Labor Law Class Action Defense Cases-Schachter v. Citigroup: California State Court Affirms Summary Judgment In Favor Of Defense In Labor Law Class Action Challenging Forfeiture Provisions Of Voluntary Employee Incentive Compensation Plan

Defense Motion for Summary Judgment in Labor Law Class Action Properly Granted because Employee Incentive Compensation Plan did not Violate California law by Providing for Forfeiture of Stock for Following Resignation or Termination for Cause During Plan’s Two-Year Vesting Period California State Court Holds

Plaintiffs filed a putative class action against their employer, Citigroup, alleging violations of California’s Labor Code; specifically, the class action alleged that the financial brokerage company’s voluntary incentive compensation plan – which “allows participants the option of using a portion of their annual earnings to purchase shares in the company’s stock at a price below the stock’s publicly-traded market price” but provides further that “[i]f the participating employee resigns or is terminated for cause within a two-year vesting period, the employee forfeits the stock as well as the money used to purchase it” – violates California law because the money used to purchase the shares were wages and their forfeiture constituted a conversion of wages. Schachter v. Citigroup, Inc., 159 Cal.App.4th 10, 70 Cal.Rptr.3d 776, 778 (Cal.App. 2008). Defense attorneys moved for summary judgment; the trial court granted the motion and dismissed the class action. The Court of Appeal affirmed.

The appellate court framed the issue as follows: “Do the forfeiture provisions of this voluntary incentive compensation plan violate Labor Code sections 201 and 202, which require an employer to pay its employee all earned but unpaid compensation following the employee’s discharge or his or her voluntary termination of employment?” Schachter, at 778 (footnote omitted). In brief, the Plan permitted employees to purchase company stock “at a 25 percent discount below the stock’s then-current market price,” but the stock “could not be sold, transferred, pledged or assigned during a two-year period, which commenced on the date the stock was initially acquired.” Id., at 779. During this two-year vesting period, the employees received any stock dividends and exercised the right to vote their shares. At the end of the two-year period, the stock fully vested in the employee, but if “the employee voluntarily terminated his or her employment or was terminated for cause during the two-year period, he or she forfeited the shares, as well as the money used to purchase them.” Id. The employee could contribute from 5-25% of their compensation to the program, id. n.4, and employees who retired or were involuntarily terminated without cause were not subject to the forfeiture provisions of the Plan, id. n.7. The appellate court concluded at page 778, “As a matter of economic reality, employees who elect to participate in the plan’s stock-purchase program are paid all the wages they designate to invest in company stock. Thus, the plan’s forfeiture provisions do not violate the Labor Code; and the trial court in this case properly granted summary judgment in favor of the brokerage company.”

Class Action Court Decisions Employment Law Class Actions Uncategorized

Class Action Defense Cases-Farm Raised Salmon Cases: California Supreme Court Holds Class Action Concerning Artificially Colored Salmon Not Preempted By Federal Law And Reverses Dismissal Of Class Action

Trial Court Erred in Holding that Class Action Under California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA) Alleging Failure to Disclose Artificial Coloring of Farm Raised Salmon was Preempted by Federal Law because Congress Allows “Identical” State Laws and did not Preclude Private Rights of Action to Enforce such State Laws California Supreme Court Holds

Class action lawsuits were filed against various grocery stores alleging violations of California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA) by “[selling] artificially colored farmed salmon without disclosing to consumers the use of color additives”; ultimately, the separate class actions were coordinated and in March 2004 a coordinated class action complaint was filed. Farm Raised Salmon Cases, ___ Cal.4th ___, 72 Cal.Rptr.3d 112, 116 (Cal. 2008). The coordinated class action complaint that alleged “fish farmers feed farm-raised salmon the chemicals astaxanthin and canthaxanthin to obtain a color of flesh resembling that of wild salmon,” that without these chemicals the farm-raised salmon would appear “grayish,” and that “consumers believe the color of salmon is an indication of its origin, quality, freshness, flavor, and other characteristics.” _Id._ According to the class action allegations, consumers are misled into believing that colored farm-raised salmon is actually wild salmon, _id._ The class action further alleged that artificially colored salmon raises health concerns, and that state and federal laws “require food labeling to state that farmed salmon is artificially colored and defendants failed to comply with those requirements.” _Id._ Defense attorneys demurred to the class action complaint in part on the ground that the state law claims were preempted by the federal Food, Drug, and Cosmetic Act (FDCA), which precludes private enforcement; the trial court agreed and dismissed the class action. _Id._, at 116-17. The Court of Appeal also held that plaintiffs’ state law claims were preempted by the FDCA because they are “predicated on a violation of the FDCA”; it therefore affirmed the judgment in favor of the defendants. _Id._, at 117. The California Supreme Court reversed.

After summarizing that the FDCA prohibits the misbranding of any food, and that “a food is…deemed misbranded if ‘[i]t bears or contains any … artificial coloring … unless it bears labeling stating that fact ….,’” the Supreme Court noted that “FDA regulations permit the use of the chemical substances astaxanthin and canthaxanthin in ‘the feed of salmonid fish’ as color additives ‘to enhance the pink to orange-red color of the flesh of salmonid fish.’” Farm Raised Salmon, at 117 (citations omitted). The FDA provides various means of disclosing the existence of these chemicals, the presence of which “must be declared as prescribed by the FDA,” id., at 117-18 (citations omitted). Congress also enacted the Nutrition Labeling and Education Act of 1990 (NLEA) “to create uniform national standards regarding the labeling of food and to prevent states from adopting inconsistent requirements with respect to the labeling of nutrients.” Id., at 118 (citation omitted). The NLEA thus expressly preempts state laws that affect “any food in interstate commerce,” including “any requirement for the labeling of food of the type required by section … 343(k) of this title that is not identical to the requirement of such section,” id. (citation omitted). Thus, state laws impliedly “may establish their own requirements pertaining to the labeling of artificially colored food so long as their requirements are identical to those contained in the FDCA in section 343(k).” Id.

Class Action Court Decisions Uncategorized

Countrywide RESPA Class Action Defense Cases-Krupa v. Landsafe: Eleventh Circuit Affirms Summary Judgment In Favor Of Defense In RESPA Class Action Holding No Kickback Or Markup Violations Occurred

Defense Judgment in Class Action for Kickback and Markup Violations of RESPA (Real Estate Settlement Procedures Act) Proper because Increased Credit Report Fee Requested by Lender was Passed through to Borrowers and no Additional Business was Given in Exchange for New Pricing Policy Requested by Lender Eleventh Circuit Holds

Plaintiffs filed a class action lawsuit against Countrywide Home Loans and Landsafe Credit (each subsidiaries of Countrywide Financial) alleging violations of the federal Real Estate Settlement Procedures Act (RESPA); the class action complaint alleged that Countrywide obtained virtually all of its credit reports from Landsafe, that prior to August 2002 Landsafe charged Countrywide $25 per credit report, and that Countrywide passed this fee on to borrowers who “locked in” or obtained a loan from Countrywide, but absorbed the fee if the loan did not go through. Krupa v. Landsafe, Inc., 514 F.3d 1153, 1154-55 (11th Cir. 2008). The class action alleged further that Countrywide asked Landsafe to modify its pricing policy in order to allow Countrywide to avoid absorbing credit report fees; specifically, “Countrywide asked Landsafe to change its pricing policy to charge more for the cost of credit reports on applicants who locked in loans and nothing for the reports on applicants who did not.” Id., at 1155. Landsafe modified its pricing schedule in August 2002, charging $35 for the credit report if a loan closed, and nothing if the loan did not; Countrywide passed the $35 fee on if a loan closed. Id. The class action alleged that this modification violated the anti-kickback and anti-markup provisions of RESPA; defense attorneys moved for and obtained summary judgment, with the district court agreeing that the challenged conduct was not improper. Id., at 1155. The Eleventh Circuit affirmed.

In discussing the pricing change, the Eleventh Circuit noted at page 1155, “The price point was set so that the new pricing policy would be ‘revenue-neutral,’ and it achieved that goal: Landsafe’s revenues from the credit reports it sold to Countrywide were the same after the new policy was implemented as they had been before.” Nonetheless, plaintiffs complained that Landsafe was giving Countrywide “free credit reports” in connection with loan transactions that did not close. Krupa, at 1155_._ The district court had held “that the revised pricing policy did not violate RESPA’s anti-kickback provision because it is undisputed that: (1) Landsafe made no more or less money as a result; and (2) Countywide purchased the same percentage (virtually all) of the credit reports it needed from Landsafe as it had before the change”; and the Circuit Court agreed. _Id._ RESPA prohibits paying a kickback in return for referral of business, but here Landsafe already received virtually all of Countrywide’s business: “In order for there to have been a forbidden kickback, there would have to have been an agreement between the two that Countrywide would give Landsafe more of its credit reporting business than it was giving Landsafe before the agreement, or at least an agreement that it would not give Landsafe any less of that business.” _id._, at 1156. Even if Countrywide received “value” by the changed pricing schedule, it could not constitute a forbidden kickback unless Countrywide promised Landsafe that it would receive business in return. _Id._ As plaintiffs conceded that this was not the case, the district court did not err in concluding that the class action kickback claim failed as a matter of law. _Id._

Class Action Court Decisions RESPA/TILA Class Actions Uncategorized

Sears Class Action Defense Cases-Berbig v. Sears: Illinois State Court Holds Trial Court Erred In Denying Motion To Dismiss Products Liability Class Action On Grounds Of Forum Non Conveniens

Products Liability Class Action should have been Filed in Minnesota, not Illinois, and Trial Court Abused its Discretion in Denying Defense Motion to Dismiss Class Action on Grounds of Forum Non Conveniens Illinois State Court Holds

Plaintiff filed a products liability class action in Illinois state court against Sears Roebuck after he sustained injuries while using a Craftsman GT 5000 Riding Lawnmower. The class action complaint alleged that plaintiff’s right foot got caught in the lawnmower’s blade while he was using it at his home in Minnesota, and that plaintiff had purchased the lawnmower in Minnesota. The class action further alleged that plaintiff had been treated for his injuries at a hospital in Minnesota, and that he received further treatment in Illinois. Berbig v. Sears Roebuck & Co., Inc., ___ N.E.2d ___, 2007 WL 4562890 (Ill.App. December 26, 2007). Plaintiff identified as witnesses two individuals who lived in Minnesota. Defense attorneys moved to dismiss the class action based on interstate forum non conveniens, _see_ Supreme Court Rule 187 (134 Ill.2d R. 187). The defense argued the class action should be dismissed because the lawnmower was purchased in Minnesota, plaintiff lives in Minnesota, the accident occurred in Minnesota, and plaintiff’s initial medical treatment was performed in Minnesota. Defense attorneys also argued that no witnesses lived in Cook County, and that the Cook County court’s docket is more congested than the court in Hennepin County. The trial court denied the motion “concluding that defendants had not made a strong factual showing that trying the case in Cook County, as opposed to Minnesota, would be more costly or inconvenient or pose a hardship.” The defense petitioned the appellate court for leave to appeal; the appellate court granted the petition and reversed.

The sole issue on appeal was “whether the trial court abused its discretion in denying defendants’ motion to dismiss based upon interstate forum non conveniens.” The appellate court began by noting that Electrolux Home Products, a co-defendant and the manufacturer of the lawnmower in question, was based in South Carolina and the lawnmower had been manufactured in South Carolina. Sears, on the other hand, has its principal place of business in Illinois, and its laboratory and marketing department, as well as corporate records, are in Illinois, but it did not test the lawnmower in Illinois. The defense argued that the class action should have been filed in Minnesota, and that the trial court “accorded undue weight to the location of Sears’ corporate headquarters in [Illinois], especially when none of the personnel or documents relevant to this case are located there.” The appellate court agreed.

Class Action Court Decisions Uncategorized

Class Action Defense Cases-In re Southeastern Milk: Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation But Selects Eastern District of Tennessee As Transferee Court

Judicial Panel Grants Defense Request, Opposed by Plaintiffs, for Pretrial Coordination of 4 Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, but Transfers Actions to Eastern District of Tennessee Four class action lawsuits, 2 in the Middle District of Tennessee and 2 in the Eastern District of Tennessee, were filed against various defendants alleging antitrust violations for failing to “compete for the purchase of raw Grade A milk produced, marketed and processed in the Southeast United States.

Class Action Court Decisions Multidistrict Litigation Uncategorized

ERISA Class Action Defense Cases-In re Federal National Mortgage: District Of Columbia Federal Court Grants Motion To Certify Securities Class Action Against Fannie Mae and KPMG But Grants Defense Request To Limit Class Period

Federal Securities Class Action Satisfied Rule 23 Requirements for Class Action Treatment but Duration of Class Period must be Limited as Requested by Defense District of Columbia Federal Court Holds

Several federal securities class action lawsuits were filed against various defendants Federal National Mortgage Association (Fannie Mae) and its former accountant KPMG, as well as various officers and directors of Fannie Mae alleging that they “intentionally manipulated earnings and violated Generally Accepted Accounting Principles (‘GAAP’), causing losses to investors.” In re Federal Nat’l Mortgage Ass’n Securities, Derivative, & “ERISA” Litig., 247 F.R.D. 32, 33-34 (D.D.C. 2008) (footnote omitted). The class actions were consolidated, and the consolidated class action complaint alleged accounting discrepancies at Fannie Mae in violation of GAAP and inadequate internal controls, id., at 34-35. The class action cited to an SEC investigation and to the Paul Weiss report, each of which confirmed accounting problems at Fannie Mae. Id., at 35-36. The class action alleged that Fannie Mae was ordered to restate its financial statements, and that concerns with these financial reports caused the stock to drop dramatically. Id., at 35. Plaintiffs moved for certification of the litigation as a class action and for appointment of class counsel, id., at 33. Defense attorneys apparently did not oppose class certification per se, id., at 36, but rather objected to the proposed duration of the class period (April 2001 to September 2005) and the identity of the putative class members, id., at 33-34. The district court granted the motion in part.

In addressing whether to grant class action treatment, the district court noted that “[t]he requirements of Rule 23(a) are so clearly met in this case that the defendants raise no opposition to this requirement being satisfied.” In re Federal Nat’l Mortgage, at 37. Defense attorneys did oppose, however, the relevant class period: The parties (other than KPMG) agreed that the start date was April 17, 2001, but while plaintiff sought an end date of September 27, 2005, the defense (except KPMG) sought an end date of December 22, 2004. Id. The defense argued that after December 22, 2004, “it was unreasonable, as a matter of law, for any investor to rely on Fannie Mae’s financial statements as a basis to allege that they were a victim under a fraud on the market theory.” Id., at 37-38. The defense selected that date because Fannie Mae issued a corrective disclosure warning on December 22, 2004 that disavowed its earlier financial reports; accordingly, the defense argued that “any purchasers who acquired stock after December 22, 2004, cannot rely on that presumption because Fannie Mae’s corrective disclosure cured the fraud on the market and thus rebutted the presumption of reliance, leaving only individual issues of reliance to predominate thereafter.” Id., at 38. The district court agreed.

Certification of Class Actions Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

E*Trade TILA Class Action Defense Cases-Silvas v. E*Trade: Ninth Circuit Affirms Dismissal Of UCL Class Action Premised On TILA Violations For Failure To Refund Loan Lock-In Fees Holding Federal Law Preempted Class Action Claims

Class Action Alleging Unfair Competition Law (UCL) and False Advertising Preempted by Federal Law because Class Action Claims were Premised on Alleged Violations of Truth in Lending Act (TILA) for Conduct Governed by HOLA (Home Owners’ Loan Act) and Implementing OTS Regulations Ninth Circuit Holds

Plaintiffs filed a class action in California state court against E*Trade Mortgage alleging violations of the state’s Unfair Competition Law (UCL); the gravamen of the class action complaint was that E*Trade failed to refund loan rate lock-in fees following the exercise of a right of rescission under the federal Truth in Lending Act (TILA). Silvas v. E*Trade Mortgage Corp., 514 F.3d 1001, 1003 (9th Cir. 2008). Plaintiffs alleged that they paid a $400 fee to lock in an interest rate but subsequently exercised their 3-day right to rescind the loan transaction under TILA; E*Trade refused to reimburse the $400 fee, and the class action alleged that it was corporate policy not to refund lock-in fees following such rescissions. Id. Defense attorneys removed the class action to federal court, and then moved to dismiss the class action complaint on the ground that federal law preempted the UCL claims. Id. The agreed with the defense and dismissed the class action, id.; the Ninth Circuit affirmed.

Preliminarily, the Ninth Circuit held that the general presumption against federal preemption did not apply to this case because it involved a field long-regulated by the federal government. Silvas, at 1004. Congress enacted the Home Owners’ Loan Act (HOLA) for the purpose of restoring public confidence in federal savings and loan associations, and the Ninth Circuit previously has “described HOLA and its following agency regulations as a ‘radical and comprehensive response to the inadequacies of the existing state system,’ and ‘so pervasive as to leave no room for state regulatory control.’” Id., at 1004-05 (citation omitted). Congress provided the Office of Thrift Supervision (OTS) “broad authority to issue regulations governing thrifts,” and these, too, are afforded preemptive effect. Id., at 1005. Because E*Trade is subject to HOLA and the OTS regulations, see id., at 1006 n.2, and because the false advertising and other UCL claims are expressly preempted by federal law, see id., at 1006-07, the district court did not err in dismissing the class action.

Class Action Court Decisions RESPA/TILA Class Actions Uncategorized

ERISA Class Action Defense Cases-Robinson v. Sheet Metal Workers’: Second Circuit Affirms District Court Judgment In ERISA Class Action In Favor Of Defense Holding Trustees Did Not Violate Anti-Cutback Rule Or Breach Contract

ERISA Class Action Failed to Establish Violation of Anti-Cutback Rule or Breach of Contract or Fiduciary Duties because Industry-Related Disability Pension was a Welfare Benefit Plan and an Ancillary Benefit Second Circuit Holds Plaintiffs, as recipients of an Industry-Related Disability Pension (IRD), filed a putative class action against the Sheet Metal Workers’ National Pension Fund alleging breach of contract and breach of fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA).

Class Action Court Decisions Employment Law Class Actions Uncategorized

Attorney Fee Awards in Class Action Cases-In re High Sulfur Content Litigation: Fifth Circuit Reverses Portion Of District Court Class Action Settlement Order Allocating Attorney Fees Among Class Action Plaintiff Lawyers For Procedural Defects

District Court Order Allocating $6.875 Million in Attorney Fees to 79 Class Action Plaintiff Lawyers Following Final Approval of Class Action Settlement Required Reversal because District Court “Abdicated its Responsibility to Ensure that the Individual Awards Recommended by the Fee Committee were Fair and Reasonable” Second Circuit Holds

Various plaintiffs filed class action lawsuits against Shell Oil alleging that its Louisiana refineries “produced contaminated gasoline that was purchased and used by thousands of motorists, damaging, inter alia, their fuel gauges.” In re High Sulfur Content Gas. Prods. Liab. Litig., 517 F.3d 220, 2008 WL 287347, *1 (5th Cir. 2008). The class actions were “consolidated in a federal class action,” id. Shell initiated a program to repair damaged fuel gauges, id. Eventually, the parties agreed to the terms of a class action settlement under which Shell agreed to expand its repair program, pay $3.7 million in damages for class members, and pay $6.875 million in attorney fees and costs: The trial court approved the class action settlement, and “appointed a five-member Fee Committee to allocate the fee award among approximately thirty-two law firms and seventy-nine plaintiffs’ attorneys who worked on the case.” Id. The Fee Committee presented its recommendations at an ex parte status conference – none of the other 74 class action plaintiff attorneys knew of the hearing and, also without their knowledge, the proposed order not only discussed allocation of attorney fees but “(a) placed under seal the document prepared by the Fee Committee listing each attorney’s fee award…; (b) prohibited each plaintiffs’ attorney from disclosing to anyone, including his clients and other attorneys, the amount of his award under penalty of sanctions to be imposed by the court; (c) required fees, costs, and expenses to be ‘distributed immediately;’ (d) mandated that fee award checks bear a full and final release; and (e) established the district court’s process for dealing with any objections to fee awards.” Id., at 1-2 (footnotes omitted). The ex parte hearing on allocation of the attorney fees under the class action settlement lasted 20 minutes; the court signed the proposed order “apparently without modification” and sealed the transcript of the hearing on the motion, id., at *3. Some of the attorneys, disgruntled that approximately half of the attorney fee award went to the law firms of the five members of the Fee Committee, requested that the district court reconsider its ruling and unseal the hearing transcript; that failing, they appealed the fee award. Id. The Fifth Circuit reversed.

As this case involves the narrow issue of the allocation of attorney fees only, we do not discuss it at length. We note simply that the court order is reviewed for abuse of discretion, and that the appeal involved but a single issue – “the procedures the district court used to allocate the $6.875 million lump-sum attorneys’ fee award among plaintiffs’ counsel.” In re High Sulfur Content, at *3. The Fifth Circuit reversed the fee allocation order, agreeing with the appellants that the district court “used flawed procedures to award individual attorneys’ fees and to review objections to those fees.” Id., at *4. The Circuit Court explained at page *4, “For all practical purposes the five-member Fee Committee controlled the allocation of attorneys’ fees in this case.” And while the federal court was entitled to appoint a committee to recommend allocation of attorney fees, “the appointment of a committee does not relieve a district court of its responsibility to closely scrutinize the attorneys’ fee allocation, especially when the attorneys recommending the allocation have a financial interest in the resulting awards.” Id. In this case, the Fifth Circuit held that “the district court abdicated its responsibility to ensure that the individual awards recommended by the Fee Committee were fair and reasonable.” Id.

Class Action Court Decisions Uncategorized

Arbitration Class Action Defense Cases-Aguilar v. BLH Construction: California Court Affirms Trial Court Order Denying Petition To Compel Arbitration Of Class Action Thereby Permitting Labor Law Class Action To Proceed In State Court

In an Unpublished Opinion, California Appellate Court Holds that Trial Court did not Abuse Discretion in Denying Petition to Compel Arbitration of Labor Law Class Action on Ground that Defense Attorneys Failed to Prove that Plaintiffs Signed Arbitration Agreement

Plaintiffs filed a class action lawsuit against their employer, BLH Construction alleging labor law wage and hour claims. Aguilar v. BLH Construction Co., 2007 WL 4418105, *1 (Cal.App. December 19, 2007). Defense attorneys moved to compel arbitration, but the court opinion is silent on the arbitration clause purported to bar class actions or whether the defense sought to enforce a class action arbitration waiver. Id. The trial court denied the motion, finding that plaintiffs had not signed the arbitration agreement, id. The defense appealed, arguing that the trial court abused its discretion “by not continuing the hearing to permit oral testimony and cross-examination of witnesses on the issue.” Id. The Court of Appeal affirmed.

BLH hired plaintiffs as construction workers in February 2005 and, on the day they were hired, provided each plaintiff with an employee handbook, a form entitled “Receipt of Handbook and Acknowledgement of At-Will Employment,” and a form entitled “Mutually Binding Arbitration Agreement.” Aguilar, at *1. “Each form had lines for the employee’s signature and the date of signing.” Id. As part of the petition to compel arbitration, defense attorneys submitted signed copies of the “Mutually Binding Arbitration Agreement.” Id. Plaintiffs, however, insisted that they had not signed this document and by declaration claimed that their signatures had been forged, id. In response, defense attorneys submitted (1) the declaration of a supervisor stating that he had given plaintiffs the employee documents referenced above and that plaintiffs “signed and dated the two signature pages contained within the Employee Handbook,” (2) the declaration of BLH’s chief operations officer stating that plaintiffs had signed the mutually binding arbitration agreement, and (3) the declaration of BLH’s counsel stating that the signed documents had been obtained from the BLH custodian of records, “and that it was BLH’s custom and practice to have each employee sign the arbitration agreement.” Id.

Arbitration Class Action Court Decisions Employment Law Class Actions Uncategorized