On remand from the California Supreme Court, the Second Appellate District has directed the trial court to recertify a class of Liberty Mutual insurance claims adjusters and has held that they are not exempt from overtime pay under California’s “administrative exemption.”  See Harris v. Super. Ct., ___ Cal. App. 4th ___ (Cal. Ct. App. 2012) (available here).  Defendants had presented an affirmative defense based on the administrative exemption, which the court rejected because the adjusters’ primary work duties were not directly related to either management policies or general business operations.  The decision is viewed as a clear victory for workers, and a sign that overtime exemption analysis is being revitalized to make it more difficult for employers to argue that they have no obligation to pay purportedly “exempt” employees for overtime work.

The ruling was preceded by a complex procedural history.  The trial court certified the class, whereupon Liberty Mutual put forth the affirmative defense that the adjusters were exempt under Wage Order No 4’s administrative exemption, and the plaintiffs moved for summary adjudication of the affirmative defense.  In addition to opposing the summary adjudication motion, Liberty Mutual also moved to decertify the class.  In a mixed ruling, the trial court decertified the class as to all claims arising after October 1, 2000, the effective date of the new Wage Order 4-2001, insofar as the adjusters were only exempt under an earlier version of Wage Order 4 (Wage Order 4-1998).  Liberty Mutual then sought decertification of the part of the class that remained certified, but the trial court denied the motion.  Subsequently, Liberty Mutual filed a Writ of Mandate Petition, which the Court of Appeal denied, holding the adjusters to be non-exempt.  Thereafter, the California Supreme Court reversed, holding that the Court of Appeal’s analysis of the amended wage order was flawed, since the court relied on case law that predated the most recent amendment to the applicable wage order and failed to consider the language of the amended order.

The matter was remanded to the Court of Appeal, which again denied the defendants’ writ petition, but with more thorough reasoning, per the direction of the Supreme Court.  In particular, the court further clarified the “directly related” requirement of the administrative exemption.  Harris at 25-26.  The court found that the primary responsibility of the Harris employees was adjusting individual insurance claims, a task which is not at the level of management policy or general operations.  Id.  Thus, their work was not directly related to administering the business and, as such, the administrative exemption did not apply.  Id. at 26. The Court of Appeal ordered the trial court to vacate its prior orders and deny defendants’ motion to decertify the post-2000 class, since the adjusters would be non-exempt under either Wage Order 4-1998 or Wage Order 4-2001.  Id.  The Court of Appeal’s reasoning is expected to be influential in other misclassification cases.

The federal Consumer Financial Protection Bureau (CFPB) has announced that Capital One Bank will pay $210 million to resolve charges of deceptive marketing brought in the CFPB’s first enforcement action. The $150 million restitution component of the total payment will be in the form of refunds to customers who purchased “add-on” credit card services that were deceptively marketed. The remaining $60 million is to be paid in the form of penalties, $25 million to the CFPB and $35 million to the Office of the Comptroller of the Currency, which jointly brought the charges along with the CFPB. The CFPB press release announcing the resolution of the Capital One enforcement action is available here.

The action against Capital One alleged that the credit card giant contracted with vendors who deceptively marketed add-on services, including credit monitoring and payment protection plans, often to Capital One’s most vulnerable customers. The CFPB investigation determined that some consumers were made to believe that buying the optional services was essential to their credit cards being activated, while others were deceived into believing that the services were free, or would cause their credit scores to improve. Indeed, it appeared that the vendors targeted individuals with low credit scores. Particularly deceptive was the pitch for the “payment protection” service, which was purchased by unemployed individuals in the belief that their credit card minimum payments would be covered. However, such already unemployed individuals were ineligible for the payment protection service, which applied only to job loss or disability incurred after buying the service. Additionally, the CFPB found that consumers who attempted to cancel the add-on services were confronted by onerous procedures, and often gave up in frustration.

“Today’s action puts $140 million back in the pockets of two million Capital One customers who were pressured or misled into buying credit card products they didn’t understand, didn’t want, or in some cases, couldn’t even use,” said CFPB Director Richard Cordray. “We are putting companies on notice that these deceptive practices are against the law and will not be tolerated.”  In addition to sending an advisory to Capital One customers as part of the resolution, the CFPB also drafted a generally applicable advisory, which is available here.  

Founded in 2011, the CFPB’s self-described mission is “to make markets for consumer financial products and services work for Americans — whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.”

New York’s Southern District has generated another arbitration-related decision that contributes to a far less dire post-Concepcion narrative than many had predicted.  See Rame, LLC v. Popovich, No. 12-cv-01684 (S.D.N.Y. Jul. 9, 2012) (Opinion re: petition to vacate) (available here).  Rather than expounding on whether cases are referred to arbitration in the first instance, which was the primary focus of Concepcion, Popovich addresses whether or not classwide arbitration is permissible where parties neither expressly waive nor expressly agree to classwide arbitration.

The underlying FLSA action was filed in the Southern District of New York by employees of Café Centro, a Park Avenue-based bistro and subsidiary of the elite Patina Restaurant Group.  The defendants moved to compel arbitration based on a Dispute Resolution Agreement (DRA) and Dispute Resolution Policy (DRP) that all employees were subject to.  In response, plaintiffs voluntarily dismissed the action and stipulated to arbitration, seemingly handing the defendants a victory.  See Opinion at 3.  The parties also stipulated to preliminary motion practice before an arbitrator as to the threshold issue of whether the claims for unpaid wages “could be brought in arbitration on a class or collective action basis,” since both the DRA and DRP were (as noted by the court) “devoid of any reference to arbitration on a class-wide or collective basis.”  Id. at 3, 6.  The arbitrator found that the FLSA action could proceed through arbitration on a classwide basis, prompting defendants to file a petition with the Southern District to vacate that decision.  Id. at 4.

Defendants primarily based their petition on a pre-Concepcion Supreme Court case, Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010), which was widely assumed to stand for the inflexible proposition that, where an arbitration clause is silent as to collective or class treatment, classwide arbitration is impermissible, notwithstanding that the parties did not in fact expressly agree to foreclose it.  The defendants argued that collective or class treatment may not be compelled in such an instance, and an arbitrator who finds otherwise has exceeded his or her power under the Federal Arbitration Act.  See Opinion at 15-16.

However, the Popovich court distinguished Stolt-Nielsen, insofar as the parties in that case had stipulated to the at-issue arbitration clause being “silent” as to collective or class treatment.  See Opinion at 23.  The Second Circuit drew a similar distinction in Jock v. Sterling Jewelers Inc., 646 F.3d 113 (2d Cir. 2011), holding that, with no “silence” stipulation, a broadly-drafted arbitration clause constituted an implicit agreement to authorize class treatment.  Here, the DRA and DRP dictated that an arbitrator determine “all damages and relief allowed by law.”  Opinion at 25.  Analyzing Stolt-Nielsen, Jock, and New York state law principles of contract interpretation, the Popovich court found that, absent a stipulation of “silence,” broad language like that used in the DRA and DRP does in fact constitute an implicit agreement to submit to class arbitration.  Opinion at 23-25.  The Popovich court concluded that the arbitrator’s decision was not based upon the “alleged silence” on classwide arbitration in the DRA and DRP, but was instead based on the broad language that was actually present, to wit, that an arbitrator will decide “all claims” of an employee arising out of the employment and award “all damages and relief allowed by law.”  Id. at 24-25.  As such, the court found no basis for vacating the arbitrator’s decision.

Popovich, like Jock, demonstrates the limitations of the Stolt-Nielsen holding.  Indeed, Popovich demonstrates that, under Stolt-Nielsen, class arbitration may be proper even if the at-issue arbitration agreement contains no express authorization to that effect, and reaffirms that class arbitration is proper when parties have implicitly agreed to it.

In a major victory for consumers, a Santa Clara Superior Court judge has certified a class of Land Rover owners and lessees who allege that a factory defect in the vehicles’ alignment geometry created uneven tire wear.  See Colon v. Jaguar Land Rover North America, LLC, No. 1-06-CV-075163 (Santa Clara Super. Ct. Jul. 12, 2012) (Order Granting Motion for Class Certification) (available here).

Beyond the obvious benefit to the newly-certified Colon class members, this decision is expected to help countless other California plaintiffs in auto defect and product liability cases.  In Judge James P. Kleinberg’s analysis, he rejects the American Honda standard relied upon by the defendant, which requires a consumer class certification movant to “provide substantial evidence of a defect that is substantially certain to result in malfunction during the useful life of the product.”  Order at 6, citing American Honda Motor Co. v. Super. Ct., 199 Cal. App. 4th 1367, 1374 (Cal. Ct. App. 2011).  Judge Kleinberg held that, “under both federal and California law, proof of manifest damage is not a prerequisite to class certification.”  Order at 6.  He noted that such a requirement would violate the basic precepts of both California and federal class action jurisprudence, as “imposing this certification requirement . . . would require plaintiffs to prove the legal and factual merits of the claim at the time of class certification, which goes directly against clear contrary authority.  Id.

Additionally, the court rejected the defendant’s argument that individual issues would predominate because uneven tire wear did not occur in all class vehicles, and those with uneven tire wear have varying degrees of it among the affected models.  See Order at 7.  Judge Kleinberg concluded that such differences are “an issue of individual damages, not liability,” and “if Plaintiff can prove the existence of an inherent defect . . . Plaintiff will have demonstrated liability based on common evidence, and the fact that class members would later have to individually prove . . . their damages does not defeat class certification.”  Id.