Elizabeth Underwood – Page 2 – Class Action Defense

February 3, 2026February 3, 2026 by Gerald L. Maatman, Jr.

AI Hallucinated Case Citations Prompt Sanctions And Delay Class Action Settlement

By Gerald L Maatman, Jr., Shannon Noelle, and Elizabeth G. Underwood

Duane Morris Takeaways: On November 20, 2025, in Buchanan v. Vuori, Inc., No. 5:23-CV-01121 (N.D. Cal. Nov. 20, 2025), Magistrate Judge Nathanael M. Cousins of the U.S. District Court for the Northern District of California imposed sanctions on plaintiff’s counsel for using artificial intelligence to generate case law citations in a motion for preliminary approval of a wage and hour collective action settlement. The sanctions included an order directing plaintiff’s counsel to pay $250 to the clerk of court, striking the motion without leave to refile, and referring plaintiff’s counsel to the Court’s Standing Committee on Professional Conduct. Importantly, because of the sanctions, Magistrate Judge Cousins found plaintiff’s counsel to be an inadequate representative of the class and precluded plaintiff’s counsel from filing an additional motion for approval of the class settlement. This required defense counsel to file a case management statement requesting a stipulation of dismissal that was approved on January 8, 2026. Plaintiff’s counsel’s use of AI ultimately delayed final disposition of the action until months later and underscores the growing trend of judicial commitment to accountability with respect to attorney use of AI in drafting legal filings.

Case Background

On March 14, 2023, a former Vuori, Inc. (“Vuori”) employee, Terrence Buchanan, sued Vuori, alleging that it had violated the Fair Labor Standards Act (FLSA) and various California Labor Codes by miscalculating the overtime paid to their employees by failing to include commissions or bonuses in calculating overtime. See Case No. 5:23-cv-01121, ECF No. 1. Eventually, the parties settled the litigation.

On October 3, 2025, after a first try for settlement approval failed, counsel for Plaintiff filed a second motion for preliminary approval of a collective action settlement (ECF No. 81) followed by a corrected motion on October 28, 2025 (ECF No. 89). Upon review of the corrected motion, the Court found that the memorandum in support of the motion included 8 quotations “supposedly attributable to a real case” that did not actually appear in the cited case and “one nonexistent case.” See ECF No. 96, at 1. On November 5, 2025, the Court ordered plaintiff’s counsel to show cause as to why he should not be sanctioned pursuant to Federal Rule of Civil Procedure 11(c) and referred to the Court’s Standing Committee on Professional Conduct under Civil Local Rule 11-6 for providing fabricated case law to the Court. Plaintiff’s counsel filed a response and proof of service that he provided the Court’s order to show cause to his client. See ECF Nos. 92, 93. He also filed a supplemental response. See ECF No. 94. The Court held a hearing on the order to show cause on November 19, 2025, at which counsel and plaintiff Buchanan appeared. See ECF No. 96, 1-2.

Order Imposing Sanctions And Finding Class Counsel Is Therefore Inadequate

Magistrate Judge Cousins ordered sanctions by way of payment of $250 to the clerk of court pursuant to Federal Rule of Civil Procedure 11(c), referred Plaintiff’s counsel to the Standing Committee on Professional Conduct pursuant to Civil Local Rule 11-6, and ordered that the motions for preliminary approval be stricken without leave to refile.

In support of this decision, Magistrate Judge Cousins explained that “the rise in non-existent cases and quotations hallucinated by artificial intelligence tools” is of “particular concern.” ECF No. 96 at 3. He noted that Plaintiff’s counsel “acknowledge[d] without reservation” that his motion “contained one non-existent case citation.” ECF No. 92, at 3 (citing ECF No. 92 at 2). Plaintiff’s counsel also admitted to using about six different AI tools to prepare his motion “[a]s a solo practitioner under time pressure” and that he used the tools to check one another. Id. at 3-4. The Court noted that the corrected memorandum of law in support of the second motion for preliminary approval, did not correct the false case law hallucinated by the AI tools. Id. at 4. The Court made clear that the intentions of Plaintiff’s counsel were irrelevant and that his use of AI which “led him to submit a hallucinated case to the Court through his motion” and failure to conduct a reasonable inquiry into the law cited in his motion violated Rule 11(b) and Local Rule 11-4. Id. at 4-5. Specifically, the Court found that Plaintiff’s counsel violated his duty of candor owed to the tribunal under California Rule of Professional Conduct 3.3 by citing nonexistent cases and quotations to the Court and certifying “via signature that he had conducted reasonable inquiry into these citations when he had not.” Id. at 5.

Though Plaintiff’s counsel offered to forfeit attorneys’ fees in the matter, to file an amended motion certifying that he verified all citations, and to complete continuing legal education, the Court declined his suggested sanctions and instead ordered that: (1) plaintiffs’ second motion for preliminary approval of a class action settlement and corrected motion be stricken with prejudice; (2) Plaintiff’s counsel pay the clerk of court $250 by December 5, 2025; and (3) Plaintiff’s counsel be referred to the Court’s Standing Committee on Professional Conduct in connection with his violation of Local Rule 11-4 and unprofessional conduct. As to the third remedial measure, the Standing Committee has authority to conduct further investigation or impose additional discipline, such as continuing legal education or notification of the state bar as it deems necessary and appropriate. Magistrate Judge Cousins added that it was the Court’s “hope” that “the experience with the Standing Committee also proves constructive for Plaintiff’s counsel, who attests that he is a very busy sole practitioner who faces various logistical constraints.” See ECF No. 96 at 6.

Finally, and notably, the Court found that striking plaintiff’s motion for settlement approval “necessarily raises the questions” of whether Plaintiff’s counsel could adequately represent the class through final approval of settlement. The Court found that Plaintiff’s counsel could not file an amended motion for preliminary approval of the class settlement because “it does not find that he is adequate class counsel, which would prevent the Court from approving a renewed motion for settlement approval.” See ECF No. 96, at 7.

Delay Of Final Disposition Due To Sanctions And Inadequate Class Representative Finding

On December 5, 2025, the Court docketed and acknowledged receipt of counsel’s payment of $250 to the clerk of court. See ECF No. 98. As Magistrate Judge Cousins found Plaintiff’s counsel to be an inadequate class representative and therefore prohibited him from filing further motions to approve the class action settlement, on January 7, 2026, counsel for Vuori was required to file a case management statement to get final disposition of the action and setting out Vuori’s position that the parties signed a settlement agreement containing “a general release of Plaintiff’s claims against Defendant” and, per the terms of that agreement, “Plaintiff was obligated to dismiss this action with prejudice no later than December 31, 2025.” See ECF No. 100, at 2. To that end, counsel for Vuori requested that “Plaintiff immediately dismiss this action with prejudice.” Id. On that same day, Plaintiff’s counsel filed a Stipulation of Dismissal with the Court. See ECF No. 101. On January 8, 2026, the Court granted the stipulation of dismissal with prejudice by order signed by Magistrate Judge Cousins. See ECF No. 102.

Implications For Companies

This order is unprecedented. The implications of the sanctions order and the aftermath of the order is two-fold. First, employers and companies should review class counsel’s filings scrupulously by noting any citations or quotations that seem incorrect and AI-generated as this may build a case for disqualifying class counsel and may prove as a barrier to getting approval of a class settlement agreement. Second, employers and companies must be diligent in ensuring that in-house and outside counsel alike use human verification in connection with the use of any AI tool when drafting court filings to ensure that all case law citations and quotations have been independently verified by an attorney prior to filing such information with a court to avoid similar deleterious consequences.

November 26, 2025November 26, 2025 by Gerald L. Maatman, Jr.

The EEOC Can Chart Its Own Path: Why The EEOC’s Latest “Win” Is Good News For Employers

By Gerald L. Maatman, Jr., Adam D. Brown, and Elizabeth G. Underwood

Duane Morris Takeaways: On November 25, 2025, in Cross v. EEOC, No. 1:25-CV-3702, 2025 WL 3280764 (D.D.C. Nov. 25, 2025), Judge Trevor N. McFadden of the U.S. District Court for the District of Columbia dismissed an Amazon delivery driver’s lawsuit against the EEOC. The lawsuit alleged that the EEOC illegally halted investigations of disparate impact claims following an executive order from President Trump. The district court’s ruling is at least a short-term win for employers, demonstrating that a plaintiff who is not the subject of an EEOC action cannot easily resort to the federal courts to challenge the internal investigation and enforcement policies that caused the EEOC not to pursue theories of employer liability. The “win” is likely the first in a series of challenges to the EEOC’s stance on disparate impact litigation.

Case Background

The plaintiff in this case, Leah Cross, who worked as Amazon delivery driver for several months in 2022, was fired after she failed to satisfy Amazon’s delivery quota requirements. In May 2023, Cross filed a sex-based charge of discrimination against Amazon with the Colorado Civil Rights Division, asserting violations of Title VII and Colorado state law.

Cross contended that Amazon’s delivery quotas and resulting bathroom limitations had a disparate impact on female Amazon employees. Specifically, she alleged, Amazon enforced excessively high delivery quotas, which forced delivery drivers to forgo bathroom breaks. According to Cross, this disparately impacted female delivery drivers because of their differing personal needs relative to male drivers.

In January 2024, the EEOC’s Denver office began investigating the charge. But in April 2025, President Trump issued Executive Order 14281 titled “Restoring Equality of Opportunity and Meritocracy,” which instructed federal agencies to deprioritize enforcement of antidiscrimination laws based on disparate impact theories of liability. That Executive Order also specifically directed the EEOC to examine all pending investigations of such claims and take appropriate action consistent with the new enforcement priorities.

In September 2025, the EEOC issued a memorandum requiring staff to close all investigations of disparate impact claims, which included Cross’s claims. Thereafter, Cross filed a lawsuit against the EEOC, alleging that she “ha[d] been denied the benefit of a full investigation” by the Commission. Cross v. EEOC, No. 1:25-CV-3702, 2025 WL 3280764, at *3 (D.D.C. Nov. 25, 2025).

Cross claimed the EEOC’s memorandum violated § 706(2) of the Administrative Procedure Act, arguing that: (1) the Commission acted contrary to Title VII and the Age Discrimination in Employment Act by “selectively exclud[ing] categories of discrimination from the charge-investigation process;” (2) the Commission acted arbitrarily and capriciously in abruptly changing its policy; (3) the Commission’s memorandum constituted a substantive rule that was “in excess of statutory jurisdiction, authority, or limitations”; and (4) the Commission should have promulgated its memorandum through proper notice-and-comment rulemaking procedures. Id. Therefore, Cross sought a preliminary injunction requesting, among others, for her investigation to be reopened.

The Court’s Opinion

The Court held Cross failed to establish that she had standing to bring her claims and thus dismissed Cross’s claims for lack of subject-matter jurisdiction, without addressing them on the merits. To remedy Cross’s alleged injuries, the Court suggested that Cross could pursue a Title VII action directly against Amazon.

The Court determined that Cross did not show any judicially cognizable injury from the EEOC’s closure of her investigation. Moreover, the Court opined that “even if that were the kind of injury capable of judicial resolution, Cross has not shown that a favorable ruling by this Court would redress that injury.” Id. at *1.

The Court explained that “federal courts are ‘not the proper forum for resolving claims that the Executive branch’ should ‘bring more’ investigations and enforcement actions.” Id. at *4 (quoting United States v. Texas, 599 U.S. 670, 680 (2023)). Under applicable case law recognizing this principle, the Court held, because Cross was not the subject of an EEOC enforcement action, she lacked standing to challenge the agency’s investigation and enforcement decisions.

Implications For Companies

The Court’s ruling is a win for companies, confirming that federal courts currently are not willing to interfere with the EEOC’s internal investigation and enforcement policies regarding disparate impact claims. Even more broadly, the Court’s order reinforces the substantial deference federal courts grant the EEOC in its internal decision-making processes, which could cut in different directions depending on the enforcement priorities and policies of a particular executive branch or EEOC leadership regime.

Crucially, however, employers are not in the clear. Companies still should be proactive and continue to audit regularly their hiring and employment practices for potential disparate impact, which remains unlawful under both federal and state laws notwithstanding any vacillation in EEOC policy. While the EEOC may choose to deprioritize pursuing disparate impact claims, a charging party who receives a Notice of Right to Sue letter still can file a private lawsuit in reliance on longstanding precedent regarding disparate impact.

November 4, 2025 by Gerald L. Maatman, Jr.

New York State (Court) Of Mind: New York Federal Court Remands Allstate Data Breach Case To State Court For Lack Of Federal Question Jurisdiction

By Gerald L. Maatman, Jr., Ryan T. Garippo, and Elizabeth G. Underwood

Duane Morris Takeaways: On October 28, 2025, Judge Lewis A. Kaplan of the U.S. District Court for the Southern District of New York granted the People of the State of New York’s (the “State”) motion to remand in New York v. Nat’l Gen. Holdings Corp., No. 25 Civ. 03608, 2025 U.S. Dist. LEXIS 212731 (S.D.N.Y. Oct. 28, 2025). The State alleged that National General Holdings Corporation violated various state laws related to data protection programs and notifications to affected individuals when data breaches in 2020 and 2021 exposed the corporation’s customer information. This case reinforces the concept that a plaintiff is indeed the master of the complaint and can strategically craft their complaint to ensure that a case is litigated in state court.

Case Background

The State sued Allstate Insurance Company when one of its units, National General Holdings Corporation (the “Defendants”), was involved in two data breaches in 2020 and 2021, exposing nearly 200,000 consumers’ drivers’ license numbers to hackers. The State alleged that the Defendants failed to protect customers’ sensitive information and did not inform customers that their data was stolen.

Importantly, the complaint did not assert any cause of action under federal law. Instead, the complaint alleged that the Defendants violated three federal statutes, including the Gramm-Leach-Bliley Act (“GLBA”), the Health Insurance Portability and Accountability Act (“HIPAA”), and the Health Information Technology for Economic and Clinical Health Act (“HITECH”). The State brought the action against the defendants pursuant to New York State General Business Law (“GBL”) §§ 349, 350, 899-aa, and 899-bb, and New York Executive Law § 63(12).

Based on the inclusion of allegations that they violated federal law, the Defendants removed the action to the U.S. District Court for the Southern District of New York pursuant to 28 U.S.C. §§ 1331 and 1441, invoking the Court’s ability to decide a federal question. The State, however, moved to remand the case and for attorney’s fees incurred due to the removal.

Magistrate Judge Robert Lehrburger concluded in a report and recommendation that the Court lacked federal subject matter jurisdiction to hear the case because the causes of action (1) were not created by federal law and (2) did not satisfy the standard set forth in Gunn v. Minton, 568 U.S. 251 (2013), and Grable & Songs Metal Products, Inc. v. Darue Engineering & Manufacturing, 545 U.S. 308 (2005) (the “Gunn-Grable” test). ECF 55. Under the Gunn-Grable test, federal question jurisdiction exists only when a federal issue is “(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.” Gunn, 568 U.S. at 258.

In his report and recommendation, Magistrate Judge Lehrburger determined that the third element as to whether a federal issue was “substantial” was not satisfied. This inquiry looks to “the importance of the issue to the federal system as a whole,” not just the issues of one case. Id. at 260. In this case, the Defendants argued that the substantiality requirement was met because of the substantial federal interests in data privacy and national security; however, Magistrate Judge Lehrburger found these arguments were unpersuasive and recommended that the Court remand the case but not award attorney’s fees to the State.

The Court’s Opinion

In an opinion written by Judge Lewis Kaplan, the Court agreed with Magistrate Judge Lehrburger’s reasoning and held that the case did not pass the Gunn-Grable test.

The Court determined that Magistrate Judge Lehrburger correctly rejected the Defendants’ argument that the State’s claims satisfy the Gunn-Grable test as to the “substantiality” element. First, the Court found that the Defendants’ argument as to whether the New York State Attorney General had the authority to enforce the federal GLBA was “entirely inapt” because the complaint did not allege any GLBA claims. Nat’l Gen. Holdings Corp., 2025 U.S. Dist. LEXIS 212731, at *3. Second, the Court held that the federal government’s interest in data privacy was insufficient to meet the Gunn-Grable test. Third, the Court determined that the federal law questions implicated by the state law claims, including whether defendants are insulated from liability under state law if the defendants’ data protection programs and data breach notification procedures were in compliance with federal law, “are inherently fact-intensive and therefore likely would not provide guidance in future cases.” Id. at *4.

Moreover, the Court also rejected the Defendants’ argument that whether the GLBA preempts the New York Attorney General from bringing the state law claims is a substantial federal question, reasoning that the question was not “necessarily raised” and that preemption is an affirmative defense that may not serve as the basis for subject-matter jurisdiction. Id. at 4–5. Finally, the Court held that none of the three exceptions to the well-pleaded complaint rule applied because the Defendants did not assert the first two exceptions, and the third exception would have had to pass the Gunn-Grable test, which it did not.

Implications For Companies

Nat’l Gen. Holdings Corp. serves as a cautionary reminder of the uphill battles that corporate defendants often face to remove to and then keep bet-the-company litigation in federal court.

Although it is not uncommon for a corporation to prefer “federal courts because it fears a corporate defendant . . . will not get a fair trial in state court,” the road to get there is not always guaranteed. See, e.g., Hosein v. CDL West 45th Street, LLC, No. 12 Civ. 06903, 2013 WL 4780051, at *3 (S.D.N.Y. June 12, 2013). As on display here, the Nat’l Gen. Holdings Corp. opinion shows that corporate defendants may not even get to litigate in a federal forum even when there are allegations that they violated federal law.

As a result, corporate counsel should be aware that relying on a state law claim involving an embedded federal issue, as the basis for federal subject-matter jurisdiction, may not be successful in 100% of cases, but it may be worth a chance to attempt to remove the case to federal court if it is the company’s only opportunity to obtain a fair trial.