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9th Cir.: Dollar Value of Injunctive Relief Not Needed for Settlement Approval in Laguna v. Coverall

Earlier this month, the U.S. Court of Appeal for the Ninth Circuit affirmed the district court’s approval of a proposed class action settlement and an award of attorneys’ fees. Laguna v. Coverall North America, Inc., No. 12-55479 (9th Cir. June 3, 2014) (slip op. available here). The suit alleged that Coverall, a janitorial franchising company, misclassified its California franchisees as independent contractors and improperly removed customer accounts from franchisees to re-sell them to other franchisees.

The decision came after one franchisee objected to the settlement, which included cash payouts, credits toward a new franchise, and a promise from Coverall to assign customer accounts to current franchisees once full franchise fees were paid, among other relief. As to the settlement as a whole, the panel found that the district court had not erred by considering the Churchill factors in granting approval, such as the difficulty of obtaining class certification in the wake of Dukes, the defendant’s poor financial health, the fact that no governmental entity had participated in the matter, the experience of class counsel, and the fact that only two class members had opted out of participating in the settlement. Slip op. at 8-10 (citing Churchill Vill., L.L.C. v. Gen. Elec., 361 F.3d 566, 575 (9th Cir. 2004) (internal citations omitted). The objector argued that the district court had not properly assessed the value of the non-monetary injunctive relief, the assignment of customer accounts. The panel found, however, that the district court was not obligated to conduct such a monetary valuation to determine whether the proposed settlement was fair, stating, “[w]e have never required a district court to assign a monetary value to purely injunctive relief.” Id. at 10.

The Ninth Circuit also held that the lower court had not abused its discretion in awarding fees based on the lodestar method “because the lodestar method is most appropriate where the relief sought is ‘primarily injunctive in nature,’ and a fee-shifting statute authorizes ‘the award of fees to ensure compensation for counsel undertaking socially beneficial litigation.’” Slip op. at 6. Furthermore, the panel found the award of approximately $995,000 in attorneys’ fees to be fair where the value of the cash settlement and injunctive relief provided (the assignment of accounts and the promise of programmatic changes) was likely more than $4 million. Id. at 7-8. Also, the district court had not abused its discretion in finding that the fee award, which was approximately a third of the lodestar amount, was reasonable. Id. at 8.

Dissenting Judge Edward M. Chen from the Northern District of California, sitting by designation, wrote that he would have remanded the case for fuller development of the record, due to the lack of “crucial information,” such as the proportion of the class eligible to receive the non-monetary benefit of the settlement, the value of the monetary relief to the class, and the justification (if any) for imposing a claims process with a reverter of unclaimed funds back to Coverall, without which the district court could not fully evaluate the adequacy of the settlement or the reasonableness of the attorneys’ fee award. Slip op. at 17.

Court of Appeal Reverses Decertification of CA Rite Aid Seating Class Action

The California Court of Appeal, Fourth Appellate District revived a class action lawsuit over Rite Aid’s failure to provide seating to its clerks and cashiers on May 16, 2014. Hall v. Rite Aid Corp., No. D062909 (4th Dist. Div. 1 May 16, 2014) (slip op. available here). In Hall, the Court of Appeal reversed a 2012 trial court order decertifying a class action of nearly 16,000 Rite Aid cashiers and clerks who alleged they were denied seating in violation of California’s Industrial Welfare Commission Wage Order 7-2001, section 14.

The panel found that the San Diego Superior Court trial judge prematurely considered the merits of the case when she decertified the class, deciding that the plaintiff’s claims could not be decided on a classwide basis. The panel held that the trial court had failed to follow the approach laid out in the California Supreme Court’s decision in Brinker Rest. Corp. v. Superior Court (273 P.3d 513 (2012)), because the trial court had assessed the merits of the plaintiff’s legal theory of liability, rather than whether that theory was amenable to class treatment. Finding that the plaintiff’s theory of recovery, i.e. “what is Rite Aid’s policy” and “whether the nature of the work involved in performing check-out functions would reasonably permit the use of seats,” were amenable to common proof, the court stated, “[w]e read Brinker to hold that, at the class certification stage, as long as the plaintiff’s posited theory of liability is amenable to resolution on a class-wide basis, the court should certify the action for class treatment even if the plaintiff’s theory is ultimately incorrect at its substantive level.” Slip op. at 19-20.

The case was remanded back to the lower court for further proceedings. The Rite Aid decision suggests that a plaintiff alleging that a common employer policy violates the law may be enough for a court to grant certification. In line with BrinkerRite Aid states that reviewing the merits of a case at the class certification stage should be “closely circumscribed” and only should occur in limited circumstances. Slip op. at 21 (quoting Brinker, 273 P.3d 513 at 526 (2012)).

Charles Schwab Fined $500,000 by FINRA over Class Action Waiver

On April 24, 2014, Charles Schwab & Co., the financial services brokerage firm, agreed to pay $500,000 in fines and acknowledged a ruling by the Financial Industry Regulatory Authority (“FINRA”) Board of Governors, which concluded that Charles Schwab had violated FINRA rules by including a class action waiver clause in its customer agreement. See FINRA Decision, Department of Enforcement v. Charles Schwab & Co., Complaint No. 2011029760201 (April 24, 2014) (available here).

In 2012, FINRA brought an administrative enforcement action against Schwab for violating its rules after Schwab, in October 2011, added a class action waiver to its customer account agreements. Decision, at 1-2. FINRA Rule 2268(d)(3) of the Customer Code prohibits member firms from placing in predispute arbitration agreements “any condition that . . . limits the ability of a party to file any claim in court permitted to be filed in court under the rules of the forums in which a claim may be filed under the agreement.” Additionally, Rule 2268(d)(1) states, “[n]o predispute arbitration agreement shall include any condition that . . . limits or contradicts the rules of any self-regulatory organization”; the waiver limited and contradicted Rule 12204(d), which provides that a FINRA member may not enforce an arbitration agreement against a member of a certified or putative class action until: class certification is denied; the class is decertified; the class member is excluded from the class by the court; or the class member elects not to participate in or withdraws from the class.

Schwab’s attempt to ban customer class actions arose following a $235 million class action settlement that had alleged that it misled thousands of clients about its YieldPlus money-market fund. In February 2013, a FINRA Hearing Panel held that although Schwab had violated FINRA rules by banning class action lawsuits, the Federal Arbitration Act (“FAA”) preempted such rules. Id. at 2. The Hearing Panel had also found that Schwab had violated Rule 2268(d)(1) by preventing arbitrators from consolidating claims in arbitration (contradicting Rule 12312(b), which provides that they have such authority), and that the FAA did not preclude enforcement of those rules governing the powers of arbitrators and the procedures for FINRA arbitration. Id. at 3. For this violation, the Panel ordered Schwab to remove this language, notify all customers, and pay a fine of $500,000. Id.

FINRA appealed the Hearing Panel’s decision to the Board of Governors. The board considered two central questions:

The first is whether . . . FINRA rules preserve for customers the ability to bring or participate in judicial class actions and FINRA arbitrators the ability to consolidate more than one party’s claims in arbitration. The second is whether the . . . FAA[], which applies to arbitrations of commercial transactions, applies to NASD and FINRA arbitration rules and preempts enforcement of those rules.

Id. at 2. The Board affirmed the part of the Hearing Panel’s ruling concluding that Schwab had broken FINRA’s rules by inserting the class action waiver. Id. at 28. The Board reversed the Panel’s prior holding that the FINRA rule on this point was preempted, finding that the FAA does not dictate specific arbitration procedures and that FINRA’s procedures do not “act as an obstacle to the FAA’s goals”; thus, FINRA “may enforce” the rules against Schwab. Id.

As part of the settlement, Charles Schwab was required to notify all of its customers that the waiver has been withdrawn and is no longer in effect.

Chinese Class Action: Take the Boss Hostage

With U.S. business owners celebrating the Supreme Court’s embrace of “the liberal federal policy favoring arbitration” and hastening to add arbitration clauses with class action waivers to the stack of first-day paperwork for new hires to sign, news from China suggests an approach far more aggressive than anything Rule 23 contemplates. Charles Starnes, co-owner of Florida-based Specialty Medical Supplies, arrived at his Beijing factory last week intending to lay off 30 employees. However, Starnes was preempted by the employees, who rather than being escorted out of the building by an officious HR employee, took Starnes hostage. The employees/captors have since benefitted from the Chinese government’s apparent indifference, if not its affirmative support, as Starnes remains in captivity.

Accounts vary as to exactly what happened, though it seems that Starnes’ meeting with employees went awry like an unsuccessful mediation writ large, with employees having expected a more generous severance package. Instead of responding with the usual counter-offer, they put Starnes in something that looks a lot like a conventional jail, albeit with more elegant bar beveling than is usually seen in prisons. Apparently, according to the Washington Post, “a lot of CEOs get taken hostage in China.”

The paper documents a similar incident that took place in Shanghai, in January of this year, but no others, noting only that workers taking their boss hostage “doesn’t make for international headlines.” This time, however, it did make headlines. Even so, Starnes remains in captivity, as no international groundswell has demanded his release. No word on whether Starnes will be required to resolve the dispute with his captors under the efficient, streamlined auspices of arbitration.