Category: General

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

Duane Morris Takeaways:  On April 10, 2024, the Ninth Circuit held in Fli-Lo Falcon, LLC v. Amazon.com, Case No. 22-35818 (9th Cir. Apr. 10, 2024), that business entities are not covered by the Federal Arbitration Act’s (“FAA”) transportation worker exemption.  The Ninth Circuit stated, “[w]hile a natural person such as an independent contractor may be a transportation worker, a non-natural person such as a business entity that employs or contracts with transportation workers, is not.”  Id. at 12.  The Ninth Circuit’s opinion is a must read for companies seeking to solidify their arbitration programs and manage their litigation risks. 

Case Background

The plaintiffs in Fli-Lo Falcon were delivery service partners (“DSPs”) that contracted with Amazon to deliver packages.  To join the DSP program, an individual needed to first create a business entity.  When plaintiffs filed a putative class action against Amazon, it sought to compel arbitration pursuant to an arbitration clause in the DSP agreements.  The district court compelled arbitration and dismissed the case, and the Ninth Circuit affirmed.

The Basis Of The Ninth Circuit’s Decision

A critical issue in the case was whether the FAA’s transportation worker exemption applied to the plaintiffs.  The Ninth Circuit held it did not because the transportation worker exemption “does not extend to business entities.”  Id. at 12.  The Ninth Circuit reasoned that the language of the exemption compelled this conclusion.  Section 1 of the FAA provides that it “shall not apply to contracts of employment of seamen, railroad employees, or any other class of worker engaged in interstate commerce.”  9 U.S.C. § 1.  Applying the statutory canon of construction ejusdem generis, which instructs that general words be construed to embrace only objects similar in nature to those objects specifically enumerated, the Ninth Circuit reasoned that the word “workers” in § 1 could not be construed to include a business entity, given the § 1’s  earlier reference to “seamen” and “railroad employees.”  Id. at 12.  Thus, the Ninth Circuit opined that “[w]hile a natural person such as an independent contractor may be a transportation worker, a non-natural person such as a business entity that employs or contracts with transportation workers, is not.”  Id.

Relatedly, the Ninth Circuit also held that “‘contracts of employment’ in the transportation worker exemption do not extend to commercial contracts.”  Id. at 14.  In reaching this conclusion, the Ninth Circuit cited the language of the transportation worker exemption, which exempts “contracts of employment of . . . any other class of workers.”  The Ninth Circuit emphasized that, “for a contract to be a contract of employment covered by § 1, it must have a qualifying worker as one of the parties.”  Id.

In a concurring opinion, Circuit Judge Holly Thomas disagreed that business entities can never be subject to the transportation worker exemption.  Plaintiffs’ expressed concern that “companies could then contract around the FAA’s exemption by forcing their transportation workers to create sham corporations, then contracting with those corporations rather than employing the workers directly” resonated with Judge Thomas.  Id. at 25.  However, Judge Thomas concurred in the result as to the plaintiffs because “Plaintiffs are not sham corporations, but bona fide business entities and their relationship is not an employment relationship, but a commercial one.”  Id.

Implications Of The Ruling

In spite of the concurring opinion of Circuit Judge Thomas, it is now the law in the Ninth Circuit that the transportation worker exemption does not apply to a business entity.  The opinion sets up a split of authority in the federal circuits, and it remains to be seen if a petition for writ of certiorari will be pursued with the U.S. Supreme Court.

By Gerald L. Maatman, Jr., Tyler Zmick, and Christian J. Palacios

Duane Morris Takeaways:  In Svoboda v. Amazon, Case No. 21-C-5336, 2024 U.S. Dist. LEXIS 58867 (N.D. Ill. Mar. 30, 2024), Judge Jorge L. Alonso of the U.S. District Court for the Northern District of Illinois granted class certification to a class of plaintiffs who alleged that Amazon’s “virtual try-on” (“VTO”) technology violated the Illinois Biometric Information Privacy Act (“BIPA”).  In doing so, Judge Alonso dealt Amazon a significant blow in its efforts to block the certification of a purported class of claimants that might number in the millions (with pre-certification discovery already establishing that there were over 160,000 persons who used Amazon’s VTO technology during the relevant class period). This decision is the most recent success by the plaintiffs’ bar in a string of victories for class action privacy lawsuits across Illinois and illustrates that even the largest and most sophisticated companies in the world face legal exposure in connection with their biometric retention and application practices. 

Background

Amazon sells products to consumers on its mobile website and shopping application. Its “virtual try-on” technology allows users to virtually try on makeup and eyewear, and is exclusively available on mobile devices. VTOs are software programs that use augmented reality to overlay makeup and eyewear products on an image or video of a face, which allows shoppers to see what the product might look like prior to deciding whether to purchase it. During the relevant class period, there were two VTOs at issue, one of which was developed by a third party (ModiFace), and another which was developed in-house by Amazon that later replaced ModiFace. Id. at 4. Amazon’s VTOs come in two forms, including: (1) VTO technology available for lip products, and; (2) VTOs available for glasses. The ModiFace VTO is available for lip liner, eye shadow, eye liner, and hair color. Amazon licenses, rather than owns ModiFace VTO. Id. at 5.

Both Amazon and ModiFace VTOs essentially works the same for every user. In order to access Amazon’s virtual try-on technology, the user first begins by clicking a “try on” button on an Amazon product page (the use of this try-on feature is entirely optional and does not serve as a barrier to the customer actually purchasing the product). The first time the customer uses Amazon VTO, she is shown a pop-up screen that states, “Amazon uses your camera to virtually place products such as sunglasses and lipstick on your face using Augmented Reality. All information remains on your device and is not otherwise stored, processed or shared by Amazon.”  Only after granting permission can the customer use the VTO technology to virtually try on the product. Users may select “live mode” or “photo upload mode” to superimpose the try-on product on an image of their own face. For both modes, the VTOs use software to detect users’ facial features and use that facial data in order to determine where to overlay the virtual products. Id. at 5.

Based on these facts, plaintiffs brought a class action lawsuit against Amazon, which alleged that the online retailer violated the BIPA’s requirements by collecting, capturing, storing or otherwise obtaining the facial geometry and associated personal identifying information of thousands (if not millions) of Illinois residents who used Amazon’s VTO applications from computers and other devices without first providing notice and the required information, obtaining informed written consent, or creating written publicly-available data retention and destruction guidelines. Id. Plaintiffs sought to certify a class of all individuals who used a virtual try-on feature on Amazon’s mobile website or app while in Illinois on or after September 7, 2016. Significantly, pre-certification discovery established that at least 163,738 people used virtual try-on technology on Amazon’s platforms while in Illinois during the class period. Id. at 6.

The Court’s Ruling

In ruling in favor of the plaintiffs, Judge Alonso systematically rejected each of Amazon’s arguments as to why plaintiffs failed to satisfy Rule 23’s requirements for class certification. Given the size of the purported class, Amazon did not attempt to contest the numerosity requirement. With respect to the adequacy requirement, Amazon argued that the named plaintiffs were inadequate and atypical because they alleged they used VTO for lipstick, and not eyewear or eye makeup (while the majority of the proposed class was comprised of individuals who used VTO for eyewear). Amazon further argued that the named plaintiffs had a conflicting interest with the class members who used VTO for eyewear, because the BIPA’s healthcare exception bars claims arising from the virtual try-on of eyewear. Id. at 12.  The Court rejected this argument. It found that there was no evidence that the named plaintiffs’ interests were antagonistic, or directly conflicted with those members who used VTO to try on eyewear, and Amazon’s concern that plaintiffs lacked an incentive to vigorously contest the healthcare exception defense was merely speculative. Id. The Court was also satisfied that the plaintiffs’ claims arose from the same course of conduct that gave rise to other class members’ claims (such as Amazon’s purported collection, capture, possession, and use of facial templates via its VTOs) and thus the typicality requirement was satisfied. Id. at 15.

Similarly, the Court reasoned that common questions of law or fact predominated over any questions affecting individual members, and a class action was superior to other available methods for fairly and efficiently adjudicating the controversy.  Id. at 17. Amazon asserted that there was no reliable way to identify class members who used VTO in Illinois during the class period, and thus, individualized inquiries predominated rendering the case unmanageable. Id. at 21. The Court rejected this argument. It agreed with the plaintiffs that Illinois billing addresses, IP addresses from which VTO was used, and geo-location data all served as a way of identifying class members. Amazon raised other arguments about the difficulty of identifying potential class members, but Judge Alonzo rejected all of these arguments, observing that plaintiffs did not need to identify every member of the class at the certification stage.  Id. at 23.

Finally, the Court dispatched with Amazon’s various affirmative defenses. In particular, Amazon argued that it had unique defenses for every member of the putative class, since damages were discretionary under the BIPA. The Court disagreed. It noted that the Illinois Supreme Court had determined that a trial court could fashion a damages award in a BIPA lawsuit that fairly compensated class members while deterring future violations, without destroying a defendant’s business. Id. at 25.

Implications for Employers

Employers should be well aware of the dangers associated with collecting or retaining individuals’ biometric information without BIPA-compliant policies in place. This case serves as a reminder that the larger the company, the larger the potential class size of a class or collective action. Although it remains to be seen the actual size of Svoboda v. Amazon, the class will likely number in the hundreds of thousands and this case should serve as a wake-up call for companies, regardless of scale, of the dangers of running afoul of the Prairie State’s privacy laws.

Duane Morris Takeaways: It has been a busy time for the Duane Morris Class Action Defense blog – it just recorded its 300th blog post!!!

Since our kick-off post, our data analytics show there have been over 50,000 views to blog posts, with thousands of our loyal subscribers reading about class action litigation developments. There are many highlights from the past 300 posts, but we wanted to provide just a few for you here. Click on the links below to see all the hot trends in class action litigation!

Overview Of The 300 Posts

We launched the second edition of the Duane Morris Class Action Review, which is a one-of-its-kind publication analyzing class action trends, decisions, and settlements in all areas impacting Corporate America. The Review has been prominently featured in the media and is a must-have for all human resources professionals, business leaders, and corporate counsel.

We will be publishing the 2025 Edition of the Review next January.

So far in 2024, we have published seven mini-books focused on specialized areas of law in class action litigation and on EEOC-Initiated litigation. Here are the links to our blog posts announcing the EEOC Litigation Review, the Data Breach Class Action Review, the Privacy Class Action Review, the Wage & Hour Class And Collective Action Review, the Discrimination Class Action Review, the Private Attorneys General Act Review, and the Consumer Fraud Class Action Review.

We also continued the success of the Duane Morris Class Action Weekly Wire podcast, in which we talk about hot class action rulings and developments in real time and in relatable ways for our viewers. Tune in on Wednesdays for new episodes, 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.

Below are the top five most viewed blog posts – which had over 25,000 combined views!

1. Massachusetts State Court Rules In Class Action That A Multiple-Choice Promotional Test Discriminated Against Minority Police Officers
2. The 2023-2024 Judicial Hellholes Report From The American Tort Reform Association On The Worst Jurisdictions For Defendants
3. Revised Illinois Day and Temporary Labor Services Act: Implications For Staffing Agencies And Their Customers
4. Colorado Supreme Court Applies Litigation Privilege To Attorney’s Allegedly Defamatory Statements About Class Action Defendant
5. It Is Here – The Duane Morris Class Action Review- 2024

Thank you loyal followers for making the Class Action Defense blog your pick for class action litigation related information, trends, and analysis. We truly appreciate it! Please keep coming back, we promise to keep the content fresh!

By Jennifer A. Riley

I was honored to speak today at the 6th Annual Class Action Law Forum at the University of San Diego School of Law.

With hundreds of attendees, the conference focused on the current state of class action litigation and “white hot” litigation topics for 2024. The discussion points provide an excellent roadmap for practitioners and corporate counsel alike on the types of cases and legal issues that Corporate America is likely to encounter over the remainder of 2024.

The Impact of Artificial Intelligence

The theme of my address involved the extraordinary impact of AI on the class action space over the past year.  Aside from improving the efficiency with which the plaintiffs’ class action bar may be able to file and litigate claims, generative AI is providing an ocean of raw material for potential class claims.

Over the past year, we saw AI promptly become a popular subject of class actions in multiple areas.  I touched on three in particular.

AI-Assisted Decision-Making

The first area targets companies that use AI to enhance or streamline their decision-making processes.  Plaintiffs have filed suits against insurers, for instance, that use algorithms to adjudicate claims as well as against agencies that use programs to evaluate governmental benefits.

This type of claim frequently arises in the employment context as companies use algorithms to streamline and enhance their candidate screening and selection procedures and to inform their promotion, transfer, and evaluation decisions.

In May 2023, the EEOC issued a technical assistance document entitled “Assessing Adverse Impact in Software, Algorithms, and Artificial Intelligence Used in Employment Selection Procedures Under Title VII,” which purports to provide employers guidance on preventing discrimination when using AI.  The EEOC provided various examples in terms of how employers are using AI, including resume scanners that prioritize resumes that use certain key words, employee monitoring software that rates employees on the basis of key strokes, virtual assistants or chatbots that ask job applicants about their qualifications, and video interviewing software that evaluates candidates based on their speech patterns and facial expressions.

Unsurprisingly, we have started to see lawsuits attacking use of these types of tools.  In Mobley v. Workday, filed in the Northern District of California, for instance, a plaintiff, an African American male over the age of 40 who claimed that he suffered from anxiety and depression brought suit against Workday claiming that its applicant screening tools discriminated against applicants on the basis of race, age, and disability.  The plaintiff claimed that he applied for 80 to 100 jobs, and despite holding a bachelor’s degree in finance, among other qualifications, did not get a single job offer.

Workday, of course, is a software vendor.  The district court granted the defendant’s motion to dismiss on the ground that plaintiff failed to plead sufficient facts regarding Workday’s supposed liability as an employer or “employment agency.”  In other words, the plaintiff failed to allege that Workday was “procuring” employees for its customers and merely claimed that he applied for jobs with a number of companies that all happened to use Workday.  On February 20, 2024, the plaintiff filed an amended complaint alleging that Workday was an agent of the employers that delegated authority to Workday to make hiring process decisions or, alternatively, that Workday was an indirect employer.

This is a prime example of a case to watch as we head through 2024 where plaintiffs are seeking to hold a software vendor liable for the use of its product by others.

Privacy Class Actions Targeting AI

The second area I touched on relates to privacy class actions.  Companies that develop AI products have faced a slew of class action lawsuits alleging privacy violations.  The allegation essentially has been that, by collecting publicly-available data to develop and train their software, developers of AI products stole private and personal information from millions of individuals.

In cases like PM v. OpenAI, as an example, groups of plaintiffs filed class action lawsuits against OpenAI and Microsoft alleging that, by collecting information from the internet to develop and train AI tools like ChatGPT, they stole private information from millions of people.  Other lawsuits have been filed against companies like Open AI as well as Google alleging similar claims, including a recent example, AS v. Open AI, filed in the Northern District of California on February 27, 2024.

Copyright Class Actions Targeting AI

Third, in addition to privacy class actions, technology companies have been hit with a surge of recent lawsuits over the alleged “scraping” of copyrighted materials and personal data from across the internet to train their generative AI systems.

On February 28, 2024, for instance, Intercept Media filed suit in the Southern District of New York against Open AI and Microsoft.  It alleged that, at least some of the time, ChatGPT provides responses to its users that regurgitate verbatim – or nearly verbatim – copyright protected works of journalism without providing (and even allegedly intentionally excluding) the author, title, copyright, or terms of use information contained in those works.

In terms of other examples, at the end of last year, the New York Times filed a similar lawsuit alleging copyright infringement in both the input and output of Open AI models.  The Authors Guild of America filed a class action suit in September 2023 against MicroSoft and Open AI on behalf of tens of thousands of authors alleging willful violations of copyright laws.  In the suit, they allege that the two companies reproduced and appropriated the copyrighted work of tens of thousands of authors to train their AI models.  In Andersen v. Stability AI, a group of artists claimed that Stability AI created a software program that downloaded billions of copyrighted images to train and to act as a software library for a variety of visual generative AI platforms.  They claimed that, having been trained on their works, the software could generate output in their own artistic styles.

Many of these class actions are just getting off the ground.  As the results at the motion to dismiss stage continue to be mixed, it suggests that a model for successfully pleading and prosecuting these types of class actions is still a work in progress.

As courts start to weave their patchwork quilt of rulings, I expect we are seeing the tip of the iceberg in the types and numbers of filings we are likely to see on the generative AI class action front.

Other Hot Topics

The conference speakers covered myriad other timely and hot issues in the class action space, including the state of the current law on concepts such as ascertainability, standing, class-wide injury, and manageability at the class certification stage.   A recurrent issue was standing and class-wide injury.  Even if a court can “generally” determine class-wide injury at the certification and trial phases, how can it manageably resolve individualized questions at the damages phase?

The panelists likewise covered practical aspects of class-wide trials and mass arbitration, including best practices in preparing for and presenting cases for trial including use of video evidence such as video-taped depositions, use of demonstrative evidence at trial, and use of pre-trial focus groups to test and develop key themes and tell a story that resonates with the jury.

In sum, 2024, is shaping up to be a transformative year on the class action litigation front.

Thank you to all our clients who attended the in-person book launch of the Duane Morris Class Action Review in Philadelphia last week, as well as our nationwide audience who participated via Zoom.

In case you missed it, watch a video of the live presentation below, featuring Duane Morris partners and editors of the Review, Jerry Maatman and Jennifer Riley, with Equal Employment Opportunity Commissioner Keith Sonderling.

Please also view pictures from the in person Book Launch event below. We would love to see you at the event in 2025!