Lawsuit Filed Against California’s Attorney General Alleging the Private Attorney General Act (“PAGA”) is Unconstitutional

On November 28, 2018, the California Business & Industrial Alliance (an association that represents the interests of small and mid-sized businesses in California and which was formed for the specific purpose of accomplishing the appeal or reform of the Private Attorney General Act (“PAGA”)) filed a lawsuit against Xavier Becerra in his official capacity as the Attorney General for the State of California for injunctive and declaratory relief in the Orange County Superior Court. Please find the rest of this article in our California Workplace Advisor Blog here.

Department of Labor Nullifies “80/20” Tip Credit Rule

The Wage and Hour Division of the Department of Labor (“DOL”) today rescinded Obama-era enforcement guidance that had made the tip credit unavailable to tipped employees who spend more than 20% of their time performing allegedly non-tip generating duties. The so-called “80/20” Rule has spawned a number of lawsuits, many of them collective actions, claiming that servers spent too much time performing allegedly non-tipped work. Reissuing an opinion letter first promulgated at the end of the George W. Bush administration in 2009, the DOL now clarifies that it “do[es] not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met.”

More information on this significant development can be found here and in a forthcoming Jackson Lewis web article. In the meantime, if you have any questions about this development or any other wage and hour or class/collective action question, please consult the Jackson Lewis attorney(s) with whom you regularly work.

Supreme Court Hears Oral Argument in Lamps Plus Case

On October 29, 2018, the Supreme Court heard oral argument in the case of Lamps Plus, Inc. v. Varela.  At issue in Lamps Plus is what standard should be applied in determining whether parties have agreed to submit claims to class arbitration.  The arbitration agreement between Lamps Plus and one of its employees did not contain an explicit waiver prohibiting arbitration of class or collective claims. The Ninth Circuit held that the arbitration agreement was ambiguous as to whether the parties agreed to submit class claims to arbitration.  The Court applied a California contract-law principle that any ambiguity is to be construed against the drafter, and therefore held that the arbitration agreement permitted arbitration of the employee’s class claims.

On appeal to the Supreme Court, Lamps Plus argued that the Ninth Circuit (i) improperly found an “implicit agreement to authorize class-action arbitration” in violation of the Supreme Court’s prior decision in Stolt-Nielsen, and (ii) Stolt-Nielsen required an explicit agreement between the parties before they could be compelled to class arbitration. At oral argument, counsel for Lamps Plus argued that the parties must “clearly and unmistakably” agree to class arbitration for such arbitration to be compelled by a court.

Justice Kagan questioned Lamps Plus’s counsel extensively regarding the language of the arbitration agreement at issue, suggesting that the language was broad enough to encompass class arbitration. For example, Justice Kagan asked that if the agreement covered “disputes, claims, or controversies” between the parties, “[w]hy wouldn’t you include class disputes, claims, or controversies, unless there’s some kind of special contractual interpretive rule coming in that we wouldn’t apply in other contexts?”

Justice Sotomayor also expressed concern that the Supreme Court had previously been clear that state law controls the interpretation of arbitration agreements and that adopting a “clear and unmistakable” standard would be “creating a federal common law . . . something we’re loathe to do in virtually every other context.” Justice Kavanaugh expressed concerns regarding whether such a standard had any basis in the text of the Federal Arbitration Act (FAA).

During questioning of Varela’s counsel, other Justices expressed concerns regarding whether class claims can be appropriately handled in arbitration. Chief Justice Roberts, paraphrasing Justice Jackson, stated that the “FAA is not a suicide pact. So, if the FAA says enforce the contracts according to its terms, but one of the terms, as our prior precedents say, is fundamentally inconsistent with arbitration itself, then presumably, the FAA would preclude that term.” Justices Gorsuch and Alito voiced due process concerns with class arbitration, noting that potential class members could be bound by an arbitration award even though they never agreed to arbitration.

Justice Breyer separately noted that California applies a lower standard than other states to find an ambiguity in a contract which could result in an improper inference that the parties had agreed to class arbitration which is “what Stolt-Nielsen says you shouldn’t have.”

Although it is difficult to predict how the Supreme Court will rule in Lamps Plus based on the oral argument, the questioning suggests that the Justices may be split on what standard should be applied to determine whether parties have agreed to class arbitration and what role state and federal law should play in making that determination.

Ninth Circuit Permits Use of “Inadmissible” Expert Testimony for Class Certification Purposes

The U.S. Court of Appeals for the Ninth Circuit just denied a request to review en banc a panel ruling that authorizes trial courts to consider evidence that would be inadmissible at trial when deciding whether a class may be certified (Sali v. Corona Regional Medical Center (D.C. No. 5:14-cv-00985-PSG-JPR)). The decision was filed on Thursday, November 1 over a sharply critical dissenting opinion authored by Judge Carlos Bea. Bea, who was joined by four of his colleagues, wrote that the majority’s decision “involves a question of exceptional importance and is plainly wrong.”

In Sali, the plaintiffs sought to represent a series of seven classes of nurses claiming the Medical Center’s time-rounding policy robbed them of several minutes of wages each time they worked. The plaintiffs’ attempt to satisfy the “typicality” element of class certification under California state law was supported by a data analysis prepared by a paralegal of the law firm that brought the claim. The Medical Center argued that the analysis could not be considered by the trial court at the class certification stage because it would not be admissible at trial under the Daubert standard for expert analyses. The Federal District Court agreed, rejected the paralegal’s analysis as inadmissible evidence and denied the motion for class certification.

Plaintiffs’ appeal was considered by a Ninth Circuit panel, which found that the trial court had erred in declining to consider the paralegal’s analysis, reasoning that inadmissibility is not a proper basis to reject evidence at the class certification stage. The Medical Center filed petitions for panel rehearing and for rehearing en banc, which a majority of the panel denied in its November 1 holding.

In his scathing, 13-page dissent, Judge Beas described the panel’s holding that expert opinion testimony need not be admissible at the class certification stage as “undermin[ing] the purpose of the class certification proceeding.” Judge Beas wrote:

[T]he panel has reduced the requirements of class certification below even a pleading standard. It has accepted the undisputedly inadmissible opinion of plaintiffs’ paralegal – not even that of an attorney who is subject to certain pleading standards – that the plaintiffs have damages typical of the class sought to be certified.

This doesn’t pass the straight-face test.

Id. at * 3 (citing Fed. R. Civ. P. 11) (emphasis in original).

The dissent also noted that the panel decision conflicts with decisions of four out of five other Circuit Courts that have considered this issue. The Second, Third, Fifth, and Seventh Circuits have required expert testimony to pass the typical admissibility standards at the class certification stage. Only the Eighth Circuit has held otherwise.

Availability of Class Arbitration is for Court to Decide, Appeals Court Rules

Vacating a $10 million arbitration award resulting from a “collective action” arbitration, the U.S. Court of Appeals for the Seventh Circuit ruled that whether class or collective arbitration is authorized by an arbitration agreement is a threshold question for the district court, not an arbitrator. Herrington v. Waterstone Mortgage Corp., No. 17-3609 (7th Cir. Oct. 22, 2018). Please find the rest of the article on our website here.

New CA Case Confirms: No Absolute Rule to Permit Leave to Amend to Substitute Class Representative If Named Plaintiff Is Found Inadequate

In Jones v. Farmers Ins. Exchange (2013) 221 Cal.App.4th 986 (“Jones”), the California Court of Appeal held that “[t]he lack of an adequate class representative … does not justify the denial of the certification motion.  Instead, the trial court must allow Plaintiff[[] an opportunity to amend [his] complaint to name a suitable class representative.  [Citation & fn. omitted.]  The court should then grant the certification motion if it approves a class representative.”  Id. at 999. 

The Jones rule seemed to imply, and Plaintiffs’ counsel often argued, that even if a class representative is found to be inadequate, the remedy is simply to permit Plaintiffs’ counsel to find a new class representative as a substitute.  In essence, Plaintiffs’ counsel’s failure to choose an adequate representative was often considered to be a type of “harmless error” which could easily be remedied if it became an issue at class certification.  But a recent decision from the Court of Appeal challenges this assumption. 

In Payton v. CSI Electrical Contractors, Inc. (September 28, 2018), the Court of Appeal affirmed the trial court’s denial of class certification in a wage and hour class action.  In doing so, it affirmed the trial court’s denial of leave to amend to search for another class representative after the named plaintiff was found to be an inadequate class representative.  

The Payton Court agreed with the trial court’s reasoning in distinguishing Jones, and held “[a]n absolute rule requiring substitution of a new class representative after a ruling that the named plaintiff is inadequate would be inconsistent with the general principle that a trial court has discretion in deciding whether to permit an amended complaint.” 

Then, in reviewing the facts of the case, including plaintiff’s delay in seeking leave to amend once it knew of plaintiff’s adequacy issues, and the futility of an amendment due to the other issues with plaintiff’s certification motion, the Payton Court held that “the trial court acted within its discretion in denying Payton’s request to amend the complaint to add a new class representative.” 

While Payton provides some additional support for credibility challenges to a named class representative, had Payton’s inadequacy been the only barrier to class certification, the result may have been different.  Thus, it is still important for employers to attack class certification on grounds other than adequacy alone.  However, in a “close call” case, an appropriate challenge to the named plaintiff’s adequacy may help tip the scales in favor of denying class certification. 


Eleventh Circuit: Court Will Decide Parties’ Intentions in ‘Unclear’ Arbitration Agreements

In a matter of first impression before the Eleventh Circuit Court of Appeals, and an issue left open by the U.S. Supreme Court, the Eleventh Circuit has ruled that who decides whether an action can be litigated as a class in arbitration is an issue of “arbitrability” and those are all to be decided by the court in the absence of terms of the arbitration agreement that evince a “clear and unmistakable intent” to overcome that default presumption. JPay, Inc. v. Kobel, No. 17-13611 (11th Cir. Sept. 19, 2018).

The plaintiffs, Cynthia Kobel and Shalanda Houston, sought to compel class action arbitration against JPay, a company providing fee-for-service amenities in prisons, alleging violation of Florida’s consumer protection laws. JPay filed a motion to preclude class arbitration and to force the plaintiffs to litigate individually in arbitration.

The District Court granted JPay’s motion. It found that there was nothing in the agreement indicating that the court should not decide the issue and that class arbitration was not available under the terms of the agreement.

The Eleventh Circuit agreed and disagreed with the District Court.

The Eleventh Circuit agreed with the lower court that, in the absence of a clear intent by the parties in the their agreement saying otherwise, the question of whether a matter can proceed as a class action in arbitration is a matter for the court to decide. However, the Eleventh Circuit reversed the District Court’s ruling because “the language these parties used in their contract expressed their clear intent to overcome the default presumption and to arbitration gateway questions of arbitrability, including the availability of class arbitration.”

The appellate court’s analysis began with the basic premise that arbitration is a matter of contract and consent, treated under the Federal Arbitration Act on equal footing with other contracts, and that it is the courts’ job to enforce those agreements. If a contract is “ambiguous or silent” with respect to the parties’ intent to arbitrate a particular issue, the court will apply “default” presumptions to determine what the parties intended. When the agreement is not clear on who the parties intended to decide the “question of arbitrability,” this is considered a “gateway” question and the issue is presumptively decided by the court.

The Eleventh Circuit next evaluated the words used by the parties in their agreement to determine whether they intended to overcome the default presumption and delegate the question of arbitrability to the arbitrator. The Court found that the agreement at issue clearly evinced an intent to arbitrate a question of arbitrability. The agreement mentioned American Arbitration Association (AAA) three times and stated that all disputes would be resolved by AAA using its rules. According to the Eleventh Circuit, this alone “serves as a clear and unmistakable delegation of questions of arbitrability to an arbitrator.” The agreement also stated that the ability to arbitrate would be determined in arbitration. Finally, the Court noted that the agreement’s scope was quite broad, stating that the parties would arbitrate all disputes.

This case is a good reminder to review your arbitration agreements to ensure that your intent is clearly stated so the court does not decide for you. Please contact Jackson Lewis with any questions.

CAFA Amount In Controversy Is Not Limited To Damages Incurred Prior To Removal And Includes Future Attorneys’ Fees Recoverable By Statute Or Contract

In Fritsch v. Swift Transp. Co. of Ariz., LLC, No. 18-55746 (Aug. 18, 2018), the Ninth Circuit clarified, in a unanimous published decision, that, where a party may recover its attorney’s fees by statute or contract, the Court must include future fees as well as those already incurred in assessing whether a case meets the amount-in-controversy threshold under the Class Action Fairness Act (“CAFA”).

Plaintiff Grant Fritsch filed a class action lawsuit in California state court claiming that his employer, Swift Transportation Company of Arizona, LLC (“Swift”), did not provide him and other drivers with meal breaks, overtime pay, or sufficient wage statements. At mediation, Fritsch provided Swift with a damages estimate of $5.9 million, including $150,000 in attorney’s fees and costs and $948,192 for unpaid rest period premiums.

In October, Swift removed the case to federal court, alleging that the damages sought exceeded the $5 million threshold for CAFA jurisdiction. Swift argued that, beyond the $150,000 in attorneys’ fees and costs already incurred as of October 2017, the court could also consider the fees and costs that would accrue over the course of the litigation increasing the amount in controversy to $6,553,375.

In considering its jurisdiction, the District Court found that Fritsch had not alleged missed rest periods in his complaint, reducing the amount in controversy below $5 million. Although Swift argued that future attorneys’ fees and costs should be considered in calculating the amount in controversy, the District Court held “that when calculating attorneys’ fees to establish jurisdiction, the only fees that can be considered are those incurred as of the date of removal.” Thus, only fees and costs of $150,000 incurred to date by Fritsch were considered, and the District Court remanded for lack of jurisdiction finding that Swift was unable to prove the amount in controversy exceeded $5 million.

Swift appealed. While the appeal was pending, on April 20, 2018, the Ninth Circuit issued its decision in Chavez v. JPMorgan Chase & Co., which held that “the amount in controversy is not limited to damages incurred prior to removal – for example it is not limited to wages a plaintiff-employee would have earned before removal (as opposed to after removal),” but rather “is determined by the complaint operative at the time of removal and encompasses all relief a court may grant on that complaint if the plaintiff is victorious.”  888 F.3d 413, 414-15 (9th Cir. 2018).

Although Chavez had noted that the amount in controversy could include damages, costs of compliance with injunctions, and attorneys’ fees awarded under contract of fee-shifting statutes, it had not addressed specifically whether attorneys’ fees incurred after removal were properly included in the amount in controversy calculation. The Ninth Circuit addressed this open question in Fritsch: “in light of Chavez and our precedents . . . [w]e have long held . . . that attorneys’ fees awarded under fee-shifting statutes or contracts are part of the amount in controversy” and “include all relief to which the plaintiff is entitled if the action succeeds.” The panel continued: “We may not depart from this reasoning to hold that one category of relief — future attorneys’ fees — are excluded from the amount in controversy as a matter of law.”

Therefore, after Fritsch, there is no doubt in the Ninth Circuit, that future attorneys’ fees are “at stake” in the litigation, and under Fritsch the court must include future attorneys’ fees recoverable by statute or contract when assessing whether the amount-in-controversy requirement is met.

Settling Plaintiff May Still Have Standing And Adequacy To Pursue Class Action and PAGA Claims

A California federal judge recently certified a class of at least 843 Cinemark workers who allege Cinemark, a movie theater chain, failed to properly list overtime rates on employee wage statements, notwithstanding the fact that the purported class representative, Silken Brown, had settled her individual claim during the pending litigation. In opposing class certification, Cinemark raised challenges to Brown’s typicality as to the class and adequacy to represent the class as a result of Brown’s individual settlement.

The Court rejected Cinemark’s argument that defenses unique to Brown (i.e., that she lacked standing because she settled her individual claim) rendered her claims not typical of the class, holding that “[w]hile Brown settled her individual claims, the parties agreed that she would retain her personal stake in the advancement of the class claims.” Relying on Narouz v. Charter Commc’ns, the Court held “a class representative may retain her interest in the class if her individual settlement agreement specifically carves out a personal stake,” and here, “Brown’s settlement agreement states that she ‘will retain her personal stake and continued financial interest in the advancement of the class claims and the Private Attorneys General Act (‘PAGA’) claims.’”

The Court also rejected Cinemark’s argument that, since Brown settled her individual claim, she lacked incentive to represent the class and her interests no longer aligned with the class, rendering her an inadequate class representative. The Court found that Brown met the adequacy element for class certification because “Brown has demonstrated and is demonstrating vigorous pursuit of the claims.  Brown and her counsel have been litigating this case for years, completing an individual settlement with the intent to appeal, prevailing on that appeal, and now pursuing a second class certification motion for the direct wage claim.”

Employers litigating class action and PAGA claims should consult their attorneys in any contemplated direct settlement efforts with class representatives and putative class members to preserve their potential defenses and arguments against class certification.

The FLSA Does Not Prohibit Collective Action Waivers in Arbitration Agreements, Sixth Circuit Holds

Extending the Supreme Court’s recent decision in  Epic Systems Corporation v. Lewis, 138 S. Ct. 1612 (2018), the Sixth Circuit has held that, just as with the NLRA, the FLSA does not preclude the use of class or collective action waivers in employment-related arbitration agreements.  Gaffers v. Kelly Services, 2018 U.S. App. LEXIS 22613 (6th Cir. Aug. 15, 2018).  A full discussion of the decision may be found here.

For more information about collective/class action waivers, please contact the Jackson Lewis attorney(s) with whom you regularly work.