California Courts of Appeal
CALIFORNIA-AMERICAN WATER COMPANY v. MARINA COAST WATER DISTRICT
Plaintiff California-American entered into several contracts with Marina Coast regarding a water desalination project. The contracts contained provisions for prevailing-party attorney fees and costs in any legal action. Legal action inevitably occurred. After years of litigation, the trial court held the contracts were void and awarded California-American attorney fees pursuant to CCP section 1717. Marina Coast appealed, arguing that California-American could not obtain prevailing party attorney fees under the contracts because the court found the contracts void.
Holdings:
California-American was entitled to attorney fees under CCP section 1717, even though the contract was void. The primary purpose of section 1717 is to ensure mutuality of remedy. That purpose would be thwarted if a party arguing a contract is invalid, void, or unenforceable cannot recover fees while the party arguing the opposite can.
First District, Division 1. Filed December 15, 2017. 18 Cal.App.5th 571. Opinion by Humes.
CORNELL v. BERKELEY TENNIS CLUB
Plaintiff was morbidly obese
Plaintiff Cornell was 5’5” and 350 pounds. Her morbid obesity interfered with multiple daily life functions, including walking, bathing, and standing.
Plaintiff alleged multiple acts of discrimination
As an employee of the tennis club, Plaintiff was required to wear the uniform, including a polo shirt. Unfortunately, the largest size was five sizes too small for her. Her supervisor, Rigoberto Headley, allegedly refused to accommodate her by allowing an exception to the uniform policy.
Headley also allegedly refused Plaintiff to perform job duties as a day manager, and to learn the bookkeeping system, which Plaintiff Cornell alleged hurt her job advancement.
During an event for the Board of Directors at the club, both Headley and Plaintiff Cornell helped set up the ballroom. Headley found a recorder hidden in the ballroom, and later accused Cornell of secretly trying to record the board meeting. Ultimately, the club fired Plaintiff Cornell based on this accusation.
Plaintiff stated some cognizable claims based on her obesity
The appellate court reversed summary judgment on Plaintiff Cornell’s claims of disability discrimination and harassment.
The Cornell court reaffirmed an important issue on summary judgment: the initial burden belongs to the defendant to negative some element of the plaintiff’s case. That is, the defendant must first prove, as its initial burden, that the plaintiff cannot show one or more elements of her claim.
The court relied on our Supreme Court’s precedent in Cassista v. Community Foods, Inc., 5 Cal.4th 1050 (1993) for the proposition that obesity can be a disability if it is the result of an underlying physiological condition.
Even though this is a requirement for the plaintiff, it was the defendant’s initial burden to negative this element. This, the club could not do. It had no basis for claiming that Plaintiff Cornell’s obesity was not caused by an underlying physiological condition, no way to show that she couldn’t prove it was, and therefore summary judgment was improvidently granted.
The Cornell court also pointed out that the so-called “same actor” inference should not be given undue weight. The mere fact that a supervisor both hired and fired the same employee is just one factor in determining whether discriminatory or retaliatory animus existed.
Holdings:
Obesity can be a disability if it is caused by an underlying, physiological condition. It is defendant’s burden on summary judgment to negative this element.
First District, Division 1. December 21, 2017 decision by Humes, Margulies and Banke concurring. Ca. Ct. App., 12/21/17
DIAZ v. PROFESSIONAL COMMUNITY MANAGEMENT
Defendant PCM attempted to game the system to create an order that it could then appeal. Eleven days before trial, PCM applied ex parte for an order shortening time to hear its motion to compel arbitration. After the court denied the ex parte, PCM submitted a proposed order falsely stating the court had denied the motion to compel arbitration on the merits. After the court signed the order, PCM filed a notice of appeal one court day before the scheduled trial date.
On appeal, PCM stated that Plaintiff Diaz could not argue that PCM had waived its right to compel arbitration because Diaz never argued waiver because Diaz had never filed an opposition to the motion and argued waiver. PCM contended that Diaz could only make arguments based on the analysis that PCM had written in its proposed order. The Court of Appeal eviscerated PCM.
Holdings:
PCM invited the court’s error by drafting the proposed order that was the basis for the appeal. “A party that invites the trial court to commit error is estopped from challenging that error on appeal.”
PCM and its counsel acted in bad faith by generating an appealable order contrary to the trial court’s intent for the purpose of delaying trial.
The trial court does not have jurisdiction to rule on a motion that has not been properly noticed for the hearing date in question. The court cannot deny an application to shorten time to hear a motion and also rule on that motion in the same hearing.
Alternatively, the Court of Appeal invoked its authority under CCP §909 to find that PCM acted in bad faith regarding its motion to compel arbitration. Based on that finding and other undisputed procedural facts (PCM had engaged in discovery in court and filed an MSJ), PCM waived its right to compel arbitration.
The Court of Appeal imposed monetary sanctions against PCM and its counsel for acting in bad faith and filing a frivolous appeal. Sanctions included $8,500 to the Court of Appeal, and an amount to Diaz equal to his attorney fees in preparing for trial and responding to the appeal.
Congratulations to CELA member A. Jacob Nalbandyan!
Fourth District, Division 3. October 17, 2017 decision by Ikola. Certified for publication November 8, 2017. 16 Cal.App.5th 1190
DUNCAN v. WAL-MART STORES, INC.
Plaintiff Duncan was injured while working for Defendant Wal-Mart. She filed a personal injury suit against Wal-Mart seeking medical expenses, lost wages and earning capacity, and pain and suffering. Duncan prevailed at trial and was awarded damages for medical expenses and pain and suffering. She received no damages for lost earnings because she never requested them during trial. Hartford then filed a lien on the judgment to recover the money it had paid to Duncan in workers’ compensation benefits.
Holdings:
Hartford was entitled to recover all benefits paid to Duncan, including the benefits paid for lost wages, even though Duncan did not recover lost wages in her civil trial.
Fourth District Division 3. Filed November 14, 2017, publication ordered December 13, 2017. 18 Cal.App.5th 460. Opinion by Aronson.
HARTNETT v. SAN DIEGO COUNTY OFFICE OF EDUCATION
After Defendant County terminated Plaintiff Hartnett, Hartnett challenged the termination on the grounds that the County did not properly investigate the matter before ordering a hearing, in violation of Education Code section 45306. The trial court granted Hartnett’s writ, finding that the County had failed to conduct an investigation prior to the hearing.
Holdings:
A hearing is mandatory under Education Code 45306 if requested by the employee. However, the investigation may occur during the hearing itself and need not occur before the hearing.
Fourth District Division 1. Filed December 14, 2017. 18 Cal.App.5th 510. Opinion by O’Rourke.
HOWETH v. COFFELT
Neighbors in a dispute over shared driveway usage reached a settlement that the trial court entered as a consent judgment. The settlement provided for a monetary fine for each violation of the settlement agreement, with the fines doubling if a party refused to pay and an enforcement action was required. Plaintiff Howeth later brought a motion for entry of an interim money judgment, claiming Defendant Coffelt had committed twelve violations of the settlement agreement. The trial court denied the motion citing lack of jurisdiction and found that Howeth’s only remedy was to bring a new lawsuit for breach of contract.
Holdings:
Consent judgments are judgments entered by the court in accordance with the contractual agreement of the parties and are intended to fully and finally settle a dispute. Consent judgments are not appealable. The trial court’s order denying Howeth’s motion occurred after the consent judgment and is also not appealable because the parties stated their intent that the consent judgment be the full and final resolution of the case. Code of Civil Procedure section 664 does not apply because it allows the court to ensure that all parties adhere to a settlement agreement that results in the dismissal of a lawsuit; it does not apply to disputes that arise afterward.
Fourth District Division 1. Filed November 30, 2017, publication ordered December 8, 2017. 18 Cal.App.5th 126. Opinion by Huffman.
ITV GURNEY HOLDING INC. v. GURNEY
Defendants the Gurneys are minority owners of a company and served as its CEOs. Plaintiff ITV was the majority owner of the company. The Gurneys signed employment agreements dictating the terms of their CEO positions. The employment agreement prohibited the Gurneys from recruiting or soliciting any employees from leaving the company. The Gurneys secretly formed their own competing production company and fired two company employees in order to hire them at the other company. Of course, ITV learned of the Gurneys’ scheme and voted to terminate the Gurneys for breach of contract. Everyone then sued each other, and the Gurneys obtained a preliminary injunction restoring the Gurneys to management at the company.
Holdings:
The trial court abused its discretion in granting the portion of the preliminary injunction that restored the Gurneys to day-to-day management of the company. The two factors to evaluate when considering a preliminary injunction are: (1) the likelihood that the plaintiff will prevail on the merits and trial, and (2) the interim harm to the plaintiff if the preliminary injunction is denied versus the harm to the defendant if the preliminary injunction is issued. The trial court misinterpreted the employment agreement, which did not allow the Gurneys to continue day-to-day company management after termination.
Second District Division 1. Filed December 5, 2017. 18 Cal.App.5th 22. Opinion by Rothschild.
JAMESON v. PACIFIC GAS & ELECTRIC COMPANY
Plaintiff Jameson was a supervisor at PG&E. One of his subordinates reported safety violations and later reported that Jameson and others had retaliated against him for the first report. PG&E investigated and found that Jameson had retaliated against the employee and lied about it. It was the first time PG&E’s investigator had ever found that a manager had retaliated against an employee for making a safety complaint. PG&E terminated Jameson, and he foolishly sued them for wrongful termination and breach of contract. Jameson conceded that he was fired because of the investigative report but contended that the investigation was inadequate, and PG&E’s reliance on the report was not reasonable or in good faith. PG&E won on summary judgment, and the Court of Appeal affirmed.
Holdings:
It does not matter whether the investigator was correct or whether the investigation was shoddy if the conclusions were not arbitrary or pretextual and were reached honestly after an appropriate investigation. Jameson failed to establish triable issues of fact that PG&E’s decision was biased or procedurally deficient.
Jameson’s expert’s analysis that the investigation was inadequate did not preclude summary judgment. None of the expert’s statements supported a reasonable inference that the investigative process was unfair or that PG&E unreasonably relied on it.
First District, Division 3. October 5, 2017 decision by Siggins.Certified for publication November 1, 2017. 16 Cal.App.5th 901.
JENSEN v. U-HAUL CO. OF CALIFORNIA
Plaintiff Jensen’s supervisor rented a truck from Defendant U-Haul and instructed Jensen to drive the truck to transport merchandise. While Jensen was driving the truck, a tire blew out, causing an accident and injuries to Jensen. The rental agreement between Jensen’s supervisor and U-Haul had an arbitration clause, which U-Haul sought to enforce.
Holdings:
Generally, a party cannot be compelled to arbitration unless that party agreed in writing to arbitration. Also generally, employees are not bound by an agreement entered into by their employer. Exceptions occur when a third party has benefitted from the contract containing the arbitration agreement, and where a pre-existing relationship makes it equitable to compel arbitration. The third party beneficiary exception does not apply to Jensen under analogous law stating that a sublessee of equipment is not a third party beneficiary of the leasing contract. The pre-existing relationship exception does not apply to Jensen because his supervisor had no implicit authority to bind him to arbitration with U-Haul.
Fourth District Division 2. Filed December 11, 2017. 18 Cal.App.5th 295. Opinion by Codrington.
JULIAN v. GLENAIR, INC.
The PAGA claims were asserted independently of the class action
In Julian, employees of Glenair, Inc., asserted a class action, alleging various violations of California’s Labor Code. Independent of that, Respondents Marissa and Machelle Julian joined the case, alleging only PAGA violations.
PAGA deputizes private plaintiffs to pursue penalties in the name of the State for violations of the Labor Code. They are similar to qui tam actions in that way, but PAGA claims are pursued in a representative manner. Unlike class actions, though, they have no requirements of typicality, numerosity, judicial economy, or adequacy of counsel.
The arbitration agreement was circulated before Respondents filed their complaint
In response to a pending class action, Appellant Glenair circulated an arbitration agreement to its employees. It stated that agreeing to arbitration was not a condition of employment, but that if employees did not affirmatively “opt out,” they would be bound by the agreement. Respondents did not opt out.
Predispute arbitration agreements are inapplicable to PAGA claims
The Julian court first analyzed whether a predispute arbitration agreement was enforceable as against PAGA claims. The court examined our Supreme Court’s analysis in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014). In Iskanian, the court held that predispute waivers of PAGA claims were unenforceable. The Iskanian court also declared that federal law did not preempt this issue when it came to PAGA, because claims under PAGA constituted a dispute not between the plaintiff and the defendant, but rather between the State of California and the defendant, with the plaintiff acting as an agent of the State.
Analogizing to predispute arbitration agreements, and agreeing with precedent from other circuits, the Julian court determined that predispute arbitration agreements could not be enforced against a PAGA plaintiff.
PAGA claims are still predispute until administrative remedies are exhausted
The issue, then, was the boundary between pre- and postdispute agreements. The court ruled that, if a plaintiff was not statutorily authorized to bring a PAGA claim, then the matter was predispute, and any agreement to arbitrate signed during that time would be unenforceable.
Here, the arbitration agreement was circulated before the plaintiffs gave notice to the State, as required by the statute, of the Labor Code violations, and before receiving notice from the State of its intent to investigate or not to do so. Therefore, the arbitration agreement had been circulated before the plaintiffs were authorized under PAGA as agents of the State, it was therefore a predispute agreement, and therefore unenforceable.
Conclusion
The courts require that employees understand the existence of their rights under PAGA, and the effect of any waiver of those rights that is presented to them. This case declared that such a waiver cannot be understood unless and until the right has accrued.
CELA’s Involvement
Congratulations to CELA Member Matthew Matern.
Second District, Division 4, November 27, 2017 decision by Manella, Epstein and Willhite concurring; 17 Cal.App.5th 853.
LAWSON v. ZB, N.A.
Plaintiff sued under paga
Plaintiff alleged that she was not paid properly, and sued to recover unpaid wages, both under Ca. Labor Code §558 and the Private Attorneys General Act (“PAGA”). Under PAGA, she sought to recover penalties for herself, and for others similarly situated.
A PAGA claim is not a class action, and is not subject to class action requirements. Rather, it is a separate statutory construct, allowing enforcement of the Labor Code through the actions of private litigants.
The trial court erred in bifurcating the individual and paga claims, and ordering the former to arbitration
Realizing that PAGA claims are not arbitrable because they are claims made on behalf of the State, the employer petitioned to arbitrate only the plaintiff’s individual claims for unpaid wages and penalties under §558. The trial court granted the petition, but ordered that they be arbitrated as a representative action.
The appellate court reversed. Finding that §558 claims are indivisible claims for penalties, and that PAGA claims are not subject to arbitration because of the State’s interest, the appellate court remanded by writ of mandate, ordering the trial court to enter a new order denying the arbitration petition in totality.
Holdings:
California courts continue to reaffirm that PAGA claims are not subject to petitions to compel arbitration.
Fourth District, Division 1. December 19, 2017 decision by Benke, Huffman and Haller concurring. Cal.Ct.App., 12/19/17
LOPEZ v. ROUTT
Plaintiff/Respondent lost her FEHA Harassment Trial
Plaintiff/Respondent Elisa Lopez worked as a parking enforcement official for the City of Beverly Hills. She sued her employer and her supervisor, Appellant Gregory Routt, for racial and national origin harassment under the FEHA.
The jury returned a defense verdict with respect to harassment. Appellant Routt moved for his attorney’s fees as a prevailing party, under FEHA’s fee shifting provision, Ca. Gov’t. Code §12965.
Individual defendants, as well as corporate defendants, must show that the claim was frivolous in order to gain attorney’s fees
The trial court denied attorney’s fees to Routt, and the appellate court affirmed. Reviewing federal and state case law, the Lopez court agreed that FEHA plaintiffs are the “chosen instrument” of the Legislature to vindicate the state’s policy against job discrimination and harassment. The purpose of the law’s fee-shifting provisions is to “make it easier for a plaintiff of limited means to bring a meritorious suit.”
The court held that, while FEHA’s fee shifting provision is phrased as discretionary, different standards apply for FEHA plaintiff and defendants. A fee award for a victorious FEHA plaintiff is virtually mandatory. By contrast, a FEHA defendant may only receive an attorney’s fee award when the claim was frivolous. That is because of the underlying policy of FEHA, for which the court referred to both federal cases and state cases adopting the reasoning. Trial courts should:
resist the understandable temptation to engage in post hoc reasoning by concluding that, because a plaintiff did not ultimately prevail, his action must have been unreasonable or without foundation. This kind of hindsight logic could discourage all but the most airtight claims, for seldom can a prospective plaintiff be sure of ultimate success. No matter how honest one’s belief that he has been the victim of discrimination, no matter how meritorious one’s claim may appear at the outset, the course of litigation is rarely predictable. Decisive facts may not emerge until discovery or trial . . . . Even when the law or the facts appear questionable or unfavorable at the outset, a party may have an entirely reasonable ground for bringing suit. To assess attorney’s fees against plaintiffs simply because they do not finally prevail would substantially add to the risks inhering in most litigation and would undercut the efforts of [the Legislature] to promote the enforcement of the provisions of [the FEHA].
Conclusion
Only when a case was frivolous may a defendant, either corporate or individual, have access to FEHA’s fee-shifting provisions.
CELA’s Involvement
Congratulations to CELA member William W. Bloch and his co-counsel, Joseph S. Klapach.
Second Disctrict, Division 3, November 29, 2017 decision by Stone, Edmon and Lavin concurring; 17 Cal.App.5th 1006.
MEDLEY CAPITAL CORP. v. SECURITY NATIONAL GUARANTY, INC.
SNG filed a cross-complaint against MCC, despite having been informed four times that MCC was not involved in the transaction that gave rose to the lawsuit. There were several Medley companies (a medley of Medleys), and SNG had sued the wrong one. After SNG settled the main part of its lawsuit, it voluntarily dismissed the cross-complaint against MCC. MCC then sued SNG for malicious prosecution, and SNG filed an anti-SLAPP motion. The trial court denied the motion, finding that MCC had demonstrated a probability of success on the merits. The Court of Appeal affirmed.
Holdings:
The parties agreed that SNC met step one of the anti-SLAPP analysis, so the only issue was whether MCC met its burden to show a probability of prevailing on its claim for malicious prosecution. It did.
A voluntary dismissal reflects on the merits and is generally a favorable termination for the defendant or cross-defendant in the anti-SLAPP setting. However, the Court of Appeal may not have made this finding had SNG submitted evidence that they dismissed the lawsuit against MCC for economic reasons.
There was no evidence that SNG’s attorney did any research regarding facts or law before suing MCC. This lack of effort indicates a level of indifference from which malice may be inferred.
First District, Division 2. October 17, 2017 decision by Richman. Certified for publication November 13, 2017. 2017 WL 5261555.
NOEL v. THRIFTY PAYLESS, INC.
Plaintiff Noel bought an inflatable pool at Rite Aid because the picture on the box showed that the pool fit two adults and three children. When he set up the pool, Noel found that it fit only one adult and four small children. He filed a class action seeking restitution for everyone who purchased the same pool at a California Rite Aid during the past four years. Noel conducted minimal discovery and moved for class certification with little class-related evidence. The court denied his motion due to lack of evidence of ascertainability of the class and commonality of interest among class members, and Noel appealed.
Holdings:
Class actions in California are governed by Code of Civil Procedure section 382. Section 382 requires an ascertainable class with a class definition, class size, and a means of identifying class members. It also requires a commonality of interest among class members, including whether: (1) common issues, rather than individual issues, are the focus, (2) the plaintiff’s claims are typical of the entire class, and (3) the plaintiff can adequately represent the class. Plaintiffs bringing a motion for class certification must adequately establish all of these factors.
First District Division 4. Filed December 4, 2017. 17 Cal.App.5th 1315. Opinion by Streeter.
OPTIONAL CAPITAL, INC. v. AKIN GUMP STRAUSS, HAUER & FELD LLP
Plaintiff Optional Capital had previously sued DAS Corporation. In this case, Optional Capital sued DAS’ counsel Akin Gump, among others, for conversion. The Defendants filed an anti-SLAPP motion, which the trial court granted. Optional appealed, arguing that the Court of Appeal’s decision regarding DAS Corporation’s anti-SLAPP motion in the previous case should be the law of the case.
Holdings:
The law of the case doctrine does not apply where the previous appeal involved different parties and different issues. Since Defendant Akin Gump was not a party to the first appeal, the law of the case doctrine cannot apply. Regarding the anti-SLAPP, “It is well established that the protection of the anti-SLAPP statute extends to lawyers and law firms engaged in litigation-related activity.” Courts take an expansive view of what constitutes litigation-related activity, which includes all communications by attorneys as part of their representation of a client in a judicial proceeding or other petitioning context. Communications during settlement negotiations are regarding as being made in connection with the underlying lawsuit. Akin Gump’s conduct was also protected by the litigation privilege, which bars Optional Capital’s claims.
Second District Division 1. Filed November 16, 2017, publication ordered December 7, 2017. 18 Cal.App.5th 95. Opinion by Johnson.
PEOPLE EX REL ALZAYAT v. HEBB
Defendant and its supervisor allegedly made false statements during workers compensation litigation
Plaintiff Alzayat alleged he was injured in Defendant’s workplace, hurting his back while lifting a bag of concrete in front of his supervisor, named Hebb. When filling out an injury report, Hebb stated that he did not witness the injury, and repeated that statement in deposition.
The litigation privilege did not bar the claim
Alzayat sued in qui tam – meaning on behalf of the government, hoping to keep a statutory share of any fines recovered – under the Insurance Frauds Prevention Act (IFPA). The IFPA prohibits false statements being made in support of or in opposition to a workers compensation insurance claim. It provides that fines can be recovered on behalf of the government in qui tam.
Defendants moved for judgment on the pleadings, alleging the litigation privilege under Ca. Civ. Code §47(b) barred the proceedings. The trial court granted the motion.
The appellate court reversed, holding that the specific provisions of the IFPA trumped the more general litigation privilege. Rejecting the notion that that the IFPA was enacted to combat only fraud by employees, the Alzayat court found that employer fraud was at least part of IFPA’s target.
Moreover, because the IFPA specifically made false statements in workers compensation litigation actionable, that specific provision trumped the more general litigation privilege.
HOLDING: Even the litigation privilege, normally broadly read, will not protect employers who make false statements during workers compensation litigation.
Fourth District, Division 2, December 19, 2017 decision by McKinster, Codrington and Slough concurring. Cal.Ct.App. Dec. 19, 2017
SKILLIN v. RADY CHILDREN’S HOSPITAL-SAN DIEGO
Plaintiff Skillin brought a PAGA action against his former employer, Defendant Rady Children’s Hospital of San Diego. Skillin claimed that Rady made unauthorized deductions from his paychecks that resulted in higher-than-authorized contributions to Skillin’s retirement plan. Skillin had been contributing a fixed $700 per pay period to the retirement plan. Rady phased out fixed-amount contributions in favor of percentage-of-pay contributions and sent Skillin a notice that it would be deducting 18% of Skillin’s paychecks to the retirement plan. Skillin never responded to Human Resources’ inquery whether Skillin would prefer 11% deducted. Skillin claimed that Rady violated Labor Code sections 221-224 and 226 by making unauthorized deductions from his paychecks. The trial court granted Rady’s motion for summary judgment, finding Skillin’s claims were preempted by ERISA.
Holdings:
Skillin’s claims are preempted by ERISA under section 514(e). ERISA’s purpose is to protect employees from mismanagement of retirement funds while giving employers in every state a uniform set of rules to follow. ERISA preempts any state law that “would directly or indirectly prohibit or restrict the inclusion in any plan of an automatic contribution arrangement.” 29 U.S.C. §1144(e)(1). Congress amended ERISA in 2006 to add section 514(e) in order to specifically encourage automatic enrollment in ERISA retirement plans. Adopting Skillin’s interpretation of the Labor Code would unlawfully restrict Rady under section 514(e) because Rady would be unable to have an automatic contribution arrangement that treats employees has having opted into the retirement plan without actually getting the employees’ authorization.
Fourth District Division 1. Filed December 6, 2017. 18 Cal.App.5th 35. Opinion by Dato.
THE INTERNATIONAL BROTHERHOOD OF BOILERMAKERS v. NASSCO HOLDINGS INC.
The California WARN Act requires employers to provide 60 days’ notice to employees before instituting a mass layoff. NASSCO temporarily laid off about 90 employees for 4-5 weeks without providing 60 days’ notice, creatively calling its action a “manpower reduction” or “furlough.”
Holdings:
Employers must comply with the notice requirements of the WARN Act, even if the layoff is only temporary. “Although an employer may view a five-week break as minimal, a worker who is living paycheck-to-paycheck may not.”
CELA Involvement: Congratulations to CELA member Amy Semmel and her co-counsel!
Fourth District Division 1. Filed November 30, 2017. 17 Cal.App.5th 1105. Opinion by Haller.
TURMAN v. SUPERIOR COURT (KOJI’S JAPAN)
Respondent Koji’s was solely owned, managed, and operated by Respondent Arthur Parent
This matter was resolved by writ of mandate.
The Plaintiffs/Petitioners were a putative class of restaurant workers, seeking redress for alleged wage and hour violations. Respondent Koji’s was a corporation which owned two restaurants, and was itself owned by Respondent Arthur Parent. Respondent Parent was at all relevant times the sole owner, president and director.
The trial court made multiple adverse findings against Petitioners and their counsel
In the trial court, Petitioners moved to compel further responses to document requests, but those requests were denied and Petitioners’ counsel was sanctioned. Moreover, after a bench trial, the trial court issued findings that Respondents were not Koji’s alter ego.
The individual Defendant/Respondent could be held liable as a joint employer
The appellate court reversed the trial court’s findings of fact, holding that, were the discovery motions granted, Petitioners may have found evidence to demonstrate an alter ego or joint employer relationship. The court reversed the discovery order and sanctions.
The court then went on to analyze Petitioners’ alternative grounds for vacating the court’s order: that the trial court improperly applied the standards for alter ego and “joint employer” liability.
To establish alter ego, part of a litigant’s burden is to demonstrate that a fraud or injustice would occur if the corporate form were to be respected. The trial court misapplied this standard, holding that there was no issue of alter ego because the corporation had not been “formed for the purpose of committing a fraud or other misdeeds.” The purpose of the formation is not important; the trial court should have analyzed only the resulting fraud or injustice, and the findings were reversed on this basis.
Moreover, the appellate court affirmed previous California decisions that an “employer,” with respect to wage and hour issues as well as other matters, has three possible definitions, any one of which can result in liability:
“(a) to exercise control over the wages, hours or working conditions, or
(b) to suffer or permit to work,
or
(c) to engage, thereby creating a common law employment relationship.”
The Court of Appeal furthermore adopted the order of the Industrial Welfare Commission, here specifically for restaurant workers, which states that an employer is “any person who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.”
Conclusion
The Turman court took pains to point out that, where a statutory or regulatory definition of “employer” exists, and it provides broader protection to California workers, it should supplant the common law definition. Here, where Koji’s was insolvent and all parties agreed that proceedings against it would have been fruitless, California law allowed Petitioners to seek redress for unpaid wages and other violations from the company’s solvent owner.
CELA’s Involvement
This important case involved many different CELA members, as well as amicus briefing by CELA itself. Congratulations to CELA members and Petitioner’s counsel Bryan Schwartz, Michael Rubin, as well as to CELA amicus counsel Timothy G. Williams. Thanks and congratulations also to the many other organizations participating as amicus, including Legal Aid Society – Employment Law Center, Los Angeles Alliance for a New Economy, National Employment Law Project, Asian Americans Advancing Justice, and Centro Legal de la Raza – Legal Aid Society – Employment Law Center.
Fourth District, Division 3, November 7, 2017 decision by Fybel, Aronson and Ikola concurring; 17 Cal.App.5th 969. Certified for Publication November 29, 2017.
WHITEHALL v. COUNTY OF SAN BERNARDINO
Plaintiff Whitehall worked as a social worker for San Bernardino County Children and Family Services. Whitehall investigated a case in which a baby died and older children were placed in protective custody due to suspected abuse. Graphic photographs confirmed filthy conditions in the home and ligature and burn marks on the children. The deputy director of CFS ordered Whitehall to withhold some of the photos and to provide photos that had been altered to the court. Concerned that the court would not have an accurate picture of the home and the danger to the children, Whitehall gave the assigned deputy county counsel a disk containing all of the photos from the police. CFS then removed Whitehall from the case and told her not to speak to her replacement.
CFS fired Eric B., the social worker who had originally investigated the home, and accused him of lying about the condition of the house. The trial court ordered a new trial on the abuse claims due to Eric B’s supposed lies. Eric B. and another social worker decided to file a motion informing the court that CFS had committed a fraud on the court. Whitehall met with an attorney and joined in the motion. Six days after the motion was filed, CFS placed Whitehall on leave to investigate her for violation of the County’s rules against disclosing confidential information to unauthorized persons. The County decided to fire Whitehall for violating these confidentiality rules, so Whitehall resigned to avoid being fired. Whitehall then sued the County for Labor Code §1102.5 retaliation. The County filed an anti-SLAPP motion. The trial court denied the motion, and the Court of Appeal affirmed.
Holdings:
Though the County’s investigation into employee wrongdoing may be protected speech, the act of placing Whitehall on leave with the intention to fire her did not arise from protected activity. An employer may not retaliate against an employee for disclosing information that reveals improper government activity, as long as the purpose of the disclosure was to remedy the impropriety. “[T]he anti-SLAPP statute was not intended to allow an employer to use a protected activity as the means to discriminate or retaliate and thereafter capitalize on the subterfuge by bringing an anti-SLAPP motion to strike the complaint.”
As a matter of public policy, no governmental immunities apply when an employee alleges retaliatory termination for whistleblowing.
There is no privilege for the cover-up of a fraud on the court.
Paid administrative leave can be an adverse action.
Unauthorized disclosure of confidential County information to Whitehall’s attorney was privileged because she was seeking legal advice and the information was not disseminated to the public. Whitehall therefore did not have unclean hands.
The whistleblower statute is public policy, and that “policy would be completely thwarted if the County could retaliate with impunity against any employee who deigned to reveal improper conduct…”
Fourth District, Division 2. November 15, 2017 opinion by Ramirez. 2017 WL 5485398.
Ninth Circuit
BENJAMIN v. B&H EDUCATION, ET AL.
In Benjamin, cosmetology and hair design students provided all the services necessary to treat their ostensible school’s customers. Unfortunately, because three witnesses had not been revealed during the Rule 26 disclosures, the district court struck their declarations as a sanction, and granted summary judgment.
Students did everything needed for the school’s cosmetology and hair design studio
The class of plaintiffs were students in Marinello Schools of Beauty, both in Nevada and Arizona. The school ran a cosmetology studio, providing services to customers for a profit. The students helped service those customers, but they alleged that most of what they did was menial and unsupervised work, primarily cleaning their own workstations.
As a result, they alleged that they were employees of the school, suing for unpaid wages.
The licensing and the requirements for it meant that the students were not employees
The Benjamin court found that, because the students received a cosmetology license at the end, and because Nevada and California both required experience cleaning work stations in order to gain that license, the students were not employees inasmuch as they gained the “primary benefit” of their own work.
Unfortunately, the Benjamin court’s reasoning here was somewhat circular. The court decided that, as a matter of first impression, California courts would apply the “primary benefit” test rather than the “control” test developed by the Department of Labor. This, the 9th Circuit reasoned, was because the educational context was different than other analyses. That, of course, assumes the answer that this was an educational context, and not a fraudulent scheme to obtain free labor from unwitting cosmetology aspirants.
Plaintiffs did not disclose all of their witnesses during the rule 26 exchange
The issue may have been underscored by declarations submitted by Plaintiffs in opposition the summary judgment motion, but we’ll never know. The witnesses had not been disclosed through the Rule 26 process, and the Benjamin court found that their subsequent revelation in interrogatory responses did not cure the problem. The court upheld the trial court’s striking of the declarations as a sanction.
Holdings:
Benjamin is probably not the final word on students-as-employees, and certainly not in California. With additional facts provided by declaration, the result might have been different.
CELA’s INVOVLEMENT: CELA Members Bryan Schwartz, Logan Talbot, Chaya Mendelbaum and Michelle Lee litigated this matter.
Ninth Circuit, December 19, 2017 opinion by Schroeder. 9th Cir., Dec. 19, 2017
CLEMENS v. QWEST CORPORATION
Plaintiff Clemens won a jury trial for Title VII retaliation against Qwest Corporation. Clemens appealed the district court’s refusal to consider adjusting his back-pay award upward to account for the increased taxes that would result from the award (a “tax consequences adjustment” or “gross up”). The Ninth Circuit vacated the order denying the gross up and remanded for further proceedings.
Holdings:
Title VII gives courts the authority to award back-pay gross ups to compensate for the increased tax burden of a lump sum payment. This authority is based on Title VII’s statutory purpose of making people whole for past injuries caused by discrimination and the fact that Title VII gives courts full equitable powers to adjust remedies as necessary in order to grant appropriate relief. The goal in Title VII cases is “complete justice.”
The amount of the gross up is at the discretion of the district court.
The Third, Seventh, and Tenth Circuits have all previously held that district courts have the discretion to gross up back-pay awards, though the D.C Circuit held otherwise. The Ninth Circuit thought very little of the D.C. Circuit’s limited analysis of the issue.
Ninth Circuit. November 3, 2017 opinion by Owens. 874 F.3d 1113.
DOUGLAS v. XEROX BUSINESS SERVICES
Plaintiff Douglas worked at a call center run by Xerox and brought a class action for violation of the FLSA’s minimum wage and overtime provisions. The pay structure was “mind-numbingly complex,” involving different rates of pay for different defined activities and variable rates of pay for handling calls depending on customer satisfaction and length of call. At the end of each workweek, Xerox added the amounts earned for defined activities and for activities paid at the variable rates and divided that total by the number of hours worked in that week. If the resulting total was at minimum wage or higher, Xerox paid it. If the total was below minimum wage, Xerox added a subsidy to ensure the employee received minimum wage. Plaintiffs argued that the FLSA requires compliance with minimum wage for each hour worked and does not allow averaging. The district court held that the FLSA allowed workweek averaging and granted Xerox’s MSJ. The Ninth Circuit affirmed.
Holding:
When determining minimum wage compliance under the FLSA, the relevant unit is the workweek as a whole, not each individual hour within the workweek. A 1940 policy statement by the General Counsel of the Wage and Hour Division of the Department of Labor stated that wages could be averaged across a workweek. Class counsel admitted at oral argument that he was not aware of a single decision in which the Wage and Hour Division had stated otherwise.
Ninth Circuit. November 15, 2017 opinion by McKeown. 875 F.3d 884.
HUHMANN v. FEDERAL EXPRESS CORPORATION
Plaintiff Huhmann was employed by FedEx and was selected for training that would qualify him for a higher pay grade. Before he could begin training, Huhmann was deployed overseas by the Air Force. While Huhmann was on active duty, FedEx and Huhmann’s union agreed to a new CBA. The agreement included a bonus for pilots employed by FedEx when the new CBA was signed. When Huhmann returned to FedEx, he completed the training and was activated at a higher level. Fed Ex paid him his bonus based on his level at the time the CBA was signed, rather than his later-attained level. Huhmann sued FedEx for violating USERRA, contending that he would have received a larger bonus had he completed training when originally scheduled, which he would have done if not for his military service. He won in district court. The Ninth Circuit affirmed.
Holdings:
The Railway Labor Act requires arbitration for minor disputes over the meaning of language in a CBA. The Act does not apply because USERRA is independent of the CBA, and violation of USERRA is not a minor dispute.
The escalator principle and reasonable certainty tests are applicable to USERRA discrimination claims. When an employee leaves for military service, his career is imagined as a metaphoric escalator proceeding upward to the position the employee would have attained with reasonable certainty if not for the break in employment due to military service. Huhmann’s escalator was reasonably certain to reach the higher level during his military service, so he was entitled to the higher bonus under the new CBA.
Where a bonus is based at least in part on longevity in service, it is a seniority-based benefit under USERRA.
Ninth Circuit. November 2, 2017 opinion by Bea. 874 F.3d 1102.
ROBERTS v. AT&T MOBILITY LLC
Plaintiff Roberts brought a class action against Defendant AT&T Mobility, alleging statutory and common law consumer protection and false advertising claims. When AT&T moved to compel arbitration, Roberts creatively opposed on First Amendment grounds. Roberts argued forced arbitration violates the Petition Clause because the class plaintiffs did not knowingly and voluntarily give up their rights to bring their claims in court.
Holdings:
The First Amendment does not apply to AT&T’s conduct because there was no state action. The right to Petition is guaranteed only against abridgment by the government, not by corporations. Plaintiff’s cannot create a state action by challenging the Federal Arbitration Act in lawsuits against corporations.
9th Circuit. Filed December 11, 2017. 877 F.3d 833. Opinion by Tallman.
UNITED STATES OF AMERICA EX REL MAX BENNETT v. BIOTRONIK, INC.
Under the federal False Claims Act, an individual (a “relator”) may bring a lawsuit (a qui tam suit) on the Federal Government’s behalf if another person or entity has defrauded the Federal Government. There are several exceptions which prohibit a relator from bringing a qui tam suit. One exception is the government-action bar, prohibiting qui tam suits based on allegations or transactions which are already the subject of a civil suit in which the Federal Government is a party.
Holdings:
The government-action bar to qui tam suits applies even when the Federal Government is no longer an active participant in a lawsuit regarding the same allegations or transactions and even where the lawsuit has concluded.
Ninth Circuit, filed December 1, 2017. 876 F.3d 1011. Opinion by Bea, dissent by Siler.
YANG v. MAJESTIC BLUE FISHERIES, LLC
Yang Died When The Employer’s Ship Sank In Fair Weather
Chang Yeol Yang was a seaman aboard the F/V Majestic Blue, the oldest ship in its fleet. The ship had been sold for a mere $10 to Defendant/Appellant Majestic Blue Fisheries by another company owned by the same family. Yang’s widow, Plaintiff/Respondent Esther Yang, alleged that the ship was not seaworthy, and that the crew was incompetent, resulting in the ship sinking in fair weather and her husband’s death at sea.
The Employer Tried To Enforce An Arbitral Clause
Because Respondent Majestic Blue Fisheries is a foreign entity, it attempted to enforce an arbitration clause through the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, an act implementing a treaty of the same name. The Ninth Circuit analyzed this law and determined that, because Majestic Blue Fisheries was not a signatory to the agreement with the arbitration clause, that Act specifically precluded its enforcement.
The Ninth Circuit Held That A Non-Signatory Can’t Use Equitable Arguments To Enforce Arbitration
More pertinent to employment practitioners, however, is the court’s analysis about Respondent’s attempt to use the equitable doctrines of alter ego, agency, and estoppel to enforce the arbitral clause.
Pointing out that Respondents had “affirmatively represented to the district court that Dongwon and Majestic were ‘separate and distinct companies,’” in other litigation, the Ninth Circuit held that they could not then assert alter ego or agency theories here.
Most importantly, the Ninth Circuit analyzed California law to determine that “the alter ego rationale ‘applies only to’ breach of contract claims, and not statutory claims. The court rejected Respondents’ argument that federal law favors arbitration agreements, standing firm with consistent authority that “the federal policy . . . ‘is inapposite when the question is whether a particular party is bound by the arbitration agreement.’”
Conclusion
The courts continue to protect the rights of litigants to access the court system even in the face of arbitration agreements, especially when non-signatories seek to enforce them.
Ninth Circuit, November 30, 2017 opinion by Nguyen, 2015 WL 5003606