California Antitrust and Unfair Competition Law Update: Procedural Law

• Publication year: 2017
• Author: By Thomas Greene

CALIFORNIA ANTITRUST AND UNFAIR COMPETITION LAW UPDATE: PROCEDURAL LAW

By Thomas Greene¹

I. INTRODUCTION

This outline provides a selection of litigation developments that may be of particular interest to members of the Antitrust, Unfair Competition Law and Privacy Section, presenting procedural developments in the area of jurisdiction, arbitration, motion practice, discovery, trial, evidence, patent and copyright procedures, and new federal and state laws, regulations and rules.

II. JURISDICTION

A. California Supreme Court Clarif ies Special Jurisdiction in State Courts Bristol-Myers Squibb Co. v. Superior Court²

This case arises from multiple actions filed in San Francisco Superior Court against Bristol-Myers Squibb, the manufacturer of Plavix, a drug for the treatment of cardiovascular disease, and McKesson Corporation, a San Francisco-based distributor of Plavix and other drugs. These actions alleged that defendants misled consumers by claiming that Plavix was more effective than other similar drugs, and safer and easier on a person's stomach than aspirin. The complaints alleged that the clinical value of the drug was outweighed by undisclosed risks of heart attack, stroke and death.

Cases before the San Francisco Superior Court included approximately 86 cases on behalf of California consumers and 592 cases on behalf of residents of 33 other states. The parties agreed that jurisdiction was proper for claims of California residents because they were injured in California. The question before the California Supreme Court was whether California trial courts also had jurisdiction over Bristol-Myers with respect to the claims of non-residents.

Referencing recent U.S. Supreme Court decisions, the court rejected the argument that state courts had general jurisdiction over Bristol-Myers. General jurisdiction exists when a firm is "at home" in the forum state, as determined by the U.S. Supreme Court's decisions in Goodyear³ and Daimler.^{4 5} Under the high court's jurisprudence, a corporation is typically "at home" in a state in which it is incorporated or has its principal place of business.⁶ This was not the case with Bristol-Myers and California.

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Although California did not have general jurisdiction over the company, the court found that California courts had special jurisdiction over Bristol-Myers. According to the court, "[t]he question of whether a court may exercise specific jurisdiction over a nonresident defendant involves examining (1) whether the defendant has 'purposely directed' its activities at the forum state; (2) whether the plaintiff's claims arise out of or are related to these forum-directed activities; and (3) whether the exercise of jurisdiction is reasonable and does not offend 'traditional notions of fair play and substantial justice.'"⁷ Perhaps the most interesting aspect of this formulation is that it ignores recent U.S. Supreme Court's decisions on jurisdiction.

Turning to the facts of the case, the court found meaningful that:

• Bristol-Myers sold 187 million Plavix pills from 2006 to 2012 to California consumers, reaping $918 million in revenue;
• The company's major distributor and co-defendant, McKesson, is headquartered in California; and
• The company maintained five offices in California, employing approximately 164 researchers and 250 sales personnel.

The court also observed that:

• Since the company would necessarily be defending itself in San Francisco on the California claims, its lawyers would be commuting to California regularly; and
• The actual discovery would likely occur where Bristol-Myers officers and employees were located.

Concluding its opinion, the majority found that:

[I]n light of BMS's extensive contacts with California, encompassing extensive marketing and distribution of Plavix, hundreds of millions of dollars of revenue from Plavix sales, a relationship with a California distributor, substantial research and development facilities, and hundreds of California employees, courts may, consistent with the requirements of due process, exercise specific personal jurisdiction over nonresident plaintiffs' claims in this action, which arise from the same course of conduct that gave rise to California plaintiffs' claims.⁸

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The majority opinion drew a strongly worded dissent from Justice Werdegar. She argued that "[t]he key issue here is therefore whether the claims of the real parties in interest (plaintiffs residing in states other than California) arise out of, or are otherwise related to, BMS's activities in California."⁹ She noted that "the post-International Shoe decisions in which the high court actually found a factual basis for specific jurisdiction, each featured a direct link between forum activities and the litigation."¹⁰ Here, she says, there is no such link, and that the court is seeking to create "the equivalent of general jurisdiction in California courts."¹¹

This decision has been stayed "to permit defendants to file a petition for writ of certiorari with the Supreme Court of the United States."¹² Assuming that certiorari is not granted or the case survives review, this is potentially one of the most important procedural decisions of the year.

III. ARBITRATION

A. California Supreme Court Determines "Who Decides" Whether an Arbitration Agreement Permits or Precludes Classwide Arbitration Sandquist v. Lebo Automotive, Inc.¹³

The issue before the California Supreme Court in this case was "who decides whether [an arbitration] agreement permits or prohibits classwide arbitration, a court or the arbitrator," when the parties have not specified who makes the choice?¹⁴

As a condition of employment at Lebo Automotive, petitioner was required to sign about 100 pages of preprinted forms. Anxious to start work as a salesman, petitioner did not review the forms closely. Included in the papers were three different—but substantively similar—arbitration agreements in which he agreed to arbitrate all but a handful of specific issues. Petitioner, who is African-American, ultimately sued Lebo, alleging that he had been subject to discrimination, harassment and retaliation. His complaint brought claims on behalf of himself and "a class of current and former employees of color."¹⁵ Lebo responded with a motion to compel individual arbitration based on the form agreements.

The court starts with a finding, urged by Lebo, that the question of who decides the issue of classwide arbitration "must be conducted, at least initially, through the prism of state law."¹⁶ Focusing on the likely "expectations" of the parties based on the language of the agreements, the court found that the language favored resolution by the arbitrator. This was buttressed by two presumptions. First, "under state law as well as under federal law, when the allocation of a matter to arbitration or the courts is uncertain, we resolve all doubts in favor of arbitration [citations omitted]." Second, "[w]here, as here, the written agreement has been prepared entirely by the employer, it is a 'well established rule of construction' that any ambiguities must be construed against the drafting employer and in favor of the nondrafting employee."¹⁷

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The court rejects Lebo's argument that prior California appellate cases had established a presumption that class arbitration was a matter for courts. Rejecting Lebo's reading of, among other cases, City of Los Angeles v. Superior Court,¹⁸ the court concludes that "[n]either City of Los Angeles nor any other state case establishes a presumption [that] the availability of class arbitration is to be decided by courts."¹⁹

Turning to federal cases, the court relied on the U.S. Supreme Court's decision in Green Tree Financial Corp. v. Bazzle,²⁰ where a plurality concluded that "nothing in the FAA [Federal Arbitration Act] subjects the 'who decides' question to any contrary pro-court presumption." Accordingly, the plurality concluded "this matter of contract interpretation should be for the arbitrator, not the courts, to decide."²¹

The court distinguished between "gateway questions," which are properly decided by courts, and other questions, which are presumptively left to the arbitrator. Gateway questions under federal law include "whether there is an enforceable arbitration agreement or whether it applies to the dispute at hand."²² "Once gateway questions have been settled, . . . the FAA switches presumptions for issues affecting the manner in which an arbitration is to be conducted," such that, procedural questions are "presumptively not for the judge, but for the arbitrator to decide."²³

The court rejects the argument that the importance of the class arbitration issue makes it a gateway question that should be resolved by a court. In so ruling, the court focused on the expectations of the parties, concluding that the parties "most likely intend and expect that the arbitrator should resolve all issues." If the parties' intent was otherwise, the court argued, they could and would "express their contrary intent."²⁴

Reviewing respondent's argument that class arbitration affects others who signed the arbitration agreement, the court argued that the class arbitration rules used by JAMS and the American Arbitration Association fully protect the rights of absent class members.²⁵ The majority opinion then remands the question of classwide arbitrability to the arbitrator.²⁶

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Justice Kruger dissented, arguing that U.S. Supreme Court decisions after Green Tea Financial eroded its apparent holding. Moreover, she argued, "at least to date, every federal court of appeals to consider the issue on the merits has held that the availability of class arbitration is a question for a court, rather than an arbitrator, 'unless the parties clearly and unmistakably provide otherwise.'"²⁷

This is an important decision because it concludes that an arbitrator may decide whether an arbitration agreement precludes class arbitration in the absence of clear language in the arbitration agreement. This may well...