Executive Order Targets Safety & Security, Consumer Privacy, And Algorithmic Discrimination
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jerry Maatman and Alex Karasik and associate George Schaller with their discussion of the landmark Executive Order published by the White House last week regarding artificial intelligence. The EO provides a good roadmap for employers of the federal government’s regulatory goals as artificial intelligence begins to take firm root throughout all sectors of the American economy.
Jerry Maatman: Hello loyal blog readers, welcome to this week’s installment of our Class Action Weekly Wire series. I’m joined today by my colleagues Alex Karasik and George Schaller for an interesting discussion on artificial intelligence. Welcome Alex and George.
Alex Karasik: Thank you Jerry, always a pleasure.
George Schaller: Great to be here, Jerry.
Jerry: Today we’re talking about an important issue that has been in the news over the last week, and that is the White House initiative on artificial intelligence. Alex, can you give provide some overviews of what employers and corporations need to know about this particular event?
Alex: Absolutely, Jerry – like many federal, state, and local regulatory bodies, the White House is also paying attention to AI in terms of what its impact might be on a broad range on constituents. The Executive Order endeavors to cover eight key areas: consumer protection, workers’ protection, safety and security, privacy, innovation and competition, global leadership, and the government’s own use of AI. And in setting the tone on the regulatory front, this marks the White House’s commitment to these areas. The broad range means that essentially every sector of the American business economy could be potentially underneath the umbrella of AI and impacted by this new development.
Jerry: I found it fascinating that the White House and President Biden would focus on and get involved in potential regulation and policy statements in artificial intelligence. George, what does the Executive Order say and contemplate with respect to issues involving safety and security?
George: That’s a great question, Jerry. The EO directs the creation of new safety and security standards in requiring safety testing and reporting, standard safety tests, biological synthesis screening, determining best practices for detecting AI-generated content, establishing a cybersecurity program, and ordering the development of a national security memorandum. There are many AI-enabled problems like “deep fakes” and disinformation campaigns, and these are key targets in this area. Right now the processes and technologies for labeling the origins of text, audio, and visual content is further behind than the advancement of AI tools – a reliable way to identify machine-generated content does not yet exist.
On the privacy viewpoint, the EO includes evaluating how government agencies collect and use commercially available information, as well as enhancing privacy guidance for federal agencies.
Jerry: The phone calls I’ve gotten over the last ten days from general counsel of companies with whom we work focused on their responsibilities, obligations, and duties as employers. Alex, in pivoting to anti-discrimination issues and how artificial intelligence may impact workplace litigation issues – are there particular topics, areas, and issues that employers should focus on in the wake of the Executive Order?
Alex: Thank you, Jerry, that’s a great question. If we had to boil this down to three topics that are most impacted by the Executive Order in terms of anti-discrimination laws, it would be equity, workers’ protection, and civil rights. And what’s the common thread that ties all these topics together? Algorithmic fairness and algorithmic discrimination is a common theme. For example, the EO mentions making sure that federal contractor programs are being monitored for not having any type of discriminatory impact on those that are being hired. We’ve also seen something similar in New York City, where in July of 2023, there was an algorithmic fairness law that came out about the use of artificial intelligence in hiring processes. And we anticipate that the Executive Order is starting the conversation on the federal level. Whether or not and how the Executive Order will be enforced remains to be seen, but nonetheless I think this signifies that the federal government is aware what state and local governments are doing around the country and they’re now starting that conversation from a broader, bigger level.
George: Additionally, the EO highlights the importance of responsible and effective government use of AI by issuing guidance, acquiring products, and hiring professionals for government agencies. The EEOC has artificial intelligence in its strategic sights as well – both on the enforcement level and as an agency resource. It will be important to watch how different government agencies will be involved with carrying out the eight priorities set forth in the EO and considering the short timelines outlined, and further down the road, seeing what the extent of the enforcement strategy will be.
Alex: The Executive Order also aims to identify the benefits of AI and see how this technology could be used for good purposes. In addition, the Executive Order calls for monitoring of the labor markets to see what is the actual impact of this technology in terms of how it’s being used – is it having a good impact, are there potential harms that are arising from its use? Essentially, the Executive Order wants more data to make the most informed decisions.
Jerry: It struck me that this 100-page Executive Order is, in essence, the first ten feet in a race that is probably as long as a marathon, and this is that starting salvo in terms of the government getting involved in AI regulation. More importantly, the plaintiffs’ bar is nothing if not innovative, and certainly the use of artificial intelligence, applications of it, and challenges to its use are going to be things that I believe are going to find their way into privacy-related class action litigation and employment-related class action litigation, at least at the start.
George and Alex, thank you for your comments and thought leadership in this area, and loyal blog readers, we’ll see you next week on our future installment of the Class Action Weekly Wire.
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 recent developments in a Massachusetts wage & hour suit brought by delivery drivers alleging independent contractor misclassification.
Jennifer Riley: Hello, podcast listeners, welcome to this week’s installment of the Class Action Weekly Wire. I’m Jennifer Riley, partner at Duane Morris, and joining me today is Nathan Norimoto, associate in our San Francisco office. Welcome, Nathan.
Nathan Norimoto: Thanks, Jen. It’s great to be here.
Jen: So today we’re discussing one of the top areas of focus by the plaintiffs’ class action bar – wage & hour litigation – and in particular, we’re going to talk about a misclassification case out of Massachusetts involving the arbitration defense. Nathan, can you start by giving our listeners some background on the case?
Nathan: Absolutely. So, misclassification is a popular theory alleged in wage & hour lawsuits often alleging exempt versus non-exempt or independent contractor versus employee claims. This particular case involves independent contractor misclassification claims brought under the Massachusetts Wage Act and the Massachusetts Minimum Fair Wage Law. The case at issue is Canales, et al. v. Flowers Foods, Inc., et al., currently pending in the U.S. District Court for the District of Massachusetts.
Delivery drivers had filed suit in 2021, alleging that Flowers Foods and its subsidiaries, LePage Bakeries and CK Sales Co., misclassified them as independent contractors, and sought wages and overtime pay. After the district court denied the defendants’ attempts to make the workers arbitrate under the Federal Arbitration Act, or FAA, the companies appealed to the First Circuit, and the appeals court back to the district court’s judgment – finding that precedent from the First Circuit and the Supreme Court lays out the exemption from arbitration under the FAA. Just last month, after the First Circuit issued its decision, the defendants filed a motion to dismiss or compel arbitration under the Massachusetts Uniform Arbitration Act.
Jen: Thanks for that background, Nathan. What was the result of the Court’s latest ruling?
Nathan: So earlier this week, U.S. District Judge Allison D. Burroughs denied the defendants’ motion to dismiss or compel arbitration under the Massachusetts Uniform Arbitration Act. The judge had found that defendants delayed in filing a motion to compel arbitration, which was inconsistent with the purpose of arbitration, citing a Massachusetts district court decision called Oliveira v. New Prime, Inc.
However, in that same decision, Judge Burroughs did separately grant the companies’ request to stay the case while the United States Supreme Court weighs a decision in Bissonnette v. LePage Bakeries. In that Supreme Court case, the Second Circuit had argued that the delivery drivers were not exempt from arbitration under the FAA because they are employees in the bakery industry. Under Section 1 of the FAA, there’s an arbitration exemption for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”
Jen: Thanks so much, Nathan, for that rundown on this ongoing litigation and thank you listeners for joining us on the podcast today. We’ll be sure to keep you up-to-date on developments on the arbitration defense, the transportation worker exemption, and other issues. That wraps up another episode of the Class Action Weekly Wire.
Nathan: Thanks for having me, Jen, and have a great day everyone.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Greg Tsonis with their discussion of a California wage & hour settlement for $155 million in a class action brought by correctional officers regarding overtime wages for pre- and post-shift tasks.
Jerry Maatman: Thank you for being here. Welcome to our Friday weekly podcast called the Class Action Weekly Wire. My name is Jerry Maatman I’m a partner at Duane Morris, and today we’re joined by my colleague Greg Tsonis who works in our employment group here in Chicago. Welcome, Greg.
Greg Tsonis: Thanks, Jerry. I’m very happy to be here.
Jerry: Today on our podcast we’re discussing wage and hour litigation. By my way of thinking – the number one risk that employers have throughout the United States. And there was a significant development this week with a rather substantial settlement involving correctional officers in California. Greg, can you give us a thumbnail description of what occurred ?
Greg: Absolutely, Jerry. So this case has actually been going on for 15 years. The classes in this case consisted of over 10,000 current and retired correctional sergeants and lieutenants that worked in the California correctional system. They filed suit against the state of California and its Department of Corrections and Rehabilitation alleging that they failed to pay overtime wages for preliminary and postliminary work activities – things like security searches, tool pickup, and pre-shift supervisory responsibilities – extending all the way back to 2005.
Jerry: Because of a more than 15-year litigation timeline – is that unusual in California or other parts of the country?
Greg: Very unusual, definitely not typical for a wage and hour class action alleging these types of claims to go on for 15 years.
Jerry: What were some of the terms of the settlement, and in your mind why is it significant for employers?
Greg: So in terms of the topline dollars, the party settled the claims for $155 million which included $46.5 million in attorney fees to three different law LA firms. Ultimately in the Court’s analysis of the settlement, it determined that the settlement was fair, reasonable, and adequate and found that it afforded members of the settlement classes meaningful relief under the circumstances, taking into consideration the risks and expenses of continued litigation. The Court also found that the fees requested were reasonable in part based on both the results obtained by class counsel as well as the issues and risk involved in the case, and the fact that the litigation had been going on for over 15 years. So a settlement this size – certainly employers should be aware of the potential risk for wage and hour class actions that have the potential for these sorts of nine figure settlements.
Jerry: In terms of a 15-year timeline, what were some of challenges confronted in the case involving uh class members who passed away, class members who went on to other jobs and were ex-employees, and then morale issues with the current employee population?
Greg: That’s exactly right Jerry. So thousands of the original class members have obviously retired at this point given the length of time, and one of the original named plaintiffs and even other unnamed class members have even passed away since the litigation commenced. In fact, indicated in their final settlement approval motion was that it would be a great benefit to the remaining class members to finalize the settlement at long last and you know get these individuals paid as soon as possible.
Jerry: $155 million is a monster huge settlement. I’ve studied this area for about 20 years and done comparative analyses of top 10 settlements in each calendar year, and I know that last year the top 10 wage and hour class action settlements topped out at about $545 million. Where does this year’s $155 million class action settlement rank this particular case?
Greg: Great question. So far this year this settlement ranks at number two in the wage and hour space of top settlements in 2023. It’s obviously a very significant settlement and could very well stay at the top of the range of recoveries for wage and hour cases this year.
Jerry: Well inevitably, like most often with taxes and rates go up, it sounds like 2023 is trending for a very, very big year and possibly higher settlement numbers than in years in the past.
Greg: I think that’s absolutely right Jerry.
Jerry: Well thank you for your thought leadership and joining us today, Greg< and providing your analysis of this particular noteworthy settlement .
Greg: Thanks for having me Jerry and thank you to all the listeners.
Jerry: That’s it for our Friday weekly podcast thanks for joining us here at the Duane Morris Class Action Blog.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and special counsel Brandon Spurlock with their discussion of a Seventh Circuit ruling issued last week that vacated a jury verdict of $225,000 in an FLSA overtime wage suit brought by field technicians regarding pre- and post-shift tasks.
Jennifer Riley: Thank you for being here for the next episode of our Friday weekly podcast, the Class Action Weekly Wire. I’m Jennifer Riley, partner at Duane Morris, and joining me today is special counsel Brandon Spurlock. Thank you for being on the podcast, Brandon.
Brandon Spurlock: Thanks Jen. I’m very happy to be here.
Jen: So today on the podcast we are discussing a recent ruling by the Seventh Circuit in a wage & hour lawsuit brought in Illinois. It’s called Meadows v. NCR Corp. Brandon, can you tell us a little about the Fair Labor Standard Act, which is the statute that the plaintiff invoked in this case, to set the stage for our discussion?
Brandon: The Fair Labor Standards Act, or FLSA, is the federal regulation enacted by the U.S. Department of Labor that establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments.
Jen: Thank you for that background – and now, can you tell us a little about the plaintiff’s allegations in the NCR case?
Brandon: Absosutely. At issue in this case is the FLSA’s overtime regulation. This case was filed by a field technician of NCR, which is a company that makes ATM machines. The plaintiff asserted that NCR failed to pay overtime compensation. The plaintiff contended that NCR was routinely shorting field technicians’ wages by allegedly refusing to pay them overtime for hours they worked in place of breaks, or before and after their shifts ended. The plaintiff claimed he performed many “incidental” work activities before and after his work shifts and during meal breaks, for which he was not paid, including things like responding to emails and phone calls, stocking his work van with required materials for his job each day, and mapping out his work travels. NCR had argued that it agreed to pay workers for unauthorized overtime, so long as the hours were properly recorded using the company system.
Jen: So this is an interesting case, among other reasons, because it proceeded to trial. Brandon, can you tell our listeners a bit about what the jury concluded at the trial?
Brandon: Yes, indeed, the case did go to trial, and the jury returned a verdict for the plaintiff. The court approved the verdict and awarded the plaintiff approximately $225,000 in back overtime pay plus interest, plus attorney fees. NCR, however, requested a new trial. The trial court denied that motion, but on appeal the Seventh Circuit vacated the jury’s verdict and remanded the action.
Jen: So the Seventh Circuit disagreed with the jury’s findings. How did the court come to that conclusion?
Brandon: Good question. So the Seventh Circuit determined that the district court had erred in allowing the plaintiff to claim he was owed payment for hours he had worked, but had not recorded. The Seventh Circuit stated that under the FLSA, employees can only expect to be paid for “incidental activity … if two conditions are met: the employer elected to pay for such activities by contract, custom, or practice and the employee engaging in such activities complied with all the requirements imposed … by that contract, custom, or practice.” So here the Seventh Circuit concluded that the plaintiff had not met that second condition.
The Seventh Circuit then vacated the jury’s verdict and sent the case back to the district court for further proceedings on whether the plaintiff should get a new trial.
Jen: It will be interesting to see here what the future holds for this case. We will be sure to keep our listeners up to date on new developments. Brandon, thanks so much for joining me today and for the rundown on this ongoing dispute. Thanks everyone for tuning in.
Brandon: Thanks for having me Jen, and thank you listeners.
Jen: See you next week on the 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 Brittany Wunderlich with their discussion of a Ninth Circuit’s ruling issued this week that reversed United Airlines’ win in a disability bias suit brought a baggage handler under FEHA in California.
Jerry Maatman: Thank you, loyal blog readers welcome to our Friday weekly podcast entitled the Class Action Weekly Wire. Today I’m joined by my colleague Brittany Wunderlich, and we’re going to be talking about issues in California, where Brittany practices law. Welcome, Britney.
Brittany Wunderlich: Thanks, Jerry. I’m happy to be here
Jerry: Today we’re going to talk about a recent ruling from the Ninth Circuit involving Bezzina v. United Airlines. Brittany, what’s this case about? And why is it important to employers in terms of what the Ninth Circuit wrote in this particular case?
Brittany: So, in California to be successful on a disability discrimination claim under the Fair Employment and Housing Act, otherwise known as FEHA, a plaintiff must show 3 things. First, that they suffered from a disability; second, that they were otherwise qualified to do his or her job; and third, that they were subjected to an adverse employment action because of their disability.
Jerry: To me, what makes this case interesting is the disability in question. Could you share with our listeners a little bit about the background facts, and why those facts kind of dictated the result in the Ninth Circuit’s ruling?
Brittany: Absolutely. So, this case was filed by a baggage handler working for United, who alleged that the company would not accommodate his request to wear a face shield while he was working inside rather than a mask, and this was during the height of the COVID-19 pandemic. Specifically, the plaintiff stated that he was a military veteran who suffered from post-traumatic stress disorder, and so wearing a mask caused him anxiety. On the other hand, the defendant argued that the baggage handler’s position was too unpredictable to grant the accommodation, and that, denying the request was a reasonable business decision in response to the global pandemic. The defendant thereafter place the plaintiff on an unpaid leave of absence when he would not wear his face mask, which the plaintiff alleged was an adverse employment action against him because of his disability.
Jerry: This to me is a really interesting case because of the CDC guidelines, which in essence say face masks are the option of choice, and the safest device for presenting preventing the spread of COVID-19, and that only in alternatives should face shields be used. How did the plaintiff’s lawyer litigate that question that issue to get around that problem?
Brittany: Well, at the trial court the district court granted the defendant’s motion for summary judgment. The plaintiff then appealed the decision, and the Ninth Circuit reversed and remanded the case. The Ninth Circuit stated that the issue of whether the plaintiff’s request was reasonable should be for a jury to decide. The Ninth Circuit also reasoned that a jury could find that the plaintiff was able to perform the essential job duties while wearing a face shield and without endangering the health and safety of others. The Ninth Circuit then stated that the question of whether placing the plaintiff on an unpaid leave of absence was an accommodation, or instead an adverse employment action was an unresolved, disputed fact.
Jerry: Very interesting to me. One thinks that the COVID-19 pandemic is over, but the legal disputes are still in the courts still ripe and very interesting outcomes. I think it proves the old adage that every ADA case is different, and rises and falls on the individual circumstances of the plaintiff. Well, Britney, thanks so much for sharing your thought leadership and expertise looking at that. Thanks so much for being a guest on the Class Action Weekly Wire.
Brittany: Thanks, Jerry. It’s nice being here, and thanks to all your listeners.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jerry Maatman and Shireen Wetmore with their discussion of the $36 million settlement approved last week resolving claims from multiple cases in both federal and California state court challenging an employer’s wage and hour practices.
Jerry Maatman: Thank you loyal blog readers and listeners, welcome to our Friday weekly podcast series entitled The Class Action Weekly Wire. I’m very excited to welcome our guest, my partner Shireen Wetmore from our San Francisco office. Welcome, Shireen!
Shireen Wetmore: Thanks, Jerry. Happy to be here.
Jerry: Today we’re going to focus on and talk about a rather hefty settlement just approved by a court in the wage and hour space for $36 million. The name of the case is Fodera v. Equinox Holdings. Could you tell us and explain to our listeners some of the background behind a class action that would spike at $36 million?
Shireen: Of course, Jerry. Yeah, this settlement represents the resolution of claims from multiple cases in both Federal and California State Court. The settlement covers a class of over 15,000 hourly non-exempt employees and former employees of Equinox from around April 2015 through December 2022, as well as a PAGA group of non-exempt employees that includes fitness trainers and instructors. And plaintiffs alleged that Equinox, the gym where they were teaching classes and providing personal training, failed to pay for pre- and post-shift work. Plaintiffs also challenged Equinox policies regarding meal and rest breaks wage statements and other wage and hour practices. Alameda Superior Court Judge Herbert approved a final settlement just last week on September 21, 2023.
Jerry: California is a super tough place to do business, and certainly so for wage and hour liability. Many, many employers doing business in the Golden State end up receiving these sorts of lawsuits. In your opinion, and based on your thought leadership in this space, what do you think were the main takeaways from the problems in that case that resulted in a settlement of $36 million?
Shireen: You know, Jerry, oftentimes in these cases we see this with our clients all the time – settlement doesn’t always mean that there’s a problem, settlement doesn’t always mean that something wasn’t done properly – there are lots and lots of reasons why clients may choose to settle a case. Certainly a case with the scale and scope of one like this, where there’s multiple pieces of litigation progressing at the same time. That often counsels settlement, just to avoid some of the really complicated procedural issues and costs associated with litigation, as you very well know California, like you said, tough place to do business. Some of the highlights that are coming out of this particular case is that these plaintiffs claimed that they were paid per session rate for the fitness classes that they were teaching and that they weren’t getting compensation for pre- and post-shift work outside of the class time. And so they alleged that they were required to engage in certain activities, like recruiting potential students or participants, and wanted compensation for that time. Also the residual impacts of that type of work impacting their meal and rest periods.
Jerry: In terms of the overall settlement, where does this rank in calendar year 2023 among the major wage and hour class action settlements?
Shireen: That’s a great question. So far this year this settlement will go right in the middle, actually a little surprising for such a large recovery, but in the top 10 it would be the fifth largest so far this year.
Jerry: That’s incredible. I’m a believer that success begets copycats, and when there are large settlements, employers experience an uptick of lawsuits brought. Certainly workers, plaintiffs’ lawyers notice these big numbers. And so that’s one of the reasons the Duane Morris Class Action review tracks and analyzes large settlements. Given that feature of our system where success begets success. Well, thank you so much, Shireen, for joining us and providing us with your thought leadership. Great to have you on the show.
Shireen: Thanks for having me, Jerry. Thank you, listeners!
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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 the Senate Banking Committee’s hearing this week regarding consumer protection in the financial sector from the risks of artificial intelligence, as well as their analysis of the potential implications in the regulatory environment and class action space as AI continues to be utilized in workplace and commercial operations.
Episode Transcript
Jerry Maatman: Welcome, loyal blog readers and listeners to our Friday weekly podcast series. I’m joined by my colleague Brandon Spurlock today, and we’re going to be focusing on artificial intelligence and the fact that that issue has been foremost in the mind of legislators in Washington, D.C. Brandon, welcome to our weekly podcast.
Brandon Spurlock: Thanks, Jerry. Always happy to be here.
Jerry: Brandon, there was quite a lot of activity at the Senate Banking Committee this week with respect to artificial intelligence. It involved consumers and protection of consumers. To me AI is everywhere and in the news, in terms of how it impacts the workplace, how it impacts consumers – what’s your take away from what occurred in Washington, D.C. this week?
Brandon: Yeah, Jerry, this topic is exploding everywhere, and the changes in every sector are fast and furious is AI advances. The hearing was led by the committee’s chairman, Democratic Senator Sherrod Brown from Ohio. Brown opened the hearing by highlighting positive aspects of technology for society in the financial world. And you think about things like ATM machines providing quick access to money, smartphone apps that can access banking online and bill paying, but also explain that automation has led to many of the financial crises that we’ve seen in the past two decades. Brown stressed that any AI use in the financial sector should be utilized to make the economy better for consumers, and that there should be significant safeguards in place to ensure that it does so.
His Republican counterpart, Senator Mike Rounds of South Dakota, who was filling in for the committee’s ranking member, also stressed the risks of AI, but took a different stance on the issues of regulation. He stated that there should be regulations regarding “transparency and explainability in decision-making, especially where credit is involved” – but that Congress should take a “pro-innovative stance” so the U.S. can attract talent, and that halting the progress of AI in the financial sector could put the U.S. at a competitive disadvantage.
Jerry: It struck me that here is a great example of technology accelerating faster than the law, and the law is trying to catch up, and government regulators are thinking about the void that exists in the system about regulation. I know that the Senate Committee and Senator Brown focused on fraud and antitrust concerns, but the overlay also was in the fear that artificial intelligence incorporates a bias, that use of the artificial intelligence could have an adverse impact on protected minority groups. What’s your takeaway in terms of what we’re going to see in the future in this particular area?
Brandon: Well, that’s spot on Jerry. Brown highlighted several AI tools that companies in the financial sector already use have been shown to have ingrained discriminatory biases towards Black and Latino American borrowers. Specifically, banks use algorithms and machine learning AI models and consumer lending that can determine a borrowers creditworthiness. But it often automates, super charges the biases that end up excluding minorities.
Jerry: I know that the Consumer Financial Protection Bureau is dabbling in this area, also focusing on regulations. But it seems to me that this is an area that the plaintiffs’ class action bar is following. And my sense is that we’re going to see a tipping point soon where there is going to be private plaintiff lawsuits brought over these issues with allegations that either the use of the AI implicated antitrust or fraud concerns or discrimination, either in the employment arena in the workplace, or with the extension of credit or with loans. What’s your takeaway of class action risks in this area?
Brandon: Well, you know there was a committee witness attending the hearing, Daniel Gorfine. He’s the founder and CEO of advisory firm Gattaca Horizons, and he’s a former chief innovation officer with the CFTC. He noted the risk of AI, but stated the “speculative fear or fear of future harm … should not broadly block development of AI in financial services.”
Another witness, University of Michigan computer science and engineering professor Michael Wellman, urged that public and open knowledge on what practices can create risk will help better prepare financial systems for AI and inspire market rules and systems that remain resilient to AI’s inevitable impacts.
So with all this said, Jerry, there will probably be no shortage of class action lawsuits that are filed, and I think as we see how those class actions progress, we’ll also see how they impact the regulatory environment. I think both are going to have an impact on one another.
Jerry: Brandon, you’re a thought leader in this area, and we’ll be closely following artificial intelligence and its implications in litigation and government regulation, and in terms of what it means to companies in the private sector. Sincerely appreciate you lending your expertise today to our podcast and thanks so much for joining us.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jerry Maatman, Jennifer Riley, and Alex Karasik with their analysis and discussion of the Equal Employment Opportunity Commission’s (“EEOC”) Strategic Plan for Fiscal Years 2022-2026.
Episode Transcript
Jerry Maatman: Welcome, loyal blog readers to our weekly installment of the Friday podcast, the Class Action Weekly Wire. I’m joined today by my partners, Alex Karasik and Jennifer Riley. Welcome.
Jennifer Riley: Great to be here. Thanks for having me.
Alex Karasik: Thanks, Jerry – Thrilled to be on the podcast.
Jerry: Today’s topic is the EEOC Strategic Plan for 2022 through 2026. It was just published this past month. Alex – what’s this about and what does it mean for employers?
Alex: Great question, Jerry. The Strategic Plan furthers the EEOC’s mission of preventing and remedying unlawful employment discrimination in advancing the Commission’s goal of providing equal opportunities and employment for all people. The Strategic Plan focuses on 1) enforcement, 2) education and outreach, and 3) organizational excellence. The Strategic Plan also provides performance measures for each strategic goal. So for corporate counsel who are involved in employment-related compliance as well as EEOC litigation, the new Strategic Plan is really required reading. You can find a copy of the Strategic Plan linked to the Duane Morris Class Action Blog, where we discuss the impact of the Plan and break down what it means for employers.
Jerry: Jen, enforcement is a big ticket item – it reminds me of the old EF Hutton commercial, ‘when EF Hutton speaks, people listen.’ And as Alex said, certainly when the EEOC talks about how it’s going to spend taxpayer dollars in enforcement of anti-discrimination laws, employers should listen and take notice. What are the takeaways in your mind when it comes to enforcement-related issues?
Jen: Well in the Strategic Plan, Jerry, the EEOC describes its primary mission as to prevent unlawful employment discrimination through its administrative mechanisms and through the litigation in terms of its enforcement mechanisms as well as through as adjudicatory and oversight processes. So the EEOC states that its main strategic focus for employing these mechanisms is through this fair and efficient enforcement based on the circumstances of each charge or each complaint, while maintaining a balance of meaningful relief for victims of discrimination.
Jerry: Well, I know that you can divide up the EEOC’s docket into systemic cases and non-systemic cases – systemic cases being much like class actions, even though the EEOC doesn’t have to comply with Rule 23 to litigate those. The EEOC also talks about outreach and education. Alex, is that something that employers should heed and take notice of?
Alex: Absolutely, Jerry – and one of the goals of the EEOC is trying to really prevent discrimination in these types of issues before they even ever surface to litigation. And the EEOC Strategic Plan does exactly that. It includes programs and events that come at cost-effective tools for enforcement. So these programs are primarily designed to help individuals from protected categories who may have historically been subjected to employment discrimination. Part of the EEOC’s education and outreach involves expanding technology through social media. That’s where a lot of workers are these days and a lot of people in society – and ensuring that the EEOC website and digital tools are more user-friendly and accessible and leveraging technology to capture a wider audience. These efforts to improve education and outreach are aimed at promoting public awareness of employment, discrimination laws while maintaining information and guidance for employers, federal agencies, unions, and staffing agencies. So really, the EEOC is dedicated to educating a large contingency of groups and organizations on what it can do to prevent discrimination.
Jerry: I also thought the aspect of the Plan that talked about organizational excellence was interesting. I, for one, have participated in internal EEOC training sessions where government attorneys came to be trained on cutting edge theories and techniques and employment discrimination laws. I once was an outside lecturer welcomed in by the EEOC to give that training. Jen, what do you read in terms of the EEOC’s investment taxpayer dollars into organizational excellence and what it means at the receiving end for employers in terms of lawsuits and techniques used by the government and litigating those lawsuits?
Jen: Well Jerry, the Strategic Plan makes clear that organizational excellence is the cornerstone of achieving the eeoc strategic goals. So the Plan states that the EEOC aims to improve on its culture of accountability, inclusivity, and accessibility. In addition to that, the Plan states that the EEOC will continue to advance civil rights in the workplace by ensuring resources are allocated properly to strengthen its intake, outreach, education, enforcement, and service goals. In terms of that organizational excellence strategic goal, it has two prongs including improving the training of the EEOC employees and enhancing the EEOC’s infrastructure. For employees, the Plan states that the EEOC will continue to foster enhanced diversity, equity, inclusion, accessibility in the workplace, maintain employee retention, implement leadership and succession plans. And relative to that to the agency’s infrastructure, the Plan embraces this increased use of technology through analytics as well as through the management of fiscal resources to promote the agency’s mission.
Jerry: Those are a very ambitious set of accomplishments that the government is staking out for itself. Alex, at the end of the day, what do you think are the most important takeaways for corporate counsel in terms of this newly published document from the EEOC?
Alex: Corporate counsel should pay attention to what they can do to best prevent discrimination and use this Strategic Plan to identify areas where the EEOC will essentially be focusing on in the coming years. The Strategic Plan is like a roadmap for businesses that they should absolutely pay attention to. Some of the focus areas that we learned about were systemic discrimination, conciliation, litigation, increasing the Commission’s capacity for litigating systemic violations of the discrimination laws., and how the EEOC is really ramping up its efforts to investigate charges. The EEOC’s focus on technology is a really key area for employers, and they’re taking advantage of the tools, such as the Internet, artificial intelligence, websites, social medias, and these types of things to look at where might employees be, and where my potential victims discrimination be, and how we can reach them to both educate them on the discrimination laws and what the key priorities are for the businesses and the Commission alike in terms of handling these issues. So these continue to be pillars for the agency – the areas that we just discussed today – and employers should absolutely buckle up for what will be a very busy four years of EEOC-initiated investigations and litigation.
Jerry: Thank you, Alex, and thank you, Jen, for your analysis and synopsis of this most important document. And thank you, loyal blog readers for tuning into our weekly podcast. Have a great day.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Nick Baltaxe with their analysis of settlement approval issues highlighted in class action litigation of 2022.
Episode Transcript
Jerry Maatman: Hello blog readers and thank you for welcoming us this week. I’m joined by my colleague and associate Nick Baltaxe and today we’re going to talk about settlement approval in the class action context. Nick, thanks so much for joining us on this week’s podcast.
Nick Baltaxe: Thank you for having me Jerry, you know it’s always a pleasure.
Jerry: Well, Rule 23 does many things and one of the things that regulates is the process by which a court must approve a settlement. In general litigation I think probably 98% of cases are disposed of either in motions to dismiss or by settlement. What about in the class action context – how are cases handled and how do they exit the court system?
Nick: So similarly, there’s very rarely trials to verdicts in the class action context. The reason for that is trials are not just very financially expensive in terms of legal fees, but present a large amount of financial exposure and a large possibility of an adverse verdict that could be very, very financially harmful and present unacceptable risks. So because of those risks, class actions are typically resolved before or on the heels of class certification order. As you stated, Rule 23 not only provides a process for the certification of a class action, but also provides the procedure for the settlement of the class action. Specifically, Rule 23(e) lays out a three-part settlement approval process that includes preliminary approval, which is approval that provides notice to the putative class, notice the class members, and finally, final settlement approval.
Jerry: Well, our Duane Morris Class Action Review has a chapter in and of itself with respect to key settlements as well as settlement approval issues, and as general counsel that I deal with often say, ‘if I’m going to settle a class action I only want to settle it once, I want a broad settlement bar’ – what are some of the positive attributes or reasons to settle a class action?
Nick: Yes, so there’s benefits to both sides of the aisle for settling these class actions on an early basis. From the plaintiffs’ point of view and a reason that you see a lot of plaintiffs’ attorneys and plaintiffs being willing to settle these sorts of cases at an early stage – you get payment quicker and even with the class approval, the class settlement approval process – that can take a longer period of time, so you want plaintiffs generally want to settle this on an early side so that they can get the money quicker. However, on the side of the employers, of the defendants, as indicated before getting the trial in these cases is usually a very expensive process in terms of legal fees, so settling early avoids the high costs including all the burdensome discovery related costs that come from having to defend class actions that you don’t see in other non-class related litigation. You also see benefits to the court system by avoiding needless litigation that clogs court dockets, especially in the context of these class actions or these cases, depending on the size of the putative class and issues with manageability and other class certification issues can take multiple weeks. Additionally, although class action settlements are matters of public record, they generally contain provisions where a defendant will not admit liability, which can also be positive for the publicity for that defendant. Finally and importantly, a settlement will bar anyone who is in that class and receives remuneration – in other words, does not opt out – from bringing claims, and those settlements can be crafted to be as broad as possible to eliminate as many claims assuming that the named plaintiff is agreeable and the court approves.
Jerry: Thank you for that overview of the process. Chapter 20 of the Duane Morris Class Action Review analyzes the significant settlement approval decisions rendered in state and federal courts. Briefly based on your analysis and review of an array of those decisions, what are some of the common obstacles or objections that judges in reviewing class action settlements focus upon in terms of issues where settlements are not approved?
Nick: In order to secure the court’s approval to send notice to the class regarding that settlement, there must be sufficient information provided to the court in order to determine whether or not it will be likely to approve the settlement and certify the class purely for the purpose of the judgment. Rule 23(e) itself actually includes a detailed list of factors that must be considered before the final approval of the class settlement. Those factors include things like the quality of class representation, whether the negotiations took place at an arm’s length, the adequacy of class relief, and the equitable treatment of class members. So you’ll see a lot of discussion on whether or not the negotiations were fair, whether the agreed-upon number provides proper relief for all the class members, and those are some of the bigger obstacles that you’ll see facing approval and also mostly the reasons that a court is going to push back and not approve of a proposed class action settlement.
Jerry: I think one of the common myths in the class action space is that once you settle the class action, it’s pretty much a rubber stamp approval process – and I think nothing could be further from the truth. The law is different in every jurisdiction and the practice locally is different in front of every court, but if there is one trend it seems to me that in California, more so than in any other geographic venue, judges are very strict in reviewing class action settlements and are more apt to deny approval probably than in any other jurisdiction. What does this mean overall for both plaintiffs’ counsel and defense counsel in terms of the practice, of how they craft a settlement, what it should look like, and how it’s presented to a court?
Nick: So the settlement process being as non-rubber stamped as it is and a court-by-court basis applying these standards on non-identical fashions presented a lot of strategic dilemmas for both parties when they’re crafting a settlement agreement. For example, for a defendant you have to consider how much you’d be willing to concede in the settlement agreement without losing your ability to defend the case to the extent the settlement falls through or the settlement is not approved by the court. You also have to consider if a settlement is going to be viewed as not sufficient – potentially too cheap by a court or deemed inadequate or unfair when reviewed and considering all of the putative class members, and also as indicated, you have to consider how broad you attempt to make the release. It is a strategic positive for a defendant to make as broad of a release as possible, secure as much protection for class claims coming from those class members, but too broad of a release might get push back from the court.
We saw a lot of these issues in a more recent case that has been continuing to develop over the past few months which was Lusk, et al. v. Five Guys Enterprises LLC, et al. As you indicated, in California there seems to be a very stringent class action approval process. In the Eastern District of California, Lusk v. Five Guys is now on its fifth attempt to have class certification approved from that district court; they had chances in December 2019, October 2020, June 2021, and in a recent denial in 2022 the court looked at things such as the willingness to pay one million dollars to settle claims that it’s discredited in its briefs as a perverse set of circumstances, the court looked to cautiously and rigorously scrutinize the attempt to settle the class action, and even warned the parties to carefully consider how they would like to proceed before fighting another notion of this kind, and it would not consider a new motion that merely tinkers with the same details that the previous motions have already presented. So as indicated by you know this rule and as you mentioned with California, it’s a strict process, it’s not a very simple rubber stamp – you don’t see most cases get to a fourth or a fifth go around, but you do see courts really scrutinize what the parties are bringing forward in their class action approval motions.
Jerry: That’s a fascinating case and case study, it reminds me of kind of the counter-intuitive notion that defense counsel is bargaining for the lowest possible settlement, and that’s true, but also the lowest possible settlement that a court will approve and kind of evidence of that is the famous or infamous, depending on how one looks at it, Facebook BIPA settlement where the parties presented a $550 million settlement to the court and the court said ‘that’s inadequate, that’s a not enough of a payment to the class,’ and sent them into the room so to speak to renegotiate the deal, and months later the deal was sweetened is $650 million and then the court approved it. So certainly not a rubber stamp process and certainly there are situations where a court may force the parties back to the negotiating table to change, sweeten, revise the deal to the extent the court may feel it’s unfair.
Another area of concern is not the plaintiffs’ lawyer or the named plaintiff, but class members who may register an objection, and there is a process in Rule 23 for the court to undertake and hear and rule upon objections to class action settlements. How does that work in this space?
Nick: So objections are very common in the class action settlement sphere and on certain occasions objections can even be successful in overturning the settlement or getting it vacated on appeal. One really interesting example from the last year was Saucillo, et al. v. Peck. In that case plaintiffs brought a class action and representative claim under PAGA based on different alleged violations of the California Labor Code. Several years of litigation passed and the parties reached a settlement. The district court overruled the objection of an objector who had filed a separate PAGA claim in a different case but was not a party to the underlying PAGA claim. In this decision Ninth Circuit opined that the objector had no right to appeal in the action to which he was not a party. However, with respect to the class action settlement at issue in the appeal, a different objector argued that in evaluating the proposed pre-certification settlement the district court erroneously applied a presumption of fairness. The district court considered that the parties engaged in an arm’s length, serious, informed, and non-conclusive negotiation, both counsels were experienced and knowledgeable, and therefore applied a presumption of fairness. However, the Ninth Circuit reasoned that in the pre-certification context the district court should have employed a higher standard of fairness and put in a more probing inquiry into what would normally be required under Rule 23(e). It remanded the case for further proceedings based on that language.
Jerry: Another area of concern are attorney’s fees, where the court in the final approval hearing has to adjudicate the petition for attorneys’ fees and award of costs filed by class counsel, and this is an area where there are both objections and where courts want to make sure that plaintiffs’ counsel are not getting rich off the backs of the class, and they tend to be very noteworthy rulings where a court will measure the lodestar and the amount of hours and fees that go into the class action settlement. In terms of the past 12 months were there are some notable rulings in this space that would bear upon ideas about how to negotiate settlements?
Nick: Attorneys’ fees awards and the requests that come with them are heavily scrutinized in the class action context, not only because of the money that’s at risk but because of the fairness that underlies the entire class action settlement process. This sort of calculation in the request for attorneys’ fees will often lead to very heavy-handed disputes especially when they come at the end of an already hard-fought class action with the settlement at risk. Nonetheless, you see a lot of class counsel attempting to recover for their time attributable and leading to disputes that, as you said, come quite often to these sorts of cases.
One of the most recent ones was found in the Fifth Circuit in Fessler, et al. v. Porcelana Corona De Max, S.A. This was a punitive class of consumers who sued for Porcelana, who was a toilet manufacturer, for providing or in manufacturing the detective toilet tanks. They settled the case in two parts, first entering into a partial settlement over certain models that Porcelana manufactured in a specific plant, the Benito Juarez plant, between 2007 and 2010. At this point the plaintiffs sought to certify the claims that were not settled and the district court denied the motion. The parties then subsequently reached a class-wide settlement agreement for the second portion and filed a motion for an awards of attorneys’ fees for the two classes. Porcelana then challenged the amount sought, arguing that the recovery by plaintiffs’ counsel should be limited to the hours spent on behalf of the successful class claims only. The district court granted that motion, finding it “practically impossible” to identify which hours should be removed from the attorneys’ fee award and be allocated to either one class claim or the other class claim. Instead, it simply reduced the lodestar amount that it was going to award to the attorneys. Upon appeal by Porcelana, the Fifth Circuit reversed the district court’s order on the fee award. It held that specifically when attorneys’ fees requested by class counsel is supported by time spent on both successful and unsuccessful claims, the district court “must address the ‘common core of facts’ and the ‘common legal theories’ sufficiently so that no fees are awarded on unsuccessful theories.” The Fifth Circuit therefore vacated the attorneys’ fee award and remanded the case back to the district court to “consider the amount of damages and non-monetary relief sought compared to what was actually received by the class.” So a case like this goes to show that even in an approved settlement the attorneys’ fees can be a point of dispute and that parties have to very seriously consider what could be attributed to successful class claims, what could be attributed to non-successful class claims, and how those sorts of splits could potentially lead to significant disputes in the class action settlement approval processes.
Jerry: Those are great insights from the Fifth Circuit. I know that a lot of people are sometimes unaware that actually in California in the Ninth Circuit, the benchmark and attorneys’ fees is 25% and in many areas of the country they’re 33% and there are some instances where courts have awarded 35% up to 40% or 42% percent, so location, location, location is everything when it comes to settlement approval, as well as awards of attorneys’ fees.
Well, thank you Nick for joining us on this week’s podcast, the Class Action Weekly Wire, and signing off for Nick and myself – Jerry Maatman here at Duane Morris. Have a great day.
