Salisian Lee LLP Newsletter

Welcome to the Salisian | Lee LLP Newsletter

Welcome to the fall edition of our newsletter. As always, we aim to provide you timely and useful insights into recent legal, regulatory and industry news in a brief, accessible and interesting way. We look forward to your feedback and to any suggestions you might have on how we can improve our efforts in this regard. Happy reading!

In this Issue

California Rideshare Drivers Get Covered
Revenge Porn Gets Private Right of Action in CA
Standing Revisited: Is Actual Injury No Longer Necessary?
California Supreme Court Will Finally Resolve Important Ambiguities in the Labor Code

Case & Law News

By Natalie Rastegari, Jay Lichter and H. Han Pai
Salisian | Lee LLP

CASE LAW: California Supreme Court Decision in Sanchez v. Valencia Holding Co. LLC, Case No. S199119 (Aug. 3, 2015)

In our May 2014 newsletter, we discussed the issues pending on review before the California Supreme Court in Sanchez v. Valencia Holding Co. LLC, Case No. S199119. On August 3, 2015, the California Supreme Court issued its ruling and upheld the enforcement of arbitration provisions in the auto sales contract at issue in that case.

As a reminder, Sanchez arose from an action brought by a car buyer against a car dealer. The dealer filed a motion to compel arbitration pursuant to the arbitration provision in the car sales contract, which required: (1) arbitration on an individual basis and a class action waiver; (2) exemption of self-help remedies like repossession; (3) a "second look" review only for awards of $0, over $100,000, or awards granting injunctive relief; and (4) the party seeking "second look" review to pay the associated fees and costs, subject to final determination of apportionment by the arbitrator. California car dealers in auto sales contracts commonly use the arbitration clause.

The Second District for the California Court of Appeal found the arbitration agreement unenforceable based on California's unconscionability standards. Specifically, the Court of Appeal found the arbitration agreement procedurally unconscionable due in part to the provision's location on the back of the contract, and substantively unconscionable due to arbitration terms that overwhelming favor the dealer. The Court of Appeal declined to decide whether the class action waiver at issue was enforceable under the Federal Arbitration Act (FAA) and the U.S. Supreme Court's AT&T Mobility LLC v. Concepcion decision, in which the U.S. Supreme Court held that the FAA preempted state laws invalidating contracts that prohibit class action arbitration.

The California Supreme Court reversed the Court of Appeal's decision, holding that the arbitration provision was not unconscionable. The Supreme Court explained that substantive unconscionability is a high standard to meet, requiring more than just a "bad bargain," and that the arbitration provision at issue here was not unduly one-sided or unfair in the auto sales context. In addition to finding that the arbitration provision was not unconscionable, the California Supreme Court held that pursuant to the U.S. Supreme Court's Concepcion decision, California's Consumer Legal Remedies Act's (CLRA) "anti-waiver provision is preempted insofar as it bars class action waivers in arbitration agreements covered by the FAA." In other words, the Court held that because CLRA's anti-waiver provision disfavors arbitration, it interferes with the fundamental attributes of arbitration and is therefore preempted by the FAA.

In reversing the Court of Appeal, this decision significantly impacts California businesses attempting to enforce arbitration agreements – at least in the employer and consumer sales context, or with respect to adhesion contracts generally. In litigating over the enforceability of such provisions, this California Supreme Court decision now renders them easier to enforce, especially class action arbitration waivers. The decision further clarifies California's unconscionability standards and application to arbitration agreements, and businesses should evaluate whether their arbitration agreements are in compliance with these standards to make sure they will be upheld in a court of law.

LAW NEWS: The most grueling bar exam in the country may have just gotten a little easier. This past June, the California State Bar Board of Trustees unanimously voted to shorten the California Bar Exam from three days to two. The change, effective July 2017, essentially collapses two days of written questions into a single day:

Current Model:

Day 1: 3-hour essays and 3-hour performance test.
Day 2: 200 multiple-choice Multistate Bar Questions.
Day 3: 3-hour essays and 3-hour performance test.

2017 Model:

Day 1: 5-hour essays and 90-minute performance test.
Day 2: 200 multiple-choice Multistate Bar Questions.

Under the new model, the exam will more efficiently test for minimum competence in the law, would be less expensive to administer and grade, and since there are fewer components, would reduce the time it takes for both grading and grade reporting. While 1Ls across the state may breathe a sigh of relief at the change, the Board of Trustees insists the exam will be no easier than it was before. That is a question left to the scoring cutline, which was, and will continue to be, a scaled score of 1440. The pass-rate may not change, but the once mythic experience of sitting for the California Bar Exam will now be relegated to memory, and survive only in stories told to young lawyers that begin, "back in my day," or the equally sad, "when I was your age."

CASE LAW: DeSaulles v. Community Hospital of the Monterey Peninsula, S219236

The issue on review before the California Supreme Court is as follows: When a plaintiff dismissed her action in exchange for the defendant's monetary settlement payment, was she the "prevailing party" for purposes of an award of costs under Code of Civil Procedure section 1032(a)(4), because she was "the party with a net monetary recovery," or was defendant the prevailing party because it was "a defendant in whose favor a dismissal is entered"? In deSaulles, a hospital obtained summary adjudication in its favor on seven of nine discrimination and related claims brought by an employee. The employee subsequently agreed to dismiss her remaining two claims with prejudice in exchange for a $23,500 settlement payment by the employer. The trial court determined that the hospital was the prevailing party and awarded it costs and declined to award costs to the employee. On appeal, the employee argued she was entitled to mandatory costs because the settlement proceeds constituted a "net monetary recovery," while the hospital argued it was due mandatory costs for obtaining a partial dismissal in its favor in exchange for its payment anx'xd later a judgment denying employee any other relief. The settlement agreement was silent on litigation costs. The Court of Appeal agreed with the employee and reversed the trial court's order, holding that that the employer had not obtained a favorable dismissal of the action, and instead, had obtained the judgment by making a settlement payment that could be considered a net monetary recovery by the employee under the plain language of the statute. The Supreme Court's decision will have a significant impact on how California businesses structure settlement agreements. Businesses should specifically address litigation costs in any settlement agreement, and spell out the "prevailing party" under specified circumstances so as to ensure finality and avoid further litigation.

California Rideshare Drivers Get Covered

By H. Han Pai, Salisian | Lee LLP

Ridesharing companies such as Uber, Lyft, and Sidecar have been dominating the headlines of late, with much controversy stemming from a seemingly increasing array of legal impediments.

The latest example is a California bill that recently went into effect on July 1, 2015, which imposes more stringent insurance requirements on ridesharing companies, referred to as "transportation network companies" ("TNC") under the new law.

AB 2293 was first introduced by Assemblywoman Susan Bonilla on February 21, 2014 and signed into law by Governor Brown on September 17, 2014. The bill amends the existing "Passenger Charter-party Carriers' Act" to enact specified requirements for liability insurance coverage for TNCs, and their participating drivers.

The new law seeks, in part, to clear up the coverage ambiguity surrounding the different periods when drivers are engaged in commercial activities, i.e. "working," versus when drivers are simply driving their personal vehicles. To do this, the law divides ridesharing activities into three periods:

Period One: the driver opens the application and is waiting for a match from a passenger;
Period Two: match accepted, but the passenger has not been picked up yet; and
Period Three: the passenger is in the vehicle and until the passenger exits the vehicle.

The new law requires liability coverage for drivers during Period one, either through the TNC's policy, a new type of personal policy for driver's specifically covering ridesharing activities, or a combination of the two. The liability coverage must be at least $50,000 minimum for injury to a single person, $100,000 minimum for injury to multiple persons, and $30,000 minimum for property damage.

Adding to the TNCs' burden are the requirements that the TNCs' insurance policy during Period One must be primary, and that the TNCs must also maintain excess insurance of least $200,000. In effect, TNCs are primarily on the hook during Period one.

Before this law was enacted, TNCs attempted to shift the insurance costs to its drivers, who were forced to rely on their personal insurance policies in the event of an accident during Period one. But personal insurance policies typically exclude coverage for commercial activities, such as rideshare driving. Personal insurers, unwilling to subsidize high-risk commercial activity, started canceling drivers' policies if they discovered their insureds were driving for TNCs. As a result, drivers were left between a rock and a hard place: either hope for the best that an accident does not occur and avoid having to report the claim to their insurers, or worse yet, lie on their insurance claims.

Another disincentive for TNCs to provide coverage during Period one was that drivers could potentially provide value for more than one company at the same time – i.e., by waiting for a match using multiple programs.

This hesitation to provide coverage for Period One was at the center of a tragic and unfortunate accident, and which was the impetus for the new law. On New Year's Eve in 2013, an UberX driver struck and killed a 6-year-old girl in San Francisco, which led to a wrongful death lawsuit. Uber argued that the driver was not covered because the driver only had the app open and was not a carrying a passenger at the time. Uber recently reached a tentative settlement of that lawsuit on July 15, 2014. Today, this gap in coverage has been closed as a result of this unfortunate tragedy.

Less controversial is the new law's requirement for Periods Two and Three, which requires TNCs to maintain $1 million in liability coverage.

Unfortunately, there is another insurance gap that has not been filled by the new law, but which drivers may not realize they even need, for collision coverage. While liability insurance covers damage to others, collision insurance covers damage to the driver's own car.

Not only does the new law only impose the new requirements for liability coverage and not collision coverage, it also explicitly prohibits a driver's personal policy from covering claims while a driver is engaged in ridesharing activities, i.e. logged into an app - Period One.

So what is an ambitious but risk-averse TNC driver to do? Enter the new type of insurance products offered by insurers. Earlier this year, Farmers became the first and only major California insurer to begin offering a ridesharing-specific insurance product. The new coverage is offered in the form of a ridesharing endorsement on its personal auto insurance policies, and is available for drivers participating in any TNCs for only an 8% increase in monthly premium.

While a new insurance product certainly presents a boon for drivers, as a practical matter, many drivers are reluctant to actually take advantage. The reluctance stems, in part, from getting insurance quotes above what drivers expect, and for non-Farmers customers, the hassle of switching to a whole new insurance company simply to gain access to this endorsement.

In the face of these hurdles, many drivers simply forgo coverage and do not inform their insurance company that they are rideshare driver, the situation the new law was intended to protect against. When Farmers announced their new product, one commentator estimated that while "there are over 70,000 rideshare divers in California alone... over 80% of them have not told their insurance company that they are a rideshare driver."

The new law is a step in the right direction in helping TNCs, drivers, passengers, and insurers alike better manage risk and assign responsibility. While coverage gaps and open issues abound, one certainty is that the increasing popularity and ever-evolving nature of the industry will require a solid foundation in order to successfully forge ahead.

Revenge Porn Gets Private Right of Action in CA

By Jay Lichter, Salisian | Lee LLP



"Revenge porn" is sexually explicit media distributed without the consent of the individuals involved. Where couples take and exchange sexual images and videos with each other now more than ever before, millions of people mark themselves as future potential victims. Legislators across the country have only been able to stumble to keep up. Unsurprisingly, California leads the charge against revenge porn, with laws and regulations that other states have been quick to adopt. California's Assembly Bill 2643, which took effect July 1, is the most recent of those laws, designed specifically to create a civil cause of action for victims of revenge porn. In the criminal context, California's Senate Bill 255 was enacted in 2013 as the first law in the country to specifically target revenge porn. The law made it a misdemeanor to post identifiable nude pictures taken by another person without permission, with the intent to cause emotional distress or humiliation. A central flaw of that law is that it does not cover "selfies," or images taken by the victim which are later obtained by another person. This is troubling, as the Cyber Civil Rights Initiative has estimated that 80 percent of revenge porn images are recorded by victims themselves. Legislators later acknowledged the widespread criticism of this loophole and passed Senate Bill 1255 (also effective July 1), which implements the law without regard for who actually took the picture or video. A concern for damages and injunctive relief is traditionally the mantle of civil law, which has also proven woefully inadequate to address revenge porn. Without specific new civil laws providing clear causes of action for these acts, victims have been left to pursue their rights through copyright law, a poor fit for this issue. In most cases, the first course of action is to file a notice under the Digital Millennium Copyright Act and hope the website removes the offending image or video, but the Federal Communications Decency Act largely provides immunity to platforms for what their users do. Many federal copyright cases, however, first require the victim to register any videos or photos to be protected with the United States Copyright Office. In other words, a victim must first publicly register a photo or video she would rather no one ever see. Furthermore, copyright protections are only afforded to those who take the picture or video. So unless the image was a "selfie," the copyright law is a largely toothless option. AB 2643 aims to address many of the flaws and pitfalls of existing criminal and civil forms of recourse. Specifically, the law creates a private right of action against any person who intentionally distributes any image or video, without the other's consent, if (1) the person knew that the other person had a reasonable expectation that the material would remain private, (2) the distributed material exposes an intimate body part of the other person or shows that person engaging in a sexual act, and (3) the other person suffers general or special damages. Under the law, whether the victim took the picture or video is no longer a factor, as the central concern shifts to the act of distribution itself. This eliminates the "selfie" problem underlying many of the previous criminal and civil remedies, which foreclosed avenues of relief for large portions of victims. The law further authorizes equitable relief, so a victim could seek an injunction or specific performance, which could ultimately result in the removal of the image or video from a particular site. The law further outlines specific affirmative defenses one can raise to a cause of action, including the waiver or consent of the person appearing in the material. In addition to the act of distribution, the law thus focuses on the mindset and actions of the victim to determine the liability of a defendant. Another potential strength of the law is its compliance with certain First Amendment concerns raised by various advocacy groups. In Arizona, for instance, the ACLU filed a First Amendment action against a revenge porn law that made it a felony to post online nude images of others without their consent. According to the ACLU, the language was unconstitutionally overbroad, and would unintentionally criminalize images like a college professor's use of a Pulitzer Prize-winning Vietnam War photo of a burned and nude little girl running from her bombed village. For this reason, it has been argued that civil courts, rather than criminal proceedings, would be a better avenue for victims to seek justice. AB 2643 accordingly addresses these issues by relying on an expectation of privacy and resulting damages in a civil context, rather than simply whether consent was obtained. The novelty of the law further provides grounds for attorneys to specialize in revenge porn civil litigation, an area virtually brimming with potential clients. According to a 2013 study by McAfee, about 10 percent of ex-partners have threatened to expose risqué photos of their ex online, and they carried out those threats nearly 60 percent of the time. Those numbers potentially put hundreds of thousands of Californians squarely within the aim of the new law. AB2643 accordingly opens up an entirely new area of civil litigation, opening the door for attorneys to stake claims in success rates on such cases and to develop reputations for specialization and expertise in the area. Revenge porn may be new, but it will continue to be a problem so long as people have access to cameras and the Internet. While addressing the inadequacies of previous legislative efforts, California's AB2643 at least moves the state in a direction where people will want to consider the criminal and civil liability that now accompanies posting certain images and videos. On the forefront of this issue, California further serves as a guide for other states, and perhaps even the federal government, to follow suit and provide civil protections and recourse for millions of victims.

Standing Revisited: Is Actual Injury No Longer Necessary?

By Natalie Rastegari, Salisian | Lee LLP

The issue pending before the U.S. Supreme Court in Robins v. Spokeo, No. 13-1339, is "whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm, and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute."

In other words, to have a claim of actual injury for standing in federal court, is it enough for that injury to be based on the violation of rights created by Congress in a federal statute or must there be additional evidence of harm? The U.S. Supreme Court will decide these issues next term.

Plaintiff Robins alleged that defendant Spokeo – an information gathering company – published false information about him on the Spokeo website, including his age, wealth, marital status, employment, and education. Robins was unemployed and he alleged that the false information on the website, such as listing him as having a job, made it more difficult for him to find a job. Robins sued Spokeo for violation of the Fair Credit Reporting Act (FCRA), under which Congress created a cause of action for consumers against companies that violate the law – claims of negligence are subject to actual damages, and claims for willful or reckless conduct are subject to presumed damages set by the law and to punitive damages.

Spokeo moved to dismiss, arguing that Robins did not suffer an injury-in-fact to establish Article III standing in federal court. A Los Angeles federal district court agreed and dismissed for lack of actual injury, but in February 2014, the Ninth Circuit Court of Appeals reversed the district court and permitted Robins to establish standing under the FCRA. The Ninth Circuit held that the harm Robins claimed was sufficient to satisfy the standing requirement, as he claimed the injury of prolonged unemployment and emotional distress, in part due to the false information posted on Spokeo. The Ninth Circuit found that Robins did assert sufficient injury based on Spokeo's alleged violations of the FCRA and ruled that the violations of the federal law are the kind of wrongs that Congress can determine to satisfy the requirements for standing.

On petition for cert, the Solicitor General filed a brief recommending denial of review, and that Robins alleged sufficient actual injury from the false publication and Congress' power to create standing is not at issue here. But the U.S. Supreme Court granted review. Briefs filed in support of Spokeo and companies such as eBay, Facebook, Google, and Twitter joining in support of Spokeo warn that the Ninth Circuit's interpretation would expose the FCRA and other privacy federal statutes to class action lawsuits based on any bare violations of such laws. As it stands now, there is a high volume of FCRA class actions in the federal courts. But the implications of the Ninth Circuit's holding here can go even beyond the privacy lawsuits. The outcome of this case has implications for companies across every industry. A U.S. Supreme Court decision affirming granting standing to plaintiffs who have not suffered an "injury-in-fact" will open the door to actions brought under any statute that authorizes a private right of action.

In other words, the U.S. Supreme Court can decide to further outline the role of Congress in creating standing, and if it is found that a bare violation of a federal statute is enough to establish injury for standing, then it will spur litigation based on the many federal statutes that do not require a showing of actual injury. Such a decision will expose many businesses to lawsuits that can be found to have violated such federal statutes, even if no actual injury is suffered, including internet technology companies and manufacturers.

These lawsuits would arise under many federal statutes which contain statutory damages provisions, such as the Truth in Lending Act, which imposes requirements on financial institutions that extend credit to consumers (see 15 U.S.C. §§ 1631-1632); Fair Debt Collection Practices Act, which prohibits certain methods to collect or attempt to collect debt (see 15 U.S.C. § 1692f); Real Estate Settlement Procedures Act, which prohibits certain payments in mortgage-loan transactions (see 12 U.S.C § 2607); and Lanham Act, which prohibits false advertising (see 15 U.S.C. § 1125).

On the other hand, the U.S. Supreme Court could also decline to decide these issues and merely hold that injury was sufficiently alleged based on the Ninth Circuit's holding. But there is currently a split among the circuit courts on whether standing may be conferred by alleging violations of statutory rights alone, and the U.S. Supreme Court is expected to issue a decision that will settle the split. Be sure to follow coverage of the case this Fall.

California Supreme Court Will Finally Resolve Important Ambiguities in the Labor Code

By Darin Webb, Salisian | Lee LLP

The California Supreme Court will be deciding two cases that could have a substantial impact on the obligations of California businesses towards their employees. Both cases are part of the explosion in class action employment litigation that has taken place over the past fifteen years, and both seek to clarify important questions relating to an employer's duty to its employees. Both also highlight the ambiguities inherent in the California Labor Code, ambiguities which can end up costing employers millions of dollars.

The first is Augustus v. ABM Security, which is set to decide whether "on-call" rest breaks are permissible under the California Labor Code. The Code requires the employer provide one ten-minute rest break for every four hours or major fraction thereof worked. ABM's policy allowed rest breaks for their security guards subject to the condition that the security guard remain on call and respond to emergency situations and other incidents as they arose. A group of security guards sought class certification, claiming that these on-call rest breaks were inadequate, as they were not relieved of all duty and that, in fact, their on-call rest breaks were virtually indistinguishable from their actual work. The trial Court agreed, granting class certification, summary judgment, and summary adjudication in favor of the employees. The Second District Court of Appeals, however, disagreed, affirming class certification but reversing the summary judgment and summary adjudication orders. The Court of Appeals reasoned that, although employees cannot be required to work during rest breaks, employers are not required to relieve employees of all duties. While the Court did not go into specifics as to which duties must and must not be relieved during these ten-minute breaks, it indicated that the duty to remain on call and alert was one such duty.

Significantly, the Court of Appeals did not distinguish between security guards and other employees, leaving employers no real guidance concerning what duties they must relieve their employees of, and under what circumstances. Can a receptionist be required to remain by the phone during a rest break? Can a waiter be required to check on patrons?

In Mendoza v. Nordstrom, Inc., the Ninth Circuit Court of Appeals certified three questions to the Supreme Court of California, stating that the labor code is "ambiguous" as to these questions and that the answers are "not obvious." The questions surround a provision of the labor code which prohibits an employer from causing its employees from working more than six days in seven. This is a case in which employees at Nordstrom were given a weekly schedule but permitted to swap shifts with other employees upon manager's approval, which led to potential violations of the six-days-in-seven provision.

The first question to be decided is whether the six days in seven refers to any consecutive seven-day period or whether it is confined to the predetermined workweek. In other words, if an employee's weekly schedule in week one provides for a day off in the beginning of the week, and in week two provides for a day off at the end of the week, whether that employee is receiving one day’s rest in seven is a matter of perspective.

The second question concerns an exception to the rule where a day off is not mandatory "when the total hours of employment do not exceed 30 hours in any week or six hours in any one day thereof." The Ninth Circuit thought the word "any" could conceivably refer to any single day, or could refer to every day. To illustrate, the Ninth Circuit used the following two sentences: "Pick any card from the deck" and "Any child knows the answer to that simple question."

This question has stumped labor attorneys for years: had the legislature intended the second definition, it likely would have used the much more common word "every." For example, if one person goes to the gym "every day" and another goes to the gym "any one day," it is highly implausible that they are going the same amount. The district court agreed with this interpretation, interpreting "any" to imply that any single day is sufficient. The Ninth Circuit also conceded that this was "the more natural reading of the words."

The danger is that the exception, under this interpretation, would swallow the rule. If any day of work that is fewer than six hours constitutes an exception to the "one day of rest" rule, it is not really a rule about a day of rest at all. An employee's seventh day could simply be 5.5 hours without violating the provision. This seems to go against the entire spirit of the provision.

Lastly, and perhaps most importantly, the Ninth Circuit asked: "What does it mean for an employer to 'cause' an employee to work more than six days in seven: force, coerce, pressure, schedule, encourage, reward, permit, or something else? This last question has tremendous implications for any business that allows its employees to swap shifts. If the definition of "cause" is to encourage, reward, or permit, then businesses are likely to have to either revamp their shift swapping policies or be vigilant about allowing premium pay for those employees who work seven consecutive days through such swapping.

Both of these cases have the capability of completely overhauling a business's scheduling policies. To get a sense of what is at stake here, consider that the Augustus trial court entered a judgment in favor of the employees that totaled over $120 million. The landmark Brinker case dealing with meal and rest breaks recently settled for $56 million. The Ninth Circuit commented that the answers to the issues in Mendoza will have "profound legal, economic, and practical consequences for employers and employees throughout the state of California." The California Supreme Court is finally tackling the ambiguities of the Labor Code, and will likely continue to do so, as the wage and hour class action trend in California does not show any signs of slowing down.

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