Articles from March 2018

California Code of Civil Procedure section 902 provides that “[a]ny party aggrieved” may appeal a judgment. For the past half century, courts and commentators have regarded settlement objectors as “aggrieved” parties with standing to appeal. See Trotsky v. Los Angeles Fed. Sav. & Loan Assn., 48 Cal. App. 3d 134, 139-40 (1975). This practice essentially tracked federal appellate procedure and appeared non-controversial; indeed, few would have foreseen this precedent would be overturned in favor of an even older, seemingly-forgotten precedent (see Eggert v. Pac. States S. & L. Co., 20 Cal. 2d 199 (1942)) by the California Supreme Court in Hernandez v. Restoration Hardware, Inc., No. S233983 (Jan. 29, 2018) (slip op. available here) (holding that unnamed class members may not appeal a class judgment, settlement, or attorney fees award unless they intervene in the action or move to vacate the judgment).

In Restoration Hardware, the plaintiffs in a class action alleged that the home furnishings store violated the Song-Beverly Credit Card Act by requesting and recording customer zip codes. After years of litigation, the court certified the class, and ordered the parties to notify class members that they had the option to remain in the certified class and be bound by the judgment, or to exclude themselves from the class and not be bound to the judgment. The notice also advised class members they had the option of appearing through counsel if they wished to remain in the class. In response, class member Francesca Muller appeared through her counsel, Lawrence W. Schonbrun (who also represented the objector in Laffitte v. Robert Half Intern. Inc., 1 Cal. 5th 480 (2016)). After a bench trial, the court awarded the class over $36 million in penalties and ordered the parties to meet and confer regarding an appropriate claims process to distribute the award to the class. The parties stipulated to treat the award as a common fund that included class member payments and any attorneys’ fees, costs, class representative enhancements, and administrative costs associated with administering the claims process. The plaintiffs then moved for attorneys’ fees equal to 25% of the total judgment recovered for the class. At the hearing, Muller (who was served with the moving papers) objected to the attorneys’ fees sought by class counsel. The court overruled her objection and entered a judgment that tracked the parties’ proposed claims procedure. Muller appealed.

Citing Eggert, the plaintiffs argued that Muller lacked standing to appeal because she had neither moved to intervene nor to vacate the judgment. Muller argued that Eggert should be disregarded because it was decided before the 1966 revisions to rule 23 of the Federal Rules of Civil Procedure—persuasive authority in modern California class action jurisprudence (see, e.g., Arias v. Superior Court, 46 Cal. 4th 969, 989 (2009)). She also relied on Trotsky and its progeny to support her contention that class members gain standing to appeal by objecting. The Court of Appeal disagreed and ruled that it was bound to follow Eggert, and that neither Trotsky, Consumer Cause, Inc., nor Wershba made any attempt to reconcile their opinions with Eggert.

On appeal to the California Supreme Court, Muller once again argued that she had standing to appeal under Trotsky, and that California law should be updated to mirror Rule 23 and federal appellate practice, which generally permit class member objectors to appeal. The state Supreme Court disagreed, finding that, first, the right to appeal judgments in state civil actions, including class actions, is entirely statutory, and, pursuant to California Code of Civil Procedure section 902 and Eggert, unnamed class members may only become parties of record to class actions by making a timely complaint in intervention before final judgment or by filing a motion to set aside and vacate the class judgment under section 663. Second, Trotsky’s failure to address section 902’s requirements for the right to appeal a settlement, or to distinguish or otherwise reconcile its holding with Eggert, renders the opinion unpersuasive. Third, California state common law, legislation, and procedural rules of court differ significantly from the federal common law and procedural rules, and California’s legislature has chosen to continue Eggert’s rule despite changes in federal class action rules.

In addition to the above rulings, the California Supreme Court also cited several policy reasons for upholding Eggert, including the public policy in favor of discouraging professional objectors: “Meritless objections can disrupt settlements by requiring class counsel to expend resources fighting appeals, and, more importantly, delaying the point at which settlements become final. These . . . professional objectors, are thought to harm the class members whose interests they claim to protect. . . . .  [B]y feeding off the fees earned by class counsel who took the risk of suing defendants on a purely contingent basis, . . . professional objectors create a disincentive for class counsel to take on such risky matters.” Slip op. at 15 (internal citations omitted).

This is the first of the state high court’s opinions to use the term “professional objector,” and its use suggests that the court is now taking proactive measures to curb the abuse of class action procedures by serial objectors, who have been, for too long, exploiting their appellate rights under Trotsky to extort generous side settlements.

Authored by:
Eduardo Santos, Senior Counsel
CAPSTONE LAW APC

In Williams v. Yamaha Motor Co., the Ninth Circuit held that an alleged defect that results in “premature” failure of vehicle component cannot create a safety issue that is “unreasonable” and thus does not trigger a duty to disclose under California’s Unfair Competition Law (“UCL”) and Consumers Legal Remedies Act (“CLRA”)—at least, this is how defendants interpret Williams. No. 15-55924, 851 F.3d 1015 (9th Cir. 2017) (slip op. available here). In Williams, the consumer plaintiffs asserted claims that their Yamaha boat engines contained a design defect that resulted in severe corrosion, which could cause a sudden loss of steering control. In affirming an order granting the motion to dismiss, the Ninth Circuit noted that the liability standard is an “unreasonable safety risk,” not just any safety risk, and that a defect premised on “accelerated timing” of a failure, rather than a “wholly abnormal” condition that a consumer would never expect, cannot give rise to duty to disclose. Id. at 24. Predictably, since Williams issued, defendants in car cases have attempted to leverage Williams to argue that plaintiffs’ defect claims are simply “premature” failures of vehicle components and therefore not actionable.

However, Williams does not support these defendants’ attempts at extending Williams for several reasons. First, in Williams, the plaintiffs admitted that it was “normal and expected” that the boat engines would suffer from some corrosion or wear out at some point. Slip op. at 23. The court noted that the plaintiffs’ “’own characterization of the defect’ was that it “merely accelerated the normal and expected process of corrosion” and absent the defect, there was no allegation that corrosion would not occur.” Id. The panel reasoned that, were it to conclude that plaintiffs’ allegations of premature, but otherwise normal, wear and tear, plausibly establish an unreasonable safety hazard, the court would effectively open the door to claims that all of Yamaha’s motors eventually pose an unreasonable safety hazard. Thus, the first practice tip for plaintiffs is to not allege or acknowledge (or even bring an action) that the claimed defect is “normal or expected” or the result of typical “wear and tear.” Indeed, the crux of a failure to disclose action is that the vehicle component is defectively designed and would not fail prematurely absent the design defect, irrespective of wear and tear.

Second, Williams simply does not apply where plaintiffs properly allege that the vehicle component is defectively designed, as opposed to the acceleration of a normal condition. A consumer class action plaintiff should emphasize that her case is unequivocally not about premature wear, but rather is about an abnormal condition caused by a design defect: car components that otherwise should function properly, but fail specifically due to a defect in their design. Borkman, et al. v. BMW of North Am., LLC is instructive in discerning between an alleged defect based on normal wear and tear, and the Borkman plaintiffs’ contention that the component was defective in design. 2017 WL 4082420 *7 (C.D. Cal. Aug. 28, 2017) (Mr. Borkman was represented by Capstone Law APC). In Borkman, the plaintiffs alleged that certain vehicles contained a “design or manufacturing defect that causes the oil filter housing gaskets to prematurely break.” 2017 WL 4082420 at *1. The gaskets were allegedly defective because they were composed of a material that was “prone to premature wear and deterioration” when exposed to heat. Id. Citing Williams, BMW argued that the allegations were based on normal wear and tear that happened to occur prematurely, and thus the plaintiffs failed to establish a safety risk. Rejecting BMW’s argument, the court distinguished Williams because the plaintiffs alleged that the parts at issue were themselves defective, stating, “[h]ere, plaintiff does not allege that the [defect] merely accelerated the normal and expected process of cracking and breaking gaskets. Rather, plaintiff alleges that the oil filter housing units and its gaskets are defective due to their proximity to engine heat sources . . . .” Id. at 7. In Keegan v. American Honda Motor Co., Inc., decided prior to Williams, the district court made a similar determination, finding that “[w]hile tires must be replaced periodically . . ., [the rear suspension] is neither a maintenance item nor a part whose defect would be open and obvious to the regular driver. Moreover, the mere fact that a tire is a maintenance item does not foreclose the possibility that there are safety concerns with the class vehicles.” 838 F. Supp. 2d 929, 942 (C.D. Cal. 2012).

Third, the Court’s holding in Williams can be avoided entirely where the alleged defect arose during the warranty period. Courts have confirmed that plaintiffs are not required to plead or prove an “unreasonable safety defect” where a defect arises during the warranty period. See Salas v. Toyota Motor Sales, U.S.A., Inc., No. 15-CV-8629, 2016 WL 7486600 *8 (C.D. Cal. Sept. 27, 2016), and Salas v. Toyota Motor Sales, U.S.A., Inc., No. 15-CV-8629, Dkt. No. 81, n.8 (C.D. Cal. Sept. 27, 2017) (finding Williams does not hold that a safety-related defect is required for defects that manifest during the warranty period).

Finally, a California Court of Appeal decision calls into question whether a safety concern is even required at all to trigger a duty to disclose. In Rutledge v. Hewlett-Packard Co., 238 Cal. App. 4th 1164 (2015), as modified on denial of reh’g (Aug. 21, 2015), review denied (Nov. 10, 2015), the court held that a duty to disclose material information exists regardless of a safety concern. The court rejected defendant’s argument that “manufacturers do not have an independent duty to disclose a product defect absent an unreasonable risk of physical injury or other safety concern” and confirmed that a duty to disclose material information exists regardless of a safety concern. Rutledge, 238 Cal. App. 4th at 1173-74. Rutledge explained further that a manufacturer has “a duty to disclose a material defect in it product” where the allegedly defective component “is central and necessary” to the product’s function. Id. at 1174-1175.

Plaintiffs who allege failures to disclose design defects in car cases should bear in mind these pleading tips to avoid the Ninth Circuit’s Williams decision.

Authored By:
Jordan Lurie, Of Counsel
CAPSTONE LAW APC

Late last year, Hon. George H. Wu of the Central District of California granted final approval of a $12 million class action settlement in the action Casas, et al. v. Victoria’s Secret Stores, LLC, et al., No. 2:14-cv-06412 (C.D. Cal., Nov. 21, 2017) (slip op. available here). The settlement came while a decision from the Ninth Circuit Court of Appeals was still pending, regarding whether the plaintiffs’ allegations about Victoria’s Secret’s call-in scheduling policy were sufficient to state a claim for failure to provide reporting time pay. It resolves a more than three-year-long journey of litigation on behalf of a class of nearly 44,000 non-exempt employees in California from July 9, 2010, to August 11, 2017.

Although the settlement releases several other wage-and-hour claims, one of the core claims at issue was the plaintiffs’ allegation that Victoria’s Secret’s call-in scheduling practices violated California law. Specifically, the plaintiffs alleged that the retailer’s policy and practice of requiring its store employees to call in to work two hours before the start of their scheduled shifts to see if they would need to come in resulted in, among other things, a failure to pay minimum wages, applicable overtime wages, and reporting time pay. The plaintiffs further alleged that employees would be disciplined if they did not call when they were scheduled to do so.

At the pleading stage, the district court dismissed the plaintiffs’ reporting time claim based on an analysis of the plain meaning of Wage Order 7-2001’s reporting time requirements and legislative history, finding that Victoria’s Secret’s call-in policy did not violate the Wage Order. The applicable section of the Wage Order provides:

Each workday an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work, the employee shall be paid for half the usual or scheduled day’s work, but in no event for less than two (2) hours not more than four (4) hours, at the employee’s regular rate of pay, which shall not be less that the minimum wage.

Cal. Code Regs., tit. 8, § 11070(5)(A) (emphasis added). The district court had analyzed the meaning of the phrase “report for work and does report” and found that it means to “actually, physically show up at the workplace.” Tentative Order on Defendant’s Motion to Dismissed Plaintiffs’ First Amended Complaint (adopted as final), at 7. However, since Victoria’s Secret’s employees did not have to physically report to work and only had to call-in, the district court determined that the Wage Order did not provide a remedy and dismissed the claim with prejudice, while also noting that the policy was “somewhat unfriendly to employees and disrespects their time.” Id.

After dismissing the reporting time claim, the district court stayed the action to allow the plaintiffs to file an interlocutory appeal of the court’s order. The issue was fully briefed on appeal and, in October 2016, the parties presented oral argument before a Ninth Circuit panel. During oral argument, the panel commented that the issue would be more appropriately decided by the California Supreme Court and suggested that the Ninth Circuit would ultimately decide to certify the question for the California Supreme Court to answer. However, before the Ninth Circuit came to a decision on certification of the issue, the parties settled, leaving the question open for other pending litigation involving call-in scheduling policies.

Authored by:
Brandon Brouillette, Associate
CAPSTONE LAW APC