Earlier this month, Judge Edward M. Chen of the Northern District of California granted class action status to the plaintiffs in the on-going litigation against the popular ride-sharing app, Uber Technologies, Inc. The lawsuit was originally brought on behalf of three Uber drivers who claimed that Uber misclassified them as contract workers and improperly denied them employment-related benefits. The court's recent ruling expanded the lawsuit from three individual drivers to all Uber drivers in California, with the exception of those who executed a waiver of class action rights.
In opposition to the plaintiffs' motion for class certification, Uber argued that the drivers' employment classification cannot be adjudicated on a class-wide basis. Uber maintains that its right of control over its drivers, as well as the day-to-day reality of its relationship with them, are not sufficiently uniform across the proposed class. The court found that there was an inherent tension in Uber's argument -- on one hand, Uber claims that it has properly classified every single driver as an independent contractor, but on the other, Uber claims that each driver has a unique relationship with Uber such that the Court cannot make a class-wide determination of its drivers' proper job classification.
This high-profile decision highlights the increased scrutiny that is being placed on "sharing economy" companies that classify their workers as independent contractors rather than employees.
Last week the U.S. Supreme Court held that a securities fraud plaintiff need not prove the materiality of defendant's alleged misrepresentations or omissions in order to obtain class certification. While materiality is a necessary element of a securities fraud claim, the issue before the Court in Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds was whether materiality must be proven at the early stages of the case, when the trial court decides whether to allow it to proceed as a class action. The Court affirmed the Ninth Circuit, and resolved a split in the circuits, when it concluded that proof of materiality is not necessary to insure that common questions of law or fact predominate.
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.”
The cy pres doctrine allows a court to distribute a class action settlement fund to the "next best" class of beneficiaries when it is cost-prohibitive to distribute damages to members of the plaintiff class. The Ninth Circuit Court of Appeals last week rejected a class action settlement on the ground that the charities selected by the parties to receive funds advance causes unrelated to the issues in the lawsuit, thus failing to meet the standards of the cy pres doctrine.
In Nachshin v. AOL, plaintiffs claimed that AOL violated various federal and California statutes when it added footers containing promotional messages to emails sent by AOL members. The parties negotiated a settlement for a class of about 66 million AOL subscribers. AOL could have been liable for up to $2 million in unjust enrichment damages, representing its revenues from the footer advertising. But dividing those damages among the 66 million subscribers would result in only about 3 cents to each class member, which is less than the cost of distributing the funds.
In lieu of a distribution of damages, the parties agreed that AOL would make donations to several charities totalling $110,000. The charities included the Legal Aid Foundation of Los Angeles, the Federal Judicial Center Foundation, and the Boys and Girls Club chapters in Los Angeles and Santa Monica, California.
Two members of the class objected to the cy pres distribution plan, and the Ninth Circuit agreed that the designated beneficiaries did not seek to advance the objectives of the lawsuit. The Ninth Circuit warned against distributing funds to the parties' and the judge's favorite charities without regard to the interests of class members: "Some courts appear to have abandoned the 'next best use' principle implicit in the cy pres doctrine." Here, according to the court, the proposed beneficiaries do not have missions consistent with the objectives of the lawsuit, which is to protect users of the internet. Further, the charities mostly have a local focus and do not account for the broad geographic scope of the class members. On that basis, the court rejected the settlement.
The Ninth Circuit last week addressed the standards for certifying a plaintiff's class action in a securities fraud case. The Ninth Circuit joined the Third and Seventh Circuits in holding that a plaintiff seeking to invoke the fraud-on-the-market presumption need not prove at the class certification stage that the defendant's misrepresentation was material.
In Connecticut Retirement Plans v. Amgen, Inc., the plaintiff alleged that misstatements and failure to disclose by defendants illegally inflated the value of Amgen stock. Plaintiff sought to certify a class action by showing that questions common to class members -- purchasers of Amgen stock -- predominated over questions affecting only individual members, under Fed. R. Civ. Proc. 23(a). To show that the element of reliance was common to the class, plaintiff invoked the fraud-on-the-market presumption, which is the principle that the market price of a publicly-traded security reflects all public information and a buyer is presumed to have relied on the truthfulness of that information. The Ninth Circuit held that, to invoke the presumption, plaintiff must show that the stock was traded in an efficient market, and that the alleged misstatements were public, but plaintiff need not prove that the misstatements were material. Instead, to gain class certification, plaintiff must simply plausibly allege materiality. The Ninth Circuit rejected the view of the First, Second, and Fifth Circuits that materiality must be proven in order to certify a class action.
The Supreme Court today reversed the Ninth Circuit and pulled the plug on what would have been the largest-ever employment discrimination class action. The Court rejected certification of a class of up to 1 million current and former female employees of Wal-Mart. According to Justice Scalia, writing for the Court, Wal-Mart's decentralized employment practices make it impossible for the class to meet the "commonality" standard of FRCP 23, and claims for back pay are generally not available under FRCP 23(b)(2), which allows for injunctive or declaratory relief.
The U.S. Supreme Court today agreed to review whether a huge employment discrimination class action can proceed against Wal-Mart. The review follows rulings by judges in the Northern District of California and the Ninth Circuit Court of Appeals certifying the largest-ever employment discrimination class action. According to plaintiffs in Dukes v. Wal-Mart Stores, Inc., up to one million or more past and current female employees of Wal-Mart suffered discrimination in pay and promotions.
Today the U.S. Supreme Court held that the Federal Arbitration Act (FAA) does not require class arbitration unless the parties' arbitration agreement expressly provides for class arbitration.
In Stolt-Nielsen, S.A. v. AnimalFeeds Int'l Inc., AnimalFeeds claimed that Stolt-Nielsen violated the antitrust laws by charging supracompetitive prices. The parties' agreement provided for arbitration of all disputes arising from the contract. AnimalFeeds initiated an arbitration claim on behalf of a class of purchasers, and Stolt-Nielsen disputed that class arbitration was available under the contract. While the arbitration clause was silent on the issue of class arbitration, the arbitration panel determined that it was appropriate to proceed with a class arbitration, and the Second Circuit agreed.
The Supreme Court reversed, holding that, because the parties did not expressly agree to arbitration of claims by a class of claimants, class arbitration was not available. According to Justice Alito, writing for the majority, despite the FAA's policy favoring arbitration of disputes, "a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the parties agreed to do so."