Class Action Defense – Page 22 – Class Action Defense

July 5, 2023July 5, 2023 by Class Action Defense

New York Federal Court Denies Class Certification In ERISA Lawsuit Involving 8,000 Plans

By Gerald L. Maatman Jr., Jeffrey R. Zohn, and Jesse S. Stavis

Duane Morris Takeaways: On June 27, 2023, Judge J. Paul Oetken of the U.S. District Court for the Southern District of New York denied certification in a putative class action filed under the Employee Retirement Income Security Act (“ERISA”) by a participant in a retirement plan offered by Teachers Insurance and Annuity Association of America (“TIAA”). In Haley v. Teachers Ins. and Annuity Ass’n, No. 17 Civ. 855 (S.D.N.Y. Jun. 27, 2023), the court brought an end to a legal battle that began in 2018 by applying an appellate ruling that held that Rule 23(b)’s predominance requirement obligates courts to consider not only a plaintiff’s allegations, but also a defendant’s affirmative defenses.

The decision is instructive for defendants who are faced with class allegations that purport to target a single policy or practice, but which in fact relate to numerous individual decisions. It should also serve as a reminder that defendants must consider not only the facial validity of a claim, but also the robust defenses available under the ERISA.

Case Background

Melissa Haley, an employee of Washington University in St. Louis, initiated her lawsuit against TIAA in 2018. She sought to represent participants in approximately 8,000 retirement plans that used TIAA’s services to allow members to take out loans against their retirement savings. Haley alleged that TIAA had departed from standard industry practices by retaining interest earned on participants’ collateral as compensation for administering loans. TIAA countered that while the transactions might be facially prohibited under Section 406 of the ERISA, they were permissible because they were covered by several of the defenses provided by Section 408 of the Act. Most significantly, TIAA argued that the transactions were permissible under Section 408(b)(17), which allows a plan to engage in otherwise-prohibited transactions where it pays no more and receives no less than “adequate consideration.”

Judge Oetken initially granted class certification in 2020 under Rule 23(b)(3) in Haley v. Teachers Ins. & Annuity Ass’n of Am., 337 F.R.D. 462 (S.D.N.Y. 2020). However, the Second Circuit vacated the ruling and remanded the case on the grounds that the district court had erred in assessing whether Rule 23’s predominance requirement had been met. See Haley v. Teachers Ins. & Annuity Ass’n of Am., 54 F.4th 115 (2d Cir. 2022). The predominance requirement mandates that plaintiffs demonstrate not only that there are common questions of law or fact in a putative class’ allegations, but also that such questions predominate over questions affecting only individual members. In conducting the predominance analysis, the Second Circuit held that the district court must not only consider a plaintiff’s allegations, but also must analyze a defendant’s defenses. Because the district court had not conducted a predominance analysis with respect to the Section 408(b)(17) defenses, the class certification order could not stand.

Southern District of New York Opinion

On remand, Judge Oetken considered whether both the alleged claims and defenses were “amenable to general, class-wide proof.” Haley, No. 17 Civ. 855, at 4 (citing Langan v. Johnson & Johnson Consumer Cos., 897 F.3d 88, 97 (2d Cir. 2018)). Plaintiff argued that similar issues of law and fact were involved in all of the putative class’ claims, but TIAA countered that evaluating the substantial consideration defense would require the district court to conduct an individualized assessment of how TIAA acted with respect to each of the roughly 8,000 plans involved in the litigation. Judge Oetken ultimately sided with TIAA, holding that “[t]he common issues that Plaintiff identifies as satisfying predominance are insufficient to overcome the individual issues raised by section 408(b)(17).” Id. at 6. Because there were clear differences in fees and plan structures, it would not be possible to arrive at common answers to the decisive question of whether there had been adequate consideration for each transaction.

The district court rejected Plaintiff’s attempt to draw class-wide conclusions from either her own plan’s arrangement or from statistical averages that allegedly showed that plan participants paid an average of 4.66% to receive 1.66% in returns. Allowing the class allegations to proceed based on these averages would constitute an impermissible attempt at “trial by formula,” which the district court held would be prohibited by both Rule 23 and the due process clause. Judge Oetken opined that “[t]he averages are probative of the parameters of the statistical sample, not common traits within it.” Id. at 7. Finally, the district court rejected Plaintiff’s attempt to save the class by dividing it into sub-classes because Plaintiff had failed to raise this argument earlier.

Implications For Defendants

ERISA class actions can be difficult to defend against, as Plaintiffs typically assert that discrete types of alleged plan mismanagement led to common injuries that affected large numbers of participants in similar ways. As a result, ERISA plaintiffs often do not face the same problems in establishing typicality, commonality, and predominance as do plaintiffs in other class actions. Haley is an exception to this rule. Defendant was able to show that the case was not about a single policy, but about numerous individual actions. The decision underscores the importance of probing deeply into a putative class member’s allegations to determine whether they meet the rigorous standards of Rule 23.

In addition, Haley shows just how powerful the affirmative defenses in Section 408 can be. As the district court noted, Section 406 is written so broadly that a plain reading of the section would ban many, if not most, transactions involving service providers like TIAA. However, the broad sweep of Section 406 is explicitly limited by the exemption defenses contained in Section 408. Accordingly, defendants who are accused of violating Section 406 must carefully consider the defenses provided by Section 408 and raise them in a timely fashion.

July 3, 2023 by Class Action Defense

In A Stark Bench-Slap, The Eighth Circuit Affirms An Attorneys’ Fee Award Of $500 For FLSA Collective Action Settlement

By Gerald L. Maatman, Jr., Emilee N. Crowther, and George J. Schaller

Duane Morris Takeaways: In Vines et al. v. Welspun Pipes, Inc., et al.., No. 21-3537, 2023 U.S. App. LEXIS 16425 (8th Cir. June 29, 2023), the Eighth Circuit affirmed a district court’s ruling in approving a settlement of an underlying class and collective action that reduced an attorneys’ fee award to $500. The Eight Circuit determined that the district court did not abuse its discretion when it reduced the fee award on the basis that plaintiffs were not a “prevailing party” on appeal.

For employers facing wage & claims under the Fair Labor Standards Act and state law related wage-claims, this decision is instructive in terms of what reviewing courts will consider for attorney’s fee awards, particularly where a party’s conduct may be considered unprofessional and/or abusive.

Case Background

In the underlying case, Vines I, Anthony Vines and Dominique Lewis (collectively “Plaintiffs”) brought a class and collective action against Defendants, Welspun Pipes Inc., Welspun Tubular LLC, and Welspun USA, Inc. (collectively “Welspun” or “Defendants”), under the Fair Labor Standards Act (“FLSA”) and the Arkansas Minimum Wage Act (AMWA). Id. at 1-2. Ultimately, the district court approved a settlement of the case. Id. at 2.

After approval of the settlement, Plaintiffs’ counsel moved for an award of attorneys’ fees and costs. Id. Plaintiffs sought $96,000 in attorneys’ fees following the $270,000 settlement deal. The district court rejected the request. It found significant that Plaintiffs’ law firm assigned 17 lawyers, plus staffers, to watch the district court deemed a “run-of-the-mill” FLSA case, saying such cases were not intended to be “conduits for funneling unearned fees into lawyers’ pockets.” Id. As a result, the district court partially granted the motion, awarding $1.00 in fees to the plaintiffs because of the billing practices of their law firm, Sanford Law Firm, PLLC (“SLF”). Id. Alternatively, the district court noted that it would award $25,000 in fees if $1.00 was improper. Id. Plaintiffs’ appealed the district court’s decision.

On appeal, the Eighth Circuit “vacated the award of attorneys’ fees,” “[b]ecause the record contained no lodestar calculation.” Id. The Eighth Circuit remanded the case for the “lodestar calculation” and expressly noted the district court had discretion “to consider. . . the party’s unprofessional conduct in the case,” for purposes of reducing any award of attorneys’ fee. Id. at 2.

On remand, the district court calculated a lodestar of $14,056.50. Id. However, relative to the award of attorneys’ fees, the district reduced the award to $500 “based on the SLF’s egregious conduct.” Id. The district court opined that the reduction was proper for “a multitude of reasons” including “SLF’s rejection of a ‘substantial settlement offer,’ ‘an unearned fee demand,’ and ‘deterrence for [SLF’s] unprofessional conduct.’” Id.

In response, Plaintiffs’ moved to amend the judgment and for leave to file a supplemental petition for costs and fees. Id. The district court denied Plaintiffs motion on the grounds that “[Plaintiffs] were not a prevailing party on appeal ‘because there [had] been no definitive ruling on the fees award and all [p]laintiffs’ other claims for relief were unequivocally rejected by the Eighth Circuit.” Id. at 3.

Plaintiffs appealed the attorneys’ fees award a second time. Id. In addition, the Plaintiffs’ counsel argued the district court’s decision was erroneous for: (i) “award[ing] a fee amount … not based on the lodestar calculation”; (ii) “us[ing] the FLSA’s statutory fee award as a vehicle for sanctions”; (iii) “fail[ing] to provide [them] with notice and an opportunity to respond prior to entering sanctions”; and (iv) “f[inding] that [they] were not prevailing parties and refus[ing] to award any fees related to the appeal.” Id.

The Eighth Circuit’s Decision

The Eighth Circuit affirmed the judgment of the district court in the second appeal. It found no abuse of discretion in the district court’s award of $500.00 in attorneys’ fees. Id. The Eighth Circuit held that the district court complied with its directive on calculating the award of attorneys’ fees and lodestar reduction by “provid[ing] ample justification” based on “SLF’s unprofessional conduct.” Id. The Eighth Circuit reasoned that “[t]he trial court knows the case best. It knows what the lawyers have done, and how well they have done it. It knows what these efforts are worth.” Id.

The Eighth Circuit also rejected Plaintiffs’ argument that the district court erred in determining Plaintiffs “[were] not prevailing parties.” Id. The Eighth Circuit acknowledged the FLSA “allow[s] a reasonable attorney’s fee to be paid by the defendant, and costs of the action,” in addition to any judgment to the plaintiff. Id. at 4. But, “[i]n general, if a plaintiff prevails in the district court, but then seeks and fails to obtain greater relief on appeal, he or she ‘will be hard pressed to demonstrate an entitlement to . . . attorney’s fees on appeal.’” Id.

The Eighth Circuit held that Plaintiffs “did not obtain the ‘greater relief on appeal’ that they sought in Vines I and therefore were not prevailing parties. It rejected Plaintiffs’ argument “that the district court erred in denying the March 2020 motion for approval of settlement.” Id. Second, it also rejected Plaintiffs’ request to “reassign the case to a new district judge on remand.” Id.

For these reason, the Eighth Circuit affirmed the judgment of the district court.

Implications For Employers

The ruling of the Eighth Circuit is well worth a read by employers who are often confronted with settlement demands where counsel for employees seek hefty awards of attorneys’ fees far in excess of the value of their clients’ unpaid overtime.

Employers that are confronted with appeals of attorney’s fee awards, should take note that the Eighth Circuit in Vines relied heavily on the district court’s recitations of the procedural facts for its decision. Further, from a practical standpoint, employers should carefully evaluate attorney’s actions for misconduct during wage & hour settlements when an attorney’s fee award is requested.

June 30, 2023 by Class Action Defense

The Class Action Weekly Wire – Episode Nineteen: RICO Class Action Litigation

June 29, 2023 by Class Action Defense

Illinois Federal Court Grants Motion To Compel Arbitration In “Close Call” For Illinois Biometric Privacy Act Claim

By Gerald L. Maatman, Jr., Tyler Z. Zmick, and George J. Schaller

Duane Morris Takeaways: In Kashkeesh v. Microsoft Corp., No. 1:21-CV-03229, 2023 U.S. Dist. LEXIS 109559 (N.D. Ill. Jun. 26, 2023), Judge Manish Shah of the U.S. District Court for the Northern District of Illinois granted Microsoft’s motion to compel arbitration regarding the claims of two Uber rideshare drivers asserting a class action under the Illinois Biometric Information Privacy Act. The Court held that Microsoft could enforce the rideshare contracts as a third-party beneficiary and that Microsoft did not expressly waive its right to arbitrate.

For employers seeking to compel arbitration, especially in lawsuits involving third-party beneficiary situations, this decision is instructive in terms of how courts determine waiver of the right to arbitrate and third-party beneficiaries in agreements with arbitration clauses, particularly where the agreement provides a description of a class to which a party belongs and does not identify the beneficiary by name.

Case Background

Plaintiffs Emad Kashkeesh and Michael Kormorksi (collectively “Plaintiffs”) were drivers for the ridesharing and food delivery company Uber. Id. at 2. In addition to providing other identifying information for Uber as part of their work, Plaintiffs were required to take pictures of their faces through Ubers “Real Time ID Check” software. Id. Uber’s software utilized Microsoft’s Face Application Programming Interface to identify drivers. Id. After Uber drivers, like Plaintiffs, submitted their photographs to Uber’s software program, Microsoft’s software extracted facial biometrics to create geometric templates, and compared these templates with information corresponding to the employees, for identification. Id at 2-3.

Plaintiffs claimed that they never agreed that Microsoft could capture, store, or disseminate their facial biometrics, were never told that Microsoft was gathering their information, and Microsoft never published a policy about the company’s retention and deletion of biometric information. Id. at 3. However, Plaintiffs contracted with Uber to work as rideshare drivers and signed the Company’s 2020 Platform Access Agreement (“Uber Agreement”). Id. Within the Uber Agreement, an arbitration clause required Plaintiffs to arbitrate any dispute between Plaintiffs and Uber, and “any other entity [other than Uber] .. arising out of or related to our application for use of an account to use [Uber’s] Platform and Driver App as a driver.” Id.

In May 2021, Plaintiffs filed a lawsuit alleging Microsoft violated the Illinois Biometric Privacy Act. Id. Microsoft removed the case on June 16, 2021, and filed its own motion to dismiss for lack of personal jurisdiction. Id. Plaintiffs filed a motion to remand two of their claims. Id. Microsoft opposed Plaintiffs motion, but Plaintiffs’ motion was granted, and some of Plaintiffs’ claims remained in federal court with limited jurisdictional discovery conducted. Id. Subsequently, Microsoft’s motion to dismiss was denied on December 13, 2022. Id. at 3-4. On that same day, Uber informed Microsoft for the first time that Plaintiffs agreed to the 2020 Uber Agreement. Id. at *4. In answering Plaintiffs’ complaint, Microsoft asserted that Plaintiffs claims had to be arbitrated. In February 2023, Microsoft filed its motion to compel arbitration. Id.

The Court’s Decision

The Court granted Microsoft’s motion to compel arbitration. In doing so, the Court provided standards on compelling arbitration such that Microsoft was required to show “(1) an agreement to arbitrate, (2) a dispute within the scope of the arbitration agreement, and (3) a refusal by the opposing party to proceed to arbitration.” Id. at 1. Declaring that there was no dispute that the arbitration agreements are valid and enforceable, the Court turned to the following issues: (i) whether Microsoft (a non-signatory) can enforce the contracts as a third-party beneficiary, and (ii) whether Microsoft waived its right to compel arbitration. Id.

On the third party beneficiary status, the Court noted the strong presumption against “conferring contractual benefits on non-contracting third parties.” It reasoned that this presumption could be defeated if “the contract strongly suggest[s] that it applies to third parties – so strongly as to be practically an express declaration.” Id. at 5. Further, the Court opined that “to create a third-party beneficiary, the contract must have been made for the direct benefit of the third party, an intention which ‘must be shown by express provision in the contract identifying the third party beneficiary by name or by description of a class to which the party belongs.’” Id. Additionally, the third party bears the burden of showing the parties to the contract intended to confer a direct benefit. Id.

The Court determined that Microsoft was identifiable as a third party beneficiary “by description of a class to which the party belongs,” because Microsoft was “an entity,” and engaged in a dispute with Plaintiffs “arising out of or related to Plaintiffs use of an account to use [Uber’s] Platform and Driver App as a driver.” Id. The Court disagreed with Plaintiffs’ argument that this “entity” class was not defined specifically enough. Id. at *6. The Court also rejected Plaintiffs’ contention that the Uber Agreement limited any arbitration claims to Uber, its agents, and employees because the agreement included an address for Uber where plaintiffs could demand arbitration in writing. Id. The Court held “the agreement in this case also expressly identifies third parties for whom no contact information was provided, so including contact information for an entity is not a conclusive sign of the parties intent to confer third-party beneficiary status.” Id. at 7. Therefore, the description of the class at issue showed the agreement applied to third parties, including Microsoft, and the parties intended to confer a direct benefit on Microsoft, so Microsoft could enforce the Uber Agreement. Id.

As to waiver, the Court reasoned the right to arbitrate a dispute can be expressly or implicitly waived. Id. However, based on the circumstance here, the Court ruled that there was no evidence that Microsoft expressly gave up its right to arbitrate with these Plaintiffs. Id. Instead, the Court analyzed whether Microsoft implicitly waived its right to arbitrate by considering the totality of the circumstances and whether Microsoft acted inconsistently with arbitration. Id. at 8. The Court considered Microsoft’s diligence in seeking arbitration and whether Microsoft participated in litigation, substantially delayed its request for arbitration, participated in discovery, and whether Plaintiffs were prejudiced by the delay in seeking arbitration. Id.

Microsoft argued that “a party can only be found to have given up its right to arbitrate if it had actual knowledge of that right. Id. at 9. The Court disagreed based on the notion that a party could implicitly waive or forfeit the right to arbitrate by failing to adequately investigate the possibility of arbitration. Id. Indeed, the Court stated “a reckless indifference to a right to arbitrate and the use of judicial dispute resolution instead is a strong sign that a party wasted time, and should not be allowed to invoke the right that it could have asserted sooner.” Id. at 9. Looking to the chronology of the case, the Court reasoned that Microsoft demonstrated a lengthy delay in waiting to mention arbitration until January 2023 when its initial removal of the case to federal court occurred in June 2021. Id..

The Court also did not find Microsoft’s arguments persuasive that it could not have done more to figure out whether Plaintiffs agreed to arbitrate. Id. at 10. In part, the Court looked to the sophistication of both Microsoft and Uber, as well as, the diligence in communications between the two companies. Id. The Court determined that “Microsoft’s lack of diligence, removal, and (limited) participation in litigation [were] all inconsistent with arbitration.” Id. at 11. Additionally, the ruling on Microsoft’s motion to dismiss made factual findings that may be relevant to Microsoft’s defenses and Microsoft’s delay in seeking arbitration had led to some “limited prejudice to [P]laintiffs.” Id. Even still, the Court recognized “while invoking judicial process presumptively waives a right to arbitration, that presumption can be rebutted in abnormal cases” and it considered this case to be “one of them.” Id.

In sum, the Court noted that Microsoft could have been more diligent in identifying its right to arbitrate this dispute and Microsoft’s participation in litigation was not merit-based, so while the case was “a close call,” the Court held that “the context here does not demonstrate an untimely assertion of a right amounting to forfeiture.” Id. at 14. Therefore, the Court granted Microsoft’s motion to compel arbitration.

Implications For Employers

Employers that are confronted with litigation involving arbitration claims and beneficiary classifications should take note that the Court in Kashkeesh relied heavily on the description conferring benefits to Microsoft and that Microsoft’s actions demonstrating it waived its right to arbitrate was a “close call” for the Court. Further, from a practical standpoint, employers should carefully evaluate any entered agreements with other parties that contain arbitration clauses to ensure it is properly conferred a benefit to arbitrate.

June 25, 2023 by Class Action Defense

U.S. Supreme Court Orders Automatic Stays Of District Court Proceedings When Parties Appeal Denials Of Motions To Compel Arbitration

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

Duane Morris Takeaways: On June 23, 2023, the U.S. Supreme Court issued a 5-4 ruling that is welcome news to parties seeking to enforce arbitration agreements. In Coinbase, Inc. v. Bielski, No. 22-105 (U.S. June 23, 2023), the Supreme Court decided that district courts must stay all proceedings after denying a motion to compel arbitration once the moving party appeals the denial. Such appeals are allowed on an interlocutory basis under the Federal Arbitration Act (FAA), but the FAA is silent as to a stay pending appeal. This ruling is significant because parties seeking to resolve claims in arbitration will no longer be required to litigate whether the district court should stay its consideration of the case until their appeal is decided. They also will be spared proceeding with discovery and motion practice in the district court while their appeal of the denial of arbitration is pending. As the majority explained in its opinion, this will further the purposes of arbitration (efficiency, less expense, and less intrusive discovery), save scarce judicial resources, and reduce pressure on defendants to settle.

Case Background

Abraham Bielski brought a class action lawsuit in the U.S. District Court for the Northern District of California against Coinbase, Inc., a company that operates an online platform where users buy and sell cryptocurrencies as well as government-issued currencies. Slip Op. at 1. Coinbase’s User Agreement contained a provision requiring binding arbitration of any disputes arising from use of the platform. Id. As a result, Coinbase moved to compel arbitration, but the district court denied its motion. Id. at 1-2. Coinbase filed an appeal to the Ninth Circuit under 9 U.S.C. § 16(a), the FAA’s provision that allows interlocutory appeals of denials of such motions. Id. at 2. At the same time – as is customary – Coinbase moved the district court to stay proceedings pending the Ninth Circuit’s decision on the arbitrability of the dispute between itself and Bielski. Id. The district court denied the motion, so Coinbase had to expend even more resources asking the Ninth Circuit to order a stay of the district court’s proceedings. That motion, too, was denied, based on Ninth Circuit precedent holding that a denial of a motion to compel arbitration does not automatically stay proceedings. Id. (citing Britton v. Co-op Banking Group., 916 F.2d 1045, 1412 (9th Cir. 1990). The U.S. Supreme Court granted certiorari to resolve a split between the circuit courts on the issue, citing Bradford-Scott Data Corp. v. Physician Computer Network, Inc., 128 F.3d 504, 506 (7th Cir. 1997), among other circuit court decisions contrary to the Ninth Circuit’s rule.

The Supreme Court’s Decision

Justice Kavanaugh authored the majority opinion, which was joined by Chief Justice Roberts and Justices Alito, Gorsuch and Barrett. The question presented was “whether the district court must stay its pre-trial and trial proceedings while the interlocutory appeal is ongoing.” Slip Op. at 1. In explaining its answer, which is “yes,” the majority first pointed to the section of the FAA that allows interlocutory appeals where motions to compel arbitration are denied by federal district courts, noting that it is “a rare statutory exception to the usual rule” precluding appeals before final judgment. Id. at 1, 3. The Congress did not include any language in § 16(a) of the FAA relating to stays during the interlocutory appeal process. However, the majority placed the enactment of that section within “a clear background principle prescribed by this Court’s precedents” – namely, that an appeal “divests the district court of its control over those aspects of the case involved in the appeal.” Id. (citing Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982). Indeed, Justice Kavanaugh traced that principle all the way back to a Supreme Court decision issued in 1883 entitled Hovey v. McDonald, 109 U.S. 150, 157 (1883).

The majority bluntly stated that “[t]he Griggs principle resolves this case.” Id. at 3. Relying on “common practice” and common sense, they note that leading treatises on litigation in federal courts consider issuing stays pending interlocutory appeals of denials of arbitration to be “the sounder approach” and desirable. Id. at 4-5. The Supreme Court reasoned that it makes sense that “absent an automatic stay of district court proceedings, Congress’s decision in § 16(a) to afford a right to an interlocutory appeal would be largely nullified.” Id. at 5.

Beyond this reasoning, the majority also noted the purposes of arbitration and explained that automatic stays will preserve those objectives of efficiency, reduced litigation cost, and reduced discovery burdens on the parties. Id. at 6. Defendants in class actions in particular are subject to immense pressure to settle cases where arbitration motions are denied, presenting a “potential for coercion . . . where the possibility of colossal liability can lead to what [are] called ‘blackmail settlements.’” Id. at 6.

The majority also noted that allowing a case to proceed simultaneously in district court and the court of appeals leads to a distinct possibility that scarce judicial resources will be wasted if, for example, the parties litigate a dispute in the district court, only for the court of appeals to reverse and order that very same dispute to binding arbitration. Id.

Implications for Employers

As any employer knows who has been sued by a named plaintiff in a class action despite that plaintiff having signed an arbitration agreement with a class action waiver, the Supreme Court’s decision in Coinbase is a very welcome development. With potentially thousands of absent class members’ claims at issue, a district court’s denial of an employer’s motion to enforce its arbitration agreement can be an earth-shattering development. In addition, employers with nationwide operations now have a single, uniform rule that applies to this situation, bringing certainty to the law and one common rule in each and every circuit court. The Supreme Court’s decision is, therefore, a highly significant development in the law regarding arbitration.

June 23, 2023 by Class Action Defense

The Class Action Weekly Wire – Episode Eighteen: Procedural Issues In Class Action Litigation

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and associate Hari Kumar with their analysis of procedural class action issues and rulings from 2022, and predictions for what 2023 may bring for Corporate America. We hope you enjoy the episode.

June 16, 2023 by Class Action Defense

Illinois Federal Court Dissolves 41-Year Old Consent Decrees That Successfully Quelled The Influence Of Organized Crime In The Management Of Pension Funds

By Gerald L. Maatman, Jr. and Jeffrey R. Zohn

Duane Morris Takeaways: On June 9, 2023, Judge Thomas Durkin of the U.S. District Court for the Northern District of Illinois terminated consolidated cases from the late 1970’s and early 1980’s that sought to thwart Defendants’ efforts to continue to funnel pension funds to organized crime. The litigation – entitled U.S. Department of Labor v. Estate of Fitzsimmons et al., Case Nos. 78 C 00342, 78 C 04075 & 82 C 07951, 2023 WL 3916304 (N.D. Ill. Jun. 9, 2023) – is one of the oldest pending cases in the American judicial system. The first chapter of these cases concluded in 1982 and 1985, respectively, when the Northern District of Illinois entered two separate Consent Decrees that subjected the funds to Court-appointed monitoring. The final chapter recently concluded – 41 years later – when Judge Durkin dissolved those Consent Decrees over objections from the Department of Labor (“DOL”). Although the language of the Consent Decrees did not explicitly give the Court the right to dissolve both Consent Decrees in this manner, the Court relied on the broad power granted to it under the Federal Rules of Civil Procedure, which allows it to relieve parties from final judgment if the continued application of the judgment is no longer equitable.

Case Background

More than 40 years ago, the DOL filed suit against Frank Fitzsimmons, Loran Robbins, Allen Dorfman – all of whom have since passed away – and several others alleging that the trustees of the Central States, Southeast and Southwest Areas Pension Fund (the “Pension Fund”) and Health & Welfare Fund (the “Health & Welfare Fund”) had mismanaged assets by providing loans to organized crime. The U.S. District Court for the Northern District of Illinois entered multiple Consent Decrees, which appointed fiduciaries to manage the assets of those Funds. The Consent Decrees have been in place since 1982 and 1985, respectively.

The Court noted that since then, not once has the DOL found that the Funds have violated the Consent Decrees or any other applicable laws. Judge Durkin opined that “[s]uch a record is almost incredible, given that it has been 41 years since the [first] Consent Decree was entered.” Id. at 4. In fact, a government investigation revealed that the Funds were actually outperforming comparable funds. Further, in 2022, the Pension Fund applied for and received $35.8 billion in Special Financial Assistance, as part of the American Rescue Plan Act of 2021.

On April 4, 2023, the Court-appointed Independent Special Counsel (“ISC”) for the Consent Decrees recommended dissolution of the Consent Decrees because they have fully achieved their objectives. The Funds neither advocated for or opposed dissolution. The DOL opposed dissolution so that it could monitor the influx of new money.

The Court’s Opinion

Judge Durkin determined that the relevant language in the Pension Fund Consent Decree permitted the Court to dissolve the Consent Decree if the Pension Fund makes such a petition. The relevant language in the Health & Welfare Fund Consent Decree permitted the Court to dissolve the Consent Decree sua sponte or upon petition from the Health & Welfare Fund. Here, only the ISC petitioned the Court for dissolution. The ISC has no authority under the Consent Decrees and only the Health & Welfare Fund Consent Decree permits the Court to act sua sponte.

Although the Funds took no position on the dissolution of the Consent Decrees, the Court held that it still has equitable power to dissolve the Consent Decrees. In quoting Rule 60(b)(5), the Court explained that it may relieve a party from final judgment if the judgment “has been satisfied, released, or discharged, . . . or applying it prospectively is no longer equitable.” Id. at 2. It reasoned that the Court “may modify a decree of injunctive relief if the legal or factual circumstances have changed since the time of issuance.” Id. Consent decrees, in particular, are “not intended to operate in perpetuity.” Id.

In support of its decision to dissolve the Consent Decrees, the Court noted that the circumstances have changed since the issuance of the Consent Decrees. Their purposes have long since been achieved. There is no longer a credible threat of the Funds being used as a front for organized crime, which was the original purpose of the Consent Decrees.

The Court recognized the DOL’s desire to continue supervising the Funds in light of the $38.5 billion the Pension Fund recently received, noting that the disposition of billions of dollars in taxpayer money is cause for heightened concern. However, this new money is unrelated to the purpose of the Consent Decrees. The DOL and other government agencies still have other avenues to supervise the Funds, such as through the ERISA and the American Rescue Plan Act.

Implications For Employers

The Fitzsimmons ruling is a stark reminder of the potential power of Federal Courts and government. This ruling illustrates both the staying power of an order entered by a District Court judge decades ago and the power to supersede such an order despite the plain language of the original order indicating otherwise. Moreover, the fact that the DOL would not agree to relinquish the power the Court granted it over 40 years ago is another reminder of the importance of handling pension funds appropriately. A finding of mismanagement may enable cumbersome government oversight for an untold period of time.

June 16, 2023June 16, 2023 by Class Action Defense

The Class Action Weekly Wire – Episode Seventeen: The Illinois BIPA: Fingerprints, Facial Recognition, And The Future Of Privacy Litigation

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jennifer Riley and Alex Karasik with their analysis of privacy class action trends and rulings from 2022, and predictions for what 2023 may bring for Corporate America given key developments in the BIPA class action litigation landscape so far this year. We hope you enjoy the episode.

Episode Transcript

Jennifer Riley: Welcome listeners, thank you for joining us for the latest edition of the Class Action Weekly Wire. We’re here this week to talk about privacy class actions and I’m joined by my colleague Alex Karasik. Alex can you tell our listeners how this area of privacy class actions has evolved over the last few years?

Alex Karasik: Thanks, Jen. Well, the BIPA statute was relatively dormant since it became law in 2008, and since then the number of BIPA class actions has exploded. In addition, if other states start enacting similar statutes regarding biometric privacy we think there will be a similar uptick in class actions for those states throughout the country, so this is definitely an emerging area of law.

Jennifer: The plaintiffs’ class action bar has sought to capitalize in this area on ambiguous statutory provisions, plus slow to develop compliance programs, coupled with stiff statutory penalties and fee shifting, to really leverage some sizable settlements in this area.

Alex: And adding to this minefield, lots of states are considering similar copycat statutes which can make it difficult for employers if you have operations in two different states that have two different laws, plus there’s been some grumblings of a potential federal statute – while none of those have come to fruition yet it’s something that they should definitely pay attention for.

Jennifer: Let’s turn to some of the key rulings in this area both this year and in 2022. Alex, what are some of the key rulings that come to mind?

Alex: In February 2023, the Illinois Supreme Court issued two long-awaited rulings that will undoubtedly shape the BIPA landscape. In Tims, et al. v. Black Horse Carriers, the Illinois Supreme Court held that a five-year statute of limitation applies to the BIPA. The statute itself doesn’t have an express limitations, so some advocates were arguing that a one-year or two-year statute of limitations should apply, but this ruling undoubtedly increases exposure for BIPA cases. In addition the Illinois Supreme Court held in Cothron, et al. v. White Castle that each individual scan is a violation of the BIPA – as opposed to being a per person basis – so once again, if multiple employees are scanning in and out of a factory or office each day, each scan being a violation will again substantially increase potential damages in this space.

Jennifer: Thanks, Alex – what kind of impact do you think these rulings are apt to have on future privacy class action litigation?

Alex: That’s an excellent question, Jen. I think that these rulings are going to increase the plaintiffs’ bar appetite knowing that there’s substantial damages to be had in this space, but at the same time one has to wonder – if it’s a per scan, each violation – plus a five-year statute of limitation – with damages now creeping into the millions and billions of dollars, is it even going to be feasible for plaintiffs to recover on a per scan basis? So that’s something to keep in mind, as I doubt plaintiffs’ counsel will want to litigate these cases in bankruptcy court against businesses. It’ll also be interesting to see the different defenses that an employer or company might offer when defending one of these cases in terms of the constitutionality of such damages, so it remains to be seen how these new goal posts that have been set by the Illinois Supreme Court in February of 2023 will impact both how these cases are tried and resolved, but there’s definitely going to be some big changes on the forefront.

Jennifer: Wow, no wonder this area has really exploded over the past year. Are there any other impactful or interesting rulings that come to mind from 2022-2023?

Alex: Absolutely, Jen. The first BIPA jury trial occurred in 2022 in the fall, and that left a huge impression in this space. In that case, Rogers, et al. v. BNSF Railway, approximately 45,000 truckers sued a railway company in terms of BIPA violations. There the jury found there were approximately 45,600 discrete violations of the BIPA, and at that point, after entering judgment, the damages were $228 million dollars – that’s a lot of money, and the jury there didn’t sympathize with the employer’s arguments, and awarded the full willful damages available under the statute. So I think that for businesses and employers that are thinking about trying one of these cases in front of a jury pool in Chicago or potentially beyond – there’s a lot of risk there.

Jennifer: Thanks, Alex – that is some serious money awarded by the jury in that case. We’ll be sure to keep our listeners up to date on happenings in that matter. Are there any other important rulings that our listeners should know about?

Alex: Yeah, absolutely Jen, there are some cases that come to mind that are trying new novel approaches to the BIPA statute. First, in Wilks, et al. v. Brainshark, this case involved the facial recognition in recording of presentations. In the traditional BIPA context, especially in the early years when these class actions first started to get filed, it would predominantly involve allegations of thumbprint or fingerprint scanning, but I think you’re starting to see more in the facial recognition space. Jen, were there any rulings from 2022 that you found interesting?

Jennifer: Thanks, Alex – one that comes to mind immediately is a ruling called Kukovec, et al. v. The Estée Lauder Companies, Inc. That was an interesting ruling because it involved try-on technology. The plaintiffs brought suit against The Estée Lauder Companies alleging that their try-on tool collected or captured facial geometry, and that the defendants had failed to get users consent and failed to inform users regarding the collection and the retention of such data. The defendant in that case moved to dismiss on various grounds.

First, the defendant moved to dismiss on the ground that the court lacked personal jurisdiction – this is an interesting argument because the defendant said the tool was available to Illinois consumers, but more as a passive tool that was available and therefore there wasn’t this purposeful availment of the jurisdiction. The court disagreed and said that the try-on tool was part of the defendant’s marketing and sales strategy, and that the consumers actually had the option to use buttons, to add products to the cart, to send products as gifts through the website, so it was sufficient for personal jurisdiction – and the court noted that the defendant’s argument took an overly narrow view.

Secondly, the defendant argued that venue was improper because there was an arbitration agreement. This is interesting as well because the defendant claimed that the arbitration agreement was part of the terms of use for its web page, but the court disagreed and said that the plaintiff lacked constructive knowledge or there was a lack of evidence that the plaintiff had constructive knowledge of the arbitration agreement, and therefore a lack of evidence the plaintiff accepted those terms.

Third, the defendant sought to dismiss the complaint on the grounds that the plaintiff had alleged only conclusory statements and had failed to allege facts and support of allegations that biometric information was actually collected. The court disagreed and found the pleading sufficient to meet the pleading standards, and that the plaintiff had alleged enough to infer that the defendant had captured biometric information. However, the court ruled that since recklessness and intentionality requires a specific state of mind, that the plaintiff had failed to allege facts in support of those claims, and the court ran a dismissal of those.

Finally, the defendant contended that because the plaintiff had not used the websites of four other brands that also utilize the virtual try-on tool, that the plaintiff lacks standing to represent a class of consumers as to those websites. The court said that argument was premature because the plaintiff had not actually moved to certify a class yet. So that is an interesting ruling, and I think as the popularity of try on tools and technologies continues to grow, we’re going to see more lawsuits attacking similar products and similar technologies fueling or helping to fuel that growth in the biometric data privacy front.

Alex: Wow, that’s a great example Jen, and I can imagine that in the Renaissance Era of e-commerce, virtual try-on tools become more and more popular as people seek to purchase goods and retail products online and we’re going to see a lot more of those from the plaintiffs’ bar in the near future.

Jennifer: How about top settlements, Alex, was the plaintiffs’ bar able to capture big dollars for plaintiffs in privacy class actions over the past year?

Alex: Oh yeah – there’s been a lot of big money dollars in BIPA settlements! There’s a Google settlement for $100 million and a TikTok settlement for $92 million that lead the way, and in fact over the whole tenure of the BIPA statute there’s been over a billion dollars recovered under this law, so it’s absolutely worth a lot of money to employers and businesses – and I think these eye-popping numbers alone should be reason to convince companies of the potential financial risk of not complying with the BIPA.

Jennifer: Thanks, Alex. I think one of our key takeaways here is that it’s very important for companies and corporate counsel to implement policies and procedures that fully comply with the BIPA and other state and federal privacy regulations and statutes. Companies should implement proper safeguards, they should implement consent processes for the collection and retention of biometric data – particularly with respect to Illinois consumers – and in other states either with or considering similar legislation. Companies should also take heed of how they notify users and obtain their consent before collection of biometric information.

Alex: Thank you Jen for your time today, and thank you to our listeners for paying attention to our BIPA and privacy presentation. This is obviously a rapidly emerging area of law that absolutely will continue to evolve day by day in the near future.

Jennifer: Thank you Alex, thank you for joining us and thank you to our listeners for viewing another episode of the Class Action Weekly Wire – we’ll see you next week.

Alex: See you soon!

June 15, 2023 by Class Action Defense

New York Federal Court Finds Employer’s Unlawful Written Policy Provides A Basis For Conditional Certification

By Gerald L. Maatman, Jr., Maria Caceres-Boneau, and Gregory Slotnick

Duane Morris Takeaways: In Carabajo v. APCO Insulation Co Inc., Case No. 22-CV-04175 (E.D.N.Y. June 9, 2023), Magistrate Judge Sanket J. Bulsara of the U.S. District Court for the Eastern District of New York granted Plaintiffs’ motion for conditional certification and found an employer’s enforcement of a written policy, unlawful on its face, was evidence enough to secure a conditional certification of a collective action under the Fair Labor Standards Act, despite questions of fact concerning supporting declarations. The ruling is a warning and reminder to employers, especially those in the Second Circuit, that a written policy on its own may support conditional certification where enforcement of the policy would violate the law on its face.

Case Background

On July 15, 2022, Miguel Carabajo (“Carabajo”), a former insulation prep and installer working at APCO Insulation (“APCO”), a building insulation and construction company in New York City, filed a class and collective action claiming APCO and its president (“Defendants”) violated the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”) by failing to pay him and others similarly situated overtime pay for weekly hours worked over 40, unlawfully deducting 30 minutes per day for meal breaks they did not actually take, and requiring them to come into work 15 minutes early before they could clock-in. On December 8, 2022, Carabajo moved for conditional certification of a collective action under the FLSA consisting of all current and former employees employed by APCO as non-exempt laborers or similarly situated employees between July 15, 2016 and December 8, 2022. Carabajo filed a declaration in support of his motion, and APCO filed a brief and declarations in opposition.

The Court’s Ruling

As detailed in the Court’s ruling of June 9, 2023, the Magistrate Judge found Carabajo met his burden to show that while employed by APCO and its owner, he and others similarly situated were subject to a policy running afoul of the FLSA per se from at least March 2019 forward: “the practice of not paying for all hours worked (including overtime) when workers failed to clock in and out correctly.” Id. at 4. In support of its conclusion, the Court pointed to APCO’s written policy notifying Carabajo and other laborers they would not be paid for a day’s work if they did not clock-in or clock-out properly. The Court also found support in APCO’s Employee Agreement, which stated that if laborers fail to punch-in when they get to a job site, or fail to punch-out when they leave the job site, they “will not be paid.” Id. The Magistrate Judge found it significant that APCO did not dispute the existence and application of the policy to Carabajo and other similarly situated laborers.

The Court faulted Defendants for attempting to “skirt liability” under the FLSA by justifying implementation of their unlawful policy in a number of ways, such as stating the policy was necessary to convey to workers the importance of clocking-in and out each day and that overtime and breaks will be compensated, except if there is a failure to correctly log their time. Defendants did not contest that their employees worked overtime and did not unequivocally state the policy was not enforced or deductions were not taken under its application. The Court explained that if an employee believed the policy to be lawful and was docked pay for improperly clocking-in or out, the employee would mistakenly believe they were paid correctly; however, they would still have a FLSA claim, be entitled to such docked pay, and the policy would still be illegal on its face.

Carabajo claimed Defendants enforced the policy against him and other similarly situated workers, that he did not receive payment for at least 8 overtime hours a month as a result, and that discussions with other workers revealed Defendants failed to pay them for all the days they worked.

The Magistrate Judge found that resolution of the merits of Defendants’ denials and contradictory declarations in response to Carabajo’s motion was inappropriate at the conditional certification stage of a lawsuit, and that the only pertinent question was whether Carabajo satisfied the required modest factual showing there was an illegal policy that applied to him and others. The Court ruled in the affirmative and determined that Defendants’ written policy was illegal on its face and that Defendants applied it to Carabajo and others similarly situated. The Magistrate Judge also held that the existence of the illegal written policy rendered much of the parties’ briefing and arguments irrelevant. The Court noted even if Defendants could prove Carabajo never spoke with other employees about the issues, the policy alone was sufficient to warrant conditional certification because it was illegal on its face and applied to all employees.

Although the Court granted the motion for conditional certification in part, the Court agreed with Defendants that the scope of the collective action that Carabajo sought to conditionally certify was overbroad. Since Carabajo alleged he only worked as a mechanical engineer and had not shown that other workers to whom he had spoken worked in a different position, notice to “all non-exempt employees at APCO” was not appropriate. Id. at 10. The Court limited the collective action to non-exempt mechanical insulators or individuals who had the same job duties as Carabajo since he had only demonstrated enforcement of the illegal written policy as to those individuals. The Magistrate Judge also reduced the six-year notice period sought by Carabajo to three years, differentiating between the appropriate statute of limitations periods under the NYLL and the applicable FLSA.

Implications Of The Decision

The Carabajo decision is a stern reminder that employers must always analyze their internal wage and hour policies for potentially widespread compliance issues based on enforcement. While APCO’s written policy of not paying wages to employees for days on which they did not properly clock-in or clock-out was on its face improper, the ruling is an example of a Court using such an implemented per se unlawful policy as the sole basis to grant conditional certification of an FLSA collective action regardless of factual concerns based on plaintiff-supplied declarations and allegations. As a result, and in light of the minimal burden district courts in the Second Circuit require plaintiffs meet to satisfy the first step of conditional certification, employers are reminded of the need to consult with experienced wage and hour counsel well in advance of enforcing internal policies. It also bears noting that under the law, employers must pay employees for all of their hours worked, regardless of timekeeping issues and employees incorrectly punching-in or out.

June 9, 2023 by Class Action Defense

New York Federal Court Denies Lead Plaintiff Status In Securities Fraud Class Action Based On A Loss Of $323.20

By James J. Coster and Nelson Stewart

Duane Morris Takeways: The U.S. District Court for the Eastern District of New York recently declined to reverse a Magistrate Judge’s denial of a motion seeking to appoint two investors as lead plaintiffs, and their attorneys as class counsel, in a securities fraud class action where the combined losses alleged by the two investors totaled just $323.20. In Guo v. Tyson Foods, Inc., et al, 1:21-CV-00552 (E.D.N.Y. June 1, 2023), putative class members alleged Tyson Foods, Inc. had misled investors about the adequacy of its Covid-19 safety measures, which resulted in a decline of the company’s share price when the misleading information was publicly disclosed. Magistrate Judge James R. Cho found that the movants’ losses were not sufficient to demonstrate an interest in the outcome of the litigation that would ensure compliance with the vigorous advocacy requirements of Rule 23 of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). In denying the motion on Rule 72 review, District Judge Anne M. Donnelly held that the decision was comprehensive, and not “clearly erroneous” or “contrary to law,” as required by the highly deferential standard of review for non-dispositive motions under Rule 72(a). The Court’s refusal to reverse the decision illustrates that a mere prima facie showing of certain damages may not be sufficient to satisfy the adequacy requirements of the PSLRA.

Background

Plaintiff Mingxue Guo filed a putative class action against Tyson asserting violations of the Securities Exchange Act of 1934. The complaint alleged that Tyson and certain officers and directors of the company had failed to disclose the financial implications of its purportedly inadequate Covid-19 safety protocols in publicly filed documents to the SEC between March 13, 2020 and November 16, 2020. On December 15, 2020, the Comptroller of New York City called on the SEC to investigate Tyson and its alleged failure to implement proper safety protocols. Tyson’s share price dropped 2.5%, or $1.78, per share on December 15, 2020.

Tyson investors Chen Porat and Keagan Marcus filed a motion that sought their appointment as lead plaintiffs, and approval of their attorneys as class counsel. Porat alleged losses in the amount of $156.25 and Marcus allegedly incurred losses of $166.95. None of the parties had identified a class member that suffered a greater financial loss and no other member of the class had filed a competing motion for appointment as lead Plaintiff within the required time frame. Porat and Marcus argued that courts typically approve lead Plaintiffs with losses similar to, or less than, the losses they incurred. As discussed in Judge Cho’s decision, a purported class member seeking appointment as lead Plaintiff in a securities class action must meet the typicality and adequacy requirements under Rule 23 of the PSLRA. Porat and Marcus were found to have met the typicality requirement because both parties asserted claims that were based on the same facts concerning the alleged misrepresentations as other class members during the same period. With respect to the adequacy requirement, however, they had not established that they would fairly and adequately protect the interests of the class. Judge Cho held that the PSLRA requires lead Plaintiffs to have a significant financial interest in a class action to avoid Plaintiffs from simply acting as an instrument of counsel, who may have recruited them for that purpose. This requirement incentivizes the lead Plaintiff to monitor and control the litigation in a fashion that will best serve the interests of all the class members. Because Porat and Marcus lacked a significant financial interest in the outcome of the litigation, the Court opined that they failed to satisfy the requirements of the PSLRA and their motion was denied. The ruling concluded that that the case should proceed on an individual basis.

The Court’s Decision

In denying the Rule 72 objections to reverse Magistrate Judge Cho’s decision, Judge Donnelly noted that the deferential standard of review for non-dispositive motions under Rule 72(a) created a heavy burden for a party seeking reversal. The decision of a Magistrate Judge denying or approving a lead Plaintiff is non-dispositive. Thus, a movant must demonstrate that the Magistrate Judge’s decision denying appointment of proposed lead Plaintiff was “clearly erroneous” or “contrary to law,” and the Court found that Porat and Marcus had not met that burden. Porat and Marcus had argued that Magistrate Judge Cho’s ruling was erroneous because it would preclude small class actions by appointing only lead Plaintiffs who had suffered a large loss, thereby creating a loss requirement that does not exist under the PSLRA. They further argued that a small loss should not preclude a prima facie showing of adequacy.

Judge Donnelly held that the lack of a specific minimum loss requirement in the PSLRA does not alter the broad discretion the statute grants to the courts in determining the adequacy of a lead Plaintiff. Judge Donnelly opined that the Magistrate Judge’s decision was comprehensive and in accordance with the exacting requirements of the PSLRA. The Court determined that the necessity of a significant financial interest advanced the historical purpose of the PSLRA, and the decision was in line with a number of prior case law authorities that denied motions of proposed lead Plaintiffs on similar grounds.

Key Takeaways

The existence of some measure of damages may not be sufficient to meet the adequacy requirements of the PSLRA unless a proposed lead Plaintiff can demonstrate an interest that will incentivize forceful advocacy on behalf of the entire class. Clearly, damages of $323 is not enough. The decision in Guo indicates that proving adequacy will often necessitate a substantial financial stake in a litigation to serve the restrictive purposes of the PSLRA. Class members who seek appointment as lead Plaintiff without the requisite financial interest will also face a very narrow standard of review if their motion is denied.