California Supreme Court
AUGUSTUS v. ABM SECURITY SERVICES, INC.
“We granted review to address two related issues: whether employers are required to permit their employees to take off-duty rest periods under Labor Code section 226.7 and Industrial Welfare Commission (IWC) wage order No. 4-2001 (Cal. Code Regs., tit. 8, § 11040 (Wage Order 4)), and whether employers may require their employees to remain “on call” during rest periods. What we conclude is that state law prohibits on-duty and on-call rest periods. During required rest periods, employers must relieve their employees of all duties and relinquish any control over how employees spend their break time. (See Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1038-1039 (Brinker).)
Plaintiffs worked as security guards for defendant ABM Security Services, Inc. (ABM). A requirement of employment at ABM was for guards to keep their pagers and radio phones on—even during rest periods—and to remain vigilant and responsive to calls when needs arose. ABM’s understanding about the scope of such needs, meanwhile, encompassed a variety of circumstances, including situations where a building tenant wished to be escorted to the parking lot, a building manager had to be notified of a mechanical problem, or the occurrence of some kind of “emergency situation.” Plaintiffs sued ABM, alleging the company failed to provide the rest periods that state law entitles employees to receive. The trial court granted summary judgment for plaintiffs, finding ABM liable and awarding approximately $90 million—but the Court of Appeal reversed. Because state law requires employers to provide their employees with rest periods that are free from duties or employer control, we reverse the Court of Appeal.”
Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., Theane Evangelis, Andrew G. Pappas, Bradley J. Hamburger, Los Angeles; Littler Mendelson, Keith A. Jacoby and Dominic J. Messiha, Los Angeles, for Defendant and Appellant.
Roxborough, Pomerance, Nye & Adreani, Drew E. Pomerance, Michael B Adreani, Marina N. Vitek, Woodland Hills; The Ehrlich Law Firm, Jeffrey Isaac Ehrlich; Initiative Legal Group, Monica Balderrama, Los Angeles, G. Arthur Meneses; Scott Cole & Associates, Scott Edward Cole, Matthew R. Bainer, Oakland; Law Offices of Alvin L. Pittman and Alvin L. Pittman for Plaintiffs and Respondents.
Cal. 12/22/16 decision by Cuéllar; Cantil-Sakauye, Werdegar, Chin, Chin concurring; Kruger opinion concurring and dissenting, joined by Corrigan; ___ P.3d ___, 2016 WL 7407328.
California Courts of Appeal
ARMIN v. RIVERSIDE COMMUNITY HOSPITAL
“On November 18, 2016, the Fenton Law Group moved to modify the caption of our opinion filed November 16, 2016, to delete the reference to the law firm of Fenton Nelson, on the ground that when appellant Sean Armin’s opening brief was filed, Fenton Nelson “had either already been dissolved, or was in the process of being dissolved.” We are unable to grant this request because the California Style Manual states, in section 5:15, that if a law firm has appeared for a client on appeal, it should be listed in the caption. In the present case, Appellant’s opening brief, filed March 19, 2014, was filed by Fenton Nelson, LLP.
On December 1, 2016, defendants Riverside Community Hospital and defendant and Medical Staff of Riverside Community Hospital (the Hospital) filed a petition for rehearing. However, on December 12, 2016, the attorneys for the various parties in the case, including the Hospital, Armin and the individual doctors, filed a notice of settlement. And on that same day, attorneys for the Hospital also filed a withdrawal of the request for rehearing. The Hospital’s withdrawal request, however, states that the Hospital does not withdraw its “request made in the Petition for Rehearing that the identified sections of the Opinion be decertified for publication, or ordered depublished, for reasons stated in the Petition for Rehearing.”
In its now withdrawn petition for rehearing the Hospital identifies an error on page 3 of the slip opinion, namely “FEHA” as the opinion now reads, should instead be “Unruh Civil Rights Act.” Independent of the withdrawal of the petition, we hereby modify the slip opinion on page 3, second full paragraph, first sentence, to substitute the words “Unruh Civil Rights Act” for “FEHA.”
That leaves the question of the Hospital’s existing requests for decertification of “identified sections” of the opinion. The problem here is that the Hospital does not – at least not with precision – identify those parts of the slip opinion that might readily be excluded from an otherwise published opinion without directly affecting the judgment that Armin’s Health and Safety Code section 1278.5 (section 1278.5) action against the Hospital might proceed as against the anti-SLAPP motion filed by the Hospital. The one part most easily separated from the balance of the opinion, part III.B., involving Armin’s section 1278.5 claims against individual physicians and holding those individual physicians are immune from Armin’s section 1278.5 claims, is not challenged in the December 1, 2016 petition for rehearing.
Functionally, then, it appears that the Hospital wants to maintain its petition for rehearing and withdraw it too. Most of the petition for rehearing consists not of a challenge to the main holding of the opinion – that administrative exhaustion of peer review proceedings is not a prerequisite to a section 1278.5 action – but rather consists of arguments that are fact-specific and peculiar to this now-settled action. Because these arguments are record-specific, we must conclude that by withdrawing its request for rehearing, these arguments are being waived.
However, the Hospital’s petition has pointed out another area in which the opinion might be improved. In light of the Hospital’s (now withdrawn) petition for rehearing, we hereby modify the opinion in the following particular:
On page 22 of the slip opinion, in the first paragraph of section 4, after the sentence ending with the words “whistleblowing claim is based on his December 2011 conversation with the hospital’s COO in which he complained about Douglas and Clark’s lackadaisical approach to urgent care” insert the following new footnote (and renumber the remaining footnotes accordingly):
“Under subdivision (i) of section 1278.5, a ‘health care facility’ – and that includes the Hospital here – is defined to include both ‘the facility’s administrative personnel’ such as the hospital’s COO here, and its ‘medical staff.’” This modification does not affect the judgment.”
Fourth District, Division Three, 11/16/16 decision by Bedsworth, Ikola and Thompson concurring; mod. 12/19/16; no citations or attorneys of record available.
CAL FIRE LOCAL 2881 v. CALPERS
“This is an appeal from the trial court’s denial of a petition for writ of mandate and injunctive relief filed by plaintiff Cal Fire Local 2881 on behalf of itself and its members. Plaintiffs, professional firefighters employed by the State of California and the union representing them, sought this relief against defendant California Public Employees’ Retirement System (CalPERS) to compel it to continue to enforce Government Code section 20909, a state law enacted by the Legislature in December of 2003 to provide eligible public employees the option to purchase at cost up to five years of nonqualifying service credit (sometimes referred to as “airtime”).
This airtime service credit, when purchased, provided an increase in the pension benefits paid to state employees during their retirement, as it enabled the purchasers to increase the amount of service credit factored into their pensions. However, in 2012, the Legislature eliminated this option as of January 1, 2013 upon enacting the Public Employees’ Pension Reform Act of 2013 (PEPRA), a comprehensive reform measure designed to, among other things, strengthen the state’s public pension system and ensure its ongoing solvency. (See § 7522.46, § 20909, subd. (g).)
According to plaintiffs, the Legislature’s elimination of the option provided under section 20909 to purchase airtime service credit is a violation of the contracts clause of the California Constitution (Cal. Const., art. I, § 9) and, as such, CalPERS lacks authority to refuse to consider applications for this service credit. For reasons set forth [in the full decision], we reject plaintiffs’ position and affirm the trial court’s judgment.”
Counsel for Appellants Cal Fire, Local 2881 et al. Gary M. Messing, Gregg McLean Adam, Jason H. Jasmine, Carroll, Burdick & McDonough LLP
Counsel for Respondents California, Public Employees’ Retirement, System et al., Matthew G. Jacobs, Wesley E. Kennedy, California Public Employees’ Retirement System
Counsel for Intervenor and Respondent, The State of California Kamala D. Harris, Attorney General of California; Douglas J. Woods, Senior Assistant Attorney General; Tamar Pachter, Supervising Deputy Attorney General; Rei R. Onishi, Deputy Attorney General
Nelson Ryan Richards, California Attorney General’s Office
First District, Division 3, 12/30/16 decision by Jenkins, Pollak and Siggins concurring; ___ Cal.Rptr.3d ___, 2016 WL 7488338.
CITY OF LOS ANGELES v. CITY OF LOS ANGELES EMPLOYEE RELATIONS BD.
“The City of Los Angeles (City), acting by and through its Department of Water and Power (DWP), appeals the judgment of dismissal entered after the superior court sustained the demurrer of real party in interest Department of Water and Power Management Employees Association (MEA) to the DWP’s petition for writ of mandate. The sole issue before us is whether Government Code section 3509.5 controls review of a decision of the City’s Employee Relations Board (ERB), or whether the ERB’s decisions are reviewable on a writ petition brought in the superior court. We conclude section 3509.5 does not apply to ERB decisions, and therefore reverse the superior court’s order and remand for further proceedings.”
Mike N. Feuer, City Attorney and Wendy K. Genz, Deputy City Attorney for Plaintiff and Appellant.
No appearance for Defendant and Respondent.
The Myers Law Group, Adam Stern and D. Smith for Real Party in Interest and Respondent.
Second District, Division 3, 12/30/16 decision by Aldrich, Edmon and Stratton concurring; no citations available yet.
FLORES v. NATURE’S BEST DISTRIBUTION, LLC.
“Plaintiff Julie Flores filed a lawsuit against Nature’s Best Distribution, LLC, Nature’s Best, KeHe Distributors, Inc., and KeHe Distributors, LLC (collectively referred to as defendants), alleging several claims under the California Fair Employment and Housing Act (Gov. Code, § 12940 et seq.). Defendants filed a petition to compel arbitration based on evidence that plaintiff signed an agreement for alternative dispute resolution (the Agreement). The trial court denied the petition. Defendants contend the trial court erroneously concluded defendants failed to prove plaintiff agreed to arbitrate her claims and that the arbitration provision contained in the Agreement was unenforceable because it is unconscionable.”
We affirm. Defendants failed to prove plaintiff agreed to submit her claims to final and binding arbitration.”
The decision reasoned that Declarant Bonin failed to explain how she could authenticate plaintiff’s signature, which was purportedly executed some six years prior to Bonin’s hire. The decision further explained, “We do not need to address whether the Agreement was properly authenticated because, even assuming the Agreement indeed bears plaintiff’s signature, it fails to reflect plaintiff’s agreement to submit her claims against defendants in the instant case to binding arbitration pursuant to its terms. First, although not specifically raised by the parties, we note the Agreement states it is between “employee and Company.” The body of the Agreement does not define either term. The signature block of the Agreement, however, has the name “Julie Flores” printed and signed under the word “Employee.” The signature block for the employer is not filled in, dated, or signed under the heading “Authorized Employer Signature.” Therefore, the Agreement does not identify with which entity or entities plaintiff had agreed to submit “all legal, equitable and administrative disputes” to the AAA for mediation and binding arbitration. In this case, defendants sought to enforce the arbitration provision of the Agreement against plaintiff.
Second, the Agreement fails to define which disputes would be subject to arbitration before the AAA, and which would be subject to resolution through the grievance and arbitration procedure contained in a collective bargaining agreement. The Agreement requires plaintiff to “submit all legal, equitable and administrative disputes to the American Arbitration Association for mediation and binding arbitration. This applies to all employee disputes, except those actually covered by the grievance and arbitration procedure in the Agreement between Nature’s Best and Teamster’s Local 692, hereinafter referred to as the ‘Collective Bargaining Agreement.’ ” (Italics added.)
Defendants’ moving papers did not include any analysis addressing why plaintiff’s claims in the instant action were not subject to an arbitration provision in a collective bargaining agreement. In support of their reply brief and supplemental memorandum of points and authorities filed in the trial court, defendants submitted evidence of the Local 692 CBA, which was in effect when plaintiff was hired by defendants in 2001, and also of the Local 848 CBA with effective dates of June 1, 2014 to May 31, 2018. Given the dearth of defendants’ analysis and inconsistent positions, it is unclear which collective bargaining agreement defendants believe should be considered in interpreting the scope of the arbitration provision of the Agreement in this case.
Third, the Agreement also fails to identify which set of the AAA rules would apply to binding arbitration. … Defendants did not produce evidence that identified any particular set of AAA rules that were in effect at the time plaintiff signed the Agreement. Defendants could have but did not specify the type or version of AAA rules in the Agreement, attach a copy of the governing rules, or provide information such a Web site link to plaintiff, informing her where she might find the governing arbitration rules.”
Barnes & Thornburg, Scott J. Witlin, L. Rachel Lerman and Rachel T. Segal for Defendants and Appellants.
Aegis Law Firm, Kashif A. Haque and Cindy Pham for Plaintiff and Respondent.
Fourth District, Division 3, 12/2/16 decision by Fybel, O’Leary and Moore concurring, ordered published on 12/27/16, reposted by court for correct format 12/28/16; ___ Cal.Rptr.3d ___, 2016 WL 7451142.
RISKE v. SUPERIOR COURT
“Robert Riske, a retired Los Angeles police officer, sued the City of Los Angeles alleging the Los Angeles Police Department had retaliated against him for protected whistleblower activity by failing to assign or promote him to several positions, selecting instead less qualified candidates. Riske filed a discovery motion pursuant to Evidence Code sections 1043 and 1045, which establish procedures for the disclosure of confidential personnel records of peace officers, to obtain certain records of the officers selected for the positions to which he had applied. Riske asserted the documents he sought were necessary to show the City’s stated business reason for its promotion decisions—the successful candidates were more qualified than Riske—was pretext for retaliation. The City opposed the motion, claiming the officers’ personnel records were not subject to discovery because the officers were innocent third parties who had not witnessed or caused Riske’s injury. The superior court agreed and denied Riske’s motion.
We grant Riske’s petition for a writ of mandate and direct the superior court to vacate its order denying Riske’s discovery motion and to enter a new order requiring the City to produce the reports sought by Riske for an in camera inspection pursuant to Evidence Code section 1045 and to thereafter order production of all discoverable information. The statutory scheme governing the discovery of peace officer personnel records is not limited to cases involving officers who either witnessed or committed misconduct. If a plaintiff can demonstrate the officer’s personnel records are material to the subject matter of the litigation, the records must be produced by the custodian of records and reviewed by the court at an in camera hearing in accordance with the statutory procedures to assess the discoverability of the information contained in them. The court must then order production of those records that are relevant and not otherwise protected from disclosure.”
Law Offices of Gregory W. Smith, Gregory W. Smith, Diana Wang Wells, Beverly Hills; Benedon & Serlin, Douglas G. Benedon, Woodland HillsGerald M. Serlin and Judith E. Posner, for Petitioner.
No appearance for Respondent.
Michael N. Feuer, City Attorney, Amy Jo Field, Assistant City Attorney and Lisa S. Berger, Deputy City Attorney, for Real Party in Interest.
Second District, Division 7, 12/12/16 decision by Perluss, Segal and Keeny concurring; ___ Cal.Rptr.3d ___, 2016 WL 7189858.
RYAN v. CROWN CASTLE NG NETWORKS INC.
“Plaintiff Patrick S. Ryan brought this action against his former employer, NextG Networks, Inc., and its successor Crown Castle NG Networks Inc. (collectively NextG). He alleged in essence that NextG had breached a promise to grant him lucrative stock options as a condition of his employment. The case went to the jury with an unclear special verdict form and unhelpful instructions. The jury sustained two contract-based causes of action, but failed to find the value of the promised options, despite a directive on the verdict form that it do so. Instead it made a finding of the income plaintiff lost by entering the employment relationship, despite a directive obviating such a finding in light of the jury’s rejection of plaintiff’s tort causes of action. Plaintiff moved for a new trial on the ground of inadequate damages. The trial court denied the motion while disclaiming the power to “substitute its judgment for that of the jury” and suggesting that declarations were necessary to determine “what the jury actually did.” We will reverse with instructions to grant a new trial. The court was fully empowered and indeed obligated to make an independent assessment of the adequacy of the verdict. Moreover, the verdict was unmistakably unsound. If viewed as an award of tort damages, it had no foundation in law. If viewed as an award of contract damages, it had no foundation in fact. It is in all likelihood the product of juror confusion, improper compromise, or some combination of the two. Either way the findings of liability are sufficiently suspect that a retrial cannot fairly be limited to damages. Accordingly, we will direct that the court conduct a new trial on all issues unless plaintiff elects to stand on the previous judgment.”
Kelly Cox, San Diego, for Plaintiff and Appellant Patrick S. Ryan
Kirkland & Ellis Christopher W. Keegan, Austin L. Klar, San Francisco, for Defendant and Respondent Crown Castle Ng Networks, Inc.
Sixth District, 12/13/16 decision by Rushing, Premo and Grover concurring; ___ Cal.Rptr.3d ___, 2016 WL 7217274.
SAN JOAQUIN COUNTY CORRECTIONAL OFFICERS ASSOC. v. COUNTY. OF SAN JOAQUIN
“Plaintiff San Joaquin County Correctional Officers Association (CCOA) appeals from a judgment in favor of the County of San Joaquin (County) in this dispute over pensions payments, specifically, cost-of-living adjustments (COLAs), for CCOA members. The case involves the interplay between the California Public Employees’ Pension Reform Act of 2013 (PEPRA) (Gov. Code, § 7522, et seq.) and the County Employees Retirement Law of 1937 (CERL) (§ 31450, et seq.).
Under CERL, the County had the right to reduce any contributions it chose to make toward what would otherwise have been the employee’s half-share of COLA payments. Under PEPRA, limits on any such government contributions take effect after 2018.
After the County reduced the COLA contributions it had been making, CCOA contended, in effect, that PEPRA shielded its members from any such reductions until 2018. We agree with the trial court that this is an incorrect interpretation of the law. PEPRA was intended to rein in what was perceived by the Legislature to be overly generous retirement packages for public employees, but delayed the effective date of some provisions to ease the transition and allow some changes to be negotiated gradually. It was not designed to shield compensation packages that were already subject to reduction under prior laws, specifically, CERL. Accordingly, we shall affirm.”
Goyette & Associates and Richards P. Fisher, for Plaintiff and Appellant.
Renne Sloan Holtzman Sakai LLP, Jeffrey Sloan, San Francisco, and Erich W. Shiners, Sacramento, for Defendant and Respondent.
Kamala D. Harris, Attorney General, Douglas J. Woods, Senior Assistant Attorney General, Tamar Pachter, Supervising Deputy Attorney General, and Nelson R. Richards, Deputy Attorney General, for State of California as Amicus Curiae on behalf of Defendant and Respondent County of San Joaquin
Third District 12/20/16 decision by Duarte, concurring; Nicholson and Butz concurring; ___ Cal.Rptr.3d ___, 2016 WL 7373836.
WILSON v. CABLE NEWS NETWORK INC.
“The trial court granted defendants’ anti-SLAPP motion (Code Civ. Proc., § 425.16) against a former employee alleging discrimination, retaliation, wrongful termination, and defamation. Plaintiff contends the defendants’ conduct and statement did not arise from an act in furtherance of their right of free speech or to petition for redress of grievances, and were not in connection with an issue of public interest, and therefore fell outside the scope of the anti-SLAPP statute. We agree and reverse. This is a private employment discrimination and retaliation case, not an action designed to prevent defendants from exercising their First Amendment rights. Defendants may have a legitimate defense but the merits of that defense should be resolved through the normal litigation process, with the benefit of discovery, and not at the initial phase of this action.”
Law Offices of Lisa L. Maki, Lisa L. Maki, Los Angeles, Jill McDonell, Jennifer Ostertag; Shegerian & Associates and Carney R. Shegerian, Santa Monica, for Plaintiff and Appellant.
Mitchell Silberberg & Knupp, Adam Levin and Jolene Konnersman, Los Angeles, for Defendants and Respondents.
Second District, Division 1, decision by Lui, Chaney concurring and Rothschild dissenting; ___ Cal.Rptr.3d ___, 2016 WL 7217201.
Ninth Circuit
FOWLER PACKING CO. v. LANIER
“In response to recent state appellate court decisions that exposed employers to significant and unexpected minimum wage liability, California passed Assembly Bill 1513 (AB 1513). This law created a “safe harbor” that gave employers an affirmative defense against the new claims so long as the employer made back payments under certain conditions. AB 1513 allowed the employers to avoid the costs and statutory penalties that they would otherwise face as a result of underpayment litigation. The legislation, however, also included specific “carve-outs” that were crafted such that three or four employers would be precluded from using the safe harbor in then-pending litigation against them. Plaintiffs Fowler Packing Company, Inc. (Fowler) and Gerawan Farming, Inc. (Gerawan), assert that the legislature added these carve-outs to AB 1513 to obtain the necessary support of a labor union. Plaintiffs brought suit against Defendants, who are California officials, asserting that the carve-outs violated the Bill of Attainder Clause and the Equal Protection Clause of the United States Constitution, as well as Article IV, Section 16 of the California Constitution. The district court dismissed their complaint as to all claims. Plaintiffs appeal the dismissal of their federal constitutional claims only.
We have jurisdiction to review the district court’s order under 28 U.S.C. § 1291. We hold that Plaintiffs’ complaint states a plausible claim for relief under the Equal Protection Clause, but fails to state a plausible claim that AB 1513’s carve-outs amount to a bill of attainder.”
David A. Schwarz (argued) and Michael D. Harbour, Irell & Manella LLP, Los Angeles, California, for Plaintiffs-Appellants.
Thomas Patton (argued), Deputy Attorney General; Mark R. Beckington, Supervising Deputy Attorney General; Douglas J. Woods, Senior Assistant Attorney General; Kamala D. Harris, Attorney General; Office of the Attorney General, Sacramento, California; for Defendants-Appellees.
Damien M. Schiff and Wencong Fa, Pacific Legal Foundation, Sacramento, California, for Amici Curiae Western Growers, California Fresh Fruit Association, African-American Farmers of California, California Farm Bureau Federation, Fresno County Farm Bureau, and Nisei Farmers League.
Ninth Cir. 12/20/16 decision by Gould, Clifton and Watford concurring; ___ F.3d ___, 2016 WL 7367831.
MOHAMED v. UBER TECHNOLOGIES, INC.
“Plaintiff-Appellees Abdul Mohamed and Ronald Gillette, former Uber drivers, filed an action in district court alleging on behalf of themselves and a proposed class of other drivers that Defendants Uber Technologies, Inc., Rasier, LLC, and Hirease, LLC, violated the Fair Credit Reporting Act (FCRA) and various state statutes. Gillette has also brought a representative claim against Uber under California’s Private Attorneys General Act of 2004 (PAGA) alleging that he was misclassified as an independent contractor rather than an employee. The district court denied Uber’s motion to compel arbitration of the claims. Mohamed v. Uber Technologies, 109 F. Supp. 3d 1185 (N.D. Cal. 2015). Uber argues on appeal (1) that the district court erroneously considered whether the arbitration provisions were enforceable when that question was clearly delegated to an arbitrator, and (2) that even if the district court properly considered arbitrability, it erred in concluding that the arbitration provisions were invalid and in declining to compel arbitration.
We conclude that the district court erred at the first step and improperly assumed the authority to decide whether the arbitration agreements were enforceable. The question of arbitrability as to all but Gillette’s PAGA claims was delegated to the arbitrator. Under the terms of the agreement Gillette signed, the PAGA waiver should be severed from the arbitration agreement and Gillette’s PAGA claims may proceed in court on a representative basis. All of Plaintiffs’ remaining arguments, including both Mohamed’s challenge to the PAGA waiver in the agreement he signed and the challenge by both Plaintiffs to the validity of the arbitration agreement itself, are subject to resolution via arbitration.”
Theodore Boutrous, Jr. (argued), Theane D. Evangelis, and Brandon J. Stoker, Gibson, Dunn & Crutcher LLP, Los Angeles, California; Joshua S. Lipshutz and Kevin J. RingDowell, Gibson, Dunn & Crutcher LLP, San Francisco, California; Rod M. Fliegel, Littler Mendelson P.C., San Francisco, California; Andrew M. Spurchise, Littler Mendelson P.C., New York, New York; for Defendants-Appellants Uber Technologies, Inc. and Rasier, LLC.
Pamela Devata (argued) and Nicholas R. Clements, Seyfarth Shaw LLP, San Francisco, California; Timothy L. Hix, Seyfarth Shaw LLP, Los Angeles, California; for Defendant-Appellant Hirease, LLC.
Laura Ho (argued), Andrew P. Lee, and William JhaveriWeeks, Goldstein Borgen Dardarian & Ho, Oakland, California; Robert Ahdoot, Tina Wolfson, and Theodore Maya, Ahdoot & Wolfson, PC, West Hollywood, California; Meredith Desautels, Dana Isaac Quinn, and Elisa Della-Piana, Lawyers’ Committee for Civil Rights of the San Francisco Bay Area, San Francisco, California; Monique Olivier, Duckworth Peters Lebowitz Olivier LLP, San Francisco, California; for Plaintiffs-Appellees.
Ninth Cir. 9/7/16 decision by Clifton, Tallman and Ikuta concurring, amended 12/21/16; ___ F.3d ___, 2016 WL 7470557.
TIBBLE v. EDISON INTERNATIONAL
“Edison sponsors a defined-contribution 401(k) Savings Plan (Plan), wherein “participants’ retirement benefits are limited to the value of their own individual investment accounts, which is determined by the market performance of employee and employer contributions, less expenses.” Tibble v. Edison Int’l, ––– U.S. ––––, 135 S.Ct. 1823, 1826, 191 L.Ed.2d 795 (2015) (Tibble IV). “Expenses, such as management or administrative fees, can sometimes significantly reduce the value of an account in a defined-contribution plan.” Id.
In 2007, plaintiffs-appellants (beneficiaries) brought this action against Edison and the other defendants (collectively, Edison). The district court denied the beneficiaries’ motion for partial summary judgment, and partially granted Edison’s summary judgment motion. Tibble v. Edison Int’l, 639 F.Supp.2d 1074, 1080 (C.D. Cal. 2009) (Tibble I). This appeal concerns a claim that survived summary judgment; namely, that Edison breached its fiduciary duties by offering “higher priced retail-class mutual funds as Plan investments when materially identical lower priced institutional-class mutual funds were available (the lower price reflects lower administrative costs).” Tibble IV, 135 S.Ct. at 1826.
The Plan is governed by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001–1461. The relevant ERISA statute of limitations is six years, 29 U.S.C. § 1113(1), and at least three of the disputed funds were added more than six years before the complaint was filed. Tibble IV, 135 S.Ct. at 1826. The district court allowed the beneficiaries to present evidence that their claims concerning those funds were timely because Edison, within the six-year limitations period, “fail[ed] to convert the retail shares to institutional shares upon the occurrence of certain ‘triggering events’ ” that should have prompted a full due-diligence review. Tibble v. Edison Int’l, No. CV 07–5359 SVW (AGRx), 2010 WL 2757153, at *31, 2010 U.S. Dist. LEXIS 69119, at *99 (C.D. Cal. July 8, 2010)
(Tibble II).
After a bench trial, the district court ruled for the beneficiaries on the retail-class funds selected within the six-year period, because Edison did “not offer[ ] any credible explanation for why the retail share classes were selected instead of the institutional share classes,” and “a prudent fiduciary acting in a like capacity would have invested in the institutional share classes.” Id. at *30, 2010 U.S. Dist. LEXIS 69119, at *98. Indeed, the court held that there was “no evidence that [Edison] even considered or evaluated the different share classes” when the funds were added. Id. at *25, 2010 U.S. Dist. LEXIS 69119, at *81 (emphasis in original).
As to the funds initially selected before the statute of limitations, the district court held that the “triggering events” proffered by the beneficiaries for two of the funds—a name change because of a partial change in ownership of a sub-advisor, and a name change related to a years-old ownership change—were insufficient to trigger a full diligence review, and that a change in strategy in a third fund—from small-cap to mid-cap—triggered a review to which Edison responded adequately by adding another small-cap option. Id. at *31–33, 2010 U.S. Dist. LEXIS 69119, at 102–07.
On appeal to our court, the beneficiaries argued that the district court should have allowed them to prove their claims concerning funds selected before the relevant six-year period. Tibble v. Edison Int’l, 729 F.3d 1110, 1119 (9th Cir. 2013) (Tibble III), vacated, ––– U.S. ––––, 135 S.Ct. 1823, 1829, 191 L.Ed.2d 795 (2015). In response, Edison acknowledged that it had a duty to monitor the funds for changed circumstances that would make the investment no longer prudent, but argued that the beneficiaries did not show sufficiently changed circumstances. Our vacated decision accepted Edison’s contention, and noted that “the district court was entirely correct to have entertained” the possibility of changed circumstances, and correct to have found the circumstances insufficient to trigger a response by Edison. Id. at 1120. We thus concluded that any theory of a duty absent changed circumstances amounted to a continuing violation theory that we declined to read into the ERISA statute of limitations. Id. at 1119–20.
Plaintiffs successfully petitioned for certiorari, and the Supreme Court reversed our decision concerning the statute of limitations, holding that regardless of when an investment was initially selected, “a fiduciary’s allegedly imprudent retention of an investment” is an event that triggers a new statute of limitations period. Tibble IV, 135 S.Ct. at 1826, 1828–29. The Court specifically rejected “the conclusion that only a significant change in circumstances could engender a new breach of a fiduciary duty.” Id. at 1827. We were cautioned against “applying a statutory bar to a claim of a ‘breach or violation’ of a fiduciary duty without considering the nature of the fiduciary duty,” and told to “recognize that under trust law a fiduciary is required to conduct a regular review of its investment with the nature and timing of the review contingent on the circumstances.” Id. at 1827–28. The Court instructed us to decide “the scope of [Edison’s] fiduciary duty” to monitor investments. Id. at 1829.
The Court also left to us on remand “any questions of forfeiture,” acknowledging Edison’s contention that the beneficiaries “did not raise the claim below that [Edison] committed new breaches of the duty of prudence by failing to monitor their investments and remove imprudent ones absent a significant change in circumstances.” Id.
A panel of our court in Tibble v. Edison International, 820 F.3d 1041, 1048 (9th Cir. 2016) (Tibble V), concluded that the issue was forfeited. We then ordered that the case be reheard en banc, so the panel’s decision in Tibble V is vacated. Tibble v. Edison Int’l, 831 F.3d 1262 (9th Cir. 2016).
For the reasons discussed below, we vacate the district court’s decisions concerning the funds added to the Plan before 2001, and remand for trial on an open record on the claim that, regardless of whether there was a significant change in circumstances, Edison should have switched from retail-class fund shares to institutional-class fund shares to fulfill its continuing duty to monitor the appropriateness of the trust investments. We also encourage the district court to reevaluate its fee determination in light of the Supreme Court’s decision, and our decision en banc.
Michael A. Wolff (argued), Jason P. Kelly, Sean E. Soyars, Nelson G. Wolff, and Jerome J. Schlichter, Schlichter Bogard & Denton, Saint Louis, Missouri, for Plaintiffs-Appellants/Cross-Appellees.
Jonathan D. Hacker (argued), Meaghan VerGow, Robert N. Eccles, and Walter Dellinger, O’Melveny & Myers LLP, Washington, D.C.; Gabriel Markoff and Ward A. Penfold, O’Melveny & Myers LLP, San Francisco, California; Sergey Trakhtenberg, Southern California Edison Company, Rosemead, California; for Defendants-Appellees/CrossAppellants.
Ninth Cir. 12/16/16 en banc decision by Smith; ___ F.3d ___, 2016 WL 7321373.