Articles from March 2016

When a Stay Is Not a Stay: Cal. Supreme Court’s Decision in Gaines v. Fidelity Insurance

In Gaines v. Fidelity National Title Insurance Co., a majority of the California Supreme Court found that an agreement entered into by the parties to stay a case pending mediation did not toll the five-year time period within which an action must be brought to trial under California Code of Civil Procedure section 583.310. No. S215990 (Feb. 25, 2016) (slip op. available here). Section 583.340(b) provides that courts must automatically exclude from the five-year period any time there is a “complete stay,” when the “[p]rosecution or trial of the action was stayed or enjoined.” Section 583.340(c) also mandates exclusion of any time there is a “partial stay,” where it was “impossible, impracticable, or futile” to bring the case to trial. California Code of Civil Procedure section 583.330 further permits tolling by a written stipulation or express oral agreement in court between the plaintiff and the defendant. Notwithstanding these provisions, the trial court held that the case was due to be dismissed for violation of the five-year time period. The Court of Appeal affirmed, as did the California Supreme Court, each over vigorous dissenting opinions.

Plaintiff Gaines filed a lawsuit in 2006, alleging that the defendant mortgage company defrauded her and her (deceased) husband into selling their home to an unscrupulous property manager—who turned out to be the fiancé of the lender’s employee—to “help” them avoid foreclosure. See slip op. at 2-3. The case encountered numerous procedural hurdles; Mrs. Gaines had to amend the complaint four times during the first 14 months to add various defendants. Gaines v. Fidelity Nat’l Title ins. Co., 165 Cal. Rptr. 3d 544, at 570 (Cal. App. 2013). In 2008, the plaintiff and defendant Aurora stipulated to a 120-day stay to attempt mediation. Slip op. at 4. The court vacated the trial date, ordered mediation, and stayed the litigation, except that parties were to respond to previously-served discovery; however, the mediation ultimately failed. Id. Additionally, Aurora initially admitted to owning the loan in January 2009, but then claimed 11 months later that Lehman Brothers was the owner; the parties then struggled to bring Lehman, which was by then in bankruptcy, into the lawsuit, further compounding delays. Slip op. at 3. That same month (November 2009), the plaintiff passed away, and her son, Milton Howard Gaines, became the plaintiff as her successor in interest. Id.

Remarkably, the California Supreme Court found that the trial court’s stay order—to which the plaintiff agreed at the defendants’ request—did not toll the five-year time limit. A complete stay under section 583.340(b) will operate to automatically toll the five-year period, while a partial stay under section 583.340(c) will not do so unless it results in a circumstance of impossibility, impracticability, or futility. See slip op. at 2. The court first found that the stay was not a “complete” stay under Section 583.340(b) because limited discovery and mediation were allowed to proceed, and because the “stay” was not due to an “extrinsic” event such as contractual arbitration. Slip op. at 10-13. Yet, as Justice Kruger, joined by Justice Liu, asserted in her dissent, the majority’s opinion wrongly relied upon Bruns v. E-Commerce Exchange, Inc., 51 Cal. 4th 717 (2011), which found that a stay of discovery did not toll the five-year time limit. Slip op., Kruger dissenting op. at 5-6. Gaines involved the opposite of a stay of discovery—it was stayed for all purposes except certain limited discovery. Id., Kruger dissenting op. at 7.

Second, the California Supreme Court found no tolling under section 583.340(c), because that section required a “period of impossibility, impracticability or futility, over which plaintiff had no control.” Slip op. at 23. And, because the parties chose to attempt mediation, the plaintiff had control over the progress of the case. Id. Notably, as Justice Kruger pointed out in her dissent, the “beyond the plaintiff’s control” language does not appear in section 583.340(c). Slip op., Kruger dissenting op. at 12. Further, the dissent observed, the majority made no allowance for Aurora’s mistake in claiming ownership, which stalled the case for 11 months. 165 Cal. Rptr. 3d at 572. Consequently, the decision “reward[s] plaintiff for working cooperatively with an opposing party by depriving her of her day in court.” Slip op., Kruger dissenting op. at 1.

After Gaines, plaintiffs’ counsel should take note: the majority gave weight to the plaintiff’s failure to secure an express stipulation pursuant to section 583.330 to toll the five-year limit. Slip op. at 10. Justice Kruger countered that, before the majority’s opinion, a plaintiff “would have had no reason to believe such a stipulated extension would be necessary.” Slip op., Kruger dissenting op. at 14. However, in the future, plaintiffs embroiled in protracted litigation in California courts should heed Gaines, and stipulate or move for the tolling of section 583.310.

Authored By:
Jennifer Bagosy, Senior Counsel

Hopkins v. BCI Coca-Cola: Ninth Circuit Continues Defense of Iskanian

Last month, in Hopkins v. BCI Coca-Cola Bottling Co. of Los Angeles, the Ninth Circuit Court of Appeals maintained its position, finding that California’s public policy prohibiting waiver of Private Attorneys General Act (“PAGA”) claims was not preempted by the Federal Arbitration Act (“FAA”). See Hopkins, No. 13-56126 (9th Cir. Feb. 19, 2016) (slip op. available here). In Hopkins, the panel reversed and remanded the district court’s order dismissing the plaintiff’s PAGA claim and granting the defendant’s motion to compel arbitration, finding that an employee’s right to bring a PAGA action cannot be waived. See id. at 1-2.

In Hopkins, as in Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425 (9th Cir. 2015) before it, the Ninth Circuit followed the California Supreme Court’s landmark decision, Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014). In Iskanian, the California Supreme Court found that the state’s public policy prohibiting waiver of PAGA claims was not preempted by the FAA, establishing the unenforceability of PAGA waivers in arbitration agreements. See Iskanian, 59 Cal. 4th at 388-89. A few months ago, the Ninth Circuit set forth its view in Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425 (9th Cir. 2015), upholding Iskanian and finding that a contractual waiver of the right to bring a representative PAGA action is unenforceable. Id. at 431.

First, the Hopkins panel held that the Iskanian rule applied to the arbitration agreement and thus, Hopkins’ waiver of his right to bring a PAGA action is unenforceable. The appeals court rejected the defendant’s contention that the FAA preempts the Iskanian rule and requires enforcement of the PAGA waiver, an argument the court held was “foreclosed in light of [the] decision in Sakkab.” Slip op. at 2. After severing the clause containing the representative claims waiver from the arbitration agreement, the court stated it was unclear whether the plaintiff had argued the arbitration agreement itself was unconscionable and whether the parties had agreed to litigate or arbitrate remaining claims. Accordingly, case was remanded to determine in what venue Hopkins’ representative PAGA claims should be resolved.

Hopkins illustrates the Ninth Circuit’s continued fidelity to Iskanian. Indeed, just recently the Ninth Circuit also denied Luxottica’s petition seeking rehearing en banc in Sakkab, a decision that seems less likely to be reviewed by the United States Supreme Court, now that the Court’s composition has changed. As employers continue to use arbitration agreements with representative action waivers to avoid having to face class or representative actions, Hopkins clears the way for employees’ PAGA claims to be heard in some forum.

Authored by: 
Ruhandy Glezakos, Associate

Consumer Lawsuit About Hain’s “Natural” Claims Revived by 9th Cir.

The Ninth Circuit revived a consumer class action that had been dismissed without leave to amend by Judge Manuel Real of the Central District of California. See Balser, et al. v. The Hain Celestial Group Inc., No. 14-55074 (9th Cir. Feb. 22, 2016) (slip op. available here). Plaintiffs Balser and Kresha claimed that Hain misled them into paying a premium price for Alba Botanica products labeled “Natural” and “100% Vegetarian” when they allegedly contained synthetic/non-natural substances and were not made entirely with plant-derived products.

The district court had previously dismissed the plaintiffs’ claims, finding that they had not alleged what they thought the “natural” representation meant, nor had they sufficiently pled how they relied on and were harmed by the representation. Judge Real stated, “[r]ead as a whole, no reasonable consumer would be misled by the label ‘natural.’” See Order Granting Defendant’s Motion to Dismiss, Balser, et al. v. The Hain Celestial Group Inc., No. CV 13-05604-R (C.D. Cal. Dec. 18, 2013). In a brief 5-page opinion, the panel found that the plaintiffs’ allegations are “sufficient . . . to [plausibly] allege a reasonable consumer’s understanding of ‘natural’ as used on Hain’s packaging, and so are adequate under California law.” Slip op. at 2. Additionally, the opinion stated that the consumers’ allegation of reliance—that they relied on the “natural” labeling when they purchased the products, and allegation of economic injury—that they paid more than they otherwise would have because of the misrepresentation, were also sufficiently pled. Id. at 2-3. Applying Williams v. Gerber Prods. Co., 552 F.3d 934 (9th Cir. 2008), the court stated, “[w]hether a business practice is deceptive, misleading, or unfair is ordinarily a question of fact to be decided by a jury.” Williams at 938-39. Williams also involved claims of deceptive labeling on Gerber Fruit Juice Snacks packaging (including a “natural” claim) and the Ninth Circuit had reversed dismissal; similarly, in the present case, statements that the products were “natural” and “100% vegetarian” plausibly could be interpreted as a claim that the products contained no synthetic chemicals, a claim alleged to be false.

Finally, the plaintiffs argued that the district court abused its discretion in denying them pre-certification discovery; the Ninth Circuit agreed, finding the plaintiffs had been improperly denied the chance to conduct discovery, partly due to Central District’s Local Rule 23-3 that requires that the motion for class certification be filed within 90 days of a complaint. The district court had deferred the plaintiffs’ discovery requests beyond the 90-day mark, “thereby implicitly denying the motion by rendering it moot.” Slip op. at 5. Citing Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011), the appeals court noted the schedule, “when considered alongside federal rules regarding status conferences and the timing of discovery, is quite unrealistic in light of recent case law regarding the need to establish a sufficient factual record at the class certification stage.” Id. at 3-4 (emphasis added).

The panel reversed and remanded the district court’s ruling and required the lower court to consider whether precertification discovery is necessary.

Authored by: 
Mao Shiokura, Associate

Restoring Statutory Rights Act (S. 2506): Bill Against Mandatory Arbitration

In recent years, bolstered by U.S. Supreme Court decisions, numerous businesses have successfully limited their potential exposure for consumer protection and employment law violations by requiring consumers and employees to enter into arbitration agreements. Now, the pendulum seems to be swinging back as Congress considers a bill limiting the practice.

On February 4, 2016, Democratic Senator Patrick Leahy introduced the Restoring Statutory Rights Act (S. 2506) (available here). The bill would create an exception in the Federal Arbitration Act (FAA) for disputes involving individuals and small businesses. Pursuant to the proposed statute, arbitration would be available only if the parties agreed to it after the dispute arose. By contrast, currently, individuals often agree to arbitration as a condition of purchasing a product or applying for employment. The bill explicitly criticizes recent U.S. Supreme Court decisions regarding the preemptive effect of the FAA, stating that the decisions “have enabled business entities to avoid or nullify legal duties created by congressional enactment, resulting in millions of people in the United States being unable to vindicate their rights in State and Federal courts.”

The proposed bill would also strengthen the power of the courts to reject mandatory arbitration if the arbitration clause is unconscionable or if a statute prohibits arbitration. Specifically, the bill provides that courts may decline to compel arbitration if “a Federal or State statute, or the finding of a Federal or State court, . . . prohibits the agreement to arbitrate on grounds that the agreement is unconscionable, invalid because there was no meeting of the minds, or otherwise unenforceable as a matter of contract law or public policy.” This provision is expressly aimed at cases such as AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), that have interpreted the FAA to preempt substantive rights and remedies established under the law.

The success of this bill is uncertain as Republicans maintain control of both houses of Congress and generally favor arbitration, but it represents a serious effort to roll back some of the excesses in business entities’ use of arbitration.

Authored By:
Stan Karas, Senior Counsel