KT Class Action Blog

Category: California

Posted on Thursday, January 11 2018 at 4:21 pm by
California appellate court holds employee’s dismissal of individual labor claims precludes PAGA standing

by Jon Michaelson

A recent decision by California’s Second District Court of Appeals highlights an opportunity for California employers to dispose of claims under the Private Attorneys General Act (“PAGA”), Labor Code section 2698, et seq. PAGA allows an “aggrieved employee” to bring suit on behalf of the State of California, as well as present and former co-workers, to recover civil penalties for wage and hour and other statutory violations. PAGA claims essentially constitute “penalty” class actions in the employment context. Unlike many other employment-related claims, however, PAGA claims cannot be waived by the employee or compelled to arbitration by the employer. See, e.g., Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 173 Cal. Rptr. 3d 289, 327 P.3d 129 (2014). But a recent case shows that, under the right circumstances, there may still be an “out” for the employer.

In Kim v. Reins International California, Inc., No. B278642, 2017 WL 6629408 (Cal. Ct. App. Dec. 29, 2017), a former employee who had been a “training manager” disputed the employer’s classification of that position as exempt from overtime requirements. In addition to asserting individual claims for failure to pay wages and overtime, failure to provide meal and rest periods, failure to provide adequate wage statements, and for waiting time penalties, he also sought injunctive relief under the State’s unfair competition law and civil penalties under PAGA (on behalf of himself, his co-workers, and the State). The trial court severed the individual claims and referred them to arbitration, but stayed the unfair competition and PAGA claims.

During the arbitration, following a statutory offer of compromise, the parties resolved the employees’ individual claims. The plaintiff agreed to dismiss his individual claims with prejudice and dismiss the injunctive relief claim under the UCL without prejudice. Only the PAGA claim remained.

Returning to the trial court, the employer moved for summary judgment on the PAGA charge, based upon the plaintiff’s lack of standing. The trial court agreed and dismissed the PAGA claim. It held that once the plaintiff had settled his individual claims with prejudice, he “was no longer suffering from an infringement or denial of his legal rights. His rights have been completely redressed. He no longer is aggrieved….and [therefore] no longer has standing to bring a PAGA claim.” 2017 WL 6629408, at *2.

On appeal, the panel upheld the trial court’s dismissal, emphasizing the clear wording of the PAGA statute and its underlying legislative history. The PAGA statute provides that an action may be brought by an “‘aggrieved employee’” and that the term “‘means a person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.’” 2017 WL 6629408, at *3 (citation omitted). The Court observed that the term “aggrieved employee” was not included in the original proposed language of the statute, but rather was added later in response to concerns that PAGA should not be utilized by “‘persons who suffered no harm from the alleged wrongful act.’” Id. at *3. The Court concluded that because the plaintiff no longer met the statutory definition of “aggrieved employee,” he had lost standing and could not maintain a PAGA claim. Id. Although this did not bar other present or former co-workers from asserting similar PAGA claims, dismissal of the case at bar was proper. Id. at *4.

The Court also addressed the plaintiff’s assertion that upholding dismissal of the PAGA claim would amount to a “backdoor PAGA waiver,” in violation of Iskanian. 2017 WL 6629408, at *4. According to the Court, there was no connection between the trial court’s order to arbitrate individual claims and plaintiff’s loss of standing for PAGA purposes. “Had [plaintiff] chosen to dismiss his individual claims with prejudice in the absence of an arbitration agreement, we would reach the same conclusion.” Id.

While the decision is carefully limited to the facts of the case, the circumstances involved – where an employee or former employee includes both individual and PAGA causes in a complaint – are not unusual. For the employer, pushing the individual claims into arbitration and then making a statutory offer of compromise (which, if reasonable, will be difficult for a plaintiff to reject) may be an effective way to limit potentially higher exposure under PAGA. For the plaintiff and plaintiff’s counsel there are important issues to address: Should individual claims be asserted in the same action? Should a favorable settlement be rejected to protect rights under PAGA? Should substitution of a new named plaintiff be addressed after a settlement? Although the employee’s counsel in Kim may seek further review in this case by the California Supreme Court (perhaps arguing the result in this case does not comport with the strong policies expressed in Iskanian and related cases), for now this ruling provides a potentially useful tool for employers to terminate high-exposure PAGA claims.

Posted on Monday, October 16 2017 at 9:25 am by
Ninth Circuit: Rule 23(f)’s interlocutory appeal deadline is not jurisdictional – equitable exceptions apply to extend the deadline

by Ian Goldrich

Under Federal Rule 23(f), parties have 14 days to petition for interlocutory review of an order granting or denying class certification. The federal appellate courts of appeals construe this deadline as “procedural” rather than “jurisdictional” and thus subject to equitable tolling. What warrants equitable tolling, however, is less certain with the Ninth Circuit’s recent decision in Lambert v. Neutraceutical Corp., 870 F.3d 1170 (9th Cir. 2017). There, the Ninth Circuit joined the Second, Third, Fourth, Fifth, Seventh, Eleventh, and D.C. Circuits in holding that a motion for reconsideration filed within 14 days of a class certification order tolls the Rule 23(f) deadline. But the Ninth Circuit went further to accommodate an appeal by a class action plaintiff, holding that equitable circumstances beyond the timely filing of a formal motion for reconsideration may also toll the Rule 23(f) deadline.

In Lambert, Mr. Lambert sued Neutraceutical, the manufacturer of the alleged aphrodisiac dietary supplement “Cobra Sexual Energy,” for violations of California consumer protection statutes (California’s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act). The district court initially granted class certification on the basis of a “full refund” damages model calculated by multiplying the average retail price by the number of units sold. Such a model may be used where a consumer product is shown to be worthless.

Upon the district judge’s retirement, the case was reassigned to a new judge. At the close of discovery, Neutraceutical moved to decertify the class. On February 20, 2015, the new judge granted the motion on ground that Mr. Lambert did not submit proof supporting his model – proof of the actual average retail price of the product.

At a March 2, 2015 status conference, ten days after the decertification order, Mr. Lambert advised the district court of his intention to move for reconsideration. The district court directed the plaintiff to file his motion by March 12, 2015, i.e., within 20 days of the date of the decertification order. As directed by the district court, Lambert moved for reconsideration on March 12, which was denied by the district court on June 10, 2015. On June 24, 2015, within 14 days of this ruling, Lambert petitioned for interlocutory review. A motions panel of the Ninth Circuit conditionally granted the petition but directed the parties to address the timeliness of the appeal. Not surprisingly, Neutraceutical argued that the petition was untimely because the motion for reconsideration was not filed within 14 days of the decertification order.

In finding the petition timely, the Ninth Circuit relied on specific equitable factors apparent from the record that demonstrated Lambert’s diligence in pursuing his legal rights. The court held that “because Lambert informed the court orally of his intention to seek reconsideration of the decertification order and the basis for his intended filing within fourteen days of the decertification order and otherwise acted diligently, and because the district court set the deadline for filing a motion for reconsideration with which Lambert complied, the Rule 23(f) deadline should be tolled.” Lambert, 870 F.3d at 1179.

The court then turned to the merits of the petition and held—perhaps not surprisingly considering the court’s flexibility on the equitable tolling question—that the district court abused its discretion in decertifying the class, because the alleged uncertainty of the plaintiff’s damages methodology or class members’ damages should not preclude certification.

Lambert creates a narrow but conspicuous split of authority on Rule 23(f) tolling. In Gutierrez v. Johnson & Johnson, 523 F.3d 187 (3d Cir. 2008), for example, the Third Circuit held that even if a motion for reconsideration is timely as defined by the district court’s rules or its scheduling order, it is untimely if filed outside the Rule 23(f) 14-day deadline. The Supreme Court may be called upon to resolve this circuit split in the near future.

Posted on Friday, August 11 2017 at 2:18 pm by
California Supreme Court endorses “fishing expedition” discovery under PAGA

by Jon Michaelson

In its recent decision concerning the proper scope of discovery under California’s Labor Code Private Attorneys General Act of 2004 – known as “PAGA” – the California Supreme Court authorized discovery just as broad as that available in California class action proceedings, while at the same time weakening the ability of defendants to object to such discovery on invasion of privacy grounds. As a result, Williams v. Superior Court, 5 Cal. 5th 331, 2017 WL 2980258 (Cal. July 13, 2017), presents new challenges for California employers and others in defending PAGA and similar “representative action” claims.

PAGA, set forth in California Labor Code sections 2698 et seq., authorizes and encourages employees to bring actions against their employers to recover civil penalties for certain Labor Code violations. A PAGA suit is essentially a qui tam or representative proceeding brought on behalf of all affected employees, and thus is similar to a class action. Unlike a class action, however, the named plaintiff is entitled to only 25 percent of any recovery, with the remaining 75 percent allocated to the State of California to fund enforcement and educational activities.

In the Williams case, the plaintiff alleged that his employer – Marshalls Stores – failed to provide required meal and rest periods or compensation in lieu of required breaks; understaffed stores, forcing employees to work during meal periods without compensation; directed managers to erase meal period violations from time records; instituted a systematic, company-wide policy to avoid paying premiums for missed breaks; failed to provide timely, accurate, and complete wage statements; and followed a policy and practice of forcing workers to carry out certain tasks without compensation. In early discovery regarding this pro forma laundry list of alleged wrongdoing, Williams served special interrogatories demanding the disclosure of contact information and basic employment history for all Marshalls employees in California. In response, Marshalls disclosed that it had roughly 16,500 California employees, and objected to furnishing their contact information on grounds of overbreadth, undue burden, and invasion of privacy.

Ruling on Williams’ motion to compel, the trial court directed Marshalls to provide employee contact information limited to the single store at which the plaintiff worked, subject to an opt-out notice to enable workers at that store to protect their privacy if they wished, and held open the possibility that following further discovery Williams might obtain contact information for additional employees depending on his ability to demonstrate that his claims had substantive merit. Recognizing that there was no controlling authority on this subject, the trial judge certified his order for immediate appellate review. The Court of Appeal upheld the order, ruling that Williams was required to “set forth specific facts showing good cause” for the broad discovery he had sought and also that, in view of the third party privacy interests involved, Williams “must demonstrate a compelling need for discovery” – in other words, “the discovery sought is directly relevant and essential to the fair resolution of the underlying lawsuit.”

In a unanimous opinion, the California Supreme Court reversed. The Court began with the fundamental proposition that a party has a right to obtain discoverable information, absent a clear legal prohibition. And in this instance, the California discovery statute expressly authorizes discovery of the identity and location of those who might have knowledge of discoverable evidence. As a result, Williams was presumptively entitled to the information he had sought, and the requirements which the trial court and Court of Appeal had attempted to impose on him to justify the interrogatories were improper. Rather, the California Supreme Court held that the burden clearly fell on Marshalls to substantiate its objections.

With respect to overbreadth, Marshalls argued that contact information as to employees who did not share Williams’ position, job classification, and store location “exceeded the scope of permissible discovery.” The Court, however, viewed Williams’ request as an effort to identify other aggrieved employees and to obtain evidence with respect to the state-wide Labor Code violations he alleged. The Court analogized the situation to a putative consumer class action where it had held that “[c]ontact information regarding the identity of potential class members is generally discoverable, so that the lead plaintiff may learn the identities of other persons who might assist in prosecuting the case.” Pioneer Electronics (USA), Inc. v. Superior Court, 40 Cal. 4th 360, 373, 53 Cal. Rptr. 3d 513, 150 P.3d 198 (2007). It found nothing in the purpose or language of PAGA to suggest that a different standard for discovery should apply. And it set aside differences between a class action and a PAGA case in terms of the differing duties of class versus PAGA counsel to those impacted by the case and in terms of possible binding impacts of judgments in class actions versus PAGA actions as potentially legitimate reasons for a trial court’s discretionary decision to alter the normal approach to discovery. In sum, “[t]he trial court had no discretion to disregard the allegations of the complaint making this case a statewide representative action from its inception,” and the Court of Appeal “likewise misread the complaint when it described Williams’ claim as ‘parochial” and thus affording no basis for statewide contact information.” 2017 WL 2980258, at *8.

Relative to burden, Marshalls argued that it should not be forced to provide contact information for thousands of other employees absent a prior showing that the named plaintiff himself had been subject to any alleged Labor Code violations or that at least some others had been. Marshalls did not, however, provide any information indicating how much effort or expense would be necessary to gather the data involved for its entire California workforce. That failure in proof proved fatal to the burden objection. The Court had little difficulty rejecting Marshalls’ attempt to impose a good cause requirement on Williams: “[a]s a general matter, the [discovery] statute… imposes no obligation on a party propounding interrogatories to establish good cause or prove up the merits of any underlying claims.” 2017 WL 2980258, at *9. Moreover, Marshalls had not made a formal request to the trial court to manage the sequence or timing of discovery “for the convenience of parties and witnesses and in the interests of justice.” Id. at *10. Accordingly, the burden contention was unavailing: “[t]hat the eventual proper scope of a putative representative action is as yet uncertain is no obstacle to discovery; a party may proceed with [discovery] precisely in order to ascertain that scope.” Id.

And then, turning to the question of privacy, the Court noted that neither the trial judge nor the Court of Appeal had undertaken the analysis mandated by Hill v. National Collegiate Athletic Ass’n, 7 Cal. 4th 1, 26 Cal. Rptr. 2d 834, 865 P.3d 633 (1994): (1) whether a legally protected privacy interest exists, (2) whether there is a reasonable expectation of privacy under the circumstances, and (3) the relative seriousness of the potential invasion of privacy. This framework had been extended over the years to the consumer class action arena, as in Pioneer Electronics, 40 Cal. 4th at 372, and to wage and hour class actions in California, as in Belair-West Landscape, Inc. v. Superior Court, 149 Cal. App. 4th 554, 561-562, 57 Cal. Rptr. 3d 197 (2007). Addressing these elements, the Court recognized that while other Marshalls employees had a reasonable expectation of privacy which was implicated by requests for their names and contact information, the second Hill factor – reasonable expectation of privacy under similar circumstances – was not met because those other employees might expect and indeed might even hope that their names and contact information would be shared so that their employment rights could be protected. And third, the potential seriousness of any invasion of privacy had been mitigated by Williams’ willingness to accept an opt-out arrangement for other employees. As a result, the Court rejected Marshalls’ privacy objection. 2017 WL 2980258, at *13.

But that was not all. The Court went on to discuss the manner in which the Court of Appeal had handled the privacy question. It observed that instead of following Hill, the Court of Appeal had started (and also essentially ended) its analysis by examining whether Williams, as the requesting party, had demonstrated a compelling state interest in the disclosure of the private information involved. In doing so, the Court of Appeal had followed a host of cases which effectively compressed the assessment of privacy objections down to that single consideration. Doing so, per the Supreme Court, was not appropriate: “[we reject] the de facto starting assumption that … an egregious invasion is involved in every request for discovery of private information. Courts must instead place the burden on the party asserting a privacy interest to establish its extent and the seriousness of the prospective invasion, and against that showing must weigh the countervailing interests the opposing party identifies….To the extent prior cases require a party seeking discovery of private information to always establish a compelling interest or compelling need, without regard to … other considerations … they are disapproved.” 2017 WL 2980258, at *14.

Applying this logic, the Court rejected several factors which the Court of Appeal had deemed important, including the fear of retaliation on the part of Williams’ fellow employees: “[to the extent real, this] cuts the other way, in favor of facilitating collective actions so that individual employees need not run the risk of individual suits.” 2017 WL 2980258, at *15. Nor, according to the Court, was it necessary for Williams to demonstrate the existence of any illegal uniform companywide policy as an element of “compelling need.” That “may be a convenient or desirable way to show commonality of interest in a case where class certification is sought, but it is not a condition for discovery, or even success, in a PAGA action, where recovery on behalf of the state and aggrieved employees may be had for each violation, whether pursuant to a uniform policy or not.” Id.

PAGA lawsuits are inherently difficult to defend, and the decision in Williams makes the task that much more difficult. While the sorts of objections which Marshalls raised are not absolutely foreclosed, employers in the future will have to advance far more compelling arguments and evidence to sustain those positions and avoid workforce- wide discovery.

Posted on Friday, July 21 2017 at 7:53 pm by
California’s Automatic Renewal Law Continues to Create Class Action Risk

by Nancy Stagg

A recent federal district court opinion highlights the class action risks companies selling consumer goods and services in California face from California’s Automatic Renewal Law, California Business & Professions Code §17600 (“ARL”). The ARL, which was enacted in 2010, requires companies selling goods and services in California through continuous service programs, or automatically-renewing consumer contracts, or when offering free trials, to clearly and conspicuously disclose the terms, obtain the consumer’s affirmative consent before imposing a charge, and provide an acknowledgment that contains the terms, the cancellation policy, and an easy-to-use method to cancel the service. Given the increasing popularity of subscription services for everything from streaming music to beauty products, numerous class action lawsuits have been filed against goods and service providers alleging violations of the ARL. In an order dated July 17, 2017 by U.S. District Judge William Alsup in the Northern District of California in Gregory Ingalls, et al., v. Spotify USA, Inc. (Case No. 3:16-CV-03533 WHA), the District Court granted in part and denied in part Spotify’s motion for summary judgment on a plaintiff’s claims brought under the ARL and California’s Unfair Competition Law, California Business & Professions Code §17200 (“UCL”). The District Court granted summary adjudication and dismissed plaintiff’s claim brought under the ARL but denied summary judgment on plaintiff’s UCL claim. (At the time of this publication, plaintiff’s motion for class certification was pending before the District Court.)

The District Court’s order dismissing plaintiff’s claim based on the ARL itself is in line with other recent orders from the Eastern and Central Districts of California that have found that the ARL does not provide a private right of action. See Johnson v. Pluralsight, LLC, — F. Supp. 3d —, 2017 WL 661953 (E.D. Cal. Feb. 17, 2017) (Judge Morrison England, Jr.); Roz v. Nestle Waters N. Am.,Inc., No. 2:16-cv-04418-SVM-JEM, 2017 WL 132853 (C.D. Cal. Jan. 11, 2017) (Judge Stephen Wilson). However, because a UCL claim can be based upon the violation of a statute, the District Court found that the alleged violation of the ARL could be the predicate unlawful act upon which a UCL claim (and class action) could be based.

The District Court also rejected Spotify’s claim that the plaintiff lacked Article III standing to bring the unfair competition claim. The District found that plaintiff’s expenditure of $9.99 a month for 3 months for an online music streaming service, considered in light of his testimony that he did not expect to be charged for the service, no longer wanted it, and did not use it after the first 2 weeks of his 3-day free trial, was sufficient to establish injury-in-fact.

In examining each of the three grounds upon which the plaintiff based his claim that Spotify violated the ARL, the District Court determined that the plaintiff raised a genuine issue of material fact as to “but for” causation, which precluded summary judgment for Spotify. First, the plaintiff’s testimony – to the effect that, if the terms had been properly presented to him, he would have read them and cancelled his subscription prior to the end of the free trial – was sufficient to support his claim that Spotify’s failure to disclose its automatic-renewal terms in a clear and conspicuous manner caused him harm. The District Court rejected Spotify’s argument that, because the plaintiff admitted he did not read Spotify’s automatic renewal disclosure, his injury was not traceable to Spotify’s conduct. Plaintiff’s allegations were not related to the actual content of the disclosure, according to the District Court, but were instead “predicated on a prophylactic law requiring businesses to present disclosures in a conspicuous manner.”

Second, the District Court found that the plaintiff sufficiently established causation as to his claim that Spotify failed to obtain his affirmative consent to the automatic renewal program:  “Had Spotify presented [plaintiff] with an opportunity to affirmatively consent, he may have read whatever he was consenting to.”

Finally, in assessing plaintiff’s third claim that Spotify failed to provide an appropriate acknowledgment of the automatic renewal disclosure, the District Court noted that the receipt plaintiff received after signing up contained only a link to the online terms and not a copy of the actual terms. Because Spotify failed to address the adequacy of this type of disclosure in its motion, the District Court also denied summary judgment as to this claim.

Practice Tip: While many other states have enacted similar laws, California’s Automatic Renewal Law is considered to be among the most stringent in the United States. California is currently a hot spot for the filing of automatic-renewal disclosure class action cases. To avoid being targeted, companies offering subscription service programs, automatic renewals, and free trials should carefully review their compliance with California law and make any necessary changes to their sign-up process to provide clear and conspicuous disclosure, obtain affirmative consent, and provide an appropriate acknowledgement to the consumer.

For more information, please contact Kilpatrick Townsend Partner Nancy L. Stagg at nstagg@kilpatricktownsend.com.


Subscribe to Kilpatrick Townsend's Legal Alerts to help you stay current of new and noteworthy legal issues that may affect your business.