Posts belonging to Category Motion Practice

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

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.

McGill v. Citibank: Consumer Attorneys Buoyed by Grant of Review

On April 1, 2015, the California Supreme Court granted review of McGill v. Citibank to decide whether Citibank can use an arbitration clause to stymie a customer from pursuing public injunctive relief under California’s consumer protection statutes. If awarded, a public injunction allows a successful litigant to stop an unlawful business practice statewide. The stakes are high: if the Court sides with Citibank, this powerful tool for California consumers effectively will be eviscerated. However, many plaintiffs lawyers are hopeful that the California Supreme Court will demonstrate the same inclination to prevent the further erosion of public remedies in California as it did in Iskanian v. CLS Transportation (see infra). McGill v. Citibank N.A.232 Cal. App. 4th 753 (2014), rev. granted, No. S224086 (Cal. April 1, 2015).

In McGill, the plaintiff (represented by Capstone Law APC) brought claims under California’s consumer protection statutes (the Consumer Legal Remedies Act, the Unfair Competition Law, and False Advertising Law) against Citibank for misrepresenting its “Credit Protector” insurance program to its cardholders. Along with damages, Ms. McGill sought to enjoin Citibank from engaging in this unfair business practice. The trial court partially granted Citibank’s motion to compel arbitration, but kept the public injunction remedy in court pursuant to the holding of two earlier Supreme Court decisions, Broughton v. Cigna Healthplans of California, 21 Cal. 4th 1066 (1999) and Cruz v. PacifiCare Health Systems, Inc., 30 Cal. 4th 303 (2003) (together referred to as having established the “Broughton-Cruz rule”). The Broughton-Cruz rule holds that, to the extent they seek public injunctive relief under California’s consumer protection statutes, claims must remain in court, even if all the other claims are sent to arbitration.

The appellate court reversed, holding that the Broughton-Cruz rule had been preempted by “the sweeping directive” of the Federal Arbitration Act (“FAA”) as stated in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), which struck down a California rule barring class action waivers. See McGill at 757. However, the intermediate court relied on passages from Concepcion that simply recited decades-old principles from Southland Corp. v. Keating, 465 U.S. 1 (1984) and Perry v. Thomas, 482 U.S. 483 (1987) precluding states from exempting private claims from being brought in the arbitral forum—cases that Broughton and Cruz carefully distinguished in lengthy analyses. In fact, the Court in Broughton and Cruz took its cue from a separate line of U.S. Supreme Court precedent meant to preclude an arbitration agreement from forcing a “prospective waiver of a party’s right to pursue statutory remedies.” Mitsubishi Motors v. Soler Chrysler-Plymouth (1985) 473 U.S. 614, 637 (1985); see also American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304, 2310 (2013).

Importantly, Broughton and Cruz recognized that arbitrators have no power to issue public injunctions, as they have no jurisdiction over nonparties. See Broughton at 1081, Cruz at 312. This “institutional shortcoming” precludes public injunctions from being issued by arbitrators at all—even if the claimant were completely successful in proving the merits of her claims in arbitration. Id. In other words, a plaintiff would waive his or her right to pursue public injunctions if it were not preserved in court; the remedy itself would be extinguished simply by virtue of its transfer from court to arbitration.

Broughton and Cruz also held that the FAA did not preempt a state law rule preserving wholly public claims or remedies such as the public injunction, which is not aimed at “resolv[ing] a private dispute but to remedy a public wrong.” Broughton, 21 Cal. 4th at 1079-80. This principle was just recently reaffirmed in Iskanian v. CLS Transportation Los Angeles LLC, 59 Cal. 4th 348, 387-88 (2014), which held that the FAA did not preempt a state law protecting public enforcement action like the Private Attorneys General Act representative action from forfeiture. Iskanian embodies the Court’s recognition that the FAA, as intended by Congress and construed by the U.S. Supreme Court, does not have unlimited preemptive reach. A decision upholding the Broughton-Cruz rule would be consistent with both Iskanian and the non-waiver principle only recently reaffirmed by the U.S. Supreme Court in Italian Colors.

However, the fate of the Broughton-Cruz rule may not even be reached in McGill. Unlike the agreements in Broughton and Cruz, Citibank’s arbitration agreement contains a term expressly precluding an arbitrator from awarding public injunctions. Thus, the California Supreme Court may well strike the offending term on unconscionability grounds or as a clear violation of the non-waiver principle, without reaching the broader issue of whether an arbitration agreement can be invalidated due to the inherent unavailability of certain remedies in the arbitral forum.

Authored by: 
Ryan Wu, Senior Counsel

Augustus v. ABM Security Services, Inc.: The California Court of Appeal Guts Mandatory Rest Break Protections for Class of Security Guards

On December 31, 2014, in a closely-watched case implicating substantive wage-and-hour law as well as class action law, the California Court of Appeal, Second Appellate District, reversed orders granting summary judgment and summary adjudication in favor of a plaintiff class of security guards for rest break violations under the California Labor Code, and affirmed the trial court’s grant of class certification. Augustus v. ABM Security Services, Inc., Nos. B243788 & B247392, 2014 Cal. App. LEXIS 1209 (Cal. Ct. App. Dec. 31, 2014) (available here). While the court initially issued its ruling as an unpublished decision, on January 29, 2015, the court changed the status of the opinion to “published.”

The trial court held that because ABM’s undisputed rest period policy required its security guards to remain “on call” during their breaks in order to respond to requests for tenant assistance (including for non-emergency security needs), the guards remained under ABM’s control, despite being able to engage in limited leisure activities, such as smoking cigarettes, surfing the internet, reading, or having a cup of coffee. Opinion and Order re: Cross Motions for Summary Judgment/Adjudication and Defendant’s Motion to Decertify Class, pp. 4-7, Dec. 23, 2010 (available here). The trial court reasoned that Industrial Welfare Commission (IWC) Wage Order No. 4 provides that “‘rest period time shall be counted as hours worked for which there shall be no deduction from wages.’ Time that the employee is subject to control of the employer is work time and must be paid [under Wage Order 4 and Morillion v. Royal Packing Co., 22 Cal. 4th 575 (2000)] without reference to the definition of a rest period [in section 11(A) of the Wage Order]. In order to make sense of the statutory scheme, a rest period must not be subject to employer control; otherwise a ‘rest period’ would be part of the work day for which the employer would be required to pay wages in any event.” Opinion and Order at 7. As the trial court stated, “[p]ut simply, if you are on call, you are not on break.” Augustus at *11. Because ABM failed as a matter of policy to provide any duty-free rest breaks, the trial court found it liable for rest period penalties under Labor Code section 226.7, as well as attorney’s fees and interest, in the total amount of nearly $90 million. The trial court had also certified the rest break subclass, finding that this was a “15,000-person one-issue case” that was “perfect for class treatment.” Id. at *12.

While the Court of Appeal affirmed the certification decision, it reversed the trial court’s summary judgment rulings, rejecting the trial court’s view of “on-call” rest breaks. The primary basis for the court’s decision that on-duty rest breaks are permissible was the court’s conclusion that “remaining available to work is not the same as performing work,” since the guards were freed from most of their work responsibilities during their rest breaks. Id. at *19. The court cited no authority for this distinction, but noted that its conclusion was “bolstered” by the fact that Wage Order No. 4, subdivision 11(A), which deals with meal breaks, requires that an employee be “relieved of all duty,” while subdivision 12(A), which deals with rest breaks, has no similar mandate. Id. at *17. The court found further support for this notion in the fact that the IWC requires only on-duty meal periods to be paid, while all rest breaks must be paid, suggesting that rest breaks are typically taken while on-duty and under the employer’s control. Id. at *17-18.

In the unpublished version of Augustus, the court also cited a 1993 Division of Labor Standards Enforcement (DLSE) letter that opined that simply remaining on-call is not “so inherently intrusive” as to require that an employee is compensated for such time. Augustus v. ABM Security Services, Inc., Nos. B243788 & B247392, 2014 Cal. App. Unpub. LEXIS 9287 at *28 (Cal. Ct. App. Dec. 31, 2014) (available here.) Therefore, the court concluded that, reading the various provisions together, employees cannot be made to work during rest breaks, but they need not be “relieved of all duty” such as the duty to remain on call. Augustus at *17-18.

Shortly after the Augustus unpublished opinion was issued, the California Supreme Court ruled, in Mendiola v. CPS Security Solutions, 60 Cal. 4th 833 (2015), that CPS security guards’ “on-call hours constituted compensable hours worked and, further, that CPS could not exclude ‘sleep time’ from plaintiffs’ 24-hour shifts.” Mendiola at 838. In so ruling, the Court reaffirmed that the “extent of the employer’s control” dictates “whether on-call time constitutes hours worked” and that employees could remain under the control of their employer even if they were engaged to “wait for something to happen,” reasoning that “[r]eadiness to serve may be hired, quite as much as service itself.” Id. at 840. The Mendiola Court also ruled that “the fact that guards could engage in limited personal activities [including sleeping, showering, eating, reading, watching television, and browsing the internet] does not lessen the extent of CPS’s control,” which included, inter alia, that guards “were obliged to respond, immediately and in uniform,” to dispatched calls and that they could not leave the premises if a relief guard was not available. Id. at 841-42. Thus, the Court found that all of the security guards’ on-call time, including sleep time, was “time worked” and compensable.

On January 29, 2015, the Court of Appeal changed the status of the Augustus opinion from “unpublished” to “published” and issued its Order Modifying Opinion and Denying Rehearing; Certifying Opinion for Publication (available here). Given the overlapping issues in Mendiola and Augustus, the court felt compelled to respond to the controlling Mendiola decision. In the published opinion, the court offered a new basis for its conclusion that simply being on-call is not “work” for purposes of determining whether a compliant rest break has been provided. Citing the 70-year-old Fair Labor Standards Act (FLSA) case of Tennessee Coal, Iron & R. Co. v. Muscada Local No. 123, 321 U.S. 590 (1944), the Court of Appeal reasoned that the term “work” is used as a verb in section 226.7, not as a noun as in the definition of “hours worked” in Wage Order No. 4, and that when used as a verb, it “means exertion on an employer’s behalf.” Order Modifying Opinion at 1-2. It further concluded that because “[o]n-call status is a state of being, not an action [and] 226.7 prohibits only the action, not the status,” ABM’s security guards were not “required to work” during their rest breaks in violation of section 226.7. Id. at 2. The court attempted to harmonize Mendiola’s holding by suggesting a connection between the Augustus court’s ruling that being on-call during rest periods is a status and not an action, and the Supreme Court’s observation that “‘an employer, if he chooses, may hire a man to do nothing, or to do nothing but wait for something to happen . . . . [I]dleness plays a part in all employments in a stand-by capacity.’” Id. (quoting Mendiola at 840 (quoting Armour & Co. v. Wantock (1944), 323 U.S. 126, 133)). Indeed, the Court of Appeal went further by suggesting that the Court in Mendiola “implicitly acknowledged” that “remaining available to work is not the same as performing work.” Order Modifying Opinion at 3. Finally, in its revised opinion, the Augustus court deleted any reliance on the DLSE’s 1993 opinion letter finding that on-call time is not time under the employer’s control and therefore is not compensable.

Given the broad implications of the Augustus decision for California wage-and-hour law, as well as the very substantial consequences for the litigants (a $90 million judgment was overturned, after all), a petition for review to the California Supreme Court seems inevitable. There are a number of bases on which review should be granted and/or the decision should be reversed. Several of the most compelling arguments are as follows:

1. The Plain Language of Labor Code Section 226.7 Requires that Meal and Rest Breaks Be Treated the Same – As Duty-Free and Free from Employer Control

The Augustus court’s conclusion that employees must be allowed a duty-free meal break, but need not be provided a duty-free rest break, violates Labor Code section 226.7. Section 226.7(b) provides that “[a]n employer shall not require an employee to work during a meal or rest or recovery period.” (Emphasis added.) In other words, section 226.7, the primary Labor Code section defining an employer’s obligation with respect to rest breaks, by its plain language treats meal and rest periods the same. The Augustus court’s holding, however, interprets the word “work” in the statute to mean something different for rest periods than for meal periods, to wit: that meal breaks must be duty-free, but rest breaks need only be free of some duties—i.e., only those that cause “exertion.” The unequivocal language of the statute does not permit such divergent standards. See Mendiola at 840 (if a statute’s text “’is clear and unambiguous [a court’s construction] inquiry ends’” (quoting Murphy v. Kenneth Cole Prods., Inc., 40 Cal. 4th 1094, 1103 (2007))).

2. Treating Rest Breaks as Different from Meal Breaks Ignores Controlling California Precedent Requiring that Both Meal and Rest Breaks Be “Free from Employer Control” and “Duty-Free” To Be Compliant

In 2007, the California Supreme Court observed that “being forced to forgo rest and meal periods denies employees time free from employer control that is often needed to be able to accomplish important personal tasks.” Murphy at 1113. Indeed, the Court expressly rejected the notion that employees can be required “to work” during rest periods: “If denied two paid rest periods in an eight-hour workday, an employee essentially performs 20 minutes of ‘free’ work, i.e., the employee receives the same amount of compensation for working through the rest periods that the employee would have received had he or she been permitted to take the rest periods.” Id. at 1104.

Thus, the Augustus court’s conclusion that employees may be required to work (just not exert themselves) or remain under their employer’s control during rest periods disregards controlling California Supreme Court precedent and is likewise contrary to other California appellate decisions. In Bufil v. Dollar Financial Group, Inc., 162 Cal. App. 4th 1193, 1199 (2008), the Court of Appeal acknowledged that employers must “relieve employees of all duty for 10 consecutive minutes every four hours in order to accommodate lawful rest breaks.” In Faulkinbury v. Boyd & Associates, Inc., 216 Cal. App. 4th 220 (2013), the Court of Appeal reasoned that rest breaks must be “duty-free” based, in part, on the DLSE’s Opinion Letters, one of which stated that “there must be a net 10 minutes of rest provided in each ‘work period’ and the rest period must be, as the language [of Wage Order No. 4-2001] implies, duty-free.” Faulkinbury at 237 (citing Dept. of Industrial Relations, DLSE, Acting Chief Counsel Anne Stevason, Opn. Letter No. 2002.02.22, Rest Period Requirements (Feb. 22, 2002)). Indeed, the Faulkinbury court concluded from the plain language in Subdivisions 11 and 12 of Wage Order 4 that “[t]here does not appear to be an on-duty rest break exception as there is with meal breaks.” Id.

Put simply, the Augustus court’s approval of on-duty rest periods is irreconcilable with well-settled California law.

3. Augustus Adopts a Definition of “Work” Meaning “Physical Exertion” that Has Long Been Repudiated by Other Courts, and that Will Wreak Havoc on Numerous DLSE Standards, IWC Regulations, and Labor Code Provisions that Turn on the Definition of “Work”

The Augustus court concluded that on-call rest periods are permissible because the “work” that section 226.7 of the California Labor Code prohibits—with respect to rest breaks only—must involve “active exertion.” But its only support for this interpretation of the word “work” in section 226.7 is a nearly 70-year-old United States Supreme Court case that defined “work” under the FLSA as “physical or mental exertion.” Augustus Order at 1-2 (citing Tennessee Coal, Iron & Railroad Co. v. Muscoda Local No. 123, 321 U.S. 590, 598 (1944)). Aside from the fact that the California Supreme Court has repeatedly “cautioned against confounding federal and state labor law” and relying on federal labor law or statutory interpretations to construe California labor statutes (Mendiola at 843), the Augustus court’s reliance on Muscoda’s definition of “work” as “physical exertion” is misguided. The United States Supreme Court abandoned that definition of “work” the same year the Muscoda decision issued. Indeed, in Armour & Co. v. Wantock, 323 U.S. 126, 133 (1944), the Court clarified that “exertion” was not in fact necessary for an activity to constitute “work” under the FLSA. See IBP v. Alvarez, 546 U.S. 21, 24-25 (2005) (discussing the progression of the case law). In abandoning the earlier “exertion” definition of work, the Armour Court pointed out that “an employer, if he chooses, may hire a man to do nothing, or to do nothing but wait for something to happen.” Armour, 323 U.S. at 133. And just two years later, the Court defined the “statutory workweek” to “includ[e] all time during which an employee is necessarily required to be on the employer’s premises, on duty or at a prescribed workplace.” Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 690-91 (1946). Thus, the “exertion” definition of “work” has been thoroughly repudiated.

Moreover, defining work as “exertion” could create havoc if applied to other provisions of the Labor Code and Wage Orders. For instance, the wage orders use the word “work” as both a noun and a verb in Subdivision 3, in defining when an employer is obligated to pay overtime and how overtime pay is to be calculated. Wage Order 5-2001, Subdivision 3(A)’s Daily Overtime – General Provisions, provides that an “employee[] with direct responsibility for children . . . who works in excess of 40 hours in a workweek shall be compensated at one and one-half (1 ½) times such employee’s regular rate of pay for all hours worked over 40 hours in a workweek.” (Emphasis added.) Under Augustus’s noun-verb distinction, a childcare worker would not be entitled to overtime pay for a workweek of more than 40 hours unless the work involved “physical exertion”; clearly this was not the intent of IWC. The confusion is further compounded when, using the same overtime example, one considers that Labor Code section 510, which defines an employer’s obligations with respect to overtime pay, uses “work” only as a noun. Surely this cannot be the law, as the Wage Order and Labor Code are entitled to equal dignity, but would yield different results.

Finally, a great number of occupations consist mostly, or even entirely, of time spent “waiting for something to happen,” but not actually “exerting” any effort at all. Among innumerable examples are a toll booth operator working in some remote place or a receptionist for certain businesses. These employees might spend an entire shift waiting for something to happen (for a car to come by, or for the phone to ring) without ever having to “exert” any effort. Yet under Augustus, they would not be entitled to actual “rest breaks” because such breaks would be indistinguishable from the rest of their shift time. Again, this cannot be the law.

In Murphy, the California Supreme Court recognized that freedom from employer control is the very purpose of both meal and rest periods and is essential to an employee’s ability to effectively use their breaks for their own purposes. See Murphy at 1113; see also Mendiola at 842 (“The fact that guards could engage in limited personal activities does not lessen the extent of CPS’s control.”); Morillion at 586 (finding time on the employer’s bus to the work-site compensable because “plaintiffs could not drop off their children at school, stop for breakfast before work, or run other errands . . . [; and,] [a]llowing plaintiffs the circumscribed activities of reading or sleeping does not affect” or eliminate the employer’s control). In short, an employee cannot use their rest periods for their own purposes if their employer requires them to stand by, ready to perform his or her duty, if called to do so.

Selecting an abrogated, decades-old Supreme Court case decided under federal law to supply the critical definition of “work” upon which the determination of the case’s ultimate issue depended appears to have been precisely the type of “needless policy determination” that the Supreme Court recently warned against in Mendiola. See Mendiola at 847-48 (noting that the Supreme Court “in Morillion instructed courts not to engage in needless policy determinations regarding wage orders the IWC promulgates.”).

4. Only the DLSE, Pursuant to Section 17 of the Wage Orders, Has the Authority to Exempt Employers from Their Obligation to Provide Duty-Free Rest Breaks

Section 17 of the Wage Orders gives the DLSE the discretionary authority to issue exemptions from certain provisions of the Wage Orders, including the rest period provision, if enforcement of the provision “would not materially affect the welfare or comfort of employees and would work an undue hardship on the employer.” Indeed, ABM had actually obtained an exemption from the DLSE for duty-free rest periods after the Augustus suit was filed, but decided not to renew the exemption thereafter. (The Augustus plaintiff actually excluded the year during which the exemption was in place from the lawsuit.) The Augustus decision, however, effectively renders this exemption power a nullity. If rest breaks need not be duty-free, it follows that employers would not need to seek the DLSE’s permission to institute on-duty rest breaks.

It remains to be seen how California courts will reconcile the holding in Augustus with that of Mendiola in future cases alleging rest break violations. With the Augustus court’s January 29th issuance of its order modifying the opinion and certifying it for publication, the deadline for plaintiffs to file a Petition for Review to the California Supreme Court is now March 10, 2015.

Authored by:
Glenn Danas, Partner
Melissa Grant, Senior Counsel