Trucking Industry Gets Another "Break" From California Meal Period Rules: Federal Court Finds Route Drivers' Break Claims Preempted By FAAAA

Posted by Sabrina Shadi on February 24, 2012

Following down the road paved late last year by the Ninth Circuit in Am. Trucking Ass’ns, Inc. v. City of Los Angeles, (ATA II), 660 F.3rd 384 (2011), and the Southern District of California in Dilts v. Penske Logistics LLC  (discussed here), Judge Jacqueline Nguyen in the Central District of California has dismissed a putative class action brought by a group of route delivery drivers against Performance Food Group in Esquivel v. Vistar Corp. dba Roma Food and dba Performance Food Group.pdf, Central District of California Case No. 2:11-cv-07284-JHN-PJWx.  

The plaintiffs in Esquivel claimed that throughout their employment, the defendants scheduled their delivery routes in a way that prevented the drivers from taking duty-free meal breaks and that time pressures to make deliveries by a certain time of day also prevented them from taking breaks.  The plaintiffs further alleged that their wage statements were inaccurate because they did not include amounts allegedly due for missed meal break premiums.

Defendant Performance Food Group moved to dismiss the case on the grounds that the plaintiffs’ claims were preempted by the Federal Aviation Administration Authorization Act (“FAAAA”), 49 U.S.C. § 14501 et seq.  The Court agreed and dismissed the case, finding the reasoning in Dilts applicable and persuasive, and that, as in Dilts, “‘the length and timing of meal and rest breaks seems directly and significantly related to such things as the frequency and scheduling of transportation,’ such that requiring off-duty breaks ‘at specific times throughout the workday . . . would interfere with competitive market forces within the . . . industry.” (quoting Dilts, 2011 WL 4975520 at *9).

The plaintiffs argued that the FAAAA does not preempt California’s meal and rest break laws by citing to various state and federal cases, which the Court found were either “fundamentally distinguishable” from cases involving meal and rest break laws or unpersuasive because they predated ATA II and Dilts.  The plaintiffs further argued that Dilts was an “outlier decision” and was “wrongly decided”, but the Court disagreed, finding that Dilts applied a novel test enunciated by the Ninth Circuit in ATA II to cover a previously unanswered question regarding FAAAA preemption.

The Bottom Line:  Support is growing for motor carriers to dispose of California meal and rest break claims. 

California Appeals Court Rejects Attempt to Try California Misclassification Case by Statistics

Posted by Gilbert Brosky on February 13, 2012

The California Court of Appeal issued a rare decision in favor of employers last week, when it reversed a class action judgment of $15 million and decertified a class of 260 current and former bank employees who claimed they had been misclassified as exempt and were therefore entitled to meal and rest break premiums.  News of the opinion caused many in the employment defense bar to double check their calendars that it wasn’t April 1.

The class consisted of current and former business banking officers who claimed they were misclassified by USB as outside sales personnel exempt from California’s overtime laws, and were thus unlawfully denied overtime pay.  The central issue on appeal with whether the trial court had properly used statistical sample of class members to determine liability.  Specifically, the trial court had limited the phase of the bench trial dedicated to determination of liability to testimony from and about only 20 members of the class.  The employer was therefore not permitted to introduce significant evidence that several of the non-sample group class members were, in fact, properly classified as exempt.

At the end of this phase of the trial, the trial court found that 19 of the 20 sample class members had been misclassified.  The trial court then used this initial finding to make a finding of liability on a class-wide basis, a determination which, statistically speaking, had a 43.3% margin of error.

The Court of Appeal rejected the trial court’s broad reading of Bell v. Farmers Ins. Exchange, 115 Cal. App. 4th 715 (2004) (referred to by the Court as “Bell III”), which had held that statistical sampling could be used to determine class-wide damages.  Stating that Bell III was “manifestly inapposite” to the question of class-wide liability, the Court of Appeal explained that:

[t]he procedures we approved in Bell III are only superficially similar to the procedures utilized in the present case.  Again, in Bell III we did not have occasion to consider the use of a representative sample to determine class-wide liability, since liability was not an issue on appeal.  Accordingly, the only issue we addressed was the damages calculation itself, and not whether the plaintiff employees had a right to recover damages in the first place.  And our assessment was based on a record evidencing cooperation and agreement among the parties and their counsel.

Use of sampling to determine liability, the Court of Appeal held, was in this case a violation of state and federal due process guarantees, despite its efficacy as a method for liability analysis: “[W]e have never advocated that the expediency afforded by class action litigation should take precedence over a defendant’s right to substantive and procedural due process.”  In short, the court found that the time-consuming individual inquires could not be avoided by using random sampling of class members to determine whether the class, as a whole, qualified for any of the asserted exemptions. 

Though the opinion did not go as far as to make a bright-line prohibition on statistical sampling in class-wide liability determinations, it clearly set a tone that such sampling would be subject to significant scrutiny.  Indeed, the Court relied on the U.S. Supreme Court’s recent decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), in which the Supremes rejected wholesale the use of statistical sampling in the determination of Wal-Mart’s liability to a 1.6 million-strong class.  “The same type of ‘Trial by Formula’ that the U.S.  Supreme Court disapproved of in Wal-Mart,” the Court of Appeal noted, “is essentially what occurred in this case . . . . we find this approach to be untenable.”

The court found that the trial court also erred in denying USB’s motion for decertification for many of the same reasons.  The court first found that the trial court’s denial of decertification was based on “the erroneous legal assumption that a finding of liability due to misclassification could be determined by extrapolating the findings based on the [random witness group] to the entire class.”  The court also found that the trial court gave “excessive weight” to the fact that USB classified all of its business banking officers as exempt without inquiring as to the particular employees’ job duties, hours worked, or performance.  Finally, the court noted that it was “doubtful” a trial plan could have been created that would have accounted for the all the necessary individual inquiries. 

Though employers should, of course, remain diligent in their determination of employee exempt/non-exempt status and in their compliance with meal and rest break mandates, the Duran opinion will prove a useful spear in employer’s defense of class actions where plaintiffs regularly attempt to prove their cases with the assistance of statistical sampling and analysis.

The Bottom Line:  The decision in Dukes criticizing attempts at "Trial by Formula" in class actions seems to be taking hold, even in California state courts.

 Authorship credit: Gilbert P. Brosky and Alastair J. Gamble

In Re American Express Merchants' Litigation

Posted by John Lewis on February 06, 2012

The Third Time is Not a Charm as the Second Circuit Again Holds Class Action Waivers Unenforceable

The Second Circuit considered the validity of class action waivers for the third time in an antitrust action brought against American Express ("AMEX") based upon the company’s Card Acceptance Agreement.  And, despite intervening Supreme Court opinions, for the third time the appellate court held class action waivers involving federal statutory rights were unenforceable.  The Second Circuit’s February 1, 2012 opinion held "that each waiver must be considered on its own merits based on its own record and governed with a healthy regard for the fact that the [Federal Arbitration Act] is a congressional declaration of a liberal federal policy favoring arbitration agreements."  This third opinion likely will have an impact beyond costly antitrust litigation, but the question is how far?  Indeed, the opinion cited two District Court decisions denying enforcement of class action waivers in the employment law context.

I.        The History

A brief review of the case’s long appellate history is helpful.  The appeal was originally argued on December 10, 2007.  In Re American Express Merchants' Litigation.pdf, 554 F.3d 300 (2d Cir. 2009) ("AMEX I") the court held the class action waiver unenforceable “because enforcement of the clause would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs."  AMEX I at 304.  The U.S. Supreme Court vacated that decision and remanded it for reconsideration in light of its Opinion in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010).  Stolt-Nielsen, which was previously discussed in this blog, held that imposing class arbitration on parties that had not agreed to it conflicts with the FAA.  The Second Circuit, however, found that Stolt-Nielsen did not affect its original analysis and again reversed the District Court's decision and remanded the case.  AMEX II, 634 F.3d at 199-200. 

On April 11, 2011, the appellate court placed a hold on the mandate in AMEX II so that AMEX could seek a writ of certiorari.  During that time, the Supreme Court issued its opinion in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011).  The Concepcion decision, also extensively covered in this blog, held that the FAA preempted California law barring the enforcement of class action waivers in the consumer context.  131 S.Ct. 1740 (2011). The Second Circuit then received supplemental briefing on Concepcion's potential impact on the case.

II.       The Background

A.       The Claims

The Merchants in the AMEX litigation brought antitrust claims under both the Sherman and Clayton Acts maintaining that the "Honor All Cards" provision in AMEX’s Card Acceptance Agreement created an illegal "tying arrangement."  The Merchants were "faced with the choice of paying supracompetitive merchant discount fees . . . on AMEX’s new mass-market products [credit cards] or losing 'a significant portion of the sales they received from businesses, travelers, affluent consumers, and others’ who are the traditional users of AMEX charge cards."

B.       The Costs

The Court found that the Merchants' evidence "establishes, as a matter of law, that the cost of plaintiff's individually arbitrating their dispute with AMEX would be prohibitive, effectively depriving plaintiffs of the statutory protection of the antitrust laws."  In reaching that conclusion, the appellate court relied upon the affidavit of economist Gary L. French, Ph.D. which detailed the costs of expert assistance for individual plaintiffs in antitrust cases.  Dr. French summarized those expert costs:

. . . the cost of [Nathan Associates'] expert assistance in individual plaintiff antitrust cases has ranged from about $300 thousand to more than $2 million.  However, after reviewing the complaint and doing some preliminary research in this case, it is my opinion that . . . the cost for this case will fall in the middle of the range of [Nathan Associates'] experience.

Dr. French then considered those expert witness costs in relation to a plaintiffs' potential recovery.  He concluded:

The largest volume named plaintiff merchant, with reported American Express Card volume of $1,690,749 in 2003, might expect four-year damages of $12,850, or $38,549 when trebled.

In my opinion as a professional economist . . . it would not be worthwhile for an individual plaintiff . . . to pursue individual arbitration or litigation where the out-of-pocket costs, just for the expert economic study and services, would be at least several hundred thousand dollars, and might exceed $1 million.  (Emphasis added). 

Largely based on Dr. French’s affidavit, the Second Circuit concluded that "the only economically feasible means for plaintiffs enforcing their statutory rights is via a class action."  In AMEX I the court had found the expert’s affidavit was "essentially uncontested".  554 F.3d at 317.  In reaching its conclusion, the court discounted the fact that the Clayton Act provides for treble damages and the recovery of attorneys' fees and expenses.

III.       Legal Analysis in AMEX III

AMEX argued that Concepcion required a reversal of the holding in AMEX III.  The Second Circuit rejected that argument stating:

It is tempting to give both Concepcion and Stolt-Nielsen such a facile reading, and find that the cases render class action arbitration waivers per se enforceable.  But a careful reading of the cases demonstrates that neither one addresses the issue presented here: whether a class-action arbitration waiver clause is enforceable even if the plaintiffs are able to demonstrate that the practical effect of enforcement would be to preclude their ability to vindicate their federal statutory rights.  (Emphasis added). 

The Court, in a footnote, also brushed aside the Supreme Court’s opinion in CompuCredit Corp. v. Greenwood, 2012 WL 43517 (Jan. 10, 2012) (addressed in this recent blog post).  CompuCredit Corp. held that because the Credit Repair Organization Act was silent on whether claims could be arbitrated, the FAA mandated that the arbitration agreement be enforced.  Even after CompuCredit Corp., the Second Circuit found that Congressional intent could be discovered in the history or purpose of a statute.  So,

[a]lthough the Sherman Act does not provide plaintiffs with an express right to bring their claims as a class in court, forcing plaintiffs to bring their claims individually here would make it impossible to enforce their rights under the Sherman Act and thus conflict with congressional purposes manifested in the provision of a private right of action in the statute. (Emphasis added).   

The Court instead looked to older Supreme Court precedent to find support for whether arbitration can be rejected if it does not fully vindicate federal statutory rights.  It cited Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., for the proposition that arbitration can be "an effective vehicle for vindicating statutory rights but only 'so long as the prospective litigant may effectively vindicate its statutory cause of action.'"  Citing Mitsubishi, 473, U.S. 614, 632 (1985).  The Court then looked to dicta in Green Tree Financial Corp-Alabama v. Randolph stating "that the existence of large arbitration costs could preclude a litigant . . . from effectively vindicating her federal statutory rights in the arbitral forum."  531 U.S. 79, 90 (2000).  Because Mitsubishi and Green Tree were not impacted by Stolt-Nielson or Concepcion, the Second Circuit felt it was free to rely on those opinions. 

The Court emphasized that it relied not on the size of the Merchants involved but "on the need for plaintiffs to have the opportunity to vindicate their statutory rights."  As support of this analysis, the Court cited two employment cases – Raniere v. Citigroup, Inc.pdf., No. 11 Cir. 2248, 2011 WL 5881926 (S.D.N.Y., November 22, 2011) and Chen-Oster v. Goldman, Sachs & Co.pdf., No. 10 Cir. 6950, 2011 WL 2671813 (S.D.N.Y. July 7, 2011).  Raniere involved a putative nationwide collective action under the Fair Labor Standards Act as well as a New York class action under the New York Labor Law.  The District Court found that since Concepcion involved state not federal rights, "even if . . . read broadly to acquiesce to the enforcement of an arbitral agreement that as a practical matter would prevent the vindication of state rights in the name of furthering the strong federal policy favoring arbitration, that would not alter the validity of the federal statutory rights analysis . . . . "  (Emphasis added). 

The underlying action in Chen-Oster was a pattern and practice claim for gender discrimination under Title VII of the Civil Rights Act of 1964.  After considering Concepcion, the judge in Chen-Oster found it was not a "controlling decision."  And, both Raniere and Chen-Oster cited AMEX II as controlling precedent. So, what these two lower court decisions really illustrate is that the reasoning in AMEX III may well extend into other areas of federal law. 

IV.      What’s Next

While the AMEX III decision cautioned that it did not hold that class action waivers were "per se unenforceable, or even that they are per se unenforceable in the context of antitrust actions," it left many unanswered questions.  Instead of considering whether Congress intended to preclude arbitration of the statutory claims involved, it focused on whether arbitration would preclude vindication of the federal statutory rights.  It also took a broad view of the way in which the statutory rights would be determined.  It apparently based its decision on a case-by-case analysis of litigation costs   (expert witness fees) and discounted the potential benefits of multiple damage awards, attorneys' fees and expenses provided to successful plaintiffs by the federal statutes involved.

But, AMEX III established no objective guidelines for the task – other than to point out that many plaintiffs failed in their quest.  "The fact that plaintiffs so often fail in their attempts to overturn such waivers demonstrate that the evidentiary record . . . is not easily assembled, and that the courts are capable of the scrutiny such arguments require."  But are they?  Is it only where vindication of the federal rights would be impossible?  And, does the ability to bring aggregate actions become a substantive right when the statute does not mention the procedure and when the federal statute provides multiple damages, attorneys fees for prevailing parties and other fee shifting provisions.  Under what circumstances will the statutorily created remedies be considered inadequate?  Hopefully, the Supreme Court will resolve some of these issues and properly interpret Concepcion when AMEX III is considered on certiorari.

The Bottom Line:  AMEX III will be another potential obstacle to enforcing class action waivers, at least in the Second Circuit.  However, it’s difficult to say what practical effect it will have on employment actions.  It’s a rare employment case, indeed, in which a plaintiff must spend between $300 thousand to more than $2 million for expert witness costs and only expect to recover $38,549 (after being trebled).

Court Finds Twombly/Iqbal Pleading Standard Does Not Apply to Class Action Defenses

Posted by Greg Mersol on February 06, 2012

Alright, it’s a lawyer’s case, but it’s an important one for employers defending class actions.

As we have written before in this blog, the Supreme Court made clear in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), that a complaint cannot parrot the elements of a claim but must make specific factual allegations regarding the actions the plaintiffs seek to challenge. Since that decision, several courts have rejected “bare bones” class action complaints because they do not meet the Twombly/Iqbal standards.

In response, some plaintiffs have tried to strike defenses from the defendant’s answer on the grounds that they do not meet those standards. While these arguments may have a certain “tit for tat” feel, an answer is not the same as a complaint in that the plaintiff is the one to frame the dispute, and the defendant is not in the same position at the outset of the case to spell out its defenses in detail. Further, in the case of a class action, it has no meaningful way to spell out the facts that relate to each individual class member and may very well intend to argue that each claim is different. Thus, answering to Twombly/Iqbal standards would become a monumental tasks that would convert the preparation of an answer to a years-long process.

Most courts seem to reject the application of Twombly and Iqbal at this stage, and a recent case reflects such a rejection in the class action context. In Dudley v. Regions Financial Corp.pdf., Case No. 1:11-CV-2700-RLV (N.D. Ga. Jan. 26, 2011), the plaintiff sought to pursue a collective action under the FLSA. She moved the court to dismiss several of the defendant’s 18 or more affirmative defenses (such as “accord and satisfaction”, “arbitration”, or “mitigation of damages”) under the Twombly/Iqbal standards.

The district court denied the motion. It found as a preliminary matter that the decisions in Twombly and Iqbal did not apply to answers. It found independently that the plaintiff’s arguments were premature given the lack of discovery at that stage of the case and the level of detail already provided by the defendant. Although it ultimately urged the defendant to drop those defenses it did not intend to pursue, the court found that the defenses were adequately pleaded.

The Bottom Line: The Twombly/Iqbal pleading standards should not apply to answers in class action cases.

Seventh Circuit Finds Certification of Overtime Disputes Meets Dukes Standards

Posted by Greg Mersol on February 02, 2012

The Seventh Circuit has now issued a decision relating to the application of Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), to state law overtime disputes. While the decision is curious for many reasons, it may prove problematic for Seventh Circuit employers as it relates both to the issue of class definitions and as to how the Dukes “commonality” determination will apply to wage and hour claims.

In Ross v. RBS Citizens, N.A.pdf, Case No. 10-3848 (7th Cir., Jan. 27, 2012), the plaintiffs brought two sets of claims against Charter One Bank. First, the plaintiffs contended that the bank denied overtime by discouraging hourly workers to record their overtime, “erased” their time when they did record it, and improperly used the concept of “comp” time. Second, they claimed that the bank misclassified assistant branch managers as exempt, arguing, as one might expect, that their jobs consisted primarily of non-exempt tasks. Although they asserted claims under both federal and Illinois law, they only sought certification as to the state law wage and hour claims.

The trial court certified two classes. The first was of hourly employees affected by “unlawful compensation policies.” The second was of the salaried assistant branch managers, who also were subject to “unlawful compensation policies.” The problem with these definitions is that they really don’t define the class at all: if the question is whether the class members were subject to “unlawful” policies, then logically if the employer acted lawfully there is no class.

Charter One sought review under Rule 23(f) and the Seventh Circuit originally accepted the case limited to the class definition issue. After oral argument, the Supreme Court decided the Dukes case and the court requested additional briefing on that opinion’s application.

The end result is disappointing and of limited utility for any party. First, one of the Seventh Circuit judges assigned the case died before it was decided, and one of the other judges was a district court judge sitting by designation. Thus, only two judges, and only one Seventh Circuit judge, decided the case. In any event, the court’s analysis of both issues was underwhelming to say the least.

The court first upheld the class definition under Rule 23(c)(1)(B), a Rule designed to protect parties against vague class definitions. The court, following the lead of the Third Circuit, found that a class definition satisfies the rule if it provided a “readily discernible, clear, and precise” definition of the class and a similar “readily discernible, clear, and complete” listing of claims and issues. So far, so good, but where the opinion breaks down is where it addresses the trial court’s definition couched in terms of “unlawful compensation policies.” The court makes no meaningful effort to defend such a definition but, instead, found that with the remainder of the trial court’s opinion made it clear that the classes consisted of (a) all hourly employees; and (b) all assistant managers. That is not a satisfactory answer and largely defeats the purpose of Rule 23(c)(1)(B) because it ignores the trial court’s use of the word “unlawful.” For a host of reasons, including the scope of discovery, the issues at trial and (in subsequent lawsuits) issues of res judicata and collateral estoppel, having an imprecise and questionable class definition only makes litigation of the class issues all the more difficult, unpredictable, and expensive.

The truncated court’s analysis of the Dukes issues, too, was disappointing. It recited some of the Dukes language relating to commonality under Rule 23(a)(2), but largely rejected its application because the proposed class consisted of barely 1,000 employees, rather than the over one million in Dukes. Turning Dukes on its head, the court found that the “glue” binding the case together was the common question of whether the company “policies” resulted in the employees being denied overtime. This was, of course, virtually the opposite of what the Dukes court held, which was that the “common question” was not simply whether the employer discriminated or violated the statute in question. The court refused to review any other issues relating to certification, including the obvious questions of predominance and superiority under Rule 23(b)(3).

The court’s decision will result in further proceedings that will likely be hobbled by the imprecise class definition and cardboard analysis of the commonality and remaining issues. Still, the opinion is likely to be cited by plaintiffs seeking certification of poorly defined classes based on allegations of unwritten policies.

The Bottom Line: The Seventh Circuit has issued a decision making it easier to pursue unfocused class allegations based on fairly general claims of wage and hour violations.