The Class Action Weekly Wire – Episode 61: Key Developments In Civil Rights Class Action Litigation


Duane Morris Takeaway:
This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and associate Nathan Norimoto with their discussion of developments and trends in the area of civil rights class action litigation.

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

Episode Transcript

Jennifer Riley: Hello, everyone, and thank you for being here again for the next episode of our weekly, podcast the Class Action Weekly Wire, I’m, Jennifer, Riley partner and Dwayne Morris and joining me today is Nathan Norimoto. Thank you for being on the podcast Nathan.

Nathan Norimoto: Great to be here, Jen.

Jennifer: Today we wanted to discuss some trends and important developments in the area of civil rights class action litigation. Nathan, do you want to talk a bit about this area of law before we get into a development over the past year?

Nathan: Yes, definitely. For more than 70 years, class actions have been among the most powerful tools to secure civil rights in America. This began with the class action of Brown, et al. v. The Board Of Education, which declared school segregation unlawful and arguably set the stage for the Civil Rights Movement. In 1966, Congress and the judicial rule-making authorities crafted Rule 23 with the express goal of empowering litigants, challenging systemic discrimination, particularly segregation, to force courts to order widespread objective relief that would protect members of the class as a whole. Ever since, this provision remains as salient to the enforcement of federal civil rights statutes and constitutional claims as it was at its inception. So, for a multitude of reasons, class actions are often a tool of first resort by advocacy groups to remedy civil rights violations.

Jennifer: Thank you so much for that overview. What were some of the major developments in 2023 and during the first half of 2024 in the civil rights class action litigation space?

Nathan: Class actions in the civil rights context span numerous issues during that time period. Given this breadth of subject area, there were well over 100 decisions in this space. In these far ranging claims and groups of individuals, one common theme continues to be whether litigants can meet the commonality and typicality requirements of Rule 23, under the federal rules of civil procedure, to establish class certification. 2023 saw court rulings where numerous civil rights cases were certified, as well as granted class certification affirmed on appeal.

Jennifer: Are there any key rulings from this past year that listeners need to know about in the civil rights litigation class action area?

Nathan: Definitely. So, among all civil rights cases, the ruling on class certification in Progeny, et al. v. City Of Wichita was likely amongst the most significant. The plaintiffs, a nonprofit organization and several individuals, filed a class action alleging that the defendant, the city of Wichita, kept a “gang list” created and maintained by the Wichita Police Department, or WPD, whom WPD personnel had determined that the definition of a criminal street gang member. The individual plaintiffs alleged that they were wrongfully designated as criminal street gang members and added to the gang list, which adversely affected their lives. The plaintiff filed a motion for class certification pursuant to Rule 23, and the court granted the motion. The plaintiff proposed class consisted of all persons included in the Wichita Police Department’s gang list as an active or inactive gang member or gang associate. The court also determined that several common questions existed to establish commonality, including whether the statute was unconstitutionally vague, whether it failed to provide procedural protections to persons on the gang list, and whether inclusion in the gang list has a chilling effect on the right to freedom of association. The court held that the plaintiffs established that the defendant acted or refused to act by applying the gang list criteria to add persons to the gang list without procedural protections for those persons, which was applicable to the entire class. So the court ruled that the requested injunction seeking to bar the defendant from enforcing the statute was appropriate to the class as a whole, because all class members were on the gang list, and therefore the court granted class certification.

Jennifer: Thank you, Nathan, for that overview. So, turning to some trends and developments – there were over 100 rulings in this area in 2023. How are things progressing thus far in 2024 – have there been any interesting cases where class certification was granted?

Nathan: Certainly. So it seems like courts are continuing to grant class certification rulings in this area so far this year. One example here in California, Berg, et al. v. County Of Los Angeles, the plaintiffs were a group of protesters who filed a class action asserting that the Los Angeles Sheriff’s Department, or the LASD, had used excessive force against peaceful protesters and unlawfully detain them in violation of their First, Fourth, and Fourteenth Amendment rights in connection with the George Floyd protests. The plaintiffs filed a motion for class certification on one injunctive relief class and two damages classes, and that motion was granted by the court. As to the injunctive relief class, the defendants opposed the motion on mootness and standing grounds, and the court found that could not determine that the class would be moot, and that because the plaintiffs had stated they plan to attend future protests, they could plausibly be fearful of future harm. Next, for the first damages class, containing individuals who were arrested at the protests, the court stated that there were several common issues central to the class, including (i) whether the defendants have a custom and practice of using indiscriminate force against the peaceful protesters; (ii) whether there has been a manifest failure by the defendants to train employees on the use of force against the protesters; and (iii) whether the defendants had ratified violations of peaceful protesters’ rights. So finally, on the last and third class, the other damages class which contained individuals who were subject to the use of rubber bullets or tear gas, the court determined that the plaintiffs sufficiently established the common alleged harm of a “chill” to their First Amendment rights to unify the class. The court stated that the class met the predominance requirement under Rule 23 because the plaintiffs alleged class-wide general damages and challenged only a single “custom and practice of abusing indiscriminate force against peaceful protesters.” The court concluded that class action would be superior method of adjudication for the direct force class, or the third class, and granted the motion for class certification in its entirety.

Jennifer: It certainly seems like we will see courts continuing to grapple with motions for class certification in this area in 2024, and the plaintiffs’ bar continuing to aggressively pursue certification on behalf of plaintiffs. We know that successful certification often leads to settlements between the parties, rather than continuing the litigation and ultimately going to trial. How successful were plaintiffs in securing settlement dollars in this space in 2023?

Nathan: Pretty successful. Settlement numbers in civil rights class actions in 2023 were definitely significant. The top 10 settlements total $643.15 million. However, this is significant, but it was a decrease from the prior year when the top 10 civil rights class action settlements topped $1.3 billion.

Jennifer: The top settlement amounts in each area of law have been massive in recent years, and a major trend that we track in the Duane Morris Class Action Review. We will continue to track these numbers in 2024 and keep listeners aware of developments. Is there anything else corporate counsel and employers should be on the lookout for in 2024?

Nathan: So given the volume of litigation in the civil rights area, as well as the frequency which with classes are granted and new burgeoning issues for that can percolate in these cases – for example, claims connection with COVID-19 in connection with the increase homelessness issues that we’re facing in our cities – it’s anticipated that the plaintiffs’ bar will continue to be creative, and definitely inventive in this space, as we progress through 2024.

Jennifer: Well, thanks so much for all of this great analysis, Nathan. Thank you for being here with me today. Listeners, thank you for tuning in. And if you have any questions or comments on today’s podcast please feel free to send us a DM on Twitter @DMClassAction.

Nathan: Thanks for having me, Jen, and thank you listeners for being here today.

Jennifer: Thank you listeners again for joining us today, and please join us next week for the next episode of the Class Action Weekly Wire.

Illinois Federal Court Rejects Class Action Because An AI-Powered Porn Filter Does Not Violate The BIPA

By Gerald L. Maatman, Jr., Justin R. Donoho, and Tyler Z. Zmick

Duane Morris TakeawaysIn a consequential ruling on June 13, 2024, Judge Sunil Harjani of the U.S. District Court for the Northern District of Illinois dismissed a class action brought under the Illinois Biometric Information Privacy Act (BIPA) in Martell v. X Corp., Case No. 23-CV-5449, 2024 WL 3011353 (N.D. Ill. June 13, 2024).  The ruling is significant as it shows that plaintiffs alleging that cutting-edge technologies violate the BIPA face significant hurdles to support the plausibility of their claims when the technology neither performs facial recognition nor records distinct facial measurements as part of any facial recognition process.

Background

This case is one of over 400 class actions filed in 2023 alleging that companies improperly obtained individuals’ biometric identifiers and biometric information in violation of the BIPA.

In Martell v. X Corp., Plaintiff alleged that he uploaded a photograph containing his face to the social media platform “X” (formerly known as Twitter), which X then analyzed for nudity and other inappropriate content using a product called “PhotoDNA.”  According to Plaintiff, PhotoDNA created a unique digital signature of his face-containing photograph known as a “hash” to compare against the hashes of other photographs, thus necessarily obtaining a “scan of … face geometry” in violation of the BIPA, 740 ILCS 14/10.

X Corp. moved to dismiss Plaintiff’s BIPA claim, arguing, among other things, that Plaintiff failed to allege that PhotoDNA obtained a scan of face geometry because (1) PhotoDNA did not perform facial recognition; and (2) the hash obtained by PhotoDNA could not be used to re-identify him.

The Court’s Opinion And Its Dual Significance

The Court granted X Corp.’s motion to dismiss based on both of these arguments.  First, the Court found no plausible allegations of a scan of face geometry because “PhotoDNA is not facial recognition software.”  Martell, 2024 WL 3011353, at *2 (N.D. Ill. June 13, 2024).  As the Court explained, “Plaintiff does not allege that the hash process takes a scan of face geometry, rather he summarily concludes that it must. The Court cannot accept such conclusions as facts adequate to state a plausible claim.”  Id. at *3.

In other cases in which plaintiffs have brought BIPA claims involving face-related technologies performing functions other than facial recognition, companies have received mixed rulings when challenging the plausibility of allegations that their technologies obtained facial data “biologically unique to the individual.”  740 ILCS 14/5(c).  BIPA defendants have been similarly successful at the pleading stage as X Corp., for example, in securing dismissal of BIPA lawsuits involving virtual try­-on technologies that allow customers to use their computers to visualize glasses, makeup, or other accessories on their face.  See Clarke v. Aveda Corp., 2023 WL 9119927, at *2 (N.D. Ill. Dec. 1, 2023); Castelaz v. Estee Lauder Cos., Inc., 2024 WL 136872, at *7 (N.D. Ill. Jan. 10, 2024).  Defendants have been less successful at the pleading stage and continue to litigate their cases, however, in cases involving software verifying compliance with U.S. passport photo requirements, Daichendt v. CVS Pharmacy, Inc., 2023 WL 3559669, at *2 (N.D. Ill. May 4, 2023), and software detecting fever from the forehead and whether the patient is wearing a facemask, Trio v. Turing Video, Inc., 2022 WL 4466050, at *13 (N.D. Ill. Sept. 26, 2022).  Martell bolsters these mixed rulings in non-facial recognition cases in favor of defendants, with its finding that mere allegations of verification that a face-containing picture is not pornographic are insufficient to establish that the defendant obtained any biometric identifier or biometric information.

Second, the Court found no plausible allegations of a scan of face geometry because “Plaintiff’s Complaint does not include factual allegations about the hashes including that it conducts a face geometry scan of individuals in the photo.”  Martell, 2024 WL 3011353, at *3.  Instead, the Court found, obtaining a scan of face geometry means “zero[ing] in on [a face’s] unique contours to create a ‘template’ that maps and records [the individual’s] distinct facial measurements.”  Id.

This holding is significant and has potential implications for BIPA suits based on AI‑based, modern facial recognition systems in which the AI transforms photographs into numerical expressions that can be compared to determine their similarity, similar to the way X Corp.’s PhotoDNA transformed a photograph containing a face into a unique numerical hash.  Older, non-AI facial recognition systems in place at the time of the BIPA’s enactment in 2008, by contrast, attempt to identify individuals by using measurements of face geometry that identify distinguishing features of each subject’s face.  These older systems construct a facial graph from key landmarks such as the corners of the eyes, tip of the nose, corners of the mouth, and chin.  Does AI-based facial recognition — which does not “map[] and record[] … distinct facial measurements” (id. at *3) like these older systems — perform a scan of face geometry under the BIPA?  One court addressing this question raised in opposing summary judgment briefs and opined on by opposing experts held: “This is a quintessential dispute of fact for the jury to decide.”  In Re Facebook Biometric Info. Priv. Litig., 2018 WL 2197546, at *3 (N.D. Cal. May 14, 2018).  In short, whether AI-based facial recognitions systems violate the BIPA remains “the subject of debate.”  “The Sedona Conference U.S. Biometric Systems Privacy Primer,” The Sedona Conference Journal, vol. 25, at 200 (May 2024).  The Court’s holding in Martell adds to this mosiac and suggests that plaintiffs challenging AI­-based facial recognition systems under the BIPA will have significant hurdles to prove that the technology obtains a scan of face geometry.

Implications for Companies

The Court’s dismissal of conclusory allegations is a win for defendants’ whose cutting-edge technologies neither perform facial recognition nor record distinct facial measurements as part of any facial recognition process.  While undoubtedly litigation over the BIPA will continue, the Martell decision supplies useful precedent for companies facing BIPA lawsuits containing insufficient allegations that they have obtained a scan of facial geometry unique to an individual.

District Court Dismisses Data Privacy Class Action Against Health Care System For Failure To Sufficiently Allege Disclosure of PHI

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

Duane Morris Takeaways:  On June 10, 2024, in Smart, et al. v. Main Line Health, Inc., No. 22-CV-5239, 2024 WL 2943760 (E.D. Pa. June 10, 2024), Judge Kai Scott of the U.S. District Court for the Eastern District of Pennsylvania dismissed in its entirety a class action complaint alleging that a nonprofit health system’s use of website advertising technology disclosed the plaintiff’s protected health information (“PHI”) in violation of the federal wiretap act and in commission of the common-law torts of negligence and invasion of privacy.  The ruling is significant because it shows that such claims cannot surmount Rule 12(b)(6)’s plausibility standard without specifying the PHI allegedly disclosed.

Background

This case is one of the hundreds 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 many websites in operation today; millions of companies and governmental organizations utilize it.  (See, e.g., Customer Data Platform Institute, “Trackers and Pixels Feeding Data Broker Stores” (reporting that “47% of websites using Meta Pixel, including 55% of S&P 500, 58% of retail, 42% of financial, and 33% of healthcare”); BuiltWith, “Facebook Pixel Usage Statistics” (offering access to data on over 14 million websites using the Meta Pixel and stating “[w]e know of 5,861,028 live websites using Facebook Pixel and an additional 8,181,093 sites that used Facebook Pixel historically and 2,543,263 websites in the United States”).)

In these lawsuits, plaintiffs generally allege that the defendant organization’s use of adtech violated federal and state wiretap statutes, consumer fraud statutes, and other laws, and they often seek hundreds of millions of dollars in statutory damages.  Plaintiffs have focused the bulk of their efforts to date on healthcare providers, but they have filed suits that span nearly every industry including retailers, consumer products, and universities.

In Smart, 2024 WL 2943760, at *1, Plaintiff brought suit against Main Line Health, Inc. (“Main Line”), “a non-profit health system.”  According to Plaintiff, Main Line installed the Meta Pixel on its public-facing website – not on its secure patient portal, id. at *1 n.2 – and thereby transmitted web-browsing information entered by users on the public-facing website such as:

“characteristics of individual patients’ communications with the [Main Line] website (i.e., their IP addresses, Facebook ID, cookie identifiers, device identifiers and account numbers) and the content of these communications (i.e., the buttons, links, pages, and tabs they click and view).”

Id. (quotations omitted).

Based on these allegations, Plaintiff alleged claims for violation of the Electronic Communications Privacy Act (ECPA), negligence, and invasion of privacy.  Main Line moved to dismiss under Rule 12(b)(6) for failure to state sufficient facts that, if accepted as true, would state a claim for relief that is plausible on its face.

The Court’s Opinion

The Court agreed with Main Line and dismissed all three of Plaintiff’s claims.

To state a claim for violation of the ECPA, also known as the federal wiretap act, a plaintiff must show an intentional interception of the contents of an electronic communication using a device.  Main Line, 2024 WL 2943760, at *3.  The ECPA is a one-party consent statute, meaning that there is no liability under the statute for any party to the communication “unless such communication is intercepted for the purposes of committing a criminal or tortious act in violation of the Constitution or laws of the United States or any State.”  Id. (quoting 18 U.S.C. § 2511(2)(d)); 18 U.S.C. § 2511(2)(d).

Plaintiff argued that he plausibly alleged Main Line’s criminal or tortious purpose because, under the Health Insurance Portability and Accountability Act (“HIPAA”), it is a federal crime for a health care provider to knowingly disclose PHI to another person.  The district court rejected this argument, finding Plaintiff failed to allege sufficient facts to support an inference that Main Line disclosed his PHI.  As the district court explained: “Plaintiff has not alleged which specific web pages he clicked on for his medical condition or his history of treatment with Main Line Health.”  Id. at 3 (collecting cases).

In short, the district court concluded that Plaintiff’s failure to sufficiently allege PHI was reason alone for the Court to dismiss Plaintiff’s ECPA claim.  Thus, the district court did not need to address other reasons that may have required dismissal of Plaintiff’s ECPA claims, such as (1) lack of criminal or tortious intent even if PHI had been sufficiently alleged, see, e.g., Katz-Lacabe v. Oracle Am., Inc., 668 F. Supp. 3d 928, 945 (N.D. Cal. 2023) (dismissing wiretap claim because defendant’s “purpose has plainly not been to perpetuate torts on millions of Internet users, but to make money”); Nienaber v. Overlake Hosp. Med. Ctr., 2024 WL 2133709, at *15 (W.D. Wash. May 13, 2024) (dismissing wiretap claim because “Plaintiff fails to plead a tortious or criminal use of the acquired communications, separate from the recording, interception, or transmission”); and (2) lack of any interception, see, e.g., Allen v. Novant Health, Inc., 2023 WL 5486240, at *4 (M.D.N.C. Aug. 24, 2023) (dismissing wiretap claim because an intended recipient cannot “intercept”); Glob. Pol’y Partners, LLC v. Yessin, 686 F. Supp. 2d 631, 638 (E.D. Va. 2009) (dismissing wiretap claim because the communication was sent as a different communication, not “intercepted”).

On Plaintiff’s remaining claims, the district court held that lack of sufficiently pled PHI defeated the causation element of Plaintiff’s negligence claim and defeated the element of Plaintiff’s invasion of privacy claim that any intrusion must have been “highly offensive to a reasonable person.”  Main Line, 2024 WL 2943760, at *4.

Implications For Companies

The holding of Main Line is a win for adtech class action defendants and should be instructive for courts around the country.  Other courts already have described the statutory damages imposed by ECPA as “draconian.”  See, e.g., DIRECTTV, Inc. v. Beecher, 296 F. Supp. 2d 937, 943 (S.D. Ind. 2003).  Main Line shows that, for adtech plaintiffs to plausibly plead claims for ECPA violations, negligence, or invasion of privacy, they at least need to identify what allegedly private information allegedly was disclosed via the adtech, in addition to surmounting additional hurdles under ECPA such as plausibly pleading criminal or tortious intent and an interception.

California’s Governor Announces Deal On PAGA Reform   

By Shireen Wetmore, Nick Baltaxe, Jenifer A. Riley, and Gerald L. Maatman, Jr.

Duane Morris Takeaways: On June 18, 2024, Governor Gavin Newsom of California announced that business and labor groups have reached an agreement to reform California’s Private Attorneys General Act (“PAGA”).  The bill is aimed at avoiding the inclusion of the initiative to repeal and replace the PAGA, which would otherwise be included on the November ballot.  If the Legislature signs off on the bill, proponents of the ballot initiative have agreed to withdraw the referendum.  It must be withdrawn by June 27, 2024.  While the exact language of the bill is not yet public, Governor Newsom’s and interest group press releases hint that the changes will have a positive impact on employers and greatly impact PAGA litigation going forward. Given the nature of PAGA litigation faced by employers, these developments are of utmost importance to companies operating in California.

We’ve Got A Deal!

Hot off the presses!  Governor Newsom just announced on June 18, 2024, that labor and business interests have inked a deal that would avoid the placement of the PAGA referendum on the November ballot.  On November 5, 2024, the California voters would have had the opportunity to vote on the “California Employee Civil Action Law and PAGA Repeal Initiative,” which would have repealed the PAGA and replaced it with the “Fair Pay and Employer Accountability Act.”  This new Act was aimed at addressing many of the criticisms of the PAGA and proposed changes including providing more power to the Labor & Workforce Development Agency (“LWDA”) for enforcement, allowing employees to recover all of the recovered penalties instead of only 25%, and eliminating attorneys’ fees entirely.

Instead, Cal Chambers and Labor representatives negotiated a compromise bill that would avoid the ballot initiative while providing much needed reforms to the PAGA.  While the full language of the bill has not yet been released, nor has the referendum been officially withdrawn, the proposal purportedly includes:

Penalty Structure Reforms, including capped penalties for employers who quickly take steps to “cure” alleged violations; new, higher penalties on employers who act maliciously, fraudulently or oppressively in violating labor laws; and allocation of 35% (instead of 25%) of penalties to aggrieved employees.

Streamlined Litigation, including expansion of the Labor Code sections that may be cured; more “robust” cure processes “through the Labor and Workforce Development Agency (LWDA)” (aimed at protecting small businesses and potentially permitting employers to seek to cure in partnership with the LWDA to avoid litigation); and importantly, the new legislation is intended to codify a court’s ability to limit the scope of claims presented at trial and to ensure cases can be managed effectively.

Injunctive Relief and Standing Requirements, including allowing courts to compel businesses to implement changes in the workplace to remedy labor law violations and requiring the employee to personally experience the alleged violations brought in a claim. 

If this last item is accurate, it will have a huge impact on defense strategies and place significant pressure on plaintiffs to demonstrate harm before bringing broad allegations against employers.  Recently reported details not in the official press release indicate that there will still be some attorney fees available but that attorneys’ fees may be limited in some way.

The deadline to remove the referendum from the ballot is June 27, 2024, and the proponents have agreed to withdraw the measure once the legislation is passed.  We anticipate the full release of the proposed legislation later this week.  In the meantime, here is the Governor’s announcement.

Needless to say, the terms of the deal will have a major impact on litigation strategies in PAGA cases.  Employers will want to look closely at the procedural posture of pending cases and consider revising litigation strategy in those matters as more details emerge.

What is the PAGA?

The Labor Code Private Attorneys General Act, or “PAGA,” was passed in 2004 and authorizes employees to “step into the shoes of the state” and file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations.  Standing requirements were minimal and the statute was designed to allow employees (and their counsel) to enforce the Labor Code while funneling collected penalties to the State’s coffers.  While the aggrieved employee had to follow certain notice requirements, including allowing the Labor and Workforce Development Agency (“LWDA”) an opportunity to investigate the claims, and a nominal opportunity to cure alleged violations, there was little guidance on the cure process and in practice the Labor Commissioner rarely investigated claims.  Subsequent case law developed to confirm that class action standards would not apply to these representative actions.  Combined with the low standing requirements and minimal notice standards, PAGA matters proliferated, threatening employers statewide with bet-the-company litigation alleging penalties far outstripping any alleged damages by millions upon millions of dollars.  There was no requirement that an aggrieved employee even suffer all the violations alleged in their lawsuit.

The PAGA permits recovery of civil penalties on behalf of the plaintiff and “aggrieved employees” for violations of the Labor Code during a one-year lookback often on a per employee and/or per violation basis, plus attorneys’ fees.  Seventy-five percent of recovered penalties are allocated to the State, while the aggrieved employees retain 25% of the award.  Since the inception of PAGA in 2004, the number of notices filed with the LWDA has skyrocketed, and the number of PAGA lawsuits has increased exponentially in the last couple of years.

The Referendum

The PAGA has faced significant criticism since its implementation.  Many noted that the lack of a “certification” process allowed employees to represent entire workforces with minimal protections against abuse.  As a result, employers were often forced to settle for large sums of money simply to avoid the cost or inconvenience of company-wide or state-wide discovery and litigation, even in the absence of any evidence of unlawful conduct.  Additionally, some argued that the PAGA primarily benefits attorneys at the expense of employees, as attorneys’ are allowed to take a portion of the employees’ already limited recovery for attorneys’ fees.  While employers had a few successes in the courts, California courts have generally supported a broad interpretation of a plaintiff’s ability to pursue a PAGA action and struck down repeated attempts by employers to narrow the scope of these cases.

With these criticisms in mind, an initiative to repeal PAGA began to work its way towards the ballot, finally receiving enough support to be placed on the November 2024 ballot.  Specifically, this ballot initiative, if passed, would have replaced the PAGA with the “Fair Pay and Employer Accountability Act.”  This Act was meant to curtail many of the general criticisms levied against the PAGA, including providing more power to the Labor & Workforce Development Agency (“LWDA”) for enforcement, allowing employees to recover all of the recovered penalties instead of only 25%, and eliminating attorneys’ fees entirely.

However, opponents of the initiative argued that the PAGA was intended to provide a unique enforcement mechanism to protect employees and sought to avoid a vote that could eliminate this powerful tool.  The ongoing negotiations between business and labor were aimed at finding a compromise that would avoid the inclusion of the initiative on the ballot, protecting employers from crushing litigation and protecting employees from Labor Code violations.

Implications For Employers 

Change is in the air. While the latest proposal may take effect, more grounds will need to be covered. Stay tuned to these developments, which we will cover in future updates on our Blog.

What’s next?

The official language of the bill will be released by June 24, 2024.  If passed, the ballot initiative will be withdrawn. The latest date to withdraw the initiative is June 27, 2024, so we anticipate the Legislature will move quickly. While the specifics are not yet known, the language of the bill could have a significant impact on PAGA actions going forward and litigation strategy for any pending actions as well. Stay tuned for a deep dive into the bill once the proposed language is released!

The Class Action Weekly Wire – Episode 59: Key Developments In Antitrust Class Action Litigation


Duane Morris Takeaway:
This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jerry Maatman and Sean McConnell with their discussion of key rulings and developments in the antitrust class action space, including a landmark settlement resolving litigation spurred by college athletes’ claims regarding the NCAA’s ban on monetization of name, image, and likeness.

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

Episode Transcript

Jerry Maatman: Welcome loyal blog listeners. Thank you for being here on our weekly podcast, the Class Action Weekly Wire. I’m excited to introduce Sean McConnell, my partner in our Philadelphia office, who chairs our antitrust defense group. Welcome, Sean!

Sean McConnell: Thank you, Jerry. I’m very happy to be part of the podcast today.

Jerry: Today we’re talking about key issues in antitrust class action litigation. We recently published, under your guidance, the Duane Morris Antitrust Class Action Review. Readers can get it for free off of our blog. Sean, in the antitrust class action world, what sorts of issues is the publication focusing on this year?

Sean: Well, we had one fairly large decision recently this year from the U.S. Supreme Court in Visa v. National ATM Council. In that case, the United States Supreme Court declined a petition for review submitted by both Visa and MasterCard that urged the Supreme Court to review a circuit split according to petitioners over the correct standard of review that courts should use when evaluating motions for class certification. Visa and MasterCard argued that the U.S. Court of Appeals for the DC. Circuit erred by only requiring plaintiffs to show that questions common to the class predominate and allowing the fact finder later in proceedings to address issues related to uninjured class members. So, by denying the petition for review, the U.S. Supreme Court has left that standard open for interpretation by the circuit courts.

Jerry: I think that’s a really significant decision, and certainly the D.C. Circuit’s opinion ought to be a required read for any counsel involved in antitrust class actions involving price fixing allegations. I think it underscores how important the standard for review is. To me, securing class certification is the Holy Grail on the plaintiff side of the V. They file the case, they certify it, they monetize it. If you take a deep dive into the D.C. Circuit’s ruling, what are some of the takeaways that you think are important?

Sean: Sure. So we’ll start with the kind of the basic facts, Jerry. The plaintiffs for the case where the petitioners involved ATM operators and the defendants, of course, were Visa and MasterCard. You know, global payment technology companies that operate networks that connect various financial institutions together, so that when a consumer is using an ATM they can access their bank, even if they’re using an ATM from another member bank that’s using that network. And the plaintiffs allege that the defendants used an ATM nondiscrimination rule, which kept fees the same across various networks, and prevented ATM operators from playing networks off of each other, and getting lower rates for their users and plaintiffs, allege that those rules allowed defendants to actually charge supracompetitive transaction fees, and to foreclose competition from those other competing ATM networks. The D.C. Circuit Court affirmed a district court ruling that granted class certification with respect to three different classes. So the first two classes, which were not at issue in the Supreme Court decision involved consumers, but the third class involved the ATM operators themselves. And according to defendants, the D.C. Circuit used a lower standard for class certification similar to one used by the Eighth and Ninth Circuits, whereas the Second, Third, Fifth, and Eleventh Circuits employ a more rigorous, careful consideration standard regarding plaintiffs’ burden to establish predominance. And by denying review, the issue remains unresolved in terms of Rule 23 class certification standards.

Jerry: You know, I think it’s much like buying real estate – location, location, location is everything. And in one circuit, a case might not get certified and the defendant would win yet in another circuit, depending on the difference in the standard plaintiffs might be successful. It sounds to me like this is going to end up in the U.S. Supreme Court someday. Were there other notable developments that you think are important to corporate counsel in the past 12 months on the antitrust space?

Sean: Yes, Jerry, there were a few very high profile settlements in the class action world this year focusing on antitrust class actions in both collegiate and professional sports. So, the first, which I’m sure many are familiar with, involves the college athlete, name, image, and likeness antitrust litigation. And shortly after the Ninth Circuit declined to decertify the certified class of former college athletes, who sought damages due to the NCAA’s ban on compensation, going back to 2016, the NCAA agreed to a settlement with the class in the amount of $2.77 billion. The class contains hundreds of thousands of former student athletes who claimed they were owed name, image, and likeness compensation during that period. The payments as part of the settlement will be spread out over 10 years, and the settlement will also establish a framework for revenue sharing between schools, conferences, and the athletes themselves. The settlement potentially ends one of the NCAA’s most significant legal battles, but still faces other antitrust class action lawsuits over player compensation and transfer rules and will likely face other issues related to how it will compensate athletes going forward. The NCAA, of course, has been lobbying Congress for many years for federal legislation on name, image, and likeness and for an antitrust exemption that would allow the schools, the conferences, and the NCAA itself to, you know, collectively bargain or arrange with student athletes compensation rules. But absent that ability to collectively bargain, or for the players to unionize, any such arrangement with the student athletes has been considered a violation of Section 1 of the Sherman Act. So it’s still yet to be decided what will happen going forward on how these schools, conferences, and the NCAA itself will be able to compensate student athletes going forward absent an antitrust exemption.

Jerry: It’s so interesting to me as a sports fan how there’s such a tie between an antitrust law and college athletics. Also, I’ve been involved on the professional side with the LIV and the PGA Tour. I know that you’re quite a thought leader in this space, and you’ve written quite a bit on MMA fighters. I know that that was an important development this year. Could you share a little bit of your thoughts on that case?

Sean: Sure, you know, one of the most significant kind of antitrust wage and compensation cases from the past year actually happened in the context of UFC fighters and mixed martial artists. The UFC’s parent company TKO Holding Inc. revealed recently that it will pay $335 million to settle a class action brought by MMA fighters who alleged that UFC engaged in anticompetitive conduct to suppress the fighters’ wages in the case Le v. Zuffa. The parties had engaged the mediation in February, and were set for trial for April. And you know, practitioners and thought leaders were excited for the case because it was really the first kind of monopsony antitrust class action. The prior rulings in the case are required reading for any corporate counsel handling antitrust class action litigation involving wage suppression issues. The plaintiffs allege that UFC engaged in a in a practice of using exclusive contracts as well as its overall market power with respect to mix mixed martial arts and a series of acquisitions consolidating the market and buying up competing promoters of MMA fights to suppress the wages of the fighters and their opportunities to and earn more endorsement, money, and other forms of compensation. And the class alleged damages of upwards of $1.6 billion. The parties will still, despite the settlement agreement in principle, will still need to present that settlement to the court for preliminary and final approval. Of course, pursuant to Rule 23, but the settlement itself really underscores the ability of workers to use the antitrust laws to tilt labor market dynamics in their favor and to increase workers bargaining leverage for get greater compensation and benefits going forward.

Jerry: Think it’s very interesting, too. It kind of foreshadows the Biden administration arm of the Department of Justice getting involved in both criminal civil wage suppression antitrust cases. So the remaining chapters of the book have a long way to go to be written. But thank you so much for Sean, for sharing your expertise and joining us. And thank you, loyal blog listeners, for tuning into this week’s Class Action Weekly Wire.

Sean: Thank you very much, Jerry.

Ninth Circuit Rejects Challenge To A.B. 5, And Holds That Disparate Treatment Of Gig Workers Is Justified By California’s Interest In Curbing Independent Contractor Misclassification

By Eden E. Anderson, Rebecca S. Bjork, and Gerald L. Maatman, Jr.

Duane Morris Takeaways:  On June 10, 2024, the Ninth Circuit issued its en banc opinion in Olson, et al. v. State of California, et al., Case No. 21-55757, 2024 WL 2887392 (9th Cir. June 10, 2024).  The en banc panel affirmed the dismissal of the Plaintiffs’ lawsuit challenging the constitutionality of A.B. 5, which mandates application of the “ABC test” for independent contractor classification to workers in certain industries.  The Ninth Circuit found no equal protection violation in applying the “ABC test” to certain gig workers, yet applying the easier-to-satisfy “Borello” test to other gig workers. 

California employers in industries subject to A.B. 5 and its more rigorous “ABC test” for independent contractor classification should take heed of the Olson ruling. 

Case Background

Postmates, an application-based goods delivery platform, Uber, and two individual workers for those companies sued the State of California and Attorney General of California seeking declaratory and injunctive relief based on the allegation that A.B. 5 violates the Equal Protection Clauses, the Due Process Clauses, and the Contract Clauses of the United States and California Constitutions.  They sought a preliminary injunction to prevent enforcement of A.B. 5.

Enacted in 2018, A.B. 5 codified and expanded upon the California Supreme Court’s holding in Dynamex Operations W., Inc. v. Superior Court, 416 P.3d 1 (Cal. 2018), which held that the “ABC test” applies in determining the proper classification of workers as independent contractors or employees under California wage orders.  Under A.B. 5, subject to specified exemptions, the “ABC test” applies beyond the wage orders to other labor and employment legislation, including workers’ compensation, unemployment insurance, sick and family leave, and disability insurance.

The “ABC test” is, as its name suggests, is comprised of three parts, with the burden being on the hiring entity to show, A: the worker is free from the control and direction of the hirer, B: the worker performs work outside the usual course of the hiring entity’s business, and C: the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.  This test is more challenging to meet that the traditional “Borello” test that was applied prior to A.B. 5’s enactment, which considers a larger number of factors, with the focus being the hiring entity’s right to control the manner and means of the work.

One statutory exemption from A.B. 5’s coverage applies to “referral agencies,” i.e., businesses that provide clients with referrals to service providers.  However, A.B. 2257, enacted in 2019, modified this exemption to carve-out referral agencies, like Uber and Postmates, that provide delivery, courier, or transportation services.  Consequently, categories of referral agencies are treated differently under the law, with referral agencies like Postmates and Uber subject to the “ABC test,” and referral agencies that provide other services, for example, Wag!, a dogwalking service, and TaskRabbit, which provides on-demand help with daily tasks, subject to the easier-to-meet “Borello” test.  It was that differential treatment that Plaintiffs alleged was unconstitutional.

The district court denied Plaintiffs’ motion for preliminary injunctive relief, concluding that A.B. 5 was rationally related to a legitimate state interest.  While Plaintiff’s’ appeal of that ruling was pending, California voters approved Proposition 22, a ballot initiative that classifies rideshare and deliver drivers as independent contractors, notwithstanding A.B. 5.  Thereafter, the district court dismissed the lawsuit, and Plaintiffs’ appealed that ruling too.

A three-judge panel of the Ninth Circuit reversed, in part, concluding that the district court erred by dismissing the Equal Protection claims.  However, the Ninth Circuit then granted rehearing en banc.

The Ninth Circuit’s En Banc Opinion

The Ninth Circuit first noted, as some readers may be wondering, that Proposition 22 did not moot the appeal because Postmates and Uber were still facing a number of claims for alleged violations of A.B. 5 that predated Proposition 22’s passage.

The Ninth Circuit then addressed the Equal Protection claim.  It explained that, even if it were true that the application-based business models of Postmates, Uber, Wag!, and TaskRabbit were similar, there were rational reasons for applying a different worker classification test to workers that provide delivery, courier, or transportation services.  Such disparate treatment was rational because Postmates and Uber were seemingly perceived by the legislature as “substantial contributors” to the ills that A.B. 5 sought to remedy, including worker misclassification and “erosion of the middle class,” and were pioneers in the on-demand-app-based industry whose business models others might try to replicate.  Id. at p. 21-22.  The Ninth Circuit further emphasized that, for a “referral agency” like Wag! or TaskRabbit to be exempt from A.B. 5, it needs to satisfy multiple requirements, so the availability of the referral agency exemption remains “limited.”  Id. at 23.

The Ninth Circuit further opined that, even though A.B. 5 contains many exemptions, it is entirely rational for the ABC test to apply in some contexts, and for the Borello test to apply in others, because the legislature supposedly wanted the ABC test to apply in industries where worker misclassification was historically problematic (and not because certain industries successfully pushed through legislative exemption).

Implications Of The Decision

We anticipate U.S. Supreme Court review will be sought.

The Olson opinion deals a blow to efforts to challenge A.B. 5’s enforcement.  California employers in industries subject to A.B. 5 must satisfy the more rigorous ABC test to establish they have properly classified workers as independent contractors, whereas employers in industries not subject to A.B. 5 bear a lesser burden under the Borello test.  That differential treatment is, in the Ninth Circuit’s view, constitutionally sound.

Wisconsin Federal Court Rules That EEOC Racial Discrimination Suit Cannot Proceed With Allegations Of Single Racial Slur

By Gerald L. Maatman, Jr., Jennifer A. Riley, Tiffany E. Alberty and George J. Schaller

Duane Morris Takeaways: In Equal Employment Opportunity Commission v. Lakeside Plastics, Inc., No. 1:22-CV-01149 (E.D. Wis. June 3, 20244),  Judge William C. Griesbach of the U.S. District Court for the Eastern District of Wisconsin granted Defendant’s motion for summary judgment and denied the EEOC’s motion for partial summary judgment.  The Court reasoned that the single use of a racial slur in the workplace without direction to an African-American employee was not sufficient to show severe and pervasive harassment for a hostile work environment claim.  The Court also held that a supervisor is not a similarly-situated comparator to a subordinate, regardless if they were subject to the same standards and engaged in similar conduct, dismissing the EEOC’s wrongful termination claim.     

Case Background

The EEOC filed suit on behalf of Brian Turner, an African-American worker, for alleged violations under Title VII of the Civil Rights Act of 1964 (Title VII”) against Lakeside Plastics, Inc. (“Lakeside”).  Id. at 1.  The EEOC alleged Turner was discriminated against when he was subject to a hostile work environment and his employment with Lakeside was terminated based upon his race, or alternatively that Turner’s employment termination was in retaliation for engaging in protected activity.  Id.

Turner was employed by temporary staffing firm QPS Employment Group (“QPS”) and began his employee assignment at Lakeside on June 6, 2010, as a Production Technician I.  Id. at 3.  On three separate occasions, Turner asserted that he experienced verbal harassment from another production technician named Curt Moraski.  Id. at 5-6.

First, during work Turner and Moraski discussed being from Milwaukee and in their conversation Moraski commented racial slurs about his time in the area.  Id. at 5.  Turner reported this conversation to one of his team leads.  Id.  Second, in an offsite incident, Turner alleged he was traveling home when Moraski pulled up, threated Turner, and directed racial slurs at Turner.  Id.  Finally, after the offsite incident, Turner reported to Lakeside that he did not feel comfortable working around Moraski.  Id. at 6.  Lakeside assigned Turner to label boxes for the day with Moraski; no issues arose at that time. Id.  

On July 1, 2019, Lakeside ended Turner’s assignment based on “holistic considerations,” including a review of his attendance records and a note from team lead, Max Berndt, that demonstrated Turner’s poor performance, poor attendance, inability to take direction, and inability to get along with others.  Id. at 7-8.   That same day QPS informed Turner that he was terminated from his Lakeside assignment.  Id. at 8.   

Shortly thereafter, Lakeside received a complaint from Alex Adams, a white employee, made about Moraski “threatening [Adams].”  Id. at 8-9.  Lakeside also received complaints from other employees about Moraski’s behavior.  Id. at 8.  Moraski denied making any threats against anyone.  Id. at 9.  Moraski was subsequently terminated on Aug 1, 2019, due to his violation of Lakeside’s workplace violence policy.  Id.

On Aug. 1, Lakeside advised a QPS representative that Moraski threatened additional employees, aside from Turner, around the time of Turner’s employment.  Id. at 9.  QPS inquired whether Turner could return to work at Lakeside, to which Lakeside responded that it was open to rehiring Turner.  Id.

Following discovery, Lakeside brought a motion for summary judgment on all of the EEOC’s claims and the EEOC filed a cross-motion for partial summary judgment as to Lakeside’s affirmative defenses.  Id. at 1.

The Court’s Decision

The Court granted Lakeside’s motion for summary judgment on the grounds that Lakeside did not subject Turner to a hostile work environment, did not terminate Turner because of his race, and did not retaliate against Turner for his complaints of harassment.

The EEOC asserted that Lakeside discriminated against Turner by subjecting him to a hostile work environment based on his race.  Id. at 10.  The EEOC argued that Moraski’s exchanges with Turner, at both on-site and off-site locations, created a hostile work environment.  Id.  Central to the EEOC’s assertions was that “harassment involving the N-Word is sufficiently severe to create a hostile work environment.”  Id. at 12.  The Court reasoned that “a single, isolated event can be found to create a hostile work environment,” but the EEOC must present evidence “which a factfinder could reasonably conclude that the harassing conduct was severe or pervasive.”  Id. 

In this instance, the Court disagreed that the EEOC showed Moraski’s alleged use of racial slurs was sufficiently severe or pervasive.  Id.  The Court determined Moraski “did not direct” racial slurs at Turner during the conversation at Lakeside and the racial slurs directed at Turner off-site were reported to Turner’s lead, who immediately took preventative measures by assigning Turner to a new work location.  Id. at 12.  Similarly, Moraski’s instruction on labeling boxes did not create “a reasonable inference that any hostility Turner encountered was connected to his race.”  Id. at 13.

The Court opined that “Moraski’s conduct was undoubtedly offensive and inappropriate, and he was ultimately terminated by Lakeside based on complaints of similar behavior … but with no racially derogatory component.”  Id.  Given the totality of the circumstances, the Court concluded that Moraski’s conduct was not severe or pervasive such that a jury could reasonably conclude that Lakeside’s work environment was “permeated with discriminatory intimidation, ridicule, and insult.”  Id.  Therefore, the Court granted Lakeside’s summary judgment motion as to the EEOC’s hostile work environment claim.

The EEOC next asserted that Lakeside terminated Turner because of his race.  Id. at 14.  The Court reviewed Turner’s termination under the “holistic approach” standard relied on by the EEOC and focused on whether a reasonable jury could conclude that Turner “suffered the adverse employment action because of his … protected class.”  Id.  The Court agreed with Lakeside’s legitimate business reason for terminating Turner based on “poor attendance, an inability to take direction, and an inability to get along with others.”  Id.   In so holding, the Court determined that Lakeside took a holistic approach in reviewing Turner’s performance and took Turner’s attendance into consideration despite the fact that no one recommended to human resources that Turner be terminated based on his attendance.  Id. at 15.  Accordingly, the Court granted Lakeside’s motion for summary judgment on the EEOC’s wrongful termination claims.

The Court also granted Lakeside’s motion for summary judgment on the EEOC’s alternative retaliation claim and held that Lakeside had an “independently sufficient reason to terminate Turner’s assignment” through Turner’s “violations of the attendance policy on three days.”  Id. at 17-18.  The Court further found that the EEOC could not establish retaliation on the basis that Lakeside refused to rehire Turner, because Lakeside was open to rehiring Turner, although a position was not extended.  Id. at 18.

Implications For Employers

Employers that are confronted with EEOC-initiated litigation involving allegations of race discrimination should recognize this opinion draws a fine line on what courts may consider pervasive in terms of the frequency, location, and direction of discriminatory comments.

Further, from a practical standpoint, employers should ensure workplace policies are in place for employees to report any instance of discrimination, including race discrimination, and provide procedures for employers to promptly investigate those allegations.

 

Illinois Federal Court Rules That A Plaintiff Cannot Evade The Jurisdiction Of The Court That He Voluntarily Invoked

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

Duane Morris Takeaways:  On June 3, 2024, in Loonsfoot, et al. v. Stake Center Locating, LLC, No. 23-CV-3171, 2024 WL 2815422 (S.D. Ill. June 3, 2024), Judge David Dugan of the U.S. District Court for the Southern District of Illinois denied a plaintiffs’ motion to dismiss his own lawsuit – a wage & hour class action – for lack of subject matter jurisdiction.  This decision highlights one of the rare circumstances where a company may want to oppose a plaintiff’s proposed dismissal of his class action and force the plaintiff to address the merits of his arguments early in the litigation.

Case Background

Plaintiff Michael Loonsfoot (“Plaintiff”), a former employee of Stake Center Locating, LLC (“Stake Center”), brought claims for alleged wage & hour violations.  Stake Center is a company that provides “utility locating services across the country.”  Id. at *1.  From December 2021 through June 2024, Plaintiff worked in a variety of different roles for Stake Center.  Plaintiff, however, believed that his former employer allegedly deprived him of wages for “compensable ‘off the clock’ work” and failed to include certain amounts when calculating his overtime wages.  Id.

Based on those allegations, Plaintiff filed a lawsuit against Stake Center in the U.S. District Court for the Southern District of Illinois for alleged violations of the Illinois Minimum Wage Law and the Illinois Wage Payment and Collection Act.  In order to pursue those claims in federal court, Plaintiff argued that “jurisdiction is proper under [the Class Action Fairness Act (“CAFA”)] because the proposed class has more than 100 members, the minimal diversity requirement is met, and the amount in controversy exceeds $5 million dollars.”  Id. at *2.  Stake Center appeared, filed its answer, and then moved for judgment on the pleadings.

In response, Plaintiff filed a motion to dismiss his own complaint on the basis that the court lacked subject-matter jurisdiction to hear the dispute.  Plaintiff argued that because Stake Center denied the Plaintiff’s general allegation that “[t]his Court has original subject matter over this action pursuant to the jurisdictional provisions of the Class Action Fairness Act” as well as similar allegations, jurisdiction must not be proper.  Id.

The Court’s Opinion

The Court easily dispensed with what it called Plaintiff’s “unusual litigation tactic.”  Id. at *3.  The Court noted that where “the party that invoked the court’s jurisdiction in the first place” subsequently files a motion to dismiss “such motions are [considered] ‘unseemly.’”  Id. (citing Napoleon Hardwoods, Inc. v. Professionally Designed Benefits, Inc., 984 F. 2d 821, 822 (7th Cir. 1993)).  The Court explained that “[g]iven the procedural posture of the case, Plaintiff cannot unilaterally dismiss the action” and thus, decided to address the jurisdictional issue under the CAFA.  Id. at *1, n. 2.

The Court analyzed the elements of original jurisdiction under the CAFA.  It held that “there is no dispute that the parties are minimally diverse”; “that the proposed class exceeds 100 class members”; and that “the amount in controversy exceeds $5 million” as pled.  Id. at *4.  The Court further noted that “Plaintiff provides no legal authority for the contention that a Defendant’s denial of an allegation in an answer is controlling on any issues, including the existence of subject matter jurisdiction.”  Id. at *2, n. 5.  The Court, therefore, denied Plaintiffs’ motion to dismiss his own complaint — against the backdrop of Stake Center’s argument that Plaintiff was “only seeking dismissal to avoid a ruling on the pending Motion for Judgment on the Pleadings.”  Id. at *1.

Implications For Companies

It should go without saying that it is atypical for a company to “decline[ ] Plaintiff’s request to consent to dismissal of” a class action lawsuit.  Id. at *1, n. 2.  That said, the defendant here astutely recognized that Plaintiff’s dismissal request was simply a procedural dance to avoid addressing the merits of the employer’s dispositive motion.  The defendant recognized that the Plaintiff’s lawsuit would just be refiled in state court — which likely would be a less favorable forum to the corporate defendant.

For that reason, if corporate counsel has a winning argument that it can raise in a Rule 12 motion, it often makes sense to put plaintiffs to their proofs in federal court, and not indulge in procedural gymnastics that will only lead to a case being heard in a less favorable forum.

The Class Action Weekly Wire – Episode 60: Digital Frontier Survival Guide For Corporate Counsel: Cybersecurity And Data Privacy Best Practices


Duane Morris Takeaway:
This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsel Justin Donoho with their discussion of best practices for corporate counsel to address liabilities and lawsuits emerging from the cybersecurity and data privacy landscape. Recent years have seen an exponential rise in class action lawsuits and mass arbitrations as a result of cybersecurity incidents and data privacy allegations, involving a growing list of technologies. In light of these developments, implementation of data privacy and security best practices is a corporate imperative for mitigating risk and deterring litigation.

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

Episode Transcript

Jerry Maatman: Thank you, loyal blog listeners and readers for joining us on this week’s installment of the Class Action Weekly Wire. This is our 60th podcast in our series, and I’m privileged and honored to welcome Justin to be our guest on today’s podcast. Welcome, Justin.

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

Jerry: So, today we’re going to be discussing a hot topic: cybersecurity, data breach, and privacy class actions in general, and things that can be done to get ahead of the curve and to mitigate or eliminate these particular risks. And, Justin, I know you’re a thought leader in this space, so we wanted to discuss with you today some of the trends and thoughts you have in this particular space.

Justin: That’s generous, but thank you. And yes, in the past few years we’ve seen an explosion of class action lawsuits alleging cybersecurity incidents where criminals have compromised organizations’ computer networks and stolen their data or held it hostage for ransom payments. Lately, we’ve also seen a spike in data privacy class actions alleging companies’ unauthorized use of advertising technologies on their websites – like the Meta Pixel and Google Analytics, which send users web browsing information to Meta and Google, which are the world’s two largest advertising agencies – and other website advertising technologies, or “adtech.” We are tracking both of these types of cases, cyber security and data privacy, quite extensively, and unfortunately can report that they continue to proliferate in 2024.

Jerry: Thanks, Justin. You did a post on the Duane Morris Class Action Defense Blog this past week that got some of the highest reviews and most clicks among our readership in terms of advice you had for corporations to get ahead of these risks. What are some of the key things that you think companies ought to be thinking about, considering, and implementing to mitigate their risks?

Justin: Yes, thank you. First, let’s talk about the use of arbitration agreements that mitigate the risks of both class actions and mass arbitrations. Our audience is likely familiar with the arbitration agreement defense when it comes to defeating class actions. This defense was largely successful over the last decade in making claims just go away. But times have changed – those arbitration agreements need to be tweaked to mitigate the risks as well as mass arbitrations, which can cost companies millions of dollars to defend. Mass arbitrations are becoming increasingly popular, especially for cybersecurity and data privacy class actions that bring high-dollar novel claims for statutory damages with class sizes often totaling millions of people. Enterprising plaintiffs’ attorneys with big war chests and litigation funders are increasingly using mass arbitrations to pressure organizations into agreeing to multimillion dollar settlements just to avoid the massive arbitration costs. Proactive measures organizations are taking to mitigate this risk include adding mechanisms in their arbitration clauses, such as predispute resolution clauses; mass arbitration waivers; bell weather procedures; arbitration case filing requirements, and more.

This area of the law is developing quickly. One case we are watching will be one of the first appellate cases to address the latest trend of mass arbitrations – it’s Wallrich v. Samsung, in the Seventh Circuit. At issue there is whether the district court erred in ordering the defendant facing data privacy claims to pay over $4 million in mass arbitration fees.

Jerry: Well, I know this is a hot area and an ever evolving area in terms of arbitration issues. But also you touched on another area, and that would be data breach class actions. This, to me, is an area that, just as like the tsunami wave breaking on the beach, that the claims have doubled from 2019 to 2020, then doubled again in 2021 to 2022. Last year there were 1,320 data breach class actions brought countrywide. And this year, so far, we’ve tracked about 600. And so the crest of the wave is anywhere from ending. What do you think in this area of data breach class actions in terms of what companies can do to address this risk?

Justin: Yeah, exactly, Jerry. It’s important that companies keep pace with a tsunami wave of their own in their pursuit of continuously improving their IT practices and cybersecurity measures. There are definitely some cybersecurity best practices that companies can be doing, not only to prevent cyber security incidents from happening in the first place, but also to defend against one of plaintiffs’ main argument in many of these class actions – that organizations failed to use reasonable cybersecurity measures.

Each organization will have its own priorities, to be sure, but here are just a few typical ones:

  • improve IT governance;
  • comply with industry guidelines such as ISO, COBIT, ITIL, NIST, and C2M2;
  • deploy multi-factor authentication, network segmentation, and other multi-layered security controls;
  • stay current with identifying, prioritizing, and patching security holes – as new ones do continuously arise;
  • design and continuously improve a cybersecurity incident response plan;
  • routinely practice handling ransomware incidents with tabletop exercises – tabletop exercises may even be covered by your insurance company; and
  • implement and continuously improve security information and event management systems and processes.

Jerry: There’s another emerging litigation trend with respect to web browsing. And you had mentioned Meta Pixel and Google Analytics – and as someone who has a computer science degree and understands what’s going on, how do you translate that for corporate counsel in terms of the risk posed by the plaintiffs’ bar focusing on those particular activities?

Justin: Well, this is a very popular type of case right now, for sure. One first step that companies can do to is to to mitigate these risks of those types of cases is to find out if, and to what extent, they may be using these website advertising technologies. Millions do. Some companies served with an adtech lawsuit have not even known that any adtech was installed on their websites. It could have been installed by a vendor without the proper authorization of protections. Or even as a default, without any human intent, through the use of some web publishing tools.

Organizations should consider whether to have an audit performed before any litigation arises as to which adtech is, or has been installed, on which web pages, when and which data types were transmitted as a result. Multiple experts specialize in adtech audits just like this and also serve as expert witnesses, should any litigation arise. An adtech audit is relatively quick and inexpensive, and it might be cost beneficial for an organization to perform an adtech audit before litigation arises. It might convince an organization to turn off some of its unneeded adtech now, thereby cutting off any potential damages relating to that adtech in a future lawsuit. It could also assist in presently updating and modernizing website terms of use and data privacy policies to more fully inform users about the company’s use of adtech and vendor agreements to prohibit vendors from incorporating any unwanted adtech into the company’s websites. These updates to company documents could help defeat some of the high-dollar fraud claims and other claims we constantly see in these types of cases.

Jerry: Those are great insights, and I would recommend to all our blog listeners and readers to take a look at Justin’s blog post from this past week – I called it an essential reference or desk guide, or survival packet, to navigate through the thicket of all these particular issues.

Well, thank you, Justin, for joining us for this week’s Class Action Weekly Wire.

Justin: Thanks for having me, Jerry.

Colorado Federal Court Rejects Reconsideration Of Class Certification For A Nationwide Deceptive Practices Class As Well As State-Specific Classes

By Gerald L. Maatman, Jr., Jennifer A. Riley, Tiffany E. Alberty, and Ryan T. Garippo

Duane Morris Takeaways:  On May 30, 2024, In Re HomeAdvisor, Inc. Litigation, No. 16-CV-01849 (D. Colo. May 30, 2024), Chief Judge Philip Brimmer of the U.S. District Court for the District of Colorado denied a motion for reconsideration of his prior order denying of class certification of a putative nationwide and states-specific classes.  This decision further illuminates plaintiffs’ substantial burden of maintaining a nationwide class action, particularly when state law claims are involved.

Case Background

Plaintiffs are eleven individuals, and one corporation (collectively “Plaintiffs”), who sued HomeAdvisor, Inc. and similar entities (collectively “HomeAdvisor”) for misrepresentations of the quality of the leads it sells to its home service professionals.  HomeAdvisor operates an online marketplace that helps connect home service professionals with homeowners in need of home improvement services, by collecting information from homeowners, and selling that information onto the home service professionals as a “lead.”  Id. at 1. Plaintiffs, however, claim that HomeAdvisor misrepresents the quality of the leads that it sells.  HomeAdvisor advertises that its leads are “high quality” and from “project-ready customers.”  Id. at 2. Yet, Plaintiffs claim that they often receive leads that are valueless because they lead to “wrong or disconnected phone numbers, contain “wrong contact information,” relate back to individuals who “never even heard of HomeAdvisor” or who are “not homeowners,” or are for “customers” who completed the project months before the lead was received. Id.

Consequently, Plaintiffs sued HomeAdvisor seeking to recover damages, claiming that the “leads were ‘garbage,’” and ultimately  moved for class certification.  Id. at 3. In January 2024, the Court granted Plaintiffs’ motion for class certification in part, and denied it in part.  The Court certified a nationwide misappropriation class and three state misappropriation classes.  At the same time, the Court denied Plaintiffs’ request to certify a nationwide deceptive practices class and nine state deceptive practices classes.  These state-specific classes arose out of claims under California, Colorado, Florida, Idaho, Illinois, Indiana, New Jersey, New York, and Ohio state law.

The Court’s denial was based upon the finding that Plaintiffs failed to establish the predominance and superiority requirements under Rule 23(b)(3).  The Court held that plaintiffs failed to present any analysis to support certification of the state law claims, and because the Tenth Circuit case law requires claim-specific analysis, Plaintiffs’ failure to do so was fatal to their request for class certification.  Shortly thereafter, Plaintiffs filed a motion for reconsideration asking, in part, for the Court to reconsider its ruling on the state law claims.  Plaintiffs claimed that the Court did not adequately consider a choice-of-law provision within HomeAdvisors’ terms and conditions, and that they would have prevailed under the laws of all the state-specific claims.

The Court’s Opinion

While it observed that the federal rules do not specifically provide for motions for reconsideration, the Court considered both of Plaintiffs’ requests raised in the motion.

As to the choice-of-law provision, which purportedly specifies that Colorado law applies, Plaintiffs argued that the Court erred in its choice of law analysis by not considering that provision.  Plaintiffs contended that either under a theory of estoppel, or based on HomeAdvisors’ contractual terms and conditions, that the choice-of-law provision should apply to all the state law claims.  The Court, however, rejected Plaintiffs’ argument because they failed to make the estoppel argument in their original class certification motion, and only provided a two-sentence argument in a “perfunctory matter” without any supporting legal authority. Id. at 8. The Court refused to entertain these new arguments.  Similarly, because Plaintiffs failed to raise the terms and conditions choice-of-law provision in their original motion, and contradicted the enforceability of the terms and conditions in their pleadings, the Court found these arguments unpersuasive.  As a result, the Court declined to reconsider its decision, which refused to certify a nationwide deceptive practices class applying Colorado law.

Further, with regard to the state-specific analysis, Plaintiffs attempted to revive their arguments for certification by arguing that the Court erred in not applying an alternative deceptive practices theory under nine states’ deceptive practices laws.  However, vital to Plaintiffs’ deceptive practices claim was the Rule 23 predominance requirement, which in the Tenth Circuit, requires a “claim-specific analysis.” Id. at 9.  Accordingly, the Court held that Plaintiffs are required to identify (1) “which elements would be subject to class-wide proof;” (2) “which elements would be subject to individual proof;” and (3) “determine which of these issues would predominate.”  Id. (citing Brayman, Sherman and CGC Holding Co., LLC v. Broad & Cassel, 773 F.3d 1076 (10th Cir. 2014)).  Yet, Plaintiffs never identified these elements and alleged 43 common law and statutory claims under states’ laws.  The Court opined that barebones allegations of “fraud, unjust enrichment and breach of implied contract” were insufficient to identify the elements of each unique states’ laws, as the Court recognized significant variations in each state law.  Explicitly, the Court noted, “it is not the Court’s job to research the elements of [43] laws when plaintiffs failed to undertake the analysis in their motion.” Id. at 10.

Finally, and as a practical matter, the Court reasoned that even if the predominance element existed, the docket would be unmanageable as Plaintiffs presented no evidence as to how the Court would conduct a single trial, for nine state classes, with 43 claims.

Implications For Companies

The holding in In Re HomeAdvisor, Inc. Litigation highlights the required specificity for class action plaintiffs to certify nationwide deceptive practices claims.  If they cannot proceed on a nationwide theory, plaintiffs must identify the elements of each and every states law, if they want to prevail at the certification stage.  Where these elements are not identified, employers have an opportunity to raise these deficiencies with the Court, and that can ultimately change the landscape of which (if any) class claims will survive through the certification stage.  Corporate counsel, therefore, should take note of these developments and ensure (where applicable) that similar arguments are raised at this stage of the proceedings.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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