Author: oclitigator

Afewerki v. Anaya Law Group, 9th Cir., 8/18/17

The Fair Debt Collection Practices Act (FDCPA) forbids debt collectors from making false statements when attempting to collect debts from consumers.  False statements are only actionable when they are material.  Statements are material when they would cause the hypothetical “least sophisticated investor” to suffer disadvantage when charting a course in response to the collection effort–not a rigorous requirement.  In this case, a creditor hired a law firm to sue debtor, and correctly informed the attorneys that the outstanding debt was $26,916 and that the interest rate was 9.65%. In drafting the state court complaint, the law firm incorrectly alleged that the underlying debt was $29,916 and that the interest rate was 9.965%. When it realized its mistake, the law firm almost immediately filed corrections to the complaint. The debtor nonetheless filed a federal lawsuit against the law firm alleging violations of the federal and state fair debt collection laws. On motion for summary judgment, the district court granted law firm’s motion, holding that the errors in the state complaint were not material. Held: Reversed.

Here, the complaint was fixed long before trial, and there is no evidence that debtor paid any of the debt, let alone more than was owed.  Moreover, in opposition to summary judgment, debtor provided no evidence that he would have acted differently in response to the lawsuit–he hired an attorney to defend the case–had the original complaint contained no errors.  In other words, he wasn’t misled or harmed in any way.

In FDCPA litigation, none of that matters.  As far back as 1982, the Ninth Circuit concluded that the FDCPA does not ask whether an individual plaintiff was actually misled by a communication.  To make out a violation, it is enough to posit that the hypothetical least sophisticated investor might have been misled.  The court also noted that a consumer possesses a right of action where the defendant’s conduct has not caused pecuniary or emotional harm. In this case, it was not hard for the court to posit that a hypothetical “least sophisticated investor” might have paid the entire balance, which was $3,000 more than it owed.  Of course, that didn’t actually happen in this case.

If the FDCPA creates standing and a cause of action for hypothetical musings about what might have been, then the FDCPA is antithetical to common sense.

The State Bar of California just sent a survey to California attorneys asking whether it should make it easier to pass the bar exam. It sent the survey to attorneys in a complete vacuum.  The current cut score is 1440.  It is obvious to everyone that changing that score will impact the pass rate, downwards or upwards, which is the only (self-evident) observation the State Bar provided. But how does that information help attorneys provide an informed response? Why didn’t the State Bar explain why it set the cut score at 1440 in the first place? Presumably the State Bar had made a reasoned determination, based on the evidence before it, that a cut score of 1440 would demonstrate that the applicant had a minimal competency to practice law in California, that such minimal competency would be reflected in how that person served his/her clients (i.e., well or not well), and that minimal competency would protect the public and the integrity of the judicial system, while promoting the public’s respect for the legal profession.  It gets worse.  

I went to the State Bar website and found the actual study the State Bar commissioned (Conducting a Standard Setting Study for the California Bar Exam): 
http://apps.calbar.ca.gov/cbe/docs/agendaItem/Public/agendaitem1000001929.pdf

After explaining the math and methodology of the study, the executive summary says this: “The panel’s median recommended passing score of 1439 converged with the program’s existing passing score while the mean recommended
passing score of 1451 was higher.”  In other words, according the the legal and math experts involved in the Study, California’s current cut score is either at or just below where it should be to ensure minimal competency of the applicant.

But for some reason, the State Bar’s email only suggested keeping or lowering the cut score, not raising it:  “Based on the study’s findings, two options were presented to the Committee of Bar Examiners for consideration and subsequently issued for comment: 1) keep the current cut score of 1440; 2) reduce it to 1414 as an interim cut score, pending the conclusion of the other studies being conducted.”  To protect the public, the State Bar should have informed us about the recommendations of the Study, and that raising the cut score would also be in line with the Study.

What if a similar survey had been sent by the Medical Board asking whether its cut score should change to make it easier for medical students to pass the licensing exam and become doctors?  If the Medical Board’s cut score is set to ensure minimal competency to practice medicine, a suggestion to lower the cut score so more people would pass the test would be frightening, literally.  

We want competent doctors. In the same vein, everyone in California deserves a minimally competent attorney.

Until recently, California employers could incorporate forum-selection and choice-of-law provisions into employment agreements.  Requiring California employees to litigate employment claims in a different state would present a tremendous impediment to the enforcement of employment claims for most employees–Can most employees to travel to, let’s say, NY or NJ to litigate their claims for discrimination or unpaid wages? To combat potential abuse, Senate Bill 1241 added Section 925 to California’s Labor Code effective January 1, 2017. Subject to various and appropriate exceptions, Section 925 limits an employers’ ability to require employees who are living and working in California to litigate or arbitrate such disputes outside of California or under the laws of another state.

This new law was enacted intending to prevent employers from contracting around California law, which prohibits, for example, non-compete clauses in employment agreements, by use of forum-selection provisions.  Additionally, Senate Bill 1241 limits employers’ ability to include certain foreign choice-of-law provisions in their employment agreements that provide for more “employer friendly” law. 

Exceptions: The law contains appropriate exceptions in which employers will be able to avoid the application of the statute. First, the law applies only to claims and controversies arising in California.  Where claims and controversies arise in other states, employees are not afforded the law’s unilateral right to void forum-selection and choice-of-law provisions.  Secondly, the statute does not apply when an employee is represented by legal counsel in negotiating the terms of the agreement containing the otherwise prohibited provisions.  Thus, top executives who hire an attorney to help them negotiate an employment agreement will not benefit from the law.  Finally, if an employer incorporates an opt-out provision and the employee has a meaningful choice whether or not to sign as a condition of employment, the statute does not appear to invalidate the otherwise voidable forum and choice-of-law provisions.

Russell City Energy Co. v. City of Hayward, 8/7/17, DCA1/5

In this case, the City of Hayward wanted an energy plant and asked Russell City Energy Company to build one.  It cost Russell tens of millions of dollars, and the plant has been built and is operating. Under the contract, Russell also agreed to pay the Hayward $10 million to build a library.  In exchange, the contract prohibited the City from imposing any taxes on the “development, construction, ownership and operation” of Russell’s power plant except taxes tethered to ownership of real property.  However, Article XIII, section 31 of the California Constitution (Section 31) provides “[t]he power to tax may not be surrendered or suspended by grant or contract.”  The City took the $10M–thank you very much–but also imposed taxes on Russell. Russell sued Hayward for breach of contract, but not quantum meruit.  The trial court granted the City’s demurrer without leave to amend.  Held: Reversed in so far as the trial court denied Russell leave to amend to state a quantum meruit cause of action.

The contract provision violates Section 31 and should be stricken. To get around Section 31, Russell argued on appeal that its $10M payment was a so-called “PILOT” tax payment (upfront payments in lieu of taxes).  While PILOT payments do not violate Section 31, the contract didn’t characterize the $10M payment as a PILOT payment, nor did Russell’s complaint plead it as such.

But Hayward’s decision to both tax (which it was correct in doing) and to fight to keep the entire $10 million for the library (which it did not have to do) was just plain greedy.  In this case, the appellate court found a way to overcome the general rule that private parties cannot state implied-in-fact contract claims against public entities.  Here’s what the court said:

“In seeking quasi-contractual relief, Russell is not attempting to imply the existence of an extra-contractual agreement, nor is Russell attempting to enforce the invalid provision of the agreement.  Rather, Russell is seeking recovery of at least some of the consideration it provided because the City was unable to deliver its promised performance.  Under the unique set of circumstances here, we conclude Russell “should be given an opportunity to amend its complaint to allege” a quasi-contractual restitution claim.  (First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657.)”

That feels like the right result: Governmental agencies and their employees are servants of the people, and should not ignore basic principles of fairness and equity in how they fulfill their legal obligations.  Given their position, they should do more in that regard, not less.

The Journal characterized John Kelly as the “new Sheriff” in the White House.  It should have read — There is now an “adult” on President’s White House staff.  With the world on the brink of crisis, the President needs to surround himself with people who have competence and character, and who give the appearance that they care more about what’s happening in the outside world than with fighting among themselves.

Mendoza v. Nordstrom, 8/3/17, Ninth Cir.

By statute, employees in California are entitled to one day’s rest in seven.  Labor Code section 551.  Plaintiffs filed a PAGA action (see Labor Code s. 2699 et seq.) against Nordstrom alleging violations of this principle.  Over the years of his employment with Nordstrom, plaintiff had once worked 7, 8 and 11 days consecutively.  In each of those instances, plaintiff did not work seven consecutive days in the same workweek, and at least one of his shifts had been less than six hours.  Moreover, while Nordstrom hadn’t scheduled him to work that many shifts in a row, he agreed to it after his supervisor asked him to cover a shift for a sick co-worker. After a court trial, the district court found for Nordstrom and dismissed plaintiff’s PAGA claim.  Held: Affirmed.


Section 551 says that “Every person employed in any occupation of labor is entitled to one day’s rest therefrom in seven.” Section 552 provides that “No employer of labor shall cause his employees to work more than six days in seven.”  Section 556 says that “sections 551 and 552 shall not apply to any employer or employee when the total hours of employment do not exceed 30 hours in any week or six hours in any one day thereof.”

Until now, no published case in California had involved these questions.  The Ninth Circuit therefore certified three questions to the California Supreme Court:  1) Is the limit in section 551 calculated by the workweek (versus any consecutive seven-day period); 2) For the section 556 exemption to apply, does the employee have to work 6 hours or less in every shift (versus in at least one shift); and 3) Without violating the statute, can an employer allow an employee (versus inducing the employee) to work a seventh day if, after informing the employee of his rights, the employee voluntarily chooses to work the seventh shift?

The Supreme Court answered: Yes, yes, and yes.

While the district court’s analysis of the applicable law did not match how the California Supreme Court ultimately answered the first two questions, the district court got to the right result.  That’s all it takes to be entitled to affirmance.

The Ninth Circuit also affirmed the district court refusal to allow plaintiff to substitute another plaintiff to pursue the Labor Code section 551 in his place.  A proper PAGA plaintiff is an “aggrieved employee.”  Section 2699(c) provides: “For purposes of this part, “aggrieved employee” means any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.”  Plaintiff was not an aggrieved employee.  Because of the mandatory pre-filing procedural requirements under PAGA, one plaintiff can’t simply substitute for another: Even if aggrieved employees do exist, under the requirements of Labor Code section 2699.3, they would have to exhaust their claims administratively before bringing a PAGA action of their own.  That is, they would have to file a pre-filing notice with the Labor and Workforce Development Agency (LWDA), after which the LWDA would have 120 days to investigate the purported claim.

The Ninth Circuit rejected plaintiff’s argument that the district court was required to allow a substitution of parties.  The district court had previously asked plaintiff if he wanted to add parties and plaintiff declined; while party substitutions are common in class actions, PAGA actions are different in critical respects; and, ultimately, the decision of the district court on this issue would be reviewed under the abuse of discretion standard.

Two thoughts here: First, a request by plaintiff to substitute a new plaintiff after the court trial and after judgment has already been entered against him is, well, startling.  The case is over.  Second, intuitively I like the court’s ruling on this issue: A PAGA case is not a class action; it’s a qui tam action.  The plaintiff is not seeking damages for fellow class members, but civil penalties which go to the state (except for the 25% reward).  In a class action, the plaintiff is representing himself and his fellow class members; a substitution (or addition of plaintiffs) as needed is totally appropriate.  In a PAGA action, the plaintiff is not working for fellow class members but for the state.  It seems odd that a new plaintiff could substitute in for the original plaintiff who never had the right to bring a PAGA claim in the first place.  Perhaps it would be different if the original plaintiff was an aggrieved employee but could no longer continue with the case, and if the LWDA itself consented to the substitution.  The future will tell.

The Federal Arbitration Act (9 U.S.C. s. 1) requires the enforcement of arbitration agreements covering private disputes.  A recent California Supreme Court case, Iskanian v. CLS Transportation Los Angeles LLC, (2014) 59 Cal.4th 348, held that PAGA claims for civil penalties, the functional equivalent of a qui tam action, are not subject to a private arbitration agreement.

The court remanded the case to allow the employee to definitively state whether he was seeking to recover his own unpaid wages, i.e., individualized relief.  If so, the court explained that those claims must be sent to arbitration.

Mountain Air Ent. v. Sundowner Towers 7/31/17 SC 

Under the American rule, the prevailing party in litigation cannot recover attorney’s fees against the losing party, absent an exception.  One exception is when the parties have a contract with an attorney’s fees clause.  If one party sues on the contract, the prevailing party will be awarded attorney’s fees.  But what happens when the the party who initiates the lawsuit doesn’t sue on the contract with the attorney’s fees clause, but instead the defendant asserts that contract as an affirmative defense?  In Mountain Air the trial court held that wasn’t good enough to trigger the attorney’s fees clause. The appellate court disagreed: inserting a contract by affirmative defense was comparable to initiating an action on the contract. Held: The Supreme Court held that the assertion of the contract as an affirmative defense is not an action on the contract and does not trigger a right to attorney’s fees.

In Mountain Air, two sophisticated parties entered into a multi-million dollar real estate deal.  Their deal included a repurchase agreement and a subsequently executed option agreement.  Both contracts contained attorney’s fees clauses, and the later option agreement had an “integration” clause.  The integration clause stated the option agreement “expressly supersedes all previous or contemporaneous agreements, understandings, representations, or statements between the parties respecting this matter.”  That didn’t deter Plaintiff, who sued to enforce the repurchase agreement (it wanted to return the property to defendant and get its money back). The defendant of course saw things differently: Claiming that the option agreement extinguished the repurchase agreement, defendant asserted the option agreement as an affirmative defense. 

1. The filing an answer with affirmative defenses is part of the action, but doesn’t mean that the defendant thereby brought an action that triggers attorney’s fees.  Some lower courts had come to a different conclusion (Windsor Pacific LLC v. Samwood Co.), and the Supreme Court disapproved of Windsor case on that basis. 
2. However, unlike the trial court and the DCA, the Supreme Court held that the option agreement relied on by a defendant in its answer could still support a claim for attorney’s fees, because of the broad language in that contract.

• If any legal action or any other proceeding,
• including arbitration or an action for declaratory relief
• is brought
  • for the enforcement of this Agreement or
  • because of an alleged dispute, breach, default, or misrepresentation in connection with any provision of this Agreement,
• the prevailing party shall be entitled to recover
• reasonable attorney fees,
• • expert fees and
  • other costs
  • incurred in that action or proceeding,
  • in addition to any other relief to which the prevailing party may be entitled.” (Italics added.)