Wage Law

Judge Discipline in the News

From the Los Angeles Times:

Los Angeles Superior Court Judge Ronald M. Sohigian was publicly admonished Thursday for mistreating an attorney and abusing his judicial authority. Sohigian, 69, was disciplined for treating an attorney in a "belittling, rude and sarcastic manner" in 2006, when he ordered the attorney — who did not have a document with him — to go across the street to the law library, research an issue and return in 20 minutes. After the attorney complied, Sohigian said, "I told you to go across the street to the law library. If you didn't do that, if you had someone call you or you called somebody and had someone read something to you, that's obviously not what I ordered or suggested at all."

Judge Sohigian blamed medication for a "spine-related health condition." He says he has already changed his case management style. We've seen some rulings from his department that suggest that there are few, if any, employment class action cases he would consider eligible for certification. According to a 2003 survey, Judge Sohigian was the most frequently challenged judge in Los Angeles County. The least popular judges from January 2001 to June 2003 were, in order, with total peremptory challenges in parentheses:

Ronald Sohigian (358)
Mary Ann Murphy (148)
Alan Buckner (100)
David Workman (92)
Malcolm Mackey (92)
Richard Hubbell (70)
Alexander Williams III (67)
David Yaffe (66)
Ernest Hiroshige (61)
Jeffrey Wiatt (60)
Irving Feffer (59)
David Schacter (57)
Aurelio Munoz (56)
Dzintra Janavs (54)
Fumiko Wasserman (50)

Two of these judges (Buckner and Wiatt) have since committed suicide. A third (Janavs) was voted off the bench, but promptly re-appointed by the governor.

In Santa Cruz County, the talk this week is of the removal from the bench of [former] Superior Court Judge Jose Velasquez. The California Commission on Judicial Performance determined that Velasquez committed 46 acts of misconduct between January 2004 and May 2005.

"The misconduct is wide ranging in both nature and impact. It was directed toward criminal defendants, attorneys, and even a person who appeared in court as a favor for a friend who was having difficulty making his court appearance," Chairman Frederick Horn, an Orange County Superior Court judge, wrote for the unanimous commission.

While the disciplined judges are undoubtedly unhappy about the Commission's actions, it could be worse for them. They could have been in China. Last week, in the Guangxi Zhuang Autonomous Region in southwestern China, a judge charged with corruption died in his cell from "adult sudden death syndrome." Li Chaoyang, 38, had been uncooperative while in detention, but had not been maltreated, officials claimed. Cuts on his face and other injuries had been caused by a fall during an escape attempt. "Li Chaoyang's sudden death conforms with adult sudden death syndrome," said a lead official, citing a forensic report.

Another Companion Case For Gentry

Another grant-and-hold review has been taken by the Supreme Court regarding enforcement of class action prohibitions in employment arbitration agreements. In Firchow v. Citibank (South Dakota), N.A., the court ordered:

Petition for review after the Court of Appeal reversed an order denying a motion to compel arbitration. The court ordered briefing deferred pending decision in Gentry v. Superior Court, S141502 (#06-46), which presents issues regarding the enforceability of an arbitration provision that prohibits employee class actions in litigation concerning alleged violations of California's wage and hour laws.

Gentry is fully briefed, but is still awaiting a hearing date.

The Last of the Prop 64 Grant and Hold Cases Goes Back to the Court of Appeal

Last month, we noted that it looked like "all of those Proposition 64 cases in which the Supreme Court issued "grant and hold" review orders cases during the consideration of last year's Mervyn's and Downey Savings cases are being sent back to the Courts of Appeal from which they came," but we failed to notice that one of the cases, Benson v. Kwikset Corporation S132443 hadn't been sent back with all the others. It now has been.

Meanwhile, back over in the Californians for Disablitity Rights v. Mervyn's LLC case, on remand, the Court of Appeal issued an unusual unpublished opinion (which you can read here in pdf or Word format) holding that the appeal of the case (the whole Prop 64 issue arose from a dismissal of a pending appeal due to the new rules under Prop 64) could proceed with the original litigant until such time as the case is won or lost on appeal. If the appeal is successful, and the case goes back to Superior Court, then the plaintiff will need to seek leave to substitute a plaintiff who has standing under the Post-Prop 64 standards. In other words, the party without standing is deemed to have standing for the purpose of appellate review only, because it is an aggrieved party affected by the adverse judgment. Thus, for now, neither a dismissal nor an amendment / substitution of parties shall take place. Once the appeal is decided on the merits, the procedural status of the plaintiff will become relevant again. For now, the briefing schedule resumes as if there had never been a trip or two to the Supreme Court.

More Reinforcement That Class Cert Rulings Are Very Difficult to Reverse

Last month, in an unpublished opinion which has now been order published, Walsh v. IKON Office Solutions, Inc. (no relation to us), the Court of Appeal has upheld a trial court's order granting a motion to decertify a subclass in an overtime misclassification case when the trial court referred to different employment circumstances among the subclass members, stating that “the circumstances of each class member’s employment differs significantly from every other member of the class,” that “individual hearings on both liability and damages are required for each of the 150 or so” members of the subclass, and that “common issues of law and fact do not predominate.”

By the same measure, presuming in favor of the decertification order now before us, we cannot say it would be irrational for a court to conclude that, tried on appellants’ theory, questions of law or fact common to the class do not predominate over the questions affecting individual class members. In accord with Sav-On, we affirm the trial court’s order.

This language is highly deferential, and could be quite useful for any respondent, whether plaintiff or defendant, seeking to defeat an appeal of any order granting or denying certification. It further reinforces our belief that the certification battle will nearly always be won or lost in Superior Court, and that a reversal by the Court of Appeal will rarely be obtained by either side.

The facts of the case are mildly interesting, in that the class originally was certified with five subclasses (the fourth of which was later decertified, triggering the appeal), and the five subclasses included a broad variety of types of employees: (1) California employees paid overtime wages, hourly rate pay, and other compensation in a single pay period; (2) California employees for whom a “DSO” adjustment reduced commission wages; (3) California employees subject to business expense reimbursement limits and business expense deductions from payroll checks; (4) IKON LDS Account Managers employed in California between March 8, 2000, to the present; and (5) IKON sales representatives who procured equipment service agreements in effect upon termination of IKON’s copy management program (CMP) on or about 1998 which remained in effect after March 8, 2000.

You can download the full text of Walsh here in pdf or Word format.

Arbitration Denied Where Class Members Signed Arbitration Agreement, But Plaintiff Did Not

When a plaintiff files a class action, and the defendant moves to compel arbitration based upon the fact that other members of the putative class signed arbitration agreements, can the trial court compel arbitration of the entire class action? In Lee v. Southern California University for Professional Studies, the 4th District Court of Appeal said "no." Patricia Lee sued the Southern California University for Professional Studies for violation of the Consumer Legal Remedies Act (Civil Code § 1750 et seq.) and Business and Professions Code § 17200. Because some of the potential class members — not including Lee — signed a contract including an arbitration clause, the defendant filed a motion to compel arbitration, which the trial court denied.

On appeal, the trial court's order was affirmed. The Court of Appeal found that no grounds exist for compelling arbitration when the only plaintiff currently before the court never agreed to arbitrate her claims. However, the obvious next question — whether she is an adequate class representative for those who did — remains to be decided by the trial court at such time when Lee moves to certify the class. Thus, the more interesting opinion is yet to come.

A petition to decertify the case was recently filed. For now, you can download Lee here in pdf or Word format.

Survey of Corporate Lawyers Says Lawsuits Are Terrible

The U.S. Chamber of Commerce study we mentioned briefly in a since-revised post is out. It supposedly ranks the best and worst state legal systems in America, but it only measures how corporate lawyers from the very largest companies perceive the civil justice system, ignoring the views of ordinary folks and small businesses, and it only measures perception, not statistics or other hard data. The study is based on a survey of corporate lawyers from $100 million dollar corporations who spend their day trying to keep their companies out of trouble. When they do not succeed in that quest, they tend to view the civil justice system the same way the people in the law library at San Quentin view the criminal justice system. Here are some facts that they fail to mention in their survey. Once we find out where this list came from, we'll pass along the credit.

THE CHAMBER’S “STUDY” IS MISLEADING

•    The Chamber’s “Study” Is Actually a Survey of Corporate Lawyers Working for Multi-Million Dollar Corporations. Instead of attempting to measure the effectiveness of the civil justice systems in each state, the Chamber instead commissioned a poll of corporate lawyers at companies with $100 million or more in annual revenues. These are the very same lawyers who work every day protecting and defending large corporations when they are sued by consumers or employees who have been injured or abused by the corporation.

•    The Chamber’s Own Pollster Admitted that There is No Way to Measure the Fairness of a State’s Legal System. Humphrey Taylor of Harris Interactive, the polling firm that conducted the survey for the Chamber, admitted that there is no way to measure fairness of the legal system in each state. According to the Copley News Service, “Humphrey Taylor of Harris Interactive said the survey is based on the individual responses of the [corporate] lawyers because there is no hard data that can be used to measure the perceived fairness of a state's legal system.” Nevertheless, the Chamber has mischaracterized the “study” as “rank[ing] the best to worst legal systems in America.”

•    After Ranking West Virginia as Having One of the “Worst” Liability Systems, the Chamber’s CEO and Pollster Were Forced to Admit that Only of a Fraction of Those Surveyed Actually Knew Anything About the State’s Court System. When questioned about the methodology of previous versions of the “study” that ranked West Virginia as 49th in the list of state legal systems, the Chamber’s CEO, Thomas Donohue, and the pollster that conducted the survey, Humphrey Taylor of Harris Interactive, were forced to admit that only a fraction of the corporate lawyers surveyed actually knew anything about West Virginia’s courts. According to the Charleston Gazette, “Taylor and Donahue [sic] acknowledged not all of the 1,437 lawyers surveyed knew anything about West Virginia's courts. Taylor said ‘around 107’ said they had direct knowledge of the state. ‘You could argue that's a small sample, but what they keep saying is ‘49th, 49th, 49th,’ he said.”

•    Florida Newspaper Criticized Chamber for Mischaracterizing the “Study” in a Television Ad.  According to the Tallahassee Democrat, the Chamber’s Institute for Legal Reform sponsored a television ad in Florida that mischaracterized the results of their “study” of state legal systems. The Chamber’s ad included the line, “[a] recent Harris poll ranked the best to worst legal systems in America.” However, the
Democrat reported that this claim was “wrong,” noting that the “ad did not mention the Harris poll was conducted among corporate lawyers who have to defend their clients against civil suits.”

LAWSUITS ARE NOT A MAJOR CONCERN FOR BUSINESSES

•    A Recent Survey Published by the National Association of Manufacturers Found that American Manufacturing Companies Ranked the “Fear of Litigation” at the Bottom of Their Concerns. The National Association of Manufacturers recently released    a survey of manufacturers in the United States showing that the “fear of litigation” ranked at the bottom of their list of concerns:

“Please rate the following factors in terms of their negative impact on your company's operations (with 1 representing the greatest negative impact and 10 the least).”

2.9   Cost of non-wage compensation
3.5   Cost of materials used in production
4.0   Inability to raise prices
4.1   Energy prices
5.0   Foreign competition
6.1   Taxes
6.3   Cost of wages
6.4   Shortage of qualified workers
7.4   Regulations/corporate governance rules (Sarbanes-Oxley)
7.8   Fear of litigation

•    Survey by Business Week Magazine Found that the Threat of Lawsuits is Not a Major Concern of Small Business Owners. According to a survey published  in Business Week magazine, owners of small and medium sized businesses story are generally not concerned about the threat of lawsuits: “One of the survey's more surprising results revealed that tort reform -- particularly limiting class-action lawsuits -- is not a major priority.” The survey found that the biggest threats to their businesses are: (1) Rising inflation, 44 percent; (2) The trade deficit and a weak dollar, 40 percent; (3) Energy shortages, 40 percent; (4) Excessive household and/or corporate debt, 29 percent; (5) The growing federal deficit, 28 percent; (6) Poorly prepared labor force/Shortage of skilled labor, 27 percent.

THE NUMBER OF STATE AND FEDERAL TORT TRIALS IS DECLINING

•    Bush Administration Statistics Show that the Number of Federal Tort Trials is Down Nearly 80 Percent Since 1985. The most recent data from the Bush administration’s Justice Department reported that the number of tort (personal injury) cases resolved in U.S. District Courts fell by 79 percent between 1985 and 2003. In 1985, 3,600 tort trials were decided by a judge or jury in U.S. District Courts. By 2003, that number had dropped to less than 800.

•    The Number of State Tort Trials is Decreasing. According to the most recent statistics from the Bush administration’s Justice Department, the number of tort trials at the state level has decreased. These statistics were compiled as part of the Bureau’s survey of state civil justice systems in the nation’s largest 75 counties. Among these counties, the number of tort trials decreased 31.8% between 1992 and 2001.

•    “Overwhelming Majority” of Federal Judges Don’t See “Frivolous Lawsuits” as Major Problem.  According to survey by the Federal Judicial Center – the research and education agency of the federal court system – the overwhelming majority of Federal judges do not view “frivolous lawsuits” as a problem. Seventy percent of the respondents called groundless litigation either a ‘small problem’ or a ‘very small problem,’ and 15% said it was no problem at all. Only 1% called it a ‘very large problem,’ 2% called it a ‘large problem’ and the rest rated it as a ‘moderate problem’ in their courts. In addition, 91% of the judges surveyed opposed provisions in the Lawsuit Abuse Reduction Act, which won House approval in the last Congress.”

Tort reformers claim that the threat of costly litigation "forces businesses to settle frivolous claims that could potentially put them out of business.” (Dan Danner, Executive Vice President—Public Policy for the National Federation of Independent Business). However, in September 2005, NFIB’s Research Foundation released a report based on a survey of their more than 600,000 members, revealing that the median total cost to settle a legal dispute is about $5,000. In a society where answering nine questions is enough to justify giving someone a million dollars, resolving legal differences for $5,000 seems fairly inexpensive, particularly when fewer than one in fifty legal disputes result in a claim or lawsuit being filed.

Taxing Emotional Distress

We drift off topic a bit today, but the case warrants a mention on any employment related legal blog, so off topic we go. Ask any employment lawyer outside California about "the Murphy case" and they won't think about employee breaks and hours of pay, they think about taxation. The case even has its own wikipedia entry. On August 22, 2006, the United States Court of Appeals for the District of Columbia Circuit published an opinion in Murphy v. Internal Revenue Service (No. 05-5139, DC Cir. 08/22/2006), ruling that the taxation of non-economic damages for emotional distress and loss of reputation is unconstitutional because such a tax violates the Sixteenth Amendment of the U.S. Constitution. In December, the Circuit vacated that opinion and ordered a rehearing on the matter. That hearing will take place today.

In the original opinion, written by Chief Judge Douglas H. Ginsburg (former Reagan appointee to the SCOTUS whose nomination was derailed by dope-smoking admissions), and joined by Judges Judith W. Rogers and (former California Supreme Court Justice) Janice Rogers Brown, the court held:

Marrita Murphy brought this suit to recover income taxes she paid on the compensatory damages for emotional distress and loss of reputation she was awarded in an administrative action she brought against her former employer. Murphy contends that under § 104(a)(2) of the Internal Revenue Code (IRC), 26 U.S.C. § 104(a)(2), her award should have been excluded from her gross income because it was compensation received "on account of personal physical injuries or physical sickness." In the alternative, she maintains § 104(a)(2) is unconstitutional insofar as it fails to exclude from gross income revenue that is not "income" within the meaning of the Sixteenth Amendment to the Constitution of the United States. We hold, first, that Murphy's compensation was not "received ... on account of personal physical injuries" excludable from gross income under § 104(a)(2). We agree with the taxpayer, however, that § 104(a)(2) is unconstitutional as applied to her award because compensation for a non-physical personal injury is not income under the Sixteenth Amendment if, as here, it is unrelated to lost wages or earnings.

Ms. Murphy was a whistleblower who alleged that she was blacklisted for complaining about violations of environmental statutes. Her case included a significant claim for emotional distress and loss of reputation. She paid taxes upon her recovery, then sued for a refund, arguing that In victory, her attorney David K. Colapinto remarked: “The government had the audacity to argue that compensatory damages for emotional distress and loss of reputation are not ‘make whole’ damages and can be taxed as income because the economic value of human life is ‘zero.’ Hopefully, today’s ruling marks the beginning of the end of this arcane and regressive policy of taxing non-physical compensatory damage awards.” Now that the briefs are in, the IRS position looks better than average for a losing party seeking reconsideration. The TaxProfBlog has had a lot to say about it, as has The Volokh Conspiracy and the National Employment Lawyer's Association. Murphy's brief can be read here.

Further Thoughts on Fireside Bank

We've also found two or three important implications that we may have overlooked in our initial reading of Fireside Bank.

In addition to the holding refusing to find an exception to the one-way intervention rule, and upholding class certification nonetheless, and in addition to some favorable language which could be useful to anyone moving for certification, if the facts fit, there are two other very interesting implications that could broadly affect standing requirements under the UCL, and the scope of discovery in any class action.

With respect to the UCL angle, the Supreme Court appears to have endorsed an aggrieved party's right to seek injunctive relief even if they suffered no loss of money or property, even after Proposition 64. The court wrote that the named class representative would have standing to seek injunctive relief under the unfair competition law even if she was not entitled to restitution. The court wrote that if the plaintiff could show that she was deprived of a fair opportunity to redeem the financed vehicle, "followed by an unlawful demand for payment" she would be able to proceed under the unfair competition law. We do not see a loss of money or property under those facts unless the plaintiff paid money in response to the demand. Perhaps showing a wrongful demand for money or property, or a threatened loss of money or property is enough.

Second, near the end of the opinion's discussion of the typicality analysis for class certification, the court writes:

Fireside Bank objects to inquiry into the substance of these defenses by noting our conclusion in Linder that a court, in determining class certification, should not consider the merits. (Linder v. Thrifty Oil Co., supra, 23 Cal.4th at pp. 439-443.) But there, we said only that a plaintiff need not establish a likelihood of success on the merits in order to obtain class certification. It does not follow that, in determining whether the criteria of Code of Civil Procedure section 382 are met, a trial or appellate court is precluded from considering how various claims and defenses relate and may affect the course of the litigation, considerations that may overlap the case’s merits. (See Hanon v. Dataproducts Corp., supra, 976 F.2d at p. 509 [court may consider “evidence which goes to the requirements of [Fed. Rules Civ.Proc.,] Rule 23 even though the evidence may also relate to the underlying merits of the case”].) Indeed, in Linder we expressly recognized that “whether the claims or defenses of the representative plaintiffs are typical of class claims or defenses” was an issue that might necessarily be intertwined with the merits of the case, but which a court considering certification necessarily could and should consider. (Linder, at p. 443; see Hardy v. City Optical Inc. (7th Cir. 1994) 39 F.3d 765, 770 [rejecting challenge to typicality based on arguable unique defense on basis that defense was not arguable in light of defendants’ factual concessions].)

This is the second opinion in the last year (the first being Dunbar v. Albertson's, Inc.) that appears to chip away at the long-held belief that discovery that gets into the merits of the case are out-of-bounds prior to certification in a class action. For many years, the scope of pre-certification discovery has traditionally been limited to "certification-based" issues and not "merits-based" issues if discovery on liability issues would be expensive and time-consuming. Carabini v. Superior Court (King) (1994) 26 Cal.App.4th 239, 241. However, in Dunbar, the Court of Appeal held that the party seeking class certification "must explain how [a] procedure will effectively manage the issues in question". Imposing that burden necessarily must mean that a plaintiff must have the due process right of inquiring into the facts and evidence that could be used to address that burden. That means at least some meaningful merits-based discovery. Here, the Supreme Court has expressly noted that “whether the claims or defenses of the representative plaintiffs are typical of class claims or defenses” was an issue that might necessarily be intertwined with the merits of the case, but which a court considering certification necessarily could and should consider. If the court can and should consider issues intertwined with the merits at the certification hearing, that means discovery must be permitted into such intertwining issues prior to the certification motion being filed.

Finally, Fireside Bank does away with the argument that a class action might not be superior to the simpler alternative of a non-class action representative action under Business & Professions Code S 17200. After Proposition 64, there is no longer any such beast under California law. [Hat tip to the UCL Practitioner.]

Further Thoughts on Murphy v. Kenneth Cole Productions

We've come up with at least two or three other significant implications of the Murphy decision which we did not mention in our original post regarding the decision.

There were still a few defense firms raising the "no private right of action" argument or the "exhaustion of PAGA remedies" defense. That issue was a likely one to be addressed, yet again, in the Savaglio v. Wal-Mart case (which is summed up in a cool powerpoint slide we found here). Those issues are now dead. Until Murphy, all of the precedent and authority indicated a private right of action and no need to exhaust administrative remedies: from the plain language of Labor Code § 218, to the October 17, 2003 DLSE opinion letter, to the unpublished decision in Banda v. Richard Bagdasarian, Inc., to the published opinions in Caliber Bodyworks v. Superior Court (2005) 134 Cal.App.4th 365 and Dunlap v. Superior Court (2006) 142 Cal.App.4th 330. However, despite the Supreme Court's decisions not to review any of those decisions, defendants continued to argue the points, in the hope of getting the Supreme Court to rule to the contrary. Unfortunately for those advocates, those arguments were premised upon the determination that the hour of pay was a penalty. If it is a wage, there is no question that an employee is entitled under Labor Code § 218 to sue directly for that compensation, and there is no need to raise a complaint with the DLSE or to invoke PAGA.

Secondly, the characterization of such pay as a wage invokes the potential applicability of Labor Code § 206.5, which provides:

No employer shall require the execution of any release of any claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of such wages has been made. Any release required or executed in violation of the provisions of this section shall be null and void as between the employer and the employee and the violation of the provisions of this section shall be a misdemeanor.

Since the hour of pay is a wage, anytime an employer seeks to obtain a waiver and release of liability without actually paying the meal or rest break pay required under section 226.7, section 206.5 might invalidate the releases.

Finally, a few people have wondered whether Murphy now permits employers to force employees to work through meal and rest periods, as long as they pay the extra hour. In Tomlinson v. Indymac Bank, F.S.B. (C.D. Cal. 2005) 359 F.Supp.2d 891, Judge Selna found the hour of pay to be a wage, relying in part upon this comparison to overtime pay:

Just as an understaffed company may make the conscious decision to pay its employees time and a half to work overtime, the same understaffed company also can decide to have its employees forego their meal and rest breaks if it compensates them at a higher rate. In both instances, the employee earns the higher wage by working additional time.

The Court of Appeal decision in Murphy criticized this view:

We disagree with the district court judge's interpretation. While the Labor Code allows employers to require overtime work, albeit at a higher rate of compensation, it does not allow employers to deny meal and rest breaks. [fn.22 "... shall be compensated at the rate of no less than one and one-half times the regular rate of pay ... " with section 512: "An employer may not employ an employee ... without providing the employee with a meal period of not less than 30 minutes ... "]

That criticism (and if we recall correctly, some similar criticism in other opinions superceded by Murphy) is no longer contained in a citeable case. The Supreme Court's opinion in Murphy makes no mention of Tomlinson or anything similar to the views Judge Selna expressed. However, we believe that Section 512's flat prohibition against denying those breaks is not excused by an employer making the payment under Section 226.7, and neither Murphy nor any other California case has hinted, much less held, that an employer can choose to pay the hour and deny their employees breaks without consequence.

Murphy Decides OT Statutes of Limitation?

The L.A. Times might not be your best source of legal analysis for wage and hour issues. Yesterday, Molly Selvin, a popular staff writer for the Times, wrote a Q&A column about Monday's Murphy v. Kenneth Cole Productions case. It included this quip:

"What did Monday's decision settle?

Monday's ruling settled the question of whether nonexempt employees who claim they were denied overtime or meal and rest breaks may ask for up to three years of back pay or only one. The court said three years."

It did settle that question for meal and rest breaks. The time for filing suit on overtime claims has been well settled for many, many, years, however.