Gerald L. Maatman, Jr. – Page 16 – Class Action Defense

Duane Morris Takeaways – In a significant decision for retailers, Judge Manish Shah of the U.S. District Court for the Northern District of Illinois recently denied in part Defendant Estée Lauder’s motion to dismiss proposed class action claims that its consumer “try-on” technology violated the Illinois Biometric Information Privacy Act (“BIPA”). The Court rejected Defendant’s personal jurisdiction argument, as well as claims that its website terms and conditions required Plaintiff to arbitrate her dispute, and that Plaintiff lacked standing to sue on behalf individuals that used websites Plaintiff herself did not visit. In a decision entitled Kukovec v. The Estée Lauder Companies, Inc., Case No. 22-CV-1988 (N.D. Ill.), the Court determined, however, that Plaintiff did not sufficiently plead that the cosmetics giant intentionally or recklessly violated consumers’ biometric privacy rights, and thereby dismissed those claims. The ruling in Kukovec illustrates the ongoing legal risks for retailers in using “try-on” tech to enhance customer service.

Case Background

Too Faced Cosmetics, a cosmetics brand owned by Defendant Estée Lauder, operates a website featuring a try-on function to allows shoppers to virtually test its products. When a shopper clicks a “Try It On” button, a pop-up box appears containing a disclaimer informing the shopper that their “image will be used to provide you with the virtual try-on experience” and a link to a privacy policy. Id. at 4. If the shopper selects the “Live Camera” option, the user’s computer camera is activated and the product is overlaid on part or all of the user’s face. Id.

Plaintiff, an Illinois resident, alleged that Defendant’s try-on tool violated Section 15(b) of the BIPA by capturing users’ facial geometry without informing them how that data is collected, used, or retained. Id. at 6. Plaintiff also alleged that Defendant lacked a publicly-available written policy establishing how long such data is retained and when it is destroyed, in violation of Section 15(a) of the BIPA. Id. Plaintiff filed a putative class action lawsuit against Defendant, seeking to represent a class of individuals that used the virtual try-on tool not just on the Too Faced website, but also four other websites for Defendant’s other brands. Id. Defendant removed the case to federal court based on diversity jurisdiction and the Class Action Fairness Act, then moved to dismiss the complaint.

The Court’s Ruling On Defendant’s Motion To Dismiss

Defendant sought to dismiss Plaintiffs’ claims on four grounds, three of which the Court fully rejected.

First, Defendant argued that the Court lacked personal jurisdiction over it since its “Try On” tool was “geography neutral,” did not target Illinois consumers, and the mere accessibility of the tool to Illinois consumers lacked the substantial connection to Defendant’s sale of cosmetics and employees in Illinois. Id. at 8. The Court rejected this “overly narrow” interpretation of personal jurisdiction. It held that “[t]he try-on tool is part of [Defendant’s] cosmetics marketing and sales strategy,” since those that use the tool are also presented with buttons to add the products to their cart or send as a gift. Id. at 9.

Second, Defendant argued that venue was improper because Plaintiff’s claims were subject to arbitration pursuant to a provision in its website’s terms and conditions. Id. at 11. Central to the issue of whether Plaintiff had constructive knowledge of the arbitration agreement was whether the terms and conditions were presented in “clickwrap” form, where a customer has to affirmatively check a box to assent (as courts generally uphold such assent), or “browsewrap” form, where a customer’s continued use of a website is taken as passive assent (and which require more detailed analysis). Defendant’s website contained both clickwrap and browsewrap forms, but the Plaintiff only visited pages with browsewrap forms. Id. at 12. Users of the virtual try-on tool received a pop-up notification that had Too Faced’s privacy policy, not its terms and conditions, though the privacy policy contained a link to the terms and conditions. Id. On other pages, the terms and conditions were presented at the bottom of webpages “in the middle of fifteen links to other pages on the site and six links to social media platforms. . .” Id. The Court held such a website design insufficient to provide constructive notice, since a customer “could easily try the tool without once confronting the terms-and-conditions link.” Id. at 14. Further, the Court rejected Defendant’s argument that the Plaintiff had constructive notice because she recently filed two other BIPA-related lawsuits against TikTok and L’Oréal, noting that a website user “is not automatically on notice that any website she visits likely has terms and conditions just because she’s visited other websites that have them.” Id. at 15. Accordingly, the Court held that Plaintiff lacked constructive knowledge and that the arbitration clause could not be enforced against her.

Third, Defendant also sought to dismiss the complaint on the basis that it provided only “conclusory legal statements” and lacked sufficient facts establishing that Defendant captured users’ facial geometry, collected biometric data, or acted negligently, recklessly, or intentionally under the BIPA. Id. at 16. The Court disagreed. It found that the complaint “alleged enough to infer” that Defendant captured Plaintiff’s biometric information and “no intermediary separated the defendant from the collection of plaintiff’s facial geometry.” Id. at 17. However, since recklessness and intentionality require a specific state of mind that Plaintiff did not allege, the Court dismissed Plaintiff’s claims for reckless or intentional conduct, but allowed Plaintiff an opportunity to amend her complaint. Id. at 18.

Finally, Defendant contended that since Plaintiff did not use the websites of its four other brands that utilize the virtual try-on tool, she lacked standing to sue on their behalf. The Court noted that because no class had been certified, yet Defendant’s argument was premature. The Court reasoned that plaintiff “alleges an injury from a technology deployed across multiple websites” and that standing exists because Plaintiff’s injury “can be redressed by a decision in her favor.” Id. at 20.

Implications For Companies Using Biometric Equipment

By allowing consumers to “try-on” products in a virtual environment, retailers increasingly rely on biometric data to provide hyper-personalized services and recreate the real-world shopping experience for the virtual world. But as the popularity of try-on technology grows, so too does the legal risk from biometric data privacy lawsuits. Since 2019, numerous retailers have been sued for violating the BIPA and other state biometric privacy laws for their use of try-on tech and other digital tools to personalize consumer recommendations. The Kukovec decision highlights how new technologies expose companies to costly litigation, even when they take steps to notify consumers or mandate arbitration. Companies should consider how they notify customers regarding try-on technology, ensure that their privacy policies stay current with evolving legislation and competing definitions of “biometric data,” and implement proper safeguards and consent processes.

November 8, 2022December 1, 2023 by Gerald L. Maatman, Jr.

Judges Continue To Push For Diversity In Selecting And Approving Class Counsel

By Gerald L. Maatman, Jr., Jennifer A. Riley, Shaina Wolfe

Duane Morris Takeaways – Requiring a legal team’s diversity in the courtroom is part of a growing trend by federal judge in selecting lead counsel in a class action. On both sides of a class action, plaintiffs and defense teams are increasingly staffing cases with junior and diverse attorneys, and allowing them meaningful opportunities to participate in litigation. In turn, federal judges are viewing such staffing methodologies as part and parcel of good practice management.

Background

The push for diversity in the law is hardly new.

Federal district judges around the nation – including judges in California, Illinois, Massachusetts, New York, and Texas – have issued general standing orders that encourage legal teams to allow diverse and less experienced attorneys take the lead in various segments of court proceedings. And in 2021, George Washington Law School released a leading guide to best practices for MDL and class actions, which advocated that judges “make appointments consistent with the diversity of our society and justice system.” George Washington Law School, Inclusivity and Excellence: Guidelines and Best Practices for Judges Appointing Lawyers to Leadership Positions in MDL and Class-Action Litigation, at 1 (March 15, 2021).

Over the last couple of years, some judges have acted on George Washington Law School’s advice by facilitating opportunities for diverse and/or junior attorneys to have a role in their cases. For example, recently, on October 26, 2022, Magistrate Judge Gabriel Fuentes of the U.S. District Court for the Northern District of Illinois advised the parties in multidistrict litigation that he would be holding a video hearing to discuss expert discovery and argue motions, and that he expected junior attorneys to take the lead. John Gross and Co., Inc., et al. v. Agri Stats, Inc., et al., 1:19-CV-08318 (N.D. Ill. Oct. 26, 2022).

Other judges in class action lawsuits have strongly encouraged, or even required, counsel to be diverse. For example, Judge Susan Illston of the U.S. District Court for the Northern District of California approved lead counsel in a class action lawsuit but noted “the apparent lack of diversity, including by female lawyers, among the group that argued” at a recent hearing. Sayce v. Forescout Technologies, Inc., No. 20-CV-00076, 2020 WL 6802469, at *9 (N.D. Cal. Nov. 19, 2020). Judge Illston “strongly urge[d] all parties to this case to make meaningful litigation opportunities available to junior and underrepresented lawyers throughout the pendency of this action.” Id.

With the increase in newly appointed judges, it is likely that even more federal judges will follow suit by not only instituting standing orders, but also in requiring law firms to send their junior and diverse attorneys to court. Now, more than ever, it is important for law firms to hire diverse attorneys, teach diverse attorneys to handle small and complex matters, and retain their diverse attorneys by allowing them to meaningfully participate in legal proceedings.

Implications for Law Firms

We expect that more courts and clients will begin to consider, and perhaps require, the diverse makeup of legal teams at increasing rates. Law firms can prepare for this critical demand of diverse legal teams by hiring, retaining, and actively involving diverse and junior lawyers, in both big and small cases, at the outset.

November 7, 2022 by Gerald L. Maatman, Jr.

Illinois Federal Court Holds Private University Is Exempt From BIPA Regulations

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Alex W. Karasik

Duane Morris Takeaway: In an important ruling for higher education entities, Judge Robert Gettleman of the U.S. District Court for the Northern District of Illinois recently dismissed a student’s proposed class action alleging that Defendant’s remote test-proctoring software violated the Illinois Biometric Information Privacy Act (“BIPA”). The Court determined that Defendant DePaul University qualified as a financial institution exempt from the statute. Powell v. DePaul University, No. 21-C-3001, 2022 U.S. Dist. LEXIS 201296 (N.D. Ill. Nov. 4, 2022). Employers in the higher education space who are confronted with biometric privacy class actions can tuck this ruling away for potential use at the pleading stage.

Case Background

Plaintiff alleged that Defendant’s use of the Respondus Monitor, an online remote proctoring tool, violated the BIPA by capturing, using, and storing students’ facial recognition and other biometric identifiers and biometric information. Plaintiff specifically asserted that Defendant did not “disclose or obtain written consent before collecting, capturing, storing, or disseminating user’s biometric data, and failed to disclose what it does with that biometric data after collection, in violation of BIPA’s retention and destruction requirements. Id. at *2.

Defendant moved to dismiss the action pursuant to Rule 12(b)(6) for failure to state a claim. It argued that the BIPA’s express terms specify that it does not apply to financial institutions that are subject to Title V of the Gramm-Leach-Bliley Act (“GLBA”). Id. Defendant contended that since it was a participant in the U.S. Department of Education’s Federal Student Aid Program, it is considered a financial institution subject to Title V of the GLBA. Defendant contended that both the Federal Trade Commission (“FTC”) and the Department of Education (“DOE”) have recognized that universities are considered financial institutions under the GLBA. Defendant also asserted that Title V rulemaking authority lies with the Consumer Financial Protection Bureau (“CFPB”), which adopted and republished the privacy rules originally promulgated by the FTC. The FTC rules state that any institution “significantly engaged in financial activities” is a financial institution. Id. at *5.

Plaintiff argued that Defendant was not a financial institution, but rather was in the business of higher education. Thus, Plaintiff contended that Defendant was not subject to Title V, and therefore subject to the BIPA.

The Court’s Decision

The Court granted Defendant’s motion to dismiss. First, the Court noted that at least five other district courts have ruled on the same issue and rejected Plaintiff’s argument, and have determined that the BIPA’s section 25(c) exemption for financial institutions applies to institutions of higher education. Id.

In support of its conclusion, the Court found that the guidance provided by the CFPB included examples demonstrating the word “significantly” means something less than “primary.” Id. at *8. Accordingly, the Court rejected Plaintiff’s argument that the exemption should not apply was because Defendant was not primarily in the financial business. Id.

The Court further explained that the DOE provided issued public guidance in 2020 reiterating that the GLBA required financial institutions to have information privacy protections, and that the FTC “has enforcement authority for the requirements and has determined that institutions of higher education (institutions) are financial institutions under GLBA.” Id. at *4-5.

Additionally, the Court opined that the FTC’s rule, made in 2000 when it had enforcement and rulemaking authority under the GLBA, also considered universities to be financial institutions if they “appear to be significantly engaged in lending funds to consumers.” Id. at *6. The Court reasoned that the consistent interpretation of the statute by multiple entities was particularly persuasive in finding that the claims should be dismissed. For these reasons, the Court granted Defendant’s motion to dismiss Plaintiff’s claims with prejudice.

Implications For Employers

In the BIPA class action landscape, federal and state courts in Illinois have rejected many potential affirmative defenses that employers have used to try and stave off these massive cases. However, even though the exemption is somewhat narrow, higher education institutions now have a blueprint to attack BIPA class actions at the pleading stage. Finally, to the extent states beyond Illinois enact similar privacy statutes, this ruling may be of use to higher education institutions in those states that are confronted with class actions.

November 7, 2022 by Gerald L. Maatman, Jr.

What Employers Should Know About The EEOC’s Draft Strategic Plan For FY 2022-2026

By Gerald L. Maatman, Jr., Jennifer A. Riley, Rebecca S. Bjork, and Gregory Tsonis

Duane Morris Takeaways: On November 4, 2022, the U.S. Equal Employment Opportunity Commission released a preliminary draft of its 2022-2026 Strategic Plan. According to its preliminary draft, the EEOC plans to focus its internal operations over the next four years to make changes that it hopes will improve its performance securing targeted injunctive relief and conducting systemic investigations, along with its use of technology to process charges and conciliate them. The four-year plan – which is distinct from the EEOC’s strategic enforcement plan, still to be released in the coming months – was published in the Federal Register and is open for comment until December 4, 2022. Even if employers do not submit comments, they would be well-advised to review the draft and final Plan once it is announced because it provides a window into the EEOC Commissioners’ thinking for how the agency will use its resources to redress and deter workplace discrimination.

Introduction

Every four years, the EEOC prepares a Strategic Plan that drives how it will improve its internal operations to better enforce federal anti-discrimination laws. The Plan for 2022-2026 that has now been published in the Federal Register is important because once it is finalized after the review and comment period expires, it will set forth specific goals along with performance metrics to measure how well those goals are being met. The key elements of the draft Plan and why they are important are critical data points for employers.

Operational Improvements And Performance Metrics Sought By The EEOC

The 2022-2026 Strategic Plan draft signals that when investigating private sector employers, the EEOC will focus its internal operations on four key areas. First, the EEOC will ensure that by FY 2025, “90% of EEOC conciliations and litigation resolutions contain targeted, equitable relief and that level is maintained through FY 2026.” (Draft Strategic Plan at 15.) The draft Plan explains the EEOC’s view that such a goal likely would improve compliance with the statutes enforced by the agency nationwide.

Second, between FY 2022 and 2026, the EEOC aims to continue to “favorably resolve at least 90% of enforcement lawsuits.” (Id. at 16.) On this point, the EEOC explains that because its systemic litigation program is resource intensive, this goal is important to enable the agency to use its resources in a wise and efficient manner. Employers who have faced systemic lawsuits are well-aware of the amount of litigation resources they can consume, both for the companies involved and the EEOC.

Third, “In each year through FY 2026, the EEOC will provide training to all field staff on identifying and investigating systemic discrimination, and at least 90% of investigators and trial attorneys will participate in systemic training each year.” (Id.) The draft Plan explains that the purpose of this goal is “expanding the EEOC’s capacity to conduct systemic investigations, resulting in a coordinated, strategic, and effective approach to systemic enforcement.” (Id.) This likely signals that the draft Strategic Enforcement Plan will continue to emphasize and prioritize the EEOC’s use of pattern or practice lawsuits to enforce the statutes over which Congress gave it authority.

Fourth, “the EEOC will make significant progress toward enhanced monitoring of conciliation agreements, leading to a more robust compliance program.” (Id. at 17.) The Commission’s focus here is to implement “streamlined and standardized procedures, improved tracking and internal reporting mechanisms, and related training for EEOC field staff” to ensure that conciliation agreements are reached and enforced. (Id.).

Finally, the EEOC continues to be aware that its charge intake process needs work. The draft Plan pledges to leverage technological advancements to “enhance its intake services to potential charging parties, respondents, and representatives.” (Id. at 19.)

Implications For Employers

The EEOC’s FY 2022-2026 draft Strategic Plan is a document that provides insight into the direction the agency will take to improve how it functions.

With a nod the old E.F. Hutton TV commercial, “when the EEOC speaks, employers should listen…”

November 3, 2022 by Gerald L. Maatman, Jr.

Massachusetts State Court Rules In Class Action That A Multiple-Choice Promotional Test Discriminated Against Minority Police Officers

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Gregory Tsonis

Duane Morris Takeaways – In Tatum et al. v. Commonwealth of Massachusetts, et al., C.A. No. 0984-CV-00576 (Mass. Sup. Ct. 2022), a Massachusetts state court judge conducted a class trial found that a multiple-choice promotional exam – used for years by various police departments to determine promotions – discriminated against Black and Latino police officers in violation of Massachusetts law. In analyzing the test format, which largely required “rote memorization,” the court opined that the exam failed to adequately test for the relevant job qualifications, as well as the police departments’ use of a ranking system from which candidates were selected for promotion. Ultimately, the court held that the test and ranking system adversely impacted minorities and interfered with their ability to promote to sergeant. The decision demonstrates why employers must be careful to implement policies and processes that do not have a discriminatory impact, even if on their face such policies and practices appear to be neutral.

Case Background

The Commonwealth of Massachusetts’ Human Resource Division (“HRD”), for 50 years, administered a written multiple-choice test to police officers to determine promotion to sergeant. Id. at 4. Officers were ranked almost exclusively according to their scores on the written examination, with individuals at the top of the list being first in line for promotion. In 2007, certain police officers that were subject to the written examination sued the Commonwealth of Massachusetts, and the municipalities in which they worked as police officers. They alleged that the testing process unfairly discriminated against them due to their race and national origin in violation of state and federal law. Id. at 2. The U.S. Court of Appeal for the First Circuit, in an interlocutory appeal, held that state defendants did not qualify as “employers” under Title VII and were entitled to sovereign immunity, thereby resulting in the dismissal of state law claims against the state defendants, which the plaintiffs subsequently re-filed in state court. Id. Though the Massachusetts state court initially dismissed the entire action based on the First Circuit decision, the Massachusetts Supreme Judicial Court remanded several claims, rejected the defense of sovereign immunity, and held that the plaintiffs could be entitled to relief under Massachusetts law prohibiting discrimination. Id. at 3. The state trial court subsequently certified a class of current and former police officers that took the written examination administered by HRD in certain years between 2005 and 2012. Id.

Ultimately, the plaintiffs lost their federal court case after a bench trial, with the federal court finding that the tests had a disparate impact on minorities but that plaintiffs failed to prove that Boston refused to adopt an alternative test with less disparate impact. Id. Though the defendants in the state court case tried to dismiss the entire state court action based on the federal court’s decision, the Massachusetts Appeals Court held that defendants did not show issue preclusion and it authorized the case for trial. Id. at 3-4. The state trial court conducted a two-week bench trial in June and July of 2022 limited to the issue of class-wide liability. Id. at 1.

The State Court’s Findings Of Fact And Conclusions Of Law

The state court found a “massive amount of evidence proving the known and unjustified disparate impact” of HRD’s testing format. Id. at 1. Turning first to the format of the test, the court noted that exam questions “largely test for rote memorization of facts and passages taken directly from textbooks that candidates are asked to study,” and studies commissioned by the HRD over the years to measure the test’s efficacy “did not identify test-taking skills and lack of test-related anxiety as job related.” Id. at 8. The multiple choice portion of the test accounted for 80% of a candidate’s score, with 20% coming from an “Education and Experience” form that each candidate would complete. Id. The court explained that the allocated percentages had no discernible basis, and further disparaged the Education and Experience portion since every officer received 14 of the 20 available points simply for being able to sit for the exam. Id. at 8, 28. Though HRD worked with consultants and subject matter experts to identify the knowledge, skills, and abilities (“KSAs”) important to the job of sergeant, the court noted that the multiple choice questions could only test for 22% to 40% of the relevant KSAs and “did not in fact test for some skills that could have been tested” due to the types of multiple choice questions asked. Id. at 13-15. Rather than focusing on abstract knowledge and memorization of academic textbooks, the court reasoned that questions testing situational judgment, for example, should have been used but were not. Id. at 19.

Given the format of the multiple-choice exam and the types of questions asked, the court observed that a racial disparity existed based on test-taking ability, and not on job qualifications. Noting that “[t]est taking skills are built through practice,” the court adopted the opinions of expert witnesses who testified that “minorities, in general, have had fewer opportunities to participate in our educational system” and differences in average test scores of minorities on tests of cognitive abilities “is due to socioeconomic differences, lack of access to opportunity, and structural racism that exists within the system.” Id. at 26. Ultimately, the court found that “[b]ecause HRD failed to test many important KSAs, measured test-taking skills and memorization, enabled test-related anxiety to affect results and failed to ask questions that focused upon measuring job-related knowledge, its format did not rank candidates for promotional purposes on a basis that was substantially job related.” Id. at 14.

The court also noted that HRD had knowledge of the shortcomings and adverse impact of its tests before and during their use. A 1987 job analysis conducted by a consulting firm recommended that a written test “did not assess many of the attributes needed for the job” and “should account for no more than 40% of the overall score.” Id. at 16. In addition, a study conducted for the Boston Police Department in 2000 advised HRD that an examination should include non-written components, such as an assessment center and performance review system. Id. at 17. The failure to include a performance based assessment technique, the court explained, “injects extraneous influences (such as test-taking ability and temporary memorization skills) into the selection process.” Id. Analysis of the rate of minorities’ promotion to sergeant showed that minorities were promoted at a drastically lower rate than non-minority officers. Id. at 17-19.

The court further determined that Defendants failed to adopt alternatives that would have minimized or eliminated the adverse impact of the tests on minority test-takers. The tests could have contained fewer questions, reducing the “large cognitive loads” and memorization required, in order to reduce the adverse impact. Id. at 45. Rather than using questions that require “rote memorization,” HRD could have used questions that tested situational judgment and were written in plain language instead of “convoluted phrases.” Id. Most notably, banding, in which scores within a range are treated as equal, would have reduced adverse impact because there was no evidence that a police officer that scored one point higher than another was more qualified or would make a better sergeant. Id. at 45-46. Further, HRD adopted 11-point bands in 2009 at the recommendation of a consultant. Id. Finally, the use of other testing methods, such as oral assessments and performance reviews, to assess nonwritten skills “such as leadership, conscientiousness, calmness under pressure, decision-making, interpersonal skills, and oral communication” would have reduced the adverse impact of the tests. Id. at 47.

As a result of the myriad shortcomings of HRD’s written tests, the Court described at length the statistically significant adverse impact of the tests on minority test-takers across all years as compared to white test-takers in the form of lower passing rates, lower overall scores, lower rate of promotion of minority police officers, and increased delay in promotion of minority police officers. Id. at 34-42. Given the adverse impact on scoring and the use of a rank-order list to determine promotions, the court found an adverse impact on the ability and timeliness of minority police officers to achieve promotion to sergeant. Id. at 57. The multiple-choice format of the exam and the ranking of candidates were not job-related, the court also held, given the invalidity of the exam and ranking process. Id. at 61-63. Based upon its factual findings, the court held that “[o]verwhelmingly persuasive evidence proves that HRD interfered with the class members’ rights to consideration for promotion to police sergeant without regard to race or national origin.” Id. at 75.

Implications for Employers

The Tatum decision illustrates why employers with criteria for promotion must be cognizant of how such testing systems may adversely impact classes of individuals in violation of state and federal law. While the testing system used in this case appeared neutral, in practice the test and ranking system resulted in less promotions and increased delay in promotions for minorities. This case demonstrates the potential for costly and years-long class action lawsuits stemming from employer policies and practices in determining promotions. Given these risks, it behooves employers to ensure that neutral policies and practices do not adversely impact groups of individuals.

October 17, 2022 by Gerald L. Maatman, Jr.

Indiana Court Of Appeals Strikes Down Class Action COVID-19 Immunity Statute

By Gerald L. Maatman, Jr, Jennifer A. Riley, and Gregory Tsonis

Duane Morris Takeaways – In Mellowitz v. Ball State University and Board of Trustees of Ball State University, et al, No. 22A-PL-337 (Ind. Ct. App. Oct 5, 2022), the Indiana Court of Appeals struck down a 2021 law that sought to protect in-state universities from class action liability related to the shutdown of university campuses during the COVID-19 pandemic. While the law stated that individuals “may not” bring class actions against universities resulting from actions taken to defend against the spread of COVID-19, the Indiana Court of Appeals held that the statute was “procedural” and in conflict with Rule 23 of Indiana’s Rules of Trial Procedure, which states that individuals “may” proceed as a class under certain circumstances. The Court’s ruling is important, as it puts at risk other statutes passed in Indiana and other states restricting class actions against businesses for COVID-19-related claims.

Background Of The Case

In 2020, Plaintiff Keller J. Mellowitz, a student at Ball State University, filed a putative class action asserting claims for breach of contract and unjust enrichment against Ball State as a result of the university’s decision to cancel in-person classes during the COVID-19 pandemic. Id. at 3. After the complaint was filed, the Indiana General Assembly in 2021 enacted Public Law 166-2021, part of which was codified as Indiana Code Section 34-12-5-7 (“Section 7”) and barred class actions against post-secondary educational institutions for claims of breach of contract and unjust enrichment arising from COVID-19. Ball State subsequently sought relief from Plaintiff’s lawsuit under Section 7, which the trial court granted, and Plaintiff appealed. Id. at 5.

The Appellate Court’s Ruling Reversing And Remanding the Trial Court’s Decision

Plaintiff argued on appeal that, as a procedural statute, Section 7 impermissibly conflicts with Indiana Trial Rule 23, which governs class-action procedures and sets forth the requirements to proceed as a class action, thus rendering Section 7 a “nullity.” The Indiana Court of Appeals began its analysis recognizing longstanding precedent establishing that in a conflict between a procedural statute and the Indiana Rules of Trial Procedure, “the trial rules govern,” however trial rules “cannot abrogate or modify substantive law.” Id. at 6-7. Whether a law was “substantive,” the Court explained, depended on whether it established “rights and responsibilities” whereas procedural laws merely prescribed “the manner in which such rights and responsibilities may be exercised.” Id. at 7.

In analyzing the specific statutes at issue, the Court of Appeals examined Indiana’s analog to Federal Rule 23, which sets forth the criteria for bringing a class action. The Court of Appeals noted that Indiana Trial Rule 23 was indisputably a procedural rule that allows a plaintiff, when the appropriate criteria are met, to assert his or her claims on behalf of others. Turning to Section 7, the Court of Appeals explained that the statute did not affect any plaintiff’s substantive right to bring a suit for breach of contract or unjust enrichment, but simply “frustrates them by encouraging a multiplicity of lawsuits from similarly situated plaintiffs.” Id. at 14. While Ball State argued that the law protected Indiana universities from “widespread legal liability” from actions taken to combat and mitigate the spread of COVID-19, the Court of Appeals found the argument “unpersuasive,” explaining that since Section 7 did not prevent any individual plaintiff from asserting the same claims against universities, it therefore “does not reduce the institutions’ potential legal liability in the slightest.” Id. at 14-15. Ball State also argued that adopting Plaintiff’s “extreme position” would endanger two similar laws passed by the Indiana Legislature, which sought to protect business owners from class-action tort liability. Id. at 15 n.6. The Court rejected Ball State’s argument. It determined that it had “no opinion” on those statutes since they were not before it in the appeal. Id.

With Indiana Trial Rule 23 stating that a plaintiff “may” bring a class action and Section 7 stating the plaintiff “may not,” the Court of Appeals held that both laws could not apply in a given situation and, as a result, Section 7 was a “nullity.” Id. at 15. The Court of Appeals therefore reversed the trial court’s ruling and remanded the case for further proceedings.

Implications for Employers

While Ball State will very likely appeal this decision to the Indiana Supreme Court, the rationale adopted by the Indiana Court of Appeals could undermine similar statutes meant to protect Indiana employers from class action liability resulting from actions taken in response to the COVID-19 pandemic. As many other states throughout the country similarly passed laws meant to protect businesses from liability due to COVID-19, the Mellowitz decision provides a potential avenue for plaintiffs to challenge laws in other states. Mellowitz demonstrates that employers should continue to be aware of the potential for class action lawsuits stemming from response to the COVID-19 pandemic, despite efforts by Indiana’s legislature and other states’ legislatures to prevent such costly, high-risk litigation.

October 14, 2022June 7, 2023 by Class Action Defense

Alabama Federal Court Affirms $13 Million Default Judgement Against Employer In A Wage & Hour Collective Action For Discovery Failures

By: Gerald L. Maatman Jr., Jennifer A. Riley, and Aaron A. Bauer

Duane Morris Takeaways – In Hornady v. Outokumpu Stainless USA, No. 1:18-CV-317 (S.D. Ala. Oct. 4, 2022), the U.S. District Court for the Southern District of Alabama upheld its sanction of a default judgement against the defendant on all of the Fair Labor Standards Act claims brought by a collective action of current and former employees. In affirming a default judgment of approximately $13 million, the Court cited the employer’s repeated failure to produce pay records, time records and incentive plan data during discovery. Such a catastrophic outcome demonstrates the importance of reliable and honest client communication and responsible and reasonable conduct at all stages of discovery in complex employment-related litigation.

Background Of The Case

In 2018, Plaintiff William Hornady filed a collective action against his former employer Outokumpu Stainless (“OTK”) alleging violations of the Fair Labor Standards Act (“FLSA”) for overtime and timekeeping record violations. The case proceeded to discovery, and on November 18, 2021, things quickly unraveled for OTK when the Court found that the company had “acted in pervasive bad faith throughout the discovery process of this entire case…” Id. at 3. As a result, the Court sanctioned OTK by entering non-final default judgement against the company, thereby holding it liable for all of plaintiffs’ FLSA claims. Id. at 6-7. Earlier this year, OTK challenged this ruling by filing a motion to reconsider the order granting default judgement.

The Court’s Ruling Denying Reconsideration Of The Default Judgement

In seeking reconsideration of the decision to grant default judgement, OTK urged the Court to apply the “good cause” standard of review, under Rule 55 of the Federal Rules of Civil Procedure, which allows courts to evaluate many different factors such as willfulness, prejudice, and whether the defaulting party might have a meritorious defense for purposes of determining whether to reconsider an order of a default judgement. Id. at 7. However, the Court declined to apply this “good cause” standard. Instead, it to use the stricter standard of Rule 54, which allows courts to reconsider interlocutory decisions if there is “evidence of an intervening change in the controlling law, the availability of new evidence, or the need to correct clear error or manifest injustice.” Id. at 12.

Given OTK’s failure to introduce newly available evidence disputing the Court’s previous finding that defense counsel had failed to meet its “discovery obligations,” the Court rejected OTK’s argument that the Court had abused its discretion by improperly imposing “death penalty” sanctions in the form of default judgement. Id. at 14. Specifically, the Court noted that it had ordered OTK to produce pay, time, and incentive plan records on “twelve (12) separate occasions spanning almost three years.” Id. at 17-18. When OTK finally did produce pay records, they were incomplete, and did not even include rate of pay data. Id. The Court also noted that the Magistrate Judge assigned to the case had originally recommended lesser sanctions against OTK. However, while a ruling on this lesser sanction was pending, the Court opined that OTK “engaged in additional sanction-worthy behavior” during discovery. Id. at 15.

OTK attempted to shift the blame for these discovery shortcomings to its payroll software provider and former outside counsel for the case. OTK argued that it could not have produced the formula used to calculate the regular rate of pay (“RROP”) for its employees, as the Court had ordered, because this formula came from the proprietary software of ADP, which OTK would have had to obtain through a subpoena. Id. at 23-24. In reality, the Court observed that it had previously ordered OTK to subpoena ADP for this data in 2020, a year before the entry of default judgement. Id. at 24. For this reason, OTK could no longer argue that the requirement to subpoena ADP was newly available evidence that might allow the Court to reconsider its sanctions order. Moreover, the Court noted that OTK’s failure to produce the RROP data had not been its “primary failing” because OTK also failed to produce hourly pay rates. Id. at 25.

The Court also rejected OTK’s contention that its failures during the discovery process should be attributed to its former outside counsel in the case. Id. at 27-28. In support of this position, OTK submitted emails of its former counsel that purported to show that it had been “kept in the dark… as to what was actually occurring” in discovery. Id. However, the Court found that these emails could only “provide insight into a fraction of the circumstances” leading to the default judgement. Id. at 29. Regardless of whether these emails provided a legitimate excuse for all of OTK’s failures during the discovery process, the Court determined that the emails did not constitute newly available evidence, as OTK had failed to submit them to the Court when it was first facing default judgement sanctions. Id. at 30. Given this record, the Court placed the blame squarely on OTK for failing to “produce accurate and complete time and pay records.”

Implications for Employers

The $13 million sanction of a default judgment in the case is an eye-opener for any litigant. The Hornady decision demonstrates that employers who fail to actively engage and communicate with their outside counsel on a regular basis do so at their own peril. To avoid such a disastrous outcome, clients should always expect and demand regular and truthful case status updates, especially in class and collective actions where the stakes can be so high.

October 13, 2022October 17, 2022 by Class Action Defense

$228 Million Judgment Entered In First Ever BIPA Class Action Trial Before A Chicago Jury

By: Gerald L. Maatman, Jr., Jennifer A. Riley, and Alex W. Karasik

Duane Morris Synopsis: In Rogers v. BNSF Railway Co., Case No. 19-CV-03083 (N.D. Ill.), the first federal court jury trial in a case brought under the novel Illinois Biometric Information Privacy Act (“BIPA”), the plaintiffs secured a verdict in favor of the class of 45,000 workers against Defendant BNSF. After a week-long trial in the U.S. District Court for the Northern District of Illinois in Chicago, the jury found that BNSF recklessly or intentionally violated the law 45,600 times, based on the defense expert’s estimated number of drivers who had their fingerprints collected. The Court thereafter entered a judgment against BNSF for $228 million.

This landmark verdict showcases the potentially devastating impact of the BIPA statute on unwary businesses across the state of Illinois that collect, use, or store biometric information.

Case Background

Plaintiff, a truck driver, filed a class action lawsuit alleging that BNSF unlawfully required drivers entering the Company’s facilities to provide their biometric information through a fingerprint scanner. He claimed that BNSF collected the drivers’ fingerprints without first obtaining informed written consent or providing a written policy that complied with the BIPA and therefore violated sections 15(a) and (b) of the BIPA. BNSF argued that it did not operate the biometric equipment and instead sought to shift blame to a third-party vendor who operated the biometric equipment that collected drivers’ fingerprints.

The case proceeded before a jury in federal court in Chicago. The proceeding was closely watched, as it represented the very first time any class action had gone to a full trial with claims under the BIPA

The trial lasted five days. However, the jurors deliberated for just over an hour. The jurors were asked to: (1) indicate on the verdict form whether they sided with Plaintiff, and (2) if so, indicate how many times BNSF violated the BIPA negligently or how many times the company violated the statute recklessly or intentionally.

The BIPA provides for damages of $1,000 for every negligent violation, and up to $5,000 in liquidated damages for every willful or reckless violation. At the conclusion of the trial, the jury found that BNSF recklessly or intentionally violated the law 45,600 times. Accordingly, the Court entered a judgment against BNSF in the amount of $5,000 per violation, for a total amount of $228 million.

Implications For Employers

This verdict undoubtedly will embolden the plaintiffs’ class action bar and equally serve as an eye opener for businesses in Illinois. In the short term, companies can expect an uptick in the number of BIPA class actions filed by the plaintiffs’ bar. While it is almost certain that the verdict will be challenged in post-trial motions and in an appeal, companies can expect that plaintiffs’ lawyers will increase their settlement demands in other BIPA class actions.

The BIPA vastly increases the importance of adopting a strategic compliance plan for businesses that operate in Illinois. It is more important than ever for companies to implement proper mechanisms and consent forms to comply with the BIPA.

October 13, 2022July 5, 2023 by Class Action Defense

Montana Federal Court Denies Class Certification In Gender Discrimination Litigation

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Michael DeMarino

Duane Morris Takeaways – In Cole, et al. v. Montana University System, at al., 21-CV-88 (D. Mont. Oct. 3, 2022), the U.S. District Court for the District of Montana recently denied certification of a Title IX class action alleging discrimination and harassment on the basis of sex. The decision in Cole is an important one for employers, as it is a reminder that Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), is still a major obstacle to class certification of broad discrimination claims. Companies and their corporate counsel are well-served to heed the lessons of Cole and center their class certification defense strategy around the commonality requirement articulated in Wal-Mart Stores, Inc.

Background Of The Case

Plaintiffs were a group of women suing Defendants for alleged violations of Title IX and sought to certify a class of approximately 76 women who allegedly experienced harassment, retaliation, and/or discrimination on the basis of their sex. Plaintiffs alleged that Defendants either forced them to resign, terminated their positions, or limited their options for professional growth. Id. at 3-5.

Specifically, Plaintiffs alleged that Defendants fostered a “good ol’ boys club” culture, favoring male athletes and employees, while excluding Plaintiffs from participating in activities and benefits regularly afforded to their male counterparts. Id. at 3-9.

Against this backdrop, Plaintiffs alleged that a “retaliatory culture blossomed” and that all Plaintiffs experienced direct retaliation or the fear of retaliation for speaking out against Defendants’ alleged discriminatory conduct. Id. at 8-9.

The Court’s Class Certification Ruling

After the parties filed competing motion papers in support of class certification, and to deny class certification, the Court issued a lengthy and thorough order, which ruled that Plaintiffs failed to satisfy the requirements for class certification. At the heart of the Court’s analysis was Rule 23(a)’s commonality requirement, which ultimately drove the Court’s decision to deny class certification.

Analyzing the evidence and the parties’ submissions, the Court noted that Plaintiffs’ claims appeared to be too disparate to be resolved in one stroke, which is key to satisfying Rule 23(a)’s commonality requirement. In reaching that conclusion, the Court relied extensively on the U.S. Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011). Specifically, the Court found that Plaintiffs failed to identify an employment practice that ties together the putative class members to satisfy the U.S. Supreme Court’s reasoning in Wal-Mart Stores, Inc.

Plaintiffs, for their part, argued that the Ninth Circuit had adopted a “permissive view of commonality” in employment discrimination claims and that the existence of shared legal issues with divergent factual predicates was sufficient to satisfy commonality. The Court, however, rejected this argument. It opined that its analysis was “constrained” by Wal-Mart Store, Inc. Id. at 17.

The Court reasoned that, according to Wal-Mart Stores, Inc., commonality requires both a shared legal theory and shared facts such that determination of one claim can answer all others. Citing Wal-Mart Stores, Inc., the Court noted that there are only two mechanisms to bring a class claim alleging broad discrimination, including: (1) show that the employer used a biased testing procedure to evaluate potential employees; or (2) provide significant proof that the employer operated under a general policy of discrimination.

Based on its analysis, the Court held that Plaintiffs failed to demonstrate that Defendants acted under a general policy of discrimination and the injuries alleged required distinct inquiries into each Plaintiff’s circumstances, qualifications, and the alleged discrimination.

For similar reasons, the Court also concluded that Plaintiffs could not satisfy Rule 23(b)’s predominance requirement because individualized issues were more prevalent than common ones and Defendants’ liability was not subject to common proof.

As a result, the Court denied Plaintiffs’ motion for class certification without prejudice.

Implications For Employers

The ruling in Cole underscores the importance that Wal-Mart Stores, Inc. v. Dukes plays in employment discrimination cases. At times, the Court was sympathetic to Plaintiffs, and recognized the inherent evidentiary problems in broad employment discrimination cases. The Court even lamented the “harsh nature of the standard as imposed on a discrimination case.” Id. Nevertheless, Wal-Mart Stores, Inc. proved to be too much of an obstacle to Plaintiffs’ class certification theories.

The lesson from this decision is that employers should center their class certification defense strategy on the key holdings in Wal-Mart Stores, Inc., particularly the fact that commonality requires both a shared legal theory and shared facts. Cole teaches that because it is somewhat easier for plaintiffs to assert shared legal theories, employers should focus on divergent facts.

October 12, 2022October 19, 2022 by Class Action Defense

Illinois District Court Rejects “Trio” Of BIPA Defenses in Denying Motion to Dismiss

By: Gerald L. Maatman, Jr., Jennifer A. Riley, and Tyler Z. Zmick

Duane Morris Takeaways: In Trio v. Turing Video, Inc., No. 21-CV-4409, 2022 WL 4466050 (N.D. Ill. Sept. 26, 2022), the Court issued yet another plaintiff-friendly decision under the Illinois Biometric Information Privacy Act (“BIPA”), putting businesses on notice that the statute can apply to technology used to screen individuals for purposes of preventing the spread of COVID-19. The Court denied the three arguments raised in the Defendant’s motion to dismiss, and held that: (1) personal jurisdiction existed because the Defendant sent “biometric” devices to multiple Illinois-based customers; (2) the Plaintiff’s claims were not preempted by the Labor Management Relations Act; and (3) Plaintiff adequately alleged claims under BIPA. The ruling in Trio ought to be required reading for corporate counsel dealing with privacy class action litigation.

Background

Plaintiff alleged that Defendant Turing Video, Inc. sold “products integrated with artificial intelligence,” including the Turing Shield, a “kiosk that allows Turing’s customers to screen their employees for COVID-19.” See Mem. Op. & Order at 2. According to Plaintiff, the Turing Shield works by screening a user’s temperature through the device’s camera, thereby using its “artificial intelligence algorithm” to recognize the user based on his or her facial geometry, and detecting whether the user is wearing a protective mask. Plaintiff also alleged that data collected through the Turing Shield was transmitted to third parties who host that data.

Plaintiff previously worked in Illinois for New Albertson’s, Inc. d/b/a Jewel-Osco, where she used the Turing Shield at the start of each workday as part of the store’s COVID-19 screening process. Based on her use of the device, Plaintiff claimed that Turing violated the BIPA by: (i) failing to inform her that the Turing Shield would collect her biometric data, and (ii) disseminating her biometric data to third parties without her consent.

Turing moved to dismiss on three grounds, including: (1) that the Court lacked personal jurisdiction; (2) Plaintiff’s claims were preempted by the Labor Management Relations Act; and (3) Plaintiff failed to state a claim upon which relief could be granted.

The Court’s Decision

The Court denied Turing’s motion to dismiss on all three grounds.

Personal Jurisdiction

Turing argued that the Court lacked specific personal jurisdiction because Turing was a non-forum (i.e., California) resident that sold the devices used by Plaintiff to a non-party, Jewel-Osco (also a non-forum resident), and Jewel-Osco brought the devices into Illinois without Turing’s involvement.

The Court held that the evidence – which showed Turing had over 30 Illinois-based customers and had shipped Turing Shields into Illinois – established that Turing had the requisite minimum contacts with Illinois to establish personal jurisdiction.

Labor Management Relations Act Preemption

The Court next addressed Turing’s argument that Plaintiff’s claims were preempted by Section 301 of the Labor Management Relations Act (the “LMRA”), which establishes federal jurisdiction over “suits for violations of contracts between an employer and a labor organization representing employees in an industry affecting commerce.” Courts typically interpret Section 301 as preempting state law claims that are “substantially dependent on analysis of a collective-bargaining agreement.” Id. at 18.

Here, Plaintiff was represented by a union and subject to a collective bargaining agreement (“CBA”) while employed at Jewel-Osco. Based on those facts, Turing claimed that resolving Plaintiff’s BIPA claims for alleged privacy invasions sustained through her work required the Court to interpret the CBA. The Court disagreed. It held that Plaintiff’s claims were not preempted because the Court could resolve the claims without interpreting the CBA.

The Court recognized that the Seventh Circuit has held that federal law preempts BIPA claims brought by certain union-represented employees against their employers. See Miller v. Southwest Airlines Co., 926 F.3d 898, 903 (7th Cir. 2019); Fernandez v. Kerry, Inc., 14 F.4th 644, 646-47 (7th Cir. 2021). The Court distinguished those cases because Turing was not a party to the CBA, and “Turing’s obligations under BIPA stand wholly independent of whether Plaintiff’s union may have consented to Jewel-Osco . . . collecting and disseminating her biometric data. In other words, resolution of the state law BIPA claims would not require this Court to interpret any [CBA], and instead depend upon the entirely unrelated question of whether Turing provided Plaintiff with the necessary disclosures and obtained from her the required written release before it collected and disseminated her biometric information.” Mem. Op. & Order at 20-21.

Extraterritoriality & PREP Act Immunity

Finally, the Court rejected Turing’s arguments that: (i) Plaintiff failed to allege that Turing’s relevant conduct occurred in Illinois, and (ii) the Public Readiness and Emergency Preparedness Act (the “PREP Act”) immunized Turing from BIPA liability. Regarding extraterritoriality, the Court held that Plaintiff sufficiently alleged that Turing’s conduct occurred “primarily and substantially” in Illinois, thereby satisfying the “extraterritoriality doctrine.” Id. at 25. Regarding PREP Act immunity, the Court noted that the PREP Act provides immunity from liability relating to the “use of a covered countermeasure” upon the declaration of a public health emergency by the Secretary of the Department of Health and Human Services. The Court held that PREP Act immunity did not apply because the Food and Drug Administration had not approved the Turing Shield, meaning the device did not satisfy the definition of a “covered countermeasure.” Id. at 28.

Conclusion

Trio can be added to the list of recent plaintiff-friendly BIPA decisions, as it reinforces the growing consensus that multiple private entities can be subject to liability under the statute for what may seem like a single “violation.”

The case also raises a potential hurdle to asserting jurisdictional defenses to BIPA claims based on its holding that personal jurisdiction can exist even where the defendant does not send into Illinois the specific device used to collect a plaintiff’s “biometric” data. Other courts, however, appear more willing to dismiss BIPA claims on personal jurisdiction grounds. See, e.g., Gutierrez v. Wemagine.AI LLP, Case No. 21-CV-5702, ECF No. 32, Mem. Op. & Order at 1 (N.D. Ill. Oct. 7, 2022) (available here) (dismissing BIPA case for lack of personal jurisdiction despite plaintiffs’ allegation that defendant’s app “derives substantial revenue from nearly 5,000 Illinois-based users”).