Posts belonging to Category Government & Regulation

Glenn v. Hyundai Motor: Defeating Primary Jurisdiction and Preemption Arguments

Last month, Judge David O. Carter of the Central District of California issued an order granting in part Hyundai’s Motion to Dismiss and/or Strike Allegations in First Amended Complaint in Glenn, et al. v. Hyundai Motor America, et al. No. SA CV 15-2052-DOC (June 24, 2016 C.D. Cal.) (slip op. available here). The Glenn plaintiffs had alleged that the Hyundai vehicles’ panoramic sunroofs had a tendency to spontaneously shatter. Notably, the National Highway Traffic Safety Administration (“NHTSA”) had already begun investigating the same sunroof issues in the Sorento, a vehicle produced by Kia, Hyundai’s sister company. The Glenn plaintiffs demanded injunctive relief in the form of a recall. Hyundai moved to dismiss the plaintiffs’ prayer for a recall injunction under the doctrines of primary jurisdiction and preemption. The district court, in addition to leaving intact the plaintiffs’ remaining fraud-based claims and allowing the plaintiffs to have standing to represent consumers who purchased different vehicles, denied Hyundai’s motion on the grounds of primary jurisdiction and preemption, providing guidance for other class action plaintiffs on how to avoid such a dismissal.

The primary jurisdiction doctrine applies, exempting an issue from federal court jurisdiction, based on: “(1) the need to resolve an issue (2) that has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration.” Slip op. at 24 (quoting Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 760 (9th Cir. 2015) (internal citations omitted)). The district court in Glenn held that, applying these considerations, the primary jurisdiction doctrine did not apply. As to the first two elements, the court found that because the plaintiffs sought monetary relief—relief beyond what NHTSA can provide in a recall—there is a substantial need to resolve the issue in court. Id. Regarding the third factor, there was also no authority suggesting that Congress intended NHTSA to have exclusive regulatory authority over vehicle safety. Id. at 24. Even though Hyundai had been asked to cooperate with NHTSA in its Kia Sorento sunroof investigation, the court found that the scope of NHTSA’s investigation did not clearly cover all of the Glenn class vehicles and thus, no actual conflict existed between the plaintiffs’ claims regarding the Hyundai sunroofs and NHTSA’s Kia investigation. Id. at 25 (quoting In re Toyota Motor Corp. Unintended Acceleration Mktg. Sales Practices and Prods. Liab. Litig., 754 F. Supp. 2d 1145, 1199 (C.D. Cal. 2010)). Finally, the court noted that the plaintiffs’ claims were strictly based on state and federal consumer protection laws, as opposed to the National Traffic and Motor Vehicle Safety Act (“Safety Act”) or NHTSA regulations, and thus there is no need to ensure uniformity of regulation and NHTSA is not better-equipped than the court to address the issues presented. Id.

Similarly, the court held that the plaintiffs’ request for injunctive relief was not preempted by the Safety Act at this point, finding that Hyundai had not “met its burden of showing that it was Congress’ clear and manifest intent for the Safety Act to preempt the relief Plaintiffs seek pursuant to their State law claims.” In re Toyota, at 1197 (emphasis added). Hyundai failed to show that the ongoing NHTSA investigation with Kia encompasses all the models of the Glenn class vehicles, and thus, the court declined to find preemption because there was no actual conflict between the relief the plaintiffs sought and the Safety Act. Slip op. at 26.

These findings are instructive when developing a car class action where a NHTSA investigation is already ongoing and the plaintiff is confronted with a defendant’s argument that its claims for a recall injunction should be dismissed due to the doctrines of primary jurisdiction or preemption. Plaintiffs should consider demanding monetary relief, distinguishing the vehicles at hand from those under investigation by NHTSA, and basing their claims strictly on state and federal consumer protection laws, with no reference to the Safety Act or NHTSA Regulations, to avoid primary jurisdiction and preemption.

Authored by: 
Tarek Zohdy, Associate

DOL Overtime Changes to Increase Protections for and Wages of Millions of Workers

On May 18, 2016, the Department of Labor (“DOL”) announced new overtime rules under the Federal Labor Standards Act (“FLSA”), giving employers until December 1, 2016, to comply. The rules increase the salary threshold over which employers may classify their employees as exempt under one of the white-collar exemptions—administrative, executive, or professional. The salary threshold under federal regulations had been $23,660, meaning that employees only had to earn at least $23,660 annually in order to qualify for one of these exemptions. The new rules double the annual salary threshold to $47,476.

This is an important increase, as employees who are classified as exempt are not entitled to overtime pay. The DOL estimates that under the previous salary threshold, only 7% of salaried workers were entitled to overtime pay. With the increase in the salary threshold, the DOL estimates that 35% of salaried workers will now be entitled to overtime pay. Department of Labor, “The New Overtime Rule & Working Women: By the Numbers,” available here. According to the DOL, the new rules will impact 4.2 million workers, 56% of whom are women, who will either gain new overtime protections or get a raise to the new salary threshold. Id. California employees will also see an increase in the salary threshold, although a less substantial one. California law already applies a salary threshold of $41,600 to qualify as exempt under a white-collar exemption. Thus, the DOL’s changes increase the minimum salary threshold for California employees by nearly $6,000.

Regarding the exemption for highly compensated employees (“HCE”), the total annual compensation level above which most white collar workers will be ineligible for overtime was raised to the 90th percentile of full-time salaried workers nationally, up from the current $100,000 to $134,004 a year. An HCE exemption may apply where the employee needs only to perform at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee to satisfy the exemption. Additionally, non-discretionary bonuses, incentive pay, or commissions can now be included to satisfy up to 10 percent of the salary threshold for non-HCE employees, provided these payments are made on at least a quarterly basis. Also, no changes were made to the existing “duties test” which determines whether white collar salaried workers earning more than the salary threshold are ineligible for overtime pay, due to the executive, administrative, or professional exemption.

Finally, the new rules establish a mechanism for automatically updating the salary threshold every three years to ensure that the threshold reflects workers’ earnings, instead of allowing a lengthy gap between updates, like the nearly twelve years that have passed since the DOL last updated them.

Authored By:
Bevin Allen Pike, Senior Counsel

Restoring Statutory Rights Act (S. 2506): Bill Against Mandatory Arbitration

In recent years, bolstered by U.S. Supreme Court decisions, numerous businesses have successfully limited their potential exposure for consumer protection and employment law violations by requiring consumers and employees to enter into arbitration agreements. Now, the pendulum seems to be swinging back as Congress considers a bill limiting the practice.

On February 4, 2016, Democratic Senator Patrick Leahy introduced the Restoring Statutory Rights Act (S. 2506) (available here). The bill would create an exception in the Federal Arbitration Act (FAA) for disputes involving individuals and small businesses. Pursuant to the proposed statute, arbitration would be available only if the parties agreed to it after the dispute arose. By contrast, currently, individuals often agree to arbitration as a condition of purchasing a product or applying for employment. The bill explicitly criticizes recent U.S. Supreme Court decisions regarding the preemptive effect of the FAA, stating that the decisions “have enabled business entities to avoid or nullify legal duties created by congressional enactment, resulting in millions of people in the United States being unable to vindicate their rights in State and Federal courts.”

The proposed bill would also strengthen the power of the courts to reject mandatory arbitration if the arbitration clause is unconscionable or if a statute prohibits arbitration. Specifically, the bill provides that courts may decline to compel arbitration if “a Federal or State statute, or the finding of a Federal or State court, . . . prohibits the agreement to arbitrate on grounds that the agreement is unconscionable, invalid because there was no meeting of the minds, or otherwise unenforceable as a matter of contract law or public policy.” This provision is expressly aimed at cases such as AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), that have interpreted the FAA to preempt substantive rights and remedies established under the law.

The success of this bill is uncertain as Republicans maintain control of both houses of Congress and generally favor arbitration, but it represents a serious effort to roll back some of the excesses in business entities’ use of arbitration.

Authored By:
Stan Karas, Senior Counsel

U.S. DOJ Sues VW for Clean Air Act Violations

Last week, in the U.S. District Court for the Eastern District of Michigan, the U.S. Department of Justice (DOJ) filed a civil lawsuit, on behalf of the U.S. Environmental Protection Agency (EPA), against Volkswagen AG (VW) and other related entities for equipping approximately 600,000 diesel engine vehicles with “defeat device” software designed to evade emissions testing by allowing emissions to exceed EPA standards, resulting in dangerous and unlawful air pollution. United States of America v. Volkswagen AG et al., Case No. 2:16-cv-10006 (complaint available here). The complaint also named Audi AG, Volkswagen Group of America Inc., Volkswagen Group of America Chattanooga Operations LLC, Porsche AG, and Porsche Cars North America Inc. as defendants in this civil suit.

In the fall of 2015, VW admitted that it had been cheating vehicle emissions standards for years by installing software in at least 11 million of its diesel cars worldwide. These “defeat devices” would detect when the vehicles were undergoing EPA emissions testing and would cause the vehicles to operate in a mode utilizing the full emissions controls only during that testing process. However, once the vehicles were in consumers’ hands and out on the road, in normal driving conditions, these controls were substantially reduced, allowing the vehicles to emit levels of nitrogen oxide up to 40 times the EPA standard for compliance. Earlier this week, the EPA and the California Air Resources Board (CARB) rejected the automaker’s plans for a proposed recall, on the grounds that the plan had insufficient detail and the proposed fixes were not specifically described in a way that would allow regulators to evaluate their technical feasibility. This is yet another blow to VW’s voluntary ameliorative efforts. See CARB Rejection Notice, available here.

The lawsuit alleged that Volkswagen violated the Clean Air Act, 42 U.S.C. §§ 7523 and 7524, by selling, introducing into commerce, or importing into the United States motor vehicles that were materially different in design from what was listed in VW’s applications to obtain certification to sell the vehicles in the United States. Notably, the DOJ has stated in a press release that its civil complaint, which seeks civil penalties and injunctive relief, but does not address criminal charges or sanctions, does not preclude the government from seeking other legal remedies. Further, the DOJ plans to seek to transfer its case and participate in the related multi-district litigation involving more than 500 consumer class actions, before U.S. District Judge Charles Breyer in the Northern District of California.

Relatedly, last week, the U.S. House of Representatives passed the Fairness in Class Action Litigation (H.R. 1927) bill, otherwise known as the “VW Bailout Bill” (available here), which would allow companies to escape so-called “no-injury” class action lawsuits by requiring courts to conduct “a rigorous analysis of the evidence” to determine that the class representative and “each proposed class member suffered the same type and scope of injury” before certifying a class under Fed. R. Civ. P. 23(c)(1). The measure is expected to stall in the Senate, and the White House has already threatened to veto it.

Authored by: 
Mao Shiokura, Associate