Posts belonging to Category Caselaw Developments

In Pitts v. Terrible Herbst, a Ninth Circuit panel has taken up the familiar circumstance whereby a defendant offers a “pick-off” settlement to the named plaintiff before a class certification motion has been filed.  The court held that “an unaccepted . . . offer of judgment that fully satisfies a named plaintiff’s individual claim before the named plaintiff files a motion for class certification . . . does not moot the case.”  Pitts v. Terrible Herbst, Inc., No. 10-15965, 2011 U.S. App. LEXIS 16368, at *36 (9th Cir. Aug. 9, 2011) (available here).

This action arose in Nevada state court, where the plaintiff filed a class action complaint against his employer, Terrible Herbst (a prominent Las Vegas-area convenience store), for unpaid overtime and minimum wage violations under the federal Fair Labor Standards Act (FLSA), as well as Nevada workplace-protection statutes and breach of contract.  While a motion to compel production of the prospective class members’ names and contact information was pending, Terrible Herbst made a settlement offer to Pitts, offering to pay him $900 plus reasonable attorney fees and costs, when Pitts had alleged his own damages to be only $88.

Terrible Herbst then moved to dismiss the action for lack of subject matter jurisdiction, arguing that since its offer would have “fully compensated Pitts for his individual monetary claim,” the offer had therefore “rendered the entire case moot.”  Id. at *3.  The district court rejected the defendant’s theory that the settlement offer had mooted the class action, and the Ninth Circuit agreed.

The question before the Ninth Circuit was essentially “whether a putative class action becomes moot when the named plaintiff receives an offer of settlement that fully satisfies his individual claim before he files a motion for class certification.”  Id. at *17.  With considerable reference to and reliance on the two leading Supreme Court cases—Deposit Guaranty Nat’l Bank v. Roper, 445 U.S. 326 (1980) and United States Parole Comm’n v. Geraghty, 445 U.S. 388 (1980)—the panel struck a pragmatic note concerning class actions:

Where the class claims are so economically insignificant that no single plaintiff can afford to maintain the lawsuit on his own, Rule 23 affords the plaintiffs a “realistic day in court” by allowing them to pool their claims. . . . A rule allowing a class action to become moot “simply because the defendant has sought to ‘buy off’ the individual private claims of the named plaintiffs” before the named plaintiffs have a chance to file a motion for class certification would thus contravene Rule 23’s core concern: the aggregation of similar, small, but otherwise doomed claims.

Id. at *21-22 (citing Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 809 (1985); Deposit Guaranty Nat’l Bank v. Roper, 445 U.S. 326, 339 (1980).

Addressing an issue related to the California Labor Code Private Attorney General Act of 2004 (PAGA) that has not yet been taken up by an appellate court, the San Francisco Superior Court recently ruled that when a named plaintiff (or “aggrieved employee” in PAGA parlance) becomes unavailable, it is appropriate to substitute a different, similarly aggrieved, employee to take the original plaintiff’s place, without replicating the PAGA-mandated notice already given by the original named plaintiff.  Peña v. Top Prods., LLC, No. CGC-10-496879 (S.F. Super. Ct. July 19, 2011) (order overruling demurrer to third amended complaint).

In Peña, the original plaintiff, Marco Ruelas, filed a representative PAGA action in February of 2010, giving the required notice to California’s Labor and Workforce Development Agency (LWDA) and to the defendant, Top Productions, LLC.  However, Ruelas later became unable to continue in his role as the plaintiff.  Thereafter, Jose Peña, a then-current employee of Top Productions, assumed the role of named plaintiff.  The defendant’s demurrer did not directly contest the substitution; rather, the defendant alleged that Peña was obligated to re-notify both the LWDA and the defendant.

Judge Peter J. Busch overruled the demurrer, holding that the original notices given by Peña’s predecessor satisfied PAGA’s notice requirement.  Indeed, the court took the relatively unusual step of substituting Peña’s name on the case’s caption, which originally read “Ruelas v. Top Productions, LLC.”  Typically, even where there is a substitution of the named plaintiff in a representative action, the case title retains the name of the original plaintiff.

In a PAGA action, the named plaintiff functions as an agent of the State, recovering civil penalties that are distinct from any statutory or common law damages that might also be recovered in either an individual or a class action.  In light of AT&T v. Concepcion, the recent United States Supreme Court ruling that constrains the ability to bring class actions in circumstances where an arbitration agreement with a class action waiver exists (as in the employer-employee context), PAGA is an important enforcement mechanism, as it is not subject to requirements applicable to class actions.

Following on the Second Appellate District’s extensive and closely-reasoned holding in Brown v. Ralphs Grocery Co., in which the court held that the U.S. Supreme Court’s recent decision concerning arbitration preemption in Concepcion v.  AT&T does not apply to representative actions brought pursuant to PAGA, the Fourth Appellate District has now weighed in, as well.  In Mission Viejo Emergency Med. Assocs. v. Beta Healthcare Grp. (opinion available here), the court briefly addressed Concepcion and unmistakably held that Concepcion does not preempt all California contractual unconscionability law.

Although the underlying motion to compel arbitration was ultimately granted, Mission Viejo is significant in that it extends, beyond PAGA, the applicability of California’s unconscionability doctrine within the realm of arbitration agreements.  While the Mission Viejo defendants suggested in supplemental briefing that “AT&T [v. Concepcion] essentially preempts all California law relating to unconscionability,” the Mission Viejo panel sharply rejected this absolutist interpretation of Concepcion, stating:  “We disagree, as the case [Concepcion] simply does not go that far.”  Mission Viejo Emergency Med. Assocs. v. Beta Healthcare Grp., No. G043815, slip op. at 13 n.4 (Cal. Ct. App. June 29, 2011).  Thus, while the at-issue arbitration agreement in Mission Viejo was not found to be unconscionable, the ruling signifies the continued vitality of California’s unconscionability doctrine against defendants urging that Concepcion effectively eliminates the doctrine altogether.

Pennsylvania’s Superior Court has affirmed the jury verdict against Wal-Mart in a rare class action trial. The class members alleged that, as hourly workers, they regularly and systematically were not paid by Wal-Mart for “off-the-clock” work and they were not provided with rest breaks in compliance with Pennsylvania law. See Braun v. Wal-Mart Stores, No. 3373 EDA 2007 (Pa. Super. Ct. June 10, 2011) (opinion available here).

The named plaintiffs sought to represent a class of approximately 187,000 current and former Wal-Mart employees in Pennsylvania, and the court granted the plaintiffs’ class certification motion. When the parties did not reach a settlement, the case went to trial, and the jury found in favor of the class as to both the off-the-clock and rest break claims. The total award of $187,648,589 included statutory penalties and attorneys’ fees. But for the correction of a minor mathematical error, the portion of the award to be paid to class members was unaltered by the Superior Court’s decision. The attorneys’ fees portion of the decision was remanded to the trial court with instructions that a proper calculation of the lodestar multiplier be conducted.

The rest break claim is notable because it was grounded in a contract theory, rather than relying solely on a statutory violation. The class alleged that Wal-Mart had promised employees paid rest breaks but systematically failed to provide those breaks. On appeal, Wal-Mart argued that both the promise of paid breaks and any failure of Wal-Mart to have delivered them raised individual issues, rendering class treatment inappropriate. The appellate court disagreed, affirming the trial court’s grant of certification.

Wal-Mart also unsuccessfully challenged the jury’s findings of fact. In finding liability on the rest break claim, the jury accepted as credible plaintiffs’ evidence showing that pressure from Wal-Mart’s home office in Arkansas to reduce labor costs directly resulted in the deprivation of paid rest breaks that Wal-Mart was contractually obligated to provide. The appellate court affirmed this as a reasonable and thus permissible factual inference.