Violante v. Communities Southwest — California Class Action Defense Cases

California Holds in Class Actions Case That Liability for Failure to Pay Prevailing Wages on Public Works Projects is Limited to Direct Employer

On April 18, 2006, a California court published its opinion in a class action case that addressed an issue of first impression in California: whether employees on public works projects may sue parties other than their direct employer for alleged violations of the prevailing wage law. Violante v. Communities Southwest Dev. & Constr. Co., 138 Cal.App.4th 972 (Cal.App. 2006). There, construction workers filed a putative class action in California state court for recovery of prevailing wages, alleging that perhaps thousands of workers “were paid less than prevailing wages as required by California Labor Code section 1770 et seq. for public works projects.” The class action complaint alleged violations of Labor Code section 1774, breach of contract and unfair business practices against numerous defendants including S. J. Burkhardt, Inc., the contractor that hired Raymond David Paci, doing business as Pacific Structures; Pacific Structures had employed plaintiffs directly. The trial court sustained the demurrers of three other defendants – Chapman Heights (a contractor), Communities Southwest Development and Construction Company (a developer and general partner of Chapman Heights), and Yucaipa Valley Acres (a developer and contractor) – without leave to amend and plaintiffs appealed. 138 Cal.App.4th at 975-76.

After a careful analysis of the statutory scheme, the Court held at page 979, “Plaintiffs have a right of action against the subcontractor, their direct employer [citations]. . . . But the Labor Code nowhere requires the contractor to pay prevailing wages to a subcontractor’s employee or permits a subcontractor’s employee to sue the prime contractor when the subcontractor fails to pay prevailing wages.”

Plaintiffs contend defendants violated section 1774 because plaintiffs were not paid prevailing wages by their direct employer, a subcontractor. ** This is an untenable interpretation.** The Labor Code provides a contractor and a subcontractor must pay prevailing wages **_to their respective employees_** on a public works project, not that a contractor must pay prevailing wages to a subcontractor’s employees. 138 Cal.App.4th at 978 (italics added).

Class Action Court Decisions Employment Law Class Actions Uncategorized

Melena v. Anheuser-Busch — Class Action Defense Issues

Employment Arbitration Agreement Under FAA (Federal Arbitration Act) Enforceable By Employer Illinois Supreme Court Holds

As discussed in a separate article, Circuit Courts of Appeal and state courts do not agree on the enforceability of arbitration agreements in employment contracts. This issue may be of critical importance in the defense of class actions, because a class action waiver in an employment arbitration agreement cannot possible be enforceable if the court would refuse to enforce the arbitral forum even without a class action restriction. On March 23, 2006, in an opinion that should have direct and positive impact in the defense of class action waivers in arbitration agreements in the state, the Illinois Supreme Court cast its vote on the issue, holding that under the FAA (Federal Arbitration Act, 9 U.S.C. § 1 et seq. (1994)), employment arbitration agreements are enforceable under “principles of fundamental contract law because we believe that approach is more faithful to the FAA.” Melena v. Anheuser-Busch, Inc., 847 N.E.2d 99, 107 (Ill. 2006).

In Melena, Anheuser-Busch hired plaintiff in February 1999. One year later, it mailed to employees a letter announcing a new “Dispute Resolution Program” that included a requirement for arbitration under the FAA. Employees were informed that “’by continuing or accepting an offer of employment’ with Anheuser-Busch, all employees to whom the policy was applicable ‘agree as a condition of employment to submit all covered claims to the dispute resolution program.’” 847 N.E.2d at 101. Plaintiff was injured in September 2002, and fired in March 2003. She filed suit against Anheuser-Busch in state court in May 2003. ANHEUSER-BUSCH moved to compel arbitration, but the trial court denied the motion without explanation. The appellate court affirmed, concluding that “’even if the plaintiff entered into the agreement knowingly, she did not do so voluntarily,’” and expressing doubt “about whether an agreement to arbitrate, offered as a condition of employment, ‘is ever voluntary.’” Id., at 102 (quoting appellate court opinion).

The Illinois Supreme Court reversed, holding: “In our view, the FAA’s plain language makes clear that arbitration agreements are enforceable except for state-law grounds for ordinary contract revocation.” 847 N.E.2d at 107 (italics added, citations omitted). Importantly, the Illinois Supreme Court did not make any distinction between arbitration agreements in an employment context or in a commercial setting, and did not suggest that a class action waiver provision would be interpreted under different contract principles.

Arbitration Class Action Court Decisions Class Actions In The News Employment Law Class Actions Uncategorized

British Airways and Virgin Atlantic Hit With Class Action In New York Alleging “Price Fixing”: Defense of Class Actions

Dominic O’Connell and Dominic Rushe of The Sunday Times reported today that a putative class action has been filed in New York against British Airways and Virgin Atlantic alleging a price-fixing conspiracy. The lawsuit reportedly was filed June 23 by Cohen, Milstein, Hausfeld & Toll, and alleges that “[British Airways and Virgin Atlantic] implemented their agreement by exchanging information in secret . . . communications.” The article states that British Airways revealed last week that the Office of Fair Trading and the American Department of Justice was investigating charges of price-fixing related to fuel surcharges on long-haul flights, and reports that BA placed two senior executives on leave during the investigation.

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Burlington Northern v. White — Class Action Defense Issues

Supreme Court Expands Breadth of Potential Employee Claims for Alleged Retaliation

In a prior article on class actions and class action defense, we discussed the rise of employment law class actions. One area that had not yet been widely subject to class actions consists of alleged retaliation claims. Every employment law practioner knows that Title VII of the Civil Rights Act of 1964 prohibits discrimination based on “race, color, religion, sex, or national origin,” 42 U.S.C. § 2000e-2(a). To protect employees who seek to establish such employment discrimination, Congress included an “anti-retaliation” provision in Title VII that prohibits discrimination against one who has “made a charge, testified, assisted, or participated” in a Title VII matter, 42 U.S.C. § 2000e-3(a). By their nature, such claims are “class action resistant” because they are based on the case-by-case treatment of the employee and the specific conduct against which the employer alleges seeks to retaliate. That may change.

On June 22, 2006, the United States Supreme Court fundamentally altered the landscape of employment law retaliation claims. See Burlington Northern & Santa Fe Railway Co. v. White, 548 U.S. _\_, __ S.Ct. ___ (2006). Title VII retaliation claims require proof of an “adverse employment action” but courts have disagreed on what satisfies this requirement. The Supreme Court summarized the issues presented and its answers as follows:

The Courts of Appeals have come to different conclusions about the scope of the Act’s anti-retaliation provision, particularly the reach of its phrase “discriminate against.” Does that provision confine actionable retaliation to activity that affects the terms and conditions of employment? And how harmful must the adverse actions be to fall within its scope?

We conclude that the anti-retaliation provision does not confine the actions and harms it forbids to those that are related to employment or occur at the workplace. We also conclude that the provision covers those (and only those)employer actions that would have been materially adverse to a reasonable employee or job applicant. In the present context that means that the employer’s actions must be harmful to the point that they could well dissuade a reasonable worker from making or supporting a charge of discrimination. Slip Opn., at 1-2.

Class Action Court Decisions Class Actions In The News Employment Law Class Actions Uncategorized

Class Action Defense Cases–Lindsay v. GEICO: District Court Erred In Refusing To Exercise Supplemental Jurisdiction Over State Law Claimants Who Did Not Opt In to FLSA Class Action

Certification of Class Actions and Supplemental Jurisdiction – District Court Improperly Denied Class Certification of State Law Claimants Who Did Not Opt In to Federal Class Action Under FLSA (Fair Labor Standards Act) D.C. Circuit Holds

The FLSA (Fair Labor Standards Act) requires that potential class members affirmatively opt in to class actions based on the overtime pay provision. See 29 U.S.C. §§ 207, 216(b). Certain class actions under Federal Rules of Civil Procedure Rule 23, however, require that potential class members opt out of class action cases. See Fed.R.Civ.Proc., Rule 23(b)(3), (c)(2)(B). On May 26, 2006, the D.C. Circuit Court of Appeals held as a matter of first impression that the district court erred in refusing to exercise supplemental jurisdiction over the claim of, and in denying class action certification to, those state law class action claimants who did not also opt in to a FLSA overtime class action. Lindsay v. Government Employees Ins. Co., 448 F.3d 416 (D.C. Cir. 2006).

Plaintiffs filed a putative class action alleging that GEICO willfully misclassified certain employees as “administrative” in order to avoid paying them overtime in violation of FLSA, 29 U.S.C. § 207(a), and sought certification to pursue an opt in class action under FLSA. Lindsay, at 418. Plaintiffs also alleged that GEICO’s conduct violated New York’s Minimum Wage Act, N.Y. Labor Law, §§ 650 et seq., and sought certification to pursue an opt out class action pursuant to Rule 23. Id. As the D.C. Circuit summarized at page 418:

The district court denied certification of the state law class, concluding that the FLSA class certification procedure requiring all class members to affirmatively opt in precluded it from exercising supplemental jurisdiction over those state law claimants who did not affirmatively join the FLSA claim. We disagree and therefore reverse the order denying certification and remand to the district court.

Certification of Class Actions Class Action Court Decisions Class Actions In The News Uncategorized

Motions to Remand – Supplemental Jurisdiction When Federal Claims Are Resolved: Class Action Defense Issues

28 U.S.C. § 1447 – Supplemental Jurisdiction When Federal Claims Are Resolved

Defendants in class actions often remove their case to federal court whenever possible. Plaintiffs invariably seek to remand class actions to state court. Thus, once a class action has been removed to federal court, it can be expected that plaintiff’s counsel will file a motion to remand the matter to state court. When removal is based on federal questions jurisdiction, then plaintiffs may seek to secure remand by dismissing their federal question claims.

What happens, then, if an action is removed to federal court based on federal question jurisdiction and the district court exercises supplemental jurisdiction (see 28 U.S.C. §1367) over the remaining state claims, but the federal question claims are later resolved (whether by voluntary dismissal, motion to dismiss or summary judgment) leaving only state law claims before the court?

Remand of cases to state court is governed by 28 U.S.C. §1447(c). “A motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal,” 28 U.S.C. § 1447(c). However, “If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” Id.

If an action is removed to federal court based on federal question jurisdiction but the federal question claims are later revolved, leaving only state law claims, then two separate questions are presented. First, how does the 30-day time period for filing a motion to remand apply? A recent district court opinion holds that the absence of a federal question goes to subject matter jurisdiction and therefore is not subject to the 30-day rule:

Clearly, the defect urged by Plaintiffs is one of subject-matter jurisdiction, and not some other defect in the removal procedure. Thus, Plaintiffs’ alternative request for discretionary remand to state court is not subject to the thirty-day time limitation in §1447(c), and is, therefore, timely. See e.g., Pierpoint v. Barnes, 94 F.3d 813, 818 (2d Cir. 1996) (stating that the thirty day time period was specifically written “in terms of a defect in ‘removal procedure’ in order to avoid any implication that remand is unavailable after disposition of all federal questions . . . .”).

Hardy v. GMRI, Inc., 2006 WL 752506, *2 (S.D. Iowa 2006).

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Dura Pharmaceuticals v. Broudo — Class Action Defense Cases

Class Action Securities Fraud Cases Must Plead Economic Loss and Causal Connection Between Alleged Fraud and Loss

Class actions alleging securities fraud are commonplace. Whenever a publicly traded stock declines in value, an investor is ready to file a class action claiming that the stock price had been inflated or that he would not have invested in the company but for misleading representations made by the company. Congress enacted the Private Securities Litigation Reform Act of 1995 (PSLRA) hoping, in part, to stem the “abusive” practice of “the routine filing of lawsuits . . . with only a faint hope that the discovery process might lead eventually to some plausible cause of action.” H.R. Conf. Rep. No. 104-369, p. 31 (1995), U.S. Code Cong. & Admin. News 1995, pp. 679, 730.

Class action defendants had high hopes for the PSLRA: it imposes limits on damages and attorney fees, imposes limits on the way lead plaintiffs are selected and the amounts they can be awarded, imposes sanctions for frivolous litigation, provides companies with a “safe harbor” for certain statements, and allows courts to issue stays of discovery pending motions by a defendant to have the case dismiss. See, 15 U.S.C. § 78u-4. Also, Section 21D(b)(2) of the PSLRA requires that a plaintiff alleging securities fraud “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” SLUSA, discussed in a separate article, represents Congress’s attempt to fill in the loopholes in the PSLRA. Other holes, however, have been left to the judicial branch. The U.S. Supreme Court filled one such hole in Dura Pharmaceuticals v. Broudo, 544 U.S. 336, 125 S.Ct. 1627 (2005).

A class action alleging securities fraud was filed against Dura Pharmaceuticals in a California federal court. The complaint alleged that Dura falsely represented that a new product would secure FDA approval and that its drug sales would be profitable. The Supreme Court opinion sets forth the basic allegations of the complaint, which we do not repeat here. The Court stated at pages 339-40:

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Mirfasihi v. Fleet Mortgage — Defense of Class Action Cases

Class Action Settlement Approval of Nationwide Class Action Reversed and Remanded for District Court Failure to Analyze Value of Class Claims Under the State Laws of Each Applicable Jurisdiction Seventh Circuit Holds

On June 19, 2006, the Seventh Circuit Court of Appeals considered for the second time a proposed class action settlement of a nationwide class action against Fleet Mortgage brought under the Truth in Lending Act (TILA), the Fair Credit Reporting Act (FCRA) and various state laws. Mirfasihi v. Fleet Mortgage Corp., ___ F.3d ___, 2006 WL 1667802 (7th Cir. 2006) (“_Fleet II_”). As explained below, the class action involved two classes: a “telemarketing class,” and an “information-sharing class.” The Seventh Circuit previously reversed district court approval of a proposed settlement of the class action claims because “the district court failed to consider adequately the value of the claims of the so-called ‘information-sharing class’ (a class of consumers whose privacy interests were purportedly intruded upon, but who did not suffer any out-of-pocket damages).” Slip Opn., at 1-2 (citing _Mirfasihi v. Fleet Mortgage Corp._, 356 F.3d 781 (7th Cir. 2004) (“_Fleet I_”).

The class action involved claims that Fleet sold mortgage information to third-party telemarketers, and that Fleet “was an active collaborator in drafting the script that the telemarketers used and allowed direct billing of the fees for the telemarketers’ products onto the mortgage bill of its customers, without obtaining pre-approval from customers.” Slip Opn., at 2. The “telemarketing class” consisted of 190,000 people who purchased financial products from the telemarketers; the “information-sharing class” consisted of 1.4 million Fleet borrowers whose information had been sent to telemarketers but who had not purchased any services from them. Id., at 2-3.

The class action settlement approved by the district court in Fleet I provided for payments to the telemarketing class, but the information-sharing class “was left out in the cold and received nothing.” Slip Opn., at 3. (The terms of the class action settlement are detailed in Fleet I and Fleet II; we focus here only on the monetary recovery for each class.) Fleet I reversed the district court’s approval of the class action settlement because “the district court failed to consider with adequate specificity the reasonableness of an entire class receiving a ‘big fat zero’ in the settlement.” Slip Opn., at 4 (citing Fleet I, at 785). “Specifically, the district court did not canvass all potential avenues of recovery to determine whether the information-sharing class’s claims were indeed essentially hopeless (and thus worthless) under the pertinent controlling law.” Slip Opn., at 4.

Class Action Court Decisions Class Actions In The News FCRA Class Actions Multidistrict Litigation RESPA/TILA Class Actions Uncategorized

The Defense of Class Action Cases: California Issues

California’s Fair Debt Collection Practices Act: A Brief Overview

In 1978, Congress added Title VIII to the Consumer Credit Protection Act entitled the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq. Several states, such as California, have enacted consumer protection laws based upon the FDCPA. California’s version of the federal FDCPA is the Rosenthal Fair Debt Collection Practices Act. California Civil Code § 1788 et seq.

California Civil Code section 1812.700 provides:

(a) In addition to the requirements imposed by Article 2 . . ., third-party debt collectors subject to the federal Fair Debt Collection Practices Act . . . shall provide a notice to debtors that shall include the following description of debtor rights:

“The state Rosenthal Fair Debt Collection Practices Act and the federal Fair Debt Collection Practices Act require that, except under unusual circumstances, collectors may not contact you before 8 a.m. or after 9 p.m. They may not harass you by using threats of violence or arrest or by using obscene language. Collectors may not use false or misleading statements or call you at work if they know or have reason to know that you may not receive personal calls at work. For the most part, collectors may not tell another person, other than your attorney or spouse, about your debt. Collectors may contact another person to confirm your location or enforce a judgment. For more information about debt collection activities, you may contact the Federal Trade Commission at 1-877-FTC-HELP or www.ftc.gov.”

(b) The notice shall be included with the first written notice initially addressed to a California address of a debtor in connection with collecting the debt by the third-party debt collector.

(c) If a language other than English is principally used by the third-party debt collector in the initial oral contact with the debtor, a notice shall be provided to the debtor in that language within five working days.

FDCPA Class Actions Uncategorized

FDCPA (Fair Debt Collection Practices Act) Class Actions: Class Action Defense Issues

Fair Debt Collection Practices Act: A Brief Overview of Federal Law In 1978, Congress added Title VIII to the Consumer Credit Protection Act entitled the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq. Congress intended the FDCPA to make certain that ethical guidelines for the collection of consumer debts, and to provide debtors with a means for challenging payoff demands and determining the validity and accuracy of asserted debts.

FDCPA Class Actions Uncategorized