Category: Discovery

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Kathryn Brown

Duane Morris Takeaways: In Stewart v. Epitec, Inc., No. 2:22-CV-12857 (E.D. Mich. Jan. 9, 2024), Judge Stephen J. Murphy of the U.S. District Court for the Eastern District of Michigan ordered the parties in an FLSA misclassification lawsuit to commence discovery under the Sixth Circuit’s standard for determining notice to potential plaintiffs announced in Clark v. A&L Homecare and Training Center, LLC, 68 F.4th 1003 (6th Cir. 2023).  As one of the first FLSA discovery rulings under the new Clark standard, the decision is required reading for companies defending wage & hour claims in courts within the Sixth Circuit.

Case Background

On November 23, 2022, the plaintiff in Stewart filed a Complaint against his former employer, Epitec, Inc., alleging willful violations of the FLSA on behalf of over 100 similarly situated individuals who worked as recruiters for the company. The plaintiff sought unpaid overtime wages for a three-year lookback period based on his key contentions that the company misclassified his position as a recruiter as exempt and that he regularly worked 45 to 50 hours per workweek, but was not paid for work beyond 40 hours in a workweek.

On April 18, 2023, the plaintiff filed a motion seeking conditional certification, expedited opt-in discovery, and notice to potential opt-in plaintiffs.  Before the company had the opportunity to oppose the motion, the Court stayed the case on April 25, 2023 in anticipation of the Sixth Circuit’s ruling in Clark.

On May 19, 2023, the Sixth Circuit published its decision in Clark, announcing a new test for facilitating notice under 29 U.S.C. § 216(b) of the FLSA.  In a watershed ruling, Clark instructs district courts to authorize notice to potential plaintiffs only after the named plaintiff demonstrates a “strong likelihood” that other similarly situated employees exist.  Under the prior test used in the Sixth Circuit, a plaintiff could obtain court-sanctioned notice to others by making only a “modest” factual showing that other employees are “similarly situated.”  Because notice to others who may join the lawsuit has the practical effect of increasing sharply the settlement pressure on the defendant, the new test shifts the leverage significantly in defendants’ favor in FLSA litigation.

In light of the Clark standard, the Judge in Stewart ordered the parties to submit a joint discovery plan.  In supplemental briefing filed in August 2023, the parties articulated their opposing views of the type and scope of discovery that should proceed under the Clark standard.

The Court’s Decision

The Judge in Stewart ordered discovery both on the issue of similarly-situated status and on the defendant’s need for information to test the merits of the named plaintiff’s claims. In so ordering, the Court emphasized that “balance is key” when it comes to the parties’ respective, and contemporaneous, needs for discovery in a post-Clark landscape.

On the issue of whether a “strong likelihood” exists that other similarly-situated employees exist, the Court ordered the plaintiff and the existing opt-in plaintiffs to produce communications among themselves regarding any of the matters at issue in the litigation, excluding any communications shielded by the attorney-client privilege or attorney work product doctrines.  As the Sixth Circuit instructed in Clark, whether the potential other plaintiffs are subject to individualized defenses is one of the factors district courts ought to consider in evaluating whether to sanction notice of the FLSA lawsuit. The Court agreed that the defendant was entitled to discovery of such communications because may be probative of individualized defenses that disfavor notification under Clark.

The Court rejected the plaintiff’s request for discovery of the list of putative collective action members The Court reasoned that the names and contact information of all recruiters within a three-year lookback period is precisely the type of information disclosure of which Clark cautioned is tantamount to “solicitation of claims” before the Court authorizes notice.

The Court ordered discovery for a three-year lookback period, consistent with the three-year statute of limitations for “willful” violations of the FLSA, over the defendant’s objection that the standard statute of limitations period of two years for FLSA claims should dictate the time frame of discovery.  The Court explained that the parties’ dispute over the existence of willful violations “exemplifies the need for broader discovery.”

The Court permitted the company to proceed with depositions of the named plaintiff and all existing opt-in plaintiffs but rejected the company’s request to depose potential opt-in plaintiffs.  The Court reasoned that depositions of individuals who had not yet filed consents to join the lawsuit were not necessary to determine similarly-situated status under Clark.  The Court left for another day the defendant’s request for leave to exceed the ten depositions permitted under the Federal Rules of Civil Procedure.

The Court resolved the parties’ dispute over the equitable tolling period in favor of the plaintiff’s request for a broad interpretation of tolling to preserve the ability of would-be plaintiffs to recover on their FLSA claims.  Noting that two of the three Sixth Circuit panel judges in Clark endorsed broad equitable tolling in FLSA collective actions, Judge Murphy tolled the limitations period from April 25, 2023 through the resolution of the plaintiff’s forthcoming motion for notice under Clark.

The Court ordered the parties to conduct discovery on the permitted topics within 90 days of the issuance of its January 9, 2024 order.  The Court set a date 120 days from the issuance of its order for the plaintiff to file a motion for notice to potential plaintiffs.

Implications For Employers

The Court’s ruling in Stewart is significant in that it is one of the first rulings to define the scope of pre-notification discovery under Clark.  The Court interpreted the Sixth Circuit’s ruling to give both sides in the litigation the right to discovery relevant to their respective positions on notice, and the right to do so simultaneously.  Likewise, the ruling is important in identifying topics, including contact information of putative class members, unnecessary to the notice determination under Clark and therefore, premature for discovery before notice is issued.  The opinion in Stewart has persuasive value to other district courts in Michigan, Ohio, Tennessee and Kentucky and may well influence the discovery landscape for litigants in the post-Clark world.

 

By Brandon Spurlock

Duane Morris Takeaways: Given the fast-growing use of generative AI tools such as ChatGPT, much has been written about the privacy issues surrounding these platforms.  Many employers have serious concerns about whether sensitive company data risks exposure vis-a-vis the use of chatbots and other artificial intelligence tools.  This potential harm was recently cited by parties seeking to protect the confidentiality of sensitive documents produced in federal litigation entitled M.A. v. United Behavioral Health, et al., Case No. 2:20-CV-000894 (D. Utah May 23, 2023). The Court’s decision to ultimately protect the confidentiality of the disputed documents is instructive for businesses that may need to seek similar protection during litigation.

Case Background

In M.A. v. United Behavioral Health, et al., Plaintiffs asserted causes of action against Defendants, a group of providers, for recovery of benefits under the Employee Retirement Income Security Act (“ERISA”) and violations of the Mental Health Parity and Addiction Equity Act (“MHPAEA”).  In response to requests for the production of documents, Defendants designated certain documents as confidential pursuant to the stipulated protective order entered in the case prior to production.  Id. at 2.  Some of the documents consisted of guidelines for subacute skilled care prepared by a third-party and licensed to Defendants.  Id.  Plaintiffs challenged the confidential designation and Defendants moved for a protective order.  Id. at 3.

Plaintiffs argued that the documents were subject to mandatory disclosure based on provisions of the ERISA and the MHPAEA, and that the mandatory disclosure provisions precluded Defendants from designating the documents confidential.  Id.  In conducting its analysis, the Court determined that Rule 26(c)(1)(G) governed Defendants’ motion, and the Court applied the three-factor test applicable to motions for a protective order, including: (1) the party seeking protection is required to show that the information sought is a trade secret or other confidential research or commercial information; (2) that such disclosure might be harmful; and (3) the harm from disclosure is outweighed by the need for access.  Id. at 3-4.  If the moving party can satisfy all three prongs, the burden then shifts to the party seeking disclosure that such disclosure is relevant and necessary.  Id. at 4.

The Court’s Ruling

Although Plaintiffs asserted that this balancing test was inapplicable because of the mandatory disclosure provisions contained in the ERISA and the MHPAEA, the Court disagreed. It opined that even if the statutes’ disclosure provisions applied, the question before the Court was not about disclosure (because the documents had already been produced), but whether Defendants were allowed to designate the documents confidential.  Id. at 5.  Defendants submitted multiple affidavits to demonstrate that the disputed documents contained commercially sensitive, proprietary, and confidential information.  Id. at 8.  Specifically, regarding the subacute care guidelines, to help illustrate the potential harm, the supporting affidavits established that the care guidelines were proprietary and copyrighted, and further asserted that not only would harm result if competitors could pirate or sell the guidelines if disclosed, but also the proprietary guidelines could be used to “develop artificial intelligence and machine learning models, all of which would allow would-be competitors to use [the] guidelines to develop a broader suite of derivative products and services.”  Id. at 10 (footnote 41).

The Court agreed with Defendants and entered a protective order for the disputed documents.

It held that the declarations were “sufficient to establish that unrestricted disclosure of the [documents] would result in commercial and economic injury to Defendants and non-parties.”  Id. at 10.  Having established the potential harm, the Court further found that Plaintiffs failed to carry their burden of showing that the unrestricted disclosure of the documents was necessary. Id. at 12.

Implications of The Decision

For businesses involved in large, complex class action litigation, the discovery process often involves the production of documents that contain commercially sensitive and proprietary information which merits confidential treatment during the course of the litigation.  This decision illustrates that when the opposing side challenges such confidential designations, the party seeking protection will need to demonstrate the potential harm that could result from disclosure.

With the availability and ubiquitous nature of generative AI tools, the potential harm is exacerbated given how AI can further exploit such disclosures.  Businesses should be mindful that the arguments that prevailed in this matter could help protect confidential information under similar circumstances.