By Kari Levine and Laura Maechtlen

In a ruling on April 25, 2011, the California Court of Appeal for the Fourth Appellate District in Starbucks v. Superior Court (Lords), No. G043650 (Cal. App. Apr. 25, 2011) [link to ruling], overturned a trial court’s order allowing a fishing expedition to find class representatives in a “headless” class action. The ruling is instructive for defense of class actions.

On behalf of an estimated 135,000 job applicants, three named plaintiffs sought $26 million in statutory penalties from Starbucks alleging that a preprinted Starbucks’ job application violated provisions of the California Labor Code, which prevent employers from seeking “from any source whatsoever” any records pertaining to minor marijuana convictions sustained by job applicants or employees. In an earlier opinion, Starbucks Corp. v. Superior Court, 168 Cal.App.4th 1436 (2008) (Starbucks I), the California Court of Appeals held that the plaintiffs did not have standing to represent the proposed class because none of the plaintiffs had been convicted of a marijuana-related crime.

Following Starbucks I, the named plaintiffs were dismissed as class representatives on summary judgment. However, on a discovery motion, the trial court permitted the plaintiffs to file an amended complaint to include only job applicants with marijuana convictions. The trial court then allowed class counsel to conduct further discovery to find a “suitable” class representative for the “headless” class action. To achieve this, Starbucks was ordered by the trial court to randomly review job applications until it identified job applicants with prior marijuana convictions. Starbucks was then required to disclose the names to plaintiffs’ counsel, unless the individuals with marijuana convictions affirmatively opted out to a neutral administrator.

Starbucks appealed the discovery order that permitted discovery of the identities of potential class members who may become substitution plaintiffs in the place of the named plaintiffs. The Court of Appeal reviewed the decision by acknowledging that, before allowing class counsel to find a viable class representative, trial courts must apply a balancing test – called the “Parris balancing test” after a leading case titled Parris v. Superior Court, 109 Cal. App. 4th 285 (2003) – and weigh the actual or potential abuse of the class action procedure against the potential benefits that might be gained.

The Court of Appeal acknowledged that plaintiffs “admittedly have made no showing that any of some 135,000 Starbucks applicants have been ‘aggrieved’ as a result of the job application form” and “not a single person has stepped forward who fits within the statutory criteria.” The Court of Appeal further acknowledged that plaintiffs’ counsel underscored the need to protect the privacy rights of marijuana offenders and to avoid any situation where they would be compelled to “relinquish privacy.” The Court of Appeal then recognized the obvious: “we are at a loss to understand how plaintiffs can square these concerns…with the proposed discovery. One can only imagine the potential consternation in a household where a Starbucks applicant with a marijuana-tinged past is ‘outed’ to a spouse, child or roommate who opens the letter and reads about a lawsuit involving job applicants with prior marijuana convictions.” On this basis, the Court of Appeal concluded that the trial court abused its discretion in allowing the discovery.

The Court of Appeal distinguished CashCall, Inc. v. Superior Court, 159 Cal.App.4th 273 (2009),  a case filed against a collection agency, alleging that the company secretly monitored debtors phone calls. In that case, the plaintiffs who filed the action did not have their calls monitored. The Court of Appeal in CashCall approved a procedure by which those whose calls had been monitored would be informed of that fact and permitted to join the litigation. In that case, the aggrieved debtors had no alternative means of protecting their rights because they would not otherwise know that their calls had been monitored. In contrast, the Starbucks’s job applicants were free to “effectuate the legislative purposes underlying Labor Code section 432.8 by bringing individual actions, filing, if necessary, through Doe pleadings, and recovering not only actual damages or a statutory penalty, whichever is greater, but also attorney fees.”

Counsel for Starbucks asked that the Court of Appeal go further, seeking a ruling that plaintiffs without standing should never be allowed to conduct discovery to find a plaintiff with standing, arguing that it was necessary to prevent “encouraging attorney-driven lawsuits and sham lawsuits filed in the names of plaintiffs who are placeholders until discovery can turn up a viable plaintiff.” However, the Court of Appeal refused to flatly prohibit “headless class discovery.”

The Starbucks ruling provides guidance on the scope of discovery allowed in “headless” class actions in California, and may assist employers to limit pre-certification class discovery to find a viable class representative.