In an unpublished opinion issued last week, the California Court of Appeal found that a lower court incorrectly denied class certification in a proposed class action involving the collection of consumers’ ZIP codes at Party America retail stores. Aguirre v. Amscan Holdings, Inc., No. C073059 (Cal. Ct. App. Feb. 11, 2015) (slip op. available here). The plaintiff alleged that Amscan, d/b/a Party America, collected and recorded customers’ ZIP codes at the point of sale, in violation of the Song-Beverly Credit Card Act.

The trial court examined the criteria for class certification and denied the plaintiff’s motion based on lack of ascertainability, because the plaintiff could not “clearly identify, locate and notify class members through a reasonable expenditure of time and money.” Slip op. at 13. However, this is a much stricter definition of ascertainability than is generally imposed on class action plaintiffs, and the appellate court categorically rejected the trial court’s conclusion, stating that “the representative plaintiff need not identify, much less locate, individual class members to establish the existence of an ascertainable class.” Slip op. at 11-12 (relying on Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 706).

The Amscan court found that an ascertainable class exists, since the class definition “describes a set of common characteristics sufficient to allow a member of that group to identify himself or herself as having a right to recover based on the description.” Slip op. at 19 (citing Bartold v. Glendale Federal Bank (2000) 81 Cal.App.4th 816, 828). The case was remanded back to the trial court with instructions to reevaluate their class certification determination in light of the appellate court’s finding of an ascertainable class.

On February 3, 2015, Judge Edward Chen of California’s Northern District issued an order in Hernandez v. DMSI Staffing LLC, No. C-14-1531 EMC (N.D. Cal Feb. 3, 2015) (slip op. available here), denying DMSI’s motion to compel arbitration to the extent it sought to enforce a waiver of the plaintiff’s representative claims under California’s Private Attorneys General Act (PAGA), following the reasoning of the California Supreme Court in its landmark ruling in Iskanian v. CLS Transportation. In Iskanian, the California Supreme Court held that an arbitration agreement precluding representative claims under PAGA is invalid as a matter of California public policy, and moreover that California’s rule against forced waivers of PAGA enforcement actions is not preempted by the Federal Arbitration Act (FAA). The Court emphasized that PAGA disputes—like qui tam actions—are between the state and the employer, and not between two contracting private parties.

Judge Chen’s recent ruling in Hernandez follows Iskanian’s reasoning, analogizing PAGA actions to qui tam actions, insofar as under PAGA a private citizen files suit in court to enforce the California Labor Code on behalf of the government. In Hernandez, the plaintiff sought civil penalties under PAGA for violations of the Labor Code, including: failure to pay minimum wage, failure to pay wages for all hours worked, failure to pay overtime, failure to pay wages timely upon termination, and failure to provide accurate and compliant wage statements. Defendants DMSI and Ross Stores sought to compel arbitration of the plaintiff’s individual claims, and to have the district court dismiss the plaintiff’s representative claims under PAGA. The court rejected the defendants’ arguments in support of enforcing the PAGA waiver, focusing on the enforceability of PAGA waivers under state law and on whether the state non-waiver rule is preempted by the FAA.

First, Judge Chen examined the issue of enforceability of PAGA waivers under state law. The court likened PAGA representative actions to qui tam actions, since they are both fundamentally law enforcement actions in which the real party in interest is the government, but where a private citizen plaintiff is authorized to bring the suit. The opinion went on to state that FAA preemption of the ban on PAGA waivers would not only “hinder the state’s ability to enforce its laws through qui tam actions” but would also “disable one of the primary mechanisms for enforcing the Labor Code.” (slip op. at 15, quoting Iskanian, 59 Cal. 4th 348 at 384.) Judge Chen expressed concern that compelling arbitration of a PAGA claim could “entirely waiv[e] a state agency’s statutory remedy,” since a PAGA action is invariably a “representative” action, and would thus be entirely extinguished by enforcing a “representative action” waiver. (Slip op. at 15.)

Second, Judge Chen analyzed whether the state law non-waiver rule is preempted by the FAA. The court noted that whether the FAA preempts the California rule announced in Iskanian is an issue of federal law, as to which the federal district courts are not bound by Iskanian. (Id. at 9.) Nonetheless, the court found Iskanian persuasive. The court further reasoned that the United States Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), only bars state rules that “interfere with fundamental attributes of arbitration,” such as efficiency, informality, and expeditiousness, and “[t]he Iskanian rule against waiver of PAGA claims does not threaten to undermine the fundamental attributes of arbitration” because PAGA actions need not adhere to the time-intensive formalities of a Rule 23 class action, such as class certification and notice to absent plaintiffs. (Slip op. at 10-11, discussing Baumann v. Chase lnv. Servs. Corp., 747 F.3d 1117 (9th Cir. 2014).)

The court also rejected the defendant’s reliance on Ferguson v. Corinthian Colleges, Inc., 733 F.3d 928 (9th Cir. 2013), which held that the FAA preempts the Broughton-Cruz rule. In Broughton-Cruz, a plaintiff seeking broad injunctive relief under various consumer statutes could not be compelled to arbitrate those claims; in Ferguson, the court determined that a state law that precludes arbitration of a particular type of claim must be preempted by the FAA. Judge Chen distinguished PAGA actions from the consumer claims addressed in Broughton-Cruz and Ferguson, reiterating the qui tam nature of PAGA actions—a PAGA action is not a dispute between two private parties, but brought on behalf of the state, which retains the majority of the penalties collected. On this point, the Hernandez court flatly disagreed with the several federal district courts that have refused to follow Iskanian, holding that these courts are simply incorrect because they fail to distinguish between the public law enforcement aspect of PAGA and the private enforcement actions for injunctive relief at issue in Ferguson.

Finally, and perhaps most importantly, the Hernandez court noted that principles of federalism support the court’s conclusion of no preemption, reasoning that labor law enforcement traditionally falls within a state’s police powers, and state sovereignty depends on a state’s authority over its law enforcement. Thus, “state laws dealing with matters traditionally within a state’s police powers are not to be preempted unless Congress’s intent to do so is clear and manifest.” (Slip op. at 14, citing Californians For Safe & Competitive Dump Truck Transp. v. Mendonca, 152 F.3d 1184, 1186 (9th Cir. 1998).)

In any event, given the firm rejection of the federal district courts that have refused to follow Iskanian, an eventual showdown in the Ninth Circuit Court of Appeals seems likely.

In a proposed settlement of a consumer class action regarding false advertising claims against Jamba Juice’s smoothie kits, the plaintiffs avoided the process of identifying class members by not seeking monetary damages for the class. See Plaintiffs’ Motion for Preliminary Approval of Class Action Settlement, Lilly, et al. v. Jamba Juice Company, et al., No. 13-cv-02998 JST (N.D. Cal.) (available here). The plaintiffs’ initial complaint, filed in June 2013 in the U.S. District Court for the Northern District of California, alleged defendants Jamba Juice and Inventure Foods, Inc. misled buyers by marketing a line of at-home frozen smoothie kits as “all natural.” The smoothie kits were available in various flavors and contained ascorbic acid, xanthan gum, and other unnatural-sounding ingredients. The complaint brought causes of action under California law, including the Consumer Legal Remedies Act, Cal. Civ. Code §§ 1750 et seq., False Advertising Law, Cal. Bus. & Prof. Code §§ 17500 et seq., Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17200 et seq., and for breach of warranty pursuant to Cal. Comm. Code § 2313, on behalf of a class of California consumers who purchased the smoothie kit products.

The defendants had previously sought to defeat the case on ascertainability grounds at the certification stage, arguing in their opposition that it would be too difficult to identify and locate buyers of such a low-priced grocery item. In a September order granting in part and denying in part the plaintiffs’ motion for class certification, Judge Jon Tigar rejected the defendants’ ascertainability arguments and certified the class solely for purposes of determining liability, rejecting the Carrera approach from the Third Circuit. See Order Granting in Part and Denying in Part Motion for Class Certification, Lilly, et al. v. Jamba Juice Company, et al., No. 13-cv-02998 JST (N.D. Cal. Sept. 18, 2014) (citing Carrera v. Bayer Corp., 727 F.3d 300, 308 (3d Cir. 2013), where class certification was denied, even though the criteria for class membership was objective, because plaintiffs were unable to show at the certification stage that they will be able to identify absent class members) (slip op. available here). The court stated, “Few people retain receipts for low-priced goods . . . . Yet it is precisely in circumstances like these, where the injury to any individual consumer is small, but the cumulative injury to consumers as a group is substantial, that the class action mechanism provides one of its most important social benefits.” Slip op. at 7. However, the court stopped short of certifying the class for the purpose of damages.

In a motion for preliminary approval filed on December 1, 2014, the parties agreed, for purposes of settlement only, to certify a nationwide injunctive relief-only class, which would require Jamba Juice to cease labeling and marketing its smoothie kits as “all natural” so long as the challenged products contain the challenged ingredients, and to compensate the named plaintiffs with up to $5,000 each in incentive awards. See Plaintiffs’ Motion for Preliminary Approval of Class Action Settlement, at 3-5. The defendants have agreed to pay a total of $425,000 for attorney’s fees and costs, subject to court approval. Id. at 5. Because class members would not be awarded any monetary damages nor would they release any monetary claims, no notices or opt-out rights to potential members would need to be sent out. Id. at 8-10. Developments in this proposed settlement will be closely watched by plaintiffs’ and defense counsel alike.

On January 8, 2015, the United States Court of Appeals for the Ninth Circuit issued decisions in a pair of wage-and-hour cases, holding that when a complaint does not include or may have understated the true amount in controversy, a defendant seeking removal may rely on a reasonable chain of logic and assumptions to prove that the amount in controversy exceeds the $5 million threshold under the Class Action Fairness Act (CAFA). Ibarra v. Manheim Investments, Inc., No. 14-56779 (9th Cir. Jan. 8, 2015) (slip op. available here); LaCross v. Knight Transportation Inc., No. 14-56780 (9th Cir. Jan. 8, 2015) (slip op. available here). Writing for the panel, and joined by Judges Susan Graber and Consuelo Callahan, Judge Ronald Gould stated that a defendant “cannot establish removal jurisdiction by mere speculation and conjecture, with unreasonable assumptions.” Ibarra slip op. at 8.

The Ibarra court sought to strike a balance on motions to remand between the employer-defendant favored method of assuming a 100% violation rate, and the employee-plaintiff favored method of requiring a defendant to proffer affirmative evidence to substantiate whatever violation rate undergirded the defendant’s removal arguments. Ibarra looked to the U.S. Supreme Court’s very recent decision in Dart Cherokee Basin Operating Co. v. Owens, 135 S. Ct. 547 (2014), which held that a defendant need only include a “plausible allegation” that the amount in controversy meets the jurisdictional threshold in a notice of removal, not provide evidentiary proof.  Ibarra fleshed out the “plausible allegation” standard in Dart to require some “evidence” when a plaintiff challenges, in a motion to remand, a defendant’s assertion of the amount in controversy. The panel stated in Ibarra, “CAFA’s requirements are to be tested by consideration of real evidence and the reality of what is at stake in the litigation, using reasonable assumptions underlying the defendant’s theory of damages exposure.” Ibarra slip op. at 9. Ultimately the Ibarra court vacated the decision below in which Manheim, the employer defendant, had been allowed to calculate the amount in controversy by assuming that a labor law violation occurred in “each and every shift,” something not alleged in the complaint. Although the plaintiff alleged a “pattern and practice” of violations, he did not allege that the violations were “universal[ ],” and instead suggested that violations occasionally occurred, “but not on each and every shift.” Id. at 11. Ibarra noted that assumptions “cannot be pulled from thin air,” although evidence can be direct or circumstantial. Id. at 12. Manheim’s assumptions were “not grounded in real evidence” and in light of the Dart standard, the case was remanded on an open record for both parties to submit evidence. Id.

In LaCross, the Ninth Circuit applied the Ibarra test to reach an opposite conclusion, finding that the defendant company seeking removal had presented evidence sufficient to establish federal jurisdiction. In contrast to Ibarra, where the complaint alleged a “pattern and practice” but not “universal” violations, the LaCross complaint “clearly defined the class to include only the truck drivers, all of whom allegedly should have been classified as employees rather than as independent contractors.” LaCross slip op. at 6. If the plaintiffs were successful in their claim that they were misclassified as independent contractors, the company would need to reimburse the plaintiffs for lease-related and fuel cost expenses. Thus, the defendant extrapolated fuel costs based on actual fuel costs invoiced in the first quarter of 2014 and the number of drivers who actually signed the independent contractor agreements with the company during the alleged class period. The panel found that the defendant relied on a “reasonable” chain of logic and produced sufficient evidence to meet the preponderance of the evidence burden. Id. at 4. Additionally, the court rejected the plaintiffs’ argument that the amount of controversy was unlikely to exceed $5 million because the class might not be able to prove all the elements for reimbursement, stating “Plaintiffs are conflating the amount in controversy with the amount of damages ultimately recoverable.” Id. at 8.