Michael Newman

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Michael Newman is a litigation partner in Barger & Wolen LLP’s Los Angeles office. He is involved in a broad range of litigation matters, including insurance coverage disputes, bad faith liability actions, class actions and contractual disputes. Mr. Newman is a regular guest columnist for the Los Angeles Daily Journal and the San Francisco Daily Journal, engaged to write book reviews, opinions, and analyses of both current and historical legal issues.

Articles By This Author

Class Certification Rules Clarified: Harder for Plaintiffs to Certify Classes

On September 3, 2013, in Wang v. Chinese Daily News, Inc., the Ninth Circuit clarified the restrictions on class certification imposed by Wal-Mart Stores, Inc. v. Dukes. The net effect of this ruling is to make it harder for plaintiffs to certify classes.

In Wang, named plaintiffs were employees of Chinese Daily News (“CDN”) who alleged that they had been made to work more than eight hours per day and more than forty hours per week. They also alleged that they were wrongfully denied overtime compensation, meal and rest breaks, and accurate and itemized wage statements.

Plaintiffs sought to certify a class of non-exempt employees at a single facility (consisting of about 200 affected employees) as to violations of the Fair Labor Standards Act. The Ninth Circuit held that, in light of Dukes, the district court had wrongly certified the class.

The district court had purported to certify the class under several different parts of Federal Rules of Civil Procedure, Rule 23. In each instance, the Ninth Circuit explained why class certification had been inappropriate, and remanded the rulings for further consideration in light of applicable law.

Rule 23(a)

As the Court explained, Rule 23(a) ensures that the named plaintiffs are appropriate representatives of the class whose claim they wish to litigate. It requires the party seeking certification to satisfy four requirements, one of which is “commonality,” specifically Rule 23(a)(2) After ruling that CDN had not waived its right to challenge the district court’s finding of commonality, the Ninth Circuit held that such finding was incorrect. Quoting Wal-Mart, the Court noted that

What matters to class certification is not the raising of common questions – even in droves – but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation. . . . If there is no evidence that the entire class was subject to the same allegedly discriminatory practice, there is no question common to the class.”

Furthermore, the “rigorous analysis” under Rule 23(a) “sometimes [requires] the court to probe behind the pleadings before coming to rest on the certification question.” The Ninth Circuit remanded the district court’s Rule 23(a)(2) commonality finding for reconsideration in light of Wal-Mart.

Rule 23(b)(2)

In its earlier opinion, the Ninth Circuit had affirmed the district court’s certification under Rule 23(b)(2), which provides for relief “when a single injunction or declaratory judgment would provide relief to each member of the class.” The Supreme Court had reversed this decision, making clear that individualized monetary claims cannot be asserted under Rule 23(b)(2). The Court remanded to the district court to determine, in light of Dukes, whether the previously granted certification under Rule 23(b)(2) should continue for the purposes of injunctive relief. As with Rule 23(a)(2), the commonality requirement would need to be met.

Rule 23(b)(3)

Rule 23(b)(3) provides that class certification is permissible if the court finds that the questions of law or fact common to the class members predominate over questions affecting only individual members and that a class action is superior to other available methods. As the Ninth Circuit noted, the predominance analysis under Rule 23(b)(3) focuses on “the relationship between the common and individual issues” in the case and “tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation.”

The Court remanded the certification question under Rule 23(b)(3) to the district court for reconsideration for three reasons: (1) The commonality requirement must again be met for certification under Rule 23(b)(3) to be appropriate; (2) the trial court erred in basing its predominance decision on the mere fact that CDN had a uniform policy classifying all reporters and account executives as exempt employees, but should have focused on other potential individual issues relevant to the predominance inquiry; (3) in the recent decision, Brinker Restaurant Corp. v. Superior Court, the California Supreme Court had held that an employer need not ensure that its employees take meal breaks, and, the Ninth Circuit ruled, the district court should reconsider its decision in light of Brinker.

The above ruling replaced and superseded the previous opinion issued March 4, 2013.

Please contact the author if you have any questions regarding class certification or any other issues addressed in Wang v. Chinese Daily News.

Originally posted to Barger & Wolen's Employment Law Observer.

Employers' Ability To Collect Attorney's Fees In Wage Cases Restricted by New Bill

On August 26, 2013, California Governor Jerry Brown signed Senate Bill 462 into law, making it harder for employers to obtain attorney’s fees in certain employment wage claim cases.

Prior to the passage of SB 462, section 218.5 of the California Labor Code required a court in any action brought for the nonpayment of wages, fringe benefits, or health and welfare pension fund contributions, to award reasonable attorney’s fees and costs to the prevailing party who requests such fees and costs at the outset of the case, regardless of whether the prevailing party was the employer or the employee.

SB 462 changed that, providing instead that an employer cannot obtain attorney’s fees under section 218.5 just by prevailing – it must also establish that the employee brought the court action “in bad faith.” By contrast, an employee can still obtain attorney’s fees and costs where he or she prevails, without having to prove “bad faith.”

The bill is a response to the California Supreme Court’s decision in Kirby v. Immoos Fire Protection, Inc. which, while denying section 218.5 attorney’s fees in the case before it, affirmed that section 218.5 “awards fees to the prevailing party whether it is the employee or the employer; it is a two-way fee-shifting provision.” Following the Court’s issuance of that opinion, plaintiffs’ attorneys have been seeking to change fee shifting provisions of section 218.5, claiming that a two-way fee-shifting provision has a chilling effect on contractual wage claims.

Opponents of the measure, as reported in the official senate records on the bill, point out that section 218.5 has been in place since 1986, that Kirby merely reaffirmed its clear language, and that the bill will “incentivize further meritless wage and hour litigation.”

What does the law mean for employers? First, it is important to note that while SB 462 raises the bar for employers to obtain attorney’s fees where they prevail in such cases, this law does not apply to minimum wage or overtime claims. Another provision of the Labor Code, section 1194, already provides for just a one-way fee-shifting provision, providing attorney’s fees to employees who are successful in proving their overtime and minimum wage claims, but not corresponding attorney’s fees to successful employers.

In other words, the Labor Code, which is already quite lopsided in favor of employees seeking attorney’s fees, has just become more lopsided.

The meaning of the law’s “bad faith” provision is also far from certain. Until subsequent litigation settles the matter, we can only be guided by cases that have sought to define “bad faith” in similar contexts.

For example, in Gemini Aluminum Corp v. Cal. Custom Shapes the Court dealt with a statute awarding attorney’s fees to successful defendants in claims under the Uniform Trade Secrets Act, which provides such fees if a claim of misappropriation is made “in bad faith” – a term which, as in the present case, was not defined by the statute. The court ruled that “bad faith” requires objective “speciousness” of the plaintiff’s claim together with subjective bad faith in bringing or maintaining the claim.

If such a standard is adopted in the context of section 218.5, it might have the unexpected consequence of increasing the prevalence of discovery aimed at the subjective intentions of the plaintiff employee, which might conceivably justify more extensive inquiries into the employee’s personal life and circumstances. This is perhaps one small silver lining employers and employment defense attorneys can take away from what is, on the whole, a win for the plaintiff’s bar.

To discuss SB 462, or other aspects of wage and hour law, please contact the author.

Originally posted to Barger & Wolen's Employment Law Observer.

Supreme Court Directs Trial Courts To Look At The Merits In Determining Whether To Certify A Class

Comcast v Behrend is the latest in a series of United States Supreme Court cases in recent years that have restricted the ability of plaintiffs to certify federal class actions. In so doing, it has expanded the scope of the Court's landmark 2011 decision, Walmart v. Dukes (click here for our analysis of that decision).

In Comcast, plaintiffs were subscribers to Comcast's cable-television services. Plaintiffs alleged that Comcast engaged in a practice called "clustering," a strategy of concentrating operations within a particular region, and that this practice violated antitrust law. In particular, plaintiffs alleged that the clustering scheme harmed subscribers in the Philadelphia area by eliminating competition and elevating prices.

Plaintiffs sought to certify the class under Federal Rules of Civil Procedure, Rule 23(b)(3), which permits certification only if:

the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members." 

The district court held that to meet this predominance requirement, plaintiffs needed show:

  1. that the existence of individual injury "was capable of proof at trial through evidence that [was] common to the class rather than individual members" and
  2. that the damages resulting from the injury were measurable "on a class-wide basis" through the use of a "common methodology."

Plaintiffs proposed four theories of antitrust impact. Of these four theories, the district court concluded that only one was capable of class-wide proof, and rejected the rest. 

In establishing that damages could be calculated on a class-wide basis, plaintiffs introduced the testimony of an expert, who introduced a model that calculated damages of over $875 million for the entire class. However, despite the fact that the district court had rejected three, and allowed only one, theory of antitrust impact, the model introduced by the expert did not isolate damages resulting from any one theory of antitrust impact.

The District Court approved the certification of the class, and Third Circuit Court of Appeal affirmed.  The Supreme Court, in a 5-4 decision authored by Justice Antonin Scalia, overturned these rulings, holding that the class action was improperly certified.

As Justice Scalia explained,

a model purporting to serve as evidence of damages in this class action must measure only those damages attributable to that theory.  If the model does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3)." 

The Court rejected the reasoning of the Third Circuit that such inquiry would involve consideration into the "merits," which, the Third Circuit believed, has "no place in the class certification inquiry."  To the contrary, Justice Scalia explained, "our cases requir[e] a determination that Rule 23 is satisfied, even when that requires inquiry into the merits of the claim." 

Comcast is part of a recent trend in Supreme Court jurisprudence allowing, and indeed even requiring, district courts to examine the merits of the claim in determining the suitability of class certification. 

This principle was announced in Walmart v. Dukes, and it is no accident that the Court begins the analysis section of Comcast with an invocation from that 2011 ruling. Moreover, Comcast extends the ruling of Walmart v. Dukes, which considered only Rule 23(a) (the requirement that plaintiffs establish commonality), to the predominance requirement of Rule 23(b)(3).

Denial Of Class Certification As To Alleged Wage And Hour Violations Affirmed by Court of Appeal

In Daily v. Sears, the Fourth Appellate District, Division One, affirmed the trial court's granting of the defendant's motion to preclude class certification.

Plaintiff Dailey was a former employee of Sears, who asserted wage and hour claims individually and on behalf of a proposed class of similarly situated managers and assistant managers.

Dailey argued that Sears uniformly categorized Managers and Assistant Managers as exempt from overtime and meal/rest break requirements, but nonetheless implemented policies that had the effect of requiring the proposed class members to work at least 50 hours per week, spending the majority of their time on nonexempt activities. Sears argued that determining how the class members actually spend their time requires individualized evidence and cannot be proven on a classwide basis. The trial court granted Sears' motion.

The Court of Appeal affirmed, ruling that the trial court had not abused its discretion in denying class certification. As the Court of Appeal explained, class certification requires, among other things, "a well-defined community of interest." The "community of interest requirement," in turn, embodies three factors:

  1. predominant common questions of law or fact;
  2. class representatives with claims or defenses typical of the class; and
  3. class representatives who can adequately represent the class.

For class certification purposes, the court went on to explain, Dailey was required to present substantial evidence that proving both the existence of Sears' uniform policies and practices and the alleged illegal effects of Sears' conduct could be accomplished efficiently and manageably within a class setting. Dailey presented such evidence, and Sears presented contrary evidence, which showed that whether it misclassified Managers and Assistant Managers as exempt required individual inquiries.

The trial court, weighing evidence for both sides, found the evidence Sears presented more compelling, and thus ruled that Dailey had not satisfied his burden for establishing commonality. Dailey argued on appeal that the trial court had improperly focused on the merits. The Court of Appeal disagreed:

Dailey is correct that the validity of the complaint's allegations generally is not at issue on class certification. . . . By the same token, however, the focus of the class certification inquiry is on 'the nature of the legal and factual disputes likely to be presented' [citation omitted] as those disputes are framed not only by the complaint but also by defendant's answer and affirmative defenses. . . . Critically, if the parties' evidence is conflicting on the issue of whether common or individual questions predominate (as it often is and as it was here), the trial court is permitted to credit one party's evidence over the other's in determining whether the requirements for class certification have been met—and doing so is not, contrary to Dailey's apparent view, an improper evaluation of the merits of the case.

Thus, the Court of Appeal affirmed, substantial evidence supported the trial court's finding that common questions did not predominate.

In addition, among its other rulings, the Court of Appeal rejected Dailey's argument that a random sampling methodology he proposed could have been used to managing the individual questions requiring adjudication. In particular, Dailey sought to use such a methodology to establish both liability and damages.

As the Court of Appeal explained, sampling methodologies, while sometimes appropriate to establish damages, have never been accepted to establish liability on a class wide basis. Such a method may not "be used to manufacture predominate common issues where the factual record indicates none exist."

Indeed, the Court noted, "[i]f the commonality requirement could be satisfied merely on the basis of a sampling methodology proposal such as the one before us, it is hard to imagine that any proposed class action would not be certified." (Emphasis in original).

This opinion affirms that a trial court may indeed credit one side's evidence over another's in the class certification context. This points to high importance, for both sides, of marshalling the best evidence at the class certification stage, since it can operate as a miniature bench trial.

Please call or e-mail the author to further discuss the issues in this article.

Originally posted to Barger & Wolen's Employment Law Observer blog.

Action Based on 7-Eleven's Payroll System Fails, Court of Appeal Rules

In Aleksick v. 7-Eleven, Plaintiff Aleksick represented a class claiming that 7-Eleven's payroll system violated California Business and Professional Code 17200. The complaint alleged that 7-Eleven's method of converting partial hour worked from minutes to hundredths of an hour sometimes docked employees of few seconds of time, and therefore shorted them commensurate pay. The trial court had granted 7-Eleven's summary judgment motion. The California Court of Appeal, Fourth Appellate District, Division One, affirmed.

First, the Court held, raising a 17200 claim based on "unlawful" conduct required Aleksick to point to a particular statute that 7-Eleven had violated, since "section 17200 'borrows' violations of other laws and treats them as unlawful practices." Although Aleksick cited to various Labor Code sections in her appellate papers, she had not cited to any in her complaint. The Court ruled that Aleksick should have sought leave to amend to allege such violation, but did not do so, and therefore she had forfeited her argument under the Labor Code wage statutes.

Second, even if her complaint had alleged violation of the Labor Code wage statutes, the Court still would have found against her because the Labor Code governs "the employer-employee relationship, and undisputed evidence shows 7-Eleven was not the class members' employer." Aleksick's employer was the franchisee who operated a 7-Eleven franchise. 7-Eleven was the franchisor. Aleksick conceded that 7-Eleven was not her employer. The Court held that 7-Eleven's provision of payroll services to its franchisees did not change this relationship or render 7-Eleven liable under the Labor Code.

Third, Aleksick failed to establish "unfair" conduct on the part of 7-Eleven under section 17200. Where an "unfair" act is predicated on public policy, the Court explained, "the public policy which is a predicate to the action must be 'tethered' to specific constitutional, statutory, or regulatory provisions." Aleksick argued that 7-Eleven's payroll practices are "tethered" to the public policy in favor of full payment to employees of all hours worked, as codified in the Labor Code. However, because 7-Eleven was not the employer, these statutes did not apply to it.

The narrow basis of this ruling is simply that 7-Eleven was not the employer, and therefore a 17200 claim based on violation of Labor Code statutes could not apply to it. It is important to note that the Court of Appeal explicitly did not rule on the issue of whether an employer could be liable under the Labor Code wage statutes and section 17200 for using the payroll practices that 7-Eleven uses. (See Opinion, at 22, fn. 6.) Thus, this ruling provides no guidance to employers as to whether the practice of converting partial hours worked from minutes to hundredths of an hour is permissible. As the Court recounts, the trial court had determined that the amounts docked were too minimal to be a sufficient basis for a 17200 claim -- however, the Court of Appeal did not affirm this part of the trial court's ruling.

Originally posted at Barger & Wolen's Employment Law Observer blog.

NRLB Takes Aim At 24 Hour Fitness Over Employee Arbitration Opt-Out Policy

As reported in The Recorder, (subscription required) the National Labor Relations Board has filed a formal complaint against 24 Hour Fitness, alleging the gym company's arbitration opt-out policy compels employees to waive their rights to utilize the civil litigation system, and in particular, class actions.

According to The Recorder, 24 Hour Fitness requires employees to opt out of the mandatory arbitration agreement within 30 days of receiving the employee handbook. Opting out requires the employee to request a form and then mail it in.

The NLRB alleges this policy is coercive and constitutes a violation of the protections guaranteed by the National Labor Relations Act.

The NLRB has previously found that mandatory arbitration clauses violate federal labor law -- a decision now on appeal. See D.R. Horton Inc., 374 NLRB No. 184 (the employer, a home building company, violated Section 8(a)(1) of the Act by maintaining, as a condition of employment, a mandatory arbitration agreement that did not allow its employees to file joint, class, or collective employment-related claims in any forum, arbitral or judicial.)

Arbitration has a long history. Sir Edward Coke’s report in Vynior’s Case (1609) was the first published decision about arbitration in our jurisprudence, but in fact it is older than English common law itself. Indeed, Romans and even the ancient Egyptians utilized it.

For many years in the early history of our country, the American judiciary viewed this method of dispute resolution with hostility. But that ended with the passage of the Federal Arbitration Act in 1925 (“FAA”), when Congress announced a complete reversal of the governmental attitude towards arbitration, signaling a rejection of “generalized attacks on arbitration” that “res[t] on suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants.” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 30 (1991).

Thus, the FAA established a governmental policy favoring arbitration and requiring the rigorous enforcement of agreements to arbitrate, preempting contrary state law.

The seasaw is now moving in the other direction, with Federal authorities viewing arbitration agreements as a hindrance to the rights of employees to form classes and utilize the court system.

Barger & Wolen will continue to follow developments in this area.

No Attorney Fees Can Be Awarded for Non-Payment of Rest Breaks, California Supreme Court Rules

In Kirby v. Immoos Fire Protection, Inc., the California Supreme Court held that neither California Labor Code section 1194 nor section 218.5 authorize the payment of attorney fees in an action seeking recovery for denial of required rest breaks under section 226.7.

Section 1194 authorizes recovery of attorney fees by a prevailing employee on a claim for unpaid minimum or overtime wages. It provides for one-way fee-shifting to plaintiffs.

Section 218.5, by contrast, provides for attorney fees to be paid to the prevailing party in any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions. It is thus a two-way fee-shifting statute. However, it is also limited, since it does not apply to any action for which attorney’s fees are recoverable under section 1194.

Section 226.7 imposes an obligation upon employers to provide mandated meal and rest breaks.

Plaintiffs, employees of Defendant (“IFP”), sued the employer for nonpayment of mandated rest breaks, but subsequently dismissed this claim. IFP sought roughly $50,000 of attorney fees for successfully defending this claim.

The first question the Supreme Court had to address was whether attorney fees would have been recoverable under 1194. The Supreme Court found that fees would not have been recoverable under 1194, since rest breaks do not constitute a type of “minimum wage,” as Plaintiffs had argued.

The second question was whether, in that case, attorney fees were recoverable under the two-way fee-shifting of section 218.5. Here, it was IFP that argued that non-payment of rest breaks constituted a “wage,” and therefore qualified under section 218.5. Again, the Supreme Court disagreed. Rest breaks do not constitute wages of any kind.

Thus, the Court held, attorney fees were not recoverable in actions seeking mandated rest breaks under section 226.7.

What makes this case interesting (and a little ironic) from a procedural standpoint is that it was the defendant employer seeking the attorney fees, and the employee plaintiffs who resisted. Thus, in losing their claim for attorney fees, the employer ended by establishing law generally advantageous to employers. And in winning this battle over the payment of roughly $50,000 in fees, the employees essentially nullified the ability of future plaintiffs to seek attorney fees in actions based on the denial of required rest breaks.

Originally posted on Barger & Wolen's Employment Law Observer blog.

Are Insurance Adjusters Eligible for Overtime Pay to be Decided by California Supreme Court

On October 3, 2011, the California Supreme Court heard argument in Francis Harris et al v. Superior Court, Case No. S156555. The issue here is whether insurance adjusters should be eligible for overtime pay under California’s wage and hour laws. 

In 2007, the California Court of Appeal, Second District, Division One, ruled that insurance adjusters who sued Golden Eagle and Liberty Mutual were nonexempt from California’s overtime laws. The insurers had argued that the adjustors were subject to the “administrative exemption” to California’s overtime rules, which provides that persons employed in “administrative, executive, or professional capacities” are exempt from overtime.

In a 2-1 ruling, the Court of Appeal disagreed. 

Justice Rothschild wrote the opinion of the Court, pursuing a lengthy and complicated analysis of California and federal law to reach the conclusion that adjustors were not exempt. 

Noting that California law requires that exempt administrative employees be “primarily engaged in office or non-manual work” that is “directly related to management policies or general business operations,” the Court concluded that this requirement was only satisfied if such work relates to the administrative operations of a business as distinguished from production or, in retail services, sales work. 

Applying this “administrative/production worker dichotomy,” the Court held, adjustors were not subject to the administrative exemption, since their work involved the daily carrying out of the insurance business’ affairs, and had no effect on the policies adopted by the Company or general business operations.

Justice Vogel dissented, wryly noting that “[t]he majority’s analysis is complex. Mine is not.” 

Noting that federal regulations, which are incorporated into California’s regulations by reference, specifically note that claims adjustors constitute administrative employees, Justice Vogel would have rejected the “administrative/production” dichotomy as a test. Instead, she pointed to applicable federal regulations, which specifically provide that work performed by employees who advise, plan, negotiate, and represent management are administrative employees. 

Watch this space. We’ll keep you posted on developments as they occur.


For the Government, Transparency and Accountability Is a One-Way Mirror

The much-touted and recently signed Financial Reform Bill includes a provision that prevents the public from obtaining any documents relating to SEC investigations (past or present, open or closed) pursuant to the Freedom of Information Act

As discussed in an article by Barger & Wolen partner Michael A.S. Newman in the Los Angeles and San Francisco Daily Journals, the law flies in the face of well-established notions in this country that the workings of the government must remain visible to the general public. 

Click here to read the full article (pdf).

H.R. 4115 May Encourage Cookie-Cutter Complaints In Federal Court

In an article appearing in today's Los Angeles and San Francisco Daily Journals (pdf), I discuss H.R. 4115, which, if passed, will overturn the Supreme Court's recent rulings in Bell Atlantic Corporation v. Twombly and Ashcroft v. Iqbal. Twombly and Iqbal held that a complaint filed in federal court could be dismissed if it does not contain sufficient factual matter to state a claim for relief that is plausible on its face.  

H.R. 4115 (called "The Open Access To Courts Act of 2009"), by contrast, would prohibit a federal district judge from dismissing a complaint unless it appears

beyond doubt that plaintiff can prove no set of facts in support of their claim which would entitle plaintiff to relief.

A judge would also be prohibited from dismissing a complaint based on the determination that the factual contents of the complaint do not show their claim to be plausible or do not warrant a reasonable inference that the defendant is laible for the misconduct alleged.  

The exact effect of this legislation is unclear, but, if passed, it is certain to invite the argument from plaintiff's lawyers that all they need to do to get a complaint past the pleading stage is to include as few facts as possible. Vagueness may become the order of the day, and it will certainly become more difficult to dismiss a case under Federal Rules of Civil Procedure Rule 12.  

This law may mean that we will soon see complaints in federal court containing fewer and vaguer allegations. For the insurance industry, this may mean rethinking the generally accepted practice of invariably removing state court actions to federal court on diversity grounds. If a motion to dismiss is being contemplated, it may see more success as a state court demurrer. 

Please feel free to contact me directly for more information.

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