KT Class Action Blog

Category: Standing

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, December 4 2017 at 12:49 pm by
Following Federal Courts’ Lead, North Carolina Superior Court Dismisses No-Injury Class Action For Lack of Standing

by Joe Dowdy and Phillip Harris

The United States Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), which holds plaintiffs without concrete injury lack standing to sue in federal court, relies on federal constitutional and jurisprudential principles. Because federal standing flows from Article III of the Constitution, Spokeo does not control the standing issue in state court litigation. As a recent North Carolina trial court decision shows, however, federal Spokeo precedents can be persuasive to a state court judge faced with a class action in which the named plaintiff cannot allege or prove a concrete injury.

In Miles v. The Company Store, Inc., at al., No. 16-CVS-2346 (Alamance Cnty, N.C. Sup. Ct. Nov. 16, 2017) (slip op.) (unpublished), the named plaintiff (Miles) alleged that the defendants generated and provided a copy of a receipt revealing the first six digits and the last four digits of the credit card plaintiff used to make a purchase. Miles sought recovery on a class-wide basis for alleged intentional violations of the Fair and Accurate Credit Transactions Act (“FACTA”) (see 15 U.S.C. §§ 1681(c)(g)(1)), which prohibits the display of “more than the last 5 digits of the card number . . . upon any receipt provided at the point of the sale or transaction.” Problematically, however, Miles did not allege the receipt was seen by anyone other than himself. Miles, slip. op. at 2. Further, although Miles alleged he faced an increased risk of identity theft, he did not say that he actually suffered identify theft. Id.

North Carolina Superior Court Judge Richard S. Gottlieb ruled that the allegations did not confer standing for Miles to bring suit in state court. Judge Gottlieb relied upon North Carolina appellate decisions and did not cite Spokeo. He did, however, cite to federal cases that relied on Spokeo. See id. at 3 (“This court agrees that the injury alleged here does not meet the concreteness requirement to establish an injury in fact in order to support standing.”).

Miles predictably argued that North Carolina required less for state-court standing than Spokeo and its progeny require in federal court. But Judge Gottlieb found the no-injury claims insufficient under North Carolina standing law just as under federal standing decisions:

Plaintiff correctly notes that the Supreme Court of North Carolina has identified some circumstances where standing is proper in North Carolina even when it would not be proper under federal law. However, standing still requires a plaintiff to allege such a personal stake in the outcome of the controversy as to assure that concrete adverseness . . . sharpens the presentation of issues. For example, . . . a plaintiff c[an] maintain standing if they have [been] injuriously affected, even if they [cannot] show an injury in fact which is concrete and particularized. Here, Plaintiff has only alleged that Defendants provided him a copy of his own personal information, exceeding federal statutory limits. Since Plaintiff already has access to his personal information, this does not have an injurious effect or create any other personal stake in the controversy sufficient to assure concrete adverseness. Therefore Plaintiff does not have standing to pursue a claim.

Id. at 3 (citations and quotation marks omitted).

Miles might appeal the decision, which could result in a published decision on the issue from the North Carolina Court of Appeals or the North Carolina Supreme Court. In the meantime, defendants facing no-injury state-court class actions should consider carefully urging Spoke-type standing challenges wrapped in state law standing limitations.

Key Takeaway: Spokeo can impact the standing analysis in no-injury class action at the state level, when a state trial court is left to analyze state constitutional and jurisprudential principles. Accordingly, a defendant in a state court no-injury class action should marshal state law and consistent elements of Spokeo jurisprudence to mount the most effective challenge to state-court standing in such cases.

Posted on Monday, November 27 2017 at 8:51 am by
FCRA Injury Requirement Remains Murky Following Supreme Court Denial of Certiorari

by Annica Bianco

On November 12, 2017, the U.S. Supreme Court declined to hear a case that would have clarified an important issue in Fair Credit Reporting Act (FCRA) litigation, a popular source of no-injury class action litigation. The petition sought review of a Ninth Circuit decision in a putative class action holding that an “informational injur[y]” constitutes a “real-world harm” sufficient to establish standing for purposes of FCRA litigation. Petition for Writ of Certiorari at 4, M-I LLC v. Syed, No. 16-1524 (June 19, 2017).

What constitutes an informational injury, practically speaking? The answer is far from clear. In Syed, the alleged “informational injury” arose from the simple fact that the prospective employer combined into one document the required FCRA disclosure with a liability waiver. Syed v. M-I, LLC, 853 F.3d 492, 499 (9th Cir. 2017). Plaintiff’s signature on that single document served as both an authorization for the employer to procure his consumer report and as a broad release of liability. Id. Plaintiff alleged that the combination generated confusion concerning his rights and that he would not have authorized the disclosure had it been a standalone document. Id. The Ninth Circuit held those allegations were sufficient to establish standing. Id. at 500.

Stated more generally, the Ninth Circuit found that an informational injury can arise in the FCRA context “when applicants are deprived of their ability to meaningfully authorize [a] credit check.” Id. at 499. In reaching this conclusion, the court reasoned that FCRA’s requirement that a job candidate authorize the collection of consumer information by a prospective employer creates a right to privacy because the candidate can withhold permission. Id.

But the takeaway is broader: so-called “informational injuries” can provide the requisite injury-in-fact to establish standing to pursue a FCRA claim. This is important because FCRA violations can result in statutory penalties ranging from $100 to $1,000 per violation, as well as punitive damages at the discretion of the court, and attorneys’ fees and costs. On a class level, these numbers add up. In a 1,000 member class, for example, statutory penalties alone can reach $1,000,000.

Syed broadened the universe of harms that may give rise to a FCRA claim, and following the Supreme Court’s denial of certiorari in Syed, the concept of an “informational injury” will continue to be subject to broad judicial interpretation.

The Supreme Court’s decision not to hear Syed is also important because it leaves intact the Ninth Circuit’s ruling on the merits. After finding the plaintiff had standing, the court went on to hold that the prospective employer’s combination of the required FCRA disclosure with a liability waiver was not only a statutory violation, but a willful violation of the statute. Id. at 503. Effectively, the court held that the combination of the forms was knowing or reckless. Id. (citing Safeco Insurance co. of America v. Burr, 551 U.S. 47 (2007)). Under this precedent, employers will continue to face the risk of FCRA liability from even technical violations.

The landscape is different in other circuits. In August of this year, for example, the Seventh Circuit considered an analogous situation to Syed and came to the opposite conclusion. Groshek v. Time Warner Cable, Inc., 865 F.3d 884 (7th Cir. 2017). In that case, the plaintiff alleged that the prospective employer’s failure to provide a FCRA compliant disclosure constituted a concrete informational injury. In Groshek, like Syed, the alleged violation stemmed from the inclusion of “extraneous information” in the disclosure. Id. at 885. The Seventh Circuit found, however, that while the plaintiff had alleged a statutory violation, it was “completely removed from any concrete harm or appreciable risk of harm.” Id. at 887.

But Groshek distinguished Syed on the facts. The Seventh Circuit reasoned that Syed, unlike Groshek, presented factual allegations plausibly suggesting that the disclosure, as structured, created confusion, and that the plaintiff in Syed would not have signed the disclosure had it been a standalone document, as required by the FCRA. Id. at 889.

The Supreme Court’s denial of certiorari preserves this arguable split in circuit authority for now. But if the plaintiff in Groshek has his way, the issue will be before the Supreme Court soon. On October 30, 2017, the Groshek plaintiff petitioned the Supreme Court for certiorari.

Until the Supreme Court decides whether to hear the Groshek appeal, employers concerned about potential FCRA liability should give careful attention to their disclosure forms to ensure they comply with the letter of the statute, to minimize the risk of litigation. If certiorari is granted, regardless of how the Supreme Court decides the matter, the issue of FCRA standing and injury could finally be clarified.

Posted on Monday, October 30 2017 at 6:37 pm by
Third Circuit Endorses Standing for Putative Class of Eye Drop Consumers, Rejecting Seventh Circuit’s View

by Joe Reynolds

Takeaway: Ever since the Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), federal courts have grappled with the threshold standing question of what constitutes concrete injury in consumer class action litigation. Earlier this year, the Seventh Circuit, in an amusing opinion by Judge Posner, likened a putative class of eye drop purchasers complaining about the size of their eye drops to a group of cat owners dissatisfied with the purchase of an expensive drinking fountain for their cats. Eike v. Allergan, Inc., 850 F.3d 315 (7th Cir. 2017). After the Seventh Circuit dismissed the action with prejudice, we suggested in a prior post [Spokeo Dismissals – With Prejudice, Without Prejudice or Something Else?] that the Seventh Circuit viewed the case as frivolous, since federal courts generally dismiss cases for lack of standing without prejudice. But faced with “materially identical allegations,” the Third Circuit rejected the Seventh Circuit’s view, holding that the eye drop purchasers sufficiently alleged concrete injury. Cottrell v. Alcon Labs., — F.3d —, 2017 WL 4657402, at *6 (3d Cir. Oct. 18, 2017). This divergent approach is another reminder that class action attorneys must stay current on the ever-evolving standing doctrine.

In Cottrell, the plaintiffs – purchasers of eye drops – filed suit against the manufacturers and distributors of the eye drops for violation of various states’ consumer protection statutes. Plaintiffs alleged the tip of the bottle of eye drops necessarily dispensed too large of an eye drop, around 50 microliters. Since a “plethora” of scientific research shows that an eye can only handle 7 to 10 microliters of fluid, plaintiffs alleged that any portion of the drop in excess of 7 to 10 microliters is “entirely wasted.” Id. at *1. As a result, plaintiffs claimed the defendants caused them to suffer “substantial” economic injury by manufacturing and selling eye drops in bottles that “emit such large drops.” Id. at *2.

These allegations are materially identical to the allegations made by the consumer-plaintiffs in Eike v. Allergan, Inc., 850 F.3d 315 (7th Cir. 2017).  Writing for the Seventh Circuit, Judge Posner suggested plaintiffs there were simply dissatisfied with a product and its price, likening them to cat owners who sued cat breeders for duping them into buying expensive drinking fountains for their cats: “[W]ould anyone think they could successfully sue the breeders? For what?” 850 F.3d at 317. Judge Posner observed “[y]ou cannot sue a company and argue only—‘it could do better by us’—which is all they are arguing.” Id. at 318. Citing Spokeo, Judge Posner concluded the consumers had no standing to sue: “The fact that a seller does not sell the product that you want, or at the price you’d like to pay, is not an actionable injury; it is just a regret or disappointment—which is all we have here, the class having failed to allege ‘an invasion of a legally protected interest.’” Id.

The Third Circuit expressly rejected the Seventh Circuit’s reasoning. Writing for the majority, Judge Restrepo held the Seventh Circuit’s “logic flips the standing inquiry inside out, morphing it into a test of the legal validity of the plaintiffs’ claims of unlawful conduct.” Cottrell, 2017 WL 4657402, at *7. According to Judge Restrepo, “the Court in Eike blended standing and merits together” by determining the consumers had no cause of action; reasoning they had no injury because they had no cause of action; and concluding they had no standing to sue because they had no injury. Id. The Seventh Circuit erred by not focusing on whether plaintiffs alleged an invasion of a “legally protected interest.” Id. at *5. After noting that economic interests have traditionally been treated as legally protected interests for purposes of the standing doctrine, the Third Circuit held plaintiffs sufficiently alleged their “interests in the money they had to spend on medication that was impossible for them to use.” Id. at *6. And, by manufacturing and selling bottles of eye drops with tips that necessarily dispense too large of an eye drop, plaintiffs sufficiently alleged “Defendants’ conduct … caused harm to these interests.” Id.

Judge Roth dissented, holding the consumers “manufacture[d] a purely speculative injury.” Id. at *11 (Roth, J., dissenting). Judge Roth agreed plaintiffs’ injury boiled down to “the money spent on that portion of a single eye drop which exceeds the medically necessary volume.” Id. But Judge Roth noted plaintiffs did not argue they were charged more than market price for eye drops; instead, “they argue that the defendants could manufacture a hypothetical eye dropper that would dispense the exact amount of fluid needed to maximize efficacy without waste.” Id. (emphasis in original). Plaintiffs then assumed that once defendants’ conduct changed, no other aspects of the market would change—that is, “changing the eyedropper size would … change the price of the medicine.” Id. at *13. In Judge Roth’s view, this is an unreasonable assumption because the pharmaceutical market is shifting to pricing medicine based on effective doses, not volume. So even if defendants modified their eye dropper, plaintiffs might still pay the same price they’re paying now. Accordingly, Judge Roth could not accept such an “imaginative” economic theory and so rejected “the plaintiffs’ alleged economic injury as overly speculative and untenable under existing precedent.” Id.

In Eike, Judge Posner disregarded plaintiffs’ claims as mere “regret or disappointment” and dismissed the claims with prejudice, thereby foreclosing re-filing of the suit in any court. Judge Roth’s dissent in Cottrell did not go so far, but she did say the majority’s decision “flouts” the principle that “jurisdiction is a strict master” and that she is “troubled by both the legal and practical ramifications of the Majority’s decision.” 2017 WL 4657402, at *14. That distinguished jurists can disagree so strongly shows that the concept of “actionable injury” under Spokeo remains unclear, and the directly conflicting rulings on the identical claim might catch the eye of a Supreme Court looking to clarify its recent Spokeo ruling.

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