Category: Class Action Weekly Wire

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Nelson Stewart with their discussion of significant developments in the securities fraud class action space, including analysis of two key rulings, class certification rates, and major settlements.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Samsung Podcasts, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, and YouTube.

Episode Transcript

Jerry Maatman: Thank you loyal blog readers for joining us for the next episode of our podcast series, the Class Action Weekly Wire. I’m Jerry Maatman, a partner in Duane Morris’ Chicago and New York offices, and joining me today is my colleague from our New York office, Nelson Stewart. Welcome.

Nelson Stewart: Thank you. Great to be here, Jerry.

Jerry: Today we wanted to discuss trends, issues, and important developments in the area of securities fraud class action litigation. Nelson, this is a big space, but could you give us, from your thought leadership perspective, some kind of summary of what you think are kind of key developments in this area?

Nelson: Sure, Jerry. Class action securities fraud claims typically involve an alleged public misrepresentation or omission made by the issuer of a security, a subsequent disclosure that reveals the statement or omission to be false, and a decrease in the value of the security resulting from the disclosure. Securities fraud claims readily lend themselves to class-wide treatment because the number of investors who may claim losses resulting from a misrepresentation is often considerable.

The principal federal statutes for securities fraud claims are the Securities Act of 1933 and the Securities Exchange Act of 1934. Both statutes were enacted for the purpose of regulating securities markets and providing increased disclosure and transparency for investors in the wake of the stock market crash in 1929.

The 1933 Act generally applies to misrepresentation made in connection with an initial offering of securities. The 1934 Act imposes liability for misrepresentations related to the purchase or sale of existing securities.

Jerry: Thanks, Nelson, for that framework. By my way of thinking, the absolute Holy Grail in class action litigation for the plaintiffs’ bar is class certification. They file the case, they certify it, and then they monetize it. How did plaintiffs fare over the last year in terms of certifying securities fraud class actions?

Nelson: In 2023, plaintiffs were incredibly successful in gaining class certification. The plaintiffs’ bar secured class certification at a rate of 97% – or put another way, 35 of 36 motions. Companies secured denials in 3% of the rulings, or just in one case.

Jerry: While we do a comparative study of securities fraud with respect to other areas of law, at least in 2023 securities fraud class certification rates were the highest. We recently did a mid-year report in 2024, and still very high, but down to about 67% – 10 out of 15 cases certified in the securities fraud area. In terms of the key guide posts on the playing field when it comes to securities fraud class action litigation, what are some of the key developments that corporate counsel should be aware of?

Nelson: One of the most notable decisions in 2023 was the U.S. Supreme Court’s ruling in Slack Technologies v. Pirani, et al. The Supreme Court addressed a split among the federal circuits created by the Ninth Circuit’s departure from a well-established interpretation of Section 11(a) of the 1933 Act. A plaintiff bringing a fraud claim under the 1933 Act must show that the purchase of shares at issue can be traced back to the false or misleading registration statement. The statute imposes strict liability and a lower standard of proof for a narrower class of securities than the 1934 Act, which applies to misrepresentations or omissions for any security, but carries a higher standard of that requires plaintiffs to show a scienter, reliance, and loss causation.

In Slack, plaintiffs had purchased shares through a direct listing that offered both registered and unregistered stock shares. The inability to trace unregistered shares to a registration statement would be fatal to plaintiffs’ claims under the 1933 Act. In denying defendant’s motion to dismiss the class action, the district court attempted to accommodate the traceability challenges of a direct listing through a broad reading of the “such security” phrase of Section 11(a). The district court held that the unregistered shares were “of the same nature” as shares subject to the registration statement and plaintiffs therefore had standing under Section 11(a) to bring the suit.

 

On appeal, the Ninth Circuit noted that the application of Section 11(a) to the direct listing was one of first impression and it affirmed the district court’s decision while rejecting its broader reading of Section 11(a). The Ninth Circuit expressed concern that the more restrictive reading of the statute advocated by Slack, and applied by other circuits, would limit an issuer’s liability for false or misleading statements through the use of a direct listing and thereby disincentivize the 1933 Act’s goal of transparency.

On further appeal, the Supreme Court vacated the Ninth Circuit’s decision and held that the language of the 1933 Act was intended to narrow its focus. Citing Sections 5, 6 and 11(e) as support for the conclusion that the term “such security” refers back to shares that are subject to the registration.

Slack confirms that the novelty of a specific type of offering, such as a direct listing, cannot excuse the well-settled requirements for claims brought under Section 11 of the 1933 Act. Unregistered shares from a direct listing or certain post-IPO offerings are subject to dismissal at the pleading stage for lack of standing under Section 11 if those shares cannot be traced back to the initial registration. Whether an issuer is required to register all shares for sale in a direct listing was not addressed in Slack because this question had not been raised in the prior proceedings.

Another key ruling came out of the Southern District of New York in a case titled Underwood, et al. v. Coinbase Global. There, plaintiffs brought claims under Sections 5 and 12(a) of the 1933 Act and Sections 5 and 29(a) of the 1934 Act. Plaintiffs alleged that Coinbase operated a securities exchange without registering with the SEC. Their amended complaint also alleged that the cryptocurrency tokens sold on the Coinbase platform were securities as defined under both statutes.

However, the issue of whether digital assets must be registered with the SEC was not determined because the court found the plaintiffs failed to state a claim under the 1933 Act and the 1934 Act. Section 5 of the 1933 Act prohibits any person from selling unregistered securities unless the securities are exempt from registration. Section 12(a) creates a private right of action for any buyer against the seller of an unregistered security. To meet the definition of a seller under Section 12(a), a seller must either pass title or other interest directly to the buyer, or the seller must solicit the purchase of a security for its own financial interest. The court granted Coinbase’s motion to dismiss the claims brought under 12(a) because the plaintiffs did not sufficiently plead either requirement.

The initial complaint had stated that there was no privity between a user of the Coinbase platform and Coinbase. The user agreement also expressly stated that Coinbase was simply an agent, and a user who purchased a token from through the online platform was not purchasing digital currency from Coinbase. Though the plaintiffs had attempted to avoid this issue by amending their complaint to state that privity only existed between the user and Coinbase, the court held that it would not allow an amended complaint to supersede the admissions in the plaintiffs’ earlier pleading, or the express language of the user agreement. These facts precluded an action against Coinbase under Section 12(a). The company did not meet the definition of a statutory seller as defined in Section 12(a) because it did not pass title directly to a buyer. The plaintiffs also failed to plead anything more than collateral participation in the purchase of the tokens. The court concluded that absent allegations that the plaintiffs purchased the tokens as a result of active solicitation by Coinbase, Section 12(a) was inapplicable.

The court further held that the plaintiffs’ claims under the 1934 Act also failed for lack of privity. Section 29(a) of the 1934 Act provides that every contract that violates any provision, rule, or regulation is void. The plaintiffs argued that the user agreement and the transactions were void because they involved contracts that were premised on an illegal purchase of an unregistered security on an unregistered exchange, which violated Section 5 of the 1934 Act. The amended complaint sought rescission of the transaction fees and the transactions. To allege a violation of Section 29(b), the plaintiff is required to show that: (i) the contract involved a prohibited transaction; (ii) the plaintiff is in contractual privity with the defendants; and (iii) the plaintiff is in a class that the 1934 Act intended to protect. The court again found that privity was not established under the user agreement. The initial complaint asserted that the plaintiffs contracted with users of the Coinbase platform, not Coinbase. Thus there was no contractual privity with Coinbase. The court also noted that the user agreement was not a contract that required the plaintiffs to do anything illegal. A party to the user agreement was free to use the platform to transact crypto currencies or not transact at all. The court concluded this was insufficient to render the sale of digital assets on the platform a prohibited transaction under Section 5 of the 1934 Act.

Recently, in April of 2024, the Second Circuit reversed the district court’s dismissal of alleged Securities Act violations, fin ding the district court improperly relied on the plaintiffs’ initial complaint and Coinbase’s user agreement, instead of looking solely to the allegations in the amended complaint. The Second Circuit noted that some versions of the user agreements in place when the transaction at issue occurred had conflicting language that could plausibly support the allegations that defendants had passed title to the plaintiffs under Section 12(a)(1) of the 1933 Act. The court upheld dismissal of certain claims brought under the Securities and Exchange Act of 1934, finding that the plaintiff’s conclusory out allegations provided insufficient detail to support a claim for rescission.

Jerry: Thanks for that analysis. Evident to see a lot of developments in this space over the past 12 months. In terms of that monetization of securities fraud class actions, how did the plaintiffs’ bar do on the settlement front?

Nelson: There were several settlements of over a billion dollars reached in securities fraud class actions last year, and the top 10 class action settlements in this space add up to $5.4 billion.

In SEC, et al. v. Stanford International Bank, the Court granted approval of a $1.2 billion settlement to resolve investors’ allegations that the banks aided Robert Allen Stanford’s $7 billion Ponzi scheme.

A $1 billion settlement was approved in In Re Dell Technologies Inc. Class V Stockholders Litigation, which was a class action brought by investors alleging Dell, its controlling investors, and its affiliates shortchanged shareholders by billions in a deal that converted Class V stock to common share.

And in In Re Wells Fargo & Co. Securities Litigation, another $1 billion settlement was approved in a class action brought by investors alleging that the company made misleading statements about its compliance with federal consent orders following the 2016 scandal involving the opening of unauthorized customer accounts.

Jerry: It seems like 2024 is equally upbeat for the plaintiffs’ bar. We’ve tracked through the first six months settlements totaling over $2 billion, with three individual  settlements near the half-billion mark: $580 million, $490 million, and $434 million for securities fraud class action settlements, so a very robust area for the plaintiffs’ bar.

Well, thanks so much for your insights, Nelson. Very, very helpful in this space. And thank you to our loyal listeners for tuning in to this episode of the Class Action Weekly Wire.

Nelson: Thanks everyone.

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and associate Kelly Bonner with their discussion of key rulings, settlements, and trends analyzed in the RICO class action space.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Samsung Podcasts, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, and YouTube.

Episode Transcript

Jennifer Riley: Thank you for being here again for the next episode of our podcast, the Class Action Weekly Wire. I’m Jen Riley, partner at Duane Morris, and joining me today is Kelly Bonner. Thank you for being on the podcast, Kelly.

Kelly Bonner: It’s great to be here, Jen.

Jennifer: Today we wanted to discuss trends and important developments in Racketeer Influenced and Corrupt Organizations Act, or RICO, class action litigation. RICO is a federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal enterprise. The Congress enacted the RICO in 1970 in an attempt to combat organized crime in the United States. The law has since been used to prosecute a variety of offenses, including securities fraud, money laundering, and even environmental crimes. Kelly, can you explain the burden on the plaintiff in a RICO action?

Kelly: Sure thing, Jen. RICO allows the government to prosecute individuals associated with criminal activities such as the leaders of crime organizations. Although there are criminal charges, today we’re going to focus on the burden for civil RICO claims. So, plaintiff must prove three elements: criminal activity, so that means the plaintiff must show that the defendant committed a RICO crime; a pattern of criminal activity, which means that the plaintiff must show that the defendant committed a pattern of at least two crimes – patterns can include everything from the same victim to the same methods used to commit the crimes, or that the crimes even happened within the same year; also the statute of limitations – in civil RICO cases, the statute of limitations is four years, and that runs from the time of discovery. Plaintiff must also prove the existence of an enterprise. So, civil RICO class actions are significant pieces of litigation, and due to the potential for exposure to treble damages – or, you know, three times the damages – such class actions can present extraordinary risks.

Jennifer: Thanks, Kelly, very different from the types of claims that we often discuss on the podcast. How often are RICO class actions granted class certification?

Kelly: So in 2023, the plaintiffs’ bar secured class certification at a rate of approximately 70%. Companies secured denials in 30% of the rulings – so plaintiffs were largely successful in certifying the class.

Jennifer: Can you discuss any key rulings from 2023?

Kelly: Sure. So, in several 2023 cases, courts granted class certification under Rule 23(b)(3). So this is where the court concluded that common questions of law, in fact, predominated over individual issues, and that a class method was superior to other available methods for fairly and efficiently adjudicating the controversy. So, for example, in Turrey, et al. v. Vervent, Inc., the court concluded that common questions were dominated over individualized issues where plaintiffs alleged that defendants violated RICO by offering high cost education programs and a sham private student loan program called the Program for Educational Access and Knowledge, or PEAKS. This program saddled students with significant debt and inferior credentials. Plaintiffs sought class certification on the basis that they identified several common questions that could be resolved on a class-wide basis: 1) whether defendants knew that PEAKS was a fraudulent scheme designed to defraud investors and the U.S. Department of Education; 2) whether loans lacked legally required information; 3) whether PEAKS operated as an association, in fact, enterprise; 4) whether PEAKS as an enterprise made fraudulent representations, and 5) finally, whether the PEAKS enterprise use the mail and interstate wire system for its activities. The court opined that all of the elements of a substantive RICO violation could be determined through evidence common to class members. The court also noted that expert testimony sufficiently established that defendants knowingly participated in fraudulent scheme, and that PEAKS was structured to further defend its fraudulent goals. The court also ruled that questions of causation and injury could be addressed on a class-wide basis, since the plaintiffs allege that defendants conduct was the actual approximate cause of their injuries, and that their harms were foreseeable. So, if the loans had not been made or serviced as they were, the borrowers would not have made the payments. Even though the exact amount of damages differed among individual borrowers, the court concluded that this issue did not preclude class certification.

Jennifer: There’s also an interesting ruling that I wanted to mention, that came out of the Fourth Circuit in a case called Albert, et al. v. Global Tel*Link Corp. In that case, the Fourth Circuit vacated and remanded a ruling by the district court dismissing the plaintiffs’ RICO claims based on a failure to establish proximate causation. The Fourth Circuit concluded that the plaintiffs’ alleged injuries were the direct result of defendants’ scheme, and thus sufficient to allege RICO violations. In that case, the plaintiffs were families of prison inmates. They filed a class action alleging that the defendants, a group of providers of inmate telephone services, violated the RICO by colluding to fix prices for single call offerings, as well as misleading the government about their pricing structures, and ultimately causing consumers to pay inflated prices. The district court had dismissed the plaintiffs’ RICO claims on the basis that the plaintiffs did not adequately allege that the defendants proximately caused their injuries, as their harm was contingent upon harm suffered by the contracting governments. On appeal though, the Fourth Circuit vacated and remanded, the Fourth Circuit concluded that even though the alleged conspiracy occurred before it impacted the plaintiffs, the government was not a more direct victim than the plaintiffs, and the plaintiffs’ injuries were not derivative of those suffered by the governments because they would have been charged inflated prices regardless of whether the governments were injured. The Fourth Circuit clarified that the plaintiffs need only alleged facts plausibly supporting a reasonable inference of causation, and that the plaintiffs’ complaint plausibly supports an inference that the governments would have demanded lower prices for consumers but for defendants’ misrepresentations. Because the Fourth Circuit concluded that the plaintiffs’ alleged injuries were the direct result of defendants’ scheme, and therefore sufficient to allege RICO violations, it vacated the district court’s ruling and remanded for further consideration.

Kelly, how did the plaintiffs do in securing major settlements in the RICO class action space over the past year?

Kelly: So, there were several settlements and judgments that were over a million dollars reached in RICO civil class actions in 2023. So I’m thinking of in Lincoln Adventures LLC, et al. v. Those Certain Underwriters at Lloyd’s London Members of Syndicates, the court granted final approval of a $7.9 million settlement to resolve claims that Lloyd’s Syndicates violated RICO with an illegal anticompetition agreement. A massive RICO default judgment of over $131 million was entered by the court in Gilead Sciences Inc., et al. v. AJC Medical Group Inc., based on allegations that dozens of companies and individuals were involved in parallel schemes run by two healthcare networks profiting from illegal resale of HIV treatment medications. And then finally, in Zwicky, et al. v. Diamond Resorts, which comes out of Arizona, the court granted file approval to a settlement of $13 million, resolving allegations under RICO that defendants misrepresented the required annual fees for timeshare interest they purchased.

Jennifer: Thanks so much, Kelly. I know that these are only some of the cases that had interesting rulings in 2023 and RICO class actions. 2024 is sure to give us some more insights into the ways that class actions will evolve or continue to evolve in the RICO space. Thanks to all of our listeners for joining us today, appreciate having you here for this episode of the Class Action Weekly Wire.

Kelly: Thanks so much. Bye-bye.

 

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsel Brandon Spurlock with their discussion of key decisions addressing a myriad of procedural issues in class action litigation.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Samsung Podcasts, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, and YouTube.

Episode Transcript

Jerry Maatman: Thank you loyal blog readers for joining us on our next episode of our weekly podcast series, the Class Action Weekly Wire, I’m Jerry Maatman, a partner at Duane Morris, and joining me today is Brandon Spurlock. Thanks so much for being here on our podcast.

Brandon Spurlock: Great to be here, Jerry.

Jerry: Today we wanted to discuss trends and important developments with procedural issues in class action litigation. This is somewhat of a catch-all term in the Duane Morris Class Action Review in terms of our analysis of key rulings throughout the year. In 2023, federal and state courts address procedural issues and a wide range of class certification issues. Brandon, to your way of thinking, what are some highlights that corporate counsel should be aware of?

Brandon: Yes, jurisdiction is always an important consideration. Class action litigation jurisdictional defenses are often dispositive when a defendant challenges the ability of plaintiffs to maintain their class action in court. The Tenth Circuit issued a very interesting ruling on jurisdiction in Boulter, et al. v. Noble Energy Inc. There the plaintiffs, a group of oil and gas lessors filed a class action against the defendants for alleged underpaid royalties. The defendants then argued that the district court lacked jurisdiction because the plaintiffs failed to exhaust administrative remedies required by Colorado’s Oil and Gas Conservation Act, which grants jurisdiction to the COGCC to determine the amount of proceeds due to a payee. However, the Act excludes resolution of disputes over contract interpretation from the COGCC’s jurisdiction. The district court then agreed with the defendants, and granted their motion to dismiss. Plaintiffs did not appeal this decision, but filed a nearly identical second complaint in Boulter II three months later. While the second complaint was pending, the Colorado Court of Appeals issued a decision regarding the COGCC’s jurisdiction in another action. The district court dismissed Boulter II for the second time, and plaintiffs filed a third complaint, Boulter III in December 2021. The district court again dismissed the action on plaintiffs’ appeal. This Tenth Circuit affirmed the district court’s ruling. The Tenth Circuit considered whether the district court’s decision in Boulter I should preclude the jurisdictional arguments in Boulter II and Boulter III, and whether an exception to issue preclusion, based on an intervening change in the law applied. The Tenth Circuit concluded that the ruling in Boulter I did preclude the jurisdictional arguments, and the subsequent complaints. The Tenth Circuit also determined that the decision from the Colorado Court of Appeals did not change the law or provide a basis for plaintiffs to avoid exhausting their remedies with the COGCC. Therefore, the Tenth Circuit affirmed the district court’s dismissal for lack of jurisdiction.

Jerry: I’ve always found jurisdiction to be a very powerful argument for the defense in a Rule 23 situation. But equally pertinent is the concept of standing, and whether or not a named plaintiff has standing to prosecute a class action. In 2023, however, the plaintiffs’ bar secured a pretty plaintiff-friendly ruling on the issue of standing out of the Ninth Circuit in a case called Vargas, et al. v. Facebook, Inc. The district court had dismissed the named plaintiff’s claim in a class action for lack of standing where the named plaintiff, a New York resident and a Facebook user, claimed that as a member of a protected category group, she was unable to view housing ads that similarly situated White Facebook users were able to access based on the algorithms at issue in the Facebook platform. On appeal, the Ninth Circuit reversed the dismissal of the class action and remanded the district court’s ruling. The Ninth circuit held that sufficient allegations were asserted in the complaint with respect to the disparate treatment of the named plaintiff as compared to white users of Facebook, and as a result, there was a viable cause of action and an injury-in-fact sufficient to confer standing. Many legal commentators think that the Vargas decision is kind of on the outer edge of standing principles, but nonetheless shows in a very plaintiff-centric, or plaintiff-friendly way, how standing can exist in a class action complaint sufficient for the class action to go forward.

Brandon, are there other areas that you think are impacted that is favorable either to the defense bar or to the plaintiffs’ bar in the class action space?

Brandon: Yes. Jerry also wanted to address the issue of consolidation in class action litigation, since consolidation issues often surface when defendants are subject to multiple class actions, and whether or not to consolidate multiple cases in one forum is often a strategic imperative. For instance, in the case of In Re Tiktok In-App Browser Consumer Privacy Litigation, the plaintiffs filed multiple class actions alleging that TikTok illegally intercepted users, communications and activities on third-party websites through the web browser within the TikTok app. The plaintiff, and the class action pending in the U.S. District Court for the Central District of California moved under 28 U.S.C. § 1407 to centralize three of the actions in the Central District of California. Since filing the motion, the Judicial Panel on Multidistrict Litigation, the JPML, have been notified of 14 potentially related actions pending in three additional districts. All of the plaintiffs supported centralization, but the plaintiffs in five actions supported the movement’s position. So, while the plaintiffs in seven actions requested centralization in the Northern District of Illinois, and the plaintiff in one related action alternatively requested centralization in the District of New Jersey, and also in the Northern District of Georgia, and one plaintiff opposed centralization entirely. Because the in-app browser actions raised questions relating to the interpretation and the scope of settlement and the related MDL, the JPML ruled that those questions would be most appropriately resolved by the transferee court. Therefore, denied the motion to centralize those actions.

Jerry: I’ve always thought consolidation of multiple class actions in one quarter of consolidated class actions is a big money saver for the defense in terms of defending something once rather than multiple times, so that’s a key ruling. What about the area of sanctions in class action litigation – were there any particular rulings of note in 2023?

Brandon: Another good question, Jerry. Given the cost of defending a class action, corporate defendants sometimes move for sanctions if the claims are frivolous. For instance, the Sixth Circuit examine this issue in Garcia, et al. v. Title Check, LLC. There the plaintiff filed a class action against the defendant, alleging that its additional buyer’s fee violated Michigan’s General Property Tax Act. The district court dismissed the plaintiff’s claims, finding that the fee was not prohibited by statute. Subsequently, the defendant moved for sanction against plaintiffs’ attorneys on the grounds that the case was frivolous, and forced the defendant to incur unnecessary legal fees. The district court granted the motion, and ordered plaintiffs’ counsel to pay attorneys’ fees and costs over $73,000. On appeal, the Sixth Circuit affirmed the district court’s ruling. Plaintiffs’ counsel argued that the district court erred in opposing sanctions because the legal issues in the case were debatable and because the district court misunderstood Michigan law. The Sixth Circuit agreed with the district court’s conclusion, however, the plaintiffs’ counsel had unreasonably pursued frivolous claims based on an implausible interpretation of statute. The Sixth Circuit also found that the plaintiffs’ counsel should have known their claims lacked merit. The Sixth Circuit further rejected the argument of plaintiffs’ counsel that sanctions should have been limited to the specific filings related to the unnecessarily claims. Instead, it deemed the entire action frivolous and vexatious, and affirmed the district court’s ruling. So, very powerful use of sanctions that support a defendant’s position in that case.

Jerry: Those are great insights and analysis, Brandon. It certainly underscores the notion that non-merits issues in essence procedural issues can be important to the overall outcome of a class action and the method by which a corporation defends itself in class action litigation. Well, loyal blog readers thanks so much for joining us in this installment of the Class Action Weekly Wire. And thank you, Brandon, for providing your thought leadership in this space.

Brandon: Thanks for having me, Jerry

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associates Emilee Crowther and Derek Franklin with their discussion of key rulings and trends in class action litigation under the Fair Credit Reporting Act (“FCRA”).

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Google Podcasts, the Samsung Podcasts app, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, YouTube or our RSS feed.

Episode Transcript

Jerry Maatman: Thank you and welcome loyal blog readers and listeners to our next episode of the Weekly podcast series that we call the class Action weekly wire. My name is Jerry Maatman, and I’m a partner at Duane Morris and joining me today are my colleagues, Derek Franklin and Emilee Crowther, and we’re here to talk about Fair Credit Reporting Act class action litigation. Emilee and Derek, can you tell me a little bit about what is going on in this space in terms of the history of the FCRA?

Emilee Crowther: Absolutely, Jerry, and thanks for having me today. The stated purpose of the Fair Credit Reporting Act, or the FCRA, is to ensure that consumer reporting agencies, exercise their important responsibilities with fairness, impartiality, and a respect for the consumer’s right to privacy. It requires consumer reporting agencies and entities, obtaining consumer reports to follow reasonable procedures, to assure maximum possible accuracy of consumer reports. Courts have often noted that FCRA violations lend themselves to resolution through class action, litigation, and FCRA. Class actions have increased partially as a result of the Fair and Accurate Credit Transaction Act, or the FACTA, amendments which require that a consumer who is afforded less favorable treatment and reliance on her credit report be provided an adverse action notice.

Derek Franklin: And in FCRA cases in 2023, the class action plaintiffs’ bar continued to look for any failure of an employer to provide disclosures or obtain proper authorization from an applicant. Although these authorization and disclosure requirements may appear to be relatively straightforward, case law has created additional requirements that may not be as obvious from a plain reading of the FCRA. While employers must be vigilant in their efforts to avoid running afoul of the FCRA authorization and disclosure requirements, the third-party agencies they obtain consumer reports from must also take active steps to ensure that they provide accurate reports. The plaintiffs’ bar is quick to investigate violations of these provisions and bring Rule 23 class actions against CRAs.

Jerry: I know that compliance with the FCRA is not for the faint of heart, and it’s certainly spiked quite a bit of class action litigation in terms of our annual report. Are there some significant guideposts in the case law in terms of FCRA class actions?

Emilee: So, the United States Supreme Court’s decision in TransUnion LLC v. Ramirez substantially limited FCRA class actions by making it clear that only consumers who have “been concretely harmed by a defendant’s statutory violation may sue that private defendant over that [FCRA] violation in federal court.” In TransUnion, the defendant credit reporting agency generated thousands of consumer credit reports which mistakenly match the consumers’ names with the names of people on the list of individuals who threaten America’s national security. However, the Supreme Court only allowed this case to proceed for plaintiffs whose false reports had been provided to third-party creditors. According to the Supreme Court, if the third-party creditors did not receive the potentially defamatory reports, then the individuals did not suffer from a concrete injury under the FCRA.

Jerry: Well, the TransUnion case certainly has created quite a tidal wave of defenses and case law that have interpreted just what an “injury-in-fact” may be. How has that resulted in terms of FCRA class certification rulings and motions to dismiss over the past year?

Derek: In 2023, all the three major CRAs in the United States – Equifax, Experian, and TransUnion – had to litigate at least one FCRA class action concerning allegedly inaccurate or incomplete credit reports. In one such case brought against Equifax in the Us. District Court for the Northern District of Georgia, the court granted in part a motion to dismiss as to a state law negligence claim and injunctive relief under the FCRA. But the court denied in part the motion to strike the class action allegations allowing the plaintiffs’ claim to proceed. The court noted that the plaintiffs could not identify a statutory or common law duty of care owed to the plaintiffs by Equifax. And as to the FCRA claim, the court stated that the case is cited by Equifax, centered on instances where a correctly reported credit score was misleading, which was distinguishable from its position, that it was not “objectively unreasonable” for the company to interpret federal law as being inapplicable to credit scores. The ruling is a good roadmap for defendants involved in FCRA class action litigation.

Emilee: Another case, titled Nelson, et al. v. Experian Information Solutions, Inc., the court examined what documents and information would reasonably be “in a consumer’s file” underneath the FCRA. The plaintiff reviewed her credit report and discovered that it contained inaccurate personal identification information, including two addresses that weren’t hers, her maiden name was misspelled, and the last digit of her social security number was incorrect. She contacted Experian to request the information be changed and Experian updated all but one of the incorrect addresses because it was associated with an open credit account. The plaintiff ended up filing a class action against Experian, alleging that Experian violated the FCRA by providing inaccurate personal identification information on her credit report and failing to correct the inaccurate information. Experian filed a motion for summary judgment, asserting that although the FCRA’s disclosure provision requires credit reporting agencies to disclose “all information in a consumer’s file” the word “any” in “any item of information contained in a consumer’s file” is limited to information that might be, or has been, furnished consumer report. Experian contended that since personal identification information, like a consumer’s name, address, and social security number, do not bear on an individual’s credit worthiness, such information did not itself constitute a credit report. The court rejected this argument, and found that the FCRA’s plain language “forbid the use of credit worthiness as a limitation on information contained in both the consumer’s credit report and [in the] consumer’s credit file.” However, the court ended up holding that the existence of a duty to reinvestigate was “not enough to prove a violation of the FCRA” – that the plaintiff also had to establish that Experian, either negligently or willfully, failed to satisfy its duty to reinvestigate by showing that Experian’s interpretation of the FCRA was objectively unreasonable. The court ruled that no jury could find that Experian negligently or willfully violated the FCRA, and that Experian’s interpretation of the FCRA was objectively reasonable. Thus, the court granted Experian’s motion for summary judgment.

Jerry: Those are key cases and a great overview of what corporate counsel are facing here. Certainly the business model of plaintiffs’ counsel is to file the class action, certify the class action, and then monetize it through settlements. How did the plaintiffs’ bar do in terms of monetizing significant FCRA settlements on a class-wide basis over the past year?

Derek: Jerry, in terms of securing high settlements – the plaintiffs’ bar did not do nearly as well in 2023 as in 2022. In 2023, the top 10 FCRA, FDPCA, and FACTA settlements totaled $100.15 million. This was a significant decrease from the prior year, where the top 10 class action settlements totaled $210.11 million.

Jerry: Still a lot of money, and certainly corporate counsel need to be on guard in terms of compliance efforts in this area. What are your thoughts on the takeaways given the case law, given the settlements, in terms of what corporate counsel should have in their toolkit for FCRA compliance?

Emilee: Well, Jerry, it’s very important for consumer reporting agencies to implement policies and procedures that furnish accurate reports. Systemic issues in a reporting system provide the plaintiffs’ class action bar with ample evidence to argue that class certification is justified, regardless of whether there was actual harm to many consumers.

Derek: And to add on to that – good document retention can save the day in FCRA litigation. While various cases involve the generation of consumer reports for tenant applicants, they are just as applicable to consumer reports generated for employee applicants and the plaintiffs’ class action bar will continue to press legal envelope.

Jerry: Well, thank you, Emilee, and thank you, Derek, for your thought leadership in this area. And loyal blog readers and listeners, thank you for joining us for this week’s installment of the Class Action Weekly Wire.

Emilee: Thank you, Jerry, for having us, and thank you loyal listeners.

Derek: Thank you, everyone.

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jennifer Riley and Alex Karasik and associate Derek Franklin with their discussion of key rulings involving the Class Action Fairness Act (“CAFA”).

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Google Podcasts, the Samsung Podcasts app, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, YouTube or our RSS feed.

Episode Transcript

Jennifer Riley: Thank you for being here again for the next episode of our weekly podcast the Class Action Weekly Wire. I’m Jennifer Riley partner at Duane Morris and joining me today are Alex Karasik and Derek Franklin. Thank you both guys for being on the podcast.

Alex Karasik: Great to be here, Jen. Thank you.

Derek Franklin: Thanks for having me, Jen.

Jennifer: Today we wanted to discuss trends and important developments in the area of the Class Action Fairness Act, or the CAFA. Alex, can you tell our listeners a little bit about the CAFA before we get into the latest developments?

Alex: Absolutely. Jen. The CAFA is a staple of class action litigation. It was signed into law by George W. Bush, on February 18, 2005. The CAFA expands federal subject-matter jurisdiction over significant class action lawsuits and mass actions in the United States. Functionally, the CAFA provides a mechanism for defendants to remove class actions from state courts to federal courts. So, as a result, CAFA impacts form selection strategies in the class action litigation space.

Derek: Also, to add to Alex, the CAFA does more than facilitate the removal of class actions from state court to federal court. It also regulates the selection of class counsel, toughen certain pleading standards, tightens control over the range of attorneys’ fees that may be awarded in class action settlements, it facilitates the appeals of class certification orders, and it regulates the settlement process in class action settlements.

Jennifer: Thanks so much for that background, guys. Derek, can you talk a bit more about the impact of CAFA on class action litigation?

Derek: Yeah, CAFA has played a major role in large bet the company class actions. The plaintiffs’ class action bar has traditionally maintained success in achieving class certification in state courts, particularly those with locally elected judges who may be hostile toward out-of-state defendants. Prior to the implementation of the CAFA, in order for a federal court to have maintained jurisdiction,  there needed to be a monetary threshold of $75,000 met by every plaintiff in the case, and all named plaintiffs in a class action had to be citizens of states differing from those of all defendants. Now under the CAFA, jurisdictional requirements are much less restrictive, and thus more difficult for the plaintiffs’ bar to establish that the action should remain in state court.

Jennifer: Alex, what types of class action litigation, would you say, are most affected by the CAFA?

Alex: Great question, Jen. Class actions filed under federal statute, such as the FLSA, Title VII, or ERISA, are almost exclusively filed in federal court. So, the CAFA has most significantly impacted state law wage and hour claims and related state law type class action claims in employee-friendly states, such as California. The plaintiffs’ class action bar notoriously pursues wage and hour claims in state courts. It tends to be a more favorable forum for plaintiffs in certain areas. The Second Circuit over time became known as the federal circuit where securities law became the most developed. However, the Ninth Circuit became a circuit where more rulings under CAFA were made than any other circuit in the federal system. So, we tend to see various wage and hour and other potential consumer claims filed in state court, and therefore removed under the CAFA.

Jennifer: Were there any key CAFA rulings in 2023?

Alex: It doesn’t happen every year – but in 2023, in fact, courts and all of the federal circuits adjudicated jurisdictional issues based on the CAFA. Beyond the traditional wage and hour context, the CAFA rulings come in a variety of shapes, form, and sizes. Some of those came under the Illinois Biometric Information Privacy Act, which the three of us know very well, being located here in Chicago, Illinois. Other claims involve breaches of consumer product warranties, for instance, under the Magnum-Moss Warranty Act, so CAFA claims can really impact a wide variety of different types of causes of action.

Derek: In particular, the Third Circuit ruled on a breach of warranty case in Rowland, et al. v. Bissell Homecare, Inc., which involved a consolidated appeal concerning four putative class actions filed in state court, alleging violations of the MMWA. The defendants removed those cases pursuant to the CAFA and the plaintiffs filed motions to remand which the district court granted on appeal. The Third Circuit affirmed the District Court’s rulings under the MMWA. The amount controversy must be at least $50,000, and, if it’s a class action, it must have at least 100 named plaintiffs. The Third Circuit opined that in imposing additional requirements for federal jurisdiction, that Congress manifested an intent to restrict access to federal court for MMWA claims. The Third Circuit determined that at a minimum, the requirement that a class action name at least 100 plaintiffs for federal jurisdiction under the MMWA was not satisfied because each complaint at issue named only one plaintiff. The Third Circuit also reasoned that the MMWA’s stringent jurisdictional requirements were irreconcilable with the CAFA because they have differing requirements for how many plaintiffs must be named in a class action that can be brought in federal court, i.e., the CAFA requires only one plaintiff, and the MMWA requires at least 100 plaintiffs. The Third Circuit, therefore, concluded that applying the CAFA in this situation would render the MMWA’s named plaintiff requirement meaningless.

Jennifer: Alex, with the explosive amount of privacy class action litigation recently, can you tell us a bit more about the BIPA ruling in particular that you mentioned earlier?

Alex: Yeah, Jen, there was a really interesting ruling in the Northern District of Illinois in a case called Halim, et al. v. Charlotte Tilbury Beauty, Inc. There the plaintiff filed a putative class action in Illinois state court against the defendants, a makeup and cosmetic company and its parent corporation, alleging violation of the BIPA. It wasn’t a fingerprint scan BIPA case, but rather, this is one where, the defendants allegedly unlawfully collected facial geometry when the plaintiff used the virtual try-on software to superimpose the defendant’s makeup products on the plaintiff’s face. The defendants removed the case to federal court, and the plaintiffs thereafter sought to remand. The court granted plaintiffs’ motion to remand the action to state court because the defendants did not satisfy the $5 million amount-in-controversy requirement. The defendants had argued in removing the case, that they satisfied the requirement through their calculation of a $12 million dollar amount-in-controversy calculation for the BIPA. They claim there was six violations of the BIPA for each putative class member, times 100 putative class members, times two face scans per class member, times $5,000 per violation – which is the statutory amount for a reckless violation – times two defendants. Yeah, that’s a lot of math. And using all this math, defendant came up with an 8-figure number that they anticipated would be the damages exposure. Court rejected this calculation, saying, it’s too speculative and unreasonable to satisfy the defendant’s burden, and therefore, because of that, the court remanded this case back to Illinois state court.

Jennifer: What should corporate counsel and employers be on the lookout for in 2024?

Alex: We anticipate, there will be continued arguments over removal due to jurisdictional issues. The plaintiffs’ bar is crafty and constantly evolving their strategies for arguing against litigating cases in federal court. Many times state courts are more favorable forum, and I don’t think that trend will change in the coming year. What remains to be seen is how effective these strategies will be, and granting motions through remand especially as many of the major class action statutes, such as the BIPA, might evolve at the legislative level.

Jennifer: Well said. Thank you so much for all of this great analysis. Derek and Alex, thank you for being here with me today, and listeners, thank you so much for tuning in.

Alex: Thanks for having me, Jen, and thank you to all of our listeners. We appreciate you tuning in today as well.

Derek: Thanks, everyone.

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and associate Nathan Norimoto with their discussion of developments and trends in the area of civil rights class action litigation.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Google Podcasts, the Samsung Podcasts app, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, YouTube or our RSS feed.

Episode Transcript

Jennifer Riley: Hello, everyone, and thank you for being here again for the next episode of our weekly, podcast the Class Action Weekly Wire, I’m, Jennifer, Riley partner and Dwayne Morris and joining me today is Nathan Norimoto. Thank you for being on the podcast Nathan.

Nathan Norimoto: Great to be here, Jen.

Jennifer: Today we wanted to discuss some trends and important developments in the area of civil rights class action litigation. Nathan, do you want to talk a bit about this area of law before we get into a development over the past year?

Nathan: Yes, definitely. For more than 70 years, class actions have been among the most powerful tools to secure civil rights in America. This began with the class action of Brown, et al. v. The Board Of Education, which declared school segregation unlawful and arguably set the stage for the Civil Rights Movement. In 1966, Congress and the judicial rule-making authorities crafted Rule 23 with the express goal of empowering litigants, challenging systemic discrimination, particularly segregation, to force courts to order widespread objective relief that would protect members of the class as a whole. Ever since, this provision remains as salient to the enforcement of federal civil rights statutes and constitutional claims as it was at its inception. So, for a multitude of reasons, class actions are often a tool of first resort by advocacy groups to remedy civil rights violations.

Jennifer: Thank you so much for that overview. What were some of the major developments in 2023 and during the first half of 2024 in the civil rights class action litigation space?

Nathan: Class actions in the civil rights context span numerous issues during that time period. Given this breadth of subject area, there were well over 100 decisions in this space. In these far ranging claims and groups of individuals, one common theme continues to be whether litigants can meet the commonality and typicality requirements of Rule 23, under the federal rules of civil procedure, to establish class certification. 2023 saw court rulings where numerous civil rights cases were certified, as well as granted class certification affirmed on appeal.

Jennifer: Are there any key rulings from this past year that listeners need to know about in the civil rights litigation class action area?

Nathan: Definitely. So, among all civil rights cases, the ruling on class certification in Progeny, et al. v. City Of Wichita was likely amongst the most significant. The plaintiffs, a nonprofit organization and several individuals, filed a class action alleging that the defendant, the city of Wichita, kept a “gang list” created and maintained by the Wichita Police Department, or WPD, whom WPD personnel had determined that the definition of a criminal street gang member. The individual plaintiffs alleged that they were wrongfully designated as criminal street gang members and added to the gang list, which adversely affected their lives. The plaintiff filed a motion for class certification pursuant to Rule 23, and the court granted the motion. The plaintiff proposed class consisted of all persons included in the Wichita Police Department’s gang list as an active or inactive gang member or gang associate. The court also determined that several common questions existed to establish commonality, including whether the statute was unconstitutionally vague, whether it failed to provide procedural protections to persons on the gang list, and whether inclusion in the gang list has a chilling effect on the right to freedom of association. The court held that the plaintiffs established that the defendant acted or refused to act by applying the gang list criteria to add persons to the gang list without procedural protections for those persons, which was applicable to the entire class. So the court ruled that the requested injunction seeking to bar the defendant from enforcing the statute was appropriate to the class as a whole, because all class members were on the gang list, and therefore the court granted class certification.

Jennifer: Thank you, Nathan, for that overview. So, turning to some trends and developments – there were over 100 rulings in this area in 2023. How are things progressing thus far in 2024 – have there been any interesting cases where class certification was granted?

Nathan: Certainly. So it seems like courts are continuing to grant class certification rulings in this area so far this year. One example here in California, Berg, et al. v. County Of Los Angeles, the plaintiffs were a group of protesters who filed a class action asserting that the Los Angeles Sheriff’s Department, or the LASD, had used excessive force against peaceful protesters and unlawfully detain them in violation of their First, Fourth, and Fourteenth Amendment rights in connection with the George Floyd protests. The plaintiffs filed a motion for class certification on one injunctive relief class and two damages classes, and that motion was granted by the court. As to the injunctive relief class, the defendants opposed the motion on mootness and standing grounds, and the court found that could not determine that the class would be moot, and that because the plaintiffs had stated they plan to attend future protests, they could plausibly be fearful of future harm. Next, for the first damages class, containing individuals who were arrested at the protests, the court stated that there were several common issues central to the class, including (i) whether the defendants have a custom and practice of using indiscriminate force against the peaceful protesters; (ii) whether there has been a manifest failure by the defendants to train employees on the use of force against the protesters; and (iii) whether the defendants had ratified violations of peaceful protesters’ rights. So finally, on the last and third class, the other damages class which contained individuals who were subject to the use of rubber bullets or tear gas, the court determined that the plaintiffs sufficiently established the common alleged harm of a “chill” to their First Amendment rights to unify the class. The court stated that the class met the predominance requirement under Rule 23 because the plaintiffs alleged class-wide general damages and challenged only a single “custom and practice of abusing indiscriminate force against peaceful protesters.” The court concluded that class action would be superior method of adjudication for the direct force class, or the third class, and granted the motion for class certification in its entirety.

Jennifer: It certainly seems like we will see courts continuing to grapple with motions for class certification in this area in 2024, and the plaintiffs’ bar continuing to aggressively pursue certification on behalf of plaintiffs. We know that successful certification often leads to settlements between the parties, rather than continuing the litigation and ultimately going to trial. How successful were plaintiffs in securing settlement dollars in this space in 2023?

Nathan: Pretty successful. Settlement numbers in civil rights class actions in 2023 were definitely significant. The top 10 settlements total $643.15 million. However, this is significant, but it was a decrease from the prior year when the top 10 civil rights class action settlements topped $1.3 billion.

Jennifer: The top settlement amounts in each area of law have been massive in recent years, and a major trend that we track in the Duane Morris Class Action Review. We will continue to track these numbers in 2024 and keep listeners aware of developments. Is there anything else corporate counsel and employers should be on the lookout for in 2024?

Nathan: So given the volume of litigation in the civil rights area, as well as the frequency which with classes are granted and new burgeoning issues for that can percolate in these cases – for example, claims connection with COVID-19 in connection with the increase homelessness issues that we’re facing in our cities – it’s anticipated that the plaintiffs’ bar will continue to be creative, and definitely inventive in this space, as we progress through 2024.

Jennifer: Well, thanks so much for all of this great analysis, Nathan. Thank you for being here with me today. Listeners, thank you for tuning in. And if you have any questions or comments on today’s podcast please feel free to send us a DM on Twitter @DMClassAction.

Nathan: Thanks for having me, Jen, and thank you listeners for being here today.

Jennifer: Thank you listeners again for joining us today, and please join us next week for the next episode of the Class Action Weekly Wire.

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jerry Maatman and Sean McConnell with their discussion of key rulings and developments in the antitrust class action space, including a landmark settlement resolving litigation spurred by college athletes’ claims regarding the NCAA’s ban on monetization of name, image, and likeness.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Google Podcasts, the Samsung Podcasts app, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, YouTube or our RSS feed.

Episode Transcript

Jerry Maatman: Welcome loyal blog listeners. Thank you for being here on our weekly podcast, the Class Action Weekly Wire. I’m excited to introduce Sean McConnell, my partner in our Philadelphia office, who chairs our antitrust defense group. Welcome, Sean!

Sean McConnell: Thank you, Jerry. I’m very happy to be part of the podcast today.

Jerry: Today we’re talking about key issues in antitrust class action litigation. We recently published, under your guidance, the Duane Morris Antitrust Class Action Review. Readers can get it for free off of our blog. Sean, in the antitrust class action world, what sorts of issues is the publication focusing on this year?

Sean: Well, we had one fairly large decision recently this year from the U.S. Supreme Court in Visa v. National ATM Council. In that case, the United States Supreme Court declined a petition for review submitted by both Visa and MasterCard that urged the Supreme Court to review a circuit split according to petitioners over the correct standard of review that courts should use when evaluating motions for class certification. Visa and MasterCard argued that the U.S. Court of Appeals for the DC. Circuit erred by only requiring plaintiffs to show that questions common to the class predominate and allowing the fact finder later in proceedings to address issues related to uninjured class members. So, by denying the petition for review, the U.S. Supreme Court has left that standard open for interpretation by the circuit courts.

Jerry: I think that’s a really significant decision, and certainly the D.C. Circuit’s opinion ought to be a required read for any counsel involved in antitrust class actions involving price fixing allegations. I think it underscores how important the standard for review is. To me, securing class certification is the Holy Grail on the plaintiff side of the V. They file the case, they certify it, they monetize it. If you take a deep dive into the D.C. Circuit’s ruling, what are some of the takeaways that you think are important?

Sean: Sure. So we’ll start with the kind of the basic facts, Jerry. The plaintiffs for the case where the petitioners involved ATM operators and the defendants, of course, were Visa and MasterCard. You know, global payment technology companies that operate networks that connect various financial institutions together, so that when a consumer is using an ATM they can access their bank, even if they’re using an ATM from another member bank that’s using that network. And the plaintiffs allege that the defendants used an ATM nondiscrimination rule, which kept fees the same across various networks, and prevented ATM operators from playing networks off of each other, and getting lower rates for their users and plaintiffs, allege that those rules allowed defendants to actually charge supracompetitive transaction fees, and to foreclose competition from those other competing ATM networks. The D.C. Circuit Court affirmed a district court ruling that granted class certification with respect to three different classes. So the first two classes, which were not at issue in the Supreme Court decision involved consumers, but the third class involved the ATM operators themselves. And according to defendants, the D.C. Circuit used a lower standard for class certification similar to one used by the Eighth and Ninth Circuits, whereas the Second, Third, Fifth, and Eleventh Circuits employ a more rigorous, careful consideration standard regarding plaintiffs’ burden to establish predominance. And by denying review, the issue remains unresolved in terms of Rule 23 class certification standards.

Jerry: You know, I think it’s much like buying real estate – location, location, location is everything. And in one circuit, a case might not get certified and the defendant would win yet in another circuit, depending on the difference in the standard plaintiffs might be successful. It sounds to me like this is going to end up in the U.S. Supreme Court someday. Were there other notable developments that you think are important to corporate counsel in the past 12 months on the antitrust space?

Sean: Yes, Jerry, there were a few very high profile settlements in the class action world this year focusing on antitrust class actions in both collegiate and professional sports. So, the first, which I’m sure many are familiar with, involves the college athlete, name, image, and likeness antitrust litigation. And shortly after the Ninth Circuit declined to decertify the certified class of former college athletes, who sought damages due to the NCAA’s ban on compensation, going back to 2016, the NCAA agreed to a settlement with the class in the amount of $2.77 billion. The class contains hundreds of thousands of former student athletes who claimed they were owed name, image, and likeness compensation during that period. The payments as part of the settlement will be spread out over 10 years, and the settlement will also establish a framework for revenue sharing between schools, conferences, and the athletes themselves. The settlement potentially ends one of the NCAA’s most significant legal battles, but still faces other antitrust class action lawsuits over player compensation and transfer rules and will likely face other issues related to how it will compensate athletes going forward. The NCAA, of course, has been lobbying Congress for many years for federal legislation on name, image, and likeness and for an antitrust exemption that would allow the schools, the conferences, and the NCAA itself to, you know, collectively bargain or arrange with student athletes compensation rules. But absent that ability to collectively bargain, or for the players to unionize, any such arrangement with the student athletes has been considered a violation of Section 1 of the Sherman Act. So it’s still yet to be decided what will happen going forward on how these schools, conferences, and the NCAA itself will be able to compensate student athletes going forward absent an antitrust exemption.

Jerry: It’s so interesting to me as a sports fan how there’s such a tie between an antitrust law and college athletics. Also, I’ve been involved on the professional side with the LIV and the PGA Tour. I know that you’re quite a thought leader in this space, and you’ve written quite a bit on MMA fighters. I know that that was an important development this year. Could you share a little bit of your thoughts on that case?

Sean: Sure, you know, one of the most significant kind of antitrust wage and compensation cases from the past year actually happened in the context of UFC fighters and mixed martial artists. The UFC’s parent company TKO Holding Inc. revealed recently that it will pay $335 million to settle a class action brought by MMA fighters who alleged that UFC engaged in anticompetitive conduct to suppress the fighters’ wages in the case Le v. Zuffa. The parties had engaged the mediation in February, and were set for trial for April. And you know, practitioners and thought leaders were excited for the case because it was really the first kind of monopsony antitrust class action. The prior rulings in the case are required reading for any corporate counsel handling antitrust class action litigation involving wage suppression issues. The plaintiffs allege that UFC engaged in a in a practice of using exclusive contracts as well as its overall market power with respect to mix mixed martial arts and a series of acquisitions consolidating the market and buying up competing promoters of MMA fights to suppress the wages of the fighters and their opportunities to and earn more endorsement, money, and other forms of compensation. And the class alleged damages of upwards of $1.6 billion. The parties will still, despite the settlement agreement in principle, will still need to present that settlement to the court for preliminary and final approval. Of course, pursuant to Rule 23, but the settlement itself really underscores the ability of workers to use the antitrust laws to tilt labor market dynamics in their favor and to increase workers bargaining leverage for get greater compensation and benefits going forward.

Jerry: Think it’s very interesting, too. It kind of foreshadows the Biden administration arm of the Department of Justice getting involved in both criminal civil wage suppression antitrust cases. So the remaining chapters of the book have a long way to go to be written. But thank you so much for Sean, for sharing your expertise and joining us. And thank you, loyal blog listeners, for tuning into this week’s Class Action Weekly Wire.

Sean: Thank you very much, Jerry.

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsel Justin Donoho with their discussion of best practices for corporate counsel to address liabilities and lawsuits emerging from the cybersecurity and data privacy landscape. Recent years have seen an exponential rise in class action lawsuits and mass arbitrations as a result of cybersecurity incidents and data privacy allegations, involving a growing list of technologies. In light of these developments, implementation of data privacy and security best practices is a corporate imperative for mitigating risk and deterring litigation.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Google Podcasts, the Samsung Podcasts app, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, YouTube or our RSS feed.

Episode Transcript

Jerry Maatman: Thank you, loyal blog listeners and readers for joining us on this week’s installment of the Class Action Weekly Wire. This is our 60th podcast in our series, and I’m privileged and honored to welcome Justin to be our guest on today’s podcast. Welcome, Justin.

Justin Donoho: Thank you, Jerry. Great to be here.

Jerry: So, today we’re going to be discussing a hot topic: cybersecurity, data breach, and privacy class actions in general, and things that can be done to get ahead of the curve and to mitigate or eliminate these particular risks. And, Justin, I know you’re a thought leader in this space, so we wanted to discuss with you today some of the trends and thoughts you have in this particular space.

Justin: That’s generous, but thank you. And yes, in the past few years we’ve seen an explosion of class action lawsuits alleging cybersecurity incidents where criminals have compromised organizations’ computer networks and stolen their data or held it hostage for ransom payments. Lately, we’ve also seen a spike in data privacy class actions alleging companies’ unauthorized use of advertising technologies on their websites – like the Meta Pixel and Google Analytics, which send users web browsing information to Meta and Google, which are the world’s two largest advertising agencies – and other website advertising technologies, or “adtech.” We are tracking both of these types of cases, cyber security and data privacy, quite extensively, and unfortunately can report that they continue to proliferate in 2024.

Jerry: Thanks, Justin. You did a post on the Duane Morris Class Action Defense Blog this past week that got some of the highest reviews and most clicks among our readership in terms of advice you had for corporations to get ahead of these risks. What are some of the key things that you think companies ought to be thinking about, considering, and implementing to mitigate their risks?

Justin: Yes, thank you. First, let’s talk about the use of arbitration agreements that mitigate the risks of both class actions and mass arbitrations. Our audience is likely familiar with the arbitration agreement defense when it comes to defeating class actions. This defense was largely successful over the last decade in making claims just go away. But times have changed – those arbitration agreements need to be tweaked to mitigate the risks as well as mass arbitrations, which can cost companies millions of dollars to defend. Mass arbitrations are becoming increasingly popular, especially for cybersecurity and data privacy class actions that bring high-dollar novel claims for statutory damages with class sizes often totaling millions of people. Enterprising plaintiffs’ attorneys with big war chests and litigation funders are increasingly using mass arbitrations to pressure organizations into agreeing to multimillion dollar settlements just to avoid the massive arbitration costs. Proactive measures organizations are taking to mitigate this risk include adding mechanisms in their arbitration clauses, such as predispute resolution clauses; mass arbitration waivers; bell weather procedures; arbitration case filing requirements, and more.

This area of the law is developing quickly. One case we are watching will be one of the first appellate cases to address the latest trend of mass arbitrations – it’s Wallrich v. Samsung, in the Seventh Circuit. At issue there is whether the district court erred in ordering the defendant facing data privacy claims to pay over $4 million in mass arbitration fees.

Jerry: Well, I know this is a hot area and an ever evolving area in terms of arbitration issues. But also you touched on another area, and that would be data breach class actions. This, to me, is an area that, just as like the tsunami wave breaking on the beach, that the claims have doubled from 2019 to 2020, then doubled again in 2021 to 2022. Last year there were 1,320 data breach class actions brought countrywide. And this year, so far, we’ve tracked about 600. And so the crest of the wave is anywhere from ending. What do you think in this area of data breach class actions in terms of what companies can do to address this risk?

Justin: Yeah, exactly, Jerry. It’s important that companies keep pace with a tsunami wave of their own in their pursuit of continuously improving their IT practices and cybersecurity measures. There are definitely some cybersecurity best practices that companies can be doing, not only to prevent cyber security incidents from happening in the first place, but also to defend against one of plaintiffs’ main argument in many of these class actions – that organizations failed to use reasonable cybersecurity measures.

Each organization will have its own priorities, to be sure, but here are just a few typical ones:

• improve IT governance;
• comply with industry guidelines such as ISO, COBIT, ITIL, NIST, and C2M2;
• deploy multi-factor authentication, network segmentation, and other multi-layered security controls;
• stay current with identifying, prioritizing, and patching security holes – as new ones do continuously arise;
• design and continuously improve a cybersecurity incident response plan;
• routinely practice handling ransomware incidents with tabletop exercises – tabletop exercises may even be covered by your insurance company; and
• implement and continuously improve security information and event management systems and processes.

Jerry: There’s another emerging litigation trend with respect to web browsing. And you had mentioned Meta Pixel and Google Analytics – and as someone who has a computer science degree and understands what’s going on, how do you translate that for corporate counsel in terms of the risk posed by the plaintiffs’ bar focusing on those particular activities?

Justin: Well, this is a very popular type of case right now, for sure. One first step that companies can do to is to to mitigate these risks of those types of cases is to find out if, and to what extent, they may be using these website advertising technologies. Millions do. Some companies served with an adtech lawsuit have not even known that any adtech was installed on their websites. It could have been installed by a vendor without the proper authorization of protections. Or even as a default, without any human intent, through the use of some web publishing tools.

Organizations should consider whether to have an audit performed before any litigation arises as to which adtech is, or has been installed, on which web pages, when and which data types were transmitted as a result. Multiple experts specialize in adtech audits just like this and also serve as expert witnesses, should any litigation arise. An adtech audit is relatively quick and inexpensive, and it might be cost beneficial for an organization to perform an adtech audit before litigation arises. It might convince an organization to turn off some of its unneeded adtech now, thereby cutting off any potential damages relating to that adtech in a future lawsuit. It could also assist in presently updating and modernizing website terms of use and data privacy policies to more fully inform users about the company’s use of adtech and vendor agreements to prohibit vendors from incorporating any unwanted adtech into the company’s websites. These updates to company documents could help defeat some of the high-dollar fraud claims and other claims we constantly see in these types of cases.

Jerry: Those are great insights, and I would recommend to all our blog listeners and readers to take a look at Justin’s blog post from this past week – I called it an essential reference or desk guide, or survival packet, to navigate through the thicket of all these particular issues.

Well, thank you, Justin, for joining us for this week’s Class Action Weekly Wire.

Justin: Thanks for having me, Jerry.

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and associate Tyler Zmick with their discussion of significant rulings and developments in the biometric privacy class action sphere.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Google Podcasts, the Samsung Podcasts app, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, YouTube or our RSS feed.

Episode Transcript

Jennifer Riley: Thank you for being here for the next episode of our weekly podcast, the Class Action Weekly Wire. I’m Jennifer, Riley, partner at Duane Morris, and joining me today is my colleague Tyler Zmick. Thank you for being on the podcast, Tyler.

Tyler Zmick: Thanks, Jen, very happy to be here.

Jennifer: Today on the podcast we are discussing the Illinois Biometric Information Privacy Act, or sometimes called BIPA, as well as notable decisions from courts over the past 18 months, highlighting a recent 2024 ruling. Tyler, could you give our listeners a brief overview of the BIPA?

Tyler: Absolutely, Jen. So the statute was enacted in 2008, and BIPA is a state law that regulates the collection, use, and handling of biometric identifiers and biometric information by private entities. Subject to a couple limited exceptions, BIPA generally prohibits the collection or use of a person’s biometric data without first providing the required notice, obtaining their written consent, and also posting a publicly available retention and destruction schedule.

Jennifer: Thanks very much for that overview. There are two major Illinois Supreme Court rulings from 2023 that govern the BIPA landscape and significantly impacted the way BIPA litigation is playing out. Tyler, you no doubt know which two cases I’m referring to – could you tell our listeners a bit about them?

Tyler: Sure, absolutely. So, these two decisions, which are a little bit old at this point – they were both issued in February of 2023 – had a profound impact on the interpretation of BIPA and the landscape of BIPA litigation. So the first ruling was issued in a case called Tims v. Black Horse Carriers, and in that case the Illinois Supreme Court held that a 5 year statute of Limitations applies to all claims brought under BIPA. So this really adds to the risks that employers and other companies who do business in Illinois face in terms of class action exposure, as the court rejected defendants attempts to argue that a shorter one or two year statute of limitations applies.

The other ruling, issued later in February of 2023, came in a case called Cothron v. White Castle, and in that case the court decided whether each fingerprint or other type of biometric data being scanned is its own discrete violation of the statute. And so, as background, the Seventh Circuit, the federal appellate court, was uncertain how to answer that sort of novel question of state law. And so it kicked it over to the Illinois Supreme Court to ask for clarification, and the court held that BIPA claims accrue not only once upon the initial collection or disclosure of biometric data, but rather each independent time that a company collects or discloses biometric information. And so this ruling, it really exponentially increased the monetary damages in BIPA class actions that a company can face, especially in the employment context – because you generally have a fact pattern where employees are scanning their fingerprints to clock in and out. And so they’re doing that multiple times a day when they start their shifts, when they go on their lunch breaks, and then when they clock in after lunch, and then clock out for the day. And so Cothron basically held that each time they scan their fingerprint is a separate and independent violation. And this could, for just one employee amount to, you know, over 200 work days per year – we’re talking a lot of potential damages.

All of that said, the Illinois Supreme Court acknowledged that it’s ruling on the violation issue and the accrual issue was somewhat Draconian, and so that invited the Illinois legislature to tackle the issue by clarifying that, you know, maybe a violation only occurs upon the first scan of biometric data. The legislature, as it’s you know, customary to do, took its time, drag its feet a little bit, but they did get around to passing a statutory amendment that now clarifies that for purposes of collecting or disclosing biometric data, the violation only occurs the first time that a company scans that type of information. And so both houses of the Illinois legislature have actually approved and passed the amendment. As of today, the governor is waiting to sign the bill, he’s expected to do so. Once Governor Pritzker signs off, that law will take effect, and Cothron will basically be no longer good law on a going forward basis.

Jennifer: Thanks, Tyler, great overview. So the Tims and Cothron rulings really eviscerated two of the key BIPA defenses used by companies over the past several years, however, companies still can use other defenses – such as whether biometric data was actually collected, used, or stored; such as whether and to what extent alleged violations actually occurred in Illinois for purposes of satisfying extra territoriality limitations; as well as the constitutionality of the potentially excessive or crushing damages that could resolve from a finding that each scan was a separate violation; companies can also call upon Rule 23(b)(3) arguments regarding whether a class action really is the appropriate vehicle to litigate a bit of a dispute based on superiority or predominance concerns.

Tyler: Exactly, Jen. You know, those defenses do exist, however, companies really need to be aware of the dangers associated with collecting or storing biometric data without BIPA compliant policies in place. As just one example, very recently the U.S. District Court for the Northern District of Illinois granted class certification to a class action plaintiffs where there are at least 160,000 class members, probably much more. And the case involves Amazon’s “virtual try-on” technology. Basically, it is a virtual technology where a person can upload a photo or video of themselves and then superimpose maybe make up or other fashion products onto their face to see how the product would look, and plaintiffs claim that that technology involves biometric data in the form of scans of face geometry. And in granting class certification in this case, the court dealt Amazon a significant blow in its efforts to block class certification. This decision is really the most recent example of success by the plaintiffs’ bar in a string of victories for class action privacy lawsuits across Illinois, and it illustrates that even the largest and most sophisticated companies can face legal exposure in connection with their biometric collection and retention practices.

Jennifer: We will certainly keep listeners updated on the developments in that case. What about settlement numbers in 2023, in BIPA class actions – what were the monetary totals paid out to plaintiffs?

Tyler: Sure – in BIPA related class actions, 2023 saw robust settlements, but actually a decline when compared to 2022. So if you’re looking at the top 10 BIPA class action settlements in 2023, they totaled $147.86 million, and that is compared to in 2022, $278.9 million.

Jennifer: Well, perhaps a bit of good news then, for employers and companies on the declining settlement value front. Thanks so much for being here again today, Tyler, and thank you so much to our listeners for tuning in.

Tyler: Thanks for having me, Jen, and thanks again to all of our listeners.

Jennifer: See you next week on the Class Action Weekly Wire!