7th Cir. Reinstates Class Action for Volvo Plug-In Hybrid Range Misrepresentations

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In the Seventh Circuit Court of Appeals’ recent opinion in Laurens, et al. v. Volvo Cars of North America, LLC, et al., the court relied on the notion of common sense (and basic contract formation principles) to cudgel Volvo’s and other automakers’ attempts to moot consumer class actions through the trend of “picking off” plaintiffs. Case No. 16-3829 (7th Cir. Aug. 22, 2017) (slip op. available here). At issue was the advertised mileage capability of a Volvo Model XC90 T8, a hybrid plug-in SUV, when running solely on battery power. The plug-in hybrid was sold at a $20,000 premium as compared to its non-hybrid counterpart, the XC90.

The court referred to the process of “picking off plaintiffs” as a “theme” with many variations, several of which “have been tried and have failed.” Slip op. at 1. In Laurens, Volvo contended, in a motion to dismiss under Fed. Rule 12(b)(1), that Khadija Laurens, one of the now-plaintiffs, lacked standing because Volvo had sent her a letter offering complete relief before she had been added to the current lawsuit (her husband, Xavier, was the initial named plaintiff). The district court agreed that the defendant’s offer had redressed her injury before she became a party to the suit, and thus dismissed the action.

In a refreshingly straightforward analysis, applying basic contract law, the Court of Appeals held that simply making an unaccepted pre-litigation offer of redress does not result in a loss of Article III standing. As the court explained: “Any first-year law student knows that contract formation requires offer, acceptance and consideration. . . .  Consider what this case would look if the parties were reversed. [Plaintiff] could not argue that she had the right unilaterally to compel an unwilling Volvo to trade a full refund in exchange for her claim.” Slip op. at 11-12. This latest variety of attempting to moot a class action via unaccepted pre-litigation offers met a demise similar to Campbell-Ewald, where the Supreme Court of the United States clearly found that a case was not mooted by an unaccepted Rule 68 offer of judgment; thus, the plaintiff still had standing in a Telephone Consumer Protection Act case. Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016).

After the appeals court reversed and remanded the Laurens action, the district court applied the ruling and, for the most part, denied the defendant’s motion to dismiss. Such uncomplicated analysis by the Seventh Circuit is welcome in the often convoluted world of Article III standing.

Authored by:
Tarek Zohdy, Associate

Monroy v. Yoshinoya: Reporting Time Gets Modernized

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Yoshinoya—the Japanese-inspired fast food restaurant chain, like many modern companies, has tried to maximize its own flexibility while minimizing labor costs through an uncompensated “on-call” scheduling system. Specifically, in Monroy v. Yoshinoya, Case No. BC653419 (Los Angeles Superior Court), the plaintiff alleged that the restaurant would schedule employees for “on-call” shifts, where the employee is expected to call the manager at a specific time or two hours prior to his or her scheduled start time. If the employee is needed, he or she is called into work; if not needed, he or she is informed that he or she will not be working that day. If an employee does not call in and report to work when needed, the employee is subject to discipline. Employees do not receive any compensation for the “on-call” shifts, unless they were called into work.

Although “on-call” scheduling is a commonly-utilized practice, on November 27, 2017, Judge Elihu M. Berle denied Yoshinoya’s motion for summary judgment and ruled that its scheduling system was a violation of California’s reporting time laws. See Notice of Ruling on Defendant’s Motion for Summary Adjudication, available here. Wage Order No. 5-2001(5)(A)[1] provides that:

[E]ach workday an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work, the employee shall be paid for half the usual or scheduled day’s work, but in no event for less than two (2) hours not more than four (4) hours, at the employee’s regular rate of pay, which shall not be less than the minimum wage.

Employers have consistently argued that an employee does not “report for work” unless he or she physically shows up at the work site. Employees, on the other hand, have argued that the Wage Order encompasses any time an employee is required to reserve his or her day, check in, and be prepared to work—whether that be by physically reporting or checking in by phone or other electronic means.

Prior to Judge Berle’s ruling, two federal court cases had addressed this issue: Casas v. Victoria’s Secret, LLC (C.D. Cal. April 9, 2015), No. 2:14-cv-06412-GW-VBK, and Bernal v. Zumiez, Inc., 2017 WL 3585230 (E.D. Cal. Aug. 17, 2017). In Casas, the court found that reporting for work required physically appearing at the work site, whereas Bernal found the opposite and found that “reporting for work may be accomplished telephonically.” There is not yet any California appellate authority addressing this issue.

At oral argument, Judge Berle focused on two issues: first, the fundamental fairness of requiring employees to block off their day because they may be called to work. Judge Berle pointed out that by doing so, the employee is not free to make a doctor’s appointment, agree to take care of a family member, or schedule other appointments, because he or she must reserve the day or part of the day to be available to work. Second, the judge noted that, in this case, there was the threat of discipline if the employee failed to call in or report to work if called, which created a “right to control.” Judge Berle characterized Yoshinoya’s position as amounting to employer control “without compensation.”

What this means is quite simple: employers can no longer assume that unless an employee physically reports to work, that they are not responsible for reporting time pay. Reporting for work can now potentially encompass any time an employee is required to make himself or herself available to work and report in—no matter the means of reporting.

[1] All of California’s wage orders contain the same reporting time requirement.

Authored by:
Arnab Banerjee, Senior Counsel

Davidson v. Kimberly-Clark: 9th Cir. Resolves Split and Closes Article III Loopholes in False Ad. Cases

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On October 20, 2017, the U.S. Court of Appeals for the Ninth Circuit resolved the highly-contentious district court split over Article III standing for injunctive relief in deceptive advertising cases in favor of consumers. Davidson v. Kimberly-Clark Corp., et al., No. 15-16173, 2017 WL 4700093 (9th Cir. Oct. 20, 2017) (slip op. available here). In Davidson, the plaintiff alleged that she purchased, for a premium price, pre-moistened wipes manufactured and sold by the defendant, in part, because they were advertised as “flushable.” Ms. Davidson brought claims against Kimberly-Clark Corp. for violations of California’s consumer protection statutes, including the Consumers Legal Remedies Act (CLRA), False Advertising Law (FAL), and Unfair Competition Law (UCL), after her discovery that the wipes were not flushable, as advertised. Her complaint stated that, although she stopped purchasing the wipes, she would purchase them in the future, “if it were possible to determine prior to purchase if the wipes were suitable to be flushed.” Slip op. at 7. The district court granted, with prejudice, Kimberly-Clark’s motion to dismiss based in part on the finding that Davidson lacked Article III standing to seek injunctive relief because she was unlikely to purchase the wipes in the future.

In reversing the district court’s decision, the Ninth Circuit rejected the lower court’s reasoning that consumers who sue after being subjected to false or misleading advertisements lack Article III standing to pursue injunctive relief because they have since learned that the advertisements are false or misleading and thus “cannot be deceived again.” Rather, the appeals court found a plaintiff-consumer’s inability to rely on the accuracy of future labels constitutes an ongoing harm “sufficient to confer standing to seek injunctive relief” under Article III; thus, adopting the reasoning of other district courts that have found that “if injunctive relief were unavailable to a consumer who later learns after purchasing a product that the product’s label is false, California’s consumer protection laws would be effectively gutted.” Slip op. at 22.

Further, while dicta, the Ninth Circuit recognized the “anomalies” that would result from an opposite holding given the overwhelmingly common practice where, to defeat injunctive relief requests, defendants remove state court cases brought under state consumer protection statutes to federal court pseudo-automatically via the Class Action Fairness Act of 2005 (CAFA). Slip op. at 21-23. This would create a “’perpetual loop’ of plaintiffs filing their state law consumer protection claims in California state court, defendants removing the case to federal court, and the federal court dismissing the injunctive relief claims for failure to meet Article III’s standing requirements.” Id. at 22.

Injunctive relief is arguably the most significant remedy to consumers who bring class actions for false advertising under the UCL because it is the only remedy available that ensures future truthful advertising for a product. The decision in Davidson is vital to consumers, substantively and procedurally, in enforcing the protections afforded by California’s consumer statutes and receiving the appropriate and necessary remedies for violations of those statutes.

Authored by:
Trisha Monesi, Associate

United States ex rel. Welch v. My Left Foot Children’s Therapy: 9th Cir. Rules Arb Agreement Does Not Apply in Former Employee’s Whistleblower Lawsuit

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In September, the Ninth Circuit Court of Appeals affirmed a ruling that rejected a company’s attempt to force its former employee into arbitration under a very broadly-worded agreement that she had signed at the time of hire. See United States and State of Nevada ex rel. Welch v. My Left Foot Children’s Therapy, LLC, et. al, No. 16-16070 (9th Cir. Sept. 11, 2017) (slip op. available here). Specifically, the court held that the broad arbitration provision did not cover an employee’s claim under the False Claims Act (FCA), because an FCA claim belongs to the government, and in this case, neither the United States nor the state of Nevada had agreed to arbitrate its claims. Id. at 4.

The plaintiff in Welch was an employee working for My Left Foot Children’s Therapy (MLF), who filed a whistleblower complaint in federal court alleging that MLF violated the FCA by presenting fraudulent claims to federal health care programs. See id. at 6. The United States and Nevada declined to intervene, and thus, Welch proceeded with her claim. Id. On October 19, 2015, the defendants moved to compel arbitration of Welch’s FCA claims pursuant to the Federal Arbitration Act (FAA) and the arbitration agreement contained in her employment contract. Id. at 6. The arbitration agreement stated in relevant part:

I agree and acknowledge that the Company and I will utilize binding arbitration to resolve all disputes that may arise out of the employment context. Both the Company and I agree that any claim, dispute, and/or controversy that either I may have against the Company . . . or the Company may have against me, arising from, related to, or having any relationship or connection whatsoever with my seeking employment by, or employment or other association with the Company shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act.

Id. (emphasis added).

On June 13, 2016, the district court denied the defendants’ motion to compel arbitration on the basis that Welch’s arbitration agreement did not extend to the United States or Nevada, the parties that owned the underlying FCA claims. Following this, on September 11, 2017, the Ninth Circuit affirmed the district court’s decision. Specifically, the Ninth Circuit held that the material terms (“arising out of,” “related to,” and “having any relationship or connection whatsoever”) of the agreement only covered claims directly related to the plaintiff’s employment. Id. at 13-17. The court reasoned that here, the FCA suit had no direct connection with Welch’s employment because even if Welch had never been employed by the defendants, assuming other conditions were met, she would still have been able to sue them for presenting false claims to the government. Id. Thus, her ability to bring this claim did not necessarily arise from her employment and was not covered by the arbitration agreement. Id.

The court also stated that the arbitration agreement only covered claims between Welch and MLF (id. at 15), and did not cover claims brought on behalf of another party—the United States or Nevada. This reasoning has been echoed in other types of qui tam actions such as those brought under the Private Attorneys General Act of 2004 (“PAGA”). Like FCA claims, in a PAGA action, a plaintiff brings the case for violations of the California Labor Code on behalf of the real party in interest—the state of California. As such, the California Supreme Court has also held that such actions are not covered by arbitration agreements to which the real party in interest—the state of California—has not assented. See Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 386 (2014).  However, it is important to note that the Ninth Circuit also stated in dicta that, had the parties wanted to agree to arbitrate FCA claims, they were free to have drafted a broader agreement that covers “any lawsuits brought or filed by the employee whatsoever” or “all cases Welch brings against MLF, including those brought on behalf of another party.” See slip op. at 17.

Thus, while this holding is another victory in the fight against adhesive arbitration agreements in qui tam-type actions, it may also provide some guidance to employers wishing to force qui tam actions under the FCA into arbitration.

Authored by:
Ruhandy Glezakos, Associate