Posts belonging to Category Motion Practice



Cohen v. Donald J. Trump: Judge Permits Trump U. RICO Class Action to Proceed to Trial

This month, Judge Gonzalo P. Curiel of the Southern District of California issued a decision that bodes well for consumers seeking relief under the Rackateer Influenced and Corrupt Organizations Act’s (“RICO”) civil action provision. See Cohen v. Donald J. Trump, No. 3:13-cv-02519 (S.D. Cal. Aug. 2, 2016) (slip op. available here). The consumer class action, brought by former attendees of Donald Trump’s “Trump University,” gained national attention after Trump questioned the court’s impartiality given Judge Curiel’s Mexican heritage. Notwithstanding the hype, Judge Curiel’s order denying Trump’s Motion for Summary Judgment offers consumer plaintiffs a roadmap in the sometimes murky landscape surrounding RICO-based class actions.

RICO, enacted in 1970, contains a civil provision providing for treble damages and a private right of action, against certain fraudulent conduct. 18 U.S.C. § 1964(c). Liability under § 1962(c) requires (1) the conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985). “Racketeering activity” can include fraud with intent, including misrepresentations and material omissions, made over the mails or “wires.” Slip op. at 7.

The class, certified in 2014, alleged that Trump had violated RICO’s civil provision by portraying Trump University (“TU”) as a “university,” with instructors personally “handpicked” by Donald Trump himself. Slip op. at 2. TU sent consumers “Special Invitation[s] from Donald J. Trump” stating, “[m]y handpicked instructors and mentors will show you how to use real estate strategies,” and that “I can turn anyone into a successful real estate investor, including you.” Id. Discovery revealed an internal TU’s policy encouraging TU employees to “[t]hink[] of Trump University as a real University, with a real admissions process” and encouraging TU employees to “[u]se terminology such as ‘Enroll,’ ‘Register,’ and ‘Apply.’” Id. at 3.

In its motion, Trump argued that the plaintiffs sought “an unprecedented expansion of RICO law” by allowing civil RICO to become “a federal cause of action and treble damages” for every plaintiff in “garden-variety business disputes.” Slip op. at 7. Trump also argued policy dictated against applying civil RICO to consumer class action cases (a false advertising class action, Low, et al. v. Trump University, LLC, et al., No. 3:10-cv-00940, had already been filed; this Cohen RICO action was separately filed and litigated to address different harms). Id. at 10. Judge Curiel noted that while courts have often struggled with the scope of RICO’s civil provision, the U.S. Supreme Court in 1985 noted that Congress stated RICO should be “liberally construed,” and the policy implications of the statute’s breadth were issues for Congress, not the courts, to address. See Sedima, 473 U.S. at 481. The court also rejected the defendant’s argument that several courts have declined to apply RICO to “routine commercial relationships,” finding that in such cases, the plaintiffs had failed to establish an underlying element, such as knowing participation, financial loss, or the existence of an “enterprise.” See slip op. at 9-10.

The defendant further argued the plaintiffs could not show Mr. Trump “conducted the affairs of TU.” Slip op. at 10. Civil RICO requires the defendant to have “participated in the operation or management of the enterprise itself.” Id. (quoting Reves v. Ernst & Young, 507 U.S. 170, 183 (1993)). Mr. Trump argued his role was limited that of an investor and executive. The court noted that the statute’s use of the word “participated” makes clear that RICO liability is not limited to an individual or exclusive director or manager—it is enough for a defendant to play “some part” in directing the enterprise’s affairs. Id. at 12. Further, the court found persuasive the testimony of TU’s Chief Marketing Operator, who stated that, following the publication of TU’s first advertisement, Mr. Trump had asked why the advertisement had been placed on an even numbered page, when odd numbered pages are more visible to readers, calling Mr. Trump “very hands on.” Id. at 10-11 n5. The court found the plaintiffs had made a prima facie showing Mr. Trump had failed to rebut.

The court also rejected Trump’s arguments that the alleged omissions and misrepresentations were not material, finding that the plaintiffs’ evidence, including internal TU policies encouraging employees to use “real university” terminology such as “apply,” and “enroll,” and mailers addressed from Mr. Trump himself stating he had “handpicked” instructors, raised a genuine issue of material fact. Id. at 13-14. Lastly, the court rejected Mr. Trump’s argument that the plaintiffs had failed to show the requisite knowledge and intent, noting that “direct proof of knowledge and fraudulent intent—of what a person is thinking—is almost never available.” Id. at 16.

The court previously vacated pre-trial deadlines while the Motion for Summary Judgment was under submission. With the court’s recent order denying the motion in its entirety, trial dates will likely be reset. 

Authored by: 
Cody Padgett, Associate
CAPSTONE LAW APC

Villalpando v. Exel Direct: Damages & “Adequate Records” under Mt. Clemens

Plaintiffs’ attorneys are more than familiar with the term “document dump.” This practice, particularly problematic in the plaintiffs’ class action bar, involves a defendant producing a large volume of documents that either includes (a) numerous irrelevant documents randomly mixed with relevant documents, or (b) documents generally produced in no cognizable order whatsoever. In wage-and-hour class actions, some of the most important documents to the case are time and pay records. Those records can help confirm or bolster theories of liability based on the employer’s actual practices, they can help demonstrate that the employer actually implemented illegal policies (such as non-compliant meal period policies or a policy of paying overtime at the wrong rate), and they are vital in establishing class-wide damages.

A document dump of time and pay records produced in “no cognizable order” presents unique problems for plaintiffs’ attorneys who need to analyze those records to calculate class damages. Under the seminal decision in Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), the Supreme Court held that when it comes time to prove damages: 

When the employer has kept proper and accurate records the employee may easily discharge his burden by securing the production of those records. But where the employer’s records are inaccurate or inadequate and the employee cannot offer convincing substitutes a more difficult problem arises. The solution, however, is not to penalize the employee by denying him any recovery on the ground that he is unable to prove the precise extent of uncompensated work. . . . In such a situation we hold that an employee has carried out his burden if he proves that he has in fact performed work for which he was improperly compensated and if he produces sufficient evidence to show the amount and extent of that work as a matter of just and reasonable inference.

Mt. Clemens, 328 U.S. at 687-88 (emphasis added). Employers may try to limit Mt. Clemens to cases brought under the Fair Labor Standards Act (“FLSA”), cases in which keeping specific records is required by statute, or cases involving off-the-clock work. However, two separate rulings in Villalpando v. Exel Direct, Inc., Consolidated Case Nos. 12-cv-04137-JCS, 13-3091-JCS (N.D. Cal.), provide some hope—and persuasive authority—for using the Mt. Clemens standard in various types of cases, including cases brought under the California Labor Code.

The Villalpando plaintiffs are delivery drivers for Exel Direct who filed a class action suit alleging that they were misclassified as independent contractors and asserting state labor law claims. On April 21, 2016, in ruling on the defendant’s motion to decertify a class, the Villalpando court first held that “[t]he Mt. Clemens rule is not limited to FLSA cases. It has also been invoked in cases involving state law wage and hour claims based on the same reasoning . . . that it would unfairly penalize employees to deny recovery because of the employer’s to keep proper records.” Villalpando v. Exel Direct, Inc., Consolidated Case Nos. 12-cv-04137-JCS, 13-3091-JCS, 2016 WL 1598663, at *6 (N.D. Cal. April 21, 2016) (“Villalpando I”) (slip op. available here).

The interesting part of Villalpando I was the court’s rejection of Exel’s argument that the plaintiffs could not rely on the Mt. Clemens rule “because it has produced to Plaintiffs over 4 million paper documents that included paper manifests and timesheets, and that it was Plaintiffs’ obligation to review all of these documents to determine the actual damages of the class members.” Slip op. at *8. The decision addressed what it truly means to keep adequate records. The court observed that, “[a]side from the difficulty of reviewing millions of paper documents,” the documents “were not organized in any particular manner, were mixed up with other, irrelevant documents, and are sometimes illegible” and that there was no way to know if they were complete. Id. at *9. Under such circumstances, “[Defendant] Exel has not demonstrated that it maintained adequate records,” and the court ruled that the Mt. Clemens rule applied. Keeping “adequate records” thus means something more than simply technical compliance with recordkeeping obligations, it means keeping records in a manner that allows others to access them, interpret them, and audit them. Further, the Villalpando I court held that the Mt. Clemens rule applies to cases even where there is no statutory duty to keep the specific records at issue. The case asserted claims for expense reimbursements under California Labor Code section 2802. Although the Labor Code does not require employers to keep records of employee expenses, the court held that it was “obvious” that the employer’s duty to reimburse employees for expenses triggered some recordkeeping obligation. Id. at *9. Thus, the Mt. Clemens “just and reasonable” rule for establishing damages extends beyond FLSA cases and beyond situations involving an explicit statutory recordkeeping obligation.

About one month later, the Villalpando I court decided motions in limine. In Villalpando v. Exel Direct, Inc., __ F.R.D. __, 2016 WL 2937480, at *15 (N.D. Cal. May 20, 2016) (“Villalpando II”) (slip op. available here), plaintiffs moved to preclude the employer from arguing that plaintiffs “may not prove their claims based on reasonable inference, estimates and representative testimony.” The court granted the motion and prohibited the employer from arguing that the damages methodology was unreasonable for failure to use the actual receipts or rely on the employer’s paper records, which the court reiterated were inadequate. Id. The court, recognizing that the decision of whether to use the Mt. Clemens rule “turns on the Court’s determination of whether Exel maintained adequate records,” affirmed the April 21 order and held that the employer’s records were inadequate. Id. The court also dismissed the employer’s argument “that the employees must demonstrate that an employer’s records are inadequate before they will be entitled to prove their claims by ‘just and reasonable inference’.” Id. The court placed the burden on the employer to demonstrate that it did maintain adequate records because “it is the employer who is in the best position to demonstrate that its records are complete and accurate.” Id. The court again found that the employer had not carried its burden, and that the Mt. Clemens rule applied.

The two Villalpando rulings are important authority of which every wage-and-hour practitioner in California should be aware. This case holds three victories for employees: (1) the Mt. Clemens rule applies outside the FLSA, to California Labor Code claims; (2) it is the employer’s burden to establish that it produced “adequate records”; and (3) an employer’s recordkeeping obligation are not limited to those specified by statute. The cases also give plaintiffs’ counsel some authority to point to when employers demand a “to-the-penny” damages calculation. For example, in cases involving overtime or meal and rest period violations—where overtime hours and meal/rest premiums are paid at the “regular rate”—the employer may attempt to escape liability by holding plaintiffs to this type of overly strict, to-the-cent damages standard. Of course, in such cases, when trial arrives, the employer has already executed the “document dump” and effectively told the plaintiff “good luck trying to figure out our records and proving damages.” In those situations, plaintiff’s counsel can, and must, argue for the appropriate “just and reasonable inference” damages standard under Mt. Clemens, whether via motion in limine, in the final pretrial order, or in jury instructions.

Authored By:
Andrew Sokolowski, Senior Counsel
CAPSTONE LAW APC

Ford Can’t Steer Clear of Consumers’ Defect Claims

A prospective class action against major automaker Ford received a boost recently when Judge Lucy H. Koh of the Northern District of California denied (in large part) Ford’s Motion to Dismiss. See Philips v. Ford Motor Company, No. 14-02989 (N.D. Cal. July 7, 2015) (order available here).

The complaint was filed by plaintiffs seeking to represent a class of California consumers who purchased or leased 2010-2014 Ford Fusion vehicles or 2012-2014 Ford Focus vehicles (“Class Vehicles”), which are allegedly equipped with a defective Electronic Power Assisted Steering (“EPAS”) system. The plaintiffs contended that Ford knew and should have disclosed that the Class Vehicles have the same steering defect that led the National Highway Traffic Safety Administration to investigate the Ford Explorer, resulting in a recall in 2014.

Ford’s motion sought dismissal of fraudulent omissions claims under California’s Consumer Legal Remedies Act (“CLRA”), Unfair Competition Law, and common law fraud. In arguing that Ford did not have a duty to disclose the steering defect and, therefore, that the plaintiffs could not allege a fraudulent omission claim, Ford conceded that the defect was a “safety hazard,” but tried to convince the court that the hazard was not an “unreasonable” one, and thus did not constitute a material fact under Daugherty v. American Honda Motor Co., 144 Cal. App. 4th 824 (2006). Judge Koh was not swayed by this argument, stating in the Order that, “[a]t the very least, it is plausible that a total failure in a vehicle’s power steering—at high or low speeds—constitutes an unreasonable safety hazard. Accordingly, . . . for purposes of a motion to dismiss, [the plaintiffs] have alleged a material safety defect that Ford had a duty to disclose.” Order at 22.

The court also rejected Ford’s contention that the plaintiffs had not adequately alleged Ford’s pre-sale knowledge of the defect, finding that the plaintiffs had “plausibly alleged that Ford knew about the EPAS system defects ‘since as early as 2010’” based on technical service bulletins issued by Ford in 2011 and 2012. Order at 18. The plaintiffs’ success on these two points entitles them to seek damages for violations of the CLRA and common law fraud, though the court ultimately dismissed the plaintiffs’ equitable claims under the UCL and CLRA—not based on merit, but merely because the plaintiffs already had an adequate remedy at law.

Authored by: 
Cody Padgett, Associate
CAPSTONE LAW APC

U.S. Supreme Court Grants Cert. in Robins v. Spokeo

On April 27, 2015, the U.S. Supreme Court agreed to grant review of a Ninth Circuit decision addressing what constitutes “actual injury” for purposes of Article III standing. See Robins v. Spokeo, Inc., 742 F.3d 409 (9th Cir. 2014), cert. granted, 2015 U.S. LEXIS 2947 (U.S. Apr. 27, 2015) (No. 13-1339) (available here).

In Robins, the Ninth Circuit Court of Appeals ruled that a statutory violation alone is sufficient to confer Article III standing on a plaintiff in a case brought under the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681 et seq. The Robins plaintiff had filed a class action lawsuit against Spokeo—a “people search engine” website that aggregates personal information from public sources—alleging that the site willfully violated the FCRA by posting inaccurate information about him. In its petition to the Supreme Court, Spokeo broadly framed the question presented as whether Congress can confer Article III standing “in the absence of any allegation of concrete and particularized injury.” But Robins contends that he sufficiently alleged actual injuries caused by the dissemination of incorrect personal information, including financial and emotional injuries. Deepak Gupta of Gupta Beck PLLC, who is representing Robins, analogized FCRA violations to defamation in a recent interview with Law360: “If I say something false about you and put it in the world, you have a claim against me, and that’s a particularized claim you have, and there’s always been standing under those circumstances.”

The Office of the Solicitor General strongly opposes Spokeo’s position, and filed a brief in March at the request of the Court, arguing that Spokeo’s petition should be denied because “public dissemination of inaccurate personal information about the plaintiff is a form of ‘concrete harm’ that courts have traditionally acted to redress, whether or not the plaintiff can prove some further consequential injury.”

While both the plaintiff and defense bars anxiously await the resolution of this case, the Court still might choose to punt on this issue, as it has twice in the recent past. In First American Financial Corp. v. Edwards, 132 S. Ct. 2536 (2012), and First Nat’l Bank of Wahoo v. Charvat, 134 S. Ct. 1515 (2014), the Court avoided deciding similar issues that would limit the right of consumers to seek redress for statutory violations by corporations. Cert. was denied in Charvat, but in Edwards, the Court initially granted cert. then dismissed it as improvidently granted. It remains to be seen whether Robins will meet a similar fate.