In re UPS Wage and Hour Cases: Court of Appeal Reverses Defendant’s Fee Award In a recent decision that is likely to discourage wage-and-hour class action defendants from seeking attorneys’ fees, California’s Second Appellate District, Division Eight, reversed the trial court’s award of $100,000 in fees to UPS after it prevailed at a rare jury trial as to misclassification-based overtime claims. See In re UPS Wage and Hour Cases, 192 Cal. App. 4th 1425, 1430 (Cal. Ct. App. 2011). Thus, despite having won the case, UPS was deemed not entitled to any attorneys’ fees whatsoever under California statutory and common law authority, which has deliberately guarded against creating disincentives to employees seeking to enforce workplace rights through class actions.

In a closely-reasoned decision, the unanimous three-justice panel carefully examined each of the plaintiff’s six causes of action on which UPS had prevailed, and concluded that there was not a basis for UPS’s recovery of attorneys’ fees as to any of the causes of action. Although the review of decisions awarding attorneys’ fees is ordinarily conducted under an abuse of discretion standard, here, because statutory interpretation was at issue, the In re UPS panel conducted an entirely de novo review. See id. at 1431.

Justice Grimes began by examining the interplay between Labor Code section 218.5, the bilateral fee-shifting statute, and Labor Code section 1194, which provides for the recovery of attorneys’ fees, but only to successful plaintiffs in minimum wage and overtime cases. See In re UPS at 1432-36. Underscoring that it was “[c]onstruing the entire statutory scheme with a view toward protecting employees,” the panel held that “a claim for remedial compensation under Labor Code section 226.7 does not trigger the reciprocal fee recovery provisions of Labor Code section 218.5. Since none of the claims on which UPS prevailed permit the recovery of attorney fees, the award of statutory fees to UPS was in error.” Id. at 1440.

The court’s exhaustive analysis noted that, although Section 1194 provides for fee awards only to prevailing employees on overtime compensation claims, Section 218.5 does not did not bar employers, here UPS, from seeking to recover the fees it incurred in defending the plaintiff’s other claims, such as: failure to provide meal and rest breaks; issuing statutorily non-compliant wage statements; common law conversion; and unfair competition. However, after analyzing each cause of action, the court concluded that there was no basis for UPS’s (or any similarly situated wage-and-hour defendant’s) recovery of fees. Section 1194 precluded recovery as to both state and federal overtime claims; Section 226 allowed fee awards to employees only; and California’s unfair competition law categorically does not authorize attorney fee awards. See In re UPS at 1432-35.

The key holding in this case for California’s wage-and-hour class action practitioners is that Section 218.5 does not reflexively imply that employer/defendants are entitled to recover attorneys’ fees, which will impact the numerous meal and rest break class actions still pending, many of which are stayed as the Supreme Court deliberates Brinker v. Superior Court, 80 Cal. Rptr. 3d 781 (Cal. Ct. App. 2008), rev. granted, 196 P.3d 216 (Cal. Oct. 22, 2008) (No. S166350).

The full opinion is available here.

The United States Supreme Court today issued a 5-4 opinion reversing a Ninth Circuit decision and holding that AT&T may enforce a contract provision that requires customers to arbitrate their disputes individually, rather than class-wide.  Some have predicted that such a ruling could effectively end consumer class actions of this type.  In so ruling, the Supreme Court held that the Federal Arbitration Act (FAA) preempts California’s extensively articulated doctrine of unconscionable contracts, which had operated to invalidate the manifestly one-sided provision by which AT&T customers were required to arbitrate disputes and were prohibited from arbitrating claims as class actions (a de facto class action ban).  Consequently, since such provisions are not in fact “negotiated,” but rather are drafted by the employers and retailers who have a virtual monopoly on bargaining power, this decision is expected to motivate employers and retailers to unilaterally insert class action prohibitions in employment and consumer agreements under the guise of an arbitration clause.

The AT&T v. Concepcion majority opinion was written by Justice Antonin Scalia, often celebrated in Federalist Society circles as an advocate for state autonomy.  “States cannot require a procedure that is inconsistent with the FAA,” Scalia wrote, drawing on his strict-constructionist persona, “even if it is desirable for unrelated reasons.”  In dissent, Justice Stephen Breyer ominously suggested the implications of today’s AT&T v. Concepcion ruling: “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?”

Being that the Supreme Court is the judicial tier of last resort, this battle is now over in the courts.  Among the options for those wishing to ensure the continuation of class actions is amendment of the FAA to accommodate state policy choices.  However, it is unclear whether there is the political motivation in either the Congress or executive branch for such an undertaking.

The full opinion is available here.

In Fitzpatrick v. General Mills, No. 10-11064, 2011 U.S. App. LEXIS 6047 (11th Cir. 2011) (available here), the Eleventh Circuit applied the presumption of reliance among absent class members in a consumer class action case alleging affirmative misrepresentations , similar to the standard used in consumer class actions alleging material omissions. The presumption of reliance where material omissions are alleged is increasingly uncontroversial. See e.g., Cole v. Asurion Corp., 267 F.R.D. 322 (C.D. Cal. 2010) granting certification on omission-based liability theory); Wolin v. Jaguar Land Rover North America, LLC, 617 F.3d 1168 (9th Cir. 2010) (reversing denial of certification where district court abused discretion; common questions predominated as to defendant’s duty to disclose under consumer protection statutes). And while Fitzpatrick formally represents an application of Florida’s consumer protection statute, its broader significance could be in confirming that the presumption of reliance has the same utility in affirmative misrepresentation consumer class actions as in those alleging omissions.

In Fitzpatrick, the district court certified a class alleging that General Mills had materially misrepresented the digestive benefits of its YoPlus yogurt, sold under the popular Yoplait brand. Fitzpatrick, 10-11064 at *2-*3. Not only did the Court of Appeals reject the defendant’s contention on appeal that the district court had abused its discretion in certifying the class because individual issues predominate, the unanimous three-judge panel praised the certification ruling as “a scholarly work reflecting careful attention to the requirements of Federal Rule of Civil Procedure 23, existing precedent and the factual background of this matter.” Id. at *7.

The Eleventh Circuit’s lone quibble with the district court’s certification ruling was that it embodied a class definition that “seems to conflict with its earlier sound analysis.” Id. at *9-*10. Specifically, in limiting the class to those who purchased YoPlus to obtain its claimed digestive health benefit, the federal appellate court noted that the definition “takes into account individual reliance on the digestive health claims,” thereby contradicting the controlling presumed reliance standard. Id. at *10. Thus, although the opinion formally vacated the district court’s certification order, the case was remanded with instructions that the district court issue a certification order that properly reflects its own standard of presumed reliance. Id.

Securities class actions saw the first application of presumption of reliance as the fraud on the market theory to a narrow subset of cases. Now the fraud on the market version of presumed reliance applies virtually without exception in securities class actions. A similar common law evolution is evident in consumer class actions, as Fitzpatrick suggests that the same pragmatic logic by which the presumptions of reliance attach in consumer class actions alleging material omissions is equally applicable where affirmative misrepresentations are alleged.

Class action defendants frequently argue, under the class certification superiority rubric, that potentially annihilating penalties means class treatment is not superior to individual litigation, and thereby precludes certification. However, under Bateman v. American Multi-Cinema, Inc., 623 F.3d 708 (9th Cir. 2010) (available here), the Ninth Circuit has held that Rule 23 does not permit the trial court to consider whether the defendant’s potential liability would be disproportionate to the class members’ actual damages. The three-judge panel reversed the denial of class certification by former Central District Judge, the late Florence-Marie Cooper, under the Fair Credit Reporting Act (FCRA), 15 U.S.C. §§ 1681 et seq. Judge Cooper’s certification denial had focused on the purported lack of superiority because “the magnitude of Defendant’s statutory liability is enormous and completely out of proportion to any harm suffered by Plaintiff or potential class members.” Bateman v. American Multi-Cinema, Inc., 252 F.R.D. 647, 651 (C.D. Cal. 2008) (available here).

In reversing the denial of certification, though, Bateman declined to follow a number of earlier cases involving the Truth-in-Lending Act (TILA), 15 U.S.C. §§1601 et seq., in which courts considered annihilating penalties as bearing on the superiority criterion, and on that basis denied class certification. For instance, in the much-cited case of Ratner v. Chemical Bank New York Trust Co., 54 F.R.D. 412 (S.D.N.Y.1972), District Judge Frankel denied class certification in a TILA claim because the potential $13 million award “would be a horrendous, possibly annihilating punishment, unrelated to any damage to the purported class or to any benefit to defendant, for what is at most a technical and debatable violation of the Truth in Lending Act.” Id. at 422.

Under Bateman, the law of the Ninth Circuit is that “the Rule 23(b)(3) superiority analysis must be consistent with the congressional intent in enacting a particular statutory damages provision.” Bateman, 623 F.3d at 716. After acknowledging the different holding in Ratner, the Bateman panel explained “[t]here is no language in the statute, nor any indication in the legislative history, that Congress provided for judicial discretion to depart from the $ 100 to $ 1000 range where a district judge finds that damages are disproportionate to harm. Further, we cannot surmise a principled basis for determining when damages are and are not ‘proportionate’ to actual harm. Indeed, one might plausibly argue that a $ 1000 award, or even a $ 100 award, for a single violation of FACTA, without any allegation of harm, is not proportionate. But the plain text of the statute makes absolutely clear that, in Congress’s judgment, the $ 100 to $ 1000 range is proportionate and appropriately compensates the consumer.” Id. at 719.

Other circuit courts, as well as district courts in other circuits, have similarly held that the Ratner annihilating penalties analysis to be improper. See, e.g., Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006) (holding that problem of annihilating penalties should not be addressed at the class-certification stage).