Source: http://www.baileydaily.com/2009/11/
Timestamp: 2019-04-22 04:44:36+00:00

Document:
Second District Issues New UCL Standing Opinion re Claims for Permanent Injunctive Relief: Dowell v. Pacesetter, Inc.
In Dowell v. Pacesetter, Inc., __ Cal. 4th __ (2009), the CAP held that the trial court did not abuse its discretion in denying a demand by plaintiff St. Jude to permanently enjoin a competitor’s (“Biosense”) use of a non-compete clause by way of the UCL. Although the non-compete clauses violated California law, giving rise to a violation of Bus. & Prof. 17200, the Court concluded that imposition of a permanent injunction precluding use of the challenged non-compete clause would impact all affected employees (rather than just the 3 former Biosense employees before the court), and therefore, require satisfaction of standing requirements and certification of a class. See Slip Opinion, at 22-26.
As noted by the CAP, the trial court declined to issue a permanent injunction with respect to the agreements involving two of the individual employee plaintiffs because the noncompete clauses had already expired by the time of the court‘s ruling and any such relief would have been moot. See id., at 24. Based on this fact “[t]he permanent injunction that St. Jude otherwise sought with respect to all agreements used by Biosense in California would unquestionably affect agreements with persons not before the trial court and would involve representative claims or relief on behalf of others.” See id.
Even if such injuries may arguably have been sufficient were St. Jude merely seeking to obtain a permanent injunction with respect to three employees, St. Jude sought an injunction that went well beyond the agreements with these three individuals. St. Jude never offered to produce evidence that it expended resources in connection with Biosense‘s alleged use of the same or similar agreements with other employees whom St. Jude considered employing.
Thus, in the present context, Section 17204 standing was conditioned on the prospective employer (St. Jude) establishing a showing of injury-in-fact which encompassed prospective employees who arguably would be covered by the permanent injunction that was sought.
On November 19, 2009, the Second District (Division 4) issued an interesting opinion relating to class counsel’s post judgment obligations to the class when the defendant is essentially judgment proof. The opinion, Barboza v. West Coast Digital GSM, Inc., __ Cal. App. 4th __ (2009), involved somewhat unique facts, as class counsel was able to obtain a stipulated default judgment on behalf of the class specifically because the defendant had ceased operations, sold its assets to a third party, and stated its intent to file for bankruptcy. See Slip Opinion, at 4. An issue arose, however, when class counsel sought approval of the proposed class notice, which advised the class that class counsel would not be taking further steps to enforce the judgment. See id., at 4-5. The trial court denied approval, concluding that class counsel’s obligations to the class included a duty to actually enforce the judgment. See id., at 5.
The CAP agreed. The Court reasoned that unlike traditional single party litigation, class litigation, and specifically the element of adequacy, requires that the named plaintiff retain counsel that will adequately represent the interests of the class as a whole. See id., at 7. As explained by the Court, the fiduciary duty owed to the class under standards of adequacy does not end at judgment, but extends in scope to all stages of the litigation where class issues are implicated. See id., at 7-8. Moreover, the Court noted that class counsel’s position was deemed to rest upon an inherent conflict, as class certification was achieved based on the principle that individual claims were too small to justify individual actions, but by seeking to abandon the case at judgment, class counsel would effectively strand class members with an aggregated, class-wide judgment that no individual class member could enforce. See id. at 8.
In short, Barboza is a good example of the importance of evaluating cases thoroughly prior to certification and being selective in the type of class cases counsel elects to take on. However, in fairness to counsel in this case, the risk of having a case turn south on you post certification is a scenario that one cannot always foresee. While Barboza confirms that class counsel’s duty extends to enforcement of the class judgment against an insolvent defendant, the opinion largely leaves unresolved the ultimate question regarding the scope of that duty. At the close of its opinion, the Court proposes one potential resolution: associating in counsel experienced in enforcing judgment (at the expense of the class), and if unsuccessful, moving the Court to be relieved as class counsel.
On November 17, 2009, the Court in Cartwright v. Viking Indus., 2009 U.S. Dist. LEXIS 107066 (E.D. Cal., 2009) issued an order denying a request to decertify a class composed of California residential property owners having a specific model of defendant’s windows installed in their homes.
With respect to defendant's first and second arguments, the court notes that, contrary to defendant's assertion, the court did not rely solely on the lifetime warranty and associated marketing in finding that common issues of law and fact predominated. Rather, the court emphasized plaintiffs' allegations and supporting evidence that defendant fraudulently concealed the defective nature of the window products in order to induce plaintiffs and class members to purchase them. This allegation of non-disclosure applied to all owners, original and subsequent. The court concluded that plaintiffs' allegations of fraudulent concealment satisfied the predominance requirement because the common question of the materiality of the non-disclosed defects may establish common causation. Further, the court relied upon various California and federal court decisions that supported this conclusion. While defendant may seek to distinguish these cases and may disagree with the court's interpretation, it has failed to demonstrate that the court committed clear error.
See Cartwright, 2009 U.S. Dist. LEXIS 107066, at 4-5.
The opinion is noteworthy, as it reflects ongoing efforts of the defense bar to lump certification of UCL claims as being on par with common law fraud and CLRA – both of which involve an element of reliance that must be established by members of the putative class. Of course, the element of reliance is not even a component of absent class members’ UCL claim. This position has been rejected by the California Supreme Court, which held that the “may have been acquired” language of Section 17203 “has led courts repeatedly and consistently to hold that relief under the UCL is available without individualized proof of deception, reliance and injury.” See Tobacco II, 46 Cal. 4th 298, 320 (2009) (reasoning that “to hold that the absent class members on whose behalf a private UCL action is prosecuted must show on an individualized basis that they have ‘lost money or property as a result of the unfair competition’ (§ 17204) would conflict with the language in section 17203 authorizing broader relief—the ‘may have been acquired’ language—and implicitly overrule a fundamental holding in our previous decisions, including Fletcher, Bank of the West and Committee on Children's Television.”).
The Court did not discuss this distinction, which out of fairness was likely due to the fact the Court’s primary concern involved the defendant’s failure to undertake any effort to couch its motion under the requirements of FRCP Rule 59. See Cartwright, 2009 U.S. Dist. LEXIS 107066, at 7 (“Because defendant's motion is based upon the same factual and legal arguments previously addressed in the court's September 14 order, there is insufficient bases for the court to reconsider class certification.”).
At any rate, absent an appellate opinion that engages in detailed analysis unpacking all components of Tobacco II’s ten page analysis on class member standing, this issue no doubt will continue propel substantial litigation activity by members of both the plaintiff and defense bars.
Of note, I just stumbled across an insightful UCL certification opinion out the Northern District addressing the issue of predominance, post Tobacco II. The opinion, Plascencia v. Lending 1st Mortage, 2009 U.S. Dist. LEXIS 79585 (N.D. Cal. Aug. 21, 2009), granted a plaintiff’s motion to certify a claim under the fraudulent prong of the UCL based on principles of absent class member standing articulated in Tobacco II. The plaintiff's UCL claim was predicated upon an alleged failure to disclose that a specific type of home loan offered by the defendant was subject to negative amortization.
The degree to which the UCL claim involves individual issues turns on whether Proposition 64 imposed a new standing requirement that all class members must satisfy, or whether it is sufficient for Plaintiffs to show that they have standing. The California Supreme Court recently answered this question in In re Tobacco II Cases, 46 Cal. 4th 298, 93 Cal. Rptr. 3d 559, 207 P.3d 20 (2009). The court clarified that only the named plaintiff in a UCL class action need demonstrate injury and causation.
Plaintiffs may prove with generalized evidence that Defendants' conduct was "likely to deceive" members of the public. The individual circumstances of each class member's loan need not be examined because the class members are not required to prove reliance and damage. Common issues will thus predominate on the UCL claim.
See Plascencia v. Lending 1st Mortage, 2009 U.S. Dist. LEXIS 79585, at 31-32.
Of course, such analysis runs counter to the Second District’s recent decision in Cohen v. DirecTV, which inexplicably found “Tobacco II to be irrelevant because the issue of ‘standing’ simply is not the same thing as the issue of ‘commonality.’” See Cohen, 2009 Cal. App. LEXIS 1728, 29. The Cohen court’s statement in this regard is absolutely mystifying, as a court’s predominance analysis by necessity is built upon the foundation of the requirements necessary to state a claim.
Busy day. Today, counsel for the plaintiffs filed a Petition for Review in Cohen v. Directv, Inc., __ Cal.App.4th __(2009). I have a copy of the petition and will post when I get a chance to review.
On November 6, 2009, the Fourth District (Division One) issued an opinion in Evans v. Lasco Bathware, __ Cal. App. 4th __ (2009), upholding denial of class certification of a design defect action relating to shower components. Discussion of this case is contained here.
I just wanted to take a second to promote the class action component of the upcoming Annual CAOC Convention. The Class Action Section will take place on Friday, November 13th between 1:30 and 5:00 at the Fairmont Hotel in San Francisco. Information may be found here. I attended last year, and took home a few great nuggets of information. This is a really good opportunity for both new and experienced class action practitioners to pick up some useful tips, so I encourage everyone from the plaintiffs bar to come (not to discriminate against you defense guys and gals ... as I know there are several of you who visit regularly).
This year Shawn Khorrami (a.k.a. my "Boss") will be moderating a panel of some very distinguished speakers, including my counterpart Robert Drexler, who will be speaking on the topic of “Getting Your Case Certified” (which will include discussion of the current law of certification, and provide tips about pleading your complaint to maximize certification, precertification contact with class members, the use of class member declarations, discovery plans to maximize certification and the role of experts in the certification process). Bob is not only an excellent practitioner, he is a really great guy.
Other panelists, divided between both class action and mass tort practitioners, include Elizabeth Cabraser, Timothy Blood, Thomas Girardi, Mary Alexander, Raymond Boucher and Christopher Seeger. Definitely a must see event.
California Supreme Court Carves Out Additional Exception to Definition of Accrued Wages in Schachter v. Citigroup, Inc.
On November 2, 2009, the California Supreme Court issued an opinion in Schachter v. Citigroup, Inc., __ Cal.4th __ (2009), holding that an employment incentive provision calling for the forfeiture of restricted company stock if the employment relationship was terminated before vesting did not run afoul California Labor Code sections 201, 202, and 219.
Under the specific facts of the case, Citigroup had offered a voluntary employee incentive compensation plan that provided employees with shares of restricted company stock at a reduced price in lieu of a portion of the participating employee’s annual cash compensation. Under the provision at issue, employees agreed that, should they resign or be terminated for cause before their restricted shares of stock vest, they would forfeit the stock and the portion of cash compensation they directed be paid in the form of the restricted stock. Thus, the issue at hand turned on whether the forfeiture provision violated Labor Code sections 201, 202, and 219 by requiring employees to forfeit “earned and unpaid” wages upon resigning or being terminated for cause. Id., at 8. The Court held that it did not.
As a beginning point, the Court noted that there was no dispute among the parties as to whether both the cash compensation and restricted stock constituted “wages” under Labor Code section 200. Id., at 8-9. All parties agreed that both were wages. Moreover, the plaintiff did not allege that the company failed to “pay” him the compensation he elected to receive in lieu of his annual cash compensation. Id. Rather, the plaintiff alleged that he and other similarly impacted employees were entitled to receive the portion of the cash compensation used to purchase the unvested stock upon termination because Labor Code section 219 prevented employees from agreeing to the Plan (and the forfeiture clause) in the first instance. Id., at 9-10.
The Court disagreed, reasoning that plaintiff could not assert the Plan constituted an improper agreement under section 219 without first establishing the Plan’s forfeiture provision violated sections 201 and 202 – a point which the plaintiff conceded. Id., at 9-10. The Court further reasoned that the Plan’s forfeiture provision did not violate sections 201 and 202, as employees who opted into the Plan entered into a lawful agreement to alter the terms of their employment (i.e. an agreement to exchange a portion of present wages for contingent incentive compensation). Id., at 10-11. Based on this fact, plaintiff was bound by the terms of that agreement, including the Plan’s forfeiture provision, and was not entitled to leverage section 219 to overcome his failure to perform a material condition the agreement (i.e. remain employed until the point off the stock’s vesting) to achieve reimbursement of the wages used to purchase the unvested stock upon termination. Id., at 11-14.
All in all, the Court’s opinion is seems logical and strait forward. As the plaintiff voluntarily entered into the Plan, and voluntarily terminated his employment with the company, the plaintiff really was not in the greatest position to establish wrongdoing on the part of the employer. The future impact of the Court’s decision likely will turn on cases presenting facts which vary from these two distinctions.

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