Articles from May 2014

The California Court of Appeal, Fourth Appellate District revived a class action lawsuit over Rite Aid’s failure to provide seating to its clerks and cashiers on May 16, 2014. Hall v. Rite Aid Corp., No. D062909 (4th Dist. Div. 1 May 16, 2014) (slip op. available here). In Hall, the Court of Appeal reversed a 2012 trial court order decertifying a class action of nearly 16,000 Rite Aid cashiers and clerks who alleged they were denied seating in violation of California’s Industrial Welfare Commission Wage Order 7-2001, section 14.

The panel found that the San Diego Superior Court trial judge prematurely considered the merits of the case when she decertified the class, deciding that the plaintiff’s claims could not be decided on a classwide basis. The panel held that the trial court had failed to follow the approach laid out in the California Supreme Court’s decision in Brinker Rest. Corp. v. Superior Court (273 P.3d 513 (2012)), because the trial court had assessed the merits of the plaintiff’s legal theory of liability, rather than whether that theory was amenable to class treatment. Finding that the plaintiff’s theory of recovery, i.e. “what is Rite Aid’s policy” and “whether the nature of the work involved in performing check-out functions would reasonably permit the use of seats,” were amenable to common proof, the court stated, “[w]e read Brinker to hold that, at the class certification stage, as long as the plaintiff’s posited theory of liability is amenable to resolution on a class-wide basis, the court should certify the action for class treatment even if the plaintiff’s theory is ultimately incorrect at its substantive level.” Slip op. at 19-20.

The case was remanded back to the lower court for further proceedings. The Rite Aid decision suggests that a plaintiff alleging that a common employer policy violates the law may be enough for a court to grant certification. In line with Brinker, Rite Aid states that reviewing the merits of a case at the class certification stage should be “closely circumscribed” and only should occur in limited circumstances. Slip op. at 21 (quoting Brinker, 273 P.3d 513 at 526 (2012)).

The California Court of Appeal, Second Appellate District affirmed the trial court’s order denying the defendant’s motion to compel arbitration in Coffey v. Beverages & More, Inc. (“BevMo!”), a wage-and-hour class action on behalf of non-exempt, hourly employees. Case No. B243361 (2nd Dist. Div. 1 April 30, 2014) (unpublished) (slip op. available here). The panel found that substantial evidence supported the lower court’s determination that BevMo! had failed to prove that the plaintiff entered into an arbitration agreement with the employer based on her electronic signature acknowledging acceptance of the employee handbook (Ms. Coffey is represented by Capstone Law APC).

The suit was filed on January 18, 2012. In June 2012, BevMo! moved to compel arbitration, arguing that the electronic (PDF) version of the employee handbook—identical to those previously provided to employees in paper format—contained an arbitration clause and that by clicking a box next to an icon of the handbook, she had agreed to an arbitration provision located within the handbook. The trial court denied that motion, finding that, under the express terms of BevMo!’s documents, separate signatures were required for the handbook and for the arbitration agreement, and because the plaintiff was only able to provide an e-signature in one location, that lone signature was not consent to the arbitration clause.

The Court of Appeal affirmed, holding that because the arbitration agreement required a separate signature and because Ms. Coffey never signed that arbitration agreement, unlike other documents within the employment packet that she was able to e-sign individually, she could not be bound by the arbitration agreement. The Court of Appeal also found that the handbook contained an express disclaimer that it did not create any contractual rights or obligations, making it ambiguous as to whether the handbook could even create an enforceable agreement to arbitrate if it had been signed. Finally, there was no implicit agreement to arbitrate, as BevMo! argued, due to the plaintiff’s acceptance of employment with BevMo!; “[n]othing in the record indicates that [Plaintiff] was informed or believed that [BevMo’s!] offer of employment was conditioned on her agreement to arbitrate.” Slip op. at 6.

BevMo! was ultimately unable to show that the plaintiff had ever agreed to arbitrate her claims. The Court of Appeal thus affirmed the trial court’s order and declined to compel arbitration.

On April 24, 2014, Charles Schwab & Co., the financial services brokerage firm, agreed to pay $500,000 in fines and acknowledged a ruling by the Financial Industry Regulatory Authority (“FINRA”) Board of Governors, which concluded that Charles Schwab had violated FINRA rules by including a class action waiver clause in its customer agreement. See FINRA Decision, Department of Enforcement v. Charles Schwab & Co., Complaint No. 2011029760201 (April 24, 2014) (available here).

In 2012, FINRA brought an administrative enforcement action against Schwab for violating its rules after Schwab, in October 2011, added a class action waiver to its customer account agreements. Decision, at 1-2. FINRA Rule 2268(d)(3) of the Customer Code prohibits member firms from placing in predispute arbitration agreements “any condition that . . . limits the ability of a party to file any claim in court permitted to be filed in court under the rules of the forums in which a claim may be filed under the agreement.” Additionally, Rule 2268(d)(1) states, “[n]o predispute arbitration agreement shall include any condition that . . . limits or contradicts the rules of any self-regulatory organization”; the waiver limited and contradicted Rule 12204(d), which provides that a FINRA member may not enforce an arbitration agreement against a member of a certified or putative class action until: class certification is denied; the class is decertified; the class member is excluded from the class by the court; or the class member elects not to participate in or withdraws from the class.

Schwab’s attempt to ban customer class actions arose following a $235 million class action settlement that had alleged that it misled thousands of clients about its YieldPlus money-market fund. In February 2013, a FINRA Hearing Panel held that although Schwab had violated FINRA rules by banning class action lawsuits, the Federal Arbitration Act (“FAA”) preempted such rules. Id. at 2. The Hearing Panel had also found that Schwab had violated Rule 2268(d)(1) by preventing arbitrators from consolidating claims in arbitration (contradicting Rule 12312(b), which provides that they have such authority), and that the FAA did not preclude enforcement of those rules governing the powers of arbitrators and the procedures for FINRA arbitration. Id. at 3. For this violation, the Panel ordered Schwab to remove this language, notify all customers, and pay a fine of $500,000. Id.

FINRA appealed the Hearing Panel’s decision to the Board of Governors. The board considered two central questions:

The first is whether . . . FINRA rules preserve for customers the ability to bring or participate in judicial class actions and FINRA arbitrators the ability to consolidate more than one party’s claims in arbitration. The second is whether the . . . FAA[], which applies to arbitrations of commercial transactions, applies to NASD and FINRA arbitration rules and preempts enforcement of those rules.

Id. at 2. The Board affirmed the part of the Hearing Panel’s ruling concluding that Schwab had broken FINRA’s rules by inserting the class action waiver. Id. at 28. The Board reversed the Panel’s prior holding that the FINRA rule on this point was preempted, finding that the FAA does not dictate specific arbitration procedures and that FINRA’s procedures do not “act as an obstacle to the FAA’s goals”; thus, FINRA “may enforce” the rules against Schwab. Id.

As part of the settlement, Charles Schwab was required to notify all of its customers that the waiver has been withdrawn and is no longer in effect.

On April 15, 2014, U.S. District Judge Consuelo B. Marshall re-certified a class of non-exempt newspaper employees who had brought wage-and-hour claims, finding that the plaintiffs’ allegations satisfied the commonality and predominance requirements for certification under the more stringent standards articulated by the U.S. Supreme Court’s Wal-Mart Stores Inc. v. Dukes (131 S.Ct. 2541 (2011)). Wang v. Chinese Daily News, Inc., No. 2:04-cv-01498 (C.D. Cal. April 15, 2014) (slip opinion available here). Thus, the court held that plaintiffs satisfied rule 23(b)(3). Id.

In 2008, the plaintiffs had obtained a $5.1 million judgment on behalf of the same class of employees under the Fair Labor Standards Act and California state law for the failure to pay overtime and to provide meal and rest breaks, among other violations. The Ninth Circuit affirmed that judgment in 2010 (623 F.3d 743 (9th Cir. 2010)), but after Dukes, the U.S. Supreme Court granted certiorari, vacated the Ninth Circuit’s opinion, and remanded to the Ninth Circuit for it to reconsider applying Dukes. The Ninth Circuit subsequently reversed the district court’s certification from 2005 and ordered it to reconsider its analysis under Rules 23(a)(2) and 23(b)(3), in light of Dukes, Brinker Rest. Corp. v. Superior Court (273 P.3d 513 (Cal. 2012)), and other caselaw developments. Wang v. Chinese Daily News, Inc., No. 08-55483 (9th Cir. Sept. 3, 2013).

Upon remand, Judge Marshall reexamined whether there were common questions of law or fact, and found many. Citing Dukes on the standard of commonality, the court stated, “[w]hat matters to class certification . . . is not the raising of common ‘questions’—even in droves—but rather, the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.” Slip op. at 4 (internal citations omitted). One question, which the court focused on, was whether the defendant failed to pay overtime compensation to non-exempt employees who worked over 40 hours per week. Id. at 5-7. The court found the plaintiffs had proffered enough evidence to show that the employer had treated the class members consistently and that supervisors had little or no discretion to deviate from the uniform policy of not providing overtime pay and/or meal and rest breaks. Id. at 6, 10. Plaintiffs also informed the court that because there were currently no identifiable class members still employed by the newspaper, they were no longer seeking certification under Rule 23(b)(2), the injunctive relief standard, so Judge Marshall declared that issue moot. Id. at 8.

The district court’s re-certification of the class shows that class certification of wage-and-hour cases is still appropriate in a post-Dukes era, if the plaintiffs allege that the treatment of class members is consistent and not subject to the discretion of individual managers.