By Rebecca S. Bjork, Gerald L. Maatman, Jr., and Anna Sheridan
Duane Morris Takeaways: A Federal Judge in Kansas recently refused a request for reconsideration of summary judgment and a request for interlocutory appeal on the correct legal standard for hostile work environment claims post-Muldrow v. City of St. Louis, Mo. In EEOC v. Chipotle Services, LLC, Case No. 23-CV-2439 (D. Kan. Feb. 10, 2025) (linked here), Judge Kathryn H. Vratil of the U.S. District Court for the District of Kansas found that appellate review of the Muldrow standard used at summary judgment likely would not affect the case substantially, but rather lead to delay before the case would proceed in the same manner regardless of a decision by the Tenth Circuit. The opinion also rejected the employer’s motion for reconsideration to rehash arguments it should have made on summary judgment – in the Court’s view, an inappropriate use of a motion for reconsideration. This decision not only highlights the importance of timely arguments made at the appropriate stage of litigation, but also counsels employers to analyze and balance the potential outcomes of motions with the time and costs associated with non-dispositive or only partially dispositive motions.
Case Background
Areej Saifan, a Muslim woman, and former Chipotle crew member, alleged in a Charge of Discrimination that she experienced religious harassment from a co-worker during her employment. Saifan alleges that a co-worker repeatedly asked to see Saifan’s hair, which was covered by hijab, and on at least one occasion, the co-worker physically pulled on the hijab, partially uncovering Saifan’s hair. Saifan resigned the next day. After investigating the Charge, the EEOC filed suit on behalf of Ms. Saifan against Chipotle alleging that Chipotle (1) subjected Saifan to unlawful religious harassment, (2) constructively discharged her, and (3) retaliated against her for reporting religious harassment.
Chipotle filed a motion for summary judgment on all three of the EEOC’s Title VII claims but was unsuccessful on all counts.
On December 17, 2024, defendant filed two motions, asking the Court to (1) reconsider its order on defendant’s summary judgment motion, and (2) certify an interlocutory appeal.
The Court’s Ruling
Judge Vratil dismissed defendant’s motion for reconsideration as “simply a rehash of arguments that it made or could have made on summary judgment.” Slip Op. at 5. The Court rejected each of Defendant’s positions as an argument that “it [Defendant] could have raised in summary judgment briefing and chose not to.” Id. at 8. The Court found that Chipotle had not met its burden of showing an intervening change in the controlling law, availability of new evidence, or the need to correct clear error or prevent manifest injustice as is required by the local Kansas rules.
Judicial economy also took center stage in this ruling when the Court denied the motion to certify its Memorandum and Order for immediate appeal, finding that an interlocutory appeal would not materially advance the ultimate termination of the litigation. While the question of whether Muldrow changed the legal standard for hostile work environment is a controlling question of law, the Court determined that Chipotle failed to establish that the Tenth Circuit would likely dispose or affect the EEOC’s claims for trial. As such, an interlocutory appeal would only delay, rather than expedite or eliminate trial.
Implications For Employers
Employers often may want to fight a non-dispositive decision that feels unfair. However, this decision counsels employers to consider the implications of motions practice before proceeding if the requested outcome would not materially change the future of the case.
Duane Morris Takeaways: Data breaches are becoming increasingly common and detrimental to companies. The scale of data breach class actions continued its record growth in 2024, as companies faced copycat and follow-on lawsuits across multiple jurisdictions. To that end, the class action team at Duane Morris is pleased to present the second edition of the Data Breach Class Action Review – 2025. This new publication analyzes the key data breach related rulings and developments in 2024 and the significant legal decisions and trends impacting data breach litigation for 2025. We hope that companies and employers will benefit from this resource and assist them with their compliance with these evolving laws and standards.
Click here to download a copy of the Duane Morris Data BreachClass Action Review – 2025 eBook.
Stay tuned for more data breach class action analysis coming soon on our weekly podcast, the Class Action Weekly Wire.
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 ALM class action reporter Amanda Bronstad.
We’d like to extend our gratitude to our clients and colleagues who joined us in Philadelphia and those who tuned in from around the globe for the Duane Morris Class Action Review – 2025 book launch event.
In case you missed it – check back soon for a recording of the presentation featuring Duane Morris partners and editors of the Review, Jerry Maatman and Jennifer Riley, and ALM class action reporter Amanda Bronstad. Featured below are a few highlights from the event.
Gallery: 2025 Book Launch Event
Duane Morris Plaza in Philadelphia, PA.
The Duane Morris Class Action Review – 2025.
Duane Morris Chairman and Chief Executive Officer Matt Taylor kicks off the event with opening remarks.Guest panelist Amanda Bronstad summarizes key developments in class action litigation through the legal media lens.
Left to right: Amanda Bronstad, Jerry Maatman, and Jennifer Riley.
Duane Morris Takeaways:Register and join us at today’s Duane Morris Exclusive Event – our Book Launch for the Duane Morris Class Action Review – 2025! This event will be offered as an in-person panel discussion and a Zoom webinar.
The DMCAR e-book is an essential desk reference that can be viewed on any device and is fully searchable with selectable text. The 2025 Review analyzes 1,441 class action rulings from state and federal courts in 23 areas of law, providing a comprehensive review of the class action landscape. Details on the 10 key trends identified this year and a copy of the Executive Summary are featured on the DMCAR website here.
You are invited to join Duane Morris Partners Gerald L. Maatman, Jr. and Jennifer Riley for a panel discussion marking the release of the Duane Morris Class Action Review – 2025. Please register here to reserve your spot today! The event will be offered as an in-person discussion or join us live via Zoom webinar.
Featuring authors Gerald L. Maatman, Jr., Jennifer A. Riley and American Lawyer Media staff reporter Amanda Bronstad in a discussion of the key class action developments and decisions in 2024 and what companies can expect in 2025. We hope to see you there!
In-Person Event Location: Convene CityView Duane Morris Plaza | 13th Floor 30 South 17th Street, Philadelphia, PA 1910
Registration: 3:30 p.m. to 4:00 p.m. Eastern Book Launch and Discussion: 4:00 p.m. to 5:00 p.m. Eastern Cocktail Reception: 5:00 p.m. to 6:00 p.m. Eastern
Duane Morris Takeaways:Register today and join us Thursday, January 30, 2025, at a Duane Morris Exclusive Event – our Book Launch for the Duane Morris Class Action Review – 2025! This event will be offered as an in-person panel discussion and a Zoom webinar.
The DMCAR e-book is an essential desk reference that can be viewed on any device and is fully searchable with selectable text. The 2025 Review analyzes 1,441 class action rulings from state and federal courts in 23 areas of law, providing a comprehensive review of the class action landscape. Details on the 10 key trends identified this year and a copy of the Executive Summary are featured on the DMCAR website here.
You are invited to join Duane Morris Partners Gerald L. Maatman, Jr. and Jennifer Riley for a panel discussion marking the release of the Duane Morris Class Action Review – 2025. Please register here to reserve your spot today! The event will be offered as an in-person discussion or join us live via Zoom webinar.
Featuring authors Gerald L. Maatman, Jr., Jennifer A. Riley and American Lawyer Media staff reporter Amanda Bronstad in a discussion of the key class action developments and decisions in 2024 and what companies can expect in 2025. We hope to see you there!
In-Person Event Location: Convene CityView Duane Morris Plaza | 13th Floor 30 South 17th Street, Philadelphia, PA 1910
Registration: 3:30 p.m. to 4:00 p.m. Eastern Book Launch and Discussion: 4:00 p.m. to 5:00 p.m. Eastern Cocktail Reception: 5:00 p.m. to 6:00 p.m. Eastern
By Gerald L. Maatman, Jr., Gregory Tsonis, and Ryan T. Garippo
Duane Morris Takeaways: On January 15, 2025, in Carrera v. EMD Sales, Inc., No. 23-217, 2025 WL 96207 (S. Ct. Jan. 15, 2025), the U.S. Supreme Court unanimously reversed the U.S. Court of Appeals for the Fourth Circuit, holding that the burden of proof required to prove the applicability of exemptions to the Fair Labor Standards Act (the “FLSA”) is not the “clear and convincing evidence” standard applied in the Fourth Circuit. In so doing, the Supreme Court harmonized the law across the country and confirmed that such exemptions need only be proven by a preponderance of the evidence.
Background
E.M.D Sales, Inc. (“EMD”) is a company that distributes food products in the Washington D.C. area. It employs sales representatives who work with partner grocery stores to help manage EMD products. The sales representatives “spend most of their time outside of EMD’s main office servicing stores on their routes,” however, there was disagreement as to “whether [the] sales representatives’ primary duty is to make sales of EMD products.” Carrera v. EMD Sales, Inc., No. 17-CV-3066, 2021 WL 1060258, at *2 (D. Md. Mar. 19, 2021).
In 2017, several of these sales representatives sued EMD in federal court in Maryland, arguing that they were entitled to overtime pay under the FLSA. In response, EMD argued that the sales representatives were exempt from the FLSA’s requirements pursuant to the “outside salesman” exemption. 29 U.S.C. § 213(a)(1).
Following a bench trial on the issue, the district court held that the outside salesman exemption did not apply. In so doing, the district court relied on Fourth Circuit precedent holding that the employer has the burden of proving the applicability of any FLSA exemption by “clear and convincing evidence.” Carrera, 2021 WL 1060258, at *5. In federal courts outside of the Fourth Circuit, an employer is only required to prove these exemptions under a lower standard of proof called the preponderance-of-the-evidence standard, which is the typical standard in civil cases. Id. The district court held that the employer failed to meet the heightened burden of proof regarding the applicability of the exemption, and thus held that the EMD sales representatives were entitled to overtime pay.
On appeal, EMD argued that the heightened “clear and convincing evidence” standard, which had long been the applicable standard for federal courts within the Fourth Circuit, should be overturned so it conformed with the standard applied across the rest of the country. The Fourth Circuit declined to do so and explained that “the district court properly applied the law of this circuit in requiring the defendants to prove their entitlement to the outside sales exemption by clear and convincing evidence.” Carrera v. EMD Sales, Inc., 75 F.4th 345, 353 (4th Cir. 2023). EMD, thereafter, sought review from the U.S. Supreme Court, which granted certiorari to resolve the issue.
The Supreme Court’s Opinion
In a unanimous 9-0 opinion written by Justice Kavanaugh, the Supreme Court explained that the “Fourth Circuit stands alone in requiring employers to prove the applicability of Fair Labor Standards Act exemptions by clear and convincing evidence. Every other Court of Appeals to address the issue has held that the preponderance standard applies.” Carrera, 2025 WL 96207, at *3. In noting that the “preponderance of the evidence” standard is “the established default standard of proof in American civil litigation,” the Supreme Court explained that the default standard can only be abrogated by statute, constitutional requirement, or other uncommon situations where unusual coercive relief is sought (e.g., revocation of citizenship, etc.).
In analyzing whether any such circumstances existed, the Supreme Court first observed that the FLSA is silent on the applicable burden of proof, noting there is no language that suggests that Congress intended a heightened burden to apply. Second, because the FLSA does not implicate constitutional rights, the U.S. Constitution did not compel a different result. Third, because FLSA lawsuits are akin to other employment statutes that entitle certain employees to monetary relief, they are not unusually coercive.
Turning next to policy arguments in favor of a heightened standard, the Supreme Court noted that other important statutes, such as Title VII of the Civil Rights Act, apply a preponderance standard while seeking to achieve laudable policy goals, such as ending discrimination in the workplace. Id. at *4-5. Finding nothing particularly distinct about the FLSA, the Supreme Court ultimately rejected the policy arguments advanced by the sales representatives, explaining that “rather than choose sides in a policy debate, this Court must apply the statute as written and as informed by the longstanding default rule regarding the standard of proof.” Id. at *5.
As a result, the Supreme Court reversed the decision of the Fourth Circuit and held that an employer must prove the applicability of FLSA exemptions only by a preponderance of the evidence. The Supreme Court also remanded the case back to the district court for a determination as to whether EMD met the lower evidentiary burden.
Implications For Employers
The Supreme Court’s decision in Carrera is a welcome reprieve for employers sued in Maryland, Virginia, West Virginia, North Carolina, and South Carolina federal courts. These employers will no longer have to satisfy a heightened burden of proof that they would otherwise not have to satisfy if sued for the same claims in any other state. Accordingly, employers based in those states can rest a little easier knowing that the standard for proving FLSA exemptions if sued will be the default standard applied in other jurisdictions, and not the heightened “clear and convincing evidence” standard that has long applied.
Duane Morris Takeaway: As the ultimate referee of law, the U.S. Supreme Court traditionally has defined the playing field for class action litigation and, through its rulings, has impacted the class action landscape. The past year was no exception. Although the U.S. Supreme Court did not directly address the procedural mechanisms that govern class actions during its most recent term, it issued multiple decisions that are sure to influence the class action space.
The most momentous decision came in Loper Bright Enterprises v. Raimondo, et al., 144 S. Ct. 2244 (2024), wherein the Supreme Court overruled Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and undercut the authority of administrative agencies to engage in rulemaking. In doing so, the Supreme Court made clear that lower courts faced with class actions brought under the FLSA, ERISA, and TCPA, for example, must exercise their independent judgment in interpreting statutory provisions without deference to administrative agencies’ interpretations of those statutes.
The Supreme Court also issued a trio of mixed rulings regarding arbitration, including decisions that bear on the use of the Federal Arbitration Act to enforce arbitration agreements with class action waivers, and a number of miscellaneous rulings that likely will impact class actions in the areas of securities fraud, civil rights, preemption, and Title VII.
Watch partner Jerry Maatman discuss this trend in more detail in the video below:
Loper Bright Enterprises v. Raimondo, et al., 144 S. Ct. 2244 (2024)
The so-called Chevron doctrine, a fixture of administrative law for nearly four decades, emanates from the U.S. Supreme Court’s decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and essentially required courts to defer to an agency’s reasonable interpretation of ambiguous laws. The Chevron doctrine involves two steps: (i) first, a court should determine whether the statute in question is unambiguous and, if so, apply its plain meaning; and (ii) second, if the court finds the statute ambiguous, the court should defer to the agency’s interpretation so long as the interpretation is reasonable or permissible.
On June 28, 2024, the U.S. Supreme Court in Loper Bright Enterprises v. Raimondo, et al., 144 S. Ct. 2244 (2024), overturned the 40-year-old Chevron doctrine and held that, when Congress passes an ambiguous law, there is no implied delegation of power to an administrative agency to define its own authority or to say that the law means. The plaintiffs, two sets of commercial fishermen, challenged the authority of councils established under the National Marine Fisheries Service (NMFS) to promulgate a rule requiring Atlantic herring fishermen to cover costs of federally-mandated observers aboard their vessels under the Magnuson-Stevens Fishery Conservation and Management Act (MSA).
Two district courts granted summary judgment, concluding that, where a statute governing its authority falls within the Chevron doctrine, the NMFS is authorized to promulgate rules, and courts are required to defer to its interpretations of ambiguous statutes. Both the D.C. and the First Circuit courts affirmed. Id. at 2256-57. The U.S. Supreme Court granted certiorari regarding the question of Chevron’s continued validity. Id. at 2257.
The Supreme Court vacated the judgments of the courts below and remanded. The Supreme Court held that requiring judicial deference to agency interpretations violates the Administrative Procedure Act (APA), which expressly grants courts authority to review and decide issues of law. Id. at 2263. The Supreme Court explained that, unlike courts, “agencies have no special competence in resolving statutory ambiguities,” particularly when it comes to statutes governing agencies’ own power or authority. The Supreme Court concluded that “Chevron gravely erred.” Id. at 2266.
Loper Bright is poised to impact class actions of all types. In class action litigation, plaintiffs routinely invoke the Chevron doctrine as a powerful tool to pursue broad claims against corporate defendants based on administrative regulations that often exceed statutory requirements. Invoking this doctrine, plaintiffs argue that a court must defer to agency rulemaking whenever the agency’s interpretation supports the litigant’s claims or undermines the defenses of their opponents. For decades, for example, the U.S. Department of Labor (DOL) has enforced the FLSA and other wage and hour laws through extensive regulations and administrative guidance. Whereas the regulations enjoyed considerable deference under Chevron, their future is uncertain under Loper Bright as the decision now requires courts to exercise their independent judgment. Litigants already are feeling the effect of Loper Bright on the FLSA, as demonstrated by a recent decision by the Fifth Circuit invalidating an FLSA regulation regarding the tip credit.
In Restaurant Law Center, et al. v. United States Department of Labor, 2024 WL 4609380 (5th Cir. Aug. 23, 2024), the Fifth Circuit invoked Loper Bright to vacate the DOL’s so-called “80/20” rule. The FLSA defines a “tipped employee” as any employee “engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips,” 29 U.S.C. §207(t), and allows an employer to pay such persons a cash wage less than minimum wage. The DOL adopted a regulation establishing limits on the amount of time tipped employees may perform non-tipped work at the cash wage, the thought being that, if the worker spends too much time performing non-tipped activities, the worker is no longer “engaged in [the tipped] occupation.” Under the rule, if an employee spends (i) more than 20% of a workweek performing non-tipped activities or (ii) more than 30 continuous minutes per shift performing non-tipped duties, the employee does not qualify as “tipped,” and the employer may not pay the cash wage. The Fifth Circuit found the 80/20 rule inconsistent with the statutory text of the FLSA because it impermissibly “disaggregates the component tasks of a single occupation” and thus “applies the tip credit in a manner inconsistent with the FLSA’s text.” Id. at *8-9. Citing Loper Bright and noting the existence of the 80/20 standard since 1988, the Fifth Circuit nonetheless was “not persuaded that the 80/20 standard, however longstanding, can defeat the FLSA’s plain text.” Id. at *9.
The Supreme Court foreshadowed another casualty of Loper-Bright in its decision in Helix Energy Solutions Group, Inc. v. Hewitt, 598 U.S. 39 (2023), wherein it held that highly-compensated employees paid on a daily, hourly, or shift basis do not satisfy the FLSA’s salary basis test. In his dissent, Justice Kavanaugh noted that the Supreme Court’s holding depended on the FLSA regulations, and those “regulations themselves may be inconsistent with the Fair Labor Standards Act.” Id. at 67 (Kavanaugh, J., dissenting). Because the relevant FLSA statutory language regarding exemptions “focuses on whether the employee performs executive duties, not how much an employee is paid or how an employee is paid,” Justice Kavanaugh concluded that it was “questionable whether the Department’s regulations — which look not only at an employee’s duties but also at how much an employee is paid and how an employee is paid — will survive if and when the regulations are challenged as inconsistent with the Act.” Id. Justice Kavanaugh’s implicit invitation to issue such a challenge, coupled with the demise of Chevron, very well may bring more changes to longstanding regulations that fuel hundreds of class action lawsuits each year.
Loper Bright also may fuel challenges related to fiduciary investment strategies. In a rule published in 2022, the U.S. Department of Labor explicitly allowed ERISA fiduciaries to consider environmental, social, and governance factors in selecting investments. In Utah v. Su, 109 F.4th 313 (5th Cir. 2024), 26 states brought suit to challenge the DOL’s rule, and the Fifth Circuit remanded the suit to the U.S. District Court for the Northern District of Texas with instructions to consider the rule in light of Loper Bright. Thus, courts may open the door to class claims for breach of fiduciary duty by investment managers that prioritize environmental, social, and governance factors above profitability.
Defendants also are apt to use Loper Bright to challenge the FCC’s interpretations of the TCPA. With its strict requirements and statutory damages, the TCPA is a frequent source of class claims. In a recent class certification decision involving claims for violation of the TCPA, in Mantha, et al. v. QuoteWizard.com, LLC, 347 F.R.D. 376 (D. Mass. 2024), the district court refused under Loper Bright to defer to the FCC’s interpretation of “person” to mean “residential telephone subscriber.” It instead found that the term “person” in the TCPA’s private-right-of-action provision includes anyone whose number is listed on the national do-not-call registry regardless of who listed it. Id. 394 & n.17.
In sum, this new doctrine of administrative law is already affecting FLSA, ERISA, and TCPA class actions, and has the potential to reshape other laws that provide the bases for class claims and defenses.
In 2024, the U.S. Supreme Court issued three decisions regarding arbitration under the Federal Arbitration Act, each of which has the potential to put more authority back in the hands of courts. The Supreme Court decided: (1) that district courts lack discretion to dismiss and, rather, must stay lawsuits pending the completion of arbitration, Smith v. Spizzirri, 601 U.S. 472 (2024); (2) that workers need not work for companies in the transportation industry to qualify for the FAA’s transportation worker exemption, Bissonnette v. LePage Bakeries Park St., LLC, 601 U.S. 246 (2024); and (3) where parties have agreed to two contracts – one sending arbitrability disputes to arbitration, and the other sending arbitrability disputes to the courts – a court must decide which contract governs, Coinbase, Inc. v. Suski, 144 S. Ct. 1186 (2024).
In Smith v. Spizzirri, 601 U.S. 472 (2024), the Supreme Court issued a unanimous decision holding that, when a district court determines that a plaintiff’s claims are arbitrable, the district court does not have discretion to dismiss the lawsuit. In this case, delivery drivers brought wage and hour claims against their former employer regarding their alleged misclassification as independent contractors. Although plaintiffs agreed that their claims were subject to arbitration, they opposed dismissal of their lawsuit and asked the district court to stay the case pending arbitration. Although the district court and the Ninth Circuit found dismissal consistent with the FAA, the U.S. Supreme Court disagreed. Interpreting § 3 of the FAA, which states that the court “shall on application of one of the parties stay the trial of the action until [the] arbitration” has concluded, the Supreme Court held that this statutory language “creates an obligation impervious to judicial discretion.” Id. at 476. It also found that the structure and purpose of the FAA supports interpreting § 3 as mandating a stay rather than dismissal. Based on § 16, which allows for an automatic interlocutory appeal of an order denying a motion to compel arbitration but not for an order granting a motion to compel arbitration, the Supreme Court reasoned that Congress sought to avoid dismissal, which triggers the right to an immediate appeal, and instead intended to move arbitrable disputes out of courts and into arbitration as quickly and easily as possible. Id. at 5-6. Finally, the Supreme Court explained that stays are preferable because they allow federal courts to maintain jurisdiction to resolve disputes between the parties. Id.
In Bissonnette, et al. v. LePage Bakeries Park St., LLC, 601 U.S. 246 (2024), the Supreme Court issued another decision regarding the FAA’s transportation worker exemption. The Court again cautioned that the exemption does not apply in “limitless terms” and, instead, applies only where workers play “a direct and necessary role in the free flow of goods across borders.” Id. Section 1 of the FAA exempts from arbitration “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The third category commonly is called the “transportation worker” exemption. Although the U.S. Supreme Court issued two decisions in 2022 – Southwest Airlines Co. v. Saxon, et al., 596 U.S. 450 (2022), and Domino’s Pizza, LLC v. Carmona, et al., 143 S. Ct. 361 (2022) – construing the FAA’s transportation worker exemption narrowly, many courts failed to heed that direction. As a result, in April 2024, the U.S. Supreme Court again weighed in on the issue in Bissonnette, et al. v. LePage Bakeries Park Street, LLC, 61 U.S. 246 (2024).
The defendant in Bissonnette produced baked goods in 19 states and distributed its products across the country. The plaintiff franchisees contracted with the defendant to distribute the products in local markets. The plaintiffs filed a putative class action, and the defendant moved to compel arbitration on an individual basis. The district court granted the motion, the Second Circuit affirmed, and the U.S. Supreme Court granted further review. As in Saxon, the U.S. Supreme Court emphasized in Bissonnette that the test for application of the transportation worker exemption focuses on the work performed by the plaintiff and not the employer’s industry. Addressing the employer’s argument that such a test would make virtually all workers who load or unload goods, such as pet shop employees and grocery store clerks, exempt transportation workers, the Supreme Court disagreed. It opined that the exemption has “never” been interpreted to apply in “such limitless terms.” Id. at 256. The Supreme Court emphasized that, for the exemption to apply, the worker “must at least play a direct and necessary role in the free flow of goods across borders.” Id. The Supreme Court thus vacated the order compelling arbitration and remanded for further proceedings.
Finally, on May 23, 2024, the U.S. Supreme Court issued its decision in Coinbase, Inc. v. Suski, et al., 144 S. Ct. 1186 (2024), holding that, where parties have agreed to two contracts – one sending disputes regarding arbitrability to arbitration, and the other sending disputes regarding arbitrability to the courts – a court (and not an arbitrator) must decide which contract governs. In connection with the sweepstakes offered by Coinbase, a cryptocurrency exchange platform, users filed a class action complaint alleging that the sweepstakes violated various California consumer protection statutes. Citing an arbitration clause in the User Agreement, Coinbase moved to compel arbitration on an individual basis. The arbitration clause in the User Agreement included a delegation clause that allocated decisions concerning whether disputes were arbitrable to the arbitrator. The users argued that the court, and not an arbitrator, should decide the arbitrability issue and, in support, cited a second contract – the Official Rules – they entered in connection with the sweepstakes. In contrast to the earlier executed User Agreement, the Official Rules contained a forum selection clause that required parties to decide all disputes related to the sweepstakes in California courts. The users argued that the Official Rules superseded the User Agreement and its arbitration and class action waiver provision. The district court denied Coinbase’s motion to compel arbitration, and the Ninth Circuit affirmed.
The U.S. Supreme Court granted review to answer the question of who – a judge or an arbitrator – should decide whether a subsequent contract supersedes an earlier arbitration agreement that contains a delegation clause. The Supreme Court held that, where parties have agreed to two contracts – one sending arbitrability disputes to arbitration, and the other sending arbitrability disputes to the courts – a court must decide which contract governs. By contrast, in cases where only one contract is at issue, and that contract contains an arbitration clause with a delegation provision, courts must send all arbitrability disputes to arbitration, absent a successful challenge to the delegation clause. Thus, it was correct for the district court and the Ninth Circuit to have determined which contract governed the claims concerning the sweepstakes. Although Coinbase sought to challenge the Ninth Circuit’s determination that the Official Rules superseded the User Agreement, the Supreme Court declined to consider that issue.
In 2024, the U.S. Supreme Court issued a number of additional rulings that have the potential to impact class actions, particularly in the areas of securities fraud, civil rights, and Title VII, and with respect to issues such as preemption and bankruptcy plan releases.
Securities fraud. The Supreme Court clarified the standard for claims brought under the Exchange Act alleging pure omissions of fact in Macquarie Infrastructure Corp., v. Moab Partners, L.P., 144 S. Ct. 885 (2024). Under the Securities Act, a pure omission of fact is expressly prohibited if it makes a statement in the offering documents misleading. The Supreme Court held that pure omissions do not impose liability under the Exchange Act. The decision also resolved a split among the courts of appeal concerning a private right of action arising from an Item 303 statement issued pursuant to SEC Regulation S-K. The Supreme Court ruled that, half-truths, in which a defendant discloses some but not all material facts that render the statement misleading, can create liability for an Item 303 statement. However, pure omissions in an Item 303 statement do not create a private right of action.
Civil rights. The U.S. Supreme Court issued an important civil rights ruling in City Of Grant Pass, Oregon v. Johnson, 144 S. Ct. 2202 (2024). The plaintiffs, two individuals experiencing homelessness, filed a class action alleging that a city’s enforcement of ordinances banning camping on public property was unconstitutional under the Eighth Amendment. The Supreme Court determined that enforcing general public-camping laws does not violate the Eighth Amendment’s cruel and unusual punishments clause, opining that this clause focuses on the nature of punishments, not the criminalization of certain behaviors. The Supreme Court also rejected arguments that the enforcement of these laws against individuals who are involuntarily homeless should be considered cruel and unusual and concluded that issues like homelessness and how to address them involve complex policy decisions best left to elected representatives, not federal courts.
Preemption. In Cantero, et al. v. Bank Of America, N.A., 144 S. Ct. 1290 (2024), an alleged class of home buyers argued that the defendant failed to comply with New York law requiring national banks to pay interest on escrow accounts. The defendant argued that federal law preempted the New York law. The district court ruled in favor of the plaintiffs, and the Second Circuit reversed. The Supreme Court then vacated and remanded the Second Circuit’s ruling. According to the Supreme Court, the Second Circuit applied “a categorical test that would preempt virtually all state laws that regulate national banks, at least other than generally applicable state laws such as contract or property laws.” Id. at 1301. The Supreme Court remanded and instructed the Second Circuit to “make a practical assessment of the nature and degree of the interference caused by a state law” by comparing the state law’s level of prevention or interference with national bank borrowers in this case with that found in other banking cases.
Title VII. In Muldrow v. City Of St. Louis, Missouri, 601 U.S. 346 (2024), the Supreme Court held that an employee challenging a job transfer under Title VII must show that the transfer brought about some harm with respect to an identifiable term or condition of employment, but the harm need not be significant. Numerous courts already have cited this opinion in denying motions to dismiss class claims under Title VII, illustrating its immediate impact. See, e.g., Wilder v. Honeywell Fed. Mfg. & Techs., LLC, 2024 WL 4567290, at *6 (W.D. Mo. Oct. 24, 2024) (denying motion to dismiss employment class action in light of Muldrow); Doe v. Bozzuto Mgmt. Co., 2024 WL 3104550, at *6 (D.D.C. June 24, 2024) (same); Tribue v. Maryland, 2024 WL 4202444, at *10 (D. Md. Sept. 13, 2024) (same).
Bankruptcy plan releases. The case of Harrington, United States Trustee, Region 2 v. Purdue Pharma L.P., 144 S. Ct. 2071 (2024), involved a challenge to Purdue’s Chapter 11 bankruptcy plan and the broad release of liability for various parties, including the Sackler family, which owned the company. In 2019, Purdue Pharma filed for Chapter 11 bankruptcy protection as part of an effort to address the thousands of lawsuits filed against it by state and local governments, municipalities, and individuals, related to the opioid epidemic. Plaintiffs claimed that Purdue’s aggressive marketing and distribution of OxyContin contributed to widespread opioid addiction and overdose deaths. As part of its bankruptcy proceedings, Purdue proposed a reorganization plan that involved restructuring the company and creating a public-benefit trust to handle its assets and liabilities. Purdue’s proposed bankruptcy plan, however, also provided a release of liability to the Sackler family, the owners of Purdue. The U.S. government challenged the release as unfair to a number of alleged victims who brought a class action lawsuit and wanted to preserve a chance to seek damages from the Sacklers. The Supreme Court ruled that the Bankruptcy Code does not authorize a release or injunction as part of a Chapter 11 reorganization plan that seeks to discharge claims against a non-debtor, such as the Sacklers, without the consent of the affected claimants.
These rulings generally make it easier for plaintiffs to bring and maintain class claims in court. As a result, corporations are apt to see their impact in the class action space in 2025 and beyond.
By Rebecca S. Bjork, Gerald L. Maatman, Jr., and Jennifer A. Riley
Duane Morris Takeaway: In a unanimous decision issued on January 15, 2025, the U.S. Supreme Court decided in Royal Canin U. S. A. v. Wullschleger, No. 23-677 (U.S. Jan. 15, 2025), that when a plaintiff files a civil suit under both state and federal law and subsequently amends the complaint to drop the federal law claims, the case must be remanded to state court due to lack of subject matter jurisdiction in the district court. This decision lends clarity to employers who have been navigating a circuit split on the question of whether federal district court subject matter jurisdiction is determined at the time of removal to federal court, or whether subsequent amendments abandoning federal claims destroys such jurisdiction. This issue arises over and over again in class action litigation.
Introduction
In a decision that will provoke readers’ memories (fondly or otherwise) of first year civil procedure class in law school, the U.S. Supreme Court ruled that a plaintiff’s deceptive marketing lawsuit originally stating both state and federal causes of action, that later dropped the federal claim in an amended complaint, must be remanded to state court. In a 9-0 decision, Justice Kagan explained that once the state law claims are stripped away, no federal subject matter jurisdiction exists and remand is required. Deciding a split amongst the circuit courts, the Supreme Court sided with the Eighth Circuit – and against the First, Third, Fourth, Sixth and Eleventh Circuits – in deciding that when a case is removed to federal court, an amended complaint dropping the federal claims destroys the district court’s jurisdiction.
This is obviously of interest for employers facing federal statutory class-wide claims involving issues such as wage and hour and discrimination, that also implicate overlapping state statutes.
The Ruling In Royal Canin U. S. A. v. Wullschleger
The U.S. Supreme Court issued its unanimous decision in Royal Canin U. S. A. v. Wullschleger, No. 23-677 (U.S. Jan. 15, 2025). In this case, the plaintiff purchased the defendant’s dog food that requires a prescription to obtain, believing that it contains medicine that off-the shelf dog food does not. Id. at 4. After learning that it does not, she filed suit in Missouri state court alleging violations of the state’s statute against deceptive marketing practices. Her complaint also included a claim under the federal Food, Drug and Cosmetic Act, 21 U.S.C. 301 (“FDCA”), that also forbids deceptive marketing practices.
Royal Canin, seeking perhaps to avoid being thrown to the dogs in a state court jury pool, decided to file a notice of removal of the plaintiff’s lawsuit to federal district court based on federal question jurisdiction (the plaintiff’s FDCA count). Id. at 4-5. In response, the plaintiff amended her complaint, dropping the FDCA claim, and only seeking relief under Missouri state law. Id. at 5. She then moved to remand to state court where she originally filed her complaint, but the district court denied her motion. Id. She ultimately appealed the dismissal of her amended complaint on the merits to the Eighth Circuit, and it reversed the district court’s decision to maintain jurisdiction of the matter and remanded it to state court. Id. Royal Canin sought certiorari to resolve the circuit split, and the Supreme Court obliged and affirmed the Eight Circuit’s ruling.
Basis Of The Supreme Court’s Opinion
In a very systematic and straightforward opinion of the Court, Justice Kagan explained why the limitations on federal court jurisdiction established by statute (e.g., 28 U.S.C. 1331 – cases “arising under” federal law) mandate SCOTUS’ unanimous conclusion. Long-established precedent holds that federal courts are courts of limited jurisdiction. Also, Congress has determined the scope of “supplemental jurisdiction,” where federal courts interpret and apply state law but only so long as they have concurrent federal jurisdiction to do so in the litigation. 28 U.S.C. 1367. And, the Supreme Court emphasized another statute that mandates that if at any time it appears that the federal court lacks subject matter jurisdiction, the case “must” be remanded to state court. 28 U.S.C. 1447(c). Id. at 3-4.
Applying these principles, the Supreme Court rejected Royal Canin’s argument that such limitations do not apply once a case has been removed to federal court and so-called “removal jurisdiction” exists. The Supreme Court explained, “Royal Canin argues that our precedent makes an exception for when an amendment [to a complaint] follows a lawsuit’s removal, but that is to read two bits of gratuitous language for a good deal more than they are worth.” Id. at 6. The Supreme Court continued that “Nothing in § 1367’s text . . . distinguishes between cases removed to federal court and cases originally filed there.” Id. at 8. And, unfortunately for Royal Canin, the Supreme Court has already held that in such a circumstance relating to original jurisdiction, the amended complaint is what determines jurisdiction, not the one at the time of removal. Id. As a result, the Supreme Court concluded that when the plaintiff “reconfigured her case to make it only about state law” her suit “became one for a state court.” Id. at 20.
Implications For Employers
As employers know, many class and collective action lawsuits are filed by plaintiffs that allege both state law and federal law claims. The classic example is a hybrid class and collective action under the Fair Labor Standards Act and a similar but often more onerous state statute governing how employees are paid. In our experience, many plaintiffs add their state law claims in order to extend the relevant statute of limitations period, for example, or sweep in certain state law substantive claims that are not available under a governing federal law.
Royal Canin U. S. A. v. Wullschleger will simplify litigation strategy decisions for employers with nationwide workforces. However, it remains to be seen how the plaintiffs’ bar will respond in terms of crafting both original and amended complaint strategies in the employment law space. We will be following developments closely and will provide our analysis and insights here.
Duane Morris Takeaway: The U.S. Supreme Court’s 2023 decision in Students for Fair Admissions, Inc. (SFFA), et al. v. President & Fellows of Harvard College, 600 U.S. 181 (2023), stimulated a flood of claims targeting diversity, equity, and inclusion (DEI) programs over the past year. Headlines were replete with cases of employees and applicants accusing employers of prioritizing diversity over merit and improperly using protected characteristics to guide decision-making, setting the stage for more class action activity in this area.
In SFFA, the U.S. Supreme Court held that two colleges and universities that considered race as a factor in their admissions processes violated the Equal Protection Clause of the U.S. Constitution and Title VI of the Civil Rights Act of 1964. Although the decision did not arise in the employment context, or involve Title VII, the Supreme Court’s decision striking down the use of racial preferences has caused an increase in class action lawsuits and other claims challenging (i) employers’ DEI programs, (ii) alleged misrepresentations about their DEI programs, and (iii) other environmental, social, and governance (ESG) initiatives.
Watch the video below with partner Jerry Maatman to hear more about this trend:
Since the U.S. Supreme Court struck down affirmative action in college admissions, plaintiffs have filed a flood of challenges to corporate DEI programs, claiming that they constitute impermissible “reverse discrimination” under Title VII. Headlines this past year were replete with cases of employees and applicants accusing employers of prioritizing diversity over merit and improperly using protected characteristics to guide decision-making. In 2024, courts issued a number of rulings in these cases, with mixed results, typically dependent on the nature of the allegations at issue in the lawsuit. In general, companies found more success in overcoming these challenges where their challenged DEI programs were focused more on colorblind issues like eliminating implicit bias and fostering inclusivity, and less success when focused on achieving numerical diversity quotas and other actions perceived as demonizing white males. See, e.g., De Piero v. Pennsylvania State University, 711 F. Supp. 3d 410 (E.D. Pa. 2024) (granting in part and denying in part employee’s reverse discrimination claims); Young v. Colorado Department Of Corrections, 94 F.4th 1242 (10th Cir. 2024) (affirming dismissal of employee’s reverse discrimination claim); Herrera v. New York City Department Of Education, 2024 WL 245960 (S.D.N.Y. Jan. 23, 2024) (denying defendants’ motion for summary judgment on employees’ reverse discrimination claims); Duvall v. Novant Health, Inc., 95 F.4th 778 (4th Cir. 2024) (affirming verdict for employee alleging reverse discrimination).
In October 2024, a rare class action trial in California in Palmer, et al. v. Cognizant Technology Solutions Corp., Case No. 17-CV-6848 (C.D. Cal.), led a jury to find a technology firm liable for engaging in a pattern or practice of discrimination against Caucasian and non-Indian employees in its termination and deployment decisions. The plaintiffs alleged the technology firm favored Indian and South Asian employees for whom it sponsored H-1B visas. The jury concluded, based on statistical evidence presented at trial, that the technology firm engaged in a pattern or practice of discrimination by terminating non-Indian and non-South Asian employees at a much higher rate than its other employees (8.4 times more likely).
In 2024, the U.S. Supreme Court granted certiorari in a reverse discrimination lawsuit, with a decision likely to be rendered in 2025 that will have implications for reverse discrimination lawsuits of all types, including class actions, moving forward. At issue in Ames, et al. v. Ohio Department of Youth Services, No. 23-1039 (U.S. cert granted Oct. 4, 2024), is whether, in addition to pleading the other elements of an employment discrimination claim under Title VII of the Civil Rights Act of 1964, a majority-group plaintiff must show “background circumstances to support the suspicion that the defendant is that unusual employer who discriminates against the majority.” The Supreme Court is poised to resolve a federal circuit split over this issue, potentially opening the courthouse to more such claims.
Although many companies’ DEI programs remain strong post-SFFA with an increased emphasis on inclusivity and ensuring compliance with anti-discrimination laws, other companies have begun stepping down their DEI commitments for a variety of reasons, including the fear of a backlash of reverse discrimination claims. Companies that step down their DEI commitments, however, should take care to ensure that their public-facing statements regarding those commitments remain true.
More generally, all companies should take care to ensure that they are not overstating or misrepresenting their policies and practices regarding DEI and other social issues. Such overstatements are known as “diversity washing” or “woke washing,” and are increasingly forming the basis of class action lawsuits alleging securities fraud or other misrepresentations.
In 2024, federal courts denied motions to dismiss in two diversity-washing class actions, for example, finding that plaintiffs plausibly stated claims for intentional misrepresentations. See Craig, et al. v. Target Corp., 2024 WL 4979234 (M.D. Fla. Dec. 4, 2024) (denying motion to dismiss securities fraud class action alleging misrepresentations regarding the risk of customer boycotts from ESG, DEI, and LGBT initiatives); SEB Inv. Management AB v. Wells Fargo & Co., 2024 WL 3579322 (N.D. Cal. July 29, 2024) (denying motion to dismiss securities fraud class action alleging false or misleading statements regarding corporation’s requirement that 50% of job interview candidates be diverse).
Companies’ statements regarding their DEI commitments have been voluntary to date. As a result, diversity-washing claims have applied only to statements companies have elected to make. However, many more public company statements about diversity may be forthcoming and subject to complaints filed by the plaintiffs’ class action bar, pending a challenge in the Fifth Circuit to SEC-approved Nasdaq rules requiring any of the over 3,000 companies listed with the Nasdaq with at least five board members to either have two board members from an underrepresented group or explain why not. The Fifth Circuit previously upheld these Nasdaq board diversity rules over a challenge under the First and Fourteenth Amendments to the U.S. Constitution, the Securities Exchange Act, and the Administrative Procedure Act. See Alliance For Fair Board Recruitment v. SEC, 85 F.4th 226 (5th Cir. 2023). In 2024, the Fifth Circuit vacated that opinion and reheard the case en banc, on May 14, 2024. If the Nasdaq board diversity rule is upheld, it will take full effect in December 2026.
The label “ESG” has become mainstream in the past few years. ESG refers broadly to “environmental, social, and governance,” which many companies have embraced as part of their business plans and corporate missions. Whereas diversity-washing class actions focus on the “S” in ESG, class actions also recently have proliferated relative to overstatements regarding environmental issues, thus highlighting the “E” in “ESG.”
These “greenwashing” class actions continued to proliferate in 2024. See Dorris, et al. v. Danone Waters of America, 2024 WL 4792048 (S.D.N.Y. Nov. 14, 2024) (dismissing greenwashing class action); Fanucchi v. Enviva Inc., 2024 WL 3302564 (D. Md. July 3, 2024) (dismissing greenwashing class action); Boyd, et al. v. Target Corp., 2024 WL 4287669 (D. Minn. Sept. 25, 2024) (denying motion to dismiss greenwashing class action).
As companies continue to add statements regarding their environmental impact or social responsibility to enhance their marketing efforts, communicate their company values, and/or attempt to appeal to consumers and shareholders attuned to ESG considerations, we expect to see ESG class actions continue their growth trajectory.
