July 2025 – Class Action Defense

July 24, 2025July 24, 2025 by Class Action Defense

The Class Action Weekly Wire – Episode 111: California Court Greenlights “Headless” PAGA Suit

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsel Samson Huang with their discussion a key ruling from a California appeals court allowing a plaintiff to pursue PAGA claims solely on behalf of other aggrieved employees.

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

Jerry Maatman: Hello everyone, and welcome to the Class Action Weekly Wire, the podcast where we explore critical class action legal developments. I’m Jerry Maatman, a partner at Duane Morris, and joining me today for the first time is Samson Huang, our newest member of our class action team, who is based in our Los Angeles office. Samson, thanks so much for being here today.

Samson Huang: Of course. Thanks, Jerry. I’m so glad to be here.

Jerry: Today we’re discussing the recent ruling coming out of the California Court of Appeal in CRST Expedited, Inc. v. Superior Court of Fresno County, which addresses the legality of something known as a “headless” PAGA action. Can you start by explaining for our listeners the central issue in the case?

Samson: Absolutely. The heart of the case was whether an employee can bring a so-called “headless” PAGA action, meaning a Private Attorneys General Act claim that seeks civil penalties for labor code violations suffered only by other employees and not by the plaintiff themselves. This came up after the plaintiff dismissed, or tried to dismiss, his individual claims to avoid arbitration.

Jerry: So, as I understand it, the Court of Appeal in California had to decide whether or not this sort of lawsuit is even viable under the PAGA?

Samson: That’s correct. The employer, CRST Expedited, argued that the statute’s language—specifically the phrase “on behalf of himself or herself and other current or former employees”—meant that you must have, and bring, your own individual claim in order to piggyback off of, to have standing, for the nonindividual claims and they wanted the court to interpret the word “and” strictly in the conjunctive.

Jerry: And so how did that go for the employer in the Court of Appeal with respect to that particular argument?

Samson: Well unfortunately, the Court of Appeal disagreed with the employer, and found that the statutory language was ambiguous, holding that the word “and” could be actually interpreted as meaning either “and” or “or “—what we call an inclusive disjunctive—and the panel emphasized that PAGA is a remedial statute designed to empower private enforcement of labor laws. They reasoned that, allowing headless PAGA claims better served the statute’s purpose, especially in light of recent procedural hurdles around arbitration after Viking River Cruises v. Moriana.

Jerry: Well, things weren’t complicated enough. I know that Viking River Cruises created new law and basically stood for the proposition that if you’re a worker, and you had signed an arbitration agreement with a class action waiver, you had to proceed in arbitration. And then, as I understand it, California courts have thereafter interpreted Viking River to allow, nonetheless, the employee, after arbitration, to go forward with a representative action on behalf of other representative employees. How did the Court of Appeal deal with Viking River Cruises in terms of whether that had an impact on headless PAGA actions?

Samson: Well, the issue of headless PAGA actions really wasn’t addressed. In Adolph v. Uber Technologies, the California Supreme Court simply held that merely the fact that a plaintiff’s individual PAGA claims compelled to arbitration pursuant to Viking River didn’t mean that the plaintiff lost standing to maintain the representative nonindividual PAGA claims in court, and strongly suggested that if a plaintiff gets compelled to arbitration on the individual claim, the nonindividual claims should be stayed pending resolution of the arbitration. In this recent CRST case, this is a strategy that the plaintiffs’ bar has developed in order to avoid arbitration.

Jerry: So, as I understand it, that was a gambit by the plaintiff’s lawyer, a conscious decision to dismiss their individual claim, to try and get around Viking River?

Samson: That’s right. And basically, the argument goes that if a plaintiff has no individual claim, there would be nothing left to compel into arbitration. Therefore, the court proceedings on the nonindividual claims can proceed. The employer in the case argued that by doing so, he lost standing and meaning by dismissing an individual PAGA claim, the plaintiff loses standing again. The Court of Appeal disagreed, and it held that even though the plaintiff wasn’t personally seeking penalties anymore, he still qualified as an aggrieved employee because he had been subjected to labor code violations, or at least had alleged that he had been subjected to labor code violations, and completed the required notice procedures under PAGA.

Jerry: Well, what would be your prognostication for our listeners about whether or not there’s a chance this could get reversed by the California Supreme Court?

Samson: Jerry, prior to this case there was another Court of Appeal in a case called Leeper v. Shipt which, while addressing the same issue, reached the opposite conclusion, and held that every PAGA claim necessarily includes both an individual and nonindividual component. And that case has actually been taken up to the California Supreme Court, which has granted review. So, CRST is definitely not the final word, and until the Supreme Court issues its opinion in Leeper, trial courts are free to choose between Leeper and CRST, in terms of which decision they want to follow. So, until then, employers and practitioners alike should be cautious.

Jerry: I know you do a lot of thought leadership in this particular space and help many employers with respect to PAGA compliance. What would be your quick advice for employers in dealing with this situation until there’s resolution at the California Supreme Court level?

Samson: Well, I think this ruling really reinforces California’s commitment to robust enforcement of labor laws through PAGA, and employers should revisit their arbitration agreements and attorneys should stay tuned to Leeper. The terrain is shifting quickly.

Jerry: Well, thanks so much for your thoughts and analysis in this very complex area, and welcome to the show and to your first podcast on behalf of Duane Morris. Thanks so much.

Samson: Thanks for having me, Jerry, and thank you, listeners.

July 24, 2025July 24, 2025 by Class Action Defense

California Court of Appeal Rears Its Head On Headless PAGA Actions By Finding That Dismissal Of Individual PAGA Claims Did Not Bar Pursuit Of Non-Individual Claims

By Gerald L. Maatman, Jr., Jennifer A. Riley, Samson C. Huang, and Betty Luu

Duane Morris Takeaway: On July 7, 2025, in CRST Expedited, Inc. et al. v. The Superior Court of Fresno County, Case No. F088569 Cal. App. July 7, 2025), the California Court of Appeal for the Sixth Appellate District denied an employer’s petition for writ of mandate of a trial court’s decision that a worker’s dismissal of his individual PAGA claims did not bar him from pursuing claims on behalf of other aggrieved employees only. This tactic – known as a headless PAGA action – is the latest innovation of the plaintiffs’ class action bar and another challenge employers face in operating in the Golden Bear State.

Background

Defendant CRST Expedited, Inc. (“CRST Expedited”) employed Plaintiff Espiridion Sanchez (“Plaintiff”) as a tire maintenance technician from 2017 until 2018. Id. at 5. On March 22, 2019, Plaintiff provided written notice to the Labor & Workforce Development Agency (“LWDA”) and CRST Expedited asserting claims under the California Private Attorneys General Act (“PAGA”) on behalf of all current and former employees of CRST Expedited and cited nine Labor Code violations. Id. at 6. After receiving no response from the LWDA, Plaintiff filed a PAGA action on behalf of himself and other aggrieved employees against CREST Expedited. Id.

In 2023, the trial court granted CRST Expedited’s motion to compel arbitration of Plaintiff’s individual PAGA claims and dismissal of the non-individual claims in light of the U.S. Supreme Court’s ruling in Viking River Cruises, Inc. v. Moriana, 596 U.S. 639 (2023) (“Viking River”). Id. at 8. In Viking River, the U.S. Supreme Court held that once an employee’s individual PAGA claims are compelled to arbitration, the employee lacks standing to represent other aggrieved employees as to their PAGA claims. Id.

The ruling in Viking River was short lived once the California Supreme Court issued its decision in Adolph v. Uber Technologies, Inc., 14 Cal.5th 1104, 1114, 310 Cal.Rptr.3d 668, 532 P.3d 682 (2003), which held that “an order compelling arbitration of the individual [PAGA] claims does not strip the plaintiff of standing as an aggrieved employee to litigate claims on behalf of other employees under PAGA.” Id.

Plaintiff sought reconsideration on that basis, and the trial court reinstated the nonindividual PAGA claims. Id. at 9.

In 2024, the trial court granted Plaintiff’s unopposed motion to dismiss his individual PAGA claims. Id. at 9. In response, CRST Expedited sought dismissal of Plaintiff’s nonindividual PAGA claims on the grounds that Plaintiff no longer had standing because he dismissed his individual PAGA claims. Id. at 9-10. The trial court disagreed. Id.

The California Court Of Appeal’s Ruling

The California Court of Appeal addressed whether the PAGA statute allows an aggrieved employee to recover civil penalties for violations of the Labor Code suffered only by other employees.

To do so, the Court of Appeal conducted a thorough analysis of the statutory interpretation of the PAGA statute, ultimately finding that the PAGA statute is ambiguous. Id. at 39. Faced with an ambiguous statute, the Court of Appeal concluded it “must select the construction that comports most closely with the apparent intent of the Legislature, with a view to promoting rather than defeating the general purpose of the statute.” Id.

The Court of Appeal began its analysis by examining the legislative intent behind the use of the terms “and” and “or” in a 2003 amendment to the PAGA statute. Id. at 40. The 2003 amendment revised the statute to say: “An aggrieved employee may recover the civil penalty described in subdivision (b) in a civil action filed on behalf of himself or herself and others.” Id. at 40. (emphasis added). However, a review of the legislative history revealed that the revised language merely corrected a drafting error. Id. The Court of Appeal also held that it was unlikely that the original drafters could have anticipated a bifurcation of the individual and nonindividual PAGA claims — as recognized in such as Viking River — when amending the statute. Id. at 41.

Finding that the analysis of legislative intent was inconclusive, the Court of Appeal analyzed the purpose of the PAGA statute. Id. It opined that the primary objective of the PAGA statute is to maximize enforcement of labor laws and deter employer violations. Id. at 42. As such, requiring arbitration of individual claims before pursuing non-individual claims would undermine those enforcement efforts. Id.

To achieve effective enforcement, the Court of Appeal held that the PAGA statute should be interpreted to allow “PAGA plaintiffs and their counsel the flexibility to choose among bringing a PAGA action that seeks to recover of civil penalties on (1) the LWDA’s individual PAGA claims, (2) the LWDA’s nonindividual PAGA claims, or (3) both.” Id. at 47. The Court of Appeal emphasized that this interpretation does not eliminate or weaken the PAGA standing requirements, as a plaintiff must still be an aggrieved employee to bring a headless PAGA action. Id. at 47-48.

In sum, the Court of Appeal reaffirmed that a broad construction of the statute permits an aggrieved employee to pursue a headless PAGA action.

Implications For Companies

The CRST Expedited decision confirms that aggrieved employees can pursue representative PAGA actions on behalf of other aggrieved employees even if their individual claims are subject to arbitration or dismissed.

The ruling underscores the importance for employers to reassess their arbitration strategies and compliance practices, as the enforcement of labor laws through the PAGA remains robust despite contractual arbitration clauses.

It remains to be seen whether the landscape of the headless PAGA action will be turned on its head in light of the California Supreme Court’s decision to review Leeper v. Shipt, Inc.,107 Cal.App.5th 1001, 328 Cal.Rptr.3d 632 (2024), which effectively eliminated the headless PAGA action. We will continue to follow the developments in PAGA and keep our blog readers informed.

July 23, 2025July 23, 2025 by Class Action Defense

California Federal Court Rejects Cy Pres Distribution In Massive Class Action

By Gerald L. Maatman, Jr., Eden E. Anderson, and Eisha Perry

Duane Morris Takeaways: Judge William Alsup of the U.S. District Court for the Northern District of California issued a decision in Nehmer, et al. v. U.S. Department of Foreign Affairs, Case No. 3:86-CV-06160 (N.D. Cal. May 20, 2025), rejecting class counsel’s proposed cy pres distribution of over $63,000,000 in funds appropriated by Congress to settle the claims of deceased Vietnam veterans injured by Agent Orange. Judge Alsup explained that a cy pres distribution was not authorized by the 1991 consent decree in the case, nor by any statute and that class counsel needed to redouble efforts to locate veterans’ survivors or to pay veterans’ estates. The decision makes clear that, absent an express cy pres provision in a class action settlement or statutory authority supporting it, a cy pres distribution is not authorized.

The ruling is an important primer for corporate counsel in the consideration and use of settlement tools – such a cy pres distribution – in resolving class actions.

Case Background

The Nehmer case settled in 1991 and involved the claims of veterans who suffered from illnesses because of the use of Agent Orange during the Vietnam War. Because the extent of harm caused by Agent Orange was not then fully known, the consent decree that was entered after the settlement required claims to be automatically reopened if they turned on diseases the Department of Veterans Affairs had earlier rejected but later recognized as service related. The consent decree did not contain a time limit sunsetting the opportunity to file claims, nor for the VA’s obligation to re-adjudicate claims. Over the last nearly 35 years, more than $4.5 billion in retroactive payments have been made to veterans under the settlement.

At issue before the Court was the re-adjudicated claims of 1,137 veterans who are now deceased and whether the $63,000,000 in settlement payments owed to those deceased veterans could instead, as proposed by class counsel, be paid to a cy pres organization. A large portion of the deceased veterans owed these funds had no eligible survivors nor any open estate and, for those that did have eligible survivors, efforts to locate the survivors through the use of private investigators proved unsuccessful. The VA took the position that, because the consent decree did not provide for a cy pres distribution, the funds should remain in the VA’s possession, available for payment should any survivor ever emerge to claim their share.

The Decision

The Court rejected class counsel’s proposed cy pres distribution, noting it was not authorized by the consent decree nor by any statute, and that the Court therefore lacked power to order such a distribution. As to the deceased veterans with survivors, the Court held that more effort needs to be undertaken to find them, including repeating the private investigator’s efforts and through the placement of advertisements. As to the deceased veterans who seemingly had no survivors and closed estates, the Court determined that more effort needs to be expended to pay the estates, even if costly. The Court explained that payment to the estates might be possible without having to re-open the estates and class counsel needed to expend more efforts in this regard, efforts that might even reveal beneficiaries.

Implications of the Decision:

The Nehmer decision makes clear that, absent an express cy pres provision in a class action settlement or statutory authority supporting it, a cy pres distribution is not authorized. Even when there is a cy pres provision in a class action settlement, courts are increasingly scrutinizing such clauses. Parties need to think carefully about utilizing the doctrine and the designation of unclaimed settlement funds.

July 18, 2025July 18, 2025 by Class Action Defense

The Class Action Weekly Wire – Episode 110: Key Developments In WARN Class Actions

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsel Kathryn Brown with their analysis of key developments in class action litigation involving the Worker Adjustment and Retraining Notification (“WARN”) Act.

Episode Transcript

Jerry Maatman: Hello everyone and welcome to the Class Action Weekly Wire, the podcast where we explore critical issues in class action litigation. I’m Jerry Maatman of Duane Morris, and joining me today is Kathryn Brown, one of our class action lawyers based in Ohio. Great to see you, Kathryn. Welcome to the podcast.

Kathryn Brown: Thanks, Jerry. I’m so glad to be here.

Jerry: Today, we’re diving into a very complex area in the class action world – class actions under the WARN Act. Let’s start with some of the basics. Kathryn, can you describe for our listeners what WARN is all about?

Kathryn: Sure, the WARN Act, which stands for the Worker Adjustment and Retraining Notification Act, is a federal law that requires large employers, those with 100 or more full-time employees, to give at least 60 days’ notice before conducting a mass layoff or plant closing. What’s made this area explode recently, especially post-COVID, is the sheer volume of layoffs that occurred with little or no notice that opened the door for a wave of class actions which are still weaving through the courts. Now, if employers fail to comply with the WARN Act, they may owe up to 60 days of wages and benefits to each impacted employee.

Jerry: COVID-19 certainly has been a tipping point in the courthouse in many areas of litigation. Specifically, how has it shaped WARN Act litigation?

Kathryn: It’s been a game-changer. Many employers tried to argue that the COVID-19 pandemic was a natural disaster or an unforeseeable business circumstance that excused the 60-day notice requirement under the WARN Act, but some courts rejected those defenses outright – especially where the employer failed to give any notice or gave only partial notice.

Jerry: Really interesting, both from a legal and societal perspective, in terms of, I take it, courts still expected companies, employers to abide by the prescriptions of WARN, despite all the challenges posed by COVID-19.

Kathryn: Yes, and some of the 2024 decisions confirm that courts looked closely at whether employers gave as much notice as possible as required, even under those exceptions, to WARN.

Jerry: Well, you’ve done a lot of writing in this area, and you were one of the authors of the Duane Morris Class Action Review. In your opinion, what are some of the standout decisions in this space in 2024?

Kathryn: There were several. One important case was Staley v. FSR International Hotel, which involved the Four Seasons Hotel in New York City. The court in Staley granted class certification of a class of hotel workers furloughed during the pandemic. The court found that common issues of law and fact predominated because the central issues in the case – whether the extended furlough qualified as a “mass layoff” or “plant closing” under the WARN Act, and whether the employees were entitled to severance pay – were common issues across all class members. The court opined that although there were some individual differences among the class members, such as the fact that some employees worked at other hotel properties after the hotel closed, the court determined that these variations did not override the predominance of common legal questions.

Jerry: So even in certain circumstances, extended furloughs rather than terminations can trigger WARN Act obligations?

Kathryn: They can, especially if they last over six months. Courts are treating those as employment losses under both federal and state WARN acts. Other important rulings under the WARN Act in 2024 addressed employers’ notice obligations when an anticipated date of termination is postponed, the need to provide a brief statement of the reason for a shortened notice period, employers’ greater risk of exposure to liability under state law versions of the WARN Act, and how back pay damages owed to affected employees are calculated following a determination of liability. This was the case in Messer v. Bristol Compressors, where the employer postponed the employees’ final termination date, but failed to issue additional notice. The court held that once a shutdown is delayed by 60 days or more, a new 60-day notice under warrant is required.

Jerry: I know if the compliance obligations weren’t tough enough, we also are dealing with a patchwork quilt of state law mini-WARN acts. Have there been decisions, in your mind, in terms of those state law provisions that also complicated this space?

Kathryn: Absolutely. The New York and New Jersey WARN Acts, for example, often require longer notice periods than the federal WARN Act. They require notice periods of up to 90 days and impose stricter requirements than under the federal WARN Act. States often have different definitions, different notice formats, and different exceptions than under the federal WARN Act. The plaintiffs’ bar knows this and uses it to their advantage.

Jerry: Well, the plaintiffs’ bar is nothing if not innovative, and certainly is always kind of chasing that money trail. What sorts of verdicts, damages, settlements did you see in the past year on the WARN front?

Kathryn: Right, so a core component of potential damages in a WARN Act lawsuit is back pay owed to affected employees for the period of the violation. Given the strict standards for notification under the WARN Act, it’s no surprise that the standards of calculation of damages owed to affected employees likewise heavily favor employees. So, one case is Chaney v. Vermont Bread Company. In that case, the court awarded millions of dollars in back pay, even rejecting attempts by the employer to offset damages based on help the employer provided after the layoffs or payments made by a receiver. The court provided guidelines as to acceptable forms of calculating damages in WARN Act cases, as well as made clear that employers cannot mitigate damages based on efforts to assist employees post-layoff or by suggesting that payments made by a receiver should offset their liability.

Jerry: One of the attributes of the Duane Morris Class Action Review is an analysis of major settlements in the class action world. What about in the WARN area – what were some of the major class action settlements over the past year?

Kathryn: Well, in the case of Nunn v. Bitwise, the court approved a $20 million settlement to resolve claims under both the federal WARN Act and the California WARN Act. WARN Act settlements often come through bankruptcy proceedings, which adds certain amount of complexity – but does not erase liability.

Jerry: At the end of the day, then, what would be your takeaways for employers in dealing with WARN Act issues in the class action space?

Kathryn: The key takeaway is to treat WARN notice obligations extremely seriously, and get counsel involved. If you’re downsizing or restructuring, you may be triggering WARN Act, and failing to comply can lead to massive liability.

Jerry: Well, that’s great succinct advice. Kathryn, thanks so much for joining us on the podcast today.

Kathryn: Thank you so much for having me, Jerry, and thank you, listeners.

July 17, 2025July 17, 2025 by Class Action Defense

No Right To Bear Arms In Class Action Complaint: Federal Court Rejects Shotgun Pleading

By Jerry Maatman, Shannon Noelle, and Alek Smolij

Duane Morris Takeaway: On July 2, 2025, in Bush v. Honda Development & Manufacturing of America, LLC, Case No. 1:25-CV-893, 2025 WL 1830702 (N.D. Ala. July 2, 2025), Judge R. David Proctor of the U.S. District Court for the Northern District of Alabama dismissed a class action complaint with leave to replead on the basis that the complaint utilized impermissible “shotgun pleading” in connection with a Title VII and Section 1981 class action brought by current employees, associates, and contractors alleging that the employer (an automobile manufacturing company) engaged in a pattern and practice of racial discrimination in employment opportunities. The Court granted leave to file an amended complaint containing the required specificity demonstrating “common answer[s]” to the question of why class members were allegedly “disfavored” by the employer such that class action treatment is justified. This decision underscores that plaintiffs must plead factual content showing ascertainability, commonality, typicality, adequacy of representation, predominance, and superiority at the pleading stage to move forward with claims asserted through the class action vehicle.

Background

On October 29, 2024, Plaintiff Johnny Bush, Jr. — an African American employee in a supervisory fleet maintenance role at Defendant Honda Development & Manufacturing of America, LLC (“HDMA”) — brought an action on behalf of himself and a putative class of African American employees, associates, and contractors alleging violations of Title VII of the Civil Rights Act of 1964 and Section 1981 of the U.S. Code claiming class members did not have the opportunity, due to their race, to apply for certain jobs or promotions, were discouraged from applying, or applied and did not receive such positions while working for HDMA. Bush v. HDMA, 2025 WL 1830702, at *1 (N.D. Ala. July 2, 2025) (citing ECF No. 1). HDMA brought a Motion to Dismiss and For A More Definition Statement arguing that the class action complaint failed to satisfy Federal Rule of Civil Procedure 23(a) requirements (i.e., ascertainability, commonality, typicality, adequacy, predominance, and superiority) and maintaining that the complaint was an impermissible shotgun pleading. Id. (citing ECF No. 16, at 17-20). The Court agreed on all fronts.

The Court’s Decision

The Court found that the complaint failed to meet Rule 23(a) requirements rejecting Plaintiff’s argument that Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), requires an “evidentiary record” to conduct such an analysis and finding, instead, that class allegations must be reviewed for “some specificity . . . even as early as the pleadings stage.” Bush, 2025 WL 1830702, at *3.

The Court found ascertainability to be lacking as HDMA’s business records would not be able to identify: (1) class members that did not apply for positions because the position was not properly posted; (2) class members that were unaware of vacancies; or (3) class members that did not hear about positions through word of mouth. Id. at *1. On the issue of commonality, the Court determined that the proposed class was not likely to generate “common answers” to the question of how or why class members were allegedly disfavored due to their race because the complaint alleged “a full range of different claims,” such as “being discouraged from applying for a job, applying for a job and not getting it, or not being told about an opportunity,” which are all separate theories presenting different factual scenarios. Id. at *2. The complaint also failed to establish that Plaintiff Bush was an adequate class representative as he holds a supervisory position at HDMA but seeks to represent class members in non-supervisory roles as well as contractors who cannot bring Title VII claims. Finally, on the requirement of predominance, the Court found that the class complaint sought damages that could only be assessed on an individual basis, i.e. “back pay; front pay; lost job [and] preferential rights to jobs.” Id. at *4 (citing ECF No. 1). The Court rejected Plaintiff’s argument that the injunctive relief sought established predominance given that the monetary damage sought were not “incidental” to the injunctive relief but, instead, at the forefront of the redress requested. Id.

The Court also considered the “form of the complaint” to be a deficient “shotgun pleading” as it was replete with vague and conclusory allegations. The Court gave the specific examples of allegations that: (1) “word-of-mouth information disproportionately excluded or disadvantaged African American employees from knowing about and competing for positions and training,” (2) non-African American employees were “promoted at a faster pace to a higher-level position,” (3) HDMA’s “discriminatory practices . . . deterred the Plaintiff and putative class members from further pursuing additional vacancies and job opportunities,” (4) “departmental and plant-based selection criteria and/or restrictions [] favored employees in departments and/or facilities or locations that were disproportionately Caucasian,” (5) HDMA’s “recruitment and selection process perpetuated past and existing racial disparities in the jobs at issue,” and (6) “Plaintiff [] has personal knowledge of the discriminatory obstacles and disparate impact experienced by other members of the putative class.” Id. at *4. The Court concluded, quoting Dukes, that these allegations failed to demonstrate “glue holding the alleged reasons for all th[e challenged employment] decisions together” and therefore fail to show how class treatment would generate a common answer as to why members of the class were allegedly disfavored.

The Court gave Plaintiff leave to replead the class allegations to cure the identified deficiencies but instructed that any amended complaint should only include allegations for which Plaintiff has a “good faith basis . . . supported by Supreme Court and Eleventh Circuit case law.”

Implications For Defendants

This decision serves as an important reminder that motion to dismiss scrutiny of class claims is more than just a cursory review particularly where the class definition spans employees at different levels (supervisory, non-supervisory, and contractor) and challenges a wide array of alleged employment decisions not facially suitable for common answers that would make class treatment of such claims efficient or logical.

Moreover, shotgun pleading that features vague and conclusory allegations devoid of factual content will not survive motion to dismiss or for a more definite statement review and provides fertile ground for discerning defendants to mount challenges to avoid the cost and expense of class adjudication at the outset.

July 15, 2025July 15, 2025 by Gerald L. Maatman, Jr.

Maryland Joins With Other States Precluding Employees From Seeking Damages For De Minimis Claims For Allegedly Uncompensated Work Time Under State Law

By Gerald L. Maatman, Jr., Anna Sheridan, and Rebecca S. Bjork

Duane Morris Takeaways: On July 3, 2025, the Maryland Supreme Court held in Martinez v. Amazon.com, Serv., No. Misc. 17 (Md. July 3, 2025), that the long-standing common law doctrine de minimis curat lex applies to both the Maryland Wage & Hour Law (MWHL) and the Maryland Wage Payment and Collection Law (MWPCL). The Supreme Court aligned Maryland with federal precedent, reinforcing the principle that employers are not required to compensate employees for truly trivial amounts of uncompensated work time – what the U.S. Supreme Court has called “split second absurdities.” This ruling marks a notable win for employers in Maryland, who now have a potential defense against claims for brief unpaid time. For the defendant, the litigation will return to U.S. District Court for the District of Maryland – which had certified the question to the Maryland Supreme Court – for factual analysis on whether the time claimed by employees waiting in line to pass through security screening was truly de minimis.

Case Background

On December 2, 2021, Plaintiff Estefany Martinez brought a putative class and collective action in the U.S. District Court for the District of Maryland on behalf of current and former Amazon employees at its Baltimore fulfillment center. Id. at 2, 6. The Complaint alleged that Amazon failed to compensate employees for post-shift time spent in mandatory security screenings, which allegedly took between 3 and 15 minutes per shift. Id. at 5.

Martinez brought claims under the Fair Labor Standards Act (FLSA), MWHL, and MWPCL, seeking to recover unpaid wages and associated damages. On November 18, 2024, the District Court certified to the Maryland Supreme Court the following question: Does the doctrine of de minimis non curat lex, as described in Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), and Sandifer v. U.S. Steel Corp., 571 U.S. 220 (2014), apply to claims brought under the Maryland Wage Payment and Collection Law and the Maryland Wage and Hour Law? Martinez v. Amazon.com Servs. LLC, No. 22-CV- 00502, 2024 WL 4817214, at *33 (D. Md. Nov. 18, 2024).

The Supreme Court of Maryland’s Ruling

On July 3, 2025, in a 5-2 opinion, the Supreme Court of Maryland held that the de minimis doctrine does apply to Maryland wage laws. Martinez. Slip op. at 2. The Supreme Court reasoned that Maryland wage laws are silent on the issue but were modeled on the FLSA, which has long been interpreted to permit employers to disregard “split-second absurdities” – short, administratively burdensome periods of unpaid time. See Anderson, 328 U.S. at 692.

The Supreme Court emphasized that Maryland’s General Assembly did not express any intent to abrogate the common law rule that the law does not concern itself with trifles. It reasoned that had the General Assembly intended to prohibit a de minimis exception, it would have said so. Martinez, Slip op. at 17-19. It further observed that Maryland’s regulatory definitions of compensable time, as reflected in COMAR 09.12.41.10, are consistent with federal standards and do not contradict the de minimis doctrine.

In support, the Supreme Court relied on Anderson v. Mt. Clemens Pottery Co., where the U.S. Supreme Court held that employees must be paid for all time spent working, including pre-shift activities integral to their principal duties. However, Anderson recognized that courts need not impose liability for “negligible time,” noting that “it is only when an employee is required to give up a substantial measure of his time and effort that compensable working time is involved.” Anderson, at 692. After Anderson, the FLSA was not amended regarding the de minimis doctrine, rather it was determined that it was included in the statute all along.

Anderson also recognized the impracticality of recording every minute of work-related activity. It is from this recognition that the de minimis doctrine in wage law was born and later codified and clarified by the Portal-to-Portal Act of 1947.

The Supreme Court of Maryland also cited Sandifer v. U.S. Steel Corp., 571 U.S. 220, 229 (2014) (Martinez, Slip op. at 15), in which the U.S. Supreme Court reiterated that even under the FLSA, employers are not obligated to compensate for time that is too fleeting or difficult to track with precision. Maryland case law authorities have described the MWHL as the State “equivalent,” “parallel,” “partner,” and “counterpart” of the FLSA (id. at 23), and the MWHL mirrors many of the FLSA features, definitions, and exemptions and has remained “substantially similar” to the FLSA since the 1960s. Id. at 24-25. The Supreme Court emphasized that when the General Assembly enacted the Maryland wage laws, it did so against the backdrop of Anderson, Sandifer, and the Portal-to Portal Act, thereby implicitly adopting their contours unless stated otherwise.

Implications for Employers

While the Martinez decision provides employers some breathing room regarding irregular, brief, and administratively difficult to track periods of unpaid time, it does not offer a blanket exemption. Whether a given period of unpaid time qualifies as de minimis remains a highly fact-specific question. In future litigations, plaintiffs must now show that the time they allegedly were not paid for is more than “trifling.” We will follow the proceedings in the U.S. District Court in the Martinez case and keep our readers apprised of developments.

July 13, 2025 by Gerald L. Maatman, Jr.

Clear Sailing To $3.2 Million: Third Circuit Affirms Hefty Fee Award Despite Low Claim Rate In Data Breach Class Action Settlement

By Gerald L. Maatman, Jr., Shannon Noelle, and Anna Sheridan

Duane Morris Takeaways: On June 25, 2025, in In Re Wawa Data Security Litigation, No. 24-1874, 2025 WL 175035 (3d Cir. June 25, 2025), the Third Circuit approved a $3.2 million class fee award for class counsel contained in a settlement agreement finding that fees can be based on relief made available to the class and does not have to be capped by a percentage of the relief actually claimed in low-harm data breach security class action where the claim rate is notoriously low. The Third Circuit also held that clear sailing agreements (agreements not to challenge class counsel fee petitions) and fee reversions (where amount of agreed-upon fee not awarded reverts to defendant) are not per se impermissible and, rather, there must be evidence of collusion or harm to class members to invalidate a fee award on this basis.

Case Background Leading to Wawa I

On December 19, 2019, Wawa — a convenience store chain with 850 locations throughout the mid-Atlantic and Florida that sells fuel as well as convenience store items — released a public statement through its CEO detailing a data security breach Wawa had experienced in which hacker stole payment information including credit and debit card numbers used at all Wawa stores and fuel dispensers. As the Third Circuit noted “a race to the courthouse promptly ensued” with plaintiffs filing 15 different state statutory and common law class action claims that were ultimately consolidated by Chief Judge Juan Sanchez of the U.S. District Court for the Eastern District of Pennsylvania on January 8, 2020. In Re Wawa Inc. Data Security Litigation, Civ No. 24-1874, at *6 (3d Cir. June 25, 2025) (hereafter “Wawa II”). Three litigation tracks emanated out of this consolidation, including: (1) a financial institution track; (2) an employee track; and (3) a consumer track. The consumer track is the subject of the Wawa II decision at issue and involved numerous common law, state consumer protection, and data privacy claims. The consumer plaintiffs sought compensatory relief and an injunction requiring Wawa to: (1) strengthen its data security systems and monitoring procedures to prevent further breaches; (2) submit to future annual audits of those systems; and (3) provide several layers of free credit monitoring and identify theft insurance to all class members.

Several months after the consolidated class complaint was filed, settlement talks began in which the parties retained a mediator to supervise a mediation session that lasted almost 12 hours. As a result of this mediation session, the parties agreed Wawa would provide either compensation for out-of-pocket losses or a Wawa gift card. Plaintiffs were divided into three tiers: (1) customers who affirmed they spent at least some time monitoring their credit card statements were eligible for a $5 Wawa gift card (this tier was subject to a $6 million cap and a $1 million floor); (2) customers who saw a fraudulent charge that required some effort to sort out were eligible for a $15 Wawa gift card (this tier was subject to a $2 million cap with no floor); and (3) customers who could show certain out-of-pocket losses caused by the breach could receive up to $500 in cash (this tier was subject to a $1 million cap without a floor). Wawa also agreed to a range of injunctive relief to improve its security systems through a continuation of a $25 million investment in security that the Wawa board authorized pre-settlement in February 2020. This security system improvement commitment included retaining a security firm to evaluate compliance, conducting an annual penetration test for potential vulnerabilities to data breaches, operating a system to encrypt payment information at sale terminals, implementing security procedures at sale terminals, and maintaining written security programs and policies. Wawa further committed to provide class members notice of the settlement via updates posted in stores, a settlement website, and a press release. After the terms for compensatory and injunctive relief were settled, the parties then agreed that Wawa would pay class counsel $3.2 million in attorneys’ fees and related costs “paid by Wawa as directed by the Court” and further providing that Wawa would “cooperate with Class Counsel, if and as necessary, in providing information Class Counsel may reasonable request from Wawa in connection with preparing the petition” for fees. Id. at *9. The settlement agreement was silent about what would happen if the district court awarded less than the full $3.2 million in fees.

On July 30, 2021, Judge Gene Pratter of the Eastern District of Pennsylvania issued an opinion preliminarily approving the settlement finding it “fair, reasonable, and adequate” as the settlement negotiations took place at arm’s length,” the relief offered provided both monetary and injunctive components, and there was “no reason to doubt that settlement [would] provide a tangible benefit to plaintiffs and proposed class members while avoiding the costs and risks associated with continued litigation.” In re Wawa, Inc. Data Sec. Litig., No. CV 19-6019, 2021 WL 3276148, at *9, 11 (E.D. Pa. July 30, 2021).

On November 10, 2021, class member Theodore Frank filed objections arguing: (1) Wawa’s notice procedures were improper; (2) the gift card claims rate was too low; (3) the attorneys’ fees contemplated by the settlement agreement were too high given that most of the relief made available to the class was not cash-based; and (4) the fee provision of the agreement contained an improper clear sailing (i.e., an agreement not to challenge class counsel’s fee petition) and fee reversion (i.e., agreement that any amount of the $3.2 million not awarded to class counsel reverts to Wawa) that restricted the district court’s ability to fix any potential imbalance between attorneys’ fees and the final relief awarded to the class. Frank raised no objection to the certification process or the certification decision.

In response to this objection, a Second Amended Settlement Agreement was submitted on November 12, 2021 making tier 1 gift cards automatically available to mobile application users and eliminating the gift cards’ expiration date. An Objector, Frank, submitted further objections that the settlement would permit any amount of attorneys’ fees short of the $3.2 million agreed-upon to revert back to Wawa. As a result, on February 4, 2022, counsel submitted a Third Amended Settlement Agreement clarifying that Wawa would not benefit from approval of less than $3.2 million in attorneys’ fees and committing that any shortfall would be distributed to tier 1 and tier 2 gift card holders. On April 20, 2022, Judge Pratter issued an opinion giving final approval of the settlement agreement and deeming it fair, reasonable, and adequate, as required by Rule 23(e)(2).

Regarding the attorneys’ fee award, Judge Pratter awarded the agreed-upon amount of $3.2 million, allocating $3,040,060 to attorneys’ fees, $45,940 to litigation expenses, and $100,000 for settlement administration expenses. Judge Pratter found that the Gunter factors supported an award of this amount which requires consideration of: (1) the size of the fund created and the number of persons benefitted; (2) the presence or absence of substantial objections by members of the class to the settlement terms and/or fees requested by counsel; (3) the skill and efficiency of the attorneys involved; (4) the complexity and duration of the litigation; (5) the risk of nonpayment; (6) the amount of time devoted to the case by plaintiffs’ counsel; and (7) the awards in similar cases. See Gunter v. Ridgewood Energy Corp., 223 F.3d 190 (3d Cir. 2000). For Gunter factor 1, Judge Pratter relied on the value of the funds made available to the class; for factor 2 the only substantive objections before the Court were raised by Frank and were addressed in the third iteration of the settlement agreement; for factor 3 the Judge was satisfied that the skill of the attorneys involved weighed in favor of approval; for factor 4 the Judge noted that data breach litigation is “inherently complex;” for factor 5 the fact that counsel took the case on a contingency basis weighed in favor of approval; for factor 6 the attorneys spent 6,000 hours on the litigation; and, as to factor 7 the Judge noted that other data breach class actions have resulted in fee awards significantly higher. In re Wawa, Inc. Data Sec. Litig., No. CV 19-6019, 2022 WL 1173179, at *11 (E.D. Pa. Apr. 20, 2022). A lodestar cross-check also supported the fee award.

Third Circuit’s Decision in Wawa I

Objector Frank challenged the fee award portion of the settlement agreement on appeal to the Third Circuit arguing that the provision on fees constituted a “clear sailing” agreement because, according to Frank’s interpretation of the provision, Wawa agreed not to contest a fee request from class counsel and Frank also claimed that a “fee reversion” was still contained in the agreement despite the fact that the amended iteration of the settlement agreement clarified that any amount not awarded to counsel would be distributed amongst the class and would not revert back to Wawa. In Re: Wawa, Inc. Data Security Litigation, 85 F.4th 712, 717-18 (3d Cir. 2023) (hereinafter “Wawa I”). Frank argued that attorneys’ fees should be capped at 25% of the amount actually awarded to the class, not the amount offered to the class. The Third Circuit issued a decision in Wawa I, on November 2, 2023, vacating the fee award and remanding the action back to the district court to determine the reasonableness of the attorneys’ fee in light of the benefit rendered to the class and to evaluate the presence of side agreements indicating “collusion,” i.e. a commitment from Wawa not to dispute a fee request from class counsel or an agreement amongst the parties that any portion of the attorneys’ fee not awarded to class counsel would revert back to Wawa. Id. at 727. The Court also remanded for additional consideration about the reasonableness of the award finding that the district court “saw itself as bound to consider only the funds made available to the class” when it could evaluate reasonableness by reference to “either amounts paid or amounts made available.” Id. at 725-26.

On remand, Judge Pratter requested the parties provide submissions containing any information they believed she should consider based on the panel’s decision in Wawa I. See Wawa II, at *7 (3d Cir. June 25, 2025). Objector Frank expressly declined to argue that collusion occurred between counsel for the class and Wawa and suggested the panel used the word “collusion” as “semantic shorthand” to consider potential conflicts with broad brushstrokes. Class counsel and Wawa submitted declarations that there was no collusion. Id. Objector Frank pointed out that counsel admitted there was a clear sailing agreement in a joint declaration class counsel filed in October 2021 and again proposed that an attorney fee award should be based on actual rather than proposed recovery. Id. Class counsel countered that Objector Frank had conceded there was no collusion. Id. On April 9, 2024, Judge Pratter issued an opinion and judgment that the fee awarded was reasonable and that there were no side agreements or anything problematic in settlement negotiations which were conducted at arms’ length under the supervision of a mediator. See 2024 WL 1557366, at *7-13. She specifically found that Wawa’s agreement to “cooperate” in the preparation of a fee petition meant no more than the common meaning of that term which did not waive Wawa’s right to object to fees. Id. at *7. On the issue of fee reversion, Judge Pratter found that there was “never any discussion of any tradeoff” and any insinuation of an unintentional fee reversion was “diligently corrected” prior to her final approval of the settlement. Id. at *10. On the issue of reasonableness of the fee award, Judge Pratter again evaluated the funds offered finding the gift cards to be a “meaningful benefit” because they “closely approximate cash” and that the injunctive relief was also “central” to the award and “weigh[ed] strongly in favor” of granting the fee figure. Id. at *14-17. Judge Pratter further acknowledged that the appeal and remand proceedings already reduced the value of counsel’s fee by an estimated $408,492. Id. at n.13.

Third Circuit’s Decision in Wawa II

On appeal for the second time to the Third Circuit in Wawa II, Objector Frank mounted three arguments, including: (1) Judge Pratter did not follow the panel’s mandate in Wawa I which he claimed found that a clear sailing agreement and intentional fee reversion existed between counsel; (2) Judge Pratter’s findings as to the clear sailing and fee reversion were clearly erroneous; and (3) Judge Pratter erred by relying on the amount “made available” to the class as the basis of the fee award rather than the amount actually paid to class members. Wawa II, 2025 WL 1750352, at *9-12. The Third Circuit rejected all three arguments and affirmed the fee award.

First, the Third Circuit found the Wawa I panel did not hold that a clear sailing agreement existed or that the fee reversion was intentional. Rather, the parties and Judge Pratter “assumed” the existence of a clear sailing agreement and the panel followed suit but the issue was never squarely decided. Id. at *9-10. Likewise, the Wawa II panel did not agree that Wawa I found that any fee reversion was intentional. Id. In any event, the Wawa II Court clarified that clear sailing agreements and fee reversions are not “per se impermissible” but are rather “red flags” requiring further scrutiny which they felt satisfied Judge Pratter performed during the remand proceedings. Id. The Third Circuit held, as a result, that Judge Pratter did comply with the Wawa I mandate. Id. at 10.

Second, applying the clearly erroneous standard to Judge Pratter’s factual findings, the Third Circuit agreed with Judge Pratter’s finding that there was no clear sailing agreement or intentional fee reversion indicating collusion. Id. at 10-12. The Wawa II Court assessed and agreed with Judge Pratter’s findings that the language in the settlement agreement on fees did not constitute a clear sailing agreement and, regardless, Judge Pratter “thoroughly examined the parties’ negotiation process” and found it to be devoid of any evidence of collusion or negative implications for the class. Id. at *11. The panel afforded “great deference” to the Judge’s decision to credit testimony from Wawa’s counsel on this issue. The panel also did not find any credible evidence that the class was harmed at all by the provision on attorneys’ fees. Id. Further, the Court also agreed that any fee reversion in the initial draft of the settlement agreement was unintentional and due to counsel’s impression that the fee award was low and therefore it was unlikely the court would award anything less. Id.

Third, on the issue of the reasonableness of the fee award, the Court agreed with the district court that the fee award was reasonable. Id. at 12-14. In support of this conclusion, the Court found that the gift cards were designed to be spendable cash at any Wawa store, three-fourths of Wawa’s inventory is under $5, and the gift cards did not have an expiration date. The Court further acknowledged the injunctive relief that the class received as justifying the amount of attorneys’ fees which “they themselves requested in the Consolidated Complaint” and, though “difficult to value,” nevertheless “has real value.” Id. at *13. The Third Circuit disagreed with Objector Frank that the injunctive relief should not be considered in evaluating the reasonableness of the award because Wawa was already in the process of implementing the improved security measures pre-settlement, finding that “Wawa’s post-settlement security updates and formal commitment to the relief are attributable to the settlement.” Id. (emphasis added). Finally, and of significant note, the Court took into account the fact that the low claim rate present—the class consisted of 22 million members and 563,955 claims which meant a claim rate of 2.56%—is typical in low-harm data breach class action settlements, such as this one. Id. at *13-14. Though the claim rate is axiomatically low given the low overall harm, this does not negate the attorney time dedicated to finalizing meaningful relief to address the alleged harms at issue. Id. The Court also affirmed the district court’s use of the Gunter factors and lodestar cross check to support its analysis. Id. at *14.

Implications of Wawa II Decision

The Wawa II decision evidences the Third Circuit’s endorsement of basing fee awards in class settlements on the recovery offered to class members, setting aside the claim rate, in the context of low-harm data breach class actions where low claim rates are well-documented. So long as the recovery secured is meaningful (be it through injunctive, monetary, or other means) and the hours class counsel spent on securing that relief justify the award sought, the fee petition is colorable. This provides good guidance for defense counsel and objectors that in objecting to fee awards in such cases more is needed than the mere suggestion of a clear sailing agreement or fee reversion, and rather evidence of harm to the class or collusion amongst counsel must be shown to demonstrate that the fee is unreasonable or exorbitant.

July 13, 2025 by Gerald L. Maatman, Jr.

The Ninth Circuit Joins Three Others In Holding Non-Resident Opt-In Plaintiffs In FLSA Collective Actions Must Demonstrate Specific Personal Jurisdiction, Curbing Litigation Risks For Employers Facing Wage And Hour Claims

By Gerald L. Maatman, Jr., Rebecca S. Bjork, and Betty Luu

Duane Morris Takeaways: On July 1, 2025, the U.S. Court of Appeals for the Ninth Circuit issued a decision in a case with major ramifications for employers facing wage and hour claims under the Fair Labor Standards Act. In Harrington v. Cracker Barrel Old Country Store, Inc., Nos. 23-15650, 24-1979 (9th Cir. July 1, 2025), a unanimous panel joined three other Circuits and held that the U.S. Supreme Court’s Decision in Bristol-Myers Squibb Co. v. Superior Court of Cal., 582 U.S. 255 (2017), applies to actions under the FLSA brought in federal court. This means that to achieve nationwide issuance of notice of a collective action under Section 216(b), each opt-in plaintiff must show a sufficient connection to the forum state. The impact will likely be fewer nationwide collective actions, which ultimately may reduce litigation pressure on employers who operate in states within the Ninth Circuit.

Background

Plaintiffs, former and current employes of Cracker Barrel, filed a class action lawsuit in the U.S. District Court for the District of Arizona against Cracker Barrel alleging violations of the Fair Labor and Standards Act (“FLSA”). Id. at 7. Plaintiffs moved for court authorization to send notice of a collective action under the FLSA to “all servers who worked for Cracker Barrel in states where it attempts to take a tip credit . . . over the last three years.” Id. at 7. Cracker Barrel objected on various grounds, including that the district court did not have personal jurisdiction over any of its employees outside of Arizona. Id. at 7. The district court granted the plaintiffs’ motion and ordered the issuance of nationwide notice because “the participation of one Arizona-based plaintiff was all that was needed to secure personal jurisdiction over Cracker Barrel for the collective action.” Id. at 7. Cracker Barrel appealed the district court’s decision to the Ninth Circuit.

The Ninth Circuit Joins The Third, Sixth and Eighth In Requiring Non-Resident Plaintiffs In FLSA Collective Actions To Establish Specific Personal Jurisdiction

The three-judge panel in Harrington unanimously held that where the basis for personal jurisdiction in an FLSA collective action is specific personal jurisdiction, the district court must assess whether each opt-in plaintiff’s claim bears a sufficient connection to the defendant’s activities in the forum state. In the case before them, they concluded that the district court authorized nationwide notice on the mistaken assumption that it would not need to assess specific personal jurisdiction on a claim-by-claim basis. As a result, it vacated and remanded for further proceedings.

In so doing, the Ninth Circuit held that the Supreme Court’s requirement outlined in Bristol-Myers — that non-resident plaintiffs in a mass tort action must establish their own basis for personal jurisdiction — applies in FLSA collective actions.

It therefore adopted the view of three other Circuits (the Third, Sixth, and Eighth) that non-resident plaintiffs must establish their own basis for specific personal jurisdiction in the context of an FLSA collective action. Thus, within the Ninth Circuit, a district court now must determine whether each opt-in plaintiff’s claim bears a sufficient connection to the defendant’s activities in the forum state.

Implications Of The Decision

Harrington v. Cracker Barrel means that in states encompassed within the Ninth Circuit, employers facing wage and hour collective actions will be far less likely to need to worry about the possibility of multi-state or nationwide issuance of notice under Section 216(b) of the FLSA.

This decision has enormously important implications for such employers. If nothing else, the vast geographic territory and population encompassed by the jurisdiction of the Ninth Circuit means that employers now have a powerful pre-certification defense argument to deploy to defend against putative nationwide collective actions, which tend to arise where large populations of potential opt-in plaintiffs are employed. We will follow the case on remand and keep our blog readers apprised as to how plaintiffs’ counsel proceeds in the district court.

July 11, 2025July 11, 2025 by Gerald L. Maatman, Jr.

North Carolina Federal Court Dismisses Data Breach Class Action In Finding Bare Assertions Are Insufficient To Confer Standing

By Gerald L. Maatman, Jr., George J. Schaller, and Bernadette M. Coyle

Duane Morris Takeaways:

On June 30, 2025, in Panighetti, et al. v. Intelligent Business Solutions, Inc., No. 1:23-CV-209, 2025 U.S. Dist. LEXIS 123406 (M.D.N.C. June 30, 2025), Judge Loretta C. Biggs of the U.S. District Court for the Middle District of North Carolina granted Intelligent Business Solution’s (“IBS”) motion to dismiss a data breach class action and found that Plaintiff did not have standing under Article III because he failed to plead a concrete injury. Plaintiff alleged on behalf of himself, and over 11,000 other individuals, that IBS invaded his privacy and negligently failed to protect his personal informal following a data breach in 2022.

The decision in Panighetti shows a growing trend among federal courts finding claims based on future and/or speculative harm in data breach class actions are insufficient – without any concrete instance of personal information being stolen or misused –to establish Article III standing.

Case Background

IBS, a health information company, collects and maintains personal identifiable information and protected health information for healthcare entities. Plaintiff, a hospital patient that IBS provided services for, alleged that his personal information was part of a 2022 data breach. Id. at 1. Plaintiff further alleged the data breach exposed the names, Social Security numbers, medical treatment information, and health insurance information of an estimated 11,595 individuals. Id. at 2.

After IBS became aware of the data breach, it notified impacted individuals. Plaintiff maintained that by issuing this notification, IBS “created a present, continuing, and significant risk of suffering identity theft.” Id. On March 7, 2023, Plaintiff filed suit against IBS, alleging seven causes of action including negligence, invasion of privacy, unjust enrichment, and violation of the North Carolina Unfair Trade Practices Act. Id.

IBS moved to dismiss and asserted Plaintiff lacked Article III standing to bring his claims. IBS argued Plaintiff was “not able to plead facts that show there was actual misuse of data that resulted in identity theft, fraud, or another concrete injury-in-fact.” Id. at 4. Plaintiff countered that he had standing to sue “because the data breach harmed him, will harm him again, and requires him to expend resources mitigating that harm” and that these harms “confer standing” based on Fourth Circuit precedent. Id.

The Court’s Order

The Court granted IBS’s motion to dismiss. The Court held Plaintiff failed to establish standing. The Court reasoned that to proceed with a lawsuit, Article III requires a plaintiff to “demonstrate (1) an injury in fact; (2) causation; and (3) redressability.” Id. at 5 (citing David v. Alphin, 704 F.3d 327, 333 (4th Cir. 2013)).

On the first element, the Court explained that Plaintiff must show he “suffered an invasion of a legally protected interest which is concrete, particularized, and actual or imminent.” Id. Plaintiff argued that he was injured because the breach: “(1) exposed his medical records, thus invading his privacy; (2) exposed information criminals can use to commit fraud and steal his identity; (3) required him to spend resources to mitigate the risk; and (4) caused him to suffer from anxiety, sleep disruption, stress, fear, and frustration.” Id. Relying on Fourth Circuit precedent, the Court rejected Plaintiff’s argument that he was injured because of the data breach because nowhere in the pleadings did Plaintiff claim that he was a victim of identity theft or fraud, that risk of future theft was “certainly impending,” or provide instances of his personal information being exploited. Further, spending resources to mitigate the increased risk caused by the breach, where there was no misuse of data, was too speculative to confer standing.

Turning to Plaintiff’s claims of emotional harm, the Court opined that although the Supreme Court took no position on whether emotional harm confers standing in TransUnion v. Ramirez, Fourth Circuit precedent, in Beck, rejected a Plaintiff’s claims that “emotional upset” and “fear of future identity theft and financial fraud” was sufficient to confer standing. Id. at 8 (quoting Beck v. McDonald, 848 F.3d. 262 (4th Cir. 2017). Accordingly, the Court dismissed Plaintiff’s claims of emotional harm as “bare assertions of possible or potential harm.” Id.

Implications For Companies

Standing remains an effective defense for companies to challenge putative class actions at the responsive pleading stage especially, whereas here, Plaintiff failed to assert facts demonstrating harm stemming from a data breach.

Panighetti shows that data breach plaintiffs cannot rely on speculative injuries based on future harm to satisfy Article III standing requirements. However, companies asserting an Article III standing defense must consider the possibility of a class action plaintiff refiling in state court when determining whether to challenge standing in federal court.

July 11, 2025July 11, 2025 by Gerald L. Maatman, Jr.

Ninth Circuit Affirms Summary Judgment For Defendant On CIPA Claim For Aiding And Abetting Third-Party Software Provider

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

Duane Morris Takeaways: On July 9, 2025, in Gutierrez, et al. v. Converse, Inc., No. 24-4797, 2025 WL 1895315 (9th Cir. July 9, 2025), the Ninth Circuit affirmed that a plaintiff had no evidence from which a reasonable jury could conclude that an online retailer’s use of third-party software to enable a chat feature on its website aided and abetted the third-party vendor in reading or attempting to read the contents of the plaintiff’s chat messages real-time in alleged violation of the California Invasion of Privacy Act (CIPA). In rejecting this theory, the ruling is significant because it shows that CIPA claims involving alleged disclosures of website activities to third-party software providers cannot survive unless the plaintiff can show that the website owner enabled the third party to read unencrypted, real-time communications.

Background

This case is one of a legion of class actions that plaintiffs have filed nationwide alleging that third-party software embedded in defendants’ websites secretly captured plaintiffs’ web-browsing activity and sent it to the third-party provider of the software. Third-party software is a common feature on many websites today and comes in many forms including website advertising technologies (“adtech”), customer relationship management (“CRM”) software, enterprise resource management (“ERP”) software, and, as in this case, communications platforms.

In Gutierrez, Plaintiff brought suit against an online retailer. According to Plaintiff, the retailer installed a chat feature on its public-facing website and thereby transmitted chat communications entered on the website to Salesforce, a third-party provider of the chat feature to the online retailer in the form of “software as a service” (“SaaS”). 2024 WL 3511648, at *2 (C.D. Cal. July 12, 2024).

As usual since the Snowden disclosures in 2013, all of these transmissions between the web user, website, and third-party software provider were “were encrypted while in transit.” Id. at *3. Moreover, as is true for all internet communications, the chats were transmitted “in different network packets.” Id. Thus, the uncontroverted expert evidence showed that “it is ‘virtually impossible’ to learn the contents of an internet communication while it is in transit.” Id.

The online retailer’s chat data, including chat transcripts, were stored on Salesforce’s servers. Id. However, this information was accessible in unencrypted format only through the retailer’s password-protected dashboard. Id. Plaintiff offered no evidence to show that Salesforce had access to the retailer’s dashboard or that the retailer ever provided Salesforce access to it. Id.

Based on these facts, Plaintiff argued that the retailer violated the CIPA by aiding and abetting Salesforce’s wiretapping or attempts to learn her chat communications on the retailer’s website.

The District Court granted the retailer’s motion for summary judgment for multiple reasons. First, the District Court found as a matter of law that Salesforce did not violate CIPA’s first clause prohibiting intentional wiretapping or making any unauthorized connection “with any telegraph or telephone wire, line, cable, or instrument” because “Courts have consistently interpreted this clause as applying only to communications over telephones and not through the internet.” Id. at *6-7.

Second, the District Court found no genuine dispute of material fact existed as to whether Salesforce had violated the second clause of CIPA, Section 631(a), “because Plaintiff has presented no evidence from which a reasonable jury could conclude Salesforce intercepts messages sent through [the retailer]’s chat feature ‘while … in transit’ or reads or attempts to read or learn the contents of such messages.” Id. at *7. As the District Court explained, “uncontroverted evidence establishes messages sent through [the retailer]’s chat feature are encrypted while in transit and, moreover, it is ‘virtually impossible’ to learn the contents of an internet communication while it is in transit because internet communications are transmitted ‘in different network packets[.]’” Further, the District Court stated that “the fact that a user is redirected to a Salesforce-owned URL upon opening the chat feature on [the retailer]’s website does not establish the user’s messages are sent to Salesforce or Salesforce reads or attempts to read or learn the contents of such messages. Rather, this fact simply establishes . . . the user’s messages are transmitted to [the retailer]’s Service Cloud application.” Id. In addition, the District Court explained that “the existence of UUID [Universally Unique Identifier] values attached to chat messages and the mere possibility Salesforce ‘can’ use these values to ‘connect the dots’ between data are insufficient to establish a genuine issue of material fact as to whether Salesforce reads or attempts to read users’ messages while they are in transit.” Id.

Finally, the District Court found that “because Plaintiff has not established an underlying violation of Section 631(a)’s first or second clause by Salesforce, [the retailer] cannot be liable for aiding and abetting Salesforce.”

The Ninth Circuit’s Opinion

The Ninth Circuit agreed with the retailer. It found that summary judgment for the retailer was warranted and affirmed the order below.

In a short opinion, the Ninth Circuit affirmed the District Court’s opinion by finding that “no evidence exists from which a reasonable jury could conclude” that Salesforce engaged in wiretapping or attempted to learn Plaintiff’s chat communications on the retailer’s website and, therefore, absent an underlying violation by Salesforce, no aiding and abetting liability by the retailer. Id., at *1.

Circuit Judge Jay Bybee agreed, filing a separate concurring opinion stating that the wiretapping claim should be affirmed because “the statute, as passed in 1967, focuses on the wiretapping of telegraph or telephone wires—it criminalizes, as relevant here, the wiretapping of a telephone call” and, thus, CIPA’s clause prohibiting wiretapping “does not apply to the internet.” Id. at *2-3. Further, Judge Bybee opined: “Until and unless the California appellate courts tell us otherwise, or the California legislature amends § 631(a), I refuse to apply § 631(a)’s first clause to the internet.” Id. at *3.

Implications For Companies

The District Court’s holding and Ninth Circuit’s affirmance in Gutierrez are a win for CIPA class action defendants and should be instructive for courts around the country. In the hundreds of CIPA class actions alleging a defendant’s disclosure of web-browsing activities to an adtech provider, for example, the plaintiff typically does not allege that the adtech provider has any ability to read any unencrypted version of the information disclosed. This is not surprising, since the largest adtech providers often alleged in CIPA adtech class actions typically encrypt, anonymize, aggregate, and otherwise prevent their own ability to access web users’ browsing activities in any unencrypted format.

Gutierrez shows that adtech plaintiffs will need to show, however, that the owner of the website they visited enabled the third party adtech provider to read unencrypted, real-time communications, in order to prove their CIPA claims.