Ninth Circuit OKs Preemptive Decertification

Remember Countrywide? They had external home loan consultants, or HLCs, whom they classified as "outside sales" exempt. A couple of HLCs filed a class action. Countrywide filed a motion to decertify the class before plaintiffs moved for certification. The trial court granted Countrywide's motion, essentially refusing to certify the class. The Ninth Circuit affirmed:

We first address Plaintiffs’ argument that a defense motion to deny class certification “brought outside the context of a plaintiff’s motion actually seeking certification is procedurally improper per se.” Although we have not previously addressed this argument directly, we conclude that Rule 23 does not preclude a defendant from bringing a “preemptive” motion to deny certification.

The court then upheld the trial court's decision not to certify the class. For the second time in one day (see my post on Wells Fargo here), the court rejected the notion that a uniform policy of classifying certain employees as exempt was enough to certify the class.

The case is Vinole v. Countrywide Home Loans and the opinion is here.

Ninth Circuit Vacates Class Certification

Wells Fargo treated a class of loan specialists as exempt from overtime. The district court certified the class action. Although there were a number of factors requiring the court to make an individual inquiry regarding the employees' duties, the court decided that Wells' policy of classifying as exempt all employees performing the given job was enough to justify certification of the class.

The Ninth Circuit disagreed:

Whether a [uniform exemption] policy is in place or not, courts must still ask where the individual employees actually spent their time. As one court succinctly explained, “[t]he fact that an employer classifies all or most of a particular class of employees as exempt does not eliminate the need to make a factual determination as to whether class members are actually performing similar duties.” Campbell, 253 F.R.D. at 603. In short, Wells Fargo’s uniform exemption policy says little about the main concern in the predominance inquiry: the balance between individual and common issues. As such, we hold that the district court abused its discretion in relying on that policy to the near exclusion of other factors relevant to the predominance inquiry.

The case is Mevorah v. Wells Fargo Home Mtg. and the opinion is here.

Court of Appeal Kills Class Action Settlement

The Court of Appeal was not impressed with a $2 million wage and hour class action settlement. So, it vacated the judgment and sent it back to the trial court for further evaluation.

During a wage and hour class action, the parties conducted discovery, including production of thousands of pages of documents and the depositions of the class members. Then, they attended a mediation for a full day and reached a settlement. As is typical, the parties developed a comprehensive settlement agreement, and the plaintiffs filed a motion for approval of the settlement. About 20 of 2340 class members objected to the settlement. But the trial court found the settlement was reasonable and approved the settlement. The objectors appealed.

On review, the Court of Appeal concluded:

the order approving the settlement must be vacated because the trial court lacked sufficient information to make an informed evaluation of the fairness of the settlement. This was due to the court‟s apparent reliance on counsel‟s evaluation of the class‟s overtime claim as having “absolutely no” value, without regard to the objectors‟ claim that counsel‟s evaluation was based on an allegedly “staggering mistake of law.” While the court need not determine the ultimate legal merit of a claim, it is obliged to determine, at a minimum, whether a legitimate controversy exists on a legal point, so that it has some basis for assessing whether the parties‟ evaluation of the case is within the “ballpark” of reasonableness. We further conclude that the court abused its discretion in finding that the $25,000 enhancements for Clark and Gaines were fair and reasonable, and that it erred in awarding costs greater than the maximum amount specified in the notice given to the class.

The interesting aspect of this case is that the parties appeared to have made significant efforts to detail their justification for the settlement. The opinion explains the law regarding how courts should evaluate class action settlements, and what the parties are required to do to obtain the court's approval.

The case is Clark v. American Residential Services and the opinion is here.

FLSA - Federal Minimum Wage Going Up 7/24/09

Happy July 4!
The California state minimum wage is $8.00 (even higher for some employers subject to "living wage" ordinances, and in some localities like San Francisco). So, you may not care that the federal minimum wage is going up to $7.25 per hour on July 24, 2009. U.S. DOL's minimum wage page is here. Multi-state employers, heads up!

Court of Appeal: Wrongful Termination Alone Insufficient for Punitive Damages Liability

Scott sued her employer, Phoenix Schools, for wrongful termination in violation of public policy. A jury awarded her damages, including punitive damages. The Court of Appeal upheld the verdict for wrongful termination and the compensatory damages, but reversed on the punitive damages claim:

Thus, in order to sustain the punitive damages award, the evidence must leave no substantial doubt that Phoenix engaged in despicable conduct, or conduct intended to cause injury to Scott. “‘Something more than the mere commission of a tort is always required for punitive damages. There must be circumstances of aggravation or outrage, such as spite or “malice,” or a fraudulent or evil motive on the part of the defendant, or such a conscious and deliberate disregard of the interests of others that his conduct may be called wilful or wanton.’ [Citation.]” (Taylor v. Superior Court (1979) 24 Cal.3d 890, 894-895, italics omitted.) The only evidence of wrongful conduct directed toward Scott was her termination for an improper reason. This evidence was insufficient to support a finding of despicable conduct, because such action is not vile, base or contemptible.

So, a wrongful termination in violation of public policy, without additional evidence of malice, is not enough to sustain an award of punitive damages.

The case is Scott v. Phoenix Schools and the opinion is here.

Classmember's Claim of Inadequate Notice Fails

One for the plaintiff's class action bar.... Ron Matorana was a class member in a wage and hour class action against Allstate. Under a settlement, he was entitled to $65,000. But he didn't file a claim form. The settlement papers were approved by the court as fair and reasonable. Matorana, though, received nothing. He claimed he was ill during the notice period and was inattentive to the deadlines in the notice of the settlement he received.

So, he sued class counsel for malpractice, as well as Allstate, for failing to remind him adequately to file a claim form. The trial court said no. Court of Appeal? No sale.

Allstate owed Matorana no duty to follow up at all, so he had no basis for suing Allstate. The malpractice claim against his lawyers was without merit too.

Matorana argued that the notice procedure was inadequate, because it did not contain a provision requiring counsel to check up on class members who did not file claims. That argument was barred because the class procedures were deemed fair and reasonable by the trial court in the class action lawsuit. As such, a challenge to that finding was barred by the doctrine of collateral estoppel.

He also claimed that class counsel had a duty to follow up when he did not submit the form, although not required under the settlement agreement. (Collective "gulp" from the plaintiff's bar).

Not to worry. The court of appeal disagreed. Although class counsel owed Matorana a duty of care, that duty did not include contacting all class members who did not file claim forms. As the court pointed out, if class counsel were required to deal with every class member individually, that would undermine the purpose of a mass-mailed settlement notice approved by the court as fair and consistent with due process. On the other hand, if counsel misrepresented the dates or interfered with filing a claim that conceivably could have given rise to some liability.

The case is Matorana v. Marlin & Saltzman and the opinion is here.

California Supreme Court Rejects Sexual Harassment and Intentional Infliction Claims

The California Supreme Court decided a non-employment case that will have employment law ripple effects.

Suzan Hughes was the divorced widow of Mark Hughes, founder of Herbalife. Mark left a trust of $350 million to his son Alex. Suzan was Alex's guardian. One of the trustees was Christopher Pair, then CEO of Herbalife. The trustees and Suzan had a tumultuous relationship and much litigation. At one point, Pair apparently indicated interest in having a sexual relationship with Hughes. He made some offensive and crude remarks to her regarding his desires. He may have suggested that if she slept with him, he would approve an expenditure of $80,000 for a month's rental on a beach house in Malibu, for Alex (natch).

So, Hughes sued Pair under Civil Code section 51.9, which prohibits sexual harassment outside the employment context by certain vendors / suppliers in various professional business relationships, such as doctors, lawyers, accountants, and trustees.

The lower courts and the Supreme Court agreed that the lewd and crude conduct was not sufficient to constitute "sexual harassment" To get there, the Supreme Court expressly held that harassment under 51.9 is analyzed exactly the same as under the Fair Employment and Housing Act (and Title VII). So, this case is relevant to employment. Of note, because harassment must be "pervasive" or "severe," it will be tough to prove a violation of section 51.9 based on occasional interactions with a covered business' employees. (Normally, one will interact in the workplace more frequently than with a third party.)

The Court also held that Hughes' claim for intentional infliction of emotional distress was barred because the alleged conduct was not sufficient extreme and outrageous, and because Hughes and not proved she suffered "severe" emotional distress.

The opinion is Hughes v. Pair and the opinion is here.

Supreme Court: Fear of Disparate Impact Litigation Does Not Justify Disparate Treatment

Ricci v. DeStefano may be the most eagerly anticipated decision this Term. But that doesn't have anything to do with the case itself. It's because the opinion under review was written by Sonia Sotomayor, nominated for a seat on the High Court. he Sotomayor fans / foes did not get a decisive victory from the Supremes.


The Court decided that New Haven, Connecticut violated Title VII by throwing out a firefighter's promotion examination on the ground that White firefighters passed the test far more frequently than Black firefighters. The city feared a disparate impact lawsuit from unsuccessful minority applicants because the test results were skewed along racial lines. The Second Circuit had upheld the city's action.

The Supreme Court (5-4) held that refusing to certify the test on the basis of the successful examinees' race constituted disparate treatment discrimination under Title VII. The Court then considered whether avoiding disparate impact litigation was a valid defense. Mere fear of a lawsuit is not sufficient. Rather, to justify the action, the city would have to have a "strong basis in evidence" that "the test was deficient and that discarding the results is necessary to avoid violating the disparate-impact provision."

The Court also addressed the probability that the Black firefighters would sue for disparate impact discrimination. The Court noted that the test appeared to be "job-related and consistent with business necessity," a defense to the claim. In addition, the Court suggested that its decision would insulate the city from liability because throwing the test results out would constitute disparate treatment.

Justice Scalia concurred to point out there is tension between disparate impact claims under Title VII and equal protection law, the resolution of which would have to wait for a later date. Justice Alito also concurred with the majority opinion. He pointed out that the city's decision not to certify the test results may have had more to do with "racial politics" - pressure from activists - than a fear of disparate impact litigation.

Justice Ginsburg's dissent focused on the long history of minority exclusion from the New Haven ranks of firefighters, particularly in senior positions. The dissent held that it is permissible to make a race-based decision to remedy a disparate impact where, as in the case before it, there was "good cause" to find the test flawed.

The case is Ricci v. DeStefano and the opinion is here.

Court of Appeal Upholds Attorney's Fees Award in Bad Faith Trade Secrets Litigation

If you sue a former employee for violating the Trade Secrets Act, you have to have a case. That means you have, at minimum, (1) a bona fide trade secret and (2) evidence of actual or threatened "misappropriation" of the trade secret. If you are missing evidence of one or more elements, and you're just suing a competitor, it can be an expensive mistake. That's what FLIR Systems, Inc. found out when it sued former employees who were trying to set up a competing business.

Here are the facts from the opinion:

Indigo manufactures and sells microbolometers. A microbolometer is a device used in connection with infrared cameras, night vision, and thermal imaging. A significant portion of Indigo's technology was created by respondent William Parrish. FLIR manufactures and sells infrared cameras, night vision, and thermal imaging systems that use microbolometers. In 2004, FLIR purchased Indigo for approximately $185 million, acquiring Indigo's patents, technology, and intellectual property. Parish and Fitzgibbons were shareholders and officers of Indigo before the company was sold.
After the sale, they continued working at Indigo.

In 2005, respondents decided to start a new company to mass produce bolometers
and gave notice that they would quit Indigo on or about January 6, 2006. The new company was based on a business plan (Thermicon) developed by Fitzgibbons in 1998 and 1999 when he was self-employed.

Before leaving Indigo, respondents discussed allowing appellants to participate in
Thermicon. Respondents proposed outsourcing bolometer production to a third party. The production startup time would be quick, assuming respondents could acquire technology licenses and intellectual property from a third party. Respondents offered FLIR a non-controlling interest in Thermicon. FLIR rejected the offer and wished respondents success in the new endeavor.

In early 2006, respondents entered into negotiations with Raytheon Company to acquire licensing, technology, and manufacturing facilities for Thermicon. Respondents assured appellants they would not misappropriate Indigo's trade secrets and that the new company would use an intellectual property filter similar to the one used at Indigo to prevent the misuse of trade secrets.

Fearful that the new business would undermine FLIR's market, appellants sued for
injunctive relief and damages on June 15, 2006. The action was premised on the theory that respondents could not mass produce low-cost microbolometers based on the Thermicon time line without misappropriating trade secrets.

Upon learning of the lawsuit, Raytheon Company terminated business discussions with respondents. On August 15, 2006, respondents advised appellants that they
were not going forward with the new business.

But FLIR sought an injunction against its former employees precluding them from setting up a new business in which they would engage in the same business as FLIR. The trial court found, and the Court of Appeal agreed, the injunction claim at least implicitly was based on the theory that former employees would "inevitably" use or disclose trade secrets in setting up a new venture. Unfortunately for FLIR, the inevitable disclosure doctrine is not recognized in California.

So, this case is about whether attorney's fees should be awarded in favor of the former employees. The fees were over $1 million, with over $200k more in costs.

In trade secret cases, the defendant can recover fees if the court in its discretion finds the plaintiff prosecuted a claim in bad faith. The standard for bad faith requires proof of two elements: "(1) objective speciousness of the claim, and (2) subjective bad faith in bringing or maintaining the action, i.e., for an improper purpose. "

Here, the "objective speciousness" was premising the action on the inevitable disclosure doctrine. the "subjective bad faith" was established by evidence that FLIR brought the claim to stop a potential competitor from opening up shop. The court of appeal discussed a number of additional factors that supported bad faith, including a settlement demand with irrelevant conditions, the failure to dismiss the claim once it was obvious it lacked merit, and a number of other facts that should be guidance for the bar.

The case is FLIR Systems, Inc. v. Parrish and the opinion is here.

U.S. Supreme Court: Plaintiffs Must Prove "But-For" Causation in Federal Age Discrimination Claims

So, the federal Age Discrimination in Employment Act does not permit "mixed motive" jury instructions. That is because the plaintiff's burden of proof is to always show that age was THE cause of a challenged adverse action. Unlike Title VII and California's FEHA, the ADEA does not permit the plaintiff to merely prove that a discriminatory motive was just one of many. Big case under the ADEA, but it will have no real effect on California age discrimination litigation under FEHA.

Here are the facts from the opinion:

Jack Gross began working for respondent FBL Financial Group, Inc. (FBL), in 1971. As of 2001, Gross held the position of claims administration director. But in 2003, when he was 54 years old, Gross was reassigned to the position of claims project coordinator. At that same time, FBL transferred many of Gross’ job responsibilities to a newly created position—claims administration manager. That position was given to Lisa Kneeskern, who had previously been supervised by Gross and who was then in her early forties. Although Gross (in his new position) and Kneeskern received the same compensation, Gross considered the reassignment a demotion because of FBL’s reallocation of his former job responsibilities to Kneeskern.

Gross filed suit . . . alleging that his reassignment to the position of claims project coordinator violated the ADEA, which makes it unlawful for an employer to take adverse action against an employee "because of such individual’s age." 29 U. S. C. §623(a). The case proceeded to trial, where Gross introduced evidence suggesting that his reassignment was based at least in part on his age. FBL defended its decision on the grounds that Gross’ reassignment was part of a corporate restructuring and that Gross’ new position was better suited to his skills. . . .

The courts below wrestled with the proper standard of proof, assuming that Title VII's frameworks and analyses equally applied to the ADEA. The Supreme Court, which accepted review of the case to determine the proper time to give a "mixed motive" instruction in an ADEA case, answered: Never.

The Court's 5-4 majority reasoned that the ADEA statute is worded differently from Title VII, and that Congress passed a law amending Title VII to allow "mixed motive" cases, but did not simultaneously amend the ADEA. So, to sum up:

We hold that a plaintiff bringing a disparate-treatment claim pursuant to the ADEA must prove, by a preponderance of the evidence, that age was the "but-for" cause of the challenged adverse employment action. The burden of persuasion does not shift to the employer to show that it would have taken the action regardless of age, even when a plaintiff has produced some evidence that age was one motivating factor in that decision.

The dissent argued strenuously that the Court should not have reached the question that it decided because it was not presented for review. Then the dissenters, in two opinions, would have held that the language in the ADEA did not require "but-for" causation, and that courts had used Title VII precedent to interpret the ADEA's causation standards.

Congress can overturn this decision by simply incorporating Title VII's causation standards into the ADEA, or by simply adding "age" to Title VII and ending the separate statutory schemes. The majority pointed out Congress has taken up Title VII and ADEA amendments before without harmonizing the causation standards. I guess we'll find out soon enough if Congress omitted that amendment intentionally.

The case is Gross v. FBL Fin. Servs. and the opinion is here.

HAPPY 3D BIRTHDAY TO US!

Yep, it's that time of year when we issue a self-congratulatory Happy Birthday! As the venerable and respected advocates for less fortunate wine coolers, Bartles & Jaymes (LLP) once said, "Thanks for your support. "

And this means that next week will be the third anniversary of this blog! (Unsubscribe now -before the obligatory "Happy Anniversary to WNIEL" post).

Oh, and if that weren't enough, we just won a 3 year old trade secrets case! If you haven't sent us an appropriately lavish gift by now...

Thanks again everybody. Oh and I'll be posting on cases and employment law and stuff this weekend.

Greg