Cal Supreme Court Approves Class Action Fees Based on Settlement Percentage

California Supreme Court Approves Award of Class Action Attorney Fees Based on a Percentage of the Class Action Settlement

Earlier this month, the California Supreme Court issued its decision in a case challenging the traditional method of calculating attorney fees to be paid to the plaintiff attorneys in wage and hour class actions. Laffitte v. Robert Half International Inc., ____ Cal.4th ____, 2016 Daily Journal Daily Appellate Report 8287 (California Supreme Court August 11, 2016).  That case involved a $19 million settlement of three related wage and hour class action lawsuits against the staffing firm Robert Half International, Inc. The settlement provided that no more than one-third of the settlement amount would go to the plaintiff attorneys, also known as the “class counsel.”  The class counsel sought an award of the maximum amount, $6,333,333.33. A single member of the class objected to the requested attorney fee. Nonetheless, the trial court approved the settlement and awarded the requested attorney fee.  The objecting class member appealed, and the Court of Appeal affirmed the trial court’s rulings.  The California Supreme Court accepted the objecting class member’s petition for review for the sole purpose of deciding whether a 1977 California Supreme Court decision, Serrano v. Priest (1977) 20 Cal.3d 25, sometimes referred to as Serrano III, prohibited trial courts from calculating an attorney fee award as a percentage of the settlement amount in class action settlements. The California Supreme Court also considered whether trial courts can use various alternative methods of calculating attorney fees as a means of checking whether the percentage amount is appropriate.

The objecting class member argued that Serrano III requires that attorney fee awards by trial courts be calculated based on the amount of time spent by the attorneys on the case rather than a percentage of the settlement amount. The California Supreme Court disagreed, however, stating that Serrano III arose under a “private attorney general doctrine” that was not applicable to this wage and hour class action.

Employers, if Your Employees Stand to Work, You Better Sit Down

Lots of employees work while standing. You see them on an almost daily basis – cashiers in department stores and big box retailers, bank tellers, retail clerks, and numerous other employees performing countless jobs that, on reflection, perhaps could be performed while seated. Why are they standing? The answer, of course, is because their employers instructed them to stand while working.

For decades, there has been a provision in various California Industrial Welfare Commission Wage Orders that says, “All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.” The Wage Orders have the force of law. But this provision has been all but ignored for the last 40 years. Earlier this month, though, the California Supreme Court, relying on this provision in the Wage Orders, effectively ruled that “If the tasks being performed . . . reasonably permit sitting, and provision of a seat would not interfere with performance of any other tasks that may require standing, a seat is called for” – meaning that the employer is required by law to provide a seat and permit the employee to sit while working. Kilby v. CVS Pharmacy, Inc., 2016 WL 1296101 (California Supreme Court April 4, 2016).

What’s going on? What prompted this decision after all these years?

Up until 2004, the Wage Orders could only be enforced by the California Labor Commissioner, whose office was too understaffed to properly perform its enforcement activities. So, a little over a decade ago, California enacted the Labor Code Private Attorneys General Act of 2004, better known as “PAGA.” PAGA permits employees to take on the government’s enforcement role by suing to collect penalties from employers who violate the Labor Code and the Wage Orders. PAGA allows those employees keep to 25% of the penalties, with the balance going to the State of California. And the employers can be ordered to pay the employees’ attorneys.

In the early days of the PAGA statute, most PAGA lawsuits were class actions against employers who were not paying minimum wages or overtime, misclassified their employees as exempt from overtime, or treated their workers as independent contractors rather than as employees. But, more recently, attorneys representing employees have filed PAGA lawsuits against big retailers and banks, claiming that they are violating the Wage Orders by not allowing their employees to sit while working.

Up until now, employers have been aggressively defending themselves against these lawsuits based on the failure to permit employees to sit while working. But, now that the California Supreme Court has said, in effect, that the Wage Orders mean what they say, many of these cases are likely to settle. And, more importantly for many smaller employers, the attorneys bringing these cases are likely to start turning their attention to smaller employers who require their employees to stand while doing work that could be performed while seated.

So now is a time for employers to be proactive if they have employees who work while standing. Ask yourself, can any of that work be performed while seated? Do they perform work similar to that of bank tellers or retail clerks and cashiers? Or do they perform other functions that would easily be accomplished while seated? If the answer is either yes or maybe, then now is the time to take action to comply with the Wage Orders. Otherwise, you might find yourself in a class action lawsuit, having to defend yourself against the same claims as the big banks and retailers.

Ezer Williamson Law proudly announces Robert C. Hayden as Senior Counsel

Ezer Williamson Law proudly announces the addition of Robert C. Hayden as Senior Counsel.

Mr. Hayden brings with him over 37 years of legal experience and expertise in the areas of labor and employment law, as well as extensive experience in business and commercial litigation, including contract and intellectual property disputes.

Prior to joining Ezer Williamson, Mr. Hayden was a partner at RG Lawyers LLP where he practiced for over six years representing both employees and companies in employment litigation, including wage and hour class actions, wrongful termination, and employment litigation.

Prior to RG Lawyers, Mr. Hayden was a partner with K&R Law Group LLP. At K&R, Mr. Hayden created and headed the employment law group for approximately 11 years, until the firm’s dissolution. While at K&R, Mr. Hayden also worked on complex commercial, business, contract, and intellectual property litigation.

Mr. Hayden began his career in 1978 in the Labor and Employment Department of Kindel & Anderson and moved with the head of that department to Overton, Lyman & Prince to develop a Labor & employment practice at that firm. He became a partner in 1985 and left in 1989 upon the firm’s dissolution. During his time at Kindel & Anderson and Overton, Lyman & Prince, Mr. Hayden represented employers in all aspects of union organizing campaigns, unfair labor practice proceedings before the National Labor Relations Board, and state and federal litigation.  Following the dissolution of Overton,  Mr. Hayden spent over six years at Lewis, D’Amato, Brisbois & Bisgaard (now Lewis, Brisbois, Bisgaard & Smith), leaving as a partner in 1995 to develop the Employment Law group at K&R Law Group.  While at Lewis, D’Amato, Mr. Hayden worked on a wide range of civil litigation matters, including real estate, construction, contract, and commercial disputes.

Mr. Hayden graduated from Stanford University in 1975 with a Bachelor of Science degree.  He then received his legal education at University of California at Berkeley – Boalt Hall School of Law, where he was awarded a Juris Doctor degree in 1978.

To read more about Mr. Hayden, please visit his attorney page here.

Ezer Williamson Law Announces Affiliation With Leven & Seligman, LLP

Ezer Williamson Law is proud to announce its formal affiliation with Century City’s Leven & Seligman, LLP.  With this association, both firms build on their reputations for superior quality, client service, and results.

The association will enable both firms to add depth and breadth to their existing practice areas of Real Estate Law and Litigation, Business and Corporate Transactions, Business and Commercial Law and Litigation, Partnership and Member Disputes, Shareholder Rights, Business Formation, and Estate Planning and Administration.

As part of the affiliation, Ezer Williamson Law gains a physical presence at Leven & Seligman, LLP’s offices in Century City, located at 1801 Century Park East, Suite 1460, Los Angeles, California to further serve Ezer Williamson Law’s West Los Angeles and Valley clients.  The association will also provide Leven & Seligman, LLP with the Ezer Williamson Law South Bay office.

Riverisland, Parol Evidence, and the Fraud Exception

We recently wrote about contract integration clauses, which will usually state that the contract is “completely integrated,” and the parol evidence rule, which works to keep out prior or contemporaneous statements or writings that would modify the contract.  In this post we discuss Riverisland Cold Storage, Inc. v. Fresno–Madera Production Credit Assn., 55 Cal. 4th 1169 (2013).   In short, Riverisland states that the parol evidence rule is not a bar to evidence that goes to show fraud in connection with the contract, and the court may look to, for example, prior statements and emails, to determined what agreement was made by the parties.

In Riverisland, the plaintiffs restructured and reaffirmed a debt owed to the Fresno-Madera Production Credit Association (“Credit Association”).  The restructuring agreement provided that the Credit Association would take no enforcement action for three months if the plaintiffs made specified payments and pledged eight (8) parcels of land as additional collateral.

Later, the plaintiffs fell behind on payments and the Credit Association instituted foreclosure proceedings. Eventually, the plaintiffs repaid the loan and the Credit Association dismissed its foreclosure proceedings.

However, the plaintiffs filed an action seeking damages for fraud and negligent misrepresentation, and included causes of action for rescission and reformation of the restructuring agreement. In their complaint, the plaintiffs alleged that the Credit Association’s vice president told them two weeks before the agreement was signed that the Credit Association would extend the loan for two years in exchange for two “ranch properties” as the additional real-property collateral, but the written contract actually allowed for only an additional three months of forbearance and identified eight (8) parcels as additional collateral.

The plaintiffs did not read the agreement, but simply signed it at the locations tabbed for signature. The Credit Association moved for summary judgment, contending that the plaintiffs could not prove their claims because the parol evidence rule barred evidence of any representations contradicting the terms of the written agreement.

At the time that the plaintiffs brought their complaint, California had operated under the longstanding rule set forth in Bank of America etc. Assn. v. Pendergrass, 4 Cal. 2d 258 (1935), which prohibited the use of parol evidence in cases where fraud is alleged in connection with a purportedly “integrated” contractual agreement.

In Riverisland the Supreme Court concluded that the limitations Pendergrass placed on the fraud exception to the parol evidence rule were not supported by the language of the statute establishing that exception (CCP § 1856(f)(g)) or consistent with prior case law. (55 Cal.4th at 1182)  Further, it held that “Pendergrass failed to account for the fundamental principle that fraud undermines the essential validity of the parties’ agreement. When fraud is proven, it cannot be maintained that the parties freely entered into an agreement reflecting a meeting of the minds. . . . Parol evidence is always admissible to prove fraud, and it was never intended that the parol evidence rule should be used as a shield to prevent the proof of fraud.” (Id. at 1180–1182)

How will this affect contract related litigation in California?   Riverisland leans against a court granting dispositive motions, like demurrers, motions for summary judgment, and motions for judgment on the pleadings, where the plaintiff alleges or can show that there is parol evidence supporting their claims, even if the contract is “fully integrated” and/or has an integration clause.

What is an Integration Clause in a contract?

An integration clause (also known as a merger clause or an entire agreement clause) is found in most contracts and simply provides that the agreement or contract between the parties is the final and complete understanding between the parties, and supersedes all prior negotiations, agreements, or understandings on the subject.

The typical integration clause will say something like this: This Agreement is the entire agreement between the parties in connection with the subject matter of this Agreement, and supersedes all prior and contemporaneous discussions and understandings.1

Integration clauses are key when there is a dispute between two or more contracting parties and one party wants to use prior or contemporaneous discussions to contradict or explain terms within a contract.

By way of example, suppose that Party A negotiates to sell Party B 100 “type-1” gears for a specified sum.  The parties sign a contract which states that Party A agrees to sell Party B 100 “industry standard gears” for a specified sum, but with no reference to “type 1” in the description.  Party A delivers 100 “type-3” gears (considered “industry standard”) and demands payment. Party B refuses to pay.  Party B wants to use communications between the parties before the contract was signed to show that Party A was to deliver 100 “type-1” gears.  Party A, on the other hand, claims that the gears delivered are “industry standard” and the contract contains an integration clause that excludes prior or contemporaneous agreements.

How would a court decide whether the pre-contract communications about “type-1” gears can be used?  Determining whether the written contract was meant to be the exclusive embodiment of the parties’ agreement is known as determining whether the contract is “fully integrated.”  Thus, the existence of an integration clause is a key factor because an integration clause is typically conclusive as to the issue of integration.  The court will therefore look at the contract to determine whether the parties intended the written agreement to be a final and complete expression of their understanding. (Code Civ. Proc., § 1856, subd. (d).)

California has codified (i.e., set out by statute) many rules of contract interpretation; these rules apply to all contracts, absent exceptional circumstances.  Civil Code § 1635.  The basic goal of contract interpretation is to give effect to the parties’ mutual intent that existed at the time of contracting. Civil Code § 1636. When an agreement is set forth in a final written contract, the parties’ intent is determined from the writing alone, if possible. Civil Code § 1639.  “The words of a contract are to be understood in their ordinary and popular sense” (Civil Code § 1644), and  the terms of a final, integrated contract “may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement” (CCP § 1856).

Nevertheless, in our example above, Party B may still be able to submit evidence that the agreement was for 100 “type-1” gears.   This is because a written contract “may be explained or supplemented by evidence of consistent additional terms unless the writing is intended also as a complete and exclusive statement of the terms of the agreement.” Code Civ. Proc., § 1856, subd. (b).  Also, technical words are to be interpreted as usually understood by persons in the profession or business to which they relate, unless clearly used in a different sense. Civil Code § 1645; Cal. Civ. Proc. Code § 1856 (“The terms set forth in a writing described in subdivision (a) may be explained or supplemented by course of dealing or usage of trade or by course of performance.”).

Thus, the dispute between the parties in our example above will center on the court’s determination as to whether the prior and contemporaneous statements are admissible as consistent additional terms and/or to explain what “industry standard” means in this context.

Grey v. Am. Mgmt. Servs., 204 Cal. App. 4th 803, 805 (2012).

When to Appoint a Receiver in California

receiver-in-caIn certain types of litigation, including litigation involving real property and corporate assets, a party (typically the Plaintiff) will request that the Court appoint a receiver, or the Court may decide to appoint a receiver without being asked.

A receiver is neutral person who is not a party to the litigation who takes possession of and manages property or assets belonging to one or more of the litigants.  California Rules of Court Rule 3.1179.

A receiver is an agent for the court, not the litigants.  Thus, the receiver holds or manages the property or the assets “for the benefit of all who may have an interest in the receivership property.” California Rules of Court Rule 3.1179.

Generally, a receiver has the power to bring and defend legal actions, to take and keep possession of property, to receive rents, collect debts, to make transfers, and generally do anything with respect to the property that the Court may authorize.  Code of Civil Procedure § 568.

There are specific circumstances that control when to appoint a receiver.  Code of Civil Procedure § 564. One common circumstance is the appointment of a receiver to manage and hold the property and assets of a corporation that is in the process of being dissolved.  Code of Civil Procedure § 565.

At the request of any creditor  or stockholder of the corporation, the Court in the county where the corporation conducts business or has its principal place of business may appoint one or more persons to be the receiver of the corporation.  The receiver may take charge of the corporation’s property, collect the debts and property due and belonging to the corporation, and to pay the outstanding debts of the corporation as necessary.  The receiver may also divide any of the corporation’s income, money, and other property among the stockholders of the corporation.

A receiver is particularly helpful in circumstances where one or more shareholders of a corporation believe that other shareholders are embezzling funds by paying phony accounts payable, transferring assets to other entities, skimming accounts, etc.  By appointing a receiver, the Court and the requesting party may be able to stop improper or illegal activity and preserve the remaining assets and property of the corporation.  Also, as stated above, the receiver can bring an action to recover assets and property as it sees fit.

Doing Business in California: “Transacting Intrastate Business”

We have previously written about doing business in California, and how the California Corporations Code uses a “transacting intrastate business” test.  Importantly, if a corporation or other entity is deemed to be doing business in California under the “transacting intrastate business” test, that entity must obtain a “Certificate of Qualification” under Corporations Code § 2105.  This post will look at what will and will not constitute “transacting intrastate business.”

Transacting Intrastate Business

Transacting intrastate business means that the entity or some part thereof enters into or conducts repeated and successive business transactions (sales, deals, etc.) in California.  Like many legal tests, certain factors will be weighed to determine whether or not the test is satisfied.  To assist courts and businesses in determining what may or may not qualify as transacting intrastate business, Corporations Code § 191 sets out what activities will not be considered to be transacting intrastate business, although a listed activity may be taken with other activities that, taken together, constitutes transacting intrastate business.  Some of the protected activities include:

(1) Maintaining or defending any action or suit or any administrative or arbitration proceeding, or effecting the settlement thereof or the settlement of claims or disputes.

(2) Holding meetings of its board or shareholders or carrying on other activities concerning its internal affairs.

(3) Maintaining bank accounts.

(4) Maintaining offices or agencies for the transfer, exchange, and registration of its securities or depositaries with relation to its securities.

(5) Effecting sales through independent contractors.

(6) Soliciting or procuring orders, whether by mail or through employees or agents or otherwise, where those orders require acceptance outside this state before becoming binding contracts.

(7) Creating evidences of debt or mortgages, liens or security interests on real or personal property.

(8) Conducting an isolated transaction completed within a period of 180 days and not in the course of a number of repeated transactions of like nature.

Likewise, a foreign corporation will not be considered to be transacting intrastate business solely because one of its subsidiaries transacts intrastate business.  A foreign corporation or other entity  will also not be considered to be transacting intrastate business solely because of its status as any one or more of the following:

(1) It is a shareholder of a domestic corporation.

(2) It is a shareholder of a foreign corporation transacting intrastate business.

(3) It is a limited partner of a domestic limited partnership.

(4) It is a limited partner of a foreign limited partnership transacting intrastate business.

(5) It is a member or manager of a domestic limited liability company.

(6) It is a member or manager of a foreign limited liability company transacting intrastate business.

In addition to the above, it is important to note that, in the digital age, an entity conducting significant business over the internet may have sufficient contacts with California to allow a court to exercise personal jurisdiction over the entity.  Furthermore, California law permits a plaintiff to conduct initial discovery against a defendant corporation or other entity to determine whether or not the corporation has been doing business within the state.

Ninth Circuit: Section 16600 Applies to Settlements

Section 16600 of the California Business and Professions Code prohibits contracts from restraining individuals “from engaging in a lawful profession, trade, or business of any kind.”  While the reach of Section 16600 is broad (recently reaching as far as the  Delaware Court of Chancery), it has traditionally been applied only to employment contracts or agreements that contain non-competition or non-compete clauses where the former employee is prevented from working with a competitor.

But what about a settlement agreement that prohibits employment with a former employer, i.e., an agreement that a former employee can only work for competitors?  Last week the 9th Circuit Court of Appeals addressed that very issue in Golden v. California Emergency Physicians Medical Group, No. 12-16514, 2015 WL 1543049 (Apr. 8, 2015).

In that case, Donald Golden (“Golden”), an emergency room doctor, sued his former employer, California Emergency Physicians Medical Group (“CEP”), and others alleging various causes of action including racial discrimination.  In open court CEP agreed to pay a “substantial monetary amount” to Golden, and Golden agreed to withdraw his claims against CEP and “waive any and all rights to employment with CEP or at any facility that CEP may own” now and in the future.  (Notably, CEP is a consortium of more than 1,000 physicians and staffs and manages emergency rooms and inpatient centers throughout California.) 

Golden later refused to sign the settlement agreement.  The district court ultimately granted a motion by Golden’s former counsel to intervene and ordered that the settlement agreement be enforced. Golden appealed to the 9th Circuit on the single issue that the settlement agreement was void under Section 16600.

After addressing the issue of ripeness, the majority began by noting that the California Supreme Court had not ruled on whether Section 16600 applies outside of “typical so-called ‘non-compete covenants,’” and specifically “whether a contract can impermissibly restrain professional practice, within the meaning of the statute, if it does not prevent a former employee from seeking work with a competitor and if it does not penalize him should he do so.”

The majority found that the breadth of the statute meant that Section 16600 was not so limited and that the district court improperly determined that the settlement agreement need not comply with Section 16600.  As the court noted, Section 16600 prohibits “every contract” (not specifically excepted by another statute) that “restrain[s]” someone “from engaging in a lawful profession, trade, or business.”  Therefore, Section 16600 applies to all such restrictions “no matter [their] form or scope.”  The case was reversed and remanded to the district court for further proceedings.

Notably, former 9th Circuit chief justice Alex Kozinski filed  a dissenting opinion accusing the majority of ruling on the case despite the fact that, according to him, “the settlement agreement does not limit Dr. Golden’s ability to practice his profession at this time—except to the extent that he can’t work for CEP.”  In his opinion, the majority misconstrued Section 16600 and allowed it to preserve “an unfettered right to employment in all future circumstances, no matter how remote or contingent.”  Judge Kozinski would have dismissed the case for lack of standing until Golden had actually been fired or denied a position due to the settlement agreement. 

California’s Presumption Against Non-Compete Agreements Recognized in Delaware

Terms of Employment ContractPreviously on the blog we discussed how non-compete agreements in California are presumed void unless they meet one of two very narrow statutory exceptions. A recent decision from the  Delaware Court of Chancery further emphasized the reach and effect of this presumption by upholding a California employee’s right to contract despite a non-compete agreement in an employment contract governed by Delaware law.

Specifically, in  Ascension Insurance Holdings, LLC v. Underwood et al., the Delaware Court addressed the issue of whether a non-compete provision governed by Delaware law could be enforced against a California-based employee competing against his California-based employer. Ascension Insurance Holdings, LLC v. Underwood et al., C.A. 9897-VCG (Del Ch. January 28, 2015). 

Ascension is a limited liability company incorporated in Delaware, but its principal place of business is in California.  Ascension acquired the assets of another company and as part of the acquisition Underwood entered into agreements not-to-compete with Ascension or its subsidiary Alliant Insurance Services, Inc. (“AIS”), where Underwood had been previously employed.

Underwood allegedly began competing in violation of the agreement’s non-compete, and Ascension sought an injunction seeking to enforce the non-compete against Underwood. The defendants argued that the covenant was not enforceable as it was against the public policy of California. However, Ascension argued that the covenant not-to-compete signed by Underwood contained a Delaware choice of law provision, and therefore the covenant was enforceable.

The Delaware Court of Chancery concluded that California law, not Delaware law, applied. Despite the fact that the employment agreement contained a Delaware choice-of-law provision, the court did not enforce the non-compete agreement and denied the request for an injunction. The court noted that it does not have to automatically defer to the parties’ choice of law selection, but rather examined whether enforcement of the non-compete would conflict with California’s strong statutory policy against non-compete agreements.  In fact, the court found that such a conflict did exist, and it also found that California’s interest in upholding its policy against the enforcement of non-competes outweighed Delaware’s interest in enforcing the non-compete agreement.

The impact of this case is significant in light of the fact that many companies chose to incorporate in Delaware but principally operate in California, and that those companies may also choose to apply Delaware law to their contractual agreements.  A recent report found that out of 211,929 observed businesses nationwide, 54.57% incorporated in Delaware. The next biggest state is New York with 5.15%, followed by California with 4.38%.  The top 10 states make up over 80% of all corporations.

If you have any questions about on-compete clauses, consult with an experienced attorney. Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you.