Articles from April 2021

The unpublished opinion in Melissa Magana v. Zara USA, Inc. (9th Cir. Feb. 2, 2021) (“Magana”) (slip op. available here), highlights a notable concern when bringing an action under the Private Attorneys General Act (“PAGA”). If the PAGA representative was an unnamed class member in a prior wage-and-hour class action that settled, is he or she barred from maintaining a later action under PAGA?

In Magana, the plaintiff filed a lawsuit seeking PAGA penalties based on suitable seating violations under the California Labor Code. The defendant Zara moved to dismiss. The district court held that the PAGA action was not contractually barred by the terms of the prior settlement, but was barred under the doctrine of claim preclusion. The Ninth Circuit reversed.

On the first issue, the defendant argued that the plaintiff’s PAGA action based on suitable seating violations was barred because the settlement agreement defined “PAGA Settlement Amount” as constituting “full satisfaction of all claims for PAGA civil penalties under the California Labor Code, Wage Orders, regulations, and/or other provisions of law alleged to have been violated with respect to the settlement class.” Slip op. at 2-3. The majority of the court disagreed. The Release of Claims in the prior action applied only to “claims for relief based on the facts alleged in [the complaint].” Id. at 3. Those claims included unpaid overtime, unpaid minimum wages, noncompliant wage statements, failure to provide meal and rest breaks, and the untimely payment of wages in violation of the California Labor Code, as well as a derivative claim for PAGA penalties. However, the complaint did not allege any facts relating to seating. Id. at 4.

The panel’s conclusion was not unanimous. Justice VanDyke argued in a dissent that the prior release did bar the later action because the “all claims for PAGA civil penalties” language in the definition of the PAGA Settlement Amount “is pretty clear,” while the “based on facts alleged” language of the Release of Claims is ambiguous. Slip op., VanDyke, J., dissenting at 1-2. The dissenting justice concluded, “I would not use an ambiguous phrase to limit a clear one.” Id.

On the second issue, the majority of the court held that claim preclusion did not apply to bar the plaintiff’s suitable seating claim because the “primary rights” at issue in the earlier action did not implicate the same primary rights as the plaintiff’s suitable seating claim. Slip op. at 5. The justices reasoned that it makes sense to draw a distinction between wage-related claims such as those in the earlier action, and non-wage claims such as Magana’s suitable seating claim. Id. at 6. The court stated that the harm at the center of the earlier case was “nonpayment of wages,” while “the harm of a suitable seating violation is much more abstract and cannot be redressed via the payment of wages.” Id. at 9. However, the court’s reasoning in this unpublished case is not unequivocal. It stated, “[w]e recognize that the resolution of the primary-rights question ultimately boils down to a question of framing: does the suitable seating claim narrowly implicate the right to seating, or does it implicate a broader right to a minimum guaranteed standard of labor?” Id. at 6.

Magana underscores that California citizens who plan to file actions under PAGA need to take care if they were class members in a prior class action against the employer that has settled. Even if the prior class action involved facially different Labor Code violations, broad language in a settlement agreement, or similar “primary rights,” could bar a subsequent PAGA action.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

Shortly after the outbreak of the COVID-19 pandemic last year, some consumers sued airlines for refusing to refund the money they spent on flights that their airlines did not provide. We had reported on some of these cases, including Bombin v. Southwest Airlines Co., No. 20-01883 (E.D. Penn., filed April 13, 2020) (“Bombin”), and Levey v. Concesionaria Vuela Compania de Aviacion SAPI de CV et al., No. 20- 02215 (N.D. Ill., filed May 8, 2020) (“Levey”). A year later, we have decided to check in on the progress of these airline refund cases.

Bombin is a typical example; in Bombin, the plaintiffs booked flights to Cuba and Arizona. The flight to Cuba was cancelled and the flight to Arizona was rescheduled three times. Both of the plaintiffs sought refunds from Southwest, and were denied. Instead, Southwest offered the plaintiffs travel credits toward future flights in lieu of refunds. The plaintiffs then filed a class action against Southwest alleging breach of contract.

The Bombin plaintiffs’ breach of contract class action recently survived a motion to dismiss. Bombin v. Southwest Airlines Co., No. 20-01883 (E.D. Penn. March 29, 2021) (slip op. available here). In its motion, Southwest argued that the claim should be dismissed because its Contract of Carriage is unambiguous and vests Southwestern with discretion to issue fare credits instead of refunds. Id. at 10. The plaintiffs argued that the Contract of Carriage is ambiguous, stating that it can reasonably be interpreted to provide customers with the right to choose a refund. The court agreed with the plaintiffs. Acknowledging “the labyrinthine nature of the Contract of Carriage,” the district court held that the plaintiffs plausibly alleged a breach of contract claim under the unclear contract because “Southwest failed to give Plaintiffs the option of a refund.” Id. at 10, 13.

The Bombin court also rejected Southwest’s argument that the plaintiffs’ breach of contract claim is preempted by the Airline Deregulation Act (“ADA”). Id. at 13. The ADA “stops States from imposing their own substantive standards with respect to rates, routes, or services, but not from affording relief to a party who claims and proves that an airline dishonored a term the airline itself stipulated.” Am. Airlines v. Wolens, 513 U.S. 219, 232-233, 115 S.Ct. 817, 130 L.Ed.2d 715 (1995). Because the plaintiffs’ claim is based on Southwest’s alleged breach of its own Contract of Carriage (i.e., “a term the airline itself stipulated”), the court held that Southwest’s preemption argument fails under Wolens.

Other courts have reached similar conclusions. In Levey, the plaintiff alleged the airline canceled flights amid the pandemic and refused to refund travelers or let them rebook their flights without penalty. The airline moved to dismiss, arguing (among other things) that it did not breach its Contract of Carriage and that the plaintiff’s claims are preempted by the ADA. As in Bombin, the district court declined to dismiss the breach of contract claim at the pleading stage, holding that it is plausible that the plaintiff was entitled to a prompt refund of her airfare under the terms of the Contract of Carriage. Levey v. Concesionaria Vuela Compania de Aviacion SAPI de CV, et al., No. 20- 02215 (N.D. Ill., March 29, 2021), at 12. The court also rejected the airline’s preemption argument, citing the “Wolens exception” to ADA preemption, discussed in Bombin. Id. at 7.

In another case filed after the onset of the pandemic, the plaintiffs alleged that British Airways breached its Contract of Carriage by failing to provide them with refunds after their flights were cancelled. Ide, et al. v. British Airways, PLC, No. 20-3542 (S.D.N.Y., March 26, 2021) at 1 (slip op. available here). First, the plaintiffs alleged that the airline offered them travel vouchers instead of refunds to which they are entitled under the contract. Second, the plaintiffs alleged that British Airways actually frustrated their attempts to obtain refunds: “[B]y removing refund claim forms from its website and channeling their refund requests through overburdened and inadequate call centers, British Airways frustrated their ability to secure refunds.” Id. at 13-14. British Airways moved to dismiss. The district court found that the plaintiffs plausibly alleged breaches of contract on both theories. Also, as in the other cases, the court rejected the airline’s preemption argument based on the “Wolens exception.” Id. at 14-15.

One year since March 2020, these airline refund cases have set the course. They have generally been successful in alleging breaches of the airlines’ Contract of Carriage and evaded preemption under the ADA based on the Wolen exception. We will check in with them again when there are further developments.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

In McGill v. Citibank, N.A., 2 Cal.5th 945 (2017), the California Supreme Court held that under California law, a provision in any contract purporting to waive a party’s right to seek public injunctive relief in any forum is contrary to public policy and unenforceable. Id. at 952. The legal requirement that contracts must allow public injunctive relief is known as the McGill rule. DiCarlo v. MoneyLion, Inc., 9th Cir. Feb. 19, 2021 (“DiCarlo”). Slip op. at 6 (available here). The McGill rule has provided consumer plaintiffs with a stalwart defense against being compelled to arbitration. In DiCarlo, the Ninth Circuit held that an arbitration agreement that allows a litigant “all remedies” available in an individual lawsuit does not violate the rule.

In DiCarlo, the defendant operated a smartphone app that provided financial services to its customers. The services included a product called the MoneyLion Plus program, which offered a credit-builder loan. The plaintiff joined the program and signed a membership agreement, but fell behind on her fees and loan payments. Unable to cancel her membership without paying off the loan, the plaintiff filed a putative class action under California’s Unfair Competition Law (“UCL”), False Advertising Law (“FAL”), and Consumers Legal Remedies Act (“CLRA”). Slip op. at 3-4.

The defendant moved to compel the plaintiff’s claims to arbitration under an arbitration provision contained in the membership agreement. DiCarlo opposed the motion based on the McGill rule, arguing that the provision violated California law by prohibiting public injunctive relief. Slip op. at 5. The defendant argued that its arbitration provision, in fact, allowed public injunctive relief. Id. The Ninth Circuit agreed.

The defendant’s arbitration provision “‘authorize[s] the arbitrator to ‘award all [injunctive] remedies available in an individual lawsuit under [California] law.’” Slip. op. at 7. McGill has made clear that a litigant can seek public injunctive relief in an individual lawsuit under the UCL and FAL. Id. at 14 (citing McGill, 2 Cal.5th at 959). Public injunctive relief is typically available in consumer arbitrations, according to the Ninth Circuit. Id. (citing Blair v. Rent-A-Ctr., Inc., 928 F.3d 819, 829 (9th Cir. 2019)). Thus, the court of appeals concluded, the “all remedies” clause in the arbitration provision allowed the plaintiff to seek public injunctive relief in arbitration. Furthermore, the Ninth Circuit held that a plaintiff need not act as a private attorney general or represent others in order to obtain a public injunction.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC