Posts belonging to Category Caselaw Developments

O’Connor v. Uber: Drivers Win Cert. for Tips Claim

On September 1, 2015, in a 68-page decision, District Court Judge Edward M. Chen of the Northern District of California certified a class of an estimated 160,000 “UberBlack, UberX, and UberSUV drivers who have driven for Uber in . . . California at any time since August 16, 2009,” and who either had not signed an arbitration provision or who had opted out of such a provision. See O’Connor, et al. v. Uber Technologies, Inc., 3:13-cv-03826 (N.D. Cal. Sept. 1, 2015) (slip opinion available here). The court held the class may pursue its claims that Uber misclassified them as independent contractors instead of employees and violated California’s Unfair Competition Law by failing to pass on to its drivers the entire amount of any tip or gratuity, in violation Cal. Labor Code section 351. Excluded from the certified class are Uber drivers who work for third-party intermediaries, those paid under a corporate name, and those who did not opt out of the arbitration provision in Uber’s most recent driver contracts.

In ruling that the working relationship between the drivers and Uber is “sufficiently similar” that their employment status can be adjudicated on a class basis, the district court applied California’s common-law test of employment, enunciated in the seminal case S.G. Borello & Sons, Inc. v. Department of Indus. Relations, 48 Cal. 3d 341 (1989). In applying the Borello test at the summary judgment stage, the court previously determined that because Uber drivers “render service to Uber,” they are presumptive employees as a matter of law. See O’Connor, 2015 WL 1069092, at *4-6, *9 (N.D. Cal. 2015). Therefore, at trial, the burden would fall on Uber to “disprove an employment relationship” by rebutting the plaintiffs’ prima facie showing of employment. Id. at *10.

To rebut the presumption of employment, Uber needed to demonstrate that the multi-factor Borello test weighs in its favor. The principal inquiry under Borello “is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” Alexander v. FedEx Ground Package Sys., 765 F.3d 981, 988 (9th Cir. 2014) (quoting Borello, 48 Cal. 3d at 350). Critically for purposes of class certification, the pertinent question under California’s right-to-control test is “not how much control a hirer [actually] exercises, but how much control the hirer retains the right to exercise.” Ayala v. Antelope Valley Newspapers, Inc., 59 Cal. 4th 522, 533 (2014) (emphases in original). Although retaining control over any one work detail is not dispositive, the “right to discharge at will, without cause,” is “strong evidence in support of an employment relationship.” Borello, 48 Cal.3d at 350; see also Ayala, 59 Cal. 4th at 531. There are also at least eight (8) other “secondary indicia” that may be relevant to the employee/independent contractor determination. Borello, 48 Cal.3d at 351 (discussed in this prior ILJ post). After an exhaustive analysis of the Borello factors, the O’Connor court concluded that, despite variations in contract and length of service, and though drivers could set their own schedules and routes, Uber retained the right to terminate them at will and without cause, to monitor and track their performance, and to set their pay unilaterally, and that all the “secondary indicia” raised common questions that would yield common answers. Slip op. at 32-54. Moreover, given the specific class definition, the court found the predominance requirement satisfied “because there are not significant material legal differences between the claims and defenses of the class members and those of the named Plaintiffs.” Id. at 19.

Arguing that there is “no typical Uber driver,” Uber argued that the plaintiffs failed to satisfy Rule 23(a)(3)’s typicality requirement by focusing on differences between drivers under the Borello test, but the court rejected that argument, finding Uber’s “no typical driver” argument to be “a commonality or predominance argument masquerading as a typicality argument.” Slip op. at 19. Moreover, the court found an “inherent tension” in Uber’s argument. Id. On the one hand, it argued that the drivers’ employment classification could not be adjudicated on a classwide basis because its right of control over drivers and the day-to-day reality of their relationship is not sufficiently uniform to satisfy the class action requirements of Federal Rule of Civil Procedure 23; on the other hand, Uber argued that it had properly (and uniformly) classified every single driver as an independent contractor. The court found Uber’s “no typical driver” argument to be focused on “legally irrelevant differences” between the named plaintiffs and class members, such as whether they received in-person or online training. Slip op. at 19. However, Uber most vigorously argued that the plaintiffs were neither typical nor adequate because of an irreconcilable conflict between the remedy they seek (establishment of an employment relationship) and the interests of “countless drivers” who “do not want to be employees and view Uber as having liberated them from traditional employment.” Slip op. at 24. In support, Uber pointed to 400 declarations, 150 of which actually stated a preference for independent contractor status. The court found the views of these 400 drivers to be “statistically insignificant” (i.e. 0.25% of the class), particularly because there was no evidence that they were randomly selected, or constituted a representative sample of the driver population, or that their responses were “free from the taint of biased questions” from the defendant’s attorneys. Id. Ultimately, the court concluded that because the plaintiffs’ legal claims all arise from essentially the same conduct by Uber underlying the claims of class members and allege that they suffered the same legal injury—i.e., their misclassification as independent contractors—the plaintiffs’ claims were typical of the class. However, the court also denied without prejudice the plaintiffs’ request to certify their expense reimbursement claims which alleged that Uber uniformly failed to reimburse its drivers for their necessary expenses in violation of Labor Code section 2802.

On September 15, 2015, Uber filed a Petition for interlocutory review of the district court’s certification decision under Rule 23(f) with the Ninth Circuit, available here. Uber casts the need for immediate review in dire economic terms, arguing that if the decision is permitted to stand, it will “effectively kill[] the sharing economy business model” on which Uber and other online software platforms operate. Hyperbole aside, if the plaintiffs prevail on the merits of their employment status claim, Uber’s business model will likely be no more, and Uber’s costs would exponentially increase beyond the scope of the damages sought by the plaintiffs in this lawsuit. Accordingly, this case will remain closely watched by both the legal and business communities.

Authored By:
Melissa Grant, Senior Counsel

7th Cir.: Neiman Marcus Data Breach Injuries Sufficient for Article III Standing

Last week, the Seventh Circuit Court of Appeals declined to rehear en banc a panel decision against Neiman Marcus over a credit card data breach, cementing its ruling that plaintiffs have Article III standing to bring a class action for the time and cost spent resolving fraudulent charges and safeguarding their accounts from future fraud. Remijas, et al. v. Neiman Marcus Group, LLC, No. 14‐3122 (7th Cir. Sept. 17, 2015) (order available here). In July 2015, the panel had reversed an Illinois district court’s dismissal for lack of Article III standing, and remanded the case. Remijas, No. 14‐3122 (7th Cir. July 20, 2015) (slip op. available here).

In a consolidated first amended complaint filed in June 2014, the Remijas plaintiffs alleged that their credit card information had been compromised in the 2013-2014 breach of the luxury retailer’s payment systems, which affected approximately 350,000 customers, over 9,000 of whom experienced fraudulent charges. U.S. District Judge James Zagel granted the Neiman Marcus’s motion to dismiss exclusively on Article III standing grounds, finding that because Neiman Marcus had offered a free year of credit monitoring for certain store customers and any unauthorized charges complained of would be reimbursed, the plaintiffs had not suffered “injuries” sufficient to confer standing. The Court of Appeals reversed, reasoning that the prophylactic costs that cardholders might incur, such as a credit or identify theft monitoring subscription and replacement card fees, “easily qualif[y] as . . . concrete injur[ies]” and that there are “identifiable costs associated with the process of sorting things out.” Slip op. at 7, 11.

Citing Clapper v. Amnesty Int’l USA, 133 S. Ct. 1138 (2013), the panel stated, “Customers should not have to wait until hackers commit identity theft or credit-card fraud in order to give the class standing, because there is an ‘objectively reasonable likelihood’ that such an injury will occur.” Slip op. at 9 (internal citations omitted). In Clapper, the Supreme Court held that the possibility of the government intercepting communications with suspected terrorists (under the Foreign Surveillance Act) was insufficient to confer constitutional standing. Distinguishing Clapper, the Remijas court found identity theft to be a foreseeable consequence of a data breach and that plaintiffs have standing to bring claims for the time and expense taken to prevent such fraud, unlike the alleged and speculative harm in Clapper. Id. at 8-11.

On August 3, 2015, Neiman Marcus filed a petition for rehearing en banc, which was summarily denied on September 17, 2015. The denial of the defendant’s petition for rehearing reinforces the holding that data breach victims have Article III standing to sue based on the possibility of future, imminent injuries and loss of time and money spent on preventative measures against such injuries, thus depriving data breach defendants of the oft-asserted standing argument.

Hooks v. Landmark Industries: 5th Cir. Holds Unaccepted Rule 68 Offer Cannot Moot Class Rep’s Claims

Last month, in an opinion authored by Chief Judge Carl Stewart, the Fifth Circuit Court of Appeals ruled that an unaccepted Rule 68 offer, or “pick off” settlement, does not moot a named plaintiff’s individual or class claims. Hooks v. Landmark Industries, Inc., No. 14-20496 (5th Cir. Aug. 12, 2015) (slip opinion available here). The Third, Fourth, Sixth, Seventh, and Tenth Circuits have held that a complete Rule 68 offer moots an individual’s claim, while the Second, Ninth, and Eleventh Circuits have held than an unaccepted offer cannot moot an individual’s claim. Slip op. at 8 (internal citations omitted). Since Justice Elena Kagan’s dissent in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), nearly every circuit has considered this issue. In Genesis, Justice Kagan argued that an unaccepted offer of judgment cannot moot a case.

In January of 2012, the plaintiff in Hooks filed a class action against Landmark, alleging that the defendant operated automated teller machines (“ATMs”) that charged withdrawal fees of $2.95, but failed to post notice of the fee on or at the ATM, as required by the Electronic Fund Transfer Act, 15 U.S.C. § 1693, which provides for statutory damages of $1,000 for each violation. Under the Federal Rules of Civil Procedure 68, the defendant made an offer of judgment to settle the plaintiff’s statutory damages claim for $1,000, plus costs and reasonable attorney fees through the date of acceptance of the offer. Hooks rejected the offer. Landmark then moved to dismiss, and the federal district court granted the motion, finding that the unaccepted offer mooted the plaintiff’s individual and class claims. However, the Court of Appeal reversed the dismissal, cautioning the lower court’s ruling “would serve to allow defendants to unilaterally moot named-plaintiffs’ claims in the class action context—even though the plaintiff, having turned the offer down, would receive no actual relief.” Slip op. at 9. Citing Genesis, the panel stated that they found the reasoning of the Ninth and Eleventh Circuits (both post-Genesis rulings) more persuasive and held that an unaccepted Rule 68 offer to a representative in a class action is a “legal nullity, with no operative effect.” Id. at 8 (internal citations omitted).

Though the Fifth Circuit acknowledged that the United States Supreme Court will be considering the exact issue in Gomez v. Campbell-Ewald Co., 768 F.3d 971 (9th Cir. 2014), cert. granted, 135 S. Ct. 2311 (2015), the panel stated that “[t]he parties have not requested a stay pending the outcome of that case, and due to uncertainty of timing and nature of resolution, we ordinarily do not wait in such situations.” Slip op. at 7, n6. Gomez, a class action case involving unsolicited text messages in violation of the Telephone Consumer Protection Act, is set for oral argument before the Supreme Court on October 14, 2015.

Yocupicio v. PAE: PAGA Actions Are Not Class Actions under CAFA, 9th Cir. Holds

In a recent opinion, the Ninth Circuit Court of Appeals underscored the distinction between class actions and representative claims brought under the California Private Attorneys General Act (“PAGA”), holding that PAGA claims cannot be aggregated with class claims in order to obtain jurisdiction under the Class Action Fairness Act of 2005 (“CAFA”). Yocupicio v. PAE Group, LLC, No. 15-55878 (9th Cir. July 30, 2015) (slip op. available here). CAFA provides for federal jurisdiction over class actions where the amount in controversy exceeds $5 million. Prior to a line of cases including Yocupicio, Baumann v. Chase Inv. Servs. Corp., 747 F.3d 1117 (9th Cir. 2014), and Urbino v. Orkin Servs. of Cal., Inc., 726 F.3d 1118 (9th Cir. 2013), federal district courts had generally aggregated the claims of individual class members, including any relief sought for non-class claims (such as PAGA claims), in order to determine whether the jurisdictional threshold was met.

In her complaint, Plaintiff Yocupicio alleged multiple violations of the California Labor Code against her employer, PAE Group, on behalf of herself and a putative class of other employees, along with a representative claim under PAGA. PAE removed the case to federal court, alleging that the amount in controversy exceeded CAFA’s $5 million threshold. The defendant reached this calculation by combining class claims valued at $1.6 million with a $3.25 million PAGA claim and adding reasonable attorney’s fees. The district court denied the plaintiff’s motion to remand.

The Ninth Circuit reversed the district court’s decision and remanded, finding that the lower court had failed to properly consider CAFA’s legislative history, which clearly distinguishes between class actions and other representative actions. According to the panel, CAFA’s focus on “class actions” shows that Congress did not intend to grant jurisdiction over all representative actions; thus, the panel held that the statute grants federal jurisdiction only when the class claims alone meet the $5 million threshold. Slip op. at 7-8. In addition, the court held that the class claims could not be brought in federal court under supplemental jurisdiction since there was no independent complete diversity of citizenship with respect to the PAGA claim.

The crux of this opinion is succinctly summarized in a footnote, which points out the common mischaracterization of representative actions as being the same as class actions for all intents and purposes: “No doubt all class claims are representative in nature. However, not all representative claims are class claims; to say that they are would be a logical fallacy.” Slip op. at 6 n.6, citing Washington v. Chimei Innolux Corp., 659 F. 3d 842, 848 (9th Cir. 2011).

Authored By:
Rebecca Labat, Partner