Jan 09 2011
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News, Private Rights of Action, Tip Pooling

California Supreme Court Rejects Private Right of Action for Plaintiffs in Tip Pooling Cases Under Labor Code section 351

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The California Supreme Court today issued its opinion in Lu v. Hawaiian Gardens Casino, Inc., an eagerly anticpiated decision where the issue was whether Labor Code section 351 provides a private cause of action for employees to recover any misappropriated tips from employers.  The Court concluded that “section 351 does not contain a private right to sue.”

Labor Code section 351 prohibits employers from taking any gratuity patrons leave for their employees, and declares that such gratuity is “the sole property of the employee or employees to whom it was paid, given, or left for.” Several appellate opinions have held that this prohibition, at least in the restaurant context, does not extend to employer-mandated tip pooling, whereby employees must pool and share their tips with other employees. (See Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal. App. 3d 1062, 1067 (Leighton); see also Etheridge v. Reins Internat. California, Inc. (2009) 172 Cal. App. 4th 908, 921-922; Budrow v. Dave & Buster’s of California, Inc. (2009) 171 Cal.App.4th 875, 878-884; Jameson v. Five Feet Restaurant, Inc. (2003) 107 Cal.App.4th 138, 143.)

Plaintiff Louie Hung Kwei Lu (plaintiff) was employed as a card dealer at defendant Hawaiian Gardens Casino, Inc. (the Casino), from 1997 to 2003. The Casino had a written tip pooling policy.  Plaintiff brought a class action against the Casino and its general manager. His complaint alleged that the Casino‟s tip pooling policy amounted to a conversion of his tips, and violated the employee protections under sections 221 (prohibiting wage kickbacks by employer), 351 (prohibiting employer from taking, collecting, or receiving employees‟ gratuities), 450 (prohibiting employer from compelling employees to patronize employer), 1197 (prohibiting payment of less than minimum wage), and 2802 (indemnifying employee for necessary expenditures). The complaint also alleged that the Casino‟s conduct giving rise to each statutory violation constituted an unfair business practice under the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.).

The trial court granted the Casino‟s motion for judgment on the pleadings on the causes of action based on sections 351 and 450. It agreed with the Casino that neither section contained a private right to sue. The court also granted the Casino‟s successive motions for summary adjudication on the remaining causes of action. Plaintiff appealed.

The Court of Appeal held, “pursuant to the analysis in Leighton, that tip pooling in the casino industry is not prohibited by Labor Code section 351.” However, it reversed the trial court‟s order granting summary adjudication of the UCL cause of action based on section 351. While section 351 itself contains no private right to sue, the Court of Appeal concluded this provision may nonetheless serve as a predicate for a UCL claim because plaintiff presented triable issues of fact as to whether section 351 prohibited certain employees who participated in the tip pool from doing so because they were “agents” of the Casino.

Less than two months later, another Court of Appeal expressly disagreed with the holding on section 351 of the appellate court below. (See Grodensky v. Artichoke Joe’s Casino (2009) 171 Cal.App.4th 1399, review granted June 24, 2009, S172237.) The Supreme Court granted review to resolve the conflict on this narrow issue.

The Court concluded that the statutory language does not “unmistakabl[y]” reveal a legislative intent to provide wronged employees a private right to sue.  Based on a review of section 351‟s legislative history, the Court also concluded that there is no clear indication that the legislative history showed an intent to create a private cause of action under the statute.

Justice Chin wrote the opinion for the California Supreme Court, with all other Jusitices concurring.  Judge David L. Minning of the Los Angeles Superior Court was the trial judge.

The attorneys for appellant were Spiro Moss, Dennis F. Moss, and Andrew Kopel.

David Arbogast submitted an amicus curiae brief for the Consumer Attorneys of California.

Respondents were represented by Tracey A. Kennedy and Michael St. Denis

Anna Segobia Masters and Jennifer Rappoport submitted an amicus curiae brief for the California Gaming Association on behalf of Defendants and Respondents.

Dennis F. Moss and Tracey A. Kennedy argued in front of the Court.

By CHARLES H. JUNG

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Jan 09 2011
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Employee Mobility, Wrongful Termination

Employee Has Viable Tameny Claim Against New Employer for Wrongful Termination in Violation of Public Policy When Terminated by New Employer, Who Cites Alleged “Understanding” Between Old and New Employer to Honor Old Employer’s Noncompetition Agreement

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While this next case doesn’t deal directly with trade secrets, it addresses a common fact pattern in the employee mobility arena.  The Second District Court of Appeal in Silguero v. Creteguard, Inc., — Cal. Rptr. 3d —-, 2010 WL 2978222, *1 (Cal. Ct. App. 2d Dist. July 30, 2010) decided the issue of whether a terminated employee working in the area of sales has a viable claim for wrongful termination in violation of public policy under Tameny v. Atlantic Richfield Co., 27 Cal. 3d 167 (1980), against her subsequent employer when the employee’s former employer contacts the employee’s subsequent employer and informs it that the employee had signed an agreement with the former employer which prohibited the employee “from all sales activities for 18 months following either departure or termination,” and the subsequent employer terminated the employee’s employment out of “respect and understanding with colleagues in the same industry,” notwithstanding its belief that “non-compete clauses are not legally enforceable here in California .”  Silguero, 2010 WL 2978222, *1.

Citing California Business and Professions Code section 16600’s legislative declaration of California’s “settled legislative policy in favor of open competition and employee mobility” (Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 946 ( Edwards )), we conclude that the employee has a viable Tameny claim.”  Silguero, 2010 WL 2978222, *1.
The Court cited the alleged “understanding” between the old employer and the new employer to honor the old employers noncompetition agreement.  The new employer Creteguard admitted in writing that it entered into this understanding with the old employer, “although [the new employer] believe[d] that non-compete clauses are not legally enforceable here in California,” because the new employer “would like to keep the same respect and understanding with colleagues in the same industry.”

The Court reasoned that this alleged understanding is “tantamount to a no-hire agreement.” Silguero, 2010 WL 2978222, *6.  The Court concluded that such an “understanding” between the new and old employer “would be void and unenforceable under section 16600 because it ‘unfairly limit[s] the mobility of an employee’ and because [the old employer] ‘should not be ‘allowed to accomplish by indirection that which it cannot accomplish directly.’” Silguero, 2010 WL 2978222, *1 (citing VL Systems, Inc. v. Unisen, Inc., 152 Cal. App. 4th 708, 716-17 (2007).

[P]ermitting a Tameny claim against Creteguard under the circumstances of this case furthers the interest of employees in their own mobility and betterment, “‘deemed paramount to the competitive business interests of the employers, where neither the employee nor his new employer has committed any illegal act accompanying the employment change.’” (Dowell v. Biosense Webster, Inc. (2009) 179 Cal.App.4th 564, 575, quoting Diodes, Inc. v. Franzen, supra, 260 Cal.App.2d at p. 255 [in Dowell, both employees and their current employers sued a former employer to invalidate a noncompetition agreement].)  For all of the foregoing reasons, we conclude that Silguero has pleaded a viable Tameny claim against Creteguard predicated on the public policy in section 16600.

Id. *6.

The Court created a new avenue of liability for employers, who must now carefully decide how to respond to cease and desist letters from old employers.   Creteguard would almost certainly have fared better had it avoided the unnecessary editorializing in its termination letter.

By CHARLES H. JUNG

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Jan 09 2011
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Arbitration

Second District Holds that Federal Choice of Law Provision in Arbitration Agreement Requires Application of Vacatur Provisions of FAA

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In a 3-0 opinion, the Second District held that while California state courts do not apply the FAA vactur provisions, because of the choice of law provision in the arbitration agreement, the trial judge was required to utilize the vacatur provisions of the FAA in passing on the amended petition to vacate the partial arbitration awards.

In Countrywide Financial Corp. v. Bundy, — Cal.Rptr.3d —-, 2010 WL 3064481 (Cal. Ct. App. 2d Dist. August 06, 2010), Defendants, Thomas Bundy, Misty Sanchez, Kevin Prevost and David Godina, appealed from an order vacating partial arbitration awards against plaintiffs, Countrywide Financial Corporation and Full Spectrum Lending, Inc.

The underlying case involved two arbitrations that were ultimately consolidated. The Bundy-Sanchez-Prevost arbitration demand sought classwide arbitration of claims for unpaid wages including incentive compensation, waiting penalties, costs and attorney fees pursuant to Labor Code section 200 et seq., Business and Professions Code section 17200 et seq., and common law principles.  The Godina arbitration demand alleged many of the same matters in terms of plaintiffs’ operations.

The arbitrator issued partial arbitration awards in favor of defendant.  Judge Elizabeth A. White vacated the partial arbitration awards on the ground the arbitrator committed a number of legal errors.  The Second District concluded that because of the unambiguous choice of law language in the agreements to arbitrate, “we must apply the vacatur provisions applicable before a United States District Court in a case subject to the Federal Arbitration Act. (9 U.S.C. § 1 et seq.)”  Applying the vacatur provisions of the Federal Arbitration Act, the Court of Appeal reversed, finding “no grounds permitted the partial awards to be vacated.”

The Court expressed doubt regarding whether the “manifest disregard of the law standard” survives Hall Street Associates L.L.C., but it chose to evaluate the interim awards under both title 9 United States Code section 10(a)(4) and the manifest disregard of the law test.  ; the course chosen by the Supreme Court in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., supra, 559 U.S. at page —- [130 S.Ct. at page 1768].”  The Court described the manifest disregard standard as follows:

The first element is the arbitrator must know the governing rule of law and refuse to apply it or ignore it. The second element is that the law ignored by the arbitrator is well-defined, explicit, and clearly applicable to the case.

Presiding Justice Paul A. Turner wrote the opinion.  Hon. Sandy R. Kriegler and Hon. Richard M. Mosk concurred.

Defendants and appellants were represented by Caryl L. Boies, Sigrid S. McCawley and Lauren E. Fleischer of Boies, Schiller & Flexner.

Plaintiffs and Respondents were represented by Andrew M. Paley, Gregg A. Fisch and Jennifer Sloane Abramowitz of Seyfarth Shaw.

By CHARLES H. JUNG

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Jan 09 2011
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Employee/Independent Contractor

Ninth Circuit Amends Narayan v. EGL, Weakening Language Re Effect of Contracts Acknowledging Independent Contractor Status

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Significantly, the Ninth Circuit Court of Appeals yesterday amended its opinion in Narayan v. EGL, Inc., — F.3d —-, 2010 WL 3035487 (9th Cir. July 13, 2010).  The Court had written that “The fact that the Drivers here had contracts ‘expressly acknowledging that they were independent contractors‘ is simply not significant under California’s test of employment.”

The Court replaced this holding with “That the Drivers here had contracts ‘expressly acknowledging that they were independent contractors’ is simply not dispositive under California’s test of employment.”

By CHARLES H. JUNG

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Jan 09 2011
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Federal Jurisdiction

Mere Reference to Patent Does Not Confer Federal Jurisdiction Over UTSA Claim

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In this next case, Judge James Lorenz of the Southern District of California runs through a federal question analysis and concludes that Plaintiff’s mere reference to the fact his intellectual property is patented does not convert a state law UTSA claim into a federal question that can impart original jurisdiction in the federal courts.  Markey v. Verimatrix, Inc., 2010 WL 2976164 (S.D. Cal. July 22, 2010) (slip op.).

A careful review of plaintiff’s misappropriation of trace secret claim as found in the complaint does not suggest a basis for federal jurisdiction. The issue presented for decision is not whether plaintiff’s patents are valid or invalid or are or are not being infringed but whether his intellectual property was misappropriated. Mere reference to the fact that plaintiff’s intellectual property was patented does not turn on a substantial question of federal law. Plaintiff is not seeking to prove his trade secrets are protected under federal patent law and that defendant infringed on the patent. And the Court is not called to determine in any manner the scope and meaning of plaintiff’s patent in order to consider the alleged trade secret misappropriation. The misappropriation of trade secret claim does not ‘turn on substantial questions of federal law,’ and does not ‘really and substantially involv[e] a dispute or controversy respecting the validity, construction or effect of [federal] law.’ “ Williston Basin, 524 F.3d at 1102. Instead, the sole remaining claim in the complaint is based solely on California law. As a result, the Court does not have original jurisdiction over plaintiff’s claim.

By CHARLES H. JUNG

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Jan 09 2011
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Legislation

New York Rejects Farmworker Overtime Pay Legislation

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Already discussed and rejected several times this year, the New York legislature has again rejected legislation that would have give farmworkers overtime pay and other workplace rights.  The bill was voted down 31 to 28.  Before that, the bill was defeated in the Agriculture Committee.  The Post-Journal covers the story here.

By CHARLES H. JUNG

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Jan 09 2011
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Trade Secrets Act

Navy Wins MSJ in Reverse-FOIA Case with a Trade Secrets Act Cause of Action

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In a reverse-FOIA case, JCI Metal Products v. U.S. Dept. of the Navy, Slip Copy, 2010 WL 2925436 (S.D. Cal.  Jul 23, 2010) (NO. 09-CV-2139-IEG), Plaintiff JCI Metal Products (“JCI”) brought an action seeking to prevent disclosure of certain information relating to its past contract with Defendant United States Department of the Navy (“Navy”). Before the Court were Plaintiff’s and Defendant’s cross-Motions for Summary Judgment. The court granted Defendant’s Motion for Summary Judgment.

JCI’s second cause of action alleged that disclosure by the Navy of JCI’s unit prices for each contract line item (“CLIN”) information at issue would violate and contravene the Trade Secrets Act, 18 U.S.C. § 1905.

The Trade Secrets Act provides a criminal penalty for:

Whoever, being an officer or employee of the United States . . . publishes, divulges, discloses, or makes known in any manner or to any extent not authorized by law any information coming to him in the course of his employment or official duties . . . which information concerns or relates to the trade secrets, processes, operations, style of work, or apparatus, or to the identity, confidential statistical data, amount or source of any income, profits, losses, or expenditures of any person, firm, partnership, corporation, or association . . . .

The Court held that the Trade Secrets Act “cannot override the FOIA’s obligatory disclosure provisions.” Citing CNA Fin. Corp., 830 F.2d at 1141-42; Gen. Elec. Co. v. U.S. Nuclear Regulatory Comm’n, 750 F.2d 1394, 1401-02 (7th Cir.1984) (“[T]he Trade Secrets Act has no independent force in cases where the Freedom of Information Act is involved….”).  The Court concluded that the information sought was not protected by Exemption 4 of the FOIA, which exempts from disclosure “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”  Accordingly, “because the information in this case is not protected by Exemption 4, neither can it be protected by the Trade Secrets Act.”  Therefore, the Court granted the Navy’s Motion for Summary Judgment on the Trade Secrets Act cause of action.

By CHARLES H. JUNG

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Jan 09 2011
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Discrimination

Cal. Supreme Court Issues Opinion in Reid v. Google, Rejecting Strict Application of Stray Remarks Doctrine in Cal. Discrimination Cases

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The California Supreme Court today issued its decision in Reid v. Google.  The Court rejected strict application of the stray remarks doctrine in California discrimination cases.  Under this doctrine, statements that non-decision-makers make or that decision makers make outside of the decisional process are deemed stray, and they are irrelevant and insufficient to avoid summary judgment.

Plaintiff Brian Reid filed an age discrimination lawsuit against his former employer, Google, Inc. The trial judge, Hon. William J. Elfving, granted Google‘s summary judgment motion relating to plaintiff‘s claims. The Court of Appeal reversed.

The Court decided two issues:

  1. Does a trial court‘s failure to rule on a party‘s evidentiary objections relating to a summary judgment motion waive the objections on appeal?
  2. Should California courts follow the federal courts in adopting the stray remarks doctrine in employment discrimination cases?

The Court of Appeal found that the trial court’s failure to issue express rulings on evidentiary objections did not waive those objections on appeal.  And the Court of Appeal further refused to apply the stray remarks doctrine to exclude alleged discriminatory statements that Reid‘s supervisors and coworkers made.

The Supreme Court agreed with the Court of Appeal’s conclusions:

Regarding the waiver issue, the Court of Appeal correctly determined that a finding of waiver does not depend on whether a trial court rules expressly on evidentiary objections and that Google‘s filing of written evidentiary objections before the summary judgment hearing preserved them on appeal. (Code Civ. Proc., § 437c, subds. (b)(5), (d).)  After a party objects to evidence, the trial court must then rule on those objections. If the trial court fails to rule after a party has properly objected, the evidentiary objections are not deemed waived on appeal.

Regarding the stray remarks issue, the Court of Appeal also correctly determined that application of the stray remarks doctrine is unnecessary and its categorical exclusion of evidence might lead to unfair results.

Robin Weideman of the California Labor & Employment Law Blog gives a nice analysis of the stray remarks portion of today’s ruling.

The attorneys for plaintiff and appellant were Barry L. Bunshoft, Ray L. Wong, Paul J. Killion, Lorraine P. Ocheltree, Eden E. Anderson and Allegra A. Jones.  Charlotte E. Fishman for California Employment Lawyers Association filed an Amicus Curiae on behalf of Plaintiff and Appellant.  Thomas W. Osborne, Melvin Radowitz and Barbara A. Jones for AARP also filed an Amicus Curiae on behalf of Plaintiff and Appellant.

The attorneys for defendant and respondent were Fred W. Alvarez, Marina C. Tsatalis, Amy K. Todd, Marvin Dunson III, Koray J. Bulut, Elizabeth C. Tippett, Jeanna Steele, Gary M. Gansle of Wilson Sonsini and Paul W. Cane, Jr. of Paul Hastings.  Greines, Martin, Stein & Richland and Robert A. Olson for Association of Southern California Defense Counsel filed an Amicus Curiae on behalf of Defendant and Respondent.  Orrick, Herrington & Sutcliffe‘s Gary S. Siniscalco, Patricia K. Gillette, Greg J. Richardson and Lynne C. Hermle on behalf of the Employers Group and California Employment Law Council also filed an Amici Curiae on behalf of Defendant and Respondent. Jonathan B. Steiner, Jay-Allen Eisen, Jon B. Eisenberg, Dennis A. Fischer, Steven L. Mayer, Robert A. Olson, Douglas R. Young, and Robin Meadow also filed an Amicus Curiae.

By CHARLES H. JUNG

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Jan 09 2011
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Attorneys' Fees, Class Actions

Central District Approves $4,385,000 and 30% Attorney Fee Award in Class Settlement of Cicero v. DirecTV, Inc.

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Judge Avern Cohn of the Central District of California approved a wage and hour class settlement in Cicero v. DirecTV, Inc., 2010 WL 2991486 (C.D. Cal. July 27, 2010) (not reported).  Judge Cohn approved a payout fund to class members of $4,385,000, a 30% attorney fee award of $1,950,000 to class counsel, and incentive awards of $7,500 and $5,000 the representative plaintiffs.

The class action claimed violations of California’s wage and hour laws.  The named plaintiffs are former satellite television installation and service technicians who brought this case individually and on behalf of all other similarly situated current and former satellite installation and/or service technicians against their former employers Mountain Center, Inc., and Ironwood Communications Inc. (currently DirecTV, Inc. doing business as DirecTV Home Services, collectively “Defendant”) for allegedly violating California’s labor and unfair competition laws. Named Plaintiffs alleged that Defendant violated applicable provisions of the Industrial Welfare Commission’s (“the IWC”) Wage Orders, the Labor Code, and the Business and Professions Code by: (1) failing to provide employees duty-free meal periods; (2) failing to reimburse employees for tools necessary to the performance of the employees’ work; (3) failing to pay wages for all hours worked, including hours worked in excess of eight per day and forty per week; (4) failing to pay all wages owed employees upon termination of the employment relationship; and (5) failing to provide accurate wage statements.

The parties engaged in two mediations of the matter before the Hon. William Cahill (Ret.) in March, 2009, and subsequently before the Hon. Diane Wayne (Ret.).

The Court approved the attorneys’ fees request, which represented 30% of the total gross settlement amount.  The Court noted that:

California recognizes the common fund doctrine for the award of attorneys’ fees. Under California and Ninth Circuit precedent, a court has discretion to calculate and award attorneys’ fees using either the lodestar method or the percentage-of-the-fund method. Wersha v. Apple Computer, Inc., 91 Cal.App. 4th 224, 253 (2001); Vizcaino v. Microsoft Corp., 290 F.3d 1043 (9th Cir.2002). The Court, in its discretion, finds that the percentage method is a fair, reasonable, and appropriate method for awarding attorneys’ fees in this case. . . .

Overall, although this percentage is slightly higher than the 25% benchmark for fees in class action cases, it is consistent with other wage and hour class actions where the recovery is less than $10 million. Moreover, there have been no objections to the amount of attorneys’ fees. The Court therefore finds that the amount of attorneys’ fees is warranted by the complexity of the case and Class Counsel’s dedication of extraordinary time and resources to the prosecution of this claim.

Id. **6-7.

By CHARLES H. JUNG

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Jan 09 2011
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Verdicts

$26 Million Verdict in Florida Trade Secrets Trial

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An Eastern District of Virginia jury returned a $26 million verdict for Florida-based mining tire design company Tire Engineering and Distribution, LLC and CEO Jordan Fishman in a trade secret case.   Plaintiffs accused the Chinese firm Shandong LingLong Rubber Co Ltd and Dubai distributor Al Dobowi Tyre Co LLC of conspiring with former Alpha Executive Sam Vance in 2005 to steal Fishman’s unique, proprietary designs for underground mining tires.  Read a news report here.  Vance failed to make an appearance.

By CHARLES H. JUNG

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