Articles from December 2017

On October 20, 2017, the U.S. Court of Appeals for the Ninth Circuit resolved the highly-contentious district court split over Article III standing for injunctive relief in deceptive advertising cases in favor of consumers. Davidson v. Kimberly-Clark Corp., et al., No. 15-16173, 2017 WL 4700093 (9th Cir. Oct. 20, 2017) (slip op. available here). In Davidson, the plaintiff alleged that she purchased, for a premium price, pre-moistened wipes manufactured and sold by the defendant, in part, because they were advertised as “flushable.” Ms. Davidson brought claims against Kimberly-Clark Corp. for violations of California’s consumer protection statutes, including the Consumers Legal Remedies Act (CLRA), False Advertising Law (FAL), and Unfair Competition Law (UCL), after her discovery that the wipes were not flushable, as advertised. Her complaint stated that, although she stopped purchasing the wipes, she would purchase them in the future, “if it were possible to determine prior to purchase if the wipes were suitable to be flushed.” Slip op. at 7. The district court granted, with prejudice, Kimberly-Clark’s motion to dismiss based in part on the finding that Davidson lacked Article III standing to seek injunctive relief because she was unlikely to purchase the wipes in the future.

In reversing the district court’s decision, the Ninth Circuit rejected the lower court’s reasoning that consumers who sue after being subjected to false or misleading advertisements lack Article III standing to pursue injunctive relief because they have since learned that the advertisements are false or misleading and thus “cannot be deceived again.” Rather, the appeals court found a plaintiff-consumer’s inability to rely on the accuracy of future labels constitutes an ongoing harm “sufficient to confer standing to seek injunctive relief” under Article III; thus, adopting the reasoning of other district courts that have found that “if injunctive relief were unavailable to a consumer who later learns after purchasing a product that the product’s label is false, California’s consumer protection laws would be effectively gutted.” Slip op. at 22.

Further, while dicta, the Ninth Circuit recognized the “anomalies” that would result from an opposite holding given the overwhelmingly common practice where, to defeat injunctive relief requests, defendants remove state court cases brought under state consumer protection statutes to federal court pseudo-automatically via the Class Action Fairness Act of 2005 (CAFA). Slip op. at 21-23. This would create a “’perpetual loop’ of plaintiffs filing their state law consumer protection claims in California state court, defendants removing the case to federal court, and the federal court dismissing the injunctive relief claims for failure to meet Article III’s standing requirements.” Id. at 22.

Injunctive relief is arguably the most significant remedy to consumers who bring class actions for false advertising under the UCL because it is the only remedy available that ensures future truthful advertising for a product. The decision in Davidson is vital to consumers, substantively and procedurally, in enforcing the protections afforded by California’s consumer statutes and receiving the appropriate and necessary remedies for violations of those statutes.

Authored by:
Trisha Monesi, Associate
CAPSTONE LAW APC

In September, the Ninth Circuit Court of Appeals affirmed a ruling that rejected a company’s attempt to force its former employee into arbitration under a very broadly-worded agreement that she had signed at the time of hire. See United States and State of Nevada ex rel. Welch v. My Left Foot Children’s Therapy, LLC, et. al, No. 16-16070 (9th Cir. Sept. 11, 2017) (slip op. available here). Specifically, the court held that the broad arbitration provision did not cover an employee’s claim under the False Claims Act (FCA), because an FCA claim belongs to the government, and in this case, neither the United States nor the state of Nevada had agreed to arbitrate its claims. Id. at 4.

The plaintiff in Welch was an employee working for My Left Foot Children’s Therapy (MLF), who filed a whistleblower complaint in federal court alleging that MLF violated the FCA by presenting fraudulent claims to federal health care programs. See id. at 6. The United States and Nevada declined to intervene, and thus, Welch proceeded with her claim. Id. On October 19, 2015, the defendants moved to compel arbitration of Welch’s FCA claims pursuant to the Federal Arbitration Act (FAA) and the arbitration agreement contained in her employment contract. Id. at 6. The arbitration agreement stated in relevant part:

I agree and acknowledge that the Company and I will utilize binding arbitration to resolve all disputes that may arise out of the employment context. Both the Company and I agree that any claim, dispute, and/or controversy that either I may have against the Company . . . or the Company may have against me, arising from, related to, or having any relationship or connection whatsoever with my seeking employment by, or employment or other association with the Company shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act.

Id. (emphasis added).

On June 13, 2016, the district court denied the defendants’ motion to compel arbitration on the basis that Welch’s arbitration agreement did not extend to the United States or Nevada, the parties that owned the underlying FCA claims. Following this, on September 11, 2017, the Ninth Circuit affirmed the district court’s decision. Specifically, the Ninth Circuit held that the material terms (“arising out of,” “related to,” and “having any relationship or connection whatsoever”) of the agreement only covered claims directly related to the plaintiff’s employment. Id. at 13-17. The court reasoned that here, the FCA suit had no direct connection with Welch’s employment because even if Welch had never been employed by the defendants, assuming other conditions were met, she would still have been able to sue them for presenting false claims to the government. Id. Thus, her ability to bring this claim did not necessarily arise from her employment and was not covered by the arbitration agreement. Id.

The court also stated that the arbitration agreement only covered claims between Welch and MLF (id. at 15), and did not cover claims brought on behalf of another party—the United States or Nevada. This reasoning has been echoed in other types of qui tam actions such as those brought under the Private Attorneys General Act of 2004 (“PAGA”). Like FCA claims, in a PAGA action, a plaintiff brings the case for violations of the California Labor Code on behalf of the real party in interest—the state of California. As such, the California Supreme Court has also held that such actions are not covered by arbitration agreements to which the real party in interest—the state of California—has not assented. See Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 386 (2014).  However, it is important to note that the Ninth Circuit also stated in dicta that, had the parties wanted to agree to arbitrate FCA claims, they were free to have drafted a broader agreement that covers “any lawsuits brought or filed by the employee whatsoever” or “all cases Welch brings against MLF, including those brought on behalf of another party.” See slip op. at 17.

Thus, while this holding is another victory in the fight against adhesive arbitration agreements in qui tam-type actions, it may also provide some guidance to employers wishing to force qui tam actions under the FCA into arbitration.

Authored by:
Ruhandy Glezakos, Associate
CAPSTONE LAW APC

CEVA Logistics US Inc., a delivery company, agreed to pay $1.75 million to settle a class action brought by 65 drivers for unpaid minimum wages, unpaid overtime, and business expenses premised on misclassification of the drivers as independent contractors. Cifuentes v. CEVA Logistics U.S., Inc., No. 3:16-cv-01957-H-DHB (S.D. Cal.), see Order Granting Preliminary Approval and Order Granting Final Approval of Class Settlement here and here, respectively. The final approval of the settlement comes approximately 14 months after Plaintiff Cifuentes commenced his suit in the Southern District of California. Cifuentes brought the wage-and-hour class action “on behalf of all individuals who have performed one or more deliveries in California for CEVA, while being classified as an independent contractor.” Preliminary Approval Order, at 2. The plaintiff claimed that the delivery company “improperly categorized class members as independent contractors, rather than as employees, and as a result denied them the rights and protections afforded by the California Labor Code,” which include meal and rest periods, accurate and itemized wage statements, and reimbursements for reasonable business expenses. Id. Cifuentes also claimed that CEVA “failed to compensate class members for all hours worked, overtime, and full wages upon departure from the company.”  Id.

The CEVA settlement translates to an average recovery of $15,855.26 for each of the 65 drivers and checks are issued automatically, without any requirement for a claim form. The court noted that the “settlement is outstanding when compared with other wage and hour settlements approved in recent years by federal courts sitting in California.” Final Approval Order, at 9. In finding that the settlement class met the predominance and superiority requirements of Rule 23(b)(3), U.S. District Judge Marilyn L. Huff held that the “common question of whether the class members were misclassified as independent contractors predominates over all individual issues, because once that issue is determined on a class-wide basis, the only remaining issues would be determining the amount of damages that each class member is entitled to.” Id. at 7. The court also found typicality and numerosity requirements satisfied because the settlement class consists 65 individuals, all of whom “held the same position with CEVA and claim the same injuries.” Id. at 6. Further, the court found the adequacy requirement satisfied and awarded class counsel $583,333 in fees, which represents approximately three times the anticipated lodestar, finding that a “multiplier of three is well within the accepted range for common fund cases where class counsel has taken the case on a contingency fee arrangement.” Id. at 12-13. Finally, the named plaintiff was awarded $7,500 incentive payment for his services as a class representative.

The settlement joins a growing number of settlements reached in California class actions brought by misclassified delivery drivers alleging wage-and-hour violations. This line of cases and plaintiff-favorable results suggest that, in California, companies must use great caution in classifying, or continuing to classify, their drivers as independent contractors. In addition, this should encourage independent contractors and workers in other industries and positions that share similar characteristics to come forward to assert their rights and protections under the California Labor Code.

Authored by:
Suzy Lee, Associate
CAPSTONE LAW APC