Two California Courts of Appeal Hold that Certification Is Appropriate for Challenges to an Employer’s Stated Policy (or Lack of a Stated Policy)

Two California appellate opinions issued last week confirm that, following Brinker, when an employee challenges an employer’s stated policy (or lack of a stated policy) as violating a wage order, that challenge constitutes a predominant common question, making class certification appropriate. The varying degrees to which individual class members were harmed by the policy (e.g., who missed meal periods and why) is a question for damages. These decisions are important in recognizing that class certification must be available to challenge an employer’s policy despite the fact that the effect of the policy on various class members will differ.

Faulkinbury v. Boyd & Assocs. (4th App. Dist.)

In Faulkinbury v. Boyd & Associates, Inc., G041702, --- Cal.Rptr.3d --- , 2013 WL 1927019 (Cal. App. 4th May 10, 2013) (opinion available here), the Court of Appeal for the Fourth District issued a published opinion reversing the trial court’s denial of certification. The Plaintiffs in Faulkinbury were security guards who claimed meal break violations, rest break violations, and improper calculation of overtime pay. The trial court denied certification as to all three issues, concluding that individual questions predominated. The Court of Appeal initially heard the case prior to Brinker, and reversed the denial of certification only with respect to the claim alleging improper calculation of overtime (Faulkinbury I). After granting review of that decision, the Supreme Court decided Brinker; it then vacated Faulkinbury I and directed the Court of Appeal to reconsider the case in light of Brinker.

Upon reconsideration, the Court of Appeal held that certification was appropriate as to all three issues. The Court explained:  “Brinker teaches that we must focus on the policy itself and address the issue whether the legality of the policy can be resolved on a classwide basis” (emphasis in original).

With respect to meal breaks, plaintiffs alleged that the defendant had a blanket policy of requiring all security guards to sign meal-break waivers and remain on-duty (and paid) for all meals, regardless of whether the working conditions at a particular station necessitated on-duty meals. Because “[t]he claim made by Plaintiffs [was] that [defendant’s] policy is unlawful,” the court concluded that the question of liability was a class-wide claim. If it turned out that on-duty meals were necessary for certain individual positions but not others, that finding would go to damages, not liability, and would not preclude class certification.

With respect to rest breaks, plaintiffs alleged that the defendant did not have a policy regarding provision of rest breaks, and had an express policy requiring security guards to remain at their posts at all times. Again, whether the absence of a rest break policy violated the wage order was a class-wide liability question; if it turned out that some individual class members were taking breaks anyway, this would go to damages. The Court’s reasoning on the overtime issue was similar.

Bluford v. Safeway Stores (3d App. Dist.)
In a recent unpublished decision – publication of which would be appropriate – Bluford v. Safeway Stores, Inc., C066074, 2013 WL 1897410 (Cal. App. 3d May 8, 2013) (opinion available here), the Court of Appeal for the Third District likewise reversed the trial court’s denial of certification with respect to three claims – a rest break claim, a meal period claim, and a wage statement claim. The plaintiffs were truck drivers for Safeway who were paid partly based on the number of miles they drove and partly by the hour or task for certain non-driving work. The employer did not track or separately pay for the time that drivers were on rest breaks.

The rest break claim alleged that Safeway was required to pay an hourly rate to drivers for the time they were on breaks. The drivers argued that because they were not driving during breaks, the per-mile compensation system resulted in no pay for the time they were on breaks. Safeway argued that the driver’s compensation for their breaks had been accounted for in the rate of pay for miles driven. The Court held that the question was proper for certification because it challenged “Safeway’s compensation system,” and did “not concern the drivers’ subjective reasons for taking or not taking a rest period.” Peeking at the merits, the Court also rejected Safeway’s argument, likening it to the “averaging” of pay to comply with the minimum wage law, which the Court rejected in Armenta v. Osmose, Inc. (2005) 135 Cal. App. 4th 314, 323. The Court similarly found that the plaintiffs’ meal period claim was proper for certification because it challenged Safeway’s announced policy of providing only one meal period, even though the wage order required two meal periods for drivers who worked longer than 10 hours.

On the itemized wage claim, plaintiffs argued that their wage statements did not allow them to determine whether their wages compensated them for all hours worked without performing complicated calculations. The court held that this was a sufficient “injury” under Labor Code § 226 to make certification appropriate, reversing the trial court’s contrary conclusion.

Both Faulkinbury and Bluford demonstrate the importance of Brinker in allowing workers to challenge illegal wage and hour policies on a class-wide basis, reserving for the damages phase the individualized assessments of the harm caused by such policies.

Disclaimer:  Nothing in the foregoing commentary is intended to provide legal advice in any particular case. Bryan Schwartz Law cannot represent you unless you have a signed representation agreement with the firm.

California Federal Court Holds that Teen Adventure Tour and Travel Company Is Not Exempt from Overtime and Minimum Wage Laws

Yesterday, in a decision that may have repercussions throughout the teen tour and travel industry, Judge Edward M. Chen of the U.S. District Court for the Northern District of California held that the trip leaders of a teen tour and travel company were not exempt from the minimum wage and overtime protections of federal and California law. The case is Wright, et al. v. Adventures Rolling Cross Country, et al., 12-cv-982-EMC (N.D. Cal.), and the decision is available here. Bryan Schwartz Law represents the Plaintiffs.

The Defendants, Adventures Rolling Cross Country (“ARCC”) and its principal owner and President, Scott Von Eschen, sell trips for teenagers to destinations around the world, generating millions of dollars of revenues each year. The trips fall into categories such as “language immersion,” “multisport adventure,” and “gap semester” trips. ARCC claimed that it was exempt from the labor laws as an “organized camp,” despite the fact that ARCC does not operate any camping or other recreational facilities.

The case was brought as a class and collective action by two former ARCC trip leaders. They led groups of teenagers on several-week tours to Latin America and Europe and worked for ARCC for approximately two additional weeks in California doing mandatory preparatory, administrative, training and debriefing work before and after the trips. While ARCC charges a trip participant's parents upwards of $5,000 dollars for many of its trips, ARCC paid plaintiffs – who were responsible for chaperoning the teens – approximately $3 per hour.

After the Plaintiffs commenced the case, ARCC attempted to shoehorn itself into the “organized camp” exemption, applying for membership to the American Camp Association and referring to its trip leaders in its briefs as “camp counselors.” The exemption was enacted in order to apply to traditional summer camps that run facilities designed for outdoor group living, such as Boy Scout camps and non-profit religious camps staffed by high school students.

Plaintiffs moved for summary judgment, claiming that ARCC does not fall within the “organized camp” exemption, and Judge Chen agreed. Noting that exemptions from the labor laws are “narrowly construed,” the Court held that the language of the federal and state laws and regulations compelled a finding that because ARCC does not operate any “distinct physical location” or “facility” for the purpose of camping or recreation, “the exemption is not applicable to ARCC as a matter of law.”

Significantly, although many of ARCC’s tours are to other countries, where California and U.S. wage laws typically do not apply, Judge Chen also ruled that ARCC was required to comply with the California and federal labor laws for the entirety of any workweek during which a given employee worked at least part of the week in California or the United States, respectively.

Adventure travel and tour companies operating like ARCC may rely on a workforce of adult outdoor professionals to operate profitable tour and travel businesses that are not tied to any camping or recreational facility operated by the company. Yesterday's decision confirms that such trip leaders should generally be entitled to minimum wages and overtime.

For more information about the case or the decision, please contact Bryan Schwartz Law.

Disclaimer: Nothing in the foregoing commentary is intended to provide legal advice in any particular case. Bryan Schwartz Law cannot represent you unless you have a signed representation agreement with the firm.

Bryan Schwartz Law Case Against JPMorgan Chase for Misclassification of Appraisers Profiled in Daily Journal

Bryan Schwartz Law's principal discussed a recent lawsuit brought by the firm against JPMorgan Chase seeking to correct misclassification of a group of employees - commercial production appraisers and review appraisers - as exempt from overtime:

"Employees Try New Tack with Misclassification Class Actions," by Laura Hautala, San Francisco Daily Journal, April 16, 2013.

The full text of the article is also reproduced below.

The firm brought a similar suit against Bank of America, also this month. In both cases, major banks shortchanged workers their overtime, meal/rest periods, etc., on the premise that they are "administrative" employees - like Human Resources employees - instead of production workers in the companies' core business, working to process loan sales. In both cases, Bryan Schwartz Law is confident that the company's decisions were in error, as held by the Second Circuit years ago, in the Davis v. JPMorgan case (link here).

The firm estimates the banks owe their appraisers millions of dollars in unpaid wages and penalties.

If you would like more information about the cases brought by appraisers and/or review appraisers against JPMorgan Chase or Bank of America, contact Bryan Schwartz Law today.

Here is the full text of the article:
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DAILY JOURNAL NEWSWIRE ARTICLE

http://www.dailyjournal.com
© 2013 The Daily Journal Corporation.
All rights reserved.

Tuesday, April 16, 2013

Employees try new tack with misclassification class actions

By Laura Hautala, Daily Journal Staff Writer

Kenneth J. Lee was pulling 70-hour weeks, coming in on weekends and working through lunch, he said. He and his co-workers, property appraisers for JPMorgan Chase & Co., earned a salary, but the bulk of their pay was based on how many appraisals they completed, which required them to work overtime. But Chase classified Lee and others across the country as working in an administrative capacity, a designation that exempts Chase from paying them for overtime and meal breaks. Now Lee and another former appraiser are suing Chase with the help of Oakland plaintiffs' attorney Bryan J. Schwartz, contending that appraisers don't have the decision-making power in their jobs necessary to qualify them as administrators.

"Chase is running an appraisal sweatshop, and it's time that Chase be required to compensate its appraisers fairly," Lee said in a statement after he and another former Chase appraiser filed a putative class action against the bank earlier this month.

Lee and Mark G. Thompson are suing for a host of wage and hour violations, all stemming from his claim that the financial company misclassified employees in Lee's position. The claim hinges on the job classifications available to businesses that let them exempt managers, executives and other employees with discretion in their job activities from overtime pay and other wage and hour requirements.

Misclassification cases are appealing to plaintiffs' lawyers like Schwartz because they include opportunities for claims under wage and hour laws, California's Private Attorney General Act, as well as attorney fees. However, appellate courts have set an increasingly high bar for class certification, and changing employer behavior have made the seemingly lucrative cases more challenging to find and win.

"When there's a misclassification case, there are usually four or five derivative claims," said Cheryl D. Orr, a defense-side employment partner at Drinker Biddle & Reath LLP in San Francisco. "In some positions and in some industries, whether someone's classified correctly or incorrectly can be sometimes difficult to ascertain."

Lee's attorney Schwartz said there's no question the property appraisers he represents were misclassified. "They can't just go off and say, 'God, I love this apartment building,'" he said. "They're applying a formula set by people way above their pay grade."

Randy Renick, a plaintiffs' attorney in Pasadena with Hadsell, Stormer, Richardson & Renick LLP, said that in general, misclassification claims have to clear a higher bar than they did 10 years ago. They now must do more to prove predominance, or that their employers' policies or practices affected them in a similar way.

"Plaintiffs have to do a lot more work on the front end," Renick said. "It isn't enough anymore to show that folks were just misclassified; you need to show that there was uniform control and that class members were working the same types of jobs under the same policies."

Renick experienced the change firsthand over the past eight years, as a case his clients won in trial court went through a lengthy appeals process. In 2005, he won class certification for a group of employees allegedly misclassified at Chinese Daily News Inc., a Chinese-language newspaper based in Monterey Park. He then won both a jury trial and a bench trial.

But the case was appealed all the way to the U.S. Supreme Court, which had recently raised the bar for class certification in employment discrimination and wage-and-hour cases by siding with Wal-Mart Stores Inc. in the landmark Dukes v. Wal-Mart case in 2011. The high court ordered the 9th U.S. Circuit Court of Appeals to apply Dukes to the Chinese Daily News case.

Renick said he is confident that the record he established the first time around will withstand heightened scrutiny for class certification. However, because of Dukes and two other precedents set in appellate courts since the plaintiffs' original victory, the 9th Circuit ruled in March that plaintiffs must argue for class certification anew.

Finding cases of straightforward misclassification has also become harder, lawyers representing both workers and businesses say.

This is partly because businesses have started classifying their workers more appropriately, Renick said. "Over the last seven to eight years, most of the bigger misclassification cases have been filed and resolved, and many employers have amended their practices as a result of those lawsuits," Renick said.

Partly in response to the increasing difficulty of certifying and winning these cases, lawyers said, workers have found a back door though which to levy penalties against employers for misclassifying them.

Even if plaintiffs aren't allowed to proceed as a class, employment claims can move forward under the state Private Attorney General Act. Every claim under the statute can reap a penalty against the employer for each pay period of each affected employee. The penalties are split between the state and the plaintiffs.

What's more, defense attorneys say that while class certification is harder to attain, plaintiffs are still filing and settling these claims.

"I think there are a handful of cases recently that have very much gone our way," Orr said, "but there are still many, many cases that are getting resolved through the settlement process."

This of course includes attorney fees, which Naki M. Irvin said is the primary motivation for attorneys filing the cases. Irvin most often defends employers as a partner at Margolis & Tisman LLP in San Francisco but occasionally represents individual plaintiffs in employment cases.

"While it's commendable that we have labor laws to protect our workers, I think the laws are such that it makes things difficult for employers in California," Irvin said. "Often these lawsuits are used as leverage for negotiation, and it often comes down to attorney fees."

It's not clear how large of a settlement plaintiffs stand to receive from misclassification cases, because they're easier to defeat at class certification. "They're generally viewed as not being worth as much as other cases," said S. Brett Sutton, a partner at Sutton Hatmaker Law Corp. in Fresno who represents both workers and businesses in employment cases.

Orr said the cases are in fact still lucrative at the settlement stage. "Based on what I'm reading other folks are settling for, I'm not sure that process has caught up with a seeming shift in the law."

laura_hautala@dailyjournal.com

5-4 Supreme Court Decision in Genesis Healthcare v. Symczyk Unlikely to Snuff Out Incipient FLSA Collective Actions

Today the Supreme Court issued an odd decision in Genesis Healthcare Corp. v. Symczyk, No. 11-1059, representing another effort by the Court to limit the ability of employees to bring collective actions enforcing the Fair Labor Standards Act (“FLSA”). Justice Thomas authored the 5-4 majority opinion. The dissent, by Justice Kagan, argued that the majority’s decision will have no practical effect.

The action was brought in federal district court by a registered nurse, Laura Symczyk, against her employer, Genesis Healthcare Corp., challenging the employer’s practice of automatically deducting 30 minutes of wages per employee shift for “meal breaks,” despite the fact that employees allegedly did not actually receive such breaks. Symczyk brought the case as a collective action under the FLSA on behalf of herself and similarly situated co-workers.

Attempting to snuff out the case before other employees could opt in, Genesis made an “offer of judgment” under Federal Rule of Civil Procedure 68, offering to pay Symczyk $7,500, which Genesis contended was all that Symczyk personally could hope to recover, plus such attorneys’ fees and costs as the court deemed reasonable. Rule 68 is intended to encourage early resolution of cases by imposing relatively minor litigation costs, such as photocopying charges, on a plaintiff who refuses an early offer of judgment and then ultimately recovers no more in the suit than the defendant initially offered. By its terms, Genesis’s offer expired within 10 days if not accepted. Symczyk did not respond to the offer.

Genesis thereafter moved to dismiss the case for lack of subject-matter jurisdiction, claiming that the case was “moot” because Symczyk, the only plaintiff, had been offered an amount that, the employer claimed, would make her whole for the wages of which she had been deprived. The district court granted the motion and dismissed the case. On appeal, the Third Circuit reversed, holding that the collective action was not moot, although the court agreed that Symczyk’s individual claim was moot. The Third Circuit observed that allowing the employer strategically to use Rule 68 to terminate the suit before the plaintiff could seek certification frustrated the purpose of making collective actions available to enforce the FLSA.

The Supreme Court reversed. The Court “assumed, without deciding,” that Symczyk’s case was, in fact, mooted by her decision not to accept the defendant’s Rule 68 offer of judgment, finding that Symczyk had waived her argument to the contrary. Therein lies the oddness of the decision. If this “assumption” was incorrect, then everything the majority went on to say is irrelevant. In her dissent, Justice Kagan argued that the assumption is false, and that the employer’s unaccepted Rule 68 offer did not moot the case:  “When a plaintiff rejects such an offer—however good the terms—her interest in the lawsuit remains just what it was before. And so too does the court’s ability to grant her relief. An unaccepted settlement offer—like any unaccepted contract offer—is a legal nullity, with no operative effect. As every first-year law student learns, the recipient’s rejection of an offer leaves the matter as if no offer had ever been made” (citation omitted). Because the majority’s holding was applicable only if, in fact, the case was moot, Justice Kagan observed that “the question the majority answers should never arise—which means the analysis the majority propounds should never apply.”
So what did the majority hold? It held that, assuming (without deciding) a plaintiff’s case is mooted by an unaccepted offer of judgment under Rule 68, then so long as no other putative FLSA collective action member has opted into the case, an employer can strategically moot the case by making a Rule 68 offer of judgment to the sole plaintiff that would provide that plaintiff with full and complete relief. The majority opinion seemed to contemplate at least two circumstances in which an offer to pay damages would not render such a case moot:  when the plaintiff is seeking injunctive relief challenging ongoing conduct, and when the plaintiff is “assert[ing] any continuing economic interest in shifting attorney’s fees and costs to others.”

Rather than acknowledge the real effect of dismissing Symczyk’s suit – i.e., that an employer who allegedly deprived a class of employees of wages due under the FLSA was allowed to escape liability by quickly offering to pay off a single employee who complained – Justice Thomas observed that the registered nurses who had been deprived of their pay “remain free to vindicate their rights in their own suits.” This will be cold comfort for Symczyk’s co-workers.

But Justice Thomas’s observation does raise an interesting question: what effect will an offer of judgment, if accepted by the plaintiff, have in a subsequent case brought by others in the putative class? Will employers really be willing to accept the consequences of conceding liability? If a suit seeks injunctive relief, will the employer be willing to offer a judgment in which it agrees to reclassify its employees?  Will counsel who represents an employee offered such judgment (e.g., including reclassification) still be entitled to full fees for the class-wide relief based on the catalyst theory? Any entry of judgment is likely to invite a subsequent collective and class action by those who “remain free to vindicate their rights,” and in such an action, the employer’s liability may be a foregone conclusion as a result of the prior entry of judgment. Given that the majority did not overrule Barrentine v. Arkansas-Best Freight System, 450 U.S. 728 (1981), which held that FLSA rights cannot be waived, employers will not be able to manufacture a finding of mootness by making a mere settlement offer, but rather will be required to offer bona fide complete and final judgment, to be entered by the court.

To the extent that the majority’s decision has any life notwithstanding Justice Kagan’s argument and the practical risks an employer would face by conceding liability, plaintiffs should easily be able to avoid the impact of Genesis Healthcare. The case was sui generis: the plaintiff “conceded that [the employer’s] offer ‘provided complete relief on her individual claims’”; she “failed to assert any continuing economic interest in shifting attorney’s fees and costs to others”; she was a sole named plaintiff without a single opt-in; she apparently did not seek injunctive relief; and she apparently did not assert class claims under Rule 23. The absence of any of these attributes would take a case outside of Genesis Healthcare’s holding, and a garden variety FLSA collective action suit often lacks them all. In addition, the decision should have no impact on cases that include Rule 23 class claims or similar actions under state law (such as California Code of Civil Procedure § 382), because ample precedent establishes that class claims (unlike FLSA collective claims) cannot be nullified simply by offers of judgment to the named plaintiff.

If you have questions about your class action rights, contact Bryan Schwartz Law today.

Disclaimer:  Nothing in the foregoing commentary is intended to provide legal advice in any particular case. The author and Bryan Schwartz Law cannot represent you unless you have a signed representation agreement with the firm.

Comcast v. Behrend: Supreme Court Conservative Majority Reaches to Strike Down Class Action, with Holdings of Limited Weight

by Bryan J. Schwartz and Michael D. Thomas

This morning, the Supreme Court issued its ruling in Comcast v. Behrend. In a 5-4 decision written by Justice Scalia, regarding which the justices split along ideological lines, the Supreme Court’s conservative majority held that the plaintiffs’ class action was improperly certified under Federal Rule of Civil Procedure Rule 23(b)(3).

The practical impact of the Court’s ruling should be limited to antitrust cases and the particular facts of the case, according to the dissent. Written by Justices Ginsburg and Breyer, and joined by Justices Sotomayor and Kagan, the dissent states, “[t]he court’s ruling is good for this day and this case only.” Slip Op., dissent at 5. In particular, the dissent points out that the seemingly sweeping language of the majority requiring that “damages attributable to a classwide injury be measurable ‘on a class-wide basis’” (Slip Op., dissent at p. 3) could not be read as a general holding, since: "the need to prove damages on a classwide basis through a common methodology was never challenged" by the plaintiffs in the case (Slip Op., dissent at p. 5), rendering the majority’s discussions of such to be nothing more than dicta; and "it remains the 'black letter rule' that a class may obtain certification under Rule 23(b)(3) when liability questions common to the class predominate over damages questions unique to class members." Id.

It is a mystery why the Court granted certiorari in the first place or issued any decision ultimately. In particular, the Supreme Court granted review to decide "[w]hether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence..." (Slip Op., dissent at p. 1), though such did not resemble the petitioner's question presented for review. Then, the justices learned that Comcast had failed in the lower court to raise any evidentiary objections, such that the question of admissible evidence was not properly before the Supreme Court. The majority ultimately decided a totally different question (namely, whether the case was susceptible to awarding damages on a class-wide basis) without briefing by the parties on the issue. Id. at 2.

By way of background, the named plaintiffs in the Comcast antitrust class action claimed that they and other subscribers in the Philadelphia “cluster” were harmed because Comcast’s tactics lessen competition and lead to overpriced services. They sought class certification under Rule 23(b)(3), which requires that “questions of law or fact common to class members predominate over any questions affecting only individual members.”

Plaintiffs originally alleged four types of antitrust impact. The District Court ruled that the plaintiffs could proceed on only one of those theories of liability, called “overbuilding,” regarding how smaller entrants into the market were inhibited based upon Comcast’s anti-competitive behaviors, leading to higher prices. Plaintiffs’ expert prepared a damages model that did not distinguish among the four different types of antitrust impacts, but simply measured the overall effect of Comcast’s practices (an $875M damages estimate from overpriced services). Slip Op., majority at p. 4.The District Court and Third Circuit concluded that it was inappropriate to consider the merits at the Rule 23 stage, but certification was appropriate, because a method of determining class-wide damages existed, meeting the predominance standard.

Writing for the majority, Justice Scalia held that at the class certification stage (as at trial), any model supporting a plaintiff's damages case must be consistent with the liability case theory, in order to be given weight by the courts. Slip Op., majority at p. 7. See also Slip Op., majority at p. 11 (“’The first step in a damages study is the translation of the legal theory of the harmful event into an analysis of the economic impact of that event.”). The majority emphasized that consideration of the merits is permissible where it overlaps with the Rule 23(b)(3) predominance inquiry. The Court therefore held that because the plaintiffs’ damages model was not specific as to which of the four theories of antitrust liability it relied upon, and because three of the theories had been rejected, plaintiffs’ proposed damages model could not show damages on a class-wide basis. Therefore, the majority found, the class should not have been certified.

The scathing dissent begins: “Today the Court reaches out to decide a case hardly fit for our consideration. On both procedural and substantive grounds, we dissent. This case comes to the Court infected by our misguided reformulation of the question presented. For that reason alone, we would dismiss the writ of certiorari as improvidently granted.” Slip Op., dissent at p. 1.

In addition to the points discussed above, the dissent notes that the Supreme Court’s majority inappropriately fails to defer to the trial court’s factual findings, namely, that striking three of the theories of antitrust liability did not impeach the plaintiffs’ expert’s damages model. Slip Op., dissent at p. 9. Ultimately, the only conclusion that can reasonably be drawn as to why the majority insisted on deciding this case is that the conservative Court is willing to go to great lengths, including considering a case where the writ of certiorari was improvidently granted, in order to deny class certification.

The Comcast v. Behrend case should not change plaintiffs’ arguments, and courts’ analysis, that “when adjudication of questions of liability common to the class will achieve economies of time and expense, the predominance standard is generally satisfied even if damages are not provable in the aggregate.” Slip Op., dissent at p. 4.

If you have questions about class action employment litigation, contact Bryan Schwartz Law today.

Bryan Schwartz Discusses Standard Fire v. Knowles Decision

The Lawyers USA news service relied upon several viewpoints expressed by Bryan Schwartz Law's principal in its discussion of the U.S. Supreme Court's recent Standard Fire v. Knowles decision.

The article is reprinted here.

Bryan Schwartz also expressed the view, not captured in the article, that the impact of the particular decision will be very limited, since few plaintiffs' lawyers use the device of a stipulation to a less-than-$5M claim to avoid federal court jurisdiction, raising the query as to why the Supreme Court felt the need to address the question. Schwartz conveyed, however, that some inherent contradictions arise with the defense bar's view (embraced by the Supreme Court) that fathoms expansive class actions for the purpose of seeking federal court jurisdiction, but then seeks to break a class into smithereens by using the notion of an arbitration class waiver, as articulated in ATT Mobility v. Concepcion.

Supreme Court's Standard Fire Insurance Decision Eliminates Plaintiffs’ Ability to Avoid CAFA Jurisdiction through Pre-Certification Stipulations Limiting Amount in Controversy

On Tuesday, the Supreme Court published a unanimous decision in Standard Fire Insurance Co. v. Knowles, No. 11-1450 (Mar. 19, 2013), authored by Justice Breyer, holding that a pre-certification putative class representative may not avoid federal jurisdiction under the Class Action Fairness Act of 2005 (“CAFA”) by stipulating that the amount in controversy is less than CAFA’s $5 million floor. The Court’s reasoning rested on the premise that a pre-certification class representative cannot bind potential members of the yet-to-be-certified class, and therefore cannot enter into a “stipulation” on their behalf.

The case, brought in Arkansas state court, involved a proposed class action alleging that the defendant insurer had unlawfully failed to include a general contractor fee when making certain homeowner’s insurance loss payments. Named plaintiff Knowles sought to certify “hundreds, and possibly thousands” of similarly harmed policyholders. The complaint stated that “Plaintiff and Class stipulate they will seek to recover total aggregate damages of less than five million dollars,” and an attached affidavit by Knowles stipulated that he would “not at any time during this case … seek damages for the class … in excess of $5,000,000 in the aggregate.”

The defendant removed, but the district court remanded, holding that although the amount in controversy would have slightly exceeded the $5 million threshold, the stipulation deprived the federal court of jurisdiction under CAFA. Although the Eighth Circuit declined to hear an appeal from the remand order, the Supreme Court reached to take the case, evidencing a continued interest in defining the scope of plaintiffs’ class action remedies.

By holding that plaintiffs may not enter into pre-certification stipulations to limit the amount-in-controversy, the Court eliminated an arrow from plaintiffs’ quiver, making it more difficult to ensure that class claims are litigated in the class’s forum of choice. The Court was unswayed by the fact that plaintiffs proceeding on a non-class basis are free to stipulate that their damages will not exceed a specified amount-in-controversy.

As a result of the ruling, some class actions that would otherwise have proceeded in state court will presumably be forced into federal court. Plaintiffs may thus be deprived of more lenient state certification requirements and forced to proceed under Federal Rule 23, as interpreted by Wal-Mart v. Dukes, 564 U.S. __ (2011). Other “procedural” advantages of proceeding in state court, such as the availability of non-unanimous jury verdicts, will also become unavailable to such classes. And in some states, the federal bench tends to view class claims less favorably than the state. The Court’s ruling suggests an interest in reaching out to circumscribe the options of plaintiff classes. Nonetheless, in the Northern District of California, where Bryan Schwartz Law is located and frequently practices, the excellent federal bench may mitigate any damage that may be done by Standard Fire in other jurisdictions.

If you have questions about your class action rights, contact Bryan Schwartz Law today.

Disclaimer: Nothing in the foregoing commentary is intended to provide legal advice in any particular case. The author and Bryan Schwartz Law cannot represent you unless you have a signed representation agreement with the firm.