Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jennifer Riley and Mike DeMarino and associate Aaron Bauer with their analysis of the Fair Credit Reporting Act class action litigation trends and developments in 2022 and what to expect in 2023. We hope you enjoy it.
By Gerald L. Maatman, Jr. and Jeffrey R. Zohn
Duane Morris Takeaways: More than 10 years after Plaintiffs filed suit in Carlson et al. v. Northrop Grumman Severance Plan et al., No. 22-1764, 2023 WL 3299703 (7th Cir. May 8, 2023), the Seventh Circuit put to rest the idea that a sponsor of an ERISA welfare-benefit plan is a fiduciary of the plan’s participants. Instead, per the ruling in Carlson, the sponsor is obligated to follow the terms of the plan as written. When the plan grants the sponsor discretion to determine who qualifies, the sponsor may exercise that discretion and may even change the way it exercises that discretion over time. If the plan does not grant the sponsor any such discretion, the sponsor must abide by the precise terms of the plan. The Seventh Circuit’s decision is well worth a read by corporate counsel, as it provides some bright-line tests for defense of class action claims brought under the ERISA.
Background And Context
Enacted in 1974, the Employee Retirement Income Security Act (“ERISA”) is the culmination of a long line of legislation concerned with the labor and tax aspects of employee benefit plans. In light of the often rapidly evolving retirement and health care needs of employees and their families, the ERISA has been subject to numerous amendments since its enactment nearly 50 years ago. Nonetheless, its primary aim has always been to protect the interests of participants and their beneficiaries in employee benefit plans.
The ERISA sets minimum standards for most voluntarily established retirement plans (such as 401(k) plans) and welfare benefit plans (such as medical benefits). These plans must also meet certain ERISA-based standards in order to qualify for favorable tax treatment.
Importantly, the ERISA explicitly empowers a participant of an employee benefit plan – including former employees in certain circumstances – to bring a civil action to recover benefits due or to clarify rights under the terms of the plan. More often than not, such litigation takes the form of a class action.
Case Background
On April 9, 2013, Plaintiffs filed a class action lawsuit against their former employer – Northrop Grumman (“Northrop”) – seeking payment of severance benefits Plaintiffs alleged Northrop owed them when they were laid off in 2012.
The plain language of Northrop’s Severance Plan (the “Plan”) grants the HR Department discretion to determine who qualifies for benefits under the Plan and may notify recipients of their benefits via an HR Memo. Plaintiffs and the other class members did not receive the HR Memo upon being laid off and, therefore, did not receive benefits under the Plan.
After class certification, the U.S. District Court for the Northern District of Illinois granted Northrop’s motion for summary judgment. It held that the Plan’s language gives the HR Department discretion to choose who, if anyone, gets severance pay on being laid off. Carlson et al. v. Northrop Grumman Severance Plan et al., No. 13-CV-02635, 2022 WL 971873 (N.D. Ill. Mar. 31, 2022). The district court further opined that the ERISA does not prevent an ERISA severance plan from possessing and exercising discretion to determine recipients. Plaintiffs appealed to the Seventh Circuit.
The Seventh Circuit’s Ruling
On May 8, 2023, the U.S. Court of Appeals for the Seventh Circuit affirmed the grant of summary judgment in favor of Northrop.
The Seventh Circuit explained that the terms of ERISA welfare-benefit plans always control. While plan administrators must act in a fiduciary capacity when exercising discretion, the entities that establish the plans do not have the same obligation. Instead, those entities are entitled to act in their own interests and need not provide participants any vesting interests.
“A person possessing discretion may change the way that discretion is exercised,” according to the Seventh Circuit. Id. at 2. As such, if a sponsor is granted discretion in determining who qualifies for plan benefits, it is not required to treat all participants equally, even if “deliberate past practice, [] mistaken past practice, and [] mistaken efforts to describe the benefits in writing” suggest otherwise. Id. at 3.
However, that is only true when the sponsor does possess such discretion. An ERISA sponsor still must apply a pension or welfare plan as written. The terms of the plan itself always control. No administrators or clerical employees can vary its terms.
In Carlson, the terms of the Plan granted Northrop’s HR Department the discretion to provide severance benefits to laid off employees, including Plaintiffs, by delivering them an HR Memo. Plaintiffs did not receive severance benefits or an HR Memo. The Seventh Circuit did not find any relevance in Plaintiffs’ position that, prior to October 2011, every laid-off employee who qualified for severance benefits received the HR Memo. Even if Plaintiffs’ position was factually accurate, which Northrop denied, the Seventh Circuit reasoned that Northrop was still entitled to change its approach and select which, if any, laid off employees would receive severance benefits.
The Seventh Circuit was also unpersuaded by Plaintiffs’ argument that Northrop interfered with Plaintiffs’ rights (a position which effectively argues that Northrop’s HR Department is a fiduciary of the Plan’s participants). The Seventh Circuit concluded that it is not. Instead, Northrop’s HR Department was properly exercising the discretion given to it under the plain terms of the Plan.
Implications For Employers
The Carlson decision indicates that courts will continue to honor the terms of an ERISA welfare-benefit plan based on the plain terms of the plan (and not based on past practices or even written plan summaries).
Nonetheless, Carlson is not an invitation for plan sponsors to blindly exercise discretion in determining qualification of ERISA welfare-benefit plans. Instead, it serves as a reminder that sponsors do not have unlimited authority in the execution of the plan. Sponsors must follow the terms of the plan as written. If the plan does not grant discretion in the execution of the plan, then no discretion may be exercised. If discretion is granted, then it must be exercised carefully and within the bounds of the grant.
Therefore, in deciding whether a plan applies to certain employees, employers should carefully review the terms of the plan rather than merely rely on past practices or plan summaries.
Duane Morris Takeaways: Since its inception in September of 2022, the Duane Morris Class Action Defense blog has now recorded its 100th post!!!!
Since our kick-off post, our data analytics show there have been over 20,000 views to blog posts, with thousands of our loyal subscribers reading about class action litigation developments. There are many highlights from the last 100 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, and tune in below for a special thank you announcement from the blog’s editor, Jerry Maatman.
Overview Of The Last 100 Posts
We launched the first 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 also published five 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-Initiated Litigation Review, the Privacy Class Action Review, the Wage & Hour Class And Collective Action Review, the Private Attorneys General Act Review, and the Consumer Fraud Class Action Review.
The blog also kicked-off the Class Action Weekly Wire Podcast, where experts in the field discuss trends and hot developments. Tune in every Friday for a new episode!
Click here to read our most viewed blog post entitled Massachusetts State
Court Rules In Class Action That A Multiple-Choice Promotional Test Discriminated Against Minority Police Officers. Over 2,000 people read this post!
Click here to watch our most viewed Class Action Weekly Wire Podcast, regarding ChatGPT and artificial intelligence and the impact on class action litigation.
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! See below for a special message from the blog’s editor, Jerry Maatman. And please keep coming back, we promise to keep the content fresh!
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Sharon L. Caffrey
Duane Morris Takeaways: Class action litigation in the consumer fraud area has exponentially increased over the past several years, leaving corporations extremely vulnerable. Additionally, most consumer fraud class actions come with the possibility of excessive payouts for corporations. To that end, the class action team at Duane Morris is pleased to present the inaugural edition of the Consumer Fraud Class Action Review – 2023. We hope it will demystify some of the complexities of consumer fraud litigation and keep corporate counsel updated on the ever-evolving nuances in this area of law. We hope this book, which manifests the experience and expertise of the Duane Morris class action defense group, will assist clients by identifying trends in the case law and offering practical approaches in handing consumer fraud class action litigation.
Click here to download a copy of the Duane Morris Consumer Fraud Class Action Review – 2023 ebook.
Tune in on Fridays to our weekly podcast The Class Action Weekly Wire for more class action analysis and discussion of important trends!
By Gerald L. Maatman, Jr. and Jennifer A. Riley
Duane Morris Takeaways: We were honored to present the keynote address today to open the 7th Annual Class Action Money & Ethics Conference in New York City sponsored by Beard Group, Citi Financial, Simpluris, and Pacer Monitor. With over 100 attendees, the program focused on the current state of class action litigation and “white hot” litigation topics for 2023. The discussion points provide an excellent roadmap on what is likely coming down the road for Corporate America for the remainder of 2023.
Class Action Dynamics
The themes of our keystone address focused on the extraordinary developments in class action litigation over the past 12 months.
The plaintiffs’ bar certified class actions at unprecedented levels throughout the country and monetized their cases with the highest settlement values seen in over 25 years. Many of these settlements arose from opioid litigation against manufactures, distributors, and retailers in the pharmaceutical industry. On an aggregate basis, class actions and government enforcement lawsuits garnered more than $71 billion in settlements, with 15 class action cases settling for more than $1 billion. Suffice to say, 2022 was unlike any other year on the class action settlement front. As success often begets copy-cats, corporations can expect the plaintiffs’ class action bar will be equally if not more aggressive in their case filings and settlement positions in 2023.
In 2022, the plaintiffs’ class action bar succeeded in certifying class actions at an exceedingly high rate. Across all major types of class actions, courts issued rulings on over 360 motions to grant or to deny class certification in 2022. Of these, plaintiffs succeed in obtaining or maintaining certification in 268 rulings, with an overall success rate of nearly 75%. The plaintiffs’ class action bar obtained the highest rates of success in securities fraud, ERISA, WARN, and FLSA actions. In cases alleging securities fraud, plaintiffs succeeded in obtaining orders certifying classes in 23 of the 24 rulings issues during 2022, a success rate of 96%. In ERISA litigation, plaintiffs succeeded in obtaining orders certifying class in 18 of 23 rulings issued during 2022, a success rate of 78%. In cases alleging WARN violations, plaintiffs managed to certify classes in 100% of the suits that resulted in decisions this year.
In terms of predictions, we opined that as the volume of class action filings has increased each year for the past decade, and 2023 is likely to follow that trend. As a result, a company’s programs designed to ensure compliance with existing laws and strategies to mitigate class action litigation risks are corporate imperatives. The plaintiffs’ bar is nothing if not innovative and resourceful. Given the massive class action settlement figures in 2022, coupled with the ever-developing case law under Rule 23, corporations can expect more lawsuits, expansive class theories, and an aggressive plaintiffs’ bar in 2023. These conditions necessitate planning, preparation, and decision-making to position corporations to withstand and defend class action exposures. These crucial issues are inevitably posed by any class action litigation. By their very nature, class actions involve decisions on strategy at every turn. The positions of the parties are constantly changing and corporate defendants must always be looking ahead and anticipating issues during every phase of the litigation.
Hot Class Action Topics
Among the topics addressed at the Conference were ESG class actions, PFAS “forever chemicals” litigation, Camp LeJeune mass tort litigation, Talc liability class actions, crypto class actions, and gender discrimination and pay equity class action litigation.
Litigating ESG Consumer Class Actions
Baldassare Vinti, Jeff Warshafsky, and Jennifer Yang of Proskauer Rose LLP led a discussion of class action litigation focusing on ESG environmental marketing claims, which they noted have been an increasing in number in the consumer class action space. These putative class actions challenge “green” claims that products or services are “carbon neutral,” “recyclable,” “non-toxic,” or otherwise beneficial for the environment.
PFAS “Forever Chemical” Class Actions
Michael J. Bisceglia, Brian M. Ledger, Paul T. Nyffeler, and Thomas R. Waskom of Hunton Andrews Kurth LLP presented on PFAS “forever chemical” litigation. Despite stringent regulation, PFAS has been linked to harmful health effects, including cancer. They predicted that after opioid litigation, many in the plaintiffs’ class action bar view this area as the next “big thing” for widespread mass tort and class actions.
Camp LeJeune Litigation & New Theories Of Liability
Mark A. DiCello of DiCello Levitt discussed the state of mass tort litigation with water contamination lawsuits filed against the U.S. Government alleging adverse health effects for affecting nearly 175,000 marines, sailors, their families and civilians at the camp between 1950 and 1985. Those cases were consolidated into MDL No. 2218 and the government successfully obtained dismissal of all of those cases in 2016. Plaintiffs’ lawyers have continued to litigate based on new theories of liability. The amount of advertising about the litigation is also continuing to mount (estimated at a cost of $500,000 to date), as more than 2,000 lawsuits are pending.
Talc Liability Class Actions
Gina Passarella, the editor in chief of American Lawyer, moderated a roundtable discussion with Melanie L. Cyganowski of Otterbourg P.C., Mohsin Meghji of M3 Partners, Robert J. Stark or Brown Rudnick, and Joshua A. Sussberg of Kirkland & Ellis regarding resolution of talc liability. The census of the roundtable was that this remains a hot topic in the class action and corporate restructuring communities, and that 2023 is expected to see various bankruptcy rulings in this sector.
After FTX, Crypto Lawyers And Class Actions
Michael P. Canty of Labaton Sucharow LLP and Graham Newman Chappell, Chappell & Newman provided their insights on crypto class action issues. They agreed that with the collapse of FTX, the crypto industry has endured more scrutiny. In this respect, decades-old laws are apt to provide fertile ground for assertion of class action theories.
Gender Based Discrimination & Pay Inequality
Matthew L. Berman of Valli Kane & Vagnini LLP and Rachel Geman of Lieff Cabraser Heimann & Bernstein LLP led a discussion on gender discrimination and pay equity class-based litigation.
With recent large equal pay cases, such as last year’s Google gender discrimination class action settlement of $118 million, and recent laws regarding pay equity and requiring pay transparency, a spotlight is shining on compensation in the workplace.
Mass Torts & Cases To Watch In 2023
Christopher Ege of Gordon Rees Scully Mansukhani, LLP, Mark Eveland of Verus LLC, Bridie Farrell of Milestone, Neil Kornswiet of Optium Captial LLC, and Edward E. Neiger of Ask LLP closed the Conference with a roundtable discussion of the state of mass tort litigation. They discussed several cases with some of the biggest brands making their way through court MDL proceedings, including Roundup, Tylenol Autism, and Elmiron. Based on key settlements from 2022, they predicted a robust litigation landscape for 2023.
Implications For Corporate America
If 2022 is any indication, 2023 is shaping up to be a signal year of developments in class action litigation.
By Gerald L. Maatman, Jr. and Shaina Wolfe
Duane Morris Takeaways: In Restaurant Law Center, et al. v. United States Department of Labor, et al., No. 22-50145 (Apr. 28, 2023), a decision of significant importance to all employers in general and the service and hospitality industry in particular, the U.S. Court of Appeals for the Fifth Circuit reversed a Texas federal district court’s order denying a preliminary injunction against enforcement of the new tip credit rule of the U.S. Department of Labor (“DOL”) and remanded for further proceedings. In Restaurant Law Center, the plaintiffs seek a nationwide preliminary injunction prohibiting enforcement of the DOL Final Rule regarding tip credit and dual jobs (the “Final Rule”). Importantly, the Final Rule reinstated the “80/20 Rule” by providing that employers can utilize the tip credit so long as 80 percent or more of the work is tip-generating, and not more than 20 percent is directly supporting work. However, the Final Rule also provides that employers cannot utilize the tip credit when an employee performs non-tipped work for more than 30 consecutive minutes. Plaintiffs claim that the DOL impermissibly created a new definition of “tipped occupation” that lacks support in the FLSA, and that enforcement of the Final Rule will impose substantial, ongoing costs on businesses. The district court had denied Plaintiff’s preliminary injunction solely because they failed to establish irreparable harm from complying with the Final Rule. The Fifth Circuit found that Plaintiffs submitted sufficient evidence that the Final Rule necessarily imposes a recordkeeping requirement and that employers who want to continue claiming the tip credit will “incur ongoing management costs” to ensure compliance. This decision is of signal importance as the Fifth Circuit’s decision indicates that the Final Rule may be on shaky ground.
Case Background
In late 2021, the DOL revived and revised the 80/20 Rule by providing that employers can utilize the tip credit only so long as 80 percent or more of the work is tip-producing, and not more than 20 percent is “directly supporting work.” See 29 C.F.R. § 531.56. Under the Final Rule, no tip credit can be taken for any non-tipped work. “Tip-producing work” is defined as work the employee performs directly providing services to customers for which the employee receives tips (i.e. taking orders and serving food). “Directly supporting work” is defined as work that is performed by a tipped employee in preparation of or to otherwise assist tip-producing customer service work (i.e., rolling silverware and setting tables). Non-tipped work includes preparing food or cleaning the kitchen, dining room, or bathrooms.
The Final Rule also includes a new requirement that an employer cannot utilize the tip credit when an employee performs more than 30 consecutive minutes performing “directly supporting work.” Directly supporting work done in intervals of less than 30 minutes scattered throughout the workday would not invalidate the tip credit, subject to the 80/20 Rule. However, employers must pay minimum wages for “directly supporting work” performed after the lapse of the first 30 continuous minutes.
In December 2021, Plaintiffs challenged the Final Rule in federal district court in Texas on the grounds, among other things, that it violated the Fair Labor Standards Act. Restaurant Law Center, No. 22-50145 at 3. Plaintiffs moved for a preliminary injunction and after holding an evidentiary hearing, the district court denied the preliminary injunction. Id. The district court did not reach the merits of Plaintiffs’ claims. Id. Rather, the district court assumed Plaintiffs were likely to succeed on the merits, but concluded they had failed to show they were irreparably harmed by the costs of complying with the new rule. Id. at 3-4. The district court noted that the compliance costs had already been incurred since the Final Rule was in place for more than one month, and any other costs were speculative at best. Id. at 4. Further, the district court found that the new Final Rule, which is similar to the 80/20 rule, does not require employers to monitor their employees’ time. Id.
The Fifth Circuit’s Ruling Reversing The Denial Of The Preliminary Injunction
The Fifth Circuit reversed the district court’s denial of the preliminary injunction and remanded the case for further proceedings with the expectation that the district court “will proceed expeditiously” to reconsider the preliminary injunction motion with the benefit of the Fifth Circuit’s ruling. Id. at 11.
In reversing the district court, the Fifth Circuit found that employers who want to continue claiming the tip credit will “incur ongoing management costs” to ensure employees do not spend more than 30 minutes continuously performing directly supporting work. Id. at 9. Significantly, the Fifth Circuit commented that compliance with the Final Rule requires employers to record their employees’ time. The Fifth Circuit explained that it “cannot fathom how an employer could honor these specific constraints without recording employee time. What if an employer is investigated by the Department or sued by an employee for wrongly claiming the tip credit? Without time records, how could an employer defend itself?” Id. at 7.
The Fifth Circuit also disagreed with the DOL’s assertion that “employers need not engage in ‘minute to minute’ tracking of an employee’s time in order to ensure that they qualify for the tip credit.” Id. The Fifth Circuit opined that “[n]o explanation is given (nor can we imagine one) why an employer would not have to track employee minutes to comply with a rule premised on the exact number of consecutive minutes an employee works” and that an employer will need to account for blocks of employee time, “especially if an employer is accused of violating the rule.” Id. (emphasis in original).
Circuit Judge Higginbotham dissented from the majority opinion. He explained that “the majority yields to the temptation to insert its own logic to fill the void,” insinuating that the majority substituted its own reasoning (and potentially desire for a particular outcome) for Plaintiffs’ lack of a “clear showing they were harmed.” Id. at 17.
The Texas district court now has two important rulings to make. First, according to the Fifth Circuit, it will need to analyze the other preliminary injunction factors and issue another ruling on the motion for preliminary injunction. Second, the district court will need to analyze and issue its opinion on the parties’ fully-briefed motion for summary judgment. It is likely that the district court will issue one ruling tackling both motions. Regardless of the outcome, this case will likely be heavily litigated in the Fifth Circuit.
Implications For The Service & Hospitality Industry
The Fifth Circuit’s decision indicates that a nationwide preliminary injunction preventing enforcement of the Final Rule may be on the horizon. The Fifth Circuit’s decision showcases the unreasonable and costly task of complying with the Final Rule. The service and hospitality industry should stay tuned for the Texas federal district court’s imminent rulings on Restaurant Law Center’s motion for preliminary injunction and motion for summary judgment.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jerry Maatman, Alex Karasik, and special counsel Brandon Spurlock with their analysis of significant trends and developments in artificial intelligence and Chat GPT and how it will impact class action litigation. We hope you enjoy it!
By Gerald L. Maatman, Jr., Jennifer A. Riley, Brandon Spurlock, and Shireen Wetmore
Duane Morris Takeaways: One law making California so different – and so challenging – for employers is the Private Attorneys General Act (“PAGA”), which authorizes employees to assert claims for alleged labor violations. Such a worker acts as “a private attorney general” to pursue civil penalties against an employer as if they were an arm of the State of its agencies. PAGA claims are not class actions per se – instead, they are known as “representative actions – but they pose analogous risks and exposures like class actions brought under the California Labor Code. Plaintiffs bring thousands of PAGA cases every year, and, because PAGA plaintiffs can bring suit on behalf themselves and other employees, the stakes are often significant, with companies exposed to risks similar to those arising from class action litigation. The PAGA, however, has its own specific rules of the road, which differ from the rules elucidated in familiar Rule 23 jurisprudence. The explosion of PAGA litigation has resulted in a complex body of case law that is often difficult to navigate, particularly in terms of the application of arbitration agreements and representative action waivers. Given the wide adoption of such arbitration agreements, companies are struggling to grasp how recent decisions regarding the PAGA and arbitration impact their businesses.
To that end, the class action team at Duane Morris is pleased to present the inaugural edition of the Private Attorneys General Act Review – 2023. We hope it will demystify some of the complexities of PAGA litigation and keep corporate counsel updated on the ever-evolving nuances of these issues. We hope this book – manifesting the collective experience and expertise of our class action defense group – will assist our clients by identifying developing trends in the case law and offering practical approaches in dealing with PAGA litigation.
Click here to download a copy Duane Morris Private Attorneys General Act Review – 2023 ebook.
Stay tuned for more PAGA class action analysis coming soon on our weekly podcast, the Class Action Weekly Wire.
