Posts belonging to Category Caselaw Developments

California Central District Judge James V. Selna has granted certification of a nationwide class alleging violations of California’s consumer-protection statutes in connection with prepaid telephone calling cards.  See Galvan v. KDI Distribution, Inc., No. 08-cv-0999 (C.D. Cal. Oct. 25, 2011) (order granting class certification motion) (available here).  The plaintiff alleges that the defendant misrepresented the total number of calling minutes consumers would receive with the purchase of the defendant’s prepaid calling cards.  Id. at 2.

The detailed and closely reasoned decision is notable in several respects, foremost the application of California law to the nationwide class.  See id. at 19-20.  The court reasoned that because California law is not in conflict with the laws of other states where KDI operates (at least as it pertains to the issues presented in this case), and KDI’s primary place of business is in California, California law would be most appropriate to apply to the class.  Id. at 20.  

The court also rejected the defendant’s argument that individualized showings of reliance precluded class certification by rendering individual issues of law and fact predominant.  See id. at 15.  The court thus reinforced the trend among trial and appellate courts to find a presumption of reliance as to absent class members in cases where, as here, the basis of the class’s claims is false advertising and misrepresentations made by the defendant, and the alleged misrepresentations are material.  

Finally, the court substantially credited the plaintiff’s proposed trial plan.  Id. at 17.  The plaintiff proposes to establish class-wide liability through a combination of documents already produced by the defendant, legal and economic expert testimony, and “limited individual inquiries” to establish damages and proper measures of restitution.  Id. 

The Ninth Circuit recently held that proof of the materiality of misrepresentations alleged in a securities fraud class action is not a prerequisite to class certification. Connecticut Retirement Plans and Trust Funds v. Amgen Inc., No. 09-56965, 2011 U.S. App. LEXIS 22540, *15-16 (9th Cir. Nov. 8, 2011) (citing, inter alia, Erica P. John Fund v. Halliburton, 131 S. Ct. 2179 (2011)) (available here). Rather, the court found that materiality is to be resolved during the post-certification “merits” phase, stating,  “[a]s for the element of materiality, the plaintiff must plausibly allege—but need not prove at this juncture—that the claimed misrepresentations were material. Proof of materiality . . . is a merits issue that abides the trial or motion for summary judgment.” Id. at *3.

The John Fund and Connecticut Retirement decisions are likely to have implications beyond their immediate application to securities cases. There is an increasing trend toward a presumption of reliance in consumer class actions, akin to the reliance presumption that has been adopted in securities class action jurisprudence since the landmark decision in Basic v. Levinson, 108 S. Ct. 978 (1988). Current consumer class action decisions closely resemble the case law leading to Basic v. Levinson. See generally Wolph v. Acer, 272 F.R.D. 477 (N.D. Cal. Mar. 25, 2011) (class-wide reliance presumed from showing that misrepresentation is material); Fitzpartick v. General Mills, No. 10-11064, 2011 U.S. App. LEXIS 6047 (11th Cir. Mar. 25, 2011) (same); Cole v. Asurion Corp., 267 F.R.D. 322 (C.D. Cal. 2010) (same). As the doctrine of presumed reliance in consumer class actions evolves and matures, therefore, it is reasonable to expect that courts will also adopt the view that proof of materiality is a post-certification, merits determination.

In another decision suggesting that reports of the death of class actions are greatly exaggerated, California’s Court of Appeal has affirmed a trial court order striking down an arbitration clause that included a class action waiver in Sanchez v. Valencia Holding Co., ___ Cal. App. 4th ___ (2011) (available here).

 Although the Court of Appeal upheld the trial court’s decision, it did so on different grounds, underscoring the continued vitality of California’s unconscionability doctrine.  In Sanchez, a consumer class action, the defendant car dealer moved to compel arbitration pursuant to an arbitration clause embedded in the sales agreement between the plaintiff and the defendant.  Slip op. at 1.  The arbitration clause included a class action waiver and a “poison pill” provision, whereby the entire arbitration clause would be held unenforceable if the class action waiver were found unenforceable.  Id. at 7.  The trial court determined that the class action waiver was unenforceable on the ground that a consumer is statutorily entitled to maintain a CLRA suit as a class action, pursuant to California Civil Code section 1781.  Id.  On that basis, the trial court invalidated the entire arbitration clause, consistent with the sales contract’s severance provision.  Id.  The Court of Appeal reached the same ultimate conclusion as the trial court—that the arbitration clause is unenforceable—but based its decision on the unconscionability doctrine, rather than on the sales contract’s severance provision.

The Court of Appeal noted that while the U.S. Supreme Court’s opinion in AT&T v. Concepcion decried the Discover Bank rule and its attendant unconscionability analysis with regard to class action waivers, the U.S. Supreme Court left untouched California’s general unconscionability doctrine, which may still be employed to invalidate arbitration clauses in their totality.  See id. at 11-12.  The court found Concepcion to be inapplicable to situations where an entire arbitration provision is at issue, rather than merely “a class action waiver or a judicially imposed procedure that conflicts with the arbitration provision and the purposes of the Federal Arbitration Act (FAA) (9 U.S.C. §§ 1–16).”  Id. at 12.  

On November 8, 2011, more than three years after granting review, the California Supreme Court heard oral argument in Brinker v. Super. Ct., 80 Cal. Rptr. 3d 781 (Cal. Ct. App. 2008), rev. granted, 196 P.3d 216 (Cal. Oct. 22, 2008) (No. S166350).  Chiefly at issue is Brinker’s holding that employers “need only provide and not ensure [that meal breaks] are taken.”  Id. at 31.  The hearing also covered rest break issues implicated by Brinkley v. Pub. Storage, Inc., 84 Cal. Rptr. 3d 873, 883 (Cal. Ct. App. 2008), rev. granted, 198 P.3d 1087 (Cal. Jan. 14, 2009) (No. S168806) (“California law does not require an employer to ensure that employees take rest periods.  An employer need only make rest periods available.”).  Video of the oral argument is available at http://www.californiawagelaw.com/wage_law/2011/11/brinker-oral-argument-video.html. 

On the pivotal issue—the interpretation of “provide” and “providing” as used in Labor Code sections 226.7(a) and 512(a)—the justices’ questioning suggested a more formalistic analysis than that seen in previous wage and hour decisions.  Justice Joyce Kennard began the proceedings by asking about whether Sections 226.7 and 512 are “in harmony” with the meal and rest break provisions in California’s IWC Wage Orders.  Chief Justice Tani Cantil-Sakauye, in her first major wage and hour case, then asked her own follow-up questions.  Justice Goodwin Liu, also new to the court, focused his questions on practical matters, asking whether an employee can simply choose to work through a break.

Kimberly Kraweloc, counsel for the real party in interest and the plaintiff at the trial court, responded unequivocally: employers must affirmatively ensure that breaks are taken.  Justice Baxter then asked whether an employer must still pay the premium provided for by Section 226.7(b) when an employee disregards the employer’s instructions and works through a break, to which Kraweloc responded in the affirmative.  As to whether employers can reasonably be expected to implement systems that reliably ensure that all employees take breaks, Kraweloc persuasively argued that, insofar as employers have demonstrated adeptness at otherwise controlling employees’ work schedules, notably in avoiding overtime, it is reasonable to expect that they can do the same as to meal and rest breaks.  Finally, in response to Justice Baxter’s question concerning whether the ruling in Brinker would be applied retroactively, Ms. Kraweloc’s co-counsel, Michael Rubin, responded that the decision would have retroactive effect, pursuant to controlling United States Supreme Court authority.

The Supreme Court must issue its decision within 90 days after the oral argument.