Posts belonging to Category Caselaw Developments

In early 2018, the Ninth Circuit dropped a live grenade into the already-besieged class action bar by issuing In re Hyundai and Kia Fuel Economy Litigation, 881 F.3d 679 (9th Cir. 2018) (slip op. available here) (“Hyundai”). In Hyundai, a divided panel, over Judge Nguyen’s strong dissent, threatened to obliterate nationwide class actions in the Ninth Circuit. Inventing a new predominance requirement not found anywhere in Rule 23, the Hyundai majority held that a district court may certify a nationwide class alleging violations of California law only after “apply[ing] the California governmental interest test.” Slip op. at 49. Under this test, if there are material differences in the 50 states’ consumer protection laws, then predominance is not satisfied. Id. at 50. In practice, Hyundai erected a near-insurmountable obstacle for nationwide class action settlement, as state consumer protection laws invariably differ.

Thankfully, the impending class action apocalypse has been put on hold. On July 27, 2018, the en banc court of the Ninth Circuit granted the parties’ petition for rehearing, rendering the panel decision non-precedential. Rehearing in the en banc court took place on September 27, 2018, and comes after public interest organizations, pro-business groups, and academics joined forces, forming a formidable alliance to advocate for en banc review.* As set forth in the amicus briefs and the settling parties’ petitions, the Hyundai panel flouted decades of Ninth Circuit authority, including the seminal Hanlon v. Chrysler Corp., 150 F.3d 1011 (9th Cir. 1998), which has guided lower courts on settlement approval and did not require a conflict-of-law test to satisfy predominance. Hyundai’s reasoning was also directly at odds with the influential Third Circuit en banc decision Sullivan v. DB Investments, Inc., 667 F.3d 273, 308 (3d Cir. 2011), which held that state law variations do not matter for settlements since no trial will commence.

The amici also warn that, if nationwide settlements can no longer be certified, not only will consumers be disempowered, but defendants would be unable to get their peace. Instead, defendants will be forced to defend suits in piecemeal fashion, perhaps a suit in every state. This defeats the purpose of the class device—efficiency—by multiplying litigation involving the same products and similar claims.

Although the order granting rehearing is obviously good news for the settling parties and consumers, reversal is not certain, partly due to the unusual nature of the Ninth Circuit en banc practice. While the full en banc court votes on whether to rehear the matter, the rehearing itself is handled by the Chief Judge and ten non-recused active judges who are randomly drawn. Depending on the makeup of the en banc court, the Hyundai panel decision may yet be affirmed. However, close observers expect that the en banc court will curtail, if not completely reverse, the panel’s broad holding. One possibility is that the en banc court will adopt the reasoning of Sullivan and hold that state law variations are not relevant to settlements, which would be a clear win for consumers. But, the en banc court could also hold that state law variations can only be a basis for denying approval of class action settlements if raised by an objector (and variations in state law were not raised by objectors in this case), which would be a Pyrrhic victory, benefiting professional objectors and no one else. Whatever the result, both consumers and businesses hope that the en banc court will ultimately limit the damage caused by the heedless panel decision.

*Capstone Law APC, working with Glancy Prongay and Murray LLP, submitted an amicus brief supporting rehearing en banc in this case on behalf of retired District Judge Stephen G. Larson and Professor David Rosenberg of Harvard Law School. The author of this post was the primary author of that amicus brief.

Authored By:
Ryan Wu, Partner
CAPSTONE LAW APC

On May 22, 2018, a California appellate court rejected an “injury” requirement to secure Labor Code Private Attorneys General Act (“PAGA”) civil penalties for defective wage statements under Labor Code section 226(a). See Raines v. Coastal Pac. Food Distribs., Inc., No. C083117 (3d District, May 22, 2018) (slip op. available here). This follows and reinforces a sister court’s holding in Lopez v. Friant & Assocs., LLC, 15 Cal. App. 5th 773 (2017), previously reported on this blog here. When a wage statement claim is a predicate to a PAGA violation, the “knowing and intentional” standard or the injury requirement of section 226(e) does not apply. Thus, under both Raines and Lopez, wage statement claims under PAGA are effectively governed by a strict liability standard.

Among other claims relating to her employment, the plaintiff in Raines sought statutory penalties under section 226(e) for the failure to include the overtime hourly rate of pay on wage statements as required by section 226(a), as well as claims for civil penalties under PAGA predicated on the violation of section 226(a). The court ruled at trial that “a reasonable person could determine the overtime hourly rate from the wage statement; consequently, there was no injury.” Slip op. at 5. Thus, the section 226(e) claim was extinguished. Further, the trial court ruled that the PAGA wage statement claim was also extinguished because it found that injury was also necessary for the PAGA claim.

The appellate court agreed with the trial court’s disposition of the section 226(e) claim, because section 226(e) indeed requires injury, and the missing overtime rate “can be ‘promptly and easily’ determined by simple arithmetic” leading to no injury. Slip op. at 10. However, the issue of whether a PAGA claim for a section 226(a) violation required injury yielded a different outcome. Relying primarily on Lopez v. Friant and the federal authorities and reasoning it provided, the appellate court in Raines agreed that “the requirements for a section 226(e) claim do not apply to a PAGA claim for a violation of section 226(a).” Id. at 14. The Raines court observed that “PAGA is concerned with collecting civil penalties for the violation of section 226(a), not the damages or statutory penalties provided for in section 226(e).” Id. And in this regard, the appellate court saw no difference between the injury requirement of section 226(e) or any of its other requirements. The court also emphasized that PAGA’s civil penalties remedy is intended to “punish the wrongdoer and to deter future misconduct” (id. at 16, citing People v. First Federal Credit Corp., 104 Cal. App. 4th 721, 732 (2002)), rather than to compensate for injury. Accordingly, the appellate court reversed the judgment as to the PAGA wage statement claim.

Raines and Lopez together affirm that a facial violation of section 226(a) is the only requirement for liability under PAGA, and that knowledge, intent, and injury are relegated to section 226(e) claims. This continues the judicial trend of reaffirming the law enforcement objective of PAGA, focusing the inquiry on whether the employer violated the law rather than exploring to what extent an employee is harmed by the unlawful conduct.

Authored by:
Jonathan Lee, Associate
CAPSTONE LAW APC

For years, employers and employees have disagreed on the scope of California’s Private Attorneys General Act of 2004 (“PAGA”). One hotly-disputed issue is whether the named representative plaintiff needs to have experienced the exact Labor Code violation for which she is pursuing a PAGA claim on behalf of the state and other aggrieved employees. The disagreement turns on the aggrieved employee’s standing, defined under the PAGA statute as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.” Cal. Lab. Code § 2699(c). Employees construed the “one or more” language to mean that a plaintiff “need not have suffered all PAGA violations for which she seeks to pursue civil penalties” in order to seek civil penalties for those violations under PAGA. Jeske v. Maxim Healthcare Services, Inc., 2012 WL 78242, *13 (E.D. Cal. Jan. 10, 2012). Employers, on the other hand, interpreted the “one or more” language as an acknowledgement that PAGA penalties may be recovered based on more than one type of Labor Code violation, but that plaintiffs “have no standing to bring a PAGA claim” if they did not personally experience the Labor Code violations at issue. Wassink v. Affiliated Computers Services, Inc., 2011 WL 13977358, *3 (C.D. Cal. Dec. 21, 2011). In other words, employers read a Rule 23 “typicality” requirement into PAGA.

On May 23, 2018, the California Court of Appeal, Sixth District, resolved the dispute. In Huff v. Securitas Security Servs. USA, Inc., No. H042852, 233 Cal. Rptr. 3d 502 (2018) (slip op. available here), the Court of Appeal analyzed the plain language of the PAGA statute and the legislative intent underlying PAGA. Id. at 6-16. The court reasoned that the defendant’s “proposition that PAGA allows an employee to pursue penalties only for the type of violation he or she has suffered is directly at odds with the provision that an action may be brought by an employee against whom ‘one or more’ of the alleged violations was committed.” Id. at 7-8. “Had the Legislature intended to limit the recovery of a PAGA plaintiff suing in a representative capacity to only the penalties for employees affected by the same Labor Code violation as the plaintiff, it would have said so in the statute.” Id. at 8.

Unlike the typicality requirements of a class action, “it would be arbitrary to limit the plaintiff’s pursuit of [PAGA] penalties to only those Labor Code violations that affected him or her personally.” Slip op. at 10. Thus, the court’s decision in Huff follows California Supreme Court authority holding that PAGA actions have no typicality requirements, whether an employer argues that a plaintiff be typical of other aggrieved employees in terms of violations committed or typical in terms of job duties assigned. Arias v. Superior Court, 46 Cal.4th 969, 980-81 (2009); accord Baumann v. Chase Invest. Servs., 747 F.3d 1117, 1023 (9th Cir. 2014) (“PAGA contains no requirements of numerosity, commonality, or typicality”).

More importantly, however, the well-reasoned Huff decision is directly in line with the legislature’s purpose in enacting PAGA. PAGA was enacted to solve the problem of inadequate state enforcement resources by allowing private citizens to pursue violations and seek penalties on behalf of the state. Arias, 46 Cal.4th at 980-981; see Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489, 501 (2011) (“The purpose of the PAGA is not to recover damages or restitution, but to create a means of “deputizing” citizens as private attorneys general to enforce the Labor Code.”). Allowing a plaintiff to enforce Labor Code violations committed by employers against their employees, even when all of those violations may not have been personally suffered by the plaintiff, supports PAGA’s purpose as a law enforcement action designed to protect the public and penalize the employer for past illegal conduct. Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal.4th 348, 381 (2014).

Huff resolves a dispute that has vexed trial courts. With the California Supreme Court having recently denied review, Huff will govern this standing issue for PAGA cases going forward, ensuring that an aggrieved employee’s duty to serve as a labor law enforcer is not stymied by onerous requirements manufactured by employers.

Authored By:
Bevin Allen Pike, Senior Counsel
CAPSTONE LAW APC

On May 3, 2018, the Ninth Circuit Court of Appeals issued its ruling in Sali, et al. v. Corona Regional Medical Center, et al., 889 F.3d 623, 629 (9th Cir. 2018) (slip op. available here), a wage-and-hour class action, reversing the district court’s denial of class certification on several grounds. The Ninth Circuit found that the plaintiffs’ evidence of typicality, while not admissible at trial, should be considered for the purposes of class certification. Significantly, in reversing the denial of class certification, the panel found that the district court erred in interpreting compensable time as limited to time spent actually working. The ruling reaffirms that compensable time is both the time when an employee is under the control of the employer, regardless of whether or not the employee is engaged in work activities, as well as the time when an employee is “suffered or permitted to work, whether or not required to do so.” Slip op. at 24 (quoting Morillion v. Royal Packing Co., 22 Cal.4th 575 (2000)).

In Corona, the plaintiffs alleged that the employer failed to fully compensate a putative class of registered nurses (RNs) due to an electronic timekeeping system that did not account for their starting early and failed to pay their statutory time-and-a-half for overtime. Under Corona’s timekeeping system, a clock-in at seven minutes before or after the hour would round to the hour. But a clock-in at eight minutes or more before the hour would round back to the prior quarter hour, while those made eight minutes or more after the hour are rounded forward to the next quarter hour. The district court initially denied certification as to the plaintiffs’ rounding claim, finding that “time records are not a reliable indicator of the time RNs actually spent working because RNs frequently clock in for work and perform non-compensable activities, such as waiting in the break room, getting coffee, or chatting with their co-workers, until the start of their scheduled shift.” Slip op. at 23. The district court also rejected, on evidentiary grounds, that the plaintiffs had demonstrated typicality. Slip op. at 10. The plaintiffs appealed the district court’s denial of class certification.

The Ninth Circuit reversed the lower court’s denial of certification on several grounds, finding that the district court misapplied California’s definition of “work” because it did not decide whether Corona controlled workers after they had clocked in. Under California law, employees must be compensated for all time under the employer’s control, whether the employee is actually required to work or not. Morillion, 22 Cal.4th at 578 (quoting Cal. Code Regs., tit. 8, § 11140, subd. 2(G)). The panel found that the district court erred in suggesting that “‘non-compensable activities, such as waiting in the break room, getting coffee, or chatting with their co-workers’ are categorically not time ‘actually worked . . . ’,” meaning that this was not “time spent engaging in work activities.” Slip op. at 24. This misapplies California law. The Ninth Circuit further elaborated that that the question of whether the rounding policy was unfair required a focus on the company’s policies and practices, and whether they “restricted RNs in a manner that amounted to employer control during the period between their clock-in and clock-out times and the rounded shift-start and shift-end times,” an issue that the district court failed to consider. Id. at 26.

The Sali panel also found it to be an abuse of discretion for a district court to limit its analysis of whether class plaintiffs satisfied a Rule 23 requirement “to a determination of whether Plaintiffs’ evidence on that point was admissible.” Slip op. at 14 (quoting Ellis v. Costco Wholesale Corp., 657 F.3d 970, 982 (9th Cir. 2011)). Specifically, Sali found that the lower court committed reversible error by striking the class counsel’s paralegal’s declaration regarding Corona’s time-rounding to demonstrate the plaintiffs’ injuries, because courts cannot be limited to only evidence which is admissible at trial when deciding whether to certify a class: “Limiting class-certification stage proof to admissible evidence risks terminating actions before a putative class may gather crucial admissible evidence . . . [a]nd transforming a preliminary stage into an evidentiary shooting match inhibits an early determination of the best manner to conduct the action.” Slip op. at 13-14. Thus, inadmissibility alone is not a proper basis to reject evidence submitted in support of class certification.

Corona will be helpful for potential employee-plaintiffs because they are not restricted to presenting admissible evidence in support of their class certification motions. Further, the Ninth Circuit affirmed Morillion’s broad definition of compensable time as time when an employee is actually working or under the control of his or her employer.

Authored by:
Jordan Carlson, Associate
CAPSTONE LAW APC