Posts belonging to Category Caselaw Developments

In the California Court of Appeal’s first major statement on the reach of the U.S. Supreme Court’s recent decision concerning Federal Arbitration Act (FAA) preemption in Concepcion v. AT&T, 131 S.Ct. 1740 (2011), the Court of Appeal for the Second Appellate District today held that Concepcion does not apply to representative actions brought pursuant to PAGA, the California Labor Code’s Private Attorneys General Act of 2004. In Brown v. Ralph’s Grocery Co. (opinion available here), the Court of Appeal held unequivocally that Concepcion “does not apply to representative actions under the PAGA.” Slip. Op. at 2. Consequently, “the trial court correctly ruled that the waiver of plaintiff’s right to pursue a representative action under the PAGA was not enforceable under California law.” Id.

The Brown v. Ralph’s panel had specifically requested supplemental briefing following the Supreme Court’s issuance of Concepcion, and its decision to designate its opinion as a published decision was likely made in light of this being a ruling with considerable implications for numerous pending and still-to-be filed cases. The panel noted that Concepcion “provided that ‘at least under some circumstances, the law in California is that class action waivers in consumer contracts of adhesion are unenforceable, whether the consumer is being asked to waive the right to class action litigation or the right to classwide arbitration’ and that ‘the FAA [does not preempt] California law in this respect.’” Slip. Op. at 9, quoting Concepcion, 131 S.Ct. at 153. After then undertaking an extensive analysis that identified PAGA’s purpose as a statute that deputizes citizens to assist the State with the collection of civil penalties and not a statute aimed at recovering damages (see Slip. Op. at 10-12), the Brown v. Ralph’s court concluded that “representative actions under the PAGA do not conflict with the purposes of the FAA.” Slip. Op. at 12.

Striking a pragmatic note, the panel also observed that “[i]f the FAA preempted state law as to the unenforceability of the PAGA representative action waivers, the benefits of private attorney general actions to enforce state labor laws would, in large part, be nullified.” Id.

A team of attorneys from Initiative Legal Group, APC represented the plaintiffs both before the trial court and on appeal, and will continue to represent the plaintiffs as the action is remanded to the trial court pursuant to the Court of Appeal’s direction. Apart from its direct application to nearly identical factual circumstances in other PAGA actions, the Brown v. Ralph’s decision is also expected to be influential with federal courts considering motions to remand PAGA actions to state court, as the same concerns would arise about the purposes of PAGA being vitiated if the unique procedural posture of PAGA actions is not heeded.

The labyrinthine class action alleging sudden, unintended acceleration of Toyota vehicles yielded a major victory for the plaintiffs with Judge James Selna’s recent ruling that accepted an “economic loss” theory of liability. See In re Toyota Motor Corp. Unintended Acceleration Mktg., Sales Practices, and Products Liab. Litig., No. 8:10ML-02151, 2011 U.S. Dist. LEXIS 52529 (C.D. Cal. May 13, 2011). The detailed and meticulously-reasoned Order is available here.

Under the economic loss theory, damages resulting from the alleged unintended acceleration are not limited to circumstances in which this defect proximately caused either property or bodily damage. Rather, the spectrum of compensable damages includes “overpayment, loss in value, or loss in usefulness.” Order at 14-15. Accordingly, those who either would not have bought a Toyota vehicle, or would not have paid as much for the car, had they known of the sudden acceleration defect, are entitled to compensation, even if they have not tangibly realized the decreased value attributed to the defect.

Apart from substantially expanding the size of a prospective class to essentially everyone who bought one of the at-issue Toyota cars, the ruling represents a victory for plaintiffs generally. First, the ruling affirms that economic loss satisfies the Article III “injury in fact” standing requirement. See Order at 14-16. In so holding, the California Supreme Court’s ruling in Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (Cal. 2011) realizes its most direct and unadulterated application to a standing ruling in federal court. Second, Judge Selna rejected Toyota’s argument—made in innumerable other class actions pending in federal court—that Bell Atl. Corp. v. Twombly, 550 U.S. 554 (U.S. 2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (U.S. 2009) require that Plaintiffs provide a detailed level of pleading as to economic loss in order to “allege enough facts to plausibly infer that the pleader is entitled to relief.” See Order at 21-25. Reaffirming the essence of the notice pleading that has prevailed in modern civil jurisprudence, Judge Selna concluded that “[b]ecause every lead Plaintiff alleges a safety defect, and defective cars are not worth as much as defect-free cars, Plaintiffs plausibly establish an economic loss.” Order at 25.

While binding on neither other federal district courts nor California’s trial courts, the rulings in In re Toyota are likely to influence other judges, not least owing to Judge Selna’s characteristic thoroughness.

Despite having conclusively jumped the public perception shark, Charlie Sheen has performed a remarkable reverse jump into relevance.  Just when reflexive references to “winning” and Sheen’s conspicuous zaniness had become conclusively played out, Sheen has made real, though sparsely-covered news with the Los Angeles Superior Court’s recent ruling in Sheen v. Lorre, rejecting the defendants’ motion to compel Sheen’s representative PAGA action to arbitration.  The complete ruling is available here.  In rejecting the attempt to apply the U.S. Supreme Court’s recent binge of anti-class action activity to PAGA claims, the meticulously-reasoned Sheen decision is of potentially far-reaching significance.

PAGA is the California Labor Code’s Private Attorneys General Act of 2004, a statute that authorizes “aggrieved employees” to act as the California Labor Workforce Development Agency’s (LWDA) proxy and seek civil penalties for Labor Code violations.  The civil penalties are predominantly paid to the LWDA (i.e., the state) and the California Supreme Court has expressly held that PAGA actions, though “representative” in nature, are not class actions and thus needn’t satisfy the familiar requisites of ascertainability, commonality, and superiority.  See Arias v. Superior Court, 46 Cal. 4th 969 (Cal. 2009).

The Sheen defendants, including Two and a Half Men creator Chuck Lorre and Warner Brothers, sought to seize on the Supreme Court’s AT&T v. Concepcion ruling with the contention that the federal government’s “liberal policy favoring arbitration” is equally applicable to PAGA actions as to class actions.  The court rejected defendants’ contention and refused to apply Concepcion and refer Sheen’s PAGA claim to arbitration, and stated that there are “at least three reasons” for this conclusion.  Sheen Ruling at 12.

First, “no reading of the arbitration clause in evidence supports or suggests a construction that its terms apply to a claim for collection of a penalty . . . arising under . . . PAGA.”  Second, a PAGA cause of action “seeks a remedy belonging not to any individual but to the state [LWDA].”  Third, the PAGA remedy “applies to persons who did not execute the arbitration clause at issue.”  Id. 

Far from the sort of cursory ruling that is occasionally generated by courts with busy calendars, this ruling elaborates on each of the stated reasons for PAGA claims not being subject to arbitration (and thus beyond the reach of AT&T v. Concepcion), a thoroughness at least partly attributable to both sides having been well-financed and submitting exhaustive, compelling briefs.  Id. at 13-18.  As such, the Sheen PAGA ruling is likely to be influential as other defendants attempt to ride the AT&T v. Concepcion wave and send PAGA claims to arbitration.  As such, when the legal history of the year 2011 is written, perhaps it will be said that Charlie Sheen was more a force for justice than the conservative majority on the Supreme Court.

In another 5-4 ruling as unsurprising as it is consequential, the U.S. Supreme Court today reversed the Ninth Circuit’s affirmance of a district court’s grant of class certification, and in doing so likely set more difficult standards for prospective class actions to meet the Rule 23 commonality requirement. Like the AT&T v. Concepcion decision before it, today’s decision in Dukes v. Wal-Mart has attracted considerable notice in the popular press as well as specialized legal publications, and prompted the New York Times to organize reader comments around the query “A Death Blow to Class Action?”

As to whether “there are questions of law or fact common to the class,” the Court divided along the identical ideological lines in its five-to-four array as in AT&T v. Concepcion. Writing for the majority, and elevating an argument frequently advanced by defendants opposing class certification to the status of controlling law, Justice Antonin Scalia reasoned that the only corporate policy that the plaintiffs’ evidence convincingly showed was Wal-Mart’s policy of giving discretion to its local supervisors over employment matters, about which he stated, “[o]n its face . . . that is just the opposite of a uniform employment practice that would provide the commonality needed for a class action; it is a policy against having uniform employment practices.”

Companies are widely expected to adopt policies against having uniform employment practices that violate the law. Finding that somewhat unsatisfactory, Patricia A. Barasch, President of the National Employment Lawyers Association, reacted to the decision by noting that “[t]oday’s judgment will make discrimination more prevalent unless Congress acts to reverse yet another misguided opinion by the Court.”

The full Dukes v. Wal-Mart decision is available here.