Northwest Business Litigation

The Northwest Business Litigation blog is a resource for in-house counsel, business executives, human resource managers and others who monitor litigation and legal issues affecting Northwest businesses. The litigation group of Ater Wynne LLP hosts the blog.  Go to Ater Wynne LLP's Website.

This site is provided for informational purposes only and does not constitute legal advice, nor does it form the basis for an attorney-client relationship.

Ninth Circuit rejects nationwide class action for false advertising

The Ninth Circuit continues to grapple with the standards for certifying class actions following the U.S. Supreme Court decision in Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011). Last week, a divided panel of the Ninth Circuit refused to certify a nationwide class action on behalf of individuals who bought or leased Acura RL automobiles equipped with a Collision Mitigation Braking System.

In Mazza v. American Honda Motor Company, Inc., plaintiffs claimed that Honda misrepresented and concealed material information about the braking system in the marketing and sale of Acura RL vehicles. Plaintiffs made claims under California’s unfair competition and false advertising laws. While the District Court found common issues of law and fact sufficient to certify a nationwide class, the Ninth Circuit reversed. Judge Ronald M. Gould, writing for the majority, focused on the admonition in Wal-Mart that commonality means that an issue central to each class member’s claim is subject to resolution “in one stroke.”

Material differences in the consumer protection laws of the states in which class members reside, and those states’ interests in having their own laws apply, caused the court to conclude that common issues of law do not predominate. Further, the small scale of the advertising campaign for the braking system did not support a presumption that all purchasers and lessors relied on the alleged false advertising. The proposed class, as defined, would almost certainly include members who were not exposed to the allegedly misleading advertising material, and as a result common issues of fact would not predominate.

Judge Dorothy W. Nelson issued a strong dissent. She stated first that, because the allegations of false advertising are based on omissions rather than affirmative statements, it is appropriate to impute reliance to the class. Second, the differences among the consumer protection statutes of the states in which class members reside are not material and should not block a class action. Finally, because American Honda and its advertising agency are headquartered in California, that state’s interest in deterring false advertising makes it appropriate to apply California law. Judge Nelson decried the seemingly insurmountable hurdles to a nationwide class action by consumers subjected to false advertising: “If the harm to individual consumers is small enough to create a disincentive to individual litigation, and if a nationwide class action is not a potential consequence, corporations can choose increased revenues over the consumer with impunity.”

NLRB prohibits class action waiver in employee arbitration agreement

The National Labor Relations Board is in the news again, this time in connection with employee arbitration agreements.  In D.R. Horton, Inc. and Michael Cuda, Case No. 12-CA-25764, two members of a three-member panel (the third member recused himself without explanation) held that an arbitration agreement required as a condition of employment may not preclude employees from engaging in concerted activity.  The two panel members held that the arbitration agreement at issue, under which employees waived their right to a judicial forum and agreed to bring all claims to an arbitrator on an individual basis, violated section 7 of the NLRA, which gives employees the right to engage in concerted activities for mutual aid or protection. Imposing the agreement on employees as a condition of employment violated section 8(a)(1) of the Act and, therefore, constituted an unfair labor practice.

While employers "remain free to insist that arbitral proceedings be conducted on an individual basis," the Board concluded that employers must "make it clear to employees that the agreement does not constitute a waiver in all forums of their right to maintain employment-related class or collective actions and does not restrict employees' right to file charges with the National Labor Relations Board."

The conclusion is arguably at odds with the recent U.S. Supreme Court opinion in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), which upheld a consumer arbitration agreement prohibiting class action despite contrary state law. The Board expressly considered Concepcion, but found, in essence, that its decision did not conflict with the Federal Arbitration Act (while strongly suggesting that if such a conflict existed, the NLRA should prevail over the FAA).  

The NLRB's ruling was issued on the same day one of the two signatories to the opinion stepped down as his recess appointment expired.  Although only two Board members voted, the decision appears to be valid under the requirements of New Process Steel v. NLRB, 130 S. Ct. 2635 (2010), which permits a decision by only two Board members if a third member is disqualified.  President Obama appointed three new recess appointments to the Board the following day.

A safe harbor protects filesharing websites from claims of copyright infringement

The Ninth Circuit recently measured the scope of a safe harbor for service providers accused of copyright infringement, holding that it's broad enough to protect operators of filesharing websites. In UMG Recordings, Inc. v. Shelter Capital Partners LLC, the Ninth Circuit interpreted and clarified the part of the Digital Millenium Copyright Act that created the safe harbor, 17 U.S.C. § 512(c).

Defendant Veoh Networks maintained a website that allowed users to share videos with other users. To make the videos accessible, Veoh Networks automatically made four different copies of each uploaded file in different formats. Veoh Networks acknowledged that some users were able to download copyright-protected videos despite its efforts to prevent infringement. These efforts included blocking access to infringing material, requiring users to agree not to infringe on any copyright, filtering uploaded files for infringing videos, and terminating users who repeatedly violated the terms of use. Based on the acknowledged instances of unauthorized downloading, Universal Music Group (UMG) sued Veoh Networks for copyright infringement, and Veoh Networks asserted the service provider safe harbor as an affirmative defense.

UMG offered three reasons for denying to Veoh Networks safe harbor protection. First, UMG argued that the automatic copying of uploaded files to enable access fell outside the plain meaning of "infringement of copyright by reason of the storage [of material] at the direction of a user." (emphasis added). The Ninth Circuit disagreed, holding that the service provider safe harbor encompasses the access-facilitating processes that automatically occur when a user uploads a video to Veoh Networks.

Second, UMG insisted that Veoh Networks had actual knowledge of infringement or was aware of facts from which infringing activity was apparent, in violation of specific provisions of the safe harbor. Again, the Ninth Circuit rebuffed UMG's argument, holding that a service provider must have specific knowledge of particular infringing activity to have actual knowledge. It is not enough that a service provider has general knowledge that its services could be used to share infringing material. With respect to the facts from which infringing activity was allegedly apparent, the Ninth Circuit held that the red flags were insufficient because a service provider has no duty to determine whether stored materials are actually infringing.

Finally, UMG argued that Veoh Networks was ineligible for the safe harbor because it received financial benefit directly attributable to the infringing activity, which it had the right and ability to control. The Ninth Circuit affirmed the District Court and held that the "right and ability to control" under the safe harbor requires control over specific infringing activity the service provider knows about.

With this opinion, the Ninth Circuit has reassured the operators of filesharing websites that the safe harbor in the Digital Millenium Copyright Act is real.

It’s time for a year-end compliance check

If you haven't dusted off your employee handbook or updated your employment procedures in a few years, now is a good time to do a compliance audit, as several new employment laws went into effect this year and more will go into effect in 2012.  At a minimum, you should be taking steps to address the following:

•  Updating family medical leave policies and forms to comply with the prohibition on disclosure of genetic information under the Genetic Information Non-Discrimination Act of 2008 (GINA).
•  For most Oregon employers, eliminating the use of credit checks to screen candidates for employment. 
• Updating domestic violence/crime victims leave policies to include harassment (as defined under ORS 166.065) as a reason for requesting leave. 
• Modifying procedures for imposing arbitration agreements as a condition of employment (see amendments to ORS 36.620 under Oregon HB 3450). 
• Modifying policies and procedures as necessary to comply with the ADA Amendments Act regulations. 
• Complying with new tracking and/or reporting requirements for incentive stock options (ISOs), and the cost of health insurance. 
• Adjusting 401k deferrals to allow for increases in annual limits. 
• Unless the temporary reduction is extended by the federal government, adjusting for an increase in federal payroll taxes. 
• Auditing Health Savings Accounts (HSAs) to avoid increased penalties for improper distributions.
• Making sure all required state and federal posters are current for 2012 (including the new employee rights poster required by the NLRB).

With the proliferation of employment-related class actions, it's also a good idea to periodically review wage and hour, hiring, termination, and general employment policies for any unintended discriminatory effects.  If you need assistance with a compliance audit or employment issue, we're here to help.

Oregon minimum wage increases; 2012 posters now available

Oregon's minimum wage increases to $8.80 per hour on Jnauary 1, 2012.  All employers are required to post the updated minimum wage poster. Employers with at least 25 employees in Oregon must also post an Oregon Family Leave Act poster.

BOLI has issued new wage and hour and OFLA posters for 2012, available here.