S. [321] impliedly overrule Gentry v. Superior Court (2007) 42 Cal.4th 443 with respect to contractual class action waivers in the context of non-waivable labor law rights? (2) Does the high court’s decision permit arbitration agreements to override the statutory right to bring representative claims under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.)? (3) Did defendant waive its right to compel arbitration?

With respect to the enforceability of the class action waiver under Gentry, the justices’ line of questioning reflected skepticism that it could survive Concepcion. Plaintiff’s counsel Glenn Danas suggested that, following the Court’s decision in Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109 (2013) (“Sonic-Calabasas II”), the Gentry test be modified to a two-step unconscionability-based test, with the first step focused on whether the unavailability of class arbitration would lead to a de facto waiver of unwaivable statutory rights and, if so, the second step focused on whether the employer’s particular arbitration procedure provides alternative protections that ameliorate the claimants’ inability to utilize such aggregate procedures in arbitration. Several justices, including the Chief Justice and Justice Kennard, had probing follow-up questions regarding the proposed two-step analysis, but Justice Liu appeared skeptical that even the suggested modified test would not be foreclosed by Concepcion, due to its strongly-worded dicta against class arbitration.

Michael Rubin, on behalf of amicus curiae Service Employees International Union and the California Employment Lawyers Association, also argued before the high court, presenting an alternative basis for striking the class action waiver under federal labor statutes, thereby avoiding any possible preemption issue. This argument, which was adopted by the National Labor Relations Board in the D.R. Horton decision, asserts that employees’ right to join together in group litigation (utilizing a class, collective, or representative action) is protected activity under both the National Labor Relations Act and the Norris LaGuardia Act. 357 NLRB No. 184. Rubin’s argument compellingly articulated the position, and was met with a series of thoughtful questions by the justices demonstrating, at a minimum, a keen interest in the issue. For instance, picking up on the U.S. Supreme Court’s reasoning in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), Justice Liu asked whether the class action procedure pre-dates the Federal Arbitration Act, the implication being that, if not, there can be no “right” to collective litigation of employment grievance. Rubin responded, without missing a beat, that certain antecedents to the Federal Rule 23 existed long before 1966. Justice Liu also had pointed questions for CLS’s counsel David Faustman, at one point growing weary of Faustman’s refusal to answer his question regarding the basis for his position that the Federal Arbitration Act “trumps” the later-enacted federal labor law statutes. Ultimately, Faustman moved on, unable to answer Justice Liu’s questions. However, it is also widely acknowledged that a decision based in part on upholding D.R. Horton would be more likely to draw review by the U.S. Supreme Court.

With regard to PAGA actions, the justices seemed inclined to reverse the Court of Appeal’s ruling, discerning that a complete ban on a statutory cause of action or the right to pursue statutory remedies cannot be completely foreclosed by any contract, arbitration or otherwise. Specifically, the justices focused their questions on the origin of the rights codified by PAGA—that PAGA actions are essentially government enforcement actions and that individual plaintiffs cannot waive the government’s right to enforce the labor laws. Drawing a parallel to EEOC v. Waffle House, 534 U.S. 279 (2002), where the U.S. Supreme Court held that the EEOC could pursue a discrimination claim on behalf of an employee despite the employee’s having signed an arbitration agreement, Justice Liu indicated that a PAGA plaintiff cannot waive the state’s right to collect civil penalties under PAGA by signing a private mandatory arbitration agreement. Moderate members of the Court including Chief Justice Cantil-Sakauye and Justice Corrigan both questioned Andrew Pincus, appearing for the Chamber of Commerce of the United States of America on behalf of CLS, pointing out the practical reality of enforcing PAGA waivers such as the one at issue would allow employers to entirely shield themselves from liability under PAGA, a result that cannot be squared with decades of U.S. Supreme Court case law.

The opinion is due in 90 days, on July 2, 2014.

Young v. Hilton: 9th Cir. Reverses Dismissal of California Recording Case

On March 20, 2014, the Ninth Circuit reversed a district court’s dismissal of a putative class action against Hilton, based on violations of the California Invasion of Privacy Act (“CIPA”) by recording incoming customer service phone calls without customers’ consent. Young v. Hilton Worldwide, Inc. and Hilton Reservations Worldwide, LLC, No. 12-56189 (9th Cir. March 20, 2014) (slip opinion available here).

The plaintiff alleged that defendant violated two provisions of CIPA; Section 632, which generally prohibits the eavesdropping and recording of “confidential communications” on landlines without all parties’ consent, and Section 632.7, which proscribes the eavesdropping on or recording of a communication on cell or cordless phones without all parties’ consent. The district court had dismissed the action, rubberstamping the defendant’s proposed dismissal order, and holding that the complaint failed to allege that the recorded communications were confidential and subject to a reasonable expectation of privacy. Plaintiff appealed the dismissal of the Section 632.7 claim, but not the Section 632 claim.

The Ninth Circuit found that the “reasonable expectation of privacy” requirement applied only to plaintiff’s section 632 claim regarding landlines, but not to plaintiff’s section 632.7 claim regarding cell or cordless phones: “The California Supreme Court has unequivocally held that no such [confidential communication] requirement applies to Section 632.7 . . . . The district court’s failure to so recognize was reversible error.” Slip op. at 2. Holding that Section 632.7 prohibits recording of calls made from cell and cordless phones regardless of whether a communication is initiated with a reasonable expectation of privacy, the Ninth Circuit reversed and remanded the case.

Dissenting Judge Motz from the District of Maryland, sitting by designation, wrote that he would have vacated the district court’s entire decision and remanded the case to the district court for full briefing on CIPA’s scope.