Posts belonging to Category Caselaw Developments

As we wait for the United States Supreme Court’s upcoming decision in AT&T v. Concepcion, which is expected to define the ability of arbitration clauses to foreclose class actions, the influential Second Circuit Court of Appeals has recently issued a decision holding a class action waiver embedded in an arbitration agreement unenforceable, which might indicate how the Supreme Court will rule on key aspects of AT&T v. Concepcion. See In re American Express Merchants’ Litigation, 634 F.3d 187 (2d Cir. 2011); the decision is available here.

Though the decision is in no sense binding on the Supreme Court, it is notable that the Second Circuit panel (which has a reputation for intellectual rigor) previously included Justice Sonya Sotomayor; thus, this decision could be an indication of the direction that the Supreme Court might take in Concepcion. Moreover, although there is relatively little suspense as to which way Justice Sotomayor will vote in Concepcion, Court observers have noted that her prior experience with arbitration and class action waiver issues carries weight with her colleagues, even those on the Court’s conservative bloc.

The In re American Express decision arises from a Supreme Court remand, and thus cannot be taken solely as an expression of the Second Circuit’s inclinations as to arbitration agreements and class action waivers. With this most recent decision, the Second Circuit has now twice invalidated the at-issue class action waiver, this time presumably infusing that invalidation with reasoning and doctrine acceptable to the Supreme Court. Specifically, the Supreme Court remanded In re American Express with directions that the Second Circuit take account of its decision in Stolt-Nielsen, S. A. v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758 (2010), which held that parties cannot be compelled to participate in class arbitration without having expressly agreed to do so. The Supreme Court instructed the Second Circuit to reassess its invalidation of the at-issue clause barring class arbitration, and in particular to decide whether there was merit to American Express’s argument that a class action waiver within a mandatory arbitration clause is per se enforceable.

In a strong statement that evokes the Ninth Circuit’s invalidation of a similar class waiver provision in Concepcion, the two-judge Second Circuit panel (now minus Justice Sotomayor) excerpted from the plaintiffs’ brief: “We agree with plaintiffs that ‘[t]o infer from Stolt-Nielsen’s narrow ruling on contractual construction that the Supreme Court meant to imply that an arbitration is valid and enforceable where, as a demonstrated factual matter, it prevents the effective vindication of federal rights would be to presume that the Stolt-Nielsen court meant to overrule or drastically limit its prior precedent.’” In re American Express at *33.

Apart from this ruling’s substantive importance and potentially presaging the reasoning, outcome, or both in AT&T v. Concepcion, In re American Express is also a reminder that persuasive and well-constructed passages from appellate briefs can end up, verbatim, as statements of binding law.

The mother of a four-year-old child is the named plaintiff in a class action that alleges deception concerning the popular hazelnut spread Nutella. Hohenberg v. Ferrero U.S.A., Inc., No. 11-0205 (S.D. Cal. filed Feb. 1, 2011) is notable as a consumer class action that, if successful, could lead to a number of analogous class actions premised on deceptive claims about the healthiness of food products. Moreover, because suggestive imagery — rather than overt claims — about Nutella’s health benefits is alleged to be the principle source of the deception, Hohenberg (which seeks an injunction to discontinue the allegedly deceptive ads) could potentially serve as a guide for other claims based on photographs, music, or other advertising components that might indirectly convey a message that is alleged to be deceptive.

In Hohenberg, the plaintiff alleges that Nutella’s maker, defendant Ferrero U.S.A., misleads consumers into believing Nutella is healthy by juxtaposing images of Nutella with fresh fruits and sheaves of wheat in advertisements. In doing so, plaintiffs claim that Ferrero is effectively concealing the fact that Nutella is nearly three-quarters saturated fat and that it contains none of the nutritional properties associated with the other foods pictured in Nutella ads.

A favorable outcome for plaintiffs in Hohenberg could lead to numerous applications of the theory that images, aside from those that occur in standard video and print advertisements, could convey a deceptive message giving rise to a false advertising claim. For instance, many packaged foods feature a depiction of a “serving suggestion,” with the packaged food item complemented by sides and garnishes. A direct application of the reasoning in Hohenberg could, for example, lead to allegations that images of vegetable side dishes on a macaroni and cheese package obscure the high fat content within. Although there has been occasional litigation concerning serving suggestion disclaimers (see http://packaginglaw.com), there is a surprising dearth of guidance in the caselaw, likely attributable to some combination of failed lawsuits and pre-certification settlements.

Should Hohenberg proceed to the point of generating substantive rulings, it is likely to help define how wordless imagery can be deceptive. Discovery rulings could prove particularly interesting, since internal company documents often contain frank assessments of consumers’ responses to advertising and other imagery.

In Bright v. 99¢ Only Stores, 118 Cal. Rptr. 3d 723 (Cal. Ct. App. 2010), the California Court of Appeal held that the so-called “suitable seating requirement” under Wage Order 7 exposes employers to liability for civil penalties under California’s Private Attorney General Act in addition to any statutory or compensatory damages. See Wage Ord. No. 7-2001, sub 14(A), available here.

The trial court sustained the defendant’s demurrer, which posited that because Wage Order No. 7 contains its own civil penalty provision, there could be no PAGA civil penalties, but the Court of Appeal reversed. Writing for the unanimous three-justice panel, Justice Kriegler observed that the Wage Order’s adequate seating provision does not in fact have its own civil penalty provision, and consequently, it is governed by subdivision (f) of PAGA.

Bright is a small, but significant, step in the development of the body of common law that will govern PAGA claims and a welcome counterbalance to decisions that seemingly regard PAGA claims as technical excrescences, rather than the valid and distinct claims they are. (See, e.g., Villacres v. ABM Indus., Inc., 117 Cal. Rptr. 3d 398 (Cal. Ct. App. 2010), which held that PAGA claims that had never been pleaded, litigated or released in a prior class action settlement were nonetheless barred by res judicata.)

Most importantly, Bright confirms that an employer that fails to provide the adequate seating required by Wage Order 7 is liable for an assessment of PAGA civil penalties, either in an action brought by the Labor Workforce Development Agency (LWDA) or in a private attorney general action brought by a private litigant. Significantly, too, PAGA representative actions are not required to be certified (per Arias v. Superior Court, 46 Cal. 4th 969 (Cal. 2009)), and therefore need not establish the familiar requisites of class treatment (numerosity, typicality, commonality, and adequacy).

The Court of Appeal’s opinion in Bright v. 99¢ Only Stores is available here.

Following on the Court’s relatively pro-class action decision in Taylor v. Sturgill, class action advocates are hoping for another victory in Smith v. Bayer, 593 F.3d 716 (8th Cir.), cert. granted, 131 S. Ct. 61 (U.S. Sept. 28, 2010) (No. 09-1205). However, two justices thought to be favorably disposed toward the plaintiffs gave indications at the January 11th oral argument that they are perhaps not prepared to embrace the relatively formalistic approach that would be required in order to prevent the denial of class certification in a federal district court from being res judicata as to a substantively identical class action in state court.

First, in response to the familiar argument that class actions are the only way many consumer claims will ever be litigated because of the prohibitive cost of individual actions, Justice Sotomayor abruptly cut off plaintiffs’ counsel and said, “Actually not true.” She elaborated with a critique incongruous with the expectation that she would be a reliably pro-class action vote: “The issue is how much money the lawyers are going to receive, really, because plaintiff gets . . . a statutory violation amount, which is going to be the same whether it’s in a class action or an individual action, so it’s really not the plaintiff who stands to win.” Later in the oral argument, Justice Breyer posed a challenging hypothetical, in which he suggested “if . . . an intervenor, joins a litigation late, and there have been a lot of procedural rulings, . . . that intervenor takes the case as he finds it. . . . [I]s your client analogous to that person who joins litigation late?” Against the well-established rule that an intervenor is not entitled to a procedural tabula rasa, the plaintiffs’ attorney struggled to explain why a subsequent state court class representative would be entitled to a full procedural reprise of class certification, whereas an intervenor is not even entitled to a full complement of discovery.

Oral argument is a notoriously unreliable basis on which to predict Supreme Court outcomes, and justices will frequently play against type to co-opt arguments that they oppose. As we enter an era of increasing federal dominion over class actions, the decisions in several key cases this term (Smith v. Bayer, Dukes v. Wal-Mart and AT&T v. Concepcion) could change the class action landscape considerably.

The Smith v. Bayer oral argument transcript is available here.