California Supreme Court Makes It Easier For Class Action Plaintiffs To Obtain Pre-Certification Access To Contact Information Of Potential Class Members

The California Supreme Court's recent opinion in Pioneer Electronics (USA), Inc. v. Superior Court (2007) 40 Cal.4th 360, although rendered in a consumer products liability case, is already resulting in rulings making it easier for plaintiffs in employment class actions to obtain access to prospective class members before a class is certified. Employers should be aware that, unless the lower courts carefully read Pioneer Electronics and apply it within its proper scope, the plaintiffs' bar will have effectively unhindered access to the names and addresses of your employees.

The California Constitution guarantees the privacy of all citizens. Cal. Const., Art. I, § 1. This guarantee extends, for example, to the information contained in an employee's personnel file, including the employee's home address and phone number(s). At the same time, it is common for plaintiffs in employment class actions to seek such information, so that they can search for witnesses to support their claim. They have a right to do so, as long as no privacy interests are threatened. See, e.g. Atari, Inc. v. Superior Court (1985) 166 Cal.App.3d 867.

Where privacy rights are threatened, prospective class members have to be given the opportunity to object to the disclosure of their private information. At issue in Pioneer Electronics is the form of that notice: "opt-in" notice versus "opt-out" notice. An opt-in form of notice asks employees affirmatively to consent to the disclosure of their private information, and construes silence as a refusal to consent. An opt-out form does exactly the reverse. It asks employees to affirmatively object to disclosure, and construes silence as consent. The California Supreme Court previously had approved both forms of notice, albeit under different circumstances. Colonial Life & Accident Ins. Co. v. Superior Court (1982) 31 Cal.3d 785 (opt-in) and Valley Bank of Nevada v. Superior Court (1975) 15 Cal.3d (opt-out).

The Court of Appeals in Pioneer Electronics attempted to settle this debate, holding that opt-out notice was never adequate to protect privacy interests. The Supreme Court disagreed, restoring the unsettled status quo.

The Court of Appeal Rejects Opt-Out Privacy Notice in Pioneer Electronics

Patrick Olmstead purchased a DVD player from Pioneer Electronics. Claiming the product was defective because it could not play certain kinds of discs, Olmstead sued Pioneer for himself and on behalf of a prospective class of consumers who bought the same product. In discovery, Pioneer produced records of 700 to 800 complaints it received from purchasers about the very same defect alleged by Olmstead. Pioneer redacted from the records the consumers' names and contact information (addresses and telephone numbers). Olmstead moved to compel Pioneer to produce un-redacted copies of the records and to disclose the identifying information of each consumer who complained. Pioneer opposed the motion, asserting the right to privacy of the consumers under the California Constitution. Weighing the consumers' privacy interests against the plaintiff's interests in the disclosures, the trial court ordered Pioneer to send each of the complaining consumers an opt-out privacy notice.

Pioneer appealed the trial court's order. The Second District of the Court of Appeal¹ held that the consumers could not be deemed to have waived their constitutional right to privacy in their contact information unless they received actual notice of the need and opportunity to assert that right. The court held that the letter, which did not require an affirmative response, was inadequate to assure actual notice to the consumer. The court reasoned that because no ongoing relationship existed between Pioneer and its complaining customers, it was unlikely they could be expected to open and read a letter from the company. The court noted that no safeguards existed to warn the consumers not to throw away the letter as "junk mail," or against the prospect that the mail did not get delivered. For these reasons, the Court of Appeal held that the consumers' contact information could not be disclosed without their affirmative written consent, and that a passive failure to object could not be deemed a valid waiver of their privacy rights.

The Court of Appeal Rejects Opt-Out Privacy Notice (Again) in Best Buy

After the Supreme Court granted review of the Court of Appeal's decision in Pioneer Electronics, a different Court of Appeal (the Fourth District, Division 3²) issued its ruling in Best Buy Stores, L.P. v. Superior Court (2006) 137 Cal.App.4th 772 (2006). In Best Buy, a consumer class action, the Court of Appeal again held opt-out privacy notice was inadequate. Although Best Buy acknowledged the existence of Pioneer Electronics, it did not rely upon Pioneer Electronics, which lost all precedential force once the Supreme Court granted review.

The factual setting of Best Buy was significantly different than Pioneer Electronics. In Best Buy, the trial court ordered that the named plaintiff, an attorney representing himself in propria persona, could not act as both class counsel and the class representative, due to the inherent conflict of interest presented. See Apple Computer, Inc. v. Superior Court (2005) 126 Cal.App.4th 1253. In the wake of this ruling, plaintiff requested, and the trial court granted, permission to contact prospective class members to recruit a new class representative. The trial court ordered that Best Buy produce the names and addresses of 200 randomly-selected prospective class members, and that a third-party administrator mail an opt-out privacy notice to them.

Best Buy sought review of the order. The Court of Appeal affirmed the trial court's order in all respects but one: noting that "we are mindful that the privacy rights of Best Buy's customers must be protected," the Court ordered that notice take an opt-in form instead. Best Buy, supra, 126 Cal.App.4th at 778 ("The letter must state that recipients are free to ignore the letter and that, if they do so, the sender will not disclose their identities to" the class counsel).

Shortly before the Supreme Court set Pioneer Electronics on its oral argument calendar, it denied review in Best Buy.

The Supreme Court Creates Uncertainty in Pioneer Electronics

In a unanimous opinion by Justice Ming Chin, the Supreme Court held that the "Court of Appeal's approach was too strict and failed to consider the nature of the privacy invasion involved here and apply a balancing test that weighs the various competing interests, as outlined in our case law." Pioneer Electronics, supra, 40 Cal.4th at 370. In reaching this holding, the Court applied the invasion-of-privacy balancing test set forth in its decision in Hill v. National Collegiate Athletic Ass'n (1994) 7 Cal.4th 1. Under Hill, courts must first determine whether there exists: (1) a "legally protected privacy interest"; (2) a reasonable expectation of privacy under the particular circumstances; and (3) a privacy invasion that is "serious" in nature, scope, and actual or potential impact. If these criteria are met, the privacy interests are then measured against other competing interests in disclosure, taking into account safeguards and other alternatives that may minimize the invasion.

The Court found that the consumers had only a limited privacy interest in their personal contact information because they had already voluntarily disclosed such information to Pioneer in complaining about the DVD player, presumably with the hope of obtaining some type of relief. For the same reasons, the Court found there was no serious invasion of privacy in releasing the consumers' contact information to a class action plaintiff with similar complaints. It reasoned that this information, unlike medical or financial information, was not "particularly sensitive;" was generally discoverable in class action lawsuits; and the consumers were given notice and the opportunity to object to its disclosure.

The Court then turned to balancing the respective interests of the parties. The court concluded that "plaintiff's interest in obtaining contact information regarding complaining Pioneer customers outweighed the possibility that some of these customers might fail to receive their notice, and thus lose the opportunity to object to disclosure." It reasoned that the complaining consumers were percipient witnesses in the class action whose identities were discoverable. A rule requiring an affirmative waiver would prevent or delay the identification of witnesses and potential class members, and thus could make it more difficult to obtain class certification.

Best Buy was never mentioned, let alone reversed or criticized, in Pioneer Electronics. Given the fact that the Best Buy decision was brought to the Supreme Court's attention (through a review petition) while it was preparing Pioneer Electronics for argument and decision, this cannot be dismissed as mere oversight. The Court let Best Buy stand for a reason.

Pioneer Electronics reaffirms that trial courts in class actions retain broad discretion to analyze pre-certification requests by plaintiffs' counsel for discovery of personal contact information of potential class members. By letting Best Buy stand, Pioneer Electronics made clear its intention that when and how such information will be subject to disclosure still must be decided based upon the particular circumstances of each case. Use of the passive "opt out" procedure was affirmed in Pioneer Electronics largely because the information sought was limited to the consumers' addresses and telephone numbers, and they had already disclosed this information voluntarily in their complaints. The same procedure may not be appropriate in an employment case, particularly for requests of private information from the personnel files of putative class-member employees. This is because, unlike consumer complaints, courts have recognized that personnel records are subject to a heightened level of protection from unauthorized discovery.

The Court of Appeal Grapples with the Impact of Pioneer Electronics in Employment Class Actions

A very recent decision, Belaire-West Landscape, Inc. v. Superior Court (2007) - Cal.App.4th -, 2007 WL 1039547, agrees that employees have a greater expectation of privacy than the complaining consumers in Pioneer Electronics. Nevertheless, the Second District³ concluded that opt-out privacy notice suffices to protect employee's interests in circumstances indistinguishable from Best Buy.

Belaire-West Landscaping is a wage and hour class action in which the plaintiff sought the disclosure of personal contact information for all the defendant's employees who were prospective class members. The trial court ordered an opt-out form of notice, and the employer sought review in the Court of Appeal.

The Court started by drawing a firm distinction between the circumstances presented in Pioneer Electronics and those presented in Belaire-West Landscaping:

In fact, the privacy concerns here are more significant that those in Pioneer, where the complaining consumers voluntarily disclosed their information to the company in hope of gaining some relief for their allegedly defective DVD players. Here, the information was given to Belaire-West as a condition of employment. It is most probable that the employees gave their address and telephone number to their employer with the expectation that it would not be divulged externally except as required to governmental agencies (such as the Internal Revenue Service, the Social Security Administration, etc.) or benefits providers such as insurance companies. This is a reasonable expectation in light of employers' usual confidentiality customs and practices. (2007 WL 1039547, at *5.)

Thus, Belaire-West Landscaping concludes, "it is unlikely that the employees anticipated broad dissemination of their contact information when they gave it to Belaire-West . . . ." 2007 WL 1039547, at *5.

But after acknowledging that Pioneer Electronics is distinguishable, Belaire-West Landscaping proceeds to draw a spurious analogy between the two sets of prospective class members: "Just as the dissatisfied Pioneer customers could be expected to want their information revealed to a class action plaintiff who might obtain relief for the defective DVD players . . . so can current and former Belaire-West employees reasonably be expected to want their information disclosed to a class action plaintiff who may ultimately recover for them unpaid wages that they are owed." 2007 WL 1039547, at *5. The flaw in this analogy is patent. The prospective class members whose privacy interests were at issue in Pioneer Electronics had objectively-and purposefully-manifested their interest in seeking redress. They had, in effect, already opted in by choosing to complain to Pioneer. The same cannot be said of the prospective class members in Bellaire-West Landscaping (or Best Buy). There was no affirmative manifestation of an interest in redress that might overcome the natural interest in privacy. It was the plaintiff who chose to include them in the definition of the class.

By minimizing the prospective class's privacy interests through a false analogy to Pioneer Electronics, the Bellaire-West Landscaping ruling was able to easily conclude that opt-out notice "involved no serious invasion of privacy," and that "the balance of interests also supports the trial court's order." 2007 WL 1039547, at *5. It never even acknowledged the existence of Best Buy, let alone attempt to distinguish Best Buy.

Are Litigants Left With Principled Uncertainty, or Mere Confusion?

The present state of the case law leaves five points clear:

• Individuals have a privacy interest in keeping their home addresses and telephone numbers confidential.

• Some form of privacy notice is required before a plaintiff can compel disclosure of the contact information for prospective class members. They must have some opportunity to object to disclosure.

• Either opt-in notice, or opt-out notice can suffice, depending on the circumstances. Trial courts will need to decide this issue within the analytical framework articulated in Hill.

• A distinction must be drawn between prospective class members who identify themselves as being sympathetic to, or sharing, the plaintiff's claim, and those who do not. The latter has a greater expectation of privacy.

• Employees have a substantially greater expectation that their contact information will not be disclosed in litigation than parties in consumer disputes.

However, trial courts have mixed signals concerning how these points should be applied in employment class actions. Best Buy leads to the conclusion that opt-out notice is never sufficient where the plaintiff seeks contact information for a class of employees who simply meet the definition of the class proposed in the complaint. After all, employees have an even greater expectation of privacy than the consumers in Best Buy, for whom ordering opt-out notice was reversible error. Bellaire-West Landscaping leads to the conclusion that opt-out notice is not necessary, because the trial court can simply assume that employees have an interest and desire to assert wage and hour claims (or, at least, have someone else assert their claims for them). Because trial courts in California are obliged to follow relevant precedent from all Districts of the Court of Appeal (see Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455), they will have to find a way to harmonize Best Buy and Bellaire-West. Perhaps the easiest way to do so is to conclude that status quo prevails: both forms of notice are acceptable, the choice being governed by specific circumstances and the judgment of the trial court.

Unfortunately, many trial courts follow the practice of treating decisions from the district of the Court of Appeal within which they are located as binding, and the decisions of other districts as merely persuasive (just as federal district courts are bound to follow the law in their circuit, but not other circuits). Before judges in Los Angeles County who follow that practice, Bellaire-West Landscaping might compel the conclusion that opt-out notice is sufficient for routine discovery of class information in employment cases; before like-minded Orange County judges, Best Buy might compel the opposite conclusion. Los Angeles and Orange counties are the two most popular venues for employment class actions in California state court. Surely this is not the status quo the Supreme Court thought it was restoring in Pioneer Electronics.

Lost in the flurry of decisions in this area is an issue that was at the forefront of the original Court of Appeal decision in Pioneer Electronics: How reliable is the method of delivering notice? A substantial part of its rationale for categorically rejecting the opt-out form of privacy notice was derived from its desire to see some kind of guaranty that the intended recipient actually received notice. An opt-in notice procedure provides that guaranty. The California Legislature has already worked out a solution to this problem by providing that a subpoena for medical, financial, educational, or employment records is not valid unless the patients, customers, students, or employees are personally served with legal process explaining their legal rights, and the subpoena is held for at least 20 days to allow them to object. See Cal. Code of Civ. Proc. §§ 1985.3 (medical, financial, and educational records), 1985.6 (employment records). These laws proscribe opt-out notice, but only where the notice is delivered in the same manner as legal process. Employers faced with demands for employee contact information in class litigation should consider taking the position that unless notice is to be personally delivered to prospective class members, notice must take an opt-in form.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.