California Supreme Court Strikes Down $15 Million Employee Class Action Win and Orders Decertification in Duran V. U.S. Bank Nat’l Ass’n
Why it matters: On May 29, 2014, the California Supreme Court unanimously upheld an intermediate appeals ruling that struck down a $15 million judgment in a class action case against U.S. Bank. The state’s high court reversed an employee class action win, finding that the Alameda County trial judge, Robert B. Feedman, mismanaged a wage and hour class action where the court relied on flawed statistical sampling by relying on testimony of just 20 employees in extrapolating damages that had a 43 percent margin of error. The class involved 260 current and former business banking officers who claimed they were misclassified as exempt.
Writing for a unanimous court, Justice Carol Corrigan criticized the trial court’s flawed reliance on statistics:
As even the plaintiffs recognize, this result cannot stand. The judgment must be reversed because the trial court’s flawed implementation of sampling prevented USB from showing that some class members were exempt and entitled to no recovery. A trial plan that relies on statistical sampling must be developed with expert input and must afford the defendant an opportunity to impeach the model or otherwise show its liability is reduced. Statistical sampling may provide an appropriate means of proving liability and damages in some wage and hour class actions. However, as outlined below, the trial court‘s particular approach to sampling here was profoundly flawed.
The court further noted, “[s]tatistical sampling may provide an appropriate means of proving liability and damages in some wage and hour class actions,” but “after a class has been certified, the court’s obligation to manage individual issues does not disappear.” The decision is critically important in highlighting the challenge by the trial court certifying class actions, particularly in the misclassification context, and the obligation of the court in determining not just whether common questions exist, but also whether it will be feasible to try the case as a class action. Duran makes clear that class certification is not appropriate, unless these individual questions can be managed with an appropriate trial plan. Thus, depending on the nature of the claimed exemption and the facts of a particular case, a misclassification claim has the potential to raise numerous individual questions that may be difficult, or even impossible, to litigate on a classwide basis.
Detailed Discussion
The California Supreme Court in Duran highlighted the challenges in certifying class actions, particularly as related to calculation of damages at trial. The well-reasoned decision makes it more challenging to certify a class, as the court called on trial judges to consider whether a class action is manageable and can withstand a trial – at the class certification stage. The court criticized the trial court’s reliance on flawed statistical sampling, as a substitute in determining damages at trial, and noted:
After certifying a class of 260 plaintiffs, the trial court devised a plan to determine the extent of USB’s liability to all class members by extrapolating from a random sample. In the first phase of trial, the court heard testimony about the work habits of 21 plaintiffs. USB was not permitted to introduce evidence about the work habits of any plaintiff outside this sample. Nevertheless, based on testimony from the small sample group, the trial court found that the entire class had been misclassified. After the second phase of trial, which focused on testimony from statisticians, the court extrapolated the average amount of overtime reported by the sample group to the class as a whole, resulting in a verdict of approximately $15 million and an average recovery of over $57,000 per person.
The court explained that in marshaling through these types of cases, the trial court must consider the issue of “manageability,” separate and apart from whether common questions predominate, to determine whether it is possible to litigate on a classwide basis:
Although predominance of common issues is often a major factor in a certification analysis, it is not the only consideration. In certifying a class action, the court must also conclude that litigation of individual issues, including those arising from affirmative defenses, can be managed fairly and efficiently. In wage and hour cases where a party seeks class certification based on allegations that the employer consistently imposed a uniform policy or de facto practice on class members, the party must still demonstrate that the illegal effects of this conduct can be proven efficiently and manageably within a class setting. (Brinker, at p. 1033; Dailey v. Sears, Roebuck & Co. (2013) 214 Cal.App.4th 974, 989.)
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Trial courts must pay careful attention to manageability when deciding whether to certify a class action. In considering whether a class action is a superior device for resolving a controversy, the manageability of individual issues is just as important as the existence of common questions uniting the proposed class.
The court also cautioned that reliance on a single policy cannot circumvent the aforementioned requirements, to justify certification. It took note of U.S. Bank’s well-written policies and noted that class certification is more likely to be appropriate in cases where the job is highly standardized, and if the corporate policy uniformly requires overtime work, noting that “[w]here standardized job duties or other policies result in employees uniformly spending most of their time on nonexempt work, class treatment may be appropriate even if the case involves an exemption that typically entails fact-specific individual inquiries.” However, the court explained that the employer’s “blanket” classification of a group of employees as exempt is not sufficient to justify certification of a class based on common questions.
The court acknowledged that the way to defeat certification remains by demonstrating that individual issues will swamp the common ones:
USB’s exemption defense raised a host of individual issues. While common issues among class members may have been sufficient to satisfy the predominance prong for certification, the trial court also had to determine that these individual issues could be effectively managed in the ensuing litigation. (See Brinker, supra, 53 Cal.4th at p. 1054 (conc. opn. of Werdegar, J.); Sav-On, supra, 34 Cal.4th at p. 334.) Here, the certification order was necessarily provisional in that it was subject to development of a trial plan that would manage the individual issues surrounding the outside salesperson exemption.
In general, when a trial plan incorporates representative testimony and random sampling, a preliminary assessment should be done to determine the level of variability in the class. (See post, at p. 40.) If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable. No such assessment was done here. With no sensitivity to variability in the class, the court forced the case through trial with a flawed statistical plan that did not manage but instead ignored individual issues.
Notably, the court noted that if a court does not find that the class is manageable through a uniform trial plan at the certification stage, then the certification is reversed:
Although courts enjoy great latitude in structuring trials, and we have encouraged the use of innovative procedures, any trial must allow for the litigation of affirmative defenses, even in a class action case where the defense touches upon individual issues. As we will explain, the trial plan here unreasonably prevented USB from supporting its affirmative defense. Accordingly, the class judgment must be reversed. The trial court is of course free to entertain a new certification motion on remand, but if it decides to proceed with a class action it must apply the guidelines set out here.
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The trial court could not abridge USB’s presentation of an exemption defense simply because that defense was cumbersome to litigate in a class action. Under Code of Civil Procedure section 382, just as under the federal rules, “a class cannot be certified on the premise that [the defendant] will not be entitled to litigate its statutory defenses to individual claims.” (Wal-Mart Stores, Inc. v. Dukes (2011) 564 U.S. __, __ [131 S.Ct. 2541, 2561].) These principles derive from both class action rules and principles of due process. (See Lindsey v. Normet (1972) 405 U.S. 56, 66; Philip Morris USA v. Williams (2007) 549 U.S. 346, 353.)
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Could California’s Tech Employee Antipoaching Settlement Be Derailed?
Why it matters: Although the parties have ostensibly reached a $324 million deal, one of the named plaintiffs in the antipoaching class action of tech engineers against Adobe Systems, Apple, Google, and Intel has filed an objection to the settlement. Michael Devine wrote a letter to the presiding judge calling the agreement “grossly inadequate.” Stating that it “fails to achieve justice” for the class, Devine requested that the court reject the settlement so that the class could “have our day in court and have a real shot at justice.” Similar letters from other class members were also filed with the court. Whether the court takes the objections seriously remains to be seen – a hearing on preliminary approval of the settlement will be held in the coming weeks. In related news, the court did grant final approval of a $20 million settlement between the class and defendants Intuit, Lucasfilm, and Pixar.
Detailed Discussion
The In re High-Tech Employee Antitrust Litigation in California federal court actually began with a Department of Justice (DOJ) investigation into several big-name technology companies in the state. Although the companies did not admit fault, they reached a deal with the DOJ in which they promised to stop the use of employee antipoaching agreements.
Civil suits followed in 2011. Groups of current and former employees of Adobe Systems, Apple, Google, Intel, Intuit, Lucasfilm, and Pixar alleged that the companies violated the Sherman Act by conspiring to keep salaries level (and 10 to 15 percent below natural market conditions) and to keep their hands off each other’s employees. The suits were consolidated and three of the defendants – Intuit, Lucasfilm, and Pixar – offered a total of $20 million to escape the litigation.
In May, U.S. District Court Judge Lucy H. Koh granted final approval to the $20 million deal in which Intuit paid $11 million and Pixar and Lucasfilm chipped in $9 million. Calling the financial award “substantial” in light of the fact that the settling defendants collectively account for less than 8 percent of the class members, the court said the deal was “fair, adequate, and reasonable.”
A total of 11,055 class members filed claim forms while only 147 opted out and just 5 objected to the settlement (which the court found did not cast any doubt on the value of the settlement). Each claimant will receive a fractional share based upon his or her total base salary received during the conspiracy period, which Judge Koh characterized as “a simple, efficient way to allocate the settlement funds to claimants based on the extent of their injuries, which are proportional to their differing salaries.”
Judge Koh already faces several objections to the more recent settlement between the class and defendants Adobe Systems, Apple, Google, and Intel. After the first three defendants reached deals, the remaining four continued to litigate the suit until just before trial when the parties reached a $324 million agreement.
But according to one of the class representatives, the terms just don’t cut it. “The evidence of the defendants’ illegal conspiracy, and its intended impact, is very strong,” Michael Devine wrote to Judge Koh. “This settlement, in contrast, will amount to less than 1 percent of compensation for each class member over the duration of the illegal agreements. That’s one tenth of the experts’ estimates of damages and is lacking any penalty. There’s no justice for the class in that, nor is there any real deterrence to future wrongdoing. We want a chance at achieving real justice.”
Devine, who worked at Adobe from 2006 to 2008, also informed the court that he was not notified of the most recent round of mediation that resulted in the deal until the day after the agreement was reached. “Is the role of Class Representative a mere formality absent substance?” he asked. “Does this case belong to the plaintiffs’ counsel rather than the class? No and no. This case belongs to the class and we wish to proceed with the litigation.”
Requesting that the court reject the settlement “so that we may have our day in court and have a real shot at justice,” Devine said the deal as it stands “amounts to big profits for plaintiffs’ counsel, insulation from real liability for the defendants, and locks in a significant net loss for the class.”
Other class members chimed in with similar comments, including a former Intel employee who said he lost out on “a huge amount of wages over the past decade because of these backroom deals,” and characterized the settlement as “blatant injustice.” “I strongly appeal to you to please dismiss this paltry settlement,” he wrote. Devine is now seeking new counsel and has launched a website in support of his cause. In his letter to the court, he compared the settlement to an act of theft, using one of the defendant’s own products.
“As an analogy, if a shoplifter is caught on video stealing a $400 iPad from the Apple Store, would a fair and just resolution be for the shoplifter to pay Apple $40, keep the iPad, and walk away with no record or admission of wrongdoing?” he wrote. “Of course not, nor is such a resolution appropriate in our case.”
To read Devine’s letter to the court, click here.
To read other letters objecting to the settlement, click here.
To read the court’s order approving the settlement between the class and Intuit, Lucasfilm, and Pixar, click here.
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Antiarbitration Bill Progresses Through New York Legislature
Why it matters: Following passage by the State Assembly, the New York Senate is considering a bill that would prohibit state entities from contracting with any business that requires employees or independent contractors to sign an arbitration agreement. Similar to the so-called Franken Amendment added to the federal Defense Appropriations bill a few years ago, the proposed law applies to agreements covering arbitration for claims under Title VII and enumerated torts. Currently being considered by the Senate Finance Committee, the proposed law could signal a movement toward limiting employment-related arbitration agreements.
Detailed Discussion
On May 5, the New York State Assembly unanimously passed A4791. The legislation would prohibit a state entity from contracting with any business which mandates that an employee or independent contractor agree to arbitrate certain claims.
Specifically, employees bringing any claims arising under Title VII or any tort related to or arising from discrimination, sexual assault or harassment (including assault, battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring) must be allowed to litigate or the state comptroller would be unable to approve the employer’s contract.
The bill includes an exemption for arbitration required by a collective bargaining agreement as well as a waiver that can be granted “to respond to an emergency arising from unforeseen causes.” The waiver can last no longer than necessary, and the agency granting it must explain why it was used.
After unanimous passage in the Assembly (by a vote of 131 to 0), the proposed law moved to the Senate, where it was referred to the Finance Committee for consideration. If enacted, the bill would take immediate effect.
In 2009, Sen. Al Franken (D-Minn.) added a similar provision to the federal Defense Appropriations bill. Pursuant to that legislation, defense contractors were barred from receiving federal funds if they utilized mandatory arbitration for employee claims of sexual assault, assault and battery, intentional infliction of emotional distress, and negligent hiring, retention, and supervision.
To read Bill A4791, click here.
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Failure to Translate Arbitration and Confidentiality Agreements Unconscionable, Says California Appellate Court
Why it matters: An employer’s failure to translate portions of an employment contract rendered it unconscionable, according to a recent decision from a California appellate court. New employees of a car wash were presented with a document to sign that contained some sections in English and others in Spanish. The employees – who did not speak English – said they were fearful of losing their jobs if they didn’t sign, and were not provided with an explanation of what the documents contained. When they later filed a wage and hour class action, the employer filed a motion to compel arbitration based on the agreement. But an appellate panel said the employer “hid” information from the employees by failing to translate key provisions. In addition, by translating some but not all of the agreement, the employer demonstrated an awareness of the need to translate the document but decided not to do so. California courts have been friendly to arbitration provisions lately, but the latest decision demonstrates that the courts have boundaries on what they will allow.
Detailed Discussion
A few weeks after beginning work at Millennium Car Wash, Esteban Carmona was given a document by his manager. Carmona later testified that he believed it was a work document and that he needed to sign it to keep his job. He said the manager did not explain the document, and being unable to speak or read English, he did not understand the parts of the agreement that had not been translated into Spanish. A second plaintiff made similar allegations.
Carmona and other car wash employees filed a wage and hour suit against Millennium and its sister company, Santa Monica Car Wash. The employers filed a motion to compel arbitration and a trial court denied it, ruling that the arbitration agreement was unconscionable.
The employers appealed. Relevant to the litigation, the agreement contained an arbitration clause, a confidentiality clause, and an additional confidentiality subagreement that included an enforceability clause. In addition to the arbitration provision, the enforceability clause also pertained to certain employee/employer disputes.
The arbitration clause and stand-alone confidentiality clause had been translated into Spanish, but the entire subagreement remained in English.
Reviewing the documents as a whole, the appellate panel found the agreement both procedurally and substantively unconscionable. Procedurally, the “car wash companies drafted these agreements and presented a printed form to [the plaintiffs], who both indicated that if they did not sign the agreement in the form presented, they would not be permitted to work at the car wash,” the court said.
“The companies hid the enforceability clause and the entire confidentiality subagreement by failing to translate that portion of the agreement into Spanish,” the panel wrote. “[The plaintiffs] could not read English, and yet the car wash companies provided the enforceability clause in English only. The car wash companies evidently knew the plaintiffs required Spanish translations because they provided some translation. The record does not reveal why the car wash companies did not translate the entirety of the employment agreement.”
Turning to substantive unconscionability, the panel said the agreement was lacking in mutuality in several regards. Only the employees agreed to arbitrate their claims, the court noted, while the car wash companies did not indicate they were bound by the clause, leaving the employer with a choice of forums. The enforceability clause also permitted the car wash companies to recover reasonable attorneys’ fees and costs with no reciprocal provision allowing employees a similar recovery. And the confidentiality clause mandated that employees discuss with the employer “any problems or concerns or anything else related to” their employment before disclosing any information to third parties, including attorneys or courts. No corresponding obligation bound the employer.
“The arbitration agreement here suffered from multiple defects demonstrating a systemic lack of mutuality that favored the car wash companies,” the court concluded, affirming a denial of the motion to compel arbitration.
To read the opinion in Carmona v. Lincoln Millennium Car Wash, click here.
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Despite Technical Violation of FMLA, First Circuit Dismisses Suit
Why it matters: An employer managed to score a victory in a Family and Medical Leave Act (FMLA) suit despite the court’s finding that the company technically violated the statute. Although the employer failed to provide a proper Notice of Eligibility or Designation Notice as required by the FMLA, the First U.S. Circuit Court of Appeals held that the employee suffered no harm. Because the employee did not provide evidence that he would have structured his leave differently or would have been medically ready to return to work, the appellate panel ruled that the employer’s violations were irrelevant as “nothing was lost, nor was any harm suffered.” While the employer managed to get the case dismissed, the decision provides a lesson for employers: avoid litigating an FMLA case to the federal appellate level and provide employees with the required notices under the statute.
Detailed Discussion
Scott Bellone was a fourth-grade teacher at a Massachusetts elementary school. On March 10, 2010, he informed the school district that he needed to take a two-week leave of absence for medical reasons. He provided the district with a note from his physician; a second note followed, stating he would be unable to work until April 15.
On March 24, the district sent Bellone a letter and certification form that he was instructed to complete and return. This communication was later characterized by the district as an FMLA Notice of Eligibility. When Bellone’s doctor returned the form, it stated that he would be unable to perform the job function of “teach[ing] children” for an “uncertain” period of time. For the rest of the school year – which ended on June 21 – the doctor continued to communicate to the district that Bellone was unable to work.
The district sent Bellone a letter on July 9, informing him that he had been approved for FMLA leave, which the district had designated as lasting from March 4 through June 4 (although untimely, the employer called the letter an FMLA Designation Notice). Having exhausted his statutory 12 weeks, the school asked if Bellone would be medically able to return to work the next school year. Bellone provided a letter dated August 30 from his doctor, who stated that he could “see no psychological reasons why [Bellone] should not return to work at the beginning of the new academic year.”
Bellone was given a new teaching assignment. Believing it to be a demotion, he did not report to work. After being officially terminated, Bellone sued, alleging, among other claims, that the district interfered with his FMLA rights by failing to provide proper and timely eligibility and designation notices as required by the statute.
Both of the notices were untimely, the First Circuit said, as well as inadequate.
But affirming summary judgment for the employer, the federal appellate panel said Bellone failed to establish that he suffered any harm as a result of the statutory violations. Although he contended that he would have structured his leave differently in order to preserve some of his FMLA entitlement had the district provided the proper notice, the court disagreed.
“Bellone has demonstrated no genuine dispute of material fact that would support a finding that he suffered harm as a result of the School District’s late and inadequate notices,” the panel wrote. Not until August 30 did the school receive notice that Bellone was fit to return to work. Therefore, Bellone’s unsupported statements in his amended complaint that he would have preserved some of his FMLA leave by modifying his medical treatment, requesting a workplace accommodation or intermittent leave, or returning to work sooner – in contradiction of the notes from his doctor – were insufficient, the court held.
To read the decision in Bellone v. Southwick-Tolland Regional School District, click here.
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