Walt Disney (“Disney”) suffered a loss last week in an adverse employment action based on its use of information in consumer reports as part of its employment screening process. The plaintiffs have alleged that they were injured when inaccurate credit reporting information, which they had no opportunity to challenge or correct, became a factor in Disney’s denial of employment. On July 13, 2017, the Court entered an order granting class certification over objections by Disney to, among other issues, the existence of predominant common questions of fact. In reaching its decision, the Court elected to define the commons issues as framed by the more generalized issues advanced by plaintiffs than the specific factual issues Disney identified would be necessary to assess the class members and their alleged damages.
In McGill v. Citibank, N.A., No., S224086 (Cal. Apr. 6, 1017), the California Supreme Court recently held that pre-dispute arbitration agreements that purport to waive the remedy of injunctive relief under California consumer statutes that have the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the public in any forum, are contrary to California public policy and are thus unenforceable under California law. The court further held that the Federal Arbitration Act (FAA) does not preempt California law nor require enforcement of such contractual waiver provision.
The dispute in McGill arose out of an account agreement for a “credit protector” plan to a Citibank credit card that contained a broadly worded agreement to arbitrate that sought to require arbitration of all claims related to the account no matter the theory or relief sought. Specifically, claims brought as a class action, private attorney general, or other representative action, could only be brought on an individual basis and relief awarded only to the individual and not to anyone not a party to the agreement. The provision also stated that such claims would be governed by the FAA.
McGill brought claims under the California consumer remedy statues (Unfair Competition Law, California Legal Remedies Act and False Advertising Law) seeking damages and injunctive relief prohibiting Citibank from continuing to engage in allegedly illegal and deceptive practices. The trial court severed and kept the injunctive relief cause of action but ordered arbitration of all other claims; the Court of Appeal reversed and remanded concluding that AT &T Mobility v. Concepcion preempted application of the Broughton-Cruz rule, which established that agreements to arbitrate claims for public injunctive relief under these or any other statutes, was unenforceable.
McGill petitioned the California Supreme Court claiming that there was no preemption of the Broughton-Cruz rule and that any arbitration agreement requiring submission of claims for public injunctive relief was unenforceable. McGill also raised an argument that had been ignored by the Court of Appeal but which had traction in the Supreme Court, which is that the clause was unenforceable as it sought to waive McGill’s right to seek public injunctive relief in any forum based upon language in the clause that claims under the consumer statutes could not be pursued “in any litigation in any court.” At the hearing, Citibank agreed with McGill that this clause would prevent McGill from seeking public injunctive relief in any forum.
In a nutshell, the Court held that it need not decide whether FAA preemption applied because Citibank agreed that public injunctive relief was excluded from the obligation to arbitrate, and the Broughton-Cruz rule “which applies only when the parties have agreed to arbitrate requests for such relief” was not at issue; thus, the continued validity of that rule after Concepcion need not be decided. The only question before the court was “whether the arbitration provision is valid and enforceable insofar as it purports to waive McGill’s right to seek public injunctive relief in any forum.
By focusing only on the specific language of an arbitration clause that prevented the plaintiff from seeking public injunctive relief in either arbitration or court, the California Supreme Court attempted to thread the needle to avoid taking on the obvious question of FAA preemption under Concepcion and later decisions that have upheld precluding class procedures in consumer arbitrations. The narrowness of this decision leaves open the question in California courts of the continued validity of the Broughton-Cruz rule and its prohibition against waiving claims for public injunctive relief by agreeing to individual arbitration
In a detailed opinion published last week in Briseno v. Conagra Foods, Inc., No. 15-cv-55727 (9th Cir. Jan. 3, 2017), the Ninth Circuit held that Federal Rule of Civil Procedure 23 neither provides nor implies that demonstrating an “administratively feasible” way to identify class members is a prerequisite to class certification.
The Court employed traditional canons of statutory construction to reason that the plain language of Rule 23(a) and Rule 23(b)(3), as well as the U.S. Supreme Court precedent of Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997) dictate that no separate “administrative feasibility” or “ascertainability” requirement need be satisfied in order to obtain class certification. As summarized by the Court, “the language of Rule 23 does not impose a freestanding administrative feasibility prerequisite to class certification. Mindful of the Supreme Court’s guidance, we decline to interpose an additional hurdle into the certification process delineated in the enacted rule.”
In its opinion, the Court also expressly rejected the justifications provided by the Third Circuit – (1) mitigating administrative burdens; (2) safeguarding the interests of justice; and (3) protecting the due process rights of defendants – for an independent ascertainability requirement for class certification. In doing so, the Court concluded that “Rule 23’s enumerated criteria already address the interests that motivated the Third Circuit . . .”
Briseno involved a challenge to the “natural” labeling statements on Conagra’s Wesson Oil products based on the claim that the products allegedly contained unnatural genetically modified (GMO) ingredients. Like many defendants in other food labeling class actions, Conagra argued that none of the 11 proposed classes should have been certified, in part because plaintiffs could not demonstrate an administratively feasible method for identifying class members, and the only evidence of class membership would be unreliable affidavits claiming product purchases unsupported by any receipts or other reliable evidence that the products were actually purchased.
Several Circuit Courts of Appeal (the Second, Third, Fourth, and Eleventh Circuits) have held that ascertainability is a prerequisite to class certification, and have denied certification where plaintiffs have failed to demonstrate an administratively feasible and reliable way of identifying class members, most notably in consumer class action cases where absent class members lacked receipts for the products they purchased and where the challenged labeling statements differed on the product packaging. The leading decision supporting defendants’ ascertainability arguments is the Third Circuit’s decision in Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013). With the Briseno decision, the Ninth Circuit rejected Carrera and its progeny, and joined the Sixth, Seventh, and Eighth Circuit Courts of Appeal in holding that there is no separate ascertainability or “administrative feasibility” requirement for class certification.
The Briseno decision thus further deepens the divide between the Circuit Courts of Appeal on this important class certification issue. We anticipate that the issue will be heard by the Supreme Court in the appropriate case.
On September 16, 2016, I attended a conference in San Francisco regarding current class action issues. Below is a summary of some key takeaways from that event.
- The United States Supreme Court issued three significant class action rulings during its 2015-2016 term: (1) Tyson Foods, Inc. v. Bouaphakeo, 135 S.Ct. 2806 (plaintiffs can rely on representative or statistical evidence for issues common to the class); (2) Spokeo, Inc. v. Robins, 135 S.Ct. 1892 (Article III standing requires a concrete and particularized injury or risk of harm); and (3) Campbell-Ewald Co. v. Gomez, 135 S.Ct. 2311 (unaccepted settlement offer for full amount of lead plaintiff’s claim does not moot a class action). Collectively, these decisions keep the door wide open to class action litigation nationally.
- One of the proposed changes to Federal Rules of Civil Procedure (“FRCP”) Rule 23 is that no financial payment can be made to counsel for class members objecting to a proposed settlement unless such payment is disclosed and approved by the court after a noticed hearing. Further, no payment can be made to an objector’s counsel in connection with either withdrawing an objection or dismissing an appeal from a judgment approving the settlement. Collectively, these changes should reduce the likelihood that attorneys will object to a settlement or appeal a final judgment for the purpose of getting additional compensation from the settling parties in exchange for dropping their objection or appeal.
- Other proposed changes to FRCP Rule 23 include: (1) the court will give notice of a proposed settlement to all class members only after considering whether there has been adequate representation, arm’s length negotiations, adequate relief offered to all class members (side agreements have to be disclosed to the court), and all class members are equitably treated relative to each other; and (2) notice to class members can be given by email or posting notice on the company’s website instead of just U.S. Mail.
- Courts are more closely scrutinizing class action settlement agreements because: (1) parties want to expand the class and claims being released beyond the scope of the initial complaint following settlement discussions; (2) defendant’s agreement not to object to plaintiff counsel’s fees can be evidence of collusion; (3) if interests are divergent between FRCP Rule 23(b)(2) and FRCP Rule 23(b)(3) classes, both classes would need to have separate counsel or else there would be inadequate representation; (4) courts are rejecting “kicker” provisions, where any money reverts to defendant if the court does not approve plaintiff counsel’s entire fees or if class members do not cash checks; and (5) courts reject settlements when cy pres provision is not pertinent to the issue raised by the class. As such, counsel should no longer expect the court to rubber-stamp the parties preliminary settlement agreement.
- Even though the U.S. Supreme Court’s opinion in Clapper v. Amnesty, 133 S.Ct. 1138 (2013) stands for the proposition that no recovery is allowed for injuries that have not in fact occurred, even if they appear likely or probable, more circuit courts are allowing data breach class actions to proceed if there is an increased risk of fraudulent charges or identity theft. However, there has not yet been a single case where plaintiffs certified a class action in a data breach case, except for settlement purposes.
- Class members must be definite and ascertainable at class certification stage. There are three ways to achieve ascertainability: (1) easily identifiable class members; (2) objective criteria to define the class; or (3) class does not include people who did not suffer a common injury. Cases are currently pending in the 9th Circuit to further clarify this ascertainability analysis.
- Even though class actions are rarely tried to verdict, at trial, defense counsel should focus on any differences between named plaintiff’s claims and other class members to show lack of commonality and that individual interests predominate. Conversely, plaintiff’s counsel will want to have both named class representatives and absent class members testify to generate more sympathy with the jury.
Follow HB Briefly for further developments in class action law.
Despite finding that as a matter of law McDonald’s was not directly liable as a joint employer, a California federal judge granted class certification to McDonald’s workers, saying the claims against McDonald’s Corp. can proceed on a classwide basis under a theory of ostensible agency. Under this theory, McDonald’s could be liable because employees reasonably believed they were employed by McDonald’s.
The workers filed the class action in 2014, alleging a variety of wage and hour violations by defendant the Edward J. Smith and Valerie S. Smith Family Limited Partnership (“Smith”), which owns and operates five restaurants in California under a franchise agreement with McDonald’s. Plaintiffs also sued McDonald’s on direct and vicarious liability grounds.
McDonald’s moved for summary judgment on the grounds that it was not a joint employer. The Court granted summary judgment on plaintiffs’ direct liability theories, finding that McDonald’s is not directly liable as a joint employer with the Smiths, but denied it on the issue of whether McDonald’s may be liable on an ostensible agency basis. Ostensible agency exists where (1) the person dealing with the agent does so with reasonable belief in the agent’s authority; (2) that belief is “generated by some act or neglect of the principal sought to be charged,” and (3) the relying party is not negligent. Kaplan v. Coldwell Banker Residential Affiliates, Inc., 59 Cal. App. 4th 741, 747 (1997).
Plaintiffs then settled with the Smiths, leaving the McDonald’s entities as the last standing defendants.
Plaintiffs moved for certification of a class to pursue claims for: (1) miscalculated wages; (2) overtime; (3) meals and rest breaks; (4) maintenance of uniforms; (5) wage statements; and (6) related derivative claims.
Ostensible Agency Not A Bar To Class Certification
McDonald’s argued that allegations of ostensible agency are incapable of being resolved on a classwide basis because they involve individualized questions of personal belief and reasonable reliance on an agency relationship.
The court disagreed, holding that ostensible agency does not demand unique or alternative treatment, and “certainly does not stand entirely outside Rule 23 as impossible to adjudicate on a classwide basis.”
On Monday, the Supreme Court delivered an opinion in Spokeo v. Robins that raises the bar for class action plaintiffs bringing suit for violations of federal statutes, such as the Fair Credit Reporting Act of 1970 (FCRA). In a 6-2 decision, the Supreme Court held that Article III standing requires a concrete injury even in the context of a statutory violation, at the same time confirming that an intangible injury can be considered “concrete” under the right circumstances.
Plaintiff Thomas Robins filed suit under the FCRA after Spokeo, a consumer reporting agency, published incorrect information about him on its “people search engine.” According to the complaint, Spokeo willfully violated the FCRA by publishing false information regarding Robins’ age, income, and marital status. The District Court dismissed the complaint on the grounds that Robins failed to meet Article III’s standing requirements because he did not allege that the false report resulted in an injury-in-fact. The Ninth Circuit reversed the decision, holding that it was enough for Robins to allege that Spokeo violated an individual right imposed by statute. Monday’s ruling vacates that decision and remands the case to the Ninth Circuit.
According to Justice Alito’s majority opinion, the Ninth Circuit erred in its Article III standing analysis by failing to address the requirement that an injury be “concrete,” as well as “particularized.” According to the decision, “Robins could not, for example, allege a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III.” Instead, the Court held that “a ‘concrete’ injury must be ‘de facto’; that is, it must actually exist,”in order to satisfy Article III. At the same time, the Court pointed out that “’[c]oncrete is not, however, necessarily synonymous with ‘tangible.’” Instead, the Court recognized that an intangible right may provide the foundation for Article III standing if there is a ”close relationship” between the alleged intangible harm and a harm traditionally recognized by Congress and common law.
In a concurring opinion, Justice Thomas reached the same conclusion via an historical analysis of private versus public rights provided by statute. His concurrence points out that the concept of injury-in-fact differs depending on the nature of the suit. According to Justice Thomas, a private plaintiff bringing suit to protect his own statutory rights need not allege actual harm beyond the violation of that particular right, while a private plaintiff bringing suit to protect the public’s statutory rights must make a showing of concrete and particularized harm.
In dissent, Justice Ginsburg, joined by Justice Sotomayor, disagreed that remand was necessary because the injuries alleged in the complaint were both particularized and concrete. Particularly disturbing to Justice Ginsburg was the fact that the incorrect information on Spokeo’s website included a picture, as well as information about Robin’s finances and marital status.
In a score for class action defendants, the Spokeo decision makes it clear that bare allegations that a consumer protection statute was violated will no longer be enough for a class action plaintiff to advance past the pleading stage. Moreover, although the opinion leaves the door open for suits based on intangible injuries, the majority cautions that such injuries would have to reflect an injury that the courts, as well as Congress, have previously been determined to be particularized and concrete enough to satisfy Article III.
So what exactly does the “Made in the USA” label on products and clothing sold in California really mean? Starting on January 1, 2016, it means that not all of the parts of the merchandise with that label were actually made in the U.S.A.
Prior to 2016, California had the most stringent law governing “Made in the USA” labels on products, which made it unlawful for any entity to sell a product in California with the “Made in the USA” label when the product or any part of the product was made entirely or substantially produced outside of the U.S. In other words, the general rule was that 100% of the product (including all of its components) had to be made in the U.S. in order to market it with the “Made in the USA” label in California. This law generated many class actions in California.
Under amended California Business and Professions Code section 17533.7, California now allows the “Made in the USA” label if one of the following two criteria are met: (1) If all of the foreign-made units or parts in a product is not more than 5% of the final wholesale value of the product; or (2) If all of the foreign-made units or parts in a product – that cannot be obtained from a domestic source – is not more than 10% of the final wholesale value of the product. California Governor Jerry Brown signed this law to stop the tide of class actions filed in California concerning “Made in the USA” claims where tiny components of the end product were foreign-made, and to bring its law closer to the rules set forth by the Federal Trade Commission (“FTC”) .
Class action filings are plentiful in California. Each day, there are 10-20 new class actions filed in California’s state and federal courts. They include the following categories of cases:
- Labor and Employment [e.g., wage and hour, overtime, Fair Labor Standards Act (“FLSA”), discrimination, and Employee Retirement Income Security Act of 1974 (“ERISA”) / employee benefits];
- Consumer class actions [g., products, food labeling, Unfair Competition Law (“UCL”) (Cal. Bus. & Prof. Code, § 17200 et seq.), False Advertising Law (“FAL”) (Cal. Bus. & Prof. Code, § 17500 et seq.), and Consumers Legal Remedies Act (“CLRA”) (Cal. Civ. Code, §1750 et seq.)];
- Civil Rights (42 U.S.C. § 1983 claims), including Americans with Disabilities Act of 1990 (“ADA”) Titles II and III class actions and disability claims; and
- Data Breach and Privacy class actions [g., Fair Credit Reporting Act of 1970 (“FCRA”) and Fair and Accurate Credit Transactions Act of 2003 (“FACTA”) (15 U.S.C. §1681 et seq.), Telephone Consumer Protection Act of 1991 (“TCPA”) (47 U.S.C. §227)].
Specifically, over the past month in Northern California, consumer, employment, and TCPA class actions have dominated the filings, as indicated in the chart below.
With so many class actions filed, many of them are settled prior to trial – 2 were especially noteworthy.
- On February 8, 2016, Warner/Chappell Music Inc. agreed to establish a $14 million fund to repay those who have over the last 60+ years paid fees to license use of “Happy Birthday to You!” (Marya v. Warner/Chappell Music, Inc., C.D. Cal., No. 13-04460).
- On February 16, 2016, a class settled for $13 million with LinkedIn over sending multiple e-mails to members. The settlement included a $3.25 million attorney fee award and $1,500 incentive awards for each of nine lead plaintiffs. [Perkins v. LinkedIn Corp., N.D. Cal., No. 5:13-cv-04303-LHK).
Attorneys in Hanson Bridgett’s Class Actions and Mass Torts group monitor these developments in Northern California on a daily basis and have deep experience defending and favorably resolving these types of claims.
In a 6-3 opinion authored by Justice Breyer, the Supreme Court reversed a California court of appeal decision that refused to enforce a class-wide arbitration waiver on the grounds the waiver—although unenforceable under California state law at the time of contracting—was preempted by the Court’s holding in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011). DirecTV, Inc. v. Imburgia, 2015 WL 8546242 (Dec. 14, 2015) (“Imbrugia“). In Concepcion, the Court applied Federal Arbitration Act (“FAA”) preemption to strike down a California law that prohibited consumer class-arbitration waivers on unconscionability grounds.
At issue in Imbrugia was a provision in a DirecTV agreement that required binding arbitration to resolve any disputes but then voided the arbitration requirement “if the law of your state would find this agreement to dispense with class arbitration procedures unenforceable.” While the case was pending in the trial court, the Court issued its opinion in Concepcion. DirecTV then sought to compel arbitration because it could now avoid class-wide arbitration given that California’s prohibition on class-wide waivers was invalidated by Concepcion. Notwithstanding, the court of appeal affirmed the trial court’s denial of DirecTV’s motion to enforce the arbitration agreement reasoning that “law of your state” meant California law as it existed prior to Concepcion. The Ninth Circuit came to a conclusion directly opposite of that in Murphy v. DirecTV, Inc., 724 F.3d 1218 (9th Cir. 2013) on precisely the same issue involving a substantively identical arbitration agreement.
Justice Werdegar, in a unanimous opinion released late Thursday, delivered news the Organic industry was hoping not to get: California consumers are not prohibited from challenging false organic food labels on the basis of federal preemption.
In Quesada v. Herb Thyme Farms Inc., S216305 (California Supreme Court Dec. 3, 2015), a consumer alleged that Herb Thyme Farms Inc. was selling herbs labeled organic, which were, in whole or in part, made up of conventionally grown herbs. The district court found the deceptive labeling action preempted by the Organic Foods Production Act of 1990, which regulates farming methods for organic-marketed produce and organic certification programs. The Court of Appeals affirmed that outcome, though by finding the claims preempted by implication.
The California Supreme Court disagreed. The silence of the Organic Foods Production Act on the issue of consumer protection lawsuits, and the fact that deceptive labeling claims are generally governed by state law, both weighed against the presumption of federal preemption. (Id. at *7.) The Court reasoned that the purpose of a clear national definition of organic production was so consumers could rely on organic labels and to curtail consumer fraud. (Id. at *2.) Because the state claims advance, rather than hinder, the Legislature’s purposes and objectives in the Organic Foods Production Act, the Court found that the state claims would not get in the way of the federal statutory scheme. (Id.)
Though consumers and Organic producers will have to wait and see what impact this decision will have on the way Organic food is marketed in California and the volume of Organic deceptive labeling claims filed in state courts, it is certain they will all be watching carefully.