INTEL CORPORATION INVESTMENT POLICY COMMITTEE v. SULYMA

ERISA HAS DIFFERENT STATUTES OF LIMITATIONS FOR BREACH OF FIDUCIARY DUTY

The Employee Retirement Income Security Act of 1974 (“ERISA”) governs certain retirement plan. By statute, those retirement plan must have a fiduciary responsible for its management.

That fiduciary can become personally liable to the retirement plan for any breach of fiduciary duty, which liability may be pursued by plan participants (as well as some enumerated others).

Different statutes of limitations apply for such a claim. The statute is ordinarily 6 years after the breach. That statute is shortened to 3 years upon the plaintiff gaining “actual knowledge” of the breach.

SULYMA SUED WITHIN 6 YEARS OF THE ALLEGED BREACH, BUT MORE THAN 3 YEARS AFTER DISCLOSURES

Plaintiff/Petitioner Sulyma worked for Intel, and participated in two ERISA-covered retirement plans. After the financial crisis of 2008, those plans, which had invested heavily in stocks and bonds, moved their money into alternative investments. Those investments, which carried heavy fees, lagged behind other plans when the stock market recovered.

Sulyma sued, alleging a breach of duty due to overinvestment in these alternative plans. Intel moved for summary judgment, since Sulyma sued within 6 years of the alleged breach, but more than 3 years after the plans made disclosures about its investments.

THE NINTH CIRCUIT REVERSED THE TRIAL COURT’S SUMMARY JUDGMENT

In Sulyma’s deposition, Intel demonstrated that it had produced various disclosures about its investments. Those disclosures, most of which were mandated by statute, included in-depth explanations of where the plans’ money was being placed.

Sulyma testified remembering reviewing only account statements which did not specify where the money was invested. Nonetheless, Intel produced electronic evidence that Sulyma had visited the website containing the disclosures multiple times.

The district court granted summary judgment. The Ninth Circuit reversed, holding that availability of information did not equate with actual knowledge under the statute.

ACTUAL KNOWLEDGE WILL NOT NECESSARILY BE IMPLIED UPON MERE DISCLOSURE

The US Supreme Court found the language of the statute to be unambiguous. Finding that “[d]ictionaries are hardly necessary to confirm the point, but they do,” the court found that “actual” means “existing in fact or reality,” while “knowledge” meant “the fact or condition of being aware of something.

The court acknowledged that “constructive knowledge” is imputed in various contexts, but held to the statute’s plain language that it was not appropriate to do so here.

THE MATTER IS ONE FOR TRIAL, NOT SUMMARY JUDGMENT

Intel argued that this ruling would weaken statutory protections for fiduciaries. The court acknowledged that possibility, but pointed out that doing otherwise reduced the value of the statute for beneficiaries. That trade-off, it pointed out, was for Congress to make, and it did so with unambiguous language.

The High Court also pointed out that there were multiple ways to prove actual knowledge. Circumstantial evidence showing that a plaintiff not only received disclosures, but acted in response to them, can be powerful evidence of actual knowledge. It also left the door open for proof of “willful blindness” to be sufficient.

CONCLUSION

“Actual knowledge” means what it says in the ERISA context, and the 6 year statute of limitations will apply in its absence.

This case may be useful when pursuing statutory violations that use the term “actual knowledge,” including workers compensation statutes, PAGA waivers, among others.

United States Supreme Court, Filed 2/26/20. Opinion by Justice Alito.

Full Decision

FRLEKEN v. APPLE, INC.

The California Supreme Court granted the Ninth Circuit’s request to decide, as a question of law, whether time spent on the employer’s premises waiting for and undergoing required exit searches of belongings voluntarily brought to work for personal convenience is compensable as hours worked. Wage Order 7 requires employers to pay their employees minimum wage for all hours worked. “Hours worked” is “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.” (Cal. Code Regs., tit. 8, section 11070(2)(G)) The Supreme Court concluded that the time in question is compensable, and that their ruling applies retroactively.

DEFENDANT APPLE REQUIRED EMPLOYEES TO SUBMIT TO SEARCHES BEFORE LEAVING A STORE

Defendant Apple instituted a bag search policy requiring employees to submit personal belongings for inspection before leaving the store. Almost all Apple employees brought a bag or purse to work. Employees estimated that the wait time for a search was 5-20 minutes and up to 45 minutes on the busiest days. All time spent waiting for a bag search and undergoing a bag search was unpaid. Apple employees brought a class action for labor code violations, and the district court granted Apple’s motion for summary judgment, finding that exit searches were not compensable hours worked. Plaintiffs appealed.

EMPLOYEES WERE UNDER APPLE’S CONTROL WHILE WAITING FOR AND UNDERGOING SEARCHES, RENDERING THAT TIME “HOURS WORKED”

The wage orders and California’s other wage and hour laws should be liberally construed to promote employee protection. In previous cases, the Supreme Court held that employees need not be working to fall under “hours worked,” as long as they are subject to the control of the employer. Likewise, the employee need not be under the employer’s control if the employer has or should have knowledge that the employee is working. Under the “control” analysis, Apple employees were entitled to compensation because they were clearly under Apple’s control while waiting for and undergoing exit searches. Control existed because Apple required employees to comply with the bag search policy under threat of discipline, confined employees to the premises while they waited, and required employees to perform certain tasks during that time like locating a manager or security guard, opening all bags and packages, moving items around in the bags, and removing personal Apple technology for inspection. Apple argued that the wait was avoidable if employees brought no bags, but the Court rejected that argument, finding no unavoidability requirement. In addition, the uncompensated time primarily benefited Apple and its interest in deterring theft, rather than benefiting the employees. The Court declined to consider whether Apple’s searches were compensable under the suffered or permitted to work clause, in addition to the control clause.

CELA INVOLVEMENT

Congratulations to CELA member Kimberly Kralowec! Thank you to CELA members Aaron Kaufmann and Michael Singer for their Amicus work for CELA, Eric Kingsley for his Amicus work for Bet Tzedek Legal Services, and David Mara for his Amicus work for CAOC.

CA Supreme Court. Filed 2/13/20. 8 Cal.5th 1038. Opinion by Chief Justice Cantil-Sakauye.

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GRANDE v. EISENHOWER MEDICAL CENTER

PLAINTIFF GRANDE SUED HER STAFFING AGENCY, SETTLED, THEN SUED THE HOSPITAL WHERE SHE WORKED FOR THE SAME LABOR CODE VIOLATIONS

Plaintiff Lynn Grande was assigned to Defendant Eisenhower Medical Center as a nurse by her temporary staffing agency FlexCare. Pursuant to Eisenhower’s contract with FlexCare, Flexcare was the sole employer of the nurses it assigned to hospitals. However, Eisenhower controlled the nurses in the performance of their jobs, assessed them during orientation, could require them to take tests, and made decisions about assignments and termination. Grande was a named plaintiff in a class action lawsuit against FlexCare brought on behalf of employees assigned to hospitals throughout California. However, Grande’s claims in the FlexCare class action were based solely on her assignment to Eisenhower. The FlexCare class action settled, and Grande received compensation and released her claims. Approximately one year later, Grande brought a class action against Eisenhower, alleging the same wage and hour violations. FlexCare intervened, arguing that Grande could not bring claims against Eisenhower because she had settled those claims in the previous class action. The trial court held a trial limited to questions regarding the propriety of the lawsuit. Since Eisenhower was not a party to the first class action and was not one of the released parties in the settlement agreement, the trial court held that Eisenhower could not use the doctrine of res judicata. Eisenhower filed a petition for writ of mandate, and FlexCare filed an appeal. The Court of Appeal affirmed.

INDEPENDENTLY OPERATING COMPANIES ARE NOT AGENTS OF EACH OTHER

Grande’s release in the FlexCare class action applied to FlexCare, its officers and corporate alter ego, affiliated companies, principals, and agents. On appeal, FlexCare and Eisenhower argued that Eisenhower was an affiliated company or agent of FlexCare. Since FlexCare and Eisenhower operated independently, neither company was an agent of the other.

STAFFING AGENCIES AND THEIR CLIENTS HAVE DIFFERENT INTERESTS AND ARE UNLIKELY TO BE IN PRIVITY

A bedrock principle of contract law is that contracting parties who are jointly and severally liable may be sued either in the same action or in separate actions. However, a non-party defendant may bar subsequent litigation on claims previously decided against another defendant, if the two defendants are in privity. Privity requires the sharing of an identity or community of interest with adequate representation of that interest in the first lawsuit, and circumstances where the nonparty should reasonably have expected to be bound by the first lawsuit. A nonparty in privity must have an interest so similar to the party’s interest that the party acted as the nonparty’s virtual representative in the first lawsuit. Staffing agencies and their clients are likely to have different interests and incentives in defending wage and hour claims. Therefore, FlexCare and Eisenhower were not closely enough aligned to be in privity. Note: the Fourth District specifically disagreed with and declined to follow the Second District’s decision in Castillo v. Glenair, Inc. (2018) 23 Cal.App.5^th 262, creating a split of authority.

RES JUDICATA APPLIES IN INDEMNIFICATION SCENARIOS ONLY WHERE THE INDEMNITOR WAS ACTING IN ITS CAPACITY AS INDEMNITOR IN THE FIRST ACTION

The contract required FlexCare to indemnify Eisenhower. Res judicata may apply where a claim brought against an indemnitee was previously pursued against an indemnitor. However, that rule only applies where the indemnitor is acting in its capacity as indemnitor in the first lawsuit. Grande did not allege that FlexCare was vicariously liable as FlexCare’s indemnitor in the first action; she alleged that FlexCare had committed its own Labor Code violations. Therefore, res judicata did not apply.

COA 4^th Dist., Div. 2. Filed 2/6/20. 44 Cal.App.5th 1147. Opinion by Justice Slough.

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TORRES v. DESIGN GROUP FACILITY SOLUTIONS, INC.

THE TRIAL COURT DENIED SUMMARY JUDGMENT, THEN GRANTED RECONSIDERATION AND GRANTED SUMMARY JUDGMENT

Plaintiff Ismael Torres was an employee of H.J. Vast, which was hired as a subcontractor by C&L Refrigeration, which was itself hired as a subcontractor by Defendant Design Group Facility Solutions. The renovation and expansion of a seafood processing facility required workers to be on the roof, which had skylights. C&L created a marked path on the western side of the roof to ensure the skylights were avoided, but there was no path on the eastern side. While working on the eastern side of the roof, Torres tripped and fell through a skylight. Torres sued Design. Design moved for summary judgment, claiming Torres’ claims were barred because hirers are generally shielded from liability for an independent contractor’s workplace injuries. The trial court denied the MSJ, finding triable issues as to Design’s level of control over the worksite and negligence. Design moved for reconsideration and submitted deposition testimony from depositions taken after the filing of its MSJ. The trial court granted the motion for reconsideration and granted summary judgment. Torres appealed.

WHEN THE MOVING PARTY SUBMITS NEW EVIDENCE IN SUPPORT OF SUMMARY JUDGMENT, 75 DAYS NOTICE AND A SEPARATE STATEMENT ARE REQUIRED

Code of Civil Procedure section 1008(a) allows a party to move for reconsideration based on new or different facts or a change in law. The Court of Appeal offered no opinion on the propriety of granting Design’s motion for reconsideration. However, Design’s motion for reconsideration was, in effect, a renewed motion for summary judgment. Therefore, Torres was entitled to an additional 75 days’ notice and a separate statement of material facts. The trial court failed to properly enforce the procedural protections of the summary judgment process and therefore abused its discretion.

COA 2^nd Dist., Div. 3. Filed 2/13/20. 45 Cal.App.5^th 239. Opinion by Justice Dhanidina.

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RIZO v. YOVINO

FRESNO COUNTY EXPLICITLY USED PRIOR WAGES TO DETERMINE ITS SALARY OFFERS TO NEW EMPLOYEES

Plaintiff/Respondent Rizo worked as a math consultant for the Fresno County Office of Education. She was the only female in that position. After three years there, she discovered that all of the male math consultants earned substantially more than she did, including a new hire. This was true even though she had more experience and better educational qualifications.

When Rizo complained to Human Resources, she was presented with Fresno County’s Standard Operating Procedure 1440. That procedure based new hire salary solely on previous salary.

THE DISTRICT COURT DENIED SUMMARY JUDGMENT

Rizo sued for, among other things, violation of the federal Equal Pay Act. Fresno County moved for summary judgment, asserting the affirmative defense provided for in 29 U.S.C. §206(d)(1)(iv). That affirmative defense allows a pay differential if it is based on “any other factor other than sex.”

The district court denied the motion. It found that a system that determined pay based on prior wages perpetuated the institutional gender discrimination that the EPA sought to eliminate.

Fresno County appealed. In the first decision, the Ninth Circuit affirmed. Fresno County appealed to the US Supreme Court, which reversed on a procedural issue. Judge Stephen Reinhardt, who authored the Ninth Circuit opinion, passed away before its publication. The High Court ruled that the decision should not have been published because of that, and remanded.

THE NINTH CIRCUIT AFFIRMED

In affirming the district court on remand, the Ninth Circuit, sitting en banc, used familiar canons of statutory construction. It looked to the statute’s wording of the other affirmative defenses. Finding that they were all related to job functions, the court used the canon of noscitur a sociis – a word is known by the company it keeps. Given the statute’s purpose and wording, there was reason to believe that the fourth exception should require a relationship to the job as well. The court also looked to the canon of ejusdem generis – a general term is usually understood to embrace objects similar to the more specific terms.

The court found the statute’s plain language persuasive as well. Although the exception was often misquoted as “any factor other than sex,” in fact it reads, “any other factor other than sex.” Giving every word in the statute a reasonable meaning so that none of it is surplassage, the first “other” was deemed to refer to the first three exceptions. In other words, “any other factor” meant that this fourth exception was intended to be similar to the 3 that preceded it.

In so finding, the court rejected the view that prior wages could be considered along with other factors when asserting an affirmative defense. If prior wages are used at all in the determination of salary, the court said, the affirmative defense is eviscerated.

THERE IS NO McDONNELL-DOUGLAS BURDEN SHIFTING IN THE EPA

The court went out of its way to clear up what it admitted were confusing prior rulings. Those rulings seemed to indicate that, after the plaintiff made a prima facie showing and the defendant demonstrated an affirmative defense, the plaintiff was obliged to demonstrate that the reason proferred was pretext, pursuant to the McDonnell Douglas burden shifting scheme familiar to Title VII and FEHA cases.

This, the court emphasized, was not the case. Unlike Title VII, the EPA does not require a showing of intent. If plaintiff makes out a prima facie case, the burden shifts to defendant to demonstrate an affirmative defense. There is no burden shifting back to the plaintiff, who need only show a factual dispute with respect to the affirmative defense asserted.

CONCLUSION

There is a split in the circuits on this issue, and it may in fact draw the attention once again of the US Supreme Court. In the meanwhile, though, the Ninth Circuit’s interpretation of the federal EPA is now closely aligned with California’s recently-passed Labor Code §432.3.

Ninth Circuit Court of Appeals, Filed 2/27/20. En banc. Opinion by Judge Christen.

Full Decision