California’s Fourth Appellate District has upheld a trial court’s denial of a defendant’s motion to compel arbitration of the plaintiff’s classwide wage-and-hour claims. The three-judge panel held that the defendant had, in failing to assert its arbitration clause for nearly one year, conducting discovery, and lobbying putative class members so as to reduce the size of the class, waived its right to arbitrate. See Hoover v. Amer. Income Life Ins. Co., ___ Cal. App. 4th ___ (2012), available here. The court further found that, even had the defendant not waived arbitration by first litigating the case, the result would be the same, since the lack of an “interstate” component to the plaintiff’s job rendered the FAA inapplicable. Slip op. at 17-18

Perhaps more significant than the court’s refusal to compel arbitration is its interpretation (or lack thereof) of the U.S. Supreme Court’s AT&T Wireless v. Concepcion decision and its reading of California precedent as to the circumstances in which arbitration cannot be compelled. The decision purports to not expressly interpret Concepcion, stating, “[t]he conclusions we reach here avert any dependence . . . on two recent United States Supreme Court opinions, addressing the issue of class arbitrations for antitrust claims and consumer sales contracts.” Slip op. at 3 n.2.

The two “recent cases” are of course Concepcion and Stolt-Nielsen. Yet contrary to the court’s contention that the Hoover decision does not rely on either, that “‘[Concepcion] does not provide that a public right . . . can be waived if such a waiver is contrary to state law’” is perhaps Hoover’s key legal conclusion, a conclusion that is drawn directly from Brown v. Ralphs, the Court of Appeal’s first case interpreting Concepcion. See Hoover at 3 n.2, quoting Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489, 500 (2011).

Though not initially designated for publication in California’s official reporter, Hoover has now been certified for publication. As such, Hoover vividly underscores the opposing and irreconcilable outcomes as to the scope of Concepcion’s application. Compare Brown v. Ralphs, 197 Cal. App. 4th at 489 (PAGA claims not arbitrable) with Iskanian v. CLS Transp. Los Angeles, LLC, ___ Cal. App. 4th ___ (2012) (rejecting Brown v. Ralphs). As trial court and Court of Appeal decisions continue to fall under either the Brown or Iskanian rubric, speculation is rampant that the California Supreme Court will have no choice but to take up and resolve this aspect of Concepcion’s application.

Moreover, Hoover’s citation to and reliance on Cruz v. PacifiCare Health Systems, Inc., 30 Cal. 4th 303 (2003), for the proposition that a claim for injunctive relief under the Unfair Business Practices Act is not arbitrable (see Hoover at 19), is notable in that in Iskanian, the Second Appellate District had arguably deemed Cruz overruled (see Iskanian slip op. at 16-17). Consequently, Hoover represents further confirmation that the ultimate resolution of Concepcion’s scope will come only with California Supreme Court review.

Federal courts continue to interpret last year’s Wal-Mart v. Dukes Supreme Court decision more narrowly than many had expected, surprising those who viewed Dukes (in concert with AT&T v. Concepcion) as a virtual death knell for class actions.  In Myles v. Prosperity Mortgage Co., Judge Catherine C. Blake granted conditional class certification in an action alleging that the defendant misclassified its loan officers as exempt from overtime pay.  See Myles, No. 11-01234 (D. Md. May 31, 2012) (memorandum opinion re: class certification) (available here).  And of greater general significance, the court held that Dukes is inapplicable at the certification stage of an FLSA action.  Id. at 10-11.  Although Dukes did not address FLSA claims, the Myles defendant, Prosperity Mortgage Company (PMC), argued for the application of the more rigorous certification criteria articulated in Dukes, which would result in a radical remaking of the long-established, two-stage FLSA certification process.  Id. at 9-10.  PMC maintained that Dukes applies to “all aggregate claims,” including both class actions and collective FLSA actions. Id. at 9.

After considerable reasoning, however, the Myles court concluded that Dukes not only does not apply to FLSA certification determinations, but is also factually distinguishable from Myles, stating, “Dukes does not mention the FLSA or the two-step certification process, and such a conclusion does not necessarily follow from any particular language in the opinion.”  Id. at 9.  Judge Blake also pointed out that the first stage of FLSA certification requires only “relatively modest” evidence of commonality, in contrast to the far more demanding Dukes criteria.  Id. at 8-9.  Finally, she noted that in Dukes, there was no corporate discriminatory policy common to the class, and the class claims were based on individual, discretionary decisions made by many different managers, whereas in Myles, “PMC has acknowledged that it had an express policy of considering its loan officers to be exempt under the FLSA; thus, no local management discretion is at issue and no individualized inquiry is necessary to determine why individual loan officers were disfavored.”  Id. at 11.

Buttressing its analysis, the court noted that “‘numerous courts . . . have refused to apply Dukes on motions for conditional certification under the FLSA, concluding that the Rule 23 analysis had no place at this stage of the litigation.’”  Id. at 10, citing Winfield v. Citibank, N.A., ¬¬___ F. Supp. 2d ___, 2012 WL 423346 at *10 (S.D.N.Y. Feb. 9, 2012).

A district court judge in the Southern District of New York has certified a class of benefit plans alleging that they lost money when fiduciaries placed investments with the now-incarcerated Bernard Madoff. See In re Beacon Assocs. Litig., No. 09-CV-00777 (S.D.N.Y. May 3, 2012) (order on motion to certify class) (available here).  Plaintiffs allege that Ivy Asset Management (“Ivy”) breached its fiduciary duty to the plans principally by failing to perform due diligence on Bernard L. Madoff Investment Securities LLC (“Madoff Securities”), particularly in light of the extraordinary rates of return claimed by Madoff, well above the historical returns for even the most successful investors.  See Order at 2-4.  Moreover, plaintiffs allege that J.P. Jeanneret Associates, Inc. (“JPJA”), was negligent in its lax supervision of Ivy’s work.  See id.

On the pivotal commonality determination, Judge Leonard B. Sand found questions common to the entire class, thus satisfying this prerequisite.  Id. at 12.  He determined that (1) whether Ivy was acting as a fiduciary when it invested benefit plan assets in Madoff Securities, and (2) whether Ivy breached the attendant duties to the plans when it invested despite the implausible rates of return claimed by Madoff, were among the common questions capable of determining liability.  Id. at 9-12.

While the numerosity element is rarely seriously contested, defendants raised issues in this case that might have precluded certification; the plaintiff class consists of only 29 plans, at the lower end of the federal numerosity threshold.  See id. at 6-9.  However, Judge Sand held that numerosity was to be assessed with reference to the plans’ roughly 100 trustees — easily satisfying the requirement — rather than the 29 plans.  Id.  Thus, despite agreeing with the defendant that the number of plans is pertinent, Judge Sand concluded that because the numerosity analysis focuses on whether joinder is practicable, and joinder of the 100 trustees would not be practicable, numerosity was satisfied.  Id.  Moreover, in dicta potentially useful to plaintiffs moving to certify small classes, the court also took issue with the defendant’s contention that 29 plans could not satisfy this prerequisite, stating that the geographic dispersal of the plans could in fact support numerosity.  See id. at 8.

Just as a conflict emerged within the California Court of Appeal as to the validity of California’s unconscionability doctrine following the U.S. Supreme Court’s AT&T Mobility v. Concepcion decision, a similar clash may be developing among California’s federal courts.  Northern District Judge Claudia Wilken has denied a defendant’s attempt to compel arbitration, chiefly on the ground that the at-issue arbitration agreement is unconscionable under California law.  See Trompeter v. Ally Financial Inc., No. 12-00392 (N.D. Cal. June 1, 2012) (order denying defendant’s motion to compel arbitration and motion for stay) (available here).

In Trompeter, Judge Wilken rejected the argument that the Federal Arbitration Act (FAA) preempted plaintiffs’ unconscionability claims and that the court therefore had no discretion to deny enforcement of the at-issue arbitration agreement.  Judge Wilken instead determined that “[m]ultiple elements render the agreement procedurally and substantively unconscionable,” and found the agreement to be void under California law.  Order at 17.  Judge Wilken specifically distinguished Kilgore v. KeyBank, National Ass’n, 673 F.3d 947 (9th Cir. 2012), in which the Ninth Circuit dismissed state public policy interests prohibiting the arbitration of particular types of claims and held that the FAA trumped such rationales.

Looking ahead to the probable review of this issue by the California Supreme Court, the Trompeter ruling gives encouragement to those who have advocated a narrow application of Concepcion, embodied most prominently in Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489 (2011).  By contrast, the recent Iskanian decision (expected to be taken up by the California Supreme Court) embraced an expansive reading of Concepcion. See Iskanian v. CLS Transp. Los Angeles, LLC, ___ Cal. App. 4th ___ (2012).