Class Action Defense

By Gerald L. Maatman, Jr.

Duane Morris Takeaways: The Trial Lawyers of Mass Torts (TLMT) – an organization of plaintiffs’ class action lawyers – hosted their annual educational conference this week in Cabo, Mexico. TLMT invited Gerald L. Maatman, Jr. of Duane Morris, the co-author of the Annual Class Action Review, as one of the sole representatives of the class action defense bar to provide defendant-side perspectives on class action and mass tort litigation.

The TLMT brings together top practitioners on both sides of the bar as well as the judiciary to tackle contemporary issues in complex litigation, focusing on class actions and mass torts. The conference featured numerous prominent federal judges who handle leading MDL proceedings and class actions, including Judge Charles Breyer, Northern District of California, Judge Karen Caldwell, Eastern District of Kentucky, Judge Edward Chen, Northern District of California, Judge Vince Chhabria, Northern District of California, Judge Jacqueline Corley, Northern District of California, Judge James Donato, Northern District of California, Judge Nancy Rosenstengel, Southern District of Illinois, Judge David Proctor, Northern District of Alabama, Judge Richard Seeborg, Northern District of California, Judge Jane Milazzo, Eastern District of Louisiana, and Judge Joy Flowers Conti, Western District of Pennsylvania. In addition, Judges Amul Thapar and Rachel Bloomekatz of the U.S. Court of Appeals for the Sixth Circuit gave presentations.

The opening sessions focused on mass tort claims brought in MDL’s and cutting-edge class actions for data breaches and privacy violations.

I had the honor and privilege of speaking on the class action developments panel that included Judge Beth Freeman and Judge Rita Lin of the U.S. District Court of the Northern District of California and Judge Kenly Kiya Kato of the U.S. District Court for the Central District of California. Our panel addressed a wide variety of cutting-edge class action issues running the gamut from standing to settlements, and experts to arbitration.

Standing Issues

The requirement of a named plaintiff to possess legal standing often rears its head early on in a class action. The stakes can be high and case determinative, and also impact selection of forum considerations (e.g., where a motion to dismiss for lack of standing results in the remand of the class action to state court). The Judges further pointed out that standing can impact case management issues and the scope of discovery, which are important to companies due to the sheer size of class actions and the costs to defend them. Interestingly, the Judges opined that bifurcation of discovery into a class certification stage and a merits stage – while previously popular in the class action space – has largely fallen out of favor as a viable case management tool.

Settlements

Rule 23 requires courts to pass on and approve settlements. The Judges remarked that precertification settlements are more difficult to adjudicate but remain a viable exit ramp for many class actions.

The Judges agreed with my commentary on how the approach to settlement issues – especially for pre-certification settlements – is one of the most widely-varying areas from judge-to-judge and venue-to-venue in terms of judicial decision-making. Like buying real estate, “location, location, and location” means everything in terms of the way settlements are approached from a case law standpoint, which vary in state and federal courts and with respect to the pertinent case law in each location.

Experts & Certification

The Judges agreed that expert testimony is often the most crucial factor in the certification battle. The costs can be immense, but a win or loss on class certification can represent monetary exposure (or a lost opportunity) of substantial economic benefit (or loss). In sum, the stakes are exceedingly high and scrimping on expert fees may be short-sighted.

Arbitration

The Judges had interesting views on the interrelationship of arbitration and class action litigation. While the statistical findings of our Duane Morris Annual Class Action Review – 2024 demonstrate that corporate defendants won motions to compel arbitration (of class action claims on an individual basis) at a rate of 66% over the past year, nearly a third were denied – and often for a multitude of reasons. The Judges agreed on the high-stakes nature of such motions and how case-specific facts drive the extent to which discovery should be allowed on key factual and legal disputes over arbitration agreements. They also observed how mass arbitration has “weaponized” arbitration programs in certain situations where arbitration has virtually replaced Rule 23 as a method for adjudication of large-scale disputes or in situations involving hundreds or thousands of claimants.

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associates Gregory Slotnick and Nicolette Zulli with their analysis of a recent ruling issued by a New York Federal Court yet again denying a request to approve a settlement between the EEOC and a union that would have ended a decades-old EEOC race discrimination suit.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Samsung Podcasts, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, and YouTube.

Learn more and register for our Year-End EEOC Strategy And Litigation Review webinar here.

Episode Transcript

Jerry Maatman: Thank you, loyal blog readers and listeners, for joining us on this episode of the Class Action Weekly Wire. I’m joined by my colleagues, Nico Zulli and Greg Slotnick, who are here to talk today about a most interesting consent decree and settlement approval process. Welcome to the show.

Gregory Slotnick: Thanks very much, Jerry. It’s great to be here.

Nicolette Zulli: Thanks so much, Jerry. Nice to join you.

Jerry: We’re going to talk today about a lawsuit that’s one of the longest running lawsuits in the federal court system. It’s still in the federal courts, and it was filed in 1971 – it’s a case involving employment discrimination. Both the EEOC and the defendant in the case appeared in federal court in New York, in the Southern District of New York on November 6, and sought settlement approval with respect to the ongoing nature of the consent decree, Greg, can you tell us a little bit about the background of the litigation and how it’s come to pass and run since 1971?

Gregory: Absolutely, Jerry. Just a few years ago the case was filed – as you mentioned, the dispute started in 1971, when the United States sued Local 580 of the International Association of Bridge, Structural, and Ornamental Ironworkers alleging that an apprenticeship program that it ran, titled the Joint Apprentice-Journeymen Educational Fund of Ironworkers Local 580, which I’ll refer to as AJEF, and Allied Building Metal Industries, an association of metalworking companies that employ Local 580 Union members in New York City, discriminated against applicants on the basis of their race in violation of Title VII of the 1964 Civil Rights Act. So in 1974, exactly 50 years ago, the EEOC was substituted in for the United States as the plaintiff in the case.

As a result of the litigation, the EEOC entered into a consent decree with the defendants back in 1978 to resolve the Commission’s claims and the consent decree was thereafter approved by the court. 10 years later, Local 580 and AJEF were found in contempt of the consent decree, and remedial orders were entered to enforce compliance. These remedial orders included, among other things, appointment of a special master, new rules related to job referrals, the development of a new information tracking system, and some other record keeping requirements. The court entered another remedial order in an attempt to ameliorate the racial disparity in working hours, further revised Local 580’s job referral system, and require its contractors to make at least 65% of their new hires through this new system.

Jerry: Thanks, Greg, that’s a great overview. It sounds to me it’s very much like modern-day EEOC consent decrees. I have a lot of experience in negotiating those that run the gamut in terms of obligations and duties of employers across the board in terms of human resource issues. Nico, what happened in terms of compliance here, and how did the parties find themselves back in court before the judge?

Nicolette: Well, the parties did not comply. Two decades later, in 2011, the court issued its most recent contempt order against the union for failure to adhere to the court-mandated system. Thereafter, the court again rejected the parties’ joint motion to provide adequate information, and the parties subsequently filed a joint motion in June 2023 requesting approval of a proposed consent decree that would wind down the court supervision of the parties’ obligations, and thereafter terminate judicial oversight of the defendants after a three-year period.

Jerry: It’s really interesting – many people think, I believe mistakenly, that getting approval of a consent decree or a class action settlement agreements like a rubber stamp. It’s anything but that. In this case, the judge in the Southern District of New York, Judge Lewis Kaplan, issued one of the strongly-worded orders I’ve ever read in terms of denying entry of the consent decree on November 6, in terms of the parties’ compliance, or lack thereof. What sort of problems did Judge Kaplan identify?

Nicolette: So, Jerry, the judge denied the second joint motion for largely the same reasons that it denied the first joint motion for approval of the consent decree. Namely, because of (1) the parties’ failure to provide the data underlying employment opportunities for Black and Hispanic union members, and then (2) the lack of detailed accounting of the parties’ efforts to achieve proportionate working hours. The court went on to state its belief that, based on the parties’ recent filings as part of their second joint motion for approval, the data and information in question do not exist at all. The court dispatched with the parties’ expert testimony, observing that the expert had only used data after June 19th of 2018, despite the fact that his report was meant to analyze a decade-long period from 2009 to 2019. Further, according to the court, the expert witness attempted to use incomplete data from a source other than the union’s own records. However, the expert concluded that even this data contained “critical limitations” and could not provide “any meaningful value” to his report. Accordingly, the court held that “one year of partial data is not sufficient to justify a conclusion that defendants and contractors no longer discriminate against Black and Hispanic Union members and now are committed to providing them with equal employment opportunities.” So, indeed, this is particularly true given the long and well-documented history of discrimination by the defendants, as well as the existence of current evidence suggesting that Black and Hispanic workers still are not receiving the same hours of work as other union members.

Gregory: Thanks, Nico, and not only that the court was also critical of the parties’ attempt to dispute whether the court’s previous order placed an affirmative obligation on Local 580 to address the hours disparities between its minority and non-minority members, the court concluded that, based on the clear order of the text, defendants were obligated to work proactively to ensure proportionate employment opportunities for those Black and Hispanic union members. The court also added that, it “will not reward defendants for their apparent indifference to minority workers and to the law by entering into a less stringent regime with the aim of winding down any and all supervision in only three years.” So, obviously the court was not happy with the way that this was going.

The court also concluded that by stating that approval of the proposed consent decree would harm the public interest, since the existing orders “can produce the desired results if adequately pursued,” and it also concluded that “entry of the Proposed Consent Decree – which would decrease oversight and reduce the obligations imposed upon defendants known to be in violation of Court orders and demonstrably unwilling to eradicate racial disparities – would disserve the public interest.”

Jerry: I’m a student of history, and it seems remarkable to me that Richard Nixon would have been sitting in the White House at the time that this litigation started, and that the Allies invaded Europe on D-Day, and it took them a year to plan that – and here we’re 50 years into this litigation. What are the takeaways for employers that are facing consent decrees or facing class action settlement agreements that federal court judges have the power to review, approve, and manage?

Nicolette: To your earlier point, Jerry, while it may strike, you know, an employer initially as sort of a rubber stamp issue – it’s certainly this case illustrates that it’s not, and this case, furthermore, illustrates the risks employers face when they fail to comply with court-mandated record-keeping requirements in connection with EEOC consent decrees, and the possible longevity of these consent decrees in the event the court is not satisfied, as was the case here, with compliance and enforcement of the same. The court stated that perpetual oversight is normally disfavored, but still necessary if the parties fail to comply with the court’s express orders.

Gregory: I think that employers and businesses should definitely heed the court’s warning and ensure that relevant data and information that applies to analyzing potential discrimination of any kind is collected and preserved in the normal course of business, regardless of litigation. I think companies should apply this principle also, regardless of whether or not they’re subject to a court order or any other oversight for compliance with practices that are required to fight against and eliminate discrimination. I think the case also serves as a critical reminder that when an agency files a lawsuit in federal court – as you said, Jerry – the parties can’t, just, you know, simply agree on their own to settle claims. And it’s not just a rubber stamp, it really does have meaning. So, this is especially so where defendants time and time again fail to abide by the court’s orders. And then, as this litigation demonstrates, federal judges really have a ton of patience, including decades of it, for some of them to ensure that litigants actually adhere to these mandated requirements in order to justify dismissal.

Jerry: Thanks to your observations and thought leadership in this space. It strikes me that it’s like a contract, and the federal judge is there to make sure it’s enforced and abided by, and all the i’s are dotted, and all the t’s are crossed. Well, thank you, loyal blog readers, for joining us for this installment of the Class Action Weekly Wire. And please mark your calendars for Friday, November 22, when we have our annual EEOC webinar for all things involving the litigation enforcement program of the Commission. Thanks so much, Nico, thank you, Greg, for joining us this week.

Gregory: Absolutely, thanks so much for having me, Jerry. It was great to be on the pod, and, thanks to all the loyal listeners.

Nicolette: Thanks so much, Jerry, and, thanks to the listeners.

By Gerald L. Maatman, Jr., Gregory S. Slotnick, and Christian J. Palacios

Duane Morris Takeaways:  On November 6, 2024, Judge Lewis Kaplan of the U.S. District Court for the Southern District of New York once again denied a request to approve a settlement between the U.S. Equal Employment Opportunity Commission (“EEOC” or the “Commission”) and a union that would have ended a fifty-three (53) year old race discrimination lawsuit.  In a strongly-worded opinion, the Court found that, despite a number of approval requests, the parties still could not provide it with data necessary to demonstrate that race-based hiring and employment disparities (concerning Black and Hispanic union members) had been eliminated.  The case, captioned EEOC v. Int. Ass’n of Bridge Structural and Ornamental Ironworkers Local 580 et al., Case No. 71 Civ. 2877, 2024 U.S. Dist. LEXIS 202057 (S.D.N.Y. Nov. 6, 2024), is significant because it illustrates the importance of complying with recordkeeping requirements and other court-mandated activities in consent decrees, as well as the potential consequences for failure to do so. In the event an employer and, as applicable, a union or group of plaintiff-employees, are unable to convince the court that they are meeting their obligations under a consent order, even the Commission’s support may be unsuccessful in convincing a court to end longstanding court-supervision of agreed-upon remedial measures. 

Case Background

In 1971, the United States sued Local 580 of the International Association of Bridge, Structural, and Ornamental Ironworkers (“Local 580”), alleging that an apprenticeship program that it ran, titled the Joint Apprentice-Journeymen Educational Fund of Ironworkers Local 580 (“AJEF”), and Allied Building Metal Industries (“Allied”), an association of metalworking companies that employ Local 580 members in New York City, discriminated against applicants on the basis of their race, in violation of Title VII of the 1964 Civil Rights Act.  Id. at *1.  In 1974, the EEOC was substituted for the United States as plaintiff.  Id. at *2.

As a result of the litigation, the EEOC entered into a consent decree with the defendants in 1978 to resolve the Commission’s claims, and the consent decree was thereafter approved by the Court.  Id.  Ten years later, Local 580 and AJEF were found in contempt of the consent decree, and remedial orders were subsequently entered to enforce compliance, requiring, inter alia, appointment of a special master, new rules related to job referrals, the development of a new “information tracking system” and certain other recordkeeping requirements.  Id. at *3.  In 1991, the Court entered another remedial order in an attempt to ameliorate the racial disparity in working hours, further revise Local 580’s job referral system, and require its contractors to make at least 65% of their hires through the new system.  Id.  Two decades later, in 2011, the Court issued its most recent contempt order against the union for failure to adhere to the court-mandated system.  Id.  In a joint motion filed by the parties in June 2023 (shortly after the Court rejected the parties’ initial joint motion filing for failure to provide adequate information), the defendants and the EEOC requested approval of a proposed consent decree that would wind down the Court’s supervision of the parties’ obligations, and thereafter terminate judicial oversight of defendants, after a three-year period.  Id. at *6.

On November 6, 2024, U.S. District Judge Lewis A. Kaplan penned a strongly-worded order denying the parties’ motion.

The Court’s Ruling

The Court began its analysis by confirming its denial of the parties’ second joint motion for largely the same reasons that it denied the first joint motion for approval of the consent decree; namely because of: (1) the parties’ failure to provide the data underlying employment opportunities for Black and Hispanic union members, and (2) the lack of detailed accounting of the parties’ efforts to achieve proportionate working hours. Id. at *9-10.  The Court also stated its belief that based on the parties’ recent filings as part of their second joint motion for approval, the data and information in question do not exist.  Id. at *10.

The Court dispatched with the parties’ expert testimony, observing that the expert had only used data after June 19, 2018, despite the fact that his report was meant to analyze a decade-long period, from 2009 to 2019.  Id. at *11-12.  Further, according to the Court, the expert witness attempted to use incomplete data from a source other than the union’s own records; however, the expert concluded that even this data contained “critical limitations” and could not provide “any meaningful value” to his report.  Id. at *12. 

Accordingly, the Court held that “one year of partial data is not sufficient to justify a conclusion that defendants and contractors no longer discriminate against Black and Hispanic union members and now are committed to providing them with equal employment opportunities. Indeed, this is particularly true given the long and well-documented history of discrimination by defendants, as well as the existence of current evidence suggesting that Black and Hispanic workers still are not receiving the same hours of work as other union members.” Id. at *14.  The Court was also critical of the parties’ attempt to dispute whether the Court’s previous Order placed an affirmative obligation on Local 580 to address the hours disparities between its minority and non-minority members, concluding that based on the clear text of the Order, defendants were obligated to work proactively to ensure proportionate employment opportunities for Black and Hispanic members.  Id. at *17-18.  The Court added that it “will not reward defendants for their apparent indifference to minority workers and to the law by entering into a less stringent regime with the aim of winding down any and all supervision in only three years.”  Id. at *24.  

Finally, the Court concluded that approval of the proposed consent decree would harm the public interest since the existing orders “can produce the desired results if adequately pursued” and “entry of the Proposed Consent Decree — which would decrease oversight and reduce the obligations imposed upon defendants known to be in violation of Court orders and demonstrably unwilling to eradicate racial disparities — would disserve the public interest.”  Id. at *28.

Implications for Employers

Given the age of this case, it is possible that by the time the Commission and Local 580 successfully petition the Court for approval, this will have been one of the longest-lasting consent decrees in the Commission’s history and American jurisprudence.  This litigation is already over half a century old, and the Court’s ruling makes clear that the parties still have much more work to do before it will grant their requested wind-down of judicial oversight.  This case illustrates the risks employers face when they fail to comply with court-mandated record-keeping requirements in connection with EEOC consent decrees, and the possible longevity of these consent decrees in the event the Court is not satisfied with compliance and enforcement of same. 

As the Court noted, although “[p]erpetual court oversight is to be disfavored…[t]he case at hand…presents a situation where, despite repeated claims that the need for judicial oversight is gone, the Parties have admitted to continued and persistent racial disparities.”  Id.  The Court here pointed directly to the parties’ failure to abide by its express orders to collect relevant data for purposes of analyzing progress and compliance, and held that without this data, “the Parties have failed to show that the racial discrimination which first gave rise to the need for court oversight has been eliminated…”.  Id. at *28-29.

Employers and businesses should heed the Court’s warning and ensure relevant data and information applicable to analyzing potential discrimination of any kind is collected and preserved in the normal course of business.  Companies should apply this principle regardless of whether or not the company is already subject to a court order or any other oversight for compliance with practices required to fight against and eliminate discrimination.  The case also serves as a critical reminder that once an agency files a lawsuit in federal court, the parties may not be able to simply agree on their own to settle claims, especially where defendants fail to abide by the Court’s orders.  As this litigation demonstrates, federal judges have ample patience – decades of it – to ensure litigants adhere to mandated requirements justifying dismissal.

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Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman, special counsel Justin Donoho, and associate Ryan Garippo with their analysis of a recent ruling issued by the Supreme Judicial Court of Massachusetts dismissing plaintiffs’ wiretap claim in an advertising technology (“adtech”) class action, providing corporate defendants with a welcome beacon in the recent influx of adtech class action litigation.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Samsung Podcasts, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, and YouTube.

Our previous episode, the Digital Frontier Survival Guide For Corporate Counsel, discusses best practices and risk mitigation in wake of litigation targeting website advertising technologies. Earlier this year we published the Duane Morris Privacy Class Action Review – 2024, analyzing key developments in this space.

Episode Transcript

Jerry Maatman: Thank you everyone for being here for the next episode of our weekly podcast series, the Class Action Weekly Wire. I’m Jerry Maatman of Duane Morris and joining me today are Justin and Ryan, my colleagues, to discuss all things class action. Thanks so much for being on the podcast this week.

Justin Donoho: Thanks, Jerry. Great to be here.

Ryan Garippo: Thanks for having me, Jerry.

Jerry: Today we wanted to talk about a recent ruling that’s been making the rounds in the legal media in the wake of exploding advertising technology, or something known as “adtech”, class actions. These are cases being filed across the country in both federal and state court, and invoking both criminal and civil, federal and state wiretap laws and provisions, and seeking millions, if not billions, of dollars in damages of civil remedies in class actions. Plaintiffs nationwide are filing these types of lawsuits, alleging that Meta Pixel, Google Analytics, and other similar software embedded in defendants’ websites secretly capture a browser’s data and send it to Meta, Google, or other online advertising agencies. Justin, I know that you’re focused very much on adtech and litigation in this space – tell us a little bit about the boom in this sort of legal claim.

Justin: Yeah, this adtech software is a common feature on millions of corporate, governmental, and other websites today – over 10 million. In adtech class actions, the main event is often a claim brought under a federal or state wiretap act, a consumer fraud act, or the Video Privacy Protection Act, because that is what enables plaintiffs to seek millions and billions of dollars in statutory damages, even for midsize companies, on the theory that hundreds of thousands of website visitors, times $10,000 per claimant in statutory damages under the Federal Wiretap Act, for example, equals billions. Plaintiffs have filed the bulk of these types of lawsuits to date against healthcare providers, but they have filed suits against companies that span nearly every industry – including retailers, consumer products, and universities. Several of these cases have resulted in multi-million dollar settlements, several have been dismissed, and the vast majority remain undecided.

Jerry: Well, it seems to follow that mantra of the plaintiff’s bar to file the case, certify the case, and then monetize it, and haul down millions of dollars in damages in across-the-board massive settlements. But today we wanted to talk about what seems to be a ray of light, a helpful decision from the state of Massachusetts, in a case called Vita, et al. v. New England Baptist Hospital. Ryan, could you share with our listeners and readers the background on the Vita case?

Ryan: Absolutely, Jerry. So in Vita, the plaintiff brought suit against the hospital. According to the plaintiff, the hospital installed Meta Pixel and Google Analytics on its public-facing website, and the installation of that technology transmitted information to Meta and Google allegedly without the plaintiff’s consent, including the title and URL of the hospital pages that the plaintiffs visited, any hospital department that she selected, any search terms she entered, filtering criteria – particularly where she used the “Find a Doctor” webpage and whether or not she navigated to the hospital’s patient portal. Although, just to be clear, the contents of the records or the communications within that portal were not alleged in the complaint. Based on these allegations, the plaintiff claimed that the hospital aided Meta and Google to intercept her communications in violation of the Massachusetts Wiretap Act. The hospital moved to dismiss, arguing that the interactions with the hospital’s website did not fall within the meaning of “wire communication[s]” protected by the Massachusetts statute. The trial court denied that motion and sent it directly to the Massachusetts Supreme Judicial Court, which accepted the direct appeal.

Jerry: What were the stakes before the Massachusetts High Court – in terms of if the trial court’s ruling in favor of the plaintiff stood – what could the plaintiffs hope to gain in a case like this?

Ryan: Well, the Massachusetts Wiretap Act makes it a crime to commit an interception, meaning secretly here record or aid another in secretly hearing or record the contents of any oral or wire communication. And because violators are punishable by a fine of up to $10,000, imprisonment for up to 5 years, or a combination of fines and imprisonment, the Massachusetts Wiretap Act gave plaintiffs a private right of action for any aggrieved person. Pretty substantial damages – each civil claimant is entitled to statutory damages of “$100 per day for each violation or $1,000, whichever is higher.”

Jerry: Seems like the stakes were very high. What did the highest court of Massachusetts ultimately rule in terms of this cause of action and whether or not it was viable in a class action setting?

Justin: The Supreme Judicial Court ultimately agreed with the hospital, and ordered dismissal of the plaintiffs’ wiretap claim. The plaintiff contended that the meaning of “communication” under that statute is broad enough to encompass all interactions with the hospital’s websites when those websites were visited by her, and an alleged class of other website visitors. The Supreme Judicial Court held that “the statutory term ‘communication’ is ambiguous as applies to the web browsing activities allegedly intercepted” and neither the plain text of the statute, nor dictionary definitions make clear whether “communication” includes that, rather the legislative history, they said, was concerned with a different type of surveillance. Namely, one to one telephone lines trying to intercept – back in 1968, when the statute was created. So, the court ultimately applied the rule of lenity, finding that the statutory term was ambiguous – it emphasized that throughout its entire opinion, and ultimately that was the basis for its decision, the rule of lenity, because this is a criminal statute, and so the tie basically goes to the person who’s going to be punished with these severe penalties.

Jerry: Seems like this is a very powerful precedent for the defense bar in terms of the antidote, and a viable argument to try and take down these adtech class actions. What do you see as the future here, Ryan, in this particular space?

Ryan: I think that’s right, Jerry. Right now, there are hundreds of adtech class actions featuring claims under the Federal Wiretap Act, the Video Privacy Protection Act, and other similar state laws, that seek millions and billions of dollars in statutory damages under this theory. We’ve talked about some of these rulings on our blog, the Duane Morris Class Action Defense Blog, and courts have dismissed some of these claims, but some of them not, and have allowed them to proceed. But this new ruling will be very helpful for corporate defendants in this space.

Justin: Yes, those differing rulings that you’re talking about, Ryan, exactly show the point that these different courts are giving different interpretations to the same statutory terms that suggest that these terms are ambiguous, too, similar to the ones found in a different statute in Vita. And so the ruling here in Vita, though, is important because it instructs that under similar circumstances the rule of lenity also applies to these ambiguous terms, too, thereby entitling defendants to the benefit of any rational doubt in the construction of the statute, and accordingly defeating plaintiffs’ mammoth statutory damages claims.

Jerry: Well, thank you. It certainly seems like a beacon of light for companies in this space attempting to defend themselves in adtech class action litigation. Thank you, Ryan, and thank you, Justin, for lending your expertise and thought leadership in this area and for breaking this down for our readers and listeners.

Justin: Thanks for having me, Jerry, and thanks listeners.

Ryan: Thanks a lot everyone. Great to be here as always.

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Derrick Fong-Stempel with their analysis of a recent ruling issued by the California Court of Appeal in the Second Appellate District affirming the district court’s order declining to grant the defendant’s motion to compel arbitration in a PAGA suit.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Samsung Podcasts, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, and YouTube.

Learn more about the California PAGA reform bills enacted in 2024 here. Bookmark or download the Duane Morris Private Attorneys General Act Review – 2024 here.

Episode Transcript

Jerry Maatman: Thank you, loyal blog readers and listeners. Welcome to our next episode of our weekly podcast series, the Class Action Weekly Wire. I’m Jerry Maatman, a partner at Duane Morris, and joining me today from Los Angeles is my colleague, Derrick Fong-Stempel. Thanks so much for being here on the podcast.

Derrick Fong-Stempel: Thanks, Jerry, great to be here. Thanks for having me.

Jerry: So, today we wanted to highlight a challenging area in California in general, and what’s known as PAGA litigation in particular, and a new ruling by the California Court of Appeal in a case called Arevalo v. Pinnacle Farm Labor Inc. One of the major trends that we’ve been tracking over the last few years would be the growth of cases brought under the California Labor Code as well as under the PAGA statute. So, Derrick, could you give us a little bit of background about this case, and share with our listeners some of your thoughts as to its significance?

Derrick: Absolutely, Jerry. The plaintiff in this action is a farm worker actually, who filed suit against a farm labor contractor and brought class action claims for labor law violations.  Plaintiff separately brought a representative action under PAGA against the defendant Pinnacle Farms. As is customary, plaintiff worked for Pinnacle, but as a laborer was sent to different client farm locations – often several in the same week. One of the clients was Wonderful Citrus Packing. While working at Wonderful’s farm, the plaintiff signed an arbitration agreement which provided that any disputes between the parties would be submitted to individual arbitration. Therefore, Pinnacle filed a motion to compel arbitration based on that agreement. Pinnacle also argued that because Wonderful is its client, the arbitration agreement between Wonderful and the plaintiff should extend to its own employment relationship with plaintiff.

The trial court found that the plaintiff entered into an arbitration agreement with Wonderful, and that Pinnacle was, in fact, a third-party beneficiary of the agreement as the labor contractor. However, it also found that the agreement applied only to work performed for Wonderful and at its location specifically. Essentially, then, the trial court found that a portion of the class claims against Pinnacle were outside the scope of the arbitration agreement and denied arbitration of those claims on that specific basis. Pinnacle, of course, appealed the ruling thereafter.

Jerry: I know that Pinnacle had argued on appeal that the trial court erred in concluding that some of the claims were outside the scope of arbitration. And obviously many, many companies have adopted arbitration agreements that cover themselves or their customers in the wake of the U.S. Supreme Court ruling in the Epic Systems case in 2018. How did that issue play out before the California Court of Appeal in this case?

Derrick: That’s a great question – thanks, Jerry. Epic is a very significant case in the post-Viking River landscape as well. The Court of Appeal here agreed with the trial court that only Wonderful and the plaintiff specifically were signatories to the agreement, and that the agreement was meant primarily to protect Wonderful. The court specifically stated that it was unreasonable to conclude that the plaintiff, by signing an agreement with Wonderful, actually intended to bind himself to arbitrate any other disputes with other landowners’ land. In essence, this was a standard intent-based argument. The Court noted that even if it broadly construed the agreement in favor of arbitration, as Pinnacle argued, it would come to the same conclusion because it would be unreasonable to apply the agreement to the plaintiff’s services provided to an entity other than Wonderful.

Jerry: I’ve been following California-related class action wage and hour developments for going on 42 years, and this is quite an interesting spin by the California Court of Appeal. We may well see this issue percolate up one day to the California Supreme Court. I know for our listeners, obviously 2024 is the year of PAGA reform, and there are many unanswered questions under the new PAGA law in California, and it’s certainly going to spike more and more appellate court decisions in this area. Well, thank you, Derrick, for lending your thought leadership and your analysis of this particular case. Thanks so much for appearing on this week’s episode.

Derrick: Absolutely thanks. So much for having me, Jerry. It was fun to be on the podcast, and thanks again to all the listeners as well.

Jerry: Thank you.

By Gerald L. Maatman, Jr., Jennifer A. Riley, Justin Donoho, and Ryan T. Garippo

Duane Morris Takeaways:  On October 24, 2024, in Vita v. New England Baptist Hospital, 2024 WL 4558621 (Mass. Oct. 24, 2024), the Supreme Judicial Court of Massachusetts ordered dismissal of a claim that a healthcare company’s use of website advertising technology violated the Massachusetts Wiretap Act.  The ruling is significant as it shows that in the hundreds of adtech class actions across the nation seeking millions or billions of dollars in statutory damages under various criminal wiretap acts with civil remedies provisions, the rule of lenity applies, thereby entitling defendants to the benefit of any rational doubt in the construction of the statute and, accordingly, defeating plaintiffs’ mammoth statutory damages claims.

Background

This case is one of a legion of class actions that plaintiffs have filed nationwide alleging that Meta Pixel, Google Analytics, and other similar software embedded in defendants’ websites secretly captured plaintiffs’ web browsing data and sent it to Meta, Google, and other online advertising agencies.  This software, often called website advertising technologies or “adtech,” is a common feature on millions of corporate, governmental, and other websites in operation today.  In adtech class actions, the main event is often a claim brought under a federal or state wiretap act, a consumer fraud act, or the Video Privacy Protection Act, because plaintiffs often seek millions and billions of dollars, even from midsize companies, on the theory that hundreds of thousands of website visitors, times $10,000 per claimant in statutory damages under the Federal Wiretap Act, for example, equals billions.  Plaintiffs have filed the bulk of these types of lawsuits to date against healthcare providers, but they have filed suits against companies that span nearly every industry including retailers, consumer products, and universities.  Several of these cases have resulted in multimillion-dollar settlements, several have been dismissed, and the vast majority remain undecided. 

In Vita, the plaintiff brought suit against a hospital.  According to the plaintiff, the hospital installed the Meta Pixel and Google Analytics on its public-facing website, thereby transmitting to Meta and Google, allegedly without the plaintiff’s consent, the following information: (1) title and URL of the hospital’s web pages she visited; (2) any hospital department she selected (e.g., obstetrics); (3) any search terms she entered; (4) any filtering criteria she used on a “Find a Doctor” webpage, including specialty, location, gender, and language; and (5) whether she navigated to the hospital’s patient portal, although not the contents of records or communications within that portal.  Id. at *3.

Based on these allegations, the plaintiff claimed that the hospital aided Meta and Google to intercept her communications in violation of the Massachusetts Wiretap Act, G. L. c. 272, § 99.  The hospital moved to dismiss, arguing that plaintiff’s interactions with the hospital’s website did not fall within the meaning of “wire communication[s]” protected by the Massachusetts statute.  Id. at *1.  The trial court denied the motion and sent it directly to Massachusetts’ Supreme Judicial Court, which accepted the direct appeal. 

The Supreme Judicial Court’s Opinion

In one of the first appellate decisions anywhere deciding whether the events alleged in an adtech class action complaint violated a wiretap act, the Supreme Judicial Court agreed with the hospital and ordered dismissal of the plaintiff’s wiretap claim.

The Massachusetts Wiretap Act makes it a crime to willfully commit an “interception,” meaning “to secretly hear, secretly record, or aid another to secretly hear or secretly record the contents of any wire or oral communication….”  Id. at *7 (quoting statutory definition).  Violators are punishable by a fine of up to $10,000, imprisonment for up to five years, or a combination of fines and imprisonment.  Id. at *7.  The Massachusetts Wiretap Act also provides a private right of action for any person aggrieved by an interception.  Id. at *6.  Each civil claimant is entitled to statutory damages in the amount of “$100 per day for each day of violation or $1000, whichever is higher.”  Id. at *7.

The claimant in Vita contended that the meaning of “communication” is broad enough to encompass all interactions with the hospitals’ websites when those websites were visited by her and an alleged class of other website visitors.  The Supreme Judicial Court held that “the statutory term ‘communication’ is ambiguous as applied to the web browsing activities allegedly intercepted.  Neither the plain text of the statute nor dictionary definitions make clear whether such activity amounts to ‘communication,’ and the legislative history is concerned with a different type of surveillance.  Thus, the rule of lenity must apply, thereby entitling the defendants to the benefit of any rational doubt in the construction of the statute.”  Id.  In explaining its reasoning on applying the rule of lenity, the Supreme Judicial Court stated that “while the instant cases concern civil liability under the wiretap act, the act also has significant criminal penalties, including up to five years in State prison, and accordingly, the rule of lenity should be applied.”  Id. at *15 (collecting authorities).  In conclusion, the Supreme Judicial Court summarized its opinion as follows: “In sum, the statutory language is ambiguous, and the legislative history is not helpful regarding whether the alleged interceptions of Vita’s uses of the hospitals’ websites are interceptions of “communications” within the meaning of the wiretap act and thereby potentially subject to both civil and criminal penalties. Therefore, the rule of lenity applies, and Vita’s claims against the hospitals, which are based on the wiretap act alone, should be dismissed.”  Id. at *16.

Implications For Companies

Vita provides powerful precedent for any company opposing adtech class action claims under any state or federal wiretap act in which statutory terms are ambiguous.  Consider, for example, the numerous adtech class actions featuring a claim under the Federal Wiretap Act and seeking millions or billions of dollars in statutory damages.  Some courts have dismissed these claims (as discussed in our previous blog entry about a recent win for adtech defendants, here).  Other courts, interpreting the same statutory provisions and applying them to similar adtech class action allegations, have refused to dismiss these claims, allowing them to proceed to costly merits, class certification, and expert discovery.  These differing interpretations of statutory terms by different courts suggest those terms are ambiguous.  Vita instructs that the rule of lenity thus applies, thereby entitling defendants to the benefit of any rational doubt in the construction of the statute and, accordingly, defeating plaintiffs’ mammoth statutory damages claims.

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and special counsel Justin Donoho with their analysis of a recent Illinois federal court ruling issued in a BIPA class action involving identify verification software in R.S., et al. v. IDology Inc.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Samsung Podcasts, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, and YouTube.

Episode Transcript

Jennifer Riley: Thank you for being here again for the next episode of our weekly, podcast the Class Action Weekly Wire. I’m Jennifer, Riley partner at Duane Morris and joining me today is Justin Donoho. Thank you for being on the podcast Justin.

Justin Donoho: Thank you, Jen. Great to be here.

Jennifer: Today we wanted to highlight a recent ruling in a case that alleges violations of a state privacy statute, the Illinois Biometric Information Privacy Act, or BIPA. The BIPA was enacted in 2008. It requires companies collecting users’ biometric information to inform the person in writing of what data is being collected or stored; to inform the person in writing of the specific purpose and the length of time for which the data will be collected, stored, and used; and to obtain the person’s written consent. The law also prohibits any company from selling or otherwise profiting from consumers’ biometric information. Justin, can you give our listeners some background on the BIPA ruling that we are going to be discussing today?

Justin: Yes, this case involves an individual who visited an online gaming platform, and to participate in the platform she was required to upload a selfie in order to register as well as a copy of her photo ID so that the gaming platform could take some data from both of those, and then compare the two to see if there was a match, or, in other words, to verify whether the individual was who she said she was. In order to do this comparison, or matching function, the gaming company used what is called an application programming interface, or API, embedded in the gaming software which had been developed by a separate company marketing itself as an identity verification platform, and also the defendant in this case.

So, plaintiff here sued the back-end software company doing the verification, not the gaming company whose front-end online platform she visited. She alleged that the verification company’s API obtained her “scan of face geometry” in violation of BIPA, and failed to inform her that it was doing so. Thus triggering the staggering statutory damages under BIPA that has made it such a popular statute to sue under these days anytime someone uses any software at all relating to a face.

Jennifer: Thanks, Justin. So, this lawsuit was initially filed in state court and then removed to federal court in July of 2022. The defendant thereafter moved to dismiss the action, arguing that the court lacked personal jurisdiction over IDology because it is a Georgia corporation. The defendant also argued that the plaintiff failed to allege some essential prerequisites to certain aspects of the BIPA claims, and pled other aspects only in a very conclusory manner. The ruling on that motion came earlier this week. Justin, can you tell our listeners how the Court ultimately came down?

Justin: Yes. So yeah, the defendant raised a number of arguments, but really focused mostly on two: (1) lack of personal jurisdiction under Rule 12(b)(1), and also (2) failure to plausibly allege a BIPA violation under Rule 12(b)(6), both of which had to do basically with whether the plaintiff had alleged a sufficient connection between the events alleged in the complaint and the state of Illinois. The crux of the defendant’s argument was that although the plaintiff uploaded her selfie and photo ID to the gaming platform while she was in Illinois, the defendant, during all of this, was located in Georgia, and not really doing anything itself since the API had already been embedded in the gaming platform’s software.

The Court considered these arguments, ruled from the bench, and basically rejected them, allowing the case to move forward to discovery. According to the Court, because the alleged data collection occurred in Illinois, this was a sufficient connection, at least for pleading purposes to Illinois, to allow the BIPA claims to go forward. Moreover, according to the Court, it was sufficient that the verification company enabled the gaming company to obtain the plaintiff’s alleged biometric identifiers in Illinois, even though the verification company, the defendant, did not obtain them in Illinois itself. So, this case will be proceeding, but it is important to emphasize that this was only a ruling on the plausibility of the plaintiff’s pleadings. The door is not closed to the defendant to show, after discovery is completed, that there is not a sufficient connection to Illinois to apply the statute. Once the case has all the facts in the case will be an important one to watch, since how that issue comes out may affect BIPA litigation risk to software companies outside Illinois that merely create APIs used by other full end-user software products.

One more issue in this case, of course, is the issue of verification versus identification. We see this one a lot – does software capture a sufficient “scan of face geometry” to be unique to an individual when just doing that verification, or matching function, as opposed to grabbing enough information to compare to a large database to do identification? Courts have come out both ways on this issue during the pleading stage, and it was not an argument raised in the pleading stage in this case. But this case is another one to watch in this developing area of the law as well.

Jennifer: Absolutely. We will have to see how this case progresses, and ultimately, whether the plaintiffs are successful in obtaining class certification on their claims. We will keep our listeners updated.

Justin: Agreed, and we’ll be on the lookout for any of the merits issues we’ve been discussing as well.

Jennifer: Thanks, Justin, for your insight and thanks so much to our listeners for joining us on the latest episode of the Class Action Weekly Wire. We will see you next week!

Justin: Thanks!

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features a sneak peek into the third installment of the Duane Morris PFAS Webinar Series: Risk Mitigation and the Rise of Class Action Litigation. Duane Morris partners Jerry Maatman, Jennifer Riley, and Brad Molotsky provide a high-level overview of the recent developments, key rulings, and risk mitigation strategies in their analysis of the “forever chemicals” explosion in the product liability & mass tort class action landscape.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Samsung Podcasts, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, and YouTube.

Watch the full webinar and previous recordings on our website. Bookmark or download the Duane Morris Product Liability & Mass Torts Class Action Review – 2024. Follow the Duane Morris PFAS Blog to stay up-to-date on developments in this rapidly evolving area.

Episode Transcript

How “Forever Chemicals” Have Permeated Class Actions

Jerry: So, you start out with Big Tobacco, you go to asbestos, then you go to opioids, and now you’re at PFAS – and so you’re seeing kind of the fourth generation of well-developed theories, well- financed plaintiffs’ lawyers learning the lessons of the last two decades about how to attack corporate defendants in this area with these theories. And lay on top of that class action theories. So you have very expert plaintiffs’ lawyers doing this and focusing on it, and so I’d say it’s as challenging as I’ve ever seen in terms of the types of cases and the breadth of the cases – it’s rather remarkable.

Class Certification: The Holy Grail Of The Plaintiffs’ Bar

Jerry: One way to think about it is the business model of the plaintiffs’ class action bar: identify the case and file it, certify it, and then monetize it. And do the least amount of work possible to get the greatest return. It’s like the Wall Street theory of investment. And so as Jen will talk about, those areas there are some where certification is near certain other areas where the plaintiffs’ bar is not doing so good and what we’re talking about right now products liability & mass tort it’s right on the 70-72% line but think about that – it’s not even a jump ball. Seven out of 10 cases if lot are being certified. So that’s homework, that’s preparation, that’s skill – picking the right case, picking the right theory – to maximize the potential to certify it.

Class Action Settlement Numbers Continue To Spike At Unprecedented Levels

Jerry: So that study that we do annually that we talked about – a very popular and important telling chapter is on class action settlements. I’m a believer that you can tell a lot about the state of the market and what’s going on by settlements. Why is that? Well, I think success begets copycats in the class action area, and so where you see the plaintiffs’ bar beginning to score settlements or significant settlements you have other people entering the space filing their own lawsuits, and what we’ve seen in the last two years are higher settlement numbers than ever before. In 2023, $51.4 billion; in 2022, $66 billion; and that’s driven by mass tort and product liability claims – both the subject area we’re here for (PFAS) and opioids. So, 20 years ago the only analogue was when there were big tobacco class actions and enforcement actions brought by attorneys general, where you saw billions upon billions of dollars paid in the interim. You could count on one hand, usually one, two, or three billion dollar settlements per year, and the amount would be four to five to six billion in all the areas. Then all of a sudden, we have this jump when we had the big opioid settlements – but then you’re seeing it in other areas like a securities fraud case over a billion, an antitrust case over three billion, and so it’s the Renaissance right now with the plaintiffs’ bar, and it’s by way of my thinking the biggest transfer of wealth in the history of American jurisprudence has occurred in the last 24 months.

Jerry: Now we monitor on a daily basis, and if you look at the period of January 1 through June 30, the first six months we were at $33 billion – so we’re on track for a third year in a row to have these

blockbuster numbers. And what it has done is fueled the growth of plaintiffs’ firms using things like artificial intelligence to bulk up the way in which they litigate the cases. Jen and I spoke at a conference in New York City on mass torts and products liability, and at the keynote address was a plaintiffs’ lawyer said the following, which I thought was rather remarkable – he was involved in the Camp Lejeune water cases, where it is alleged that service members were exposed to cancer-causing water pollution in the ’50s, ‘60s, and ‘70s, and he said collectively the plaintiffs’ counsel had spent the following amount of money to market to potential litigants: $1.1 billion had been spent by these law firms trying to find plaintiffs to bring these cases. So, we’re talking about incredible sums of money that the plaintiffs’ bar is getting behind these cases advertising, trying to find people to bring these mass torts and products liability cases. 

Jerry: I mentioned before the iPhones, the omnipresent news cycle of all these big cases, but if you break down just last year – the $51.4 billion – you’re talking about you know a couple of billion per month and over $100 million per day being paid in class action settlements approved by courts. So I’d say the era that we’re in right now is characterized by heightened values of class actions and exponential risk, so if you’re operating in this environment – especially in those epicenters of class action litigation – you’re in a very unique zone that’s never existed before, that’s probably not going away anytime soon. And forever chemicals, for whatever reason, has been identified as the next so-called opportunity of the plaintiffs’ bar where they’re going to be pivoting from opioids to forever chemicals, So, I think you’re going to see this these sorts of numbers and the products liability and mass torts area for months, if not years, to come.

Tracking PFAS In The Class Action Landscape

Brad: Talk to us a bit about PFAS – like what do you think’s driving it, and what’s going on here?

Jennifer: We’ve been seeing PFAS cases for probably almost a decade. Plaintiffs have been filing lawsuits over alleged environmental health consequences associated with these chemicals, and I would say the earlier were largely against manufacturers – of Teflon, of other common household products – but as you as you mentioned, Brad, that landscape seems to be rapidly shifting. So, recently we’ve seen the range of lawsuits, the companies targeted – we’ve seen that really expand. And now we’re seeing these cases brought against not only manufacturers, but other companies in the chain of commerce, including companies that use chemicals in their finished products. For example, restaurants using PFAS-containing food wrappers packaging, retailers of PFAS containing clothing items. And the types of plaintiffs asserting these types of claims are also expanding. We’re seeing state and local governments that have begun filing lawsuits, largely over claimed contamination involving water supplies. So I think it’s as the effects of PFAS become more readily available, more widely known, widely spread, that’s generating some of this as well, As Jerry mentioned earlier, these huge settlements – and I think we’re going to talk more about some of these settlements in particular – but those huge settlements are really inspiring more plaintiffs’ lawyers to get into this space, and I think that is contributing to this expansion.

Brad: Well, so we’ve got as we were talking about kind of PFAS is you know over 12,000 different chemicals – some complex, some simple. Once they get out into the groundwater, they move very quickly. And so if you did testing in Antarctica, or out in Alaska, or in Russia – you would find PFAS in the water, you would find it likely around certain airports where you know firefighting foam has been used, that had PFAS in it. As Jen indicated, it’s found its way into a lot of household products – why? Because it works, it’s got certain properties to it that keep water out of it.

Building Your PFAS Risk Mitigation Toolkit

Jennifer: At least from the class action perspective, because many of these cases are very defensible, and some of the principles we talked about earlier in terms of plaintiffs having a hard time keeping these cases together and getting them certified certainly apply here. So plaintiffs alleging that they ingested something that caused cancer, for instance, a defendant’s going to argue that look – different class members ingested different things, different amounts of those things, some had cancer, some didn’t, they had different types of cancer, they had different interactions with other potentially cancer-causing substances – all of these things are going to lend themselves to individualize inquiries into plaintiffs’ unique circumstances and unique medical histories that are going to be tools that defendants have in their kits to oppose class certification in this context. So, many of these cases haven’t gotten to the class certification stage because we’ve been talking a lot about motions to dismiss and settlements, but I think that this roadmap for how to certify and keep one of these cases together is still something that is very much a work progress, and it’s going to be a big hurdle I think in these types of cases.

By Gerald L. Maatman, Jr., Justin R. Donoho, and Ryan Garippo

Duane Morris Takeaways:  On October 15, 2024, in Salazar v. NBA, 2024 WL 4487971 (2d Cir. Oct. 15, 2024), a unanimous panel of the U.S. Court of Appeals for the Second Circuit reversed the dismissal of a privacy class action against the National Basketball Association (“NBA”) and held that a web user who casually watched videos on the NBA’s website after signing up for a free email newsletter plausibly alleged that he was a “subscriber of goods and services” under the Video Privacy Protection Act (“VPPA”).  The Second Circuit was unpersuaded by the NBA’s arguments that the VPPA applies only to subscribers of audiovisual content.  Instead, it found, as a matter of first impression, that an email newsletter qualifies as “goods or services” under the VPPA, reversed the dismissal order, and remanded for the district court to address the NBA’s other arguments, including whether the plaintiff failed to plausibly allege his lack of consent and the NBA’s knowing disclosure.

Background

This case is one of a hundred or so VPPA class actions that plaintiffs have filed nationwide alleging that Meta Pixel, Google Analytics, and other similar software embedded in defendants’ websites secretly captured plaintiffs’ online video watching histories and sent it to Meta, Google, and other online advertising agencies.  This software, often called website advertising technologies or “adtech” is a common feature on millions of corporate, governmental, and other websites in operation today.  Plaintiffs’ typical theory in these cases is that they were “subscriber[s] of goods or services from a video tape service provider” under the VPPA, 18 U.S.C. § 2710, such that the defendants therefore violated that statute by knowingly disclosing their video watching histories without their consent via the use of adtech.

The VPPA was enacted in 1988, after a newspaper published a profile on Supreme Court nominee Judge Robert Bork’s video rental history that identified 146 films he and his family had rented from a video store.  Id. at *9.  Although Congress later amended the VPPA in 2012, “to clarify that a video tape service provider may obtain a consumer’s informed, written consent on an ongoing basis and that consent may be obtained through the Internet … much of the 1988 VPPA’s text remains unchanged.”  Id. at **9-10.  Thus, in VPPA cases, courts are often left to “grapple with how the language of this statute applies in today’s increasingly online world.”  Id. at *1.

In Salazar, the plaintiff brought suit against the NBA.  According to the plaintiff, he signed up for an online email newsletter offered by the NBA and, thereafter, visited the NBA’s website, where he watched videos.  Id.   The plaintiff further alleged that, after he watched those videos, his video-watching history was sent to Meta without his permission via the NBA’s undisclosed use of the Meta Pixel on its website.  Id.  Based on these allegations, the plaintiff alleged a violation of the VPPA.  The NBA moved to dismiss under Rule 12(b)(6), arguing that the plaintiff failed to plausibly allege a violation of the VPPA because, among other things, (1) the plaintiff did not sign up for any “audiovisual ‘good or service,’” id. (emphasis in original); (2) the NBA did not knowingly disclose the video-watching history to Meta, as Plaintiff was the one who did that via his own browser and Facebook settings, id. at *4; and (3) the plaintiff consented to disclosure to Meta by consenting to the NBA’s privacy policy.  Id. at *4 n.4.  The district court accepted the NBA’s first argument and dismissed on that basis, without reaching the other two arguments.  The Plaintiff appealed.

The Second Circuit’s Decision

The Second Circuit agreed with the plaintiff and reversed. It rejected the district court’s conclusion that the VPPA applies to subscribers only of audiovisual services.

First, the Second Circuit found that the VPPA’s language saying it applies to “any renter, purchaser, or subscriber of goods or services from a video tape service provider,” id. § 2710(a)(1), “makes no mention of audiovisual materials” in reference to the “goods or services.”  Id. at *11.  This omission was meaningful, according to the court, because Congress knew how to include the word “audiovisual” in other portions of the VPPA, namely, its definition of a “video tape service provider” as including a business engaged in renting, selling, or delivering prerecorded video cassette tapes “or similar audio visual materials.”  Id. (quoting 18 U.S.C. § 2710(a)(4)).  As the Second Circuit explained, “Congress’s decision to use different words in different definitions strongly signals its intent to convey different meanings.”  Id.

Moreover, the Second Circuit held that under the NBA’s interpretation of “goods and services” as audiovisual materials, “Congress’s express restriction in the definition of ‘personally identifiable information’ to information about ‘video materials or services’ would be superfluous.”  Id.

Further, the Second Circuit found that although the First and Eleventh Circuits are split on whether a person who merely downloads an app to view content counts as a “subscriber,” that circuit split was not implicated here because the plaintiff alleged that he signed up for the newsletter and, in doing so, provided his email address, IP address, and cookies associated with his device.  Id. at *15.  These allegations were sufficient, the Second Circuit held, to allege he was a “subscriber.”  As the Second Circuit explained, the NBA’s relationship with the plaintiff was “distinct from its relationship with casual NBA.com video-watchers who had not signed up for the newsletter.”  Id. at *15 (emphasis added).

In short, the Second Circuit concluded that a web user who casually watched videos on the NBA’s website after signing up for a free email newsletter plausibly alleged that he was a “subscriber of goods and services” under the VPPA.  The Second Circuit therefore reversed and remanded for the district court to address the NBA’s remaining arguments in the first instance.  Id. at *4 n.4, 16.

Implications For Companies

The Second Circuit’s opinion serves as a cautionary tale for companies using adtech on webpages containing video content.  As the ruling shows, VPPA litigation risk for such companies is not limited to users who sign up to receive the video content.  In addition, companies using adtech on webpages containing video content face the risk of VPPA class actions by allowing users to sign up for other, non-audiovisual goods or services.  Further, companies using adtech also face the risk of VPPA class actions merely by making an app available to view the video content, at least in some circuits, as the Second Circuit noted. 

As adtech and online videos continue to proliferate, organizations should consider in light of Salazar whether to modify their website terms of use, data privacy policies, and all other notices to the organizations’ website visitors and customers to describe the organization’s use of adtech in additional detail.  Doing so could deter or help defend a future class action lawsuit similar to the many that are being filed today, alleging omission of such additional details, and raising high-dollar claims for statutory damages brought under not only the VPPA ($2,500 per alleged class member), as in this case, but also federal and state wiretap acts and consumer fraud acts, as in other cases we blogged about here, here, and here.