Lots of catch-up posts today, so scroll, baby, scroll

Today, as I play catch-up, we have posts about "hot gas," the sufficiency of a "commission" for overtime exemption purposes, and yet another arbitration decision.  That means you have a significant amount of scrolling to do.  Or pick your post:

• Hot gas
• Commissions
• Arbitration

"Hot gas" case against Chevron lives to fight another day in Klein v. Chevron U.S.A., Inc.

Hot gas.  This is not a term of art describing oral argument.  It literally refers to gasoline, and its propensity to expand as it gets warmer.  In Klein v. Chevron U.S.A., Inc. (January 25, 2012), the Court of Appeal (Second Appellate District, Division Seven) dispensed wisdom, a drop at a time, about the viability of claims related to hot gas.  Before I pump up this case any more, allow me to fuel your appetite with some background.  After that we'll motor on to the significant holdings.

How does hot gas work again?  The Court explained:

Motor fuel expands in volume as it is heated. As a result of this thermal expansion, a gallon of motor fuel at a warmer temperature has less mass and less energy content than a gallon of motor fuel at a cooler temperature. A temperature increase of 15 degrees causes motor fuel to expand in volume by approximately one percent, with a corresponding one percent decrease in energy output. For example, when 231 cubic inches of motor fuel, which equals one volumetric gallon, is heated from 60 degrees Fahrenheit to 75 degrees Fahrenheit, the motor fuel will expand to occupy a volume of approximately 233 cubic inches.

Slip op., at 4.  Ahh.  Anyhow, after a lot of discussion about regulations, and how fuel must be temperature adjusted if sold in amounts about 5,000 gallons, the Court turned to the theories impacted by the trial court's rulings on a demmurer and motion for judgment on the pleadings.

First, the Court held that the trial court erred when it dismissed the plaintiffs' claims arising under the CLRA and UCL:

Chevron's arguments are predicated on the assumption that the only possible form of relief in this case is a court order mandating that Chevron offer its retail consumers temperature-adjusted motor fuel through the implementation of ATC technology or other similar technologies. The plaintiffs' complaint, however, seeks other relief, including a disclosure requirement that, if granted, might not require substantial changes to the way Chevron currently sells motor fuel at the retail level.

Slip op., at 26.  That "other relief" mentioned by the Court includes injunctive relief compelling disclosure to consumers.  The Court next concluded that no alternative means exist for addressing the plaintiffs' issues.  On that basis, the Court concluded that judicial abstention was improper.

The Court then turned to specific claims, beginning with a half-hearted standing challenge.  The Court wasn't impressed: "Chevron concedes that, at the pleading stage, a plaintiff asserting a UCL or CLRA claim 'satisfies its burden of demonstrating standing by alleging an economic injury.' (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 254.)"  Slip op., at 35.  (Had to get that Boschma cite in there - my colleague, J. Mark Moore, argued that appeal.)

Next, the Court tackled the prongs of the UCL, beginning with the "unfair" prong:

At the pleading stage, we cannot presume that these alleged harms are not “substantial” or are otherwise outweighed by benefits that consumers derive from Chevron's practice of selling non-temperature adjusted motor fuel at the retail level. (Camacho, supra, 142 Cal.App.4th at p. 1403.) Although the evidence in this case may show that consumers do not suffer any substantial injury from the sale of nontemperature adjusted fuel or that the costs associated with remedying such injuries outweigh any benefit to consumers, we agree with the trial court‟s conclusion that such issues must “be determined on a developed factual basis.”

Slip op., at 37.  Chevron argued that it was not obligated to pass along or disclose its profit margins.  The Court distinguished Chevron's authority:

There are, however, important distinctions between this case and McCann. First, the holding in McCann has no relevance to plaintiffs' claim that, by selling non-temperature adjusted fuel at retail, Chevron is able to charge consumers more in purported motor fuel tax than it is required to pay to the government. Plaintiffs' tax-based claim has nothing to do with Chevron's failure to disclose its profit margins or the price at which it procures motor fuel at wholesale.

Second, unlike in McCann, the “gist” of plaintiffs‟ unfairness claim is not that Chevron was required to “disclose their own costs or profit margins” to consumers. (McCann, supra, 129 Cal.App.4th at pp. 1387, 1395 [“gist” of plaintiff's claim was that defendant “fails to disclose . . . that it gets a more advantageous rate of exchange on the wholesale market than it gives the customer”].) Instead, plaintiffs argue that, by failing to compensate for temperature variations in retail motor fuel, Chevron is engaging in a practice that misleads consumers as to the actual amount of motor fuel they are purchasing and the actual price that they are paying for that fuel. By contrast, the plaintiffs in McCann were informed of the specific exchange rate they would receive in their retail transactions (id. at p. 1382), but argued that the money transmitter had a duty to disclose the more favorable wholesale rate at which it was able to purchase foreign currency and pass those benefits on to consumers.

Were plaintiffs in this case simply alleging that Chevron had a duty to disclose the price at which it procured motor fuel at wholesale, McCann might foreclose such a claim. However, nothing in McCann suggests that the UCL does not, as a matter of law, apply to conduct that allows a retailer to charge more in taxes than it is required to pay to the government or to obscure the true cost of goods at retail.

Slip op., at 39.  The Court then dismantled a "safe harbor" argument, explaining that the "safe harbor" statute must "explictly" prohibit liability for the conduct.  Chevron's attempt to fashion a "safe harbor" by implication was rejected.

The Court then concluded that plaintiffs stated a claim under the "fraudulent" prong:

At the pleadings stage, we cannot say, as a matter of law, that consumers are not likely to be deceived in the manner alleged by plaintiffs. As the trial court observed, plaintiffs have alleged “facts which, if true, may reveal that members of the public . . . [assumed] that . . . they were receiving standardized units of motor fuel when, in fact, the energy content of each gallon depended on the temperature of the motor fuel at the time of purchase.” Plaintiffs have also alleged facts that, if true, may reveal that consumers were deceived as to the true price of motor fuel, which may vary depending on the temperature at which it is sold.

Slip op., at 43.  The Court distinguished Bardin v. Daimlerchrysler Corp. (2006) 136 Cal.App.4th 1255 on the ground that the plaintiffs alleged a specific expectation in the public about what they receive at a gasoline pump.  Following that discussion, the Court immediately turned to the CLRA, noting that conduct which is "fraudulent" under the UCL also violates the CLRA.  And, stay with me here, since the plaintiffs stated a claim under the CLRA, based on the same deceptive conduct that satisfied a UCL "fraudulent" claim, they, by definition, stated a UCL claim under the "unlawful" prong, since it borrows the CLRA violation.  Presto.

The breach of contract and unjust enrichment claims didn't do so well.  Saved you eight pages of reading right there.

And to think that I was not impressed with the "hot gas" theory when I heard it years ago.  What was I thinking?

In Muldrow v. Surrex Solutions Corp., court holds that commissions need not be strict percentage of sales

Trials of class actions are uncommon.  Here, though, we have an example of a class action that made it through trial (though admittedly a bench trial, which is more like a long and painful, multi-day summary judgment hearing).  In Muldrow v. Surrex Solutions Corp. (January 24, 2012), the Court of Appeal (Fourth Appellate District, Division One) considered "whether the trial court erred in determining that an employer was not required to pay overtime wages (Lab. Code, § 510) to a class of its current and former employees because they were subject to the commissioned employees exemption (Cal. Code. Regs., tit. 8, § 11070, subd. (3)(D))."

The class of employees was comprised of recruiters that located potential employees for clients of Surrex.  Surrex was paid only when an employee was successfully placed with a client.  The class members were paid a percentage of "adjusted gross profit."  The "adjusted gross profit" was calculated by subtracting various costs from the amount clients paid for a placement.

The Court reached two key conclusions that resulted in an affirmance for the trial court.  First, the Court concluded that "sales-related activities" should be viewed more broadly than the time involved in the sale itself:  "We also reject appellants' contention that time spent 'searching on the computer, searching for candidates on the website, cold calling, interviewing candidates, inputting data, and submitting resumes,' may not be considered sales-related activities."  Slip op., at 14.

Second, the Court concluded that "commissions" do not have to equal a fixed percentage of revenues:

We disagree that either the Keyes Motors court or the Ramirez court intended to preclude an employer from calculating commissions based on anything other than a straight percentage of profits. Most importantly, neither the Keyes Motors court nor the Ramirez court had any occasion to address this issue, because in both cases, the employees' commissions were based on a straight percentage of the price charged to the customer. (Keyes Motors, supra, 197 Cal.App.3d at p. 561 [The "mechanic earns a fixed percentage of the hourly rate charged the customer"]; Ramirez, supra, 20 Cal.4th at p. 804 [employee received a "percentage of the price of the bottles of water and related products sold"].) " ' "It is axiomatic that cases are not authority for propositions not considered." ' " (Silverbrand v. County of Los Angeles (2009) 46 Cal.4th 106, 127, citations omitted.) Thus, "the Keyes Motors definition of 'commission' . . . does not control our case." (Areso, supra, 195 Cal.App.4th at p. 1006.)

Slip op., at 17.  The Court then focused on incentives, distinguishing Keyes Motors and Ramirez:

In this case, in contrast, appellants affected not only the revenue that Surrex received, but also the costs that Surrex would bear. Paige Freeman, a senior consulting services manager, testified that consulting service managers negotiated both the rates that Surrex paid candidate/consultants and the rate at which Surrex billed clients for those services. Appellants therefore had an impact on both the revenue (bill rate) that Surrex received and the costs (pay rate) that Surrex incurred. Thus, while in Keyes Motors and Ramirez, a commission system based on the price of the products or services provided employees with an incentive to increase the number of repairs performed (Keyes Motors) or the number of bottles of water sold (Ramirez), in this case, a commission system based solely on revenue or price would fail to reward employees who helped Surrex achieve greater profits by limiting costs. We see nothing in Ramirez or Keyes Motors that requires such a result, particularly since neither court had occasion to consider a compensation system similar to the one at issue in this case.

Slip op., at 18.  This is all very interesting, but the Court cites no authority in support of its power to define commissions so as to apply the incentives that it views as, in some manner, "better."  Instead, the Court falls back to Black's Law Dictionary for its definition of commission.  Maybe someone has some regulatory history materials handy to check and see whether the Court has the right of what the IWC intended when it created this exemption.

Arbitration agreement did not clearly and unequivocally delegate to arbitrator the power to determine unconscionability

Rent-A-Center, W., Inc. v. Jackson, 561 U.S. ___, 130 S.Ct. 2772 (2010) held that parties could delegate to the arbitrator the power to decide threshold decisions of arbitrability.  This, of course, leads to questions about how explicit such a delegation must be to pass muster.  Rent-A-Center observed that, unless the parties "clearly and unmistakably provide otherwise," the question of arbitrability is one for the Court.  In Ajamian v. CantorCO2e, L.P. (February 16, 2012), the Court of Appeal (First Appellate District, Division Five) examined an arbitration agreement to determine whether the trial court erred by deciding the arbitration question and concluding that the agreement was unconscionable.

The Court first considered the issue of who should decide the arbitrability question:

The “clear and unmistakable” test reflects a “heightened standard” of proof. (Rent-A-Center, supra, 130 S.Ct. at p. 2777, fn. 1.) That is because the question of who would decide the unconscionability of an arbitration provision is not one that the parties would likely focus upon in contracting, and the default expectancy is that the court would decide the matter. (First Options, supra, 514 U.S. at pp. 943-945.) Thus, the Supreme Court has decreed, a contract's silence or ambiguity about the arbitrator's power in this regard cannot satisfy the clear and unmistakable evidence standard. (Id. at pp. 943-945.)

Slip op., at 9.  Turning to the language of the agreement, the Court concluded that the agreement was ambiguous.  The Court held that a provision directing “[a]ny disputes, differences or controversies” to arbitration could apply to the threshold question of arbitrability or all substantive disputes.  Becasue the language was not clear and unmistakable, the Court held that no delegation of the threshold question was enforcable.

Next, the Court considered whether a reference to AAA rules, which give arbitrators the right to decide arbitrability, was sufficient to delegate that question to the arbitrator.  The Court examined existing decisions, finding a split of authority on the issue.  After identifying cases on both sides of the issue, the Court concluded that a reference to AAA rules, without more, was insufficient:

In our view, while the incorporation of AAA rules into an agreement might be sufficient indication of the parties' intent in other contexts, we seriously question how it provides clear and unmistakable evidence that an employer and an employee intended to submit the issue of the unconscionability of the arbitration provision to the arbitrator, as opposed to the court. There are many reasons for stating that the arbitration will proceed by particular rules, and doing so does not indicate that the parties' motivation was to announce who would decide threshold issues of enforceability.

Slip op., at 19.  The Court also noted that the agreement was unclear as to whether AAA rules or rules of another arbitration entity would govern.

The Court next reviewed the trial court's finding of unconscionability.  First, the Court exmained the procedural unconscionability:

Substantial evidence supports the court's finding. Ajamian, who had already been working as a broker for almost 10 months, had no realistic bargaining power and was required to sign the Employment Agreement to receive her promised compensation – for work she had already performed. Furthermore, the Employment Agreement was not the subject of any negotiation. Ajamian stated in her declaration that she wanted to make changes to the Employment Agreement and felt uncomfortable signing it, but felt she had no choice based on Margolis' statements.

Slip op., at 26.  The Court concluded that it was unnecessary to quantify the degree of procedural unconscionability, since substantive unconscionability was evident in several ways:

In finding that the arbitration provision was unconscionable, the court found that the damages limitation in the arbitration provision was unlawful and the attorney fees clause elsewhere in the Employment Agreement (which the arbitration provision would enforce) was unconscionable. Ajamian also argued, as she does here, that the arbitration provision is substantively unconscionable for reasons the trial court did not rule upon: the provision requires her to forfeit numerous unwaivable substantive California statutes; it grants CantorCO2e discretion to choose the arbitration rules and source of the arbitration panel; and it forces Ajamian to pay tens of thousands of dollars she did not have when she entered into the agreement to obtain relief by arbitrating before three arbitrators in New York.

Slip op., at 28-29.  During its extensive discussion, the Court explained by Pearson Dental did not apply:

As a general proposition (where the clear and unmistakable test does not apply), we agree that ambiguous terms should be construed, where reasonable, in favor of arbitration. But the Pearson Dental rule does not apply here. In Pearson Dental, the court considered a single potentially unconscionable term in an arbitration agreement; here, there are multiple unconscionable terms in the Employment Agreement. Moreover, the term in Pearson Dental was ambiguous and did not expressly preclude the plaintiff from pursuing any remedy; by contrast, the unconscionable terms in the Employment Agreement categorically mandate that arbitration proceed, under the laws of New York and an arbitration organization of CantorCO2e's choosing, without the relief to which Ajamian would be entitled in California, but with an obligation to pay CantorCO2e's attorney fees if unsuccessful. Further, the language of the arbitration provision does not lend itself to an interpretation that the arbitrator may make awards contrary to the terms of the Employment Agreement; indeed, the Employment Agreement explicitly states just the opposite. (See Wherry, supra, 192 Cal.App.4th at pp. 1249-1250.)

Slip op., at 33.  The Court concluded its analysis by rejecting an argument that an Employee Handbook referencing an arbitration policy that would be signed by employees could create an enforceable arbitration agreement.

The arbitration arms race continues...

Peremptory challenges by different plaintiffs in two PAGA suits held valid in Pickett v. Superior Court

In my experience, there is a good deal of confusion about what is meant by the "one challenge per side" rule governing peremptory challenges to assigned trial judges under Code of Civil Procedure section 170.6.  In Pickett v. Superior Court (February 22, 2012), the Court of Appeal (Second Appellate District, Division Five) reduced at least some of that confusion, upholding the right of the plaintiff in a second, related action to exercise a peremptory challenge after the plaintiff in the earlier-filed action had already done so.

Pickett’s action that included a Private Attorney General Act (Lab. Code, § 2698 et seq.) (PAGA) claim.  It was deemed related to a prior-filed PAGA action brought by Eugina Bright, against the same defendant, 99¢ Only Stores, on similar allegations.  The two action sought somewhat different remdies.  Pickett’s action was reassigned to the all-purpose judge in the prior-filed action, but not consolidated with that first action.  Pickett timely filed a peremptory challenge to the trial judge pursuant to Code of Civil Procedure section 170.6.

The trial court struck the challenge as improper.  It determined that Pickett’s action was identical to and a continuation of the action brought by Bright, who had already used her one peremptory challenge in the matter after remand following a successful appeal.  The Court of Appeal concluded that under section 170.6 and the authorities applying it, Pickett’s action is not a continuation of Bright’s action, nor is Pickett on the same “side” as Bright in one action, and therefore Pickett’s peremptory challenge should have been accepted.

An interesting extra detail is that in the Notice of Related Cases, Pickett described her claims as "identical" to Bright's.  Despite that characterization, one that the defendant sought to turn to its advantage, the Court of Appeal determined that the right to exercise a peremptory challenge should be determined by the nature of the cases and identity of the parties, not the characterization by a party in a Notice of Related Cases.

Supreme Court activity for the week of February 13, 2012

With a lot of catching up to do, I'm starting easy.  The California Supreme Court held its (usually) weekly conference on February 15, 2012.  Notable results include:

• On a petition for review, review was granted in In re Cipro Cases I & II.  This case is one to follow if you practice in the area of anti-competitive behavior.  There's a big dash of pre-emption thrown in, along with some procedural questions about a trial court's obligation to rule on evidentiary objections at summary judgment.
• On a petition for review, review and depublication were denied in Collins v. eMachines, discussed on this blog here. The Court of Appeal held that “injury in fact” can be satisfied by alleging as damages the difference between the actual purchase price and the fair market value of a defective product. 

I was right: Bridgeford v. Pacific Health stabs Alvarez v. May Dept. Stores Co. in the heart, stuffs garlic in its mouth

I hate Alvarez v. May Dept. Stores Co., 143 Cal. App. 4th 1223 (2006).  My supplemental briefing in that case was uncannily prescient of parts of Taylor v. Sturgell, 128 S.Ct. 2161 (2008).  But did the Court of Appeal rule in my favor.  Nooooo.  Did the U.S. Supreme Court take my case to correct that gross misinterpretation of collateral estoppel rules in uncertified class actions?  Nooooo.  But along comes Bridgeford v. Pacific Health (January 18, 2012), in which the Court of Appeal (Second Appellate District, Division Three) did what I so wanted to do.  They stabbed Alvarez dead, dead, dead.

Here are the money quotes:

California courts have held or suggested that the denial of class certification can establish collateral estoppel against absent putative class members on issues that were actually decided in connection with the denial. (Alvarez v. May Dept. Stores Co. (2006) 143 Cal.App.4th 1223, 1236; Bufil v. Dollar Financial Group, Inc. (2008) 162 Cal.App.4th 1193, 1202-1203 (Bufil); see also Johnson v. GlaxoSmithKline, Inc. (2008) 166 Cal.App.4th 1497, 1510-1513 & fn. 8 (Johnson) [assuming the point while expressing reservations].) Alvarez stated that the principles of collateral estoppel ensure that the absent putative class members' interests were adequately represented in the prior proceeding. (Alvarez, supra, at p. 1236.) We conclude to the contrary that if no class was certified by the court in the prior proceeding, the interests of absent putative class members were not represented in the prior proceeding and the requirements for collateral estoppel cannot be established, as we shall explain.

Slip op., at 11.  The Court then explained:

The United States Supreme Court, however, in Smith v. Bayer Corporation, supra, 131 S.Ct. 2368, recently resolved the issue. Applying common law principles of issue preclusion, the high court held that unnamed putative class members cannot be bound by issue preclusion if the class was never certified in the prior proceeding. (Id. at pp. 2380-2381.) Smith v. Bayer Corporation stated, “[n]either a proposed class action nor a rejected class action may bind nonparties” (id. at p. 2380), and, “[t]he great weight of scholarly authority . . . agrees that an uncertified class action cannot bind proposed class members.” (Id. at p. 2381, fn. 11.) The high court explained that unnamed putative class members as nonparties can be bound by issue preclusion only if there was a properly certified class because only in those circumstances can the court in the later proceeding conclude that their interests were adequately represented in the prior proceeding. (Id. at pp. 2379-2381 & fn. 11.)

We find the reasoning in Smith v. Bayer Corporation, supra, 131 S.Ct. 2368, persuasive and conclude, under California law, that the denial of class certification cannot establish collateral estoppel against unnamed putative class members on any issue because unnamed putative class members were neither parties to the prior proceeding nor represented by a party to the prior proceeding so as to be considered in privity with such a party for purposes of collateral estoppel.

Slip op., at 12-13.

Back to your crypt for all eternity, foul spawn of darkness.

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Alvarez v. Brookstone Company, Inc. holds that Pineda v. Williams-Sonoma Stores, Inc. applies retrospectively

Pineda v. Williams-Sonoma Stores, Inc., 51 Cal. 4th 524 (2011) (Pineda) held that the collection of ZIP codes as part of a credit card transaction is conduct that violates Civil Code section 1747.08.  In Alvarez v. Brookstone Company, Inc. (pub. ord. January 18, 2012), the Court of Appeal (Fourth Appellate District, Division One) considered whether Pineda applied retrospectively to conduct occurring prior to that decision.  The Court had little difficulty concluding that the holding of Pineda applied retrospectively:

Pineda expressly concluded: "[T]he only reasonable interpretation of section 1747.08 is that personal identification information includes a cardholder's ZIP code." (Pineda, supra, 51 Cal.4th at p. 534, italics added.) Therefore, despite Brookstone's attempts to show the contrary, the California Supreme Court held that its interpretation of section 1747.08 was the only reasonable interpretation of that statute. Pineda further concluded section 1747.08 "provides constitutionally adequate notice of proscribed conduct." (Id. at p. 536.) We reject Brookstone's due process argument that it did not have fair notice or warning of section 1747.08's prohibition against requesting and recording the ZIP codes of customers during credit card transactions.

Slip op., at 7.

Dear Congress: Get your grubby paws off the internet - I'm looking at you, SOPA and PIPA

In case my opinion isn't entirely clear, SOPA (Stop Online Piracy Act) and PIPA (Protect IP Act) are junk.  The laws display a catastrophic ignorance about how the Internet actually works, are so poorly written as to invite abuse, will most certainly be abused (based on how the MPAA and RIAA have conducted themselves in the past), and will move the United States uncomfortably down the road towards a fragmented, censored Internet.

If you aren't all that technical and want an idea of what's wrong with these laws, reddit has a good post on the topic.