Gerald L. Maatman, Jr. – Class Action Defense

September 2, 2025September 2, 2025 by Gerald L. Maatman, Jr.

Virginia Federal Court Slices Away Out-of-State FLSA Claims Against Pizza Company

By Gerald L. Maatman, Jr., Anna Sheridan, and Ryan T. Garippo

Duane Morris Takeaways: On August 22, 2025, in Shamburg, et al. v. Ayvaz Pizza, LLC, et al., No. 24-CV-00098, 2025 WL 2431652 (W.D. Va. Aug. 22, 2025), Judge Jasmine Yoon of the U.S. District Court for the Western District of Virginia partially dismissed a proposed nationwide collective action brought by pizza delivery drivers. Although Plaintiff Chandler Shamburg (“Plaintiff” or “Shamburg”), and other plaintiffs, asserted nationwide Fair Labor Standards Act (“FLSA”) and state law claims from multiple jurisdictions, the Court dismissed nearly all of them for lack of personal jurisdiction. This ruling reinforces the growing trend of federal courts willing to apply the Due Process Clause’s protections to expansive FLSA collective actions and underscores the difficulty plaintiffs face in keeping sprawling, multi-state, wage claims altogether in one federal court.

Case Background

In 2024, Shamburg filed a putative class and collective action that alleged that Ayvaz Pizza (“Ayvaz”), a franchisee that “operates an unidentified number of Pizza Hut Franchise Stores within” Virginia, that is neither incorporated in nor has its principal place of business in Virginia, violated the FLSA and various state laws. Id. at *1. They also sued Ayvaz’s owner, Shoukat Dhanani, for this conduct as well. Id.

Shamburg (and, ultimately several other plaintiffs) alleged that both himself, and other drivers, were “required to use their own cars, ensure their cars were legally compliant, pay car-related costs including gasoline expenses, maintenance and part costs, insurance, financing charges, and licensing and registration costs, pay storage costs, cell phone costs, and data charges, and pay for other necessary equipment.” Id. As a result, Shamburg and the out-of-state plaintiffs alleged that their hourly rate of pay dropped below the FLSA’s minimum wage guarantee because these expenses were “kicked back” to Ayvaz. Id. at *1-2. They also brought seventeen state law claims that “assert causes of action from seven different states and invoke both state statutory and common law.” Id. at *8.

But, Ayvaz was no stranger to these issues. It was also recently sued in Garza, et al. v. Ayvaz Pizza, LLC, No. 23-CV-01379 (S.D. Tex.), and Stotesbery, et al. v. Muy Pizza-Tejas, LLC, et al., No. 22-CV-01622 (D. Minn.), based on similar allegations. Based on the existence of these prior two actions, and the presence of the out-of-state plaintiffs’ claims, Ayvaz and its owner moved to dismiss based on lack of personal jurisdiction (both general and specific), lack of supplemental jurisdiction, and the first-to-file doctrine. Judge Yoon’s decision followed.

The Court’s Ruling

In general, Judge Yoon’s decision was split into four discrete parts — each addressing whether the Court could exercise various forms of jurisdiction over Ayvaz and its owner. For the most part, the Court declined each type of jurisdiction.

General Personal Jurisdiction & Out-Of-State Plaintiffs

First, although it was uncontested that Ayvaz was neither incorporated in nor headquartered out of Virginia, Plaintiffs argued that Ayvaz was subject to general personal jurisdiction in Virginia based on the U.S. Supreme Court’s decision in Mallory v. Norfolk Southern Railway Co., 600 U.S. 122 (2023). In Mallory, the U.S. Supreme Court held that Due Process does not prohibit “a State from requiring an out-of-state corporation to consent to personal jurisdiction to do business there.” Id. at 127. Like the Pennsylvania statute at issue in Mallory, Virginia also has “an out-of-state business registration statute.” Shamburg¸ 2025 WL 2431652, at *5.

Judge Yoon, however, reasoned that “unlike Pennsylvania, Virginia law does not require the out-of-state business to condition its registration on submitting to general personal jurisdiction” consistent with the decisions of several other district courts. Id. Thus, the Court “conclude[d] that, absent explicit consent to jurisdiction in Virginia’s business registration statute” it could not exercise general personal jurisdiction over Ayvaz or its owner.

Specific Jurisdiction & Out-Of-State Plaintiffs

Second, the Court addressed the out-of-state plaintiffs’ argument that the Court could exercise specific personal jurisdiction over Ayvaz as to the out-of-state plaintiffs but disagreed. Judge Yoon weighed in on the pending circuit split regarding the applicability of Bristol-Myers Squibb v. Superior Court, 582 U.S. 255 (2017), to FLSA collective actions. The Third, Sixth, Seventh, Eighth and Ninth Circuits hold that Bristol-Myers applies, whereas the First Circuit stands alone and holds otherwise.

Judge Yoon agreed with “the approach taken by the majority of the Courts of Appeals” and held each plaintiff “must present independent, sufficient bases for the exercise of the court’s specific jurisdiction over that claim.” Id. at *6. Similarly, because none of the plaintiffs alleged facts related to the owner’s minimum contacts with Virginia “beyond the fact that Ayvaz is registered to do business in Virginia and operates an unidentified number of Pizza Hut Franchise Stores,” their claims could not proceed against him either.

The Seventeen State Law Counts

Third, having dismissed the out-of-state plaintiffs’ claims, Judge Yoon declined to exercise supplemental jurisdiction over the seventeen state law counts. The Court observed that “the presence of more subclasses (eight) than states (seven) provides evidence of both complexity and the lack of commonality” that show that the state law claims “would substantially predominate over the FLSA claim.” Id. at *8. The court dismissed those claims without prejudice, leaving only the FLSA claims brought by Virginia-based employees.

The First-To-File Doctrine

Fourth and finally, the Court declined Ayvaz’s request to dismiss the case under the “first-to-file” doctrine due to the existence of the earlier filed suits in Garza and Stotesbury. The first-to-file rule allows a federal court to decline jurisdiction when a substantially similar lawsuit involving the same parties and issues is already pending in another court. Id. at *10. But, the court concluded that the “putative classes and respective issues” in the two prior suits differ enough that the first-to-file rule should not be applied. Id. at *12.

Indeed, “Stotesbery, by design, includes an FLSA claim limited to those who work in Minnesota” and thus did not overlap based on the Court’s ruling. Id. And, the Court declined to apply the first-to-file doctrine to Garza because the “case was settled and dismissed with prejudice” and thus was not pending at the time of the decision. Id. at *10. “Accordingly, Plaintiffs’ complaint will survive the motion to dismiss with respect to the FLSA claim for Plaintiffs who live in or work in Virginia.” Id. at *12.

Implications for Employers

The Shamburg decision demonstrates that courts are increasingly unwilling to allow out-of-state employees to anchor nationwide collective actions against employers without first affording employers certain due process protections. This growing trend prevents employers from having to defend these actions in distant and unfamiliar courts, and forces plaintiffs to bring these actions where these employers are incorporated or headquartered.

With these trends in mind, corporate counsel should continue to monitor this blog for developments because the Bristol-Myers circuit split is sure to be decided by the U.S. Supreme Court soon, and if their companies are sued in putative class and collective actions, it is better to prepared in advance for when these important issues are decided.

August 28, 2025August 28, 2025 by Gerald L. Maatman, Jr.

Second Circuit Reiterates EEOC’s Expansive Subpoena and Investigative Authority, Even After The Charging Party Files A Lawsuit Based On A Right-to-Sue Letter

By Gerald L. Maatman, Jr., Adam D. Brown, and Gregory S. Slotnick

Duane Morris Takeaways: On August 25, 2025, in United States EEOC v. AAM Holding Corp. (In Re AAM Holding Corp.), 2025 U.S. App. LEXIS 21629 (2d Cir. Aug. 25, 2025), the U.S. Court of Appeals for the Second Circuit affirmed a decision by the Southern District of New York and held the U.S. Equal Employment Opportunity Commission (“EEOC”) retains authority to investigate an EEOC charge even after the EEOC issues the charging party a right-to-sue letter and the charging party subsequently files a lawsuit in court. This ruling significantly expands the scope of the EEOC’s investigative authority in the Second Circuit as it joins the Seventh and Ninth Circuits in allowing pending EEOC investigations to proceed following the agency’s issuance of right-to-sue letters to a charging party who thereafter files suit. The decision is directly at odds with the Fifth Circuit’s holding in EEOC v. Hearst Corp., 103 F.3d 462 (5th Cir. 1997), that the EEOC’s investigative authority ceases upon the charging party’s filing suit pursuant to a right-to-sue letter. The Second Circuit’s opinion follows the more recent trend of courts siding with the EEOC on its assertion of expansive investigative authority and allowing the agency to continue investigating charges despite the charging party’s separate private lawsuit. With the decision, the split in authority now heavily favors the EEOC’s expanded authority, and employers should understand that ongoing EEOC investigations may continue in full force despite the agency’s issuing a right-to-sue letter. Finally, the opinion confirmed that EEOC subpoenas must be construed generously and may properly request extremely broad categories of class-wide documents and information if the EEOC finds it relevant and in the public’s interest to seek same.

Case Background

In March 2022, Eunice Raquel Flores Thomas (“Thomas”), a former dancer who worked at two Manhattan adult entertainment clubs (FlashDancers Midtown and FlashDancers Downtown (together, “the Clubs”)), filed a class-based charge with the EEOC alleging widespread sexual harassment and hostile work environment at both club locations. AAM Holding Corp., 2025 U.S. App. LEXIS 21629, at *3. Thomas claimed she and other women were forced to change clothes in an open back room without doors that was video-monitored, and were pressured to have sex with high-paying repeat customers in champagne rooms, fearing adverse employment actions should they refuse. Id. at *3-4.

Following the EEOC’s initial notification to the Clubs that Thomas filed a charge, the EEOC requested information such as “the clubs’ policies regarding relationships between customers and employees, any records of sexual harassment complaints, and pedigree information for their employees, including each employee’s name, age, sex, race, position, dates of employment, and contact information.” Id. at *4. The Clubs objected to the EEOC’s requests as irrelevant and unduly burdensome to produce, and the EEOC thereafter issued two subpoenas demanding the employee pedigree information, which ultimately led to the EEOC petitioning the District Court for enforcement. Id. at *4-5. The District Court granted the EEOC’s petition and ordered the Clubs to produce the information, explaining that the relevance requirement is a “low bar” and that courts give the term a “generous construction,” allowing access to “virtually any material that might cast light on the allegations against the employer.” Id. at *5 (internal citation omitted). The Clubs eventually filed a notice of appeal to the Second Circuit and moved to stay the enforcement order first in the District Court and then in the Second Circuit, both of which motions were denied. Id. at *5-6.

Meanwhile, in July 2024, while the Clubs’ appeal before the Second Circuit was pending, the EEOC issued Thomas a right-to-sue letter, on the basis of which Thomas filed, in September 2024, a putative class action complaint in the District Court. Id. at *6. The Clubs then argued to the Second Circuit that the EEOC had been divested of its investigative authority (including its ability to issue subpoenas) once Thomas received her right-to-sue letter and filed suit. Id. The Clubs also reiterated their position that the underlying subpoenas’ demand for pedigree information for all club employees (not just Thomas) was overbroad and unduly burdensome. Id.

The Second Circuit’s Decision

The Second Circuit began its opinion by providing background about the investigative process under Title VII. It explained that the EEOC bears primary responsibility for enforcing Title VII under a multistep enforcement procedure that involves the filing of a timely charge, an investigation by the EEOC during the pendency of the charge, and, where appropriate, dismissal of the charge and issuance of a right-to-sue letter authorizing the charging party to pursue litigation. Id. at *6-8.

The Second Circuit also addressed the Clubs’ argument that the EEOC’s investigative authority stops once it issues a right-to-sue letter and the party files suit. Specifically, it addressed the Clubs’ reliance on the Fifth Circuit’s opinion in EEOC v. Hearst Corp., 103 F.3d 462 (5th Cir. 1997), which held that the initiation of a private suit by an aggrieved party marks the end of the investigation stage and thus terminates the EEOC’s investigative authority. Id. at *8-9.

Disagreeing with the Fifth Circuit’s holding in Hearst, the Second Circuit found no support in the text or structure of Title VII, instead citing Title VII’s broad grant of authority to the EEOC, which provides that the agency “‘shall at all reasonable times have access to . . . evidence . . . that relates to unlawful employment practices . . . and is relevant to the charge under investigation.’” Id. at *9 (citing 42 U.S.C. § 2000e-8(a)) (emphasis added). The Second Circuit determined that Title VII did not place any “strict temporal limit” on the EEOC’s authority to issue and enforce subpoenas and obtain evidence through the enforcement process, and that, in fact, the requirement that the EEOC complete its investigation within 120 days applies only “so far as practicable,” which the Court held does not establish “a hard stop.” Id. at *10.

Moreover, the Second Circuit observed that the Supreme Court has held that the EEOC retains independent administrative “responsibility of investigating claims of employment discrimination” and therefore retains the right to file its own civil lawsuit even after the 180-day window, which does not end its responsibility or ability to investigate a charge. Id. at *11 (citing Occidental Life Ins. Co. of Cal. v. EEOC, 432 U.S. 355, 368 (1977)).

The Second Circuit further reasoned that a central part of the EEOC’s “broad public interest and role” in fighting employment discrimination is pursuing the public interest by enforcing the law even when that interest is distinct from or exceeds the private interest of the aggrieved charging party. Id. at *11. It noted the possibility that the EEOC could issue a right-to-sue letter only to have the charging party file suit and settle for nominal damages, a scenario in which, the opinion states, the agency would still be free to continue investigating ongoing unlawful discrimination that may be remedied by unique EEOC mechanisms like conciliation or public litigation. Id. at *12. Those mechanisms also include the EEOC’s ability to initiate class-wide enforcement actions without certification of a class representative under Federal Rule of Civil Procedure 23, as well as its ability to pursue injunctive relief. Id. at *12-13.

Ultimately, the Second Circuit opined on these bases that the EEOC retains its authority to investigate, including issuing and enforcing administrative subpoenas, after it issues a right-to-sue letter and the charging party files a lawsuit. Id. at *13-14. The Second Circuit supported its holding by noting that, “[w]hen the EEOC determines that public resources should be committed to investigating and enforcing a charge, the statutory text unambiguously authorizes it to proceed,” citing to similar holdings (without dissent) in both the Ninth Circuit (EEOC v. Fed. Express Corp., 558 F.3d 842, 854 (9th Cir. 2009) and the Seventh Circuit (EEOC v. Union Pacific Railroad Co., 867 F.3d 843, 850-51 (7th Cir. 2017)). Id. at *13-14 (internal citations and quotation marks omitted).

The opinion also held the EEOC’s subpoena for pedigree information was not overbroad or unduly burdensome. Id. at *14. The Second Circuit determined the District Court did not abuse its discretion in finding that: (i) the materials were relevant to Thomas’s claims of widespread sexual harassment at the Clubs; and (ii) the Clubs failed to show that producing responsive documents and information would be unduly burdensome, rejecting the Clubs’ assertion, without factual detail, that the production would take approximately 300 hours of work. Id. at *15-19.

Implications For Employers

The Second Circuit’s decision means the EEOC’s investigative authority does not end when a charging party requests and receives a right-to-sue letter and thereafter files a suit. Instead, the EEOC may, in its discretion, determine that the public’s interest either diverges from or exceeds the interests of the private charging party and may continue its ongoing investigation by issuing class-wide records and information requests.

Companies must be keenly aware of the EEOC’s broad, ongoing investigatory powers in dealing with the charging party and the EEOC throughout the time after a charge is filed. Employers should also be aware that courts are reluctant to deny the EEOC’s subpoena requests when the agency makes a showing of relevance, which is generously interpreted by courts in the EEOC’s favor. While situations may arise in which the agency’s requests are truly overbroad or unduly burdensome in scope, businesses should assume they will have an uphill battle objecting to or greatly limiting any such requests, even after the charging party files a separate private lawsuit.

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

Illinois Federal Courts Allow Adtech And Edtech ECPA Claims To Proceed, Furthering Split Of Authority

By Gerald L. Maatman, Jr., Justin Donoho, Hayley Ryan, and Tyler Zmick

Duane Morris Takeaways: On August 20, 2025, in Hannant v. Sarah D. Culbertson Memorial Hospital, 2025 WL 2413894 (C.D. Ill. Aug. 20, 2025), Judge Sara Darrow of the U.S. District Court for the Central District of Illinois granted a motion to dismiss while allowing a website user to re-plead her claim that the hospital’s use of website advertising technology (“adtech”) violated the Electronic Communications Privacy Act (“ECPA”). The same day, in Q.J. v. Powerschool Holdings, LLC, 2025 WL 2410472 (N.D. Ill. Aug. 20, 2025), Judge Jorge Alonso of the U.S. District Court for the Northern District of Illinois denied the Chicago school board and its educational technology (“edtech”) provider’s motion to dismiss a claim that their use of a third-party data analytics tool violated the ECPA. These rulings are significant in that they show that in the hundreds of adtech, edtech, and other internet-based technology class actions across the nation seeking millions (or billions) in dollars in statutory damages under the ECPA, Illinois Federal courts have distinguished themselves from other courts in other jurisdictions that have refused to interpret the ECPA in such a plaintiff-friendly manner as have the Illinois Federal courts.

Background

These cases are two of a legion of class actions that plaintiffs have filed nationwide alleging that Meta Pixel, Google Analytics, and other similar software embedded in defendants’ websites secretly captured plaintiffs’ web-browsing data and sent it to Meta, Google, and other online advertising agencies and/or data analytics companies. In these adtech, edtech, and similar class actions, the key issue is often a claim brought under the ECPA on the theory that hundreds of thousands of website visitors times $10,000 per claimant in statutory damages equals a huge amount of damages. Plaintiffs have filed the bulk of these types of lawsuits to date against healthcare providers, but they have filed suits against companies that span nearly every industry including education, retailers, and consumer products. Several of these cases have resulted in multimillion-dollar settlements, several have been dismissed, and the vast majority remain undecided.

In Hannant, the plaintiff brought suit against a hospital. According to the plaintiff, the hospital installed the Meta Pixel on its website, thereby transmitting to Meta, allegedly without the plaintiff’s consent, data about her visit to the hospital’s website.

In Q.J., the plaintiff brought suit against the Chicago school board and its edtech provider. According to the plaintiff, the school board and edtech provider installed a third-party data analytics tools called Heap Autocapture on the edtech provider’s online platform, thereby transmitting to Heap, allegedly without consent, information about the students’ visits to the online platform.

In both lawsuits, the plaintiffs claimed that these alleged events amounted to an “interception” by the defendant that violated the ECPA. Neither defendant contested whether the plaintiff had plausibly alleged an “interception,” even though the events were more like the catching and forwarding of a different ball, not an interception: (1) as alleged in Hannant, see No. 24-CV-4164, ECF No. 14 ¶¶ 49, 363 (alleging that the communication Meta received was not the same transmission but a “duplicate[]” that was “forward[ed]”); and (2) despite the wholly conclusory allegations of a purported “interception” in Q.J. However, both defendants moved to dismiss the claim under the ECPA on the grounds that, to the extent there was any interception, no liability exists under the ECPA pursuant to its exception where the party does not act “for the purpose of committing any criminal or tortious act.” 18 U.S.C. 2511(2)(d).

The Courts’ Decisions

In Hannant, the Court dismissed the ECPA claim without prejudice, and granted the plaintiff leave to re-plead in a fashion that may allow such an amended complaint to withstand the ECPA claim. Specifically, the Court found that an amendment might plausibly allege a criminal or tortious purpose by adding sufficient detail about the plaintiff’s website interactions to show that there had been a violation of the Health Insurance Portability and Accountability Act (“HIPAA”), which provides for criminal and civil penalties against a person “who knowingly … discloses individually identifiable health information [(‘IIHI’)] to another person.” 2025 WL 2413894,at *3 (quoting 42 U.S.C. § 1320d-6). As the Court explained, under adtech class-action precedent in the U.S. District Court for the Northern District of Illinois, adding additional detail regarding alleged transmission of IIHI could be enough to allege a criminal or tortious purpose. Id. at *3-5.

In Q.C., the Court denied the school board and edtech provider’s motion to dismiss, citing the same plaintiff-friendly precedent in the Northern District of Illinois cited by the opinion in Hannant, and explaining that while the allegedly disclosed data in this educational context did not violate the HIPAA, the plaintiff had plausibly alleged that the transmissions at issue violated the Illinois School Student Records Act (“ISSRA”), 105 ILCS 10/6, and Family Educational Rights and Privacy Act (“FERPA”), 20 U.S.C. § 1232g. 2025 WL 2410472, at *6.

Implications For Companies

In Illinois Federal courts, pixels and cookies are no longer just marketing and educational tools – they are legal risk vectors. By contrast, other U.S. District Courts ruling on Rule 12(b)(6) motions have found no plausibly alleged interception when an internet-based communication is forwarded as opposed to being intercepted mid-flight, and no plausibly alleged criminal or tortious purpose because the purpose was not to violate any statute but rather to engage in advertising or data analytics. (See, e.g., our prior blog entry discussing one of these several cases, here.)Website owners facing lawsuits in Illinois District Courts would do well to press such arguments finding success in other jurisdictions in order to preserve them for appeal in the Seventh Circuit, which has yet to rule on these issues. In addition, other defenses remain, including demonstrating that plaintiffs cannot meet their burden of proof to show any actual disclosure where transmissions of information entered on the website to adtech vendors and data analytics providers such as Meta or Google are encrypted, ephemeral, anonymized, aggregated, and otherwise unviewable and irretrievable by any human and hence not any actual disclosure to a third party.

Corporate counsel seeking to deter ECPA litigation should keep in mind the following best practices (discussed in more detail in our prior blog post, here): (1) add or update arbitration clauses to deter class actions and mitigate the risks of mass arbitration; (2) update website terms of use, data privacy policies, and vendor agreements; and (3) audit and adjust uses of website advertising technologies.

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

Illinois Federal Court Dismisses Data Breach Class Action Lawsuit For Lack Of Subject-Matter Jurisdiction

By Gerald L. Maatman, Jr., Christian Palacios, and Brett Bohan

Duane Morris Takeaways: On August 20, 2025, in Phelps v. Ill. Bone & Joint Inst., LLC, No. 24-CV-08555, 2025 WL 2410341 (N.D Ill. Aug. 20, 2025), Judge Martha Pacold of the U.S. District Court for the Northern District of Illinois granted Defendant Illinois Bone & Joint Institute, LLC’s motion to dismiss for lack of subject matter jurisdiction. The Court held Plaintiff failed to adequately plead Defendant’s citizenship, given its status as a limited liability company; therefore, the Court could not determine whether complete diversity existed between the parties. This ruling illustrates the differences between the general diversity statute under 28 U.S.C. § 1332(a), and the more lenient “minimal diversity” requirement under the Class Action Fairness Act, as well as the consequences of failing to sufficiently plead a limited liability company’s citizenship.

Case Background

On August 30, 2024, Defendant Illinois Bone & Joint Institute, LLC (“Defendant”) sent a data breach notification letter to its patients, including Plaintiff Alexandra Phelps (“Plaintiff”). Id. at *1. Plaintiff, individually and on behalf of a putative class, filed a lawsuit shortly after receiving the letter alleging negligence, negligence per se, breach of implied contract, and violation of the Illinois Personal Information Protection Act. Id.

Defendant moved to dismiss the complaint pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction. Id. In the motion, Defendant raised two arguments, including: (i) that Plaintiff lacked Article III standing, and (ii) that Plaintiff could not establish diversity jurisdiction under the Class Action Fairness Act (“CAFA”). Id. Although Plaintiff had invoked jurisdiction under the CAFA in her Complaint, she did not respond to Defendant’s CAFA arguments. Id. at 2. Instead, Plaintiff argued that she could “invoke jurisdiction under the general diversity statute, 28 U.S.C. § 1332(a).” Id.

The Court’s Order

The Court determined that the Complaint failed to allege sufficient facts to support diversity jurisdiction.

First, the Court reasoned that Plaintiff’s decision not to respond to Defendant’s CAFA arguments amounted to a concession that Plaintiff could not meet the standards for subject-matter jurisdiction under the statute. Id. However, although Plaintiff had not invoked general diversity jurisdiction in her Complaint, the Court permitted her to raise these arguments because “a complaint’s imperfect statement of the legal theory supporting jurisdiction does not itself defeat jurisdiction.” Id.

Second, the Court observed that, to satisfy general diversity jurisdiction, Plaintiff must be able to show that Plaintiff is a citizen of a different state than Defendant and “the amount in controversy exceeds $75,000, exclusive of interest and costs.” Id. Under the CAFA, an LLC, like Defendant, is “a citizen of the State where it has its principal place of business and the State under whose laws it is organized.” Id. Under the general diversity statute, on the other hand, an LLC is a citizen “of every state of which any member is a citizen.” Id. The Court concluded that the Complaint did not include any allegations of Defendant’s “member’s identity or citizenship.” Id. As such, the Court could not determine whether “any member is a citizen of the same state as Phelps.” Id. Because the Complaint did not allege facts sufficient for the Court to conclude that “complete diversity between the parties” existed, the Court dismissed the case without prejudice. Id.

In sum, the Court concluded that, to establish diversity jurisdiction, a Complaint must adequately allege the citizenship of all parties. Id. Plaintiff’s failure to plead the citizenship of all Defendant’s members was, therefore, fatal to her claims. Id. at 3

Implications For Employers

The Court’s ruling in Phelps serves as a reminder of the distinctions between the the CAFA’s minimal diversity jurisdiction requirement and general diversity jurisdiction. While Plaintiff’s Complaint may have included sufficient facts to establish Defendant’s citizenship under the CAFA, the Complaint could not support the more demanding “complete” diversity jurisdiction requirement under 28 U.S.C. § 1332(a).

This case highlights an important procedural defense available to employers, particularly if the named corporate entity in the litigation is a limited liability company (rather than a traditional corporation, who’s citizenship is tied to its state of incorporation and principal place of business). Employers should take note of a plaintiff’s burden to sufficiently establish federal subject matter jurisdiction at the outset of the litigation, and the accompanying procedural defenses they might avail themselves of when a plaintiff fails to sufficiently plead the jurisdictional prerequisite.

August 14, 2025 by Gerald L. Maatman, Jr.

You’ve Got Mail But Not Class Certification

By Gerald L. Maatman, Jr., Shannon Noelle, and Ryan Garippo

Duane Morris Takeaways: In a recent opinion in Fischbein v. IQVIA Inc., Case No. 19-CV-5365 (E.D. Pa. June 5, 2025), Judge Nitza I. Quiñones of the U.S. District Court for the Eastern District of Pennsylvania denied class certification of a proposed class of healthcare professionals that allegedly received unsolicited fax advertisements in violation of the Telephone Consumer Protect Act (“TCPA”). The Court determined that the TCPA only prohibits receipt of unsolicited ads on a “a traditional stand-alone fax machine” (as opposed to modern online faxing) and plaintiffs did not demonstrate that common evidence existed showing all class members received the alleged ads at issue through a traditional fax machine as opposed to through an online transmission. As a result, the Court found that plaintiffs did not satisfy the required ascertainability and predominance elements of class certification.

Background

The proposed class in Fischbein v. IQVIA Inc. consisted of more than 25,000 healthcare providers that allegedly received unsolicited fax advertisements from Defendant IQVIA Inc., a company that provides advanced analytics, technology solutions, and clinical research services to the life sciences industry. The class complaint contended that certain faxes for surveys administered by IQVIA were allegedly sent in violation of the TCPA which makes it “unlawful for any person within the United States, or any person outside the United States if the recipient is within the United States . . . to use any telephone facsimile machine, computer, or other device to send, to a telephone or facsimile machine, an unsolicited advertisement.” Id. at 3.

The Court’s Decision

Parsing the plain language of the statute and interpretive case law in the Fourth Circuit, the District Court agreed with the Fourth Circuit finding that the statute was designed to only protect plaintiffs that received advertisements on stand-alone fax machines, rather than through online fax services. The statute states in relevant part that it is unlawful to “use any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement.” See 47 U.S.C. § 227(b)(1)(C) (emphasis added). The statute further defines “telephone facsimile machine” as “equipment which has the capacity (A) to transcribe text or images, or both, from paper into an electronic signal and to transmit that signal over a regular telephone line, or (B) to transcribe text or images (or both) from an electronic signal received over a regular telephone line onto paper.” See ECF No. 119, at 8 (citing § 227(a)(3) (emphasis added)). Plaintiffs submitted the testimony of an expert who opined that the phrase “regular telephone line” would include transmissions made by online services so long as it was regulated by the North American Numbering Plan Administrator. Id. at 8-9. But the Court found that this interpretation would “render superfluous” the word “regular” used as a modifier of “telephone line” in the statute. Id. at 9. In fact, the expert’s testimony contradicted his expert opinion as he conceded that “regular telephone line” means an “analog telephone line.” Id. The Court also noted that plaintiffs presented no evidence nor did they make any arguments that an online fax service has the ability on its own to either transcribe text or images “from paper” or “onto paper” as stated in the statute, further undermining plaintiffs’ argument that the statute was meant to include online fax transmissions. Id. at 10. Indeed, Plaintiffs’ expert conceded that such online fax services have the “capacity” to do this type of transcription only when connected to other devices like scanners or printers. Id. at 10. The Court acknowledged that its statutory interpretation was also supported by the Federal Communications Commission’s (“FCC”) declaratory ruling in In the Matter of Amerifactors Fin. Grp., LLC, 34 F.C.C. Rcd. 11950 (2019).

Applying this statutory interpretation, the Court found that the proposed class was not adequately ascertainable as plaintiffs could not point to common evidence to show that proposed class members received unsolicited ads through a stand-alone fax machine as opposed to an online service provider. Plaintiffs suggested that they could submit declarations from class members to ascertain that they fell under the scope of the class of plaintiffs the statute was designed to protect, but the Court found that declarations from potential class members “standing alone, without records to identify class members or a method to weed out unreliable affidavits” would not constitute a reliable or feasible means of determining class membership. See ECF No. 119, at 15 (internal citation and quotations omitted).

For similar reasons, the Court also found that the predominance element of class certification was not met as individual questions of whether the faxes at issue were received on a stand-alone fax machine or by way of an online fax service would predominate over questions common to the proposed class.

On June 20, 2025, plaintiffs filed a motion for reconsideration of the order denying class certification or, in the alternative, to certify a more narrowly-defined class (i.e. asking the Court to narrow the class definition to exclude people who used online fax services). This motion is pending before the Court.

Implications for TCPA Defendants

The Fischbein decision provides important points of attack for the defense bar on ascertainability and predominance grounds for TCPA classes by underscoring the importance of parsing class definitions in the TCPA context to ensure the modality of transmission of the alleged unsolicited advertisement can be determined on a class-wide basis and is limited to traditional fax machine communications.

August 7, 2025August 7, 2025 by Gerald L. Maatman, Jr.

New York Federal Court Rules EEOC Early Right to Sue Regulation Is Incompatible With Title VII In Post-Loper Bright Decision

By Gerald L. Maatman, Jr. and Christian J. Palacios

Duane Morris Takeaways: On July 30, 2025, Judge Eric Komitee of the U.S. District Court for the Eastern District of New York dismissed a plaintiff’s ADA discrimination lawsuit against her employer after finding that the plaintiff failed to satisfy the statutory 180-day waiting period before receiving a right-to-sue (“RTS”) letter from the EEOC. The case, Prichard v. Long Island University, Case No. 23-CV-09269 (E.D.N.Y. July 30, 2025), is significant because it represents one of the first applications of Loper Bright Enters. v. Raimondo, 603 U.S. 369, 401 (2024) (“Loper Bright”), where a court has held that an EEOC regulation is incompatible with the text of an employment discrimination statute. This ruling is a critical development for employers seeking to control the timing of when a plaintiff can bring a discrimination claim and marks the first of many challenges to the longstanding deference the Commission has enjoyed when interpreting employment discrimination statutes in a post-Loper Bright world.

Background and The EEOC’s Early RTS Regulation

Cecilia Prichard, a financial aid counselor at Long Island University (“LIU”), was terminated in 2022 after exhausting her FMLA leave following a kidney transplant. Id. at 1. Prichard filed a charge with the EEOC on July 24, 2023, alleging disability discrimination under the Americans with Disabilities Act (“ADA”). At her request, the EEOC issued an early RTS letter only 57 days later — well before the 180-day statutory waiting period elapsed.

With her early RTS letter in-hand, Prichard commenced her suit in New York federal court against her employer, alleging it violated the ADA, as well as other state-specific human rights laws. Id. at 3. LIU moved to dismiss, arguing that the early RTS letter was invalid and thus, Prichard had not satisfied the precondition to filing suit under Title VII. See 42 U.S.C. § 2000e-5(f)(1)

By way of context, the EEOC regularly issues “early” RTS letters upon a charging party’s request prior to the expiration of Title VII’s 180-day statutory waiting period if the Commission determines that it is probable it will “be unable to complete its administrative processing of the charge within 180 days from the filing of the charge.” See 29 C.F.R. § 1601.28(a)(2). This regulation, as well as other regulations promulgated by the Commission, have previously enjoyed longstanding “Chevron deference,” which required judicial deference for agency interpretations of vague laws. In the Supreme Court’s 2024 ruling in Loper-Bright, it eliminated “Chevron deference,” holding it was the courts, not agencies, that determined statutory meaning. Loper Bright at 401.

There is currently a circuit split regarding the Commission’s “early RTS” regulation, and it has been upheld as lawful by the Ninth, Eleventh, and Tenth Circuits (prior to Loper-Bright). See Saulsbury v. Wismer & Becker, Inc., 644 F.2d 1251 (9th Cir. 1980); Sims v. Trus Joist MacMillan, 22 F.3d 1059 (11th Cir. 1994); Walker v. United Parcel Serv., Inc., 240 F.3d 1268 (10th Cir. 2001). In contrast, the D.C. Circuit has invalidated the regulation while the Third Circuit has opined, in dicta, that early RTS letters should be discouraged as contrary to congressional intent. See Martini v. Federal Nat. Mortg. Ass’n, 178 F.3d 1336 (D.C. Cir. 1991); Moteles v. Univ. of Penn., 730 F.2d 913, 917 (3d Cir. 1984). The Second Circuit has not addressed this question, however as Judge Komitee observed in his ruling, district courts have decided this issue both ways. Prichard Order, at 5.

The Court’s Ruling

In a short, seven-page order, Judge Eric Komitee sided with LIU, concluding that the EEOC exceeded its statutory authority by issuing an RTS letter before the 180-day period had expired. As the Court observed, “Prichard’s assertion that deference is due the EEOC’s interpretation of the statute effectively urges this court to operate in a parallel universe in which Loper Bright had been decided the other way. No case that Prichard cites (or that the Court has identified) sided with the EEOC on textual grounds without according deference: they either deferred to the agency pre-Loper Bright, or relied primarily on policy considerations.” Id. at p. 7. The Court then “directed” the EEOC to reopen Prichard’s charge and granted Prichard leave to re-file once: (1) the Commission dismissed her claim; or (2) investigated for 123 more days and neither filed a lawsuit or entered into a conciliation agreement. Id.

Takeaway for Employers

The Prichard ruling illustrates the consequential impact of Loper Bright on employment discrimination litigation, specifically with respect to the Commission’s ability to interpret the employment discrimination statutes it is meant to enforce. Although the issue decided in Prichard is comparatively low stakes (given plaintiff’s lawsuit was ultimately dismissed without prejudice and she was granted leave to re-file), this ruling may be one of many where courts challenge other, more consequential EEOC regulations, in the absence of Chevron deference.

From a strategy perspective, employers may now be able to better control the timing of when plaintiffs bring their employment discrimination claims (ensuring they first exhaust the 180-day waiting period). Such a strategy carries with it, its own risks, however, and many employers welcome early RTS letters. In the event an employment discrimination charge is heavily investigated by the Commission, and the employer receives a request for information (“RFI”) from the EEOC, the employer may be forced to provide the complaining employee with wide-ranging “free discovery” that it would ordinarily be able to contest in court. Employers should evaluate such early RTS letters on a case-by-case basis and determine, as a matter of strategy, whether it makes sense to contest the lawsuit-permission letter, or simply litigate the matter in court.

August 6, 2025August 6, 2025 by Gerald L. Maatman, Jr.

The Seventh Circuit Raises The Bar For Conditional Certification Under The FLSA And The ADEA

By Gerald L. Maatman, Jr., Ryan T. Garippo, and George J. Schaller

Duane Morris Takeaways: On August 5, 2025, in Richards, et al. v. Eli Lilly & Co., et al., No. 24-2574, 2025 U.S. App. LEXIS 19667 (7th Cir. Aug. 5, 2025), the Seventh Circuit issued an opinion that vacated and remanded a district court’s decision to conditionally certify a group of potential opt-in plaintiffs in an Age Discrimination in Employment Act (“ADEA”) collective action. The opinion breaks new ground on the contours of 29 U.S.C. Section 216(b), and as a result, also applies to conditional certification of wage & hour collective actions under the Fair Labor Standards Act (“FLSA”). The opinion elucidates the standards for notice in FLSA collective actions. While the opinion is undoubtedly a win for employers, only time will tell the scope of the win, as this opinion ultimately may create more questions than it answers.

Background

In 2022, Monica Richards (“Richards” or “Plaintiff”) sued Eli Lilly & Co and Lilly USA, LLC (collectively, “Eli Lilly”), the international pharmaceutical manufacturers and her one-time employer, alleging discrimination under the ADEA. The ADEA incorporates the FLSA’s “enforcement provision, permitting employees to band together in collective actions when suing an employer for age discrimination.” Id. at *3. Richards, as a result, alleged that Eli Lilly promoted younger employees in violation of the ADEA.

Shortly after she filed her lawsuit, Richards “moved to conditionally certify a collective action, asserting that the unfavorable treatment she experienced was part of a broader pattern of age discrimination against Eli Lilly’s older employees.” Id. at *9. “Conditional certification” of such claims has traditionally been thought of in two steps. At the first step, an employee moves for conditional certification, i.e., to send notice of the lawsuit, to all individuals that he or she contends are similarly situated to him or her. Drawing on a District Court of New Jersey opinion from 1987, Lusardi v. Xerox Corp., 118 F.R.D. 351 (D.N.J. 1987), many courts hold that the employee has a light burden at this stage, and thus rely solely on the plaintiff’s allegations, and do not consider competing evidence submitted by the employer.

If the employee’s motion is granted, as they are with exceedingly high rates, those individuals covered by the collective action definition receive notice of the lawsuit and then have the ability to opt-in as party plaintiffs to the case and participate in discovery. At the close of discovery, if the case has not settled, the employer can then move to decertify the conditionally certified collective action, and prove the employees are not similarly situated, which results in the opt-in plaintiffs’ claims being dismissed without prejudice if successful.

In this case, the fight over the applicability of Lusardi took center stage as it has in many other collective actions. In recent years, the Fifth and Sixth Circuit Courts of Appeal, have found that Lusardi’s two step approach is inconsistent with the text of the FLSA. Swales v. KLLM Transp. Servs., LLC, 985 F.3d 430 (5th Cir. 2021); Clark v. A&L Homecare & Training Ctr., LLC, 68 F.4th 1003 (6th Cir. 2023). In Swales, 985 F.3d at 443, the Fifth Circuit rejected Lusardi’s two-step approach outright, and required its district courts to “rigorously enforce” the FLSA’s similarity requirement at the outset of the litigation in a one-step approach. Similarly, in Clark, 68 F.4th at 1011, the Sixth Circuit adopted a comparable, but slightly more lenient standard, requiring the employee to show a “strong likelihood” that others are similarly situated to him or her before the district court can send notice.

In contrast, the Second, Ninth, Tenth, and Eleventh Circuits continue to either follow or allow the district court to adopt the two-step framework outlined in Lusardi. Harrington v. Cracker Barrel Old Country Store, Inc., 142 F.4th 678 (9th Cir. 2025); Thiessen v. Gen. Elec. Cap. Corp., 267 F.3d 1095 (10th Cir. 2001); Myers v. Hertz Corp., 624 F.3d 537 (2d Cir. 2010); Hipp v. Liberty Nat’l Life Ins. Co., 252 F.3d 1208 (11th Cir. 2001). This brewing circuit split gave rise to the dispute in Richards.

Against this backdrop, the district court in Richards ultimately followed Lusardi, and decided to send notice to the employees whom Richards contended were similarly situated to her. But Eli Lilly filed a motion for interlocutory appeal, which was subsequently granted, and the Seventh Circuit set out to opine on the circuit split for itself.

The Seventh Circuit’s Opinion

The Seventh Circuit, in an opinion written by Judge Thomas Kirsch, rejected the Lusardi framework but declined to go as far as Clark or Swales. The Seventh Circuit observed that the notice process should be facilitated by three guiding principles: (1) the timing and accuracy of notice; (2) judicial neutrality; and (3) the prevention of abuses of joinder. Richards, 2025 U.S. App. LEXIS 19667 at *14. It reasoned that the Lusardi standard threatened the latter two principles by “incentivizing defendants to settle early rather than attempt to ‘decertify’ at step two . . . transforming what should be a neutral case management tool into a vehicle for strongarming settlements and soliciting claims.” Id. at * 17. Thus, the Seventh Circuit rejected Lusardi, but what to do in the alternative was a more difficult question.

The Seventh Circuit decided that rather than endorse the rigid standards of Clark or Swales, its approach would be guided by “flexibility” and an analysis that is not an “all-or-nothing determination.” Id. at *19. Indeed, a plaintiff must now “make a threshold showing that there is a material factual dispute as to whether the proposed collective is similarly situated.” Id. at *21. Or, in other words, a plaintiff must “produce some evidence suggesting that they and the members of the proposed collective are victims of a common unlawful employment practice or policy.” Id, at *21-22. To counter a plaintiff’s evidence, an employer “must be permitted to submit rebuttal evidence and, in assessing whether a material dispute exists, courts must consider the extent to which plaintiffs engage with opposing evidence.” Id., at *22.It is not clear, however, the burden a plaintiff must satisfy to refute the defendant’s evidence to move forward.

In considering that threshold determination, the district court has the discretion to send notice or not.It also has the discretion to resolve some of the disputed issues, and narrow the scope of notice, or not. It also may authorize limited and expedited discovery to make the determination, or not. Id., at *24.It also has the discretion to allow a plaintiff to come forward with more evidence, or not. In essence, “[t]he watchword here is flexibility.” Id. And, with those principles in mind, the Seventh Circuit vacated and remanded for further proceedings consistent with the opinion.

Implications For Employers

The Seventh Circuit’s opinion is undoubtedly a win for employers, but the opinion introduces ambiguity into the equation with its focus on “flexibility.” See id. Plaintiffs in Illinois, Wisconsin, and Indiana can no longer rely on mere allegations to send notice and must wrestle with an employer’s evidence contradicting claims of a common unlawful policy or practice. This result is most certainly a win.

It is what comes next that is the problem. What is the level of scrutiny a district court must apply when deciding whether a plaintiff engaged with an employer’s evidence? Should a district court apply a one-step approach or two-step approach? Should it allow limited and expedited discovery? What is the standard to obtain such discovery? When should a court allow a plaintiff to come forward with more evidence? When should it not? All these questions go unanswered.

These unanswered questions continue to contribute to the procedural morass that employers must navigate in wage-and-hour collective actions under the FLSA. In addition to these questions, employers are also now navigating the 4-way circuit split on whether Lusardi applies at all and a separate circuit split, also discussed on our blog, regarding the applicability of Bristol Myers Squibb Co. v. Super. Ct. of Cal., 582 U.S. 255 (2017) to collective actions. With both issues ripe for consideration by the U.S. Supreme Court, corporate counsel facing a collective action should consider hiring experienced outside counsel to help navigate these complicated procedural issues and monitor this blog for further developments.

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

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

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

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

Case Background

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

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

The Supreme Court of Maryland’s Ruling

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

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

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

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

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

Implications for Employers

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

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

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

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

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

Case Background Leading to Wawa I

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

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

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

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

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

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

Third Circuit’s Decision in Wawa I

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

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

Third Circuit’s Decision in Wawa II

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

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

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

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

Implications of Wawa II Decision

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

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

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

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

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

Background

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

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

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

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

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

Implications Of The Decision

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

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