Duane Morris Takeaways: 2023 was a busy year for the Duane Morris Class Action Defense blog – it just recorded its 200th post of the year!!!!
Since our kick-off post, our data analytics show there have been over 34,000 views to blog posts, with thousands of our loyal subscribers reading about class action litigation developments. There are many highlights from this year’s posts, but we wanted to provide just a few for you here. Click on the links below to see all the hot trends in class action litigation!
Overview Of The 200 Posts In 2023
We launched the first edition of the Duane Morris Class Action Review, which is a one-of-its-kind publication analyzing class action trends, decisions, and settlements in all areas impacting Corporate America. The Review has been prominently featured in the media and is a must-have for all human resources professionals, business leaders, and corporate counsel.
We will be publishing the 2024 Edition of the Review in January.
Thank you loyal followers for making the Class Action Defense blog your pick for class action litigation related information, trends, and analysis. We truly appreciate it! Please keep coming back, we promise to keep the content fresh!
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Christian Palacios with their discussion of what is believed to be the first summary judgment ruling for a certified class under the Illinois BIPA. The Illinois trial court’s decision in this case underscores the danger that companies face under state privacy “strict liability” statutes.
Jerry Maatman: Thank you for being here, our loyal blog listeners. Welcome to this week’s edition of the Class Action Weekly Wire. I’m Jerry Maatman, a partner at Duane Morris, and I’m joined today by my colleague, Christian Palacios. Thank you for being on the podcast today.
Christian Palacios: Thanks, Jerry. I’m really happy to be here
Jerry: Today we’re talking about BIPA ruling – the Illinois Biometric Information Privacy Act, in a case called Thompson, et al. v. Matcor Metal Fabrication (Illinois), Inc., something that we blogged about – a very important opinion. Christian, can you give our listeners kind of an overview of why this case is significant and one they ought to take notice of?
Christian: Absolutely, Jerry. In September of 2019, Matcor Fabrication rolled out a new timekeeping policy, whereby it collected employees, fingerprints using “biometric scanners” for the purposes of determining when employees clocked in and out of work. The scanners that collected this information were connected to Matcor’s timekeeping vendor – ADP – and the company sent finger scan data to ADP every time an employee scanned their fingertips. The plaintiff and class representative, William Thompson, subsequently brought a lawsuit in May of 2020, alleging the company’s timekeeping policy violated the Illinois BIPA. Nearly one year after the lawsuit had commenced, Matcor implemented BIPA-compliant policies, which included distributing a “Biometric Consent Form” outlining Matcor’s policies collecting, retaining, and destroying employee data.
Jerry: Thanks. Now, in this case the plaintiffs early on in the litigation filed a motion for class certification, which was granted. Then there was class-wide discovery, and, as I understand, the record dueling motions, or cross motions for summary judgment were filed, both by the plaintiff on behalf of the class and the defendant. Both in essence saying there was no material issue of fact and liability was either established, if you believe the plaintiff – or there was no liability, if you believe the papers of the defendant. What did the trial court do in ruling upon those cross motions?
Christian: So the court held that there was no dispute of material facts that Matcor’s timekeeping policies during the class-wide time period violated the BIPA. In its ruling, the court dismissed a series of defenses offered by the company, including that in order for the BIPA to apply, Matcor’s timeclocks needed to “collect” and store its employees’ fingerprints, rather than just transmit it to a third-party vendor. The court was unconvinced with this argument. It opined that the BIPA also applied when timeclocks collected biometric information “based on” a fingerprint. Matcor further argued that there was a difference between the “fingertip” scans that it took and the “fingerprint” scans covered by the BIPA, but it was unable to cite authority that showed any meaningful difference between the two. Finally, Matcor argued that the court needed “expert testimony” to assess the type of information the company’s time clocks collected. The court rejected this contention. It observed that collecting employees’ fingertip information clearly fell under the BIPA’s definition of biometric information.
Based on the facts, the court determined that it was undisputed that Matcor began using biometric timeclocks to collect employees’ fingerprints in 2019, and the company didn’t implement a BIPA-compliant policy until one year after the plaintiff commenced his suit. The record also clearly shows that Matcor failed to obtain its employees consent before collecting their fingerprints, and only obtained BIPA releases two years after the suit was initiated. Accordingly, the court granted the plaintiff’s motion for summary judgment and the lawsuit will now proceed to the damages stage.
Jerry: It’s a pretty devastating ruling insofar as basically, there’s no question right now other than damages. And at least in my experience, that’s a very high-stakes maneuver to file a motion for summary judgment on a class-wide basis. And so you can kind of count on one hand the number of times that a plaintiff or defendant ever wins summary judgment when it involves all issues in a case with respect to liability on a class-wide basis. It does show the devastating nature of a failure of compliance by an employer with the requirements of BIPA and kind of is a call to other employers to make sure that they have their employment law house in order to take care of these things.
Christian: Exactly, Jerry. Although Illinois was one of the early adopters of such a stringent privacy laws, it’s certainly not going to be the last, and companies should take preventative measures to limit liability associated with such privacy statutes.
Jerry: Well, thanks so much, Christian, for devoting your thought leadership in this area, great having you on the show and having you part of the podcast. And to our loyal blog listeners, have a happy holiday season!
Christian: Thanks for having me, Jerry. Happy holidays to you and all your listeners.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jerry Maatman and Alex Karasik with their discussion of the American Tort Reform Association’s 2023-2024 Judicial Hellholes Report and what it signifies for corporate defendants in the coming year.
Jerry Maatman: Thank you for being here. I’m Jerry Maatman of Duane Morris, and welcome to our regular weekly Friday podcast, the Class Action Weekly Wire. I’m joined by my partner, Alex Karasik, who’s going to talk about the recent American Tort Reform Association Judicial Hellholes report.
Alex Karasik: Thank you, Jerry. Very happy to be here.
Jerry: Alex, we followed this report over the last decade. It’s always published in the second week of December, and it’s purpose is to identify jurisdictions, venues where corporate defendants have a difficult time defending themselves, either due to liberal judges, liberal discovery or class certification rules, or juries that tend to favor plaintiffs over defendants. What did you find interesting with this year’s Judicial Hellholes report?
Alex: Great question, Jerry. This is the first year ever that the ATRA ranked two jurisdictions at the top of the list, Georgia and Pennsylvania, and these are two very interesting states, and that major corporations do business in both of these states quite frequently. In fact, most major corporations in America have some sort of operation in each.
In Pennsylvania, the Pennsylvania Supreme Court and the Philadelphia Court of Common Pleas have proven to be two of the most challenging courts for defendants. In 2022, the Supreme Court of Pennsylvania eliminated the state’s venue rule for medical liability litigation which opened up the flood gates for personal injury lawyers to file medical liability claims in courts that they view as favorable. Pennsylvania also demonstrated there’s some eyebrow raising gigantic verdicts to plaintiffs, including a billion dollar reward against Mitsubishi in a product liability case. There have also been some problematic punitive damages rulings which can again lead to the plaintiffs’ counsel filing more and more in these courts. So Pennsylvania is definitely one of the eye popping states, especially being at the top of this list.
Georgia, which is the defending champion from 2022 report, made this list largely in part due to its massive $1.7 billion punitive damages award in a products liability case containing ethically questionable events and alleged bias court orders. The report noted that not much has changed in Georgia in 2023, and the courts are awarding massive verdicts and issuing liability expanding decisions left and right. So for employers who have business operations in Pennsylvania and Georgia, even though they might not traditionally think of these as bad courts to be in they definitely need to be paying attention to the huge verdicts that are coming out of those locales.
Jerry: I thought the inclusion of Georgia and Pennsylvania were quite interesting. Obviously, in our class action practice those are known as two epicenters where plaintiffs’ lawyers are apt to file cases, and most corporate defendants are doing business in those major jurisdictions. I know, Alex, that you practice on a nationwide basis and tend to go to those epicenters. What were some of the other jurisdictions that rounded out the top 10 this year in the ATRA’s Judicial Hellholes report?
Alex: The first noticeable jurisdiction that I saw on there was right here in our home turf Jerry, in Cook County, Illinois, in Chicago. You and I and our team routinely practices in biometric privacy defense actions here in cases brought under the Illinois Biometric Information Privacy Act, or the BIPA. and a few years ago, after the Illinois Supreme Court issued a ruling about no injury being required to proceed with these lawsuits and saying technical violations are enough. The plaintiffs’ bar has been particularly zealous in pursuing these BIPA class actions, and Cook County seems to be the home of those cases.
#3: Beyond Cook County and beyond Illinois, predictably California is on this list. California is a regular on this report. In California of course, the Private Attorneys General Act, or PAGA, litigation has resulted in a huge flow of lawsuits against employers. Also Prop 65 lawsuits, and just the overall volume of cases in California, including environmental and ESG cases, are also noteworthy. It’s not a surprise that it’s on this list.
#4: Another state that we routinely see on this list is New York. Most recently New York has some no injury consumer class action lawsuits and some massive verdicts that have caught the attention of the ATRA.
#5: South Carolina, which has had a robust asbestos litigation docket.
#6: Lansing, Michigan, particularly due to liability expanding decisions by the Michigan Supreme Court and some pro-plaintiff rulings out there.
#7: Louisiana – lots of insurance claim fraud litigation as well as some coastal litigation there. Louisiana is another one to keep an eye on.
#8: St. Louis, Missouri. Some interesting verdicts coming out there, including verdicts in the nuclear energy space.
So lots of different courts around the country as we see this and even some landlocked states in the middle of the country. So it’s very interesting to see where these courts are emerging as tough places for employers to be.
Jerry: I’ve always thought that class action litigation is a little bit like real estate – location, location, location is everything – and this report confirms anecdotal information that plaintiffs’ bar seeks favorable jurisdictions in areas where judges, juries, or the case laws aligned to make their cases certification friendly.
The American Tort Reform Association also characterized several jurisdictions as what it calls being on a ‘watch list.’ Are there some other jurisdictions that corporate counsel should be aware of and look to in 2024 as sometimes being problematic in terms of where the plaintiffs’ bar files more cases?
Alex: Yeah, Jerry, one of the new jurisdictions on the watch list that I thought was particularly surprising is Kentucky. The ATRA noted that Kentucky, which is again a newcomer to this list, had some issues with lawyers resorting to unique measures to secure wins, and the mention of Kentucky on here is somewhat of a surprise given that it’s not the typical courts we see – such as California and New York. New Jersey has a powerful trial bar, and New Jersey is increasingly becoming a place where employers need to pay attention if they get sued there, and even Texas, which is, you know, oftentimes thought to be an employer-friendly jurisdiction courts within Texas. But now the Court of Appeals in the Fifth District and the ATRA has opined that certain other courts in Texas are starting to become more pro-plaintiff, more product liability in more expansion of verdicts there. So we’re keeping an eye on Texas too, even though it typically tends to be an employer-friendly state for various state and federal jurisdictions.
But despite the gloom and doom, there are some jurisdictions that are improving according to the ATRA, are at least improving in terms of the prospects of employers being able to succeed in these places. For example, the New Hampshire and Delaware Supreme Courts rejected some no injury medical monitoring claims. So that’s a positive development for defendants there. The New Jersey appellate court in particular also had a notable case of discarding and proper expert testimony.
And I know we mentioned Texas had some other courts leading pro claim, if but the Texas Supreme Court rejected claims involving the manipulation of juries. So I think there’s certainly some hope in those places. And finally, the West Virginia Supreme Court recently placed reasonable limits on employer liability. So while a lot of the courts that are on this annual report are mainstays, there are a few new ones that are kind of catching our eye, but there’s also a few that are seemingly becoming a little bit more friendly for employers and defendants to defend cases in. So, as you mentioned Jerry, location, location, location and the keys to these locations ebbs and flows depending on various factors within those courts.
Jerry: Well, thank you Alex for your thoughts and analysis in this area. I definitely believe the report is a required read and an essential desk reference for corporate counsel and knowing the playing field where you’re sued, your judge, the case law – critical components to crafting essential defense strategies to defeat and defend these large cases. Well, thank you very much for joining us on this week’s Class Action Weekly Wire.
Alex: Thank you, Jerry. It was a pleasure to be here and thank you to all of our listeners. Stay tuned!
By Gerald L. Maatman, Jr., Alex W. Karasik, and Christian J. Palacios
Duane Morris Takeaways: In Thompson, et al., v. Matcor Metal Fabrication (Illinois), Inc., Case No. 2020-CH-00132 (Ill. Cir. Ct. 10th Dist. Dec. 8, 2023), a class of metal fabricators prevailed on a motion for summary judgment against their employer in what is believed to be the first summary judgment ruling for a certified class under the Illinois Biometric Information Privacy Act (BIPA). An Illinois state court, determining there was no dispute of material fact, entered the pre-trial liability judgment against the defendant employer for collecting employee biometric data through its timekeeping system in violation of BIPA.
This decision highlights the danger that companies face under state privacy “strict liability” statutes, and should serve as a warning for employers that lack robust policies governing the way they collect biometrics data from their employees.
Background
In September of 2019, Matcor Fabrication rolled out a new timekeeping policy whereby it collected its employees’ fingerprints using “biometric scanners” for the purposes of determining when employees clocked in and out of work. Id. at 3. The scanners that collected this information were connected to Matcor’s timekeeping vendor – ADP – and the company sent finger-scan data to ADP every time an employee scanner their fingertips. The named Plaintiff and class representative William Thompson subsequently brought the lawsuit in May of 2020, alleging the company’s timekeeping policy violated the Illinois BIPA. Nearly one year after the lawsuit had commenced, Matcor implemented BIPA-compliant policies, which included distributing a “Biometric Consent Form” to employees that stated that the company’s vendors “may collect, retain, and use biometric data for the purposes of verifying employee identity and recording time” as well as describing Matcor’s policies for retaining and destroying employee data. Id. at 4. The Court previously had certified a class of Matcor employees who enrolled in the company’s finger-scan timekeeping system between May 13, 2015 and June 16, 2021, prior to the policy update. After a lengthy discovery period, both parties filed motions for summary judgement.
The Court’s Ruling
The Court held that there was no genuine dispute of material fact that Matcor’s timekeeping policies during the class-wide time period violated the BIPA. In its ruling, the Court dismissed a series of defenses offered by the company, including that in order for the BIPA to apply, Matcor’s timeclocks needed to “collect” and store its employees’ fingerprints, rather than just transmit it to a third-party vendor. The Court was unconvinced. It opined that the BIPA also applied when timeclocks collected biometric information “based on” a fingerprint. Id. at 7. Matcor further argued that there was a difference between the “fingertip” scans it took and the “fingerprint” scans covered by the BIPA, but it was unable to cite authority that showed a meaningful difference between the two. Finally, Matcor argued that the Court needed “expert testimony” to assess the type of information the company’s timeclocks collected. The Court rejected this contention. It observed that collecting employee’s fingertip information clearly fell under the BIPA’s definition of biometric information.
Based on the facts, the Court determined that it was undisputed that Matcor began using biometric timeclocks to collect employee’s fingerprints in 2019, and the company did not implement a BIPA-compliant policy until one year after the Plaintiff commenced his suit. The record also clearly showed that Matcor failed to obtain its employees consent before collecting their fingerprints, and only obtained BIPA releases 2 years after the suit was initiated. Accordingly, the Court granted the Plaintiff’s motion for summary judgement and the lawsuit will now proceed to the damages stage.
Implications
As this ruling emphasizes, employers can be held strictly liable for any period of time in which they collect their employees’ biometric data without having a corresponding BIPA-compliant policy. State privacy statutes like the BIPA pose unique dangers for unwary employers who do not keep up-to-date with evolving legal requirements relating to the collection, retention, and use of biometric data. Although Illinois was one of the first early adopters of such stringent privacy laws, it will certainly not be the last, and companies should begin taking preventative measures to limit liability associated with such statutes.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Tyler Zmick with their discussion of an Illinois Supreme Court ruling that is welcome news for BIPA defendants and companies operating in the health care space.
Jerry Maatman: Thank you loyal blog readers and listeners, welcome to this week’s installment of the Class Action. Weekly Wire. Joining me today is my colleague, Tyler Zmick, here at Duane Morris.
Tyler Zmick: Thanks, Jerry. Great to be here.
Jerry: Today we’re discussing the most recent decision of the Illinois Supreme Court in Mosby v. Ingalls Memorial Hospital, a decision by the high court regarding exemptions under the BIPA statute – which is the source of so much class action litigation here in Illinois. Tyler, you’re one of the foremost thought leaders in this particular space – what’s your read on this particular decision?
Tyler: Sure, well I think it’s a significant and rare defendant-friendly ruling. And this exception at issue in the case could be potentially pretty broad and could be a basis for defendants to assert viable defenses in cases that are sort of less obviously involving or related to healthcare than this specific Mosby case.
But with respect to this case that went before the Illinois Supreme Court – the plaintiffs were nurses, and the hospitals they worked at required them to use a fingerprint-based medication dispensing system. So basically, the nurses had to scan their fingerprints to verify their identities, and the system would then give them access to controlled medicines which the nurses would then give to their patients. So, the plaintiffs sued the hospitals they worked for, in addition to the company that sold the medication dispensing device, and they alleged that all the defendants violated the BIPA by using the device to collect their biometric finger scan data without complying with the BIPA statute’s notice and consent requirements.
In the trial court, the defendants moved to dismiss, and they did so on the basis that the claims failed because plaintiff’s’ data was excluded from the scope of the BIPA. And specifically § 10 of the statute states that “biometric identifiers do not include information captured from a patient in the health care setting or information collected for healthcare treatment, payment, or operations under HIPAA.” And, as we all know, HIPAA is the federal health privacy statute that applies in many circumstances, and is often cross-referenced in state statutes. So defendants argued that the latter clause regarding HIPAA applied, and that plaintiffs’ fingerprints had been used so that the nurses could provide medicine to treatments, meaning the fingerprints were collected for healthcare treatment under HIPAA, but the trial court denied the motions to dismiss, which led to the appeal – first the Appellate Court, and then to the Illinois Supreme Court.
Jerry: I thought that the trial court’s disposition of the exemption, as well as the discussion by the Illinois Appellate Court regarding the either narrow or broadness of that particular exemption, was very interesting. I know, in handling these sorts of cases, plaintiffs always argue that exemptions to liability should be construed very narrowly. But it seems like in this particular case, the Illinois Supreme Court ruled in a very practical and straightforward way. With respect to the exemption, what did you find interesting between the trial court, Appellate Court, and Supreme Court’s treatment of the exemption?
Tyler: That’s a good question. I think primarily the Appellate Court’s reading of the healthcare exception in the BIPA statute was less based on the plain language of the statute, and as we know, the first rule of statutory interpretation is, go with the plain language of the statute, and read every word, so nothing is superfluous. And that is what the Illinois Supreme Court did here, and also interestingly, what one of the three appellate court justices did – specifically Appellate Court Justice Mikva thought that the exception should be applied more broadly in the way the Illinois Supreme Court did end up interpreting it.
Jerry: I went to law school with Justice Mikva, a good friend and very well respected in the bar. Did you think that the dissent in terms of its interpretation, somewhat carried the day and swayed the Illinois Supreme Court in terms of the result that we saw here from the high court?
Tyler: Yes, absolutely. I mean in pretty much every respect the Illinois Supreme Court agreed with Justice Mikva’s dissent. The high court unanimously held that as Justice Mikva opined that the BIPA’s exclusion for information collected for healthcare treatment, payment, or operations under HIPAA can apply to the biometric data of healthcare workers, and not only patients. And obviously here we have plaintiffs that were nurses and thus healthcare workers.
Going to the specific analysis that was adopted by the Supreme Court and Appellate Court’s justice, the high court determined that the relevant sentence of § 10 excludes from the definition of biometric identifier data that may be collected in 2 separate and distinct scenarios rather than overlapping scenarios. Specifically, biometric identifiers do not include (i) information captured from a patient in a healthcare setting or (ii) information collected, used, or stored for healthcare treatment, payment, or operations under HIPAA. And the Supreme Court again agreed with defendants that the two categories are different, because the information excluded under the first clause originates only from the patient, whereas information excluded under the second clause may originate really from any source. And regarding that second HIPAA clause, the Supreme Court observed that the Illinois Legislature borrowed the phrase ‘healthcare treatment, payment, and operations’ from the federal HIPAA regulations, and it’s important to note that the federal HIPAA regulations in turn provide relatively broad definitions for those terms. So it remains to be seen just how broad the BIPA’s healthcare exception will be when applied in other future BIPA cases.
Jerry: Well, it seems to me this is a gem of a ruling, and one that defendants – both in and outside of the healthcare industry – should put in their toolbox as an additional line of defense to oppose efforts to certify classes or for plaintiffs’ lawyers prosecuting BIPA cases. So thank you very much for your analysis, Tyler, and for being our guest on this week’s Class Action Weekly Wire.
Duane Morris Takeaways: A California Superior Court recently granted class certification relative to a class of hundreds of employees against a group of dispensary defendants where the Plaintiffs presented sufficient evidence that the off-the-clock work claims, meal and rest period claims, and reimbursement of necessary business expenses claims predominated over individual inquiries and were typical of the class. The Court did not rule on the merits of the integrated enterprise, alter ego, or joint employer arguments, nor did the Court agree with the Defendant’s arguments that the claims were not typical because the Plaintiffs were not employed by each Defendant. Nonetheless, the ruling is important for employers in general and cannabis dispensaries in particular.
Case Background and the Court’s Ruling
A group of dispensary and retail store employees at four different dispensaries owned by different entities asserted that they should be treated as a single enterprise. The Plaintiffs moved to certify a class of all current and former non-exempt, hourly employees of the Defendants from January 13, 2017 through the present. The Plaintiffs alleged that the putative class members were expected to work off-the-clock in order to set up their timekeeping program and their payroll program as well as review materials on the timekeeping program, before clocking-in on their personal cell phone. The Plaintiffs additionally contended that the Defendants failed to provide meal and rest periods, timely pay all wages on termination, or provide accurate itemized wage statements. The Plaintiffs also argued that because the four Defendants should be considered a single enterprise, they failed to comply with the higher minimum wage found in the City of Los Angeles Minimum Wage Ordinance.
The Court granted the Plaintiffs’ motion for class certification. The Court noted that the Plaintiffs’ arguments regarding the Defendants being an integrated enterprise could be established by common proof. At the class certification stage, the Court determined that the Defendants’ arguments went to the merits of the Plaintiffs’ claims and did not compel denial of the Plaintiffs’ motion. The Court found that each of the Plaintiffs’ class claims were subject to common proof, that the Plaintiffs’ injuries were typical of the class, and that the Plaintiffs and their counsel were adequate to serve as class representative and class counsel. Importantly, the Court reached this conclusion despite Defendants’ introduction of compliant policies and procedures relating to these wage & hour claims.
Key Takeaways
There are thousands of state-licensed cannabis operators in California, a state known for its ubiquitious wage & hour litigation, and thousands more across the 38 states in the US that have legalized cannabis for medical and/or adult-use purposes. As the cannabis industry continues to mature and evolve, wage & hour class actions are likely to become more frequent in the cannabis industry, just as they have grown in other industries. It is crucial that employers ensure that they follow federal and state wage & hour laws and provide their employees with complaint policies and procedures. Arbitration agreements with class waivers also should be provided to each employee in states where applicable. This becomes even more crucial in the cannabis space, where brands are expanding due to a high volume of M&A transactions and market consolidation. Cannabis companies should continue to be cognizant of the strict wage & hour regulations in their states as the industry continues to grow.
By Gerald L. Maatman, Jr. and Christian J. Palacios
Duane Morris Takeaways: U.S. Magistrate Judge Joseph Marutollo’s recent report and recommendation – a novel order in the context of class action settlements – in the proceeding captioned In Re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, Case No. 1:05-MD-01720, Doc. No. 9009 (E.D.N.Y. Nov. 28, 2023), highlights the risks associated with class action claims websites and the potential for bad actors to create fraudulent web pages to mislead claimants. Corporate defendants should take care to monitor online activity following the creation of a court-authorized settlement website in order to protect any class-wide settlement and claimants against potential fraudsters. Indeed, in a world where scammers are becoming increasingly more sophisticated through the use of technology, class action settlement websites may be the next frontier in the battle against cybercrime.
Background
After 15 years of contentious litigation, Visa and MasterCard settled a putative class action for $5.6 billion to resolve allegations that the credit card companies violated federal and state antitrust laws resulting in over 12 million merchants allegedly paying excessive fees to Visa and MasterCard. As is typical in class actions of this size, a court-authorized settlement website was created to accept claim submissions and provide claimants with details regarding the settlement agreement.
On November 28, 2023, Magistrate Judge Marutollo recommended that the Court order the website “settlement2023.org” (and any affiliate website) be taken down, as the operators of the Settlement2023.org entity, who remain unknown, were attempting to deceive putative class members into using the site through various schemes, including using fake voicemails from rap artist Snoop Dogg to convince users of its validity. According to Magistrate Judge Marutollo’s report, although the scam website ceased operation on November 21, 2023, it was unclear if other webpages remained open under different domain names that were also operated by the Settlement2023.org entity.
The Magistrate Judge’s Recommendation And Report
In addition to recommending the Court issue an order to take down of any and all remaining webpages that attempt to mimic the court-authorized settlement website, Magistrate Judge Marutollo also recommended that the owners and operators of the Settlement2023.org entity be required to identify themselves, and provide a list of all class members that signed up for its services, as well as give notice to would-be customers that any contract they entered into with the entity was now void. Finally, the Magistrate Judge requested that the Court be notified of any newly-detected websites and recommended that the court-authorized website be updated to alert those who may have been deceived by the settlement2023.org website.
Implications
Cybercriminals continue to capitalize on advances in technology to launch misinformation campaigns, and large class action settlements are in the cross-hairs of this emerging threat. Therefore, it is imperative that plaintiff and defendant-side representatives alike remain vigilant to protect class members from deception and safeguard the integrity of the class action settlement process.
U.S. And U.K. Cybersecurity Agencies Announce International Agreement Addressing AI Safety
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsel Brandon Spurlock with their discussion of the latest developments on the regulatory front of artificial intelligence.
Jerry Maatman: Hello, loyal blog readers! Welcome to the Class Action Weekly Wire. Today our guest is my colleague, Brandon Spurlock.
Brandon Spurlock: Hey Jerry, it’s great to be here. Thanks.
Jerry: Today, we’re talking about the most recent developments on a global basis for regulatory endeavors insofar as artificial intelligence is concerned. I know that, Brandon, you’re a thought leader in that space, so wanted to get your feedback on what corporations should know about the global move towards regulation of artificial intelligence.
Brandon: Absolutely, Jerry. Well, this agreement was unveiled to the public just this past weekend – November 26 to be exact. It’s titled “Guidelines for Secure AI System Development.” This initiative was led by the U.K.’s National Cyber Security Centre, and it was developed in conjunction with the U.S.’ Cybersecurity and Infrastructure Security Agency. These guidelines focus on how to keep artificial intelligence safe from rogue actors. The U.S., Britain, Germany, are among 18 countries that signed on to the new guidelines laid out in this 20-page document. Now, this is a non-binding agreement that lays out general recommendations, such as monitoring AI systems for abuse, elevating data protection and vetting software suppliers. One thing to note is that the framework does not address the challenging questions around data sources for AI models or appropriate use of AI tools.
Jerry: Well it certainly seems to be a milestone on the road to regulation of AI from a comparative standpoint. Where is the United States when it comes to regulation of artificial intelligence, as compared to other countries or major jurisdictions?
Brandon: Really good question, Jerry. Many countries are putting their resources together, as well as independently positioning themselves to demonstrate leadership when it comes to embracing AI – while also cautioning its security, privacy, and market risk. So countries like France, Germany, Italy – they recently reached an agreement on how artificial intelligence regulations should be structured around “mandatory self-regulation through codes of conduct.” So what does this mean? It’s focused on how these AI systems are designed to produce a broad range of outputs. The European Commission, the European Parliament, and the EU Council are negotiating how the bloc should position itself on this particular topic.
Even last month, when we examined President Biden’s executive order on artificial intelligence, that publication from the White House further provides businesses with the in-depth roadmap of how the U.S. federal government’s regulatory goals regarding AI are developing.
Jerry: The evolution of artificial intelligence is certainly uppermost in the mind of most corporate counsel, and its impact on litigation – and in particular, the class action world – is real and palpable and with us. So thank you for your thoughts and analysis, Brandon, and we’ll see you next week on the Class Action Weekly Wire.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsel Eden Anderson with their discussion of a PAGA case currently before the California Supreme Court weighing whether trial courts have inherent authority to ensure that PAGA claims will be manageable at trial, and to strike or narrow such claims if they cannot be managed appropriately.
Jerry Maatman: Thank you for being here, loyal blog readers, in our next installment of the Class Action Weekly wire. I’m very excited to join my colleague, Eden Anderson, who is on the show today to talk about new California developments.
Eden Anderson: Thanks, Jerry. I’m very happy to be here.
Jerry: Great. A significant decision in the PAGA area was argued this past month in the California Supreme Court. And I know you’re following all things PAGA and all things arbitration on behalf of employers, and are very much in the forefront of thought leadership in this area. Could you tell our audience a bit about the case and what it means?
Eden: Yes, the Estrada, et al v. Royalty Carpet Mills case. There the plaintiff Jorge Estrada filed a putative class and PAGA action against his former employer asserting meal period violations under California law. The employer manufactured carpets and had employees working at a number of different locations and a number of different positions. The court initially certified two classes of workers from two different production facilities – 157 employees in total – and the claims were tried to the bench. The judge ultimately to decertified one of the two classes. The judge found there were too many individualized issues to support class treatment for that group, and as to the PAGA claim for that group, the judge deemed it not manageable, and dismissed it. Mr. Estrada appealed, and he argued that PAGA claims have no manageability requirement, and the Court of Appeal agreed with him; it reasoned that class action requirements don’t apply to PAGA actions, and therefore the manageability requirement that is rooted in class action procedure does not apply. And at the same time the Court of Appeal acknowledged that the difficulty that employers face, and trial courts as well with PAGA claims involving hundreds or thousands of employees, but it concluded that dismissal for lack of manageability just isn’t a tool that trial courts can utilize.
Jerry: I know there are a range of approaches that trial courts and appellate courts have undertaken when it comes to managing or adjudicating a PAGA action. Is there a split in authority that the California Supreme Court is going to be debating and looking at in terms of its ultimate ruling?
Eden: Yes, that’s correct. The holding in Estrada is contrary to the holding in Wesson v. Staples, where the trial court struck a PAGA claim as unmanageable, and the Court of Appeal affirmed. The claims at issue in Wesson involved the alleged misclassification of 345 store managers. The employer’s exemption affirmative defense turned on individualized issues as to each manager’s performance of exempt versus non-exempt tasks, which varied based on a number of factors including store size, sales volume, staffing levels, labor budgets, store hours, customer traffic, all of which varied across the stores. The split in authority prompted the California Supreme Court to grant review in Estrada, but not Wesson. The Court of Appeal there determined that they had properly been dismissed for lack of manageability.
Jerry: I know the case was argued on November 8, and the stakes are quite high. It’s a vexing area for employers. It’s a challenging area for judges and lawyers. What were your takeaways from the oral argument, and what employers ought to know about the issues that were argued over that day before the California Supreme Court?
Eden: Overall, it was an uplifting oral argument for employers, which, as you know, can be a little bit unusual out here. On the downside, several justices, including justices Liu and Jenkins, express some skepticism about whether a trial court’s inherent powers allow it to outright strike or dismiss an entire PAGA action for lack of manageability. Justice Liu commented that permitting trial courts such wide-ranging power could shortchange the PAGA statute, unless there’s an overriding constitutional interest. On that point several justices acknowledged that an employer has a due process right to present evidence to support its affirmative defenses, and that in certain cases that evidence might require a series of mini trials over a period of years and wholly consume a trial court’s resources. Justice Kruger asked questions of Estrada’s counsel about the impracticability of requiring trial courts to consume years of time and resources in that manner. Justice Groban also expressed concern about a PAGA case, for example, where you have multiple labor code violations alleged, hundreds or even thousands of employees at issue, different work sites, different types of employees ranging from janitors to accountants, and he asked why, in such a case a trial court could not just limit the case to the accountants only, and other justices raised similar concerns. Chief Justice Guerrero asked Estrada’s counsel why the answer shouldn’t just be that trial courts have this broad discretion and that it’s just something that’s going to be subject to appellate review.
Jerry: It’s often said that California is the toughest venue in the United States to be an employer and litigate cases in courtrooms there. I suspect the answer is a little more nuanced, since every case is different. But given your expertise in this area and your thought leadership, do you have any prognostications for employers as to the outcome of the Estrada case and the California Supreme Court?
Eden: Yeah, given the constellation of comments from the justices, the court may hold that trial courts have an inherent authority to protect an employer’s due process rights, and that such power necessarily encompasses the right to gauge the manageability of PAGA claims, and to narrow them down as to whether that authority includes outright dismissal of an entire PAGA case. Employers are going to have to wait and see – a decision has to issue within 90 days, so we will soon know the answer.
Jerry: Well, in following the dockets of filings in all the states as we do, I think the number one case being filed these days by the plaintiffs’ bar are PAGA representative actions. So this particular decision certainly has the potential to be a game changer in the landscape of legal liability, especially in California. Well, thank you so much, Eden, and thank you to our loyal blog listeners for another edition and participation in our Class Action Weekly Wire.
Eden: Thank you for having me, Jerry, and thank you listeners.
By Gerald L. Maatman, Jr., Katelynn Gray, and Gregory S. Slotnick
Duane Morris Takeaways: Lack of adequacy of the named plaintiff in a class action can result in the denial of Rule 23 class certification in appropriate circumstances. In Cheng, et al. v. HSBC Bank USA, N.A., No. 20-CV-01551, 2023 U.S. Dist. LEXIS 161453 (E.D.N.Y. Sept. 12, 2023), the plaintiff filed a class action against the defendant alleging breach of contract and violation of § 349 of the New York General Business Law. The plaintiff filed a motion for class certification pursuant to Rule 23, and the court denied the motion on the basis of the bank’s strong defense to the plaintiff’s individual claims, which was was likely to impede the claims of other class members – even though the class members were not subject to the same defense. Employers in New York defending Rule 23 class actions should carefully consider the court’s reasoning and finding that plaintiff was an inadequate representative of his sought-after class. As shown in Cheng, potential defenses to a named plaintiff’s individual claims may be sufficient to defeat class certification.
Case Background
In Cheng, the plaintiff asserted that defendant HSBC Bank USA, N.A. (“HSBC” or “the bank”) failed to apply interest to plaintiff’s bank savings account deposits in a timely manner. After the plaintiff made a deposit with the bank on May 31, 2019, he alleged HSBC did not apply any interest on the account until June 4, 2019, four days after the deposit. Plaintiff claimed the bank also delayed applying interest on another deposit made on November 26, 2019 until November 29, 2019. In November and December 2019, the plaintiff made phone calls to HSBC to address the alleged delays in crediting interest to his deposits. Id. at *2. The bank responded that its policy was to not credit interest on account deposits until 3 to 5 business days after they were made. In the 2019 phone calls, the plaintiff indicated that he understood interest could not accrue until the bank had his “money on hand,” and that his concern was that the bank was failing to post the funds and initiate interest accrual upon receipt of those funds, despite the fact that it already had the “money on hand.” Id. at *3. In one of the 2019 phone calls, when a bank representative explained that plaintiff should have received an email indicating his deposit needed to pass through a clearing process before HSBC could post it to his account (and presumably, begin interest accrual), plaintiff responded, “I don’t care about the email…I look at when is my money withdraw[n] from other bank, when is the money posted to my HSBC account, okay? Don’t tell me HSBC takes five days to post the money after you receive it.” Id. at *4.
In plaintiff’s lawsuit, brought on behalf of himself and a prospective class of customers, plaintiff claimed HSBC was obligated to credit interest to his account on the day he initiated the deposit or transfer, rather than when the bank actually received the money. Plaintiff contended the class consisted of at least 100 members and the amount in controversy exceeded $5 million. Id. at *5. At his deposition, plaintiff attempted to contextualize the 2019 phone calls, but admitted that he had read HSBC’s Terms and Charges Disclosures (“Disclosures”) when opening his account. The Disclosures stated that “[i]nterest begins to accrue on the Business Day you deposit noncash items.” Noncash items are instruments like checks and wire transfers. Id. at *1-2.
Although the court previously had denied the bank’s motion for summary judgment on the claims by drawing all reasonable inferences in plaintiff’s favor, it expressed in that decision its view that the 2019 phone calls “strongly suggested” plaintiff shared HSBC’s understanding that the “you deposit” language in the Disclosures meant interest would begin to accrue once HSBC had cleared funds on hand, not when he initiated the deposit. Id. at *6. The court also opined that in the calls, plaintiff appeared to recognize HSBC could not apply interest until it was in receipt of his funds, and plaintiff told the bank multiple times that if the delay in accruing interest was due to a delay in receiving the funds, “that’s perfect” and “that’s fine.” Id.
The Court’s Opinion Denying Class Certification
In its decision denying class certification under Rule 23, the court set forth Rule 23’s threshold requirements for class certification – numerosity, commonality, typicality, and adequacy – and confirmed plaintiff bears the burden of establishing each element. Id. at *8. The court pointed specifically to the adequacy requirement of Rule 23(a)(4), which focuses on the fitness of purported class representative to competently litigate the case on behalf of absent class members, and reiterated that the interests of the named plaintiff cannot be antagonistic to those of the rest of the class. Id.
The court found that plaintiff faced “serious obstacles to recovery on his individual claims,” and that plaintiff’s statements made in the 2019 phone calls were compelling evidence he understood that he would not begin accruing interest until the bank had his cash on hand. Id. at *10. The court reasoned that in his class certification motion, plaintiff now alleged that the bank misled him to believe that interest would begin accruing as soon as he initiated a deposit, which was contradicted by the statements made by plaintiff in the 2019 phone calls. The court determined that the 2019 phone calls, plaintiff’s conflicting allegations about whether he read the Disclosures, and his prior relevant litigation and banking history were all likely to weaken his claims, and that there was a strong argument that plaintiff “knew precisely what he was doing and that he and HSBC shared the same understanding about what the key term ‘you deposit’ meant.” Id. at *11.
As a result, the court determined that the plaintiff could not be an adequate representative of the class he sought to represent because he acknowledged in the 2019 phone calls that he understood the key terms of the bank’s policies. The court opined there was a strong argument that the plaintiff understood the defendant’s terms, but was attempting to represent a class based on the bank’s alleged misconduct. Id. at *10-11. The court ruled that it was “not comfortable” making plaintiff the representative of all other class members’ claims and allowing him to bind hundreds of absent class members to plaintiff’s story, conditioning their recovery on how well plaintiff’s story held up. Id. at *12. For these reasons, the court denied plaintiff’s motion for class certification under Rule 23(a)(4).
Implications For Employers
The court’s decision denying class certification based on its finding that plaintiff failed to meet Rule 23’s adequacy threshold requirement is a potentially helpful roadmap for employers facing class action claims. The court’s analysis centered on an individualized determination of plaintiff’s particular factual background in ultimately holding it was uncomfortable the plaintiff could adequately represent hundreds of absent class members based on his own contradictory and inconsistent testimony and evidence. Businesses defending class actions should consider each named plaintiff’s individual circumstances and factual background for issues that could preclude their ability to adequately represent class members. The decision confirms that in the appropriate circumstances, courts will not hesitate to deny class certification to named plaintiffs on such grounds.
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