Rebecca S. Bjork – Class Action Defense

February 19, 2024 by Eden Anderson

Illinois Federal Court Orders Samsung To Defend 806 Individual BIPA Claims In Arbitration And Pay $311,000 In Arbitration Filing Fees

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

Duane Morris Takeaways: On February 15, 2024, the Judge Harry Leinenweber of the U.S. District Court for the Northern District of Illinois granted a motion to compel arbitration in Hoeg et al. v. Samsung Electronics of America, Inc., Case No. 23-CV-1951 (N.D. Ill. Feb. 15, 2024), and sent 806 individual privacy claims to arbitration and ordered Samsung to pay $311,000 to cover its share of arbitration filing fees in those matters. The decision highlights the potential downsides of class action waivers in arbitration agreements, as well as the importance of coupling a class action waiver with a well-crafted mass arbitration provision designed to streamline arbitration proceedings and, hopefully, limit exposure and litigation costs.

Case Background

Samsung required customers to execute agreements to binding arbitration and those agreements waive the right to pursue class claims. The arbitration agreements provided that electronic acceptance, opening product packaging, product usage, or product retention amounted to acceptance of the arbitration agreement.

In 2022, 806 customers, all of whom alleged they had purchased and used Samsung products, filed individual arbitration actions against Samsung alleging violations of the Illinois Biometric Privacy Act (“BIPA”). After Samsung failed to pay $311,000 in arbitration filing fees due in the matters, AAA administratively closed the cases in January 2023. The plaintiffs then moved to compel arbitration.

The Court’s Decision

The Court granted the motion to compel arbitration and, in doing so, was highly critical of Samsung’s tactics in seeking to stall the prosecution of the claims. The Court found that the plaintiffs alleged they purchased and used Samsung products, and thereby assented to arbitration. While Samsung argued those allegations were conclusory and did not show the existence of agreements to arbitrate, the Court noted that Samsung’s approach “flips the evidentiary burden on its head” because, as the party opposing arbitration, it was Samsung’s burden to dispute the existence of an agreement to arbitrate. Id. at 9.

As to its failure to pay the arbitration filing fees, the Court expressed great displeasure with Samsung, noting that its “repeated failure to pay after multiple deadlines, without any showing of hardship, is a classic refusal to pay scheme in violation of Section 4” of the Federal Arbitration Act. Id. at 15. The Court also highlighted that Samsung’s tactics had delayed plaintiffs’ prosecution of their claims for two years. The Court further denied Samsung’s request that the matters be stayed so that it could pursue an appeal and ordered Samsung to pay the outstanding arbitration fees.

Implications Of The Decision

The Hoeg decision highlights the potential downsides of class action waivers, which have spurred the plaintiffs’ bar to pursue hundreds or even thousands of individual arbitrations all at once. The decision also underscores the importance of adding a mass arbitration provision to an arbitration agreement. Such a provision, if well-crafted, may serve to streamline those proceedings, facilitate resolution, and limit exposure. Some jurisdictions have enacted laws aimed at punishing a retailer’s or employer’s failure to pay arbitration fees. For example, in California, if arbitration fees are not timely paid, it results in a material breach of the arbitration agreement and could lead to the imposition of sanctions including “the reasonable expenses, including attorney’s fees and costs, incurred by the employee or consumer as a result of the material breach.” (Cal. Civil Code § 1281.99.)

January 4, 2024 by Eden Anderson

Permanent Injunction Issued Precluding Enforcement Of California’s Ban On Mandatory Arbitration Agreements

By Eden Anderson, Rebecca Bjork, and Gerald Maatman, Jr.

Duane Morris Takeaways: Last year, the Ninth Circuit held in Chamber of Commerce of the United States v. Bonta, 62 F.4th 473 (9th Cir. 2023), that California Assembly Bill (AB) 51 — a statute that attempted to criminalize employers’ use of mandatory arbitration agreements — was preempted by the Federal Arbitration Act. In Bonta, the Ninth Circuit affirmed a preliminary injunction prohibiting the State of California from enforcing AB 51. On January 1, 2024, following remand in the case, the district court entered a permanent injunction that enjoins the State from enforcing the Labor and Government Code sections enacted as part of AB 51, and awarding the plaintiffs, as prevailing parties, $822,496. The district court’s order brings finality, judgment, and ultimate success to a strong coalition of employer interests who banded together to challenge California’s attempt to criminalize the use of mandatory arbitration agreements.

Case Background

AB 51, effective January 1, 2020, added Section 432.6 to the California Labor Code and Section 12953 to the California Government Code. Labor Code Section 432.6 makes it a misdemeanor for employers to require employees or applicants to waive “any right, forum, or procedure for violation of any provision of the California Fair Employment and Housing Act” or the California Labor Code. Government Code Section 12953 makes it an unlawful employment practice to violate Labor Code Section 432.6.

In December 2019, the U.S. Chamber of Commerce, California Chamber of Commerce, National Retail Federation, California Retailers Association, National Association of Security Companies, Home Care Association of America, and the California Association for Health Services at Home (“Plaintiffs”) filed a complaint against the State of California challenging AB 51 as preempted by the Federal Arbitration Act (FAA).

The district court granted the Plaintiffs’ motion for a preliminary injunction, finding that Plaintiffs were likely to succeed on the merits. California appealed, and challenged only the district court’s holding that AB 51 was likely to be preempted by the FAA. A divided panel of the Ninth Circuit initially reversed the district court in a September 2021 opinion but, after a rehearing petition was filed, the Ninth Circuit withdrew its opinion and issued a new opinion, which affirmed the district court’s preliminary injunction order and held that the FAA preempts AB 51.

The District Court’s Issuance Of A Permanent Injunction

After the decision, the case was remanded to the district court and, on January 1, 2024, the district court issued an order permanently enjoining the State of California from enforcing Labor Code Section 432.6 and Government Code Section 12953. Additionally, the district court awarded the Plaintiffs, as prevailing parties, $822,496 in attorneys’ fees. The order was obtained via stipulation of the parties whereby they agreed that the Ninth Circuit’s decision in Bonta was dispositive of the legal issues in the case and further agreed to the amount of attorneys’ fees to be paid by the State.

Implications For Employers

The district court’s order brings finality, judgment, and ultimate success to a strong coalition of employer interests who banded together to challenge AB 51. Employers in California may permissibly use mandatory arbitration agreements. However, the use of mandatory arbitration agreements potentially can be problematic when it comes to enforcing the agreement. When an applicant or employee must sign an arbitration agreement as a condition of employment, the agreement is a contract of adhesion that will likely be found to be procedurally unconscionable. Thus, a court may refuse to enforce a mandatory arbitration agreement if there are also terms in the agreement that are substantively unconscionable and non-severable.

September 14, 2023 by Gerald L. Maatman, Jr.

Illinois Federal Court Orders Defendant To Pay Over $4 Million In Arbitration Fees In Mass Arbitration Alleging Violation Of The BIPA

By Gerald L. Maatman, Jr., Rebecca S. Bjork and Derek Franklin

Duane Morris Takeaways: Mass arbitration continues to be a formidable tool for plaintiffs’ attorneys seeking to deal with class action waivers in arbitration agreements. This trend is aptly demonstrated by a new ruling in Wallrich, et al. v. Samsung, Case No. 22-CV-5506 (N.D. Ill. Sept. 12, 2023), where Judge Harry D. Leinenweber of the U.S. District Court for the Northern District of Illinois ordered the defendants – who had been served with just shy of 50,000 arbitration demands – to pay the arbitration fees and submit to arbitrating consumers’ claims that the defendants had committed violations of the Illinois privacy laws. Those fees had been waived by the arbitration authority, as allowed by a provision in its’ supplemental rules, but the Court sided with the plaintiffs, who had moved to compel arbitration after the fees were waived, and seeking also to require the defendants to pay them.

Case Background

The Named Plaintiffs filed 49,986 arbitration claims with the American Arbitration Association (“AAA”) on September 7, 2022 on behalf of consumers who are users of Samsung mobile devices. Id. at 2, 5. They alleged that the defendants had unlawfully collected their biometric information in violation of the Illinois Biometric Information Privacy Act. The user agreement required all disputes be resolved in final, binding arbitration and it prohibited class actions. Id. at 3.

The agreement also required use of the services of the AAA and explicitly invoked the AAA’s rules, including its supplemental rules relating to arbitration fees. Id. On September 27, 2022, Samsung refused to pay its portion of the initial arbitration fees to the AAA because it believed the claimants included deceased individuals and others who did not reside in Illinois. Id. at 6. Plaintiffs responded by moving to compel arbitration on October 7, 2022. Id. at 7.

The Court’s Decision

Judge Leinenweber compelled arbitration of the claims of living, Illinois resident petitioners and ordered the respondents to pay the AAA arbitration fees. He first concluded that the arbitration agreements are valid between Samsung and those who actually are its consumers. Id. at 21-22. Second, he noted that as to the petitioners that respondents suspected were either deceased or not Illinois residents, he explained that petitioners’ counsel used Samsung’s own customer list to remove ineligible petitioners. Id. Third, he determined that the arbitration agreement left questions of arbitrability to the arbitrator, thereby declining to rule on respondents’ argument that the collective action waiver in the agreement applies to mass arbitrations, which would bar petitioners’ claims with the AAA. Id. at 25. Finally he ruled that he had the authority to construe and enforce the AAA’s rules about arbitration fees, and determined that respondents are required to pay approximately $4.13 million in fees. Id. at 30, 33-34.

Implications For Employers

As corporations who employ large numbers of individuals in their workforces know, agreements to arbitrate claims related to employment-related disputes are common. They serve the important strategic function of minimizing class action litigation risks. But corporate counsel also are aware that increasingly, plaintiffs’ attorneys have come to understand that arbitration agreements can be used to create leverage points for their clients. Mass arbitrations seek to put pressure on respondents to settle claims on behalf of large numbers of people, even though not via the procedural vehicle of filing a class or collective action lawsuit. As a result, corporate counsel should carefully review arbitration agreement language with an eye towards mitigating the risks of mass arbitrations as well as class actions.

September 6, 2023September 6, 2023 by Gerald L. Maatman, Jr.

Maryland Federal District Court Dismisses Class Action Alleging Website Privacy Violations For Lack Of Article III Standing

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

Duane Morris Takeaways: On September 1, 2023, Judge Deborah Chasanow of the U.S. District Court for the District of Maryland granted a motion to dismiss a class action alleging that the website of defendant Jetblue Airways violated users’ privacy rights under the Maryland Website and Electronic Surveillance Act (“MWES”A). Finding that the named Plaintiff lacked Article III standing to bring the lawsuit, the Court relied upon the lack of any allegations in the Complaint that any of Plaintiff’s personal information was captured by the alleged use of a session replay code. As a result, his Complaint lacked any allegation of a concrete harm that is necessary to bestow standing by virtue of suffering an injury-in-fact. Employers are well-served to examine their websites for the level of risk they might pose of exposure to litigation of this kind, which is currently being filed in more and more courts around the country.

Case Background

Jetblue Airways Corp. (“Jetblue”) was sued by Matthew Straubmuller in the U.S. District Court for the District of Maryland, alleging that he and a putative class of website users who had visited Jetblue’s website were entitled to damages from Jetblue for violation of the MWESA. Slip Op. at 2. The purpose of that statute is two-fold: both to be a useful tool in crime prevention; and to ensure that “interception of private communications is limited.” Id. at 8.

Plaintiff alleged Jetblue’s website uses a “session replay code” and that this allows for Jetblue to track users electronic communications with the website in real time, and also can enable reenactments of a user’s visit to the website, and that these constitute actionable privacy violations under the provisions of the MWESA.

JetBlue filed a motion to dismiss. It asserted that that Plaintiff lacked Article III standing to bring his claims. It contended that Plaintiff alleged a mere procedural violation of the MWESA and did not allege a concrete harm necessary to establish an injury-in-fact to confer standing.

The District Court’s Decision

Judge Chasnow granted Jetblue’s motion to dismiss. Relying on the Supreme Court’s decision in TransUnion v. Ramirez, 141 S. Ct. 2190 (2021), she rejected Plaintiff’s argument that a statutory violation alone is a concrete injury. The Judge opined that “Courts must independently decide whether a plaintiff has suffered a concrete harm because a plaintiff cannot automatically satisfy the injury-in-fact requirement whenever there is a statutory violation.” Slip Op. at 5-6 (quoting TransUnion (“under Article III, an injury in law is not an injury in fact.”). And more to the point, she cited case law interpreting the MWESA itself to this effect, which Plaintiff had not cited. Id.

As a way of underlining its ruling, the Court noted that Jetblue had submitted a June 12, 2023 decision coming to the exact same conclusion involving a nearly identical complaint filed against Jetblue in the Southern District of California in Lightoller v. Jetblue Airways Corp. Id. at 4.n.1. Other cases involving similar rulings are presently percolating throughout the federal district courts. Id. at 7 (collecting cases).

Implications For Employers

Judge Chasnow’s decision in Straubmuller v. Jetblue Airways Corp. provides corporate counsel with a good opportunity to set up a time to talk with their company’s information technology officers to discuss litigation risks related to websites and how they interact with employees, prospective employees and customers. As more plaintiffs-side attorneys file lawsuits alleging privacy violations like the ones alleged against Jetblue in both state and federal courts around the country, many have a good chance of surviving motions to dismiss. Preventing class action lawsuits are far superior to defending them.

July 19, 2023 by Gerald L. Maatman, Jr.

D.C. Circuit Issues A “How-To” Ruling Regarding Issue Certification For Rule 23 Class Actions

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

Duane Morris Takeaways: On July 18, 2023, the U.S. Court of Appeals for the District of Columbia Circuit ruled that district courts must analyze the predominance and superiority requirements for certification of a class action when considering an “issue class” under Rule 23(c). In Harris v. Medical Transportation Management, Inc., No. 22-7033 (D.C. Cir. July 18, 2023), the three-judge panel ruled that the district court erred when it certified an “issue” class under Rule 23(c)(4) without first undertaking an analysis of whether the class certification prerequisites of Rule 23(a) and 23(b) had also been satisfied. The case was remanded for further proceedings. The D.C. Circuit’s decision ought to be required reading for employers with large workforces and those dealing with wage & hour class actions. It bears watching whether the district court’s analysis of the rigorous requirements of Rule 23(b) on remand also results in a pro-certification decision, given the instructions provided on remand.

Case Background

In Harris, the named plaintiffs were non-emergency medical drivers for the defendant, a company that provides transportation to individuals on public assistance who require transit getting to medical appointments. They alleged that they and a class of other drivers who they seek to represent in a class action lawsuit were denied minimum and overtime pay in violation of District of Columbia and federal wage and hour laws. Slip op. at 5-6.

Whether defendant MTM could as a matter of law be held liable as the drivers’ employer is a threshold question in the litigation. Id. at 6. The district court certified issues classes as to (i) whether MTM is the drivers’ joint employer (along with its sub-contractors); and (ii) whether MTM is a general contractor under D.C. law and thus strictly liable. Id. at 8. The district court did so despite finding previously that the predominance requirement of Rule 23(b)(3) was not met under the facts of the case specifically as they relate to the payment system for the drivers. Id. at 7-8.

MTM appealed the issue certification ruling.

The D.C. Circuit’s Decision

In a straightforward ruling, but one that delves into the complexities of Rule 23 with law-professor like precision, the D.C. Circuit panel consisting of Judges Millett, Childs and Rogers determined that the district court could not certify the issue classes under Rule 23(c)(4) without deciding whether those classes also meet the requirements of Rule 23(a) – commonality and typicality – and 23(b) – predominance and superiority. In essence, the D.C. Circuit read the plain language of Rule 23 and observed that sub-sections (a), (b) and (c) all bear on the certification inquiry conducted by the district court and therefore must be considered on an equal basis. Id. at 14-15.

In the penultimate statement of the holding, Judge Childs opined that “Rule 23’s text and structure offer no quarter to the view that Rule 23(c)(4) creates an independent type of class action that is freed from all of Rule 23’s other class action prerequisites. So the district court should have ensured that the issue class that it certified met all, and not just some, of Rule 23(a) and (b)’s preconditions to class status.” Id. at 15-16.

The D.C. Circuit instructed the district court that it must analyze on remand each of the potential class actions available under Rule 23(b)(3)’s predominance analysis. Id. at 19-20. It discussed various ways in which Rule 23(c)(4) can be applied in the context of the joint employer analysis that is at issue in Harris, such as bifurcating the liability issue from remedial claims, or where affirmative defenses may muddy the waters of class-wide evidence in a certified issues class. Id. at 21-22.

In a similar vein, Judge Childs instructed that summary judgment motions on discrete issues represent another way in which district courts could management issue certified class actions where the predominance of individualized issues threaten to overrun the common proof. Id. at 24-25.

Implications For Employers

The D.C. Circuit opinion in Harris v. MTM provides corporate counsel and executives a clear and easily understandable explanation of how Rule 23(b) and (c) intersect with one another when an issue class or classes are certified in class action litigation. District courts cannot certify issue classes under Rule 23(c)(4) without undertaking the rigorous analysis required to conclude that a class action is superior and manageable, that common issues will predominate over individualized issues, and that there are common and typical issues to be resolved in the first place. And by suggesting specific mechanisms that a district court has at its disposal for case management purposes such as targeted summary judgment motions, the decision provides reasonable strategies to consider when facing class action litigation.

June 30, 2023June 30, 2023 by Gerald L. Maatman, Jr.

U.S. Supreme Court Ends Affirmative Action in University Admissions, Likely Leading To Legal Challenges to Diversity Efforts Within Corporations

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

Duane Morris Takeaways: On June 29, 2023, the U.S. Supreme Court ruled that colleges and universities may not consider the race of applicants when making admissions decisions. In Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, No. 20-1199 (U.S. June 29, 2023), Chief Justice Roberts wrote the majority opinion in a 6-3 ruling joined by Justices Thomas, Alito, Gorsuch, Kavanaugh and Barrett. The Supreme Court held that affirmative action programs at Harvard and the University of North Carolina-Chapel Hill violated the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution. The decision, which is 237 pages in length, including concurring and dissenting opinions, opens the door for legal challenges to be brought to employers’ diversity, equity and inclusion efforts because the Supreme Court’s reasoning – that race-conscious admissions policies may constitute unconstitutional differential treatment of individuals based on race – arguably applies to hiring and promotion decisions made within business organizations.

Case Background

The lawsuit that led to the Harvard decision was filed in the U.S. District Court for the District of Massachusetts by Students for Fair Admissions, Inc. (SFAA), a legal organization created to bring federal court challenges to affirmative action in college and university admissions. In 2014, SFAA sued both Harvard and UNC in separate lawsuits, arguing that their race-conscious admissions policies violated Title VII of the Civil Rights Act and the Fourteenth Amendment’s Equal Protection Clause. Id. at 6. The First Circuit had affirmed a trial judgment in Harvard’s favor, while the Fourth Circuit was considering an appeal of the UNC case when the Supreme Court granted certiorari in the Harvard case and brought the UNC case into its writ to be decided alongside it.

The Supreme Court’s Decision

After determining that SFAA had standing to bring its lawsuits, the majority turned to analyzing the merits. It focused on the Fourteenth Amendment in light of prior decisions relating to education, beginning with the holding in Brown v. Board of Education that “racial discrimination in public education is unconstitutional.” Id. at 13. After reviewing decades of case law following in the footsteps of Brown, the majority concluded that “[e]liminating racial discrimination means eliminating all of it.” Id. at 15. The majority discussed the application of the strict scrutiny test that courts apply to determine whether an exception can be made to the constitutional requirement of equal protection and analyzed how prior decisions regarding affirmative action considered the facts at hand in applying that test. Citing Regents of the University of California v. Bakke, 438 U.S. 265 (1978), Grutter v. Bollinger, 539 U.S. 306 (2003), and Fisher v. University of Texas at Austin, 570 U.S. 297 (2013) – the latter of which was also brought by the founder of SFAA – the majority examined these prior rulings in detail. The majority asserted that in Fisher, the Supreme Court made it clear that while colleges and universities could consider race in admissions decisions, the process must have “a termination point,” “have reasonable durational limits,” “must have ‘sunset provisions’” and “must have a logical end point.” Id. at 21.

The majority concluded that the end point has now been reached, deciding that both Harvard’s and UNC’s admissions policies that took race into consideration were unconstitutional because the operations of those programs do not create outcomes that are “sufficiently measurable to permit judicial [review].” Id. at 22. For example, Harvard’s stated purposes for using race-conscious admissions processes included “training future leaders in the public and private sectors,” “preparing graduates to adapt to an increasingly pluralistic society,” “better educating its students through diversity,” and “producing new knowledge stemming from diverse outlooks.” Id. at 23. The majority held that those objectives “are not sufficiently coherent for purposes of strict scrutiny.” Id.

Independently, the majority held that the programs violated equal protection principles based on statistics showing that Harvard’s consideration of race in admissions led to an 11/1% decline in the number of Asian-Americans admitted to the prestigious college. Id. at 27. This led the majority to conclude that an individual’s race is, by effect, a negative factor in the admissions process, which violates the rules set forth in the earlier affirmative action cases in higher education discussed in the ruling. Id.

Finally, the majority expressed a caveat to its ruling forbidding the use of race-conscious processes in admissions. It wrote that “nothing in this opinion should be construed as prohibiting universities from considering an applicant’s discussion of how race affected his or her life, be it through discrimination, inspiration, or otherwise.” Id. at 39. Time will tell whether this creates a loophole in the majority’s decision, but it clearly will encourage further litigation in the future in this area of the law, as college admissions officials grapple with how to consider and weigh the impact of such admissions essays submitted by prospective students.

As expected, the dissenting Justices Sotomayor and Jackson wrote impassioned dissents, and Justice Sotomayor read hers from the bench, in terms of signaling its importance. They maintained that the Fourteenth Amendment itself is not race-neutral; it was drafted at the end of the Civil War precisely to provide race-based relief to former enslaved persons seeking to enter civic and commercial society. For these reasons, they contended that, to hold that its application requires a form of color-blindness, is in conflict with the amendment itself. And they expressed concern that students who are members of historically disadvantaged racial groups will find it increasingly difficult to get ahead of their non-minority peers as a result of the majority’s ruling.

Implications For Employers

While one would not normally think that a decision relating to university admissions processes would implicate how employers hire and evaluate employees, in this case it does. Media outlets have already reported that attorneys are preparing challenges to employers’ diversity, equity and inclusion programs, applying the same Fourteenth Amendment analysis outlined in the Supreme Court’s decision in Harvard. As such, legal department leaders in corporate America should pay attention and be aware of how this decision poses litigation risks to their businesses.

April 19, 2023 by Gerald L. Maatman, Jr.

Federal District Court in Virginia Rejects Two-Step “Conditional Certification” FLSA Process

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

Duane Morris Takeaways: On April 14, 2023, U.S. District Court Judge T. S. Ellis, III joined in the fray over whether the long-used two-step process for issuing notice of a Fair Labor Standards Act (“FLSA”) collective action is consistent with the text of the statute. In Mathews v. USA Today Sports Media Group, LLC, et al., No. 1:22-CV-1307 (E.D. Va.), he held that it is not. Judge Ellis ordered the parties to engage in limited discovery to establish a factual record upon which he can decide whether members of the plaintiff’s proposed collective action are, in fact, “similarly situated.” If – and only if – he concludes they are, he would then issue a notice allowing such persons to opt-in to the collective action. This ruling is significant because it follows a similar decision by the U.S. Court of Appeals for the Fifth Circuit in 2021, and the Sixth Circuit is currently considering an appeal raising the same issue. Thus, momentum may be building for the U.S. Supreme Court to ultimately step in and settle the issue. The one-step or two-step process is far from academic, for it has everything to do with litigation costs and risks, and the leverage flowing from a win or a loss in the certification battle.

Case Background

Plaintiff filed a collective action lawsuit under the FLSA alleging that USA Today Sports Media Group, LLC (“USA Today”) and Gannett Co., Inc. unlawfully classified her and others like her as independent contractors, and thus denied them overtime pay. From January 2017 to August 2021, Plaintiff was the Site Editor for the Seahawks Wire website, USA Today’s website covering the NFL franchise Seattle Seahawks. In her role, Plaintiff alleges that she and other “similarly situated” Site Editors for other teams all signed the same “Editor Agreement” with USA Today, and that they all engaged in similar duties such as “writing, editing and publishing sports news articles regarding their respective teams; managing others; editing other people’s articles; and making social media posts regarding articles they had written.” (Slip Op. at 2.) She submitted three declarations signed by herself and two others working as site editors for other teams, along with a motion for “conditional certification” of her FLSA collective. (Id.)

USA Today responded by submitting declaration evidence to show that Site Editors have freedom to create their content including how long their articles are, the tone they take, how many are posted each day, et cetera. (Id. at 3.) It also noted that it did not provide any office space, tools, feedback, performance evaluations, or supervisors to Site Editors, and also allowed them to write for other websites. (Id.) In other words, USA Today submitted evidence to show that under the applicable test for deciding whether someone is an independent contractor, Site Editors meet that standard, so they are not misclassified.

As is typical, Plaintiff argued that her lawsuit should proceed immediately as a collective action by issuance of an order sending notice to all of the other Site Editors around the nation. She maintained that she had submitted sufficient evidence under a lenient first step standard in a two-step process that they are all “similarly situated.” (Id. at 1, 4.) Under a test established in 1987 by Lusardi v. Xerox Corp., 118 F.R.D. 351 (D.N.J. 1987), Plaintiff contended that step one is an “initial ‘notice stage’ determination” that members of the proposed collective action are similar enough to receive a notice of the action and be given the opportunity to opt in. (Id. at 4 (citing Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095 1102 (10th Cir. 2001).) Under this view of the FLSA, a plaintiff need only show “substantial allegations” that they are “victims of a single decision, policy or plan” in order for a notice to be sent – in this case, to all Site Editors nationwide. (Slip Op. at 4.) Plaintiffs then usually receive the right to conduct complete discovery, after which defendants may file a motion to “decertify” the collective action, based on evidence developed during the discovery process.

USA Today responded that the Court should follow the Fifth Circuit’s recent decision in Swales v. KLLM Transp. Servs., LLC, 985 F.4th 430 (5th Cir. 2021), which rejected the longstanding approach developed in Lusardi. (Slip Op. at 4.) It argued that the two-step approach has no basis in the statutory language of the FLSA. Rather, it emphasized that the court must instead make a sound factual determination as to whether proposed opt-in plaintiffs are, in fact, similarly situated and that requires discovery targeted solely to that inquiry. (Id.)

The Court’s Decision

Judge Ellis agreed with USA Today. He ruled that the parties must engage in discovery directed to establishing whether or not Site Editors around the country are similarly situated with regards to their work, the supervision provided (or not) by USA Today, along with the other relevant factors to establish that they were misclassified as independent contractors. He began by noting that the Fourth Circuit had not adopted the Lusardi test, nor had it commented on the Fifth Circuit’s decision in Swales. Rather, the Fourth Circuit has simply stated that district courts have discretion to manage the notice process in FLSA collective actions. (Id. at 5.) Judge Ellis decided that “the correct approach then, as noted by the Fifth Circuit, is the one authorized by FLSA’s text. Courts must determine, at the outset, whether a proposed collective action is ‘similarly situated’ to the named plaintiffs. To make this determination, courts may require limited discovery, targeted only at the factual and legal considerations needed to make the ‘similarly situated’ determination.” (Id. at 6.) He then ordered discovery only of the following – from the plaintiffs the Schedule C or W-2 forms of the named plaintiff and two declarants relating to their work writing sports media blog posts; any employment contracts, offer letters or agreements relating to their work; and one three-hour deposition; and from the defendants the independent contractor agreements; policy documents relating to the independent contractor arrangement; an organizational chart; a three-hour long Rule 30(b)(6) deposition; and a three-hour long deposition of defendants’ declarant filed in opposition to plaintiff’s motion. (Id. at 6-7). The discovery must be completed by May 26, 2023. (Id. at 6.)

Implications For Employers

Our annual class action review analyzed FLSA conditional certification rates, and plaintiffs won 82% of first stage conditional certification motions, but only 50% of second stage motions. Our previous post on these statistics is here. Hence, the stakes are quite meaningful in terms of the approach outlined in the Matthews ruling.

As any employer who has been sued by a named plaintiff seeking to represent an FLSA collective action knows, the discovery burden imposed by application of the two-step Lusardi decision is far more onerous than what Judge Ellis established in this case. Full merits discovery lasting more than a year is common, as opposed to a narrowly-targeted investigation of the work performed by the plaintiffs along with facts relating to the relevant independent contractor factors. For that reason alone, employers with operations within the Fourth Circuit will be happy to know they can cite Judge Ellis’ ruling in the future. While no one can predict the future with any degree of certainty, it seems likely that this new legal trend regarding the collective action notice process may eventually need to be resolved by the U.S. Supreme Court.

April 6, 2023 by Gerald L. Maatman, Jr.

District Court Declines To Award Additional Attorneys’ Fees In $508 Million Sex Discrimination Class Action Settlement

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

Duane Morris Takeaway: Even when class actions span decades prior to settling, the case seems unwinnable, the settlement contains a vast record, and the outcome was largely favorable to plaintiffs, courts nonetheless might be reluctant to add a “superior attorney performance” lodestar multiplier for an award of attorneys’ fees when the evidence provided by plaintiffs’ counsel is insufficient to do so. This issue was present in the U.S. District Court for the District of Columbia’s recent ruling in the extraordinary 45-year long case of Hartman, et al. v. Blinken, Case No. 77-CV-2019 (D.D.C. Mar. 31, 2023).

The ruling is a must read for any corporate counsel involved in class action litigation.

Case Background

Hartman was originally filed on Nov. 25, 1977 by over 1,000 female plaintiffs alleging that they were discriminated against by the United States Information Agency on the basis of their sex in violation of Title VII of the Civil Rights Act when they were allegedly passed over for hiring or promotions at the agency. The resulting litigation continued for decades, until the last several years, which involved negotiations between the plaintiffs’ counsel and the United States Department of State, the resulting defendant following the dissolution of the U.S. Information Agency. In 2000, the parties entered into a consent decree that provided for a $508 million settlement fund for the class and for “reasonable attorneys’ fees, expenses, and costs.” Id. at 2. The parties also settled more than 20 interim attorneys’ fee requests. Id.

The class action settlement constitutes the largest employment discrimination class action settlement ever.

In 2018, after all settlement funds were issued, plaintiffs filed a motion for a final determination of attorneys’ fees, seeking an additional award of $34 million as an enhancement to the lodestar amount.

Following an extensive evaluation and analysis of the previously awarded attorneys’ fees, the court denied plaintiffs’ request. It ruled that although the lodestar fee that had been awarded up to that point was “likely not an adequate measure of class counsel’s true market value,” plaintiffs had failed to properly identify information necessary for the court to approve a modification to the award. Id. at 3. Specifically, the court noted that plaintiffs had not submitted information regarding the “Laffey Matrix rates” used to calculate interim fees over the past several years, and failed to provide interest rate differences between the 1-year Treasury bill rate and the prime rate. Id. at 3-4.

The parties thereafter stipulated that defendants: (i) would pay plaintiffs $9,033,600 to resolve any issues concerning the use of the below-market Laffey Matrix rates and the Treasury bill interest rate; (ii) that the value of the base lodestar for the enhancement was $19 million; and (iii) that all other claims based on delay of fees, true market lodestar value, or interest paid on the interim fee awards were fully resolved. Id. at 4. The only remaining issue, identified by the parties as a potential dispute, was the possibility of a lodestar enhancement for “superior attorney performance” or “exceptional results.” Id.

Plaintiffs thereafter filed a motion for a lodestar enhancement based on “superior attorney performance.” The court denied the motion.

The Court’s Ruling

The court reviewed plaintiffs’ request under the D.C. Circuit’s “three-part analysis to assess appropriate fee awards under fee-shifting statutes in cases involving complex federal litigation.” Id. at 5. Under that framework, the third part of the analysis, or whether the use multiplies as warranted, was applicable here. Id.

Plaintiffs asserted that exceptional results and superior lawyering justified enhancement of the lodestar because it did not account for: (i) the results obtained; (ii) “the preclusion of other employment by committing both human and capital resources to the case;” (iii) “the duration of the case;” (4) “the ‘undesirability’ of the case;” and (iv) “awards in similar cases.” Id. at 10.

The court essentially found that none of the factors warranted a lodestar enhancement, as all factors were already accounted for in other areas of the lodestar determination. The court explained that any special results obtained should be already reflected in the reasonableness or the hourly rates. The court also noted that the complexity and voluminous nature of the record materials would be reflected in the overall number of hours billed. The court also stated that plaintiffs failed to show how any special commitment of human or capital resources was not already reflected in the lodestar.

As to plaintiffs’ argument that the case was “undesirable” and thus an enhancement was warranted, the court ruled that plaintiffs failed to identify specific evidence demonstrating that the case was undesirable, which was required under pertinent case law. Further, any societal implications from plaintiffs’ victory could not be measured in an objective way by the court in order to provide a lodestar enhancement.

The court concluded by emphasizing that the decision not to multiply the lodestar should not be taken to diminish the “resounding success plaintiffs’ counsel achieved.” Id. at 13-14. However, the court ruled that this case was not the “rare” or “exceptional” case in which “specific evidence” supports an “objective and reviewable basis” for enhancement of the lodestar. Id. at 14. The court thereby denied plaintiffs’ request for an enhancement of the lodestar amount.

Implications For Employers

Fee awards are discretionary, but the ruling in Hartman demonstrates the high standard of evidence required for an enhancement award. This decision is an excellent reference for defense efforts to fight attorneys’ fees awards in large-scale class actions.

January 30, 2023January 30, 2023 by Gerald L. Maatman, Jr.

Delaware Says Corporate Officers Are Now Subject To A Duty Of Oversight In The Workplace Harassment Context

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

Duane Morris Takeaways: In a new legal development of significant import, employees of corporations incorporated in Delaware who serve in officer roles may be sued for breach of the duty of oversight in the particular area over which they have responsibility, including oversight over workplace harassment policies. In its ruling in In Re McDonald’s Corp. Stockholder Derivative Litigation, No. 2021-CV-324 (Del. Ch. Jan. 25, 2023), the Delaware Court of Chancery determined that like directors, officers are subject to oversight claims. This decision expands upon the rule established in the case of In Re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996), which recognized the duty of oversight for directors. The decision will likely result in a flurry of litigation activity by the plaintiffs’ bar, as new cases will be filed alleging that officers in corporations who were responsible for overseeing human resource functions can be held liable for failing to properly oversee investigations of workplace misconduct such as sexual harassment.

Introduction

On January 25, 2023, the Court of Chancery for the State of Delaware issued a ruling that will have a substantial impact on shareholder derivative lawsuits, especially as they implicate allegations of workplace harassment. For the first time, corporate officers may be held liable for breach of the fiduciary “duty of oversight.” This ruling is likely to result in a multitude of court filings as the contours of this new legal rule are tested in litigation filed by plaintiffs’ attorneys. This represents yet another reason for companies to boost their efforts at corporate compliance and to ensure that robust complaint reporting and investigation systems are in place to protect employees who claim they are victims of discrimination, sexual harassment, and retaliation.

The Facts Underlying The Delaware Ruling

In In Re McDonald’s Corp. Stockholder Derivative Litigation, No. 2021-CV-324 (Del. Ch. Jan. 25, 2023), the Court found that Defendant David Fairhurst, who served as Executive Vice President and Global Chief People Officer of McDonald’s Corporation from 2015-2019, was liable to stockholders of McDonald’s for his failure to fulfill his fiduciary duty to fulfill his oversight role over human resource practices and policies. As the Court explained, Fairhurst “breached his fiduciary duties by allowing a corporate culture to develop that condoned sexual harassment and misconduct” and “breached his duty of oversight by consciously ignoring red flags.” (Slip Op. at 1.) The Court therefore denied Fairhurst’s motion to dismiss, clarifying that under the logic of Caremark, Delaware law does recognize a duty of oversight for corporate officers.

To prevail in their claims against Fairhurst, the plaintiffs had a legal challenge to surmount, in that no court had found that officers as opposed to directors had a duty of oversight in light of misconduct within a corporation. Even more, Delaware law presumes that directors and officers act in good faith when making decisions. Id. at 3. But the plaintiffs did have sufficient and specific facts on their side, which the Court discussed in detail.

McDonald’s has its principal place of business in Chicago, Illinois, and has a global workforce that exceeds 200,000 individuals. Id. at 5-6. The Complaint alleged that the Chicago headquarters of the Company had a “party atmosphere” that was encouraged by former CEO Stephen J. Easterbrook and Fairhurst, who were close personal friends. Id. at 7. Weekly happy hours featured an open bar, and “Easterbrook and Fairhurst developed reputations for flirting with female employees, including their executive assistants.” Id. Importantly, the plaintiffs alleged that the process for reporting human resource complaints (a company function directly under Fairhurst’s control) failed to address complaints sufficiently. Between 2016 and 2018, more than a dozen complaints were filed with the EEOC by employees who alleged sexual harassment and retaliation. Id. at 8. In December 2018, McDonald’s employees in ten cities went on strike in protest, attracting the attention of the U.S. Senate. Id. at 8-9, 12.

Plaintiffs also alleged that Fairhurst engaged in acts of sexual harassment in December 2016 and November 2018, and was warned about his use of alcohol at company events. Id. He was terminated in November 2019 after committing yet another act of sexual harassment. Id. And in October 2019, the Board of Directors learned that Easterbrook was engaging in a prohibited relationship with an employee, and he was terminated after an investigation by outside counsel. Id. at 15.

The crux of the reasoning behind the Court’s ruling is that an officer of a corporation has a fiduciary duty to oversee the corporation’s activities that fall within his or her role in the corporation. As the Global Chief People Officer at McDonald’s, the Court opined that “[Fairhurst] had an obligation to make a good faith effort to put in place reasonable information systems so that he obtained the information necessary to do his job and report to the CEO and the board, and he could not consciously ignore red flags indicating that the corporation was going to suffer harm.” Id. at 3. Simply put, his human resources role required that he act in good faith to maintain an awareness of potential liability resulting from improper workplace conduct, and the Court found that he did not do so. “Corporate fiduciaries can face liability if they knowingly fail to adopt an internal information and reporting system that is ‘reasonably designed to provide to senior management and to the board itself timely, accurate information sufficient to allow management and the board, each within its scope, to reach informed judgments concerning both the corporation’s compliance with law and its business performance.’” Id. at 24 (citation omitted). Because plaintiffs pled specific facts sufficient to allege that Fairhurst ignored red flags surrounding sexual harassment and the Company’s failed complaint system, the Court denied Fairhurst’s motion to dismiss.

Conclusion

While the Court’s decision is notable because it established a new fiduciary duty applicable to corporate officers, it is not a surprising outcome. The logic of Caremark leads inevitably to this decision, once it is established that corporate officers have real power and obligations within a corporation to manage risk. Because workplace harassment and retaliation claims pose very high risks to a corporation, it is to be expected that an officer responsible for the human resource function will come under strong scrutiny when EEOC charges and lawsuits are filed. The best defense to a high stakes workplace lawsuit is to prevent it from being filed in the first place. Ensuring that the proper systems for reporting and investigating workplace complaints are in place is by far preferable to litigating a case like this one.

January 18, 2023 by Rebecca S. Bjork

When Contract Interpretation Principles Matter: Court Provides A Roadmap For Avoiding Ambiguous And Contradictory Interpretations Of Arbitration Clauses

By Eden E. Anderson and Rebecca Bjork

Duane Morris Takeaway: It is a truism that arbitration is a matter of consent, and consent is embodied in contract law principles. In a recent ruling entitled Querette v. Chromalloy Gas Turbine, LLC, Judge Philp Halpern of the U.S. District Court for the Southern District of New York brought those abstract principles into the light of day while forging an interpretation of a collective bargaining agreement containing an arbitration clause and harmonizing seemingly contradictory clauses. In finding in favor of a defendant seeking to arbitrate a dispute with its employees, the Court provided a roadmap of sort that is well worth a read for corporate counsel.

Introduction

Requiring arbitration of workplace disputes unquestionably has become one of the most important legal tools for employers over the past several years. This is in large part due to developments in the law that encourage courts to enforce arbitration clauses that waive the right of employees to bring class actions. Because class action lawsuits are inevitably costly to defend and can out stretch over several years, employers – especially those with large headcounts – have come to rely on arbitration agreements containing class waivers to rein in litigation expenses.

For this reason, the careful drafting of arbitration agreements is very important. Agreements must be drafted in a way that avoids ambiguity and conflicting clauses. If an agreement is ambiguous, a court is more likely to construe it against the drafter, which often means denying motions to compel arbitration and allowing class claims to proceed in court. And if an agreement contains conflicting or contradictory clauses it is easier for a party to argue that it cannot be enforced. In such a case, the court must work to try and harmonize the conflicting clauses. Contract law assumes each clause was included for a reason, so courts attempt to avoid interpretations that would render a clause meaningless.

The Ruling In Querette v. Chromalloy Gas Turbine, LLC

These basic principles of contract interpretation played out in interesting ways in a recent case decided by District Court Judge Philip M. Halpern of the Southern District of New York. In Querette v. Chromalloy Gas Turbine, LLC, No. 22 Civ. 00356 (S.D.N.Y. Jan. 10, 2023), the Court was asked to compel arbitration of a class action filed under New York Labor Law §191(1)(a) that requires employers to pay their employees on a weekly basis. Relying on contract law principles, the Court sided with the defendant and ordered the plaintiff’s claim to be arbitrated.

The agreement at issue was the product of collective bargaining. Article 14 of the collective bargaining agreement (“CBA”) sets forth a multi-step grievance procedure that members of the union who have a dispute with the employer must follow. That process culminates in arbitration before the American Arbitration Association (“AAA”) to resolve the dispute. Id. at 2.

Section 14.F. of the CBA states that “Any and all grievances and all issues arising from and relating thereto, including the interpretation and application of this section shall be governed by, construed in accordance with and processed pursuant to AAA’s then existing rules governing labor disputes, which rules are fully incorporated herein.” Id. Section 14.G. of the CBA then provides that the grievance process is the sole mechanism for resolving disputes between employees and the employer, with two exceptions. That section states, in relevant part, “Except for resort to the agencies and/or courts charged with the enforcement of the laws enumerated in Article I herein, and except with further resort to the National Labor Relations Board, it is the intention of the parties that employees will look exclusively to this Agreement for the resolution of all disputes under this Agreement.” Id. at 2-3. Article I identifies several federal and state discrimination and family leave laws, but does not include state or federal wage and hour laws.

Section 14.I contains the second carve-out, ensuring a “Right of Representation and/or Counsel for Parties Only,” which preserves the right of union members to be “individually represented by private counsel as to any alleged right, only that any such alleged right must be pursued in a forum other than under this Article.” Id. at 3. In other words, Section 14.I appears on its face to carve out from the arbitration requirement any case brought by an employee who has retained private counsel. Reading the clause that way contradicts the mandate that all disputes between an employee and the employer must be subject to the grievance process spelled out in the CBA.

The plaintiffs contended that Section 14.I applied to their claim because they had retained private counsel to pursue their class action wage claim, so it could not be compelled to arbitration under the express and unequivocal language in that clause. The Court did not agree, and reached its conclusion by way of the very basic principles of contract interpretation explained above; reading a contract in a way that avoids ambiguity and conflicting clauses.

Basis Of The Court’s Opinion

First, the Court was required to determine whether it or an AAA arbitrator had the authority to determine if the dispute was arbitrable in the first place. The AAA rules provide that arbitrability is for an arbitrator to decide. However, the Court noted correctly that the U.S. Supreme Court has held that courts must not assume that the parties agreed to assign arbitrability to an arbitrator unless there is “clear and unmistakable evidence” of the parties’ intent to delegate that issue to an arbitrator. The court applied Second Circuit case law precedent holding that incorporation of the AAA rules alone does not per se show an intent to delegate arbitrability; rather “context matters.” Id. at 6. The context that mattered to Judge Halpern was the fact that the CBA was not so broad as to claim to cover each and every dispute between an employee and the defendant. He reasoned that the carve out for discrimination and family leave claims, along with the private counsel carve out itself, created ambiguity as to the parties’ intent to delegate arbitrability decisions to an arbitrator. And ambiguity means there is not clear and unmistakable evidence of the intent to delegate. Thus, the Court concluded it must decide arbitrability.

Second, the Court found that the private counsel carve-out did not exempt the plaintiff’s claims from the CBA’s arbitration requirement. Id. at 8. Applying the rule that contract interpretation must not render clauses contradictory to one another, the Court read the agreement in a way that gave meaning to both the requirement to arbitrate disputes and the private counsel carve out. The Judge opined that if the plaintiffs could hire private counsel as a way to evade the CBA’s arbitration requirement in every type of case, not just the discrimination and family leave act claims enumerated in Article I of the CBA, that would render the grievance procedure culminating in arbitration meaningless.

Because the CBA was the product of extensive and careful negotiation, the Court concluded that could not be the intent of the parties. Limiting the private counsel carve out to only discrimination and family leave cases allowed both clauses to have meaning. Id. at 8-9. In this way, the Court harmonized seemingly contradictory clauses in the CBA, and ordered the plaintiff’s wage law claim to arbitration.

Implications For Employers

It is not clear from the decision whether the arbitration itself can proceed on a class-wide basis, as there is no discussion of whether any class waiver exists in the CBA. Nonetheless, the Court’s order represents a master class in how to properly apply contract interpretation principles and enforce all clauses in arbitration agreements.