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.

 

Truckers’ $2.35 Million Dollar Class Settlement Vacated Due to District Court’s Cursory Analysis

The U.S Court of Appeals for the Tenth Circuit recently vacated a Utah district court’s finding that a class of truckers satisfied Rule 23 for purposes of settling two wage-hour actions due to a cursory review below, setting aside a multi-million dollar settlement and remanding the case for further proceedings.

In 2016, two putative wage-hour class action cases were filed against trucking company C.R. England, which ultimately ended up in federal court in Utah, challenging the company’s practice of paying drivers only on a piece rate basis—per mile driven, despite spending substantial time engaged in non-driving tasks such as completing paperwork, performing pre- and post-trip inspections, and loading and unloading freight. By late 2016, the company reached a $2,350,000 class settlement to resolve the cases.

The parties submitted a proposed class settlement to the district court. Subsequently, a group of objectors opted out of the settlement, challenging the settlement’s fairness. In December 2016, Senior Judge Dee Benson in the District of Utah overruled the objector’s challenges and granted approval of the class settlement. The objectors appealed that decision to the Tenth Circuit.

A unanimous Tenth Circuit panel tossed out the class certification finding for settlement purposes, stating that the district court’s decision, which provided only a short discussion on the appropriateness of class certification, and was “incompatible with the district court’s obligation for thorough examination.” Citing circuit precedent, the Tenth Circuit emphasized that class actions “may only be certified…after a rigorous analysis, that the prerequisites of [Federal Rules of Civil Procedure] 23(a) [and 23(b)] have been satisfied.” Instead of carefully applying the requirements of Rule 23, “the district court left little analysis by which [the Tenth Circuit could] review its determination of the appropriateness of the proposed class.”

Ultimately, the panel concluded that “the district court fell short of its obligation to analyze, independently and rigorously, the proposed class suitability.” Thus, the Tenth Circuit vacated, affording the district court another opportunity “to more meaningfully explain its bases for class certification.”

 

Federal Judge Finds J.B. Hunt Compensation System Too Varied To Sustain Class Certification

J.B. Hunt Transport Inc., one of the largest transportation logistics companies in North America, recently prevailed on a motion to decertify a class of around 11,000 current and former truck drivers, just six weeks before trial.  The drivers alleged claims under California law for failure to pay the minimum hourly wage, unpaid wages at the agreed rate, meal and rest break violations, wage statement violations and waiting time penalties. The drivers claimed the company’s Activity-Based Pay (“ABP”) compensation system did not compensate them for various “nonproductive tasks” like pre- and post-trip inspections, paperwork, waiting times at the customer location, breakdowns, fueling and washing trucks, and waiting for assignments.  Under the ABP, drivers were paid a piece-rate formula under which they received mileage pay, pay for activities such as deliveries, and occasional pay for nonproductive time, such as hourly pay if they waited at a customer location for more than one-and-a-half hours.

J.B. Hunt provides two types of driving services for customers:  (1) “intermodal” – delivering freight to and from railways; and (2) Dedicated Contract Services (“DCS”) – freight deliveries for a particular customer on a regular basis.  A class was initially certified in 2009 based on the premise that the ABP applied to both intermodal and DCS drivers.   

However, just this past week, a federal court in the Central District of California found the company’s piece-rate compensation system was too varied to sustain class certification because it was not uniformly applied to all class members. Specifically, discovery reflected that not all drivers were paid under the ABP, but rather some drivers were paid straight hourly, daily, or weekly pay when driving for certain accounts.  The Court emphasized that the only way to glean which pay plan applied to the each class member was to examine each individual driver’s payroll records and activity logs, and such individual issues predominated and were not appropriate for class adjudication.

The Company also obtained partial summary judgment on plaintiffs’ claims for liquidated and statutory damages and meal break claims under California law.  As for the liquidated and statutory damages, the Court found J.B. Hunt did not act in bad faith because it reasonably believed the Federal Aviation Administration Authorization Act of 1994 preempted the meal break claims. Further, regarding those meal breaks, the named plaintiffs admitted they could take a meal break whenever they wanted, and the Court found the company was not required to “police” such breaks. The rest break claims, however, survived since the ABP formula did not separately list out the amount paid, if any, for rest breaks. This summary judgment ruling tempered a prior unfavorable summary judgment order where the District Court held the ABP pay plan violated California law to the extent it failed to separately pay for meal and rest breaks, and other nonproductive time (e.g., inspections, paperwork, fueling and washing trucks).

J.B. Hunt demonstrates that class certification can be defeated, particularly where employers can show that wage systems are not uniformly applied to all class members.

 

 

Jackson Lewis Class Action Trends Report Summer 2018

Below is a link to the latest issue of the Jackson Lewis Class Action Trends Report.  This report is published on a quarterly basis by our firm’s class action practice group in conjunction with Wolters Kluwer.  We hope you will find this issue to be informative and insightful.  Using our considerable experience in defending hundreds of class actions over the last few years alone, we have generated another comprehensive, informative and timely piece with practice insights and tactical tips to consider concerning employment law class actions.

Jackson Lewis Class Action Trends Report Summer 2018

Rule 23 Amendments Awaiting Congressional Review

The final amendments to the Federal Civil Rules of Procedure, including amendments to Rule 23 class actions, are waiting for approval from Congress. The primary changes to Rule 23 affect the class action notice and settlement processes. The amendments acknowledge advancements in technology and the popularity of social media, while formalizing procedural and substantive notice and approval requirements already being employed in some federal courts.

If approved, the amendments will become effective December 1, 2018.

Here’s what employers need to know:

Preliminary Approval: No longer is moving for preliminary approval a perfunctory task. The amendments to Rule 23(e) would place additional substantive requirements on parties moving for preliminary approval, requiring them to demonstrate the proposed settlement will likely be granted and the court will likely certify the class for purposes of settlement. Historically, federal courts had denied preliminary approval motions for failure to provide estimated class size, description of how the settlement funds would be distributed, and a draft notice. By requiring this information at the preliminary approval stage, the amendment makes mandatory what courts were already considering. While this amendment likely will result in more extensive early class discovery, it reduces the risk associated with a notice process that may never be approved.

Form of Notice: The amendments to Rule 23(b)(3) eliminate the requirement that class notice must be sent by first class mail, instead permitting delivery through “electronic means” such as emails and text message, which will likely be more cost effective. In permitting alternate means of notice, counsel remains obligated to consider the class members’ overall accessibility to email and social media. And, because inboxes are flooded with hundreds of daily emails, to maximize the deliverability rate, it is critical for a notice to be drafted and distributed in a manner that will not get filtered out. Employers should consider revising their electronic communication policies to ensure professional email accounts are not being used for non-work related purposes to minimize workplace disruption.

Settlement Approval: The amendments to Rule 23(e)(1) expand upon the idea that a settlement must be “fair, reasonable, and adequate” by setting core factors the parties must demonstrate in seeking approval. To standardize the final approval process, the amendments set the following criteria: whether “class representatives and class counsel have adequately represented the class”; whether the settlement was “negotiated at arm’s length”; whether the relief provided for the class is adequate (taking into account such factors as costs, risks, and effectiveness of the proposed method of distributing relief to the class, among others); and whether “class members are treated equitably relative to each other.”

Class-Member Objections: The amendments to Rule 23(e)(5) clarify what must be included in an objection, requiring the objector to state with specificity the basis for any objection and whether the objection is being made only by the objector, by a subset of the class, or by the entire class. These amendments may deter “serial objectors” with ulterior and personal financial motives from delaying settlement approval and distribution to injured class members.

Appeals: Amended Rule 23(f) would clarify that interlocutory appeals may be sought only after class certification is granted or denied, not from an order to give notice under Rule 23(e)(1). It would also expand the filing time for an interlocutory appeal to 45 days (from 14 days) if any party is the United States, a United States agency, or a United States officer.

Restaurant Industry Association Files Suit Challenging “80/20” Rule

The Restaurant Law Center, a public policy affiliate of the National Restaurant Association, has filed suit against the Department of Labor and its Wage and Hour Division, seeking to declare unlawful the DOL’s 2012 revision to its Field Operations Handbook, purporting to establish, through sub-regulatory guidance, the “80/20” tip credit rule or “20% Rule.” Restaurant Law Center v. U.S. Dept. of Labor, No. 18-cv-567 (W.D. Tex. July 6, 2018).

Click here to access our Wage and Hour blog and learn more about this lawsuit and potential future implications.

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