Posts belonging to Category Caselaw Developments

In re UPS Wage and Hour Cases: Court of Appeal Reverses Defendant’s Fee Award In a recent decision that is likely to discourage wage-and-hour class action defendants from seeking attorneys’ fees, California’s Second Appellate District, Division Eight, reversed the trial court’s award of $100,000 in fees to UPS after it prevailed at a rare jury trial as to misclassification-based overtime claims. See In re UPS Wage and Hour Cases, 192 Cal. App. 4th 1425, 1430 (Cal. Ct. App. 2011). Thus, despite having won the case, UPS was deemed not entitled to any attorneys’ fees whatsoever under California statutory and common law authority, which has deliberately guarded against creating disincentives to employees seeking to enforce workplace rights through class actions.

In a closely-reasoned decision, the unanimous three-justice panel carefully examined each of the plaintiff’s six causes of action on which UPS had prevailed, and concluded that there was not a basis for UPS’s recovery of attorneys’ fees as to any of the causes of action. Although the review of decisions awarding attorneys’ fees is ordinarily conducted under an abuse of discretion standard, here, because statutory interpretation was at issue, the In re UPS panel conducted an entirely de novo review. See id. at 1431.

Justice Grimes began by examining the interplay between Labor Code section 218.5, the bilateral fee-shifting statute, and Labor Code section 1194, which provides for the recovery of attorneys’ fees, but only to successful plaintiffs in minimum wage and overtime cases. See In re UPS at 1432-36. Underscoring that it was “[c]onstruing the entire statutory scheme with a view toward protecting employees,” the panel held that “a claim for remedial compensation under Labor Code section 226.7 does not trigger the reciprocal fee recovery provisions of Labor Code section 218.5. Since none of the claims on which UPS prevailed permit the recovery of attorney fees, the award of statutory fees to UPS was in error.” Id. at 1440.

The court’s exhaustive analysis noted that, although Section 1194 provides for fee awards only to prevailing employees on overtime compensation claims, Section 218.5 does not did not bar employers, here UPS, from seeking to recover the fees it incurred in defending the plaintiff’s other claims, such as: failure to provide meal and rest breaks; issuing statutorily non-compliant wage statements; common law conversion; and unfair competition. However, after analyzing each cause of action, the court concluded that there was no basis for UPS’s (or any similarly situated wage-and-hour defendant’s) recovery of fees. Section 1194 precluded recovery as to both state and federal overtime claims; Section 226 allowed fee awards to employees only; and California’s unfair competition law categorically does not authorize attorney fee awards. See In re UPS at 1432-35.

The key holding in this case for California’s wage-and-hour class action practitioners is that Section 218.5 does not reflexively imply that employer/defendants are entitled to recover attorneys’ fees, which will impact the numerous meal and rest break class actions still pending, many of which are stayed as the Supreme Court deliberates Brinker v. Superior Court, 80 Cal. Rptr. 3d 781 (Cal. Ct. App. 2008), rev. granted, 196 P.3d 216 (Cal. Oct. 22, 2008) (No. S166350).

The full opinion is available here.

The United States Supreme Court today issued a 5-4 opinion reversing a Ninth Circuit decision and holding that AT&T may enforce a contract provision that requires customers to arbitrate their disputes individually, rather than class-wide.  Some have predicted that such a ruling could effectively end consumer class actions of this type.  In so ruling, the Supreme Court held that the Federal Arbitration Act (FAA) preempts California’s extensively articulated doctrine of unconscionable contracts, which had operated to invalidate the manifestly one-sided provision by which AT&T customers were required to arbitrate disputes and were prohibited from arbitrating claims as class actions (a de facto class action ban).  Consequently, since such provisions are not in fact “negotiated,” but rather are drafted by the employers and retailers who have a virtual monopoly on bargaining power, this decision is expected to motivate employers and retailers to unilaterally insert class action prohibitions in employment and consumer agreements under the guise of an arbitration clause.

The AT&T v. Concepcion majority opinion was written by Justice Antonin Scalia, often celebrated in Federalist Society circles as an advocate for state autonomy.  “States cannot require a procedure that is inconsistent with the FAA,” Scalia wrote, drawing on his strict-constructionist persona, “even if it is desirable for unrelated reasons.”  In dissent, Justice Stephen Breyer ominously suggested the implications of today’s AT&T v. Concepcion ruling: “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?”

Being that the Supreme Court is the judicial tier of last resort, this battle is now over in the courts.  Among the options for those wishing to ensure the continuation of class actions is amendment of the FAA to accommodate state policy choices.  However, it is unclear whether there is the political motivation in either the Congress or executive branch for such an undertaking.

The full opinion is available here.

Class action defendants frequently argue, under the class certification superiority rubric, that potentially annihilating penalties means class treatment is not superior to individual litigation, and thereby precludes certification. However, under Bateman v. American Multi-Cinema, Inc., 623 F.3d 708 (9th Cir. 2010) (available here), the Ninth Circuit has held that Rule 23 does not permit the trial court to consider whether the defendant’s potential liability would be disproportionate to the class members’ actual damages. The three-judge panel reversed the denial of class certification by former Central District Judge, the late Florence-Marie Cooper, under the Fair Credit Reporting Act (FCRA), 15 U.S.C. §§ 1681 et seq. Judge Cooper’s certification denial had focused on the purported lack of superiority because “the magnitude of Defendant’s statutory liability is enormous and completely out of proportion to any harm suffered by Plaintiff or potential class members.” Bateman v. American Multi-Cinema, Inc., 252 F.R.D. 647, 651 (C.D. Cal. 2008) (available here).

In reversing the denial of certification, though, Bateman declined to follow a number of earlier cases involving the Truth-in-Lending Act (TILA), 15 U.S.C. §§1601 et seq., in which courts considered annihilating penalties as bearing on the superiority criterion, and on that basis denied class certification. For instance, in the much-cited case of Ratner v. Chemical Bank New York Trust Co., 54 F.R.D. 412 (S.D.N.Y.1972), District Judge Frankel denied class certification in a TILA claim because the potential $13 million award “would be a horrendous, possibly annihilating punishment, unrelated to any damage to the purported class or to any benefit to defendant, for what is at most a technical and debatable violation of the Truth in Lending Act.” Id. at 422.

Under Bateman, the law of the Ninth Circuit is that “the Rule 23(b)(3) superiority analysis must be consistent with the congressional intent in enacting a particular statutory damages provision.” Bateman, 623 F.3d at 716. After acknowledging the different holding in Ratner, the Bateman panel explained “[t]here is no language in the statute, nor any indication in the legislative history, that Congress provided for judicial discretion to depart from the $ 100 to $ 1000 range where a district judge finds that damages are disproportionate to harm. Further, we cannot surmise a principled basis for determining when damages are and are not ‘proportionate’ to actual harm. Indeed, one might plausibly argue that a $ 1000 award, or even a $ 100 award, for a single violation of FACTA, without any allegation of harm, is not proportionate. But the plain text of the statute makes absolutely clear that, in Congress’s judgment, the $ 100 to $ 1000 range is proportionate and appropriately compensates the consumer.” Id. at 719.

Other circuit courts, as well as district courts in other circuits, have similarly held that the Ratner annihilating penalties analysis to be improper. See, e.g., Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006) (holding that problem of annihilating penalties should not be addressed at the class-certification stage).

In addition to generating caselaw bearing on whether large class action damages constitute “annihilating” penalties that render individual actions superior to class treatment, the Fair and Accurate Credit Transactions Act (FACTA) also defines the common term willfulness, a measure of conduct with considerable application beyond FACTA consumer class actions, or wage-and-hour class actions.

In California, for instance, the waiting-time penalties that are often the largest portion of damages where relatively small per-violation amounts are alleged (such as with the miscalculation of overtime pay rates) are triggered only if the underlying conduct is deemed willful. While not a wage-and-hour decision per se, Long v. Tommy Hilfiger, Inc., No. 09-1701 (W.D. Pa. Feb. 11, 2011) (available here) adds weight to the argument that analysis of willful conduct ought to be under a objective standard, as opposed to a subjective standard that will often provide incentives for employers and retailers to be deliberately uninformed as part of making out a defense to willfulness. See Cal. Lab. Code § 203(a) (“If an employer willfully fails to pay . . . any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty frwillfom the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days.”) (emphasis added). Under an objective standard, any discovery of or analysis concerning a defendant’s subjective beliefs is obviated, in favor of an inquiry as to the objective reasonableness of the defendant’s conduct.

In Long, the district court took up whether the defendant had violated the FACTA requirement that credit card receipts not show a credit card’s expiration date by including the month, but not year, or expiration on credit card receipts. Under the premise that “expiration date” within FACTA’s meaning and intent requires both a month and year, the court held that the defendant did not violate FACTA. It was the court’s alternative reasoning from which the broader holding concerning willfulness arose. The court concluded the defendant’s understanding of the statute was objectively reasonable in the absence of any judicial guidance, so even if printing only the month of expiration had been a violation of the expiration date prohibition, it would not have been a willful violation. As such, FACTA statutory penalties, which require willful conduct, would not be triggered. The Long court relied on the willfulness analysis in Shlahtichman v. 1-800 Contacts, 615 F.3d 794 (7th Cir. 2010), and its holding applying an objective standard to willfulness analysis.

Accordingly, despite being a ruling helpful to companies, the objective standard for assessing willful conduct could, in the long run, yield considerably greater pro-plaintiff benefits, with any class seeking California’s Section 203 waiting-time penalties being one obvious beneficiary.